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88-467 PS 2003

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

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

or 

Committee address: http://resourcescommittee.house.gov 

(II)

COMMITTEE ON RESOURCES 

RICHARD W. POMBO, California, Chairman 

NICK J. RAHALL II, West Virginia, Ranking Democrat Member

Don Young, Alaska 

W.J. ‘‘Billy’’ Tauzin, Louisiana 

Jim Saxton, New Jersey 

Elton Gallegly, California 

John J. Duncan, Jr., Tennessee 

Wayne T. Gilchrest, Maryland 

Ken Calvert, California 

Scott McInnis, Colorado 

Barbara Cubin, Wyoming 

George Radanovich, California 

Walter B. Jones, Jr., North Carolina 

Chris Cannon, Utah 

John E. Peterson, Pennsylvania 

Jim Gibbons, Nevada, 

Vice Chairman 

Mark E. Souder, Indiana 

Greg Walden, Oregon 

Thomas G. Tancredo, Colorado 

J.D. Hayworth, Arizona 

Tom Osborne, Nebraska 

Jeff Flake, Arizona 

Dennis R. Rehberg, Montana 

Rick Renzi, Arizona 

Tom Cole, Oklahoma 

Stevan Pearce, New Mexico 

Rob Bishop, Utah 

Devin Nunes, California 

Randy Neugebauer, Texas 

Dale E. Kildee, Michigan 

Eni F.H. Faleomavaega, American Samoa 

Neil Abercrombie, Hawaii 

Solomon P. Ortiz, Texas 

Frank Pallone, Jr., New Jersey 

Calvin M. Dooley, California 

Donna M. Christensen, Virgin Islands 

Ron Kind, Wisconsin 

Jay Inslee, Washington 

Grace F. Napolitano, California 

Tom Udall, New Mexico 

Mark Udall, Colorado 

Anı ́bal Acevedo-Vila ́, Puerto Rico 

Brad Carson, Oklahoma 

Rau ́l M. Grijalva, Arizona 

Dennis A. Cardoza, California 

Madeleine Z. Bordallo, Guam 

George Miller, California 

Edward J. Markey, Massachusetts 

Rube ́n Hinojosa, Texas 

Ciro D. Rodriguez, Texas 

Joe Baca, California 

Betty McCollum, Minnesota

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 

Chris Cannon, Utah 

Jim Gibbons, Nevada 

Mark E. Souder, Indiana 

Dennis R. Rehberg, Montana 

Tom Cole, Oklahoma 

Stevan Pearce, New Mexico 

Rob Bishop, Utah 

Devin Nunes, California 

Richard W. Pombo, California, ex officio 

Eni F.H. Faleomavaega, American Samoa 

Solomon P. Ortiz, Texas 

Grace F. Napolitano, California 

Tom Udall, New Mexico 

Brad Carson, Oklahoma 

Edward J. Markey, Massachusetts 

VACANCY 

Nick J. Rahall II, West Virginia, ex officio 

(III)

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

(1)

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 

2

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. 

3

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 

4

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. 

5

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. 

6

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. 

7

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 

8

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 NearTerm 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? 

9

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— 

10

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 answer- ing 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 

11

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 

12

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? 

13

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.] 

14

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. 

15

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. 

16

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. 

17

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. 

18

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 

19

1Princeton Economic Research, Inc., Review of Federal Geothermal Royalties and Taxes, December 15, 1998. (Figures expressed in 1998 dollars.) 2See Table 2 attached. 

3Statement of Karl Gawell, Executive Director of the Geothermal Energy Association, Before 

theHouse Committee on Resources, March 19, 2003. 4 30 USC Section 1001(e) 

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. 

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

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. 

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

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 

20

5 Email communication from Kevin Rafferty, Associate Director, Geo-Heat Center, Klamath 

Falls Oregon, February 24, 2004. 

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

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. 

21

6For 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. 

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. 

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. 

22

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 

23

7See 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. 

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

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.

24

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. 


88467.001
25

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 

26

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 directuse 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. 

27

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 directuse 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 directuse 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 temVerDate 0ct 09 2002 11:43 Nov 04, 2003 Jkt 087420 PO 00000 Frm 00031 Fmt 6633 Sfmt 6621 J:\DOCS\88467.TXT HRESOUR1 PsN: KATHY
28

peratures. 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 directuse 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. 

29

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 

30

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 

31

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 

32

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 

33

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. 

34

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. 

35

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. 

36

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? 

37

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 

38

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 

39

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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