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Remanded drilling impact fee could be ruled out pending state decision

| Thursday, Jan. 2, 2014, 11:33 p.m.
Stephanie Strasburg | Tribune-Review
An EQT rig for extracting natural gas stands in the snow in Amwell, Washington County, on Thursday, Jan. 2, 2014.

Wayne Montgomery never thought the state's drilling impact fee would last.

Amwell, where he is a township supervisor, has received about $1.1 million to cover the impact from its 70 shale gas wells, but with the way politics in Harrisburg works, it seemed to be a deal too good to be true, he said.

So he wasn't surprised to learn that the drilling fee, which brought $406.6 million to state and local governments over two years, could end as one of many consequences of a Dec. 19 state Supreme Court decision on the 2012 oil and gas law reforms.

The reform package known as Act 13 put a yearly fee of $5,000 to $60,000 on every deep gas well in Pennsylvania. The court did not consider that part of the law, but it won't go unaddressed. Because the Supreme Court threw out some parts of the law, it ordered a lower appeals court to reconsider whether the rest of it, including the impact fee, can legally stand.

It isn't likely, though it's possible, that the court will throw it all out, legal experts said.

“I'd be upset, yeah,” Montgomery said about the chance that Amwell in Washington County might lose money it's using for sewers and roads. “It was a godsend. But we kind of figured sooner or later something was going to happen.”

In a surprise move, the Corbett administration asked the Supreme Court on Thursday to reconsider its decision, arguing that parts of the court's main opinion need additional evidence and that the justices should take another look at how much of the law stays in force.

Lawyers for municipalities and others who successfully sued to challenge the law say they will oppose the request. Jonathan M. Kamin, one of the lawyers, called it an attempt to “implement and utilize unconstitutional legislation” and “an affront to the citizens of Pennsylvania.”

It's the latest twist in the topsy-turvy battle raging for more than five years between the state's nascent gas drilling industry and some municipal governments.

They're fighting over power to control when and where drilling happens, and how to pay for its impacts. Act 13 was supposed to be the solution, but the whole package could be on shaky ground with a pending Commonwealth Court review.

“That's certainly a very real possibility,” said Steven Baicker-McKee, an energy attorney and Duquesne University law professor. “The Commonwealth Court now has to re-examine the issues before it, under a whole new paradigm. I think (it) will take that charge very seriously.”

Drilling industry supporters inside and out of state government often argued that Act 13 was supposed to be a comprehensive update to address the shale gas boom. In addition to the drilling fee, it put stronger environmental regulations on the work.

In return, drillers got streamlined laws across the 2,500 municipalities, which had loosely defined powers over where and when drilling happened.

Lawmakers never wrote that those rules go hand-in-hand. That could be key, said Bruce Ledewitz, a constitutional law expert and professor at Duquesne. When a Pennsylvania law doesn't expressly say that a whole law must go if courts strike part of it, there's a presumption that the remaining parts can stand, Ledewitz said.

If drillers or the state want to nix the fee, they may stand a better chance arguing the rule is an illegal, special law for one industry, he said. The Supreme Court has been broadly receptive to that argument, but it would contradict the state's and industry's position and possibly hinder later passage of any drilling laws, he said.

“The very fact that it's remanded makes it possible that it could be overturned, even though I don't believe it will,” Ledewitz said, noting the court's unpredictability. “Contrary to my opinion is the fact that the court remanded it to begin with: Someone evidently thought it was worth considering.”

Several municipal officials said they'd be surprised if the impact fee went away. The court struck down rules that limited municipal powers, but there's no common-sense link that says the impact fee can't exist without those rules, they said, an argument Ledewitz considers compelling.

Shirl Barnhart, second vice president of the Pennsylvania State Association of Township Supervisors, said he doubts the industry would challenge the fee.

“I'd be shocked if they did. This horse is pretty dead. If they keep this up, they're going to be abusing a corpse,” said Barnhart, who chairs the board of supervisors in Morgan, Greene County, which received $1 million. “For them to try to pull the impact fee now would be a disaster on their part. Any support that they have right now they'd just lose.”

A spokesman at the Marcellus Shale Coalition said the industry group is reviewing the decision. Consol Energy Inc. officials said the day after the decision that they expect lawmakers to find solutions.

Taxing drillers has become a hot-button issue again in Harrisburg.

Several Democrats trying to challenge Republican Gov. Tom Corbett in next year's election have pitched taxes of 4 to 5 percent on gas production to raise more money. A House group of two Republicans and two Democrats, including Rep. Harry Readshaw, D-Carrick, proposed a 4.9 percent tax on Dec. 17, saying it would raise $400 million per year more than the impact fee.

Corbett opposes a tax, saying it would slow the economic boost from drilling.

The impact fee he did support is small compared with those in other oil- and gas-producing states, said Supervisor Vince DeCario, a Democrat in Derry, which received $800,000.

If the courts strike down the fee, Harrisburg lawmakers might replace it, he said.

“No matter if they shoot Act 13 down, something else will come back for revenue in some form,” DeCario said. “We really can't do anything about it right now, but I think it will all work out in the end, maybe even for the better.”

Timothy Puko is a Trib Total Media staff writer. Reach him at 412-320-7991 or tpuko@tribweb.com.

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