On February 14, 2012, Governor Tom Corbett signed House Bill 1950, commonly referred to as the “Impact Fee” bill, into law. This new law, Act 13, enacts a fee and distribution structure on natural gas companies operating in the state, strengthens environmental regulations and implements added environmental safeguards to the state’s longstanding Oil and Gas Act. Unfortunately, in recent days, there have been many misleading and factually incorrect statements published, most of which are based on a complete misunderstanding of the new law. I would like to correct some of this misinformation.
First and foremost, it is important to recognize the economic climate of the gas industry. Three years ago, natural gas was selling for $12 per thousand cubic feet. Today, that same gas is selling for $2.60 per thousand cubic feet, mainly due to an oversupply in the market. Moreover, the dry gas in northeastern Pennsylvania is not as valuable as the wet gas in southwestern Pennsylvania. The result of these factors, especially the low price, is a leveling of operations in our areas of the state. Those factors are global in nature and far beyond the control of our counties and our state.
Secondly, it is also important to acknowledge some of the background support and input into this legislation. While not everyone agrees with all aspects of the new law, general support comes from organizations such as the County Commissioners Association of Pennsylvania (CCAP), Pennsylvania State Association of Township Supervisors (PSATS), Pennsylvania State Association of Boroughs (PSAB) and the Pennsylvania League of Cities and Municipalities. In addition, leading industry organizations recognized that some sort of fee structure was appropriate. All of these interests, along with the Legislature, the governor, statewide environmental organizations and many state agencies, had input into the bill that became Act 13.
I would like to highlight some of the major provisions of the Act beginning with the fee structure itself, much of which has led to confusion and misinformation:
- The fee imposed is an annual fee beginning at $50,000 per well and then declining per a fee schedule set forth in the law. Over a period of 15 years, if the price of gas is between $3 and $5 per thousand cubic feet, each well will generate $310,000. If the price of gas goes below $3 or above $5 per thousand cubic feet, the price is adjusted up or down accordingly.
- Election to impose the fee rests with the county commissioners in each county who must make the election within 60 days from February 14, 2012.
- Should the county commissioners take no action, the county will receive no funds under any program funded with impact fees, with the exception of monies distributed statewide.
- If the county rejects participation, but if at least 50% of the municipalities approve a fee, then those municipalities will receive impact fee funds. A municipality which does not approve the well fee is prohibited from participation in any funds generated from the impact fee.
- The county may revisit its decision annually, but municipalities only have one chance to opt in.
- Under the bill, conservation districts throughout the state will receive $2.5 million for 2011 increasing to $7.5 million for 2013 and adjusted according to the CPI thereafter.
- Funds for Conservation Districts, PA Fish and Boat Commission, the Public Utility Commission, DEP, PEMA, State Fire Commissioner and PennDOT are distributed from the gross proceeds.
- After initial payouts, the net is divided 60% to local government initiatives and 40% to statewide initiatives.
- The local government initiatives on which money is to be spent include: emergency preparedness and public safety; road, bridge and infrastructure projects; water, storm water and sewer systems; records management; information technology; tax reductions; preservation and reclamation of surface and subsurface water supplies; projects to increase the availability of affordable housing; delivery of social services; judicial services; career and technical training centers for workers, career and technical training of workers in the oil and gas industry and local or regional planning under the PA Municipal Planning Code. The listing is intended to prohibit use of impact money from being wasted for potentially pet projects such as, for example, a new courthouse or a hockey arena.
- The law provides an annual funding stream for the Pennsylvania Housing Finance Agency for funds to be used in counties which host an unconventional gas well and at least 50% of those funds must be used in 5th, 6th, 7th and 8th class counties.
- Any excess funds not distributed to local governments are also deposited in the Housing Affordability and Rehabilitation Enhancement Fund for housing for low to moderate income and elderly persons. At least 50% of those funds must then be used in 5th, 6th, 7th and 8th class counties which host an unconventional well.
- The law does not limit the responsibilities of a producer under the Act itself, under the state transportation law or under the motor vehicle code. In short, road maintenance agreements, past, present and future and road bonding are unaffected by this law.
- The amount allocated to each municipality is the greater of $500,000 or 50% of the prior fiscal year budget, whichever is greater.
- The 40% statewide initiatives include the Commonwealth Financing Authority, Environmental Stewardship Fund, Highway Bridge Improvement Account, water and sewer projects, environmental initiatives, DCED and Hazardous Sites Cleanup Fund. Counties and municipalities are also able to apply for these funds in the same manner as they do today, even though they receive funds under the local government initiative.
NATURAL GAS DEVELOPMENT PROGRAM
- The sum of $20 million through 2015 is allocated for a program to develop the use of natural gas in Pennsylvania.
- Eligible applicants for funds are municipal authorities, local transportation organizations, nonprofit entities and state owned or state related universities.
- DEP is to provide an annual report to the Senate and House regarding a description of the use of the funds and the energy benefits attributable to the project.
- Increases setback distance from an existing building from 200 feet to 500 feet.
- Increases setback distance for water wells from 200 feet to 500 feet.
- Prohibits drilling a gas well within 1,000 feet of a public water source.
- A well operator who affects a public or private water supply must replace the water with water meeting Safe Drinking Water Act standards.
- Increases presumed responsibility by a well operator for pollution of a water supply from 1,000 feet to 2,500 feet and the time of the presumption from 6 months to 12 months.
- Requires all well pads to be designed and constructed to prevent spills to the ground surface or spills off the well site.
- Containment practices must be instituted during both drilling and hydraulic fracturing operations.
- A containment system must be in place when any of the following are stored: drilling mud, hydraulic oil, diesel fuel, hydraulic fracturing additives and hydraulic fracturing flowback.
- Requires operators to maintain records relating to the transportation of wastewater, to include, the number of gallons produced during drilling or stimulation, name of the person or company transporting the wastewater fluids, location of disposal and the method of disposal.
- Requires the component disclosure for hydraulic fracturing chemicals to FracFocus.org which allows public search and sort of disclosure information by geographic area, chemical ingredient, chemical abstract service number, time period and operator.
- Increases well bonding requirements.
- Increases the DEP civil penalties from $25,000 plus $1,000 for each continuing day of violation to $75,000 plus $5,000 for each continuing day.
- Legislation does not prohibit local municipalities from passing zoning ordinances related to natural gas development.
- Municipalities may impose restrictions such as setbacks, lighting and noise.
- Restrictions must be consistent with other industrial activities in the zoning district.
- An operator or person with a royalty interest in land, may request the PUC to review a local ordinance to determine whether it allows for reasonable development of oil and gas.
- The procedure for ordinance review is similar to the ACRE program which reviews disputes between agriculture and local government.
- Oil and gas operations may be prohibited or permitted as a conditional use in residential districts should the local government determine that no well site can be placed so that a well head will be at least 500 feet from an existing building.
- Compressor stations are permitted in agricultural and industrial zoning districts and a conditional use in other districts if the compressor station is located 750 feet or more from the nearest building or 200 feet from the nearest lot line and does not exceed a noise standard of 60dbA at the nearest property line or the applicable standard imposed by Federal law, whichever is less.
- A municipality may request a review of a proposed local ordinance prior to enactment.
RESPONSIBILITY FOR FEE
- A producer may not make the fee an obligation, indebtedness or liability of a landowner, leaseholder or other person in possession of real property upon which the extraction occurs.
- A provision in any agreement contrary to this prohibition is declared to be illegal and contrary to public policy and is null and void.
Contact: Nick Troutman