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Pennsylvania Impact Fee Becomes Law

Pennsylvania is on its way to officially charging a fee for Marcellus Shale drilling. Gov. Tom Corbett signed House Bill 1950 last Monday, giving shale gas-rich counties in the state the ability to impose a 15-year impact fee on unconventional gas wells; now it's up to the locals.

Act 13 of 2012 also updates environmental regulations and standardizes local zoning.

"This growing industry will provide new career opportunities that will give our children a reason to stay here in Pennsylvania," Corbett said. "Thanks to this legislation, this natural resource will safely and fairly fuel our generating plants and heat our homes while creating jobs and powering our state's economic engine for generations to come."

Roughly 35 Pennsylvania counties in Marcellus country were given 60 days to pass ordinances opting into the program. If a county chooses not to participate, a majority of the municipalities within that county can vote to overrule the decision and join anyway If all eligible counties adopt the fee, the state estimates that the program would bring in about $180 million this year and revenue would climb to $211 million in 2013 and $264 million in 2014.

Whether the counties will oblige remains to be seen. Although Marcellus development is spread across the state, drilling to date is focused in two small groups of counties: one in the dry gas northeast and another in the wet gas southwest. Of the roughly 4,298 wells drilled into the Pennsylvania Marcellus since the beginning of 2009, more than half are in four counties: Bradford, Tioga, Washington and Lycoming.

With 928 wells drilled in slightly more than three years, Bradford County is by far the most prolific in the state, but its three county commissioners are split on the prudence of enacting a fee, according to reports. If they vote it down, the question would then go to the 14 boroughs, 37 townships and two unincorporated communities in the county.

The act would impose an annual fee of between $40,000 and $60,000 per well, which decreases over 15 years, according to a predetermined schedule (see NGI, Feb. 13) and depending on the average price of natural gas. All wells spud before 2011 would use 2011 prices, and therefore presumably fall into the $50,000 per well bracket for the first year of the program. The fee takes effect when a well is spud, not when it begins productions, and includes exemptions for low-producing wells.

With the counties keeping 60% of the revenue collected, Bradford and its municipalities could be walking away from tens of millions of dollars this year alone. The local revenue is split among municipalities that host drilling (37%), counties that host drilling (36%) and municipalities that don't host drilling in counties that do (27%).

In Washington County, though, officials seem more amendable to the fee. "We are going to impose it, probably at our next meeting," Larry Maggi, chairman of the Washington County Board of Commissioners recently told the Associated Press. With 458 wells, Washington is the third most active county in the Pennsylvania Marcellus. In up and coming Butler County, commissioners approved the impact fee two days after Corbett signed the bill.

Because 40% of the revenue would be going to statewide environmental, emergency and economic programs, the decision of the counties will impact the budgets of the Pennsylvania Public Utility Commission (PUC), the Pennsylvania Department of Environmental Protection (DEP), the Pennsylvania Fish and Boat Commission and the State Fire Commissioner. According to Corbett, though, much of that revenue is designed to trickle down to counties.

The PUC will administer the fee, one of the two additional jobs it assumed this year. The agency is becoming the "state agent" for the U.S. Pipeline and Hazardous Material Safety Administration, giving it oversight of nonutility gathering lines.

In addition to the fee, the law updates the state Oil and Gas Act in a comprehensive way for the first time since 1984, increasing setbacks from waterways, expanding operator liability, increasing bonding and reporting and giving the DEP additional authority to revoke permits. The law also creates a Natural Gas Energy Development Program to provide incentives for converting heavy-duty vehicle fleets to run on natural gas, particularly for mass transit agencies.

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