Pennsylvania lawmakers have apparently reached a deal on an impact fee to impose on unconventional natural gas wells that would split the revenue 60% to local governments and 40% to the state, and toughen drilling restrictions, but leave control of those rules primarily in state hands.

State lawmakers were pushing a compromise measure through late Monday, hoping to have it approved by the time Gov. Tom Corbett unveils his state budget proposal Tuesday. Early reports on the impact fee estimated it would raise $190 Million the first year.

The state Senate voted Monday afternoon to move the existing legislation — HB 1950 — to a conference committee. That committee must approve the new, negotiated changes before the bill can be returned to lawmakers for a final vote.

Estimates are the proposal would raise between $190,000 and $355,000 per well over 15 years, depending on the average annual price of gas and adjustments based on the consumer price index. The original Senate bill would have raised $360,000 per well over 20 years, while the original House proposal would have raised $160,000 per well over 10 years (see Shale Daily, Nov. 18, 2011; Nov. 17, 2011).

The fee would go into effect as soon as a well is spud, rather than at the start of production, but would not include stripper wells, defined as those producing less than 90 Mcf after their fourth year. The annual fee for each well would depend on the price of gas at the time, plus an inflation adjuster. For instance, the fee during the first year could range from a base of $40,000 for each well to as much as $60,000 per well. The fees on a well would decline for succeeding year of production according to a schedule determined by the lawmakers.

That fee structure only covers horizontal unconventional wells. The fee on vertical unconventional gas wells would be no more than 25% of the horizontal well fee and would last for 10 years.

The Pennsylvania Public Utility Commission (PUC) would collect the fee.

While the Senate originally wanted a uniform state-level fee and the House wanted an optional county-level fee, the new proposal would allow counties to opt-in. If a county chooses not to participate, a majority of municipalities within the county could vote to overrule that decision. A county could later opt in to the program, but would not get to benefit from the fee until it did.

The proposal would direct 40% of the revenue collected from the fee to statewide environment and energy programs, including the PUC, the Pennsylvania Department of Environmental Protection (DEP), the Pennsylvania Fish and Boat Commission and the State Fire Commissioner. The remaining 60% would go to counties and municipalities that host drilling. The original Senate proposal kept 55% of the revenue at the local level, while the House kept 75% at the local level.

That structure earned the approval of the County Commissioners Association of Pennsylvania (CCAP) on Monday. “The bill includes provisions counties have sought, including meaningful revenues and a meaningful local share, a workable levy and administrative mechanism, the distribution formula we have sought, allowable uses that meet the broad and divergent needs of impacted counties and their municipalities, additional funding to counties from state shares to provide for bridge repair and replacement and for greenways, and allocation of funding proceeds statewide to conservation districts and some environmental programs,” according to the CCAP.

The newest proposal would prohibit local governments from passing ordinances that regulate issues already handled by the DEP or that regulate natural gas development more stringently than other industries. Operators would be able to have the PUC review proposed municipal ordinances to determine if they allow for “the reasonable development of oil and gas.” Unreasonable rules could bar the muni from receiving impact fee revenue.

The new proposal would increase the required distance between drilling and public water sources such as reservoirs, and would require the state to develop regulations for transporting drilling wastewater and enforcing qualifications of treatment plant operators.

In a strongly-worded rebuke, Sen. Jim Ferlo, a Democrat from Pittsburgh, called the bill “outrageous” and “an affront” to the public and the environment, and said that despite efforts to move the legislation forward quickly, “This will be a battle royale that will be continued.”

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