Issue: October, 2006
Author: Douglas J. Moench
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Wind. The very word is almost synonymous with "Wyoming." In a state with a mean elevation of 6,700 feet and geology unique in the world, Wyoming has always been a place where the wind blows free and strong. Most view the wind in Wyoming as relentless and never ceasing. It is a primary force in the shaping of the many geologic features of the state and, some would argue, helps shape the spirit of the Wyoming resident with the same strong and relentless force.
In these opening years of the twenty-first century, however, Wyoming's geology and unique wind-blown characteristics are becoming an increasingly important aspect of Wyoming's status as energy producer to the country. As an energy source, wind is taking a place along side coal and natural gas as part of the state's resource mix that is the driving force behind Wyoming's thriving economy. While small in comparison to coal and natural gas in the world of power generation, energy produced from wind turbines is the new kid on the block. Installed capacity has grown fivefold since the early eighties. "Today, the wind energy industry is installing more wind power in a single year (3,000 MW expected in 2006) than the amount operating in the entire country in 2000 (2,500 MW)".
Wyoming's wind resource is viewed as one which is destined to grow as developers and wholesale and retail utility providers seek not only more energy for their residential, commercial and industrial customers, but also to comply with the mandate for "clean" energy which, in other states, has now become a part of some state and municipal codes.
The American Wind Energy Association, based upon a study done by Pacific Northwest Laboratories in 1991, estimates that the potential wind energy in the State of Wyoming is as high as 85,000 megawatts (MW) of power. Considering the estimate that Wyoming's original commercial wind plant, the Foote Creek Rim facility, in Carbon County, produced 85 megawatts of energy, or enough power for 27,000 average homes, the potential for wind produced energy is huge. Clearly, the coal industry's supply of coal to coal fired plants throughout the country provides a larger number of homes with power. The coal industry and the revenues generated for Wyoming are extremely important to Wyoming, now and in the future. And coal's significance in the generation of power may become increasingly important as technological advances to create "clean coal" move forward. Plants utilizing the integrated gasification combined cycle process may pay huge dividends to the state, both environmentally and in revenues. Wind farms, too, hold great promise as an adjunct to these new technologies. The wind farm produces no air emissions, and the Foote Creek Rim project alone avoids 150,000-380,000 tons of carbon dioxide per year, as well as air pollutants and acid rain precursors.
What does this mean to Wyoming residents and the attorneys that represent them? For one, the concept of the "wind farm" is an idea ripening throughout the region as one which can provide landowners with another source of revenue for farm and ranch lands. Farmers and ranchers have long used wind energy. It is estimated that there are some six million windmills installed across the plains and mountain states, which have been used to provide power to stock ponds and other uses for generations. Now, with the advent of modern wind turbines, landowners are learning of the capacity of their lands to become sites for large, utility grade wind generators, some with propeller blades as long as 80 feet and a rotor diameter of 160 feet or more. At a time when commodity prices fluctuate wildly for the traditional products produced on farm and ranch lands, the idea that extra income can be earned from leasing parts of this land out to wind farm developers is becoming increasingly attractive to landowners in Wyoming. Because modern wind turbines have a small footprint in terms of the actual ground utilized to site the machine, farming and grazing can continue on the land leased or granted to the developer.
What are the legal issues for landowners that their counsel should be aware of? For starters, attorneys representing landowners should be aware of the various agreement options which may be proposed. A land lease, an easement or an option may all be proposed by a developer or utility. A wind energy easement, for example, is not unlike any other easement agreement. Like any easement, it will need to be carefully reviewed and the long term implications understood before it is executed. Options which are meant to preserve a developer's alternatives for projects in the early planning stages may be offered. A land lease with characteristics unique to wind farm development is also useful for both developer and landowner. Landowners and their attorneys will need to ask a number of questions of both themselves and the developer:
1. How much land will be dedicated to the wind turbine, its construction, and the access needed for its continued maintenance?
2. When will construction take place and are the plans and timetable in place for construction? That is, will a construction timetable be defined or is the acquisition for future, long-range planning?
3. How will construction of such a development affect my land and my farm and ranch operations? What kinds of equipment and access road will be required? What are the road and access needs for the construction process and for long-term maintenance of the turbines?
4. How many turbines are contemplated for construction and what is the timetable for adding turbines and access? Is this an exclusive grant of the right to use this property?
5. How will payment for the easement or lease be structured? What are the tax consequences of such payments? Will payments be subject to fluctuation or will there be certain minimum or maximum payments? Will the payment structure be tied to the energy revenues and, if so, how is payment structured?
6. What, if any, tax breaks or advantages will accrue to the developer, the utility power purchaser and, especially, to me as landowner? Can I, as landowner, participate in tax credits or other incentives that are available now or in the future?
7. What are the regulatory requirements for the siting of utility grade wind turbines? What are the regulatory requirements for operation, maintenance and sale of the energy produced by each turbine? Who are the regulators, what is the extent of their authority and who is responsible for regulatory compliance, now and in the future?
8. What happens in the event of sale, merger or dissolution of the development firm? Of any regulated utility partners or energy purchasers?
9. What, if any, rights does the developer or utility have to transfer easement or leasing rights? What is the impact upon my ownership of land and the payments made to me as landowner? What are the consequences of default by the payment obligor?
10. What are my rights in the event of termination of the lease or abandonment of the easement? What happens in the event of a termination? What obligation does the developer have to remediate and return the land to original condition?
This list gives an idea of the types of issues that can arise. They are likely no different than issues involved in any lease agreement or easement consideration. But, as mentioned earlier, one of the attractions for the landowner is the continued ability to use the land for its traditional purposes, with minimal impact upon farm and ranch operations. An important consideration is therefore a reservation of rights to the farm or ranch landowner to continue using the land for specified purposes, be they grazing or growing crops. While an important consideration for the turbine designer and installer is the proper placement of turbines so as to avoid deflecting winds and de-energizing turbines, the landowner will want to understand the requirements for the turbine footprint and his or her ability to use the acreage around the turbines for grazing and crops. A large turbine can have an actual physical "footprint" of 20 to 40 feet yet require several acres of surrounding land for its "wind footprint," that defines the placement of adjacent turbines. Generally, however, the farm and ranch uses of that acreage do not interfere with the energy production, allowing continuation of the farm and ranch operation. When a large turbine is erected at a height of up to 250 feet, the ground level uses of that property will generally not affect the turbine. With this in mind, description of the reserved uses for the landowner will be an important consideration.
It is worth noting, however, that much of this work may come only after negotiation for the right to use the property. Development of large, utility grade wind farms is still an expensive process for the developer or utility. Some developers will likely be involved in anticipating a development by first securing the rights to land in attractive wind producing areas through the use of option agreements or leases. Actual development of the turbine farm may not occur until the developer has answered its own questions about the availability and location of high voltage transmission lines, whether those lines have available capacity, as well as the price and demand for wholesale electricity. Because of this, signing an option or lease with the first company seeking the easement or lease may not result in any long term benefit to the landowner if that company does not, ultimately, obtain buyers for its electricity. Transmission constraints may also play into the ability to move the electricity produced out on to the grid. Without transmission capacity, the energy produced may remain "blowin' in the wind."
Another element common to other types of land leases is consideration of other resources which may be found or developed on the property. This is an issue well known to Wyoming landowners and their counsel as energy development cycles have impacted landowners for generations. Oil, gas and other mineral rights on the land to be leased or granted in an easement should be considered in negotiations or planning meetings. Potential residential development of surrounding land may also be impacted by the presence of large wind towers. In addition, any agreement should spell out who must obtain permits or permission from adjacent residents for the towers. Construction of these large towers will also require access roads for large cranes, concrete trucks and related equipment. Access agreements or permits to use highway right-of-way may be necessary. And, should the land under lease ever be condemned for a highway expansion or other utility construction, prudent advice will address the payment to be made under a condemnation settlement.
In closing, wind energy development provides attractive opportunities for landowners. The increasing growth of the wind industry and its appeal to utilities can provide benefits to landowners feeling the pinch of price reductions for the traditional products of their land. When leasing the rights to wind developers can approach or even surpass the revenues from traditional production, it is time, once again, to thank Mother Nature for her bounty. And in Wyoming, wind is definitely an abundant bounty.
Doug Moench is a Senior Assistant and Supervising Attorney with the Wyoming Attorney General’s Office and represents the Wyoming Department of Transportation. He has also been involved in representing the Wyoming Public Service Commission in selected litigation and has practiced law in Wyoming for 26 years. A graduate of the University of Wyoming, Doug began his legal career in Cheyenne with Barney Cole and was a Municipal Judge for the City of Cheyenne for two years. Doug resides in Fort Collins, Colorado, and is the proud father of three Wyoming natives.
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