Still simmering… Alberta’s geothermal resources development regulatory scheme

Still simmering…  Alberta’s geothermal resources development regulatory scheme

At the end of 2020, the Geothermal Resources Development Act (GRDA) was passed although it has not yet been proclaimed into force. The GRDA provides the regulatory framework for development of deep geothermal resource development (i.e. those resources below the base of groundwater protection). The Alberta Energy Regulator (AER) has released its draft Directive [XXX] for Geothermal Resource Development (Geothermal Directive) which provides more detail around geothermal resource development regulation but no regulations pursuant to the GRDA have been released yet.

This blog post is a modified excerpt from:

Brief: Liability Issues in Geothermal Resource Development 

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This blog post provides an overview of what the regulatory scheme for deep geothermal resources will look like once the GRDA is in force and the Geothermal Directive is finalized (assuming the final version is the same as the draft version). In addition, this blog post looks at how liability is addressed in the GRDA and the Geothermal Directive.

Overview of the GRDA

The primary function of the GRDA is to establish a licensing regime for deep geothermal resource operations. A licence is required to drill a geothermal well or to operate any geothermal well or facility (s. 7). The AER may grant licences on any terms and conditions that it considers appropriate and licences may be amended either on the AER’s own motion or on application by the licensee (s. 9). A licence may be transferred to another person only with written consent of the AER and the transfer is subject to any conditions, restrictions or stipulations prescribed by the AER(s. 9). Further, the AER has the authority to cancel or suspend a licence in the event of a non-compliance or if equipment or operations are improper, hazardous, inadequate or defective (s. 10). In addition to cancellation or suspension of a license, the AER may shut down a well or facility and direct remedial actions be taken (s. 10). The AER has various enforcement powers under the GRDA such as inspection and investigation, directing suspension or abandonment of a well or facility, taking steps to suspend or abandon a well or facility, and directing or taking remedial action in the event of a substance release (ss. 11, 12, 14, 15 and 21).

The GRDA does not say much about environmental matters for deep geothermal operations. For instance, there is nothing in the GRDA mandating environmental assessment, payment of upfront security, appropriate set-backs from water bodies or other sensitive landscapes, or timelines for reclamation and remediation activities. Instead, the AER is granted broad discretion to make rules, leaving much of the environmental regulation to the discretion of the AER.

Regulations under the GRDA

The Cabinet is granted regulation making authority on several matters including access to geothermal resources, applicability of other energy resource enactments to geothermal resources, and prescribing things as not being wells or facilities for the purposes of the GRDA (s. 27). To date, no regulations have been released to the public.  However, it is reasonable to expect that some regulations will follow proclamation of the GRDA.

AER Geothermal Directive

Significant, discretionary rule making powers are granted to the AER by the GRDA. This includes addressing matters such as licensing; operational matters; management of wastes; monitoring and compliance; shut-down, suspension, abandonment and other closure activities; security requirements; conservation and management of geothermal resources; and location of geothermal operations including setbacks (s. 26).

As can be seen, much of the regulation for geothermal activities is left to the discretion of the AER. The AER proposes to provide this regulation via the Geothermal Directive which is still in draft form.

The Geothermal Directive applies to wells, facilities and pipelines associated with geothermal resource development at all stages: initiation, construction, operation and closure. Many of the requirements for geothermal developments are the same as those for oil and gas development and, as such, the Geothermal Directive contains numerous references to other AER directives which are applicable.

The Geothermal Directive addresses matters such as technical requirements for wells, facilities and pipelines; requirements for risk assessment of induced seismicity (for wells); applications for obtaining and transferring licenses; and geothermal data filing, measurement and reporting requirements. The Geothermal Directive also sets out closure requirements for wells, facilities and pipelines which includes meeting the equivalent land capability standard as set by the Conservation and Reclamation Regulation.  Requirements for conversion of an oil and gas well to a geothermal well are set out in section 3.4.6 of the Geothermal Directive (i.e. an amendment application is required to convert the well licence and converted wells must meet the requirements in Directive 020 as well as those in the  Geothermal Directive).

Amendments to other Legislation

There are numerous consequential amendments that will be made once the GRDA is proclaimed into force including to the Responsible Energy Development Act,  the Environmental Protection and Enhancement Act (EPEA), the Mines and Minerals Act, the Oil and Gas Conservation Act (OGCA), and the Pipeline Act.  For instance, the Mines and Minerals Act will be amended to provide that, where the context permits or requires, that Act applies to geothermal resources.

The OCGA will be amended to include the possibility that, via regulation, some or all provisions of the OCGA will apply to geothermal wells and facilities. As well, the OCGA section 106 authority which essentially allows suspension of principals (including officers and directors) from engaging in ongoing or future operations is extended to geothermal wells and facilities.

Liability provisions in the GRDA

In terms of liability, geothermal resource regulation should be designed to adhere to the polluter pays principle where the geothermal operator is responsible to clean-up its wells and other infrastructure.  So what does the GRDA say about liability for geothermal wells/facilities?  The short answer is not a lot.

As a starting point, the GRDA defines a geothermal well as “an orifice in the ground completed or being drilled to a depth below the base of groundwater protection for the purpose of the exploration for or development of geothermal resources” (s. 1(1)(h)). In addition, the AER may designate an oil and gas well/facility as being a geothermal well/facility for the purposes of the GRDA (s. 1(3)(b)).  This means in addition to being a geothermal well/facility, that same well/facility may have had a previous history of oil and gas operations which complicates the liability picture (i.e. which operator and which activity created the liability?).

Since the AER may designate an oil and gas well/facility as a well/facility for the purposes of the GRDA, this means oil and gas well/facilities may be converted into geothermal wells/facilities. If a person other than the licensee or a person directed by the AER to undertake operations wants to rework a well or facility, the GRDA indicates that they must obtain a licence to undertake operations (s. 8).  At such time, the former licensee is relieved from all obligations under the Act with respect to the well or facility except for outstanding debts to the AER or to the orphan fund in respect of suspension or abandonment costs (s. 8).

The GRDA also states that abandonment of a geothermal well or facility does not relieve the licensee or working interest participant from responsibility for control or further abandonment or from responsibility for the costs doing such work (s. 16).

As between working interest participants, the GRDA provides that costs of suspension, abandonment, remediation and reclamation must be paid by each working interest participant in accordance with their proportionate share in the well or facility, although this can be modified by the AER (s. 17).

Once the GRDA is proclaimed into force, the EPEA will be amended to expand the definition of well to include geothermal wells. This means lands which contain geothermal wells will be categorized as specified land under the Conservation and Reclamation Regulation, and will be subject to the EPEA’s conservation and reclamation requirements (i.e. returning land to an equivalent land capability).

Liability provisions in the Geothermal Directive

Section 2 of the Geothermal Directive is most relevant to liability issues as it sets out the requirements for license eligibility, holistic licensee assessment, the licensee management program, liability assessment and security deposits.  Before applying for a licence, an applicant must obtain licensee eligibility as per Directive 067: Eligibility Requirements for Holding Energy Licences and Approvals. Only those determined to be eligible by the AER are allowed to acquire or hold licenses for well, facilities or pipelines.

All regulatory decisions made about a particular licensee are informed by holistic licensee assessment which is a “multi factor approach to assess the capabilities of licensees to meet their regulatory and liability obligations throughout the Geothermal development life cycle” (s. 2.8).  The factors to be considered are listed in section 4.5 of Directive 067, as well as those listed in section 2.8 of the Geothermal Directive, including:

• financial health;
• estimated total magnitude of liability;
• remaining lifespan of the geothermal development and infrastructures;
• rate of closure activities and spending, and pace of inactive liability growth;
• management and maintenance of regulated infrastructure and sites; and
• compliance with administrative regulatory requirements.

All geothermal licence applications trigger the holistic licensee assessment which is considered in the decision to approve, approve with conditions or deny a licence.

The Licensee Management Program is designed to allow the AER to “proactively monitor licensees to support the responsible management of geothermal development” (s. 2.9). Under this program, the information gathered from the holistic licensee assessment is used to identify those licensees at greater risk of failure in meeting regulatory and liability obligations. The AER may undertake engagement (such as education, encouragement to follow best practices), or specific regulatory action as a result.

The AER requires geothermal applicants or licensees to provide a liability assessment which is an estimate of total liabilities associated with geothermal development (s. 2.10).  This includes the costs of care and custody, and the costs to permanently end operations including abandonment and reclamation. The liability assessment must consider factors such as geographic location, site contamination, H₂S and CO₂ content of production fluid in open-loop wells, and well or facility characteristics (e.g. new or converted, depth and diameter, groundwater protection, facility type). The AER may require a site-specific assessment in accordance with Directive 001: Requirements for Site-Specific Liability Assessments in Support of the ERCB’s Liability Management Programs.

In terms of security deposits, the Geothermal Directive references the Geothermal Resources Development Rules(which appear to be regulations under the GRDA which have not yet been released even in draft form) as granting the AER broad authority to require security deposits. The AER will determine the need and amount of security required based upon the holistic licensee assessment. The maximum security amount that can be required is the licensee’s total liabilities.

Final thoughts on geothermal resource development and liability

It is apparent that the approach to deep geothermal resources, in terms of both regulation and liability, is modelled on the OGCA and the AER oil and gas liability management approach. Given the current significant oil and gas liability problem in Alberta, which arose under the OGCA and the existing liability management approach, it is very concerning that the same mistakes may be repeated with geothermal resource development. As the ELC has previously recommended with oil and gas development, legislated timelines for well clean-up and requirements for up-front security ought to be in place for geothermal resource development.

Further, considering that geothermal power projects require government funding and this public investment is required to facilitate growth in the industry in the future any outstanding oil and gas liabilities must be resolved prior to transfer to new geothermal operators.

Geothermal Energy: Alberta’s Geothermal Resources Regulatory Scheme at a Glance

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Brief: Liability Issues in Geothermal Resource Development 

Download Now!