Minerals Management Service Proposes Regulations Governing Development of Wind, Wave, Current, Solar and Other Alternative Energy Sources on the Outer Continental Shelf

7/23/2008

On July 9, 2008, the Department of the Interior's Minerals Management Service ("MMS") issued proposed regulations for granting leases, easements, and rights-of-way for alternative energy project activities and for alternate uses of existing facilities located on the Outer Continental Shelf ("OCS").[3] Alternative energy projects covered by the proposed rule include, but are not limited to, offshore wind, wave, current, and solar energy projects. This article summarizes sections of the proposed rule that will likely be of particular interest to alternative energy project developers wishing to submit comments to MMS for its consideration in the final rulemaking.[4] Comments must be submitted to MMS no later than Monday, September 8 to receive full consideration.

I. EXECUTIVE SUMMARY

• The proposed rule outlines MMS's method for issuing "commercial" and "limited" leases, through both competitive and noncompetitive processes, for the development of alternative energy projects on the OCS.
• The competitive lease process for awarding alternative energy leases will be similar to federal and state processes for conveying mineral rights. Leases will be awarded through one of three auction formats: (1) sealed bidding, (2) ascending bidding, or (3) two-stage bidding. A developer whose bid is rejected may petition for reconsideration.
• Apart from the competitive lease process, any qualified entity may request an alternative energy lease at any time. Upon receiving an unsolicited lease request, MMS will issue a public notice and consider comments to determine if competitive interest exists. If competitive interest exists, MMS will proceed with the competitive lease process. If not, MMS will publish a notice of its determination and may offer the noncompetitive lease.
• A commercial lease will convey the access and operational rights necessary to produce, sell, and deliver power on a commercial scale. The preliminary term of a competitively-issued commercial lease will be six months. A noncompetitively-issued commercial lease will not have a preliminary term. Commercial leases will have 5-year site assessment terms and 25-year operations terms. Commercial leases may be renewed.
• Before MMS will issue a commercial lease, the applicant must provide one of the following types of assurance: (1) a $100,000 basic lease-specific bond, (2) a pledge of $115,000 in U.S. Department of Treasury securities, (3) $100,000 cash to be deposited and maintained by MMS in a Federal depository account, or (4) certificates of deposit or savings accounts with minimum net assets of $500,000,000, a minimum Bankrate.com Safe & Sound rating of three stars, and Capitalization, Assets, Equity and Liquidity ("CAEL") of three or less. A second bond or financial instrument will be due before MMS will approve a Site Assessment Plan ("SAP"), and a third bond or financial instrument will be due before MMS will approve a Construction and Operations Plan ("COP"). MMS will determine the amounts of the second and third assurances by considering projected amounts of rentals and other payments due in the next 12 months, any past-due rentals or payments, and the costs of lease abandonment and cleanup.
• The rental for a commercial lease will be $3 per acre per year. Operating fees will be calculated according to the formula F = M * H * c * P * r, where F is the annual operating fee in dollars, M is the installed capacity in MW, H is the number of hours in a year (8,760), c is the anticipated capacity factor expressed as a decimal, P is the retail electric power price in dollars per MWh, and r is an operating fee rate between zero and one to be set by MMS.
• Commercial leases require completion of both a SAP and COP. A SAP must include physical characterization, resource, and baseline environmental surveys, as well as detailed information to assist MMS in complying with the National Environmental Policy Act ("NEPA"), the Endangered Species Act ("ESA"), the Coastal Zone Management Act ("CZMA"), and other relevant laws.[5] For noncompetitively-issued commercial leases, a SAP must be submitted within 60 days of MMS's determination of no competitive interest. For competitively-issued commercial leases, a SAP should be submitted within six months of lease issuance. After MMS approves a SAP, the lessee must submit an initial survey before constructing any facilities. A COP must describe all operations and all onshore and offshore facilities that will be installed. A COP must include results of shallow hazard, geological, geotechnical, and archaeological resource surveys; socioeconomic and biological project information; an overall site investigation; and detailed information to assist MMS in complying with NEPA, the ESA, the CZMA, and other relevant laws. A COP should be submitted within five years after MMS approves the SAP. Construction may begin after MMS has approved the COP and the lessee has submitted the necessary facility design and fabrication reports.
• A limited lease will convey access and operational rights for activities that support alternative energy production but that do not result in the production of electricity or other energy product for sale, distribution, or commercial use. The preliminary term of a competitively-issued limited lease will be six months. A noncompetitively issued limited lease will not have a preliminary term. Limited leases will have five-year operations terms. Limited leases may be renewed. The rental for a limited lease is $3 per acre per year.
• A developer must post a bond of no less than $300,000 when it obtains a limited lease. Unlike the requirements for commercial leases, the financial assurance requirements for limited leases must be made with a bond and may not be made by other means. Further financial assurance is not required to obtain MMS approval of a SAP or GAP. However, MMS may require a developer to increase its initial $300,000 bond as activities progress.
• A limited lease does not offer any preferential right or option to future commercial development of the lease site. The lessee of a limited lease must apply for a commercial lease to engage in commercial energy production.
• Lessees (commercial or limited) are not required to apply for separate Right-of-Way ("ROW") or Right of Use and Easement ("RUE") grants for proposed projects. Rental for a project easement will be the greater of $5 per acre per year or $450 per year.
• Applications for ROW and RUE grants will be considered on a case-by-case basis and may be issued competitively or noncompetitively in the same manner as leases.
• A developer must post a bond of no less than $300,000 when it obtains a ROW or RUE grant. Unlike the requirements for commercial leases, the financial assurance requirements for grants must be made with a bond and may not be made by other means. Further financial assurance is not required to obtain MMS approval of a SAP or a General Activities Plan ("GAP"). However, MMS may require a developer to increase its initial $300,000 bond as activities progress.
• MMS may issue ROW grants apart from alternative energy leases for activities involving the placement and maintenance of infrastructure that crosses the OCS. A ROW grant area will be 200 feet wide for the length of the cable or pipeline corridor. ROW grants may be renewed. The rental for a ROW grant will be $70 for each nautical mile of the OCS that the ROW crosses plus an additional $5 per acre (minimum $450) if the area includes a site outside the 200-foot corridor.
• MMS may issue RUE grants apart from alternative energy leases for activities involving the operation of a facility on the OCS that supports an alternative energy project located on state submerged lands. The boundaries of RUE grants will be determined on a case-by-case basis. RUE grants may be renewed. The rental for a RUE grant will be the greater of $5 per acre per year or $450 per year.
• Limited leases, ROW grants, and RUE grants require one development report, a GAP. The GAP will include information similar to what is in a SAP as well as additional information concerning planned activities throughout the term of the lease or grant. Submission requirements for a GAP are the same as for a SAP. Review, approval, and revision of a GAP will be similar to a SAP and a COP.
• MMS may reduce or waive any rental or operating fees if, inter alia, continued activities would be uneconomic without the reduction or waiver, or the reduction or waiver would be necessary to encourage additional activities.
• MMS envisions conducting multiple NEPA, ESA, and CZMA reviews for each lease or grant. The precise number of environmental reviews will depend on the instrument the developer holds. Competitively-issued commercial leases will require three NEPA, ESA and CZMA reviews. Noncompetitively-issued commercial leases will require two NEPA, ESA and CZMA reviews. Competitively-issued limited leases will require two NEPA, ESA and CZMA reviews. Noncompetitively-issued limited leases will require one NEPA, ESA and CZMA review. Competitively-issued ROW and RUE grants will require two NEPA, ESA and CZMA reviews. Noncompetitively-issued ROW and RUE grants will require one NEPA, ESA and CZMA review.
• It is possible to begin operation on a commercial lease after only two stages of environmental review. An applicant may submit a COP together with a SAP so that compliance with NEPA, ESA, CZMA, and other relevant laws can be determined simultaneously.
• MMS anticipates that all commercial development projects will initially require an Environmental Impact Statement ("EIS") under NEPA rather than an Environmental Assessment ("EA") for each phase of a project.
• MMS will authorize alternate uses of existing OCS facilities through Alternate Use Rights of Use and Easements ("Alternate Use RUEs"). Alternate Use RUEs will be issued on a case-by-case basis for activities that use, for energy or other marine-related purposes, facilities that are currently or were previously used for other activities under the Outer Continental Shelf Lands Act ("OCS Lands Act").
• Alternate Use RUEs must be issued on a competitive basis unless MMS determines after public notice and comment that there is no competitive interest. The term, the rental, and other payments associated with an Alternate Use RUE will be determined on a case-by-case basis and will be included in each instrument.

II. ANALYSIS

A. Issuance of OCS Alternative Energy Leases

    1. Competitive Lease Process (§§ 285.210-285.229)

The competitive process for awarding alternative energy leases set out in the proposed rule is similar to federal and state processes for conveying mineral rights. The process has six steps: (1) call for information and nominations, (2) area identification, (3) proposed sale notice, (4) final sale notice, (5) lease sale (auction), and (6) lease award. A competitive lease sale for alternative energy activities may be held for one type of activity (e.g., wind) or for various activities (e.g., wind, solar, hydrokinetic). The scope of competing activities will be determined based on responses to initial public notices (e.g., request for information, call for information and nominations).

The purpose of the call is to solicit information from potential bidders, interested, and affected parties concerning a lease area proposed either through an unsolicited lease application or an MMS-initiated request for interest in an area. The call will be published in the Federal Register and will include a 45-day comment period. Following a call, MMS will identify the area to be considered for leasing and analyzed under NEPA. The proposed rule does not suggest a time period for the area identification phase of the lease process. Once the NEPA analysis for the proposed lease area is complete, MMS will publish a proposed sale notice in the Federal Register. The public comment period for the proposed sale will be 60 days. After considering comments on the proposed sale, MMS will publish a final sale notice in the Federal Register 30 days prior to the auction that includes the final terms and conditions of the lease sale.

The lease is awarded through one of three auction formats: (1) sealed bidding, (2) ascending bidding, or (3) two-stage bidding (a combination of sealed bidding and ascending bidding). The formats are described in detail in § 285.220 of the proposed rule. Participation in a competitive sale will not be limited to those entities that commented or expressed interest in the area unless the final sale notice specifies otherwise. Minimum bids will be specified in the final sale notice and MMS will use one of five bidding systems set out in § 285.221 to award the lease. A developer whose bid is rejected may petition the MMS director for reconsideration within 15 days of the rejection.

    2. Noncompetitive Lease Process (§§ 285.230-285.234)

Any qualified entity[6] may request an alternative energy lease at any time. However, lease requests for areas otherwise proposed for competitive bidding or excluded by statute from leasing will not be considered. An unsolicited request must include the project area, a general description of project objectives and facilities, a general schedule of proposed activities, resource data, and an acquisition fee of $0.25 per acre. Upon receipt, MMS will issue a public notice of the request and consider comments received to determine whether competitive interest in the area exists. If MMS determines that competitive interest exists, MMS will proceed with the competitive lease process. If the applicant chooses to bid in the competitive lease process, its acquisition fee will be applied to the deposit for its bid (or its bonus bid if it acquires the lease). If the applicant chooses not to bid, or does not acquire the lease, MMS will not refund its acquisition fee.

If MMS determines that no competitive interest exists, MMS will publish a notice of its determination in the Federal Register. Within 60 days of the notice, the applicant must submit either a SAP (for a commercial lease) or a GAP (for a limited lease). See Section F for SAP and GAP information requirements. If MMS approves (or approves with conditions) the applicant's SAP or GAP, MMS may offer a noncompetitive lease.

B. Commercial and Limited Leases (§§ 285.235-285.238)

The proposed rule outlines MMS's process for issuing "commercial" and "limited" leases for the development of alternative energy projects on the OCS. Alternative energy means "energy resources other than oil and gas and minerals as defined in 30 CFR pt. 280 . . . [including, but not limited to] wind, solar, and ocean waves, tides and current."[7] MMS's regulatory authority under this proposed rule does not apply to activities that are otherwise authorized by law, including ocean thermal energy conversion.[8] A commercial lease will convey the access and operational rights necessary to produce, sell, and deliver power on a commercial scale. It will include the right to a project easement to install cables necessary to gather, transmit, and distribute electricity; pipelines to transport other energy products (i.e., hydrogen); and other appurtenances on the OCS for full enjoyment of the lease. A limited lease will convey access and operational rights for activities that support alternative energy production but that do not result in the production of electricity or other energy product for sale, distribution, or commercial use. A limited lease does not offer any preferential right or option to future commercial development of the lease site. The lessee of a limited lease must apply for a commercial lease to engage in commercial energy production.

MMS anticipates that alternative energy developers will prefer to acquire commercial leases rather than limited leases. Limited leases will be offered to provide companies of all sizes the opportunity to pursue alternative energy activities without the commitments and expenses of a long-term commercial lease. The lessee of an MMS-issued alternative energy lease (commercial or limited) is not required to apply for a separate ROW grant or a RUE grant for the proposed project. See Section C below for ROW and RUE grant details.

    1. Commercial Lease Terms

The preliminary term of a competitively-issued commercial lease will be six months. A SAP should be submitted before the end of the preliminary term. However, the preliminary term of a commercial lease may be extended at MMS's discretion if a SAP is not timely filed. If the SAP meets all of the requirements set out in §§ 285.605-285.612, the preliminary term will be automatically extended for the time MMS requires to complete technical and environmental reviews of the SAP. A noncompetitively-issued commercial lease does not have a preliminary term because SAP approval and lease issuance will occur simultaneously. Once MMS issues a public notice of its determination that a competitive bid process will not be held, a developer has 60 calendar days to submit its SAP.

A commercial lease will have a five-year site assessment term. A developer must complete all site assessment activities and submit a COP before the end of the site assessment term. However, the site assessment term may be extended at MMS's discretion if a COP is not timely filed. If the COP meets all of the requirements set out in §§ 285.620-285.629, the site assessment term will be automatically extended for the time MMS requires to complete technical and environmental reviews of the COP. A commercial lease will have a 25-year operations term that will begin on the date MMS approves the COP. Longer terms may be negotiated with applicable parties (e.g., when a 30-year power purchase agreement is negotiated prior to issuance of the lease). A request for renewal of a commercial lease must be submitted 2 years before the end of the operations term and must meet the requirements of §§ 285.425-285.428 of the proposed rule. The renewal term will be determined by MMS on a case-by-case basis not exceed the original operations term of the lease.

    2. Limited Lease Terms

The preliminary term of a competitively-issued limited lease will be six months. A GAP should be submitted before the end of the preliminary term. However, the preliminary term of a limited lease may be extended at MMS's discretion if a GAP is not timely filed. If the GAP meets all of the requirements set out in §§ 285.640-285.647, the preliminary term will be automatically extended for the time MMS requires to complete technical and environmental reviews of the GAP. A noncompetitively-issued limited lease does not have a preliminary term. MMS must approve a developer's GAP before a lease will be issued. A limited lease will have a five-year operations term that will begin on the date MMS approves the GAP. A request for renewal of a limited lease must be submitted 180 calendar days before the termination date of the limited lease. Renewal terms will be determined by MMS on a case-by-case basis not to exceed the original operations term of the lease.

C. ROW and RUE Grants (§§ 285.305-285.316)

As discussed in Section B above, both commercial and limited OCS leases include rights to project easements for cables, pipelines, and other facilities associated with alternative energy projects. However, the proposed rule also provides for ROW and RUE grants for alternative energy activities that are not associated with an MMS-issued alternative energy lease on the OCS. MMS may issue ROW grants apart from alternative energy leases for activities involving the placement and maintenance of infrastructure that crosses the OCS and that transmits electricity or another energy product from alternative energy resources onshore or in state waters. Likewise, MMS may issue RUE grants apart from alternative energy leases for activities involving the placement and operation of a facility on the OCS that supports the production, transportation, or transmission of electricity or another energy product from an alternative energy project located on state submerged lands.

A ROW grant area will be 200 feet wide for the length of the cable or pipeline corridor. The boundaries of RUE grants, on the other hand, will be determined by MMS on a case-by-case basis. Both ROW and RUE grants will remain in effect as long as the facilities are properly maintained and used for the purpose for which a grant was made unless otherwise specified in the grant. MMS will not issue ROW or RUE grants for site assessment facilities. Developers must obtain a commercial or limited lease before installing site assessment facilities. Applications for renewal of ROW and RUE grants must be submitted 180 calendar days before the termination date of the grant (if specified in the grant). The renewal term will be determined by MMS on a case-by-case basis not to exceed the original term of the lease.

MMS will consider applications for ROW and RUE grants on a case-by-case basis and may issue a grant competitively or noncompetitively. If MMS determines that there is a competitive interest in the grant following a public notice and comment period, a competitive auction for a ROW or RUE grant will be conducted following the same process for leases. If MMS determines that no competitive interest exists, the applicant must submit its GAP within 60 calendar days of the determination. If MMS approves (or approves with conditions) the applicant's GAP, MMS may issue a grant upon the applicant's payment of any accepted high-bid balance and annual rent for the first year of the grant.

D. Financial Assurance Requirements (§§ 285.515-285.539)

    1. Financial Assurance Requirements for Commercial Leases

Before MMS will issue a commercial lease, the applicant must provide one of the following types of assurance: (1) a $100,000 basic lease-specific bond; (2) a pledge of $115,000 in U.S. Department of Treasury securities; (3) $100,000 cash to be deposited and maintained by MMS in a Federal depository account; or (4) certificates of deposit or savings accounts with minimum net assets of $500,000,000, a minimum Bankrate.com Safe & Sound rating of three stars, and CAEL of three or less.

A second bond or financial instrument will be due before MMS will approve a SAP, and a third bond or financial instrument will be due before MMS will approve a COP. MMS will determine the amounts of the second and third assurances by considering projected amounts of rentals and other payments due in the next 12 months, any past due rentals or payments, and the costs of lease abandonment and cleanup. The second and third assurances may be made through (1) a bond in the amount of the assurance; (2) a pledge of U.S. Department of Treasury securities equal to 115% of the assurance requirement; (3) cash equal to the amount of the assurance requirement to be deposited and maintained by MMS in a Federal depository account; or (4) certificates of deposit or savings accounts with minimum net assets of $500,000,000, a minimum Bankrate.com Safe & Sound rating of three stars, and CAEL of three or less. A developer may increase an existing bond or use a combination of existing bonds and other assurances to satisfy the second and third financial assurance requirements.

In lieu of a surety bond, MMS may authorize a developer to establish a lease, ROW grant, or RUE grant-specific decommissioning account in a federally insured institution. Once the account is established, funds may not be withdrawn without MMS's written consent.

    2. Financial Assurance Requirements for Limited Leases, ROW Grants, and RUE Grants

A developer must post a limited lease or grant-specific bond of no less than $300,000 when it obtains a limited lease, ROW grant, or RUE grant. Unlike the requirements for commercial leases, the financial assurance requirements for limited leases, ROW grants, and RUE grants must be made with a bond and may not be made by other means. Further financial assurance is not required to obtain MMS approval of a SAP or a GAP for limited leases, ROW grants, or RUE grants. However, MMS may require a developer to increase its initial $300,000 bond as activities progress. Subsequent evaluations of the assurance requirement will be based on MMS's estimate of the cost to meet all accrued lease or grant obligations, including the projected amounts of rentals and other payments due in the next 12 months, any past-due rentals or payments, other monetary obligations, and the costs of lease abandonment and cleanup.

In lieu of a surety bond, MMS may authorize a developer to establish a lease, ROW grant, or RUE grant-specific decommissioning account in a federally insured institution. Once the account is established, funds may not be withdrawn without MMS's written consent.

E. Lease and Grant Payments (§§ 285.500-285.514)

    1. Deposits for Competitively Issued Leases, ROW Grants, and RUE Grants

Deposits for competitively issued leases and grants depend on the auction format used for the sale. For leases and grants offered through sealed bidding, a deposit of 20 percent of the total bid amount is due unless another amount is specified in the Final Sale Notice. For leases offered through ascending bidding, the deposit amount will be specified in the Final Sale Notice. Regardless of the auction format, any balance on accepted high bids will be due according to the Final Sale Notice. A developer that fails to execute a lease within the prescribed time or fails to comply with applicable regulations or stipulations will forfeit its deposit.

    2. Initial Payments for Noncompetitive Leases, ROW Grants, and RUE Grants

An acquisition fee of $0.25 per acre must be submitted with a noncompetitive lease request. If MMS determines that there is no competitive interest in the lease area, MMS will retain the acquisition fee. If MMS subsequently does not issue the requested lease, the acquisition fee will be refunded without interest. If MMS determines that there is competitive interest in the lease area and the applicant chooses to bid in the competitive lease process, its acquisition fee will be applied to the deposit for its bid (or its bonus bid if it acquires the lease). If the applicant chooses not to bid, or does not acquire the lease, however, MMS will not refund its acquisition fee.

No advance payment is required when requesting noncompetitive ROW and RUE grants.

    3. Rental Payments for Commercial Leases

The rental for a commercial lease is $3 per acre per year and rent for the first six months is due on lease issuance. Operating fees replace rental payments once the lease has entered its operations term. If a commercial lease is to be developed in phases approved in the COP, then rental payments must be made on the portions of the lease not approved for commercial operations and operating fees must be paid on the portions of the lease that are so approved. Rental for a project easement must be paid in addition to the lease rental.

    4. Rental Payments for Limited Leases

The rental for a limited lease is $3 per acre per year and rent for the first six months is due on lease issuance.

    5. Operating Fees for Commercial Leases

Annual operating fees will replace rental payments during the operations term of a commercial lease. The annual operating fee will be calculated according to the formula set out in § 285.505 of the proposed rule:

MMS intends to set the operating fee rate (r) at 0.01 for the first two years of the operations term, and at 0.02 in the third and remaining years of the operations term. MMS may apply a different rate for new projects (i.e., new generation based on new technology) or may agree to reduce or waive the fee rate for a given project. The retail electric power price (P) will be determined based on the prior year's average retail power price in the state in which a project's transmission cables make landfall, as published by the U.S. Department of Energy, Energy Information Administration. MMS will select the capacity factor (c) based upon present and future domestic and foreign projects that operate in comparable conditions and on comparable scales. MMS may adjust the capacity factor only after the first year of operation and every five years thereafter to accurately represent a comparison of actual production over a given period of time with the amount of power a facility would have produced if it had run at full capacity. MMS will use the installed capacity (M) of the equipment actually installed for the project.

    6. Rental Payments for Project Easements

Rental for a project easement must be paid in addition to the lease rental. The rental for a project easement will be the greater of $5 per acre per year or $450 per year. The size of the project easement area for a cable or pipeline is the full length of the corridor and a width of 200 feet. The size of the project easement for an accessory platform is limited to the aerial extent of anchor chains and other facilities and devices associated with the accessory. Rental payments for a project easement start once the COP or GAP is approved and must be paid until the lease is terminated.

    7. Rental Payments for ROW Grants and RUE Grants

The rental for a ROW grant will be $70 for each nautical mile of the OCS that the ROW crosses plus an additional $5 per acre (subject to a $450 minimum) for use of the entire affected area if the ROW grant includes a site outside the 200-foot-wide corridor. The affected area includes the aerial extent of anchor chains, risers, and other devices associated with a site outside the corridor. The rental for a RUE grant will be the greater of $5 per acre per year or $450 per year. The first annual rental payment for both ROW and RUE grants is due on grant approval.

    8. Requesting Reduction or Waiver of Lease or Grant Payments

MMS may reduce or waive the rental or operating fee, including components of the fee such as the fee rate or capacity factor. To obtain a reduction or waiver, a developer must show that, inter alia, continued activities would be uneconomic without the reduction or waiver, or that a reduction or waiver is necessary to encourage additional activities.

F. Plans and Information Requirements

The proposed rule distinguishes between generating and nongenerating projects by requiring two development plans (SAP and COP) for a commercial lease and one development plan (GAP) for a limited lease, ROW grant, or RUE grant. Two plans were chosen for a commercial lease to reflect the two distinct project development phases: resource assessment which includes collection of meteorological and marine data, and power generation which includes construction, operation, and decommissioning. One plan was chosen for a limited lease because the lease is limited to resource measurement or technology testing. Similarly, one plan was chosen for ROW and RUE grants because they do not involve commercial power generation activities on the OCS.

    1. SAP for Commercial Leases (§§ 285.605-285.619)

A SAP covers site assessment and other data-gathering activities needed to characterize the project site for a commercial lease, including a project easement. For commercial leases acquired noncompetitively, a lessee must submit a SAP within 60 calendar days after MMS determination of no competitive interest. For commercial leases acquired through a competitive bidding process, a lessee must submit a SAP within six months of the date the lease was issued. A lessee must receive approval of its SAP before it can begin any activities on its lease.

Activities proposed in a SAP must include physical characterization surveys (e.g., geological and geophysical surveys), resource assessment surveys (e.g., meteorological and oceanographic data collection), and baseline environmental surveys (e.g., biological, archaeological, or socioeconomic surveys). In addition, if the site assessment activities will include installation of any facilities, then the information set out in § 285.610(b) must be provided with a SAP. This information includes a location plat; plans to conduct geotechnical, geological, archaeological, biological, socio-economic and shallow hazard surveys; and other project data. Detailed information to assist MMS in complying with NEPA, ESA, CZMA, and other relevant laws must also be included in a SAP. This information includes the resources, conditions, and activities that could be affected by, or could affect, a lessee's proposed activities as well as a copy of the lessee's consistency certification under the CZMA.

If MMS approves a SAP, the lessee may begin conducting any approved activities except those that involve the construction of facilities. Before the lessee may begin construction, it must submit an initial survey report to MMS. The initial survey report must include data on the activities described in § 285.610(b) that relate to the construction and installation of facilities or to seabed disturbing activities. After receiving the initial survey report, MMS will determine if it has objections. Any objections must be resolved to MMS's satisfaction before construction may begin. If MMS determines that it has no objections, or if MMS does not respond to the initial survey report within 60 calendar days of receipt, the lessee may begin construction.

If in its SAP a lessee proposes to construct a complex facility or multiple facilities for site assessment, the lessee must also submit a Facility Design Report described in § 285.701, a Facility Fabrication and Installation Report described in § 285.702, and a Safety Management System described in § 285.810.

Activities that will probably require a proposed revision to a lessee's SAP are set out in
§ 285.617(c). Proposed revisions may trigger further NEPA analysis.

    2. COP for Commercial Leases (§§ 285.620-285.639)

A COP describes the construction, operations, and conceptual decommissioning plans for the operations term of any project under a commercial lease, including the project easement. A lessee may request in its COP that the commercial lease be developed in phases. For commercial leases acquired noncompetitively and competitively, a lessee must submit a COP within five years after MMS approves its SAP. MMS will extend the terms of the SAP if necessary while conducting the technical and environmental reviews of a COP.

A COP describes all operations and all onshore and offshore facilities that will be installed to test, gather, transport, transmit, or generate and distribute energy from the commercial lease area. The report must include results of shallow hazard, geological, geotechnical, and archaeological resource surveys; socioeconomic and biological project information; and an overall site investigation as outlined in §§ 285.625-285.626. In addition, a lessee must submit detailed information to assist MMS in complying with NEPA and other relevant laws. This information includes the resources, conditions, and activities that could be affected by, or could affect, a lessee's proposed activities as well as a copy of the lessee's consistency certification for CZMA. After MMS completes its NEPA analysis and affected States have completed their CZMA reviews, MMS may approve, disapprove, or approve with modifications the COP. If MMS does not approve a COP, the lessee may modify and resubmit it.

Construction may begin once MMS approves a COP and a lessee has submitted a Facility Design Report as described in § 285.701 and a Facility Fabrication and Installation Report as described in § 285.702. Construction must begin by the date specified by the lessee in its construction schedule. Commercial operation may begin 30 days after the Certified Verification Agent has submitted the final fabrication and installation report to MMS. If commercial operation stops for an indefinite period exceeding six months, MMS may cancel the lease and the lessee must begin decommissioning.

Activities that will probably require a proposed revision to a lessee's COP are set out in
§ 285.634(c). Proposed revisions may trigger further NEPA analysis.

    3. GAP for Limited Leases, ROW Grants, and RUE Grants (§§ 285.640-285.658)

A GAP describes the lessee or grant holder's planned activities for a limited lease, ROW grant, or RUE grant. It includes information similar to what is in a SAP as well as additional information concerning planned activities throughout the term of the lease or grant. Like the SAP, a GAP must be submitted no later than six months after issuance of a competitive lease or grant, or 60 days after MMS determines that there is no competitive interest for a lease or grant being pursued noncompetitively. If a developer is proposing construction of a facility or facilities in conjunction with its limited lease or grant, its GAP must also describe activities similar to those included in a COP for a commercial lease as set out in § 285.645(b) and (c). Review, approval, and revision of a GAP will be subject to requirements and procedures similar to those applied to SAPs and COPs described above.

    4. NEPA and CZMA Compliance for Plans

The number of NEPA, ESA and CZMA reviews that will be conducted on an OCS lease or grant will depend on the instrument the developer holds:

To comply with NEPA, MMS anticipates that all commercial development projects will initially require an EIS for each phase of the project (i.e., one EIS for the SAP and one EIS for the COP). These EISs will be in addition to the initial EIS that MMS will conduct prior to a competitive lease sale. Similarly, MMS anticipates that all limited leases and ROW and RUE grants will require an EIS for a GAP, in addition to the EIS the MMS will conduct before a competitive sale. However, after the impacts and related mitigation of alternative energy activities on the OCS are better understood, projects may only require an EA to comply with NEPA.

According to MMS, it is possible to begin operation on commercial lease after only two stages of environmental review. To facilitate development of a commercial lease, an applicant may choose to submit a COP together with a SAP. In this case, compliance with NEPA, ESA, CZMA, and other relevant laws would be determined simultaneously. If an applicant submits a COP together with a SAP, sufficient data must be included with the COP for MMS to conduct all required reviews. If new information becomes available after the applicant completes the site assessment activities, then the COP will require revision and MMS may need to conduct a subsequent NEPA review.

G. Alternate Use RUEs for Existing OCS Facilities (§§ 285.1000-285.1019)

The proposed regulations establish general requirements for how MMS will consider, approve, and regulate proposals for activities that involve alternate uses of existing OCS facilities. "Existing facilities" is not limited to those that are currently in place. Rather, an existing facility is any facility that is in place on the OCS and has been authorized by MMS under the OCS Lands Act at the time a proposal for alternate use is made. Such facilities include oil and gas facilities, facilities constructed in association with sand, gravel, sulfur or any other mineral resource development approved under the OCS Lands Act and alternative energy facilities authorized under these new regulations.

Alternate use activities will be authorized by MMS through Alternate Use RUEs issued on a case-by-case basis. MMS may issue Alternative Use RUEs for activities that use, for energy or other marine-related purposes, facilities that are currently or were previously used for other activities under the OCS Lands Act. However, MMS may not approve alternate use activities if those activities are authorized by other statutory authority.

Alternate Use RUEs must be issued on a competitive basis unless MMS determines after public notice and comment that there is no competitive interest. The term of an Alternate Use RUE will be determined on a case-by-case basis and will be included in each instrument. Rental and other payments for an Alternate Use RUE will also be determined on a case-by-case basis and will depend on several factors: the effect on the original approved activity; the size, scale, and type of the proposed alternate use activities; and the income expected. All proposals will be evaluated under the requirements of NEPA, ESA, CZMA, and other applicable laws.

For more information about the issues in this article, please contact:

Cherise Oram at (206) 386-7622 or cmoram@stoel.com
Chad Marriott at (503) 294-9264 or ctmarriott@stoel.com
Michael O'Connell at (206) 386-7692 or moconnell@stoel.com
Jeffrey Leppo at (206) 386-7641 or jwleppo@stoel.com
William Holmes at (503) 294-9207 or whholmes@stoel.com
Howard Susman at (858) 794-1462 or hesusman@stoel.com
Patrick Boylston at (503) 294-9116 or pgboylston@stoel.com
David Quinby at (612) 373-8825 or dtquinby@stoel.com