In 1962 Bob Dylan wrote the well-known lyrics, "The answer, my friend, is blowin' in the wind." While Dylan had in mind many questions that summed up his view of those turbulent political years, the answer to the question, "Who owns the wind?" is no longer blowing around the Colorado landscape. With the passage of House Bill 12-1105, the Colorado General Assembly this session determined that wind energy is a property right that belongs to the owner of the surface estate and cannot be severed from that estate. This article provides an overview of this noteworthy legislation and provides guidance for landowners and project developers with regard to existing and future wind energy projects in Colorado.
HB12-1105 defines a "wind energy right" as "a property interest in the development of wind powered energy generation." The Bill further provides that this right is not severable from the surface estate, which means that a wind energy right is irrevocably attached to the surface estate. As a result, unlike oil and gas, mineral, or water rights which can be severed from the surface estate and separately conveyed, a wind energy right cannot be conveyed except as part of a transfer of the underlying real property itself.
Under the new statute, wind energy rights may now be developed only pursuant to a "wind energy agreement" with a "wind energy developer." A wind energy agreement may take the form of a lease, license, easement, or other agreement addressing the development of wind-powered energy generation or the participation in the income resulting from such a project. As with the landowner's wind energy rights, the legislation clearly provides that a wind energy agreement is an interest in real property. The wind energy developer may be the owner of the real property in question or the other party to such a lease, license, easement, or other agreement. In these respects, HB12-1105 is generally consistent with what is the common practice for many wind energy projects in Colorado whereby a landowner enters into a wind lease or other agreement pursuant to which a renewable energy project developer secures certain rights to utilize the wind blowing across the property for purposes of generating electricity.
To the extent that a property owner may have otherwise severed or conveyed an interest in the wind energy on the property prior to July 1, 2012, HB12-1105 does not automatically invalidate such transactions but does require that a copy of the conveyance agreement or a notice thereof be recorded in the local real property records by September 1, 2012. While the legislation does not specifically state what happens to such prior agreements if they are not recorded by this date, a reasonable reading of the legislation is that they may become invalid and unenforceable. This possibility raises interesting issues for both developed and as yet undeveloped wind energy projects. In either instance, if the failure to record the relevant agreements by September 1, 2012 may result in the invalidation of such agreements, the landowner or the project developer might seek to use this possibility to avoid its obligations under the original agreement or obtain a modification of an agreement term that is no longer perceived to be in that party's best interest. Given the financial interests at stake in wind energy projects and the steps that either party may have taken in reliance on the continuation of agreements related to the project, it is likely that any efforts to avoid or modify agreements not recorded by the statutory deadline would be resisted by the other contracting party.
Having clarified the ownership of wind energy rights and the means by which such rights can be developed, the new legislation goes on to provide a framework for the recording, termination, and reversion of such rights. The legislation requires either the landowner or the wind energy developer to record in the real property records of the county where the property is located a copy of the wind energy agreement or a notice or memorandum thereof identifying the parties to the wind energy agreement and the real property encumbered by such agreement. As is frequently the case, the wind energy agreement may specify its duration and whether its continued effectiveness is dependent upon the actual development of a wind energy project and the generation of electricity there from. Unless the parties agree otherwise, "all easement interests acquired after July 1, 2012, for the purpose of producing wind energy" will revert to the surface estate owner if wind energy production has ceased for 15 continuous years or if electricity has not been generated from a turbine on the property within 15 years of the date of the wind energy agreement. Any such reversion does not transfer what is typically the wind energy developer's obligation to restore or reclaim the real property at issue.
It is interesting to note that while a wind energy agreement may be in the form of a lease, license, easement, or other agreement, the plain language of the Bill's reversion provision appears to apply only to "easement interests." As a result, it is presently unclear whether a wind energy lease or license having an agreed upon term of greater than 15 years would also revert to the surface estate owner if such energy production conditions are not satisfied. Despite this peculiar uncertainty, the Bill's reversion provision may provide an incentive for project developers to pursue timely, actual use of the wind energy rights and may offer some protection for landowners whose property might otherwise be tied-up by a long-term but unproductive wind energy agreement.
In addition to recording the wind energy agreement or a notice or memorandum thereof, the lessee, easement holder, licensee or other contracting party under the wind energy agreement is also required to record in the relevant county an affidavit stating that the generation of electricity by a turbine has commenced. This is similar to an "affidavit of production" seen in oil and gas leases. Given that the parties' rights and obligations under a wind energy agreement may be dependent upon the actual development of a project and the production of electricity by the project, this affidavit, read together with the wind energy agreement, serves to provide notice of the duration of the wind energy agreement. If the wind energy agreement does not include an expiration term, then it shall expire no more than 15 years after the date of its execution. As a practical matter, it is unlikely that a knowledgeable landowner or project developer would not carefully negotiate and document the duration of the wind energy agreement; however, in such an unlikely event, this aspect of the Bill provides some additional protection for landowners faced with an open-ended or unproductive wind energy agreement.
Finally, HB12-1105 provides that upon termination of a wind energy agreement, the landowner may make a written request that the wind energy developer record a release of the wind energy agreement. If the wind energy developer fails to execute and record the release within 90 days of receipt of the landowner's request, the developer is liable to the landowner for any damages caused by the failure to record the release. This aspect of the Bill provides yet another protection for landowners by providing a means to clear the title to wind energy rights so that they may be put to productive use.
While many states, including Colorado, have enacted legislation that addresses a landowner's rights with respect to access to sunlight for renewable energy purposes, solar easements, or solar energy as a property right, far fewer states have addressed wind energy rights and this area of the law continues to evolve around the country. With the passage of HB12-1105, the General Assembly has added to the existing statutory framework that addresses the development of wind power in Colorado (for example, C.R.S. § 38-30-168 addresses unreasonable restrictions on renewable energy generation devices, including wind turbines); however, many questions remain unanswered. In addition to the issues discussed previously, the Bill's recognition of wind energy as a property right does not answer the question of whether a landowner has a claim against an adjacent property owner whose actions interfere with the use and enjoyment of his or her wind energy rights. The construction of improvements on an adjacent property may create a wind shadow that diminishes or alters the wind blowing across the landowner's property. Even the installation of wind turbines on an adjacent property will affect the characteristics of the airflow on downwind properties. Do these situations now constitute interference with a property right for which a landowner could recover damages or injunctive relief?
Despite the Bill's steps toward further developing Colorado's wind energy law, it appears that the answers to these and other questions may remain "blowin' in the wind" until they are decided by further legislation or court actions. As a result, landowners and wind energy project developers should not relax the diligence with which they evaluate and document wind energy development plans and should continue to seek the advice of experienced legal counsel.