On March 29, 2017, the Commonwealth Court of Pennsylvania issued a decision in Snyder Brothers, Inc. v Pennsylvania Public Utility Commission, No. 1043 C.D. 2015, reversing and rejecting the PUC’s interpretation of the obligation to pay impact fees under Act 13 for a low producing or “stripper” well, which is defined as an “unconventional gas well incapable of producing more than 90,000 cubic feet of gas per day during any calendar month . . . .” Section 2301 of Act 13, 58 Pa.C.S. §2301.
The PUC had interpreted the law to mean that producers owed the fees on wells that produced more than the threshold amount of gas during at least one month of the year. Snyder Brothers disagreed with the PUC and decided not to pay fees for certain wells in 2011 and 2012 which prompted the PUC to pursue an enforcement action against Snyder Brothers in 2014. After unsuccessful review before an administrative law judge, Snyder Brothers sought review by Commonwealth Court arguing that Act 13 unambiguously refers to a well that produces less than 90,000 cf of gas per day in one month, or any single month, during the twelve-month reporting period. PIOGA intervened in the case arguing against the PUC’s interpretation.
The court examined the meaning of a “stripper well” and agreed with Snyder Brothers. “Therefore, based upon the plain and unambiguous language of section 2301 of Act 13, we conclude that when an unconventional gas well cannot produce more than 90,000 cf of gas in at least one month, it is a stripper well and is not subject to impact fees.” Slip opinion at p. 12.
On October 17, 2013, the PUC proposed a new rulemaking for the impact fee program which would be codified at 52 Pa. Code Chapter 131. Proposed Rulemaking Order, Docket No. L-2013-2375551. While these regulations have not become final, the PUC included provisions that would allow a producer to petition for refunds if there was a classification or computational error causing an overpayment. However, the proposed regulations include a requirement that a petition for refund must be submitted by May 1 of the year following the April 1 impact fee due date on the production from the prior year.
The proposed regulations suggest that producers who paid impact fees for all wells may be able to seek a refund for wells that should have been considered “nonproducing unconventional gas wells” consistent with the provisions of proposed regulation §131.1(c)(1) (which define nonproducing unconventional gas wells as wells whose production decline to below stripper well volumes).
On April 11, 2017, Chairman Brown of the PUC sent a letter to Governor Wolf complaining about the Snyder Brothers decision which allegedly will result in $16M less in impact fees due to low producing wells being classified as stripper wells. She advised that the PUC intends to file a petition for appeal with the Pennsylvania Supreme Court but suggested that “a legislative solution may provide the clarity required” because the appeal process is time consuming and uncertain. On April 12, Governor Wolf issued a statement agreeing that the impact fee language should be fixed to protect impact fee revenue which counties and municipalities depend on. https://stateimpact.npr.org/pennsylvania/2017/04/13/wolf-says-act-13-language-should-be-fixed-to-protect-impact-fee-revenue/.
While the PUC and Governor Wolf may disagree with the decision, the court decision is legally binding until such time that a higher court overturns it or the General Assembly enacts legislation superseding the holding. Therefore, a producer that paid impact fees for 2016 production on wells that should be properly classified as stripper or nonproducing wells has a May 1 deadline to submit a petition for refund to the PUC.
This article was prepared by Stephen Smith, firstname.lastname@example.org.