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and for Mr. George Rowan. So you are appearing both for Geothermal Resources International and also on behalf of Mr. Rowan?
Mr. OLPIN. That is correct.
Mr. EDMONDSON. If you gentlemen would make your presentations and then just remain available for questioning, we will bring Mr. Wolter forward after that and hear his testimony, and then we will have questioning of all three of you.
Mr. OLPIN. Excellent.
Mr. EDMONDSON. You may proceed, Mr. Olpin.
Mr. OLPIN. Mr. Gillette will speak first and then I will speak.
STATEMENT OF NOETH B. GILLETTE, PRESIDENT, GEOTHERMAL RESOURCES INTERNATIONAL, INC.
Mr. GILLETTE. Mr. Chairman, honorable members of the committee, my name is Noeth B. Gillette. I am president of Geothermal Resources International, Inc., with headquarters located in Bakersfield, Calif. I wish to thank you for the privilege and opportunity of speaking to you here today concerning H.R. 4740.
Mr. Owen Olpin has preceded me here today with his comments on the mechanics of the proposed legislation. I wish only to ratify his statement, which he has made with his usual skill and alacrity.
It is necessary also that this committee be commended on the patient attitude it has maintained during the weary course that geothermal energy legislation has followed. From the original attempt to amend the Mineral Leasing Act of 1920 to accommodate geothermal exploration, more than 5 years have passed.
During that period the voice of the geothermal industry has increased from a mere whisper, when in 1962 there were but few partisans, until now, when major oil companies are offering suggestions on how the business might be best conducted on the public domain. That voice has increased mightily in volume. While it has increased, it has frequently been both harsh and strident and, in fact, not without an occasional fratricidal overtone.
Mr. EDMONDSON. I might say that we get that in this body now and then, too. There is nothing unusual about that in Washington.
Mr. GILLETTE. There have been times when I have wondered why Congress listened at all. You have, however, and now you have before you a workable bill in H.R. 4740.
There are aspects of any bill that we would change, were we thinking simply of our own interests. We would ask that you increase the acreage limitation markedly; we would suggest that the grandfather provision be carried forward to mover activities conducted as late as the date this bill was signed by the President. Were we to ask for those changes with logic and conviction, we would perhaps merit some attention from you, but we might, in the meanwhile, drag down upon ourselves the wrath of industry spokesmen and succeed in geting no legislation whatsoever. Such procedure would be highly imprudent, and we do not mean to follow it.
It is our plea then, that the legislation be approved in the form proposed in H.R. 4740, for it is our ardent desire not to have to wait another 5 years before commencing geothermal development of the public domain.
We are engaged in an interesting business, one, for example, that has yet to show a profit, although in the recent past more than $15 million have been spent in the search and development of geothermal resources. Of necessity, the vast majority of that capital has been spent on private lands."
Imagine for a moment how the oil industry would operate if it could not enter upon the public domain in its search. We in the West are severely encumbered in our efforts and shall be until a policy for the development of public lands is set by Congress.
Entirely without subsidy-nearly a unique situation in electric power development--we have made sizable expenditures. Upon making à discovery, we do not have pipeline facilities commonly convenient to oil development; we have no ready market such as is available for natural gas simply upon obtaining a certificate of public convenience from the FPC.
Rather, upon determining that we have steam in economic quantities, we must approach utility companies, who for the large part have been most lethargic in their acceptance of geothermal energy, and who would rather build a nuclear plant at far more cost, both in terms of plant and fuel expense.
Still, the last 5 years have demonstrated to us that we are seeking a resource which, if properly developed, will add a major increment of power to the ever-increasing electric energy field in the Western United States. We are willing, indeed eager, to accept the challenges involved in such pioneering. We look to you, however, and to the remainder of the Congress to furnish the tools that will build a new and significant source of electric energy.
Mr. EDMONDSON. Thank you, Mr. Gillette.
STATEMENT OF OWEN OLPIN, ON BEHALF OF GEORGE D. ROWAN OF LOS ANGELES, AND GEOTHERMAL RESOURCES INTERNATIONAL, INC., OF BAKERSFIELD, CALIF.
Mr. OLPIN. Since you have heard the geothermal steam story many times over the years, I propose to file my statement as though read and do not propose to summarize it.
Instead, what I propose to do is simply pose a few questions that have occurred to me as I have heard the administration witnesses throughout the week. And I emphasize these are rhetorical questions and I do not expect answers.
Mr. EDMONDSON. Is there objection to the statement of Mr. Olpin appearing at this point in the record? Hearing no objection, it is so ordered.
Mr. OLPIN. Thank you.
(Prepared statement follows:)
STATEMENT OF OWEN OLPIN, LOS ANGELES, CALIF.
I am Owen Olpin of the law firm of O'Melveny & Myers in Los Angeles, California. I am making this statement on behalf of George D. Rowan of Los Angeles and Geothermal Resources International, Inc. of Bakersfield, California. Both Mr. Rowan and G.R.I. (with its predecessor companies) have been actively involved in the development of geothermal resources in the United States for several years. Both have made substantial expenditures in this field and are
vitally interested in the enactment of a sound and workable statute authorizing the exploration for and development of geothermal resources on federal lands. Most of the members of this subcommittee are familiar with the deliberations, compromises, and frustrations which have accompanied the earlier efforts of the Congress to enact a geothermal bill. Many of us felt that these efforts had finally reached success when S. 1674 was passed by the 89th Congress last year. We were appalled and disappointed when S. 1674 was vetoed. The reasons given for this veto in its accompanying message indicate that the draftsman of the message was not aware of the history of S. 1674 and indeed suggest that he did not even read the bill with understanding.
The reaction of the 90th Congress to that veto has been vigorous and gratifying. Last January 11th, Senator Bible was joined by ten other Senators in introducing S. 23, a geothermal bill virtually identical to S. 1674 passed by the 89th Congress. Congressman Johnson of California has introduced an identical bill as H.R. 4740 on the House side. It is this bill which we recommend most heartily, for we feel it embodies the culmination of the very best thinking that the Congress has brought to bear on this difficult topic.
Meanwhile, several other House bills have been introduced. Congressman Hosmer has introduced H.R. 715, which follows the essential principles of Congressman Johnson's bill with certain modifications. Other variations appear in the bills of Congressmen Tunney, Baring, and Matsunaga, H.R. 5283, H.R. 3577, and H.R. 5778, respectively. And finally, as a courtesy to the Administration, Congressman Edmondson has introduced H.R. 9583, drafted by the Department of the Interior. The remainder of my statement will be an analysis of each of these bills, with special reference to the six points in the veto message.
1. The Conversion Rights.-The so-called "grandfather clause", Section 4(a) of H.R. 4740 would allow holders of valid mineral leases and permits and holders of mining claims as of September 7, 1965 to convert their rights into geothermal leases. In order to obtain a geothermal lease an applicant for conversion must relinquish all of his existing mineral rights in the property. Moreover, no more than 12,800 acres in any one state may be converted. Finally, conversion is permissible only if the applicant shows that he has made "substantial expenditures for the exploration, development or production of geothermal steam."
This clause is the product of long and careful debate, consideration and compromise. It is neither "unfair" nor "unlimited" as the veto message suggested; on the contrary, it recognizes and confirms rights in those who have worked the hardest to earn them.
Since there is presently no specific provision of federal law allowing development of geothermal resources on federal land, those who have desired to move forward have been forced to rely upon mineral leases, permits and mining claims. Admittedly these were far from satisfactory, but until a steam bill is passed there is no other alternative for those who desire to develop this important resource. The position taken by the Administration's bill, which has no conversion clause, favors those who have been willing only to sit on their hands or wring them. Last year's Congress decided that fairness dictated that the time and investment of the pioneers be protected by reasonable grandfather rights. That decision should be reaffirmed.
Notice that H.R. 4740 gives no bonus or windfall to the pioneers; an applicant for a geothermal lease must surrender all of the rights he has already acquired in exchange for the geothermal rights. He is not permitted to keep existing rights and acquire, in addition, a geothermal lease.
Unfortunately, neither the administration's bill, H.R. 9583, or House bills 5283, 3577, or 5778 include the provisions on conversion rights which we feel are so important. H.R. 715 does provide for grandfather rights, but requires that, if the land in question is within a known geothermal resources area, the applicant for conversion must match the highest bid made for the property in competitive bidding in order to perfect his conversion. We feel the adoption of this approach would be unfortunate, since it would allow a large, well-financed company to oust one of the smaller pioneering companies simply by bidding an amount which the smaller company could not hope to meet. 2. Acreage Limitation.-Every geothermal steam bill which has been introduced except that of the Administration provides for a maximum geothermal lease acreage to a given lessee in each state of 51,200 acres. Yet the Administration's bill urges that this limit be cut to 10,240 acres. It is important to note that exploration for geothermal resources is a new and highly speculative
venture, and that scientific procedures such as those developed, for example, in exploration for oil and gas, simply do not exist. Yet the maximum acreage that may be held under federal oil and gas leases in a given state is 246,080 acres. By comparison, the 51,200 acres in H.R. 4740 is modest, and is surely necessary to encourage an influx of private capital for geothermal exploration. Unless potential developers can acquire rights to a sufficently large area to make the probabilities of success attractive, they will simply put their money and talents to other uses.
3. Computation of Royalties.-Every geothermal bill introduced this year except that of the Administration provides that royalties are payable to the government only on steam "sold or utilized." The veto message asserted that "this could encourage the wanton waste of a precious natural asset." But it must be borne in mind that the techniques for the converting of geothermal steam into useful energy are still at an early stage of development. There will likely be some unavoidable loss of steam in the process of drilling wells and producing energy. Section 23 of H.R. 4740 gives the Secretary of the Interior the right to make rules to prevent waste, to require development and conservation, and to compel lessees to follow an active development program. This surely provides adequate protection of the public interest. The Administration's bill, which provides that royalties shall be paid from protection "reasonably susceptible of sale or utilization by the lessee," imposes upon the lessee the requirement of either paying royalty on steam which may be unavoidably lost or convincing the Secretary that the loss was truly unavoidable.
4. Renegotiation of Leases.-The Administration's bill, unlike all other geothermal bills introduced this year, gives the Secretary of the Interior unlimited power to readjust the lease terms and conditions "at reasonable intervals." The capital required for geothermal development cannot be attracted unless the underlying property interest is secure. There is no provision for renegotiation in leases under the Mineral Leasing Act of 1920, and there should be no renegotiation of geothermal leases. The limitation on the maximum term of geothermal leases (the subject of the next paragraph) gives all the protection the government needs in this area and is at the same time more fair to the developers who rely upon the lease in making capital investments.
5. Maximum Lease Term.-Like the geothermal bill passed last year, H.R. 4740 provides no ultimate termination date for geothermal leases, so long as steam continues to be produced in commercial quantities. It is difficult to see any unfairness to the public in such a provision, which appears in all federal oil and gas leases, since it obligates the lessee to continue to produce and work the property in order to prolong the lease beyond the primary term. However, if it is felt desirable to impose some limit on the maximum term of geothermal leases, we commend for your consideration Congressman Hosmer's version in H.R. 715, limiting lease terms to 100 years with the possibility of renewal for additional periods. The Administration's bill, which allows a maximum term of only 60 years, might preclude an adequate return on invested capital with some properties, and thereby remove the incentive for their development.
6. Primary Term.-Section 6(b) of H.R. 4740 provides of a 15-year primary term (the period within which a lessee must obtain commercial production in order to keep his lease alive) with the right in limited and controlled circumstances to a five-year extension. The bills of Congressmen Baring, Tunney, and Matsunaga agree with this provision, but the Administration's bill as well as H.R. 715 would reduce the primary term to 10 years with no possibility of extension. Such a limitation is unrealistic in light of the vast array of activities necessary to bring property to the stage of commercial production of energy. The obtaining of financing, initial exploration of drilling of test holes, the drilling of producing wells, the construction of plants, the purchase and installation of generating equipment, the construction of power lines, and perhaps, in the case of projects in isolated locals, the building up of a market for the electrical energy-all of these activities are time consuming, and it is not difficult to imagine a situation in which, although prosecuted with all diligence, a project might not be in commercial production at the end of ten years. Despite the exploration and research that has now been going on for many years on privately-owned land, there is today only one geothermal project in the United States producing in commercial quantities of energy. If the primary term is made too short, potential developers will be frightened away and the bill's great objective, to induce the development of federal geothermal resources, will be defeated.
One additional point not covered in the veto message deserves comment. H.R. 4740 requires competitive bidding for geothermal leases only on property within a "known geothermal resources area." But the Administration's bill would require competitive bidding for all geothermal leases. The practical effect of requiring competitive bidding in a "wildcat" area would be to place large portions of our western states in the hands of a relatively few large, well-financed companies. A potential lessee with scientific talent but little money would be discouraged from prospecting at all, since he would know that his chances of ultimately obtaining a lease on his discoveries would be slim at best. We feel that the most rapid and efficient utilization of geothermal resources will result from the approach of H.R. 4740 and not from the requirement of competitive bidding in unproved areas. Most of the great oil and gas and mineral discoveries in the United States have been made by individuals and small companies-not by large financial combines. It would seem that we can expect the same to be true of geothermal resources.
In this connection, H.R. 715, as introduced by Congressman Hosmer, suggests a worthwhile innovation. Section 2(e) of that bill provides that the boundary of a "known geothermal resources area" must be within three miles of some existing geothermal well or surface geothermal activity. This would have the effect of preventing indiscriminate classification of whole states or large portions thereof as "known geothermal resources areas" by the Department of the Interior, thus defeating the intent of the bill to allow noncompetitive leasing in unproven areas. The dangers in this area have been dramatized this year by the Interior Department's wholesale withdrawal of prospective geothermal lands from the mineral leasing and mining laws. We commend this addition to Section 2(e) for your consideration.
Taking into consideration all of the points discussed above, we feel that H.R. 4740 is the bill most deserving of this subcommittee's approval. But even more important is the ultimate objective of the enactment into law of a geothermal bill this year. It is our hope that the monumental effort which the members of Congress have put into this legislation will persuade the executive branch that it should be quickly passed by Congress and signed by the President, and that the Geothermal Steam Act of 1967 will escape the fate of S. 1674. When this project has been successfully completed, you will deserve the gratitude of all geothermal developers as well as that of the nation as a whole, for you will have opened the door to a rich source of power for the West.
Mr. OLPIN. First, on the subject of conversion or the grandfather clause, Interior has said, "We are unable to endorse rewards for indirection:"
The rhetorical question I suggest: Were not the miners who entered public lands before the passage of the mining laws of 1860 and 1872 also guilty of such indirection and should not Congress have treated them as trespassers?
Second, on the acreage
Mr. EDMONDSON. Would you repeat that question again?
Mr. OLPIN. Yes, I would.
Were not the miners who entered public lands before the passage of the mining laws of 1860 and 1872 also guilty of such indirection and should not Congress have treated them as trespassers?
Second, on acreage limitation, we have heard from Interior:
No one person should be permitted to control so much of the geothermal resources in any one state, at least in this embryo stage of development of the
My rhetorical question: What control of geothermal resources is represented by holdings of 51,200 acres in one State if experts of the Department of the Interior found in February of 1967 that there were over 80 million acres of public lands potentially valuable for geothermal steam?