Pa. Supreme Court jolts shale industry

The Pennsylvania Supreme Court on Thursday struck down provisions of the state's Oil and Gas Act that stripped municipalities of the power to determine where natural gas drilling activity could occur within their boundaries.

The long-awaited decision is a blow to a 2012 law known as Act 13 that was promoted by Gov. Corbett and the Marcellus Shale natural gas industry as a means to create a uniform statewide standard for gas development.

By a 4-2 vote, the court ruled that the zoning provisions in the law were unconstitutional, though the court disagreed on the grounds for striking down the law.

"The bottom line is that the majority of the court agreed that Act 13 is unconstitutional, and that local governments can zone oil and gas drilling like they do other activities," said Jordan B. Yeager, a Doylestown environmental lawyer who argued the case on behalf of several municipalities.

Corbett, Republican legislative leaders, and the Marcellus Shale Coalition, the industry trade group, called the 162-page ruling a "disappointment" in separate statements.

"We must not allow today's ruling to send a negative message to job creators and families who depend on the energy industry," Corbett said in a statement. "I will continue to work with members of the House and Senate to ensure that Pennsylvania's thriving energy industry grows and provides jobs while balancing the interests of local communities."

Dave Spigelmyer, the coalition's president, said the decision "represents a missed opportunity to establish a standard set of rules governing the responsible development and operation of shale gas wells in Pennsylvania."

Environmental groups applauded the decision, saying it would allow municipalities some control over where drilling and hydraulic fracturing take place.

"With this ruling, municipal governments will once again have the ability to determine when and where fracking occurs in their locality," PennEnvironment said. "This is crucial for protecting public health, our environment and our communities."

The decision stems from a lawsuit brought by seven municipalities and the Delaware Riverkeeper Network that challenged the constitutionality of Act 13. The municipalities included Nockamixon Township and Yardley Borough in Bucks County.

The law restricted municipalities' ability to control where companies might place rigs, waste pits, pipelines, and compressor and processing stations. It allowed drilling in residential districts as long as certain buffers were observed.

Commonwealth Court struck down the zoning provisions in the law in July 2012. The state was enjoined from enforcing the disputed provisions of Act 13 while the case was under appeal.

The full panel of seven Supreme Court justices heard arguments in October 2012, before one justice resigned in May in a campaign fund-raising scandal. That left three Republicans and three Democrats among the justices who heard the case, and some industry supporters feared the justices would divide along party lines, automatically upholding the lower court's decision.

But Chief Justice Ronald D. Castille, a Republican, put fears of a stalemate to rest when he joined with Democrats Max Baer, Debra Todd, and Seamus P. McCaffery in the ruling. Castille wrote the opinion.

Justices J. Michael Eakin and Thomas G. Saylor voted in the minority.

"We are stunned that four justices would issue this ruling, which will so harshly impact the economic welfare of Pennsylvanians," State Senate President Pro Tempore Joe Scarnati (R., Jefferson) and House Speaker Sam Smith (R., Jefferson) said in a joint statement. They said the ruling likely would increase natural gas prices and cost "a multitude" of jobs.

The challenge to the Act 13 zoning restrictions is part of a larger clash taking place across the country between the oil and gas industry and local communities that object to drilling.

While seven municipalities were parties to the legal challenge, a wide range of local governments had expressed support for the lawsuit because of its implications on broader zoning policy.

"The entire state was at risk of losing zoning," said Brian Coppola, supervisor of Robinson Township, a town of 2,200 people in Washington County whose name is in the title of the court case.

"Few could seriously dispute how remarkable a revolution is worked by this legislation upon the existing zoning regimen in Pennsylvania, including residential zones," Castille wrote. He said the law's rules represented an unprecedented "displacement of prior planning, and derivative expectations, regarding land use, zoning, and enjoyment of property."

The state argued that it was the constitutional trustee of Pennsylvania's public natural resources and that the General Assembly is vested with exclusive authority to regulate the oil and gas industry.

Yeager, the Doylestown lawyer, said the ruling "restores the vitality" of Pennsylvania's 42-year-old Environmental Rights Amendment, which confers constitutional protections to adjoining property owners as well as future generations of Pennsylvanians, not just the owners of mineral rights.

"This reiterates that there needs to be a balance and if you go too far, the court's going to strike it down," Yeager said.

Act 13 also included a provision establishing an impact fee on drillers of "unconventional" wells such as those in the Marcellus and Utica Shales. The constitutionality of the fee was not an issue in the court case.

The Supreme Court also overruled Commonwealth Court's decision not to grant standing to an Allegheny County doctor who challenged the "physician gag order" provision in Act 13. That provision allows drilling companies to hand over proprietary information on chemical additives only "if the health professional executes a confidentiality agreement."

Mehernosh Khan said the law prevents doctors treating people who may have been exposed to drilling-related chemicals from disclosing information on the materials.

"In light of Dr. Khan's unpalatable professional choices in the wake of Act 13, the interest he asserts is substantial and direct," the Supreme Court said. Its ruling means Khan can now challenge the law in court.

The political implications of the ruling may also reverberate into next year's gubernatorial election.

Coppola, a Republican supervisor in Robinson Township, said Act 13 was an affront to local governments.

"I will say this as a Republican: Every Republican who participated in this should be out of office, including the governor," he said. "It was so blatantly unconstitutional a thing to do, I still can't believe it."

215-854-2947 @Maykuth