What a shock! A gas exploration company says it is reevaluating plans to drill for natural gas in Southwestern Pennsylvania because of Gov. Wolf’s proposed severance tax, reports TribLive.
Paul Burke, vice president and general counsel of Huntley & Huntley Energy Exploration, is quoted by the website: “We have to invest serious capital in our business. We want to see what’s going on in this commonwealth before we invest.”
The company made its concerns known in a letter to Harmar Township, saying it was withdrawing a subsurface lease offer for approximately 90 acres of township-owned land. The company had proposed a payment of $3,500 an acre, plus a 15 percent royalty.
Harmar township's supervisor, Bob Exler, expressed his disappointment: “It’s big money for a small township. It was something I thought would be a windfall for us, and I’m sad they canceled.”
We can only guess at the loss of jobs, taxes and associated business, not to mention the other drillers who may be reversing plans without publicly saying so.
Meanwhile, numerous companies across the state have announced reductions in investment and employment because of excess supply and resulting decreases in energy prices. Among them are Chevron Corp., Range Resources, Antero Resources, Rex Energy, PennEnergy Resources, Cabot Oil & Gas Corp. and Universal Well Services. Tax uncertainty could even jeapodize the building of a Shell petrochemical plant in Beaver County.
While the cutbacks are considered by many to be temporary, they belie statements of proponents for additional taxes on the industry that insist companies won't leave Pennsylvania's rich natural gas desposits.
The current business climate for the industry underscores that energy companies have risks as well as rewards to consider. Just as other businesses, they should not be treated as money trees to be picked by politicians with budget gaps to fill.
The stories continue: more jobs, increased tax revenue and cheap energy, all from the free-market production of Marcellus Shale gas.
Take last week's report from the Central Pennsylvania Business Journal: A study commissioned by Sunoco Logistics says two of its pipeline projects will produce more than 30,000 jobs across Pennsylvania, including as many as 400 permanent positions once the project is complete. The projects are also projected to generate $23 million in personal income tax and contribute $4.2 billion to the state’s economy.
The pipeline project is just one isolated example:
- Dura-Bond’s Steelton plant “plans to add 150 jobs after being awarded a contract to produce $400 million worth of pipeline for the 540-mile Atlantic Coast Pipeline in West Virginia, Virginia and North Carolina,” according to PennLive. The work at the Dauphin County facility is expected to extend through March 2017.
- Sunoco Logistics’ Marcus Hook Industrial Complex — an 800-acre energy hub for the processing, storage and export of natural gas products — continues to expand and add jobs as Delaware County officials work to identify additional business opportunities for it, reports the Philadelphia Inquirer. Sunoco Logistics’ pipelines serve the complex.
- New Jersey’s largest gas and electric utility will decrease the typical residential gas bill by 31 percent in February and March, according to NorthJersey.com. Public Service Electric & Gas “has repeatedly cut the cost of gas to its lowest rate in 14 years as a result of low-cost gas from the Marcellus Shale formation in Pennsylvania and surrounding states,” the website said.
A new tax on Marcellus Shale drilling could put at risk these jobs and countless future projects. The economic benefits from a revived natural gas industry are impressive. Marcellus Shale counties saw more than double the employment growth of non-Marcellus counties last year. While government programs continue to hand out individual grants and loans, they can't compare to the industry's track record of improving employment for entire counties with zero cost to taxpayers. Government programs simply pale in comparison to the revitalization spurred by natural gas.
Policymakers made significant strides over the past legislative session to increase school choice, save taxpayers from waste and abuse in unemployment compensation, and protect students. While critical reforms remain, it's worth celebrating these policy victories from the past legislative session.
Six Policy Victories in the 2013-2014 Legislative Session
1. Banned the practice of "passing the trash." Act 168 of 2014 prevents teachers accused of abuse from quietly resigning and relocating to a new school without having to inform that new school of their alleged misconduct. The law also strengthens the background check process and prohibits school districts from entering into "confidentiality agreements" that suppress abuse allegations. Commonwealth Foundation supported ending this disturbing practice while government unions took a neutral position.
2. Reduced the state debt ceiling. In 2013, lawmakers reduced the total amount of debt allowed under RACP (Redevelopment Assistance Capital Program) by $600 million. Act 77 of 2013 also provides greater accountability, oversight and transparency regarding how RACP grants are awarded.
RACP uses borrowed money—paid back by taxpayers with interest—for "economic development" projects, or corporate welfare. We’ve regularly exposed the most controversial uses of RACP funds, such as the Arlen Specter Library, Tastykake's corporate headquarters, numerous sports stadiums, and a $3 million grant to the Second Mile, the charity founded by convicted child molester Jerry Sandusky. An effort to further reduce the RACP debt limit to $2.95 billion passed the state House in 2014, but stalled in the Senate.
3. Strengthened school choice for children and their parents. Lawmakers consolidated the Education Improvement Tax Credit (EITC) and Opportunity Scholarship Tax Credit (OSTC) into one statute, while simplifying and streamlining the application process. This also allows unused credits to be shifted from one scholarship program to another. Thanks to Act 194 of 2014, more credits will be utilized and thousands more scholarships can serve as a lifeline to students trapped in failing schools. Commonwealth Foundation has consistently pushed for greater school choice options, including the creation of the OSTC.
4. Reformed taxes for small businesses and more. Lawmakers enacted some tax reform last session with Act 52 of 2013. Lawmakers increased the Net Operating Loss (NOL) Cap, created a new deduction for small start-up businesses, and exempted family-owned businesses from the inheritance tax. While Commonwealth Foundation has advocated for broad-based tax reform, these measures are a step in the right direction towards lessening the tax burden on job creators.
5. Protected jobs for Pennsylvanians in the energy field. New EPA regulations require expensive, unproven technologies that would kill jobs and bankrupt companies. Commonwealth Foundation has documented how destructive these new regulations are to existing PA jobs. Act 175 of 2014 preserves state control of the energy industry by allowing the state legislature to publicly reject a state carbon emissions plan.
6. Ended "triple-dipping" for government employees. Act 75 of 2013 stops former state employees from receiving both retirement and unemployment benefits. The law ends "triple-dipping," where an individual retires and collects a public pension or private retirement benefit and then temporarily returns to work, only to collect unemployment compensation when leaving the job. This one change will reap an estimated million dollars in savings this fiscal year.
Milestones of Note
Liquor Privatization Progress. Three Pennsylvania governors have attempted to privatize the liquor store system. In 2013, for the first time in state history, the PA House passed a bill that would end the government liquor store monopoly. Commonwealth Foundation has pushed for full liquor privatization by exposing the contradictory mission and gross carelessness of the PLCB. Lawmakers can build upon this historic accomplishment in the new session.
Awareness and Advocacy for Paycheck Protection. In 2014, thanks to lawmakers and teachers speaking out through CF's Free to Teach project, a version of paycheck protection passed committees in both the House and Senate. In the new session, lawmakers have a golden opportunity to finish what they started and pass paycheck protection, now known as Mary’s law.
Pension Reform Progress. Legislation to put new state employees and school teachers into a defined-contribution retirement plan (like a 401k) passed committees in both the state House and Senate. Government union leaders, defending the status quo, prevented these bills from coming up for a vote. For years the Commonwealth Foundation touted the merits of defined contribution retirement plans and warned about the impending crisis in public pensions—that crisis is now reality.
The war on coal will be a catastrophe for consumers, according to a new analysis of energy prices under new U.S. Environmental Protection Agency (EPA) regulations.
According to an Energy Ventures Analysis report, combined annual gas and electricity bills in Pennsylvania will increase by more than $1,000, or 46 percent by 2020 compared to 2012. Industrial power rates alone will increase by 62 percent.
The November report—"Energy Market Impacts of Recent Federal Regulations on the Electric Power Sector"—says that Pennsylvania is among five states that "would bear the greatest increases in annual residential power bills." The others are Texas, Mississippi, Maryland and Rhode Island.
Commissioned by Peabody Energy, a St. Louis-based coal company, the report calculates state-by-state effects of a number of EPA regulations, including the Clean Power Plan to reduce carbon dioxide emissions.
Nationally, gas and electricity costs for all customers will increase by $284 billion, or 60 percent, says Energy Ventures.
The increase will result "in large part due to an almost 135 percent increase in the wholesale price of natural gas" as EPA regulations force coal out of use and drive up the demand for gas, says the report.
Numerous business groups and politicians are objecting to the Clean Power Plan, including Pennsylvania’s Democratic senator, Bob Casey, who says that the proposed rule for CO2 emissions, "imposes a disproportionate and unfair burden on Pennsylvania." And the Supreme Court recently announced it will review the regulations in the spring.
Energy Ventures also takes into account the economic effect of rules recently implemented to regulate ozone and particulate matter, the interstate transport of air pollution, mercury, and haze in public parks.
"Our analysis is the first to fully examine the combined economic impacts of the EPA's long list of proposed and finalized regulations on the electric power industry," says Seth Schwartz, Energy Ventures president. The Clean Power Plan is based on flawed assumptions, he says.
From skyrocketing energy bills to killing green jobs to raising manufacturers' cost, the EPA’s actions are harming all Pennsylvanians.
Randy Walker’s Armstrong County farm has been in the family for three generations. On 72 acres they grow hay, corn, oats, and care for cattle. A few years ago, Randy leased his land to local energy firm EQT, which built three Marcellus Shale wells on his property. Randy receives damage payments for the acres that aren’t usable during drilling. "The payments aren’t much" he says, "but if I said no, no one would get the benefits."
The drilling site includes two lined ponds, one with fresh water and one with flowback water. "The water has to be at least two feet below the liner’s edge," Randy explains, "and the fence around the pits go eight inches into the ground. When all the wells are drilled they’ll take out the water, and put the dirt back...the well pad will cover less than two acres."
Randy has a good relationship with EQT. "They’ve been so easy to work with. They explained everything to me so I knew what was coming. They’ve been extremely honest...they took care of small problems quickly."
For example, the company couldn’t build a road to move in their equipment due to an existing pipeline that no one would claim. In the meantime, EQT asked permission to use a small farm road. Randy recalls the road being completely destroyed, "It was a quagmire of disaster." Eventually EQT rebuilt the road—a road they would never again use. In fact, Randy later asked EQT to add more gravel, and the same day they were out adding rock.
EQT also took care to protect the environment. "They did all kinds of water testing before and after drilling. I have cattle that drink from a spring just down the hill from the well pad, and we’ve had no problems."
Soon the crews will return and begin a fourth well.
Randy is grateful for the extra income. He notes there are fewer financial pressures, "Life is a lot easier now for my wife and me." Thanks to a leasing bonus and royalty payments, he was able to paint his barn and purchase a higher quality tractor. "There are over 600 acres in my pool. That’s a lot of people benefiting from drilling."
Drilling in rural Pennsylvania isn’t just benefiting landowners. Randy notes his amazement when he visited the drilling pad and saw his brother-in-law from Texas. "He just happened to be assigned to my drilling pad," he chuckles.
It’s not just out-of-staters who are finding work. Randy says he’s always running into locals working on his pad, from mechanics to construction workers. And he’s quick to point out that even the experts from Texas and Louisiana contribute to the local economy. During the construction of his well pad, workers booked rooms at a nearby hotel in Kittanning.
If a severance tax is enacted in Pennsylvania, Randy knows he’ll be the one paying the bill. "My royalties are based on my share of what the wells produce," he explains. "A tax at the wellhead taxes my share and the company’s share, but the companies will just pass that on."
In other words, it’s the landowners and consumers of natural gas heat or electricity that will bear the brunt of the tax. It’s a good reminder that people ultimately pay the taxes levied on corporations.
Randy concludes, "We could run our state economy on this boom if the government would let us. But with more taxes...I just don’t know how many wells won’t be drilled and jobs won’t happen."
State legislators who advocate for an expansion of government incentives for alternative energy sources need to pay attention to the events happening across the pond where the European Commission is abandoning country-by-country targets for greenhouse-gas emissions after 2020.
Mounting debt and surging rates from an over-reliance on renewable energy sources such as solar and wind prompted the commission’s action, reports the Wall Street Journal (paywall):
Take Spain, where financial incentives for renewable energy have driven renewables to as much as 25% of electricity generation. They have also left the country with a $41 billion gap between what energy costs to produce and what utilities can charge for power. Mariano Rajoy's government has been scrambling to scale back the subsidies and close the gap. These efforts have left in the lurch those who installed wind and solar on the promise of high fixed payments for their power.
In Germany, Angela Merkel is also seeking to push through cuts in wind and solar subsidies and to cap new installations of renewable capacity going forward. Germany's feed-in tariffs—which guarantee renewable-energy suppliers above-market prices for their power—have helped drive up retail power prices by 17% in the past four years while costing utilities and small businesses billions. Many of Germany's largest energy users are exempt from the green surcharges, a fact that the European Commission is currently investigating as a possible illegal subsidy.
Moreover, the Journal says, European companies are moving production to the U.S. where the shale gas boom is producing an advantage in energy costs—not to mention a reduction in carbon emissions as natural gas picks up more of the share of electricity generation.
As the Journal said in a separate piece:
“The innovation of the private oil and gas industry in extracting natural gas from shale has done more to reduce CO2 emissions than have all of the Obama Administration's subsidies, mandates and crony-capitalist schemes for renewable energy.”
Another benefit of the gas boom has been lower heating bills, which have remained moderate even during recent cold snaps.
All of which suggests that state Rep. Tommy Sankey (R-Clearfield) is on the right track with his bill to repeal Pennsylvania’s Alternative Energy Portfolio Standards.
The standards—adopted in 2004—require the state’s electric companies to obtain 15 percent of their energy from alternative sources by 2023. Europe’s experience is crystal clear evidence it’s time for government to stop picking energy winners and losers.
The prospects for Pennsylvania coal industry have gotten so bad that Tom Crooks has contemplated moving his company from the state to find greener pastures
Crooks is vice president of R.G. Johnson Co., a Washington, Pa.-based contractor that services the mining industry. "I came here to put a face on the industry," said Crooks, whose company employs 150 people. "We want to stay in Pennsylvania, but…"
As part of the Obama administration’s "War on Coal," the U.S. Environmental Protection Agency (EPA) is to propose carbon dioxide emission standards that could shut down as much as half of Pennsylvania's coal-fired electric generating plants. The agency also has proposed limits on new coal-fired plants that effectively will ban their construction, according to the Heritage Foundation.
Coal provides more than 40 percent of Pennsylvania’s electricity, supports nearly 42,000 jobs and contributes about $7 billion to the economy. The Heritage Foundation estimates that the state would lose more than 28,000 jobs by 2023 as a result of EPA's proposal. Nationally, the estimate is nearly 600,000 lost jobs.
The specter of economic damage drew sounds of alarm from a broad range of organizations represented at a Pennsylvania Department of Environmental Protection meeting.
Speakers said power plants that have invested billions of dollars into pollution-control equipment could be closed because of the new regulations. One such business is the Homer City Generating Station in Indiana County where $700 million is being spent to remove 100,000 tons of sulfur dioxide from the plant’s emissions every year, a reduction of 90 percent.
The Heritage Foundation recommends that Congress stop the EPA from regulating CO2 emissions—a reasoned approach that could save jobs for thousands of Pennsylvanians.
The natural gas boom spawned by free enterprise and new technology is doing more to help the poor than LIHEAP, a decades-old welfare program, according to the Wall Street Journal. At the same time the Journal reports that Germany’s so-called green energy programs are forcing consumers to pay well above market prices for electricity.
A study by Colorado-based energy broker Mercator Energy quantified savings produced by hydrofracturing and horizontal drilling techniques used in the Marcellus and shale deposits across the U.S.:
From 2003-08, shortly before the fracking revolution took hold, the price of natural gas averaged about $7.20 per million BTUs. By 2012 after new drilling operations exploded across the U.S.— from West Texas to Pennsylvania to North Dakota—the increase in natural gas production had slashed the price to $2.80 per million BTUs.
Thanks to the lower price for natural gas families saved roughly $32.5 billion in 2012. (That’s 7.4 billion MMBTUs of residential use of natural gas times the $4.40 reduction in price.) The windfall to all U.S. natural gas consumers -- industrial and residential—was closer to $110 billion.
The Mercator study notes low natural gas prices help low-income families the most because they spend a larger share of their income on energy. Despite energy subsidies:
" . . . lower natural gas prices have still shaved $10 billion a year from the utility bills of poor families."
By comparison, LIHEAP provided approximately $3.5 billion in home-heating subsidies to about nine million households in 2012, the Journal reports. That is only 35 percent of the benefit from lower gas prices.
Meanwhile, government green energy mandates have Germans paying the highest electricity prices in Europe, the Journal says:
This year, Germans will be forced to pay 20 billion euros ($26 billion) for electricity from solar, wind and biogas plants—electricity with a market price of just over 3 billion euros...In the near future, an average three-person household will spend about 90 euros a month for electricity. That’s about twice as much as in 2000.
Low-income Pennsylvanians are the biggest winners when politicians allow safe and affordable energy to be developed rathern than impose mandates designed to pad the pockets of green special interests.
President Obama and one of his cabinet members are making separate trips to Pennsylvania this week. Their reasons for visiting couldn't be more different.
Today, the President will speak on education and jobs at Lackawanna College in the heart of the Marcellus Shale boom, which has ushered in unprecedented job growth and lower utility rates for consumers across PA.
Gas production numbers continue to surge. Moreover, this renaissance is providing the educational opportunities President Obama can only talk about. George Stark of Cabot Oil & Gas explains how companies are not only hiring, but also helping to train workers at Lackawanna College in this op-ed.
A few hours south of the President's visit, Secretary of Health and Human Services Kathleen Sebelius traveled to Philadelphia to make another sales pitch for Obamacare yesterday.
Why does Sec. Sebelius need to travel the country to sell a law long on the books? Because the sad reality is Pennsylvanians are not seeing more affordable health care. Rather, spouses are being cut from some insurance plans, workers’ hours are being reduced and premiums are skyrocketing.
Instead of selling a failed policy, we need to truly make health care affordable by allowing more innovation and returning choice to patients.
The contrast between Marcellus Shale and the Affordable Care Act is just one more example of the failure of big government, compared with the success of free markets and entrepreneurs, in improving the lives of everyday Pennsylvanians.
The Delaware River Basin Commission (DRBC) continues to stymie development of the Marcellus Shale in all or parts of 13 Pennsylvania counties even as Governor Corbett, Senator Pat Toomey and property owners plea for an end to the commission's three-year moratorium on gas-well drilling.
Property owners had hoped the DRBC would act on the matter at its July meeting but no action was taken. Bob Rutledge, executive director of the Northern Wayne Property Owners Alliance LLC, says the commission wants to develop the "perfect regulation."
They are completely overstepping the basis of their charter of monitoring water quality and quantity, said Rutledge, whose Wayne County farm has been in his family since the 1840s.
Clark Rupert, a commission spokesman, said the DRBC takes its authority to regulate drilling from its 1963 compact—a broadly worded document that makes no mention of gas wells. The commission has not said when it would act on a proposal to regulate gas-well drilling.
The delay has prompted property owners to explore legal action against the commission, Rutledge said.
On June 27 property owners and Gov. Tom Corbett, an ex-officio DRBC member, sent letters claiming that the commission is infringing on property rights and denying the region of economic benefits.
Gov. Corbett’s letter says:
I am writing to convey a profound sense of frustration and disappointment on behalf of my constituents…
Adoption of this moratorium…was purportedly done to allow for the drafting of appropriate standards that would protect the water resources of the basin. However, deferring the submission of applications until regulations are adopted presumes that regulations will, ultimately, be adopted. That has failed to occur. In their letter, the property owners say that they will be left to conclude that litigation against the commission will be necessary to "regain our right to access our mineral estates" if the commission does not at least act in July to schedule a vote on its proposed drilling regulations.
The Alliance said it had "spent two and a half years…and nearly three quarters of a million dollars to procure a precedent-setting lease that is among the most community- and environmentally friendly leases in existence." The lease is now in jeopardy the Alliance reported.
In our opinion, the Alliance said, the Commission is allowing itself to be held hostage by the media and an emotion-driven anti-drilling community made up mostly of people from outside our region and by activist staffers within DRBC who are exercising their personal biases.
In the meantime, two companies that sought to drill in the Delaware River basin are withdrawing from the region where they would have paid an estimated $187.5 million in leases to landowners. Although the companies named low gas prices as the reason for their change of plans, the inaction of the DRBC could only dampen the enthusiasm of developers.
Rome wasn’t built in a day, but we’re guessing it took less than three years to secure an okay to drill.
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The Commonwealth Foundation is Pennsylvania's free-market think tank. The Commonwealth Foundation transforms free-market ideas into public policies so all Pennsylvanians can flourish.