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Hanger: Marcellus Growth Prompted Changes at DEP

Energy regulators must operate independently of both industry and environmental groups, led only by facts and the rule of law, said Pennsylvania Department of Environmental Protection (DEP) Secretary John Hanger, who leaves office this month after a tenure of more than two years during which activity in the state's Marcellus Shale mushroomed.

"When regulators do their jobs well in any industry, they're neither the friend nor the foe of the regulated community; they're not the partner of the regulated community and it's not their job, frankly, to be popular with the regulated community or with environmental groups or outside groups," Hanger told NGI's Shale Daily. "It's their job to actually implement decisions based on the facts and on the law. That's what we've been doing in Pennsylvania for two years and four months since I've been there.

"I think the best proof of that is that over that period of time we've made decisions that have pleased pretty much everybody at one time or another and we've made decisions that have pretty much displeased everybody at one time or another. We've followed the facts and tightened the rules because those rules were inadequate to the new Marcellus industry."

Pennsylvania Gov.-elect Tom Corbett, who is scheduled to be inaugurated in Harrisburg on Tuesday, has already named Michael Krancer, a judge on the state's Environmental Hearing Board, to succeed Hanger (see Shale Daily, Jan. 13). Corbett also announced appointments to fill two other DEP positions and tapped Patrick Henderson, a state Senate aide, as the state's first Energy Executive.

"I think the new team is able and I wish it all the best as they go forward," Hanger said. But the explosive growth of the state's Marcellus Shale industry will require Corbett and his DEP team to hit the ground running. "There's more work to be done, that's for sure."

The incoming Republican governor and the state's General Assembly, which will have Republican majorities in both chambers, must pass a reasonable tax on natural gas drilling, according to Hanger.

"The industry is not paying a drilling tax here. It's the only place in North America where they're not paying a drilling tax. That's going to continue to be a major cause of public criticism of the industry and attack on the industry, the absence of a reasonable tax. I don't believe that's a vision that's sustainable."

Pennsylvania is facing a projected $4 billion revenue shortfall, and newspapers in the state, including the Philadelphia Daily News, Johnstown's Tribune-Democrat and State College's Centre Daily Times have published editorials calling on Corbett to implement a severance tax on drilling to help fill the revenue gap. A recent survey of Pennsylvania residents found that 67% of respondents would support a severance tax on natural gas drilling companies in the state, while just 29% said they oppose such a tax (see Shale Daily, Dec. 28, 2010). During his campaign, Corbett pledged not to raise any taxes; after the election he said a natural gas tax in Pennsylvania isn't likely, though he will "look at what the legislature proposes."

"Gov. Corbett is soon going to be the only governor in the country who has not endorsed a tax," Hanger said. "The public in Pennsylvania are overwhelmingly in favor of a drilling tax. The longer that issue is allowed to fester, the more harm it does to the industry."

In addition, the amount of bonding that must be posted to plug a well at the end of its life "is scandalously low" and must be changed, he said.

Since outgoing Democratic Gov. Ed Rendell appointed him DEP secretary in 2008, Hanger, a former CEO of Citizens for Pennsylvania's Future (PennFuture) and a former member of the Pennsylvania Public Utility Commission, has frequently been at odds with the natural gas industry. But DEP's major accomplishment during his tenure -- successfully getting the state's shale gas production underway -- was of major benefit to the industry, he said.

"The industry now has over 6,500 [drilling] permits. We've got over 2,500 gas wells drilled, and Pennsylvania's on the way to being a top five gas-producing state. It'll probably soon be producing as much as 2 Tcf [per year] of gas."

But other accomplishments -- enacting strong rules dealing with well design and construction and the implementation of wastewater treatment rules, which apply to gas drillers in the Marcellus Shale, were not as industry-friendly (see Daily GPI, Aug. 26, 2010).

The new DEP team will find a gas industry oversight staff that has nearly doubled in size since 2008, Hanger said.

"Strong rules on paper don't mean anything if they're not followed or enforced. We've also insisted that our staff in fact enforce our rules in an appropriate manner and a reasonable manner. But it's also critical that regulatory staff be told that they are professional, independent watchdogs. It's not their job to rubber stamp decisions, but it's not their job to be prosecutorial, either. They must be professional and independent watchdogs of this industry."

Amid speculation that he might take a position with an energy company or return to the environmental arena, Hanger would say only that he plans to spend the next few weeks resting "and sorting through some opportunities and figuring out where I go."

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