The Texas legislature recently passed House Bill 2845 (“HB 2845”) imposing specific requirements on wind energy leases and wind developers’ decommissioning obligations for wind energy projects. While wind leases typically impose obligations on project companies relating to the removal of wind projects, HB 2845 mandates that wind leases must include specific provisions describing such obligations.
This post summarizes (i) which wind energy agreements are subject to the law, (ii) how the law affects existing wind energy leases, (iii) the key requirements relating to real property restoration, and (iv) the key requirements relating to posting financial assurance for decommissioning.
- Which Wind Agreements will be Subject to HB 2845?
HB 2845 applies to “wind power facility agreements,” which the law defines as a lease that authorizes the grantee of such lease to operate a “wind power facility” on the leased property. Although HB 2845 specifically uses the word “lease,” wind agreements that are titled as “wind easements” but effectively operate like a lease could fall within the scope of the law, which is why this post uses the term “wind agreements” to refer to wind leases and easements. Ancillary real property easements that are solely for transmission, access, or collection line purposes technically are not subject to the law’s requirements; however, some of the required restoration provisions do apply to such facilities and it is possible that a court could hold the law applicable to related easements. This is because the law only applies to agreements that allow a grantee to operate a “wind power facility” on the property, and the law defines “wind power facility” as something that includes a wind turbine.
- How Does HB 2845 Affect Existing Wind Agreements?
HB 2845 takes effect on September 1, 2019. Wind agreements executed before this date do not have to comply with the law, meaning that existing wind agreements do not need to be amended to come into compliance. The law does not explicitly clarify whether a wind agreement that is amended, or amended and restated, after September 1, 2019 would need to include the statutorily-imposed lease provisions. However, because HB 2845 applies to wind agreements that are “entered into” on or after September 1, 2019, per the letter of the law a wind agreement amendment would not trigger the need to comply, but an amended and restated wind agreement could fall within the law’s purview.
- What are the Required Provisions Relating to Real Property Restoration?
Before the Texas legislature enacted HB 2845, project companies could freely negotiate with landowners the scope of their removal and restoration responsibilities on the landowners’ property at the conclusion of the project. Now, with HB 2845, wind agreements must contain specific provisions relating to such responsibilities. The responsibilities vary depending on the type of project infrastructure and the landowner, as outlined below:
- Substations: Grantee must clear, clean, and remove the substation, including all liquid, grease, or similar substances.
- Wind turbine generators (including towers and pad-mount transformers): Grantee must clear, clean, and remove the turbines, including all liquid, grease, or similar substances.
- Tower foundations, pad–mount transformer foundations, and underground cables: Grantee must (i) clear, clean, and remove the foundation or cable to a depth of at least three feet below the surface grade of the land, and (ii) fill holes or cavities with topsoil that is the same or similar type as the predominant type of topsoil found on the property.
- Overhead Lines: Grantee must clear, clean, and remove overhead lines that grantee installed.
- Roads: if the landowner makes a request, grantee must (i) clear, clean, and remove roads constructed by grantee, and (ii) fill holes or cavities with topsoil that is the same or similar type as the predominant type of topsoil found on the property.
- Rocks and Restoration: if the landowner makes a reasonable request, grantee must remove rocks over 12 inches in diameter that are excavated during the project decommissioning process, return the property to a tillable state, and restore the surface near to pre-decommissioning conditions.
Note that provisions relating to roads, large rocks, and surface restoration still must be included in the wind agreement, but the associated obligations only arise if the landowner makes a request. The landowner must make such requests before the later of (i) cessation of operations, and (ii) the date the landowner receives written notice from the project company of its intent to decommission the project. As such, project companies should plan to send written notice of the decommissioning process as soon as possible in order to avoid ongoing obligations to the landowner far beyond the completion of the decommissioning process.
- What are the Required Provisions Relating to Financial Assurance?
The specific provisions required by HB 2845 relating to financial assurance are more landowner-centric than project-centric. Wind agreements must now provide that the grantee will deliver to the landowner evidence of financial assurance to secure the grantee’s performance of its obligation to remove wind power facilities located on the landowner’s property. Grantee must deliver the financial assurance before the earlier of (i) the date the wind agreement terminates, and (ii) the tenth anniversary of commercial operations of the facilities located on the landowner’s property. This requirement differs from many Texas wind agreements that require project companies to obtain financial assurance for removal obligations 15-25 years after reaching commercial operations for the project as a whole. The amount of the financial assurance will include an estimate of the cost of removing facilities from the individual landowner’s property, not the cost to remove facilities from the entire project, while accounting for salvage value less the value of the wind power facilities pledged to secure outstanding debt. Additionally, the financial assurance must include the cost of restoring the landowner’s property as near as reasonably possible to the condition it was in when the wind agreement was executed.
Lastly, HB 2845 states that project companies cannot cancel financial assurance before the decommissioning process is complete unless they give the landowner replacement financial assurance beforehand. Thus, if a project company is contemplating selling a wind project that has posted financial security, the seller should require that the buyer provide such replacement financial assurance to the landowners at or before closing to allow the seller’s prior assurance to be canceled.
For further information, including questions on drafting wind agreement provisions that comply with HB 2845, please contact a member of Husch Blackwell’s renewables group.