[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
GEOTHERMAL RESOURCES ON PUBLIC LANDS
=======================================================================
OVERSIGHT HEARING
before the
SUBCOMMITTEE ON ENERGY AND
MINERAL RESOURCES
of the
COMMITTEE ON RESOURCES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
May 3, 2001
__________
Serial No. 107-23
__________
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COMMITTEE ON RESOURCES
JAMES V. HANSEN, Utah, Chairman
NICK J. RAHALL II, West Virginia, Ranking Democrat Member
Don Young, Alaska, George Miller, California
Vice Chairman Edward J. Markey, Massachusetts
W.J. "Billy" Tauzin, Louisiana Dale E. Kildee, Michigan
Jim Saxton, New Jersey Peter A. DeFazio, Oregon
Elton Gallegly, California Eni F.H. Faleomavaega, American
John J. Duncan, Jr., Tennessee Samoa
Joel Hefley, Colorado Neil Abercrombie, Hawaii
Wayne T. Gilchrest, Maryland Solomon P. Ortiz, Texas
Ken Calvert, California Frank Pallone, Jr., New Jersey
Scott McInnis, Colorado Calvin M. Dooley, California
Richard W. Pombo, California Robert A. Underwood, Guam
Barbara Cubin, Wyoming Adam Smith, Washington
George Radanovich, California Donna M. Christensen, Virgin
Walter B. Jones, Jr., North Islands
Carolina Ron Kind, Wisconsin
Mac Thornberry, Texas Jay Inslee, Washington
Chris Cannon, Utah Grace F. Napolitano, California
John E. Peterson, Pennsylvania Tom Udall, New Mexico
Bob Schaffer, Colorado Mark Udall, Colorado
Jim Gibbons, Nevada Rush D. Holt, New Jersey
Mark E. Souder, Indiana James P. McGovern, Massachusetts
Greg Walden, Oregon Anibal Acevedo-Vila, Puerto Rico
Michael K. Simpson, Idaho Hilda L. Solis, California
Thomas G. Tancredo, Colorado Brad Carson, Oklahoma
J.D. Hayworth, Arizona Betty McCollum, Minnesota
C.L. "Butch" Otter, Idaho
Tom Osborne, Nebraska
Jeff Flake, Arizona
Dennis R. Rehberg, Montana
Allen D. Freemyer, Chief of Staff
Lisa Pittman, Chief Counsel
Michael S. Twinchek, Chief Clerk
James H. Zoia, Democrat Staff Director
Jeff 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 Nick J. Rahall II, West Virginia
Mac Thornberry, Texas Edward J. Markey, Massachusetts
Chris Cannon, Utah Solomon P. Ortiz, Texas
Jim Gibbons, Nevada, Calvin M. Dooley, California
Vice Chairman Jay Inslee, Washington
Thomas G. Tancredo, Colorado Grace F. Napolitano, California
C.L. "Butch" Otter, Idaho Brad Carson, Oklahoma
Jeff Flake, Arizona
Dennis R. Rehberg, Montana
------
C O N T E N T S
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Page
Hearing held on May 3, 2001...................................... 1
Statement of Members:
Cubin, Hon. Barbara, a Representative in Congress from the
State of Wyoming........................................... 1
Prepared statement of.................................... 2
Gibbons, Hon. Jim, a Representative in Congress from the
State of Nevada............................................ 4
Kind, Hon. Ron, a Representative in Congress from the State
of Wisconsin............................................... 3
Statement of Witnesses:
Ain, Ross D., Senior Vice President, Caithness Energy LLC.... 57
Prepared statement of.................................... 58
Anderson, Bob, Deputy Assistant Director, Minerals, Realty
and Resource Protection, U.S. Bureau of Land Management.... 20
Prepared statement of.................................... 21
Letter of clarification submitted for the record......... 43
Dixon, Dr. Robert K., Deputy Assistant Secretary, Office of
Power Technologies, U.S. Department of Energy.............. 11
Prepared statement of.................................... 13
Response to questions submitted for the record by Hon.
Grace Napolitano....................................... 17
Gawell, Karl, Executive Director, Geothermal Energy
Association................................................ 45
Prepared statement of.................................... 47
Pigott, Jack, Electric Regulatory Director, Calpine
Corporation................................................ 51
Prepared statement of.................................... 52
Williams, Dr. Colin F., Supervisory Geophysicist, U.S.
Geological Survey.......................................... 5
Prepared statement of.................................... 7
OVERSIGHT HEARING ON GEOTHERMAL RESOURCES ON PUBLIC LANDS: THE RESOURCE
BASE AND CONSTRAINTS ON DEVELOPMENT
----------
Thursday, May 3, 2001
U.S. House of Representatives
Subcommittee on Energy and Mineral Resources
Committee on Resources
Washington, DC
----------
The subcommittee met, pursuant to notice, at 10:26 a.m., in
Room 1334, Longworth House Office Building, Hon. Barbara Cubin
[Chairman of the Subcommittee] presiding.
STATEMENT OF THE HONORABLE BARBARA CUBIN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF WYOMING
Mrs. Cubin. The oversight hearing by the Subcommittee on
Energy and Mineral Resources will please come to order.
The subcommittee is meeting today to hear testimony on
``Geothermal Resources on Public Lands: The Resource Base, and
Constraints on Development.'' Under Committee Rule 4(G), the
Chairman and the Ranking Minority Member can make opening
statements. If any other members have statements, they can be
included in the hearing record under unanimous consent;
although certainly, with so few members being here, if anyone
wants to give an opening statement, we will take the time to do
that.
This is the fifth subcommittee hearing on issues concerning
energy supplies from our public lands. We have focused upon
fossil fuels in previous hearings, but today our topic is the
discussion of geothermal energy found on our public lands. We
would like to explore the questions of: How much of this
resource is geologically available to tap? How much may be
economic to do so for electric generation or direct heat uses?
What, if any, regulatory or statutory constraints are
preventing such development?
The Geothermal Steam Act of 1970 authorizes the Secretary
of the Interior to competitively lease public lands for
geothermal energy development. As with oil, gas, and coal
resources, this authority extends to the U.S. Forest Service
administered lands as well, with the consent of the Department
of Agriculture.
This Act requires the Secretary to levy a royalty of
between 10 percent and 15 percent of the value of the
geothermal resource, which is a higher rate than the typical
onshore oil and gas lease. Furthermore, when geothermal steam
drives a turbine to make electricity, seldom is there an arm's-
length sales market upon which to judge the value of the steam
as it leaves the wellbore. Thus, a net-back approach to valuing
the steam is necessary. Deductions for operating costs,
transmission costs, and return on capital investment are
factored in to determine royalty value of the steam.
Are these calculations fair? Does the royalty rate inhibit
decisions to generate electricity from geothermal resources?
Or, are other factors, such as capital costs and facility
siting and permitting problems, more likely to cause the
decision not to build a geothermal power plant or utilize
geothermal energy in direct heat applications?
I want to thank all of our witnesses today for coming in to
enlighten us as to the answers to these questions. Wyoming
isn't known as a hotbed of geothermal energy, except for the
geothermal features of Yellowstone National Park--which, of
course, I do not advocate tapping for geothermal power. But I
feel strongly that this resource cannot be overlooked where it
does make sense economically to develop it.
I think it needs to be a part of the overall energy policy,
the long-term energy policy that we want to develop to keep the
United States more secure as a nation and to avoid the boom-
and-bust cycle of energy that we go through.
So now I recognize the Ranking Member, Mr. Kind, for his
opening statement.
[The prepared statement of Mrs. Cubin follows:]
Statement of The Honorable Barbara Cubin, Chairman, Subcommittee on
Energy & Mineral Resources
This is the fifth Subcommittee hearing on issues concerning energy
supplies from our public lands. We have focused upon fossil fuels in
previous hearings, but today our topic is the discussion of geothermal
energy found on our public lands. We would like to explore the
questions of how much of this resource is geologically available to
tap; how much may be economic to do so for electricity generation or
direct heat uses; what, if any, regulatory or statutory constraints are
preventing such development?
The Geothermal Steam Act of 1970 authorizes the Secretary of the
Interior to competitively lease public lands for geothermal energy
development. As with oil, gas and coal resources, this authority
extends to U.S. Forest Service-administered lands as well, with the
consent of the Department of Agriculture. This Act requires the
Secretary to levy a royalty of between 10% and 15% of the value of the
geothermal resource, which is a higher rate than the typical onshore
oil and gas lease. Furthermore, when geothermal steam drives a turbine
to make electricity, seldom is there an arm's-length sales market upon
which to judge the value of the steam as it leaves the wellbore. Thus,
a net-back approach to valuing the steam is necessary. Deductions for
operating costs, transmission costs, and return on capital investment
are factored in to determine royalty value of the steam.
Are these calculations fair? Does this royalty rate inhibit
decisions to generate electricity from geothermal resources? Or are
other factors, such as capital costs and facility siting and permitting
problems, more likely to cause the decision to not build a geothermal
power plant or utilize geothermal energy in direct heat applications?
I want to thank our witnesses for coming today to enlighten us as
to these questions. Wyoming isn't known as a ``hotbed'' of geothermal
energy, except for the thermal features of Yellowstone National Park,
WHICH I DO NOT ADVOCATE TAPPING FOR ELECTRIC POWER !! But, I feel
strongly that this resource should not be overlooked where it does
makes economic sense to exploit it.
______
STATEMENT OF THE HONORABLE RON KIND, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF WISCONSIN
Mr. Kind. Thank you, Madam Chair. I want to thank the
witnesses for being here today. I am looking forward to your
testimony. I am doing an educational bill markup right now, so
I am going to have to take off in a moment. But I have reviewed
your written statements that you submitted earlier, and
appreciate your coming here.
I want to thank Madam Chair for allowing this hearing to go
forward today. I raised the issue, it must have been about a
month ago or so. And she accommodated the interests of many
committee members by agreeing to hold this hearing. And I thank
her for doing it.
I do have a written statement that I think I'll just
submit, without objection, for the record at this time. But I
think as we move forward, and as Vice President Cheney moves
forward in particular, in reviewing long-term energy needs,
trying to put together a comprehensive energy policy, that we
should be interested in this Congress, in this nation, in
looking at viable alternative and renewable energy sources in
the mix of fossil fuels that are currently being explored for
our long-term energy needs.
We are looking at the potential for geothermal power, the
abundance, the availability, the clean energy source that it
provides. I think a lot more can be done. I will be interested
in hearing more from our panels of witnesses as far as why more
isn't being done, and the feasibility of doing it.
I know we have problems with the permitting process. That
was loud and clear in the written testimony that was submitted
by many of you. I would like to work with you on that. But I
think that we can be doing more in this area.
If we look at what some of the developing nations are doing
around the world right now, it is kind of exciting seeing them
go down this path. Kenya, for instance: There was a very
interesting article in the ``Christian Science Monitor'' about
a month and a half ago talking about Kenya's development of
geothermal. Although it is only at 6 percent of the energy
needs today, it is projected to be 25 percent by 2017.
The countries down in Central America, for instance: Four
or five countries are relying on geothermal sources. Costa
Rica, El Salvador, and Nicaragua are generating 10 to 20
percent of their electricity geothermally. The Philippines
generates 22 percent from this source. So I think there is a
tremendous untapped potential that still exists within this
country in exploring the viability of geothermal power.
I did find it interesting; I do not know how many of you
caught the article in the ``Washington Post'' today that Exxon
took out, kind of talking about the drawbacks of alternative
and renewable energy sources. What was missing in that article
was any mention of geothermal. And that is my concern, and that
is why I am appreciative of this hearing today; because
geothermal seems to be the one that is always left out of the
mix or out of any serious discussion when it comes to our
energy needs.
And I will be curious to hear if any of you have been
approached or contacted by the Cheney review team, in regards
to the energy strategy that they are trying to put in place
right now, about the use of geothermal and how that can be a
piece of the pie that we need to work on to deal with some of
these short-term energy needs that we have as well.
On the West Coast, California is a prime example. And 25
percent of our geothermal production is occurring in California
already. But I think there are other areas in the country. My
area in southwestern Wisconsin, for instance, has been
identified as a great potential for geothermal; the whole
eastern part of the State of Iowa. And I know that we are just
a week away from serious troubles with our energy supply in the
Midwest.
So again, I thank the Chair for having this hearing. I
thank the witnesses. I will try to stay as long as I can, and
look forward to the testimony. Thank you.
Mrs. Cubin. The Chair now recognizes Mr. Gibbons.
Mr. Gibbons. Thank you, Madam Chairman.
Mrs. Cubin. Asks unanimous consent to recognize Mr.
Gibbons. Without objection.
STATEMENT OF THE HONORABLE JIM GIBBONS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEVADA
Mr. Gibbons. Stunned. Stunned at the response there, Madam
Chairman. I, Madam Chairman, want to thank you for having this
hearing. I think it is a very timely and important part of this
nation's future, to look at our energy policies and to come up
with some sound solutions. And I certainly want to thank the
witnesses who are here as well to help us better understand
this issue.
As we look at alternative energy sources, certainly there
are those that have a large footprint and small benefit. Many
times, I have driven down through California and looked at the
wind production fields that are out there--massive areas, acre
after acre, of these huge windmills which have a visual
implication as well. And considering geothermal and its
alternative to the solar-wind-geothermal mix, geothermal in my
view has a much smaller footprint with a much larger benefit.
Because unlike solar and wind, geothermal energy has a more
durable production capability--a better source, if you will.
Whenever the sun goes down, of course, we cannot depend on
solar. Whenever the wind dies down, you cannot depend upon the
wind energy. But geothermal is an energy source that remains
regardless of the surface conditions.
I think one of the issues that we have to address in this
nation as we go forward is the competing demand for alternative
energy in competition with the competing demands, or locking up
vast areas of this nation which do have a productive field of
geothermal energy potential. Those conflicts are going to have
to be viewed and looked at and discussed. And certainly, I hope
this panel will be able to answer a few questions as we move
down this hearing with regard to the competing demands for
locking up public land, locking out energy potential, with
regard to the new demands that we are seeing today made on our
energy production.
With that, Madam Chairman, I want to say again thank you,
and the witnesses that will be here today with regard to this
hearing.
Mrs. Cubin. Thank you, Mr. Gibbons.
Now I would like to recognize the first panel of witnesses,
and thank them very much for being here: Dr. Colin F. Williams,
supervisory geophysicist for the U.S. Geological Survey; Dr.
Robert K. Dixon, Deputy Assistant Secretary of the Office of
Power Technologies, U.S. Department of Energy; Mr. Bob
Anderson, Deputy Assistant Director for Minerals, Realty and
Resource Protection, U.S. Bureau of Land Management; who is
accompanied by Mr. Harold Corley, geologist with the U.S.
Minerals Management Service.
Thank all of you for being here. And now the Chair
recognizes Mr. Williams to testify for 5 minutes. The timing
lights on the table will indicate when your time has concluded.
All witnesses' entire statements will be submitted in the
record. So, Mr. Williams--or Dr. Williams, excuse me.
STATEMENT OF COLIN F. WILLIAMS, SUPERVISORY GEOPHYSICIST, U.S.
GEOLOGICAL SURVEY
Dr. Williams. Thank you. Madam Chairman and distinguished
members of the subcommittee, thank you for this opportunity to
present on behalf of the U.S. Geological Survey this statement
regarding our assessment of the location, extent, and nature of
geothermal resources in the United States.
The Geothermal Energy Research, Development and
Demonstration Act of 1974 assigned responsibility for the
evaluation and assessment of geothermal resources to the USGS
through the Department of the Interior. The efforts under this
Act led to the publication of two comprehensive national
assessments; the last being USGS Circular 790, ``Assessment of
Geothermal Resources of the United States - 1978.''
In this statement I will summarize the current state of
geothermal energy in the United States, and provide information
on the evolution of geothermal science and technology as it
relates to the resource assessments of the 1970's. I will
concentrate on the nature and abundance of geothermal systems
suitable for electricity power generation.
Geothermal reservoirs are classified according to their
temperature and whether the reservoir fluid occurs as liquid
water or as steam. Geothermal power is obtained from steam
produced directly from the ground, from steam flashed and
separated from hot water, and from binary power plants using
closed-loop heat exchange between hot water and fluids with low
boiling temperatures.
Today the United States has an installed capacity of
approximately 2,860 megawatts of electric power production from
geothermal plants located in California, Hawaii, Nevada, and
Utah. This constitutes one of the nation's largest sources of
non-hydroelectric renewable electrical power.
The comparison of the findings of Circular 790 with the
current state of development highlights some important points.
Circular 790 identified nine Western states--Alaska, Arizona,
California, Hawaii, Idaho, Nevada, New Mexico, Oregon, and
Utah--with the potential for at least 100 megawatts of
electrical power generation per state from identified
geothermal systems.
The total high temperature geothermal resources from
identified systems in these nine states was estimated at
approximately 22,000 megawatts. Only California has realized a
significant fraction of this potential, with development of
approximately 2,600 out of 12,000 megawatts. Estimates of the
electric power potential of undiscovered resources ranged from
72,000 to 127,000 megawatts.
The Great Basin region, which encompasses parts of Nevada,
Utah, California, Oregon, and Idaho, has the lowest percentage
of developed power with respect to the Circular 790 estimates.
Only about 500 megawatts are produced in the Great Basin,
compared with an estimated high-temperature resource of about
7,500 megawatts.
A critical question is the extent to which these estimated
geothermal resources can be developed. The possible reasons for
the large difference between the estimated resource and
installed capacity are varied. Among the factors limiting
geothermal resource development are the following:
Economics--Until recently, the 5- to 8-cents per kilowatt-
hour cost of geothermal energy was not competitive with fossil
fuel generated power.
Water--Reservoirs exploited with flash-steam power plants
lose water from their cooling towers. In many Western states
the water for reinjection into geothermal reservoirs is in
short supply.
Remote Locations--Many geothermal systems, particularly
those in the Great Basin, are dispersed in relatively remote
locations with limited access to the power transmission lines
and other facilities.
Also, because geothermal reservoir development requires
drilling, it has often proven difficult for power companies to
obtain financing in the absence of up to date resource
information.
Finally, there are uncertainties in the Circular 790
assessment. The state of knowledge about geothermal resources
has advanced dramatically in the past 20 years, and estimates
of the high-temperature resources could change with a new
examination.
There are also reasons why some of the estimates contained
in Circular 790 could be realized:
One is binary power plants. The maturation of binary power
plant technology has provided a means of exploiting geothermal
reservoirs with little or no loss of water.
There are also sources of reclaimed water. Effluent
pipelines carrying reclaimed water from urban areas have become
a cost-effective and environmentally sound means of providing
water for reinjection into depleted geothermal reservoirs.
There are Enhanced Geothermal Systems. With Department of
Energy support, scientists and engineers have been developing a
reservoir stimulation technique known as ``Enhanced Geothermal
Systems.'' Through the use of this technique, companies will be
able to increase the capacity and extend the lifetime of
geothermal fields.
Finally, there is improved exploration technology, which is
allowing companies to better predict productivity of a specific
resource.
Recent assessments have led to widely varying results
regarding the total power potential. Estimates of potential
power projection of geothermal resources range from 6,300 to
27,000 megawatts, depending on assumptions regarding the extent
of the resource and the impact of new technology.
Along with the need to reduce uncertainties in the
assessment of domestic geothermal resources, there are many
research efforts which could benefit geothermal power in the
near term. Among these are exploration and drilling technology;
more work in Enhanced Geothermal Systems; and further work in
integrated geological studies.
Madam Chairman, that concludes my remarks, and I would be
happy to answer any questions the committee may have.
[The prepared statement of Dr. Colin F. Williams follows:]
Statement of Dr. Colin F. Williams, Supervisory Geophysicist, U.S.
Geological Survey, Department of the Interior
Madam Chairman and distinguished Members of the Subcommittee, thank
you for this opportunity to present, on behalf of the U.S. Geological
Survey, this statement regarding our assessment of the location, extent
and nature of geothermal resources in the United States.
BACKGROUND
The Geothermal Energy Research, Development and Demonstration Act
of 1974
(P.L. 93-410) assigned responsibility for the evaluation and
assessment of geothermal resources to the USGS through the U.S.
Department of the Interior (DOI). The assessment efforts initiated
under this Act led to the publication of USGS Circular 726, Assessment
of Geothermal Resources of the United States - 1975 and USGS Circular
790, Assessment of Geothermal Resources of the United States - 1978.
These reports established the methodology for geothermal resource
assessments and provided estimates of potential electric power
generation that have guided geothermal energy research and development
for the past 22 years.
In this statement I will summarize the current state of geothermal
energy in the United States and provide information on the evolution of
geothermal science and technology as it relates to the resource
assessments of the 1970s.
THE CURRENT STATE
Today, the United States has an installed capacity of approximately
2,860 Megawatts (MW) of electrical power production from geothermal
plants located in California, Hawaii, Nevada, and Utah. This
constitutes 0.4% of our total electricity generation capacity and is
the Nation's largest source of non-hydroelectric renewable electrical
power.
CLASSIFICATION, LOCATION AND DEVELOPMENT OF GEOTHERMAL RESOURCES
The Earth's internal heat drives many geologic processes and, where
it is locally concentrated, this heat can be manifested as volcanoes,
hot springs, and other thermal features. Large portions of the western
U.S. are characterized by abnormally high heat flow as a result of
active faulting and volcanism. All of the existing geothermal power
plants fall within these regions. The Earth's heat can be exploited at
various temperatures to provide a source of geothermal energy.
Geothermal reservoirs are classified according to their temperature
and whether the reservoir fluid occurs as liquid water or as steam.
Geothermal power is obtained from steam produced directly from the
ground, from steam flashed and separated from hot water, or from binary
systems involving closed-loop heat exchange between hot water and
organic fluids with low boiling temperatures.
High temperature geothermal systems have temperatures greater than
150 oC (302 oF) with the reservoir fluid comprising hot water and/or
steam. These systems are typically the best candidates for electricity
generation and power plants exploiting these systems typically flash
the hot water to drive steam turbines.
Intermediate temperature systems have temperatures between 90 and
150 oC (194 and 302 oF) and generally require the use of binary power
plants with closed-loop heat exchange technology that allows transfer
of the heat in the geothermal fluid to a second fluid that vaporizes at
lower temperature.
Low temperature systems are those with temperatures less than 90 oC
(194 oF) and are generally considered appropriate for direct use
applications (space heating, agricultural process heat, spas). In this
statement I will concentrate on the nature and abundance of
intermediate and high temperature geothermal systems in the United
States. A general overview of all aspects of geothermal energy can be
found in USGS Circular 1125, Tapping the Earth's Natural Heat.
The last nationwide geothermal resource assessment (USGS Circular
790) was published in 1978, and a comparison of its findings with the
current state of knowledge and development highlights some important
points.
LCircular 790 identified nine western states (Alaska,
Arizona, California, Hawaii, Idaho, Nevada, New Mexico, Oregon and
Utah) with the potential for at least 100 MW of electrical power
generation per state from identified geothermal systems.
LThe total identified high temperature geothermal resource
in these nine states was estimated at approximately 22,000 MW. On a
state-by-state basis, only California has realized a significant
fraction (22%) of this potential (2,600 out of 12,000 MW). Estimates of
undiscovered resources ranged from 72,000 to 127,000 MW.
LThe Great Basin region, which lies mostly in Nevada and
Utah but also encompasses parts of California, Oregon, and Idaho, has
the lowest percentage of developed power with respect to the Circular
790 estimates. Only about 500 MW are produced in the Great Basin
compared with an estimated high-temperature resource of about 7,500 MW.
The following table summarizes the results of the state-by-state
comparison for the nine states highlighted in the 1978 resource
assessment and the installed electrical power generating capacity as of
1998 (Source - Energy Information Administration (EIA)--Department of
Energy).
[GRAPHIC] [TIFF OMITTED] T2134.004
If the entire estimated resource for these nine states could be
exploited as electrical power, it would equal 21.5% of the electrical
power generated from all other sources. The possible reasons for the
large difference between the estimated geothermal resource and
installed capacity are varied and, in the absence of another systematic
resource assessment, difficult to quantify.
Among the factors limiting geothermal resource development are the
following.
LEconomics--Until recently, the 5- to 8-cent per kilowatt-
hour (kwh) cost of geothermal energy was not competitive with fossil
fuel-generated power costing as little as 3 cents/kwh.
LWater--Reservoirs exploited with flash-steam power plants
lose a significant fraction of the produced water from their cooling
towers. In many western states water for reinjection into geothermal
reservoirs is either unavailable or in short supply.
LRemote Locations--Many geothermal systems, particularly
those in the Great Basin, are dispersed in relatively remote locations
with limited access to electric power transmission lines and other
facilities.
LValidation of the Resource--Because geothermal reservoir
development requires drilling, it has often proven difficult for power
companies to obtain financing in the absence of up to date resource
assessments.
LUncertainties in the Circular 790 Assessment--The state
of knowledge about geothermal resources has advanced dramatically in
the past 20 years, and there is evidence that Circular 790 may have
overstated the abundance of undiscovered high temperature resources in
the western U.S.
There are also a number of technical reasons why geothermal
resource development could approximate some of the estimates contained
in Circular 790.
LBinary Power Plants - The maturation of binary power
plant technology has provided a means of exploiting geothermal
reservoirs with little or no loss of water. In addition, binary power
plants have enabled the development of intermediate temperature systems
not included in the Circular 790 estimate.
LReclaimed Water--Effluent pipelines carrying reclaimed
water from urban areas have become a cost-effective and environmentally
sound means of providing water for reinjection into declining or
depleted geothermal reservoirs. For example, reclaimed water is now
being used to replenish The Geysers geothermal field in California,
which produces approximately 1,200 MW of electricity.
LEnhanced Geothermal Systems--With DOE support, scientists
and engineers have been developing a geothermal reservoir stimulation
technique known as Enhanced Geothermal Systems (EGS). Through the
hydraulic fracturing of the hot but impermeable rock surrounding
geothermal reservoirs, power companies will be able to increase the
amount of hot rock available to heat geothermal fluid, increasing the
capacity and extending the lifetime of existing geothermal systems.
LExploration Technology--Improved geochemical and
geophysical tools for geothermal exploration, together with targeted
test drilling, have allowed power companies to more accurately predict
the productivity of a specific geothermal resource before embarking on
an expensive program of production drilling.
Recent efforts to incorporate some or all of these developments in
updated assessments have led to widely varying results. According to a
1999 report prepared by the Geothermal Energy Association (GEA) and the
DOE (Geothermal Energy, The Potential for Clean Power from the Earth),
the domestic geothermal energy potential ranges from 6,520 MW with
existing technology to 18,880 MW with enhanced technology. A geothermal
industry consultant's re-examination of the Circular 790 assessment
with the addition of potential Enhanced Geothermal System sources gives
a range of values between 6,300 and 27,400 MW (J. Sass, unpublished
report). The Strategic Plan for the DOE Office of Power Technologies
has a goal for geothermal energy to provide 10% of the electric power
requirements of western states by the year 2020. This would require
more than 10,000 MW of additional geothermal power, and a review by the
National Research Council (NRC) suggests this goal is unlikely to be
met (Renewable Power Pathways: A Review of the U.S. Department of
Energy's Renewable Energy Programs, NRC, 2000). By contrast, the Energy
Information Administration of DOE estimates an installed geothermal
power capacity of 4,140 MW by 2011 (EIA Annual Energy Outlook 2001 -
http://www.eia.doe.gov/oiaf/aeo/aeotab--17.htm).
Future Directions for Research and Development
Along with the need to reduce the uncertainties in the assessment
of domestic geothermal resources, there are many active research
efforts in geothermal science and technology that could benefit the
geothermal power industry in the near term.
LExploration and Drilling - Although the technology of
power generation is well advanced, new geothermal systems can be hard
to locate and expensive to develop. Advances in exploration and
drilling technology can cut costs and increase the probability of
success.
LEnhanced Geothermal Systems - Techniques for expanding
and sustaining geothermal reservoirs are in their infancy, and EGS
experiments proposed for the next few years could greatly expand the
existing resource base.
LIntegrated Geological Studies - In order to accurately
assess the geothermal resources of the western U.S., significant
progress needs to be made on understanding the processes responsible
for the formation of geothermal systems, particularly in the Great
Basin. Recent investigations of the interrelationships among heat flow,
ground-water circulation, active faulting, volcanism, and geochemical
fluid-rock interactions suggest that the Earth Science community is on
the verge of developing a new, comprehensive understanding of
geothermal systems. The resulting models for the nature and extent of
geothermal systems would not only improve the accuracy of any new
assessment but also enable the development of more economical
exploration and development strategies for geothermal energy.
Madam Chairman, this concludes my remarks. I would be happy to
respond to questions Members of the Committee may have.
______
Mrs. Cubin. Thank you, Dr. Williams. Right on time. That
was like a deejay.
[Laughter.]
Mrs. Cubin. The Chair now recognizes Dr. Dixon to testify.
STATEMENT OF ROBERT K. DIXON, DEPUTY ASSISTANT SECRETARY,
OFFICE OF POWER TECHNOLOGIES, U.S. DEPARTMENT OF ENERGY
Dr. Dixon. Madam Chairman and members of the subcommittee,
good morning. And thank you for the invitation to appear before
you today. I have offered written testimony for the record. I
am also going to refer to some graphics which have been handed
out to each of you.
I am Dr. Robert Dixon. I serve as Deputy Assistant
Secretary at the Department of Energy.
The President recently called the electricity crunch a
national energy crisis. If the worst-case electricity shortages
occur, up to two-thirds of the 125 million American electricity
users could be affected. Americans need new sources of power
and heat. The new national energy plan, which is being
developed under the leadership of Vice President Cheney, is
expected to be released in about 2 weeks, and will contain
important guidance for the future directions and priorities of
our programs, including geothermal energy. We are engaged in
this process.
Investment in technologies such as geothermal can well
reduce our dependence on imported energy sources, address the
critical need for expanded energy supply, and help upgrade the
energy infrastructure in the electric power sector.
Today I would like to share information with you regarding
the Department of Energy geothermal research and development
program. I will also report on our efforts to capture the
benefits of geothermal resources.
Madam Chairman, the United States has an abundant
geothermal resource, and this is a renewable energy resource.
The hottest rocks and fluids are found closest to the surface
in the Western U.S. Geothermal energy has a number of uses,
including the generation of baseload and distributed
electricity; provide process heat for use in greenhouses and
crop drying; direct heating and cooling of homes and commercial
buildings. In addition, the dissolved minerals found in some
geothermal fluids can be extracted for economic uses.
As you can see from the map, Nevada can be considered the
center of the geothermal bull's-eye in the Western U.S. But as
the chart indicates, California has been the historic leader in
the development of geothermal resources. The U.S. installed
capacity of geothermal energy is approximately 2,800 megawatts,
with California, Nevada, Utah, and Hawaii the leaders. We
understand that Hawaii plans to double their capacity in the
near future.
The Department believes that considerable resource
development remains to be done in the Western U.S., in the
States of Alaska, Arizona, Colorado, Idaho, Montana, New
Mexico, Oregon, Washington, and Wyoming.
Madam Chairman, considerable benefits from geothermal
development have accrued since power generation began just over
40 years ago with The Geysers Geothermal Complex in northern
California. The current benefits include electricity for over
1.5 million American homes across the Western U.S. That is 6
percent of California's electricity needs. That is 10 percent
of the power needs in northern Nevada. Over $5 billion has been
invested in plants. These plants are at over 90 percent
capacity factor, and they have accrued over $20 million in
royalties to the Federal Government.
The future potential benefits are quite large. We estimate
that up to 20 percent of the Western power needs may be
realized through geothermal energy if the nation were to
achieve 40,000 megawatts of development over the next 20 to 30
years. We estimate the cumulative royalties resulting from this
development would total about $3 billion. Capital investment,
employment, and overall economic growth generated by large-
scale geothermal development may represent as much as $60
billion. Mineral extraction is also a co-benefit, which will
yield significant economic benefit.
Madam Chairman, the Department has a four-prong strategy
for enabling geothermal energy development. First, we are
involved in expanding existing fields through the application
of more efficient, cost-effective technologies, such as
improving the advanced surface equipment.
Secondly, we are engaged in efforts to reduce the risk of
developing geothermal resources through an intensive effort of
resource characterization. The U.S. Geological Survey, whose
mission includes resource assessment, is our partner in this
effort.
Third, we are working to reduce the cost of geothermal
energy with new technology for drilling wells that will allow
us to drill more wells more deeply and more cheaply than ever
before.
And finally, we are looking to move beyond current
technology which is based on producing hot fluids from water-
saturated fractured-rock reservoirs. We hope to take advantage
of the tremendous quantities of hot but water-deficient rocks
lying close to the surface. We hope to develop the next
generation of geothermal technology, termed ``enhanced
geothermal systems,'' that will allow us to create engineered
reservoirs independent of naturally occurring ones.
Madam Chairman, up to this point I have addressed
technological issues related to geothermal development. But
recognizing that 75 percent of geothermal resources occur in
public lands, institutional issues also merit our attention. To
encourage further discussion on this issue, we have organized
several workshops, and institutional barriers have been
identified by our stakeholders which are an impediment to
development of geothermal resources.
These impediments include permitting and siting activities;
geothermal resource data sharing; lack of technical assistance
and outreach; lack of access to electricity lines; and lack of
a forum for information exchange on barriers to development.
Consequently, we are proposing or contemplating the
organization of a group called the ``National Geothermal
Coordinating Committee,'' which will include any organization
which has an interest in this activity.
Madam Chairman, I conclude my testimony today by
identifying four areas for priority action and energy
development. First, we need to expand more fields. Second, we
need to continue to identify the new resources. We need to
better understand the economics of geothermal energy. And most
importantly, we need to continue to address the use of public
lands for geothermal development.
Madam Chairman, thank you very much.
[The prepared statement of Dr. Robert K. Dixon follows:]
Statement of Dr. Robert K. Dixon, Deputy Assistant Secretary for Power
Technologies, Office of Energy Efficiency and Renewable Energy, U.S.
Department of Energy
Mr. Chairman and Members of the Subcommittee, I am Dr. Robert K.
Dixon, Deputy Assistant Secretary, Office of Power Technologies, Energy
Efficiency and Renewable Energy, U.S. Department of Energy. Thank you
for the opportunity to testify on DOE's role in supporting the use of
one of the Nation's most important renewable energy resources--
geothermal energy. Today I would like to provide information on the
geothermal resources in the U.S., our geothermal research program and
successes to date, and potential future efforts to capture the benefits
presented by geothermal technology.
Let me start by saying that the Department of Energy fully
appreciates the energy situation in the West and the impact it is
having on ratepayers, taxpayers, power producers and energy suppliers
across the region. The Office of Power Technologies has already begun
providing technical assistance and support to the California Energy
Commission in their efforts to identify and fund energy research for
technology that can help relieve the energy supply shortfall in the
future. We will continue to offer our assistance as appropriate to help
move available technologies, including geothermal, into the Western
energy grid.
Geothermal energy is currently providing power for almost 1.5
million homes, including 6% of the electricity needs of California and
10% of the needs of northern Nevada. This is clean energy which can be
supplied to American consumers at stable prices for decades to come.
Estimates of geothermal power potential vary widely, and work on
improved estimates needs to be completed. According to an estimate by
the Department's Energy Information Administration(EIA, Geothermal
Energy in the Western United States and Hawaii: Resources and Projected
Electricity Generation and Supplies, September 1991), resources could
provide over 40,000 MW of power in the West. This could amount to 20%
of the region's projected power generation demand. To capture this
potential in states such as California, Idaho, Utah, Nevada and
Arizona, the Geothermal Energy program implements a balanced research
and development program to expand existing fields and reduce costs;
reduce resource risks through an increased resource characterization
effort; reduce the cost of drilling by developing advanced drilling
technologies and through near-term technology development activities.
The DOE geothermal energy program has led the nation's investment
in geothermal research and development in partnership with the
geothermal industry, researchers, and other agencies. As a result,
domestic geothermal power today, primarily in California and the
western U.S., is producing highly reliable and clean power. The
Department's program has led the development of advanced geothermal
technology to further the use of geothermal resources in electric power
and direct uses of geothermal energy, providing heat and energy for
schools, homes, and businesses. The benefits of DOE's geothermal
program in drilling research have also been shared with the oil and gas
industry, enabling lower costs for well development.
Based on the research and development undertaken by the Department
and its industry partners, almost 3000 MW of geothermal capacity is
installed in the U.S. today, representing a capital investment of over
$5 billion, or 0.35 percent of U. S. electricity produced in 1999. The
DOE Geothermal Program already has realized a number of important
successes. For example, the program supported the development of a
high-performance cement (CaP) used to extend the lifetime of geothermal
wells in harsh, hostile environments by a factor of twenty or more.
Standard well cements severely deteriorate in geothermal environments
after only one year, whereupon the damaged well must be repaired by re-
drilling and re-cementing at an annual cost of about $150,000 per well.
In comparison, there are no repair costs whatsoever projected over the
twenty-year lifetimes of the estimated fifty geothermal wells that will
be completed with CaP cement, saving more than $150,000,000. CaP cement
is now commercially available from Halliburton under the trade name ``
ThermaLock Cement''.
The DOE Geothermal Program has worked for several years with a
geothermal developer, Oxbow Geothermal Inc. (now Caithness, Inc.), to
field test new technology for characterizing Oxbow's geothermal
reservoir at Dixie Valley, Nevada. (Dixie Valley includes a 50 MW power
plant serving the California market.) Through this joint effort, DOE
researchers were able to test and verify the usefulness of several
chemical tracers to establish the flow paths of injected water through
the reservoir. The joint research led to the successful location of new
injection wells to maintain pressure in the reservoir that should
increase the reservoir's lifetime significantly.
We have also had a major success in the development of synthetic
diamond drill bits and have been honored as one of DOE's top 100
scientific and technological accomplishments during its first
millennium (25 years) of existence. A conservative estimate places the
total benefit derived from PDC (polycrystalline diamond compact) bit
sales, regional economic impact, and cost savings for the drilling
industry of almost $2 billion for the decade ending 1992. Another
example is the Advanced Direct Contact Condenser which improved
efficiency of flashed and dry steam power plants by as much as 5% and
increased plant generating efficiency by over 15%.
Some of the nation's geothermal resources have been identified and
developed to some extent. Additional development is possible at these
sites, and industry, with support from the Department's Geothermal
Program, is actively pursuing this course. However, analytical studies
suggest that significant amounts of geothermal resources remain
undiscovered, mostly in the Western states. To bring these ``hidden''
resources into production, a concerted effort is needed on several
fronts, including improvements in exploration technology and
exploratory drilling.
We estimate that only about 10 percent of geothermal resources have
visible expression at the surface of the Earth. The challenge is to
develop instruments and techniques that allow resource detection and
characterization with minimal exploratory drilling. The Program is
meeting this challenge with the development and testing of exploration
tools and techniques adapted to geothermal conditions. For example, the
Department, in conjunction with the California Energy Commission, is
providing technical support to an industry partner in the design,
fabrication, and testing of a new electromagnetic tool for exploratory
wells. The tool will have the capability of scanning for geothermal
resources at considerable distances from the well.
Projects designed to locate new resources through cost-shared
drilling of exploratory wells with industry partners comprise an
important part of our program. Last fiscal year, we awarded seven
grants, valued at $6.8 million, to industry partners for support of
exploration and development of new or previously undiscovered
geothermal resources in four western states. We consider this work to
be among the highest priorities for our Program. In addition, the
Program has recently been working with U.S.G.S. to explore possible
areas of cooperation in assessing geothermal resources in the Great
Basin.
A major issue associated with increasing the use of geothermal
energy in the Western states is the use of public lands. The Department
hosted a workshop in November 2000, through the National Renewable
Energy Laboratory to discuss geothermal facility siting issues on
Federal lands. This event was co-sponsored by the Geothermal Energy
Association and the Idaho National Engineering and Environmental
Laboratory. Participants included representatives of the geothermal
industry, Federal agencies, including the DOE, the U.S. Bureau of Land
Management, the U.S. Forest Service, the U.S. Fish and Wildlife
Service, the U.S. Minerals Management Service, state agencies, and
independent consultants.
The workshop was designed to further the discussion begun at an
informal kick-off meeting in September 2000 at the Geothermal Resources
Council Annual Meeting in San Francisco, CA. Participants in that
meeting, which included geothermal industry and Federal officials,
agreed that geothermal facility siting issues are critical to the
expanded and timely use of geothermal energy in the U.S. They requested
continuing discussion to better define these issues and to develop and
recommend potential solutions.
As a result of this workshop, the Department of Energy is
considering a high priority recommendation by the participants to
establish, in cooperation with other Federal agencies and stakeholders
a National Geothermal Coordinating Committee (NGCC), modeled after the
National Wind Coordinating Committee. The NGCC would include broad
representation of Federal and state agencies, the geothermal industry,
and public interest groups on geothermal issues. The purpose would be
to facilitate communication and coordination of information exchange
among the parties. The NGCC would meet on a regular basis to consider
national consensus actions to facilitate the use of geothermal
resources. The NGCC would not be involved in agency decisions or in
actions by individual agencies. A second recommendation made by the
participants at the workshop was to expand efforts to understand the
social impacts of geothermal siting, both on Federal and private lands.
The drilling of wells constitutes 30-50 percent of the total cost
of a geothermal power project. Geothermal wells cost significantly more
than oil and gas wells (on a per foot basis) due to the difficult
drilling conditions found in geothermal environments. Our research goal
is to decrease the cost of drilling geothermal wells by 50 percent with
the development of a new geothermal advanced drilling system. This
system will build on recent advances in oil and gas drilling and
include innovations and adaptations particular to geothermal's needs.
In addition to technical assistance, the Department of Energy
geothermal program provides support at state and local levels to
address issues impacting the development of geothermal power. Working
in conjunction with the U.S. geothermal industry, power producers and
suppliers, industrial and other major energy consumers, the
Department's Regional Offices and national laboratories provide
technical support, guidance, information and cost-shared funding to
regional, state and local agencies to explore and develop their
geothermal energy resources. By highlighting the benefits of geothermal
energy, our program is helping state and local communities become aware
of the benefits and advantages of geothermal energy.
In this effort, we focus on a few strategic areas. One area is
Federal energy management to increase the purchase and use of
geothermal-generated electricity at facilities operated by the Federal
government, the Nation's largest single energy user. We also provide
support for state-level activities to explore geothermal resources and
benefits from development. Finally, we provide outreach and other
support such as resource assessments, mapping, general information to
help public officials, industry, and energy consumers to make informed
decisions on energy generation and use.
In conclusion, DOE's research programs have supported the
development of advanced geothermal technology. However, more remains to
be done to advance the technology and overcome existing barriers to
development.
Thank you again for the opportunity to appear before the
Subcommittee and I look forward to working with the Members to
undertake a balanced effort to capture the benefits of our nation's
geothermal resources.
______
[Additional material submitted for the record by Mr. Dixon
follows:]
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Mrs. Cubin. Thank you very much, Dr. Dixon.
The Chair now recognizes Mr. Anderson.
STATEMENT OF BOB ANDERSON, DEPUTY ASSISTANT DIRECTOR, MINERALS,
REALTY AND RESOURCE PROTECTION, U.S. BUREAU OF LAND MANAGEMENT;
ACCOMPANIED BY HAROLD CORLEY, GEOLOGIST, U.S. MINERALS
MANAGEMENT SERVICE
Mr. Anderson. Madam Chairman and members of the committee,
I appreciate the opportunity to be here today to discuss the
Bureau of Land Management's (BLM) geothermal leasing program. I
am accompanied by Harry Corley, a geologist with the Minerals
Management Service. Mr. Corley is an expert on royalty
calculation and collection, and is available to answer
questions.
The BLM, under the Geothermal Steam Act of 1970, is
responsible for leasing Federal lands and reviewing permit
applications for geothermal development. This authority
encompasses about 570 million acres of BLM land, National
Forest System lands, and other Federal lands, as well as
private lands where the mineral rights have been retained by
the Federal Government.
Much of the geothermal activity on Federal lands takes
place in California and Nevada. California has 83 leases, 23 of
which are producing; while Nevada has 126 leases, 27 of which
are producing. More than 80 percent of the electrical
generation from Federal geothermal resources occurs in
California. Other states with geothermal activity include Utah,
New Mexico, Oregon, and Washington.
The BLM's geothermal program has 54 producing leases, with
an associated 29 power plants. These plants have a total
capacity of 1,250 megawatts, and supply the needs of 1.2
million homes. Annual electricity sales from these plants
exceeds $400 million.
The BLM places a priority on completing leasing and permit
applications in a timely manner. Leasing issues we are facing
include whether land use planning documents adequately address
environmental, cultural, and specific plant and animal
concerns.
Many of our land use plans have matured, and revisions must
be made. We are streamlining the review process to address
pending lease applications, and working to improve our
coordination with federal, state, and county agencies. Due to
energy demands and industry expectations for new power plant
projects located on Federal lands, we expect to receive an
increase in both geothermal development and right-of-way
applications.
Recently, increased interest in geothermal development has
occurred in Nevada. Since the beginning of 2001, Nevada BLM has
received 44 non-competitive lease applications totalling about
100,000 acres. The geothermal industry has also requested BLM
Nevada to conduct a competitive lease sale by this summer. The
non-competitive applications and lease sale will nearly double
the acres already leased in Nevada. Operators have stated
publicly that they expect to develop 200 to 500 megawatts of
new generation capacity over the next two to 5 years.
Public lands are available for leasing only after they have
been evaluated through BLM's multiple-use planning process.
Federal lands located in a known geothermal resource area are
leased competitively, and any Federal lands not located within
these areas are leased non-competitively.
A lease may be no larger than 2,560 acres, and they are
issued for 10 years. As long as commercial quantities of
geothermal resources exist, the leases may be extended for up
to 80 years. The BLM currently manages 139 competitive leases,
and 148 non-competitive leases.
The Federal Government charges a royalty on geothermal
production that is between 10 to 15 percent on the amount or
value of the heat or energy produced on the lease. Most leases
are at the 10 percent royalty rate. Federal revenues are
disbursed according to the following Reclamation Act formula:
50 percent back to the state government in which the lease is
located; 40 percent to the Reclamation Fund; and the remaining
10 percent to the United States General Fund.
Just to give you a comparison of revenues collected in the
last 4 years, in 1997 we had about $26 million collected from
royalties; in 1998, $18 million; dropping down to $10 million
in 1999; and back up to $16 million in 2000.
In most cases, Federal royalties track the value of
electricity, which is normally the end product of geothermal
production. Price differences explain the fluctuations in year-
to-year revenue collection.
Madam Chairman, this is just a brief summary of BLM's
geothermal leasing program. I would be pleased to answer your
questions.
[The prepared statement of Mr. Bob Anderson follows:]
Statement of Bob Anderson, Deputy Assistant Director, Minerals, Realty
& Resource Protection, Bureau of Land Management, U.S. Department of
the Interior
Madame Chairman and members of the Committee, I appreciate the
opportunity to appear here today to discuss the Bureau of Land
Management's (BLM) geothermal leasing program. I am accompanied by
Harry Corley, a geologist with the Minerals Management Service (MMS).
The BLM, pursuant to the Geothermal Steam Act of 1970, as amended,
is responsible for leasing Federal lands and reviewing permit
applications for geothermal development. This authority encompasses
about 570 million acres of BLM land, National Forest System lands (with
concurrence of the Forest Service), and other Federal lands, as well as
private lands where the mineral rights have been retained by the
Federal Government.
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 rock in the earth's crust. Geothermal resources, in
reservoirs of steam or hot water, are available in several western
states, Alaska, and Hawaii. The highest temperature resources are
generally used only for electric power generation. Low and moderate
temperature geothermal resources are used for heating of buildings,
industrial processes, greenhouses, and aquaculture.
BLM S GEOTHERMAL PROGRAM
Much of the geothermal activity on Federal lands takes place in
California and Nevada. California has 83 leases, 23 of which are
producing, while Nevada has 126 leases, 27 of which are producing. More
than 80% of the electrical generation from Federal geothermal resources
occurs in California. Other states with geothermal activity include
Utah, New Mexico and Oregon. The BLM's geothermal program has 51
producing leases. The BLM administers the 29 power plants using Federal
resources in California, Utah and Nevada. The plants have a total
capacity of 1250 MWs, and supply the needs of 1.2 million homes. Annual
electricity sales from these plants exceed $400 million.
The BLM places a priority on completing leasing and permit
applications expeditiously. Leasing issues we are facing include
whether planning documents adequately address developing environmental,
cultural, and specific plant and animal concerns. We are streamlining
the review process to address pending lease applications and working to
improve coordination with cooperating Federal, State, and county
agencies. Due to industry expectations for new power plant projects
located on Federal lands, we expect to receive a dramatic increase in
both permit and right-of-way applications
Recently, increased interest in geothermal development has occurred
in Nevada. Nevada's population growth and regional energy demands are
stimulating a rapid increase in interest to develop geothermal
resources for electrical generation. Since the beginning of 2001,
Nevada BLM has received 44 noncompetitive lease applications totaling
approximately 100,000 acres. The geothermal industry has also requested
BLM Nevada conduct a competitive lease sale by this summer. The
noncompetitive applications and the lease sale will nearly double acres
leased in Nevada. Operators have stated publicly that they expect to
develop 200 to 500 megawatts of new generation capacity over the next
two to five years. The President's fiscal year 2002 budget request
provides the BLM with an additional $50,000 to process geothermal lease
applications and the increase in the number of permit applications in
Nevada. BLM Nevada is also reassigning staff and program resources to
address the increasing workload.
LEASING
Public lands are available for leasing only after they have been
evaluated through BLM's multiple-use planning process (National
Environmental Policy Act, NEPA, and Federal Land Policy and Management
Act, FLPMA). Stipulations may be placed on leases to protect other
resources through mitigation or restrictions on surface use. For
example, geothermal leasing is not allowed on lands within National
Parks, wilderness areas, wilderness study areas, or National Recreation
Areas. There are two processes for leasing geothermal resources--
competitive and non-competitive.
Federal lands located in a Known Geothermal Resource Area (KGRA)
are leased competitively, and any Federal lands not located in KGRAs
are leased noncompetitively. BLM designates KGRA based on: a) geologic
and technical evidence, b) proximity to wells capable of production in
commercial quantities, and c) existence of competitive interest. BLM
currently has 48 designated KGRAs. They are located in California,
Nevada, Oregon, Utah and New Mexico. A lease may be no larger than
2,560 acres. Leases are issued for 10 years. As long as commercial
quantities of geothermal resources exist, the leases may be extended
for up to 40 years. The BLM currently manages 139 competitive leases
(totaling 174,000 acres) and 148 non-competitive leases (totaling
173,000 acres).
Federal lands located in a KGRA are leased through a competitive
sale using sealed bids. BLM state offices determine how often to
conduct competitive sales. Prior to a sale, the BLM makes a
Determination of NEPA Adequacy (DNA) assuring that the requirements of
NEPA, the Endangered Species Act, and cultural resource policies are
satisfactorily addressed. Those lands that have been cleared for
leasing are parceled, and stipulations prepared, and published in a
Notice of Competitive Geothermal Lease Sale. BLM establishes a minimum
acceptable bid for each parcel, but this information is not disclosed
to the public. All bids are opened, and the highest bid meeting or
exceeding the minimum acceptable bid is awarded the lease.
An applicant may file noncompetitive lease offers for any Federal
lands not located in a KGRA. The BLM state and field offices review the
lands receiving offers for availability and prepare DNAs. Stipulations
are prepared for those lands that have been cleared for leasing.
FEDERAL REVENUES
The Federal Government charges a royalty on geothermal production
that is between 10% to 15% on the amount or value of the heat or energy
produced on the lease. Most leases are at the 10% royalty rate. Federal
revenues are disbursed according to the following Reclamation Act
formula: 50% to the State in which the lease is located; 40% to the
Reclamation Fund; and the remaining 10% to the United States General
Fund.
[GRAPHIC] [TIFF OMITTED] T2134.001
In most cases, Federal royalties track the value of electricity
which is normally the end product of geothermal production. Price
differences explain the fluctuations in year-to-year revenue
collections shown in the table. The MMS calculates royalties for
Federal geothermal resources through indirect methods because few
Federal geothermal resources are subject to a sales transaction on
which to base the value for royalty purposes. This is due to the fact
that most Federal geothermal lessees are also owners of the electric
generating power plant.
Madame Chairman, I hope this gives the Committee a better
understanding of the BLM's geothermal leasing program. I would be
pleased to answer any questions that you or the other members of the
Committee may have.
______
Mrs. Cubin. Thank you very much, Mr. Anderson.
I will start the round of questioning. I would like to
remind the members that the Committee Rule 3(C) imposes a 5-
minute limit on questions.
I will start my questioning with Mr. Anderson. The BLM
really has its hands full, and there is no doubt about that.
And there will be more pressure brought on the BLM because of
permitting that is required to meet this energy crunch that we
are in and that, frankly, will not go away. We have heard in
the past, and I agree, that BLM needs more resources in order
to be able to perform the actions that they need to perform for
permits to produce the energy. And we want to work with you on
that.
Does the BLM consult with the USGS to identify known
geothermal and potential geothermal areas during the scoping
process for area management plans?
Mr. Anderson. Yes, we do.
Mrs. Cubin. Are there any bottlenecks in the geothermal
leasing process caused by conflicting requirements in different
laws that you can point to?
Mr. Anderson. We have discussed that, both from a
regulatory standpoint and statutory standpoint, and we do not
think there are.
Mrs. Cubin. Which is different than the case for other
minerals, or for minerals. Because we hear all the time that
there are conflicting requirements in different laws--you know,
Clean Air, Clean Water, ESA, or whatever, that cause conflicts
and delays in permitting.
Mr. Anderson. Certainly there are requirements and
regulations that provide that we must comply with other Federal
and state laws. And you have mentioned a few of those--Clean
Air, Clean Water, and of course the Endangered Species Act; and
also, consultation with Native Americans.
Mrs. Cubin. So is this a problem with permitting for
geothermal as well as other energy sources?
Mr. Anderson. Well, in terms of complying with other
Federal and state laws, we must do that with all permitting
activities.
Mrs. Cubin. Right.
Mr. Anderson. All programs-- mining laws, or leasing laws,
or mineral materials--must comply.
Mrs. Cubin. What was the last plant to be built on Federal
geothermal leases, and when did that occur?
Mr. Anderson. The Brady plant in Nevada, in 1992.
Mrs. Cubin. And how big is that plant?
Mr. Anderson. It's about 24 megawatts.
Rich Hoops, by the way, is the staff behind me. He is our
person from BLM Nevada who is probably the foremost expert in
geothermal resources.
Mrs. Cubin. Good. Thank you. We need you guys.
Now I would like to ask Dr. Williams, the Great Basin area
in the Western United States is clearly the best place now to
be looking for geothermal energy potential. But electricity has
to be routed a long distance to markets, so transmission losses
are significant. Would you agree with that? Are there direct
use applications that could utilize geothermal heat to
manufacture a product more efficiently, or to increase crop
yields?
Dr. Williams. Oh, yes, there are abundant direct use
applications in the Great Basin and in other parts of the West,
extending into the Pacific Northwest and farther east. With
some of those, the current uses have just barely scratched the
surface of that.
Mrs. Cubin. Could you give me some examples of some of
those potential things?
Dr. Williams. Direct use has the potential to be of great
value in providing district heating for remote communities. It
has a potential for various types of agricultural process heat.
There have been a number of different uses of direct heat in
industrial applications.
Mrs. Cubin. Thank you. Dr. Dixon, President Bush just
yesterday said that Federal buildings and facilities,
especially in the West, should lead the way in electricity
conservation. Are there economic ways for the Federal
Government to heat and cool their buildings with geothermal
heat exchanges to reduce electricity demand?
Dr. Dixon. Thank you, Madam Chairman. Yes, we believe there
are a number of steps that can be taken. There are a number of
steps that we are currently taking. At the Federal Energy
Management Program, which resides at the Department of Energy--
a sister office of my own--we work very closely together to
develop a wide range of renewable energy sources, including
geothermal.
We also have a network of regional offices across America.
We work with the states; not only Federal facilities, but state
government facilities. We have identified a number of pilots in
this area, and we have solicitations to work with governments
on this topic.
Mrs. Cubin. Thank you. The Chair now recognizes Mr. Kind.
Mr. Kind. Thank you, Madam Chair. And thank you again for
your testimony.
I would like you to respond to this. This is part of the
problem I see, as far as the development and the future of
geothermal. I think we are seeing this right now with the
energy crunch that we have around the country, and the $2-plus
gas prices in the Upper Midwest. We need to have marketing
incentives to make the initial up-front investment and then to
proceed on to these renewables. What types of incentives do we
need to put in place in order to encourage the type of
investment that is going to be needed in order to make
geothermal a significant piece of the energy pie?
And it is my understanding now that with the gas price
increase in the Midwest, it is not so much a matter of supply,
but lack of refinery capacity. Our refineries are working at 98
percent capacity. We have not done any major investments in new
refineries in the country because of the once cheap gas
supplies and abundant gas supplies in the not too distant past,
so there was not any marketing incentive for the companies to
make these investments up front.
What types of incentives do you think are necessary to
encourage these types of investments in the future? Dr. Dixon,
let's start with you.
Dr. Dixon. Thank you. I would be pleased to answer your
question. We think there are a number of things that can be
done to help realize the potential of geothermal energy.
Certainly, we need to take a long, hard look at the tax
treatment of geothermal energy resources.
Secondly, I think we are all here to tell you today that we
need to deal with the regulatory and policy environment. There
are things we can do in the Federal Government, working with
state governments and partnerships with the private sector. And
I am very pleased to see that the private sector will be the
second part of the testimony today, because we are talking
about partnerships here, meaningful partnerships.
Third, we need to work on some of the transmission and
distribution issues. Direct heat is also important, and
particularly for those 300 towns and cities in the Western U.S.
that sit very near to or on top of geothermal deposits. But
wheeling the energy across the country is something which the
Federal Energy Regulatory Commission, the Department of Energy,
and others, we all have a piece of that action. We need to work
together better, smarter, in the future to deal with some of
these issues.
And then finally, I do not want to leave out the fact that
we need to continue to work together and invest in
characterizing the resource, identifying where the resource is
and, in fact, continue to develop the technologies needed to
harvest the resource on an economic basis. I mentioned during
my testimony that it is not only technology issues, but also
economic issues. We need to understand the full range of
benefits, the co-benefits, mineral extraction and other topics.
So those are some topics that are on my mind this morning.
I would be glad to elaborate further, but I will turn the
microphone to other witnesses if they care to respond.
Mr. Kind. Do any other witnesses care to comment?
Mr. Anderson. I think we have a good opportunity, with the
Federal Government, BLM, and the Forest Service. Perhaps one of
the most important things is access to these resources. As we
proceed with updating our land use plans, we need to have our
managers realize the scarcity of the values and the energy
demands being placed on us now--in consideration, of course, of
the other resources--and make those decisions, based on that
scarcity of value.
In addition, we need a consistent process for the way we
proceed with applications. We need to have a process that is
consistent among the states in the way we approach these
permiting and leasing applications, in order to get through
these processes in a timely manner.
Mr. Kind. Mr. Anderson, let me follow up on that. Is it
quick with resources right now? I am pretty confident that the
second panel is going to be talking a little bit about the
process and the permitting obstacles that they have confronted.
And I am a little bit concerned.
I appreciate the fact that we have a President who is using
geothermal sources for heating his own water in a ranch down in
Texas. But the bid that was submitted--and correct me if I am
wrong--I think it is only calling for a $50,000 increase in the
permitting process for BLM land. Is that going to be enough for
you to get to the point where you can streamline this--
especially in light of your testimony and the factors that you
all are working under--to streamline the permitting process?
Mr. Anderson. Well, of course, we have to work within the
constraints of the 2002 budget, and the $50,000 increase is for
that year. We are going to do the best we can with that
increase, starting with Nevada. We are going to give that money
to Nevada to help them with their processing. We could always
use more, no question about that.
There is also an opportunity to shift priorities within
what we call our ``1330 Program''--that is where the geothermal
program is funded--to put more emphasis in geothermal, rather
than perhaps maybe non-energy leasing or mineral material
programs, although both of those are important as well.
Rich Hoops, who I referred to before, and the other
geothermal experts in the West are working with committees and
trying to get together on a monthly basis to plan for how they
can best approach these applications in a streamlined fashion.
So we are working on it, and we could always use more, of
course.
Mr. Kind. We will be happy to work with you in the future
on that and on what we can do to assist you here in Congress.
Mr. Anderson. Thank you.
Mr. Kind. Thank you, Madam Chair.
Mrs. Cubin. The Chair now recognizes Mr. Gibbons.
Mr. Gibbons. Thank you, Madam Chairman. And perhaps I could
address my first question over to Dr. Williams and Dr. Dixon,
with regard to the USGS and the Department of Energy studies
with regard to geothermal potential. Have you completed your
studies with regard to geothermal potential in Nevada?
Dr. Williams. Right now we do not really have a very active
program on geothermal assessments within the USGS. The studies
were completed in the past. Much of the knowledge about
specific geothermal systems within Nevada has evolved.
Mr. Gibbons. That would be in that Circular 790 that you
mentioned earlier?
Dr. Williams. Yes. And there is much more direct
experience. There are holes in the ground, power plants that
have been installed, histories with those systems. And so, much
of that information could be updated.
Mr. Gibbons. So not a lot would have been done in the last
10 years, is what you are saying?
Dr. Williams. No, not very much.
Mr. Gibbons. In terms of megawatt output, how much
geothermal energy, according to your knowledge--and maybe Mr.
Anderson and his staff could add into this--how much geothermal
energy is located in the Black Rock National Conservation Area
that was created in northwestern Nevada last year with Senate
Bill 2273? How much geothermal energy is in that area?
Dr. Williams. I know about the studies that have been
conducted there, and I know that there is geothermal potential.
I cannot say right now off the top of my head how much
potential there is. I could certainly get that information and
add it to the record of testimony.
Mr. Gibbons. I would certainly appreciate that, Dr.
Williams.
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Mr. Gibbons. I am looking at your heat flow chart in your
publication here, which shows greater than a 100-megawatt
production area in that northwest area of Nevada, which is
exactly where the national conservation area is located.
Let me turn the question over to Mr. Anderson. Mr.
Anderson, you know about the Black Rock Desert National
Conservation Area, because that is part of the BLM's management
policy out there. How much of the geothermal that is listed by
the USGS is available for production in the national
conservation area?
Mr. Anderson. Because of the national conservation area
designation, it is withdrawn from leasing on Federal lands.
Mr. Gibbons. So none of it is available?
Mr. Anderson. None of it is available.
Mr. Gibbons. Mr. Anderson, in view of the recent energy
crisis which is sort of sweeping the West, would you be willing
to make any recommended changes to the Black Rock Desert
National Conservation Area to allow development of that
geothermal energy resource?
Mr. Anderson. I can't really speak to that, in terms of a
``Yes'' or a ``No'' today. But I could just tell you--and you
probably know this--that Secretary Norton has sent letters to
the governors of states where recent national monuments have
been designated, asking them if it would be necessary or
conducive to change boundaries of those areas in order to
provide for certain activities such as energy production to
occur.
Mr. Gibbons. Well, with 1,300,000 acres, certainly the
footprint of geothermal energy wouldn't consume a great deal of
that BRDNCA. I am not sure that the footprint of the geothermal
production facilities would by any means destroy the historic
or the cultural values that we tried to protect with the
BRDNCA. I certainly would appreciate any review by the
Administration of those considerations in the BRDNCA.
Let me ask also another question. Would you be willing to
change the royalty mix, or the distribution of the royalty
income, so that more of that royalty resource goes to the
permitting process in your facility, or your department?
Mr. Anderson. Well, of course, I cannot provide a ``Yes''
or ``No'' on that, too. But it seems to me, you are talking
about some kind of a cost recovery or reimbursement plan?
Mr. Gibbons. Well, much the same as we do in other
industries that have a royalty. We use part of that income
stream to cover the cost and the expenses of the permitting
process, to expedite the permitting process. It seems to me
that that would be the identified and true national benefit of
having a royalty, is to permit an expedient, fast process for
looking at these systems and getting the process through the
system of bureaucracy. And that is what I am directing my
question to.
Mr. Anderson. Yes, it sounds like it has merit. And we
would sure be willing to take a look at that and give you some
recommendations, if you would like.
Mr. Gibbons. Thank you. Thank you, Madam Chairman.
Mrs. Cubin. The Chair now recognizes Mrs. Napolitano. I do
not care; whoever wants to go first. I am doing in order of
people that showed up.
Mrs. Napolitano. Thank you, Madam Chair.
One of the things that I was honing in on was the fact that
I believe it was Mr. Anderson that indicated that there were
private projects going on with the State of California. Is that
right? In regard to the heating of buildings, or the ability to
be able to utilize thermal energy facilities; or in other
words, the energy provided by that to heat some of the
buildings. Was it Mr. Anderson, or was it Dr. Dixon? I am not
sure which one of you talked about it, but one of you mentioned
it and it caught my attention.
Where are those pilots, and are they up and running? And
how can that be expanded? How is it being formulated? The lease
is already there, the electricity is already being utilized?
Would you explain?
Dr. Dixon. Yes, I would be glad to try to answer your
question. I cannot be specific, but I will answer the best I
can this morning, and will be glad to get back with a more
detailed answer on the record.
We have an Office of Wind and Geothermal Energy at the
Department, and we have issued a number of solicitations which
provide opportunities for the private sector or government
entities to work in partnership with the Department to explore
resources, to develop the resources. There is a full range of
solicitations. I will be glad to provide that list to you for
the record.
[The information referred to follows:]
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We are also working through our regional offices. The
Department of Energy has regional offices in six different
locations. We work with state governments. We provide technical
assistance. We provide financial assistance. And we organize
workshops.
I wanted to respond earlier to Mr. Gibbons' question, that
we have been very active in the State of Nevada. We organized,
just for an example, a workshop in the State of Nevada, at
Reno, in which we involved Congressional delegations and in
which we took a look at the current resources, what we could do
to develop the resources in the future; worked with the state
geologist and various stakeholders and actors in that
particular arena to help advance the ball, so to speak, to
characterize the resources, to identify the technology
bottlenecks, as well as the siting and permitting kinds of
issues and the access.
We are also working in the arena of the direct use of heat
for heating and cooling systems for towns and cities; again, a
broad range of financial assistance, solicitations, that can
deal with this issue.
The Department, as you know, engaged in, and actually it
was a very healthy program, in which we developed the
technologies for geothermal heat pump systems. And of course,
we handed that off to the private sector several years ago. And
of course we have seen an explosion of the use of direct heat
cooling systems--the reference to President Bush's ranch in
Crawford, Texas. But certainly, this technology was developed
at the DOE complex, and then handed off--rightly so--to the
private sector, and is now a robust activity.
So those are some of the activities we have underway. We
will be glad to provide more information on the record.
Mrs. Napolitano. Thank you. I was under the impression that
you already had some kind of a program or pilot commencing in
an area--whether in Nevada or California--that at least gave us
an idea that we may be able to promote or try to sell our
municipalities into taking a look at becoming part of. If you
have programs or workshops, that will allow them to begin to
understand how they can tap into it, especially in my area. I
have no geothermal in L.A. County, or at least in my district.
So that would have to be braided in, so to speak. In other
words, I cannot produce it there.
But we have had in the past suggestions that we may be able
to use the water mains--12-inch, I believe it is--to be able to
generate the cooling systems and heating systems for, say, a
civic center area, by utilizing the systems that provide like
your camper packages, keep your food cold, that kind of
generation of cooling, and then of course providing some
heating.
I don't know, there are all kinds of things that we want to
learn, so that we can find out what agencies are working, what
programs do you have, what services are you offering? What is
it that we can take back and offer so that we can begin to gear
up for not just the energy crisis, but the solutions, so that
we can make our citizens a little more comfortable in their
daily life and in their work sites?
Dr. Dixon. Yes, well, again, we have a full range of
activities, financial assistance, technical assistance--
Mrs. Napolitano. But you do not have ongoing programs.
Dr. Dixon. Yes, we do.
Mrs. Napolitano. Where?
Dr. Dixon. The Federal Energy Management Program, which is
a Department activity. We have partnerships with Federal
facilities across the United States. There are also specific
grants through our regional offices to states and
municipalities. I cannot tell you off the top of my head for
the record, but I will provide them.
Mrs. Napolitano. Could you provide it?
May I, Madam Chair, ask that it will be provided to the
members of this committee?
Dr. Dixon. I will be happy to.
Mrs. Napolitano. So that at least some of those that are
interested might be able to tap into those resources.
Mrs. Cubin. Certainly.
Mrs. Napolitano. Thank you.
[The information referred to follows:]
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Mrs. Cubin. The Chair now recognizes Mr. Rehberg.
Mr. Rehberg. Thank you, Madam Chairman.
Dr. Williams, I realize the geothermal resource map that we
are looking at is not intended to be a precise map, but as I
look at northwest Wyoming and think of Yellowstone Park, would
you intend it to be--I do not mean a potential source of
geothermal, but would it be considered good to excellent?
Dr. Williams. Oh, certainly, if that was considered an
accessible geothermal resource.
Mr. Rehberg. Give me directions. I am trying to find what
you determined in your earlier studies to be good to excellent.
Having staffed this committee back 20 years ago in 1981, Baker,
Montana, which is in eastern Montana, got all excited about the
potential for geothermal. And I assume that they found that
source as the result of oil well drilling in that area. And I
notice on the map it does not show up as a potential. So I am
thinking to myself perhaps it does not have the same
opportunity or potential because it is of a different
temperature.
Dr. Williams. Generally, as the very first order, you need
the temperature. The second thing you need for classic
geothermal systems is a fluid. You need rock that you can move
natural fluid through. And so when you consider something like
Yellowstone, where you have the natural geysers and everything,
there is all the heat and fluid right there, practically at the
surface.
And so many cases--I cannot speak specifically to the one
you mentioned--but often in cases in which people thought there
was a geothermal resource and it did not pan out, it is usually
because the near-surface indications of what the temperature
would be at depth turned out not to be confirmed; that things
were either cooler at depth or there was not an available fluid
to use to exploit the system.
Mr. Rehberg. I would assume that the term ``geothermal''
means the heat source, as opposed to the water itself.
Dr. Williams. Yes. I mean, just specifically, the term
``geothermal'' refers to the earth's heat.
Mr. Rehberg. Does it occur in like an artesian situation,
where you go in and you drill a well and it will automatically
come to the surface?
Dr. Williams. It certainly can, yes. But it does not have
to. It does not have to.
Mr. Rehberg. In reading your testimony, it suggests that
the cost of drilling the geothermals is so much more expensive.
What about the geology creates that situation? It would seem
like it would be just as easy as drilling in any oil well
situation.
Dr. Williams. It varies. Some of them are pretty much very
similar to oil well drilling technology. But in other cases,
for example, the Geysers Geothermal Field north of San
Francisco is what we call a vapor-dominated reservoir. It is a
steam reservoir. And so when they reach the reservoir, they
have to use air drilling.
Also, geothermal wells require a very large diameter in
order to get proper production out. And the larger the diameter
of the well that is drilled, the more expensive it is.
Mr. Rehberg. In your testimony, looking at the pictures of
the facilities and of the plants, maybe you cannot tell me and
maybe this is beyond your expertise, but are those one well,
two wells, three wells?
Dr. Williams. For individual power plants?
Mr. Rehberg. Yes.
Dr. Williams. They are usually on the order of a half-dozen
to a dozen wells, something on that order, for a single power
plant. It varies, of course, because many power plants are of
different size and capacity, but that would be typical.
Mr. Rehberg. Mr. Anderson, if I could ask you a question
about transferring the water from basins, is that one of the
environmental concerns that exist when we talk about it? I
remember Mo Udall always wanted a coal slurry pipeline. And it
turned out, he did not really want our coal from Montana; he
really wanted our water.
Mr. Anderson. Yes.
Mr. Rehberg. We caught him. Is there a concern among the
states or within the agencies?
Mr. Anderson. Sure. There is a concern. You see that with
the development of coal-bed methane right now in Wyoming; there
are a lot of water issues there. And with the geysers, for
example, in California, the city of Santa Rosa, if I am
correct, is transporting their sewer water--of course, they
clean it up first--into the geysers, to recharge the hot-body
system. There is also another opportunity from one of the other
communities there to do the same thing. We actually saw a
decline in the pressure there in the geysers a couple of years
ago, but it appears that it is coming back because we are able
to reinject that water.
If you take the water from another source, you are going to
be criticized perhaps, because you are robbing ``Peter'' to pay
``Paul,'' so to speak. You would be taking it away from
agriculture, for example, so it is a sensitive area.
Mr. Rehberg. Madam Chair, I just had a question. Perhaps it
has been answered. Do we have the '91 assessment somewhere in
our information?
Mrs. Cubin. No, we do not.
Mr. Rehberg. I think it is referred to. And Dr. Williams, I
think you had mentioned it, or someone did, that there was
another assessment in '91. And I was just wondering if that was
available for us.
Dr. Williams. The last national assessment we did was the
1978 one. But I know the DOE has looked at this.
Dr. Dixon. Yes, sir. It is in the Department of Energy
testimony. And we would be glad to provide a copy for the
record.
Mr. Rehberg. If you could, thank you. I would like to take
a look at that if I could, please. Thank you.
[The information referred to above, Department of Energy/
Energy Information Administration Assessment on Geothermal
Energy in the Western United States and Hawaii: Resources and
Projected Electricity Generation Supplies, has been retained in
the Committee's official files]
Mrs. Cubin. One last thing. In other hearings we have tried
to address how to help the land agency to be able to process
permits more quickly and still have the same work product, have
a good work product. And we have discussed in the past the idea
of allowing some of the royalty that is generated in a
particular BLM region, for example, to stay in that region,
because that is where the biggest need is.
And since especially, comparatively speaking, the royalty
from geothermal is not very much, it might be better, instead
of putting that back into the General Fund, to leave a portion
of that money in the area where the permitting and the siting
and all take place. That might expedite it. Do you have
opinions on that?
Mr. Anderson. Well, Mr. Gibbons asked a similar question,
and I think that proposal has merit. It is comparable to the
services we provide for recreation. We are getting fees for
recreational purposes, and it is sort of along the same line.
Those fees would go back to the office that is providing the
service. I think it has merit. And we could certainly explore
that.
Mrs. Cubin. Well, the Congress, I think, has a huge role in
untangling the web that we have created through laws and that
has been created through regulations that just make such a
tangled mess of regulations. It is very difficult and time
consuming and expensive to get through the process. Well, thank
you very much.
Mr. Gibbons. Madam Chairman.
Mrs. Cubin. Yes? Mrs. Napolitano? Sure.
Mrs. Napolitano. One of the things that also is interesting
to note is that there are leases that are not being utilized.
And that goes either to Mr. Anderson or Mr. Dixon. And I am
wondering whether you can tell us the reason you believe these
are not operable, or the reason why they are not functioning.
Mr. Anderson. I think in the past we have not had the
pricing scenarios that we have today, and rolling blackouts,
such that certainly the price of energy is going up. We are
beginning to see an increase of activity in our offices, in
terms of new applications. And I am sure some of the
applications or leases that we have on record now will be
seeing more activity in terms of plans of operations to perhaps
set some of those up with a power plant.
It is a little too early to say, but a lot depends on the
resource potential of that particular heat source, and the
distance to the market, environmental considerations, and so
on. But they all play a role in determining whether or not
these undeveloped leases actually are developed.
Mrs. Napolitano. For a developable lease, what would be a
time frame for it to be up and running and producing?
Mr. Anderson. Well, we have 29 power plants. And if I were
to guess, I would say that nearly all of those were permitted
in less than 2 years.
Mrs. Napolitano. In less than two. Is there a time span
limit on their ability to continue producing? In other words,
is there a lifeline on them?
Mr. Anderson. Well, the Act calls for a 10-year primary
term, extendable to 40 years, and then you can get another
extension onto that.
Mrs. Napolitano. Okay.
Mr. Anderson. So you have, basically, up to 90 or 100
years.
Mrs. Napolitano. Thank you. Thank you, Madam Chairman.
Mrs. Cubin. Mr. Gibbons?
Mr. Gibbons. Thank you. It is an interesting question that
my colleague proposed about the time line, and I am sure we
will hear from some of our industry colleagues about how long
it has taken them from the time of application to full up-and-
running power plant production.
My question to Mr. Anderson is, of course, you mentioned in
your testimony, which caught my attention, that the amount of
royalty that was brought in over the years has changed. We
started off with a $28 million income from royalty, dropping to
a low point of $10 million, and now today back up to somewhere,
I think you said, about $18 million in the last year.
What has been the time frame over which that drop has
occurred? And what has been the cause for that reduction down
to almost one-third of the royalty income at one point?
Mr. Anderson. The price of electricity is the main reason
that you have those fluctuations. That is the basic one.
Mr. Gibbons. What is the time frame? You started at $28
million.
Mr. Anderson. Yes. That was 1997, where it started out with
$28 million. And in the year 2000, it was back up to $18
million. So it is over a 4-year period of time.
Mr. Gibbons. Over a 4-year time frame. You say at some
point in there that it went to $10 million in royalties.
Mr. Anderson. Yes, 1999.
Mr. Gibbons. Would you mind providing for me what the cost
of electrical energy was at that point in time per kilowatt
hour, compare it with that, so that I can balance out what your
testimony is in '97, the $28 million, to the $10 million
figure, and then back up to the 18? Thank you.
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Mr. Anderson. I think Mr. Corley has some input in that.
Mr. Corley. Thank you, Mr. Gibbons. Our royalties are tied
to the price of electricity. Around 1997, prices for California
were about 3 to 7 cents a kilowatt hour. They were very low at
that time. Since then, of course, with the supply problems with
California, the energy demand has caused an increase in
electricity prices. So we are seeing higher royalties.
Mr. Gibbons. Thank you.
Mrs. Cubin. We thank the panel very much. Mr. Flake, did
you have any questions of the panel?
Mr. Flake. No questions.
Mrs. Cubin. Mr. Rehberg, did you have anything further?
Mr. Rehberg. No, Madam Chairman.
Mrs. Cubin. Thank you very much for being here. We do
appreciate your testimony. And I know that members of this
subcommittee will have some additional questions for you. And
we would ask that you would respond to those in writing, and we
appreciate it very much.
[Whereupon, members of the first panel were excused.]
Mrs. Cubin. I now would like to recognize the second panel
of witnesses: Mr. Karl Gawell, the executive director of
Geothermal Energy Association; Mr. Jack Pigott, electric
regulatory director, Calpine Corporation; Mr. Ross Ain, senior
vice president of Caithness Energy.
Okay. Yes, and Mr. Kenneth Hoffman is accompanying Mr. Ain.
The Chair now recognizes Mr. Gawell to testify for 5
minutes. And I would like to remind you as well that the timing
lights are on. Also, be sure that the microphone is close
enough, because this is transmitted over the Internet.
STATEMENT OF KARL GAWELL, EXECUTIVE DIRECTOR, GEOTHERMAL ENERGY
ASSOCIATION
Mr. Gawell. It is a pleasure to actually be the second
panel, so I can skip a lot of the basics about geothermal
energy. Plus, there are so many Westerners on this
subcommittee--I think that, in fact, one of the few geologists
in Congress actually is here today--that have some
understanding that the earth is hot and that geothermal energy
is theoretically the largest renewable resource we have. The
question is: How do you tap it? How do you use it economically?
The Geothermal Energy Association, which I represent, is a
trade association of about 83 companies and organizations that
are in this business, from direct use to power production. We
have a lot of small companies, a lot of power producers, power
plant developers, that the two other panelists here today will
represent as well, and a lot of companies that are in the
business. Halliburton, Weatherford, a lot of the companies in
the oil field business are also in geothermal as part of their
operation.
In fact, I joined with Dr. Mike Wright in giving a paper to
the American Association of Petroleum Geologists looking at how
geothermal is actually a field with a lot of future for people
in the oil business, because a lot of the same technologies,
techniques, and skills are used in both industries.
Our companies have really three or four priorities that
they feel will make geothermal move forward, and I will briefly
touch on those because they reflect on the tenor of the
hearing.
The first is that to get more geothermal on-line, you have
to address the initial issue that it is very expensive to
build. A geothermal power plant costs about three times as much
as a natural gas power plant to build. Now, the consumer price
of power may be fairly close. Power plants today, greenfield
plants, may come on-line from 5-1/2 cents to 7-1/2 cents,
depending on the location. But the capital cost is, frankly,
enormous. And private investors need to have the right
stability, the right incentives, to do that.
One of the things we are looking at is whether the
production tax credit should be extended across all renewables,
and not just for the wind program. We discussed that with the
Vice President's task force and others, and that is at least
being considered.
But financing is obviously a part. The price of energy
today helps, but as we all know, that is a very volatile thing.
As gas exploration moves forward that may not be, where it is
today, in a couple more years. You need to know you have
stability and you can pay for the investment you can make up
front.
The second issue which my companies have set as their
priority, that fits right into this subcommittee, is public
land: issues of access to the public land, issues of permitting
on the public land. And you will hear a little bit from Calpine
Corporation on sort of what became the poster child of how not
to do geothermal power plant development at Medicine Lake in
northern California.
And thirdly, our companies look at the need for continued
research. We are still learning how to do this. We are still
learning how to tap the heat of the earth, and do it right, and
do it economically. We do not produce ``widgets.'' It is not
one power plant. It is learning how to use this resource; and
research on not just how to reduce costs, but how to move into
areas and produce power where we have never been able to do it
before. So it is very important for us that research into the
whole range of technologies continues.
I wanted to elaborate in response to some of the issues or
the basic question that was framed as: What do we know about
the resource? In my testimony, I pointed out something which I
want you to note about the Geological Survey's testimony. The
last assessment was produced in 1978. The theory of plate
tectonics was not accepted until the late 70's, so most of the
work they did was done even prior to our existing accepted
geologic theories.
There has not been really much of a resource assessment
program in geothermal energy. In resource assessment for oil,
we have got ring maps all over the country. But resource
assessment for geothermal energy has, frankly, not been
seriously funded in over 20 years.
I want to note, land use is an issue. There may not be
specific issues with respect to permitting, but as you will see
with Medicine Lake where it takes over 20 years to get some
kind of a decision on the first power plant, not in a remote,
unknown area, but in a known geothermal resource area--like
issuing a lease on a known oil field, where it takes you 20
years to finally develop it--this sent shock waves through our
industry. And they said, ``If you cannot develop there, where
are you going to be able to develop?''
Do you want to talk financing? You can give this industry
all the financial incentives you want to; but if it takes you
that long from the plan to get it up and running, to get final
decisions from government agencies, the financial incentives
simply will not count. So that is why we think that is
something that we are very, very glad this committee is paying
attention to; the idea that we face the same kinds of problems
as the gas industry, the same that all the renewable industries
face in dealing with the public lands.
And then lastly, I want to respond to Mr. Kind's question
about: Have we met with the Vice President's task force? I met
with the Vice President's task force with a group of trade
association representatives from the renewable industry. I can
tell you that top on our list, in terms of things they could do
to help bring more supplies on, was the extension of the
renewable production tax credit to all of the renewable
technologies.
But also on that list--and this was a cross-cutting list
for the renewable industries--was the issue of permitting and
leasing on public lands. Because the biomass industry, the
geothermal industry, the hydropower industry, and you could add
the wind industry, face the same kinds of difficulties when you
have to suddenly get off of private domain and deal with public
lands. And if you need energy in the West, public land is going
to be a large part of your solution. Thank you.
[The prepared statement of Mr. Karl Gawell follows:]
Statement of Karl Gawell, Executive Director, Geothermal Energy
Association
Honorable Chairwoman and Members of the Subcommittee, thank you for
the opportunity to present the views of members of the Geothermal
Energy Association to this Subcommittee regarding the potential of
geothermal energy on public lands and theobstacles to developing this
important national energy resource. GEA is the trade association that
represents 83 companies and organizations involved in the U.S.
geothermal industry, from power plant owners and operators to small
drilling and exploration companies.
As you may know, GEA wrote Vice President Cheney last month urging
him to include in his upcoming Task Force Report recognition of the
problems facing geothermal energy on public lands. This Subcommittee
and the Task Force have been told similar stories before not just from
the fossil fuel industries, but from the other major renewable
industries as well. Both the National Hydropower Association and the
biomass industry have testified before the House Resources Committee
earlier this year.
Hydropower and biomass are the top two renewable energy producers,
and geothermal is the third. For all three, federal land management and
regulatory agencies present substantial hurdles to their growth in the
United States. Since I work regularly with members of the hydropower
and biomass industries, I know that they share our exasperation with
what sometimes are literally endless bureaucratic processes.
Geothermal Energy
Geothermal energy provides a significant amount of the energy and
electricity consumed in the Western U.S. Geothermal heat provides
energy for direct uses in commercial, industrial and residential
settings in 26 states. Geothermal resources provide substantial
electricity in California, Nevada, Utah and Hawaii. Expanded use of
these resources will provide 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; however,
obstacles created by public land agencies must be removed.
Beyond its energy contribution, geothermal production contributes
directly to 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
nearly 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 benefits 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 future potential for geothermal energy on public lands?
What would the benefits of developing these resources be? These are
difficult questions to answer, in part because the federal efforts of
the U.S. Geological Survey and the Department of Energy to define the
U.S. resource base have not been funded for many years. To be
reasonably accurate, for geothermal energy a ``resource assessment''
would involve not only analysis but also surface exploration, selected
drilling and updated modeling. While individual companies have
conducted some exploration, much of that data is proprietary and since
the collapse of power markets in the early 90s there has been little
interest in high-risk investment.
It is my understanding that the USGS and DOE will also testify
today, so I will leave a discussion of previous estimates to them.
However, I did participate in the workshop sessions that produced the
current DOE Strategic Plan--an effort that brought together many of the
leading experts from industry, the laboratories, and academia. There
was a consensus then that with market support as much as 10,000 MW of
electric capacity could be brought on-line in the West by 2010.
2 Assuming that goal could be reached, the Princeton
Economic Research study defines some of the direct economic benefits.
The cumulative federal royalties from the new geothermal plants would
reach over $7 billion by 2050, and estimated income tax revenues would
exceed $52 billion in nominal dollars. 3 For just royalties,
alone, that would mean an investment of $3.5 billion in schools and
local government facilities in the Western states through their share
of federal royalties.
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\2\ U.S. Department of Energy, Office of Geothermal Technologies,
Strategic Plan for the Geothermal Energy Program, June 1998, page 21.
\3\ Princeton Energy Research Inc, Op. Cit., Volume I, page 17.
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But, whether and when the economic benefits of further geothermal
development are realized will greatly depend upon the action, or
inaction, of the federal land management agencies. Today, about 75% of
U.S. geothermal electricity production takes place on Federal public
lands because that is where most of the resource is located. We expect
that the resources yet to be developed also will be predominantly
located on public lands. While the previous Administration espoused
development of more geothermal resources in the West through its
``GeoPowering the West'' initiative, too little was done to address the
underlying problems that prevent investment in geothermal projects on
public lands.
New geothermal development requires the timely and reasonable
administration of federal leasing, permitting, and environmental
reviews by public land management agencies. Unfortunately, the recent
past has been one characterized by bureaucratic delay and indecision by
public land agencies; as a result, there has been a rapid decline in
new geothermal energy development. Tens of thousands of acres of
geothermal leases have been applied for in the West, but no action has
been taken by federal agencies for years. Permit applications that
should have taken days or weeks have taken months or years to process.
Environmental reviews have been unnecessarily extensive, costly, and
repetitive; and in areas where an EIS has been completed, decisions by
federal agencies have been subject to years of delay and appeal.
Modoc and Klamath National Forest Geothermal Development
For the geothermal industry, the events surrounding development in
California's Modoc and Klamath National Forests have been a chilling
demonstration of why no sensible company would want to do business on
public lands.
These National Forests hold one of the largest undeveloped Known
Geothermal Resource Areas in the United States. The KGRA was identified
shortly after the enactment of the Geothermal Steam Act of 1970. By
April 1981, the U.S. Forest Service had completed an environmental
assessment for geothermal leasing in the area, and the first
competitive lease sale was held in February of 1982. High bids totaling
$6.6 million were received for 11 leases. Additional lease sales were
held in 1983 and 1988, bringing the total bids received to roughly $12
million. 4
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\4\ U.S. Department of the Interior and U.S. Department of
Agriculture, Telephone Flat Geothermal Development Project
Environmental Impact Statement Environmental Impact Report, Final,
February 1999. Pages 1-1 through 1-7 review the history of leasing in
the Medicine Lake Highlands.
---------------------------------------------------------------------------
After environmental reviews and some exploratory drilling, Calpine
Corporation submitted the first plan of operations for construction of
a power plant in 1996. Shortly afterward CalEnergy Corporation
submitted its plan of operations for the Telephone Flat Geothermal
Development Project.
If both of these projects had gone forward as originally conceived,
today there would be 100MW of high reliability power on-line serving
the needs of California and the Pacific Northwest. These plants would
have been located at a very strategic point in the grid, adding
significant reliability benefits. Not only would they have helped
reduce the extent of some of the rolling black outs, but they would
have saved Californians $10 million or more last year alone, assuming
both would have produced at the BPA contract rate.
But instead, neither plant is operating. The Forest Service and BLM
have rejected one, and the other languishes in the indeterminate review
processes of the Interior Board of Land Appeals (IBLA).
For the Calpine project an extensive Environmental Impact Statement
was finalized on September 25, 1998. However, it was not until May 31,
2000--eighteen months after issuing the final EIS--that a Record of
Decision was issued to approve the Calpine Project--and then only after
imposing through the ROD some of the most restrictive conditions ever
imposed upon an energy project on public lands.
The CalEnergy EIS was issued as a final document on February 25,
1999. Some fifteen months later, also on May 31, 2000, the agencies
issued a Record of Decision to pursue the ``no action alternative'' or,
in other words, to reject geothermal development. The Record of
Decision states that the agencies found that ``cultural and social
values'' outweigh geothermal's contribution--a conclusion with which we
strongly disagree.
But it doesn't end here, with one project approved and one denied.
For CalEnergy is seeking compensation through the judicial system for
their years of investment and work on the Telephone Flat Project.
Instead of reaping royalties and income taxes from power production,
the government may be paying millions to CalEnergy for not producing
energy.
For Calpine, the saga simply continues. After the ROD was issued,
it was appealed to the Interior Board of Land Appeals where, given the
backlog of appeals, a decision is expected perhaps sometime next year!
Meanwhile, further exploratory drilling was blocked pending a decision
on the appeal. Only recently has the IBLA judge ruled that his stay
should not have been interpreted as applying to the exploratory
drilling that had already been approved by BLM
Setting aside the substantive issues involved in the denial of the
CalEnergy Project, or the onerous mitigation imposed on the Calpine
proposal, the years of delay and uncertainty have sent shock waves
through the geothermal industry. This area had for decades been
proposed for geothermal development. Land use plans and environmental
assessments supported geothermal development as an appropriate and
publicly beneficial use. Potential development was well recognized, and
dozens of different meetings, environmental reviews, and other
opportunities for public input preceded any project proposal.
Yet, despite this favorable setting, it has taken nearly twenty
years from the first competitive lease sale to reach a decision on the
first small power plant project--and we're still not sure what that
decision is. As a result, the lesson most widely learned from the
Fourmile Hill example is that a new geothermal project cannot be
approved without years of arduous and expensive bureaucratic
processing.
This has had a chilling effect on the geothermal industry. If this
is what can be expected, few, if any, companies will attempt to develop
new geothermal projects on public lands in the West, particularly when
they involve joint BLM-Forest Service jurisdiction. Regardless of
whatever market or financial incentives may be offered for new clean,
power production, they will not be enough to overcome the costs imposed
by such an arduous process and potentially decades of delay. It will
simply be too much for any private investor to bear.
Recommendations
It is important that the Subcommittee recognize that there are
serious problems facing geothermal energy development on the public
lands. In many ways, the problems facing natural gas development are
mirrored for geothermal development, if not exacerbated by geothermal
energy's higher risk and much higher capital costs.
To mitigate these extraordinary delays and costs, we would
encourage the federal land management and regulatory agencies to:
LEnsure that the processing of needed, clean energy
projects on public lands are handled with a sense of urgency and
priority. It is vital that bureaucratic delays be reduced from years to
months if not weeks.
LEliminate repetition and duplication in the process. The
Calpine proposal was held up repeatedly while the same issues were
examined over and over again by different federal and state agencies.
LStrike a more responsible balance between our need for
new, clean energy supplies and other uses and values for the public
lands.
LEnsure reasonable access to public lands, including
military lands, and lease terms that reflect the public interest in
developing geothermal energy resources.
And, while you are moving forward on these programmatic and policy
initiatives, please don't forget the Fourmile Hill geothermal project
itself. It is still trapped in the federal bureaucracy. Prompt action
to set this project on the path to completion would be a welcome signal
to all of the geothermal industry that there is a new, positive
direction in public land management.
To those concerned about the alleged impact of geothermal
development, let me assure you that while the Medicine Lake Highlands
is a beautiful area, this development will not jeopardize its
character. To begin with, the area is not ``pristine.'' It is largely
second growth timber and there is a wide-ranging network of roads. The
development plan approved by the Forest Service requires the company to
use the existing roads whenever possible, and as a result less than
one-mile of new roadway will be built.
The area also has developed recreational sites, such as Medicine
Lake's boat ramp, picnic area, and RV parking spaces. These uses will
not be displaced. The power plant will not be visible from the lake,
and boaters will not hear it operating since mitigation measures
require it to be quieter than the rustling of leaves. It will not
impact the quality of the water in the Lake, nor will its presence
prevent anyone from using the cultural area as they have in the past.
Regarding cultural conflicts, Calpine should be applauded for its
efforts to work cooperatively with Native Americans in the region.
Calpine, along with federal and state agencies, has met numerous times
with area tribes to address their concerns. In fact, much of the
information about their cultural and historic uses comes from a study
funded by Calpine. Through the EIS and consultation process, the
project has been designed to avoid any impact to known cultural or
historical sites and any unexpected discoveries made during
construction will be handled strictly in accordance with an agreement
reached between Calpine and the Klamath-Modoc Tribe--the tribe that
ceded these lands to the federal government by treaty in the 1800s.
Calpine has also agreed to preferential hiring for tribal members from
all of the tribes in the area.
The Chairman of the Klamath Tribes has stated on the record, ``It
is our position that this development is planned in a way that respects
both our traditional culture and the surrounding forest. This
geothermal development as proposed should benefit our region in many
ways. 5 For many members of the Klamath-Modoc, Shasta, and
Pit River tribes the opportunity for stable, well-paying jobs near
their homes is a welcome development of significant benefit for their
families and community.
---------------------------------------------------------------------------
\5\ Bonneville Power Administration, Fourmile Hill Geothermal
Development Project, Power Purchase and Transmission Service
Agreements, November 2000, page 15.
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If this project moves forward California and the West will benefit.
It will be an important energy contributor; producing about as much
electricity annually as the entire solar/photovoltaic industry does
today nationwide. 6
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\6\ The Solar Energy Industries Association has estimated that the
solar industry today (thermal and photovoltaic) produces 333 billion
kWhrs annually. A 49.9MW geothermal power plant producing electricity
at a 90% factor would generate 393 billion kWhrs annually.
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Conclusion
The present energy situation in the western U.S. presents an
opportunity to increase energy diversity and energy security through
the production of clean, indigenous, renewable power. This opportunity
must not be squandered by bureaucratic red tape. We urge you to clear
the logjam that prevents geothermal from contributing fully to our
nation's energy security. The Geothermal Energy Association and its
membership would enthusiastically support your efforts to achieve these
ends.
Thank you.
______
Mrs. Cubin. Thank you, Mr. Gawell.
The Chair now recognizes Mr. Pigott.
STATEMENT OF JACK PIGOTT, ELECTRIC REGULATORY DIRECTOR, CALPINE
CORPORATION
Mr. Pigott. Madam Chairwoman, members of the subcommittee,
thank you for inviting me today to testify on geothermal
development on public lands. I represent Calpine Corporation.
We are a leading independent power producer. We are involved
mostly in developing new gas generation, but we also happen to
be the largest geothermal producer in the U.S., generating 800
megawatts at operations in the Geysers near Napa Valley,
California.
Calpine has been attempting to develop a new geothermal
project on our leases in Glass Mountain KGRA. We have about
20,000 acres of leases. And Glass Mountain is located in
northern California, about 30 miles south of the Oregon border.
It is thought to be one of the largest undeveloped geothermal
resources, with a potential of perhaps 1,000 megawatts, which
would be enough to power a city the size of San Francisco or
Seattle.
Our development effort has experienced repeated delays and
setbacks. Our Fourmile Hill project, which is about 50
megawatts, has been mired in the Federal permitting and appeal
process for about 5 years.
A separate project developed by another company is now in
litigation. And their project was also in the same resource
area.
A timeline for the project is, basically, in the early and
mid-1980's, the BLM and Forest Service encouraged geothermal
development by holding competitive lease auctions. They
collected millions of dollars from developers in bonus payments
and lease payments.
In 1991, the Bonneville Power Administration had a program
to encourage geothermal power development. And even at a time
of low prices, they offered to buy the power from projects. And
so in late 1994, Calpine acquired its lease position from other
companies there. We started collecting the baseline data
leading up to an environmental impact statement.
In 1996, we submitted an application to develop the first
50-megawatt project. This started a prolonged review that
ultimately cost Calpine over $3 million. The final EIS was
issued in October 1998, two and a half years later. The EIS
found no adverse impacts that could not be mitigated, with the
exception of an impact on Native American traditional cultural
values in the area.
The agency then took 20 months to issue a record of
decision on the project. And that is a process that typically
could take 3 months or less. The record of decision focused on
one particular area, which is the ``caldera.'' Glass Mountain
is a collapsed volcano. It is the caldera. And that was
considered sensitive from the cultural values standpoint; but
it also contains most of the geothermal resource. And since our
project was outside of the caldera ring, it was approved. Since
the other project was inside, it was rejected.
I would like to point out that inside the caldera, at the
most sensitive spot for Native Americans, which is the lake,
there already are cabins, motor boats, a boat ramp. The entire
area had been logged at one time. And the lake itself is
becoming eutrophic because of the septic systems from the
cabins. So it is not wilderness.
One of the conditions of our record of decision was a 5-
year moratorium on further geothermal development after the
first 50 megawatts. And this conflicted with the lease rights
that we purchased.
After the approval of the record of decision, opponents
immediately appealed the project. The Forest Service denied its
appeal in 45 days, but then the Interior Board of Land Appeals,
which has a backlog of 18 months, was still considering it. And
then on top of that, they issued a stay that stopped all of our
activities.
Statistics to consider: The permitting process has so far
taken 5 years. It is likely to take over six. The final EIS had
400 mitigation measures that we had to comply with. The
administrative record for the permitting process takes up 90
bound volumes. All of which is for a 50-megawatt project.
If these projects had been permitted expeditiously, we
would have 100 megawatts there to address California's energy
crisis and the West's energy crisis, coming online this summer.
If we had had a crystal ball, however, we never would have even
started this, knowing how long it has taken.
My recommendations would be that Federal agencies establish
and stick to time frames and milestones for completing reviews
and making their decisions; that NEPA reviews conducted prior
to leasing should establish whether geothermal is going to be
allowable in an area; and that NEPA reviews afterwards just
determine how it is going to be done, rather than revisiting
the ``whether they should be done'' decision.
The IBLA backlog should be eliminated as soon as possible.
There is no reason why the Forest Service can make their
decision in a matter of weeks, and the IBLA takes 18 months.
And we would like Congress to ask the Administration to
eliminate the moratorium at Glass Mountain and to act broadly
to help expedite the permitting process and facilitate
geothermal development. Thank you.
[The prepared statement of Mr. Jack Pigott follows:]
Statement of Jack Pigott, Electric Regulatory Director, Calpine
Corporation
Madam Chairwoman, members of the Subcommittee, I appreciate the
opportunity to testify before you today on the challenges facing the
development of geothermal energy on public lands.
By way of introduction, Calpine is the leading independent power
producer in the U.S. and the largest producer of geothermal energy in
the U.S. Calpine has over 32,000 megawatts (MW) of electric generating
capacity either in existing operation, under construction, or announced
for development, in 28 states and Canada. Calpine is engaged in the
largest construction program in the history of the power industry, with
about 14,000 megawatts under construction today.
Calpine is focused on two key technologies: combined-cycle natural
gas-fired generation and geothermal steam generation. Gas-fired power
plants represent the fastest growing segment of the U.S. power
industry, and are the main focus of Calpine's efforts. These efficient,
state -of-the-art plants are a low-cost and clean-burning source of
electricity for today's competitive market. Geothermal energy is an
important niche market for Calpine. Calpine's main geothermal facility
is the Geysers, located near Napa Valley, CA, producing about 800 MW of
electricity.
I come here today to tell you about Calpine's efforts to develop a
known geothermal resource area in Northern California, and particularly
to discuss the repeated delays and setbacks that we have experienced
regarding that project. I tell you this not because you should have
sympathy for Calpine, but because our case is an example of the
difficulties that all energy developers face, even as the need for
additional generation becomes more and more pressing. Calpine's
Fourmile Hill project has been mired in the Federal permitting and
appeal process for approximately 5 years, while the separate Telephone
Flat project in the same resource area that was being developed by
CalEnergy is presently the subject of a multi-million dollar takings
and breach of contract lawsuit against the federal government.
My example is all the more ironic because it involves the
development of clean, renewable energy. Despite the fact that
renewables enjoy the widespread rhetorical support of public officials,
this does not in any way immunize the development of individual
renewables projects from the gauntlet of delays that plague more
traditional generation projects.
The geothermal resource area to which I refer is called Glass
Mountain. It lies in the Klamath and Modoc National Forests in northern
California, approximately 30 miles south of the Oregon border. Glass
Mountain is thought to be one of the largest undeveloped geothermal
resources in the United States, with the potential of generating 1000
MW, more than is currently produced at the Geysers, and enough to meet
the electricity needs of a city the size of San Francisco or Seattle.
In the early 1980s, the Bureau of Land Management (BLM) and the
U.S. Forest Service actively sought the investment of private capital
in developing the Glass Mountain geothermal resource by soliciting
competitive bids to lease acreage for development. Specifically, the
lessee was to acquire the right to develop and commercialize the
underlying geothermal resource. This was done under the authority of
the Geothermal Steam Act, which encourages the development of
geothermal energy on federal lands. A historical timeline of the
leasing and permitting activities for Glass Mountain is attached to
this testimony.
Freeport McMoran was the successful bidder, and entered into
geothermal leases covering over 20,000 acres. Prior to issuing the
leases, the BLM and the Forest Service conducted an Environmental
Assessment as required under the National Environmental Policy Act
(NEPA). In 1994, Calpine acquired Freeport McMoran's lease position.
In 1991, the Bonneville Power Administration (BPA) took its own
step toward encouraging the development of geothermal resources,
effectively supplementing the encouragement offered by the Forest
Service and BLM. BPA entered into memoranda of understanding and other
agreements that provided incentives for Calpine to proceed with its
development efforts. BPA's goal was to ensure that power from Glass
Mountain would be available to serve customers in Northern California
and the Northwest.
In short, Calpine was encouraged to develop a geothermal power
project at Glass Mountain by three agencies of the U.S. government: the
BLM, the Forest Service, and BPA.
FOURMILE HILL GEOTHERMAL PROJECT NEPA PROCESS
Through 1994 and 1995, Calpine collected baseline data, and in
1996, Calpine submitted to the BLM and Forest Service an application to
develop the 49.9 MW Fourmile Hill project on its geothermal leases.
This initiated a review under NEPA and its California counterpart
(CEQA) that ultimately became a prolonged process that cost Calpine
more than $3 million.
In addition to the usual elements of a NEPA/CEQA review, Calpine
funded an extensive ethnographic study of the customs and historical
uses of the Glass Mountain area by the region's Native American tribes.
The BLM and Forest Service strongly recommended conducting the
ethnographic study as a mitigation measure and goodwill gesture to the
tribes. During the NEPA process, the lead agencies and/or the
ethnographer met and consulted with the affected tribes at least 30
times.
The final Environmental Impact Statement (EIS) for the Fourmile
Hill project was released on October 2, 1998. The EIS was extensive and
thorough, much more so than would typically be the case for a 49.9 MW
project, having taken almost 2.5 years to prepare. The EIS found that
the project would have but one adverse effect that could not be
mitigated. That adverse effect was on Native American traditional
spiritual values with respect to noise and landscape views, and was
based on representations of the tribes during preparation of the
ethnographic study. The essence of the adverse effect finding is that
the geothermal development would degrade the spiritual significance of
Glass Mountain area as a sacred site.
In order to address the Native American concerns regarding the
project, Calpine met with the three tribes identified in the
ethnographic study as having historically used the Glass Mountain area.
We ultimately entered into agreements with two of the tribes and part
of the third tribe. However, the remaining bands of the third tribe
continue to be opposed to the project.
It should be pointed out that the Glass Mountain area already
contains paved roads, a campground, cabins, a boat ramp, motor boats, a
snowmobile park, and an active pumice mine. At one time, the entire
area was logged. Furthermore, the area has very few archaeological
sites, due largely to the fact that it is at a high elevation and under
as much as 20 feet of snow for 6 months of the year.
CONSULTATIONS BETWEEN THE LEAD AGENCIES AND SHPO
As a result of the adverse effect determination, the BLM and the
Forest Service decided to consult with the California State Historic
Preservation Office (SHPO) and the federal Advisory Council on Historic
Preservation prior to issuing a Record of Decision (ROD) on Calpine's
project. Unfortunately, SHPO and the Advisory Council had no incentive
to close consultations in a timely fashion, and BLM and Forest Service
did little to push the process along.
In a letter of February 26, 1999 to Senator Dianne Feinstein, the
Forest Service estimated that the consultations would be completed and
the ROD issued by mid-April 1999. The agencies missed that target date,
and then went on to promise a series of later dates, only to fail to
meet each of them. Whenever we asked the Forest Service and the BLM for
a target date, the answer was typically ``in two months,'' until we
joked that the agencies used a rolling two-month deadline. Finally,
after considerable pressure from members of Congress and others, the
agencies issued their ROD approving the project on May 31, 2000, almost
20 months after completion of the final EIS.
The ROD focused on the volcanic ``caldera,'' a feature encompassing
about twenty-four square miles in the Glass Mountain known geothermal
resource area, which was deemed the most sensitive area from a
traditional cultural values standpoint, but which also contains the
majority of the prospective geothermal resource. Calpine's Fourmile
Hill project was approved because it happens to lie outside of the
caldera. A separate project that was also proceeding through the
permitting process, the CalEnergy Telephone Flat geothermal project,
was denied because it was located within the caldera. Furthermore, the
BLM imposed a moratorium on any further geothermal development in the
entire Glass Mountain area for a minimum of five years, excepting only
the Fourmile Hill 49.9 MW project.
The agencies'' failure to issue the ROD in a timely manner seems to
have been the result of at least two factors. First, the agencies
seemed uncertain as to how to handle its consultation with SHPO and the
Advisory Council. Second, the Forest Service specifically delayed
making a decision while it reviewed its policies with respect to
geothermal resource development. In Calpine's view, such a review
should have occurred before the leases were issued, not after a lessee
has invested millions of dollars in the permitting process.
Finally, the moratorium by the BLM and Forest Service on further
development at Glass Mountain except for the Fourmile Hill project is
entirely inconsistent with the existing lease rights, and with prior
decisions and actions by these agencies that authorized and encouraged
geothermal development in the area.
THE APPEAL PROCESS
After the ROD approving Calpine's project was issued, project
opponents predictably appealed. The Forest Service promptly ruled on
the appeal of its decision on September 1, 2000 denying the appeal.
However, the Interior Board of Land Appeals (IBLA), which rules on
appeals of BLM decisions, presently has an 18-month backlog of cases.
Project opponents requested a stay of ground moving activities pending
the outcome of the appeal, and the IBLA granted the stay.
Therefore, it appears that the permitting process for this project
will take a total of 6 years or more. Furthermore, if the IBLA
ultimately denies the appeals, the project opponents have the option of
seeking time-consuming review in federal court.
The following are some statistics that I wanted to bring to your
attention:
LThe permitting process has taken 5 years, and is likely
to consume 6 years or more;
LThe Final EIS for the Fourmile Hill project provides for
over 400 different mitigation measures that the project must comply
with; and
LThe administrative record for the permitting process
takes up 90 bound volumes.
In closing, let me make an observation and a few recommendations:
First, the observation. Had the permitting process moved
expeditiously, both the Fourmile Hill project and the Telephone Flat
project would be entering into commercial operation this year,
providing 100 MW of low cost, clean renewable power to address the
western states'' electricity crisis. However, if Calpine knew in 1994
what it knows now, it is safe to say that it never would have invested
its time and capital in the Fourmile Hill project. Similarly, unless
the situation changes, Calpine is unlikely to embark on a similar
project ever again. This should concern this Subcommittee because many
of the geothermal resources in the United States are located on federal
land. As long as the federal permitting process remains as time-
consuming and costly as what Calpine has experienced, private companies
will be severely discouraged from developing these energy resources.
My first recommendation is that resource agencies such as the BLM
and Forest Service need to understand that their protracted review
processes discourage the very sort of development that Congress
intended in the Geothermal Steam Act. We are certainly not recommending
that such reviews be done hastily or shoddily, but they must be done
expeditiously if we are to increase production of much-needed
electricity from geothermal and other energy resources located on
Federal land. Timeframes and milestones should be established for all
of the Federal and State agencies involved to complete environmental
reviews and make decisions.
Second, Calpine recommends that Congress take steps to eliminate
the IBLA appeal backlog as soon as possible. There is no logical reason
why the Forest Service can decide appeals in a matter of weeks, while
the IBLA takes 18 months or more.
Finally, Congress should ask the new Administration to take steps
to end the discouragement of geothermal development on federal lands.
There is no need or other basis for the current five year moratorium at
Glass Mountain. We suggest that the Secretaries and, if necessary,
Congress act broadly to direct renewed support for environmentally
sound production of geothermal energy at Glass Mountain and other
areas, facilitated by timely and fair review by all involved agencies.
I would be pleased to answer any questions.
______
[An attachment to Mr. Pigott's statement follows:]
[GRAPHIC] [TIFF OMITTED] T2134.003
Mrs. Cubin. Thank you very much, Mr. Pigott.
The Chair now recognizes Mr. Ain.
STATEMENT OF ROSS D. AIN, SENIOR VICE PRESIDENT, CAITHNESS
ENERGY LLC; ACCOMPANIED BY KENNETH HOFFMAN
Mr. Ain. Thank you very much, Madam Chairwoman and members
of the subcommittee, for this opportunity to present the views
of Caithness Energy regarding the challenges and opportunities
involved in the development of geothermal energy on public
lands.
Caithness is one of the largest independent power producers
utilizing renewable resources. We operate over 465 megawatts of
geothermal; 160 megawatts of solar, the two largest solar
plants in the world; and 210 megawatts of wind projects. We
have other gas-fired projects in operation, and over 1,000
megawatts of new projects in both California and Arizona that
are under active development. We are also at the present time
the largest geothermal producer in the State of Nevada, with 85
megawatts in Nevada.
We have a rather unique perspective on geothermal
development on public lands because we have approximately 243
megawatts on lands leased from BLM, 180 megawatts on lands
leased from the United States Naval Air Weapons Center at China
Lake, and approximately 42 megawatts on private land. So we are
a pretty good example of how to deal with different kinds of
leasing arrangements, royalty structures, and get them on to
development.
Geothermal resources in the West are found within the vast
expanse of all federally controlled land. These resources
underlie not only land controlled by the BLM, but also, as our
experience demonstrates, lands controlled by the Department of
Defense through its various departments and agencies. And we
believe that both types of land should be open for active
development, consistent of course with the military mission of
the land reserved by the Department of Defense.
We have three principal recommendations we respectfully
suggest that the subcommittee consider with regard to
geothermal development on land subject to military reservation:
One, uniform policies on securing and maintaining the leasehold
estate, except as dictated by military needs, of course;
uniform royalty structures; and centralized administration of
the lease and royalty programs.
Other witnesses testified to the difficulty of permitting
new geothermal energy projects. We certainly have had our share
of that. But reducing unnecessary barriers to entry is one
critical element in the exploitation of this clean domestic
resource. And we believe that if we follow these three
recommendations there would be more geothermal development on
public lands because we would remove a number of the
uncertainties, reduce risk, and reduce delay.
With regard to uniform policies on securing and maintaining
leases, BLM's policies provide for competitive and non-
competitive leasing. The 1998 legislative amendment to the
Steam Act provides for lease tenure by production. These
policies work well to encourage investment on non-military
Federal lands. Together, these would give some certainty to
those interested in development, and security in the knowledge
that if you produce you can stay.
Policies on land administered by the Department of Defense
is far less clear. In our case at Coso, for example, the lease
has fixed terms, with renewals at the Navy's discretion; which
is obviously a great disincentive for further development of
the geothermal resource at these sites.
With regard to the royalty payment structure, Congress
passed the Geothermal Steam Act, which provides for royalty
payment levels deemed appropriate for both the United States
and for developers. The industry supported the adoption of the
Federal royalty regulations in 1992 governing BLM leases
because prior to that there was no consistency in royalty
administration, and that itself was discouraging investment in
geothermal energy. There does not appear to be any valid
interests that we know of in allowing case-by-case negotiation
of royalties on military lands, as has occurred with our
projects at China Lake. It creates greater uncertainty, risk,
higher costs--all of which retard geothermal development.
In fact, we pay about two and a half times the royalties at
China Lake that we pay on BLM land. We have been asked, in
fact, to look at land in Nevada on a Navy reserve. But we have
not done so because of the difficulty in determining what we
would have to pay and the lease term arrangements.
In fact, rather than paying more for royalties on military
reservations, I submit to you that we should pay less, because
of the additional difficulties and costs in developing,
operating, and maintaining projects within the constraints
appropriately imposed by military authorities both to protect
project personnel and their primary military missions. And I
have given some examples in my testimony of the kind of things
that we have to do to operate on military reserves, which we
don't have to do operating on BLM lands.
And finally, I go in my testimony into the administration
of the leases and royalty payments. It seems to us we could
save a great deal of Federal Government money by consolidating
that function with people who do the same thing as far as BLM
land.
Thank you very much for this opportunity to testify. I have
with me Kenneth Hoffman, who is in charge of all of our project
operations for Caithness in California and Nevada. And we are
both available to answer questions for the committee.
[The prepared statement of Mr. Ross D. Ain follows:]
Statement of Ross D. Ain, Senior Vice President, Caithness Energy LLC
Honorable Chairwoman, Members of the Subcommittee, thank you for
this opportunity to present the views of Caithness Energy, LLC,
regarding the challenges and opportunities involved in the development
of geothermal energy on public lands.
Caithness Energy, LLC, is one of the Nation's largest independent
power producers utilizing renewable resources for power production. Our
operating renewable energy portfolio includes over 465 MW's of
geothermal projects, 160 MW's of solar projects and 210 MW's of wind
projects. Non-renewable projects include 315 MW's of gas-turbine
projects in operation and over one thousand additional megawatts of
generation at varying stages of development.
In the early 1980s, with increased awareness of environmental
issues, Caithness made the decision to utilize its experience in
resource exploration to enter the geothermal power industry. For nearly
a decade, we concentrated our efforts almost exclusively on the
development of three geothermal projects: the 270 MW's Coso Geothermal
Project in California, and the 25 MW's Dixie Valley and 12.5 MW's
Steamboat Geothermal Projects both in Nevada. Since that time,
Caithness has acquired additional geothermal interests in California
and Nevada.
Caithness has a unique perspective on geothermal development on
public lands because we have approximately 243 MW's of our production
on lands leased from BLM, 180 MW's of production from lands at the
United States Naval Air Weapons Center at China Lake, California and
approximately 42 MW's located on private land.
As can be attested by the other experts today, geothermal resources
in the Western United States are found within the vast expanse of
Federally-controlled land. These resources underline not only land
controlled by the Bureau of Land Management, but as our experience
demonstrates, they are also found on lands controlled by the Department
of Defense through its various departments and agencies. In order to
maximize the production of energy from geothermal resources, both types
of land should be open to development.
We certainly recognize that energy resources within military
reservations should be developed only in a manner fully consistent with
their primary function and military mission. That being said, we
believe that greater uniformity of policy and administration of both
types of land would, consistent with military uses, greatly enhance
opportunities of geothermal power development.
There are three principal recommendations we would respectfully
suggest that the Subcommittee consider with regard to geothermal
development on land subject to military reservation:
(1) Uniform policies on securing and maintaining the leasehold
estate, except as dictated by military needs.
(2) Uniform royalty structures.
(3) Centralized administration of the lease and royalty programs.
Other witnesses have testified to the difficulty in permitting new
geothermal energy projects. Reducing unnecessary barriers to entry is
one critical element to the successful exploitation of this clean
domestic resource. The three policies mentioned above will greatly
assist in reducing risks, speeding up development and eliminating
unnecessary administrative costs both to developers and the Federal
government. It would provide for a uniform royalty payment schedule
that will fairly compensate the United States while giving developers a
known cost factor to incorporate into their financial calculations,
reducing risk, uncertainty and delays.
With regard to uniform policies on securing and maintaining leases
for geothermal development, the BLM policies provide for competitive
and non-competitive leasing. The 1988 legislative amendment to the
Steam Act provides for lease tenure by production. These policies work
well to encourage investment on non-military Federal lands. Together
these give some certainty to those interested in development, and
security in the knowledge that if you produce you can stay. Policies on
land administered by the Department of Defense are far less clear. In
our case at Coso, for example, the lease has fixed terms with renewals
at the Navy's discretion, which is a disincentive for further
development of these lands.
With regard to royalty payment structure, the Congress passed the
Geothermal Steam Act that provides for royalty payment levels
determined appropriate for both the United States and the developers.
The industry supported the adoption of federal royalty regulations in
1992 governing BLM leases because, prior to that, there was no
consistency in royalty administration, and that was discouraging
investment in geothermal energy. There does not appear to be any valid
Federal interest in allowing case by case negotiation of royalties on
military lands, as has occurred with our projects at China Lake. It
creates greater uncertainty, risk, higher costs, all of which retard
geothermal development.
In fact, rather than paying more in royalties on military
reservations, developers should probably pay less in royalties because
of the additional difficulties and costs in developing, operating and
maintaining projects within the constraints appropriately imposed by
the military authorities both to protect project personnel and primary
military mission. Examples of these additional costs are additional
security procedures, off-site control rooms, additional restrictions on
opportunities for scheduled maintenance when contrasted with facilities
on BLM leases, and other configuration costs such as transmission line
restrictions. Operating on military reservations clearly involve higher
capital and operating costs. Paying higher royalties than otherwise
applicable on BLM lands is not consistent with optimizing the
development of this resource and other Congressionally determined
policies.
Finally, administration of the leases and royalty payments should
be consolidated into one entity to lower costs and promote uniform
application of Federal policies. It seems to us that MMS should be that
entity. That is not to say that mission critical concerns on military
reservations should be ignored. Quite the contrary, geothermal
development should only be allowed if consistent with the military
purposes of the reservation and only in accordance with safe and secure
procedures. However, once permitted to occur the level of, and
administration of, royalty payments should be uniform and consolidated
within one Federal agency.
In summary, we believe that there are untapped geothermal resources
available in the Western United States on land held by the Department
of Defense and these resources can be developed in a manner fully
consistent with the primary military function of those reservations. To
facilitate such development, we would recommend that the Congress
consider the consolidation of the administration of those leases under
the BLM and conform leasing and royalty payment policies to those
presently required by the BLM, subject to consistency with military
mission. We think these changes would encourage greater geothermal
development of Federal land, reduce federal cost of administration, and
provide appropriate level of royalty payments consistent with Congress'
determination under the Geothermal Steam Act.
Thank you.
______
Mrs. Cubin. Thank you very much for your testimony.
I have to start by saying that I am quite disappointed in
my Democrat colleagues, their not being here for this hearing;
other than Mrs. Napolitano who was here and obviously has had
surgery and did not feel up to staying for the whole hearing.
I hear over and over how we have to have renewable
resources as part of the picture. And I agree that we have to
have conservation. But when it comes time to hear the real
story, what it is really like to be in the energy business, it
appears that they are not interested.
So in my mind, they are not interested in reality. They do
not want to drill for more oil. They do not want to open up the
public lands. They do not want to mine more coal. They do not
want uranium. They want renewables, but they do not want to
hear about them. And it is very frustrating dealing with that
mindset.
Those of us who are from the West are the ones that live
with some of these issues. And unfortunately, most of my
colleagues do not understand because, number one, they do not
live with it and, number two, they do not come to learn about
it.
So having said that, Mr. Gawell, you made a statement that
I found interesting and did not exactly understand it. What did
you mean when you said that there is no consistency in the
royalties with geothermal? You paid three and a half times on
the naval base what is regular, 10 to 15 percent? Explain that
lack of consistency.
Or, excuse me. Mr. Ain, you were the one that brought that
up.
Mr. Ain. Right.
Mr. Hoffman. It is basically because with the Navy it was
negotiated. It is a unique contract that, to my knowledge, is
the only operating geothermal plant that is on a military
facility in the country. So it had a whole different
initiation.
But looking forward, if you will, we make decisions trying
to expand our existing projects, because that is where you look
first, is your existing projects. You have infrastructure, you
know, so that is where you want to go. And we look at it and
say, well, with these royalty rates that are there, unlike the
BLM, 10 to 15 percent, it does not make sense for us to go
forward with an expansion.
Mrs. Cubin. Talk to me a little bit about the 10 to 15
percent royalty. Is that a disincentive to develop geothermal?
I mean, obviously, it is. It is a cost. But is it out of line,
I guess is the question I would like to ask.
Mr. Hoffman. I would not say it is out of line. The only
comment I would say is the calculation: You know, it is not as
easy as ``A'' plus ``B'' equals ``C.'' And so the problem we
get into is the interpretation of that calculation. And we have
had multiple issues with the MMS and those calculations.
So it would sure be nice to be able to understand what the
formula is, and be able to calculate the number and deal with
it that way. Unfortunately, it is not like that. You are up to
various auditors, etcetera. You end up into having some various
issues with that.
Mrs. Cubin. So if we want to help spur geothermal
development, would we need to help clarify the royalties more?
We deal with this with almost every mineral, or have in the
past. The evaluation has been the main problem--well, not main,
but a huge problem. So I guess maybe that is something we need
to look at and give more certainty to the people who want to
invest their money, so that you can have a better sense of what
your return on investment would be.
I wanted to ask Mr. Gawell, before my time runs out, did
the Forest Service 60 million-acre wilderness initiative affect
geothermal development?
Mr. Gawell. Chairman Cubin, absolutely. Not only did it
affect specifically the project that CalEnergy was trying to
develop at Medicine Lake, because it involved the Modoc
wilderness area--And by the way, ironically, it affected it
because there was just complete uncertainty as to whether they
could put a small segment of transmission line across part of
that area. And when the draft rules came out, the draft rules
would have allowed CalEnergy to do that. But by the time that
those rules came out, that project was basically collapsing at
that point because it had taken so long.
And in the Northwest, what we have seen is simply no leases
being issued. My understanding from the Endroad Workshop is
that they had both Forest Service people and others from the
region; and that there over the last 10 years something in the
range of 100,000 acres of lease applications have been applied
for in the Northwest that no action was ever taken on, because
the Forest Service would take no action, given all the
uncertainty over the various issues in the Northwest. And most
of those simply have gone away, because you do not wait for 10
years to find out whether the Government is going to respond to
you or not.
Mrs. Cubin. Just a question about the process that the
Government used in issuing that policy. Did the Forest Service
get in touch with your association members prior to putting
forth this policy?
Mr. Gawell. We knew about it. To my knowledge, the Forest
Service never asked us specifically to comment.
Mrs. Cubin. So as far as scoping was concerned, your
industry just did not know of any information that the Forest
Service had from outside sources?
Mr. Gawell. I am not aware of any assessment by the Forest
Service of the relationship of that policy on geothermal energy
in the Northwest. If you look at the maps of geothermal energy,
the resource runs through California and right up through
Oregon and Washington. And there should be substantial resource
there. There have been some attempts to develop it, but I am
not sure that they have ever assessed how those two overlap.
The reaction I get from companies involved in it has been a
substantial setback. And simply, nobody is going to go forward
with development in the national forest system in the
Northwest, given the uncertainty we face. And frankly, the
south end of that whole area is northern California, which is
where Fourmile Hill project is located.
Mrs. Cubin. Thank you very much.
The Chair now recognizes Mr. Gibbons.
Mr. Gibbons. Madam Chairman, thank you. And I thank the
panel. It is a pleasure to have you before us. I am well aware
of your geothermal projects in Dixie Valley and Steamboat
Springs in Nevada, and appreciate the effort you have gone to
with your company to make sure that the energy needs of our
nation are met.
I guess one of the things that strikes me as unique--and
Mr. Gawell, maybe you can talk to me about this--why is it that
a geothermal plant requires three times as much in terms of
cost development than a gas-fired electrical plant?
Is it technology, or is it the permitting process? Is it
the time required to get it on-line? What is driving that cost
difference?
Mr. Gawell. Essentially, when you build a geothermal plant,
you are doing the whole series of actions you would take, for
example, if you built a gas plant. But track it all the way
back to the gas field. You are doing them all on site.
For example, roughly 40 percent of the cost of greenfield
development is reservoir definition. Essentially, what you
might do at a natural gas field in Wyoming, or to power a plant
in Nevada or somewhere else, you are compressing that all into
that single unit.
Mr. Gibbons. Okay.
Mr. Gawell. So there is a tremendous cost involved in the
plant. It also is more capital intensive because of the number
of wells, the cost of the wells, etcetera--and you may want to
comment more specifically--than, again, a simple gas plant
would be.
Mr. Gibbons. Give us a broad perspective of how much of the
total U.S. energy demand geothermal can meet. Just give me a
rough percentage.
Mr. Gawell. Today we are about one-half of 1 percent,
total. Our estimates say we could probably achieve, with
roughly current technology, maybe 6 to 8 percent.
Mr. Gibbons. Okay. Let me turn to Mr. Pigott. I read your
testimony, and one thing I was surprised at was to read on page
6 and to find that in the final decision there was a moratorium
recommendation of 5 years, for you not to pursue further permit
applications in the area. Help me understand the strange
genius, if there is anything like that, behind that
recommendation. What is the moratorium purpose?
Mr. Pigott. It is a good question, and I suspect that the
purpose was to develop these two projects and let them run for
5 years and let all of the people in the community up there see
that they were not intrusive.
Mr. Gibbons. But isn't that the purpose of the EIS or the
EA assessments, to show that these are not going to be
environmentally disturbing?
Mr. Pigott. Of course. And our EIS up there was very
substantial. It really was an extreme case of overkill. One of
the things we had to do was a $180,000 ethnographic study of
cultural uses and historic uses by various tribes up there.
And considering the size of the project and really the
small footprint, you know, I thought that it was a high degree
of overkill. But a lot of times, an EIS and NEPA review is
fairly subjective, and it depends on the people who are
directing it as to just how far they want to go with it. In
this case, they took it to great extremes; and probably because
of the fact that it was the Forest Service and the BLM
together.
Mr. Gibbons. In your experience in the permitting process
with this whole thing, the purposes many times of these delays
and lawsuits that are filed, are they filed for meritorious
reasons, or are they simply filed to delay, perhaps hoping that
you will abandon the project, or hoping that you will change
the project? Which is your gut feeling on those?
Mr. Pigott. In this case, the intent was to delay the
project long enough until we got fed up and just left. And I
think that that was the interest; certainly the interest of the
project opponents. And I suspect it was the interest of some
people in the agencies.
Mr. Gibbons. How much do you think that process cost you?
Mr. Pigott. The entire process has cost us over $3 million
in actual out-of-pocket costs for doing the EIS.
Mr. Gibbons. And has the result changed anything, from your
EIS?
Mr. Pigott. No. No, it has not.
Mr. Gibbons. Mr. Ain, very quickly, in the few minutes I
have remaining or the little time I have remaining, you talk
about the differences and the uncertainty on military
reservations with regard to leasing, and the cost of royalties
and all of that. Would you then recommend--and I think that was
part of your testimony, as I understand it--to remove that
leasing capability or royalty decision from the military, and
put it in, for example, with the Department of Interior?
Mr. Ain. That would be our recommendation, consistent, of
course, with the Department of Interior making judgments that
respect the military mission. However, once the military
determines that there is a portion of their reservation that is
appropriate for geothermal development, and consistent with
that recommendation, we think it should be with the Department
of the Interior, yes.
Mr. Gibbons. Let me ask a real brief question. Is the
amount of electrical charge that they are paying, or costs they
are paying for your development, is it commensurate with
utility rates on the market out there that are in the local
area?
Mr. Ain. Well, let me say, a percentage of gross to the
Navy at Coso. Whereas, under the BLM formula, we pay a
percentage of net. And as I say, it is about two and a half
times less than our current arrangements at Coso. This is a
royalty structure that otherwise would apply. And that is after
negotiations. So you have the transactional cost, plus the
uncertainty, plus the ongoing administrative cost of dealing in
that environment. So it is a disincentive to working on what
could be very good prospects within military reservations.
Mr. Gibbons. Are the time frames in the lease similar?
Mr. Ain. No. They are shorter.
Mr. Gibbons. Shorter?
Mr. Ain. Yes.
Mr. Gibbons. So there is more uncertainty?
Mr. Ain. There is more uncertainty there. And the renewals
are at their discretion.
So we have a unique circumstance at Coso. We are very happy
with that circumstance. It has been a good project for us. But
it has taught us a lot. We are trying to give you the benefit
of that lesson.
Mr. Gibbons. Finally, let me just say that if you would be
so kind as to submit to this committee a summary of your
recommendations for all of our panelists on what you think are
the most critical issues, and how we in Congress can address
those issues with regard to improving the system for permitting
and processing and developing geothermal, we would appreciate
that.
Mr. Ain. Thank you very much.
Mr. Gibbons. Thank you. Thank you, Madam Chairman.
[The information referred to follows:]
House Resources Testimony Recommendations
[GRAPHIC] [TIFF OMITTED] T2134.017
[GRAPHIC] [TIFF OMITTED] T2134.018
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[GRAPHIC] [TIFF OMITTED] T2134.020
Mrs. Cubin. One question before I move to Mr. Flake.
Mr. Ain, how do you make that royalty check out that you
pay to the Navy?
Mr. Ain. To the Navy.
Mrs. Cubin. To the United States Navy?
Mr. Ain. Yes.
Mr. Hoffman. Yes.
Mrs. Cubin. So it goes in their Treasury. We need to look
into that.
[Laughter.]
Mrs. Cubin. The Chair now recognizes Mr. Flake.
Mr. Flake. Thank you, Madam Chair. Thank you, panelists.
This has broadened my understanding, certainly. And it seems
consistent with a lot of the hearings we hold, the complaints
about Federal agencies.
And if I get it right, I would like to have a follow-up on
this, but your complaints are not so much with the excessive
royalties, or whatever; it is just the uncertainty of the
process, the cumbersome regulations moving forward, the 5-year
period you talked about, Mr. Pigott. Just I cannot imagine
going through that on a continual basis.
Along those lines, if you want to address that, Mr. Pigott,
the royalty structure, you are lobbying for a uniform royalty
structure. Do you think that we need to jump-start,
particularly now that we need more energy and the Energy Policy
Group is working forward? Do we need to look at the royalty
structure in terms of lessening the payment? Or would you just
settle to make it uniform across the board, and not have to
deal with the uncertainty moving forward?
Mr. Pigott. I think that Mr. Ain is the one to answer.
Mr. Flake. Yes. Okay. Go ahead.
Mr. Ain. Yes. Our recommendation would be, number one, the
Congress has made a judgment about what is an appropriate level
of royalties in the past. And I think it is, frankly, an
anomaly that it did not apply to development on military
reservations. And I think the Congress should certainly
consider correcting that anomaly and making it consistent.
Because you do not want developers to have one set of financial
calculations when they are off the military reservation, and
one when they are on, because they may be passing up better
resources that could be developed on a military reservation
with minimal environmental intrusiveness. So that is why we
have made the recommendation, from our experience that we are--
Mr. Flake. But their argument in not having a uniform
policy is that you have to have different protections within
military areas, or they want to negotiate a different cost.
Mr. Ain. We already pay for those protections. We have
additional security. We have to have off-site control rooms.
Mr. Flake. This is apart from the royalty?
Mr. Ain. Apart from the royalty.
Mr. Flake. All right.
Mr. Ain. So that is why I made the comment, maybe we should
pay less on military bases.
Mr. Flake. Okay.
Mr. Ain. Because it is more expensive to develop there,
because at times they impose reasonable conditions to respect
their military mission.
Mr. Flake. Instead of local interest, whoever can answer
this one--Arizona, where some people think you do not have to
stick anything in the ground there to get geothermal energy,
what resources are being tapped there, and what potential is
there for the future?
Mr. Gawell. As far as I know, there are no geothermal
electric plants. In Arizona there is a resource area, I
believe--and DOE may be able to address this better--in the
southern part of the state.
But again, I will go back to my earlier comments. I am not
sure any of the resource estimates are terribly accurate. We
have learned a lot in 20 years. The resource estimates do not
reflect that. In many cases, I think that if they redid the
estimates more carefully, it would not only give us different
numbers, but it would give us a lot more certainty for
development along those lines.
Mr. Flake. Right.
Mr. Gawell. Almost everything west of the Mississippi has
geothermal resources.
Mr. Ain. I think that a lot of it also is a product of
economics. And that is, in an environment where you have
relatively low, stable energy prices, electric prices,
geothermal tends to be more expensive, and you pick off only
the best geothermal resource first.
Mr. Flake. Right.
Mr. Ain. As energy prices rise, as they certainly have in
the West, people will be looking at more marginal resources,
and looking to develop them in different places. And issues
like land cost, ease of development, environmental permitting,
and access to the transmission grid, become a lot more
important than before. So perhaps that will encourage some
geothermal development in Arizona.
Mr. Flake. Are any of the panelists being tapped for
expertise or experience with the Vice President's energy panel
now? Is he looking to geothermal at all, to your knowledge?
Mr. Ain. Yes. Yes.
Mr. Gawell. Yes. We have talked to him. And in fact, we
have worked with his staff on a couple of things, presented
various materials to them. So I cannot say where they are going
with it. I have not seen any drafts or internal documents. But
we have addressed a lot of the issues we have discussed here
with them, as well.
Mr. Flake. Okay. That was what I was wondering, if these
same recommendations are being made there, as well. Thank you.
Mrs. Cubin. I think the committee will--I know the
committee will--find out what the Navy does with the royalty
that it receives. If it pays it to the Treasury, then that is
one thing. But if it does not, I just wonder if they might be
liable to have to pay the Government back. Because the laws
about royalty payments are pretty clear, where the payments
should go.
And Mr. Gawell, in response to you about a new inventory of
possible geothermal resources, I just wonder, is that the law
with the Government to do that, or is that what industry should
be doing? It seems like in the other energy sources, that
industry goes out and pokes a hole and comes up with those
sorts of things.
I am not asking for an answer, but I just think it is
something that we need to think about. If you would like to
comment, you are welcome to.
Mr. Gawell. No, I think that the Government has played a
role over many years, in understanding the basic geology of the
United States. And it has helped the oil and gas industry. I
know they spent a substantial amount of money helping them
understand the basic structures they are dealing with,
understanding the geology, the science of the geology itself,
doing various baseline geologic surveys.
Once you get past that, once you get into areas where now
we are looking for a specific site to develop, in which, ``We
think this is interesting, we want to go over there and drill
some early test wells,'' then I think you get to the point
where we do not want the Government involved.
But they are sort of a baseline of information which has
underlined everything we have done in this country on public
land minerals. It has underlined most of the work that the oil
and gas industry has done and the geothermal industry has done,
as well.
And there is an ongoing effort, I believe, in most of the
other areas; but I think the geothermal work has pretty much
been set aside.
Mrs. Cubin. And I think it could be brought to the
forefront.
Do you have anything further, Mr. Gibbons?
Mr. Gibbons. No.
Mrs. Cubin. Another thing I would like to say for the
record, before we close the hearing, is that Mr. Kind, the
Ranking Member, is in the Education Committee doing a markup of
the President's education bill. And he is always here for the
hearings, and he is usually here from gavel to gavel. And so I
really was not referring to the Ranking Member with my remarks.
But I remain frustrated with the lack of participation and
working together to try to get a solution to this energy crisis
that we are in.
So with that, I would like to thank this panel very much,
and also mention to you that the members may have questions
that they would like to submit to you in writing. And we would
appreciate your answering that.
So with that, the committee is adjourned.
[Whereupon, at 12:09 p.m., the subcommittee was adjourned.]
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