Insights

Pennsylvania Supreme Court Rules on Remaining Act 13 Issues

October 2, 2016
By: and

On September 28, 2016, the Pennsylvania Supreme Court issued an opinion striking down additional provisions of Act 13 of Feb. 14, 2012, P.L. 87 (“Act 13”)¹ in Robinson Township v. Commonwealth of Pennsylvania.² By a prior decision, the Supreme Court invalidated portions of Act 13 that established uniform, statewide standards for oil and gas operations and prohibited municipalities from enacting more stringent standards.³  The Supreme Court’s most recent ruling addresses four remaining issues:  (1) Pennsylvania Public Utility Commission (“PAPUC”) review of local ordinances; (2) eminent domain authority of private corporations engaged in natural gas storage and transportation; (3) disclosure of trade secrets to the medical profession; and (4) spill notification to public and private water sources. The decision impacts key aspects of oil and gas operations and presents further challenges to the industry’s development throughout the Commonwealth.

Review of Local Ordinances

The PAPUC no longer has a role in reviewing local ordinances and zoning laws. Act 13 vested the PAPUC with authority to review local ordinances for compliance with Act 13 and granted the Commonwealth Court of Pennsylvania original jurisdiction over related civil actions. Thus, Act 13 provided a simplified review process for aggrieved oil and gas operators to challenge local ordinances that inappropriately impaired their operations. In revoking the PAPUC’s review authority and the Commonwealth Court’s original jurisdiction, the Supreme Court ruled that sections 3305 through 3309 were part of Act 13’s overall goal of establishing a set of uniform standards for the zoning and permitting process of all oil and gas wells throughout the Commonwealth and could not be severed from the previously stricken sections 3303 and 3304 which established a state-wide ceiling on well siting standards.⁴

The decision leaves oil and gas operators without an option for seeking prompt review of prohibitive ordinances. Oil and gas operators must go through the traditional zoning hearing board process to challenge local laws with questions of constitutionality resolved at the court of common pleas level. The zoning hearing board process is locality-specific and entails intensive fact-finding as opposed to the straightforward legal review process provided for in Act 13. Local governing bodies, who may use lengthy review procedures to significantly delay or even prevent well drilling operations, now need no longer fear a prompt review of their ordinances or procedures.

Eminent Domain for Natural Gas Storage and Transportation

Private corporations that store, transport or sell natural gas have no eminent domain authority unless they are designated public utilities. The 1984 Oil & Gas Act provided private corporations engaged in the transportation, sale or storage of natural gas, the right to exercise an interest in private property necessary to carry out these functions. This provision was carried forward into Act 13 unaltered. The Supreme Court declared this provision unconstitutional because it allowed a government-authorized taking of private property for the benefit of a private party. According to the Supreme Court, any public benefits such as the development of infrastructure and expansion of natural gas service throughout the Commonwealth were ancillary to the main benefit of private profit. The Court did not address the long history of gas storage in Pennsylvania and the supply reliability and price benefits that accrue to consumers.

The ruling hinges on the Supreme Court’s determination that eminent domain authority was not limited to public utilities. In the Supreme Court’s view, not all private corporations that transport, sell or store natural gas statutorily qualify as public utilities subject to PAPUC regulation.⁵ Importantly, the decision does not revoke the Commonwealth’s authority to delegate its eminent domain power to private corporations that do classify as public utilities simply because they operate for profit. However, the Court’s narrow view of what is a public purpose may pose obstacles to such classifications.

Disclosure of Proprietary Information for Medical Purposes

Act 13’s so-called “physician gag rule” sought to protect industry trade secrets by requiring medical professionals to execute a confidentiality agreement in certain situations to obtain proprietary information concerning the chemicals used in oil and gas operations for medical treatment purposes. The Supreme Court invalidated the sections that provided for the confidentiality agreements  on the basis that they contravened the constitutional prohibition on “special laws” by affording the oil and gas industry “special treatment” compared to other industries in the Commonwealth that use chemicals in their manufacturing processes. Ironically, the sections stricken by the Court are also the sections that required disclosure in the first place. Thus, although no responsible operator is likely to refuse to disclose such information to medical personnel, the Court has actually removed the requirement to do so.

Spill Notification Requirements

The Pennsylvania Department of Environmental Protection (“DEP”) cannot differentiate between public and private water sources for spill notification purposes. Again invoking the constitutional prohibition on special legislation, the Supreme Court struck down section 3218.1 of Act 13 that required DEP to notify operators of public water sources of spills but did not impose a similar notification procedure for private well owners. The ruling strikes the entire notice provision rather than extending the notification requirement to private well owners. Recognizing that nullifying this provision in its entirety would result in DEP no longer having a statutory obligation to notify even public water suppliers in the event of a spill, the Supreme Court stayed its mandate as to this Section of Act 13 for 180 days to allow the Pennsylvania General Assembly to develop a legislative solution. Meanwhile, DEP must continue to provide notice of spills to public water supplies. The Court apparently determined that this new notice requirement, imposed on DEP and applicable only to spills at oil and gas sites, was special legislation not because it gave the industry a special break, but because it did not go far enough.

General Assembly Next Steps  

The Supreme Court’s willingness to invalidate several provisions of Act 13 based on the rarely invoked “special legislation” constitutional provision signals the difficulties the General Assembly could face in establishing new legislation to address the unique nature of present day natural gas development if potential challengers again seek Supreme Court review.

No one expects the Legislature to make any attempt to again address the zoning provisions stricken by the Court in any way unique to oil and gas operations. Moreover, given existing spill notice provisions in other statutes and regulations, there is really no need for the Legislature to address section 3218.1 and it could allow the Court’s mandate to become final.

However, the Legislature and the Administration may want to closely analyze the Court’s discussion of eminent domain and consider its implications for infrastructure projects necessary to derive maximum benefit from development of natural gas resources.