State wants to drill gas customers, instead of frackers

Pennsylvania Budget
Gov. Wolf has proposed a natural gas levy of 6.5 percent, which would yield an estimated $400 million to $500 million a year.

Of all the terrible, unfair and just plain stupid ideas flowing out of Harrisburg these days over how to plug a $2 billion-plus hole in the state budget, this takes the cake.

An idea is being circulated in Republican circles to get revenue from the natural gas boom in Pennsylvania – not by taxing the large companies drilling the gas, but by taxing the consumers who use natural gas.

That is not a misprint.  They do not want to tax the mega-companies that sold $3.5 billion worth of Pennsylvania gas in 2016.

Instead, they want to tax gas consumers, who number nearly 2.7 million statewide, including 500,000 in Philadelphia alone.

The details are sketchy because the idea has not yet surfaced in public yet, though it may this weekend when the state House will be in session to debate matters dealing with the budget and taxes.

The state already imposes what is called a gross receipts tax on electricity, hydroelectric and water that raises close to $900 million a year.

Natural gas used to be included on the list, but was dropped in 1999, presumably to spare gas consumers some pain in the face of rising costs.

There is a huge difference between now and 1999. Since then, Pennsylvania has developed its own natural gas industry, mostly by using hydraulic fracking to extract gas from the Marcellus Shale.  There are 5,000 so-called “horizontal wells” in the state, most of them clustered in the southwest and far northeast sections.

The $3.5 billion in sales is less than it was a few years ago, due to a slump in natural gas prices. But, analysts predict the market will expand in coming years, with more gas being pumped out of more wells.

Pennsylvania now ranks as the second-largest gas producer in the United States, behind only Texas. It also ranks as the only state that does not have a tax on natural gas. Most states impose a tax on a percentage of natural gas that flows out of the wells – Texas, for instance, has a 7.5 percent tax on the market value of the gas.

For the last five years, advocates — including Gov. Wolf – have proposed that Pennsylvania enact a similar tax. In his most recent budget, Wolf proposed a 6.5 percent tax, which would yield an estimated $400-500 million a year. And that’s based on current production; as demand rises, so would that amount.

The industry is dead set against an extraction tax. So are Republican lawmakers, many of whom benefit from the industry’s campaign contributions. (Democrats have also received contributions, though far less than Republicans.) The industry does pay impact fees — a levy enacted during the Corbett administration, which sets a fee based on each well drilled, not the volume of gas it produces. Last year, the tax bought in $173 million a year, the lowest amount since the fee was enacted in 2011, and most of it goes to areas where drilling is concentrated.

Wolf’s latest proposal would give companies a tax credit for whatever impact fees companies pay.

Under the gross receipts tax idea, the gas companies would not pay an additional dime, but consumers could be on the hook for many millions of dollars.

This is an idea that should die of shame before it gets seriously considered…as should the lawmakers who would consider it.