Impact fee poised to bring in $38 million less than last year

Pennsylvania’s shale gas impact fee will likely bring in $38 million less this year than last year because of stubbornly low natural gas prices and fewer new wells to pay the levy, according to projections released Wednesday by the state Independent Fiscal Office.

When the fees are due in April, shale gas well operators are expected to pay $185.5 million for wells drilled through 2015. The annual total will be the lowest, by nearly $17 million, of any year since the state began collecting the fees in 2012, if the fiscal office’s estimates are borne out.

The projections are based on a complete picture of the year’s natural gas production reports and well counts, so the office is fairly confident in its figures.

“My sense is the final number, when the [Public Utility Commission] gets the collections, will be within a few million, plus or minus, of where we’re coming in,” the office’s director, Matthew Knittel, said.

Impact fees are assessed after each calendar year on wells tapping the Marcellus and other deep shale layers, with the highest amount due the first year a well is drilled and lower amounts due in subsequent years for up to 15 years.

The number of new wells drilled in 2015 dropped 43 percent from 2014 — from 1,374 to about 785 — which strongly influenced the lower fee estimates.

The fee is also based on the annual average price of gas on the New York Mercantile Exchange, which fell below $3 per million British thermal units in 2015, so companies will have to pay $5,000 less on most wells this year than last year.

Declining impact fee revenue means there will be less money to split between the wells’ host communities — about 18 percent less than last year, according to the fiscal office’s estimates — but the impact on each community will not become clear until the fees are collected and distributed later this year.

The largest share of impact fee revenue is distributed to communities where shale wells have been drilled to offset stresses on roads, services and landscapes. Fees are also allocated to state environmental, infrastructure, emergency management and housing programs.

The new projections are roughly in line with impact fee predictions that the Independent Fiscal Office released last summer when signs of the industry’s drastic slowdown amid low commodity prices were becoming more obvious.

The new estimates match what Gov. Tom Wolf expects to raise from impact fees in the 2016-17 fiscal year, based on the budget proposal he released last week. He is also proposing to enact a 6.5 percent severance tax on shale gas production that would allow companies to deduct their impact fee payments from the new tax.

The fiscal office calculated that weak natural gas prices drove up the average effective tax rate that the impact fee imposes on the industry, despite a steady increase in the amount of gas produced by the state’s wells.

The office estimated the effective tax rate for 2015 to be 5.5 percent — a sharp increase from the impact fee’s 2.1 percent effective tax rate in 2014, when average spot prices at the Dominion South trading point were significantly higher.

Laura Legere:

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