Cost of drilling
DEP raises permit fees to cover regulatory services
Permit fees for shale gas wells in Pennsylvania would soar by more than 150% under an increase proposed by the state Department of Environmental Protection, but there are few options if the state is going to maintain its level of regulation over wells.
The problem is not so much the size of the increase, but the fact that funding for regulatory services relies on new permit applications — a number that has been on the decline as gas prices have dropped. Clearly, a better funding formula is needed.
Fees would rise from $5,000 to $12,500 to drill a Marcellus or Utica shale well, the highest in the nation, although some perspective is in order: The new rate amounts to 0.16% of the $8 million cost to drill the well, according to DEP.
Still, having the highest permit fee in the country makes the state an easy target for gas-industry supporters who claim the move will stifle development.
The one-time fee paid by gas companies is the primary revenue source for DEP’s Office of Oil and Gas Management, which is responsible for permitting reviews and inspections of the nearly 113,000 oil and gas wells in the state. Unfortunately, the decline in the number of new wells drilled means less money to run the agency.
DEP expected 2,600 permits a year the last time it raised fees in 2014, but it hasn’t come close to reaching that number. It had about 2,000 permits in fiscal 2015, but has averaged 1,750 applications per fiscal year since and will likely have fewer than 1,600 this year.
That’s resulted in significant budget cuts for DEP’s oil and gas program, with employment dropping from 226 to 190 employees and operating costs reduced by 38%, according to Scott Perry, deputy secretary for the Office of Oil and Gas Management.
Mr. Perry told the Environmental Quality Board that the fee increase is needed to maintain current programs, although the agency is not meeting goals for inspection, permit review time frames, program development and information technology projects. He said 49 additional employees would be needed to meet those goals.
Between permit fees at the higher level and $6 million from the state’s impact fee, the oil and gas program will barely make its $25 million budget. The one saving grace at the moment is a $25.6 million windfall from the $30.6 million fine paid by Energy Transfer Corp. for the 2018 pipeline explosion in Beaver County. That is expected to maintain current staffing levels for the next three years.
The new fees must be reviewed by state House and Senate environmental committees and the state’s Independent Regulatory Review Commission. The fees should be approved, but a more sustainable funding formula should be considered going forward.
Mr. Perry has suggested an annual fee, rather than the one-time permit fees. That’s a good starting point for discussions. With so many oil and gas wells in the state, and the possibility of thousands more, oversight and regulation are essential.