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Client Alert: Governor Corbett Signs House Bill 1950 into Law

February 2012

On February 13, 2012, Governor Tom Corbett signed into law House Bill 1950 (“HB 1950”) -- a landmark, 174-page bill that stands to dramatically alter the landscape of oil and natural gas law in Pennsylvania.  The central feature of the legislation is that it allows a county to impose a fee upon unconventional gas wells that have been or will be drilled in the area (or “impact fee”). 

The county only has until April 16, 2012, to adopt an ordinance assessing an impact fee.  In the event that the county fails to take such action on or before that date, an impact fee can be levied only if the governing bodies of at least half of the municipalities located in the county, or the municipalities representing at least 50% of the population of the county, adopt resolutions approving the fee by June 14, 2012.  A county or municipality is not eligible to receive any of the distributions provided for under the law until it passes an ordinance or resolution imposing an impact fee. 

Notably, HB 1950 does not establish a fixed impact fee.  Instead, it sets forth a formula to calculate the yearly assessment based upon several factors, including the average price of natural gas and the age of the well.  The law also authorizes the Pennsylvania Utility Commission (“PUC”) to annually adjust the statutorily-prescribed fee, beginning in 2013, to reflect any upward changes in the Consumer Price Index.  In addition, the legislation makes clear that the impact fee applies to all unconventional gas wells, regardless of when they were drilled.  For unconventional gas wells drilled before January 1, 2012, the operator of the well must remit payment to the PUC by September 1, 2012.

The scope of HB 1950, though, extends far beyond the imposition of an impact fee, touching upon matters involving appellate, energy, environmental, labor, municipal finance, real estate, tax, and trusts and estates law.  For instance, the legislation:

(1)       Prescribes the purposes for which a county or municipality can use the funds it receives from the impact fee;

(2)       Requires producers to provide maximum, practicable contracting opportunities for diverse and small businesses, including minority-owned business enterprises, women-owned businesses, and veteran-owned businesses;

(3)       Empowers the Department of Environmental Protection (“DEP”) to deny a well permit to an applicant if the applicant, its parent corporation, or its subsidiary corporation is in continuing violation of HB 1950 or any other statute or regulation administered or promulgated by the department;

(4)       Imposes a minimum setback distance for unconventional gas wells drilled near buildings, water wells, surface water intakes, reservoirs, wetlands, and certain bodies of water;

(5)       Mandates each oil or gas well owner or operator to restore the land surface within the area disturbed in siting, drilling, completing, and producing the well;

(6)       Directs a well operator who affects a public or private water supply by pollution or diminution to restore or replace the affected supply with an alternate source of water;

(7)       Permits the DEP to assess a civil penalty of up to $25,000, plus $1,000 for each day during which the violation continues, for violating HB 1950 or -- in the case of a violation arising from the construction, alteration, or operation of an unconventional well -- $75,000, plus $5,000 for each day during which the violation persists;

(8)       Allows a municipality to obtain an advisory opinion from the PUC as to the legality of a proposed ordinance regulating natural gas activities prior to its enactment;

(9)       Gives every local owner, operator, or resident who is aggrieved by such an ordinance the right to request that the PUC review the ordinance to determine whether it violates state law; and

(10)    Authorizes any aggrieved person to bring an action to invalidate or enjoin the enforcement of an ordinance in the Commonwealth Court, without first obtaining review from the PUC.

HB 1950 will thus likely play a critical role in Pennsylvania’s complex and rapidly-evolving, oil and natural gas industry.

The members of Rhoads & Sinon’s Marcellus Oil & Gas Practice Group are available to assist clients in their efforts to comply with the law -- from drafting an impact-fee ordinance to litigating enforcement matters before the PUC.  Further, given the breadth of experience of our practitioners, the firm is uniquely qualified to provide a complete spectrum of legal services for clients involved with, or interested in exploring opportunities in, the oil and natural gas field.

With core competencies in land use and real estate, energy and PUC regulatory practice, estates and trusts, environmental law, municipal finance, commercial transactions and litigation, Rhoads & Sinon is uniquely qualified to assist individuals, businesses and municipalities in matters relating to the implementation of HB 1950 and oil and natural gas issues in general.

At a time when understanding an industry is the difference between success and failure, Rhoads & Sinon has the knowledge base that can provide critical solutions to complex situations in this dynamic and evolving industry.

To learn more about HB 1950 or the firm’s oil and gas services, please contact the chair of Rhoads & Sinon’s Marcellus Oil & Gas Practice Group, Scott H. DeBroff, Esquire. Mr. DeBroff can be reached by phone at (717) 237-6716 or by e-mail at sdebroff@rhoads-sinon.com.