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Pennsylvania PUC Wants Stripper Well Language Changed After Court Ruling

Pennsylvania Gov. Tom Wolf has sided with state regulators, expressing concern about the Commonwealth Court's decision last month to reverse a Public Utility Commission (PUC) order that would have required an independent oil and natural gas producer to pay nearly $500,000 in impact fee revenue, interest and penalties.

Responding to a letter from PUC Chairman Gladys Brown, the Wolf administration said in a statement that the language in Act 13, which established the impact fee in 2012, "should be fixed to ensure that counties and municipalities receive the funding they depend on." Brown wrote to Wolf last week and said the Commonwealth Court's decision "significantly jeopardized the current and future fees generated by Act 13."

Brown said commissioners believe that the court's decision contradicts both the meaning of the law and the intention of the General Assembly. She said the PUC would file a petition for appeal with the state Supreme Court, but noted that a legislative solution could be better given the time that would take and any possible ambiguity included in another court decision.

In a 5-2 opinion the court found that Pennsylvania-based Snyder Brothers Inc. would not have to comply with the PUC order issued last year. The PUC said the company failed to identify and pay impact and administrative fees for vertical wells targeting the Marcellus Shale in 2011 and 2012. The parties were at odds over how state law defines stripper wells, which aren't required to pay impact fees.

Snyder claimed that the state's definition of a stripper well -- specifically, an "unconventional gas well incapable of producing more than 90 Mcf/d during any calendar month" -- meant that the company did not have to pay the fees and charges, if the well failed to reach the 90 Mcf/d threshold for any single month during the reporting period.

Brown said the PUC has consistently held that a well is not a stripper well and is subject to the impact fee if it exceeds minimum production levels in one calendar month in a year. The Commonwealth Court concluded that the word "any" in the definition unambiguously means "any" or "one" and not "all" or "every" month as the PUC had argued.

"The court's interpretation may lead to unreasonable results," Brown wrote. She said, for example, that if one well produces 100 Mcf/d for 12 months and another produces 200 Mcf/d for 11 months, the latter would not be required to pay impact fees under the court's interpretation.

"Critical to the commission's Act 13 tasks is determining which gas wells are subject to the impact fee," she said. "...The General Assembly does not intend a result that is absurd, impossible of execution, or unreasonable."

The PUC estimates that the court's ruling could cause impact fees to decline by $16 million this year. Brown recommended in her letter that the General Assembly simply replace the word "any" in the definition with the word "every." Wolf agreed, sharing his concern for the counties and municipalities across the state that rely on impact fee revenues to fund infrastructure and other needs.

The impact fee is levied on all shale wells in the state during their first 15 years of operation if they produce above the threshold. The fee schedule and the amount companies must pay for each well depends on the number of years they've produced. The court's opinion comes at a time when impact fees are already projected to decline because fewer wells were drilled in Pennsylvania during 2016. The fee is highest for wells in their first operating year.

"The commission expects this reduction to increase in future years given the age/production level of wells and the producers' ability to fully take advantage of the court's interpretation," Brown said in a nod to the dissenting judges, who wrote that producers could curtail production one month out of the year to dodge impact fees. The Pennsylvania Independent Oil and Gas Association, which filed a lawsuit against the PUC order along with Snyder, said it would fight any appeal.

Since it was enacted in 2012, the state has collected more than $1 billion in impact fees for distribution to local communities and state agencies. Producers are required to self-report and submit the fee payments to the PUC, which oversees them.

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