FIRST SUMMER SESSION 1981 ENERGY REGULATION GEOTHERMAL ENERGY An Overview of Technology, Legislation, Regulation and Litigation Presented to: By: Professor Ahrens Sandy Livengood July 10, 1981 GEOTHERMAL ENERGY AN OVERVIErJ OF TECHNOLOGY, LEGISLATION, REGULATION AND LITIGATION I. Introduction Geothermal means heat from the earth. This heat comes from several sources, the most prevalent is that from the fiery core of the earth which reaches an estimated 2000°c. This molten core is knovm as the magma and is believed to have been caused by a buildup of insulated heat from radioactive decay over an extremely long period of time. Another theory accounts for the molten core by postulating that it never cooled after the original formation of the planet. Other high heat sources have possibly been caused by the action of the earths plates and the friction caused between them as they move. Heat flows from the magma to the earths surface over its entire surface, though over most of the surface the insulating. qualities of the earth rock and material allow only a fraction of the heat to escape. In certain areas the solid rocks have faulted and allowed the magma to rise closer to the surface, resulting in volcanic action where it actually reaches the surface. In other areas it reaches a point relatively near the surface. These areas then become areas of potential geothermal energy due to a much higher thermal gradient. Over most of the surface in the United States the average thermal gradient (temperature J> • increase) is about 25°C for each kilometer in depth, after passing about 100-250 meters from the surface. 00260 II. Types of Geothermal Energy Available The primary potential of Geothermal Energy is that which is recoverable from steam-and hot water.- Generation of electrical energy by using the steam and hot water in turbines has been the primary focus of the successful commercial and experimental research. Of present usage a very large majority is used in manu- facturing of electrical power, due to the high loss of heat when used as a direct source of heat for home and business heating. Even though Iceland, Hungary, USSR and New Zealand are presently making extensive use of non-electrical applications it is not expected that this \till prove to be a feasible use in the great maiority of cases in the United States. In the United States there are four primary types or sources available for potential geothermal energy exploitation. Dry steam is presently being utilized for electrical generation at The Geysers in California. This site is presently producing 500MW or more, this amount is considered adequate to supply the electrical needs of a city of at least a half-million inhabitants. 1 As water seeps from the surface through faults,down-ward toward the molten magma it becomes super heated, and converts to a very high pressure steam which then attempts to escape and sometimes become trapped in pockets within the earth. These pockets of superheated super- pressurized steam are then capable of being tapped by wells from the surface. Recovery of the dry steam is most economical and conversion to electricity is fairly inexpensive and technologically • simple. • The most important problem with this resource is its relative rarity. Wet Steam reservoirs are perhaps more common and more readily 00?6~ -~ - exploited. The formation of this asset involves primarily that of seepage of ground water into the natural faults and its downward movement for long-periods of time till the encounter with a heat source. After being heated to temperatures of 320°C or higher it is normally pushed back upward in the form of superheated water or as highly pressurized steam. Reservoirs are formed when the super heated substance is trapped under a layer of impervious caprock. If the reservoir is located near enough to the heat source with resultant reheating, the natural tendency of water to circulate in columns also reduces the dispersion of heat into the surrounding rock strata. 2 This resource is usually recovered from wells and is flashed into steam upon reaching the surface. Geopressured reservoirs are found along the Texas and Louisiana Gulf Coast.3 These deposits were laid down primarily as sedimentary waters and as magmatic and conate waters. As the water was covered by layers of clay the pressure of the overlying sediment caused additional water to be squeezed from the clay, which in turn formed an impervious shale which acted as a caprock, retaining the water in the strata.4 Since both water and shale are very poor conduc- tors of heat and have a high heat storage value, the natural conduction of heat from the underlying magma and the direct heating by the tremendous pressure created by the overburden has increased the temperature of the formations to as high as 200-300°C. The quantity of water in these reservoirs is believed to be enormous, ~ • lying in multiple layers, each as much as 1200 feet thick and covering as much as several hundred square miles.5 This asset is unique in that there are at least three sources of energy and possibly fresh water and in some cases even paying quanti ties of minerals to be recovered. The very high pressure of the water may be sufficient to provide direct recovery of energy and conversion to electrical pov1er vvith as high as a 9096 efficiency. 6 Vfuile the water may not be as hot as that found in other geothermal areas, the heat is believed to be sufficient to account for as much as half the energy available in the deposit.? The water in the reservoirs located thus far, are saturated vvith dissolved methane gas which may be recovered after the water has performed its geothermal task. 8 Vfuile the area in question has been extensively drilled and the geological conditions fully developed and maped li t_tle actual analysis was made for geothermal energy purposes, since the pressurized water deposits were considered only a danger and a nuisance to the function of drilling and developing the underlying oil and natural gas deposits. The most common but probably least efficient of the known geothermal sources is the dry hot rock deposit. Rock in the earth's crust ,overlying an upthrust or pocket of magma is heated to ternperature of 300°c.+, normally without~an association of water or with water in very small quantities. In other cases the heat source may be the radioactive decay of granite or other decaying rock. The later action while more vddespread is much less efficient in terms of electrical generation due to the much lower temperature available, usually not exceeding about 90°C. Recovery of the resource involves the drilling of wells, ~ • fracturing the heated rock, and using a water circulation to withdraw the available energy. Numerous areas in the Western United States and along the western area of the Texas Big Bend area are believed to be sources of this type of energy.9 Certain areas along the eastern seaboards may also be found to be productive of this res?ur~e. R~covery of this resource where the available temperature is below the optimal temperature, (90-150°C.) for direct use in steam turbines vall require a more sophisticated and costly technology using a binary closed system. In this system the heated fluid will in turn be used to heat a fluid with a boiling temperature much lower than that of water. The fluid, such as freon or isobutane vdll then be used to drive the generating turbine, cooled and recompressed for reuse. While the heat of the earth's interior seems to be, at least in the prospective age of man, an inexhaustable resource, the knovm deposits of Dry and \Vet Steam and geopressured water have been estimated to last variously, if produced to their hypothetical maximum, to be able to produce the extrapolated electrical needs of the nation from 20 or 40 to 200 years. 10 The use of Hot Rock resources technology would appear to have economical value almost to infinity. Perhaps with the further development of drilling techniques, to develop deeper and hotter resources and the recharg--ing of steam reservoirs they too might be useful for even longer periods. III. Environmental Considerations The production and use of geothermal energy is by and large considered to be a non-polluting source of power, and hence has ") generated a great deal of enthusiasm for its development. Compared to the pollution, land destruction and other environment degrading aspects of fossil fuel generating facilities, this is undeniably true. However there are several aspects which must be considered in the geothermal field. Among these are "possible land subsidance, seismic activity, air pollution resulting from the discharge of non-combustible gases such as hydrogen sulfide, high noise levels of drilling and poner plant operation, and mineral or thermal pollution of surface and ground waters." 11 The possibility of land subsidence appears to be a function of the type of production and to a greater extent the geological formations overlying the deposit. As in certain oil fields where the production was not accompanied by reinjection of water or other fluids to maintain pressure, some evidence of subsidence hac-occured. In The Geysers field and at the Landerello Field in Italy no subsidence has been observed, 12 in these fields the aquifier appears to be fractured rock. Where the aquifier is a porous medium such as in the field at Waireikei in New Zealand1 3 the subsidence has amounted to as much as 3.7 meters (12 feet) between 1956 and 1978. 1 4 The subsidence has appeared not only in the immediate area of production but also has extended to large areas overlying the entire deposit. Seismic activity has occured in and surrounding most of the producing geothermal installations, including The Geysers and the field in the Imperial Valley of California. Microearthquakes measured both before and after production began, usually 1uere on the order of 4.0 or less on the Richter scale, seemingly occurred more frequently than in the surrounding areas. - magnitudes in the surrounding area may be Even though the 4.5 or higher on the scale the effect of these quakes do not seem to enter the actual reservoir area. 1 5 In Colorado when fluids were pumped into a deep ooe6~ well located in the Rocky Mountain Arsenal Area, an apparent increase of minor activity was recorded,l6 but no major movement was thereafter recorded equivalent to that which had previously been recorded. The danger of seismic activity by other than subsidence appears to be rather slight in areas where the normal activity is normally low. Air pollution has occured at The Geysers due to hydrogen sulfide, the effects of this pollutant have been confined to a slight discomfort due to the odor (rotten eggs) and to eye irritation when the levels reached a higher level during early periods of the operation. The effects could, if the concentration were to become high enough, result in sickness and even death. This hazard has not been found to date and the minor concentrations rapidly disappear since it converts readily into other compounds of sulfur and particulates. 1 7 Ammonia is found in geothermal steam at levels too low to constitute a hazard directly but may be a hazard if combined with other .~ompounds to produce a toxic substance. 18 Carbon Dioxide is sometimes present in undiluted geothermal steam in levels at twice the normal deadly level if breathed directly. However it too is readily dispersed in the atmosphere and does not constitute a threat outside a confined space, other than to workers within the plant. Mercury and Radon are also found in some geothermal steams. the steam poses a danger to the environment Mercury when found ,. in • when not removed from the steam prior to being released into the atmosphere. Radon even though it has a short half life of 3.82 days may breakdo\m into another radioactive substance which is 0026G suspected of causing cancer. The state of California has set a maximum standard for Radon-222 releases into the atmosphere. 1 9 During certain -periods of the day and year some increase in fog has been noted, at The Geysers, due to an increase of humidity in the atmosphere. Dust during the drilling and construction period may also be considered a problem in inhabited areas. Pollution of ground water in the United States has not posed a significant problem in the areas being utilized to this time due to appropriate sealing of the strata and proper disposal of the spent geothermal fluids. In the case of the new Zealand plant the spent steam has been discharged into a stream after being only slightly cooled and has resulted in a significant increase in the temperature of the water and an increase in the amount of fog near the plant. 20 This aspect of the geothermal system could pose a serious problem if the fluid itself contained large quantities of non-recoverable toxic substances or minerals. However most of the reservoirs discovered to date appear to contain either fresh water or relatively low levels of noxious substances which are readily recoverable. The relatively large amounts of thermal fluids have been disposed of by use of cooling towers and evaporating ponds. Noise pollution may be divided into two distinct phases, drilling and production or generating. During the drilling phase of a dry steam well only a relatively slight portion of the well is nor~ally completed by the usual mud method as used in oil and ~ gas wells. • The deeper phases are completed by the use of com- pressed air cooling and clean out. The air drilling phase results in sound levels as high as 120 dB(A). 00267 After completion of the dry steam well it usually is allowed to "blow" from 3 to 6 days as a clean out process and may produce sound levels as high as 118 dB(A). Drilling noises are a problem for two to three months on a 24 hour a day basis. The wet steam well however, may be completed using the usual mud drilling process which mru{es considerably less noise and usually is completed in 30-45 days. 21 The second phase of noise pollution, the production and generation phase, is normal for an electrical generation facility vdth the addition of various occasions of released steam and a few other type specific maintenance additions. With the exception of those plants constructed near or within populated centers the effect of noise pollution should be minimal except for the required ear protection for the employees of the facility and the apparent problem of scaring the wildlife. Other environmental considerations which are common to all industrial development should also be considered prior to any program of licensing, permitting or development, as well as site specif~c IV. considerations. Legislation and Regulation A large percentage of the knovm and prospective sources of geothermal resources are located in the western states (60;6 or more) and Alaska. Of these locations many are to be found on land which is still ovmed by the federal government or in which the 22 government has retained the mineral estate. l> • In an effort to encourage a rapid and orderly development of geothermal resources in the above mentioned areas the congress passed the Geothermal Steam Act 2 3 in 1970. Initially, implementation 00~63 ,· and regulatory authority was granted to the Secretary of the Interior, later upon organization of the Department of Energy the secretary of that department shares in the regulation of development and distribution of energy obtained from geothermal sources. Leasing of public lands is by the Bureau of Land l1anagement and is primarily divided between Competi tive 24 and Non Competitive 2 5 leasing. Competitive Leases are required in Knovm ad~inistered Geothermal Resource Areas (K.G.R.A.) The requirements for appli- cation bid and priority are simililar to those in the mineral, oil and gas leasing process. The Director of the Bureau of Land Management has the final authority of acceptance or refusal of all bids 2 6 however as vdth all administrative discretionary , - actions the decision is subject to appeal in this case to the Interior Board of Land Appeals (IBLA). A KGRA is determined by the Director, Geological Survey 2 7 on the basis of: (1) Geological and technical evidence, (2) discoveries of geothermal resources nearby and (3) non-compGtitive interest in a particular area. An area may be designated as a KGRA vdth an effective date ' retroactively on the basis of any of the above enumerated evidence. Therefore in case of non-competitive interest in an area the director may declare the location a KGRA which requires competitive leasing procedures. The limitation on maximum acreage in each non-competi- tive lease is set at 2560 acres (4 sections) in a reasonably compact shape not more than 6 miles long or wide, and must include all of the acreage in each section which is available for lease. 28 • This acreage limitation may exceed by lO~j whenever the rule of approximation applies due to an irregular survey or non ovmership of an entire section. 00-269 As noted above the size of each lease is limited, each person or leasing entity is additionally limited to a maximum of 20,480 acres (32 sections)· in-each state. Conversion of previously obtained mineral leases avvarded under prior legislation is limited to a maximmn of 10,240 acres (16 sections). Leasing terms and procedure are similar to those of a normal government oil and gas lease concerning environmental protection, production, use and abandonment, the normal term is for 10 years vli th preferential terms on renewal. On a competitive lease the rental will be determined by the maximum bid. While no minimum bid is prescribed it should be assumed that the Director, BL:t-1 would refuse any bid which is below that required in a non-competitive lease, which requires a minimum of $1.00 per acre per year. 2 9 Royalties of 10% minimum and 15% maximum are required on the value of the steam produced from the lease. A 5% royalty is required on the value of any by-product, including de-mineralized water sold off the premises. In an effort to encpurage early production by the 1 essee the yearly lease rate is subject to a waiverable escalator clause. In the event of prod- uction the yearly rental is automatically raised to the greater of $2.00 per acre or the royalty percentage as stated above.30 After exploration has been completed and production of steam or other geothermal resource has begun, and prior to usage in a power production facility the operator must secure a permit from the area Geothermal Supervisor, • • u.s. Geological Survey for use of acreage on which to build and maintain a power production facility, in any case in which the facility or lease will produce more than 10 NW maximum. 3l Where the lands in question are under 00270 ,· the control of an agency other than the BLH the regulations of that agency must be met as well as the rules of the Federal Energy Regulating Commission (FERC).3 2 Once issued the license is normally granted for a period of 30 years with a preferential right to renewal.33 In 1974 Congress, during a period of oil and other energy shortages, noted the lack of progress and development in the geothermal energy area. Realizing that difficulty in gaining adequate development capital was one of the primary problems slowing the potential development in the field, Congress passed the "Geothermal Energy Research Development and Demonstration Act. u34 ImP-lementing authority was given to the Geothermal Energy Coordination and Management Project acting under joint supervision of the Department of the Interior, National Aeronautics and Space Administration, The Atomic Energy Commission and the National Science Foundation. After establishment of the Department of Energy the sole responsibility was transferred to that department. One of the key provisions in this act was the Loan guaranty program. 35 "The objective of the federal geothermal loan guaranty program are: (a) To encourage and assist the private and public sectors to accelerate development of geothermal resources vdth environmentally acceptable processes by enabling the Secretary in the exercise of reasonable judgment to minimize a lenders financial risk that is associated with the development of nev1 geothermal reservoirs and with the application of new technology; • • (b) To develop normal borrower-lender relationships which \till in time encourage the flow of credit for geothermal energy projects without the need for Federal assistance; and (c) To enhance oo~:: . I competition and encourage new entrants into the geothermal market.n3 6 In order to accomplish the above described objectives the Secretary of the Department of Energy is authorized to guarantee loans from private lending institutions for the development of geothermal energy. These guarantees are basically in an amount not to exceed 75% of the total aggregate of the estimated costs of the project and guaranteeing an amount not in excess of $100,ooo,ooo.oo for any one project or $20o,ooo,ooo.oo for any single borrower when that borrower is engaged in a multiple of projects. The guaranty application and supervision is subject to the normal bureaucratic stipulations and requirements, which include the requirements for the filing of plans, environmental impact statements, health and safety requirements, equal employment opportunity agreements, etc. After filing of all the above plans and paperwork the application is still the subject of preferential considerations. Priorities include in descending order: those areas which show the most promise of success, projects utilizing new technology, areas only partially developed vdth subsequent lower priorities for exploration, and aquisition of land or leases. Priorities within the above priority categories are those in which a lender is lending \dthout a guarantee for the full authorized amount and those applications which are submitted by small public and private • • entities, and probably most important, where the Federal government vdll receive a royalty pa~nent upon production.37 Probably the most important portion of the body of Federal law and regulation to the developer are §263 and §?805 of the Internal Revenue Code.3 8 This portion of the code allows the developer to treat his-expenditures in exploration similar to that allowed the oil and gas industry. The Developer/Taxpayer has the option of claiming most of his non-salvageable cost in the entire process as either expenses or of making them a part of his capital investment and amortizing the expense over a period of years. Great care should be used in making the determination ho·wever since some i terns must be expensed and some must be capitalized and on those which are optional, it appears that the decision once made is irrevocable. In 1975 the Texas legislature enacted the Geothermal Resources Act39 giving general supervisory powers over development and conservation to the Railroad Commission. The act required the Commission to enact regulations in conjunction with the Quality Board and the Air Control Board.4° ~Yater The act additionally empovrered, without directing, the Commissioner of the General Land Office to lease Public School Land to persons or entities desiring to explore and develop potential geothermal resources.41 Wildlife refuges and recreational facilities were specifically excluded from this authority. Competitive bidding is required except in cases involving public entities, both state and federal, desiring to perform exploratory or experimental research in the geothermal field of technology. In Texas the only other pertinent legislation apparently, • presently in for;e is the Energy Development Act of 1977.42 The act established the "Texas :Energy and Natural Resources Advisory Council" composed of 21 members named in the act or appointed by I various named parties. Some of the more important duties of the council are to administer the Energy Development Fund (no more than $5 million) established by the act and to receive and administer gifts and donations to the fund. The stated purpose of the fund includes development of sources of energy sufficient to meet the needs of the state within the succeeding 25 years and thereafter. v. Litigation The landmark case concerning ovmership of geothermal energy resources is United .States v. Union Oil Co, 43 The question before the court was ownership of the geothermal waters below land which had been patented under the Stock-Raisers Homestead Act of 1920.44 The Stock-Raisers Homestead Act contained a clause requiring the United States to retain title to "all the coal and other minerals in the lands, u45 The court found that while the term minerals did not normally imply water, that the dominant use of the waters in question was not for the usual use of water, i.e. as water for .. ' livestock or for human consumption, but rather should be viewed as a substance providing power. The court ruled in favor of the retention of the rights in the United States, in effect, deciding that the reserv·ation of minerals in the original patent included geothermal water as sui generis v1hen included as an extention of coal as a power producing medium. Expostulating . from the decision in Union Oil Co. a potential • lessee of privately o\~med lands would expect to find that in any case where a prior O\mer had reserved all or any portion of the minerals or where the minerals had been previously leased, the ( geothermal waters would also be subject to an encumberance based on the dominant use of the product. In Texas the rule-would have been toward private ownership in most cases unless public ownership could be proven in the case of a defined water course under the Texas Water Code.46 Under decisions in Acker v. Guinn47 and Reed v. Wylie48 the courts were concerned in classifying the substance as either surface or mineral when the substance was not specifically mentioned in the deed or lease. The court further looked to the intent of the parties at the time the conveyance was signed, the disruption of the surface estate in developing the mineral estate and the nature of th~ substance to be recovered. It appears that on the basis of this reasoning that the geothermal waters or geopressured waters in Texas would be held to be a mineral on the strength of their dominant use. However the land owner (surface estate) would most likely be compensated for the disruption of the surface estate by power generating facilirties, noise, etc. The latest decision in Sun Oil Co. v. Whitaker49 would, if followed, possibly deny the surface ovmer even that compensation. VI. Concl usiori \ A unique and normally very clean source of energy \Vhich has the potential to greatly increase the amount of electrical power available to the nation and reduce reliance on other depletable l> • resources, which has an extremely long potential life, is in the position of being regulated to a much greater extent than any other source of power was regulated in its infancy with the exception 002¥3 of nuclear energy. This regulation if accomplished rri th a thoughtful and encouraging attitude \rill allow geothermal development to prosper and- become a major s·ource of power. On the other hand it can be regulated by unthinking bureaucrats to the point of uneconomical extinction. Even though Congress had good inten- tions and the Texas Legislature's intentions were probably directed toward rapid development of this resource, whether significant economic development occurs will be a matter of time, emphasis and bureaucratic efficiency in processing and granting the necessary permits and licenses. )o • 00276 ., END NOTES 1. Collie, H.S. Geothermal Energy - Recent Developments, Noyes Data Corporation, Park Ridge, New Jersey 1978 at 2. 2. Dutcher, L.C. et • .§l., Preliminary Appraisal of Ground Water in Storag8 '·vi th Reference to Geotherm~ Resources in he Im eriaJ_ Val e Area California. Washington, D. C.: u.s. Geological Survey (1972 • I d. -Note 5· 6. -I d. 1 supra at 7. at 8. - !d. at 9. -!d. 8. Id, 9. Wilson, J.S. ~.al., An Analysis of the Potential Use of Geothermal Energy for Power Generation AJ ong the Texa~ Gylf Coast, The Texas Division of Dow Chemical, U.S.A, for the Governor's Energy Advisory Council, The State of Texas (1974) at 4· 10. 54 Or. Ia R,ev 623 (1973) at 627. 11. Note 12. Lindsey, M.K. and Supton, P., Geo~hermal Energy, Legal Proble~s of Resource Develoument, Stanford Environmental Lav; Society, Stanford, Californ~a, (1976) at 29. -13. 1 sunra at 35-36. 1lh. 1 supra. at 43· 14. Note 15. 1 supra. at 45· Note 12 supra, at 38. 16. 17. 18. Note 11 sunra. at 59· Note 11 supra. at 60. Note 19. - 20. -I d. at 65. 21. I d.!-. at 56. 22. 43 u.s.c.A. §292. • I d. oo?·-~ I o'• . ' • ·' 23. Pub. L. 91-581, 30 u.s.c. §1001-1025. 24. 43 CFR §3220. 25. 43 CFR §3210. 26. 43 CFR §3220.6(c). 27. 43 CFR §3200.0-5(k). 28. 43 CFR §3203.2. 29. 43 CFR §3205.3-5. JJ. &. 31. 43 CFR §3250.4-2. 32. 43 CFR §3250.5-2~ 33• 43 CFR §3250.6-2. 34· ?fJ usc §1121-1147· 35. 10 CFR §790 Effective December 18, 1979. 36. 10 CFR §790.2. 37. 10 CFR §790.4(b). 38. 26 CFR §5a. 39. Tex. Rev. Civ. Stat.~rt. 5421 now codified as Natural Resources Code s~41. 40. 42. -I d. at 141 •071. I d. at 141.077. -V.A.T.S. art. 4413(47b) 43. 549 F.2d 1271, U.S. Ct. of Appeals, Ninth Circuit (1977). 44. 43 u.s.c.A. §292. 45. .I.9..r.. at §499. 46. Texas Vlater..... Code Ann. §5.001 and §5. 301. 47. 464 SW2d 48. 554 SW2d 169 (Tex. 1977). 49. 483 SW2d 808 (Tex. 1972). 41. 348~· , (1981 Supp.). (Tex. 1971). 0( ~~f") I '-- t