Renewable Energy: BLM Has Limited Assurance That Wind and Solar Projects Are Adequately Bonded
Released: 2015-06-24T00:00:00

Letter

BLM Has Different Policies for Bonding Wind and Solar Projects, but a Proposed Rule Would Establish Consistent Requirements

As detailed in our report, in 2008, BLM issued a wind energy development policy that includes provisions for bonding wind energy projects on federal land. Among other things, the policy established a minimum bond amount of $2,000 per meteorological tower for site- specific and project area testing rights-of-way and $10,000 per wind turbine for wind energy development rights-of-way. BLM is to determine the bond amount for all wind energy development projects during the right-of-way authorization process “on the basis of site-specific and project-specific factors,” but the policy provides no further details on these factors or how to calculate the costs. BLM is to review all bonds for wind development rights-of-way at least once every 5 years to ensure that the bond amount is adequate.

In 2010, BLM issued a solar energy development policy that includes provisions for bonding solar energy projects on federal land that differ from the bonding provisions of the wind policy. Specifically, in contrast to the wind policy, the solar policy sets no minimum bond amount for solar energy development rights-of-way.BLM is to base the bond amount on a reclamation cost estimate provided by the right-of-way applicant that consists of three components: (1) environmental liabilities; (2) decommissioning, removal, and disposal of improvements and facilities; and (3) reclamation, revegetation, restoration, and soil stabilization. A reclamation cost estimate is an Rather, the policy states that estimate of what it would cost a third party to reclaim the site.states that the applicant is to submit the estimate as part of the decommissioning and site reclamation plan—which defines the reclamation, revegetation, restoration, and soil stabilization requirements for the project area—and the overall Plan of Development. In addition, in contrast to the wind policy, BLM staff are to review annually all bonds for solar development rights-of-way to ensure that the bond amount is adequate to ensure compliance with the right-of-way authorization, including requirements to reclaim the disturbed land.

To help ensure compliance with provisions of the wind and solar bonding policies, BLM has two additional policies that direct BLM state directors to certify annually that all wind and solar energy rights-of-way within their respective states have the required bonds and that the bond data are entered into the Bond and Surety System. assess whether the amount of the bond would be sufficient to cover expected reclamation costs. Rather, the annual certification is intended to ensure that a bond has been provided or requested for each wind and solar right-of-way. The certification is to be submitted to BLM headquarters within 30 days after the end of the fiscal year. In addition, field office staff are to enter all bonds received for renewable energy projects into LR2000 and the Bonds and Surety System.

See Bureau of Land Management, IM 2011-096, Certification of Bonding—Wind Energy Site Testing and Wind Energy Development Authorizations (Apr. 7, 2011), and IM 2013- 034, Oversight and Implementation Plan—Renewable Energy Coordination Office (Dec. 20, 2012).

Competitive Processes, Terms, and Conditions for Leasing Public Lands for Solar and Wind Energy Development and Technical Changes and Corrections, 79 Fed. Reg. 59,022 (Sept. 30, 2014) (to be codified at 43 C.F.R. pts. 2800 and 2880). projects were located in certain preferred areas—called designated leasing areas.

Projects outside designated leasing areas. The proposed rule would establish a minimum bond amount per turbine of $20,000 for wind energy development projects—a doubling of the minimum amount currently set in BLM policy—and establish a minimum bond amount of $10,000 per acre for solar energy development projects. The minimum bond amount for wind energy site-specific or project area testing projects would remain at the amount currently set in BLM policy, that is, $2000 per meteorological tower. The proposed rule would require both wind and solar right-of-way applicants to submit a reclamation cost estimate to help BLM to determine the bond amount, and it would outline specific bond components that must be addressed when determining the estimated costs. The proposed rule would not require BLM to conduct periodic reviews to assess whether the bonds remain adequate to cover potential reclamation costs, as is specified in the current wind and solar policies.

Projects inside designated leasing areas. The proposed rule would establish a standard bond amount for wind energy development of $20,000 per turbine and $2,000 per meteorological tower, as well as a standard bond amount for solar energy development of $10,000 per acre. BLM proposed a standard bond amount because these areas would be identified by BLM as areas with lesser and fewer environmental and cultural resource conflicts. According to BLM officials, when a project terminates inside a designated leasing area, the agency would potentially reoffer the site for new wind or solar energy development. As a result, these sites would require less reclamation than if they needed to be fully reclaimed to their predeveloped condition and the bond amount required would be lower. Under the proposed rule, right-of-way holders would not be required to submit a reclamation cost estimate.

A BLM official told us that the agency expects the proposed rule to be finalized by the end of 2015. Once finalized, the official said BLM plans to rescind the current wind and solar policies and replace them with policies that would address, among other things, the bonding process and adequacy reviews not covered in the proposed rule.

BLM Has About $100 Million in Bonds for Wind and Solar Projects, but the Systems for Tracking These Bonds Are Not Reliable

We found that BLM has about $100 million in bonds—primarily in the form of letters of credit and surety bonds—to cover reclamation costs associated with 12 solar rights-of-way and 108 wind rights-of-way on federal land in nine western states, according to our analysis of BLM data. See table 1 for further detail on the values of bond held and table 2 for further detail on the types of bonds held.

BLM tracks bonds through LR2000 and the Bond and Surety System, but we found that neither system was reliable for this purpose. Specifically, we found multiple instances in each system where information was missing, inaccurate, or had not been updated as follows:

Missing information. BLM’s oversight and implementation plan for solar and wind energy policies directs field offices to enter all bonds received for renewable energy projects into LR2000 and the Bond and Surety System, but we found instances where bonds had been entered into LR2000, but not into the Bond and Surety System. We also found instances where staff did not always enter in the remarks section of LR2000 the number of wind turbines or meteorological towers authorized and located on federal land, as directed by BLM’s wind policy.

Inaccurate information. We found instances in LR2000 and the Bond and Surety System where the type of right-of-way entered for the project was incorrect. For example, one wind development project’s right-of-way had been incorrectly entered in both systems as a road right-of-way. As a result, the bond had not been included in the annual state bond certification. When BLM reviewed the bond, the agency determined that the bond amount was approximately $90,000 less than the minimum set by BLM’s wind policy.

Information had not been updated. We found instances where a bond’s status or amount had not been updated in one or both systems. In some cases, the data were several years out of date. For example, in one case, LR2000 showed that a bond had been accepted for $40,000 in 1994, and an additional bond for the same right-of-way had been accepted for $160,000 in 2011, for a total bond amount of $200,000. However, BLM had not updated the Bond and Surety System to show that the $160,000 bond had been accepted, and the system contained no information on the $40,000 bond.

The LR2000 data standards for BLM’s mining program state that all data must be routinely entered within 5 business days of each action taking place. However, there is no such standard for entering wind and solar project data into LR2000. Furthermore, BLM has not issued data standards for the Bond and Surety System. Because information in these two data systems was missing, inaccurate, or out of date, BLM has limited assurance that either system is reliable for tracking wind and solar bonds to ensure that bonding policies are being followed and that all projects have the required bonds.

BLM has taken some limited steps to improve its bonding data. Specifically, to reduce potential errors or omissions in the bonding data in LR2000 and the Bond and Surety System, BLM made changes to link certain data in the two systems. Starting in late September 2014, when an action code showing that a bond has been filed, accepted, or returned is entered into the Bond and Surety System for a particular right-of-way, the same information is automatically entered into LR2000. However, when a bond action code is entered into LR2000, the same information must still be entered manually into the Bond and Surety System. In addition, these changes only apply to data entered into the Bond and Surety System starting in September 2014, so all previously entered data will not be added to LR2000 unless manually entered.

BLM Has Limited Assurance That Bonds for Wind and Solar Rights-of-Way Will Cover Reclamation Costs

BLM has limited assurance that bonds for wind and solar rights-of-way will cover reclamation costs. Specifically, we found that 14 wind and solar development rights-of-way were underbonded by as much as $15 million in total. In addition, we found wide variation in how BLM staff documented bond decisions for wind and solar project rights-of-way. Further, BLM does not adequately ensure that wind and solar bond instruments are properly secured, handled, and stored. BLM also inconsistently adheres to its policies for the periodic review of the amounts of wind and solar bonds to verify their adequacy.

Underbonding of wind and solar development projects. We found that 14 out of 45 wind and solar development rights-of-way were underbonded by as much as $15 million in total—approximately $5.5 million for wind rights-of-way and as much as $9 million for solar rights-of- way—according to our review of BLM project files and data.we identified 10 wind rights-of-way where the bond amount was lower than the $10,000-per-turbine minimum established in BLM’s 2008 wind policy. These 10 rights-of-way were underbonded by a total of Specifically, approximately $5.5 million. Nine of those rights-of-way were authorized prior to the 2008 policy; however, for rights-of-way that were authorized before the policy took effect, BLM officials told us they directed staff to obtain bonds that meet the $10,000-per-turbine minimum. BLM officials told us that they are in the process of obtaining bonds for these 9 rights- of-way. One right-of-way was reauthorized in 2012 at about $1,500 per turbine. BLM’s files show that the bond amount for the right-of-way was determined using salvage values of the equipment. While salvage values may be considered in estimating reclamation costs, BLM officials told us the 2008 policy does not permit salvage values to be used to reduce the bond below the $10,000-per-turbine minimum.are currently developing a reclamation cost estimate for this right-of-way, which will help them develop a revised bond.

BLM officials told us they We also found four solar rights-of-way that may be underbonded by as much as $9 million. These rights-of-way were part of a single solar project with a total estimated reclamation cost of approximately $27.5 million. This figure includes $18.5 million for decommissioning and removal of project structures and equipment and $9 million for revegetation and restoration. However, the project is currently bonded at $18.5 million, an amount that may only cover the decommissioning and removal of structures. BLM officials explained that because the project is in California—where recycling of materials is required—the $9 million estimated for revegetation and restoration would be covered by the salvage value of project structures. While the salvage value presented in the documents we reviewed may be sufficient to cover those costs, the project’s documentation did not indicate that BLM officials included these costs when setting the total bond amount.

Unclear documentation of bond decisions. We found wide variation in how BLM staff documented bond decisions for wind and solar project rights-of-way. Specifically, for 21 of the 33 wind rights-of-way we reviewed, there was little or no documentation to support the bond amount. For some of these rights-of-way, there was no documentation because BLM staff defaulted to the minimum amount set by BLM’s wind policy without conducting any site- or project-specific analysis. For the remaining 12 wind rights-of-way, the project files contained documentation that BLM officials used to support their bond decisions; however, this documentation varied widely. For example, for 1 right-of- way, the holder developed a reclamation cost estimate, but the estimate did not reflect the current state of the project and the estimated costs were greater than the bond that BLM required. And for 6 rights-of-way, the documentation outlined the cost of decommissioning and removal of structures, but it did not include cost estimates for revegetation of the project site. We also found that BLM inconsistently documented bonding decisions for 2 solar rights-of-way. Specifically, for 1 right-of-way, the holder did not develop a reclamation cost estimate, as directed by BLM’s 2010 solar policy. As a result, it was not clear from the project files what BLM considered in determining the amount of the bond that was in place. In another case, BLM allowed the right-of-way holder to provide the bond in phases as the project was constructed, but there was no documentation demonstrating how each phase’s reclamation costs were estimated, or what the payment schedule and amounts of future bonds would be.

We also found discrepancies between information in the project files and what was recorded in LR2000 or the Bond and Surety System in 13 of the 45 wind and solar rights-of way. For example, for 1 wind right-of-way, the files indicated the applicant’s initial plan to build 24 turbines, but LR2000 showed the project had 20 turbines. A BLM official told us that since the right-of-way’s original authorization in the 1980s, the type and number of turbines had changed over time. However, there was no documentation of these changes in the files, and the BLM official told us that, as a result of our inquiry, he had to go and physically inspect the right-of-way to confirm the type and number of turbines. Federal standards for internal control call for transactions and other significant events to be clearly documented and that the documentation should be readily available for examination. BLM has not issued policies that direct BLM staff to document information related to bond decisions in the project files. According to BLM officials, they will develop these policies once the proposed rule is finalized.

Inadequate handling and storing of bonds. BLM also does not adequately ensure that wind and solar bond instruments are properly secured, handled, and stored. BLM staff in two field offices told us bonds were stored in the files for the rights-of-way, rather than in a locked cabinet or safe. In one of these offices, a staff member told us that about 20 percent of the bond instruments were stored in the project files, and the remaining bond instruments were stored in a safe. However, in that office, that staff member told us that someone had mistakenly shredded the bond instruments kept in the safe because the individual did not know what they were. According to BLM’s manual regarding records administration, offices should ensure that appropriate internal controls and safeguards are in place to prevent the loss of official documentation. BLM has general guidance on records retention and storage, and at least one office within BLM’s Energy, Minerals, and Realty Management Directorate has detailed guidance on the acceptance, assessment, and storage of bond instruments.Coordination Office, which oversees wind and solar energy projects, does not have policies or guidance related to the proper handling and storage of bond instruments. As a result, BLM cannot assure that all bonds are properly maintained and secured, leaving the federal government potentially at risk financially if reclamation costs are not covered by the right-of-way holders.

However, the National Renewable Energy Inconsistent adherence to periodic review policies. BLM inconsistently adheres to its policies for the periodic review of wind and solar bonds to verify their adequacy. BLM’s wind and solar policies direct officials to review the adequacy of wind bonds every 5 years and solar bonds every year. Of the 45 wind and solar rights-of-way we reviewed, 23 had bonds that were at least 4 months overdue for an adequacy review. Some BLM officials responsible for these reviews told us that they were not aware that bonds were supposed to be reviewed. Others told us they were aware that bonds were to be reviewed but had not completed the reviews due to workload and staffing constraints. BLM officials told us that LR2000 contains information such as the authorization date that can be used to determine when a right-of-way is due for review. However, LR2000 does not automatically notify BLM officials that a right-of-way is due for its periodic review. Several BLM officials told us that it would be possible to set up an action code in LR2000 to provide such automatic notification. If reviews of bond amounts are not conducted in a timely manner, BLM officials cannot be sure that bonds in place are adequate to cover reclamation costs.

BLM does not have detailed policies to ensure that all bonds are properly maintained and secured and bond decisions accurately documented in project files. In addition, BLM has no standard for the timely entering of data of wind and solar project data into LR2000 and no data standards for the Bond and Surety System. As a result, BLM may not have accurate and complete information with which to track wind and solar bonds, and BLM has limited assurance that the bonds in place will be adequate to cover reclamation costs if the right-of-way holder does not meet its obligations. As a result of these findings and to help ensure that bonds are adequate to cover reclamation costs for wind and solar projects on federal land, we made five recommendations to the Secretary of the Interior in our June 2015 report. Specifically, we recommended that the Secretary direct the Director of the Bureau of Land Management to develop detailed policies for processing wind and solar bonds to ensure bonds are properly secured, handled, and stored; develop policies that detail how information related to bonding decisions should be documented in project files; develop a policy that all data for wind and solar energy projects be entered in LR2000 and the Bond and Surety System within 10 business days; establish data standards for the Bond and Surety System; and develop an LR2000 action code to automatically notify BLM staff that a right-of-way is due for a bond adequacy review.

In its comments on a draft report, the agency concurred with each of these recommendations.

Chairman Gohmert, Ranking Member Dingell, and Members of the Subcommittee, this completes my prepared statement. I would be pleased to answer any questions that you may have at this time.

GAO Contact and Staff Acknowledgments

If you or your staff members have any questions about this testimony, please contact me at (202) 512-3841 or fennella@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Other individuals who made key contributions to this testimony include Elizabeth Erdmann (Assistant Director), Morgan Jones, Jessica Lewis, Susan Malone, and Jarrod West. Cheryl Arvidson, Antoinette Capaccio, Kirsten B. Lauber, and Dan Royer also made important contributions.

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