[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]




 
H.R. 2772, ``THE JOHN RISHEL GEOTHERMAL STEAM ACT AMENDMENTS OF 2003''

=======================================================================

                          LEGISLATIVE HEARING

                               before the

                       SUBCOMMITTEE ON ENERGY AND
                           MINERAL RESOURCES

                                 of the

                         COMMITTEE ON RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                         Tuesday, July 22, 2003

                               __________

                           Serial No. 108-43

                               __________

           Printed for the use of the Committee on Resources



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                         COMMITTEE ON RESOURCES

                 RICHARD W. POMBO, California, Chairman
       NICK J. RAHALL II, West Virginia, Ranking Democrat Member

Don Young, Alaska                    Dale E. Kildee, Michigan
W.J. ``Billy'' Tauzin, Louisiana     Eni F.H. Faleomavaega, American 
Jim Saxton, New Jersey                   Samoa
Elton Gallegly, California           Neil Abercrombie, Hawaii
John J. Duncan, Jr., Tennessee       Solomon P. Ortiz, Texas
Wayne T. Gilchrest, Maryland         Frank Pallone, Jr., New Jersey
Ken Calvert, California              Calvin M. Dooley, California
Scott McInnis, Colorado              Donna M. Christensen, Virgin 
Barbara Cubin, Wyoming                   Islands
George Radanovich, California        Ron Kind, Wisconsin
Walter B. Jones, Jr., North          Jay Inslee, Washington
    Carolina                         Grace F. Napolitano, California
Chris Cannon, Utah                   Tom Udall, New Mexico
John E. Peterson, Pennsylvania       Mark Udall, Colorado
Jim Gibbons, Nevada,                 Anibal Acevedo-Vila, Puerto Rico
  Vice Chairman                      Brad Carson, Oklahoma
Mark E. Souder, Indiana              Raul M. Grijalva, Arizona
Greg Walden, Oregon                  Dennis A. Cardoza, California
Thomas G. Tancredo, Colorado         Madeleine Z. Bordallo, Guam
J.D. Hayworth, Arizona               George Miller, California
Tom Osborne, Nebraska                Edward J. Markey, Massachusetts
Jeff Flake, Arizona                  Ruben Hinojosa, Texas
Dennis R. Rehberg, Montana           Ciro D. Rodriguez, Texas
Rick Renzi, Arizona                  Joe Baca, California
Tom Cole, Oklahoma                   Betty McCollum, Minnesota
Stevan Pearce, New Mexico
Rob Bishop, Utah
Devin Nunes, California
Randy Neugebauer, Texas

                     Steven J. Ding, Chief of Staff
                      Lisa Pittman, Chief Counsel
                 James H. Zoia, Democrat Staff Director
               Jeffrey P. Petrich, Democrat Chief Counsel
                                 ------                                

              SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES

                    BARBARA CUBIN, Wyoming, Chairman
              RON KIND, Wisconsin, Ranking Democrat Member

W.J. ``Billy'' Tauzin, Louisiana     Eni F.H. Faleomavaega, American 
Chris Cannon, Utah                       Samoa
Jim Gibbons, Nevada                  Solomon P. Ortiz, Texas
Mark E. Souder, Indiana              Grace F. Napolitano, California
Dennis R. Rehberg, Montana           Tom Udall, New Mexico
Tom Cole, Oklahoma                   Brad Carson, Oklahoma
Stevan Pearce, New Mexico            Edward J. Markey, Massachusetts
Rob Bishop, Utah                     VACANCY
Devin Nunes, California              Nick J. Rahall II, West Virginia, 
Richard W. Pombo, California, ex         ex officio
    officio


                                 ------                                
                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on July 22, 2003....................................     1

Statement of Members:
    Gibbons, Hon. Jim, a Representative in Congress from the 
      State of Nevada............................................     1
        Prepared statement of....................................     3

Statement of Witnesses:
    Connelly, Jeanne, Vice President, Federal Relations, Calpine 
      Corporation................................................    28
        Prepared statement of....................................    30
    Gawell, Karl, Executive Director, Geothermal Energy 
      Association................................................    16
        Prepared statement of....................................    18
    Morrison, Patricia, Principal Deputy Assistant Secretary for 
      Land and Minerals Management, U.S. Department of the 
      Interior...................................................     5
        Prepared statement of....................................     6
    Witcher, Dr. James C., Southwest Technology Development 
      Institute, New Mexico State University.....................    25
        Prepared statement of....................................    26


 LEGISLATIVE HEARING ON H.R. 2772, ``THE JOHN RISHEL GEOTHERMAL STEAM 
                        ACT AMENDMENTS OF 2003''

                              ----------                              


                         Tuesday, July 22, 2003

                     U.S. House of Representatives

              Subcommittee on Energy and Mineral Resources

                         Committee on Resources

                             Washington, DC

                              ----------                              

    The Subcommittee met, pursuant to notice, at 2:15 p.m., in 
room 1324, Longworth House Office Building, Hon. Jim Gibbons, 
Vice Chairman of the Subcommittee, presiding.
    Present: Representative Gibbons.
    Mr. Gibbons. The Subcommittee on Energy and Mineral 
Resources will come to order. The Committee is meeting today to 
hear testimony on H.R. 2772, The John Rishel Geothermal Steam 
Act Amendments of 2003, to amend the Geothermal Steam Act of 
1970 to promote the development and use of geothermal resources 
in the United States.
    Under Committee Rule 4(g), the Chairman and the Ranking 
Minority Member can make opening statements. If any members 
have other statements, they can be included in the record under 
unanimous consent.
    Let me begin now making my opening remarks, and at any 
point in time if Mr. Kind, the Ranking Minority Member, shows 
up, we will allow him to enter his remarks as well. Or if 
anybody wants to submit an opening statement, they can, for the 
record.

STATEMENT OF THE HON. JIM GIBBONS, A REPRESENTATIVE IN CONGRESS 
                    FROM THE STATE OF NEVADA

    Mr. Gibbons. The Subcommittee meets today to discuss an 
important piece of legislation that will make America more 
energy independent and help prevent future spikes in energy 
prices. H.R. 2772, The John Rishel Geothermal Steam Act 
Amendments of 2003, provides significant changes to existing 
law that will undoubtedly make geothermal energy use more 
attractive and increase our energy supply.
    While substantial amounts of geothermal energy are 
currently utilized in the United States, the potential for 
greater use of geothermal energy is significant. In fact, 
according to the U.S. Geological Survey and Geothermal Energy 
Association, production of electricity from geothermal steam 
could increase by a factor of eight over the next 20 years. 
That, ladies and gentlemen, is a significant contribution to 
our energy demand.
    There is also enormous potential for direct use of 
geothermal energy for commercial and residential applications. 
America is not making full use of its geothermal potential 
because we don't have adequate incentives to attract needed 
capital investment to geothermal energy projects. Most of the 
potential geothermal resources for both electrical generation 
and direct use lies on Federal lands. But unlike other energy 
projects, access to geothermal resources on Federal lands 
involves a complex process of leasing and permitting. At the 
same time, the current royalty structure for geothermal 
development is inadequate and is preventing geothermal energy 
from meeting its full potential.
    H.R. 2772 amends the Geothermal Steam Act by addressing a 
number of its inadequacies. The legislation applies common-
sense solutions to current law in order to make geothermal 
energy production more attractive and less burdensome.
    H.R. 2772 takes the Federal Government out of the business 
of determining where high-value resources are located and makes 
geothermal leasing market-driven through competitive bidding. 
It promotes a unified ownership of a single geothermal resource 
by directing that multiple leases located on one geothermal 
reservoir be offered for sale as a block.
    This bill addresses the current backlog of geothermal lease 
applications by requiring these applications to be cleared 
within 1 year of enactment and allows applications to pay up 
front for needed processing, analysis, or documents to complete 
the process. To break the gridlock for leasing on Forest 
Service lands, this legislation directs the Forest Service and 
BLM to develop a common policy with specific steps for leasing, 
processing, and permitting geothermal projects on Federal land.
    The bill also directs a review of moratoria and withdrawals 
from geothermal leasing on Federal lands and directs USGS to 
complete a new national geothermal resource assessment. To 
create certainty and make geothermal production on Federal 
lands more attractive, the bill makes a number of changes to 
the current royalty structure. It basis future royalties on a 
gross proceeds formula, making the system less complex, 
benefiting producers as well as State and local Governments.
    The system will provide a uniform royalty structure. The 
payments will be lower for the first 10 years, and then 
increase thereafter for the duration of the lease. State and 
local Governments will begin receiving royalties earlier and 
receive an overall increase in their royalty share. And that is 
important to know, because many local Governments have been 
concerned that we would be decreasing or eliminating their 
royalty share, and they will actually begin to receive these 
royalties earlier and will receive an overall increase in their 
royalty share in the long run.
    This bill directs a 25 percent share of the royalties to 
the county Government so that local communities receive their 
direct revenue from local projects. To encourage geothermal 
energy use by farmers, ranchers, local Governments, and small 
business, H.R. 2772 establishes a simpler leasing process and 
more attractive terms for direct use of geothermal heat.
    Finally, this legislation encourages geothermal production 
on appropriate military lands by providing lessees with the 
same terms for production that apply on other Government lands. 
Overall, the changes to the Geothermal Steam Act will greatly 
reduce the complexity faced by geothermal energy producers and 
users under the current regime. H.R. 2772 should make 
production of this clean, renewable, and domestic resource more 
attractive, thus boosting our energy supply and helping local 
communities, families, and economies.
    We are facing an energy supply shortage in this country 
that is costing jobs and threatening to hurt every aspect of 
the American economy. We need sound energy policy that boosts 
domestic supply by allowing the private sector to better 
utilize the abundant resources that we have on Federal lands.
    And finally, let me just add that H.R. 2772 was named for 
John Rishel, who many of you knew for his hard work and years 
of dedication on this Committee staff. John believed in common-
sense approaches to utilizing resources on Federal lands. John 
was a geologist by training, and he worked very hard on this 
legislative language and on other initiatives that would allow 
the best use of our Federal energy and mineral resources.
    I am proud to honor John's hard work and dedication with 
this legislation. I am hopeful that this Committee can act 
expeditiously on H.R. 2772 so we can better support the 
domestic production of a clean alternative energy to help us 
meet the ever-growing energy needs of our 21st century Nation.
    [The prepared statement of Mr. Gibbons follows:]

 Statement of The Honorable Jim Gibbons, a Representative in Congress 
                        from the State of Nevada

    The Subcommittee meets today to discuss an important piece of 
legislation that will make America more energy independent and help 
prevent future spikes in energy prices. H.R. 2772, ``The John Rishel 
Geothermal Steam Act Amendments of 2003'' provides significant changes 
to existing law that will undoubtedly make geothermal energy use more 
attractive and increase our energy supply.
    While a substantial amount of geothermal energy is currently 
utilized in the U.S., the potential for greater use of geothermal 
energy is significant. In fact, according to the U.S. Geological Survey 
and Geothermal Energy Association, production of electricity from 
geothermal steam could increase by a factor of eight over the next 20 
years--that is a significant contribution. There is also enormous 
potential for direct use of geothermal energy for commercial and 
residential applications.
    America is not making full use of its geothermal potential because 
we don't have adequate incentives to attract needed capital investment 
to geothermal energy projects. Most of the potential geothermal 
resources, for both electricity generation and direct use, lies on 
Federal lands. But like other energy projects, access to geothermal 
resources on Federal lands involves a complex process of leasing and 
permitting. At the same time, the current royalty structure for 
geothermal development is inadequate and is preventing geothermal 
energy from meeting its full potential.
    H.R. 2772 amends the Geothermal Steam Act by addressing a number of 
its inadequacies. This legislation applies common sense solutions to 
current law in order to make geothermal energy production more 
attractive and less burdensome.
    H.R. 2772 takes the Federal Government out of the business of 
determining where high value resources are located and makes geothermal 
leasing market-driven through competitive bidding. It promotes a 
unified ownership of a single geothermal resource by directing that 
multiple leases located on one geothermal reservoir be offered for sale 
as a block.
    This bill addresses the current backlog of geothermal lease 
applications by requiring these applications to be cleared within one 
year of enactment and allows applicants to pay up-front for needed 
processing, analyses or documents to complete the process. To break the 
gridlock for leasing on Forest Service lands, this legislation directs 
the Forest Service and BLM to develop a common policy with specific 
steps for leasing, processing and permitting geothermal projects on 
Federal lands.
    The bill also directs a review of moratoria and withdrawals from 
geothermal leasing on Federal lands and directs USGS to complete a new 
national geothermal resource assessment. To create certainty and make 
geothermal production on Federal lands more attractive, the bill makes 
a number of changes to the current royalty structure. It bases future 
royalties on a gross proceeds formula, making the system less complex, 
benefitting producers as well as state and local governments.
    The system will provide a uniform royalty structure. The payments 
will be lower for the first ten years, and then increase thereafter for 
the duration of the lease. State and local governments will begin 
receiving royalties earlier, and receive an overall increase in their 
royalty share. This bill directs a 25 percent share of the royalties to 
the county government so that local communities receive direct revenue 
from local projects. To encourage geothermal energy use by farmers, 
ranchers, local governments and small business, H.R. 2772 establishes a 
simpler leasing process and more attractive terms for direct use of 
geothermal heat.
    Finally, this legislation encourages geothermal production on 
appropriate military lands by providing lessees with the same terms for 
production that apply on other government lands. Overall, these changes 
to the Geothermal Steam Act will greatly reduce the complexity faced by 
geothermal energy producers and users under the current regime. H.R. 
2772 should make production of this clean, renewable and domestic 
resource more attractive, thus boosting our energy supply and helping 
local communities, families and economies.
    We are facing an energy supply shortage in this country that is 
costing jobs and threatening to hurt every aspect of the American 
economy. We need sound energy policy that boosts domestic supply by 
allowing the private sector to better utilize the abundant resources we 
have on Federal lands.
    Finally, let me just add that H.R. 2772 was named for John Rishel, 
who many of you knew, for his hard work and years of dedication on this 
Committee staff. John believed in common sense approaches to utilizing 
resources on Federal lands. A geologist by training, Mr. Rishel worked 
very hard on this legislative language and on other initiatives that 
would allow the best use of our Federal energy and mineral resources.
    I am proud to honor John's hard work and dedication with this 
legislation.
    I am hopeful that this Committee can act expeditiously on H.R. 2772 
so we can better support the domestic production of a clean, alternate 
energy to help us meet the ever growing energy needs of our 21st 
century nation.
                                 ______
                                 
    Mr. Gibbons. With that, let me welcome our first panel, 
Patricia Morrison, Deputy Assistant Secretary of the Interior 
for Land and Minerals Management, Department of the Interior.
    And Secretary Morrison, let me have you rise, stand and 
raise your right hand, because we have a policy and a procedure 
in this Committee of swearing our witnesses in. So if you would 
please raise your right hand and repeat after me.
    [Witness sworn.]
    Mr. Gibbons. Let the record reflect that the witness 
answered in the affirmative. And Madam Secretary, at this point 
in time, let me welcome you to the Committee. It is a pleasure 
to have you here. We look forward to your remarks. The floor is 
yours. And please, if you prefer to summarize your statement 
and submit your complete written statement for the record, by 
all means, that is the preferred way to do it. But we will 
allow you to make whatever statement you wish to make at this 
time. Madam Secretary, the floor is yours.

  STATEMENT OF PATRICIA MORRISON, PRINCIPAL DEPUTY ASSISTANT 
SECRETARY FOR LAND AND MINERALS MANAGEMENT, U.S. DEPARTMENT OF 
                          THE INTERIOR

    Ms. Morrison. Thank you, Congressman Gibbons. And I would 
address the other members of the Subcommittee, but they are not 
here.
    Thank you for inviting me to testify on this, and I would 
like to submit my written testimony in total and simply give 
you a summary of what is in that testimony.
    Mr. Gibbons. Without objection, Madam Secretary, it will be 
done.
    Ms. Morrison. Thank you. I am pleased to appear before you 
this afternoon to discuss the Bureau of Land Management's, or 
BLM's, geothermal leasing program and the efforts that BLM is 
taking to enhance that particular energy production program 
from Federal lands.
    However, as you noted Congressman Gibbons, I would like to 
take an opportunity to acknowledge Mr. John Rishel, who worked 
on the House Resources Committee. We support the Committee's 
recognition of Mr. Rishel by gracing his name with this bill.
    John has established, or had established a great working 
relationship with the Minerals Management Service as well as 
the Bureau of Land Management. He always represented the 
Committee well on various matters and issues, particularly when 
it came to the language he developed for the comprehensive 
energy bill. Mr. Rishel, as you noted, had a personal interest 
in the geothermal section of the bill and put a great deal of 
effort into making sure he contacted all of the parties to 
gather and collect everyone's views.
    We agree that it is appropriate to honor him and his 
memory, and recognize his dedication to this work.
    Generally speaking, the Department of Interior believes 
that H.R. 2772 will provide support to promote geothermal 
production, which is the focus and the intent of BLM's program. 
However, we received this bill just this past Thursday, on July 
17th, and have not had sufficient time to analyze the bill with 
regard to royalty issues of MMS, BLM leasing programs, as well 
as USGS studies, and are unable today to present a formal 
administration position on the bill.
    However, once we have reviewed the bill, we would be happy 
to discuss it with the Committee and any of its members. Thus, 
I will be confining my remarks to discussion of the BLM's 
existing geothermal program.
    The President's national energy policy encourages a 
diversification portfolio of domestic energy supplies. It 
provides the building blocks, we believe, in order to provide 
that diverse portfolio so that we can rely less on foreign 
sources. As a component of that diversified portfolio, the 
renewable energy can provide for our future energy needs an 
abundant, clean, and naturally occurring source of energy, such 
as is shown in geothermal, the heat of the earth.
    Renewable energy supplies diversify our portfolio, but they 
do it with very few adverse environmental impacts. We believe 
that an increased development of these domestic renewable 
resources can help alleviate or provide a safety valve for some 
of the Nation's problems associated with over-reliance on 
foreign energy supplies.
    The national energy policy of the President further directs 
the Department of Interior and Energy to reevaluate the access 
limitations to Federal lands in order to increase the renewable 
energy production, such as geothermal. Also, it directs the 
Department of Interior to reduce the delays in geothermal 
leasing and processing as it is part of that permit review 
process.
    Pursuant to the Geothermal Steam Act of 1970, the BLM is 
responsible, as you know, for leasing these geothermal areas, 
developing them, and processing the permit applications. This 
authority that the BLM holds responsibility over encompasses 
approximately 700 million acres of Federal minerals. Those 
minerals underlie BLM lands, Forest Service lands, other 
Federal lands, as well as split-estate lands, where the private 
land is owned by an individual and the mineral rights are 
retained to the U.S. Government.
    However, for lease applications to the Forest Service 
lands, the Geothermal Steam Act requires the Forest Service's 
concurrence with the BLM lease issuance. BLM administers about 
400 geothermal leases, and those 400 leases represent 
approximately 400,000 acres of Federal minerals. The royalties 
for 2002 were almost $13 million, and 50 percent of those 
royalties, as per our royalty scheme, is returned to the 
States--some of which then filters into the counties' budgets. 
Those are in the areas or counties where the geothermal energy 
is actually produced.
    As the Committee may already be aware, Secretary Norton is 
committed to renewable energy and chaired a renewable energy 
conference in November of 2001, here in Washington, D.C. 
Several of those topics that were discussed at that conference 
included permitting, leasing, public land access, and the need 
for updated geothermal resource assessments.
    I have brought with me today a copy, or several copies, 
including a CD, of a document co-authored by the Department of 
Energy and the BLM, ``Opportunities for Near-Term Geothermal 
Development on Public Lands in the Western United States.'' 
This is a document which identifies in a color-coded fashion 
those areas of high, medium, and low potential for geothermal 
resources. I submit to the Committee today these copies.
    The report identifies approximately 18 of the BLM planning 
units that have what are characterized as high near-term 
geothermal power potential. Those are in 18 planning units for 
BLM. And what that does for the Federal Government and the 
industry is it allows them to concentrate those efforts that 
are most probable for leasing and exploration.
    With this, Chairman Gibbons, I would look forward to 
working with the Subcommittee, with our bureaus--USGS, BLM, and 
MMS--in its continued efforts to implement the national energy 
policy with regard to this particular renewable energy 
resource. And I do thank you for the opportunity to testify 
before you today.
    [The prepared statement of Ms. Morrison follows:]

 Statement of Patricia Morrison, Principal Deputy Assistant Secretary 
    for Land & Minerals Management, U.S. Department of the Interior

    Madam Chairman and members of the Subcommittee, I am pleased to 
appear before you this morning to discuss the Bureau of Land 
Management's (BLM's) geothermal leasing program and efforts the BLM is 
undertaking to enhance geothermal energy production from Federal lands.
    The Department of the Interior generally believes that H.R. 2772 
will provide support for these efforts. However, as the bill was 
introduced on July 17th, we have not had sufficient time to fully 
analyze the legislation and to develop a formal Administration position 
on the bill at this time. After we have had more time to review the 
bill, we would be happy to discuss its provisions with the Committee. 
Thus, I will be confining my remarks to a discussion of the BLM's 
existing geothermal program.
    The President's National Energy Policy encourages a clean and 
diverse portfolio of domestic energy supplies. Renewable energy can 
help provide for our future energy needs by harnessing abundant, clean, 
naturally-occurring sources of energy--such as the heat of the Earth. 
Renewable energy supplies not only help diversify our energy portfolio, 
but they also do so with few adverse environmental impacts. Increased 
development of these domestic renewable resources also can help 
alleviate the Nation's problems associated with an over-reliance on 
foreign energy supplies.
    The President's National Energy Policy further directs the 
Departments of the Interior and Energy to re-evaluate access 
limitations to Federal lands in order to increase renewable energy 
production, such as geothermal energy. It also directs the Department 
of the Interior to determine ways to reduce the delays in geothermal 
lease processing as part of the permitting review process.
Geothermal Energy Background
    Geothermal energy is heat derived from the earth. It is the thermal 
energy contained in the rock and fluid that fills the fractures and 
pores within the rocks of the Earth's crust. Geothermal resources, in 
localized underground areas of steam or hot water called reservoirs, 
are available in several western states. The highest temperature 
resources are generally used for electric power generation. Low and 
moderate temperature geothermal resources can be used for greenhouses, 
aquaculture, industrial processes, and heating of buildings, including 
municipal buildings and schools.
    According to the U.S. Geological Survey, over 22,000 Megawatts of 
power could be generated from the geothermal resources of the United 
States. This would be enough power to satisfy the needs of over 22 
million homes for more than 30 years. Existing geothermal power plants 
in the United States currently have a total capacity of 2700 Megawatts, 
43% of which receives energy from geothermal resources on Federal 
lands.
BLM's Geothermal Program
    The BLM, pursuant to the Geothermal Steam Act of 1970, is 
responsible for leasing Federal lands for geothermal development and 
processing permit applications. This authority encompasses 
approximately 700 million acres of Federal minerals, including BLM 
lands, National Forest System lands, and other Federal lands, as well 
as private lands where the mineral rights have been retained by the 
Federal Government. For lease applications on Forest Service lands, the 
Geothermal Steam Act, as amended, requires Forest Service concurrence 
prior to BLM lease issuance.
    The BLM currently administers 400 geothermal leases, encompassing 
over 520,000 acres of Federal minerals. The BLM's geothermal program 
has 56 producing leases. Much of the geothermal activity on Federal 
lands takes place in California and Nevada. California has 86 leases, 
25 of which are producing. Nevada has 242 leases, 28 of which are 
producing. More than 80% of the electrical generation from Federal 
geothermal resources occurs in California. Other states with Federal 
geothermal leasing activity include Utah, New Mexico and Oregon. The 
BLM supervises 29 power plants using Federal resources in California, 
Utah and Nevada. These Federal resource power plants have a total 
capacity of 1,148 Megawatts, which can supply the needs of over one 
million homes. Annual royalties from geothermal production exceeded $15 
million in 2002, with 50% of that royalty income being returned to the 
states--and, at times, the counties--in which the energy was produced.
    Over the last two years, both the Federal Government and industry 
have expressed renewed interest in geothermal energy development. The 
BLM received twice as many new geothermal leasing applications--
approximately 100--over the last four years than it received over the 
previous ten year period. During the last two years, the BLM has issued 
about 150 geothermal leases, covering almost 250,000 acres. There are 
currently approximately 230 pending Federal geothermal lease 
applications--about 125 of these are on Forest Service lands and about 
105 are on BLM lands.
    The BLM's 2003 geothermal program budget includes $700,000 in base 
funding and an additional $700,000 in targeted funding for 
environmental reviews related to geothermal lease processing in the 
State of Nevada. The President's 2004 Budget requests $1.2 million in 
base funding for the BLM's geothermal program.
Ongoing BLM Efforts to Enhance the Geothermal Development
    In November, 2001, Secretary of the Interior Gale Norton chaired a 
Renewable Energy Conference in Washington, DC, that brought government 
officials together with renewable energy and environmental leaders and 
other citizens to focus on the best ways to increase renewable energy 
development--including geothermal--on the public lands. Topics 
discussed at the conference included permitting, leasing, public lands 
access, the need for an updated national geothermal resource 
assessment, and other regulatory matters.
    As a result of the conference, and in support of the President's 
National Energy Policy, the Departments of the Interior and Energy 
organized a National Geothermal Collaborative of Federal and non-
Federal stakeholders. The Collaborative has been meeting to advance 
strategies to enhance geothermal production, including identifying and 
reducing impediments to development and establishing dialogue with key 
stakeholders. The Collaborative is in the process of completing reports 
analyzing the impediments to accessing geothermal resources on Federal 
lands; analyzing Renewable Portfolio Standards (whereby States mandate 
a certain percentage of renewable energy supply into power grids); as 
well as other geothermal energy reports.
    In addition, in April of this year, the BLM and the Department of 
Energy, through its National Renewable Energy Laboratory in Colorado, 
released a report entitled ``Opportunities for Near-Term Geothermal 
Development on Public Lands in the Western United States.'' The report 
identifies and provides information related to 18 BLM Planning Units 
with high, near-term geothermal power development potential, so that 
industry and the Federal Government can concentrate their efforts for 
geothermal leasing and exploration in these areas.
    Finally, the BLM also recently completed a customer satisfaction 
survey of industry, government, and other interested non-governmental 
representatives who have shown an interest in the Federal geothermal 
program. The survey was intended to measure BLM's success at meeting 
the concerns and suggestions from the 2001 Renewable Energy Conference. 
The BLM is incorporating the information provided through this survey 
into its efforts to facilitate geothermal development and to improve 
its business practices.
Conclusion
    Madam Chairman, we look forward to continuing to work with the 
Subcommittee as the BLM continues its efforts to implement the 
President's National Energy Policy to promote renewable energy 
development from Federal lands. Thank you for the opportunity to 
testify before you today. I welcome any questions the Subcommittee may 
have.
                                 ______
                                 

    [NOTE: The U.S. Department of Energy report entitled 
``Opportunities for Near-Term Geothermal Development on Public Lands in 
the Western United States'' submitted for the record by Ms. Morrison 
has been retained in the Committee's official files.]
    Mr. Gibbons. Thank you very much, Madam Secretary. We have, 
obviously as you have heard, another wonderful excuse to 
recess, but we are going to take some time here to ask some 
questions.
    Let me ask, first of all, with regard to the Department's 
assessment of the problems right now, the backlog of processing 
of geothermal lease permits and applications, have you 
attempted to identify what the impediments are within the 
Department to going forward with an effort to reduce the number 
of backlogs or the number of permits that are on backlog with 
you?
    Ms. Morrison. I can address that in way of a track record, 
Congressman, and that is over the last 12 months from today--12 
months hence, or back, the BLM itself has processed 
approximately 100 of those leases. So yes, we are putting 
efforts forth in order to alleviate that backlog. Yes, sir.
    Mr. Gibbons. Do you know how many you have on backlog 
today?
    Ms. Morrison. I will not quote you a number, but I can get 
that for you.
    Mr. Gibbons. Do you have an estimate?
    Ms. Morrison. I believe it is around 230, sir.
    Mr. Gibbons. OK. So as of a year ago, what would that 
number have been, before you started this overall effort to 
expedite some of these permitting applications? Do you have a 
number back what it would have been a year ago?
    Ms. Morrison. Well, I think if you add the 230 and the 100, 
you get about 330, so--
    Mr. Gibbons. So--OK.
    Ms. Morrison. And keep in mind, not all of those--
    Mr. Gibbons. That is not a stagnant number, either.
    Ms. Morrison. It is not a stagnant number.
    Mr. Gibbons. That number changes because you will process 
100, you may get another X number submitted to you for 
application as well.
    Ms. Morrison. Some drop in, some drop out.
    Mr. Gibbons. What is the average number per year of 
applicants you get?
    Ms. Morrison. That is going to be a moving target as well, 
since this is a new resource.
    New applications in the last 3 years, approximately 150.
    Mr. Gibbons. OK. So about 50 a year.
    Ms. Morrison. Well, we averaged that out.
    Mr. Gibbons. That would be an average that you get. So if 
we look at the number 230 now, we are looking at somewhere 
between five and 10 years at 50 a year, average, to get rid of 
the backlog plus take care of the--some that are coming in on 
each year. If you get 50 a year, you have done 100 this year in 
the last 12 months, you have a period of time within which you 
have to reduce the backlog?
    Ms. Morrison. Correct.
    Mr. Gibbons. What, since you have been doing a greater 
number, you have done 100 over the last 12 months, as you have 
said, what steps are included in that expedited process that 
you can identify that have resulted in your handling of 100 
permits in the same permitted time line that you normally do 
50?
    Ms. Morrison. I have to take an educated guess at that, and 
I--my experience has been that a refocusing of the BLM on this 
particular resource is what has caused that movement ahead.
    Mr. Gibbons. So in other words, they have been challenged 
with other demands on their time limit or in their departments 
looking at other minerals, whether it is hard rock, coal, or 
surface permitting for grazing or whatever, and geothermal just 
came in there at a distant--
    Ms. Morrison. I think it has probably just been a refocused 
effort on the energy and the national energy plan specifically 
identified this as an area that we did need to focus on and 
have done so.
    Mr. Gibbons. Do you feel there are any additional steps 
that you can take that would help expedite this process, in 
addition to what you have done already?
    Ms. Morrison. I don't know specifically. I think--
    Mr. Gibbons. Well, does the Department lack adequate 
resources today to continue with what you are doing on an 
expedited basis, refocusing, applying more personnel/manpower, 
so to speak, on this issue--do you have the adequate resources 
to do that?
    Ms. Morrison. To give you a little bit of a backdrop to 
answering that question, in 2003, we asked for $700,000; 2004, 
we asked for an additional $550,000. It seems as though our 
geothermal program is doubling itself as we go along. In 
addition to that, USGS has asked for $500,000 in 2004, for 
additional monies that they need, and I believe that is about a 
half or a third of the total amount they need, as I mentioned, 
to reassess the geothermal resource areas. And that in 
particular is very helpful, not only to the BLM land managers 
in managing their resource management plans, which are the 
basis for this leasing, but it also gives the industry the 
information they need in order to get financing.
    So for instance, if I were an industry applicant and I have 
a lease that I purchased from BLM, to go to a bank and get 
financing to actually put in a geothermal plant, the question 
is asked, what resource to you have to back up this money? So 
it is sort of a reliance, if you will, on each other. The 
leasing relies on the information, the information is relied on 
by industry to get financing, the financing produces more 
geothermal.
    Mr. Gibbons. Now, you mentioned in your testimony that you 
have a term ``high, near-term geothermal potential,'' I 
believe.
    Ms. Morrison. Yes, sir.
    Mr. Gibbons. Does that language replace the KGRA, or known 
geothermal resource areas?
    Ms. Morrison. No, it does not. This is additional 
information.
    Mr. Gibbons. OK. All right. Are you contemplating, or does 
your analysis show that there is in the competitive leasing 
program an effort to move away from the known geothermal 
resource area determinations?
    Ms. Morrison. Again, as I mentioned, because specifically 
for that financing reason and for the land-use planning reason, 
we are not moving away from that known geothermal resource 
area. However, we have not done an extensive analysis of 
competitive leasing. I think that the known geothermal resource 
area information is of a--it is significant information that 
industry and the BLM relies on. Tying it to the competitive 
lease sale arena is not necessarily something that needs to 
happen. In my mind, there is not a definite tie between those 
two, but I don't know that at this moment in time we can just 
simply do away with the known geothermal resource areas.
    Mr. Gibbons. Madam Secretary, as you know, this bill 
attempts to unify the process and procedures, depending upon 
Federal land versus Department of Defense land.
    Ms. Morrison. Yes, sir.
    Mr. Gibbons. Now, in your experience, what is the process 
that BLM uses when it deals with non-geothermal resources when 
it comes to minerals, oil and gas, whether it is on DOD or 
Federal land? Are they different or are they similar?
    Ms. Morrison. They are different. And in the other arena, 
the non-geothermal resource arena, BLM is the land managing 
leasing agent for those minerals. The military lands perhaps 
might be withdrawn. If they are, then of course there is not 
going to be any leasing on it. Otherwise, there could be. And 
BLM would be the land managing leasing agent.
    Mr. Gibbons. So under that scenario, the terms of a gas or 
oil lease or a coal lease on land that is DOD as well as 
Federal, the terms are the same. Management is under one agency 
called BLM, rather than DOD and BLM, if it crosses the border?
    Ms. Morrison. Correct, although I will make a note and I 
will check this just to make sure, but I don't believe there is 
any coal leasing on military lands presently.
    Mr. Gibbons. Yes.
    Ms. Morrison. Yes.
    Mr. Gibbons. OK. So under geothermal today, if it is on DOD 
land, DOD geothermal is managed and regulated by DOD, not by 
BLM?
    Ms. Morrison. Yes, sir.
    Mr. Gibbons. And that means that DOD has a different set of 
criteria for leasing than it would be if it were on BLM land 
right next door.
    Ms. Morrison. Correct.
    Mr. Gibbons. In your opinion, would it be better to have a 
uniform concept or approach to leasing, whether it is DOD or 
BLM land sitting right next door?
    Ms. Morrison. Let me answer that from a geological 
perspective, having had my background in the offshore and the 
oil and gas business. We are talking about a resource that can 
be depleted. Although we term it renewable, that is true if 
managed correctly. You have one resource, and whether the wells 
be drilled on Federal land, be it military or BLM or Forest 
Service, State land, or private land, you have one resource 
that underlies the ground.
    What BLM is interested in is the management of that 
particular resource such that it is not prematurely depleted 
and that it is managed correctly so that we have the maximum 
amount of electricity, say, produced from that geothermal 
resource in a way that--for instance, you may re-inject the 
water in order to continue to have that resource renewed. To 
me, it is an issue of resource management.
    Mr. Gibbons. OK. So what you are saying here is if you have 
a common, unified pool of geothermal resource under the ground, 
and the ground just happens to be divided arbitrarily on the 
surface--one half being DOD, one half being BLM--that there 
could be a management difference between how that resource is 
utilized under a DOD contract, two inches away by an arbitrary 
line, from a BLM contract on the other side of the fence, which 
could adversely change how the resource is utilized and/or 
protected in the long run?
    Ms. Morrison. In theory, yes, you are correct. And that is 
no different than an oil and gas reservoir that perhaps gets 
drained by State leases.
    Mr. Gibbons. And this is why, under oil and gas, you have a 
uniform management system that applies to both DOD and BLM, or 
Federal land outside of DOD?
    Ms. Morrison. I am not going to presume why that is, but 
that is the way it is. But you still have the issue of State 
and private drainage. Under your oil and gas example, you still 
have that kind of conundrum.
    Mr. Gibbons. Precisely. Precisely.
    Madam Secretary, the staff has presented a number of 
questions with regard to the bill. And most of them have to do 
with the technical aspect of the bill with regard to royalties, 
near-term production incentives, credits for in-kind payment of 
electricity, et cetera, that I would like to submit to you, and 
if we could get you to respond to them, so that we can make any 
adjustments in our bill with an administrative point of view as 
to if there are problems with those. And we will submit those 
questions to you.
    Ms. Morrison. We would be happy to work with you and 
respond to those.
    Mr. Gibbons. Very good.
    Is it time to conduct a new assessment of our geothermal 
resources in America?
    Ms. Morrison. Yes.
    Mr. Gibbons. Why do you say that?
    Ms. Morrison. My understanding is, is the last known 
geothermal resource area assessment by the USGS was in 1970, 
formal assessment. The budgetary 2004 $500,000 monies that I 
mentioned to you is a movement by USGS--and again, I can't 
recall if that is half or a third of their total budget for 
that reassessment.
    Mr. Gibbons. Now, will the new reassessment, if you go 
forward with one, take into consideration the changes in 
technology that had been advanced in geothermal recognition or 
design and development over the last 30-some years?
    Ms. Morrison. Yes, sir.
    Mr. Gibbons. Do you have the resources needed to, or 
additional funding to do such an assessment?
    Ms. Morrison. Again, I will put it in terms of the budget. 
We have asked for $500,000 at USGS. If that represents a half 
or a third, then they have still got two-thirds or another half 
to go. So that is the funding situation at hand.
    Mr. Gibbons. So we need to continue working on getting the 
adequate funding and authority for you to do the assessment 
with the right amount of resources.
    Ms. Morrison. Correct.
    Mr. Gibbons. Let me step back, if I may, Madam Secretary, 
and go back to the issue of divided estates, fragmented 
estates, and ask you a question just with regard to ownership, 
where ownership of an undeveloped geothermal reservoir is 
fragmented and--or is fragmented between multiple parties. Do 
you feel you have the adequate authority to establish lease 
unitization or pooling of these activities?
    Ms. Morrison. I do not believe we have that authority. I 
will double-check that, but I do not believe we have that 
unitization authority at this date.
    Mr. Gibbons. Would you submit to us your recommendation to 
deal with fragmented estates in that area?
    Ms. Morrison. Certainly. We would be happy to do that.
    Mr. Gibbons. --look at that if we could.
    Ms. Morrison. Do you want that as part of your questions?
    Mr. Gibbons. Yes. Anything that you feel that you want to 
submit for the record today or within the next couple of weeks 
would certainly be included and we would like to review that, 
especially the questions that we are going to submit to you, 
the administration questions for review of the bill itself.
    Ms. Morrison. We would be happy to do that.
    Mr. Gibbons. Knowing, of course, that you have only 
received the bill last Thursday when I put it in the hopper. So 
being here today is indeed a remarkable comment on your 
favorable appearance here to be able to testify on the issue 
before the Committee. Many times people say that Friday is just 
not enough time to be back on Tuesday to testify what this bill 
does. And I certainly appreciate that.
    Of the hundreds of direct use projects for using 
geothermal, and that means--direct use would be the heat 
exchange, et cetera--only three are located on Federal lands. 
Why do you feel that we have so few direct use geothermal 
projects on Federal land when a large amount of our geothermal 
energy is generated on Federal lands?
    Ms. Morrison. My understanding is that the royalty scheme 
for that direct use perhaps is not as sorted out as it should 
be.
    Mr. Gibbons. So it would be burdensome or cost prohibitive?
    Ms. Morrison. That is my understanding. And I also 
understand that the technology of using those lower-temperature 
geothermal resources, such as in the 120- to 150-degree range, 
that the technology for those uses are becoming more 
commercial. So as we go down the road, there is less of a 
distinction between direct use and commercial use.
    Mr. Gibbons. Yes, and I can understand it. In Nevada, we 
have several geothermal plants which are used for drying 
onions, not producing electricity. So there is a direct use of 
using heat to dry farm products and produce something that is 
commercially acceptable--as well as heat homes. Because in 
Nevada we have a large number, in fact the home I used to live 
in before I live in the one today had a geothermal well that 
heated the home and heated the swimming pool--although I will 
never have another swimming pool--it heated the swimming pool 
with geothermal energy. So, and that was something that I 
really felt fortunate to have. And many communities in Nevada--
Elko, Nevada, uses a lot of the geothermal energy in that low 
temperature range, 120 to 150 or so degrees, to heat their 
Government buildings.
    Ms. Morrison. Right.
    Mr. Gibbons. So we are trying to take and utilize as much 
of this valuable resource as we possibly can.
    Let me ask you a question with regard to calculating 
royalties. Would a gross proceeds method be less complex than 
the current net back method? And if you could explain the 
difference between a net back method for us and what you think 
is a gross proceeds royalty and how it would be calculated.
    Ms. Morrison. I am going to do it in pretty basic terms, so 
here we go.
    Mr. Gibbons. There is only one basic person here for you to 
talk to, so--[Laughter.]
    Well, Mr. Basic, here we go. The net back method, let's 
start with that. Basically you have a power plant generation 
facility. Net back takes your total operating cost, deducts it 
from your receipts, if I can use that term, and comes up with a 
profit figure. That is a rather detailed accounting function, 
and they are expensive. It is basically--
    Mr. Gibbons. Does it require an auditing process for you to 
comply with?
    Ms. Morrison. It does require an auditing process. It also 
requires, if you will, a second set of books. So you may 
actually spend--in certain anecdotal examples, I have heard 
that you can actually spend more on the accounting function and 
the second set of books and the auditing function than on the 
actual royalty paid.
    Mr. Gibbons. Let me ask you about the Calpine lease. How is 
the royalty calculated on the Calpine lease?
    Ms. Morrison. I am going to have to defer to that. I was 
not aware that we had a gross proceeds lease until just this 
morning. That was--
    Mr. Gibbons. OK. But can't you tell me how that works in 
comparison to the net back proceeds process?
    Ms. Morrison. My brief understanding, subject to check, is 
that it is on a gross proceeds basis. In other words, it is a 
percentage of the total gross proceeds, as metered to the grid. 
But we will get you the specifics on that.
    And just to finish up the comparison to the gross proceeds 
method is very simplistic. You meter it at the grid, you 
multiply the amount of geothermal energy going through there 
converted to electricity, times the sales price, and you take a 
percentage off the top.
    Mr. Gibbons. OK. And that is a much simpler form when it 
comes to accounting--
    Ms. Morrison. Yes.
    Mr. Gibbons. --or even for those people that are depending 
upon that royalty to calculate, rather than have to go through 
the double set of books, the determination what is deductible 
and what is not deductible.
    Ms. Morrison. Right.
    Mr. Gibbons. It is kind of the difference between a flat 
tax and the current system of taxes we have today that allow 
for a complicated process where only the attorneys make money 
in the process.
    Ms. Morrison. Not to mention you have already calculated 
the figure in your sales contract price.
    Mr. Gibbons. Yes.
    This bill authorizes the Secretary to give companies 
royalty credits where they enter into an agreement with a State 
or county Government for an in-kind sale of electricity. If 
enacted, how would this affect revenues?
    Ms. Morrison. Again, as I said in my opening comments, I am 
not in a position to comment specifically on that. If we can 
make that part of our questions, I am sure we can analyze that 
for you.
    Mr. Gibbons. We will submit that and other questions for 
you as well.
    Ms. Morrison. All right.
    Mr. Gibbons. The review of moratoria and withdrawals from 
geothermal leasing on public lands, and ensures Congress--well, 
let's see, this bill requires a review of that moratoria and 
ensures Congress and the Secretary of Interior have oversight 
over such closures. Does the administration support this 
procedure?
    Ms. Morrison. As set out in your bill?
    Mr. Gibbons. Yes.
    Ms. Morrison. Again, I am going to have to defer an answer 
to that separately.
    Mr. Gibbons. OK. All right.
    Madam Secretary, you have done a remarkably good job of 
coming here after 2 days' notice and being able to testify on 
issues and provisions of this bill. I have no further questions 
at this point in time. I believe that I have just about every 
question I can think of, and you have answered them superbly. 
Hopefully, we can hear back from you as soon as possible with 
the questions we will submit to you. Also, with regard to your 
analysis and recommendation for any technical changes that you 
think, in the bill, are required to better analyze this bill. 
We would appreciate your getting back those issues to us in the 
shortest possible time. And we look forward to working with you 
on that.
    With that, Madam Secretary, I am going to excuse you, since 
there is no one else here to ask you a question. And I am sure 
that they couldn't ask a question that you couldn't answer. So 
I am going to excuse you, Madam Secretary. Thank you for your 
presence, and we will call up the second panel.
    Ms. Morrison. Thank you, Congressman.
    Mr. Gibbons. Thank you.
    Mr. Gibbons. The second panel is going to consist of Karl 
Gawell, Executive Director, Geothermal Energy Association; Dr. 
James Witcher, New Mexico State University; and Ms. Jeanne 
Connelly, Vice President, Federal Relations, Calpine.
    And ladies and gentlemen, before you sit down, let me begin 
the same process that I started with the good Secretary and ask 
you to stand for the oath. After you get seated will be fine.
    [Witnesses sworn.]
    Mr. Gibbons. Let the record reflect that each of the three 
witnesses answered in the affirmative.
    As I understand, Mr. Gawell, you will be leading off the 
testimony. Mr. Gawell is the executive director of the 
Geothermal Energy Association. Mr. Gawell, I hope I have 
pronounced your name correctly. Welcome to the Committee. The 
floor is yours.
    As I explained to you, we try to limit your testimony to 5 
minutes so that we can get a summary of what you have to say. 
Your complete and written testimony will be entered into the 
record without objection. And if you run over it, that is OK. 
You know, it is just us. But we try to show some respect for 
everybody else that has to testify, so if you talk for an hour, 
I am going to ask you to wrap up. So try to be time-conscious 
in all for this for the Committee as well.
    Mr. Gawell, welcome. The floor is yours.

         STATEMENT OF KARL GAWELL, EXECUTIVE DIRECTOR, 
                 GEOTHERMAL ENERGY ASSOCIATION

    Mr. Gawell. Thank you, Mr. Gibbons. It is a pleasure to be 
here.
    In a sense, I want to talk to the larger issue for a 
minute. And I think this is almost preaching to the choir, 
knowing your background, Mr. Gibbons, but my testimony is--
covers a lot of the details of the legislation. But I think the 
context is something I think we all have to pay attention to 
and everybody on the Subcommittee and Committee has to pay 
attention to.
    I am a member of the Board of Directors of the American 
Council for Renewable Energy. And we had our annual meeting 
here in town last week. And former CIA Director Jim Woolsey was 
one of our speakers, along with Bud McFarland and several other 
people, talking about, in a sense, the change that has 
occurred, because there has been a fundamental change that has 
occurred in energy policy in this country. And his point was 
simple. He said we are in a war, we may be in it for awhile, 
and it is time America addressed some of its bad habits.
    And I think that is sort of an underpinning push that we 
haven't had. Because things have changed. I have been doing 
energy policy--I looked at the room here and I think I have 
testified before every one of these chairmen. But there are 
some changes that have occurred that all of us had better face 
up to. One, we had never had a terrorist attack on American 
soil. I was reading Gary Hart's book, ``A New Democracy,'' the 
other night. He talked about our energy problem and how bad it 
is. But he said, but the one thing we have never done yet, we 
haven't gotten to the bottom of the ladder because we haven't 
gone to war in the Middle East.
    We have done that. And the other thing that has changed 
is--the next paragraph in his book said, well, everything is 
going to be fine because we have unlimited supplies of natural 
gas. I know you were in attendance at the Speaker's meeting 
yesterday saying what are we going to do about natural gas 
supplies in this country? We have tremendous demand going 
forward, but the supplies aren't there.
    The underpinnings of virtually every energy policy in the 
last 20 years have changed in a fundamental fashion. And I 
don't think we have yet to understand how they are going to re-
sort themselves. But as an American citizen and as a 
representative of American companies, I think that means 
learning to produce more from the resources we have in the 
country.
    And one of those tremendous untapped resources is the heat 
of our earth, our geothermal resources. And when I look at what 
we are doing, I don't see us tapping those resources. I think 
the legislation we have today begins to address some of it. I 
want to add a footnote: There are other areas we need to go 
back and look at outside of this bill.
    For example, I understand that for awhile 10, 15 years ago, 
we were looking at producing the geopressurized resource along 
Texas, Louisiana. That resource holds 50 times the U.S. energy 
use every year in methane. Twenty years ago, that looked 
uneconomical. Today, given our new reality, we might want to go 
back and look at it.
    We have a huge resource in the West. The Geologic Survey 
thinks we have at least 20,000 megawatts of producible just 
electricity use, and direct use might be that much, it might 
more, that we could produce using geothermal resources in the 
West--if we could put things in the right order, which to us I 
think means, one, getting the economics straight. I think the 
Congress is looking at expanding the production tax credit and 
taking other measures to give investors the right signals. But 
the other part of that is to get the Federal programs straight. 
And the more we have delved into this whole issue over the last 
2 years in the hearings before this Subcommittee and the full 
Committee, I think the more the industry has recognized that 
that also means getting the law straight.
    And I think H.R. 2772 is a bill that takes us a long way 
toward getting that right. And frankly, point-blank, Mr. 
Gibbons, Mr. Chairman, we are 100 percent in support of your 
legislation. This bill will move forward and allow us to 
produce more geothermal resources in the West, both in terms of 
electricity and direct use, and help address our really urgent 
national security problems.
    From my company's perspective, it is sort of almost a no-
brainer. What's not to like? We are looking at legislation 
where the geothermal leasing program will become market driven 
through competitive lease sales. We are looking at legislation 
which will encourage development by promoting unified ownership 
of the whole reservoir up front. We see the pending lease 
application backlog being eliminated within a year, something 
we have been asking for repeatedly over the last years.
    Use of geothermal resources by ranchers, farmers, small 
businesses, communities will be encouraged by new provisions 
that will create a simpler leasing process with less onerous 
terms for direct uses. And in addition to Elko, for example, 
the State capitol buildings in Boise have been heated, what, 
for 100 years, I believe, by geothermal resources. We should 
see more of that throughout the Western United States.
    Your bill gives us Federal royalty requirements which are 
more predictable, less bureaucratic, and we will see more of 
the funds supporting local and rural economic development. And 
it also will allow State and local Governments to leverage 
their royalty funds and increase their income by negotiating 
in-kind royalty schemes with local producers.
    We see a directive for the U.S. Geologic Survey to do a new 
nationwide assessment, which is urgently needed. In the last 
assessment for conventional geothermal reservoirs, it said we 
are cutting it off at 3 kilometers; we don't know what is 
beneath that. And the reason we are cutting it off at that 
point is we have no information. Today, just last week, it was 
announced the first geothermal plant in Germany of all places, 
which doesn't show up as a big red spot like Nevada does on the 
map, and they are producing that at below 10,000--deeper than 
10,000 feet. So clearly, the drilling technology has changed. 
We are producing from much deeper reservoirs, so what was 
economic in 1970 has changed dramatically today.
    We see a bill which eliminates major impediments to new 
development by giving clear authority to BLM to establish units 
and pools where there is fractured ownership.
    We see the backlog on Forest Service lands being 
eliminated--a major move forward. There are tremendous 
resources under Forest Service lands. These aren't lands that 
are wilderness or that are roadless. We are looking at lands 
that should be part of our multiple-use forest system and could 
contribute to protecting the forest by protecting the 
environment through clean energy production.
    We also see a bill that eliminates the current disparity in 
mineral production. You know, if you produce gold or silver 
from a geothermal well, you have to pay a royalty. If you 
produce it anywhere else on the public lands, you don't. Well, 
is that a big issue? I was just conferring with Roy Mead [ph] 
from the Department of Energy, and we were looking at some of 
the minerals that you might be able to produce from geothermal 
resources. And we are producing the very first now, which is 
zinc, as you know. But they are looking at zinc, silica, 
manganese, lithium, silver, gold, and rare earth elements. In 
many different geothermal systems, you will find those 
resources.
    Of all of those resources, the one which we produce the 
most of in this country is gold. For most of the others, we now 
import most of our supply. And I love when you go to the USGS 
website and you look up rare earth elements, the title is Rare 
Earth Elements Critical for High Technology. And today, 90 
percent of our rare earth elements come from imports, almost 
entirely from China. And they are basically a fundamental 
product for high technology in this country.
    So I think we have a new source of producing minerals for 
our country, for our economy that can be done in an 
environmentally benign manner. I mean, what better way than to 
bring it out of your well and produce it without having to deal 
with mining it at all? And yet current law would discourage 
that by giving you disparate treatment.
    And we are looking at legislation which will encourage 
geothermal production from appropriate military lands by 
placing them on the same basis as the Bureau of Land 
Management.
    So in our view, we see this legislation as a major step 
forward that will really help promote the full range of uses of 
geothermal energy to help our Nation and the West move forward 
in the years ahead.
    Thank you, Mr. Gibbons.
    [The prepared statement of Mr. Gawell follows:]

             Statement of Karl Gawell, Executive Director, 
                     Geothermal Energy Association

    Mrs. Chairman and Members of the Subcommittee,
    Thank you for the opportunity to present the views of members of 
the Geothermal Energy Association (GEA) regarding H.R. 2772, The John 
Rishel Geothermal Steam Act Amendments of 2003 introduced by Rep. Jim 
Gibbons (R-NV) and cosponsored by Representative Steve Pearce (R-NM). 
GEA is a trade association representing the full range of companies and 
organizations involved in the U.S. geothermal industry, from power 
plant owners and operators to small drilling and exploration companies.
Geothermal Energy's Potential
    Geothermal energy provides a significant amount of the energy and 
electricity consumed in the Western U.S. Geothermal heat supplies 
energy for direct uses in commercial, industrial and residential 
settings in 26 states. Geothermal resources furnish substantial amounts 
of electricity in California, Nevada, Utah and Hawaii. Indeed, 6 
percent of California's electricity comes from geothermal energy.
    Expanded use of geothermal resources will provide additional clean, 
reliable energy to the West. Thousands of megawatts of new geothermal 
power, and an equal amount of direct-use energy, could be developed in 
the immediate future with proper incentives, expedited regulatory 
processing and continued support for the development of new technology.
    Geothermal energy contributes directly to both state and local 
economies and to the national Treasury. To date, geothermal electricity 
producers have paid over $600 million in rentals, bonus bids and 
royalties to the Federal Government. Moreover, according to an analysis 
performed by Princeton Economic Research, it would be reasonable to 
estimate that the geothermal industry has paid more than 6 times that 
amount in Federal income tax, for a combined total of over $4 billion. 
1 If the economic multiplier effects were considered, the 
total contributions of geothermal energy to the local and national 
economy would be substantially greater.
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    \1\ Princeton Economic Research, Inc., Review of Federal Geothermal 
Royalties and Taxes, December 15, 1998. (Figures expressed in 1998 
dollars.)
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    What is the potential for geothermal energy on public lands? GEA 
believes the U.S. geothermal resource base could support significantly 
increased production. U.S. geothermal electric capacity, now at about 
2,600 MW, could triple and, with expected improvements in technology, 
could reach nearly 20,000 MW in 20 years or less.
    These figures would appear to be consistent with the estimates 
presented to the Subcommittee on Energy and Minerals by the U.S. 
Geological Survey. Their testimony indicated a potential for 22,290 MW 
of geothermal electricity production in the Western United States. 
2
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    \2\ See Table 2 attached.
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H.R. 2772
    GEA's testimony before the Resources Committee in March pointed out 
a series of issues that needed to be addressed to spur a revival in the 
use of our nation's geothermal resources. 3 A significant 
portion of those issues involved possible changes to the underlying 
Geothermal Steam Act of 1970. In many ways H.R. 2772 responds to our 
concerns in a constructive and responsible manner. It also goes beyond 
them to include provisions that would strengthen and clarify important 
parts of the geothermal law and improve how it supports state and local 
governments.
---------------------------------------------------------------------------
    \3\ Statement of Karl Gawell, Executive Director of the Geothermal 
Energy Association, Before theHouse Committee on Resources, March 19, 
2003.
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    Before discussing some of the individual provisions of H.R. 2772, 
however, it is important to point out that some of the changes it 
proposes may cause some discomfort to individual GEA companies. Still, 
there is strong support for these provisions because they will 
encourage and promote development of geothermal energy resources in the 
United States. GEAs companies recognize the benefits of establishing a 
clearer, fairer law that facilitates and encourages new production of 
geothermal development on public lands.
Competitive Leasing
    In GEA's view the move to a competitive leasing program that 
depends upon the market to determine high value leases will be a 
significant improvement over the current approach. Under existing law, 
the Secretary must determine which lands are high-value geothermal 
areas or ``known geothermal resource area (KGRA)'' and which are not. 
Both the law and BLM's regulations require that lands in KGRAs be 
leased only by competitive bidding while all others are leased 
noncompetitively.
    The current law defines a KGRA as: ``Section 1002 (e) known 
geothermal resources area means an area in which the geology, nearby 
discoveries, competitive interests, or other indicia would, in the 
opinion of the Secretary, engender a belief in men who are experienced 
in the subject matter that the prospects for extraction of geothermal 
steam or associated geothermal resources are good enough to warrant 
expenditures of money for that purpose.'' 4
---------------------------------------------------------------------------
    \4\ 30 USC Section 1001(e)
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    The existing statute gives the Secretary no discretion. If lands 
qualify as a KGRA they must be leased competitively. It is worth noting 
that the statutory language includes ``competitive interest'' as a 
factor that determines a KGRA, which implies that such determinations 
are made on a continuing basis, and in fact the BLM has made KGRA 
designations in areas with pending lease applications. But, it is not 
clear to me how one determines competitive interest with any certainty 
outside of holding a competitive lease sale. From a simply practical 
perspective, the Secretary does not have the necessary staffing with 
the requisite expertise to administratively determine where high value 
geothermal resources are located.
    As a result, large areas of the public lands have been leased non-
competitively. But, even non-competitive lease applications are not met 
with any certainty. On several occasions, the Interior Board of Land 
Appeals has determined that it is the agency's obligation to cancel 
lease applications and place lands up for competitive bidding. For 
example, IBLA in its Decision Number 87-796 states: ``A non-competitive 
geothermal resource lease offer must be rejected where the land is 
found to be within a known geothermal resources area prior to lease 
issuance and the offeror presents no evidence to show that the known 
geothermal resource area designation is in error.'' (See also, IBLA 84-
212 and others similar decisions.)
    GEA supports moving away from administrative KGRA designations to 
determine high value geothermal lands and supports the provisions of 
H.R. 2772 that would rely instead upon competitive bidding. Our views 
are prompted by the difficulty, delay and expense that making such 
administrative determinations entail, and the uncertainty that the 
current KGRA definition has caused for lease applicants. In effect, we 
support reforming geothermal leasing law along the lines that Congress 
reformed the on-shore oil and gas leasing laws. Under this approach 
industry would nominate areas that it was interested in leasing and all 
otherwise appropriate lands would then be put up for competitive bid. 
If lands received no bids, they would be available for non-competitive 
leasing for a couple of years. This approach relies upon competitive 
bidding, rather than agency determinations of KGRAs, to select high 
value lands and ensure a fair return to the taxpayer.
    By making this important change, H.R. 2772 would be a significant 
improvement in the law and encourage greater use of geothermal 
resources throughout the West. It will simplify the leasing process, 
reduce BLM's administrative costs, and ensure a fair return to the 
taxpayer for publicly owned resources.
    H.R. 2772 goes even further to promote new development by directing 
the BLM to offer leases for sale as a block in the competitive lease 
sale if they believe the leases involve the same reservoir. This will 
encourage successful development by promoting unified ownership of the 
resource. We believe this is an important addition to the competitive 
leasing program and will improve prospects for expanding geothermal 
production in the West.
    An important remaining question is whether and how to deal with the 
517,000 acres of pending lease applications. For the sake of the lease 
applicants, and the entire industry, we would like to see these lease 
applications addressed quickly. H.R. 2772 would direct the Secretary to 
process the pending lease applications within one year of enactment. 
After one year, a decision should be made to issue or reject the 
application. Otherwise the process should be underway to complete 
whatever studies or analysis is necessary for a prompt agency decision.
    H.R. 2772 would achieve this by using the new authority it would 
give the Secretary allowing applicants to pay for necessary NEPA or 
other analysis and be reimbursed through royalty credits. Although this 
places some of the burden on the lease applicants, we believe it is a 
fair deal and necessary to clear out the application backlog.
Direct Use Leases
    Geothermal resources also provide energy for significant 
agricultural, commercial, and other non-electric purposes in the US. 
Unfortunately, few of these direct-use facilities involve Federal 
geothermal leases. Kevin Rafferty of the Geo-Heat Center in Klamath 
Falls, Oregon stated, ``The really telling statistic in my opinion is 
that we now have hundreds of direct use projects in operation across 
the West and we are only able to identify 3 that use resources on the 
public lands. The users are out there and so are the Federal resources 
but no one is using them. It seems pretty obvious that something is 
wrong.'' According to Mr. Rafferty, the high cost of direct use 
royalties was the most commonly cited problem at a recent meeting held 
to discuss how to expand geothermal energy use in the West. 
5
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    \5\ Email communication from Kevin Rafferty, Associate Director, 
Geo-Heat Center, Klamath Falls Oregon, February 24, 2004.
---------------------------------------------------------------------------
    Jim Witcher of New Mexico State University will present testimony 
today discussing in more detail the major impediments to increased 
direct use of geothermal energy in commercial, mining, ranching and 
similar operations in the West. I hope he also takes a few minutes to 
discuss the significant benefits direct-use facilities are bringing to 
the economy of New Mexico, because it is our view that the provisions 
of H.R. 2772 relating to leasing for direct use purposes will go a long 
way towards bringing new economic development to many communities 
throughout the West.
    H.R. 2772 seeks to encourage the use of geothermal resources by 
ranchers, local governments, small businesses, and others for non-
electric ``direct uses'' (greenhouses, aquaculture, space heating, and 
the like) by creating a simpler leasing process for direct uses 
purposes with less onerous terms--terms more closely resembling those 
of private and state direct use leases. We support these provisions, 
and believe they will encourage rural economic development throughout 
Nevada and the West, while encouraging greater use of this 
environmentally beneficial energy source.
Gross Proceeds Royalties
    GEA supports the proposal made in H.R. 2772 to adopt a gross 
proceeds royalty. The proposed legislation reflects market value, 
should be easy to administer and readily verifiable, and is applicable 
to both new and existing leases. A royalty on gross proceeds will save 
on the administrative costs of both the government and industry as well 
as eliminate many uncertainties that arise under the current system, 
including the potential for audits years after royalty payments are 
made.
    We have been involved in numerous discussions about royalty methods 
in recent years, spurred by concerns raised by local communities 
several years ago when their royalty income suddenly dropped under the 
existing net-back royalty formulation. In public meetings with local 
communities, states, and Federal officials it was recognized that a 
significant disadvantage of the net-back formula is its volatility.
    The net-back method has a significant advantage for geothermal 
companies because royalty payments are essentially zero during the 
first few years of commercial operation, which is when costs are their 
highest. However, the proposed legislation seeks to address this by 
establishing a tiered royalty, with a lower rate during the first ten 
years of production.
    Based upon our assessment, the net present value of the royalty 
proposed in H.R. 2772 is very close to the value received during the 
first ten years under the net-back formula. For a new flash steam 
plant, at a 1.75% gross proceeds royalty the net present value of the 
payments equals payments under the net-back in about 8 or 9 years, and 
for a binary plant--which has higher capital costs and lower steam 
values--the values equalize in about 11 or 12 years. 6 So, 
the first ten year royalty tier proposed in the bill is roughly the 
middle ground between a flash steam plant and a binary plant.
---------------------------------------------------------------------------
    \6\ For data on royalty payments from a flash steam plant see 
published study by Dr. David Gallo of California State University 
available at http://www.csuchico.edu/cedp/images/pdf/esp.calpine.pdf. 
Information on binary power plants from Dan Schochet, Ormat 
International.
---------------------------------------------------------------------------
    After the first ten years of production, the legislation proposes 
that all power plants would pay a 3.5% royalty on their gross proceeds. 
This appears to represent a fair figure, and comports with what is 
often used as the ``rule of thumb'' for geothermal power plants: that 
one-third of the value of the output is derived from the steam or hot 
water. In discussions with the geothermal operators, it appears that 
because the net-back method allows a wide range of variations actual 
royalty rates of existing leases span a wide range, from 1% to 5.5% on 
a gross proceeds basis. In general, the higher values are represented 
by The Geysers in California, which is a very high value and unique dry 
steam resource. Virtually all other geothermal resources in the United 
States have lower energy values than The Geysers.
    The proposed gross proceeds royalty would require geothermal 
operators to pay royalties sooner--beginning in their first year of 
operation--and might be somewhat higher than they would pay under 
current net-back rules. But, the geothermal industry would support 
changing to a gross proceeds formula as proposed because of its other 
benefits.
    The gross proceeds approach benefits both the company and the state 
and local community. The approach is simpler, more predictable, and 
less bureaucratic. Companies and communities would be able to plan with 
more certainty. This is very important when royalties are an important 
source of income supporting schools and community services. Neither the 
counties, nor the geothermal companies, benefit when sudden swings in 
electricity prices cause shortfalls in local government income. Neither 
the counties, nor the geothermal companies, benefit when audits 
undertaken years later determine that a company has underpaid or 
overpaid--and now one party or the other has to suddenly find funds 
that are not in their budget.
    H.R. 2772 also proposes to authorize the Secretary to give 
companies royalty credits where they enter into an agreement with a 
state or county government for the in-kind sale of electricity. In some 
instances this could double or triple the value of the royalty to the 
local government. It also provides a near-term royalty incentive for 
production from existing leases, including an incentive to expand 
production from existing geothermal sites within the next four years. 
This will encourage new geothermal power production to help meet the 
regions urgent supply needs.
Agency Cooperation
    H.R. 2772 directs specific coordination steps between the Forest 
Service and BLM regarding leasing, processing and permitting on the 
public lands. Forest Service lands in the West hold thousands of 
megawatts of geothermal potential, but the lack of clear administrative 
procedures and timeframes has lead to years of delays in decision 
making on land otherwise open for such development. We support these 
provisions.
Moratoria and Withdrawals
    H.R. 2772 directs a review of moratoria and withdrawals from 
geothermal leasing on public lands, and ensures that Congress and the 
Secretary of Interior have oversight over such closures. We support 
this provision.
Reimbursement for NEPA Costs
    H.R. 2772 authorizes a process for lease applicants or leaseholders 
to fund necessary government studies or documents where the BLM lacks 
adequate funds to prepare them. In many instances inadequate staffing 
and funding has resulted in a de-facto moratorium on geothermal 
development. This proposal would introduce a way to address this 
problem, at least in some circumstances, while retaining BLM control 
over the integrity of its process. While we support this provision, we 
believe that it needs to be administered with attention to the problems 
inherent in using private funds for these purposes. The Secretary needs 
to both ensure integrity of the government processes and avoid creation 
of unnecessary or additional studies or other documents.
National Resource Assessment
    H.R. 2772 directs the U.S. Geological Survey, in cooperation with 
the states, to complete a new national geothermal resource assessment 
within three years of enactment. The USGS has not conducted a 
geothermal resource assessment in 30 years, and significant changes in 
science and technology have occurred over those three decades. Many 
consider a new geothermal resource assessment essential to achieving 
the tremendous potential geothermal holds for both energy and economic 
development in the West. We support this provision, encourage Congress 
to ensure that funds are made available for this assessment, and 
applaud Rep. Gibbons for including a specific directive for the USGS to 
conduct this work in cooperation with the states.
Unitization
    H.R. 2772 would provide clear authority for BLM to establish 
cooperative units where the ownership of an undeveloped geothermal 
reservoir is fragmented between multiple parties. Fragmented ownership 
is a major impediment to new development of geothermal resources, and 
this bill borrows unitization and pooling language from the oil and gas 
laws that has proven successful in addressing this problem.
    BLM has had pending for several years regulations in this area, and 
we believe that the language proposed in this legislation is consistent 
with their proposed rules, and will give them a firm statutory basis. 
In addition, this proposal directs the BLM to consult with the states 
in managing lease unitization and pooling activities, and to treat any 
state leases included in such arrangements fairly.
Royalty on By-Products
    H.R. 2772 addresses a disparity in existing law that discourages 
mineral production from geothermal sites. Mineral production from 
geothermal sites should be treated the same as mineral production 
elsewhere on the Federal lands. It is sadly ironic that under the 
existing law a Federal lessee producing metals from the fluid used in a 
geothermal plant would have to pay the Federal Government a royalty on 
the mineral (in addition to a royalty on the power), but producing that 
same metal by open pit mining on the public lands would not be subject 
to a royalty. There is significant potential to produce minerals from 
geothermal sites that should be encouraged. Doing so will not only help 
the economy and national security but will reduce the overall 
environmental impacts of mineral production.
Lease Duration and Work Requirements
    H.R. 2772 provides a clear statutory framework for lease duration 
and development obligations of lessees. While these changes will 
increase the payments due from Federal lessees, and increase work 
requirements, we believe they are fair and that, by encouraging 
production, they will benefit the geothermal industry.
    We are particularly pleased that the legislation proposes to clear 
up a problem with the inflexibility of existing law regarding late 
rental payments. The bill provides a 45-day notification and 
reinstatement period for any cases where a lease rental payment is not 
made in a timely manner. Under existing law an inadvertent error can 
undercut efforts to achieve production by forcing premature lease 
cancellations.
Military Lands
    There are millions of acres of public land in the West that are 
reserved for use by the military. These lands potentially hold 
significant geothermal resources. GEA fully recognizes the importance 
of the military's use of public lands, and believes that leasing or 
development should occur on military lands only with their consent, and 
under such terms and conditions as they deem necessary and/or advisable 
to meet the military mission.
    In our testimony before the Resources Committee in March, we stated 
our views that where development occurs, geothermal leasing and 
development on lands subject to military reservation there should be: 
(1) Uniform policies on securing and maintaining the leasehold estate; 
(2) Uniform royalty structures and consistency with policies affecting 
development on non-military lands; and (3) Centralized administration 
of the lease and royalty programs.
    In other words, we were urging that standard, uniform policies be 
developed regarding leasing and royalties on military lands so that a 
potential developer knows what to expect. The current situation, which 
allows ad-hoc decisions to be made on a case-by-case basis, deters 
geothermal development on military lands. Essentially, we believe 
geothermal resources should receive treatment similar to other oil, gas 
and mineral activities on military lands. 7
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    \7\ See 43 U.S.C. 158. The Engle Act of 1958 placed mineral 
resources on withdrawn military lands under jurisdiction of the 
Secretary of the Interior and subject to disposition under the public 
land mining and mineral leasing laws.
---------------------------------------------------------------------------
    H.R. 2772 would place geothermal development on military lands 
under the same lease terms as development on other public lands, which 
we believe will encourage geothermal production from military lands 
where such uses can be made compatible with military purposes. Under 
the existing law, which provides a separate military development 
scheme, there has been little new development on military lands in over 
20 years. We support these provisions, and wish to point out that the 
legislation provides explicit authority for the military departments to 
close lands where necessary and impose such terms and conditions on 
geothermal operations as they deem necessary. These are important 
safeguards that we believe are essential to ensuring that geothermal 
development does not in any way diminish or interfere with military 
mission.
Conclusion
    Geothermal resources on the public lands can contribute 
significantly to our Nation's energy supplies. We urge this Committee 
to support H.R. 2772, the John Rishel Geothermal Steam Act Amendments 
of 2003. Enacting these amendments into law would help encourage new 
geothermal production, streamline administration of the law, and take 
other important steps to achieve the potential our geothermal resources 
hold to help address the critical energy problems of our Nation. This 
would reduce our dependence upon foreign oil, reduce our spiraling 
demand for natural gas, and provide a substantial and immediate 
stimulus for the economy.
    Thank you.
    [GRAPHIC] [TIFF OMITTED] T8467.001
    

    Mr. Gibbons. Thank you very much, Mr. Gawell. I appreciate 
your kind remarks. And I am sure John Rishel would have 
appreciated them as well. He worked very hard on this 
legislation. I am sure in some way he has heard them.
    With that, we will turn to Dr. James Witcher, New Mexico 
State University. And doctor, the floor is yours. Welcome. We 
are happy to have you and look forward to your testimony.

                  STATEMENT OF JAMES WITCHER, 
                  NEW MEXICO STATE UNIVERSITY

    Dr. Witcher. Thank you, Congressman Gibbons. It is my 
pleasure to talk to the Committee on H.R. 2772, The John Rishel 
Geothermal Steam Act Amendments.
    My testimony will cover direct geothermal use, and is 
something that is a little different than most energy that is 
out there. One of the factors that makes it different is the 
fact that the people here who are doing this are not in the 
business to sell energy as their sole business. Usually, they 
end up being a farmer or a grower, as it would be in a 
greenhouse or they have a large business or something like that 
that they need to space heat, and so they use this to save 
energy, energy costs.
    What I would like to discuss is the State of New Mexico, in 
terms of how geothermal energy is extremely important in direct 
use, in terms of rural economic development. In New Mexico, we 
have four geothermally heated greenhouses with a total acreage 
of 50 acres. This acreage represents half the large wholesale 
commercial acreage that is used in New Mexico, which is a 
significant number in itself, but probably as important, is 
this greenhouse acreage brings in $12 million in gross receipts 
each year. That makes it ranked among the top 10 in 
agricultural gross receipts sector in the State. So, when you 
look at geothermal greenhousing as a direct use in rural 
economic development, it becomes very important.
    Another way of looking at this is that these greenhouses, 
two of them, which were the larger ones, one of them represents 
the largest economic tax base in the county it is in. The other 
represents probably the largest tax base in the Northern part 
of the county that it is in, and this results in about 250 new 
jobs that have been created in the last 50 years and with a 
payroll of probably $4 million annually.
    One of the things that has been inhibiting geothermal 
greenhouse development in New Mexico has been not the leasing 
so much as it has been the royalties and how these are figured.
    With the geothermal greenhouse, one of the operators in New 
Mexico has been required to place BTU meters on his wells. 
These BTU meters have ended up costing as much as it cost him 
to actually drill one of his production wells with the casing 
and the production pump. So it becomes something that is very 
prohibitive to a greenhouse operator. When you look at a lower 
temperature geothermal resource, the equipment that you have to 
use to heat a greenhouse ends up costing more than, say, if 
you're using a higher temperature geothermal resource.
    And so when you have just a straightforward royalty placed 
upon that and have to have BTU meters, the person that wants to 
place the greenhouse in operation with lower temperature, the 
royalty may actually end up cutting into any savings that he 
would have gotten by using geothermal, and so it is an 
impediment.
    I would like to end up with stating that I think that H.R. 
2772 is also very important in terms of the leasing changes 
that will occur, and one is that a direct-use operator is not 
subjected to the minimum acreage rule that he would be 
currently. If you are needing to build a, say, a 40-acre 
greenhouse, you are not going to need the 256 acres of 
geothermal resource leased to heat that greenhouse, and so this 
encourages that sort of development.
    And the other fact is that the H.R. 7272 provides a simple 
and really a remedy to the current geothermal royalty rules 
that a direct-use operator would have, and it streamlines it, 
and it makes it easier for the BLM to administer this so that 
you don't get into conflicts administratively between the 
operator and the Federal officials that are collecting 
royalties and overseeing the leases, and it places the 
geothermal greenhouse operator into a situation where he can 
pay a fee, like most other people, a direct fee, a straight fee 
like most other people would pay if they were leasing Federal 
property or land for use.
    With that, I urge the Committee to support H.R. 2772, and I 
thank you very much for the opportunity to testify before you 
today.
    [The prepared statement of Dr. Witcher follows:]

    Statement of James C. Witcher, Southwest Technology Development 
                 Institute, New Mexico State University

    Thank you for the opportunity to present testimony regarding H.R. 
2772, The John Rishel Geothermal Steam Act Amendments introduced by 
Rep. Jim Gibbons (R-NV). My testimony reflects two decades experience 
in geothermal resource evaluation, exploration, and development for 
direct-use geothermal heating in the Southwest. As geologist and 
project manager with the Southwest Technology Development Institute 
(SWTDI) at New Mexico State University (NMSU) in Las Cruces, I have had 
the pleasure and privilege of working with most of the geothermal 
direct-use projects in New Mexico (NM). As a result, I have gained an 
appreciation for the concerns and requirements of a successful direct-
use geothermal operation.
Importance of Geothermal Direct-Use
    Geothermal resources suitable for direct-use generally have lower 
temperature and represent a very large resource base in terms of the 
number of potential use sites, especially in the West. I will discuss 
NM geothermal as an example of the importance of direct-heat 
utilization.
    Besides spas, direct-use geothermal applications in NM include 
space heating, district heating (NMSU campus), large commercial 
greenhouses, and aquaculture (fish farming). I will focus on the 
commercial greenhouse sector.
    Four NM greenhouse growers use geothermal energy to heat about 50 
acres. This acreage represents more than half of the wholesale 
commercial greenhouses in the state. Gross sales are estimated to 
exceed $12 million annually, placing geothermal greenhouses among the 
top ten agriculture sectors in the State. Most of this acreage has been 
built in the last decade. Approximately 250 jobs have been created with 
an estimated payroll more than $4 million annually. The two largest 
greenhouses and an important aquaculture business are in rural areas 
and the greenhouses are among the largest businesses and tax base in 
their respective localities.
    While the geothermal greenhouses require more than 275 billion BTU 
per year of geothermal heat and accrue a net savings in energy costs 
when compared to local conventional fuel, it is clear that geothermal 
direct-use also provides important economic development in rural areas 
that are often left behind by the flow of money and people to 
population centers.
    Greenhouses and aquaculture are not the only potential agriculture 
or industrial user of geothermal in NM. I believe that processing of 
chile, onions, milk, and cheese may someday benefit from geothermal 
direct-use.
    I have only outlined the direct-use development and potential in 
NM; however, important geothermal direct-use development in the 
agriculture sector is also occurring in the rural areas of Nevada, 
Utah, Idaho, California, Idaho, and Oregon. In fact, I believe that all 
of the western states and some other states to the east have 
significant direct-use geothermal potential.
Impediments to Geothermal Direct-Use
    Individuals and companies using geothermal direct-use are somewhat 
unique among the nation's energy producers. A direct-use operator 
normally does not develop the geothermal resource for energy sales as 
the sole or major business revenue. A geothermal greenhouse or 
aquaculture operator is a grower or farmer first.
    ``Location, location, location,'' as often quoted in real estate, 
is first and foremost in starting a geothermal direct-use business. 
Irrigation water, labor, markets, transportation, and geothermal all 
need to coincide. Certainly energy availability and cost of energy can 
rank high. Aquaculture and mining operations, using hydrometallurgy, in 
a colder climate may require geothermal heat to have economic 
viability. However, in each of these cases the main purpose of business 
is not energy sales (or energy use).
    Except for the mining example, these firms will not have a person 
with leasing expertise, engineers, geologists, and accountants, trained 
in the details of the Minerals Management Service (MMS) reporting forms 
and rules, on company staff.
    With this thumbnail sketch of a direct-use geothermal businesses, 
it is clear that several things are required for viable geothermal 
direct-use. First, geothermal has to be economic for the intended 
direct-heating purpose. Second, resource accessibility and assurances 
of continued accessibility are required. Third, fees and rules 
governing geothermal use must be simple and straightforward.
    Out of hundreds of direct-use geothermal endeavors, only three are 
identified as using the Federal geothermal resource according to Kevin 
Rafferty of the Geo-Heat Center, Oregon Institute of Technology, 
Klamath Falls, Oregon. Two of these direct-use geothermal businesses 
are in NM. Another direct-use operator in NM has a Federal geothermal 
lease and a viable, but shut-in, production well just over the fence 
from his large commercial greenhouse located on private land. The later 
geothermal operator currently chooses to pump from a private geothermal 
reservoir with lower temperature than from the adjacent and hotter 
Federal reservoir.
    I believe the current royalty structure is the main obstacle with 
Federal direct-use geothermal in NM. In order to use the Federal 
geothermal resource, expensive BTU metering is required (BTU or Btu--
British thermal unit--a quantity that is equivalent to heat a pound of 
water 1 degree F). The cost for equipment, installation, testing, and 
maintenance of BTU meters at one NM geothermal greenhouse exceeds the 
cost of a geothermal production well, including drilling, casing, and 
pump. Finally, there is no recognized standard for BTU metering of 
geothermal direct-use wells which means that one geothermal operator 
may not be metered the same as another, depending upon equipment 
brands, method of installation, and personnel performing installation 
and testing.
    Another drawback of current royalty structure, based upon the ten 
percent avoided cost of the least expensive locally-available fuel, is 
that it does not account for any uniformity in either the avoided fuel 
cost or in the way the geothermal itself is valued.
    Geothermal potential in a rural area that uses bottled gas 
(propane) because of a lack of access to less expensive pipeline gas is 
jeopardized by the current royalty structure. In fact, in such a case, 
it is likely that the only reason a greenhouse would be built in an 
area with high conventional energy costs is because geothermal is 
available. This argument can apply to other direct-use geothermal 
applications such as ice removal from a large bridge.
    A geothermal operator that uses 140 degrees Fahrenheit water for 
direct-use heating will have significantly greater investment in wells, 
heat distribution, and operating costs than the geothermal operator 
that uses 210 degrees Fahrenheit geothermal water to obtain the same 
useable BTU. The real value of the geothermal BTU is therefore 
different from place to place.
    Current royalty rules do not account for the discrepancy in the 
value of the geothermal from place to place and as a result discourages 
development of the lower temperature resource base because the royalty 
may be as great as the benefit (cost savings) that the direct-use 
operator would accrue from geothermal direct-use.
    Direct-use geothermal and geothermal electricity are treated with 
different valuation philosophy. Power production royalties are 
calculated based upon sales or energy output with specified deductions 
or ``netback'' for power transmission and conversion of geothermal into 
saleable and marketable electricity. With direct-use, the current 
royalty structure begins with energy input at the wellhead without 
taking into account relative costs for pumps, heat exchangers, and heat 
equipment inside the greenhouse to obtain a usable BTU.
    Direct-use geothermal is penalized even further when one considers 
that hot water from a conventional gas-fired boiler has less heating 
equipment cost inside a greenhouse than with geothermal because of 
generally higher heating loop temperatures. However, the current 
approach adds a boiler inefficiency factor in calculating the 
equivalent conventional fuel cost for royalty evaluation.
H.R. 2772 and Geothermal Direct-Use
    H.R. 2772 encourages the use of the Federal geothermal resource 
base for direct-use applications. Where the geothermal resource is 
potentially feasible to use and meets the first development hurdle of 
basic economics, H.R. 2772 greatly assists the leasing processes for 
direct-use by eliminating the minimum lease acreage requirement. While 
direct-use geothermal operators may dislike the sixty-day publication 
requirement of a direct-use lease application, I believe that this is 
not onerous as many permits already require publication.
    H.R. 2772 provides a fair and simple remedy to current royalty 
problems for geothermal direct-use. Because geothermal direct-use 
operators are not in the energy business as their prime business, the 
simplified fees eliminate many problems and allow for more streamlined 
administration of Federal land by the Bureau of Land Management (BLM) 
and provide direct-use developers a fee structure that is known 
upfront. Some may argue that a fee or royalty based upon business sales 
should be implemented to replace the current royalty structure. I would 
argue that the benefit derived from geothermal use would accrue in the 
form of a larger tax base, higher employment, and a cleaner 
environment.
Conclusion
    Experience in NM shows that geothermal direct-use development has 
significant potential for environmentally clean, rural economic 
development in all states where suitable lower temperature geothermal 
resources exist, while at the same time reducing dependence on foreign 
energy supplies.
    I urge the Committee to support H.R. 2772, the John Rishel 
Geothermal Steam Act Amendments of 2003. It is my belief that by 
enacting the amendments into law, much desired, but currently avoided, 
geothermal direct-use development on Federal public lands will begin to 
take form.
    Thank you.
                                 ______
                                 
    Mr. Gibbons. Dr. Witcher, thank you very much for your 
testimony, indeed. You have shed new light on the understanding 
of geothermal energy, especially in the direct use field, that 
I think many of us had not understood or even thought about at 
this point in time, so your testimony has been very helpful.
    We turn now to Jeanne Connelly from Calpine. We want to 
welcome you to the Committee, and we look forward to your 
testimony.
    Ms. Connelly, the floor is yours.

         STATEMENT OF JEANNE CONNELLY, VICE PRESIDENT, 
             FEDERAL RELATIONS, CALPINE CORPORATION

    Ms. Connelly. Well, thank you, Mr. Chairman, for inviting 
Calpine to participate in the hearing today. We have a great 
interest in geothermal energy because Calpine is the largest 
geothermal producer in the United States. We have approximately 
900 megawatts of geothermal power at a place called The Geysers 
in Northern California, and we are also in the process of 
developing two additional geothermal projects in an area called 
The Glass Mountain Known Geothermal Reserve Area. That is in 
Siskiyou County, California, way up in the Northern part of the 
State on the Oregon border.
    This Subcommittee actually heard previous testimony from 
Calpine about 2 years ago about the extraordinary delays that 
we had encountered in trying to permit those two projects at 
Glass Mountain. At that point, I looked back at our testimony, 
and we had spent 5 years and over $3 million trying to develop 
our project to Glass Mountain, and we are still unable to 
proceed.
    There have been some positive developments since that time. 
This administration's national energy policy recognized the 
importance of geothermal as a key renewable resource. And since 
that time, the Departments of Energy, Interior and Agriculture 
have all taken steps to improve the process.
    The bill before the Subcommittee today will go even further 
to promote the development of this clean, renewable resource. 
As my colleague, Karl Gawell, has pointed out, the potential 
for geothermal is just tremendous in the Western part of the 
United States, and we believe H.R. 2772 will definitely 
encourage future production.
    There are many positive provisions in the bill--too many to 
be able to address them all today, but I wanted to discuss just 
a couple areas where Calpine has had some specific experiences.
    First, we strongly support the proposal to require leases 
within a reserve area to be leased as a block and to move to a 
competitive leasing. The Geysers was originally in the hands of 
many multiple donors, and it created tremendous problems for 
the resource. One party would drill a slanted well right on 
their property line, hoping to tap into their neighbor's 
resource, and there was no overall management and no overall 
planning of the resource itself, which ended up harming the 
sustainability of the resource.
    Since we have been able to acquire most of the leases and 
consolidate the ownership at The Geysers, productivity has 
improved and sustainability of the resource has improved.
    We are also looking at other potential geothermal 
development projects, and when we look around the West, we see 
fragmented ownership as a serious potential barrier to that 
development. Without consolidated leases, the negotiations with 
the individual owners on these sometimes very small parcels 
could go on forever and might never reach resolution.
    We also support the proposal to move to a gross proceeds 
royalty, and again our experience at The Geysers is useful. The 
State of California was using a similar formula, so some years 
ago we went to the Department of Interior, and we asked if we 
might have some kind of move to gross proceeds royalty at The 
Geysers so that it could be more compatible with what the State 
of California was doing, and we worked out an agreement with 
the Department of Interior to place our leases at The Geysers 
under the system.
    The result has, we believe, significantly reduced 
administrative costs, both for us and for the Government. The 
formula is so much simpler, and you avoid those audits of what 
is an allowable cost, what is not an allowable cost. So I think 
everyone has benefited.
    It also should improve the predictability of income flow to 
the local jurisdictions that depend on royalties, and in many 
places where you find the geothermal resource, they tend to be 
very rural areas in great need of economic development, so it 
becomes a very important source of income.
    One example of the potential revenue that can flow from 
geothermal is what we hope to do at Glass Mountain. In June of 
last year, an economist with the Center for Economic 
Development at California State University completed an 
assessment of the economic impact of our two projects on the 
four counties: It is Siskiyou, Modoc and Shasta Counties in 
California and Klamath County in Oregon.
    And he found that the total impact on real income, and it 
is royalties, he also included jobs and taxes, but the total 
impact for the four county region, if just one of our two 
projects were to get built, would be more than $60 million over 
30 years or an average annual of over $2 million per year, and 
those numbers almost double if both of our projects were able 
to get built and be operating.
    We also support the near-term royalty relief provided in 
the bill. The up-front capital costs of geothermal development 
are quite high and short-term royalty relief provides we think 
the jump start that is needed to get new geothermal development 
going.
    Finally, while the Forest Service and the Bureau of Land 
Management have improved their coordination recently, we really 
support the direction of the legislation to require those 
agencies to develop more specific procedures for working 
together. We have certainly seen problems when they were not 
working together in the past, and so cooperation is an 
essential ingredient for geothermal development to go forward.
    So, again, let me thank you for the opportunity to be here.
    [The prepared statement of Ms. Connelly follows:]

   Statement of Jeanne Connelly, Vice President, Federal Relations, 
                          Calpine Corporation

    Mrs. Chairman and Members of the Subcommittee:
    Thank you for inviting Calpine Corporation to testify at today's 
hearing on H.R. 2772, legislation introduced by Rep. Gibbons to amend 
the Geothermal Steam Act. I am Jeanne Connelly, Vice President, Federal 
Relations for Calpine Corporation.
    Calpine is the largest producer of electricity from geothermal 
resources in the United States today, with nearly 800MW on-line at The 
Geysers in Northern California, and additional development underway 
near the California/Oregon border in the Glass Mountain Known 
Geothermal Resource Area.
    The Committee is aware of the extraordinary delays involved in 
development of the two new sites in Glass Mountain from testimony at 
previous hearings. We are pleased that the National Energy Policy 
developed by the Administration recommended that Secretary of Interior 
Norton and Secretary of Energy Abraham take action to increase 
renewable energy production on public lands. As a result, those two 
agencies, as well as the Department of Agriculture and others, have 
initiated activities to carry out this goal. Calpine has supported 
these efforts and wishes to applaud the Administration for the progress 
it is making.
    Today, the Subcommittee is considering legislation that will go 
even further to promote the development of new geothermal resources. We 
believe that there is considerable geothermal potential in the Western 
United States that is undeveloped and that H.R. 2772 will help 
encourage future production.
    We applaud the proposal to move towards competitive leasing, and 
requiring leases within the same reservoir to be leased as a block. 
When we have examined areas for future development, it is clear that 
fragmented ownership of the resource is a significant barrier to 
companies interested in new development.
    We also applaud the proposal to move to a gross proceeds royalty. 
Calpine has an agreement with the Department of the Interior which 
places its leases at The Geysers under a gross proceeds formula, 
similar to that used by the State of California for its leases. Calpine 
initiated discussions with the Department to move in this direction 
after consolidating most of the leases and production facilities at The 
Geysers. The change has significantly reduced the administrative costs 
for both Calpine and the Department of Interior, and has provided more 
stability for local governments who rely upon our royalty payments to 
provide needed public services.
    The near term royalty relief provided by the bill is extremely 
important as new projects on untapped geothermal leases compete for 
power purchase agreements from electric utilities. Royalties and 
property taxes represent two of the three largest operating costs for 
geothermal power projects, behind operating personnel. The relief will 
help to bring new geothermal resources into production after a lengthy 
hiatus.
    While we believe that the Forest Service and Bureau of Land 
Management have improved their coordination under this Administration, 
we support the direction the legislation takes requiring these agencies 
to develop specific procedures for working together. Cooperation 
between the Forest Service and BLM is an essential ingredient in 
ensuring future geothermal development.
    H.R. 2772 also establishes clearer lease terms and conditions. They 
support and encourage development of Federal leases, while providing 
companies with fair terms and the security of holding the lease as long 
as it remains in production. These are essential elements for investors 
in new geothermal projects.
    We wish to express our support for H.R. 2772, and thank the 
Subcommittee for giving us this opportunity to present our views.
                                 ______
                                 
    Mr. Gibbons. Ms. Connelly, thank you very much for taking 
the time out of your busy schedule to address our Committee as 
well.
    And to all of you, I want to thank you for your presence 
here. I know that it may seem like there is a lot of lack of 
interest, but there are a lot of other things going on in 
Congress right now, and certainly the records will show your 
testimony to those who want to look at it and be available for 
Committee decisions. That is the critical part of your presence 
here today.
    Let me just reverse the order and start with Ms. Connelly 
here and ask you, as one of the Nation's largest geothermal 
producers, and the fact that you have seen impediments to the 
processing of permits over the last many years, and of course 
you reflected back on Glass Mountain, 5 years, $3 million in 
costs just for the permitting alone. That has nothing to do 
with the exploration, nothing to do with the construction of 
capital improvements on there to get the resource out of the 
ground, but just the cost of going through the permitting 
process, have you seen or experienced a change now or do you 
see things beginning to improve with regard to permitting and 
the processing of permits today?
    Ms. Connelly. We have seen a definite improvement.
    First of all, this administration did lift the moratorium 
that existed on further development at Glass Mountain which I 
think was a very important decision, both a symbolic decision 
and a practical decision, but it did send a message that this 
administration recognized that this was a very clean, renewable 
resource and one that we need to develop further.
    We also saw a reversal of one decision on a project at 
Glass Mountain. Again, looking at the totality of our energy 
needs in this country and what geothermal can do to help meet 
those needs, I think perhaps there was more of an urgency when 
this administration looked at our energy situation, and that 
may have weighed into the decision to reverse an initial 
denial. So those things have been very positive.
    We waited quite a long time for an appeal, an 
administrative appeal to be heard at the IBLA, and I understand 
that that backlog is somewhat shortened, but again these things 
take time, but it is moving in the right direction.
    Mr. Gibbons. What do you see as the biggest current hurdle 
today for permitting, from your perspective? Now that things 
are starting to move, what remains as the big hurdle?
    Ms. Connelly. Well, I think the two things I pointed to in 
my testimony; the fragmented ownership and the, I would have to 
say that today--this is not a permitting issue--but we have to 
recognize that access to capital is probably the most difficult 
problem for anyone who wants to start a new energy project in 
the United States today, and so--
    Mr. Gibbons. And that is very difficult for us in Congress 
to deal with.
    Ms. Connelly. But the interesting thing is that when a bank 
or a financing entity looks at a potential project, when they 
look at the royalties that are expected to come, I think your 
changes in the royalty provisions provide a certainty even to 
potential lenders that could make a difference there.
    Mr. Gibbons. Some predictability is in there--
    Ms. Connelly. Exactly.
    Mr. Gibbons. --which is always helpful, I am sure.
    Dr. Witcher, let me ask a question of you, if I may, and it 
deals with technology involved in direct use versus electrical 
generation.
    Old generation of electricity was the kind that flashed off 
the steam, drove a turbine, and it was vented into the 
atmosphere. Today, we use binary systems, direct use, et 
cetera. Has the technology changed for the utilization of 
geothermal energy for direct use over the last 10 years?
    Dr. Witcher. I do not believe the technology has really 
changed dramatically that much because a lot of the technology 
that we use for heating is off-the-shelf sorts of equipment. It 
would be the same sort of equipment if you had a gas-fired 
boiler, if we just design it a little differently for the lower 
temperatures and the higher flow rates.
    Now, you bring up one point, though, that the binary 
electrical power generation, coming off that electrical binary 
power generation, you have a flow of hot water. So if you had 
250-degree Fahrenheit water that was going into the power plant 
with the Delta T that may come off that, you may have water 
that is coming out of there at 180 degrees Fahrenheit.
    Now, what you can do with that water at a power plant such 
as this is cascade that water down into a direct use 
application; for instance, heating a large building space, 
heating a large building or even a commercial greenhouse or an 
aquaculture facility, and this may be certainly something that 
would be a real melding of the binary geothermal technology and 
direct use, where you have only a small amount of power that is 
being produced, where you may not place it on the grid, but you 
use it onsite and use it in your direct use geothermal 
operation.
    Mr. Gibbons. Doctor, just for the record, let me state that 
Delta T stands for the difference in temperature from when it 
came in to when it goes out. So it would be 250 minus whatever 
it takes to get to 180.
    Dr. Witcher. Yes, sir.
    Mr. Gibbons. So that is what you call Delta T. That is 
because not everybody here would understand what Delta T is. 
They talk in acronyms here as well, but not necessarily 
scientific ones.
    If you wanted to use, Doctor, a direct application of the 
resource after it has gone through, electrical power generating 
facilities, which are oftentimes not co-located next to 
communities, how close does that resource have to be to the end 
user to be valuable, to be a resource that can be utilized for 
a direct use? In other words, does the direct application have 
to be co-located at the source or can it be miles away.
    Dr. Witcher. Ideally, the direct use application would need 
to be collated directly onsite. We use geothermal energy to 
heat the Eastern part of New Mexico State University, and we do 
pipe that water two miles down onto campus, and this is after 
it goes through a heat exchange process where you lose some 
heat, and then you lose some heat in a pipeline. We have the 
advantage in New Mexico of having dry soils, which allow you 
not to lose a lot of heat. In another climate it may be 
different.
    I believe that a study several years ago that the Oregon 
Institute of Technology Geo-Heat Center performed, looking at 
space heating, I believe the maximum that they were willing to 
transport heat in a pipeline was, say, five miles. So, ideally, 
you would really want to have it co-located because there are 
heat losses in piping that water.
    Mr. Gibbons. And, unfortunately, not every geothermal 
reservoir is co-located with a community or a university. So 
you get what you get. Mother Nature put it there.
    Mr. Gawell, thank you for your testimony. What is the 
single greatest factor in your mind that keeps geothermal 
energy from reaching its potential in the United States?
    Mr. Gawell. I think at the moment the biggest obstacle that 
the geothermal industry faces, and again I represent largely 
the power industry, and I think Jeanne Connelly hit on this, is 
the cost of capital, the cost of investing in a new plant, 
geothermal power plants, bad news, as they are three times or 
more as expensive as a comparable natural gas plant. So you 
have to get an investor who is willing to put that money down 
up front.
    That means he is going to look at all of your risks, all of 
your uncertainties, and he has really got to be convinced it 
will work. The good news is you do not pay for fuel.
    Mr. Gibbons. Right. How long would you expect a geothermal 
plant to be on-line producing. In other words, if we are 
looking at royalties, somewhere down the road, we are going to 
have to say that we are going to be in a position where we are 
going to pay a higher royalty, and we want to know how long we 
are going to be in that position paying a higher royalty over a 
certain period of time to make it worthwhile for the U.S. 
Government to say that, yes, we want to encourage you to start 
a power plant today at a lower royalty, knowing that, over this 
many years after that, we are going to get a higher royalty, 
which makes it attractive and an incentive for the U.S. 
Government to do that. How long do you expect power plants to 
be on station using geothermal?
    Mr. Gawell. Well, that is a question I actually get asked 
quite a bit, and there have not been plants shutting down in 
this country yet. That plant at The Geyser has been operated 
since 1960. Plants in Italy have been operating since 1917. The 
Department of Energy states that it looks at optimizing plant 
design for 100-year life at the moment.
    Mr. Gibbons. So the only restriction would be on the 
resource below the ground.
    Mr. Gawell. Right.
    Mr. Gibbons. If that, for some reason, cooled, which 
probably wouldn't ever happen even in Mother Nature's 
lifetime--
    Mr. Gawell. You are looking at the major variable is the 
resource, and in fact if The Geyser is there reinvesting in 
their resource by reinjecting treated, reclaimed water, in 
effect, bringing back the pressure, they think they can 
maintain that resource indefinitely by doing that.
    Mr. Gibbons. So proper management, which this bill goes 
toward, management of that resource, is the ideal way to create 
an almost inexhaustible source of a resource for energy 
production.
    Mr. Gawell. Absolutely. And I want to note that while your 
H.R. 2772 proposes a two-tier royalty, it actually is not a 
lesser royalty, because when you compare it to the net back, it 
is essentially the same royalty. Because the way the net back 
works is it allows you to take your costs and amortize them. So 
it is sort of like doing a separate tax form. So, in the first 
three to 4 years of production, under net back, your royalty is 
usually zero. In fact, in the Chico State study Calpine did, 
that is exactly what it said.
    So the lower tier base that compensates for that, and on a 
net present value basis that first 10 years is essentially the 
same payment, and so you are lower tier, but comparable to 
today's royalty, you are paying the same rate, but you do not 
want to discourage new production. So you do not want to pay 
the full rate all the way through it, so that it compensates.
    Mr. Gibbons. And that is the purpose of the legislation is 
to provide incentives for those people that have the 
opportunity to go out there and invest their capital in a 
clean, energy-producing system, to have some encouragement 
through the incentive of a two-tiered royalty to do that.
    Mr. Gawell. Exactly.
    Mr. Gibbons. And hopefully do you--well, let me ask this 
question. Strike the ``hopefully.''
    In your opinion, do you see the two-tier royalty having an 
effect on the ability to raise capital for geothermal steam 
generating plant?
    Mr. Gawell. I think the point is it gives you much more 
certainty all the way around, in terms of what you are going to 
be paying and that does eliminate, every time you can eliminate 
uncertainty with a large investment, the more likely you are to 
get the investors on board. Yes, I think it will encourage 
investment in new plants.
    Mr. Gibbons. You talked a little bit about mineral 
production. Not all geothermal wells, I am sure, have minerals 
that are capable of being extracted at some point from the 
resource--some are. How extensive is the mineral production 
from geothermal sites today, and what do you see as its 
potential because I am looking at something called strategic 
minerals, and we have a certain stockpile of strategic minerals 
for national security reasons that have to be acquired from 
geopolitically unstable countries that put into big question 
our ability to have those minerals available to us throughout 
the period of time we may need them, and most of time that is 
during a crisis when they would not be available.
    Mr. Gawell. Right.
    Mr. Gibbons. So how do you see geothermal being able to 
contribute, through the mineral extraction process, to our 
strategic mineral resource needs?
    Mr. Gawell. My understanding of this is largely based upon 
what I have learned recently from the Department of Energy, but 
also I have talked with the companies that are producing 
minerals. You have one site in Nevada, the site owned by 
Caithness in Dixie Valley, where they had begun experimentally 
producing a very high-grade silica product. This wasn't 
silica--silica has various grades--this was pharmaceutical-
grade silica that came out of their resource, and it has very 
high value. You get silica in most geothermal reservoirs, but 
at different grades.
    Mr. Gibbons. Usually, it clogs up your pipes is what it 
does.
    Mr. Gawell. Exactly. And down at the Sultan Sea in Southern 
California, the fluid there has hundreds, I mean just it comes 
through almost, it does not even want to flow it is so viscus, 
but the Department of Energy has done some studies, and we 
could give you for the record a study that was done by 
Princeton Economic Research that looks at this. They looked at 
a half-a-dozen different sites, and each of those sites, there 
was at least half a dozen different minerals that could be 
produced.
    So there clearly is a wide range, and just this morning I 
took their research and looked at the high-value ones they had 
named, which I had mentioned earlier, and pulled up the USGS 
on-line, and in every single case, the majority of that mineral 
to the United States comes today from imports from overseas.
    Mr. Gibbons. Sure.
    Mr. Gawell. So I think it could be a tremendous benefit. 
Particularly what may be uniquely interesting is some of the 
rarer elements, like the rare earth elements, which are growing 
in their demand in all of the high technology fields. And, for 
example, I understand a number of the rare earth elements are 
critical to some of the processes being considered in hydrogen 
conversion. And so they may play very unique roles in the 
future.
    Mr. Gibbons. Is beryllium a mineral you find in geothermal 
wells?
    Mr. Gawell. I would have to ask an expert.
    Mr. Gibbons. Fine. Let me ask a question that a cynic would 
ask. Now, we are talking about mineralization here.
    If you were applying for a geothermal lease, and you pay a 
royalty on the geothermal end result, which is the electricity, 
do you also pay a royalty on the minerals you extract because 
geothermal is a mineral? So this is the first time royalties 
are going to be paid on minerals. You would pay a royalty on 
the minerals you extract from a geothermal well as well; is 
that not correct?
    Mr. Gawell. Under current law, all minerals that you 
produce from geothermal sites, Federal land would be subject to 
the same royalty as power. Under 2772, you put minerals under 
the terms they would otherwise go under. So if it was a 
leasable mineral, it would pay a royalty; if it was a locatable 
mineral, it would not. So most of these are metals, most of 
them are locatable minerals, so they would not.
    Mr. Gibbons. So, today, under the strict Mining Law of 
1872, there is no royalty on producing a mineral.
    Mr. Gawell. That is correct.
    Mr. Gibbons. There is a royalty on producing a mineral from 
geothermal waters.
    Mr. Gawell. That is correct.
    Mr. Gibbons. So it does benefit the Government to have a 
lease for geothermal, even if the person is going to go in 
there and take minerals out of it.
    Mr. Gawell. That is correct.
    Mr. Gibbons. Is the production of minerals from geothermal 
a risky and expensive way to produce them? I mean, if you were 
not going to have the geothermal electrical or energy supply, 
would just be going in after the minerals be a very expensive 
and risky way to produce those minerals?
    Mr. Gawell. I am not sure it is risky in the sense of 
injury to people.
    Mr. Gibbons. Well, the technology is there so you could say 
you could do it.
    Mr. Gawell. Yes, it is technologically, is it risky? It is 
risky because it requires a lot of money up front, an frankly 
the best way to do it is the way it is being perceived. Back in 
the Salton Sea, where you have got the power production, that 
gives you the economic base--
    Mr. Gibbons. Right.
    Mr. Gawell. Then, move toward the mineral production. It is 
fairly difficult. Some very large companies--Morrison-Knudsen 
and others--years ago had looked at major mineral production 
from geothermal resources. It is only now are we starting to 
see it at one site in Nevada and at the Salton Sea in Southern 
California, where they are producing zinc.
    CAL Energy is looking at a major zinc operation, and in 
fact I know that they for years, Magma before them, and CAL 
Energy now, believed that the Salton Sea will someday be a 
greater mineral production source than an electricity source.
    The potential is there, but they see it working best 
economically by coupling the two together because then you get 
the revenue from the electricity side--
    Mr. Gibbons. Which helps you process.
    Mr. Gawell. It allows you to help you process. It also 
helps you absorb some of the risk because there are some real 
technological uncertainties. I mean, there is no secret they 
are having difficulties with their zinc process. There is a 
number of both chemical and physical problems they have to work 
through to be able to separate out the minerals, and the first 
time you do anything, you are going to run into some problems, 
and they are, but they feel very confident they can overcome 
them and move forward.
    Mr. Gibbons. Thank you.
    Dr. Witcher, let me ask a question about BTU meters on 
direct geothermal resources.
    Is there an alternative for some way to deal with a direct 
application of geothermal energy without having to go through 
the direct, if it is going to be applied to a commercial 
establishment, the utilization of BTU meters, which are very 
expensive for that low temperature resource which most direct 
applications use, is there an alternative to that?
    Dr. Witcher. One alternative that was tried in New Mexico 
and is done currently with royalties on State land for 
geothermal resource is that a formula was developed that it is 
basically an engineering estimate of what the heat use of that 
greenhouse would be on an average annual basis, and then they 
use that to pretty much do an equivalent 10 percent royalty on 
what that would be equivalent with natural gas. And so that is 
how the formula was applied.
    It works where it is done right now on State land.
    Mr. Gibbons. Doctor, have you compared that process or that 
procedure that you have done in those experimental State 
geothermal resources to the BTU monitors that are on Federal 
geothermal resources?
    Dr. Witcher. Well, the comparison would be that the person 
that has the State lease also has the BTU meters.
    Mr. Gibbons. I would assume that--
    Dr. Witcher. And so he goes to the State lease to produce. 
The BTU meters adds an incredible experience in comparison with 
what he is actually getting out of the cost savings, but the 
other part of that is, is that he knows from year-to-year what 
his royalty payment is going to be. He knows what his payment 
is going to be. It is not something that is going to fluctuate, 
and that fluctuation can of course be done with the rising 
fossil fuel costs or lowering of fossil fuel costs. It can also 
be maintenance just keeping the BTU meters working.
    Mr. Gibbons. Is there any provision to provide a credit 
where people voluntarily use green energy or green resources 
for not producing carbon oxides or nitrous oxides, whatever 
combustion creates into the atmosphere? I mean, there ought to 
be some way that we encourage commercial users that use a 
direct geothermal application from not turning to a less 
expensive, say, natural gas heat. It seems to me that we are 
trying to defeat the purpose we are going for, clean, renewable 
energy resources.
    Would you agree that there ought to be some consideration 
given, then? I guess that is my better question than the way I 
poorly put it before.
    Dr. Witcher. I think a consideration of a green credit 
would be very useful. I really cannot tell you how it may spur 
development with direct use or even electrical power, but--
    Mr. Gibbons. I guess when you get down to choices, and the 
two are weighing very closely together, the better choice would 
be to use clean geothermal energy versus a fossil fuel energy 
source, which then has an atmospheric component to it. So I 
guess that would perhaps weigh differently. In my view, it 
would for this system.
    Let me finally turn to Ms. Connelly, and ask basically, 
when you look at what your industry provides to a community, 
and you said just even at Glass Mountain or whatever, I think 
$2 million a year to the community for direct economic benefit 
of having a geothermal plant in the area.
    When you look at jobs, what average salary would you say 
the geothermal energy employee brings in? I mean, in mining, it 
is $56- to $60,000 a year, an enormously different perspective 
on the average salary than compared to service industries, 
which are in the 20's in Nevada. So what kind of average salary 
does a geothermal energy plant employee bring?
    Ms. Connelly. I do not have the actual numbers. Maybe Karl 
does or, if not, I can get it, but I know that they are all, on 
average, high-paying jobs. First, the construction jobs that 
are the first jobs created are usually very skilled workers. 
There was a time at the top of our economic growth period where 
we could not even find the skilled construction workers we 
needed to build power plants, and we were out there trying to 
train people because there were not enough people with the 
skills.
    So those jobs pay very well, and then the actual operating 
jobs are again technical and skilled in nature, and so, because 
of just the very nature of the job and the requirements, they 
will be high paying. I do not know, Carl, do you have any 
actual average numbers?
    Mr. Gawell. I am just trying to see whether ones in your 
Chico State Study, and I do not find one quickly, but I think 
we could probably inquire--
    Ms. Connelly. I can get back to you with some average 
numbers, but I know that overall, especially if you look at an 
area like Glass Mountain, which used to be dependent on 
forestry, and that industry has really declined, and very few 
jobs have come in to take the place of forestry. Those that are 
there are service-oriented jobs, so it would be a very 
different qualitative and quantitative difference, I think.
    Mr. Gibbons. And how many jobs would you anticipate that 
Glass Mountain alone will bring to the community?
    Ms. Connelly. In the first few years of the construction 
phase, it is usually probably maybe in the hundreds, 2- to 300 
jobs. Once it is up and operating, many fewer jobs just to 
simply operate the power plant, maybe 25.
    Mr. Gibbons. We have a number of additional questions that 
I would ask our panel, when we submit them to you, if you would 
look at them and give us your direct, honest approach in answer 
to and return them to us, as soon as possible. Would that be 
approved by each of you?
    Dr. Witcher. Yes.
    Ms. Connelly. Yes.
    Mr. Gawell. Yes.
    Mr. Gibbons. There are a number of questions that I have 
not gotten to, but I know that each of you have spent great 
time here out of your busy day, and we do want to get the 
answers to these questions as well because they help us 
formulate our opinion, just as your testimony has done here 
today, and they are very important to us, and we will submit 
those questions to you in writing, and we would expect an 
answer in writing as well.
    I see no one else here that wants to ask a question. There 
is no one else here besides me. So, with that, I am going to 
again thank each of you for your presence, for your testimony, 
your enlightenment. It has been very helpful to us as well, and 
we look forward to working with each of you as we move this 
legislation along. If there is some issue or some idea that you 
may see within the legislation that you think would make it 
better or change to make it more workable, we certainly would 
appreciate also hearing your approach to that as well.
    With that, I am going to excuse each of you, with a 
heartfelt thanks, and look forward to a greater dependence in 
this Nation on geothermal energy.
    Thank you very much, and this hearing is now closed.
    [Whereupon, at 3:43 p.m., the Subcommittee was adjourned.]

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