Surging natural gas prices could raise Pennsylvania’s impact fee revenue from shale gas wells to new highs this year and shrink its effective tax rate to new lows, according to a report from the state’s Independent Fiscal Office.
The new revenue estimates — between $245 million and $259 million for the 2022 reporting year — come as the Pennsylvania Public Utility Commission confirmed a strong rebound in the impact fee collection for the 2021 reporting year after a pandemic-driven trough.
Companies operating Marcellus and Utica shale wells paid $234 million for 2021 — about $88 million more than for 2020, when the impact fee hit a record low. The annual collection was primarily driven up by the higher average annual price of natural gas last year, the PUC said.
Impact fees are paid in April and distributed in July.
Natural gas prices have continued to climb and are expected to push impact fees higher, even as new drilling has increased only modestly so far this year.
Impact fees are charged per well, but they fluctuate based on a well’s age and the average annual price of natural gas on the New York Mercantile Exchange. Through June, the price was $6.06 per million British thermal units, a 119% increase from the same period in 2021, the fiscal office said.
Analysts expect the price to remain above $6 for the year, which is the maximum rate on the state’s fee schedule.
At that rate, companies would have to pay $64,900 for each new horizontal well and as low as $10,900 for older wells depending on their age, the fiscal office said. Companies would not have to pay higher fees for wells that are four years old or older.
For 2021, more than 85% of the nearly 11,000 wells subject to the fee were four years old or older, according to the fiscal office.
Most gas-producing states implement severance taxes whose rates are based directly on natural gas price and production, but those are secondary factors in calculating Pennsylvania’s impact fees.
The fiscal office found that the annual average effective tax rate for the 2021 impact fee dropped 2 percentage points to 1.3% — the lowest in the program’s history — because the market value of Pennsylvania’s shale gas increased 295% while impact fee collections rose just 60%.
Pennsylvania produced nearly 7.6 trillion cubic feet of natural gas last year, which was worth $17.7 billion at the wellhead, the fiscal office said.
The effective tax rate for the 2022 impact fee is expected to be even lower — 0.6% — the fiscal office predicted.
Impact fees have been charged per well since 2012 to compensate the state and local communities for the shale gas industry’s demands on roads, public services and the environment.
County and municipal governments that host shale wells will receive $123 million of the total revenue from the 2021 impact fee collection, while state agencies will get $25 million and the Marcellus Legacy Fund, which pays for environmental, highway and water projects throughout the state, will get $86 million, the PUC said.
Nearly $55 million of the fees will go to southwestern Pennsylvania counties and municipalities, according to an analysis by the Marcellus Shale Coalition, with Washington County communities receiving nearly $21 million of the region’s share and Greene County communities receiving $15 million.
