What They’re Saying About Higher Energy Tax Proposals

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It’s increasingly – if not alarmingly – clear that proposed higher energy tax plans in Harrisburg, including the governor’s proposal: 1) do not reflect current market conditions; 2) will not generate the promised revenues; and 3) threaten thousands of good-paying Pennsylvania jobs and our region’s manufacturing potential. We know that the math simply doesn’t add upthat’s a fact. And having government meddling in free and open markets to artificially set the taxable value of energy – regardless of real-time market dynamics – creates an enormous amount of uncertainty (opposed to providing “some certainty,” as higher tax advocates claim).

Here’s what they’re saying about these job-crushing higher energy tax plans.

 Associated Press: Gov. Tom Wolf’s proposal to impose a severance tax on Marcellus Shale natural gas production…would set a floor on the price at which the tax is calculated. The pricing floor is believed to be unique among states that impose a severance tax on oil and gas production, and industry officials are pushing back. Prices are severely depressed by oversupply and a lack of pipelines to get gas to market, so gas is not selling for anywhere close to the proposed artificial minimum, they say. Wolf’s proposal calls for a 5 percent tax on the value of the natural gas pulled from the Marcellus Shale, plus a flat fee of 4.7 cents per unit of gas. The proposal would require…no less than $2.97 per thousand cubic feet. (“Wolf tax plan would hurt most while prices are low,” Associated Press, 3/17/15)

  •  Wolf’s proposal “totally ignores what’s going on in the marketplace in Pennsylvania,” said David Spigelmyer, president of the Marcellus Shale Coalition, an industry trade group. “You’re talking excessive tax rates that are well above any other shale producing region in the U.S.” Gene Barr, president and CEO of the Pennsylvania Chamber of Business and Industry, likened it to an income tax that assumes every worker earns $100,000 per year. “It makes no sense whatsoever,” he said. (AP, 3/17/15)

Philadelphia Inquirer: Gov. Wolf’s proposed severance tax…sets a minimum value of natural gas at $2.97 per thousand cubic feet (Mcf) for all gas produced in state, regardless of its actual sale price. Natural gas is currently selling at five Pennsylvania trading hubs at prices ranging from $1.23 per Mcf to $2.52 a unit. “They’re basing it on an arbitrary price, whether the market bears that or not,” said State Rep. Jim Christiana (R., Beaver), who called the tax plan “irrational.” “This is akin to someone that makes $40,000 having to pay taxes on $80,000 or $100,000 in income,” said Kevin Sunday, a spokesman for the Pennsylvania Chamber of Business and Industry. (“Wolf’s severance tax would set a minimum value on gas produced,” Philadelphia Inquirer, 3/16/15)

  • No other severance tax in the country sets a minimum price for producers, said Matthew Knittel, director of the state’s Independent Fiscal Office, a nonpartisan agency. … According to an SNL Energy analysis, the Marcellus Region volume-weighted average price for the last 12 months was $2.62 a unit. At that price, the effective tax rate would be 7.3 percent. … The Marcellus Shale Coalition, the industry trade group that is opposed to any severance tax, denounced the Wolf plan. “If Pennsylvania is serious about capitalizing on these abundant resources that could rejuvenate our manufacturing base, this proposed legislation should be rejected out of hand, and the policy focus should shift toward developing markets for its efficient use,” coalition president David Spigelmyer said. (Philadelphia Inquirer, 3/16/15)

SNL Financial: Hiding in plain sight in Pennsylvania Gov. Tom Wolf’s proposed severance tax on natural gas production is a bigger land mine than the rate or the volumetric fee: a $2.97/Mcf flat minimum value for all gas produced in state, regardless of its actual sale price. Under Wolf’s proposed legislation, for example, day-ahead gas selling at the Leidy hub’s March 13 midday price of $1.435/Mcf would be taxed as if its value was $2.97/Mcf. “Under no circumstance shall the gross proceeds be less than $20 per barrel or $2.97 per unit,” the bill Democrat Wolf is sending to the state’s General Assembly reads. … Cash prices over the previous 12 months at major trading hubs such as Leidy, Dominion South and Dominion North have averaged as high as $2.743/Mcf for Dominion South, to $2.310/Mcf at the Leidy hub; well below the $2.97 floor price. According to an SNL Energy analysis, the Marcellus Region volume-weighted average price for the last twelve months was $2.62/Mcf. … Observers on both sides of the issue in Harrisburg suspect Wolf’s staff arrived at a floor price by working backward from the $1 billion in new revenue Wolf needs to finance his plan to increase funding for education. (“Pa. severance tax proposal values natural gas at $2.97/Mcf floor,” SNL Financial, 3/13/15)

  •  The head of the Marcellus Shale Coalition, an industry trade group, was quick to blast the decision as ignorant of market realities. “It establishes a government-mandated floor for the price of natural gas, ignoring free market realities,” MSC President Dave Spigelmyer said. “Governor Wolf’s proposed higher energy tax clearly jeopardizes Pennsylvania’s economic future as it relates to continued job growth and clean energy development,” Spigelmyer said. “If Pennsylvania is serious about capitalizing on these abundant resources that could rejuvenate our manufacturing base, this proposed legislation should be rejected out of hand, and the policy focus should shift toward developing markets for its efficient use.” … At a $2.97/Mcf price, the proposed severance tax would represent an effective 8.5% tax on gas sold at Leidy hub’s trailing twelve month average of $2.31/Mcf. (SNL Financial, 3/13/15)

Policymakers in Harrisburg should focus on growing jobs and finding more ways to harness our abundant natural gas resources, especially through boosting manufacturing – not even higher energy taxes which will make the Commonwealth even less competitive. Become a United Shale Advocate today and join tens of thousands of other Pennsylvanians in letting your voice be heard!