The New York State of Mind on Shale Gas Development

Daniel B. Markind, Esq.
Weir and Partners, LLP

New York State’s unique state of mind on shale gas development stands in sharp contrast to Pennsylvania for now and the foreseeable future.

Two huge decisions came down late last week just before the July 4 holiday. One involved the New York Court of Appeals and the other involved the Pennsylvania State Legislature. Together they show how the two neighboring states are taking divergent paths on shale gas development.

Shale Gas Development in the Courts

First, New York. On June 30, the highest court in New York State, the Court of Appeals, issued its long awaited ruling in the Matter of Wallach v. Town of Dryden and Cooperstown Holstein Corporation v. Town of Middlefield cases, (NY Slip Op 04875). These cases tested whether municipalities in New York could completely ban hydraulic fracturing pursuant to their land use powers. By a 5-2 decision, the New York Court agreed that municipalities can so ban the practice.

The decision, written by Justice Graffeo, states that the supersession clause of the New York Oil, Gas and Solution Mining Law (OGSML) does not preempt the home rule authority vested in municipalities to regulate land use. In layman’s terms, that means that even though there is a state law which encourages development of oil and gas, it does not prohibit the local municipalities within New York State from using their historical zoning and land use laws to ban the development by hydraulic fracturing entirely within its borders.

What the NY Court of Appeals says are the same things for regulatory purposes.

Justice Graffeo noted that the New York Municipal Home Rule Law grants to each of New York’s 932 towns the right to pass laws both for the “protection and enhancement of their physical and visual environment and for the government, protection, order, conduct, safety, health and well-being of persons or property therein. The New York State Legislature has recognized that the local regulation of land use is among the most significant powers and duties granted to a town government.” The Court of Appeals previously added that the municipality’s zoning powers extend to “provide for the development of a balanced, cohesive community in consideration of regional needs and requirements.”

That being said, a New York municipality may not enact ordinances that conflict with the State Constitution or any general law. However, a local ordinance will only be invalidated if there is a “clear expression of legislative intent to preempt local control over land use.”

Both plaintiffs contended the express preemption provision was contained in the OGSML which stated that “(t)he provisions of this article [i.e., the OGSML] 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.” The Court of Appeals disagreed.

As with lower New York Courts, it reached back to a 1987 case of Frew Run Gravel Products v. Town of Carroll where a company seeking to open a sand and gravel mine in a town was limited as the town enacted a zoning district where sand and gravel operations were not permitted. While in that case it was not the OGSML but the Mined Land Reclamation Law (MLRL) that was at issue, the Court held that the supersession clause in that statute did not apply. There is a distinction between local regulations addressing “the actual operation and process of mining” and zoning laws regulating land use generally. “In effect, local laws that purported to regulate the “how” of mining activities and operations were preempted whereas those limiting “where” mining could take place were not.

Using the same analysis here, Justice Graffeo (pictured to right) stated that “(p)lainly, the zoning laws in these cases are directed at regulating land use generally and do not attempt to govern the details, procedures or operations of the oil and gas industries. Although the zoning laws will undeniably have an impact on oil and gas enterprises, as in Frew Run, this incidental control resulting from the municipality’s exercise of its right to regulate land use through zoning is not the type of regulatory enactment relating to the oil, gas and solution mining industries which the Legislature could have envisioned as being within the prohibition of the statute.”

The Court then rejected the plaintiffs’ arguments that while establishing certain zones of operation may be acceptable, an outright ban in not. Here, the Court reviewed its 1996 decision in Matter of Gernatt Asphalt Products v. Town of Sardinia, again dealing with mining, where the Town had amended its zoning ordinance to eliminate all mining as a permitted use throughout the town. The Court held here that “nothing in Frew Run or the MLRL obligated a town that contains extractable materials to permit them to be mined somewhere within the municipality.”

”Manifestly, Dryden and Middlefield engaged in a reasonable exercise of their zoning authority…when they adopted local laws clarifying that oil and gas extraction and production were not permissible uses in any zoning districts.” Therefore, the zoning bans held.

It is instructive that one of the original plaintiffs, Norse Energy, is now in bankruptcy. That fact, combined with this decision, the interminable health study being “performed” by the State, and the presence of an unwieldy New York State Environmental Quality Review Act, which adds yet another complication to this whole process, means that New York may not be open for shale business for many years to come, if ever.

Shale Gas Development in the Legislature

As the legal decision was being announced, in Pennsylvania the State Legislature passed a $29.1B budget that maintained the State’s hybrid local impact fee and rejected any statewide mineral extraction tax, relying instead on items such as a new Philadelphia cigarette tax to help finance Philadelphia public schools. This may only be a temporary reprieve for the industry as Democrat Tom Wolf, who is campaigning on such a tax, holds a wide lead over incumbent Republican Tom Corbett in the gubernatorial race. It highlights, however, the fact that Pennsylvania wants to develop the resource, while New York simply may not.

Finally, two reports on the environmental front. The first concerns a so-called “buzzword” list apparently created by the Pennsylvania Department of Health. Two now-retired staffers claimed they were prohibited from discussing anything with callers about potential symptoms or other issues if the callers mentioned certain words or phrases, such as “hair falling out” and “skin rash.”

The Department originally denied the list existed, but now says such a list did exist, but denies that it was used in this way. The DOH says they were used to keep supervisors informed of these complaints, but nowhere in the documents provided does it say that DOH personnel were not to take health complaints as charged. Governor Corbett is distancing himself from the DOH on this issue, and the extent and ramifications of this remain to be seen.

The second issues concerns a new study by a research team led by Cornell University that suggests that unconventional gas wells in northeastern Pennsylvania have a 300% higher risk of leaking methane gas than other wells. While the paper may point out some important topics, the fact that its authors have been leading fracking opponents make it an easy target for those criticizing its findings. For the industry and the population at large, the difficult challenge remains to know where important information ends and political advocacy begins.

Editor’s Note on Shale Gas Development:

Dan’s analysis suggests natural gas development will only take place in New York when its governor decides to provide the leadership to make it happen. Will it happen? One suspects so and my guess is after the election, but the worry is that he’ll make a deal with the NRDC forces to keep it out of the Delaware River basin for as long as it takes for them to buy up all the land they want for themselves, which they are now attempting to do through the William Penn Foundation and the Open Space Institute.

As for Tony Ingraffea’s latest “study,” yes, it’s an easy target because Tony’s research always starts with the premise shale gas development is bad and proceeds from there. His latest work is more of the same. It only rises imperceptibly above zero for the guy who gets his kicks palling around with Josh Fox and Yoko Ono, or as we like to call her, Loko Ono.