Legislature(2019 - 2020)BUTROVICH 205
02/10/2020 03:30 PM Senate RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| SB171 | |
| SB161 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 171 | TELECONFERENCED | |
| *+ | SB 161 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 161-GEOTHERMAL RESOURCES
4:05:55 PM
CHAIR MICCICHE announced that the final 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."
4:06:32 PM
LAURA OGAN, Legislative Liaison & Special Projects, Alaska
Department of Natural Resources, Anchorage, Alaska, explained
that SB 161 seeks to attract attention to Alaska's geothermal
exploration program. The bill will align with the state's
existing oil and gas exploration license program and will
diversify the state's energy portfolio. It will also increase
the potential for affordable renewable energy to both rural
communities and remote resource extraction projects.
4:07:31 PM
CHAIR MICCICHE welcomed Senator Reinbold to the committee
meeting.
4:07:47 PM
STEVEN MASTERMAN, Director, Division of Geological and
Geophysical Surveys, Alaska Department of Natural Resources,
Fairbanks, Alaska, explained that geothermal resources offer the
potential for sustainable, affordable, local and renewable power
generation. He said Governor Dunleavy's administration supports
enhancing geothermal energy development in Alaska and SB 161 is
a progressive step in that direction.
MR. MASTERMAN specified that the bill removes obstacles for
exploration and development of Alaska's geothermal resources in
a number of ways. The bill provides for five-year exploration
licenses instead of the current two-year permits with one
additional year, to allow more time to meet the challenges of
bringing remote exploration projects into production.
MR. MASTERMAN explained that SB 161 changes the statutory
terminology for permits to lease to more closely align the
geothermal program with the state's dominant model of petroleum
leasing. It allows conversion of geothermal exploration licenses
to production leases upon mutual state lessee approval of a
workplan instead of upon production of commercial quantities to
provide the state more flexibility in incubating a new resource
industry.
He detailed that the bill nearly doubles the maximum size of
geothermal lease holdings to 100,000 acres to accommodate the
expansive size of geothermal resource systems. This will attract
greater interest in geothermal resources because developers will
have a greater opportunity to explore the appropriate area to
delineate geothermal systems.
MR. MASTERMAN specified that SB 161 eliminates statutory
reference to surface owners' preferential rights to purchase
subsurface geothermal exploration rights to eliminate
uncertainty among geothermal explorers and investors. It updates
and refines the definition of a geothermal resource and provides
an exclusion for domestic use of geothermal energy.
He said that by enacting SB 161, Alaska will continue to
responsibly manage its natural resources in a manner to provide
maximum benefits to Alaskans through the development of needed
energy sources.
4:10:36 PM
MR. MASTERMAN provided the following sectional analysis of SB
161:
Section 1
Relates to refining the responsibilities between the
Division of Oil and Gas, and the Alaska Oil and Gas
Conservation Committee.
Sections 2-4
Relates to changing from permits to leases.
Section 5
Increases the allowable acreage an entity can hold to
100,000 acres.
Section 6
Amends the duration of geothermal leases and allows
license conversion to leases.
Section 7
Adds new clauses that allows the creation of similar
unit agreements to those within the Division of Oil
and Gas currently utilizes to manage oil and gas
development.
Section 8
Refines the definition of a geothermal resource.
Section 9
Clarifies that DNR manages leasing and licensing of
geothermal resources.
Section 10
Exempts domestic use of geothermal energy from leasing
requirements.
Section 11
Updates the definition of geothermal resources.
Sections 12-16
Conforming changes and provides for effective dates.
4:11:59 PM
MR. MASTERMAN said the Alaska Oil and Gas Conservation Committee
and the Division of Oil and Gas submitted zero fiscal notes. The
fiscal note from the Division of Geological and Geophysical
Surveys (DGGS) reflects restarting the Geothermal Program, which
was terminated five years ago. The program would synthesize and
provide data on Alaska's geothermal resources to support the
Division of Oil and Gas leasing of geothermal resources, and to
attract and assist companies wishing to develop the state's
resources. The DGGS position would monitor developments in the
quickly changing geothermal technology and seek to attract
federal funding to support investigations to develop the state's
geothermal resources.
4:13:40 PM
SENATOR KIEHL noted the earlier testimony about removing the
preferential right of a surface owner to the geothermal
resources under their land and the deleted language that talks
about notice. He asked, should the bill pass as currently
drafted, what notice a surface owner would receive when there's
a proposal to lease the geothermal rights under their land.
4:15:05 PM
TOM STOKES, Director, Division of Oil and Gas, Alaska Department
of Natural Resources, Anchorage, Alaska, answered that the
notice would be similar to oil leases where entities on the
division's mailing list would receive public notice and public
comment would be solicited.
SENATOR KIEHL asked if the mailing list includes all the surface
owners.
MR. STOKES answered yes.
CHAIR MICCICHE directed attention to the language in section 7,
lines 28-30, "The commissioner may not reduce royalty on
geothermal lease issued under this section in connection with a
unit agreement." He asked how royalties are paid on geothermal
resources and if the payment is British thermal unit (BTU)
based.
MR. STOKES answered that the current geothermal royalty rate is
1.75 percent of gross revenue.
CHAIR MICCICHE asked if gross revenue means that there is no
royalty payment if the geothermal operation is not profitable.
MR. STOKES answered that the royalty rate is based on gross
revenue, not net revenue.
4:17:19 PM
CHAIR MICCICHE summarized that the 1.75 percent is an expense
that is not based on the profitability of the operation.
MR. STOKES answered correct.
CHAIR MICCICHE asked for an explanation of the sentence, "Except
as provided in (f) and (j)."
MR. STOKES explained that the rate charged to the company
initially would be on a per acre rental cost basis. Once the
lease becomes commercially viable, the rate would change from a
per acre rental to the royalty rental.
CHAIR MICCICHE referenced subsection (j) in section 7 on page 4,
lines 3-5 and asked if it allows the commission to adjust
royalty requirements on a postproduction basis.
MR. STOKES said he believes the subsection is referring to
renewals subsequent to the initial 20-year lease.
4:19:22 PM
SENATOR KIEHL asked if the bill maintains the division in the
existing statutes between little guys and industrial operations
or if people will have to lease a minimum of 40 acres to tap
into geothermal to heat their cabins in the winter.
MR. STOKES replied the bill refers to commercial operations. An
individual owner does not need a license to utilize geothermal
resources under personal property.
SENATOR KIEHL asked if an individual will continue to be able to
use the geothermal resources under their property if a company
leases those resources.
MR. STOKES answered that it would only change if the individual
owner turned their geothermal resource into a commercial
operation.
SENATOR KIEHL pointed out that there are some communities around
the state that are using geothermal resources. He asked how
potential conflicts will be worked out in the future if there
was commercial interest in those geothermal resources.
4:21:44 PM
MR. STOKES answered that those details would have to be worked
out. He reiterated that the intent is for commercial operation
and not for local usage.
CHAIR MICCICHE suggested the department think about Senator
Kiehl's question and provide the committee with their vision of
how they will address a geothermal conflict. He said he knows of
instances where Alaskans have used local resources for
generations.
SENATOR BISHOP referred to subsection (a) in section 2 that
read, "The commissioner may, under regulations adopted by the
commissioner, grant prospecting licenses and leases to a
qualified person to explore for, develop, or used geothermal
resources." He pointed out that a drill site has drilling
fluids, drilling mud, and cement and asked what the department
is thinking about for their regulations.
MR. STOKES replied it would be equivalent to what the department
does with oil and gas. The lessee would have to apply for a
license and within the application the department would
understand their level of operations and address any hazards or
associated drilling.
4:23:53 PM
CHAIR MICCICHE asked if he agrees that a prospecting license or
lease is not required for exploration.
MR. STOKES answered no; a commercial entity is required to have
a license for exploration.
CHAIR MICCICHE summarized that a license is not required for
exploration or development if the intent is for domestic,
noncommercial, or small-scale industrial use, and the ground
temperature is not more than 30 degrees Celsius.
MR. STOKES answered correct.
SENATOR GIESSEL asked if the department could provide a map
showing the potential geothermal areas in the state, including
the nearby population centers that might be using the energy
sources.
MR. MASTERMAN answered yes.
4:25:21 PM
CHAIR MICCICHE asked if there is a fairly good probability that
there is domestic noncommercial or small-scale industrial use
throughout the state that the department is not knowledgeable
about. He inquired if there is a reason why the smaller-scale
users would register with the department at some point in their
production process.
MR. MASTERMAN replied the technology for home-use systems that
use ground source heat pumps will evolve, become more efficient,
and develop into more widespread use. The department is trying
to segregate that small-scale use from the heavier
industrialized use that might be generating power for a
community-scale operation or a large industrial facility. He
noted that the warmer parts of the state will more likely see
greater expansion and less so in places that are colder.
CHAIR MICCICHE explained that his question ties to Senator
Giessel's query on what the department knows about geothermal
resources and Senator Kiehl's question about protecting smaller-
scale users with regards to their unlikely affect on a
commercial entity.
4:27:40 PM
MR. MASTERMAN said there are a number of ways that other states
have addressed the issue of safeguarding and segregating home
use of geothermal energy from industrial uses.
He pointed out that industrial uses of geothermal energy require
a nearby hot spring system, fumarole system, or a local volcanic
field that provides the large-scale heat source for a commercial
operation. There are only a couple of places in the state where
those things overlap with surface ownership or subsurface use of
the geothermal resource and most small-scale users will steer
clear because of the associated extra costs. Most residential-
type uses will be shallow and on the low temperature side of the
temperature spectrum. He said there will be a natural separation
between small-scale users and commercial operations.
4:29:45 PM
CHAIR MICCICHE said the committee did not want to put the
geothermal presenters on the spot. He suggested that the queries
will provide something to think about for a follow-up meeting.
SENATOR GIESSEL asked if there are tax credits available for
exploration and geothermal energy production.
MR. MASTERMAN answered that he not familiar with that.
SENATOR GIESSEL said the reason she asked is that the state gets
itself into a revenue dilemma with tax credits. She said her
intent is to make sure that there are not random exploration tax
credit applications out there for geothermal energy.
CHAIR MICCICHE said he would like additional information at the
next meeting. He recalled when there was excitement a few years
ago on the westside of Cook Inlet for a geothermal program. He
said he did not know if the program sunsetted.
SENATOR KIEHL noted that he could not track what the bill was
changing and why. He asked the presenters to follow up on what
the state is defining as geothermal resources.
CHAIR MICCICHE said the committee would like their questions
answered before moving the bill forward.
4:32:20 PM
CHAIR MICCICHE held SB 161 in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 171 ver. A.PDF |
SRES 2/10/2020 3:30:00 PM |
SB 171 |
| SB 171 Sponsor Statement 2.6.2020.pdf |
SRES 2/10/2020 3:30:00 PM |
SB 171 |
| SB 171 Sectional Analysis 2.6.2020.pdf |
SRES 2/10/2020 3:30:00 PM |
SB 171 |
| 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 |