texas a&m journal of real property law volume one number three

VOLUME 1 2014 NUMBER 3

CONTENTS

SYMPOSIUM EDITION—WIND FARMING:OBSTACLES TO PLANNING AND DEVELOPMENT

INTRODUCTION TO THESYMPOSIUM EDITION . . . . . . . . . . . . . . . . . . Professor Gina S. Warren vii

NAVIGATING THE WINDS OF CHANGE:LICENSING, REGISTRATION, ANDREGULATORY OVERLAY FORWIND FARMS AND ASSOCIATEDTRANSMISSION IN TEXAS. . . . . . . . . . . . . . . . . Dennis W. Donley, Jr. 339

and Stephanie S. Potter

ADDRESSING WIND POWERINTERMITTENCY IN THE ERCOTAND SPP REGIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Elizabeth Drews, 365

Cedric Irelandand Neil Yallabandi

SINS OF THE FATHER . . . . . . . . . . . . . . . . . . . . . . . . . . . . K.K. DuVivier 391

LESSONS OF WIND POLICIES IN TEXAS . . . . . . . . . . Joshua Linn 425and Clayton Munnings

RIDE LIKE THE WIND: SELECTEDISSUES IN MULTI-PARTY WINDLEASE NEGOTIATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rod E. Wetsel 447

and Steven K. DeWolf

www.realpropertyjournal.org

VOLUME 1 2013-2014 NUMBER 3

Board of Editors

Editor-in-ChiefElizabeth Wiggins

Managing Editor Executive EditorBerkeley Mengwasser Marie-Claire Hart

Symposium Editor Executive Articles EditorCassie Carson Sheena Duke

Business Editor Technology EditorAlex Williams Daniel Penaranda

Citation Editors Notes & Comments Editors Articles EditorMark Bagnall Chris Brown Amanda Davis

Jessica Gunnels Erin ClifftLelan Kirk Mark Maples

Staff

Robert Alvarez Nicholas Edwards Janelle Portugal

Elizabeth Beck-Johnson Catherine Griffith Rose Richerson

Colin Benton Tyler Hood David Sarnacki

Natalie Bokman Deb Humphreys Todd Smith

Jeremiah Brown Adrian Jackson William Sweet

Sarah Burns Gene Jung Gordan Truong

Edward Cawlfield Stuart Keplar Whitney Vaughan

Kourtney Doman Andrew Kubiak Cooper Walker

Sabita Maharaj

Faculty AdvisorProfessor Gabriel Eckstein

SYMPOSIUM EDITION—WIND FARMING:OBSTACLES TO PLANNING AND

DEVELOPMENT

INTRODUCTION TO THESYMPOSIUM EDITION

WIND FARMING: OBSTACLES TOPLANNING AND DEVELOPMENT

By Professor Gina S. Warren

This special edition of the Texas A&M University School of Law’sJournal of Real Property Law contains selected papers that werepresented at the Wind Energy Law Symposium on Wind Farming: Ob-stacles to Planning and Development, held on November 15, 2013.The symposium was the third in a series of conferences organized bythe Journal dedicated to the four classical elements of fire, water,wind, and earth.1 It brought together leading academics and practi-tioners from across the nation to discuss some of the hurdles to sus-tainable wind development.

Catherine the Great is quoted as saying, “A great wind is blowing,and that gives you either imagination or a headache.”2 The same istrue today, but in a much different context. Wind energy is one of thefastest growing forms of energy, and some estimate that it could sup-ply as much as 20% of the nation’s electricity needs by 2030.3 Thisincrease in wind development will either promote imagination and in-novation or will simply result in major headaches for landowners,developers, and policymakers. With the goal of furthering the conver-sation of sustainable development, and thereby potentially reducingthe headaches, each author brings a unique background and perspec-tive to the discussion. It is my pleasure to introduce you to the articlespublished in this year’s edition.

Texas, the nation’s leader in installed wind energy capacity, has em-braced wind energy development over the last several decades. Theopening article, Navigating the Winds of Change: Licensing, Registra-tion, and Regulatory Overlay for Wind Farms and Associated Trans-mission in Texas, analyzes the Texas energy market model anddiscusses its benefits as well as some of the most significant obstaclesto development. Two leading obstacles are transmission interconnec-tion and intermittency. Large wind farms are generally located in re-mote areas far from an existing customer base, and significanttransmission is required to bring the electricity generated by thesefarms into urban areas. In addition, despite significant technological

1. Aether (or void) is sometimes included as a fifth element. ENCYCLOPEDIA

BRITANNICA Aether 233 (1st ed. 1823).2. GAMALIEL BRADFORD, DAUGHTERS OF EVE 192 (Houghton Mifflin 1930).3. U.S. DEP’T OF ENERGY, 20% WIND ENERGY BY 2030: INCREASING WIND EN-

ERGY’S CONTRIBUTION TO U.S. ELECTRICITY SUPPLY 5, fig. ES-2 (Dec. 2008), http://www1.eere.energy.gov/wind/pdfs/42864.pdf.

innovations, electricity can only be produced when the wind blows,resulting in intermit generation and headaches for transmission. Thesecond article, Addressing Wind Power Intermittency in the ERCOTand SPP Regions, offers potential solutions to these headaches such asgeographic diversity and a more integrated grid operation completewith electricity energy storage.

Sins of the Father takes a look back to the creation of dominant andservient mineral estates, and discusses recent legislation passed in sev-eral states that prohibits the creation of wind estates. The article ex-amines how this prohibition may have inadvertently situated wind assubservient to fossil fuels. While this lesson may be a painful one yetto come, the next article, Lessons of Wind Policies in Texas, discussesthe economic lessons learned from federal and state policies that haveincentivized wind energy development. Developing wind farms is nota simple or inexpensive endeavor. It requires a lot of capital invest-ment, the bringing together of multiple parties, and plenty of compe-tent legal advice. The final article, Ride Like the Wind: Selected Issuesin Multi-Party Wind Lease Negotiations, brings all of those factors to-gether and tells the stories of several high-stakes lease negotiations inTexas, replete with lessons learned.

Thank you to all of the authors, as well as to all of the symposiumpresenters, for identifying obstacles, analyzing lessons learned, andproviding recommendations for a more innovative and “imaginative”future for wind energy.

NAVIGATING THE WINDS OFCHANGE: LICENSING, REGISTRATION,

AND REGULATORY OVERLAY FORWIND FARMS AND ASSOCIATED

TRANSMISSION IN TEXAS

By Dennis W. Donley, Jr. and Stephanie S. Potter†

I. INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339II. LEASE NEGOTIATION AND SITING . . . . . . . . . . . . . . . . . . . . . . 340

III. LICENSING/REGISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341A. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341B. ERCOT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342C. SPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344D. PUCT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345

IV. INTERCONNECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346A. Grid Interconnection in ERCOT . . . . . . . . . . . . . . . . . . . . 346B. Grid Interconnection in SPP . . . . . . . . . . . . . . . . . . . . . . . . 349

V. TRANSMISSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355A. Privately-Constructed Lines . . . . . . . . . . . . . . . . . . . . . . . . . 355B. TSP-Constructed Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356

1. If a CCN is Required . . . . . . . . . . . . . . . . . . . . . . . . . . . 3572. If a CCN is Not Required . . . . . . . . . . . . . . . . . . . . . . 3583. Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3584. Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360

C. Access to Transmission in ERCOT . . . . . . . . . . . . . . . . . 361D. Access to Transmission in SPP . . . . . . . . . . . . . . . . . . . . . . 361

VI. SALE OF WIND ENERGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362VII. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363

I. INTRODUCTION

The State of Texas leads the United States in wind energy genera-tion capacity—it has more than twice the wind generation capacity ofthe next-closest state, California.1 If Texas was an independent na-tion, it would rank sixth in the world in total installed wind capacity.2

† The Authors are partners with Naman, Howell, Smith & Lee PLLC in Austin,Texas (www.namanhowell.com). The Authors would like to extend their sincerethanks to the significant contributions of J. Hayden Harms and Jessica Soos, both2014 Juris Doctor Candidates at the University of Texas School of Law. The Authorsalso appreciate the assistance of Lauren Freeland and J. Baird Smith.

1. WIND POWERING AMERICA, http://www.windpoweringamerica.gov/wind_installed_capacity.asp (last visited Nov. 3, 2013).

2. Office of the Governor: Economic Development & Tourism, Texas RenewableEnergy Industry Report (July 2012), http://governor.state.tx.us/files/ecodev/Renewable_Energy.pdf.

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340 TEXAS A&M J. OF REAL PROPERTY LAW [Vol. 1

Texas has a rich history of legislation and regulatory effort to thankfor these statistics, which reflects the knowledge that energy and infra-structure drive the economy. Starting in 1999, Texas became one ofthe first states to enact a Renewable Portfolio Standard (“RPS”).3The RPS set a state-wide goal for new renewable energy installationwith deadlines for when that goal was to be met.4 In addition to pass-ing an RPS, Texas also created Competitive Renewable Energy Zones(“CREZs”). CREZs are areas of Texas that have been designated bythe Public Utility Commission of Texas (“PUCT”) to receive specialbenefits for wind transmission and development due to their strongwind resources and large financial commitments in the region by winddevelopers.5 These programs, and several others, have helped thewind industry in Texas grow exponentially to continually reach thegoals set out by the RPS long before deadlines arrive. In fact, on arecent day towards the end of March, wind generation accounted for29% of the electricity used by most Texans.6

Even though the RPS, CREZs, and several other programs havehelped Texas become an international leader in wind energy produc-tion, many of the administrative hurdles to wind development that areexperienced elsewhere in the United States still exist in Texas today.This Article is intended to discuss transmission issues, explain how awind farm connects to the transmission grid, and help flesh-out someof the administrative processes in licensing and registering a windfarm that must be completed before transmission interconnection canbe sought.

II. LEASE NEGOTIATION AND SITING

Other Symposium presenters will cover lease negotiation and sitingin depth. In short, the Authors would note the oft-quoted real estatemantra that the three ultimate considerations in finding an appropri-ate property are “location, location, location,” and the Authors wouldagree.7 Properly siting a wind farm and obtaining lease rights over

3. STATE EERS AND RPS ACTIVITY, http://www.stateinnovation.org/Events/Event-Listing/New-Jersey-Energy-Strategy-Academy-(1)/Additional-Materials/Energy-Efficiency-Resource-Standards/State-Energy-Efficiency-Resource-Standards-and-Ren.aspx (last visited Jan. 1, 2014).

4. S.B. 7, 1999 Leg., 76th Reg. Sess. (Tex. 1999).5. 16 TEX. ADMIN. CODE § 25.174(4) (1999) (Pub. Util. Comm’n, Competitive

Renewable Energy Zones), available at http://info.sos.state.tx.us/pls/pub/readtac$ext.TacPage?sl=R&app=9&p_dir=&p_rloc=&p_tloc=&p_ploc=&pg=1&p_tac=&ti=16&pt=2&ch=25&rl=174.

6. Wind generation output sets ERCOT record, STATESMAN.COM (Mar. 28, 2014),http://www.statesman.com/weblogs/the-blotter/2014/mar/28/wind-generation-output-sets-ercot-record/.

7. William Safire, Location, Location, Location, N.Y. TIMES, June 26, 2009, http://www.nytimes.com/2009/06/28/magazine/28FOB-onlanguage-t.html?_r=0, (clarifyingthat the phrase “location, location, location” was coined in the American Midwest inthe 1920s).

2014] NAVIGATING THE WINDS OF CHANGE 341

relevant lands are some of the preliminary considerations when plan-ning wind generation in Texas. Access to transmission should be a pri-mary consideration when siting. After all relevant siting factors havebeen considered, a location selected, and wind lease rights obtained,the developer must consider how to get the energy produced to mar-ket, which is the subject of this Article: the regulatory factors relevantto formation, registration, and interconnection to transmission serviceproviders.

III. LICENSING/REGISTRATION

A. Background

Regardless of its capacity, a wind farm has very little value withoutthe ability to sell the newly generated electricity. In order to sell elec-tricity generated by a wind farm, the developer will have to intercon-nect to the grid, which will involve licensing processes with therelevant grid operator as well as negotiations and contracts with therelevant transmission service provider (“TSP”) or transmission anddistribution utility (“TDU”). The main transmission issue faced bynewly built wind farms is the construction of transmission facilitiesbetween the wind farm and a point of interconnection with a nearbyTSP or TDU. However, before any transmission facilities can be con-structed, the developer will usually have to sign an interconnectionagreement with the applicable TSP or TDU, which can only occurwhen the developer has undergone a licensing process with the re-gional transmission organization and registered with the PUCT.

Electric utilities in the State of Texas are regulated by the PUCT.8The PUCT has delegated the management of 85% of Texas’s electricload to the Electric Reliability Council of Texas (“ERCOT”).9 An-other system operator, the Southwest Power Pool (“SPP”), covers aportion of the Texas Panhandle that has seen some wind developmenttake place.10 Interconnection to either of these grids is a separate re-gistration process and is therefore analyzed separately below.

8. TEX. UTIL. CODE ANN. § 32.001 (West 2013).9. About ERCOT, ELEC. RELIABILITY COUNCIL OF TEX., INC. (“ERCOT”),

http://www.ercot.com/about/ (last visited Jan. 16, 2014).10. FED. ENERGY REGULATORY COMM’N (“FERC”), http://www.ferc.gov/market-

oversight/mkt-electric/spp.asp (last updated Nov. 26, 2013).


B. ERCOT

The ERCOT grid is unique in that it is entirely intrastate, so theFederal Energy Regulatory Commission (“FERC”) has no jurisdic-tion over the transmission of electric energy within ERCOT.11 It isERCOT’s responsibility to regulate and control the generation, trans-mission, and consumption of electricity for 85% of the Texas powergrid.12 Due to this responsibility, ERCOT has created its own inter-connection process separate from the process required by the PUCT.For a new Interconnecting Entity (“IE”) to connect to the ERCOTgrid, the entity must initiate interconnection procedures and file appli-cations for interconnection with both ERCOT and the PUCT.13

An IE goes through various interconnection processes withERCOT and the transmission service provider to whose facilities theIE will connect. Interconnection and TSP negotiations are addressedbelow in Section IV.A.

11. FERC, https://www.ferc.gov/industries/electric/indus-act/rto/ercot.asp (last up-dated Oct. 17, 2011).

12. ERCOT, supra note 9.13. Resource Entities, ERCOT, INC., http://www.ercot.com/services/rq/re/ (last vis-

ited Feb. 19, 2014).


Once the IE has completed negotiations with the TSP, it must finishits registration with ERCOT. First, the IE must submit the ResourceEntity Registration Form14 to ERCOT designating a Qualified Sched-uling Entity (“QSE”).15 The IE must then complete the design andinstallation of an ERCOT-polled settlement meter, establish a datalink with the QSE, designate a registered load serving entity (“LSE”),and submit the ERCOT New Generator Commission Checklist.16

Once those forms are submitted, the QSE must sign the Resource En-tity’s Qualified Scheduling Entity Acknowledgement, coordinate thefirst operating day with the IE and ERCOT account manager, andthen request ERCOT approval to enter full commercial operations.17

In its entirety, the ERCOT registration and interconnection processwill take between 244 and 850 days to complete.18 Although parts ofthe overall process are addressed in this Article below in SectionIV.A, here is an overall timeline for registration and interconnectionin ERCOT:

Notification of Generation Interconnection or ChangeRequest: 1-10 daysSecurity Screening Study: 10-90 daysDevelop Scope Agreement for Full Interconnection Study: 1-60 daysFull Interconnection Study: 40-300 daysNegotiate and Execute Interconnection Agreement: 180 days

14. This is called a Resource Entity Registration Form because the entity is re-ferred to as an IE prior to approval, but once registration is complete the entity isreferred to as a Resource Entity (“RE”). See ERCOT, Generation Resource Intercon-nection or Change Request § 5.7.1, http://www.ercot.com/content/mktrules/guides/planning/current/05-080113.doc (last visited Jan. 16, 2014) [hereinafter Generation Re-source Interconnection].

15. A QSE ensures that the supply of electricity can meet the demand and is fi-nancially liable to ERCOT for any reliability issues. This function can be performedby a third party or by the generator, but if the generator chooses to act as the QSE, itmust qualify as a QSE with ERCOT. See infra note 48 (providing steps in the registra-tion process to qualify).

16. ERCOT, http://www.ercot.com/services/rq/lse (last visited Jan. 25, 2014) (stat-ing that a LSE is an entity that supplies electricity to “end-users and wholesale cus-tomers. LSEs include competitive retailers that sell electricity at retail in thecompetitive market,” as well as “electric cooperatives and municipally owned utilitiesthat do not operate as [competitive retailers] and do not plan to offer customerchoice.”).

17. Id.18. Generation Resource Interconnection, supra note 14.


C. SPP

The Southwest Power Pool (“SPP”) is a Regional Transmission Or-ganization19 that provides services to nine states, including Texas.20

The SPP is responsible for monitoring the transmission and consump-tion of 15% of Texas’s electric load and approximately 25% of Texas’sland area.21

The SPP has its own set of interconnection procedures that must befollowed to connect to the grid. The SPP is under the jurisdiction ofthe FERC because it is an interstate electricity provider.22 In additionto registering with the SPP, a Texas IE intending to generate electric-ity in Texas should also register with the PUCT.23 Connecting to theSPP’s grid tends to be more costly and time consuming than connect-ing to the ERCOT grid.24

In its entirety, SPP registration will take at least nine months tocomplete, and the costs of the installation will vary substantially fromproject to project. Although parts of the overall process are ad-dressed in this Article below in Section IV.B, here is a general, overalltimeline for the minimum amount of time it might take for registra-tion and interconnection in SPP:

19. 18 C.F.R § 35.34(j) (A Regional Transmission Organization is an independentoperator with authority for all transmission facilities under its control.); Id. § 35.34(k)(Its responsibilities range from administration and design of its tariff to managingtransmission congestion.).

20. SOUTHWEST POWER POOL, http://www.spp.org/section.asp?pageid=1 (last vis-ited Oct. 19, 2013).

21. ERNEST E. SMITH ET AL., TEXAS WIND LAW § 7.01 (LexisNexis 2013).22. Id.23. PUB. UTIL. COMM’N OF TEXAS (“PUCT”), http://www.puc.texas.gov/industry/

electric/business/pgc/Pgc.aspx (last visited Jan. 16, 2014).24. SMITH ET AL., supra note 21, § 7.01.


Interconnection Request: 1-30+ daysFeasibility Study: 1-90+ daysPreliminary Interconnection System Impact Study: 1-150+ daysDefinitive Interconnection System Impact Study: 1-120+ daysInterconnection Facilities Study: 1-90+ daysGenerator Interconnection Agreement: 1-60+ days

D. PUCT

As previously mentioned, even though a new generator must regis-ter with ERCOT or SPP, they must also register with the PUCT.25 Bycomparison, the PUCT process is simple and straightforward. Thirtydays prior to commencing operations, the IE must submit the PowerGeneration Companies (“PGC”) Registration Form to the PUCT.26

The PGC Registration Form is relatively short and only requires gen-eral company and facility information.27 Once the PGC RegistrationForm is approved by the PUCT in its entirety, the IE is finished withthe PUCT generator registration process.28

One more PUCT registration route is available, but not required, tonew wind farms in ERCOT regions; as part of its plan to promoterenewable energy development in the state, Texas created a Renewa-ble Energy Credit (“REC”) program in 1999.29 The purpose of theREC program is to award generators of renewable energy with ac-count credits and compliance premiums in order to reach the renewa-ble energy goals set out in the Public Utility Regulatory Act(“PURA”) in the most efficient manner possible.30 These tradablecredits are accumulated for each megawatt (“MW”) of renewable en-ergy produced, and are accumulated in accounts managed byERCOT.31 To earn renewable energy credits, an IE must become a

25. 16 TEX. ADMIN. CODE § 25.5(54) (2011) (Tex. Pub. Util. Comm’n, Defini-tions), available at http://info.sos.state.tx.us/pls/pub/readtac$ext.TacPage?sl=T&app=9&p_dir=F&p_rloc=153710&p_tloc=14913&p_ploc=1&pg=2&p_tac=&ti=16&pt=2&ch=25&rl=5 (last visited Jan. 16, 2014) (“A person that owns an electric generatingfacility in Texas and is either a power generation company or a qualifying facility andgenerates electricity intended to be sold at wholesale, must register as PGC [with thePUCT].”).

26. Certification and Licensing, PUCT, http://www.puc.texas.gov/industry/electric/business/pgc/Pgc.aspx (last visited Jan. 16, 2014).

27. 16 TEX. ADMIN. CODE § 25.109(54) (2011); Registration Form for Power Gen-eration Companies, PUCT, http://www.puc.texas.gov/industry/electric/business/pgc/Pgc.aspx (last visited Feb. 19, 2014).

28. 16 TEX. ADMIN. CODE § 25.109(54) (2011).29. 16 TEX. ADMIN. CODE § 25.173(a)(2) (2001) (Tex. Pub. Util. Comm’n, Goal

for Renewable Energy), available at http://info.sos.state.tx.us/pls/pub/readtac$ext.TacPage?sl=R&app=9&p_dir=&p_rloc=&p_tloc=&p_ploc=&pg=1&p_tac=&ti=16&pt=2&ch=25&rl=173 (last visited Jan. 16, 2014).

30. Id.31. ERCOT, Renewable Energy Credit, http://www.ercot.com/services/programs/

rec (last visited Jan. 16, 2014).


new facility or a small producer,32 submit the REC certification formthirty days prior to commencing operations, enter a form Market Par-ticipant Agreement with ERCOT, and meet the requirements of PUCSubstantive Rule 25.173.33

IV. INTERCONNECTION

A. Grid Interconnection in ERCOT

The first step in the ERCOT interconnection process is the submis-sion of a Generation Interconnection or Change Request (“GINR”)Application along with a Security Screening Study fee by the newIE.34 The GINR will include a completed and executed generationentity information sheet, a broad summary of the IE’s plan for energygeneration, and a non-refundable fee of $5,000 or $7,000 dependingon the size of the proposed wind farm.35 ERCOT will notify the IEwithin seven business days if the form is not complete.36 The IE hasten business days to complete the GINR after notification fromERCOT of an incomplete form, or the GINR will be deemed incom-plete and will be rejected.37 When the form is completed, ERCOTwill date-stamp the form and notify the IE of receipt of the completedform within ten business days.

Once the GINR is complete and the security screening study fee hasbeen paid, the Security Screening Study can begin. The SecurityScreening Study is intended to be a preliminary measure of the feasi-bility of adding new wind generation to the grid at a specific injectionpoint.38 ERCOT’s engineers use this study to predict if substantialsystem upgrades would be necessary, or if the addition of a new windfarm would create congestion on the existing transmission lines. Thisstudy typically takes between ten to ninety days.

Once the IE receives the results of the Security Screening Study, itmust decide whether or not it wants to proceed with a more in-depthFull Interconnection Study. If so, the IE must submit a Full Intercon-nection Study Request within the next 180 days that includes moredetailed information about the project and the proposed interconnec-tion design, evidence that the IE has control over the land it seeks to

32. § 25.173(a)(2).33. ERCOT, Commercial Operations and Settlement Handbook Section 12: Re-

newable Energy Credits, §12.1.2, 12.1.3, www.ercot.com/content/meetings/ccwg/keydocs/2011/0712/Handbook_Section_12_RECS_Draft_20110629.doc (last visited Feb.19, 2014).

34. SMITH ET AL., supra note 21, § 7.01.35. ERCOT, Fee Schedule, http://www.ercot.com/content/mktrules/nprotocols/cur

rent/ERCOT%20Fee%20Schedule%20-080112.doc (last visited Jan. 16, 2014) [here-inafter Fee Schedule].

36. Generation Resource Interconnection, supra note 14, at 3.37. Id.38. Id. at 8.


develop as a wind farm, and a non-refundable modeling fee of $15 perMW39 of proposed electric generation.40

After receiving the request for a Full Interconnection Study,ERCOT will schedule a meeting with ERCOT representatives, the IE,and the TSP.41 Soon after this meeting, the TSP will send the IE aFull Interconnection Study Agreement detailing the studies to be con-ducted, fees to be paid, and the estimated time frame to complete thestudies.42 The studies typically include a Steady-State and TransferStudy,43 Short Circuit Study,44 Stability Study,45 and a FacilitiesStudy.46

If the IE still wishes to proceed with the project after receiving theFull Interconnection Study Agreement, the IE must complete the FullInterconnection Study Agreement form and forward that form to theTSP with a deposit for the Full Interconnection Study costs.47 TheTSP has up to 300 days to complete the Full Interconnection Studyupon receipt of the deposit and Full Interconnection Study Agree-ment, but TSPs commonly complete the study within the first 180days.48

After receiving the results of the Full Interconnection Study, the IEcan begin the last step of obtaining an interconnection agreement withthe TSP—negotiating and executing a Standard Generation Intercon-nection Agreement (“SGIA”).49 The SGIA is a standard form agree-ment that contractually binds the TSP to interconnect the IE’s windfarm with the TSP’s transmission system, and must be executed within180 days of receiving the results of the Full Interconnection Study.50

39. Fee Schedule, supra note 35.40. ERCOT, Resource Interconnection Handbook, http://ercot.com/content/ser

vices/rq/re/reg/INTERCONNECTION%20Handbook%20v1%202.doc, at 11 (lastvisited Jan. 17, 2014) [hereinafter Resource Interconnection Handbook].

41. Id. at 48.42. Id. at 18.43. Id. at 13 (A Steady-State and Transfer Study identifies any increased stress on

the ERCOT grid as a result of the new wind farm.).44. Id. (A Short Circuit Study specifies locations where available short-circuit

fault duty will be identified, calculated, and documented.).45. Id. at 14 (A Stability Study analyzes the transient stability of the proposed

wind farm and any potential impacts on nearby transmission and generationfacilities.).

46. Id. (A Facilities Study provides a description of any required infrastructureimprovements, a cost estimate for those upgrades, and an estimated completion datefor those facilities.); SMITH ET AL., supra note 21, § 7.01.

47. SMITH ET AL., supra note 21, § 7.01.48. Id.49. Resource Interconnection Handbook, supra note 40, at 15.50. ERCOT, New Generation Resources–Steps to Register, http://www.ercot.com/

services/rq/re/newgen-steps (last visited Jan. 16, 2014); 16 TEX. ADMIN. CODE § 25.195(2001) (Tex. Pub. Util. Comm’n, Terms and Conditions for Transmission Service),available at http://info.sos.state.tx.us/pls/pub/readtac$ext.TacPage?sl=R&app=9&p_dir=&p_rloc=&p_tloc=&p_ploc=&pg=1&p_tac=&ti=16&pt=2&ch=25&rl=195 (lastvisited Jan. 16, 2014).


The IE and TSP are required to use the standard form provided bythe PUCT, but the negotiation of the interconnection agreement isconducted directly between the IE and TSP without interference fromthe PUCT or ERCOT.51 The SGIA is composed of several exhibits,most of which are not negotiable.52 Of the negotiations that do takeplace, the key negotiations generally involve the time schedule in Ex-hibit B and the security arrangements in Exhibit E.53

While negotiating the SGIA is only one step of the multi-stepERCOT registration process, negotiating the time schedule for com-mercial operations and the security requirements for construction ofnew facilities are very important processes to ensure that the windfarm reaches commercial operations without any complications.

Determining the date to reach commercial operations for Exhibit Bof the SGIA revolves around the size and complexity of the infrastruc-ture improvements needed for interconnection. In the negotiationprocess, the IE needs to consider its financing options, constructionschedule, turbine supply dates, power purchase agreements, and anyupcoming deadlines to qualify for tax benefit schemes in order tomake sure that it provides itself a sufficient amount of time to meetthe deadline.54 Meeting the deadline set out in Exhibit B is very im-portant since failure to meet this deadline may forfeit the return ofsecurity that is negotiated in Exhibit E.55

Exhibit E, the security arrangements, is the other negotiable exhibitof the SGIA. Under section 8.3 of the SGIA, the TSP may require “areasonable deposit or . . . another means of security, to cover costs ofplanning, licensing, procuring equipment and materials, and construct-ing the [TSP’s interconnection facilities].”56 While these financial se-curity arrangements are permissive under the standard SGIA, inpractice, most TSPs will require security from the RE.57 The amountof security required from the IE is negotiable, but considering theamount of capital required from the TSP to plan, license, procureequipment and materials, and construct interconnection facilities, theamount of required security from the IE can be significant and bur-densome. Fortunately for the IE, the security must be returned withinfive business days of reaching commercial operations.58 However, ifthe wind farm has not achieved commercial operations within one

51. Generation Resource Interconnection, supra note 14, at 17.52. SMITH ET AL., supra note 21, § 7.01.53. Id.54. ERCOT, Standard Generation Interconnection Agreement § 8.3, http://www.

ercot.com/services/rq/re/newgen-steps [hereinafter Standard Generation Interconnec-tion Agreement].

55. ERCOT, Standard Generation Interconnection Agreement, http://www.ercot.com/content/services/rq/re/SGIA.DOC, at 21 (last visited Jan. 16, 2014).

56. Id.57. SMITH ET AL., supra note 21, § 7.01.58. Standard Generation Interconnection Agreement, supra note 54, § 8.3.


year of the scheduled commercial operations date negotiated in Ex-hibit B, the TSP may retain as much of the deposit as is required tocover the costs it incurred in planning, licensing, procuring equipmentand materials, and constructing the interconnection facilities.59

When completed, a copy of the executed Generation Interconnec-tion Agreement (“GIA”) must be filed at the PUCT within thirty dayswith a cover letter explaining any differences between the parties’GIA and ERCOT’s SGIA.60 Confidential information can be filedunder seal.61 If the schedule changes and Exhibit B or E is amendedafter filing, then the amended GIA should be filed as well.62 A copyof the signed GIA must also be sent to ERCOT by the TSP within tenbusiness days of the execution of the agreement.63

B. Grid Interconnection in SPP

The first step for a new Interconnection Customer (“IC”)64 to con-nect to the SPP grid is to file an Interconnection Request.65 This re-quest consists of submitting preliminary information about theinstallation,66 a $10,000 refundable deposit, and the study queue theIC intends to enter.67 There are three separate queues for the threeintroductory studies: (1) the Interconnection Feasibility Study (“Feasi-bility Study”); (2) the Preliminary Interconnection System ImpactStudy (“PISIS”); and (3) the Definitive Interconnection System Im-pact Study (“DISIS”). Of these three studies, only the DISIS ismandatory.68

59. Id.60. 16 TEX. ADMIN. CODE § 25.195 (2001) (Tex. Pub. Util. Comm’n, Terms and

Conditions for Transmission Service), available at http://info.sos.state.tx.us/pls/pub/readtac$ext.TacPage?sl=R&app=9&p_dir=&p_rloc=&p_tloc=&p_ploc=&pg=1&p_tac=&ti=16&pt=2&ch=25&rl=195 (last visited Jan. 16, 2014).

61. Standard Generation Interconnection Agreement, supra note 54, § 3.1.62. 16 TEX. ADMIN. CODE § 25.195 (2001) (Tex. Pub. Util. Comm’n, Terms and

Conditions for Transmission Service), available at http://info.sos.state.tx.us/pls/pub/readtac$ext.TacPage?sl=R&app=9&p_dir=&p_rloc=&p_tloc=&p_ploc=&pg=1&p_tac=&ti=16&pt=2&ch=25&rl=195 (last visited Jan. 17, 2014).

63. Generation Resource Interconnection, supra note 14, at 17.64. The SPP uses the term “Interconnection Customer,” while ERCOT uses the

term “Interconnecting Entity.” Both of these terms refer to the new generating facil-ity that is seeking to connect to the grid.

65. Open Access Transmission Tariff, Attachment V-Generator InterconnectionProcedures, (6th ed. 2012), http://sppoasis.spp.org/documents/swpp/transmission/studies/GIP_Attachment_V_2_15_2013.pdf [hereinafter Tariff] (Note that there is also afast track process available for installations that are smaller than 2 MW. The fast trackprocess is different than the one outlined in this paper and is beyond the scope of thisArticle.).

66. Specifically, the type of service, size of the installation, method of intercon-necting to the transmission system, projected in-service date, and interconnectionpoint.

67. Tariff, supra note 65, § 3.3.68. 2010 ISO/RTO Metrics Report–Southwest Power Pool, FERC, http://www.ferc.

gov/industries/electric/indus-act/rto/metrics/spp-rto-metrics.pdf.


The Feasibility Study, PISIS, and DISIS are done on a cluster basis.A cluster basis study means that multiple requests will be studied to-gether based on location and proposed electrical interconnectionpoint.69 The costs of these studies are allocated between the ICsbased 50% on the IC’s pro-rata share of interconnection requests in-cluded in the study and 50% based on the IC’s pro-rata share of re-quested MWs included in the study.70 Each of these studies requires adeposit. The deposits are not fees, but are applied towards the costsof the study. The IC is still responsible for its portion of the actualcosts of the study beyond those covered by its deposit.71

Within one month of the valid interconnection request being re-ceived by the SPP, a scoping meeting should occur between the IC,the Transmission Owner,72 and the Transmission Provider.73 Thescoping meeting is used to discuss the IC’s plans and interconnectionpoints, as well as to allow the parties to share information about theproject.74

If the IC decides to conduct a Feasibility Study, a study agreementmust be completed within fifteen days of submitting a valid intercon-nection request.75 If an agreement is not completed in that time, theinterconnection request is deemed to have been withdrawn.76 TheFeasibility Study conducts a limited analysis of the practicality andcosts of incorporating the new installation into the SPP transmissionsystem.77 The results of the study will include: (1) the results of ashort-circuit and power-flow analysis; (2) a list of facilities that willlikely be needed; and (3) the projected respective costs of the newfacilities.78 There are four three-month Feasibility Study cluster win-dows in a year, and at the end of each window the SPP will commencethe studies.79 The SPP tries to complete all Feasibility Studies withinninety days of the cluster window closing, but the study typically takeslonger.80 Within ten days of the final Feasibility Study report beingprovided, the IC and the Transmission Provider should meet to discuss

69. Tariff, supra note 65, § 4.2.70. Id. § 4.2.5.71. Id. §§ 6.1, 7.1, 8.1.72. The Transmission Owner is the entity that possesses an interest in the trans-

mission system at the point of interconnection. Tariff, supra note 65, § 3.3.4.73. Id.; The Transmission Provider is the public utility or the public utility’s agent

that is responsible for the transmission or distribution facilities and providing trans-mission services. Id. § 1.

74. Tariff, supra note 65, § 3.3.4.75. Id. § 6.1.76. Id.77. Id. § 6.2.78. Id.79. Id. § 6.3.80. Id. § 6.3; SMITH ET AL., supra note 21, § 7.01.


the results of the study and the implications of those results on theplanned project.81

After completion of a Feasibility Study or submission of a valid in-terconnection request, the IC should sign a Preliminary Interconnec-tion System Impact Study agreement within thirty days or before theclose of the next PISIS window if the next window closes in less thanthirty days;82 if the agreement is not signed within that time, the inter-connection request is deemed to be withdrawn.83 Along with thePISIS study agreement, the IC must provide proof of site control,84 adeposit of $10,000–$90,000 (depending on the size of the requestedinstallation), and any technical data requested.85 There are two six-month cluster windows for the PISIS each year.86 The SPP will try tocomplete a PISIS study within 150 days of the window closing,87 butthe study often takes longer to complete.88 The PISIS consists of analternating current (“AC”) power flow analysis, a transient stabilitystudy analysis, and a power factor analysis.89 The results of this studywill provide the requirements and potential impediments to connect-ing to the grid, along with the predicted costs and time required toremedy any impediments.90 Additionally, the study will provide a listof facilities that need to be built for interconnection, along with a pre-liminary estimate of the time to build those facilities and the costs thatwill be allocated to the IC.91 Within ten days of the final PISIS reportbeing provided, the IC and TSP should meet to discuss the results ofthe study and the implications of those results on the plannedproject.92

After completion of the previous study or submission of a valid in-terconnection request, the IC must sign a DISIS agreement withinthirty days or before the close of the next DISIS window if the nextwindow closes in less than thirty days;93 if an agreement is not signedwithin that time, the interconnection request is deemed to be with-

81. Tariff, supra note 65, § 6.3.1.82. Id. § 7.2. The PISIS is not required and if the IC chooses it can move from the

Feasibility Study or submission of the interconnection request directly to the DISISwithout issue. Id. § 6.3; SMITH ET AL., supra note 21, § 7.01.

83. Tariff, supra note 65, § 7.2.84. Id. § 7.2 (Proof of Site Control includes documentation demonstrating: (1)

ownership or leasehold interest in a site of sufficient size, (2) an option to purchase oracquire a leasehold interest in a site of sufficient size, or (3) a business relationshipbetween the IC and the entity having the right to sell. Id. § 1.).

85. Id. § 7.2.86. Id. § 7.4.87. Id.88. SMITH ET AL., supra note 21, § 7.01.89. Tariff, supra note 65, § 7.3.90. Id.91. Id.92. Id. § 7.5.93. Id. § 8.2.


drawn.94 Along with the DISIS study agreement, the IC must submitdemonstration of site control,95 a $15,000–$150,000 deposit (depend-ing on the size of the requested installation),96 the definitive intercon-nection point, the definitive size of the installation in megawatts,requested technical information, and substantial evidence that the ICis committed to the project97 or security of $2,000 per MW.98 A DISISwill include the same studies as a PISIS, and will take into account anyIC requests that were withdrawn after the completion of the PISIS.There are two six-month cluster windows for the DISIS, and the SPPtries to complete the study within 120 days of the window closing;99

similar to the other studies, this does not usually happen.100 Withinten days of the final DISIS report being delivered, the TransmissionProvider, IC, and Transmission Owner must meet to discuss the re-sults of the study and how to proceed with operations.101

At the time the DISIS report is delivered, a draft InterconnectionFacilities Study (“Facilities Study”) Agreement should also be deliv-ered.102 The Facilities Study Agreement must be returned withinthirty days of receipt or the interconnection request will be deemedwithdrawn.103 The Facilities Study is a mandatory study that must becompleted after the DISIS.104 Unlike the previous studies, the Facili-ties Study is not done on a cluster basis. Along with the FacilitiesStudy Agreement, the IC must provide substantial evidence that it iscommitted to the project,105 a letter of credit for the amount of net-work upgrades the IC will be responsible for, or a payment for thenetwork upgrades.106 The Facilities Study will estimate the costs andtime of implementing the facilities recommended by the DISIS; addi-tionally, it will estimate the costs and time of electrical switching con-figuration for the connection equipment. The costs estimated by thisstudy are only accurate within a 20% margin.107 The SPP attempts to

94. Id.95. Id. § 7.2.96. Tariff, supra note 65, § 8.2 (For all installations over 75 MW the deposit will be

$150,000.). This deposit is refundable in most situations, but if the IC drops out of thestudy then the deposit will not be refunded. Id. § 8.4.

97. Substantial evidence is limited to: (1) an executed contract for sale of energy;(2) a signed statement that the facility is included in a state resource plan; (3) evi-dence that the facility will be a Designated Resource; (4) a purchase order for equip-ment earmarked for the site; (5) an application for an air permit; or (6) a notice ofproposed construction or alteration of with the FAA. Tariff, supra note 65, § 8.2.

98. Id.; SMITH ET AL., supra note 21, § 7.01.99. Tariff, supra note 65, § 8.3.

100. SMITH ET AL., supra note 21, § 7.01.101. Tariff, supra note 65, § 8.4.102. Id. § 8.7.103. Id.104. Id.105. Tariff, supra note 65, §§ 8.2, 8.7.106. Tariff, supra note 65, § 8.7.107. Id. § 8.9.


complete this study within ninety days of the agreement being exe-cuted,108 but it commonly takes longer.109 After a draft FacilitiesStudy Report is provided, the IC has thirty days to provide writtencomments to be included in the final report.110 The TSP, IC, andTransmission Owner must meet within ten days of the draft reportbeing provided to discuss the results of the study.111 If a different ICdrops out of the study, chooses not to continue with the project afterthe study, or makes a change to its project’s size, a re-study may benecessary.112 If a re-study is required, the IC must again pay for thecosts of the study.113

Along with the final Facilities Study Report, the Transmission Pro-vider should provide a draft GIA.114 The GIA must be completedwithin sixty days of being delivered to the IC,115 but since the onlyportions of this agreement that are negotiable are the appendices,116

this is usually completed without significant complications. If anagreement is not reached within sixty days, the IC must initiate dis-pute resolution procedures or enter into an agreement to keep negoti-ating with the Transmission Provider—otherwise the IC is treated ashaving withdrawn its interconnection request.117 The GIA will re-quire security from the IC in order to cover the expenses “for con-structing, procuring, and installing the applicable portion ofInterconnection Facilities, Network Upgrades, or Distribution Up-grades,”118 as well as indirect costs the SPP believes must be allottedto the project.119 However, unlike in ERCOT, this security is not re-turned to the IC after timely reaching commercial operations. Oncethe final agreement is signed, the IC must provide evidence of sitecontrol120 or $250,000, and evidence that a major milestone in devel-opment has been achieved.121

108. Id.109. SMITH ET AL., supra note 21, § 7.01.110. Tariff, supra note 65, § 8.9.111. Id. § 8.10.112. Id. § 8.11; SMITH ET AL., supra note 21, § 7.01.113. Tariff, supra note 65, § 8.11.114. Id. § 11.1.115. Id. § 11.2.116. Id.117. Id.118. Tariff, supra note 65, at app. 6, art. 5.6.4, 11.5.119. These costs may be as high as $11 million for an 80 MW project. SMITH ET AL.,

supra note 21, § 7.01.120. Tariff, supra note 65, § 7.2.121. A major milestone must be one of the following: (1) an executed contract for

cooling water; (2) an executed contract for the sale of energy; (3) an executed con-tract for major equipment; (4) an executed contract for facility construction; (5) asigned statement that the generating facility is included in a state resource plan; (6)evidence that the facility will qualify as a Designated Resource; (7) an executed con-tract for fuel; or (8) an application for air, water, or land use permit. Id. § 11.3.


Prior to signing a GIA, an IC may request an Engineering and Pro-curement Agreement from the Transmission Owner.122 This agree-ment allows the Transmission Owner to begin procuring orengineering items that have a long lead-time.123 If the IC requests thisagreement, the Transmission Owner is required to provide it unlessthe Transmission Owner has alleged that the IC did not meet a mile-stone or prerequisite included in the Transmission Provider’s Genera-tor Interconnection Procedures.124 The IC is responsible for any costsassociated with these items, and if the items are ultimately not needed,the IC is also responsible for any cancellation fees.125 If cancellationis not a possibility, the Transmission Owner may take title to theequipment and refund any costs to the IC, or the equipment will bedelivered to the IC and it will be responsible for the entire cost of theequipment.126

If a new generating facility has an expected in-service date that isbefore the expected completion of the interconnection studies, the ICmay request interim interconnection services.127 In order to obtaininterim interconnection services the IC must sign an Interim Genera-tor Interconnection Agreement (“Interim GIA”).128 The Transmis-sion Provider determines if interim interconnection services arepossible, and may terminate interconnection services after they havebeen granted if, at some point, the Transmission Provider determinesthe interconnection services can no longer be provided.129 The eligi-bility requirements for an Interim GIA are the same as for a GIA, butthe IC must also provide proof that it is eligible for a DISIS, and enterinto an Interim Availability Interconnection System Impact Study.130

Throughout the interconnection process, information on the statusof the request will be updated on the SPP’s website.131 The identity ofthe IC is not disclosed until a GIA is signed, but the final study reportsas well as information about the location and the size of the project isavailable to the public.132

122. Id. § 9.123. Id.124. Id. (The Generator Interconnection Procedures are included in a Transmission

Provider’s Tariff.); Id. § 1 (A Tariff is a document that a Transmission Provider mustfile with the FERC that lays out procedural and governance rules that a RegionalTransmission Organization agrees to follow.).

125. Tariff, supra note 65, § 9.126. Id.127. Id. § 11A.1.128. Id.129. Id.130. Id. § 11A.2.131. Id. § 3.4; Called OASIS, this website is available for registered users at http://

www.oasis.oati.com/spp_default.html.132. Tariff, supra note 65, § 3.4.


V. TRANSMISSION

Licensing, registration, and interconnection are important steps inwind farm development, but these steps alone will fall short of reach-ing commercial operations without appropriate transportation for thenewly generated electricity. The transportation of electricity from thewind farm to the point of interconnection at the TSP’s facilities is gen-erally facilitated through transmission lines. The choice of construct-ing transmission lines privately or by a TSP is a decision that eachindividual developer must make. Both options have their ownstrengths and weaknesses, and depending on the location of the windfarm, could result in significantly different capital expenditures andconstruction time frames.

A. Privately-Constructed Lines

Since TSPs pay for the initial capital costs of construction of newtransmission lines that they build, fewer developers choose to pri-vately construct their own transmission lines—but it is still an option.A primary benefit to privately constructing new transmission lines isthe time-saving component. A developer or private company doesnot need to obtain a Certificate of Convenience and Necessity(“CCN”) to construct transmission lines itself, and therefore saves theapproximately one-year long CCN approval process. However, whenprivately constructing transmission lines, the developer must pay forthe costs of construction and does not have the right of eminent do-main. Therefore, the decision to privately build new transmissionlines may be made when certain specific situations occur: (1) when thedeveloper already has rights to use the land between the wind farmand the point of interconnection; or (2) when the developer does nothave rights to the land, but there is only a short distance between thewind farm and the point of interconnection such that land acquisitionis not expected to be an obstruction.

While the two scenarios above are emblematic of situations inwhich developers might choose to privately construct transmissionlines, there are other scenarios in which a developer could find privateconstruction to its advantage. The Horse Hollow Generation Tie pro-vides one example of such a scenario. The Horse Hollow Wind En-ergy Center, developed by NextEra, is the world’s largest windfarm.133 Horse Hollow’s production was curtailed when its productioncapacity exceeded the local transmission capacity.134 As a result ofthis curtailment, NextEra was not able to utilize all of its availablefederal production tax credits or potential revenue from the sale of

133. Lorie Woodward Cantu, Texas High Wires: A Balancing Act for Private Land-owners, TEXAS WILDLIFE, July 2009, http://clearviewalliance.org/docs/Texas%20High%20Wires%20article,%20electronic%20copy,%206-12-09.pdf.

134. Id.


state renewable energy credits.135 In order to increase its productionand take advantage of these policy incentives, NextEra decided that itwould privately build its own transmission lines.136 By privately con-structing 200 miles of transmission lines, NextEra cut the traditionalthree-year time span for building a transmission line down to eighteenmonths—taking advantage of the available policy incentives in halfthe time.137 Although it could not exercise eminent domain authorityto obtain easement rights, NextEra was able to expedite the processby offering generous easement agreements to avoid conflict along theroute, believing that the additional tax credits would help the com-pany recoup its investment in the long term.138

While this method of privately constructing transmission lines hasits advantages to companies with access to large pools of capital, thedisadvantage of not having the right of eminent domain could spelldisaster for smaller companies that risk being held hostage to the de-mands of uncompromising landowners unwilling to sell their propertyrights. For developers with less access to large sums of money, or whodo not face curtailment problems and have the opportunity to seekadvantageous credits if they rush their project, TSP-constructed linesdiscussed below may be a more desirable option.

B. TSP-Constructed Lines

Contrary to the example of Horse Hollow above, a commonmethod of constructing transmission lines to connect to generation isby allowing the TSP to build them. There are two primary advantagesto building transmission lines through this process: (1) the TSP has thepower to acquire easements between the wind farm and the point ofinterconnection by exercising its right of eminent domain, preventingany holdout landowner from blocking the project;139 and (2) the TSPwill pay for much of the costs associated with the construction of thetransmission lines.140 The major disadvantage to this process is thetime needed for the TSP to get approval of a CCN amendment.

A CCN is a certificate from the PUCT that allows an electric utilityto provide utility service to the public when “the public convenienceand necessity requires or will require the installation, operation, orextension of the service.”141 Therefore, a TSP must usually gothrough the CCN amendment process to obtain approval of a new

135. Id.136. Id.137. Id.138. Id.139. TEX. UTIL. CODE ANN. § 181.004 (West 2013).140. 16 TEX. ADMIN. CODE § 25.195(c) (1999) (Pub. Util. Comm’n, Terms and Con-

ditions for Transmission Service), available at http://info.sos.state.tx.us/pls/pub/readtac$ext.TacPage?sl=R&app=9&p_dir=&p_rloc=&p_tloc=&p_ploc=&pg=1&p_tac=&ti=16&pt=2&ch=25&rl=195.

141. TEX. UTIL. CODE ANN. § 37.051(a) (West 2013).


transmission line route.142 The CCN process typically takes one yearfor approval.143

1. If a CCN is Required

The CCN process begins with a hearing in front of the PUCT aftergiving notice of the proposed transmission line route to the public.144

One of the purposes of giving notice to the public is to obtain publicfeedback and to allow any landowners who are directly affected by thepotential routes of the proposed transmission line to contest the appli-cation for a CCN.

An affected party can contest the CCN application by becoming anIntervenor or a Protestor.145 An Intervenor files a statement with thePUCT and participates in discovery and/or provides testimony at thehearing;146 alternatively, a Protestor simply gives a written or oralstatement against, or in support for, the proposed project.147 A con-tested CCN application is typically sent to the State Office of Admin-istrative Hearings (“SOAH”) where one or more administrative lawjudges provide recommendations, but the commissioners have the ul-timate authority on granting the CCN regardless of what the adminis-trative law judge may recommend.148

The PUCT typically considers four factors in the CCN process: (1)the adequacy of existing service; (2) the need for additional service;(3) the effect of granting the certificate on the recipient of the certifi-cate and on any public utility of the same kind already servicing theproximate area; (4) other factors such as community values, recrea-tional and park areas, historical and aesthetic values, environmentalintegrity, probable improvement of service or lowering of cost to con-sumers if the certificate is granted, and the effect of granting the cer-tificate on the ability of Texas to meet the renewable energy goalestablished by PURA.149

Due to the broad variety of factors that the PUCT considers ingranting a CCN application, and due to obligations to provide geo-graphically diverse routing options, TSPs generally include multipleroute options in their application for the PUCT to consider. For ex-

142. Id. § 37.051.143. P.U.C. SUBST. R. 25.101(b).144. TEX. UTIL. CODE ANN. § 37.054 (West 2013), available at http://www.stat

utes.legis.state.tx.us/Docs/SDocs/UTILITIESCODE.pdf; Sam Hous. Elec. Coop. v.Pub. Util. Com., 733 S.W.2d 905 (Tex. App.—Austin 1987, writ denied).

145. TEXAS OFFICE OF PUBLIC UTILITY COUNCIL: TRANSMISSION LINES, http://www.opuc.texas.gov/transmission_lines.html (last visited Oct. 19, 2013).

146. Id.147. Id.148. Id.149. TEX. UTIL. CODE ANN. § 37.056(c) (West 2013).


ample, in recent CCN applications, the utility has provided approxi-mately twenty discrete route options.150

2. If a CCN is Not Required

A CCN is not always required when building transmission lines.There are some exceptions to the requirement of obtaining a CCNsuch as when a TSP is building a new extension in a territory or to aterritory the utility is authorized to serve under a pre-existing certifi-cate.151 This exception is limited to: (1) interconnecting existing facili-ties, or (2) transmission from an existing facility to a customer of retailelectric utility service. However, neither of these CCN exceptions ap-ply to new facilities.152 Additionally, extending or modifying an ex-isting transmission line to provide service will not require a CCN if theextension does not exceed one mile and all landowners provide writ-ten consent.153 However, over longer distances, a CCN will often berequired for the construction of new transmission lines to a new windfarm.

3. Eminent Domain

One of the primary advantages to a TSP-built transmission line isthe ability to exercise the right of eminent domain. This ability is es-pecially advantageous in certain locations, such as the Texas HillCountry, where land prices may be higher than in other parts of thestate. In situations where landowners do not wish to negotiate with aTSP, TSPs have the right to exercise eminent domain to acquire ease-ments.154 This means that holdout landowners cannot defeat a TSP-built line. In contrast, private lines do not have condemnation author-ity and thus cannot be constructed unless negotiated easements areobtained over all necessary parcels.

In order to exercise the right of eminent domain, a TSP must initi-ate a formal eminent domain proceeding by filing a petition in district

150. See, e.g., PUCT, Application of Sharyland Utilities L.P. to Amend its Certificateof Convenience and Necessity for the Proposed Antelope-Elk Energy Center to WhiteRiver 345 KV Transmission Line in Hale and Floyd Counties, Texas, at 3 (Dec. 13,2013) (providing twenty-one alternative routes); PUCT, Application of AmericanElectric Power Texas Central Company to Amend its Certificate of Convenience andNecessity for the Proposed Kenedy SS to Tuleta 138-KV Double Circuit TransmissionLine in Bee, Goliad, and Karnes Counties, Texas, at 6 (Oct. 1, 2013) (providingnineteen alternative routes).

151. TEX. UTIL. CODE ANN. § 37.052 (West 2013).152. Id.153. 16 TEX. ADMIN. CODE § 25.101(c)(5)(A) (2003) (Certification Criteria, Pro-

jects or activities not requiring a certificate); see id. § 25.101(c)(5) (2003) (discussingsuch “routine activities” as extending transmission less than a mile with landownerconsent does not require a CCN but does still require reporting to the Commission inaccordance with Subst. R. 25.83).

154. TEX. UTIL. CODE ANN. § 181.004 (West 2013).


or county court.155 The TSP’s petition must describe the property tobe condemned, identify its owner or owners, set out the proposed useof the land, and state that the parties were unable to agree on theamount to be paid for the easement.156 If the TSP can show that itmade an offer to the landowner in good faith, i.e., that it was “basedon a reasonably thorough investigation and honest assessment of theamount of just compensation due the landowner as a result of the tak-ing,”157 and that the TSP and the landowner were unable to agree on aprice for the land, the proceeding may continue.

The court then appoints three disinterested landowners of thecounty in which the contested land is located as commissioners of thehearing.158 Both parties to the hearing can present evidence and ex-perts to these “special commissioners,” after which, the special com-missioners determine the value of the easement based on the evidencepresented.159 If both parties agree with the Commissioners’ finding,the judge adopts the findings and the landowner receives the award.160

Either party to the eminent domain proceeding has the option tocontest the finding of the Commissioners.161 One reason to contestthe finding, besides being unhappy with the value of the easement,relates to the assignment of costs of the proceeding.162 If the awardexceeds the price offered to the landowner by the utility, the utilitycan be held responsible for the costs of the proceeding. Alternatively,if the award is lower than the price offered by the utility, costs can beassessed against the landowner.163 If either party objects to theamount of the award, the award is vacated, and proceedings convertinto a civil trial case.164

If the proceeding converts into a civil trial case, then litigation andappeals have the potential to drag on for months or years. However,if the utility deposits the condemnation award into the registry of thecourt after the special Commissioners’ award, then it will immediatelyobtain access to the condemned land, allowing construction to begineven if the parties continue to litigate easement value.165

Below the Authors have provided a flow chart, which summarizes atypical condemnation process:

155. TEX. PROP. CODE ANN. § 21.012(a) (West 2011).156. Id. § 21.012(b).157. Hubenak v. San Jacinto Gas Transmission Co., 65 S.W.3d 791, 798 (Tex.

App.—Houston [1st Dist.] 2001), rev’d on other grounds, 141 S.W.3d 172 (Tex. 2004).158. TEX. PROP. CODE ANN. § 21.014 (West 2011).159. Id. § 21.042.160. Id. § 21.061.161. Id. § 21.018.162. Id. § 21.047.163. Id.164. Id.165. Id. § 21.021(a)(1).


166

4. Funding

Another benefit to having the TSP build the transmission lines isthat the TSP pays the costs of construction for the transmission lineproject.167 TSPs are willing to pay the costs of construction becausethey are permitted to recover a reasonable return on their prudentinvestment through the rates charged to their customers.168 The TSPwill require a security deposit from the developer to ensure that thedeveloper does not back out of the project, as discussed above in theinterconnection Sections, but that deposit must be returned withinfive days of the wind farm reaching commercial operations.169 Oncethe deposit is returned, the financial investment by the wind developerin TSP-funded transmission lines is negligible relative to privately-built lines.

166. The Authors revised the enclosed chart after the passage of Senate Bill (“SB”)18 during the 82nd Legislative Session. SB 18 was effective Sept. 1, 2011 and some-what impacted the timeline associated with condemnation proceedings.

167. 16 TEX. ADMIN. CODE § 25.192 (1999) (Pub. Util. Comm’n, Transmission Serv.Rates), available at http://info.sos.state.tx.us/pls/pub/readtac$ext.TacPage?sl=R&app=9&p_dir=&p_rloc=&p_tloc=&p_ploc=&pg=1&p_tac=&ti=16&pt=2&ch=25&rl=192;see also id. § 25.198, available at http://info.sos.state.tx.us/pls/pub/readtac$ext.TacPage?sl=R&app=9&p_dir=&p_rloc=&p_tloc=&p_ploc=&pg=1&p_tac=&ti=16&pt=2&ch=25&rl=198.

168. Id. § 25.192.169. Standard Generation Interconnection Agreement, supra note 54, § 8.3.


C. Access to Transmission in ERCOT

For the reasons explained above, it is often preferable for a winddeveloper for the TSP to construct the transmission facilities neededto connect a new wind farm to the grid. If a CCN is required for theproject, the TSP-built line may take longer to construct than a pri-vately-built line would, given the public notices and PUC approvalprocess required for a CCN amendment. However, the eminent do-main authority the TSP has and the costs the developer would have tobear for a private line weigh in favor of asking a TSP to construct thefacilities. At times, other issues—such as curtailment, tax credits, andthe like—may make speed of construction important enough that adeveloper chooses to privately build a transmission line despite thedisadvantages of high initial investment and lack of eminent domainauthority, as illustrated by the Horse Hollow line built by NextEra.170

D. Access to Transmission in SPP

Constructing transmission lines in the SPP also may require a CCN,but the decision to privately construct the lines or allow the TSP tobuild them is much simpler. The construction of transmission lines inSPP regions does not benefit from the same RPS benefits as doERCOT CREZ regions. The TSP in an SPP region is usually respon-sible for the construction of its interconnection facilities and networkupgrades, but—as with ERCOT—the IC can opt to be responsible forthe construction of the TSP’s facilities—in addition to its own—if it sochooses.171

If the IC chooses to construct the transmission lines itself, it be-comes liable for construction-related claims and any deficiencies dis-covered during or after construction.172 Even if the IC chooses totake responsibility for the construction of the facilities, it is obligatedto transfer title of the facilities to the TSP by the commercial opera-tion date.173

If the IC chooses to have the TSP construct its facilities, the IC mustprovide the TSP with security for the portion of the costs which the ICis responsible for and has not yet paid.174 Even though the IC pays fora portion of the TSP’s new facilities and system upgrades, it will notown the new facilities and will not receive its investment in these facil-ities back at any time.175

The cost of new facilities allocated to the IC through this processvaries greatly. In 2012, for installations over 50 MW, Facilities Studies

170. Cantu, supra note 133, at 31.171. Tariff, supra note 65, at app. 6, art. 5.2.172. Id.173. Id.174. Id. § 11.5 (Security includes but is not limited to a guarantee, surety bond, or

letter of credit.).175. SMITH ET AL., supra note 21, § 7.01.


estimated total project costs to the IC of $26,583 on the low end,176 toover $76,000,000 on the high end.177 The fact that the IC is responsi-ble for these potentially substantial costs is one of the biggest differ-ences between the ERCOT and the SPP interconnection processes,and creates a much larger disincentive to have TSPs construct trans-mission lines than what is typically experienced in ERCOT.

VI. SALE OF WIND ENERGY

After transmission issues have been resolved and the wind farm hasconnected to the ERCOT or SPP grid, the developer must make ar-rangements to actually sell the newly produced energy. The sale ofwind energy is implemented through a Power Purchase Agreement(“PPA”). The parties to the PPA will typically consist of one singleentity that owns all of the wind farm assets acting as the seller, whilethe buyer is typically a trading unit subsidiary of the utility.178 Thetrading unit subsidiary of the utility will usually agree to purchase allof the energy and RECs produced from the wind farm rather than aset amount of energy.179

The elements of a PPA are beyond the scope of this Article, but oneimportant issue worth noting regarding the sale of electricity producedby a wind farm is the aspect of curtailment. Even if a wind farm isbuilt, connected to the power grid, and a PPA has been signed, thewind farm cannot necessarily sell all of the electricity that it pro-duces.180 Due to transmission line congestion, wind intermittency is-sues, and curtailment orders from FERC or ERCOT, a wind farmmay be limited in the amount of energy they are allowed to produce—even if this forces them to fall short of their contractual obligationsunder a PPA.181 While curtailment issues have been improving in

176. Facilities Studies for Generation Interconnection Request Gen-2012-023,SOUTHWEST POWER POOL (July 10, 2013), http://sppoasis.spp.org/documents/swpp/transmission/studies/files/2012_Generation_Studies/GEN-2012-023%20Facility%20Study.pdf.

177. Facilities Studies for Generation Interconnection Request Gen-2012-037,SOUTHWEST POWER POOL (Aug. 20, 2013), http://sppoasis.spp.org/documents/swpp/transmission/studies/files/2012_Generation_Studies/GEN-2012-037%20Facility%20Study.pdf.

178. SMITH ET AL., supra note 21, § 8.01.179. Id.180. See, e.g., Ucilia Wang, Texas Wind Farms Paying People to Take Power, http://

www.greentechmedia.com/articles/read/texas-wind-farms-paying-people-to-take-power-5347 (last visited Jan. 14, 2014) (“[W]ind farms in Texas are generating powerthey can’t sell.”); see also Felix Mormann, Enhancing the Investor Appeal of Renewa-ble Energy, 42 ENVTL. L. 681, 707-08 (2012); David J. Hurlbut, Multistate DecisionMaking for Renewable Energy and Transmission: An Overview, 81 U. COLO. L. REV.677, 692–93 (2010).

181. See TXU Portfolio Mgmt. Co., L.P. v. FPL Energy, LLC, 328 S.W. 3d 580 (Tex.App.—Dallas July 27, 2010, no pet.).


CREZ zones,182 curtailment and transmission line congestion are cer-tainly issues that a developer should be aware of when siting andbuilding a new wind farm.

VII. CONCLUSION

The way that Texas has approached the wind energy market is amodel for the rest of the country. Texas is leading the United States inwind energy production and has many unique state policies to thankfor that statistic. Between Renewable Portfolio Standards, Competi-tive Renewable Energy Zones and Renewable Energy Credits, thestate has built a system that welcomes new wind generation facilities.However, to take advantage of the wind-friendly policies and thestrong wind resources that exist in many parts of Texas, developersmust consider factors such as formation, siting, leasing, registration,and grid interconnection. Even with all of these considerations, thetransmission component of interconnection is a fundamental concernwhich must be considered by developers; regardless of production ca-pacity, without adequate transmission, wind turbines are of littlevalue.

182. Michael Goggin, Plummeting Curtailment, More Low Cost Wind: CREZTransmission Policy Already Reaping Big Returns, AM. WIND ENERGY ASS’N (Sept.6, 2013), http://www.awea.org/Membership/Content.aspx?ItemNumber=5635.

ADDRESSING WIND POWERINTERMITTENCY IN THE ERCOT AND

SPP REGIONS

By Elizabeth Drews, Cedric Ireland and Neil Yallabandi†

I. INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366II. INTERMITTENCY CHALLENGES AND RELATED LAW . . . . . 367

A. Regulatory Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367B. Resource Considerations in ERCOT and SPP . . . . . . 368

1. Generation Mix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3682. Characteristics of Types of Generation . . . . . . . . . 3693. Key Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371

C. Grid Considerations in ERCOT and SPP . . . . . . . . . . . 3721. Transmission Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . 3722. System Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373

D. Load Considerations in ERCOT and SPP . . . . . . . . . . 374III. INTERMITTENCY SOLUTIONS AND RELATED LAW . . . . . . . 374

A. Transmission and Distribution Improvements . . . . . . . 374B. Forecasting, Planning, Market Design and Grid

Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3761. ERCOT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3762. FERC and SPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376

C. Ancillary Service Products . . . . . . . . . . . . . . . . . . . . . . . . . . 3791. ERCOT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3792. FERC and SPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381

D. Wind Generation Technology Improvements andReliability Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . 3831. PUCT Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3832. FERC Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384

E. Electric Energy Storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 385F. Geographic Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . 388

1. ERCOT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3882. SPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389

IV. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390

† Mr. Ireland and Mr. Yallabandi are attorneys with Husch Blackwell LLP. Ms.Drews was an attorney with Husch Blackwell when she wrote her part of this Articlebut has now left private practice. Any opinions in this Article are solely those of theAuthors, and nothing in this Article constitutes legal advice or rendition of legal ser-vices. This Article is a summary of a broad subject, omitting issues and details thatmay be important in individual situations. The Authors wish to thank the presentersat the Texas A&M Real Property Law Journal’s Nov. 15, 2013, Symposium on WindFarming: Obstacles to Planning and Development, whose presentations provided in-sights valuable in finalizing this Article.

365


I. INTRODUCTION

This Article explores efforts to address challenges involving windpower intermittency in two United States power regions: the South-west Power Pool (“SPP”) and the Electric Reliability Council of Texas(“ERCOT”). SPP and ERCOT are good case studies regarding theseissues because each has among the strongest wind resources in thecountry, most of which are in isolated, sparsely populated areas andneed long transmission lines to reach major load (electricity consump-tion) centers. Those circumstances increase the challenge of integrat-ing intermittent wind generation into the electric system (grid).

Each type of power generation has advantages and disadvantagescompared to other types. For instance, wind power burns no fuel, pro-vides air quality and water conservation benefits, and is not subject tofuel-cost volatility.1 On the other hand, the fact that wind power isintermittent, or variable, causes important challenges for grid opera-tion when compared to conventional generation. As discussed in thisArticle, those challenges include:

• Actual wind power output is harder to predict.• Wind generation provides significantly less capacity compared to

its nameplate rating.• As wind penetration (the proportion of wind power in the sys-

tem generation mix) increases, the system needs more capacityreserves from thermal generation that can increase or reduceoutput quickly to offset the combined impact of changes in windpower output and load.

• Wind contributes less to stabilizing frequency after a disturbanceand provides less voltage support.

• Higher wind penetration requires traditional thermal units toprovide ancillary services (“AS”) more frequently and to rampup and down more often, increasing the cost of maintaining andoperating thermal units.

• Wind generation is typically offered at a lower price, displacingthermal generation, which reduces long-term incentives to investin thermal generation.

The gap between wind generation and traditional generation in therespects described above is narrowing due to improvements in windforecasting and wind turbine technology, addition of electric energystorage, and other positive developments, but challenges remain. ThisArticle summarizes those challenges and some solutions being consid-ered or used in ERCOT and SPP to address those challenges.

1. E.g., Pub. Util. Comm’n of Tex., Commission Staff’s Petition for Designation ofCompetitive Renewable-Energy Zones, Docket No. 33672, at 46–47 (Oct. 7, 2008) (or-der on rehearing), http://interchange.puc.texas.gov/WebApp/Interchange/application/dbapps/filings/pgSearch_Results.asp?TXT_CNTR_NO=33672&TXT_ITEM_NO=14x23.

2014] ADDRESSING WIND POWER INTERMITTENCY 367

II. INTERMITTENCY CHALLENGES AND RELATED LAW

A. Regulatory Context

SPP has members in nine states: Arkansas, Kansas, Louisiana, Mis-sissippi, Missouri, Nebraska, New Mexico, Oklahoma, and Texas.2 Al-though SPP’s regional boundaries can be defined in different waysand are changing, in broad terms SPP territory includes all ofOklahoma and Kansas and parts of the other states (e.g., most of theTexas Panhandle).3 The ERCOT region is limited to Texas and com-prises the entire state except the El Paso area, most of the Texas Pan-handle, and part of East Texas.4

In addition to being multi-state, SPP is part of the Eastern Intercon-nection that comprises much of the eastern half of North America.5Thus, as in most of the United States, the Federal Energy RegulatoryCommission (“FERC”) regulates wholesale power sales and transmis-sion rates and service in the SPP region. In short, FERC policies onwholesale power and transmission issues that are relevant to windpower intermittency apply to SPP. The SPP region is also subject tothe electric reliability regulatory programs of FERC and of the NorthAmerican Electric Reliability Corporation (“NERC”) and SPP Re-gional Entity regarding reliability functions FERC delegated to them.

In contrast, because ERCOT is wholly intrastate, the federalscheme administered by FERC does not generally govern ERCOT.6Electric regulation is primarily by the State of Texas: the Legislature,the Public Utility Commission of Texas (“PUCT”), and ERCOT.7Authority is clear and direct: ERCOT operates under PUCT over-sight, and both operate under direction of the Texas Legislature, ex-pressed chiefly in the Public Utility Regulatory Act (“PURA”).8

However, ERCOT remains subject to certain federal electric relia-bility standards administered by FERC, NERC, and Texas ReliabilityEntity (“TRE”).9 The region is also subject to the separate, somewhat

2. See SOUTHWEST POWER POOL, SPP FOOTPRINTS 5 (last updated Dec. 20,2013), http://www.spp.org/publications/SPP_Footprints.pdf.

3. See id.4. See ERCOT Region map, ERCOT, http://www.ercot.com/content/news/media

kit/maps/ERCOT_Region_map.jpg (last visited Feb. 7, 2014).5. See N. Am. Elec. Reliability Corp., NERC Interconnections, NERC, http://

www.nerc.com/AboutNERC/keyplayers/Documents/NERC_Interconnections_Color_072512.jpg, (last visited Feb. 8, 2014).

6. Hammack v. Tex. Pub. Util. Comm’n, 131 S.W.3d 713, 718 n.4 (Tex. App—Austin 2004, pet. denied); see also Commission Staff’s Petition for Designation ofCompetitive Renewable-Energy Zones, supra note 1, at 49.

7. See Quick Facts, ELEC. RELIABILITY COUNCIL OF TEX. (“ERCOT”) 2 (May2013), http://www.ercot.com/content/news/presentations/2013/ERCOT_Quick_Facts_May%202013.pdf [hereinafter Quick Facts].

8. See generally Public Utility Regulatory Act (“PURA”), TEX. UTIL. CODE

ANN. tit. 2 (West 2007).9. See Quick Facts, supra note 7, at 2.


different electric reliability requirements of ERCOT, enforced by thePUCT.10

ERCOT is not synchronously interconnected outside the state.11

ERCOT is a single Balancing Authority (“BA”) Interconnection—inNERC terms—and cannot generally rely on any neighboring BAs inthe Eastern and Western Interconnections when responding to systemevents and emergencies.12

B. Resource Considerations in ERCOT and SPP

1. Generation Mix

SPP and ERCOT have some of the strongest wind resources in thecountry.13 ERCOT’s best wind resources are in West Texas and thePanhandle, and along the Texas Gulf Coast between Corpus Christiand Brownsville.14 Texas’s vast population and industrial centers,however, are concentrated in the eastern half of Texas. Most ofERCOT’s wind generation development has occurred in West Texasand the Panhandle, in areas with low population.15

SPP’s best wind resources are in the western and northern parts ofthe region.16 SPP’s population is densest in the southeast part of theregion.17

SPP’s 75,864 megawatts (“MW”) of generating capacity is 42% gas/oil, 40% coal, 6% dual fuel, 4% hydro, 4% wind, 3% nuclear, 0.5%pumped storage, and 0.5% biomass.18 Thus SPP’s generation mix isdominated by gas/oil and coal; only 4% is wind.19 There are times of

10. See PURA, TEX. UTIL. CODE ANN. § 39.151(a), (c)–(d), (h)–(k) (West Supp.2013).

11. Id. § 31.002(5).12. ERCOT, ERCOT Concept Paper: Future Ancillary Services in ERCOT, Draft

version 1.1, at 6 (2013), http://www.ercot.com/calendar/2013/10/20131024-ASWorkshop (Draft ERCOT Ancillary Services Concept Paper) [hereinafter ERCOT Con-cept Paper].

13. See National Renewable Energy Laboratory, Wind Resource Assessment,NREL: WIND RESEARCH–WIND RESOURCE ASSESSMENT, http://www.nrel.gov/wind/resource_assessment.html (last updated July 2, 2013) [hereinafter Wind ResourceAssessment].

14. PUB. UTIL. COMM’N OF TEX., R.R. COMM’N OF TEX. & STATE ENERGY CON-

SERVATION OFFICE, TEXAS ENERGY ASSURANCE PLAN 69 (Nov. 2012), http://www.puc.texas.gov/industry/electric/reports/energy_assurance/Energy_Assurance_Plan-Texas.pdf [hereinafter TEXAS ENERGY ASSURANCE PLAN].

15. PUB. UTIL. COMM’N OF TEX., 2011 REPORT TO THE 82ND TEXAS LEGISLA-

TURE: SCOPE OF COMPETITION IN ELECTRIC MARKETS IN TEXAS 71 (Jan. 2011) http://www.puc.texas.gov/industry/electric/reports/scope/2011/2011scope_elec.pdf [hereinaf-ter 2011 SCOPE REPORT].

16. See Wind Resource Assessment, supra note 13.17. See SOUTHWEST POWER POOL, SPP MEMBER AND CUSTOMER DEMOGRAPH-

ICS 12 (Oct. 20, 2009), http://www.spp.org/publications/SPP_Demographics_Oct_2009.pdf [hereinafter SPP DEMOGRAPHICS].

18. SOUTHWEST POWER POOL, SPP FAST FACTS 2, http://www.spp.org/publications/SPP_Fast_Facts.pdf [hereinafter SPP FAST FACTS].

19. Id.


high wind and low load, however, when wind penetration in SPP isvery high. For example, on October 10, 2013, wind generation served32.8% of SPP load.20

Texas has experienced a rapid and significant addition of renewableenergy generation in recent years, primarily large-scale wind genera-tion resources (“WGRs”).21 ERCOT’s approximately 11,000 MW ofwind generation exceeds that of any other state in the nation.22 In2012, wind power accounted for 13% of ERCOT’s generation capacityand 9.2% of its energy use.23 On May 2, 2013, ERCOT set a new windgeneration record of 9,674 MW, 28.05% of its load at the time.24

ERCOT projects that its future generation fleet may be more de-pendent on natural gas than its existing fleet, because low natural gasprices are expected to limit the development of thermal generationthat uses other fuel sources.25 ERCOT also projects increased devel-opment of renewable generation under a range of future potentialmarket conditions.26

2. Characteristics of Types of Generation

In operating an electrical network, the level of energy producedmust at all times, within a narrow tolerance, match the level of energydemanded by customers.27 This matching is achieved by increasing ordecreasing generation output as demand changes.28 To maintain thisbalancing act, grid operators must rely on adequate supply of electricgeneration to meet demand, a concept known as resource adequacy.29

They must also maintain capacity reserves to help support grid relia-bility should shortfalls occur. Traditional generation falls into threemain functional categories. Base load plants operate continuously toserve the minimum level of energy demanded.30 Cycling plants beginto operate and increase their output as the level of demand increasesdaily or seasonally.31 Peaker plants only operate when demandreaches very high levels.32

20. Southwest Power Pool, Fast Fact: New Wind Generation Peaks, SOUTHWEST

POWER POOL ELEC. ENERGY NETWORK-KEEPING THE LIGHTS ON, http://www.spp.org/ (last visited Feb. 7, 2014).

21. TEXAS ENERGY ASSURANCE PLAN, supra note 14, at 70.22. ERCOT Concept Paper, supra note 12, at 8.23. See Quick Facts, supra note 7, at 1.24. Id.25. ERCOT, LONG-TERM SYSTEM ASSESSMENT FOR THE ERCOT REGION 8

(Dec. 2012), http : / / interchange . puc . texas . gov / WebApp / Interchange / application /dbapps/filings/pgSearch_Results.asp?TXT_CNTR_NO=33577&TXT_ITEM_NO=19.

26. Id.27. TEXAS ENERGY ASSURANCE PLAN, supra note 14, at 71.28. Id.29. See ERCOT, Resource Adequacy, http://www.ercot.com/gridinfo/resource/

(last visited 2014).30. TEXAS ENERGY ASSURANCE PLAN, supra note 14, at 71.31. Id.32. Id.


Unlike traditional generators, which can be ramped up and down tomeet ever-changing demand, wind generators only produce when thewind is blowing. Due to this non-dispatchable nature, wind genera-tors are generally assigned discounted capacity values when calculat-ing reserve requirements. For example, ERCOT ascribes a capacityvalue to wind equal to 8.7% of nameplate capacity, intended to re-present the amount of wind available during annual peak load.33

However, in light of recent studies on the effective load contributionof wind production, the ERCOT Technical Advisory Committee hasrecommended that the ERCOT Board increase this value to 14.2%for non-coastal wind resources and 32.9% for coastal wind resources(the substantial difference in the capacity values assigned to coastaland non-coastal wind is discussed later in this Article).

As wind plants are generally regarded as must-run units, they alsofunction as negative loads, displacing other marginal resources tomeet overall consumer demand.34 As such, during peak demand windproduction frequently displaces high-cost combustion turbines and gasor oil peaking units.35 Conversely, during off-peak times plants withlower operating costs, such as coal or combined cycle gas plants, maybe displaced.36

Other significant differences in the grid impacts of different types ofgeneration relate to frequency stability and voltage support. Increas-ing penetration of non-synchronous resources, such as wind genera-tion, leads to economic displacement of some synchronous generatorsthat would otherwise be committed to serve a given load.37 Becausenon-synchronous resources are electrically connected to the systemthrough an electronic inverter, they typically do not contribute inertiato the system, leading to overall reduction in system inertia.38 Declinein inertial response leads to faster frequency decay and lower fre-quency nadir during a generation resource forced outage and moresevere changes in frequency due to normal load and generation varia-tions.39 It will also result in larger frequency deviation for smaller unittrips and potentially trigger under-frequency load shedding moreoften.40

33. See Newell et al., ERCOT Investment Incentives and Resource Adequacy, at 19(June 1, 2012) http://www.ercot.com/content/gridinfo/resource/2014/mktanalysis/Brattle_ERCOT_Resource_Adequacy_Review_2012-06-01.pdf.

34. YIH-HUEI WAN, ANALYSIS OF WIND POWER RAMPING BEHAVIOR IN ERCOT2 (Mar. 2011), http://www.nrel.gov/docs/fy11osti/49218.pdf.

35. See Appendix B: Overview of the U.S. Electric System, EPA 3 (Apr. 28, 2011),http://www.epa.gov/statelocalclimate/documents/pdf/overview_paper_4-28-2011.pdf.

36. Id.37. ERCOT Concept Paper, supra note 12, at 9.38. Id.39. Id. at 10.40. Id.


Increased wind generation capacity thus requires traditional ther-mal units to provide AS more frequently.41 Moreover, ramping ther-mal units up and down can increase their costs of maintenance andoperation.42

3. Key Trends

In 2008, the PUCT approved a major ERCOT transmission expan-sion plan to deliver 18,456 MW of existing and additional wind gener-ation output from West Texas and Panhandle competitive renewableenergy zones (“CREZs”) to load centers in the eastern half of Texas.43

Virtually all of the CREZ transmission construction was completed bythe end of 2013.44

In 2009, the PUCT observed:The level of wind development has raised concerns about ERCOT’sability to manage the electric network during periods of high windand low ERCOT load. One concern is the need for additional ca-pacity reserves to compensate for the intermittent nature of windgeneration. These capacity reserves are typically provided by quick-start natural gas units that come on line when the wind falls off. . . .Wind generation output can change dramatically over a period ofseveral hours. . . . Even if the changes in output can be forecast, thesystem operators will still need to have the ability to call on thermalgenerating resources to increase or reduce output to offset the com-bined impact of changes in wind generation output and load.45

A 2012 report by the PUCT and other Texas energy agenciesconcludes:

It has been feasible to incorporate wind energy into the electric sys-tem operations at the relatively low levels of penetration of windcapacity that have occurred up to now. Today, wind resources con-stitute about 15% of the total capacity in the ERCOT region, butthe completion of the CREZ transmission plan and the associatedwind farms will roughly double the wind capacity in ERCOT. . . .When wind production reaches a percentage of 20 to 30% of totalsystem load, operational problems are increasingly likely to affectsystem reliability.46

41. Commission Staff’s Petition for Designation of Competitive Renewable-EnergyZones, supra note 1, at 17.

42. Id.43. Id. at 1–2.44. See RS&H, COMPETITIVE RENEWABLE ENERGY ZONE PROGRAM OVERSIGHT:

CREZ PROGRESS REPORT NO. 13 (OCT. UPDATE) 234–236 (Oct. 2013), http://www.texascrezprojects.com/systems/file_download.aspx?pg=355&ver=2.

45. PUB. UTIL. COMM’N OF TEX., REPORT TO THE 81ST TEXAS LEGISLATURE:SCOPE OF COMPETITION IN ELECTRIC MARKETS IN TEXAS 34 (Jan. 2009), http://www.puc.texas.gov/industry/electric/reports/scope/2009/2009scope_elec.pdf.

46. TEXAS ENERGY ASSURANCE PLAN, supra note 14, at 71.


As of December 2012, ERCOT had more than 20,000 MW of active,wind-generation requests under review.47

Another important trend involves the adequacy of overall ERCOTgeneration capacity compared to ERCOT load. In response toERCOT forecasts that its reserve margin in 2014 and beyond wouldfall below the target reserve margin of 13.75% set by the ERCOTBoard of Directors, the PUCT began to investigate and to addressfactors causing generational development to lag behind expectedgrowth in demand of electricity.48 The PUCT designated the resourceadequacy issue as its top priority.49 The PUCT has taken several stepsto improve the signals that the competitive wholesale electric marketis sending to attract generation investment to Texas and is analyzingother steps to take.50

Another trend of increasing importance is distributed generationand demand-side resources. ERCOT projects that both generationand demand-side resources on the distribution system (non-networked circuits operating below 69 kilovolts (“kV”)) may becomeincreasingly prevalent on the system, resulting in a need to evaluatethe potential impacts of distributed resources on transmission-systemoperations.51

C. Grid Considerations in ERCOT and SPP

1. Transmission Capacity

Beginning in 2001, the rapid development of wind power in WestTexas showed that wind farms can be built more quickly than trans-mission.52 Based on concepts formulated during the 79th Texas Legis-lature, which took place in 2005, the PUCT was required to designateCREZs based on showings of sufficient renewable energy resources,suitable land area and generator financial commitment, and to de-velop a plan to construct transmission capacity to deliver electric out-

47. See Quick Facts, supra note 7, at 1.48. PUB. UTIL. COMM’N OF TEX., REPORT TO THE 83RD TEXAS LEGISLATURE:

SCOPE OF COMPETITION IN ELECTRIC MARKETS IN TEXAS 1 (Jan. 2013) http://www.puc.texas.gov/industry/electric/reports/scope/2013/2013scope_elec.pdf [hereinafter2013 SCOPE REPORT].

49. Id.50. Id. at 5–6; see also Filings in Commission Proceeding to Ensure Resource Ade-

quacy in Texas, PUB. UTIL. COMM’N OF TEX., http://interchange.puc.texas.gov/WebApp/Interchange/application/dbapps/filings/pgControl.asp?TXT_UTILITY_TYPE=A&TXT_CNTRL_NO=40000&TXT_ITEM_MATCH=1&TXT_ITEM_NO=&TXT_N_UTILITY=&TXT_N_FILE_PARTY=&TXT_DOC_TYPE=ALL&TXT_D_FROM=&TXT_D_TO=&TXT_NEW=true.

51. ERCOT, supra note 25, at 8–9.52. PUB. UTIL. COMM’N OF TEX., REPORT TO THE 80TH TEXAS LEGISLATURE:

SCOPE OF COMPETITION IN ELECTRIC MARKETS IN TEXAS 18 (Jan. 2007), http://www.puc.texas.gov/industry/electric/reports/scope/2007/2007scope_elec.pdf [hereinafter2007 SCOPE REPORT].


put from the CREZs to customers.53 The PUCT’s 2008 order adoptedCREZs (three in West Texas and two in the Texas Panhandle) and atransmission expansion plan to deliver 18,456 MW of existing and ad-ditional output from the CREZs to customers in other parts of thestate.54 Almost all of the CREZ transmission is 345 kV.55

Transmission capacity and wind integration concerns were impor-tant to the PUCT’s decision as to how large a CREZ transmissionexpansion plan to approve. At the time the PUCT made that decision,West Texas wind generation was experiencing chronic and severetransmission congestion.56 In adopting an intermediate transmissionexpansion plan over smaller and larger plans, the PUCT found that:

• The smaller plans left little or no room for wind generation ex-pansion after 2008.

• ERCOT could maintain system reliability under the adoptedplan by scheduling additional thermal units and curtailing windgeneration when there is no lower-cost alternative.

• From a reliability standpoint, the evidence did not support selec-tion of the larger plans.57

To connect Panhandle wind generation to the ERCOT grid, theCREZ transmission extends deeply into SPP territory but is intercon-nected only with ERCOT.58 To avoid possibly subjecting ERCOT toFERC jurisdiction, a wind generation facility may not interconnect si-multaneously with ERCOT and electrical grids outside ERCOT.59

Thus in the Panhandle, output from a wind generation facility may becarried via an SPP line to SPP load, or via an ERCOT line to ERCOTload, but not both.

Partly to transmit wind output, SPP also has a significant FERC-approved transmission build-out underway.60 Other transmissionplanning and construction is ongoing in ERCOT and SPP.

2. System Stability

Historically, wind generators have not contributed to stabilizing fre-quency following a disturbance or provided the same degree of volt-age support compared to conventional generation.61 However, as

53. See PURA, TEX. UTIL. CODE ANN. § 39.904(g) (West Supp. 2013).54. Commission Staff’s Petition for Designation of Competitive Renewable-Energy

Zones, supra note 1, at 1–2.55. Id. at 40, 42.56. Id. at 43.57. Id. at 10–11, 17–18, 20.58. Id. at 49, 62.59. Id. at 23, 49.60. Southwest Power Pool, Integrated Transmission Planning, SOUTHWEST POWER

POOL ELECTRIC ENERGY NETWORK-KEEPING THE LIGHTS ON, http://www.spp.org/section.asp?pageID=129 (last visited Feb. 7, 2014).

61. TEXAS ENERGY ASSURANCE PLAN, supra note 14, at 73.


discussed later in this Article, improved wind generation technology isbringing those capabilities closer to those of traditional generation.

D. Load Considerations in ERCOT and SPP

SPP accounts for 13% of the country’s land area but only 7% of itspopulation.62 SPP’s 63,000 MW of generation serve a population of 15million.63 On August 1, 2012, SPP’s peak demand was 53,984 MW.64

ERCOT comprises 85% of Texas’s electric load and 75% of itsland.65 ERCOT’s 88,227 MW of generation serve a population of 22million.66

Significant load growth has occurred recently in the oil and gas pro-ducing regions of ERCOT.67

ERCOT’s load varies from a peak of slightly below 70 gigawatts(“GW”) in the summer to a minimum of 22 GW during off-peak sea-sons.68 The combination of huge seasonal variances in system loadand high penetration of wind and other intermittent renewable re-sources increases ERCOT’s operational challenges significantly.69

Nevertheless, ERCOT has been successfully operating the systemwith high wind penetration.70

III. INTERMITTENCY SOLUTIONS AND RELATED LAW

A. Transmission and Distribution Improvements

In its December 2012 Long-Term Assessment Report, ERCOTconcluded:

• Higher voltage transmission solutions appear cost-effective infuture scenarios with significant increases in renewable genera-tion to connect low-cost resources that are concentrated at a sig-nificant distance from major load centers.

• Scenario analysis indicates that both natural gas generation andrenewable resources are likely to be competitive across a broadrange of potential future market outcomes. The prevalence ofrenewable generation technologies in many future scenarios in-dicates a need for further study of system requirements to relia-bly integrate variable generation. As a component of thisanalysis, ERCOT is currently using grant funding provided bythe Department of Energy to implement a new analytical model

62. See SPP DEMOGRAPHICS, supra note 17, at 9.63. Id. at 3.64. See SPP FAST FACTS, supra note 18, at 2.65. See Quick Facts, supra note 7.66. Id.67. ERCOT, supra note 25, at 10.68. ERCOT Concept Paper, supra note 12, at 8.69. Id.70. Id.


that will assess the impact of future resource additions on thesystem’s frequency response capability.71

ERCOT noted that those conclusions are based on high-level assump-tions and are intended to inform the five-year planning process, whichprovides a more detailed review of specific transmission projects.72

ERCOT’s Panhandle CREZ system presents particular voltage sta-bility and grid strength challenges.73 ERCOT’s transmission to servethe Panhandle CREZs reaches deep into SPP territory but is not in-terconnected with SPP. It is wind-dominated and far from ERCOTload centers.74 It has minimal to no local load and minimal to no syncgeneration.75 No near-term ERCOT transmission projects in the Pan-handle are being developed after the 2013 completion of the CREZtransmission.76

In 2012, ERCOT projected that in the Panhandle area, wind gener-ation will exceed the existing CREZ design capacity based on theCREZ reactive study initial build recommendations.77 As of October2013, 11 GW of Panhandle wind capacity were going throughERCOT’s generation interconnection process.78 ERCOT concludedthat if the northwestern-most portion of the Panhandle CREZ systembecomes over-subscribed, voltage stability limits will constrain thePanhandle wind power export to 2.6 GW.79

To address this concern, ERCOT initiated a Panhandle RenewableEnergy Zone (“PREZ”) study to identify potential system improve-ment projects to accommodate additional generation resources in thearea, and triggers for when to recommend those projects.80 Upgradesthat the PREZ study identifies are not considered “approved” andwill require further review at ERCOT.81 Other parts of the ERCOTregion may also require further studies for potential thermal and sta-bility challenges.82

71. ERCOT, supra note 25, at 3.72. Id.73. ERCOT, PANHANDLE RENEWABLE ENERGY ZONE (PREZ) STUDY PRELIMI-

NARY RESULTS 17 (Oct. 22, 2013), http://www.ercot.com/content/meetings/rpg/keydocs/2013/1022/PanhandleStudy_RPG_10222013_r1.pdf [hereinafter PREZ STUDY

PRELIMINARY RESULTS].74. ERCOT, PANHANDLE RENEWABLE ENERGY ZONE (PREZ) STUDY–

SCENARIO 1 PRELIMINARY RESULTS 10 (June 25, 2013), http://www.ercot.com/content/meetings/rpg/keydocs/2013/0625/PanhandleStudy_scenario_1_RPG_06252013_r1.pdf [PREZ STUDY SCENARIO 1 PRELIMINARY RESULTS].

75. PREZ STUDY PRELIMINARY RESULTS, supra note 73, at 17.76. Id. at 15.77. PREZ STUDY SCENARIO 1 PRELIMINARY RESULTS, supra note 74, at 3, 5.78. PREZ STUDY PRELIMINARY RESULTS, supra note 73, at 17.79. PREZ STUDY SCENARIO 1 PRELIMINARY RESULTS, supra note 74, at 3, 11.80. Id. at 5.81. PREZ STUDY PRELIMINARY RESULTS, supra note 73, at 3.82. Id.


B. Forecasting, Planning, Market Design and Grid Operation

1. ERCOT

In December 2010, ERCOT implemented its Nodal Market,whereby resource scheduling and dispatch are resource-specific,rather than portfolio-based as they were under ERCOT’s previousZonal Market.83 The Nodal Market’s resource-specific dispatch withfive-minute resolution lets ERCOT closely follow net load variationsand is one of the main reasons ERCOT has been able to integrateintermittent renewable generation into its system with minimal in-crease in AS capacity.84

Improvements in ERCOT’s wind production forecasting have alsoled to more efficient and effective utilization of wind resources:

ERCOT has acquired state-of-the-art forecasting tools to forecastwind generators’ output. Wind generators are now required to usethe wind production forecast provided by ERCOT in their daily re-source plan submittals rather than rely on their own forecasts, whichcan have varying degrees of sophistication and accuracy.Even with state-of-the-art forecasting of wind production, there isstill some disparity between the forecasted production and actualproduction. The risks of load forecast error, wind forecast error andoutages of the thermal generation and transmission facilities aremitigated by acquiring generation reserves that may be called intooperation when needed, and it may become necessary for the sys-tem operator to quickly deploy these resources when a suddenchange in wind production occurs.85

2. FERC and SPP

In 2012, FERC issued Order No. 76486 to integrate variable energyresources (“VERs”).87 FERC explained that:

[FERC] takes this action now recognizing that the composition ofthe electric generation portfolio continues to change. VERs aremaking up an increasing percentage of new generating capacity be-ing brought on-line. New wind generating capacity accounted for35% of all newly installed generating capacity from 2007-2010.88

83. ERCOT Concept Paper, supra note 12, at 8.84. Id.85. TEXAS ENERGY ASSURANCE PLAN, supra note 14, at 72.86. Integration of Variable Energy Resources, 77 Fed. Reg. 41,482 (July 13, 2012)

(to be codified at 18 C.F.R. pt. 35), available at http://elibrary.ferc.gov/idmws/common/OpenNat.asp?fileID=13013217.

87. Id. FERC defined a VER as “a device for the production of electricity that ischaracterized by an energy source that: (1) is renewable; (2) cannot be stored by thefacility owner or operator; and (3) has variability that is beyond the control of thefacility owner or operator.” Id. This definition includes, inter alia, wind-generatingfacilities. Id.

88. Id. at 41,485.


FERC adopted reforms to remove barriers to VER integration and“to ensure that the rates, terms, and conditions for FERC-jurisdic-tional services provided by public utility transmission providers arejust and reasonable and not unduly discriminatory or preferential.”89

Specifically, FERC required public utility transmission providers tooffer “customers the option of using more frequent transmissionscheduling intervals within each operating hour, at [fifteen]-minute in-tervals.”90 FERC found that, “over time, implementation of intra-hour scheduling will allow public utility transmission providers to relymore on planned scheduling and dispatch procedures, and less onreserves, to maintain overall system balance.”91 FERC determinedthat “by moving from hourly to fifteen[-]minute scheduling intervals,the amount of imbalance energy for which the source balancing au-thority is potentially responsible [can] be reduced.”92 FERC notedthat this reduction in the imbalance of energy needed “can lead to acorresponding reduction in the amount of capacity held to providethat energy and, in turn, lower reserve-related costs for the sourcebalancing authority, and ultimately consumers.”93

In Order No. 764, FERC also adopted reporting requirements de-signed to support the development and deployment of power produc-tion forecasting by public utility transmission providers.94 FERCexplained that, as with intra-hourly scheduling, power productionforecasts can enable transmission providers to manage the variabilityof VER generation more efficiently through the unit commitment anddispatch process, rather than through the use of reserves, which can bemore costly.95 To this end, FERC required new large interconnectioncustomers whose generating facilities are VERs to provide to the pub-lic utility transmission provider with which the customer is intercon-nected meteorological and forced outage data consistent with thepower production forecasting employed by the transmission provider,if any, to manage reserve commitments.96 FERC required new largeinterconnection customers having wind as the energy source to “pro-

89. Id. at 41,482.90. Id. at 41,483.91. Id. at 41,498.92. Id. at 41,499.93. Id.94. Id. at 41,510.95. Id. at 41,483, 41,511.96. Id. at 41,483, 41,511. FERC defines large generators as those resources that

produce more than 20 MW. Standardization of Generator Interconnection Agree-ments and Procedures, 69 Fed. Reg. 15,932, 15,933 (Mar. 26, 2004) (to be codified at18 C.F.R. pt. 35), 70 Fed. Reg. 265, 266–67 (Jan. 4, 2005) (to be codified at 18 C.F.R.pt. 35), 70 Fed. Reg. 37,661 (June 30, 2005) (to be codified at 18 C.F.R. pt. 35); Nat’lAss’n of Regulatory Util. Comm’rs v. FERC, 475 F.3d 1277 (D.C. Cir. 2007), cert.denied, 552 U.S. 1230 (2008).


vide, at a minimum, site-specific meteorological data including: tem-perature, wind speed, wind direction, and atmospheric pressure.”97

Although FERC had preliminarily found that a generic tariff sched-ule would remove barriers to VER integration by eliminating uncer-tainty regarding cost recovery, FERC was concerned that this reformcould inhibit the flexibility of a public utility transmission provider todesign capacity services that aligned with its practices or needs.98

Thus, FERC declined in Order No. 764 to adopt a generic tariff sched-ule for generation regulation service.99 FERC stated that it will con-tinue to evaluate proposed generator regulation service chargesassociated with VER integration on a case-by-case basis.100 FERCprovided guidance for public utility transmission providers and theircustomers regarding the development and evaluation of theseproposals.101

In April 2013, SPP submitted to FERC tariff revisions adopting thedata requirements set forth in Order No. 764 with slight modifica-tions.102 In addition to requiring wind-powered VERs to provide tem-perature, wind speed, wind direction, and atmospheric pressure, asmandated by Order No. 764, SPP’s tariff revisions also required theseVERs to provide additional information related to the relative humid-ity, and site specific geographic data including location (latitude andlongitude) of the Variable Energy Resource and location (latitude andlongitude) and height of the facility used to provide the meteorologi-cal data.103 FERC found these tariff revisions consistent with, or su-perior to, the compliance requirements of Order No. 764 andtherefore conditionally accepted them.104

In November 2013, SPP filed tariff revisions to comply with the re-maining requirements of Order No. 764.105 In this filing, SPP notedthat its current scheduling system already complies with Order No.764’s intra-hour schedule submission and modification and that SPPcurrently accommodates intra-hour schedules and modifications whenrequested.106 Thus, SPP asserted that the tariff changes submitted in

97. Integration of Variable Energy Resources, 77 Fed. Reg. 41,482, 41,512 (July 13,2012) (to be codified at 18 C.F.R. pt. 35).

98. Id. at 41,519.99. Id. at 41483, 41,519.

100. Id. at 41,483, 51,524, 41,525.101. Id. at 41,519.102. Submission of Tariff Revisions to Adopt Data Requirements Pursuant to Or-

der No. 764 at 5, Southwest Power Pool, Inc., No. ER13-1292-000 (Apr. 16, 2013),http://elibrary.ferc.gov/idmws/common/OpenNat.asp?fileID=13234472.

103. Id. at 5–6.104. Southwest Power Pool, Inc., 143 FERC ¶ 61,285 para. 12 (June 27, 2013)

(order).105. Submission of Order No. 764 Compliance Filing at 3, Southwest Power Pool,

Inc., No. ER13-1292-001 (Nov. 12, 2013), available at http://elibrary.ferc.gov/idmws/common/OpenNat.asp?fileID=13392635.

106. Id. at 4.


the filing already reflected SPP’s current practices.107 Further, SPPnoted that its system allows for intra-hour scheduling of less than fif-teen-minute increments and therefore concluded that its tariff pro-vides scheduling options for transmission customers that are superiorto those required under Order No. 764.108 This filing is still pendingbefore FERC.

C. Ancillary Service Products

1. ERCOT

In 2012, ERCOT began considering “rethinking” its entire existingset of AS.109 According to a draft ERCOT concept paper, reasons forthis initiative include:

• The current AS construct was based on the market design of thelate 1990s.

• In the last 15 years ERCOT’s generation mix has changed, fromlarge steam generators being the main generation type to large-scale utilization of gas-fired combined cycle plants and non-syn-chronous wind generation and introduction of electric energystorage.

• Some new resources expected to be added to the ERCOT sys-tem present additional challenges; some have new capabilities inproviding AS. For example, the frequency response provided bya battery or wind generator is controlled by inverter electronicsand has the potential to respond faster than that of conventionalgenerators.

• New FERC/NERC regulatory requirements applicable inERCOT are on the horizon.

• A new AS approach will better utilize the capabilities of existingand new resources and let ERCOT more efficiently provide theexpected reliable and secure operations.

• Improved ways to procure AS, improved performance specifica-tions for resources providing AS, and implementation of “payfor performance” settlement methods similar to those outlinedin FERC Order 755, will likely lead to a more efficient way toacquire and deploy AS.110

ERCOT’s draft concept paper is limited to physical aspects of opera-tions related to frequency control currently addressed by the Regulat-ing, Responsive Reserve and Non-Spin AS.111

The concept paper recommends a transition to the following ASproducts plus an additional AS that would be used during some transi-tion period:

107. Id.108. Id.109. ERCOT Concept Paper, supra note 12, at 5.110. Id. at 5, 8–9.111. Id. at 5–6.


• Synchronous Inertial Response Service (“SIR”). Maintains min-imum rate of change of frequency; provides sufficient time forprimary frequency response.

• Fast Frequency Response Service (“FFR”). Supplement to iner-tial response; improves rate of change of frequency after FFRdeployment; improves frequency nadir, provides sufficient timefor primary frequency response.

• Primary Frequency Response Service. Arrests frequency decayand reset frequency close to 60Hz; improves frequency nadir;meets NERC standard requirements.

• Up and Down Regulating Reserve Service. Matches generationand demand between each Security Constrained Economic Dis-patch interval; restores PFR reserve, meets NERC standardrequirements.

• Contingency Reserve Service. Covers the Most Severe SingleContingency, restores other AS reserve.

• Supplemental Reserve Service. Covers the loss of generating ca-pacity; compensates for net load forecast error and/or forecastuncertainty. Similar to ERCOT’s current 30-minute Non-SpinService, to be used during a transition period.112

The above AS set would add and/or redefine AS products currentlyused in ERCOT, and subsume different elements within the currentResponsive Reserve and Non-Spin Service into several of the newlydefined AS.113

The proposed new AS are expected to help the ERCOT systemcounteract reliability risks from intermittent wind generation. For ex-ample, with less synchronous generation online, ERCOT needs FFRto supplement the inherent inertial response from synchronous ma-chines.114 They may also allow wind generation to provide specific ASfor which it qualifies. For instance, several manufacturers provide in-verter-based wind turbine generators with synthetic inertia capability,i.e., capability to inject active power into the system initiated throughcontrol system action following a disturbance, such as a generatortrip.115 ERCOT is considering whether such synthetic response couldbe used to provide SIR.116

The recommendations in ERCOT’s AS concept paper will requirefurther review in ERCOT’s stakeholder process.117 Implementationof any major transition to a new AS set would be expected to take atleast two or three years.118

112. Id. at 6, 30–35.113. Id. at 6.114. Id. at 19.115. Id. at 16.116. Id. at 17.117. Id. at 6.118. Id. at 7.


2. FERC and SPP

In 2011, FERC issued Order No. 755.119 In this Order, FERC ex-plained that frequency regulation service—or secondary frequencycontrol—is one of the tools regional transmission organizations(“RTOs”), such as SPP, and independent service operators (“ISOs”)use to balance supply and demand on the transmission system, andthus to maintain reliable operations.120 FERC noted that the faster aresource can ramp up or down,121 the more accurately the resourcecan respond to a transmission system operator’s automatic generatorcontrol (“AGC”) signal to balance supply and demand.122 FERCfound inter alia, that the then-current frequency regulation “compen-sation [methods] for regulation service in RTO and ISO markets[failed] to acknowledge the inherently greater amount of frequencyregulation service being provided by faster-ramping resources” suchas flywheels.123 FERC also found that “certain practices of someRTOs and ISOs result in economically inefficient economic dispatchof frequency regulation resources.”124

To remedy these issues, in Opinion No. 755, FERC “require[d]RTOs and ISOs to compensate frequency regulation resources basedon the actual service provided.”125 This compensation would consistof a two-part payment to each cleared frequency resource: (1) a capac-ity payment at the uniform clearing price that includes the marginalresource’s opportunity costs; and (2) a market-based performancepayment for service that reflects the accuracy with which the resourceresponds to the system operator’s AGC dispatch signal.126 FERC ex-plained that in many instances, it would “leave to the individual RTOsand ISOs how best to meet these requirements.”127

In June 2013, SPP submitted to FERC revisions to its tariff pursuantto Order No. 755.128 SPP proposed, inter alia, to establish a two-partmethodology for offers and compensation of Regulation-Up, which

119. Frequency Regulation Compensation in the Organized Wholesale Power Mar-kets, 76 Fed. Reg. 67,260 (Oct. 31, 2011) (to be codified at 18 C.F.R. pt. 35), availableat http://elibrary.ferc.gov/idmws/common/OpenNat.asp?fileID=12795708.

120. Id.121. FERC explained that the ability to “ramp” is traditionally defined as the abil-

ity to change the output of real power from a generating unit per some unit of time,usually measured as megawatts per minute (MW/min). Id. at para. 2 n.3. Ramping upplaces more energy on the system, while ramping down reduces energy on the system.See id.

122. Id. at 67,260–61.123. Id.124. Id.125. Id.126. Id. at 67,260, 67,270, 67,272, 67,283.127. Id. at 67,270.128. Letter to the Secretary of the Federal Energy Regulatory Commission Re:

Southwest Power Pool, Inc., Docket No. ER13-1748-000, Order No. 755 ComplianceFiling, at 1 (June 21, 2013), http://elibrary.ferc.gov/idmws/common/OpenNat.asp?fileID=13288112.


increases energy output, and Regulation-Down, which reduces energyoutput.129 The capacity component of the offer and price would bebased on SPP’s current FERC-approved methodology.130 The per-formance component would be based on a resource’s Regulation-Upand Regulation-Down Mileage.131 Mileage would be measured foreach five minute dispatch interval and would be equal to the sum ofthe absolute value of movements by a Resource in response to Regu-lation Deployment instructions provided through AGC every fourseconds.132 As SPP’s Integrated Marketplace (“IM”) is scheduled tobegin on March 1, 2014, SPP has requested an effective date of March1, 2015, consistent with FERC’s directive that SPP implement its Or-der No. 755 compliance no later than one year after SPP’s IM start-up.133 On March 7, 2014, FERC issued a deficiency letter to SPP, re-quiring additional information to process SPP’s June 21, 2013,filing.134

In 2013, FERC issued Order No. 784.135 In this Order, FERC re-vised its regulations to enhance competition and transparency in ASmarkets.136 FERC determined that the restriction on third-party salesof ancillary services at market-based rates to public utilities seeking tomeet their ancillary service obligations has proved to be an unreason-able barrier to entry and has unnecessarily restricted access to poten-tial suppliers.137 Thus, Order No. 784 generally allows, inter alia, aresource with market-based rate authority for sales of energy and ca-pacity to sell at market-based rates imbalance services and operatingreserve services to public utility transmission providers in areas thathave implemented intra-hour scheduling.138

In addition, building off Order No. 755, FERC required in OrderNo. 784 each public utility transmission provider to take into accountspeed and accuracy of regulation resources in determining reserve re-quirements.139 Finally, FERC revised its accounting and reporting re-quirements to better account for and report transactions associatedwith the use of energy storage devices in public utility operations.140

129. Id. at 3.130. Id. at 10.131. Id.132. Id.133. Id. at 1–2.134. Southwest Power Pool, Inc., Docket No. ER13-1748-000 (Mar. 7, 2014), http://

elibrary.ferc.gov/idmws/common/opennat.asp?fileID=1347842.135. Third-Party Provision of Ancillary Services: Accounting and Financial Report-

ing For New Electric Storage Technologies, 78 Fed. Reg. 46,178 (July 30, 2013) (to becodified at 18 C.F.R. pts. 35 & 101), available at http://elibrary.ferc.gov/idmws/common/OpenNat.asp?fileID=13309391.

136. Id.137. Id. at 46,180–81.138. Id. at 46,187.139. Id. at 46,178–79.140. Id. at 46,179.


Requests for clarification of Order No. 784 are currently pendingbefore FERC. In December 2013, SPP filed tariff revisions to complywith Order No. 784.141 SPP requested an effective date of March 1,2014, for the tariff revisions, consistent with the effective date of SPP’sIntegrated Marketplace.142

D. Wind Generation Technology Improvements andReliability Requirements

1. PUCT Proceedings

In a 2012 report, the PUCT and other Texas energy agenciescommented:

Wind generators historically have not contributed to stabilizing fre-quency following a disturbance as conventional generators do. As aresult, when conventional generation is displaced by wind genera-tion, the potential for more severe frequency disturbances increasesbecause the remaining conventional generation has to overcome thedisturbance without help from the wind generation. Technologicalimprovements have brought a partial solution to this problem, andnew wind turbines now come equipped with technology that allowsthese turbines to help restore the standard system frequency after adisturbance. New wind generators are now required by ERCOTrules to be equipped with such technology, and existing generatorsare required to retrofit their units if feasible.Similarly, wind generators have not provided the quality of voltagesupport provided by conventional generators that is needed to relia-bly maintain the flow of electricity through transmission lines.Technology is available to address this issue, and the new technol-ogy to address voltage support is now required of all new wind in-stallations in ERCOT.143

Disputes between ERCOT and wind generators about whatERCOT reactive power requirements should apply to certain windgeneration facilities have led to two contested cases at the PUCT.One of these cases was resolved when the PUCT adopted a settlementthat, for purposes of reactive power requirements, allowed multiplewind generation units to be treated as a single WGR if they are con-nected to the same transmission bus.144 The other case involved anERCOT procedure requiring WGRs that cannot be retrofitted to pro-vide Primary Frequency Response under a new ERCOT requirement

141. Submission of Order No. 784 Compliance Filing, Southwest Power Pool, Inc.,No. ER14-866-000 (Dec. 27, 2013), available at http://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=13427104.

142. Id. at 1.143. TEXAS ENERGY ASSURANCE PLAN, supra note 14, at 73.144. Pub. Util. Comm’n of Tex., Appeal and Complaint by Iberdrola Renewables,

Inc. et al of ERCOT Decision to Approve PRR 830, Docket No. 37817, at 5 (June14, 2012) (order), http://interchange.puc.texas.gov/WebApp/Interchange/application/dbapps/filings/pgSearch_Results.asp?TXT_CNTR_NO=37817&TXT_ITEM_NO=80.


to submit an attestation of technical feasibility with ERCOT that theirwind projects cannot be retrofitted to meet the new standard, exempt-ing those assets from the requirement.145 The WGRs appealed to thePUCT ERCOT’s denial of their request for permanent exemptions.146

That case has been abated for settlement talks.147

2. FERC Orders

In 2005, FERC issued Order Nos. 661 and 661-A in which it re-quired all public utilities that own, control, or operate facilities fortransmitting electric energy in interstate commerce to establish stan-dard technical requirements for the interconnection of wind plantslarger than 20 MW.148 These technical requirements included thoseon reactive power. FERC required wind plants to maintain a powerfactor within the range of 0.95 leading to 0.95 lagging, measured at thePoint of Interconnection, if the transmission provider’s system impactstudy shows that such a requirement is necessary to ensure safety orreliability.149 FERC also required, inter alia, wind plants to providesufficient dynamic voltage support if shown by the system impactstudy to be needed for safety or reliability.150

In 2011, FERC issued an order directing FERC Staff to commencea technical conference to examine whether the Commission shouldreconsider or modify the reactive power provisions of Order No. 661-A.151 The order stated that, “as part of that technical conference,Staff should examine what evidence could be developed under OrderNo. 661 to support a request to apply reactive power requirementsmore broadly than to individual wind generators during the intercon-nection study process.”152 FERC held this technical conference on

145. Pub. Util. Comm’n of Tex., Appellants’ Appeal and Complaint ConcerningERCOT’s Denial of Exemption Requests Under Protocol 5.9.1.3 and Requests for Re-lated Relief, Docket No. 39034, at 1 (Jan. 6, 2011) (order no. 1 setting proceduralschedule and adopting protective order), http://interchange.puc.texas.gov/WebApp/Interchange/application/dbapps/filings/pgSearch_Results.asp?TXT_CNTR_NO=39034&TXT_ITEM_NO=6.

146. Id.147. Pub. Util. Comm’n of Tex., Appellants’ Appeal and Complaint Concerning

ERCOT’s Denial of Exemption Requests Under Protocol 5.9.1.3 and Requests for Re-lated Relief, Docket No. 39034, at 1 (Oct. 29, 2013) (order no. 9 granting abatement),http://interchange.puc.texas.gov/WebApp/Interchange/application/dbapps/filings/pgSearch_Results.asp?TXT_CNTR_NO=39034&TXT_ITEM_NO=30.

148. Interconnection for Wind Energy, 70 Fed. Reg. 34,993 (June 16, 2005) (to becodified at 18 C.F.R. pt. 35), Interconnection for Wind Energy, 70 Fed. Reg. 75,005(Dec. 19, 2005) (to be codified at 18 C.F.R. pt. 35), available at http://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=10594521.

149. Interconnection for Wind Energy, 70 Fed. Reg. at 34,999.150. Id. at 35,001.151. Cal. Indep. Sys. Operator Corp., 137 FERC ¶ 61,143 at 5 (order denying re-

hearing and conditionally accepting compliance filing) (Nov. 17, 2011), http://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=1290104.

152. Id. at 5–6.


April 17, 2012. Items discussed at the conference included: the techni-cal and economic characteristics of different types of reactive powerresources, including synchronous and asynchronous generation re-sources, transmission resources and energy storage resources; the de-sign options for and cost of installing reactive power equipment at thetime of interconnection, as well as retrofitting a resource with reactivepower equipment; other means by which reactive power is currentlysecured such as through self-supply; and how a technology that is ca-pable of providing reactive power but may not be subject to the gener-ation interconnection process (e.g., FACTs) would be analyzed.153

FERC Staff was also interested in gathering information on methodsused to determine the reactive power requirements for a transmissionsystem, and how system impact and planning studies take into accountchanges in system connected technologies.154 Comments have beenfiled on these issues and are currently pending before FERC.

E. Electric Energy Storage

Electric-energy storage receives electricity from the grid, storing itin the form of potential energy—such as compressed air in com-pressed air energy storage (“CAES”), chemical energy in batteries, orkinetic energy in flywheels—and regenerating it as electricity for de-livery to the grid at a later time. The various storage technologieseach share those attributes but differ from each other in several re-spects. For example, when compared to batteries and flywheels,CAES is similar to traditional generation in that CAES:

• Must be sited where a suitable natural resource—such as a saltcavern—is available;

• Requires a larger up-front capital investment;• Takes longer to construct/install;• Requires a few minutes to respond to grid needs rather than a

few seconds;• Provides electricity in bulk—hundreds of MW rather than 1-50

MW; and• May provide electricity without interruption for longer peri-

ods—hours, days, or more—rather than for an hour or less.

These generalized summaries of storage technology characteristics areuseful, they may fail to capture distinct capabilities and attributes ofindividual projects and ongoing improvements.

The many possible applications of electric energy storage includemaking intermittent-renewable resources function more like firmerelectric generation. In PUCT’s 2009 report to the Legislature, thePUCT observed:

153. Reactive Power Res., Docket No. AD12-10-000, Notice of Technical Confer-ence at 1–2 (Feb. 17, 2012), http://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=12894578.

154. Id. at 2.


Because of the intermittent nature of wind energy, fossil fuel unitsmust be kept in reserve to meet customers’ needs in the event of adrop in production of wind energy. Large-scale energy storagetechnologies have the potential to offset changes in wind energyproduction, rather than relying on thermal generation units for thispurpose. Storage devices could also permit wind energy to be deliv-ered to customers with a lower level of investment in transmissionand allow wind energy to be stored and delivered when electricaldemand is high.155

In PUCT’s 2013 report to the Texas Legislature, the PUCT noted:Storage could provide the flexibility to adjust energy production orconsumption to offset changes in wind and solar power production,allowing energy output and demand to be matched. Storage couldalso provide an economical means of relieving transmission con-straints or meeting demand during peak periods.156

As the above descriptions suggest, storage can perform some trans-mission/distribution functions and some generation functions. To pro-tect against anti-competitive conduct, however, ERCOT’s competitivemarket structure prohibits an investor-owned facility from performingboth transmission/distribution (utility) functions and generation (com-petitive) functions. In a January 2011 report to the Texas Legislature,the PUCT explained:

The competitive model in Chapter 39 of PURA contemplates a sep-aration of transmission and generation, so that a regulated utilitywould not own generation facilities. . . . While storage is capable ofproviding multiple services, it is difficult to assign it a role in a com-petitive environment, in which utilities have been unbundled. Is-sues relating to cross-subsidization, competition, and discriminationcould arise if storage served multiple roles or functions at the sametime. Requiring a storage facility not to perform some of the func-tions of which it is capable could address these concerns but couldalso render storage devices uneconomical or result in theirunderutilization.157

For example, since 2010 an investor-owned transmission utility,Electric Transmission Texas (“ETT”), has owned and operated a 4-MW battery in the southwestern corner of ERCOT. The PUCT clas-sified the utility’s battery as a transmission asset whose cost is recover-able through rates. The PUCT explained: “This NaS battery allowedthe utility to defer the planned replacement of a 69-kV transmissionline that is the sole source of electricity for Presidio.”158 The PUCTruled that: “ETT’s proposed use of the NaS battery is appropriate fora transmission utility because the battery system provides benefits as-

155. 2007 SCOPE REPORT, supra note 52, at 80.156. 2013 SCOPE REPORT, supra note 48, at 10.157. 2011 SCOPE REPORT, supra note 15, at 94, 75.158. Id. at 77.


sociated with transmission service operations, including voltage con-trol, reactive power, and enhanced reliability.”159 The transmissionasset classification reflected the battery’s intended transmission func-tion, and the transmission utility’s agreement not to buy, sell, or taketitle to the unmetered, unaccounted for energy stored in thebattery.160

In Spring 2011, the Texas Legislature clarified that electric energystorage that functions as generation is a generation asset that a powergeneration company (“PGC”) can own. PURA now expressly:

• Defines “PGC” to include a person who generates electricitythat is intended to be sold at wholesale, including the owner oroperator of electric energy storage equipment or facilities thatare intended to provide energy or ancillary services at wholesale;

• Classifies as generation assets electric energy storage equipmentor facilities that are intended to be used to sell energy or ancil-lary services at wholesale;

• Requires that an owner or operator of such equipment or facili-ties register with the PUCT as a PGC; and

• Clarifies that the owner or operator of such equipment or facili-ties is entitled to interconnect and to obtain transmission servicefor the equipment or facilities, and to use them to sell electricityor ancillary services at wholesale in a manner consistent withPURA provisions and PUCT rules applicable to a PGC or ex-empt wholesale generator.161

The Legislature expressly did not disturb the PUCT’s 2010 order rul-ing that a storage facility that functions as transmission and whoseenergy is not sold at wholesale is a transmission asset that an investor-owned transmission utility can own and include in its rate base. TheLegislature also did not change PURA Chapter 39 provisions preclud-ing the same storage facility or equipment from providing both gener-ation and transmission/distribution functions in ERCOT’s retailchoice areas.

Since then, the PUCT and ERCOT have taken actions to addressunnecessary barriers to development of electric energy storage. Forexample, in 2012 the PUCT adopted a rule clarifying that electric en-ergy purchased by storage facilities for purposes of charging should beclassified as a wholesale transaction rather than as a retail transaction,storage facilities should be settled at the node when they are chargingrather than zonally as consuming load is settled, and electric energy

159. Id.160. Pub. Util. Comm’n, Application of Electric Transmission Texas, LLC for Reg-

ulatory Approvals Related to Installation of a Sodium Sulfur Battery at Presidio, Texas,Docket No. 35994, 10, 13 (Apr. 6, 2009), http://interchange.puc.texas.gov/WebApp/Interchange/application/dbapps/filings/pgSearch_Results.asp?TXT_CNTR_NO=35994&TXT_ITEM_NO=114.

161. PURA, TEX. UTIL. CODE ANN. § 31.002(10) (West 2007); Id. § 35.152 (WestSupp. 2013).


purchased by storage facilities for charging is generally not subject toAS and transmission service charges.162

Operational storage facilities in ERCOT now include not onlyETT’s 4-MW battery but also a 36-MW battery (developed by XtremePower) behind the meter of a wind generator (Duke Energy’s No-Trees wind project).163 Some other storage projects, including CAES,are under development.164

F. Geographic Considerations

While wind generation can be highly unpredictable on a minute-to-minute basis, it does follow certain long-term daily and seasonaltrends.165 By constructing new wind plants in wind regimes whoseoutput is correlated with consumer demand, grid operators may beable to realize certain valuable benefits, such as peak shaving and thedisplacement of less efficient peaking resources rather than more effi-cient base load or cycling plants.166 Alternatively, where new windplants are constructed in regions whose output is anti-correlated withconsumer demand, demand curves may be elongated, thereby exas-perating the challenges faced by grid operators in meeting daily loadvariations.167

Further, as the quantity and especially the geographic diversity ofwind plants increases, the variability of the output of those aggregatedplants decreases.168 This decrease in variability benefits grid opera-tors as it lowers the balancing requirements needed to integrate suchresources.169

1. ERCOT

In ERCOT, load tends to ramp during the morning, peak during theafternoon, and roll-off during the early evening.170 These trends tend

162. 16 TEX. ADMIN. CODE §§ 25.501(m), 25.192(a) (2013) (Pub. Util. Comm’n ofTex., Rules Applicable to Electric Service), http://puc.texas.gov/agency/rulesnlaws/subrules/electric/25.501/25.501.pdf, http://puc.texas.gov/agency/rulesnlaws/subrules/electric/25.192/25.192.pdf.

163. See KENNETH W. ANDERSON, JR., FLEXIBLE TRANSMISSION AND STORAGE TO

MANAGE WIND 18–19 (Aug. 6, 2013), http://www.puc.texas.gov/agency/about/commissioners/anderson/pp/EPRI_080613.pdf.

164. Id.165. See WAN, supra note 34, at 2.166. See GEN. ELEC. INT’L, INC., ANALYSIS OF WIND GENERATION IMPACT ON

ERCOT ANCILLARY SERVICE REQUIREMENTS at 3-20 (Mar. 28, 2008), http://www.uwig.org/attchb-ercot_a-s_study_final_report.pdf.

167. Id.168. ELEC. POWER RESEARCH INST., DOE: INTEGRATING SOUTHWEST POWER

POOL WIND ENERGY INTO SOUTHEAST ELECTRICITY MARKETS FINAL REPORT at 3-3(Oct. 2011), http://www.uwig.org/doe_spp_wind2sem.pdf.

169. Id. at 3-4.170. See GEN. ELEC., supra note 166, at 3-4.


to be exacerbated during the summer, when the use of home coolingsystems spikes during the afternoon hours.171

ERCOT includes two primary wind regimes with differing produc-tion characteristics: (1) West Texas (including the Panhandle); and (2)coastal South Texas. West Texas wind production tends to be anti-correlated with ERCOT’s load characteristics, producing more duringthe evening through early morning hours, and thereafter rolling-offduring the late morning through afternoon hours, when demandpeaks.172 Conversely, coastal South Texas wind tends to have moreconsistent output during the day, and tends to produce more duringthe afternoons as compared to the remainder of the day and eve-ning.173 Coastal wind production is also more reflective of seasonalload patterns in ERCOT, with production peaking during the summermonths.174

As discussed previously, ERCOT assigns discounted capacity valuesfor intermittent wind generation. The capacity value currently as-signed to wind resources is 8.9%. In light of recent studies indicatingthat wind provides greater load carrying ability than currently attrib-uted to it by ERCOT, which ability is further impacted by geographi-cal considerations, the ERCOT Technical Advisory Committee hasrecommended that the ERCOT Board approve Effective Load Carry-ing Capabilities of 14.2% for non-coastal wind and 32.9% for coastalwind. The substantial disparity between the projected load carryingcapacity of coastal versus non-coastal wind is consistent with coastalwind production’s greater correlation with peak demand.

2. SPP

Unlike in ERCOT, where two distinct wind regimes exist (WestTexas and coastal South Texas), correlation of output among windplants in SPP’s primarily flat terrain with no coastal outlets is rela-tively high.175 As such, planners in SPP have less of an opportunity tomatch new wind projects with consumer demand as compared toERCOT.

However, given SPP’s expansive geographic footprint, wind projectsmay be sited in geographically dispersed locations. This greater geo-graphic diversity can serve to mitigate the variability of aggregatewind generation, thereby allowing for easier integration of suchresources.176

171. Id.172. See WAN, supra note 34, at 16.173. Id.174. Id.175. See CHARLES RIVER ASSOCIATES, SPP WITF WIND INTEGRATION STUDY at

2-7 (Jan. 4 2010), http://www.uwig.org/CRA_SPP_WITF_Wind_Integration_Study_Final_Report.pdf.

176. Id. at 3-1.


IV. CONCLUSION

This Article explores efforts in the ERCOT and SPP regions to ad-dress challenges involving wind power intermittency. Each of the tworegions has strong wind resources and at times high wind penetration.While significant work remains to be done, each region to date hasaddressed wind integration in an effective way. Solutions and propos-als in one or both regions that help integrate wind power include:

• Market rules that encourage geographic diversity of windprojects, smoothing sharp and rapid weather-induced changes inwind generation output;

• Grid operation decisions based on more accurate wind forecast-ing, reducing wind integration challenges attributable to unrelia-ble wind forecasts;

• Requirements that wind generation facilities incorporate newtechnology that assists in wind integration;

• Changes in laws, regulations, and market rules to encourage in-vestment in and use of electric energy storage, quick start units,and other technologies that help the grid integrate wind power;and

• Transmission improvements that help the system utilize windpower while maintaining reliability.

As circumstances change, wind integration will continue to requireongoing analysis and timely response by regulators, grid operators,and the electric industry. Wind penetration in ERCOT and SPP isexpected to increase over time. The challenges, proposals, and solu-tions discussed in this Article are only a snapshot of this dynamic area.

SINS OF THE FATHER†

By K.K. DuVivier ‡

I. INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 391II. SEVERANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392

A. Short History of Mineral Severance . . . . . . . . . . . . . . . . . 393B. Problems with Severance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395C. Dominant-Servient Estate Doctrine . . . . . . . . . . . . . . . . . . 396

III. OIL AND GAS SEVERANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400A. The Era of Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401B. The Era of Scientific Awareness . . . . . . . . . . . . . . . . . . . . . 402C. The Era of Conservation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 404D. The Environmental Era . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407

IV. WIND SEVERANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409A. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409B. The Era of Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411C. Era of Scientific Awareness, Conservation, and

Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414V. PROBLEMS WITH WIND SEVERANCE AND CURRENT

RESPONSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 416A. The Problems with Wind Severance . . . . . . . . . . . . . . . . . 416B. Legislation Banning Wind Severance . . . . . . . . . . . . . . . . 418C. Repercussions of Severance Bans . . . . . . . . . . . . . . . . . . . . 420

VI. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422

I. INTRODUCTION

Are the sins of previous generations of energy development, such aswith oil and gas, being visited on the newest forms of energy? That isthe question this Article attempts to address. Specifically, this Articlewill focus on the problems created by the severance of the mineralestate from the surface and the related dominant (mineral)–servient(surface) estate doctrine (“dominant-servient estate doctrine”).

Hydrofracturing or “fracking” for oil and natural gas has placed theproblems of split estates in the spotlight more than they have been ingenerations. People have been shocked to find drill rigs in their back-yards, school playgrounds, and parks. They have been even more ap-palled to learn that the law of mineral severance has evolved overtime to hold that they, as surface owners, have little or no control oversuch choices by the holders of the mineral estate. The ensuing out-

† “[The Lord God] will by no means clear the guilty, visiting the iniquity of thefathers on the children and the children’s children, to the third and fourthgeneration.” Exodus 34:7.

‡ Professor of Law, Univ. of Denver Sturm Coll. of Law. The Author would liketo specially acknowledge my research assistant, Samantha Peaslee, for her extensiveand tireless help with this Article.

391


rage may ultimately change the current balances in severance law;fracking moratoriums, bans, and lawsuits have slowed fossil fuel de-velopment somewhat. However, the unintended casualty in this fraymay be renewable energy.

Fossil fuel interests are entrenched and well-funded, so state legisla-tors would have difficulty turning back the history of ownership rightsin fossil fuels. However, in the furor against severance, legislatorshave found it easier to control unestablished renewable energy re-sources and to enact bans on their severance. While banning sever-ance of wind may be good for many reasons, it becomes problematic ifwind also is relegated to a servient estate position in relation to fossilfuel development. This additional handicap will make it more difficultfor these new, fledgling energy sources to gain a toehold and survivein competitive energy markets.

This Article will first provide some general background about sev-erance and the related doctrine of dominant–servient estates. Next, itwill address oil and gas severance specifically. Third, it will track theparallels and distinctions between the history of wind severance andthe oil and gas history set out in Section II. Finally, Section IV willaddress the problems with the current responses to wind severance.

II. SEVERANCE

The focus of this Article will be a comparison of wind rights againstoil and gas rights. Currently, in most U.S. states, oil and gas rights arecategorized as mineral interests that can be owned separately, or “sev-ered,” from ownership of the surface estate.1 Consequently, we will

1. For examples of state treatment of oil and gas interests, see, e.g., Ohio Oil Co.v. Indiana, 177 U.S. 190 (1900); Brown v. Humble Oil & Ref. Co., 83 S.W.2d 935 (Tex.1935); Wright v. Carter Oil Co., 233 P. 835 (Okla. 1923); Bernstein v. Bush, 177 P.2d913 (Cal. 1947); Alabama Dept. of Transp. v. Land Energy, Ltd., 886 So.2d 787 (Ala.2004); Cranston v. Miller, 185 S.W.2d 920 (Ark. 1945); Gerrity Oil & Gas Corp. v.Magness, 946 P.2d 913 (Colo. 1997); Brooke v. Dellinger, 17 S.E.2d 178 (Ga. 1941);Brown v. Spillman, 155 U.S. 665 (1895); Patterson v. May, 29 N.W.2d 547 (Iowa1947); Powell v. Prosser, 753 P.2d 310 (Kan. Ct. App. 1988); Lindsey v. Wilson, 332S.W. 2d 641 (Ky. 1960); Rohner v. Austral Oil Exploration Co., 104 So.2d 253 (La. Ct.App. 1958); Goss v. C.A.N. Wildlife Trust, Inc., 852 A.2d 996 (Md. 2004); Krench v.State, 269 N.W. 131 (Mich. 1936); Hughes v. Thornton, 193 N.W. 723 (Minn. 1923);Sun Oil Co. v. Nunnery, 170 So. 2d 24 (Miss. 1964); Stokes v. Tutvet, 328 P.2d 1096(Mont. 1958); Reed v. Williamson, 82 N.W.2d 18 (Neb. 1957); Toth v. Bieglow, 64A.2d 62 (N.J. 1949); Amoco Prod. Co. v. Carter Farms Co., 703 P.2d 894 (N.M. 1985);Frye v. Arrington, 292 S.E.2d 772 (N.C. 1982); Feland v. Placid Oil Co., 171 N.W.2d829 (N.D. 1969); Yaquina Bay Timber & Logging Co. v. Shiny Rock Mining Corp.,556 P.2d 672 (Or. 1976); Hamilton v. Foster, 116 A. 50 (Pa. 1922); Broadhurst v. Am.Colloid Co., 177 N.W.2d 261 (S.D. 1970); J.M. Huber Corp. v. Square Enters., Inc.,645 S.W.2d 410 (Tenn. Ct. App. 1982); Smith v. Linmar Energy Corp., 790 P.2d 1222(Utah Ct. App. 1990); Holbrook v. Cont’l Oil Co., 278 P.2d 798 (Wyo. 1955). Louisi-ana follows the more common model for mineral rights worldwide: the minerals areowned by the state and severance is not allowed at all. Developers only receive aservitude or easement to access the minerals. Therefore, minerals in place remain thereal property of the state, and individuals can only gain ownership of them as personal

2014] SINS OF THE FATHER 393

start with a discussion of the origin of severance and the resulting le-gal consequences.

A. Short History of Mineral Severance

In the early days of mining, metals were considered wondrous, di-vine, and royal.2 One of the original meanings of “royalty” was theright or prerogative of the sovereign to receive a percentage of theproducts or proceeds of mining projects within the realm.3 Because ofthis, the precious minerals found on a person’s land always belongednot to the individual, but to the ruler.4 In many countries around theworld, mineral rights remain the property of the sovereign and mayonly be leased, not owned, by those seeking to develop a resource.5

The Greeks were one of the first cultures to encourage private pros-pecting instead of purely state-based mining.6 The government wouldgrant leases to citizens to mine their tracts of land, then the lesseeswere required to pay a premium and a royalty to Athens in return.7The lessee then could keep the remainder of the extracted materials.8While the sovereign still owned the real property of the minerals inthe ground, prospectors were able to acquire a personal property in-terest in the minerals themselves upon their extraction.9

The concept of granting a private property fee estate in mineralsthat is entirely separate from the surface is thought to have originatedin the area that now encompasses modern Germany.10 In this region,separate mining laws were established independent from the ordinarylaws of property.11 These new laws allowed subsurface estates to beowned separately from any estate in the soil or land itself.12 Therationale for this new construct was that the exploitation of “subterra-nean deposits” was “carried on neither within the same boundaries

property once they have been extracted. Frost-Johnson Lumber Co. v. Salling, 91 So.207 (La. 1920).

2. K.K. DuVivier, Animal, Vegetable, Mineral-Wind? The Severed Wind PowerRights Conundrum, 49 WASHBURN L.J. 69, 77 (2009).

3. Id. (citing BLACK’S LAW DICTIONARY 1445 (9th ed. 2009)).4. Id.5. Christopher S. Kulander, Common Law Aspects of Shale Oil and Gas Devel-

opment, 49 IDAHO L. REV. 367, 369 (2013) (citing EUGENE KUNTZ, KUNTZ LAW OF

OIL & GAS, § 2.1, 59 (2012)).6. John C. Lacy, Going with the Current: The Genesis of the Mineral Laws of the

United States, 41 ROCKY MTN. MIN. L. INST. 10, § 10.01(3)(a) (1995).7. Id.8. Id.9. Id.

10. Id. § 10.02(1).11. ROSSITER W. RAYMOND, RELATIONS OF GOVERNMENTS TO MINING, H.R.

DOC. NO. 40-54, at 189 (1869).12. Id.


nor by the same persons as agriculture,” so separate and distinct prop-erty regimes could exist without conflict.13

In early England, precious metals and some non-precious metalsgenerally belonged to the crown.14 But aside from these metals, thefee owner of the land generally also held the mineral rights to thatland.15 When early English cases permitted severance of these rights,they noted that allowing a separate mineral estate was generally con-sidered an “abrogation” of the common law right of absolute owner-ship by the surface owner.16

While the idea of “royalties” came to the United States earlythrough the royal charters of the colonies reserving one-fifth of minedminerals to the crown,17 the concept of severance and private owner-ship of minerals in place was purely by accident.18 Gold was discov-ered near Coloma, California, in January of 1848.19 The militarygovernor of the area refused to assert any claim to the minerals onbehalf of the United States, instead “declar[ing] the miners free fromofficial control.”20 This went contrary to official policy, but was notdone for any rebellious purposes—the miners simply outnumberedgovernment soldiers 1,000 to one.21

In the decades after the California gold rush, the U.S. governmentdecided it did not have the resources to collect royalties from min-ers.22 However, the government did hope to reap financial benefitsfrom selling patents to unsettled western territories that otherwiseseemed unproductive.23 The mechanism established in the 1872 Min-

13. “[T]he miners dig almost exclusively in mountains otherwise unproductive,and in valleys invested in gloom, they do either slight damage to the fields or none atall. Lastly, where woods and glades are cut down, they may be sown with grain afterthey have been cleared from the roots of shrubs and trees.” GEORGIUS AGRICOLA,DE RE METALLICA 71 (1556) (Herbert Clark Hoover and Lou Henry Hoover trans.,Dover Publications, Inc. N.Y. 1950).

14. H.R. DOC. NO. 40-54, at 206–07.15. Id. at 207; see also John C. Lacy, The Historic Origins of the U.S. Mining Laws

and Proposals for Change, 10 NAT. RESOURCES, ENERGY & ENV’T L. 13, 10–15(1995) (describing how the British system evolved from both Celtic and Romanorigins).

16. H.R. DOC. NO. 40-54, at 189.17. Phillip Wm. Lear & Stephanie Barber-Renteria, Split Estates and Severed Min-

erals: Rights of Access and Surface Use after the Divorce (and Other Leasehold Access-Related Problems), 50 ROCKY MTN. MIN. L. INST. 10, § 10.02(1)(b) (2004).

18. ANTHONY SCOTT, THE EVOLUTION OF RESOURCE PROPERTY RIGHTS 219(2008) (“In 1848 miners discovered gold in California, which Mexico had only re-cently transferred into American possession. The successful prospectors found them-selves in a legal vacuum regarding the right to their finds. . . .”).

19. The discovery of gold came about two weeks before the U.S. government ac-quired the territory from Mexico under the Treaty of Guadalupe Hidalgo. GREGORY

YALE, LEGAL TITLES TO MINING CLAIMS AND WATER RIGHTS, IN CALIFORNIA,UNDER THE MINING LAW OF CONGRESS, OF JULY, 1866 17 (1867).

20. Id.21. Lacy, supra note 6, § 10.04(1).22. H.R. DOC. NO. 40-54, at 216.23. Id. at 218.


ing Law allowed prospectors to stake claims for mineral rights, andthen combined the surface and mineral estates into one unified feewhen a patent was granted.24 Recognizing that this system allowedvaluable minerals to be passed from the public domain with virtuallyno benefit to the government, Congress changed its strategy after1900, severing and reserving to the government coal and other miner-als in patents under the Stock Raising Homestead Act and other landdisposal statutes.25

B. Problems with Severance

In British precedents, the custom of allowing severance was called“bounding,” and the excuse for allowing this abrogation of prior lawwas (1) compensation directly to the surface owner and (2) “the bene-fit to the public” of having the mineral extracted. As one U.S. reportfrom the mid-1800s explains:

Bounding is a direct interference with the common law rights ofproperty: it takes from the owner of the land, who is unable or un-willing at a particular moment to dig for tin under his waste land,the right to do so . . . and it vests in a stranger . . .; it empowers thestranger not only to extract the mineral from beneath the surface,but to enter on the surface, and cumber with machinery, buildings,and refuse stuff, which the operations below occasion, and all of thiswithout the least regard to the convenience or interests of theowner. The only things which make this reasonable are the render ofthe toll tin to the owner [a kind of royalty-in-kind payment to thesurface owner], and the benefit to the public secured thereby in theextraction of the mineral from the bowels of the earth. . . .26

One of the justifications for allowing this abrogation of the commonlaw of England no longer exists in the United States. As noted above,U.S. government land grants severed the ownership of the mineralsfrom ownership of the surface, so many U.S. surface owners do notreceive any compensation in return for development of the mineralsbeneath their lands. In addition, many surface owners might arguethat the surface areas being violated by mineral development are not“waste land.”

Furthermore, both mining operations and surface uses havechanged dramatically since the law of severance evolved. Many min-

24. Act of May 10, 1872, 30 U.S.C. § 22 (2010).25. Stock-Raising Homestead Act of 1916, 43 U.S.C.A. § 299 (West 2007). The

Stock-Raising Homestead Act granted a homesteader a patent to the surface estate,but reserved the right to the coal, oil, gas, and hardrock mineral rights to the UnitedStates. Matthew L. King, Prospectors’ Access to Stock-Raising Homestead Act Lands,20 COLO. LAW. 247, 247 (1991). See also Laura H. Burney, A Pragmatic Approach toDecision Making in the Next Era of Oil and Gas Jurisprudence, 16 J. ENERGY NAT.RESOURCES & ENVTL. L. 1, 59–60 (1996).

26. H.R. DOC. NO. 40-54, at 207, 210–11 (citing Rogers v. Brenton, 10 Q.B. 26)(emphasis added).


ing methods involve extensive use of the surface and sometimes per-manent contamination, while the shift of our society from agriculturalto urban means that more and more of the surface estate is employedfor valuable and intense surface uses, for residences and industry pur-poses. Consequently, the myth of noninterference and simple coexis-tence has dissolved, and the law of split estates has recognizedincreased intensity in its long history of conflict between separate min-eral and surface estate owners.27 The current fracking debate carrieson this long tradition.28

C. Dominant-Servient Estate Doctrine

As the demand for fossil fuels and minerals grew, severed mineralestates earned nearly uncontested dominance over surface estates.29

Again, this shift toward mineral dominance evolved gradually overmany years. “[F]rom the earliest days of the common law,” a severedmineral estate obtained an implied right to interfere with the surfaceowner’s activities.30 Yet, in these early days, conflicts were seen asminimal because “the value of [an] estate lay . . . in the arable qualitiesof the surface,”31 and the mining was to be on waste lands.32

During these early times, “the attention of the courts was fixedupon the surface,” and “the owner of the land” was the party that thelaw recognized as having “the right of designating the reasonable loca-tion of the one right of way by necessity . . . .”33 However, around the

27. See generally Bruce M. Kramer, The Legal Framework for Analyzing MultipleSurface Use Issues, in SEVERED MINERALS, SPLIT ESTATES, RIGHTS OF ACCESS, AND

SURFACE USE IN MINERAL EXTRACTION OPERATIONS, Paper 2 (Rocky Mtn. Min. L.Found. 2005). See also, Donald N. Zillman, The Common Law of Access and SurfaceUse in Oil, Gas and Mining, in SEVERED MINERALS, SPLIT ESTATES, RIGHTS OF AC-

CESS, AND SURFACE USE IN MINERAL EXTRACTION OPERATIONS, Paper 1A (RockyMtn. Min. L. Found. 2005). Conflicts exist even when the U.S. government is bothsurface and mineral owner if separate agencies of the U.S. government manage theminerals and the surface and these agencies have different missions. Lear & Barber-Renteria, supra note 17, § 10.02(3)(a). See also Bureau of Land Management, PublicLand Statistics (2012), http://www.blm.gov/public_land_statistics/pls12/pls2012-web.pdf.

28. See Matthew T. Milam, Texas Surface Damage Litigation, 61 ADVOCATE-ENVTL. LITIG. 40, 44 (2012); Barclay Nicholson & Kadian Blanson, Tracking FrackingCase Law: Hydraulic Fracturing Litigation, 26 NAT’L RESOURCES & ENV’T 25, 29(2011–2012).

29. See Gerald J. Schissler & Joy E. Hansen, 6-200 American Law of Mining§ 200.02[1][b] (2d ed. 2013). But cf. discussion of the accommodation doctrine infraPart II.D.

30. “It is a well established doctrine from the earliest days of the common law,that the right to the minerals thus reserved carries with it the right to enter, dig andcarry them away, and all other such incidents thereto as are necessary to be used forgetting and enjoying them.” Cowan v. Hardeman, 26 Tex. 217, 222 (1862).

31. Chartiers Block Coal Co. v. Mellon, 25 A. 597, 598 (Pa. 1893).32. See H.R. DOC. NO. 40-54, at 210 (citing Rogers v. Brenton, 10 Q.B. 26) (sug-

gesting the mining would be conducted on “waste land”).33. Chartiers Block Coal, 25 A. at 598.


turn of the twentieth century, this balance shifted as the PennsylvaniaSupreme Court noted:

The comparatively recent development of the sciences of geologyand mineralogy, and the multiplication of mechanical devices forpenetrating the earth’s crust, have greatly changed the uses and thevalues of lands. Tracks that were absolutely valueless, so far as thesurface was concerned, have come to be worth many times as muchper acre as the best farming lands in the commonwealth, because ofthe rich deposits of coal, or iron, or oil, or gas known to underliethem at various depths.34

Thus, minerals took on a “quasi public character” because they were“absolutely essential to our common comfort and prosperity.”35 Evenwith this new emphasis on minerals, the Pennsylvania court still at-tempted to “apply the law as to give each owner the right to enjoy-ment of his property or strata without impinging upon the right ofother owners.”36

About two decades later, the Circuit Court of Ohio recognized anoil and gas operator’s right to the “reasonable use of the surface onwhich to place derricks and other necessary machinery for drilling itswells.”37 The court’s rationale for recognizing the mineral estate’s ac-cess interest was based on an analogy to a similar right to support heldby the surface owner.38 While this case may be the first to use thedominant-servient terminology, in doing so the court continued toseek balance by noting that “[t]hese various estates are mutually dom-inant and servient. . . .”39

34. Id.35. Id. at 599.36. Id. at 598. This case actually involved the right of the surface owner to reach

oil and gas below a coal seam when that surface owner had conveyed the right to coalbeneath the surface to another without explicitly reserving a right of access to lowerformations. Id. at 598–99.

37. Chartiers Oil Co. v. Curtiss, 34 Ohio C.C. (n.s.) 106, 112 (1911), aff’d, 106 N.E.1053 (1913).

38. “We do not hesitate to enforce the servitude for support, whether subjacent oradjacent, or to regulate the extent and manner in which it shall be rendered and en-joyed. With equal propriety and with equal ease we may enforce the servitude foraccess and regulate the extent and manner in which it shall be rendered and enjoyed.”Id. at 111 (citing Chartiers Block Coal, 25 A. 597).

39. Chartiers Oil, 34 Ohio C.C. at 111 (emphasis added). However, one of the firstuses of the dominant estate and servient estate terminology may also have come in an1839 case dealing with surface waters. Hebert v. Hudson, 13 La. 54 (1839) (statingthat the servient estate had an obligation to remove an embankment so the dominantestate could use the natural flow of waters). The Court of Appeals of Kentucky usedthe same language 16 years after Chartiers Oil, without quoting that case. It said:“[T]he oil and gas constituted the dominant estate granted in the lease executed byplaintiff, and the easements or rights over the surface was a servient estate andgranted as merely surface rights to be used by the grantee in the exercise of the rightto take and transport the oil and gas when found . . . .” Ky. Pipe Line Co. v. Hatfield, 3S.W.2d 654, 654 (Ky. 1927).


Thus, courts have long recognized that the right to develop the min-eral estate includes an implied right to interfere with the surfaceowner’s activities. As the balance in earlier cases shifted toward themineral estate, the language moved away from focusing on the surfaceowner’s needs and instead allowed as much use of the surface “as nec-essary” for accessing and extracting the minerals.40 In addition, at thepinnacle of the “dominant-servient estate” doctrine’s reign, the focuswas “unidimensional,”41 primarily on the needs of the mineral estateowner. By using industry standards as the yardstick for reasonable-ness, courts guaranteed oil and gas operators access and excused theoperators from all or most compensation to surface owners fordamages.42

The precedents supporting the dominant-servient estate doctrineare perhaps strongest in the context of oil and gas development. Onceoil and gas achieved the status of a severed mineral, it also gained theadvantage of becoming the dominant estate over the surface. As withhard minerals, severance created an implied reservation of an accessright to extract the severed resources.43 To ensure access to these pre-cious resources, the courts determined that policy called for the min-eral estate to be the dominant estate, with an implied appurtenanteasement to use the surface estate.44 As discussed above, this ease-ment, or right of access, was absolute, restricted only by “reasonable-ness.”45 However, as courts interpreted reasonableness strictly fromthe mineral owner’s point of view, anything that was common industrypractice or determined “reasonably necessary” for extraction waspermitted.46

The main rationale for the dominant-servient estate doctrine wasthe same as that for severance—that the public has a common interestin developing mineral resources for the benefit of society.47 Denyingaccess would deprive the public “of the hidden treasures which the

40. Chartiers Block Coal, 25 A. at 598; Schissler & Hansen, supra note 29,§ 200.02[1][b] (citing a Texas case saying courts give deference to the mineral lessee’sview of reasonableness).

41. See Kramer, supra note 27, 2-20 to 2-30. See also, Zillman, supra note 27, at 1-1.

42. See, e.g., Moser v. U.S. Steel Corp., 676 S.W.2d 99, 103 (Tex. 1984); Gen.Crude Oil Co. v. Aiken, 344 S.W.2d 668, 669 (Tex. 1961). In Chartiers Block Coal, thecourt implied that by giving away his right to the minerals, the surface owner alsogives away parts of his own rights unless he guarded those rights in the deed thatsevered the minerals. Chartiers Block Coal, 25 A. at 598.

43. Chartiers Oil Co. v. Curtiss, 34 Ohio C.C. (n.s.) 106 (1911), aff’d, 106 N.E.1053 (1913).

44. Chartiers Block Coal, 25 A. at 599.45. Burney, supra note 25, at 58 (citing Bruce Kramer, Conflicts Between the Ex-

ploitation of Lignite and Oil and Gas: The Case for Reciprocal Accommodation, 21HOUS. L. REV. 49, 61 (1984)).

46. Id. (citing Kramer, supra note 45, at 61).47. See Moser, 676 S.W.2d at 103; Gen. Crude Oil Co., 344 S.W.2d at 669 (Tex.

1961); Chartiers Block Coal, 25 A. at 599.


great laboratory of nature has provided for man’s use in the bowels ofthe earth. . . . To place them beyond the reach of the public would be agreat public wrong.”48

The appurtenant easement part of the severance rationale was that“a grant or reservation of minerals would be wholly worthless if the[mineral owner] could not enter upon the land . . . to explore for andextract the minerals granted or reserved.”49 In this way, many courtsrecognized a “business, as well as a legal, standpoint” for making themineral estate dominant.50

In one form or another, the dominant-servient estate doctrine hasbeen followed in Arkansas,51 California,52 Colorado,53 Illinois,54 Kan-sas,55 Kentucky,56 Louisiana,57 Mississippi,58 Montana,59 New Mex-ico,60 North Dakota,61 Oklahoma,62 Oregon,63 Texas, and Wyoming.64

Application of the dominant-servient estate doctrine often meansharsh results for surface owners who do not control the minerals un-derneath their own lands.65 Reasonable use has generally been inter-preted strictly from the mineral owner’s point of view, defined bymineral industry practices.66 Industry practices that did not requireany accommodation or compensation have included: positioning adrill rig adjacent to a home, splattering the doors and windows of thehome with slush and grease, and keeping the family awake with deaf-

48. Chartiers Block Coal, 25 A. at 599.49. Harris v. Currie, 176 S.W.2d 302, 305 (Tex. 1943). See also Lear & Barber-

Renteria, supra note 17, §10.02(3)(d) (citing Davison v. Reynolds, 103 S.E. 248, 250(Ga. 1920) and Harris, 176 S.W.2d at 305); Rick D. Davis Jr., Private Lands—SurfaceAccess and Use, in SEVERED MINERALS, SPLIT ESTATES, RIGHTS OF ACCESS, AND

SURFACE USE IN MINERAL EXTRACTION OPERATIONS, Paper 9A (Rocky Mtn. Min.L. Found. 2005).

50. Chartiers Block Coal, 25 A. at 599.51. E.g., Cranston v. Miller, 185 S.W.2d 920 (Ark. 1945).52. E.g., Callahan v. Martin, 34 P.2d 788 (Cal. 1935).53. E.g., Gerrity Oil & Gas Corp. v. Magness, 946 P.2d 913, 927 n.8 (Colo. 1997).54. E.g., In re Payment of Taxes, 537 N.E.2d 358 (Ill. App. Ct. 1989).55. E.g., Powell v. Prosser, 753 P.2d 310 (Kan. Ct. App. 1988).56. E.g., Lindsey v. Wilson, 332 S.W.2d 641 (Ky. 1960).57. E.g., Rohner v. Austral Oil Exploration Co., 104 So. 2d 253 (La. Ct. App.

1958).58. E.g., Sun Oil Co. v. Nunnery, 170 So. 2d 24 (Miss. 1964).59. E.g., Stokes v. Tutvet, 328 P.2d 1096 (Mont. 1958).60. E.g., Amoco Prod. Co. v. Carter Farms Co., 703 P.2d 894 (N.M. 1985), abro-

gated by McNeill v. Burlington Res. Oil & Gas Co., 182 P.3d 121(2008).61. E.g., Feland v. Placid Oil Co., 171 N.W.2d 829 (N.D. 1969).62. E.g., Wellsville Oil Co. v. Carver, 242 P.2d 151 (Okla. 1952).63. E.g., Yaquina Bay Timber & Logging Co. v. Shiny Rock Mining Corp., 556

P.2d 672 (Or. 1976).64. E.g., Holbrook v. Cont’l Oil Co., 278 P.2d 798 (Wyo. 1955).65. David E. Jackson, Surface Use: The Dominant Estate, Reasonable Use and Due

Regard, in 24TH ANNUAL ADVANCED OIL, GAS AND ENERGY RESOURCES LAW

COURSE ch. 13, 2 (State Bar of Tex. 2006).66. See Kramer, supra note 45, at 61.


ening, all night drilling.67 Similarly, an oil company had no obligationto fence their operations “to prevent [the landowner’s] cattle from en-tering upon the land near the well and drinking oil on the ground.”68

In supporting this result, the court stated:The petitioner [oil company] was lawfully in possession of the prem-ises and being the owner of the dominant estate had the legal rightto use so much of the leased premises as were reasonably necessaryin its operation to the exclusion of respondent [the landowner], theowner of the servient estate.69

Furthermore, an oil company had no obligation to restore the surfaceof the land to its pre-drilling condition unless there was an expressprovision in the oil and gas lease requiring it to do so.70

III. OIL AND GAS SEVERANCE

Many credit “Colonel” Edwin Drake’s 1859 discovery of oil throughdrilling in Titusville, Pennsylvania, as marking the birth of the oil andgas industry in the United States.71 Yet, there is evidence of oil welldrilling in Washington County, Ohio, as early as 1833.72

Currently, there is little debate that U.S. law almost universallytreats oil and gas as a mineral that can be owned through a separate,severed estate.73 This was not the case for the early decades of oil andgas development. This Section will outline four phases in the tumultu-ous evolution of the status of oil and gas rights from: (1) the Era ofDefinition; to (2) the Era of Scientific Awareness; through (3) the Eraof Conservation; to (4) today’s Environmental Era.74

67. See Grimes v. Goodman Drilling Co., 216 S.W. 202 (Tex. Civ. App.—FortWorth 1919, writ dism’d). See also Burney, supra note 25, at 58–59.

68. Warren Petrol. Corp. v. Martin, 271 S.W.2d 410, 412 (Tex. 1954).69. Id. at 413.70. Warren Petrol. Corp. v. Monzingo, 304 S.W.2d 362, 363 (Tex. 1957).71. DANIEL YERGIN, THE PRIZE: THE EPIC QUEST FOR OIL, MONEY AND POWER

10–11 (1991). This source provides an excellent history of the oil and gas industry. Seealso EDGAR WESLEY OWNE, TREK OF THE OIL FINDERS: A HISTORY OF EXPLORA-

TION FOR PETROLEUM (1975).72. EUGENE O. KUNTZ, 1 A TREATISE ON THE LAW OF OIL AND GAS 7–8 (1987)

(citing to AM. J. SCI. 21–26 (July 1833)).73. Throughout this Article, it is important to note that oil and gas law is a subset

of property law that varies state to state. This Article will deal only with broad trendsin these constructs for purposes of comparison with wind rights, and it is beyond thescope of this Article to provide details about each state’s cases or statutes. Further-more, sometimes the decisions of a state are contrary to the theory the state purportsto follow. Ronald W. Polston, Mineral Ownership Theory: Doctrine in Disarray, 70N.D.L. REV. 541, 553 (1994).

74. Burney, supra note 25, at 55–56 (citing Robert E. Sullivan, A Survey of Oil andGas Law in Montana as it Relates to the Oil and Gas Lease, 16 MONT. L. REV. 1, 16(1955)). Sullivan defined three eras: The Era of Definition, the Era of ScientificAwareness and the Era of Conservation. The fourth era mentioned by Burney andused in this paper is the Environmental Era, coined by Burney from a work of JamesM. Colosky, The Implied Covenant for Diligent and Prudent Operation in an Environ-mental Era, 39 ROCKY MTN. MIN. L. INST. 15, § 15-2, 15-3 (1993).


A. The Era of Definition

The decades between the discovery of oil in 1859, or 1833 depend-ing on how one calculates, and the turn of the century is called the“Era of Definition” in terms of oil and gas jurisprudence.75 Duringthis time, it was still relatively uncertain as to what oil and gas were,much less how they should be regulated.76 As a result, during thisperiod, courts were mostly trying to determine the nature of oil andgas to determine how best to analogize it.

Some of the earliest cases held that oil and gas was like percolatinggroundwater and could not be owned beneath the ground. As onecase noted:

Oil is a fluid, like water, it is not the subject of property except whilein actual occupancy. A grant of water has long been considered notto be a grant of anything for which an ejectment will lie. It is not agrant of the soil upon which the water rests. . . . The nature of thesubject has more to do with the rights that are given over it, and tous it appears that a right to take all the oil that may be found in atract of land cannot be a corporeal right.77

Alternatively, some courts applied the ad coelum doctrine to oil andgas. Under ad coelum, landowners have rights in everything undertheir land to the center of the earth.78 So, using ad coelum, a surfaceowner could claim property rights in oil and gas in a manner similar toother energy minerals such as coal. However, this model did not workwell because coal is a mineral in place, and oil and gas behavedifferently.

During the Era of Definition, courts and property owners did nothave the scientific information to understand the deposition charac-teristics of oil and gas. It was thought at the time that oil and gasflowed beneath the surface in rivers, moving slowly in something akinto streambeds underneath vast surfaces.79 As a constantly movingmineral, neither the analogy to coal nor the application of the adcoelum doctrine worked.

75. Sullivan, supra note 74, at 16.76. Bruce M. Kramer & Owen L. Anderson, The Rule of Capture—An Oil and

Gas Perspective, 35 ENVT’L L. 899, 903–05 (2005).77. Dark v. Johnston, 55 Pa. 164, 168 (1840) (emphasis added).78. Cujus est solum eius est usque ad coelum et ad inferos. Translated, it means “for

whoever owns the soil, it is theirs up to Heaven and down to Hell.” Thus, the adcoelum doctrine covers ownership not only in the land below, but also above, so itcould apply to wind rights as well.

79. Polston, supra note 73, at 551. Another popular belief was that oil was abun-dant and inexhaustible, “capable of supporting an infinite number of wells and oppor-tunities for investment.” As a result, developers wanted law to develop that wouldallow individuals an absolute right to drill without being liable to neighbors. ThomasA. Mitchell, The Future of Oil and Gas Conservation Jurisprudence: Past as Prologue,49 WASHBURN L.J. 379, 381 (2010).


So as another alternative, courts chose to compare oil and gas towild animals, or animals ferae naturae. Animals ferae naturae cannotbe owned by an individual while in a state of nature, but are insteadowned by the state.80 The animals then become the property of thefirst person to “reduce them to possession.”81 Like wild animals andunlike other minerals, oil and gas have “the power and the tendencyto escape without the volition of the owner.”82 As such, oil and gasrights seemed best classified as “minerals ferae naturae” that would betreated just like wild animals83—owned by the state until reduced topossession by an individual.

B. The Era of Scientific Awareness

Sometime early in the twentieth century, new science about the na-ture of oil and gas helped clear up some misconceptions.84 Peoplerealized that oil and gas do not actually flow in streams underground.However, given the right conditions, they could migrate and betrapped under pressure in airtight formations and remain fixed inthese places until a low pressure point was introduced into the forma-tion.85 Once this realization came about, courts recognized some ofthe problems with the minerals ferae naturae legal model that assumedoil and gas moved freely between properties.86 Therefore, theyneeded another legal theory that would apply to oil and gas severanceand possession. This period of re-exploring the status of oil and gasproperty rights lasted about three decades from 1900 until the mid-1930s and was known as the “Era of Scientific Awareness.”87

80. Polston, supra note 73, at 552.81. Id.82. Westmoreland & Cambria Natural Gas Co. v. De Witt, 18 A. 724, 725 (Pa.

1889). See also Hamilton v. Foster, 116 A. 50, 52 (Pa. 1922).83. Westmoreland, 18 A. at 725. See also A. W. Walker, Jr., Property Rights in Oil

and Gas and Their Effect upon Police Regulation of Production, 16 TEX. L. REV. 370,370–71 (1938) (“as late as 1921, one of the Texas courts indulge in the fanciful state-ment that oil and gas are supposed to percolate restlessly about under the surface ofthe earth, even as the birds fly from field to field and the beast roam from forest toforest”).

84. See Polston, supra note 73, at 552.85. Id. See also Eliff v. Texon Drilling Co., 210 S.W.2d 558 (Tex. 1948).86. See, e.g., Ohio Oil Co. v. Indiana, 177 U.S. 190, 208–11 (1900). In Ohio Oil, the

Supreme Court recognized that if oil and gas were minerals ferae naturae, lawmakerscould prevent everyone from seeking to reduce the minerals to possession in order toprotect the minerals from undue destruction and allow the public to enjoy the miner-als. Id. at 209–10. “No devastating of private property under such a condition can beconceived, because the public are the owners, and the enacting by the state of a law asto the public ownership is but the discharge of the governmental trust resting in thestate as to the property of that character.” Id. at 209. But by depriving the oil and gasproducers of their right to possession of the minerals below, they would be wrongfullytaking private property. Id.

87. Sullivan, supra note 74, at 16. The time period from approximately the turn ofthe 20th century until about 1980 has also been called “the Great Era.” RICHARD C.MAXWELL, OIL AND GAS LAW AT THE END OF ITS GREAT ERA, NATURAL RE-


With the rejection of the minerals ferae naturae theory,88 severalcourts reverted to the ad coelum, or unified fee theory. These courtsheld that oil and gas were part of the surface-owner’s entire estate.89

Therefore, a conveyance of oil and gas rights while they remained inplace was consequently a conveyance of an interest in realty.90 Whilethe unified fee model was simple for lawmakers, it still createdproblems as a construct for the ownership of oil and gas.91

Like hard minerals such as gold, oil and gas can stay in place forlong geologic periods if they are not disturbed. However, pumping oiland gas out of a well creates a point of low pressure.92 In trying toobtain the resources below a particular tract of land, this low pressurepoint could cause the oil and gas from an adjoining tract to migrateover and also be captured.93 Therefore, an ad coelum mineral-in-place regime fails to completely address the ownership issues raised inextracting oil and gas.

Because of the migratory nature of oil and gas, the “rule of capture”was introduced.94 It was meant to alter the ad coelum theory so thatmineral owners would have not only the right to extract the mineralsunder their own tracts of land, but also have the legal right to extract“all of the oil and gas [from adjacent properties] that will [also] flowout of the well on one’s land.”95

Under the rule of capture, ownership of any given quantity of oil orgas may be obtained by the one producing a well; similarly, ownershipof any given quantity of oil or gas may be lost by a neighboring min-eral owner.96 The rule of capture allowed this “invasion” of adjacent

SOURCES POLICY AND LAW, TRENDS AND DIRECTIONS 94, 96 (Lawrence J Macdonnel& Sarah F. Bates, eds. 1993). “The great Era of oil and gas jurisprudence arosequickly, as sudden supplies and emerging markets for oil and gas caused disputesamong property owners. Courts were challenged to provide answers to questionsabout the relative rights and liabilities incident to the production of these covetedresources. The common law provided few direct answers. To fill the void, judgestrained in the shadow of Langdell strictly followed the dictates of legal formalism andinvoke the logical tool of analogy.” Burney, supra note 25, at 9.

88. See, e.g., Ohio Oil Co., 177 U.S. at 209; Lone Star Gas Co. v. Murchison, 353S.W.2d 870, 878 (Tex. Civ. App.—Dallas 1962, writ ref’d n.r.e.).

89. Texas Co. v. Daugherty, 176 S.W. 717, 721 (Tex. 1915).90. Id. at 720.91. See Polston, supra note 73, at 552.92. Id.93. Id.94. Westmoreland & Cambria Natural Gas Co. v. De Witt, 18 A. 724, 725 (Pa.

1889). Mitchell believes that the change in scientific thought has little to do with therule of capture, instead stating that in the thirty years between the discovery of oil inPennsylvania and the first articulation of the rule of capture, the business of oil leas-ing, subleasing, and investment led to the rule of capture in practice. This establishedpractice was then adopted by the courts in Westmoreland & Cambira Natural Gas Co.v. De Witt. Mitchell, supra note 79, at 381.

95. Brown v. Humble Oil & Ref. Co., 83 S.W.2d 935, 940 (Tex. 1935); Polston,supra note 73, at 552.

96. Eliff v. Texon Drilling Co., 210 S.W.2d 558, 561–62 (Tex. 1948).


owners’ space if the minerals could be obtained through the well-owner’s well and this “invasion” was limited only by the possibilitythat the adjacent landowners had the right to exercise the same rightof capture, drilling their own wells and capturing as many minerals asthey could.97

Application of the rule of capture made the right to sever mineralsfrom the land much easier than the minerals ferae naturae model did.Under the rule of capture, owners of the fee in land with oil or gasbeneath it also had property ownership rights in that oil and gas. Suchowners were then able to sever the estate in the surface from that inthe oil and gas beneath it.98 This severance created two separate es-tates, held by separate titles.99

Some states did not adopt the unified fee doctrine, instead continu-ing to classify oil and gas as minerals ferae naturae.100 Regardless ofthe theory, courts applied the rule of capture to resolve the ownershipissue.101

C. The Era of Conservation

The rule of capture resulted in extensive waste of oil.102 Once themistakes of the early twentieth century had been made, courts andlegislatures attempted to rectify them.103 This era was partially initi-ated with the formation of the Interstate Oil Compact Commission(now the Interstate Oil and Gas Compact Commission or(“IOGCC”)) in 1935.104 Because of its focus on eliminating waste,

97. Alan J. Alexander, The Texas Wind Estate: Wind as a Natural Resource and aSeverable Property Interest, 44 U. MICH. J.L. REFORM 429, 434 (2011); DuVivier,supra note 2, at 90. See also Brown, 83 S.W.2d. 935; R.R. Comm’n v. Manziel, 361S.W.2d 560, 568–69 (Tex. 1962).

98. DuVivier, supra note 2, at 90. See, e.g., Luman v. Davis, 196 Pac. 1078 (Kan.1921); Hoskins v. N. Lee Oil & Gas Co., 240 S.W. 377 (Ky. 1922); Weaver v. Richards,120 N.W. 818 (Mich. 1909); Buck v. Walker, 132 N.W. 205 (Minn. 1911); Chartiers OilCo. v. Curtiss, 34 Ohio C.C. 106 (1911), aff’d, 106 N.E. 1053 (1913); Barker v. Camp-bell-Ratcliff Land Co., 167 P. 468 (Okla. 1917); Hamilton v. Foster, 116 A. 50 (Pa.1922); Murray v. Allred, 43 S.W. 355 (Tenn. 1897); Hynson v. Gulf Prod. Co., 232S.W. 873 (Tex. Civ. App.—Texarkana 1921, writ ref’d); Ramage v. S. Penn Oil Co.,118 S.E. 162 (W. Va. 1923); Texas Co. v. Daugherty, 176 S.W. 717 (Tex. 1915).

99. Renfro v. Hanon, 130 N.E. 740, 741 (Ill. 1921).100. See, e.g., Brown v. Spillman 155 U.S. 665 (1895); Walls v. Midland Carbon Co.,

254 U.S. 300 (1920).101. Kramer & Anderson, supra note 76, at 906. To reconcile conflicting concepts,

some courts determined that minerals ferae naturae are part of the land while they arein the land, so owners of the surface estate have ownership interests that they can sell.H.J., Severance of title or rights to oil and gas in place from title to surface, 29 A.L.R.586 (1924). A minority of jurisdictions continued to classify oil and gas as mineralsferae naturae without finding the need to allow severance. See, e.g., Walls v. MidlandCarbon Co., 254 U.S. 300 (1920).

102. Alexander, supra note 97, at 434–35.103. DuVivier, supra note 2, at 91.104. U.S. DEP’T OF ENERGY, STATE OIL AND NATURAL GAS REGULATIONS DE-

SIGNED TO PROTECT WATER RESOURCES 13 (May 2009), [hereinafter STATE OIL],


this era between the mid-1930s and 1960 came to be known as the“Era of Conservation.”105

The “pell-mell development” of oil and gas because of the rule ofcapture resulted in “[waste of] large amounts of petroleum both aboveand below ground.”106 Above ground, overproduction meant that allthe oil produced could not be transported or sold.107 Consequently,much was physically wasted, some standing in pools at the surface andleaching back into the ground.108

Below ground, an oil and gas reservoir is best recovered by main-taining controlled and steady pressures.109 Instead, the rule of captureincentivized developers to place production wells that straddled bothsides of a boundary line, each attempting to capture the resource be-neath the neighboring property.110 Pumping out a reservoir from dif-ferent low pressure points can mix the oil and salt water and preventseffective and complete recovery of the resource.111 As an examplefrom Spindletop, “[r]apid and uncontrolled production depleted thefield’s pressure so quickly that by 1903, the field was in decline andwithin ten years, Spindletop was a virtual ghost town.”112 Perhapsmost shocking is that the field could no longer be developed eventhough “[l]ess than five percent of the field’s oil was produced.”113

In addition to physical waste, the rule of capture also resulted ineconomic waste of oil.114 From the period of 1947 to 1952, “$100 mil-lion a year was expended for the drilling of unnecessary wells.”115

Overproduction also led to a saturation of the market and artificiallylow prices.116 As an example, oil in the Seminole field in Oklahoma

http://energyindepth.org/wp-content/uploads/2009/03/oil-and-gas-regulation-report-final-with-cover-5-27-20091.pdf.

105. Burney, supra note 25, at 55.106. FRED BOSSELMAN ET AL., ENERGY, ECONOMICS AND THE ENVIRONMENT:

CASES AND MATERIALS 259 (3d ed. 2010).107. Alexander, supra note 97, at 435.108. Champlin Ref. Co. v. Corp. Comm’n, 286 U.S. 210, 233 (1932) (“In Oklahoma,

prior to the passage of the Act, large quantities of oil produced in excess of transpor-tation facilities or demand therefor were stored in surface tanks, and by reason ofseepage, rain, fire and evaporation enormous waste occurred.”). See also BOSSELMAN

ET AL., supra note 106, at 302.109. Champlin Ref. Co., 286 U.S. at 228 (“Uncontrolled flow of flush or semiflush

wells for any considerable period exhausts an excessive amount of pressure, waste-fully uses the gas, and greatly lessens ultimate recovery.”).

110. Alexander, supra note 97, at 434.111. JACQUELINE LANG WEAVER, UNITIZATION OF OIL AND GAS FIELDS IN

TEXAS: A STUDY OF LEGISLATIVE, ADMINISTRATIVE, AND JUDICIAL POLICIES 20–29(1986). See also FRED BOSSELMAN ET AL., ENERGY, ECONOMICS AND THE ENVIRON-

MENT 292–95, 298–99 (2d ed. 2006).112. BOSSELMAN ET AL., supra note 106, at 254.113. Id.114. Alexander, supra note 97, at 435.115. Robert E. Hardwicke, Oil Well Spacing Regulations and Protection of Property

Rights in Texas, 31 TEX. L. REV. 99, 111 (1952).116. Alexander, supra note 97, at 435.


and East Texas dropped from “three dollars a barrel in 1920 to as lowas ten cents a barrel in the early 1930s.”117 At one point in Spin-dletop, Texas, one could buy an entire barrel of oil for less than onewould pay for a cup of water.118

States responded to this waste through legislation—including well-spacing rules, conservation statutes, and orders from regulatory agen-cies, such as the Texas Railroad Commission.119 While a few statesenacted statutes before 1900,120 most states did not feel the need toaddress conservation until the 1930s to 1950s.121 One of the first rem-edies employed was “prorationing” orders that enforced proportionaltaking from each well and lease in a unit and restricted well produc-tion to below a field’s Maximum Efficient Rate of Recovery(“MER”).122 The U.S. Supreme Court upheld some of the first of theprorationing orders on the basis that they prevented waste in a man-ner that protected correlative rights between different owners.123

Although the Court found that the commission’s orders were not“for the purpose of controlling the price of crude oil or its products, orof eliminating . . . any producer or refiner from competition . . .,”commentators have noted that enforcement of these statutes was “ef-fective in raising the price of oil.”124 As an example, in August of1931, the governor of Texas declared martial law to shut down everywell in the East Texas field when the price dropped below ten centsper barrel. Opposition to market-demand prorationing quieted whenthe price rebounded as military officers running the prorationing of-fice reopened the wells at a fraction of their previous productionrate.125

With all of the waste created by the rule of capture, several statesfelt the need for stronger regulations. As a result, Oklahoma, Texas,Colorado, Illinois, New Mexico, and Kansas formed the Interstate Oil

117. BOSSELMAN ET AL., supra note 106, at 261.118. Id. at 254 (“A glut of oil dropped the price to as little as three cents a barrel,

while a cup of water cost five cents.”).119. Id. at 261.120. Walter L. Summers, The Modern Theory and Practical Application of Statutes

for the Conservation of Oil and Gas, 13 TUL. L. REV. 1, 1 n.1 (1938) (Pennsylvaniaenacted the first conservation statute requiring the plugging of holes and casing ofwells in 1878. New York followed suit in 1879, Ohio in 1883, and West Virginia in1891.). Id.

121. STATE OIL, supra note 104, at 10–14. Some states, such as Oklahoma, Califor-nia, and Texas enacted regulation programs earlier, but these early conservations stat-utes often created organizations that lacked specific authority to promulgateregulations or were general statutes that tended to leave enforcement in local orcounty control. Id. at 13.

122. See generally Champlin Ref. Co. v. Corp. Comm’n, 286 U.S. 210, 226–27(1932). See also BOSSELMAN ET AL., supra note 106, at 260–62.

123. Champlin Ref. Co., 286 U.S. at 230; BOSSELMAN ET AL., supra note 106, at 263.124. BOSSELMAN ET AL., supra note 106, at 263–66.125. Id. at 266; James H. Keahey, The Texas Mineral Interest Pooling Act: End of

an Era, 4 NAT. RES. L. 359, 360–61 (1971).


Compact Commission (“IOCC”) in 1935.126 The IOCC then helpedcreate a framework to promote the conservation of oil resourcesthrough stricter regulations.127 The goal was to prevent waste whileprotecting landowners’ and royalty owners’ rights.128 In order to fur-ther these goals, the IOCC developed a set of model regulations forthe states to use as a pattern for their own regulatory frameworks.129

Due to the onset of World War II, however, the IOCC did not comeout with its actual Model Regulation Statutes until 1949,130 afterwhich most states followed suit and passed statutes establishing regu-latory agencies.131

Some of the key provisions in conservation statutes were regula-tions that controlled the spacing, drilling and construction of extrac-tion wells; created specifications for permitting; prevented bothphysical and economic waste; regulated the handling of waste fluids;reserved the right to limit production from particular wells; and man-dated pooling and unitization.132 Pooling133 and unitization134 effec-tively substituted the competitive rule of capture with cooperativedevelopment.135 While no notable rules or limitations on severancewere passed along with conservation statutes, the general decrease inwaste through conservation regulations was the useful trademark ofthis era.

D. The Environmental Era

The late 1960s ushered in an era of environmental awareness.136 Inthe oil and gas context, the Environmental Era, which some commen-tators say continues today,137 began focusing not only on oil and gas

126. STATE OIL, supra note 104, at 14.127. Id.128. Id. at 11.129. Id. at 13.130. John F. Welborn, Environmental Regulation of Oil and Gas Operations by

State Conservation Agencies, 38 ROCKY MTN. MIN. L. INST. 14, § 14.02(1) (1992).131. STATE OIL, supra note 104, at 14; Angela Neese, The Battle Between the Colo-

rado Oil and Gas Conservation Commission and Local Governments: A Call for aNew and Comprehensive Approach, 76 U. COLO. L. REV. 561, 575 (2005).

132. STATE OIL, supra note 104, at 17.133. Pooling is the combining of small tracts of land into an acreage that is suffi-

ciently large to both secure a well permit and meet the spacing rules of a respectiveconservation commission. It prevents excessive drilling while still guaranteeing thateach mineral owner receives an appropriate share of royalties. WEAVER, supra note111, at 7.

134. Id. Unitization, on the other hand, combines many spacing units into afieldwide unit for the coordinated operation of several tracts on a reservoir, usually toconduct secondary recovery operations.

135. For in-depth analysis of pooling and unitization, see generally id. For a sum-mary of different types of pooling and unitization, see Nancy Saint-Paul, 4 SUMMERS

OIL AND GAS § 54.2 Methods of Pooling and unitizing oil and gas production (3d ed.2013).

136. See, e.g., Nat’l Envtl. Policy Act of 1969 and subsequent legislation.137. Burney, supra note 25, at 56.


waste, but on the impact of oil and gas development on the environ-ment. This era also tempered some of the adverse effects that sever-ance has had over the rights of surface owners.

The Environmental Era saw the proliferation of statutes that regu-lated oil and gas’s impacts on the surface and the environment.138

Surface damage statutes give mineral owners the right to use the sur-face, but hold them strictly liable for any damages to the surface thatan oil and gas operation caused.139 State statutes that provide for sur-face damages enumerate the specific types of damages for which themineral owners may be liable.140

Dormant mineral statutes were another innovation. Under dor-mant mineral statutes, ownership of the mineral estate reverts to thesurface owner if the severed mineral interest is unused or undevel-oped for a designated period of time.141 While surface damage stat-utes give surface owners some monetary compensation for the use oftheir lands, dormant mineral statutes ensure that valuable mineralswill be developed or returned to the surface owners.142

In addition, new statutes helped define the rights of surface andmineral owners.143 For example, notice statutes require a mineralowner to provide notice to the surface owner before going onto thesurface owner’s land.144

The key common law doctrine that came about in the Environmen-tal Era is the accommodation doctrine,145 which requires mineral es-tate owners to exercise “due regard” for the rights of surfaceowners.146 The Texas case of Getty Oil Co. v. Jones is credited withestablishing this doctrine in 1971.147 The rule the Getty Oil court out-lined was that “where there is an existing use by the surface owner

138. Lear & Barber-Renteria, supra note 17, § 10.02(5)(b).139. Burney, supra note 25, at 72; Lear & Barber-Renteria, supra note 17,

§ 10.02(5)(b)(i).140. Lear & Barber-Renteria, supra note 17, § 10.02(5)(b)(i). See, e.g., N.D. Cent.

Code §§ 38-11.1-01 to -10 (2004 & Supp. 2013); S.D. CODIFIED LAWS §§ 45-5A-1 to -8(2004 & Supp. 2013); MONT. CODE ANN. §§ 82-10-501 to -508 (2013); TENN. CODE

ANN. §§ 60-1-601 to -608 (2013); W.VA. CODE ANN. §§ 22-7-1 to -7 (LexisNexis 2009& Supp. 2013).

141. Lear & Barber-Renteria, supra note 17, § 10.02(5)(b)(ii).142. Id.143. Id. § 10.02(5)(b).144. Id. § 10.02(5)(b)(i).145. Burney, supra note 25, at 60.146. Id.147. Getty Oil Co. v. Jones, 470 S.W.2d 618, 621 (Tex. 1971). In Getty Oil, the sur-

face owner had a rotating irrigation system that extended seven feet above the sur-face. The mineral owner then attempted to install two oil pumping units that weretaller than the irrigation system, making the surface owner’s system useless. The min-eral owner claimed that it held the dominant estate and use of the tall pumping unitswas within the mineral owner’s right. The court responded by redefining the scope ofa mineral owner’s surface easement. It stated that “where there is an existing use bythe surface owner which would otherwise be precluded or impaired, and where underthe established practices in the industry there are alternatives available to the lessee


which would otherwise be precluded or impaired, and where underthe established practices in the industry there are alternatives availa-ble to the lessee whereby the minerals can be recovered, the rules ofreasonable usage of the surface may require the adoption of an alter-native by the lessee.”148

These Environmental Era reforms have helped shift the impacts ofseverance from a unidimensional focus on the needs of the mineralestate owner to a more “multidimensional” approach.149 Yet, the ac-commodation doctrine does not restrict mineral development alto-gether.150 While many may see these developments as steps forwardbecause they create more balance between the right of the mineralowner to extract its minerals against the disruption to the surfaceowner’s existing uses of the surface,151 they do not change the basicdominant-servient estate dynamic in significant ways. For example,under the accommodation doctrine, the surface owner may not stopdevelopment by the mineral owner, only request some accommoda-tion for existing surface uses. In addition, the surface owner still re-tains the burden of proof.152

IV. WIND SEVERANCE

This Section will look first at a brief history of wind power. Next, itwill compare wind energy rights with the above evolution of oil andgas rights.

A. Background

Wind is one of the oldest forms of energy that humans have cap-tured. Egyptians harnessed the wind to sail boats as far back as 3100B.C.E., and both the Chinese and Persians used windmills to pumpwater as early as 200 B.C.E.153 The first windmill for electricity pro-

whereby the minerals can be recovered, the rules of reasonable usage of the surfacemay require the adoption of an alternative by the lessee.” Id. at 620–21.

148. Id. at 622. Model Surface Use and Mineral Dev. Accommodation Act, 14U.L.A. 100 (1995) (clarifying accommodation doctrine criteria and suggesting modellegislation in 1990).

149. See Kramer, supra note 27, at 2-20 to 2-30. See also Zillman, supra note 27, at1-1. See, e.g., Texas Genco, LP v. Valence Operating Co., 187 S.W.3d 118, 123–25(Tex. App.—Waco 2006, pet. denied). Will Russ, Inheriting the Wind: A Brief Guide toResolving Split Estate Issues when Developing Renewable Projects, in ROCKY MTN.MIN. L. FOUND. SPECIAL INST. ON RENEWABLE ELEC. ENERGY LAW, DEV. & INV., 5MIN. L. SERIES 5-8 (2013).

150. Getty Oil, 470 S.W.2d at 622.151. Russ, supra note 149, at 5-8.152. Id.; Douglas R. Hafer, Daniel B. Mathis & Logan W. Simmons, A Practical

Guide to Operator/Surface-Owner Disputes and the Current State of the Accommoda-tion Doctrine, 17 TEX. WESLEYAN L. REV. 47, 58–59 (2010).

153. ERNEST E. SMITH, STEVE K. DEWOLF, RODERICK E. WETSEL & BECKY H.DIFFEN, TEXAS WIND LAW § 1.01, at 1-1 (LexisNexis 2013).


duction was built in Scotland in 1887,154 and Charles F. Brush ofCleveland, Ohio, designed and constructed a 12 kilowatt wind turbinefor the production of electricity in the U.S. in 1888.155

Despite these early beginnings, wind was not widely used once theIndustrial Revolution and new advances in technology required theday-and-night-any-weather delivery of energy that fossil fuels, whichwere cheap and abundant at this time, could provide.156 The 1970 oilembargos changed that.157 The fear of being cut off from petroleumsources caused both the United States and Europe to begin again toexplore the use of wind power as an alternative for electricityproduction.158

The first commercially viable wind farms for producing electricity inthe United States were established in the 1980s, but these farms had aslow start.159 It was not until states began passing Renewable Portfo-lio Standards (“RPS”) in the mid-1990s that U.S. wind capacity trulyexpanded.160 In 1998, the United States had approximately 2,000megawatts (“MW”)161 of installed wind capacity; by the end of thethird quarter of 2013, that number had grown to 60,078 MW162 with anadditional 2,327 MW more under construction.163

Currently, all but thirteen states have RPS goals or mandates toencourage utilities to use renewable energy sources,164 and most ofthese RPSs include wind as a qualifying resource to meet those man-dates. By the year 2030, 20% of U.S. electrical energy needs could besupplied by wind power. The United States has abundant wind

154. Id.155. Id. at 1-2.156. K.K. DuVivier & Roderick E. Wetsel, Jousting at Windmills: When Wind

Power Development Collides with Oil, Gas, and Mineral Development, 55 ROCKY

MTN. MIN. L. INST. 9-1, 9-5 (2009).157. SMITH ET AL., supra note 153, § 1.01.158. Id.159. Alexander, supra note 97, at 436.160. David Hurlbut, A Look Behind the Texas Renewable Portfolio Standard: A

Case Study, 48 NAT. RESOURCES J. 129, 129 (2008).161. U.S. DEP’T OF ENERGY, 20% WIND ENERGY BY 2030: INCREASING WIND EN-

ERGY’S CONTRIBUTION TO U.S. ELECTRICITY SUPPLY 5, fig ES-2 (Dec. 2008), http://www1.eere.energy.gov/wind/pdfs/42864.pdf.

162. U.S. Wind Industry Third Quarter Market Report 4, AM. WIND ENERGY ASS’N,(Oct. 31, 2013), http://awea.files.cms-plus.com/AWEA%203Q%20Wind%20Energy%20Industry%20Market%20Report%20Executive%20Summary.pdf [hereinafterAWEA, Third Quarter]; see also Wind Energy Facts at a Glance, AM. WIND ENERGY

ASS’N http://www.awea.org/Resources/Content.aspx?ItemNumber=5059&navItemNumber=742 (last visited Jan. 24, 2014) (reporting 60,007 MW as the amount at theend of 2012. This number is from the thirty-nine states plus Puerto Rico that haveinstalled capacity.).

163. AWEA, Third Quarter, supra note 162, at 7.164. Most States Have Renewable Portfolio Standards, U.S. ENERGY INFO. ADMIN.,

http://www.eia.gov/todayinenergy/detail.cfm?id=4850 (last visited Jan. 28, 2014); RobWile, Here’s How much Your State Cares About Climate Change [Map], BUSINESS

INSIDER (Sept. 6, 2013), http://www.businessinsider.com/map-of-renewable-portfolio-standards-2013-9.


reserves,165 and wind is “the fastest growing source of new powergeneration.”166

The current leader in wind energy is Texas, with 12,214 MW of in-stalled wind capacity and 7,690 wind turbines.167 In 2012, 7.4% ofTexas’s electricity was provided by wind.168 Second to Texas is Cali-fornia, which led the world in wind energy development throughoutmost of the 1980s and 1990s.169 California is currently ranked secondin the U.S. for installed wind capacity (5,544 MW) and has the mostwind turbines in the nation (11,753 turbines).170 Wind is an increas-ingly popular option as an energy source due to its renewable natureand the strong potential that the United States has to develop windenergy facilities.

B. The Era of Definition

It is perhaps unsurprising that wind power is in the same phase ofjurisprudence as oil and gas was in its first thirty years—with courtssimply struggling to create a legal definition for each of these newresources.171 As with the early days of oil and gas, there is now littleconcurrence in how wind rights should be categorized,172 not helpedby the fact that very few courts have dealt with this issue.173 What is abit surprising, however, is that many of the same analogies for theownership status of oil and gas are also being used for wind power.

165. TRIEU MAI, ET AL., RENEWABLE ELECTRICITY FUTURES STUDY: EXECUTIVE

SUMMARY 9, 12 (2012), http://www.nrel.gov/docs/fy13osti/52409-ES.pdf. NREL’sstudy provides a scenario for up to 80% of US electricity generation from renewablesources by 2050, 50% of which would be a combination of wind and solar power. Id.at 2.

166. JEFFREY LOGAN & STAN MARK KAPLAN, CONG. RESEARCH SERV., RL34546,WIND POWER IN THE UNITED STATES: TECHNOLOGY, ECONOMIC, AND POLICY IS-

SUES, at Summary pg. 3 (June 20, 2008). See also 20% Wind Energy by 2030: Increas-ing Wing Energy’s Contribution to U.S. Electricity Supply, U.S. DEP’T OF ENERGY

(2008), http://www.nrel.gov/docs/fy08osti/41869.pdf.167. State Wind Energy Statistics: Texas, AM. WIND ENERGY ASS’N, http://www

.awea.org/Resources/state.aspx?ItemNumber=5183 (last visited Jan. 28, 2014).168. Id.169. State Wind Energy Statistics: California, AM. WIND ENERGY ASS’N, http://

www.awea.org/Resources/state.aspx?ItemNumber=5232 (last visited Jan. 28, 2014).170. Id. (The next top states in installed wind capacity are Iowa with 5,133 MW,

Illinois with 3,568 MW, Oregon with 3,153 MW, Oklahoma with 3,134 MW, Minne-sota with 2,987 MW, Washington with 2, 808 MW, Kansas with 2,713 MW, and Colo-rado with 2,301 MW); Wind Energy Facts at a Glance, AM. WIND ENERGY ASS’N,http://www.awea.org/Resources/Con-tent.aspx?ItemNumber=5059&navItemNumber=742 (last visited Jan. 28, 2014).

171. See, e.g, Terry E. Hogwood, Against the Wind, 26 STATE BAR OF TEX.: OIL,GAS, & ENERGY RES. L. SEC. 6, 6–15 (Dec. 2004); Alexander, supra note 97, at431–32; Ronald H. Rosenberg, Diversifying America’s Energy Future: the Future ofRenewable Wind Power, 26 VA. ENVTL. L.J. 505, 532 (2008).

172. Russ, supra note 149, at 5-5.173. Contra Costa Water Dist. v. Vaquero Farms, Inc., 68 Cal. Rptr. 2d 272, 278 (Ct.

App. 1997). As a result of its position, California is one of the few states whose courtshave even considered the severance of wind rights. See infra Part III.B–C.


Texas seemed to recognize a right to wind access as early as 1904.174

Although the court did not expressly state that there was such a right,it found that a plaintiff could properly allow evidence to support hisclaim for damages resulting from the construction of an embankmentthat blocked wind flows to the plaintiff’s windmill.175 Moreover,under traditional theories of property law, including the ad coelumdoctrine, the owner of the surface estate has a property right in thewind flowing over and above his or her property.176 However, it hasbeen proposed that the ad coelum doctrine only establishes the rightto develop the space above one’s property in building the windmilland does not include a right in the wind itself.177

As in the early days of oil and gas jurisprudence, wind has beencompared to animals ferae naturae. Wind may have even more simi-larities to wild animals than oil and gas: neither are confined to anyone area, and their specific location and movements are not easilypredictable.178 If this theory were adopted, essentially naming wind asa mineral ferae naturae, wind would be the property of the state untilreduced to possession at the time it generated electricity in turning theblades of a turbine.179 Essentially, a wind right would not be a corpo-real right, and only an easement in gross180 or profit a prendre181 inthe mineral rights could be conveyed, not title.182

Wind has been compared to oil and gas itself, ownable in fee simpleabsolute, but subject to the rule of capture.183 In fact, the first case toaddress the property status of modern wind power rights did analogizewind to oil and gas.184 The Contra Costa Water District v. VaqueroFarms185 court agreed with the Water District in that “the right togenerate electricity from windmills harnessing the wind, and the rightto sell the power so generated, is no different, either in law or com-

174. See generally Choctaw, Okla. & Tex. R.R. Co. v. True, 80 S.W. 120 (Tex. Civ.App.—Fort Worth 1904, no writ).

175. Id. at 121.176. TEX. HOUSE OF REPRESENTATIVES HOUSE RESEARCH ORG., CAPTURING THE

WIND: THE CHALLENGES OF A NEW ENERGY SOURCE IN TEXAS, NO. 80-9, at 17 (July8, 2008), available at http://www.hro.house.state.tx.us/focus/Wind80-9.pdf (citing Alex-ander, supra note 97, at 444).

177. Alexander, supra note 97, at 444–45.178. Id. at 446.179. See State v. Bartee, 894 S.W.2d 34, 41 (Tex. App.—San Antonio 1994, no pet.).

See also Alexander, supra note 97, at 447; SMITH ET AL., supra note 153, § 4.01.180. An easement in gross is not attached to a neighboring piece of land like an

easement appurtenant, but instead runs with a person.181. This would be similar to a hunting lease.182. SMITH ET AL., supra note 153, § 4.02.183. Coastal Oil & Gas Corp. v. Garza Energy Trust, 268 S.W.3d 1, 13 (Tex. 2008);

Texas Co. v. Daugherty, 176 S.W. 717, 719–20 (Tex. 1915). SMITH ET AL., supra note153, § 4.02.

184. Contra Costa Water Dist. v. Vaquero Farms, Inc., 68 Cal. Rptr. 2d 272, 290 (Ct.App. 1997); DuVivier, supra note 2, at 87.

185. Contra Costa, 68 Cal. Rptr. 2d at 272.


mon sense, from the right to pump and sell subsurface oil, or subsur-face natural gas by means of wells and pumps.”186

Water has also been put forth as an alternative for understandingownership rights in wind.187 This construct, however, createsproblems as to whether one should use the law of groundwater orsurface water; then if surface water is used, whether the doctrine ofriparianism or prior appropriation applies. One commentator prefersgroundwater law, as it establishes a fee simple absolute in the ground-water and also utilizes the rule of capture,188 but includes a limitationthat an owner can “capture and reduce the water to possession unlessdone with the purpose of maliciously injuring his neighbor or wastingthe water.”189 This could prevent malicious or wasteful uses.

Although flowing surface water may be a more apt analogy for windthan subterranean water, there is currently no uniform water regula-tion between states.190 The only similarity between states is that flow-ing water is state water until the state grants the right to extract anduse the water.191 Despite these differences, the only other U.S. casethat has dealt with the ownership status of wind rights, Romero v.Bernell,192 chose to analogize wind to water and apply the principle ofprior appropriation to it.193 The Romero court stated that “[w]hileNew Mexico has no relevant statutory or case law on the subject, itdoes not appear minerals in the ground are the appropriate commod-

186. Id. at 278.187. See, e.g., Thaddeus Baria, Up the Creek with a Paddle: Water Doctrine as a

Basis for Small Wind Energy, 59 DEPAUL L. REV. 141 (2009).188. See Alexander, supra note 97.189. Id. at 448 (citing Sipriano v. Great Spring Waters of Am., Inc., 1 S.W.3d 75,

75–77 (Tex. 1999)).190. See, e.g., A. DAN TARLOCK, LAW OF WATER RIGHTS AND RESOURCES § 3:7

(Thomson Reuters 2013) (“A proprietor of lands on banks of a river has naturally anequal right to use of the water which flows in the stream adjacent to his lands, as itwas want to run, without diminution or alteration . . . . He has no property in thewater itself, but a simple usufruct while it passes along.”); Id. § 5:8 (Colorado and itsarid neighbors rejected the dual system of the Pacific Coast states, thus rejecting com-mon law riparian rights with the rationale that the federal government silently acqui-esced in rejecting them and after 1866 gave congressional consent to state control.);see also State v. Colo. Water Conservation Dist., 671 P.2d 1294 (Colo. 1983) writ de-nied sub. nom. Young v. Southwestern Colo. Water Conservation Dist., 466 U.S. 944(1984); TARLOCK, supra § 4:6 (Some states follow the “English” or Absolute Owner-ship Rule of capture limiting use to owners of land overlying the groundwater.); Id. at6:5 (New Mexico and other states follow the American or Reasonable Use Rule.); seealso N.M. Const. art. XVI § 3; WATERS AND WATER RIGHTS 8-31 (Robert E. Beck &Amy K. Kelly eds., 1991 ed.).

191. SMITH ET AL., supra note 153, § 4.01.192. Romero v. Bernell, 603 F. Supp. 2d 1333 (D.N.M. 2009) (court allowed parti-

tion of property saying wind rights are not comparable to mineral right but insteadinchoate until vested by being reduced possession when harvested to generateenergy).

193. There was a case in Kansas that had the option of dealing with wind rights, butthe court decided the case on a different issue. See, e.g., Zimmerman v. Bd. of Cnty.Comm’rs of Wabanasee Cnty., 264 P.3d 989 (Kan. 2011).


ity to create a legal paradigm to analyze wind power. . . . Wind is neverembedded in the real estate; rather, it is more like water or wild ani-mals which traverse the surface and which do not belong to the feeowner until reduced to possession.”194 Romero then went on to saythat the right to harvest wind and the right to appropriate water weresimilar, because the right in both vests when the resource is employedfor a useful or beneficial purpose, but not before.195

C. Era of Scientific Awareness, Conservation, and Environment

Oil and gas has had more than 150 years to reach its current legalstatus. Using the history above, oil and gas had the advantage of aslow evolution moving first through efforts to define its essential na-ture and then moving on to defining a construct—the rule of cap-ture—to facilitate its development, regardless of the ownershipdefinitions. As the above history of oil and gas shows, oil and gasachieved a reign of dominance, that still remains today, before therights were reined in somewhat by conservation and environmentalconcerns.

The haphazard and destructive components of the oil and gas evolu-tion process have incentivized current lawmakers to jump in to proac-tively rein in wind rights before they also can obtain a status ofdominance comparable to oil and gas. While some of this may be war-ranted by the conservation and environmental concerns that oil andgas development have created, the collapsing of three generations ofoil and gas development into one for wind may also be curtailing de-velopment of the wind resource, which is much more benign to theenvironment than its legally-privileged fossil fuel predecessors.

For example, wind power is arguably still struggling through an“Era of Scientific Awareness.” Because so little is known about theway wind reacts in turbines, it is still the subject of numerous scientificstudies.196

194. Romero, 603 F. Supp. 2d at 1335.195. Id.196. See, e.g., Anna Fitch, Joseph B. Olson, & Julie K. Lundquist, Representation of

wind farms in climate models, 26 J. CLIMATE 6439 (2013); Daniel T. Kaffine, BranninJ. McBee, & Jozef Lieskovsky, Emissions savings from wind power generation inTexas, 34(1) THE ENERGY J. 155 (2013); Matthew L. Aitken, Michael E. Rhodes, &Julie. K. Lundquist, Performance of a wind-profiling lidar in the region of wind turbinerotor disks, 29 J. ATMOSPHERIC & OCEANIC TECH., 347 (2012); Somnath Baidya Roy& Justin J. Traiteur, Impacts of wind farms on surface air temperatures, 107 PROCEED-

INGS OF THE NAT’L ACAD. OF SCI. 17899 (2010), available at http://www.pnas.org/cgi/doi/10.1073/pnas.1000493107; US DOE 2010, New Wind Resource Maps and WindPotential Estimates for the United States, http://www.windpoweringamerica.gov/fil-ter_detail.asp?itemid=2542; US DOE 2008, USDOE Workshop Report: ResearchNeeds for Wind Resource Characterization, NREL REPORT NO. TP-500-43521 at 116(2008), available at http://www.nrel.gov/ce/wrc_workshop/main.cfm; US DOE 2008,20% Wind Energy by 2030, http://www1.eere.energy.gov/windandhydro/wind_2030.html; Somnath Baidya Roy, Stephen W. Pacala, & Robert L. Walko, Can wind farms


Similarly, wind energy appears to be susceptible to the same poten-tial for physical and economic waste as oil and gas. Inefficient sitingof wind farms could waste wind by preventing farms and turbinesfrom harnessing the energy of the wind.197 A lack of regulation ofwind could lead to economic waste such as local market saturation orphysical waste through transmission constraints, production variabil-ity, and inefficient storage.198 Once the appropriate scientific infor-mation is available, wind might benefit from unitization-like statutessimilar to those enacted during oil and gas’s “Era of Conservation.”

In addition, as we are still in “the Environmental Era,” wind powerhas faced heightened scrutiny on the environmental front. A coupleof examples include greater regulation of wind at the local level,199

longer permitting time required for renewable energy projects by fed-eral regulators,200 and the heightened bird study standards for wind

affect local meteorology?, 109 J. GEOPHYSICAL RESEARCH D19101 (2004); David W.Keith, et al., The influence of large-scale wind power on global climate, 101 PROCEED-

INGS OF THE NAT’L ACAD. OF SCI. USA 16115 (2004); Evaluation of the WeatherResearch and Forecasting (WRF) model on forecasting low-level jets: Implications forwind energy, WIND ENERGY.

197. Troy A. Rule, Wind Rights Under Property Law: Answers Still Blowing in theWind, 26 PROB. & PROP. 56, 57 (2012); Alexander, supra note 97, at 438; Kimberly E.Diamond & Ellen J. Crivella, Wind Turbine Wakes, Wake Effect Impacts, and WindLeases: Using Solar Access Law as the Model for Capitalizing on Wind Rights duringthe Evolution of Wind Policy Standards, 22 DUKE ENVTL L. & POL’Y F. 195 (2011),available at http://scholarship.law.duke.edu/delpf/vol22/iss1/4; Lauren Donovan, TwoEnergy Projects Competing for the Wind, BISMARK TRIBUNE (Feb. 22, 2008), availableat http://bismarcktribune.com/news/local/two-energy-projects-competing-for-the-wind/article_4bd1f0d6-6616-512b-970f-b4301800f774.html.

198. Alexander, supra note 97, at 439.199. As an example, thirteen of the fifteen counties in Colorado that have wind

turbines have setback requirements. In contrast, only eleven of the forty-seven coun-ties with oil and gas wells have setback requirements for those. Wyoming is even moredramatic: twenty-three counties have oil and gas wells and only one county has asetback requirement for such wells; in contrast eight of the twelve Wyoming countieswith wind farms have setback requirements for turbines.

200. Neal McAliley, Federal Environmental Permitting of Renewable EnergyProjects, EL DAILY AND ENERGY MANAGER TODAY (Aug. 2, 2011), http://www.environmentalleader.com/2011/08/02/federal-environmental-permitting-of-renewable-en-ergy-projects (“[R]enewable energy projects can take longer to permit than conven-tional projects. Conventional projects may have more environmental impacts, but thenature of those impacts is better understood by agencies and there usually is a longtrack record of similar projects that agency staff can use as regulatory precedents. Renewable energy projects, on the other hand, often involve new technologies withmore uncertain or newer types of impacts, and are proposed for locations where thereis less understanding of the existing environment . . . . Agency staff also may lackexamples of earlier-approved projects, which they can use as permit templates [or]may not have sorted out which agencies are responsible for what type of projects. Allof these factors mean that renewable energy projects perversely may take longer topermit because they involve new technologies that do not involve undesirable, butwell-understood, negative effects. The more cutting edge a technology, and the moreunusual location where it will be located, the more challenging the project may ap-pear to agency regulators.”).


energy projects specifically.201

V. PROBLEMS WITH WIND SEVERANCE AND CURRENT RESPONSES

This Section will address first, the problems created by wind sever-ance; second, the response of legislative bans on this type of sever-ance; and finally, the apparent negative repercussions of these bans.

A. The Problems with Wind Severance

Absent a specific ban on wind severance, there appears to be a pre-sumption that a severable fee estate in wind might be the appropriatecommon law default for its categorization. The Contra Costa case, dis-cussed above, came to the conclusion that wind was severable becauseit was a property right that could be bought and sold.202 The caseinvolved eminent domain proceedings in which the water district con-demned ranch acreage upon which wind turbines had been erected orwere planned.203 In the condemnation proceedings, the water district,unwilling to pay the extra costs for wind rights, stipulated that thelandowner retained its rights for wind energy and the transmission ofwind power on the acreage in question.204 The landowner argued thatthe severance was invalid because there was no existing precedent forsevering the wind rights from the remainder of the land ownership.205

Not all interests in property that can be bought or sold qualify asseverable estates. For example, a lease is property capable of beingbought and sold, but leases are not generally considered severable in-terests.206 However, the Contra Costa court’s rationale rested on de-fining the wind right as being comparable to an oil and gas right.Once the right had been defined in this way, it then followed thatwind severance was permissible because the severance of oil and gaswas permissible.207

The issue of the validity of a severance of wind rights remains un-resolved in most states.208 Although no other court in the country hassimilarly categorized wind rights as comparable to oil and gas rights,

201. See, e.g., Eagle Permits: Changes in the Regulations Governing Eagle Permit-ting, 77 Fed. Reg. 22,267 (Apr. 13, 2012) (to be codified at 50 C.F.R. 13 and 22)(requiring additional compensatory mitigation over the duration of a permit to miti-gate the level of authorized take below the originally authorized take levels).

202. Contra Costa Water Dist. v. Vaquero Farms, Inc., 68 Cal. Rptr. 2d 272 (Ct.App. 1997).

203. Id. at 274.204. Id. at 282.205. Id. at 278.206. A lease is more often considered a contractual right. Thomas W. Merrill &

Henry E. Smith, The Property/Contract Interface, 101 COLUM. L. REV. 773, 776(2001). However, the line between contract and property rights is often blurred. Id. at777. Note that easements also do not generally qualify as estates that can be grantedin fee title. SMITH ET AL., supra note 153, § 4.02.

207. Contra Costa, 68 Cal. Rptr. 2d at 278.208. SMITH ET AL., supra note 153, § 4.02.


many landowners have severed those rights from the surface presuma-bly basing this form of ownership on similar assumptions to those inthe Contra Costa case paralleling wind with oil and gas develop-ment.209 Thus, the grant of wind rights in some states such as Texas,which is the nation’s wind leader, typically are written as if thoserights were severable.210 Without clear authority on the topic, thequestion of whether or not a court will enforce these property rightscreates legal uncertainty.211 As a result, some project developers ap-pear to have stopped working with landowners who have severedwind rights.212 Thus, one of the problems of wind severance is thelegal title uncertainty that could potentially leave acres of valuablewind lands undeveloped.

Wind severance also has the potential to cause significant problemson the ground. Many of these problems are similar to those for theextraction of minerals or other fossil fuels—problems interpreting theimplied easement of access and potential conflicts with surface ownerswho do not want development. Severance exacerbates the conflictsbetween surface owners and those who wish to develop resources be-cause surface owners must suffer the intrusion on their daily lives andlivelihoods without any financial benefit. The owner of the severedmineral or wind estate, not the surface owner, receives royalties.Wind farms have the potential for even more acute conflicts becauseof the extensive and long-term surface use required for develop-ment.213 When surface owners do not control the severed interests,they generally have little or no say in the development of the projectand no bargaining power to seek accommodation.214

Furthermore, severance of wind can cause conflicts between com-peting severed interests. The potential that each of the severed es-tates are entitled to dominance over the surface through the concept

209. DuVivier & Wetsel, supra note 156, at 9-13, 9-26. See also Ernest Smith, WindEnergy: Sitting Controversies and Rights in Wind, 1 ENVTL. & ENERGY L. & POL’Y J.281, 302 (2007).

210. Smith, supra note 210, at 303–307. Severance can occur through a deed inwhich the rights to the wind are either granted or reserved or through a will thatdevises wind rights apart from other incidents of ownership. SMITH ET AL., supra note153, § 4.02.

211. Smith, supra note 210, at 303. See also Michael J. Stephan, Note, Wind Sever-ance, 40 TEX. ENVTL. L.J. 73 (2009–2010); Lisa Chavarria, The Severance of WindRights in Texas 1 (2008), http://sbaustinlaw.com/library-papers/Chavarria-The_Severance_of_Wind_Rights%20(Final).pdf.

212. DuVivier & Wetsel, supra note 156, at 9-21 n.131 (quoting Mark Safty of Hol-land & Hart). See also Blaire D. Parker, Capturing the Wind: the Challenges of a NewEnergy Source in Texas, H. RESEARCH ORG. TEX. H.R., FOCUS REP. NO. 80-9 (2008).“Attorneys advise their clients against severance of wind rights from surface rights,and any statute regulating this may have unintended consequences for existing leases,previous severance is, and future wind energy development in the state.” Id. at 18.

213. DuVivier & Wetsel, supra note 156, at 9-9, 9-11.214. Ernest E. Smith & Becky H. Diffen, Winds of Change: The Creation of Wind

Law, 5 TEX. J. OIL GAS & ENERGY L. 165, 179–182 (2010).


of the implied access of the easement could create confusion about theorder of development of multiple resources.215 These sets of compli-cations could hurt not just wind energy development but also mineraldevelopment.216

As a result, some commentators, including the Author here, haveargued in the past for a ban on wind severance to simplify the situa-tion and to protect all parties’ interests.217 The rationale was to keepthe surface owners involved in receiving royalties and allowing themto act as mediators between mineral and wind right developers.218 Inaddition, the non-severance solution also appeared to offer an oppor-tunity “to encourage the best development of our country’s windresources.”219

B. Legislation Banning Wind Severance

Without waiting for courts to thrash out the status of wind rights,several state legislatures have jumped in to ban wind severance.

In 1996, South Dakota became the first state to enact such a ban.220

At the same time that the Contra Costa case was working its waythrough the courts in California, the South Dakota legislature passeda law banning the severance of the wind right from the surfaceestate.221

South Dakota’s ban on severance, section 43-13-19, does allow for alease of the right to produce wind power.222 However, the lease islimited to a period of fifty years. In addition, if no wind power pro-duction occurs on the land within five years after the beginning of thelease, the lease is also void.223 South Dakota’s statute has becomesomething of a model for similar legislation banning severance, andthe preference for lease rights over severance appears to have becomethe norm in severance-banning statutes.224

215. Id. at 9-13.216. Smith & Diffen, supra note 214.217. DuVivier, supra note 2, at 98. See also Alexander, supra note 97, at 455–56.218. DuVivier, supra note 2, at 97.219. Id.220. South Dakota banned severance to protect landowners from speculators who

were buying up wind rights at $1 per acre before farmers or ranchers recognized theirpotential value. Telephone interview with Steve Wigman, analyst for the Public Utili-ties Commission, who claims to have written the legislation for South Dakota legisla-tor Paul Simons (Sept. 2, 2008).

221. 1996 S.D. Laws ch. 260 (S.B. 95).222. S.D. CODIFIED LAWS § 43-13-19 (2013) (“No interest in any resource located

on a tract of land and associated with the production or potential production of en-ergy from wind power on the tract of land may be severed from the surface estate . . .except that such rights may be leased for a period not to exceed fifty years. Any suchlease is void if no development of the potential to produce energy from wind powerhas occurred on the land within five years after the lease began.”).

223. Id.224. South Dakota has also created a provision allowing for wind easements. S.D.

Codified Laws § 43-13-17 (2013). “Any property owner may grant a wind easement in


Nearly ten years passed before another state followed South Da-kota’s lead to ban wind severance. In 2005, North Dakota enactedsection 17-04-04 which banned severance of the wind right from thesurface estate.225 As with South Dakota, North Dakota limited thetime available on wind easements and leases, as well as including therequirement that development occur within five years.226

Little else happened with severance legislation for a few years, but achorus of commentators weighed in during this period.227 This newawareness raised by commentators, and some litigation about windseverance,228 seems to have spurred the next wave of legislation.

In 2010, a Colorado legislator proposed a bill that would have al-lowed landowners to sever wind rights from the surface estate.229 Thisbill did not make it out of committee. However, just two years later,Colorado shifted in the other direction and passed a non-severance

the same manner and with the same effect as a conveyance of an interest in realproperty. . . . Any such easement runs with the land or lands benefited or burdenedand terminates upon the conditions stated in the easement, except that the term ofany such easement may not exceed fifty years. Any such easement is void if no devel-opment of the potential to produce energy from wind power associated with the ease-ment has occurred within five years after the effective date of the easement.” The“runs with the land” language re-enforces that severance does not extend to theseeasements.

225. 2005 N.D. Laws 1573; N.D. Cent. Code § 17-04-04 (2013) (“Except for a windeasement created under § 17-04-03 and as otherwise provided in this section, an inter-est in a resource located on a tract of land and associated with the production ofenergy for wind power on the tract of land may not be severed from the surfaceestate. However, nothing in this section may be construed to prohibit or limit the rightof a seller to retain any payments associated with an existing wind energy project.”).

226. The North Dakota statute included a provision that the ban only applied pro-spectively. Several of the subsequent statutes also included a similar quote grandfa-ther “provision to avoid potential” takings. North Dakota did include a provision thatthis ban only applied proactively. This began a potentially unfortunate trend in enact-ing these statutes—any wind estates that were severed before 2005 (or the passing ofthe relevant statute in other states) remained severed afterward. While no cases havecome forth about issues created from this, it does seem to legitimize the hesitation ofdevelopers in recognizing severed wind estates.

227. E.g., DuVivier, supra note 2, at 89 (“The lessons learned from oil developmentdemonstrate that [the law of ownership rights to oil] should serve as a cautionary talerather than as a model for efficient and equitable wind production.”). See alsoDuVivier & Wetsel, supra note 156; Kathleen D. Kapla & Craig Trummel, SeveringWind Rights Raises Legal Issues, N. AM. WIND POWER (Oct. 2010), http://kaplalaw.com/NAW1010_WindRightsArticle.pdf; Nathaniel C. Giddings & Laurie A. Ristino,Proposal: A Uniform Act for Wind Rights, ENERGY COMMS. NEWSLETTER 8:2, 1 (Mar.1, 2011), http://www.americanbar.org/content/dam/aba/publications/nr_newsletters/energy/201103_energy.authcheckdam.pdf; Roderick E. Wetsel & H. Alan Carmichael,Currrent Issues In Texas Wind Energy Law, STATE BAR OF TEX. AGRIC. LAW (2009);Lisa Chavarria, Wind Power: Prospective Issues, 68 TEX. B.J. 832 (2005); Smith, supranote 210; Stephan, supra note 210; Chavarria, supra note 212.

228. Romero v. Bernell, 603 F. Supp. 2d 1333 (D.N.M. 2009); Zimmerman v. Bd. ofCnty. Comm’rs of Wabanasee Cnty., 264 P.3d 989 (Kan. 2011) (This case was firstfiled in 2005.).

229. RUSS, supra note 149, at 5-6; H.R. DOC. NO. 10-1158, 67th Gen. Assem. 2dReg. Sess. (Colo. 2010).


statute in 2012.230 This Colorado statute was similar to the South Da-kota statute but also explicitly stated that the wind energy was an in-terest in real property that belonged to the surface estate owner.231

In 2011, Montana, Wyoming, and Kansas all passed non-severancestatutes.232 All three of these looked very similar to South Dakotaand North Dakota’s statutes. Nebraska, which had already used legis-lation to declare wind a property right in 2009,233 also passed a non-severance statute in 2012.234 Nebraska’s statute is unique in that it notonly bans wind severance but also severance of solar energy rights.235

C. Repercussions of Severance Bans

The Author of this Article was one of the first to write about theproblems of wind severance236 and to encourage a statutory ban onthe practice.237 However, it appears success in passing these statutorybans, while solving some problems, may have created unintended neg-ative consequences.

Some are making the assumption that non-severed wind rightsshould revert to the status of the surface estate and therefore be auto-matically subservient to severed oil and gas or other minerals.238 Areport to the Wyoming legislature went further to encourage expresslanguage in the wind severance ban statute to establish mineral estatedominance:

230. COLO. REV. STAT. § 38-30.7-103 (2013).231. Id. § 38-30.7-101.232. MONT. CODE. ANN. § 70-17-404(1) (2013); 2011 Mont. Laws 977; WYO. STAT.

ANN. § 34-27-103(b) (West 2013); 2011 Wyo. Sess. Laws 17; KAN. STAT. ANN. § 58-2272(b) (West 2011); 2011 Kan. Sess. Laws 692.

233. 2009 Neb. Laws 997.234. 2012 Neb. Laws 497.235. NEB. REV. STAT § 76-3004 (2013) (“No interest in any wind or solar resource

located on a tract of land and associated with the production or potential productionof wind or solar energy on the tract of land may be severed from the surface estate.”).

236. DuVivier & Wetsel, supra note 156; DuVivier, supra note 2, at 71.237. The Author testified about wind energy and severance before the Colorado

House Committee on Agriculture, Livestock, and Natural Resources on Jan. 30, 2012. The Committee was considering HB 12-1105, legislation that addressed Wind EnergyProperty Rights. After Professor DuVivier’s testimony, the Committee voted unani-mously in favor of the bill. The Author testified in favor of the non-severance bill thatpassed before a committee of the Colorado General Assembly. See also Peter Blake,Lawmakers seek to harness the wind—legally speaking—and tie it to the land, COLO.NEWS AGENCY COVERING THE CAPITOL (Feb. 2, 2012), http://www.coloradonewsagency.com/2012/02/02/lawmakers-seek-to-harness-the-wind%E2%80%94legally-speaking%E2%80%94and-tie-it-to-the-land/; Interview by Ryan Warner with Profes-sor K.K. DuVivier, Univ. of Denver Sturm Coll. of Law (Feb. 2, 2012).

238. See, e.g., John Hickenlooper, Colo. Governor, Debate at the University ofDenver Sturm College of Law: Who Should Regulate Hydraulic Fracturing in Colo-rado? (Apr. 1, 2013), http://mediaserv.law.du.edu/flashvideo/specialevents/Hydraulic-Fracturing-in-Colo-Debate/Hydraulic-Fracturing-in-Colorado-Debate-4-1-13.htm(stating that oil and gas rights had priority because they were severed estates and thatrenewable resources did not have similar development rights because of their non-severable status).


Similar to pore space legislation, a legislative declaration of the es-tate dominance could reduce future litigation and create some cer-tainty for wind developers. A declaration of mineral estatedominance would establish a baseline hierarchy of estates whileshifting the burden on wind developers to conduct prudent opera-tions in order to avoid conflicts. Additionally, a declaration of whois vested with the rights of ownership to wind would further reducefuture conflicts.239

Yet, none of the rationales used by the judges who were responsiblefor the creation of mineral severance or the dominant-servient estatedoctrine throughout the evolution of those concepts support subju-gating wind to fossil fuels.

As noted above, the primary rationale for allowing “bounding” ormineral severance was the benefit to the public of allowing develop-ment of a valuable common resource.240 This rationale appliesequally for wind energy development as it does for other mineral orfossil fuel rights. In fact, in the context of climate change, an argu-ment could be made that development of renewable energy resourcesshould be a higher public priority than fossil fuel development.

Early cases only justified severance’s “interference with the com-mon law rights of property” because the surface owner was to receivesome compensation (in “toll tin”).241 While current-day severancefrequently takes the surface owner out of the equation for consulta-tion and royalties, nonsevered wind rights allow the best result—de-velopment of a public resource without abrogation of the common lawand with the involvement of, and rewards for, the surface owner.

Second, the rationale judges have used for developing the domi-nant-servient estate doctrine also supports an enhanced status forwind. The role of wind power in addressing U.S. energy needs atteststo its “quasi public character . . . absolutely essential to our commoncomfort and prosperity.”242 To place wind development beyond thereach of the public would be “a great public wrong.”243

239. Benjamin A. Kinney & Brian J. Marvel, Defining Wind Rights in Wyoming: APractical Solution, in Memo from Mary Byrnes, Associate Director of Energy Out-reach, University of Wyoming—School of Energy Resources to Senator Jim Ander-son, Chairman of the Task Force on Wind Energy of the Wyoming Legislature,Submission of University of Wyoming- College of Law, Wind Energy Legal ResearchReports, at 30 (Oct. 11, 2009), available at http://legisweb.state.wy.us/WindEnergy/44.pdf. In the subsequent Wyoming statute, the legislature adopted the memo’s adop-tion by stating that “[n]othing in this act shall be construed to change the common lawas of Apr. 1, 2011 as it relates to the rights belonging to, or the dominance of, themineral estate.” WYO. STAT. ANN. § 34-27-104 (2014).

240. See supra text accompanying note 26.241. See supra text accompanying note 26.242. Chartiers Block Coal Co. v. Mellon, 25 A. 597, 599 (Pa. 1983); see also supra

text accompanying note 35.243. Chartiers Block Coal, 25 A. at 599; see also supra text accompanying note 48.


Furthermore, some of the statutes that banned wind severance,nonetheless, recognized “a nonseverable wind energy right in realproperty.”244 This property right, whether held by the surface owneror a wind developer, also requires access for development or the right“would be wholly worthless. . . .”245 Therefore, there is a business, aswell as a legal, basis for distinguishing wind development rights fromtraditional servient surface rights.

In addition, there are policy arguments against giving conventionalsevered rights legal dominance over wind rights. In the absence ofclear authority on the dominance of one estate over another, oil andgas operators have been urged to work with wind operators to negoti-ate accommodation or surface use agreements.246 Even in this climateof uncertainty, traditional oil and mineral estate owners have beenless willing to work with other interests based simply upon the as-sumption that their rights have a higher priority. If this hierarchy isformalized and traditional interests are given uncontested dominance,the incentives to negotiate are further decreased, exacerbating the sit-uation to the detriment of wind development.

Some might argue that oil and gas is more valuable, therefore justi-fying its dominant status over wind.247 However, as the ChartiersBlock Coal court noted, the relative value of various estates may shiftover time.248 Instead of legally entrenching fossil fuels as dominant,and therefore the winners with renewable resources as the losers, amore logical approach would be to allow both the wind and the fossilfuel estates equal dignity under the law and to let the market decidehow the parties choose to work things out.

VI. CONCLUSION

If the sins of severance from oil and gas were a basis for urginglegislators not to create similar landowner-developer relationships inthe context of wind, it is problematic if these sins are the cause foradditional impediments to wind development. This conclusion how-ever, is not a necessary result. The same rationales for developmentof oil and gas apply to wind, so they should be used not only to en-courage its development but also to make it an estate of equal dignityto fossil fuels regardless of its severance status.

244. See, e.g., Colo. H.B. 12-1105, available at http://www.leg.state.co.us/CLICS/CLICS2012A/csl.nsf/fsbillcont3/DD27838CF592266487257981007F166B?Open&file=1105_enr.pdf.

245. Harris v. Currie, 176 S.W.2d 302, 305 (Tex. 1943); see also supra text accompa-nying note 49.

246. See, e.g., DuVivier & Wetsel, supra note 156, at 9-22 to 9-23.247. Currently, royalty returns for landowners for oil and gas wells is generally ex-

ponentially higher than for wind energy royalties. See, e.g., DuVivier & Wetsel, supranote 156, at 9-29 n.166.

248. Chartiers Block Coal, 25 A. at 599; see also supra text accompanying note 34.


Courts created the law of severance and the dominant–servient es-tate doctrine in the context of the needs of their times. Our timesrequire new, as well as old, forms of energy. Fossil fuels have beenrewarded for their sins with enhanced legal status. Instead of impos-ing penance for these past sins on the next generation of renewableenergy resources, the goal should be a system that equally encouragesthe development of all forms of energy consistent with the values ofour Environmental Era.

LESSONS OF WIND POLICIES IN TEXAS

By Joshua Linn and Clayton Munnings†

I. INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 425II. WIND INVESTMENT AND POLICIES IN TEXAS,

2000–2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 427A. Wind Investment and Generation in Texas . . . . . . . . . . 427B. Federal PTC and Texas RPS . . . . . . . . . . . . . . . . . . . . . . . . 428

III. ECONOMICS OF WIND GENERATION . . . . . . . . . . . . . . . . . . . . 430A. The Inapplicability of LCOE to Wind Generators . . . 430B. Market Value of a Wind Generator . . . . . . . . . . . . . . . . . 432C. Environmental Value of a Wind Generator . . . . . . . . . . 434

IV. POLICY LESSONS FROM TEXAS . . . . . . . . . . . . . . . . . . . . . . . . . . 435V. CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438

VI. FIGURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 440

I. INTRODUCTION

Since the late 1990s, Texas has experienced more wind generatorinvestment than any other U.S. state. It now has the most installedwind capacity of any state,1 and wind power accounts for a largershare of total generation in Texas than in most other states.2Favorable wind resources and the relative ease of siting large projectshave contributed to Texas’s prominence in wind investment and gen-eration.3 Numerous policies have also played important roles, such asthe federal tax credit for wind generation, the state’s renewable port-folio standard (“RPS”), and a regulatory environment conducive tonew investment in the electric power sector.4

With nearly fifteen years of hindsight, the Authors derive lessonsfrom the major federal and state policies that have helped wind gener-ation in Texas. The Authors conduct this retrospective analysis at atime when many other states have ambitious renewable energy re-source requirements; for example, California requires that renewables

† Joshua Linn is a fellow at Resources for the Future and can be reached byemail at [email protected] or by telephone at 202-328-5047. Clayton Munnings is a researchassistant at Resources for the Future. This research has been supported by the Heis-ing-Simons Foundation.

1. U.S. ENERGY INFO. ADMIN., http://www.eia.gov/electricity/data.cfm#gencapacity (follow “XLS” hyperlink in the row titled “Existing capacity by energy source, byproducer, by state back to 2000 (annual data from the EI-860)”) (last visited Feb. 1,2014) [hereinafter USEIA 2000].

2. U.S. ENERGY INFO. ADMIN., http://www.eia.gov/electricity/data.cfm#generation (follow “XLS” hyperlink in the row titled “Net generation by state by type ofproducer by energy source, monthly back to 2005 (EIA-906, EIA-920, and EIA-923)”) (last visited Feb. 1, 2014) [hereinafter USEIA 2005].

3. Jay Zarnikau, Successful Renewable Energy Development in a CompetitiveElectricity Market: A Texas Case Study, 39 ENERGY POL’Y 3906, 3908 (2011).

4. Id.

425


account for 33% of generation by 2020.5 At the same time, extensivedebate over federal policy continues, including whether to continue orrenew subsidies to renewables. The lessons from the Texas experiencecan help guide these future policy decisions.

To provide background, the next Section summarizes aggregatetrends in investment and generation in Texas and considers thesetrends in the national context. The Authors also briefly describe thefederal production tax credit (“PTC”), which has been claimed formany recent wind power projects, and the Texas RPS. Texas also hasa “green power” market that creates market-based incentives for in-vestment in renewables; however, the Authors are not aware of anydetailed analysis of this program, so the Authors focus on the RPS.The Authors discussion includes the policies that encourage renew-ables investment directly and reduce pollution emissions, leaving asideother policy developments such as the deregulation of the electricitysector that occurred during the same time period.

The following Section looks at the economics of wind power, anddistinguishes the market and environmental values of new wind gener-ators. Market value arises from displaced generation and investmentresulting from the new wind generator, and the environmental valuefrom the avoided pollution emissions from fossil-fuel-fired generators.Because the Authors focus on policies that aim to reduce pollutionemissions, the Authors do not include other environmental issues suchas the effects of the policies on bird populations.

In the main Section, the Authors draw three policy lessons from thediscussion of market and environmental values. While several otherarticles have analyzed wind policy in Texas, the Authors’ focus is dis-tinct in its attempt to draw important lessons for state and federalefforts to promote renewables. Briefly, the three lessons are asfollows:

1. In Texas, the environmental benefits of wind power arise prima-rily from displaced natural gas generation and to a lesser extentfrom displaced coal generation.

2. Although existing Texas policies have promoted substantialwind investment, other policies would likely reduce pollutionemissions at lower costs.

3. Coordinating policies for renewables and grid infrastructure cangreatly lower the cost of reducing emissions.

The final Section offers a few concluding remarks for state and federalpolicy.

5. DATABASE OF STATE INCENTIVES FOR RENEWABLES & EFFICIENCY

(“DSIRE”), http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=CA25R (last visited Jan. 29, 2014).

2014] LESSONS OF WIND POLICIES IN TEXAS 427

II. WIND INVESTMENT AND POLICIES IN TEXAS, 2000–2012

In this Section, the Authors provide a brief summary of Texas windinvestment since the year 2000, as well as an overview of the key fed-eral and state policies promoting wind investment in Texas. The pur-pose of this Section is not to explain the wind investment, but merelyto provide some background.

A. Wind Investment and Generation in Texas

Figure 1 shows wind capacity in Texas and all other states within theUnited States, measured in gigawatts (“GW”) of capacity.6 Wind ca-pacity in other states increased from about 2 to 36 GW over the years2000 to 2011; by comparison, the entire U.S. power system has ap-proximately 1,100 GW of capacity.7 Over the same period, wind ca-pacity in Texas increased from close to 0 to about 10 GW.8 Thus,Texas accounted for about 23% of total wind capacity in 2011, al-though the state accounts for only about 10% of total U.S. capacity.9

Texas far exceeds the national average in the contribution of windgeneration to total generation.10 In 2010, the share in Texas was aboutthree times higher than the national average.11 Figure 2 shows theshare of generation accounted for by wind power for Texas, theUnited States, and Iowa, the state with the highest generation share.12

Iowa, like other states in the upper Midwest and Plains, derives alarge share of its generation from wind power.13 But because fewerpeople live in the upper Midwest and Plains than in Texas, total windcapacity is higher in Texas.

Having some of the country’s best wind resources partly explainswhy Texas has so much more wind capacity than any other state. Fig-ure 3 shows a map of the United States that has been color coded torepresent estimated onshore wind resources. Darker colors reflectmore favorable wind locations, and a large section in western Texas iscolored orange and pink, indicating fair to good wind resources.14

6. USEIA 2000, supra note 1.7. Id.8. Id.9. Id.

10. USEIA 2005, supra note 2.11. Id.12. Id.13. Id.14. Renewable Portfolio Standards, DEP’T OF ENERGY AND MINERAL ENG’G,

https://www.e-education.psu.edu/ebf200up/node/198 (last visited Jan. 30, 2014) (refer-encing the graph, which shows the quantity of electricity generated by each type offuel since 1996).


B. Federal PTC and Texas RPS

Federal and state policies have also contributed to wind investmentin Texas. The U.S. Congress created the PTC for renewable energy inthe 1992 Energy Policy Act.15 The PTC provides a corporate taxcredit (equivalent to a subsidy) for each megawatt hour (“MWh”) ofelectricity a renewable generator produces for the first ten years thatthe generator operates.16 The credit currently equals $23 per MWhfor wind generators and rises with inflation.17 Wind power projectshave claimed roughly two-thirds of the total subsidy value issuedunder the PTC to date.18 The PTC nearly expired in 2013 before Con-gress extended it one additional year through the American TaxpayerRelief Act of 2012,19 but it has since expired (the PTC will continue tobe earned by wind generators that began construction prior toexpiration).

Although no rigorous analysis has assessed the effects of the PTCon wind investment in Texas or elsewhere, recent experience suggeststhat the PTC has had an important effect. For example, the PTClapsed three times—in 2000, 2002, and 2004—only to be renewedagain each subsequent year.20 Wind developers did not install anyprojects in Texas each year after the PTC lapsed, providing some evi-dence for the importance of the tax credit.21 The PTC also contrib-utes to negative wholesale electricity prices, which have been commonin western Texas. Prices can turn negative when available transmis-sion capacity cannot deliver all of the electricity generated by wind inwestern Texas to eastern Texas, where most of the electricity demandis located. During these times, owners of wind generators are willingto supply electricity at negative prices because they can still earn prof-its from the PTC. Prices would be less likely to turn negative in theabsence of the PTC because wind generator owners would not offer tosell electricity below their marginal costs, which roughly equal zero.22

The Texas RPS has likely played an important role in wind invest-ment, at least in the early 2000s. In 1999, the Texas legislature passed

15. Kevin M. Walsh, Renewable Energy Financial Incentives: Focusing on FederalTax Credits and the Section 1603 Cash Grant: Barriers to Development, 36 U.C. DAVIS

L. REV. 207, 212 (2013).16. DSIRE, http://dsireusa.org/incentives/incentive.cfm?Incentive_Code=US13F

(last visited Jan. 29, 2014).17. Id.18. Harrison Fell, Joshua Linn & Clayton Munnings, Designing Renewable Elec-

tricity Policies to Reduce Emissions, Discussion Paper (Resources for the Future,Washington, D.C.), Dec. 2012, at 9, http://www.rff.org/rff/Documents/RFF-DP-12-54.pdf.

19. American Tax Payer Relief Act of 2012, H.R. 8, 112th Cong. § 407 (2012).20. See Fell et al., supra note 18, at 9.21. Walsh, supra note 15, at 233.22. C. K. Woo et al., Wind Generation and Zonal-Market Price Divergence: Evi-

dence from Texas, 39 ENERGY POL’Y 3928, 3931 (2011), available at http://www.sciencedirect.com/science/article/pii/S0301421510008700.


the RPS, which initially required 2 GW of new capacity to be installedby 2009.23 The state exceeded this level far ahead of time,24 and in2005 the legislature increased the RPS to 10 GW by 2025.25 The statealso exceeded this increased level ahead of time, by 2010.

The RPS includes a system of renewable energy credits (“RECs”).A qualifying renewable generator creates a REC for each MWh ofelectricity it generates. Each load-serving entity, which includes re-tailers and certain cooperatives and municipal utilities,26 must gener-ate its own renewable electricity or purchase enough RECs to meet itsRPS requirement, where the requirement depends on the firm’ssales.27

A number of articles have assessed the success of the Texas RPS,28

although the literature has not settled on a definition of success. TheAuthors consider the narrower and more fundamental question ofwhether the RPS has affected wind investment in Texas. During theearly 2000s, installed wind capacity was only slightly above the levelsrequired by the RPS, and REC prices were between $10 and $16 perMWh.29 By the late 2000s, however, installed wind capacity exceededthe levels required by the RPS. In 2007, for example, wind developershad installed more than twice the amount of capacity required by theRPS,30 and REC prices fell to around $2 per MWh;31 see Figure 4.Although the RPS may have stimulated wind development in theearly 2000s, clearly other factors were important by the late 2000s,such as the PTC.32 We discuss this possibility further in Section IV.

Transmission policies have also been important in wind develop-ment. The western part of the state contains the best wind resourcesin Texas, as shown in Figure 3,33 whereas most of the demand comesfrom the eastern part of the state.34 Transmission lines must deliverthe wind power produced in western Texas to the eastern part of thestate, and Woo et al. show that between 2007 and 2010, transmission

23. Tex. S.B. 7, 76th Leg., R.S., § 39.904 (1999).24. Woo et al., supra note 22, at 3930.25. Tex. S.B. 20, 79th Leg., 1st C.S., § 3 (2005).26. ERCOT, http://www.ercot.com/services/rq/lse/ (last visited Feb. 25, 2014).27. See Zarnikau, supra note 3, at 3908.28. Ole Langniss & Ryan Wiser, The Renewables Portfolio Standard in Texas: An

Early Assessment, 31 ENERGY POL’Y 527 (2003); Zarnikau, supra note 3; M.C.Faconti, How Texas Overcame California as a Renewable State: A Look at the TexanRenewable Energy Success, 14 VT. J. ENVTL. L. 411 (2012); Richard Schmalensee,Evaluating Policies to Increase Electricity Generation from Renewable Energy, 6 REV.ENVTL. ECON. & POL’Y 45, 46–48 (2011).

29. Schmalensee, supra note 28, at 58.30. U.S. ENERGY INFO. ADMIN., http://www.eia.gov/electricity/data/eia860/index

.html (follow “2007 ZIP” hyperlink, file “Geny07”) (last visited Feb. 1, 2014).31. See Schmalensee, supra note 28, at 58.32. Langniss & Wiser, supra note 28, at 530.33. See PENN STATE COLLEGE OF EARTH AND MINERAL SCIENCES, https://www.e-

education.psu.edu/ebf200up/node/198 (last visited Feb. 25, 2014).34. Woo et al., supra note 22, at 3930.


capacity was often insufficient to deliver all of the available wind-gen-erated electricity.35 Such transmission congestion caused electricityprices to be lower in the western part of the state and higher in theeastern part than if there had been no congestion.36 The transmissioncongestion may have reduced investment in new wind generators be-cause the congestion reduced the revenues of new wind generators inwestern Texas.

To address the inefficiencies associated with transmission conges-tion, Texas has spent approximately $5 billion in increasing transmis-sion capacity.37 In 2005, Texas created competitive renewable energyzones (“CREZs”), which enabled the expansion of transmission ca-pacity between regions with favorable wind resources and the rest ofthe state.38 The transmission capacity expansions, which are nearingcompletion, will reduce the likelihood that prices in regions with highwind resources will fall below prices in other regions. This lower like-lihood of regional price divergence should increase incentives for newwind investment, and the expanded transmission capacity is expectedto support an additional 8 GW of wind capacity.39 The additional ca-pacity should also reduce the total cost of generating electricity, butwhether the benefits of the transmission capacity investment turn outto exceed the costs is an open question.

III. ECONOMICS OF WIND GENERATION

The Texas electricity market provides consumers with electricity,but also creates pollution emissions because of fossil-fuel combustionat coal- and gas-fired generators. As discussed above, considerablewind investment has occurred in Texas, and wind’s share in total gen-eration is much higher in Texas than in most other states. This Sectiondiscusses the value of wind generators to society.

A. The Inapplicability of LCOE to Wind Generators

The Authors use the term “market value” to describe the value of ahypothetical wind generator to a potential investor. Investors com-monly use the levelized cost of energy (“LCOE”) as part of their eval-uation of whether to proceed with a particular project. The LCOE is,essentially, the average cost of providing a unit of electricity over thegenerator’s lifetime. Investors can compare the LCOE with the aver-age price of electricity that the generator would receive (for example,by selling into a wholesale market or under long-term contract with a

35. Id.36. Id. at 3931.37. Zarnikau, supra note 3, at 3910.38. Tex. S.B. 20, 79th Leg., 1st C.S., § 3 (2005).39. Diana Liebmann, Market Headwinds Persist for U.S. Wind Capital, N. AM.

WINDPOWER, at 1 (2011), https://www.haynesboone.com/files/Uploads/Documents/Third-Party%20Articles/NAW%20(Liebmann).pdf.


utility). For a potential investor deciding whether to invest in a partic-ular wind project, if the project’s LCOE is lower than the electricityprice, the investor should go ahead with the project because expectedrevenues exceed expected costs. Thus, the LCOE can form the basisof a simple decision rule about whether to invest in a particularproject.

Many analysts also use the LCOE to compare the expected profit-ability of different generation technologies. For example, the Massa-chusetts Institute of Technology study on the future of nuclear powercompares the LCOE of hypothetical natural gas, coal, and nucleargenerators.40 This comparison is appropriate because all three tech-nologies are “base load,” meaning that they operate most of the time.Therefore, owners of these generators expect to receive the averageprice of electricity over the generators’ lifetime—effectively, the tech-nologies would all receive the same revenue per unit of electricity gen-eration.41 Comparing the profitability of these technologies,therefore, amounts to comparing their LCOE—the technology withthe lowest LCOE is most profitable.

But as Joskow42 and Fell and Linn43 argue, comparing the LCOE ofwind with those of other technologies does not provide informationabout whether the wind generator is more profitable than other gen-erators. The fact that a wind generator produces electricity only whenthe wind blows, termed “intermittency,” complicates the comparisonbetween wind and other technologies. Because of intermittency, awind generator cannot operate as a base load generator. A wind gen-erator also cannot operate as a “peaking” generator, which operatesonly during periods of high demand. Instead, generation from a windgenerator varies over time in accordance with wind speed.

Because wind generators produce electricity only under favorablewind conditions, the revenue of a particular wind generator dependson the temporal correlation between wind availability and electricityprices.44 The four curves in Figure 5 show total electricity demand byhour on an average day in the Electric Reliability Council of Texasmarket, which covers most of Texas. Each curve represents a differentseason of the year. Demand is lowest in the early morning and in-creases over the day, peaking at around 5 p.m. in most seasons anddecreasing at the end of the day. The figure also shows that the daily

40. Eric S. Beckjord et al., The Future of Nuclear Power, MASS. INST. OF TECH., at42 (2003), http://mitei.mit.edu/system/files/nuclearpower-full_0.pdf.

41. Policies that affect the profitability of some of these technologies but notothers, such as loan guarantees, would be included in the LCOE calculation andwould not—in this comparison—affect revenue.

42. Paul L. Joskow, Comparing the Costs of Intermittent and Dispatchable Electric-ity Generating Technologies, 3 AM. ECON. REV. 238, 239 (2011).

43. See Harrison Fell & Joshua Linn, Renewable Electricity Policy, Heterogeneityand Cost Effectiveness, 66 J. ENVTL. ECON. & MGMT. 688, 692 (2013).

44. Id. at 688.


pattern differs across seasons. Demand varies less over the day inwinter and fall than in summer, for example.

Figure 6 shows the implications of intermittency for the revenue ofa hypothetical wind generator in Texas. The figure illustrates the esti-mated wind generator capacity factors by season for western Texas. Ithas been constructed from simulated wind data and represents typicalpatterns observed at wind generators in western Texas. ComparingFigures 5 and 6 shows that wind generation correlates negatively withelectricity demand. In fact, the correlation is negative both over thecourse of the day and across seasons. Demand tends to peak in themiddle of the day and in the summer, when wind generation is lowest.

What does the negative correlation imply for the value of wind gen-eration? Recall that the typical comparison of technologies, based onLCOE, relies on the premise that the technologies being consideredreceive the same average price over their lifetimes. For a base loadgenerator, this would roughly equal average price across all hours.But in Texas and other regions with active wholesale electricity mar-kets, the price is proportional to demand: prices rise and fall with de-mand. Because prices correlate positively with demand and windgeneration correlates negatively with demand, wind generation nega-tively correlates with prices.45 Because of the negative correlation, atypical wind generator in western Texas receives less than the averageprice. Therefore, although a hypothetical wind generator can have alower LCOE than a hypothetical natural gas generator, the naturalgas generator may still be more profitable than the wind generatorbecause it earns more revenue. The Authors conclude that comparingwind and other technologies on the basis of LCOE is not appropriate;no investor would make a decision to build a new wind generatorbased only on the LCOE. Instead, the investor compares the costs ofthe wind generator with the value of the wind generator.

B. Market Value of a Wind Generator

The market value of a wind generator derives from two sources.46

The first is the generation displaced by the wind generator. Figure 7provides a useful approximation of the Texas electricity market in aparticular hour. The vertical curve represents the demand curve.Electricity demand is vertical (or nearly so, in reality) because mostconsumers cannot adjust electricity consumption immediately in re-sponse to the price of electricity. This may change with increasingpenetration of certain technologies, such as air conditioners that shutoff when electricity prices rise, but presently electricity demand is ap-proximately vertical over short time periods, such as within a month.

45. Id. at 689.46. Id. at 692.


(The Authors do not argue that consumers do not respond to electric-ity prices, only that they do not respond immediately.)

The upward-sloping curve represents the supply curve. The curveplots the marginal cost of producing electricity against total supply.Wind, hydroelectric, and nuclear generators in Texas have the lowestmarginal costs. Coal generators have historically been next in cost,with natural gas generators having the highest marginal costs, al-though recently the marginal costs of some natural gas generatorshave fallen below those of some coal generators because of low natu-ral gas prices.47 Nonetheless, for the purposes of our discussion, theAuthors will treat coal generators as having lower marginal costs thannatural gas generators, as this was the case throughout most of the2000s.

The intersection of the demand and supply curves determines theelectricity price. The price equals the marginal costs of the highest-cost generator in operation. If demand were lower, the price wouldalso be lower; at very low levels of demand, a coal generator mayoperate at the margin, which means that it is the highest-cost genera-tor in operation. Note that this diagram makes a number of simplifi-cations; for example, in practice, the marginal costs of the generatorsmay depend on whether they operated in the previous hour. None-theless, this diagram provides enough detail to illustrate the basic eco-nomics of wind generation.

Suppose that Figure 7 represents the Texas market for one hour in2007. A particular natural gas generator sets the price in that hour.Suppose, further, that in 2008 a new wind generator is constructed. Inour simple example, everything else stays the same between 2007 and2008. The wind generator has zero marginal costs, so it effectivelycauses the supply curve to shift incrementally to the right. This causesthe marginal gas generator from 2007 to decrease its generation by thesame amount as the wind generation increases. Effectively, the windgeneration displaces natural gas generation.

The market-wide cost of producing electricity consequently de-creases in proportion to the marginal costs of the displaced natural gasgeneration. This avoided cost represents the first source of marketvalue of the wind generation. When electricity demand is low, theavoided costs—and hence the market value—also tends to be low.Therefore, a wind generator whose generation is negatively correlatedwith demand has lower market value than one whose generation ispositively correlated with demand. Fell and Linn48 use a computa-tional model to compare the market values from displaced generation

47. Joseph A. Cullen & Erin T. Mansur, Will Carbon Prices Reduce Emissions inthe U.S. Electricity Industry? Evidence from the Shale Gas Experience 2 (DartmouthUniv., Working Paper, 2013), http://www.josephcullen.com/resources/CarbonShale.pdf.

48. Fell & Linn, supra note 43, at 702.


for different types of wind generators. The market value is slightlyhigher for hypothetical generators located on the Gulf Coast than forgenerators in western Texas because the western generators produceelectricity that is more negatively correlated with demand.49

The wind generator has market value from the displaced genera-tion, and the displaced investment is a second source of marketvalue.50 Firms choose to invest in new generators when the expectedrevenues exceed costs. An increase in wind generation causes thesupply curve to shift right, thereby reducing expected revenues andthe amount of investment in other generators. The actual value of thedisplaced investment depends on demand; wind availability; and otherfactors; and quantifying this value requires a detailed model of theelectricity sector. Fell and Linn compare the value of avoided invest-ment for hypothetical wind and solar generators, concluding that thevalue is substantial compared with the value of the avoidedgeneration.51

C. Environmental Value of a Wind Generator

Wind generators may have value to society beyond their marketvalues. Social values arising from the health and environmental bene-fits of reduced pollution emissions from fossil-fuel-fired generatorswould justify, on economic grounds, policies that create incentives forwind investment.

Similar to the common misperception about using the LCOE tocompare wind and other electricity generation technologies, a com-mon misperception exists about the environmental value of wind gen-erators.52 An often-repeated view of renewable electricity generatorsis that because they have zero emissions, they have the same environ-mental value as one another. But just as the market value derivesfrom the displaced generation, environmental value derives from dis-placed emissions from fossil-fuel combustion at coal- and gas-firedgenerators.

In Texas, as in other parts of the United States, fossil-fuel genera-tors operate at the margin most hours, but sometimes the marginalgenerator is coal-fired and other times it is gas-fired.53 Whether themarginal generator uses coal or gas depends on a variety of factors,such as electricity demand and the composition of the generationfleet. In Texas, natural-gas-fired generators are usually at the margin,although sometimes, particularly when demand is low, coal operates

49. See id.50. Id. at 693.51. Id. at 704.52. Fell et al., supra note 18, at 7.53. Anya Castillo & Joshua Linn, Incentives of Carbon Dioxide Regulation for In-

vestment in Low-Carbon Electricity Technologies in Texas, 39 ENERGY POL’Y 1831,1839–40 (2011).


at the margin.54 As Figure 5 shows, demand tends to be low at night,which is also when coal often operates at the margin. Because coalgenerators emit more particulates, nitrogen oxides, sulfur dioxide, andcarbon dioxide than natural gas generators, much greater environ-mental benefit results from displacing coal than gas. Therefore, re-newable generators that operate more at night and in the spring thanat other times have higher environmental value.

Figure 8 shows the results of a simulation analysis of the Texas sys-tem using data from 2008.55 The figure plots the probability that acoal generator operates at the margin by hour of the day. Theprobability peaks at night and in the early morning, when demandtends to be low. The figure also shows the capacity factor of hypothet-ical wind and solar generators and indicates that a wind generator ismore likely than a solar generator to displace a coal generator. Theenvironmental value therefore differs between wind and solar genera-tors, and likewise the environmental value may differ between twowind generators. A wind generator with generation that is more nega-tively correlated with demand than another wind generator may havehigher environmental value. Thus, it is not true that the environmen-tal value of all wind generators is the same.

IV. POLICY LESSONS FROM TEXAS

The Authors are not aware of a rigorous assessment of the costs andbenefits of the policies and regulations that have affected Texas winddevelopment. However, despite this lack of analysis, the literaturesupports three central lessons:

1. In Texas, the environmental benefits of wind power arise prima-rily from displaced natural gas generation and to a lesser extent fromdisplaced coal generation. Several articles have examined whetherwind generators in Texas are more likely to displace coal-fired thangas-fired generation. Castillo and Linn use a computational model ofthe Electric Reliability Council of Texas (“ERCOT”) market, whichcovers most of Texas, and conclude that 1 MWh of wind generationdisplaces about 0.75 MWh of natural gas generation and about 0.25MWh of coal generation.56 The Authors base the analysis on simula-tions of the ERCOT system, and the finding is consistent with those ofseveral other studies that statistically estimate the effect of wind gen-eration on fossil fuel–fired generation and emissions, including Cul-len,57 Kaffine et al.,58 and Novan.59

54. Id.55. Id. at 1839.56. Id.57. Joseph Cullen, Measuring the Environmental Benefits of Wind-Generated Elec-

tricity, 5 AM. ECON. J. ECON. POLICY 107 (Nov. 2013), http://www.josephcullen.com/resources/measuringwind.pdf.


As we noted in Section III.B not only do wind generators displacegeneration from other generators, but they also displace investment inother generators. Fell and Linn simulated investment and generationover a twenty-five-year time period in ERCOT.60 They concludedthat future wind investment would displace some natural gas invest-ment but no coal investment.61 The finding is derived from the factthat low natural gas prices made it unprofitable for firms to invest incoal-fired generators, so without any wind investment, all of the in-vestment would be in new natural gas generators.

2. Although renewables have expanded greatly in Texas, other poli-cies would likely reduce pollution emissions at lower costs. Numerouseconomists have argued that putting a price on carbon dioxide emis-sions, as with a carbon tax or emissions cap, is less costly than otherpolicies, both in theory and in practice.62 An emissions price out-performs other policies by providing broad incentives to reduce emis-sions and by equating the magnitude of the incentives at the margin.For example, a carbon price creates equal incentives to reduce emis-sions by switching from coal- to gas-fired generation or by investing inwind-powered generators. On the other hand, other policies do notcreate uniform incentives; for example, an RPS creates incentives forinvesting in new renewables generators, but does not create incentivesfor switching from coal to gas. Therefore, to achieve a given amountof emission reductions, the RPS relies on more renewables investmentthan the carbon price. Failing to take advantage of low-cost emissionreductions opportunities, like fuel switching, raises the overall cost ofthe RPS compared with the emissions price; the same argument ap-plies to the PTC.63

58. Daniel T. Kaffine, Brannin J. McBee & Jozef Lieskovsky, Emissions Savingsfrom Wind Power Generation in Texas, 34 ENERGY J. 155 (Jan. 2013).

59. Kevin Novan, Valuing the Wind: Renewable Energy Policies and Air PollutionAvoided (Univ. of California–San Diego, Working Paper, 2011), http://undergraduatestudies.ss.uci.edu/files/economics/news_events/2012/Novan_JMP.pdf.

60. Fell & Linn, supra note 43, at 688–707.61. Id. at 689.62. Dallas Burtraw, Curtis Carlson, Maureen Cropper & Karen L. Palmer, Sulfur

Dioxide Control by Electric Utilities: What Are the Gains from Trade?, 108 J. POLITI-

CAL ECON. 1292, 1318 (Dec. 2000); Hei Sing Chan, How Large are the Cost Savingsfrom Emissions Trading? An Evaluation of the U.S. Acid Rain Program 32 (Univ. ofMd., Job Market Paper, 2013), https://53a7a90a-a-62cb3a1a-s-sites.googlegroups.com/site/ronhschan/arpeval_chan_jmp.pdf?attachauth=ANoY7cqTRmZ9Gx7xBPxN3YEp3nNk2efeVURIgS_zOD1HU0hb4cYHj7Ff4oowuuiRtgPzIJaIs5BcAc_ocoJJGi8MrztnHS1arOuRGuMy1smfZORa0fkejNXRCT52VJRWFwo4b2JbcPa-iG5zTyD96AoZUk0KzBMbHmgx_xGlcj3jkCdMHqYWIG2qg_IlKEfeP5rWSLJJviH5DMoAxr2sDgHQ5wv482IIVg%3D%3D&attredirects=1; see also Lawrence H. Goulder, Ian W.H.Parry & Dallas Burtray, Revenue-Raising versus Other Approaches to EnvironmentalProtection: The Critical Significance of Preexisting Tax Distortions, 28 RAND J. ECON.708 (1997) (arguing that an emissions price may not be cost-effective after accountingfor changes in product prices and labor supply).

63. Fell & Linn, supra note 43, at 690.


A further inefficiency of the PTC is that, by subsidizing investment,the PTC puts downward pressure on electricity prices, which increaseselectricity consumption in the long run. Greater consumption trans-lates to greater fossil-fuel-fired generation and emissions, and theemissions increase offsets some of the initial emissions reductionscaused by the PTC.64

While the existing literature has generally relied on theory or analy-sis of national or regional markets, Fell and Linn make a similar pointusing data and simulations that pertain directly to the case of Texas.65

They show that an RPS and PTC cost much more than an emissionsprice or a sector-wide emissions rate standard (sometimes referred toas a clean energy standard).66 The greater cost derives partly from theinability of the PTC or RPS to encourage fuel switching. Anothershortcoming of the PTC and RPS is that both policies provide thesame incentives for a wind generator with high environmental value ascompared to a wind generator with a low environmental value. Anemissions price, on the other hand, provides greater incentive for thewind generator that has the higher environmental value. Thus, thePTC and RPS do not recognize differences in the environmental valueof wind generators, nor do they provide incentives for other types ofemissions reductions, besides renewables investment.67

However, other policies could be more costly than the RPS or PTC.Fell and Linn also show that renewables policies that offer a flat sub-sidy that does not depend on the market value of the renewables gen-erators—such as an investment tax credit or some types of feed-intariffs—could have even higher costs than the RPS.68

3. Coordinating policies for renewables and grid infrastructure cangreatly improve the effectiveness of renewables policies in reducingemissions at low costs. The entire ERCOT power system is locatedwithin Texas, making it the only system located within a single state.Transmission siting is much simpler than in other regions becauseTexas can adopt transmission policies with relatively little involvementfrom other states or the federal government.69 The resulting flexibil-ity likely made it much easier for Texas to build transmission capacityunder the CREZ system. Because of the relative ease of siting newtransmission lines in Texas, it was much easier to coordinate therenewables and transmission policies than it would have been in otherstates. In particular, the CREZ transmission capacity investmentscomplemented the wind policies.

64. See Fell et al., supra note 18, at 20.65. Fell & Linn, supra note 43, at 690.66. Id.67. See Fell et al., supra note 18, at 19–20.68. Fell & Linn, supra note 43, at 705.69. Faconti, supra note 28, at 421.


Nonetheless, Texas did not perfectly coordinate its transmission pol-icies with the renewables policies, at least in the 2000s. Woo et al.document the effects of wind capacity on transmission congestion, andFigure 9 provides a simple picture of what happened.70 For much ofthe 2000s, the ERCOT system included four zones: west, south, north,and Houston. The blue curve shows the probability that the price inthe western zone was more than 10% different from the average pricein the other three zones. The probability rises noticeably at the sametime that the total installed wind capacity (the green curve) increased.The positive correlation between the two curves provides some simplegraphical evidence of the effect of wind generation on congestion,which is consistent with the more careful analysis of Woo et al.71

The congested transmission lines could not handle considerableamounts of the available wind-generated electricity. Because windgeneration has zero marginal costs and emits no pollution, the failureto use all of the available wind generation raised the cost of generat-ing electricity in the system and raised emissions because fossil-fuel-fired generation replaced, to some extent, the unused wind-generatedelectricity. The Authors are not aware of research quantifying thesecosts.

Although Texas responded quickly to the congestion by creating theCREZ system, the experience in the late 2000s illustrates the coststhat can arise when policy makers do not perfectly harmonize thetransmission and renewables policies. Other states likely face fargreater difficulties of harmonizing these policies because of the chal-lenges of siting new transmission lines, such as in California.72

V. CONCLUSIONS

Texas has experienced the most investment in new wind generatorsof any state in the United States since 2000.73 Favorable wind re-sources and policies have contributed to the state’s prominence.74

The Authors have discussed three major lessons from the outcomesof this wind investment. First, the environmental benefits of windgeneration in Texas derive mostly from displaced natural gas genera-tion.75 Wind generation could displace more coal generation in otherregions of the country that rely more heavily on coal to generate elec-tricity, in which case the environmental benefits of wind generationwould be significantly greater. Other regions that rely heavily on nat-

70. Woo et al., supra note 22, at 3930.71. Id.72. Jim Rossi, The Trojan Horse of Electric Power Transmission Line Siting Au-

thority, 39 LEWIS & CLARK ENVTL. L. REV. 1016, 1022 (2009).73. USEIA 2000, supra note 1.74. Zarnikau, supra note 3, at 3910.75. Fell & Linn, supra note 43, at 689.


ural gas for electricity generation, such as California, would experi-ence lower environmental benefits per unit of wind generation.

Second, Texas probably could have reduced pollution emissions atlower costs using other policies, such as a clean electricity standard ora price on carbon dioxide emissions. The reason is that the federalPTC and the state RPS reduce emissions only by promoting renew-ables investment and do not incentivize other, possibly lower-cost, op-portunities to reduce emissions, such as switching from coal- to gas-fired generation.76 The previous Section also discussed the inefficien-cies of reducing electricity prices by subsidizing investment.

And third, transmission congestion in the late 2000s and the ex-panded capacity under the CREZ system demonstrate the importanceof coordinating renewables and transmission policies. Because high-quality resources for wind and other renewables are often located farfrom the major sources of electricity demand, using policies to inducelarge amounts of renewables investment without coordinating trans-mission policies results in significantly higher system costs and emis-sions than if transmission and renewables policies are coordinated.

Many other states have adopted a suite of policies to aggressivelypromote renewables in the next several years. Therefore, Texas offerslessons that could help those states design their policies to reduce pol-lution emissions at low cost to electricity producers and consumers.Particularly relevant are (1) the need to coordinate renewables andtransmission policies; and (2) the fact that, in some regions of thecountry, the environmental benefits will be relatively modest if renew-ables primarily displace natural-gas-fired generation. National policyshould promote investment in renewable electricity generators thathave the greatest combined market and environmental value. Addi-tionally, considerable debate has been ongoing at the federal levelover the continuation of the PTC and other subsidies to renewables,and the experience in Texas suggests that other policies could be lesscostly than the PTC and that they should be coordinated with trans-mission (and distribution system) policies.

76. See Fell et al., supra note 18, at 19–20.


VI. FIGURES

FIGURE 1. INSTALLED WIND CAPACITY (GW), 2000–201177

FIGURE 2. WIND GENERATION SHARE, 2001–201078

77. U.S. ENERGY INFORMATION ADMINISTRATION, EXISTING CAPACITY BY

ENERGY SOURCE, BY PRODUCER, BY STATE BACK TO 2000, http://www.eia.gov/electricity/data.cfm#gencapacity. The data series for Texas shows the total installedwind generation capacity in gigawatts (“GW”) from 2000 to 2011. The data series forall other states shows total GW of wind capacity for all U.S. states other than Texas.

78. U.S. ENERGY INFORMATION ADMINISTRATION, NET GENERATION BY STATE

BY TYPE OF PRODUCER BY ENERGY SOURCE, MONTHLY BACK TO 2005, http://www.eia.gov/electricity/data.cfm#gencapacity.


FIGURE 3. U.S. WIND RESOURCES79

FIGURE 4. RENEWABLE ENERGY CREDIT PRICES IN TEXAS

(DOLLARS PER MWH), 2002–201080

79. PENN STATE COLLEGE OF EARTH AND MINERAL SCIENCES, RENEWABLE

PORTFOLIO STANDARDS, https://www.e-education.psu.edu/ebf200up/node/198.80. Richard Schmalensee, Evaluating Policies to Increase Electricity Generation

from Renewable Energy, 6 REV. ENVTL. ECON. & POL’Y 45, 45–64 (2012).


FIGURE 5. HOURLY ERCOT LOAD BY SEASON81

81. ERCOT, HOURLY LOAD DATA ARCHIVES, http://www.ercot.com/gridinfo/load/load_hist/. Each series in the figure plots the hourly load in the ERCOT Systemfor the indicated season, where hourly load is the average across days in 2008.


FIGURE 6. SIMULATED WIND GENERATOR CAPACITY FACTORS82

82. Anya Castillo & Joshua Linn, Incentives of Carbon Dioxide Regulation forInvestment in Low-Carbon Electricity Technologies in Texas, 39 ENERGY POL’Y 1831,1831–1844 (2011). The figure plots the average hourly capacity factor by season forwind generators in Texas using data from simulated wind generation data from AWSTruwind. The capacity factor is the ratio of simulated generation to maximumgeneration for the corresponding wind generator, season, and hour. The average iscomputed over all wind generators in the sample.


FIGURE 7. SIMPLIFIED REPRESENTATION OF ELECTRICITY SUPPLY

AND DEMAND IN ERCOT83

Price,marginalcosts

Quantity

Demand

Supply

Wind, hydro

NuclearCoal

Natural gas

83. The figure plots the vertical demand curve and a simplified supply curve for aparticular hour in the ERCOT market. The supply curve is the marginal cost ofsupplying electricity as a function of the amount of electricity supplied. Eachhorizontal portion of the supply curve represents the indicated technology. Marginalcosts and quantities are not drawn to scale.


FIGURE 8. THE PROBABILITY OF WIND DISPLACING COAL84

84. Castillo & Linn, supra note 82. The green and red curves show the simulatedcapacity factors for wind and solar photovoltaic generators, constructed similarly toFigure 6. The blue curve plots the probability that a coal generator is operating at themargin in the corresponding hour.


FIGURE 9. THE PROBABILITY OF LARGE PRICE DIVERGENCE

BETWEEN WESTERN TEXAS AND THE

REMAINDER OF ERCOT85

85. The probability is computed using price data from ERCOT, www.ercot.com.The installed wind capacity is constructed as in Figure 1, from U.S. ENERGY

INFORMATION ADMINISTRATION data, http://www.eia.gov/electricity/data.cfm#gencapacity.

RIDE LIKE THE WIND:† SELECTED ISSUESIN MULTI-PARTY WINDLEASE NEGOTIATIONS

By Rod E. Wetsel and Steven K. DeWolf ‡

I. INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448II. HISTORY OF WIND DEVELOPMENT IN TEXAS: THE

WIND BOOM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448III. THE TEXAS WIND LEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 452

A. Origins and Evolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 452B. Major Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 453

IV. MULTI-PARTY WIND LEASE NEGOTIATIONS . . . . . . . . . . . . 453A. The Town Hall Meeting Concept . . . . . . . . . . . . . . . . . . . . 454B. Some Wind Groups and their Creators: Signing

Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4551. Roscoe Wind Project . . . . . . . . . . . . . . . . . . . . . . . . . . . 4552. Wind Tex Energy: Project Snyder, Camp Springs

I and II, Stanton and Turkey Track . . . . . . . . . . . . . 4563. Payne Mountain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4574. Horse Hollow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4585. Signing Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 458

C. Ethics, Professional Responsibility and Conflicts ofInterest: Whose Side Are You On? . . . . . . . . . . . . . . . . . . 459

D. The Pros and Cons of Multi-Party Negotiation ofWind Leases: The Good, the Bad and the Ugly . . . . . 4611. The Good. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4612. The Bad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4623. The Ugly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462

a. Dissenters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462b. “Hold Outs” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 463c. “Moles” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464

V. CURRENT STATE OF MULTI-PARTY WIND

NEGOTIATIONS IN TEXAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464VI. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464

† Christopher Cross, Ride Like The Wind (Warner Music Group 1980).‡ Professor Wetsel bio: J.D., Univ. of Tex. 1977; B.A., Univ. of Tex. 1975; Phi

Beta Kappa.Professor DeWolf bio: J.D., Univ. of Tex. 1978; B.A., Univ. of Tex. 1975; LLM, Cam-bridge Univ. 1983; Phi Beta Kappa.

Rod E. Wetsel and Steven K. DeWolf are Adjunct Professors at the University ofTexas School of Law. The Authors co-teach Wind Law and are co-authors with ErnestE. Smith and Becky Diffen of TEXAS WIND LAW (2013). The Authors would like tothank Cassie Carson and Sheena Duke of the Texas A&M Journal of Real PropertyLaw for their encouragement and support of this endeavor, as well as Alisha Watkinsand Jeffrey Allen of Wetsel, Carmichael, & Allen, LLP for their assistance in thetyping and editing of the manuscript, and their former student and law clerk, RebeccaL. Gibson, 2014 J.D. candidate at the University of Texas School of Law, for hertextual suggestions and help with the citation form.

447


I. INTRODUCTION

“And yet, I say again, and swear it now, that there’s something allglorious and gracious in the wind.”

–Herman Melville1

The large-scale wind industry arrived in Texas in the early years ofthe twenty-first century with the intensity of a spring tornado. It was awelcome relief to farmers and ranchers beset by years of no rain andfalling prices, and they lined up in droves to hear about and sign newwind leases. It was a new dawn for energy lawyers too. Gone werethe days of one-on-one representation in the leasing of land. The newera required landowner attorneys to represent dozens or perhaps hun-dreds of people at a time. This is the story of the issues and challengesbrought by the concurrent rise of wind development and multi-partywind lease negotiations in Texas.

II. HISTORY OF WIND DEVELOPMENT IN TEXAS

As far back as 1995, wind developers targeted the McCamey area offar West Texas for the location of several early pilot wind projects,including King Mountain, which upon its completion in 2001 included280 Megawatts (“MW”), making it the largest wind farm in the worldat the time.2 However, transmission of the electricity from theseprojects to the metropolitan load centers of Dallas and Fort Worth(over 400 miles) proved to be a vexing problem, and by the end of the1990s, developers sought to move east.3 They selected the small townof Sweetwater, the county seat of Nolan County, which was located onInterstate 20—only two hundred miles from Dallas—as their site forthe construction of several new “mega-wind” projects.4

Sweetwater presented many advantages. Not only was it muchcloser to the metroplex than the other areas of far West Texas, it alsohad good wind5 and a large 345 kilovolt line which stretched all theway to Dallas with plenty of capacity.6 It was also only sparsely popu-

1. HERMAN MELVILLE, MOBY-DICK OR, THE WHALE 565 (1st Paperback ed.,Univ. of Cal. Press 1983) (1851).

2. ERNEST E. SMITH, STEVEN K. DEWOLF, RODERICK E. WETSEL & BECKY H.DIFFEN, TEXAS WIND LAW § 1.02 (2011); KATE GALBRAITH & ASHER PRICE, THE

GREAT TEXAS WIND RUSH 145 (2013).3. GALBRAITH & PRICE, supra note 2, at 144.4. SMITH ET AL., supra note 2, § 1.02; GALBRAITH & PRICE, supra note 2, at 140.5. SMITH ET AL., supra note 2, § 1.04. The Sweetwater area proved to have a wind

capacity of 38–42%, which is considered very good in the industry. Id. “Wind capac-ity” or the “capacity factor” is the estimated actual energy production of a wind farmcompared to the amount of annual energy production if the wind farm had operatedat maximum output 365 days a year, twenty-four hours a day. Id. It is reached bycalculating the gross wind speed and then reducing that number using various as-sumptions to arrive at a net capacity factor. Id. These assumptions include reductionsfor array loss and turbine availability. Id.

6. Id. § 1.02.

2014] MULTI-PARTY WIND LEASE NEGOTIATIONS 449

lated and contained a varying topography of rolling plains and wideopen spaces perfect for giant wind turbines. Seeking to overcome thetown’s dubious distinction of being the “Home of the World’s LargestRattlesnake Roundup,” and as being one of the most rapidly decliningeconomic areas in the state, the people of Sweetwater were very sup-portive and friendly.7 They “rolled out the welcome mat” with gener-ous county and school tax abatements. To “Sweetwaterites,” the newwind industry was as exciting as Friday night football, and it broughtthe chance for everyone to make money.8

American Electric Power was the first developer to take the lead byconstructing the Trent Mesa Wind Farm across a ridge of hills in east-ern Nolan County in 2001.9 By the standards of what was to come, itwas a modest beginning, with a total of 150 MW produced by approxi-mately 100 wind turbines at a cost of $160 million.10 Soon thereafter,however, the boom began. DKRW Wind, LLC of Houston, Texas(“DKRW”),11 SeaWest Windpower of San Diego, California(“SeaWest”),12 and Florida Power & Light of Juno Beach, Florida

7. Id.8. GALBRAITH & PRICE, supra note 2, at 141.9. Id.

10. Id.11. The four principals of the company, Jon C. Doyle, Robert Kelly, H. David

Ramm, and Thomas E. White were former employees of Enron Corporation and eachhad interesting backgrounds. Doyle received his B.B.A. from the University of NorthCarolina at Chapel Hill, and obtained an MBA from the American Graduate Schoolof International Management in Arizona. Before joining Enron, he set up and man-aged a chemical manufacturing company in China and spoke fluent Chinese. Kelly,Ramm, and White were West Point graduates. Kelly was an economics instructor atthe United States Military Academy. He held a B.S. in Nuclear Engineering fromWest Point and an MPA and Ph.D. in economics from Harvard University. Rammheld a B.S. in Mechanical Engineering from West Point, an M.S. in Management fromthe Massachusetts Institute of Technology and an MBA from Long Island University.White held a B.S. in engineering from West Point. He attained the rank of BrigadierGeneral of the United States Army and served as the Secretary of the Army underPresident George W. Bush. Telephone interview with Dan King, former Vice Presi-dent-Wind of DKRW Wind Energy, LLC, Houston, Texas (Feb. 7, 2014). BloombergBusinessweek, Independent Power Producers and Energy Traders: Company Over-view of DKRW Energy LLC, BLOOMBERG BUSINESSWEEK, http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=10360732 (last visited Feb.7, 2014). University of Houston, Profile of H.David Ramm, UNIV. HOUSTON ENERGY

ADVISORY BOARD, http://www.uh.edu/uh-energy/advisory-board/david-ramm/ (lastvisited Feb. 7, 2014). BrightSource, BrightSource Energy, Inc., Names David RammNew CEO, BRIGHTSOURCE LIMITLESS PRESS RELEASE, http://www.brightsourceenergy.com/ramm-new-ceo#.UvZhC8KYY7Y (last visited Feb. 7, 2014). Dustin Bleizeffer,Long-Delayed DKRW Coal Conversion Plant Still Lacks Complete Financing, WY-

OFILE (Mar. 31, 2013), http://wyofile.com/dustin/long-delayed-dkrw-coal-conversion-plant-still-lacks-complete-financing.

12. Now AES SeaWest, Inc.–Buffalo Gap Project. Rose Snow, SeaWest Holdings,Inc. Announces it is Being Acquired by AES Corporation, EWIRE, http://www.ewire.com/news-releases/seawest-holdings-inc-announces-it-is-being-acquired-by-aes-cor-poration (last updated 2014).


(“FPL”)13 each moved into their respective areas of interest in thesoutheastern part of the county and began construction of massiveprojects.14 They were followed by an Irish company, Airtricity, Inc.(“Airtricity”)15 who, at the encouragement of local farmers, settled onthe large expanse of cotton farmlands in northwestern Nolan Countynear the town of Roscoe. Three of these four projects would becomesome of the world’s largest. Airtricity’s Roscoe Wind Project heldfirst place with 627 wind turbines and a total capacity of 781.5 MW,FPL’s Horse Hollow Project came in second with 421 turbines and735.5 MW, and DKRW’s Sweetwater Wind Project was third with 585MW.16 Thus, by 2008, Nolan County, a place slightly smaller thanRhode Island, was home to over 1,600 wind turbines and 2,500 MW ofwind power and produced more electricity from wind than all of theState of California and many foreign countries.17

But the show was not yet over. In 2008, Wind Tex Energy, LLC18

partnered with Chicago-based Invenergy, LLC (“Invenergy”) to buildthe Turkey Track wind farm in southern Nolan County, which totaled113 wind turbines with a capacity of 169.5 MW.19 The West TexasRanch for Christ, which planned to use the new income for missionarywork in third-world countries, was a major landowner in the project.The Turkey Track project was a fitting finale to a boom, which cat-

13. Now NextEra Energy, Inc. Randy Clerihue, FPL Group Shareholders Vote toChange Name of Company to NextEra Energy, Inc.; Board Declares Quarterly Divi-dend, NEXTERA ENERGY (May 21, 2010), http://www.nexteraenergy.com/news/contents/2010/052110.shtml.

14. SMITH ET AL., supra note 2, § 1.02.15. Now E.On Climate & Renewables North America, Incorporated. Bloomberg

Businessweek, Independent Power Producers and Energy Traders: Company Over-view of E.ON Climate & Renewables North America, LLC, BLOOMBERG BUSINESS-

WEEK, http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=26608626 (last visited Jan. 20, 2014).

16. SMITH ET AL., supra note 2, § 1.02.17. GALBRAITH & PRICE, supra note 2, at 144. Nolan County is a transitional zone

of the Osage Plains that lies between the mesas and buttes of Taylor County to theeast and the high plains of the Llano Estacado to the north and west. E.L. YEATS &HOOPER SHELTON, HISTORY OF NOLAN COUNTY 13 (1975). It occupies a total area of921 square miles, has a total population of about 15,000, and its elevation ranges fromless than 2,000 feet to a high of 2,700 feet. Id. The prevailing wind direction is fromthe southwest averaging 18–22 miles per hour, but the strongest winds come from thenorth and result from the passage of cold fronts or “northers.” Id. Created in 1876,the county is named after Phillip Nolan, who in late eighteenth century Texas, wasknown as a “filibustero,” or an American insurgent against the Spanish Crown. T.R.FEHRENBACH, LONE STAR: A HISTORY OF TEXAS AND THE TEXANS 116–117 (1968).His business was “mustanging”—gathering wild horses in Texas and selling them inthe United States. Id. In 1800, while conducting a mustang raid, he was shot and killedby the Spanish cavalry. Id. As a result, the Sweetwater High School athletic teams areknown as the Mustangs.

18. Owned by Author Steven K. DeWolf.19. SMITH ET AL., supra note 2, § 1.02.


apulted Sweetwater from obscurity into being “The Wind EnergyCapital of the World.”20

In the same decade of the twenty-first century, as went Sweetwater,so went the rest of Texas. Sweetwater was first in wind in Texas, andTexas was first in wind in the United States. Big wind farms sprang uplike jackrabbits in previously unheard-of places in West Texas, such asMcAdoo in Dickens County,21 Stanton in Martin County,22 CampSprings in Scurry County,23 and Muenster in Montague and CookeCounties.24 Developers also ventured into South Texas in the latterpart of the decade to build wind farms inland from the Gulf of Mex-ico, taking advantage of the peak use afternoon breezes.25

20. Id.21. Invenergy completes equity financing with GE Energy Financial Services and

MetLife for two wind sites, INVENERGY (Dec. 10, 2008), http://www.invenergyllc.com/Portals/0/docs /Invenergy_Financing_Closes_12_10_08.pdf. Invenergy, LLC’s McA-doo Wind Project has a capacity of 150 MW and was built in 2008. Id.

22. See Stanton Wind Project, WIND TEX ENERGY, http://www.windtexenergy.com/operational-projects/stanton-wind-project/ (last visited Jan. 20, 2014). StantonEnergy Center, constructed in 2008, has a capacity of 120 MW. Id.

23. WKN/Wind Tex Energy’s “Project Snyder” wind farm was constructed in 2007with a capacity of 63 MW and Invenergy/Wind Tex Energy’s Camp Springs I andCamp Springs II projects were constructed in 2007 and 2008, respectively. Wind TexEnergy, LP, Operational Projects, WIND TEX ENERGY, http://www.windtexenergy.com/operational-projects (last visited Jan. 29, 2014). Camp Springs I’s capacity was130.5 MW and Camp Springs II’s was 120 MW. Id.

24. Florida Power and Light (now Nextera Energy Resources) constructed the“Wolf Ridge Prospect” project in Muenster in 2008 consisting of seventy-five 1.5 MWturbines. See Andy Hogue, Wind Generation Farm Getting Closer to Reality, Gaines-ville (Texas) Daily Register, Apr. 14, 2008, and Lindsay Lorenz, Wind Farm RevenueLets Muenster ISD Drop Tax Rate, Gainesville (Texas) Daily Register, July 14, 2010.

25. E.On Climate and Renewables North America’s Papalote Wind Farm in Nue-ces County consisted of Papalote Creek I, with 109 1.65 MW turbines and a total of179.85 MW (constructed in 2009) and Papalote Creek II, with eighty-seven Siemens2.3 MW turbines and total of 200.1 MW (constructed in 2010). E.On Climate &Renewables, N.A., Papalote Creek Wind Farm, E.ON, http://www.eoncrna.com/con-tentProjectsPapalote.html (last updated 2014). DKRW Wind Energy’s Cedro HillWind Farm in Webb County consisted of 100 turbines with a total of 150 MW (con-structed in 2010). DKRW Wind Energy, Cedro Hill Wind, DKRW WIND, http://www.dkrwwind.com/Projects/Completed-Projects/Cedro-Hill-636.html (last updated 2014).Duke Energy Renewables’ “Los Vientos I” and “Los Vientos II” wind projects inWillacy County in 2012 contained eighty-seven and eighty-four turbines each for acombined total of 402 MW. Duke Energy Renewables, Los Vientos I Windpower,DUKE ENERGY, http://www.duke-energy.com/commercial-renewables/los_vientos_1.asp (last visited Jan. 28, 2014); Duke Energy Renewables, Los Vientos II Windpower,DUKE ENERGY, http://www.duke-energy.com/commercial-renewables/los_vientos_1.asp (last visited Jan. 28, 2014). E.On’s Magic Valley Wind Farm in Willacy Countyand Anacacho Wind Farm in Kinney County in 2012 contained 112 Vestas 1.8 MWturbines and fifty-five Vestas 1.8 MW turbines with capacities of 203.28 MW and 100MW, respectively. E.On Climate & Renewables, N.A., Magic Valley Wind Farm,E.ON, http://www.eoncrna.com/contentProjectsMagicValley.html (last updated 2014);E.On Climate & Renewables, N.A., Anacacho Wind Farm, E.ON, http://www.eoncrna.com/contentProjectsAnacacho.html (last updated 2014). Finally, Whitetail Wind En-ergy’s “Whitetail Wind Project” in Webb County, constructed in 2012, consisted offifty-seven turbines with a capacity of 92 MW. Exelon Corporation, Texas Wind


By the fourth quarter of 2013, Texas remained the number one windstate in the United States with 12,355 installed Megawatts and 9.9% ofits electric power produced by wind. It set two new records for windgenerated electrical output on February 9 and April 21, 2013, whenwind accounted for 28% and 35.05%, respectively, of all electricity inthe state.26

III. THE TEXAS WIND LEASE

A. Origins and Evolution

Wind developers prepared the first wind leases in Texas. In thisrespect, they were comparable with the traditional Texas printed form“Producers 88” oil and gas leases in use throughout the twentieth cen-tury. These early leases were, and to some extent remain, pro-devel-oper forms designed to protect the lessee’s future investment in theproperty. As opposed to the early single-page, fine-print oil and gaslease, the typical early wind lease was thirty to forty pages in length,exclusive of the land description. It was a long-term lease of the sur-face of the land only, or a tenancy for years, as opposed to the convey-ance of a fee simple determinable typically found in an oil and gaslease.27

The fact that wind farms are capital-intensive projects, often involv-ing hundreds of millions of dollars and typically financed by third-party lenders, attributed to the increased length of the wind lease.Additionally, the wind lease contained many other provisions oftenfound in long-term surface leases but rarely seen in oil and gasleases.28

From the beginning, landowners and their counsel had to look atthe leases used in other wind-producing states such as California, Ore-gon, and Minnesota, as well as to the modern Texas oil and gas rider,for additional provisions designed to preserve and protect the landand their right to use the same for competing uses, such as farming,ranching, oil and gas exploration, hunting, and recreation. Likewise,over the years, they steadily sought to increase the various means of

Projects, EXELON, http:// www . exeloncorp . com / assets / energy / powerplants / docs /Wind/fact_wind_texas.pdf (last visited Jan. 28, 2014).

26. AWEA: American Wind Energy Association, AWEA U.S. Wind IndustryFourth Quarter 2013 Market Report, AWEA (Jan. 30, 2014), http://awea.files.cms-plus.com/FileDownloads/pdfs/AWEA%204Q2013%20Wind%20Energy%20Industry%20Market%20Report_Public%20Version.pdf. Into the Wind, the AWEA Blog, WindPower Sets New Generation, Penetration Records on Texas Utility System, Tom Gray,(May 5, 2013), http://www.aweablog.org/blog/post/wind-power-sets-new-generation-penetration-records-on-texas-utility-system_1. Greentech Media, In Texas, WindNears 10 Percent of Electricity Generation, Peter Danko (Jan. 27, 2014), http://www.greentechmedia.com/articles/read/In-Texas-Wind-Nears-10-Percent-of-Electricity-Generation. SMITH ET AL., supra note 2, § 1.03.

27. Id. § 1.05.28. Id.


compensation paid under the terms of the wind lease. As a result,landowner compensation in wind leases peaked in 2008 but has de-clined slightly since that time. Overall, however, current wind leaseforms have become much more landowner-friendly than in the past.29

B. Major Elements

The wind lease is a complex but predictable document. Regardlessof the company or wind farm location, it contains the same major ele-ments. For example, every wind lease has an option or developmentterm and an operations or extended term. The option or developmentterm is a period of three to seven years in which the developer con-ducts studies to determine the feasibility of the project; the operationsor extended term is a term of thirty to fifty years or more in which thewind farm is constructed and put into production.30

Compensation terms may vary from project to project and land-owner to landowner, but always consist of development fees, mini-mum royalty (a guaranteed annual payment regardless of electricityproduced), royalty (a set percentage of the gross revenues generatedby the lease), surface damages, payments for use of water and caliche,and reimbursement for lost hunting revenues.31 Many leases also con-tain surface protection provisions,32 a removal bond clause of somesort for cleanup of the lease at the end of the operations term, andextensive financial provisions for the protection of wind companylenders.33 Common miscellaneous clauses in the wind lease addressdispute resolution (i.e. venue or arbitration), confidentiality, and forcemajeure.34

A final provision, which often figures large in the negotiation pro-cess, is the Most Favored Nations Clause. Typically, it provides thatall landowners in a project will receive the same basic compensation,regardless of the number of acres in their lease or when it is signed.35

IV. MULTI-PARTY WIND LEASE NEGOTIATIONS

Wind farms cover thousands of acres of land. Even the smallestwind farms in Nolan County, Trent Mesa, and Turkey Track, coverabout 15,000 to 20,000 acres each, whereas the larger ones, E.On’sRoscoe Project, FPL’s Horse Hollow, and DKRW’s Sweetwater Windcover over 100,000 acres; 47,000 acres; and 60,000 acres, respectively.36

29. Id.30. Id. §§ 2.01–.02. Construction of the wind farm may occur in either phase de-

pending on the lease.31. Id. § 2.03.32. Id. §§ 2.05–.06.33. Id. § 2.12.34. Id. §§ 2.16–.18.35. Id. § 2.20.36. Id. § 1.02.


The huge size of these areas dictated multiple surface owners, bothlarge and small. In such wind farm areas, a developer might find alarge ranch or two (exceeding four to five sections),37 small ranches(one or two sections each), small farms (320 to 640 acres) and ruralhomesteads (200 acres or less). Since many of the lands were oftenowned by families for many generations, a large number of people—parents, adult children, grandparents, aunts, uncles, and cousins—were usually involved. The E.On Roscoe Project, for example, con-sisted of over 300 landowners, many of whom were related either byblood or marriage. Of necessity, therefore, from the beginning, winddevelopers had to devise a strategy in which they could meet andgreet all of the landowners in their project area and obtain leases fromthem in the quickest way possible.

A. The Town Hall Meeting Concept

Upon their arrival in West Texas, wind developers figured out thatthe best way to lease a project area was to have a barbecue and inviteall of the landowners. These were company promotional events de-signed to convince uninitiated rural folk of the money and other bene-fits they might receive from installation of the new wind turbines. Themeal was catered by a local restaurant or group of barbecue enthusi-asts complete with potato salad, beans, cornbread, a sweet dessert,and iced tea. Afterward, company personnel would unfold maps ofthe project area and often hand out educational material on wind en-ergy while addressing the crowd regarding the financial blessings tocome. Wisely, most “wind men” (and women), as they were called,eschewed dress clothing and suits for blue jeans, cowboy boots, andwestern wear to fit in with the locals. They answered questions at theend of their presentation and took every opportunity to “sell” the ideaof a wind farm to landowners who had never even seen a wind turbinelarger than a water windmill. When the meeting was over, a team oflandmen sat near the door, eager to assist willing landowners in sign-ing leases. This group meeting technique proved very effective andmany early wind leases were obtained by this method—without theinvolvement of any landowner attorneys.

In order to reap the benefits of this new industry, the locals utilizedthe town hall meeting concept too. County land conservation officialsset up meetings and invited wind attorneys as speakers to educatelandowners about wind energy and the perils of signing a lease with-out obtaining legal advice.38 Additionally, proactive landowners inboth project and non-project areas formed wind associations and se-lected “steering committees” to hire attorneys to attract wind devel-

37. A section in West Texas is typically 640 acres.38. ROD WETSEL & FRANK HORAK, WIND FACTS: A LANDOWNERS GUIDE

(2006); Kevin Welch, Lawyer Gives Tips for Getting the Best Wind Deal, AMARILLO

GLOBE-NEWS, Apr. 22, 2007, at C1.


opers and negotiate wind leases. Likewise, some county governmentsheld countywide group meetings and invited interested wind compa-nies to discuss attractive ad valorem tax abatements for new countyprojects. Moreover, in 2003, the mayor of Sweetwater formed theWest Texas Wind Energy Consortium to coordinate and sponsor semi-nars and public meetings to educate landowners and organize politicalsupport on the local and state levels for wind development in WestTexas.39

This use of the town hall meeting concept by both developers andlandowners soon came to symbolize the wind boom in West Texas.From now on, energy leases would be negotiated and signed en masse.The time for multi-party representation had come.

B. Some Wind Groups and their Creators: Signing Parties

The following are but a few examples of some Texas landownergroups formed during the wind boom and a description of the interest-ing “wind pioneers” that created them. Signing parties were an essen-tial component of these group projects and will also be discussed inthis Section.

1. Roscoe Wind Project

In the early days of the West Texas wind boom, all of the windfarms in Nolan County (including two of the world’s largest) were lo-cated along “the Divide.” Aptly named, this ancient outcrop of landis a significant shift of terrain and elevation between the rocky mesasin the southern part of the county and the flat cultivated farmland tothe north that runs in an east to west direction south of Interstate 20.40

At that time, the cotton farmland located north of the Interstate wasdeemed unfit for wind farms. Such was the case until 2004, when alocal Roscoe farmer by the name of Cliff Etheredge organized a smallgroup of farmers owning about 7,500 acres to try to find a wind devel-oper. His early attempts to attract the other major developers in thecounty, such as FPL, DKRW, and SeaWest, failed. Finally, after agreat deal of persuasion, officials with Airtricity agreed to place ane-mometer towers on the farmlands to measure the wind capacity.Within only a few months, the results were convincing and Airtricityasked Etheredge to find more land. Ultimately, Etheredge and Air-tricity were to preside over a group of more than 300 landowners own-ing over 100,000 acres. Construction began in 2007 and when the lastphase was completed in 2009, the Roscoe Wind Farm became the larg-est in the world with more than 600 installed wind turbines capable of

39. SMITH ET AL., supra note 2, § 1.02.40. See YEATS & SHELTON, supra note 17, at 13. It is actually a strip of weathered

limestone from the Cretaceous Period called the Callahan Divide and represents thewesternmost extension of the Edwards Plateau. Id. Interestingly, FPL’s wind farmadjacent to Horse Hollow in Taylor County is named “Callahan Divide.”


generating 781.5 MW. Ironically, but for the advocacy and persistenceof Etheredge and his local group of farmers, the project never wouldhave existed.

2. Wind Tex Energy: Project Snyder, Camp Springs I and II,Stanton and Turkey Track

As the first wind leases were being handed out in Sweetwater, Au-thor Steve DeWolf read an article in Progressive Farmer Magazineabout wind farms and decided to get into the wind business. He was(and remains) a well-known trial lawyer in Dallas, but wanted to trysomething new. He formed Wind Tex Energy, LLC with the motto“not just hot air.”

After an unsuccessful foray into the Red River area, he set hissights on the Camp Springs area in Scurry County, about forty milesnorth of Sweetwater. There he met and organized a key group oflandowners (who, in turn, chose Author Rod Wetsel as their attorney)and partnered with WKN USA, LLC (“WKN”), a German wind com-pany,41 to build Project Snyder during the years from 2003 to 2007.This project consisted of sixty-three gigantic three-Megawatt turbines,which were the tallest land-based turbines installed in the UnitedStates at that time.42

Upon completion of Project Snyder, building upon his landownercontacts and recent success in Scurry County, DeWolf moved to ad-joining areas of the county and organized landowner groups for theconstruction of wind farms known as Camp Springs I and II. Hepartnered with Chicago-based Invenergy, Inc. on both projects, whichtotaled 250.5 MW and were completed in 2007 and 2008, respectively.

In the ensuing years, DeWolf moved west to Martin County, justeast of Midland, and formed several wind groups there. The landown-ers had heard much about the wind farms being built in Sweetwaterand were eager to participate. After only a short period of time, con-struction began on the Stanton Energy Center, which consisted of 120MW.

Finally, DeWolf returned to the Nolan County area and partneredagain with Invenergy to construct the Turkey Track wind farm, which

41. WKN USA, LLC is now BayWa r.e. Wind, LLC. Shortly after construction,WKN sold this project to Enel North America, Inc. BayWa continues to expand itsinternational operations by entering the US wind power business, BayWa r.e. Wind,LLC (Aug. 29, 2011), http://www.baywa-re.us/news-wkn.html#23 (last visited Feb. 5,2014). WKN Windkraft Nord sells its first US project to Italy’s Enel-Acquisition MarksEntry for Germany’s leading Developer, Renewable Industry.com Press Release (Oct.19, 2006), http://www.renewable-energy-industry.com/press-releases/press-releases_detail.php?changeLang=en_GB&newsid=2319 (last visited Feb. 5, 2014).

42. Enel, GE Soar to New Heights at Texas Wind Farm with Tallest Turbine Tow-ers in US, Also Partner on Kansas Wind Project, Reuters Press Release (Jan. 10,2008), http://www.reuters.com/article/2008/01/10/idUS189059+10-Jan-2008+BW20080110 (last visited Feb. 5, 2014).


was located in the southernmost part of the county.43 This project wascompleted at the end of 2009 and consisted of 169.5 MW.44

3. Payne Mountain

In 2006, William Osborn attended the first annual University ofTexas Wind Conference held in Sweetwater. It featured not only thetop speakers in the field at the time, but also bus tours of the newwind farms and a barbecue and beer bust in an old airplane hangar atthe Double Heart Ranch (which was home to thirty-three turbines45

of the Sweetwater Wind Farm).46 Osborn was (and still is) a success-ful Railroad Commission lawyer and owns his own firm in Austin.One of his oil and gas clients wanted to get in the wind business andhad asked Osborn to pick a place for a new wind farm. Over a plateof steaming brisket, he told Author Rod Wetsel of his plan to locate aproject on Payne Mountain in Mills County, some ninety miles north-west of Austin. His grandmother was from the nearby small town ofEvant in Coryell County, and he still knew many of the landownersliving there. By bringing wind power to the area, Osborn figured hecould give something back to the place his family called home.

In January 2007, Osborn held his first landowner meeting in MillsCounty over a roaring fire in a hunting lodge on the Pig Foot Ranch.47

He would come back again and again to Mills County in the coming

43. The wind farm was named for the Turkey Track Ranch in southern NolanCounty. It is located along both sides of Farm-to-Market Road 153. A drive down thatroad today offers a magnificent view of hundreds of wind turbines in several differentwind farms.

44. Wind Tex Energy, Turkey Track Energy Center, WIND TEX ENERGY, http://www.windtexenergy.com/operational-projects/turkey-track-energy-center (last visitedJan. 28, 2014). Wind Tex Energy also developed the Petronilla Project in NuecesCounty on the Texas Gulf Coast and the Bor-Lynn Wind Farm in Borden and LynnCounties northwest of Sweetwater. Wind Tex Energy, Project in Development, WIND

TEX ENERGY, http://www.windtexenergy.com/project-in-developme (last visited Jan.20, 2014). Construction of both projects began in late 2013. Id.

45. These turbines consisted of twenty-nine General Electric 1.5 MW and fourMitsubishi 1 MW towers. Telephone interview with Steve Oatman, current owner ofDouble Heart Ranch, Nolan County, Texas, in Sweetwater, Texas by Rod Wetsel(Feb. 6, 2014).

46. The owners of the Double Heart Ranch, W.A. and Audrea Oatman, weremembers of the first landowner group in Sweetwater and signed one of the first windleases. During the early negotiations, the Oatmans told their attorney, Author RodWetsel, “Be as hard on them as you can, just don’t kill the deal.”

47. In a letter to a leading member of his landowner group on Nov. 1, 2006, Os-born wrote: “It seems to me it would be most efficient if there could be some agree-ment about group representation. I am determined to treat everybody alike if I can,insofar as royalty percentage and lease terms, so that there are no hard feelings thatmight arise from perception of preferential treatment. There is the potential for con-flict of interest in group representation, but with about 15 affected landowners, theywill be hard-pressed to each find different experienced counsel because the field is sonew that there are few lawyers in Texas who are well-versed in the sub-ject.” Electronic interview with William Osborn in Austin, Texas, by Rod Wetsel(Dec. 11, 2013).


months to hold additional meetings in various places, including thehome of one of the landowners and the local fire station in Star, Texas.All of the leases for the project were signed in 2007 and then renewedby the landowners in 2012. Over the years, Osborn maintained closecontact and excellent relations with all of his landowners by e-mailingthem monthly reports summarizing the wind data collected from twometeorological towers on the project and by being the first developerin Texas to implement a “royalty prepayment program.”48 As of theclose of 2013 and into the new year, Osborn and his clients hope tomake his dream a reality by beginning construction on PayneMountain.

4. Horse Hollow

Terry Phillips was a “jack of all trades.” At different times in hislife, he had been a funeral director, a jeweler, a satellite and officeequipment salesman, and finally, a landman. He worked for HilliardEnergy, who was hired by FPL to lease the Horse Hollow Project inNolan County. As a landman, Phillips was a natural. Hailing fromBig Spring, only sixty miles from Sweetwater, and having grown up ona ranch, he fit in well with the people in rural Nolan County. He livedin a local hotel and visited the landowners in their homes, ate lunchand dinner with many of them on a regular basis, and went to theirchurches. Moreover, he organized and held group meetings with theproject landowners and their attorney, (Author) Rod Wetsel, andmade daily visits to the lawyer’s office, where in one day they signedover seventeen leases. In less than six months, he almost single-handedly negotiated and obtained leases from all of the landowners inthe project. As the last leases were being signed, FPL began construc-tion of the Horse Hollow wind farm, which is now the world’s secondlargest. Phillips’ “country boy” group model would be emulated andrepeated again and again in other areas throughout the wind boom.

5. The Signing Party

The culmination of all successful wind group meetings was the sign-ing party. It was a festive occasion. At that gathering, the negotia-tions were over and jokes and laughter would replace the moresomber mood of earlier meetings. This time, the meal might featureT-bone steaks or fried catfish with cherry cobbler for dessert. Otherthan visiting and eating, all the landowners had left to do was sign theleases. Best of all, the company landmen brought checks to pay theoption or development fees. It was the contractual beginning of a

48. Id.


long and, hopefully, blissful relationship between the landowner andthe wind developer.49

C. Ethics, Professional Responsibility and Conflicts of Interest:Whose Side Are You On?

Representation of a group in a wind project presents a gauntlet ofethical challenges for the attorney. Among the immediate ethical is-sues for the attorney are:

(a) how to represent a large group of people;(b) how to effectively communicate with each group member;(c) how to protect confidentiality within a large group of people;(d) how to allocate fees, and if the wind company reimburses legal

fees, how to comply with one’s duty of loyalty to the landowner;and

(e) what happens if some of the clients do not get along or the at-torney discovers a conflict.

The rules for answering each of these questions are found in theDisciplinary Rules set out in the Texas Disciplinary Rules of Profes-sional Conduct.50

Among the relevant rules to consider are Rule 1.02 (Scope andObjectives of Representation), Rule 1.03 (Communication), Rule 1.04(Fees), Rule 1.05 (Confidentiality of Information), Rule 1.06 (Con-flicts of Interest), and Rule 1.15 (Declining or Terminating Represen-tation). Briefly these rules provide as follows:

(a) Rule 1.02: “A lawyer shall abide by a client’s decision concern-ing the objectives and general methods of representation.”51

(b) Rule 1.03: “A lawyer shall keep a client reasonably informedabout the status of a matter and promptly comply with reasona-ble requests for information” and “shall explain a matter to theextent reasonably necessary to permit the client to make in-formed decisions regarding the representation.”52

(c) Rule 1.04: “A lawyer shall not enter into an arrangement for,charge, or collect an illegal fee or unconscionable fee.”53

49. Among the most perplexing problems faced by developers at the signing partywere obtaining sufficient legal descriptions of the land leased and proper signaturesfrom the landowners. The consequences of not doing so are vividly shown in a recentcase involving an oil and gas lease signing party. See Wade v. XTO Energy, Inc., No.02-12-00007-CV, 2013 Tex. App. LEXIS 676 (Tex. App.—Fort Worth Jan. 24, 2013, nopet.).

50. Tex. Disciplinary Rules Prof’l Conduct, reprinted in TEX. GOV’T CODE ANN.,tit. 2, subtit. G, app. A-1 (West 2013).

51. Tex. Disciplinary Rules Prof’l Conduct R. 1.02(a)(1).52. Id. R. 1.03.53. Id. R. 1.04(a).


(d) Rule 1.05: “A lawyer shall not knowingly . . . [r]eveal confiden-tial information of a client to . . . anyone else, other than theclient, the client’s representatives, or the members . . . of thelawyer’s law firm.”54

(e) Rule 1.06:“A lawyer shall not represent a person if the representa-tion of that person involves a substantially related matterin which that person’s interests are materially and directlyadverse to the interests of another client of the lawyer orthe lawyer’s firm,” but may do so if “the lawyer reasonablybelieves the representation of each client will not be mate-rially affected and each affected or potentially affected cli-ent consents to such representation after full disclosure ofthe existence, nature, implications, and possible adverseconsequences of the common representation and the ad-vantages involved, if any. . . . If multiple representation . . .becomes improper . . . the lawyer shall promptly withdraw. . . .”55

(f) Rule 1.08: “A lawyer shall not accept compensation for repre-senting a client from one other than the client unless the clientconsents, there is no interference with the lawyer’s indepen-dence of professional judgment or with the client-lawyer rela-tionship,” and confidential information “is protected.”56

(g) Rule 1.15: “A lawyer shall decline to represent a client or,where representation has commenced, shall withdraw . . . if therepresentation will result in violation of . . . other applicablerules of professional conduct.”57

Successful representation of a landowner group in a wind projectand compliance with the relevant disciplinary rules begins at the initialmeeting. This meeting allows open discussion with the entire groupconcerning the scope and objectives of the representation (i.e. whathas to be done to obtain the most favorable wind lease terms), theethical obligations involved (i.e. the advantages and disadvantages ofmultiple representation), and the fee arrangement (i.e. who will payand an estimate of how much). It is also the time for the attorney topresent each landowner with a separate engagement agreement inwhich all of the above issues are disclosed in writing. The attorneyreviews the agreement with the group as a whole and answers ques-tions. Each landowner must approve and execute the engagementagreement in order to continue as a member of the group.58 If fees

54. Id. R. 1.05(b)(1)(ii).55. Id. R. 1.06(b)(1), (c)(1)–(2).56. Id. R. 1.08(e).57. Id. R. 1.15(a)(1).58. Shannon L. Ferrell, The Technical and Ethical Challenges for Lawyers in Eval-

uating Wind Energy Development Agreements, 17 DRAKE J. AGRIC. L. 55, 79 (Spring2012).


are to be reimbursed or paid by the wind company, the company mayalso be required to sign an agreement regarding that obligation andstating that the company is not the client of the attorney.59

In successive meetings, the attorney must monitor attendance anddissemination of information to prevent any breaches of confidential-ity and should carefully discern whether any conflicts of interest havearisen between any members of the group. If violations or conflictsare discovered, they must be thoroughly reviewed and discussed withthe group before continuing. Additionally, the entry of any new mem-bers into the group should be disclosed.60

Finally, with regard to fees once the leases are signed, the attorneyis probably best advised to simply bill the client for the agreed fee butdefer collection until he or she receives reimbursement from thedeveloper.61

D. The Pros and the Cons of Multi-Party Negotiation of WindLeases: The Good, the Bad and the Ugly

1. The Good

On the positive side, multi-party negotiation of wind leases hasmany advantages for the wind developer and landowner alike. For thedeveloper, it promotes efficiency by allowing the developer to dealwith a single law firm (rather than multiple firms) with a much fasternegotiating period and at lower cost. The landowner, on the otherhand (particularly if he or she owns a small tract of land), gains bar-gaining power by joining with his or her neighbors at less or no cost (iffees are reimbursed), and benefits from the insight and questionsraised by the other members of the group.62 Additionally, both sidesare able to disseminate information and resolve lease issues fasterwith more “transparency” and fewer disputes, since the developer isoffering and the landowner is receiving the “best deal.”63 Thus, a pro-ject is likely to be developed more quickly than it otherwise would be.

59. Id. at 79. The letter should also state that the obligation to reimburse or payfees shall not be conditioned on the landowner signing a lease.

60. Id. at 78. In the words of one authority on the subject, the mantra for attorneysis “disclose, disclose, disclose.” Id.

61. Id. at 79.62. Added benefits are that the landowner does not have to travel to see the attor-

ney and that he or she is able to enjoy the small town aspect of sharing a meal in aninformal atmosphere to discuss his or her lease.

63. The wind group meeting also allows the landowner and developer attorneys tosee new places, wildlife and geology (such as historic sites, previously unknown barbe-cue joints, buffalo herds and Palo Duro Canyon), meet interesting people (one land-owner had a hangar full of World War II planes and another was the curator of amuseum of the Indian Wars), and hold gatherings in unusual venues (such as a haybarn, church, community center or restored movie theater).


2. The Bad

On the negative side, group wind negotiations require travel byboth landowners’ attorneys and developers to far-off and out of theway places,64 with few or no lodgings in which to spend the night.Both parties must also experience the stress of dealing with multiplequestions and demands and the task of resolving prickly issues.65

Lastly, the ever present fear that the “deal” will be upset by familyfeuds or disputes between neighbors persists.66

3. The Ugly

On the ugly side of group wind negotiations are dissenters, “holdouts,” and “moles.”

a. Dissenters

Sadly to say, not all people love wind energy. From time to time,opponents of wind farms have included disaffected landowners,67

medical professionals,68 wildlife groups,69 the King Ranch,70 and evena whole town.71 But perhaps the greatest dissenter of them all wasDale Rankin.

64. Places such as Nolan, Buffalo Gap, Miami (pronounced “Miam-uh”), High-land, Gail, Lenorah, Star, and Mobeetie, Texas, to name a few.

65. For example, one landowner did not want any wind turbines near a secludedplace where he and his wife liked to sit and watch the sun set.

66. For example, a wind lease was once challenged in a will contest as being signedonly by the proponents of the will and not by the contestants.

67. Often known locally as “againers,” i.e. eccentric folk who are against anythingsupported by the majority in a rural area.

68. See, e.g., NINA PIERPONT, WIND TURBINE SYSTEM: A REPORT ON A NATURAL

EXPERIMENT (2009), for a clinical report that concludes wind turbine generated in-frasound and low frequency noise are responsible for a constellation of symptomsincluding nausea, headaches, drowsiness, and sleep deprivation; see also Nina Pier-pont, MD, Ph.D., The Medically Irresponsible Siting of Wind Turbines is a GlobalProblem, SAINT JO (TEXAS) TRIBUNE, June 23, 2006.

69. Wildlife groups often oppose wind farms on behalf of birds and bats. E.g., W.Watersheds Project v. BLM, 443 F. App’x 278 (9th Cir. 2011); see also Animal Wel-fare Inst. v. Beech Ridge Energy, 675 F. Supp. 2d 540, 581 (D. Md. 2009).

70. Highly concerned about the proposed location of two large wind farms in theSouth Texas coastal area, several chapters of the Texas Audubon Society joined theKing Ranch in filing suit to prevent the farms from being built. See Coastal HabitatAlliance v. Patterson, 601 F. Supp. 2d 868 (W.D. Tex. 2008); see also SMITH ET AL.,supra note 2, § 6.03; GALBRAITH & PRICE, supra note 2, at 158.

71. In 2007, the town of Saint Jo in North Central Texas held a public forum todiscuss resistance to the building of the nearby FPL Wolf Ridge wind farm in CookeCounty. To thunderous applause and then a standing ovation, speakers at the meetingdenounced wind turbines as “un-American,” wind developers as “snake oil sales-men,” and the wind group attorneys as “Carpetbaggers.” Interview with H. Alan Car-michael, Partner, Wetsel & Carmichael, LLP, in Sweetwater, Texas, by Rod Wetsel(Feb. 8, 2014); see also Andy Hogue and Delania Trigg, Not a Fan: Many MontagueWestern Cooke County Residents Alarmed About Giant Wind Farm Proposal, Saint Jo(Texas) Tribune, June 23, 2006; Should Saint Jo Allow Extra-Territorial City Limits toBecome Part of a Wind Farm? Discussion June 26th, SAINT JO (TEXAS) TRIBUNE,


In the late 1990s, Rankin built his dream home complete with ahorse arena and polo field in the scenic countryside near the town ofBuffalo Gap in eastern Taylor County, Texas. Later, in 2005, FPLmoved into the area and began construction of its Horse Hollow windfarm. Rankin organized a group of similarly situated neighboringlandowners and filed suit against FPL in the District Court of TaylorCounty for an injunction to stop construction of the wind farm andseeking damages for nuisance.72 As a further expression of their rageand frustration, the group also sued their neighbors who had grantedleases to FPL, as well as the biologists and landmen involved in theproject.73 After an emotionally charged trial,74 the jury found againstthe plaintiffs. On appeal, the Texas Court of Appeals in Eastland heldthat the emotional response of Rankin and his group due to their lossof a scenic view was insufficient to establish a cause of action for nui-sance. In short, it found that there is no “sight based” nuisance inTexas.75

Although Rankin lost, he was not the last opponent of wind farms.Others have continued to follow in his footsteps.76 Wind energy is stillnot for everyone.

b. “Hold Outs”

In every wind group there is always at least one person who thinkshe or she can get more favorable lease terms or concessions (i.e. moremoney) by holding out until the last minute before signing a lease.These “hold outs” often make unreasonable demands and—if theyown enough strategically placed land to do so—threaten to block thewhole project. To combat such persons, wind companies in recent

June 23, 2006; What’s Being Proposed for Your Backyard? (advertisement), SAINT JO

(TEXAS) TRIBUNE, June 23, 2006; Barbara Green, Blowing In: Construction Begins onWind Turbine Project in Cooke County, TIMES RECORD NEWS, Wichita Falls, Texas,Feb. 3, 2008.

72. Rankin v. FPL Energy, 266 S.W.3d 506 (Tex. App.—Eastland 2008, pet. den.).The plaintiffs claimed that their ruined viewshed and resulting loss of property valuewere both part of the package of problems caused by turbines in Horse Hollow, in-cluding red blinking lights on top of the turbines, potential shadow and flicker effects,and noise. Id.; see also Rankin v. FPL Energy, LLC, No. 46138-A (42d Dist. Ct.,Taylor County, Tex. 2008).

73. Rankin, 266 S.W.3d at 508. The plaintiffs dismissed their claims against thelandowner wind group immediately prior to the start of the trial. Id.

74. Id. at 511. One plaintiff characterized the presence of the wind farm as “thedeath of hope.” Id.

75. Id. at 513.76. Similar nuisance cases were filed by other plaintiffs regarding wind farms in

Cooke and Jack Counties. Both also failed. See O’Dell v. FPL Energy, No. 06-502,(235th Dist. Ct., Cooke County, Tex. 2007); Black v. Gamesa Wind U.S., No. 06-0129(271st Dist. Ct., Jack County, Tex. 2006). Later, a suit almost identical on its facts toRankin was filed in Erath County and the Rankin decision was again reaffirmed. SeeLadd v. Silver Star I Power Partners, No. 11-11-00188-CV, 2013 Tex. App. LEXIS6065 (Tex. App.—Eastland 2013, pet. filed).


years have adopted an “all or nothing” approach that requires alllandowners to agree to and sign leases by a certain date or the projectis cancelled.77

c. “Moles”

Due to the fact that large groups of people are difficult to manageand landmen are not bound by the same confidentiality rules as thelawyers, competing wind companies in the same area often wouldsend scouts or “moles” to attend their competition’s meetings. In or-der to stop the practice, developers and attorneys sometimes usedsign-in sheets and gate guards or hired local people to identify any“strangers” in the group. Finding a “mole” was not always easy be-cause, on occasion, the “mole” was a landowner seeking to pit com-peting companies against each other in order to receive morefavorable lease terms.

V. CURRENT STATE OF MULTI-PARTY WIND

NEGOTIATIONS IN TEXAS

Multi-party wind lease negotiations are less frequent today than inthe “boom” years, but are still popular with both wind developers andlandowners. Typically, the wind group format remains a “win–win sit-uation” for both sides.

By the end of 2013, however, with the expiration of the FederalProduction Tax Credit for wind farms and the uncertainty of an exten-sion or future incentives, the slogan for last minute meetings was “Geton board, the train is leaving the station.” Hopefully, 2014 will bringrenewed life to the industry and will see the genesis of new windgroups in yet undeveloped areas of Texas.

VI. CONCLUSION

The arrival of the large-scale wind industry in Texas in the early partof the twenty-first century was reminiscent of the coming of the greatrailroads and the industrial revolution of the nineteenth century. Likethe railroads, the new wind energy technology required great swathsof open land. But whereas the railroads primarily had to deal onlywith the State of Texas, wind companies had to obtain rights to use theland from hundreds of people. Speed and efficiency of construction inthe emerging boom made one-on-one lease negotiation impractical.Thus, the age of multi-party wind lease negotiations was born.

77. An example is the Payne Mountain project in Mills County. Electronic inter-view with William Osborne in Austin, Texas, by Rod Wetsel (Dec. 11, 2013).

texas a&m journal of real property law volume one number three

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