Breaking down Corbett's drilling fee proposal

Posted on October 4, 2011 

On Monday, Gov. Tom Corbett made a long-awaited announcement giving his blessing to allowing Pennsylvania's counties impose an impact fee on Marcellus Shale drillers.

The fee would let counties charge $40,000 per well in the first year, $30,000 in the
second year, $20,000 in the third year and $10,000 in the fourth through tenth
years, adding up to a potential total of $160,000 per well.

The impact fee revenues will be split, with 75 percent being retained at the local
level and 25 percent of the fee divided among state agencies.

Of the local money, 36 percent would got to the county, 37 percent would be distributed to municipalities with actual drilling and 27 percent would be distributed to all the municipalities within a Marcellus drilling impacted county.

Of the state-appointed funds:

  • 70 percent would head to PennDOT for road, bridge, rail and other transportation infrastructure maintenance and repair within counties hosting Marcellus natural gas development.
  • 4.5 percent would be dedicated to the Pennsylvania Emergency Management Agency for emergency response planning and training.
  • 3.75 percent would flow to the Office of State Fire Commissioner for training programs for first responders and for specialized equipment necessary for emergency response.
  • 3.75 percent will go to the Department of Health for collecting and disseminating information, and for health care and citizen provider outreach and education, and for investigating health complaints and other activities associated with shale development.
  • 7.5 percent to the Public Utility Commission to enhance pipeline safety and increase inspections.
  • 10.5 percent to a restricted account at the Department of Environmental Protection to be used for plugging abandoned and unused gas wells, plus other natural gas related regulation and enforcement.
As part of the proposal, Corbett also hopes to raise environmental standards related
to unconventional drilling, including:

  • Increasing the well setback distance from private water wells from the current 200 feet to 500 feet, and to 1,000 feet from public water systems.
  • Increasing the setback distance for wells near streams, rivers, ponds and other bodies of water from 100 feet to 300 feet.
  • Increasing well bonding from $2,000 up to $10,000.
  • Increasing blanket well bonds from $25,000 up to $250,000.
  • Expanding an unconventional gas operator’s “presumed liability” for impairing water quality from 1,000 feet to 2,500 feet from a gas well
  • Extending the duration of presumed liability from 6 months after well completion to 12 months.
  • Enabling DEP to take quicker action to revoke or withhold permits for operators who consistently violate rules.
  • Doubling penalties for civil violations from $25,000 to $50,000.
  • Doubling daily penalties from $1,000 a day to $2,000 a day.
The plan would collect an estimated $120 million in the first year, climbing to $195 million within six years.

According to the Associated Press, Range Resources spokesman Matt Pitzarella spoke in favor of the proposal.

"At first glance this is a competitive model and certainly one that adequately accounts for impacts," he said.

While Pitzarella's company has been publicly supportive of a tax, many other gas companies have tacitly acknowledged the eventuality of a driller's tax in Pennsylvania. Some may see Corbett's bill as the arrival of that long-expected day, and might even breathe at least a slight sigh of relief that the tax isn't more onerous and that the newly proposed environmental regulations aren't as strong as some environmental groups, like PennFuture, would have liked to have seen.

"The proposed impact fee is too small, full of loopholes, unwieldy to administer, and leaves too much money on the table," said PennFuture's president Jan Jarrett, according a press release.

Jarrett also criticized the plan for failing to fund the Growing Greener program.

"A more robust, comprehensive, and fair drilling tax would provide enough money to protect our environment, now and in the future, and would mean every Pennsylvanian would benefit from the use of our shared resources," she said.

A group of Democrats, who have proposed their own legislation, lambasted Corbett's plan for not charging enough and not pushing environmental regulations to be even tighter. Their ProtectPA bill would charge producers 30 cents per 1,000 cubic feet of gas severed at wellhead with an adjustment upwards if gas prices rise more than five percent annually. The bill would raise an estimated $483 million in its first year and could rise after that.

Under the Democrats' plan, announced Friday,

  • 75 percent of fee revenue to drilling counties and communities for road and bridge repair, social services, affordable housing projects, emergency response, public water projects and more.
  • 25 percent of fee revenue to state agencies for gas pipeline inspection, road and bridge repair, health studies, emergency response and well-drilling inspection.
But with their diminished power in Harrisburg, Democrats may have little choice but to accept Corbett's plan. Many see the current environmental regulations as unacceptably lax and may take the impact fee money, even though it's less than they wanted, as a bonus of bringing the numbers for setbacks, well bonding and penalties up to a more tolerable level.

A third plan, announced Monday by Rep. Gene DiGirolamo, R-Bucks, and Rep. Tom Murt, R-Montgomery/Philadelphia, would institute a wellhead gas tax at 4.9 percent. The tax is expected to raise $362 million its first year, rising to $562 by its fifth year. It would divvy up the proceeds this way:

  • 28 percent to local governments
  • 28 percent to environmental programs
  • 44 percent to state government
It's interesting to see a plan coming from Republicans outside the Marcellus fairway that calls for a larger share of gas tax revenue benefiting state government rather than local communities affected by drilling.

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