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Gas tax is front, center in Capitol

GOP set to work out deal

HARRISBURG — For the first time since talk of taxing the methane beneath Pennsylvania bubbled up two years ago, the Republican-led Senate appears ready to join Gov. Ed Rendell and the House's Democratic majority in ending the state's status as the largest natural-gas producing state without such a tax.

Still, there will still be room for wide disagreement in a debate that is set to intensify when the House and Senate return to Harrisburg this month.

Lawmakers also might sort through a number of issues surrounding the modern-day gas rush to tap the Marcellus Shale beneath the commonwealth. But the tax is unquestionably the centerpiece of the debate, particularly with the cash-strapped state looking for help.

The Democratic governor set the table in February 2009 when he first proposed a tax equivalent to West Virginia's — 5 percent on the sale value, plus 4.7 cents per thousand cubic feet of gas. At that rate, Pennsylvania would land somewhere in the middle of the various tax rates imposed by natural gas-producing states, although industry representatives say it would be the highest among the states with gas-yielding shale formations.

Such a tax is projected to raise $280 million in 2011, the Rendell administration said.

But the companies drilling into the Marcellus Shale — which include homegrown businesses and some of the world's largest exploration companies — view that rate as too high. They warn adopting West Virginia's tax structure could prompt some to send rigs, jobs and money for compressor stations and pipelines to shale formations in other states.

Senate Republican leaders seem to agree, and have been studying the tax structure in Arkansas, which allows a 1.5 percent tax for up to four years before the rate rises to 5 percent on gas extracted from shale.

Rendell rejected that argument.

"Some of the things the industry is talking about are outrageous," Rendell said at a Capitol news conference Thursday.

One company, he said, had stated in a filing with the U.S. Securities and Exchange Commission that it expected to earn a 64 percent rate of return on its Marcellus Shale wells.

"And they want a lower tax bill?" Rendell continued. "They want a lower tax bill that will allow them to extract 50 percent of the natural gas that's in the shale in the first five years and only get taxed at 1.5 percent? That's outrageous."

A tax could reduce the monthly checks that distribute the royalties to landowners in the gas fields, depending on how the law or a landowner's lease is written.

The cost of a tax also could trickle down to the home and business owners in Pennsylvania who use natural gas for heat or other purposes, although competitive market pressure for the lowest-cost gas could force the supply chain to absorb it.

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