Marcellus Shale in Pennsylvania: The Road to ACT 13 (part 3)

Posted By Rogan Law || 8-Feb-2013

Genesis of ACT 13 – Pennsylvania's Comprehensive Oil and Gas Law Consolidation

Several years after the "Renz" well was drilled and countless municipalities fought to deny gas drilling companies on their land; the political pressure and public outcry had reached a boiling point. The Huntley, Range Resources, muddied the waters of the Oil and Gas Act and new legislation was needed to enable Pennsylvania to safely, efficiently extract the valuable source of energy beneath our lands.

Several steps were taken prior to the formation of the Marcellus Shale Advisory Commission in 2011. The Marcellus well permit fee was raised from $100 to an average of $3,220.[1] The increase in revenue from the fee increase allowed the DEP to increase its staff from 90 in 2008 to 202 in 2012.[2] Pennsylvania now has more gas and oil inspectors than any state other than Texas. [3]

Further, Act 15 of 2010, signed into law by Governor Ed Rendell, amended section of 212 of the Oil and Gas Act to 1) repeal the 5 year confidentiality of production reports; 2) require production reporting from Marcellus operators every 6 months rather than annually; and 3) mandates that DEP post all reports online.[4] Other steps were taken to clarify the well construction standards as well as increase the use of recycled hydraulic fracturing water and discharge standards.[5]

In the first days of his term, Governor Corbett began to tackle the crisis of ambiguity that troubled landowners, municipal governments, and gas companies from the hodgepodge of laws and case law governing land-use and drilling conflicts. Governor Corbett issued Executive Order 2011-01 to create the Marcellus Shale Advisory Commission ("Commission").[6] The Commission convened from March 8 – July 22, 2011 and was tasked with "outlining a comprehensive plan with recommendations on the safe and responsible development of unconventional natural gas resources within Pennsylvania.[7]

After 96 recommendations, 21 public meetings, 60 expert presentations, 100 public comments by citizens, and 650 emails and letters from the public, the Commission convened and awaited legislative approval.[8]

ACT 13 Signed into Law

Governor Corbett signed Act 13 on February 14, 2012 and it went into effect on April 14, 2012. Act 13 was the first major overhaul of oil and gas law in Pennsylvania since the Oil and Gas Act of 1984 was implemented. Act 13 repealed and consolidated the Oil and Gas Act of 1984 into six chapters (23,25,27,32,33,35) and created 58 Pa.C.S. §§ 2301-3504. 58 Pa.C.S. §§ 2301-3504 added several provisions to ensure the efficient capture of the natural gas as well as protecting citizens, towns, and our natural resources from the impact that large scale hydraulic fracturing and horizontal drilling entail.

Drilling Impact Fee

Chapter 23 created what is commonly referred to as the "impact fee" which must be paid by the gas company. The impact fee is distributed by the PUC to the affected municipalities as well as to statewide initiatives and agencies. There are mandatory annual agency distribution amounts to be paid prior to granting funds to local governments. The Annual Agency Distribution from impact fees is as follows:

  • $6 Million to DEP
  • $1 Million to Public Utility Commission
  • $1 Million to Fish and Boat Commission
  • $1 Million for Rail Freight Assistance
  • $750K to PEMA (Emergency Management)
  • $750k to Office of State Fire Commissioner
  • $20 Million to natural gas vehicle incentives (3 year total)
  • $7.5 Million to Conservation Districts (budget offset)[9]

60% of the fund goes to affected local governments and is distributed as follows:

  • $5 Million annually to affordable housing
  • 36% of remaining balance to counties with wells
  • 37% of remaining balance to municipalities with wells
  • 27% of remaining balance to all municipalities in counties with wells[10]

40% of the fund goes to the Marcellus Legacy Fund

  • Combined with transfers from Oil & Gas Lease fund and is distributed as follows:
    • 25% to local bridge improvement fund
    • 25% split between PENNVEST and H20
    • 20% to Commonwealth Financing Authority
    • 15% counties for parks, recreation and open space
    • 10% to Environmental Stewardship Fund
    • 5% for refinery assistance and ethane processing for three years; thereafter to HSCA[11]

As of November 2012, 37 counties with "spud" are eligible to receive money from the impact fee.[12]

ACT 13 and Local Zoning Issues

The Huntley case solidified the right of a municipality to control the location of drilling activity through zoning. Many municipalities used this zoning power to amend their zoning districts to ensure that drilling was essentially restricted in their jurisdiction. However, ACT 13 stopped this trend by elevating the Commonwealth's interest in efficiently developing the valuable natural resource above local government's interest in a comprehensive zoning scheme. ACT 13 specifically stripped away any attempt by local governments to create a zoning scheme that burdened the efficient production and processing of natural gas.

Chapter 33 of the new Oil and Gas Act[13] was the legislature's tool in creating the uniformity of local ordinances to essentially strip away a municipal ordinance which prevented drilling for natural gas. ACT 13 stated that "all local ordinances regulating oil and gas operations shall allow for reasonable development of oil and gas resources."[14] ACT 13 outlined eleven requirements that a local ordinance must meet in order to allow for "reasonable development of oil and gas resources."[15] Of the eleven requirements, these are the most controversial and draconian:

  • Local governments must allow well and pipeline assessment operations including seismic and explosive operations
  • Local governments cannot impose stricter conditions on drilling than other industrial activities
  • Local governments shall authorize oil and gas operations, compressor stations and processing plants as a permitted use in all zoning districts
  • Local governments cannot increase set-back requirements established by State agency
  • Local governments cannot impose route restrictions on drilling vehicles
  • Local governments cannot limit the hours of operation of compressor stations or limit the amount of noise emitted[16]

Enforcement on Local Governments and Payment of Impact Fees

58 Pa.C.S. § 3305 grants the PUC the authority to give advisory opinion from "persons aggrieved by a local ordinance." The PUC must review the municipal ordinance and deliver an advisory opinion within 120 days of receiving the petition. [17] If the PUC determines that the ordinance violates ACT 13, the aggrieved party is entitled to remedy. If an aggrieved party is a private citizen, ACT 13 provides for reimbursement of attorney fees/costs under 58 Pa.C.S. § 3306. If a municipal ordinance is determined to be in violation of Act 13, 58 Pa.C.S. § 3308 provides that:

If the commission, Commonwealth Court or the Supreme Court issues an order that a local ordinance violates the MPC, this chapter or Chapter 32 (relating to development), the municipality enacting or enforcing the local ordinance shall be immediately ineligible to receive any funds collected under Chapter 23 (relating to unconventional gas well fee). The local government shall remain ineligible to receive funds under Chapter 23 until the local government amends or repeals its ordinance in accordance with this chapter or the order or determination that the local ordinance is unlawful is reversed on appeal.[18]

The overall impact of ACT 13 on local zoning was an obliteration of a local government's check on allowing a "pig in parlor." ACT 13's sweeping overhaul of the traditional Euclidean zoning technique brought outrage to private citizens and municipality alike. Many challenges to ACT 13 were immediately filed which I will discuss in detail later in the paper.

Benefits of ACT 13

Although ACT 13 stripped away local zoning autonomy, there are several benefits and protections afforded to local governments in exchange for their loss in zoning powers.

Permitting

ACT 13 extended the minimum notice requirement to affected parties on neighboring land from 1000 feet to 3000 feet. Therefore, if the vertical portion of the well is within 3000 feet of your property, you are now entitled to be notified under ACT 13. Additionally, notice is to be provided to all host municipalities as well as adjacent municipal governments. Previously, only the host municipality was granted 24-hour notice leaving adjacent municipalities and nearby citizens unaware of dangerous drilling operations. ACT 13 also increased DEP's authority to deny a permit to drill. DEP is now required to evaluate both the parent and possible subsidiary company's safety record and compliance in paying impact fees before issuing a permit.[19]

Bonding

Formerly, a company could drill as many wells as they wanted for a $25,000 fee called a "blanket bond." ACT 13 raised the "blanket bond" maximum up to $850,000. Also, a single well bond was formerly a meager $2500, whereas now, under ACT 13, there is $250,000 bond requirement for a well under 6,000 ft. depth and a $600,000 bond requirement for wells deeper than 6,000 ft. The bond was also transformed into a type of "penal bond" which can be revoked if the gas company contaminated the water supply or failed to properly plug the well.[20]

Resource Protection

ACT 13 extended the well setback requirements as follows:

  • From buildings and water wells: 200 feet to 500 feet
  • From streams and water bodies: 100 feet to 300 feet
  • From public water supplies: 1,000 feet

The most significant protection comes from the expansion of the rebuttable presumption of contamination against gas companies. The rebuttable presumption flips the typical burden of proof in a legal context, essentially finding the gas company guilty until they prove themselves innocent. The rebuttable presumption distance was extended from 1,000 feet to 2,500 feet. Essentially, if a water supply is contaminated within 2,500 feet of a water well, the gas company is presumed liable for contamination. Also, the period of time for the presumption that the gas company caused the contamination was increased from six months up to one year. The gas company can rebut this presumption in two ways:

  • By conducting a pre-drilling survey
  • Survey must be conducted by independent lab certified by DEP
  • If the before and after samples have the same levels of contamination, the gas company has rebutted the presumption that they contaminated the water well
  • Land Owner Refusal to allow a water sample to be taken
  • If the landowner/well-user refuses to allow a water sample to be taken, the gas company is no longer presumed liable for contamination[21]

The rebuttable presumption is the sharpest tool to protect against gas company abuses or being out-litigated by rich corporations. The gas company has a financial interest in ensuring that contamination does not occur and the private landowner has some relief that they won't have to fight an uphill in Court since the burden of proof is flipped.

Increased Transparency

ACT 13 requires gas companies to disclose chemicals they use on FracFocus.org. However, many of the formulas used have proprietary confidentiality protections which make complete disclosure unrealistic.[22]

Enhanced Enforcement

The penalty for violating DEP guidelines was tripled from $25,000 up to $75,000 under ACT 13. DEP can now assess the penalty directly to the gas company. DEP no longer has to go before a quasi-judicial body to determine if they can assess the penalty. This makes enforcement more efficient.[23]

Analysis of ACT 13

In sum, ACT 13 provided the comprehensive Oil and Gas regulation overhaul needed from the natural gas boom in Pennsylvania. The Act created uniformity throughout the entire state by providing the legal mechanism to safely and efficiently harness the massive resources beneath our land.

However, in creating efficiency and uniformity, ACT 13 trampled the rights of private land owners and stripped local government's power of restricting certain industrial and unwanted activities through zoning. ACT 13 truly tests the notion that municipalities are "creatures of state" and only have their limited powers through express authorization.

Conclusion

ACT 13's sweeping legislation provided a roadmap for successfully tapping the massive amount of natural gas beneath Pennsylvania's land, but in doing so, diminished the powers of local governments to protect their citizens and land.

Legal challenges to ACT 13 were almost instant and the Pennsylvania Supreme Court has yet to decide the fate of the legislation. Next week we will discuss the legal challenges and likelihood of ACT 13 being upheld or overturned.



[1] Act 13 Webinar

[2] Id.

[3] Id.

[4] Id.

[5] Id.

[6] Id.

[7] Id.

[8] Id.

[9] Id.

[10] Id.

[11] Id.

[12] PUC, ACT 13 of 2012 ,The Unconventional Gas Well Impact Fee, FAQ available at http://www.puc.state.pa.us/NaturalGas/pdf/MarcellusShale/12_Act13_FAQs.pdf

[13] 58 Pa. C.S. § 3304

[14] Id.

[15] Id.

[16] Id.

[17] 58 Pa.C.S. § 3305

[18] 58 Pa.C.S. § 3308

[19] ACT 13 Webinar

[20] Id.

[21] Id.

[22] Id.

[23] Id.

NOTE

All sections of the 5-part series are cited in original document titled The Effect of the Natural Gas Boom in Pennsylvania by Dan Mulhern. Written in 2012.

Categories: General, Marcellus Shale