The 2014 midterms are behind us and bring serious implications for energy policy. In this week’s podcast, I recap the election and also interview Prof. Joshua Fershee about the legality of local fracking bans.
News Recap for the Week of November 3, 2014
- Control of the U.S. Senate shifted to Republicans, who place energy at the top of their priority list. Alaska Senator Lisa Murkowski will chair the Energy Committee, and the Alaska Dispatch News shed some light on her plans. Oklahoma Senator Jim Inhofe will run the Environment and Public Works Committee, and The Hill reported on some of his colorful statements.
- House Republicans strengthened their majority.
- Republicans won big in the Governor’s races, with one or maybe two exceptions. Alaska Governor Sean Parnell is narrowly behind while votes are still being counted, and he was criticized for reducing taxes on oil and gas companies. Pennsylvania Governor Tom Corbett lost handily to a challenger who wants to impose a new natural gas severance tax.
- Local fracking bans passed in Athens, Ohio; Mendocino County, California; Denton, Texas; and San Benito County, California. Fracking bans failed in four other municipalities.
- The leading liquefied natural gas (LNG) export terminal on the west coast took a major step forward by receiving its draft EIS from the Federal Energy Regulatory Commission (FERC). If the draft is ultimately approved, it will remove the last major federal obstacle to the project.
Interview with West Virginia University Law Professor Joshua Fershee (Starts at 19:30)
Prof. Fershee started his legal career in New York, working on corporate and litigation matters, before moving to Washington D.C. to work on energy issues. He represented electricity and natural gas clients before state and federal regulators, analyzed state and federal legislation, and advised clients on mergers and acquisitions, climate change issues, and renewable portfolio standards. Around 2007 left private practice to become a law professor.
In 2007, he received an offer for a tenure-eligible position from the University of North Dakota School of Law, and just like that he found himself in the middle of the shale boom. He began to focus his work on on shale drilling and built up some expertise on the applicable regulations. He has written about energy infrastructure, North Dakota’s fracking expertise, fracking regulations in West Virginia and North Dakota, and energy subsidies. He also blogs.
I wanted to get his take on what is going on in Pennsylvania. As it turned out, Pennsylvania was the only place in the election where a Republican governor lost to a Democrat. Natural gas was a major issue in the campaign, particularly involving a law on local fracking bans that passed in 2012 under the current Republican Governor, Tom Corbett. Prof. Ferschee has written a piece about that law and the resulting lawsuit, which he called “Facts, Fiction, and Perception in Hydraulic Fracturing: Illuminating Act 13 and Robinson Township v. Commonwealth of Pennsylvania.”
As Prof. Fershee explained, several cities in Pennsylvania sought to stop nearby oil and gas drilling. The industry sought refuge in the state legislature, and the legislature responded with Act 13. The law’s primary goal was to stop municipalities from regulating oil and gas operations. For industry, that would mean they would only face a single regulator. Many in industry were frustrated that they would get drilling permits from the state and then wind up having to go through another process with a municipality.
The ability of a municipality to regulate something like hydraulic fracturing varies from state to state. This is called “home rule.” As examples, municipalaties in New York can block drilling, while municipalities in Colorado currently cannot. In Pennsylvania a few years ago, the power of the municipalities in this realm was an open question. It simply had not been litigated because oil and gas operations were not common. Several municipalities sought to regulate incidental parts of fracking operations in order to effectively ban drilling. Act 13 sought to clarify that municipalities did not have this power. Perhaps to soften the blow, the law also imposed a new impact fee on each well drilled.
Robinson Township challenged the law and eventually wound up in the Pennsylvania Supreme Court. The Court handed down a split decision that left many open questions. A four justice plurality said Act 13 violated the Pennsylvania Environmental Rights Amendment. That amendment lays out a “public trust doctrine” that says:
The people have a right to clean air, pure water, and to the preservation of the natural, scenic, historic and esthetic values of the environment. Pennsylvania’s public natural resources are the common property of all the people, including generations yet to come. As trustee of these resources, the Commonwealth shall conserve and maintain them for the benefit of all the people.
The Pennsylvania Supreme Court said that Act 13 violated this public trust. The reasoning was that hydraulic fracturing is bad, and taking the power to regulate fracking away from local governments would prevent local governments from protecting the public trust. A concurring opinion said that the local governments already had a local plan in place, and the state government could not interfere with those plans.
Prof. Fershee says the reasoning underlying the decision is problematic. Essentially, the Court assumed without any fact finding that hydraulic fracturing is bad. Prof. Fershee compared that to past decisions where courts ran with current assumptions and those assumptions did not stand the test of time. For example, the U.S. Supreme Court struck down interracial marriage bans in 1967’s Loving v. Virginia, but in that case a lower court had made up these “facts”:
Almighty God created the races white, black, yellow, malay and red, and he placed them on separate continents. And but for the interference with his arrangement there would be no cause for such marriages. The fact that he separated the races shows that he did not intend for the races to mix.
While many people believed that at one time, it sounds crazy today. Prof. Fershee says it is not entirely different that the Pennsylvania Supreme Court relied on these “facts”:
By any responsible account, the exploitation of the Marcellus Shale Formation will produce a detrimental effect on the environment, on the people, their children, and future generations, and potentially on the public purse, perhaps rivaling the environmental effects of coal extraction.
This statement is highly questionable. For example, natural gas extraction though fracking is almost certainly reducing the amount of coal mined and burned. That has many positive impacts on the environment that the Court did not consider. Moreover, natural gas drilling is almost certainly having a huge positive impact on the public purse. Pennsylvania has enjoyed economic benefits, is pocketing a great deal of money from the newly-imposed impact fees, and could be collecting severance taxes in the near future. In addition, the legislature presumably had determined through some fact finding that Act 13 was the best way to protect the public trust and the Court seems to have negated that without any fact gathering of its own.
It is interesting to speculate why the Pennsylvania government did not make a stronger case for the positive benefits of natural gas. One possible conclusion is that the state did not want to speak ill of coal mining. Prof. Fershee said the Court may have come to a more clear decision if the coal verses natural gas debate had been considered.
As a result of Robinson Township, cities in Pennsylvania can now ban fracking. Some cities have done so, while others have sought to enjoy the economic benefits of drilling. Prof. Fershee said it is not a terrible outcome, as drilling companies now have a greater incentive to seek local support. In general, he thinks local governments are able to work things out. Act 13, in his view, was maybe too heavy handed. Courts in Colorado appear to be taking an approach similar to Act 13, saying that local efforts to restrict drilling are not allowed and that is helping to create some of the backlash against the industry.
Prof. Fershee also explained the drilling landscape in West Virginia a little bit. One unique aspect is that much of the mineral rights in the state are already owned by coal companies. Therefore, the surface owners have little to gain by allowing drilling. In the United States, it is generally more common that the mineral rights are owned by the surface owner and that means the surface owner will earn money from the drilling. This “severed estate” situation is holding back drilling somewhat in West Virginia. This problem is also seen in many other places around the world. West Virginia also struggles from a mountainous landscape.
For more information, check out Prof. Ferschee’s writings at SSRN and on twitter at @jfershee.