* Fee proposed but tax ruled out on hydraulic fracturing
* No specific amount for free recommended
* Commission aims to create road map for regulation
By Edith Honan
NEW YORK, July 22 Pennsylvania, home to the nation's richest natural gas deposit, released recommendations on Friday that included requiring drillers to pay an impact fee but ruled out a new state tax on extracting gas.
The long-awaited report from the governor's Marcellus Shale Advisory Commission's aims to provide a road map for the state legislature to regulate the booming shale gas industry, balancing the need to generate revenue while also promoting more drilling.
The commission recommended charging an impact fee for costs incurred by municipalities as a result of drilling, such as for the upkeep of roads, but declined to propose a specific amount, saying that decision will be left up to the Republican governor and the Republican-controlled state legislature.
But the fees almost certainly would amount to less than $300 million that the previous, Democratic governor had hoped to raise through a wellhead tax that was rejected by Republicans in the legislature.
The commission also recommended doubling penalties for civil violations -- which in the more serious instances could involve leaks and spill -- from $25,000 to $50,000 and double daily penalties from $1,000 to $2,000.
Pennsylvania sits above the Marcellus shale formation, which could meet U.S. gas demand for decades, and has become the flash point for a U.S. debate on the extraction method hydraulic fracturing, or fracking. [ID:nN18229665]
Fracking involves blasting shale rock with chemical-laced water and sand to release trapped gas. Some environmental and public health activists say it taints drinking water supplies.
The 30-member commission was created by Governor Tom Corbett, who took office in January with a strong anti-tax stance and described the gas industry as an economic engine for the cash-strapped state.
Corbett, who according to the website Marcellus Money has received $1.6 million in industry campaign contributions, is opposed to a severance or wellhead tax on gas drilling. Pennsylvania is the only gas-producing state without such a tax.
Proponents of those taxes say they would raise needed revenue and help pay for the environmental costs of drilling.
The recommendations include increasing the distance between gas well sites and drinking water systems and training more Pennsylvania residents to work in the industry.
"Today, Pennsylvania is taking an important first step toward creating tens of thousands of jobs and leading the nation toward energy independence and doing so in an environmentally responsible way," said Lieutenant Governor Jim Cawley, who led the commission.
A study by current and former Pennsylvania State University researchers -- released this week funded by the natural gas drilling industry -- said the state's economy will get a $12.8 billion boost from drilling this year, more than double the amount from 2009, while reaping nearly 140,000 jobs.
Pennsylvania, until recently a net importer of natural gas, could surpass Texas as the top exporting state within the next decade, the report said.
A well belonging to one of the state's largest drillers, Chesapeake Energy (CHK.N) blew out in the town of LeRoy in April, spilling thousands of gallons of toxic drilling fluid and causing anxiety among local residents.
For an index of shale gas companies, double-click on TRSHALEGAS. (Additional reporting by Edward McAllister in New York and Dave Warner in Philadelphia; Editing by Daniel Trotta and Lisa Shumaker)