Controversial oil and gas law returns to high court

By Ellen M. Gilmer | 03/09/2016 07:50 AM EST

Pennsylvania lawyers are gearing up for a court battle today that feels like 2012 all over again.

Pennsylvania lawyers are gearing up for a court battle today that feels like 2012 all over again.

The state government and municipalities are arguing over Act 13, the controversial state law that four years ago revamped the Keystone State’s oversight of the growing oil and gas industry. The Pennsylvania Supreme Court in late 2013 tossed a key provision of the law that blocked local governments from using their zoning powers to regulate development. Today, other provisions of Act 13 are under the microscope as lawyers for municipalities and the state present oral arguments before Pennsylvania’s highest court.

In a separate case before the state Supreme Court today, lawyers are debating the very provision that helped kill the local zoning restrictions years ago. In a lawsuit targeting oil and gas development on Pennsylvania’s public lands, the court is considering the proper standard for judicial review under the state constitution’s unique environmental rights amendment.


Decisions in both cases are expected to have big impacts for Pennsylvania’s oil and gas development, raising questions about how industry impact fees are distributed and potentially bringing clarity to the contentious issue of the environmental rights amendment. And the questions are going before a recently rebalanced Supreme Court, which has three new Democrats on the bench.

In the Act 13 case, the issues are multifaceted. The two sides are arguing over "severability" — whether certain aspects of the law must be thrown out with the zoning provision that was ruled unconstitutional three years ago. Among those are whether state regulators at the Public Utility Commission have the right to review local ordinances that affect drilling and whether industry should be able to bypass local zoning boards and go straight to the Commonwealth Court to challenge zoning rules.

"We say those are inherently wrapped up in the provisions that have been declared unconstitutional," said Curtin & Heefner attorney Jordan Yeager, who is representing the local governments.

It’s important for the Supreme Court to agree with a lower court that the provisions should be tossed, Yeager said, because they otherwise present a "backdoor" opportunity for industry to sway local rules.

"Certainly, on the question of whether these other provisions should be severed, it is very important that the Commonwealth Court’s decision on that — which enjoined those other sections — be upheld because they really are being looked at by industry, through its allies on the PUC as a backdoor attempt to try to salvage something out of the provisions that were declared unconstitutional," he said. "There is a lot at stake in that."

Kevin Moody, vice president and general counsel for the Pennsylvania Independent Oil & Gas Association, said the idea of underhanded influence over local rules is false. The state Supreme Court’s 2013 decision did not change the "long-standing boundaries" that local governments can regulate where drilling is done but cannot control how it is done. PUC review of local rules ensures that municipalities are playing fair, he said.

"The decision took out two legs of the stool, but there’s three left," he said. "And certainly the stool still stands."

Kleinbard LLC’s Matt Haverstick, who is representing the PUC, said the contested provisions are part of the original design of Pennsylvania’s impact fee — a flat fee for gas wells that funds payouts to local governments and other entities to address the impacts of development. According to Haverstick, the General Assembly passed the impact fee as a compromise between local governments and industry, allowing municipalities to get financial support as shale development moved forward, so long as the PUC affirmed that local rules were fair.

"The whole statutory scheme is upset. If you knock out what we’re arguing about, it seems to me that there’s no recourse for government and oil and gas companies," he said. "It’s the carrot without the stick."

If that happens, Haverstick said, the Legislature likely would step in to clarify that impact fees are not entitlements.

Oral arguments today will also address a set of Act 13 provisions that have been upheld by a lower court. The municipalities are challenging earlier decisions to preserve what they call a "physician gag rule" in the law, along with a provision that allows industry to use eminent domain for gas storage facilities, and a requirement that industry notify public water supply operators of contamination but does not extend to private water well owners.

Yeager and two other lawyers will present arguments for the municipalities, followed by arguments from Haverstick and attorneys from Pennsylvania’s Department of Environmental Protection and the state attorney general’s office.

Environmental rights

In the environmental rights amendment case, oral arguments today will focus on two issues: how the amendment should be used to review government actions and whether the state acted illegally in redirecting some leasing revenue away from the state’s Department of Conservation and Natural Resources to fund the general budget.

The case, brought by the Pennsylvania Environmental Defense Foundation, is the second round of litigation carried out against the state and the governor’s office after former Govs. Ed Rendell (D) and Tom Corbett (R) authorized thousands of acres of natural gas lease sales on state lands and, with the state Legislature, sent some of that revenue to general state coffers. Gov. Tom Wolf (D) has since ordered a halt in new oil and gas leasing on state lands.

In arguing the case, PEDF invoked the environmental rights amendment that was so persuasive in the original Act 13 litigation. The group argued that the budget decision failed to maintain the state lands for the public’s benefit, violating the amendment.

"The Governors’ decision to direct additional leasing and to take the money from this leasing away from DCNR violated the constitutional protections established through [state law] to ensure that any future leasing of State Forests and Parks for oil and gas extraction was [to] be done consistent with the rights of the people and limits on the Commonwealth government mandated by [the constitution]," the group said in a legal brief last year. The Pennsylvania Commonwealth Court rejected the argument last year.

Moody, of PIOGA, said he was eager for a state Supreme Court decision that would narrow the interpretation of the environmental rights amendment — allowing the state to balance economic needs against environmental considerations.

"The environmental rights amendment may be in Article 1 [of the state Constitution], but so are private property rights," he said. "We don’t see any reason why the thumb should be on the scale of the environmental side."