06/08/2022 | News release | Distributed by Public on 06/08/2022 11:45
The Bureau of Ocean Energy Management (BOEM) published its Proposed Sale Notice (PSN) on May 31, 2022, for what would be the first ever offshore wind energy leases on the west coast of the United States. The sale would span 373,268 total acres across five different proposed leases, three within the Morro Bay Wind Energy Area (WEA) off the central California coast and two within the Humboldt WEA to the north. If developed, these areas could result in at least 4.5 gigawatts of new wind energy capacity-enough to power more than 1.5 million homes.
BOEM would allow a bidder to bid for and ultimately acquire one lease in each of the two regions. BOEM proposes to utilize a multiple-factor auction that will credit bidders for financial commitments to an offshore wind workforce training program or to the development of the domestic supply chain. Another proposed credit would favor developer commitments to a community benefit agreement with a community or stakeholder group whose use of the lease area would be directly affected by the proposed offshore wind development.
Stakeholders have until August 1, 2022, to submit comments regarding the lease area delineations, auction format, and other details presented in the PSN. Following the comment period, BOEM will develop its Final Sale Notice (FSN) and set the date for simultaneous auctions of the Morro Bay and Humboldt leases. Twenty-three bidders qualify for the auction as of May 31, and BOEM is accepting qualification materials for new potential bidders through the close of the public comment period. Major provisions of the PSN follow below.
Proposed Lease Areas
The five proposed lease areas encompass the entirety of the previously identified Humboldt and Morro Bay WEAs. BOEM states it delineated the lease areas so that each area (1) is of roughly equal power generation potential and geographic size, (2) is delineated in a manner to maximize energy generation, and (3) facilitates fair return to the U.S. Department of the Treasury (Treasury) through competition for the leases.
The size and location of the proposed lease areas are as follows:
BOEM proposes to allow each qualified entity to bid for one lease per region (North Coast and Central Coast regions) and via simultaneous auctions. BOEM is seeking feedback on this proposal, including an alternative approach whereby all lease areas would be offered in a single auction with bidders allowed to bid for and win only one lease area.
Multiple Factor Auction With Credits for Nonmonetary Factors
Similar to its recent auction of two lease areas in the Carolina Long Bay, BOEM proposes to use a multiple-factor auction format with a bidding system that combines monetary (cash) and nonmonetary factors. BOEM is proposing to grant bidding credits for commitments to:
A bidder can qualify for one or both bidding credits, representing up to 22.5% of their cash bid.
BOEM is also soliciting input on a potential additional bidding credit for a community benefits agreement addressing effects not covered under the Lease Area Use Bidding Credit. More detail regarding these proposed credits follows.
Credit for Workforce Training and/or Supply Chain Development
BOEM proposes to give a qualifying bidder a credit of 20% of its cash bid in exchange for committing to make a qualifying monetary contribution to programs or initiatives that support workforce training programs for the offshore wind industry, development of a U.S. domestic supply chain for the offshore wind energy industry, or both. To qualify, the winning bidder would need to financially contribute at least 80% of its bidding credit toward a workforce training program or development of a domestic supply chain. BOEM's proposed evaluation criteria for the two credit factors include the following:
Bidders would need to include a conceptual strategy for meeting the credit requirements in the bidders' financial form and the bidders' form addendum in advance of the lease, along with a bid deposit for one or both leases. The credit could apply to two lease areas if a bidder who is qualified for the credit wins a lease in both the central and northern regions. A BOEM panel will review the bidders' nonmonetary component after bid deposits have been received and notify bidders if they qualify for the credit prior to the auction.
Finally, a lessee that qualified for the credit would need to provide documentation to BOEM showing it has met at least 25% of the commitment by no later than its submission of the lessee's first construction and operations plan (COP), and the remainder of the commitment no later than the first Facility Design Report. The documentation would include all written agreements between the lessee and beneficiaries of the contribution, receipts documenting financial transactions in support of the contribution, and sworn statements in support of the contribution.
Lease Area Use Bidding Credit
BOEM additionally proposes up to a 2.5% credit for a bidder with an existing community benefit agreement (CBA), or that commits to establishing a CBA with a community or stakeholder group affected by offshore wind development in the lease area. The community or stakeholder group must be one "whose use of the geographic space of the Lease Area, or whose use of resources harvested from that geographic space, is directly impacted by the Lessee's potential offshore wind development." BOEM states a CBA is "intended to mitigate potential impacts to the community or stakeholder group … and particularly to assist fishing and related industries to manage transitions, gear changes, or other similar impacts which may arise from the development of the Lease Area."
A bidder seeking to qualify for a Lease Area Use Bidding Credit must submit a conceptual strategy for a CBA or documentation of an existing CBA. Lessees could enter a CBA with multiple counterparties, or multiple CBAs, athough lessees can only qualify for a maximum 2.5% credit under BOEM's proposal. A qualifying CBA would be one that:
A lessee recipient of this credit would be required to document execution of the CBA commitment by the lessee's first Facility Design Report submittal.
Potential Additional Credit
The PSN also states BOEM is exploring whether it has the authority to pursue an additional bidding credit for a more general CBA covering other offshore wind development effects not covered under the Lease Area Use Bidding Credit. BOEM seeks comments regarding how such a credit "can be justified" under the Outer Continental Shelf Lands Act as well as what benefits could be promoted by a more general CBA, what potential impacts should be addressed, what types of groups or entities should be eligible, and how BOEM can use this potential type of credit to encourage early community engagement, among other questions outlined in the PSN.
Lease Stipulations
The PSN also describes conceptually the following potential lease stipulations:
Other Potential Restrictions
Without identifying them necessarily as lease stipulations, BOEM notes that the following activities could necessitate imposition of mitigation measures with potential implications for lessees' project development efforts.
Conclusion
The PSN in some ways follows the format BOEM introduced with the Carolina Long Bay auction, while also introducing the new concept of the Lease Area Use Bidding Credit. If BOEM's detailed and broad-reaching questions for stakeholders are any indication, however, we could see shifts or the outgrowth of new concepts in a FSN to be released later this year. It also remains to be seen how an auction where bidders receive credits for promises of future performance will affect the ultimate return to the Treasury and meet BOEM's stated goal of conveying leases to the entities most likely to successfully develop the wind resource.
The authors wish to acknowledge the contributions of Summer Associate Marlena Choupo.
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