Feb 2, 2018 3 min read

Pennsylvania’s Independent Fiscal Office is estimating that tax revenue from the state’s unconventional natural gas wells will produce $219.4 million in impact fees for calendar year 2017.

According to an IFO forecast released Wednesday, the 2017 amount is $46.1 million higher than the amount collected for 2016.

Proceeds from the impact fee are distributed to local governments and state agencies to provide for infrastructure, emergency services, environmental initiatives and various other programs.

The funds are forwarded to the state Public Utility Commission for disbursement to municipalities in April.

Local governments receive funds based on the number of wells located within their boundaries or their proximity to jurisdictions where natural gas extraction occurred.

The impact fee, which was enacted in 2013, is determined according to a bracketed schedule, based on the number of years since a well became subject to the impact fee, the type of well – vertical or horizontal – and to a limited extent, the price of natural gas.

Horizontal wells in operating years four or greater that produce less than 90 thousand cubic feet per day are exempt. Plugged horizontal wells are exempt after remitting the fee in the first year. Vertical wells that produce less than 90 Mcf per day are exempt from the fee in any operating year.

The schedule is based on the average annual price of natural gas on the New York Mercantile Exchange. Because the average annual price for natural gas eclipsed $3.00, the impact fee schedule was adjusted upwards with a net positive impact of $43.4 million.

The impact fee is highest in a well’s first operating year, and declines as the well ages. Revenue from the 812 new wells that went online last year offset reduced collections from older wells as their fees decline and newly exempt wells as their production falls below the 90 Mcf threshold. The positive net impact was $2.7 million.

The effective tax rate is equal to annual impact fee revenues divided by the total market value of unconventional natural gas production. The market value is equal to the product of the annual average regional price of natural gas net of post-production costs and the total production from all unconventional wells.

Total impact fee revenue estimated for the year just completed at $219,371 million compares to $173.26 million in 2016 and $187.71 million in 2015. The new forecasted amount remains below the early years of unconventional well production which in 2013 produced $225.75 million and $223.5 million in 2014.

Counties and municipalities are expected to collect a total of $120.67 million from the impact fees in 2017, while the Marcellus Legacy Fund will receive $80.45 million; Commonwealth Agencies $10.5 million and Conservation Districts $7.74 million.

“Pennsylvania’s natural gas tax provides critical funding for community and environmental programs across the Commonwealth,” said Marcellus Shale Coalition President David Spigelmyer. “This report, along with strong support from local leaders, demonstrates the benefits and effectiveness of this tax, which will total nearly $1.5 billion since 2012.

“Additional and higher energy taxes jeopardize these local benefits and jobs, along with the significant cost-savings that families are seeing in their natural gas and electricity costs.”

The IFO provides revenue projections for use in the state budget process along with impartial and timely analysis of fiscal, economic and budgetary issues to assist Pennsylvania residents and the General Assembly in their evaluation of policy decisions.