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Pennsylvania Committee Changes Marcellus Well Impact Fee

Hoping to more accurately address the cost of development on local communities, a Pennsylvania Senate committee made major changes to a proposed impact fee on Marcellus Shale wells on Tuesday.

The new bill would impose a $40,000 fee per well during the first year of production, up from $10,000 per well. However, while the original fee proposed in May by Senate President Pro Tempore Joe Scarnati would have fluctuated annually based on both the volume and price of natural gas, the new fee decreases for each of the first four years of production and disappears entirely after 10 years (see Shale Daily, June 13; April 29).

Committee Co-Chair Mary Jo White, a Republican from western Pennsylvania, said she changed the fee structure because she believes the long-term impacts of development will benefit the state but local communities need help now managing rapid growth. "For this reason the fee is not based on the volume or the price of the gas. It is a per-well fee that declines over time as the impacts should decline over time," she said.

The Pennsylvania General Assembly is in a bind because polls show public support for a severance tax and local communities are clamoring for state aide, but Gov. Tom Corbett refuses to sign any tax increase. White said the bill now bridges that gap by "tailoring" the fee to the specific negative impacts of development.

The amended bill approved by the state Senate Environmental Resources and Energy Committee exempts "marginal" wells from the fee and eliminates the fee if the state ultimately approves a severance tax.

The bill also changes how the state can spend money raised from the fee. It directs $1 million per year to the State Fire Commissioner, creates a housing credit program, limits funding for several environmental initiatives and encourages operators to use acid mine drainage instead of fresh water for drilling and hydraulic fracturing.

While the amended bill passed the committee unanimously, almost every member listed procedural reasons for supporting the bill while pointing out flaws that would need to be addressed before a final vote.

Co-chair John Yudichak, a Democrat from northeastern Pennsylvania, called the changes a step in the right direction, but said that the final bill would need to generate more revenue and do a better job distributing that revenue across the state, saying that his own tax proposal -- Senate Bill 905 -- does a better job on both fronts.

Yudichak also called plans to add a model ordinance to the bill, guiding how local communities can use zoning codes to regulate development, a "fatal flaw" that would draw opposition from both sides of the aisle.

While impacts are highest in communities where drilling occurs, State Sen. Andrew Dinniman, a Philadelphia-area Democrat, said the final bill must also address impacts in southeast Pennsylvania by adding measures to protect the Delaware River watershed and to enhance safety of transmission pipelines.

"As it's situated now, the most populous area of the state, with about 40% of the population, we feel, isn't getting that to a proper degree," Dinniman said, also noting his tax proposal, Senate Bill 352.

The fee moves as yet another poll finds support for both drilling and a drilling tax (see Shale Daily, March 18; Jan. 18; Dec. 28, 2010).

A Quinnipiac University poll released Tuesday found that 63% of Pennsylvania voters believe the economic benefits of natural gas drilling in the Marcellus outweigh the environmental impacts, with strong support among both men and women, Democrats and Republicans and people living in all major regions of the state.

The poll also found that 69% of the public supports a severance tax as a way to help the state balance its budget, the same level of support reported in a Quinnipiac poll from late April. The poll found that 24% of the public opposes the tax, up from 22% in the April poll, as previously undecided respondents took sides.

While 59% of Republicans support a tax, the figures top 60% for all other groups and in every region.