American Oil and Gas Reporter - May 2016 - 93

ConventionCoverage: Pennsylvania Independent Oil & Gas Association

PIOGA Addresses Challenges
Through Public Outreach
By Bill Campbell
PITTSBURGH-The first two speakers
at the Pennsylvania Independent Oil &
Gas Association's spring meeting, held
April 7 at Pittsburgh's Rivers Casino,
laid out the problem. The last speaker
outlined a solution.
PIOGA regulatory consultant J. Scott
Roberts led off the one-day agenda by
reviewing the weaknesses of regulations
based on so-called market failure theory.
He was followed by association lobbyist
Richard Gmerek, who described a state
budget process mired in partisan politics
as well as an administration that was
openly hostile to the oil and gas industry.
At the end of the day, Director of Public
Outreach Dan Weaver related how PIOGA
was fighting back through its public outreach efforts.
Although market failure theory can
be traced to 19th Century England, to illustrate its role in shaping government
regulation today, Roberts turned to the
preamble to the emission standards the
Environmental Protection Agency proposed in August 2015 for new and modified sources in the oil and gas sector.
That document, he said, contends that
pollutants "impose costs on society . . .
that are not reflected in the market price
of the goods produced." Under market
failure theory, regulations are necessary
to correct these "negative externalities."
In this case, Roberts said, the regulatory
analysis concludes that "the quantity of
oil and natural gas produced in a free
market will not be at the socially optimal
level. More . . . will be produced than
would occur if the power producers had
to account for the full opportunity cost
of production, including the negative externality."
In other words, Roberts interpreted,
"EPA has decided the price of oil and
gas is too low. Therefore, it has taken
upon itself to raise that price. This suggests
government has decided to socially engineer markets."
Chapter 78 Analysis
At least in theory, Roberts allowed,

governments' regulatory analyses balance
presumed negative externalities with the
positive externalities derived from such
considerations as low-cost energy and
employment opportunities. But he turned
to the Pennsylvania Department of Environmental Protection's analysis of its
Chapter 78 and 78a rule making to demonstrate how that wasn't always the case.
One example he cited was DEP's observation that multiwell drilling pads disturbed more ground than single-well sites
without acknowledging that fewer drilling
sites were needed.
Another is the benefit DEP claims for
"reducing the potential of impacts to the
environment." That language, Roberts
countered, "suggests these impacts don't
always happen. Yet (DEP) is going to
impose costs it says are reasonable when
compared with the cost of cleaning a
spill or loss of public resources to reduce
a 'potential.'"

Regulations predicated on market failure
theory should consider both positive
and negative externalities, Pennsylvania
Independent Oil & Gas Association regulatory consultant J. Scott Roberts advises the association's spring meeting,
April 7 in Pittsburgh.

Interestingly, he continued, DEP calculates the cost of the revised Chapter
78/78a regulations to the industry between
$79 million and $102 million a year, yet
surmises zero impact on industry revenues.
The agency says the rules impose no
costs on the state, he added, yet the governor's budget message this spring announced the DEP's oil and gas program,
which is funded by industry fees, was
facing a $2.9 million deficit.
Noting the loss of personal income
and sales tax revenues to the state when
industry workers are laid off, Roberts
criticized the analysis for recognizing the
social costs of pollution, but not the increased demand for social services by
laid-off workers.
"If you base 'common-sense' regulations on market failure theory, but don't
look objectively at all externalities . . .
you aren't going to have a fair picture of
what the opportunity cost should be,"
Roberts reasoned. "I would argue these
aren't common sense at all, but are politically motivated attempts to pick winners
and losers."
At The Legislature
Richard Gmerek, who is president and
chief executive officer of Gmerek Government Relations Inc. in Harrisburg, Pa.,
described a state budget process ensnarled
in partisan bickering between Democratic
Governor Tom Wolf and a Republicancontrolled legislature, with both sides declaring victory.
In late March, he noted, Governor
Wolf allowed the Republican-passed budget for the 2015-16 fiscal year to become
law without his signature, but vetoed the
accompanying fiscal code bill. As a result,
Gmerek explained, "There is money to
spend, but no bill explaining how to
spend it. So, (the governor) has been
spending it however he wants. If he determines your program is protecting the
health, safety and welfare of Pennsylvanians, he will pay. If not, he won't fund
you."
Legislators, Gmerek suggested, have
been reluctant to challenge the governor's
legal authority to spend money and risk
MAY 2016 93

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