Bureau of Ocean Energy Management Proposes Amendments to Modernize Offshore Wind Regulations

The U.S. Department of the Interior's Bureau of Ocean Energy Management (BOEM) published a proposed rule to update regulations for the development of offshore wind energy resources, found at 30 C.F.R. Part 585.¹ The regulations, first promulgated 13 years ago by the Interior Department, will be updated, modernized and streamlined. The proposed rulemaking would implement reforms identified by BOEM and industry to align the regulations to the evolution in offshore wind practices since 2009, including lessons learned from outside the U.S., and reduce regulatory uncertainty in order to foster the supply of Outer Continental Shelf (OCS) renewable energy to meet increasing demands.

BOEM currently manages 27 active commercial leases and has conducted 11 auctions for leases on the OCS for offshore wind development. Within the past two years, BOEM has approved the nation's first two commercial scale offshore wind projects and held three offshore wind lease auctions, including one in California, while initiating environmental review for 10 other offshore wind projects.

The proposed amendments feature eight major components:

• eliminates the site assessment plan (SAP) requirement for deployment of meteorological (met) buoys, as well as the need for limited leases for off-lease site assessment activities
• increases survey flexibility to recognize the project design envelope approach and allows for phased geotechnical and archaeological survey data submissions
• improves the project design and installation verification process
• establishes a public Renewable Energy Leasing Schedule
• reforms BOEM's renewable energy auction regulations
• tailors financial assurance requirements and instruments
• clarifies safety management system regulations
• revises other provisions and makes technical corrections

Comments on the proposed revisions are due on March 31, 2023. The proposed rule provides entities operating in this space an opportunity to comment not only on BOEM's current proposals, but also to suggest further amendments that would streamline offshore renewable energy approval processes.

Eliminating SAPs for the Deployment of Met Buoys

Installation of met buoys, which are used to aid in the siting and design of projects, currently requires a SAP.² This requirement, first formulated in 2009, was well suited to the deployment of met towers, which are fixed in place by foundations pile-driven into the seafloor and were previously the industry standard. However, it has proved to be unnecessarily burdensome for met buoys, which are anchored to the seafloor for a limited time and have minimal environmental impacts. The U.S. Army Corps of Engineers (USACE) already permits scientific measurement devices deployed in navigable waters and on the OCS, including met towers and buoys through its Nationwide Permit 5, and that permitting is subject to the same federal environmental laws as the SAP process. Because the SAP requirement involves substantial time and cost for lessees and is duplicative to USACE's scheme, BOEM is proposing to remove it. This revision would also eliminate the requirement for met buoys to obtain a Clean Air Act permit, due to the inclusion of backup diesel generators, as they would no longer be categorized as an OCS source.³

If a developer wants to conduct site assessment activities at a particular OCS location without a commercial lease, a limited lease can be obtained, though BOEM has not received a formal request for a limited lease since 2009. The proposed rule would eliminate the limited lease requirement for installing off-lease met towers and met buoys. This revision may spur the collection of OCS meteorological and oceanographic data for potential renewable energy development in not-yet-leased areas, and these activities will continue to require USACE permits under Section 10 of the Rivers and Harbors Act.⁴

Adopting a Flexible and Performance-Based Approach to Project Design and Surveying

BOEM proposes to codify the project design envelope (PDE) approach, first introduced in draft guidance in 2016. Under this approach, a developer can propose a range of design parameters and construction and operation activities in a construction and operations plan (COP), and BOEM will analyze the maximum impacts associated with the range of activities and approve a project that is constructed within that range. This provides developers with the latitude to make site-specific design and engineering decisions after COP approval without reopening the approval process.

The proposed amendments would also defer certain geotechnical survey requirements, such as engineering site-specific surveys (for example, boreholes, vibracores, grab samplers and cone penetrometer tests), to provide greater flexibility in designing projects. Currently, lessees and grant holders must conduct geotechnical, geophysical and archaeological surveys for each proposed wind turbine location and include that information in the COP submitted before project construction is authorized. However, the exact location of each turbine may be uncertain at the COP submittal stage (or may change after the COP is submitted and/or approved), and geotechnical data are more relevant to the review process after COP approval. The proposed rule would shift the current largely prescriptive standards to performance-based standards, giving lessees the leeway to submit data after COP approval, but before construction – with the facility design report (FDR) – and allow the collection of information in stages. This would also increase the utility of the PDE approach and align with European models for the development of offshore wind projects, while still allowing the collection of information sufficient for BOEM consultations and environmental review under the National Environmental Policy Act (NEPA).

BOEM also requests comments regarding whether there is a need for a future rulemaking to introduce a new permit requirement for conducting geological and geotechnical surveys themselves.

Improving the Project Design and Installation Verification Process

The proposed rule clarifies the role of the certified verification agent (CVA) – a third-party reviewer of a project's design, fabrication and installation – discussed in Subpart G of Part 585. Currently, CVAs are required to review FDRs and fabrication and installation reports (FIR) for a project. Consistent with industry standards, the proposal would require the CVA to verify (rather than "certify") the design and commissioning of the facility's critical safety systems. The amendments would also allow BOEM to approve CVA nominations earlier – before COP submittal. The proposal would also allow for separate, staged FDRs and FIRs for major project components and clarify the circumstances under which staged submittals would be allowed. The goal of these changes is to encourage developers to seek CVA review throughout the project design process and to permit the use of specialized CVAs to verify specific project components. This proposed change would also encourage additional firms to participate as CVAs.

Finally, the amendments would allow for the early fabrication of facility components that takes place outside of the OCS (e.g., onshore manufacturing) and clarify that fabrication does not include the procurement of discrete parts commercially available in standardized form, such as electrical components, magnets and gears. These proposals respond to requests that were received from numerous lessees and would codify an interpretation that is different from how BOEM previously read the regulations. Though these amendments will allow some fabrication activities to commence before BOEM has received and approved the FDR and FIR, they do not prevent BOEM from objecting to the installation of such components on the OCS if their fabrication is inconsistent with accepted industry or engineering standards.

Establishing a Public Renewable Energy Leasing Schedule

The proposed rule commits the Secretary of the Interior to publish a schedule of anticipated lease sales that BOEM intends to hold in the following five years. This would allow better advance planning by industry, governmental bodies and other stakeholders and would provide increased certainty and transparency for project developers. It will also assist BOEM in complying with the leasing obligations imposed on it under the Inflation Reduction Act, which require BOEM to coordinate its OCS wind leasing activities with its OCS oil and gas lease sales. The proposed schedule would be updated at least once every two years and include a general description of the area of each proposed lease sale, the anticipated quarter of each sale and reasons for changes made to the previously issued schedule. The schedule would not obligate BOEM to offer all sales on the schedule.

Reforming BOEM's Renewable Energy Auction Regulations

After conducting 11 auctions, BOEM proposes a reorganization and clarification of procedures to add flexibility and transparency. The proposal will use the term "provisional winner" to describe the bidder BOEM determines has submitted the winning bid at the close of the auction and clarify post-auction procedures by outlining what BOEM and the provisional winner must do between the auction and lease execution. The amendments would consolidate the reconsideration and appeal process into a single action, while retaining separate processes for seeking review of the decision selecting a provisional winner.

BOEM will continue to use multiple factor auctions, which ascribe a value, expressed in monetary terms, to factors committed to by a bidder at lease auction, otherwise known as bidding credits. The use of bidding credits allows BOEM to consider priorities in the auction process, such as advancing a domestic supply chain or requiring workforce development agreements. Eligibility and application for bidding credits and their use and value in a specific auction would be described in the Proposed Sale Notice (PSN). The proposal would also expand bidding credits to future actions, provided they are sufficiently enforceable, and would provide BOEM with the ability to impose civil penalties for failure to comply with lease terms. BOEM is specifically interested in comments relating to how bidding credits can be used to address any disproportionate impacts of project development on underserved communities.

The proposal also aims to deter bidder collusion by prohibiting a bidder from disclosing its auction strategies and economic valuation of a lease area to other bidders, as prohibited in recent Final Sale Notices (FSN). The proposed rule would also clarify the processes BOEM uses to disqualify a bidder that engages in improper conduct and to specify how a disqualified bidder can requalify. The rule would also provide authority to BOEM to offer a lease to the next highest bidder if a provisional winner does not fulfill its obligations or if an existing lease is relinquished, contracted or canceled.

Tailoring Financial Assurance Requirements

Current Subpart E of Part 585 requires lessees and grant holders to provide financial assurance –via bond or other instrument – in an amount guaranteeing compliance with lease terms and conditions. The proposed rule would revise these requirements in proposed Subpart F in a way to facilitate development, while continuing to protect against risk of default by:

• eliminating the supplemental financial assurance required before COP approval (but maintaining the ability to assess it on a case-by-case basis)
• revising lease-specific financial assurance amounts from $100,000 to the amount of 12 months' rent under the lease, due before lease execution
• expanding the acceptable categories of financial assurance instruments to include letters of credit and other instruments not listed pursuant to BOEM review and approval
• allowing incremental funding of decommissioning accounts in accordance with a BOEM-approved schedule during the lease term, rather than requiring full funding of decommissioning expenses before installation of a project on the OCS

BOEM notes that it is considering use of a minimum credit threshold rating to help determine the necessity for financial assurance and seeks comments on this concept for potential inclusion in the final rule. BOEM also seeks comment on whether it should explicitly rely on the financial strength and reliability of co-lessees and co-grant holders – who are jointly and severally liable for lease and grant obligations – when determining the need for and amount of financial assurance.

Clarifying and Enhancing Safety Management System Regulations

The proposed rule clarifies the information requirements for safety management systems (SMS) – adding two reporting requirements: an annual summary of how the SMS performed and a triannual report summarizing the results of the most recent SMS audit, corrective actions implemented and a description of any changes made since the prior report. The amendments would allow a lessee or grant holder to adopt U.S. and international workplace health and safety standards as its SMS framework and clarify that the SMS must be designed, implemented and maintained according to standard practices. The amendments incentivize lessees and grant holders to obtain a safety management certification for their SMS from an accredited conformity assessment body (CAB) as a way to reduce the frequency and intensity of regulatory oversight. Further amendments clarify that a lessee must have a functional SMS before beginning OCS activities pursuant to a lease and must use the SMS for all activities, including site assessment.

Revising Other Provisions and Making Technical Corrections

The proposed rule would make other streamlining fixes – most notably, restructuring the commercial lease terms in Section 585.235 by merging the existing preliminary and site assessment terms into one period, establishing a new lease period for COP review, design and construction that can vary in length, and converting the existing 25-year operations term that begins at COP approval to a 30-year period beginning at the project's commercial operations date. This could effectively net seven extra years of operations under a lease.

Another significant clarification would address the ability to segregate and consolidate offshore leases. Both segregation and consolidation are permitted under the current regulations, and BOEM has received requests from lessees to do so over the years, but conditions under which segregation and consolidation would be allowed, including the impact on lease schedules, were unclear. Developers may seek the lease segregation strategy, for example, in order to pursue phased development strategies, and BOEM expects such requests to increase in the future. The proposed revisions, among other things, expressly provide that in the event of a segregation or consolidation, the parties may propose lease schedules in the application.

Notes

¹ Renewable Energy Modernization Rule, 88 Fed. Reg. 5968 (Jan. 30, 2023) (amending 30 C.F.R. Section 585).

² A SAP must include the information required by 30 C.F.R. Sections 585.610 through 585.611.

³ See 42 U.S.C. Section 7627(a)(4)(C).

⁴ BOEM notes that its proposed rule will likely require revisions to its programmatic agreements with consulting parties under the National Historic Preservation Act.

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