Massachusetts Courts are NOT YET Ready for Natural Gas Benefits

(First published Sept 2016 – recovered November 2017)

As a women in the energy industry, I welcome ALL measures that can get consumers the energy they need to live their daily lives, while prolonging the destruction of the ozone layer so long as humanly possible – emphasis on “humanly possible.” Some states welcome the change toward a cleaner, natural gas than its fossil fuel counterparts (emitting 50-60% less carbon dioxide) and other states are not yet ready for its benefits, even if they use them daily…BOO!

These past few years, natural gas has made the U.S. THE top leader in shale gas production. So, what’s up with Massachusetts? In 2015, Massachusetts Dept. of Public Utilities approved long-term contracts for utility companies to buy natural gas from the Kinder Morgan’s Northeast Energy Direct Pipeline. Long story short, the 3 utility companies wanted to buy the natural gas and then sell it to power plants, then pass the costs to their customers, which would SAVE the customer money for what they’re currently paying anyway (especially in winter). The idea is that this would be stable financing to expand natural gas in the New England areas, which would drive down the costs of wholesale electricity.

But, a few weeks ago, the contract deal was struck down by Massachusetts highest court. The argument: this would “undermine the objectives of the state’s 1997 utility restructuring act and expose ratepayers to financial risks that lawmakers sought to eliminate two decades ago.” HOWEVER, what parts of this EXACTLY undermine this act (where utility companies are already heavy regulated, combined with prices that they charge being controlled)? If anything, it actually BUILDS UPON the Act.

First things first, (intro)

“…to establish forthwith a comprehensive framework for the restructuring of the electric utility industry, to establish consumer electricity rate savings by March 1, 1998, and to make certain other changes in law, necessary or appropriate to effectuate important public purposes, therefore it is hereby declared to be an emergency law…”

Is anyone seeing what I’m seeing? Establish consumer electricity rate savings by March 1, 1998? HALF of Massachusetts‘ power generation depends on natural gas and as Arthur C. Diestel so obviously added, “The lack of gas infrastructure cost electric consumers $2.5 billion dollars during the Polar Vortex winter of 2013 and 2014.” So, check ✔️. This has the potential for saving customers a ton of money on something they already intended on purchasing.

Then you actually go into the Act, Section 1(b),

“affordable electric service should be available to all consumers on reasonable terms and conditions…”

Do we see a pattern here? Again, this effort could make energy costs more affordable. Heck, if it doesn’t, then write into the new law whatever “terms and conditions” would help. For instance, these pipeline developers need to have these types of contracts in place in some way in order for them to even meet Federal approval, so, the pipeline and utility companies need one another in some respect. That the developing of the pipeline itself be complete, follow all other state and federal rules and regulations, or maybe show reports of where money was spent, could be some quick examples of those very terms and conditions this Act describes. ✔️

Section 1(c)(ii) “(c) ratepayers and the commonwealth will be best served by moving from (i) the regulatory framework extant on July 1, 1997…to (ii) a framework under which competitive producers will supply electric power and customers will gain the right to choose their electric power supplier”.

Again, the very core of this Act would not be undermined at all – competition. If utility company “A” contracts with Pipeline Developer “A” and then passes the costs to the customer, it ends up being more expensive than what people are ALREADY BEING CHARGED, then said customer would simply just go with a different utility company until they find what fits – like shopping for shoes. ✔️

Section 1(f)

“the introduction of competition in the electric generation market will encourage innovation…”

and Section 1(g)

“competitive markets in generation should…(ii) open markets for new and improved technologies.”

Innovation and improved technologies alone are at the heart of natural gas exploration and development. Check ✔️ and check ✔️

The entire Act was very lengthy, so if you’d like to read more, click here. I’m going to abstain from doing a legal brief…for now.

So, what do you think? Is anti-fracking Massachusetts shooting themselves in the foot or is it the Marcellus/Utica shale-loving areas of PA/OH/WV that have it wrong? Comment below and let me know your thoughts on this!

A broader interpretation & step back for Pennsylvania Oil and Gas

Freedom of speech, freedom to bear arms, freedom to have certain environmental rights…Uhh, what?  Do you normally think of that last one when you think of the Pennsylvania Constitution?  Probably not.  As of late June 2017, the PA Supreme Court decided on what most proponents of oil and gas would see as a broad interpretation of Article 1, Section 27, or the Environmental Rights Amendment (“The ERA”).  The quite narrow 3-prong test has been in place since the 70’s.  Without going into the *snore* law of the 3-prong test.  Here’s what The ERA stated.

The people have a right to clean air, pure water, and to the preservation of the natural, scenic, historic and esthetic values of the environment. Pennsylvania’s public natural resources are the common property of all the people, including generations yet to come. As trustee of these resources, the Commonwealth shall conserve and maintain them for the benefit of all the people.

So, plan on bringing a claim against maybe a permit or a pooling unit, how about a right-of-way or water issues, that you feel has negative effects on the environment, based on The ERA?  I mean, you can always try.  You may not win, however.  Environmental attorneys are hopeful.  Alternatively, when reading the majority of the Court’s opinion, the focus isn’t necessarily on an individual’s claim as suggested in my example, but moreso, the Commonwealth acting as a Trustee to protect the Commonwealth’s environment on behalf of its citizens.  In a practicality sense, before the ruling, the Governor could use the money from the proceeds of leasing places like the State Game Lands, into a general fund, whereas now, the money will revert back to environmental conservation efforts.

Let me know what you think.   Do you feel the Court should have forgone the 30+ years using the 3-prong test vary narrowly or more broadly to incorporate the Commonwealth’s ability as a trustee on behalf of its citizens.  If the latter, do you feel you have a constitutional environmental conservation claim based on this? Let’s discuss!

The meaning of Pennsylvania’s minimum 12.5% oil & gas royalty


For those of you not familiar with the ins and outs of the oil and gas industry, I want to give you a brief opening. When you buy your house and property, you are purchasing the surface use or surface estate (the literal ground that you can see on the surface). In addition, you will most likely own the subsurface estate as well – and anything worth anything underground – like oil and gas. You don’t have to do anything extra because buying your house also gets you your subsurface rights and any goodies that come from underground, UNLESS, someone in the past already reserved it. When you use a title company before closing on your house, they will research your land “title” back to see if there are any issues with it that they need to report.

Because you most likely own your subsurface estate, an oil and gas company must lease it from you in order to extract anything. In Pennsylvania, the legislature believes that the landowner is entitled to 12.5% of the royalties from the oil and gas that it produces from your land. But what happens if your lease contains language that other costs will be taken out of that royalty percentage for things such as transportation and compression, sometimes referred to as “post-production costs,” (any cost that arises to get it out from under your land into usable oil and gas)? Generally, landowners have an attorney look over the lease language, which may not even help in some or most cases where attorneys are unfamiliar with the oil and gas industry and precedent. Other times, an attorney negotiating holds no more weight than if you, yourself, were negotiating.

Enter present day – most of the area around me currently is leased and has been producing natural gas, but what if those costs leave you with less than 12.5%? Pennsylvania is still new to the oil and gas game, unlike say, Texas or Oklahoma. This very topic has been and still is being debated about. Just today, Supervisors in Wilmot Township, Bradford County, Pennsylvania, plan to pass a resolution asking the state’s legislature to address this issue.

The current Guaranteed Minimum Royalty Act reads:

Section 1.3. Royalty guaranteed.
A lease or other such agreement conveying the right to remove or recover oil, natural gas or gas of any other designation from the lessor to the lessee shall not be valid if the lease does not guarantee the lessor at least one-eighth royalty of all oil, natural gas or gas of other designations removed or recovered from the subject real property.”

To my knowledge, nothing has been discussed at the state level or in PA’s Supreme Court regarding the post-production costs, that come out of the royalty percentage. Some could say that the Act is ambiguous because it simply states “shall not be valid if the lease does not guarantee the lessor at least one-eighth royalty…” and so, it’s not addressing the “post-production costs” coming out of that one-eighth royalty percentage, after the fact. While others could argue, that “Post-production costs” not discussed in the Act are instead addressed in the terms of the lease itself, so regular, contract law principles apply. If regular contract principles apply, then the landowner signed, agreeing to those terms. Or even if they agreed, are the terms so unconscionable that the court should rule in landowner’s favor, regardless? This most likely won’t apply to oil and gas since unconscionability is used in sale of goods. Real estate/real property law principles may apply where buyer’s severance of the oil and gas will materially harm the real estate and the law generally considers oil, gas, and minerals as being in that category. Whether this is a sale of goods, a sale of services, or something else materially harming real estate has been discussed more in other states but not Pennsylvania…yet.

What do you think? Comment below!