On August 23, 2018, the Commonwealth Court issued a unanimous opinion invalidating components of the new pre-permit process created in 25 Pa. Code §§ 78a.1 and 78a.15(f), and (g), pertaining to new “public resources.” The Marcellus Shale Coalition (MSC) challenged the provisions as unlawful and unreasonable, seeking declaratory and injunctive relief. The Marcellus Shale Coalition v. Department of Environmental Protection and Environmental Quality Board, 573 M.D. 2016.
Please read more about the opinion in this Alert.
The Pennsylvania Supreme Court has rejected the long-standing test for analyzing claims brought under Article I, Section 27 of the Pennsylvania Constitution, commonly known as the Environmental Rights Amendment (ERA). In its June 20, 2017 decision in Pennsylvania Environmental Defense Foundation (PEDF) v. Commonwealth, the Supreme Court set aside the test from Payne v. Kassab that has been used since 1973, and held that the Commonwealth’s oil and gas rights are “public natural resources” under the ERA and that any revenues derived from the sale of those resources must be held in trust and only expended to conserve and maintain public natural resources.
The Supreme Court’s opinion in PEDF is an important step in the ongoing judicial re-examination of the ERA. However, the impact of the Court’s decision on environmental and land use issues beyond the relatively narrow facts of this case remains unclear.
For more information, read our Administrative Watch.
The Pennsylvania Supreme Court declared the last remaining challenged sections of Act 13 of 2012 to be invalid in an opinion issued September 28, 2016 in the Robinson Township v. Commonwealth line of cases. Read more about it in our Administrative Watch.
Earlier today, the Pennsylvania Commonwealth Court issued a unanimous decision in the much-anticipated case of Gorsline v. Board of Supervisors of Fairfield Township, reversing the decision of the Court of Common Pleas of Lycoming County. In reversing the lower court, the Commonwealth Court upheld Fairfield Township’s decision to grant conditional use approval to Inflection Energy, LLC for an unconventional well pad. This case is significant for several reasons. First, the Commonwealth Court made it clear that it is insufficient for objectors to sustain their burden by merely stating concerns or asking questions of the developer’s expert witnesses. Instead, they must present evidence to substantiate those concerns. Second, the Commonwealth Court criticized the lower court for making its own findings of fact when it did not take additional evidence and where the municipality made its own findings of fact. Third, the Commonwealth Court recognized that the lower court erred by focusing on truck deliveries during the construction phase of the project because zoning regulates the use of land and not the particulars of development and construction. Finally, the objectors attempted to raise issues based on the Pennsylvania Supreme Court’s Robinson Township decision, arguing that natural gas development is an industrial use that is per se incompatible with a residential/agricultural zoning district and that approval of the natural gas development violated the Environmental Rights Amendment of the Pennsylvania Constitution. The Commonwealth Court summarily rejected these two arguments and noted that, because the record supported the township’s determination that the proposed well pad was compatible with the permitted uses in the residential/agricultural district and the objectors presented no evidence of harm, the objectors’ claims were unsupported by the accepted evidence of record. This final point is especially significant because many anti-industry opponents cite both the lower court’s opinion and the Delaware Riverkeeper Network’s amicus brief from this case in other zoning proceedings as support for the now rejected view that oil and gas development must only occur in industrial zoning districts.
In a recent non-precedential opinion, the Third Circuit affirmed a decision of the Middle District of Pennsylvania dismissing an action on the basis that a doctor lacked standing to challenge what he refers to as the “Medical Gag Rules” of Act 13. In Rodriguez v. Secretary of Pennsylvania Department of Environmental Protection, the plaintiff, a doctor specializing in the treatment of renal diseases, hypertension and advanced diabetes, asserted he is unable to obtain critical information about the quality of local water. Specifically, he claimed that he needed the information to properly diagnose and treat patients whose illnesses or medical conditions allegedly resulted from contact with environmental contaminants. He therefore challenged Section 3222.1 of Act 13, which provides two mechanisms for health professionals to learn proprietary information about the chemicals used in hydraulic fracturing—one for medical emergencies and one for non-emergency situations. Dr. Rodriguez argued Act 13’s non-emergency provision, which requires a written statement and the execution of a confidentiality agreement, impermissibly restricts his speech and is unconstitutionally vague and overbroad.
The Middle District of Pennsylvania held that Dr. Rodriguez’s alleged injury was too speculative to satisfy the requirements of standing under Article III of the U.S. Constitution. In this regard, Dr. Rodriguez did not allege that he had ever been in a situation where he needed or attempted to obtain such information, or that he had ever been forced to sign a confidentiality agreement under Act 13. In short, he never suffered an injury-in-fact.
On appeal, the Third Circuit agreed with the District Court, holding that it was insufficient for Dr. Rodriguez to rely on “naked assertions devoid of further factual enhancement.” Rather, he must allege that he suffered an invasion of an interest that is actual or imminent, not conjectural. The Third Circuit also distinguished Dr. Rodriguez’s reliance upon the Supreme Court of Pennsylvania’s 2013 opinion in Robinson Twp., Washington Cty. v. Com. The court ruled that Dr. Rodriguez’s reliance on Pennsylvania law as authority regarding federal standing requirements was misplaced.
Pennsylvania Governor Tom Wolf proposed a 5% severance tax on natural gas production. Though specific details are not yet available, Wolf recommended a tax modeled after West Virginia’s severance tax, which currently taxes gas at a rate of 5% and imposes an additional fee of 4.7 cents per 1000 cubic feet of extracted gas. Wolf believes the proposed tax could generate $1 billion in new revenue for the state. The bulk of this revenue would go to fund education. Wolf said the tax would not be levied in addition to Act 13’s well fees, but rather, the well fees would be rolled into the tax.
Responding to Wolf’s tax proposal, David Spigelmyer, president of the Marcellus Shale Coalition, criticized the proposal and noted that the natural gas industry already pays significant taxes in Pennsylvania. Spigelmyer believes the new energy tax will discourage capital investment and make Pennsylvania a less competitive market for the natural gas industry. Spigelmyer stressed that the investments made by the energy companies act as a driving force for the Pennsylvania economy and tax base – accounting for more than $700 million in royalties paid to landowners and more than 200,000 jobs created. Spigelmyer believes Wolf should focus on the creation of new jobs rather than new taxes.
On January 7, 2015, the Commonwealth Court of Pennsylvania entered an opinion and order in the case Pennsylvania Environmental Defense Foundation v. Commonwealth of Pennsylvania. The Pennsylvania Environmental Defense Foundation (“PEDF”) sought declaratory judgment with respect to past and future leasing of State land for oil and natural gas development as well as for the propriety of the use of monies in the Oil and Gas Lease Fund. The Court did not address the legality of leases executed by the Department of Conservation and Natural Resources (“DCNR”) in 2008 and 2010, due to the absence of indispensable parties, i.e., the lessees.
First, the Court held that neither 1602-E nor 1603-E of the Pennsylvania Fiscal Code violates Article I, Section 27, the Environmental Rights Amendment (“ERA”) of the Pennsylvania Constitution. Section 1602-E mandates that the General Assembly, rather than DCNR, appropriate all royalties paid into the Lease Fund. The Lease Fund is a depository for all rents and royalties paid from oil and gas leases on Commonwealth lands. Based upon the plain language of the Fiscal Code, which left rent revenue and bonus payments under the control of DCNR, the Court held that PEDF failed in its burden to show that the General Assembly had infringed on rights protected under the ERA or had not acted consistently with its trustee obligations under the ERA.
Section 1603-E appropriates up to $50 million in royalty monies annually to DCNR to carry out the purposes of the Lease Fund, which include conservation, recreation, dams, and flood control in state parks and forests. The Court determined whether the funding provided to DCNR for the agency to meet its duties under the ERA was adequate by applying its standard for public funding inquiries. Under this standard, the constitutional challenge was denied because PEDF presented no evidence that the funding appropriated was “so deficient that DCNR cannot conserve and maintain our State natural resources.”
Second, the Court held that the General Assembly’s transfers and appropriations from the Lease Fund for the benefit of the Commonwealth generally were not inconsistent with the Environmental Rights Amendment. The Court found that while the Environmental Rights Amendment places a duty on the Commonwealth to conserve and maintain public natural resources. It does not prohibit the use of revenues derived from public natural resources for non-conservation purposes. The Court rejected PEDF’s contention that the Lease fund is a trust fund that must be reinvested into the conservation and maintenance of the Commonwealth’s public natural resources.
Third, the Court found that DCNR has the exclusive statutory authority to determine whether to lease Commonwealth lands for oil and natural gas extraction. The Court reasoned that the Conservation and Natural Resources Act gives DCNR the authority to determine whether leasing public lands is in the best interest of the Commonwealth and, if so, to execute leases as the agency deems appropriate.
On October 22, 2014, Pennsylvania Governor Tom Corbett signed House Bill 2278, The Unconventional Well Report Act, into law. The Act requires operators of unconventional wells to submit monthly production reports to the Department of Environmental Protection. The change is to revise Act 13, which had required semi-annual production reporting for unconventional wells. The initial report under the Act is due to the DEP on March 31, 2015, and thereafter monthly production reports are due 45 days after the close of the reporting period. The DEP will make the submitted reports available on its website and may use the reports in enforcement proceedings.
On August 25th, Rep. White (D-Allegheny, Beaver and Washington) introduced House Bill 2403 (2014) in order to repeal Section 2318 of Title 58 (Oil and Gas) of the Pennsylvania Consolidated Statutes. Section 2318 provides that upon the imposition of a severance tax on unconventional gas wells in the Commonwealth of Pennsylvania, the Secretary of the Commonwealth shall submit for publication a notice of the imposition of the severance tax and that Chapter 23 (Unconventional Gas Well Fee) shall expire upon the publication of the notice. Repealing Section 2318 would allow a severance tax and the impact fee to co-exist.
The Pennsylvania Public Utility Commission appealed the Commonwealth Court’s July 17, 2014 Opinion and Order in the Act 13 case, which resolved a number of issues remanded by the Supreme Court.
Review Babst Calland’s Administrative Watches for in-depth analyses of the July 17, 2014 Commonwealth Court decision and December 19, 2013 Supreme Court decision.
In its far-reaching decision in Robinson v. Commonwealth, which was issued on December 19, 2013, the Pennsylvania Supreme Court invalidated several critical provisions of Act 13. Additionally, the Supreme Court remanded to the Commonwealth Court to address whether the remaining sections of Act 13 can be severed and whether several sections of Act 13 were unconstitutional. Yesterday, the Commonwealth Court reached its decision on the remanded issues.
Regarding severability, the Commonwealth Court held that the last sentence of Section 3302 and all of Sections 3305 to 3309 were not severable and, therefore, invalid. The cumulative effect of this invalidation of all substantive portions of Chapter 33 of Act 13 is that local zoning matters relating to oil and gas will “now be determined by the procedures set forth under the [Municipalities Planning Code] and challenges to local ordinances that carry out a municipality’s constitutional environmental obligations,” and that the Pennsylvania Public Utility Commission no longer has the authority to review local ordinances for compliance with Act 13 and withhold well fees where defects were found.
Regarding the other issues, the Commonwealth Court dismissed claims that providing notice only to public drinking water systems following a spill from drilling operations and that prohibiting health professionals from disclosing the identity and amount of hydraulic fracturing additives were unconstitutional special legislation. The Court also dismissed the claim that Act 13 conferred the power of eminent domain to illegally permit taking private property for use by a private enterprise.
Review our recent Administrative Watch for more in-depth analysis.
For more background, review our blog post on the Supreme Court Decision.
Last week, Governor Tom Corbett announced that county and municipal allocations of the Act 13 well fee, which totaled $225 million for calendar year 2013, were available for review on the Pennsylvania Public Utility Commission’s website. The $225 million disbursement represents an 11% increase from 2012 and is in addition to the nearly $2 billion in corporate and personal income tax revenue paid by oil and gas companies in the past seven years. Approximately $123 million will be distributed to county and municipal governments that host shale activity. The county and municipal governments can use the money received from the Act 13 well fees on various expenses such as construction and repair of roads, emergency response preparedness, and sewer system construction and repair. Additionally, state and county agencies responsible for overseeing the natural gas industry, including the Department of Environmental Protection, will receive $17 million in funding from the well fee revenue. Another $82 million will be distributed by the Marcellus Shale Legacy Fund to counties for parks and recreation as wells as competitive grants awarded to local governments and non-profit organizations for environmental projects.
Well Fee County and Municipality Disbursements for 2013 (B1612296xAB63C)
On April 9, 2014, Pennsylvania Commonwealth Court President Judge Dan Pellegrini denied the petition to intervene of the Pennsylvania Independent Oil and Gas Association, Marcellus Shale Coalition and American Petroleum Institute in the Act 13 litigation, which was remanded by the Supreme Court back to the Commonwealth Court in December. However, Judge Pellegrini granted the trade groups a total of five minutes to argue as amicus curiae at a hearing scheduled for May 14, 2014 on the remanded issues. Issues to be argued in May include the jurisdiction of the PA Public Utility Commission, eminent domain, notice requirements for spills, and the provision prohibiting disclosure by health professionals of chemicals use in hydraulic fracturing.
Governor Tom Corbett announced on Friday that the state of Pennsylvania expects to collect $224.5 million in 2014 through Act 13’s well fee assessed on unconventional wells. This figure represents an 11% increase over the previous year. Since Act 13 became law in 2012, the total amount collected from the fee accounts for more than $630 million in revenue.
The majority of the Act 13 well fee funds are directly distributed to counties and municipalities for a variety of authorized uses. A portion of the funds are also distributed to commonwealth agencies such as the DEP and conservation programs like Growing Greener and Marcellus Legacy Fund.
Act 13 imposes a 15 year fee for companies drilling into the Marcellus Shale formation. The annual fees can range between $5,000 to $60,000 per well, depending on the current price of natural gas and the age of the well.
The Pennsylvania Supreme Court on Friday, February 21, 2014, denied an Application for Reargument or Reconsideration filed by the Commonwealth of Pennsylvania regarding the Act 13 decision. The December 19, 2013 Opinion and Order of the Supreme Court will stand. However, in a dissenting statement, Justice Saylor wrote that, “I am fully in line with the position that ‘[f]undamental fairness to a co-equal branch of government, as well as adherence to this Court’s precedent and established procedure, mandates that the [Commonwealth parties] be afforded a reasonable opportunity to present evidence before any judicial proclamation is made about whether Act 13 satisfies the newly-mandated balancing test under Section 27’ of Article I of the Pennsylvania Constitution. . . . The judiciary simply does not possess the ability to divine the consequences of a legislative enactment absent a developed factual record.”