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Fracking and Alternative Energy

Steptoe & Johnson PLLC: Know How: Oil and Gas Regulation Sole Domain of State of Ohio

By Katerina E. Milenkovski, Of Counsel

(Originally printed in the ABA Litigation News) 

The state of Ohio has the exclusive authority to regulate oil and gas drilling, according to an Ohio appellate court that rejected attempts by a city to impose additional requirements as a matter of “home rule” authority. New York and Pennsylvania courts have both touched on similar cases, but, unlike Ohio, those courts have not found the complete preemption of local regulation of drilling.

City Seeks to Enjoin Drilling
In State ex rel. Morrison v. Beck Energy Corp. [PDF] [enhanced version available to subscribers], the Ohio Department of Natural Resources issued drilling permits to Beck Energy to drill a gas well in the city of Munroe Falls. The city sought to enjoin Beck from drilling, claiming that the company had not complied with 11 local ordinances, including local permitting, zoning, and right of way regulations. As support, the city invoked its home rule authority—the power granted by state constitutions to cities, municipalities, and counties to govern themselves, provided they obey state and federal constitutional law. The trial court granted the injunction, prohibiting Beck Energy from drilling-related activities at the site until the company complied with all relevant Munroe Falls ordinances.

On appeal, Beck argued that Ohio’s state oil and gas drilling statute preempted the city ordinances on which the trial court relied to enjoin Beck’s activities. That statute provides, in pertinent part, that “the regulation of oil and gas activities is a matter of general statewide interest that requires uniform statewide regulation” and that the statute constitutes “a comprehensive plan with respect to all aspects of the location, drilling, well stimulation, completing, and operating of oil and gas wells within this state, including site construction and restoration, permitting related to those activities, and the disposal of wastes from those wells.” Expressly excluded from that comprehensive state statutory scheme was a municipality’s authority to regulate public roads.

Comprehensive State Statute Preempts Home-Rule Authority
The Ohio intermediate appellate court rejected the city’s argument that the home-rule provision of Ohio’s Constitution provided it with the authority to regulate Beck’s drilling activities, ruling that the state’s oil and gas drilling statute preempted most of the city ordinances. The court nonetheless permitted the city to enforce ordinances governing rights-of-way and excavations, but not in a way that discriminates against, unfairly impedes, or obstructs oil and gas activities and operations. The court additionally ruled that the city could re-draft its ordinance requiring a public hearing related to oil and drilling activities so long as it is not a condition precedent to the issuance of a drilling permit.

“From what’s contained in the order, it seems that the local zoning ordinance was telling them they couldn’t do what state law permits. Where you’ve got that sort of conflict, generally, the local law yields to the state law. And that’s what happened here.” J. Casey Pipes, Mobile, AL, cochair of the ABA Section of Litigation’s Condemnation, Zoning and Land Use Committee. “In the face of a comprehensive state-wide policy to allow drilling pursuant to a state permit, a lower government agency can’t deny you those rights and privileges that the state gives you,” adds Pipes.

“What I found odd was what they upheld and what they rejected,” says Jeff Zimmerman, Potomac, MD, cochair of the Eminent Domain Subcommittee of the Section of Litigation’s Environmental Litigation Committee. “I can understand rejecting the requirement to obtain a local permit, but invalidating the application of the zoning ordinance while preserving the obligation to hold a hearing seems a little inconsistent, a little weird.” Zimmerman also notes that, in his view, the requirement to obtain conditional approval under the zoning ordinance before construction did not seem to treat oil and gas proposals any differently than any other construction proposal. “That would be the kind of thing I would think would be upheld as long as it didn’t differentially penalize gas activities.”

Other States Have Grappled with Similar Issues
Zimmerman points out that the Pennsylvania Constitution’s home rule provision is not as broad as Ohio’s and that Pennsylvania has attempted to draw a fine line between competing state and local positions in several recent oil and gas cases. While the decision in Huntley v. Huntley, Inc. v. Oakmont Borough Council [PDF] [enhanced version] expressly recognized and upheld the zoning power of the municipality, the Pennsylvania Supreme Court ruled that localities go too far if they try to regulate technical matters that are subject to the state’s Oil and Gas Act in Range Resources Appalachia, LLC v. Salem Township [PDF] [enhanced version].

“In New York, the tendency seems to be to uphold the local control aspect of land use, more extensively than in Pennsylvania and certainly more than in Ohio,” says Zimmerman. For example, in Anschutz Exploration Corp. v. Town of Dryden [enhanced version], the New York Supreme Court held that state law does not preempt the ability of the local government to ban drilling completely.

“My guess is that what really drove this case is local politics,” suggests Gregory V. Brown, Houston, TX, cochair of the Section’s Energy Litigation Committee. “I can’t imagine that lawyers for the city thought that they were actually going to prevail, given that the Ohio statute seems to be pretty clearly written with the goal of establishing uniform drilling regulation. This is presumably all about the Utica shale, oil and gas drilling activities moving to areas that have not historically have a lot of this type of activity. NIMBY, meaning ‘not in my back yard.’ People hear about fracking in the news and there is some fear generated, and they go to their local officials and put pressure on those officials to respond. I don’t fault the local officials because it is their job to respond to their constituents, but they should have known that their case was most likely political at its root.”

Until the Ohio Supreme Court resolves these issues, municipalities likely will continue to test the breadth of preemption to retain some local control over drilling activities.

 Kathy Milenkovski's legal practice focuses on energy and environmental law, with an emphasis on air quality issues. Ms. Milenkovski has nearly two decades of experience with air regulations, both at the state and federal level, and is uniquely positioned to assist manufacturing and energy clients with compliance obligations imposed by the Clean Air Act and its state law counterparts. Ms. Milenkovski is also well versed in matters involving renewable energy, in particular, renewable portfolio standard compliance obligations.

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