The legislature of the State of Colorado has been very active on renewable energy issues over the last few weeks.  Three bills have been making steady progress through the House and Senate in Denver, each of which could have a noticeable effect on the renewable industries in the state.

I.   Coal-Mine Methane as a Renewable Energy Source

House Bill 1160 seeks to amend Colorado’s renewable energy standard to include electricity generated by burning captured coal-mine methane.  The legislation has passed in the House, and is now being considered by the Senate Local Government Committee.  The bill faces strong opposition by many environmental and renewable energy advocacy groups, including Western Resource Advocates (“WRA”), based in Boulder, Colorado.  In a March 23, 2012 guest commentary in the Denver Post, John Nielsen, the Energy Program Director at WRA stated as follows:

By allowing coal-mine methane to qualify as “renewable energy,” something it is not, HB 1160 would diminish further investments in Colorado’s wind and solar resources. Those resources are sustainable, emission-free, use little or no water, provide important health and economic development benefits, and reduce greenhouse gases.

II.   Prohibition on Severance of Wind Rights

House Bill 12-1105 seeks to establish a non-severable wind energy right in real property.  Essentially, under this proposal a landowner would not be able to sell fee simple title to the wind rights on his or her property, but must instead execute a lease, license, easement or other agreement to develop or participate in the income from or the development of a wind project on the property.  The legislation has passed in the House, and is now being considered by the Senate Local Government Committee.  This proposal law is in-line with a national trend against severance of wind and solar rights, and effectively prohibits a landowner from selling the wind or solar rights to a project developer while retaining the ownership of the underlying property.  Interestingly, however, this legislation seems to expressly contemplate and allow for the transfer of the rights to receive the income from the wind project to a third-party, which could potentially lead to many of the same down-stream ownership concerns that commonly give rise to severance restrictions in the first place.  K.K. DuVivier, professor of law at the University of Denver Sturm College of Law and author of the excellent resource “The Renewable Energy Reader,” was recently interviewed by Colorado Public Radio about this legislation.

III.   Ending PUC’s Authority Over Transmission Siting Issues

House Bill 12-1312 seeks to modify the Colorado Public Utilities Commission’s approval process for transmission line certificates of convenience and necessity, so that the PUC no longer has jurisdiction over the land use rights or siting issues related to the location or alignment of the proposed transmission lines.  Instead, those issues would be left to the discretion of the county and local governments.  Ms. Becky Quintana, a representative of the PUC, recently testified before the House Committee on Transportation about this legislation and stated that the PUC neither supported nor opposed the legislation.  From the PUC’s perspective, the legislation does not restrict the authority of the PUC, but rather more clearly defines the jurisdiction of the PUC and local governments, though she noted that, under the proposal, any transmission project that spanned multiple counties would require inter-governmental agreements as each county’s jurisdiction would end at the county line.

Do you have any questions or comments about any of these bills or about developing renewable energy projects inColorado?  If so, leave a comment below or contact me directly at lhagedorn@polsinelli.com.

The Kansas Supreme Court on Friday issued a much anticipated ruling on a case involving a number of key issued for wind developers.  The case, Zimmerman v. Board of County Commissioners of Wabaunsee County, revolves around a dispute between the Board of County Commissioners of Wabaunsee County, Kansas and a group of landowners in Wabaunsee County who have entered into easement agreements to develop large-scale wind energy development systems on the landowners’ property.

Background

In order to develop a wind farm in Wabaunsee County, it is necessary to apply for a Conditional Use Permit (“CUP”) from the Wabaunsee County Board of Commissioners.  In November of 2002, the Board passed a temporary moratorium on the granting of CUPs for wind development projects in the county.  While this moratorium was in place, the Plaintiffs and the Plaintiff Intervenor entered into agreements which they contend severed the wind rights from the ownership of the underlying property and transferred the ownership of those wind rights to the Plaintiff Intervenor.

On June 28, 2004, after the wind development agreements had been entered into by the Plaintiffs and Plaintiff Intervenor, the Board amended the county zoning regulations to allow for small wind energy conversion systems (“SWECs,” essentially single turbines under 100’ in height generating less than 100 kilowatts), but outright prohibiting the placement of commercial wind energy development systems (“CWECs”) in the county. 

Procedural History

The Plaintiffs filed suit in the Wabaunsee District Court, asking that the Board’s decision be declared void and requesting damages under a number legal theories. Among the arguments made, the Plaintiffs stated the County’s actions diminished the economic value of their wind rights in their own property, and therefore amounted to a taking of their property interest in violation of their Fifth Amendment rights.  

The Plaintiffs also argued that by allowing small wind projects, but banning utility-scale projects, the County was unjustly burdening out-of-state commerce in violation of the Commerce Clause of the United States.  Ultimately, however, the District Court granted a Motion to Dismiss in favor of the Board, and the Plaintiffs and Plaintiff Intervenor appealed to the Kansas Supreme Court.

On October 30th, 2009 the Kansas Supreme Court issued a decision in favor of the Board for the majority of the issues presented, with a few notable exceptions.  Specifically, the Supreme Court decided to table the issues of whether the Board’s amendment violated the Takings Clause or the Commerce Clause of the United States Constitution.   

These issues remained tabled until October 21, 2011, when the Court issued a ruling on the Takings and Commerce Clause arguments advanced by the Plaintiffs and Plaintiff Intervenors.

The Takings Issues

The Plaintiffs’ essentially raised three legal bases for their contention that the County was unlawfully “taking” legal property interests: (1) the County violated Article 5 of the United States Constitution, which prohibits the taking of private property for public use, without just compensation; (2) the County’s action constituted an act of inverse condemnation; and (3) the County’s action constituted a violation of 42 U.S.C. § 1983.

In its October 21 Order, the Court disposes of all three of these takings arguments in one swoop.  Essentially, the Court notes that in order to prevail on a takings claim a party must first establish that a vested interest exists in the property in question.  “Vested interest” has been defined by the Court in the past as a right that “is not dependent on any future act, contingency or decision to make it more secure.” 

Here, the Court found that no such vested interests exist, as all of the Plaintiffs’ and Plaintiff Intervenors’ interests are conditioned upon the Board’s discretionary issuance of a CUP.  Thus, because there were no vested property interests, there can be no taking under any of the various legal theories advanced by the parties.

The Commerce Clause Issues

Overview of Dormant Commerce Clause

Before describing the decisions, it might first be helpful to provide an overview of Commerce Clause jurisprudence.  Article I, §8 of the U.S. Constitution (the “Commerce Clause”) grants Congress the power to regulate interstate commerce.  The “dormant” Commerce Clause refers to the prohibition, implied in the Commerce Clause, against states passing legislation that discriminates against or excessively burdens interstate commerce.

In a Dormant Commerce Clause case, a court is initially concerned with whether the law facially discriminates against out-of-state actors or has the effect of favoring in-state economic interests over out-of-state interests. If the action is facially discriminatory, it will be deemed invalid unless the County can show that it has no other means to advance a legitimate local purpose.

If the action is not facially discriminatory, the Court is much more flexible. If the law is not outright or intentionally discriminatory or protectionist, but still has some impact on interstate commerce, the court will apply a balancing test which examines whether the interstate burden outweighs the local benefits. If it does, the law is usually deemed unconstitutional.

Remand of Commerce Clause Issues

In addressing the Dormant Commerce Clause issues in this case, the Court first notes that, because the zoning regulations prohibit all CWECs in the county regardless of the connection to interstate commerce, there was no facial discrimination. 

Therefore, the Court must examine whether the burden imposed in interstate commerce is “clearly excessive in relation to the putative local benefits.”  Specifically, the Court notes that it should consider (1) the nature of the putative local benefits advanced by the County action; (2) the burden placed on interstate commerce by the statute; and (3) whether the burden is “clearly excessive” when weighed against these local putative benefits.

Here, the Court noted that because the lower courts dismissed the case without allowing discovery or an evidentiary hearing, there is not enough evidence in the record to conduct a full analysis of the benefits and burdens of the County’s actions.  Therefore, the Court reversed the District Court’s grant of the County’s Motion to Dismiss and remands the case back to the District Court for a full analysis of whether the interstate burden outweighs the local benefits.

If you have any questions about the impact of this ruling or would like any additional information about renewable project development in Kansas going forward, please feel free to leave a comment below or contact me directly at lhagedorn@polsinelli.com.

Yesterday, the Montana legislature passed important new legislation that will have a significant impact on the development of wind projects within the state.  The bill, titled the “Wind Energy Rights Act” addresses many of the big issues that state legislatures around the country are grappling with, including:

1) How to create uniform wind energy agreements between developers and landowners;

2) Whether landowners should be allowed to separately sell their interest in the airspace over their property from their interest in the land and mineral rights (commonly referred to as “severing” the wind rights); and

3) How to address any conflicts between wind developers and oil and gas developers that have rights to explore the same piece of land.

The Montana legislation takes an interesting approach to these issues:

Uniform Agreements

On the issue of uniform wind agreements, the Act sets out the information that must be included as part of several of the most common types of agreements between landowners and project developers: wind energy agreements, wind easements, and wind option agreements.

Severance of Wind Rights

The Act follows the recent trend across the U.S. of prohibiting severance.  However, interestingly, the Act states that if a landowner decides to enter into a wind agreement, but later decides to sell the property, the seller is allowed to retain any payments associated with those existing wind agreements to the exclusion of the new owner.

This would seem to increase the long-term risk for project developers, because the new owner of the property would be required to uphold the agreement with the developer, without being entitled to payments.

Dominance of Mineral Estates

Finally, the Act specifically states that it does not modify the existing statutory language regarding the dominance of mineral estates, so holders of a wind interest will be subordinate to oil and gas developers with existing mineral rights leases on the property.  This potentially raises a number of problems for renewable project developers, and can significantly increase the cost and risk of a given project.

For example, say a developer spends a significant amount of money building a turbine on property that is already subject to an oil and gas lease.  Arguably, should the oil and gas developer decide to construct an oil derrick or pipeline that interferes with the wind project in some way, this provision will make it very difficult for the wind developer to raise any objections.

The Act has passed the legislature and now just needs to be signed by Governor Schweitzer to go into law.

Oklahoma has undergone a significant legislative overhaul over the course of the last year to help advance its agenda of encouraging the development of renewable energy projects within the state.  A few of the most important legislative measures for project developers are as follows:

  • Oklahoma has established a voluntary Renewable Energy Standard (17 Okla. Stat. 801.1 et seq.), which calls for 15% of the total installed generation capacity in Oklahoma to be derived from renewable sources, including wind, by 2015.  Energy efficiency may be used to meet up to 25% of the goal.   For a primer on RES standards in the United States, see my post on the issue.
  • Oklahoma has passed SB 1787, codified as 60 Okla. Stat. 820.1 et seq., which states that access to the airspace is tied to the ownership of the land.  Thus, any wind or solar leasing arrangements associated with the airspace must be made with the landowner that owns the land below the air.
  • Oklahoma also recently passed HB 2973, codified as 17 Okla. Stat. 160.11 et seq., known as The Oklahoma Wind Energy Development Act.  This act specifies that, rather than utilizing a system of Renewable Energy Credits to track compliance with the state RES, each utility in Oklahoma must file a report with the OCC each year by March 1 which documents the total installed capacity and the energy source for each generation facilities, as well as the number of kilowatt-hours (kWh) generated by those facilities during the prior year.

The Oklahoma Wind Energy Development Act also provides rules related to decommissioning, payments, and insurance for wind projects, went into effect on January 1, 2011.  A few of the most significant provisions are as follows:

  • Equipment from wind energy facilities must be removed and the land, excluding roads, must be returned to its condition prior to the facility construction within one year of abandonment of a project.
  • Wind facility owners must file an estimate of the decommissioning costs and proof of financial security covering such costs after 15 years of operation.
  • For any wind energy facility that makes payments to the landowner dependent upon the amount of electricity produced, facility owners are required, within  to provide a statement to the landowner within 10 business days of the payment which explains the payment calculation to the landowner, allow for landowners to confirm the accuracy of payments and inspect records, and make records available to the state of Oklahoma.
  • The developer shall report to the OCC on an annual basis by March 1 of each calendar year the power generated from the facility, the nameplate capacity of the turbines, and the location of the wind turbines.
  • Wind energy facilities must have commercial general liability insurance, which must name the landowner as an insured party. Proof of such insurance must be provided to the landowner before construction begins.