Myth, mystery, and the Marcellus

Lots of local government regulation is permissible in Pennsylvania, but it does have limits.

May 1, 2011

9 min read

One of the richest gas fields in North America, the Marcellus Shale runs through northern Appalachia, primarily in Pennsylvania, West Virginia, New York, and Ohio. Photo courtesy of Enerplus Resources.

Lots of local government regulation is permissible in Pennsylvania, but it does have limits.

A. Bruce Bowden, Duane Morris LLP, Pittsburgh, Pa.

There's a lot being written and spoken on the subject of Marcellus Shale energy development in the Commonwealth of Pennsylvania. While the debate rages on about the extent of the economic benefits and the environmental concerns related to hydraulic fracturing a mile below the surface, there is another point of contention that shale developers should be following very closely. The Pennsylvania Supreme Court has begun to address and decide on a central issue affecting the future of shale projects: namely what local government regulation is preempted by state legislation in Pennsylvania and what is not. A review of the applicable law and recent court decisions, and what they mean for drillers, is therefore necessary.

Simply put, local governments, from counties to cities, boroughs, and townships, are creatures of the statutes the state legislature passed to define their powers. The same state government that created these local government units has the ability to preempt their attempts to regulate activities already regulated generally by the state. The principal Pennsylvania statute of interest here is the Oil and Gas Act¹ (the "Act"). For reasons that will become clear later, it is worthwhile to first set forth the legislature's stated purposes for the Act:

"(1) Permit the optimal development of the oil and gas resources of Pennsylvania consistent with the protection of the health, safety, environment and property of the citizens of the Commonwealth; (2) Protect the safety of personnel and facilities employed in the exploration, development, storage and production of natural gas or oil or the mining of coal; (3) Protect the safety and property rights of persons residing in the areas where such exploration, development, storage or production occurs; [and] (4) Protect the natural resources, environmental rights and values secured by the Pennsylvania Constitution."²

The Act then addresses the preemption issue directly. Section 602 of the Act³ says that

"Except with respect to ordinances adopted pursuant to the . . . Municipalities Planning Code [the "MPC"], and the . . . Flood Plain Management Act, all local ordinances and enactments purporting to regulate oil and gas well operations regulated by this act are hereby superseded. No ordinances or enactments adopted pursuant to the aforementioned acts shall contain provisions which impose conditions, requirements or limitation on the same features of oil and gas well operations regulated by this act or that accomplish the same purposes as set forth in this act." [emphasis supplied].

It's also worth noting at the outset that the MPC does not apply to the cities of Philadelphia and Pittsburgh.

So, what "features of . . .gas well operations" does the Act regulate? Briefly stated, the Act says that a well can't be drilled or altered without a permit from the Commonwealth Department of Environmental Protection ("DEP")⁴ and, as those who have sought a permit well know, a good bit of supporting information must be provided.

In considering an application, DEP can consider the impact on parks, game lands, scenic rivers, natural landmarks, endangered species, and historical and archeological sites, and can require the well developer to post bonds of its performance.⁵

Permitting procedures, including notice to affected persons, objection rights, and timing, are specified. Well location is limited by required offsets from buildings, water wells, and natural watercourses, lakes, and wetlands. Restoration of sites after drilling, casing to protect water sources and mines, plugging of abandoned wells, and underground gas storage are all covered by the Act.

The Act is supplemented by regulations of DEP promulgated under it.⁶ The regulations discuss the subjects covered by the Act and add environmental protection performance standards dealing with a broad range of subjects including erosion and sedimentation control, and containment and disposal of production fluids, drill cuttings, and residual waste.

Some Pennsylvania municipalities have attempted to legislate on the subject of gas wells even against this statutory and regulatory background. Two opinions of the Pennsylvania Supreme Court, decided on the same day, deal with the preemption issue as it applies to a couple of these ordinances. Both cases involved developers' attempts to derail local ordinances purporting to regulate oil and gas drilling.

The first decision is Huntley & Huntley Inc. v. Borough of Oakmont et al.⁷, in which the state Supreme Court upheld a borough zoning ordinance that permitted gas wells in an R-1 residential district only as a conditional use, a use permitted by the borough council only if certain specific conditions are met. Even though the Act addresses well locations in terms of offsets from buildings, water sources, etc., the court upheld the right of the borough, under its traditional zoning powers as set forth in the MPC, to determine by ordinance in which zoning districts gas wells are permitted.

When the issue almost inevitably comes before it, it will be interesting to see if the Supreme Court extends this rule to the City of Pittsburgh, which purports to disallow gas wells in any zoning district and thus preclude them from the city entirely. As mentioned above, the MPC does not apply to the City of Pittsburgh.

The second case is Range Resources — Appalachia, LLC et al. v. Salem Township⁸, in which the court invalidated the local ordinance in its totality, although for different reasons as to different parts of it. Some parts of the ordinance (permitting procedures, bonding requirements, well head regulations including capping, and site restoration after drilling is complete) were found to try to regulate the very things the Act regulates and were therefore found to be expressly preempted by Section 602 of the Act.

Other provisions (location and grading of access roads, tire cleaning areas where access roads meet public roads, slopes of and culverts under access roads for purposes of storm-water management, maintenance agreements covering public roads damaged by the driller's equipment, depth, location, and marking of transmission lines, mandatory testing of drinking water supplies, and location of water treatment facilities) were invalidated because they were specifically directed at well drillers and significantly increased their costs.

Drilling in the Marcellus Shale.
Photo courtesy of Range Resources.

Left open is the question of whether common ordinances of general application on storm-water management, grading, cleaning mud from public roads, and bonding public roads before taking overweight vehicles across them can be enforced against well drillers like anyone else operating in the municipality. Where the court said Salem Township went wrong was in enacting a series of requirements on these common subjects of local police power regulation which applied just to drillers and not to land developers generally.

So, sorting all of this out, a few things are clear and a few others less so:

A municipality, exercising zoning powers, may determine in which zoning districts drilling may be carried out and in which it may not. This is not viewed as inconsistent with the location language in the Oil and Gas Act (offsets from buildings, water sources, etc.). It remains to be seen whether complete exclusion of drilling from all zoning districts — an entire municipality — is valid zoning. There is Pennsylvania case law to the effect that completely excluding a legitimate land use from an entire municipality is not permissible.⁹
In a good sign for developers, regulation of certain "features" of drilling (permitting, bonding, casing, site restoration, underground gas storage, and abandoning wells) has been expressly preempted by the Commonwealth of Pennsylvania, is controlled by the Oil and Gas Act, and municipalities may not impose separate or more restrictive schemes regulating those features. Handling of frac fluids and drill cuttings and erosion and sedimentation control could probably be added to this list as the DEP regulations expressly deal with them.
Sets of local regulations, limited in their application to oil and gas drillers, addressing other features (grading, storm water management, street cleaning and weight limits) are likely not valid, but similar regulations applicable to all developers of land likely continue to be valid.

No doubt there are more preemption issues out there which can be litigated in Pennsylvania, but drillers should be aware that local governments can now follow a relatively safe path to determine the location of drilling sites without unreasonable fear of a successful court challenge. Time will tell whether the subject of commonwealth preemption of local regulation of oil and gas drillers will get more attention from the courts.

About the author

A. Bruce Bowden is a senior corporate partner with law firm Duane Morris LLP in Pittsburgh, and works on domestic and international corporate deals. He has also advised clients on shale development projects in Pennsylvania.

References

¹58 Purdon's Pennsylvania Statutes ("P.S.") §601.101 et seq. Other relevant Pennsylvania statutes are the Coal and Gas Resource Coordination Act (58 P. S. §502), section 2 of the Oil and Gas Conservation Law (58 P. S. §402), section 103 of the Solid Waste Management Act (35 P. S. §6018.103) and section 1 of The Clean Stream Law (35 P. S. §691.1).
²58 P.S. §601.102
³58 P.S. §601.602
⁴58 P.S. §601.201
⁵58 P.S. §601-206-601.210
⁶And the other statutes referenced above. See Pennsylvania Code Chapter 78.
⁷Huntley & Huntley, Inc. v. Borough of Oakmont et al., 600 Pa. 207, 964 A.2d 855 (2009)
⁸Range Resources — Appalachia, LLC et al. v. Salem Township, 600 Pa. 231, 964 A.2d 869 (2009)
⁹Exton Quarries, Inc. v. Zoning Bd. of Adjustment of West Whiteland Tp., 425 Pa. 43, 228 A.2d 169 (1967) is a case frequently stated for this proposition.