HOUSE BILL NO. 135 "An Act relating to geothermal resources; relating to the definition of 'geothermal resources'; and providing for an effective date." 9:39:33 AM SEAN CLIFTON, POLICY AND PROGRAM SPECIALIST, DIVISION OF OIL AND GAS, DEPARTMENT OF NATURAL RESOURCES, provided a PowerPoint presentation titled "HB 135 Geothermal Resources: House Finance Committee," dated March 9, 2022 (copy on file). He began on slide 4 and explained the bill's primary purpose was to modernize Alaska's geothermal exploration program. He explained there had not been significant interest and experience in geothermal leasing and exploration on Alaska state lands. He highlighted that the state had done substantial updating of statutes for oil and gas, meanwhile the geothermal statutes had languished. The bill would bring the geothermal statutes up to date, which the administration hoped would encourage new exploration and development of geothermal projects to get new resources to rural communities and create jobs. Mr. Clifton explained the bill would align the state's geothermal licensing program with the existing oil and gas exploration license program, which had been receiving significant attention over the past several years. The administration believed the model would be successful for geothermal as well. He explained that the bill would provide companies a bit more time to identify and prove resources. Additionally, the bill would expand the acreage a party would have to explore, secured within the license. He highlighted the importance of the update because geothermal systems typically covered very large areas. The bill would revise the definition of geothermal resources to focus on commercial use. He noted it had been implied in the past, but the goal was to make it clear that the Department of Natural Resources (DNR) had no interest in requiring the regulation of private users of geothermal resources. 9:43:10 AM Mr. Clifton turned to slide 5 and discussed DNR geothermal leasing/permitting history. He relayed that DNR had not given substantial attention to geothermal resources historically. The department had held three lease sales between 1983 and 2008 in the Mount Spur area. There had been some leases issued. He noted there was information on the department's website related to some drilling that took place in 2008. He expounded that in 2013 a tract had been issued in a lease sale for Augustine Island. There were currently two geothermal prospecting permits issued for the Mount Spur area in addition to an application for Augustine Island under review. He explained that the bill would extend the prospecting permits and include them in the exploration licensing program enabled by the legislation. Representative Josephson referenced the definitional reform addressed on slide 4. He did not have a visual sense of what it would take to stop regulating domestic, non- commercial, or small scale industrial use. He asked for detail. Mr. Clifton answered that the state did not currently regulate any geothermal activity on state lands. The administration was seeking to make the commercial use aspect explicit, but it was already implied under current statutes. The goal was to make it clear that DNR did not want to interfere with people trying to use hot springs or ground source heat pumps to heat their cabins or potentially generate electricity. The administration wanted to clarify the focus was on commercial grade geothermal resources that were typically much deeper and more expensive to develop (in the range of many millions of dollars). He noted the bill did not change anything for existing development. 9:45:54 AM Mr. Clifton turned to slide 6 and reviewed the DNR leasing/permitting process. He detailed that when the department received an application it issued a call for competing proposals. He explained it was a typical public notice to seek any other companies that may want to bid for the same prospect. He elaborated that DNR was required to issue a lease sale if any interest was received. He noted the process was the same for oil and gas. He expounded that if DNR did not receive any competing proposals, it issued a best interest finding for the prospecting permit. The information was put out for public notice throughout the process. The department also conducted interagency reviews in order for other state and federal agencies and boroughs to participate in the process. He noted that DNR solicited the participation before the preliminary finding was issued. Once the finding was issued, DNR received comments and revised the finding as needed, resulting in the issuance of a final finding. After the final finding was issued and the applicant was satisfied with the terms, DNR would issue the permit. 9:47:08 AM Representative Josephson asked about the notice and opportunity to be heard by the public on lease sales. He asked if the public had an opportunity to speak in opposition to a proposed lease sale at a public hearing. Mr. Clifton answered that public hearings were not held. The department issued public notices and solicited for written comment. He elaborated the comments could come in the form of a letter, email, and via telephone. Representative Josephson asked if it was the way DNR typically dealt with other proposals and lease sales on state land. Mr. Clifton replied affirmatively. He noted that public hearings were not required by statute or regulation. The department provided public notice and opportunity for comment. Mr. Clifton briefly looked at a sectional summary on slide 7. He addressed Section 2, the private use exemption on slide 9. He explained that a prospecting license or lease was not required under the section to explore for, develop, or use geothermal resources if the geothermal resource was intended for domestic, noncommercial, or small-scale industrial use. He pointed out that the definition explicitly excluded private geothermal users from the requirement to apply for a lease license. Representative Wool asked how to differentiate between commercial and small scale industrial. Mr. Clifton answered that it was not currently defined. The goal was to have the language vague for a reason. He explained the need for flexibility in order to assess the nuances of a situation. He provided a hypothetical scenario where a fish processing plant or logging processing plant had a remote operation and were able to tap into a hot spring for the purpose of power generation for their plants. He stated that perhaps the plants also had cabins nearby. He detailed that perhaps the plants were generating 10 megawatts to fuel their operation and they sold 0.8 megawatts to the neighboring cabins. He explained that under the scenario it would not be in the state's best interest to try to regulate the plants and extract very miniscule royalties. He classified the example as small scale industrial and explained it would not be worth the state's time. 9:52:37 AM Representative Wool asked if the regulation of geothermal purposes was primarily for situations where power was being sold and not for situations where the resource was being used for internal consumption by a user. Mr. Clifton answered that part of the problem with trying to develop a definition was due to the fact the state did not have any experience in regulating geothermal resources. There were not many examples of industrial or commercial geothermal operations globally. He stated that most was explicitly commercial (i.e., run by a power company or a government such as Iceland). He explained that if the state tried to minutely define the details, it would have to be arbitrary simply because the information was not known. He explained it was the reason the administration wanted to leave it open for specifying in regulations later on or to have the ability to handle nuances in the context of a best interest finding where the commissioner could determine the definition based on a situation. Co-Chair Merrick relayed that the committee would hear from the testifier at a future meeting. HB 209 was HEARD and HELD in committee for further consideration. Co-Chair Merrick reviewed the schedule for the following meeting.