September 10, 2012 | By | Posted in General News

Natural gas fee yields higher-than-expected revenue for 2011

By Eric Boehm | PA Independent

HARRISBURG — Pennsylvania is set to collect more than $200 million in retroactive fees from natural gas drillers who operated in the state during 2011.

A report released Monday by the state Public Utility Commission, which is charged with collecting and distributing the so-called “impact fee” approved by state lawmakers in March, detailed the revenue collected by the new fee but did not include a county-by-county breakdown for how the revenues will be distributed. Counties and local governments will ultimately claim about 60 percent of the drilling fee revenues, but those totals will not be finalized until Dec. 1.

Companies drilling for natural gas in Pennsylvania will pony up more than $200 million for their activities in 2011.

The impact fee revenues for 2011 are about $26 million higher than the $180 million in revenue estimated by the state when the fee structure was passed in March.

“We’re not naming counties or giving counties money,” said Jennifer Kocher, PUC spokeswoman. “We’ve got to set the bucket of money first, so today we’re setting the list of producers that have wells that are subject to the fee.”

The state has collected about $198 million in 2011 impact fee payments and is seeking another $8 million.

In total, nearly 4,500 natural gas wells qualified for the fee during 2011, according to the PUC. Companies will have until next September to pay for wells drilled and operational during 2012.

The largest bill was sent to Chesapeake Appalachia, a subsidy of Chesapeake Energy, which had more than 600 wells that qualified for the fee. The company paid its $30.8 million bill in full, according to the PUC.

Talisman Energy and Range Resources — the second and third largest drilling operators in the state — had also paid in full to the tune of $26.4 million and $23.6 million, respectively. (Click here for a full breakdown of companies and assessed fees)

As part of the omnibus natural gas drilling policy approved by the state in March, drillers were responsible for paying the impact fee on wells operational in 2011 — before the law was passed.

Each horizontal gas well in the state — the kind used to extract gas from the Marcellus shale and other rock formations — must pay the PUC an impact fee that declines from $50,000 in the well’s first year of operation to $10,000 in the 20th year, after which no more fees are required.

If a well is operational for 20 years, it will contribute a total of $360,000 to the state impact fee.

Kocher said some companies are disputing which wells are subject to the fee.

She said most of those disputes have to do with the traditional, vertical natural gas wells that are subject to a $10,000 annual fee if they produced more than 90,000 cubic feet of gas during 2011.

Each year the state will skim about $8 million off the total revenue collections to be used for conservation projects, the state Fire Commissioner and the state Fish and Boat Commission.

After that, the remaining revenue will be divided between counties and local governments that host gas drilling and the state.

Local governments can use their impact fee dollars to fund transportation projects, water-and-sewer projects, emergency preparedness and local tax reductions.

The state will divide its share of the bounty between infrastructure, water, sewer and environmental projects.

Washington County Commissioner Larry Maggi said he was “pleasantly surprised” by the higher-than-expected revenues.

“Government has a habit of overestimating, so we didn’t expect that,” he said.

With Washington County’s expected $5 million haul in fee revenue, Maggi said the focus would be on rebuilding infrastructure like roads and bridges.  The county also plans to start a legacy fund and make annual contributions with fee revenue, he said.

In Bradford County, home to the largest number of Marcellus wells in the state, County Commissioner Doug McLinko said Monday the $8 million to $11 million the county expected to gain from the impact fee was “a drop in the bucket” compared to the hundreds of millions of dollars in new tax bases the natural gas industry has provided in the form of development, construction and new jobs.

“It’s been a real windfall, but being a tradition, we had to start taxing it,” said McLinko, an outspoken critic of the impact fee when it was debated.

But the fee will be good for residents, he admitted, since it would allow Bradford County to pay off debt and reduce taxes.

Environmental groups also opposed the impact fee before it was passed, but for a different reason. They argued the fee was not high enough to cover the costs associated with the drilling industry and to pay for a variety of environmental programs they favor.

Monday, George Jugovic, president and CEO of PennFuture, an environmental organization based in Harrisburg, said the impact was a “politically-negotiated compromise.”

“That might seem like a lot of money in the abstract,” he said of the impact fee collections. “But when you divide that pot of money over the entire state, it doesn’t seem like it would address all the impacts of the industry.”

But Kathryn Klaber, president of the Marcellus Shale Coalition, an industry group, called the figures “staggering” in a statement released Monday.

“Responsible American natural gas production is helping to support tens of thousands of good jobs and providing enormous, much-needed revenues for critical services,” she said.

Though the state established and administers the fee, each individual county had to implement it on gas drilling taking place within its borders.

Kocher said all counties with gas drilling approved the fee and would be eligible to receive the revenue when it’s distributed in December.

Contact Boehm at and follow @PAIndependent on Twitter.

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Eric Boehm is a reporter for PA Independent. He can be reached at or at (717) 350-0963.

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