OUR THOUGHTS ON:

Differences Among Pennsylvania's Marcellus Shale Plans

Energy & Resources

By John Kohler

On November 15, 2011, the Pennsylvania State Senate (Senate Bill 1100) passed its version of the Marcellus Shale Impact Fee Plan. This Senate plan calls for a 3% tax on the production of gas, retroactive to January 1, 2010. The bill also imposes a per well fee of $50,000 in the first year of production, with a $10,000 reduction in each subsequent year. Beginning in the eleventh year, until the twentieth year, there would be an annual fee of $10,000 per well. Approximately 55% of the fees would go to the communities where the Marcellus Shale wells are located, while a portion of the fees would be used for state infrastructure projects. Other funds would be set aside for county conservation districts, firefighter training programs, the Fish and Boat Commission and affordable housing projects.

On November 17, 2011, the Pennsylvania House of Representatives (HB 1950) passed its version of the Marcellus Shale Impact Fee Plan. The House plan resembles Pennsylvania Governor Tom Corbett's proposed plan more than it does the Senate's Bill. The House plan calls for imposing a $40,000 maximum per well fee in the first year. This amount would decrease $10,000 per year over the next two years until it reached the minimum fee of $10,000 to be assessed during each of the remaining seven years of the wells' life. The plan would keep 75% of the revenue raised from the impact fee to stay in the municipalities that are most affected by the marcellus shale gas drilling activity. The remaining 25% of the impact fee would be used to assist a handful of state agencies.

In October of 2011, Governor Corbett introduced his own recommendation for the State Marcellus Shale Impact Fee. His recommendation suggested imposing a $40,000 maximum per well fee in the first year. This amount would decline $10,000 per year until it reached the minimum $10,000 fee and remain at $10,000 per year until the tenth and final year. This plan calls for no tax increase over what is currently in place for the gas drilling industry. The governor's plan calls for 75% of the revenue produced from this fee to be used for infrastructure projects in the communities that are most affected by the marcellus shale gas drilling activity. The additional 25% of the revenue produced would be used to fund state agencies to conduct gas pipeline inspections, road and bridge repair, health studies, emergency response and well drilling inspections. The governor's plan proposes development of "Green Corridors", with natural gas vehicle fueling stations along highways, and assistance provided to schools and mass transit agencies to convert bus fleets to natural gas.

See the chart below for a quick breakout of the differences among the governor's proposal and the bills passed by the Senate and the House.

Comparison of the Three Proposal's Highlights


 
 
Governor's Plan
Senate Bill
House Bill
Impact Fee:
 
 
 
 
    Initial Amount
 
$40,000
$50,000
$40,000
    Term
 
10 Years
20 Years
10 Years
    Minimum Fee
 
$10,000
$10,000
$10,000
Allocation of Proceeds:
 
 
 
 
    Local
 
75%
55%
75%
    State
 
25%
45%
25%
Use of County Proceeds:
 
 
 
 
    County
 
36%
36%
36%
    Township with wells
 
37%
37%
37%
    Township without wells
 
27%
27%
27%
Use of State Proceeds:
 
 
 
 
    Infrastructure
 
70%
50%
70%
    Environmental
 
10.5%
30%
10.5%
    Other
 
19.5%
20%
19.5%

© 2011 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person any tax-related matter.

ask a question

comments