Jim Roth weighs in on wind-turbine contracts

APRIL 3, 2009– Alternative energy attorney Jim Roth is interviewed by The Oklahoman about the business aspect of wind turbines. Roth says wind farm leasing in Oklahoma is a little like the Wild West, with virtually no regulation and lots of opportunity for landowners to either profit or make deals they’ll later regret.

Lawyers advise taking care in wind-turbine contracts

By Randy Ellis, Business Writer, rellis@opubco.com

Wind farm leasing in Oklahoma is a little like the Wild West. Experts say there’s virtually no regulation and lots of opportunity for landowners to either profit or make deals they’ll later regret.

“It’s very much a wildcatter’s environment with a lot of speculation going on,” said former Oklahoma Corporation Commissioner Jim Roth, who now handles alternative energy legal issues in his job as an attorney with the Phillips Murrah law firm.

Being prepared and knowing the provisions a landowner wants included in a lease are keys to avoiding later problems, said Roth and Shannon Ferrell, lawyer and assistant professor of agricultural economics at Oklahoma State University.

Ferrell said an average wind lease is 40 pages, so a landowner should strongly consider hiring a knowledgeable attorney to protect his or her interests. Often, the wind developer will reimburse a landowner for the cost of having an attorney review a lease if asked to do so, he said.

Money is top concern

One of the first things most landowners want to know is how much money they can make and how the financial portions of their contracts should be structured.

Roth said he would recommend that landowners seek royalty interests based on the power output of wind turbines on their properties as opposed to a flat fee per turbine or acreage.

Ferrell said negotiated wind lease payments have varied widely in Oklahoma, partially because developers’ costs also vary, depending on such things as average wind speed in a particular area and the availability of transmission lines.

A typical Oklahoma lease might start out with a 4 percent royalty payment and escalate by a half percent every few years through the term of the lease, he said. That allows a developer to recover upfront costs before having to pay higher lease payments.

Sometimes a developer will guarantee the landowner a certain amount per wind turbine but pay a royalty, instead, if the royalty amount exceeds the guaranteed fee, Ferrell said. Other leases call for a landowner to be paid a fee for each wind turbine plus a royalty — but the royalty is usually a lower percentage on those leases, he said.

Ferrell said some developers will pay landowners royalties only on the amount of electricity produced, but others have agreed to share income from the sale of renewable energy certificates to out-of-state electrical utilities that are required to show a certain percentage of their power comes from renewable sources attached to the power grid.

Amounts vary

Landowners can also negotiate payments for surface damage, option renewals and easements, he said.

On a typical wind project, a landowner might make about $7,000 per year for each turbine, he said, adding that four turbines are about the most that will fit on an ideal 160-acre tract.

Roger Mills County Commissioner Jerry Dean said landowners in his county generally have been making between $4,000 and $8,000 per year for each tower, but said he has not leased his personal property.

“I don’t want to give up rights to how I use my land for 40 or 50 years,” Dean said. Look at duration, too

Ferrell said landowners should make sure they have “an explicit right to audit payments.”

But landowners need to think about a lot more than just the payments they will receive, Ferrell said.

Duration of the lease is a major issue to be negotiated, Ferrell and Roth agreed. Ferrell said some early leases were for 99 or 150 years — well beyond the time the turbines are expected to wear out. The recent trend is for leases to be 30 years to 50 years long, often with renewal options at various intervals, he said.

Shadows and noise

Shadow flicker and noise are other issues that landowners should consider when negotiating leases, Ferrell said.

If a wind turbine is built where it blocks the sun from a landowner’s home during certain parts of the day, then the shadows cast by the spinning turbines will create a strobe light effect that can be irritating, Ferrell said.

Noise generated by wind turbines can be an annoyance to some landowners, while for others it is more of a white noise they don’t notice, he said.

Roth said he considers it a good idea for rural neighbors to band together so leasing agents can’t play them against each other.

There is a lot of wind leasing activity going on now in western Oklahoma, but Roth said he believes it is just the tip of the iceberg of things to come because of the state’s tremendous wind energy potential.