Township Meeting
The Township will participate in a county meeting to decide who will be the single income tax collecting agency for the county per Act 32. The State requires us to hire a single agent to collect all school and town income taxes and then allocate the funds to each. An oversight committee or mechanism is also to be determined.
The NTC decision to meet quarterly was discussed; the next meeting will be hosted by Jessup in June. The Township voted to rescind the Intergovernmental Agreement that established a NTC joint planning committee for planning and zoning and to send a letter to the NTC confirming that and stating that it will not adopt zoning. This follows the recommendation from the March NTC meeting.
The Township has informed COG of its decision to use BCI for building code enforcement; COG asked for a more formal notice to close out their efforts and turn over files for the new service provider.
Some gas companies are offering gravel road services and repairs free and are expressing their desire to help maintain roads in good condition when they use them. They prefer to not have a post and bond ordinance. The Township is still addressing the P&B option as a way to assure cooperation on roads.
There are indications that this year will see considerably more gas well drilling activity in the township; particularly along the RT 706 corridor.
Other Meetings
There was no NTC meeting. The County has established an Ad Hoc task force of existing department heads to discuss and coordinate natural gas issues. It may report publicly before the monthly economic development board meetings. Other Jessup Jottings blog posts comment on potential activities for this task force. The April COG meeting should address the planned study of a regional police force; but , per our township representative, Jessup is not participating in that effort.
Thursday, April 30, 2009
Tuesday, April 7, 2009
County Action on the Gas Rush
After reading a newspaper account of the Susquehanna Commissioners' action on a gas committee or task force, I wrote the following letter to the local papers. It summarizes some of my earlier posts and and offers suggestions for the committee or task force.
To address the Gas Rush, the county plans to have monthly meetings of the department heads involved with natural gas industry activities followed by public information sessions during the regular economic development board meetings.
This seems a good start. It focuses on improving coordination and actions by internal resources while both informing the public and getting their input.
The county could use this process to cooperate with the townships on common key areas. Let's consider a few possibilities in three areas.
Public Data Access and Awareness - Some townships get advance notice from engineering companies about planned well pad sites and from gas companies about likely pipeline routes and road crossings. Do all towns? Is this information and usage coordinated across towns and county offices? Could this planning information be aggregated by the county, perhaps on a public website, for use by citizens as well as towns and planning commissions?
Joint Contingency Planning and Reaction - DEP requires gas companies to place their contingency plan and emergency data at each well site. Are these plans provided to and coordinated with town and county Fire and EMA offices? Is or should the county lead in joint contingency planning between towns, fire departments and adjoining districts? Should this be done also for pipeline routes since the Texas experience is that more fires and emergencies arise from the pipelines than from the wells?
Town Road Access Permissions - Who should give approval for thumper trucks to “thump” or gather seismic data along the public roads or for companies to lay pipelines along road right-of-ways? How should landowner safety and property rights be protected in advance of approval? Pipelines create extensive safety setbacks and restrictions on property uses. Seismic exploration can gather data from deep into adjacent properties where landowner permission or contractual agreement may not exist. Should the county facilitate consistent guidelines to protect property rights as well as public safety?
I'm sure there are many other ideas. Hopefully, these will stimulate a discussion. For more, visit my blog at http://JessupJottings.blogspot.com.
To address the Gas Rush, the county plans to have monthly meetings of the department heads involved with natural gas industry activities followed by public information sessions during the regular economic development board meetings.
This seems a good start. It focuses on improving coordination and actions by internal resources while both informing the public and getting their input.
The county could use this process to cooperate with the townships on common key areas. Let's consider a few possibilities in three areas.
Public Data Access and Awareness - Some townships get advance notice from engineering companies about planned well pad sites and from gas companies about likely pipeline routes and road crossings. Do all towns? Is this information and usage coordinated across towns and county offices? Could this planning information be aggregated by the county, perhaps on a public website, for use by citizens as well as towns and planning commissions?
Joint Contingency Planning and Reaction - DEP requires gas companies to place their contingency plan and emergency data at each well site. Are these plans provided to and coordinated with town and county Fire and EMA offices? Is or should the county lead in joint contingency planning between towns, fire departments and adjoining districts? Should this be done also for pipeline routes since the Texas experience is that more fires and emergencies arise from the pipelines than from the wells?
Town Road Access Permissions - Who should give approval for thumper trucks to “thump” or gather seismic data along the public roads or for companies to lay pipelines along road right-of-ways? How should landowner safety and property rights be protected in advance of approval? Pipelines create extensive safety setbacks and restrictions on property uses. Seismic exploration can gather data from deep into adjacent properties where landowner permission or contractual agreement may not exist. Should the county facilitate consistent guidelines to protect property rights as well as public safety?
I'm sure there are many other ideas. Hopefully, these will stimulate a discussion. For more, visit my blog at http://JessupJottings.blogspot.com.
Friday, April 3, 2009
NARO Comes to Susquehanna
Local natural gas rush watchers were introduced to a new player on 26 March, 2009 when the National Association of Royalty Owners, NARO US , held a public information session at the Mountain View High School auditorium. NARO was established in 1979 and recently formed an Appalachia Chapter to serve the interests of royalty owners in our area.
The meeting was co-hosted by First Liberty Bank and Trust. This NARO PRESS RELEASE describes their agenda and speakers. The auditorium was close to full and presentations were among the best I have seen.
There are other good sources of information, such as the Penn State Natural Gas Impacts website. NARO offers a national perspective and serves as a lobbying activity for the landowners and royalty owners. That's important in an industry with big players competing for advantage in a highly regulated government-controlled environment. For example, NARO is lobbying against the federal proposal to eliminate the 15% depletion allowance that owners get now on their royalty income taxes.
This point was impressed on me by several speakers who emphasized the need for royalty owners to manage their gas interests in a realistic business fashion. It's more than just getting a good lease and collecting checks (if you're that lucky). Think of it as a multi-decade investment business that requires proper structuring and managerial oversight.
Both the First Liberty and Lester Greevy presentations discussed options for distributing the the investment estate across generations while minimizing estate and inheritance taxes. I had been considering a Limited Liability Corporation (LLC) option, but Mr. Greevy made some very persuasive points in favor of a Family Law Partnership (FLP). As an example, if the surface and subsurface estates are separated and a subsurface FLP is formed , the limited partners may hold 97% non-voting interest and, because of the non-voting aspect, be discounted 40% on estate tax. The details of selecting a business structure (personal ownership, LLC, FLP, etc.) depend on one's family and financial situation. Since the choice will have a long term impact, it seems wise to get professional legal and financial advice when assessing the options.
Additionally, the subsurface gas rights will be assessed by Pennsylvania for estate/inheritance taxes. This value assessment may be highly speculative since there is little knowledge of how the Marcellus gas well production rates decline over time and what income streams may result. The key seems to be to get good assessment and legal talent on your side to establish a likely income stream and the discount rate for calculating present value of that stream.
Some speakers claimed that Range Resources estimates it can take hundreds of wells to establish the decline rate in a new shale formation (like the Marcellus). The decline rate is the rate at which gas well production declines over time. Usually, a shale well starts at very high rate ( 4 Million or more cubic feet per day) and declines to less than half in 1 to 3 years and tapers off to a constant lower flow for decades. The big question is the shape of that exponential curve. And that is not yet well known.
While the discussion focused on the uncertainties of assessing underground gas value for estate tax purpose, it seems the same problems could arise if the state allows local governments to include gas rights in assessing property taxes as is being proposed by some.
Another point had to do with the establishment of "pools"or "production units" by the gas companies. The companies set these units and, based on the relative acreage of each owner in the unit, allocate the gas production royalties to each owner. By including a small percent of an owner's acreage in a unit, the company may control all the owner's acreage, depending on how the lease is written.
The ultimate size or composition of a pool is not obvious when a permit is issued. As an example, Cabot filed a permit for drilling 65 acres locally; subsequently, they altered the boundaries to make a slightly different area that tied down over 850 acres. The good thing is that other landowners received a share of production royalties; the not so good thing was that some owners had all their land tied up based on a very low percentage share of the unit and royalties. Makes a good argument for establishing acreage (or percentage) limits on pooling and for Pugh clauses in a lease.
State Representative Sandy Major gave a good rundown on pending legislation. You can get details on the state legislature website for HB10, HB977, HB473, HB808, HB934 and its companion SB297, and HB834. She also discussed Governor Rendell's proposed severance tax and the new Republican counter proposal to lease State Forest lands.
HB10 is designed to counter a 2002 State Supreme Court ruling that precludes local property tax assessment on the value of underlying gas. The bill is intended to force only the lease holder (i.e., the gas company) to pay. Having seen an earlier version of this bill, that intention was not explicit. Unless extremely well written, this bill is very dangerous.
It will be litigated by the companies and that litigation is apt to include 2 key points : first, the necessity, in equity, to tax equally all underground gas, not just that leased; second, the validity of existing lease contracts that establish liability of the landowner to pay ad valorem (property taxes) taxes in proportion to his royalty share. In other words, if your gas rights are assessed for $10,000 and you have a 15% royalty rate, you may be liable for added tax on your $1,500 share. Of course you may be due a reduction for the loss of 85% of your gas rights. But what about your neighbor who has no lease? Why should he escape taxation on his assumed underground gas rights? This bill may prove more a problem than a solution.
HB977 has some very desirable benefits. It declares the Marcellus shale gas as being covered by the Oil and Gas Conservation Law with added protection from gas drainage by companies on nearby land. It forbids any horizontal drilling under unleased land. It introduces unitization concepts which should protect the rights of unleased owners, but may need updating to reflect the geologic realities of shale gas deposits as opposed to oil deposits.
The Governor's severance tax proposal is intended to go 100% to the general treasury with no allocation to local governments to cover the cost of services in gas producing areas. This tax is in addition to normal corporate and personal income taxes on gas production and royalty incomes. Even so, I think a severance tax, modified to allocate a fair percentage to the gas producing counties and towns, is preferable to the HB10 property tax proposal.
Finally, the House Energy Tax Force has an alternative proposal to the severance tax. This proposal would lease 390,000 acres of Forest Service lands for a minimum of $2000/acre over the next 3 years. It would produce more income than the severance tax, would not be a dis-incentive to gas production. and allocates a portion of the revenue back to gas producing towns and counties. Although the allocation formula needs reworking to be fairer to the Marcellus Shale areas, this seems the best option for getting new gas related revenue.
All of these bills are being reviewed in committee and it will be a while before anything is settled.
It's not easy to assess the impact of these potential state laws or to track their progress; the same can be said for prospective federal laws and state and federal regulations. Maybe by having Sandy speak, NARO was making a subtle point about their value to land and royalty owners.
The meeting was co-hosted by First Liberty Bank and Trust. This NARO PRESS RELEASE describes their agenda and speakers. The auditorium was close to full and presentations were among the best I have seen.
There are other good sources of information, such as the Penn State Natural Gas Impacts website. NARO offers a national perspective and serves as a lobbying activity for the landowners and royalty owners. That's important in an industry with big players competing for advantage in a highly regulated government-controlled environment. For example, NARO is lobbying against the federal proposal to eliminate the 15% depletion allowance that owners get now on their royalty income taxes.
This point was impressed on me by several speakers who emphasized the need for royalty owners to manage their gas interests in a realistic business fashion. It's more than just getting a good lease and collecting checks (if you're that lucky). Think of it as a multi-decade investment business that requires proper structuring and managerial oversight.
Both the First Liberty and Lester Greevy presentations discussed options for distributing the the investment estate across generations while minimizing estate and inheritance taxes. I had been considering a Limited Liability Corporation (LLC) option, but Mr. Greevy made some very persuasive points in favor of a Family Law Partnership (FLP). As an example, if the surface and subsurface estates are separated and a subsurface FLP is formed , the limited partners may hold 97% non-voting interest and, because of the non-voting aspect, be discounted 40% on estate tax. The details of selecting a business structure (personal ownership, LLC, FLP, etc.) depend on one's family and financial situation. Since the choice will have a long term impact, it seems wise to get professional legal and financial advice when assessing the options.
Additionally, the subsurface gas rights will be assessed by Pennsylvania for estate/inheritance taxes. This value assessment may be highly speculative since there is little knowledge of how the Marcellus gas well production rates decline over time and what income streams may result. The key seems to be to get good assessment and legal talent on your side to establish a likely income stream and the discount rate for calculating present value of that stream.
Some speakers claimed that Range Resources estimates it can take hundreds of wells to establish the decline rate in a new shale formation (like the Marcellus). The decline rate is the rate at which gas well production declines over time. Usually, a shale well starts at very high rate ( 4 Million or more cubic feet per day) and declines to less than half in 1 to 3 years and tapers off to a constant lower flow for decades. The big question is the shape of that exponential curve. And that is not yet well known.
While the discussion focused on the uncertainties of assessing underground gas value for estate tax purpose, it seems the same problems could arise if the state allows local governments to include gas rights in assessing property taxes as is being proposed by some.
Another point had to do with the establishment of "pools"or "production units" by the gas companies. The companies set these units and, based on the relative acreage of each owner in the unit, allocate the gas production royalties to each owner. By including a small percent of an owner's acreage in a unit, the company may control all the owner's acreage, depending on how the lease is written.
The ultimate size or composition of a pool is not obvious when a permit is issued. As an example, Cabot filed a permit for drilling 65 acres locally; subsequently, they altered the boundaries to make a slightly different area that tied down over 850 acres. The good thing is that other landowners received a share of production royalties; the not so good thing was that some owners had all their land tied up based on a very low percentage share of the unit and royalties. Makes a good argument for establishing acreage (or percentage) limits on pooling and for Pugh clauses in a lease.
State Representative Sandy Major gave a good rundown on pending legislation. You can get details on the state legislature website for HB10, HB977, HB473, HB808, HB934 and its companion SB297, and HB834. She also discussed Governor Rendell's proposed severance tax and the new Republican counter proposal to lease State Forest lands.
HB10 is designed to counter a 2002 State Supreme Court ruling that precludes local property tax assessment on the value of underlying gas. The bill is intended to force only the lease holder (i.e., the gas company) to pay. Having seen an earlier version of this bill, that intention was not explicit. Unless extremely well written, this bill is very dangerous.
It will be litigated by the companies and that litigation is apt to include 2 key points : first, the necessity, in equity, to tax equally all underground gas, not just that leased; second, the validity of existing lease contracts that establish liability of the landowner to pay ad valorem (property taxes) taxes in proportion to his royalty share. In other words, if your gas rights are assessed for $10,000 and you have a 15% royalty rate, you may be liable for added tax on your $1,500 share. Of course you may be due a reduction for the loss of 85% of your gas rights. But what about your neighbor who has no lease? Why should he escape taxation on his assumed underground gas rights? This bill may prove more a problem than a solution.
HB977 has some very desirable benefits. It declares the Marcellus shale gas as being covered by the Oil and Gas Conservation Law with added protection from gas drainage by companies on nearby land. It forbids any horizontal drilling under unleased land. It introduces unitization concepts which should protect the rights of unleased owners, but may need updating to reflect the geologic realities of shale gas deposits as opposed to oil deposits.
The Governor's severance tax proposal is intended to go 100% to the general treasury with no allocation to local governments to cover the cost of services in gas producing areas. This tax is in addition to normal corporate and personal income taxes on gas production and royalty incomes. Even so, I think a severance tax, modified to allocate a fair percentage to the gas producing counties and towns, is preferable to the HB10 property tax proposal.
Finally, the House Energy Tax Force has an alternative proposal to the severance tax. This proposal would lease 390,000 acres of Forest Service lands for a minimum of $2000/acre over the next 3 years. It would produce more income than the severance tax, would not be a dis-incentive to gas production. and allocates a portion of the revenue back to gas producing towns and counties. Although the allocation formula needs reworking to be fairer to the Marcellus Shale areas, this seems the best option for getting new gas related revenue.
All of these bills are being reviewed in committee and it will be a while before anything is settled.
It's not easy to assess the impact of these potential state laws or to track their progress; the same can be said for prospective federal laws and state and federal regulations. Maybe by having Sandy speak, NARO was making a subtle point about their value to land and royalty owners.
Thursday, April 2, 2009
Spring is Here!
Yes, I know the calendar claims Spring came on 20 March, but it isn't really here until we start trail riding.
Today, we got our favorite Paso Fino horses out of their winter idleness. They were as ready as we were; coming to the gate eager for something new. The weather was fine with a blue sky, greening fields and still plenty of gaps between the trees. We revisited our hills and forest trails; spotting future trail clearing chores as well enjoying the long cross valley views to other farms.
The Paso is a gaited horse that provides a bounce-free ride - no posting to the trot - just sit for any speed from walk to near gallop. Our horses are 5 and 6 years old. Comfortable under saddle and stable, but spirited and swift if given their head. We let them move out some but held them back enough so they would remember who's in charge.
A good start to the riding season and a good break from farm chores and blogging. Spring is here!
Today, we got our favorite Paso Fino horses out of their winter idleness. They were as ready as we were; coming to the gate eager for something new. The weather was fine with a blue sky, greening fields and still plenty of gaps between the trees. We revisited our hills and forest trails; spotting future trail clearing chores as well enjoying the long cross valley views to other farms.
The Paso is a gaited horse that provides a bounce-free ride - no posting to the trot - just sit for any speed from walk to near gallop. Our horses are 5 and 6 years old. Comfortable under saddle and stable, but spirited and swift if given their head. We let them move out some but held them back enough so they would remember who's in charge.
A good start to the riding season and a good break from farm chores and blogging. Spring is here!
The Biggest Little PV Plant in the East
Commercial scale photovoltaics (PV) comes to Pennsylvania, courtesy of unwitting taxpayers (or, if you prefer, government subsidies). For this post, I'm keeping the original title of a very good article in IEEE Spectrum The Biggest Little PV Plant in the East.
I doubt this will get the notoriety of the old Burt Reynolds - Dolly Parton movie about a Texas "Establishment" of fame and shame - but there is a similarity in how the profits are made. OK, maybe engineers have an odd sense of humor.
Most photovoltaic applications supply electricity for individual home uses - the economics being well suited to dispersed local use rather than concentrated plants that supply the main electric grids. But this plant in Bucks County is the largest east of Arizona and can produce 3 megawatts - enough to power 3000 homes. It spreads over about 7.5 acres of a refuse landfill from which methane gas also is harvested for local use.
Sounds like a green dream come true. But how does it pay for itself?
Well, you have to read the article for the details; but the gist is many taxpayers pay the freight for a few users. And the interlocking corporations involved did not make it easy for the reporter to decipher the details.
The bottom line is that the PV plant can produce electricity at 30 cents per kilowatt hour while the going rate in PA/NJ is 10 cents. That's a pretty large loss on an expensive investment.
But there is more to the story. They don't just sell electricity; they can also profit from Renewable Energy Credits (REC). A dozen states, including Pennsylvania, have mandated that a specified proportion of generated electricity come from solar energy. These "solar carve-outs" are a trade-able commodity and their value is high. In the PA/NJ area, these carve-out RECs sell for as much as $250 and one is "earned" for each megawatt-hour of electricity produced.
So, with RECs included, the PV plant's electricity production cost of 30 cents/megawatt is reduced by 25 cents/megawatt of REC sales. The resulting 5 cents net cost per megawatt is very competitive. Now the investment becomes more attractively profitable.
In essence, the government is providing a regulatory subsidy of 25 cents on a 30 cent production cost - that's us taxpayers and consumers paying for 5/6th of the production costs so some companies can make a profit and seem noble by being "green".
In that old flick, Dolly would tell her "clients" that their pleasure was her business. At least it was a free choice. Nowadays, the government forces us to pay for the pleasure of feeling "green". As Kermit the Frog says "being green isn't easy".
I doubt this will get the notoriety of the old Burt Reynolds - Dolly Parton movie about a Texas "Establishment" of fame and shame - but there is a similarity in how the profits are made. OK, maybe engineers have an odd sense of humor.
Most photovoltaic applications supply electricity for individual home uses - the economics being well suited to dispersed local use rather than concentrated plants that supply the main electric grids. But this plant in Bucks County is the largest east of Arizona and can produce 3 megawatts - enough to power 3000 homes. It spreads over about 7.5 acres of a refuse landfill from which methane gas also is harvested for local use.
Sounds like a green dream come true. But how does it pay for itself?
Well, you have to read the article for the details; but the gist is many taxpayers pay the freight for a few users. And the interlocking corporations involved did not make it easy for the reporter to decipher the details.
The bottom line is that the PV plant can produce electricity at 30 cents per kilowatt hour while the going rate in PA/NJ is 10 cents. That's a pretty large loss on an expensive investment.
But there is more to the story. They don't just sell electricity; they can also profit from Renewable Energy Credits (REC). A dozen states, including Pennsylvania, have mandated that a specified proportion of generated electricity come from solar energy. These "solar carve-outs" are a trade-able commodity and their value is high. In the PA/NJ area, these carve-out RECs sell for as much as $250 and one is "earned" for each megawatt-hour of electricity produced.
So, with RECs included, the PV plant's electricity production cost of 30 cents/megawatt is reduced by 25 cents/megawatt of REC sales. The resulting 5 cents net cost per megawatt is very competitive. Now the investment becomes more attractively profitable.
In essence, the government is providing a regulatory subsidy of 25 cents on a 30 cent production cost - that's us taxpayers and consumers paying for 5/6th of the production costs so some companies can make a profit and seem noble by being "green".
In that old flick, Dolly would tell her "clients" that their pleasure was her business. At least it was a free choice. Nowadays, the government forces us to pay for the pleasure of feeling "green". As Kermit the Frog says "being green isn't easy".
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