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Monday, July 30, 2012

PA Court Overturns Pro-Gas-Industry Legislation … for now

In a 4-3 decision last Thursday, the Pennsylvania Commonwealth Court overturned a controversial law passed five months ago that gave unprecedented privileges to the natural gas industry.  Act 13’s reach stretched from the fees paid by gas companies for the gas they extract to allowing gas companies an exemption from any local zoning laws that stood in their way.  Ironically, the petition to have Act 13 declared null and void had almost nothing to do with the specter of groundwater contamination that is often a concern with gas drilling operations.  But first, I’ll give you the backstory.

The natural gas in question is contained in the Marcellus Shale formation, which spans from West Virginia, into southwestern PA, and then makes a broad swath north and east across much of the northern half of PA and a bit into southern New York.   The mad rush by gas companies to tap into the Marcellus gas play and get it to market began about four years ago when updated estimates of the potential volume of gas in the Marcellus formation were released.  The technology to extract the gas, horizontal drilling and hydrofracturing, has been around for several years, but until the huge, revised potential volume of gas in the Marcellus came to light, it was not deemed economically feasible to go after this gas.

Despite there being a modest history of natural gas production in western PA, the Pennsylvania Department of Environmental Protection (PADEP) was not ready to oversee the current gas boom in PA, because regulators were unable to put the regulatory infrastructure in place as quickly as gas companies were able to mobilize the capital equipment and workers from the Texas gas fields to the PA gas fields.  As a result of the PADEP’s slow response to the Marcellus boom, the spike in gas production from the Marcellus began about three years before the PA legislature was able to pass a bill that contained a system for charging drillers a fee for the gas that was being extracted and sent to market.

Every other gas producing state has what is called a severance tax that the state charges gas companies based on the value of gas produced.  A severance tax is imposed by the state and is separate from lease fees and royalties paid to the landowners.  Instituting a severance tax was debated right up through the 2010 PA gubernatorial election.  However, the winner of that election, Republican Tom Corbett, made a No Tax pledge as part of his campaign.  It seems that Gov. Corbett’s No Tax pledge was not just for PA residents.  When asked during his campaign about a gas severance tax, Corbett stated that his No Tax pledge would also apply to a severance tax for gas companies.  Not coincidentally, Corbett received nearly $1 million in campaign contributions from gas companies and their lobbyists.

Earlier this year, Corbett had no trouble getting Act 13 approved by the Republican-controlled PA State Senate and Legislature.  Part of Act 13 included a fee system in which gas companies would be charged by the amount of gas they produce from wells in PA, but the fee revenue would go to the counties in which the gas was extracted and not into state coffers (thereby making it a local service fee rather than a tax levied by the state).  Establishing the local severance fee in place of a state severance tax was an unfortunate missed opportunity for a new revenue stream in PA that could have funded sorely needed highway infrastructure repairs as well as providing replacement revenue for cuts in education and conservation programs made by Corbett while putting together his balanced budget.  But the missed severance tax opportunity was not what triggered the lawsuit by seven PA municipalities against Act 13.

The other feature of Act 13 – the one that created the backlash that landed it in Commonwealth Court last week – was the section of the Act that prohibited municipalities from enforcing any local zoning regulations that would have prevented gas companies from drilling wells where they wanted to put them (assuming, of course, that they obtained a valid lease with the owner of the land in question).  It’s easy for suburbanites in southeastern PA, or the Lehigh Valley, or any other non-gas producing county in PA to feel like they are unaffected by this provision of Act 13.  Well, hold on.  It goes further than gas-producing counties, because Act 13 would also have waived zoning prohibitions for companies gas compressor stations and gas pipelines.  So if a gas pipeline company wanted to buy a bunch of homes in your subdivision to run a pipeline through it, your municipality would have been unable to use its zoning laws to prevent them from doing so.  The zoning regs would still apply to you if you wanted to demolish your house and build a small asphalt plant where your 1,800 square-foot Cape Cod had stood.  Only gas companies and gas pipeline companies would be exempt from the zoning laws that apply to all other businesses and individuals in your municipality. 

Predictably, on Friday afternoon, the Corbett administration filed an appeal of the Commonwealth Court’s decision of one day earlier.  We’ll now wait to hear whether the PA Supreme Court will agree to hear Corbett’s appeal.  If the Supreme Court agrees to hear Corbett’s appeal, I hope they understand that zoning laws are not a burden on landowners seeking to use their property as they wish; rather, zoning laws are the first line of defense for landowners to be protected from potentially poor land use decisions by their neighbors.

I also hope that the high court takes to heart one particular portion of the Commonwealth Court’s ruling, which found that Act 13 was in defiance of Article 1, Section 27, of the Pennsylvania Constitution:

"The people have a right to clean air, pure water, and for the preservation of the natural, scenic, historic and aesthetic values of the environment. Pennsylvania's public natural resources are the common property of all the people. …"

And I’m pretty certain that the framers of our state constitution did not count corporations – whether they are from in-state or out of state – among the “people” of Pennsylvania.

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