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HomeMy WebLinkAboutGeothermal Policy Report for Alaska Preliminary Options & Recommendations 1979GEO 004 GEOTHERMAL POLICY REPORT FOR ALASKA: Preliminary Options and Recommendations Energy Program -- Geothermal Projec National Conference of State Legislatures 1405 Curtis Street, Suite 2300 Denver, Colorado 80202 303/623-6600 October 1979 ACKNOWLEDGEMENT NCSL would like to acknowledge the contribution to this report made by: David Denig-Chakroff (Div. of Research and Development/DNR); Robert Sanders (Div. of Minerals and Energy Management/DNR); Brian Petrie (Office of Water Management/DNR); and Don Markle (Div. of Power and Energy Development/DNR). NCSL expresses its appreciation for their assistance. TABLE OF CONTENTS INTRODUCTION . 2 ww ee ee ee ee ee ee ee ee ee ee 1 PROPOSED GEOTHERMAL RESOURCES ACT .........-.- ee 2 ADDENDUM. 1 1 1 we ee ee ee ll FINANCIAL PACKAGE . 21. 1 1 ee ee ee ee ee ee ee ee 13 DISTRICT HEATING. 2... 1 we ee ee te ee ete et ee ee 15 MISCELLANEOUS ..... Cee ee ee ee et eee ere 16 APPENDICES . 2. 1. ee ee ee 18 INTRODUCTION The NCSL Geothermal Project is assisting the Alaska Legislature in a review of geothermal policies. To date project staff have conducted field research on two occasions, as well as participating in a public workshop (9/13/79) co- sponsored by the Joint Special Committee on Renewable Energy Policy. As a result of these activities NCSL proposed a State Technical Assistance Program (see Appendix A) which was ratified by the committee leadership (9/14/79). This document has been prepared pursuant to the state workplan as background material for a committee meeting (11/8/79) intended to consider the policy recommendations herein. The study areas identified in the state workplan are treated as follows: tT; Proposed Comprehensive Geothermal Resources Act e@ includes resource characterization (definition), resource access (leasing), water law, permitting and well regulation, and resource allocation. Il. Financial Package @ includes a review of various tax and other incentives for geothermal producers and users, as well as suggestions regarding a state geothermal fund (this section should be considered in conjunction with the NCSL Small-Scale Hydro Policy Report which contains additional material regarding state financing of energy development). III. District Heating e includes a proposal to authorize publicly-owned heating districts, as well as a review of utility regulatory issues. IV. Miscellaneous @ includes funding for administrative agencies, life-cycle costing, building codes and zoning, amendments to the Water Use Act and environmental procedures. i. PROPOSED GEOTHERMAL RESOURCES ACT Synopsis It is recommended that the existing geothermal statute (38.05.181) be repealed and re-enacted in a simplified form. The NCSL draft geothermal statute is proposed for discussion purposes. The proposed act would: (1) redefine geothermal resources via a temperature threshold (120°C/248°F ) (2) provide for mineral leasing of geothermal resources on state lands (3) establish statewide regulatory authority in the Division of Minerals and Energy Management over geothermal drilling activit. (4) indicate the applicability of the Water Use Act (46.15) to geothermal development (5) provide for simplified access to state lands for low-temperature development (6) establish regulatory authority over low-temperature development in the Division of Forest, Land and Water Management The overall design of the proposed act is to distinguish between the development of high-grade thermal resources by major projects (e.g., electrical generation, industrial process heat) and the development of "hot groundwater" for small-scale direct uses (e.g., space heating, greenhouses, aquaculture). The proposed act would also establish the relationship of geothermal development to existing water uses. Certainty, simplification of procedures and stimulation of development are the objectives. DISCUSSION DRAFT TITLE 38. PUBLIC LANDS Chapter . Geothermal Resources Act Article 1. Declaration of Policy and Definitions 2. Geothermal Leasing and Regulation 3. Low-Temperature Development ARTICLE 1. DECLARATION OF POLICY AND DEFINITIONS Sec. 1 A. It is declared to be in the public interest to foster and promote the discovery, development, production, utilization and disposal of geothermal resources in the state of Alaska in such a manner as will prevent waste, provide for maximum economic recovery, protect correlative rights, and safeguard the natural environment and the public welfare. B. It is declared to be in the public interest to foster and promote, under existing law, the utilization of the thermal energy contained in the groundwaters of the state of Alaska in an efficient and environmentally sound fashion. Sec. 2 This act shall apply to all lands in the state of Alaska, including federal and Alaskan Native lands to the extent allowed by law. When any of these lands are committed to a unit agreement involving lands subject to federal jurisdiction the operation of this act or any part of this act may be suspended, provided that the unit operations are regulated by the United States and that the conservation of geothermal resources is accomplished under such unit agreement. Sec. 3 Administration of this chapter shaTl be under the principle of multiple use of public lands and, insofar as feasible, shall allow for the coexistence of other permits or leases of the same lands for other purposes. Leases or permits issued for lands withdrawn or acquired in aid of the functions of the Department of Natural Resources shall carry such conditions as will conform the lease operations to the purposes of such lands. Sec. 4 A survey of the state's geothermal resources shall be performed by the state geologist and included in the complete geological survey of the state authorized by AS 41.07.020. A statement of the progress of the geothermal resources survey shall be contained in the annual report required by that section. A geothermal resources file shall be maintained and made available to the public in the offices of the State Geological and Geophysical Survey (and/or the State Division of Energy and Power Development). Sec. 5 As used in this act, unless the context requires otherwise: A. "byproduct" means dissolved or entrained minerals and gases (exclusive of hydrocarbon substances and helium) associated with geothermal resources, and demineralized water; Bs “correlative rights" means the right of each geothermal owner in a geothermal system to produce without waste his just and equitable share of ice geothermal resources in the geothermal system; Gx "division" means the Division of Minerals and Energy Management in Article 2 of this chapter and means the Division of Forest, Land and Water Management in Article 3 of this chapter; D, "geothermal area" means the general land area which is underlain or reasonably appears to be underlain by geothermal resources; ba "geothermal fluid" means brines, water and steam naturally present in a geothermal system; F. "geothermal resources" means (1) the natural heat of the earth at temperatures greater than 120 degrees Celsius; (2) the energy in whatever form, present in, resulting from, created by or which may be extracted from that natural heat, including pressure; (3) the material medium containing the energy; and (4) all dissolved or entrained minerals and gases which may be obtained from the material medium, but excluding hydrocarbon substances and helium; G. "geothermal system" means any strata, pool, reservoir or other geologic formation containing geothermal resources; H. “material medium" means geothermal fluids or water and other substances hae introduced into a geothermal system to serve as a heat transfer medium; i "operator" means any person drilling, maintaining, operating, producing or in control of any well; J. "owner" means any person who has the right to drill into, produce and make use of geothermal resources; K. "person" means any individual, business entity, political subdivision or body politic of this or any other state; ie “waste” means any inefficient, excessive or improper production, use or dissipation of geothermal resources, including, but not limited to: (1) drilling, transporting or storage methods that cause or tend to cause unnecessary surface loss of geothermal resources; (2) locating, spacing, drilling, equipping, operating, producing or venting of any well in such a manner that results or tends to result in reducing the ultimate economic recovery of geothermal resources. Me "well" means any well drilled, converted or reactivated for the discovery, testing, production or subsurface injection of geothermal resources, or of groundwater valuable for its thermal energy. ARTICLE 2. GEOTHERMAL LEASING AND REGULATION Sec. 1 A. The Division of Minerals and Energy Management shall have and is hereby given jurisdiction over all persons and property, public and private, necessary to enforce the provisions of this article, and shall have the power and authority to make and enforce rules, regulations and orders reasonably necessary to carry out the purposes of the act. B. Any affected person may apply for a hearing before the division, or the division may initiate proceedings upon any questions relating to the administra- tion of this article, and jurisdiction is hereby conferred upon the division to hear and determine the same and enter its rule, regulation or order with respect thereto. Sec. 2 The state of Alaska shall] own all geothermal resources where it has title to the minerals or subsurface estate. Rights to explore for, develop and utilize geothermal resources owned by the state of Alaska may be obtained solely in accordance with the provisions of this article. Sec. 3 The division may designate geothermal resource areas and declare certain of these, or portions thereof, as a "competitive geothermal resource area," each of which shall contain at least one well capable of producing geothermal resources in commercial quantities. Sec. 4 A. The division may, under rules and procedures it shall adopt, grant prospecting permits and leases to any qualified person in order to explore for, develop or utilize state-owned geothermal resources. B. Where title to the surface is held by a person other than the state, such a shall have a preferential right to a prospecting permit or lease for such parcel. Sec. 5 A. On lands which have not been designated as a geothermal resource area, the division shall issue a prospecting permit to the first qualified applicant. too Such permit shall convey an exclusive right, for a period of two years, to prospect for geothermal resources on lands included within the permit. The division may, at its discretion, renew the permit for an additional one year. The division may revoke a permit should it find that the permittee has failed to dilligently prosecute efforts to discover geothermal resources. B. A holder of an exclusive prospecting permit shall have the right, within the permit term or thirty days thereafter, to convert such permit to a lease. Should the lands included within the permit be declared a "competitive geothermal resource area” during the permit term, the permittee must make application for a lease within thirty days or forfeit his conversion privileges and his exclusive right to prospect. os On lands which have been designated a geothermal resource area, prospecting permits may be granted on a non-exclusive basis for a one-year term. Such permits may, at the discretion of the division, be renewed annually. Holders of non-exclusive prospecting permits shall have no right to convert such permits to a lease; however, the division may allow expenditures made under such permits to be credited against lease payments for any lease covering the same lands, which is subsequently issued to the permittee. Sec. 6 A. On lands which have not been declared a "competitive geothermal resource area," and which are not included under an exclusive prospecting permit, the division may issue a geothermal lease to the first qualified applicant. B. On lands declared to be within a “competitive geothermal resource area," and which are not included under an exclusive prospecting permit, the division may issue geothermal leases by public auction to the highest qualified bidder. At the discretion of the division, competitive lease sales may be by oral or sealed bid, on the basis of a cash bonus, profit share or other single factor. Sec. 7 A. The division shall, on all permits and leases, attach such conditions as jit shall deem necessary to provide for multiple use of state lands, protect the rights of other persons holding an interest in the same lands, prevent waste and safeguard the natural environment and the public welfare. B. The division shall require a geothermal permittee or lessee to compensate the owners of prior interests in the same lands for damage to those interests, or to post a sufficient bond pending judicial determination of the matter. Sec. 8 A. Prospecting permits and leases granted under this article shall normally be issued on parcels at least 40 acres in size, but in no case more than 2560 acres in size. B. No person shall own, or hold an interest in, geothermal leases covering more than 51,200 acres; except that leases in commercial production, individually or in concert, shall not be counted against this acreage limitation. GC; All prospecting permits and leases shall be subject to an annual rental, payable in advance, of at least one-dollar per acre. -6- Sec. 9 A. Geothermal leases shall be issued for a primary term of ten years and shall be renewed for an additional term of five years if the lessee is actively engaged in drilling operations. Geothermal leases shall be valid for the duration of commercial production, up to a term of 40 years. B. The division may renegotiate the provisions of a geothermal lease, including rentals and royalties, beginning 15 years after the initiation of commercial production and at 10 year intervals thereafter. Sec. 10 A. The division shall charge a royalty of at least 10% but not more than 15% on the gross revenues derived from the production, sale or utilization of geothermal resources under a state lease. It shall also charge a royalty of at least 2% but not more than 10% on the net proceeds derived from the production, sale or utilization of byproducts under such lease. In no case shall the combined royalties on a lease be less than two-dollars per acre. B. The division may, at its discretion and in the public interest, reduce, suspend or waive the royalties otherwise due under a state lease. In such cases, the lessee shall pay a minimum annual rental of three-dollars per acre. Sec. 11 A. The division shall promulgate a development program on each discernible geothermal system, including well-spacing and pooling orders, limits on production and reinjection requirements, in order to prevent waste, promote maximum economic recovery and protect correlative rights. B. Lessees on a geothermal system, or part thereof, may enter into a unit agreement for cooperative development, with the approval of the division. The division may suspend or modify its development program in accord with such unit agreement. C. Should the owners of two-thirds of the leasehold interests in a geothermal system ratify a unit agreement approved by the division, the division may enforce the agreement as to lessees not a party to the agreement by allocating production under the principle of correlative rights and by apportioning costs and revenues. D. Lease operations under a well-spacing and pooling order or an approved unit agreement shall be deemed to be in compliance with individual lease requirements . Sec. 12 A. The division shall promulgate regulations covering the siting, spacing, drilling, casing, cementing, testing, logging, operating, producing and abandonment of geothermal wells so as to prevent: (1) geothermal resources, water or other fluids, and gases from escaping into strata other than that in which they are found (unless in accordance with an approved reinjection program); : (2) pollution of surface and ground water; (3) premature cooling of any geothermal system by water encroachment or otherwise; (4) blowouts, cavings and seepage; and (5) unreasonable disturbance or injury to neighboring properties, prior water rights, human life, health and the natural environment. B. The division shal] cause the operator of any geothermal well or wells to file adequate individual or blanket surety bonds to ensure compliance with its regulations. Cs The division shall have the right to enter upon any property, public or private, to inspect a geothermal operation for compliance with its regulations. D. Geothermal wells regulated by the division shall be exempt from 0i1 and Gas Commission jurisdiction under AS 31.05.030(g). Sec. 13 A. Operators shall, prior to drilling a geothermal well, file a notice of intent with the Chief Officer of the Water Management Section of the Department of Natural Resources. Such notice shall contain sufficient information to enable the Chief Officer to determine whether the operation of such well will interfere with and impair an existing water right. B. Operators shall not commence the drilling of a geothermal well without the approval of the Chief Officer, who shall grant such consent upon finding that: (1) the proposed geothermal well operation will not significantly interfere with or substantially impair an existing water right; or (2) the geothermal owner has acquired through purchase or condemnation adequate water rights to offset the potential interference or impairment; or (3) the geothermal owner has obtained and dedicated an equivalent amount of replacement water of comparable quality to the affected party or parties. The Chief Officer shall retain his jurisdiction, including the authority to suspend well operation, in the event of unforeseen interference which occurs subsequent to his approval. Cc. The withdrawal of geothermal fluid from a geothermal well and its sale or utilization for primary energy production shall not otherwise be subject to the Water Use Act (AS 46.15). The secondary use of spent geothermal fluids or of demineralized water obtained as a byproduct shall be subject to the provisions of the Water Use Act. However, the geothermal owner shall have a preferential right to appropriate such geothermal fluids or demineralized water, in order to make beneficial use thereof. ARTICLE 3. LOW-TEMPERATURE DEVELOPMENT Sec. 1 A. The Division of Forest, Land and Water Management shall have and is hereby given jurisdiction over all persons and property, public and private, necessary to enforce the provisions of this article, and shall have the power and authority to make and enforce rules, regulations and orders reasonably necessary to carry out the purposes of the act. B. Any affected person may apply for a hearing before the division, or the division may initiate proceedings upon any questions relating to the administra- tion of this article, and jurisdiction is hereby conferred upon the division to hear and determine the same and enter its rule, regulation or order with respect thereto. Sec. 2 A. It is hereby declared that the beneficial use of groundwater includes the extraction for sale or use of thermal energy contained therein for domestic, commercial, industrial, agricultural, aquacultural or other purposes approved by the division. B. Priority of appropriation includes the right to preserve thermal aspects of groundwater use from subsequent impairment. C. The utilization of groundwater for thermal purposes shall be governed by the provisions of the Alaska Water Use Act (AS 46.15) and regulations promulgated thereunder. Sec. 3 A. The division shall have the authority to issue a special land use lease to any qualified person who applies to use the surface of a state land parcel to construct a facility utilizing groundwater for thermal purposes, or utilizing spent geothermal fluids in a secondary application. B. Prior to the issuance of such lease, the division shall determine that there is available unappropriated groundwater or spent geothermal fluids sufficient to achieve the purposes of the lease. In the case of groundwater, the appropriation shall be made in the name of the state of Alaska and dedicated to the benefit of the Teasehold. Upon termination of the lease, the water right shall revert to the state, unless the division grants an extension of the water right for good cause and in the public interest. Sec. 4 A. The division shall exercise discretion with regard to the term, renewal and acreage (not to exceed 160 acres in size) of any special land use lease issued under this article. Such conditions shall correspond to the intended use to be made of the state parcel. The division shal] attach such other conditions to the lease as to protect the public interest and conform the lease operation to other established uses of such lands. B. Lease payments to the state of Alaska shall be on the basis of an annual rental, payable in advance, or on the basis of a profit share, such payments to be negotiated between the lease applicant and the division. In no case shall such lease payments total less than three-dollars per acre. Sec..'5 A. The division shall promulgate such regulations as are necessary to control the drilling of any groundwater wells for thermal purposes so as to prevent: (1) groundwater from escaping into strata other than that in which they are found (unless in accordance with an approved reinjection program) ; (2) pollution of surface and ground water; (3) impairment of prior water rights by premature cooling, or reduction in quality or quantity; and (4) unreasonable disturbance or injury to neighboring properties, human: life, health and the natural environment. B. The division shall have the authority to require any operator of a groundwater well for thermal purposes to file a notice of intent and receive the approval of the division prior to commencing actual drilling. The division may require the maintenance of such records and well logs as it may require and may enter upon any property, public or private, to inspect the operations for compliance with its regulations. C. If the division finds that an encounter of oi], gas or other hazardous substance is likely to result from well drilling, the provisions of AS 31.05.030(g) shall apply. -10- ADDENDUM TO THE GEOTHERMAL RESOURCES ACT Art. 1 § 1 B: (deletion) It is declared to be in the public interest to foster and promote (under existing law) the utilization of the thermal energy... . Art. 1 § 5: additional definition (E): reletter subsequent definitions “geothermal effluent" means the material medium subsequent to electrical Production or other primary energy extraction process; Art. 18 5 F: (deletion) (3) the material medium (containing the energy); and... . Art. 18 4 B: additional material . . . preference right to a prospecting permit or lease for such parcel. Such right must be exercised at the time of the first application for a permit or lease on such lands, or it shall be forfeited. : Art. 18 5 A: additional material ie designated as a geothermal resource area or withdrawn from entry, the division shall issue. ... Art. 1 § 7: additional material (B); reletter existing B as C B. Lease conditions shall include diligence requirements regardin drilling and Tease development. Failure to comply with such conditions shall be grounds for termination of the lease, unless they be waived or suspended by the division for good cause shown and in the public interest. Art. 2 § 10 B: addition and (deletion B. The division may, for good cause shown (at its discretion) and in the public interest, reduce, suspend or waive the’ minimum rentals and royalties otherwise due under a state lease. (In such cases, the Tessee shall pay a minimum annual rental of three-dollars per acre.) Art. 2.8 11 A: addition and (deletion) - + + promulgate a development program on each producing (discernible) geothermal system. ... Art. 2 8 11 D: addition and (deletion) D. Lease operations under an approved development program (a well- ee and pooling order or an approved) or unit agreement shall be deemed . Art. 2 8 13 B: addition - in the event of unforeseen interference to prior rights which occurs subsequent to his approval. -ll- Art. 2 § 13 C: addition and (deletion . . . The secondary use of geothermal effluent (spent geothermal fluids) or of demineralized water . . . . preferential right to appropriate such geothermal effluent (geothermal fluids) or demineralized water... . Art. 3 § 2 B: delete entire section; reletter C to B Some degradation of thermal aspects should be allowed, by analogy to allowable changes in the "condition of water occurrence" (AS 46.15.050). Excessive or unreasonable thermal degradation can be prevented via the regulatory authority regarding the prevention of "premature cooling" (Art. 3, § 5 of the proposed act). Art. 3§ 3 A: addition and (deletion) 5 . or utilizing geothermal effluent (spent geothermal fluids) ina secondary application. Art. 3 § 3B: addition and (deletion) . . . available unappropriated groundwater or geothermal effluent (spent geothermal fluids) sufficient to achieve . . .. Upon termination of the lease, (the) such groundwater right shall revert to the state, unless the division grants an extension (of the water right) for good cause shown and in the public interest. Water rights to geothermal effluent shall also be relinquished upon the termination of such lease and shall be available for subsequent appropriation, subject to the preference right of the original geothermal owner. Art. 3 § 5 B: addition and (deletion) . . . the maintenance of such records and well logs as it deems necessary (may require) and may enter... . -12- II. FINANCIAL PACKAGE A. Tax_ Incentives (1) Relevant tax incentives for geothermal producers relate to the income tax and the property tax. With regard to the income tax, Alaska follows the Internal Revenue Code. Thus, the geothermal tax incentives enacted in the National Energy Act of 1978 will be available to geothermal producers in the state. These include: deductions for intangible drilling costs for development purposes; a declining depletion allowance; and, an additional investment tax credit (not necessarily applicable to state income taxes). The legislature may wish to consider allowing intangible costs for exploration purposes to be deducted and insuring that a state investment tax credit is allowed. The ad valorem property tax looms as the major disincentive to geothermal development. Front-end capital costs to develop a geothermal lease are quite high -- a single well may cost from half to more than a million dollars. Assessing an ad valorem tax on the value of the resource in place during these early years and before commercial return, may constitute an unbearable financial burden. Alternative approaches include: exemption from property taxation until commercial production begins; deferral of property tax payments until commercial production begins; and, substitution of a well-head yield tax for ad valorem assessment. (2) Relevant tax incentives for geothermal users also relate to the income and property taxes. Income tax credits for expenditures for equipment to use geothermal resources (or alternate energy sources) can significantly reduce front-end capital costs and reduce payback periods. A federal alternate energy income tax credit is available, but many states have enacted supplemental legislation. Another option is to exempt the added value of a home or business due to installation of geothermal (or alternate energy sources) equipment from property taxation. A bill draft along these lines developed by the Alaska Division of Power and Energy Development, as well as an NCSL bill draft on the subject, is attached (see Appendix B). B. Funding of Energy Development (see Small-Scale Hydro report) Many funding avenues are available for consideration by the legislatures; a memorandum from the Legislative Finance Division listing these possibilities is attached (see Appendix C). With regard to geothermal development, three options are particularly attractive: (1) direct funding (via grants or low-interest loans) for exploration and drilling costs incurred by municipalities. Revenue bonding is inapplicable to discovery and drilling costs due to the inherent risk. Use of general obligation bonds for such purposes is subject to debt limits and political constraints. Direct state funding would constitute an important alternative (see HB 309, Appendix C). (2) "double barrel" bonding is the pledge of both project revenues and general revenues (full faith and credit) to secure bond issues. Given the risky nature of reliance on "new" energy sources such as geothermal, such authority may enhance the marketability of municipal geothermal bond issues (see HB 241, Appendix C). -13- (3) state bond guarantees would be another option to enhance the marketability of geothermal bond issues. Using state funds to guarantee bonds rather than to directly fund project construction should allow the available dollars to go farther. In addition, private capital markets would be the primary source of equity, rather than state revenues. Such involvement of the private sector should be encouraged; direct state funding would reduce such participation. -14- \ III. DISTRICT HEATING A. District heating is an attractive and potentially near term application of geothermal resources and hot groundwater. Indeed, even normal gradient groundwater may be effeciently utilized via a water-to-air (groundwater referenced) heat pump. Given the lack of a power transmission grid in Alaska, direct geothermal uses such as district heating may turn out to be the most widespread type of development. Alaska has expressed a strong constitutional (Art. X, Sec. 5) and statutory (29.63.090(d)) preference against the creation of new political entities to provide services which might be provided by existing ones. Municipalities (boroughs/cities) are already authorized to provide “heat, Tight, power (and) water" services (29.48.030). This seems adequate to cover district heating services. Borough service areas (29.63.090), public corporations or other municipal instrumentalities (29.59.010) are possible district heating vehicles. Municipal bonding, taxing, property, franchise, regulatory and other powers also are adequate for implementing district heating (see Appendix D). While the existing authority seems adequate, it may enhance the marketability of municipal bonds to, enact a statute declaring that municipal bonds may be issued to finance heating districts using geothermal, waste heat and alternate energy services. Also, such bonds might be accredited as legal investments for banks, trust funds and other institutional investors. Alaska has a statute regarding Area Redevelopment (41.30) which is administered by the Board of the State Development Corporation. The statute authorizes cooperation with political subdivisions and industry to promote business expansion in redevelopment areas, including loans to aid financing. - It is suggested that the legislature direct the Board to consider the organiza- tion of heating districts for industrial/commercial parks utilizing geothermal resources in its administration of the redevelopment program. Bs Public Utility Commission policies relating to the certification of new utilities (i.e., heating districts), service rates and reliability of service may have a significant impact on the development of district heating. NCSL will be conducting additional field research on these issues during its ‘November visit to Alaska and may make recommendations on these matters at a later date. -15- IV. MISCELLANEOUS A. Agency Funding Agencies designated to administer the proposed Geothermal Resources Act will require adequate staff and funding levels to implement its provisions. These agencies and their responsibilities under the act include: (1) State Geological and Geophysical Survey - conduct a statewide assessment of geothermal resources and maintain files available to the public. i. the Division of Energy and Power Development might also be directed to maintain public geothermal files under the proposed statute. (2) Division of Energy and Minerals Management - designate geothermal resource areas, issue prospecting permits and leases, conduct lease sales, manage geothermal system development, regulate geothermal wells, promulgate rules and procedures and inspect geothermal operations. (3) Division of Forest, Land and Water Management - investigate the impact of geothermal operations on existing water rights, issue leases, grant hot groundwater rights, regulate groundwater wells, promulgate rules and procedures, and inspect thermal groundwater operations. The legislature may, if the act is adopted, memoralize these agencies with regard to submission of an annual operating budget request sufficient to fund the above activities. Such funding might be derived from general revenues, by earmarking geothermal and special land use lease payments, or a combination thereof. Boroughs and cities will also be impacted by geothermal development. Such impact may include preparing geothermal zoning elements, revising land use plans, issuing various local permits and providing increased local services. Earmarking of geothermal lease revenues for such purposes is a possible funding option in this regard. A bill has been proposed in the California legislature directing the conveyance of federal geothermal lease payments to impacted counties. The administration is recommending an alternative bill. Copies of these proposals are attached (Appendix E). B. Life-Cycle Costing Life-cycle costing is a vital concept for the development of alternate and renewable energy sources. Construction of facilities to generate power from and installation or retrofitting of equipment to use such sources entails large front-end costs. The economic advantage of alternate energy sources vis-a-vis conventional fuels emerges only when costs are compared over the total useful life of a facility or building. That is, alternate energy development is capital intensive with relatively fixed, low fuel costs. Conventional fuel development is often less capital intensive -- due to established infrastructure -- but fuel costs are high and subject to escalation. -16- Thus, life-cycle costing should be incorporated into economic analyses of state- financed loans or grants for energy development (see the Small-Scale Hydro report on this subject). Also, construction, expansion or revamping of public buildings should include life-cycle costing of various energy systems. An NCSL bill draft on this subject is attached (see Appendix F). C. Building Codes and Zoning Local building codes and zoning ordinances can constitute a severe impediment to the utilization of alternate energy systems. On the other hand, innovative ordinances such as the San Diego County solar hot water requirement and the Portland insulation program can serve as a stimulus to the commercialization of alternate energy. NCSL is building capacity regarding these initiatives and may be able to offer assistance to legislative policy reviews. One option would be the adoption of a Joint Resolution expressing the sense of the legislature with regard to removing local ordinance impediments. D. Water Use Act The Office of Water Management is in the process of promulgating regulations (11 AAC 93) to implement the Water Use Act (46.15 AS). Clarification of the ability to condition certificates of appropriation has been identified as a desirable remedial amendment (see the discussion of HB 186 in the Small-Scale Hydro report). With regard to geothermal and hot groundwater three initiatives are worth of examination: (1) explicitly authorize the protection of thermal aspects of a water right via priority of appropriation; (2) explicitly authorize the Office to appropriate thermal groundwaters in the name of Alaska on state lands and dedicate those water rights to special land use lessees; (3) declare geothermal fluids (over 120°C) to be exempt from appropriation and the Water Use Act. E. Environmental Procedures Alaska's Environmental Procedures Coordination Act (EPCA) has not been thoroughly implemented (see the Small-Scale Hydro report for further analysis). With regard to geothermal development, the legislature may wish to direct that all the relevant permits be included within the EPCA process. In addition, it might be appropriate to develop a true master permit application for hot groundwater development, whereby only a single form would need to be completed. This is suggested as a method of simplifying the permit process for small-scale developers. -17- a ae) a a eee APPENDICES Alaska Technical Assistance Program/Geothermal Tax Credit Proposals Alaska Funding Options District Heating Article California Proposals on Earmarking Geothermal Lease Revenues Life-Cycle Costing Bill -18- APPENDIX A Alaska Technical Assistance Program/Geothermal -19- NATIONAL CONFERENCE OF STATE LEGISLATURES ENERGY PROGRAM -- GEOTHERMAL PROJECT PROPOSED TECHNICAL ASSISTANCE PROGRAM FOR ALASKA Study Areas District Heating A. Resource Characterization B. Resource Access C. Resource Allocation D. Permitting E. Finance F. G. Public Utility Commission Staff Responsibilities NCSL Energy staff, in conjunction with legislative staff, will identify issues, conduct research, analyze policy concerns, investigate administrative responses and prepare legislative proposals, as needed. Task Staff Status Project Introduction NCSL completed Issue Identification Joint completed Research & Analysis NCSL in progress Supplemental Field Research Joint in progress Project Milestones - Policy Profile NCSL completed - Options & Recommendations NCSL 11/1/79 - Discussion Bill Drafts Optional 12/79 - Draft Legislation Optional 1/80 Review of Proposed Legislation APPENDIX B Tax Credit Proposals an ALTERNATIVE ENERGY DEVICE TAX CREDIT 1979 GENERAL SESSION Discussion Draft B. No. BY AN ACT RELATING TO ALTERNATIVE ENERGY DEVELOPMENT: DEFINING ALTERNATIVE ENERGY DEVICES; PROVIDING AN INCOME TAX CREDIT FOR SUCH DEVICES; ALLOWING A CARRY OVER TO SUCCEEDING TAXABLE YEARS; PROVIDING FOR AMORTIZATION OF ALTERNATIVE ENERGY DEVICES IN COMMERCIAL USE; DESIGNATING THE STATE TAX COMMISSION TO ADMINISTER THIS ACT AND ESTABLISH STANDARDS IN CONJUNCTION WITH THE UTAH DIVISION OF WATER RIGHTS AND THE UTAH ENERGY OFFICE. BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF UTAH: SECTION I. Definition of Terms As used in this act: (a) "Alternative energy device" means (1) any system, mechanism or series of mechanisms which uses solar radiation, wind or geothermal resource for space heating, water heating or cooling, or for generation of mechanical or electrical energy for use but not for resale, (2) a system that employs a fluid-to-air heat pump operating on groundwater reservoir or a fluid reservoir heated by solar radiation or geothermal resource, and (3) equipment necessary to utilize and connect to a private or municipal system for purposes of heating and cool- ing that employs an alternative energy device or heat from an industrial or utility cogeneration system. , (b) “Cogeneration system" means a system which produces electrical energy and steam or forms of useful energy (such as heat) which are used for industrial, commercial, heating or cooling purposes. (c) “Installation costs" means the costs, as determined according to standards established in the administration of this act, for acquisition, installation, construction, reconstruction or remodeling properly attributable to the use of an alternative energy device. SECTION II. Residential Tax Credit (1) Any resident individual taxpayer who completes installation of an alternative energy device for use in such taxpayer's principal dwelling prior to June 30, 1985, or who acquires title to a dwelling prior to June 30, 1985 -22- It is the policy of the State of Alaska to reduce the State's dependency on fossil fuels for internal use. It is the policy of the State to utilize these resources to garner income to the State for needed improvements and services. FOR T 1. IH. ly. AN ACT ENTITLED "ALTERNATE ENERGY TAX CREDIT AND POLICY". Be it enacted by the State of Alaska that a State Corporate or Income tax credit of 75% of the cost of installing an Alternate Energy System in a home or business be granted to the installers. A. Alternate Energy System is defined as systems that have the means of energy production utilizing energy sources other than fossil or nuclear fuels. B. This would include but not be limited to: Solar, Wind, Biomass, Low head hydroelectric and gecthermal enercy systems. If credit exceeds tax liability for year of installation, it can be carried forward to future vears until tax credit is used en- tirely. This Act will remain in effect until 1991. The State of Alaska authorizes local taxing authorities to exempt property with alternate energy systems from increased assessment due to the system. Exemption extends until the last day of Dec- ember 1999. This applies to new construction and retrofits. .Energy conservation techniques and passive solar design qualify for the tax credit under the following criteria: A. New construction can qualify if it saves more than 107 of the yearly fossil fuel or electrical resistivety consumption of the latest ASHRAE or State of Alaska lighting and thermal standard facility whichever is most energy efficient. B. Retrofit homes or business can qualify for the exemption based on a 10% savings of eneray consumption for the previous year resulting from passive design or energy conservation measures. C. After the last day of December 1982, retrofit homes will qualify only on the portion of passive solar design or energy conservation measures that reduces fossil fuel or electrical resistivety consumption 10% above the latest ASHRAE or State lighting and thermal standards whichever is the most demanding. D. Maximum tax credit allowed is $10,000 combined Federal and State allowances. Federal credits must be taken first before state tax credits will be allowed. All new multiunit housing facilities must have individual metering for neating and lighting controls to cualify for this tax credit. -23- which dwelling is to be used as a taxpayer's principal dwelling and is supplied energy from an alternative energy device for which the credit allowed by this section has never been claimed, shall be entitled to claim a tax credit in an amount equal to thirty-five percent (35%) of the installation costs of such system or three thousand dollars ($3,000), whichever is less, against the income tax liability imposed against the taxpayer pursuant to Title 59 Chapters 14 and 14A of the Utah Code Annotated, 1953. Such tax credit shall be deducted from the taxpayer's income tax liability for the taxable year in which the alternative energy device was completed or acquired and placed in service by the taxpayer. (2) If the amount of such tax credit exceeds the taxpayer's income tax liabi- lity for such taxable year, the amount thereof which exceeds such tax liability may be carried over for deduction from the taxpayer's income tax liability in the next succeeding taxable year or years until the total amount of the tax credit has been deducted from tax liability. (3) The provisions of this section shall be retroactive to the 1979 taxable year. SECTION III. Commercial Tax Credit Any taxpayer who completes installation of an alternative energy device upon real property located within this state prior to June 30, 1985, which real property is either used in a trade or business or held for the production of income, or any taxpayer who acquires title to real property located within this state prior to June 30, 1985, which real property is used in a trade or business or held for the production of income and is equipped with an alternative energy device for which the credit allowed by this section has never been claimed, shall be entitled to claim an income tax credit in an amount equal to thirty-five percent (35%) of the installation costs of such system or six thousand dollars ($6,000) or an amount equal to the taxpayer's income tax liability in the taxable year for which the credit is claimed, whichever is less, against the tax liability imposed against such taxpayer pursuant to Title 59 Chapters 14 and 14A of the Utah Code Annotated, 1953. Such tax credit shall be deducted from the taxpayer's tax liability for the taxable year in which such system is acquired and placed into service by the taxpayer. This provision shall apply retroactively to include the 1979 taxable year. SECTION IV. Federal Tax Credit The federal income tax credit for an alternative energy device as defined in this act shall be subtracted from the state credit prior to obtaining the state credit so that the combined credit, state and federal, would be 35% or $3,000 for claimants under Section II, and for claimants under Section III, 35% or $6,000. SECTION V. Amortization of Alternative Energy Device (1) Retroactive to the 1979 taxable year, and in addition to the income tax credit allowable, any taxpayer who completes installation of an alternative energy device upon real property located within this state prior to June 30, 1985, -24- which real property is either used in a trade or business or held for the production of income, may elect to amortize the adjusted basis of the alter- native energy device based upon a period of sixty (60) months. In computing Utah taxable income, such amortization shall be allowed as a deduction from Utah adjusted gross income ratably over such sixty-month period beginning with the month in which such alternative energy device was completed or acquired and placed into service by the taxpayer. The election of the taxpayer to claim the amortization deduction allowed by this section shall be indicated in an appropriate statement attached to the taxpayer's income tax return for the taxable year in which such alternative energy device was completed or acquired and placed into service. As used in this section, “adjusted basis of the alternative energy device" shall mean an amount that is properly attri- butable to the construction, reconstruction, remodeling, installation or acquisition of such system. (2) In any case where a taxpayer, hereinafter referred to as transferor, has qualified and elected to amortize the adjusted basis of an alternative energy device pursuant to subsection (1) and the real property equipped with such system is acquired and used in a trade or business or held for the production of income by another taxpayer, hereinafter referred to as transferee, and the transferor has not fully amortized the adjusted basis of such system as provided in subsection (1), the transferee shall be entitled to amortize that portion of the transferor's adjusted basis of such system remaining unamortized, but the total amount to be amortized by the transferee shall not exceed said transferee's adjusted basis in the system. The transferee shall amortize such remaining amount based upon the remaining portion of the sixty-month period unused by the transferor. The amount by which the transferee's adjusted basis exceeds the amount of the transferor's adjusted basis remaining unamortized shall be amortized over the useful life of the system. SECTION VI. Administration The Utah State Tax Commission in conjunction with the Utah Division of Water Rights and the Utah Energy Office is hereby authorized to administer this act and shall prescribe such rules, regulations and standards as may be deemed necessary to carry out the purposes of this act. -25- APPENDIX C Alaska Funding Options -26- Alaska april 3, 1979 JUNEAU ALABKA MEMORANDUH TO: The Honorable Ernie Haugen House Finance Committee nb FROM: Milt Barker, Fiscal Analyst Legislative Finance Division Financing SUBJECT: nq is a sun y of the various funding sources - that might be used to finance power projects can be appxop (veconnais etc.), resex pioject costs. Appropria nated as coning from the reseive for energy £ el an& account which is allecatea 5% of mineral royalties, and bonuses, or the reserv for capital outlay account which is allocated 25% of mineral revenues. If the appropriation is made as a grant, it should probably be viewed as a subsidy. This would allow under- taking of projects t} rise occur, although hat would not othe it is conceivable that a project would be subsidized even of capable of being conventionally fin ed in order to lower costs to usexs, say to fight inflation or provice cr promote economic cevelopme: : general funds are appropriated as a loan or to t revolving fund or water sources revolving on as a loan which i pa sack project revenues, the appropriation may ox may not involve a subsidy depending on the terms of tle loéen. The payback cf loans frem these revolving funds will eventually create another source of Funding; however, @ present there are esscntially no unloaned funds in th revolving funds. venue bh 1 be sold by the : construction Ala wex Yeven could prope Such eoL : "doubl Lned. mbinod nesa voter 3. Guarantees of revenue bonds have been proposed from permanent fund income in HB 414. Bond underwriters estimate this technique could get interest rates down to within 1/4 to 1/2 of a percentage point of G.O. bonds. The advantag=: of this proposal is that permanent fund income is the only available source of revenue that can legally be dedicated, thus avoiding the necessity of making a large appropriation to a rescrve or guarantee fund to assure the bondholder of monies to be paid in the event of a default. 4. Subsidies of revenue bonds are proposed in CSHB 414 (attached) by setting aside 508 of permanent fund income for guarantees of bonds for which it is est ated that project revenues will not be sufficient to pay debt service. _O. bonds or double-barrel bonds could be issued ring the debt service. bsidies where oy tor proje: that were not capable of pa: This would be another way of providing needed and determined to be appropriate. S 6. A loan can be made from the } However, it will usually be cheaper fox : bonds, $ Or guaranteed revenue bo exempt 3 rest rates of say 6% than to appropria er loan their general and permanent funds which can be invested in ur taxable securities earning more like 8%. 7. The Alaska renewable resources corporation could fund power projects from their 5% of mineral revenues; however, generally their mandate is to assist innovative projects rather than standard hydreelectric facilities. MRD: pw Attachments -28- 10 12 | 13 14 15 16 7 18 19 20 a 22 23 24 26 27 28 Introduced: 2/27/79 Referred: Finance BY THE RULES COMMITTEE BY REQUEST OF THE LEGISLATIVE COUNCIL (for the State IN THE HOUSE Energy Policy Committee) HOUSE BILL NO. 309 IN THE LEGISLATURE OF THE STATE OF ALASKA ELEVENTH LEGISLATURE - FIRST SESSION A BILL For an Act entitled: "An Act relating to the construction of power projects." BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: * Section 1. AS 37.05.158(c) is amended to read: (c) The proceeds of the reserve for energy facilities development AIT account shall be appropriated annually [SUBJECT TO ANNUAL APPROPRIATION} by the legislature and used for the construction of power projects. Plans for expenditures from the account shall be submitted by the gover- nor in accordance with the Executive Budget Act (AS 37.07) as part of his annual budget presentation. * Sec. 2. AS 44.56.170 is amended by adding new subsections to read: (g) Applications for loans under (b)(2) of this section shall contain information in the form prescribed by the authority to enable the authority to determine whether the construction costs of the project could also be financed under other provisions of AS 44.56. If it appears to the applicant that the construction costs of the project can be financed only under (b)(2) of this section, the application shall also be accompanied by an analysis which compares the anticipated revenues from the project which will be available after Payment of estimated expenses of operation and maintenance to an assumed schedule, approved by the authority, of principal or sinking fund payments and interest payments which would be payable if the loan was secured from a private lender. If the anticipated available revenues are not at least equal to the assumed payments necessary, the authority may not make the HB 309 -29- o 6 ia 15 1G 7 18 19 20 21 22 24 25 26 27 228 loan unless there is availabie in the fund or from any other source an amount which, when added to the aniticipated revenues, equals the assumed payments. (h) The authority may establish an account in the power project revolving fund from which it may purchase revenue bonds issued appli- cants for loans under (b) of this section for the construction costs of the project. The revenue bonds may be secured by a senior, parity or subordinate pledge of revenues of a project and may be purchased by the authority at the same time bonds are issued to other investors secured by a senior, parity or subordinate pledge of revenues of the project. The revenue bonds purchased by the authority may bear interest at such rate or rates, mature at such time or times, and contain such other terms and conditions as the authority determines necessary to permit the sale of the bonds to other investors. Sec. 3. AS 44.56.230 is amended by adding new paragraphs to read: (8) "small-scale" means a facility producing not more than 25° Megawatts of power; (9) "construction costs" means the cost of constructing, equipping, modifying or expanding a project and includes the costs of feasibility studies, design work and reconnaissance studies. HB 3909 -30- ck we sae Aalngn@ aabanenine evte creme memereen = M 1 “<=> a : | “ at fat J UA lel tptetlere) feta] fapaeats| | fey 2 Fe Qomde wee pee ! elt ' [ : .|| Original sponsor: Gardiner 1 t ; i 7 i ‘ a] XN THE MOUSE BY THE FINANCE COMMITTEE aa . CS FOR HOUSE BILL no. 241 1 ; soot IN THE LEGISLATURE OP THE STATE OF ALASKA i ah ELEVENTH LEGISLATURE - FIRST SESSION ! i : i ogy A BILL ' 4 { «f{ Pex an Act entitled: "An Act relating to state bonding." : tt \ ? i LE Ir ERXAC®ED BY THE LEGISLATURE CF THE STAVE OF ALAS ‘ i : ' a Section 1. AS 37.15.010 is amended by adding a new subsection to red: | \ i ae a (vb) Cenerat obligation honds issucd for acquiving, constrecti . we ! improving and equipping a state-owned utility eet Den S ube Tek : ees Peer Biel: | fab) 44 Sng, enterprise wey be adurt derived £rem operation, The Ponds may conta state hood committec considers: advisable cor: (1) the retes or fees to be eherged for the public facilits is} i \ 1% the bonds; | . : ‘ | ut (2) the capesit and if ‘ i : ms ties; i i ! (3) the issuance of i \ E : the public facilities; : i (4) the rights of the bondhelders in case of the a : ; : xf payment of the principal or faterest en the konds, ineludiag © i I nt of a receiver to operate the public (5) other covenants as the st "31- APPENDIX D District Heating Article -32- Geothermal Resources Council, TRAMWSACTIONS, Vol. 3 September 1979 DISTRICT HEATING: LEGAL & INSTITUTIONAL PARAMETERS Kenneth A. Wonstolen National Conference of State Legislatures - Denver, Colorado Geothermal Policy Project ABSTRACT District heating is a proven vehicle for the direct application of geothermal energy. Suc- cessful systems currently exist in Iceland, France and the U.S., with numerous others in planning or construction stages. As geothermal resources come on-line, district heating is likely to be a widespread method of utili- zation. Such systems will provide centralized space-conditioning, as well as "cascaded" uses where feasible. Legal and institutional factors should be examined to ensure an ade- quate foundation for implementing geothermal district heating. INTRODUCTION District heating basically means the central- ized distribution of heat to multiple end- users within a particular service area. Cas- caded utilization would involve the successive use of progressively cooler fluid (e.g. indus- trial process heat, space-conditioning, green- housing, aquaculture). The heat source may be geothermal, solar or fossil fuel. The use of cogenerated or waste heat would be especially appropriate. If alternate energy sources are used, supplemental fossil fuel capacity may be necessary to meet peak demands or emergencies. Various entities, both private and public, may constitute Vehicles to develop and operate a heating district. Such a heating district will be presumed to be a utility, INVESTOR-OWNED UTILITIES The private sector may organize a heating district by incorporating an investor-owned utility. Some existing utilities may already have a steam distribution system in place. In other states, specific legislative authori- zation for utilities to provide district heating services may be required. Such authori- zation should allow the production and trans- mission of various heat mediums, including geothermal, for public and private use. In order to incorporate a new investor-owned utility, or expand the scope of an existing one, certification from the Public Service Commission (PSC) will ordinarily be necessary. Such a “certificate of public convenience and necessity" may be difficult to obtain where the 797 -33- heating district would impinge on an existing heating utility (gas/electric) service area. State legislatures should consider exempting heating districts using alternate fuel sources or waste heat from the certification requirement. Alternatively, they may direct the PSC to grant certification where the public interest would be served, despite competition with an existing utility. Investor-owned utilities are under the rate- making jurisdiction of Public Service Commissions, although this may not be clear where heating/ cooling services are newly authorized. PSC control of utility rates normally is justified due to the monopoly status accorded a utility in a particular service area. State legislatures may consider, as an incentive to investment, exempting heating districts using alternate or waste heat sources from PSC rate-making juris- diction. Thus, legislatures should review at least three aspects of district heating via investor-owned utilities: the authorization to provide district heating services; the requirement of PSC cerifi- cation; and, the applicability of PSC rate-making jurisdiction. PUBLICLY-OWNED UTILITIES Counties, municipalities, special districts and other political subdivisions also are possible vehicles for implementing district heating. However, most political subdivisions possess no inherent powers. Thus, specific enabling legis- lation often will be necessary to authorize a political subdivision to organize a heating district. In some cases, municipal utility codes or authorizations to provide "water" may be liberally construed to cover district heating services. "Home rule" entities also may be able to implement district heating on their own initiative. Where new enabling legislation is required, at least two approaches are possible. One is to enact a comprehensive, specific statute such as Oregon's Geothermal Heating Districts Act (ORS Chap. 523, 1977). Such an approach has the advantage of authorizing entities with a specific, single mandate. Alternatively, an existing political subdivision charter may be amended to include district heating, as Idaho has done with its municipal code (S. 1062, 1979). While the district heating mandate to such entities may be diluted by existing functions, this approach has the advantage of utilizing personnel and infrastructure in place. In addition, where existing bonding and other powers are already adequate, the legislative drafting job is sim- plified. Special districts, a species of local govern- ment, offer several advantages as district heat- ing vehicles. They may usually cross other political subdivision boundaries and may some- times include non-contiguous areas, important factors in matching resource and service load centers. Special districts may be able to im- pose differential taxing coincident with ser- vice areas. Their bond issues normally are exempt from constitutional debt limitations applied to cities and counties. And, they are organized and operated to perform a narrow range of similar functions. Whatever political subdivision is chosen as a district heating vehicle, certain basic param- eters need to be established. These relate to the method of heating district formation, the nature of its boundaries, its purposes and its powers, especially financial. Formation of a heating district will normally involve resolutions of the governing bodies of participating political subdivisions or, perhaps, a local citizen initiative. A ref- erendum on the matter may be required, espec- jally where the district would have property taxation (ad valorem/special assessment) power. State Tegislative and/or Public Service Commission approval also may be necessary, although this is less common. A heating district should have flexibility with regard to its boundaries. The crossing of municipal and county lines, and the inclusion of non-contiguous areas, may be necessary to match the heat source with load centers. Annexation capability would be a useful adjunct. The district also may require extra-territorial — over sources of supply and facili- ties. The purposes of a heating district will gener- ally be to produce, distribute, utilize, sell and dispose of geothermal resources and other heat mediums for domestic, commercial and indus- trial use. The authority should be broad enough to include geothermal and cogenerated or waste heat sources, as well as the use of fossil fuels for peaking or emergencies such as well shut-downs. While centralized space- conditioning may often be the primary function, integrated development of cascaded uses should be within the purview of the district. Since political subdivisions are inherently not risk-taking entities, the exploration function may require an innovative approach. Exploration may be an appropriate function for the district where the geothermal resource is demonstrated or where outside {state/federal) capital is avail- able. Otherwise, joint enterprise ability - joint power authorities (with other political subdivi - sions) and joint ventures (with private industry) - may be necessary to obtain financing. Altern- atively, franchises may be granted to private companies to explore for and produce the resource under a contract of sale. Exemption of such production from PSC rate-making jurisdiction ' would be an appropriate incentive to attract pri- vate risk capital. Publicly-owned utilities al- ready are exempt from PSC jurisdiction in most states. A geothermal heating utility will require the range of powers of a body corporate and politic: legal status to sue and be sued; ability to con- tract for services and employ personnel; ability to acquire and dispose of property (within and without the district); ability to fix rates for service; ability to apportion user charges and enforce collection (usually via liens); and, the ability to generate capital. The most likely avenue for capital financing of a geothermal heating district will be revenue bond issues. Service charges would be designed, and may be statutorily required, to retire reve- nue bond principal and interest, as well as covering operating expenses. However, the abil- ity to levy special assessments may be a neces- sary concomitant in order to cover revenue short- falls. Revenue bond issues are not subject to constitutional debt limits and usually need not be approved in an election. Where the district has ad valorem taxation power, it may be authorized to issue general obligation bonds. Such bonds also may be retired by pro- ject revenues but are supported by the full faith and credit (taxes) of the issuing district. General obligation bonds will usually be subject to debt limits if the issuing authority is a municipality or county. Debt limits for special districts are less common, and if applicable, special district debts are generally not cumula- tive with other local political subdivision debt. - General obligation bond issues may need to be approved in an election. ‘ Whatever the bond option chosen, marketability is subject to legislative initiative. State legislatures should consider declaring heating district bonds a legal investment for all banks, trust funds, school funds and other institutional investors. Such accreditation would expand the capital market for the bonds. A final consideration regarding the powers of heating districts is the grant of easements and eminent domain. Easements along, across and under public byways and existing transmission corridors would assist the district in forming its distribution network. The power to condemn easements on certain private property also may be necessary to complete the system. Consider- ation may be given to extending the eminent domain power to existing geothermal wells and sources of supply, although such a proposal is likely to be controversial. The problem of condemning existing wells or their forced incorporation into a heating dis- trict may be unavoidable where single or multi- family wells are already in use. Geothermal production for a heating district may result in reservoir drawdowns, rendering such wells use- less. District monetary liability for such events, as opposed to the issuance of an injunc- tion restraining operations, would result, as a practical matter, in condemnation. A possible method to minimize such liability would be the designation of system-wide economic drilling levels, above which no liability would accrue to the district. Thus, the legislative agenda for public district heating is manifest. The charters of existing political subdivisions should be examined to identify suitable candidates and amended as necessary. Alternatively, a comprehensive, new district heating statute may be enacted. Formation, boundaries, purposes and powers are the parameters which need to be established for public heating districts. CONCLUSION While this paper has focused on the specific Tegal and institutional parameters of geo- thermal district heating, there are additional factors subject to legislative initiative which will generally affect the pace of imple- menting such systems. These include: public funding for demonstration projects; geoheating public buildings; innovative and compatible building codes and zoning ordinances; public education and technical assistance; loan programs and tax incentives for alternate energy systems; royalties and taxes on resource production; streamlined regulatory and leasing procedures; and, resolution of ownership and water rights issues. While beyond the scope of this paper, the NCSL geothermal project is prepared to assist states to deal with these policy areas. 799 -35- Wons tolen APPENDIX E California Proposals on Earmarking Geothermal Lease Revenues -36- EACT SHEET COMPARISON OF THE GEOTHERMAL RESOURCES DEVELOPMENT FUND (GRDF) AND THE BOSCO BILL ( ABL905) o Both bills establish procedures for dispersing the revenues returned to the State as a result of base scales on federal land pursuant to the Federal Land Policy and Management Act (FLPMA)+ Under FLPMA, half the revenue from borms bids on geothermal leases, as well as from rentals and production royalties are returned to the State. The State is directed to place priority on using the funds to offset the impacts of “geothermal development -* o All of the funds returned o 60% of the funds go to to the State go directly the county of origine to the county where the " 254 is available to assist lease sale is held other counties with known or (county of origin) potential resources plan for ° such development 15% is available to supplement State agency programs which will promote enviror- mentally. sound and expeditious geothermal development. -37- ° © Allows counties of origin to spend funds on anything» o Funds would go only to counties where a federal lease sale has occured. ‘There are at least 17 counties in California with geothermal resources on federal, state or private lands. At least 4, of these counties will not have a federal lease sale, although there will be development occuring on State and private lands. They would receive no funds under this bill to plan for geothermal development. o Counties of origin will not be able to receive funds until 6 to 12 months after the lease sale has occured This would make it difficult, if not impossible, to carry out advance ‘planning prior to devalopaent pressures already occuring. -38- o Requires that funds only be expended on geothermal related activities. Funds would be available to all counties where it is needed to plan for geothermal development and not just counties with federal lands or lease salese Funds would be available for all counties, well ahead of lease sales and development pressureSe Specifies that funds would be available to local and State agencies to permit, ‘monitor and inspect gectherm: * activities. o No such provision o No.such provision eee ae say © No such provision o No such provision ° ° Specifies that funds would be available to local governments arid State agencies to provide public services necessary to support geotherme activities. Would make funds available to local governments and State agencies to install geothermal district heating systems and demonstrate other direct heat and electrical ep- plicationse Provides for an interagency counsel with local and public membership to determine proje: which merit funding support. Requires bienmial reporting of expenditures and accemplis. ments made as a result of " projects undertaken. -39- Requires reevaluation of program at the end of 10 yearse ~~ CALIFORNIA LECISLATURE—1979-80 REGULAR SESSION ASSEMBLY BILL No. 1905 ; Introduced by Assembyman Bosco (Principal coauthor: Senator Keene) May 21, 1979 REFERRED TO COMMITTEE ON RESOURCES, LAND USE, AND ENERGY An act to add Chapter 6 (commencing with Section 3790) to Division 3 of the Public Resources Code, relating to geothermal revenues, and declaring the urgency thereof, to take effect immediately. - , LEGISLATIVE COUNSEL'S DIGEST 7 AB 1905, as introduced, Bosco (Res, LU, & E.). Geothermal resources: federal lease sales: disposition of revenues. — 7 Existing state law does not provide for the distribution of moneys received by the state from federal geothermal lease sales of public lands. Existing federal law provides for 50 percent of the moneys received for geothermal leases under the federal Geothermal Steam Act of 1970, as amended, to be paid to the state where the leased lands are located. This bill would provide that all. moneys received by the state from the federal government for federal geothermal leases within California be deposited in the State Treasury and allocated by the Department of Finance to the counties socially or economically impacted by the federal geothermal leases generating the revenues. This bill would take effect immediately as an urgency statute. Vote: %. Appropriation: no. Fiscal committee: yes. -40- AB 1905 —2— State-mandated local program: ‘no. BSSSonaanaone-o -_ WOBADURWNKCOHOBDAMDWUAWONWHE The people of the State of California do enact as follows: SECTION 1. Chapter 6 (commencing with Section 3790) is added to Division 3 of the Public Resources Code, to read: . CHAPTER 6. GEOTHERMAL REVENUES 3790. All moneys received by the state from the federal government for sales, bonuses, royalties, and rentals of public lands within the State of California under the federal Geothermal Steam Act of 1970, as amended (Chapter 23 (commencing with Section 1001) of Title 30 of the United States Code) shall be deposited in the State Treasury and allocated by the Department of © Finance to the counties socially or economically impacted by the federal geothermal leases generating such revenues. The revenues allocated to counties under this section shall be for the purpose of planning, construction and maintenance of public facilities, and provision of public services. SEC. 2. This act is an urgency statute necessary for ' the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the Constitution and shall go into immediate effect. The facts constituting such necessity are: / Moneys will be received from the federal government in July from geothermal revenues and it is essential that act be effective at that time. 9 50 -4]- May 31, 1979 Page I LEGISLATIVE INTENT It is the intent of the Legislature to: encourage alternative energy development in the State. Further, the Legislature recognizes that California has substan- tial geothermal energy potential. Geothermal resources offer excellent energy sources which are advantageous in that: (1) they are indigenous to California; (2) their development provides a stimulus to the State's economy; (3) the environmental impacts of geothermal direct heat may be more acceptable than those associated with traditional electrical generation, and mitigation of such impacts is better understood than those associated with traditional electric generation technologies; (4) their development reduces dependence on other fossil fuel sources; (5) geothermal power plants are small scale distributed technologies which can increase system reliability and flexibility; and (6) the lead time for electric power plant construction is relatively short. Based on the opportunities afforded by geothermal development, it is the intent of the Legislature to promote environmentally sound geothermal resources develop- ment. POLICY It is the policy of the Legislature to encourage environmentally sound geothermal resources development. It is further the policy of the Legislature to reduce the State's dependency on scarce fossil fuels. Therefore, in order to ensure that geothermal development occurs in an orderly and sound fashion, the Legis- lature hereby déclares that all revenues derived from the U. S. Bureau of Land Management's activities under the Geothermal Steam Act of 1970 and distributed through Section 317 of the Federal Land Policy and Management Act (FLPMA), PL 94-579, be appropriated in the following ways: | GENERAL PURPOSES All monies returned to the State pursuant to Section 317 of FLPMA shall be used to promote geothermal resources development related activities including, but not limited to: (1) Carrying out necessary planning activities to ensure orderly, environmentally sound geothermal development in as expeditious a manner as possible, including, but not limited to: -42- DRAFT May 31, 1979 Page II (A) resource assessment and exploration technology | (B) local and regional planning and policy development and implementation for complying with State and federally mandated programs (C) identification and incorporation of feasible mitigation measures necessary to offset adverse impacts to the State's natural resources including the necessary collection of baseline data and monitoring (D) preparing geothermal elements to county general plans, zoning and other ordinance and accompanying environmental ‘and planning ! documents. i (2) Providing the necessary public services required to implement, mitigate and.enhance geothermal resources development, including, but not limited to: (A) processing requests and preparing permit application,s related environmental documents, monitoring and inspection of geothermal activities to insure compliance with local, regional and State laws, regulations, ordinances and other geothermal related \ activities: identifying and carrying out actions necessary to mitigate impacts as well as participating in research and | development activities i : (B) planning, construction, operations and maintenance of necessary public services. ’ (3) Projects demonstrating the technical feasibility and economics of t . geothermal direct heat and electrical applications. i (4) Other projects that can be shown to promote development consistent with the policies of this Act. SPECIFIC PROVISIONS ‘ | Public Services means those services which local jurisdictions must provide as a result of geothermal development activities. Local Jurisdictions means legal subdivisions of the State, including cities, counties, and special districts. -43- DRAFT May 31, 1979 Page III County of Origin means any county in which the Bureau of Land Management lease sale occurred. Geothermal Resources Development Account means the account established “in the State Controller's Office which shall consist of all monies returned to the State by the U. S. Treasury pursuant to Section 317 of the Federal Land Policy and Management Act. Geothermal Resources Development Fund means those funds which are earmarked for disbursement by the Council and which shall consist of 40 percent of the Geothermal Resources Development Account. Potential or Known Geothermal Resources means those areas of the State in which there is an identified geothermal resource either as: a) known geothermal resource area (KGRA) as designated by the U. S. Geological Survey; b) geothermal resource areas as designated by the Division of Oil and Gas; or, c) areas with surface manifestations and other indications of the presence of a geothermal resource. The Geothermal Resources Development Fund and the Geothermal Resources Develop- ment Aécount are hereby created. All monies in the Account shall be expended for the purposes stated in the Act. There is in the Department of Finance an advisory body known as the Geothermal Coordinating Council, hereafter known as the Council, which shall establish guidelines for the administration of monies in the Geothermal Resources Development Fund. The Council shall have the authority to determine which local jurisdictions have potential or known geothermal resources for the prescribed purposes of this Act. The Council shall coordinate with the California Energy Commission's statewide planning policy and research and development efforts, as well as other affected State agencies’ geothermal planning and program activities, for the promotion. er regulation of geothermal energy resources in establishing its guidelines for the administration of the Geothermal Resources Development Fund. -44- APPENDIX F Life-Cycle Costing Bill -45- ALTERNATIVE ENERGY SYSTEMS FEASIBILITY STUDY ACT 1979 GENERAL SESSION Discussion Draft B. No. By AN ACT RELATING TO THE PREPARATION OF FEASIBILITY STUDIES ON ALTERNATIVE ENERGY SYSTEMS FOR NEW OR RENOVATED P!BLIC SUILDINGS. BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF UTAH: SECTION I. A new clause (c) is added to Section 63-9-49 (2) (UCA 1953) to read: (c) (new material) Prepare an alternative energy systems feasibility study prior to the commencement of siting, construction or major renovation of build- ings owned by the-State of Utah and its political subdivisions. This provision applies to buildings having more than 20,000 square feet of usable floor space. The study shall employ life cycle cost analysis and include simulations of system performance over a year's operating period. At least two non-fossil energy systems shall be evaluated, including the utilization of geothermal or hot water resources where available. The study shall guide the selection of building site, design and energy systems. -46-