Legislature(2009 - 2010)BARNES 124
04/09/2010 01:00 PM House RESOURCES
Audio | Topic |
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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 |
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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 |