Pennsylvania Act 13: ‘Impact Fee’, Other Changes

A three-year-long stalemate in Harrisburg came to an end with passage of Pa. Act 13. It is far-reaching legislation that includes an “impact fee” on shale gas production and new limitations on municipal zoning and land use regulations. Counties have the choice of imposing the impact fee – Potter County plans to do so. Early projections show that townships and boroughs in Potter County will split about $1.3 this year for wells that produced in 2011, and the county itself will receive about $730,000. The fee is levied annually per “unconventional” gas well on a sliding scale, with a duration of 15 years for each well, coupled with a schedule based on the price of gas (see table, following). The fee schedule to be used is determined by the average price of natural gas for the prior calendar year, and the overall schedule is adjusted for inflation each year, starting in 2013. The fee for vertical unconventional wells is 20% of the rate for horizontal wells, and ends after the tenth year.

Production Average Gas Price
< $2.25 $2.25 -$2.99 $3.00 -$4.99 $5.00 -$5.99 > $5.99
Year 1 $40,000 $45,000 $50,000 $55,000 $60,000
Year 2 $30,000 $35,000 $40,000 $45,000 $55,000
Year 3 $25,000 $30,000 $30,000 $40,000 $50,000
Years 4 – 10 $10,000 $15,000 $20,000
Years 11– 15 $5,000 $10,000
Total per well $190,000 $240,000 $310,000 $330,000 $355,000

Fee Administration

The fee is administered by the Public Utility Commission (PUC). Each producer is to submit payment to the PUC by Sept. 1 for 2011 production; in each subsequent year the fee is due by April 1 for the prior year. All fees collected are deposited in an Unconventional Gas Well Fund, administered by PUC and paid out within three months.

Fee Distribution/Off-The-Top Allotments

Off-the-top distributions include (all annual unless noted otherwise):

–County conservation districts: $2.5M from fees collected for 2011; $5M for 2012; $7.5M for 2013; COLA adjustment 2014 and after. Half distributed equally among conservation districts, half distributed consistent with the Conservation District Fund Allocation Program

–Fish and Boat Commission for costs relating to review of permits: $1M

–PUC for costs to administer, including fees and local ordinance enforcement: $1M

–DEP for administration of this act and enforcement of clean air and water acts: $6M

–Pennsylvania Emergency Management Agency for response planning, training, and coordination relating to natural gas production: $750,000

–State Fire Commissioner for training and grant programs for first responders: $750,000

–PennDOT for rail freight assistance: $1M

–Deposit into the Marcellus Legacy Fund for distribution for the Natural Gas Energy Development Program: $10M for 2011; $7.5M for 2012; $2.5M for 2013

–Housing Affordability and Rehabilitation Enhancement Fund to support projects or provide rental assistance in host counties: $2.5M for 2011 and $5M for each year after.

Fee Distribution To Counties/Municipalities

Following the off-the-top distribution, 60% of the remainder goes to county and municipal government, by formula:

–Host counties receive 36%, distributed pro rata based on the number of wells.

–Host municipalities receive 37%, distributed pro rata based on the number of wells.

–The remaining 27% is distributed among all municipalities in a host county. Half is distributed among host municipalities and non-host municipalities that are either contiguous with a host or are within five miles of a spud well, with half distributed on population and half on road miles. The other half is distributed among all municipalities in the county, based on population and road miles. (There is an anti-windfall cap applied against municipalities, but not counties, limiting shares to the greater of $500,000 or 50% of the total budget for the prior year.)

Fee Distribution/State Share

The 40% state share is deposited in the Marcellus Legacy Fund, and is allocated:

–Commonwealth Financing Authority: 20% for grants for acid mine drainage, orphan or abandoned oil and gas well plugging, compliance with the Sewage Facilities Act, recreational projects, establishment of baseline water quality projects, watershed programs, and up to 25% for flood control projects

–Environmental Stewardship Fund: 10%

–Highway/Bridge Improvement Restricted Account: 25%, to be distributed to all counties (not just shale gas counties) to fund replacement or repair of locally owned at-risk bridges; distribution is pro rata based on population, with a $40,000 minimum payment. Counties can submit either county-owned or municipally-owned bridge projects

–Water and sewer projects: 25%, with half to the Pennsylvania Infrastructure Investment Authority and half to the H2O PA program

–Greenways, recreation, open space and comparable projects: 15%, to be distributed to all counties pro rata based on population with a $25,000 minimum allocation

–Refining or processing facilities, Hazardous Sites Cleanup Fund: 5%, to the Department of Community and Economic Development for 2012, 2013, and 2014 for projects relating to refining or processing natural gas or oil; all funds after 2013 are allocated to the Hazardous Sites Cleanup Fund.

Local Government Uses

County and municipal governments receiving funds are authorized to use them for:

  • Roadways, bridges, and public infrastructure
  • Water, storm water, and sewer
  • Emergency preparedness and public safety
  • Environmental and recreation programs, including conservation districts, open space, and agricultural preservation
  • Preservation and reclamation of water supplies
  • Tax reductions, including homestead exclusion
  • Availability of safe and affordable housing
  • Records management, GIS, and information technology
  • Delivery of social services
  • Judicial services
  • Deposit into capital reserve for use on projects permitted under this section
  • Career and technology centers for training related to the oil and gas industry
  • Local or regional planning initiatives under the Municipalities Planning Code.

Oil and Gas Lease Fund: Allocations are made from the state Oil and Gas Lease Fund, applicable to wells on state-owned land, including a transfer to the Marcellus Legacy Fund for distribution to the Environmental Stewardship Fund of $20M for 2013 and $35M for 2014 and each year after, and a transfer to the Hazardous Sites Cleanup Fund of $5M for 2015 and $15M for 2016 and each year after.

Vehicle Fleet Conversion: A three-year Natural Gas Energy Development Program is created, making competitive grants available for purchasing or converting eligible vehicles to natural gas usage.

Well Permit Provisions: Act 13 provides for, among other things, well permitting and regulation, including setbacks, location restrictions, water management and protection of water supplies. Permits are administered by DEP. Notice of applications is to be furnished to municipalities, which may present comments. Other subject matter in Act 13 includes well capping, orphaned wells, abandoned wells, rebuttable presumptions on pollution, chemical disclosures, bonding, emissions, and others.

Site Restoration: Operators must comply with erosion and sedimentation control plans during drilling, and properly restore the well site within nine months of completion. Conservation districts are not mentioned as enforcement agencies, although DEP can delegate to them.

Small Businesses: Producers are to provide opportunities for small businessesas contractors, subcontractors, and suppliers, maintaining a non-discrimination policy.

Gathering Lines: Owners and operators of gathering lines are required to comply with the One-Call System, registration of the pipelines that carry gas to a transmission line.

Emergency Management: DEP is permitted to enter into contractswith well control specialists for disasters such as casing failure, blowout, fire and explosion. The department is to make information available to county emergency management. Counties retain emergency planning responsibility concurrent with the operator.

Local Ordinances/Pre-emption: The state pre-empts local ordinances that are in conflict with Act 13.

–Statutory provisions supersede local zoning ordinances, allowing well and pipeline location assessment and oil and gas operations in all zoning districts if the well pad is at least 300 feet, and the wellhead is at least 500 feet, from an existing building.

–Compressor stations are permitted uses in agricultural and industrial zoning districts and are a conditional use in all other zones if located at least 750 feet from nearest existing building or 200 feet from the nearest lot line, and the noise level at the nearest property line does not exceed 60 decibels.

–Processing plants are a permitted use in an industrial zone and a conditional use in agricultural zones if located at least 750’ from nearest building or 200’ from the nearest lot line, and the noise level at the nearest property line does not exceed 60 decibels.

–Municipalities are permitted to enact provisions that are not covered by the law. An operator can ask the PUC to review a local ordinance to determine whether it allows for the reasonable development of oil and gas. Should the PUC, Commonwealth Court or the Supreme Court determine that a local ordinance fails to do so, the local government is ineligible to receive funds collected through the fee.

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