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Thursday, November 11, 2010

Board OKs new Water Line in Gas Drilling Area


A Pennsylvania state water and sewer project financing agency on Tuesday approved nearly $12 million to extend municipal water service to residents of a small town who are complaining of tainted well water in the midst of heavy Marcellus Shale natural gas drilling.

State environmental regulators view the money approved by the Pennsylvania Infrastructure Investment Authority board as essentially a down payment, saying they plan to sue to recoup the money from Houston-based Cabot Oil & Gas Corp.

The board voted after hearing a lawyer's threat that Cabot will sue to overturn an approval, as well as pleas from Dimock residents who say that for two years, they have been unable to use their brown, methane-tainted and rash-causing well water.

One man from Dimock, a rural community 15 miles south of the New York border in northeastern Pennsylvania, toted a plastic milk jug of brown water -- poured from his tap, he said.

The clash between the state and Cabot over Dimock is Pennsylvania's highest-profile regulatory dispute in the Marcellus Shale since drilling crews, financed by cash from around the world, were lured two years ago by what could become the country's largest natural gas field.

"The only thing that I regret is that it's taken two years for this company, Cabot, to be faced with a solution," John Hanger, secretary of the Department of Environmental Protection, said after the meeting. "You saw today what Cabot does: They bring the lawyers in. They've done that for two years. They are unique in having lawyered up, as opposed to really dealing with the problem. Every other company I've dealt with ... has accepted responsibility and gone through the work of fixing the problem."

The applicant, the Pennsylvania American Water Co., would use the money to connect 14 households, and possibly more, to the water system of Montrose, a town about 6 miles away. Construction is expected to take more than a year, and would be completed after a newly elected governor, Republican Tom Corbett, takes office in January.

Cabot denies that it is responsible for the polluted water wells, saying its wells were properly designed and built to prevent gas from migrating underground and into the water table.

A Houston-based lawyer representing Cabot, Douglas Daniels, asked the board to put off consideration of the application, and said its rushed filing and consideration violates state laws and agency procedures -- assertions rejected by authority staff.

Daniels then said numerous parties, including some local governments, plan to sue over the approval.

"Because Secretary Hanger has made abundantly clear ... that he will seek to use the resources of the commonwealth to force Cabot to pay for this line, Cabot will have no choice to join in those efforts," he said.

The board approved a $11.6 million grant and $172,682 loan.

EDITORIAL: Marcellus Shale Tax a must for Pennsylvania

DelCo Daily Times

For the last couple weeks, the Daily Times Editorial Board has been interviewing candidates for state and local offices. There hasn’t been a lot of happy news coming out of those sessions — particularly those with incumbent state legislators.

Republicans and Democrats alike say Pennsylvania is staring at a fiscal abyss in the next year. With an economy that barely has a heartbeat, it’s being projected that the state is looking at a deficit of anywhere from $3 to $5 billion.

Making the situation worse is the fact that the man who is most likely to become the next governor — Republican Tom Corbett — has flatly ruled out any new tax or tax increase to help fill that gap.

(Corbett this week did propose one revenue producer: Selling the state store system. But that’s an idea that’s been bandied about Harrisburg for decades, always with the same result: An ignominious death.)

There is another source of revenue that most lawmakers deem promising. That is a proposed tax on natural gas extraction in the Marcellus Shale region — a rock bed the size of Greece that lies about 6,000 feet beneath New York, Pennsylvania, West Virginia and Ohio. Since late 2008, gas drillers have crowded the area, which they believe could supply the entire country’s natural gas needs for up to two decades.

Almost all of the natural gas produced in the United States is subject to a severance tax, which produces a significant source of revenue for a wide variety of services — as well as dealing with the inevitable environmental problems the extraction process, called fracking, produces.

Pennsylvania is the only state in the nation that does not impose a severance tax of any kind. That, according to the Pennsylvania Budget and Policy Center, has led to a $100 million loss of potential revenues in the last year alone. The commonwealth is giving away, for free, a one-time resource to energy companies that gladly pay for it everywhere else in the nation, the center said in a report issued Thursday.

Now, $100 million is a drop in the state’s money pit. But it’s nothing to be ignored.

How likely is it that the state Legislature will do the right — and fiscally responsible — thing?

It’s not looking good at this point. Harrisburg Democrats, seeing riches, are proposing substantial tax penalties; Republicans, saying they fear a big tax will scare drillers away, want minimal levies. Gov. Ed Rendell, who knows Corbett opposes any extraction tax, has been trying to play the middleman and bring those parties together.

But Thursday, he said that process “clearly is dead” for this year and blamed GOP intransigence. A spokesman for Senate Republicans said they were surprised by his stance, and they are willing to continue talking.

Perhaps it will take the November election to get the process going again. If Corbett wins, as expected, that may spur responsible members of both parties to come to an agreement.

Clearly, the tax is the right thing to do. The prospect of drowning in $5 billion worth of red ink makes it the necessary thing to do, too.

Monday, November 8, 2010

Penn Evaded Harvard Losses With `Defensive' Fund, Marks Says


The University of Pennsylvania, the Ivy League school founded by Benjamin Franklin, outperformed its wealthiest peers by avoiding many hard-to-sell assets such as real estate, according to Howard Marks, former chairman of the the investment committee.

Penn held less in private equity and property, more in stocks and owned a “defensive” mix of hedge funds, as well as “substantial” cash and short-term U.S. Treasuries, Marks wrote in an Oct. 20 memo to trustees, obtained by Bloomberg News. The Philadelphia school’s investments fell 16 percent in the year ended June 2009, versus the 27 percent and 25 percent declines of Harvard and Yale, the two richest U.S. universities.

“Most things in investing are two-edged swords: if you do more of them, you’ll make more if they work but lose more if they don’t,” wrote Marks, chairman of Oaktree Capital Management LP in Los Angeles, who left his endowment post on June 30. “Two prominent examples are (1) using borrowed money, or ‘leverage,’ to magnify results and (2) investing in illiquid assets that can’t always be sold on demand other than at a substantial discount from their fair value.”

The $5.7 billion fund outperformed Harvard in Cambridge, Massachusetts, and Yale in New Haven, Connecticut, again in the past year, while still trailing them over the last decade. Yale’s David Swensen pioneered the strategy of using private equity, real estate and commodities to beat stocks and bonds. These infrequently traded stakes ballooned as a percentage of big endowments when markets tumbled after the September 2008 bankruptcy of Lehman Brothers Holdings Inc.

5.6% a Year

Penn averaged annual increases of 5.6 percent in the past decade, compared with the 7 percent and 8.9 percent returns at Harvard and Yale, and its own target of 8.25 percent. In the year ended June 30, Penn gained 13 percent on investments, tied for third-best in the Ivy League, while Harvard’s $27.6 billion endowment climbed 11 percent and Yale’s $16.7 billion fund advanced 8.9 percent.

Columbia University’s $6.5 billion fund in New York led with a 17 percent gain, followed by Princeton University’s $14.4 billion endowment in New Jersey, which increased 15 percent. Cornell University’s $4.4 billion endowment in Ithaca, New York, matched Penn last year.

Yale was the worst performer among the eight Ivy League schools, while Harvard ranked fifth.

Marks, 64, started Oaktree after leaving TCW Group Inc. in 1995. The firm managed $75.1 billion, as of June 30, in investments including distressed debt, high-yield and convertible bonds, private equity and real estate. Marks, who graduated from the Wharton school in 1967, served on Penn’s investment committee for 13 years and established the Marks Family Writing Center in 2003 on campus.

Not ‘Superhuman’

“As I wrote last year, ‘everyone had regrettable investments in his or her portfolio -- given the climate, you’d have to be superhuman not to,’” Marks said in his final letter to trustees after 10 years as the head of Penn’s investment board. “What matters is how many, how big and how bad Endowments in general had more of these than other investors in 2007-08, and thus they experienced bigger problems.”

Robert Levy, chairman and chief investment officer at money manager Harris Associates LP in Chicago, has taken over the chairman role at Penn, Marks said yesterday in a telephone interview.

“Investors have a choice between trying to maximize and trying to build in security,” Marks said in the interview. “There isn’t a right over wrong. Everybody has to make that choice for themselves. I think the events of these recent years demonstrate that choice and action.”

Stressing Stability

Penn’s investment committee emphasized stability over maximizing returns and achieved “a respectable return and minimized disappointment and difficulty in bad times,” Marks said.

In the past decade, the endowment added holdings of non- U.S. equities and hedge funds, lessened its preference for value stocks over growth companies, diversified its mix of investment managers and added venture capital and buyout firms, albeit to a smaller extent than its peers, Marks wrote. In 2004, the school appointed Kristin Gilbertson as CIO, growing its internal endowment management capabilities, he wrote.

The Ivy League schools are private institutions in the northeastern U.S. None has recouped the record losses incurred in the year ended in June 2009. As investments tumbled, universities cut jobs, froze salaries and postponed building projects.

Penn dodged the hundreds of layoffs, construction delays, discounted sales of illiquid investments and debt issuance of several of its peer institutions because the university was less dependent on its fund, getting 10 percent of its budget from endowment earnings, Marks said. In comparison, Harvard and Yale get more than one-third of their budgets from endowment income.

“Never forget the 6-foot-tall man who drowned crossing the stream that was 5 feet deep on average,” Marks said. “Prudent financial management doesn’t get you through ‘on average’ -- rather, it enables you to survive the low points."

Wednesday, November 3, 2010

Pennsylvania Airport with Feral-Cat Problem announces Plans to trap, neuter and release Cats

LA Times

ALLENTOWN, Pa. — An airport in eastern Pennsylvania that is dealing with a feral cat problem has announced plans to trap the felines and send them to a farm -- not euthanize them.

Lehigh Valley International Airport has reached an agreement with the Allentown group No Nonsense Neutering.

The Morning Call of Allentown reports the airport plans to have the cats trapped, spayed or neutered and then sent to a farm.

Animal lovers were upset last month when the airport said it would consider killing the cats.

Martha Kahan, president of No Nonsense Neutering, says the new agreement is a "win-win."

On Saturday, she trapped three of the cats and she says she plans to keep trapping them until she gets them all.