HB 74-GEOTHERMAL RESOURCES  10:17:22 AM CHAIR RAUSCHER announced that the only order of business would be HOUSE BILL NO. 74, "An Act relating to geothermal resources; relating to the definition of 'geothermal resources'; and providing for an effective date." 10:18:30 AM JOHN BOYLE, Commissioner, Department of Natural Resources, stated that Governor Mike Dunleavy seeks to implement an "all of the above" strategy for energy in Alaska that would make use of the state's natural resources and using both fossil fuels and renewable energy sources, with the goal of lowering energy costs for Alaskans. He stated that the goal of the proposed legislation would be to incentivize investment into the development of geothermal energy in the state. 10:22:04 AM AARON O'QUINN, Leasing Manager, Division of Oil and Gas, Department of Natural Resources, co-presented a PowerPoint titled, "HB 74, Geothermal Resources." He began on slide 2 and gave an outline of what information would be covered during the presentation. 10:23:07 AM DAVID LEPAIN, PhD, Director, Division of Geological and Geophysical Surveys, Department of Natural Resources, began on slides 3 and 4 and gave an overview of the necessary elements of geothermal energy. He stated that the well brings steam up into the facility which spins the turbines and produces electricity, and the water is injected into the ground in another area to cool and eventually be reheated. DR. LEPAIN continued to slide 5 and gave an overview of geothermal heat flow in the state of Alaska. Alaska is thought to have an elevated heat flow, and it mostly comes from granite and volcanic systems. He said that the volcanic systems often show up in the form of hot springs. 10:28:21 AM DR. LEPAIN continued to slide 6 and showed geothermal gradients in the state, showing temperatures in both Celsius and Fahrenheit and depth in both in both and kilometers and feet. He said that the cone on the map shows the geothermal of the Alaska Peninsula. DR. LEPAIN continued to slides 7 and 8 and gave an overview of geothermal resource quality. He said that hotter temperatures, higher flow rates, more shallow depths, and natural recharge are all better for producing more energy at a lower cost, although having all of those factors in a single geothermal source is rare. He stated that a properly managed geothermal resource will be able to produce energy indefinitely, and the technology to use geothermal resources are quickly improving. 10:34:26 AM REPRESENTATIVE CARRICK asked whether the reinjection of water into the ground is a process with long-term sustainability. DR. LEPAIN answered that it depends on the management of the source. If managed correctly with multiple far-off reinjection wells, the source can be used indefinitely. In response to a follow-up question, he stated that the turbines have a lifespan of between 30 and 40 wells, but he is unsure of the lifespans of the wells. 10:37:38 AM REPRESENTATIVE PRAX asked whether the state is involved in Chena Power's project in Dutch Harbor, Alaska. MR. O'QUINN answered that that project is on land owned by the Native corporations, so the state is not involved. 10:39:20 AM BRETT HUBER, SR, Chair, Alaska Oil and Gas Conservation Commission; Commissioner, Department of Commerce, Community, and Economic Development, returned to a previous question and reiterated that a geothermal project could continue to produce for "many decades," and that it would be possible to drill a new well in proximity to an old well that was no longer useable. 10:40:30 AM REPRESENTATIVE PRAX asked whether HB 74 would cause the state to become more involved with companies to develop geothermal energy. 10:41:25 AM JOHN CROWTHER, Deputy Commissioner, Department of Natural Resources, answered that private landowners would continue to manage their own land, and the bill is meant to get the state to develop geothermal energy on state lands and private landowners on their own land. 10:43:11 AM REPRESENTATIVE PRAX asked what the name of the Dutch Harbor project is. DR. LEPAIN answered that it is Makushin Volcano. He added that the bill would allow the state to do more research on the potential of certain areas for geothermal energy sites. 10:45:39 AM MR. O'QUINN continued to slides 9 and 10 and gave an overview of the purpose HB 74. He stated that the bill would allow Alaska's geothermal exploration program to be modernized, align geothermal licensing with oil and natural gas to make it more economically viable for private interests, and reform definitions for geothermal resources to focus on commercial use. The bill would increase the amount of land that can be used for exploration and repeal the provision allowing the state to renegotiate the royalties after a period of 20 years. 10:49:10 AM MR. O'QUINN continued to slides 11 and 12 and gave an overview of the leasing and permitting process and project history. He stated that the two most recent permits for exploration were offered in 2021 for Mount Spurr and 2022 for Augustine Island. He said that under the current rules, if there are competing proposals to use land for a geothermal project, there is a competitive process, but in the case of only a single bid the permit is usually issued. Currently, the permits last only two years, and the bill would change that to five and be modeled after oil and natural gas licensure. 10:52:10 AM REPRESENTATIVE PRAX asked whether five year is enough time for geothermal exploration. MR. O'QUINN answered that the five-year time period is meant to provide a balance between getting some amount of work done and "warehousing" tracts of land for later use. He added that if some work is done during the five year exploration period, the owner of the permit will be eligible for a ten-year lease. 10:53:36 AM MR. O'QUINN continued to slides 13 and 14 and showed a brief summary of the sectional analysis for HB 74. He continued to slide 15 and stated that Section 1 would allow the Alaska Oil and Gas Conservation Commission (AOGCC) to pursue primacy for Class V injection wells for geothermal developments. 10:56:00 AM REPRESENTATIVE SCHRAGE asked what the definition of a Class V well is. MR. HUBER answered that there are 32 categories that would fall under the definition of Class V, including geothermal wells. He added that it does not change the rules of the permitting process but allows a state agency to issue the permits rather than the federal government. In response to a follow-up question, he said that the bill would allow AOGCC to exempt certain smaller-scale projects from permitting. REPRESENTATIVE SCHRAGE asked whether any permits for geothermal projects had been rejected in the past. MR. O'QUINN answered that he was unsure. In response to a follow-up question, he said that AOGCC views geothermal wells in much the same way as unregulated water wells around the state, and they would therefore be low risk. 11:01:53 AM REPRESENTATIVE CARRICK asked for a comparison between the average depths of a water well and a geothermal well. MR. HUBER answered that in his personal experience, water wells are often around 500 feet, although there is no official data kept on them. MR. CROWTHER added that the smaller scale projects that would be exempt would be more shallow and less complex wells because they would be for personal or smaller scale use, and the electricity generated from them would not be sold. 11:06:18 AM CHAIR RAUSCHER asked if the bill would have any potential impact on land held by Native Alaskans. MR. O'QUINN answered that the state leases only state land, and lands held by the Native Corporations are private lands for all intents and purposes. Those lands would still be subject to the permitting process, just as they are for oil and natural gas. 11:07:48 AM REPRESENTATIVE PRAX asked whether AOGCC overlaps with the Department of Environmental Conservation (DEC). MR. HUBER answered that DEC has a role with certain environmental issues while AOGCC handles the actual permitting, and that both agencies work together on these types of projects. In response to a follow-up question, he stated that there is a "very extensive" process in which AOGCC reviews the plans of a project before any permits are issued, and that any change of plans must be approved. In any case of a catastrophic loss of control of a well, an investigation would take place. 11:13:33 AM MR. O'QUINN continued to slide 16 and gave a brief overview of Sections 2, 10, and 15. Those sections would eliminate some duplicate language found in existing state statutes. MR. O'QUINN moved to slides 17 and 18 and stated that Section 3 would bring the geothermal exploration program in line with the oil and natural gas program, which considers permits to be "surface level". Section 3 would also exclude private geothermal users from the requirement to apply for a license or lease. He stated that Section 17 would allow for current permits to be converted licenses. 11:15:53 AM MR. O'QUINN continued to slide 19 and showed a graphic depicting the harvesting of geothermal power. He explained the difference in depth between private and commercial usages and stated that the difference in depth is part of the reason for not requiring private use permits. MR. O'QUINN moved to slide 20 and gave an overview of the "preferential rights" found in Section 3 of HB 74. He reiterated that it would change the rules for geothermal energy to match those of oil and natural gas in regard to the surface and subsurface owner of a parcel of land. Permitting laws for any work being done on the surface would remain the same. 11:20:21 AM MR. O'QUINN continued to slide 21 and stated that Sections 4 and 7 and stated that the sections would change geothermal leases to last 10 years, with the possibility of a five year extension. The rule allowing the commissioner of the Department of Natural Resources (DNR) to renegotiate the rental and royalty agreement after 20 years of production would be repealed. MR. O'QUINN continued to slide 22 and stated that Section 6 would increase the amount of acreage a lessee can hold to 100,000 acres. Rental fees would be changed to be a part of the regulatory process rather than statutory. MR. O'QUINN continued to slide 23 and said that Section 8 would modernize the unitization statute for geothermal resources to match those used for oil and natural gas. MR. O'QUINN moved to slide 24 and stated that Sections 9 and 14 would change the definition of geothermal resources to: the natural heat of the earth; the energy, in whatever form, below the surface of the earth present in, resulting from, or created by, or which may be extracted from, such natural heat; and all minerals in solution or other products obtained from naturally heated fluids, brines, associated gases, and steam, in whatever form, found below the surface of the earth; but excluding oil, hydrocarbon gases, or other hydrocarbon substances. 11:23:17 AM REPRESENTATIVE MCKAY asked whether revenues to the state from geothermal production would be subject to the permeant fund. MR. CROWTHER answered that he believes that would be the case. 11:24:06 AM CHAIR RAUSCHER asked where the money being added to the permanent fund from this activity would be generated. MR. CROWTHER answered that payments from permitting and royalties from geothermal production would be added to the permanent fund. In response to a follow-up question, he said that the resource from which the royalty would be collected is the electricity created by the steam generated from pulling the geothermal heat from the ground. 11:26:06 AM REPRESENTATIVE PRAX asked whether any royalties would be set in statute or be up for negotiation. MR. O'QUINN answered that there is a minimum royalty rate set in statute and the royalty rate for the lease could be set via regulation. 11:28:00 AM HALEY PAINE, Deputy Director, Division of Oil and Gas, Department of Natural Resources, added that there is currently a 1.75 percent royalty rate set in statute for the first 10 years, which is increased to 3.75 percent after 10 years. 11:28:32 AM REPRESENTATIVE PRAX asked whether more latitude should be given for negotiation of royalty rates to make geothermal production more economical. MS. PAINE answered that the minimum royalty rates had been lowered in the past. She added that the prime purpose of HB 74 in regard to royalty rates is to remove the ambiguity that exists once a project has been producing for 20 years. 11:31:09 AM MR. O'QUINN continued to slide 25 and stated that Section 13 would change the definition of geothermal fluids. The new definition would add certain types of liquids and exclude hydrocarbons from the definition. MR. O'QUINN continued to slide 26 and stated that Section 12 would modify the penalties section of the current statutes to allow AOGCC to assess penalties for violations related to geothermal wells. 11:33:06 AM CHAIR RAUSCHER asked whether there is a specific dollar amount prescribed for violations. MR. HUBER answered that the bill would match the penalties for violations relating to geothermal production to those of oil and natural gas. 11:34:22 AM DR. LEPAIN moved to slide 27 and stated that HB 74 has a fiscal note to allow for the Alaska Division of Geological and Geophysical Surveys to hire an additional geologist. The new geologist would be a senior level Geologist 4 and would be responsible for publishing geological data for the advancement of geothermal development in the state. He stated that this program would attract federal funds to help spur geothermal resource development. 11:37:06 AM MR. CROWTHER stated that there are several additional slides with supplemental information regarding geothermal systems in Alaska. 11:37:40 AM CHAIR RAUSCHER asked how granite systems work in terms of geothermal systems and volcanic systems. DR. LEPAIN answered that volcanic systems manifest themselves in more obvious ways, but granite systems do produce their own heat. 11:39:07 AM REPRESENTATIVE PRAX asked whether it was possible for geothermal production TO result in other valuable by-products, and whether that is accounted for in the bill. MR. CROWTHER answered that AOGCC requires license holders to understand what they are drilling through to ensure safe operations, making such a scenario unlikely. If data were gained showing the presence of other valuable resources such as hydrocarbons, the license holder would need to apply for another license to pursue those resources. In response to a follow-up question, he said that royalties on any other resources would still be collected if the license holder applied for another license to harvest those resources. [HB 74 was held over.]