§ 6913. — 6913. (Amended by Stats. 1978, Ch. 1139.)

Each prospecting permit and lease issued under this article shall provide for the following rentals and royalties with respect to geothermal resources produced, saved and sold from the lands included within said permit or lease:
(a)
Prospecting permits and the leases which result therefrom shall include but not be limited to a royalty of not less than 10 percent of the gross revenue, exclusive of charges, approved by the commission, made or incurred with respect to transmission or other services or processes, received from the sale of steam, brines, from which no minerals have been extracted, and associated gases at the point of delivery to the purchaser thereof. Leases issued pursuant to a competitive lease sale may include in addition to the biddable factors a royalty of not more than 16
percent of the gross revenue, exclusive of charges, approved by the commission, made or incurred with respect to transmission or other services or processes, received from the sale of steam, brines, from which no minerals have been extracted, and associated gases at the point of delivery to the purchaser thereof.
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(b)
A royalty of not less than 2 percent of the gross revenue received from the sale of mineral products or chemical compounds recovered from geothermal fluids in the first marketable form as to each such mineral product or chemical compound for the term of the lease.
(c)
An annual rental payable in advance of not less than one dollar ($1) per acre or fraction thereof for each year of a lease. Annual rental for prospecting permits shall be subject to the provisions of subdivision (a) of Section 6910.
(d)
If, after the discovery of geothermal resources in commercial quantities, the total royalties due to the state during any calendar year do not equal or exceed a sum equal to two dollars ($2) per acre for each acre or fraction thereof then included in the permit or lease, the permittee or the lessee shall, within 60 days after the end of the year, pay such sum as is necessary to equal a minimum royalty of two dollars ($2) per acre.
(e)
For leases and prospecting permits which may be converted into a lease, in existence prior to January 1, 1979, the royalties specified herein shall be subject to renegotiation after 30 years from the effective date of the lease and at 10-year intervals thereafter. The first renegotiated royalty rate shall not exceed 30 percent royalty, and in subsequent renegotiations the royalty rate shall not increase by more than 50 percent over the royalty rate of the prior period. In no case shall the lessee’s liability for renegotiated royalties exceed 50 percent of its net profits, nor shall the lessee’s renegotiated royalty be less than the royalty rate under which the lease was issued except as provided for in Section 6916. Net profits for the purposes of this subdivision shall be calculated from the effective date of the negotiated royalties. For leases entered into on and after January 1, 1979, the royalties shall be subject to renegotiation not sooner than 20 years nor later than 30 years from the initial commercial operation, which shall be 30 days after the first generating unit has operated for a consecutive 24-hour period, and at 10-year intervals thereafter. Such renegotiations shall not increase by more than 50 percent the maximum royalties due during the immediately preceding period. The time of first renegotiation for leases entered into after January 1, 1979, shall reflect the Public Utility Commission’s policy on accelerating rates of amortization of facilities utilizing geothermal resources and approval of terms for producer-utility supply contracts.
(f)
The commission may, in lieu of payment due the state, exercise the right to take its share of geothermal resources in kind as specified in a lease agreement. If additional facilities are necessary to enable the state to take its royalty share of geothermal resources in kind, the state or its purchaser of geothermal resources shall provide such additional facilities at its own expense, or if the lessee agrees to provide such additional facilities, the lessee shall be compensated for all direct labor and material costs in providing such additional facilities by the state’s purchaser or, if the state elects, by deduction from royalties due the state. Whenever the commission exercises the right to take geothermal resources in kind, the commission shall make and enter into contracts or agreements for the disposition and sale of such geothermal resources only with the highest responsible bidder upon competitive bidding, and in accordance with procedures set forth in rules and regulations adopted by the commission. All specifications and forms for the purpose of inviting bids in connection with such disposition and sale shall be adopted by the commission prior to publication of notice to bidders. Should no bids be received, or should the commission determine to reject any and all bids because of the insufficiency thereof, the commission may negotiate and enter into agreements for such disposition and sale under terms and conditions deemed by the commission to be in the best interests of the state.
(g)
Royalty payments shall be made pursuant to the provisions of subdivisions (a) and (b). However, for all geothermal resources used by the permittee or lessee and not sold, the gross revenue therefrom shall be determined as though said geothermal resources had been sold to a third person at the then prevailing market price, in the same market area, and under the same marketing conditions; provided, however, that royalties shall not be payable for geothermal resources used by the permittee or lessee in prudent business operations associated with the development and utilization of the resource or in the production of any geothermal mineral products or chemical compounds recovered from geothermal fluids in first marketable form which are subject to the payment of royalties under subdivision (a) or (b).

Legislative History

Amended by Stats. 1978, Ch. 1139.