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Fiscal Code Impacts Energy Industries

The state’s fiscal code bill (SB 1263) contained several energy related items and issues.

The legislation sets bonds for conventional oil and gas wells at $2,500 or a blanket bond of $25,000, and requires the EQB to undertake a study of conventional well bond requirements, thus restoring pre-Act 13 limits which can be expanded after the study.

It also requires DCNR, in consultation with municipalities in Bucks and Montgomery Counties to evaluate the practical resource recovery implications of shale gas drilling in the South Newark Basin, and forbids DEP from issuing permits for unconventional oil and gas wells before the study is completed and legislation is passed to allow these counties to elect whether to impose the gas well impact fees under Act 13.

In June, the U.S. Geological Survey (USGS) published a report estimating that some 876 billion cubic feet of shale gas is trapped in the South Newark Basin, a rock formation underlying Bucks, Berks, Chester and Montgomery counties and part of northwestern New Jersey.  Some experts say the total gas trapped in the basin could be as high as ten times that estimate.  Supporters of the permit ban and study suggested the South Newark Basin is very different than the Marcellus shale play because of the potential impacts of drilling activities on tidal water resources.  Gas company officials said that drilling in the basin is “just not commercially feasible on a large scale.”  The Gettysburg Basin, another Mesozoic basin, which runs roughly northeast through Franklin, Adams, Cumberland, Dauphin and York Counties, has not yet been assessed by the USGS.

On another subject, the bill requires the Legislative Budget and Finance Committee (in consultation with PennVEST) to study how PA can meet nutrient reduction planning targets in the state’s Watershed Implementation Plan.  The study has to include a review of the cost, environmental, recreational and public health/safety impacts from reductions of water quality impairment; an assessment of a competitive bid process for long term verified nutrient credits rather than sector allocation targets in a WIP; and an analysis of funding options including the use of federal, state and local funds to purchase nutrient credits. This study must be presented by December 30, 2012 to House and Senate Committees and several cabinet Secretaries.  A decision on nutrient credit trading could have a significant positive financial impact on farm-based energy, including methane digesters, and biomass to electric projects utilizing animal wastes.

Other provisions of SB 11263 include an increase in the state’s Research and Development Tax credits from $40mm to $55 million with the small business share increased from $8mm to $11mm. 

And the Job Creation Tax Credits for small businesses with 100 or fewer employees were set at $1,000 per job and $2,500 for each previously unemployed individual hired into a new job, if the business is increasing job numbers by 10% or more. 

The bill also suspends payments to the Consumer Energy Program in the Department of Environmental Protection.

In addition, the bill also makes changes to the state’s inheritance tax and realty transfer tax laws, exempting the transfer of agricultural real estate and property to a surviving child or sibling from the state’s inheritance tax and transfers of family farm real estate from one family member to another.

Under previous law, children who receive a $500,000 farm through death of the parent would be required to pay approximately $22,500 in inheritance taxes. If the farm is passed by death to surviving brothers and sisters, the inheritance tax liability would be approximately $60,000, with payment of the tax required to be made in cash.

Realty transfer tax exemptions are already in place for certain transactions between family members regarding the sale of other family owned businesses.