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Oil & Gas Law Report Reporting on recent legal developments and trends in the oil and gas industry.

Who Should Regulate Oil and Gas Operations, National, State or Local Government?

Posted in Mineral Interest, Ohio, Pipelines, Real Estate, Regulatory

Laws and regulations are adopted at all levels of government. The scope of coverage and the need for uniformity normally dictate the  jurisdictional level of regulation. But, when the objectives of federal, state, and local governments conflict, legal battles erupt under the rally cries of “federalism,” “states rights,” “home rule,” “preemption,” and “constitutional rights.”

Some issues, such as interstate pipelines and air quality, are clearly better regulated at a federal level, while others are more suited to the state or local level. For example, uniform federal Clean Air Act regulations prevent states from creating “pollution havens” to attract business.

Similar concerns exist between state and local regulation. The state, as a whole, may want to encourage development of some kind, but communities and local authorities may have a different perspective. Such is the case for oil and gas production, fracking and brine disposal.

 Pennsylvania Wrestles with Preemption

In the spring of 2012, the Pennsylvania legislature passed a law known as Act 13, which prohibits local government from regulating oil and gas activities in contravention of state law.  On July 26, 2012, pursuant to a challenge from Robinson Township, a Pennsylvania Commonwealth Court (analogous to Ohio’s Common Pleas Courts ) overturned key provisions of  Act 13. In Robinson Township v. Commonwealth, the Court declared unconstitutional: (1) the provision of Act 13 that preempts local municipalities from enacting zoning ordinances that are more restrictive than the provisions of Act 13; and (2) the provision of Act 13 that authorizes the Department of Environmental Protection (“DEP”) to waive setback requirements for oil and gas wells from the waters of the Commonwealth. Both sides appealed the decision to the Pennsylvania Supreme Court, which is expected to issue a much anticipated ruling in the near future.

 Ohio State Law Also Preempts Oil and Gas Operations

Through ORC §1509.02, Ohio law vests  Ohio Department of Natural Resources (“ODNR”), Division of Oil and Gas Resources Management with “sole and exclusive authority to regulate the permitting, location, and spacing of oil and gas wells and production operations within the state … .”

Although windmills are far more attractive, and clearly far less mobile, than oil and gas drilling rigs, the rigs are a far more popular target here in Ohio.  Local communities, some small and some larger, fueled by concerns over fracking, have attempted to block various oil and gas operations within their respective jurisdictions.  While undoubtedly politically responsive to their constituents, community leaders should be forewarned that Ohio laws, i.e. ORC §1509.02, preclude effective challenges to oil and gas operations in this manner.  Ohio has adopted a comprehensive statewide regulation of oil and gas operations, including fracking, which laws were most recently comprehensively updated in June, 2012. Absent specific state legislative authority to counties and townships for control over certain local matters such as local impact cost recovery, these political entities have no authority to regulate oil and gas operations other than as a part of the statewide comprehensive system.  For municipalities, Ohio’s Constitution provides for “home rule” provisions which may seemingly give some authority for municipalities to regulate oil and gas operations by zoning or similar local regulations. There is a similer legislative process which could also extend “limited” home rule for townships undertaking the process to qualify. 

However, pursuant to the controlling case of Am. Financial Servs. Assn. et al. v. Cleveland, 112 Ohio St. 3d 170, 2006-Ohio-6043, the Ohio Supreme Court has routinely held that the home rule provisions of the Ohio Constitution do not apply in the face of comprehensive statewide legislation, as in the case of those impacting the oil and gas industry. The legal precepts underlying the American Financial decision have also been extended to regulation of electric transmission lines, hazardous waste facilities and solid waste facilities. It is clearly the state policy of Ohio to encourage extraction of Ohio’s mineral resources in an expeditious, efficient, and environmentally compliant manner.  The current Ohio program under the oversight of the Ohio Department of Natural Resources accomplishes this.  For its part, the Division of Oil and Gas Resources Management encourages public participation. As a result of its initiative, Section 1509.61 was added to its governing statute. This provision requires that local governments notify affected land owners and provide a hearing before entering into an oil and gas lease covering property it owns.

Accordingly, while local jurisdiction in Ohio may want to charge these “modern windmills”, their “intellectual and financial capital” would be far more wisely and effectively expended through active participation with qualified experts  in the ODNR permitting processes to assure that each permits addresses any particular local situations needing specific attention beyond the general prevue of state law.