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Pennsylvania's Impact Fee Bill: 'Not Perfect, But...'

As Pennsylvania prepares to put in place a unique mega-law (HB 1950) to regulate and tax its blockbuster baby, the Marcellus Shale, nobody thinks it's perfect, but most are prepared to live with it and work to improve it.

Various stakeholder factions took the pragmatic view that while they didn't get everything they wanted, they got the best they could get, which is the mark of good legislation. Mainly, it was the purely political who continued to rant and spew misinformation.

The Chesapeake Bay Foundation (CBF), dedicated to cleaning up the bay's watershed, which includes a large part of Pennsylvania, has come out in strong support of the impact fee bill, commending its environmental provisions.

"HB1950 represents a tremendous step forward for the Commonwealth in managing current and future drilling operations in the Marcellus Shale formation," the group said in a statement signed by Matthew J. Ehrhart, the foundation's Pennsylvania executive director. "We are encouraged by the attention paid to increased environmental protections."

Specifically, the bill would provide: protective setbacks from wells, public drinking supplies, structures, streams, and wetlands more than one acre; post-construction management plans; floodplain protections; water management plans; erosion and sediment inspections before drilling can begin; best management practices for chemical storage; standards for drill-site containment practices; clear authorization to the Department of Environmental Protection for the management and oversight of wells; and increased fines and bonding.

The compromise package passed by the Commonwealth legislature last week is "not perfect," the group said, but it will continue to work for "a more inclusive definition of water and water bodies; required disclosure of fracking chemicals for all drilling operations, not only unconventional wells; and requiring complete public disclosure of waste water manifesting."

The Pennsylvania Environmental Council echoed those sentiments, saying "the enemy of the perfect is the good, and while this legislation is not perfect, the people of Pennsylvania are better served by passage of this bill now than to wait another year or longer for something stronger." Many noted that it took more than three years of wrangling to get to this point.

Pennsylvania's local government group also is on board. "The bill includes provisions counties have sought, including meaningful revenues and a meaningful local share, a workable levy and administrative mechanism, the distribution formula we have sought, allowable uses that meet the broad and divergent needs of impacted counties and their municipalities, additional funding to counties from state shares to provide for bridge repair and replacement and for greenways, and allocation of funding proceeds statewide to conservation districts and some environmental programs," the County Commissioners Association of Pennsylvania stated.

It is estimated the measure will add about $200 million to state and local coffers this year, more in succeeding years. Each horizontal unconventional natural gas well may contribute fees over 15 years that total between $190,000 and $355,000, according to a sliding scale that decreases year by year and is based on the New York Mercantile Exchange natural gas futures price at the Henry Hub (see Shale DailyFeb. 8). It is a per-well fee and not a volumetric fee. Stripper wells are excluded and vertical shale wells pay no more than 25% of the fee paid by horizontal shale wells with a time limit of 10 years.

The "not perfect, but" refrain cropped up in a statement by Marcellus Shale Coalition (MSC) president Kathryn Z. Klaber. "The legislation, while not perfect, provides the industry greater certainty to operate across Pennsylvania and takes a balanced approach to further strengthening the Commonwealth's forward-leaning health, environmental, and safety regulations, incorporating many of the recommendations of the Marcellus Shale Advisory Commission -- a broad-based group of interests across industry, government, and the conservation community.

"Without question, it will further increase costs, in terms of both time and resources, at a time of historically low natural gas prices, which will affect decisions made into the future."

Lou D'Amico, president of the Pennsylvania Independent Oil and Gas Association (PIOGA), also was concerned about the economic burden. "Overall, our position is: we don't really care for this bill, but this is probably the least impact, financially, we're going to get."

The producers are pleased that the bill would restrict the ability of local governments to individually regulate development, which could create a nightmare web of rules and regulations. The measure, however, does provide for greater setbacks the locals lobbied for and allows for individual actions by local governments in line with statewide rules and approved by the state public utility commission.

A few are not at all satisfied. Jan Jarrett, CEO of Citizens for Pennsylvania's Future (PennFuture), said, "The bill adopts one of the nation's lowest extraction fees, weakens environmental protections over drinking water and our streams and wetlands, confers special stature on the drillers over other businesses in Pennsylvania, and destroys local rights to use zoning ordinances to manage drilling and withholds funds from any municipality that attempts to use those rights."

In the meantime state taxing experts across the country likely will be analyzing how Pennsylvania's experiment in a cooperative local/state tax code for a resource industry plays out. The "fee" to be collected by the Commonwealth's public utilities commission will be doled out 60% to counties and municipal governments that host wells to pay for the "impact" in their communities, and 40% to the state to be used for environmental, recreational and infrastructure programs.

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