Charleston Daily Mail
Gov. Earl Ray Tomblin's 2012 Energy Summit will be Dec. 10 at the Marriott, the state Division of Energy announced. The five previous energy summits were at Stonewall Resort. Asked why the venue was changed, Division of Energy Director Jeff Herholdt said, "The summit traditionally followed the One Shot hunting event based out of the Stonewall Resort. That event was moved to a Saturday in October. We wanted to retain the traditional (summit) timing but elected to move the event to Charleston." Some highlights of this year's summit: A keynote address, "The importance of energy to manufacturing," by Steven Hedrick, vice president of Bayer CropScience and head of Bayer's Institute Industrial Park. State energy plan recommendations by Tom Witt, former director of West Virginia University's Bureau of Business and Economic Research; Cal Kent, former vice president of Business and Economic Research at Marshall University; and Christy Risch, director of research at Marshall's Center for Business and Economic Research. A presentation on the fiscal impact of energy industries on the West Virginia economy by Mark Muchow, deputy secretary of the state Department of Tax and Revenue. A report on energy and natural resource litigation by Dave Flannery of the law firm Jackson Kelly. A presentation titled, "Economic impact of new EPA emissions standards," by Gene Trisko of the American Coalition for Clean Coal Electricity.An overview of development of the Marcellus Shale in West Virginia by Corky DeMarco, executive director of the West Virginia Oil and Natural Gas Association. A report on the West Virginia Natural Gas Vehicles Task Force by Hallie Mason, director of policy in the Governor's Office. A review of the Longview power plant project near Maidsville, Monongalia County, by Plant Manager Charles Huguenard. A report on solar energy installations in West Virginia by Mike McKechnie of Mountain View Solar. A presentation titled "West Virginia Environmental Perspective," by Gary Thompson, program coordinator for West Virginia University-Parkersburg's solar, energy assessment and management technology, heating, ventilation and air conditioning, and residential and commercial electricity programs. Remarks by Gov. Tomblin. The entire draft agenda is posted online at Contact writer George Hohmann at or 304-348-4836.
The Journal
MARTINSBURG - Representatives of the West Virginia Division of Energy were in Martinsburg Friday for the last of three hearings they held throughout the state to get public comments on the draft of the West Virginia Energy Plan. "In Huntington, the focus was on coal," Jeff Herholdt, director of the Division of Energy, said before the hearing. "In Morgantown, it was natural gas and here, we expect the focus to be renewable energy." He was exactly right. Renewable energy, in particular solar energy, dominated the public's comments. Article Photos Journal photo by John McVey From left, Jeff Herholdt, director, W.Va. Division of Energy; Tom S. Witt, professor emeritus of economics, WVU College of Business and Economics; Cal Kent, Ph.D., Lewis Distinguished Professor of Business, Marshall University College of Business; and Christine Risch, director of research, Marshall University Center for Business and Economic Research, present the state’s draft five-year energy plan at a public hearing in Martinsburg on Friday. When the Division of Energy was formed by legislation in 2007, it was charged with writing five-year energy plans for the state. The legislation specifically mandated the plans look at fossil fuels, renewable energy and energy efficiency. As mandated by the legislation, the energy plan is a comprehensive study of those three segments for the state as a whole. The legislation does not compel the plan to take West Virginia's regional diversity into consideration. In the draft plan for 2013-17, a report prepared by members of the Marshall University Center for Business and Economic Research concludes that solar energy on an industrial level is not going to be a strong component of the state's mix of energy resources. The draft report states "that there are few reasons to expand state-level incentives for grid-connected solar energy or to mandate production of solar-powered electricity given the current state of technology." Christine Risch, director of research at Marshall's CBER, helped to prepare the draft report and presented it at Friday's hearing. She said the report concluded that the state should maintain current policies toward solar energy, such as tax credits for installing solar panels, and continue to monitor developments in solar technology. Residential use of solar energy might be the best use of that resource in West Virginia, the report found. Also, because there is no manufacture of solar panels in West Virginia, it does not add to the economic development of the state, according to the report. Some of the about 20 people who attended the hearing wanted to know why the state is not doing more to encourage use of renewable energy; what could the public do to encourage the state to do more with renewables; and why the state is not trying to create jobs through renewable energy development. There also were five speakers with MTV Solar, a solar energy installation company in Morgan County. John Christensen, who is associated with MTV Solar and advocates for solar energy legislation at the West Virginia Legislature, said the state should work to develop solar panel production. "We should attract a solar manufacturer," he said. "We should offer incentives to attract solar manufacturing like we do with other industries. We need to level the playing field. It would create thousands of jobs." Risch's presentation also covered biomass energy, such as ethanol produced from corn; wind energy; and landfill gas and waste to electricity. The energy efficiency segment was presented by Cal Kent, Ph.D., Lewis Distinguished Professor of Business at Marshall's College of Business. Tom S. Witt, professor emeritus of economics with the West Virginia University College of Business and Economics, presented the report on fossil fuels. Comments will be taken through Friday online at Copies of the draft reports also are available at that website. Herholdt said after the hearing that the public comments from the hearings would be synthesized and the final draft would be delivered to the Legislature for lawmakers' consideration. He added that the turnout for all of the meetings was less than he expected. "This was the most contentious of all the meetings," Herholdt said of the hearing in Martinsburg. - Staff writer John McVey can be reached at 304-263-3381, ext. 128, or
Kaiser Health News
The health care overhaul provides a safety net for young adult children, who can now stay on their parents' health plans until they reach age 26. But it doesn't guarantee that their parents' plan will cover a common medical condition that many young women face: pregnancy. Group health plans with 15 or more workers are required to provide maternity benefits for employees and their spouses under the Pregnancy Discrimination Act of 1978. But other dependents of employees aren't covered by the law, so companies don't have to provide maternity coverage for them. Although hard numbers aren't available on how many companies don't provide dependent maternity benefits, "I would say it's common," says Dania Palanker, a senior health policy adviser at the National Women's Law Center. And the number could grow with the recent expansion of coverage to children under age 26, she says. Dan Priga, who heads the performance audit group for Mercer, a human resources consulting company, estimates that roughly 70 percent of companies that pay their employees' health-care claims directly choose not to provide dependent maternity benefits. More From This Series Insuring Your Health In 2008, an estimated 2.8 million women ages 15 through 25 got pregnant, 12 percent of all those in this age group, according to researchers at the National Center for Health Statistics. (That is the most recent year for which there are pregnancy estimates.) An Unwelcome Surprise When Wendy Kline learned this spring that her 17-year-old daughter was four months pregnant, she took her to the doctor for prenatal care. Her insurer denied the claim, citing her employer's policy not to cover maternity care for dependents. "At that point my jaw hit the floor, because I did not know how we were going to pay for this," Kline says. Kline asked her company, a medical equipment retailer in Martinsburg, W.Va., to change its policy. But company officials turned the 26-year veteran employee down. "You work all your life and pay these insurance premiums," she says. "Then you ask for help and can't get any. It's just so unfair." In some states, a pregnant young woman might qualify for Medicaid, the federal-state health-care program for low-income individuals, even if she lived at home with her parents, say experts. But when Wendy and her husband, Andy, investigated, they were told that eligibility would be based on their household income, which was too high to qualify for Medicaid. So far, their daughter's pregnancy has been uneventful, and doctor visits and lab work have totaled $300. But the Klines know the big bills are yet to come. Andy recently took out a $2,000 loan from his 401(k) to put toward the hospital bill. It's a start. According to the March of Dimes, the average cost for uncomplicated maternity care was $10,652 in 2007. That includes prenatal care, a routine delivery and three months postpartum care. In 2010, researchers at the Center for Business and Economic Research at Marshall University in Huntington, W.Va., published a report that analyzed the costs associated with providing mandatory maternity coverage for dependent minors in West Virginia. Teenagers, the report noted, are less likely to get early prenatal care, more likely to smoke and less likely to gain enough weight during pregnancy. Thus, they're more likely to deliver prematurely, resulting in more complications, including a higher incidence of low-birthweight babies. The medical costs for such an infant is nearly 10 times higher than for a baby of normal weight, the report found ($32,325 vs. $3,325), citing March of Dimes data from 2009. Similarly, getting prenatal care sooner rather than later saved as much as $3,200 in medical costs per person. Ensuring that young women have access to prenatal care and other maternity services is "definitely cost-effective," says Jennifer Price, a senior research associate at the center and the lead author of the study. "But it's such a polarizing issue." 'A Basic Health Benefit' The health-care overhaul provides assistance to some young women who become pregnant while on their parents' plans. Under the law, preventive health benefits that are recommended by the U.S. Preventive Services Task Force, a federal agency, must be covered by new plans and by plans that have changed enough to lose their status of being grandfathered under the law. The recommended services include a range of screenings for pregnant women, including those for anemia, hepatitis B and Rh incompatibility. In addition, starting this month, when a non-grandfathered health plan begins its new plan year, it must provide certain other women's health services at no charge, including an annual well-woman visit, screening for gestational diabetes and breast-feeding support, supplies and counseling. Starting in 2014, maternity and newborn care is one of 10 so-called essential health benefits that must be offered by all health plans in the individual and small-group markets, including those that are sold through the state-based health insurance exchanges that will be up and running then. Large-group plans, however, are exempt from the requirement to provide the essential health benefits, now or in 2014. But advocates say that companies and insurers should cover maternity care even if they're not required to. "For young girls, this is a basic health benefit that they need," says Debra Ness, president of the National Partnership for Women and Families. "Why would they deny them access to a health benefit that's so essential?" Please send comments or ideas for future topics for the Insuring Your Health column to
Kids Count
In 2009, West Virginia KIDS COUNT led the Kids First Campaign, a coalition of parents, childcare providers, community leaders and legislative champions who successfully advocated for historic legislation creating the framework for West Virginia’s first childcare quality rating and improvement system (QRIS). While the 2009 legislation was an important milestone in the fight for better childcare, it did not include the funding necessary to implement the QRIS. Therefore, KIDS COUNT is continuing to lead the effort to get this program off the ground and is planning a major push for funding during the 2013 legislative session. There is an important reason why KIDS COUNT has been focused squarely on improving the quality of childcare programs. Did you know that 64,000 West Virginia children under age six spend a large part of their day in the care of someone other than their parents because their parents are working? And, there is only one childcare slot for every 3 children who need care in West Virginia. For the children who are in childcare, the quality of that care is, at best, mediocre. Less than 7% of West Virginia’s 361 licensed childcare centers are nationally-accredited, and 53% of our childcare providers have no more than a high school education and no specialized training in caring for children. High-quality childcare requires well-trained teachers with low teacher-to-child ratios. West Virginia has neither. A QRIS works much like the rating systems for hotels, movies and car safety: the more stars the higher the quality. A childcare QRIS also gives childcare programs the financial and technical supports they need to gradually improve their quality. When West Virginia commits to a full-funded quality system, not only will West Virginia be a better place for kids, it will also be a better place to build a business. We will all reap the rewards of a high quality childcare system, and the time to invest in a better future for our kids is now. The History of West Virginia's Efforts to Implement a Childcare Quality Rating and Improvement System... In 2005, Marshall University’s Center for Business and Economic Research (CBER) found that West Virginia would get a $5.20 return for every dollar it invests in high-quality childcare programs. On the heels of that cost-benefit study, West Virginia KIDS COUNT led an 18-month project that brought early child development (ECD) experts, child advocates, policymakers and community leaders together to establish consensus on West Virginia’s ECD policy needs. Their top policy priority was the creation of a childcare quality rating and improvement system (QRIS). In 2008 and 2009, KIDS COUNT led a statewide, grassroots campaign, called West Virginia Kids First, which created the legislative framework West Virginia’s first childcare quality rating and improvement system. Although the bill had no funding, it did call for the creation rules and a study to assess the cost of implementing the QRIS statewide. By the end of 2011, the Department of Health and Human Resources had submitted the rules necessary to govern the program, and the Marshall University Center for Business and Economic Research had completed the cost study. Everything but the funding is now place to implement the system. In the fall of 2011, a team of West Virginia’s ECD experts and child advocates developed a $50 million proposal to the United States Department of Education for an early childhood “Race to the Top” grant. Included in that $50 million request was partial funding for the implementation of West Virginia’s QRIS. Unfortunately, West Virginia was not one of the first nine states selected to receive the funding, KIDS COUNT, other child advocates, policymakers, business and community leaders and parents are determined to continue the momentum that has been building since 2006. During upcoming legislative sessions, this broad-based coalition is planning to advocate for all of the funding necessary to get the QRIS up and running.
Global Geothermal News
West Virginia’s first Geothermal Energy Conference will take place at the Flatwoods Conference Center in Flatwoods, W.Va., on May 22. Marshall University’s Center for Business and Economic Research and Center for Environmental, Geotechnical and Applied Sciences will play host to the event alongside the West Virginia Division of Energy and the West Virginia Geological and Economic Survey. There will be a variety of topics presented including data analysis undertaken by Southern Methodist University on geothermal energy that, according to CEGAS, “identified the resource potential, current efforts to refine estimates of the cost of electricity produced from the resource, practical aspects of drilling to depths required to encounter geothermal energy resources necessary for efficient use, geologic characteristics of the resource, critical engineering concepts involved with resource development and the experience with demonstrating development potential of a similar resource.” Geothermal energy is generated and stored within the Earth. According to the Union of Concerned Scientists it can be found almost anywhere, “as far away as the remote deep wells in Indonesia and as close as the dirt in our backyards.” “Geothermal energy is unique in that it can provide continuous power production, something most renewable energy resources can’t,” said CBER Director Christine Risch in a Marshall University press release. “It hasn’t been exploited yet in this region because it is high cost and high risk. “This conference will lay out the steps involved in evaluating and developing geothermal resources, including potential ways to reduce costs and uncertainty. The gathering will move us a little closer to an actual demonstration of the capability of the resource here in West Virginia.” Tony Szwilski, CEGAS director, added to Risch’s statement by focusing on West Virginia’s significant past and present in the energy field. “Assessing the potential for geothermal energy in this state is essential, as every domestic energy resource that can meet current and future U.S. energy needs to be evaluated,” Szwilski said. The event is geared toward energy analysts, researchers of emerging technology, geologists, systems and energy conservation engineers, utilities, resource extraction professionals, environmental consultants, economic development specialists and policy makers. More information on the conference can be found at
State Journal
Plastics are a $2 billion player in the West Virginia economy, according to results of a 2009 study completed for the state Polymer Alliance Zone by the Center for Business and Economic Research at Marshall University. Results of the study, which were announced Oct. 14, indicate West Virginia’s plastic industry, directly and indirectly, accounts for more than 22,630 jobs, $1.19 billion in employee compensation, $2.2 billion in economic activity, pays more than $178 million in state taxes, with 75 percent of its customers located out-of-state. “The plastic industry in West Virginia is both robust and diverse and is an economic engine for the state of West Virginia,” Gov. Joe Manchin said. “This is a high-tech, high-wage industry that sells its product all over the globe.” Manchin also noted it’s a growing industry, referring to the June opening of PWP Recycling in Wood County and Kureha Corp.’s partnership with DuPont in Kanawha County to open a new plant. While there is a heavy concentration of plastics firms in the Polymer Alliance Zone counties of Wood, Jackson and Mason, the industry is comprised of more than 75 companies in 33 counties. PAZ President Karen Facemyer noted the industry is making a significant impact across the state. Facemyer said there also are new prospects that may be enticed to locate in the region by the state’s relatively low energy costs. “We’re working with several companies who have expressed an interest,” she noted. “Sometimes it takes several years to get them on line, but low-cost electricity is a driving force to get them here.” Noting that it’s the first study of its kind conducted since 1996, Facemyer described the new report as “a road map that shows where we are and will help us get to where we need to go.” She said data reflecting industry wages was a pleasant surprise. “Polymer companies are paying among the leading salaries in the state,” Facemyer noted. The study indicates plastic industry wages, averaging $54,000, are more than one and one-half times the state average wage of $37,000. The polymer industry produces both final products for businesses and households as well as intermediate products for other industries. “Without question, the plastics industry has a major impact on West Virginia’s economy, comprising $2.2 billion (or 3.6 percent) of total economic activity,” said Christine Risch, director of research for MU’s Center for Business & Economic Research and lead author of the polymer industry study. Risch said the industry cluster in the PAZ counties directly and indirectly employs more than 7,300 people and accounts for 13 percent of all employment in that region. The average plastic industry salary in that area is twice the state average at $74,000 per year. Plastics companies operating in the state include Allied Logistics, Bayer Material Sciences, Chemtura Corp., Commercial Plastics Recycling, DuPont, ICL Supresta, K.S. of WV, Polymer Alliance Services, PWP Industries, PWP Recycling Center, Sabic Innovative Plastics, SDR Plastics, and Star Plastics, among others. The firms can be divided into four types of manufacturing: plastics materials and resins; chemical additives, such as antioxidants, polyols, fire retardants and organofunctional silicones; final and intermediate plastic and polymer products produced from a variety of materials, including urethane, polyurethane, fiberglass, phenolic foam, sponge rubber, polyethylene, polyvinyl chloride, vinyl, cultured marble, latex and polypropylene; services, such as compounding, mold making and plastics recycling. For additional information on the study, the plastics industry or the PAZ, visit the organization’s Web site at
National Women's Law Center
ncluding insurance coverage of prescription contraceptives in an employee health benefits plan does not add to the cost. In fact, it can even save money. A variety of authorities have documented this fact: According to the National Business Group on Health (NBGH), a non-profit organization representing large employers’ perspectives on national health policy issues, the cost of adding contraceptive coverage to a health plan is more than made up for in expected cost savings. In fact, NBGH has estimated that failing to provide contraceptive coverage could cost an employer 15-17% more than providing it. This calculation is based on an economic model that took into account the many direct and indirect costs of unintended pregnancy. Direct costs include costs related to childbirth – which can be among the highest cost drivers of an employer’s health care expenditures. Indirect costs to employers include cost associated with employee absences, maternity leave, employee replacement, and reduced employee productivity. NBGH concluded that because any premium cost associated with including contraception in employees’ insurance coverage is more than offset by avoiding these direct and indirect costs, employers should strongly consider covering all methods of prescription contraceptives in their employee benefits plans (both insured and self-insured). As a result, the National Business Group on Health recommends a clinical preventive service benefit design that includes all FDA-approved prescription contraceptive methods at no cost-sharing. Mercer Human Resources Group, a global human resources consulting firm, also has touted the employer cost savings associated with contraceptive coverage, calling particular attention to the fact that mistimed or unintended pregnancies increase the risk of expensive complications. The Insurance Commissioner of Hawaii issued a report in December 2001 about whether the state’s contraceptive equity law passed in 1999 increased the cost of health insurance. After surveying four health plans in the state that cumulatively covered at least 538,000 members, he concluded that the law “did not appear to have a direct effect on an increase in the cost of health insurance.” The Guttmacher Institute, a nonprofit organization that conducts research, analysis and public education on reproductive health issues, has estimated that for every dollar spent to provide publicly-funded contraception saves $3.74 in Medicaid expenditures that otherwise would have been needed to provide pregnancy-related care for women’s unintended births, as well as one year of medical care for their infants. Independent studies conducted by the nonpartisan Congressional Budget Office and on behalf of the federal agency that implements the Medicaid program have also found that expanding family planning coverage in public programs either saves money or results in no additional costs even in the short run. A 2009 study conducted to estimate the relative cost effectiveness of contraceptives in the United States from a payer’s perspective concluded that any contraceptive method is superior in terms of cost effectiveness to “no method.” Another research team, after summarizing several studies on contraceptive coverage, urged employer consultants to consider the cost-savings of providing this coverage. A 2010 report prepared by the Center for Business and Economic Research at Marshall University in West Virginia looked at the economic costs of requiring contraceptive coverage for minor dependents in the state employee health insurance plan. The study found that the potential reduction in direct obstetrical benefit costs in the first year would be $980,991. The report noted that this estimate “should be considered conservative.” Any direct premium costs to an employer who adds contraceptive coverage to its employee benefits plan are at most extremely modest, and likely to be nonexistent. When the federal government added prescription contraceptives to the Federal Employee Health Benefits Program (FEHBP), it found that this caused no increase in the government’s premium cost. A Guttmacher Institute study concluded that, on average, it would cost a private employer only an additional $1.43 per month per employee to add coverage for the full range of FDA-approved reversible contraceptives. Even if there were such a cost, it would be far outweighed by the savings, as shown by the studies cited above. This is why U.S. Department of Health and Human Services concluded in February 2012, after reviewing the literature on the cost of contraceptive coverage in private and public health insurance programs, that “providing contraceptive coverage as part of a health insurance benefit does not add to the cost of providing insurance coverage.”
Jones Day
n a tough economic climate where many states are cutting incentives and raising tax rates in an effort to increase revenue and close vast budget deficits, debate continues as to the extent that state and local taxation are affecting the exploration of natural gas from the Marcellus and Utica Shales. Such tax incentives may be overridden by logistical concerns such as access to production wells and ability to ship products to market via barge, rail, truck, and pipe. As the primary Marcellus Shale states, West Virginia and Pennsylvania are competing for the exploration, drilling, transportation, processing, and manufacturing of natural gas. The combined tax breaks and credits offered in West Virginia provide incentives for natural gas developers to extract natural gas in the state. In neighboring Pennsylvania, more than three years of legislative gridlock have given exploration companies a huge financial incentive to commence drilling operations in the Commonwealth. Background The Marcellus Shale formation may contain the largest single natural gas deposit in North America, and it lies in close proximity to premium East Coast markets.[1] The Utica Shale, which underlies the Marcellus Shale by several thousand feet, is thicker than the Marcellus Shale and has the potential to be larger than any natural gas field known today. Less exploration and drilling has occurred in the Utica Shale, so estimates of the recoverable natural gas are still highly speculative, and it is unclear how this formation will respond to horizontal drilling and hydraulic fracturing. The Utica Shale also covers a wider area, including all of the Marcellus Shale states, but also covering portions of Ohio, Virginia, Kentucky, Tennessee, Lake Erie, Lake Ontario, and Ontario, Canada.[2] This increased territory means the potential for more states to vie for shale drilling industry resources in the near future. Marcellus and Utica Shale Development: Demand and Infrastructure Access to potentially huge unconventional gas and oil resources has created a paradigm shift in the U.S. energy supply, with the potential wealth of this resource drawing attention from exploration and production companies, as well as ancillary pipeline, distribution, processing, and manufacturing companies that support the natural-gas industry. However, demand for natural gas is essential to ensure that market prices remain stable and that shale-focused exploration continues on an aggressive path. Arguably, the industry is at a crossroads for infrastructure to support production. While commodity prices remain low, it is imperative that Pennsylvania and West Virginia develop additional markets and industrial consumers to purchase the new supply of natural gas and that downstream companies fortify the existing infrastructure to ensure an affordable delivery system. Industry Demand Adapting to Benefits from Plentiful Natural Gas Supply In addition to local industrial and residential customers, large energy consumers are starting to relocate to the region to take advantage of the reduced costs of natural gas. As these energy consumers relocate, Pennsylvania and West Virginia have begun vying for this secondary boost to their economy and tax revenues. In addition to common energy-hungry industries such as steel production, electricity generation, and major manufacturing, other industries use the petrochemicals to create new products. Some natural gas, including much of the gas recovered from the Marcellus Shale, is "wet" gas. Wet gas includes petrochemicals, known as natural gas liquids ("NGLs"), in addition to methane. These NGLs include petrochemicals such as ethane, propane, and butane. NGLs must be removed in order to create "pipeline quality" methane, and at the same time, NGLs are useful in numerous applications. For example, polyethylene, a derivative of ethane extracted from wet gas, is an important raw material for the plastics industry. Shell Chemicals Limited announced on June 6, 2011 that it will build a "world-scale" ethylene cracker in the Appalachian region.[3] As a leader in gas technologies, Shell has an array of long-term options to monetize natural gas. The location of Shell's cracker facility will materially affect gas production and increase job growth in the selected state venue. Like Shell Chemicals, Dominion Resources, Inc. is proceeding with its next major project, the construction of a large natural gas processing and fractionation plant, in the Marcellus and Utica Shale regions.[4] Dominion plans to locate the plant along the Ohio River in Natrium, West Virginia. The first phase of construction includes facilities that can process 200 million cubic feet per day of natural gas and fractionate 36,000 barrels per day of NGLs. The new facility is a response to the need for additional processing and fractionation capacity in the region. The rising price of oil and the low price of natural gas have shifted drilling activity in the Appalachian region from the dry gas areas to the wet gas areas, as producers look to capture the economic value of NGLs. Natural Gas Infrastructure Strained to Keep Up with Production and New Demand Pipelines and storage are essential to creating new markets for natural gas. Existing pipelines are used to transport large volumes of gas across state lines and to high-demand end users. Infrastructure at the right scale from the wellhead to major transport pipelines needs to be built, but the topography of the Appalachian Basin is a major challenge. The sharp production increase is already stressing some existing Appalachian gathering and processing infrastructure, which was originally built to service relatively small, low-pressure gas wells. The production profiles of Marcellus wells are significantly different; their high initial production rates, high pressures, steep decline curves, and significant liquids production in some areas represent challenges for midstream infrastructure developers. Pending completion of an integrated multistate distribution system, additional storage capacity in Pennsylvania and West Virginia is important to the continued development of the Marcellus formation. Marcellus Shale Development in West Virginia West Virginia has been greatly affected by Marcellus Shale development. According to the West Virginia Department of Environmental Protection, as of December 2011, approximately 2,290 Marcellus Shale wells had been drilled in the state.[5] Also, West Virginia's underground natural gas storage capacity accounts for about 6 percent of the U.S. total.[6] In addition to the natural gas produced in-state, West Virginia infrastructure handles three times that amount from out-of-state sources. West Virginia University's Bureau for Business and Economic Research credited Marcellus Shale gas and related industries in the state with creating 7,600 jobs and $2.35 billion in business volume with $14 million in taxes in 2009 alone.[7] West Virginia is an important supplier to the Northeast during the winter months, when the demand for natural gas peaks. Natural gas is produced in 49 of West Virginia's 55 counties, through approximately 40,500 wells. The state is the largest producer of oil and natural gas east of the Mississippi River. It ranks 33rd in the nation for oil production and 11th for natural gas production.[8] Unlike Maryland, New York, and Pennsylvania, which presently do not impose any extraction fee on the natural-gas industry, West Virginia imposes a hybrid severance tax of 5 percent of the wellhead value and 4.7 cents per 1,000 cubic feet ("MCF") extracted. Originally, West Virginia had only a value-based tax, but in 2005 it added the 4.7-cent volume-based tax in order to help correct a deficit in the state's workers' compensation fund.[9] West Virginia does not allow any deductions for expenses relating to the transporting, cleaning, and manufacturing of the gas when it reaches the point of purchase. Ohio also imposes a severance tax of 2.5 cents per MCF.[10] According to a recent study by the Marshall University Center for Business and Economic Research, West Virginia appears to place a higher tax burden on natural gas operators than five surrounding states.[11] The West Virginia Center for Budget & Policy responded to the Marshall University study by explaining that simply comparing the basic statutory rate is not enough. As with any tax system, the "effective rates" of taxation must be evaluated. The effective rate is the result calculated after deductions, limits, and credits. Using this method, West Virginia has an effective severance tax rate of 3.2 percent, well below the national average.[12] The state revenue generated by West Virginia's severance tax is also well below that of other energy-intensive states and represents approximately 7 percent of West Virginia's total tax revenues―consistent with the percentage of state tax revenue generated by severance taxes in Texas, but sharply below that of Alaska (66.1 percent), New Mexico (17 percent), and Oklahoma (11.6 percent).[13] As with any multistate or international business, taxes, labor and transportation costs, and other fees do play a part in where the drilling, extracting, and manufacturing of natural resources transpire. There are a variety of taxes and fees levied at the state and local levels that affect capital investment, including severance and production taxes; corporate net income taxes; real property taxes; sales and use taxes; employment taxes; and permits, bonds, and other environmental fees. Because of the type of shale formation and its location deep below the earth's surface, the exploration for and production of shale gas constitute an expensive and capital-intensive process. Efficient and cost-effective gathering, storage, and distribution of natural gas are important financial considerations, particularly when the 52-week commodity price range for natural gas is below $4.00 per million British thermal units. Taxation is only one of many factors that determine where exploration and production companies will locate. The coal, oil, and gas industries are guided by the location of the reserves, access to markets, commodity prices, and technology. The natural-gas industry is geographically restricted despite mobile capital resources. Marcellus Economic Legislation Passed in West Virginia On March 12, 2011, the West Virginia legislature passed S.B. 465, the Marcellus Gas Manufacturing and Development Act (the "WV Marcellus Act"), aimed at encouraging continued growth in the natural-gas-production sector of the West Virginia economy. Passed with the specific purpose of improving economic opportunities for the citizens of West Virginia, the new law became effective on July 1, 2011, and could go a long way toward ensuring continued growth in the state's already strong natural gas sector. In the legislative findings that accompanied the WV Marcellus Act, the West Virginia legislature found that the development of the shale will increase economic development opportunities in manufacturing, in the transmission of natural gas, and in the transportation of manufactured products. Already shale development has had a positive impact on the West Virginia economy. A recent West Virginia study found that for every dollar spent by the natural-gas industry in West Virginia in 2010, $1.39 of total economic activity was generated.[14] By 2020, development of the shale in West Virginia is expected to create approximately 17,000 jobs and generate $2.9 billion in gross economic activity―$1.6 billion in value added and $1.3 billion in direct payments to households through royalties and industry payroll.[15] In addition to studying the economic stimulus provided to West Virginia from the exploration and production of the Marcellus Shale, the West Virginia Center on Budget & Policy has championed the creation of a trust fund for further economic development and diversification funded by an increase in the state's coal and natural gas severance tax. The West Virginia Marcellus Gas Manufacturing and Development Act The WV Marcellus Act amends the West Virginia Code to provide a variety of incentives to those companies tapping into the Marcellus Shale from locations inside West Virginia and to companies looking to expand into natural gas development. The commitment of the legislature to providing tax incentives demonstrates a key reason why producers in West Virginia are leading the way in the shale's development. Strategic Research and Development Tax Credit As one incentive to continue growth in the shale-gas industry, the WV Marcellus Act redefines "research and development" for purposes of the state's strategic research and development tax credit. Previously limited to the design, refinement, and testing of products or manufacturing processes, eligible research and development costs now include those related to equipment. Under the revised credit, natural gas producers and developers will be entitled to a credit equal to the greater of 3 percent of their annual combined qualified research and development expenditures or 10 percent of the excess of their annual combined qualified research and development expenditures over the base amount (an average of the three previous years of R&D expenditures). According to state senator Brooks McCabe, the passage of the R&D tax credit amendment, and the WV Marcellus Act in general, was intended to aid in "reinvigorating the chemical industry, reinvigorating the natural gas industry, putting in place business incentives that allow people to use more natural gas."[16] Additional Alternative-Energy Tax Credits The WV Marcellus Act also reinstates an alternative-fuel-vehicle credit that had expired in 2007. The WV Marcellus Act defines "alternative fuel" as compressed natural gas, liquefied natural gas and petroleum gas, ethanol, hydrogen, natural gas hydrocarbons, and electricity. The credit of up to $7,500 for conventional vehicles and up to $25,000 for large industrial vehicles is available for the purchase or conversion of dedicated or bi-fueled alternative-fuel motor vehicles. For tax years 2011–2022, the WV Marcellus Act also creates a credit for the construction of alternative-fuel-vehicle infrastructure, including facilities used for storing alternative fuels, intended to encourage investment in the refueling stations necessary to support investment in alternative-fuel vehicles. For tax years 2011–2013, a credit is available for 50 percent of the total cost associated with the construction or purchase of the infrastructure, up to $250,000. The base credit limit is increased by a 1.25 multiplier to up to $312,500 for projects that are generally accessible for public use. After 2013, the amount of the credit declines until it expires. Marcellus Shale Development in Pennsylvania According to the Pennsylvania Department of Environmental Protection, as of September 30, exploration companies had drilled 1,454 new Marcellus wells in 2011, up from nearly 1,400 wells drilled in all of 2010. The Pennsylvania counties with the most significant drilling activity include Bradford, Lycoming, Tioga, and Washington. A May 2010 industry study by the Penn State Department of Energy and Mineral Engineering estimated that the Marcellus industry could create as many as 200,000 new jobs in Pennsylvania by 2020.[17] The income taxes generated from these jobs, along with the corporate income taxes paid by the drilling companies, are expected to produce approximately $1.8 billion in new tax revenue over the next 10 years. Legislators are also eyeing this money to balance the state budget and address the numerous expenses facing Pennsylvania in the coming years. Marcellus Economic Legislation Bogged Down in Pennsylvania For more than three years, the Pennsylvania General Assembly has been debating legislation aimed at imposing an extraction tax on the development of the Marcellus Shale industry. In the 2010 legislative session, Pennsylvania lawmakers found themselves in a stalemate, with Democrats in the House passing what might have been a record-high severance tax nationally and Republicans in the Senate countering with a bare-minimum tax. This year, following elections that shifted control of both the House and the governorship to the Republicans, legislators from both parties seem prepared to work together to form a Marcellus Shale policy that stimulates growth in the Commonwealth while protecting the environment and providing needed resources for communities across Pennsylvania that are affected by the drilling boom. Pennsylvania Marcellus Shale Advisory Commission Report Newly elected Governor Tom Corbett indicated that he would not announce any Marcellus Shale policies until his Marcellus Shale Advisory Commission (the "Commission") completed its study of the industry in Pennsylvania. On July 22, 2011, the Commission released its much-anticipated report. The report includes 96 recommendations for legislative and regulatory action to promote and regulate the rapidly developing Marcellus Shale industry while maintaining infrastructure and protecting the environment and human health. These recommendations are broken down into four major groups: infrastructure; public health, safety, and environmental protection; local impact and emergency response; and economic and workforce development. In the report, the Commission backed the assessment of an impact drilling fee but placed the burden of proving the need for reimbursement on the counties and municipalities that sustain infrastructure damage. No portion of the proposed impact fee was dedicated to the protection of Pennsylvania's natural resources or the funding of statewide programs. The Commission also backed the controversial land-use principle of "pooling," which allows exploration companies to force landowners to lease the rights to their underground deposits if nearby owners voluntarily grant access to their property. Governor Corbett's Proposed County-Level Impact Fee On October 3, 2011, Governor Corbett made the long-awaited announcement that he would support a county-level impact fee to offset the cost to localities resulting from increased drilling. The governor proposed a fee of $40,000 in the first year, $30,000 in the second year, $20,000 in the third year, and $10,000 in the fourth through 10th years, totaling $160,000 in fees during the lifetime of a well, assuming the well produces an average of at least 90 MCF per day during that period. Governor Corbett would also give a fee credit of up to 30 percent for approved investments in natural gas use infrastructure, such as fueling infrastructure or public-transit vehicles. In addition to endorsing an impact fee, Governor Corbett advocated the adoption of many of the Commission's 96 recommendations, including the following: Increasing the well setback distance from private water wells from the current 200 feet to 500 feet, and to 1,000 feet from public water systems; Increasing the setback distance for wells near streams, rivers, ponds, and other bodies of water from 100 feet to 300 feet; Increasing well bonding from $2,000 to up to $10,000; Increasing blanket well bonds from $25,000 to up to $250,000; Expanding an unconventional gas operator's "presumed liability" for impairing water quality from 1,000 feet to 2,500 feet from a gas well and extending the duration of presumed liability from six months after well completion to 12 months; Enabling the Department of Environmental Protection to take quicker action to revoke or withhold permits for operators that consistently violate rules; Doubling penalties for civil violations from $25,000 to $50,000; and Doubling daily penalties from $1,000 per day to $2,000 per day.[18] Besides these various legislative proposals, Governor Corbett highlighted the fact that more than 50 of the 96 Commission proposals were policy-oriented and could be accomplished within state agencies without any new legislation. These 50-plus proposals have the potential to significantly influence future Marcellus Shale development in Pennsylvania, particularly in the areas of environment, health, and safety. It remains to be seen how many of these proposals will be implemented under the governor's leadership. Basing the fee on a county-level approach has been met with significant disagreement. Some opponents have observed that neighboring counties without Marcellus Shale gas reserves will experience residual impacts from drilling, but under the governor's proposal, they would not qualify for any direct impact-fee revenue. Other opponents have suggested that it will generate border wars among counties. On the other hand, the governor has found many supporters of his plan. On October 18, 2011, the County Commissioners Association of Pennsylvania (the "Association") issued a press release expressing its full support for the county impact-fee proposal.[19] While several technical matters remain under review with the administration, the Association expressed confidence that there was clear understanding of the issues and that these issues would be resolved as the legislation progressed. The Ball Is in the Legislature's Court At the end of the 2011 session, two primary impact fee bills are working their way through the General Assembly—Senate Bill 1100 and House Bill 1950. SB 1100 was introduced by Senator Joe Scarnati on May 16, 2011. While SB 1100 claims to be an impact fee, it resembles a tax insomuch as it varies with the price of natural gas. On November 15, 2011, the Senate passed SB 1100 and sent the bill to the House. The bill is currently under consideration by the House Finance Committee, which has not acted on it. A competing measure was introduced in the House on November 1, 2011, as HB 1950. This bill closely follows Governor Corbett's October 2011 impact fee proposal. HB 1950 more closely resembles an impact fee than SB 1100 in several ways. First, while both bills charge a rate that decreases over the life of the well, HB 1950's fee is independent of the price of gas or the production of the well (assuming production exceeds an average of 90 MCF per day). Additionally, HB 1950's impact fee is collected by the local counties and distributed in part back to the state, unlike SB 1100, under which, although the majority of that revenue would also be returned to the locality, the fee itself is collected and distributed on a statewide basis. Although some additions were made as HB 1950 worked through the House, it passed the House on November 17, 2011, in largely the same form that it was introduced. On December 7, 2011, the Senate Environmental Resources and Energy Committee took up consideration of HB 1950. The Senate committee deleted almost the entire text of the bill and replaced it with the language of SB 1100, which had previously passed the Senate. On December 14, 2011, the Senate passed HB 1950 as amended, and returned the bill to the House for its approval. On December 20, 2011, in its last day in session before the holiday break, the House voted unanimously to non-concur on the Senate amendments to HB 1950. This vote forced the bill to a conference committee made up of two Republicans and one Democrat from each of the House and the Senate. The conference committee will attempt to arrive at a compromise. Any compromise impact fee bill that comes out of the conference committee will go directly to the floor of the House and the Senate, without any further committee input, and receive an "up or down" vote, with no opportunity for amendments. The differences between the House and Senate versions of HB 1950 are significant, and compromise in the conference committee will not be easy, nor will it ensure passage through the House and the Senate. For example, while the House version of the bill starts at $40,000 and collects $160,000 over 10 years, as proposed by Governor Corbett, the Senate version of the fee starts at $50,000 and collects $360,000 over 20 years. Another fundamental difference is that in the House version, the fee is administered at the local level, with a portion of the revenue distributed to the Commonwealth, but in the Senate version, the fee is collected and administered on the state level. Beyond just the administration of the fee, further disagreement exists as to how the revenue generated by the fee will be divided among state, county, and municipal governments. Under the House version of HB 1950, 25 percent of the impact fee would be distributed to the state; of the remainder, 36 percent would be retained by the host county, 37 percent by the municipalities where the drilling occurs, and 27 percent distributed to other municipalities within the host county. Of the 25 percent that is distributed to the state, 70 percent is allocated to the Pennsylvania Department of Transportation for various infrastructure projects and maintenance. The remaining state funds will be allocated to various environmental, health, and safety projects, with no planned allotment to the state General Fund. The Senate version of the bill more closely aligns with the desires of Pennsylvania Democrats, whose proposals have included broader distributions at the state level and significant allocations to the Commonwealth's General Fund. In another significant difference, the Senate version of the bill attempts to recoup some of the revenues that have been lost during the past three years of debate by making the impact fee retroactive to 2010. The House version of the bill does not contain such retroactive provisions, and industry groups might challenge the constitutionality of such a retroactive fee. In the end, the extent of the revenue lost by the delayed impact fee legislation could vary greatly depending on the retroactive nature of any bill that is enacted. Conclusion Exploration in the Marcellus Shale formation continues to grow. Industry leaders are making aggressive capital investments in drilling exploration while commodity prices for natural gas remain low, hoping to generate over the long term a stronger internal rate of return on their investments. Expected to yield enough natural gas to meet the country's needs for years to come, the development of the Marcellus Shale is certain to have profound economic effects. By passing the WV Marcellus Act, West Virginia is letting businesses know that the state is open for new investment and has a definitive plan in place to dedicate state revenues to the infrastructure necessary to promote continued growth of the industry. Pennsylvania lacks a similar certainty and predictability, both of which are necessary to optimal development of the industry in Pennsylvania. As investors and companies look for opportunities in the Marcellus Shale, factors such as the capacity and condition of pipeline and highway infrastructure, along with cost and availability of labor, are critical to new shale gas development in both Pennsylvania and West Virginia. But another critical factor is the certainty of the laws affecting the industry. While West Virginia has set predictable business incentives through the WV Marcellus Act, the future of the law in Pennsylvania is still very much up in the air. For Pennsylvania to continue effectively competing with West Virginia for expanding shale investment, it must come to a resolution on these issues. Lawyer Contacts For further information, please contact your principal Firm representative or one of the lawyers listed below. General email messages may be sent using our "Contact Us" form, which can be found at Francis A. Muracca II Pittsburgh +1.412.394.7939 Jeffrey S. DeVore Pittsburgh +1.412.394.7295 Jessica L. Brown Dallas +1.214.969.5213 Jones Day publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our "Contact Us" form, which can be found on our web site at The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the Firm. [1] Projecting the Impact of Marcellus Shale Gas Development in West Virginia: A Preliminary Analysis Using Publicly Available Data, National Energy Technology Laboratory (March 31, 2010). [2] In 2011, most of the drilling activity in the Utica Shale was occurring in a shallow section of eastern Ohio as lease prices remain low and early wells drilled were yielding significant amounts of natural gas liquids. Chesapeake Energy announced that its industry-leading 1.25 million net leasehold acres in the Utica Shale could be worth $15 billion to $20 billion in increased value to the company. Financial and Operating Results for the 2011 Second Quarter, Chesapeake Energy Corporation, July 2011. [3] Press Release, "Shell Plans World-Scale Chemical Plant in USA" (June 6, 2011) (all web sites herein last visited January 23, 2012). [4] Press Release, "Dominion to Begin Construction on New Natural Gas Processing, Liquids Separation Facility" (Aug. 4, 2011). [5] Search Oil and Gas Database, West Virginia Department of Environmental Protection. [6] Projecting the Economic Impact of Marcellus Shale Gas Development in West Virginia, supra note 1. [7] Amy Higginbotham et al., The Economic Impact of the Natural Gas Industry and the Marcellus Shale Development in West Virginia in 2009 (Dec. 2010). [8] Projecting the Economic Impact of Marcellus Shale Gas Development in West Virginia, supra note 1. [9] W. Va. Code § 11-13V-4. [10] Ohio Rev. Code § 5749.02. In addition, Ohio imposes an Oil and Natural Gas Marketing Program fee of not more than 1 cent per MCF. Ohio Rev. Code § 1510.04. [11] Calvin Kent, Ph.D., "Taxation of Natural Gas: A Comparative Analysis" (Oct. 12, 2011). [12] Sean O'Leary & Ted Boettner, Policy Memo from West Virginia Center on Budget & Policy, "Marshall University Natural Gas Tax Study Proves Virtually Nothing" (Oct. 19, 2011). [13] Sean O'Leary, "West Virginia's Severance Tax Below Other Energy Intensive States" (Sept. 15, 2011). [14] Projecting the Economic Impact of Marcellus Shale Gas Development in West Virginia, supra note 1. [15] Id. [16] Mannix Porterfield, "Potential Seen in Marcellus Shale Gas Field," Register-Herald Reporter, Feb. 9, 2011. [17] Timothy J. Considine, Ph.D., Robert Watson, Ph.D., P.E., & Seth Blumsack, Ph.D., The Economic Impacts of the Pennsylvania Marcellus Shale Natural Gas Play: An Update, 3 (May 24, 2010). [18] Press Release, Pennsylvania Office of the Governor, "Governor Corbett Announces Plans to Implement Key Recommendations of Marcellus Shale Advisory Commission" (Oct. 3, 2011). [19] Press Release, County Commissioners Association of Pennsylvania, "County Commissioners Support Corbett Shale Gas Proposal" (Oct. 18, 2011).