Three hydro- fracking derricks drilling natural gas on a plain

California Supreme Court Holds Local Ordinance Banning Oil and Gas Drilling Preempted by State Law

Last week, the California Supreme Court, in a rare unanimous ruling, struck down a Monterey County voter-approved local initiative that would have banned oil and gas drilling and imposed severe restrictions on oil and gas development in the county. In the court’s view, the local ordinance is preempted by state law and was struck down. The decision came in the case of Chevron U.S.A., Inc. v. County of Monterey, S271869.

By way of background, back in 2016, Project Monterey Club, a local environmental protection group, put forth a voter initiative called “Measure Z.” Measure Z made it onto the local ballot and was approved by Monterey County voters by a 56-percent margin. Measure Z would have banned the drilling of new oil and gas wells in Monterey County and prohibited companies from using hydraulic fracturing (i.e. fracking) technology on new, as well as old, county wells. Monterey County is a 3,771-square-mile coastal county south of San Francisco with a population of almost 450,000 citizens.

Despite approval by Monterey voters, Measure Z never went into effect. Soon after the 2016 local election and two days before the initiative was set to take effect in December of that year, Chevron U.S.A. and several other oil and gas companies challenged the measure on constitutional grounds. The Monterey County Superior Court struck down the initiative, concluding that it was preempted by contrary state law that gives California regulators oversight over what “methods and practices” can be used to extract fossil fuels. The California Court of Appeal agreed in a 2021 decision.

Authoring the opinion for the seven-member California Supreme Court, Justice Martin Jenkins wrote that Monterey’s initiative effectively allowed the county to usurp the role of state regulators to make decisions regarding oil-well drilling and what extraction methods could be used.

Specifically, the Supreme Court justices found that Measure Z “contradicts—and thus is preempted by” a nearly century-old system of oil and gas regulations of California’s gas and oil industry regulated by state officials. The August 3 decision zeroed in on California Public Resources Code §3106, enacted in 1939 and amended most recently in 1972, which grants the California Geologic Energy Management Division (“CalGEM”) broad authority to permit, regulate, and condition oil and gas development in the state. Justice Jenkins and the rest of the Supreme Court concluded that Measure Z was more restrictive of oil and gas development in Monterey County than with the rest of the state and thus conflicted with this state statute:

By providing that certain oil production methods may never be used by anyone, anywhere, in the county, Measure Z nullifies — and therefore contradicts — (the state law’s) mandate that the state ‘shall’ supervise oil operation in a way that permits well operators to ‘utilize all methods and practices’ the (state) supervisor has approved.

Justice Jenkins wrote that state-approved contracts “give well operators the authority to use all methods and practices the supervisor has approved, including specifically, the water and steam injection methods that Measure Z bans.” As a result, Jenkins said, “the state and local laws provide conflicting instructions as to which entity has the authority to decide what production methods are permissible.”

Further down in the Supreme Court’s decision, Justice Jenkins held that California’s regulatory system “occupies the field” of oil and gas development in California, virtually eliminating the possibility of duplicative or inconsistent city or county regulation:

[H]ere, both §3106 and Measure Z address the same topic of how oil producers and well operators should be permitted to extract oil.

Supporters of Measure Z claim that state law includes statutes that evidence that California’s legislature never intended to preempt local oil-related ordinances. However, the Supreme Court held in their order that those statutes only address local authority to restrict where oil and gas activity may occur, not the method by which oil and gas extraction may be performed.

Project Monterey Club’s lawyer, Hollin Kreztmann, issued a statement following the California’s Supreme Court ruling that Monterey residents “now need to wait even longer for protections” that they already voted to establish. While Measure Z was initially also defended by Monterey County, the county abandoned its defense of the measure on appeal, and Project Monterey Club stepped in and sought review by the California Supreme Court.

Another lawyer arguing in favor of Measure Z, Kevin Bundy, while disappointed in the ruling, issued a statement that the ruling still gives local governments leeway to protect their streets by regulating the location of oil wells.

“The Legislature now needs to make clear that state law prioritizes Californians’ health and the climate over the oil industry’s desire to extract every last drop of oil and dollar of profit from beneath our homes, farms and neighborhoods,” he said.

Chevron’s attorney, Theodore Boutrous, also issued a statement indicating the oil company is pleased with the decision to uphold the two lower courts’ decisions after seven years of litigation and appeals.