|
Alaska Senate passes geothermal bill Royalty rate reduced to match federal level; drilling and safety issues moved to AOGCC; DNR retains leasing, unit authorities Kristen Nelson Petroleum News
The Alaska Senate has passed and sent to the House a bill designed to fix some royalty and regulatory issues for geothermal development in the state. The need for fixes came to light when Naknek Electric Association began development drilling for geothermal on the Alaska Peninsula and when Ormat Technologies leased geothermal acreage at Mount Spurr and began assessing costs of producing electricity from that geothermal resource.
Senate Bill 243 originally addressed the royalty rate for geothermal developed on state land; the bill as passed by the Senate April 5 also addresses which agency has authority over drilling, resource waste and public safety issues associated with geothermal development.
Under current law, geothermal development is entirely under the Department of Natural Resources. The committee substitute adopted by Senate Finance April 2 transfers authority over drilling and inspection to the Alaska Oil and Gas Conservation Commission. DNR retains authority over geothermal land management and unitization.
The bill reduces the royalty rate on geothermal to correspond with the federal royalty rate — 1.75 percent of gross revenues from production, sale or use of geothermal resources on a state lease for the first 10 years of production and 3.5 percent after the first 10 years. The current royalty rate is 10 percent.
Since geothermal is not exported, but is used exclusively in the state, the royalty rate would simply transfer through to utilities and consumers.
“We can look to Iceland to see the power geothermal resources bring to a society,” said Sen. Lesil McGuire, R-Anchorage, the bill’s sponsor, in a statement April 5 after the bill passed the Senate.
“Geothermal power is a consistent, clean, renewable power that could transform the energy picture in Alaska,” she said.
Mount Spurr Paul Thomsen, director of policy and business development for Ormat Technologies Inc., told the Senate Finance Committee in a March 29 hearing that Ormat believes reducing the royalty rate to the federal rate would make the company’s project at Mount Spurr commercial. Maintaining the royalty at the existing rate, Thomsen told the committee, would mean the company would need to get 14 cents per kilowatt hour to make the project profitable. He said Ormat does not think utilities or ratepayers in the area want to sign a long-term contract that that rate. The company thinks utilities are looking at 10-11 cents per kilowatt hour, Thomsen said.
At the federal royalty rate, Ormat estimates that the state would receive revenues from a Mount Spur geothermal development of $38 million over a 25-year period.
Regulatory issues Regulation of geothermal drilling became an issue when Naknek Electric began plans to drill geothermal wells.
All authority over geothermal development is currently vested in DNR.
When the AOGCC discussed the issue at a public meeting in August, Commissioner Cathy Foerster said DNR’s drilling regulations are based on 1986 commission regulations. The DNR regulations have not been updated as AOGCC has updated its regulations through the years.
Commission staff said AOGCC had received requests from DNR to review geothermal drilling applications.
Solutions discussed by the commission included statutory amendments moving geothermal drilling authority to AOGCC or a requirement that DNR consult with the commission on geothermal drilling permits.
In September the commission held a hearing on a commission motion 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 is drilling geothermal wells.
Under state statue, a well is subject to commission regulations if there is likelihood of “an unexpected encounter of oil, gas, or other hazardous substance as a result of well drilling.”
In an October order the commission said it had determined that there was “sufficient likelihood” that wells drilled in designated townships in the Bristol Bay area would encounter oil, gas or hazardous substances, and ruled that wells in the designated area drilled to depths of greater than 1,000 feet would be subject to the commission’s regulations and requirements.
| 