In a decision that is likely to have costly consequences for natural gas producers in Pennsylvania, the state Supreme Court has ruled that any unconventional gas well that produces more than 90,000 cubic feet of gas per day for even just one month of a calendar year is subject to impact fees.
The high court’s 6-1 Dec. 28 decision in Snyder Brothers v. Pennsylvania Public Utility Commission reversed an en banc Commonwealth Court ruling from 2017 that had reached the opposite conclusion: that a gas well’s production needed only to fall to or below 90,000 cubic feet for one month out of the year in order for the well to be exempted from impact fees under Act 13.
Both the Commonwealth Court’s and Supreme Court’s decisions hinged on the meaning of the word “any” as it’s used in Act 13′s definition of “stripper well.”
Act 13 defines a “stripper well” as an “unconventional gas well incapable of producing more than 90,000 cubic feet [cf] of gas per day during any calendar month.” Stripper wells, as opposed to vertical gas wells, are not required to pay impact fees.
In Snyder, the Commonwealth Court en banc, reversing an order of the Pennsylvania Public Utility Commission, determined that the General Assembly intended “any” to mean “one,” rather than “every,” as the PUC had found. The case attracted the attention of the Pennsylvania Independent Oil and Gas Association, which was an intervenor on behalf of plaintiff Snyder Brothers Inc.
“Viewing the plain language of the statutory provision in a common sense fashion, we agree with petitioners that the word ‘any’ in the definition of ‘stripper well’ is unambiguous and it clearly and plainly means what it says—’any month,’” Judge Patricia A. McCullough wrote for the 5-2 Commonwealth Court majority in March 2017.
“Because a calendar year is a definite class consisting of 12 individual months, the most natural way to construe ‘any’ is to interpret it to mean at least ‘one’ month out of the year, no matter what or which month,” McCullough continued.
In reviewing Snyder Brothers’ alternative argument—that the definition of “any” is ambiguous and because the impact fees are taxes, the term must be construed in the company’s favor as a taxpayer—the court also sided with the company. The decision applied the rule of lenity, which says that when a statute is penal and its language is ambiguous, it must be construed in favor of the defendant and against the government.
“Assuming, arguendo, that ‘any’ is an ambiguous term, this court concludes that an analysis of the statutory construction factors does not resolve the ambiguity and that the ambiguity must be construed in favor of [Snyder Brothers],” McCullough said.
But the Supreme Court majority appeared to find a statutory construction analysis illuminating.
Justice Debra Todd, penning the majority opinion, said impact fees are not taxes, but are instead payments made by natural gas well operators to compensate communities for the negative effects shale gas extraction has on physical infrastructure.
“Consequently, given the evident intent of the legislature that the impact fee provide an adequate and stable source of revenue for counties and municipalities to offset the adverse effects of unconventional gas well production, which, as the PUC highlights, are omnipresent and do not vary with the fluctuations in well production, a construction which best effectuates this purpose is favored,” Todd said. “Thus, an interpretation of ‘any calendar month’ in the definition of a stripper well, as incorporated into the definition of ‘vertical gas well,’ to mean ‘each and every’ calendar month during the reporting year is most consonant with this purpose, as it relieves producers of the obligation to pay the fee only if their well or wells produce 90,000 cubic feet per day or less of natural gas for each and every calendar month of the year. As the PUC argues, this will result in more producers paying the impact fee—exactly what the General Assembly intended.”
Todd also agreed with the PUC that accepting the plaintiffs’ interpretation “would permit well operators who have enjoyed robust production from their wells for the majority of a calendar year to avoid paying the impact fees to the municipalities merely because of the happenstance of one month’s diminished production.”
Todd’s majority opinion was joined in full by Chief Justice Thomas Saylor and Justices Christine Donohue and Kevin Dougherty. Justices David Wecht and Max Baer concurred in the result and Justice Sallie Updyke Mundy dissented.
Wecht, in a concurring opinion joined by Baer, said he agreed with the majority’s ruling but questioned its heavy reliance on Act 13′s legislative history and prior legislative and administrative interpretations of the statute.
“Statutory interpretation is an important part of the work that we do,” he said. ”We do not subcontract that interpretive enterprise to administrative agencies.”
Mundy, in a dissenting opinion, said she did not believe the word “any” in the definition of “stripper well” was ambiguous at all.
“Had the legislature intended the construction the majority adopts, it easily could have drafted the provision differently using the words the majority engrafts onto the definition: ‘An unconventional gas well incapable of producing more than 90,000 cubic feet of gas per day during each and every calendar month…,’” Mundy said.
Mundy also said the majority failed to give proper weight to the word “incapable” in that definition.
“The majority’s construction assumes that if a well produces 90,000 cubic feet of gas in one month, it is capable of producing the same amount each and every month,” Mundy said. “This assumption reads the ‘incapable’ requirement out of the definition and is contrary to the principles of statutory construction.”
Kevin Moody, PIOGA’s general counsel, said in an email that the organization plans to ask the Supreme Court to reconsider its decision, in part because of the majority’s failure to appreciate the importance of the word “incapable.”
“The notion the court accepted—that our interpretation would incentivize producers to lower production for one month after 11 months of ‘robust’ production—ignores perhaps the most critical word in the stripper well definition—except for ‘any,’ as this litigation has shown—which is ‘incapable,’” Moody said, adding that PIOGA also intends to argue that PUC’s argument in the litigation was contrary to the legal rationale it put forth in its original impact fee implementation orders and its impact fee notice of proposed rulemaking.
Brandon Coneby of Dinsmore & Shohl in Pittsburgh, who represented Snyder Brothers, could not be reached for comment.
A spokesman for the PUC provided a window into how much money was at stake in the case.
“Commission staff is currently working to generate invoices for producers who have disputed and not paid impact fees based on the Snyder Brothers litigation, and we estimate that the recent Pa. Supreme Court decision will involve hundreds of wells with outstanding impact fees totaling millions of dollars,” the spokesman said in an email. “There are approximately 17 producers with varying number of wells and reporting years that owe impact fees for ‘stripper well’ activity. At this time, we do not have a final total, but those figures will become clearer in the coming weeks as invoices are generated and payments are collected from these disputed wells.”
(Copies of the 56-page opinion in Snyder Brothers v. Pennsylvania Public Utility Commission, PICS No. 19-0001, are available at http://at.law.com/PICS.)