Pa. Senate approves first fees on shale drilling

MARK SCOLFORO Associated Press Published:

HARRISBURG, Pa. (AP) -- Pennsylvania, the only major gas-producing state that does not tax the taking of natural gas from its soil, moved closer Tuesday to imposing a fee on the drilling in its vast Marcellus Shale reserves that has transformed the state in recent years.

The state Senate voted 31-19 in favor of fees that could raise $180 million from the industry in the first year, while expanding regulations for the booming industry, including a requirement for online disclosure of chemicals used in hydraulic fracturing, or fracking. The measure, which could pass the House on Tuesday night, would fund road work and environmental cleanups and give local governments the power to impose the fees on their local wells.

Opponents called it a giveaway to energy companies and said its environmental provisions were too weak.

"We could have built a little more certainty in this bill," said Sen. John Yudichak, D-Luzerne, who voted no. "I think Pennsylvanians deserve better than, 'maybe they'll have clean water, maybe they'll have clean air.'"

But Senate President Pro Tempore Joe Scarnati said the new regulations include a toughest-in-the-nation well bonding requirement, "more penalties for misbehaving producers," stream setback rules, a one-call system before drilling starts and the fracking chemical disclosure.

"These wells have impacted our environment, and people's lives in the region and beyond," Scarnati said.

Since 2008, Pennsylvania has been mobbed by energy companies anxious to reap the riches of the state's Marcellus Shale reserves, drilling at least 4,000 wells from southwest Pennsylvania in an arc that spans the state, from southwest to northeast. The gold rush has brought wealth to landowners and hundreds of jobs in economically depressed areas, but not without impact and controversy.

Some residents claim their drinking water supplies have been fouled, perhaps contaminated forever, by the fracking process that blasts millions of gallons of water, chemicals and sand deep into the earth to free natural gas from the dense shale rock, or by leaking methane gas. The Environmental Protection Agency is investigating reports of contaminated water in the Dimock area.

In addition, the trucks that haul thousands of gallons of production water to the drilling sites and the fracking wastewater away from those wells have aggravated locals with the constant traffic, torn up roads and occasional spills.

Some local governments have moved to regulate certain aspects of the drilling, including passage of zoning restrictions that have been challenged in court. The legislation passed on Tuesday would require municipalities to allow drilling in all zones, including residential, but would allow them to impose rules on that drilling, equal to those that other industrial activity is subject to.

Republican Gov. Tom Corbett, viewed as an ally of the industry, has opposed a severance tax on grounds it might make Pennsylvania less attractive to the industry, but he was an active participant in the talks that produced the current bill, with its impact-fee language.

The industry itself has been split on whether to support a levy, and the current bill would not link the fee amount to how much a well produces, as is the case in some other gas-producing states.

The Senate vote approved a conference committee report issued late Monday, and the House must also pass it before sending it to Corbett. That vote could occur Tuesday night. The bill has the support of Republican leaders in the GOP-majority House.

The fee could be applied to all Marcellus Shale wells, and Republicans said it could bring in more than $1 billion in the first five years. The levy would be tied to the price of natural gas and inflation.

Republicans said it would amount to an effective tax rate of about 3 percent, while Democrats said it was more like 1 percent, a sign of how polarized the debate has been.

"This is a tax," said Sen. Mike Stack, D-Philadelphia, who voted no. "And it's a cute way of passing a tax that's a bad tax."

Sen. Jim Ferlo, D-Allegheny, said the bill would restrict local control over drilling rules.

"Don't try to give us a bunch of baloney about maintaining local control on zoning," Ferlo said. "Nothing could be further from the truth."

Counties would be allowed to decide on whether to impose the fee, but if a county does not, and enough of its municipalities want it, they would be able to override the county.

Proceeds would help fund drilling regulation, fix bridges and water and sewer plants, buy fleet vehicles powered with natural gas and possibly help develop a petrochemical refinery in southwestern Pennsylvania and reuse three Philadelphia-area oil refineries that are shutting down.