Feb. 10 story updated to reflect the fact that Gov. Corbett signed the legislation Feb. 13.
After several years of lawmaker wrangling, a bill that establishes an impact fee on gas extracted from unconventional, horizontally drilled or hydraulically fractured wells was signed Feb. 13 by Pennsylvania Gov. Tom Corbett.
The broad, 174-page legislation limits the ability of local jurisdictions to regulate oil and gas activity and also updates the state's Oil and Gas Act for the first time since Marcellus drilling began transforming the state's gas industry nearly a decade ago.
A tax on gas production has fueled contention since it was proposed by Democratic Gov. Ed Rendell in February 2009.
Proponents pointed out that Pennsylvania was the only major gas-producing state without a severance tax. But Corbett, a Republican who was elected in 2010 on a pledge of no new taxes, insisted that a severance-tax-like levy be framed as an "impact fee."
As written into the bill, the impact fee, to be levied at the discretion of each county, would be pegged to the price of gas and would range in a well's first year from $40,000 per well for gas below $2.25 per thousand cubic feet, or mcf, to $60,000/well for gas above $6/mcf, declining annually.
The current price of under $3 would set a fee of $50,000.
Fees would amount to $190,000 to $355,000 per well over 15 years, according to estimates appearing in the state's media outlets, at the end of which period they would decline to nothing.
The state would collect the fees and would distribute them by a formula among numerous agencies and programs; state media report about 40 percent going to the state, 20 percent to counties that adopt the fee and 40 percent to municipalities within those counties.
At the same time, in a controversial measure sought by the industry as a concession for accepting the impact fee, counties and municipalities would be prohibited from imposing their own regulations on gas operations that are stricter than those imposed on other industries.
Local governments across Pennsylvania have been active over the past year in establishing ordinances that regulate gas industry activity according to local preferences.
Some state Democrats criticized the fee, which they said amounts to less than 2 percent of value of gas extracted, as much lower than severance tax rates in other states and too low to offset industry impacts on localities. West Virginia's severance tax is 5 percent of the value of gas plus 4.7 cents/mcf.
The state estimated in a memo sent to lawmakers that the levy would generate $220 million in 2012 plus $191 million in retroactive fees for production in 2011. For comparison, a drilling tax ticker on the website of the Pennsylvania Center for Budget and Policy says "Drilling Tax Delay Costs Pennsylvania" and calculates $307.6 million as of Feb. 14, counting from October 2009, using West Virginia's rate.
Environmental groups decried both the inadequacy of the fee and the removal of local control, characterizing the local ordinance measure as a "takeover" of municipalities.
"Through provisions contained in the bill, municipalities will no longer be able to play a central, critical role in protecting the health, safety, and welfare of residents and determining which uses of land are most beneficial," reads a media release from Clean Water Action and other environmental groups.
However, the bill was supported by the County Commissioners Association and the Association of Township Supervisors.
Updates to the broader Oil and Gas Act include some recommendations Corbett's Marcellus Shale Advisory Commission issued in July.
It increases bonding amounts and widens setbacks from homes and waterways. It requires more thorough notification to landowners, more comprehensive measures against spills and disclosure of fracturing fluid additives.
The Canonsburg, Pa.-based Marcellus Shale Coalition offered a mixed message.
"The legislation, while not perfect, provides the industry greater certainty to operate across Pennsylvania and takes a balanced approach to further strengthening the Commonwealth's forward-leaning health, environmental, and safety regulations," said MSC President Kathryn Klaber in a media release.
"Without question," Klaber added more negatively, "it will further increase costs, in terms of both time and resources, at a time of historically low natural gas prices, which will affect decisions made into the future."
The text of the bill approved by the House of Representatives and sent to Corbett's desk may be found here.
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