The Oil and Gas Addendum

Draft Legislation Restricting Unconventional Gas Well Fee May Be Difficult to Implement

On November 7, 2024, several Pennsylvania state senators from oil and gas producing regions introduced Senate Bill 1346 of 2024, which proposes to change the way that revenues from Pennsylvania’s unconventional well fee are disbursed. Senate Bill 1346 aims to prevent municipalities that enact ordinances impairing unconventional oil and gas well development from receiving a share of funds from the fees that are collected from those unconventional wells.

Senate Bill 1346 is a short and straightforward piece of draft legislation. But, its outward simplicity masks a long-running deeper tension between local zoning control and statewide policy preferences. Instead of imposing a statewide oil and gas location standard that superseded municipal zoning like ill-fated sections of Act 13 of 2012, Senate Bill 1346 instead aims to influence municipal oil and gas zoning decisions through the power of the purse. If it becomes law in its present form, Senate Bill 1346 will likely be difficult to implement because the location of oil and gas wells is more complex than Senate Bill 1346 contemplates.

The Unconventional Gas Well Fee

The principal aim of Senate Bill 1346 is to prevent disbursements of unconventional well fees to municipalities whose oil and gas zoning does not satisfy the requirements of Senate Bill 1346. Pennsylvania does not impose a severance tax on the value of unconventional oil and gas production. Instead, Pennsylvania has an unconventional well fee. Over a decade ago, through Act 13 of 2012, Pennsylvania began allowing counties to elect “. . . to impose a fee on unconventional gas wells that have been spud in the county.” 58 Pa.C.S. § 2302. One highlight of the unconventional fee is that oil and gas producers are not permitted to make landowners responsible for the fee. 58 Pa.C.S. § 3502.

The Pennsylvania Public Utility Commission is the state agency that administers the unconventional well fee. 58 Pa.C.S. § 2307. The law has a detailed protocol describing how the unconventional gas well fee is calculated, how it is distributed, and to whom the revenue is distributed. A significant amount of the revenue generated by the unconventional gas well fee is distributed to counties and municipalities. 58 Pa.C.S. § 2314(d). More specifically, those fees are allocated to counties with unconventional wells, municipalities with unconventional wells, and municipalities in a county where unconventional wells are located. 58 Pa.C.S. § 2314(d).

Counties and municipalities can use unconventional gas well fee distributions for a limited scope of projects. Those are activities involving:

(1) Construction, reconstruction, maintenance and repair of roadways, bridges and public infrastructure.

(2) Water, storm water and sewer systems, including construction, reconstruction, maintenance and repair.

(3) Emergency preparedness and public safety, including law enforcement and fire services, hazardous material response, 911, equipment acquisition and other services.

(4) Environmental programs, including trails, parks and recreation, open space, flood plain management, conservation districts and agricultural preservation.

(5) Preservation and reclamation of surface and subsurface waters and water supplies.

(6) Tax reductions, including homestead exclusions.

(7) Projects to increase the availability of safe and affordable housing to residents.

(8) Records management, geographic information systems and information technology.

(9) The delivery of social services.

(10) Judicial services.

(11) For deposit into the county or municipality's capital reserve fund if the funds are used solely for a purpose set forth in this subsection.

(12) Career and technical centers for training of workers in the oil and gas industry.

(13) Local or regional planning initiatives under the act of July 31, 1968 (P.L. 805, No. 247), known as the Pennsylvania Municipalities Planning Code.

58 Pa.C.S. § 2314(g). From a broad perspective, most of those authorized uses of the unconventional gas well fee distribution have some connection to the oil and gas industry and its impacts on the community, its infrastructure and workforce needs.

What Does Senate Bill 1346 Propose?

Senate Bill 1346 proposes to amend the framework for distributions of the unconventional well fee to eliminate distributions to municipalities that impair unconventional well drilling. In its current iteration, Senate Bill 1346 dictates that the Public Utility Commission “. . . shall not distribute revenue to any municipality that maintains a zoning or other ordinance that unreasonably limits or prohibits future development of unconventional natural gas wells within the municipality as determined by . . .” the Public Utility Commission.

The proposed legislation then provides a definition of what it means to unreasonably limit or prohibit future unconventional gas well development. Senate Bill 1346 states that “. . . a municipality’s zoning or other ordinance shall be presumed to have unreasonably limited or prohibited future development of unconventional natural gas wells if the municipality has adopted or enacted a zoning or other ordinance that imposes a standard or condition on well development that conflicts with or exceeds those contained in Chapter 32 (relating to development).”

That generic reference to “Chapter 32” likely references the unconventional well location standards in 58 Pa.C.S. § 3215, entitled “Well location restrictions.” That statutory section prevents unconventional wells from being drilled within 500 feet from an existing building or water well, without written consent of the owner. 58 Pa.C.S. § 3215(a). It also states that unconventional wells cannot be drilled within 1,000 feet of an existing well, surface water intake, reservoir or water supply extraction point of a water purveyor, without written consent. Id.

Is This Act 13 and Robinson Township All Over Again?

Senate Bill 1346 is not the first time that Harrisburg has sought to impact municipalities’ oil and gas zoning decisions. A component of Act 13 of 2012 was a restriction on municipalities’ abilities to zone for oil and gas development that was inconsistent with statewide standards. Chapter 33 of Act 13 was animated by the directive that “. . . all local ordinances regulating oil and gas operations shall allow for the reasonable development of oil and gas resources.” 58 Pa.C.S. § 3304(a). To accomplish that, Chapter 33 of Act 13 restricted municipalities’ zoning powers related to oil and gas development and imposed obligations on municipalities about where oil and gas development and support operations must be allowed. See, 58 P.S. § 3304(b).

In Robinson Township v. Commonwealth, 83 A.3d 901 (Pa. 2013), the Pennsylvania Supreme Court concluded that the sections of Act 13 restricting municipalities’ zoning authority in the oil and gas realm and imposing requirements about where municipalities must allow oil and gas development were unconstitutional. A plurality of the Supreme Court concluded that parts of Act 13, including its Section 3304, violated the Environmental Rights Amendment of the Pennsylvania Constitution. Id. at 981; 1000.

At first glance, Senate Bill 1346 may look like a rehash of Act 13 of 2012. Senate Bill 1346 interacts with a number of provisions of Act 13. And, if passed by the General Assembly and signed into law, Senate Bill 1346 would be a directive from Harrisburg that impacts municipalities’ zoning of oil and gas development. Additionally, Senate Bill 1346 relies on standards in a statewide statute to address municipalities’ zoning for oil and gas development.

But, Senate Bill 1346 is not a reinvigoration of the sections of Act 13 that were found to be unconstitutional. It is incorrect to conclude that Senate Bill 1346 must fail because of Robinson Township. Senate Bill 1346 differs from the constitutionally infirm sections of Act 13 in a significant way. This proposed legislation does not prohibit municipalities from enacting zoning ordinances that restrict where unconventional oil and gas well development may occur. Instead, Senate Bill 1346 restricts distributions from unconventional well fees to municipalities that do not adhere to standards that determine eligibility to receive the funding. In the world of government, that is not necessarily unusual. For example, through the National Minimum Drinking Age Act of 1984, the federal government restricted the allocation of highway money to states that did not amend their laws to require that individuals had to be 21 to purchase alcohol. See, 23 U.S.C. § 158.

Potential Issues with Senate Bill 1346

Although the mechanics of Senate Bill 1346 may distance it from the unconstitutional approach attempted in Act 13, that does not mean that there are calm seas ahead of Senate Bill 1346 if it becomes law. That is because municipal zoning and local land use considerations are often complex. Additionally, by empowering the Public Utility Commission to review local ordinances, Senate Bill 1346 may reanimate a fraught debate about the powers of local elected officials being usurped by unelected appointees in Harrisburg.

Pennsylvania communities have traditionally had the authority to direct where oil and gas development will take place within their borders through zoning ordinances. See, Huntley & Huntley, Inc. v. Borough Council of Borough of Oakmont, 964 A.2d 855, 866 (Pa. 2009). The Pennsylvania Municipalities Planning Code (the “MPC”) is the foundation for municipal zoning almost everywhere in Pennsylvania. Its Section 603 states that municipal “[z]oning ordinances should reflect the policy goals of the statement of community development objectives required in section 606, and give consideration to the character of the municipality, the needs of the citizens and the suitabilities and special nature of particular parts of the municipality.” 53 P.S. § 10603(a).

The MPC identifies a wide array of considerations that municipal officials should consider when preparing zoning ordinances. 53 P.S. § 10604. These include protecting the public health, safety, morals and general welfare, preventing overcrowding and blight, protecting prime agricultural farmland, and accommodating reasonable growth. Id. Particularly relevant to this discussion is the MPC’s command that “[z]oning ordinances shall provide for the reasonable development of minerals in each municipality.” 53 P.S. § 10603(c)(i). 

Senate Bill 1346 is on its strongest footing if it is applied to municipalities that prohibit oil and gas development outright. Not only does the MPC state that municipalities must provide for the reasonable development of minerals, it seems reasonable that municipalities that expressly prohibit oil and gas development should not receive any distributions from a fund that is designed to address impacts of oil and gas development. But, Senate Bill 1346’s application is not limited to municipalities that expressly prohibit oil and gas development. Senate Bill 1346 would also eliminate distributions from unconventional gas well fees to municipalities whose zoning ordinances unreasonably limit future unconventional gas well development. This is where Senate Bill 1346 runs into logistical problems.

The stated presumption in Senate Bill 1346 is that a municipal ordinance unreasonably limits unconventional gas well development if that ordinance contains a standard or condition on well development that “. . . conflicts with or exceeds those contained in Chapter 32.” This command is far too broad and non-specific. Under Senate Bill 1346’s framework, the Public Utility Commission could determine that a municipality is not entitled to distributions from the unconventional gas well fund because the municipality’s zoning ordinance does not allow unconventional oil and gas wells in the downtown section of the community, or in areas of the community zoned for churches, schools, cemeteries and hospitals. A municipality could be stripped of unconventional gas well fee distributions even if the municipality authorizes unconventional gas well development elsewhere. That does not seem to be a reasonable outcome. The generalized standards in Chapter 32 that are relied upon for the reasonableness determination under Senate Bill 1346’s framework fail to address the nuances of every community.

Conclusion

The obvious intent of Senate Bill 1346 was to be simple and straightforward legislation. Municipalities that stand in the way of unconventional oil and gas well development should not receive distributions from the unconventional gas well fund. That position has an appeal, but its implementation is difficult in scenarios where municipalities do not prohibit unconventional oil and gas well development everywhere.

If a municipality allows unconventional oil and gas development across large parts of its territory, but the municipality does not allow unconventional oil and gas development in other, more densely populated areas that have a lot of businesses and residents, is that municipality unreasonably limiting unconventional gas well development? And, to what extent should appointees at a state agency be able to review local elected officials’ decisions about the development of their communities, or specific parts of those communities? There are no easy answers to these questions.

As a new legislative session is to begin, Senate Bill 1346 will likely exist in a new form and perhaps these questions will be raised and debated as its substantive content moves through the legislative process because tensions between oil and gas development and zoning are unlikely to go away.

If you have any questions about this post, contact Brendan A. O’Donnell by phone at 412-288-2226 or by email at odonnellba@hh-law.com.