Alternative Energy and Alternate Uses of Existing Facilities on the Outer Continental Shelf, 39376-39504 [E8-14911]

Agencies

• DEPARTMENT OF THE INTERIOR
• Minerals Management Service

[Federal Register Volume 73, Number 132 (Wednesday, July 9, 2008)]
[Proposed Rules]
[Pages 39376-39504]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-14911]



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Part II





Department of the Interior





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 Minerals Management Service



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30 CFR Parts 250, 285, and 290



Alternative Energy and Alternate Uses of Existing Facilities on the 
Outer Continental Shelf; Proposed Rule

Federal Register / Vol. 73, No. 132 / Wednesday, July 9, 2008 / 
Proposed Rules

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DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Parts 250, 285, and 290

[Docket ID: MMS-2008-OMM-0012]
RIN 1010-AD30


Alternative Energy and Alternate Uses of Existing Facilities on 
the Outer Continental Shelf

AGENCY: Minerals Management Service (MMS), Interior.

ACTION: Proposed rule; notice of availability of the draft 
environmental assessment.

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SUMMARY: The MMS is proposing regulations that would establish a 
program to grant leases, easements, and rights-of-way (ROW) for 
alternative energy project activities on the Outer Continental Shelf 
(OCS) as well as for certain previously unauthorized activities that 
involve the alternate use of existing facilities located on the OCS; 
and would establish the methods for sharing revenues generated by this 
program with nearby coastal States. These regulations are also intended 
to ensure the orderly, safe, and environmentally responsible 
development of alternative energy sources on the OCS. The MMS is 
developing this program and proposed regulations under the authority 
granted the Secretary of the Interior (Secretary) by the Energy Policy 
Act of 2005 (EPAct), which amended the Outer Continental Shelf Lands 
Act (OCS Lands Act). Under this new authority, the Secretary maintains 
discretionary authority to issue leases, easements or ROWs on the OCS 
for previously unauthorized activities that: Produce or support 
production, transportation, or transmission of energy from sources 
other than oil and gas; or use, for energy-related or other authorized 
marine-related purposes, facilities currently or previously used for 
activities authorized under the OCS Lands Act.
    The MMS has prepared a Draft Environmental Assessment (EA) 
analyzing this proposed rule. The Draft EA incorporates by reference 
the Programmatic Environmental Impact Statement (EIS) Programmatic 
Environmental Impact Statement for Alternative Energy Development and 
Production and Alternate Use of Facilities on the Outer Continental 
Shelf, Final Environmental Impact Statement, October 2007. This Draft 
EA was prepared to assess any impacts of this proposed rule. We are 
furnishing this notification to allow other agencies and the public an 
opportunity to review and comment on the Draft EA.
    All comments received on this proposed rulemaking and the Draft EA 
will become part of the public record and will be available for review.

DATES: Submit comments on the proposed regulation by September 8, 2008. 
The MMS may not fully consider comments received after this date. 
Submit comments to the Office of Management and Budget on the 
information collection burden in this rule by August 8, 2008. This does 
not affect the deadline for the public to comment to MMS on the 
proposed regulations. Submit comments on the Draft Environmental 
Assessment by September 8, 2008.

ADDRESSES: You may submit comments on the rulemaking by any of the 
following methods. Please use the Regulation Identifier Number (RIN) 
1010-AD30 as an identifier in your message. See also Public 
Availability of Comments under Procedural Matters.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Under the tab ``More Search Options,'' click Advanced Docket Search, 
then select ``Minerals Management Service'' from the agency drop-down 
menu, then click ``submit.'' In the Docket ID column, select MMS-2008-
OMM-0012 to submit public comments and to view supporting and related 
materials available for this rulemaking. Information on using 
Regulations.gov, including instructions for accessing documents, 
submitting comments, and viewing the docket after the close of the 
comment period, is available through the site's ``User Tips'' link. The 
MMS will post all comments.
     Mail or hand-carry comments to the Department of the 
Interior, Minerals Management Service, Attention: Regulations and 
Standards Branch (RSB), 381 Elden Street, MS-4024, Herndon, Virginia 
20170-4817. Please reference ``Alternative Energy and Alternate Uses of 
Existing Facilities on the Outer Continental Shelf, 1010-AD30'' in your 
comments and include your name and return address. The MMS will post 
all comments on Regulations.gov.
     Send comments on the information collection in this rule 
to: Interior Desk Officer 1010-AD30, Office of Management and Budget; 
202-395-6566 (fax); e-mail oira_docket@omb.eop.gov. Please also send a 
copy to MMS.
     The Draft EA is available on the MMS Web site at: https://
www.mms.gov/offshore/AlternativeEnergy/RegulatoryInformation.htm. You 
may submit comments on the Draft Environmental Assessment in one of the 
following two ways:
    [cir] In written form enclosed in an envelope labeled ``Alternative 
Energy Program Rulemaking Draft Environmental Assessment'' and mailed 
(or hand carried) to the Branch Chief, Environmental Assessment Branch, 
Minerals Management Service, Mail Stop 4042, 381 Elden Street, Herndon, 
Virginia 20170.
    [cir] Electronically to the MMS e-mail address: 
alternative@mms.gov.
    MMS is requesting comments on specific items identified throughout 
the preamble. For your convenience in commenting, we have compiled a 
list of these items at the end of the preamble.

FOR FURTHER INFORMATION CONTACT: Proposed rule: Maureen Bornholdt, 
Program Manager, Offshore Alternative Energy Programs, at 703-787-1300 
or maureen.bornholdt@mms.gove or Amy C. White, Regulations and 
Standards Branch, at (703) 787-1665 or amy.white@mms.gov.
    Draft Environmental Assessment: James F. Bennett, Chief, Branch of 
Environmental Assessment, at (703) 787-1660.

SUPPLEMENTARY INFORMATION:

Background

Statement of Purpose

    Sufficient domestic sources of energy are vital to expanding the 
Nation's economy and enhancing Americans' quality of life. However, an 
imbalance exists between our energy consumption and domestic energy 
production that makes it vital to find ways to narrow the gap between 
the amount of energy used and the amount domestically produced. There 
is no single solution for narrowing this gap, but there are several 
means available. Increasing the Nation's supply of renewable energy 
produced from domestic sources will be a key part of any strategy to 
meet this goal.
    According to the Department of Energy's Energy Information 
Administration (EIA) 2007 Annual Energy Outlook, public and private 
wind and other renewable energy generating sectors of our economy are 
the fastest growing energy sources in the United States (US). The EIA 
estimates that in 2030 renewable energy will account for over 10 
percent of domestic energy production and about 7 percent of 
consumption. The Energy Policy Act of 2005 (EPAct) encourages the 
development of renewable energy resources as part of an overall 
strategy to develop a diverse portfolio of domestic energy supplies for 
the future. Section 388 of the EPAct gave the Department of the 
Interior new

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authority to grant leases, easements, and ROWs for the development of 
promising new energy sources such as offshore wind, wave, current, and 
solar energy and for ensuring that alternative energy development on 
the OCS proceeds in a safe and environmentally responsible manner. The 
Secretary of the Interior delegated to the MMS the new authority that 
was conferred by the EPAct.
    Enactment of the EPAct recognized the need for an unambiguous 
outline of authorities pertaining to energy-related activities on the 
OCS. Before the EPAct, as various agencies of the Federal government 
received proposals for innovative, non-traditional energy-related 
projects on the OCS, it became evident that--with limited exceptions--
there existed no clear Federal authority for granting rights to use the 
seabed for such projects. This lack of clearly outlined authority was a 
significant impediment to the development of renewable energy on the 
OCS, and dampened efforts by potential energy developers and Federal 
regulators to seriously develop and consider offshore projects. 
Congress recognized that management of alternative energy and alternate 
use activities would require comprehensive authority to permit access 
in a fair and equitable manner, to ensure environmental and operational 
compliance, and to achieve a fair return to the Nation. As the Federal 
government's primary manager of offshore energy development, the 
Department of the Interior, MMS, was given this comprehensive new 
authority.

Mandate of Energy Policy Act of 2005 (EPAct)

    The EPAct amended the OCS Lands Act to authorize the Secretary to 
issue leases, easements, or rights-of-way on the OCS for activities 
that:
    (i) Support exploration, development, production, or storage of oil 
or natural gas, except that a lease, easement, or right-of-way shall 
not be granted in an area in which oil and gas preleasing, leasing, and 
related activities are prohibited by a moratorium;
    (ii) Support transportation of oil or natural gas, excluding 
shipping activities;
    (iii) Produce or support production, transportation, or 
transmission of energy from sources other than oil and gas; or
    (iv) Use, for energy-related or other authorized marine-related 
purposes, facilities currently or previously used for activities 
authorized under the OCS Lands Act.
    This new authority does not apply to activities that are otherwise 
authorized by law, including those covered by the OCS Lands Act, the 
EPAct, the Deepwater Port Act of 1974, and the Ocean Thermal Energy 
Conversion Act of 1980. On March 20, 2006, the Secretary of the 
Interior delegated to the MMS the new authority that was conferred by 
the EPAct.
    In addition, the EPAct of 2005 requires the Secretary to share with 
nearby coastal States a portion of the revenues received by the Federal 
Government from authorized alternative energy and alternate use 
projects on certain areas of the OCS. This proposed rule would 
implement this mandate and describe the methods to be used for 
identifying what projects are covered by this requirement, for 
determining which States are eligible to receive shares of the 
revenues, and--if two or more States are eligible to receive revenues 
from the same project--for allocating the appropriate share to each 
eligible State.
    The EPAct included a requirement that the Secretary develop any 
necessary regulations to implement the new authority. This Notice of 
Proposed Rulemaking applies to the activities described in (iii) and 
(iv) above (i.e., those relating to production, transportation, or 
transmission of energy from sources other than oil and gas and to the 
use of existing OCS facilities for energy-related or other authorized 
marine-related purposes). Regulations for activities described in (i) 
and (ii) above (i.e., those relating to oil and gas) will be 
promulgated separately in appropriate parts of the existing MMS oil and 
gas regulations.
    While the MMS will have the lead in authorizing OCS alternative 
energy and alternate use activities, we recognize that other Federal 
government agencies have regulatory responsibility in such activities 
and the need to consider them fully. The new authority does not 
expressly supersede or modify existing Federal laws, and all activities 
must comply fully with such laws. As directed by the EPAct provision 
calling for promulgation of regulations, the MMS consulted with other 
Federal agencies, as appropriate, throughout the rulemaking process, 
and, to the extent provided by established DOI rulemaking procedures. 
We also consulted with the governors of affected States and others in 
the promulgation of this rule.
    In addition to providing the authority to issue leases, easements, 
and rights-of-way, the EPAct included a requirement that any activity 
permitted under this authority be ``carried out in a manner that 
provides for--
    (A) Safety;
    (B) Protection of the environment;
    (C) Prevention of waste;
    (D) Conservation of the natural resources of the outer Continental 
Shelf;
    (E) Coordination with relevant Federal agencies;
    (F) Protection of national security interests of the United States;
    (G) Protection of correlative rights in the outer Continental 
Shelf;
    (H) A fair return to the United States for any lease, easement, or 
right-of-way under this subsection;
    (I) Prevention of interference with reasonable uses (as determined 
by the Secretary) of the exclusive economic zone, the high seas, and 
the territorial seas;
    (J) Consideration of--
    (i) The location of, and any schedule relating to, a lease, 
easement, or right-of-way for an area of the outer Continental Shelf; 
and
    (ii) Any other use of the sea or seabed, including use for a 
fishery, a sealane, a potential site of a deepwater port, or 
navigation;
    (K) Public notice and comment on any proposal submitted for a 
lease, easement, or right-of-way under this subsection; and
    (L) Oversight, inspection, research, monitoring, and enforcement 
relating to a lease, easement, or right-of-way under this subsection.''

The MMS addresses these items, as appropriate, in this rulemaking.

Summary of Advance Notice of Proposed Rulemaking (ANPR) Comments

Background
    On December 30, 2005, the MMS issued an ANPR (70 FR 77345) 
requesting comments on the program requirements. Comments pertaining to 
specific subparts of the proposed regulations are summarized in the 
subpart-by-subpart discussion, as appropriate.
    The ANPR requested public comments on five major program areas:
    (1) Access to OCS lands and resources;
    (2) Environmental information, management, and compliance;
    (3) Operational activities;
    (4) Payments and revenues; and
    (5) Coordination and consultation.
    The MMS received 149 comments from 26 States and the District of 
Columbia. Comments came from private citizens (60), alternative energy 
industries and associations (27), environmental organizations (19), 
State and local governments (19), Federal agencies (8), non-government 
organizations (6), universities (5), congressional representatives (3), 
small business (1), and the oil and gas industry (1).

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    The vast majority of comments addressed OCS alternative energy 
activities, and we received a few comments on use of existing 
facilities. No single issue dominated the comments, and responses 
within a given program area were wide-ranging. The comments generally 
were supportive of alternative energy development on the OCS and 
activities that use existing OCS facilities. Many advised the MMS to 
proceed with caution as we develop the program and supporting 
regulations and advocated early stakeholder involvement with both the 
program and the individual project permitting. Those familiar with the 
OCS oil and gas program often suggested we use that program as a model 
for consultation and environmental compliance. Some alternative energy 
industry and environmental organizations suggested that the MMS 
establish a structured, rigid process, citing the need for 
predictability and for compliance and timeliness in reviews. Others 
advocated a flexible approach in view of the fledgling nature of 
offshore alternative energy technologies and suggested that the MMS 
address each project on a case-by-case basis. A majority of comments 
identified preparation of a programmatic environmental impact statement 
(PEIS) under the National Environmental Policy Act (NEPA) as a 
necessary and constructive first step.
    Comments addressing the major program areas often were 
interrelated. For example, comments on access and operations were often 
directly linked with concerns for the environment (e.g., access should 
not be permitted in areas of environmental sensitivity). Views on 
payments appeared to be influenced by the perspective of the commenter 
on access issues (e.g., fee structure suggestions depended on whether 
MMS used the project's actual footprint or a lease block system). 
Coordination and consultation suggestions centered on the opportunity 
to address environmental concerns (e.g., focused on input during the 
program and individual project NEPA process).
    More information on the ANPR, its respondents, and their comments 
is available at the MMS OCS Public Connect Web site, at https://
ocsconnect.mms.gov/pcs-public/do/
ProjectDetailView?objectId=0b011f8080050473.
Access for OCS Lands
    Comments on area identification described the entire spectrum of 
access: from MMS conducting in-depth studies to select specific areas 
to lease to MMS opening most of the OCS. While comments recommended MMS 
fashioning our program after the Bureau of Land Management (BLM), the 
European, or the Federal Energy Regulatory Commission model, comments 
were consistent about MMS requiring due diligence from any developer.
    Some commenters suggested that we use the PEIS to identify 
environmentally sensitive areas to be permanently excluded from 
development, and some expressed concerns that we would lease any area 
without considering the full range of possible impacts and 
alternatives. While others opined that if MMS initially excluded areas, 
those areas may never become available even if technology and uses 
changed in the future. MMS decided not to propose limiting areas 
available for possible development. As we begin to better understand 
the impacts, limitations, and benefits of renewable energy projects, we 
will be in a better position to select appropriate sites for 
development. MMS does not want to exclude potential sites, since the 
future technology may be different from the technology available today, 
with different impacts.
    Other commenters advocated that all U.S. waters should be candidate 
areas for the development of renewable energy projects and that 
potential developers, who are in the best position to propose sites, 
should be given the widest possible latitude to identify potential 
resources and sites. One commenter pointed out that Congress already 
identified those OCS areas that should be categorically excluded from 
renewable energy development: ``any unit of the National Park System, 
National Wildlife Refuge System, or National Marine Sanctuary System, 
or any National Monument.''
    As some responders expressed the belief that renewable energy 
production does less damage to the environment than oil and gas 
production, they suggested that MMS subject the renewable projects to 
less rigorous environmental review and open more areas to development, 
regardless of other impacts. Others commented MMS should consider all 
impacts on existing resources and uses citing fisheries, public safety, 
shipping lanes, aircraft, migratory routes (bird and mammal), and 
access to sand and gravel and oil and gas resources. These comments 
were often coupled with the suggestion that any fees for the renewable 
energy development should compensate for impacts and possible loss of 
future uses. The MMS will strictly adhere to the statutory requirements 
such as NEPA, CZMA, etc. All projects will undergo appropriate review.
    Many comments expressed concern that a competitive bidding process 
would limit access to large energy companies, effectively shutting out 
small businesses, or add to the considerable economic and financial 
uncertainties associated with the developing industry, rendering it 
very difficult to finance projects. Others supported using a 
competitive basis for awarding permits for resource and site assessment 
with an ``option to lease'' or other guaranteed development rights 
provided that site-specific requirements were met. Others felt that 
given the emerging nature of offshore renewable energy technologies and 
the public and private benefits that could be derived from energy 
resources development on the OCS, MMS should make the process as simple 
and efficient as possible with a clear schedule for processing and 
decision-making. The proposed rule lays out the steps in the processes 
for acquiring leases, both competitively and noncompetitively.
    Some commenters suggested that competing projects or proposals be 
evaluated using quantitative factors such as financial strength, 
experience and operational performance of the developers. However, 
there was considerable support for using criteria that would allow 
small and medium size businesses, local communities, and local utility 
districts the opportunity to initiate projects. It was also suggested 
that proposals be evaluated on the basis of how each best serves the 
public interest.
Environmental Information, Management, and Compliance Programs
    Comments fell into two broad points of view: (1) Require detailed 
studies years prior to building a project or (2) waive or reduce 
environmental requirements and other safeguards that are incorporated 
into our normal permitting processes.
    While most comments suggested that MMS should prepare a PEIS as a 
first step, comments were divided as to how MMS should use the 
document. Some suggested that the PEIS identify areas open for 
renewable development, either advocating that certain areas be excluded 
from leasing/permitting or matching the type of renewable energy 
development with a particular area. The thought behind this approach is 
that by strategically reviewing ``preferred'' locations for renewable 
development, the PEIS could reduce the residual project risk that 
project developers face, help to ensure State and community input on 
identifying more or less desirable locations, and ensure that impacts 
remain acceptable. Some

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commenters disagreed with this approach, recommending that access 
remain flexible to allow renewable energy developers to select 
potential areas and citing the concern that any areas deferred at this 
stage may be permanently excluded from future development. Others 
stated that the PEIS should identify and analyze programmatic issues 
leaving specific environmental evaluation to the project stage.
    MMS prepared a PEIS for the Alternative Energy and Alternate Use 
Program. The PEIS provides a basic understanding of the possible 
impacts of various types of alternative energy and alternate use 
projects. However, MMS will develop additional, site specific EISs as 
appropriate.
    Some comments raised the issue of responsibility for preliminary 
site-specific studies. It was suggested that MMS should conduct these 
studies to maintain objectivity. Other commenters stated that 
conducting these studies is the responsibility of the applicant working 
with MMS and potential affected State(s) on study design. Another 
recommendation advocated using independent third-party contractors 
selected pursuant to the Council on Environmental Quality procedures to 
ensure unbiased environmental assessments.
    In the ANPR we requested specific comments on types and levels of 
environmental information that MMS should require for alternative 
energy and alternate use projects; the types of site-specific studies 
should MMS require; when these studies should be conducted; and who 
should be responsible for conducting these studies. We also requested 
input on identifying design and installation requirements associated 
with new projects and modification of existing facilities and 
identifying technology assessment and research needs. Commenters 
consistently supported the development of a Programmatic EIS, followed 
by project specific EIS. They also were consistent about requiring 
compliance with CZMA and developing an approach that respects local and 
State laws and requirements. The MMS developed a PEIS, as suggested, as 
was discussed previously. Each individual project will require NEPA 
compliance. In the near term we anticipate the NEPA compliance for 
development will be project specific EIS. These regulations would 
require that the applicant provide the information needed for MMS to 
develop the NEPA document. In addition, these regulations detail CZMA 
compliance requirements.
    Generally, commenters agreed that MMS should conduct and pay for 
the PEIS, but the applicant should pay for site-specific NEPA. However, 
some commenters stated that it should be the agency's responsibility to 
gather and provide information for the project-specific NEPA and to 
meet other requirements. Others suggested that MMS can get most of the 
required data from other Federal government agencies including: 
Department of Energy (DOE), Bureau of Land Management (BLM), and Army 
Corps of Engineers (ACOE).
    Commenters consistently mentioned that offshore alternative energy 
engineering issues are similar to those issued faced by the offshore 
oil and gas industry and the MMS should use its experience with oil and 
gas when evaluating the engineering aspects of these projects.
    Some commenters suggested that MMS use the existing oil and gas 
regulations (30 CFR part 250) for the plan requirements. We reviewed 
and considered the oil and gas regulations and patterned many of these 
roles on those basic requirements if they were appropriate for the 
alternative energy program.
    Commenters reminded us to recognize that specific data requirements 
will vary by the type of project and the location. We addressed this by 
not including standards in these regulations. Instead we are requiring 
applicants to submit the project design and the data and information 
that were the basis for the design, so we can evaluate each project on 
a case-by-case basis. As we gain experience with offshore alternative 
energy, we may set more specific project requirements. A number of 
commenters suggested that the responsibility for determining 
engineering requirements for offshore alternative energy projects 
should fall on project developers. Some commenters stated that these 
projects should meet the same engineering criteria as oil and gas 
facilities. However, others felt that the consequences of an incident 
would likely not be as great as an incident with an oil and gas 
facility, therefore these structures need not meet the same criteria as 
do those for oil and gas.
    As with environmental impacts, many commenters believed that, at 
this time, it would be best to address the engineering requirements of 
these projects on a case-by-case basis, instead of detailing 
requirements in the regulations. The requirements of these projects 
would vary based on location (sea conditions, water depth, anticipated 
weather events) and type of project. Research and development and or 
demonstration projects are smaller scale activities that take place for 
a short duration and in a limited, discrete area.
    Some commenters included suggestions for the type of data and 
information MMS should require, both for environment and engineering 
assessments. However few provided details on the design standards for 
projects. Those that provided details suggested the use of various 
standards that have already been developed, such as those used in 
Europe.
Regulation of Operational Activities
    A common message from the commenters was that MMS should recognize 
that renewable energy is a young industry so our regulatory approach 
for operations should remain flexible yet predictable. Comments 
recommended that the OCS oil and gas program should be used as the 
model for addressing renewable energy operational activities. Comments 
suggested MMS require operators to submit plans similar to the Deep 
Water Operations Plan, use Certified Verification Agents, adopt 
Occupational Safety and Health Administration requirements as a basis 
for ensuring safety, schedule frequent inspections, and assess 
penalties for noncompliance. Adaptive management approach and use of 
pilot projects to study operations were also recommended. There were 
several suggestions that MMS set production requirements to ensure due 
diligence of the operators, while others wanted us to be flexible early 
on or have no production requirements.
Payments, Royalties, Fees and Bonds
    Issues with payments and revenues generated a great deal of 
discussion with most comments against using bonus bids as part of the 
competitive lease issuance process but supportive of rentals and 
royalties. Some respondents requested a payment honeymoon or holiday 
until it is determined that OCS renewable activities are profitable or 
the industry matures. Commenters requested an orderly, simple, and 
predictable financial system where potential investors are certain of 
government fees. Many respondents stated that renewable wind, wave and 
current resources are not finite like extractable oil and gas 
hydrocarbons, there is no removal of a public resource and alternative 
energy operations only use a limited amount of public OCS lands; 
therefore, we should either not charge a royalty or set a low fee, 
especially on pilot projects. Supporters of renewable energy expressed 
concern that if the government's financial regimen were onerous it 
would discourage development and give large

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energy companies an unfair advantage. Citing the benefits of renewable 
energy, most comments supported a financial system structured in a 
manner which stimulates growth of offshore renewable generation and 
provides incentive for developers to invest in OCS projects with the 
hope that it will achieve cost competitiveness with other energy 
sources. One Federal agency commenter stated that the perception of 
fairness and cooperation is important and opponents of offshore 
alternative energy development may claim that wind power facilities are 
unfairly using public commons for profit. MMS has considered all 
comments on an OCS alternative energy financial system and we propose a 
financial regime that we have determined is fair to the American 
public, meets Congress' and the Administration's intent with respect to 
EPAct and will permit development of offshore alternative energy.
Bonus
    Even though most respondents wrote against a system of lease 
bonuses, EPAct requires competition and MMS is proposing the cash bonus 
as either a bid variable or a fixed element in the alternative energy 
leasing regulations. In certain cases where multiple expressions of 
interest are received, MMS is proposing to use the cash bonus bidding 
system as the basis for determining the winning bidder. Where no 
competitive interest exists, a marginal acquisition fee is proposed.
Rentals
    There was generally strong support for using rentals in any OCS 
alternative energy leasing financial system. Respondents differed on 
the rate of rentals that should be charged and the method for 
calculating rental acreage. A few commenters felt that no rental fee 
should be collected or rental waived until production commenced. Some 
commenters proposed rental payments only be collected on the seabed 
footprint while others suggested following the Federal oil and gas 
model where rentals are paid on the entire OCS leased acreage. MMS is 
proposing that a rental fee be collected on the entire leased acreage 
with rental rates of $3 to $5 per acre for commercial leases, project 
easements and rights-of-way. This rate is below the current prevailing 
rates for oil and gas leases. We propose lower rental rates because 
during the initial lease period and before the approval of the 
Construction and Operations Plan (COP), there is no permanent 
disturbance of the OCS. Following approval of the COP, a royalty-based 
operating fee is proposed. Additionally, unlike oil and gas projects, 
alternative energy projects do not extract a non-renewable energy 
source from the leased tract. Thus, the underlying value of the 
project's acreage is less affected by an alternative energy project 
than it would be for an oil and gas project, so the rental charge for 
use of the land can be set appropriately lower for alternative energy 
projects.
Royalties
    Most respondents supported some element of royalties based on gross 
revenue. Comments about royalties covered the full spectrum from 
setting no royalties; very low royalties (3% royalty that BLM charges); 
to a phased royalty system designed so that the financial terms would 
facilitate the emergence of a viable industry. A three-phased example 
might include a pilot phase with no royalty and minimal rental fees, 
followed by an industry ``wildcatter'' development phase with higher 
rental rates and royalties after 5 years. The third is a commercial 
phase in which a mature industry is paying yet higher rental and 
royalty rates. Unless otherwise specified in the Final Sale Notice, MMS 
is proposing a royalty regime in which an operating fee rate would 
apply at a rate of one percent in the first two years following 
approval of the Construction and Operations Plan on commercial 
alternative energy leases, and at two percent thereafter. The operating 
fee would be an annual payment that continues through the duration of 
the operations term of a commercial lease. Where competition exists for 
a lease, MMS may offer bidders the opportunity to bid a constant or 
sliding operating fee rate above 2 percent subject to a fixed cash 
bonus. The sliding scale operating fee rate could depend on one or more 
of the variables which compose the operating fee itself, or on some 
other variables, such as time. In this auction format, MMS would 
provide a baseline sliding scale function, and the operating fee rate 
bid variable would be some multiplier of that function. MMS does not 
expect royalties at this level to deter investment in a meaningful 
number of otherwise, prospective alternative energy projects.
    A limited number of comments were received related to alternative 
energy research, testing and pilot projects. These comments stated that 
lease fees should be waived for research facilities and some pilot 
projects that are limited in scope and intended for testing, 
development or experimental evaluation of new systems. MMS has proposed 
a ``limited lease'' with a restricted term of five years and minimal 
rental for these types of projects.
    There were divergent views on what constituted ``fair return.'' 
Some wanted us to include the benefits of renewable energy as part of 
fair return, while others supported requiring additional compensation 
for lost uses and social costs. Most commenters strongly rejected 
opportunity-cost based valuation because of the complex and burdensome 
nature of subjective value-based judgments required to determine 
appropriate payment levels. Some respondents stated that only a small 
proportion of the sea bottom and surface will be displaced and that 
current users can adjust to any new structures. Some pointed out that 
if Congress intended that such costs should be addressed, they would 
have stated so in the EPAct language. On the other hand, two commenters 
proposed to base a portion of the financial regimen on interference 
with other uses by charging for the use of the sea floor in 
compensation for displacing the pelagic zone and the atmosphere above 
the water surface. MMS is not aware of precedents in other Federal or 
State statutes that support an opportunity-cost based approach. 
Moreover, it is not required by the authorizing legislation. At the 
same time, MMS does consider selected aspects of opportunity cost in 
some of its bid adequacy assessments for oil and gas leases. 
Accordingly, while MMS does not intend to rely heavily on an 
opportunity cost framework, for either setting payment sizes or for bid 
adequacy purposes, there may be some circumstances in which 
consideration of selected aspects of opportunity cost would be 
appropriate for helping to set the sizes of certain fees, minimum bids, 
or reservation prices.
    A single commenter pointed out that since Congress already 
subsidizes the development of alternative sources of energy through 
production tax credits, MMS lacks the prerogative to encourage 
development offshore through favorable financial terms. This commenter 
also stated that MMS should not reduce the charge below the true 
economic value of the resource. If MMS were to encourage development of 
a resource with financial terms below those that private landowners 
would be anticipated to charge, development could occur too quickly and 
early developers might not make the best use of emerging technologies.
    MMS has considered this reasoning in our proposal for the 
authorized financial terms and durations of the lease and grant 
periods. If future economics of alternative energy technology on the 
OCS support different or improved

[[Page 39381]]

technologies, the flexibility which MMS has built into these 
regulations will allow for appropriate specification of lease terms and 
conditions upon subsequent renewals or in new offerings. Moreover, MMS 
is confident that the actual financial terms and length of lease 
conditions that it will apply, in conjunction with a myriad of other 
administrative and regulatory requirements, strike the proper balance 
between ensuring receipt of a fair return and providing the proper 
inducement for alternative energy activities to proceed at the proper 
pace.
    There were differing opinions about charging cost recovery fees for 
processing of applicant initiated actions. Most respondents felt that 
cost recovery fees for MMS program efforts is appropriate, with some 
advocating management costs be recovered from permit applicants through 
fees, royalties, and/or a combination of both. Others expressed 
concerns that charging cost recovery fees would impact the economics of 
the projects and discourage development. To clarify, rentals and 
royalties are designed to compensate the American public for use of the 
Federal OCS, while cost recovery fees are to be implemented by a 
Federal agency when a service (or privilege) provides special benefits 
to an identifiable recipient, beyond those that accrue to the general 
public. The MMS is proposing case-by-case fees to recover unique 
processing costs such as the preparation of Environmental Impact 
Statements. We do not have data for our costs of processing lease 
applications for this new program, so we are not otherwise proposing 
processing fees in this rule. As the program matures, and we acquire 
processing cost data, we expect to propose fees to recover our costs of 
processing. While we have not included filing fees in this proposed 
rule, in the final rule, we may add nominal filing fees for competitive 
and noncompetitive lease applications, and for applications for ROWs 
and RUEs, to aid in limiting filings to serious applicants.
    Comments generally supported MMS using a surety bond or other type 
of security to cover the costs associated with non-compliance of lease 
terms; lease default; decommissioning and removing wind turbines and 
towers at the end of the lease term; and appropriate site remediation 
at the end of the lease term. Respondents acknowledged that companies 
operating on the OCS should be able to demonstrate appropriate levels 
of financial capability. The types of financial securities mentioned 
included letters of credit, a test of credit-worthiness, assigned 
interest bearing annuity, funding a trust (comparable to a nuclear 
decommissioning trust), escrow, insurance policy, or corporate 
guarantee. MMS is proposing minimum financial assurance requirements of 
$300,000 for the holder of any lease with actual surety levels to be 
determined by MMS based on the complexity, number and location of all 
planned OCS facilities by the lessee. We feel that this financial 
assurance requirement will protect the taxpayer from any default by a 
lessee.
    The ANPR did not address revenue sharing with States.
Coordination and Consultation
    Commenters encouraged MMS to coordinate and consult with affected 
government agencies and stakeholders, and viewed the ANPR and the MMS 
webpage on renewable energy as solid first efforts. Most comments 
suggested consultation early in the process, both in the program 
development and for individual projects. Other comments suggested: 
allowing the States to ban renewable projects sited adjacent to state 
waters that have negative environmental, economic, or public safety 
impacts; conducting targeted surveys of coastal states and the industry 
to identify potential concerns and objections; providing an opportunity 
to identify areas of the OCS to include in the program; working with 
Federal and State cooperatives; and requiring developers to include 
outreach programs in their application. Many comments supported the use 
of existing offshore program coordination mechanisms and suggested 
expanding the OCS Policy Committee membership to include 
representatives from the offshore renewable energy industry and 
affected coastal states. Some comments expressed concern that the 
coordination and consultation process would create burdensome 
requirements, slow down the application review process, and/or create 
artificial conflicts by giving too much visibility to marginal groups/
perspectives.
    One commenter suggested that MMS establish a Joint Ocean Renewables 
Office, co-locating representatives from each of the agencies 
responsible for permitting and authorizing portions of the alternative 
ocean energy projects, while another suggested that it was too early, 
given the infancy of the offshore renewable energy industry, to rigidly 
structure the relationships between regulators and project developers. 
Other comments called for MMS to create a ``one-stop shop'' for the 
permitting process, in which MMS would coordinate with other agencies 
and be the primary point of contact for the industry.
Use of Existing Facilities
    A few comments covered issues associated with use of existing 
facilities, with the majority focusing on liability, environmental 
impacts, and implementation of a rigs-to-reef program. Comments 
generally supported leaving facilities in place, at the end of life, 
for offshore aquaculture or to serve as artificial reefs. Concerns were 
submitted that removing facilities would destroy essential fish 
habitats. Some commenters wanted liability to be the responsibility of 
the original owners (usually oil and gas operations), while others 
wanted to allow for the shedding of liability by an oil and gas 
producer if an alternative use of existing infrastructure is approved. 
MMS is proposing to require an allocation of responsibilities between 
the existing lessee and facility owner (e.g., the oil and gas lessee 
and/or operator) and the holder of the Alternate Use RUE.

Programmatic Environmental Impact Statement Summary

    The MMS prepared a final PEIS in support of the establishment of a 
program for authorizing alternative energy and alternate use activities 
on the OCS. The final PEIS examines the potential environmental effects 
of the program on the OCS and identifies policies and best management 
practices that may be adopted for the program. The PEIS examined three 
alternatives as well as the no action alternative. The three 
alternatives were: (1) The proposed action which would establish the 
program; (2) a case-by-case alternative that would evaluate each 
project individually without the benefit of a comprehensive program 
and; (3) the preferred alternative, which consisted of a combination of 
the first two alternatives, allowing MMS to review projects during the 
interim while the program and regulations are being established.
    Given the rapidly evolving nature of this nascent industry, the MMS 
cannot reasonably anticipate and assess the potential environmental 
impacts of all of the various technologies and potential OCS locations 
where these alternative energy and alternate use projects could someday 
be proposed. Accordingly, this PEIS is focused on alternative energy 
technologies and areas on the OCS that industry has expressed a 
potential interest in and ability to develop or evaluate from 2007 to 
2014. The PEIS proposed policies and best management practices based on 
the analyses in the PEIS. As the program

[[Page 39382]]

evolves and more is learned, the mitigation measures may be modified or 
new measures developed. Each project developed under this new program 
will be subject to environmental reviews under the National 
Environmental Policy Act (NEPA), and each project may have additional 
project-specific mitigation measures.
    A Record of Decision (ROD) was published on January 10, 2008. The 
preferred alternative was selected as well as interim policies and best 
management practices that were recommended in the PEIS. The PEIS and 
ROD are available at: ocsenergy.anl.gov. A Draft Environmental 
Assessment of the regulations, which tiers off the PEIS, is being 
released for review and comment along with the proposed rules.

Overview of the MMS Alternative Energy and Alternate Use Program

    To accommodate the regulations to support the Alternative Energy 
and Alternate Use Program, MMS is proposing to add a new part to 
subchapter B of title 30 of the CFR. The new part 285 would be titled 
``Alternative Energy and Alternate Uses of Existing Facilities on the 
Outer Continental Shelf'' and would address the requirements of section 
388(a) of the EPAct, which amended the OCS Lands Act to add section 
8(p).
Approach to Rulemaking
    These regulations were developed to provide a regulatory framework 
for leasing and managing OCS alternative energy project activities and 
authorizing activities that involve the alternate use of OCS Lands Act-
permitted facilities. These regulations are also intended to encourage 
orderly, safe, and environmentally responsible development of 
alternative energy sources on the Outer Continental Shelf. The MMS 
expects that alternative energy projects in the near term will involve 
the production of electricity from wind, wave, and ocean current. In 
the future, other types of alternative energy projects may be pursued 
on the OCS, including solar energy and hydrogen production projects. 
These regulations were developed to allow for a broad spectrum of 
alternative energy development, without specific requirements for each 
type of energy production. However, as we gain experience with 
alternative energy development on the OCS, we may update our 
regulations to include energy resource-specific provisions and 
incorporate by reference appropriate documents.
    This proposed rule (30 CFR part 285) applies to all aspects of the 
alternative energy and alternate use program; except for the procedures 
applying to appeals of MMS decisions or orders, which are covered in 30 
CFR part 290, Subpart A. We are also proposing to revise 30 CFR part 
290.2 to clarify the MMS decisions on bids under this program are 
exempt from the appeals process at 30 CFR part 290 and covered under 
Sec.  285.118(c). This section describes the procedures for an 
unsuccessful bidder to apply for reconsideration by the Director for 
alternative energy leases, Right-of-way (ROW) grants, rights-of-use and 
easement (RUE) grants, or alternate use rights-of-use and easements 
(Alternate Use RUE).
Overview of the Project Development Process
General Overview
    Figure 1 depicts the general process that the MMS proposes for 
managing OCS alternative energy program activities under the proposed 
rule.
BILLING CODE 4310-MR-P

[[Page 39383]]

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BILLING CODE 4310-MR-C
Types of Access Rights
    MMS will issue lease access rights for commercial development and 
site assessment and technology testing. ROW grant and RUE grants will 
be issued for the support of alternative energy activities. MMS will 
use a special grant, the Alternate Use RUE, for activities that use an 
existing facility.
Commercial and Limited Leases
    The MMS would issue two types of leases: (1) Commercial or (2) 
limited. A Commercial lease would convey the access and operational 
rights necessary to produce, sell, and deliver power on a commercial 
scale, through spot market transactions or a long-term power purchase 
agreement. A commercial lease provides the lessee full rights to apply 
for and receive the authorizations needed to assess, test, and produce

[[Page 39384]]

alternative energy on a commercial scale over the long term 
(approximately 30 years). A commercial lease would include the right to 
a project easement, which would be issued to allow the lessee to 
install gathering, transmission and distribution cables, to transmit 
electricity; pipelines to transport other energy products (i.e. 
hydrogen); and appurtenances on the OCS as necessary for the full 
enjoyment of the lease. The project easement would be issued upon 
approval of the Construction and Operations Plan (for Commercial 
Leases) or General Activities Plan (for Limited Leases).
    A limited lease would convey access and operational rights for 
activities on the OCS that support the production of energy, but do not 
result in the production of electricity or other energy product for 
sale, distribution, or other commercial use. This would include leases 
issued for site assessment or to develop and test new alternative 
energy technology. Limited leases would be issued for a short term, 5 
years. Under the provisions of these regulations limited leases could 
be renewed, but they cannot be converted to commercial leases. If the 
holder of a limited lease wished to pursue commercial development on 
the OCS, it would need to obtain a new commercial lease through the 
leasing process, as defined in these regulations.
RUE Grants and ROW Grants
    Right-of-use and Easement (RUE) grants would be issued by MMS to 
authorize the use of a designated portion of the OCS to support 
alternative energy activities on a lease or other approval not issued 
under this part, e.g. on a State issued lease.
    Right-of-way (ROW) grants would be issued by MMS to allow for the 
construction and use of a cable or pipeline for the purpose of 
gathering, transmitting, distributing or otherwise transporting 
electricity or other energy product generated or produced from 
alternative energy not generated on a lease issued under this part. A 
ROW grant could be used to transport electricity from a State lease to 
shore or from one state to another state through a transmission line 
that must cross the Federal OCS. A ROW is not the same as a project 
easement issued with an alternative energy lease under this part.
Alternate Use RUEs
    MMS would issue an alternative use RUE for the energy- or marine-
related use of an existing OCS facility for activities not otherwise 
authorized by this subchapter or other applicable law.
Obtaining Access Rights
    The EPAct requires MMS to award leases, ROW grants and RUE grants 
competitively, unless we make a determination of no competitive 
interest. In conjunction with the competitive leasing process, MMS 
would prepare NEPA and other environmental compliance documents. The 
MMS would put forth a call for interest, designate the lease or grant 
area, and publish in the Federal Register all other notices and calls 
relating to the sale. If, after putting forth a call for interest, MMS 
determines that there is no competitive interest in that particular OCS 
area, MMS may proceed in issuing a lease or grant noncompetitively. 
Whether a company acquires a lease or grant competitively or non-
competitively it must comply with all MMS lease stipulations or 
conditions in the grant. The steps in the competitive leasing process 
are shown in Figure 2.

BILLING CODE 4310-MR-P

[[Page 39385]]

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BILLING CODE 4310-MR-C
Federal Compliance for the Leasing Process
    All activities permitted under this part must comply with all 
relevant Federal laws, regulations, and statutes, including, but not 
limited to the following:

------------------------------------------------------------------------
 Responsible Federal  agency/   Statute/Executive   Summary of pertinent
           agencies                   Order              provisions
------------------------------------------------------------------------
Council on Environmental        National           Requires Federal
 Quality (CEQ).                  Environmental      agencies to prepare
                                 Policy Act of      an EIS to evaluate
                                 1969, as amended   the potential
                                 (NEPA) (42         environmental
                                 U.S.C. 4321 et     impacts of any
                                 seq.).             proposed major
                                                    Federal action that
                                                    would significantly
                                                    affect the quality
                                                    of the human
                                                    environment, and to
                                                    consider
                                                    alternatives to such
                                                    proposed actions.

[[Page 39386]]

 
U.S. Fish and Wildlife Service  Endangered         Requires Federal
 (USFWS); National Oceanic and   Species Act of     agencies to consult
 Atmospheric Administration      1973, as amended   with the USFWS and
 (NOAA); National Marine         (16 U.S.C. 1531    the NMFS to ensure
 Fisheries Service (NMFS).       et seq.).          that proposed
                                                    Federal actions are
                                                    not likely to
                                                    jeopardize the
                                                    continued existence
                                                    of any species
                                                    listed at the
                                                    Federal level as
                                                    endangered or
                                                    threatened, or
                                                    result in the
                                                    destruction or
                                                    adverse modification
                                                    of critical habitat
                                                    designated for such
                                                    species.
USFWS (walruses; sea and        Marine Mammal      Prohibits, with
 marine otters; polar bears;     Protection Act     certain exceptions,
 manatees and dugongs); NMFS     of 1972, as        the take of marine
 (seals, sea lions, whales,      amended (16        mammals in U.S.
 dolphins, and porpoises).       U.S.C. 1361-       waters and by U.S.
                                 1407).             citizens on the high
                                                    seas, and the
                                                    importation of
                                                    marine mammals and
                                                    marine mammal
                                                    products into the
                                                    United States.
NMFS..........................  Magnuson-Stevens   Requires Federal
                                 Fishery            agencies to consult
                                 Conservation and   with the NMFS on
                                 Management Act     proposed Federal
                                 (also known as     actions that may
                                 the Fishery        adversely affect
                                 Conservation and   Essential Fish
                                 Management Act     Habitats that are
                                 of 1976, as        necessary for
                                 amended by the     spawning, breeding,
                                 Sustainable        feeding, or growth
                                 Fisheries Act)     to maturity of
                                 (16 U.S.C. 1801    federally managed
                                 et seq.).          fisheries.
U.S. Environmental Protection   Marine             Prohibits, with
 Agency (USEPA); U.S. Army       Protection,        certain exceptions,
 Corps of Engineers (USACE);     Research, and      the dumping or
 NOAA.                           Sanctuaries Act    transportation for
                                 of 1972 (MPRSA),   dumping of
                                 as amended (33     materials,
                                 U.S.C. 1401 et     including, but not
                                 seq.).             limited to, dredged
                                                    material, solid
                                                    waste, garbage,
                                                    sewage, sewage
                                                    sludge, chemicals,
                                                    biological and
                                                    laboratory waste,
                                                    wrecked or discarded
                                                    equipment, rock,
                                                    sand, excavation
                                                    debris, and other
                                                    waste into ocean
                                                    waters without a
                                                    permit from the
                                                    USEPA. In the case
                                                    of ocean dumping of
                                                    dredged material,
                                                    the USACE is given
                                                    permitting
                                                    authority.
NOAA..........................  National Marine    Prohibits the
                                 Sanctuaries Act    destruction, loss
                                 (NMSA) (16         of, or injury to,
                                 U.S.C. 1431 et     any sanctuary
                                 seq.).             resource managed
                                                    under the law or
                                                    permit and requires
                                                    Federal agency
                                                    consultation on
                                                    Federal agency
                                                    actions, internal or
                                                    external to national
                                                    marine sanctuaries,
                                                    that are likely to
                                                    destroy, injure, or
                                                    cause the loss of
                                                    any sanctuary
                                                    resource.
USFWS.........................  Migratory Bird     Requires that Federal
                                 Treaty Act of      agencies taking
                                 1918, as amended   actions likely to
                                 (16 U.S.C. 703-    negatively affect
                                 712); Executive    migratory bird
                                 Order 13186,       populations enter
                                 ``Responsibiliti   into Memoranda of
                                 es of Federal      Understanding with
                                 Agencies to        the USFWS, which,
                                 Protect            among other things,
                                 Migratory          ensure that
                                 Birds'' (January   environmental
                                 10, 2001).         reviews mandated by
                                                    NEPA evaluate the
                                                    effects of agency
                                                    actions on migratory
                                                    birds, with emphasis
                                                    on species of
                                                    concern.
NOAA's Office of Ocean and      Coastal Zone       Specifies that
 Coastal Resource Management     Management Act     coastal States may
 (NOAA OCRM).                    of 1972, as        protect coastal
                                 amended (16        resources and manage
                                 U.S.C. 1451 et     coastal development.
                                 seq.).             A State with a
                                                    coastal zone
                                                    management program
                                                    approved by NOAA
                                                    OCRM can deny or
                                                    restrict development
                                                    off its coast, if
                                                    the reasonably
                                                    foreseeable effects
                                                    of such development
                                                    would be
                                                    inconsistent with
                                                    the State's coastal
                                                    zone management
                                                    program.
USEPA; MMS....................  Clean Air Act, as  Prohibits Federal
                                 amended (CAA)      agencies from
                                 (42 U.S.C. 7401    providing financial
                                 et seq.).          assistance for, or
                                                    issuing a license or
                                                    other approval to,
                                                    any activity that
                                                    does not conform to
                                                    an applicable,
                                                    approved
                                                    implementation plan
                                                    for achieving and
                                                    maintaining the
                                                    National Ambient Air
                                                    Quality Standards
                                                    (NAAQS).
                                .................  Requires USEPA (or an
                                                    authorized State
                                                    agency) to issue a
                                                    permit before
                                                    construction of any
                                                    new major stationary
                                                    source or major
                                                    modification of a
                                                    stationary source of
                                                    air pollution. The