PUC Continues to Collect and Disburse Act 13 Impact Fees While Producers Continue Drilling

The Pennsylvania Supreme Court decision relating to Act 13 (or Impact Fee Act), which was issued on December 19, 2013, preserved the ability of the Public Utility Commission (PUC) to collect impact fees from producers and distribute the fees to local governments under Chapter 23 of the statute.  Despite declaring several provisions of Act 13 unconstitutional and remanding the matter to the Commonwealth Court to review whether additional provisions are unlawful, the Supreme Court also left intact the obligation of producers to file reports with the PUC of the number of spud unconventional wells within each county and to pay fees for those wells by April 1, 2014.

In addition to their continued obligations to file reports and pay fees, producers are also still required to notify the PUC within 30 days after a calendar month of the spudding of  an unconventional gas well, the initiation of production at an unconventional gas well and the removal of an unconventional gas well from production.  In addition, producers must pay the PUC’s assessment invoices within 30 days and are obligated to keep records, make reports and comply with PUC orders and regulations.

On February 1, 2014, the PUC announced the new unconventional gas well fees for calendar year 2013 in Pa. Bulletin at 44 Pa.B. 757, which is available at the following link: http://www.pabulletin.com/secure/data/vol44/44-5/263.html, The fees were increased over the 2012 levels due to a higher average annual price of natural gas.  For instance, year one horizontal well fees for 2013 are $50,000, compared to $45,000 for 2012.

Among the PUC’s other duties that remain intact after the Supreme Court’s decision are the assessment of producers for its costs of administering and enforcing Chapter 23, notifying the Department of Environmental Protection (DEP) when producers have not timely paid fees, and assessing interest and civil penalties on producers who fail to make timely payment of fees or otherwise violate Chapter 23.

Based on a review of the Wells Spud Report available on the DEP’s website at http://www.depreportingservices.state.pa.us/ReportServer/Pages/ReportViewer.aspx?/PUC/PUC_Interactive_Web, it appears that in the same way the producers’ obligations under Act 13 have remained constant, they are also moving ahead “business as usual” in their drilling activities. In January 2014, the first full month of reporting after the Supreme Court’s decision, 124 unconventional gas wells were drilled, which was on par with the 125 wells drilled in January 2013.  Also notable is that drilling in January 2014 exceeded the monthly average during 2013, with only one other month in 2013 seeing a higher number of wells being drilled – May with 128.  

The amount of wells drilled per month in Pennsylvania has declined from 2011 to the present, with the sharpest drop occurring after the first year. In 2011, there was an average of 163 wells drilled per month, while the average in 2012 declined 31% to 112 wells.  In 2013, approximately 101 wells were drilled per month, a 10% decrease from 2012.  Despite this modest decline, it is informative that the Supreme Court’s decision does not appear to have had an immediate effect on drilling activity.

However, in reviewing permitting activity, which is also available on DEP’s website at http://www.portal.state.pa.us/portal/server.pt/community/oil_and_gas_reports/20297, we note that there was a decline in January 2014 in the number of permits that were issued, as compared to the average number issued each month in 2013.  Whereas DEP issued 197 unconventional gas well permits in January 2014, the monthly average during 2013 was 247.  Even compared to January 2013 when 260 permits were issued, the January 2014 number is low.  At the same time, only 186 permits for unconventional gas wells were issued in February 2013, so it is possible that the January 2014 decline is based on other factors, such as weather, and unrelated to the Supreme Court’s decision.

We will continue monitoring the situation and report any significant changes or new trends.  For questions, please contact Karen Moury at Karen.moury@bipc.com.

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