[Senate Report 112-146]
[From the U.S. Government Publishing Office]
Calendar No. 315
112th Congress Report
SENATE
2d Session 112-146
======================================================================
GEOTHERMAL PRODUCTION EXPANSION ACT
_______
February 7, 2012.--Ordered to be printed
_______
Mr. Bingaman, from the Committee on Energy and Natural Resources,
submitted the following
R E P O R T
[To accompany S. 1149]
The Committee on Energy and Natural Resources, to which was
referred the bill (S. 1149) to expand geothermal production,
and for other purposes, having considered the same, reports
favorably thereon with amendments and recommends that the bill,
as amended, do pass.
The amendments are as follows:
1. Beginning on page 1, strike line 6 and all that follows through
page 2, line 24.
2. On page 3, line 1, strike ``3'' and insert ``2''.
3. On page 3, line 15, after ``acre'', insert the following:
``(taking into account the determination under subparagraph (B)(iii)
regarding a valid discovery on the adjoining land)''.
4. On page 3, line 21, strike ``90-day'' and insert ``180-day''.
5. On page 8, line 14, strike ``180'' and insert ``270''.
Purpose
The purpose of S. 1149 is to expand geothermal production
by allowing the issuance of noncompetitive leases under certain
circumstances.
Background and Need
The development of geothermal resources on public lands and
National Forest System lands is governed by the Geothermal
Steam Act of 1970, as amended by the Energy Policy Act of 2005
(30 U.S.C. 1001-1028). The Bureau of Land Management (BLM) has
the responsibility of managing the geothermal leasing program
on lands under the jurisdiction of the Department of the
Interior and the Forest Service (FS) with the involvement of
the FS on National Forest System lands.
In order to explore and develop geothermal resources on
such lands, the developer must obtain a lease from the BLM.
Pursuant to section 7 of the Geothermal Steam Act (30 U.S.C.
1006), a geothermal lease is not to exceed more than 5,120
acres. Interested parties can nominate available lands for
leasing. With limited exceptions, the law requires that all
areas to be leased be offered for lease on a competitive basis
(30 U.S.C. 1002a(b)). BLM must hold a competitive lease sale
every two years. If bids are not received for the lands
offered, BLM must offer the lands on a noncompetitive basis for
two years. Leases are issued for 10 years, and lessees are
required to pay a royalty calculated as a percentage of gross
proceeds from the sale of the electricity produced, or in the
case of direct use geothermal, based on a fee schedule. Leasing
and development can occur only if consistent with the relevant
Federal land use plan and after compliance with the National
Environmental Policy Act (NEPA).
In the case of Federal lands adjoining proven geothermal
properties, issues have arisen with respect to the requirement
that Federal lands to be leased be subject to competitive
leasing. First, with respect to this narrow category of lands,
the requirement of competitive leasing can cause delay in the
expansion of production of already-identified geothermal
resources. Secondly, the competitive leasing requirement for
these lands can allow speculative bidders who have no interest
in actually developing geothermal resources to lease the lands
adjoining proven resources. For this reason, geothermal
developers may be reluctant to nominate these adjacent lands,
so that this geothermal energy is not produced.
BLM manages 818 leases on BLM and FS land, with 59
producing leases. Production from these leases accounts for
over 40 percent of U.S. geothermal energy capacity. According
to BLM, these leases generated more than 4600 gigawatts of
electrical power during 2010 and also provided heat sources for
direct-use commercial businesses. Geothermal potential exists
in 11 western states and Alaska. A Programmatic Environmental
Impact Statement relating to the Federal Geothermal Leasing
Program was finalized in 2008, and served as the basis for
amending Federal land use plans to facilitate geothermal
leasing.
S. 1149 would amend the Geothermal Steam Act of 1970, as
amended, to provide new authority for the Secretary of the
Interior to issue leases of not greater than 640 acres on a
noncompetitive basis for lands managed by the BLM and FS
adjoining lands on which the qualified lessee has made a valid
discovery, as defined by the bill. The bill provides that the
lessee must pay fair market value per acre for the
noncompetitive lease, as determined by the Secretary pursuant
to regulation, with a statutory minimum. S. 1149 requires
public notice of the proposed issuance of the lease and notice
to the lessee and the public of the fair market value
determination. The bill requires the Secretary to provide an
administrative appeal of the fair market value determination.
In addition, the bill requires the lessee to pay the annual
rentals required under competitive leases.
Legislative History
S. 1149 was introduced by Senator Wyden on June 7, 2011.
Senators Crapo, Risch, Merkley, and Begich are co-sponsors. The
Subcommittee on Public Lands and Forests conducted a hearing on
the measure on August 3, 2011. A companion bill, H.R. 2776, has
been introduced in the House of Representatives and referred to
the House Subcommittee on Energy and Mineral Resources. During
the 111th Congress, Senator Wyden introduced substantially
similar legislation, S. 3993. No further action was taken on
the measure. A companion measure, H.R. 3709, was introduced in
the House of Representatives during the 111th Congress, and
Subcommittee hearings were held on February 24, 2010.
Committee Recommendation
The Committee on Energy and Natural Resources, in open
business session on December 15, 2011, by a voice vote of a
quorum present, recommends that the Senate pass S. 1149, if
amended as described herein.
Committee Amendments
During its consideration of S. 1149, the Committee adopted
five amendments. Amendment 1 deletes section 2 of the bill
relating to findings. Amendment 2 makes a conforming change.
Amendment 3 amends the definition of ``fair market value'' to
take into account the information and determination under
section 4(b)(4)(B)(iii) of the Geothermal Steam Act of 1970
regarding the presence of a valid discovery on the adjoining
land. Amendment 4 extends the deadline for the determination of
fair market value of a lease from 90 days to 180 days after the
Secretary receives an application for a lease. Amendment 5
extends the deadline for the Secretary to issue regulations
from 180 days to 270 days.
Section-By-Section Analysis
Section 1 provides that this Act may be cited as the
``Geothermal Production Expansion Act of 2011''.
Section 2 amends section 4(b) of the Geothermal Steam Act
of 1970 (30 U.S.C. 1003(b)) by adding a new paragraph (4) to
address adjoining land.
New paragraph (4)(A) sets forth definitions.
New paragraph (4)(A)(i) defines ``fair market value per
acre'' as a dollar amount equal to the market value per acre as
determined by the Secretary (taking into account the
determination under subparagraph (B)(iii) regarding a valid
discovery on the adjoining land) under applicable regulations;
requires that the amount be determined by the Secretary for a
lease under this paragraph by not later than the 180-day period
beginning on the date the Secretary receives an application for
a lease; and is not less than the greater of 4 times the median
amount paid per acre for all land leased during the preceding
year or $50.
New paragraph (4)(A)(ii) defines ``industry standards'' and
is self-explanatory.
New paragraph (4)(A)(iii) defines ``qualified federal
land'' as land that is otherwise available for leasing under
the Geothermal Steam Act of 1970, as amended.
New paragraph (4)(A)(iv) defines ``qualified geothermal
professional'' and is self-explanatory.
New paragraph (4)(A)(v) defines ``qualified lessee'' and is
self-explanatory.
New paragraph (4)(A)(vi) defines ``valid discovery'' as a
discovery of a geothermal resource by a new or existing slim
hole or production well that exhibits temperature with
measurements with indications of permeability as specified that
are sufficient to meet industry standards.
New paragraph (4)(B) provides that an area of qualified
Federal land of not less than 1 acre and not more than 640
acres that adjoins other land for which a qualified lessee
holds a legal right to develop geothermal resources may be
available for a noncompetitive lease to a qualified lessee at
the fair market value per acre if it is not already leased
under the Geothermal Steam Act or nominated to be leased under
that Act. The qualified lessee may not receive the
noncompetitive lease if the lessee has previously received a
noncompetitive lease in connection with the valid discovery.
The qualified lessee must submit sufficient geological and
technical data that would lead individuals experienced in the
subject matter to believe that there is a valid discovery of
geothermal resources on the land for which the qualified lessee
holds the right to develop geothermal resources and the thermal
feature is extending into the adjoining areas.
New paragraph (4)(C)(i) addresses the determination of fair
market value by the Secretary and sets forth requirements as
specified regarding notice to the public and to the lessee. The
paragraph also requires that the Secretary provide to the
qualified lessee and any adversely affected party the
opportunity to appeal the final determination of fair market
value.
New paragraph (4)(C)(ii) provides that after publication of
a notice of request to lease land under this paragraph, the
Secretary may not accept an application under subsection (a)
for leasing unless the request has been denied or withdrawn.
New paragraph (4)(C)(iii) provides that leases issued under
this paragraph shall be considered a competitive lease for
purposes of the level of the annual rental payment.
New paragraph (4)(D) requires the Secretary to issue
regulations to carry out this paragraph not later than 270 days
after the date of enactment.
Cost and Budgetary Considerations
The following estimate of costs of this measure has been
provided by the Congressional Budget Office:
S. 1149--Geothermal Production Expansion Act of 2011
S. 1149 would authorize the Bureau of Land Management (BLM)
to award leases for certain federal lands on a noncompetitive
basis for the development of geothermal resources. Based on
information provided by BLM, the Department of Energy (DOE),
and individuals working in the geothermal industry, CBO
estimates that implementing the legislation would have no
significant impact on the federal budget over the 2012-2022
period. Enacting S. 1149 could affect direct spending;
therefore, pay-as-you-go procedures apply. However, CBO
estimates that the net effect on direct spending would not be
significant in any year. Enacting the legislation would not
affect revenues.
S. 1149 would authorize BLM to offer noncompetitive leases
of up to 640 acres for lands adjacent to known geothermal
discoveries. Under the bill, a company that identified a
geothermal resource that extended onto federal land adjacent to
company-controlled lands could acquire the lease for a
specified amount (bonus bid) determined by BLM to be equivalent
to the fair market value rather than an amount determined
through a competitive auction. In addition to paying fair
market value for the parcel, the bill would require any company
awarded such a noncompetitive lease to make annual rental
payments equal to those required for lands that are leased
competitively. Finally, a company could receive only one
noncompetitive lease for each known geothermal discovery.
Under current law, 75 percent of all receipts from bonus
bids, rents, and royalties related to the development of
geothermal resources on federal lands is paid to the states and
counties in which those lands are located. The remaining 25
percent is deposited in the U.S. Treasury. CBO estimates that
awarding noncompetitive leases for lands adjacent to known
geothermal discoveries could reduce bonus bids on those
parcels; however, because the legislation would require the
companies that are awarded those leases to pay fair market
value for them, we estimate that implementing the bill would
not reduce the amount of receipts deposited in the U.S.
Treasury by more than $500,000 in any year.
In addition, based on information provided by DOE and
individuals working in the geothermal industry, CBO expects
that implementing S. 1149 could increase receipts from
royalties paid on geothermal energy production by reducing the
amount of time it takes to develop a known geothermal resource
and by reducing the likelihood that lands containing geothermal
resources would be acquired for speculative purposes. CBO
estimates that any increase in the amount of royalty receipts
that would be deposited in the U.S. Treasury would not exceed
$500,000 in any year. Those amounts would offset any reduction
in receipts from issuing noncompetitive leases under the bill.
Thus, CBO estimates that implementing S. 1149 would have no
significant net impact on direct spending over the 2012-2022
period.
The bill contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act and
would impose no costs on state, local, or tribal governments.
The CBO staff contact for this estimate is Jeff LaFave.
This estimate was approved by Theresa Gullo, Deputy Assistant
Director for Budget Analysis.
Regulatory Impact Evaluation
In compliance with paragraph 11(b) of rule XXVI of the
Standing Rules of the Senate, the Committee makes the following
evaluation of the regulatory impact which would be incurred in
carrying out S. 1149.
The bill is not a regulatory measure in the sense of
imposing Government-established standards or significant
economic responsibilities on private individuals and
businesses.
No personal information would be collected in administering
the program. Therefore, there would be no impact on personal
privacy.
Little, if any, additional paperwork would result from the
enactment of S. 1149, as ordered reported.
Congressionally Directed Spending
S. 1149, as reported, does not contain any congressionally
directed spending items, limited tax benefits, or limited
tariff benefits as defined in rule XLIV of the Standing Rules
of the Senate.
Executive Communications
The views of the Administration were included in testimony
received by the Committee at a hearing on S. 1149 on August 3,
2011, which is provided below.
Statement of Robert Abbey, Director, Bureau of Land Management,
Department of the Interior
Mr. Chairman and members of the Subcommittee thank you for
the opportunity to provide the views of the Department of the
Interior on S. 1149, the Geothermal Production Expansion Act.
S. 1149 would amend the Geothermal Steam Act of 1970 to allow
non-competitive leasing of Federal geothermal energy resources
when a valid geothermal discovery is made on adjoining lands.
The Bureau of Land Management (BLM) supports the goal of
enhancing geothermal exploration and development by ensuring
that valid discoveries can be responsibly developed.
Accordingly, the BLM generally supports S. 1149, and believes
that the bill's provision that the Secretary of the Interior
establish regulatory procedures for determining fair market
values of adjoining lands is the most effective way to ensure a
fair return to American taxpayers. The BLM has concerns with a
few provisions in the legislation and would like to work with
the Committee to address them.
background
Geothermal energy resources on Federal lands are leased and
managed in accordance with the Geothermal Steam Act of 1970
(GSA), which was amended by the Energy Policy Act of 2005
(EPAct). The EPAct made extensive changes to the law governing
geothermal leasing and royalty policies. The changes were
designed to encourage geothermal energy development and
simplify the royalty structure, while ensuring a fair return
for the use of Federal lands and geothermal resources. The GSA,
as amended, provides the BLM with the authority for leasing and
managing geothermal resources on the public lands, and the
delegated authority for leasing geothermal resources on lands
managed by the U.S. Forest Service (FS). In 2008, the BLM and
FS jointly prepared and issued a Programmatic Environmental
Impact Statement (PEIS) that analyzed the potential for
geothermal leasing on their respective lands. Based on this
analysis, the BLM and FS have opened 192 million acres to
potential geothermal leasing.
Federal geothermal resources have the potential to make an
important contribution toward the President's goal of
increasing energy production from clean, renewable sources. To
date, the BLM has issued 818 geothermal leases that cover 1.2
million acres of Federal lands. Approximately 59 leases have
reached producing status with a generating capacity of nearly
1,300 megawatts (MW). These producing leases account for more
than 40 percent of current U.S. geothermal capacity. Despite
this progress, the development of geothermal energy is just
beginning, and its future role and importance is expected to
increase significantly, from the current level to 12,200 MW by
2025, according to estimates in the 2008 PEIS. Notably, this is
often baseload power that does not have the variable qualities
of some other renewable sources and may pair well with them.
The BLM's geothermal leasing program is administered under
regulations (43 CFR 3200 and 3280) issued in 2007 to reflect
the 2005 EPAct's amendments to the GSA. Under these
regulations, most leases for geothermal development on Federal
lands are offered initially through competitive oral auctions,
which are held about twice per year. Typically, the parcels
offered at auction are nominated for lease by industry, but may
also be nominated by the public, or by Federal, state, and
local governments. Since competitive auctions began in 2007, a
total of 366 geothermal leases have been sold, generating more
than $74 million in revenue. In addition to the price paid at
auction, geothermal lease holders pay annual per-acre rental
fees until production begins. Thereafter, lease holders pay
royalties or fees on production.
Lease parcels that do not receive a bid at auction are made
available for noncompetitive lease for a period of 2 years, at
a price of $1.00 per acre. In addition, noncompetitive
geothermal leases may be offered under certain conditions for
direct, on-site energy uses, which include the use of
geothermal steam and hot water in greenhouses and aquaculture.
Noncompetitive leases are also offered to qualified mining
claim holders.
s. 1149
S. 1149 seeks to focus Federal geothermal energy leasing
activities toward entities that intend to develop geothermal
resources rather than toward those who may intend to obtain
leases for parcels with geothermal resources for speculative
purposes. More specifically, the bill aims to address a
practice whereby speculators purchase at auction Federal
geothermal leases for parcels that are located adjacent to
parcels of Federal or private land with existing geothermal
leases or developments. This practice is viewed by some as an
effort to capitalize upon another company's geothermal
exploration efforts, and is a disincentive for future
geothermal investment and development. Because the geothermal
competitive leasing program is open to all qualified bidders,
the potential exists for such speculative activity.
To address this concern, the legislation authorizes non-
competitive leasing of adjoining Federal geothermal resources
when a valid discovery of geothermal resources is made, and the
geothermal resources are shown to extend into unleased Federal
land. Under the bill, a Federal non-competitive lease would be
available only for areas not exceeding 640 acres that have not
already been leased or nominated to be leased competitively.
Only one noncompetitive lease could be issued for each valid
geothermal discovery.
To qualify for a noncompetitive lease under this
legislation, an applicant would have to demonstrate, consistent
with industry standards, a valid discovery of a geothermal
resource. An applicant also would have to present sufficient
geological and technical data showing that the geothermal
resource extends into adjoining Federal lands.
Section 3 of S. 1149 would amend Section 4(b) of the GSA to
define fair market value per acre for the non-competitive
lease. Under the provisions of Section 3, the lessee would pay
fair market value for the non-competitive lease in accordance
with regulations issued by the Secretary of the Interior. The
bill would set a minimum price on how much the Secretary may
determine the fair market value to be at not less than the
greater of $50 per acre, or four times the median amount paid
per acre for all land leased during the preceding year.
This legislation would make proposed fair market value
determinations open for public comment for a period of 30 days
and would allow a qualified lessee and any affected party to
appeal a fair market value determination. Further, the lease
awarded non-competitively would be assessed the annual rental
rate of leases awarded competitively.
The BLM supports the objective of S. 1149 to enhance
geothermal development by increasing investor confidence that
geothermal discoveries could be fully developed. Additionally,
BLM supports a requirement that regulations be promulgated to
establish procedures for determining the fair market value of
leases on adjoining lands.
The BLM is concerned, however, about the provision of S.
1149 that sets a minimum price on how much the Secretary may
determine the fair market value to be. Though the minimum price
set forth in the bill may provide some assurance of a return to
American taxpayers, the price may not reflect a fair market
value. The BLM believes that the provision is unnecessary,
because under the bill, the Secretary would be required to
establish procedures for determining fair market values of
these leases. With these procedures, the BLM would consider a
number of factors, including available information on the known
resources and the value of other leases within the local
market, in determining a price that is fair for that lease.
Thus, the BLM recommends that the provision that sets a minimum
price be removed from the bill.
The BLM also has concerns with the timeframes included in
the legislation. Specifically, the promulgation of regulations
issued by the Secretary typically requires more than 180 days.
The 90 days provided in the bill for determining the fair
market value of a lease may not be adequate to conduct such an
evaluation.
conclusion
The BLM supports efforts to enhance geothermal exploration
and development in the United States in a manner that is fair
to geothermal developers and other participants in the
competitive leasing process. We must ensure those efforts
result in a fair return to the American taxpayers. Thank you
for the opportunity to testify and I would be happy to answer
any questions.
Changes in Existing Law
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, changes in existing law made by
the bill, as ordered reported, are shown as follows (existing
law proposed to be omitted is enclosed in black brackets, new
material is printed in italic, existing law in which no change
is proposed is shown in roman):
GEOTHERMAL STEAM ACT OF 1970
(Public Law No. 91-581, as amended)
(30 U.S.C. 1001, et seq.)
* * * * * * *
SEC. 4. LEASING PROCEDURES.
* * * * * * *
(b) Competitive Lease Sale Required.--
* * * * * * *
(4) Adjoining land.--
(A) Definitions.--In this paragraph:
(i) Fair market value per acre.--The
term ``fair market value per acre''
means a dollar amount per acre that--
(I) except as provided in
this clause, shall be equal to
the market value per acre
(taking into account the
determination under
subparagraph (B)(iii) regarding
a valid discovery on the
adjoining land) as determined
by the Secretary under
regulations issued under this
paragraph;
(II) shall be determined by
the Secretary with respect to a
lease under this paragraph, by
not later than the end of the
180-day period beginning on the
date the Secretary receives an
application for the lease; and
(III) shall be not less than
the greater of--
(aa) 4 times the
median amount paid per
acre for all land
leased under this Act
during the preceding
year; or
(bb) $50.
(ii) Industry standards.--The term
``industry standards'' means the
standards by which a qualified
geothermal professional assesses
whether downhole or flowing temperature
measurements with indications of
permeability are sufficient to produce
energy from geothermal resources, as
determined through flow or injection
testing or measurement of lost
circulation while drilling.
(iii) Qualified federal land.--The
term ``qualified Federal land'' means
land that is otherwise available for
leasing under this Act.
(iv) Qualified geothermal
professional.--The term ``qualified
geothermal professional'' means an
individual who is an engineer or
geoscientist in good professional
standing with at least 5 years of
experience in geothermal exploration,
development, or project assessment.
(v) Qualified lessee.--The term
``qualified lessee'' means a person
that may hold a geothermal lease under
this Act (including applicable
regulations).
(vi) Valid discovery.--The term
``valid discovery'' means a discovery
of a geothermal resource by a new or
existing slim hole or production well,
that exhibits downhole or flowing
temperature measurements with
indications of permeability that are
sufficient to meet industry standards.
(B) Authority.--An area of qualified Federal
land that adjoins other land for which a
qualified lessee holds a legal right to develop
geothermal resources may be available for a
noncompetitive lease under this section to the
qualified lessee at the fair market value per
acre, if--
(i) the area of qualified Federal
land--
(I) consists of not less than
1 acre and not more than 640
acres; and
(II) is not already leased
under this Act or nominated to
be leased under subsection (a);
(ii) the qualified lessee has not
previously received a noncompetitive
lease under this paragraph in
connection with the valid discovery for
which data has been submitted under
clause (iii)(I); and
(iii) sufficient geological and other
technical data prepared by a qualified
geothermal professional has been
submitted by the qualified lessee to
the applicable Federal land management
agency that would lead individuals who
are experienced in the subject matter
to believe that--
(I) there is a valid
discovery of geothermal
resources on the land for which
the qualified lessee holds the
legal right to develop
geothermal resources; and
(II) that thermal feature
extends into the adjoining
areas.
(C) Determination of fair market value.--
(i) In general.--The Secretary
shall--
(I) publish a notice of any
request to lease land under
this paragraph;
(II) determine fair market
value for purposes of this
paragraph in accordance with
procedures for making those
determinations that are
established by regulations
issued by the Secretary;
(III) provide to a qualified
lessee and publish, with an
opportunity for public comment
for a period of 30 days, any
proposed determination under
this subparagraph of the fair
market value of an area that
the qualified lessee seeks to
lease under this paragraph; and
(IV) provide to the qualified
lessee and any adversely
affected party the opportunity
to appeal the final
determination of fair market
value in an administrative
proceeding before the
applicable Federal land
management agency, in
accordance with applicable law
(including regulations).
(ii) Limitation on nomination.--After
publication of a notice of request to
lease land under this paragraph, the
Secretary may not accept under
subsection (a) any nomination of the
land for leasing unless the request has
been denied or withdrawn.
(iii) Annual rental.--For purposes of
section 5(a)(3), a lease awarded under
this paragraph shall be considered a
lease awarded in a competitive lease
sale.
(D) Regulations.--Not later than 270 days
after the date of enactment of the Geothermal
Production Expansion Act of 2011, the Secretary
shall issue regulations to carry out this
paragraph.
* * * * * * *