A new proposal aims to streamline the process for permitting and developing offshore renewable energy projects and reduce costs to developers.
By Janice Schneider, Nikki Buffa, Nathaniel Glynn, and Brian McCall
On January 30, 2023, the Bureau of Ocean Energy Management (BOEM) published a new proposed rule to update the agency’s regulations governing renewable energy development on the Outer Continental Shelf (OCS). The proposed rule is the first major overhaul of BOEM’s offshore renewable energy regulations since they were promulgated, and seeks to benefit from the agency’s and industry’s experience since 2009. Since then, BOEM has conducted 11 offshore wind energy lease sales and currently is managing 27 active commercial leases.
The proposed regulations would “modernize regulations, streamline overly complex and burdensome processes, clarify ambiguous provisions and enhance compliance provisions in order to decrease costs and uncertainty associated with the deployment of offshore wind facilities,” and would save developers an estimated $1 billion over a 20-year period. Regulatory changes to decrease costs and increase certainty for developers are particularly critical when offshore wind energy developers are facing ever-increasing installation and materials costs. Some developers are even seeking to renegotiate power purchase agreements for their contracts that account for increased development costs. Comments on the proposed rule are due by March 31, 2023.
BOEM’s proposed regulations, described in a notice of proposed rulemaking (NPRM), will involve the following seven “major components,” discussed in further detail below:
- Eliminating approval of meteorological buoys during site assessment
- Increasing geophysical and geotechnical (G&G) survey flexibility
- Improving the project design and installation verification process
- Establishing a public Renewable Energy Leasing Schedule
- Reforming BOEM’s renewable energy auction regulations
- Tailoring financial assurance requirements and instruments
- Clarifying safety management system regulations
BOEM is also proposing additional and other potential modifications, including simplifying and reorganizing the information required in Construction and Operations Plans (COP) and General Activities Plans (GAP), codifying the use of project design envelops (PDE), and modifications related to transmission.
The proposed rulemaking comes at a time when BOEM, and the administration writ large, are laser-focused on accelerating development of offshore wind energy. In the last two years alone, BOEM has issued final approvals for the country’s first two commercial-scale offshore wind projects, held three offshore wind lease sales (including the first offshore wind lease sale on the Pacific coast), initiated the environmental review for 10 new offshore wind projects on the Atlantic coast, proposed a lease sale in the Gulf of Mexico, identified Wind Energy Areas for potential leasing in the Central Atlantic, and identified areas offshore Oregon for further investigation (also known as Call areas).
Eliminating BOEM Approvals for Meteorological Buoys
Under BOEM’s current regulations, an offshore renewable energy leaseholder must submit and receive BOEM approval of a Site Assessment Plan (SAP) before the lessee can install meteorological towers and buoys to measure meteorological conditions in the lease. In the NPRM, BOEM is proposing to eliminate the SAP requirement for meteorological buoys due to changes in industry’s meteorological data collection practices and to reduce redundancy with US Army Corps of Engineers (USACE) permitting requirements. BOEM noted in the NPRM that it instituted this SAP requirement in 2009 when the offshore wind industry gathered meteorological data primarily from towers fixed to the seafloor The industry has since transitioned to using buoys anchored to the seafloor that involve much less environmental impact while gathering the same amount and quality of data.
Additionally, the USACE currently issues permits under Section 10 of the Rivers and Harbors Act to allow for installation of scientific meteorological devices attached to the OCS. BOEM determined that the USACE permitting process is “tailored to buoys” and is subject to the same environmental laws as BOEM’s process, including the National Environmental Policy Act (NEPA), the Endangered Species Act, and the National Historic Preservation Act (NHPA). As such, BOEM concluded that its current SAP process for installing buoys is “unreasonably burdensome” and “redundant with USACE’s process.”
BOEM will, however, retain the SAP requirement for any site assessment activities involving a fixed-bottom foundation. BOEM estimates that eliminating the SAP requirement for meteorological buoys would save developers $1.1 million in compliance costs for each buoy installed.
Increasing Flexibility in Geophysical and Geotechnical Surveys
BOEM is also proposing to ease some of its requirements for lessees conducting G&G surveys before submitting the COPs which must be approved before a lessee can begin construction of their offshore wind facility. BOEM requires lessees to conduct G&G and archaeological surveys prior to submitting their COPs. It also requires that a COP include detailed geotechnical survey data for the individual proposed wind turbine locations on a given lease, which BOEM in turn uses to inform its environmental analysis of the COP. However, BOEM has learned that the precise location for each wind turbine may be “uncertain” upon initial COP submittal, and that G&G data collected for engineering purposes are more relevant to the review process following COP approval.
As such, BOEM is proposing to revise its regulations to defer certain geotechnical survey requirements — engineering site-specific surveys such as boreholes, vibracores, etc. — until after COP approval, but before construction begins. Developers would be required to instead submit geotechnical data for an engineering assessment of proposed turbine foundations with the Facility Design Report (FDR) for the project, which developers must submit before beginning facility construction. BOEM estimates this change would save developers on average $200,000 per turbine location. The regulations would give BOEM the flexibility to allow a lessee to submit certain archaeological survey data with the FDR on a case-by-case basis. That said, BOEM also clarified that it would continue to require developers to submit data sufficient to allow the agency to complete its review of project COPs under NEPA, the NHPA, and the Outer Continental Shelf Lands Act.
Importantly, BOEM is also soliciting comments on whether it should institute a future rulemaking in which the agency would promulgate a new permit requirement to regulate how, when, and where renewable energy-related geological and geophysical surveys are conducted. While developers routinely obtain Incidental Harassment Authorizations under the Marine Mammal Protection Act from NOAA Fisheries for geological and geophysical surveys, no permit for this work is currently required from BOEM. This added permitting requirement would be a significant move away from BOEM’s current process, which is based on BOEM guidance designed to improve communication with and reduce impacts to other ocean users (including the fishing industry) from survey and other activities associated with developing a facility, structure, or cable proposed for a renewable energy project on the OCS, and on lease terms and conditions that require lessees to submit survey plans for BOEM review and approval. BOEM includes a list of questions seeking input on this particular topic.
Improving Project Design and Installation Verification Process
BOEM is proposing certain changes related to the role of certified verification agents (CVAs) in the offshore wind project design and installation process. The offshore renewable energy development regulations require that developers nominate — and BOEM approve — a CVA for the project who is responsible for reviewing project facilities to ensure they are designed, fabricated, and installed according to best engineering practices and the project’s FDR and Fabrication and Installation Report (FIR). Currently, leaseholders must submit CVA nominations with their SAP, COP, or GAP.
BOEM is proposing certain terminology changes to its CVA regulations. It is also revising its regulations to allow BOEM to approve CVA nominations before plan submittal and allow developers to nominate separate CVAs to review different components of a project. BOEM’s proposal would also allow staged, separate FDRs and FIRs for individual major project components. BOEM believes these changes will encourage developers to seek CVA review early in the project design process and enable developers to employ specialized CVAs for specific project components.
Publishing a Renewable Energy Leasing Schedule
Taking a page from its oil and gas leasing program, BOEM is proposing to revise its regulations to require the agency to publish a schedule of anticipated offshore energy lease sales for the proceeding five-year period. The proposed schedule would include a general description of the area that each proposed lease sale covers, the anticipated quarter of each lease sale, and reasons for changes made to the previously-issued lease schedule, if any. BOEM would also update its proposed leasing schedule at least once every two years. The agency is proposing this scheduling requirement to provide notice to stakeholders in future lease areas and allow for long-term planning by industry, adjacent states, and stakeholders.
Providing for Flexible Auction Procedures
Calling its existing auction regulations “overly prescriptive” and “difficult to understand,” BOEM is proposing to adopt regulations that “provide BOEM with flexibility to adopt new and innovative auction processes and procedures.” These new regulations would allow BOEM to use any auction process that is “objective, fair, reasonable and competitive; awards leases to the highest bidder; and provides a fair return to the U.S. taxpayer.”
The proposed regulations would permit the continued use of multiple factor auctions, like those used in the recent California lease auction, and indeed expand the categories of factors or actions that could qualify for bidding credit. The multiple factor structure allows BOEM to assign monetary value to factors or actions that the potential lessee has done or has committed to do in the future related to issues like transmission, environmental considerations, and workforce development. Consistent with recent Final Sale Notices, the proposed rule would also tighten and explicitly prohibit inappropriate communications among bidders in a specific auction that would prevent the US from obtaining a fair return on the lease.
Revising Financial Assurance Requirements to Provide Flexibility
Current regulations require lessees to provide financial assurance, in the form of a bond or other instrument, in an amount sufficient to guarantee compliance with terms of their leases. The proposed regulations aim to provide flexibility through four key changes:
- Eliminate the supplemental financial assurance required before COP approval. Because the liabilities associated with post-COP approval do not accrue until after activities start on the OCS, BOEM proposes to revise its existing requirement that supplemental assurance before OCS installation begins must cover those liabilities (e.g., anticipated decommissioning costs). BOEM would still retain the authority to require supplemental financial assurance on a case-by-case basis.
- Require 12 months’ rent due before lease execution rather than $100,000. BOEM explained that the $100,000 financial assurance currently due before lease issuance to guarantee compliance with the lease terms has left the agency under-bonded. Instead, the proposed regulations would require 12 months’ rent due before lease execution to provide what BOEM deems adequate coverage in the early stages of a lease.
- Expand acceptable financial assurance instruments. The proposed regulations would explicitly permit letters of credit as financial assurance instruments and would specify evaluation criteria for their use. Further, the proposed regulations would add catch-all provisions clarifying that BOEM may accept instruments not explicitly listed as well as combinations of different instruments, including by explicitly allowing a third-party guaranty for only part of the obligations.
- Allow for staged funding of decommission activities. Rather than require the full decommissioning costs funded before installation, the proposed regulations would permit staged funding, thus lowering the initial upfront capital burden. BOEM notes that this would align with common practice in the European market.
Clarifying Safety Management System and Inspection Requirements
BOEM recognizes that its existing regulations on safety management systems (SMS) were promulgated when construction and operation of offshore wind projects were years into the future and are thus “brief and general.” The proposed regulations therefore aim to provide lessees with more guidance on SMS standards. The proposed regulations include the types of information that the agency expects lessees to include in a satisfactory SMS, provide incentives for lessees to obtain certification of their SMS, and add two new reporting requirements. The SMS must be implemented before any activity begins on the OCS pursuant to a lease.
The proposed regulations would also require lessees to conduct annual onsite self-inspections and provide records of the inspections upon request. This change is being proposed to adhere to the Outer Continental Shelf Lands Act’s requirement of annual inspections while lessening the burden on the agency to conduct such inspections.
Regarding safety and inspection requirements, the US Department of the Interior also recently announced in a direct final rule that all regulations governing offshore renewable energy activities related to safety and environmental protections would be transferred from BOEM to the Bureau of Safety and Environmental Enforcement (BSEE). Key authorities that were transferred to BSEE include:
- overseeing facility design, fabrication, installation, safety management systems, and oil spill response plans;
- enforcing operational safety through inspections, incident reporting, and investigations;
- enforcing compliance with all applicable laws, regulations, leases, grants, and approved plans through notices of noncompliance, cessation orders, civil penalties, and other appropriate means; and
- overseeing decommissioning activities.
BOEM expressly proposed to add development agreements by a potential lessee that facilitates shared transmission solutions and grid interconnection as a non-monetary factor that may be considered in future auctions. BOEM is also seeking input on “efforts to explore a coordinated approach to transmission” to minimize impacts to environmental, natural, and cultural resources. The development of shared transmission and interconnection solutions is a hot topic. The proposed rule’s regulatory preamble is seeking input on appropriate coordinated approaches to transmission, including with respect to “the shared use of cable corridors, or other shared transmission solutions, such as regional transmission systems, meshed systems, and the development of an offshore grid.” BOEM’s questions suggest that the agency could potentially include transmission-related language in the final rule.
As the offshore wind industry continues to grow and has now entered its “construction phase,” BOEM has proposed a refined set of new regulations based on lessons learned over the past 13 years. BOEM’s proposed regulations, if adopted, would as a general matter streamline the process for developing offshore renewable energy projects, while enhancing flexibility and reducing unnecessary regulation that the growing offshore wind market faces. Comments on the proposed rule are due by March 31, 2023.
Latham & Watkins will continue to monitor and report on developments in this area.
 “Renewable Energy Modernization Rule,” 88 Fed. Reg. 5968, Bureau of Ocean Energy Mgmt. (Jan. 30, 2023).
 “Interior Department Takes Steps to Strengthen Offshore Clean Energy Development,” U.S. Dept. of the Interior (Jan 12, 2023), available at: https://www.doi.gov/pressreleases/interior-department-takes-steps-strengthen-offshore-clean-energy-development.
 88 Fed. Reg. at 5996.
 88 Fed. Reg. at 5985.
 88 Fed. Reg. at 5996.
 88 Fed. Reg. at 6019.
 88 Fed. Reg. at 5989.
 “Reorganization of Title 30 – Renewable Energy and Alternative Uses of Existing Facilities on the Outer Continental Shelf,” 88 Fed. Reg. 6376, Bureau of Ocean Energy Mgmt. & Bureau of Safety and Environmental Enforcement (Jan. 31, 2023).
 88 Fed. Reg. at 5991.