‘Stripper’ well ruling could cause $16M drop in fees

PUC plans to appeal decision on threshold

A recent Pennsylvania court ruling that frees companies from paying impact fees on shale gas wells with low production in a single month could cut this year’s impact fee collection by $16 million, with larger declines in future years as production from older wells dwindles, public utility regulators said this week.

Pennsylvania Public Utility Commission Chairman Gladys Brown wrote to the governor on Tuesday to say that the agency plans to appeal the March 29 Commonwealth Court decision that defined the threshold for low-producing “stripper” natural gas wells.

The court decision “has significantly jeopardized the current and future fees generated by Act 13,” she wrote, referring to the state’s shale gas law.

The court found that the law’s definition of stripper wells — those that are “incapable of producing more than 90,000 cubic feet of gas per day during any calendar month” — means that a company does not owe impact fees on wells that fall below the minimum production level in at least one month of the year. The PUC had argued that only wells that fell below the production threshold every month were exempt from the fees.

Ms. Brown wrote that the court’s interpretation will exempt more wells, causing impact fee collections to drop by approximately 10 percent this year. PUC spokesman Nils Hagen-Frederiksen said about 2,400 active wells in 2016 could possibly change to stripper well status and not pay a fee based on the ruling.

The PUC expects exemptions to grow in future years as gas production declines in aging wells and as companies “fully take advantage of the court’s interpretation,” Ms. Brown wrote, signaling that she agrees with the two dissenting Commonwealth Court judges who

said the ruling will encourage operators to suppress production during one month in order to avoid paying impact fees for the year.

A legislative fix could be as simple as changing the word “any” to “every” in the stripper well definition, Ms. Brown suggested, although legislators have been reluctant to revisit the shale law to address other court rulings that rejected some of its environmental and local zoning provisions.

Kevin Moody, general counsel for the Marshall-based trade group Pennsylvania Independent Oil and Gas Association, which successfully challenged the PUC’s stripper well interpretation, said the case is a straightforward matter of construing the plain language of the law.

“I’m confident that the PUC’s attempt to make this case into something else — about fears and notions of unlawful behavior by producers, completely without support in the record — will fail,” he said.

The state Independent Fiscal Office projected in January that shale gas companies will pay an estimated $175 million in impact fees on 8,200 wells for 2016, a record low even before the court ruling changed the calculation.

Companies’ impact fee payments were due April 1, just three days after the court ruling, but the PUC does not generally release an official tally until June.

Revenue from the fees is spread among communities to offset the costs of hosting shale wells and also pays for statewide environmental, infrastructure, emergency management and housing programs.