Over the past year, the U.S. Department of Interior has taken several important steps toward making wind energy development a reality in the Gulf of Mexico. This is the first in a series of articles in which Liskow’s offshore team will discuss the regulatory framework for wind energy projects in federal waters and highlight legal issues pertinent to this dynamic area.
Status of Wind Energy in the Gulf of Mexico
Interior’s authority to regulate offshore wind comes from the Energy Policy Act of 2005, which amended the Outer Continental Shelf Lands Act to expressly authorize Interior to issue leases for renewable energy projects in federal waters. The Bureau of Ocean Energy Management (BOEM), a sub-agency within Interior, promulgated regulations in 2009 which set forth the procedure for leasing, siting, construction, and operation of offshore wind projects. To date, the development of offshore wind in federal waters has largely been limited to the east coast. The regulatory process leading to the Vineyard Wind Project offshore Massachusetts began in 2010. The Construction and Operations Plan for this project was approved by BOEM in 2021. Once online, the Vineyard Wind Project will be the first commercial wind farm operational in U.S. federal waters.
Wind development in the GOM began to gain traction in late 2020 when Louisiana Governor John Bel Edwards formally requested that BOEM form an intergovernmental task force to study the feasibility of wind energy in the GOM. That task force, made up of federal, state, and local officials, and other stakeholders, first met in June 2021 to discuss preliminary issues, such as the governmental authorities that regulate the various components of offshore wind energy and the technical and economic feasibility data that has been developed related to wind energy in the GOM.
Also in June 2021, BOEM issued a Request for Interest (RFI) seeking public input on potential wind development in the GOM. The RFI covered the entire central and western planning areas in the GOM, excluding depths greater than 1,300 meters. After reviewing the comments submitted in response to the RFI, BOEM issued a Call for Information and Nominations in November 2021 to assess interest in a more limited area referred to as the “Call Area.” The Call Area covered approximately 30 million acres including depths 400 meters and shallower just west of the Mississippi River to the Texas/Mexican Border. In response to the RFI and Call, BOEM received ten nominations from entities proposing to develop specific areas within the Call Area.
In early 2022, BOEM announced its intention to prepare an Environmental Assessment (EA) evaluating the environmental impacts of issuing wind leases within the Call Area. BOEM issued the Draft EA in July 2022. The focus of the Draft EA was the environmental effects of site characterization and site assessment activities expected to take place after issuance of the leases. The Draft EA, however, did not cover the potential environmental impacts resulting from the actual construction and operation of wind energy facilities. Those impacts would be considered at a later date once wind energy leases are awarded.
The Draft EA analyzed the impacts of BOEM’s issuance of up to 18 leases within the GOM Call Area, the issuance of potential project easements associated with each lease, and the issuance of grants for export cable corridors and associated offshore collector/converter platforms. BOEM concluded that most impacts would be negligible to minor. BOEM concluded that impacts to certain resources, including marine mammals and cultural and archaeological resources, could be more significant but that such impacts could be reduced through proper mitigation measures.
Soon after issuance of the Draft EA, BOEM took further steps to narrow the areas for possible wind energy leasing in the GOM by requesting public comment on two preliminary Wind Energy Areas (WEAs) within the Call Area. The first WEA is a 546,645-acre area located approximately 24 nautical miles off the coast of Galveston, Texas. The second WEA is a 188,023-acre area located approximately 56 nautical miles off the coast of Lake Charles, Louisiana. BOEM considered a total of 13 potential WEAs but chose the Galveston and Lake Charles Preliminary WEAs based on its analysis of several factors including commercial viability and impacts to commercial fisheries, Department of Defense activities, and navigation. Interior noted that the Galveston Preliminary WEA had the greatest interest from developers in response to the Call with five nominations. Interior also noted this WEA’s proximity to the Port of Galveston and points of connection onshore. Interior noted that the Lake Charles Preliminary WEA overlapped with at least one nomination received in response to the Call and that this area was favorable due to opportunities for offtake from neighboring states, its proximity to points of interconnection, and consistent wind.
The next step in the process would be for BOEM to issue a Notice of Sale indicating its intention to hold a lease sale offering specific areas for lease. It is anticipated that BOEM will seek to hold the first GOM wind lease sale in 2023. Those entities seeking to bid at a potential GOM wind lease sale will have to comply with the qualification requirements set forth in the BOEM regulations. The following summarizes those requirements.
In order to hold a federal offshore lease, right-of-way, right-of-use and easement, or alternate use right-of-use and easement, a person or entity must first become qualified by BOEM. 30 C.F.R. § 556.400; 30 C.F.R. § 585.106. Qualification is the entry to doing business with the federal government as to federal leasing. Legal qualification to be an offshore renewables lessee is similar to qualification to hold oil and gas leases. However, qualification to bid at an offshore wind lease auction also requires technical and financial qualification.
In order to become qualified to hold an oil and gas lease on the OCS, a person or entity must submit evidence demonstrating that they are: (1) a natural person who is a citizen or national of the United States; (2) a natural person who is a lawful permanent resident alien in the United States; (3) a corporation or a limited liability company organized under the laws of any State; (4) an association of such citizens, nationals, resident aliens, or corporations; or (5) another listed entity such as a State, territory, or Trust organized under the laws of any State. 30 C.F.R. § 556.401. Depending on which of the above categories a person or entity belongs, BOEM requires submission of varying additional information to support a qualification request. See id. § 556.402. For example, a corporation or limited liability company must (1) submit evidence that it is authorized to conduct business under the laws of a State; (2) submit evidence that it is authorized to hold OCS leases under the operating rules of its business; and (3) include an up-to-date list of persons and their titles who are authorized to bind the entity when conducting business on the OCS. Id. § 556.402(c). The specific types of evidence required are further delineated in 30 C.F.R. § 556.402(d).
There are similar eligibility requirements for natural persons and entities to hold an offshore wind lease on the OCS. The first step in qualifying to hold a wind energy lease is proving that a person or entity is an eligible person. See id. § 585.106. An eligible person is: (1) a citizen or national of the United States; (2) an alien lawfully admitted for permanent residence in the United States; (3) a corporation organized under the laws of any State; (4) an association of such citizens, nationals, resident aliens, or corporations; or (5) an Executive Agency, State, or political subdivision of a State of the United States. Id. Although limited liability companies are not specifically listed, many such entities have been qualified by BOEM to hold offshore wind leases. Again, BOEM requires varying additional evidence to support a qualification request. See id. § 585.107. For example, a corporation or association must submit evidence that (1) it is qualified to hold leases or grants under this part; (2) it is authorized to conduct business under the laws of its State; (3) it is authorized to hold leases or grants on the OCS under the operating rules of its business; and (4) the persons holding the titles listed are authorized to bind the corporation or association when conducting business with BOEM. Id. A chart listing types of acceptable evidence for legal qualification purposes is provided in 30 C.F.R. § 585.107(d). Once legal qualification is approved, BOEM will issue the approved person or entity a unique company number that should be used in all correspondence related to qualification to be an OCS renewable energy lessee, including with respect to the additional capabilities discussed immediately below, which are specific to a particular lease auction.
Beyond legal qualification, in order to hold a wind energy lease, one must demonstrate the technical and financial capability to construct, operate, maintain, and decommission the project for which authorization is being sought. 30 C.F.R. § 585.107(a). Documentation should include: (1) descriptions of international or domestic experience with renewable energy projects or other types of electric-energy-related projects; and (2) information establishing access to sufficient capital to conduct development. Id. In May 2020, BOEM issued a Notice to Lessees that provides additional guidance, particularly on what BOEM requires to show technical and financial capability. See Notice to Lessees, Operators, and Applicants for Federal Renewable Energy Leases, Grants, and Alternate Use Grants on the Outer Continental Shelf, NTLA No. REN-N03 (May 27, 2020).
For example, in order to demonstrate technical capability, a prospective offshore wind lessee should identify key personnel who would be directly involved in managing the proposed project, including names, titles, and descriptions of experience. Id. The same information should be provided for proposed project contractors and consultants, along with non-binding letter agreements or other evidence of the business relationship between the person or entity and the contractor/consultant. Id. Prior and current renewable energy projects should also be included, with a general description of the project name, type, location, size, years in operation, and operating status, along with identification of the prospective lessee’s role in connection with the project, and the role of key personnel who would be involved in the proposed project. Id. In addition, BOEM requires a prospective lessee to identify any legal or regulatory actions taken against it within the past five years and the resolution of such action, or a statement to the effect that there have been no such actions. Id.
Financial capability is demonstrated through submittal of a financing plan for the proposed activities that contains detailed information on how lease acquisition and initial lease activities will be financed, from the costs associated with initial Federal and state authorizations to perform site characterization activities through all subsequent phases of the project. Id. BOEM also requests a description of the prospective lessee’s experience in raising capital for similar projects of a similar scale, and other business and financial information, including a description of the business and its corporate structure, bank references, a current audited financial statement, and information regarding any bankruptcy or other adverse financial proceedings within the last five years, or a statement that there are none. Id.
BOEM requests that prospective renewable energy lessees submit information demonstrating legal, technical, and financial qualification as early as possible and no later than 60 days after the publication in the Federal Register of a Proposed Sale Notice. Id. BOEM publishes the names of all qualified bidders in its Final Sales Notice for each offshore wind auction.
Qualification information must be updated in accordance with BOEM regulations. A qualified person or entity is required to notify BOEM in writing of any merger, name change, or change in business form. 30 C.F.R. § 585.109. Notice should be provided as soon as practicable and is required no later than 120 days after the earliest of either the effective date, or the date of filing the change or action with the Secretary of State in the State of original registry. Id. If there are changes in officers or others listed on an entity’s qualification card as persons authorized to bind the entity, these must also be updated, which should be done sufficiently in advance of an offshore lease sale auction for BOEM to make the updates before the auction so that there are currently authorized individuals on the qualification card to sign any lease awarded, as well as additional documents related to the lease auction that may be required to be signed by a person listed on the qualification card. Note that there are formalities surrounding legal qualification and qualification updates that must be followed in order to obtain BOEM approval. These are dependent on entity type and specifics as to structure and governance. BOEM also retains the right to require other types of additional or updated information related to legal, technical, and financial qualification when it is considering a prospective lessee’s bid or application for a renewable energy lease. Id. 585.107(f).
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