High-volume hydraulic fracturing and horizontal drilling are necessary to exploit the enormous reservoir of natural gas encased in the Marcellus and Utica Shale formations located thousands of feet beneath the surface of much of the Western, Central, and Southern Tier regions of New York. Although hydraulic fracturing is a common practice in many other states, the New York State Department of Environmental Conservation ("NYSDEC") is just now nearing the completion of its environmental review and rulemaking for hydraulic fracturing and horizontal drilling of New York's shale gas resources.
As NYSDEC finishes its review, opponents are re-focusing their efforts on the local level. In response, several municipalities have already enacted local laws that ban hydraulic fracturing, despite a state statute that expressly preempts all local laws relating to the regulation of oil and gas drilling except for laws governing local roads and property taxes. We expect that these local laws are just the first of a series of efforts at the local level to ban or heavily restrict drilling.
In September 2011, NYSDEC released a revised draft Supplemental Generic Environmental Impact Statement ("SGEIS") and proposed rules for hydraulic fracturing. The deadline for submitting comments is January 11th. It is expected that the SGEIS and rules will be finalized sometime in 2012. When they are finalized, NYSDEC will begin processing applications for hydraulic fracturing permits.
However, we are continuing to monitor the passage of local laws to prohibit or restrict hydraulic fracturing, either municipality-wide or in certain designated areas. Several more municipalities have enacted or are considering moratoriums, which would temporarily suspend hydraulic fracturing pending the development of new zoning laws designed to restrict it.
On their face, these local bans appear to be preempted by the State law governing natural gas drilling. The preemption provision, added in 1981, provides that the law:
shall supersede 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. N.Y. ENVTL. CONSERV. LAW ("ECL") § 23-0303(2).
Two recent lawsuits will be the first to test State preemption with regard to bans on hydraulic fracturing. On September 15, 2011, a landowner in the Town of Middlefield filed a suit seeking to overturn the Town's zoning law that prohibits oil, gas and solution mining in all districts. On the following day, a natural gas driller and lessee of numerous drilling leases in the Town of Dryden filed a similar action to invalidate Dryden's zoning amendment that prohibits all activities related to petroleum and natural gas drilling. The plaintiffs assert that these local bans are invalid because they are:
- preempted by the State law regulating the oil, gas and solution mining industries;
- infringing on a State concern;
- not preserved by the State Constitution's home rule provisions which apply to the property and affairs of local governments, and not to private drilling on private land;
- contrary to the policy of the State statute to "prevent waste," "provide for the operation and development of oil and gas properties," and "protect the rights of all persons including landowners" (ECL § 23-0301); and
- denying the plaintiffs the economic benefit of gas leases, and for the drilling plaintiff, preparatory work worth millions of dollars.
Drilling opponents cite a number of court decisions upholding local bans and restrictions on surface mining pursuant to a similar state preemption provision in the State's Mined Land Reclamation Law ("MLRL"). Those rulings are distinguishable, however, because the MLRL excludes from preemption local laws "of general applicability" and the zoning of "permissible uses." Neither of those exclusions are present in the preemption provision of ECL § 23-0303(2) governing oil and natural gas drilling. Moreover, this year the Legislature considered but failed to enact an amendment to the oil and gas law that would have allowed local governments to enforce local laws of general applicability similar to the MLRL.
During oral argument in the Dryden case on November 4th, the town attorney advanced a second argument to the effect that the preemption provision should not be interpreted to preempt a locality's zoning authority because doing so could prevent them from regulating against the placement of a gas well next to a church or school (but no closer than 150 feet away under the existing state regulations). During oral argument in the Middlefield case on December 13th, the attorney for the Town of Middlefield elaborated on this argument, asserting that Middlefield's ban on natural gas drilling and other "heavy industry" uses is a valid exercise of the town's zoning authority and not regulation of the drilling industry per se. The judges in both cases reserved judgment at the conclusion of the oral arguments. The judge in the Middlefield case gave the parties until January 20th to submit additional briefs.
No matter what the result, we expect that the decisions in these cases will be appealed, ultimately, to the Court of Appeals. We also anticipate that, until those cases are finally resolved, other municipalities will attempt to ban or heavily restrict hydraulic fracturing by these means or other more subtle means short of an express ban. For example, drilling opponents are considering local laws of "general applicability" that would prohibit or restrict drilling to certain zones by regulating hydraulic fracturing as part of a larger subset of "heavy industrial" activities, or by imposing bans and setbacks from certain ecological, scenic, or cultural resources.
Hiscock & Barclay LLP has extensive experience in successfully challenging regulatory over reach if there is a particular state regulations or local ordinance about which you have a question. In the meantime, we are continuing to monitor the lawsuits, local regulatory measures, state regulations and legislation related to shale gas development in New York State.
If you require further information regarding the information presented in this Legal Alert, please contact the Chair of the Practice Area.