There has been a lot of talk regarding Pennsylvania Governor Wolf’s announcement proposing the creation of a severance tax on natural gas. With this recent buzz, we here at the Shale Gas Knowledge Hub wanted to republish our explainer of Pennsylvania’s impact fee by SGKH writer and contributor Jim McElfish. If you have any specific questions please remember to utilize the AMA/Contact page on our website.
The Pennsylvania Oil and Gas Act of 2012 (also known as Act 13), 58 P.S. §§2301-3504, created a new source of public funds derived from shale gas producers – the impact fees. The impact fees are paid annually to the Commonwealth primarily by the operators of unconventional gas wells, and are designed to offset the impact of shale gas development on state and local governments in Pennsylvania.
More than half of the impact fee revenues are distributed directly to local governments (county and municipal governments). A smaller portion of the fee revenues is placed in the Marcellus Legacy Fund and distributed to all Pennsylvania counties and municipalities to finance environmental, infrastructure and development initiatives. (See Sections 2301 – 2314 of the Pennsylvania Oil and Gas Act, 58 P.S. §§2301-2314.)
How are the impact fees calculated?
Unlike a severance tax, which is generally based on the production of oil or gas from a well, the impact fees are calculated using a formula that for each well declines year over year and takes into consideration the number, type (horizontal or vertical), and age of unconventional wells that a gas producer has spud (or commenced drilling) and the average price of natural gas. The fees for each well are paid for the first fifteen years of a horizontal well’s life and the first ten years of a vertical well’s life, in a declining amount each year. The fees are paid to the Pennsylvania Public Utility Commission (PUC) by April 1 of the year following the year for which the fees were calculated.
How are the impact fees distributed?
The PUC distributes the Impact Fees by July 1, according to the following rules:
The first portion of the funds, approximately $25.5 million, is earmarked for several state agencies to offset statewide impacts of unconventional well development;
60% of the second portion of the funds are set aside for two purposes:
the first $5 million is deposited into the Pennsylvania Housing Affordability and Rehabilitation Enhancement Program to increase the availability of quality, safe low-income housing in counties hosting wells, and
the remainder is distributed directly to counties and municipalities hosting or situated near wells, using a formula that considers the number of spudded wells, location, population, and road miles in each local government; and
40% of the second portion of the funds are deposited in the Marcellus Legacy Fund for use by all Pennsylvania counties to fund infrastructure, environmental, and development initiatives with potential local value.
How much impact fees have been paid to date?
To date, the Impact Fees have been collected five times – in 2012 (for 2011 well activity), 2013 (for 2012 well activity), 2014 (for 2013 well activity), 2015 (for 2014 well activity), and 2016 (for 2015 well activity). The amount collected in 2016 was recently announced by the PUC and was recorded at roughly $187.7 million, a 16 percent decrease from the previous year. The following chart reflects the previous amounts reported and the well counts supporting those amounts:
YearTotal Fees CollectedExisting Horizontal WellsExisting Vertical WellsNew Horizontal WellsNew Vertical Wells2012$204.2 Million——40223112013$202.5 Million40152321309522014$225.8 Million50892151188582015$223.5 Million5845191133124
How can counties and municipalities spend the impact fees?
Counties and municipalities that receive impact fees directly can spend them for the following thirteen purposes:
Roadways, bridges, and public infrastructure
Water, storm water and sewer systems
Emergency preparedness and public safety
Preservation and reclamation of surface and subsurface waters and water supplies
Projects to increase safe and affordable housing
Records management, GIS and information technology
Delivery of social services
Deposit into the capital reserve fund for future use in one of the approved categories
Career and technical centers
Local or regional planning initiatives
Pages 79-96 of Getting the Boom Without the Bust by W&J College and the Environmental Law Institute offer a fuller discussion of Act 13 impact fees.
The Independent Fiscal Office’s report entitled “Impact Fee Update and 2015 Outlook” provides information about the impact fees.
The PUC website presents impact fee distribution and expenditure reports.