Legislature(2009 - 2010)BARNES 124
04/14/2010 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB234 | |
| SB243 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 234 | TELECONFERENCED | |
| + | SB 243 | TELECONFERENCED | |
| + | SB 277 | TELECONFERENCED | |
SB 243-GEOTHERMAL RESOURCE:ROYALTY/PERMIT/FEE
4:06:20 PM
CHAIR OLSON announced that the next order of business would be
CS FOR SENATE BILL NO. 243(FIN), "An Act relating to geothermal
resources; relating to the royalty obligation for geothermal
resources; transferring from the Department of Natural Resources
to the Alaska Oil and Gas Conservation Commission authority over
permitting and inspection of geothermal wells; providing for a
regulatory cost charge for geothermal wells; and providing for
an effective date."
[Before the committee was HCS CSSB 243(RES).]
4:06:26 PM
MIKE PAWLOWSKI, Staff, Senator Lesil McGuire, Alaska State
Legislature, stated that SB 243 really "opens the door for
commercial development of geothermal energy in Alaska and puts
that development under a regulatory regime that exists in every
other state that is an oil and gas producing region. Under
current law, geothermal resources would pay a 10 to 15 percent
royalty rate. When the state originally considered the
appropriate rate, the sponsor contemplated the rate should be
zero since the product is hot water, is not exported, and any
royalty would be passed on to consumers in the form of higher
electric rates. However, after working with Department of
Natural Resources (DNR), the sponsor agreed that the leasing of
land for geothermal resource actually is the equivalent of a
"property right" so some form of royalty made sense.
MR. PAWLOWSKI referred to page 1 line 12 and to page 2, line 8,
which refers to the proposed royalty rate for geothermal in
Alaska on state land of 1.5 percent on the gross value of
production, during the first ten years, and 3.5 percent
following those ten years. This royalty rate is the same as on
federal land, he noted. The goal was to achieve a reasonable
rate that comports with the federal land and does not create any
real competition. A 10 to 15 percent royalty rate was written
20 to 30 years ago, and was "picking a number out of thin air,
not knowing what makes geothermal economic."
MR. PAWLOWSKI explained that the other sections of the bill
divide the authority between the Alaska Oil and Gas Conservation
Commission (AOGCC) and the Department of Natural Resources (DNR)
to regulate geothermal resources. He referred to page 2, lines
9-15, to Section 3 to the commission's authority over geothermal
wells, which read: "The commission has jurisdiction under this
chapter over geothermal wells to prevent waste, to protect
correlative rights, and to ensure public safety." He stated
that this language provides the regulation of the drilling,
exploration, and actual use of the resource. The DNR would have
control over the leasing, the unitization, and land issues that
DNR typically performs with oil and gas matters. The geothermal
system would be very similar to oil and gas management, he
stated. This change should save the state money since DNR does
not have in-house expertise to carry out what he characterized
as an outdated regulatory system. More importantly, looking at
the map that shows state land ownership, under current law DNR
has authority over state land but there might be geothermal
development that is not on state land. He explained that only
the AOGCC can regulate to protect the public safety on all land
outside state lands. That change represents the critical piece
to ensure safe development of a renewable energy that actually
pays a royalty to the treasury. He paraphrased from the sponsor
statement, which read [original punctuation provided]:
Electric power generated from geothermal sources is a
clean, sustainable, and environmentally friendly
alternative to fossil fuels. It can play a major part
in meeting the future energy needs of the railbelt and
other regions.
The problem for any company seeking to build a
commercial grade geothermal plant in Alaska is high
capital costs that run 25-50 percent higher than the
Lower-48. Operational costs could run 100 percent
higher than the rest of the country.
Senate Bill 243 assists companies in developing
geothermal resources discovered in commercial
quantities on state land by lifting the 10 to 15
percent royalty payment obligation currently in state
statute.
SB 243 is a common sense effort to make geothermal
power projects economically viable and produce more
affordable and reliable electric power for homes and
businesses.
Geothermal electrical generation has been used for
decades all over the world and creates "green" jobs.
Alaska can now join other states and nations using
geothermal sources to create a safe and secure source
of electricity.
I urge all my colleagues to support SB 243 and move
our state towards a secure energy future.
4:10:05 PM
REPRESENTATIVE T. WILSON asked whether this bill regulates
geothermal resources on private property.
MR. PAWLOWSKI answered that the regulation on private land would
be subject to AOGCC. It would not apply to the royalty sections
since the state does not own the subsurface rights.
4:11:06 PM
MR. PAWLOWSKI explained the House Resources Standing Committee
made a change that set an important policy provision. He
referred to page 7, to proposed Section 17, and the definition
of commercial use. He read: "(1) commercial use" means the
sale of heat or power to a third party;" which he said does not
affect personal ground source heat pumps that people may use for
their homes or for small scale geothermal energy use for
personal use."
4:12:02 PM
REPRESENTATIVE HOLMES related that she did not think the change
creates any problem, but if somewhere "down the line" the
resources are being deleted, the problem could be dealt with at
that time. She thought this change represented a reasonable
step at this point.
4:12:42 PM
REPRESENTATIVE T. WILSON asked if she has a business on her
property and uses the geothermal resource whether that use would
be considered personal use.
MR. PAWLOWSKI answered yes, that since the person would be using
the geothermal resource for his/her own use and is not selling
the heat or power that the use would not be considered a
commercial use of geothermal energy.
4:14:00 PM
CATHY P. FORESTER, Commissioner, Alaska Oil & Gas Conservation
Commission (AOGCC), Department of Administration, stated that
the AOGCC strongly supports SB 243. She explained that the bill
would transfer from Department of Natural Resources (DNR) to the
AOGCC a function that is more appropriately handled by the
AOGCC. She offered her belief that the DNR also supports this
transfer.
4:14:41 PM
PAUL THOMSEN, Director, Public Policy and Business Development,
ORMAT Technologies, Inc., stated that ORMAT was delighted to win
the leases at Mt. Spur and is excited to develop a large scale
commercial geothermal project near Anchorage. This bill will
move us forward in developing that project and reducing the
royalties to the federal level brings the royalty taxes on par
to allow projects to compete with resources in the Lower 48.
Additionally, SB 243 will help "pave the way" to develop
additional geothermal resources in Alaska. He stated that ORMAT
Technologies strongly supports SB 243. He commented on the
previous discussion on commercial applications. This bill
reduces an existing royalty rate of 10 percent to the federal
level. He offered that people would pay a 10 percent royalty if
the project is defined as commercial. He indicated that in the
event the use is not defined as commercial, the owner could take
comfort that he/she will be taken care of with Senator McGuire's
amendment that was previously adopted.
4:16:23 PM
KEVIN BANKS, Acting Director, Central Office, Division of Oil &
Gas, Department of Natural Resources (DNR), explained that DNR
has been "saddled" with the responsibilities of managing
geothermal land. This bill surgically carves out of the DNR
statutes the ones that are more appropriate to the AOGCC. The
bill does not add any further regulation, but would provide for
safety and correlative rights and conservation of the resource.
This bill also creates a relationship with the AOGCC and the DNR
that is similar to what the DNR shares in oil and gas matters.
He offered DNR's support for this bill.
4:17:46 PM
CHAIR OLSON, after first determining no one else wished to
testify, closed public testimony on SB 243.
4:18:13 PM
REPRESENTATIVE T. WILSON moved to report the HCS CSSB 243(RES)
out of committee with individual recommendations and the
accompanying fiscal notes. There being no objection, HCS CSSB
234(RES) was reported from the House Labor and Commerce Standing
Committee.