Changes Made in 2005
The royalty system was changed to simplify how federal royalties on geothermal resources are calculated and to collect the same amount of royalty revenues annually. Under the previous law, royalties were to be between 10 percent and 15 percent of the value of the steam used to produce electricity. Generally, leases were issued with a 10 percent royalty and were subject to complex regulations to determine the value of the steam, called netback. Changes to the netback system were made on the recommendation of a national royalty advisory committee.
The 2005 law established geothermal royalties on the basis of a percentage of gross proceeds derived from the sale of electricity: between 1 percent and 2.5 percent for the first 10 years of production and between 2 percent and 5 percent for every year after that. The Department of the Interior chose figures of between 1.75 percent and 3.5 percent in order to approximate the equivalent value of royalties under the prior system. The two tiers were established because under netback royalties, new projects generally paid no royalties for their first 7.8 years of operation.
Finally, the new law also changed how federal revenue from royalties and lease sales is distributed. In the past, the federal government split the proceeds with state governments 50/50. Under the new law, the federal government retains 25 percent, distributing 50 percent to the state and 25 percent to the counties. The retained federal funds are reserved in a separate budget account for use by the Secretary of Interior to administer the provisions of the geothermal leasing law. The requirement to place these revenues in a special reserve fund expires five years after enactment of the law, or in 2010.
Since 2005 The Bureau of Land Management and the Minerals Management Service (MMS) completed regulations to implement the new law in May 2007. While it applies to all new leases issued, royalty rates or formulas are not automatically changed for existing leases. Existing leases can, however, be converted to new lease terms.
Since 2005, the largest increase in revenue has resulted from new competitive lease sales. There have been three competitive geothermal lease sales in 2007 and 2008 for parcels in California, Idaho, Nevada, and Utah. Revenues generated by lease sales and royalties amounted to $40.87 million in fiscal year 2007 and $42 million in fiscal year 2008.
Distribution of Geothermal Funds
The MMS distributes funds on the basis of the total receipt by the end of every fiscal year. Because lease sales in 2007 and 2008 were held in August, significant portions of revenue from the sales were not received by the MMS until the following fiscal year.
Under the new system of distribution, the Geothermal Royalty Fund of the federal government has received a total of $13.5 million from revenues in fiscal year 2007 and fiscal year 2008. Since 2007, the Secretary of the Interior has been given access to these funds to aid implementation of the Geothermal Steam Act of 1970 and the Energy Policy Act of 2005. Specifically, geothermal funds are used for further geothermal planning and development as well as for the coordination and processing of geothermal leases, permits, and geothermal land use authorizations on federal land. Further use of funds has gone to support environmental documents under the National Environmental Policy Act, to plan activities under the Federal Land Policy and Management Act, to staff and support BLM offices, and to conduct a National Programmatic EIS for geothermal leasing.
Six states -- California, Idaho, New Mexico, Nevada, Oregon, and Utah -- collectively received $27 million for 2007 and 2008. The state can decide how to use these funds provided priority is given to areas socially or economically impacted by the development of geothermal resources in order to plan, construct, and maintain public facilities and provide public services. Information on the distribution and use of geothermal revenues in the four major states receiving funds is given below.
- State of California: Received $4.7 million in 2007 and $9.9 million in 2008.
All federal revenues from geothermal development are deposited in the Geothermal Resources Development Account (GRDA) within the General Fund. From these revenues, 40 percent is redistributed to the counties of origin, another 30 percent is transferred to the Renewable Resources Investment Fund, and 30 percent remains in the GRDA, made accessible to the California Energy Commission for grants or loans to local jurisdictions or private entities. - State of Idaho: Received $2.4 million in 2007 and $517,000 in 2008
The state legislature mandates that 10 percent of profit received go back to the counties, in proportion to their contribution. The remaining 90 percent is directed to the recently created Office of Energy Resources, responsible for energy planning, policy, and coordination in the State of Idaho. - State of Nevada: Received $1.5 million in 2007 and $7.5 million in 2008
By statute, all monies received from geothermal development are placed in the Distributive School Fund that supports K-12 schools throughout the state. - State of Utah: Received $127,268 in 2007 and $146,162 in 2008.
The state redistributes the funds according to a specific formula to the Community Impact Board, which provides financial support to counties and other government agencies such as the Utah Geological Survey.
One of the most novel developments from the Energy Policy Act of 2005 has been the distribution of $4.3 million in 2007 and $9.1 million in 2008 directly to 31 county governments. According to BLM and MMS, the following counties received geothermal funds in these years:
- California: Imperial County, Inyo County, Lake County, Lassen County, Mono County, Siskiyou County, and Sonoma County.
- Idaho: Bingham County, Bonneville County, Caribou County, Cassia County, and Washington County.
- New Mexico: Dona Ana County, Hildago County
- Nevada: Churchill County, Elko County, Esmeralda County, Eureka County, Humbolt County, Lander County, Lyon County, Mineral County, Nye County, Pershing County, Washoe County, and White Pine County.
- Oregon: Deschutes County, Lake County
- Utah: Beaver County, Iron County, and Millard County.
Future Revenues
As of August 2008, the generating capacity of geothermal power in the United States was roughly 3,000 MW, distributed over seven states (Alaska, California, Hawaii, Idaho, Nevada, New Mexico, and Utah). At that time, an additional 4,000 MW in geothermal capacity was under development in 13 states (the seven named above as well as Arizona, Colorado, Florida, Oregon, and Wyoming). Using USGS data of identified resources, the Western Governors Association (WGA) estimates future potential for geothermal power capacity to be 8,500 MW in 2015 and 15,500 MW in 2025, with most of the development happening in the Western states.
In December 2008, the Department of Interior approved the Geothermal Resource Leasing Programmatic Environmental Impact Statement (PEIS) which estimates the expansion of land available for geothermal development could provide an extra 5,500 MW by 2015 and 6,600 MW by 2025, assuming that 50 to 60 percent of the United States geothermal capacity continues to be located on federal lands in the future.
As additional federal lands are leased and developed, income from bonus bids and royalties can be expected to increase. For example, there was recently a fourth lease sale in December 2008 for parcels in Idaho, Oregon, Utah, and Washington. This was the first competitive lease sale since the economic recession was officially recognized, yet sale results were very positive: 100 percent of the parcels were auctioned off for a total revenue of $6,542,525.
