Virginia Chapter, APANorfolk, Va.July 21, 2015

Planning for Natural Resource Extraction Without Getting Sued

Presentation Overview

• Focus on hydraulic fracturing• Federal, State, Local Regulation• Local impacts• Options for Local Governments• Bans v. Zoning• Recent case law

Federal, State and Local Regulation

•Federal Government- hydraulic fracturing exempt from Safe Drinking Water Act, but EPA currently conducting a study- perhaps future federal regulation?

•States regulate oil and gas industry

•Local governments- preempted or is there room for land use regulation? (over 400 local governments have enacted bans or restrictions on hydraulic fracturing, half of these are in New York)

Federal, State and Local Regulation

•Federal Government- hydraulic fracturing exempt from Safe Drinking Water Act, but EPA currently conducting a study- perhaps future federal regulation?

•States regulate oil and gas industry

•Local governments- preempted or is there room for land use regulation? (over 400 local governments have enacted bans or restrictions on hydraulic fracturing, half of these are in New York)

State Regulation

• Prevention of waste• Protection of correlative rights• On-site drilling• Oversight of the chemicals used• Production process• Conservation of oil and gas natural resources• Safety• On-site contamination

Local Impacts

• Noise• Light and other visual impacts• Road damage• Blasting• Dust• Traffic• Impact on property values• Adequate off-site infrastructure• Affordable housing• Odors• General health, safety and welfare

Tools Available to Local Governments

Zoning

• Setbacks• Impact fees

• Adequate public facilities ordinances

Zoning

• “Regulation by the [local government] of the use of land within the community, and of the buildings and structures which may be located thereon, in accordance with a general plan and for the purposes set forth in the enabling statute”• Setbacks, traffic controls, erosion and sediment controls, and bonding requirements generally fall within the scope of “zoning.”• Ordinances that regulate livestock confinement facilities to minimize odors and flies by requiring that parts of the facility be covered constitute “zoning” Enterprise Partners v. County of Perkins, 619 N.W. 2d 464 (Neb. 2000).• Industrial use standard requiring no dust to be permitted to escape beyond limits of property being used is a “zoning ordinance” DeCaols.. Inc. v. Board of Zoning Appeals of City of Westover, 168 W.Va. 339 (1981).

Bans v. Zoning

• Zoning seeks to separate, not exclude, incompatible uses• Exclusion of lawful uses raises policy questions and a legal question as to the validity of the ordinance• Burden on the local government to show that a ban promotes the general welfare• Burden on complaining party to show that the ordinance, although purporting to allow the use, as a practical matter prohibits the use• Bans appear to conflict with state goals that seek to prevent waste and protect correlative rights• De facto bans (Santa Fe County, New Mexico; Morgantown, West Virginia?)

Morrison v. Beck Energy Corp.Slip Opinion No. 2015-OHIO-485 (Sup. Ct. Ohio, Feb. 17, 2015)

• Ohio R.C. Chapter 1509 gives the state government "sole and exclusive authority" to regulate the permitting, location, and spacing of oil and gas wells and production operations

• Ohio R.C. 1509.02 preserves local authority in two categories: control of public highways, streets, avenues, alleys, sidewalks, public grounds, bridges, aqueducts, and viaducts; and the power to grant permits to operate certain heavy vehicles on highways within the locality

• Beck obtained a state permit that contained 67 different conditions that related to, among other things, the designation of the site as a municipal wellhead protection area and "urbanized areas" protections, like noise mitigation and parking

• The "urbanized areas" conditions appear to be very much zoning provisions

Morrison v. Beck Energy Corp.• Soon after Beck began drilling, the city issued a stop-work order and

filed a complaint for injunctive relief, alleging that Beck's operations violated multiple city ordinances

• Five of those ordinances are at issue

• The first requires a "zoning certificate" issued by the zoning inspector under the general zoning ordinance

• The other four fall under an ordinance specifically regulating oil and gas drilling. However, even these ordinances relate back to zoning, with one requiring a conditional zoning certificate. The other three relate to the filing fee ($800), performance bond ($2,000 deposit required upon filing) and a required public hearing (at least three weeks prior to drilling), associated with the conditional zoning certificate.

Morrison v. Beck Energy Corp.• The question raised is whether the Home Rule Amendment to the Ohio

Constitution grants the city of Munroe Falls the power to "enforce its own permitting scheme atop the state system"

• Test for whether the ordinance is preempted: (1) the ordinance is an exercise of police power, not local self-government; (2) the statute is a general law; and, (3) the ordinance is in conflict with the state statute

• Court finds preemption

• Concurring opinion emphasizes "the limited scope of [the] decision", expressly limiting the decision to the five ordinances at issue

• According to the concurrence, the appeals does not "present the question of whether [the state statute] conflicts with local land use ordinances that address only the traditional concerns of zoning laws (is this true)

Morrison v. Beck Energy Corp.• The concurring opinion presents a fascinating argument on preemption- “location" and

"spacing" have specialized, technical meanings in oil and gas law, so that both local governments and the state can regulate these issues

• Three dissenting opinions

• Lanzinger dissent: "There is no need for the state to act as the thousand-pound gorilla, gobbling up exclusive authority over the oil and gas industry, leaving not even a banana peel of home rule for municipalities. I would reverse the judgment of the court of appeals and remand to that court for further proceedings.“

• O’Neil dissent (set out in full):

"I join Justice Lanzinger’s well-written dissent. Let’s be clear here. The Ohio General Assembly has created a zookeeper to feed the elephant in the living room. What the drilling industry has bought and paid for in campaign contributions they shall receive. The oil and gas industry has gotten its way, and local control of drilling-location decisions has been unceremoniously taken away from the citizens of Ohio. Under this ruling, a drilling permit could be granted in the exquisite residential neighborhoods of Upper Arlington, Shaker Heights, or the Village of Indian Hill—local zoning dating back to 1920 be damned.“

SWEPI, LP v. Mora CountyNo. CIV 14-0035 JB/SCY (U.S.D.C. New Mexico, Jan. 19, 2015) (199 pages)

• In 2013, Mora County Commissioners passed the “Mora County Community Water Rights and Local Self-Government Ordinance,” which essentially prohibited all mineral extraction

• Community Environmental Legal Defense Fund (CELDF), based in Pennsylvania drafted the ordinance- “Rights-Based Ordinance”, “Community Bill of Rights”

• In January 2014, SWEPI, LP, an oil and gas production company, filed suit challenging the validity of the ordinance.  It brought a number of claims, including allegations that the ordinance violated the Supremacy Clause, Equal Protection Clause, Due Process Clause, Dormant Commerce Clause, the First Amendment, and the Fifth Amendment.  SWEPI then moved for summary judgment on a number of these claims.

SWEPI, LP v. Mora County• Court did not rule in SWEPI’s favor on all counts, but comprehensively

and completely rejected the notion, advanced by the defendants, that local governments could supersede state and federal law, as well as the attack on the established principle that corporations do not hold rights in the United States

• Environmental justice concerns- Mora County is a poor, rural county; Santa Fe County hired a high-priced attorney to draft their ordinance

Colorado Oil and Gas Association v. City of Longmont

No. 13CV63, 2014 WL 3690665 (Colo. Dist. Ct. July 24, 2014)• Suit against City of Longmont alleging that a ban on hydraulic fracturing adopted by city is preempted by state act• Bd. of Cnty. Comm'rs v. Bowen/Edwards Assocs., Inc., 830 P.2d 1045, 1048 (Colo. 1992) (en banc) held that the state statute preempted technical aspects of oil and gas development, preventing waste and protecting correlative rights, but some local regulatory remains• Voss v. Lundvall Bros., 830 P.2d 1061, 1064 (Colo. 1992) held that in matters “purely of local concern” an ordinance of a Home Rule city supersedes a conflicting state statute, but in a matter of purely statewide concern, the state statute controls

Colorado Oil and Gas Association v. City of Longmont

Test for preemption•whether there is a need for statewide uniformity of regulation;•whether the municipal regulation has an extraterritorial impact;•whether the subject matter is one traditionally governed by state or local government; and, •whether the Colorado Constitution specifically commits the• particular matter to state or local regulation.

Colorado Oil and Gas Association v. City of Longmont

Held that ban is preempted• Oil and gas pools do not conform to local government boundaries• Limits or substantially impedes state interest in fostering efficient development and production of oil and gas in a manner that prevents waste and furthers correlative rights• Ban distinguished from “mere regulation” (prevention of waste and protection of correlative rights)• Uniformity is desirable

Wallach v. Town of Dryden

16 N.E.3d 1188 (NY 2014)• Challenge to bans in Town of Dryden and Town of Middlefield• New York’s home rule provisions give local governments broad

authority to enact local laws, so long as the local laws are consistent with the state constitution and state statutes• State legislature may restrict local authority• Dryden ordinance purports to invalidate any local, state or federal

permits that would allow a prohibited activity• State law “supercede[s] all local laws or ordinances relating to the

regulation of the oil, gas and solution mining industries; but shall not supersede local government jurisdiction over local roads or the rights of local governments under the real property tax law.”

Wallach v. Town of Dryden• In re Frew Run Gravel Products, Inc. v. Town of Carroll distinguished between local

regulations addressing “the actual operation and process of mining” and land use regulations• In other words, local governments may regulate “where” the activity takes place,

but not “how” the activity is conducted• Lower court found Frew Run “flawed,” but felt bound by the decision (state law at

issueexcepted local laws imposing stricter reclamation standards from the supercession clause)• Considering the plain language of the statute, statutory scheme, and legislative

history, court found the bans are not preempted• Rejected notions that a ban conflicts with state goals of preventing waste and

promoting greater production• Court rejected distinction between ban and reasonable land use regulation• Dissent attempted to distinguish Gernatt Asphalt Products v. Town of Sardinia, 664

N.E.2d 1226 (N.Y. 1996)

Robinson Township v. Commonwealth of Pennsylvania

• Numerous challenges to Pennsylvania Act 13 of 2012• Act 13 set out a uniform system of regulation of oil and gas development throughout the state• Required uniformity among local zoning ordinances•Most notably required that local governments allow oil and gas development “of right” throughout their communities• Setbacks and other requirements imposed

Robinson Township v. Commonwealth of Pennsylvania

• Section 27 of the Declaration of Rights of the Pennsylvania Constitution:

The people have a right to clean air, pure water, and to the preservation of the natural, scenic, historic and esthetic values of the environment. Pennsylvania's public natural resources are the common property of all the people, including generations yet to come. As trustee of these resources, the Commonwealth shall conserve and maintain them for the benefit of all people.• Court finds that permitting oil and gas development in every zoning

district could not, as a matter of law, conserve and protect the environment• Some communities bear a heavier environmental burden than others

under the Act• Act 13 violates Pennsylvania’s duties under the public trust doctrine

Robinson Township v. Commonwealth of Pennsylvania

Dissenting opinions•What about Dillon’s Rule?• Plurality “hypothesizes” about the negative impacts of Act 13, while ignoring the detailed requirements• “[T]he bottom line is this- the gas in question will be extracted”

Northeast Natural Energy, LLC v. City of Morgantown

No. 11-C-411, 2011 WL 3584376 (Cir. Ct. W.Va. Aug. 12, 2011)• 2011 ordinance bans hydraulic fracturing within city limits• Energy companies challenge ordinances, claiming preemption• West Virginia’s state statute also seeks to prevent waste and protect

correlative rights• City claims that Home Rule provisions grant authority to enact the ban,

and characterize hydraulic fracturing as a nuisance• Circuit Court grants summary judgment, finding that the state statute

constitutes a “comprehensive regulatory scheme with no exception carved out for a municipal corporation to act in conjunction with the [West Virginia Department of Environmental Protection] pursuant to the Home Rule provision.”• City missed filing deadline for appeal

Northeast Natural Energy, LLC v. City of Morgantown

• Morgantown amended it’s the general requirements for heavy industry in the zoning ordinance to specifically regulate hydraulic fracturing (“extractive industry use”) in July 2012• The ordinance prescribes a minimum lot size of five acres for oil and

gas extraction and a 625 foot setback from any residential zone, and the property boundary of any dwelling unit located in other than a residential zone, church, school, day care facility, or park. The activity must be setback at least 100 feet from any 100-year floodplain,1,000 feet from a public water intake, and 1,000 feet from the 100-year floodplain of the Monongahela River south or upstream of the Morgantown Lock and Dam. • Variances are available in some circumstances• This ordinance has not yet been challenged

Conclusions

• Bans v. reasonable regulation• De facto bans?• Overreach by the state (Robinson)?• Can cooperative federalism work with hydraulic fracturing?• Environmental justice concerns

Conclusions- Local Government Regulation

• Noise• Light and other visual impacts• Road damage• Blasting• Dust• Traffic• Compatibility of the activity to

nearby property uses• Impact of the activity on property

values in the area• Adequate off-site infrastructure

• Adequate services (such as police and fire protection)• Affordable housing• The general health • The safety of the community, odors• Potential groundwater

contamination• Methane emissions• Habitat fragmentation• Degradation of environmentally

sensitive areas