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MSC Cautions Against Increasing Pennsylvania Unconventional Permit Fees

In a public comment period that concluded on Monday, the Marcellus Shale Coalition (MSC) called Pennsylvania’s proposal to more than double unconventional oil and gas well permit fees “excessive,” urging state regulators to consider alternative funding options.

Earlier this year, the state Department of Environmental Protection (DEP) announced a proposal to increase current fees to $12,500 from $5,000. The Environmental Quality Board (EQB), which considers DEP’s regulations, later adopted the rulemaking, setting it on a path to final approval. MSC said if the increase takes effect, it would be the highest in the nation, with other major oil and gas producing states charging about $1,000 or less for permits. West Virginia charges $10,000, but that drops to $5,000 for each additional well on a pad, according to the trade group.

“The department should examine and quantify the costs of the oil and gas program attributable to unconventional natural gas operations, identify operational changes to address permit delays, and fully exhaust alternate revenue options before moving forward with such a drastic permit fee increase,” MSC President David Spigelmyer said in written comments submitted to the agency.

The MSC estimates that 60% of the DEP’s oil and gas program work is related to unconventional operations, with the rest related to legacy operations.

“The unconventional shale industry is already paying in excess of 99% of the total costs to underwrite the DEP oil and gas program,” Spigelmyer said. “Therefore, from a practical perspective, this means that the proposed permit fee increase for unconventional operators is tantamount to underwriting the costs associated with the conventional industry and legacy well costs incurred by the department.”

No fee increase has been proposed for conventional operators. In its comments, MSC recommended a more reasonable general fund allocation. The impact fee, which is paid annually by most unconventional operators in the state, should also be properly factored into funding considerations, Spigelmyer said.

“Include, and not totally dismiss, the $6 million annual allocation from the Act 13 impact fee in the base revenues utilized by the department to operate the oil and gas program, as has been allocated as general practice every year since the imposition of the impact fee.”

Spigelmyer added that even if permit fees increase, operators have no assurance that permitting delays for the industry, which in some instances have exceeded more than 200 days, according to the organization, will be resolved.

About half of the DEP’s budget comes from the state general fund and federal funds, while the other half comes from fees and fines. DEP’s general fund allocations have steadily decreased over the years as its staff has too. The agency has said a fee increase would help improve the backlog of unconventional permits.

In documents submitted to the EQB in May, DEP said permit application fees have been flat at $13.9 million in fiscal year (FY) 2015-2016 and $15.7 million in FY 2016-2017. But costs to run the oil and gas office exceeded $20 million in both years. To cover the difference, DEP said it has used reserve funds from the state’s Well Plugging Fund, which it cautioned could be insolvent by FY 2019-2020 without a permit fee hike.

While permitting levels have seesawed somewhat in recent years, Pennsylvania produced more than 5 Tcf in 2016 and 2017. It also has been the nation’s second largest natural gas-producing state behind Texas since 2013 thanks to prolific shale plays.

The DEP also received comments in support of the fee increase. The Pennsylvania Environmental Council (PEC) cautioned, however, that the agency should continue to explore other funding.

“We support the proposed fee amendments, though we recognize the significant additional costs placed on the regulated community, as well as the fact that this proposal does not resolve uncertainty with respect to the sufficiency of future revenues,” said PEC’s John Walliser, senior vice president of government affairs, in written comments. “Given the unpredictable nature of permitting volumes, what may be sufficient today could fall short in the very near future.”

The state’s Independent Regulatory Review Commission was given 30 days to review the proposal and then DEP will take all comments for the final rulemaking. The agency has said that it doesn’t expect the fee increase to be finalized until next year or in 2020. Fees were last increased about four years ago from an average of $3,600 based on the depth and length of a well to a flat fee of $5,000.

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