High volume hydraulic fracturing and home rule: the struggle for control.

• Author: Nearpass, Gregory R.

1. INTRODUCTION

   At the core of American jurisprudence is its system of checks and balances. Each of the three branches of government--executive, legislative, and judicial--is specifically designed to provide oversight and review of each other; the goal to reign in and prevent abuses of power or instances where one branch exerts powers it does not have. Moreover, there is no hierarchy of power between the branches; their powers, functions, and limitations being derived by the Constitution itself.

   In addition to this system of checks and balances within government, there is also a system of checks and balances among the different layers of government--federal, state, and local. The difference here is that there is a hierarchal structure of power between these layers. Unquestionably, the federal government sits atop the power structure, and provides a unifying force of law and policy throughout the country. The federal government also provides powers to the states, colloquially referred to as the "police powers." (1) Likewise, state governments have control and authority over local municipalities, and local governments get their powers from the states, such powers being referred to as "home rule" powers. (2) In other words, the powers, functions, and limitations of each layer of government are derived from the preceding layer.

   Just because a layer of government has exerted power in a particular area, does not automatically preclude another layer from regulating. There are many instances where the different layers of government are able to concurrently regulate a particular area. However, there are instances where the federal or state government has either (i) reserved complete and exclusive control, or (ii) specifically limited the powers of a lower layer of government. This is done through the doctrine of preemption (3) and supersession. (4)

   Notwithstanding this system, which has been in place for over two hundred years, (5) there is still a struggle for control among the branches of government, as well as among the layers of government. Where the system tends to break down is with an emerging area of law. In these instances, a struggle for control occurs. There can be an executive order, proposed legislation, and judicial review occurring simultaneously. Plus, there can be attempts by multiple layers of government to exert control.

   There is no better current example than with high volume hydraulic fracturing ("HVHF"), an emerging technology and area of law in the Northeast. For the most part, the struggle for control over HVHF is taking place between state and local governments, (6) and this article primarily focuses on the struggle between New York State and its local governments. As municipalities are enacting local laws and moratoria banning HVHF within their borders, the question remains: do municipalities have this power?

   As explained in more detail below, two recent court cases, Anschutz Exploration Corporation v. Town of Dryden ("Dryden"), (7) and Cooperstown Holstein Corporation v. Town of Middlefield ("Middlefield"), (8) have upheld local laws prohibiting HVHF. (9) These laws were upheld, despite the fact that New York State law has very broad preemption powers over the oil and gas industry, and prior attempts by municipalities to regulate the oil and gas industry have been struck down as preempted by state law. (10)

   Even more recently, on October 2, 2012, another case dealing with home rule powers and HVHF was decided. In Jeffrey v. Ryan ("Binghamton"), (11) the court overturned a local law prohibiting HVHF, determining that the local law was an improper moratorium. (12) In so doing, the court casted doubt upon and questioned the legality of all moratoria prohibiting HVHF. (13)

   Both Dryden and Middlefield have been appealed to the Appellate Division, Third Department, (14) and a decision to appeal has not been made yet regarding Binghamton. (15) To date, oral argument has not been heard by the Third Department, and it is likely that a decision will not be issued by the Third Department until sometime in 2013. (16) Until then, municipalities, perhaps embolden by the two trial court decisions, are continuing to use their home rule powers to enact local laws and moratoria prohibiting HVHF. (17) Notwithstanding, based upon the well-established principles of preemption and supersession, New York State law--in particular the Environmental Conservation Law ("ECL")--is clear that municipalities do not have the power to ban HVHF. (18) Accordingly, Dryden and Middlefield should be overturned as an impermissible use of home rule power.

   This article seeks to provide an overview of the current landscape of HVHF in New York State and the extent to which municipalities may regulate HVHF through the enactment of local law. Part II of this article provides an overview of oil and gas development in New York State through a discussion of technology and associated regulation of HVHF. (19) Part III of this article provides a perspective on the administrative and judicial review of HVHF in New York State. (20) Parts IV and V of this article provide an overview of home rule and the associated impact preemption has upon a municipality's police power to regulate HVHF by local law. (21) Part VI concludes by making a prediction as to the landscape of the law surrounding HVHF in the future. (22)

2. OIL AND GAS DEVELOPMENT IN NEW YORK

   While this article provides an in depth discussion and examination of the home rule powers of municipalities over HVHF and the interplay between New York State law and local laws, it is important to have a basic understanding of oil and gas development in New York, hydraulic fracturing, high volume hydraulic fracturing, and the regulatory framework governing the oil and gas industry in New York.

   Generally, there are two types of drilling methods: vertical and horizontal drilling. (23) With vertical drilling, there is just one well, going straight down. (24) Vertical drilling is used to extract "conventional" natural gas, which is a pocket of natural gas trapped beneath a rock layer. (25) With horizontal drilling, there is an initial vertical well, but then multiple horizontal wellbores can be drilled in different directions and at various heights, (26) the goal being to improve the potential efficiency of the well to reach of pockets of natural gas. (27) Horizontal drilling is used primarily to access "unconventional" natural gas, (28) which is natural gas that is trapped within a rock formation. (29) When compared to a vertical well, turning a wellbore horizontally allows the operator to access more natural gas. (30)

   New York has a rich history with oil and gas development. The first commercial well was drilled in Fredonia in 1821. (31) There have been over 75,000 oil and gas wells drilled in New York, (32) and there are currently more than 14,000 active wells in New York. (33) Hydraulic fracturing is a technique using a pressurized fluid to create and maintain fractures to release petroleum or natural gas in rock formations. (34) Hydraulic fracturing has been done in New York since the 1950's, and horizontal drilling has been used in New York since the 1980's. (35)

   1. High Volume Hydraulic Fracturing

      High volume hydraulic fracturing ("HVHF") is a type of horizontal drilling method using large volumes of fluid, (36) which is composed primarily--approximately 99%---of water and sand. (37) HVHF is not new to the United States; it has been used for over sixty years, (38) mainly in the west, and only recently has made its way to the east coast. (39) To make a horizontal well more productive, drilling companies increase the tiny fractures in the shale, called fissures, which allows more gas to flow into the well. (40) This is done by pumping large volumes of hydraulic fracturing fluid into the wellbore, (41) This fluid creates the fissures and keeps them open so that the gas can enter into the well. (42)

      In New York, under the proposed regulations, HVHF in the Marcellus Shale would consist of a vertical well, then turning horizontal within the shale formation, (43) The New York State Department of Environmental Conservation ("DEC") has proposed several siting requirements regarding the location of HVHF wells, including that the Marcellus Shale must be at least 2000 feet below the ground surface level. (44) This is an oversimplification of the process and the technology, (45) as well as the proposed regulations governing the siting of HVHF wells. (46)

   2. Natural Gas Regulation in New York

      The DEC regulates natural gas development in New York. (47) In order to drill a well in New York, an operator must obtain a DEC permit. (48) In 1992, in accordance with the New York State Environmental Quality Review Act ("SEQRA"), the DEC completed a Final Generic Environmental Impact Statement ("FGEIS") for oil and gas wells, (49) and determined that oil and gas wells do not have a significant adverse impact on the environment. (50) Accordingly, subsequent wells that satisfy the terms of the FGEIS require no additional environmental review. (51)

      The oil and gas industry is regulated by the ECL, specifically Article 23, otherwise known as the Oil, Gas and Solution Mining Law. (52) This law vests the power and jurisdiction over oil and gas development in the DEC, and provides for specific regulations, including regulations regarding well spacing, (53) voluntary integration, (54) and compulsory integration. (55) The regulations also contain a preemption provision that prohibits local municipalities from regulating the oil and gas industry, with the exception of two narrow instances. (56)

3. HVHF REVIEW IN NEW YORK

   HVHF has generated significant discussion and debate throughout New York, not only in the public domain, (57) but also within, and among, the layers and branches of government. (58) In 2009, the DEC issued a draft supplement to the FGEIS, to consider HVHF, as it was determined that HVHF and...