SENATE BILL NO. 243 "An Act removing the royalty obligation for geothermal resources." Co-Chair Hoffman MOVED to ADOPT CSSB 243 (FIN), labeled 26- LS1346\S, Bullock, 3/26/10. Co-Chair Stedman OBJECTED. MIKE PAWLOWSKI, STAFF, SENATOR LESIL MCGUIRE, explained that the changes in Version S of the bill attempt to remedy problems that the committee identified in a previous hearing. Geothermal resource, while it is renewable, is also subject to waste. The CS attempts to delineate the responsibility for the regulation of geothermal resources between the Department of Natural Resources (DNR) and the Alaska Oil and Gas Conservation Commission (AOGCC). The CS charges AOGCC with regulating drilling and exploration and waste of geothermal resources. The CS charges DNR with the regulation of utilization and land management. This is similar to the structure in place for oil and gas matters. Mr. Pawlowski detailed the sections of the bill: Section 1 amends AS 31.05.030 clarifying that the Alaska Oil and Gas Conservation Commission (AOGCC) has jurisdiction over the exploration and development of geothermal resources; except for the management of leases and units. Section 2 amends the royalty rate for geothermal resources in AS 38.05.181(g) to reflect federal royalty rates; 1.75% of gross income during the first 10 years and 3.5% of gross income thereafter. Section 3 adds a new section to AS 41.06 delineating jurisdiction over geothermal resources between the AOGCC and Department of Natural Resources (DNR). Section 4 amends AS 41.06.010 to allow the AOGCC to investigate the waste of geothermal resources. Section 5 repeals and reenacts AS 41.06.020 to set out the jurisdiction of the AOGCC over all land in the state and to allow for the suspension of the application of chapter 06 on federal land if similarly regulated by Federal government and clarifies the application of the chapter. Section 6 amends AS 41.06.030(a) to clarify that a plan of development and operation for a geothermal resource must be filed with the AOGCC. Section 7 amends AS 41.06.030(b) to clarify that unitization by DNR of a geothermal resource system under AS 41.06.030 when the geothermal resource system includes state land. Section 8 amends AS 41.06.030(c) to conform to the changes made in section 7. Section 9 amends AS 41.06.030 by inserting a new subsection (e) that allows the commissioner of DNR to adopt regulations necessary to implement the purposes and intent of chapter 6. Section 10amends AS 41.06 by adding a new section 41.06.035 allowing the AOGCC to issue orders and impose requirements to prevent waste and protect correlative rights on any geothermal operation. This section also allows the AOGCC to adopt regulations. Section 11 repeals and reenacts AS 41.06.040(a) governing the authority of the AOGCC to adopt regulations governing the safe development of a geothermal resource. Section 12 amends AS 41.06.040 (b) to allow the AOGCC to require a geothermal operator to file a surety bond. Section 13 amends AS 41.06.040(c) to require notification of the AOGCC rather than the DNR is geothermal exploration encounters hydrocarbons and other fissionable materials. Section 14 amends AS 41.06.040(d) to replace the commissioner of DNR with the AOGCC for the purposes of authorizing inspection of a geothermal operation. Section 15 repeals and reenacts AS 41.06.050 governing the AOGCC permitting process for geothermal exploration and development drilling. Section 16 amends AS 41.06 by adding a new section 41.06.055 authorizing a regulatory cost charge for geothermal wells. Section 17 repeals and reenacts AS 41.06.060 providing definitions for AS 41.06 Section 18 repeals AS 41.06.030(d) governing lease operations under an approved plan of development and AS 41.06.040(e) the exemption from AOGCC authority of geothermal resources. Section 19 adds a new section to the uncodified law of the State of Alaska that applies the royalty rates established by section 2 to leases entered into or renewed after the effective date of the act and directs the commissioner of DNR to offer the royalty rates established by section 2 to an existing lessee. Section 20 adds a new section to the uncodified law of the State of Alaska that governs the transition of authorities over geothermal resources established in this act. Section 21 adds a new section to the uncodified law of the State of Alaska that gives direction to the reviser of statutes. Section 22 immediate effective date for section 20 Section 23 effective date of July 1, 2010 9:19:31 AM Co-Chair Stedman WITHDREW his OBJECTION to adopting Version S. There being NO further OBJECTION, it was so ordered. Senator Huggins inquired if the legislation was "common practice" for bringing on new sources of energy. He opined that geothermal energy will be one of the features of the state's future energy portfolio and will be abundant and affordable. Mr. Pawlowski agreed. He stated that the intent of the CS is to adopt a modern framework for geothermal exploration and development. Co-Chair Stedman asked for more information about the percentage of the lease fee, now and after 10 years. Mr. Pawlowski reported that the royalty rate in current statute is anywhere between 10 percent and 15 percent of the gross electricity sales. The commissioner of DNR has the ability to reduce that. Since geothermal energy is not exportable, in order to make Alaska competitive for the development of geothermal resources, the federal rate of 1.75 percent on gross electricity sales for the first ten years was adopted. That rate changes to a 3.5 percent of the gross sales for the following 10 years. Per the committee's request, Senator McGuire's office submitted an explanation of the annual rate under a specific project. 9:21:47 AM Co-Chair Hoffman MOVED to report CSSB 243 (FIN) out of Committee with individual recommendations and the accompanying fiscal note. There being NO OBJECTION, it was so ordered. Co-Chair Stedman noted three fiscal notes. CSSB 243 (FIN) was REPORTED out of Committee with a "do pass" recommendation and with a new zero fiscal by the Department of Natural Resources, a new zero fiscal note by the Department of Administration, and a previously published zero FN 2 (REV). 9:22:45 AM