The fight over local control of oil and gas development in New Mexico isn't over yet.
Though a federal court this week summarily struck down a county's ban on drilling and hydraulic fracturing, the ruling leaves room for less restrictive local rules and fails to spell out exactly how far those rules can go. Still, the outcome may serve as a warning sign for other communities considering the county's ambitious community-rights approach to banning oil and gas extraction.
Commissioners in rural Mora County passed the controversial ordinance in 2013, seeking to block development and strip any violating companies of corporate rights protected by federal law. The approach is known as a "community bill of rights" and is championed by the Community Environmental Legal Defense Fund (CELDF), a Pennsylvania nonprofit that advocates for community self-governance.
After a Royal Dutch Shell PLC subsidiary challenged the measure, the U.S. District Court for the District of New Mexico on Monday overturned it as a violation of both state and federal law (EnergyWire, Jan. 21).
The decision marks the first time a federal court has considered the legality of local drilling bans that have cropped up across the country in the face of increased drilling and is the first interpretation of the New Mexico Oil and Gas Act's pre-emption power. The result is a clear invalidation of Mora County's outright ban but an open question as to the authority of municipalities to enact other oil and gas regulations.
"The judge left room," said University of New Mexico law professor Alex Ritchie, whose own analysis of local drilling bans was extensively quoted in the district court's opinion. "It doesn't answer the question of 'How far can they go?' And it doesn't prevent Mora County from going back to the drawing board."
The judge specifically ruled that New Mexico law allows local governments to regulate some aspects of oil and gas production.
"The Oil and Gas Act does not address issues such as traffic that oil-and-gas production creates; noise limitations for production near residential areas; potential nuisance issues from sound, dust, or chemical run-off; or the impact of oil-and-gas production on neighboring properties," the ruling says. "There is thus 'room for concurrent regulation' by Mora County."
That's troubling for the oil and gas industry, which has already experienced significant restrictions from some local governments that have enacted comprehensive regulations that stop short of an outright ban, said Independent Petroleum Association of New Mexico spokeswoman Karin Foster. Santa Fe County, for example, adopted an ordinance in 2008 that requires companies to go through a lengthy planning process to make sure their projects don't result in deterioration of roads, fire service or water quality. Last fall, San Miguel County adopted an even stricter ordinance that contains similar planning requirements and restricts drilling to unpopulated parts of the county.
The measures include extensive legal precedent, ready to go in case of a lawsuit, and have attracted the attention of other New Mexico jurisdictions seeking a middle ground between drilling bans and state-only regulation.
"If anybody ever decides to challenge the San Miguel County ordinance, that would be a real test," Ritchie said.
Foster said the industry group plans to introduce a bill in the state Legislature to give New Mexico's Oil Conservation Division sole authority over energy regulation.
The decision's impact outside New Mexico is also limited, experts said. The ruling left some issues unsettled and won't do much to dampen the brush-fire battles over local drilling ordinances around the country, said Colorado-based Mountain States Legal Foundation attorney Jaimie Cavanaugh, who is representing local landowners in a separate challenge to the ordinance (EnergyWire, Nov. 18, 2013).
That's partly because Mora County's ordinance was so wide-ranging -- taking on established legal doctrines such as corporate rights and the supremacy of state law.
"If you have another municipality or county somewhere else that enacts an ordinance that bans drilling, but doesn't also try to strip corporations of their rights, I don't think this holding would necessarily decide that case," Cavanaugh said. "It does send a message to this group in Pennsylvania that this language goes too far."
Cavanaugh also noted that most of the challenges to local ordinances are being litigated in state courts, and each state has its own laws governing oil and gas production. In Colorado, for example, state judges have struck down local bans for conflicting with state law, but in New York, judges found local bans to be permissible. The federal court's interpretation of New Mexico state law in the Mora County case does not serve as binding precedent anywhere else.
On the court's interpretation of federal law, however, oil and gas law scholar Bruce Kramer said the case is a clear red light.
"Hopefully what it will do is it will discourage other communities from following CELDF's yellow brick road approach to these issues," he said. "Once a federal court comes with a decision on the federal issues, it should become much harder to sell the identical language as being something that's going to be effective."
If county leaders or an intervenor group decide to pursue an appeal, the case will head to the 10th U.S. Circuit Court of Appeals.
Legal wins vs. political wins
To CELDF Executive Director Thomas Linzey, the federal court's decision is disappointing but not surprising.
That's because the community-rights approach is inherently risky, Linzey said. CELDF promotes community self-governance as a challenge to existing legal constructs that he calls the "three horsemen": corporate rights, pre-emption of local law by state law and a doctrine known as Dillon's Rule, through which state legislatures traditionally assign local powers.
"You can't ban legal activities like oil and gas extraction without challenging those three doctrines," he said. "A lot of people live in a dreamland, which is that we live in a democracy in which our communities actually have control over what happens. In reality, we live in a system of laws that is punctuated by those three horsemen."
Ritchie, the New Mexico law professor, said other communities considering CELDF's approach should proceed with caution.
"Cities and counties need to ask themselves whether they effectively want to be used as a tool to further this agenda of local government control," he said. "If they're considering their alternatives, this decision certainly should influence them."
Following unsuccessful litigation, local governments like Mora County will be stuck with sizable legal fees they may not be able to afford. But Linzey said the first advice he gives to interested towns is that they must be willing to accept the worst-case scenario: municipal bankruptcy. If they're not on board, he won't work with them, he said.
"If you can't stomach that, and you don't believe enough in your right to decide at the community level, then you shouldn't put your toe in this stuff," he said. "Because it's going against everything."
John Olivas, a former county commissioner who pushed for Mora County's ordinance, said it was worth the effort, despite the court decision.
"What our ordinance did is it brought the discussion to the table," he said.
The new commissioners will likely move to pass regulations, similar to Santa Fe and San Miguel counties, he said. They'll be hard to enforce, though, given the oil industry's historical power in New Mexico and Mora County's limited resources. The total county budget is about $1 million a year, including law enforcement and other services, Olivas said.
"Who's going to regulate them, especially at the county level? We can't even grade our own roads," he said.
For communities unwilling to take the legal risk, there are more moderate options, said John Dernbach, who teaches law at Widener University and runs the school's Environmental Law Center. Towns can use state siting laws and other measures to make sure drilling is not encroaching on people's homes, he said.
"There's a distinction between legal and political merit of these claims," said Dernbach, who was once Linzey's professor. "To some degree they're waging a political campaign for more local control, and they're hopeful that in the long run, if not in the short run, decisionmakers and lawmakers will see the merit of their political claim."
CELDF is, indeed, seeking success beyond the courtroom, Linzey said, pointing to efforts to add a constitutional amendment in Colorado protecting local self-governance.
"The judges are merely interpreting the law as it is," he said. "And what needs to happen is an override of the law as it is."