Mr. EDMONDSON. If there is no objection, the statement will be made a part of the record at this point in its entirety, together with the departmental report of May 25, 1967. I would like to suggest, Mr. Secretary, for the purpose of beginning these questions that you read on page 3 your point No. 1 with regard to the grandfather clause, because I think that is getting at the meat of the administration position, and your language appears to be unequivocal on this point. Will you read it, please?

(The prepared statement of Mr. Anderson, referred to, follows:) STATEMENT OF HARRY R. ANDERSON, ASSISTANT SECRETARY OF THE DEPARTMENT OF THE INTERIOR FOR PUBLIC LAND MANAGEMENT

I appreciate this opportunity to express our views on this vital geothermal steam legislation, treated in H.R. 715, H.R. 4740, H.R. 9583 and other related bills, and in the Administration's proposal, which is H.R. 9583.

Geothermal steam is produced from the natural heat of the earth. Its significance to date lies primarily in its potential as an energy source for the production of electricity. Geothermal steam often contains minerals, borax, potash, sodium, silver, etc., in appreciable quantities. In some locations such as the Imperial Valley of California, minerals are believed to constitute sufficient value to serve as an economic factor independent of power generation. Estimates have been advanced that at least ten percent of the worldwide geothermal resource potential exists within the continental United States, the greater majority of which underlies the Western States California and Nevada in particular. There is very little that I can add to what has already been said in past testimony. Therefore, I shall not dwell on it further today, except to say that much of this potential resource can be found on public lands. Before it can be developed, a leasing authority must be enacted. The bills before this subcommittee provide this authority in various ways. Our task today is to devise the best methods for encouraging development through the use of the private enterprise system under terms and conditions that protect the public interest. As a way of throwing the crucial issues into sharper relief, I would like to compare and contrast H.R. 4740 and H.R. 9583, the Administration's bill.

H.R. 3577, H.R. 5283 and H.R. 5778, differ from H.R. 4740, in that they do not contain a "grandfather" clause. H.R. 715 differs from H.R. 4740 by permitting a "grandfather" claimant to get the lease by meeting the high bid after public auction where the land is in a known geothermal resources area.

H.R. 4740 embraces the language of S. 1674 as adopted by the Congress but which did not receive the Presidential approval. We believe that the Congressional action last year and the subsequent review of that action within the executive branch has resulted in a marked improvement over the bill the Department sent to the Congress in 1965.

In our letter of May 25, we furnished a detailed statement on the differences between H.R. 9583 and H.R. 4740.

I would like to comment on the salient differences this morning. Before doing so, however, I think it very worthwhile to start off on those important provisions which are substantially identical:

(1) definition of geothermal steam and associated geothermal resources

(2) minimum royalty

(3) requirement for the beneficial production of byproducts

(4) suspension of operations in the interest of conservation

(5) waiving, suspension or reduction of rental and royalty in the interest of conservation

(6) unitizing geothermal operations

(7) saving clause on water rights

(8) sole authority for lease of geothermal resources.

Now to the differences:

(1) The so-called "grandfather" clause.-H.R. 4740 authorizes holders of mineral leases (or applicants) and holders of mining locations on September 7, 1965, to convert them into geothermal leases. H.R. 715 has a modified "grandfather" clause involving competitive leasing on a known geothermal resource

area.

This Department does not favor any "grandfather" clause. We are unable to endorse rewards for indirections. The arguments advanced to justify attempts to control geothermal resources are not persuasive to us. Also, we cannot see why one who develops a resource on private lands should be rewarded with a preferential right to public resources. We favor the view of H. Report No. 2140, 89th Congress, that everyone would be placed "on an equal footing."

(2) Competitive leasing.-Section 4 of H.R. 4740 provides for both competitive and noncompetitive leasing. H.R. 9583 requires that all leases be issued on the basis of competitive bidding.

We believe that a straight competitive leasing system for this infant program will provide a better standard by which the fair market value of the steam may be obtained. Also, it will tend to hasten development, because of the initial investment in bidding on the lease, and to discourage lessees from holding the leased land for speculative purposes. It is also a objective and equitable means for disposal of public resources.

(3) Duration of Lease.-Section 6(a) of H.R. 4740 provides for continuation of leases after the primary term "for so long thereafter as geothermal steam is produced or utilized in commercial quantities," Section 6(a) of H.R. 9583 provides for a maximum term of 60 years, if geothermal steam is produced or utilized in commercial quantities for that period of time. We had recommended in 1965 that the maximum term be 100 years. On further analysis, however, we believe that 60 years is ample and will afford sufficient time for a lessee to amortize his investment.

Section 6(a) of H.R. 4740 specifies a primary term of 15 years to begin production. It also requires a 5-year extension, if, at the end of the 15-year term, the lease was a part of a unit agreement and drilling operations are being diligently conducted at that time. H.R. 9583 limits the primary term of leases to a period of 10 years. Also, it eliminates the provision for an extension of the primary term for another five years where actual drilling is begun during the primary term. Ten years is an adequate time to obtain producing status.

(4) Acreage limitations.-Section 7 of H.R. 4740 permits a lessee to hold geothermal leases in any one State aggregating 51,200 acres. The maximum acreage in section 7 of H.R. 9583 is 10,240 acres. The latter authorizes the Secretary of the Interior to raise the maximum holding in any State after 15 years and after hearings.

No one person should be permitted to control so much of the geothermal re source in any one State, at least in this embryo stage of development of the resource. It may be proved at a later date that is, after we have gained some meaningful experience in this field-that this acreage limitation should be raised H.R. 9583 provides a workable method for doing just that.

(5) Renegotiation.-Section 23 of H.R. 4740, by authority granted to the Secretary to issue regulations, impliedly permits the Secretary to require, by regulation, periodic renegotiation of geothermal leases. Section 8 of H.R. 9583. on the other hand, requires the Secretary to include a renegotiation provision in each lease and to provide for the exercise of that authority at such reasonable intervals as the Secretary may prescribe by regulation. Under this provision, the Secretary could adjust the lease terms, including rentals and royalties.

We had recommended a 5-year readjustment period in the 88th and 89th Congresses. On further analysis, however, we believe that a 5-year period is too short to encourage investment capital. Also, we believe that it would be unfortunate to establish, by statute, a fixed period because experience may indicate a need to have longer or shorter intervals. Accordingly, the bill requires the Secretary to establish the intervals by regulation. In establishing these intervals. we would consider the effects on the investor and our experience in this field and the technological advances made.

Closely related to the consideration of these bills is the Department's recent actions to protect geothermal resources. Both Congress and the Executive have recognized the value of the geothermal resources. Both desire statutory authority for leasing geothermal resources.

On February 7, 1967, we had the BLM file an application for withdrawal to protect the resources. At that time we did not have an exact reading on the precise location of geothermal potential precise criteria to classify public lands having such potential.

Our initial action was therefore broad and general.

As soon as criteria could be established and lands classified, the application was amended. This was done March 21. At present, some 600,000 acres of public lands are covered by the application. The use of those public lands by lease, permit or license will continue subject to the narrow exception of situations where the geothermal resources would be adversely affected or its development or utilization hindered. For the most part, customary uses of the surface are continuing, i.e. grazing, outdoor recreation, mineral leasing timber culture. Mining locations and land disposals, however, are precluded.

This withdrawal matter will, of course, be subjected to further review as soon as the provisions of the pending legislation are finally established. Enactment of a geothermal steam bill with appropriate provisions, as we see it now, would seem to alleviate any need for a withdrawal.

Hon. WAYNE N. ASPINALL,

U.S. DEPARTMENT OF THE INTERIOR,

OFFICE OF THE SECRETARY, Washington, D.C., May 25, 1967.

Chairman, Committee on Interior and Insular Affairs,
House of Representatives, Washington, D.C.

DEAR MR. ASPINALL: Your Committee has requested the report of this Department on a series of bills (H.R. 715, H.R. 3577, H.R. 4740, H.R. 5283, and H.R. 9583) "To authorize the Secretary of the Interior to make disposition of geothermal steam and associated geothermal resources, and for other purposes."

We recommend the enactment of H.R. 9583. That bill is identical to the Administration's proposal which was transmitted to the Speaker of the House of Representatives on February 2, 1967. We urge its early enactment.

H.R. 4740 is identical to S. 1674 which was adopted by the 89th Congress and which was disapproved by the President. We are enclosing a statement and comments of the differences between H.R. 4740 and H.R. 9583 for your Committee's convenience.

H.R. 3577 differs from H.R. 4740 in one respect. It does not contain a "grandfather clause." We believe that this change is very desirable, but we also believe that there are other provisions in the bill that need to be changed substantially. These changes are shown in the Administration's bill.

H.R. 715 also differs from H.R. 4740 in one respect. It adds to the "grandfather clause" a new subsection requiring that where lands subject to conversion rights are within any known geothermal resources area, they shall be leased competitively. The person entitled to a conversion, however, may obtain the lease if he meets the highest bid plus the rental for the first year.

This Department opposes even a modified "grandfather clause" in this legis. lation. We are unable to support a legislative approach that would reward some individuals who gain access to the public domain by subterfuge with a preferential right to a lease for a resource they may have been seeking as mineral lessees or mining claimants. Nor, do we believe that one who discovers a resource on private lands should be rewarded with a preferential right to a lease on nearby public domain. We believe, as your committee's report of last year states (H. Report No. 2140, 89th Cong.), that everyone should be placed "on an equal footing" for a lease.

It is our strong belief that H.R. 9583 will provide for the wise development of geothermal steam and associated geothermal resources by private enterprise, and will encourage the conservation of this very significant resource. We believe that the congressional action of last year and the subsequent review of that action within the executive branch have resulted in the drafting of a bill that is a marked improvement over the bill the Department sent to the Congress in 1965. It will, in our opinion, provide for effective administration and further the development of the public domain through the private enterprise system. We are optimistic that the forthcoming hearings will provide the basis for legislation that will result in the enactment of a satisfactory measure for the disposition of geothermal steam and associated geothermal resources within the Federal lands. The Bureau of the Budget has advised that this legislative proposal is in accord with the President's program.

Sincerely yours,

HARRY R. ANDERSON, Assistant Secretary of the Interior.

BRIEF STATEMENT AND COMMENTS THEREON OF THE DIFFERENCES BETWEEN H.R. 9583 AND H.R. 4740

1. Section 4 of H.R. 4740 permits the holders of mineral leases or permits, or applicants therefor, on Federal lands as of September 7, 1965, and the holders of mining locations as of the same date, to convert them into geothermal leases. H.R. 9583 does not have a similar provision.

A number of persons have sought to develop geothermal steam on federally owned lands but could not do so because no statutory authority existed. Some individuals turned to the mineral leasing laws and the mining laws, even though these laws were not applicable to geothermal steam. Under H.R. 4740, these people would obtain a preferential right for a geothermal lease as against anyone who decided to await the enactment of a statutory scheme for the development of this resource. We believe that it is not in the best interests of this latter category of people or of the United States to permit these people to secure an advantage over other persons through the misuse of these other laws. Everyone should, as H.R. 9583 provides, be placed on an "equal footing" relative to obtaining a geothermal lease.

2. Section 7 of H.R. 4740 permits a lessee to hold geothermal leases in any one State aggregating 51,200 acres. The maximum acreage in H.R. 9583 is 10,240 acres. It authorizes the Secretary of the Interior to raise the maximum holding in any State after 15 years and after hearings.

No one person should be permitted to control so much of the geothermal resource in any one State, at least in this embryo stage of development of the resource. It may be proved at a later date that is, after we have gained some meaningful experience in this field-that this acreage limitation should be raised. H.R. 9583 provides a workable scheme for doing just that.

3. Section 5 of H.R. 4740 requires that the steam be "sold or utilized" as a basis of royalty. H.R. 9583 broadens this requirement to provide that the lessee also shall pay a royalty on steam which is reasonably susceptible of sale or use by the lessee, as determined by the Secretary of the Interior.

4. While H.R. 4740 would authorize the Secretary to require by regulation periodic renegotiation of geothermal leases, specific authority mandating such renegotiation is desirable as an expression of legislative policy. H.R. 9583 provides such specific authority.

It requires the Secretary to include a renegotiation provision in each lease and to provide for the exercise of that authority at such reasonable intervals as the Secretary may prescribe by regulations. Under this provision, the Secretary could adjust the lease terms, including rentals and royalties. We had recommended a 5-year readjustment period in the 88th and 89th Congresses. On reconsideration, however, we believe that a 5-year period is too short to encourage investment capital. Also, we believe that it would be unfortunate to establish by statute a fixed period, because experience may indicate a need to have longer or shorter intervals. Accordingly, the bill requires the Secretary to establish the intervals by regulation. In establishing these intervals, we would consider the effects on the investor and our experience in this field and the technological advances made.

There is a precedent for such readjustment of the terms and conditions of a lease in the case of coal (30 U.S.C. 207), phosphate (30 U.S.C. 212), and potash (30 U.S.C. 283). Oil shale lease royalties are subject to readjustment also (30 U.S.C. 241).

5. Section 6 of H.R. 4740 provides for continuation of leases after the primary term "for so long thereafter as geothermal steam is produced or utilized in commercial quantities." H.R. 9583 provides for a maximum term of 60 years, if geothermal steam is produced or utilized in commercial quantities for that period of time. We had recommended in 1965 that the maximum term be 100 years. On reconsideration, however, we believe that 60 years will afford ample time for a lessee to amortize his investment.

6. Section 6 of H.R. 4740 specifies a primary term of 15 years to begin production. It also requires a 5-year extension, if, at the end of the 15-year term, the lease were to be part of a unit agreement and drilling operations are being diligently conducted at that time. H.R. 9583 limits the primary term of leases to a period of 10 years. Also, it eliminates the provision for an exte sion of the primary term for another 5 years where actual drilling is begun during the primary term. Ten years is an adequate time to obtain producing status.

7. Section 4 of H.R. 4740 provides for both competitive and noncompetitive leasing. H.R. 9583 requires that all leases be issued on the basis of competitive bidding. Consequently, there is deleted the definition of the term "known geothermal resources area" in section 2(e) of H.R. 4740 and the provisions for Federal Register publications of known geothermal resources areas in section 20(a) of H.R. 4740.

In our letter of July 21, 1965, transmitting geothermal steam legislation to the Congress, we said:

"We firmly believe that in the long run adherence to competitive leasing for all geothermal resources would be in keeping with the public interest by providing a wholly objective standard by which the fair market value of the rights acquired by a geothermal steam lease may be obtained. Competitive leasing also would tend to promote actual development, with concomitant economic gains to the West, in contradistinction to the acquisition and holding of leases for possible appreciation of the value of the rights derived from such a lease."

We still believe that this is the best approach, and it is consistent with the President's desire that we follow "a policy of prudence and reason in the leasing of Federal lands to develop this resource.'

8. Section 2(d) of H.R. 4740 defines the term "byproduct" to include all minerals with three exceptions found in steam. It also establishes the criteria that such minerals must be valued at less than 75 percent of the geothermal steam value or must not be of sufficient value to warrant extraction and production apart from geothermal steam.

H.R. 9583 deletes these criteria because the bill makes no provision for the disposition of the minerals if they, in fact, do not meet either criteria. Further, we may not be able to apply these criteria, because of a lack of knowledge relative to the value of the minerals, until production begins. At that time, H.R. 4740 and H.R. 9583 automatically provide for a continuation of the lease without regard to the value of these minerals. The implication which we draw from section 2(d) of H.R. 4740 is that the lease could not be continued. We doubt that such a provision would encourage investment.

9. Section 25 of H.R. 9583 requires that when lands subject to geothermal leasing under section 3 of the bill are patented or otherwise conveyed, including transfers by grant or by operation of law, and one or more minerals are reserved by the United States, this reservation shall also embrace geothermal steam and associated geothermal resources. Similarly, if another provision of law prevents or restricts the disposal of lands subject to geothermal leasing under the bill because of the mineral character of the land, the bill provides that the mineral character shall embrace geothermal steam and associated geothermal resources also. Thus, under this section where another statute requires that any land covered by this bill be conveyed or transferred with a reservation of all minerals to the United States, e.g., the Recreation and Public Purposes Act, as amended (43 U.S.C. 869-1), and the Small Tract Act, as amended (43 U.S.C. 682b), such reservation will include geothermal steam and associated geothermal resources. Where a statute requires a reservation of a particular mineral or minerals only if the lands involved are prospectively valuable or valuable therefor, e.g., the Act of July 17, 1914, as amended (30 U.S.C. 121-123), the instrument of conveyance will contain a reservation to the United States of geothermal steam and associated geothermal resources where the lands are valuable or prospectively valuable therefor.

This provision will not affect lands conveyed or transferred prior to the date of enactment of this bill. We believe that this provision is necessary, particularly when section 22 of H.R. 4740 (section 23 of H.R. 9583) explicitly contemplates that all rights to develop and utilize geothermal steam and associated geothermal resources underlying Federal lands shall only be acquired under this legislation In connection with this provision, section 3 of H.R. 9583 contains a clause which specifically authorizes the Secretary of the Interior to issue geothermal leases in cases where the surface ownership in Federal lands has been disposed of but the United States retains the geothermal steam and associated geothermal resources underlying such lands.

10. Section 5(b) of H.R. 4740 provides for the payment of royalties on byproducts. In the case of byproducts listed in section 1 of the 1920 Mineral Leasing Act, this section provides that the minimum and maximum rate of royalty should be the same as in the 1920 Act. H.R. 9583 does not have a reference to the maximum rate of royalty.