Drilling fees could be cut

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Denton City Council members will meet today to consider lowering most of the city's fees on the natural gas industry, after a consultant found they were too high.

The city passed higher permit and inspection fees last summer but has yet to impose them pending the results of the consultant's review. The city hired J. Stowe & Co. LLC, a Richardson-based environmental and financial consulting firm, to study the fees after industry representatives questioned whether they were reasonable. IF YOU GO

• What: Denton City Council meeting•  When: today, with work session at 2:30 p.m., followed by regular meeting at 6:30 p.m.• Where: City Hall, 215 E. McKinney St.• Details: The agenda includes a possible vote on a plan to change the city's fees on the natural gas industry. The fee proposal is listed on the council's "consent agenda," meaning residents who want to speak on the item must come to the afternoon work session and fill out a "request to speak" card. The council may ask questions about the proposal during the work session, but the vote would come during the evening meeting.

The city's planning department, which proposed the higher fees as part of an ongoing overhaul of Denton's gas drilling ordinance, had said the fees were based on the city's costs in processing permits and inspecting wells. The consultant's review, performed over five months, found the city overestimated the work involved with most of the fees, according to a city staff report prepared for today's meeting.

A proposal by city staff members based on the consultant's review would reduce nine of the fees and eliminate two others - for fracturing ponds and compressor facilities - found to be redundant.

The proposal would reinstate a fee for annual inspections of gas wells in the city's extraterritorial jurisdiction, or ETJ - land just outside a city where it has some limited powers. A fee package approved in July included a $1,800 annual inspection and administration fee for ETJ wells, but the council later revoked the fee for more study.

The city is now proposing a $580 annual fee for ETJ wells, based on the consultant's cost-of-service analysis. The annual inspection fee for in-city wells would fall from $3,200 to $850 per well, a 73 percent decline.

City planning and development director Mark Cunningham, in a written report to the council, said city staff members had only two to three weeks to analyze the fees before the council approved them last summer. The consultant's review was more in-depth and included consultations with other cities and the Denton employees involved with permits and inspections, Cunningham said.

Industry representatives argued the annual inspection fee was too high for what the city had authority to inspect, considering that the primary authority to regulate the industry lies with the Texas Railroad Commission. They also challenged the idea of an annual inspection fee, saying drilling sites don't change much after the initial phases when wells are drilled and production equipment is installed.

City leaders said they based the fees on what they thought it would cost to provide the inspections necessary to ensure drillers were following city rules. Before the fee increases, taxpayers had to absorb much of the inspection costs, they said.

The city's 2010-11 budget earmarked $420,593 for a new gas well inspection program, which included the hiring of a manager, two field inspectors and an administrative assistant. City officials said the program would essentially pay for itself through industry fees.

Denton resident Cathy McMullen, who was active in pushing for stronger drilling regulations, said she found it hard to reconcile city officials' past statements with the current proposal.

"If we didn't have the gas wells we wouldn't need the [extra] personnel, so to me the fees are justified," McMullen said. "I don't understand how you can go from saying the city is losing money [through inspection costs not covered by fees] and then this consulting company is coming in and taking these fees away."

Darren Groth, who started in April as the city's gas well manager, said the September budget projection did not include revenue from annual inspections of ETJ wells. Total fee revenue would still pay for the inspection program if the council approves the new fee for those wells, he said.

"It may help us grow the division, actually, if those were adopted, because we would be doing more inspections than anticipated," Groth said.

Denton is located above the Barnett Shale, a natural gas field that spans more than a dozen counties in North Central Texas. Denton has 237 gas wells inside the city limits and 1,150 in its extraterritorial jurisdiction, according to the city.

LOWELL BROWN can be reached at 940-566-6882. His e-mail address is lmbrown@dentonrc.com .


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