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A nuanced decision on oil, gas revenue from shale wells

The words “Robinson Township” appeared 16 times in a Commonwealth Court opinion issued last week that upheld the state legislature’s right to use oil and gas revenue from drilling in state forests for general spending.

In some quarters, that alone is either a victory or a disappointment.

The township’s name is a shorthand reference to a case the Pennsylvania Supreme Court decided in late 2013, in which a plurality of the justices revived the dormant environmental rights amendment to the state constitution. The opinion boldly reasserted the commonwealth’s responsibilities for protecting public natural resources.

Because it was a plurality opinion — meaning more justices joined it than other opinions, but not enough for a majority — legal observers had wondered what weight future courts would give the precedent.

In last week’s decision, which was considered a loss for the environmental group that brought the case, the Commonwealth Court said that while the plurality opinion in the Robinson case is not binding, it is persuasive. The judges cited the plurality’s interpretation of the environmental rights amendment repeatedly.

“The Robinson Township case I think had a profound impact on the analysis that the court employed,” said John Dernbach, a law professor at Widener University and an expert on the state’s environmental rights amendment, which is also known as article 1, section 27 of the constitution.

“For people who are disappointed by the outcome, this is a silver lining.”

The reason for his optimism is that for decades the courts did not interpret the environmental rights amendment based on its plain language, which requires the state to conserve and maintain the public natural resources for the benefit of all its citizens.

Instead, the courts substituted a test for balancing environmental and economic interests, which environmental advocates consider to be a weaker standard than the one called for in the constitution.

In this new case — known as Pennsylvania Environmental Defense Foundation v. Commonwealth of Pennsylvania — the Commonwealth Court said the balancing test still is a binding precedent, but the judges applied the language of the environmental amendment to reach their decision.

“One could argue that to some degree the environmental group lost the battle but they are winning the war,” Mr. Dernbach said. “The war in this case is a war for recognition of the primacy of the text of article 1, section 27 in these cases.”

In related news, Plunging oil prices expected to dampen Texas revenue outlook.

Trade group wary

Meanwhile, natural gas operators who want to continue extracting fuel from beneath state conservation lands saw the Robinson references as a concerning development.

Kevin Moody, general counsel for the Pennsylvania Independent Oil and Gas Association, an industry trade group, expressed disappointment with how much the judges cited the Robinson plurality opinion and the language they chose to adopt from it.

“As long as that plurality keeps being quoted, we’re certainly not happy with it because it seems to lend more credence to it than we think is due,” he said.

But the trade group is generally pleased with the Commonwealth Court’s decision “because the positions we advocated won,” Mr. Moody said.

The Pennsylvania Environmental Defense Foundation had wanted the court to declare that governors had violated the state constitution by leasing public natural lands for shale gas extraction and diverting the windfall away from a special conservation fund. The court rejected those challenges. The group’s lawyer says he plans to appeal.

“I think the real important takeaway is that this validates a tool the governor and the legislature have used to help balance the budget,” Mr. Moody said. “I think it really shows they should lease more state lands, not less.”

Gubernatorial setback?

In an unexpected twist, though, the decision raises questions about the governor’s role in setting policies for leasing state parks and forests.

Both Republican Gov. Tom Corbett and former Democratic Gov. Ed Rendell used executive orders to define limits on, or forbid, new state lands leasing.

The Commonwealth Court last week said the state’s conservation department — not the governor — has the ultimate authority for making the decision to lease.

Gov.-elect Tom Wolf, a Democrat whose inauguration is Jan. 20, campaigned on a pledge to reinstate the ban on new oil and gas leases in state parks and forests that was in place from October 2010 through May 2014.

Is a leasing ban or endorsement ordered by the governor meaningful anymore?

“That’s a very significant question now,” said John Walliser, vice president of legal and government affairs for the Pennsylvania Environmental Council, an environmental group.

“I think it probably means that an executive order from the governor carries the same weight as declarations of findings that the General Assembly would set forth in the budget or legislation. It’s a factor to be considered, but it’s not determinative.”

The court also drew a line around a type of oil and gas revenue that the General Assembly can’t touch for some appropriations under the current terms of a budget bill.

Royalties — the payments the state earns on a percentage of the gas extracted from beneath forests it has leased — can be spent on the Department of Conservation and Natural Resources’ operations and transferred to a fund for environmental, recreation and conservation projects.

Rents, including upfront lease bonus payments and annual payments per acre, can not.

DCNR spokeswoman Christina Novak said rents and royalties “typically have been commingled,” but the implication of the court’s distinction is “one of the nuances of the legal decision that our lawyers are reviewing.”

There is about $70.3 million in the special conservation fund where oil and gas revenue from state forests is deposited, she said. About $65.8 million of that is from royalties and about $4.15 million of it is from rents. The rest is from miscellaneous income.

Laura Legere: llegere@post-gazette.com

This article was written by Laura Legere from Pittsburgh Post-Gazette and was legally licensed through the NewsCred publisher network.

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