SENATE BILL NO. 104 "An Act relating to geothermal resources; relating to the definition of 'geothermal resources'; and providing for an effective date." 2:11:12 PM Co-Chair Bishop discussed housekeeping. HALEY PAINE, DEPUTY DIRECTOR, DIVISION OF OIL AND GAS, DEPARTMENT OF NATURAL RESOURCES (via teleconference), discussed a presentation (copy on file). She announced she would begin with slide 18. Ms. Paine spoke to slide 19, "Purpose of SB 104": ?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 moved to slide 20, which provided a brief history of geothermal leasing and permitting in Alaska: Present Mount Spurr Currently there are two geothermal exploration prospecting permits in the Mount Spurr area, both issued during 2021. Augustine Island An application for a prospecting permit is under review for Augustine Island. 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 the 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. 2:16:19 PM Ms. Paine spoke to slide 21, "DNR Leasing/Permitting Process": ?Competitive Lease Sale ?If no competing interest, issue prospecting permit with two-year time limit ?This bill would update this, replacing 2-year prospecting permits with 5-year exploration licenses designed after our modern oil and gas exploration license program. ?Only after the stipulations of a permit/license are met can the operator opt to convert to a lease. ?Both processes require Best Interest Finding prior to disposal Ms. Paine discussed slide 22, "Sectional Summary": 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 and 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 skipped to slide 24, "Section 2: Private Use Exemption": ? 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. Co-Chair Bishop wondered whether there was an example of volume of water per minute in the bill. Ms. Paine replied that there was not a specific numeric requirement, because there was no desire to set limits that might hinder development. 2:20:06 PM Senator Wielechowski queried the definition of domestic. Ms. Paine replied that it referred to an individual homeowner. Ms. Paine looked at slide 25, "Section 2: Preferential Rights": ? Current statute grants preferential rights to a surface owner to apply for a geothermal prospecting permit once notice is received of existing application ?Potentially discouraging to commercial development ?Private landowners usually don't have financial resources to develop a commercially viable geothermal resource. ? Surface owner rights are already 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. ? 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. Surface owner notification is also part of later surface-use permitting. Senator Wielechowski wondered whether someone who was not the surface owner could apply to develop a piece of land that was owned by someone else. Ms. Paine replied in the affirmative. Senator Wielechowski surmised that a developer could obtain the rights to someone elses land. Ms. Paine replied that the provision was in place currently, and the bill would not seek to change the mineral estate. Senator Wielechowski felt that there would be unhappy landowners. Co-Chair Bishop felt that there could be a conversations about subsurface rights. Ms. Paine looked at slide 26, "Section 3: Work Commitment": ? 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 2:25:31 PM Senator Wielechowski stressed that most oil in the state was found on either state or federal land. He wondered whether the state had ever forced a private landowner to allow and oil an gas company to develop their land. Ms. Paine replied that it had not occurred for geothermal exploration. She agreed to provide more information about oil and gas. 2:26:49 PM STEVE MASTERMAN, DIVISION OF GEOLOGICAL AND GEOPHYSICAL SURVEYS, STATE GEOLOGIST, FAIRBANKS (via teleconference), looked at the slide 27. He stated that the slide had been revised to be more specific and to remove the temperature restraint. Senator Wielechowski asked for an example of brines or gases that could be artificially pumped into the ground in the statute. Mr. Masterman replied that it was less likely that gas or brines would be injected into geothermal fields. He stated that the Chena Hot Springs field received injections for a closed loop environment. 2:30:24 PM Senator Wielechowski wondered whether any of the brines or gases could damage water resources, and how to protect against the damage. Mr. Masterman replied that production of geothermal fluids occurred at considerable depths, and water sources would not be at that level. Mr. Masterman addressed slide 28, "Sections 7 and 11: New Definition": "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. ame definition being applied to both DNR and AOGCC statutes. Co-Chair Bishop queried the source of the definition. Mr. Masterman agreed to provide that information. Senator Wielechowski wondered what happened to the helium exclusion in the previous definition. Mr. Masterman replied that Alaska did not have much helium present, so it was almost not applicable. 2:35:24 PM Ms. Paine concluded the presentation. Senator Wielechowski wondered why there was a removal of the annual rental fee of three dollars an acre. Ms. Paine replied that the reason was to be more flexible in the future. Senator Wielechowski looked at Section 6, and asked for the rationale behind the repeal of the unitization provisions. He also queried the legislations impact on royalties. Ms. Paine replied that the reason for the repeals was to align with oil and gas exploration. She stated that the bill would not impact the current royalty structure for geothermal energy development. Senator Wilson wondered whether DNR tracked the number of domestic geothermal insulations in the state. Ms. Paine replied that the Division of Oil and Gas did not track the number of domestic heat pumps in the state. Senator Wielechowski looked at Section 6, and whether it gave the commissioner the ability to change the lease requirements with agreement from the lessee. Ms. Paine replied that the intention of that provision was to align with the current oil and gas provisions. Co-Chair Bishop wondered whether there was a recent royalty modification. Ms. Paine replied in the affirmative. 2:40:05 PM Senator Wilson queried a definition of "small scale industrial use." Ms. Paine replied that there was not a statutory definition, and explained that it was based on whether there would be a customer for the product. Senator Wilson wondered whether Chena Hot Springs would be considered small scale industrial. Ms. Paine replied that Chena Hot Springs did not distribute their power outside of the organization, so they were exempt from that definition. Senator Wilson wondered whether it would include commercial developments for homes or medical facilities. Ms. Paine replied that they would not go through this specific regulatory process, but felt that there would be other permits from different agencies. Senator Wilson surmised that a developer could bypass the requirement by working directly with the landowner, as long as there was no distribution of power. Ms. Paine replied that anyone who was looking for the size and scale of resource to develop would fine it more economic to distribute the resource, however there would be other public processes for the development of the resource. Co-Chair Bishop OPENED and CLOSED public testimony. Co-Chair Bishop discussed the following day's agenda. SB 104 was HEARD and HELD in committee for further consideration.