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Former Pennsylvania Governor Blasts Natgas Industry

The Pennsylvania governor who led the state through the first years of the Marcellus Shale boom said the natural gas industry has "screwed up so badly" that it brought a tide of negative public opinion on itself.

"This industry, frankly, has been a great disappointment to me," former Gov. Ed Rendell said at the Shale Gas Insight 2011 conference in Philadelphia Wednesday. The conference was hosted by the Marcellus Shale Coalition (MSC).

Rendell said he continues to support shale development, even going so far as to ask New York Gov. Andrew Cuomo to lift a moratorium on development, but he said the industry "screwed up" by not offering to pay a natural gas severance tax, by not incorporating in Pennsylvania and by amassing a history of violating state environmental standards (even if, he said, those violations aren't as severe as critics claim).

Despite the applause following his speech, the message did not go over well with the gas industry.

"The former's governor's attempt to rehash issues that have long been resolved is stale and outdated," MSC President Kathryn Klaber said Thursday, in her introduction to the second day of the conference.

While Rendell said he opposed a severance tax in the early days of the shale boom, he eventually supported a proposal that passed the state House but later died in the state Senate (see Shale Daily, Oct. 22). A tough economy put a hole in the Pennsylvania budget, and to avoid raising taxes lawmakers cut many services (see Shale Daily, June 30). Those impacted by the cuts now blame the industry, Rendell said.

"The fact that the shale companies do not pay a severance tax has become well known by virtually every advocacy group in the Commonwealth, and it is the whipping boy for those groups," he said (see Shale Daily, Sept. 2).

Current Gov. Tom Corbett opposes a severance tax, saying the industry already pays its share through existing state and local taxes, including a high corporate income tax in Pennsylvania. Instead, he favors a fee to cover only certain impacts of development (see Shale Daily, Aug. 16; April 27).

The natural gas industry has proposed a severance tax, but the industry's measure has failed to gain traction in the Pennsylvania General Assembly. On several occasions, Corbett has said that willingness of the industry to pay a tax came with a catch: that Pennsylvania must, in return, allow for forced pooling.

But Rendell noted that because many of the largest operators in Pennsylvania are incorporated in Delaware they avoid paying the corporate net income tax in Pennsylvania (see Shale Daily, May 5).

The state would stand to collect significant revenues if a severance tax was added, especially as Pennsylvania's production has skyrocketed over the last decade. From 2000 through 2010, natural gas production has increased by more than 300% from 0.39 Bcf/d to 1.67 Bcf/d, according to data from the Pennsylvania Department of Environmental Protection.  

Rendell said the public also turned on the industry because of a record of environmental problems. He cited a 2010 report from the Pennsylvania Land Trust Association that listed 1,614 violations in Pennsylvania between January 2008 and August 2010. He also cited reports about operators and treatment facilities not properly disposing of drilling fluids, an issue that the industry appears to have resolved voluntarily alongside the Pennsylvania Department of Environmental Protection (see Shale Daily, May 20).

"Look, no one wants you to not make profits," Rendell said. "No one wants you to not have a robust return on investment...but you can't kill the golden goose. Some of that money has to be sliced off."

Rendell said "storm clouds" appeared on the horizon as far back as his administration in the form of drillers that "ignored" safety and environmental standards. Speaking before an industry conference in his final year in office in 2010, "I delivered a message: The only way the golden goose could be killed was by the industry itself and that the industry needed to take steps to make sure that that didn't happen," Rendell said. The industry didn't listen to that message, though, Rendell said.

Rendell said the industry could regain public trust by offering to pay a severance tax and switching Delaware incorporation to Pennsylvania, working with the state to train and hire local workers (citing Chesapeake Energy Corp. as a model) and establishing a "best practices institute." "If you followed that guideline, there's be no more [anti-drilling films such as] 'Gasland.' There'd be some protesters, but the protesters would diminish and dwindle in number. And the golden goose would grow fatter and fatter and fatter."

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