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Pennsylvania Auditing Shale Gas Impact Fee Spending, Distribution

Pennsylvania Auditor General Eugene DePasquale said this week that his office has started an audit of the Pennsylvania Public Utility Commission's (PUC) collection and distribution of the unconventional shale gas well impact fee and how the funds are being spent by counties and municipalities.

The auditor general's office said last year it would likely investigate how the fee is being administered and spent (see Shale DailyDec. 28, 2015). Producers have paid nearly $856 million since the impact fee was enacted in 2012 (see Shale DailyJune 11, 2015). But more than $30 million has gone unreported by municipalities and counties, mostly because they failed to report the funds properly during the first year they were disbursed and spent.

"It has been several years since these fees were implemented, so now is an appropriate time to do this audit to ensure this money is being monitored by the PUC and the counties and municipalities are using the funds as Act 13 intended," DePasquale said of the legislation that established the fee. The audit period begins Feb. 14, 2012, when the law was passed.

The impact fee is charged for all unconventional wells in the state during their first 15 years in operation, regardless of how much they produce. It is calculated with a multi-year schedule that is based on the average annual price of natural gas. The PUC collects the fees from producers and distributes the money to counties, municipalities and state agencies. Last year, DePasquale said his office primarily received complaints about impact fee spending from the heaviest areas of shale drilling in the northeast and southwest parts of the state.

The office said its performance audit would determine whether the PUC "has accurately calculated and distributed" the fees in accordance with state law. It would also determine if all required reports have been filed by the counties and municipalities and appropriately processed by the PUC. The audit would investigate whether counties and municipalities have properly spent the fees, as well.

When the legislation was signed into law, it did not require state audits of local spending (see Shale DailyFeb. 15, 2012). The PUC details government spending of impact fees on a special website with information reported by localities. Some local governments maintain that they don't have the staff to meet reporting requirements.

While the fees can be used for a wide variety of public spending items, the PUC's website shows that most of the money has been used for emergency preparedness, water preservation and public infrastructure. In 2014, Washington, Bradford and Susquehanna counties received the most money, with each taking in about $6 million.

Earlier this year, the PUC announced that shale drillers would pay $5,000 less per well in impact fees for the 2015 collection year (see Shale DailyFeb. 1). The annual adjustment decreased because the New York Mercantile Exchange benchmark price for natural gas in 2015 was $2.664/MMBtu, down from $4.415/MMBtu in 2014.

In all, the state's Independent Fiscal Office has projected that impact fee revenue will decline by $14.9 million to $33.9 million in 2015 on fewer wells drilled and the lower commodity prices (see Shale DailyJuly 7, 2015).

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