In 2011, the United States Department of Agriculture (“USDA”) is planning to spend roughly $1.9 billion dollars on conservation programs designed to encourage landowners to improve their natural resource stewardship and meet environmental challenges on their land. The roughly 275 million acres currently enrolled in these programs is expected to increase to an estimated 300 million acres over the next year. It is important that renewable project developers determine whether the project site landowners are enrolled in these programs because developing a renewable project on land that is enrolled in one of these programs could violate the landowner’s contract with the USDA, and potentially lead to two extremely unpleasant outcomes.
1.) First, the landowner could lose rights to future payments from the USDA, be forced to refund the payments that have already been received and be subject to additional fines. Depending on how the renewable lease or easement is drafted, developers could be contractually obligated to compensate the landowner for these losses.
2.) Second, some USDA programs give USDA the right to stop construction or use of the renewable facility, and can potentially force the developer to dismantle existing facilities. Obviously, this could be devastating for a renewable developer.
There are quite a few of these USDA programs, but the two most common are the Environmental Quality Incentives Program and the Conservation Reserve Program.
Environmental Quality Incentives Program (“EQIP”)
With roughly 190 million acres enrolled in 2010, EQIP is the largest of the USDA’s conservation programs. EQIP encourages landowners to implement certain conservation management practices by refunding up to 75 percent of the incurred costs and income foregone, with total payments within 6 years not to exceed $300,000. However, if the landowner permits an activity that defeats the purpose of the program or transfers an interest in the land to a party who is unwilling or unable to perform, the landowner could lose the right to all future payments, be required to refund past payments plus interest and be subject to liquidated damages. Depending on the wording of any agreements between the landowner and the developer, it is possible that the developer might be required to pay the landowner’s damages to the USDA.
Conservation Reserve Program (“CRP”)
With roughly 31 million acres enrolled, CRP is the second largest USDA conservation program. CRP helps agricultural producers safeguard land by incentivizing, through rental payments and cost sharing, the planting of long term covers to improve the quality of water, control soil erosion, and enhance wildlife habitat. If the USDA determines that the landowner has breached a CRP contract, the landowner may lose the right to all future payments, be required to refund past payments received plus interest and be subject to liquidated damages. A developer may be liable to the landowner under contractual provisions of leases or easements which may require the developer to indemnify the landowner for such costs.
The USDA conservation programs have one thing in common; it is often difficult to discover whether a parcel of land is enrolled in a program. The USDA does not disclose enrollment information for privacy reasons, and only a handful of the programs require any form of public filing. This difficulty, coupled with the significant potential risks, make it vital for developers to obtain legal representation that is knowledgeable in the unique challenges caused by the interaction between these programs and wind developments.