PRIMGHAR – Interest is growing among O’Brien County landowners to form a non-profit landowner’s wind energy association (LWA) that culminates in negotiating a contract with a wind energy developer to build a large utility-scale wind farm on a specified area of land.
The LWA model came into use about 10 years ago in Rocky Mountain States like Wyoming, Colorado and New Mexico. Developing large-scale wind energy facilities generally takes less time when landowners are fully involved in the project.
According to Rocky Mountain Farmers Union website information, nearly two dozen landowner associations in the three states routinely market about 2 million acres of wind-rich resources to commercial-scale wind energy development firms.
The O’Brien County Value Added Ag Committee hosted an information meeting at the O’Brien County Court House in Primghar on Wednesday, June 26. Algona attorney Scott Buchanan presented general information to about 35 landowners seeking information about forming and participating in an LWA.
“I’ve been working with wind energy projects since 1995,” Buchanan began. “I was general counsel for a group of municipal utilities that built a small wind farm in Kossuth County. I did the land use agreement for that.”
“The way wind energy has progressed,” Buchanan continued, “there’s been a furious 10 years of prospecting by wind developers that kind of overwhelmed landowners. Local attorneys didn’t really know a lot about the details of these wind easement contracts and what their substantive terms really meant. And so we’re playing a little catch-up here.”
Buchanan briefly touched on the benefits of wind energy in general. “The prospect of wind energy development is very attractive for a lot of reasons. It represents clean energy and new technology. It represents a future where we have more distributed energy resources and it brings the economics of energy home,” Buchanan said. “It allows the landowner to participate in the energy markets and to profit from it.
As long as it’s a fair deal for the landowner, as well as the energy companies, there’s nothing wrong with people entering into these easement agreements and sharing the wealth from this form of energy development.”
Easement Agreement Complexity
Buchanan moved on to discuss the complexity of these wind energy easement agreements. He said that contract terms often change over the years with the length of some contracts lasting over 100 years.
“But that’s because these are large-scale utilities that need these long-term contracts due to the life-cycle of their equipment. Landowners negotiating these agreements eventually hand off these contracts to their children and grandchildren.
So, future generations do have a stake in these negotiations as well. That’s why it might make good sense to form an association for the continuity of generations,” Buchanan pointed out.
“It’s true that in any complex contract like an insurance contract, the terms all mean something. In these contracts, the terms “really” do mean something. They are very critically important and you can’t just gloss over that,” Buchanan suggested.
The indemnification clause was one example of how important it is to understand what these terms mean. “Indemnification means that if I did something to harm your interests under the terms of the contract, then I’ll pay for that and make it right. If the developer does something to harm your interests, they will pay for that.
“Let’s think about that for a second. Suppose you own 160 acres free and clear. With that ground now worth $2 million, and you have a $2 million asset pledged to this contract, you’ve just said you will use all of your equity in that land to satisfy any damages that you, or anyone that you control, causes to that wind developer. You’ve just bet the ranch!”
The wind developer might be a thinly capitalized LLC with a cap on liability damages paid to the other party in a contract. As an example, Buchanan explained why he has an insurance policy for his law firm that limits his exposure for damages he might unintentionally cause to a third party. He said it took him a while to realize there should be insurance policies to limit exposure to landowners in wind energy contracts.
“There’s no reason not to use a cap on an insurance policy to limit your exposure in the same way the wind developer uses the limited liability corporation rules to limit his exposure,” Buchanan pointed out.
“That’s why it’s very important for you to build up that substantive knowledge of what you’re dealing with and what these contract terms mean.”
Some contracts have a royalty clause that’s tied to the efficiency of the turbine. This means the energy company pays the landowner a set rate for the amount of electricity that’s produced.
“Are you the one that’s going to ask the energy company to provide documents that show the accuracy of their royalty payment rates over time?” Buchanan asked. “With an association agreement in place, the association can hire one auditor to audit the wind energy company to ensure compensation is always at a fair rate.”
Another critical term is an inflation adjustment clause. “Because these contracts are so long-term, if you don’t have a robust inflation adjuster in your contract, you are going to be losing the economic value of your contract every year,” Buchanan said.
Wind turbine and access road location approval from the landowner is another issue. “Something as simple as getting the developer to locate the access road at some multiple of your planter width off the fence line is important. You don’t want to have to break the planter down just to be able to plant right up to the edge of the access road.
“Early wind farm design was controlled by engineers who insisted on micro-sitting each wind turbine because they believed a certain spot might yield a little more wind energy,” Buchanan explained. “Wind energy companies soon learned that these practices really irritated landowners. Keeping access roads parallel to fence lines so you can continue to farm is another consideration.”
*Forming the Landowner Association
“I would suggest that anywhere there is a wind energy development, there ought to be a landowners association in place. There just needs to be that coordination on the part of landowners that are invested in that development. My recommendation is that you simply form a non-profit corporation and not a tax-exempt entity,” Buchanan suggested.
“A non-profit organization is of value to your leadership as well. You’ve got some community leaders here who recognized the importance of trying to do something for the benefit of the community. They shouldn’t have to expose themselves to any unnecessary liability. This statute immunizes them from any personal liability,” Buchanan explained.
“With all of you having the same contract, you shouldn’t have to retain separate legal counsel to address questions that come up periodically. The association can retain the services of one attorney when needed,” Buchanan noted.
“It’s a simple process to form a non-profit corporation. You file a set of articles with the Secretary of State. The cost of doing that in legal terms isn’t that great. You appoint an initial board of directors and adopt a set of bylaws.
“Right now, we really don’t have any attorney client relationship. I’m just giving you general information on a subject. That could change once you get set up and the organization retains legal counsel,” Buchanan concluded.
Value added Ag committee leaders said as the meeting concluded they do believe it is worthwhile to continue this effort. They indicated their immediate goal is to get an association formed in the next few weeks. The committee would like to see greater representation from all parts of the county.