LOCAL REGULATION OF OIL AND GAS OPERATIONS: DON'T ALL HOMEOWNERS WANT A PUMPJACK IN THEIR BACKYARD

• Jurisdiction: United States

41 Rocky Mt. Min. L. Fdn. J. 213 (2004)
Chapter 1
LOCAL REGULATION OF OIL AND GAS OPERATIONS: DON'T ALL HOMEOWNERS WANT A PUMPJACK IN THEIR BACKYARD ¹
Eugene Kuntz Conference on Natural Resources Law and Policy November 12, 2004
Bruce M. Kramer ²
Maddox Professor of Law
Texas Tech University School of Law
Lubbock, TX 79409
Copyright © 2004 by Bruce M. Kramer

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I INTRODUCTION

I have been writing about local governmental regulation of land use for many years.¹ Today, the regulation of oil and gas exploration and production activities by substate governmental units has reemerged after a lengthy quiescent period.² Oil and gas activities obviously take place where the oil and gas is located. Historically that has been in rural areas, although there are clear

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exceptions.³ Population growth and urban sprawl has brought the citizenry to where the oil and gas wells are. People who move to the country not only want urban amenities, they also want the "peace and quiet" that they believe exists in the idyllic rural surroundings. One does not want to exchange the noise of the bus or emergency medical vehicle for the noise of the "pump jack" and the drilling rig. In addition, during the middle of the 20^th Century, land use powers were largely concentrated in municipalities. Counties, the usual provider of governmental services in the rural regions of the United States, were often the stepchild of substate units lacking most of the traditional police powers exercised by the cities. In addition, counties were often left out of the home rule movement that transformed local governmental law in the 20^th Century. As will be explained later, the concept of home rule gives substate units substantially greater freedom to exercise the police power than had existed prior to the adoption of constitutional and statutory home rule regimes. All of these developments now make the understanding of local land use regulatory mechanisms important for all of the interested parties in oil and gas development, royalty interest owners, working interest owners and surface owners.

II A PRIMER ON LOCAL GOVERNMENTAL ZONING POWERS

Land use regulation through zoning, planning and subdivision regulatory mechanisms has a reasonably long history.⁴ New York City enacted the first comprehensive zoning ordinance in 1916. But it was two subsequent events that led to the widespread use of zoning throughout the urban areas of the United States. The most important of the two was the Supreme Court's "blessing" of zoning as being a constitutionally valid exercise of the police power in the landmark decision of Village of Euclid v. Ambler Realty Co.⁵ The

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second event was the development of the Standard Zoning Enabling Act and the Standard Planning Enabling Act by the United States Department of Commerce under the guidance of Herbert Hoover in 1924. Within a few years of these two events, over 45 states had adopted statutes authorizing at least some of their substate units to engage in comprehensive zoning and/or planning efforts.⁶ Euclid and the SZEA eliminated the legal or constitutional constraints on the exercise of comprehensive land use regulatory powers by substate units. Clearly the political climate was such that within a relatively short period of time, zoning at the city level became a nearly universal practice.⁷

1 Home Rule Authority

For local governmental units that have home rule authority, either granted by the State Constitution or by state legislation, the power to zone arises from the charter of the local governmental unit. Essentially a home rule provisions transfers to the substate unit, the full breadth and extent of the police power that otherwise resides in the State Legislature. Grants of home rule power differ from state-to-state, but for our purposes, the major categories of home rule power deal with whether that power is preemptible or non-preemptible. Most states provide for preemptible home rule power.⁸ Texas is a good example of a preemptible home rule state.⁹ A preemptible home rule system means that while the substate units have all of the power that the State has, the State may, through the exercise of its legislative prerogative, limit, condition or abrogate the substate unit's power. A good example of the state legislature's ability to preempt or not to preempt a home rule unit's ability to regulate oil and gas well drilling operations is the following Ohio statute:

This chapter or rules adopted under it shall not be construed to prevent any municipal corporation, county, or township from enacting and enforcing health and safety standards for the drilling and exploration for oil and gas, provided that such standards are not less restrictive than this chapter or the rules

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adopted thereunder by the division of mineral resources management. No county or township shall adopt or enforce any ordinances, resolutions, rules, or requirements relative to the minimum acreage requirements for drilling units; minimum distances from which a new well or related production facilities may be drilled or an existing well deepened, plugged back, or reopened to .... No county or township shall require any permit or licenses for the drilling, operation, production, plugging, or abandonment of any oil or gas well, not any fee, bond or other security, or insurance for any activity associated with the drilling, operation, production, or abandonment of a well, except for the permit provided for in section 4513.34 of the Revised Code and any bond or other security associated therewith.¹⁰

This section is not a model of clarity since it apparently intends to preempt some, but not all, substate units, from some of their power to regulate oil and gas drilling and production activities.¹¹ But clearly in preemptible home rule states, the state may enact legislation that simply takes away from home rule units their power to regulate oil and gas well drilling and production operations. To date, however, no major producing state has gone that far, leaving home rule units substantial concurrent authority to regulate such activities.

Two oil and gas producing states, California,¹² and Colorado¹³ have non-pre-emptible home rule constitutional provisions. In theory that means that as to matters relating exclusively to local or municipal affairs, the state has no power to act. In other words the home rule unit has sole authority to regulate on matters relating to local or municipal affairs. As to matters of statewide concern or hybrid state/local concern, these two states treat local powers as preemptible. As a practical matter, the regulation of oil and gas operations is not going to be treated as a matter of exclusive local concern, therefore the preemption analysis for these states is similar to the analysis in preemptible home rule states.

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2 General Law Authority

Prior to the adoption of home rule authority, all substate units were treated as essentially "creatures" of the state.¹⁴ General law local governmental units could only exercise such power as was expressly granted them by the State Legislature. In addition, under Dillon's Rule, a common law doctrine employed by many courts, the grant of power to substate units is to be narrowly interpreted.¹⁵ The principal purpose underlying the development of the SZEA in the 1920s was to provide a model enabling act to be passed by state legislatures clearly giving substate units the power to zone and plan. Without such an enabling act, substate units may not have had the authority to zone. Concurrent with the trend towards the granting of home rule authority, many state legislatures have granted general law cities equivalent powers without the need to attain home rule status. For example, Texas provides that all general law municipalities in the state have the power "to adopt ordinances for good government, peace or order which are necessary or proper for carrying out a power granted by law."¹⁶ While cities in most states have substantial home rule or enabling authority to engage in zoning and planning regulation, other types of sub-state units, including counties, do not possess analogous authority. Thus counties in Texas, in general, lack the power to zone and plan.¹⁷ But in some 37 states, counties may possess home rule power.¹⁸ Whether or not such power is exercised will depend on many factors but as counties gain population the

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pressure to regulate oil and gas drilling and production activities will undoubtedly increase.

3 Constitutionality

As discussed above, the constitutionality of zoning regulation was a hotly debated issue until the Euclid decision resolved that issue. Prior to Euclid several state supreme courts had invalidated zoning efforts using a substantive due process argument.¹⁹ Euclid involves a facial substantive due process attack on a zoning ordinance that divided the City into a hierarchy of zoning districts from single family residential to industrial. Even though the owner of the land in question alleges that the market value of the land will be diminished from $ 10,000/acre to $ 2500/acre, the Supreme Court finds that the comprehensive zoning ordinance on its face has a substantial relation to the public health, safety, morals or general welfare. At this time the regulatory takings jurisprudence set in motion by Justice Holmes' opinion in Pennsylvania Coal Co v. Mahon,²⁰ had not fully blossomed so that the Euclid opinion may not be a definitive statement on the regulatory takings limits on zoning.

While Euclid involves a facial attack on a zoning ordinance, the Supreme Court shortly after Euclid decided Nectow v. City of Cambridge,²¹ an as-applied challenge to a zoning ordinance. While Euclid had taken a "soft glance" or deferential approach to judicial review of zoning decisions, such as where to draw the district lines and what uses to allow in each district, Nectow clearly...