United States Geothermal Policy Geothermal Steam Act Revision Under Consideration

1. United States Geothermal PolicyGeothermal Steam Act RevisionUnder Consideration Dr. R. Gordon Bloomquist, Ph.D. Washington State University Energy Program Salt Lake City, Utah 20 January 2004

2. There is pending legislation to substantially revise the Geothermal Steam Act of 1970. This first main revision of that Act since its passage in 1970 would serve to further accelerate leasing as well as provide for a more attractive royalty structures for both electrical and direct use projects. United States House of Representatives, H.R. 2772 Introduced July 17, 2003

3. Geothermal Steam Act policy revisions include: • Update of the Geothermal Steam Acts leasing provision to parallel the oil and gas leasing law by changing from a system in which the federal government determines where the high value geothermal prospects are located by designating Known Geothermal Resource Areas (KGRAs) to a competitive leasing system driven by industry nominations.

4. Authorizes the Secretary of the Interior to lease lands for the development and direct utilization of low-temperature geothermal resources* exclusively on a non-competitive basis. • * “Direct use geothermal resources” means utilization of the heat from a geothermal resource for commercial, residential, agricultural or other energy needs other than commercial production of electricity. Section 602 originally defined low temperature resources as less than 195° Fahrenheit, but it appears this has been dropped.

5. Allows the Secretary to limit the lease acreage for direct use leases to the smallest area needed. • Directs the Secretary to establish an annual fee based upon scale of development and utilization of the resource in lieu of royalty or rental. • Provides an opportunity for qualified existing lessees to convert to low-temperature leases.

6. In lieu of any royalty or rental a lease for qualified development and direct utilization of geothermal resources shall provide for payment by the lessee of an annual fee per well of not less than $100 and not more than $1,000. Instructs the Secretary to issue a schedule of fees based on the scale of development and utilization to which the fee applies.

7. Amends the Geothermal Steam Act to base royalties on electricity produced using geothermal steam and associated geothermal resources, other than direct use of geothermal as follows:

8. 1.75% of the gross proceeds from the sale of electricity produced from such resources during the first ten years of production under the lease and • 3.5% of the gross proceeds from the sale of electricity produced from such resources during each year after such ten year periods.

9. Reduces the royalties required for the first four years of operation for new facilities (or qualified expansions) placed in service in the six year period beginning upon enactment. • Allows existing lessees to apply to the Secretary to convert to the new simplified royalty system.

10. Authorizes the Secretary of Interior to reimburse, through royalty credits, lessees for paying for National Environmental Policy Act analysis conducted by the Secretary or the Secretary’s designee, if adequate funding is not available to enable the Secretary to complete such analysis in a timely manner.

11. Clarifies the authority of the Secretary of the Interior to adopt cooperative or unit plans for development of geothermal resources and to modify pre-existing lease terms for such unit development as necessary to conserve the geothermal resource.

12. Provides authorization for pooling and communatization agreements for tracts of lands that cannot be developed independently.

13. Applies royalty terms consistent with other laws on minerals produced as a byproduct of a geothermal operative • Repeals overly broad existing authority of the Secretary of Interior to readjust rentals, royalties and other terms of geothermal leases.

14. Establishes a ten-year primary term for geothermal leases and authorizes up to two five-year extensions if the lessee satisfies the work requirement applied to the lease. • Provides that once commercial production is achieved, the lease shall continue in force until commercial production ceases.

15. Directs the Secretary of Interior to establish, by regulation, minimum annual work requirements for geothermal leases beginning in the fifth year of a lease to ensure the lessee is working diligently to achieve commercial production.

16. Directs the Secretary of Interior acting through the Director of the United States Geological Survey and in cooperation with the States, to update the 1978 Assessment of Geothermal Resources (US Geological Circular 726) and submit that updated assessment to the Committee on Resources of the House of Representatives and the Committee on Energy and Natural Resources of the Senate within three years of the enactment of the Act.

17. Requires the Secretary of Interior and Agriculture to enter into and submit to Congress a memorandum of understanding regarding leasing and permitting for geothermal development of public lands under their respective administrative jurisdictions.

18. The memorandum shall, among other things, include provisions that identify known geothermal areas on public lands within the National Forest System and, when necessary, review management plans to consider leasing under the Geothermal Steam Act of 1970 and establish administrative procedures for providing geothermal lease applications including lines of authorized steps in application procuring, and the forms for application processing.

19. Although it is unclear as of this date as to the eventual outcome of the proposed amendment to the Geothermal Steam Act, it is safe to say that should the above provision be enacted into law, it would have a major impact on the U.S. geothermal industry. Many of the provisions have been debated for years and many existing provisions of the Steam Act have had an extremely adverse impact on development.

20. For a complete copy of the proposed legislation go to: http://thomas.loc.gov/cgi-bin/query/D?c108:./temp/~c108phV5WM::