An update on lawmaker action and other activities at the Ohio Statehouse related to horizontal

An update on lawmaker action and other activities at the Ohio Statehouse related to horizontal hydraulic fracturing:

Compressed natural gas: The state Controlling Board approved a $100,000 grant to help Trumbull County officials gauge the benefits of using vehicles that run on compressed natural gas.

The funds will be used by the county engineer for a two-part feasibility study on the advantages of converting current vehicles or purchasing new ones, as well as the potential construction of a CNG fueling station in the county.

Eastern Ohio’s emerging shale oil fields have prompted increased attention to using natural gas in private and public fleets.

Local or state regulations? The Ohio Supreme Court heard oral arguments in a case that pits the city of Munroe Falls in Summit County against the state and an energy company.

The latter sought and received permits from the Ohio Department of Natural Resources to drill in an area zoned for residential uses. The city challenged the location, saying local zoning rules prohibited drilling in the area in question and instead should be focused in industrial areas.

A trial court sided with Munroe Falls. An appeals court ruled the driller had to comply with certain local ordinances but that the city’s zoning rules were in conflict with state law.

Thomas Houlihan, representing the city, argued that the local zoning ordinance and state regulations could operate in harmony, because they address different issues. The zoning rules focus on the location, while ODNR regulates drilling methods and production.

Legal counsel for the state and Beck Energy Corp. countered that state law clearly gives ODNR sole authority to regulate the location of oil and gas wells.

Questions about rules: Environmental groups are questioning rules proposed by the ODNR related to horizontal well sites.

“A detailed look at these proposed rules suggests that they are simply a guidance document for industry and have no teeth,” Teresa Mills, fracking director for Buckeye Forest Council, said in a released statement. “These are not meaningful rules. ODNR is letting the oil and gas industry regulate itself.”

Cooperation: Lawmakers and policy groups in Ohio, Pennsylvania and West Virginia called on their respective states to work together to adopt uniform tax rates for the oil and gas industry.

Policy Matters Ohio, the Pennsylvania Budget and Policy Center and the West Virginia Center on Budget & Policy sent letters to the governors of their states on the issue.

“A comparable tax rate will allow our states to invest in a stronger economic future,” Sharon Ward, director of the Pennsylvania Budget and Policy Center, said in a released statement. “It will create consistency for the industry, ensure that our communities are benefiting, and allow our states to address the impacts of drilling.”

Rep. Bob Hagan of Youngstown, D-58th, joined the groups in support of the move.

“Ohio’s severance tax is woefully outdated and greatly undervalues our precious natural resources,” Hagan said. “By working with our neighboring states, we can both ensure proper remuneration and help protect our communities from the impacts of hydraulic fracturing.”

Frack tax: Gov. John Kasich unveiled his mid-biennium budget package, including a revamped effort to increase taxes on oil and gas production via horizontal hydraulic fracturing.

The governor wants to increase tax rates on oil and gas to 2.75 percent, a decrease from his initial severance tax proposal a couple of years ago. He would exempt small conventional producers, as well as companies’ initial drilling costs. And about 20 percent of the proceeds of the new tax would go to local government in shale oil and gas regions.

Not on board: Oil-and-gas industry groups are not supporting the governor’s latest proposal, however. Tom Stewart, executive vice president of the Ohio Oil and Gas Association, said his members are backing House Bill 375, not Kasich’s approach.

The latter legislation calls for an increase of 1 to 2 percent on oil and gas produced via horizontal hydraulic fracturing, with proceeds going first to regulatory efforts and then to a possible income tax cut.

“We think HB 375 provides clarity to the industry and tax fairness but also provides an opportunity to expand the exploration window into areas that are technologically challenged right now,” he said. “Our goal has always been that tax policy should encourage the widest exploration possible.”

Earthquakes: Kasich said state officials continue reviewing data related to a series of earthquakes in Poland Township to determine if fracking is to blame.

“We just stay calm in all of this and work as quickly as we can to figure out if the problem was caused by drilling,” he said. “If it’s something else, we’ll know and we’ll take appropriate action.”

The U.S. Geological Survey recorded five earthquakes south of Lowellville in Mahoning County, ranging in magnitude from 2.1-3.

In response, ODNR ordered a company to cease its drilling activities in the vicinity of the epicenter. ODNR spokesman Mark Bruce said the state agency continues to review seismic data to pinpoint potential causes.

“We are focused on gathering and analyzing all available data including seismic information and company logs such as drilling, stimulation and completion logs. ... The prudent action moving forward is to allow ODNR to complete our review then take any appropriate next steps,” Bruce said in a statement.

Marc Kovac is the Dix Capital Bureau Chief. Email him at mkovac@dixcom.com or on Twitter at OhioCapitalBlog.