PA Supreme Court Enforces “Impact Fees” Against Natural Gas Drillers, Defines Scope
The Pennsylvania Supreme Court has issued an opinion providing guidance to the natural gas industry regarding the application of “impact fees” associated with hydraulic fracturing.
In Snyder Brothers, Inc., v. Pennsylvania Public Utility Commission, et. al., the court decided that natural gas drillers whose production from wells exceeds 90,000 cubic feet per day, for even one month of the year, will be required to pay impact fees. The decision overturns Pennsylvania’s intermediary appellate court’s prior decision that allowed drillers to avoid the impact fee if their vertical wells were classified as “stripper wells,” which, by definition, are not subject to impact fees due to the wells’ limitations on daily production.
The case centered on the interpretation of language contained in Pennsylvania’s Oil and Gas Act 13, which in relevant part states that “stripper wells” are exempt from impact fees if they are “incapable of producing more than 90,000 cubic feet of gas per day during any calendar month.” The gas industry argued that Act 13 should be interpreted to mean that if production falls during just one month, impact fees should be inapplicable. Under that interpretation, the Public Utility Commission (PUC) countered by arguing that it would leave payment of impact fees open to abuse, in that drillers could simply choose to cut production one month each year to avoid paying the fees, while going well over the 90,000 threshold limit during the rest of the year.
The PA Supreme Court agreed with the PUC’s argument and that the word “any,” as utilized in Act 13, could not be referring to just one month. The court based its conclusion on the intent of the legislature and recognized that the purpose of the impact fee provisions under Act 13 are to assist communities affected by drilling by providing “an adequate and stable source of revenue.” Snyder at 33.
“Impact fees,” are imposed on drillers of unconventional gas wells in Pennsylvania as a source of revenue for local governments to draw from in order to counteract the effects that drilling may have on a community. The money may go to public infrastructure improvements, emergency preparedness, affordable housing, judicial services, and environmental programs. Funds may also be allocated to state agencies, like the Department of Environmental Protection, that oversee the industry and to the Marcellus Legacy Fund, which may be used for conservation purposes.
Impact fees for all unconventional wells are imposed on an annual flat, per well basis, and calculated using the average annual price of natural gas during the calendar year in which the fee is assessed. In 2018, impact fees across Pennsylvania totaled approximately $210 million, a roughly $36 million increase from 2017 totals. The PUC had argued that without this recent ruling from the PA Supreme Court, revenues would be down at least 10%, or roughly $21 million.