03/09/2022 09:00 AM House FINANCE

HOUSE BILL NO. 135                                                                                                            
                                                                                                                                
     "An Act relating to geothermal resources; relating to                                                                      
     the   definition   of   'geothermal   resources';   and                                                                    
     providing for an effective date."                                                                                          
                                                                                                                                
9:39:33 AM                                                                                                                    
                                                                                                                                
SEAN  CLIFTON, POLICY  AND PROGRAM  SPECIALIST, DIVISION  OF                                                                    
OIL  AND GAS,  DEPARTMENT OF  NATURAL RESOURCES,  provided a                                                                    
PowerPoint   presentation   titled    "HB   135   Geothermal                                                                    
Resources:  House Finance  Committee," dated  March 9,  2022                                                                    
(copy  on file).  He  began  on slide  4  and explained  the                                                                    
bill's primary purpose was  to modernize Alaska's geothermal                                                                    
exploration  program.  He  explained   there  had  not  been                                                                    
significant  interest and  experience in  geothermal leasing                                                                    
and exploration  on Alaska state lands.  He highlighted that                                                                    
the state had done substantial  updating of statutes for oil                                                                    
and gas,  meanwhile the geothermal statutes  had languished.                                                                    
The bill  would bring  the geothermal  statutes up  to date,                                                                    
which   the  administration   hoped   would  encourage   new                                                                    
exploration and  development of  geothermal projects  to get                                                                    
new resources to rural communities and create jobs.                                                                             
                                                                                                                                
Mr.  Clifton  explained the  bill  would  align the  state's                                                                    
geothermal licensing  program with the existing  oil and gas                                                                    
exploration  license  program,   which  had  been  receiving                                                                    
significant  attention  over  the past  several  years.  The                                                                    
administration believed  the model  would be  successful for                                                                    
geothermal  as  well.  He  explained  that  the  bill  would                                                                    
provide  companies a  bit more  time to  identify and  prove                                                                    
resources. Additionally,  the bill would expand  the acreage                                                                    
a party would  have to explore, secured  within the license.                                                                    
He  highlighted   the  importance  of  the   update  because                                                                    
geothermal systems  typically covered very large  areas. The                                                                    
bill would revise the definition  of geothermal resources to                                                                    
focus on  commercial use.  He noted it  had been  implied in                                                                    
the  past, but  the  goal  was to  make  it  clear that  the                                                                    
Department  of Natural  Resources (DNR)  had no  interest in                                                                    
requiring  the regulation  of  private  users of  geothermal                                                                    
resources.                                                                                                                      
                                                                                                                                
9:43:10 AM                                                                                                                    
                                                                                                                                
Mr. Clifton turned  to slide 5 and  discussed DNR geothermal                                                                    
leasing/permitting  history. He  relayed  that  DNR had  not                                                                    
given   substantial   attention  to   geothermal   resources                                                                    
historically.  The department  had  held  three lease  sales                                                                    
between  1983 and  2008 in  the Mount  Spur area.  There had                                                                    
been some leases  issued. He noted there  was information on                                                                    
the department's website related  to some drilling that took                                                                    
place in  2008. He expounded that  in 2013 a tract  had been                                                                    
issued  in a  lease sale  for Augustine  Island. There  were                                                                    
currently two geothermal prospecting  permits issued for the                                                                    
Mount Spur area in addition  to an application for Augustine                                                                    
Island  under  review.  He explained  that  the  bill  would                                                                    
extend  the  prospecting permits  and  include  them in  the                                                                    
exploration licensing program enabled by the legislation.                                                                       
                                                                                                                                
Representative Josephson referenced  the definitional reform                                                                    
addressed on  slide 4.  He did  not have  a visual  sense of                                                                    
what  it  would  take  to  stop  regulating  domestic,  non-                                                                    
commercial,  or small  scale industrial  use.  He asked  for                                                                    
detail.                                                                                                                         
                                                                                                                                
Mr.  Clifton  answered  that the  state  did  not  currently                                                                    
regulate  any  geothermal  activity   on  state  lands.  The                                                                    
administration  was  seeking  to  make  the  commercial  use                                                                    
aspect explicit,  but it was  already implied  under current                                                                    
statutes. The  goal was to  make it  clear that DNR  did not                                                                    
want to interfere  with people trying to use  hot springs or                                                                    
ground   source  heat   pumps  to   heat  their   cabins  or                                                                    
potentially generate electricity.  The administration wanted                                                                    
to  clarify the  focus  was on  commercial grade  geothermal                                                                    
resources  that   were  typically   much  deeper   and  more                                                                    
expensive  to develop  (in  the range  of  many millions  of                                                                    
dollars).  He noted  the bill  did not  change anything  for                                                                    
existing development.                                                                                                           
                                                                                                                                
9:45:54 AM                                                                                                                    
                                                                                                                                
Mr.  Clifton  turned  to  slide   6  and  reviewed  the  DNR                                                                    
leasing/permitting  process.  He   detailed  that  when  the                                                                    
department  received an  application  it issued  a call  for                                                                    
competing proposals.  He explained  it was a  typical public                                                                    
notice to seek any other companies  that may want to bid for                                                                    
the same  prospect. He elaborated  that DNR was  required to                                                                    
issue a  lease sale if  any interest was received.  He noted                                                                    
the process was the same for  oil and gas. He expounded that                                                                    
if DNR did not receive  any competing proposals, it issued a                                                                    
best  interest  finding  for  the  prospecting  permit.  The                                                                    
information  was put  out for  public notice  throughout the                                                                    
process. The  department also conducted  interagency reviews                                                                    
in order for  other state and federal  agencies and boroughs                                                                    
to participate in  the process. He noted  that DNR solicited                                                                    
the  participation   before  the  preliminary   finding  was                                                                    
issued. Once  the finding was issued,  DNR received comments                                                                    
and  revised  the  finding  as   needed,  resulting  in  the                                                                    
issuance of  a final  finding. After  the final  finding was                                                                    
issued and the  applicant was satisfied with  the terms, DNR                                                                    
would issue the permit.                                                                                                         
                                                                                                                                
9:47:08 AM                                                                                                                    
                                                                                                                                
Representative   Josephson  asked   about  the   notice  and                                                                    
opportunity to  be heard  by the public  on lease  sales. He                                                                    
asked  if  the  public  had   an  opportunity  to  speak  in                                                                    
opposition to a proposed lease sale at a public hearing.                                                                        
                                                                                                                                
Mr.  Clifton answered  that public  hearings were  not held.                                                                    
The  department  issued  public notices  and  solicited  for                                                                    
written comment.  He elaborated  the comments could  come in                                                                    
the form of a letter, email, and via telephone.                                                                                 
                                                                                                                                
Representative  Josephson  asked  if  it  was  the  way  DNR                                                                    
typically  dealt with  other proposals  and  lease sales  on                                                                    
state land.                                                                                                                     
                                                                                                                                
Mr.  Clifton replied  affirmatively.  He  noted that  public                                                                    
hearings  were not  required by  statute or  regulation. The                                                                    
department  provided  public   notice  and  opportunity  for                                                                    
comment.                                                                                                                        
                                                                                                                                
Mr. Clifton briefly  looked at a sectional  summary on slide                                                                    
7.  He addressed  Section 2,  the private  use exemption  on                                                                    
slide 9.  He explained that  a prospecting license  or lease                                                                    
was not required under the  section to explore for, develop,                                                                    
or use  geothermal resources if the  geothermal resource was                                                                    
intended   for  domestic,   noncommercial,  or   small-scale                                                                    
industrial  use.   He  pointed   out  that   the  definition                                                                    
explicitly  excluded  private   geothermal  users  from  the                                                                    
requirement to apply for a lease license.                                                                                       
                                                                                                                                
Representative  Wool  asked  how  to  differentiate  between                                                                    
commercial and small scale industrial.                                                                                          
                                                                                                                                
Mr. Clifton answered that it  was not currently defined. The                                                                    
goal  was  to have  the  language  vague  for a  reason.  He                                                                    
explained the  need for flexibility  in order to  assess the                                                                    
nuances of a situation.  He provided a hypothetical scenario                                                                    
where a  fish processing  plant or logging  processing plant                                                                    
had  a remote  operation and  were able  to tap  into a  hot                                                                    
spring  for  the  purpose  of  power  generation  for  their                                                                    
plants. He  stated that perhaps  the plants also  had cabins                                                                    
nearby. He detailed that perhaps  the plants were generating                                                                    
10  megawatts to  fuel  their operation  and  they sold  0.8                                                                    
megawatts  to  the  neighboring cabins.  He  explained  that                                                                    
under  the scenario  it would  not  be in  the state's  best                                                                    
interest  to try  to regulate  the plants  and extract  very                                                                    
miniscule  royalties. He  classified  the  example as  small                                                                    
scale industrial  and explained  it would  not be  worth the                                                                    
state's time.                                                                                                                   
                                                                                                                                
9:52:37 AM                                                                                                                    
                                                                                                                                
Representative Wool  asked if  the regulation  of geothermal                                                                    
purposes was primarily for situations  where power was being                                                                    
sold and  not for  situations where  the resource  was being                                                                    
used for internal consumption by a user.                                                                                        
                                                                                                                                
Mr. Clifton  answered that part  of the problem  with trying                                                                    
to develop  a definition was due  to the fact the  state did                                                                    
not have any experience  in regulating geothermal resources.                                                                    
There  were not  many examples  of industrial  or commercial                                                                    
geothermal  operations globally.  He  stated  that most  was                                                                    
explicitly commercial  (i.e., run  by a  power company  or a                                                                    
government such as Iceland). He  explained that if the state                                                                    
tried to  minutely define the  details, it would have  to be                                                                    
arbitrary simply  because the information was  not known. He                                                                    
explained  it was  the reason  the administration  wanted to                                                                    
leave it open  for specifying in regulations later  on or to                                                                    
have the ability to handle nuances  in the context of a best                                                                    
interest finding where the  commissioner could determine the                                                                    
definition based on a situation.                                                                                                
                                                                                                                                
Co-Chair Merrick relayed that  the committee would hear from                                                                    
the testifier at a future meeting.                                                                                              
                                                                                                                                
HB  209  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
Co-Chair  Merrick reviewed  the schedule  for the  following                                                                    
meeting.