Oklahoma Legislature Provides Some Guidance in the Emerging Field of Wind Energy

By Elizabeth R. Muratet and Melissa S. Taylor - May 12, 2011

 

“Oklahoma!  Where the wind comes sweeping down the plain. . . .”  As early as 1943, Rodgers and Hammerstein were paying respect to one of Oklahoma’s greatest potential resources—wind, a resource that has only recently began to gather any force behind it, at least legislatively.  According to the Oklahoma Wind Power Initiative, the first Oklahoma wind farm was operational in September, 2003, and by the end of 2009, there were already 11 fully operational wind farms in Oklahoma with a total approximate capacity of 1,030 megawatts.  And there are additional wind farms currently being built and planned in Oklahoma.  With such rapid growth in this newly developing industry, many questions regarding certain rights and responsibilities have been posed.  The Oklahoma Legislature recently attempted to provide some guidance for owners of both the wind farms and the land on which these wind farms are being built and to specify the rights and responsibilities of each.

In June, 2010, Governor Henry signed three bills related to wind energy—House Bills 2919 and 2973 and Senate Bill 1787—into law.  This article is intended to briefly summarize two of these three new laws related to wind energy.  The first one discussed is House Bill 2973, which enacted the Oklahoma Wind Energy Development Act.  The second one discussed is Senate Bill 1787, which enacted an act that details certain property rights associated with wind.  The third one, House Bill 2919 enacting the Oklahoma Aircraft Pilot and Passenger Protection Act, is not discussed in this article but a separate article, “New Oklahoma Law Requires an Additional Permit for Some Developers – Oklahoma’s Aircraft Pilot and Passenger Protection Act,” details the provisions of this act.  This article can be found at http://www.gablelaw.com/news/2011/permit_rule_change_2010.pdf.

The Oklahoma Wind Energy Development Act

The Oklahoma Wind Energy Development Act (the “Development Act”) became effective on January 1, 2011.  It is codified in the Oklahoma Statutes at 17 O.S. §§ 160.11-160.19.  This Development Act is new law in Oklahoma and evidences the Legislature’s desire to protect landowners in that it specifies decommissioning requirements, provides that wind farm owners must provide certain production information so that landowners may understand and calculate the compensation they are due, and requires wind farm owners to maintain liability insurance and to name the landowners as additional insureds on such insurance policies.

Decommissioning Requirements:

Wind leases have likely included provisions requiring decommissioning and specifying the responsibility for such decommissioning prior to the enactment of the Development Act.  However, the Development Act now provides concrete guidance regarding what decommissioning requires and who is responsible, both financially and physically, for carrying out such requirements.  The Development Act specifies that the landowner and the owner of a wind energy facility may agree to terms that are more restrictive than those contained in the Development Act, but they presumably may not agree to less restrictive terms.

The Development Act requires the owner of a wind energy facility, at its own expense, to decommission the facility within 12 months of the abandonment of the facility or the end of the useful life of the commercial wind energy equipment in the facility. 

The “owner” of a wind energy facility is the entity (including its successors and assigns) which has a majority equity interest in the commercial wind energy equipment.  A “wind energy facility” is an electrical generation facility consisting of at least one wind turbine and other equipment and buildings used to support the operation of the facility and the primary purpose of which is to supply electricity to off-site customers.  The term does not include facilities located entirely on property owned in fee simple absolute by the owner of such facility.  The Development Act generally defines “abandonment” as the failure to generate electricity from commercial wind energy equipment for a period of 24 consecutive months though there are some exceptions.  “Useful life” means the time during which a wind turbine or wind energy facility is generating electricity in commercial quantities.  “Commercial wind energy equipment” is the wind tower and the turbine with at least 500 kw of total nameplate generating capacity.

Decommissioning a wind energy facility requires the owner (1) to remove all turbines, towers, buildings, cabling, electrical components, foundations, and any other associated facilities to a depth of 30 inches below grade, and (2) to grade and reseed, or otherwise restore, the land to substantially the same physical condition in which it existed prior to the construction of the wind energy facility.  Decommissioning does not require the owner to restore the condition of roads unless the landowner specifically requests this in writing.

If the owner fails to complete the decommissioning within 12 months, the Oklahoma Corporation Commission is required to take steps to complete the decommissioning.

To ensure that the owner of an wind energy facility is financially able to carry out its decommissioning requirements, the owner is required to file evidence of financial security to cover the anticipated costs of decommissioning the facility with the Oklahoma Corporation Commission after the fifteenth year of operation of the facility.  Such evidence of financial security may be in the form of a surety bond, collateral bond, parent guaranty, or letter of credit.  Additionally, the evidence of financial security must be accompanied by an estimate, prepared by a professional engineer licensed in Oklahoma, of the total cost of decommissioning less the salvage value of the equipment.  If the owner fails to file this evidence of financial security and estimate, the owner is subject to $1,500 per day administrative penalty.  However, only owners entering into a power purchase agreement on or after January 1, 2011 are required to comply with these requirements.

Production Information:

Owners of wind energy facilities generally enter into leases with landowners for the use of the landowners’ lands to construct their facilities.  The lease generally contains a clause that specifies how the owner of the facility intends to compensate the landowner for the use of the lands.  A wind lease may provide that such compensation may be based on the amount of electrical energy produced from the conversion of wind energy.  If so, the owner of the facility is required to provide the landowner with a statement which includes information that permits the landowner to understand the basis for the amount of the payment and a means of confirming the accuracy of such amount.  Such statement must be provided within ten business days of each payment.

Additionally, if the amount of compensation for the use of the landowner’s land is based on the amount of electrical energy produced from the conversion of wind energy, the landowners have the right to inspect the records of the owner of a facility or turbine for the purpose of confirming the accuracy of any payments made to the landowner within the past 24 months.  The landowner may exercise this right once per calendar year.  If the landowner chooses to exercise this right, the owner of the facility or turbine must make available all records, documents, data, and other information as are necessary for a landowner to conduct the inspection.  The owner must make this information available at a location and in a manner that affords the landowner reasonable access during normal business hours.  The owner may subject the landowner to certain confidentiality requirements if these requirements are contained in the wind lease agreement.

There are other methods for measuring consideration to be paid by the owner of a facility to a landowner.  These methods include but are not limited to basing consideration on the number of turbines located on a landowner’s land or the amount of megawatt capacity.  If consideration is based on either of these or on a different method, the owner of the facility is not required to send the above-described statement to the landowner after providing payment and the landowner is not entitled to inspect the records of the landowner.  If landowners desire these rights, they may demand that consideration be based on the amount of electrical energy produced from the conversion of wind energy.  However, owners of facilities may refuse to enter into wind leases if the amount of consideration is so based in order to avoid having to comply with such requirements.

Regardless of the method for determining the amount of compensation due to a landowner, the owners of wind turbines or wind energy facilities are required to file with the Oklahoma Corporation Commission an annual report which informs the Commission of the power generated from the turbines or facilities, the nameplate capacity of the turbines or facilities, and the location of each turbine or facility.  Such report is due no later than March 1 of each calendar year.  If a facility contains turbines with differing nameplate capacities, the owner must separate the information by nameplate capacity.  It is expected that the Commission will develop a form for owners to report such information.

Liability Insurance:

The Development Act requires owners and operators of wind energy facilities and wind turbines to obtain, prior to commencement of construction, and keep in effect a commercial general liability insurance policy.  Alternatively, the owner/operator may keep in effect a combination of self insurance and an excess liability insurance policy.  Either way, the landowner must be named as an additional insured in the policy and the owner must provide the landowner with a certificate of insurance evidencing such policy.

While wind leases have likely addressed the issues of decommissioning requirements and liability insurance, and possibly even addressed the extent to which landowners were entitled to inspection rights, the Development Act sets forth requirements with which owners of wind energy facilities must now comply.  Although the thrust of the Development Act seems to be protection of landowners’ rights, owners of wind energy facilities may also benefit from the guidance provided by the Development Act.

Senate Bill 1787 – “An Act Relating to Property”

Senate Bill 1787 (the “Property Act”) became effective on July 1, 2010.  The Property Act provided for a new law, codified in the Oklahoma Statutes at 60 O.S. § 820.1 as part of the Oklahoma Airspace Act, and amended two provisions of the Oklahoma Airspace Act, 60 O.S. §§ 803 and 805, to conform them to the new law.  There is current pending legislation that would include the Property Act under a new Oklahoma act entitled the “Airspace Severance Restriction Act.”

Prior to the enactment of the Property Act, the Oklahoma Airspace Act had provided, since 1973, that airspace was real property that initially belonged to the surface estate but was capable of being separately transferred, etc. to one other than the owner of the surface estate.  In other words, the airspace above real property could be severed from the surface estate and transferred separately from the surface estate in much the same way the mineral estate can be severed from the surface estate and separately transferred. 

The Property Act changes this long-standing law in Oklahoma in that it prohibits the severing of airspace from the surface estate for purposes of developing and operating commercial wind or solar energy conversion systems.  The Property Act specifies that airspace rights may be leased for a definite term for purposes of developing and operating commercial wind or solar energy conversion systems but may not be severed from the surface estate for these purposes.  Presumably, airspace may continue to be severed from the surface estate and separately transferred, etc. for other purposes.

If airspace becomes subject to a wind or solar energy lease agreement, the agreement runs with the land and terminates only as specified in the agreement.  The instrument reflecting such agreement must be filed with the county land records and must contain, at a minimum, the following information:

  1. The names of the parties;
  2. A legal description of the real property involved;
  3. The nature of the interest created;
  4. The consideration paid for the transfer;
  5. A description of the improvements intended to be made on the real property (e.g., roads, transmission lines, substations, wind turbines, meteorological towers, etc.);
  6. A description of any decommissioning security; and
  7. The terms or conditions upon which the interested may be revised or terminated;

The Property Act, like the Development Act, is protective of landowners’ rights.  It eliminates the possibility that Oklahoma landowners would have to secure the permission of a holder of wind rights, which could include out-of-state landowners and developers, for things as simple as crop cultivation or building improvements on the land.

With the passage of the Development Act, Property Act, and Oklahoma Aircraft Pilot and Passenger Protection Act, it appears the Oklahoma Legislature is attempting to provide guidance for owners of wind farms and landowners in a proactive rather than reactive manner.  Thus far, the guidance appears to evidence a pro-landowner attitude in the Oklahoma Legislature.