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    Biden Administration Proposes First-Ever California Offshore Wind Lease Sale


    May 31, 2022 - By Ms Lauren A. Bachtel, J. Paul Forrester and Eric Pogue

     

      On May 26, 2022, the US Bureau of Ocean Energy Management (BOEM) issued a Proposed Sale Notice (PSN) that includes three proposed lease areas in the Morro Bay Wind Energy Area (WEA) off central California and two proposed lease areas in the Humboldt WEA off northern California. The lease sale in two regions hundreds of miles apart is novel.

      Taken together, the five proposed lease areas total approximately 373,268 acres that have the potential to unlock over 4.5 gigawatts of offshore wind energy, power more than 1.5 million homes, and support thousands of new jobs.

      To date, BOEM has held 10 competitive lease sales and issued 25 active commercial offshore wind leases in the Atlantic Ocean from Massachusetts to North Carolina. The California lease sale—the first of its kind in the Pacific region—will advance not only the federal government's goal of providing 30 gigawatts of offshore wind energy by 2030 but also California's goals of providing 3 gigawatts of offshore wind energy by 2030 and producing 100% of its electricity from greenhouse gas-free sources by 2045. The California lease sale announcement follows two recent Atlantic region lease sales (New York Bight and Carolina Long Bay) that, together, generated more than $4.6 billion in bids.

      Overview of PSN and Forthcoming FSN

      The PSN will be published in the Federal Register on May 31, 2022, and will commence a 60-day public review and comment period. The PSN provides detailed information about, among other things, the proposed lease areas, proposed lease provisions and conditions, and auction details. The development of the Final Sale Notice (FSN) will be informed by comments received during the PSN comment period. The FSN will provide the final details concerning, among other things, the lease areas to be auctioned, the auction details and lease stipulations. The FSN will be published in the Federal Register 45 days before the lease sale and will provide the date and time of the lease sale. BOEM proposes to hold a mock auction that is open only to qualified bidders, those who have met the requirements and deadlines for auction participation, including submission of the bid deposit. Final details of the mock auction will be provided in the FSN.

      The PSN announced that 23 entities are currently qualified to participate in the proposed California lease sale. Prospective bidders, not previously qualified for a California lease sale, are required to submit mandatory qualification materials to BOEM that are postmarked no later than August 1, 2022. A final list of qualified bidders will likely be included in the FSN.

      Multiple-Factor Bidding System

      BOEM is proposing to conduct a multiple-factor bidding system comprising a combination of a monetary bid and up to two non-monetary factors. BOEM is proposing to grant bidding credits to potential bidders for commitments to (1) support workforce training programs for the offshore wind industry and/or development of a US domestic supply chain for the offshore wind industry and (2) establish a community benefit agreement (CBA) with a community or stakeholder group that is directly impacted by the potential offshore wind development. While in previous lease sales BOEM has considered non-monetary factors to enhance workforce training and the domestic supply chain, its non-monetary factor to foster development of the lease area through cooperation with local affected communities is novel. BOEM is also exploring whether it has authority to pursue an additional bidding credit for a CBA not covered under the current proposed bidding credits.

      A bidder can elect to qualify for one or both of the bidding credits. Bidders can receive a 20% credit for workforce training or supply chain development and a 2.5% credit for establishing a CBA. Therefore, bidders have the potential to receive a total credit of 22.5% of the total cash bid. To incentivize bidders to qualify for the credits, both credits require different deferred commitments. Each bidder is required to identify whether it is making the commitment to earn the bidding credit(s) in its Bidder Financial Form (BFF) and submit a conceptual strategy that describes objective, quantifiable and verifiable actions that will be taken to qualify for the credit(s). The deadlines for the BFF and conceptual strategy will be announced in the FSN. BOEM will appoint a panel to review the non-monetary component after the BFFs and bid deposits have been received. The bid made by a particular bidder in each round would represent the sum of a monetary (cash) amount and non-monetary factors (bidding credit).

      Potential Mechanics of the Auction

      BOEM proposes to allow each qualified entity to bid for one lease per region (North Coast Region and Central Coast Regions) and ultimately acquire one lease area per region via simultaneous auctions. Due to the novel nature of the lease sale, BOEM is seeking feedback on this proposal, including feedback on how different leasing scenarios (e.g., number of lease areas offered, size of lease areas, etc.) may influence the advisability of such a limitation. Specifically, BOEM is seeking comments on whether to allow bidders to bid for and win one lease area per region or to bid for and win one lease area in total.

      Each qualified bidder would be required to submit a bid deposit of $5 million in order to bid for one lease area. If the FSN allows bidders to win up to two lease areas (one per region), a bid deposit of $10 million would be required to bid on two lease areas (one per region). Bid deposits would be due no later than the date specified in the FSN. Typically, this deadline is approximately 30 calendar days after the publication of the FSN.

      Visit us at mayerbrown.com

      Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe - Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

      © Copyright 2020. The Mayer Brown Practices. All rights reserved.

      This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

      Ms Lauren A. Bachtel

      Mayer Brown

      1675 Broadway

      New York

      NY 10019-5820

      UNITED STATES

      Tel: 3127820600

      Fax: 3127017711

      E-mail: Mnoonan@mayerbrown.com

      URL: www.mayerbrown.com

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