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Conventional Gas Drillers Ask PA Supreme Court To Reconsider Stripper Well Impact Fee Decision

The PA Independent Oil and Gas Association has asked the PA Supreme Court to reconsider the December 28 decision in favor of the Public Utility Commission in two cases involving the definition of a stripper well for the purposes of the Act 13 unconventional well impact fee..

On January 11, the Association filed an application for reconsideration in Snyder Brothers, Inc. v. PUC and PIOGA v. PUC.

Under Act 13, stripper wells are not required to pay the annual impact fee. The act defines a stripper well as an “unconventional gas well incapable of producing more than 90 Mcf/d during any calendar month.”

Snyder Brothers and PIOGA have argued that the law plainly means a well is exempt if it was incapable of exceeding the 90 Mcf/d threshold in any one month during the reporting period, while the PUC contended that a well must not exceed the threshold volume during each and every month of the year to qualify as an exempt stripper well.

Or, in the words of the PUC: “[E]ven if a vertical gas well produces natural gas in quantities greater than that of a stripper well in only one month of a calendar year, that vertical well will be subject to the fee for that year.”

In March 2017, the Commonwealth Court decided in favor of PIOGA and member company Snyder Brothers that the stripper well definition and, in particular, the meaning of the word “any,” were not ambiguous.

The PUC subsequently appealed to the state Supreme Court.

The high court agreed with the PUC’s interpretation that the word “any” means “each” or “every” and also put considerable weight on the commission’s unfounded notion that producers could manipulate production in a given month to avoid paying the impact fee.

The Court majority ruled that an unconventional well is “subject to assessment of an impact fee for a calendar year whenever that well’s natural gas production exceeds 90,000 cubic feet per day in at least one calendar month of that year.”

PIOGA makes these points in its request for reconsideration:

-- The majority improperly viewed the statutory construction issue from the perspective of the “vertical gas well” definition, in which the word “any” does not appear, instead of from the perspective of the “stripper well” definition, in which the word “any” does appear and which applies beyond the vertical gas well definition.

-- The majority ignored undisputed evidence that in its four “implementation” orders, the PUC applied a “plain language” analysis and paired the word “one” with “any” whenever it discussed the two definitions.

-- The majority ignored undisputed evidence that in its four “implementation” orders, the PUC never determined the stripper well definition or the word “any” to be ambiguous.

-- The majority ignored undisputed evidence that in its four “implementation” orders, the PUC reversed many of its prior impact fee interpretations based on the producers’ arguments and, again, based again on a “plain language” analysis rather than an “ambiguity” analysis.

-- The majority failed to apply the fundamental rule of statutory interpretation that every word is to be given meaning in mistakenly concluding that the term “incapable” in the stripper well definition is not relevant in this case, when in fact it is highly relevant because it refutes the PUC’s “manipulation of production” argument.

Legislators and staff involved in drafting the Act 13 impact fee provisions have confirmed to PIOGA General Counsel Kevin Moody that one of the purposes of the “incapable” requirement was to prevent the very type of “manipulation of production” shenanigans the PUC and Supreme Court relied upon to support their interpretations of the stripper well definition to raise more revenue.

Unfortunately, this information was not available while the case was being litigated before the PUC and, even if it had been, would likely have been ignored by the PUC.

During oral argument the justices questioned what the production levels of the Snyder Brothers’ vertical wells involved in the case were, and Moody pointed the justices to the record pages showing that the production levels were “all over the place”―haphazardly above and below 90 Mcf/day during all 12 calendar months.

Discussions with legislators and staff confirmed that this these varying production levels were known when the impact fee provisions were being drafted and were the levels intended to qualify wells as stripper wells because their production was “marginal.”

Snyder Brothers too has made application for reconsideration, arguing that the Supreme Court failed to address the lawfulness of the penalties and interest the PUC imposed. Act 13 does not provide a mechanism for refunding improperly paid impact fees and so Snyder Brothers had withheld payment while the dispute was ongoing.

The PUC assessed the company nearly $500,000 for unpaid impact fees and administrative costs, including a $50,000 penalty.

Snyder Brothers requested a remand to the Commonwealth Court if the court denies PIOGA’s reconsideration request.

Because the Commonwealth Court ruled the impact fees were not owed, that court did not address whether the PUC’s imposition of penalties and interest for unpaid impact fees was lawful.

The company is asking the Supreme Court to correct its oversight in not addressing the company’s arguments.

(Photo: Conventional well, PIOGA.)

(Reprinted from the PIOGA February newsletter.)

Related Story:

PA Supreme Court Overturns Decision Allowing Drillers To Avoid Act 13 Impact Fees

[Posted: Feb. 12, 2019]


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