Legislature(2019 - 2020)BUTROVICH 205

03/11/2020 03:30 PM RESOURCES

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Audio Topic
03:31:21 PM Start
03:32:00 PM SB161
04:17:58 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 161 GEOTHERMAL RESOURCES TELECONFERENCED
Moved CSSB 161(RES) Out of Committee
-- Public Testimony --
+ Presentation: TELECONFERENCED
Geothermal Resources by Steve Masterman, DGGS
Director
**Streamed live on AKL.tv**
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  SB 161-GEOTHERMAL RESOURCES                                                                               
                                                                                                                                
3:32:00 PM                                                                                                                    
VICE  CHAIR COGHILL  announced that  the only  order of  business                                                               
would  be SENATE  BILL NO.  161, "An  Act relating  to geothermal                                                               
resources; relating to the  definition of 'geothermal resources';                                                               
and providing for an effective date."                                                                                           
                                                                                                                                
3:33:04 PM                                                                                                                    
STEVE MASTERMAN,  Director, Division of Geological  & Geophysical                                                               
Surveys,  Alaska  Department  of  Natural  Resources,  Fairbanks,                                                               
Alaska,  noted that  he will  complete the  presentation that  he                                                               
started at the previous hearing of  SB 161. He explained that his                                                               
intent is to primarily address  the questions that came up during                                                               
the previous hearing.                                                                                                           
                                                                                                                                
MR. MASTERMAN  commenced his  presentation, Alaska  Department of                                                               
Natural  Resources  SB  161  Geothermal  Resources:  Part  2.  He                                                               
referenced slide 2, Overview, as follows:                                                                                       
                                                                                                                                
   • Review of 21 February presentation                                                                                         
                                                                                                                                
   • DNR geothermal leasing history                                                                                             
                                                                                                                                
   • Purpose of SB 161                                                                                                          
                                                                                                                                
   • Sectional summary                                                                                                          
                                                                                                                                
   • Analysis of selected sections & responses to questions                                                                     
                                                                                                                                
He  addressed slide  3, Review  of 21  February Presentation,  as                                                               
follows:                                                                                                                        
                                                                                                                                
   • Geothermal heat, where technically and economically                                                                        
     accessible, is an excellent form of sustainable energy                                                                     
                                                                                                                                
   • Hydrothermal systems are the most common form of                                                                           
     energy extraction from geothermal heat                                                                                     
                                                                                                                                
   • Complex geologic parameters necessary for a viable                                                                         
      geothermal resource, all present at one location, is                                                                      
     rare                                                                                                                       
                                                                                                                                
   • Alaska contains several potential geothermal resources                                                                     
                                                                                                                                
   • New technologies that will help expand geothermal                                                                          
       development into less favorable geology are on the                                                                       
     horizon                                                                                                                    
                                                                                                                                
He said geothermal  systems are present in a number  of places in                                                               
Alaska. Geothermal energy recovery is  very efficient and a cost-                                                               
effective   means  to   obtain   electrical   and  heat   energy.                                                               
Hydrothermal  systems around  old intrusive  bodies or  volcanoes                                                               
are the most common sources  for geothermal heat in the Aleutians                                                               
and  across  the belt  of  granitic  bodies in  interior  Alaska.                                                               
Geothermal  resource  development  does  require  information  to                                                               
adequately  intercept  hot  fluids  while not  drawing  down  the                                                               
geothermal reservoir fluids.                                                                                                    
                                                                                                                                
He pointed  out that geothermal energy  technologies are changing                                                               
with a  wider array  of geothermal  resource development  such as                                                               
ground  source  heat  pumps  for  homes,  small  businesses,  and                                                               
university  campuses  across  the   nation.  Current  and  future                                                               
geothermal technologies need a broader understanding.                                                                           
                                                                                                                                
3:36:42 PM                                                                                                                    
MR. MASTERMAN  addressed an  Alaska map  illustrated on  slide 4,                                                               
Geothermal System.  He detailed the  map provides an  overview of                                                               
Alaska's  hot springs  broken  into  three different  temperature                                                               
bands: warm springs below 50  degrees Celsius on the surface, hot                                                               
springs  which  are  between  50-75  degrees  Celsius,  and  high                                                               
temperature hot  springs above  75 degrees  Celsius. Most  of the                                                               
hotter springs are along the Aleutians.                                                                                         
                                                                                                                                
VICE  CHAIR  COGHILL  noted  that  hot  springs  proliferate  the                                                               
interior of Alaska.                                                                                                             
                                                                                                                                
MR. MASTERMAN agreed  that there is an impressive  cluster of hot                                                               
springs  in interior  Alaska.  He detailed  that  the springs  in                                                               
interior Alaska  are granite  related with  most of  the granites                                                               
ranging  in age  from 50  million  to 70  million years.  Geology                                                               
plays  an important  part  in  understanding the  granite-related                                                               
system because fractures host the hot water.                                                                                    
                                                                                                                                
VICE CHAIR  COGHILL asked  if there  is any  power at  Manley Hot                                                               
Springs.                                                                                                                        
                                                                                                                                
SENATOR BISHOP  inquired if an  intrusive granite dome,  like the                                                               
Manly Hot Springs Dome, indicates geothermal resources.                                                                         
                                                                                                                                
MR. MASTERMAN  answered that a granite  dome is a good  sign, but                                                               
not all granites are alike.  Geothermal resources require younger                                                               
granites  that are  still cooling  along with  the right  granite                                                               
composition.                                                                                                                    
                                                                                                                                
3:38:33 PM                                                                                                                    
He  paraphrased  slide  5, DNR  Geothermal  Leasing  History,  as                                                               
follows:                                                                                                                        
                                                                                                                                
   • Present: Currently there is one company, CYRQ Energy,                                                                      
     with a pending application for geothermal exploration                                                                      
     prospecting permit. A Best Interest Finding should be                                                                      
     issued in Spring 2020.                                                                                                     
   • 2013: Augustine Island 26 tracts were offered. Only                                                                        
     one tract  was leased  to a  private individual  and no                                                                    
     exploration  work was  conducted  as a  result of  that                                                                    
     lease sale.                                                                                                                
                                                                                                                                
   • 2008: Mount Spurr 16 tracts leased to Ormat and one                                                                        
     private individual.  Ormat purchased  15 leases  in the                                                                    
     2008  sale and  drilled on  southern flank  of volcano.                                                                    
     They  didn't find  adequate  temperatures  in wells  to                                                                    
     pursue the project. The state has the data available.                                                                      
                                                                                                                                
   • 1986: Mount Spurr On June 24, 1986, DNR offered 2,640                                                                      
     acres  in two  tracts. Both  tracts received  bids. The                                                                    
     lease for  Tract 1 expired  in 1996, and the  lease for                                                                    
     Tract 2 was terminated in 1990.                                                                                            
                                                                                                                                
   • 1983: Mount Spurr DNR held its first geothermal lease                                                                      
     sale in  the Mount Spurr  area on May 17,  1983. 10,240                                                                    
     acres  in   16  tracts  were  offered   in  Competitive                                                                    
     Geothermal Lease Sale 1. One  tract received a bid. The                                                                    
     lease for that tract was terminated in 1992.                                                                               
                                                                                                                                
3:39:20 PM                                                                                                                    
MR. MASTERMAN addressed slide 6, Purpose of SB 161, as follows:                                                                 
                                                                                                                                
   • Diversify Alaska's energy portfolio                                                                                        
        o More potential for providing affordable, renewable                                                                    
          energy to villages                                                                                                    
        o More potential for providing power to remote natural                                                                  
          resource extraction projects                                                                                          
        o Promote clean energy industry job creation                                                                            
        o Increase attention to Alaska's geothermal exploration                                                                 
          program                                                                                                               
                                                                                                                                
   • Streamline geothermal licensing by aligning with the oil                                                                   
     and gas exploration license program, increasing feasibility                                                                
     for companies to develop resources                                                                                         
        o More time for a company to identify and prove resource                                                                
          to convert to leases                                                                                                  
        o Conversion to leases based on completion of work                                                                      
          commitment and submission of exploration plan instead                                                                 
          of proving discovery of commercial resource                                                                           
        o Doubles maximum acreage allowed for exploration                                                                       
          license                                                                                                               
   • Reforms definitions for geothermal resources to focus on                                                                   
     Commercial Use                                                                                                             
                                                                                                                                
MR. MASTERMAN  summarized that the  bill is  threefold: diversify                                                               
Alaska's  energy portfolio,  streamline licensing  processes, and                                                               
reform geothermal resource definitions.                                                                                         
                                                                                                                                
He pointed out that Alaska's  energy resources are very petroleum                                                               
centered. Geothermal  resources have  the potential to  be viable                                                               
in  rural communities.  Streamlining geothermal  licensing aligns                                                               
with well  established oil  and gas leasing  that will  help with                                                               
resource exploration.                                                                                                           
                                                                                                                                
He  summarized  that   redefining  geothermal  resources  removes                                                               
temperature  criteria, brings  the  definition in  line with  the                                                               
evolving  geothermal industry,  and  brings  focus on  commercial                                                               
uses.                                                                                                                           
                                                                                                                                
3:41:19 PM                                                                                                                    
He  referenced  slide  7, Sectional  Summary,  Reflects  Proposed                                                               
Amendments, as follows:                                                                                                         
                                                                                                                                
   • Section 1 (AOGCC)                                                                                                          
        o Removes unnecessary reference to AS 41.06 from AS                                                                     
          31.05. (Related to Section 9)                                                                                         
                                                                                                                                
   • Section 2 (DNR)                                                                                                            
        o Changes "permits" to "licenses"                                                                                       
        o Explicit exemption for geothermal resources intended                                                                  
          for domestic, noncommercial, or small-scale industrial                                                                
          use (See also Section 10)                                                                                             
             square4 Amendment deletes "drawn from a depth with a                                                               
               ground temperature of not more than 30 degrees                                                                   
               Celsius"                                                                                                         
        o Removes preferential rights clause. This is an old                                                                    
          water rights provision, not appropriate for commercial                                                                
          geothermal systems.                                                                                                   
                                                                                                                                
   • Section 3 (DNR)                                                                                                            
        o Changes "permits" to "licenses"                                                                                       
        o Replaces lease conversion requirement of commercial                                                                   
          discovery with work commitment.                                                                                       
                                                                                                                                
   • Section 4 (DNR)                                                                                                            
        o Changes "permits" to "licenses"                                                                                       
   • Section 5 (DNR)                                                                                                            
        o Changes "permits" to "licenses"                                                                                       
        o Increases maximum acreage from 51,200 to 100,000.                                                                     
        o Adds  provision  for  rental  fees  to  be  defined  in                                                               
          regulation, rather than statute (easier to update).                                                                   
                                                                                                                                
   • Section 6 (DNR)                                                                                                            
        o Changes "permits" to "licenses"                                                                                       
        o Reduces  primary  term  of  license  to  5  years  with                                                               
          reference to lease conversion provision.                                                                              
                                                                                                                                
   • Section 7 (DNR)                                                                                                            
        o Adds  new  subsections  providing  for  unitization  of                                                               
          geothermal leases.                                                                                                    
        o Uses same or  similar language as oil  and gas statutes                                                               
          in AS 38.05.180.                                                                                                      
                                                                                                                                
   • Section 8 (DNR)                                                                                                            
        o  Replaces definition of  geothermal resources. (Same as                                                               
          Section 11)                                                                                                           
                                                                                                                                
   • Section 9 (AOGCC)                                                                                                          
        o Amends AS  41.06.020(e), clarifies  that AS  41.06 does                                                               
          not limit DNR's authority over geothermal resource                                                                    
          management on state land.                                                                                             
                                                                                                                                
   • Section 10 (AOGCC)                                                                                                         
        o Explicit  exemption for  geothermal resources  intended                                                               
          for domestic, noncommercial, or small-scale industrial                                                                
          use (See also Section 2)                                                                                              
             square4 Amendment deletes "drawn from a depth with a                                                               
               ground temperature of not more than 30 degrees                                                                   
               Celsius"                                                                                                         
                                                                                                                                
   • Section 11 (AOGCC)                                                                                                         
        o Amends  definition  of  "geothermal  fluid"  to  remove                                                               
          temperature references and better conform with other                                                                  
          changes in this bill.                                                                                                 
                                                                                                                                
   • Section 12 (AOGCC)                                                                                                         
        o Replaces definition  of geothermal resources.  (Same as                                                               
          Section 8)                                                                                                            
                                                                                                                                
   • Section 13 (AOGCC)                                                                                                         
        o Repeals  AS   41.06.005(b)  and  AS   41.06.030,  since                                                               
          geothermal units are managed by DNR.                                                                                  
   • Sections 1417                                                                                                              
        o General provisions for applicability and effective                                                                    
          dates.                                                                                                                
                                                                                                                                
MR.  MASTERMAN  summarized  that  much of  the  bill  replaces  a                                                               
permitting system  with a licensing system.  The current two-year                                                               
permit changes to a five-year  license term. The licensing system                                                               
will attract geothermal exploration.                                                                                            
                                                                                                                                
VICE  CHAIR  COGHILL  asked  if the  genesis  of  the  geothermal                                                               
licensing   program  derives   from  oil   and  gas   exploration                                                               
licensing.                                                                                                                      
                                                                                                                                
MR. MASTERMAN  answered no. He  specified that the  bill provides                                                               
more time  for companies  to explore an  area before  deciding on                                                               
whether  to  move  forward  to the  next  step.  Current  statues                                                               
provide  two years  before a  requirement to  define commercially                                                               
developable  resource. The  bill provides  more time  and removes                                                               
the requirement  to define a commercially  viable resource, which                                                               
is substantive.                                                                                                                 
                                                                                                                                
SENATOR BISHOP asked  if a license holder could  sell their five-                                                               
year license.                                                                                                                   
                                                                                                                                
MR. MASTERMAN replied that he did not know.                                                                                     
                                                                                                                                
3:43:43 PM                                                                                                                    
SEAN CLIFTON, Policy and Program  Specialist, Division of Oil and                                                               
Gas, Alaska  Department of Natural Resources,  Anchorage, Alaska,                                                               
answered  yes,  a license  holder  can  assign their  license  to                                                               
another party.                                                                                                                  
                                                                                                                                
MR.  MASTERMAN   addressed  slide  8,  Section   2:  Private  Use                                                               
Exemption, as follows:                                                                                                          
                                                                                                                                
   • New language (includes requested amendment):                                                                               
        o A prospecting license or lease is not required under                                                                  
          this   section  to   explore  for,   develop,  or   use                                                               
          geothermal  resources  if  the geothermal  resource  is                                                               
          intended  for domestic,  noncommercial, or  small-scale                                                               
          industrial use.                                                                                                       
                                                                                                                                
   • This explicitly excludes private geothermal users from a                                                                   
     requirement to apply for a license or lease.                                                                               
   • The old definition of geothermal resources technically                                                                     
     provided this exclusion.                                                                                                   
                                                                                                                                
   • The updated definition made this exclusion necessary.                                                                      
                                                                                                                                
MR.  MASTERMAN   summarized  that   the  private   use  exemption                                                               
explicitly  excludes private  geothermal users  from requiring  a                                                               
license  or  a  lease  in   order  to  develop  their  geothermal                                                               
resources that are on their  property. He noted that the governor                                                               
requested that the legislation include a private use exemption.                                                                 
                                                                                                                                
SENATOR BISHOP  said he  assumes that  the private  use exemption                                                               
still requires permitting to get drilling approval.                                                                             
                                                                                                                                
MR. MASTERMAN answered correct.                                                                                                 
                                                                                                                                
VICE CHAIR COGHILL  asked if the bill easily  defines small scale                                                               
industrial use or is it an open topic for discussion.                                                                           
                                                                                                                                
MR.  MASTERMAN  answered  that   he  imagined  that  small  scale                                                               
industrial  use is  open to  discussion  because the  legislation                                                               
does not provide a numeric  definition. He said a fish processing                                                               
plant  using  geothermal energy  is  a  small-scale example,  but                                                               
Alcoa using geothermal  energy for aluminum smelting  is a large-                                                               
scale-industrial-use example.                                                                                                   
                                                                                                                                
VICE CHAIR  COGHILL said  the examples are  the two  bookends but                                                               
getting into the middle ground could be a little more difficult.                                                                
                                                                                                                                
3:46:16 PM                                                                                                                    
SENATOR  KAWASAKI  noted  that the  bill  removes  the  30-degree                                                               
Celsius requirement.  He asked why the  30-degree requirement was                                                               
originally set.                                                                                                                 
                                                                                                                                
MR. MASTERMAN  answered that AOGCC requested  withdrawing the 30-                                                               
degree requirement  to provide  flexibility in  administering the                                                               
exemption. He noted that home  and small scale uses of geothermal                                                               
energy are for low temperature  systems. Statutes in the Lower 48                                                               
either  use  the  arbitrary 30-degree  number  or  the  technical                                                               
temperature limit for PVC pipe.                                                                                                 
                                                                                                                                
He  addressed  slide  9,  Section   2:  Preferential  Rights,  as                                                               
follows:                                                                                                                        
                                                                                                                                
   • The preferential rights provision is being deleted because                                                                 
     it is inappropriate to the situation (it's more relevant to                                                                
     water rights or other surface use cases not associated with                                                                
     the mineral estate).                                                                                                       
                                                                                                                                
   • Surface owner rights are protected under AS 38.05.130.                                                                     
                                                                                                                                
   • Rights to access the mineral estate are reserved under AS                                                                  
     38.05.125.                                                                                                                 
        o Surface owners must provide reasonable access to                                                                      
          resource developers.                                                                                                  
        o The same condition exists for oil & gas or mining.                                                                    
                                                                                                                                
   • If a surface use agreement can't be reached, resolution                                                                    
     process is in 11 AAC 86.145.                                                                                               
        o DNR holds a hearing wherein the developer must prove                                                                  
          there is no other alternative location for the well or                                                                
          data acquisition.                                                                                                     
        o If the Commissioner concurs, developer posts a bond to                                                                
          compensate landowner for any impacts and work                                                                         
          progresses.                                                                                                           
                                                                                                                                
   • Public notice is a part of the license issuance process,                                                                   
     and surface owners would be included.                                                                                      
                                                                                                                                
MR.  MASTERMAN summarized  that the  bill attempts  to clarify  a                                                               
distinction between  geothermal resources  treated as an  oil and                                                               
gas or mineral estate and not a surface estate.                                                                                 
                                                                                                                                
He  noted  that Senator  Kiehl  brought  up a  possible  conflict                                                               
scenario between a small-scale geothermal  system user for a home                                                               
versus  a  company  that  leases  an area  around  the  home  for                                                               
geothermal use. There are statutory  measures in place to resolve                                                               
conflicts between surface and subsurface ownership.                                                                             
                                                                                                                                
3:49:52 PM                                                                                                                    
SENATOR KIEHL noted  that the section references  AS 38.05.130, a                                                               
statute  that requires  full payment  or damages  to the  surface                                                               
owner without  further details. He asked  for further explanation                                                               
on how the statute applies to protection.                                                                                       
                                                                                                                                
MR.  CLIFTON conceded  that  the statute  is  not explanatory  on                                                               
repaying  damages.  The regulation  under  the  statute, [11  AAC                                                               
86.145.  Surface   Use],  is  relevant  by   clarifying  how  the                                                               
commissioner approaches  the problem.  If the two  parties cannot                                                               
reach an agreement, then the  commissioner will hold a hearing to                                                               
hear  both sides.  If the  developer cannot  prove that  there is                                                               
another  way to  resolve the  issue, then  the commissioner  will                                                               
direct   that   the  developer   post   a   bond  for   landowner                                                               
compensation.                                                                                                                   
                                                                                                                                
VICE CHAIR  COGHILL asked  if amending  AS 38.05.181  will impact                                                               
the regulation under AS 38.05.130.                                                                                              
                                                                                                                                
MR. CLIFTON answered that he did  not think so. He explained that                                                               
if a case  came up where the division recognized  a deficiency in                                                               
the  regulation,  then the  division  would  seek to  revise  the                                                               
regulation.                                                                                                                     
                                                                                                                                
3:52:36 PM                                                                                                                    
SENATOR BISHOP  addressed the  right to  access a  mineral estate                                                               
under  AS 38.05.125.  He asked  if  the commissioner  or a  civil                                                               
court  would  ultimately have  to  resolve  a dispute  between  a                                                               
developer and a landowner.                                                                                                      
                                                                                                                                
MR. CLIFTON answered  that private landowners usually  come to an                                                               
agreement  on  surface  use.   However,  the  commissioner  would                                                               
intervene  to ensure  mineral estate  access if  the two  parties                                                               
cannot come to an agreement.                                                                                                    
                                                                                                                                
MR.  MASTERMAN  addressed  slide   10,  Section  2:  Preferential                                                               
Rights, as follows:                                                                                                             
                                                                                                                                
   • If a surface owner is already using geothermal resource,                                                                   
     DNR protects the surface owner's rights under AS 38.05.130.                                                                
                                                                                                                                
   • If conflict arises, DNR ensures private landowners would                                                                   
     not be left without heat or power, or otherwise damaged by                                                                 
     commercial development.                                                                                                    
                                                                                                                                
   • Scenario is unlikely because private landowners usually                                                                    
     don't have financial resources to develop a commercially                                                                   
     viable geothermal resource.                                                                                                
                                                                                                                                
He summarized  that conflicts  are not  likely to  happen because                                                               
there  are  only a  few  places  in  the  state where  there  are                                                               
overlapping interests  of geothermal  resources and  private land                                                               
ownership.                                                                                                                      
                                                                                                                                
VICE CHAIR  COGHILL noted that  there is  so much public  land in                                                               
Alaska.  However,  private  rights are  something  that  Alaskans                                                               
preciously hold to.                                                                                                             
                                                                                                                                
MR. MASTERMAN replied that he does not think the bill degrades                                                                  
private rights. He said the bill statutorily protects private                                                                   
rights.                                                                                                                         
                                                                                                                                
3:55:19 PM                                                                                                                    
MR. MASTERMAN addressed slide 11, Section 2: Drilling                                                                           
regulations, as follows:                                                                                                        
                                                                                                                                
   • Division of Oil & Gas (DO&G)                                                                                               
        o Licenses or  leases access to the  resource (subsurface                                                               
          use).                                                                                                                 
        o Surface     permitting    (pads,     facilities,    and                                                               
          infrastructure)   in   support   of   exploration   and                                                               
          development.                                                                                                          
                                                                                                                                
   • Alaska Oil & Gas Conservation Commission (AOGCC)                                                                           
        o Ensures  prevention  of   waste,  protects  correlative                                                               
          rights,  improves   ultimate  recovery,   and  protects                                                               
          underground freshwater.                                                                                               
        o Issues   of  permits   to   drill   wells  is   AOGCC's                                                               
          jurisdiction.                                                                                                         
        o Jurisdiction over  geothermal triggered  by temperature                                                               
          (>120  ?C)  or  commerciality. New  definition  ignores                                                               
          temperature.                                                                                                          
        o Domestic,  noncommercial,   or  small-scale  industrial                                                               
          geothermal well not under AOGCC authority.                                                                            
        o Exception if  well may encounter  geothermal resources,                                                               
          fluid,  or water  of enough  heat/pressure to  threaten                                                               
          life/health.                                                                                                          
                                                                                                                                
   • Department of Environmental Conservation (DEC)                                                                             
        o If the incidental discharge  enters surface water, need                                                               
          Alaska Pollutant  Discharge Elimination  System (APDES)                                                               
          permit.                                                                                                               
        o DEC   Division  of   Water  has   permitted  geothermal                                                               
          discharges using Plan Review in Lieu of Permit.                                                                       
        o Engineering  Support and  Plan  Review (ESPR)  conducts                                                               
          plan  reviews  for   smaller  systems  in  municipality                                                               
          (heating  or  cooling  pumps at  UAA,  U-med  district,                                                               
          hatchery, etc.).                                                                                                      
        o DEC issues  permits for hydrostatic  testing, including                                                               
          flushing and aquifer pump testing.                                                                                    
             square4 General permit AKG003000 provides for coverage of                                                          
               land disposal or discharge to surface water.                                                                     
             square4 One geothermal-related authorization issued in                                                             
               2015 for the Akutan Geothermal Project.                                                                          
                                                                                                                                
He  summarized   that  Section  2  divides   drilling  regulation                                                               
responsibilities  between  DO&G,  AOGCC, and  DEC.  He  said  the                                                               
section  may address  Senator Kiehl's  earlier questions  in that                                                               
DO&G  looks at  drilling  from the  land  management and  surface                                                               
permitting view point  and they are also the entity  who would be                                                               
collecting any royalties and lease  payments. AOGCC is looking at                                                               
drilling  from the  permitting standpoint  for the  protection of                                                               
ground water  and the determination of  whether geothermal source                                                               
is for private use or commercial  use. DEC looks at drilling from                                                               
the standpoint of the environmental  impacts from using the water                                                               
and any discharges into the  environment. DEC also issues permits                                                               
for  hydrostatic testing  and  for aquifer  or  pump testing.  He                                                               
summarized that the various entities  have different parts of the                                                               
leasing,  permitting, and  environmental compliance  aspect of  a                                                               
geothermal system.                                                                                                              
                                                                                                                                
3:56:46 PM                                                                                                                    
MR. MASTERMAN  addressed slide 12, Section  7: Royalty reduction,                                                               
as follows:                                                                                                                     
                                                                                                                                
   • Royalty reductions are not permanently established under a                                                                 
     unit agreement (AS 38.05.181(i)).                                                                                          
        o They are  adjudicated under the authority  described in                                                               
          sections AS 38.05.181(f) and (j).                                                                                     
        o Same  language used  in AS  38.05.180(p)  (oil and  gas                                                               
          unitization).                                                                                                         
        o This   aligns  geothermal   management  with   existing                                                               
          processes in oil and gas management.                                                                                  
                                                                                                                                
   • Royalties have never been paid on geothermal resources, so                                                                 
     exact process not yet established.                                                                                         
        o Will be like the system used for oil and gas.                                                                         
        o Royalties  are 1.75  percent of  gross revenue  for the                                                               
          first 10 years of commercial operation                                                                                
        o Royalties  are  3.5  percent after  10  years  (See  AS                                                               
          38.05.181(g)).                                                                                                        
                                                                                                                                
   • This is like oil and gas royalties.                                                                                        
        o Royalties are  paid upon removal  of the  resource from                                                               
          the lease or unit (i.e. sale), regardless of profit.                                                                  
        o Geothermal  energy   isn't  a  measurable   volume,  so                                                               
          royalties    are   paid    on   gross    revenues   (AS                                                               
          38.05.181(g)).                                                                                                        
        o Royalty reduction  provisions exist in statute  for oil                                                               
          and gas and are evaluated by application to the                                                                       
          Commissioner under specific circumstances provided for                                                                
         in statute (See AS 38.05.180(j), for example).                                                                         
                                                                                                                                
   • If there is no production, there are no royalties.                                                                         
        o License/lease rental rates are paid per acre.                                                                         
                                                                                                                                
MR.  MASTERMAN  summarized  that  the  section  aligns  with  the                                                               
protocols of  the present  oil and  gas royalties.  The royalties                                                               
are  different, but  the  protocols are  basically  the same.  He                                                               
noted that the State has  not charged for royalties on geothermal                                                               
resources, but the hope is  the State will receive royalties from                                                               
future resource development.                                                                                                    
                                                                                                                                
He detailed that  geothermal royalties are 1.75  percent of gross                                                               
revenue  for the  first 10  years  and increases  to 3.5  percent                                                               
after 10 years. Geothermal energy  is a little different than oil                                                               
and gas  in that  it is not  a volumetric product,  so it  is not                                                               
like a  barrel of  oil or  cubic feet  of gas.  Geothermal energy                                                               
extraction is in  the form of heat or  electricity with royalties                                                               
based on gross  sales instead of the  material production volume.                                                               
However, no geothermal sales means there are no royalties.                                                                      
                                                                                                                                
3:58:04 PM                                                                                                                    
VICE CHAIR COGHILL asked if royalties  would be based on the heat                                                               
that a geothermal energy source produces.                                                                                       
                                                                                                                                
MR. MASTERMAN answered  that the royalty will be  based on energy                                                               
sold, either heat or electricity.                                                                                               
                                                                                                                                
He continued with  slide 12 and noted that another  change in the                                                               
statute is that annual lease  payments are currently set at $3.00                                                               
per  acre.  The  change  would  make lease  payments  be  set  by                                                               
regulation  and  not  by  statute,   a  change  that  allows  for                                                               
modification if necessary.                                                                                                      
                                                                                                                                
VICE CHAIR COGHILL asked what  the lease payments criterion would                                                               
be  set on.  For example,  lease payments  based on  geographical                                                               
accessibility or thermal temperature.                                                                                           
                                                                                                                                
MR. MASTERMAN answered that he  is not aware of any conversations                                                               
within the  department that  would apply a  variable rate  to the                                                               
leasing per  acre. Leases are based  on a flat rate  per acre for                                                               
the  entire  state,  so  it  is  the  same  everywhere.  However,                                                               
variable rates are an interesting  concept with dependency on the                                                               
attractiveness or the potential energy of the system.                                                                           
                                                                                                                                
4:00:00 PM                                                                                                                    
VICE CHAIR COGHILL explained that the  reason why he asked was to                                                               
open leases to a better  commerce capacity for the four different                                                               
geographical areas that have thermal  energy in any kind of mass.                                                               
VICE CHAIR  COGHILL asked why  a regulation would be  more useful                                                               
to modify rates versus a blanket statute.                                                                                       
                                                                                                                                
MR. CLIFTON  explained that DO&G  wants the per acre  rental rate                                                               
to be  competitive to attract  developers to develop  the state's                                                               
resource. The  $3 per acre is  an archaic holdover that  needs to                                                               
be  more  flexible  to  allow  DO&G to  judge  rental  rates  for                                                               
attracting bidders. Statutory rates are much harder to modify.                                                                  
                                                                                                                                
4:02:33 PM                                                                                                                    
VICE CHAIR  COGHILL summarized  that a  rate regulation  would go                                                               
out for public comment  and that would be a way  to test what the                                                               
market capacity is.                                                                                                             
                                                                                                                                
MR. CLIFTON answered yes.                                                                                                       
                                                                                                                                
MR. MASTERMAN addressed slide 13,  Section 11: Geothermal fluids,                                                               
as follows:                                                                                                                     
                                                                                                                                
   • AS 41.06.060(4) is requested to be amended as:                                                                             
        o (4) "geothermal fluid means liquids, brines, water,                                                                   
          gases, or steam naturally  or artificially present in a                                                               
          geothermal system; "geothermal  fluid" does not include                                                               
          oil,   hydrocarbon   gases,    or   other   hydrocarbon                                                               
          substances                                                                                                            
                                                                                                                                
   • Aligns with modernized definition for geothermal resources.                                                                
                                                                                                                                
   • Not limited by temperature because current technology                                                                      
     enables development of cooler geothermal systems.                                                                          
                                                                                                                                
   • Distinguishes geothermal fluids from hydrocarbon resources.                                                                
                                                                                                                                
He summarized  that slide 13  addresses one of the  amendments to                                                               
the  bill  that  changes  the definition  of  geothermal  fluids,                                                               
removes   the  120   degrees  Celsius   for  broader   geothermal                                                               
applications,  and specifically  excludes  hydrocarbons from  the                                                               
definition.                                                                                                                     
                                                                                                                                
VICE CHAIR  COGHILL noted that  the amendment will be  before the                                                               
committee.                                                                                                                      
                                                                                                                                
MR. MASTERMAN answered yes.                                                                                                     
                                                                                                                                
He  addressed slide  14, Sections  8 and  12: New  definition, as                                                               
follows:                                                                                                                        
                                                                                                                                
   • "Geothermal resources" means the natural heat of the earth;                                                                
     the  energy, in  whatever  form, below  the  surface of  the                                                               
     earth present  in, resulting from,  or created by,  or which                                                               
     may be extracted  from, such natural heat;  and all minerals                                                               
     in  solution  or  other  products  obtained  from  naturally                                                               
     heated  fluids,  brines,  associated gases,  and  steam,  in                                                               
     whatever form,  found below  the surface  of the  earth; but                                                               
     excluding  oil,  hydrocarbon  gases,  or  other  hydrocarbon                                                               
     substances.                                                                                                                
                                                                                                                                
   • Modern definition for geothermal resources.                                                                                
                                                                                                                                
   • Not limited by temperature because current technology                                                                      
     enables development of cooler geothermal systems.                                                                          
                                                                                                                                
   • Ensures all the State's mineral estate resources are                                                                       
     captured in definition.                                                                                                    
                                                                                                                                
   • Same definition being applied to both DNR & AOGCC statutes.                                                                
                                                                                                                                
MR.  MASTERMAN  summarized  that  slide   14  deals  with  a  new                                                               
definition for  geothermal resource.  The new  definition removes                                                               
the temperature of 120 degrees  Celsius from the statute to allow                                                               
more flexibility  for inclusion  of systems at  lower temperature                                                               
that could be utilizing some  of our state's geothermal resources                                                               
and generating electricity  or heat. The definition  would be the                                                               
same for DNR and AOGCC.                                                                                                         
                                                                                                                                
SENATOR KIEHL  noted that slide  13 shows that the  definition of                                                               
geothermal fluid in AS 41.06.060(4)  includes water. However, the                                                               
geothermal  resources definition  in  slide 14  does not  include                                                               
water.  He pointed  out that  the complex  permitting system  has                                                               
AOGCC covering the safety risk  of resource blowout, DEC is going                                                               
to do  the water,  and DO&G is  going to do  the minerals  in the                                                               
water. He asked which department goes first in the process.                                                                     
                                                                                                                                
4:05:41 PM                                                                                                                    
MR. MASTERMAN  replied that  he did  not know  the answer  to who                                                               
goes first.                                                                                                                     
                                                                                                                                
MR.  CLIFTON explained  that  the first  thing  for a  commercial                                                               
operation  would be  disposal  of  the land  or  disposal of  the                                                               
mineral  interest.  DO&G would  be  first  by going  through  the                                                               
expiration  license  and  then  the  lease  process.  DO&G  would                                                               
generally approve  drilling operations  specified through  a plan                                                               
of operations.  Specific well approval  would be  AOGCC. Specific                                                               
approvals for discharge and other related concerns would be DEC.                                                                
                                                                                                                                
SENATOR KIEHL  asked if AOGCC  will do safety and  resource waste                                                               
prevention as they do with hydrocarbons.                                                                                        
                                                                                                                                
4:07:40 PM                                                                                                                    
DAN  SEAMOUNT,  Commissioner,  Alaska Oil  and  Gas  Conversation                                                               
Commission, Anchorage, Alaska, explained  that AOGCC is generally                                                               
that  last  department in  line  for  permitting. AOGCC  approves                                                               
drilling permits and ensures  correct well drilling, non-resource                                                               
waste, and  production enhancement.  AOGCC has not  fully figured                                                               
out geothermal costs  due to its complexity. AOGCC  has a formula                                                               
to charge  oil and  gas companies based  on fluid  production and                                                               
injection. However, AOGCC  will have to look at  steam, water, or                                                               
some other way to ascertain costs for budgeting.                                                                                
                                                                                                                                
SENATOR KIEHL added that AOGCC  also prevents waste of geothermal                                                               
resource and that was the key.                                                                                                  
                                                                                                                                
VICE CHAIR COGHILL  remarked that geothermal energy is  a work in                                                               
progress that hopefully sees some progress.                                                                                     
                                                                                                                                
SENATOR  BISHOP  commented  that the  definition  for  geothermal                                                               
resources  definition warranted  updating.  He  pointed out  that                                                               
Bernie  Karl, [owner  of Chena  Hot Springs  Resort], has  proven                                                               
that low temperature electron generation is possible.                                                                           
                                                                                                                                
VICE  CHAIR COGHILL  announced that  an amendment  is before  the                                                               
committee.                                                                                                                      
                                                                                                                                
4:09:52 PM                                                                                                                    
SENATOR  BISHOP  moved  to  adopt Amendment  1,  work  order  31-                                                               
GS2177\A.3, Radford, 3/2/2020.                                                                                                  
                                                                                                                                
                          AMENDMENT 1                                                                                           
                                                                                                                                
     Page 1, lines 13 - 14:                                                                                                     
          Delete "drawn from a depth with a ground                                                                            
     temperature of not more than 30 degrees Celsius"                                                                         
                                                                                                                                
     Page 4, lines 26 - 27:                                                                                                     
          Delete "drawn from a depth with a ground                                                                              
     temperature of not more than 30 degrees Celsius"                                                                           
                                                                                                                                
     Page 4, following line 27:                                                                                                 
     Insert a new bill section to read:                                                                                         
        "* Sec. 11. AS 41.06.060(4) is amended to read:                                                                     
               (4)  "geothermal fluid" means liquids,                                                                         
     brines, water,  gases, or [AND] steam  [AT TEMPERATURES                                                                  
     GREATER THAN 120 DEGREES CELSIUS  OR ANY COMMERCIAL USE                                                                    
     OF  LIQUIDS   AND  STEAM]  naturally   or  artificially                                                                  
     present  in  a  geothermal system;  "geothermal  fluid"                                                                  
     does  not  include  oil, hydrocarbon  gases,  or  other                                                                  
     hydrocarbon substances  [AT TEMPERATURES LESS  THAN 120                                                                  
     DEGREES CELSIUS];"                                                                                                         
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 5, line 16:                                                                                                           
          Delete "Section 14"                                                                                                   
          Insert "Section 15"                                                                                                   
                                                                                                                                
     Page 5, line 17:                                                                                                           
          Delete "sec. 15"                                                                                                      
          Insert "sec. 16"                                                                                                      
                                                                                                                                
VICE CHAIR COGHILL objected for discussion purposes. He noted                                                                   
that the administration presented the amendment to the                                                                          
committee.                                                                                                                      
                                                                                                                                
MR.  MASTERMAN  explained  that  there   are  two  parts  to  the                                                               
amendment.  The first  part  is  the removal  of  the 30  degrees                                                               
Celsius  temperature limit  on exclusions  for domestic  or small                                                               
industrial  uses.  AOGCC  requested the  temperature  removal  to                                                               
provide them with more flexibility  in providing the exclusion to                                                               
small-scale users.  The change is  beneficial for  broadening the                                                               
range  of geothermal  systems or  geothermal  uses for  statutory                                                               
leasing and licensing.                                                                                                          
                                                                                                                                
4:11:06 PM                                                                                                                    
VICE CHAIR  COGHILL specified that  Mr. Masterson  is referencing                                                               
page 1, lines 13-14 and page 4, lines 26-27.                                                                                    
                                                                                                                                
MR. MASTERMAN explained that the  second part of the amendment is                                                               
the change  in the definition  of geothermal fluid  which removes                                                               
the  120-degree  Celsius  temperature criteria,  broadens  it  to                                                               
basically  all   fluids,  and  adds  a   specific  exclusion  for                                                               
hydrocarbons. The change  conforms with the other  changes in the                                                               
definitions to geothermal resources.                                                                                            
                                                                                                                                
VICE  CHAIR   COGHILL  asked   Commissioner  Seamount   if  AOGCC                                                               
supported the amendment.                                                                                                        
                                                                                                                                
COMMISSIONER SEAMOUNT  answered that  the commission is  in favor                                                               
of  the bill  and amendment.  AOGCC proposed  the removal  of the                                                               
reference  to   temperatures  of  120  degrees   Celsius  in  the                                                               
definition of  general geothermal  fluid so there  is consistency                                                               
and clarity.                                                                                                                    
                                                                                                                                
He noted that  one of the most successful  geothermal projects in                                                               
world is in Klamath Falls,  Oregon where their geothermal utility                                                               
system heats the  entire town with temperatures of  87 degrees to                                                               
112  degrees Celsius.  He  added that  Chena  Hot Springs  Resort                                                               
probably produces the lowest temperature  power generation in the                                                               
world at 74 degrees Celsius.                                                                                                    
                                                                                                                                
He summarized that  cutting out the 30 degree  Celsius would give                                                               
the commissioner more flexibility and latitude.                                                                                 
                                                                                                                                
VICE CHAIR COGHILL said everyone is very proud of Mr. Karl.                                                                     
                                                                                                                                
COMMISSIONER  SEAMOUNT noted  his own  academic and  professional                                                               
background  in geothermic  energy. He  referenced data  that says                                                               
geothermal resources  worldwide change  range from heat  pump use                                                               
at  10 degrees  Celsius up  to  steam generation  at 350  degrees                                                               
Celsius.                                                                                                                        
                                                                                                                                
4:15:19 PM                                                                                                                    
VICE CHAIR COGHILL removed his  objection to Amendment 1. Finding                                                               
no  further  objection,  he stated  that  the  committee  adopted                                                               
Version A.3.                                                                                                                    
                                                                                                                                
4:15:38 PM                                                                                                                    
VICE CHAIR COGHILL opened public testimony.                                                                                     
                                                                                                                                
4:15:55 PM                                                                                                                    
VICE CHAIR COGHILL closed public testimony.                                                                                     
                                                                                                                                
SENATOR  BISHOP  remarked that  the  state  is obviously  in  new                                                               
territory going forward.  He asked if DNR and  AOGCC have reached                                                               
out to  a country like  Iceland to inquire about  geothermal best                                                               
practices.                                                                                                                      
                                                                                                                                
MR.  MASTERMAN  answered that  inquiries  outside  of Alaska  are                                                               
already  happening.  He   noted  that  he  has   reached  out  to                                                               
geological  associations  for  all  the states  to  review  their                                                               
geothermal resource  regulations, statutory definitions,  and how                                                               
they address issues with small scale versus industrial uses.                                                                    
                                                                                                                                
4:17:27 PM                                                                                                                    
SENATOR  BISHOP  moved  to  report  CSSB  161(RES),  version  31-                                                               
GS2177\A,   as    amended   from   committee    with   individual                                                               
recommendations and attached fiscal notes.                                                                                      
                                                                                                                                
4:17:40 PM                                                                                                                    
VICE CHAIR COGHILL  said there being no  objection, CSSB 161(RES)                                                               
moved from the Senate Resources Standing Committee.                                                                             

Document Name Date/Time Subjects
SB 161 ver. A.pdf SRES 2/10/2020 3:30:00 PM
SRES 3/11/2020 3:30:00 PM
SB 161
SB 161 Sponsor Statement 2.4.2020.pdf SRES 2/10/2020 3:30:00 PM
SRES 3/11/2020 3:30:00 PM
SB 161
SB 161 DNR Response to Committee Questions 2.20.2020.pdf SRES 3/11/2020 3:30:00 PM
SB 161
SB 161 2020_GeothermalMap_optimized.pdf SRES 3/11/2020 3:30:00 PM
SB 161
SB161 Presentation to SRES Geothermal 3.11.20.pdf SRES 3/11/2020 3:30:00 PM
SB 161
SB 161 Draft Amendment v. A.3.pdf SRES 3/11/2020 3:30:00 PM
SB 161
SB 161 Fiscal Note - DCCED-AOGCC-01-21-2020.pdf SRES 3/11/2020 3:30:00 PM
SB 161
SB 161 Fiscal Note - DNR-DGGS-01-21-2020.pdf SRES 3/11/2020 3:30:00 PM
SB 161
SB 161 Fiscal Note - DNR-DOG-01-21-2020.pdf SRES 3/11/2020 3:30:00 PM
SB 161