Dear Director:

Taxpayers for Common Sense (TCS) is a national, non-partisan budget watchdog organization. Our mission is to achieve a government that spends taxpayer dollars responsibly and operates within its means.

Since 1995, TCS has actively worked to ensure that taxpayers receive a fair return on resources extracted from federal lands and waters. Royalties and fees collected from natural resource development represent one of the largest non-tax income sources for the federal government, and taxpayers have the right to fair market compensation. In general, TCS applauds the Bureau of Land Management’s (BLM) proposal to create a competitive process for wind and solar energy development.  

Fair Market Value

Existing statutes and regulations expressly require that the government receive “fair market value” (FMV) or a “fair return” for the use or development of public lands. Fair market value is typically the amount for which a parcel of land would be sold by a willing and knowledgeable seller to a willing and knowledgeable buyer. It is determined by a competitive market rather than the personal or inherent value of the property.

Many existing energy programs, including oil and gas development, rely on competitively-offered leases to determine FMV whenever a competitive interest in a parcel of land exists. Unlike other resource development plans, however, Congress has not enacted legislation to establish either a wind or solar development program. Ideally, Congress, working with the Administration, would create—in statute—a wind and solar development program, offering wind and solar development rights in suitable areas under a system of competitive leases and charging royalties to collect a fair return from commercial generation. In the absence of Congressional action, BLM has implemented wind and solar programs through the issuance of right-of-way (ROW) authorizations, which have not traditionally been offered via competitive bidding, raising questions about the ability to ensure a fair return.[1] 

• TCS agrees with the creation of a competitive leasing system.

In the proposed rule, BLM would provide for competitive processes for solar and wind energy ROWs on public lands. The creation of a nomination and competitive process instead of an application process is a critical step toward fulfilling the fair market value mandate set forth in the Federal Land Policy and Management Act (FLPMA). Other renewable energy systems, such as geothermal and offshore wind and solar, already use a competitive leasing framework.

Competitive offering appropriately shifts the risk burden from taxpayers onto the economic interests of those who stand to profit from access to the resource in question. TCS agrees with BLM’s response to ANPR comments, stating: “FLPMA directs the BLM to receive fair market value for right-of-way authorizations on the public lands and the recommendation not to offer rights-of-way competitively could prevent the BLM from doing so.”

Fees and Rents

The most efficient method of capturing a fair return for taxpayers is a charge per unit of power produced. Other existing energy programs require commercial energy developers on public lands to pay taxpayers a fraction of each unit of commodity produced, in cash or in kind, effectively as a profit sharing arrangement. This is also typically the case for energy development on private lands. Like other resource development, the federal land to be used for wind and solar power generation provides critical resource inputs that have additional value far in excess of basic rental fees charged for occupying the land.

• TCS agrees with the creation of the MW capacity fee.

Absent the authority to charge an ad valorem royalty to capture the increased value of a solar or wind energy project, agencies have used rental rates in an attempt to take into account the project developer’s ability to produce power as a means to ensure a fair return. Though inferior to a royalty, the proposed rule would improve the current process by creating a MW capacity fee based on the MW size of the approved project, a capacity factor based on potential electric generation, average wholesale prices of electricity, and a Federal rate of return based on a 20-year Treasury bond. The new fee would be in addition to rent and other fees, which are all critical components of any comprehensive development plan.

• TCS agrees with linking the capacity fee to wholesale electricity prices.

This will help ensure a fair share of high profits is captured for the public. It will provide lessees with relief during down years, thereby avoiding most “hardship” royalty waivers that then may be difficult to undo and assure more consistent revenues.

• TCS agrees with the phase-in of the capacity fee.

Most energy sectors enjoy “ramping up” periods during which royalties are phased in. The 10-year phase-in of the MW capacity fee within designated leasing areas (DLAs) and 3-year phase-in for authorizations outside of a DLA is appropriate for wind and solar development as well.

• TCS disagrees with the 10 percent encumbrance value for wind projects.

Rental fees are an important component of diligence requirements to ensure development rights are acted upon in a timely manner. Rental fees for wind and solar development in the proposed rule are based on county land values, with encumbrance values of 10 percent for wind energy and 100 percent for solar energy authorizations, compared to 50 percent encumbrance value that is used for determining rent for a linear right-of-way. An encumbrance value of 10 percent for wind energy is too low, as the other 90 percent of land held under ROW grant but not ‘encumbered’ by development is still not accessible to the public. The encumbrance value for wind should be set at or close to the 50 percent encumbrance value used for linear ROWs.

Conclusion

Federal law requires taxpayers receive a fair return  for energy development and extraction on federal lands, including oil and gas, coal, hydropower, and geothermal energy.  Wind and solar development are provided no legal exemption. Other energy sources have more robust elements to this end including:  statutory authorization, leasing provided through a permitting process rather than a right-of-way system (except hydropower), competitive leasing programs, and charged a royalty (except hydropower). In the absence of these measures, the creation of a competitive leasing system and a more dynamic MW capacity fee similar to a royalty, while still based on ROW authorizations, are positive and critical steps BLM can take within its authority to ensure a fair return to taxpayers from the development of wind and solar energy on public lands.

Sincerely,

Ryan Alexander
President