Home Rule Meets State Regulation: Reflections on High-Volume Hydraulic Fracturing for Natural Gas

Vol. 35 No. 2

By

Erica Levine Powers is an adjunct faculty member in Planning Law and Environmental Law for the Masters in Regional Planning Program of the Department of Geography and Planning at the University at Albany (SUNY) in Albany, New York.

Hydraulic fracturing, or “fracking,” like all mining, is both a local matter impacting community development and environmental quality and a state matter impacting national energy security and regional economic development. Along with the discovery of new sources of natural gas—and methods for its recovery—have come increasing battles over local control and state interests. States have taken diverse positions on fracking, and, building on the experiences of other states, New York is the latest to wrestle with the issue. In the process, New York is defining the roles of local and state government by including an explicit role for local government in environmental review, by public input in the state review process, and through ongoing litigation that will define the rights of New York’s home-rule municipalities to regulate fracking.

Local Impacts

Shale plays, geologic deposits deep underground, are found in approximately 20 states in the continental United States: from Montana south to Texas; across the Southwest, South, and Southeast; in the Midwest, including North Dakota and Michigan; and in a northeast direction from Indiana and Ohio to New York and Canada.

High-volume hydraulic fracturing for natural gas is a relatively new technology that facilitates exploration and development of “unconventional” sources of natural gas, specifically the release of natural gas trapped in the crevices of shale plays. Shale gas is “transitional” because it is a depleting resource, unlike solar, wind, and other renewables, but is considered cleaner than other fossil fuels. Given the relative paucity of available energy from renewable sources, natural gas can be regarded as an important transitional fuel in furtherance of national goals of energy independence, air quality, and climate change mitigation.

Exploration and development of shale plays, through high-volume hydraulic fracturing technology (HVHF), has environmental risks. It also presents quality-of-life challenges for communities located in proximity to shale plays, from urban to rural.

A number of states with shale plays, including Texas, Oklahoma, Arkansas, North Dakota, and Louisiana, have developed statutes and regulations that range from well permitting requirements, disclosure of HVHF ingredients, and water protection measures (Texas, Arkansas) to a legislative declaration that hydraulic fracturing is an acceptable recovery process (North Dakota).

In the Texas Barnett shale, local zoning also regulates HVHF in residential areas. See, e.g., the Cedar Hill, Texas, Code of Ordinances, which allows oil and gas drilling on property zoned C-Commercial, I-Industrial, or IP-Industrial Park but prohibits drilling sites on any property zoned for residential use or within 500 feet of any residential or multi-family structure in any zone. See www.cedarhilltx.com/index.aspx?NID=915.

Much attention has been focused on potential exploration and development of the Marcellus shale deposit in the Appalachian region and the recent discovery, deep below it, of the Utica shale, which reaches into Canada. Although estimates of accessible natural gas in the Marcellus shale vary, it has been suggested that gas available in these two shale plays will be a major factor in achieving U.S. energy independence.

But there are serious environmental risks from HVHF. Preparation for HVHF entails boring vertically, and then horizontally, to reach the shale deposits. In the course of HVHF, cement layers called “casings” are poured to isolate the wellbore. One purpose of cement casings is to separate the wellbore from the aquifer. Another is to separate the wellbore from methane that may migrate laterally from old, abandoned wells. If the cement does not cure properly, there is a risk that the casing will not be an effective barrier.

“HVHF” refers to breaking through the metal and cement casings of the wellbore with electric current and then, at high pressure, forcing “fracking fluid” into the crevices. Fracking fluid is water mixed with sand and various chemical “proppants” that keep the fractures open so the released gas can flow out. Very large volumes of water are typically used. For a horizontal well, the New York State Department of Environmental Conservation (DEC) estimates that between 300,000 gallons and 600,000 gallons of water are needed for each stage of HVHF in a horizontal well. Thus, with multi-stage HVHF, and multiple wells being bored, millions of gallons of water may be required at each production site.

Other environmental risks from HVHF operations include clean water impoundments, storm water disposal and flood hazards, flow-back water or production water treatment and recycling, improper cementing leading to blow-outs, ground impaction, road damage, increased traffic and accidents on country roads, and hazmat issues regarding transportation of toxic chemicals. In addition, there are air and noise pollution impacts from generators at well sites and increased truck traffic and, in rural areas, quality-of-life impacts from the industrialization of rural landscapes. Water quality and quantity issues from HVHF operations in the Marcellus shale have a potential impact on the drinking water of Pittsburgh (the Susquehanna River), Philadelphia, and the Chesapeake Bay (the Delaware River), as well as New York City and Syracuse.

State Measures

Pennsylvania and New York have taken different regulatory approaches to natural gas drilling activities in the Marcellus shale. In Pennsylvania, where permitting and drilling have been intensive for several years, state regulation and permitting have been reactive. As early as 2009, cases were filed in Pennsylvania alleging drinking water contamination after drilling had commenced, some attributable to faulty cement casings.

In New York, through comments by the public and the media, Pennsylvania has become the reference point for what New Yorkers want not to happen. By contrast with Pennsylvania, there has been a proactive effort to develop a supplemental generic environmental impact statement (SGEIS) and related regulations to incorporate HVHF technology into existing requirements for regulatory permitting by the DEC. The DEC has jurisdiction to regulate well drilling, under the Oil, Gas and Solution Mining Law (N.Y. Envtl. Conserv. Law § 23), and has been issuing permits for vertical wells under a 1992 Generic Environmental Impact Statement.

The DEC chose to issue an SGEIS to address the new HVHF technology. In September 2009, the DEC issued a draft supplement to the 1992 GEIS. Volumes of detailed comments from industry and stakeholders, including EPA concerns about the safety of the New York City drinking water supply, engendered a major review and revision of that draft.

Thus, in New York, there has been a de facto moratorium on DEC permit review pending finalization of the revised SGEIS, issued for comment this summer along with proposed regulations that track the revised draft SGEIS. The announced comment periods are due to end on December 12, 2011; the DEC must then formally respond to comments before issuing a final SGEIS.

Gas Drilling Heats Up in New York

The Marcellus shale underlies primarily rural areas in the southern tier counties, many of which are adjacent to Pennsylvania, as well as some “Rust Belt” upstate communities that suffer from unemployment and a stagnant economy. The oil and gas industry has actively promoted the economic potential of gas exploration in terms of job creation and tax revenues, although currently no wellhead severance tax on gas drilling, which could provide funds for permitting staff, additional monitoring, mitigation, and remediation, has been announced.

More than five years ago “landmen” acting as agents of the industry began to solicit and acquire leases of mineral rights from New York farmers, offering signing bonuses, complicated formulas for royalties, and widely varying prices per acre. The Farm Bureau and the Cornell Cooperative Extension (Extension) began to hold seminars to inform farmers of their rights and to suggest that they consult with counsel before signing. By the summer and autumn of 2009, the New York State Bar Association Sections of Real Property, Environmental Law, and Municipal Law began to offer programs to educate lawyers about mineral leases and HVHF.

Throughout 2010 and 2011, the Association of Towns of the State of New York and the Extension have offered programs for local officials on many aspects of HVHF, including the use of local zoning as a tool for directing this development.

New York stakeholders’ responses to HVHF appear to be fairly evenly split among proponents and opponents, balancing economic benefits with environmental constraints. In some New York rural areas, such as the Finger Lakes Region, there is public concern about potential impacts on existing agriculture-, viniculture- and tourism-based economic development, including cultural landmarks such as the Glimmerglass Opera and the Baseball Hall of Fame in Cooperstown. The 2011 SGEIS explicitly recognizes local zoning and establishes procedures for resolving conflicts regarding local zoning in the permitting process.

Home Rule and Preemption

At issue for many New York communities was the potential industrialization of a rural landscape. Local communities and their counsel began to consider potential environmental impacts, mitigation strategies, and alternatives to HVHF in the Marcellus and Utica shale plays. Not all New York communities have zoning. Nor does the state mandate comprehensive planning, although a comprehensive plan is a statutory prerequisite to adopting zoning.

In New York, some communities have enacted or amended zoning ordinances or local laws designed to exert local control over HVHF, notably the Town of Dryden and the Town of Middlefield, discussed below. (The cities of Albany, Buffalo, and Syracuse also have passed “anti-fracking” ordinances, but the political issues giving rise to these ordinances are beyond the scope of this article.)

In Natural Gas Production and Municipal Home Rule in New York, 10 N.Y. Zon. L. & Prac. Rep. No. 4 (Jan./Feb. 2010), Michael Kenneally, an attorney in the Counsel’s Office at the Association of Towns of the State of New York, and Todd Mathes, an attorney with Whiteman Osterman & Hanna, LLP, address the legal question of the extent, if any, to which a municipality can exercise its home rule powers to govern activity associated with the development of the Marcellus shale play in relation to the preemption language in the Oil and Gas Solution Mining Act, N.Y. Envtl. Conserv. Law § 23-0303(2):

The provisions of this article 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. [Emphasis added.]

Home rule power in New York derives from both Article IX of the state constitution and from the Statute of Local Governments, which contains a procedural requirement to re-enact any law that would impair the power of a local government to establish zoning regulations. Kenneally and Mathes suggest that in the absence of statutory re-enactment, New York case law lends support to the interpretation that local zoning for fracking activities is not necessarily preempted. See www.cce.cornell.edu/EnergyClimateChange/NaturalGasDev/Pages/MunicipalOfficials%27Information.aspx. A client memorandum, made publicly available by the client, expands on the Kenneally and Mathes thesis and discusses legal options available to the Town of Middlefield in zoning administration—for example, the nuances of the special permit process and an implicit takings argument and related exhaustion of remedies such as applying for a variance. Memorandum of [Robert] Feller, Bond, Schoeneck & King, PLLC to Town of Middlefield, May 12, 2011 (Feller Memorandum), at www.middlefieldny.com/Documents%20Forms/documentsforms.htm.

Local Zoning Goes to Court

Whether or not local zoning in New York can address the gas exploration industry—or even ban high-volume hydraulic fracturing as an industrial use—will be tested in two recently filed cases that challenge zoning ordinances: Anschutz Exploration Corp. v. Town of Dryden, brought by a holder of gas leases, and Cooperstown Holstein Corp. v. Town of Middlefield, brought by a landowner/farmer/grantor of gas leases.

Both plaintiffs argue that N.Y. Envtl. Conserv. Law § 23-0303(2) specifically preempts local zoning, but lawyers for municipalities, reviewing this issue over the last two to three years, disagree, interpreting the “plain meaning” of the statutory purpose and citing recent case law on zoning and gravel mining.

Town of Dryden

In August 2011, the Town of Dryden enacted a zoning amendment to specifically include oil and gas exploration and development among the prohibited “heavy industry” uses. In September 2011, a case was filed against Dryden.

Anschutz Exploration Corp. v. Town of Dryden seeks nullification of a zoning amendment that bans oil and gas extraction, development, and other related activities as prohibited uses. The memorandum of law argues preemption under N.Y. Envtl. Conserv. Law § 23-0303(2).

The plaintiff, based in Colorado, holds oil and gas leases covering 22,200 acres in the Town of Dryden, just east of Ithaca in the Finger Lakes Region, or approximately 36% of the total area of the town. In the absence of local land use planning this exploration could have a major adverse impact on the rural nature of Dryden, which is the locus of several state forests.

Town of Middlefield

In 2011 the Town of Middlefield, in the Cooperstown area of the Finger Lakes Region, replaced its zoning ordinance with a new one. Unlike Dryden, the Town of Middlefield provided extensive data to support its ban on oil and gas exploration as a “heavy industrial” use incompatible with the character of the town. The Middlefield ordinance also provides a variance procedure.

Cooperstown Holstein v. Town of Middlefield seeks a declaratory judgment voiding a zoning law that bans heavy industry, including oil, gas, or solution mining. The plaintiff is a dairy farmer, who in 2007 granted two oil and gas leases covering approximately 380 acres. There is no plaintiff’s memorandum of law, pending submission of a motion for summary judgment. The complaint broadly alleges that N.Y. Envtl. Conserv. Law § 23-0303(2) preempts all local involvement in oil and gas mining.

The argument of the Middlefield plaintiff that DEC regulation supersedes all local involvement appears to be a stretch. The preemption clause and its minimal legislative history, as set forth in the Feller Memorandum, appears intended to address industry-related conflicts such as duplicative permitting—for example, a municipality charging a fee for a drilling permit.

Prospects for State and Local Cooperation

Clearly, DEC regulation of high-volume hydraulic fracturing and local control of land use through zoning need not be mutually exclusive. In fact, it may be to the advantage of the industry to have an added quantum of predictability from land use regulation—for example, regarding ancillary matters such as worker housing and the location of supply depots. It also gives the community land use control over the long term, including adaptive reuse of these facilities.

In the revised draft SGEIS, issued in July, DEC included new language that explicitly requires applicants for HVHF permits to consider the impact of local zoning laws.

In the course of environmental review, the applicant will be required to submit an addendum concerning local laws and specifically “to identify whether the well pad is located in an area where the affected community has adopted a comprehensive plan or other local land use plan and whether the proposed action is inconsistent with such plans.”

Presumably DEC, as lead agency, would seek to resolve these inconsistencies. One favorable outcome of these provisions could be that landowners and the industry would enter into discussions with the local community while preparing a DEC permit application.

The Dryden and Middlefield zoning cases have given rise to animated coverage and partisanship, particularly in the local media. The Town of Ithaca and the Town of Ulysses have changed their zoning ordinances to include bans on heavy industrial activity to exclude HVHF. In A New York Village’s Debate over Drilling Turns Personal, N.Y. Times, Oct. 30, 2011, at A1, Peter Applebome contrasts the climate of heightened rhetoric and ad hominem threats in the Cooperstown area with the not-very-great likelihood of HVHF drilling in the Village of Cooperstown.

It is noteworthy that one local government, Chemung County, on the Pennsylvania border in southwestern New York, has focused on the possibility of HVHF to engage in long-term countywide coordination and local planning for land use, infrastructure, traffic, water, public safety, and the like. In April 2009, the Chemung County Executive’s Advisory Commission on Natural Energy Solutions was established with the mission to research, evaluate, verify, anticipate, minimize, mitigate, and educate.

According to County Executive Thomas J. Santulli, who also is one of two representatives for local government on Governor Cuomo’s Advisory Panel on High Volume Hydraulic Fracturing: “If HVHF is allowed in New York State, it is imperative that local government work hand in hand with the Department of Environmental Conservation, Department of Health, and Department of Public Service in a formal process.” It is noteworthy that the Chemung County focus on planning for natural energy solutions encompasses both a transitional resource such as shale gas and renewable resources such as wind and solar.

Lessons from New York

New York’s process for determining the role of local and state agencies in regulation of fracking is still underway, but already it appears to be moving toward creation of one of the most inclusive natural gas regulatory schemes yet. Through extensive public input in creation of state regulations, specific, state-designated roles for local government in project environmental review, and forthcoming court opinions that will shed light on the role of local government in zoning for fracking, New York may yet be a model for states working to address the growing role of natural gas production in the United States.

 

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