Marcellus Shale - HMS Legal

Thomas Sniscak of Hawke, McKeon & Sniscak LLP Speaks before a Packed Audience about Marcellus Shale at the Keystone Energy Forum

Melissa Chapaska on January 12, 2017

FOR IMMEDIATE RELEASE:

January 12, 2017

Thomas J. Sniscak participated as a speaker at the Keystone Energy Forum on January 12, 2017. He spoke on the many critical issues facing the Marcellus shale industry from both the federal and state levels. In his presentation, Attorney Sniscak addressed the eminent domain and public right-of-way issues related to the siting of pipelines within the Marcellus Shale areas of Pennsylvania.

Thomas Sniscak has been a partner with Hawke, McKeon & Sniscak LLP since 1989 and has spent much of his career representing a wide array of clients in virtually every type of rate, certificate, service, financing, and merger and acquisition proceeding before the Pennsylvania Public Utility Commission. Attorney Sniscak is frequently a speaker at continuing legal education and association conferences on rate, service, and Marcellus Shale issues

Founded on recognized know-how and extensive experience in regulatory law, Hawke, McKeon & Sniscak LLP specializes in legal issues affecting the energy industry in Pennsylvania. For more information on the firm, please visit us at www.hmslegal.com

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Hawke, McKeon & Sniscak LLP
100 North 10^th Street
Harrisburg, PA 17101
(717) 236-1300

http://www.hmslegal.com

PA Supreme Court Further Demolishes Act 13 in Robinson Township Remand Appeal

Whitney Snyder on September 30, 2016

On September 28, 2016, the Pennsylvania Supreme Court (Court) ruled[1] on a Commonwealth Court remand decision[2] of the Robinson Township 2013 Court decision,[3] where the Court held key provisions of Act 13[4] (the statute implementing major changes in Pennsylvania’s oil and gas laws and the ability of local government to regulate this industry) were unconstitutional (HMS Blog). In the 2016 Robinson Township decision, the Court: (1) upheld the Commonwealth Court’s holding that provisions related to Public Utility Commission (PUC) review of local ordinances are unseverable from unconstitutional provisions and thus unenforceable, and (2) held four additional provisions of Act 13, including the grant of eminent domain, unconstitutional.

The Supreme Court Decision

The Court agreed with the Commonwealth Court’s decision (HMS Blog) that provisions of Act 13 related to PUC and Commonwealth Court oversight of municipal zoning laws are unseverable from Sections 3303 and 3304, which prohibited local governments from enacting or enforcing environmental legislation regulating oil and gas operations and mandated that all ordinances regulating oil and gas be uniform, and that certain drilling activities be allowed in all zoning districts regardless of existing zoning laws. The Court’s 2013 plurality opinion found Sections 3303 and 3304 of Act 13 unconstitutional under the Environmental Rights Amendment of the Pennsylvania Constitution. Here, the Court held Act 13 Sections 3305 through 3309 are unseverable from Sections 3303 and 3304, and thus unenforceable, completely stripping the PUC of local zoning oversight under the Act.

The Court disagreed with the Commonwealth Court and ruled unconstitutional four other sections, including the Act’s grant of eminent domain power to entities transporting, selling, or storing natural gas that are not public utilities. Section 3241 granted corporations transporting, selling or storing natural gas the right to appropriate an interest in real property located in a storage reservoir or reservoir protective area if the area is or has been commercially productive of natural gas The Commonwealth Court had upheld the constitutionality of Section 3241 because its grant of eminent domain power to a corporation “empowered to transport, sell, or store natural gas in this Commonwealth” is the equivalent of the power traditionally conferred on public utilities that engage in similar activities. The Supreme Court disagreed, reasoning that Section 3241 conferred the power on a class of entities much broader than public utilities, and that corporations exercising eminent domain power under Section 3241would be acting with a primarily private purpose as opposed to a public purpose, in violation of both the Fifth Amendment of the U.S. Constitution and Article 1, Sections 1 and 10 of the Pennsylvania Constitution.

The Court held the other three sections of Act 13 unconstitutional as “special legislation” forbidden by Article III, Section 32 of the Pennsylvania Constitution:

Section 3218.1, requiring DEP to notify, after investigation, any public drinking water facility that could be affected by a spill;
Section 3222.1(b)(10), (the medical “gag rule”) limiting disclosure by the fracking industry to health professionals of identities and amounts used of chemicals claimed to be proprietary or trade secrets and only allowing disclosure where medical professional executes a confidentiality agreement and a statement that the information is needed for diagnosing or treating an individual; and
Section 3222.1(b)(11), allowing health professionals limited opportunity to request such information in a medical emergency and verbally agree to confidentiality and acknowledge purpose of information.

The Court enjoined further application and enforcement of these provisions, but stayed the injunction with respect to 3218.1, DEP spill notifications, for 180 days in order to give the General Assembly time to enact remedial legislation.

Justice Todd authored the opinion, in which Justices Donohue, Dougherty and Wecht joined, Chief Justice Saylor concurred and dissented, and Justice Baer concurred and dissented.

Public and Industry Reaction

The decision is clearly a win for both environmentalists and municipalities, which describe the decision as a recognition of citizen’s rights over the gas industry’s political power.[5] On the other hand, the industry claims the decision will not actually provide any environmental or safety benefits all the while increasing difficulty of investing and creating jobs.[6]

With many of Act 13’s provisions now unenforceable, it remains to be seen whether the General Assembly will be able to strike a balance between oversight and regulation of oil and gas drilling with the interests of citizens and the industry in future legislation. However, the 2013 plurality opinion in Robinson Township has given the Environmental Rights Act teeth and the Court’s 2016 decision has reinforced that the Court will closely scrutinize legislation that encourages natural resource development at the expense of private property rights and environmental concerns.

[1] Robinson Township v. Commonwealth of Pennsylvania, 104 MAP 2014, ___ A.3d ___ (Pa. Sept. 28, 2016).

[2] Robinson Township v. Commonwealth of Pennsylvania, 96 A.3d 1104 (Pa. Cmwlth. 2014).

[3] Robinson Township v. Commonwealth of Pennsylvania, 83 A.3d 901 (Pa. 2013).

[4] Act 13 of Feb. 14, 2012, P.L. 87 (Act 13).

[5] Susan Phillips, PA Supreme Court rules with environmentalists over remaining issues in Act 13, StateImpact (available at https://stateimpact.npr.org/pennsylvania/2016/09/28/pa-supreme-court-rules-with-environmentalists-over-remaining-issues-in-act-13/); see also Don Hopey, High court strikes down Pa. law on shale gas, Pittsburgh Post-Gazette, PowerSource (Sept. 28, 2016) (available at http://powersource.post-gazette.com/business/legal/2016/09/28/US-appeals-court-hears-arguments-in-Clean-Power-Plan-case-2/stories/201609280043).

[6] Id.

Despite Drilling Downturn, PA Natural Gas Production Grows

Melissa Chapaska on August 2, 2016

On August 1, 2016, The Pennsylvania Department of Environmental Protection (DEP) released its 2015 Oil and Gas Annual Report (Report).[1] In additional to natural gas production details, the Report provides information on natural gas data trends in Pennsylvania and details on DEP inspections. 2015 was a difficult year for the natural gas industry as it faced record inventory levels, declining prices, and decreases in newly drilled wells.[2] DEP confirms Pennsylvania was not immune to the national downturn in natural gas drilling with only 1,070 newly drilled wells in 2015 – more than a 50% decrease from the 2,163 new wells drilled in 2014.[3]

However, as the natural gas industry struggles to cope with a downturn in drilling, Pennsylvania maintains its position as the second-largest natural gas producer in the United States.[4] Pennsylvania was responsible for 4.6 trillion cubic feet of natural gas production in 2015 – a 13% increase from the 4.05 trillion cubic feet of natural gas produced in 2014.[5] While Marcellus Shale is still the main source of production, the Utica and Point Pleasant shales also contributed to Pennsylvania’s 2015 natural gas output.[6]

In addition to providing details on natural gas drilling and production, the Report highlights DEP’s regulatory compliance activities in 2015. While the number of well inspections increased in 2015, it wasn’t all bad news for the natural gas industry with DEP reporting a decrease in the number of violations associated with both unconventional and conventional wells.[7] Even more good news for natural gas producers is that DEP’s collection of fines and penalties related to noncompliance was down to a little over $3.41 million in 2015 – a substantial decrease from the approximate $7.14 million in fines and penalties assessed in 2014.[8]

DEP concluded its annual report with a forecast of DEP initiatives for 2016. These initiatives include: implementing a methane reduction strategy through gas leak detection and repair measures; revising regulations for subsurface activities associated with oil and gas exploration and development; evaluating the existing oil and gas fee structure; and developing an electronic reporting mechanism for well operators.[9] These state DEP initiatives come on the heels of the newly enacted federal initiatives of the U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA). For more details on PHMSA’s new regulations, see our “PIPES Act Update” and stay tuned to our blog for more up-to-date information as DEP begins implementation of its 2016 initiatives.

[1] Pennsylvania Department of Environmental Protection, 2015 Oil and Gas Annual Report, available at http://www.elibrary.dep.state.pa.us/dsweb/Get/Document-113887/8000-RE-DEP4621.pdf (2016).

[2] U.S. Energy Information Administration, Average annual gas spot price in 2015 was at lowest level since 1999, available at http://www.eia.gov/todayinenergy/detail.cfm?id=24412 (January 5, 2016).

[3] 2015 Oil and Gas Annual Report, at p. 13.

[4] Id. at p. 5.

[5] Id. at p. 6.

[6] Id. at p. 8.

[7] Id. at p. 19.

[8] Id. at p. 21.

[9] Id. at pp. 29-31.

PHMSA Proposes Significant New Regulations Regarding Transmission and Gathering Pipelines

Whitney Snyder on April 1, 2016

On March 17, 2016 Pipeline and Hazardous Materials Safety Administration (PHMSA) released a 549 page Notice of Proposed Rulemaking (NPRM) that significantly changes regulations for transmission lines and imposes regulations on previously unregulated gathering lines carrying, inter alia, natural gas and petroleum products.

Key changes for transmission pipelines include: establishing new materials verification requirements, modifying maximum allowable operating pressure requirements (MAOP), and imposing requirements for verifying MAOP. PHMSA is also proposing a new classification area, a Moderate Consequence area, which would impose corrosion control, integrity management and assessment, and repair requirements on pipelines outside of High Consequence Areas. The NPRM also subjects certain in-service natural gas pipelines built prior to 1970 to pressure testing.

All gathering pipelines (determined per a new definition that no longer references American Petroleum Institute Standards) will now face reporting requirements per 49 CFR Part 191 with certain limited reporting process exceptions. PHMSA has also significantly expanded “regulated gathering lines” to include lines with 8 inch or greater nominal diameter in Class 1 areas (areas with 10 or fewer buildings meant for human occupancy) that have an MAOP that produces a hoop stress of 20 percent or more of specified minimum yield strength (SMYS) for metallic lines, or more than 125 psig for non-metallic lines. These lines will be classified as Type A, Area 2 lines and regulations will include design and construction specifications for new lines and safety standards and emergency response requirements in Part 192, and drug and alcohol requirements in Part 199 for new and existing lines. To put the scope of this regulation in perspective, PHMSA officials have stated that an additional 68,749 miles of gathering lines would be “regulated gathering lines” per the new Type A, Area 2 classification, and an additional 275,337 miles of gathering lines would be subject to additional reporting requirements. See PHMSA Proposes Expanding Regulatory Scope of Gathering Lines, Natural Gas Intelligence, March 21, 2016.

The NPRM is in response to the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011. Section 21 of the Act requires PHMSA to conduct a study of the existing gathering line regulations, report to Congress, and recommend whether any additional laws are needed, analyzing economic impacts, risks, and whether the current exemption from regulation for certain gathering lines should be revoked. PHMSA completed this study in May of 2015.

In 2011 PHMSA issued an advanced notice of proposed rulemaking with many of the same features regarding regulation of transmission and gathering lines, which did not result in a final rule. PHMSA has responded to comments on the 2011 ANPRM in the NPRM. The increased regulation of the NPRM was spurred by the congressional mandates in the Act in response to the San Bruno pipeline explosion in 2011 and the increased use of higher pressure and size gathering lines due to hydraulic fracturing and increased shale production, especially in the Marcellus Shale region.

In Pennsylvania, the Pennsylvania Public Utility Commission regulates PHMSA regulated lines and has incorporated 49 CFR Parts 191-193 and 199, including any future amendments at 52 Pa. Code Chapter 59.

Once the NPRM is published in the Federal Register, interested parties will have 60 days to submit comments.

Victory For Sunoco Pipeline in Second Round Before PUC

Whitney Snyder on October 6, 2014

Public Utility Commission (PUC) Commissioners gave Sunoco Pipeline a fighting chance at exemption from local zoning for outbuildings housing utility structures on the Mariner East Pipeline, finding prima facie evidence that Sunoco is a public utility and overruling the ALJs’ July 23, 2014 Initial Decision granting preliminary objections finding to the contrary.

The Commissioners’ October 2, 2014 Motion dismissed the ALJs’ reasoning that relied on the unpredictable “to or for the public” standard to find lack of public utility status, instead focusing on the fact that pipeline routes and services have been certificated since the 1930s and the Commission’s July and August 2014 grant of certificates to Sunoco, finding this to be prima facie evidence of public utility status. The Motion also criticized the reasoning of the ALJs, holding that wholesale service alone can constitute service to or for the public.

The Commission remanded what it termed the “narrow” issue in the case – whether to exempt from local zoning the buildings housing the 18 pump stations and 17 valve control stations Sunoco plans to install along the pipeline – noting this case does not concern approval of the overall Mariner East project or construction of the actual valve controls and pump stations.

In a procedural twist, the Commission also dismissed the parties’ other preliminary objections, including issues such as whether the Environmental Rights Amendment of the Pennsylvania Constitution prohibits Sunoco’s requested relief, even though the ALJs did not rule on these objections. Commissioner Cawley dissented, arguing that the objectors should have the opportunity to get an ALJ ruling on these issues. Given that these issues were resolved only through preliminary objections, which carry a high standard of proof and only prevent the case from going past the pleading stage, the ALJs and Commission will likely be presented with the questions again after the hearing.

NIMBYs and Environmental Groups Win First Round Before PUC Against Sunoco Pipeline

Kevin McKeon on August 19, 2014

Sunoco’s proposed Mariner East pipeline that would transport natural gas liquids (NGLs) from Pennsylvania’s rich Marcellus Shale production in Western Pennsylvania to processing plants in southeastern Pennsylvania, received a blow from Pennsylvania Public Utility Commission ALJs on July 23, 2014.

Under Pennsylvania law, if the PUC finds public utility buildings or structures to be “reasonably necessary,” they are exempt from local zoning. Seeking such an exemption for the 18 pump stations and 17 valve control stations enclosed in metal buildings that it plans to install in 31 separate locations in order to carry the NGLs across Pennsylvania, Sunoco Pipeline filed petitions with the PUC seeking such an exemption and requesting a finding that the buildings are “reasonably necessary” for the operation of its pipeline. The rub is that the exemption is not available unless the applicant is a “public utility,” and under recent PUC decisions, the determination of whether an entity is a public utility has gotten less and less predictable.

In reaching their conclusion the ALJs relied on a number of factors, ranging from Sunoco’s recent abandonment of service on portions of the line to questions about whether the new proposed service transporting propane and ethane is subject to regulation at all, and, even if it is, whether the service to be provided will be, as required under the statute, “to or for the public.”

The ALJs summarized Sunoco’s petitions as “premature at best” because Sunoco’s applications to operate its NGL service from west to east are still pending before the Commission in other dockets, and its status as a public utility entitled to the exemption is not clear.

Sunoco has the opportunity to file exceptions to the ALJs’ decision to the PUC.

PUC Divested Of Remaining Marcellus Zoning Duties

Kevin McKeon on July 23, 2014

In Robinson Township v. Commonwealth, 83 A.3d 901(Pa. 2013) the Pennsylvania Supreme Court invalidated key provisions of Act 13, the statute that removed from local zoning control the power to regulate oil and gas operations through restrictions on the placement and operation of oil and gas facilities. The Court remanded to the Commonwealth Court to consider whether other provisions of Act 13, including provisions that give the PUC power to review local zoning ordinances and withhold impact fees, remain viable.

The Commonwealth Court on remand has now invalidated and enjoined enforcement of those other provisions that give the PUC jurisdiction to review the provisions of local ordinances to determine whether they comply with Act 13 and, if not, to withhold impact fees imposed on drillers and operatorsto alleviate the “impacts” of drilling on municipalities or to impose attorney fees and costs on the municipalities. Robinson Township v. Commonwealth, __A.3d __ (Pa. Cmwlth. 2014)(July 17, 2014).

Specifically, the Commonwealth Court enjoined enforcement of sections 3302 and 3305 to 3309 of the statute. Section 3302 provides that “[n]o local ordinance adopted pursuant to the MPC [Municipalities Planning Code] or the Flood Plain Management Act shall contain provisions which impose conditions, requirements or limitations on the same features of oil and gas operations regulated by Chapter 32 or that accomplish the same purposes as set forth in Chapter 32. The Commonwealth, by this section, preempts and supersedes the regulation of oil and gas operations as provided in this chapter.” The Court held that the Supreme Court’s invalidation of the Act 13’s preemption of local regulation necessarily invalidates section 3302.

The Commonwealth Court invalidated sections 3305-3309 for similar reasons. Section 3305 provides that municipalities may seek an advisory opinion from the PUC as to whether a proposed ordinance complies with Act 13, and provides that well operators and residents may seek similar opinions once a local ordinance is enacted. Section 3306 provides that any person aggrieved “by the enactment or enforcement of a local ordinance that violates the MPC, this chapter or Chapter 32 (relating to development)” may bring an action in the Commonwealth Court “to invalidate the ordinance or enjoin its enforcement” whether or not initial review by the PUC was sought. The Court determined that the effect of the Supreme Court’s decision “is that the statutory scheme cannot be implemented. Local zoning matters will now be determined by the procedures set forth under the MPC and challenges to local ordinances that carry out a municipality’s constitutional environmental obligations. Because challenges to those ordinances must be brought in common pleas court, it would further frustrate the purpose of the Act in having a uniform procedure.” The Court invalidated section 3307 (relating to the award of attorney fees and costs in actions brought under section 3306), section 3308 (relating to the withholding of impact fees for municipalities enacting or enforcing local ordinances that violate the MPC or Chapters 32 or 33), and section3309(a) (relating to the applicability of Chapter 33) for similar reasons.

A copy of the Commonwealth Court’s decision is available here.

Act 13’s Local Zoning Provisions Put On Hold

William Lehman on April 16, 2012

Commonwealth Court Grants Preliminary Injunction Halting Zoning Limits in Act 13

The Pennsylvania Commonwealth Court preliminarily enjoined operation of the provision of Pennsylvania’s new Marcellus Shale Law that limits the power of municipalities to regulate the booming natural gas exploration industry. The court enjoined the effectiveness of Section 3309 of the Act for 120 days, and denied the motion to enjoin the remainder of the Act’s provisions. The court stated that the original period of 120 days under the Act to amend local zoning ordinances to comply with Act 13 was not sufficient. “[M]unicipalities must have an adequate opportunity to pass zoning laws that comply with Act 13 without fear or risk that development of oil and gas operations under Act 13 will be inconsistent with later validly passed local zoning ordinances. For that reason, pre-existing ordinances must remain in effect until or unless challenged pursuant to Act 13 and are found to be invalid,” Senior Judge Quigley stated. He went on to suggest that the wider challenge to the constitutionality of the local zoning limitations is questionable, saying that he is not convinced that the “likelihood of success on the merits is high.” The Commonwealth may appeal the ruling as a matter of right to the Pennsylvania Supreme Court, and if it does, the Commonwealth Court’s order will be subject to an automatic stay, thereby nullifying the effect of the injunction, pending further order of either the Commonwealth Court or the Supreme Court.

For the complete text of Act 13, please see: Act 13.pdf

PA PUC Enters Written Decision In Hms’laser Marcellus Pipeline Application Case

Thomas Sniscak on June 17, 2011

On June 4, 2011, the PUC reduced its majority motion to a written order and has remanded the case to an Administrative Law Judge for a ruling on whether the service and terms of the partial settlement are in the public interest. The Order essentially follows Commissioner Wayne E. Gardner’s Motion, which was joined by Chairman Robert F. Powelson and Vice-Chairman John F. Coleman, Jr. at the May 19, 2011 public meeting. It accepted the position of Laser and other parties, such as the PUC’s Office of Trial Staff, that the service proposed by Laser will be public utility service because it will be open to any member of the public requiring service to the extent of capacity.

Notably, the Order states that “not all gathering and transportation service providers will be considered public utilities and subject to the Commission’s jurisdiction.” Specifically, in resolving public utility status questions, the Commission will consider whether “service is provided to a defined, privileged and limited group when the provider [pipeline] reserves its right to select its customers by contractual arrangement so that on one outside of the group is privileged to demand service.”

The Order also clarifies the law regarding the imposition of voluntary versus involuntary conditions to a certificate of public convenience. In doing so, the majority found that the settlement conditions do not result in an expansion of PUC jurisdiction.

Finally, the Order leaves the door open for light-handed regulation of service and rates akin to present natural gas transportation service under the PUC’s regulations. Under that, a maximum approved tariff rate is filed and approved but the utility and customer more commonly negotiate a tailored contract rate and individualized service terms.

HMS’ Thomas J. Sniscak and William E. Lehman represent Laser in this proceeding.

PUC finds that Laser Northeast’s gas gathering service in the Marcellus Shale play is public utility service

William Lehman on May 27, 2011

On May 19, 2011, the Pennsylvania Public Utility Commission (“PUC”) voted 3-2 to approve a motion by Commissioner Wayne E. Gardner finding that Laser Northeast Gathering Company’s (“Laser”) proposed natural gas pipeline gathering service in Pennsylvania is a public utility service.

The motion remands the case to the Office of Administrative Law Judge for the limited purpose of determining whether the granting of a Certificate of Public Convenience is necessary or proper for the service, accommodation, convenience or safety of the public. Vice Chairman John F. Coleman, Jr., offered a statement concurring and Commission James H. Cawley offered a descending statement.

Laser’s application seeks authorization to offer natural gas gathering and transporting or conveying service by pipeline to various townships in Susquehanna County. The PUC majority cited a long line of cases where the PUC and courts have found such service to be public utility service, and agreed with a joint position of Laser, the PUC Office of Trial Staff, and all landowner intervenors on that issue. A formal PUC Order will be issued in the next few days with remand directions for the Office of Administrative Law Judge to hold further hearings on the public interest issues.

During the course of the proceeding, Laser, OTS, and numerous land owner intervenors entered into a settlement agreement to resolve the differences among these parties. In the settling parties view, the settlement represents a comprehensive and progressive resolution and provides for reasonable regulation by the Commission, while addressing the safety, eminent domain, landowner and environmental concerns raised by the settling parties and by members of the public who testified at the public input hearings held in July of 2010. Specifically, the settlement required that Laser adhere to strict construction and operational guidelines for its gathering pipeline system, that it would only use eminent domain as a matter last resort and after all other reasonable options are not feasible, and identify landowner protections and easement terms which will apply to any easement for the pipeline or related facilities. Commissioner Gardner’s motion requires the OALJ to develop a further record regarding whether these settlement terms are in the public interest.