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When the nonprofit Environmental Entrepreneurs (E2) began tracking where financial incentives from the Inflation Reduction Act were spurring clean energy manufacturing growth and jobs nationwide, Zach Amittay figured Virginia would snag the top slot in the Southeast.
So he was startled that the state has consistently lagged behind South Carolina, North Carolina and Georgia since E2 began its research after the IRA became law in August 2022.
“Overall, Virginia pales in comparison to its neighbors, especially those farther South,” said Amittay, Southeast advocate for E2. “And that’s kind of an irony considering how Virginia’s framework for clean energy policies is driving demand for solar, electric vehicles, battery storage and offshore wind.”
Through April, companies have announced at least 305 major clean energy projects in 40 states and Puerto Rico, according to data E2 has gathered. Those projects are tied to 105,400-plus jobs and more than $123 billion in capital investments.
Of those 305 projects, just four — two connected to offshore wind, one to hydrogen and one to modernizing the electrical grid — have Virginia connections.
Meanwhile, Georgia has lured 27 projects, South Carolina, 24, and North Carolina, 19.
“North and South Carolina and Georgia are doing everything in their power to attract companies,” Amittay said. “They’re launching a full-court press by recruiting, offering state incentives and reducing tax liabilities. It shows they recognize this is the future of the economy and they want to be a part of that.”
E2, a national, nonpartisan group of investors, business leaders and professionals, launched its research project to bring more clarity to the IRA allocation process.
“For the average layperson, it’s inscrutable,” Amittay said. “We figured we could dedicate staff time to aggregating information and making it more digestible.”
Virginia has its share of success stories but needs to double down on efforts to entice more manufacturers that are part of the renewable energy supply chain, he noted. Deploying solar panels and wind turbines is only half of the clean energy equation.
“When it comes to attracting investments, the state is missing out by doing the opposite and, it seems, pushing them away.”
Christian Martinez, spokesman for Republican Gov. Glenn Youngkin, countered that take.
He pointed to the administration’s 2022 all-of-the-above Energy Plan as underscoring Virginia’s commitment to being a premier business location while also recognizing energy as a crucial productivity driver.
Without citing specifics, Martinez noted that Youngkin “looks forward to sharing details on several economic development opportunities … when they are ready.”
While state leaders can’t control company whims, Amittay and other clean energy advocates do directly blame Youngkin for nixing a proposal by Ford Motor Co. in late 2022 to build a plant to manufacture electric vehicle batteries on an industrial site in Pittsylvania County on the North Carolina border.
The automaker’s decision to partner with a Chinese company posed too high of a security risk, Youngkin said at the time.
“Virginians should be wary of Chinese communist intrusion into Virginia’s economy,” he said at his January 2023 State of the Commonwealth address, directing legislators to “send me a bill to prohibit dangerous foreign entities tied to the CCP from purchasing Virginia’s farmland.”
Youngkin’s concerns about China’s influence in this country could have been navigated so Virginia’s opportunity for the battery facility didn’t go up in smoke, Amittay said.
“At the time, he was trying to establish a national brand because he had bigger political ambitions,” he said about Youngkin’s presidential aspirations.
In February 2023, Ford announced that the battery plant would be built in Marshall, Michigan.
That loss not only hurt Virginia, Amittay said, but also cued companies that the state might be wary of rolling out the welcome mat to clean energy innovation.
Martinez said Youngkin’s concerns “that the Chinese Communist Party aims to dominate the world at the expense of the United States” were validated when Ford said last November it was scaling back its Michigan plans.
However, Ford explained it was curbing production capacity and employment expectations in Marshall — from 2,500 jobs 1,700 jobs — because of rising labor costs and consumers’ hesitancy to shift to electric vehicles.
At its core, the Inflation Reduction Act is a massive package that dedicates $369 billion over 10 years to clean energy innovation via tax credits, rebates and other incentives. Many of its programs are designed to boost domestic manufacturing jobs as the country transitions away from fossil fuels.
The latter is a signal to stateside and international businesses, Amittay said, that the United States is serious about tamping down the emissions of heat-trapping gases that are causing climate change.
Thus far, the pull of the IRA’s promise has convinced four companies, Hitachi Energy, Fugro, Lyon Shipyard and Topsoe, to either expand or put down roots in Virginia, according to E2’s database.
Topsoe, a Danish company that focuses on emissions reduction technology, is the latest entrant.
In mid-April, it released plans to spend $400 million on a factory in Chesterfield County, south of Richmond, to manufacture specialized solid oxide electrolyzer cells essential for producing green hydrogen. It would employ 150.
While Topsoe has started the permitting and design process, company spokesman Gabriel Martinez said no timeline is set yet.
“The final investment decision will be dependent on market demand and regulatory developments,” he said, adding that the green hydrogen would be produced by Topsoe’s customers, not on-site in Virginia.
If built, Topsoe’s largest U.S. investment would be eligible for up to $136 million in IRA incentives, Gabriel Martinez said.
Another European company, Fugro, is in the midst of bumping up the workforce at its Americas Center of Expertise for Offshore Wind in Norfolk. The Dutch geo-data business first landed in Virginia in 2007 when it was hired to help expand nearby Portsmouth’s Craney Island Marine Terminal operated by the state Port Authority.
A few years later, Fugro began pivoting to offshore wind as possibilities for the industry took shape in coastal Virginia and beyond, said Peter Tattersfield, who directs wind business development in the Americas.
Dominion Energy is on the verge of beginning offshore construction on its 176-turbine wind farm 27 miles off the coast of Virginia Beach. At peak capacity, it will generate 2.6 gigawatts of power.
Fugro deploys specialized equipment such as buoys, sensors and robots to capture information about water currents, wind speeds, wave heights and soil types to create detailed maps of the ocean floor and the surrounding maritime environment. Scientists also study sea mammal and fish habitat.
“Wind developers need to know what they’re building their turbines on and where they should be installing cables,” Tattersfield said. “Basically, we build an earth model so they can feel confident about their projects.”
Fugro will steadily add professional jobs to keep pace with the Biden administration’s goal of achieving 30 gigawatts of offshore wind energy by 2030, he said. The company isn’t in line to receive IRA money directly. Instead, business will grow as more and more wind developers take advantage of generous IRA incentives.
“Our industry is still in its infancy, but we’re strategically positioned in Virginia,” Tattersfield said. “A wind developer is like a general contractor who has all the incentives to get the house built. If he’s successful, then all the subcontractors are pulled along toward success too.”
Relatedly, Norfolk-based Lyon Shipyard announced last fall that it would be spending $8.5 million to increase its capacity so it can provide a range of services for the commercial ships and vessels that attend to offshore wind farms. The ship repair company, active along the Elizabeth River since 1928, expects to add 134 jobs.
Meanwhile, Hitachi Energy is investing $37 million to add 26,000 square feet of production space to its power transformer building in Halifax County to support the manufacture of bigger transformers specifically designed for utility and renewable energy markets.
Transformers are a crucial piece of grid resiliency because they stabilize voltage to ensure power flows efficiently and reliably.
Steve McKinney, the head of Hitachi’s transformer business in North America, said he expects the addition to the existing 607,000 square foot plant in South Boston to be online by the end of 2025. Hitachi will hire 165 employees to its current on-site workforce of 450.
McKinney said there’s a “good possibility” Hitachi would tap into IRA incentives to offset equipment costs, but didn’t yet know a dollar figure.
The Virginia investment is just a tiny slice of the $1.5 billion Hitachi is pouring into its transformer capacity globally as demand for electricity explodes because of the growth of everything from data centers to electric vehicles.
“A lot of the grid network was built decades ago, and it’s time to upgrade,” he said. “Who would have thought five years ago we would be having this conversation about this level of investment in clean energy provided by the IRA?”
“We’re still in the early innings, but this is going to be transformational for the U.S.,” Amittay said about IRA infusions. “It’s complicated because there are a lot of technical details, a lot of agencies involved and some funding programs haven’t been rolled out yet.”
Despite those hurdles nationwide, Kim Jemaine, Virginia director for Advanced Energy United, isn’t confident that Youngkin has the will or the wherewithal to catch up with other states in the Southeast.
Her organization represents businesses intent on accelerating a clean energy transition.
In her eyes, the governor has spent too much time undermining the Virginia Clean Economy Act and promoting far-off energy sources such as small modular nuclear reactors.
“By touting an all-of-the-above policy, he’s missing research and development and manufacturing opportunities in other investment spaces,” Jemaine said. “What about batteries and long-term storage? There’s a ton of untapped potential there.”
She’s also worried that some of the initial excitement about transforming the Hampton Roads region into an offshore wind hub has fizzled since Youngkin took office in 2022. That political landscape means it’s easier for existing companies to expand than for new ones to move in.
With so much ground to make up, Amittay agreed, waiting around isn’t an option.
“We all know that the best time to plant a tree is 30 years ago, but the next best time is today. It’s time for Virginia to think about how it can plant some trees.”
WIND: A federal judge denies a request to halt Dominion Energy’s construction of a 2.6 GW offshore wind farm near Virginia by conservative groups who argue it will threaten endangered whales. (WHRO)
ALSO:
SOLAR:
OIL & GAS:
PIPELINES: A growing number of groups ask federal regulators to delay approval for the Mountain Valley Pipeline to begin service as construction crews continue to inch toward completion. (WDBJ)
OVERSIGHT: A Georgia energy regulator is criticized for bragging the state’s energy mix is “the cleanest and most reliable of any state in the nation” (it’s actually Vermont), even though its largest utility produces 60% of its power from fossil fuels. (Savannah Morning News)
ELECTRIC VEHICLES: The Biden administration announces nearly $1 billion will go to about 530 school districts across the U.S. to fund the purchase of electric school buses. (States Newsroom)
HYDRO: The Tennessee Valley Authority rehabs a 10-acre island downstream from the site of its first hydroelectric dam and power plant. (Knoxville News Sentinel)
GRID:
CLIMATE:
COMMENTARY: Texas’ recent brush with severe storms should remind state lawmakers that climate change is worsening and they should back carbon-free energy instead of further incentivizing new natural gas-fired power plants, writes an editorial board. (Dallas Morning News)
As president and CEO of Green Mountain Power in Vermont, Mary Powell developed the first utility partnership with Tesla to attach residential Powerwall batteries to the grid, providing backup clean power for the utility when needed. Customers could earn money by essentially filling the batteries at night and dispatching them during the day, Powell explained in a 2016 interview with Energy News Network.
Today, such arrangements are increasingly promoted by clean energy advocates, who’ve dubbed distributed grid-connected batteries — plus solar — “virtual power plants” that allow homeowners and businesses to help out utilities during times of high demand. They’re also central to Powell’s current mission as head of the nation’s largest residential solar company.
Powell left Green Mountain in 2019 after two decades with the company, and in 2021 she became CEO of Sunrun. In an interview during a recent conference near Chicago, she spoke about how the culture of her former industry can slow the pace of innovation that’s much needed to address climate, cost and reliability concerns.
“You’re talking about a 100-plus-year-old system and way of thinking, and you compound that with the fact that utilities’ whole culture is built for ‘slow and no’ and ‘protect, preserve, defend.’ For so many years, it’s been a one-way system,” Powell said.
Virtual power plants are a prime example of the coming change. Powell said utilities’ experience with energy efficiency in recent decades provides a look at what might be coming for such pairings of solar and storage.
“I would say energy efficiency was the disruption — the first opportunity for utilities to start to think differently about their role and their mandate. And as we know, that took like 20 years, even for the most progressive utilities, to embrace.”
Utilities can generally choose to incorporate virtual power plants into their rate structures and grid services, and state regulators and legislatures can facilitate the concept through decisions, laws and policies that create incentives and provide standards. The Illinois legislature is considering a bill that would essentially allow the agency that procures power on behalf of utilities to contract with virtual power plants.
Green Mountain Power was an early adopter of energy storage under Powell’s leadership, and broader adoption of the technology is ramping up quickly. The U.S. Department of Energy noted in a 2023 report that, “deploying 80-160 GW of virtual power plants (VPPs) — tripling current scale — by 2030 could support rapid electrification while redirecting grid spending from peaker plants to participants and reducing overall grid costs.”
That means utilities will have to adapt quickly, and Powell sees a significant role for private developers in that transition. Powell describes Sunrun as a “clean energy lifestyle company,” branching into technologies like smart electric panels and EV charging.
“When you think about customers having heat pumps, when you think about them having electric vehicles, you make sure that you’re leveraging all of that in a way that’s beneficial for the grid and beneficial for the customer.”
That focus on the end users of electricity is in part a bet that utilities’ need for solar power will eventually catch up to consumer demand.
“When I went to Sunrun I said to the team, ‘We’ve got to stop wandering around trying to convince every Tom, Dick and Harry utility to utilize our resources.’ We’re doing it, we just need to scale as fast as we can.
“Because guess what, utilities are going to hit the wall, they are hitting the wall in some parts of the country, and they don’t have the ability to meet the kind of capacity demands that are projected over the next five years. They’re going to need our resources.”
Despite that expected market demand, Powell said legislative and regulatory bodies also have a role to “nudge utilities in the right direction.” Illinois in particular, she said, provides a strong example.
“Illinois has done an amazing job. Making sure that rooftop solar is considered as part of the RPS [Renewable Portfolio Standard] is really thoughtful policy. And I am encouraged with a lot of the conversations about how we could leverage storage more. So yeah, we’re very bullish about Illinois.”
Powell also said she has no regrets about leaving the utility sector to work at Sunrun.
“Frankly, even the fastest-moving utility was moving a little too slow for me. We weren’t scaling as fast as I would have loved us to be able to scale. It’s awesome to work on mission-driven work that you feel is valuable for the people you serve and for the planet at the same time.”
SOLAR: The first publicly available community solar project in New Hampshire hopes to pave the way for more such developments in a state where low net metering rates have made them challenging to complete. (Energy News Network)
ALSO:
NATURAL GAS: Massachusetts utility officials approve contracts between a liquefied natural gas terminal and three gas utilities that extend the facility’s life by at least six years. (Boston Globe)
COURTS: A Maryland circuit court judge dismisses complaints in a wider climate accountability lawsuit against the American Petroleum Institute but gives the city of Annapolis and Anne Arundel County 30 days to prove the trade group engaged in conspiracy. (E&E News, subscription)
GRID:
RENEWABLE ENERGY: Dozens of companies have responded to a call from the New York Power Authority to help the agency develop more renewable energy via public-private partnerships. (Times Union)
CLIMATE: Facing an unprecedented number of declared disasters since taking office, Maine’s governor plans to create a new commission to understand climate threats and mitigate potential impacts. (Portland Press Herald)
UTILITIES: New England utilities Avangrid and Central Maine Power may soon be taken private by the Spanish utility Iberdrola, which is already the utilities’ main stockholder, pending regulatory approvals. (Mainebiz)
BUILDINGS:
TRANSIT: Pittsburgh’s regional transit agency decides to permanently adopt a pilot program that automatically extended fare discounts to people receiving food assistance. (Pennsylvania Capital-Star)
ELECTRIC VEHICLES:
SOLAR: Analysts say most solar projects awaiting connection to the Western grid are hybrid installations paired with battery storage or wind facilities as California’s solar “duck curve” grows more pronounced. (Utility Dive)
ALSO:
CLEAN ENERGY: A New Mexico nonprofit launches a climate investment bank designed to finance clean energy projects benefiting low-income, disadvantaged and tribal communities. (Albuquerque Journal)
OIL & GAS:
COAL:
UTILITIES:
CRITICAL MATERIALS: Utah researchers find elevated recoverable concentrations of rare earth elements in active coal mines in Colorado and Utah. (news release)
GRID: California’s grid operator proposes raising the soft limit on power providers’ energy bids to better account for costs. (RTO Insider, subscription)
HYDROPOWER: Northwest tribal nations and federal agencies move forward on a plan aimed at restoring salmon runs decimated by hydropower dams on the Columbia River and its tributaries. (Idaho Capital Sun)
The first publicly available community solar project in New Hampshire hopes to pave the way for more such developments in a state where energy policies have made them challenging to complete.
The small southern New Hampshire town of Jaffrey is working with ReVision Energy to develop the array atop a former municipal landfill, with the goal of coming online in 2025. The town will receive annual lease payments for use of the land, and residents and others in the Eversource utility territory will be able to buy shares of the project, lowering their electricity bills and supporting the environmental benefits of renewable energy.
“It’s the perfect use of land that can’t do anything else,” said Jaffrey town manager Jon Frederick.
At the same time, planners hope the project helps demonstrate the potential for community solar in New Hampshire and spark policy changes that would make the concept more financially feasible in the future.
New Hampshire authorized the development of community solar in 2013, but only small-scale projects serving specific communities or neighborhoods have ever been built. The state’s energy policies have made larger, publicly available projects financially unworkable, even as other New England states have actively incentivized such projects by lowering logistical barriers and offering financial subsidies, said developers and clean energy advocates.
“The problem with community solar in New Hampshire is that the rate of reimbursement is much lower than the rate in all the surrounding states,” said Sam Evans-Brown, executive director of advocacy group Clean Energy New Hampshire.
At the heart of the problem are the state’s net metering rules. Net metering is a system that lets consumers offset the cost of power drawn from the grid by generating their own energy, often using solar panels. In New Hampshire, a solar system smaller than 100 kilowatts receives a credit worth 100% of the cost of transmission and the electricity itself and 25% of the cost of distribution. Systems between 100 kilowatts and 1 megawatt receive credit only for the power itself. Only municipal users can claim any credit for projects over 1 megawatt.
At the same time, community solar projects have higher administrative costs, as they need to track and reconcile the use of dozens or even hundreds of consumers. Traditionally, the net metering rates have not been high enough for community solar projects to make financial sense.
The lack of predictability is also a barrier: Electricity supply from Eversource in New Hampshire, for example, is currently priced at 8.29 cents per kilowatt-hour, down from 20 cents per kilowatt-hour over the same period last year. And the number changes every six months as the utilities update their rates.
“It is so volatile,” Evans-Brown said. “When you try to do the financial models, you’re kind of taking a bet.”
In Jaffrey, ReVision is taking advantage of evolving policies and using several strategies it hopes will overcome these obstacles.
In 2019, state legislation pushed by ReVision simplified the billing process for community solar customers. Previously, these consumers would receive a bill from the utility for their full month’s electricity use, as well as a payment from the solar operator for their share of the power generated. The new rules combined the processes, crediting the solar generation directly to a customer’s electricity bill. That streamlining was just enough to get things moving in Jaffrey, said Dan Weeks, ReVision’s vice president of business development.
“That was a big barrier in the past,” he said. “With that administrative progress we felt we were far enough to take this big step.”
The project deals with the size limit on net metered projects by keeping its AC capacity just below the 1 megawatt mark, so it remains eligible.
The company decided to sell shares in the development rather than opening it up to subscribers, a choice that creates more value for consumers, who get to own all the power produced and the associated tax credits. The idea is that consumers will receive low- or no-cost power even as retail electricity power prices increase, creating savings that will pay for the initial investment, and then some.
Historically, however, it was difficult to make those numbers pencil out because of the combination of low net metering rates and frequently changing power prices. Indeed, the current supply price of 8.29 cents per kilowatt-hour would not be enough to keep the project afloat. ReVision is banking on U.S. Energy Information Administration projections that power prices will go up in coming years, creating greater savings for shareholders.
“There will definitely be a different rate at the time it is turned on,” Weeks said. “We feel pretty confident that individuals will save regardless.”
An ongoing difficulty remains, however: State law requires the total consumption of the community solar group members be equal to or greater than production of the solar farm. However, many shareholders are interested in buying a stake that is larger than their consumption so the solar credits will offset their entire energy bill — the delivery of the power as well as the electricity itself. That leaves ReVision with an unbalanced equation.
This dilemma is likely an unintended side effect of the way net metering rules have evolved in the state, Weeks said. ReVision is in talks with legislators about how they might be able to change the law to remove this obstacle, a move that would benefit both the Jaffrey project and future community solar plans.
“We have willing legislators who want to address it, so the program can realize its intended goal,” Weeks said.
If a change in law does not come through, ReVision will look into partnering with nonprofit groups or municipalities that might be interested in buying smaller amounts of power to offset some, but not all, of their consumption, which would help rebalance the legally required equation.
As the plan comes together, others in the New England solar space will be watching, Evans-Brown said.
“The thing that’s exciting about ReVision doing this is it’s kind of a trial to see if we can make this work,” he said.
SOLAR: Wyoming regulators greenlight a proposed 771 MW solar-plus-storage facility on private land near Cheyenne. (Casper Star-Tribune)
ALSO:
OVERSIGHT: Arizona residents push back after a county approves a proposed natural gas peaker plant next to a retirement community shortly after banning new utility-scale solar installations. (Guardian)
CLEAN ENERGY: The U.S. Energy Department awards over $2 million to community groups and nonprofits to fund clean energy projects, including ones in six Western states. (news release)
TRANSPORTATION: Colorado lawmakers pass legislation aimed at expediting proposed passenger rail service between Denver and coal transition communities in the western part of the state. (Colorado Newsline)
GRID: Colorado Gov. Jared Polis signs legislation requiring utilities to update their distribution grids to support state electrification and decarbonization goals. (news release)
OIL & GAS:
CLIMATE:
COAL: Right-wing Wyoming lawmakers call on Gov. Mark Gordon to sue the Biden administration over its proposal to halt new federal coal leases in the Powder River Basin. (Cowboy State Daily)
LITHIUM:
CLEAN ENERGY: The location of a New Hampshire coal plant primes it well for a future of supporting offshore wind and energy storage projects, according to the facility’s owner. (Granite Geek)
EQUITY: Massachusetts’ residents with limited English proficiency face linguistic barriers to participating in or benefiting from the state’s energy assistance, assessment and weatherization programs. (WBUR/El Planeta)
CLIMATE: Even if Vermont’s governor, who hasn’t promised his signature, vetoes legislation making fossil fuel companies pay for climate damages, the legislature appears to have enough support to override him. (Heatmap)
WIND:
GRID:
SOLAR:
TRANSIT: The transit agency of Pennsylvania’s Cambria County purchases four new compressed natural gas buses to replace four diesel models. (Tribune-Democrat)
PIPELINES: New York environmental activists say they will continue working to end gas pipeline expansions in the state, saying “the fight has shifted” after the defeat of the Williams Pipeline project. (City Limits)
WIND:
SOLAR:
HYDROGEN: The energy firms looking to build a $1.5 billion hydrogen fuel facility at Pittsburgh’s airport say they can’t do so unless federal clean energy tax credits include coal mine methane projects. (Associated Press)
ELECTRIC VEHICLES:
BATTERIES: New York’s Staten Island currently has 13 lithium-ion battery energy storage sites under development, according to a state database of projects receiving incentives. (SI Live)
GRID:
WORKFORCE: Massachusetts and a social impact investment firm want to create a climate tech workforce training loan program to educate the 30,000 workers needed to achieve the state’s climate goals, planning to raise $10 million in funds to do so. (WHDH)
FOSSIL FUELS: Con Edison says a roughly 4,400-gallon oil spill into the Hudson River last month was due to a failed piping component and cracks in the floor of the power station. (W42St)
Ohio has seen a big jump in the number of agency orders forcing property owners to allow oil and gas development on their land, whether they want it or not.
The number of so-called “unitization” orders issued by the Ohio Department of Natural Resources has surged in recent years, peaking at 112 in 2022 and continuing at nearly 100 last year, according to data obtained from the agency by the Energy News Network.
The practice is common, with rules varying by state. In Ohio, lawmakers began working to streamline the process for oil and gas companies in 2019, coinciding with a decline in the state’s gas production after a seven-year fracking boom.
Those changes run contrary to other efforts in Ohio to restrict energy development in the name of neighbors’ private property rights, including strict wind farm setbacks passed in 2014 and a 2021 law allowing counties to block new wind and solar projects.
Under Ohio law, companies must meet several conditions before initiating unitization, including a showing that at least 65% of property owners in a project area consent to drilling.
Critics say the process was already tilted in the companies’ favor, and that the recent changes will make it even harder to block drilling or negotiate concessions.
“All the cards are stacked against us,” said Patrick Hunkler. In 2018, ODNR issued an unitization order for property he and his wife, Jean Backs, own in Belmont County, which is one of the state’s top-producing counties for oil and gas. The developer later canceled the project, so the order was revoked. More recently, Ascent Resources had tried to lease their land before backing out.
The legal process known as unitization has been available to Ohio oil and gas companies since 1965 but was rarely used until about a decade ago, after advances in drilling technology made it profitable to tap into harder-to-develop pockets of petroleum.
“The unitization process exists to protect the rights of those … who want to lease their minerals for development,” said Rob Brundrett, president of the Ohio Oil and Gas Association, “so that a small minority of owners … cannot stop everyone else from realizing the full potential of their property and minerals.”
For petroleum companies, the process has also promoted efficient oil and gas extraction. Otherwise, reduced pressure from too many wells could reduce the total recovery from an area.
Companies must show they have consent from owners of 65% of the area above a common oil and gas deposit before they can seek a unitization order. Companies also must show they tried to reach an agreement with holdouts, and that drilling under those properties is necessary to substantially increase the amount of oil and gas recovered. Any added value must also exceed the related costs.
“Our experience at the unitization hearing was that oil and gas runs the show,” Backs said.
Hearings don’t consider environmental impacts or other reasons landowners might not want drilling and fracking. “It’s just not part of the evaluation,” said Heidi Robertson, a Cleveland State University law professor who has written about unitization. Rather, she said, the basic question is: “Will adding this land to the unit make it easier for the developer to more efficiently and more profitably get the oil and gas out of the ground?”
The answer is almost always yes.
The Ohio Department of Natural Resources has denied only one unitization application since 2012, according to spokesperson Andy Chow. Meanwhile, it has approved more than 500 applications, with more than half the orders issued after 2020. The agency hired an additional employee in 2021 to deal with an increase in applications, Chow said.
Owners whose property is unitized won’t have pads or roads on their property, but they still get royalties and other payments. Ohio law requires “just and reasonable” compensation for landowners.
In most cases that compensation starts with a 12.5% royalty. Additional payments are adjusted for the developer’s expenses and other factors and the compensation is often smaller than that for voluntary participants. Orders typically have let companies recoup twice those amounts before unitized landowners can get payouts beyond royalties, said attorney Matthew Onest, whose firm has represented multiple landowners in oil and gas matters.
In some cases, property owners must wait even longer. At a March 27 hearing, for example, drilling company EAP Ohio asked for a “500% penalty” for owners who did not agree to a lease. Anna Biblowitz, a negotiator for Encino Energy, claimed the higher penalty was justified by the developer’s risk and “as a motivator for other working interest owners to participate.” A ruling in the case is due this month.
Some property owners, including Backs and Hunkler, worry about climate change and other environmental impacts. They said companies wouldn’t agree to requested lease terms for no flaring, methane monitoring and monitoring of the spring on their property.
“These oil and gas companies aren’t addressing the important issues of our environment,” Hunkler said.
Other landowners may hold out because they want more money, said Onest. “They kind of dig their heels in,” he said.
Industry experts said market forces could partially explain the rise in unitization cases. Property owners could hold out more often because they want higher payments like others got early on in the state’s fracking boom. Or, higher oil prices might be motivating companies to pursue projects that once seemed too complicated to be worthwhile.
State officials have made the process easier, too. In 2019, lawmakers added language about how to calculate the 65% threshold, tucking the terms into a 2,600-page state budget law. Matt Hammond, who was then president of the Ohio Oil & Gas Association, told lawmakers the added language was meant to “clarify” the law.
In practice, the change likely lowered a barrier for companies to use the tool, according to Clif Little, an Ohio State University Extension educator in Old Washington, Ohio. “If you’re seeing actually more [cases] for forced unitization, that would be a significant player in that,” Little said.
Another law passed in 2022 requires the Ohio Department of Natural Resources to hold hearings on unitization applications within 60 days. The agency must rule within 60 days of the hearing, and also let companies know in advance if an application is incomplete.
For industry, the primary benefit from the 2022 law change was to get certainty about timing. “This impacted how a producer was able to plan their drilling schedules,” said Mike Chadsey, director of external affairs for the Ohio Oil and Gas Association.
The Ohio Department of Natural Resources also changed its guidelines last year to standardize unitization applications. The agency’s website said the changes were “aimed at streamlining the review process” and that applications would include fewer documents.
Among other things, companies don’t need to file testimony from engineers, geologists and landmen in advance of hearings — something they had generally done in the past, said Robertson at Cleveland State. In her view, that further limits any dissenting landowners’ ability to prepare challenges to such testimony when the hearing does take place.
The Covid-19 pandemic also affected unitization hearings, which are now generally held via Zoom. “Allowing these meetings to be held via Zoom is a benefit to all parties involved,” Chadsey said, adding that it’s more convenient for landowners.
Folks in “suits and ties” had to come from out of state when ODNR held the unitization hearing for Hunkler and Backs’ property back in 2017. With a remote format, though, the hearing panel and company personnel “don’t have to look at you in person,” Hunkler said.
Oil and gas companies said they take every step to avoid forced leases, but that unitization is an important tool when that is not possible.
“When those means are exhausted, which often includes situations of poor record-keeping or the inability to locate an owner, unitization can be a tool to ensure property and mineral rights are realized by all stakeholders,” said Zack Arnold, president and CEO of Infinity Natural Resources.
Jackie Stewart, vice president of external affairs for Encino Energy voiced a similar position. “Encino makes every attempt to lease all landowners in each unit and only utilized unitization after all leasing efforts are exhausted, so the property rights of Ohio’s landowners can be realized,” she said.
“This isn’t something any lawyer can handle. You have to be an expert in this stuff,” Robertson said. “And all the experts are on the other side, because that’s where the money is.”
Robertson is unaware of any legislation to make matters fairer for landowners who don’t want to lease their land. And gerrymandering makes it unlikely such bills will be passed anytime soon. As she sees it, the process is “stacked against the dissenting landowner.”
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