Browse: Departments   Dates   Agencies  

CFR Citation: 30 CFR Parts 250, 285, and 290

Docket ID: [Docket ID: MMS-2008-OMM-0012]

RIN ID: RIN 1010-AD30

NOTICE: Part II

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

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

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.

DOCUMENT SUMMARY: The MMS is proposing regulations that would establish a program to grant leases, easements, and rightsofway (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 energyrelated or other authorized marinerelated 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.

SUMMARY: Interior Department, Minerals Management Service,

SUPPLEMENTAL INFORMATION

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
[[Page 39377]]
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 energyrelated activities on the OCS. Before the EPAct, as various agencies of the Federal government received proposals for innovative, nontraditional energyrelated projects on the OCS, it became evident thatwith 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 rightsofway on the OCS for activities that:
(i) Support exploration, development, production, or storage of oil or natural gas, except that a lease, easement, or rightofway 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 energyrelated or other authorized marinerelated 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, andif two or more States are eligible to receive revenues from the same projectfor 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 energyrelated or other authorized marinerelated 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 rightsofway, 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 rightofway 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 rightofway 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 rightofway under this subsection; and
(L) Oversight, inspection, research, monitoring, and enforcement relating to a lease, easement, or rightofway 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 subpartbysubpart 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), nongovernment organizations (6), universities (5), congressional representatives (3), small business (1), and the oil and gas industry (1).

[[Page 39378]]

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 wideranging. 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 casebycase 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/pcspublic/do/
ProjectDetailView?objectId=0b011f8080050473.

Access for OCS Lands

Comments on area identification described the entire spectrum of access: from MMS conducting indepth 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 sitespecific 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 decisionmaking. 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
[[Page 39379]]
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 sitespecific 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 thirdparty 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 sitespecific 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 sitespecific NEPA. However, some commenters stated that it should be the agency's responsibility to gather and provide information for the projectspecific 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 casebycase 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 casebycase 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
[[Page 39380]]
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 rightsofway. 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 royaltybased operating fee is proposed. Additionally, unlike oil and gas projects, alternative energy projects do not extract a nonrenewable 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 threephased 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 opportunitycost based valuation because of the complex and burdensome nature of subjective valuebased 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 opportunitycost 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 casebycase 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 noncompliance 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 creditworthiness, 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, colocating 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 ``onestop 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 rigstoreef 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 casebycase 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 projectspecific 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 resourcespecific 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, Rightofway (ROW) grants, rightsofuse and easement (RUE) grants, or alternate use rightsofuse 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 4310MRP
[[Page 39383]]
[GRAPHIC] [TIFF OMITTED] TP09JY08.000
BILLING CODE 4310MRC

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 longterm 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

Rightofuse 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.

Rightofway (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 4310MRP
[[Page 39385]]
[GRAPHIC] [TIFF OMITTED] TP09JY08.001
BILLING CODE 4310MRC

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.......................... MagnusonStevens 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 permitcalled a Prevention of Significant Deterioration (PSD) permit for stationary sources located in areas that comply with NAAQS and a Nonattainment Area Permit in areas that do not comply with NAAQSmust control emissions in the manner prescribed by USEPA regulations to either prevent significant deterioration of air quality (in attainment areas), or contribute to reducing ambient air pollution in accordance with an approved implementation plan (in nonattainment areas). ................. Requires the owner or operator of a stationary source that has more than a threshold quantity of a regulated substance in a process to submit a Risk Management Plan to USEPA. ................. In the western portion of the Gulf of Mexico, MMS has authority pursuant to the OCS Lands Act for clean air regulations. USEPA; U.S. Coast Guard Clean Water Act Prohibits discharges (USCG); MMS. (CWA), Section of oil or hazardous 311, as amended substances into or (33 U.S.C. upon the navigable 1321); Executive waters of the United Order 12777, States, adjoining ``Implementation shorelines, or into of Section 311 or upon the waters of the Federal of the contiguous Water Pollution zone, or in Control Act of connection with October 18, activities under the 1972, as OCS Lands Act, or Amended, and the which may affect Oil Pollution natural resources Act of 1990''. belonging to the U.S.
[[Page 39387]]
................. Authorizes USEPA and the USCG to establish programs for preventing and containing discharges of oil and hazardous substances from non transportation related facilities and transportation related facilities, respectively. ................. Directs the Secretary of the Interior (MMS) to establish requirements for preventing and containing discharges of oil and hazardous substances from offshore facilities, including associated pipelines, other than deepwater ports.
USEPA......................... CWA, Sections 402 Requires a National and 403, as Pollutant Discharge amended (33 Elimination System U.S.C. 1342 and (NPDES) permit from 1343). USEPA (or an authorized State) before discharging any pollutant into territorial waters, the contiguous zone, or the ocean from an industrial point source, a publicly

FOR FURTHER INFORMATION CONTACT Proposed rule: Maureen Bornholdt, Program Manager, Offshore Alternative Energy Programs, at 7037871300 or maureen.bornholdt@mms.gove or Amy C. White, Regulations and Standards Branch, at (703) 7871665 or amy.white@mms.gov.

Draft Environmental Assessment: James F. Bennett, Chief, Branch of Environmental Assessment, at (703) 7871660.