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Pennsylvania Governor Sounds Off on Impact Fee, Ethane Cracker

Pennsylvania Gov. Tom Corbett defended the decision to enact an impact fee, rather than a severance tax, on oil and gas drilling, and he said there was nothing new to report on a proposed ethane cracker in the western part of the state.

Speaking at the start of the Keystone Energy Forum in Philadelphia on Friday, the Republican governor said the impact fee, which was created by Act 13, the state's omnibus Marcellus Shale law, was good public policy.

"Some in Harrisburg wanted us to do the usual thing: impose a tax on this new industry just as it was growing," Corbett said, according to prepared remarks sent to NGI's Shale Daily. "Instead of a tax, we enacted an impact fee, which assesses a realistic fee to cover drilling's impact on a community."

Last week the state Public Utility Commission said localities affected by oil and gas drilling in 2012 will collectively receive $102.7 million in impact fee revenue (see Shale Daily, June 14).

"This money is not falling into the 'black hole' of Harrisburg bureaucracy, either," the governor said. "The bulk of it is going to the counties, all counties, for local improvements and for investment in public safety. This money is going straight to the communities affected.

"At the state level, it has also allowed us to increase funding for conservation districts by 50%. We have put new money into our Growing Greener program for the first time in 10 years, and we have added money for environmental enforcement by the Department of Environmental Protection."

Pennsylvania has faced criticism over the decision to enact an impact fee instead of a severance tax. Last year, a nonpartisan policy research group asserted that a severance tax would have generated nearly double the revenue raised by the impact fee (see Shale Daily, Sept. 17, 2012). The Pennsylvania Independent Oil and Gas Association was also leery of an impact fee before Act 13's passage (see Shale Daily, Feb. 8, 2012).

But Corbett said the impact fee "is something that we got right" the first time.

"[We are] assessing reasonable fees that benefit people at the local level, while not slowing the economic progress being made through our shale gas industry," Corbett said. "But we need to keep on doing this the right way."

According to the Washington, DC-based Resources for the Future's Center for Energy Economics and Policy, the national average for severance taxes is about 11 cents/Mcf (see Shale Daily, Aug. 9, 2012). West Virginia, a mid-range volume producer, charges 12.3 cents/Mcf, which equates to a 5% severance tax.

Corbett also spoke briefly about plans by a subsidiary of Royal Dutch Shell plc to build a "world scale" ethane cracker in western Pennsylvania, which the governor estimated would cost $4 billion to build.

Shell Chemical LP has signed an option to purchase 300 acres near Monaca, presumably for a major petrochemical complex that would include a cracker, and is conducting due diligence activities (see Shale Daily, April 30). A deal was originally scheduled to be concluded by the end of 2012, but Shell was granted a six-month extension last December (see Shale Daily, Dec. 28, 2012; March 16, 2012).

"We have an agreement in principle, but words on paper are not shovels in the ground," Corbett said.

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