To Ban or Not to Ban: How California Cities and Counties Can Effectively Regulate Oil and Gas Fracking Activity Without the Risk of a Total Ban

• Citation: Vol. 37 No. 4
• Publication year: 2014
• Author: By Dr. Robert H. Freilich and Neil M. Popowitz*

To Ban or Not to Ban: How California Cities and Counties Can Effectively Regulate Oil and Gas Fracking Activity without the Risk of a Total Ban

By Dr. Robert H. Freilich and Neil M. Popowitz*

I. INTRODUCTION

New and greatly increased oil and gas productivity, resulting from hydraulic fracturing, commonly known as "fracking,"¹ spreading from the Wattenberg Field in Colorado, the Bakken Field in North Dakota and Montana, the Marcellus Field underlying Maryland, New York, Ohio, Pennsylvania, and West Virginia, to the Barnett and Eagle Ford Fields of Texas,² has ushered in a new era of abundant oil and natural gas and made the United States once again one of the largest producers of fossil fuels. These fields have now been joined by the discovery in California of the Monterey Shale which may dwarf all of the other fields combined.³

Since 2011, the possibility that fracking will make the Monterey Shale oil and gas reserves productive over large areas of five counties (Fresno, Kern, Merced, San Joaquin and Stanislaus) has gained state and national attention. Despite varying estimates,⁴ based not on the extraordinary projected amount of oil, but on the short term ability of current fracking technology to extricate the resource,⁵ the possibility of oil shale extraction in California has shaken the state from coastal areas to the Central Valley. Some constituencies in cities and counties favor a total ban on fracking, based on a host of alleged environmental, health, safety, air quality, water pollution, water availability and community concerns. In contrast, numerous rural county landowners, oil and gas companies and business associations see California's economic and energy future resting on the subsurface foundation of shale oil and gas in agricultural Central Valley counties with high unemployment,⁶ where prevailing drought conditions have induced major agricultural cutbacks.

A growing number of California cities and counties, acting under the authority of the current oil and gas statute, S.B. 4, California Public Resources Code, Section 3690⁷ have, or are moving to ban all oil and gas drilling and fracking from their jurisdictions. Such cities and counties currently include the cities of Beverly Hills, Carson, Compton, and Los Angeles, and the counties of Santa Barbara, Santa Cruz, Butte, Mendocino, and San Benito.⁸

This article will analyze the following three legal issues: (1) whether cities and counties are preempted from banning all oil and gas drilling and fracking pursuant to state preemption and operational conflict doctrines; (2) whether banning all oil and gas drilling and fracking, even if authorized by S.B. 4, would constitutes a taking of lands or leases whose only value lies in oil and gas extraction; and (3) how cities and counties, not banning fracking, can effectively regulate and tax oil and gas drilling and fracking to achieve fiscal balance, economic activity and employment, adequate public facilities and services, affordable housing and protection of environmentally sensitive lands, air and water quality.

II. DISCUSSION

A. State Preemption and Operational Conflict Doctrines

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Cities and counties have an arguable case, under S.B. 4, for banning all oil and gas drilling and fracking. There are, however, substantial precedents that could lead to a judicial determination to the contrary under state preemption and operational conflict doctrines.

The California Supreme Court has held that: "unlike charter counties, charter cities are also given broad authority to 'make and enforce all ordinances and regulations in respect to municipal affairs .... City charters adopted pursuant to this Constitution and with respect to municipal affairs shall supersede all laws inconsistent therewith.'⁹ There is no corresponding grant of authority and autonomy over 'county affairs' of charter counties."¹⁰

When there is conflict between the local police power regulations and statutes and regulations of the State, the former are invalid. In either case the result is the same, the local law has no effective force. There is, of course the qualification with respect to chartered cities in regard to local laws dealing with purely municipal affairs, when local law prevails.¹¹ Because the Constitution fails to define what qualifies as a matter of local interest, it is "necessary for the courts to decide, under the facts of each case, whether the subject matter under discussion is of municipal or statewide concern."¹²

Since S.B. 4 is a general law that governs the oil and gas industry statewide, there can be no home rule override of the state statute on the grounds that local regulation of oil and gas drilling and fracking is a matter of purely local concern. S.B. 4 does not preempt local government regulation, it expressly authorizes local governments to adopt and enforce local regulations for the conduct and location of oil production activities. Nevertheless, it is clear that cities and counties cannot override areas of state regulation and interest or create operational conflict with the comprehensive state system of regulation.¹³ Banning the practice of oil and gas drilling and fracking throughout the jurisdiction constitutes such operational conflict because it prohibits what the state law permits.¹⁴

On June 13, 2014, the California Department of Conservation issued public notice of the proposed adoption of new rules that directly regulate fracking permitting, noting that: "Well stimulation" practices are defined by Senate Bill 4 (Pavley, Ch 313, Stats of 2013) and are designed to protect health, safety, and the environment, and supplement existing strong well construction standards. They address a comprehensive list of issues, including testing, monitoring, public notice, and permitting.¹⁵ The proposed regulations are a re-adoption of the interim regulations, which first went into effect on January 1, 2014, and were adopted by emergency rulemaking to ensure that essential implementing regulations were in effect when Senate Bill 4 became effective.¹⁶

In 1976, the California Attorney General responded to a request for an opinion from the State Supervisor of Oil and Gas with respect to the following two questions:

1. Can counties and cities regulate the drilling, operation, maintenance and abandonment of oil, gas and geothermal wells with respect to phases of such activities not covered by state statutes or regulations?
2. Are regulations of counties and cities governing the drilling, operation, maintenance and abandonment of oil, gas and geothermal resources wells valid when they are more stringent than the state laws and regulations on the same subject matters?

The opinion concludes that:

State laws on drilling and production activities of oil, gas and geothermal resources wells for the purpose of conserving and protecting those resources take precedence over local regulations, particularly where the state law approves of or specifies plans of operation, methods, materials, procedures, or equipment to be used by the well operator or where activities are to be carried out under direction of the state Supervisor. With regard to state regulation for other purposes, such as land use control and environmental protection, the state has not fully occupied the field, and more stringent, supplemental regulation by cities and counties is valid to the extent that it does not conflict or interfere with state regulation. Cities and counties may regulate drilling, operation, maintenance and abandonment of oil, gas and geothermal wells with respect to phases of such activities not covered by state statute or regulation so long as there is no conflict with state regulation concerning other phases of such activities. (emphasis supplied)¹⁷

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The Attorney General distinguished earlier cases upholding local regulation banning oil and gas industries from the jurisdiction on the grounds that licensing of business operations was a matter of local concern.¹⁸ The Attorney General noted that

in recent years there has also been growing concern over the limited nature of energy sources and the state's statutes regulating oil, gas and geothermal resources have assumed added importance.... The administrative regulations of the [presently Department of Conservation] Supervisor pursuant to the Public Resources Code have also been expanded within the last few years to meet those additional purposes and carry out a program of environmental protection.... These recent changes indicate to us that the interest subject to regulation by the Supervisor under the police power is expanding from conservation, protection and encouragement of the development of energy resources to include safety and environmental protection. "What may at one time have been a matter of local concern may at a later time become a matter of state concern controlled by the general laws of the state."¹⁹

The prescience of the Attorney General's opinion is borne out by the increasing scope of current state regulation of oil and gas drilling, including the proposed new rules of the Department of Conservation, to include widespread environmental and site location requirements, which followed the enactment of Public Resources Code section 3690 in 1971.²⁰

Traditionally, state concern has primarily focused on three issues: prevention of waste, protection of...