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Energy on the campaign trail

During Texas Oil Tycoon T. Boone Pickens’ speech at the Franklin Institute last Thursday, The Inquirer reports, he picked up a marker and began to write on a white board. He wrote the words Oil, Coal, and then the letters “N” and “G,” which stand for natural gas. In his speech, the paper quoted him as saying that natural gas is “abundant, it’s cheaper, it’s cleaner.”

“No question,” he said, “Pennsylvania is going to be key.”

This is because Pennsylvania is one of three states that boasts the Marcellus Shale, which is estimated to contain more than 500 trillion cubic feet of natural gas. Of that quantity, 10 percent might be recoverable by drillers, which would translate to a value of about 1 trillion dollars.

As the state plans to end regulation of the price of utilities, the Marcellus Shale presents an opportunity for the state to make a large amount of money. Debate about whether or not to tax natural gas drilled from the Marcellus Shale has been a bone of contention. A tax proposal by the Rendell administration calls for a five percent tax of each well-head’s value but some worry that a tax might drive potential investors away. In March, a state commission tentatively approved an increase on drilling permit fees, raising the price of a permit from $100 to a minimum of $900. This is the first time the price of the permit has been changed since the mid ’80s.

Leasing contracts with the state can be quite profitable. An opportunity to lease land has been offered to ExxonMobil Corporation for a bid of $9 million. But ExxonMobil’s bid was second to the $31 million bid offered by Seneca Corporation, which fell through in April.

In the Philadelphia region, the market price for electricity is set by the cost of natural gas. The threat of high costs of electricity, which could be the result of ending the state’s caps on electrical utility bills, presents a true financial peril to many Pennsylvanians. Democratic gubernatorial candidate Tom Knox calls deregulation a “double whammy,” saying that it will force businesses to cut costs and jobs while also raising the typical worker’s cost of living at home.

Knox has made his opposition to utility deregulation a campaign platform, starting a specific Web site to push the issue.

Others believe that deregulation can lower the cost of utilities. Jan Jarrett, president of PennFuture, an environmental advocacy group, supports competitive electricity markets, saying that the price of electricity in Pittsburgh actually declined when rate caps expired earlier this decade. “Their rates have not gone up, and in fact are lower on a constant-dollar basis than they were in 1996,” she told The Inquirer. “Once the rate caps came off, the competitive suppliers came in, and they vigorously sought business.” Knox says that most of the markets in Pennsylvania have not seen an increase in competition. He believes that rates will rise.

But with the price of electricity in Philadelphia so closely tied to the price of natural gas, the tricky issue of how to generate revenue from the Marcellus Shale drillings will become more and more prickly. As the cost of utilities is deregulated and, if Knox is accurate, prices increase, the cost of natural gas will become increasingly important as candidates craft their own Marcellus Shale policies that would stabilize electricity bills while still generating revenue for the state.

April 27, 2009 at 10:41 pm

--Kenneth Elder

Tags: Ed Rendell, Energy, marcellus shale, Tom Knox

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