Thursday, October 6, 2011

Analysis: Will We Get A Chevy Or A Pinto Out Of The Upcoming Marcellus Shale Debate?

With the announcement of Gov. Corbett's proposals this week to set tougher environmental standards for Marcellus Shale drilling operations and a county-adopted well drilling fee, the debate is now fully joined with all sides saying they want final legislation on the Governor's desk by the time the House and Senate adjourns on December 14.
The Governor said he agreed with his Marcellus Shale Advisory Commission that fundamental changes were needed to better protect the environment from drilling. Among them--
-- 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.
These are changes members of the House and Senate have been proposing and discussing for the last three or four years, so the debate here will probably not be quite as contentious as the debate over the drilling fee.
Drilling Fees
The Governor's drilling fee proposal would have county commissioners in each of the 39 counties with Marcellus and Utica natural gas shales determine whether or not to adopt a fee, the amount of the fee (up to $40,000 per well the first year) and how 75 percent of the fee revenues will be spent.
The proposal raises a lot of questions that hopefully will be answered when the actual legislative language becomes available and the debate starts in the General Assembly.

1. Should There Be a Single, Simple Uniform Drilling Fee in Pennsylvania?
Industry, Gov. Corbett and many others in other contexts have argued the Marcellus Shale industry needs uniform enforcement of regulations and standards across the state to prevent a patchwork of rules, conflicting interpretations and convoluted actions.
Every one of the dozen or so other drilling fee or tax proposals sponsored by Republicans and Democrats over the last three years have all established a single, uniform tax or fee. This proposal does not.
There is absolutely no doubt the Governor's proposal will lead to a patchwork of a dozen-- or 39-- different levels of fees, exclusions and spending plans. Many counties in-fact may decline to adopt any fees at all, including potentially the counties with the most drilling activity.
The County Commissioners Association of PA Thursday expressed "strong reservations" about the counties adopting the fee because of the inconsistencies it would create and the duplication of fee administration among the 39 counties involved.
Lobbying by industry in each of the 39 counties where they provide significant job opportunities and economic benefits and having townships and boroughs dependent on county commissioners for funding sets up an interesting political dynamic for the three county commissioners serving each of these counties.

2. Should a Marcellus Shale Drilling Fee Generate a Predictable Stream of Revenue?
Leaving the decision on whether or not to adopt a fee and in what amounts to each of the 39 Marcellus Shale counties means there is no way to reliably estimate the revenue this proposal would generate, if any, for counties or the state agencies that would depend on this funding.
It could be zero or it could be $195 million as the Governor estimates in six years, but there will be no way to tell for some time as counties consider a fee over 6 or 12 or 18 months or never after this proposal is signed into law.

3. Should DEP's Oil and Gas Regulatory Program Depend on County-Adopted Fees?
Part of the proposal would give the Department of Environmental Protection 10.5 percent-- up to or $10 million-- of the county-adopted fees to fund its Oil and Gas Regulatory Program and to plug abandoned oil and gas wells.
Right now DEP's regulatory program-- permit reviews, inspections and enforcement-- is funded by permit application fees which were raised significantly to expand the program to meet the demands of Marcellus well drilling.
To fund an expansion of the program, and every indication is it will have to be expanded soon, DEP would have to hope a sufficient number of counties adopt a well fee in a significant amount so they have the funds to regulate the industry if they rely on the county fees for the expansion.
No other state environmental programs, or any other state programs period, rely on the uncertainty of whether counties or local governments will adopt fees and send them in to support them.

4. Should a Drilling Fee Support Statewide Environmental Restoration Programs?
The proposal would allocate no funding for the award-winning, community-based Growing Greener Program or any other statewide environmental restoration programs.
The proposal would allow counties, if they adopt the fee, to spend monies on wastewater, stormwater and drinking water systems and reclaiming surface and subsurface water supplies.
Although the proposal would also help fund state abandoned oil and gas wells plugging efforts, the proposal does nothing to address the most significant threats to water quality in Pennsylvania-- reclaiming abandoned mines and helping farmers reduce nutrient runoff, according to DEP.
A Quinnipiac University poll in May found an overwhelming 87 percent of those surveyed supported dedicating a significant portion of a Marcellus tax to conservation programs to protect land, water and wildlife. This is an unheard of level of public support.

5. Should a Drilling Fee Support County Conservation Districts?
The proposal would allow counties, if they adopt the fee in a significant enough amount, to provide funding to conservation districts for inspection and oversight of natural gas development.
The only problem is DEP, during the Rendell Administration, took away the authority for conservation districts to inspect, provide oversight and review permits related to natural gas development. Counties have consistently opposed this action by DEP.
One recommendation in the Marcellus Commission report does hint at possible changes, but only "under DEP guidance and consistent with applicable permit conditions." Nothing was mentioned in the outline of Gov. Corbett's proposal so far would make any changes in the role of the conservation districts.
Here's the language from the report:
9.1.17: Develop and provide planning tools and educational opportunities relating to unconventional natural gas development to counties; require proper notice of permit applications with an opportunity to comment (similar to notice for host and adjoining municipalities); and, under DEP guidance and consistent with applicable permit conditions, allow for County Conservation Districts to engage in inspections of erosion and sedimentation controls at unconventional well sites, if they choose to do so. (page 105)

6. Does Anyone Care if a Fee Or Tax is Imposed on Marcellus Drilling?
Gov. Corbett made a pledge during his campaign not to raise taxes. A frequent arbitrator of whether a political figure is keeping a no-tax pledge is Grover Norquist, an un-elected, anti-government, Washington D.C.-based lobbyist.
Norquist was quoted this week as saying the Governor's county fee proposal meets his no tax increase pledge because counties would impose the fee and it would not be implemented statewide.
The question is, does anyone else care? quoted Sen. Joe Scarnati (R-Jefferson), who has sponsored his own drilling fee proposal as saying, "he does not work for Norquist or his policy guidelines: I work for the taxpayers of the 25th District....that was my understanding after the last election. I will continue to work to represent them in Harrisburg."
Sen. Scarnati tangled with Norquist in May when his own proposal-- Senate Bill 1100-- was introduced. He said Norquist was spreading inaccurate information about his drilling fee.
But what does the public say?
Just last week a Quinnipiac University poll found 64 percent of voters supported a Marcellus Shale drilling fee. In September a Franklin & Marshall Poll found 65 percent of adults in Pennsylvania support a tax/fee on Marcellus Shale drilling. In August a Quinnipiac University poll found 63 percent of voters support a drilling tax. In May a Quinnipiac University poll found 69 percent supported a drilling tax. In March a Franklin & Marshall Poll found 62 percent of voters support a Marcellus Shale tax. In March a Susquehanna Polling survey found 70 percent of those polled supported a drilling tax. In January a Susquehanna Polling survey found 63 percent support a tax on natural gas drilling.
In March 2010, a Quinnipiac University poll found 49 percent of those surveyed said they support a Marcellus Shale drilling tax.
You get the idea.
The public overwhelmingly supports a tax or fee and that support has been increasing in numbers that are only rarely, if ever, is seen in opinion polls.
Apparently, the public-- voters-- don't care. They want it.
Unfortunately, Grover Norquist doesn't.

The answers to these and other questions will determine whether we get a Marcellus Shale drilling fee program that is a Pinto or a Chevy (no one is expecting a Cadillac).
Will fees on the trillion dollar Marcellus Shale natural gas industry give real support to communities and state and local environmental restoration programs or not?
Whatever is decided by the General Assembly and the Governor before December 14, we will likely be stuck with for years, maybe decades, because no one will want to tackle the fee issue again anytime soon.
After all, it's only been eight years since the first Marcellus Shale well was drilled in Pennsylvania and our "modern" Oil and Gas Act was passed in 1984.
Everyone keeps saying we need to do things right with Marcellus Shale.
It's even more true with a drilling fee.

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