The Register-Herald, Beckley, West Virginia

Balancing Act

February 26, 2011

State lawmakers keeping an eye on other states’ policies

While drafting policy involving the Marcellus shale, West Virginia lawmakers aren’t focused entirely within the state’s borders; they are also keeping an eye on the policies of other states.

The time crunch caused by approaching legislative deadlines has already forced lawmakers to significantly thin the bills that were initially proposed. Now, members of the West Virginia House and Senate are attempting to address the less controversial issues before time runs out.

Uncertainty in the balance of regulation versus economic development forced legislators to strip more than a hundred pages from each of the two proposed bills.

Some of the proposed laws currently before the Legislature were adapted from current oil and gas regulations, some were borrowed from the coal industry, and other parts were modeled after Pennsylvania, one of the states leading the way in Marcellus development. Unfavorable or favorable policies could heavily affect where drillers locate, said Tom S. Witt, an economist at West Virginia University’s Bureau of Business and Economic Research.

“We have to recognize that we are in competition with other states surrounding us, some of which do not have any tax on the production of natural gas,” Witt said. “We want to be competitive, but we want to make sure we have a legal and tax environment that ensures investors can recoup their investment.”

Companies looking to locate their businesses are going to be looking for places that give them the opportunity to cheaply produce the gas.

“The development and exploration of natural gas resources entail the allocation of capital in a variety of different areas across the U.S., as well as foreign countries,” Witt said. “That capital is going to go where it perceives it can get the greatest return. Not only necessarily the greatest return, but the certainty they can recoup the financial investment that is being made.”

Tax policies are only one factor in locating businesses, however. Lax regulatory policy can sometimes be very attractive for business, but some warn this comes at a cost. Carol Warren of the Ohio Valley Environmental Council, says lawmakers should look to other states to see where mistakes were made.

“We definitely need better regulation,” Warren said. “The stories that are coming in from the West, from Pennsylvania, from places where the gas drilling has been going on, are really alarming. The same companies are operating here as are operating in those places.”

The states most heavily affected by the development of the Marcellus shale are New York, Pennsylvania and West Virginia. New York lawmakers passed a statewide moratorium on horizontal fracking until the long-term effects could be studied. The moratorium is in place until July 1.

Some environmental groups and property owners have called for a similar moratorium, but others have simply asked lawmakers to ensure more accountability among gas and oil drillers in West Virginia.

According to permit-issuing agencies in each of the three major players in the gas industry, West Virginia issued the highest number of permits from 2002 to 2008. More than 800 permits were granted in 2008, but the permits issued fell to just under 550 permits in 2009. Permits declined in both New York and West Virginia in 2009, but Pennsylvania’s numbers dramatically increased.

Witt said West Virginia’s tax policy is generally more attractive to the natural gas industry. However, there are some exceptions in current policies.

In Pennsylvania, infrastructure for production of the Marcellus shale play is excluded from real property tax assessment. The natural gas industry is subject to property taxes in West Virginia.

Some support lifting burdens to make West Virginia more competitive with other states and possibly attract more drillers with more jobs and more money to spend in the state. Taxes, regulations, permit fees and other decisions to incentivize or bill the industry have been the subject of much debate.

“They should impose a reasonable and considerable permitting fee that will finance the inspections this kind of drilling requires,” said Chris Chanlett, president of the Friends of the Lower Greenbrier. “You can’t ask taxpayers and other people to pay for regulation of the industry they are trying to develop. We believe high permitting fees are perfectly reasonable.”

Also, Pennsylvania, New York and Maryland lack severance taxes associated with drilling. In West Virginia, natural gas severance taxes run at a rate of about 5 percent. Some Pennsylvania lawmakers have publicly mentioned the possibility of instituting a severance tax modeled after West Virginia’s system.

— E-mail: tkuykendall@register-herald.com

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