HOUSE BILL NO. 135 "An Act relating to geothermal resources; relating to the definition of 'geothermal resources'; and providing for an effective date." 9:07:26 AM Co-Chair Foster indicated the committee had heard a portion of the presentation on HB 135 in the prior week. The presenter would continue with his presentation. 9:07:59 AM SEAN CLIFTON, POLICY AND PROGRAM SPECIALIST, DIVISION OF OIL AND GAS, DEPARTMENT OF NATURAL RESOURCES, continued with his PowerPoint presentation, "HB 135 Geothermal Resources: House Finance Committee," dated March 9, 2022 (copy on file). He wanted to clarify some items on slide 9 of the presentation. The slide read as follows: New language added: A prospecting license or lease is not required under this section to explore for, develop, or use geothermal resources if the geothermal resource is intended for domestic, noncommercial, or small-scale industrial use. ? This explicitly excludes private geothermal users from a requirement to apply for a license or lease. Mr. Clifton clarified that it was not that the department did not want to regulate small-scale users, but that the department aimed to address the commercial users so that it could properly manage natural resources as the [state] constitution mandated. The department also hoped to reap some royalties to gain revenue for the state. 9:09:29 AM Mr. Clifton moved to slide 10. The slide showed some examples of different styles of ground source heat projects for residential use. All of the styles on the slide could effectively heat small buildings with fairly low heat. Representative Wool asked if the department was just considering basic heat pumps that use heat from the earth. He wondered if heat pumps were considered geothermal power. Mr. Clifton explained that even though there were small- scale users that might be receiving heat from the earth through mechanisms like heat pumps, they would not be generating power through a turbine. There was no mechanism for the state to exact royalties in these situations, which is why the department was not trying to regular small-scale users. He clarified that there may be other regulations enacted from entities such as the Department of Environmental Conservation or the Department of Fish and Game, but the Division of Oil and Gas was not involved. 9:12:55 AM Representative Wool brought up Chena Hot Springs in Fairbanks as an example of geothermal heat. Through the use of the hot water, there was a small and low temperature power generation. He wondered if it was considered an example of a commercial system. Mr. Clifton replied that Chena Hot Springs was a good example of a power generating system that was using a more modern understanding of how geothermal systems could be utilized for power. However, Chena was not a state resource, and the Department of Natural Resources (DNR) could not regulate it. Also, Chena was not selling power which would not trigger the department to get involved. 9:14:39 AM Mr. Clifton turned to slide 11 and indicated that the bill would eliminate the preferential rights division. The current statute granted preferential rights to a surface owner to apply for a geothermal prospecting permit once notice was received of an existing application. He stated that this was potentially problematic. If a commercial developer wanted to build a multi-million-dollar power generating system and part of the application covered a surface owner's area, the statute as it was currently written could be interpreted to allow for the surface owner to invoke their preferential right, take the permit, and resell it back to the original applicant. Mr. Clifton continued on slide 11. He thought preferential rights was a discouraging provision for applicants and wanted to avoid ambiguity in statute. He also reminded members there were existing provisions in statute that would protect surface owners. He indicated that if the preferred site for a project was on a surface owner's land, the developer would typically attempt to reach a private agreement with the owner. If an agreement could not be reached, another site would likely be selected. For example, private agreements were commonly sought after to negotiate cell phone tower sites. Most of the time private surface owners were open to reaching amicable agreements. 9:18:37 AM Representative Josephson asked who owned the subsurface rights in Alaska. He mentioned ongoing disputes about natural gas operations in the states of Pennsylvania and New York. Mr. Clifton replied that it depended on the title or the patent held by the owner of the land. In most cases in Alaska, private surface owners did not own the subsurface or the minerals. There were some exceptions that occurred before 1959, prior to Alaska's statehood, of homesteaders who possessed land titles that stated they owned the land wholly. A landowner should know who owned the title to the subsurface based on the title documentation. 9:21:06 AM Representative Josephson recalled the Cold Bay methane case that he thought caused typically conservative individuals to become conservationists. It was a concerted and aggressive effort by the state to develop Cold Bay methane. He asked how his fears could be assuaged that this kind of circumstance could not arise from the bill. Mr. Clifton was not intimately familiar with the issue Representative Josephson was referring to. However, there had been discussion that arose in public meetings the department held with respect to Susitna Valley licensing for gas development. The regulatory apparatus of the state sought to protect the state's resources and environment. There were multiple entities that worked to protect the state's interests in subsurface resources. He explained that when wells were drilled, the Alaska Oil and Gas Conservation Commission would analyze the safety of the well and would take note of any resources that may be impacted by the well. There were overlapping authorities and state agencies that were monitoring the environmental impacts. 9:23:56 AM Representative LeBon recalled Mr. Clifton's earlier example of cell towers. He added that there may be zoning limitations for cell towers. There would be a more complicated legal arrangement involving the banks if the desired area for the cell tower was on a commercial property. Mr. Clifton responded that he had a good point. The state had to honor municipal zoning laws that might involve more stringent requirements. Representative LeBon added that if there was a bank loan on the property, the bank would have to be consulted as well. 9:25:43 AM Mr. Clifton continued to address slide 11. In the case of the state not being able to reach an amenable agreement with a private owner, there was regulatory guidance in statute that dictated how a dispute would be addressed. He added that homestead landowners were not required to report the transfer of land. Public notice was part of the entire process and surface owners that might be affected were directly notified. The only exception was when a surface owner was unreachable, which has happened, but developers were required to prove that they had repeatedly tried to contact the surface owner. Representative LeBon noted that title searches would likely have to be conducted as well. 9:28:23 AM Representative Wool returned to the topic of Chena Hot Springs. He asked why the state did not own the subsurface rights to the springs. Mr. Clifton responded that he was unsure of the ownership of the subsurface rights at Chena Hot Springs. However, he indicated that the state would need to own the subsurface in order for DNR to be triggered to become involved in an operation. If it was discovered that there was a large geothermal system that was shared by multiple subsurface owners, there would be a unitization process. He would cover this topic in more detail later in the presentation particularly regarding correlated rights. 9:30:51 AM Mr. Clifton moved to slide 12 to address work commitments in Section 3 of the bill. The department wanted to change the prospecting permit in order to license and increase terms from 2 to 5 years. The change would provide a greater opportunity for success and ensured they were making progress. There would be a trigger that would transform the permit into a lease for long-term use. 9:33:26 AM Mr. Clifton moved to Sections 7 and 8 on slide 13. He explained that these sections were added due to recommendations from the House Resources Committee. The sections would add two additional steps for public notice. When a proposal was received, a public notice would be issued as well as a call to ensure that there were no competing proposals. If there were competing proposals, the lease sale model would be utilized, which has been successful in the past. Next, a final best interest funding would be issued, which included another opportunity for public comment. Throughout the process, the department would seek input from cooperating agencies. 9:34:54 AM Representative Josephson referred to the third section on slide 13 which stated that geothermal licenses and leases were not surface use authorizations. The slide also stated that licenses and leases only provided the exclusive right to explore for and develop the subsurface resources. He wondered how it was possible to "explore for and develop" if there was no surface use authorization. Mr. Clifton responded that just because the department might issue a disposal for access to the subsurface, it did not mean that there was an explicit authorization for the use of the surface. There might be a variety of surface owners and competing interests at play. A subsurface authorization, particularly under an expiration license, could be half a million acres. Realistically, an expiration program would not touch every acre of the land. The plan would be to target specific areas. The department would review the plan and any competing interests and might issue an authorization that did not authorize the entire plan. A subsurface disposal did not guarantee access to the entire surface area. The state had very important competing surface interests. Representative Josephson asked if the bill provided an opportunity that might not come to fruition. Mr. Clifton responded that it could be interpreted in that way and he would not argue the point. He noted that part of the purpose of the subsurface disposals was to grant an exclusive right to prevent other entities from encroaching on an existing operation. It was in some ways still a property right. The department did not want inefficient or damaging development of the state's resources. 9:38:40 AM Representative LeBon indicated that the final bullet on slide 13 also caught his attention. The bullet stated that surface use authorizations required public notice and direct notice to any affected surface owners. He referred to slide 11 and read from it as follows: ? If the Commissioner concurs, developer posts a bond to compensate landowner for any impacts and work progresses. Representative LeBon shared his understanding that the slide suggested that property could be seized if the owner was not reachable. He had experience with not being able to find property owners to obtain permission. He asked if there was a scenario in which the commissioner could permit projects to take place on a private property owner's land. Mr. Clifton indicated that the scenario could happen hypothetically, but it was unlikely. Typically, private property was a small amount of acreage, though he understood that some people owned large swaths of land. He explained that there would usually be opportunity to access subsurface resources without needing to interfere with an unreachable surface owner's land. The issue had come up in public testimony for the Susitna Valley exploration license. In this situation, agriculture would be affected and community members were concerned with the notion of a road being placed across their fields. The state would work to avoid damaging the surface of a land and would exhaust every alternative. He presumed there were other solutions and damaging private owners' properties would not be required. Representative LeBon noted that there were large parcels of land that belong to the state for agricultural purposes. The state patent for agricultural land would not include this purpose. He wondered whether the agricultural patent would prevent commercial development on state land. Mr. Clifton had not heard of a competing interest and assured him that the state had the resources to evaluate such a situation. The department would not move swiftly or recklessly. 9:43:10 AM Mr. Clifton continued to address slide 13. The two new steps in the public notice process proposed by the House Resource Committee read as follows: ? NEW The exploration license is issued ? NEW The license is extended or converted to a lease Mr. Clifton emphasized that there was ample opportunity for surface owners to become aware of a situation that might affect their land before surface authorizations were issued. Mr. Clifton turned the presentation over to his co- presenter. 9:44:29 AM DAVID LEPAIN, DIRECTOR, DIVISION OF GEOLOGICAL & GEOPHYSICAL SURVEYS, DEPARTMENT OF NATURAL RESOURCES (via teleconference), advanced to slide 14 addressing Section 12 of the bill. He read the slide: AS 41.06.060(4) is amended to read: (4) "geothermal fluid" means liquids, brines, water, gases, or and steam naturally or artificially present in a geothermal system; "geothermal fluid" does not include oil, hydrocarbon gases, or other hydrocarbon substances ? Aligns with modernized definition for geothermal resources. ? Not limited by temperature because current technology enables development of cooler geothermal systems. ? Distinguishes geothermal fluids from hydrocarbon resources. 9:45:53 AM Representative Carpenter asked if the definition included bodies of water that lay on the surface such as rivers, lakes, or the ocean. Mr. Lepain deferred to Mr. Clifton. Mr. Clifton responded that he did not think it included surface water bodies. If there were a case where a surface pool or hot spring was present, it likely would not be used to drive a power generating turbine. The pool would be noted, but the hottest source would be found through drilling and testing. This would produce hotter geothermal fluids from the heart of the resource to obtain the best resource rather than trying to capitalize on the surface pooling. Representative Carpenter suggested that heat was not the only source of energy that may be valuable. He mentioned tidal energy as a potential geothermal fluid source that could also be tapped and monetized. The state tapped wind, which he considered to be a fluid, and monetized the energy. He thought there was a difference between extracting oil from the ground and monetizing the oil and extracting heat from the ground and monetizing the heat. He wondered who would own the heat. He was struggling to see reasoning behind the differing approaches between fossil fuel extraction and royalties and naturally occurring resource extraction such as geothermal fluids. Mr. Clifton confirmed Representative Carpenter was correct that air was a fluid. If it could be interpreted broadly, wind turbines could be brought into the conversation. However, he did not think the broad interpretation would hold weight in court nor would the interpretation be acceptable by DNR. He was unsure of how tidal generation turbines were permitted and could not speak to the example specifically. 9:51:11 AM Mr. Lepain advanced to slide 15 which showed a new definition of geothermal resources in Sections 9 and 13 of the bill. He read from the slide: "Geothermal resources" means 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. Modern definition for geothermal resources. ? Not limited by temperature because current technology enables development of cooler geothermal systems. ? Ensures all the State's mineral estate resources are captured in definition. ? Same definition being applied to both DNR & AOGCC statutes. Mr. Lepain elaborated that this specifically pertained to heated fluid in the subsurface. 9:52:53 AM Representative Carpenter thought the state was missing a portion of geothermal resources if the state was only looking underground. He was struggling to find a connection. Mr. Lepain replied that he believed it was a matter of definition, and that he was defining geothermal resources to be a subsurface resource. He noted that Mr. Clifton mentioned that heat pumps in private homes that pull heat from the air were technically considered geothermal energy but were not regulated under the bill. He reiterated that he thought the issue came down to the definition of geothermal resources. Representative Carpenter agreed that a line had to be drawn somewhere. Mr. Clifton drew attention to the fact that the natural heat of the earth and the surface of the earth were contained within the definition of geothermal resources. He clarified that the subsurface estate was the only element that applied to the statutes. 9:55:27 AM Representative Wool asked if there was a temperature trigger. Mr. Clifton deferred to Mr. Lepain. Mr. Lepain replied that the modernized definition explicitly removed a temperature cutoff due to the technology advancements in the last 15 to 20 years. Due to these advancements, it was possible to pull heat from relatively low temperature subsurface fluids or soil on a small scale. The question of whether commercial power could be generated using this method was unclear to him. The temperature-based provision had been removed specifically because of technology advancements, and therefore restricting it to a particular temperature would be a mistake. Representative Wool was aware of a project in Juneau that was going to run a loop through the ocean and use the ambient heat of the ocean to produce power. He was thinking of situations involving the private individual. Mr. Lepain advanced to slide 16 and referenced the fiscal impact note [control code svNTz] by the Department of Natural Resources. He commented that Alaska had significant geothermal energy potential around the state. At most geothermal sites, the state had relatively little information and the sites had not been studied thoroughly. Some sites had been studied significantly, but the department did not have enough information to decide which sites had potential to be a significant geothermal energy source. As presently constituted, the Division of Geological & Geophysical Surveys (DGGS) did not have enough staff to appropriately grow its knowledge of potential resources. 10:00:18 AM Mr. Lepain explained that the fiscal note would add a new Geologist 3 position within DGGS's Energy Resources Section in Fairbanks. The addition of the position would help re- start the division's geothermal program. The position would coordinate with agencies and industry to publish new geologic data to further the development of Alaska's geothermal energy resources. He read the list of responsibilities of the new geologist from slide 16: This will enable DGGS to restart its geothermal program. The new geologist would: • Coordinate with agencies and industry to publish new geologic data to further development of Alaska's geothermal energy resources • Maintain and update geologic data on Alaska's geothermal systems in a geothermal database • Attract federal funds to characterize Alaska's geothermal systems and resources • Monitor developments in geothermal systems technology • Conduct geologic investigations of Alaska's geothermal systems • Publish geologic maps, reports and data on Alaska geothermal systems • Advise DNR and other state agencies on the state's geothermal resources • Support the Department's geothermal leasing program • Support and supply information to explorers and developers of Alaska's geothermal resources • Support and advise DNR Commissioner's Office and Governor's Office on geothermal policy Mr. Clifton emphasized that the purpose of the position was to grow knowledge of Alaska's geothermal resource potential through hard data. This would inform the decision on whether to develop a specific site. Co-Chair Foster indicated that there were two fiscal notes total. He asked Mr. Clifton to review the other fiscal note by DNR. Mr. Clifton reviewed the zero fiscal note [control code pRsYR] by the Division of Oil and Gas within DNR. He emphasized that it had zero fiscal impact and would not cause any additional burdens to the division. 10:04:17 AM Representative Wool noted that the fiscal note mentioned that the bill would double the acreage limit for geothermal projects from 51,200 to 100,000 acres. He asked if 50,000 acres was considered small. Mr. Clifton was not certain and did not know the conversion of acreage to square miles. However, he commented that geothermal systems tend to cover much larger areas than were perhaps conceived when the laws were first written. Granting the security of a larger area made much more sense for developers. It also adhered to the way in which other states had been updating their laws. 10:05:49 AM Representative Josephson noted that he had spent time at a family ranch which was 300 acres. He thought the lease would cover scores of properties and many miles. Mr. Clifton indicated the maximum was being increased to 100,000 acres. He stated that 640 acres was one square mile, which he thought might be a good frame of reference. He explained that this was specific to the expiration licenses, which were not permanent. Even if the state issued a license for 100,000 acres, that would not necessarily mean that a lease would also be granted at the end of the license's term. The details of the lease that might be issued long-term would be dictated by the resources that had been demonstrated to be located at the site. In a situation where all 100,000 acres were issued a lease, all of the acreage would not necessarily be utilized. The subsurface area might be impacted more than the surface area, and it was unlikely that more than a few acres on the surface would be impacted. 10:09:02 AM Co-Chair Foster referenced the other fiscal note by DNR that added the position that was previously discussed. The fiscal note had a control code of svNTz. Mr. Lepain deferred to Mr. Clifton, as he did not have a clear copy of the fiscal note. Mr. Clifton addressed the fiscal note which added a position of a geologist. The impact of the note was $150,000. Mr. Clifton appreciated the opportunity to present the bill. He was happy to answer any follow-up questions. HB 135 was HEARD and HELD in committee for further consideration. Co-Chair Foster would take a brief at ease. 10:11:52 AM AT EASE 10:15:02 AM RECONVENED Co-Chair Foster indicated the committee would be hearing HB 273.