On December 28, the PA Supreme Court issued an opinion overturning a Commonwealth Court decision in March that would have allowed gas drillers to avoid the Act 13 drilling impact fee if vertical unconventional gas wells are classified as a “stripper well” which are incapable of producing natural gas above certain production thresholds per day in any calendar month.
The Public Utility Commission, which appealed the earlier decision, said if the ruling was not overturned, Act 13 drilling impact fee revenue would be reduced by at least 10 percent annually.
The Court decision dealt with a provision in Act 13 that provided an exemption from the impact fee for so-called “stripper wells.” The challenge was brought by the PA Independent Oil and Gas Association, among others, which represents conventional oil and gas drillers.
The dispute was over whether an impact fee will be assessed whenever a vertical well’s production exceeds an average of 90,000 cubic feet of natural gas per day for even one month of the year, or whether the well must exceed this production threshold in every month of the year for the fee to be imposed, as the challengers contend.
The PUC consistently held that a well is not a stripper well and is subject to the impact fee if it exceeds the minimum production levels in one calendar month in a year, but Commonwealth Court held otherwise saying wells had to pay the impact fee only if a well exceeds the minimum production levels in every month in a year.
The Commission’s interpretation is based on examination of prior legislative versions of Act 13 which explicitly required production levels be met in every month of a year for the impact fee to apply, the purpose of Act 13 to provide relief to municipalities affected by drilling and other provisions in Act 13 which clarify the impact fee applies if a well meets specified production levels in one month in a year.
“The [Commonwealth] Court’s interpretation may lead to unreasonable results,” said PUC Chairman Gladys Brown. “For instance, if well “A” produces 100,000 [cubic feet] per day/month for 12 months, it pays the fee. If well “B” produces 200,000 [cubic feet] per day/month for 11 months, falling short in one month, it does not pay the fee.”
This unreasonable result, said Brown, was noted by the dissenting Commonwealth Court opinion in Snyder Bros which said the General Assembly does not intend a result that is absurd, impossible of execution, or unreasonable.
The PA Supreme Court agreed with the PUC’s analysis of the issue, including relying on prior versions of the bill that became Act 13.
The importance of the purpose of the impact fee was underscored in the PA Supreme Court decision which quoted floor remarks by then Rep. Mike Turzai (R-Allegheny) at the time Act 13 was passed by the House which said, in part, “The impact fee we are addressing is designed to provide for infrastructure improvements based upon direct impacts, which have created a strain throughout the State, and to provide services that are vital to the health, welfare, and safety of each and every Pennsylvania citizen.”
The PA Supreme Court concluded, “we hold that, under Act 13, an unconventional vertical well is a “vertical gas well” subject to assessment of an impact fee for a calendar year whenever that well’s natural gas production exceeds 90,000 cubic feet per day in at least one calendar month of that year. Because it is undisputed that the wells at issue in this case met this criteria, we reverse the order of the Commonwealth Court which set aside the PUC’s assessment to SBI of impact fees for the 2011 and 2012 reporting years.”
Click Here for a copy of the PA Supreme Court opinion.
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