Another Drop in Impact Fees Projected for 2024

On the heels of a large drop in natural gas impact fees for 2023, a state agency is forecasting an even lower amount for 2024.

The Pennsylvania Independent Fiscal Office recently released its report on impact fee revenue from natural gas drilling. It estimates that 2024 collections from drillers will be between $165 million and $170 million, which is $10 million to $15 million lower than the 2023 total of $179.6 million. If the estimate holds, the amount will be the lowest on record since 2020, when the pandemic had shut down much of the economy and just $146.3 million was collected.

The 2023 amount was almost $100 million lower than the record $278.9 million in 2022. That inflated amount was largely due to a spike in the price of natural gas to more than $6 per MMBtu as demand from European countries increased and economic activity surged, triggering the highest fee level that operators must pay.

The impact fee was instituted in 2013 as part of Act 13 after the rise of unconventional drilling in the Marcellus and Utica plays in the state and is based on a formula that takes in the average annual price of natural gas, production amounts, and the age of the well, with new wells being taxed at a higher rate than aging wells. The majority of the money is distributed to counties and municipalities based on the amount of drilling there, with portions going to the Marcellus Legacy Fund to help finance environmental and infrastructure projects, and other amounts used to help fund several state agencies and conservation districts.

The IFO said that two factors continue to have significant implications for projected 2024 impact fee revenues. The price of natural gas through June was just $2.07, a 25% decrease from the 2023 average price of $2.74. Gas prices are projected to rise through the remainder of 2024, reaching an average of about $2.60.

While this would not change the impact fee schedule from 2023, a lower number of new wells drilled will. Department of Environmental Protection data shows 163 new wells spud through June, a 19% decrease from 2023. “If the current pace of drilling holds, there will be fewer wells drilled in CY 2024 than any year since the inception of the fee,” the report indicates. Wells in their first year pay the highest level of fee, and offset lower revenue from older wells, which pay lower amounts.

For agencies and municipalities receiving significant impact fee distributions, the two-year revenue drop could have an impact on their budgets and planned capital projects. It also illustrates the roller coaster nature of the energy industry and the impact fee formula. This is particularly important in Western Pennsylvania, as Washington County holds the top spot among impact fee distributions, with Greene County also in the top five.