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Pa. Senate Passes Comprehensive Marcellus Shale Bill
November 29, 2011
On November 15, 2011, the Pennsylvania Senate passed S.B. 1100, a fairly comprehensive legislative effort aimed at increasing governmental oversight of the development and production of Marcellus Shale resources. This measure, if adopted by the Pennsylvania House and approved by Governor Corbett, would impose significant new regulations and requirements on natural gas producers related to, among other things, well permitting, reporting, environmental and drinking water protection and conservation, transportation, bonding, regulatory, and regulatory and civil penalties. The bill is currently under consideration before the Pennsylvania House of Representatives.

Chief among the issues presented by S.B. 1100, however, is the introduction of "shale impact fees," which have been contemplated in Pennsylvania for months. Under the S.B. 1100 proposal, these impact fees would be assessed, beginning retroactively as of January 1, 2011, at $50,000 for the first year of a well's production and decreasing by $10,000 each subsequent year until settling at $10,000 for years 11 through 20 of a well's productive life. The majority of the proceeds from these impact fees (i.e., 55%) would primarily go to the local Marcellus Shale region counties and municipalities for use in funding a wide realm of activities, including transportation infrastructure, emergency preparedness, water and wastewater preservation, and reclamation, environmental and conservation initiatives, and even tax reductions and housing programs. The remainder of the impact fee revenues would be designated for statewide environmental, transportation, and water and wastewater infrastructure initiatives. For wells in operation before January 1, 2011, S.B. 1100 would also impose a one-time assessment fee of $20,000 that would similarly fund a statewide "Natural Gas Energy Development Program" formed by S.B. 1100 that is intended to promote natural gas-fueled transportation throughout the Commonwealth.

In addition to these impact fees and assessments and accompanying reporting requirements, S.B. 1100 would also establish new Pennsylvania Department of Environmental Protection (Pa. DEP) well permitting, registration, and siting standards, and would impose additional requirements for producers to take active measures to contain production wells and to protect and preserve water supplies. Furthermore, S.B. 1100 would create a new structure of regulations related to underground gas storage operations – including eminent domain rights – and would enact penalties for entities failing to observe the various new regulations contained within the legislation.

Finally, S.B. 1100 delegates to municipal authorities the responsibility of developing local ordinances pertaining to oil and gas operations, but establishes minimum requirements for these ordinances and limits local restrictions from being more stringent than the conditions that are locally placed on other industries or land-uses.  

Of important note, S.B. 1100 also designates the Pennsylvania Public Utility Commission (Pa. PUC) as the regulatory body responsible for calculating and collecting the impact fees and other assessments and provides the Pa. PUC with certain powers to investigate matters related to these fees and to proscribe interest penalties, as necessary. This provision of S.B. 1100 creates a new jurisdictional role for the Pa. PUC as contemplated by Governor Corbett's Marcellus Shale Advisory Committee Report issued earlier this year, and – in addition to the many administrative requirements contained within the bill – presents potential new regulatory challenges for Marcellus Shale developers and producers.

Barry A. Naum