Geothermal Resource Leasing and Geothermal Resources Unit Agreements, 41542-41613 [06-6220]

Agencies

• DEPARTMENT OF THE INTERIOR
• Bureau of Land Management
• Land Management Bureau

[Federal Register Volume 71, Number 140 (Friday, July 21, 2006)]
[Proposed Rules]
[Pages 41542-41613]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-6220]


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DEPARTMENT OF THE INTERIOR

Bureau of Land Management

43 CFR Parts 3200 and 3280

[W0-310 9131 PP]
RIN 1004-AD86


Geothermal Resource Leasing and Geothermal Resources Unit 
Agreements

AGENCY: Bureau of Land Management, Interior.

ACTION: Proposed rule.

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SUMMARY:  This proposed rule would revise the Bureau of Land 
Management's existing geothermal resources leasing and unit agreement 
regulations to implement the Energy Policy Act of 2005. The proposed 
rule would restructure existing regulations concerning the general 
geothermal leasing process and would revise existing regulations on 
royalties and readjustment of lease terms, conditions, and rentals. The 
rule would also revise existing regulations on lease duration and work 
commitment requirements, annual rental and credit of rental towards 
royalty, unit and communitization agreements, and acreage limitations. 
Additional revisions required by the Energy Policy Act include various 
technical corrections. Other proposed changes in sections unaffected by 
changes in the statute would clarify existing procedures, improve 
grammatical construction, conform the regulations to new administrative 
regulatory standards, and correct existing errors.

DATES: Send your comments to reach the Bureau of Land Management (BLM) 
on or before September 19, 2006. The BLM will not necessarily consider 
any comments received after the above date during its decision on the 
proposed rule.

ADDRESSES: Mail: Director (630), Bureau of Land Management, Eastern 
States Office, 7450 Boston Boulevard, Springfield, VA 22153.
    Hand Delivery: 1620 L Street, NW., Suite 401, Washington, DC 20036.
    E-mail: comments--washington@BLM.gov.
    Federal eRulemaking Portal: https://www.regulations.gov.
    Send comments on the information collections in the proposal to: 
Interior Desk Officer (1004-AD86), Office of Information and Regulatory 
Affairs, Office of Management and Budget (OMB), (202) 395-6566 
(facsimile); e-mail: oira_docket@omb.eop.gov. Please also send a copy 
to BLM.

FOR FURTHER INFORMATION CONTACT: Kermit Witherbee at (202) 452-0385 or 
Ian Senio at (202) 452-5049. Persons who use a telecommunications 
device for the deaf (TDD) may contact these persons through the Federal 
Information Relay Service (FIRS) at 1-800-877-8339, 24 hours a day, 7 
days a week.

SUPPLEMENTARY INFORMATION:

I. Public Comment Procedures
II. Background
III. Discussion of the Proposed Rule
IV. Procedural Matters

I. Public Comment Procedures

A. How Do I File Comments?

    You may submit your comments by any one of several methods:
     You may mail your comments to: Director (630), Bureau of 
Land Management, Eastern States Office, 7450 Boston Boulevard, 
Springfield, Virginia 22153, Attention: RIN 1004-D86.
     You may deliver comments to 1620 L Street, NW., Suite 401, 
Washington, DC 20036.
     You may comment directly via the internet by accessing our 
automated commenting system located at www.blm.gov/nhp/news/regulatory/
index.htm and following the instructions there.
     You may e-mail your comment to: comments_
washington@blm.gov. (Include ``Attn: AD86'' in the subject line).
    Please make your comments on the proposed rule as specific as 
possible, confine them to issues pertinent to the proposed rule, and 
explain the reason for any changes you recommend. Where possible, your 
comments should reference the specific section or paragraph of the 
proposal that you are addressing.
    The Department of the Interior may not necessarily consider or 
include in the Administrative Record for the final rule comments that 
we receive after the close of the comment period (see DATES) or 
comments delivered to an address other than those listed above (see 
ADDRESSES).

B. May I Review Comments Others Submit?

    Our practice is to make comments, including names and home 
addresses of respondents, available for public review. Individual 
respondents may request that we withhold their names and or home 
addresses, but if you wish us to consider withholding this information, 
you must state this prominently at the beginning of your comments. In 
addition, you must present a rationale for withholding this 
information. This rationale must demonstrate that disclosure ``would 
constitute an unwarranted invasion of privacy.'' Unsupported assertions 
will not meet this burden. In the absence of exceptional, documentable 
circumstances, this information will be released.
    We will always make submissions from organizations or businesses, 
and from individuals identifying themselves as representatives or 
officials of organizations or businesses, available for public 
inspection in their entirety.

II. Background

    The Bureau of Land Management (BLM) is proposing these new 
regulations to implement the Energy Policy Act of 2005 (P.L. 109-58), 
which became law on August 8, 2005. Sections 221 through 236 of this 
Act address geothermal development and substantially amend the 
Geothermal Steam Act of 1970. The Geothermal Steam Act of 1970, as 
amended, 30 U.S.C. 1001--1028, provides the authority for BLM to allow 
for the exploration, development, and utilization of geothermal 
resources on BLM-managed public lands, as well as geothermal resources 
on lands managed by other surface management agencies, such as the 
United States Forest Service.
    One of the more significant changes in the Energy Policy Act of 
2005 is the general requirement, with a few exceptions, for geothermal 
resources to be offered through a competitive leasing process. Lands 
not successfully sold in

[[Page 41543]]

the competitive process can be leased noncompetitively.
    The Energy Policy Act also made significant changes in the way 
royalties are assessed on Federal leases. These changes were similar 
to, and in some cases identical to, recommendations in a 2005 report 
from the Geothermal Valuation Subcommittee (Subcommittee) of the 
Minerals Management Service's (MMS) Royalty Policy Committee (RPC). The 
RPC, established under the Federal Advisory Committee Act, makes 
recommendations on issues related to royalties on Federal resources and 
typically consists of representatives from Federal and State 
governments and industries paying royalties for the development of 
Federal resources. The Subcommittee was formed to address MMS's 
geothermal royalty valuation regulations in an effort to simplify the 
language and reduce administrative costs to the geothermal industry. 
The Subcommittee was composed of members from one industry association, 
several geothermal producers, two of the major states affected, and MMS 
staff. A BLM representative served as technical advisor to the 
Subcommittee. The Subcommittee's goal was to develop more efficient 
royalty valuation methods that would ensure a fair return to the 
Federal Government as well as to encourage geothermal development. The 
Energy Policy Act requires that for new leases in non-arm's length 
transactions or no-sale situations the royalty on electricity produced 
from geothermal resources be based on the gross proceeds from the sale 
of electricity, rather than on the ``net back'' system that was used 
prior to the Energy Policy Act. Lessees who use geothermal resources 
directly will pay fees according to a fee schedule that would be 
established by MMS. Under the new law, existing lessees have the 
opportunity to convert the royalty provisions in their leases to those 
of the Energy Policy Act. MMS is publishing proposed new regulations to 
implement the changes in the Energy Policy Act simultaneously with 
BLM's proposed rule. BLM and MMS have worked together to coordinate 
their proposed rules.
    References to MMS rules appear throughout BLM's proposed rules 
because BLM and MMS share responsibility with regard to the geothermal 
leasing program. BLM holds lease sales, issues geothermal leases and 
generally administers the leases. BLM establishes the terms of the 
leases, including royalty rates, and enforces the lease terms. MMS is 
responsible for collecting rents (other than the first year's rent) and 
royalties, and for enforcing the royalty obligations. The proposed MMS 
rules contain provisions that carry out its responsibilities. 
Appropriate cross-references are contained both in the BLM and MMS 
regulations.
    Other changes made by the Energy Policy Act include restructured 
lease terms (length of time a lease is in effect) and lease term 
extensions, and provisions for leases for exclusive direct use of 
geothermal resources, without sale, that may be issued 
noncompetitively. The Act also increased the maximum acreage of an 
individual lease and gave the Secretary of the Interior greater 
authority to require lessees to commit to unit agreements to conserve 
geothermal resources.
    Most of the proposed changes in the regulations of this part would 
implement the new provisions of the Energy Policy Act. Other proposed 
changes in sections unaffected by changes in the statute would clarify 
existing procedures, improve grammatical construction, conform the 
regulations to new administrative or regulatory standards, and correct 
existing errors. Substantive changes unrelated to the change in statute 
are discussed under each subpart of this preamble.

III. Discussion of the Proposed Rule

Subpart 3200--Geothermal Resources Leasing

    In subpart 3200, we propose changes to the definitions section and 
propose to add three sections to the end of the subpart.

Definitions

    Section 3200.1 contains definitions of terms used throughout parts 
3200 and 3280. The proposed rule would remove the definitions of terms 
and concepts that would no longer be used under the proposal (or were 
not used previously). Definitions proposed to be removed include 
``additional term,'' ``cooperative agreement,'' ``extended term,'' and 
``pay instead of produce in commercial quantities.''
    Proposed new definitions include ``initial extension'' and 
``additional extension.'' These two definitions reflect terms that are 
used in proposed subpart 3207, and implement concepts enacted in 30 
U.S.C. 1005(a). The portion of the preamble discussing subpart 3207 
addresses these changes.
    Other definitions added include ``direct use'' and ``direct use 
leases.'' The proposed definition of the term ``direct use'' is taken 
from the definition at 30 U.S.C. 1001(g). The proposed definition would 
state that ``direct use means utilization of geothermal resources for 
commercial, residential, agricultural, public facilities, or other 
energy needs other than the commercial production or generation of 
electricity.'' The word ``generation'' is used in addition to the 
statutory word ``production'' to be consistent with the usage in 30 
U.S.C. 1003(f), which also addresses direct use.
    The proposed definition of the term ``direct use lease'' would be 
``a lease issued in an area BLM designates as available exclusively for 
direct use of geothermal resources, without sale, for purposes other 
than commercial generation of electricity.'' This definition is 
intended to describe the geothermal leases that would be issued under 
proposed subpart 3205, which would implement 30 U.S.C. 1003(f).
    The term ``geothermal exploration permit'' would be clarified to 
explain that a BLM authorization to conduct exploration activities 
would occur under a Notice of Intent to Conduct Geothermal Resource 
Exploration Operations, a specific BLM Form.
    The term ``gross proceeds,'' used in the royalty context, would be 
defined through a cross-reference to the applicable MMS definition.
    The term ``commercial production or generation of electricity'' 
would be defined to mean generation of electricity that is sold or is 
subject to sale, including the electricity or energy that is required 
to convert geothermal energy into electrical energy for sale. This term 
is needed in determining whether geothermal resource production is 
subject to royalties or direct use fees, as referenced in 30 U.S.C. 
1004(b). The statute does not expressly address whether the electricity 
required to convert geothermal energy into electrical energy for sale 
(the parasitic load) should be considered as a component of the 
generation of electricity or should be considered as a direct use. BLM 
believes it is more appropriate to consider this as part of the 
electrical generation process both: (1) To encourage the production of 
geothermal resources (by not imposing a fee for a necessary cost of 
electricity generation); and (2) Because measurement of such usage 
would be difficult and expensive and the amount of moneys generated 
through the collection of fees would be quite small relative to the 
measurement effort.
    The term ``commercial production'' would mean production of 
geothermal resources when the economic benefits from the production are 
greater than the cost of production. This proposed

[[Page 41544]]

definition would implement a term used in 30 U.S.C. 1004(f)(1), related 
to advanced royalties (see proposed Sec.  3212.15). The term is also 
used for the purpose of qualifying for a drilling extension at proposed 
Sec.  3207.14.
    The term ``geothermal steam and associated geothermal resources'' 
would be slightly modified to follow the statutory definition at 30 
U.S.C. 1001.

Types of Leases

    Proposed Sec.  3200.6 would provide general information explaining 
that under the proposed rule BLM would issue two types of geothermal 
leases. The first category would be leases that may be used for any 
type of geothermal use, such as commercial generation of electricity or 
direct use of the resource. Such leases would be competitively issued 
under subpart 3203 or noncompetitively issued under subpart 3204. The 
second category, a new category required by the Energy Policy Act of 
2005 (30 U.S.C. 1003(f)), would be those that could only be used for 
direct use without sale, i.e., direct use leases issued under proposed 
subpart 3205.

Transition Rules

    The Energy Policy Act of 2005 at 30 U.S.C. 1005(d), directed that 
the Secretary by regulation establish transition rules for leases 
issued before August 8, 2005. Little guidance was provided in that 
section except for requiring that the transition rules include 
provision for two-year extensions for leases nearing the end of their 
terms on August 8, 2005, under certain circumstances.
    Proposed Sec. Sec.  3200.7 and 3200.8 would contain transition 
rules, addressing how the revised regulations would apply to: (1) 
Leases in effect on August 8, 2005, the enactment date of the Energy 
Policy Act of 2005; and (2) Leases issued after August 8, 2005, but 
based on lease applications pending on August 8, 2005.
    Proposed Sec.  3200.7 would address the regulatory status of 
geothermal leases in effect on August 8, 2005. Existing Federal leases 
generally provide that they are subject to existing BLM rules, and also 
to future BLM regulatory changes. This makes sense because the agency 
continually makes changes to its regulatory programs, and lessees have 
no legitimate expectations as a general matter to remain forever 
subject to regulations in effect on the day their leases were issued. 
Accordingly, proposed Sec.  3200.7 would make leases in effect on 
August 8, 2005, generally subject to the revised parts 3200 and 3280.
    There are certain provisions of geothermal leases for which 
existing lessees did have reasonable expectations would not be changed, 
and on which they may have based their planned and existing operations. 
Therefore, the proposed rule, at Sec.  3200.7(a)(1), attempts to 
capture such expectations by proposing an exception to the general 
rule. The exception would provide that leases in effect on August 8, 
2005, would be subject to the regulations in effect on August 8, 2005, 
with regard to regulatory provisions relating to royalties, minimum 
royalties, rentals, primary term and lease extensions, diligence and 
annual work requirements, and renewals.
    Proposed Sec.  3200.7(a)(2) would allow the lessee of a lease in 
effect on August 8, 2005, to elect to be subject to all of the 
regulations in part 3200 and part 3280, without regard to the 
exceptions in paragraph (a)(1). The lessee would have to make such an 
election no later than 18 months after a final rule becomes effective. 
The election derives from 30 U.S.C. 1003(d)(2) that allows a similar 
election to lessees whose lease applications were pending on August 8, 
2005. BLM believes that leases in effect on August 8, 2005, should be 
treated as least as favorably as those lessees who only had an 
application pending on that date. Thus, BLM is proposing that an 
election be allowable. The proposed rule would make it clear that 
although a general election would be allowed, changes relating to 
royalty terms could only occur under the royalty conversion rules of 
proposed Sec.  3212.25, discussed in the next paragraph and later in 
this preamble.
    Proposed Sec.  3200.7(b) would clarify that two other features of 
the Energy Policy Act of 2005 apply to leases in effect on August 8, 
2005: Royalty conversion (section 224(e) of the Energy Policy Act) and 
production incentives (section 224(c) and (d) of the Energy Policy 
Act). The proposal would clarify that the lessee of a lease in effect 
on August 8, 2005, may: (1) Choose to convert lease terms relating to 
royalties under subpart 3212; or (2) If it does not convert lease terms 
relating to royalties, apply for a production incentive under subpart 
3212 (if eligible under that subpart). Royalty conversion and 
production incentives are addressed later in this preamble.
    Proposed Sec.  3200.7(c) would implement the two-year extension 
authorized in the statute. Under the proposal, the lessee of a lease in 
effect on August 8, 2005, could apply to extend a lease that was within 
two years of the end of its term on August 8, 2005, for up to two 
years, to allow achievement of production under the lease or to allow 
the lease to be included in a producing unit.
    Proposed Sec.  3200.8 would implement 30 U.S.C. 1003(d)(2), 
relating to the status of geothermal lease applications pending on 
August 8, 2005, and the status of leases issued pursuant to such 
applications. That section of the Energy Policy Act of 2005 provides 
that pending lease applications and leases issued pursuant to those 
applications are subject to ``this section as in effect on the day 
before'' August 8, 2005 (30 U.S.C. 1003(d)(2)).
    Although 30 U.S.C. 1003(d)(2) uses the term ``this section,'' BLM 
interprets it to mean the entire Geothermal Steam Act, as in effect on 
the day before August 8, 2005. Because Sec.  1003 of the Act addresses 
the leasing process, interpreting the phrase ``this section'' to mean 
only Sec.  1003 would allow pending lease applications to be processed 
noncompetitively, but would make the provision meaningless with regard 
to subsequently issued leases. Accordingly, BLM construes 30 U.S.C. 
1003(d)(2) more broadly to allow leases issued pursuant to applications 
pending on August 8, 2005, to be subject to the regulations in effect 
before that date, to the same extent as leases in effect on August 8, 
2005. In other words, leases issued pursuant to applications pending on 
August 8, 2005, would be subject to the revised parts 3200 and 3280, 
except that such leases would be subject to the regulations in effect 
on August 8, 2005, with regard to regulatory provisions relating to 
royalties, minimum royalties, rentals, primary term and lease 
extensions, diligence and annual work requirements, and renewals. As 
provided in the statute, the proposal would allow lessees to elect to 
be subject to the revised rules in their entirety.

Subpart 3201--Available Lands

    Existing subpart 3201 addresses which lands are available for 
geothermal leasing and which lands are not available for geothermal 
leasing. The proposed subpart would be substantively unchanged from the 
existing subpart. Changes have been proposed to clarify terminology, 
and improve grammar and readability.

Subpart 3202--Lessee Qualifications

    Existing subpart 3202 addresses who may hold geothermal leases, 
qualifications to hold a geothermal lease, whether other persons are 
allowed to act on an applicant's behalf, and what happens if an 
applicant for a lease dies. The proposed subpart would be substantively 
unchanged from the

[[Page 41545]]

existing subpart. Changes have been proposed to clarify terminology, 
and improve grammar and readability. There are several places in 
existing regulations that the term ``offer'' is used incorrectly. This 
proposed rule would replace the term ``offer'' with the term 
``application'' to make it clear that ``applications'' are filed by the 
public and ``offers'' are made by BLM.

Subpart 3203--Competitive Leasing

    Subpart 3203 would explain the process for competitive leasing 
under the Energy Policy Act amendments to the Geothermal Steam Act. The 
new provisions at 30 U.S.C.1003 require competitive leasing to the 
highest responsible qualified bidder except as otherwise specifically 
provided in the Act. This new statutory scheme differs from the 
previous one, which provided for competitive bidding only for lands 
within a known geothermal resource area or lands from terminated, 
expired, or relinquished leases, or at BLM's discretion when there was 
public interest.
    Proposed Sec.  3203.5 explains the three stages of the competitive 
leasing process. It would also summarize the four specific 
circumstances in which leases would be issued on a non-competitive 
basis that are addressed in detail at Subparts 3204 and 3205.
    Proposed Sec.  3203.10 would describe the process for nominating 
lands for competitive sale. It would implement the new statutory 
provision, at 30 U.S.C. 1006, that a lease may not exceed 5,120 acres 
unless the area to be leased includes an irregular subdivision. The 
previous statutory restriction was 2,560 acres. This section would also 
explain how a nominator must describe the lands nominated. These land 
description provisions were previously found at Sec.  3204.11. The only 
change from those provisions would be a clarification that lands 
surveyed under the public land rectangular survey system should be 
described to the nearest aliquot part. This section would also make 
clear that a nominator may submit more than one nomination, as long as 
each nomination satisfies the acreage and land description requirements 
and includes the required filing fee, and that BLM may reconfigure 
lands to be included in each parcel offered for sale.
    Proposed Sec.  3203.11 would implement the new statutory provision, 
at 30 U.S.C. 1003(e), that BLM may offer parcels as a block at a 
competitive sale when it is reasonable to expect that a geothermal 
resource that can be produced as one unit underlies those parcels.
    Proposed Sec.  3203.12 would provide for a filing fee for 
nominations of lands of $100 per nomination plus 10 cents per acre of 
lands nominated. BLM is authorized to charge reasonable filing fees 
under Sec.  304(a) of the Federal Land Policy and Management Act of 
1976, 43 U.S.C. 1734(a). While the general Federal policy is to charge 
a processing fee that recovers the agency's reasonable processing costs 
(see OMB Circular No. A-25; 330 D.M. 1.3A; Solicitor's M-Opinion No. M-
36987), BLM does not have cost data at this point regarding its cost 
for processing nominations. We are therefore proposing a nominal filing 
fee, which is not intended to reimburse the government for its 
processing costs, but instead to limit filings to serious applicants. 
See Solicitor's M-Opinion No. M-36987, ``BLM's Authority To Recover 
Costs of Minerals Document Processing,'' at n.6. In the final rule, we 
would move the amount of the fee from this section to the fee schedule 
at Sec.  3000.12, cross-reference Sec.  3000.12, and make a conforming 
change to Sec.  3000.12. We will collect data on the costs of 
processing these nominations and expect to propose to charge a 
processing fee to cover agency costs in the future.
    Proposed Sec.  3203.13 would implement the new statutory 
requirement at 30 U.S.C. 1003(b) to hold a competitive lease sale at 
least once every 2 years in States where nominations are pending. This 
section would also allow for a sale to include lands in more than one 
State. Current regulations at Sec.  3205.13 state that BLM will not 
accept bids which do not meet or exceed the fair market value as 
determined before the sale using generally acceptable appraisal 
methods. We have not included the requirement in this rule because we 
have concluded that the competitive bidding process itself is a 
reflection of the fair market value of the lease. Moreover, eliminating 
this bidding floor may encourage more competitive bidding, which both 
serves the Energy Policy Act policy of encouraging development of 
geothermal resources and is economically beneficial to the United 
States to the extent leases are issued competitively. This is because 
noncompetitive leases issued at a later date would be issued without 
any bonus bid (see discussion of proposed Sec.  3204.11, below) and 
would have lower rates of rental (see discussion of proposed Sec.  
3211.11, below).
    Proposed Sec. Sec.  3203.14 and 3203.15 would describe how BLM will 
notify the public of competitive lease sales, the types of information 
BLM will include in a notice of sale, and how BLM will conduct the 
sale. These sections differ in some respects from sections in the 
current regulations at subpart 3205 that addressed competitive leasing 
under the former statutory scheme. Unlike the current regulations, the 
proposed sections would not restrict the competitive sale process to 
sealed bids, but would be flexible enough to allow other competitive 
sale formats, such as oral auctions. We anticipate that most sales 
would be conducted through an oral auction.
    In order to protect the bidding process, we propose to add at Sec.  
3203.15(c) a standard auction requirement that a bid may not be 
withdrawn and that a bid constitutes a legally binding commitment. This 
is current BLM practice both in the geothermal and oil and gas leasing 
programs.
    Proposed Sec.  3203.17 would provide information related to the 
payment obligations of a successful bidder. Because the proposed 
competitive sale process would no longer be restricted to sealed bids, 
a bidder would not have to submit any payments unless at the end of the 
sale it was the high bidder. This section would provide that a 
successful bidder must pay twenty percent of the bid, the total first 
year's rental, and the processing fee by close of business on the day 
of the sale or such other time as BLM may specify. While the general 
expectation would be that these payments be made on the day of the 
sale, we propose to allow BLM to specify another time for payments to 
be made if circumstances so require, for example, the following 
business day. We also propose to add personal checks to the list of 
financial instruments that may be used to make it easier for the 
successful bidder to make payments immediately after the sale. Proposed 
Sec.  3203.17(c), like current Sec.  3205.16, would require that the 
balance of the bid be submitted within 15 calendar days after the sale.
    Proposed Sec.  3203.18 would cross-reference proposed subpart 3204, 
which would implement the statutory provision at 30 U.S.C. 1003(c) 
providing for the noncompetitive offering of parcels that did not 
receive bids in a competitive lease sale.

Subpart 3204--Noncompetitive Leasing Other Than Direct Use Leases

    Proposed subpart 3204 would describe when and how BLM will issue 
noncompetitive geothermal leases. The most common method of obtaining 
noncompetitive leases under this subpart would be to apply for parcels 
of land that did not receive bids in a competitive sale. This subpart 
would not address noncompetitive leases for lands available exclusively 
for direct

[[Page 41546]]

use of geothermal resources, which would be addressed at proposed 
subpart 3205.
    Proposed Sec.  3204.5 would describe the four types of lands 
available for noncompetitive leasing: (1) Parcels of land that did not 
receive bids in a competitive sale; (2) Lands available exclusively for 
direct use, addressed at proposed subpart 3205; (3) Lands subject to 
mining claims, addressed at proposed subpart 3204.12, and (4) Lands for 
which a lease application was pending on August 8, 2005, if the 
applicant so chooses.
    Proposed Sec.  3204.10 would require an applicant for a 
noncompetitive lease to submit a processing fee and advance rent. The 
advance rent would be refunded if the application were rejected or 
withdrawn. These provisions are substantively the same as current Sec.  
3204.12.
    Proposed Sec.  3204.11 would implement the statutory requirement at 
30 U.S.C. 1003(c) that lands for which no bid was received in a 
competitive lease sale would be available for noncompetitive leasing 
for two years following the date of the competitive sale. The proposed 
sections would explain the procedures for this type of noncompetitive 
leasing, which are similar to the procedures for acquiring a 
noncompetitive oil and gas lease for lands that were not sold at a 
competitive lease sale. See 43 CFR 3110.2 and 3110.5-1. The section 
would provide that for the first 30 days following the competitive 
sale, applications would be accepted only for parcels as configured in 
the sale notice. As in the oil and gas regulations, this provision is 
for efficiency of administration. In the month following a sale, BLM 
processes both leases that sold at the lease sale and those for which 
noncompetitive applications are received after the sale; adding the 
burden of reconfiguring parcels during that period would slow down the 
process for other leases. Proposed Sec.  3204.11 would also provide 
that all applications received for a particular parcel on the first 
business day after the competitive sale would be considered as 
simultaneously filed, and BLM would select one at random to receive a 
lease offer. As in the oil and gas regulations, this is intended to 
provide all interested parties an equal opportunity to apply during the 
first 24 hours after the lease sale.
    BLM would not require a person to submit a bid for a noncompetitive 
lease to reflect fair market value because no bid had been received at 
the competitive lease sale. Moreover, it would be difficult for BLM to 
determine what an appropriate bid should be in that situation, and 
allowing leases to be obtained without a bid should encourage 
additional geothermal exploration and development.
    Proposed Sec.  3204.12 would implement the statutory provision at 
30 U.S.C. 1003(b)(3) that allows a mining claimant with an approved 
plan of operations to apply for a noncompetitive geothermal lease.
    Proposed Sec.  3204.13 would implement a portion of the statutory 
provision at 30 U.S.C. Sec.  1003(d)(2) that allows lease applications 
pending on August 8, 2005 to be processed under then-existing policies 
and procedures unless the applicant elects for the lease to be subject 
to the new leasing procedures.
    Proposed Sec.  3204.14, governing the amendment of noncompetitive 
lease applications, would provide that an applicant may amend an 
application at any time before BLM issues a lease if the amended 
application meets the requirements in this subpart and as long as the 
amendment does not add lands not included in the original application. 
To add lands, an applicant would have to file a new application. (The 
withdrawal of lands from noncompetitive lease applications would be 
covered by proposed Sec.  3204.15, discussed below.) Section 3204.18 of 
the current regulations does not prohibit amendments that add lands, 
but provides that BLM will determine priority based on the date it 
receives the amended lease application rather than on the date of the 
original application. Current Sec.  3204.18 does not differentiate 
between amendments that add lands and those that do not. We decided 
that adding lands to an application was equivalent to submitting a new 
application, thus requiring a change in the priority. We therefore 
propose to require that a new application be filed in cases of proposed 
amendments when an applicant wants to add lands to an already submitted 
application. Because amendments other than adding lands do not require 
BLM to revise the priority date, we do not propose to require a new 
application for such amendments.
    Proposed Sec.  3204.15 would provide that for 30 days after a 
competitive lease sale, BLM would not accept partial withdrawals of 
noncompetitive lease applications and would only accept withdrawals of 
entire noncompetitive lease applications. After 30 days, partial as 
well as whole withdrawals would be allowed at any time before BLM 
issues the lease. This would be a change from current Sec.  3204.17, 
which does not contain the restriction in the first 30 days. This 
proposed provision is parallel to the provision at proposed Sec.  
3204.11 restricting noncompetitive applications for reconfigured lease 
parcels for the first 30 days following a competitive sale. If an 
applicant applied for a parcel as configured in the sale notice, then 
immediately applied to withdraw the application with respect to only a 
portion of the parcel, the result would be the same as applying for a 
reconfigured parcel. Allowing this would thus defeat the provision in 
proposed Sec.  3204.11. Proposed Sec.  3204.15 would also provide that 
if a partial withdrawal results in failure to meet the minimum acreage 
required for a lease in proposed Sec.  3206.12, BLM will reject the 
lease application. This provision is in Sec.  3204.17 of the current 
regulations.

Subpart 3205--Direct Use Leasing

    The Energy Policy Act provides the authority for BLM to issue 
leases solely for the direct use of geothermal resources under certain 
conditions. Subpart 3205 would be a new subpart added to describe these 
conditions and the process for applying for a direct use lease. This 
subpart would implement the provisions of 30 U.S.C. 1003(f).
    Proposed Sec.  3205.6 would address the conditions under which BLM 
would issue a direct use lease to an applicant. ``Direct use lease'' as 
used in this subpart has a specific meaning, and is defined at proposed 
Sec.  3200.1 as ``a lease issued in an area BLM designates as available 
exclusively for direct use of geothermal resources, without sale, for 
purposes other than commercial generation of electricity.'' Regular 
geothermal leases also permit direct use of the geothermal resource, 
which the lessee may choose not to sell, but that circumstance would 
not convert a regular geothermal lease into a direct use lease. A 
regular geothermal lessee may choose to sell the resource for direct 
use or may choose to use the resource for the commercial generation of 
electricity, choices that a direct use lessee does not have.
    Proposed Sec.  3205.6 would explain that a direct use lease may be 
issued only for lands that BLM has determined are appropriate for 
exclusive direct use, without sale, for purposes other than commercial 
generation of electricity. BLM would make the determination of whether 
the lands are appropriate for direct use leasing on a case-by-case 
basis at the time of application. The advantage of a direct use lease 
would be that it could be issued noncompetitively to the first 
qualified applicant if BLM determined that there was no competitive 
interest in the geothermal resources on the land to be leased. BLM 
would make this determination after publishing a notice of proposed 
leasing

[[Page 41547]]

and receiving no nominations to include the land in a competitive lease 
sale (as required by 30 U.S.C. Sec.  1003(f)). Proposed Sec.  3205.6 
would also provide that the acreage covered by a direct use lease 
application could not exceed the quantity of acreage that is reasonably 
necessary for the proposed use, as required at 30 U.S.C. 1003(g).
    Proposed Sec.  3205.7 would specifically address the acreage 
restrictions applicable to a direct use lease as provided by 30 U.S.C. 
1003(g) (not greater than reasonably necessary for the proposed use) 
and 30 U.S.C. 1006 (not more than 5,120 acres for any geothermal lease, 
except in the case of an irregular subdivision).
    Proposed Sec.  3205.10 would explain the procedures for applying 
for a direct use lease and the types of information to be submitted 
with an application. The information that is submitted is used by BLM 
to determine if the requested acreage is necessary for the intended 
operation as described in Sec.  3205.7. This section would also require 
the submission of a nonrefundable processing fee for noncompetitive 
lease applications, as required by Sec.  3204.12 of the current 
regulations.
    Proposed Sec.  3205.12 would address direct use lease applications 
for lands managed by an agency other than BLM, explaining that BLM 
would forward a copy of such an application to the other agency. If 
that agency consented to leasing and recommended that the lands were 
appropriate for a direct use lease, BLM would consider that consent and 
recommendation in determining whether to issue the lease. This section 
would require that BLM obtain the consent of the surface management 
agency before issuing a direct use lease.
    Proposed Sec. Sec.  3205.13 and 3205.14 would allow an applicant 
for a direct use lease to withdraw its application at any time or amend 
its application, without adding new lands, prior to lease issuance. To 
add new lands, an applicant would have to file a new application (see 
proposed Sec.  3204.14).
    Proposed Sec.  3205.15 discusses how BLM will inform an applicant 
of its decision to approve or deny a direct use lease application.

Subpart 3206--Lease Issuance

    Subpart 3206 in both the current and proposed regulations addresses 
lease issuance in general.
    Proposed Sec.  3206.10 is nearly identical to current Sec.  
3206.10, with the addition of a provision notifying applicants that all 
payments must be made before BLM will issue a lease. This addition 
reflects current BLM practice.
    Proposed Sec.  3206.11, which implements 30 U.S.C. 1026, is 
unchanged from current regulations except for changing the words ``will 
not significantly impact'' at the beginning of paragraph (b), to ``will 
not have a significant adverse impact on,'' which more closely tracks 
the language of 30 U.S.C. 1026(c).
    Proposed Sec.  3206.12 would address minimum and maximum lease 
sizes, which are addressed in the current regulations at Sec.  3204.14. 
The maximum lease size would be increased from 2,560 acres to 5,120 
acres, as provided at 30 U.S.C. 1006.
    Proposed Sec.  3206.13 would address the maximum acreage that one 
lessee may hold, which is addressed in the current regulations at Sec.  
3206.12. The proposed section is identical to the first sentence of 
current Sec.  3206.12 and implements 30 U.S.C. 1006, which sets the 
limit at 51,200 acres in any one State. The remainder of Sec.  3206.12 
of the current regulations would be deleted because the Energy Policy 
Act amendments deleted those provisions in the statute.
    Proposed Sec.  3206.14 would explain how BLM computes acreage 
holdings. This proposed section is identical to current Sec.  3206.13, 
except for minor editorial changes.
    Proposed Sec.  3206.15, explaining how BLM would charge acreage 
holdings if the United States owns only a fractional interest in the 
geothermal resources, is identical to current Sec.  3206.14, except for 
minor editorial changes.
    Proposed Sec.  3206.16 would explain that acreage is not chargeable 
against the acreage limitations if it is included in any approved unit 
agreement or development or drilling contract. These exclusions would 
implement 30 U.S.C. 1017(d) and (g)(2) and are addressed at Sec.  
3206.15 in the current regulations. Reference in current regulations to 
cooperative agreements was deleted because they are no longer mentioned 
in this part.
    Proposed Sec.  3206.17, which would address what BLM does if a 
lessee's holdings exceed the maximum acreage limits set in proposed 
Sec.  3206.13, is identical to Sec.  3206.16 of the current 
regulations.
    Proposed Sec.  3206.18, which would address when BLM issues a 
lease, is identical to Sec.  3206.18 of the current regulations, except 
for a minor editorial change.

Subpart 3207--Lease Terms and Extensions

    Subpart 3207 would explain the new scheme of lease terms and 
extensions provided at 30 U.S.C. 1005.
    Proposed Sec.  3207.5 would summarize the new lease terms (length 
of time a lease is in effect) and lease term extensions, which include: 
(1) A ten-year primary term and two five-year extensions of the primary 
term; (2) A five-year drilling extension; (3) A production extension of 
up to 35 years; and (4) A renewal term of up to 55 years.
    Proposed Sec. Sec.  3207.10, 3207.11, and 3207.12 would address the 
primary term of a lease and explain the requirements for obtaining and 
continuing extensions of the primary term. The statute, at 30 U.S.C. 
1005(b), includes a provision that ``for each year after the 10th year 
of the lease'' lessees must ``satisfy minimum work requirements 
prescribed by the Secretary that apply to the lease for that year.'' 
This section can be read as providing that the Secretary may require 
that a lessee complete certain work requirements in 1 year of the lease 
that apply to the following year of the lease, in terms of informing 
the Secretary's decision whether the lease may continue into that 
following year. Under this interpretation, a work requirement 
applicable to the 12th lease year would require that work be performed 
by the end of the 11th year, and a requirement applicable to the 11th 
lease year would require that work be performed by the end of the 10th 
year.
    Even under an interpretation that 30 U.S.C. 1005(b) requires only 
that work be performed in the 11th lease year and thereafter, BLM must 
give effect to the statutory mandate at 30 U.S.C. 1005(a)(1) that the 
primary term at the beginning of a lease is ten years. BLM cannot wait 
until the end of the 11th lease year to determine whether to grant the 
initial five-year extension because that would provide lessees with a 
de facto primary term of 11 years, in contravention of the statutory 
mandate. Because the general rule-making authority granted to the 
Secretary at 30 U.S.C. 1023 allows the Secretary to prescribe rules 
appropriate to carry out the provisions of the Act, BLM has authority 
to prescribe work requirements that must be completed by the end of the 
10th lease year, in order to give effect to the statutory ten-year 
primary term and provide a basis for deciding whether BLM will grant 
the initial 5-year extension.
    Thus, Sec.  3207.11 would provide requirements that a lessee must 
meet within the 10-year primary term for a lessee to be eligible for 
the initial 5-year extension of the primary term. BLM formulated its 
list of potential types of work that could be performed to meet the 
work requirements based on the statutory provision, at 30 U.S.C.

[[Page 41548]]

1005(b)(2). The provisions require that the work should establish a 
geothermal potential or, if that potential has been established, should 
confirm the existence of producible geothermal resources. The amount of 
work that must be performed is quantified as a minimum dollar 
expenditure per acre, as it is in the current regulations (see current 
Sec. Sec.  3210.13 (diligent exploration requirements) and 3208.14 
(significant expenditures)).
    For the work requirements that must be completed by the end of the 
tenth year of the lease, we propose at Sec.  3207.11(a) a $40 per acre 
expenditure over the ten-year period of the primary term of the lease, 
which is the same expenditure that is required at Sec.  3210.13 of the 
current regulations for diligent exploration during the primary term. 
For work requirements for each year of the initial five-year extension, 
we propose at Sec.  3207.12(a) an annual dollar expenditure of $15 per 
acre, which is the same as required at Sec.  3208.14 of the current 
regulations for significant expenditures during a first lease 
extension. For work requirements for each year of the additional five-
year extension, we propose at Sec.  3207.12(c) an annual dollar 
expenditure of $25 per acre. We determined that the dollar expenditure 
for work requirements should increase enough during an additional 
extension to motivate a lessee to put a lease into production if it is 
not already producing in commercial quantities by the end of the 15th 
year. As the annual expenditure requirement would increase $11 per acre 
after the 10th lease year (from $40 over a 10-year period, or an 
average of $4 per acre per year, to $15 per acre per year), we are 
proposing that the expenditure requirement increase by a nearly 
equivalent amount--$10 per acre--after the 15th lease year (from $15 to 
$25 per acre per year). We believe this level of increase will serve 
the purpose of encouraging diligent development of the resource.
    We are also proposing an automatic inflation adjustment for the 
minimum work requirements and for monetary payments in lieu of the work 
performance. We would include a provision in Sec. Sec.  3207.11 and 
3207.12 to adjust the dollar amount of the requirements automatically 
every three calendar years. The adjustment would be based on the 
Implicit Price Deflator for Gross Domestic Product that is published 
annually by the U.S. Department of Commerce. Because the work 
requirements would simply be based on a mathematical formula, we would 
make these adjustments in succeeding final rules without notice and 
comment. This is the procedure that BLM used in its cost recovery rule 
published on October 7, 2005 (70 FR 58872).
    Proposed Sec. Sec.  3207.11(b) and 3207.12(d) would allow a lessee 
to make minimum annual payments instead of performing the work 
requirements, as provided in the statute at 30 U.S.C. 1005(c). These 
sections would provide that a lessee may make a payment equivalent to 
the required work expenditure, such that the total of the payment and 
the value of the work performed equals the dollar value of the 
expenditure that would otherwise be required. As provided in the 
statute, these sections would also allow BLM to limit the number of 
years that it would accept such payments, if it determined that 
payments in lieu of work requirements would impair achievement of 
diligent development of the geothermal resource. We concluded that such 
impairment determinations were more appropriately made on a case-by-
case basis and therefore we did not include in the rule a specific 
limit on the number of years that BLM will accept such payments.
    The proposed rule would take a different approach than the approach 
contained in the existing rules regarding the amount of payments that 
would be allowable in lieu of work performance. Existing Sec. Sec.  
3210.15 and 3208.13 allow for a lessee to make payments in lieu of 
performing work requirements, but the payment amounts are substantially 
less than the value of the work otherwise necessary to be performed. 
The current rules thus appear to create a disincentive to the 
performance of work. BLM would reject the existing scheme in the 
proposal, and not allow payments in a lesser amount than the value of 
the required work. As stated above, if a lessee were to choose to make 
payments instead of performing work, the proposed rule would require a 
lessee to make minimum annual payments in amounts equivalent to the 
required work expenditure, such that the total of the payment and the 
value of the work performed equals the dollar value of the expenditure 
that would otherwise be required. By eliminating the disincentive to 
perform work, the proposal would further the statutory purpose of 
encouraging the development of geothermal resources.
    Proposed Sec. Sec.  3207.11(b) and 3207.12(d) would also provide 
that a lessee is exempt from work requirements if it submits 
documentation to BLM showing that it has produced or utilized 
geothermal resources in commercial quantities. This would implement 30 
U.S.C. 1005(f), which provides that minimum work requirements do not 
apply after the date on which the geothermal resource is utilized in 
commercial quantities.
    Proposed Sec. Sec.  3207.11(c) and (e), and 3207.12(f) and (g) 
would provide timeframes for a lessee to submit information to BLM 
showing that it has met the work requirements or paid or produced in 
lieu thereof, explain the type of information that must be submitted, 
and explain BLM's approval process.
    Proposed Sec.  3207.12(e) would provide that if a lessee expends an 
amount greater than the dollar expenditure required in that year on 
suitable development activities, the lessee may apply any excess 
payment to any subsequent year within that same 5-year extension 
period. This is similar to Sec.  3208.14(a) of the current regulations.
    Proposed Sec.  3207.13 would exempt from the work requirements a 
lessee whose lease overlies a mining claim when: (1) The mining claim 
has a plan of operations approved by the appropriate Federal land 
management agency; and (2) Development of the geothermal resource would 
interfere with the mining operations. This would implement 30 U.S.C. 
1005(e).
    Proposed Sec. Sec.  3207.14 and 3207.15 would implement the 5-year 
drilling and 35-year production extensions provided for in the statute 
at 30 U.S.C. 1005(g). The previous version of the statute contained not 
only these extensions (at former 30 U.S.C.1005(c)), but also a separate 
40-year production extension (at former 30 U.S.C. 1005(a)). Because the 
2005 statutory amendments eliminated the 40-year production extension, 
we examined more carefully the language of the 5-year drilling and 35-
year production extension provision, to determine its applicability. We 
concluded that the language in the statute supports applying the 5-year 
drilling and 35-year production extensions to regular leases, as well 
as to leases under cooperative or unit agreements.
    The statute provides for a drilling extension only if a lessee is 
engaged in qualifying drilling operations at the time the primary term 
ends. (See 30 U.S.C. 1005(g).) Under the new statutory and regulatory 
scheme, if the lessee has submitted information showing that it has met 
the applicable requirements (work activities or payment or production 
in lieu thereof), the primary term would be extended each year past the 
10th year and would end only at the end of the 20th year. If, however, 
the lessee fails to submit information showing that it has met the 
applicable requirements during any extension year

[[Page 41549]]

after the 10th lease year, the lease would terminate at the end of that 
year. (See discussion of proposed Sec. Sec.  3207.11 and 3207.12, 
above.) Thus, proposed Sec.  3207.14 would allow the drilling extension 
only if: (1) A lessee was drilling over the end of the 20th lease year 
(when the primary term would end due to lease expiration); or (2) A 
lessee had failed to submit information showing that it had met the 
requirements for an extension of the primary term and was drilling over 
the end of a year subsequent to the 10th year (in which case the 
primary term would terminate due to a failure to comply with 
requirements). The proposed section would further specify that to 
qualify for the drilling extension, the lessee must be drilling a well 
for the purposes of commercial production to a target that BLM 
determines is adequate, based on the local geology and type of proposed 
development. The proposed section would also provide, as does the 
statute, that the lease would expire if, at the end of the five-year 
drilling extension, the lessee did not qualify for a production 
extension (i.e., if the lessee was not producing or utilizing the 
geothermal resource in commercial quantities--see discussion of 
proposed Sec.  3207.15, below).
    Proposed Sec.  3207.15 would provide a production extension of up 
to 35 years for a lease that is: (1) Actually producing geothermal 
resources in commercial quantities; or (2) Has a well capable of 
producing geothermal resources in commercial quantities and the lessee 
is making diligent efforts to utilize the resource. This would reflect 
the definition at 30 U.S.C. 1005(h) of ``produced or utilized in 
commercial quantities.'' Although that term would be defined at Sec.  
3200.1, we also propose to include the definition in this section for 
the reader's convenience. The section would also indicate what types of 
information a lessee must provide to BLM for it to determine whether to 
grant a production extension. A lessee with a BLM-approved utilization 
plan allowing for seasonal operation would be eligible for the 
production extension as long as it was producing or utilizing the 
geothermal resource in commercial quantities during the periods that 
the utilization plan provided for operations.
    Proposed Sec.  3207.16 would implement the lease renewal provision 
at 30 U.S.C. 1005(g). The statute provides for renewal ``for a second 
term.'' We have interpreted ``second term'' to mean a period equal to 
the length of the primary term including the initial and additional 
extensions (a total of 20 years) plus the length of the production 
extension (up to 35 years) for a total renewal period of up to 55 
years. This section would also specify that the renewal term continues 
only so long as the lessee is producing or utilizing geothermal 
resources in commercial quantities. The term ``produced or utilized in 
commercial quantities'' is defined in proposed Sec.  3200.1.
    Proposed Sec.  3207.17 would provide that leases committed to a 
unit agreement that would expire before the unit term would expire may 
be extended to match the term of the unit if unit development has been 
diligently pursued. Paragraph (a) of this section is virtually 
identical to the current regulation at Sec.  3208.10(a)(4), with a 
slight change in wording to remove any implication that the holder of 
the expiring lease must be the one to have diligently pursued unit 
development.
    Proposed Sec.  3207.18 would implement 30 U.S.C. 1017(f)(3) and 
provide that a lease that is eliminated from a unit is eligible for a 
drilling extension or a production extension if it meets the 
requirements for such extensions.

Subpart 3208--Extending the Primary Lease Term

    Existing subpart 3208 would be removed because under this proposed 
rule the subject of extensions of lease terms would be addressed in 
proposed subpart 3207.

Subpart 3209--Conversion of Lease Producing Byproducts

    Existing subpart 3209 would be removed because the lease 
conversions that subpart covers are no longer allowable under the 
Energy Policy Act of 2005.

Subpart 3210--Additional Lease Information

    Proposed Sec. Sec.  3210.10 and 3210.11 on lease segregation would 
remain substantively unchanged from the existing sections.
    Proposed Sec.  3210.12 would reference new lease size limits and 
the processing fee for lease consolidations. In other respects, it 
would be substantively unchanged from the existing section.
    Existing Sec. Sec.  3210.13, 3210.14, 3210.15, and 3210.16, all of 
which pertain to diligent exploration requirements, would be removed. 
These provisions would be addressed by the sections related to work 
requirements in proposed subpart 3207. Despite their removal, their 
substantive terms would continue to be applicable to leases existing on 
August 8, 2005 and leases issued after August 8, 2005 in response to 
applications pending on that date, unless the lessees elect to be 
subject to the new regulatory requirements that would be adopted in 
this rulemaking.
    Proposed Sec.  3210.13 on leasing or locating minerals on a 
geothermal lease would remain substantively unchanged from existing 
Sec.  3210.17.
    Proposed Sec.  3210.14, pertaining to readjustment of the terms and 
conditions of geothermal leases, would replace existing Sec. Sec.  
3210.18, 3210.19, and 3210.20 that relate to the same topic. It would 
implement 30 U.S.C. 1007, as revised by the Energy Policy Act of 2005. 
Proposed Sec.  3210.14(a) on readjustment of lease terms and conditions 
would replace existing Sec. Sec.  3210.18 and 3210.19(a). With one 
exception, proposed paragraph 3210.14(a) would be substantively 
unchanged from existing Sec.  3210.18. Existing Sec.  3210.18 provides 
that once BLM and the other agency reach agreement, BLM will readjust 
the terms of the lease. The existing rule does not state, as the 
statute requires at 30 U.S.C. 1007(c), that the other agency must 
approve the readjustment. Proposed Sec.  3210.14(a)(2) would clarify 
that the other agency must approve the proposed readjustment. 
``Approval'' is the term used in 30 U.S.C. 1007(c).
    Proposed Sec.  3210.14(b) would replace existing Sec.  3210.20(a). 
The existing 22.5 percent royalty cap for readjusted leases would be 
removed because that cap is no longer in the statute.
    Proposed Sec. Sec.  3210.14(c), (d), and (e) would implement the 
procedures of 30 U.S.C. 1007(b), and are somewhat different than the 
procedures in existing rules at 43 CFR 3210.19 and 3210.20. Under 
existing Sec. Sec.  3210.19(a) and 3210.20(b), BLM notifies lessees in 
writing of proposed readjustments and provides the lessee 30 days to 
object in writing to the new terms. The existing rules provide further 
that if a lessee does not object, the proposed new terms will become 
part of an existing lease and that if a lessee does object, BLM will 
issue an appealable final decision on the new terms and conditions. The 
existing rules, however, do not expressly mention certain concepts 
contained in the statute that are described below.
    Under the proposal BLM would give a lessee a written proposal to 
adjust the rentals, royalties, or other terms and conditions of its 
lease. The lessee would have 30 days after receiving the proposal to 
file with BLM an objection in writing to the proposed new terms and 
conditions. If the lessee does not object in writing or relinquish its 
lease, it would conclusively be deemed to have agreed to the proposed 
new terms and conditions. This concept, implied but not expressly 
stated in the existing

[[Page 41550]]

rules, is taken directly from the statute. BLM would then issue a 
written decision under proposed Sec.  3210.14(d), setting the date that 
the new terms and conditions become effective as part of the lease. 
This decision would be in full force and effect under its own terms, 
and under proposed Sec.  3210.14(d), the lessee would not be authorized 
to appeal the BLM decision to the Department's Office of Hearings and 
Appeals.
    Proposed paragraph (e) establishes procedures for the situations 
where a lessee files a timely objection to the proposed readjustment 
and is intended to implement a portion of 30 U.S.C. 1007(b) that is not 
addressed in existing regulations. Under proposed paragraph (e)(1), if 
a lessee files a timely objection in writing, BLM could issue a written 
decision making the readjusted rental and royalty terms effective no 
sooner than 90 days after receiving the objections, unless BLM reaches 
an agreement with the lessee as to the readjusted terms of the lease 
that makes such terms effective sooner.
    Under proposed Sec.  3210.14(e)(2), if BLM does not reach an 
agreement with the lessee by 60 days after receiving the lessee's 
objections, then either the lessee or BLM may terminate the lease, upon 
giving the other party 30 days' notice in writing. This provision is 
contained in 30 U.S.C. 1007(b), but does not appear in the current 
regulations. The proposed rule would clarify that a lease termination 
under proposed paragraph (e)(2) would not affect a lessee's obligations 
that accrued under the lease when it was in effect, including those 
specified in Sec.  3200.4.
    Unlike a BLM decision under proposed Sec.  3210.14(d), a lessee 
could appeal a BLM readjustment decision under proposed Sec.  
3210.14(e)(1). Proposed Sec.  3210.15 would address such appeals. It 
would provide that if a lessee appeals BLM's decision under Sec.  
3210.14(e)(2) to readjust lease terms and conditions, or rental or 
royalty rate, the decision would be effective during the appeal. If the 
lessee wins its appeal and BLM would have to change its decision, the 
lessee would receive a refund or credit for any overpaid rents or 
royalties.
    In summary, BLM would provide a lessee 30 days to object to a 
proposed readjustment decision. If the lessee objects, BLM could issue 
a written decision making the readjusted rental and royalty terms 
effective no sooner than 90 days after receiving the objection. A 
lessee would have 30 days to appeal that decision under Office of 
Hearings and Appeals regulations. In addition to the appeal process, 
BLM and the lessee could attempt to negotiate an agreement within 60 
days after receiving the objection. If an agreement is reached, the 
appeal would be withdrawn. If an agreement is not reached, either the 
lessee or BLM could terminate the lease, even if an appeal would be 
pending.
    Proposed Sec. Sec.  3210.16 and 3210.17, relating to drainage of 
geothermal resources, would be substantively unchanged from existing 
Sec. Sec.  3210.22 and 3210.23.

Subpart 3211 Filing and Processing Fees, Rent, Direct Use Fees, and 
Royalties

    Existing Sec.  3211.10 establishes filing fees, rent, and minimum 
royalties for geothermal leases. In the proposed rule, existing Sec.  
3211.10 would be split into several new sections because of the changes 
to lease rental rates, royalty rates, and minimum royalty requirements 
in the Energy Policy Act of 2005. Proposed Sec.  3211.10 would only 
address processing and filing fees. Rather than listing the various 
fees for lease nomination, lease filing, and subsequent lease 
transactions, proposed Sec.  3211.10 would reference existing 43 CFR 
3000.12, which sets fees for all mineral applications and transactions. 
BLM expects to update Sec.  3000.12 from time to time to reflect actual 
costs associated with these activities. If the specific fees were 
included in this part, the geothermal regulations would have to be 
changed every time fees were revised.
    Proposed Sec.  3211.11 would establish rental rates for geothermal 
leases. The new lease rental rates would be taken directly from 30 
U.S.C. 1004(a)(3)(A) and (B). The rental rates in the Energy Policy Act 
of 2005 have changed significantly from the rental rates in the 
existing regulations. While the rental for noncompetitive leases 
remains at $1 per acre per year for the first 10 years, the rental for 
competitive leasing has increased from $2 per acre per year to $3 per 
acre per year from years 2 through 10. Starting with the eleventh year, 
the rental rate for all leases increases to $5 per acre per year. 
Proposed Sec.  3211.11(d) would carry forward the current provision 
regarding fractional mineral interests that currently is contained in 
Sec.  3211.13. The references to minimum royalties in the existing rule 
would be removed because the Geothermal Steam Act as revised by the 
Energy Policy Act no longer provides for minimum royalties.
    Proposed Sec.  3211.12 is virtually the same as existing Sec.  
3211.12. The Energy Policy Act of 2005 did not make any changes to whom 
the rent is paid for the first year and subsequent years.
    Proposed Sec.  3211.13 addresses when rental payments are due and 
would replace existing Sec.  3211.11. The rule would provide that rent 
is always due in advance. MMS must receive annual rental payments by 
the anniversary date of each lease year. If less than a full year 
remains on a lease, a lessee must still pay a full year's rent by the 
anniversary date of the lease. The payment of rent in advance is 
required by 30 U.S.C. 1004(a)(3). As this was also required in the 
original Steam Act of 1970, there are no substantial changes to this 
portion of the provision. The reference in existing Sec.  3211.11 to 
the automatic termi