June 25, 2019

Texas Adds New Statutory Requirements on Land Leases for Wind Farms

Holland & Knight Energy and Natural Resources Blog
Todd F. Kimbrough | John Clardy, Summer Associate

The Texas Utilities Code was recently modified by House Bill 2845 to now require any person who leases land for a wind power facility (hereinafter referred to as "grantee") to be responsible for removing its wind power facility at the end of the lease. As part of this obligation, grantees must obtain financial assurance to secure the performance of the grantee's wind power facility removal. The new law specifies that land leases for a wind power facility must include particular provisions and voids any waiver that purports to exempt a grantee from the statute. The new law goes into effect on Sept. 1, 2019.

Beginning on the effective date, land leases for wind power facilities must provide that the grantee is responsible for removing the grantee's wind power facilities at the end of the lease. This decommissioning process entails clearing, cleaning and removing from the property each wind turbine generator (including towers and pad-mount transformers), each substation, each overhead power and communications line installed by the grantee, and all liquids, greases, or similar substances contained in wind turbine generators and substations. Further, the grantee must remove buried cables and the foundations of tower and pad-mount transformers to a depth of at least three feet below the surface grade of the land in which the foundation was installed. Any hole or cavity created by this removal must be filled with the same type of topsoil as the predominant topsoil on the property.

Land leases for wind power facilities also must now include language giving the landowner the ability to make specific requests of the grantee during the decommission process. These required contractual provisions allow the landowner to request the removal of any road created by the grantee or any rock over 12 inches in diameter that was excavated during the decommission process. A landowner can ask the grantee to return the land to a tillable state using scarification, V-rip or disc methods. The landowner may even request that the surface be returned to the same condition as before the grantee dug holes or cavities, including reseeding pastureland with native grasses prescribed by an appropriate governmental agency. All of these removal efforts must be secured by adequate financial assurance.

To secure the performance of these newly imposed obligations, a land lease for a wind power facility must now provide that the grantee shall obtain and deliver to the landowner evidence of financial assurance by the earlier of: (1) the date on which the agreement terminates or (2) the tenth anniversary of the commercial operation date of the wind power facility. Forms of acceptable assurance include: a guaranty by a parent company with a minimum investment grade credit rating by a major domestic credit rating agency, a letter of credit, a bond, or another financial assurance acceptable to the landowner. The amount of the assurance must at least equal the estimated amount by which the cost of removing the wind power facilities exceeds the salvage value of the wind power facilities, less any portion of the value of the wind power facilities pledged to secure outstanding debt. The grantee must deliver an updated estimate of the cost of removal and salvage value to the landowner at least once every five years. A land lease for a wind power facility also now must specify that the estimated cost of removing the facilities must be determined by an independent, third-party professional engineer licensed in Texas.

None of the obligations imposed by this law may be waived. Should a landowner be harmed by a violation of this law, the landowner shall be entitled not only to traditional remedies provided by law, but also appropriate injunctive relief to prevent further violation of the statute. Accordingly, future land leases in Texas for wind power facilities should include provisions to comply with the new statute's requirements.

For more information or further explanation of how to comply with the reporting requirement, please contact the authors or other members of Holland & Knight's Energy & Natural Resources Group.

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