Alaska Dispatch

In terms of punctuation marks, Railbelt natural gas supplies are a bit of question mark, and fuel prices in the Bush are a big exclamation point. So, it's safe to assume Alaska's electricity producers and consumers would appreciate a little stability. At least one company wants to transform Alaska's geothermal resource into a reliable source of electricity, and is hoping for a way around an oddball state law that taxes hot water pulled from state land.

Ormat Technologies, a Nevada-based geothermal company that develops projects and runs power plants, is interested in water kept hot by volcanic activity at Mount Spurr in Southcentral, and at Mount Makushin near Dutch Harbor. Public Policy Manager Paul Thomsen told a legislative committee on Wednesday that his company strongly supports two bills offered by Sen. Lesil McGuire -- one that would scrap the state's substantial royalty tax on hot water, and one that would offer tax credits for exploration and production.

As in the oil and gas industry, exploration of geothermal resources can be costly, and projects tend to require significant up-front capital, Thomsen said. Add in Alaska's logistical challenges, and project costs can be 25 to 50 percent higher.

The bills are "absolutely imperative" to bring prices in line with what local utilities will pay for the end product, Thomsen said.

The royalty break is especially important for the company, as Alaska's current law assesses a 10-percent to 15-percent royalty on gross production -- that's power generated off the hot water, and not just the resource itself.

"We're dealing with hot water," McGuire said. "A renewable resource, a renewable energy, that is not extracted like hydrocarbons are."

Several legislators on the Senate Resources Committee that heard the bills weren't ready to dive in, despite the allure of clean energy for Southcentral, where traditional natural gas supplies are uncertain.

Lawmakers have divided along party lines in a debate over the state's oil taxes, and some seemed hesitant to offer a geothermal company the same sort of breaks the oil industry is looking for on Alaska's North Slope, especially without guarantees that exploration will evolve into power production. But geothermal -- and other renewables -- are an emerging industry in Alaska, and the hope of many policy makers is that those industries can be nurtured into eventually replacing some of the state's reliance on oil to cover 90 percent of Alaska's income.

In another twist, the issue of rate regulation also came up -- the same issue that could hold up a company's plans to build a natural gas storage facility near Kenai. Sens. Bill Wielechowski and Hollis French, both Anchorage Democrats, were among committee members who wanted assurances that tax breaks for independent power producers, such as Ormat would be passed on to people and businesses paying utilities for that power.

"I love clean energy, green energy -- I also like affordable, low-cost energy," Wielechowski, D-Anchorage, said. "Are there assurances these tax credits will pass through to consumers?"

The bill lacks those assurances now, although the Regulatory Commission of Alaska would still have oversight on contracts between electric utilities and the geothermal provider.

Thomsen estimated that the Mount Spurr project could net power at 12 cents to 14 cents per kilowatt hour, guaranteed over the life of a 20-year contract. That doesn't include transmission, though, which would have to run at least 75 miles from the volcano to Anchorage, but a fixed power cost over 20 years could entice utilities contending for several years with uncertain natural gas contracts.

While Senate Bill 243 would scrap the royalty, Senate Bill 242 would offer an exploration credit retroactive to June 2008, and a resource development credit for projects that reach that stage. McGuire said the specifics are negotiable, including the retroactive date that would have made Ormat eligible for credits on exploration conducted in the past two years, and on a $3.5 million Mount Spurr lease purchase made in fall 2008.

Wielechowski and Sen. Bert Stedman, R-Sitka, resisted the retroactive date, saying that reimbursement to a company for what it has already spent isn't an incentive to explore.

Ormat's Thompson said the bills -- even without a retroactive date -- remove substantial barriers to the company's development plans. Those include a commercial-grade geothermal power plant able to produce about 100 megawatts of electricity, which Ormat would likely sell under contract to Southcentral power utilities. Thompson anticipated a start-up date of 2016.

Also testifying in favor of the bills were Naknek Electric Association in Southwest Alaska and the Alaska Power Association.

Contact Rena Delbridge at This e-mail address is being protected from spambots. You need JavaScript enabled to view it

UPDATED: Feb. 11: Identical bills were also introduced in the House. HB 320, doing away with the royalty, was sponsored by Rep. Charisse Millett, R-Anchorage, and co-sponsored by Rep. Mike Hawker, R-Anchorage. HB 332, offering tax credits, was sponsored by Hawker, with support from Rep. Bob Lynn, also an Anchorage Republican.

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