THE GENERAL ASSEMBLY OF PENNSYLVANIA

SENATE BILL

INTRODUCED BY FERLO, FONTANA, HUGHES, TARTAGLIONE, LEACH, FARNESE AND DINNIMAN, MARCH 28, 2011

REFERRED TO ENVIRONMENTAL RESOURCES AND ENERGY, MARCH 28, 2011  

AN ACT

Amending the act of December 19, 1984 (P.L.1140, No.223),

entitled "An act relating to the development of oil and gas

and coal; imposing duties and powers on the Department of

Environmental Resources; imposing notification requirements

to protect landowners; and providing for definitions, for

various requirements to regulate the drilling and operation

of oil and gas wells, for gas storage reservoirs, for various

reporting requirements, including certain requirements

concerning the operation of coal mines, for well permits, for

well registration, for distance requirements, for well casing

requirements, for safety device requirements, for storage

reservoir obligations, for well bonding requirements, for a

Well Plugging Restricted Revenue Account to enforce oil and

gas well plugging requirements, for the creation of an Oil

and Gas Technical Advisory Board, for oil and gas well

inspections, for enforcement and for penalties," further

providing for definitions, for well permits, for well

location restrictions and for protection of water supplies;

providing for use of surface impoundments for temporary

flowback storage; and further providing for well reporting

requirements, for bonding, for enforcement orders, for

penalties, for civil penalties, for well plugging funds and

for local ordinances.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1.  Section 103 of the act of December 19, 1984

(P.L.1140, No.223), known as the Oil and Gas Act, is amended by

adding definitions to read:

Section 103.  Definitions.

The following words and phrases when used in this act shall

have the meanings given to them in this section unless the

context clearly indicates otherwise:

"12-digit Hydrologic Unit Code."  A subwatershed, generally

ranging in size from 10,000 to 40,000 acres, as designated by

the United States Geological Survey and the United States

Department of Agriculture Natural Resources Conservation

Service.

* * *

"Body of water."  A natural or artificial lake, pond,

reservoir, swamp, marsh or wetland.

* * *

"Erosion and sediment control permit."  A permit issued by

the Department of Environmental Protection and required for

earth disturbance activities associated with oil and gas

activities.

"FEMA."  The Federal Emergency Management Agency.

"Flood."  A general but temporary condition of partial or

complete inundation of normally dry land areas from the overflow

of streams, rivers or other waters of this Commonwealth.

"Floodplain."  The lands adjoining a river or stream that

have been or may be expected to be inundated by flood waters in

a 100-year frequency flood. Unless otherwise specified, the

boundary of the floodplain is as indicated on maps and flood

insurance studies provided by the Federal Emergency Management

Agency or equivalent floodplain maps and studies. In an area

where no such maps or studies have defined the boundary of the

100-year floodplain, it is assumed, absent evidence to the

contrary, that the floodplain extends from the stream to 100

feet from the top of the streambank.

"Floodway."  The channel of the watercourse and portions of

the adjoining floodplains which are reasonably required to carry

and discharge the 100-year frequency flood. Unless otherwise

specified, the boundary of the floodway is as indicated on maps

and flood insurance studies provided by the Federal Emergency

Management Agency. In an area where no Federal Emergency

Management Agency maps or studies have defined the boundary of

the 100-year frequency floodway, it is assumed, absent evidence

to the contrary, that the floodway extends from the stream to 50

feet from the top of the streambank.

* * *

"Stream."  A watercourse.

"Unconventional formation."  Formations such as the

Rhinestreet, Burket, Marcellus, Madata and Utica shale, or other

formations existing below the base of the Elk Sandstone or its

geologic equivalent stratigraphic interval.

"Unconventional well."  A well intending to produce or

producing from an unconventional formation.

"Watercourse."  A channel or conveyance of surface water

having defined bed and banks, whether natural or artificial,

with perennial or intermittent flow.

* * *

"Wild trout stream."  A stream classified as supporting

naturally reproducing trout populations by the Fish and Boat

Commission.

"Wilderness trout stream."  A surface water designated by the

Fish and Boat Commission to protect and promote native trout

fisheries and maintain and enhance wilderness aesthetics and

ecological requirements necessary for the natural reproduction

of trout.

* * *

Section 2.  Section 201(a), (b), (e), (f) and (g) of the act,

amended July 2, 1992 (P.L.365, No.78), are amended to read:

Section 201.  Well permit.

(a)  No person shall drill a well or alter any existing well,

except for alterations which satisfy the requirements of

subsection (j), without having first obtained a well permit

pursuant to subsections (b), (c), (d) and (e). A copy of the

permit shall be kept at the well site during [drilling or]

preparation and construction of the well site or access road,

drilling, operation and alteration of the well. However, no

person shall be required to obtain a permit to redrill a

nonproducing well, if:

(1)  the redrilling has been evaluated and approved as

part of an order from the department authorizing the cleaning

out and plugging or replugging of a nonproducing well,

pursuant to section 13(c) of the act of December 18, 1984

(P.L.1069, No.214), known as the Coal and Gas Resource

Coordination Act; and

(2)  the redrilling is incidental to the plugging or

replugging operation and the well subsequently is plugged

within 15 days of redrilling.

(b)  The permit application shall be accompanied by a plat

prepared by a competent engineer or a competent surveyor, on

forms to be furnished by the department, showing the political

subdivision and county in which the tract of land upon which the

well to be drilled, operated or altered, is located, the name of

the surface landowner of record and lessor, the name of all

surface landowners or water purveyors whose water supplies are

within 1,000 feet, or in the case of an unconventional well

within 5,000 feet, of the [proposed well location] outer

boundary of the proposed well pad and access roads, the name of

the owner of record or operator of all known underlying workable

coal seams, if any, the acreage in the tract to be drilled, the

proposed location of the well determined by survey, the courses

and distances of such location from two or more permanent

identifiable points or landmarks on said tract boundary corners,

the proposed angle and direction of such well, if the well is to

be deviated substantially from a vertical course, the number or

other identification to be given the well, the workable coal

seams, if any, underlying the tract of land upon which the well

is to be drilled, operated or altered, which are to be cased off

in accordance with section 207, and such information needed by

the department to administer this act. The applicant shall

forward, by certified mail, a copy of said plat to each

political subdivision in which the well is to be located, the

surface landowner, all surface landowners or water purveyors

whose water supplies are within 1,000 feet, or in the case of an

unconventional well within 5,000 feet, of the [proposed well

location] outer boundary of the proposed well pad and access

roads, the owner and lessee, if any, of such coal seams, and

every coal operator required to be identified on the well permit

application and shall submit proof of such notification with the

well permit application. With respect to surface owners,

notification shall be accomplished under this section by sending

notice to the persons to whom the tax notices for said surface

property are sent, as indicated in the assessment books in the

county in which the property is located. With respect to surface

landowners or water purveyors whose water supplies are within

1,000 feet, or in the case of an unconventional well within

5,000 feet, of the [proposed well location] outer boundary of

the proposed well pad and access roads, notification shall be

made on forms and in a manner prescribed by the department

sufficient to identify, for such persons, the rights afforded

them under section 208 and the advisability of taking their own

predrilling or prealteration survey. With respect to the

political subdivision in which the well is to be located,

notification shall be made on forms and in a manner prescribed

by the department. If the applicant submits to the department

written approval of the proposed well location by the political

subdivision in which the well is to be located, the surface

landowner and the coal operator, lessee or owner, if any, of the

coal underlying the proposed well location and no objections are

raised by the department within 15 days of filing or if no such

approval has been submitted and no objections are made to such

proposed well location within 15 days from receipt of such

notice by the political subdivision in which the well is to be

located, the surface landowner and the coal operator, lessee or

owner, if any, or by the department, the same shall be filed and

become a permanent record of such location, subject to

inspection at any time by any interested person. The application

form to operate an abandoned or orphan well shall notify the

applicant of its responsibilities to plug the well upon

abandonment.

* * *

(e)  The department shall issue a permit within 45 days of

the submission of a permit application unless the department

denies the permit application for one or more of the [five]

reasons set forth below: Provided, however, That the department

shall have the right to extend such period for 15 days for cause

shown upon notification to the applicant of the reasons for that

extension. The department may impose such permit terms and

conditions as are necessary to assure compliance with this act

and other laws administered by the department. The department

shall have the authority to deny a permit to any person for the

following reasons:

(1)  the well site for which a permit is requested is in

violation of any of the provisions of this act, or if

issuance of such permit would result in a violation of this

act or any other applicable environmental statute, rule or

regulation;

(2)  the permit application is incomplete;

(3)  unresolved objections to the well location by coal

mine owner or operator remain;

(4)  the requirements of section 215 have not been met;

[or]

(5)  the applicant, with respect to any other well or

wells which the applicant operates, is in continuing

violation of this act or any other applicable statute

administered by the department and the likely result of that

violation is an unsafe operation or environmental damage. If

a final determination has been made in the applicant's favor,

the permit denied shall be reconsidered and the violation

shall not be a consideration in the awarding of the permit.

The department may not collect an application fee for the

reconsideration[. The right of the department to deny a

permit under this paragraph shall not be effective until a

final administrative determination has been made of any of

these violations and no appeal is pending in which a stay has

been granted.];

(6)  the applicant failed to pay or file a return under

section 5A04, unless a valid appeal is in process. The

Secretary of Revenue shall notify the department of any

applicant who has failed to pay or file a return and who does

not have a valid appeal pending; or

(7)  the applicant does not have a reasonable written

plan to reuse at least 30% of the total water that will be

used to hydraulically fracture the well.

(f)  Upon issuance of a permit, the well operator may proceed

[with the drilling of] to prepare or construct the well site and

access roads and drill, operate or alter the well at the exact

location shown on the plat after providing the department, the

surface landowner and the local political subdivision in which

the well is to be located 24 hours' notice of the date that

drilling will commence. In noncoal areas where more than one

well is to be drilled as part of the same development project,

only the first well of the project need be located by survey.

The remaining wells of the project shall be shown on the plat in

a manner prescribed by regulation. Prior to drilling each of the

additional project wells, the well operator shall notify the

department of his intention and provide reasonable notice of the

date drilling will commence. Whenever, before or during the

drilling of any well which is not within the outside boundaries

of an operating coal mine, the well operator shall encounter

conditions of such a nature as to render drilling of the bore

hole or portions thereof more hazardous than usual, or otherwise

impossible, then the well operator shall have the right, upon

verbal notice to the department, to immediately plug all or

portions of the bore hole, if drilling has occurred, and to

commence a new bore hole not more than 50 feet distant if the

location of the new bore hole does not violate section 205 and

if, for wells subject to the act of July 25, 1961 (P.L.825,

No.359), known as the Oil and Gas Conservation Law, the new

location complies with any existing law, regulation or spacing

order and if the new bore hole is a minimum of 330 feet distant

from the nearest lease boundary. Within ten days of commencement

of the new bore hole, the well operator shall file with the

department a written notice of intention to plug, a well record,

a completion report, a plugging certificate for the original

bore hole and an amended plat for the new bore hole. The well

operator shall forward a copy of the amended plat to the surface

landowner identified on the well permit application within ten

days of commencement of the new well bore.

(g)  The well permit number and operator's name, address and

telephone number shall be posted at the drilling site, in a

conspicuous manner, prior to [commencement of drilling]

initiating preparation and during construction of the well site

or access road, drilling, operation and alteration of the well.

* * *

Section 3.  Section 205 of the act is amended to read:

Section 205.  Well location restrictions.

(a)  Wells may not be drilled within 200 feet, or in the case

of an unconventional well within 1,500 feet, measured

horizontally from any existing building or existing water well

without the written consent of the owner thereof. Where the

distance restriction would deprive the owner of the oil and gas

rights of the right to produce or share in the oil or gas

underlying said surface tract, the well operator may be granted

a variance from said distance restriction upon submission of a

plan which shall identify the additional measures, facilities or

practices to be employed during well site construction, drilling

and operations. The variance, if granted, shall include such

additional terms and conditions as the department shall require

to insure the safety and protection of affected persons and

property. The provisions may include insurance, bonding and

indemnification, as well as technical requirements.

(b)  No well site may be prepared or well drilled within

[100] 500 feet measured horizontally from any [stream, spring or

body of water as identified on the most current 7 ½ minute

topographic quadrangle map of the United States Geological

Survey] watercourse, natural or artificial lake, pond or

reservoir or within [100 feet of any wetlands greater than one

acre in size.] the boundary of a wetland or the boundary that

affects the functions and values of a wetland. However, no well

may be drilled using hydraulic fracturing or horizontal drilling

within 2,500 feet of a surface water source, and within 1,000

feet of a groundwater source or an exceptional value water

source as designated under 25 Pa. Code 93.4b (relating to

qualifying as High Quality or Exceptional Value Waters), that

serves a public water system. The distance from the public water

supply source, as identified by the department, shall be

measured as follows:

(1)  For a surface water intake on a lake or reservoir,

the distance shall be measured from the boundary of the lake

or reservoir.

(2)  For a surface water intake on a flowing stream, the

distance shall be measured from a semicircular radius

extending upstream of the surface water intake.

(3)  For a groundwater source, the distance shall be

measured from the wellhead or spring.

The department may waive such distance restrictions upon

submission of a plan which shall identify the additional

measures, facilities or practices to be employed during well

site construction, drilling and operations. Such waiver, if

granted, shall impose such permit conditions as are necessary to

protect the waters of the Commonwealth.

(c)  [The] On making a determination on a well permit, the 

department shall[, on making a determination on a well permit,] 

consider and may deny or condition a well permit based on the

impact of the proposed well on public resources to include, but

not be limited to, the following:

(1)  Publicly owned parks, forests, gamelands and

wildlife areas.

(2)  National or State scenic rivers.

(3)  National natural landmarks.

(4)  Habitats of rare and endangered flora and fauna and

other critical communities.

(5)  Historical and archaeological sites listed on the

Federal or State list of historic places.

(6)  Bodies of water and watercourses, including, but not

limited to, wetlands, wild trout streams and wilderness trout

streams.

(7)  Sources used for public drinking water supplies.

(8)  Whether the proposed well location is within a

floodplain.

(d)  The department shall establish additional protective

measures for storage of hazardous chemicals and materials

intended to be used, or that have been used, on an

unconventional well drilling site within 1,000 feet of a

watercourse, natural or artificial lake, pond, reservoir,

wetland or groundwater source that serves a public water system,

or within 5,000 feet of a surface water source that serves a

public water system.

(e)  Prior to submitting a permit application to the

department for a well or well site within a wild trout stream,

wilderness trout stream or a High Quality or Exceptional Value

watershed as indicated by the 12-digit Hydrologic Unit Code, the

applicant shall notify the Pennsylvania Fish and Boat

Commission.

Section 4.  Section 208(a), (c) and (d) of the act are

amended and the section is amended by adding subsections to

read: 

Section 208.  Protection of water supplies.

(a)  [Any] In addition to the requirements of subsection

(c.1), a well operator who affects a public or private water

supply by pollution or diminution shall restore or replace the

affected supply with an alternate source of water adequate in

quantity or quality for the purposes served by the supply. The

department shall ensure the restored or replaced water supply

meets the applicable water quality standards consistent with the

Safe Drinking Water Act (Public Law 93-523, 21 U.S.C. § 349 and

42 U.S.C. §§ 201 and 300f et seq.), the act of May 1, 1984

(P.L.206, No.43), known as the Pennsylvania Safe Drinking Water

Act, and predrilling or alteration water quality standards as

determined by the department. The Environmental Quality Board

shall promulgate regulations necessary to meet the requirements

of this subsection.

* * *

(b.1)  The department shall establish a single Statewide

toll-free telephone number that persons may use to report cases

of water contamination. The Statewide toll-free telephone number

shall be provided in a conspicuous manner in the notification

required under section 201(b) and on the department's Internet

website.

(b.2)  The department shall develop appropriate

administrative responses to calls received on the Statewide

toll-free number for water contamination.

(b.3)  The department shall establish a website that lists

the confirmed cases of water supply contamination that result

from hydraulic fracturing.

(c)  Unless rebutted by one of the five defenses established

in subsection (d), it shall be presumed that a well operator is

responsible for the pollution of a water supply that is within

1,000 feet, or in the case of an unconventional well within

5,000 feet, of the oil or gas well, where the pollution occurred

within six months after [the completion of drilling] the

drilling, stimulation or alteration of such well.

(c.1)  If the affected water supply is within the rebuttable

presumption area as provided in subsection (c) and the

rebuttable presumption applies and the water user is without a

readily available alternative source of water, the operator

shall provide a temporary water supply within 24 hours of being

contacted by the water user or the department, whichever occurs

first. The temporary water supply provided under this subsection

shall be adequate in quantity and quality for the purposes

served by the supply.

(d)  In order to rebut the presumption of liability

established in subsection (c), the well operator must

affirmatively prove one of the following five defenses:

(1)  The pollution existed prior to the drilling, 

stimulation or alteration [activity] activities as determined

by a predrilling or prealteration survey.

(2)  The landowner or water purveyor refused to allow the

operator access to conduct a predrilling or prealteration

survey.

(3)  The water supply is not within 1,000 feet, or in the

case of an unconventional well within 5,000 feet, of the

well.

(4)  The pollution occurred more than six months after

[completion of drilling] the drilling, stimulation or

alteration activities.

(5)  The pollution occurred as the result of some cause

other than the drilling, stimulation or alteration [activity]

activities.

* * *

Section 5.  The act is amended by adding sections to read:

Section 208.1.  Use of surface impoundments for temporary

flowback storage.

Where centralized flowback impoundments are used to

temporarily store flowback water, the department shall require

the use of dual liner systems with a leak detection system

installed between the two liners. The department shall inspect

such impoundments on a monthly basis.

Section 208.2.  Transportation records; hydraulic fracturing

fluids.

Each well operator who transports hydraulic fracturing fluids

shall maintain records of the amount and destination of the

fluids transported. The records shall be on a form approved by

the department.

(1)  Recordkeeping requirements shall be determined by

the department and shall include at least the following:

(i)  The number of gallons of hydraulic fracturing

fluids used in the drilling, stimulation or alteration of

a well.

(ii)  Upon completion of the well, the name of the

person or company who transports the hydraulic fracturing

fluids to a disposal site or a location other than the

well site.

(iii)  The location where hydraulic fracturing fluids

were disposed or to which they were transported and the

volumes that were disposed of at each location.

(iv)  The method of disposal.

(2)  Records shall be retained by the well operator for a

period of five years. The records shall be made available to

the department upon request.

Section 6.  Section 212(b) of the act, amended March 22, 2010

(P.L.169, No.15), is amended and the section is amended by

adding subsections to read:

Section 212.  Well reporting requirements.

* * *

(b)  It shall be the duty of the well operator to keep

records of any well drilled or altered. A record of the well

containing such information as required by [regulation] the

department, including the information required under subsection

(b.1), shall be filed with the department within 30 days [of

cessation of drilling] after stimulation of the well. A

completion report containing such additional information as

required by regulation shall be filed with the department within

30 days after [the completion] stimulation of the well and it

shall be kept on file by the department. Within 90 days after

the completion of drilling or recompletion of a well, if

requested by the department, the well operator shall submit a

copy of the electrical, radioactive or other standard industry

logs if they have been run. In addition, if requested by the

department within one year, the well operator shall file a copy

of drill stem test charts, formation water analysis, porosity,

permeability or fluid saturation measurements, core analysis and

lithologic log or sample description or other similar data as

compiled. No such information shall be required unless the well

operator has had such information compiled in the ordinary

course of business. No interpretation of the data is to be

filed.

(b.1)  Report contents.--The completion report shall contain

the operator's stimulation record which shall include the

following:

(1)  A descriptive list of the chemical additives in the

stimulation fluids, including any acid, biocide, breaker,

brine, corrosion inhibitor, crosslinker, demulsifier,

friction reducer, get, iron control, oxygen scavenger, pH

adjusting agent, proppant, scale inhibitor and surfactant.

(2)  The percent by volume of each chemical additive in

the stimulation fluid.

(3)  A list of the chemicals in the material safety data

sheets, by name and chemical abstract service number,

corresponding to the appropriate chemical additive.

(4)  The percent by volume of each chemical list in the

material safety data sheets.

(5)  The total volume of the base fluid.

(6)  A list of water sources used under the approved

water management plan and the volume of water used.

(7)  The pump rates and pressure used in the well.

(8)  The depth at which potable aquifers are encountered.

(b.2)  Trade secret or confidential proprietary

information.--When an operator submits its stimulation record

under subsection (b.1), it may designate specific portions of

the stimulation record as containing a trade secret or

confidential proprietary information. The department shall

prevent disclosure of the designated confidential information to

the extent permitted by the act of February 14, 2008 (P.L.6,

No.3), known as the Right-to-Know Law. However, in the event of

an emergency well, the department shall make available the

entire completion report to emergency personnel that respond.

(b.3)  List of the chemical constituents.--In addition to

submitting a stimulation record to the department under

subsection (b.1) and subject to the protections afforded for

trade secrets and confidential proprietary information under the

Right-to-Know Law, the operator shall provide a list of the

chemical constituents of the chemical additives used to

hydraulically fracture a well, by name and chemical abstract

service number, unless the additive does not have a number, to

the department upon written request of the department.

* * *

Section 7.  Section 215(a), (c), (d), (d.1) and (f) of the

act, amended July 2, 1992 (P.L.365, No.78), are amended to read: 

Section 215.  Bonding.

(a)  (1)  Except as provided in subsection (d) hereof, upon

filing an application for a well permit and before continuing

to operate any oil or gas well, the owner or operator thereof

shall file with the department a bond for the well and the

well site on a form to be prescribed and furnished by the

department. Any such bond filed with an application for a

well permit shall be payable to the Commonwealth and

conditioned that the operator shall faithfully perform all of

the drilling, water supply replacement, restoration and

plugging requirements of this act. Any such bond filed with

the department for a well in existence on the effective date

of this act shall be payable to the Commonwealth and

conditioned that the operator shall faithfully perform all of

the water supply replacement, restoration and plugging

requirements of this act. The amount of the bond required

shall be in the [amount of $2,500 per well for at least two

years following the effective date of this act, after which

time the bond amount] following amounts and may be adjusted

by the Environmental Quality Board every [two] three years to

reflect the projected costs to the Commonwealth of performing

well plugging[.]:

(i)  For wells less than 2,500 feet in depth:

(A)  $2,500 per well, provided the operator shall

not be required to provide a bond under this item

exceeding $35,000 for 25 wells.

(B)  For operating 26 to 50 wells, $35,000 plus

$2,500 per well, provided the operator may not be

required to provide a bond under this item exceeding

$60,000.

(C)  For operating 51 to 100 wells, $60,000 plus

$2,500 per well, provided the operator may not be

required to provide a bond under this item exceeding

$100,000.

(D)  For operating over 100 wells, $100,000 plus

$2,500 per well, provided the operator may not be

required to provide a bond under this item exceeding

$250,000.

(ii)  For wells between 2,500 feet and 5,000 feet in

depth:

(A)  $5,000 per well, provided the operator may

not be required to provide a bond under this item

exceeding $70,000 for 25 wells.

(B)  For operating 26 to 50 wells, $70,000 plus

$5,000 per well, provided the operator may not be

required to provide a bond under this item exceeding

$120,000.

(C)  For operating 51 to 100 wells, $120,000 plus

$5,000 per well, provided the operator may not be

required to provide a bond under this item exceeding

$200,000.

(D)  For operating over 100 wells, $200,000 plus

$5,000 per well, provided the operator may not be

required to provide a bond under this item exceeding

$500,000.

(iii)  For wells over 5,000 feet in depth:

(A)  $12,500 per well, provided the operator may

not be required to provide a bond under this item

exceeding $220,000 for 25 wells.

(B)  For operating 26 to 50 wells, $220,000 plus

$12,500 per well, provided the operator may not be

required to provide a bond under this item exceeding

$375,000.

(C)  For operating 51 to 100 wells, $375,000 plus

$12,500 per well, provided the operator may not be

required to provide a bond under this item exceeding

$625,000.

(D)  For operating over 100 wells, $625,000 plus

$12,500 per well.

[(2)  In lieu of individual bonds for each well, an owner

or operator may file a blanket bond, on a form prepared by

the department, covering all of its wells in Pennsylvania as

enumerated on the bond form. A blanket bond shall be in the

amount of $25,000 for at least two years following the

effective date of this act, after which time the bond amount

may be adjusted by the Environmental Quality Board every two

years to reflect the projected costs to the Commonwealth of

performing well plugging.]

(3)  Liability under such bond shall continue until the

well has been properly plugged in accordance with this act

and for a period of one year after filing of the certificate

of plugging with the department. Each bond shall be executed

by the operator and a corporate surety licensed to do

business in the Commonwealth and approved by the secretary.

The operator may elect to deposit cash, certificates of

deposit or automatically renewable irrevocable letters of

credit from financial institutions chartered or authorized to

do business in Pennsylvania and regulated and examined by the

Commonwealth or a Federal agency which may be terminated at

the end of a term only upon the financial institution giving

90 days prior written notice to the permittee and the

department or negotiable bonds of the United States

Government or the Commonwealth, the Pennsylvania Turnpike

Commission, the General State Authority, the State Public

School Building Authority or any municipality within the

Commonwealth, or United States Treasury Bonds issued at a

discount without a regular schedule of interest payments to

maturity, otherwise known as Zero Coupon Bonds, having a

maturity date of not more than ten years after the date of

purchase and at such maturity date having a value of not less

than $25,000, with the department in lieu of a corporate

surety. The cash deposit, certificate of deposit, amount of

such irrevocable letter of credit or market value of such

securities shall be equal at least to the sum of the bond.

The secretary shall, upon receipt of any such deposit of

cash, letters of credit or negotiable bonds, immediately

place the same with the State Treasurer, whose duty it shall

be to receive and hold the same in the name of the

Commonwealth, in trust, for the purpose for which such

deposit is made. The State Treasurer shall at all times be

responsible for the custody and safekeeping of such deposits.

The operator making deposit shall be entitled from time to

time to demand and receive from the State Treasurer, on the

written order of the secretary, the whole or any portion of

any collateral so deposited, upon depositing with him, in

lieu thereof, other collateral of the classes herein

specified having a market value at least equal to the sum of

the bond, and also to demand, receive and recover the

interest and income from said negotiable bonds as the same

becomes due and payable. Where negotiable bonds, deposited as

aforesaid, mature or are called, the State Treasurer, at the

request of the owner thereof, shall convert such negotiable

bonds into such other negotiable bonds of the classes herein

specified as may be designated by the owner. Where notice of

intent to terminate a letter of credit is given, the

department shall give the operator 30 days' written notice to

replace the letter of credit with other acceptable bond

guarantees as provided herein and, if the owner or operator

fails to replace the letter of credit within the 30-day

notification period, the department shall draw upon and

convert such letter of credit into cash and hold it as a

collateral bond guarantee.

* * *

(c)  If the well owner or operator fails or refuses to comply

with the applicable requirements of this act identified in

subsection (a), the regulations promulgated hereunder or the

conditions of the permit relating thereto, the department may

declare the bond forfeited and shall certify the same to the

Attorney General, who shall proceed to enforce and collect the

full amount of the bond and, where the owner or operator has

deposited cash or securities as collateral in lieu of a

corporate surety, the department shall declare said collateral

forfeited and shall direct the State Treasurer to pay the full

amount of said funds into the Well Plugging Restricted Revenue

Account or to proceed to sell said security to the extent

forfeited and pay the proceeds thereof into the Well Plugging

Restricted Revenue Account. Should any corporate surety or

financial institution fail to promptly pay, in full, a forfeited

bond, it shall be disqualified from writing any further bonds

under the act or any other environmental act administered by the

department. Any person aggrieved by reason of forfeiting the

bond or converting collateral, as herein provided, shall have a

right to appeal to the Environmental Hearing Board in the manner

provided by law. Upon forfeiture of a [blanket] bond for a

violation occurring at one or more well sites, the person whose

bond is forfeited shall submit a replacement bond to cover all

other wells of which he is owner or operator within ten days of

said forfeiture. Failure to submit said replacement bond

constitutes a violation of this section as to each of the wells

owned or operated by said person.

(d)  [(1)  Any operator of not more than 200 wells who cannot

obtain a bond for a well drilled prior to April 18, 1985, as

required under subsection (a), due to an inability to

demonstrate sufficient financial resources may, in lieu of

the bond:

(i)  Submit to the department a fee in the amount of

$50 per well, or a blanket fee of $500 for ten to 20

wells, or a blanket fee of $1,000 for more than 20 wells,

which shall be a nonrefundable fee paid each year that

the operator has not filed a bond with the department.

All fees collected in lieu of a bond under this

subsection shall be used for the purposes authorized by

this act. The Environmental Quality Board shall have the

power, by regulation, to increase the amount of the fees

established under this subsection.

(ii)  (A)  Make phased deposits of collateral to

fully collateralize the bond. Such payment shall be

based on the number of wells the operator owns or

operates. The operator shall make an initial deposit

and shall, thereafter, make annual deposits in

accordance with the schedule in clause (B). Interest

accumulated by the collateral shall become a part of

the bond until such time as the collateral plus

accumulated interest equals the amount of the

required bond. The collateral shall be deposited, in

trust, with the State Treasurer as provided in this

subsection, or with a bank selected by the department

which shall act as trustee for the benefit of the

Commonwealth to guarantee the operator's compliance

with the drilling, water supply replacement,

restoration and plugging requirements of this act.

The operator shall be required to pay all costs of

the trust.

(B)  An operator of up to ten existing wells who

does not intend to operate additional wells shall

deposit $250 per well and shall, thereafter, annually

deposit $50 per well until the obligations of this

section are fully met. An operator of 11 to 25 wells

or an operator of up to ten wells who applies for one

or more permits for additional wells shall deposit

$2,000 and shall, thereafter, annually deposit $1,150

plus $150 for each additional well to be permitted

that year until the obligations of this section are

fully met. An operator of 26 to 50 wells shall

deposit $3,000 and shall, thereafter, annually

deposit $1,300 plus $400 for each additional well to

be permitted that year until the obligations of this

section are fully met. An operator of 51 to 100 wells

shall deposit $4,000 and shall, thereafter, annually

deposit $1,500 plus $400 for each additional well to

be permitted that year until the obligations of this

section are fully met. Operators of 101 to 200 wells

shall deposit $8,000 and shall, thereafter, annually

deposit $1,600 plus $1,000 for each additional well

to be permitted that year until the obligations of

this section are fully met. Operators of more than

200 wells shall fully bond their wells immediately.

The department shall reduce the amount of phased

collateral payments or the period of time over which

phased collateral payments shall be made on behalf of

owners or operators who, prior to the effective date

of this amendatory act, have paid a fee in lieu of

bond pursuant to subparagraph (i), and who, within

one year of the effective date of this amendatory

act, choose to enter the phased collateral program

pursuant to this subparagraph (ii) rather than to

continue to make payments in lieu of bond. Payments

made in lieu of bond prior to the effective date of

this amendatory act shall not be credited in any

other manner, nor shall the department be required to

refund such fees at any time. The Environmental

Quality Board shall have the power, by regulation, to

change the annual deposits established under this

clause if it is found to be necessary to accommodate

a change in the amount of the bond required under

this section.

(2)  An operator may continue to pay a fee in lieu of

bond or make phased deposits of collateral to fully

collateralize the bond so long as the operator does not miss

any payments for wells as provided under this subsection and

so long as the operator remains in compliance with the

provisions of this act and regulations and permits issued

thereunder. If an operator has missed any payments for wells

as provided under this subsection, the operator shall:

(i)  immediately submit the appropriate bond amount

in full; or

(ii)  cease all operations and plug the wells in

accordance with section 210.

(d.1)  (1)  An individual who cannot obtain a bond to drill

new wells due to an inability to demonstrate financial

resources may meet the collateral bond requirements of

subsection (a) by making phased deposits of collateral to

fully collateralize the bond. Such individuals shall be

limited to drilling ten new wells per calendar year. The

individual shall, for each well to be drilled, deposit $500

and shall, thereafter, annually deposit 10% of the remaining

bond amount for a period of ten years. Interest accumulated

by the collateral shall become a part of the bond until such

time as the collateral, plus accumulated interest, equals the

amount of the required bond. The collateral shall be

deposited, in trust, with the State Treasurer as provided in

subsection (a) or with a bank selected by the department

which shall act as trustee for the benefit of the

Commonwealth, to guarantee the individual's compliance with

the drilling, water supply replacement, restoration and

plugging requirements of this act. The individual shall be

required to pay all costs of the trust.

(2)  Individuals may continue to use phased collateral to

obtain permits so long as they have not missed any payments

for wells drilled under this provision and so long as they

remain in compliance with this act and regulations and

permits issued thereunder. If an individual has missed any

payments for wells under this subsection, the operator shall:

(i)  immediately submit the appropriate bond amount

in full; or

(ii)  cease all operations and plug the wells in

accordance with section 210.

For the purposes of this subsection an "individual" is defined

as an applicant who is a natural person doing business under his

own name.] The Environmental Quality Board shall, by regulation,

develop an alternative financial assurance requirement in which

an operator may voluntarily choose to participate. An operator

participating in the alternative financial assurance requirement

established pursuant to this paragraph may be exempt from a bond

specified under subsection (a). The alternative financial

assurance requirement may require an insurance policy, trust

fund or financial mechanism but must provide for full coverage

of an operator's well plugging liability as determined by the

board. The alternative financial assurance mechanism may only be

utilized to plug wells upon abandonment and may not be forfeited

or otherwise recovered for violations of the act.

* * *

[(f)  Owners or operators who have failed to meet the

requirements of this section prior to the effective date of this

amendatory act shall not be required to make payments pursuant

to this section on a retroactive basis as a condition of

obtaining a permit under this act nor shall such failure be

deemed a violation of this act.]

Section 8.  Sections 503(c), 505 and 506 of the act are

amended to read:

Section 503.  Enforcement orders.

* * *

(c)  Prior to the suspension or revocation of a well permit

or registration, the department shall serve written notice upon

the well operator or its agent of the intention of the

department to suspend or revoke and shall state with specificity

the statutory provisions, appropriate rule or regulation or

other reason and the factual circumstances which surround the

violation upon which the suspension or revocation is to be

based. The well operator shall have 15 days to request a

conference with the department to give such cause why such

action should not be taken. Upon receipt of such written notice,

the department shall hold a conference and shall, within 15 days

thereafter, make a decision on whether to suspend or revoke the

well permit or registration. The department shall provide

written notice of its decision to revoke to the well operator or

its agent, which shall become effective upon receipt thereof and

the operator shall immediately plug the well.

* * *

Section 505.  Penalties.

(a)  Any person who violates any provisions of the act is

guilty of a summary offense and, upon conviction thereof, shall

be sentenced to pay a fine of not more than [$300] $10,000 or

undergo imprisonment of not more than 90 days, or both. Each

day's continuance of such violation shall be a separate and

distinct offense.

(b)  Any person who willfully violates any provisions of this

act or any order of the department issued pursuant to the

provisions of this act is guilty of a misdemeanor and, upon

conviction thereof, shall be sentenced to pay a fine of not more

than [$5,000] $150,000 or undergo imprisonment of not more than

one year, or both. Each day's continuance of such violation

shall be a separate distinct offense.

(c)  The department shall have the authority to institute

prosecutions against any person or municipality under this act.

Section 506.  Civil penalties.

In addition to proceeding under any other remedy available at

law or in equity for a violation of a provision of this act or a

rule or regulation of the department or a permit condition or 

any order of the department, the [Environmental Hearing Board]

department, after hearing, may assess a civil penalty upon a

person for such violation. Such a penalty may be assessed

whether or not the violation was willful. The civil penalty so

assessed shall not exceed [$25,000, plus $1,000] $100,000, plus

$10,500 for each day of continued violation. In determining the

amount of the civil penalty, the [board] department shall

consider the willfulness of the violation, damage or injury to

the natural resources of the Commonwealth or their uses,

endangerment of the safety of others, costs of remedying the

harm, savings resulting to the person in consequence of such

violation and other relevant factors. It shall be payable to the

Commonwealth and shall be collectible in any manner provided at

law for the collection of debts. If any person liable to pay any

such penalty neglects or refuses to pay the same after demand,

the amount, together with interest and any costs that may

accrue, shall be a lien in favor of the Commonwealth upon the

property, both real and personal, of such person but only after

same has been entered and docketed of record by the prothonotary

of the county where such is situated. The [board] department 

may, at any time, transmit to the prothonotaries of the

respective counties certified copies of all such liens, and it

shall be the duty of each prothonotary to enter and docket the

same of record in his office and to index the same as judgments

are indexed, without requiring the payment of costs as a

condition precedent to the entry thereof.

Section 9.  The act is amended by adding a chapter to read:

CHAPTER 5A

EFFECTS OF NATURAL GAS DRILLING

Section 5A01.  Definitions.

The following words and phrases when used in this chapter

shall have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Accredited laboratory."  A facility engaged in the testing

and calibration of scientific measurement devices and certified

by the Department of Environmental Protection as having met the

department's standards for accreditation.

"Association."  A partnership, limited partnership or any

other form of unincorporated enterprise owned or conducted by

two or more persons.

"Base rate."  The rate under section 5A02(b).

"Coal bed methane."  Gas which can be produced from coal

beds, coal seams, mined-out areas or gob wells.

"Corporation."  A corporation, joint stock association,

limited liability company, business trust or any other

incorporated enterprise organized under the laws of this

Commonwealth, the United States or any other state, territory or

foreign country or dependency.

"Department."  The Department of Revenue of the Commonwealth.

"First responder."  Professional and volunteer fire service

personnel, emergency medical personnel, law enforcement

personnel or State, county or local emergency management

personnel.

"Fund."  The Natural Gas Severance Tax Fund established under

section 5A28.

"Meter."  A device to measure the passage of volumes of gases

or liquids past a certain point.

"Municipality."  A city, borough, incorporated town or

township.

"Natural gas."  A fossil fuel consisting of a mixture of

hydrocarbon gases, primarily methane, possibly including ethane,

propane, butane, pentane, carbon dioxide, oxygen, nitrogen and

hydrogen sulfide and other gas species. The term includes

natural gas from oil fields known as associated gas or casing

head gas, natural gas fields known as nonassociated gas, coal

beds, shale beds and other formations. The term does not include

coal bed methane.

"Nonproducing site."  A point of severance that is not

capable of producing natural gas in paying quantities.

"Paying quantities."  Profit to the producer, however small,

over the producer's current operating expenses.

"Person."  A natural person or a corporation, fiduciary,

association or other entity, including the Commonwealth, its

political subdivisions, instrumentalities and authorities. When

the term is used in a clause prescribing and imposing a penalty

or imposing a fine or imprisonment, or both, the term shall

include the members, as applied to an association, and the

officers, as applied to a corporation.

"Producer."  A person who engages or continues within this

Commonwealth in the business of severing natural gas for sale,

profit or commercial use. The term does not include a person who

severs natural gas from a storage field.

"Producing site."  A point of severance capable of producing

natural gas in paying quantities.

"Reporting period."  A calendar month in which natural gas is

severed.

"Secretary."  The Secretary of Revenue of the Commonwealth.

"Sever."  To extract or otherwise remove natural gas from the

soil or water of this Commonwealth.

"Severance."  The extraction or other removal of natural gas

from the soil or water of this Commonwealth.

"Severing."  Extracting or otherwise removing natural gas

from the soil or water of this Commonwealth.

"Storage field."  A natural formation or other site that is

used to store natural gas that did not originate from and has

been injected into the formation or site.

"Stripper well."  A producing site or a nonproducing site

that is not capable of producing and does not produce more than

60,000 cubic feet of natural gas per day.

"Tax."  The tax imposed under this chapter.

"Tax rate adjustment index."  The amount calculated under

section 5A03(c) by which the rate of the tax imposed under

section 5A02(b) is adjusted annually.

"Taxpayer."  A person subject to the tax imposed by this

chapter.

"Unit."  A thousand cubic feet of natural gas measured at the

wellhead at a temperature of 60 degrees Fahrenheit and an

absolute pressure of 14.73 pounds per square inch in accordance

with American Gas Association Standards and according to Boyle's

Law for the measurement of gas under varying pressures with

deviations as follows:

(1)  The average absolute atmospheric pressure shall be

assumed to be 14.4 pounds to the square inch, regardless of

elevation or location of point of delivery above sea level or

variations in atmospheric pressure from time to time.

(2)  The temperature of the gas passing the meters shall

be determined by the continuous use of a recording

thermometer installed to properly record the temperature of

gas flowing through the meters. The arithmetic average of the

temperature recorded each 24-hour day shall be used in

computing gas volumes. If a recording thermometer is not

installed, or is installed and not operating properly, an

average flowing temperature of 60 degrees Fahrenheit shall be

used in computing gas volume.

(3)  The specific gravity of the gas shall be determined

annually by tests made by the use of an Edwards or Acme

gravity balance, or at intervals as found necessary in

practice. Specific gravity determinations shall be used in

computing gas volumes.

(4)  The deviation of the natural gas from Boyle's Law

shall be determined by annual tests or at other shorter

intervals as found necessary in practice. The apparatus and

method used in making the test shall be in accordance with

recommendations of the National Bureau of Standards or Report

No. 3 of the Gas Measurement Committee of the American Gas

Association, or amendments thereto. The results of the tests

shall be used in computing the volume of gas delivered under

this chapter.

"Wellhead meter."  A meter placed at a producing or

nonproducing site to measure the volume of natural gas severed

for which a wellhead meter certification has been issued.

"Wellhead meter certification."  A report issued by an

accredited laboratory certifying the accuracy of a wellhead

meter.

Section 5A02.  Imposition of tax.

(a)  Establishment.--Beginning July 1, 2011, there shall be 

levied a natural gas severance tax on every producer. The tax

shall not be imposed on units severed from a stripper well

unless the following apply:

(1)  The stripper well is one of multiple producing sites

or nonproducing sites where the combined volumes of gas

produced by all of such sites are measured by a single

wellhead meter as provided in section 5A06.

(2)  The combined volumes of gas produced by all the

producing sites or nonproducing sites described in paragraph

(1) is more than 60,000 cubic feet of natural gas per day.

(a.1)  Exemptions.--The tax shall not be imposed on the

following:

(1)  Units severed by a producer and sold and delivered

to a manufacturer of tangible personal property, as defined

in section 201(m) of the act of March 4, 1971 (P.L.6, No.2),

known as the Tax Reform Code of 1971, for the manufacturer's

use within this Commonwealth if the units have been severed

from one or more producing sites or nonproducing sites on

property owned by the manufacturer.

(2)  Units provided free of charge to the owner of the

surface under which the gas is severed if the surface owner

is the end user of the gas.

(b)  Rate.--Subject to the provisions of section 5A03

(relating to tax rate adjustment), the rate shall be 24¢ per

unit severed at the wellhead.

Section 5A03.  Tax rate adjustment.

(a)  Annual adjustment.--The tax rate shall be adjusted

annually by the amount of the tax rate adjustment index as

calculated under subsection (c), provided that the tax rate

shall never be less than the base rate. The adjusted tax rate

shall be effective for the next year.

(b)  Determination of adjustment.--On or before April 30 of

each year following the effective date of this section, the

secretary shall calculate and determine the amount of the tax

rate adjustment index.

(c)  Calculation of adjustment.--The tax rate adjustment

index shall be determined as follows:

(1)  If 6% of the average of New York Mercantile Exchange

(NYMEX) Henry Hub settled price on the last trading day of

the month, as reported by the Wall Street Journal for the

previous 12-month period ending March 31, is less than the

base rate, the tax rate adjustment index shall be zero and

the adjusted tax rate shall be the base rate.

(2)  If 6% of the average of the NYMEX Henry Hub settled

price on the last trading day of the month, as reported by

the Wall Street Journal for the previous 12-month period

ending March 31, is greater than the base rate, the tax rate

adjustment index shall be 50% of the difference between 6% of

the average of the NYMEX Henry Hub settled price on the last

trading day of the month, as reported in the Wall Street

Journal for the previous 12-month period ending March 31, and

the base rate. The adjusted tax rate shall be the resulting