[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
H.R. 2772, ``THE JOHN RISHEL GEOTHERMAL STEAM ACT AMENDMENTS OF 2003''
=======================================================================
LEGISLATIVE HEARING
before the
SUBCOMMITTEE ON ENERGY AND
MINERAL RESOURCES
of the
COMMITTEE ON RESOURCES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
Tuesday, July 22, 2003
__________
Serial No. 108-43
__________
Printed for the use of the Committee on Resources
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
or
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______
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COMMITTEE ON RESOURCES
RICHARD W. POMBO, California, Chairman
NICK J. RAHALL II, West Virginia, Ranking Democrat Member
Don Young, Alaska Dale E. Kildee, Michigan
W.J. ``Billy'' Tauzin, Louisiana Eni F.H. Faleomavaega, American
Jim Saxton, New Jersey Samoa
Elton Gallegly, California Neil Abercrombie, Hawaii
John J. Duncan, Jr., Tennessee Solomon P. Ortiz, Texas
Wayne T. Gilchrest, Maryland Frank Pallone, Jr., New Jersey
Ken Calvert, California Calvin M. Dooley, California
Scott McInnis, Colorado Donna M. Christensen, Virgin
Barbara Cubin, Wyoming Islands
George Radanovich, California Ron Kind, Wisconsin
Walter B. Jones, Jr., North Jay Inslee, Washington
Carolina Grace F. Napolitano, California
Chris Cannon, Utah Tom Udall, New Mexico
John E. Peterson, Pennsylvania Mark Udall, Colorado
Jim Gibbons, Nevada, Anibal Acevedo-Vila, Puerto Rico
Vice Chairman Brad Carson, Oklahoma
Mark E. Souder, Indiana Raul M. Grijalva, Arizona
Greg Walden, Oregon Dennis A. Cardoza, California
Thomas G. Tancredo, Colorado Madeleine Z. Bordallo, Guam
J.D. Hayworth, Arizona George Miller, California
Tom Osborne, Nebraska Edward J. Markey, Massachusetts
Jeff Flake, Arizona Ruben Hinojosa, Texas
Dennis R. Rehberg, Montana Ciro D. Rodriguez, Texas
Rick Renzi, Arizona Joe Baca, California
Tom Cole, Oklahoma Betty McCollum, Minnesota
Stevan Pearce, New Mexico
Rob Bishop, Utah
Devin Nunes, California
Randy Neugebauer, Texas
Steven J. Ding, Chief of Staff
Lisa Pittman, Chief Counsel
James H. Zoia, Democrat Staff Director
Jeffrey P. Petrich, Democrat Chief Counsel
------
SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES
BARBARA CUBIN, Wyoming, Chairman
RON KIND, Wisconsin, Ranking Democrat Member
W.J. ``Billy'' Tauzin, Louisiana Eni F.H. Faleomavaega, American
Chris Cannon, Utah Samoa
Jim Gibbons, Nevada Solomon P. Ortiz, Texas
Mark E. Souder, Indiana Grace F. Napolitano, California
Dennis R. Rehberg, Montana Tom Udall, New Mexico
Tom Cole, Oklahoma Brad Carson, Oklahoma
Stevan Pearce, New Mexico Edward J. Markey, Massachusetts
Rob Bishop, Utah VACANCY
Devin Nunes, California Nick J. Rahall II, West Virginia,
Richard W. Pombo, California, ex ex officio
officio
------
C O N T E N T S
----------
Page
Hearing held on July 22, 2003.................................... 1
Statement of Members:
Gibbons, Hon. Jim, a Representative in Congress from the
State of Nevada............................................ 1
Prepared statement of.................................... 3
Statement of Witnesses:
Connelly, Jeanne, Vice President, Federal Relations, Calpine
Corporation................................................ 28
Prepared statement of.................................... 30
Gawell, Karl, Executive Director, Geothermal Energy
Association................................................ 16
Prepared statement of.................................... 18
Morrison, Patricia, Principal Deputy Assistant Secretary for
Land and Minerals Management, U.S. Department of the
Interior................................................... 5
Prepared statement of.................................... 6
Witcher, Dr. James C., Southwest Technology Development
Institute, New Mexico State University..................... 25
Prepared statement of.................................... 26
LEGISLATIVE HEARING ON H.R. 2772, ``THE JOHN RISHEL GEOTHERMAL STEAM
ACT AMENDMENTS OF 2003''
----------
Tuesday, July 22, 2003
U.S. House of Representatives
Subcommittee on Energy and Mineral Resources
Committee on Resources
Washington, DC
----------
The Subcommittee met, pursuant to notice, at 2:15 p.m., in
room 1324, Longworth House Office Building, Hon. Jim Gibbons,
Vice Chairman of the Subcommittee, presiding.
Present: Representative Gibbons.
Mr. Gibbons. The Subcommittee on Energy and Mineral
Resources will come to order. The Committee is meeting today to
hear testimony on H.R. 2772, The John Rishel Geothermal Steam
Act Amendments of 2003, to amend the Geothermal Steam Act of
1970 to promote the development and use of geothermal resources
in the United States.
Under Committee Rule 4(g), the Chairman and the Ranking
Minority Member can make opening statements. If any members
have other statements, they can be included in the record under
unanimous consent.
Let me begin now making my opening remarks, and at any
point in time if Mr. Kind, the Ranking Minority Member, shows
up, we will allow him to enter his remarks as well. Or if
anybody wants to submit an opening statement, they can, for the
record.
STATEMENT OF THE HON. JIM GIBBONS, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF NEVADA
Mr. Gibbons. The Subcommittee meets today to discuss an
important piece of legislation that will make America more
energy independent and help prevent future spikes in energy
prices. H.R. 2772, The John Rishel Geothermal Steam Act
Amendments of 2003, provides significant changes to existing
law that will undoubtedly make geothermal energy use more
attractive and increase our energy supply.
While substantial amounts of geothermal energy are
currently utilized in the United States, the potential for
greater use of geothermal energy is significant. In fact,
according to the U.S. Geological Survey and Geothermal Energy
Association, production of electricity from geothermal steam
could increase by a factor of eight over the next 20 years.
That, ladies and gentlemen, is a significant contribution to
our energy demand.
There is also enormous potential for direct use of
geothermal energy for commercial and residential applications.
America is not making full use of its geothermal potential
because we don't have adequate incentives to attract needed
capital investment to geothermal energy projects. Most of the
potential geothermal resources for both electrical generation
and direct use lies on Federal lands. But unlike other energy
projects, access to geothermal resources on Federal lands
involves a complex process of leasing and permitting. At the
same time, the current royalty structure for geothermal
development is inadequate and is preventing geothermal energy
from meeting its full potential.
H.R. 2772 amends the Geothermal Steam Act by addressing a
number of its inadequacies. The legislation applies common-
sense solutions to current law in order to make geothermal
energy production more attractive and less burdensome.
H.R. 2772 takes the Federal Government out of the business
of determining where high-value resources are located and makes
geothermal leasing market-driven through competitive bidding.
It promotes a unified ownership of a single geothermal resource
by directing that multiple leases located on one geothermal
reservoir be offered for sale as a block.
This bill addresses the current backlog of geothermal lease
applications by requiring these applications to be cleared
within 1 year of enactment and allows applications to pay up
front for needed processing, analysis, or documents to complete
the process. To break the gridlock for leasing on Forest
Service lands, this legislation directs the Forest Service and
BLM to develop a common policy with specific steps for leasing,
processing, and permitting geothermal projects on Federal land.
The bill also directs a review of moratoria and withdrawals
from geothermal leasing on Federal lands and directs USGS to
complete a new national geothermal resource assessment. To
create certainty and make geothermal production on Federal
lands more attractive, the bill makes a number of changes to
the current royalty structure. It basis future royalties on a
gross proceeds formula, making the system less complex,
benefiting producers as well as State and local Governments.
The system will provide a uniform royalty structure. The
payments will be lower for the first 10 years, and then
increase thereafter for the duration of the lease. State and
local Governments will begin receiving royalties earlier and
receive an overall increase in their royalty share. And that is
important to know, because many local Governments have been
concerned that we would be decreasing or eliminating their
royalty share, and they will actually begin to receive these
royalties earlier and will receive an overall increase in their
royalty share in the long run.
This bill directs a 25 percent share of the royalties to
the county Government so that local communities receive their
direct revenue from local projects. To encourage geothermal
energy use by farmers, ranchers, local Governments, and small
business, H.R. 2772 establishes a simpler leasing process and
more attractive terms for direct use of geothermal heat.
Finally, this legislation encourages geothermal production
on appropriate military lands by providing lessees with the
same terms for production that apply on other Government lands.
Overall, the changes to the Geothermal Steam Act will greatly
reduce the complexity faced by geothermal energy producers and
users under the current regime. H.R. 2772 should make
production of this clean, renewable, and domestic resource more
attractive, thus boosting our energy supply and helping local
communities, families, and economies.
We are facing an energy supply shortage in this country
that is costing jobs and threatening to hurt every aspect of
the American economy. We need sound energy policy that boosts
domestic supply by allowing the private sector to better
utilize the abundant resources that we have on Federal lands.
And finally, let me just add that H.R. 2772 was named for
John Rishel, who many of you knew for his hard work and years
of dedication on this Committee staff. John believed in common-
sense approaches to utilizing resources on Federal lands. John
was a geologist by training, and he worked very hard on this
legislative language and on other initiatives that would allow
the best use of our Federal energy and mineral resources.
I am proud to honor John's hard work and dedication with
this legislation. I am hopeful that this Committee can act
expeditiously on H.R. 2772 so we can better support the
domestic production of a clean alternative energy to help us
meet the ever-growing energy needs of our 21st century Nation.
[The prepared statement of Mr. Gibbons follows:]
Statement of The Honorable Jim Gibbons, a Representative in Congress
from the State of Nevada
The Subcommittee meets today to discuss an important piece of
legislation that will make America more energy independent and help
prevent future spikes in energy prices. H.R. 2772, ``The John Rishel
Geothermal Steam Act Amendments of 2003'' provides significant changes
to existing law that will undoubtedly make geothermal energy use more
attractive and increase our energy supply.
While a substantial amount of geothermal energy is currently
utilized in the U.S., the potential for greater use of geothermal
energy is significant. In fact, according to the U.S. Geological Survey
and Geothermal Energy Association, production of electricity from
geothermal steam could increase by a factor of eight over the next 20
years--that is a significant contribution. There is also enormous
potential for direct use of geothermal energy for commercial and
residential applications.
America is not making full use of its geothermal potential because
we don't have adequate incentives to attract needed capital investment
to geothermal energy projects. Most of the potential geothermal
resources, for both electricity generation and direct use, lies on
Federal lands. But like other energy projects, access to geothermal
resources on Federal lands involves a complex process of leasing and
permitting. At the same time, the current royalty structure for
geothermal development is inadequate and is preventing geothermal
energy from meeting its full potential.
H.R. 2772 amends the Geothermal Steam Act by addressing a number of
its inadequacies. This legislation applies common sense solutions to
current law in order to make geothermal energy production more
attractive and less burdensome.
H.R. 2772 takes the Federal Government out of the business of
determining where high value resources are located and makes geothermal
leasing market-driven through competitive bidding. It promotes a
unified ownership of a single geothermal resource by directing that
multiple leases located on one geothermal reservoir be offered for sale
as a block.
This bill addresses the current backlog of geothermal lease
applications by requiring these applications to be cleared within one
year of enactment and allows applicants to pay up-front for needed
processing, analyses or documents to complete the process. To break the
gridlock for leasing on Forest Service lands, this legislation directs
the Forest Service and BLM to develop a common policy with specific
steps for leasing, processing and permitting geothermal projects on
Federal lands.
The bill also directs a review of moratoria and withdrawals from
geothermal leasing on Federal lands and directs USGS to complete a new
national geothermal resource assessment. To create certainty and make
geothermal production on Federal lands more attractive, the bill makes
a number of changes to the current royalty structure. It bases future
royalties on a gross proceeds formula, making the system less complex,
benefitting producers as well as state and local governments.
The system will provide a uniform royalty structure. The payments
will be lower for the first ten years, and then increase thereafter for
the duration of the lease. State and local governments will begin
receiving royalties earlier, and receive an overall increase in their
royalty share. This bill directs a 25 percent share of the royalties to
the county government so that local communities receive direct revenue
from local projects. To encourage geothermal energy use by farmers,
ranchers, local governments and small business, H.R. 2772 establishes a
simpler leasing process and more attractive terms for direct use of
geothermal heat.
Finally, this legislation encourages geothermal production on
appropriate military lands by providing lessees with the same terms for
production that apply on other government lands. Overall, these changes
to the Geothermal Steam Act will greatly reduce the complexity faced by
geothermal energy producers and users under the current regime. H.R.
2772 should make production of this clean, renewable and domestic
resource more attractive, thus boosting our energy supply and helping
local communities, families and economies.
We are facing an energy supply shortage in this country that is
costing jobs and threatening to hurt every aspect of the American
economy. We need sound energy policy that boosts domestic supply by
allowing the private sector to better utilize the abundant resources we
have on Federal lands.
Finally, let me just add that H.R. 2772 was named for John Rishel,
who many of you knew, for his hard work and years of dedication on this
Committee staff. John believed in common sense approaches to utilizing
resources on Federal lands. A geologist by training, Mr. Rishel worked
very hard on this legislative language and on other initiatives that
would allow the best use of our Federal energy and mineral resources.
I am proud to honor John's hard work and dedication with this
legislation.
I am hopeful that this Committee can act expeditiously on H.R. 2772
so we can better support the domestic production of a clean, alternate
energy to help us meet the ever growing energy needs of our 21st
century nation.
______
Mr. Gibbons. With that, let me welcome our first panel,
Patricia Morrison, Deputy Assistant Secretary of the Interior
for Land and Minerals Management, Department of the Interior.
And Secretary Morrison, let me have you rise, stand and
raise your right hand, because we have a policy and a procedure
in this Committee of swearing our witnesses in. So if you would
please raise your right hand and repeat after me.
[Witness sworn.]
Mr. Gibbons. Let the record reflect that the witness
answered in the affirmative. And Madam Secretary, at this point
in time, let me welcome you to the Committee. It is a pleasure
to have you here. We look forward to your remarks. The floor is
yours. And please, if you prefer to summarize your statement
and submit your complete written statement for the record, by
all means, that is the preferred way to do it. But we will
allow you to make whatever statement you wish to make at this
time. Madam Secretary, the floor is yours.
STATEMENT OF PATRICIA MORRISON, PRINCIPAL DEPUTY ASSISTANT
SECRETARY FOR LAND AND MINERALS MANAGEMENT, U.S. DEPARTMENT OF
THE INTERIOR
Ms. Morrison. Thank you, Congressman Gibbons. And I would
address the other members of the Subcommittee, but they are not
here.
Thank you for inviting me to testify on this, and I would
like to submit my written testimony in total and simply give
you a summary of what is in that testimony.
Mr. Gibbons. Without objection, Madam Secretary, it will be
done.
Ms. Morrison. Thank you. I am pleased to appear before you
this afternoon to discuss the Bureau of Land Management's, or
BLM's, geothermal leasing program and the efforts that BLM is
taking to enhance that particular energy production program
from Federal lands.
However, as you noted Congressman Gibbons, I would like to
take an opportunity to acknowledge Mr. John Rishel, who worked
on the House Resources Committee. We support the Committee's
recognition of Mr. Rishel by gracing his name with this bill.
John has established, or had established a great working
relationship with the Minerals Management Service as well as
the Bureau of Land Management. He always represented the
Committee well on various matters and issues, particularly when
it came to the language he developed for the comprehensive
energy bill. Mr. Rishel, as you noted, had a personal interest
in the geothermal section of the bill and put a great deal of
effort into making sure he contacted all of the parties to
gather and collect everyone's views.
We agree that it is appropriate to honor him and his
memory, and recognize his dedication to this work.
Generally speaking, the Department of Interior believes
that H.R. 2772 will provide support to promote geothermal
production, which is the focus and the intent of BLM's program.
However, we received this bill just this past Thursday, on July
17th, and have not had sufficient time to analyze the bill with
regard to royalty issues of MMS, BLM leasing programs, as well
as USGS studies, and are unable today to present a formal
administration position on the bill.
However, once we have reviewed the bill, we would be happy
to discuss it with the Committee and any of its members. Thus,
I will be confining my remarks to discussion of the BLM's
existing geothermal program.
The President's national energy policy encourages a
diversification portfolio of domestic energy supplies. It
provides the building blocks, we believe, in order to provide
that diverse portfolio so that we can rely less on foreign
sources. As a component of that diversified portfolio, the
renewable energy can provide for our future energy needs an
abundant, clean, and naturally occurring source of energy, such
as is shown in geothermal, the heat of the earth.
Renewable energy supplies diversify our portfolio, but they
do it with very few adverse environmental impacts. We believe
that an increased development of these domestic renewable
resources can help alleviate or provide a safety valve for some
of the Nation's problems associated with over-reliance on
foreign energy supplies.
The national energy policy of the President further directs
the Department of Interior and Energy to reevaluate the access
limitations to Federal lands in order to increase the renewable
energy production, such as geothermal. Also, it directs the
Department of Interior to reduce the delays in geothermal
leasing and processing as it is part of that permit review
process.
Pursuant to the Geothermal Steam Act of 1970, the BLM is
responsible, as you know, for leasing these geothermal areas,
developing them, and processing the permit applications. This
authority that the BLM holds responsibility over encompasses
approximately 700 million acres of Federal minerals. Those
minerals underlie BLM lands, Forest Service lands, other
Federal lands, as well as split-estate lands, where the private
land is owned by an individual and the mineral rights are
retained to the U.S. Government.
However, for lease applications to the Forest Service
lands, the Geothermal Steam Act requires the Forest Service's
concurrence with the BLM lease issuance. BLM administers about
400 geothermal leases, and those 400 leases represent
approximately 400,000 acres of Federal minerals. The royalties
for 2002 were almost $13 million, and 50 percent of those
royalties, as per our royalty scheme, is returned to the
States--some of which then filters into the counties' budgets.
Those are in the areas or counties where the geothermal energy
is actually produced.
As the Committee may already be aware, Secretary Norton is
committed to renewable energy and chaired a renewable energy
conference in November of 2001, here in Washington, D.C.
Several of those topics that were discussed at that conference
included permitting, leasing, public land access, and the need
for updated geothermal resource assessments.
I have brought with me today a copy, or several copies,
including a CD, of a document co-authored by the Department of
Energy and the BLM, ``Opportunities for Near-Term Geothermal
Development on Public Lands in the Western United States.''
This is a document which identifies in a color-coded fashion
those areas of high, medium, and low potential for geothermal
resources. I submit to the Committee today these copies.
The report identifies approximately 18 of the BLM planning
units that have what are characterized as high near-term
geothermal power potential. Those are in 18 planning units for
BLM. And what that does for the Federal Government and the
industry is it allows them to concentrate those efforts that
are most probable for leasing and exploration.
With this, Chairman Gibbons, I would look forward to
working with the Subcommittee, with our bureaus--USGS, BLM, and
MMS--in its continued efforts to implement the national energy
policy with regard to this particular renewable energy
resource. And I do thank you for the opportunity to testify
before you today.
[The prepared statement of Ms. Morrison follows:]
Statement of Patricia Morrison, Principal Deputy Assistant Secretary
for Land & Minerals Management, U.S. Department of the Interior
Madam Chairman and members of the Subcommittee, I am pleased to
appear before you this morning to discuss the Bureau of Land
Management's (BLM's) geothermal leasing program and efforts the BLM is
undertaking to enhance geothermal energy production from Federal lands.
The Department of the Interior generally believes that H.R. 2772
will provide support for these efforts. However, as the bill was
introduced on July 17th, we have not had sufficient time to fully
analyze the legislation and to develop a formal Administration position
on the bill at this time. After we have had more time to review the
bill, we would be happy to discuss its provisions with the Committee.
Thus, I will be confining my remarks to a discussion of the BLM's
existing geothermal program.
The President's National Energy Policy encourages a clean and
diverse portfolio of domestic energy supplies. Renewable energy can
help provide for our future energy needs by harnessing abundant, clean,
naturally-occurring sources of energy--such as the heat of the Earth.
Renewable energy supplies not only help diversify our energy portfolio,
but they also do so with few adverse environmental impacts. Increased
development of these domestic renewable resources also can help
alleviate the Nation's problems associated with an over-reliance on
foreign energy supplies.
The President's National Energy Policy further directs the
Departments of the Interior and Energy to re-evaluate access
limitations to Federal lands in order to increase renewable energy
production, such as geothermal energy. It also directs the Department
of the Interior to determine ways to reduce the delays in geothermal
lease processing as part of the permitting review process.
Geothermal Energy Background
Geothermal energy is heat derived from the earth. It is the thermal
energy contained in the rock and fluid that fills the fractures and
pores within the rocks of the Earth's crust. Geothermal resources, in
localized underground areas of steam or hot water called reservoirs,
are available in several western states. The highest temperature
resources are generally used for electric power generation. Low and
moderate temperature geothermal resources can be used for greenhouses,
aquaculture, industrial processes, and heating of buildings, including
municipal buildings and schools.
According to the U.S. Geological Survey, over 22,000 Megawatts of
power could be generated from the geothermal resources of the United
States. This would be enough power to satisfy the needs of over 22
million homes for more than 30 years. Existing geothermal power plants
in the United States currently have a total capacity of 2700 Megawatts,
43% of which receives energy from geothermal resources on Federal
lands.
BLM's Geothermal Program
The BLM, pursuant to the Geothermal Steam Act of 1970, is
responsible for leasing Federal lands for geothermal development and
processing permit applications. This authority encompasses
approximately 700 million acres of Federal minerals, including BLM
lands, National Forest System lands, and other Federal lands, as well
as private lands where the mineral rights have been retained by the
Federal Government. For lease applications on Forest Service lands, the
Geothermal Steam Act, as amended, requires Forest Service concurrence
prior to BLM lease issuance.
The BLM currently administers 400 geothermal leases, encompassing
over 520,000 acres of Federal minerals. The BLM's geothermal program
has 56 producing leases. Much of the geothermal activity on Federal
lands takes place in California and Nevada. California has 86 leases,
25 of which are producing. Nevada has 242 leases, 28 of which are
producing. More than 80% of the electrical generation from Federal
geothermal resources occurs in California. Other states with Federal
geothermal leasing activity include Utah, New Mexico and Oregon. The
BLM supervises 29 power plants using Federal resources in California,
Utah and Nevada. These Federal resource power plants have a total
capacity of 1,148 Megawatts, which can supply the needs of over one
million homes. Annual royalties from geothermal production exceeded $15
million in 2002, with 50% of that royalty income being returned to the
states--and, at times, the counties--in which the energy was produced.
Over the last two years, both the Federal Government and industry
have expressed renewed interest in geothermal energy development. The
BLM received twice as many new geothermal leasing applications--
approximately 100--over the last four years than it received over the
previous ten year period. During the last two years, the BLM has issued
about 150 geothermal leases, covering almost 250,000 acres. There are
currently approximately 230 pending Federal geothermal lease
applications--about 125 of these are on Forest Service lands and about
105 are on BLM lands.
The BLM's 2003 geothermal program budget includes $700,000 in base
funding and an additional $700,000 in targeted funding for
environmental reviews related to geothermal lease processing in the
State of Nevada. The President's 2004 Budget requests $1.2 million in
base funding for the BLM's geothermal program.
Ongoing BLM Efforts to Enhance the Geothermal Development
In November, 2001, Secretary of the Interior Gale Norton chaired a
Renewable Energy Conference in Washington, DC, that brought government
officials together with renewable energy and environmental leaders and
other citizens to focus on the best ways to increase renewable energy
development--including geothermal--on the public lands. Topics
discussed at the conference included permitting, leasing, public lands
access, the need for an updated national geothermal resource
assessment, and other regulatory matters.
As a result of the conference, and in support of the President's
National Energy Policy, the Departments of the Interior and Energy
organized a National Geothermal Collaborative of Federal and non-
Federal stakeholders. The Collaborative has been meeting to advance
strategies to enhance geothermal production, including identifying and
reducing impediments to development and establishing dialogue with key
stakeholders. The Collaborative is in the process of completing reports
analyzing the impediments to accessing geothermal resources on Federal
lands; analyzing Renewable Portfolio Standards (whereby States mandate
a certain percentage of renewable energy supply into power grids); as
well as other geothermal energy reports.
In addition, in April of this year, the BLM and the Department of
Energy, through its National Renewable Energy Laboratory in Colorado,
released a report entitled ``Opportunities for Near-Term Geothermal
Development on Public Lands in the Western United States.'' The report
identifies and provides information related to 18 BLM Planning Units
with high, near-term geothermal power development potential, so that
industry and the Federal Government can concentrate their efforts for
geothermal leasing and exploration in these areas.
Finally, the BLM also recently completed a customer satisfaction
survey of industry, government, and other interested non-governmental
representatives who have shown an interest in the Federal geothermal
program. The survey was intended to measure BLM's success at meeting
the concerns and suggestions from the 2001 Renewable Energy Conference.
The BLM is incorporating the information provided through this survey
into its efforts to facilitate geothermal development and to improve
its business practices.
Conclusion
Madam Chairman, we look forward to continuing to work with the
Subcommittee as the BLM continues its efforts to implement the
President's National Energy Policy to promote renewable energy
development from Federal lands. Thank you for the opportunity to
testify before you today. I welcome any questions the Subcommittee may
have.
______
[NOTE: The U.S. Department of Energy report entitled
``Opportunities for Near-Term Geothermal Development on Public Lands in
the Western United States'' submitted for the record by Ms. Morrison
has been retained in the Committee's official files.]
Mr. Gibbons. Thank you very much, Madam Secretary. We have,
obviously as you have heard, another wonderful excuse to
recess, but we are going to take some time here to ask some
questions.
Let me ask, first of all, with regard to the Department's
assessment of the problems right now, the backlog of processing
of geothermal lease permits and applications, have you
attempted to identify what the impediments are within the
Department to going forward with an effort to reduce the number
of backlogs or the number of permits that are on backlog with
you?
Ms. Morrison. I can address that in way of a track record,
Congressman, and that is over the last 12 months from today--12
months hence, or back, the BLM itself has processed
approximately 100 of those leases. So yes, we are putting
efforts forth in order to alleviate that backlog. Yes, sir.
Mr. Gibbons. Do you know how many you have on backlog
today?
Ms. Morrison. I will not quote you a number, but I can get
that for you.
Mr. Gibbons. Do you have an estimate?
Ms. Morrison. I believe it is around 230, sir.
Mr. Gibbons. OK. So as of a year ago, what would that
number have been, before you started this overall effort to
expedite some of these permitting applications? Do you have a
number back what it would have been a year ago?
Ms. Morrison. Well, I think if you add the 230 and the 100,
you get about 330, so--
Mr. Gibbons. So--OK.
Ms. Morrison. And keep in mind, not all of those--
Mr. Gibbons. That is not a stagnant number, either.
Ms. Morrison. It is not a stagnant number.
Mr. Gibbons. That number changes because you will process
100, you may get another X number submitted to you for
application as well.
Ms. Morrison. Some drop in, some drop out.
Mr. Gibbons. What is the average number per year of
applicants you get?
Ms. Morrison. That is going to be a moving target as well,
since this is a new resource.
New applications in the last 3 years, approximately 150.
Mr. Gibbons. OK. So about 50 a year.
Ms. Morrison. Well, we averaged that out.
Mr. Gibbons. That would be an average that you get. So if
we look at the number 230 now, we are looking at somewhere
between five and 10 years at 50 a year, average, to get rid of
the backlog plus take care of the--some that are coming in on
each year. If you get 50 a year, you have done 100 this year in
the last 12 months, you have a period of time within which you
have to reduce the backlog?
Ms. Morrison. Correct.
Mr. Gibbons. What, since you have been doing a greater
number, you have done 100 over the last 12 months, as you have
said, what steps are included in that expedited process that
you can identify that have resulted in your handling of 100
permits in the same permitted time line that you normally do
50?
Ms. Morrison. I have to take an educated guess at that, and
I--my experience has been that a refocusing of the BLM on this
particular resource is what has caused that movement ahead.
Mr. Gibbons. So in other words, they have been challenged
with other demands on their time limit or in their departments
looking at other minerals, whether it is hard rock, coal, or
surface permitting for grazing or whatever, and geothermal just
came in there at a distant--
Ms. Morrison. I think it has probably just been a refocused
effort on the energy and the national energy plan specifically
identified this as an area that we did need to focus on and
have done so.
Mr. Gibbons. Do you feel there are any additional steps
that you can take that would help expedite this process, in
addition to what you have done already?
Ms. Morrison. I don't know specifically. I think--
Mr. Gibbons. Well, does the Department lack adequate
resources today to continue with what you are doing on an
expedited basis, refocusing, applying more personnel/manpower,
so to speak, on this issue--do you have the adequate resources
to do that?
Ms. Morrison. To give you a little bit of a backdrop to
answering that question, in 2003, we asked for $700,000; 2004,
we asked for an additional $550,000. It seems as though our
geothermal program is doubling itself as we go along. In
addition to that, USGS has asked for $500,000 in 2004, for
additional monies that they need, and I believe that is about a
half or a third of the total amount they need, as I mentioned,
to reassess the geothermal resource areas. And that in
particular is very helpful, not only to the BLM land managers
in managing their resource management plans, which are the
basis for this leasing, but it also gives the industry the
information they need in order to get financing.
So for instance, if I were an industry applicant and I have
a lease that I purchased from BLM, to go to a bank and get
financing to actually put in a geothermal plant, the question
is asked, what resource to you have to back up this money? So
it is sort of a reliance, if you will, on each other. The
leasing relies on the information, the information is relied on
by industry to get financing, the financing produces more
geothermal.
Mr. Gibbons. Now, you mentioned in your testimony that you
have a term ``high, near-term geothermal potential,'' I
believe.
Ms. Morrison. Yes, sir.
Mr. Gibbons. Does that language replace the KGRA, or known
geothermal resource areas?
Ms. Morrison. No, it does not. This is additional
information.
Mr. Gibbons. OK. All right. Are you contemplating, or does
your analysis show that there is in the competitive leasing
program an effort to move away from the known geothermal
resource area determinations?
Ms. Morrison. Again, as I mentioned, because specifically
for that financing reason and for the land-use planning reason,
we are not moving away from that known geothermal resource
area. However, we have not done an extensive analysis of
competitive leasing. I think that the known geothermal resource
area information is of a--it is significant information that
industry and the BLM relies on. Tying it to the competitive
lease sale arena is not necessarily something that needs to
happen. In my mind, there is not a definite tie between those
two, but I don't know that at this moment in time we can just
simply do away with the known geothermal resource areas.
Mr. Gibbons. Madam Secretary, as you know, this bill
attempts to unify the process and procedures, depending upon
Federal land versus Department of Defense land.
Ms. Morrison. Yes, sir.
Mr. Gibbons. Now, in your experience, what is the process
that BLM uses when it deals with non-geothermal resources when
it comes to minerals, oil and gas, whether it is on DOD or
Federal land? Are they different or are they similar?
Ms. Morrison. They are different. And in the other arena,
the non-geothermal resource arena, BLM is the land managing
leasing agent for those minerals. The military lands perhaps
might be withdrawn. If they are, then of course there is not
going to be any leasing on it. Otherwise, there could be. And
BLM would be the land managing leasing agent.
Mr. Gibbons. So under that scenario, the terms of a gas or
oil lease or a coal lease on land that is DOD as well as
Federal, the terms are the same. Management is under one agency
called BLM, rather than DOD and BLM, if it crosses the border?
Ms. Morrison. Correct, although I will make a note and I
will check this just to make sure, but I don't believe there is
any coal leasing on military lands presently.
Mr. Gibbons. Yes.
Ms. Morrison. Yes.
Mr. Gibbons. OK. So under geothermal today, if it is on DOD
land, DOD geothermal is managed and regulated by DOD, not by
BLM?
Ms. Morrison. Yes, sir.
Mr. Gibbons. And that means that DOD has a different set of
criteria for leasing than it would be if it were on BLM land
right next door.
Ms. Morrison. Correct.
Mr. Gibbons. In your opinion, would it be better to have a
uniform concept or approach to leasing, whether it is DOD or
BLM land sitting right next door?
Ms. Morrison. Let me answer that from a geological
perspective, having had my background in the offshore and the
oil and gas business. We are talking about a resource that can
be depleted. Although we term it renewable, that is true if
managed correctly. You have one resource, and whether the wells
be drilled on Federal land, be it military or BLM or Forest
Service, State land, or private land, you have one resource
that underlies the ground.
What BLM is interested in is the management of that
particular resource such that it is not prematurely depleted
and that it is managed correctly so that we have the maximum
amount of electricity, say, produced from that geothermal
resource in a way that--for instance, you may re-inject the
water in order to continue to have that resource renewed. To
me, it is an issue of resource management.
Mr. Gibbons. OK. So what you are saying here is if you have
a common, unified pool of geothermal resource under the ground,
and the ground just happens to be divided arbitrarily on the
surface--one half being DOD, one half being BLM--that there
could be a management difference between how that resource is
utilized under a DOD contract, two inches away by an arbitrary
line, from a BLM contract on the other side of the fence, which
could adversely change how the resource is utilized and/or
protected in the long run?
Ms. Morrison. In theory, yes, you are correct. And that is
no different than an oil and gas reservoir that perhaps gets
drained by State leases.
Mr. Gibbons. And this is why, under oil and gas, you have a
uniform management system that applies to both DOD and BLM, or
Federal land outside of DOD?
Ms. Morrison. I am not going to presume why that is, but
that is the way it is. But you still have the issue of State
and private drainage. Under your oil and gas example, you still
have that kind of conundrum.
Mr. Gibbons. Precisely. Precisely.
Madam Secretary, the staff has presented a number of
questions with regard to the bill. And most of them have to do
with the technical aspect of the bill with regard to royalties,
near-term production incentives, credits for in-kind payment of
electricity, et cetera, that I would like to submit to you, and
if we could get you to respond to them, so that we can make any
adjustments in our bill with an administrative point of view as
to if there are problems with those. And we will submit those
questions to you.
Ms. Morrison. We would be happy to work with you and
respond to those.
Mr. Gibbons. Very good.
Is it time to conduct a new assessment of our geothermal
resources in America?
Ms. Morrison. Yes.
Mr. Gibbons. Why do you say that?
Ms. Morrison. My understanding is, is the last known
geothermal resource area assessment by the USGS was in 1970,
formal assessment. The budgetary 2004 $500,000 monies that I
mentioned to you is a movement by USGS--and again, I can't
recall if that is half or a third of their total budget for
that reassessment.
Mr. Gibbons. Now, will the new reassessment, if you go
forward with one, take into consideration the changes in
technology that had been advanced in geothermal recognition or
design and development over the last 30-some years?
Ms. Morrison. Yes, sir.
Mr. Gibbons. Do you have the resources needed to, or
additional funding to do such an assessment?
Ms. Morrison. Again, I will put it in terms of the budget.
We have asked for $500,000 at USGS. If that represents a half
or a third, then they have still got two-thirds or another half
to go. So that is the funding situation at hand.
Mr. Gibbons. So we need to continue working on getting the
adequate funding and authority for you to do the assessment
with the right amount of resources.
Ms. Morrison. Correct.
Mr. Gibbons. Let me step back, if I may, Madam Secretary,
and go back to the issue of divided estates, fragmented
estates, and ask you a question just with regard to ownership,
where ownership of an undeveloped geothermal reservoir is
fragmented and--or is fragmented between multiple parties. Do
you feel you have the adequate authority to establish lease
unitization or pooling of these activities?
Ms. Morrison. I do not believe we have that authority. I
will double-check that, but I do not believe we have that
unitization authority at this date.
Mr. Gibbons. Would you submit to us your recommendation to
deal with fragmented estates in that area?
Ms. Morrison. Certainly. We would be happy to do that.
Mr. Gibbons. --look at that if we could.
Ms. Morrison. Do you want that as part of your questions?
Mr. Gibbons. Yes. Anything that you feel that you want to
submit for the record today or within the next couple of weeks
would certainly be included and we would like to review that,
especially the questions that we are going to submit to you,
the administration questions for review of the bill itself.
Ms. Morrison. We would be happy to do that.
Mr. Gibbons. Knowing, of course, that you have only
received the bill last Thursday when I put it in the hopper. So
being here today is indeed a remarkable comment on your
favorable appearance here to be able to testify on the issue
before the Committee. Many times people say that Friday is just
not enough time to be back on Tuesday to testify what this bill
does. And I certainly appreciate that.
Of the hundreds of direct use projects for using
geothermal, and that means--direct use would be the heat
exchange, et cetera--only three are located on Federal lands.
Why do you feel that we have so few direct use geothermal
projects on Federal land when a large amount of our geothermal
energy is generated on Federal lands?
Ms. Morrison. My understanding is that the royalty scheme
for that direct use perhaps is not as sorted out as it should
be.
Mr. Gibbons. So it would be burdensome or cost prohibitive?
Ms. Morrison. That is my understanding. And I also
understand that the technology of using those lower-temperature
geothermal resources, such as in the 120- to 150-degree range,
that the technology for those uses are becoming more
commercial. So as we go down the road, there is less of a
distinction between direct use and commercial use.
Mr. Gibbons. Yes, and I can understand it. In Nevada, we
have several geothermal plants which are used for drying
onions, not producing electricity. So there is a direct use of
using heat to dry farm products and produce something that is
commercially acceptable--as well as heat homes. Because in
Nevada we have a large number, in fact the home I used to live
in before I live in the one today had a geothermal well that
heated the home and heated the swimming pool--although I will
never have another swimming pool--it heated the swimming pool
with geothermal energy. So, and that was something that I
really felt fortunate to have. And many communities in Nevada--
Elko, Nevada, uses a lot of the geothermal energy in that low
temperature range, 120 to 150 or so degrees, to heat their
Government buildings.
Ms. Morrison. Right.
Mr. Gibbons. So we are trying to take and utilize as much
of this valuable resource as we possibly can.
Let me ask you a question with regard to calculating
royalties. Would a gross proceeds method be less complex than
the current net back method? And if you could explain the
difference between a net back method for us and what you think
is a gross proceeds royalty and how it would be calculated.
Ms. Morrison. I am going to do it in pretty basic terms, so
here we go.
Mr. Gibbons. There is only one basic person here for you to
talk to, so--[Laughter.]
Well, Mr. Basic, here we go. The net back method, let's
start with that. Basically you have a power plant generation
facility. Net back takes your total operating cost, deducts it
from your receipts, if I can use that term, and comes up with a
profit figure. That is a rather detailed accounting function,
and they are expensive. It is basically--
Mr. Gibbons. Does it require an auditing process for you to
comply with?
Ms. Morrison. It does require an auditing process. It also
requires, if you will, a second set of books. So you may
actually spend--in certain anecdotal examples, I have heard
that you can actually spend more on the accounting function and
the second set of books and the auditing function than on the
actual royalty paid.
Mr. Gibbons. Let me ask you about the Calpine lease. How is
the royalty calculated on the Calpine lease?
Ms. Morrison. I am going to have to defer to that. I was
not aware that we had a gross proceeds lease until just this
morning. That was--
Mr. Gibbons. OK. But can't you tell me how that works in
comparison to the net back proceeds process?
Ms. Morrison. My brief understanding, subject to check, is
that it is on a gross proceeds basis. In other words, it is a
percentage of the total gross proceeds, as metered to the grid.
But we will get you the specifics on that.
And just to finish up the comparison to the gross proceeds
method is very simplistic. You meter it at the grid, you
multiply the amount of geothermal energy going through there
converted to electricity, times the sales price, and you take a
percentage off the top.
Mr. Gibbons. OK. And that is a much simpler form when it
comes to accounting--
Ms. Morrison. Yes.
Mr. Gibbons. --or even for those people that are depending
upon that royalty to calculate, rather than have to go through
the double set of books, the determination what is deductible
and what is not deductible.
Ms. Morrison. Right.
Mr. Gibbons. It is kind of the difference between a flat
tax and the current system of taxes we have today that allow
for a complicated process where only the attorneys make money
in the process.
Ms. Morrison. Not to mention you have already calculated
the figure in your sales contract price.
Mr. Gibbons. Yes.
This bill authorizes the Secretary to give companies
royalty credits where they enter into an agreement with a State
or county Government for an in-kind sale of electricity. If
enacted, how would this affect revenues?
Ms. Morrison. Again, as I said in my opening comments, I am
not in a position to comment specifically on that. If we can
make that part of our questions, I am sure we can analyze that
for you.
Mr. Gibbons. We will submit that and other questions for
you as well.
Ms. Morrison. All right.
Mr. Gibbons. The review of moratoria and withdrawals from
geothermal leasing on public lands, and ensures Congress--well,
let's see, this bill requires a review of that moratoria and
ensures Congress and the Secretary of Interior have oversight
over such closures. Does the administration support this
procedure?
Ms. Morrison. As set out in your bill?
Mr. Gibbons. Yes.
Ms. Morrison. Again, I am going to have to defer an answer
to that separately.
Mr. Gibbons. OK. All right.
Madam Secretary, you have done a remarkably good job of
coming here after 2 days' notice and being able to testify on
issues and provisions of this bill. I have no further questions
at this point in time. I believe that I have just about every
question I can think of, and you have answered them superbly.
Hopefully, we can hear back from you as soon as possible with
the questions we will submit to you. Also, with regard to your
analysis and recommendation for any technical changes that you
think, in the bill, are required to better analyze this bill.
We would appreciate your getting back those issues to us in the
shortest possible time. And we look forward to working with you
on that.
With that, Madam Secretary, I am going to excuse you, since
there is no one else here to ask you a question. And I am sure
that they couldn't ask a question that you couldn't answer. So
I am going to excuse you, Madam Secretary. Thank you for your
presence, and we will call up the second panel.
Ms. Morrison. Thank you, Congressman.
Mr. Gibbons. Thank you.
Mr. Gibbons. The second panel is going to consist of Karl
Gawell, Executive Director, Geothermal Energy Association; Dr.
James Witcher, New Mexico State University; and Ms. Jeanne
Connelly, Vice President, Federal Relations, Calpine.
And ladies and gentlemen, before you sit down, let me begin
the same process that I started with the good Secretary and ask
you to stand for the oath. After you get seated will be fine.
[Witnesses sworn.]
Mr. Gibbons. Let the record reflect that each of the three
witnesses answered in the affirmative.
As I understand, Mr. Gawell, you will be leading off the
testimony. Mr. Gawell is the executive director of the
Geothermal Energy Association. Mr. Gawell, I hope I have
pronounced your name correctly. Welcome to the Committee. The
floor is yours.
As I explained to you, we try to limit your testimony to 5
minutes so that we can get a summary of what you have to say.
Your complete and written testimony will be entered into the
record without objection. And if you run over it, that is OK.
You know, it is just us. But we try to show some respect for
everybody else that has to testify, so if you talk for an hour,
I am going to ask you to wrap up. So try to be time-conscious
in all for this for the Committee as well.
Mr. Gawell, welcome. The floor is yours.
STATEMENT OF KARL GAWELL, EXECUTIVE DIRECTOR,
GEOTHERMAL ENERGY ASSOCIATION
Mr. Gawell. Thank you, Mr. Gibbons. It is a pleasure to be
here.
In a sense, I want to talk to the larger issue for a
minute. And I think this is almost preaching to the choir,
knowing your background, Mr. Gibbons, but my testimony is--
covers a lot of the details of the legislation. But I think the
context is something I think we all have to pay attention to
and everybody on the Subcommittee and Committee has to pay
attention to.
I am a member of the Board of Directors of the American
Council for Renewable Energy. And we had our annual meeting
here in town last week. And former CIA Director Jim Woolsey was
one of our speakers, along with Bud McFarland and several other
people, talking about, in a sense, the change that has
occurred, because there has been a fundamental change that has
occurred in energy policy in this country. And his point was
simple. He said we are in a war, we may be in it for awhile,
and it is time America addressed some of its bad habits.
And I think that is sort of an underpinning push that we
haven't had. Because things have changed. I have been doing
energy policy--I looked at the room here and I think I have
testified before every one of these chairmen. But there are
some changes that have occurred that all of us had better face
up to. One, we had never had a terrorist attack on American
soil. I was reading Gary Hart's book, ``A New Democracy,'' the
other night. He talked about our energy problem and how bad it
is. But he said, but the one thing we have never done yet, we
haven't gotten to the bottom of the ladder because we haven't
gone to war in the Middle East.
We have done that. And the other thing that has changed
is--the next paragraph in his book said, well, everything is
going to be fine because we have unlimited supplies of natural
gas. I know you were in attendance at the Speaker's meeting
yesterday saying what are we going to do about natural gas
supplies in this country? We have tremendous demand going
forward, but the supplies aren't there.
The underpinnings of virtually every energy policy in the
last 20 years have changed in a fundamental fashion. And I
don't think we have yet to understand how they are going to re-
sort themselves. But as an American citizen and as a
representative of American companies, I think that means
learning to produce more from the resources we have in the
country.
And one of those tremendous untapped resources is the heat
of our earth, our geothermal resources. And when I look at what
we are doing, I don't see us tapping those resources. I think
the legislation we have today begins to address some of it. I
want to add a footnote: There are other areas we need to go
back and look at outside of this bill.
For example, I understand that for awhile 10, 15 years ago,
we were looking at producing the geopressurized resource along
Texas, Louisiana. That resource holds 50 times the U.S. energy
use every year in methane. Twenty years ago, that looked
uneconomical. Today, given our new reality, we might want to go
back and look at it.
We have a huge resource in the West. The Geologic Survey
thinks we have at least 20,000 megawatts of producible just
electricity use, and direct use might be that much, it might
more, that we could produce using geothermal resources in the
West--if we could put things in the right order, which to us I
think means, one, getting the economics straight. I think the
Congress is looking at expanding the production tax credit and
taking other measures to give investors the right signals. But
the other part of that is to get the Federal programs straight.
And the more we have delved into this whole issue over the last
2 years in the hearings before this Subcommittee and the full
Committee, I think the more the industry has recognized that
that also means getting the law straight.
And I think H.R. 2772 is a bill that takes us a long way
toward getting that right. And frankly, point-blank, Mr.
Gibbons, Mr. Chairman, we are 100 percent in support of your
legislation. This bill will move forward and allow us to
produce more geothermal resources in the West, both in terms of
electricity and direct use, and help address our really urgent
national security problems.
From my company's perspective, it is sort of almost a no-
brainer. What's not to like? We are looking at legislation
where the geothermal leasing program will become market driven
through competitive lease sales. We are looking at legislation
which will encourage development by promoting unified ownership
of the whole reservoir up front. We see the pending lease
application backlog being eliminated within a year, something
we have been asking for repeatedly over the last years.
Use of geothermal resources by ranchers, farmers, small
businesses, communities will be encouraged by new provisions
that will create a simpler leasing process with less onerous
terms for direct uses. And in addition to Elko, for example,
the State capitol buildings in Boise have been heated, what,
for 100 years, I believe, by geothermal resources. We should
see more of that throughout the Western United States.
Your bill gives us Federal royalty requirements which are
more predictable, less bureaucratic, and we will see more of
the funds supporting local and rural economic development. And
it also will allow State and local Governments to leverage
their royalty funds and increase their income by negotiating
in-kind royalty schemes with local producers.
We see a directive for the U.S. Geologic Survey to do a new
nationwide assessment, which is urgently needed. In the last
assessment for conventional geothermal reservoirs, it said we
are cutting it off at 3 kilometers; we don't know what is
beneath that. And the reason we are cutting it off at that
point is we have no information. Today, just last week, it was
announced the first geothermal plant in Germany of all places,
which doesn't show up as a big red spot like Nevada does on the
map, and they are producing that at below 10,000--deeper than
10,000 feet. So clearly, the drilling technology has changed.
We are producing from much deeper reservoirs, so what was
economic in 1970 has changed dramatically today.
We see a bill which eliminates major impediments to new
development by giving clear authority to BLM to establish units
and pools where there is fractured ownership.
We see the backlog on Forest Service lands being
eliminated--a major move forward. There are tremendous
resources under Forest Service lands. These aren't lands that
are wilderness or that are roadless. We are looking at lands
that should be part of our multiple-use forest system and could
contribute to protecting the forest by protecting the
environment through clean energy production.
We also see a bill that eliminates the current disparity in
mineral production. You know, if you produce gold or silver
from a geothermal well, you have to pay a royalty. If you
produce it anywhere else on the public lands, you don't. Well,
is that a big issue? I was just conferring with Roy Mead [ph]
from the Department of Energy, and we were looking at some of
the minerals that you might be able to produce from geothermal
resources. And we are producing the very first now, which is
zinc, as you know. But they are looking at zinc, silica,
manganese, lithium, silver, gold, and rare earth elements. In
many different geothermal systems, you will find those
resources.
Of all of those resources, the one which we produce the
most of in this country is gold. For most of the others, we now
import most of our supply. And I love when you go to the USGS
website and you look up rare earth elements, the title is Rare
Earth Elements Critical for High Technology. And today, 90
percent of our rare earth elements come from imports, almost
entirely from China. And they are basically a fundamental
product for high technology in this country.
So I think we have a new source of producing minerals for
our country, for our economy that can be done in an
environmentally benign manner. I mean, what better way than to
bring it out of your well and produce it without having to deal
with mining it at all? And yet current law would discourage
that by giving you disparate treatment.
And we are looking at legislation which will encourage
geothermal production from appropriate military lands by
placing them on the same basis as the Bureau of Land
Management.
So in our view, we see this legislation as a major step
forward that will really help promote the full range of uses of
geothermal energy to help our Nation and the West move forward
in the years ahead.
Thank you, Mr. Gibbons.
[The prepared statement of Mr. Gawell follows:]
Statement of Karl Gawell, Executive Director,
Geothermal Energy Association
Mrs. Chairman and Members of the Subcommittee,
Thank you for the opportunity to present the views of members of
the Geothermal Energy Association (GEA) regarding H.R. 2772, The John
Rishel Geothermal Steam Act Amendments of 2003 introduced by Rep. Jim
Gibbons (R-NV) and cosponsored by Representative Steve Pearce (R-NM).
GEA is a trade association representing the full range of companies and
organizations involved in the U.S. geothermal industry, from power
plant owners and operators to small drilling and exploration companies.
Geothermal Energy's Potential
Geothermal energy provides a significant amount of the energy and
electricity consumed in the Western U.S. Geothermal heat supplies
energy for direct uses in commercial, industrial and residential
settings in 26 states. Geothermal resources furnish substantial amounts
of electricity in California, Nevada, Utah and Hawaii. Indeed, 6
percent of California's electricity comes from geothermal energy.
Expanded use of geothermal resources will provide additional clean,
reliable energy to the West. Thousands of megawatts of new geothermal
power, and an equal amount of direct-use energy, could be developed in
the immediate future with proper incentives, expedited regulatory
processing and continued support for the development of new technology.
Geothermal energy contributes directly to both state and local
economies and to the national Treasury. To date, geothermal electricity
producers have paid over $600 million in rentals, bonus bids and
royalties to the Federal Government. Moreover, according to an analysis
performed by Princeton Economic Research, it would be reasonable to
estimate that the geothermal industry has paid more than 6 times that
amount in Federal income tax, for a combined total of over $4 billion.
1 If the economic multiplier effects were considered, the
total contributions of geothermal energy to the local and national
economy would be substantially greater.
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\1\ Princeton Economic Research, Inc., Review of Federal Geothermal
Royalties and Taxes, December 15, 1998. (Figures expressed in 1998
dollars.)
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What is the potential for geothermal energy on public lands? GEA
believes the U.S. geothermal resource base could support significantly
increased production. U.S. geothermal electric capacity, now at about
2,600 MW, could triple and, with expected improvements in technology,
could reach nearly 20,000 MW in 20 years or less.
These figures would appear to be consistent with the estimates
presented to the Subcommittee on Energy and Minerals by the U.S.
Geological Survey. Their testimony indicated a potential for 22,290 MW
of geothermal electricity production in the Western United States.
2
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\2\ See Table 2 attached.
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H.R. 2772
GEA's testimony before the Resources Committee in March pointed out
a series of issues that needed to be addressed to spur a revival in the
use of our nation's geothermal resources. 3 A significant
portion of those issues involved possible changes to the underlying
Geothermal Steam Act of 1970. In many ways H.R. 2772 responds to our
concerns in a constructive and responsible manner. It also goes beyond
them to include provisions that would strengthen and clarify important
parts of the geothermal law and improve how it supports state and local
governments.
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\3\ Statement of Karl Gawell, Executive Director of the Geothermal
Energy Association, Before theHouse Committee on Resources, March 19,
2003.
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Before discussing some of the individual provisions of H.R. 2772,
however, it is important to point out that some of the changes it
proposes may cause some discomfort to individual GEA companies. Still,
there is strong support for these provisions because they will
encourage and promote development of geothermal energy resources in the
United States. GEAs companies recognize the benefits of establishing a
clearer, fairer law that facilitates and encourages new production of
geothermal development on public lands.
Competitive Leasing
In GEA's view the move to a competitive leasing program that
depends upon the market to determine high value leases will be a
significant improvement over the current approach. Under existing law,
the Secretary must determine which lands are high-value geothermal
areas or ``known geothermal resource area (KGRA)'' and which are not.
Both the law and BLM's regulations require that lands in KGRAs be
leased only by competitive bidding while all others are leased
noncompetitively.
The current law defines a KGRA as: ``Section 1002 (e) known
geothermal resources area means an area in which the geology, nearby
discoveries, competitive interests, or other indicia would, in the
opinion of the Secretary, engender a belief in men who are experienced
in the subject matter that the prospects for extraction of geothermal
steam or associated geothermal resources are good enough to warrant
expenditures of money for that purpose.'' 4
---------------------------------------------------------------------------
\4\ 30 USC Section 1001(e)
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The existing statute gives the Secretary no discretion. If lands
qualify as a KGRA they must be leased competitively. It is worth noting
that the statutory language includes ``competitive interest'' as a
factor that determines a KGRA, which implies that such determinations
are made on a continuing basis, and in fact the BLM has made KGRA
designations in areas with pending lease applications. But, it is not
clear to me how one determines competitive interest with any certainty
outside of holding a competitive lease sale. From a simply practical
perspective, the Secretary does not have the necessary staffing with
the requisite expertise to administratively determine where high value
geothermal resources are located.
As a result, large areas of the public lands have been leased non-
competitively. But, even non-competitive lease applications are not met
with any certainty. On several occasions, the Interior Board of Land
Appeals has determined that it is the agency's obligation to cancel
lease applications and place lands up for competitive bidding. For
example, IBLA in its Decision Number 87-796 states: ``A non-competitive
geothermal resource lease offer must be rejected where the land is
found to be within a known geothermal resources area prior to lease
issuance and the offeror presents no evidence to show that the known
geothermal resource area designation is in error.'' (See also, IBLA 84-
212 and others similar decisions.)
GEA supports moving away from administrative KGRA designations to
determine high value geothermal lands and supports the provisions of
H.R. 2772 that would rely instead upon competitive bidding. Our views
are prompted by the difficulty, delay and expense that making such
administrative determinations entail, and the uncertainty that the
current KGRA definition has caused for lease applicants. In effect, we
support reforming geothermal leasing law along the lines that Congress
reformed the on-shore oil and gas leasing laws. Under this approach
industry would nominate areas that it was interested in leasing and all
otherwise appropriate lands would then be put up for competitive bid.
If lands received no bids, they would be available for non-competitive
leasing for a couple of years. This approach relies upon competitive
bidding, rather than agency determinations of KGRAs, to select high
value lands and ensure a fair return to the taxpayer.
By making this important change, H.R. 2772 would be a significant
improvement in the law and encourage greater use of geothermal
resources throughout the West. It will simplify the leasing process,
reduce BLM's administrative costs, and ensure a fair return to the
taxpayer for publicly owned resources.
H.R. 2772 goes even further to promote new development by directing
the BLM to offer leases for sale as a block in the competitive lease
sale if they believe the leases involve the same reservoir. This will
encourage successful development by promoting unified ownership of the
resource. We believe this is an important addition to the competitive
leasing program and will improve prospects for expanding geothermal
production in the West.
An important remaining question is whether and how to deal with the
517,000 acres of pending lease applications. For the sake of the lease
applicants, and the entire industry, we would like to see these lease
applications addressed quickly. H.R. 2772 would direct the Secretary to
process the pending lease applications within one year of enactment.
After one year, a decision should be made to issue or reject the
application. Otherwise the process should be underway to complete
whatever studies or analysis is necessary for a prompt agency decision.
H.R. 2772 would achieve this by using the new authority it would
give the Secretary allowing applicants to pay for necessary NEPA or
other analysis and be reimbursed through royalty credits. Although this
places some of the burden on the lease applicants, we believe it is a
fair deal and necessary to clear out the application backlog.
Direct Use Leases
Geothermal resources also provide energy for significant
agricultural, commercial, and other non-electric purposes in the US.
Unfortunately, few of these direct-use facilities involve Federal
geothermal leases. Kevin Rafferty of the Geo-Heat Center in Klamath
Falls, Oregon stated, ``The really telling statistic in my opinion is
that we now have hundreds of direct use projects in operation across
the West and we are only able to identify 3 that use resources on the
public lands. The users are out there and so are the Federal resources
but no one is using them. It seems pretty obvious that something is
wrong.'' According to Mr. Rafferty, the high cost of direct use
royalties was the most commonly cited problem at a recent meeting held
to discuss how to expand geothermal energy use in the West.
5
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\5\ Email communication from Kevin Rafferty, Associate Director,
Geo-Heat Center, Klamath Falls Oregon, February 24, 2004.
---------------------------------------------------------------------------
Jim Witcher of New Mexico State University will present testimony
today discussing in more detail the major impediments to increased
direct use of geothermal energy in commercial, mining, ranching and
similar operations in the West. I hope he also takes a few minutes to
discuss the significant benefits direct-use facilities are bringing to
the economy of New Mexico, because it is our view that the provisions
of H.R. 2772 relating to leasing for direct use purposes will go a long
way towards bringing new economic development to many communities
throughout the West.
H.R. 2772 seeks to encourage the use of geothermal resources by
ranchers, local governments, small businesses, and others for non-
electric ``direct uses'' (greenhouses, aquaculture, space heating, and
the like) by creating a simpler leasing process for direct uses
purposes with less onerous terms--terms more closely resembling those
of private and state direct use leases. We support these provisions,
and believe they will encourage rural economic development throughout
Nevada and the West, while encouraging greater use of this
environmentally beneficial energy source.
Gross Proceeds Royalties
GEA supports the proposal made in H.R. 2772 to adopt a gross
proceeds royalty. The proposed legislation reflects market value,
should be easy to administer and readily verifiable, and is applicable
to both new and existing leases. A royalty on gross proceeds will save
on the administrative costs of both the government and industry as well
as eliminate many uncertainties that arise under the current system,
including the potential for audits years after royalty payments are
made.
We have been involved in numerous discussions about royalty methods
in recent years, spurred by concerns raised by local communities
several years ago when their royalty income suddenly dropped under the
existing net-back royalty formulation. In public meetings with local
communities, states, and Federal officials it was recognized that a
significant disadvantage of the net-back formula is its volatility.
The net-back method has a significant advantage for geothermal
companies because royalty payments are essentially zero during the
first few years of commercial operation, which is when costs are their
highest. However, the proposed legislation seeks to address this by
establishing a tiered royalty, with a lower rate during the first ten
years of production.
Based upon our assessment, the net present value of the royalty
proposed in H.R. 2772 is very close to the value received during the
first ten years under the net-back formula. For a new flash steam
plant, at a 1.75% gross proceeds royalty the net present value of the
payments equals payments under the net-back in about 8 or 9 years, and
for a binary plant--which has higher capital costs and lower steam
values--the values equalize in about 11 or 12 years. 6 So,
the first ten year royalty tier proposed in the bill is roughly the
middle ground between a flash steam plant and a binary plant.
---------------------------------------------------------------------------
\6\ For data on royalty payments from a flash steam plant see
published study by Dr. David Gallo of California State University
available at http://www.csuchico.edu/cedp/images/pdf/esp.calpine.pdf.
Information on binary power plants from Dan Schochet, Ormat
International.
---------------------------------------------------------------------------
After the first ten years of production, the legislation proposes
that all power plants would pay a 3.5% royalty on their gross proceeds.
This appears to represent a fair figure, and comports with what is
often used as the ``rule of thumb'' for geothermal power plants: that
one-third of the value of the output is derived from the steam or hot
water. In discussions with the geothermal operators, it appears that
because the net-back method allows a wide range of variations actual
royalty rates of existing leases span a wide range, from 1% to 5.5% on
a gross proceeds basis. In general, the higher values are represented
by The Geysers in California, which is a very high value and unique dry
steam resource. Virtually all other geothermal resources in the United
States have lower energy values than The Geysers.
The proposed gross proceeds royalty would require geothermal
operators to pay royalties sooner--beginning in their first year of
operation--and might be somewhat higher than they would pay under
current net-back rules. But, the geothermal industry would support
changing to a gross proceeds formula as proposed because of its other
benefits.
The gross proceeds approach benefits both the company and the state
and local community. The approach is simpler, more predictable, and
less bureaucratic. Companies and communities would be able to plan with
more certainty. This is very important when royalties are an important
source of income supporting schools and community services. Neither the
counties, nor the geothermal companies, benefit when sudden swings in
electricity prices cause shortfalls in local government income. Neither
the counties, nor the geothermal companies, benefit when audits
undertaken years later determine that a company has underpaid or
overpaid--and now one party or the other has to suddenly find funds
that are not in their budget.
H.R. 2772 also proposes to authorize the Secretary to give
companies royalty credits where they enter into an agreement with a
state or county government for the in-kind sale of electricity. In some
instances this could double or triple the value of the royalty to the
local government. It also provides a near-term royalty incentive for
production from existing leases, including an incentive to expand
production from existing geothermal sites within the next four years.
This will encourage new geothermal power production to help meet the
regions urgent supply needs.
Agency Cooperation
H.R. 2772 directs specific coordination steps between the Forest
Service and BLM regarding leasing, processing and permitting on the
public lands. Forest Service lands in the West hold thousands of
megawatts of geothermal potential, but the lack of clear administrative
procedures and timeframes has lead to years of delays in decision
making on land otherwise open for such development. We support these
provisions.
Moratoria and Withdrawals
H.R. 2772 directs a review of moratoria and withdrawals from
geothermal leasing on public lands, and ensures that Congress and the
Secretary of Interior have oversight over such closures. We support
this provision.
Reimbursement for NEPA Costs
H.R. 2772 authorizes a process for lease applicants or leaseholders
to fund necessary government studies or documents where the BLM lacks
adequate funds to prepare them. In many instances inadequate staffing
and funding has resulted in a de-facto moratorium on geothermal
development. This proposal would introduce a way to address this
problem, at least in some circumstances, while retaining BLM control
over the integrity of its process. While we support this provision, we
believe that it needs to be administered with attention to the problems
inherent in using private funds for these purposes. The Secretary needs
to both ensure integrity of the government processes and avoid creation
of unnecessary or additional studies or other documents.
National Resource Assessment
H.R. 2772 directs the U.S. Geological Survey, in cooperation with
the states, to complete a new national geothermal resource assessment
within three years of enactment. The USGS has not conducted a
geothermal resource assessment in 30 years, and significant changes in
science and technology have occurred over those three decades. Many
consider a new geothermal resource assessment essential to achieving
the tremendous potential geothermal holds for both energy and economic
development in the West. We support this provision, encourage Congress
to ensure that funds are made available for this assessment, and
applaud Rep. Gibbons for including a specific directive for the USGS to
conduct this work in cooperation with the states.
Unitization
H.R. 2772 would provide clear authority for BLM to establish
cooperative units where the ownership of an undeveloped geothermal
reservoir is fragmented between multiple parties. Fragmented ownership
is a major impediment to new development of geothermal resources, and
this bill borrows unitization and pooling language from the oil and gas
laws that has proven successful in addressing this problem.
BLM has had pending for several years regulations in this area, and
we believe that the language proposed in this legislation is consistent
with their proposed rules, and will give them a firm statutory basis.
In addition, this proposal directs the BLM to consult with the states
in managing lease unitization and pooling activities, and to treat any
state leases included in such arrangements fairly.
Royalty on By-Products
H.R. 2772 addresses a disparity in existing law that discourages
mineral production from geothermal sites. Mineral production from
geothermal sites should be treated the same as mineral production
elsewhere on the Federal lands. It is sadly ironic that under the
existing law a Federal lessee producing metals from the fluid used in a
geothermal plant would have to pay the Federal Government a royalty on
the mineral (in addition to a royalty on the power), but producing that
same metal by open pit mining on the public lands would not be subject
to a royalty. There is significant potential to produce minerals from
geothermal sites that should be encouraged. Doing so will not only help
the economy and national security but will reduce the overall
environmental impacts of mineral production.
Lease Duration and Work Requirements
H.R. 2772 provides a clear statutory framework for lease duration
and development obligations of lessees. While these changes will
increase the payments due from Federal lessees, and increase work
requirements, we believe they are fair and that, by encouraging
production, they will benefit the geothermal industry.
We are particularly pleased that the legislation proposes to clear
up a problem with the inflexibility of existing law regarding late
rental payments. The bill provides a 45-day notification and
reinstatement period for any cases where a lease rental payment is not
made in a timely manner. Under existing law an inadvertent error can
undercut efforts to achieve production by forcing premature lease
cancellations.
Military Lands
There are millions of acres of public land in the West that are
reserved for use by the military. These lands potentially hold
significant geothermal resources. GEA fully recognizes the importance
of the military's use of public lands, and believes that leasing or
development should occur on military lands only with their consent, and
under such terms and conditions as they deem necessary and/or advisable
to meet the military mission.
In our testimony before the Resources Committee in March, we stated
our views that where development occurs, geothermal leasing and
development on lands subject to military reservation there should be:
(1) Uniform policies on securing and maintaining the leasehold estate;
(2) Uniform royalty structures and consistency with policies affecting
development on non-military lands; and (3) Centralized administration
of the lease and royalty programs.
In other words, we were urging that standard, uniform policies be
developed regarding leasing and royalties on military lands so that a
potential developer knows what to expect. The current situation, which
allows ad-hoc decisions to be made on a case-by-case basis, deters
geothermal development on military lands. Essentially, we believe
geothermal resources should receive treatment similar to other oil, gas
and mineral activities on military lands. 7
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\7\ See 43 U.S.C. 158. The Engle Act of 1958 placed mineral
resources on withdrawn military lands under jurisdiction of the
Secretary of the Interior and subject to disposition under the public
land mining and mineral leasing laws.
---------------------------------------------------------------------------
H.R. 2772 would place geothermal development on military lands
under the same lease terms as development on other public lands, which
we believe will encourage geothermal production from military lands
where such uses can be made compatible with military purposes. Under
the existing law, which provides a separate military development
scheme, there has been little new development on military lands in over
20 years. We support these provisions, and wish to point out that the
legislation provides explicit authority for the military departments to
close lands where necessary and impose such terms and conditions on
geothermal operations as they deem necessary. These are important
safeguards that we believe are essential to ensuring that geothermal
development does not in any way diminish or interfere with military
mission.
Conclusion
Geothermal resources on the public lands can contribute
significantly to our Nation's energy supplies. We urge this Committee
to support H.R. 2772, the John Rishel Geothermal Steam Act Amendments
of 2003. Enacting these amendments into law would help encourage new
geothermal production, streamline administration of the law, and take
other important steps to achieve the potential our geothermal resources
hold to help address the critical energy problems of our Nation. This
would reduce our dependence upon foreign oil, reduce our spiraling
demand for natural gas, and provide a substantial and immediate
stimulus for the economy.
Thank you.
[GRAPHIC] [TIFF OMITTED] T8467.001
Mr. Gibbons. Thank you very much, Mr. Gawell. I appreciate
your kind remarks. And I am sure John Rishel would have
appreciated them as well. He worked very hard on this
legislation. I am sure in some way he has heard them.
With that, we will turn to Dr. James Witcher, New Mexico
State University. And doctor, the floor is yours. Welcome. We
are happy to have you and look forward to your testimony.
STATEMENT OF JAMES WITCHER,
NEW MEXICO STATE UNIVERSITY
Dr. Witcher. Thank you, Congressman Gibbons. It is my
pleasure to talk to the Committee on H.R. 2772, The John Rishel
Geothermal Steam Act Amendments.
My testimony will cover direct geothermal use, and is
something that is a little different than most energy that is
out there. One of the factors that makes it different is the
fact that the people here who are doing this are not in the
business to sell energy as their sole business. Usually, they
end up being a farmer or a grower, as it would be in a
greenhouse or they have a large business or something like that
that they need to space heat, and so they use this to save
energy, energy costs.
What I would like to discuss is the State of New Mexico, in
terms of how geothermal energy is extremely important in direct
use, in terms of rural economic development. In New Mexico, we
have four geothermally heated greenhouses with a total acreage
of 50 acres. This acreage represents half the large wholesale
commercial acreage that is used in New Mexico, which is a
significant number in itself, but probably as important, is
this greenhouse acreage brings in $12 million in gross receipts
each year. That makes it ranked among the top 10 in
agricultural gross receipts sector in the State. So, when you
look at geothermal greenhousing as a direct use in rural
economic development, it becomes very important.
Another way of looking at this is that these greenhouses,
two of them, which were the larger ones, one of them represents
the largest economic tax base in the county it is in. The other
represents probably the largest tax base in the Northern part
of the county that it is in, and this results in about 250 new
jobs that have been created in the last 50 years and with a
payroll of probably $4 million annually.
One of the things that has been inhibiting geothermal
greenhouse development in New Mexico has been not the leasing
so much as it has been the royalties and how these are figured.
With the geothermal greenhouse, one of the operators in New
Mexico has been required to place BTU meters on his wells.
These BTU meters have ended up costing as much as it cost him
to actually drill one of his production wells with the casing
and the production pump. So it becomes something that is very
prohibitive to a greenhouse operator. When you look at a lower
temperature geothermal resource, the equipment that you have to
use to heat a greenhouse ends up costing more than, say, if
you're using a higher temperature geothermal resource.
And so when you have just a straightforward royalty placed
upon that and have to have BTU meters, the person that wants to
place the greenhouse in operation with lower temperature, the
royalty may actually end up cutting into any savings that he
would have gotten by using geothermal, and so it is an
impediment.
I would like to end up with stating that I think that H.R.
2772 is also very important in terms of the leasing changes
that will occur, and one is that a direct-use operator is not
subjected to the minimum acreage rule that he would be
currently. If you are needing to build a, say, a 40-acre
greenhouse, you are not going to need the 256 acres of
geothermal resource leased to heat that greenhouse, and so this
encourages that sort of development.
And the other fact is that the H.R. 7272 provides a simple
and really a remedy to the current geothermal royalty rules
that a direct-use operator would have, and it streamlines it,
and it makes it easier for the BLM to administer this so that
you don't get into conflicts administratively between the
operator and the Federal officials that are collecting
royalties and overseeing the leases, and it places the
geothermal greenhouse operator into a situation where he can
pay a fee, like most other people, a direct fee, a straight fee
like most other people would pay if they were leasing Federal
property or land for use.
With that, I urge the Committee to support H.R. 2772, and I
thank you very much for the opportunity to testify before you
today.
[The prepared statement of Dr. Witcher follows:]
Statement of James C. Witcher, Southwest Technology Development
Institute, New Mexico State University
Thank you for the opportunity to present testimony regarding H.R.
2772, The John Rishel Geothermal Steam Act Amendments introduced by
Rep. Jim Gibbons (R-NV). My testimony reflects two decades experience
in geothermal resource evaluation, exploration, and development for
direct-use geothermal heating in the Southwest. As geologist and
project manager with the Southwest Technology Development Institute
(SWTDI) at New Mexico State University (NMSU) in Las Cruces, I have had
the pleasure and privilege of working with most of the geothermal
direct-use projects in New Mexico (NM). As a result, I have gained an
appreciation for the concerns and requirements of a successful direct-
use geothermal operation.
Importance of Geothermal Direct-Use
Geothermal resources suitable for direct-use generally have lower
temperature and represent a very large resource base in terms of the
number of potential use sites, especially in the West. I will discuss
NM geothermal as an example of the importance of direct-heat
utilization.
Besides spas, direct-use geothermal applications in NM include
space heating, district heating (NMSU campus), large commercial
greenhouses, and aquaculture (fish farming). I will focus on the
commercial greenhouse sector.
Four NM greenhouse growers use geothermal energy to heat about 50
acres. This acreage represents more than half of the wholesale
commercial greenhouses in the state. Gross sales are estimated to
exceed $12 million annually, placing geothermal greenhouses among the
top ten agriculture sectors in the State. Most of this acreage has been
built in the last decade. Approximately 250 jobs have been created with
an estimated payroll more than $4 million annually. The two largest
greenhouses and an important aquaculture business are in rural areas
and the greenhouses are among the largest businesses and tax base in
their respective localities.
While the geothermal greenhouses require more than 275 billion BTU
per year of geothermal heat and accrue a net savings in energy costs
when compared to local conventional fuel, it is clear that geothermal
direct-use also provides important economic development in rural areas
that are often left behind by the flow of money and people to
population centers.
Greenhouses and aquaculture are not the only potential agriculture
or industrial user of geothermal in NM. I believe that processing of
chile, onions, milk, and cheese may someday benefit from geothermal
direct-use.
I have only outlined the direct-use development and potential in
NM; however, important geothermal direct-use development in the
agriculture sector is also occurring in the rural areas of Nevada,
Utah, Idaho, California, Idaho, and Oregon. In fact, I believe that all
of the western states and some other states to the east have
significant direct-use geothermal potential.
Impediments to Geothermal Direct-Use
Individuals and companies using geothermal direct-use are somewhat
unique among the nation's energy producers. A direct-use operator
normally does not develop the geothermal resource for energy sales as
the sole or major business revenue. A geothermal greenhouse or
aquaculture operator is a grower or farmer first.
``Location, location, location,'' as often quoted in real estate,
is first and foremost in starting a geothermal direct-use business.
Irrigation water, labor, markets, transportation, and geothermal all
need to coincide. Certainly energy availability and cost of energy can
rank high. Aquaculture and mining operations, using hydrometallurgy, in
a colder climate may require geothermal heat to have economic
viability. However, in each of these cases the main purpose of business
is not energy sales (or energy use).
Except for the mining example, these firms will not have a person
with leasing expertise, engineers, geologists, and accountants, trained
in the details of the Minerals Management Service (MMS) reporting forms
and rules, on company staff.
With this thumbnail sketch of a direct-use geothermal businesses,
it is clear that several things are required for viable geothermal
direct-use. First, geothermal has to be economic for the intended
direct-heating purpose. Second, resource accessibility and assurances
of continued accessibility are required. Third, fees and rules
governing geothermal use must be simple and straightforward.
Out of hundreds of direct-use geothermal endeavors, only three are
identified as using the Federal geothermal resource according to Kevin
Rafferty of the Geo-Heat Center, Oregon Institute of Technology,
Klamath Falls, Oregon. Two of these direct-use geothermal businesses
are in NM. Another direct-use operator in NM has a Federal geothermal
lease and a viable, but shut-in, production well just over the fence
from his large commercial greenhouse located on private land. The later
geothermal operator currently chooses to pump from a private geothermal
reservoir with lower temperature than from the adjacent and hotter
Federal reservoir.
I believe the current royalty structure is the main obstacle with
Federal direct-use geothermal in NM. In order to use the Federal
geothermal resource, expensive BTU metering is required (BTU or Btu--
British thermal unit--a quantity that is equivalent to heat a pound of
water 1 degree F). The cost for equipment, installation, testing, and
maintenance of BTU meters at one NM geothermal greenhouse exceeds the
cost of a geothermal production well, including drilling, casing, and
pump. Finally, there is no recognized standard for BTU metering of
geothermal direct-use wells which means that one geothermal operator
may not be metered the same as another, depending upon equipment
brands, method of installation, and personnel performing installation
and testing.
Another drawback of current royalty structure, based upon the ten
percent avoided cost of the least expensive locally-available fuel, is
that it does not account for any uniformity in either the avoided fuel
cost or in the way the geothermal itself is valued.
Geothermal potential in a rural area that uses bottled gas
(propane) because of a lack of access to less expensive pipeline gas is
jeopardized by the current royalty structure. In fact, in such a case,
it is likely that the only reason a greenhouse would be built in an
area with high conventional energy costs is because geothermal is
available. This argument can apply to other direct-use geothermal
applications such as ice removal from a large bridge.
A geothermal operator that uses 140 degrees Fahrenheit water for
direct-use heating will have significantly greater investment in wells,
heat distribution, and operating costs than the geothermal operator
that uses 210 degrees Fahrenheit geothermal water to obtain the same
useable BTU. The real value of the geothermal BTU is therefore
different from place to place.
Current royalty rules do not account for the discrepancy in the
value of the geothermal from place to place and as a result discourages
development of the lower temperature resource base because the royalty
may be as great as the benefit (cost savings) that the direct-use
operator would accrue from geothermal direct-use.
Direct-use geothermal and geothermal electricity are treated with
different valuation philosophy. Power production royalties are
calculated based upon sales or energy output with specified deductions
or ``netback'' for power transmission and conversion of geothermal into
saleable and marketable electricity. With direct-use, the current
royalty structure begins with energy input at the wellhead without
taking into account relative costs for pumps, heat exchangers, and heat
equipment inside the greenhouse to obtain a usable BTU.
Direct-use geothermal is penalized even further when one considers
that hot water from a conventional gas-fired boiler has less heating
equipment cost inside a greenhouse than with geothermal because of
generally higher heating loop temperatures. However, the current
approach adds a boiler inefficiency factor in calculating the
equivalent conventional fuel cost for royalty evaluation.
H.R. 2772 and Geothermal Direct-Use
H.R. 2772 encourages the use of the Federal geothermal resource
base for direct-use applications. Where the geothermal resource is
potentially feasible to use and meets the first development hurdle of
basic economics, H.R. 2772 greatly assists the leasing processes for
direct-use by eliminating the minimum lease acreage requirement. While
direct-use geothermal operators may dislike the sixty-day publication
requirement of a direct-use lease application, I believe that this is
not onerous as many permits already require publication.
H.R. 2772 provides a fair and simple remedy to current royalty
problems for geothermal direct-use. Because geothermal direct-use
operators are not in the energy business as their prime business, the
simplified fees eliminate many problems and allow for more streamlined
administration of Federal land by the Bureau of Land Management (BLM)
and provide direct-use developers a fee structure that is known
upfront. Some may argue that a fee or royalty based upon business sales
should be implemented to replace the current royalty structure. I would
argue that the benefit derived from geothermal use would accrue in the
form of a larger tax base, higher employment, and a cleaner
environment.
Conclusion
Experience in NM shows that geothermal direct-use development has
significant potential for environmentally clean, rural economic
development in all states where suitable lower temperature geothermal
resources exist, while at the same time reducing dependence on foreign
energy supplies.
I urge the Committee to support H.R. 2772, the John Rishel
Geothermal Steam Act Amendments of 2003. It is my belief that by
enacting the amendments into law, much desired, but currently avoided,
geothermal direct-use development on Federal public lands will begin to
take form.
Thank you.
______
Mr. Gibbons. Dr. Witcher, thank you very much for your
testimony, indeed. You have shed new light on the understanding
of geothermal energy, especially in the direct use field, that
I think many of us had not understood or even thought about at
this point in time, so your testimony has been very helpful.
We turn now to Jeanne Connelly from Calpine. We want to
welcome you to the Committee, and we look forward to your
testimony.
Ms. Connelly, the floor is yours.
STATEMENT OF JEANNE CONNELLY, VICE PRESIDENT,
FEDERAL RELATIONS, CALPINE CORPORATION
Ms. Connelly. Well, thank you, Mr. Chairman, for inviting
Calpine to participate in the hearing today. We have a great
interest in geothermal energy because Calpine is the largest
geothermal producer in the United States. We have approximately
900 megawatts of geothermal power at a place called The Geysers
in Northern California, and we are also in the process of
developing two additional geothermal projects in an area called
The Glass Mountain Known Geothermal Reserve Area. That is in
Siskiyou County, California, way up in the Northern part of the
State on the Oregon border.
This Subcommittee actually heard previous testimony from
Calpine about 2 years ago about the extraordinary delays that
we had encountered in trying to permit those two projects at
Glass Mountain. At that point, I looked back at our testimony,
and we had spent 5 years and over $3 million trying to develop
our project to Glass Mountain, and we are still unable to
proceed.
There have been some positive developments since that time.
This administration's national energy policy recognized the
importance of geothermal as a key renewable resource. And since
that time, the Departments of Energy, Interior and Agriculture
have all taken steps to improve the process.
The bill before the Subcommittee today will go even further
to promote the development of this clean, renewable resource.
As my colleague, Karl Gawell, has pointed out, the potential
for geothermal is just tremendous in the Western part of the
United States, and we believe H.R. 2772 will definitely
encourage future production.
There are many positive provisions in the bill--too many to
be able to address them all today, but I wanted to discuss just
a couple areas where Calpine has had some specific experiences.
First, we strongly support the proposal to require leases
within a reserve area to be leased as a block and to move to a
competitive leasing. The Geysers was originally in the hands of
many multiple donors, and it created tremendous problems for
the resource. One party would drill a slanted well right on
their property line, hoping to tap into their neighbor's
resource, and there was no overall management and no overall
planning of the resource itself, which ended up harming the
sustainability of the resource.
Since we have been able to acquire most of the leases and
consolidate the ownership at The Geysers, productivity has
improved and sustainability of the resource has improved.
We are also looking at other potential geothermal
development projects, and when we look around the West, we see
fragmented ownership as a serious potential barrier to that
development. Without consolidated leases, the negotiations with
the individual owners on these sometimes very small parcels
could go on forever and might never reach resolution.
We also support the proposal to move to a gross proceeds
royalty, and again our experience at The Geysers is useful. The
State of California was using a similar formula, so some years
ago we went to the Department of Interior, and we asked if we
might have some kind of move to gross proceeds royalty at The
Geysers so that it could be more compatible with what the State
of California was doing, and we worked out an agreement with
the Department of Interior to place our leases at The Geysers
under the system.
The result has, we believe, significantly reduced
administrative costs, both for us and for the Government. The
formula is so much simpler, and you avoid those audits of what
is an allowable cost, what is not an allowable cost. So I think
everyone has benefited.
It also should improve the predictability of income flow to
the local jurisdictions that depend on royalties, and in many
places where you find the geothermal resource, they tend to be
very rural areas in great need of economic development, so it
becomes a very important source of income.
One example of the potential revenue that can flow from
geothermal is what we hope to do at Glass Mountain. In June of
last year, an economist with the Center for Economic
Development at California State University completed an
assessment of the economic impact of our two projects on the
four counties: It is Siskiyou, Modoc and Shasta Counties in
California and Klamath County in Oregon.
And he found that the total impact on real income, and it
is royalties, he also included jobs and taxes, but the total
impact for the four county region, if just one of our two
projects were to get built, would be more than $60 million over
30 years or an average annual of over $2 million per year, and
those numbers almost double if both of our projects were able
to get built and be operating.
We also support the near-term royalty relief provided in
the bill. The up-front capital costs of geothermal development
are quite high and short-term royalty relief provides we think
the jump start that is needed to get new geothermal development
going.
Finally, while the Forest Service and the Bureau of Land
Management have improved their coordination recently, we really
support the direction of the legislation to require those
agencies to develop more specific procedures for working
together. We have certainly seen problems when they were not
working together in the past, and so cooperation is an
essential ingredient for geothermal development to go forward.
So, again, let me thank you for the opportunity to be here.
[The prepared statement of Ms. Connelly follows:]
Statement of Jeanne Connelly, Vice President, Federal Relations,
Calpine Corporation
Mrs. Chairman and Members of the Subcommittee:
Thank you for inviting Calpine Corporation to testify at today's
hearing on H.R. 2772, legislation introduced by Rep. Gibbons to amend
the Geothermal Steam Act. I am Jeanne Connelly, Vice President, Federal
Relations for Calpine Corporation.
Calpine is the largest producer of electricity from geothermal
resources in the United States today, with nearly 800MW on-line at The
Geysers in Northern California, and additional development underway
near the California/Oregon border in the Glass Mountain Known
Geothermal Resource Area.
The Committee is aware of the extraordinary delays involved in
development of the two new sites in Glass Mountain from testimony at
previous hearings. We are pleased that the National Energy Policy
developed by the Administration recommended that Secretary of Interior
Norton and Secretary of Energy Abraham take action to increase
renewable energy production on public lands. As a result, those two
agencies, as well as the Department of Agriculture and others, have
initiated activities to carry out this goal. Calpine has supported
these efforts and wishes to applaud the Administration for the progress
it is making.
Today, the Subcommittee is considering legislation that will go
even further to promote the development of new geothermal resources. We
believe that there is considerable geothermal potential in the Western
United States that is undeveloped and that H.R. 2772 will help
encourage future production.
We applaud the proposal to move towards competitive leasing, and
requiring leases within the same reservoir to be leased as a block.
When we have examined areas for future development, it is clear that
fragmented ownership of the resource is a significant barrier to
companies interested in new development.
We also applaud the proposal to move to a gross proceeds royalty.
Calpine has an agreement with the Department of the Interior which
places its leases at The Geysers under a gross proceeds formula,
similar to that used by the State of California for its leases. Calpine
initiated discussions with the Department to move in this direction
after consolidating most of the leases and production facilities at The
Geysers. The change has significantly reduced the administrative costs
for both Calpine and the Department of Interior, and has provided more
stability for local governments who rely upon our royalty payments to
provide needed public services.
The near term royalty relief provided by the bill is extremely
important as new projects on untapped geothermal leases compete for
power purchase agreements from electric utilities. Royalties and
property taxes represent two of the three largest operating costs for
geothermal power projects, behind operating personnel. The relief will
help to bring new geothermal resources into production after a lengthy
hiatus.
While we believe that the Forest Service and Bureau of Land
Management have improved their coordination under this Administration,
we support the direction the legislation takes requiring these agencies
to develop specific procedures for working together. Cooperation
between the Forest Service and BLM is an essential ingredient in
ensuring future geothermal development.
H.R. 2772 also establishes clearer lease terms and conditions. They
support and encourage development of Federal leases, while providing
companies with fair terms and the security of holding the lease as long
as it remains in production. These are essential elements for investors
in new geothermal projects.
We wish to express our support for H.R. 2772, and thank the
Subcommittee for giving us this opportunity to present our views.
______
Mr. Gibbons. Ms. Connelly, thank you very much for taking
the time out of your busy schedule to address our Committee as
well.
And to all of you, I want to thank you for your presence
here. I know that it may seem like there is a lot of lack of
interest, but there are a lot of other things going on in
Congress right now, and certainly the records will show your
testimony to those who want to look at it and be available for
Committee decisions. That is the critical part of your presence
here today.
Let me just reverse the order and start with Ms. Connelly
here and ask you, as one of the Nation's largest geothermal
producers, and the fact that you have seen impediments to the
processing of permits over the last many years, and of course
you reflected back on Glass Mountain, 5 years, $3 million in
costs just for the permitting alone. That has nothing to do
with the exploration, nothing to do with the construction of
capital improvements on there to get the resource out of the
ground, but just the cost of going through the permitting
process, have you seen or experienced a change now or do you
see things beginning to improve with regard to permitting and
the processing of permits today?
Ms. Connelly. We have seen a definite improvement.
First of all, this administration did lift the moratorium
that existed on further development at Glass Mountain which I
think was a very important decision, both a symbolic decision
and a practical decision, but it did send a message that this
administration recognized that this was a very clean, renewable
resource and one that we need to develop further.
We also saw a reversal of one decision on a project at
Glass Mountain. Again, looking at the totality of our energy
needs in this country and what geothermal can do to help meet
those needs, I think perhaps there was more of an urgency when
this administration looked at our energy situation, and that
may have weighed into the decision to reverse an initial
denial. So those things have been very positive.
We waited quite a long time for an appeal, an
administrative appeal to be heard at the IBLA, and I understand
that that backlog is somewhat shortened, but again these things
take time, but it is moving in the right direction.
Mr. Gibbons. What do you see as the biggest current hurdle
today for permitting, from your perspective? Now that things
are starting to move, what remains as the big hurdle?
Ms. Connelly. Well, I think the two things I pointed to in
my testimony; the fragmented ownership and the, I would have to
say that today--this is not a permitting issue--but we have to
recognize that access to capital is probably the most difficult
problem for anyone who wants to start a new energy project in
the United States today, and so--
Mr. Gibbons. And that is very difficult for us in Congress
to deal with.
Ms. Connelly. But the interesting thing is that when a bank
or a financing entity looks at a potential project, when they
look at the royalties that are expected to come, I think your
changes in the royalty provisions provide a certainty even to
potential lenders that could make a difference there.
Mr. Gibbons. Some predictability is in there--
Ms. Connelly. Exactly.
Mr. Gibbons. --which is always helpful, I am sure.
Dr. Witcher, let me ask a question of you, if I may, and it
deals with technology involved in direct use versus electrical
generation.
Old generation of electricity was the kind that flashed off
the steam, drove a turbine, and it was vented into the
atmosphere. Today, we use binary systems, direct use, et
cetera. Has the technology changed for the utilization of
geothermal energy for direct use over the last 10 years?
Dr. Witcher. I do not believe the technology has really
changed dramatically that much because a lot of the technology
that we use for heating is off-the-shelf sorts of equipment. It
would be the same sort of equipment if you had a gas-fired
boiler, if we just design it a little differently for the lower
temperatures and the higher flow rates.
Now, you bring up one point, though, that the binary
electrical power generation, coming off that electrical binary
power generation, you have a flow of hot water. So if you had
250-degree Fahrenheit water that was going into the power plant
with the Delta T that may come off that, you may have water
that is coming out of there at 180 degrees Fahrenheit.
Now, what you can do with that water at a power plant such
as this is cascade that water down into a direct use
application; for instance, heating a large building space,
heating a large building or even a commercial greenhouse or an
aquaculture facility, and this may be certainly something that
would be a real melding of the binary geothermal technology and
direct use, where you have only a small amount of power that is
being produced, where you may not place it on the grid, but you
use it onsite and use it in your direct use geothermal
operation.
Mr. Gibbons. Doctor, just for the record, let me state that
Delta T stands for the difference in temperature from when it
came in to when it goes out. So it would be 250 minus whatever
it takes to get to 180.
Dr. Witcher. Yes, sir.
Mr. Gibbons. So that is what you call Delta T. That is
because not everybody here would understand what Delta T is.
They talk in acronyms here as well, but not necessarily
scientific ones.
If you wanted to use, Doctor, a direct application of the
resource after it has gone through, electrical power generating
facilities, which are oftentimes not co-located next to
communities, how close does that resource have to be to the end
user to be valuable, to be a resource that can be utilized for
a direct use? In other words, does the direct application have
to be co-located at the source or can it be miles away.
Dr. Witcher. Ideally, the direct use application would need
to be collated directly onsite. We use geothermal energy to
heat the Eastern part of New Mexico State University, and we do
pipe that water two miles down onto campus, and this is after
it goes through a heat exchange process where you lose some
heat, and then you lose some heat in a pipeline. We have the
advantage in New Mexico of having dry soils, which allow you
not to lose a lot of heat. In another climate it may be
different.
I believe that a study several years ago that the Oregon
Institute of Technology Geo-Heat Center performed, looking at
space heating, I believe the maximum that they were willing to
transport heat in a pipeline was, say, five miles. So, ideally,
you would really want to have it co-located because there are
heat losses in piping that water.
Mr. Gibbons. And, unfortunately, not every geothermal
reservoir is co-located with a community or a university. So
you get what you get. Mother Nature put it there.
Mr. Gawell, thank you for your testimony. What is the
single greatest factor in your mind that keeps geothermal
energy from reaching its potential in the United States?
Mr. Gawell. I think at the moment the biggest obstacle that
the geothermal industry faces, and again I represent largely
the power industry, and I think Jeanne Connelly hit on this, is
the cost of capital, the cost of investing in a new plant,
geothermal power plants, bad news, as they are three times or
more as expensive as a comparable natural gas plant. So you
have to get an investor who is willing to put that money down
up front.
That means he is going to look at all of your risks, all of
your uncertainties, and he has really got to be convinced it
will work. The good news is you do not pay for fuel.
Mr. Gibbons. Right. How long would you expect a geothermal
plant to be on-line producing. In other words, if we are
looking at royalties, somewhere down the road, we are going to
have to say that we are going to be in a position where we are
going to pay a higher royalty, and we want to know how long we
are going to be in that position paying a higher royalty over a
certain period of time to make it worthwhile for the U.S.
Government to say that, yes, we want to encourage you to start
a power plant today at a lower royalty, knowing that, over this
many years after that, we are going to get a higher royalty,
which makes it attractive and an incentive for the U.S.
Government to do that. How long do you expect power plants to
be on station using geothermal?
Mr. Gawell. Well, that is a question I actually get asked
quite a bit, and there have not been plants shutting down in
this country yet. That plant at The Geyser has been operated
since 1960. Plants in Italy have been operating since 1917. The
Department of Energy states that it looks at optimizing plant
design for 100-year life at the moment.
Mr. Gibbons. So the only restriction would be on the
resource below the ground.
Mr. Gawell. Right.
Mr. Gibbons. If that, for some reason, cooled, which
probably wouldn't ever happen even in Mother Nature's
lifetime--
Mr. Gawell. You are looking at the major variable is the
resource, and in fact if The Geyser is there reinvesting in
their resource by reinjecting treated, reclaimed water, in
effect, bringing back the pressure, they think they can
maintain that resource indefinitely by doing that.
Mr. Gibbons. So proper management, which this bill goes
toward, management of that resource, is the ideal way to create
an almost inexhaustible source of a resource for energy
production.
Mr. Gawell. Absolutely. And I want to note that while your
H.R. 2772 proposes a two-tier royalty, it actually is not a
lesser royalty, because when you compare it to the net back, it
is essentially the same royalty. Because the way the net back
works is it allows you to take your costs and amortize them. So
it is sort of like doing a separate tax form. So, in the first
three to 4 years of production, under net back, your royalty is
usually zero. In fact, in the Chico State study Calpine did,
that is exactly what it said.
So the lower tier base that compensates for that, and on a
net present value basis that first 10 years is essentially the
same payment, and so you are lower tier, but comparable to
today's royalty, you are paying the same rate, but you do not
want to discourage new production. So you do not want to pay
the full rate all the way through it, so that it compensates.
Mr. Gibbons. And that is the purpose of the legislation is
to provide incentives for those people that have the
opportunity to go out there and invest their capital in a
clean, energy-producing system, to have some encouragement
through the incentive of a two-tiered royalty to do that.
Mr. Gawell. Exactly.
Mr. Gibbons. And hopefully do you--well, let me ask this
question. Strike the ``hopefully.''
In your opinion, do you see the two-tier royalty having an
effect on the ability to raise capital for geothermal steam
generating plant?
Mr. Gawell. I think the point is it gives you much more
certainty all the way around, in terms of what you are going to
be paying and that does eliminate, every time you can eliminate
uncertainty with a large investment, the more likely you are to
get the investors on board. Yes, I think it will encourage
investment in new plants.
Mr. Gibbons. You talked a little bit about mineral
production. Not all geothermal wells, I am sure, have minerals
that are capable of being extracted at some point from the
resource--some are. How extensive is the mineral production
from geothermal sites today, and what do you see as its
potential because I am looking at something called strategic
minerals, and we have a certain stockpile of strategic minerals
for national security reasons that have to be acquired from
geopolitically unstable countries that put into big question
our ability to have those minerals available to us throughout
the period of time we may need them, and most of time that is
during a crisis when they would not be available.
Mr. Gawell. Right.
Mr. Gibbons. So how do you see geothermal being able to
contribute, through the mineral extraction process, to our
strategic mineral resource needs?
Mr. Gawell. My understanding of this is largely based upon
what I have learned recently from the Department of Energy, but
also I have talked with the companies that are producing
minerals. You have one site in Nevada, the site owned by
Caithness in Dixie Valley, where they had begun experimentally
producing a very high-grade silica product. This wasn't
silica--silica has various grades--this was pharmaceutical-
grade silica that came out of their resource, and it has very
high value. You get silica in most geothermal reservoirs, but
at different grades.
Mr. Gibbons. Usually, it clogs up your pipes is what it
does.
Mr. Gawell. Exactly. And down at the Sultan Sea in Southern
California, the fluid there has hundreds, I mean just it comes
through almost, it does not even want to flow it is so viscus,
but the Department of Energy has done some studies, and we
could give you for the record a study that was done by
Princeton Economic Research that looks at this. They looked at
a half-a-dozen different sites, and each of those sites, there
was at least half a dozen different minerals that could be
produced.
So there clearly is a wide range, and just this morning I
took their research and looked at the high-value ones they had
named, which I had mentioned earlier, and pulled up the USGS
on-line, and in every single case, the majority of that mineral
to the United States comes today from imports from overseas.
Mr. Gibbons. Sure.
Mr. Gawell. So I think it could be a tremendous benefit.
Particularly what may be uniquely interesting is some of the
rarer elements, like the rare earth elements, which are growing
in their demand in all of the high technology fields. And, for
example, I understand a number of the rare earth elements are
critical to some of the processes being considered in hydrogen
conversion. And so they may play very unique roles in the
future.
Mr. Gibbons. Is beryllium a mineral you find in geothermal
wells?
Mr. Gawell. I would have to ask an expert.
Mr. Gibbons. Fine. Let me ask a question that a cynic would
ask. Now, we are talking about mineralization here.
If you were applying for a geothermal lease, and you pay a
royalty on the geothermal end result, which is the electricity,
do you also pay a royalty on the minerals you extract because
geothermal is a mineral? So this is the first time royalties
are going to be paid on minerals. You would pay a royalty on
the minerals you extract from a geothermal well as well; is
that not correct?
Mr. Gawell. Under current law, all minerals that you
produce from geothermal sites, Federal land would be subject to
the same royalty as power. Under 2772, you put minerals under
the terms they would otherwise go under. So if it was a
leasable mineral, it would pay a royalty; if it was a locatable
mineral, it would not. So most of these are metals, most of
them are locatable minerals, so they would not.
Mr. Gibbons. So, today, under the strict Mining Law of
1872, there is no royalty on producing a mineral.
Mr. Gawell. That is correct.
Mr. Gibbons. There is a royalty on producing a mineral from
geothermal waters.
Mr. Gawell. That is correct.
Mr. Gibbons. So it does benefit the Government to have a
lease for geothermal, even if the person is going to go in
there and take minerals out of it.
Mr. Gawell. That is correct.
Mr. Gibbons. Is the production of minerals from geothermal
a risky and expensive way to produce them? I mean, if you were
not going to have the geothermal electrical or energy supply,
would just be going in after the minerals be a very expensive
and risky way to produce those minerals?
Mr. Gawell. I am not sure it is risky in the sense of
injury to people.
Mr. Gibbons. Well, the technology is there so you could say
you could do it.
Mr. Gawell. Yes, it is technologically, is it risky? It is
risky because it requires a lot of money up front, an frankly
the best way to do it is the way it is being perceived. Back in
the Salton Sea, where you have got the power production, that
gives you the economic base--
Mr. Gibbons. Right.
Mr. Gawell. Then, move toward the mineral production. It is
fairly difficult. Some very large companies--Morrison-Knudsen
and others--years ago had looked at major mineral production
from geothermal resources. It is only now are we starting to
see it at one site in Nevada and at the Salton Sea in Southern
California, where they are producing zinc.
CAL Energy is looking at a major zinc operation, and in
fact I know that they for years, Magma before them, and CAL
Energy now, believed that the Salton Sea will someday be a
greater mineral production source than an electricity source.
The potential is there, but they see it working best
economically by coupling the two together because then you get
the revenue from the electricity side--
Mr. Gibbons. Which helps you process.
Mr. Gawell. It allows you to help you process. It also
helps you absorb some of the risk because there are some real
technological uncertainties. I mean, there is no secret they
are having difficulties with their zinc process. There is a
number of both chemical and physical problems they have to work
through to be able to separate out the minerals, and the first
time you do anything, you are going to run into some problems,
and they are, but they feel very confident they can overcome
them and move forward.
Mr. Gibbons. Thank you.
Dr. Witcher, let me ask a question about BTU meters on
direct geothermal resources.
Is there an alternative for some way to deal with a direct
application of geothermal energy without having to go through
the direct, if it is going to be applied to a commercial
establishment, the utilization of BTU meters, which are very
expensive for that low temperature resource which most direct
applications use, is there an alternative to that?
Dr. Witcher. One alternative that was tried in New Mexico
and is done currently with royalties on State land for
geothermal resource is that a formula was developed that it is
basically an engineering estimate of what the heat use of that
greenhouse would be on an average annual basis, and then they
use that to pretty much do an equivalent 10 percent royalty on
what that would be equivalent with natural gas. And so that is
how the formula was applied.
It works where it is done right now on State land.
Mr. Gibbons. Doctor, have you compared that process or that
procedure that you have done in those experimental State
geothermal resources to the BTU monitors that are on Federal
geothermal resources?
Dr. Witcher. Well, the comparison would be that the person
that has the State lease also has the BTU meters.
Mr. Gibbons. I would assume that--
Dr. Witcher. And so he goes to the State lease to produce.
The BTU meters adds an incredible experience in comparison with
what he is actually getting out of the cost savings, but the
other part of that is, is that he knows from year-to-year what
his royalty payment is going to be. He knows what his payment
is going to be. It is not something that is going to fluctuate,
and that fluctuation can of course be done with the rising
fossil fuel costs or lowering of fossil fuel costs. It can also
be maintenance just keeping the BTU meters working.
Mr. Gibbons. Is there any provision to provide a credit
where people voluntarily use green energy or green resources
for not producing carbon oxides or nitrous oxides, whatever
combustion creates into the atmosphere? I mean, there ought to
be some way that we encourage commercial users that use a
direct geothermal application from not turning to a less
expensive, say, natural gas heat. It seems to me that we are
trying to defeat the purpose we are going for, clean, renewable
energy resources.
Would you agree that there ought to be some consideration
given, then? I guess that is my better question than the way I
poorly put it before.
Dr. Witcher. I think a consideration of a green credit
would be very useful. I really cannot tell you how it may spur
development with direct use or even electrical power, but--
Mr. Gibbons. I guess when you get down to choices, and the
two are weighing very closely together, the better choice would
be to use clean geothermal energy versus a fossil fuel energy
source, which then has an atmospheric component to it. So I
guess that would perhaps weigh differently. In my view, it
would for this system.
Let me finally turn to Ms. Connelly, and ask basically,
when you look at what your industry provides to a community,
and you said just even at Glass Mountain or whatever, I think
$2 million a year to the community for direct economic benefit
of having a geothermal plant in the area.
When you look at jobs, what average salary would you say
the geothermal energy employee brings in? I mean, in mining, it
is $56- to $60,000 a year, an enormously different perspective
on the average salary than compared to service industries,
which are in the 20's in Nevada. So what kind of average salary
does a geothermal energy plant employee bring?
Ms. Connelly. I do not have the actual numbers. Maybe Karl
does or, if not, I can get it, but I know that they are all, on
average, high-paying jobs. First, the construction jobs that
are the first jobs created are usually very skilled workers.
There was a time at the top of our economic growth period where
we could not even find the skilled construction workers we
needed to build power plants, and we were out there trying to
train people because there were not enough people with the
skills.
So those jobs pay very well, and then the actual operating
jobs are again technical and skilled in nature, and so, because
of just the very nature of the job and the requirements, they
will be high paying. I do not know, Carl, do you have any
actual average numbers?
Mr. Gawell. I am just trying to see whether ones in your
Chico State Study, and I do not find one quickly, but I think
we could probably inquire--
Ms. Connelly. I can get back to you with some average
numbers, but I know that overall, especially if you look at an
area like Glass Mountain, which used to be dependent on
forestry, and that industry has really declined, and very few
jobs have come in to take the place of forestry. Those that are
there are service-oriented jobs, so it would be a very
different qualitative and quantitative difference, I think.
Mr. Gibbons. And how many jobs would you anticipate that
Glass Mountain alone will bring to the community?
Ms. Connelly. In the first few years of the construction
phase, it is usually probably maybe in the hundreds, 2- to 300
jobs. Once it is up and operating, many fewer jobs just to
simply operate the power plant, maybe 25.
Mr. Gibbons. We have a number of additional questions that
I would ask our panel, when we submit them to you, if you would
look at them and give us your direct, honest approach in answer
to and return them to us, as soon as possible. Would that be
approved by each of you?
Dr. Witcher. Yes.
Ms. Connelly. Yes.
Mr. Gawell. Yes.
Mr. Gibbons. There are a number of questions that I have
not gotten to, but I know that each of you have spent great
time here out of your busy day, and we do want to get the
answers to these questions as well because they help us
formulate our opinion, just as your testimony has done here
today, and they are very important to us, and we will submit
those questions to you in writing, and we would expect an
answer in writing as well.
I see no one else here that wants to ask a question. There
is no one else here besides me. So, with that, I am going to
again thank each of you for your presence, for your testimony,
your enlightenment. It has been very helpful to us as well, and
we look forward to working with each of you as we move this
legislation along. If there is some issue or some idea that you
may see within the legislation that you think would make it
better or change to make it more workable, we certainly would
appreciate also hearing your approach to that as well.
With that, I am going to excuse each of you, with a
heartfelt thanks, and look forward to a greater dependence in
this Nation on geothermal energy.
Thank you very much, and this hearing is now closed.
[Whereupon, at 3:43 p.m., the Subcommittee was adjourned.]