Wind Energy Rental Policy

UNITED STATES DEPARTMENT OF THE INTERIOR
BUREAU OF LAND MANAGEMENT
WASHINGTON, D.C. 20240
http://www.blm.gov/

June 13, 2011

In Reply Refer To:

2800 (350) P

EMS TRANSMISSION 06/15/2011

Instruction Memorandum No. 2011-125

Expires:  09/30/2012

To:                   All Field Officials

From:               Director

Subject:           Wind Energy Rental Policy

Program Area:  Right-of-Way Management, Wind Energy

Purpose:  This Instruction Memorandum (IM) provides updated guidance on the rental provisions of right-of-way authorizations for wind energy projects on public lands administered by the Bureau of Land Management (BLM).

Policy/Action:  Wind energy projects are authorized as rights-of-way under Title V of the Federal Land Policy and Management Act (FLPMA) and require the payment of rent in accordance with the requirements of Section 504(g) of FLPMA and the provisions of 43 CFR Subpart 2806.  This IM establishes an updated policy for a wind energy rental schedule for existing and new wind energy right-of-way authorizations adding base rent to an adjusted annual megawatt (MW) capacity fee, in accordance with the provisions of 43 CFR Subpart 2805.15.  This IM replaces the rental provisions of the Wind Energy Development Policy (IM 2009-043) issued December 19, 2008.  This Policy will remain in effect until updated by further guidance.  Issuance of this IM ensures BLM-wide consistency for wind energy right-of-way rents.

The BLM will calculate rents on all wind energy right-of-way authorizations in accordance with this IM, the provisions of 43 CFR Subpart 2806, and section 504(g) of FLPMA.  Some holders or facilities may be exempt from rent pursuant to 43 CFR 2806.14(d) and section 504(g) of FLPMA if the electric facilities are financed under the Rural Electrification Act (REA), 7 U.S.C. 901, or are eligible for REA financing.

Individual Site Testing and Monitoring Authorizations

The rent for a site-specific right-of-way grant for individual wind energy site testing and monitoring installations will be a minimum of $100 per year for each meteorological tower or instrumentation facility.  There is no additional rent for the acreage of each site location.  A site-specific grant for testing and monitoring shall be considered the primary use of the public lands.   Any access roads needed for legal access to the site-specific grant shall be considered ancillary to the primary use and will be included in the site-specific grant for testing and monitoring.  Under this scenario a separate linear grant and linear rent for access roads will not be required.  

Some BLM field offices have existing site-location rents for temporary facilities on the public lands that can be used for wind energy site testing and monitoring facilities.  Therefore, rents may exceed the minimum $100 per year fee.  The rent for a site testing and monitoring right-of-way grant is paid annually, in advance, on a pro-rated calendar-year basis consistent with the regulations (43 CFR 2806.11 and 2806.12).  However, by policy, the holder of a site-specific right-of-way grant may pay the required rent for the entire term of the grant in advance.

Project Area Site Testing and Monitoring Authorizations

The rent for a project area site testing and monitoring grant shall be based on the total public land acreage of the project area included in the right-of-way grant.  The rent for the total public land acreage of the grant will be $1,000 per year or $1 per acre per year, whichever is greater.  This rent is based on comparable fees on non-Federal lands and is consistent with the limited use of the land.  There is no additional rent for the installation of each meteorological tower or instrumentation facility located within the site testing and monitoring project area.  The rent for a site testing and monitoring right-of-way grant is paid annually, in advance, on a pro-rated calendar-year basis consistent with the regulations (43 CFR 2806.11 and 2806.12).  However, by policy, the holder of a project area site testing and monitoring right-of-way grant may pay the required rent for the entire term of the grant in advance.  A project area grant for testing and monitoring will be considered the primary use of the public lands.  Any access roads needed for legal access to the project area grant shall be considered ancillary to the primary use and will be included in the project area grant for testing and monitoring.  Under this scenario a separate linear grant and linear rent for access roads will not be required.

Development Authorizations

The holder of a wind energy right-of-way development authorization must pay an annual rent in conformance with the regulations (43 CFR 2806.10(a)).  Consistent with 43 CFR 2806.50, the BLM has developed a schedule to calculate rent for wind energy right-of-way development authorizations.  This rental schedule includes a base rent for the acreage of public land included within the wind energy right-of-way development authorization and a MW capacity fee based on the total authorized MW capacity for the approved wind energy project on the public land administrated by the BLM.  A development grant will be considered the primary use of the public lands.  Any access roads needed for legal access to the development grant shall be considered ancillary to the primary use and will be included in the development grant.  Under this scenario a separate linear grant and linear rent for access roads will not be required.  Any offsite utilities, such as electrical transmission shall require a separate linear right-of-way authorization for the entire length on BLM administered lands.

As set forth below, the rental schedule for wind energy right-of-way development authorizations will consist of two components:  (1) a base rent to be paid upon issuance of the authorization, and (2) a MW capacity fee that will be implemented over a 5-year period once the facility begins generating electricity.

Base Rent for Development Authorizations

The BLM will calculate and bill the applicant for a base rent to be paid upon the date of issuance of the wind energy right-of-way development authorization consistent with the provisions of 43 CFR 2806.11 and 2806.12.  As calculated in conformance with the county rates set forth below, the base rent is a per-acre fee that will be charged, regardless of the stage of development or operations, on the entire public land acreage described in the right-of-way development authorization.

The base rent will be paid on an annual pro-rated basis, with no phase-in period.  However, the BLM State Director may approve a rental payment plan for the first annual payment, consistent with the provisions of 43 CFR 2806.15(c).  For existing authorizations, the base rent established by this IM will be required to be paid in full at the next billing period.  

The BLM promulgated regulations in 2008 that used land values published by the National Agricultural Statistics Service (NASS) to establish rents for linear right-of-way facilities on the public lands. See 73 FR 65071 (Oct. 31, 2008).  Per-acre rents were established for every county in the U.S. based on the published NASS land values.  The per-acre rents vary from county to county based on the different rural/agricultural land values in each county.  The BLM used a 50 percent land encumbrance factor for these linear rights-of-way to determine the annual rent.  The BLM will use the same NASS data to establish the base rent for wind energy right-of-way development authorizations; however, a 10 percent encumbrance factor will be used to reflect the lesser land use footprint associated with typical wind energy development projects.  The encumbrance factor is a measure of the degree that a particular type of facility encumbers a right-of-way area or excludes other types of land uses.  The 10 percent encumbrance factor for wind energy projects reflects the fact that a typical wind energy project encumbers about 10 percent of an entire right-of-way area.

The BLM will adjust base rents for wind energy right-of-way development authorizations each year, based on the ten year average of the Implicit Price Deflator-Gross Domestic Product (IPD-GDP) index as described in 43 CFR 2806.22(a).  The IPD-GDP index is also used to adjust the linear right-of-way schedule each year (43 CFR 2806.22(a)).  The county zone alignments established in 2008 will be used as the basis for determining the base rent for wind energy authorizations.  These county zone alignments will not be adjusted, as the linear right-of-way county zone alignments are adjusted, based on updated NASS Census data.  The reason for the difference is that wind energy authorizations capture total rental value from both the base rent and a MW capacity fee.  Linear right-of-way authorizations only capture rental value from the land values based on updated NASS Census data. The following is a list of the current calendar year (CY) 2011 wind energy base rents by zone.

Wind 2011 – 2015 Per Acre Base Rent Schedule

(Based on 10% Encumbrance Factor)

As an example, the base rent for a 1,500 acre wind energy right-of-way development authorization in Converse County, California, which is located in Zone 1, would be $2,400 per year (1,500 acres x $1.60 per acre) for CY 2011.

Megawatt Capacity Fee for Development authorizations

The BLM will charge an annual MW capacity fee of $6,570 per installed MW, in addition to the base rent, for each wind energy right-of-way development authorization.  The MW capacity fee captures the increased industrial use value of the authorization, above the limited rural/agricultural land value captured by the base rent.  The MW capacity fee will be calculated based on the total authorized MW capacity on BLM-administered lands approved by the BLM authorized officer for the project, or an approved phase of development.  This capacity fee will be charged on an annual pro-rated basis upon the start of generation of electricity from the facility. 

To allow for a reasonable and diligent testing and operational period, the BLM will provide for a 5-year implementation of the MW capacity fee after the start of generation operations, which is defined as the date listed on the certification of construction (43 CFR 2807.11(d)).  If the terms of the grant do not require a certification of construction, the grantee must provide documentation when the facility is verified and tested by the utility that is accepting the power generated.   The 5-year implementation uses the following rates for determining the MW capacity fee:  20 percent the first year, 40 percent the second year, 60 percent the third year, 80 percent the fourth year, and 100 percent the fifth and subsequent years of operations.  If generation of electricity starts from Phase 1 of a project, the MW capacity fee will be charged for the authorized MW capacity approved for Phase 1 only.  The MW capacity fee for subsequent phases of development will start at the time that generation of electricity begins for the subsequent phases of development.  The 5-year implementation of the MW capacity fee will apply to each phase of development after the start of generation operations from that phase.  In moving from one phase of a project to the next phase, only incremental (newly added) capacity will be subject to the phase-in of the capacity fee.  For existing authorizations, the incremental increase in the MW capacity fee established by this IM will be phased-in over a 5-year period.

Some wind energy development projects may include separate right-of-way authorizations issued for support facilities only (administration building, construction lay down and staging areas, etc.).  The rent for these right-of-way authorizations would only use the base rent and not a MW capacity fee.  Any separate right-of-way authorizations issued for linear right-of-way facilities (transmission, pipelines, etc.) would use the rent established for linear rights-of-way (43 CFR 2806.20).

The MW capacity fee is calculated using a formula that includes an average electricity price of $0.06 per kilowatt hour, an average Federal bond yield of 5.0 percent, and an efficiency factor of 25 percent.  The Federal bond yield reflects the rate of return the public would expect for the use of Federal resources.  The Federal bond yield is based on the 10-year average of the 20-year Treasury bond yield (as of March 2010).  The formula for the MW capacity fee is as follows:  

MW Capacity Fee = (Authorized capacity on public lands in kilowatts) x (8,760 hours per year) x (25 percent capacity factor) x (5.0 percent federal rate of return) x ($0.06 average price per kilowatt hour).

Example for one megawatt of anticipated total installed capacity on public land:

Annual MW Capacity Fee = (1,000 kW) x (8,760 hours) x (0.25 capacity) x (0.05 rate of return) x ($0.06 per kWh) or $6,570 per megawatt of anticipated total installed capacity on public land.

The annual MW Capacity fee will be phased in as follows:

The payment of the MW capacity fee is in addition to the annual base rent for the acreage of the wind energy right-of-way development authorization.  The base rent would be paid on an annual pro-rated basis upon the date of issuance of the right-of-way authorization, and the MW capacity fee would also be paid on an annual pro-rated basis but be implemented over a 5-year period after the start of electricity generation from the facility.

Rent Language in Authorization

The BLM has included standard terms in right-of-way grants to provide for adjustments to rent when necessary to reflect changes in the fair market value of right-of-way authorizations.  The following revised standard language will be included in all wind energy right-of-way development authorizations to provide for adjustments of base rent and the MW capacity fee and to additionally provide for rent adjustments consistent with regulatory changes or provisions of new or revised statutory authorities: 
 

“For and in consideration of the rights granted, the holder agrees to pay the Bureau of Land Management fair market value rental, which includes both base rent and a megawatt capacity fee, as determined by the authorized officer unless specifically exempted from such payment by regulation. Provided, however, that the rental may be adjusted by the authorized officer, whenever necessary, to reflect changes in the fair market rental value as determined by the application of sound business management principles, and as far as practicable and feasible, in accordance with comparable commercial practices. The rental provisions of this authorization may also be modified consistent with the provisions of any regulatory changes or pursuant to the provisions of any new or revised statutory authorities.” 

Timeframe:  This policy is effective immediately.  The implementation of the MW capacity fee increase will be enacted immediately on existing projects and after the start of any electricity generation on new projects. The rental policy will periodically be reviewed to ensure that the base rent and MW capacity fee represent a fair return to the public.

Budget Impact:  The application of this policy will have minimal budget impact.  The processing of wind energy right-of-way applications are subject to the cost recovery provisions of the regulations (43 CFR 2804.14).

Background:  As part of an overall strategy to develop a diverse portfolio of domestic energy supplies for the Nation’s future, the Energy Policy Act of 2005 (Public Law 109-58, August 8, 2005) encourages the development of renewable energy resources on the public lands, including wind energy.  Specifically, Section 211 of the Energy Policy Act encourages the approval of at least 10,000 MW of non-hydropower renewable energy projects on the public lands by 2015.  Secretarial Order 3285A1, signed by the Secretary on March 11, 2009, and amended on February 22, 2010, established the development of renewable energy as a priority of the Department of the Interior.

The BLM manages 20.6 million acres of public lands with wind potential.  This policy IM is necessary to ensure BLM-wide consistency in calculating rent for wind energy right-of-way authorizations on the public lands.

Manual/Handbook Sections Affected:  This IM transmits wind energy right-of-way rental policy that will be incorporated into BLM Manual 2801, Right-of-Way Management, and Handbook H-2801-1 during the next revision.

Coordination:  The BLM State Offices reviewed and provided input to this policy prior to its finalization.

Contact:  Please direct any questions concerning the content of this IM to Michael D. Nedd, Assistant Director, Minerals and Realty Management, or your staff may contact Ray Brady, Renewable Energy Policy Team, at 202-912-7312, or ray_brady@blm.gov.

Signed by:                                                                   Authenticated by:

Robert V. Abbey                                                        Robert M. Williams

Director                                                                       Division of IRM Governance,WO-560

1 Attachment

            1 – Rental Decision Letter Template (2 pp)