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Pennsylvania Governor Unveils Well Impact Fee

Pennsylvania Gov. Tom Corbett is heeding the advice of his Marcellus Shale Advisory Commission (MSAC) by proposing an impact fee, enhanced safety provisions and incentives to increase natural gas consumption.

Corbett unveiled his proposed legislative package following a tour of a construction training center outside Pittsburgh on Monday, drawing a connection between natural gas development and economic benefits.

"We are going to do this safely and we're going to do it right, because energy equals jobs," Corbett said.

The centerpiece of the package would allow counties to charge a $40,000 fee on each well in its first year, declining to $30,000 in its second year, $20,000 in its third year and $10,000 through its tenth year, raising as much as $120 million this year and nearly $200 million within six years. "As the number of wells grows, so will the revenue," Corbett said. "Almost all of the money it brings in will go to benefit the places experiencing the impact."

Counties and municipalities that host the drilling would keep 75% of the revenue. Of that 75%, counties would get 36%, while municipalities with drilling activity would get 37% and 27% would go to other municipalities in the county.

That money could be used for repairing public infrastructure, enhancing emergency preparedness and beefing up the budgets of other shale-related programs for the environment, health, social services and local government planning.

Of the remaining 25% of revenue, a majority -- 70% -- would go to road, bridge and rail repairs. The Pennsylvania Department of Environmental Protection would get 10.5% in a restricted account for plugging old gas wells and enforcing existing laws. The Pennsylvania Public Utility Commission would get 7.5% for pipeline safety inspections. The remaining 12% would go to the Pennsylvania Emergency Management Agency, the Office of State Fire Commissioner, the Department of Health for education and investigation of shale-related health complaints.

While those basic provisions mirror an impact fee proposed by Senate President Pro Tempore Joe Scarnati, the Corbett proposal is unique in that it allows counties to offer credits up to 30% for drillers that make investments in natural gas infrastructure, including fueling stations and public transit vehicles (see Shale Daily, June 15).

And the revenues enjoyed by Pennsylvania could continue to grow if the impact fee goes into effect. According to NGI's Shale Daily Unconventional Rig Count, drilling activity in the Marcellus has increased 23% over the last year, jumping from 136 rigs actively drilling for oil and gas to 167 rigs for the week ending Sept. 30, 2011.

Corbett also plans to increase natural gas usage by developing "Green Corridors" with refueling stations every 50 miles, allowing vehicles that run on both natural gas and diesel to qualify for existing credits, helping to convert public bus fleets to run on natural gas and promoting natural gas for power generation and petrochemical byproducts.

The package also includes several safety and enforcement provisions recommended by the MSAC.

The legislation would increase the current 200-foot setback to 500 feet from private water wells and 1,000 feet from public water systems. It would also increase the setback from streams, creeks and rivers to 300 feet, from 100 feet.

It would also increase well bonding to $10,000, from $2,000, and blanket well bonds to $250,000, from $25,000.

Currently, operators are presumed to be liable for impaired water quality within 1,000 feet of a well for six months after completion, but the proposed changes would up that to 2,500 feet and 12 months. The package would also double penalties for civil violations to $50,000, from $25,000, and daily penalties to $2,000, from $1,000.

The plan is "out of step with the majority of Pennsylvanians from every region of the state who want a robust and comprehensive drilling tax and stringent safeguards," according to Citizens for Pennsylvania's Future CEO Jan Jarrett. "The proposed impact fee is too small, full of loopholes, unwieldy to administer, and leaves too much money on the table. It also fails to address the serious need our citizens and communities face in these hard economic times, and allows the drillers to pay very little in return for the massive profits they make from Pennsylvania's resources."

The Marcellus Shale Coalition (MSC) welcomed the governor's comments Monday. "The governor's plan -- and its foundation that 'energy equals jobs' -- reminds us that the most significant and long-term benefits of clean-burning natural gas will be achieved only through competitive policies that allow the industry to flourish in the Commonwealth and relentlessly protect our shared environment," said MSC President Kathryn Klaber.

She noted that the MSC will review the details of the proposal and expects to remain engaged with policymakers and other stakeholders in the weeks and months ahead.

Corbett on Monday only outlined his priorities and said he plans to submit legislation "in the near future."

The Pennsylvania General Assembly is currently considering more than 15 impact fee and severance tax proposals and some "would generate far more than the governor's plan would for local and state impacts, and offer a better deal for Pennsylvanians," according to Sharon Ward, director of the Pennsylvania Budget and Policy Center.

Of the 96 recommendations the MSAC included in its 137-page report released this past summer, Corbett estimated that 50 can be handled by the existing authority granted to state agencies and would not require new legislation (see Shale Daily, July 25). He asked his cabinet for implementation plans for those recommendations within 30 days.

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