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Pennsylvania Impact Fee Bill Sent to Governor

After more than three years, Pennsylvania lawmakers have passed an impact fee on gas drilling. The bill awaits Gov. Tom Corbett's signature.

By a vote of 101-90 on Wednesday afternoon, the Republican-led Pennsylvania House of Representatives passed House Bill 1950, updating drilling regulations in the home of the Marcellus Shale for the first time in nearly 30 years. The Republican-led state Senate approved the bill by a 31-19 vote Tuesday (see Shale Daily, Feb. 8). Corbett has indicated he will sign the bill.

HB 1950 would allow counties to impose an annual fee on unconventional gas wells at a rate tied to gas prices and adjusted annually for inflation. The fee could generate around $180 million in its first year by charging between $40,000 and $60,000 per well. Although the rate would decline in later years according to a set schedule, the tax is expected to raise more each year as drilling increases.

The bill effectively balances the need for state and local revenue, regulatory certainty for industry and environmental safeguards, according to Senate President Pro Tempore Joe Scarnati, a central Pennsylvania Republican and for the past year a driving force behind the impact fee legislation.

"The Marcellus Shale industry is here to stay in Pennsylvania -- bringing us jobs, huge economic benefits and the potential for energy independence," Scarnati said. "It makes sense to impose a reasonable impact fee on the industry to provide the funding necessary to further protect our natural resources, particularly at a time when our state is being forced to stretch our tax dollars."

But state Sen. John Yudichak, a Democrat from northeastern Pennsylvania and a dissenting member on the conference committee that drew up the final legislation, called HB 1950 "the art of maybe."

"Maybe a fee is imposed by counties, maybe jobs will be created, maybe environmental regulations will be enforced to protect our environment. Maybe," he said. "Pennsylvanians deserve better than maybe when it comes to an opportunity to breathe clean air and drink clean water."

In particular, Yudichak scoffed at the idea of counties where drilling occurs choosing whether to impose a fee administered by the state, calling the approach unique among industries in Pennsylvania. With only 40% of the proceeds from the fee going to the state coffers and 60% to counties and municipalities directly impacted, that provision limits state revenue, he said. Additionally, he noted that his home county of Luzerne, in shale country but without any operating wells, would not get a share of the county pie despite hosting pipelines and compressor stations.

The bill would give counties the authority to opt-out of the fee, but that decision could be overruled by a majority of the municipalities within that county. Only counties that participate in the fee would get to collect revenue from it. Of the money designated for local governments -- 60% of the total revenue collected -- 37% would go to municipalities that host drilling, 36% would go to counties that host drilling and 27% would go nonhosting municipalities in host counties.

"There's been some good done in this bill, although in some cases I think we could go a little further when it comes to setbacks and protecting our water resources," Yudichak said.

As a child of northeastern Pennsylvania's anthracite coal country, Yudichak said he is "well aware of the consequences of not having proper regulations in place for an extraction industry. We lived with the mistakes and the environmental degradation for years... I hope, through this legislation, we are not setting up future Pennsylvanians to pay for the mistakes of this industry."

Taking a much harsher tone, Citizens for Pennsylvania's Future (PennFuture) CEO Jan Jarrett called HB 1950 "a crippling blow to the solar plexus of our communities and our environment."

"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," Jarrett said, referring to a provision that prevents local governments from regulating drilling more stringently than state regulations, and allows operators to call for a review of pending local drilling ordinances.

The Pittsburgh city council, which previously took the legally questionable approach of banning drilling entirely, passed a resolution on Tuesday opposing those provisions in the legislation.

However, the Chesapeake Bay Foundation (CBF) called HB 1950 "the only option we have to increase protections to the environment and our communities" and asked lawmakers to pass it. "We are encouraged by the attention paid to increased environmental protections," said CBF's Pennsylvania Executive Director Matthew Ehrhart, pointing to setbacks, management plans and best management practices, as well as funds for statewide environmental programs.

The CBF, though, believes future legislation should include stricter protections for water and require companies to disclosure of chemicals used for all wells and to track wastewater.

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."

State Rep. Jesse White, a Democrat from southwestern Pennsylvania and the founder of the Marcellus Municipal Cooperative, compared HB 1950 to the sale of Manhattan for $24 in trinkets. Pointing to Range Resources Corp., one of the most active companies in his district, White said, "How can you cry about how hard it is to operate over the same period of time your stock price doubled?"

White believes the bill is "loaded with goodies for the industry," pointing to a provision that he claims would subsidize temporary housing for out-of-state workers at the expense of local hotels.

Numerous legislators -- especially Democrats and lawmakers from southeastern Pennsylvania, the most populous region of the state and also the only region that doesn't overlie the Marcellus Shale -- called for the House to vote against the bill in order to get a higher rate, stricter regulations or more local control. However, many also called for a compromise, saying that stalling would further delay the flow or revenue and the implementation of shale-specific regulations.

State Rep. Glen Grell, a Republican from the Harrisburg area, said he originally opposed the legislation, but changed his mind after reading the entire 174-page bill during the many hours of debate. Others were more hard lined.

"I say, unequivocally: let's kill this bill," said state Rep. Camille George, a central Pennsylvania Democrat.

But House Majority Leader Mike Turzai, a Republican from southwestern Pennsylvania, disagreed. "Either you are for a common sense, balanced approach to the development of the natural gas discovery, or you are just always 'no.' You don't get to have it both ways," he said.

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