ND Legislature Passed Contracting Bill HB 1509

Sixty-first Legislative Assembly of North Dakota
In Regular Session Commencing Tuesday, January 6, 2009

HOUSE BILL NO. 1509

(Representatives Nelson, DeKrey, Mueller)
(Senators Andrist, Klein, Triplett)

AN ACT to create and enact a new section to chapter 17-04 of the North Dakota Century Code, relating to requirements for wind easement and wind energy leases; and to provide for a legislative council study of wind easement and wind energy leases.

BE IT ENACTED BY THE LEGISLATIVE ASSEMBLY OF NORTH DAKOTA:
SECTION 1. A new section to chapter 17-04 of the North Dakota Century Code is created and
enacted as follows:

Requirements for wind easements and wind energy leases.
1. In a wind easement and a wind energy lease, the easement and lease:
a. Must be delivered to the property owner with a cover page containing the following paragraph with the correct term of years in the blank and in at least sixteen-point type:

Special message to property owners

This is an important agreement our lawyers have drafted that will bind you and
your land for up to ________ years. We will give you enough time to study and
thoroughly understand it. We strongly encourage you to hire a lawyer to
explain this agreement to you. You may talk with your neighbors about the
wind project and find out if they also received a proposed contract. You and
your neighbors may choose to hire the same attorney to review the agreement
and negotiate changes on your behalf.

b. May not be executed by the parties until at least ten business days after the first proposed easement or lease has been delivered to the property owner.

c. May not require either party to maintain the confidentiality of any negotiations or the terms of any proposed lease or easement except that the parties may agree to a mutual confidentiality agreement in the final executed lease or easement.

d. Must preserve the right of the property owner to continue conducting business operations as currently conducted for the term of the agreement. When a wind energy facility is being constructed and when it is completed, the property owner must make accommodations to the developer, owner, or operator of the facility for the facility's business operations to allow the construction and operation of the wind energy facility.

e. May not make the property owner liable for any property tax associated with the wind energy facility or other equipment related to wind energy generation.

f. May not make the property owner liable for any damages caused by the wind energy facility and equipment or the operation of the generating facility and equipment, including liability or damage to the property owner or to third parties.

g. Must obligate the developer, owner, and operator of the wind energy facility to comply with federal, state, and local laws and regulations and may not make the property owner liable in the case of a violation.

h. Must allow the property owner to terminate the agreement if the wind energy facility has not operated for a period of at least three years unless the property owner receives the normal minimum lease payments that would have occurred if the wind energy facility had been operating during that time. For the purposes of this subdivision, the term "normal minimum lease payments" means a payment in the lease or easement called a "base amount" or "minimum payment", or similar language, or if this language is not provided for in the lease or easement, payments at least equal to the periodic payments received by the property owner in the last calendar year that the wind energy facility was in full operation.

i. Must state clearly any circumstances that will allow the developer, owner, and operator of the wind energy facility to withhold payments from the property owner.

2. The owner of the wind energy facility shall carry general liability insurance relating to claims for property damage or bodily injury arising out of the construction or operation of the wind energy facility project site and may include the property owner as an additional insured on the policy.

3. If the terms of the wind easement or wind energy lease are not in accordance with this section, the court may reform the easement or lease in accordance with this section, void the easement or lease, or order any relief allowed by law.

SECTION 2. LEGISLATIVE COUNCIL STUDY - WIND EASEMENTS AND WIND ENERGY LEASES. During the 2009-2010 interim, the legislative council shall consider studying wind easements and wind energy leases. The study must include consideration of confidentiality clauses, the liability of each party for damages and taxes, instrument provisions relating to insurance and the need for insurance, and the concerns of property owners and wind developers. The legislative council shall report its findings and recommendations, together with any legislation required to implement the recommendations, to the sixty-second legislative assembly.

Rep. Mueller's Third Try HCR3044

HCR 3044 passed both chambers. While Representative Mueller tried to pass a siting bill, this was the only attempt he could actually win.

HOUSE CONCURRENT RESOLUTION NO. 3044
of North Dakota

Introduced by
Representatives Mueller, DeKrey, Kaldor
Senators Horne, Triplett, Wardner

A concurrent resolution directing the Legislative Council to study the allocation of wind rights.

WHEREAS, defining wind rights and establishing a connection between wind rights and the surface estate would provide all stakeholders consistency and stability in the development of wind power; and

WHEREAS, noise and visual disturbances created by wind towers are issues that are best addressed at the beginning stages of a wind farm and in a consistent manner; and

WHEREAS, consistent spacing between wind turbines and from property boundaries provides for fair allocation of wind resources while respecting property rights; and

WHEREAS, other rights as to natural resources, for example, oil and gas, which are connected with real property, are allocated in relation to the surface rights and not on a first-come, first-served basis;

NOW, THEREFORE, BE IT RESOLVED BY THE HOUSE OF REPRESENTATIVES
OF NORTH DAKOTA, THE SENATE CONCURRING THEREIN:

That the Legislative Council study the allocation of wind rights; and

BE IT FURTHER RESOLVED, that the Legislative Council report its findings and recommendations, together with any legislation required to implement the recommendations, to the Sixty-second Legislative Assembly.

Compensating for Wind Rights Within Windfarms

If we use the rectangles, as suggested in the previous post, as our first definition of area for which wind resource rights should be compensated, we also need to recognize that within a given windfarm there may be areas that fall outside the rectangles and that should be compensated. The simple rule should be: if there is any wind resource stranded within the perimeter boundary of a windfarm that could not reasonably be developed because of the existence of the surrounding windfarm, that stranded resource must be compensated for by the interfering windfarm. The perimeter can be defined by applying the 5rd x 10rd rectangles to the outer turbines and simply drawing the lines to the other outer turbines. All land within that is unlikely to be used for wind because of the larger windfarm should be compensated at the same acreage rate as all other land in the windfarm.

It is simple and fair.

Wind Pool Areas: Circle v Rectangle

Greg Brokaw, a horse guy from south central North Dakota, called to discuss circles and rectangles. A discussion was happening down in Spring Lake Township about who and how wind resource rights should be paid. One thought was that every acre within a distance equal to 5 rotor diameters from the tower should be equally compensated. This would therefore be a circle definition to compensated wind rights. Greg, an astute reader of this blog, thought a rectangle was best. He even suggested that rectangle be 5 rotor diameters across and 10 rotor diameters long with the long side pointed into the prevailing winds. I agree with Greg.

In determining the correct wind resource pool configuration from which wind resource compensation should be paid, it is important to recognize that typically there are two different prevailing wind directions, one in summer, the other in winter. Often, in the central U.S. these directions are near opposites. Windfarm developers recognize this when they space turbines 4 or 5 rotor diameters apart perpendicular (line running from southwest to northeast) to the prevailing winds and 8x or more apart downwind from the prevailing winds (northwest and south-southeast). Not all directions from a turbine are equal and they are not equally valued by the industry. A rectangle of approximately 5x rotor diameter wide and 10x rotor diameter in length, skewed so that the long side faces the dominant wind direction, better represents wind resource value than a circle. A circle that provides the same compensation equally in all directions of equal length from a tower unfairly discounts those who provide the most valuable resource in order to compensate those providing the least value.

In the above sketch, let us assume that each tower is providing $6,000 for resource use and that 25% of that amount or $1,500 is for real estate upon which the tower sits and 75% or $4,500 is for the wind resource. If one uses a 5x rotor diameter circle around the tower to define each wind resource pool eligible for compensation, then each of the 124.23 acres within the circle (using an 80m rotor diameter) is paid $36.22. Why should an acre four times rotor diameter laterally to the Southwest be paid the same as one to the Southeast when the wind hardly ever blows from the Northeast and when another turbine can be placed at the same lateral distance from the first? It makes no sense; however, some believe the circle is simple and therefore should be used. I contend that a rectangle is even more simple to calculate and certainly a better reflection of value.

I suggest a good wind resource pool print is the rectangle skewed toward the prevailing wind direction. It does recognize closer placement of turbines laterally to the prevailing winds and it doesn't dilute the pool shares needlessly. A rectangle would for an 80 meter rotor would contain 79.09 acres with each paying $56.90. A rectangle is more fair, pays better and is easier to plot.

Wind Rights - Attorneys & Legal Scholars Needed

Licensed attorneys specializing or wishing to specialize in wind rights work from a landowner's perspective or from an academic perspective are welcome to leave comments on this site. In using the comment area, let us know your experience or your interest including state of practice, or academic institution. While learning of those interested in vetting contract language in various states would be useful to our landowner readership, I have a particular interest in hearing from academicians and others who know of landowner wind related litigation in process or contemplated both of a general contract nature and most particularly aimed at protecting against uncompensated wind resource erosion, depreciation or elimination through siting/placement of neighboring turbines. Please provide citations that will allow our readers to access appropriate source materials. I know you are out there and that folk from around the globe are reading. Although, I suspect most of the readership is by landowners some of whom I know fear speaking out on these subjects and/or are contractually bound to silence, we would like to hear from attorneys who are free to speak on these matters.

Public policy makers need to realize that it is increasingly common (from what I have seen) to include contract clauses aimed at precluding landowners from speaking to any legislative or regulatory body except with the specific approval of the lessee. Your response may be that such a gagging is unconstitutional and I will respond by asking who will pay the legal bill in testing that assertion? Don't expect landowners to place themselves in a position of defending against multi-billion dollar corporations. And, we have learned that you can't expect broad-membership-based ag organizations to speak out as some of them have relationships with power companies to protect, some have ideological predispositions against regulations, and almost all have internal conflicts of interest among their membership (those who are receiving compensation versus those whose wind resource is diminished without compensation).

100 Year Leases

That's what was reported to me this last week. Ok, they were really 99 year leases. Ottertail Power offering 100 year leases in Sheridon County, North Dakota. Please send an anonymous copy to: Joe Richardson, Post Office Box 3112, Fargo, North Dakota 58108. I probably have the best collection of leases in North Dakota and always on the lookout for more. I am betting that this lease is one-sided as heck in that Ottertail, or the party offering, is given a 30 day out while the landowner is bound for generations. Hey, if it has a confidentiality clause in it, they would have an opportunity to sue several generations for disclosing the terms of the agreement.

Wind Contract Clause Hall of Shame

These are from actual contracts. The names of the parties are not provided.

1. "This grant of easement of the Wind Non-Obstruction Easement expressly includes the right of [Wind Company] to enter on any part of Owner's Property to enforce [Wind Company's] rights." So if you find them sitting in your office going over your email, get 'em a cup of coffee because you gave them the right to enter upon any of your property to fish around in an attempt to enforce what they consider their rights.

2. "Payments from Third Parties and for Non-Wind Energy Purposes. [Wind Company] shall pay to Owner ten percent (10%) of any rent received by [Wind Company] from third parties such as telecommunications providers for equipment of the third pary located on or in the Wind Farm Improvements." Um, telecommunications towers pay far more than wind towers. Did you know that you gave them the franchise to lease your land for release to telecommunication company's for only 10% of the proceeds. Good deal, eh?

3. "[Wind Company] shall have the right in its sole discretion and at its sole expense, in its name or Owner's name to contest the validity or applicability to the Easement Properties or Wind Farm Improvements of any law, ordinance, statute, order, regulation, property assessment or the like made by any governmental agency or entity. [Wind Company] shall control any such contest and Owner shall cooperate with [Wind Company] in every reasonable way in such contest." "Owner" means the landowner. You just made yourself the tongue of the wind company. Whatever governmental policy they want that could conceivably effect your easement is now sought in your name and you will cooperate "in every reasonable way." Got it! You thought you were just a simple landlord.....ha!

4. "Removal of Wind Farm Improvements. Owner shall have no ownership or other interest in any Wind Farm Improvements installed on the Easement Properties, and [Wind Company] shall have the express right, at any time and in its sole discretion, to remove one or more Turbines or other Wind Farm Improvements from the Easement Properties. Owner expressly waives any statutory or common law liens to which Owner migh be entitled. Upon full or partial termination of any of the Easements, [Wind Company] shall remove all physical material pertaining to the Wind Farm Improvements from the affected Easement Properties to a depth of forty-eight inches (48") beneath the soil surface and restore the area formerly occupied by the Wind Farm Improvements to substantially the same physical condition that existed immediately before the construction of the Wind Farm Improvements (the 'Removal Obligations'). If [Wind Company] fails to complete its Removal Obligations within twelve (12) months of full or partial termination of the applicable Easement, Owner may do so, in which case [Wind Company] shall reimburse Owner for reasonable costs of fulfilling [Wind Company's] Removal Obligations incurred by Owner, less any salvage value reasonably recoverable by Owner." If the company ever went bankrupt they would not be around to haggle with you about what might be both "reasonable cost" or "salvage value reasonably recoverable." Of course if they are in bankruptcy, you have no ownership interest in the equipment and it could take you quite some time to unravel who actually has the authority to allow you to remove the equipment. In any case, it is unlikely that they would make the effort to clean up the mess when the contract specifically states that they can leave it to you and haggle over what you spent (or received in salvage) later. I have heard the arguments that the steel alone is worth the cost of cleaning up. Ya, but you do not own it and who knows who might come after you for that salvage value? Then I have heard that the pad will be reusable by another turbine. Likely that the turbines twenty years in the future will be as different as the current turbines are to those that were placed in the early eighties. There is no reason to believe the foundation pads will be usable, that you will have a power contract to place anything on them, etc.

5. "Exclusivity. Owner agree that [Wind Company] shall have the exclusive right to convert all of the wind resources of the Owner's Property." Unless the definition for "Owners Property" is carefully specified, signing an agreement including this clause gives the company the rights over all your property.

6. "[Wind Company's] Right to Terminate. [Wind Company] shall have the right to terminate this agreement as to all or any part of the Easement Properties, or as to any Turbine or other Wind Farm Improvement, at any time effective upon thirty (30) days' written notice to Owner.

Owner's Right to Terminate. Except as specifically allowed by this Section 12, this agreement and the Easements shall not by terminable by Owner under any circumsatances."

Under the contract [Wind Company] has the right to terminate upon 30 day notice and the payments upon such termination cease. The landowner is locked in for the term which, in this contract, is 20 years. Newer contracts are going for 99 year terms. That is, if they are like this one, they lock the landowner in for 99 years and the wind company for 30 days.

7. "Confidentiality. Owner shall not disclose to others (except Owner's family, legal counsel, respective Mortgagees and Assignees, and financial advisors who recognize and agree to preserve and maintain the confidentiality of such information) the terms of this agreement and ifnormation about [Wind Company's] methods, power production, or availability of Wind Farm Improvements unless the information is already in the public domain. Owner also agrees not to use such information for Owner's own benefit or permit its use by others for their benefit or to the detriment of [Wind Company]."

I will close with the confidentiality clause as it is truly a doozy and warrants more writing. For instance, in order to prove that your wife was told of the need to maintain confidentiality and agreed to it, I would suggest you use a Non-disclosure Agreement prior to telling your wife the terms of the agreement. Should your wife leak information to her friend and begin a chain, you might be liable and will need to prove that you told your wife of the need for confidentiality. So too with your lawyer, banker, etc. You may not list the value or otherwise inform prospective purchasers of your land of the value you are receiving for your wind under this clause. When I asked a representative of this company about that, he said that you could contact the company and let them know who it is you wish to tell and they would not unreasonably withhold permission to inform them of the value. This clause drips liability like few others.

You will not get this kind of information from your general farm organization....