LOOK AT WHAT JOHN ROCKEFELLER STARTED

Posted on September 15, 2015 by Michael Hardy

Few recognize Ohio’s pivotal role in the development of the oil and gas industry in the United States.  John D. Rockefeller amassed fortunes in Cleveland with his oil refining business (until Uncle Sam broke up the monopoly).  Since then, there have been a number of different oil and gas booms in the state, for example in the mid-1960’s north of Columbus, then again in deeper sandstone formations in suburban areas of Cleveland approximately 10 years ago, and now, the whopping Utica shale play primarily in eight counties in eastern Ohio at depths over 8000 feet below ground surface and horizontal laterals extending a mile or more.  The Ohio Department of Natural Resources (“ODNR”) has issued over  2000 Utica drilling permits, and there are approximately 1000 wells in production or drilling (costing millions to complete).  Hydraulic fracturing (“fracking” its critics pejoratively call it) has been around a long time, but only recently has it been the focus of media and regulatory scrutiny.  All of these historical booms going back to the mid-1960’s have forced the Ohio General Assembly to enact and update  comprehensive statutes that regulate drilling activities.  

Those in the industry were successful in having the General Assembly confer “sole and exclusive authority” to the ODNR “to regulate the permitting, location, and spacing of oil and gas wells and production operations.”  But what about the longstanding, traditional “home rule powers” that the Ohio Constitution conferred on municipalities to take care of health, safety and land-use matters within their jurisdictions?  The juxtaposition of the two came to a head in a case that ironically does not deal with the massive Utica shale wells, but more modest gas wells in a shallower formation in a suburb in Northern Ohio. 

The ODNR had issued a drilling permit to Beck Energy to drill a well in Munroe Falls in 2011.  But Munroe Falls obtained a local trial court injunction prohibiting the permitted drilling until Beck Energy complied with all local ordinances, including the payment of a fee, the posting of a bond, and the holding of a public meeting.    Despite having the state’s authorization to proceed, Munroe Falls prohibited the drilling until it issued its zoning certificate, which it would not do (if at all) for at least one year after Beck met the other pre-conditions.  

The dispute found its way to the Ohio Supreme Court, which issued a “plurality” opinion (4-3) in favor of Beck Energy (and the ODNR).  State ex rel. Morrison v. Beck Energy Corp. The City argued that the state statute regulates the technical aspects of oil and gas drilling while the municipal ordinances address traditional local zoning concerns.  The majority seemed troubled by the scope of the “sole and exclusive” language, but seemed content to defer this policy question to the General Assembly.   Because the traditional  Home Rule powers have enjoyed longstanding and wide ranging judicial respect, the majority in the Beck Energy  case limited the decision to the Munroe Falls ordinances before the Court, presumably leaving open some future role for local zoning ordinances.   

The initial reaction of the bar was to focus on the separate concurring opinion of Justice O’Donnell, who was reluctant to displace local zoning authority in favor of sweeping state regulatory authority.  In his view, the “sole and exclusive” authority was intended to preempt a patchwork of local laws related to the technical and safety aspects of drilling and not to divest local governments of their traditional authority to promulgate zoning regulations that ensure land-use compatibility, preserve property values, and foster long-term community development plans.  The dissenting Justices, along with Justice O’Donnell, noted the troubling omission of the word “zoning” when the General Assembly spoke to “exclusivity.”  That is to say, if the General Assembly really meant to displace local zoning practices, it could have clearly said so, as it has done with other licensing statutes. 

The Ohio Supreme Court’s decision has not put an end to the hotly contested question of the scope of pre-emption.  For example, an activist group in suburban Broadview Heights has filed a putative class action lawsuit claiming that the City’s Community Bill of Rights supersedes state laws.  And recently, the Ohio Secretary of State refused to certify county-wide ballot initiatives that sought to prohibit fracking and/ or drilling in their respective jurisdictions. 

So after I finish this blog tonight, I will drive down Rockefeller Drive, pass the remains of the old Standard Oil refinery, and wonder what John D would have thought of this tension between state preemption and local health and safety regulations.