State utility regulators are advising municipalities in Pennsylvania on the validity of their zoning ordinances regulating natural gas drilling even as a major provision of the new state impact fee law or “Act 13” as it is better known is under court review.  On July 26, 2012, the Commonwealth Court in Robinson Township et al v. Commonwealth of Pennsylvania, struck down a provision in the law, which limits the ability of municipalities to control the location and manner of drilling activity.  The Court found the provision unconstitutionally infringes on municipalities’ substantive due process rights by forcing them to allow incompatible land uses, such as drilling rigs in zones that have been kept apart from industrial activity, thus failing to protect the interests of neighboring property owners.  Partner Stephen Feinour takes a closer look at Act 13 and how recent developments affect municipalities and the regulation of drilling activities in the Marcellus Shale region.

The Unconventional Gas Well Fee Act, or “Act 13” amends and codifies the prior Oil and Gas Act and focuses on the extraction and transmission of natural gas from the shale formations known as the Marcellus and Utica Shales.  While the prior statute preempted local regulations affecting oil and gas operations that were regulated by the state statute, Act 13 significantly broadens the preemption of local regulations of “unconventional” natural gas development.  Whereas 3303 of Act 13 preempts local regulation of oil and gas operations to the extent they are regulated by any state or federal environmental statutes, Section 3304 of Act 13 broadly preempts municipal land use ordinances in order to facilitate the development of oil and gas resources.  The preemption significantly impinges upon the traditional power of municipalities to regulate land development and uses within their boundaries in order to protect and promote safety, health, morals and welfare of their citizens under the Municipalities Planning Code (“MPC”).

To facilitate the reasonable development of oil and gas resources, Section 3304 mandates, in part, that local ordinances allow well and pipeline location operations throughout the municipality; authorize oil and gas operations, other than activities at impoundment areas, compressor stations and processing plants, as a permitted use in all zoning districts; prohibit restrictions on wells or well sites within residential districts only if the well site cannot be placed so that the well head is at least 500 feet from any existing building; and authorize natural gas compressor stations as a permitted use in agricultural and industrial zoning districts and as a conditional use in all other zoning districts, provided certain standards are met.  Thus, Act 13 prevents municipalities from prohibiting oil and gas development activities within even the most restrictive residential districts.  Those municipalities that fail to amend their zoning ordinances to conform to the requirements of Act 13 will be ineligible to receive a portion of the impact fees imposed on oil and natural gas producers within that municipality.  Furthermore, Act 13 also vests natural gas producers with the ability to initiate proceedings before a court to assert a violation of Act 13 by the municipality and to impose attorneys’ fees should the court find the municipality’s violation of Act 13 to have been willful.

This usurps the traditional power of municipalities to ensure the health, safety and welfare of its citizens through its zoning regulations.  Consequently, the Court has concluded that Section 3304 violates the substantive due process rights of municipalities and hence is unconstitutional under Article I, Section 1 of the Pennsylvania Constitution.  That decision is currently on appeal to the Pennsylvania Supreme Court and is being given expedited review.  Oral argument on the appeals was heard on October 17, 2012.

On August 15, President Judge Daniel Pellegrini of the Commonwealth Court issued an Order in the Robinson Township case holding that municipalities do not need to amend their zoning ordinances to comply with Section 3304 of Act 13 while the appeals of the Commonwealth Court’s prior decision are pending before the Supreme Court.  However, Section 3215(b)(5) of Act 13 remains in effect, such that the Pennsylvania Department of Environmental Protection (“DEP”) can continue to issue waivers from setback requirements from streams, springs and bodies of water.

Municipalities both within the Marcellus Shale region and outlying regions are anxiously awaiting the decision of the Supreme Court.  If the constitutionality of Section 3304 is upheld, municipalities with unconventional gas wells will be required to amend their ordinances to comply with Act 13 and to receive their allocated impact fees.  Municipalities outside the Marcellus Shale region, which do not have natural gas wells but are the likely location of transmission facilities, such as compressor stations, should likewise be prepared to amend their zoning ordinances.

In the meantime, the Pennsylvania Public Utility Commission (“PUC”) is proceeding with its review of municipal ordinances for compliance with Act 13.  The City of Pittsburgh recently submitted its ordinance banning oil and natural gas drilling within the City to the PUC for review.  The PUC has issued an advisory opinion finding that the ordinance is in direct conflict with the authority of the Commonwealth to establish environmental standards and thus is invalid.  The PUC advisory opinion does not have the force of law but is an indication of the position the PUC will take with regard to state preemption of municipal regulations governing natural gas drilling activities.

The Pennsylvania Commonwealth Court, per Judge Keith Quigley, on October 25, 2012, entered an Order directing the Pennsylvania Public Utility Commission to cease and desist from reviewing municipal ordinances for compliance with the MPC and Chapters 32 and 33 of Act 13.