Texas has long been known for its light-touch regulatory regime, particularly towards the energy industry, but in the current legislative session state lawmakers are considering legislation that would require state permits for the construction and operation exclusively of wind and solar energy projects. S.B. 624 (Kolkhorst & Middleton) and its companion, H.B. 3707 (Patterson), would require all wind and solar energy facilities in Texas - including those already operating or under construction – to apply for permits from the Public Utilities Commission (“Commission”), subject to far-reaching notice, environmental assessment and public hearing requirements. This seismic shift in Texas’ approach to regulation of the energy industry is necessary, according to the proposed legislation, by the public interest in protecting the wildlife, water and land of the state against the impacts of renewable energy generating facilities.
Permit Applications and Approval
The proposed legislation would require project proponents to obtain a permit from the Commission before constructing or operating any wind or solar facility in the state. The permit application would need to contain a host of information regarding the project, as well as an environmental impact statement (“EIS”) prepared by TPWD, copies of the land leases for the project site demonstrating compliance with Chapters 301 and 302 of the Public Utilities Code (which require removal of all project facilities at the conclusion of the lease and financial assurance for the same), and the names and addresses “of the persons who may be affected by the application.”
To implement the EIS requirement, the proposed legislation would create a new Section 11.006 of the Texas Parks and Wildlife Code directing the Commission to adopt a system for TPWD to provide EIS’s to renewable energy permit applicants. That system would need to establish a process for requesting an EIS and criteria for the TPWD to evaluate the environmental impact of the proposed facility. The criteria must include conservation of natural resources, continuous use of the land for agricultural and wildlife purposes, and agricultural best practices. The system would include a method for establishing an “environmental impact score” for the facility based on the above criteria, and fees to cover the TPWD’s costs for preparing the EIS. Notably, the proposed legislation does not provide for funding to establish a division within the TPWD with the personnel and expertise needed to prepare or process EIS’s.
Public Notice and Meeting Requirements
The bills require the Commission to provide public notice of a permit application to “affected persons,” specifically including any property owner within 25 miles of the project boundary. For any application involving a project with a capacity of 15 megawatts or greater, the notice must also be given to the county judge of each county within a 25-mile radius who has requested in writing that the Commission provide that notice. If requested, the Commission also must set a time and place for a public hearing, and notify all landowners within 25 miles of the hearing. The Commission may not act on an application for 30 days after the date of initial public notice, whether or not a hearing has been requested.
Standard for Permit Issuance
The bills allow the Commission to approve an application only if it finds that issuance or amendment of the permit would not violate any state or federal law or rule or interfere with the purpose of the legislation (i.e., to protect the state against the impacts of renewable energy generation facilities). This “otherwise lawful” provision would appear to give the Commission authority to ensure compliance with any law regardless of its relationship to the Commission’s own powers and duties.
Permit Conditions
Setback Requirements
Permit holders would be required to ensure that projects are set back at least 500 feet from any property line, unless the permit holder obtains a written waiver from a property owner within the 500-foot radius. Projects must also be set back 1,000 feet from any “habitable structure” unless a waiver is obtained from each owner thereof. The bills do not contain any exception to these setback requirements for facilities already in operation or under construction. As currently proposed, projects that do not meet these requirements and which cannot obtain the necessary waivers could be subject to removal by the Commission.
Monitoring and Reporting
The bills authorize the Commission, in coordination with TPWD, to issue rules requiring a permit holder to monitor, record, and report environmental impacts created by, and conduct wildlife assessments around, the permitted facility, and to provide the Commission “other information” about the operation of the permitted facility. The nature of the “other information” that may be required is not specified.
New Conditions
Significantly, the bills would allow the Commission, on its own motion after reasonable notice and hearing, to impose new or additional conditions on any previously issued permit to ensure compliance with any rules adopted by the Commission under the permit program. This lack of certainty regarding the conditions under which a permitted facility can operate could be a serious obstacle to the investment in and financing of new wind and solar facilities.
Decommissioning and Removal
The bills would allow the Commission to determine, after reasonable notice and hearing, that a permittee has not complied with the provisions required to be included in all wind and solar leases by Chapters 301 and 302, requiring removal of all facility equipment at the end of the lease term. If the Commission makes such a determination, the Commission may order the permittee to perform the removal or undertake the removal itself and assess costs and potentially penalties against the permittee.
Environmental Impact Fee and Cleanup Fund
Each permit holder would be assessed an annual environmental impact fee. In setting the amount of this fee the Commission could consider the facility’s efficiency, area and size, and environmental impact score, and the expenses necessary to implement the permit program.
Environmental impact fees collected would be deposited into a new “renewable energy generation facility cleanup fund.” The fund could be used by the Commission solely for the purpose of implementing the permit program and removal of renewable energy facilities. The bills provide that 20 percent of the revenue collected must deposited in the cleanup fund. If, however, the Commission determines that the cleanup fund is sufficiently funded to cover the costs of removing decommissioned facilities, the Commission may instead deposit 20 percent of the fee revenues into the county and road district highway fund. This latter provision is likely intended to address local government concerns about increased traffic and impacts to county roads purportedly caused by wind and solar projects in rural parts of the state.
Retroactive Effect
As previously noted, the permit requirement established by these bills would apply not just to newly proposed facilities, but to existing facilities as well. The Commission could authorize operators of existing facilities to continue operating while applying for a permit, and to impose a date by which the operator must submit its permit application for such authorization to remain valid. The bills do not appear to provide any recourse for facilities that cannot meet the application deadline, such as for want of the required EIS from TPWD, or that cannot meet certain requirements for a permit such as the property and occupied structure setbacks.
Implications of the Proposed Legislation
Texas has long prided itself on a regulatory climate that is business-friendly and encourages, rather than stifles, economic development. This approach has led to Texas becoming the national leader in installed wind energy generation by a large margin, and the fastest growing state for new solar generation. The proposed legislation represents a radical departure from that approach and would create a regulatory regime that would have been near-inconceivable in Texas even a few months ago.
While many other states have power siting boards to regulate new energy generation facilities, and there is certainly justification for energy facility siting rules generally, the creation of a regulatory regime out of whole cloth in a state that lacks the regulatory infrastructure to implement such a program would create significant new challenges and complexities for the Commission, the TPWD, and companies developing or operating wind and solar projects in the state. It would take a significant amount of time for the Commission to develop the regulatory framework necessary to implement the new permit program, and for the TPWD to develop a state NEPA process to prepare EIS’ for every existing and proposed wind and solar project in the state.
In the meantime, construction of new projects could entail significant risk, and once in place the requirement for an EIS for every permit application is likely to be a massive bottleneck in the permitting process, on top of the 25-mile property owner notification, lease disclosure, and other onerous application requirements. Further, the ability of the Commission to impose new conditions in permits already issued could have a chilling effect on the financeability of projects, while the prospect that projects already in operation or under construction will not be able to meet or obtain necessary waivers of the setback requirements could have significant implications for those projects. Given that the legislation would apply retroactively, and thus to facilities already financed and constructed or those planned for or under construction, companies that own or are contemplating the acquisition or financing of new wind or solar projects in Texas should pay close attention to change-of-law provisions in transactional agreements.
These bills are still early in the legislative process, and Senator Kolkhorst acknowledged in the committee hearing that public input is needed. Renewable energy developers, lenders and investors should make their voices heard while there is still time to influence the proposed legislation, and consider encouraging their landowners and local partners to do the same.
