On February 15, the Department of Environmental Protection told the Environmental Quality Board conventional oil and gas drilling companies only paid $46,100 of the $10,600,000 it cost for DEP to regulate that industry in FY 2020-21.

Overall, DEP expects an annual revenue deficit of at least $10.5 million, nearly half of the approximately $25 million it costs to regulate the conventional and unconventional oil and gas drilling industry, even with a reduced complement of 190 staff in the Oil and Gas Program.

DEP defines a full complement in the program as 226 positions.

Act 13 of 2012 requires each well permit application to be accompanied by a permit fee, established by the EQB, that bears a reasonable relationship to the cost of administering the Oil and Gas Program.

“The permit application fee is the primary tool the Oil and Gas Act provides to fund the program. The fee is a one time payment, submitted with the application for a permit to drill and operate an oil or gas well,” explained Kurt Klapkowski, Director of the Bureau of Oil and Gas Planning and Program Management.

“These fees do not provide ongoing revenue to the program,” said Klapkowski. “For that reason, the fees received in a given year must fund all future Oil and Gas Program costs for functions beyond permitting, including but not limited to the Oil and Gas Program's obligation to conduct ongoing inspections of well sites, permitting and inspecting support facilities, permitting and inspecting gathering pipelines, authorizing and inspecting water withdrawals, oversight of the plugging activities, complaint investigations and straight gas investigations, to name just a few.

“In addition to the permit application fees, there are several other sources of funding for the Oil and Gas Program,” said Klapkowski.  “The 2012 Oil and Gas Act allocates $6 million annually to the Department for the administration of the Act and the enforcement of acts relating to clean air and clean water.

“Civil penalties that are collected in forfeiting bonds are also potential sources of revenue for the program. However, the Department has not included fines and civil penalties in its well permit application fee analysis because relying on penalties to fund fundamental elements of the regulatory program is not appropriate and is contrary to sound public policy.

“Despite the decline in permit applications, the Department's workload continues to increase. Each year more wells are drilled than plugged, resulting in a growing inventory of wells to be inspected to ensure compliance with applicable laws.

“New wells are accompanied by infrastructure such as support facilities, water withdrawals, well development impoundments, access roads and gathering pipelines further increasing DEP's oversight and inspection obligations.”

“Equally important are the program's responsibilities related to gas storage as well as orphan and abandoned well plugging.

“Finally, the program must ensure that it responds to complaints, emergencies and requests for public records related to implementation of the 2012 Oil and Gas Act.

“As a result of the increased workload described and the continually advancing oil and gas industry, DEP also has increasing responsibilities to develop guidance, update forms, provide training, improve data management, and to study and evaluate new and evolving issues, all to ensure that the oil and gas program operates effectively and efficiently, while providing clarity to the regulating community and the public.

“The bottom line is that the current fees are inadequate to support the Oil and Gas Program,” said Klapkowski.  “The department is proposing a future rulemaking to develop alternate funding options to adequately fund and sustainably fund the oil and gas program.”

Klapkowski’s presentation was based on the             Oil and Gas Program Fee Report required every three to determine the adequacy of funding for the program.

Background

The latest unconventional well permit fee increase became effective on August 1, 2020 and was already out of date when it was adopted.  It was in development for over two and a half years.  The fees were last updated before that in 2014.  [Read more here.]

There has been no increase in fees for conventional oil and gas drillers since 2014.

The revenue projections done for the 2020 unconventional fee regulation were based on DEP receiving at least 2,000 permits a year to fund the reduced complement of 190 for the program.

2,600 permits a year would be required to fund the full staff complement of 226, according to the fee report.

In calendar 2021, DEP received 775 unconventional well permits, nearly a third of the number needed to support the program at reduced staffing.

DEP projects the cost of running the existing Oil and Gas Program will be about $26,647,040 in FY 2022-23.

The report estimates 60 percent of these costs are accounted for by activities related to unconventional oil and gas well activities-- about $15,988,224 and 40 percent by conventional oil and gas wells-- about $10,658,816.

The report notes fees on conventional oil and gas well permits brought in only $46,100 in FY 2020-21 which means conventional oil and gas drillers only pay for 0.4 percent of the cost of regulating their industry; the unconventional industry pays the remainder.

For reference, in 2021, DEP inspections found 4,386 violations of environmental regulations at conventional oil and gas operations and 1,096 violations at unconventional (shale gas) wells.  [Read more here.]

As of December 31, 2021 there were 100,500 active conventional wells in Pennsylvania and 12,694 unconventional wells.  [Read more here.]

Other Income

In January 2020, DEP did collect a penalty assessment of $30.6 million from ETC Northeast Pipeline for the 2018 explosion of the Revolution Pipeline in Beaver County that was deposited into the Fund supporting the Oil and Gas Management Program.  [Read more here.]

And the penalty funding did prop up the program for a while, however, DEP has never used penalties as a way of raising money to support its regulatory programs and it would be bad public policy to do so.

General Taxpayer Funding

Jim Welty, from the Marcellus Shale Coalition which represents the unconventional drilling industry, and a member of DEP’s Citizens Advisory Council serving on the EQB, told the Board-- “In 2013 when the fee was raised to $5,000, the unconventional shale industry had cautioned the Bureau not to overestimate the number of well permits for funding purposes.”

“I think the industry has said for a long time to the department, for well better than a decade, that we wanna work with the department to find alternative means of funding. And we know full well that there is the ability to allocate General Fund revenues or other revenues to the program to help fund it.”

“I think the caution that I would put out there is as you look to alternative means of funding, to not look to one segment of the industry that's being regulated to fund the entire program.

“And by no means am I suggesting that the conventional industry should be required to fund 40 percent of the program. Because, as the report points out, most of those are small businesses, can't carry that load. But there are alternative means.”

The Marcellus Shale Coalition suggestion to use general taxpayer money to support the regulatory program instead of having the industry pay for the program has been made before, but as is well known, the track record of the General Assembly and recent governors providing General Fund support to environmental programs isn’t exactly steller.

In 2010, Gov. Rendell actually bragged about the fact General Fund monies for DEP were below 1994-95 appropriations. [Read more here.]

Since 2003, General Fund support for environmental programs in DEP have been cut about 40 percent and as a result staffing was reduced by nearly 30 percent, especially in water quality protection programs.  [Read more here.]

These cuts in General Fund support have forced DEP to enact permit fees to keep the programs going so, in many cases, they meet minimum federal program requirements.

Additional Industry Bonding Subsidies

In November, the Environmental Quality Board accepted rulemaking petitions for study to increase oil and gas well bonding amounts for both conventional and unconventional oil and gas wells in-line with the taxpayer cost to plug them to help deter future abandon wells.  Read more here.

Increasing bond amounts will help protect state taxpayers from having to pay those plugging costs to solve problems created by the conventional industry especially.

This is a significant issue because DEP has only $15 per well in bonds on hand to deter future abandoned wells from existing oil and gas well owners if they walk away.  Read more here.

Taxpayers are also potentially liable for plugging thousands of wells drilled before April 1985 because state law exempts those wells from having any bonding at all.  Pre-1985 wells are the overwhelming number of 10,500 conventional active wells.

Conventional oil and gas well drillers are also trying to add to this taxpayer liability because they have continued to try to abandon wells without plugging them 813 times in 2019 and 2020.  Read more here.

All these wells are in addition to the 200,000+ wells abandoned by the conventional oil and gas industry and now being plugged with over $395 million in taxpayer funds.  Read more here.

Click Here for Klapkowski’s presentation.  Click Here for a copy of the Fee Report.

For available handouts and more information, visit the Environmental Quality Board webpage. Questions should be directed to  Laura Griffin, Regulatory Coordinator,  laurgriffi@pa.gov, 717-772-3277.

Related Articles:

-- Gov. Wolf’s Environmental Budget Builds On Bipartisan Support For $450 Million Conservation Allocation From Federal ARP Funds; Increases DEP Staff To Manage Historic Federal Bipartisan Infrastructure Funding

-- DEP Outlines 2022 Priorities: Make Up Deficit In Oil & Gas Funding; Get Resources Needed To Invest New Federal Mine Reclamation, Oil & Gas Well Plugging Funds

-- DEP To Prohibit Conventional Oil & Gas Drillers With Unresolved Environmental Violations From Getting Conventional Well Plugging Contracts; 133 Companies Interested In Doing Well Plugging Work

-- DEP: Conventional Oil & Gas Drillers Tried 813 Times To Abandon Wells Without Plugging Them; Failed To Report Waste Generated 836 Times Over 2 Years

-- Guest Essay: Commonwealth Budget Should Fully Fund Environmental Protection - By Rep. Greg Vitali, Minority Chair House Environmental Committee

[Posted: February 16, 2022]

2/21/2022