Last week, the Ohio Supreme Court weighed in on the battle being waged between state and local governments over oil and gas development, ruling that Ohio cities and municipalities may not use home rule to regulate oil and gas operations if local regulations directly conflict with Ohio state law. The decision represents a significant victory for the oil and gas industry and is likely to serve as important precedent in disputes raising similar issues in other states.
In State ex rel. Morrison v. Beck Energy Corp., the court ruled 4-3 that Munroe Falls’ ordinances, enacted between 1980 and 1995, were in direct conflict with Ohio’s 2004 law, R.C. 1509, which provides statewide, uniform regulation of oil and gas operations. R.C. 1509 preserves local regulation over public spaces and permit authority for heavy traffic, but expressly prohibits a local government from using its powers to impede or obstruct oil and gas activity.
In this case, Beck Energy had obtained a state permit in 2011 to conduct oil and gas operations within the corporate limits of Munroe Falls. After Beck Energy began drilling, the city filed a complaint seeking injunctive relief, alleging that the company was operating in violation of Munroe Falls’ ordinances. The ordinances at issue require specific zoning permits, additional fees, and public hearings prior to drilling, and impose criminal sanctions on parties that violate the requirements. Beck Energy opposed the injunction, arguing that the local ordinances conflict with R.C. 1509. The trial court disagreed, issuing a permanent injunction, but it was reversed by the court of appeals in 2013.
The Ohio Supreme Court analyzed whether the local ordinances were a valid exercise of the city’s home-rule power. Article XVIII, Section 3 of the Ohio Constitution grants municipalities broad authority to exercise local self-government and enact local police, sanitary and other similar regulations. However, local rules may not conflict with the state’s general laws.
The court used a three-step analysis, concluding that Munroe Falls’ ordinances must defer to state law. It first held that the ordinances are an exercise of police power, prohibiting and even criminalizing the act of drilling, rather than regulating the activity. Next it determined that R.C. 1509 is a general law because it is comprehensive, operates uniformly throughout the state, and prescribes a rule of conduct. The court rejected the city’s argument that the law does not apply to all parts of Ohio because not every part of Ohio has viable oil and gas resources for development. Finally, the court considered whether the ordinances conflict with state law. The court held that the specific ordinances at issue conflict in two ways: (1) they prohibit what state law allows—the state permit granted Beck Energy the right to drill and the ordinance would render the permit meaningless; and (2) the state law gives the state exclusive authority to regulate permitting and explicitly prohibits local governments from impeding or obstructing the covered operations.
Justice O’Donnell concurred in the judgment but limited the decision to the specific ordinances at issue in Munroe Falls. Three additional justices dissented, finding that R.C. 1509 sought only to preempt inconsistent regulations, not to override all local zoning ordinances that could impact oil and gas operations, which the legislature could have done clearly, if intended.