Why would one of Pennsylvania’s largest natural gas producers suddenly switch from selling all non-Pennsylvania assets to purchasing a $3.3 billion Houston company that operates exclusively in Louisiana?
Range Resources, which in 2004 drilled the first commercial horizontal well in Pennsylvania’s Marcellus Shale, plans to purchase Memorial Resource Development partly because of regulatory hurdles in Pennsylvania and other Northeastern states.
Energy companies are trying to cope with constant calls for higher taxes, new methane emissions standards, a dramatic overhaul of drilling regulations, and pipeline delays. At the same time, the region is experiencing a severe and prolonged drop in natural gas prices.
The Dallas Morning News reports:
“The U.S. gas market is Balkanized," said Subash Chandra, an analyst with Guggenheim Securities. "And the Appalachian Basin is becoming increasingly isolated."
Pipeline projects in Pennsylvania and New England running into regulatory issues over the past year include Northeast Energy Direct, Constitution, Rover and PennEast. In some cases, the delay could be a matter of months; for others, longer.
Keeping the natural gas from getting to market in the Northeast makes retail prices bounce around more and can contribute to shortages in an unusually cold winter. And it pushes some producers to the sidelines for a while.
“A couple of the producers with the best cost of production in North America are sitting on their hands for a couple of years," Miller said.
In Pennsylvania, the industry has shed thousands of jobs, and the number of drilling rigs operating in the state is at 2007 (pre-boom) levels. The paper continues:
But in the meantime, the Range purchase of Memorial means Range will have options. It can push development in Louisiana while waiting for more congenial conditions in Pennsylvania.
Reporting on the transaction, Forbes says, “[P]ipeline bottlenecks in the northeast have gotten so bad that Range has been realizing sale prices 66% below market.”
Before punishing the natural gas industry with a severance tax or regulations of questionable value, Pennsylvania politicians should consider congeniality—or common sense.
Unfortunately, a lack of it seems already to have driven one company to invest $3 billion in Louisiana instead of in Pennsylvania.
More than ten years after its passage, Pennsylvania's Alternative Energy Portfolio Standards continue to stunt our economy. The standards cost the state $4 billion annually, according to a study by the Institute of Political Economy at Utah State University.
Researchers reviewed renewable portfolio standards in all states and found the law reduced Pennsylvanians' personal incomes by almost $20 billion from 2004 through 2009.
Data beyond 2009 is still forthcoming, but if the trend continues, alternative energy standards will have cost Pennsylvanians almost $50 billion to date. That's not too far off from the state's pension debt.
So what do these figures mean for each household in Pennsylvania? A loss of $10,000 in purchasing power. That's an enormous cost to bear for such a small benefit.
A recent Tribune Review article highlighting the study aptly notes this isn't an indictment of renewable energy but a reality check.
As technology advances, renewable energy will become cheaper and markets will shift to renewables as a matter of course. Mandating the shift before the technology is ready simply wastes our resources.
Up until this point, government efforts to transition to a clean energy economy have been costly and unsuccessful. Ultimately, it will be entrepreneurship, not government planning, that will make clean energy affordable and reliable for all.
What is the natural gas industry's "fair share" of taxes? The answer depends on the calendar year.
An analysis from the Independent Fiscal Office (IFO) finds the current "impact fee" is effectively a 5.5 percent severance tax due to a 16-year-low in natural gas prices. In other words, the natural gas industry is already paying a higher tax rate than what the Governor Wolf proposed in 2014.
As a reminder, Governor Wolf called for a 5 percent severance tax during his campaign to replace the impact fee and "put Pennsylvania in line with other natural gas producing states." Of course, many of those states do not have individual income taxes, corporate income taxes or death taxes.
Natural gas prices continued to fall in 2015, so Governor Wolf redefined "fair share" by adding a price floor. Under this policy, natural gas companies pay taxes on gas at $2.97 per Mcf (thousand cubic feet), even though the actual price of natural gas was below that number . . . and still is.
According to testimony by the IFO, Wolf's original plan would establish an effective 17.3 percent severance tax rate in 2016, by far the highest rate in the nation.
Now the Governor is redefining fair share once again by proposing a severance tax of 6.5 percent to collect an estimated $218 million in revenue. For context, that's about four times higher than Ohio's natural gas severance tax and higher than neighboring West Virginia's 5 percent severance tax.
On top of a severance tax proposal, the administration is formulating new natural gas drilling regulations and adding methane emission requirements. The cost of these rules is not yet known.
If the governor and lawmakers want Pennsylvania’s tax rates to reflect other energy producing states, they should cut the impact fee or eliminate other state taxes.
In a historic move, the US Supreme Court stayed the EPA's Clean Power Plan, otherwise known as Obama's energy tax or stealth cap and trade. The court’s actions halt implementation until legal challenges (brought by 25 states) play out. That means there is no deadline to submit a state plan. In fact it would be foolish for a state to expend the resources to develop and submit a state plan without knowing if the regulation will survive.
But that hasn't stopped the Wolf administration from moving full steam ahead. According to the governor's spokesman, “Pennsylvania will continue planning and engagement with stakeholders on the Clean Power Plan, pending final decision of this issue by the Supreme Court.”
Department of Environmental Protection Secretary John Quigley plans to complete work on Pennsylvania's plan and present it to the legislature by Memorial Day. That's before the Supreme Court will even hear oral arguments.
The EPA's plan to regulate coal out of the economy should be especially concerning to coal-heavy Pennsylvania. The regulations are estimated to increase electricity prices in the state by an average of 14 percent a year, according to the American Coalition for Clean Coal Electricity.
The national cost of the EPA plan has been estimated to be between $29 billion and $39 billion annually — with virtually no effect on global temperatures.
The administration has defended its choice to move forward with planning as a way to give certainty to businesses, but the Supreme Court's actions make that point moot. The only thing certain is states will be waiting months and even years to know the fate of Obama's energy tax.
A new analysis from NERA Economic Consulting projects Pennsylvania electricity bills will increase between 10 and 19 percent from 2022 to 2033—a consequence of a U.S. Environmental Protection Agency (EPA) plan to reduce carbon emissions. In fact, all 47 states covered by the EPA's "Clean Power Plan" would experience rate increases, including double-digit hikes in 41 states.
The Clean Power Plan is really Cap and Trade in disguise with an enormous price tag. NERA estimates the plan's annual cost to be between $29 billion and $39 billion. The Institute for Energy Research (IER) notes it’s at least,
three times greater than the cost of EPA’s (proposed) Mercury and Air Toxics rule, to which the U.S. Supreme Court stated: ‘It is not rational…to impose billions of dollars in economic cost in return for a few dollars in … benefits'.
What’s the benefit of this costly regulation? IER explains:
Carbon dioxide emissions will decline by less than 1 percent and global temperatures by less than 0.02 degrees Celsius by 2100. Policymakers should know that this costliest of electric power regulations actually achieves meaningless progress towards the goal that EPA uses to justify it.
As we’ve pointed out here, the plan is an extension of the Obama administration’s “War on Coal” that threatens at least 13,000 good-paying jobs in Pennsylvania and thousands more throughout the nation’s energy sector.
In a piece entitled “Obama’s Appalachian Tragedy,” the Wall Street Journal reports,
Since 2009, 332 coal mines in West Virginia have been closed, and 9,733 jobs—roughly 35% of the industry’s total employment in the state—have been lost.
With such a high price tag and thousands of jobs at stake Pennsylvania shouldn’t rush to complete a state plan this spring but rather take the two year extension granted by the EPA.
180 workers in CONSOL Energy’s coal division recently lost their jobs. Now, Pennsylvania’s legislature may be the only thing standing between the Obama administration and complete destruction of the state’s coal industry.
This week, President Obama announced finalized regulations to cut carbon emissions to a level that would practically ban the burning of coal for electricity—spiking utility costs and eliminating the jobs many Pennsylvanians count on.To comply with the regulations, states must submit a Clean Power Plan to the U.S. Environmental Protection Agency. Last year, foreseeing the dangers in a draft version of the regulations, Pennsylvania’s Republican legislature and governor passed a law requiring legislative approval before the state sends any plan to the EPA.
Presumably, this law would prevent Democrat Governor Tom Wolf from unilaterally submitting a plan that would harm Pennsylvanians. To date, Pennsylvania’s leadership has inspired 14 other states to introduce similar legislative oversight proposals.
Pennsylvania will use this as an opportunity to write a plan that could improve public health, address climate change, and improve our economy and power system.
If Wolf’s plan mirrors the EPA’s proposed rules, it will do none of these things.
In fact, a computer model estimates the regulations would reduce global temperature by a minuscule 0.018 degrees Celsius by 2100 — a reduction that would hardly influence climate and health.
And according to an Energy Ventures Analysis report, the regulations would increase combined annual gas and electricity bills in Pennsylvania by more than $1,000, or 46 percent, by 2020 compared to 2012. Industrial power rates alone would rise by 62 percent.
Nationally, the United Mine Workers of America estimates the regulations will suction $208 billion from coal communities over the next 20 years, while the North American Reliability Corporation predicts a dangerously less reliable power grid with “the potential for wide-scale, uncontrolled outages.”
As a Wall Street Journal op-ed notes, however, the regulations will fail without the cooperation of the states, and six governors have already decided cooperating is not in their citizens’ interests.
If Pennsylvania’s governor does not have the good sense to follow suit, the legislature must act. Sacrificing an industry that supplies 40 percent of the state’s electricity, contributes more than $4 billion to the economy and, most importantly, provides good paying job, is simply too high a price to pay.
Throughout this state budget debate, Gov. Wolf has touted his natural gas severance tax to fund education. And some reporters refer to the severance tax as the "cornerstone" or "centerpiece" of his plan.
Except it isn't. The severance tax makes up a slim portion of Gov. Wolf’s proposed tax increases. In fact, his plan to tax health care and day care would raise more revenue than slapping an additional tax on the natural gas industry.
He never talks about his sales tax proposals—probably because they are so unpopular. His entire tax plan couldn't garner one single vote in the House. It failed 0-193. Yet, he hasn't said whether he is still demanding a $4.6 billion tax increase.
Even if Gov. Wolf has dropped the majority of his massive tax hikes, that’s no reason to accept a new severance tax. As Dawn pointed out yesterday, the severance tax is bad for all energy consumers, no matter your income level.
As lawmakers work on passing a state budget, one of Gov. Wolf's top priorities—a severance tax on the natural gas industry—is being hotly debated.
Here are six reasons why a natural gas severance tax is a bad idea:
- Middle class families and businesses will pay for it. Households earning less than $100,000 will pay $180 million more annually in higher utility bills as a result of Gov. Wolf's proposal.
- Jobs would be lost. According to a recent analysis, a proposed severance tax, with no other tax changes, would result in 4,138 fewer private sector jobs in fiscal year 2017.
- We already have a severance tax. It's called an impact fee, but it hampers the economy like a severance tax.
- Gas companies already pay every single tax that businesses in Pennsylvania are required to pay. A severance tax would unfairly punish one type of industry in Pennsylvania to provide funding for legislative interests that have nothing to do with natural gas.
- Any claims of the gas industry needing to pay their "fair share" are bogus. Gas drillers paid more than $800 million in impact fee taxes from 2011 to 2014 and $318 million in other state taxes since 2009. If these amounts don't constitute a “fair share,” what does?
- Punishing the gas industry with higher taxes punishes workers. Private sector labor leaders have bemoaned the reduction in man hours already under way. According to the vice president of the Laborers’ International Union of North America, "If you excessively tax the shale industry, you risk hurting employers, workers and communities across the state."
In the end, a severance tax would hurt the very people Governor Wolf claims he is trying to help.
Gov. Wolf proposed a natural gas extraction tax on Pennsylvania’s oil and gas industry to make drillers pay what union special interests dub their "fair share."
In testimony to the Pennsylvania Senate Environmental Resources Energy Committee and Finance Committee, CF's Nate Benefield explained the harmful impact the severance tax would bring to not just the oil and gas companies, but to all Pennsylvanians.
The Independent Fiscal Office projects that Pennsylvania families earning less than $100,000—who already shoulder some of the highest taxes in the country—would have to shell out an additional $180 million, largely through higher energy bills, because of the severance tax.
Rather than helping the middle class, the natural gas extraction tax would make their burden heavier.
Benefield notes that the industry paid more than $600 million in impact fee taxes from 2011 to 2013 and $318 million in other state taxes since 2009. Imposing an additional tax would have a detrimental impact on job growth. According to a STAMP model developed by the Beacon Hill Institute at Suffolk University, this severance tax would result in Pennsylvania having 4,000 fewer private sector jobs by 2017.
An Independent Fiscal Office testimony, also delivered yesterday found the effective tax rate under Gov. Wolf’s proposal would be 17.3 percent in the first year, given current prices. This would give Pennsylvania the highest severance tax rate—on top of existing taxes—among all states. It would give gas and oil companies less incentive to invest their resources in Pennsylvania, a problem for a state whose drilling industry currently ranks 56th out of 156 possible locations.
From labor unions to local chambers of commerce, community leaders are expressing a lot of anxiety over Governor Wolf's natural gas severance tax proposal.
The proposed tax “is a Wyoming County economy killer,” says Gina Severcool Suydam, executive director of the county’s chamber of commerce, in a letter to the Scranton Times Tribune.
Ms. Suydam attributes to the gas industry impressive economic gains in the county between 2007-2012:
- 29 percent in average weekly wages — from $700 to $904.
- 148 percent in average weekly wages in the natural resources and mining industry — from $642 to $1,594.
- 134 percent in annual payroll — from $273 million to $639 million.
The biggest threat to the industry now is the proposed severance tax, says Ms. Suydam. It would be a serious additional cost burden in maintaining the competitiveness of Pennsylvania gas, consuming any advantage our producers currently have over gas from other areas.
Then there is Dennis Martire, vice president and Mid-Atlantic regional manager of the 40,000-member Laborers’ International Union of North America, who is quoted in a recent news release:
We already have seen a reduction in pipeline man-hours over the past two years related to falling gas prices,” reports Mr. Martire. If you excessively tax the shale industry, you risk hurting employers, workers and communities across the state.
Adding a tax to the current economic struggles of a promising industry would be ill advised. Or as Speaker of the House Mike Turzai (R-Allegheny) says:
The governor’s approach on a severance tax is punitive in nature and threatens to severely hurt hard-working Pennsylvania laborers, negatively impact family-sustaining jobs and shut down production and downstream benefits for all Pennsylvanians.
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