Shale Gas Lobby Backfires in Pennsylvania

January 16, 2015

NOTE: Images in this archived article have been removed.

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Sign image via weaverphoto/flickr. Creative Commons license. 2.0.

This past November, Gov. Tom Corbett became the first standing governor in the last 40 years in Pennsylvania to lose a second term reelection. As the GOP scored overwhelming victories nationally that November night, incumbent Gov. Corbett lost by more than 325,000 votes to Democrat Tom Wolf. Corbett was a powerful first term governor who oversaw the huge shale gas industry drilling boom in the Pennsylvania Marcellus Shale formation which vaulted the state into the middle of a unexpected U.S. energy boom. By the time Corbett took office for his first term, Pennsylvania’s shale gas industry was creating jobs in several of the depressed regions of the state and had created an opportunity for a tax revenue base which would have been the envy of virtually all mid-Atlantic and northeast region states. Yet these facts did not translate into success for a second Corbett Administration term.

Tom Corbett easily won the 2011 Pennsylvania governorship. As Pennsylvania’s standing Attorney General having served in that office for more than seven years, Corbett had a high profile reputation throughout the state combined with a vast political network and strong fund raising capabilities. Democratic Governor Ed Rendell, the former two term governor of Pennsylvania was prohibited from running again by state term limits. This led to Tom Corbett running against Pittsburgh based Dan Ontoranio, a little known Democrat outside the western portion of the state. Corbett, feeding off the 2010 GOP conservative gains, ran on a vigorous platform of anti-tax and pro-business development along with tight fiscal conservatism. Elected in a landslide, he became Pennsylvania’s 46th governor on January 18, 2011.

In 2007, the oil and gas industry, flush with success from the Texas Barnett shale formation, had targeted the Marcellus Shale formation which runs through vast parts of West Virginia, Pennsylvania and New York State, as a prime region to begin drilling hundreds of hydraulic fracking unconventional oil and gas shale wells. With potentially rich dry gas shale deposits in northeastern Pennsylvania, by 2009 and into 2010, the industry was fully organized to begin drilling thousands of shale gas wells throughout the shale formation which dominated most of Pennsylvania.

The industry, led by Chesapeake Energy and its then high profile CEO Aubrey McClendon, began to intensely lobby state officials to expand its drilling operations by opening up public lands, striking down local zoning restrictions and allowing force pooling of landowner lots. Most importantly the industry fought hard for the state not to levy a production tax on the natural gas they planned on taking out of Pennsylvania. As state officials at all levels were struggling to keep up with rapid growth and intense pressure of the industry occurring in the state’s portion of the Marcellus Shale formation, the 2011 Pennsylvania governor’s race took center stage.

Money from the shale gas industry in the form of political contributions began to pour into Pennsylvania in record amounts as the drilling boom took off. According to the Pennsylvania based watchdog group,’s latest report, based on Pennsylvania campaign finance records, "Since 2007, the natural gas industry has spent $41 million lobbying Pennsylvania officials. The industry in the same time period gave $8 million to Pennsylvania candidates and political action committees (PACs). Governor Corbett was the top recipient of the shale gas industry contributions receiving an estimated $2,084,241.00 from the industry since 2007 and an additional $562,652 from industry Political Action Committees." Party PAC contributions heavily favored Republican candidates who received an average of $7.00 for every $1.00 given to Democrats.

The report highlighted the role played by individual wealthy corporate contributors in the last two Pennsylvania election cycles. Per the report the top five individual political contributions were all from the oil and gas industry. Among them Terry Pegula, who in 2010 at the time of Corbett’s run for office was the CEO of East Resources, a shale gas exploration and development company. Pegula became a top contributor to Corbett donating an estimated $667,000.00. By 2011 Pegula had sold his East Resources company to Royal Dutch Shell for a reported $4.7 billion. By 2012, Shell would write off more than $2 billion of the purchase of Pegula’s company as worthless in terms of ongoing shale gas development.

Such high profile campaign donations from individuals is legal under current Pennsylvania campaign finance laws. According to the National Conference of State Legislatures, 39 states typically limit the amounts of political contributions from individuals, political parties and PACs and in the case of corporations and unions, prohibit such donations outright. Six additional U.S. states have no limits on political contributions. Pennsylvania, along with five other U.S. states, limit or prohibit contributions by corporations or unions to political candidates but allow unlimited cash contributions from individuals and other sources.

Even though allowed by Pennsylvania campaign finance laws, the size and scope of wealthy individual donations coming from people directly associated with the shale gas industry and standing to financially gain from not having the industry’s shale gas production taxed had some state Democratic officials complaining that from Corbett’s first day in office, he was beholden to the industry. Political cartoonists, notably John Cole, picked up on this theme with cartoons portraying the newly elected Governor Corbett as "Governor Drillbit" and, "The Marcellus Shill" in a parody of the Marcellus Shale formation.The Governor acknowledged he had received the money but stated, "“Had they not given me a dime, I would still be in this position, saying we need to grow jobs in Pennsylvania,“. When questioned the Governor’s aides simply said the political donations were legal. Otherwise little was done by Corbett and his administration to counter the growing political perception in the minds of many Pennsylvanians about the newly elected governor.

Less than sixty days after taking office, a confident Gov. Corbett made national headlines when in March 2011, he presented to state lawmakers a new state budget that appeared to have slashed more than $1 billion from state education funding. Along with it, a new round of state job cuts, cuts to public welfare benefits and a strong public stance that no new taxes would be raised to close the state’s significant $4.1 billion dollar budget deficit. The Governor’s new tax pledge included no discussions or proposed legislation to tax the production of natural gas that the state’s ever growing shale gas industry was taking out of Pennsylvania’s Marcellus Shale formation.

Education officials at all levels around the state were shocked and stunned at the severity of the Governor’s education cuts. In his defense, much of what was presented as "funding cuts" were the result of the ending of recent federal education funding preceding Gov. Corbett’s current term. Instead of getting the message out about the termination of the education dollars from federal programs and why this funding was going away, Corbett went with a populist anti-tax, anti-regulatory pro-growth message which included his statement, "I want to say something you haven’t heard enough from the building (the Harrisburg capitol building). We get the picture. It’s your money" he said. As the uproar over education funding continued and the Governor’s approval rating began to drop, his subsequent actions to add more state money back into education funding were lost in the overall public perception about the Governor on this issue.

With anger over his handling of education funding simmering in the background, the Governor strongly and quickly began moving to aggressively support the state’s shale gas industry. There was no pending legislation or consideration of a shale gas production tax. This struck many observers as unusual given that many of the largest shale gas producers operating in the state were from Texas and Oklahoma, states which levied taxes on the production of producers within its states. Texas had for more than 75 years been regularly taxing oil and gas production within its state up to 7 percent or more of total revenue earned by oil and gas producers. Funding for Pennsylvania’s emerging wind and solar energy industries were quickly stripped out and allowed to expire. In their place, Governor Corbett provided government subsidies of up to $25,000.00 per truck powered by natural gas. He pushed for the opening up of all state parks, prison and university grounds to allow for shale gas drilling.

As part of this new transition team, the Governor named former Exelon electric and gas utility chief counsel Michael Krancer to head the Pennsylvania Department of Environmental Protection, the main state agency assigned, among other things, to oversee and enforce regulations on the shale gas industry. The agency’s budget as proposed by the Corbett Administration in 2011/012 under Krancer as the agency head called for $140 million a year down from a 2008/2009 level of $217 million. So as the agency was under increasing stress to keep up with the shale gas industry development racing through the state, its operating budget was being continually cut ever since 2009.

Once in office, Krancer fast tracked industry drilling permit requests and removed the authority of local agency field inspectors to levy in field fines for drilling environmental violations. The new process called for any and all proposed drilling violations and related fines to be reviewed directly by senior PADEP management. This change in process brought about a striking number of reductions in violations and a reclassification of a number of violations over into a general category for cases then referred to as administrative and not actual in field violations. Supporters of the industry stated this was proof Krancer’s approach was more realistic and pragmatic while critics charged it amounted to a much les vigorous approach to state regulations in regard to drilling operations.

Krancer, the son of the wealthy and politically connected Ronald Krancer, was caustic and combative toward the federal Environmental Protection Agency and its attempts to regulate Pennsylvania’s shale gas industry. He heavily criticized a ground breaking study by Duke University on methane in Pennsylvania’s drinking water even as Duke researchers detailed how methane would naturally migrate into water supplies. About the Duke study Krancer stated, "I do not think this good science, I think it’s biased science." He set the tone and message for the Corbett Administration when he publically stated, "At the end of the day, my job is to get gas done.", thereby effectively alienating many people concerned about environmental and drinking water risks they believed associated with hydraulic fracking.

At the same time as Krancer was taking office, the Corbett Administration had undertaken a major overhaul of the Pennsylvania’s oil and gas mining regulations. These changes, titled under PA Act 13 were signed into law by Governor Corbett in early 2012. The legislative Act contained three important and highly controversial provisions. The enacting of an "Impact Fee" on per well basis on the shale gas industry. That local townships and municipalities zoning laws for oil and gas mining were now subservient to the state’s zoning regulations and that doctors treating patients for symptoms believe to be caused by hydraulic fracking could not discuss such details with their patients.

Corbett’s Impact Fee on the shale gas industry was highly unusual in structure and format. Instead of an overall tax on shale gas production commonly found in the majority of the 38 oil and gas producing U.S. states, the Impact Fee instead levied a tax on an individual well as it came online. The well was to be taxed over a number years with a decline in the amount of revenue collected each year going forward from when the well first came online. It was the existence of the well not its production that was the basis for the tax levy.

Instead of uniformly using revenues from the Impact Fee, the legislation called for fully half of the fees collected go only to those handful of Pennsylvania counties where extensive shale gas drilling was taking place. This meant out of a total of 67 Pennsylvania counties, less than a dozen counties would receive half and in effect a disproportional amount of the total Impact Fee revenues collected. Such a formula was not the norm for state governments dealing with the industry.

In an ironic twist, while Bradford County, home to much shale gas industry drilling, was prospering with newly found impact fee revenues neighboring Scranton, an old time former industrial powerhouse city which was teetering on the edge bankruptcy received very little direct revenues from the fee as Lackawanna County had minimal drilling operations. Yet the city, given its close proximity to next door Bradford County ended up indirectly and significantly supporting the industry in having to provide police, fire, EMT and traffic safety resources in managing the millions of tons of heavy equipment the industry was transporting through Scranton’s roads to reach Bradford County.

Several reports by the Pennsylvania non-profit, The Keystone Research Center, continued to show how Corbett’s Impact Fee was generating significantly less revenue than a traditional and well accepted production tax. Despite its critics, the Governor’s Impact fee approach did raise on or about $200 million in state revenues in 2012/2013. With the Impact fee in place, the Corbett Administration could accurately say it had a general tax on the industry’s operations but its complicated taxing formula left many with the impression, he was letting the industry off easy.

Act 13’s second main legislative change was equally controversial. It called for the state’s newly developed shale gas industry zoning regulations to take priority over a local Pennsylvania township or municipalities zoning regulations when it came to any mining issues. If a local township for example prohibited a shale gas well within 5000 feet of school but the state allowed such a well to be placed significantly closer to a school, the state’s regulations for zoning took precedent over the local township under Act 13. Several outraged Pennsylvania townships challenged the new law wherein the State’s Supreme Court agreed with several lower court rulings the state’s actions were unconstitutional. Despite the outrage of many local townships and the hundreds of thousands of Pennsylvania voters who lived in them, the Governor vowed to fight the state’s Supreme Court’s ruling.

A third provision which informally became known as the Act 13 medical gag order prohibited in state doctors and health providers from discussing with their patients health risks associated with hydraulic fracking during the course of treating their patients from what the doctors might believe was illness resulting from exposure to hydraulic fracking. The industry claimed this was necessary so as to not have to reveal valuable trade secrets in their varying toxic fracking solutions chemical compounds. In May 2012 during an radio interview with Philadelphia public radio WHYY, when asked about the Act 13 medical gag order provision, Governor Corbett stated on air, "We got to take a look at that. I’m not sure how that got put in there. I don’t recall how that got in there.

"In mid-2012 Dr. Alfonso Rodriquez, a kidney specialist of Luzerne County Pennsylvania who treats industry workers filed a lawsuit in federal court challenging these secrecy provisions in Act 13. The federal judge who initially heard Dr. Rodriquez’s lawsuit dismissed it on the technical legal process grounds that the doctor could not be a party to a suit as he had not personally suffered any harm or damage from the gag order law. Neither Governor Corbett or his Administration officials got involved in any aspect of the case.

Throughout 2012 and 2013 problems were mounting at the Pennsylvania Department of Environmental Protection. In August 2012, Chesapeake Energy, the state’s largest shale gas producer, failed to produce on time its first six month’s of 2012 shale gas production and waste reports. The PADEP published its report making no mention that Chesapeake’s data was missing which greatly skewed the production data for the industry. When questioned by local Harrisburg reporters as to how this could happen, PADEP spokesperson Kevin Sunday replied via email, "The reports speak for themselves, and we share with the public what we receive." His reply opened the door to the realization the state was neither verifying or double checking what the industry was reporting to the state. Financial analysts, stockholders and many groups monitoring the shale gas industry were surprised to learn the Corbett Administration had yet again a very hands off approach to the industry’s activities.

Then in June 2013, suddenly and without providing any detailed explanations, PADEP’s chief Krancer who had been appointed by Corbett announced his resignation and went back to his former law firm, Blank Rome to head up its Energy Industry legal team. Quickly, Gov. Corbett named E. Christopher Abruzzo, his acting Chief of Staff and long time team member, as the new PADEP head in place of Krancer. Abruzzo who lacked energy and environmental experience of any type, raised eyebrows when he publically stated he did not believe in Climate Change at about the time of his appointment to lead the Agency.

Yet another embarrassment occurred for Corbett when in July 2014, the State’s Auditor General issued a stinging report that the Abruzzo led PADEP was not being responsive to citizen’s complaints about water quality issues. The Auditor General wrote, "the PADEP’s ineptitude when it comes to investigating and acting upon shale gas related water complaints from citizens. Sloppy record keeping, lax oversight and poor communication with citizens topped the list of findings." The Auditor General urged great caution when relying on the PADEP for accurate information recalling similar views which occurred at the time of the Agency’s August 2012 reporting confusion and lack of verifying reported data from shale gas producers.

Less than 90 days later and only 30 days before the November 2014 Election Day, then PADEP head Abruzzo resigned, along with attorney Glenn A. Parno, the chief counsel for oil and gas compliance in the very same Department of Environmental Protection Abruzzo headed. Both had been found to be passing back and forth sexually explicit emails on state government server accounts. This forced Corbett to name his third head of the PADEP in less than four years and at a time when the industry was booming. Years of declining budget cuts, intense industry pressure and musical chairs at the Agency’s lead position had taken its toll on the PADEP during Corbett’s time in office.

By 2013 Governor Corbett had a record low approval rating of just 24 percent among Pennsylvanian voters according to the Public Policy Polling survey at that time. Corbett’s approval rating was one of the lowest among 43 state governors that the PPP had surveyed. With budget deficits mounting again throughout 2013 and 2014, little to no revenues were coming from the shale gas industry to help close up deficits. Unemployment throughout the state, albeit from outside of the shale gas industry, was rising. With the Governor’s reelection cycle coming up, Chris Borlick a political science professor at Mulenberg College stated in June 2014, "Corbett is inching toward an untenable position where his stance on this issue goes more and more against what the public would like." He further stated, "At the same time time, the high support from the shale gas industry leaves him in a difficult position for finding compromise."

Out in Bradford and Susquehanna counties considered by many to be the heart of the Pennsylvania’s shale gas production, more controversy was brewing for the Govenor. Many landowners were claiming that Chesapeake Energy, the state’s largest shale gas producer, was short changing and unfairly deducting operating costs from their royalty payments. A sudden decline in the amounts that Chesapeake was paying in royalties came about at the same time the company found itself in difficult financial conditions struggling with billions in short and long term debt. This was the same Chesapeake Energy whose former CEO Aubrey McClendon had played such a large advocacy role in Pennsylvania shale gas development along with McClendon being a major individual political donor to Corbett.

Corbett’s response to the very public royalty dispute taking place in northeastern Pennsylvania was to write a letter to Chesapeake Energy’s CEO Doug Lawler and telling Lawler his company needed to "play fair" with Pennsylvania landowners. Lawler only acknowledge receiving the letter from Corbett but did nothing more directly with Corbett about the matter. Bradford County Pennsylvania commissioners finally wrote to the U.S. Justice Department demanding an investigation into Chesapeake Energy’s royalty payments in their county. The Justice Department did in fact open up a formal investigation which is currently ongoing. Calls to Bradford County Commissioner Doug McLinko by this reporter on these developments were not returned.

After more than 7 years of Pennsylvania’s interstate highways, bridges and overpasses being heavily used by out of state shale gas companies trucking heavy equipment, water tankers, fracking chemical trucks and natural gas storage tankers in and out of state, Gov. Corbett signed into a law a record increase in state gasoline taxes in a major Transportation Bill. Overnight Pennsylvania had the 5th highest gasoline taxes in the country. A multi-year gasoline tax bill, the Corbett Administration claimed the gasoline taxes were at the wholesale level, not raised by the Administration at the pump. Thousands were angered by Corbett raising taxes after promising not to do so. Claims it was on the wholesale level and therefore not a tax on Pennsylvanians at the pump rang hollow and at the same time out of state shale gas companies continued not to pay taxes on record amounts of natural gas being pumped and hauled out of the state.

As it occurred in Corbett’s 2010 election campaign, the political contributions poured in for Corbett from wealthy individuals for his 2014 reelection campaign. According to state finance campaign records, Karen Wright, the CEO of Ohio based Ariel Corporation and her Sr EVP Thomas Rastin, donated together a total of $976,000 to Corbett. The President of Texas based Chief Oil & Gas gave Corbett $238,000 with another $88,000 coming from Thomas O’Malley, chairman of New Jersey based PBF Energy along with $78,000 from Anne Marion, chair of Texas based Burnett Oil Company. Similar to to his election in 2011, just a handful of individual contributors all tied to the oil and gas industry, gave Corbett more than $1.37 million in 2014. But this time the early on euphoria and huge claims of many shale gas industry advocates was missing as Corbett’s poll numbers remained at record lows.

In early 2014, Democrat Tom Wolf had emerged as the front runner for governor representing his party. In large part, Wolf’s consistent message to Pennsylvania voters was that Corbett had missed a huge opportunity by not levying a tax on shale gas producers, that he had cut more than $1 billion of education funding and Pennsylvania was no longer a state with level playing field for varying constituents interests. Throughout 2014 Wolf led Corbett at times by as much as 20 percent in the tolls and held a double digit lead right into the voting booths on Election Day.

In a phone interview, Bill Powers an independent energy analyst and leading energy author, believes many of the mistakes made by the Corbett Administration stem from the fact Pennsylvania has not been a major energy player for decades. "It’s only in the last eight years that Pennsylvania has been dealing with today’s oil and gas shale industry.". He believes Marcellus Shale production in Pennsylvania has been overproduced and for low pricing in return. He stated, "The Pennsylvania Marcellus has been chronically overproduced. The Pennsylvania Leidy Hub has had some of the worst natural gas price levels in the country. Leidry pricing remains in the sub $3.00 to $2.00 per MBTU range while virtually all major natural gas hubs are typically in the plus $4.00 to $5.00 per MBTU price range.

"Taken in total, history may well show that ultimately Tom Corbett suffered from too much of a good thing in the form of aggressive shale gas industry political contributions as allowed by Pennsylvania campaign finance law. Backed by industry and the many Pennsylvanians who support the industry yet want to see it taxed, his actions to expand the industry within the state at a time when deficits, education cuts, rising unemployment and a record round of gasoline taxes, appear to have painted him into a corner he could not escape from. Ironically the very industry Tom Corbett worked so hard to see through as successful now itself continues to suffer from its own self made financial woes as it struggles to deal with an expensive hydraulic shale gas extraction process that ends up putting too much natural gas on the market at one time resulting in dismal financial returns for many of the industry players.

Tags: energy industry, Fracking, Politics, Shale gas