HB 135-GEOTHERMAL RESOURCES  11:49:49 AM CHAIR PATKOTAK announced that the final order of business would be HOUSE BILL NO. 135, "An Act relating to geothermal resources; relating to the definition of 'geothermal resources'; and providing for an effective date." 11:50:31 AM STEVE MASTERMAN, Director, Division of Geological and Geophysical Surveys (DGGS), Department of Natural Resources (DNR), presented a PowerPoint on HB 135, beginning on slide 2, "Agenda," which read as follows [original punctuation provided]: ? DGGS: Introduction to geothermal energy ? Fundamentals of geothermal systems ? Geothermal systems of Alaska ? DOG: Overview of HB 135 ? Purpose of HB 135 DNR geothermal leasing history ? Sectional analysis summary ? Sectional analysis details ? DGGS: Examples of geothermal system ? Supplemental Information ? AGILE Act ? Drilling regulations MR. MASTERMAN proceeded to slide 5, "Fundamental Ingredients of Useable Geothermal Energy, which displayed a cross-section of the well depths of a power plant and read as follows [original punctuation provided]: ? Elevated geothermal gradient ? Porosity and permeability for the migration of fluids ? Surface access Sufficiently large thermal System ? Customers for energy MR. MASTERMAN explained that geothermal energy comes from heat generated within the earth, either by volcanic activity or radioactive decay, and that where there exists an elevated geothermal gradient there is hotter rock closer to the surface. Harvesting geothermal power requires hot rocks that are highly water-permeable, as well as surface access to the geothermal system, which must be large enough to generate meaningful amounts of energy. He continued to slide 6, "Heat Flow in Alaska," which showed the parts of Alaska and the surrounding oceans where it's easier to find geothermal energy. He noted that the area around Anchorage and Kenai Peninsula has less heat flow. Slide 7, "North Slope Geothermal Gradient," showed a contour map of the North Slope generated from the bottom temperatures of oil and gas wells. He explained that on the North Slope, in order to reach a rock temperature of 100 degrees centigrade, a hole would have to be drilled to 3,000 meters. A higher geothermal gradient would necessitate a shallower well. Slide 8, "Geothermal Gradients," provided a graphical representation with depth in feet on the y-axis and temperature in degrees centigrade on the x-axis. He noted the plot points of Chena production wells and the Makushin test well, producing noticeably higher temperatures at shallower depths, and stressed that more energy is obtained from a higher-temperature system. 11:58:05 AM MR. MASTERMAN continued on to slide 9, "Geothermal Resource Quality, which read as follows [original punctuation provided]: Generation capacity per unit cost depends on several geologic and economic factors: ? Temperature (hotter is better) ? Flow rate (higher flow rates are better) ? Reservoir Framework (uniform porosity better than fractures) ? Recharge (partially natural better than all artificial) ? Depth (shallower is less expensive, thus better) ? Location, location,? (relative to population, transmission system, development costs, etc.) MR. MASTERMAN presented slide 10, "Introduction to Geothermal Resources," which read as follows [original punctuation provided]: ? Geothermal heat, where technically and economically accessible, is an excellent form of sustainable energy ? Hydrothermal systems are the most common form of energy extraction from geothermal heat ? Complex geologic parameters necessary for a viable geothermal resource, all present at one location, is rare Alaska contains several potential geothermal resources ? New technologies that will help expand geothermal development into less favorable geology are on the horizon MR. MASTERMAN noted the importance of location and said that research is being done to develop new technologies to expand the capacity to produce geothermal energy from lower-temperature, drier systems, which would expand the use of geothermal energy as well as allow the development of smaller systems in areas of lower temperatures, potentially allowing smaller communities with lower energy needs to develop geothermal resources. He moved on to slide 11, "Geothermal Systems: Fairbanks Region," which showed a map of several geothermal systems that have reached the surface. A similar map was displayed on slides 13, 14, and 15, titled "Geothermal Systems: Seward Peninsula Region," "Geothermal Systems: Alaska Peninsula Region," and "Geothermal Systems: Southeast Region." 12:08:30 PM CHAIR PATKOTAK opened public testimony on HB 135. 12:09:14 PM CHARLES MCKEE provided comments not on topic with the published agenda. 12:12:48 PM CHAIR PATKOTAK, after ascertaining that no one else wished to testify, closed public testimony on HB 135. 12:13:27 PM HALEY PAINE, Deputy Director, Division of Oil and Gas (DOG), Department of Natural Resources (DNR), began her PowerPoint presentation [hard copy included in the committee packet] with slide 17, "Purpose of HB 135," which read as follows [original punctuation provided]: ? Modernize Alaska's geothermal exploration program  ? Greater potential for providing affordable, renewable energy to rural communities and remote natural resource extraction projects ? Promote clean energy industry job creation ? Align geothermal licensing with the oil and gas  exploration license program, thereby increasing  feasibility for companies to develop resources  ? More time for a company to identify and prove resource to convert to leases ? Conversion to leases based on completion of work commitment and submission of exploration plan instead of proving discovery of commercial resource ? Doubles maximum acreage allowed for exploration ? Reforms definitions for geothermal resources to  focus on Commercial Use  ? Explicitly excludes domestic, noncommercial, or small-scale industrial use from the need for a geothermal license or lease MS. PAINE stressed that there are "vast, untapped resources" in the state. She then paraphrased slide 18, "DNR Geothermal Leasing/Permitting History," which read as follows [original punctuation provided but formatting changed]: Present Mount Spurr Currently there are two pending applications for geothermal exploration prospecting permits in the Mount Spurr area. The final Best Interest Findings for the first was issued March 12, 2021 and the preliminary Best Interest Finding for the second was issued March 26, 2021. 2013 Augustine Island 26 tracts were offered. Only one tract was leased to a private individual and no exploration work was conducted as a result of that lease sale. 2008 Mount Spurr 16 tracts leased to Ormat and one private individual. Ormat purchased 15 leases in the 2008 sale and drilled on southern flank of volcano. They didn't find adequate temperatures in wells to pursue the project. The state has the data available on DO&G's website. 1986 Mount Spurr On June 24, 1986, DNR offered 2,640 acres in two tracts. Both tracts received bids. The lease for Tract 1 expired in 1996, and the lease for Tract 2 was terminated in 1990. 1983 Mount Spurr DNR held its first geothermal lease sale in the Mount Spurr area on May 17, 1983. 10,240 acres in 16 tracts were offered in Competitive Geothermal Lease Sale 1. One tract received a bid. The lease for that tract was terminated in 1992 MS. PAINE explained that the sales described in slide 18 were held because the DNR commissioner had designated those regions as having significant potential for geothermal resources, so they were put out for competitive bid. She stressed that HB 135 would not change the competitive bid program, so DNR would retain the right to offer geothermal leases; however, it would change the process by which the prospecting permit would be administered. She explained that the prospecting permit has only two years in which to discover and prove a commercially viable resource, whereas the competitive leasing program gives a permit holder 10 years. MS. PAINE continued to slide 19, "Sectional Summary, which read as follows [original punctuation provided but formatting changed]: 1 (AOGCC) Removes unnecessary reference to AS 41.06 from AS 31.05.030(m) because of changes made by Section 9. 2 (DNR) Changes permits to licenses. Explicit exemption for geothermal resources intended for domestic, noncommercial, or small-scale industrial use (See also Section 9). Removes preferential rights clause. This provision is not appropriate for commercial development of State resources. 3 (DNR) Changes permit to license. Extends term of licenses (formerly permits) from two to five years. Replaces lease conversion requirement of commercial discovery and development plan with work commitment and exploration plan. 4 (DNR) Changes permit to license. 5 (DNR) Changes permits to licenses. Increases maximum acreage from 51,200 to 100,000. Adds provision for rental fees to be defined in regulation, rather than statute (easier to update). 6 (DNR) Adds new subsections to AS 38.05.181 to modernize unitization statute for geothermal leases to match the model we use for oil & gas under AS 38.05.180. 7 (DNR) Replaces AS 38.05.965(6) definition of geothermal resources (Same as Section 11). 8 (AOGCC) Amends AS 41.06.020(e), clarifies that AS 41.06 does not limit DNR's authority over geothermal resource management on state land. 9 (AOGCC) Amends AS 41.06.020(f) to add explicit exemption for geothermal resources intended for domestic, noncommercial, or small-scale industrial use (See also Section 2). 10 (AOGCC) Amends AS 41.06.060(4) definition of geothermal fluid to remove temperature references and better conform with other changes in this bill. 11 (AOGCC) Replaces AS 41.06.060(5) definition of geothermal resources (Same as Section 7). 12 (AOGCC) Repeals AS 41.06.005(b) and AS 41.06.030, since geothermal units are managed by DNR. 1316 General provisions for applicability and effective dates. Includes applicability provision for prospecting permits currently being processed. MS. PAINE noted HB 135 would address several areas for a change in the terminology from "permit" to "license" in order to be consistent with the language used in oil and gas exploration. She also explained that applicants operating under a geothermal license would have five years, instead of two, to conduct reconnaissance, secure permits, and identify the resource. She said that the permit requirement would change from "the proving of a commercial resource" to "the completion of a work commitment" to be consistent with the oil and gas exploration license program. She noted that there are specific exemptions for non-commercial, industrial, small-scale home use for which an operator would not need to pursue a permit. 12:18:50 PM REPRESENTATIVE HOPKINS asked Ms. Paine for more details on the private use exemption. MS. PAINE said that an exclusion could be for domestic use such as a heat pump for a home, or for small-scale industrial use. She said that anything that isn't intended for a broader commercial application or large-scale development intended to sell power to multiple parties would fall under the exemption. She said that there is no specific threshold in terms of megawatt-hour or kilowatt-hour in order to keep the focus on use. REPRESENTATIVE HOPKINS asked whether geothermal energy would be the only subsurface resource that wouldn't require a license or permit. MS. PAINE indicated that she would research that question. 12:20:44 PM REPRESENTATIVE HANNAN asked whether the geothermal development processes would be changed for administrative purposes only, or if similar companies would be pursuing those resources. MS. PAINE replied that it would be the process that would be modified to align with the state's oil and gas exploration license program. She explained that the geothermal standard is currently higher than that of oil and gas exploration licensing, and that by modifying the terms of geothermal exploration, the goal is to make production of undiscovered geothermal resources possible. 12:22:50 PM MS. PAINE resumed her presentation with slide 21, "Section 2: Private Use Exemption," which read as follows [original punctuation provided]:  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.  MS. PAINE paraphrased slide 22, "Section 2: Preferential Rights," which read as follows [original punctuation provided]: ? The preferential rights provision is being deleted  because it is inappropriate to the situation (it's  more relevant to water rights or other surface use  cases not associated with the mineral estate).  ? Surface owner rights are protected under AS  38.05.130.  ? If conflict arises, DNR ensures private landowners would not be left without heat or power, or otherwise damaged by commercial development. ? Scenario is unlikely because private landowners usually don't have financial resources to develop a commercially-viable geothermal resource. ? Rights to access the mineral estate are reserved  under AS 38.05.125.  ? Surface owners must provide reasonable access to resource developers. The same condition exists for oil & gas or mining. ? If a surface use agreement can't be reached,  resolution process is in 11 AAC 86.145.  DNR holds a hearing wherein the developer must prove there is no other alternative location for the well or data acquisition. ? If the Commissioner concurs, developer posts a bond to compensate landowner for any impacts and work progresses. ? Public notice is a part of the license issuance  process, and surface owners would be included.  12:24:40 PM REPRESENTATIVE HANNAN asked Ms. Paine to further explain the rights to access under AS 38.05.123. MS. PAINE said that even if a company has the rights to develop geothermal resources under a property with different surface owners, the company would be required to work with the owner on development and payment. She said that there is a "robust" public notice process as a part of license issuance and the best interest finding process, so there would be no infringement on personal property rights. She deferred to Mr. Masterman for technical information. 12:27:34 PM MR. MASTERMAN explained that geothermal systems are developed at a much shallower depth than oil and gas resources, so there won't be the need for horizontal wells. 12:28:43 PM MS. PAINE resumed her presentation by paraphrasing slide 23, "Section 3: Work Commitment," which read as follows [original punctuation provided]: ? Changes prospecting permit to license and increases  term from 2 to 5 years  ? Creates greater opportunity for success of noncompetitive geothermal program ? Conversion to noncompetitive lease through  completion of agreed upon work commitment  ? Current process for oil and gas exploration license ? Commitment expressed in dollar figure ? Annual reporting and performance objectives MS. PAINE paraphrased slide 24, "Section 10: Geothermal Fluids," which read as follows [original punctuation provided]: AS 41.06.060(4) is amended to read:  (4) "geothermal fluid" means liquids, brines, water,  gases, or and steam at temperatures greater than 120 degrees celcius or any commercial use of liquids and steam naturally or artificially present in a geothermal system; "geothermal fluid" does not include  oil, hydrocarbon gases, or other hydrocarbon  substances at temperatures less than 120 degrees celsius ? 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. MS. PAINE explained that slides 24 and 25, "Sections 7 & 11: New Definition," change language that specify specific temperatures which are no longer relevant due to advances in geothermal technology. Slide 25 read as follows [original punctuation provided]: "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. 12:29:48 PM CHAIR PATKOTAK announced that HB 135 was held over.