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Duke's Foes Call Wind Leases a 'Raw Deal'

But landowners see royalty contracts as fair, helpful to farming

June 23, 2011 | By Glenn Puit
Great Lakes Bulletin News Service

  Some Benzie and Manistee landholders said they signed Duke Energy leases after talking to farmers in nearby McBain who allowed large wind turbines onto their property.

Nearly two years ago, several energy companies began inviting landowners in Manistee and Benzie Counties to sign leases allowing the firms to erect big wind turbines on their property to harvest energy from the area’s strong, steady breezes.

Many area farmers were interested. After all, the turbines could yield significant annual royalties that would help them sustain their operations—and add to the local tax base, as well. So word of the potential wind-powered gold rush blew through the two rural counties like a gale rolling off nearby Lake Michigan.

Duke Energy eventually emerged as the company with the most leaseholder agreements—covering approximately 11,000 acres, according to the company. Duke says it wants to invest $360 million in its Gail Windpower Project, which would annually produce about $1.5 million in wind royalty payments to landowners and, according to the company, about $1.6 million in new, local tax revenue.

But even as the proposal was rolling out in early January, accusations that the leases were unfair began blowing around the counties, too.

Those accusations continue. The Web site of the Arcadia Wind Study Group, which opposes large-scale wind power in either county, alleges “secret” meetings between landowners and Duke, terms the leases “a raw deal,” and warns landowners to be very cautious about what they sign.

Opponents also claim that Duke paid for some of the landowners’ attorneys, raising the possibility of conflict of interest, and required secrecy pledges. And, they say, some landowners stand to receive significantly lower rates than others and, now that they’ve signed, cannot renegotiate their leases.

They also claim the leases make landowners vulnerable to Duke’s possible abandonment of the project, leaving them in the lurch with dead turbines and vanished royalty payments.

But interviews with leaseholders, attorneys, and two company officials—as well as inspection of a sample lease and a proposed local wind-zoning ordinance—indicate that the concerns such charges raise are largely unfounded.

For example, while Duke’s leases do not require establishing escrow accounts for removing abandoned turbines for 15 years, the wind-energy ordinance prepared last year by the now-defunct Benzie County Planning Commission, if implemented, would demand such insurance before any construction could begin.

Word of Mouth
John Nugent, one of the early signers with Duke, owns a 150-acre orchard and hardwoods farm in Benzie County’s Joyfield Township.

In an interview, he said his family received a phone call from Duke Energy consultant Alan O’Shea—a former Manistee County commissioner—asking if they would consider a turbine. Mr. Nugent said his family started attending meetings with other landowners.

Neither Duke nor the other energy companies that approached landholders made community-wide announcements that they were exploring wind development. But Mr. Nugent said he did not view the meetings as secret. Instead, he described the meetings with the different energy companies at that time as preliminary.

“Basically it was word of mouth, you know,” he said. “‘Let’s go to different groups, different meetings (with energy companies) and hear what they have to say.’ There was more than one windmill turbine outfit coming in here, and we just started going to them.”

Area landowners eventually joined together, according to Mr. Nugent. He said some growers in his township worked with a single attorney to review the leases the different companies proposed to them, and eventually decided that Duke Energy’s was the best.

If a 500-foot turbine is erected on his family’s property, he said, his family would receive a little more than $14,000 a year. He said the lease he and others signed originated with Duke, but was modified to the landowners’ liking by a single attorney representing the entire group.

“We all got one deal,” Mr. Nugent insisted. And he views it as a good one.

“The revenue would be a shot in the arm for the farm,” Mr. Nugent said. “My dad’s 84 years old and, guess what, he runs the farm. (With this money) we could get another employee.”

Ethics and Transparency
Reporting confirms that Duke did help pay attorneys to write leases for several groups of landholders.

One attorney who represented landowners in Manistee County, Robert W. Parker, of Traverse City, said that Duke partially underwrote his work on behalf of landowners. He said he agreed to represent landowners after being contacted by Mr. O’Shea, but that he considered the landowners his clients—not Duke.

“We had a discussion with the group right up front,” Mr. Parker said. “Even though Duke had agreed to underwrite some of the costs, we would look at the group (of landowners) as our client, and Duke was not our client. We don’t represent Duke and never have.”

“We met with...initially 10 or 12 people in Manistee. We sort of interviewed them, talked to them generally about the deal,” said Mr. Parker. “It was basically a pooled arrangement, meaning that Duke wanted a pooled wind farm project … as opposed to negotiating individually with each property owner.

“Duke agreed to underwrite the cost of that for a certain amount to encourage the group to develop a uniform agreement,” Mr. Parker said. “It took about a month, and there was negotiations back and forth, with revisions, and we ultimately came up with a uniform document.”

Scott Howard, of Olson Bzdok & Howard P.C., a Traverse City law firm, said that while the arrangement Duke, the leaseholders, and attorney Parker used to negotiate leases was unusual, it was not necessarily unethical. He said that such an approach is sometimes used in contract negotiations.

“Obviously, you can have a conflict of interest in this situation,” Mr. Howard said, “but it really depends on how you set up that relationship. My guess is that the attorney was well aware of that, and made sure the landowners were well informed about it. What is important is the transparency and agreement by the landholders for that kind of representation.”

Mr. Parker said Duke agreed to roughly two thirds of the landowners’ suggested lease changes.

A Moot Point
Allegations of a confidentiality clause in Duke’s lease are true, but the news service found that point moot because it appears that Duke has no interest in enforcing it.

A number of landowners who signed the leases have spoken publicly about them in a variety of settings since January, while over the past month leaseholders spoke readily to a reporter about them for this article.

Adding to that impression is a Duke spokesman’s statement that the company is willing to modify existing leases if a landowner finds another leaseholder got a better deal.

“The reality is we had two groups of landowners we were negotiating with, and they had two different lawyers,” said Milt Howard, who directs the Gail Windpower Project. “The reality is the actual payments to the landowners is equivalent. There may be some minute differences, but the royalties we pay to all the landowners is exactly the same.”

The news service, in its interviews with leaseholders, was unable to identify differences in the payments they expected.

Happy Together
The landowners interviewed for this article said they are happy with their contracts, despite continued rumors and allegations about their contents. Several said they found the information distributed by some opponents misleading or incorrect.

One is Rick Warnicke, who owns a 160-acre recreational property in Joyfield Township. He said that he researched all of the alleged drawbacks of the large turbines and found them to be untrue.

“What I concluded was that everything negative that was brought out...I found was unsupported,” Mr. Warnicke said. “It was almost like sour grapes. I researched it with facts that are documented.”

Mr. Warnicke said he, too, expects to get a little more than $14,000 a year from a turbine. He did not work with a “pool” group; instead, he took Duke’s standard lease to his son, an attorney, for review.

“But I don’t support it just because of the revenue,” he said. “I believe it’s good for the community. This area needs money. Clean energy—for my kids and grandkids—I think it’s a great thing. That’s a big part of it, as much as anything.”

Others echoed Mr. Nugent’s reason for allowing big turbines on his property—help for keeping his farm—and Mr. Warnick’s research, which found little harm from wind farms.

One is Clarence Hilliard, a retired vegetable farmer with 58 acres in Manistee County.His family, he said, had essentially been forced to stop farming.

“It just got too expensive,” he explained. “Diesel fuel. Fertilizer. Everything. I think I’d like to go fishing better.”

When he was offered a lease, he said, his family traveled to McBain to inspect the wind farm there, which has turbines almost as enormous as the ones Duke proposes.

Mr. Hilliard said that, after inspecting those turbines, he did not find concerns with noise or flicker to be valid.

He then talked to nearby, fellow landowners who had been approached by Duke to find out what kind of provisions and payments they contained. His conclusion: The leases were all largely the same. He, too, expects a little more than $14,000 a year per turbine.

“I can remember when I didn’t make $14,000 a year,” Mr. Hilliard said. “It would mean quite a bit. It would help keep the homestead farm in the family, for one thing, and it would generate a little money to take care of our kids.”

Puzzled by Attacks
Craig Fitzhugh, who lives in Joyfield Township with his girlfriend on a 120-acre property that includes a 12-acre corn field and horses, says he has a hard time understanding the attacks Duke and his fellow leaseholders have faced.

Mr. Fitzhugh, who works on freighters that ship coal on the Great Lakes, said his family agreed to a Duke lease after they consulted with an attorney.

He said that, despite all the protestations he’s heard, he believes he and his family have a legal right to erect a wind turbine on their property. After talking to Duke, he said he’s convinced the company will place the turbines appropriately to minimize their impacts on people—particularly turbine noise and blade flicker.

He added that it’s important that everyone’s opinions be respected, whether they are for or against the turbines. But, still, the accusations he’s heard at public meetings bother him.

“I’ve been to Pleasanton Township and Joyfield Township meetings,” he said. “We’ve been accused in Joyfield Township (of conflicts) because the board members are farmers, so it’s an under-the-table, pass-the-buck type deal.

“I don’t believe that at all. I know those people. They are good people. That’s my township.”

Glenn Puit is a policy specialist for the Michigan Land Use Institute. Reach him at glenn@mlui.org.

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