5% Pennsylvania Tax Proposed for Natural Gas

By Rona Kobell

Pennsylvania Gov. Edward Rendell announced this month that he will introduce a plan to tax the fast-growing natural gas industry this year-a move that could put hundreds of millions of dollars back in the cash-strapped state budget.
At a recent news conference in Harrisburg, Rendell called the tax "appropriate" and "necessary." Although the tax has broad support from environmentalists and citizens, it's not yet clear if most of the state's legislators will support it.
The tax has become a hot button issue in recent years as companies have converged upon the Keystone State to extract the natural gas buried deep below the Marcellus Shale, a gas-rich formation stretching across Pennsylvania, West Virginia and New York.
While natural gas burns cleaner than coal, extracting it from the ground through a process called hydrofracking requires millions of gallons of water and creates environmental problems-among them water pollution, forest fragmentation and the contamination of drinking water supplies.
Environmentalists, citizens, local government officials and scientists have complained that the Pennsylvania Department of Environmental Protection lacks the resources to police the industry, and that a tax would bring in revenues to hire more inspectors and help them do that.
Last year, Rendell's proposed 5 percent tax-similar to the one that is law in West Virginia-would have generated $107 million in its first year and was projected to bring in $632 million by 2013. But the governor dropped the idea after meeting with gas company representatives. They had convinced him, he said, not to tax a fledgling industry just as it was getting started.
Today, that is a much harder case to make.
In December, energy giant Exxon Mobil agreed to pay $41 billion for XTO Energy Inc., in part on the strength of XTO's Marcellus holdings. Additionally, when the state opened 32,000 acres of state forestland to drilling, the leases brought in $128.5 million-twice the amount officials expected.
In 2008, the state saw 195 Marcellus wells drilled; last year, there were 763. Rendell said the DEP will seek to permit 5,200 wells in 2010.
And as the industry grows, so do the concerns.
PennFuture has called for a moratorium on drilling in state forests until scientists have studied its affects on wildlife and habitat. The environmental advocacy group also wants all revenues collected from public land leases to remain within the Department of Conservation and Natural Resources to address maintenance issues.
The Susquehanna River Basin Commission, which regulates how much water companies can withdraw for fracking, ordered Texas-based Novus Operating Co. to immediately cease all water-related activities because they lacked permits.
The SRBC has taken such action before, levying fines ranging from $75,000 to $450,000 for non-compliance. It had to warn many out-of-state-based drillers of its permit requirements a couple years ago, when the companies first began arriving in earnest. But SRBC executive director Paul Swartz said that ignorance was not the case here.
"The commission considers these violations by Novus to be intentional, and we will respond accordingly," Swartz said. "Commission staff had clearly informed company officials of the need for prior approval before undertaking the projects."
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