New Statutory Requirements for Wind Leases in TX Effective September 1, 2019

As of September 1, 2019, Texas law will impose requirements for wind lease agreements to contain language whereby the wind farm operator agrees to remove its materials at the end of the lease, and provides a financial assurance to support this obligation. These terms are required in every wind lease signed after the effective date and may not be waived by the parties.

Key Stats

House Bill 2845 modified the Texas Utilities Code by adding Section 301.0001, titled “Wind Power Facility Agreements.” [Read bill text here.]  The bill was sponsored by Rep. Creighton, passed both the House and Senate, and was signed by Governor Abbott on June 14, 2019.  The effective date is September 1, 2019.

Definitions

The bill applies to a “grantee,” which is defined as any person who leases property from a landowner and operates a wind power facility.  A “wind power facility” includes a wind turbine generator and a facility or equipment used to support the operation of a wind turbine generator including both above and below-ground electrical transmission or communications lines, electric transformers, battery storage facilities, energy storage facilities, telecommunications equipment, roads, meteorological towers with wind measurement equipment, and maintenance yards.  The statutorily required terms must be included in all “wind power facility agreements,” which are defined as “lease agreements between a grantee and a landowner that authorize the grantee to operate a wind power facility on the leased property.”

Required Provisions for Facility Removal

A wind power facility agreement (aka: a wind lease) must provide that the grantee is responsible for removing the grantee’s wind power facilities from the landowner’s property.

Specifically, the agreement must provide that the grantee will safely: (1) clear, clean, and remove from the property: each wind turbine generator including tower and pad mount, all liquids, greases or similar substances contained in the wind turbine generator, each substation and all liquids, greases, or similar substances contained in a substation; (2) For each tower foundation and pad-mount transformer foundation installed in the ground, the grantee must clear, clean, and remove the foundation from the ground to a depth at least 3′ below the surface grade of the ground and ensure each hole or cavity created in the ground by the removal is filled with topsoil of the same or similar type as the predominant topsoil found on the property; (3) for each buried cable–including power, fiber-optic, and communications–installed in the ground, clear, clean, and remove the cable to a depth of at least 3′ below the surface grade of the land in which the cable is installed; and (4) clean, clear, and remove each overhead power or communications line installed by the grantee on the property.

The agreement must also provide that at the request of the landowner, the grantee will: (1) clear, clean and remove each road constructed by the grantee on the property; (2) ensure that each hole or cavity created in the ground by the removal is filled with topsoil of the same or a similar type as the predominant topsoil found on the property.  Note that these actions will only be required of the grantee if the landowner timely requests them.

Next, the agreement must provide that, at the reasonable request of the landowner, the grantee must: (1) remove all rocks over 12 inches in diameter excavated during the decommissioning and removal process; (2) return the property to a tillable state using scarification, V-rip, or disc methods as appropriate; and (3) ensure that each hole or cavity created in the ground by removal is filled with topsoil of the same or a similar type as the predominant topsoil found on the property and that the surface of the property is returned as near as reasonably possible to its same condition before the grantee dug holes or cavities, including reseeding pastureland with native grasses prescribed by an appropriate governmental agency, if any.  Note that these actions will only be required of the grantee if they are reasonable and the landowner timely requests them.

Landowners must make requests listed above within 180 days after the later of the date on which the wind power facility is no longer capable of generating electricity in paying qualities or the date the landowner receives written notice of intent to decommission the facility from the grantee.

Required Provisions for Financial Assurance 

A lease must also include that the grantee shall obtain and deliver to the landowner evidence of financial assurance that satisfies the statutory requirements contained in this statute to secure performance on the obligation to remove the wind power facilities.  Financial assurance may be a parent company guarantee with a minimum investment grade credit rating for the parent company issued by a major domestic credit rating agency, a letter of credit, a bond, or another form of financial assurance acceptable to the landowner.

The amount of the assurance must be at least equal to the estimated amount by which the cost of removing the wind power facilities and restoring the property to as near as reasonably possible the condition of the land as of the date the lease was signed exceeds the salvage value of the wind power facilities, less any portion for the value of the wind power facilities pledged to secure outstanding debt.  The grantee must deliver the financial assurance not later than the earlier of the date on which the lease is terminated or the 10th anniversary of the commercial operations date of the wind power facilities located on the landowner’s property.  (The “commercial operations date” means the date when wind power facilities are approved for participation in market operations by a regional transmission organization and does not include the generation of electrical energy or other operations conducted before that date for purposes of maintenance or testing.)  Thus, the latest the assurance can be provided is 10 years after the commercial operations date.

The agreement must provide that estimated restoration costs and salvage value shall be determined by an independent, third-party professional licensed engineer licensed in Texas. Further, the grantee must deliver an updated estimate of the cost of removal and salvage values prepared by an independent, third-party licensed engineer licensed in Texas once every five years for the remainder of the term of the lease.  It is the grantee’s responsibility to ensure that, upon updated estimates, the amount of the financial assurance remains sufficient to cover the statutory requirements.  Also, the grantee is responsible for the costs of obtaining the financial assurance and all required estimates.

The grantee may not cancel the financial assurance before the date the grantee has completed its obligation to remove the facilities as required by this law, unless the grantee provides the landowner with replacement financial assurance at the time of or before cancellation.  If ownership of the wind power facility is transferred, the financial assurance by the grantee shall remain in place until evidence of new financial security as required by this law is given from the new company to the landowner.

Waiver Not Allowed

The bill states that the parties may not waive these statutory requirements by agreement, deeming any such waiver language or offer exemption from liability for a grantee for failing to abide by the provisions void.

Remedy

The statute allows any person harmed by a violation of this bill to seek injunctive relief “to prevent further violation of the chapter.”  This is in addition to any other remedies available at law.

Takeaways

This new statute is important for Texas landowners to be aware of as it offers required terms to protect landowners entering into wind lease agreements.  I always recommend landowners visit with an attorney in their jurisdiction prior to entering into a wind lease agreement.