FILE—In this file photo from March 12, 2020, work continues at a shale gas well drilling site in St. Mary's, Pa.
Keith Srakocic / AP Photo
Impact fees expected to drop due to low natural gas prices
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Rachel McDevitt
Keith Srakocic / AP Photo
FILE—In this file photo from March 12, 2020, work continues at a shale gas well drilling site in St. Mary's, Pa.
Impact fees collected from oil and gas drillers are expected to reach their lowest levels since the program started in 2013, according to estimates from the state’s Independent Fiscal Office.
The change will be felt in varying ways in communities that host drilling, depending on how they’ve used the money.
The IFO projects Pennsylvania oil and gas companies will pay nearly $145 million in impact fees for 2020 when they are due in April. That’s more than $50 million less than what was collected in 2019 and $100 million less than 2018, which was a record high.
The IFO said the decreased fees are mainly because of low gas prices. The average price of natural gas on the New York Mercantile Exchange in 2020 was $2.08 per 1 million British thermal units (MMBtu). The price has been falling, from an average of $3.09 in 2018 to $2.63 in 2019.
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Under the impact fee, drillers pay for each operating well, not the amount of gas produced. The fee varies based on the price of gas and age of the well.
Pennsylvania lawmakers established the impact fee under Act 13 of 2012 as a way to funnel money from the industry to the most affected communities. Pennsylvania is the only gas-producing state to charge an impact fee rather than a severance tax, which would be levied on the amount of gas produced.
Democratic Gov. Tom Wolf has repeatedly proposed a severance tax in addition to the impact fee since he took office, but his efforts have so far been unsuccessful. The gas industry has staunchly opposed a severance tax, saying the impact fee structure ensures Pennsylvanians benefit directly from drilling.
Because the price of gas dropped below $2.25 in 2020, the IFO said the impact fee schedule decreased by $5,000 per horizontal well compared to 2019 levels.
In a statement, American Petroleum Institute Pennsylvania Executive Director Stephanie Catarino Wissman noted the impact fee has raised close to $2 billion since it was enacted. She said the energy sector was affected economically by the pandemic, but continues to contribute “essential revenue” to communities.
“Nevertheless, Pennsylvania’s abundant supply of natural gas presents vast opportunity to continue to utilize these fees for beneficial infrastructure and programs throughout the Commonwealth,” Wissman said.
Washington County Commissioner Diana Irey Vaughan said the lower estimates are disappointing, but not surprising. She said she has seen the downturn in industry in her community over the past year.
Washington County received the most impact fee revenue last year at $6.6 million. Vaughan said the revenue since 2013 has allowed the county to keep taxes low while investing in public safety equipment and capital projects.
She said some smaller communities have come to rely on the fees for their operating budgets.
“I’m hoping that this lower amount that we will be receiving this year will kick back up again in the following year, because, In the long run, what this could mean is higher taxes,” Vaughan said.
The U.S. Energy Information Administration forecasts that gas production will decline slightly this year before ticking back up in 2022. The agency predicts prices will rise to average $3.01 per MMBtu in 2021, then to $3.27 in 2022.
In Bradford County, which received $4.8 million last year, Commissioner Daryl Miller said he was expecting less money from the fees.
The county has used past revenue for things such as a new 911 public safety building and courthouse improvements. But Miller said the county has never counted on the money to operate, in part because of uncertainty over a state severance tax.
“So, it’s not like in large part there have been any programs implemented that were dependent upon these Act 13 funds,” Miller said.
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