Governor Unveils County Drilling Fee, Other Marcellus Shale Proposals

Gov. Tom Corbett today said he agrees with 94 of the 96 recommendations made by his Marcellus Shale Advisory Commission and will be recommending legislation authorizing counties to adopt a drilling fee whose revenue would be split between the state (25 percent) and local governments (75 percent) to offset costs imposed by natural gas development.

The recommendations not adopted by the Governor include: forced pooling, re-writing the authority of local governments to regulate drilling linked to a drilling fee and adding natural gas to Tier II of the Alternative Energy Portfolio Standards.

The Governor's Office did not release legislative language or mention which recommendations would be adopted by legislation, regulation or policy. However, he said about one-third require legislative changes; more than 50 are policy-oriented and can be accomplished within the state agencies.

The legislative priorities outlined today will be submitted to the legislative leadership in the near future. The governor has instructed the relevant Cabinet Secretaries to create implementation plans for the policy-oriented recommendations and to submit them to his office within 30 days.

“This natural resource will fuel our generating plants, heat our homes and power our state’s economic engine for generations to come,” Corbett said. “This growing industry will also provide new career opportunities that will give our children a reason to stay here in Pennsylvania. We are going to do this safely and we’re going to do it right, because energy equals jobs.”

County Drilling Fee

Under the Governor's drilling fee proposal, each of the 39 counties with Marcellus or Utica natural gas shales are authorized to adopt a per well drilling fee of up to $40,000 per well the first year, decreasing to at most $10,000 per well in four years.

A county may provide for a fee credit of up to 30 percent if the driller makes approved investments in natural gas infrastructure, which include setting up natural gas fueling stations or natural gas public transit vehicles.

“Estimates show that this impact fee will bring in about $120 million in the first year, climbing to nearly $200 million within six years,” Corbett said. “As the number of wells grows, so will the revenue. Almost all of the money it brings in will go to benefit the places experiencing the impact.”

A quarter of the fee revenues would be sent to state government for several specific uses:

-- 4.5 percent-- up to $2 million-- to the PA Emergency Management Agency for emergency response planning, training and coordination;

-- 3.75 percent-- up to $2 million-- to the Office of State Fire Commissioner to develop and support first responder activities;

-- 3.75 percent-- up to $2 million-- to the Department of Health for collecting and disseminating information and supporting outreach activities for investigating health complaints related to shale gas development;

-- 7.5 percent-- up to $2 million-- to the Public Utility Commission for inspection and enforcement of pipelines;

-- 10.5 percent-- up to $10 million-- to plug abandoned oil and gas wells and provide for the enforcement of oil and gas programs requirements; and

-- 70 percent and an balance remaining to PennDOT for road and bridge maintenance and repair and transportation infrastructure improvements in counties hosting shale gas development.
Seventy-five percent of the revenues would be retained at the local level and allocated to counties (36 percent), host municipalities (37 percent) and 27 percent to municipalities in shale counties distributed by population and highway miles.

Local governments could use the funding for road and bridge repair, water, stormwater and drinking water systems, reclaiming surface and subsurface water supplies, GIS and other information technology, project to increase the availability of housing to low income residents, delivery of social services including domestic relations, drug and alcohol treatment, job training and counseling, court system costs and conservation districts inspection and oversight of natural gas development.

Other Recommendations

As a part of this proposal, Corbett announced a series of prudent 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, and 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; and

-- Doubling daily penalties from $1,000 a day to $2,000 a day.

Corbett’s proposal also seeks to help secure energy independence and reduce reliance on foreign oil by developing “Green Corridors” for natural gas vehicles with refueling stations at least every 50 miles and within two miles of key highways; by amending the PA Clean Vehicles Program to include “bi-fuel” vehicles (diesel and natural gas); by helping schools and mass transit systems to convert fleets to natural gas vehicles; by stabilizing electric prices by using natural gas for generating electricity; and by encouraging the development of markets for natural gas and natural gas byproducts, such as within the plastics and petrochemical industries.

A summary of the Governor's proposal is available online. Visit the Marcellus Shale Advisory Commission webpage for a complete copy of the July report.