Pennsylvania Set to Let Counties Put Fees on Natural-Gas Wells
February 10, 2012, 1:04 PM ESTBy Romy Varghese
Feb. 8 (Bloomberg) -- Pennsylvania lawmakers passed a bill to let counties levy fees on natural-gas wells, which the state estimates may generate about $211 million in revenue this year.
Proceeds, based on gas prices, would mostly go to communities affected by drilling in Marcellus Shale deposits, under a bill approved 101-90 today by the House of Representatives, the last legislative hurdle for the measure. Governor Tom Corbett has said he would sign it.
Lawmakers in Harrisburg took the step as several states consider ways to mitigate the effects of hydraulic fracturing, the shale-gas extraction method known as fracking. In Ohio, a fee on drillers that use the technique is under review, while Maryland is evaluating levies. Pennsylvania also faces revenue falling 3.5 percent short of budget estimates this fiscal year.
“The benefits of this growing industry are reaching every corner of our state and we are determined to see this industry produce new jobs and increased savings,” Corbett, a first-term Republican, said yesterday after the Senate passed the bill. His party controls both legislative houses.
Pennsylvania, the only major U.S. natural-gas producer that doesn’t seek extraction taxes from drilling companies, has more natural-gas reserves in the Marcellus Shale formation than any other state. Some revenue from fees over 15 years on so-called nonconventional wells, which use fracking, would go to environmental needs. The technique uses water mixed with chemicals and sand that is pumped deep into shale layers.
Balanced Measure
The measure provides a compromise that meets the needs of communities without overburdening the industry, Senate President Pro Tempore Joe Scarnati, a Republican from Brockway, said yesterday. Municipalities can’t pass more stringent ordinances against drilling, and companies that run into barriers can sue or ask a state agency to review local rules.
The bill would let counties decide whether to demand the fee, and if they don’t, they could be overruled if half of their municipalities by population agree to seek the levies.
“It’s a woefully inadequate tax when Pennsylvania desperately needs the money,” said Representative Greg Vitali, a Haverford Democrat, in debate before the House vote. “It’s a giveaway to drillers,” he said, with the extraction levy pegged at an effective rate of 2.4 percent, lower than those in other states.
In its first year of production, a well would be assessed in a range of $40,000 to $60,000, based on gas prices, according to a committee report this week. With prices averaging about $2.74 per cubic foot in 2012, Pennsylvania would charge $45,000 for each well in its initial year, including existing wells.
If the average price falls below $2.25 per cubic foot, each well would be charged $40,000 to start. The fee would be levied at $60,000 if the average jumped to $6 per cubic foot. By the 11th year and until the end of the fee period, the levies would decrease to either $5,000 or $10,000 per well, based on prices.
--With assistance from Christine Buurma and Joe Carroll in New York, Mark Niquette in Columbus, Ohio, and Katarzyna Klimasinska in Washington. Editors: Ted Bunker, Stephen Merelman.
To contact the reporter on this story: Romy Varghese in Philadelphia at rvarghese8@bloomberg.net
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net
