|
Geothermal bill passed by Legislature Alaska geothermal drilling, development will now be regulated by Alaska Oil and Gas Conservation Commission; royalty rates reduced Kristen Nelson Petroleum News
The Alaska Legislature has passed a bill designed to assist geothermal development in the state.
Senate Bill 243, sponsored by Sen. Lesil McGuire, R-Anchorage, addresses both commercial and regulatory issues. The Senate voted April 17 to concur with changes made to the bill in the House. The bill now goes to the governor for his signature.
Initially the bill was aimed at reducing state royalty rates on geothermal to conform to federal rates.
“Since geothermal power cannot be exported, Alaska’s previously prohibitive royalty regime would simply have been collected from ratepayers and geothermal development would have been driven to private lands,” McGuire said in a statement after the bill passed.
The Senate Finance Committee made substantial changes to the bill, modernizing Alaska’s regulatory system for geothermal resources by moving authority over drilling and waste prevention from the Alaska Department of Natural Resources to the Alaska Oil and Gas Conservation Commission, which has that authority for oil and gas drilling in the state.
Ormat supported rate reduction Paul Thomsen, director of policy and business development for Ormat Technologies, a geothermal developer with state geothermal leases at Mount Spurr near Cook Inlet, said in a paper prepared for legislative hearings that Alaska statutes call for royalty rates of 10-15 percent. “Ormat believes this rate is cost-prohibitive and is one of the reasons no utility-size geothermal plant has ever been built in the state.”
The royalty rate in SB 243 — based on federal royalty rates for geothermal — is 1.75 percent of gross revenues from production for the first 10 years and 3.5 percent thereafter.
Ormat supported both SB 243 and a second bill which did not pass. SB 242 would have created a 10-year window for geothermal exploration tax credits up to 50 percent for state land and up to 25 percent for other land, and not to exceed $20 million per project.
The Department of Revenue said in a fiscal note for SB 242 that work which might qualify for the SB 242 credits is occurring, or expected to occur in the near future, at sites near Naknek, Akutan, Chena and Mount Spurr.
Ormat said that SB 243 would lower the kilowatt hour cost for geothermal power by the same percentage as the reduction in royalty rates, helping to bring the cost of geothermal-generated power into a range of what utilities expect to pay.
The bills also received support from the City of Akutan, which told McGuire in a letter that it is “currently pursuing the development of both geothermal and hydroelectric power to offset or eliminate the use of diesel fuel and dependence on State power cost equalization funding.” The current cost of power in Akutan is 32 cents per kilowatt hour, the city said.
Regulatory issues The regulatory issues surfaced last year when AOGCC began assisting DNR with permits for geothermal drilling proposed by Naknek Electric Association, since all geothermal authority was then vested in DNR.
The commission finally decided to require an AOGCC drilling permit for any well with a total vertical depth greater than 1,000 feet in specified townships and ranges within the Bristol Bay Borough — the area where Naknek Electric was proposing to drill geothermal well.
This was based on analysis of previous drilling on the Alaska Peninsula which showed wells within 70 miles of the proposed Naknek geothermal drilling had encountered oil and gas, and on advice from the Department of Law that since geothermal drilling authority was vested in DNR, the commission’s authority would likely be limited to instances where there was the likelihood of an unexpected encounter with oil or gas during the drilling of a geothermal well.
Under SB 243, while DNR will continue to oversee leasing, unitization and collection of royalties on geothermal resources, the commission will regulate the exploration and development of geothermal resources and waste of geothermal resources.
The commission will recoup the cost of oversight through its normal regulatory cost charge process and provide necessary regulations.
| 