Energy developers blow wind at farmers

By Chuck Holum, Esq.

Rocky Mountain Farmers Union (RMFU) members in northeast Colorado have joined farmers in other areas of the state discussing lease offers for wind generation. While the offer of reliable cash may prove difficult to resist, farmers and ranchers need to be wary of landmen carrying checkbooks and thick legal documents. Many Farmers Union members believe strongly in the promise of alternative energy. Those who worried about a “buffalo commons” benefiting outside interest groups, however, need to picture a “windmill commons” similarly favoring those with little interest in family agriculture.

The problems do not lie in the concept of wind generation: Most farmers would be all too happy to see this renewable resource turned into electrical energy. Traditional utility companies like Xcel and Pacificorp, for financial and policy reasons, are now joining alternative energy developers like enXco and the late-Enron in putting together huge windmill farms throughout the middle of the country. Federal and state regulators offer tax credits and other incentives to make this happen.

But, viewed from the landowner’s perspective, what do you do when they show up at your door and promise hundreds and thousands of dollars in monthly or annual payments, for mere “access” and other nebulous “rights” that don’t seem to cost you anything? DON’T SIGN. At least not without a full understanding of the consequences. Having read through some of these agreements, I know these are complicated and long-term contracts with very serious consequences for producers, their farms and even their descendents. Consider:

• These contracts last a long time, as long as 40 years or more, or even perpetually. They grant “exclusive” rights to some parts of your property. You may not be able to use the roads these companies build to their facilities. They may build sizeable transmission lines that are totally separate from the windmills.

• Is the price fair? In agreements lasting this long, commercial energy contracts have complicated escalation and related clauses, to protect both sides of the bargain. Does yours?

• Are you sharing in the benefits of the development? Or do you just suffer the consequences? If they pay you one mill ($0.001) per kwh, for how much do they sell the energy? The Lamar project, now owned by GE, starts out selling energy to Xcel for 33 mills, adjusted annually for inflation, not counting the tax incentives. What is the capacity factor of your wind?

• The Pacific Wind agreement says that company will use “reasonable efforts” not to disturb your farming operation, and that they’ll “consult” with you. Who says what’s reasonable? They may get to do what they want, regardless of your crop or your best field.

• You should not assume you get to deal with the same people, or even the same company, for anywhere close to 40 years. Pacific Wind could well sell this project next week, and you’re stuck with the new owner or, more accurately, the new investors. eneXco changed staff and wouldn’t return farmers’ phone calls.

• Do you have to pay for a title policy, for the developer’s benefit?

• Don’t think of these agreements as mere contracts that will go away if they don’t work. Pacific Wind and the others want perpetual easements, perhaps outlasting any wind farm. Termination by the landowner is downright impossible, because otherwise the developers won’t be able to show their lenders and investors and supervisors a “bankable” project.

• The Public Utilities Commission offers little protection to landowners on these issues, other than some regulation of Xcel’s purchases and the construction of transmission lines.

When the rural cooperatives and local utilities started wiring counties 50 and more years ago, your neighbors were on the board and shared your interests. REAs retain some measure of local control. When Pacific Wind and these others knock on your door and offer checks as alternatives to the next drought, please remember that their interests are completely different than yours.

There is a lot of money to be made in wind farms or they wouldn’t be there. Talk to your neighbors, and to your financial and legal advisors. RMFU and others are trying to ensure that these important negotiations and decisions benefit everyone.