According to a 2006 report of the Department of Interior, the Outer Continental Shelf (“OCS”) of the United States has the potential to generate 900,000 megawatts of power, which is roughly equal to the total installed electrical capacity in the United States. Of course, this potential resource cannot be realized without installation of significant infrastructure to harness the power of the winds that blow on the OCS.

To pave the way for development of this infrastructure, the Department of Interior, Minerals Management Service (“MMS”) recently promulgated rules providing a framework for leasing, easements, and rights-of-way for future development of alternative energy projects on the OCS. See 30 C.F.R. Part 285. Additionally, the Department of Interior and the Federal Energy Regulatory Commission (“FERC”) reached an agreement clarifying the agencies’ respective roles with respect to renewable energy projects on the OCS. It was agreed that the MMS has exclusive jurisdiction with regard to the production, transportation or transmission of energy from non-hydrokinetic renewable energy projects on the OCS. While MMS also has exclusive jurisdiction to issue leases, easements, and rights-of-way regarding OCS lands for hydrokinetic projects, the FERC has exclusive jurisdiction to issue licenses and exemptions for hydrokinetic projects located on the OCS.

In establishing the framework for leasing of renewable energy projects on the OCS, the MMS seemingly drew from its experience under the OCS oil and gas leasing program. OCS leases for renewable energy projects may be awarded by the MMS on either a competitive or noncompetitive basis. For competitive solicitations, MMS will publish a proposed sale notice and, later, a final sales notice in the federal register. To award renewable energy leases on a competitive basis, MMS will identify one of four auction formats in the final sale notice: sealed bidding, ascending bidding, two-stage bidding (combination of ascending and sealed bidding), and multiple-factor bidding. If sealed bidding is used, the bidder must tender with its bid a deposit equal to 20% of the total bid amount, unless some other amount is specified in the final sale notice.

Interested parties are permitted to submit unsolicited requests for a commercial lease or a limited lease on the OCS for renewable energy projects, except for areas that are subject to a scheduled lease sale. In response to any unsolicited request for a lease, the MMS will issue a public notice to determine if there is any competitive interest in the area sought to be leased, absent which the MMS may proceed on a non-competitive basis.

Commercial leases issued for renewable energy projects will have a 25 year operations term. These leases require a site assessment plan (“SAP”) and a construction and operations plan (“COP”) to be submitted within a certain period of time after the award of the lease. The SAP describes the assessment phase in which a lessee may install a meteorological or marine data collection facility to assess renewable energy resources. The COP describes the power generation phase of a project, as well as general plans for decommissioning facilities after termination of the lease. The COP may request a project easement for the purpose of installing transmission and distribution cables and such project easement will be granted to the lessee without the requirement of a competitive auction.

In addition to any up front payments associated with a lease award, lessees shall pay annual rent equal to $3.00 per acre for the leased area and $5.00 per acre of project easement area. During the operations phase, the lessee shall pay an annual operating fee based on energy generated from the leased site, annual average wholesale power prices in the state in which the project’s transmission cables make landfall and an operating fee rate of .02, unless a different rate is specified by MMS.

Before MMS will award a commercial lease, the lessee must guaranty compliance with all terms and conditions in the lease by providing a $100,000 lease specific bond. Supplemental bonds may be required before the MMS will approve a SAP or COP. Finally, before a lessee installs facilities that are approved in a COP, a decommissioning bond must be provided.