North Dakota revises financial assurance regulations for commercial wind energy conversion facilities

By Vic Lance, Lance Surety Bond Associates

North Dakota has introduced changes to the decommissioning requirements for the retirement of wind facilities. The changes adopted by the North Dakota Public Service Commission became effective on July 1, 2017.

 

North Dakota has introduced changes to the decommissioning requirements for the retirement of wind facilities. The changes adopted by the North Dakota Public Service Commission became effective on July 1, 2017.

Under the new requirement, owners of wind facilities will need to submit decommissioning plans to the Commission as well as provide financial assurances, such as surety bonds, prior to the construction of a facility.

For an overview of the new provisions, and an explanation of the role of surety bonds - read on!

Overview of New Wind Facility Decommissioning Requirements

The state of North Dakota has a long history of decommissioning coal mines, and reclaiming the land they used to be on. Based on that prior experience, and the expertise gained, the Public Service Commission has now moved to institute more precise requirements for the decommissioning of wind facilities, to ensure that the land they were on is also reclaimed after they are no more.

Under the newly adopted legislation, owners of wind facilities in the state will be required to:

●     File annual certificates (by February 15) of operation for every facility they own (including written explanations for non-generating wind turbines)

●     Begin decommissioning facilities within eight months after their abandonment or at the end of their 'useful life', and decommission such facilities within twenty-four months of its abandonment or end of life

●     Remove the foundations, buildings and equipment of a facility to a depth of four feet for facilities constructed after July 1, 2017, and three feet for those constructed prior to that date

●     Perform site restoration and reclamation, including topsoil respread, as well as reseeding in accordance with natural resource conservation service recommendations

●     Submit a decommissioning plan to the Commission before beginning construction of the facility, which must include a decommissioning cost estimate

●     Provide financial assurance for already existing wind facilities after the tenth year of their operations that would be sufficient for their decommissioning

●     Provide two types of financial assurance sufficient for the decommission of a facility prior to its completion, and after it commences operation, in the form of a surety bond, an irrevocable letter of credit, self-guarantee, parent guarantee, or another form; Financial assurance can be provided through an incremental bond schedule

All of these requirements are the ones newly adopted by the Commission to ensure that decommissioning of old facilities is successful and timely. But why do facility owners need to submit a surety bond, and how do bonds work?

Financial Assurance Requirements for Wind Facility Owners

According to the new provisions of the North Dakota Administrative Code (69-09-09-08) facility owners must provide two different types of financial assurance.

Firstly, owners must provide financial assurance equal to 5% of the estimated cost of construction which is to be used to decommission the facility in case it is abandoned before it is complete. This financial assurance is returned to owners by the Commission within sixty days of receiving written notice by the owner that the facility is operational.

Secondly, prior to the facility beginning operations, owners must provide financial assurance in an amount that is acceptable to the Commission, and which would be sufficient for the complete decommission of the facility.

In both of these instances, financial assurance can be in the form of a surety bond. Surety bonds are financial agreements backed by a surety bond company. If, for example, a facility owner abandons their wind facility and does not decommission it, the Commission may file a claim against the bond. When this happens, the surety bond company will extend compensation to the Commission up to the full amount of the bond. Once the surety extends compensation, the bonded facility owner must repay it in full.

Unlike with other financial assurance options, surety bonds have a minimal cost to be acquired. Typically, the cost of getting bonded is a small percentage of the total bond amount. If the owner decommissions their wind facilities as required by law then the bond is void, and the bonded facility owner has no other financial obligations to the surety or the Commission.

What do you think of the new requirements for wind facilities? Let us know in the comments section below!

Vic Lance is the founder and president of Lance Surety Bond Associates.

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