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Governor Wolf Follows Cuomo’s Lead: Taxes and Regulations!

severance tax - MarkindDaniel B. Markind, Esq.
Weir and Partners, LLP

 

Proposed DEP regulations changes have been approved for oil & gas drilling and Governor Wolf continues to disappoint.

Yesterday was an extraordinary day in the energy field.  In Pennsylvania, following seven hours of public debate and comment, the Pennsylvania Independent Regulatory Review Commission approved the proposed Department of Environmental Protection changes to Chapters 78 and 78a of the Pennsylvania Code, the rules and regulations governing oil and gas drilling in the Commonwealth.

The vote was 3-2, with everything happening according to script.  The Democratic appointees approved the changes, the Republicans did not.  Among the changes are updates and expansion of the permitting process, a requirement that drillers identify old and abandoned wells, and a ban on storing waste in pits, using the brine for dust suppression or deicing.  As I said before, some are common sense and some make no sense.

regulations

For the regulations not to take effect now, either (a) a legal challenge to them will have to succeed, or (b) both houses of the State Legislature will have to vote to disapprove the regulations within 30 days.  The resolution of disapproval would then go to Governor Wolf, who clearly will veto it.  Both houses then would have to muster the 2/3 vote necessary to veto the regulations.  This won’t happen.  Assuming the legal challenges are not successful, expect the new regulations to take effect by summer.

One of the most interesting discussions at the IRCC came at the very end, when the Republican Commissioners grilled witnesses from the DEP as to why they had not promulgated separate regulations for the conventional and non-conventional drillers as required by statute.  The DEP representatives danced around the question, but in the end it comes down to the Wolf Administration playing fast and loose with the State’s rule making procedures.

The initial revisions to Chapters 78 and 78a were proposed by the DEP under the Corbett Administration.  When Governor Wolf took office in January 2015, he decided to substantially amend the proposed rules so as to not lose a year in the process.  Many of the rules adopted by the IRRC were only proposed halfway through the process, and greatly expanded its scope.

Administrative rules and regulations in Pennsylvania must be fully enacted within two years of their original proposal.  The question really is when are proposed rules and regulations amended within their original scope, and when do the amendments so totally change the scope that in effect it becomes a new proposal and should go back to square one?

We now are a microcosm or incompetent politics,  We have an idealogic, non-compromising Chief Executive with limited political skill, and an industry seemingly incapable of understanding that it is operating outside its normal geographic location among people and governments that are not as dependent on or subservient to the oil and gas industry.  Get ready for the 2017 budget battle coming right around the corner.  Once again Governor Wolf is proposing an extraction tax, which will be layered onto the local impact fee.

What Andrew Cuomo accomplished in New York by Governor’s decree Tom Wolf seems to be trying to replicate using death by taxes, investment uncertainty and regulation.  The industry may be wise to remember that with any market there is money to be made and jobs to be created in Pennsylvania, and the Governor will be wise to remember that he is running for reelection in 2018, and if his policies continue to drive down employment in the historically depressed Marcellus Basin, it will be that record of political non-achievement that he will run on.

regulations

While we in Pennsylvania were busy watching the IRCC, another huge energy story broke.  Sun Edison, Inc., one of the clean energy darlings, filed for Chapter 11 bankruptcy protection, owing its creditors nearly $10 billion and having lost nearly 99% of its shareholder value in the last year.  Sun Edison’s dreams of solar power grandeur never came off, highlighting again the importance of market forces and not just government credits.

Sun Edison was bankrolled heavily by Wall Street, which raises more questions about Wall Street’s capacity to understand the economy.  Sun Edison’s failure comes on the heels of Ivanpah, a $2.2 billion solar project in the Mojave Desert.  This was saved from extinction only by a one-year forgiveness from Pacific Gas & Electric, which could have shut the project down due to its failure to produce the promised energy.  In addition, the 170,000 solar mirror project has devastated the local bird population and produced constant complaints from airline pilots due to the glare.  If Ivanpah goes under, we the taxpayer will be paying off $1.5 billion.

In New York, Andrew Cuomo has one week to decide on the Constitution Pipeline, which could help free New England from relying on Trinidad and Tobago as well as Yemen for its gas.  Will he have the courage to buck the Democratic Party’s non-carbon fuel agenda, even if it means driving ourselves more into the arms of countries like Saudi Arabia where relations reached a nadir during President Obama’s current trip, and also means driving Europe further into Russia’s economic orbit, when they are practicing dive bombing our ships in international waters?  It’s very doubtful, but there is always hope.

In summary, don’t look for intelligence in the current governmental moves on energy matters at the local, state or national level.  Do politicians really wonder why the public appears so angry?

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