Legislature(2009 - 2010)BARNES 124
04/09/2010 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB305 | |
| SB243 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 305 | TELECONFERENCED | |
| + | SB 243 | TELECONFERENCED | |
| + | SB 144 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 243-GEOTHERMAL RESOURCE:ROYALTY/PERMIT/FEE
3:50:55 PM
CO-CHAIR JOHNSON announced that the next order of business was
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."
3:51:26 PM
SENATOR LESIL McGUIRE, Alaska State Legislature, as sponsor,
introduced SB 243. She said the bill proposes two policy
changes in the area of geothermal energy. She remarked that
some areas of Alaska are already working on geothermal energy
projects, while other areas have the potential for exploration.
She said the first part of the bill addresses royalty provisions
under Alaska law. She reviewed that at one time, geothermal
leases in Alaska had a set royalty rate of 10 percent. She
related that she was part of a group that discussed making the
royalty rate zero, because the rate at the time was thought to
be a deterrent to geothermal activity in the state. The first
iteration of the bill proposed that zero rate. She said the
premise was that geothermal energy uses hot water, unlike energy
that uses hydrocarbons extracted permanently from Alaska.
SENATOR McGUIRE said after working with the Department of
Natural Resources and listening to feedback from members of the
Senate Resources Standing Committee, the group decided that
while there is not a hydrocarbon that is extracted permanently,
geothermal energy production would lock up land, which would be
unusable for a variety of other purposes; therefore, the group
decided that the responsible solution would be to put a royalty
in place. In deciding what rate to set, the group considered
other rates, including that of the federal government, which is
1.75 percent for the first 10 years, then 3.5 percent for
ensuing years. She indicated that the group did not want to set
a rate higher than that of the federal government and end up
with circumstances such as that in the Continental Shelf and in
parts of Prudhoe Bay, where people are investing in federal
lands because the rates are lower. The royalty provision set,
as under SB 243, matches the aforementioned federal rate.
3:54:54 PM
SENATOR McGUIRE emphasized that the bill is not being introduced
for the benefit of any one company. She said she went to
Iceland a couple years ago where she became enthusiastic about
geothermal energy, and since then has been working to
incentivize the use of geothermal energy. During this process,
she said, companies entered into discussions and she realized
that some provisions of Alaska law needed to be clarified. The
first clarification was to put a certain royalty rate in place
so that companies can make investment decisions. The second
clarification was to formulate a regulatory scheme - an
essential part of the bill that she said must be passed this
year. She explained that currently, under state law, geothermal
leases are regulated solely by the Department of Natural
Resources.
SENATOR McGUIRE mentioned a utility company drilling in Pike's
Ridge and a commissioner at the Alaska Oil and Gas Conservation
Commission (AOGCC) who looked into that drilling. It was
discovered that the area being drilled presented hydrocarbon
deposits. She indicated that the utility company and AOGCC
worked well together. She further indicated that state law
could be enacted to benefit this situation. She said under SB
243, AOGCC would assume responsibility for regulating the
conservation of the state's geothermal resource to prevent
waste. It would also assume responsibility for "the act of
drilling for a geothermal resource itself." She said she thinks
that is important for the protection of both the state's
resource and its workers.
3:57:09 PM
SENATOR McGUIRE related that under SB 243, the Department of
Natural Resources would oversee leasing, unitization, and
general land management issues. She asked that when the
committee considers SB 243, it keeps in mind the months that
have gone into its existence and the integral nature of the
parts of the bill.
3:58:19 PM
CO-CHAIR JOHNSON indicated that he had found out that the
original 10 percent [royalty rate] had not been selected for any
particular reason.
3:58:49 PM
REPRESENTATIVE SEATON noted that the phrase, "that includes
state land", had been added after "geothermal" in Sections 6 and
7, on page 3. He then directed attention to Section 5(a), which
read, "The commission has jurisdiction over all persons and
property, public and private, necessary to carry out the
purposes and intent of this chapter." He further highlighted
language in Section 5(b), which read: "The authority of the
commission applies to all land in the state lawfully subject to
the police power of the state, including private land, municipal
land, state land, land of the United States, and land subject to
the jurisdiction of the United States". He asked if the bill is
structured such that a geothermal resource on private land that
is subject to the police powers of the state is included, or if
Section 6 and 7 "specifically exclude that unless it ...
includes some portion of state-owned land."
3:59:45 PM
MICHAEL PAWLOWSKI, Staff, Senator Lesil McGuire, Alaska State
Legislature, on behalf of Senator McGuire, sponsor, indicated
that the language in Section 7 means that [lessees] would need
the authority [of the commissioner] to enter into a unit
agreement related to a system that includes state land. Section
6, he said, refers to the commissioner of AOGCC. Regarding
Section 5, he said DNR deals with state land, but geothermal
resource development might happen outside of state land. The
AOGCC commissioner has the authority over plans of development,
exploration, and drilling regardless of whether it is on state
or federal land.
4:01:21 PM
REPRESENTATIVE SEATON said he wants to know if the bill sponsor
intended for royalties to apply when the entire resource is on
private land.
4:02:05 PM
MR. PAWLOWSKI offered his understanding that the royalty
provision would not apply to private land. For example, if a
Native corporation owned the subsurface rights, the state would
not collect the royalty on that land. The royalty provision
applies when the state owns the subsurface rights, he said. He
further offered his understanding that AOGCC's role in
investigation and conservation would extend to private land.
4:02:58 PM
CATHY P. FOERSTER, Commissioner, Alaska Oil & Gas Conservation
Commission (AOGCC), Department of Administration, in response to
Representative Seaton, stated that AOGCC will have police powers
throughout the state as it does for oil, except for Denali
National Park and Preserve and a few pieces of federal land.
She explained that it does not matter who owns the land - AOGCC
must ensure appropriate drilling practices and the best use of
the resource. She further emphasized that it doesn't matter
whether the land is owned by the state, the federal government,
a Native corporation, or a private individual - AOGCC has
authority for all of those lands in terms of oil and gas, and it
makes sense to have it for land on which geothermal activity
takes place.
4:04:19 PM
REPRESENTATIVE SEATON noted that the bill specifies 120 degrees.
He asked if there is a portion of the bill that would provide an
exemption for ground source, seawater source, geothermal
recovery, or hydrothermal recovery.
4:05:10 PM
MR. PAWLOWSKI deferred to Kevin Banks to clarify the definition
section of the bill.
4:05:30 PM
CO-CHAIR NEUMAN relayed that sea water and ground water pumps
would not qualify under the specification for 120 degrees;
therefore, they would need the exemption.
4:06:05 PM
SENATOR McGUIRE directed attention to language on page 7, in
Section 17, which defines geothermal resources as "natural heat
of the earth at temperatures greater than 120 degrees Celsius".
Seawater that is heated up and cooled down for energy purposes
would not qualify.
4:06:41 PM
REPRESENTATIVE SEATON directed attention to language on page 8,
lines 1-2, which read, "or other resource extraction device or
any commercial use of the natural heat of the earth". He said
the use of the word "or" seems to separate "any commercial use
of the natural heat of the earth". He said he wants to ensure
there is no conflict created through the wording.
4:07:19 PM
MR. PAWLOWSKI related that there is concern that under current
statutory definition of geothermal, nothing in Alaska could be
considered to be geothermal, "because the temperature might be
too low." He stated that commercial use of geothermal energy
means using the heat of the ground for commercial purposes,
generating power, and selling that power. He said the
definition needed to be tightened to address the commercial
application of geothermal energy.
4:08:31 PM
REPRESENTATIVE SEATON noted that the Juneau International
Airport is installing ground source heat pumps to heat the
entire facility, and he questioned whether that is a commercial
use of the natural heat of the earth. He said, "I just want to
make sure that we don't inadvertently tap into that for any
other way."
4:08:59 PM
MR. PAWLOWSKI requested that the Department of Natural
Resources' opinion be put on the record.
4:09:11 PM
CO-CHAIR JOHNSON said he understands Representative Seaton's
concern. He recognized that Representative Seaton had to leave
for another meeting, and said unless he objects to the bill, he
would like to pass the bill out of committee.
4:09:29 PM
REPRESENTATIVE SEATON said he does not have an objection to the
bill, but wants clarification on the record regarding the intent
of "this language" in the bill.
4:11:57 PM
KEVIN BANKS, Director, Division of Oil and Gas, Department of
Natural Resources (DNR), clarified that all of the provisions
that are moving over to AOGCC are existing statutes that govern
geothermal unitization and conservation and are currently
embedded in the Department of Natural Resources as a consequence
of statutes written three decades ago. He said it is the view
of both DNR and AOGCC that a more practical use of the state's
resources for managing these resources with respect to
conservation and correlative rights need to be in the purview of
AOGCC, because it has the experience in unitization with respect
to private and municipal land owners.
In response to a question from Representative Guttenberg, he
said if there were mixed ownership of a geothermal resource, in
which a municipality is involved, and the development of that
resource should occur, then the municipality's participation in
the resource and the benefits it acquires from that resource
would also come under the purview of AGOCC. He added, "And they
would ... share in the cost of its development, just as they
would share in the revenues." This would avoid a situation in
which private developers pursue the development of a resource,
and then somehow the municipalities would be off the hook for
paying their share of it or lose their benefits should the
development occur on their land.
4:14:17 PM
MR. BANKS, regarding Representative Seaton's previous question
about the 120 degree Celsius cutoff, said the department wants
to ensure that commercial uses of geothermal resources when they
are less than 120 degrees and are on state land should be
subject to royalty provisions. If that occurs on private land,
there would be no state royalty, he said; however, there is
still a need to define geothermal resources sufficiently so that
AOGCC's responsibilities can be invoked to ensure that people
are not drilling wells that are unsafe. The language in the
bill was intended to exclude heat pumps for domestic use.
Regarding the Juneau International Airport, he said he does not
know who owns the subsurface resources underneath the airport
where the geothermal heat is being extracted. He said to the
extent that an entity such as an airport or other business that
happens to be using geothermal fluids that are less than 120
degrees, he suspects they would have to be regulated as a
geothermal resource "under this definition."
4:15:59 PM
CO-CHAIR NEUMAN noted that 120 degrees Celsius is super heated
water, above boiling point. He mentioned a rod that can be put
into the ground to transfer heat and indicated that that is
"pretty well covered in the bill." He encouraged a variety of
methods for capturing geothermal energy. He directed attention
to page 1, and indicated that under SB 243, DNR would handle the
permitting processes, while AOGCC would handle the technical
aspect of geothermal resources. He said there would be a
combined effort to have oversight practices that ensure things
are safely done. He then directed attention to language on page
2, which establishes the royalty of 1.75 percent, which matches
the federal rate. He said there is value to state land to those
who hunt and fish on it, for example, and he opined that the
time frame for the royalties reflects this and is "very
reasonable."
4:18:01 PM
CO-CHAIR JOHNSON opened public testimony.
4:18:43 PM
PAUL THOMSEN, Director of Policy and Business Development, Ormat
Technologies (OT), Inc., testifying in support of SB 243, said
OT leased 36,000 acres at Mt. Spurr, and is looking to develop
on state land. He said OT thinks the proposed legislation
encapsulates what has been discussed earlier and would bring
royalty rates "into the market," which allows his company to
compete. He stated that what is unique about geothermal
development is that the product developed will remain within the
state of Alaska. He said he thinks the sponsor recognized that
in the bill and tried to reduce the impact to the rate payers in
Alaska.
4:19:49 PM
CO-CHAIR JOHNSON closed public testimony after ascertaining no
one else wished to testify.
4:20:42 PM
CO-CHAIR JOHNSON moved to adopt Conceptual Amendment 1, as
follows:
Page 8, lines 1-2, between "device" and ";":
Delete "or any commercial use of the natural heat
of the earth"
REPRESENTATIVE EDGMON objected for discussion purposes.
4:21:13 PM
MR. PAWLOWSKI pointed out that commercial development might not
reach the 120 degree Celsius temperature, which would mean large
commercial development might not qualify under Conceptual
Amendment 1.
4:21:46 PM
SENATOR McGUIRE suggested instead that the committee consider
defining commercial use itself to mean the sale of heat or power
to a third party.
4:22:28 PM
MR. BANKS said DNR can accept the suggestion made by the bill
sponsor.
CO-CHAIR JOHNSON withdrew Conceptual Amendment 1.
4:22:46 PM
CO-CHAIR JOHNSON moved to adopt Conceptual Amendment 2, as
follows:
Page 8, lines 1-2, between "or" and ";":
Delete "any commercial use of the natural heat of
the earth"
Insert "sale of heat or energy to a third party"
4:23:18 PM
SENATOR McGUIRE suggested instead that the language on lines 1
and 2 could be left as is and a definition of "commercial use"
could be added in the definition section of the bill.
4:23:36 PM
CO-CHAIR JOHNSON moved to amend Conceptual Amendment 2 such that
on page 8, following paragraph (9), a new definition of
"commercial use" would be added to read: "the sale of heat or
power to a third party". There being no objection, Conceptual
Amendment 2, as amended, was adopted.
4:24:18 PM
REPRESENTATIVE EDGMON expressed his hope that Conceptual
Amendment 2, as amended, accomplishes what was intended.
4:24:30 PM
CO-CHAIR JOHNSON clarified that the purpose of the adopted
amendment is to exclude heat pumps used for personal use or the
aforementioned use at the Juneau International Airport, for
example. He said he would work with the sponsor and bill
drafters to ensure that purpose is clear.
4:25:00 PM
CO-CHAIR NEUMAN moved to report CSSB 243(FIN), as amended, out
of committee with individual recommendations and the
accompanying fiscal notes. There being no objection, HCS CSSB
243(RES) was reported out of the House Resources Standing
Committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Corrected Sectional Analysis Sb 243 version P.pdf |
HRES 4/9/2010 1:00:00 PM |
SB 243 |
| CSSB0243 P Fin.pdf |
HRES 4/9/2010 1:00:00 PM |
SB 243 |
| Geothermal Royalty Rates.pdf |
HRES 4/9/2010 1:00:00 PM |
|
| Ormat SB243 for Senate Resouce Hearing 3.10.10 ver0 (2).pdf |
HRES 4/9/2010 1:00:00 PM |
SB 243 |
| Royalty Sheet SB 243 SFIN.pdf |
HRES 4/9/2010 1:00:00 PM |
SB 243 |
| SB0243-3-1-040210-DNR-N.pdf |
HRES 4/9/2010 1:00:00 PM |
SB 243 |
| USGS Geothermal Packet.pdf |
HRES 4/9/2010 1:00:00 PM |
|
| SB0243-4-1-040210-ADM-N.pdf |
HRES 4/9/2010 1:00:00 PM |
SB 243 |
| CSSB305 Conceptual Amendment by Rep Guttenberg.pdf |
HRES 4/9/2010 1:00:00 PM |
SB 305 |
| CSSB305 Amendment WA.2.pdf |
HRES 4/9/2010 1:00:00 PM |
SB 305 |
| CSSB305 Conceptual amend to Amendment WA.2.pdf |
HRES 4/9/2010 1:00:00 PM |
SB 305 |
| SB 305 David Wood Memo 3.02.10.pdf |
HRES 4/9/2010 1:00:00 PM |
SB 305 |
| SB 305 Logsdon 4.09.10.pdf |
HRES 4/9/2010 1:00:00 PM |
SB 305 |