Alternative Energy and Alternate Uses of Existing Facilities on the Outer Continental Shelf

DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Parts 250, 285, and 290

[Docket ID: MMS-2008-OMM-0012]

RIN 1010-AD30

Alternative Energy and Alternate Uses of Existing Facilities on the Outer Continental Shelf

AGENCY:

Minerals Management Service (MMS), Interior.

ACTION:

Proposed rule; notice of availability of the draft environmental assessment.

SUMMARY:

The MMS is proposing regulations that would establish a program to grant leases, easements, and rights-of-way (ROW) for alternative energy project activities on the Outer Continental Shelf (OCS) as well as for certain previously unauthorized activities that involve the alternate use of existing facilities located on the OCS; and would establish the methods for sharing revenues generated by this program with nearby coastal States. These regulations are also intended to ensure the orderly, safe, and environmentally responsible development of alternative energy sources on the OCS. The MMS is developing this program and proposed regulations under the authority granted the Secretary of the Interior (Secretary) by the Energy Policy Act of 2005 (EPAct), which amended the Outer Continental Shelf Lands Act (OCS Lands Act). Under this new authority, the Secretary maintains discretionary authority to issue leases, easements or ROWs on the OCS for previously unauthorized activities that: Produce or support production, transportation, or transmission of energy from sources other than oil and gas; or use, for energy-related or other authorized marine-related purposes, facilities currently or previously used for activities authorized under the OCS Lands Act.

The MMS has prepared a Draft Environmental Assessment (EA) analyzing this proposed rule. The Draft EA incorporates by reference the Programmatic Environmental Impact Statement (EIS)

Programmatic Environmental Impact Statement for Alternative Energy Development and Production and Alternate Use of Facilities on the Outer Continental Shelf, Final Environmental Impact Statement, October 2007

. This Draft EA was prepared to assess any impacts of this proposed rule. We are furnishing this notification to allow other agencies and the public an opportunity to review and comment on the Draft EA.

All comments received on this proposed rulemaking and the Draft EA will become part of the public record and will be available for review.

DATES:

Submit comments on the proposed regulation by September 8, 2008. The MMS may not fully consider comments received after this date. Submit comments to the Office of Management and Budget on the information collection burden in this rule by August 8, 2008. This does not affect the deadline for the public to comment to MMS on the proposed regulations. Submit comments on the Draft Environmental Assessment by September 8, 2008.

ADDRESSES:

You may submit comments on the rulemaking by any of the following methods. Please use the Regulation Identifier Number (RIN) 1010-AD30 as an identifier in your message. See also Public Availability of Comments under Procedural Matters.

•

Federal eRulemaking Portal

:

http://www.regulations.gov

. Under the tab “More Search Options,” click Advanced Docket Search, then select “Minerals Management Service” from the agency drop-down menu, then click “submit.” In the Docket ID column, select MMS-2008-OMM-0012 to submit public comments and to view supporting and related materials available for this rulemaking. Information on using Regulations.gov, including instructions for accessing documents, submitting comments, and viewing the docket after the close of the comment period, is available through the site's “User Tips” link. The MMS will post all comments.

• Mail or hand-carry comments to the Department of the Interior, Minerals Management Service, Attention: Regulations and Standards Branch (RSB), 381 Elden Street, MS-4024, Herndon, Virginia 20170-4817. Please reference “Alternative Energy and Alternate Uses of Existing Facilities on the Outer Continental Shelf, 1010-AD30” in your comments and include your name and return address. The MMS will post all comments on Regulations.gov.

• Send comments on the information collection in this rule to: Interior Desk Officer 1010-AD30, Office of Management and Budget; 202-395-6566 (fax); e-mail

oira_docket@omb.eop.gov

. Please also send a copy to MMS.

• The Draft EA is available on the MMS Web site at:

http://www.mms.gov/offshore/AlternativeEnergy/RegulatoryInformation.htm

. You may submit comments on the Draft Environmental Assessment in one of the following two ways:

○ In written form enclosed in an envelope labeled “Alternative Energy Program Rulemaking Draft Environmental Assessment” and mailed (or hand carried)

to the Branch Chief, Environmental Assessment Branch, Minerals Management Service, Mail Stop 4042, 381 Elden Street, Herndon, Virginia 20170

.

○ Electronically to the MMS e-mail address:

alternative@mms.gov

.

MMS is requesting comments on specific items identified throughout the preamble. For your convenience in commenting, we have compiled a list of these items at the end of the preamble.

FOR FURTHER INFORMATION CONTACT:

Proposed rule:

Maureen Bornholdt, Program Manager, Offshore Alternative Energy Programs, at 703-787-1300 or

maureen.bornholdt@mms.gove

or Amy C. White, Regulations and Standards Branch, at (703) 787-1665 or

amy.white@mms.gov

.

Draft Environmental Assessment:

James F. Bennett, Chief, Branch of Environmental Assessment, at (703) 787-1660.

SUPPLEMENTARY INFORMATION:

Background

Statement of Purpose

Sufficient domestic sources of energy are vital to expanding the Nation's economy and enhancing Americans' quality of life. However, an imbalance exists between our energy consumption and domestic energy production that makes it vital to find ways to narrow the gap between the amount of energy used and the amount domestically produced. There is no single solution for narrowing this gap, but there are several means available. Increasing the Nation's supply of renewable energy produced from domestic sources will be a key part of any strategy to meet this goal.

According to the Department of Energy's Energy Information Administration (EIA) 2007 Annual Energy Outlook, public and private wind and other renewable energy generating sectors of our economy are the fastest growing energy sources in the United States (US). The EIA estimates that in 2030 renewable energy will account for over 10 percent of domestic energy production and about 7 percent of consumption. The Energy Policy Act of 2005 (EPAct) encourages the development of renewable energy resources as part of an overall strategy to develop a diverse portfolio of domestic energy supplies for the future. Section 388 of the EPAct gave the Department of the Interior new

authority to grant leases, easements, and ROWs for the development of promising new energy sources such as offshore wind, wave, current, and solar energy and for ensuring that alternative energy development on the OCS proceeds in a safe and environmentally responsible manner. The Secretary of the Interior delegated to the MMS the new authority that was conferred by the EPAct.

Enactment of the EPAct recognized the need for an unambiguous outline of authorities pertaining to energy-related activities on the OCS. Before the EPAct, as various agencies of the Federal government received proposals for innovative, non-traditional energy-related projects on the OCS, it became evident that—with limited exceptions—there existed no clear Federal authority for granting rights to use the seabed for such projects. This lack of clearly outlined authority was a significant impediment to the development of renewable energy on the OCS, and dampened efforts by potential energy developers and Federal regulators to seriously develop and consider offshore projects. Congress recognized that management of alternative energy and alternate use activities would require comprehensive authority to permit access in a fair and equitable manner, to ensure environmental and operational compliance, and to achieve a fair return to the Nation. As the Federal government's primary manager of offshore energy development, the Department of the Interior, MMS, was given this comprehensive new authority.

Mandate of Energy Policy Act of 2005 (EPAct)

The EPAct amended the OCS Lands Act to authorize the Secretary to issue leases, easements, or rights-of-way on the OCS for activities that:

(i) Support exploration, development, production, or storage of oil or natural gas, except that a lease, easement, or right-of-way shall not be granted in an area in which oil and gas preleasing, leasing, and related activities are prohibited by a moratorium;

(ii) Support transportation of oil or natural gas, excluding shipping activities;

(iii) Produce or support production, transportation, or transmission of energy from sources other than oil and gas; or

(iv) Use, for energy-related or other authorized marine-related purposes, facilities currently or previously used for activities authorized under the OCS Lands Act.

This new authority does not apply to activities that are otherwise authorized by law, including those covered by the OCS Lands Act, the EPAct, the Deepwater Port Act of 1974, and the Ocean Thermal Energy Conversion Act of 1980. On March 20, 2006, the Secretary of the Interior delegated to the MMS the new authority that was conferred by the EPAct.

In addition, the EPAct of 2005 requires the Secretary to share with nearby coastal States a portion of the revenues received by the Federal Government from authorized alternative energy and alternate use projects on certain areas of the OCS. This proposed rule would implement this mandate and describe the methods to be used for identifying what projects are covered by this requirement, for determining which States are eligible to receive shares of the revenues, and—if two or more States are eligible to receive revenues from the same project—for allocating the appropriate share to each eligible State.

The EPAct included a requirement that the Secretary develop any necessary regulations to implement the new authority. This Notice of Proposed Rulemaking applies to the activities described in (iii) and (iv) above (i.e., those relating to production, transportation, or transmission of energy from sources other than oil and gas and to the use of existing OCS facilities for energy-related or other authorized marine-related purposes). Regulations for activities described in (i) and (ii) above (i.e., those relating to oil and gas) will be promulgated separately in appropriate parts of the existing MMS oil and gas regulations.

While the MMS will have the lead in authorizing OCS alternative energy and alternate use activities, we recognize that other Federal government agencies have regulatory responsibility in such activities and the need to consider them fully. The new authority does not expressly supersede or modify existing Federal laws, and all activities must comply fully with such laws. As directed by the EPAct provision calling for promulgation of regulations, the MMS consulted with other Federal agencies, as appropriate, throughout the rulemaking process, and, to the extent provided by established DOI rulemaking procedures. We also consulted with the governors of affected States and others in the promulgation of this rule.

In addition to providing the authority to issue leases, easements, and rights-of-way, the EPAct included a requirement that any activity permitted under this authority be “carried out in a manner that provides for—

(A) Safety;

(B) Protection of the environment;

(C) Prevention of waste;

(D) Conservation of the natural resources of the outer Continental Shelf;

(E) Coordination with relevant Federal agencies;

(F) Protection of national security interests of the United States;

(G) Protection of correlative rights in the outer Continental Shelf;

(H) A fair return to the United States for any lease, easement, or right-of-way under this subsection;

(I) Prevention of interference with reasonable uses (as determined by the Secretary) of the exclusive economic zone, the high seas, and the territorial seas;

(J) Consideration of—

(i) The location of, and any schedule relating to, a lease, easement, or right-of-way for an area of the outer Continental Shelf; and

(ii) Any other use of the sea or seabed, including use for a fishery, a sealane, a potential site of a deepwater port, or navigation;

(K) Public notice and comment on any proposal submitted for a lease, easement, or right-of-way under this subsection; and

(L) Oversight, inspection, research, monitoring, and enforcement relating to a lease, easement, or right-of-way under this subsection.”

The MMS addresses these items, as appropriate, in this rulemaking.

Summary of Advance Notice of Proposed Rulemaking (ANPR) Comments

Background

On December 30, 2005, the MMS issued an ANPR (70 FR 77345) requesting comments on the program requirements. Comments pertaining to specific subparts of the proposed regulations are summarized in the subpart-by-subpart discussion, as appropriate.

The ANPR requested public comments on five major program areas:

(1) Access to OCS lands and resources;

(2) Environmental information, management, and compliance;

(3) Operational activities;

(4) Payments and revenues; and

(5) Coordination and consultation.

The MMS received 149 comments from 26 States and the District of Columbia. Comments came from private citizens (60), alternative energy industries and associations (27), environmental organizations (19), State and local governments (19), Federal agencies (8), non-government organizations (6), universities (5), congressional representatives (3), small business (1), and the oil and gas industry (1).

The vast majority of comments addressed OCS alternative energy activities, and we received a few comments on use of existing facilities. No single issue dominated the comments, and responses within a given program area were wide-ranging. The comments generally were supportive of alternative energy development on the OCS and activities that use existing OCS facilities. Many advised the MMS to proceed with caution as we develop the program and supporting regulations and advocated early stakeholder involvement with both the program and the individual project permitting. Those familiar with the OCS oil and gas program often suggested we use that program as a model for consultation and environmental compliance. Some alternative energy industry and environmental organizations suggested that the MMS establish a structured, rigid process, citing the need for predictability and for compliance and timeliness in reviews. Others advocated a flexible approach in view of the fledgling nature of offshore alternative energy technologies and suggested that the MMS address each project on a case-by-case basis. A majority of comments identified preparation of a programmatic environmental impact statement (PEIS) under the National Environmental Policy Act (NEPA) as a necessary and constructive first step.

Comments addressing the major program areas often were interrelated. For example, comments on access and operations were often directly linked with concerns for the environment (e.g., access should not be permitted in areas of environmental sensitivity). Views on payments appeared to be influenced by the perspective of the commenter on access issues (e.g., fee structure suggestions depended on whether MMS used the project's actual footprint or a lease block system). Coordination and consultation suggestions centered on the opportunity to address environmental concerns (e.g., focused on input during the program and individual project NEPA process).

More information on the ANPR, its respondents, and their comments is available at the MMS OCS Public Connect Web site, at

https://ocsconnect.mms.gov/pcs-public/do/ProjectDetailView?objectId=0b011f8080050473.

Access for OCS Lands

Comments on area identification described the entire spectrum of access: from MMS conducting in-depth studies to select specific areas to lease to MMS opening most of the OCS. While comments recommended MMS fashioning our program after the Bureau of Land Management (BLM), the European, or the Federal Energy Regulatory Commission model, comments were consistent about MMS requiring due diligence from any developer.

Some commenters suggested that we use the PEIS to identify environmentally sensitive areas to be permanently excluded from development, and some expressed concerns that we would lease any area without considering the full range of possible impacts and alternatives. While others opined that if MMS initially excluded areas, those areas may never become available even if technology and uses changed in the future. MMS decided not to propose limiting areas available for possible development. As we begin to better understand the impacts, limitations, and benefits of renewable energy projects, we will be in a better position to select appropriate sites for development. MMS does not want to exclude potential sites, since the future technology may be different from the technology available today, with different impacts.

Other commenters advocated that all U.S. waters should be candidate areas for the development of renewable energy projects and that potential developers, who are in the best position to propose sites, should be given the widest possible latitude to identify potential resources and sites. One commenter pointed out that Congress already identified those OCS areas that should be categorically excluded from renewable energy development: “any unit of the National Park System, National Wildlife Refuge System, or National Marine Sanctuary System, or any National Monument.”

As some responders expressed the belief that renewable energy production does less damage to the environment than oil and gas production, they suggested that MMS subject the renewable projects to less rigorous environmental review and open more areas to development, regardless of other impacts. Others commented MMS should consider all impacts on existing resources and uses citing fisheries, public safety, shipping lanes, aircraft, migratory routes (bird and mammal), and access to sand and gravel and oil and gas resources. These comments were often coupled with the suggestion that any fees for the renewable energy development should compensate for impacts and possible loss of future uses. The MMS will strictly adhere to the statutory requirements such as NEPA, CZMA, etc. All projects will undergo appropriate review.

Many comments expressed concern that a competitive bidding process would limit access to large energy companies, effectively shutting out small businesses, or add to the considerable economic and financial uncertainties associated with the developing industry, rendering it very difficult to finance projects. Others supported using a competitive basis for awarding permits for resource and site assessment with an “option to lease” or other guaranteed development rights provided that site-specific requirements were met. Others felt that given the emerging nature of offshore renewable energy technologies and the public and private benefits that could be derived from energy resources development on the OCS, MMS should make the process as simple and efficient as possible with a clear schedule for processing and decision-making. The proposed rule lays out the steps in the processes for acquiring leases, both competitively and noncompetitively.

Some commenters suggested that competing projects or proposals be evaluated using quantitative factors such as financial strength, experience and operational performance of the developers. However, there was considerable support for using criteria that would allow small and medium size businesses, local communities, and local utility districts the opportunity to initiate projects. It was also suggested that proposals be evaluated on the basis of how each best serves the public interest.

Environmental Information, Management, and Compliance Programs

Comments fell into two broad points of view: (1) Require detailed studies years prior to building a project or (2) waive or reduce environmental requirements and other safeguards that are incorporated into our normal permitting processes.

While most comments suggested that MMS should prepare a PEIS as a first step, comments were divided as to how MMS should use the document. Some suggested that the PEIS identify areas open for renewable development, either advocating that certain areas be excluded from leasing/permitting or matching the type of renewable energy development with a particular area. The thought behind this approach is that by strategically reviewing “preferred” locations for renewable development, the PEIS could reduce the residual project risk that project developers face, help to ensure State and community input on identifying more or less desirable locations, and ensure that impacts remain acceptable. Some

commenters disagreed with this approach, recommending that access remain flexible to allow renewable energy developers to select potential areas and citing the concern that any areas deferred at this stage may be permanently excluded from future development. Others stated that the PEIS should identify and analyze programmatic issues leaving specific environmental evaluation to the project stage.

MMS prepared a PEIS for the Alternative Energy and Alternate Use Program. The PEIS provides a basic understanding of the possible impacts of various types of alternative energy and alternate use projects. However, MMS will develop additional, site specific EISs as appropriate.

Some comments raised the issue of responsibility for preliminary site-specific studies. It was suggested that MMS should conduct these studies to maintain objectivity. Other commenters stated that conducting these studies is the responsibility of the applicant working with MMS and potential affected State(s) on study design. Another recommendation advocated using independent third-party contractors selected pursuant to the Council on Environmental Quality procedures to ensure unbiased environmental assessments.

In the ANPR we requested specific comments on types and levels of environmental information that MMS should require for alternative energy and alternate use projects; the types of site-specific studies should MMS require; when these studies should be conducted; and who should be responsible for conducting these studies. We also requested input on identifying design and installation requirements associated with new projects and modification of existing facilities and identifying technology assessment and research needs. Commenters consistently supported the development of a Programmatic EIS, followed by project specific EIS. They also were consistent about requiring compliance with CZMA and developing an approach that respects local and State laws and requirements. The MMS developed a PEIS, as suggested, as was discussed previously. Each individual project will require NEPA compliance. In the near term we anticipate the NEPA compliance for development will be project specific EIS. These regulations would require that the applicant provide the information needed for MMS to develop the NEPA document. In addition, these regulations detail CZMA compliance requirements.

Generally, commenters agreed that MMS should conduct and pay for the PEIS, but the applicant should pay for site-specific NEPA. However, some commenters stated that it should be the agency's responsibility to gather and provide information for the project-specific NEPA and to meet other requirements. Others suggested that MMS can get most of the required data from other Federal government agencies including: Department of Energy (DOE), Bureau of Land Management (BLM), and Army Corps of Engineers (ACOE).

Commenters consistently mentioned that offshore alternative energy engineering issues are similar to those issued faced by the offshore oil and gas industry and the MMS should use its experience with oil and gas when evaluating the engineering aspects of these projects.

Some commenters suggested that MMS use the existing oil and gas regulations (30 CFR part 250) for the plan requirements. We reviewed and considered the oil and gas regulations and patterned many of these roles on those basic requirements if they were appropriate for the alternative energy program.

Commenters reminded us to recognize that specific data requirements will vary by the type of project and the location. We addressed this by not including standards in these regulations. Instead we are requiring applicants to submit the project design and the data and information that were the basis for the design, so we can evaluate each project on a case-by-case basis. As we gain experience with offshore alternative energy, we may set more specific project requirements. A number of commenters suggested that the responsibility for determining engineering requirements for offshore alternative energy projects should fall on project developers. Some commenters stated that these projects should meet the same engineering criteria as oil and gas facilities. However, others felt that the consequences of an incident would likely not be as great as an incident with an oil and gas facility, therefore these structures need not meet the same criteria as do those for oil and gas.

As with environmental impacts, many commenters believed that, at this time, it would be best to address the engineering requirements of these projects on a case-by-case basis, instead of detailing requirements in the regulations. The requirements of these projects would vary based on location (sea conditions, water depth, anticipated weather events) and type of project. Research and development and or demonstration projects are smaller scale activities that take place for a short duration and in a limited, discrete area.

Some commenters included suggestions for the type of data and information MMS should require, both for environment and engineering assessments. However few provided details on the design standards for projects. Those that provided details suggested the use of various standards that have already been developed, such as those used in Europe.

Regulation of Operational Activities

A common message from the commenters was that MMS should recognize that renewable energy is a young industry so our regulatory approach for operations should remain flexible yet predictable. Comments recommended that the OCS oil and gas program should be used as the model for addressing renewable energy operational activities. Comments suggested MMS require operators to submit plans similar to the Deep Water Operations Plan, use Certified Verification Agents, adopt Occupational Safety and Health Administration requirements as a basis for ensuring safety, schedule frequent inspections, and assess penalties for noncompliance. Adaptive management approach and use of pilot projects to study operations were also recommended. There were several suggestions that MMS set production requirements to ensure due diligence of the operators, while others wanted us to be flexible early on or have no production requirements.

Payments, Royalties, Fees and Bonds

Issues with payments and revenues generated a great deal of discussion with most comments against using bonus bids as part of the competitive lease issuance process but supportive of rentals and royalties. Some respondents requested a payment honeymoon or holiday until it is determined that OCS renewable activities are profitable or the industry matures. Commenters requested an orderly, simple, and predictable financial system where potential investors are certain of government fees. Many respondents stated that renewable wind, wave and current resources are not finite like extractable oil and gas hydrocarbons, there is no removal of a public resource and alternative energy operations only use a limited amount of public OCS lands; therefore, we should either not charge a royalty or set a low fee, especially on pilot projects. Supporters of renewable energy expressed concern that if the government's financial regimen were onerous it would discourage development and give large

energy companies an unfair advantage. Citing the benefits of renewable energy, most comments supported a financial system structured in a manner which stimulates growth of offshore renewable generation and provides incentive for developers to invest in OCS projects with the hope that it will achieve cost competitiveness with other energy sources. One Federal agency commenter stated that the perception of fairness and cooperation is important and opponents of offshore alternative energy development may claim that wind power facilities are unfairly using public commons for profit. MMS has considered all comments on an OCS alternative energy financial system and we propose a financial regime that we have determined is fair to the American public, meets Congress' and the Administration's intent with respect to EPAct and will permit development of offshore alternative energy.

Bonus

Even though most respondents wrote against a system of lease bonuses, EPAct requires competition and MMS is proposing the cash bonus as either a bid variable or a fixed element in the alternative energy leasing regulations. In certain cases where multiple expressions of interest are received, MMS is proposing to use the cash bonus bidding system as the basis for determining the winning bidder. Where no competitive interest exists, a marginal acquisition fee is proposed.

Rentals

There was generally strong support for using rentals in any OCS alternative energy leasing financial system. Respondents differed on the rate of rentals that should be charged and the method for calculating rental acreage. A few commenters felt that no rental fee should be collected or rental waived until production commenced. Some commenters proposed rental payments only be collected on the seabed footprint while others suggested following the Federal oil and gas model where rentals are paid on the entire OCS leased acreage. MMS is proposing that a rental fee be collected on the entire leased acreage with rental rates of $3 to $5 per acre for commercial leases, project easements and rights-of-way. This rate is below the current prevailing rates for oil and gas leases. We propose lower rental rates because during the initial lease period and before the approval of the Construction and Operations Plan (COP), there is no permanent disturbance of the OCS. Following approval of the COP, a royalty-based operating fee is proposed. Additionally, unlike oil and gas projects, alternative energy projects do not extract a non-renewable energy source from the leased tract. Thus, the underlying value of the project's acreage is less affected by an alternative energy project than it would be for an oil and gas project, so the rental charge for use of the land can be set appropriately lower for alternative energy projects.

Royalties

Most respondents supported some element of royalties based on gross revenue. Comments about royalties covered the full spectrum from setting no royalties; very low royalties (3% royalty that BLM charges); to a phased royalty system designed so that the financial terms would facilitate the emergence of a viable industry. A three-phased example might include a pilot phase with no royalty and minimal rental fees, followed by an industry “wildcatter” development phase with higher rental rates and royalties after 5 years. The third is a commercial phase in which a mature industry is paying yet higher rental and royalty rates. Unless otherwise specified in the Final Sale Notice, MMS is proposing a royalty regime in which an

operating fee rate would apply at a rate of one percent in the first two years

following approval of the Construction and Operations Plan on commercial alternative energy leases, and at two percent thereafter. The

operating fee

would be an annual payment that continues through the duration of the operations term of a commercial lease. Where competition exists for a lease, MMS may offer bidders the opportunity to bid a constant or sliding operating fee rate above 2 percent subject to a fixed cash bonus. The sliding scale operating fee rate could depend on one or more of the variables which compose the operating fee itself, or on some other variables, such as time. In this auction format, MMS would provide a baseline sliding scale function, and the operating fee rate bid variable would be some multiplier of that function. MMS does not expect royalties at this level to deter investment in a meaningful number of otherwise, prospective alternative energy projects.

A limited number of comments were received related to alternative energy research, testing and pilot projects. These comments stated that lease fees should be waived for research facilities and some pilot projects that are limited in scope and intended for testing, development or experimental evaluation of new systems. MMS has proposed a “limited lease” with a restricted term of five years and minimal rental for these types of projects.

There were divergent views on what constituted “fair return.” Some wanted us to include the benefits of renewable energy as part of fair return, while others supported requiring additional compensation for lost uses and social costs. Most commenters strongly rejected opportunity-cost based valuation because of the complex and burdensome nature of subjective value-based judgments required to determine appropriate payment levels. Some respondents stated that only a small proportion of the sea bottom and surface will be displaced and that current users can adjust to any new structures. Some pointed out that if Congress intended that such costs should be addressed, they would have stated so in the EPAct language. On the other hand, two commenters proposed to base a portion of the financial regimen on interference with other uses by charging for the use of the sea floor in compensation for displacing the pelagic zone and the atmosphere above the water surface. MMS is not aware of precedents in other Federal or State statutes that support an opportunity-cost based approach. Moreover, it is not required by the authorizing legislation. At the same time, MMS does consider selected aspects of opportunity cost in some of its bid adequacy assessments for oil and gas leases. Accordingly, while MMS does not intend to rely heavily on an opportunity cost framework, for either setting payment sizes or for bid adequacy purposes, there may be some circumstances in which consideration of selected aspects of opportunity cost would be appropriate for helping to set the sizes of certain fees, minimum bids, or reservation prices.

A single commenter pointed out that since Congress already subsidizes the development of alternative sources of energy through production tax credits, MMS lacks the prerogative to encourage development offshore through favorable financial terms. This commenter also stated that MMS should not reduce the charge below the true economic value of the resource. If MMS were to encourage development of a resource with financial terms below those that private landowners would be anticipated to charge, development could occur too quickly and early developers might not make the best use of emerging technologies.

MMS has considered this reasoning in our proposal for the authorized financial terms and durations of the lease and grant periods. If future economics of alternative energy technology on the OCS support different or improved

technologies, the flexibility which MMS has built into these regulations will allow for appropriate specification of lease terms and conditions upon subsequent renewals or in new offerings. Moreover, MMS is confident that the actual financial terms and length of lease conditions that it will apply, in conjunction with a myriad of other administrative and regulatory requirements, strike the proper balance between ensuring receipt of a fair return and providing the proper inducement for alternative energy activities to proceed at the proper pace.

There were differing opinions about charging cost recovery fees for processing of applicant initiated actions. Most respondents felt that cost recovery fees for MMS program efforts is appropriate, with some advocating management costs be recovered from permit applicants through fees, royalties, and/or a combination of both. Others expressed concerns that charging cost recovery fees would impact the economics of the projects and discourage development. To clarify, rentals and royalties are designed to compensate the American public for use of the Federal OCS, while cost recovery fees are to be implemented by a Federal agency when a service (or privilege) provides special benefits to an identifiable recipient, beyond those that accrue to the general public. The MMS is proposing case-by-case fees to recover unique processing costs such as the preparation of Environmental Impact Statements. We do not have data for our costs of processing lease applications for this new program, so we are not otherwise proposing processing fees in this rule. As the program matures, and we acquire processing cost data, we expect to propose fees to recover our costs of processing. While we have not included filing fees in this proposed rule, in the final rule, we may add nominal filing fees for competitive and noncompetitive lease applications, and for applications for ROWs and RUEs, to aid in limiting filings to serious applicants.

Comments generally supported MMS using a surety bond or other type of security to cover the costs associated with non-compliance of lease terms; lease default; decommissioning and removing wind turbines and towers at the end of the lease term; and appropriate site remediation at the end of the lease term. Respondents acknowledged that companies operating on the OCS should be able to demonstrate appropriate levels of financial capability. The types of financial securities mentioned included letters of credit, a test of credit-worthiness, assigned interest bearing annuity, funding a trust (comparable to a nuclear decommissioning trust), escrow, insurance policy, or corporate guarantee. MMS is proposing minimum financial assurance requirements of $300,000 for the holder of any lease with actual surety levels to be determined by MMS based on the complexity, number and location of all planned OCS facilities by the lessee. We feel that this financial assurance requirement will protect the taxpayer from any default by a lessee.

The ANPR did not address revenue sharing with States.

Coordination and Consultation

Commenters encouraged MMS to coordinate and consult with affected government agencies and stakeholders, and viewed the ANPR and the MMS webpage on renewable energy as solid first efforts. Most comments suggested consultation early in the process, both in the program development and for individual projects. Other comments suggested: allowing the States to ban renewable projects sited adjacent to state waters that have negative environmental, economic, or public safety impacts; conducting targeted surveys of coastal states and the industry to identify potential concerns and objections; providing an opportunity to identify areas of the OCS to include in the program; working with Federal and State cooperatives; and requiring developers to include outreach programs in their application. Many comments supported the use of existing offshore program coordination mechanisms and suggested expanding the OCS Policy Committee membership to include representatives from the offshore renewable energy industry and affected coastal states. Some comments expressed concern that the coordination and consultation process would create burdensome requirements, slow down the application review process, and/or create artificial conflicts by giving too much visibility to marginal groups/perspectives.

One commenter suggested that MMS establish a Joint Ocean Renewables Office, co-locating representatives from each of the agencies responsible for permitting and authorizing portions of the alternative ocean energy projects, while another suggested that it was too early, given the infancy of the offshore renewable energy industry, to rigidly structure the relationships between regulators and project developers. Other comments called for MMS to create a “one-stop shop” for the permitting process, in which MMS would coordinate with other agencies and be the primary point of contact for the industry.

Use of Existing Facilities

A few comments covered issues associated with use of existing facilities, with the majority focusing on liability, environmental impacts, and implementation of a rigs-to-reef program. Comments generally supported leaving facilities in place, at the end of life, for offshore aquaculture or to serve as artificial reefs. Concerns were submitted that removing facilities would destroy essential fish habitats. Some commenters wanted liability to be the responsibility of the original owners (usually oil and gas operations), while others wanted to allow for the shedding of liability by an oil and gas producer if an alternative use of existing infrastructure is approved. MMS is proposing to require an allocation of responsibilities between the existing lessee and facility owner (e.g., the oil and gas lessee and/or operator) and the holder of the Alternate Use RUE.

Programmatic Environmental Impact Statement Summary

The MMS prepared a final PEIS in support of the establishment of a program for authorizing alternative energy and alternate use activities on the OCS. The final PEIS examines the potential environmental effects of the program on the OCS and identifies policies and best management practices that may be adopted for the program. The PEIS examined three alternatives as well as the no action alternative. The three alternatives were: (1) The proposed action which would establish the program; (2) a case-by-case alternative that would evaluate each project individually without the benefit of a comprehensive program and; (3) the preferred alternative, which consisted of a combination of the first two alternatives, allowing MMS to review projects during the interim while the program and regulations are being established.

Given the rapidly evolving nature of this nascent industry, the MMS cannot reasonably anticipate and assess the potential environmental impacts of all of the various technologies and potential OCS locations where these alternative energy and alternate use projects could someday be proposed. Accordingly, this PEIS is focused on alternative energy technologies and areas on the OCS that industry has expressed a potential interest in and ability to develop or evaluate from 2007 to 2014. The PEIS proposed policies and best management practices based on the analyses in the PEIS. As the program

evolves and more is learned, the mitigation measures may be modified or new measures developed. Each project developed under this new program will be subject to environmental reviews under the National Environmental Policy Act (NEPA), and each project may have additional project-specific mitigation measures.

A Record of Decision (ROD) was published on January 10, 2008. The preferred alternative was selected as well as interim policies and best management practices that were recommended in the PEIS. The PEIS and ROD are available at:

ocsenergy.anl.gov.

A Draft Environmental Assessment of the regulations, which tiers off the PEIS, is being released for review and comment along with the proposed rules.

Overview of the MMS Alternative Energy and Alternate Use Program

To accommodate the regulations to support the Alternative Energy and Alternate Use Program, MMS is proposing to add a new part to subchapter B of title 30 of the CFR. The new part 285 would be titled “Alternative Energy and Alternate Uses of Existing Facilities on the Outer Continental Shelf” and would address the requirements of section 388(a) of the EPAct, which amended the OCS Lands Act to add section 8(p).

Approach to Rulemaking

These regulations were developed to provide a regulatory framework for leasing and managing OCS alternative energy project activities and authorizing activities that involve the alternate use of OCS Lands Act-permitted facilities. These regulations are also intended to encourage orderly, safe, and environmentally responsible development of alternative energy sources on the Outer Continental Shelf. The MMS expects that alternative energy projects in the near term will involve the production of electricity from wind, wave, and ocean current. In the future, other types of alternative energy projects may be pursued on the OCS, including solar energy and hydrogen production projects. These regulations were developed to allow for a broad spectrum of alternative energy development, without specific requirements for each type of energy production. However, as we gain experience with alternative energy development on the OCS, we may update our regulations to include energy resource-specific provisions and incorporate by reference appropriate documents.

This proposed rule (30 CFR part 285) applies to all aspects of the alternative energy and alternate use program; except for the procedures applying to appeals of MMS decisions or orders, which are covered in 30 CFR part 290, Subpart A. We are also proposing to revise 30 CFR part 290.2 to clarify the MMS decisions on bids under this program are exempt from the appeals process at 30 CFR part 290 and covered under § 285.118(c). This section describes the procedures for an unsuccessful bidder to apply for reconsideration by the Director for alternative energy leases, Right-of-way (ROW) grants, rights-of-use and easement (RUE) grants, or alternate use rights-of-use and easements (Alternate Use RUE).

Overview of the Project Development Process

General Overview

Figure 1 depicts the general process that the MMS proposes for managing OCS alternative energy program activities under the proposed rule.

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Types of Access Rights

MMS will issue lease access rights for commercial development and site assessment and technology testing. ROW grant and RUE grants will be issued for the support of alternative energy activities. MMS will use a special grant, the Alternate Use RUE, for activities that use an existing facility.

Commercial and Limited Leases

The MMS would issue two types of leases: (1) Commercial or (2) limited. A Commercial lease would convey the access and operational rights necessary to produce, sell, and deliver power on a commercial scale, through spot market transactions or a long-term power purchase agreement. A commercial lease provides the lessee full rights to apply for and receive the authorizations needed to assess, test, and produce

alternative energy on a commercial scale over the long term (approximately 30 years). A commercial lease would include the right to a project easement, which would be issued to allow the lessee to install gathering, transmission and distribution cables, to transmit electricity; pipelines to transport other energy products (i.e. hydrogen); and appurtenances on the OCS as necessary for the full enjoyment of the lease. The project easement would be issued upon approval of the Construction and Operations Plan (for Commercial Leases) or General Activities Plan (for Limited Leases).

A limited lease would convey access and operational rights for activities on the OCS that support the production of energy, but do not result in the production of electricity or other energy product for sale, distribution, or other commercial use. This would include leases issued for site assessment or to develop and test new alternative energy technology. Limited leases would be issued for a short term, 5 years. Under the provisions of these regulations limited leases could be renewed, but they cannot be converted to commercial leases. If the holder of a limited lease wished to pursue commercial development on the OCS, it would need to obtain a new commercial lease through the leasing process, as defined in these regulations.

RUE Grants and ROW Grants

Right-of-use and Easement (RUE) grants would be issued by MMS to authorize the use of a designated portion of the OCS to support alternative energy activities on a lease or other approval not issued under this part, e.g. on a State issued lease.

Right-of-way (ROW) grants would be issued by MMS to allow for the construction and use of a cable or pipeline for the purpose of gathering, transmitting, distributing or otherwise transporting electricity or other energy product generated or produced from alternative energy not generated on a lease issued under this part. A ROW grant could be used to transport electricity from a State lease to shore or from one state to another state through a transmission line that must cross the Federal OCS. A ROW is not the same as a project easement issued with an alternative energy lease under this part.

Alternate Use RUEs

MMS would issue an alternative use RUE for the energy- or marine-related use of an existing OCS facility for activities not otherwise authorized by this subchapter or other applicable law.

Obtaining Access Rights

The EPAct requires MMS to award leases, ROW grants and RUE grants competitively, unless we make a determination of no competitive interest. In conjunction with the competitive leasing process, MMS would prepare NEPA and other environmental compliance documents. The MMS would put forth a call for interest, designate the lease or grant area, and publish in the

Federal Register

all other notices and calls relating to the sale. If, after putting forth a call for interest, MMS determines that there is no competitive interest in that particular OCS area, MMS may proceed in issuing a lease or grant noncompetitively. Whether a company acquires a lease or grant competitively or non-competitively it must comply with all MMS lease stipulations or conditions in the grant. The steps in the competitive leasing process are shown in Figure 2.

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Federal Compliance for the Leasing Process

All activities permitted under this part must comply with all relevant Federal laws, regulations, and statutes, including, but not limited to the following:

Responsible Federal

agency/agencies

Statute/Executive Order

Summary of pertinent provisions

Council on Environmental Quality (CEQ)

National Environmental Policy Act of 1969, as amended (NEPA) (42 U.S.C. 4321

et seq.

)

Requires Federal agencies to prepare an EIS to evaluate the potential environmental impacts of any proposed major Federal action that would significantly affect the quality of the human environment, and to consider alternatives to such proposed actions.

U.S. Fish and Wildlife Service (USFWS); National Oceanic and Atmospheric Administration (NOAA); National Marine Fisheries Service (NMFS)

Endangered Species Act of 1973, as amended (16 U.S.C. 1531

et seq.

)

Requires Federal agencies to consult with the USFWS and the NMFS to ensure that proposed Federal actions are not likely to jeopardize the continued existence of any species listed at the Federal level as endangered or threatened, or result in the destruction or adverse modification of critical habitat designated for such species.

USFWS (walruses; sea and marine otters; polar bears; manatees and dugongs); NMFS (seals, sea lions, whales, dolphins, and porpoises)

Marine Mammal Protection Act of 1972, as amended (16 U.S.C. 1361-1407)

Prohibits, with certain exceptions, the take of marine mammals in U.S. waters and by U.S. citizens on the high seas, and the importation of marine mammals and marine mammal products into the United States.

NMFS

Magnuson-Stevens Fishery Conservation and Management Act (also known as the Fishery Conservation and Management Act of 1976, as amended by the Sustainable Fisheries Act) (16 U.S.C. 1801

et seq.

)

Requires Federal agencies to consult with the NMFS on proposed Federal actions that may adversely affect Essential Fish Habitats that are necessary for spawning, breeding, feeding, or growth to maturity of federally managed fisheries.

U.S. Environmental Protection Agency (USEPA); U.S. Army Corps of Engineers (USACE); NOAA

Marine Protection, Research, and Sanctuaries Act of 1972 (MPRSA), as amended (33 U.S.C. 1401

et seq.

)

Prohibits, with certain exceptions, the dumping or transportation for dumping of materials, including, but not limited to, dredged material, solid waste, garbage, sewage, sewage sludge, chemicals, biological and laboratory waste, wrecked or discarded equipment, rock, sand, excavation debris, and other waste into ocean waters without a permit from the USEPA. In the case of ocean dumping of dredged material, the USACE is given permitting authority.

NOAA

National Marine Sanctuaries Act (NMSA) (16 U.S.C. 1431

et seq.

)

Prohibits the destruction, loss of, or injury to, any sanctuary resource managed under the law or permit and requires Federal agency consultation on Federal agency actions, internal or external to national marine sanctuaries, that are likely to destroy, injure, or cause the loss of any sanctuary resource.

USFWS

Migratory Bird Treaty Act of 1918, as amended (16 U.S.C. 703-712); Executive Order 13186, “Responsibilities of Federal Agencies to Protect Migratory Birds” (January 10, 2001)

Requires that Federal agencies taking actions likely to negatively affect migratory bird populations enter into Memoranda of Understanding with the USFWS, which, among other things, ensure that environmental reviews mandated by NEPA evaluate the effects of agency actions on migratory birds, with emphasis on species of concern.

NOAA's Office of Ocean and Coastal Resource Management (NOAA OCRM)

Coastal Zone Management Act of 1972, as amended (16 U.S.C. 1451

et seq.

)

Specifies that coastal States may protect coastal resources and manage coastal development. A State with a coastal zone management program approved by NOAA OCRM can deny or restrict development off its coast, if the reasonably foreseeable effects of such development would be inconsistent with the State's coastal zone management program.

USEPA; MMS

Clean Air Act, as amended (CAA) (42 U.S.C. 7401

et seq.

)

Prohibits Federal agencies from providing financial assistance for, or issuing a license or other approval to, any activity that does not conform to an applicable, approved implementation plan for achieving and maintaining the National Ambient Air Quality Standards (NAAQS).

Requires USEPA (or an authorized State agency) to issue a permit before construction of any new major stationary source or major modification of a stationary source of air pollution. The permit—called a Prevention of Significant Deterioration (PSD) permit for stationary sources located in areas that comply with NAAQS and a Nonattainment Area Permit in areas that do not comply with NAAQS—must control emissions in the manner prescribed by USEPA regulations to either prevent significant deterioration of air quality (in attainment areas), or contribute to reducing ambient air pollution in accordance with an approved implementation plan (in nonattainment areas).

Requires the owner or operator of a stationary source that has more than a threshold quantity of a regulated substance in a process to submit a Risk Management Plan to USEPA.

In the western portion of the Gulf of Mexico, MMS has authority pursuant to the OCS Lands Act for clean air regulations.

USEPA; U.S. Coast Guard (USCG); MMS

Clean Water Act (CWA), Section 311, as amended (33 U.S.C. 1321); Executive Order 12777, “Implementation of Section 311 of the Federal Water Pollution Control Act of October 18, 1972, as Amended, and the Oil Pollution Act of 1990”

Prohibits discharges of oil or hazardous substances into or upon the navigable waters of the United States, adjoining shorelines, or into or upon the waters of the contiguous zone, or in connection with activities under the OCS Lands Act, or which may affect natural resources belonging to the U.S.

Authorizes USEPA and the USCG to establish programs for preventing and containing discharges of oil and hazardous substances from non-transportation-related facilities and transportation-related facilities, respectively.

Directs the Secretary of the Interior (MMS) to establish requirements for preventing and containing discharges of oil and hazardous substances from offshore facilities, including associated pipelines, other than deepwater ports.

USEPA

CWA, Sections 402 and 403, as amended (33 U.S.C. 1342 and 1343)

Requires a National Pollutant Discharge Elimination System (NPDES) permit from USEPA (or an authorized State) before discharging any pollutant into territorial waters, the contiguous zone, or the ocean from an industrial point source, a publicly owned treatment works, or a point source composed entirely of storm water.

USACE; USEPA

CWA, Section 404, as amended (33 U.S.C. 1344)

Requires a permit from the USACE before discharging dredged or fill material into waters of the United States, including wetlands.

USCG

Ports and Waterways Safety Act, as amended (33 U.S.C. 1221

et seq.

)

Authorizes the USCG to implement, in waters subject to the jurisdiction of the U.S., measures for controlling or supervising vessel traffic or for protecting navigation and the marine environment. Such measures may include but are not limited to: Reporting and operating requirements, surveillance and communications systems, routing systems, and fairways.

USACE

Rivers and Harbors Appropriation Act of 1899 (33 U.S.C. 401

et seq.

)

Section 10 (33 U.S.C. 403) delegates to the USACE the authority to review and regulate certain structures and work that are located in or that affect navigable waters of the U.S. The OCS Lands Act extends the jurisdiction of the USACE, under Section 10 to the seaward limit of Federal jurisdiction.

USEPA

Resource Conservation and Recovery Act, as amended by the Hazardous and Solid Waste Amendments of 1984 (RCRA) (42 U.S.C. 6901

et seq.

)

Requires waste generators to determine whether they generate hazardous waste, and if so, to determine how much hazardous waste they generate and notify the responsible regulatory agency.

Requires hazardous waste treatment, storage, and disposal facilities (TSDFs) to demonstrate in their permit applications that design and operating standards established by the USEPA (or an authorized State) will be met.

Requires hazardous waste TSDFs to obtain permits.

National Park Service (NPS); Advisory Council on Historic Preservation; State or Tribal Historic Preservation Officer

National Historic Preservation Act of 1966, as amended (16 U.S.C. 470-470t); Archaeological and Historical Preservation Act of 1974 (16 U.S.C. 469-469c-2)

Requires each Federal agency to consult with the Advisory Council on Historic Preservation and the State or Tribal Historic Preservation Officer before allowing a federally licensed activity to proceed in an area where cultural or historic resources might be located; authorizes Interior Secretary to undertake salvage of archaeological data that may be lost due to a Federal project.

NPS; Advisory Council on Historic Preservation; State or

American Indian Religious Freedom Act of 1978 (42 U.S.C. 1996); Executive Order 13007, “Indian Sacred Sites”(May 24, 1996)

Requires Federal agencies to facilitate Native American access to and ceremonial use of sacred sites on Federal lands, to promote greater protection for the physical integrity of such sites, and to maintain the confidentiality of such sites, where appropriate.

Federal Aviation Administration (FAA)

Federal Aviation Act of 1958 (49 U.S.C. 44718); 14 CFR 77

Requires that, when construction, alteration, establishment, or expansion of a structure is proposed, adequate public notice be given to the FAA as necessary to promote safety in air commerce and the efficient use and preservation of the navigable airspace.

National Environmental Policy Act Compliance

The NEPA process helps public officials make decisions based on an understanding of environmental consequences and take actions that protect, restore, and enhance the environment. It provides the tools to carry out these goals by mandating that every Federal agency prepare an in-depth study of the impacts of “major federal actions significantly affecting the quality of the human environment” and alternatives to those actions, and requiring that each agency make that information an integral part of its decisions. NEPA also requires that agencies make a diligent effort to involve the interested and affected public before they make decisions affecting the environment.

The MMS is the lead Federal agency for NEPA compliance for alternative energy and alternate use activities on the OCS. Some of the information MMS requests under this part is in support of other Federal agencies information requirements associated with compliance with the laws and regulations that they enforce.

Coastal Zone Management Act (CZMA) Compliance

Each coastal state has a Federally-approved coastal management plan (CMP). In compliance with CZMA mandates found at section 307(c)(1), when the MMS conducts a competitive lease sale for leases or grants under this part, MMS will determine if the sale activity is reasonably likely to affect any land or water use of natural resource of a State's coastal zone. If such effects are reasonably foreseeable, the MMS must submit a consistency determination to the affected State(s) at least 90 days before the lease sale. This CD will include a detailed description of the

proposed activity, its expected coastal effects, and an evaluation of how the proposed activity is consistent with applicable enforceable policies in the State's CMP. If the affected State(s) agree with MMS' determination, MMS may proceed with the competitive sale. If the affected State(s) disagree, MMS will follow the procedures as outlined in 15 CFR part 930, subpart C.

In the CMP, the States list Federal licenses and permits which are reasonably likely to affect coastal uses or resources and require a Federal consistency review. Listed activities must be conducted in a manner that is consistent with the enforceable policies of the State's CMP and the applicant must submit a Federal consistency certification to the State and approving Federal agency. Also, the State may ask the Ocean and Coastal Resource Management office within the National Oceanic and Atmospheric Administration (NOAA) for permission to review, for consistency, activities that are not listed in its CMP. If NOAA approves the request, the applicant is required to submit a consistency certification for the unlisted Federal license/permit. In compliance with CZMA mandates, the MMS would not issue noncompetitive leases or approve noncompetitive grants or plans under this part, if: (1) Consistency has not been conclusively presumed, or (2) the State objects to the applicant's consistency certification and the Secretary of Commerce has not found that the permitted activities are consistent with the objectives of the CZMA or are otherwise necessary in the interest of national security. Table 1 summarizes the NEPA and CZMA compliance requirements for leases and grants.

Table 1

Activity

MMS process

NEPA documentation

Lease or grant conditions

CZMA

Leases

Competitive lease sale

Conduct competitive lease sale and issue leases

Covers lease sale area

Stipulations, mitigation, and conditions established in lease contract

A Federal agency activity and must comply with 15 CFR part 930 subpart C

Non-competitive lease

Negotiate noncompetitive lease and issue decision on the Site Assessment Plan or General Activities Plan

Covers identified noncompetitive lease area and proposed activities in the Site Assessment Plan or General Activities Plan

Stipulations, conditions, mitigation, and monitoring established in lease and Site Assessment Plan or General Activities Plan

Non-Federal activity that requires a Federal license or permit and must comply with 15 CFR part 930, subpart D

Grants

Competitive ROW grants and RUE grants

Conduct competitive ROW grant or RUE grant sale and issue grants

Covers ROW grant and RUE grant-specific sale area

Stipulations and conditions established in grant award

A Federal agency activity and must comply with 15 CFR part 930 subpart C

Non-competitive ROW grants and RUE grants

Negotiate noncompetitive ROW grants or RUE grants and evaluate General Activities Plan

Covers identified noncompetitive grant site and proposed activities in the General Activities Plan

Stipulations, conditions, mitigation, and monitoring established in grant award and General Activities Plan

Non-Federal activity that requires a Federal license or permit and must comply with 15 CFR part 930, subpart D

Development Process

Developing Leases and Grants

Once a company acquires a lease, ROW grant, or RUE grant, it must submit certain plans to MMS for development of the lease or grant. The various plans serve as a blueprint for site development, construction, operations, and decommissioning. The MMS has specific requirements for each phase of your lease, grant, and plan. The MMS will not allow development without proper plan submission and approval. Site assessment activities on a commercial lease would require the applicant to submit a Site Assessment Plan (SAP) and receive MMS approval of that plan before beginning those activities. The SAP would undergo the appropriate NEPA reviews and may require either an Environmental Impact Statement (EIS) or an Environmental Assessment (EA). The SAP must demonstrate how you will conduct the proposed activities to comply with relevant Federal statutes such as the Coastal Zone Management Act (CZMA), Endangered Species Act (ESA), Marine Mammal Protection Act (MMPA), and Clean Water Act (CWA).

For a commercial lease, after you perform site assessment activities, you would be required to submit and receive MMS approval of a Construction and Operations Plan (COP) before you may begin any development and production activities on your lease. Like the SAP, the COP would undergo the appropriate NEPA reviews and may require either an EIS or an EA. Like the SAP, the COP must also comply with relevant Federal statutes.

For limited leases, ROW grants, and RUE grants, you would be required to submit a General Activities Plan (GAP), which covers all activities on the lease or the grant including site assessment, development, operations, and decommissioning. Like the SAP and COP, the GAP would undergo the appropriate NEPA reviews and must comply with relevant Federal Statutes.

Revenue Sharing

The new subsection 8(p)(2)(B) of the OCS Lands Act (43 U.S.C. 1337(p)(2)(B)) requires payment to certain coastal States of 27 percent of the revenues received by the Federal Government from any projects under this section that are located wholly or partially within the area extending 3 nautical miles seaward of State submerged lands. (For ease of description, this 3-mile-wide area adjoining State submerged lands will be referred to in this preamble as the “8(g) zone,” a term widely used to refer to the identical 3-mile area described in section 8(g) of the OCS Lands Act. (43 U.S.C. 1337(g)) In addition, when a project extends into

the 8(g) zone of at least one State, subsection extends eligibility for a share of the revenues to any other State with a coastline that is located within 15 miles of the geographic center of the project. The Secretary is required to establish a formula by rulemaking that provides for the equitable distribution of payments to eligible States based on the proximity of each State's coastline to the geographic center of the project.

Operations

The regulations that address operations cover environmental management, safety management, inspections, facility assessments, and decommissioning. The regulations on operations are designed to prevent or minimize the likelihood of harm or damage to the marine and coastal environments. The structure of the regulations is based on adaptive management. The operator would be required to monitor activities and demonstrate that its performance satisfies specified standards in its approved plans. In addition, the operator would be required to comply with regulations regarding air quality, safety, maintenance and shutdowns, equipment failure, adverse environmental affects, inspections, facility assessments, and incident reporting.

Alternate Use of Existing Facilities

These regulations establish general requirements for how MMS will consider proposals for activities that involve the alternate use of existing OCS facilities. This includes general provisions that explain how MMS will approve and regulate such alternate use activities on the OCS. We are proposing to authorize such activities through the issuance of an Alternate Use RUE.

These regulations explain how applicants can request an Alternate Use RUE; how MMS will decide whether to issue Alternate Use RUEs; how Alternate Use RUEs will be competitively issued (if MMS determines that competitive interest exists); the terms of such authorizations; required payments to MMS; necessary financial assurance; other administrative issues such as assignment, suspension, and termination; and decommissioning of approved alternate use structures.

In addition to the proposed provisions in subpart J, MMS has proposed associated revisions to MMS's existing oil and gas decommissioning regulations found in 30 CFR part 250, subpart Q, that clarify the oil and gas platform owner's obligations for decommissioning, in the event MMS approves alternate uses of the platform.

Subpart-by-Subpart Discussion

Part 285—Alternative Energy and Alternate Uses of Existing Facilities on the Outer Continental Shelf

Subpart A—General Provisions

Subpart B—Issuance of OCS Alternative Energy Leases

Subpart C—Rights-of-Way Grants and Rights-of-Use and Easement Grants for Alternative Energy Activities

Subpart D—Lease and Grant Administration

Subpart E—Payments and Financial Assurance Requirements

Subpart F—Plans and Information Requirements

Subpart G—Facility Design, Fabrication, and Installation

Subpart H—Environmental and Safety Management, Inspections, and Facility Assessments

Subpart I—Decommissioning

Subpart J—Rights of Use and Easement for Energy and Marine-Related Activities Using Existing OCS Facilities

Subpart A—General Provisions

Overview

Subpart A establishes MMS's authority and the purpose for the regulations. It also addresses the general requirements that apply to all activities regulated under this part, for example, the qualifications for holding leases, ROW grants and RUE grants on the OCS and the appeals process. The definitions for these regulations are also in subpart A.

Other Options and Approaches

Most of the subjects addressed in subpart A are included to provide general information on these regulations to the applicants and operators. Some items are governed by other authorities, such as information collection requirements that are established by the Paperwork Reduction Act of 1995 (44 U.S.C. 3501

et seq.

). These are not issues that have a direct impact on the development of alternative energy resources or on alternate use of the OCS.

Selected Approaches

The EPAct requires MMS to ensure that the activities permitted under these regulations are carried out in a manner that provides for safety, protection of the environment, oversight, and enforcement (43 U.S.C. 1333(p)(4)). This subpart lays the foundation for these responsibilities. The responsibilities of the lessee, applicant, operator, or holder of a ROW grant, RUE grant, or Alternate Use RUE grant were based on ensuring that projects under these regulations are designed and conducted in a safe and environmentally sound manner.

Departures from operating requirements were selected as a way of allowing MMS to maintain flexibility within the program and to be able to adapt to this new and changing industry. Requirements and qualifications for lessees and grant holders are based on section 8 of the OCS Lands Act. Appeal rights are based on those established for offshore oil and gas operations.

This subpart provides for participation of State and local governments in task forces or other joint planning agreements with MMS. The joint planning provision is modeled after section 281.13 of this subchapter, which pertains to task forces for considering leasing of minerals in the OCS other than oil, gas, and sulphur. We envision that such task forces could be useful and applicable to any phase of the OCS alternative energy program, from preliminary studies and lease sale formulation through site assessment and construction to decommissioning. We may invite any affected State Governor or local government executive to join in establishing a task force or other joint planning or coordination agreement if we are considering offering or issuing leases (or grants) under this part. Participation in a task force will give the parties opportunities to contribute to the planning process and access to nonproprietary information. The task force or other such arrangements will be constituted and conducted as agreed to by the participants consistent with Federal law and these regulations. The task forces may make recommendations and may be requested to conduct or oversee research, studies, or reports.

Comments

The MMS seeks comment on all items in subpart A. In general we wish to know if this subpart is informative, makes it easy to locate needed information, is easy to read and follow, and includes the appropriate topics.

Section by Section Discussion of Subpart A

Section 285.100 Authority

This section establishes MMS's authority to issue regulations and oversee access and development on the OCS for alternative energy and alternate use of existing facilities. The MMS includes the authority statement to inform the affected public and other interested parties of the basis for establishing these regulations. MMS's authority for these regulations comes from amendments to Subsection 8 of the Outer Continental Shelf Lands Act (OCS Lands Act) (43 U.S.C. 1337), as set forth

in Section 388(a) of the Energy Policy Act of 2005 (Pub. Law 109-58).

Section 285.101 What is the purpose of this part?

This section describes MMS's objectives for this rule. Our objectives include: (1) Establishing procedures for issuance of leases, ROW grants, and RUE grants and administration of operations for activities permitted under this part; (2) informing applicants and third parties of their obligations under this part; and (3) ensuring that these activities are conducted in a safe and environmentally sound manner, in conformance with applicable laws and regulations, and the terms of the lease or grant. However, this part does not convey access rights for oil, gas, or other minerals.

Section 285.102 What are MMS's responsibilities under this part?

This section describes MMS's responsibilities, which are derived from Subsection 8(p)(4) of the OCS Lands Act, as amended by EPAct. These responsibilities include ensuring activities are carried out in a manner that provides for:

• Safety;

• Protection of the environment;

• Prevention of waste;

• Conservation of the natural resources of the OCS;

• Coordination with relevant Federal agencies;

• Protection of national security interests of the United States;

• Protection of the rights of other authorized users of the OCS;

• A fair return to the United States;

• Prevention of interference with reasonable uses (as determined by the Secretary or Director) of the exclusive economic zone, the high seas, and the territorial seas;

• Consideration of the location of and any schedule relating to a lease or grant under this part for an area of the OCS, and any other use of the sea or seabed;

• Public notice and comment on any proposal submitted for a lease or grant under this part; and

• Oversight, inspection, research, monitoring, and enforcement of activities authorized by a lease or grant under this part.

To enforce these responsibilities, MMS will require compliance with all applicable laws, regulations, other requirements, the terms of your lease or grant under this part, and approved plans. The MMS will also establish practices and procedures to govern the collection of all payments due to the Federal Government, including any cost recovery fees, rentals, operating fees, and other fees or payments. The MMS will coordinate and consult with the Governor of any affected State and executive of any affected local government. As part of coordination and consultation with State and local governments, MMS may invite any affected State Governor and affected local government executive to join a task force or other joint planning or coordination agreement.

Section 285.103 When may MMS prescribe or approve departures from the regulations governing operations?

This section establishes times when MMS may approve departures from the requirements established in the regulations. The MMS will consider a departure when it is needed to:

• Facilitate the proper development of a lease or grant under this part;

• Conserve natural resources;

• Protect life (including human and wildlife), property, or the marine, coastal, or human environment; or

• Protect sites, structures, or objects of historical or archaeological significance.

A departure must be consistent with Subsection 8(p) of the Outer Continental Shelf Lands Act and must protect the environment and safety to the same degree as if there was no approved departure from the regulations.

Section 285.104 Do I need an MMS lease or other authorization to produce or support the production of electricity or other energy product from an alternative energy resource on the OCS?

This section explains that except as otherwise authorized by law, it is unlawful for any person to construct, operate, or maintain any facility to produce, transport or support generation of electricity or other energy product derived from alternative energy resource on any part of the Outer Continental Shelf except under and in accordance with the terms of a lease, easement or right-of-way issued pursuant to the OCS Lands Act.

Section 285.105 What are my responsibilities under this part?

This section describes the general responsibilities of a lessee, applicant, operator, or holder of a ROW grant, RUE grant, or Alternate Use RUE grant under these regulations. These responsibilities include:

• Designing projects and conducting operations in a safe manner and to minimize adverse effects to the coastal and marine environments, including their physical, atmospheric, and biological components to the extent practicable;

• Submitting requests, applications, plans, notices, modifications, and supplemental information as required by this part; following up any oral request or notification in writing within 3 business days;

• Complying with the terms and conditions of the applications, plans, notices, and modifications; making payments on time;

• Complying with the Department of the Interior's non-procurement debarment regulations; and including the requirement to comply with 43 CFR part 42 in all contracts and transactions related to a lease or grant under this part; and

• Responding to requests from the Director in a timely manner.

Section 285.106 Who can hold a lease or grant under this part?

This section details the qualifications of a lessee or grant holder. To qualify for a lease or grant you must be either a citizen or a national of the United States; an alien lawfully admitted for permanent residence in the United States; a private, public, or municipal corporation organized under the laws of the United States any of its States or territories, or the District of Columbia; or an association of any of the parties described previously. In addition, you may be excluded from becoming a lessee or grant holder if you are excluded or disqualified from participating in transactions covered by the Federal non-procurement debarment and suspension system, you have failed to meet or exercise due diligence under any OCS lease or grant, or you remained in violation of the terms and conditions of any lease or grant issued under the OCS Lands Act for a period extending longer than 30-calendar days after MMS directed you to comply.

Section 285.107 How do I show that I am qualified to be a lessee or grant holder?

This section describes the evidence you must submit to MMS to establish qualification to hold a lease, ROW grant, or RUE grant. For an individual, this evidence includes documents that demonstrate citizenship or lawful admittance of permanent residence. For an association, the acceptable evidence includes a certified statement indicating the State in which it is registered and that it is authorized to hold leases and grants on the OCS, or appropriate reference to statements or records previously submitted to an MMS OCS office. Corporations must submit a statement certified by the corporate Secretary or Assistant Secretary over the corporate seal showing the State in

which it was incorporated, and that it is authorized to hold leases and grants on the OCS, or appropriate reference to statements or records previously submitted to an MMS OCS office (including material submitted in compliance with prior regulations), and evidence of the authority of persons signing to bind the corporation.

Section 285.108 When must I notify MMS if an action has been filed alleging that I am insolvent or bankrupt?

If any action is filed alleging that a company, operating under these regulations, is insolvent or bankrupt, the company must notify MMS within 3 days of learning of the action.

Section 285.109 When must I notify MMS of mergers, name changes, or changes of business form?

This section requires you to notify MMS of any merger, name change, or change of business form. This must be done no later than 120-calendar days after either the effective date or the date of filing the change or action with the Secretary of the State in the State of registry.

Section 285.110 Where do I submit plans, applications, or notifications required by this part?

You must send all plans, application, or notifications to MMS at the address provided in this section.

Section 285.111 When and how does MMS charge me processing fees on a case-by-case basis?

This section provides that MMS may charge processing fees for applications or requests filed under this part, on a case-by-case basis. The MMS may charge processing fees if the preparation of a document or study is necessary for MMS to evaluate or process an application or request. For example, MMS may charge processing fees for the preparation of a project-specific Environmental Impact Statement.

In cases where MMS may charge a case-by-case processing fee, we will provide the applicant with a written estimate of the proposed fee for reasonable processing costs. The applicant may comment on the proposed fee or request approval to directly pay a contractor for the document, study, or other activity. We will re-estimate our reasonable processing costs following the procedure established in this section.

Section 285.112 Definitions.

This section provides definitions of terms used throughout the 30 CFR part 285 regulations. Some of the definitions used in this part are definitions that were established in legislation or previously in regulations (i.e., 30 CFR part 250). The definition for archaeological resource is almost identical to the definition used by MMS for oil and gas operations, in the 30 CFR part 250 regulations. This definition mirrors that in the Archaeological Resource Protection Act, and was instituted in response to comments from the Advisory Council on Historic Preservation and the Departmental Consulting Archaeologist on our original rule on archaeology. It is consistent with the definitions in other Federal laws and regulations.

Proposed § 285.112 would add definitions for the revenue sharing program. The proposed definitions are for coastline, miles, distance, income, project (for the purpose of revenue sharing), project area, qualified project, qualified project area, geographic center of a project, eligible State, and revenues.

The term

coastline

would have the same meaning given to the term “coast line” in section 2 of the Submerged Lands Act, 43 U.S.C. 1301(c). Added subsection 8(p)(2) of the OCS Lands Act refers to coastal States that have a coastline “within 15 miles of the geographic center of the project.” In this context, and wherever not otherwise specified,

miles

would mean nautical miles. The term

distance

would mean the minimum great circle distance.

Income,

unless clearly specified to the contrary, would refer to the money received by the project owner or holder of the lease, easement, or other equivalent agreement (e.g., rights-of-way). As such, use of the term income would not imply that project receipts exceeded project expenses (profitability) but rather would serve to distinguish money received by the project owner from money received by the Federal Government (referred to as revenues, defined below).

The term

project,

for the purposes of revenue sharing, would mean the activities necessary to develop, produce, and transmit energy—or to create some other product or service authorized under 30 CFR part 285—in, or from, the OCS within a specific geographic area; the facilities used to develop and produce that energy or create some other product or service; or both. (As necessary, a different definition of “project” may be used for other purposes, such as complying with the provisions of the National Environmental Policy Act.) The term project also could be used to refer to the project area.

While the language of the EPAct refers only to a project, for the purposes of clarity in this regulation, use of the term

project area

would allow specific reference to the geographic area for which project rights have been granted via a lease, group of leases, or equivalent agreement.

If a project area is located wholly or partially within the 8(g) zone, and the project is subject to 30 CFR part 285, the project for which that area has been granted would be a

qualified project

for the purposes of subsection 8(p)(2)(B). A

qualified project area

would be the MMS-determined project area for a qualified project. A project easement issued under this part would not be considered part of the qualified project's area, primarily because to do so would make all OCS alternative energy projects qualified projects, no matter how far the actual alternative energy activity is located offshore. Project easements on the OCS would typically serve to bring power to onshore distribution grids, so they must pass through areas within 3 miles of State submerged lands. A secondary reason is that including project easements in the qualified project's area would both complicate and distort calculation of the geometric center of the project's area. However, we propose to allow any fees paid for project easement acreage to constitute part of the revenues from the qualified project.

The geographic center

of a project would be the “centroid” of the project area; i.e., the balancing point of the acreage of a regularly shaped project area if plotted in two-dimensional space. For example, in the simple case of a project area comprising a 9-square-mile lease block, 3 miles on each side, the centroid would be the middle point inside that square: 1

1/2

miles inward from the midpoint of each side and equidistant from each corner of the square. For irregularly shaped project areas including those that might involve non-contiguous geometric shapes, MMS would determine the geographic center of such projects as the “geometric center” calculated by the Geographical Information System software, in conjunction with the methodology and standard mapping data, employed by MMS for identifying OCS boundaries and locations for other purposes.

An

eligible State

would be a coastal State that has submerged lands within 3 miles of any part of a qualified project area, a coastline within 15 miles of the geographical center of a qualified project, or both.

Revenues,

for the purpose of revenue sharing on projects covered by the new subsection 8(p)(2)(B) in the OCS Lands Act, are defined to include bonuses, rents, license fees, operating fees, other

fees, and any similar payments paid in connection with a qualified project or qualified project area. These revenues include receipts collected by the Federal Government from the entire project area, not just from the portion of the project or project area extending into the 8(g) zone. Administrative fees, such as those for cost recovery, are not included under this definition of revenues and would not be subject to the 27-percent share.

Section 285.113 How will data and information obtained by MMS under this part be disclosed to the public?

This section describes how MMS will handle data and information submitted to the MMS, including public disclosure and nondisclosure. The MMS will follow the applicable requirements of the Freedom of Information Act (5 U.S.C.) and protect data and information to the extent allowed by law.

Section 285.114 Paperwork Reduction Act Statements—Information Collection

These provisions cover Paperwork Reduction Act statements and information collection requirements pertaining to this part.

Section 285.115 Documents Incorporated by Reference

This section is a listing of the industry standard documents MMS is proposing to incorporate by reference into the 30 CFR part 285 regulations.

Section 285.116 Requests for Information on the State of the Offshore Alternative Energy Industry

This section would allow the Director to request information from industry and other relevant stakeholders (including state and local agencies) as necessary to evaluate the state of the offshore alternative energy industry, including the identification of potential challenges or obstacles to its continued development and require the applicant, lessee, or grant holder to respond to a request in a timely manner. These requests could relate to the identification of environmental, technical, or economic matters that promote or detract from continued development of alternative energy technologies on the OCS. The MMS would use the information received to evaluate potential refinements to the OCS Alternative Energy Program that promote development of the industry in a safe and environmentally responsible manner, and that ensures fair value for use of the Nation's OCS. The MMS would publish these requests for information in the

Federal Register

.

Section 285.117 [Reserved]

Section 285.118 What are my appeal rights?

This section describes when a decision made by MMS under this part may be appealed and who may appeal. Most decisions made under this part may be appealed according to the regulations found in 30 CFR part 290, subpart A. An unsuccessful bidder may apply for reconsideration by the Director of MMS (Director).

Subpart B—Issuance of OCS Alternative Energy Leases

A. Overview for Subpart B

This subpart proposes a process for issuing alternative energy leases, both for commercial production activities and for assessment or technology testing activities. That process will be competitive, unless there is a determination of noncompetitive interest. In addition, this subpart describes how we will determine when to use a competitive process for issuing an alternative energy lease and identifies auction formats and bidding systems and variables that we may use when that determination is affirmative. Finally, this subpart discusses the terms under which we will issue alternative energy leases. To establish a framework, we begin with a discussion of various types of leases that a prospective alternative energy developer may consider.

Types of Leases.

Leases would be required for any type of alternative energy activity on the OCS. We propose to issue two types: (1) commercial leases; and (2) limited leases. Although we also are proposing to convey access to areas of the OCS to the Department of Energy for research under some form of negotiated lease agreement as provided in § 285.238, this discussion of types of leases focuses on the commercial or limited leases that we would issue directly to lessees on a competitive or noncompetitive basis.

A commercial lease would provide the access and operational rights, subject to necessary approvals, to produce, sell, and deliver power on a commercial scale, through spot market transactions or a long-term power purchase agreement. A commercial lease would be issued over the long term (i.e., up to approximately 30 years, with possible renewals) and convey preferential rights to project easements on the OCS for the purpose of installing transmission and distribution systems.

A limited lease would provide the access rights necessary to conduct activities such as site assessment and technology testing that support production of alternative energy but do not themselves result in the commercial sale, use or distribution of electricity or other produced power. A limited lease would be issued for a shorter term (

i.e.

, up to 5 years, with possible renewals), and would not convey any preferential rights to obtain a commercial lease to develop the leased area.

We anticipate that offshore alternative energy companies will prefer to acquire commercial leases rather than limited leases. However, we believe that providing for the issuance of limited leases will give all companies, including smaller entities, an opportunity to pursue alternative energy activities without the commitments and expenses entailed by a long-term commercial lease. For example, it is likely that a limited lease would entail less expense for bidding and lease acquisition, because the rights to assess a site or test technology would have less value than full commercial development rights. Also, there likely would be less effort and cost needed in overall project formulation, planning, and authorizations, as NEPA and CZMA reviews and associated coordination and consultation would focus on smaller-scale and shorter-term activities than would be needed for a commercial lease.

With a limited lease, we expect that a company could acquire a lease relatively inexpensively and test an energy generating device or collect data and information for resource assessment for up to five years. At the end of the limited lease term, if the technology proves successful or the data is promising, the company could apply for a commercial lease encompassing the site or apply for multiple leases in various OCS locations where it wishes to pursue commercial production with its now proven technology. The limited lease in this case would have the effect of promoting collection of resource information or the development of new technology that could be commercially applied in the future.

A limited lease would not offer any preferential right or option to future commercial development of the lease site. The competition requirements of subsection 8(p) of the OCS Lands Act would apply if the lessee of a limited lease subsequently requests a commercial lease. We expect that, if pursued, the majority of limited leases would be issued noncompetitively to small businesses in areas of the OCS that are not otherwise in demand for commercial alternative energy activity.

The most important factor for an applicant to consider in deciding

whether to pursue a commercial lease or a limited lease is the right to commercial development of the leased site. Such right is included only in a commercial lease. Thus, if an alternative energy project applicant is interested in demonstrating a particular alternative energy technology but is unsure that it will ultimately lead to commercial production, we encourage that applicant to pursue a commercial lease because it reserves the right to commercially develop the OCS site. Pursuing a commercial lease would not obligate the lessee to remain on a lease for the full term of the lease. As provided in subpart D, if the lessee no longer intends to commercially develop the OCS a commercial lease may be relinquished by the lessee.

Alternatively, if a company obtained a limited lease to initiate technology testing activities and subsequently determined that full-scale commercial development of the OCS area is possible, that lessee of a limited lease would have no right to develop that site without applying for a commercial lease, which is subject to potential competition following public notice. For these reasons, we anticipate that most project applicants will pursue commercial leases to ensure that all necessary rights for future development are reserved should initial testing activities show that a commercial project could be viable.

In developing the proposed rule, we incorporated requirements of the EPAct, considered public comment received in response to the ANPR (70 FR 77345) published in the

Federal Register

on December 30, 2005, and reviewed other existing models for the conveyance of rights for energy and mineral development in the United States and abroad. One model we considered is a two-stage lease that would authorize short-term resource assessment and technology testing in the first phase and then be converted to authorize long-term commercial production activities in the second phase. We believe that such an approach would entail the same level of consultation and review that would be involved in the issuance of the single commercial lease we are proposing to authorize these activities. Also, a lessee may accomplish the same activities under a single commercial lease as under a two-stage lease. In either instance, the lessee would be able to do resource assessment and technology testing and then decide whether to continue the lease in effect for commercial production. Therefore, we do not see the benefit of offering two-stage leases in lieu of a single commercial lease as proposed.

The types of leases proposed and the activities authorized are intended to provide both for long-term, large scale commercial production of alternative energy and for shorter-term, smaller scale activities in support of alternative energy production, such as site assessment and technology testing activities. We invite comments on the proposed types of leases described above and the specific requirements for leases described in the section-by-section analysis below.

Issuing Leases.

It is the goal of MMS to issue alternative energy leases through a simple and straightforward process and in a fair and equitable manner. The EPAct requirements mean that both a competitive and noncompetitive system will be employed.

We anticipate that initial leasing of alternative energy sites on the OCS may be driven by unsolicited applications, rather than an MMS-initiated request for interest in an area. A formal request for interest would be part of the process for confirming that there is no competitive interest in the area identified in the unsolicited application. The proposed process for noncompetitive issuance of OCS alternative energy leases is based on the requirements of EPAct and is patterned after the existing MMS process for issuing noncompetitive negotiated agreements for the conveyance of OCS sand and gravel. We invite comments on the proposed process, including the proposed acquisition fee and case-by-case procedures by which applicants would pay for associated NEPA analysis. We also seek comment on the process we would use to obtain public input on unsolicited applications and the considerations for determining whether competitive interest exists.

Any leasing process for OCS alternative energy activity, whether competitive or noncompetitive, would include full analysis as required by NEPA and other applicable laws. Table 1, which is presented in the discussion titled “

Overview of the process

” under the Compliance discussion, describes the NEPA requirements for steps in the OCS alternative energy process, including the lease issuance step.

The proposed competitive sale process for alternative energy leases is similar to long-standing Federal and State processes for conveying mineral rights. This process would have multiple steps, beginning with a Call for Information and Nominations (Call) that would solicit information from potential bidders as well as other interested and affected parties concerning areas to be considered for leasing. The Call serves several functions by informing the public of the proposed lease sale, inviting comments from all interested and affected parties—including Federal, State, and local government agencies and interest groups—to identify their issues and concerns about the sale, and requesting potential lessees to describe their bidding interest in certain areas. After considering input received in response to the Call, the next step would be Area Identification, in which MMS would identify the area to be considered for leasing and analyzed under NEPA. Following the NEPA analysis, MMS would issue a Proposed Sale Notice for public comment. Next, the MMS would publish a Final Sale Notice describing the lease sale, including the auction process we will use to award leases on a competitive basis. Participation in a competitive sale would not be limited to those entities that commented or expressed interest in the area unless the sale notice specifies otherwise. We invite comments on all aspects of the proposed sale process, including the proposed criteria for determining competition, proceeding with competitive auctions, and awarding leases.

We want to encourage competition for OCS leases from entities that will diligently develop alternative energy resources and avoid situations where leases are acquired for strategic or purely speculative purposes. Diligence requirements under subparts E and F of this part would require lessees to make payments and meet lease development requirements that ensure efficient and expeditious activities on the lease. Also, subpart D of the proposed rule would allow leases to be sold and assigned to other companies under certain conditions.

A competitive lease sale for alternative energy activities could be held for one type of activity (e.g., wind) or for various activities (e.g., wind, wave, current, etc). We would determine the scope of competing alternative energy activities based on responses to initial public notices (Request for Information, Call for Information and Nominations, or other Federal notices), issued during the leasing process and we would clearly state that scope (e.g. wind, wave, current, etc.) early in that process and the subsequent Proposed and Final Sale Notices. If we decided to limit competition to one type of activity (e.g., current), then we would not consider bids for any other type of activity and the lease that is issued would be limited to that activity. If we decided to open competition to more than one type of activity (e.g., wind, wave, current, etc.),

then we would consider all bids for one or more of those activities and the lease instrument may authorize one or more of those activities.

We would like to know if the proposed leasing system and lease development requirements are appropriate to foster efficient development of OCS alternative energy resources, or whether there are other conditions or requirements that we should consider to prevent speculative bidding, holding and resale of the lease rights.

Lease Terms.

Provisions relating to the duration of leases are set forth in several sections of this subpart B as well as in subpart D. Sections 285.235 and 285.236 set finite terms for both commercial and limited leases while providing for automatic extensions only if necessary for MMS review and approval of necessary plans. Depending on the type of lease (commercial or limited) and the acquisition process (competitive or noncompetitive), a lease could have up to three distinct terms: A 6-month preliminary term, a 5-year site assessment term, and a 25-year operations term. Sections 285.415-421 discuss suspensions that extend the term of a lease, and §§ 285.425 through 427 address lease renewal.

In establishing these lease terms and related provisions for OCS alternative energy leases we considered numerous suggestions. Two of the most prominent proposals were (1) provide for open-ended lease terms based on the oil and gas lease model (i.e., continuation of leases by drilling or producing) and (2) provide for automatic extensions and renewals of lease terms. We believe that both of these proposals could perpetuate inefficient or obsolete operations on a lease. We prefer to retain discretion relating to lease terms in order to promote diligent development and ensure use of the most effective and most efficient operating procedures and technologies. For commercial leases, the proposed 25-year operations term coincides with the anticipated term that a lessee and utility would establish in a power purchase agreement. It is possible that technology could improve substantially over such a 25-year term, and we want the ability to ensure that operations on leases keep in step with such technological improvements. The proposed lease term provisions are designed to be flexible enough to allow for operations over the entire design life of facility equipment but also allow for lease relinquishment, contraction, or termination if the seller is unable to market production.

We believe that the proposed lease terms and related provisions would allow necessary flexibility while promoting diligence, thereby allowing OCS alternative energy activities to operate efficiently. We invite comments on whether the length and structure of these terms would inhibit legitimate efforts to develop alternative energy projects on the OCS and whether there would be better alternatives.

Section by Section Discussion for Subpart B

The discussion in part A of this section of the preamble summarized principal concepts in the proposed procedures for conveying rights to develop alternative energy resources on the OCS. This section-by-section analysis will describe and provide more details on each of the proposed provisions and discuss the rationale for proposing that provision.

General Lease Information

Section 285.200 What rights are granted with a lease issued under this part?

We may issue OCS leases for any alternative energy source. Paragraph (a) of this section identifies the types of alternative energy leases that we propose to make available and describes rights that come with a lease issued under these regulations. In general, a lease issued under this part conveys the right to install and operate facilities on a designated portion of the OCS for the purpose of conducting commercial (production) activities or limited (noncommercial) activities supporting the production of energy from alternative energy sources. All rights are subject to compliance with requirements to secure approvals of, and then comply with, applicable plans, i.e., Site Assessment Plan (SAP), Construction and Operations Plan (COP), and General Activities Plan (GAP), that are set forth in proposed subpart F.

Under paragraph (b) of this section, leases generally include the right to one or more project easements without further competition for the purpose of installing lines for gathering, transmission, and distribution of electricity; as well as pipelines for transporting other energy products (i.e. hydrogen); and appurtenances on the OCS as necessary to conduct operations. This could include the cables, pipelines and other structures necessary to transmit electricity or transport other energy product produced from the OCS to shore. The lessee would apply to MMS for the project easement as part of the COP or GAP. When we approve the proposed plan and project easement, an addendum covering the project easement will be incorporated in the lease. Ancillary activities that are not associated with an OCS alternative energy lease (e.g., a transmission line or support structure located in Federal waters to support a project in State waters or a commonly shared line supporting multiple leases) would be permitted and managed as a separate ROW grant or RUE grant under proposed subpart C.

The proposed lease right to a project easement is necessitated by the nature of power generation activities as well as the competition requirement set forth in EPAct [subsection 8(p)(3) of the OCS Lands Act]. Each alternative energy project located offshore will need to transmit produced electricity or transport other energy product (i.e. hydrogen) to shore by cable or pipeline. If access to the corridor needed for transmission or transportation is not granted with the lease, the lessee would be required to compete for that right in accordance with subsection 8(p)(3). The uncertainty associated with acquiring a lease for a generation project in the absence of a guaranteed right to the path needed to transmit or transport the produced energy to market could be a significant disincentive to investment. Therefore, we propose to award the transmission or transportation right along with the lease. We invite comments on the proposed project easement provision.

Paragraph (c) of this section provides for phased lease development. The proposed commercial lease framework would be capable of accommodating multi-phase project development as is commonly used for onshore utility-scale wind projects (see §§ 285.200 and 285.629). The lease applicant would need to inform us of its intent to develop a project in multiple phases and would need to lease from the outset all of the acreage necessary for the full build-out envisioned. If the applicant for a commercial lease phases in operations, the applicant must pay rentals on the portion of the lease that is not producing and operating fees on the portion of the lease that is producing or on which construction is underway. We may waive rental for the acreage on which activities are deferred, as provided by subpart E on a case-by-case basis for any lease issued under this part. As additional acreage is developed, operating fees would be charged in place of rentals, as appropriate. If the lessee decides not to develop the additional acreage, it would relinquish that acreage, or MMS could contract the lease, as provided in §§ 285.435 and 285.436. Multi-phased project

development would have to comply with NEPA, CZMA, and other applicable laws.

Section 285.201 How will MMS issue leases?

As required by subsection 8(p) of the OCS Lands Act, MMS must issue leases, easements, or ROWs for OCS alternative energy activities on a competitive basis unless we determine after public notice that there is no competitive interest. If we determine that there is competitive interest, we will conduct a fair and open competition process. When we receive an unsolicited request for a lease, we will make a determination if a competitive interest exists by first issuing a public notice of the request. After considering the comments received on the notice, as required by the OCS Lands Act, section 8(p), we will issue a determination that there is, or is not, competitive interest in the proposed leases. If two or more project proponents express interest in leasing the same area of the OCS (overlapping partially or completely), we would conclude that competitive interest exists and conduct a competitive lease sale. We may offer areas for leasing that do not conform exactly with the areas nominated for leasing, after analysis of requirements given in subsection 8(p)(4) of the OCS Lands Act. We invite comments on considerations other than interest by more than one party in leasing the same area of the OCS to determine whether or not there is a need to conduct a competitive lease sale in an area.

We are aware that instances of partially overlapping interests may occur. Even if the overlap is a relatively small portion of the respective areas of interest, a process for deciding what to offer and how to choose the winning bid needs to be established. For example, if proposed Project A entails 10,000 acres for generation of 500 megawatts and Project B entails 2,000 acres for 100 MW, and there is an overlap of 1,000 acres, we would have to determine how to resolve the conflict. Six alternative approaches for addressing such a situation are discussed below. The actual set of approaches that we could consider for issuing leases is not necessarily limited to these options.

(1) Offer both the Project A and Project B areas and award a lease for one or the other to the high bidder. If a cash bonus is a bid variable, it could be based on either the total or the amount per acre, and if an operating fee is a bid variable, it could be based on the total or the amount per MW of proposed capacity.

(2) Offer and award a lease through competition for only the overlapping 1,000-acre area and then follow with a noncompetitive lease issuance for the remaining 9,000 acres under project A and 1,000 acres under project B.

(3) Offer to lease individual tracts covering the area of interest, designated as legal subdivisions of a standard OCS lease block of 9 square miles. Bidders that value specific tracts most highly could win leases through a simultaneous tract offering, and subsequently propose operations on multiple

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legal subdivisions to obtain possible synergies.

(4) Offer the combined A and B areas as one lease and award the lease to the high bidder (the winning lessee could then relinquish excess acreage).

(5) Offer standard block sizes or legal subdivisions of those block sizes and allow bidders to “package” those blocks in a bidding unit. Identify the various features of the auction, e.g., bidder eligibility to compete and to remain active in various rounds, information to be released between rounds, rules for ending the auction, method for choosing the provisional high bidders, restrictions on bidding in subsequent rounds, etc.

(6) Rely on coordination and consultation efforts with State and local governments to identify one preferable project area to be offered and awarded to the high bidder.

We invite comments on any of these approaches. In particular, what do you think is the capability of package bidding to ensure a fair return and to induce an efficient allocation of leases?

We also are aware that there will be other instances in which multiple projects could be proposed in the same general area with no actual geographic overlap, but the number of lease tracts may need to be limited based on regional or local needs and concerns. For example, a State or locality may identify a need for a certain amount of renewable energy generation from an OCS source. If the number of prospective leases proposed for an area greatly exceeded the projected demand, we may limit the number of tracts that could be offered. Such a case could be addressed by proceeding with an intertract competition in which multiple tracts could be offered for lease in the proposed auction formats described below (see §§ 285.220 through 285.223), but the number of approved bids would be limited. Accordingly, MMS proposes to use its discretion and, based on consultation—notably with the affected States and local communities, as well as the applicants—identify the appropriate tract or set of tracts to be offered for sale, thereby forgoing the need for intertract competition. We offer this approach in an effort to encourage a level of OCS alternative energy development commensurate with regional and local needs. We invite comments on our proposed approach, as well as other possible approaches such as intertract competitive auctions, to address this issue.

Generally, we believe that priority should be given to leasing tracts for commercial operations so that in instances where there is competition between proponents of commercial leasing and limited leasing, commercial leasing would prevail (assuming that the proposed activities are not compatible). Thus, competitive leasing of areas for limited leases might be much less likely than for commercial leases, and limited leases might be confined to areas in which there is no interest in commercial leasing. Also, given such a priority, commercial leasing of an area would proceed noncompetitively even if interest in limited leasing in the same area is expressed. We invite comments on this proposed priority.

Once we make the determination about competitive interest, we will proceed with issuing leases under the appropriate process as described in this subpart. The competitive process is set forth in §§ 285.210 through 285.225, and the noncompetitive process is set forth in §§ 285.230 through 285.231. MMS will prepare an OCS alternative energy lease form and provide or reference such a lease form in a public notice. The approved lease form (or forms) for OCS alternative energy will be developed separately from the rulemaking and in consultation with interested and affected parties. This approach is designed to give us the flexibility to accommodate all possible alternative energy activities and adapt forms as necessary. We invite comments on this approach for developing appropriate lease documents.

Section 285.202 What types of leases will MMS issue?

This section states that MMS may issue leases for one or more types of activity relating to assessment and production of alternative energy and may issue commercial or limited leases as discussed above in the overview of this subpart. A single purpose lease would authorize one type of activity (e.g., wind power generation), whereas a multi-purpose lease would authorize multiple types of activity (e.g., both wind and wave power generation). A lease issued for one type of alternative energy activity would not necessarily result in prohibition of other types of

activities in that same area, which could be authorized by separate leases issued subsequently. For example, we may conduct a lease sale for wind and then conduct a lease sale for wave activities in that same area. While the initial lessee in such a case would be restricted to wind development, we could authorize multiple types of OCS alternative energy activities in an OCS area to the extent that these activities are compatible and do not unreasonably impede the ability of the existing lessee to reasonably conduct its operations in the area. We will not issue access rights for oil, gas, or any other minerals under this part.

Section 285.203 With whom will MMS consult before issuance of a lease?

As directed by subsections 8(p)(4) and (7) of the OCS Lands Act and by other relevant Federal statutory requirements (e.g. ESA and Magnuson-Stevens Fishery Conservation and Management Act (MSA)), MMS will coordinate and consult with relevant Federal agencies, with the Governor of any State, and the executive of any local government that may be affected by an alternative energy lease. As provided in § 285.102 of subpart A, we may invite any Governor of an affected State or government executive of an affected local government to participate in a joint task force or other joint planning or coordination agreement if we are considering offering or issuing leases (or grants). Participation in a task force would give the parties opportunities to contribute to the planning process and access to nonproprietary information.

Further, we recommend that companies that plan to pursue alternative energy activities on the OCS conduct preliminary outreach early in the process by contacting interested and affected parties to provide information and receive feedback concerning their proposals. A provision in subpart A of the proposed regulations encourages this type of early contact and coordination (see § 285.103(f)). This approach is consistent with the many suggestions we have received concerning timely and thorough coordination and consultation, notably a recommendation from the U.S. Coast Guard calling for early outreach from OCS alternative energy project applicants.

We believe that it is particularly important for companies that plan to produce and deliver electricity to existing onshore distribution systems to consult with involved States and localities to establish power generation needs and to become aware of pertinent regulatory requirements before pursuing OCS commercial development and production rights. Early communication among potential developers and the States and localities that would be most affected by any development that ensues and that regulate associated onshore facilities helps assure that authorized OCS alternative energy activity will be compatible with and support any renewable portfolio standards, policies on the location of transmission and other support facilities, and any other relevant factors.

We invite comments on issues relevant to coordination and consultation with Federal agencies and State and local governments.

Section 285.204 What areas are available for leasing consideration?

We intend to consider offering for lease any area of the OCS that is appropriately platted, except areas prohibited from leasing by EPAct. Subsection 8(p)(10) of the OCS Lands Act prohibits alternative energy leasing in any area of the OCS within the exterior boundaries of any unit of the National Park System, National Wildlife Refuge System, National Marine Sanctuary System, or any National Monument. In administering this program, the Secretary will take into account other uses and may withdraw portions of the OCS from leasing under this part and restrict operations on leases for national defense purposes.

The areas we actually make available for alternative energy leasing are likely to be determined through a process that assesses different types of alternative energy resources and potential environmental impacts and other relevant information on a national, regional, or more specific basis. The assessment process will include coordination and consultation with Federal, State, and local governments and other interested and affected parties and may entail the establishment of task forces as discussed above. Based on such assessments, we would have the discretion to offer or not offer to lease areas as appropriate. We intend to use our existing system of OCS regions, planning areas, official protraction diagrams, and lease blocks to designate, delineate, and describe areas of the OCS under the OCS alternative energy program.

We invite comments on the proposed process for choosing areas to make available for leasing and the proposed means for mapping and describing those areas.

Section 285.205 How will leases be mapped?

This section states that MMS will prepare and use necessary leasing maps and official protraction diagrams as it does for other energy and mineral leasing on OCS (e.g., 30 CFR 256.8)

Section 285.206 What is the lease size?

We will determine the size for each lease on a case-by-case basis to ensure that it is an appropriate size to accommodate the anticipated activities. The processes leading to both competitive and noncompetitive issuance of leases will provide public notice of the lease size. Since there is no size limit in the EPAct amendment to the OCS Lands Act, and because it would not be prudent to prescribe such a limit for an unknown range of future activities with varying areal requirements, we favor the flexibility of this proposed approach.

We plan to delineate leases by using mapped OCS blocks, portions of such blocks, or aggregations of such blocks. For example, a limited lease supporting a small data gathering or technology testing facility might require only a small part of a 3-mile by 3-mile OCS block. In such a case the lessee could acquire (or retain after originally acquiring a larger area) an aliquot part as small as a quarter-quarter (i.e.,

1/16

) of a block. On the other hand, it is likely that a typical commercial-scale alternative energy project would result in the issuance of one lease encompassing several contiguous OCS blocks. We invite comments on the proposed provisions governing lease size.

Section 285.207 Through 285.209 [Reserved]

Competitive Lease Process

Section 285.210 How does MMS initiate the competitive leasing process?

This section establishes a process for us to solicit proposals to develop the alternative energy potential on the OCS. We may use a general Request for Interest to gauge interest in alternative energy leasing anywhere on the OCS or a specific Request for Interest to assess interest in specific areas after receiving an unsolicited leasing proposal. Any Request for Interest will be published in the

Federal Register

.

Depending on the level and extent of interest and review of comments, we may formulate a nationwide or regional program schedule of lease sales or we may initiate individual competitive lease sales on a case-by-case basis without an overarching program schedule. Once a determination is made

to offer an area(s) for competitive lease, we would initiate an alternative energy lease sale process.

Section 285.211 What is the process for competitive issuance of leases?

This section lays out the discrete steps we propose to follow in preparing for and holding a lease auction and issuing leases competitively. These steps include a Call for Information and Nominations (Call), an Area Identification, a Proposed Sale Notice, and a Final Sale Notice.

An Area Identification step would follow the Call. In it we would use responses to the Call and other information to delineate a geographical area or areas to be considered for leasing and analysis under NEPA and other applicable laws. This process includes identifying potential impacts on the environment, consulting with other agencies and State and local officials on mitigating stipulations and conditions, and perhaps public hearings. We would provide public notice of the area identified for leasing, which could encompass the OCS blocks, portions of blocks, or aggregations of blocks requested for leasing.

The product of these evaluations and consultations would then be reflected in the Sale Notices that implement a competitive lease sale. We invite comments on the most useful way to describe areas we decide to make available for alternative energy leasing.

Section 285.212 What must I submit in response to a Request for Interest or a Call for Information and Nominations?

This section describes the type of information we seek from potential lessees, in a response to a Request for Interest or a Call. We may issue a broad request for interest to be used as a basis for developing a national or regional schedule of alternative energy lease sales, or we may issue a tract specific request to be used to determine competitive interest in a particular area that has been proposed for leasing. We would issue a Call as the first step in a competitive lease sale process to elicit information from all interested and affected parties concerning proposed leasing activities and the existing conditions that may affect or be affected by those activities. In all cases—responding to a general or specific Request for Interest or a Call—we would require prospective lessees to submit the same types of information. That information would include: the area of interest for a possible lease; a general description of objectives and the facilities needed to achieve those objectives; a general schedule of proposed activities, including those leading to commercial production or other approved operations; available and pertinent data and information concerning alternative energy resources and environmental conditions in the area of interest, including energy and resource data and information used to evaluate the area of interest; certification that the proposed activity conforms with State and local energy planning requirements, initiatives or guidance, as appropriate; documentation showing that the applicant is qualified to hold a lease; and any other information specifically requested in the

Federal Register

notice.

We believe that this information is necessary for MMS in developing leasing schedules, determining competitive interest for unsolicited proposals, and proceeding with alternative energy lease sales. We also believe that such information should be readily available from prospective lessees and that this requirement poses no undue burden. In cases where a prospective lessee has already submitted the required information, we would not require it to be submitted subsequently. For example, if a company responded to a broad or specific Request for Interest for an area that MMS subsequently decided to offer in a lease sale, that company would not have to resubmit information in response to the Call for that sale. Only companies that had not previously expressed interest and submitted information would be expected to provide the required information in response to the Call.

In addition to the items listed, we believe that information relating to potential markets that could be served and processes that could be used to serve those markets is important. Also, information on similar projects elsewhere in the world and on issues associated with proceeding in your proposed area(s) may be necessary for our deliberations, especially those entailed in developing a broad leasing program or schedule. We invite comments on information that we should request to identify alternative energy interest in general or specific OCS areas.

Subpart A discusses how we would handle such data and information, including procedures for withholding material from public disclosure to the extent allowed by law. We invite comments on the handling of data and information.

Section 285.213 What will MMS do with information from the Requests for Information or Calls for Information and Nominations?

This section states that we will use the information we receive to identify lease areas, develop options for conducting environmental analysis and adopting lease provisions, and prepare documentation to satisfy relevant Federal requirements, such as NEPA, the Coastal Zone Management Act (CZMA), the Endangered Species Act (ESA), and the Magnuson-Stevens Fishery Conservation and Management Act (MSA).

For purposes of Federal consistency, we will treat alternative energy competitive lease offerings as Federal agency activities and follow the requirements of subsection 307(c)(1) of the CZMA procedures. That means we must determine if the effects to any land or water use or natural resource of a State's coastal zone from the competitive lease offering are reasonably foreseeable and comply with the appropriate Federal consistency regulatory path found in 15 CFR part 930 subpart C. We invite comments on how this process could be expedited.

Section 285.214 What areas will MMS offer in a lease sale?

This section states that the areas we will offer for lease will be identified as provided in § 285.211(b). However, it should be noted that the leasing area could be reduced subsequently through the lease sale process. This section also states that no further nominations for a lease sale will be accepted following the completion of the Call for Information and Nominations step.

Section 285.215 What information will MMS publish in the Proposed Sale Notice and Final Sale Notice?

We will publish Proposed Sale Notices and Final Sale Notices in the

Federal Register

for each lease sale. Proposed Sale Notices and Final Sale Notices will provide information pertaining to:

• The area offered for leasing;

• Proposed and final lease terms and conditions including lease size, lease term, payment and bond requirements, performance requirements, and site specific lease stipulations;

• Auction details including bidding procedures and systems, the bid variable and minimum bid, the bid deposit, the place and time for filing bids and the place, date and hour for opening bids;

• The official MMS lease form to be used or a reference to that form;

• Bid evaluation criteria we will use and how the criteria will be used in decision-making for awarding a lease;

• Award procedures including how and when we will award leases and how we will handle unsuccessful bids or applications;

• Procedures for appealing the lease issuance decision; and

• Execution of the lease instrument.

The Proposed Sale Notice would invite comments from all interested and affected parties. We expect that the use of such a notice in the process of offering leases for development of OCS alternative energy sources would provide a valuable opportunity for us to consult on the selection of appropriate competitive leasing procedures and the formulation of the details of the lease instruments to be issued. After considering comments on the Proposed Sale Notice, we would revise and publish a Final Sale Notice that adjusts as appropriate and confirms the same information. The final steps in the leasing process would be conducting the actual auction and awarding the leases. Figure 2 shows the steps in the proposed competitive leasing process.

We invite comments on whether this process provides sufficient information and notice to encourage competition for prospective alternative energy sites.

Section 285.216 through 285.219 [Reserved]

Competitive Lease Award Process

Section 285.220 What auction format may MMS use in a lease sale?

This and the next two sections describe how we propose to structure a competitive process for granting alternative energy leases. We will hold auctions to award leases using either sealed bidding, ascending bidding, or two-stage bidding. The sealed bidding format is mandated for oil and gas lease sales by subsection 8(a) of the OCS Lands Act. In contrast, no particular auction format is specified for alternative energy lease sales conducted under subsection 8(p) of the OCS Lands Act and there may be advantages to using other approaches with emerging OCS industries.

For each auction, we would establish a sale area or sale areas based on information received in response to Request for Interest and Call notices, and establish a bid variable, a minimum acceptable bid, and criteria for bid acceptance. We would include specific details of the selected auction format in appropriate

Federal Register

notices including the Proposed Sale Notice and the Final Sale Notice. The sale notices would include details on the bidding process, such as the auction format, bidder eligibility, bidder deposits, the bid variable, the object of the bidding, minimum bid amounts, bid increments, criteria for ending or continuing the auction, method for determining the provisional winning bidder(s), and bid adequacy considerations. A general description of the three auction formats from which we propose to choose follows.

Sealed Bidding

would consist of a single round and provide for each lease sale participant to submit a single bid by post or e-mail, after which we would publicly announce the high bidder. We will specify in the Call either a cash bonus or an operating fee rate for the bid variable. This traditional format works best in cases where there are limited areas of overlapping interest and one bidder is much better informed than others about the underlying technical and economic prospects of leasing the area for use in an alternative energy project.

This auction format is administratively compatible with application of a ranking and filtering procedure which would identify the set of highest bids per tract before MMS decides which of those tracts to lease. This ranking of high bids can serve as a bid adequacy mechanism for determining which high bids to accept. It also has the advantage of creating competition for lease rights across tracts, when competition for individual leases is absent. This procedure is known as “intertract competition.”

Ascending Bidding

involves multiple rounds of bidding and provides for participants to submit increasing sequential bids over a predefined time period. Again, we will specify either a cash bonus or an operating fee rate for the bid variable. Bids may be submitted orally or electronically (e.g., Internet). If bidding activity continues right up to the deadline, the time period may be continuously extended as warranted by additional bidding activity. This type of auction format works best in the presence of common high interest and strong competition among bidders who are equally informed about the quality and value of the lease area.

Two-stage Bidding

would combine the two formats previously discussed, sealed and ascending bidding. Generally, we would require interested bidders to offer a minimum cash bonus to join the auction. Then, in the most likely process formulation, participants would submit ascending bids (e.g., operating fee rate, cash bonus, etc.) in the first stage until all but two bidders drop out or more than one bidder offers to pay the maximum bid amount specified by MMS. The auction would then move to the second stage, where the remaining participants typically would offer a sealed bid on a bidding variable not employed in stage one. However, we reserve the option to conduct the two-stage auction using sealed or ascending bidding in either or both stages, and to select the bid variables in each stage. This type of auction works well when competition for specific acreage is weak, or when potential lessees are better informed than the lessor.

Subject to the bid adequacy requirements referenced in § 285.222, typically the qualified bidder offering the highest cash bonus or the highest fee rate, depending on which deciding bid variable is used, would win the lease. When there are multiple leases, intertract competition could be used to decide which of the high bids to accept under the rubric of bid adequacy.

We invite comments on the relative merits of these alternative auction formats for leasing OCS acreage for alternative energy projects and on other alternatives. Also, we request comments on whether allowing bidders to define a set of tracts on which they wish to submit a package bid would increase interest in a sale, generate higher aggregate bonus bids, and help ensure that bidders acquire their primary tracts of interest.

Section 285.221 What bidding systems may MMS use for commercial leases and limited leases?

A bidding system is composed of various elements, the most important of which are the bid variable(s) and the payment requirements. The bid variable is generally subject to a minimum bid level and potentially to a reservation price, both established by MMS. The minimum bid level represents the entry level of the bid, i.e., the smallest bid amount that MMS might consider acceptable. Usually the same minimum bid level would be set across certain classes of tracts. The reservation price is a tract-specific measure that represents an estimate of the underlying value of the tract when used for a specific purpose. In cases where sufficient competition is deemed to exist, a reservation price typically would not be needed to ensure that a fair return is obtained in the auction for the individual tract. For an alternative energy lease, we propose to choose from five different bid variables:

(1) A cash bonus with a constant or sliding operating fee rate;

(2) a constant operating fee rate with a fixed cash bonus;

(3) an initial operating fee rate for use in a sliding operating fee calculation with a fixed cash bonus;

(4) a constant operating fee rate followed by a cash bonus; or

(5) the starting value for a fee rate to be used in calculating a sliding operating fee followed by a cash bonus.

The fee rate in this context is analogous to a royalty rate used in oil and gas leasing. If a cash bonus is the bid variable, the operating fee each year would be based on the formula in subpart E. If the fee rate is the bid variable, the cash bonus would be fixed, and the operating fee would be calculated using the fee rate offered by the winning bidder as a part of the formula in subpart E of this regulation. The two-bid variable systems, cash bonus and operating fee rate, either constant or as a sliding scale, would be used only in a two-stage auction.

The resulting annual operating fee in these two-stage bidding auctions would be derived from the formula established in subpart E of this part which is based in part on megawatts of installed capacity and the prevailing market rates for electricity sold in the consuming region targeted by the lease. Values for the formula components, excluding the fee rate when it is used as the bid variable, will be established in the Final Sale Notice or in the final public notice in the case of a non-competitive lease.

For limited leases we propose the cash bonus as the only permissible bid variable. The MMS imposed no operating fee for limited leases because such leases are not authorized to engage in commercial operations. This also means we will not be using a two-stage auction format for issuing limited leases.

The proposed bidding systems and parameters have been developed based on a consideration of the EPAct requirements, domestic and foreign alternative energy programs, and the long-standing OCS oil and gas leasing program, as well as comments received in response to the ANPR. The proposed alternatives for a competitive lease sale bidding system are used in other domestic mineral leasing programs such as offshore oil and gas. Also, the BLM, which manages ROWs for wind energy development on U.S. Federal onshore lands, has held one competitive auction to date. In that auction BLM used a cash bonus as the bid variable and established a minimum initial bid of $17.00 per acre.

One alternative bidding system suggested by commenters that we considered but rejected is a multiple-factor system. Such a system would consist of many different bid variables as factors, both quantitative and qualitative, in determining the winning bid in a competitive process. This is the approach used in Denmark, which has the most developed offshore wind program in the world and issues licenses based on multiple factors (e.g., project design, operator experience, etc.). We concluded that our AEAU program requires a bidding system based on clear objective standards, simple to administer and transparent to the public.

We invite comments on which of the proposed bidding systems is most appropriate for alternative energy leases and why.

Section 285.222 What does MMS do with my bid?

We will open the sealed bids at the place, date, and hour specified in the Final Sale Notice for the sole purpose of publicly announcing and recording the bids. However, we will not accept or reject any bids at that time. We will determine whether to accept a high bid as a winning bid based on the following factors.

With sealed bidding, bid acceptance criteria typically rely on (1) minimum bid levels we establish with bids above that level being acceptable if there is a sufficient level of competition or if the lease area is not considered prospective, or (2) assessments of the adequacy of the high bids for a specific lease area in comparison to calculated reservation prices for the property rights that are the object of the bidding. Whereas a minimum bid reflects a publicized level below which bids are not deemed satisfactory or competitive and thus will not be considered, the reservation price reflects an unpublished estimate of the value of the tract and thus generally the lowest bid level at which we would award the lease. In this context, the term reservation price could also refer to the lowest operating fee at which we would award the lease, if the operating fee is used as the deciding bid variable. The calculation of the reservation price compensates for insufficient market competition, so if enough competition for the tract materializes, there is less need to rely on a reservation price. However, when there is little competition for specific acreage, the reservation price becomes critical if the absence of competition is known to the interested party. An additional factor we may consider in calculating the reservation price is the value of other uses of the area that are incompatible with the alternative energy project and which are under consideration for leasing.

Due to the competitive aspects of the ascending bidding procedure, bid acceptance ordinarily would be less dependent on application of a reservation price and instead could rely solely on the bidding results to ensure receipt of fair market value. The ascending bid framework has been used by the BLM for allocating the property ROWs for wind energy projects. If we conclude that ascending bidding is the preferred auction format for many alternative energy situations, then sale procedures for ascending auctions could differ substantially from the customary OCS sealed bid model.

With a two-stage auction format, the bid acceptance considerations are the same as those discussed that apply to the format for the final stage that was used (i.e. sealed and/or ascending bidding).

One way to reduce reliance on a calculated reservation price in sealed bidding or two-stage bidding could be to apply the auction format to multiple areas employing intertract competition. Intertract competition may be needed in areas with high industry interest in a number of OCS leases, but where expected demand per tract is limited or constrained. In addition to enhancing competition, the object of intertract competition would be to provide signals through the bids which serve to assist us in leasing only the most valuable sources of energy needed to meet the expected demand.

Our goal is to accept or reject all sealed bids within 90-calendar days after the sale date, although we may extend that time if necessary. In the case of ascending bidding, we may be able to determine the winning bidder once we confirm that the high bidder is a qualified bidder. Nevertheless, we reserve the right to reject any and all bids, regardless of the amount offered or bidding system employed. We will send a written notice to each high bidder, accepting or rejecting the bid or informing the bidder of tied high bids.

We invite comments on the appropriate bid acceptance considerations and the potential use of intertract competition.

Section 285.223 What does MMS do if there is a tie for the highest bid?

This section does not apply to bids at the end of stage one of a two-stage bidding format. If the highest bids are tied, we will notify the tied bidders. Within 15-calendar days after notification, unless otherwise specified in the Final Sale Notice, we will determine the winning bidder from among the tied bidders by lot.

The proposed provisions governing bidding procedures and results are largely patterned after the way other mineral leases are handled by the Federal Government. However, the procedures proposed to govern tied high bids are slightly different from other existing systems in that they are designed to always result in the award of a lease rather than returning it to the government inventory for future offering. We invite comments on the likelihood of receiving tied bids and on the proposed provisions for selecting a winner in that case. In particular, would holding an additional round of bidding be more appropriate than resolving a tie by lot or, perhaps, by offering a joint lease?

Section 285.224 What happens if MMS accepts my bid?

This section explains the responsibilities of the successful bidder. Our acceptance notice will include three copies of the lease to be executed by the bidder. The first 6 months' rental, the balance of the winning or fixed bonus, and required financial assurance will be due within 10-business days. We may extend this deadline upon request if we find that the delay is due to events beyond the control of the successful bidder. After the three executed copies are returned to MMS, we will execute the lease on behalf of the United States and send one fully executed copy to the lessee. If the bidder fails to execute the lease or otherwise fulfill requirements, the bidder's deposit will be forfeited and no lease will be issued.

If, before the lease or grant is executed on behalf of the United States, the OCS area which would be subject to the lease is withdrawn or restricted from leasing, we will not issue a lease and will refund the deposit. We reserve this right to rescind a lease offering in situations where new environmental or other concerns about the prospective area, operation, or need for the facility surface after the lease sale. If the awarded lease or grant is executed by an agent acting on behalf of the bidder, the bidder must submit with the executed lease evidence that the agent is authorized to act on behalf of the bidder. We invite comments on any difficulties these procedures for formally issuing of a lease might cause potential lessees.

Section 285.225 What happens if my bid is rejected and what are my appeal rights?

This section explains what options a bidder has if we reject the apparent high bid. In that case, we will provide a written statement of reasons and refund any money deposited with the bid. The bidder may then petition the MMS Director for reconsideration in writing, within 15-business days of bid rejection. The Director will send the bidder a written response either affirming or reversing the rejection. Denial of a bid reconsideration by the Director is a final agency action. It is not subject to review by the Interior Board of Land Appeals, but is judicially reviewable. We invite comments on the fairness of this bid appeal process.

Section 285.226 through 285.229 [Reserved]

Noncompetitive Lease Award Process

Section 285.230 May I request a lease if there is no call?

Anyone qualified to hold an OCS lease under § 285.106 may request an alternative energy lease from us at any time, except in areas otherwise proposed for competitive lease offerings or excluded by statute from leasing. Such an unsolicited request for a lease may be submitted to conduct either commercial or noncommercial activities authorized in this part. To be valid, the request must include the information equivalent to that required under § 285.213 in response to a Call for Information and Nominations. Specifically, the unsolicited request must contain a depiction of the area requested for lease; a general description of the objectives of the project and the facilities that would be used; a general schedule of proposed activities including those leading to commercial production or other approved operations; available and pertinent data and information concerning alternative energy resources and environmental conditions in the area of interest; certification that the proposed activity conforms with State and local energy planning requirements, initiatives or guidance, if any; and documentation that you are qualified to be a lessee as specified in § 285.107.

In addition, your request must include an acquisition fee of $0.25 per acre for the area requested as required by § 285.502. This fee is proposed at a level intended to be high enough to discourage speculation but low enough not to inhibit interest, allowing lessees to establish a low ratio of lease acquisition costs to total project costs. We invite comments on whether and how any requested information may inhibit requests and on whether this fee will serve its intended purpose.

Section 285.231 How will MMS process my unsolicited request for a noncompetitive lease?

Paragraphs (a), (b), and (c) of this section state that MMS will first determine competitive interest in processing an unsolicited request in order to decide whether to proceed with leasing under a competitive or noncompetitive process. If we find that there is competitive interest in the lease area, we will proceed with a competitive lease process. If we determine that there is no competitive interest, then we will issue a notice of such determination.

If we determine that there is a competitive interest, we will proceed with a competitive process, we will apply your acquisition fee to any bid you submit. If you choose not to bid, we will not refund your acquisition fee. We believe retention of your fee in this case is appropriate, because your original request indicated that your interest was serious and that you intended to pursue development if we carried out the steps needed to issue you a lease. If you submit a qualified bid that does not win, we will refund your deposit, including the amount of the acquisition fee. We invite comment on whether our proposal not to return your acquisition fee if you choose not to bid is appropriate.

Paragraph (d) describes how MMS will proceed if it determines there is no competitive interest. Within 60 days after we issue a finding that there is no competitive interest, the prospective lessee must submit either a SAP for a commercial lease or a GAP for a limited lease. We will review the plan and conduct NEPA and other required analyses before simultaneously issuing the noncompetitive lease or grant and approving the SAP or the GAP.

Our process for conveying OCS sand and gravel by negotiated noncompetitive lease under Public Law 103-421 is a relevant model for the proposed process for issuing alternative energy leases on a noncompetitive basis. The sand and gravel process starts with a request to MMS for a noncompetitive lease. If we determine that the request has potential, we require a NEPA analysis (environmental impact statement or environmental assessment). We inform the requestor of the type of environmental analysis required and provide an estimated schedule for completing the analysis and making the decision whether or not to issue a lease. As part of the NEPA analysis, we undertake or participate in endangered species consultations with the National Oceanic and Atmospheric

Administration and the U.S. Fish and Wildlife Service. We may ask the requestor to fund the NEPA analysis. After the NEPA analysis is completed, we decide whether or not to issue a lease to convey OCS sand and gravel resources. If the decision is made to issue a lease, the specific terms and conditions (e.g., mitigating measures, size and length of lease) are discussed with the requestor and included in the noncompetitive agreement (lease instrument) that we offer. The requestor must sign that agreement to complete acquisition of the lease.

We would treat alternative energy noncompetitive lease issuance and SAP or GAP approval as Federal licenses or permits (as defined by 15 CFR 930.51), and follow the requirements of subsection 307(c)(3)(A) of the CZMA and 15 CFR Part 930, Subpart D, as shown in Table 1. Under the CZMA and its implementing regulations an OCS plan is any plan for the exploration or development of, or production from, any area leased under the OCS Lands Act that is submitted to the Department of the Interior which describes in detail Federal license or permit activities. Since, for leases issued noncompetitively, the lease and SAP or GAP will be processed simultaneously (before the area has been leased), the SAP or GAP cannot qualify as an “OCS Plan” under the CZMA implementing regulations. For leases issued competitively, the SAP or GAP will be submitted and processed after the lease has been issued, and in those instances, the SAP or GAP would be processed as an “OCS Plan” (as defined by 15 CFR 930.73), and follow the requirements of subsection 307(c)(3)(B) of the CZMA and 15 CFR part 930, subpart E.

We invite comments on the proposed SAP or GAP deadlines and the proposed NEPA and CZMA compliance procedures.

Section 285.232 through 285.234 [Reserved]

Commercial and Limited Lease Terms

Section 285.235 If I have a commercial lease, how long will my lease remain in effect?

This section describes the duration terms for a commercial lease. Commercial leases issued competitively would have three separate phases of lease activity: preliminary term, site assessment term, and operations term. For commercial leases issued competitively, the preliminary term would be the initial 6 months during which the lessee must submit a SAP in accordance with subpart F. If the commercial lease is issued noncompetitively, there is no preliminary term, because lease issuance and SAP approval occur simultaneously. The site assessment term for all commercial leases would begin on the date that we approve the lessee's SAP for a term of 5 years to allow conduct of the approved activities proposed in the SAP. A commercial lease would expire at the end of the site assessment term unless the lessee submits a COP, in form and content satisfactory to us, before the end of the 5-year term. The preliminary and site assessment terms are automatically extended as necessary to allow us to review and approve plans.

The operations term would follow, beginning on the date that we approve the lessee's COP, and would last 25 years to allow development, construction, and ultimately commercial production activities. An operations term longer than 25 years could be established if applicable parties determine that such a term is warranted (e.g., the lessee and project proponent negotiate a power purchase agreement with a 30-year term before the lease is issued).

Section 285.236 If I have a limited lease, how long will my lease term remain in effect?

Limited leases issued competitively would have two phases: preliminary term and operations term. For limited leases issued competitively the preliminary term would be the initial 6 months during which the lessee must submit a GAP in accordance with subpart F. If the commercial lease is issued noncompetitively, there is no preliminary term, because lease issuance and GAP approval occur simultaneously. The operations term for all limited leases would begin on the date that we approve the GAP and continue for a term of 5 years to allow the lessee to conduct the approved activities proposed in the GAP.

Section 285.237 What is the effective date of a lease?

This section describes how we will determine the effective date of a lease. A lease issued under this part must be dated and become effective as of the first day of the month following the date a lease is signed on behalf of the

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