The development of Arizona's geothermal energy resources has the potential to provide industrial and commercial projects with a constant, renewable source of electrical power. Research conducted to date demonstrates some higher-temperature geothermal resources supportive of electric generation projects that may be ideally located for some Arizona projects.² With technological advances in geothermal energy production methods, opportunities for harvesting geothermal energy cost effectively will expand. Arizona currently has laws³ specifically addressing geothermal energy production, but the nature of geothermal projects implicates a wide variety of permit programs and overlapping conditions that were not written with an intent to efficiently accommodate geothermal technologies. Arizona law does not designate a lead agency for geothermal permits, and the variety of requirements could lead to confusion without adequate planning. The purpose of this article is to identify some significant current regulatory requirements that must be considered in planning the construction and operation of a geothermal power generation facility apart from land and mineral rights acquisition considerations.⁴

Geothermal power generation typically involves extraction and injection of water or another fluid, steam, or gases out of and into the earth. Because of the nature of geothermal energy production, there are a number of federal, state, and local agencies that will likely be involved in facility permits. Although the number of involved agencies may complicate the permitting process, many of the requirements of these agencies are redundant, and overall permitting timeframes and costs should be manageable with advance planning to address the overlapping jurisdictions, and communication. The use of on-site power facilities for projects may also eliminate other costly and time-consuming processes such as utility transmission line siting, right-of-way acquisition, and utility power plant expansions.

Significant permit requirements are discussed briefly, categorized by governmental agency, below.

Arizona Oil and Gas Conservation Commission
Arizona laws do not designate a controlling or lead agency for geothermal facility permits, but the Arizona Oil and Gas Conservation Commission ("AOGCC") is given specific authority to regulate many aspects of exploration, production, and conservation of geothermal energy resources as a natural resource. AOGCC has authority to regulate the drilling, operation, maintenance, and abandonment of wells drilled for or in the area of existing or created geothermal resources.⁵ AOGCC also has authority to approve unit production agreements,⁶ oversee the construction and maintenance of geothermal water and brine disposal systems, and may require the reinjection of produced water into the producing zones.⁷ "Geothermal resources" are defined broadly in AOGCC's jurisdiction to include all products of geothermal processes including steam; water; brines; gases; injected fluids or gases; minerals except helium and fossil fuels present in association with the steam, water, or brines; and even simply "heat or other associated energy."⁸ The AOGCC's regulations are designed to protect geothermal resources against waste through facility design and oversight, monitoring, and bonding requirements.⁹

The AOGCC's geothermal program authority and rules are fairly comprehensive and fairly clear, and are not covered in detail in this article. AOGCC's authority over geothermal projects, although comprehensive, is not exclusive, and other state and federal agencies have overlapping authority, discussed below.

Arizona Department of Water Resources
Traditional industrial-size geothermal generation facilities can consumptively use significant amounts of water, even if process water is re-injected into the ground. Newer closed loop plant designs may reduce or even eliminate the need for water.¹⁰ For any facility that will use or consume water, the physical and legal availability of a reliable water supply are key planning concerns. Arizonans are informed regularly about regional and local water supply issues, so early water supply planning is also quite helpful in addressing questions from members of the public as they arise.

In most cases, water will be used in projects in some form to transfer heat, whether the water originates as hot groundwater naturally occurring in an underground aquifer, or whether water from another source is introduced into an otherwise dry fractured hot rock formation to be heated and then withdrawn. Arizona's water laws will likely apply to water used in geothermal projects because, by definition in the statutes, such waters are "commingled with surface waters or groundwaters of this state" and development might cause "impairment of or damage to the groundwater supply."¹¹ On the other hand, if a project is designed to prevent commingling with surface water or groundwater, and will not influence the groundwater supply, then a project should be exempt from water laws.¹²

Water law in Arizona is well developed, but not in the context of the production of geothermal resources. Arizona water law is also quite complicated, with applicable laws that vary depending upon the type of water (for example, surface water, groundwater, Colorado River water, and effluent), and upon the location of withdrawal or use. Arizona water law is bifurcated in that different sets of laws apply to the use of surface water and groundwater, for the most part ignoring proven hydrologic connections.

Surface water rights are recognized in a prior appropriation system where continuing historic uses have priority over newer uses. In contrast, groundwater is treated in the law as more of a public resource that landowners are authorized to capture, subject to reasonable and beneficial use.¹³ A developer of a geothermal project will need to plan carefully to ensure the future availability of needed groundwater resources in the project area. Unlike typical oil and gas property rights in Western states, the right to withdraw groundwater from particular land in Arizona cannot be severed from the land and protected (such as through a mineral rights reservation in a deed, or purchase of mineral rights).¹⁴ Rather, groundwater is subject to competitive capture by neighboring users.

The Arizona Department of Water Resources ("ADWR") administers groundwater use laws. All groundwater uses in Arizona must be reasonable and beneficial.¹⁵ Use of water for power generation is a recognized beneficial use of all types of water.¹⁶ The transportation of groundwater, however, away from groundwater subbasins or basins is restricted.¹⁷

Groundwater withdrawal and use is further restricted in designated Active Management Area ("AMA") groundwater basins. There are currently five AMAs that include most of the urbanized areas in the south central portion of the state--the Prescott AMA, Phoenix AMA, Pinal AMA, Santa Cruz AMA and Tucson AMA. Within AMAs, withdrawal and use of groundwater is highly regulated by the Arizona Groundwater Code.¹⁸ Geothermal projects that will use groundwater inside an AMA will require legal authority to use a well (probably through a new well permit), and a separate legal authority to withdraw groundwater. (Well permits are discussed below.) Authority to use groundwater inside an AMA for a geothermal project will likely only be available through use of a Type 1 or Type 2 non-irrigation grandfathered groundwater withdrawal right, or through a new groundwater withdrawal permit; or it may be possible to use a municipal service provider's service area withdrawal authority. Each of these permits and rights have requirements that must be met, and may or may not be available for a particular project. For example, Type 2 rights are limited in number within each AMA, have a set annual withdrawal amount, and must be purchased from a willing seller. Once again, advance planning for water supply issues is crucial.

Although Arizona water law provides little direct protection against competing uses of groundwater, the significant regulation of groundwater withdrawals and uses inside AMAs may provide some level of certainty regarding the future availability of geothermal water resources for projects. It may also be possible to permit a geothermal facility as an underground storage facility for storage of available treated effluent or surface water to provide added protection of groundwater resources stored within the area of influence of the injection wells.

Another Well Drilling Permit
In addition to administering laws regarding the use of groundwater, ADWR has regulatory authority over the construction and deepening of all wells through which water may be obtained, except oil, gas, and helium wells.¹⁹ ADWR lacks regulatory authority over geothermal wells only when the ADWR director determines that (1) exploration wells should be exempt because it is not necessary for ADWR to exercise jurisdiction for the protection of groundwater, or (2) that the rules and regulations of the AOGCC require the reinjection of all waters associated with the geothermal resource to the producing strata.20 The current AOGCC statutes authorize, but do not require, the reinjection of water into the producing zones; and there is no supplementary AOGCC rule, so ADWR may assert jurisdiction.

Further, ADWR's rules require that wells be installed by a well driller licensed by ADWR, and the design and construction must comply with ADWR's well construction standards.²¹ ADWR's well construction and drilling requirements are designed to protect groundwater resources, similar to the AOGCC's well permit requirements. Due to the rarity of deep mineral exploration in Arizona, most local drilling experience has been with relatively shallow, vertical water wells, so it is advisable to schedule drilling rigs far in advance and ensure drilling contractors are properly licensed.

In addition to compliance with well drilling regulations, wells drilled within AMAs must comply with ADWR's well spacing rules. The well spacing rules require applicants to demonstrate that the new or deepened well will not cause unreasonably increasing damage to surrounding land or other water users from the concentration of wells. ADWR's rules contain bright line standards for determining when wells will unduly impact nearby wells.²² If proposed groundwater withdrawals will violate the well impact rules, then it may be necessary to decrease proposed withdrawals in order to obtain a well permit. Well permits will also be limited to the amount of groundwater withdrawals authorized by the groundwater withdrawal authority assigned to the well (for example, the authorized annual withdrawal amount for a Type 2 non-irrigation grandfathered groundwater withdrawal right).

At this point, a potential project developer may be thinking: "This is too complicated." It is important to keep in mind, however, the potential long term benefits of geothermal generation - reliable, renewable, clean, dedicated, base load power. That's right. Keep reading. Arizona Department of Environmental Quality The environmental permits required for a geothermal project will depend on the design and operation of the facility, but typically one or more discharge permits may be required, or at least sought, to cover unintended or emergency releases.

Discharges to groundwater²³ are regulated through the Arizona Department of Environmental Quality's ("ADEQ's") Aquifer Protection Permit ("APP") program.24 State law prohibits discharges to an aquifer that contribute to a violation of aquifer water quality standards, or, if the aquifer is already degraded, to further degradation of the aquifer.²⁵ Aquifer water quality standards are generally the same as primary drinking water maximum contaminant levels, and any different standards must be adopted through a rulemaking.²⁶ APP permits typically require that the best available demonstrated control technologies are employed to reduce discharges, and contain monitoring requirements with alert levels and discharge limits; recordkeeping, monitoring, and reporting requirements; and closure and financial assurance requirements, many of which will overlap AOGCC's permit provisions.²⁷ No general APP permits have yet been established for geothermal facility applications.

One question that arises is whether groundwater discharges can even be permitted if such discharges will not meet drinking water standards. It is possible. ADEQ is authorized to reclassify an aquifer for uses other than drinking water if the aquifer is hydrologically isolated from other aquifers and if the economic, social and environmental benefits to the public outweigh the detriment of doing so.²⁸ This balancing standard, however, may be difficult to meet.

If a new aquifer will be created by the project, the question arises whether the newly-created aquifer will then also be subject to an APP permit. The answer is "maybe." The APP requirements apply to an "aquifer," which is defined as a "geologic unit that contains sufficient saturated permeable material to yield useable quantities of water to a well or spring." A newly-created aquifer could be determined to be a drinking water aquifer if it meets this definition.²⁹ Similarly to existing aquifers, the project owner may petition ADEQ to designate a newly-created aquifer for geothermal injection uses with a demonstration that the newly-created aquifer will be hydrologically isolated from other existing aquifers.³⁰ Still, even with a newly-classified geothermal use aquifer, the APP permit requirements may apply.

If fluid will be discharged to a surface water, then it may also be necessary to obtain an Arizona Discharge Elimination System ("AZPDES") permit from ADEQ.³¹ AZPDES permits may have more restrictive water qualify criteria than APP permits depending upon the location of discharge, but have similar components that may overlap with both APP and AOGCC requirements, such as monitoring requirements. AZPDES permits can also take a significant amount of time to obtain.

In addition, an air quality permit may be required depending on the emissions from well venting, the geothermal generation plant, and the overall project. A number of Arizona counties have delegated authority to issue air permits. The type of permit and requirements will depend on the technology employed and the location of the project.

Environmental Protection Agency
The Environmental Protection Agency ("EPA") regulates injection of fluids underground in geothermal wells in Arizona through its Underground Injection Control ("UIC") program, under the authority of the Safe Drinking Water Act.³² This federal authority overlaps the state AOGCC's rule requiring a permit for such wells at the state level.³³ Injection wells used for geothermal projects could require an individual UIC permit depending on the injected fluid and design, but typical small flow return systems are classified as Class V wells and are permitted automatically by federal rule until the Arizona APP permit, or perhaps the AOGCC permit, is issued.³⁴ Injection of fluid below the lowermost aquifer will require an individual Class I UIC permit, implicating a typically lengthy review process.

If an individual UIC permit is required, permit terms can include design, construction, and operational requirements, monitoring, recordkeeping, and environmental impact mitigation requirements, many of which will overlap with AOGCC and ADEQ well and discharge permit requirements.³⁵

Arizona Corporation Commission
Finally, the Arizona Corporation Commission ("ACC") is a constitutionally-created body that regulates public utilities. Any person planning to construct (1) a thermal electric generating unit of 100 MW or more, or (2) an above-ground transmission line of 115 kV or more, in order to generate or transmit electrical power is required to obtain a Certificate of Environmental Capability ("CEC") from the ACC and another statutory body, the Powerplant and Line Siting Committee. If plants and transmission lines are smaller than these capacities, no CEC is required. The CEC review is intended to address environmental impact and related siting issues that may not be specifically addressed in the permit processes outlined above, may require additional studies, and the CEC could impose more stringent requirements than other permits.

Other Permits
And, if the requirements above were not enough, a number of other permits may be required depending on the facility plans and siting, including special use zoning permits, section 404 Army Corps of Engineers permits, drainage or grading permits and other building permits, and stormwater discharge permits.

Conclusion
There are a number of current regulatory programs implicated by geothermal generation projects sited in Arizona, but advance planning and communication will help reduce potential delays threatened by the number and variety of permit redundancies. To encourage development of this abundant and renewable resource, especially as new technologies develop, state leaders should support changes in laws and regulations that will streamline these numerous state and local permit requirements, while still safeguarding the environment and public health.
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¹Michele Van Quathem, a shareholder of Ryley Carlock & Applewhite in Phoenix, Arizona, is a water and natural resources attorney who regularly assists project developers site and permit energy, mining, other industrial, and commercial facilities. Any opinions expressed in this article are the author's own. Each of the requirements discussed in this article may apply differently depending on the project and location - this article is not intended to be legal advice or to provide a legal opinion. Contact Michele at mvq@rcalaw.com .

²See a map of Arizona's known geothermal resources at http://www.azgs.az.gov/images/geothermal_1b.gif. The Arizona Geological Survey's website contains a comprehensive collection of prior studies of Arizona's geothermal potential. Visit www.azgs.az.gov and click on "geothermal."

³The information in this article is current as of the date above, but laws and rules may change.

⁴There are a number of siting and landowner issues not addressed in this article that should be considered in evaluating a potential geothermal project, including surface, mineral, and pore space ownership; costs; and other risks. For example, facilities placed on federally-controlled resources will require a lease with the federal land management agency per the Geothermal Steam Act of 1970, as amended, including terms requiring the payment of royalties. In addition, the Bureau of Land Management ("BLM") requires drilling permits and construction permits covering applicable activities on BLM lands. See 43 Code of Federal Regulations ("CFR") subparts 3260-3265, 3270-3277.

⁵Arizona Revised Statutes ("A.R.S.") §§ 27-651, 655. AOGCC regulates all "wells," defined as "any well drilled in search of geothermal resources or any development well on lands in areas proved to be underlain by one or more formations containing geothermal resources or reasonably presumed to contain geothermal resources or any well drilled for information purposes, or any producing well or reentered abandoned well used for the injection of fluids into the geothermal formation or disposition of fluids into nongeothermal formations, or any well drilled for the purpose of stimulating the heat of a formation or for the creation of heat in a formation by nuclear or any other form of energy." A.R.S. § 27-651(13).
⁶A.R.S. § 27-664 et seq.
⁷A.R.S. § 27-652(C), (D).
⁸A.R.S. § 27-651(6).
⁹Arizona Administrative Code ("A.A.C.") R12-7-101 et seq.
¹⁰New technologies, such as closed loop systems, may reduce the amount of water needed for geothermal energy production. For example, a pilot project in northeastern Arizona proposes to use carbon dioxide in a closed loop system as a heat transfer medium. http://energy.gov/articles/innovative-geothermal-startup-will-put-carbon-dioxide-good-use.

¹¹A.R.S. § 27-667.
¹²Id.
¹³See review in Davis v. Agua Sierra Resources, L.L.C., 203 P.3d 506 (2009); A.R.S. § 45-453.

¹⁴203 P.2d at 512.
¹⁵Bristor v. Cheatham, 255 P.2d 173, 178-79 (1953); Brady v. Abbott Laboratories, 433 F.3d 679, 682 (9th Cir. 2005); A.R.S. § 45-453.

¹⁶See, for example, A.R.S. § 45-141(B), 151, 157(B)(3), 162, 464(E).
¹⁷A.R.S. §45-541 et seq.
¹⁸A.R.S. § 45-401 et seq.
¹⁹A.R.S. §§ 45-402(43), 591.01.
²⁰A.R.S. §45-591.01.
²¹A.R.S. § 45-591 et seq.; A.A.C. R12-15-8021 et seq. (licensing requirements); R12-15-1301 et seq. (well spacing rules).

²²See A.A.C. § R12-15-1302.
²³Even discharges of water to groundwater through seepage from the surface may be covered.

₂₄See A.R.S. § 49-241.01(B)(3) (APP permit required for injection wells).
^₂₅A.R.S. §§ 49-224(B), 241, 243(B).
²⁶A.R.S. §§ 49-221, 223.
²⁷A.A.C. R18-9-101 et seq.
²⁸A.R.S. § 224(C).
²⁹A.R.S. § 49-224(B) (drinking water use applies to all aquifers "subsequently discovered, identified, and defined).

³⁰A.R.S. § 49-224(D).
³¹See A.R.S. § 49-255 et seq.
³²See generally 42 U.S.C. §300f et seq.; 40 CFR Parts 144-147; 40 CFR § 147.151.

³³A.A.C. R12-7-175(A)(2) (permit required for Class V wells).
³⁴40 CFR §§ 144.6 (classification of wells), 144.24 (authorization of Class V wells by rule); but see §144.25 (EPA may require an individual permit for Class V well).

³⁵40 CFR § 144.51.
³⁶A.R.S. §§ 40-360, 360.01, 360.03.