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Choosing An Insurance Agent and Carrier
An insurance agent is an important person on a farmer’s management team. Selection of the agent is important to ensure the insurance policy meets the needs of the farm. The insurance agent should have a good understanding of agriculture and experience working with farms. Additionally, the agent should be able and willing to build a policy for each farm, not simply use the same template for every farm. Each farm is unique, and the farm insurance policy should be unique as well. When interviewing prospective agents, be sure to ask for their background and experience with farms and consider asking for referrals from other farms.
The insurance agent can only design an insurance policy to cover the farm activities and farm assets that they know about. It is the farm owner’s responsibility to inform the insurance agent of how the farm operates, who is involved with the farm, and the assets owned by the farm. Consider inviting the insurance agent to visit the farm to be sure they have a good and full understanding of the operations of the farm.
Each insurance agent works with one or more insurance carriers. Several services provide financial ratings of insurance carriers, and it is worthwhile to know the rating of the carrier you work with. The rating indicates the carrier’s ability pay claims, especially in times of large claims like a natural disaster. Understanding your carrier’s rating is important because the carrier has an ongoing financial obligation to you. If the carrier is unable to cover all claims in a natural disaster or otherwise fails to meet is coverage obligations, a farm covered by that carrier can be at risk. Ask the insurance agent for their carrier’s rating. Keep in mind that the same rating can mean different things depending on the service used. For example, an A+ score is the second to highest score for A. M. Best while an A+ is the fifth best rating for Moody’s.
Potential Reasons for Cancellation of Your Policy
Your farm insurance will include several reasons for cancellation. A farm insurance policy likely includes more intricate reasons for cancellation than a typical homeowner’s policy. When cancelling a policy, the insurance carrier will generally mail the notice of cancellation to the insured at least 30 days before the effective termination date. This notice period provides time for the insured to obtain another insurance policy or to correct errors to maintain the current insurance. When a policy is cancelled, a refund is usually issued to the insured for any amount that is already paid for a period that will not be covered under the cancelled policy.
Nonpayment of Premiums. The first reason for cancellation is the most obvious one, nonpayment of premiums. This is as simple as it sounds. The insured must make sure to make timely payments to continue to keep its insurance policy in place and at work. Insurance carriers are required to provide written notice to the insured that premiums are past due and that the policy will be cancelled if payment is not made.
Fraud and Reckless Omission. Other reasons that a policy might be cancelled are connected, (1) the discovery of fraud or material misrepresentations in the information given to obtain the policy and (2) a reckless omission of information given to obtain the insurance policy. These two provisions cover any incorrect information that may have been provided, intentionally or not, to the insurance agency when procuring the policy. An insurance company relies on the accuracy and validity of the information they are provided when deciding the appropriate methods of coverage. It is necessary to ensure that accurate information is transmitted to any insurance provider.
Risk Profile. A policy can be cancelled due to changes in an insured’s risk profile. The insurance carrier issues a policy based on the known risks attributable to the insured. If the insured increases their risk exposure, the insurance carrier may not be willing or able to cover the additional risk exposure and cancel the policy. An example provision in an insurance policy may be something like “a substantial change in the individual risk which increases the hazard potential to the insurer unless the change was reasonably foreseeable.” Similarly, a policy may include language such as “any determination that the insurer determines could create a condition that is hazardous to the public.”
Compliance. If the insured fails to maintain adequate compliance with the safety codes applicable to a building or structure the insured party risks losing their coverage for the building or structure.
Cancellation by Insured. An insured typically has the right to cancel their policy at any time, although some fees might apply. Generally, cancellation by the insured will require the individual to deliver notice to the insurance company.
Sometimes a legislative proposal stalls, appears dead, then emerges in another piece of legislation in a slightly different form. That’s exactly what happened with the Growing Climate Solutions Act and its plan to help farmers with carbon and environmental credit markets. First introduced in 2020, the bill gained some momentum and passed the U.S. Senate before coming to a standstill in the House. But Congress added the bill, with some negotiated changes, into the Consolidated Appropriations Act it passed in the final days of 2022. The USDA is now charged with implementing its provisions.
Purpose of the bill
The bill aims to reduce barriers for farmers, ranchers, and foresters who want to enter into voluntary markets that establish environmental credits for greenhouse gas emission reductions resulting from agricultural or forestry practices (also known as carbon credits). It allows the USDA to create the “Greenhouse Gas Technical Assistance Provider and Third-Party Verifier Program” if it appears, after an initial assessment, that the program would accomplish these purposes for farmers, ranchers, and private forest landowners:
- Facilitate participation in environmental credit markets
- Ensure fair distribution of revenues
- Increase access to resources and information on environmental credit markets
Advisory Council
If the USDA determines that the program would meet the above purposes, it must establish an Advisory Council to help guide the program. At least 51% of the Advisory Council must be farmers, ranchers, and private forest landowners, including beginning, socially disadvantaged, limited resource, and veteran members. Other members on the Advisory Council would include representatives from agencies, the agricultural and forestry industries, the scientific research community, non-governmental organizations, and professionals and private sector entities involved in credit markets.
Protocols
A primary concern with the environmental credit market is uncertainty and variations in how to establish, quantify, and value environmental credits. An important component of the new program is for USDA to publish lists of widely accepted protocols that are designed to ensure consistency, reliability, effectiveness, efficiency, and transparency of the markets along with documents relating to the protocols. The act directs the USDA to include protocol documents and details on calculations; sampling methodologies; accounting principles; systems for verification, monitoring, measurement, and reporting; and methods to account for issues such as additionality, permanence, leakage, and double counting of credits.
Vendor registry
Another concern for landowners who want to participate in environmental credit markets is knowing who to turn to for technical assistance. To address this issue, the program would require the USDA to create a registry of third-party vendors of environmental credits who can help farmers, ranchers, and forest landowners measure the carbon reduction benefits of different types of practices. Unlike an earlier version of the bill, the USDA would not establish a certification program for these vendors, although the agency must ensure that the vendors possess demonstrated expertise in practices that prevent, reduce, or mitigate greenhouse gas emissions.
Assessments
The USDA, in concert with the Advisory Council, must submit an initial and ongoing assessments to the agricultural committees in the Senate and House. The initial assessment must examine ways to ensure certainly for farmers, ranchers and forest landowners in the marketplace. Ongoing assessments would examine the environmental credit market itself, including actors in the market, participation, credits generated and sold, barriers to entry, opportunities for other voluntary markets, and more.
Program funding
The act provides an appropriation of at least $1 million per year to fund the program through 2027 and another $4.1 million of potential unobligated American Rescue Plan Act funds. It specifically prohibits the USDA from using funds from the Commodity Credit Corporation for the program, a demand of the House Agriculture Committee Chairman Glenn Thompson, who states that those funds are obligated for Farm Bill program payments.
What’s next?
Farm Bill negotiations this year and other climate initiatives recently undertaken by the Biden administration, such as the USDA’s Partnerships for Climate-Smart Commodities, could reduce the focus the Growing Climate Solutions Act would have received if it had passed when first introduced back in 2020. Even so, the timeclock has started for the USDA to make its initial determination of whether the program would meet the intended purposes. Secretary Vilsack must make that determination by late September, and the expectation is that the program will proceed. We should then see the Advisory Council established by fall and and can expect program outputs such as protocols and the third-party registry as early as 2024.
Read the provisions of the new law beginning on page 1,512 of the Consolidated Appropriations Act of 2023, H.R. 2617.
Tags: Growing Climate Solutions Act, greenhouse gas, carbon credits, carbon market, environmental credit
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Farms are subject to more risks than ever before. Whether it’s the liability exposure of driving equipment on roadways or the potential of property loss due to a barn roof collapse, every farm has multiple sources of risk. While farmers can reduce their risk exposure through good business practices and rigorous safety protocols, there is no way to entirely eliminate inherent risks. For this reason, insurance policies that adequately protect against the multiple risks present is a necessity for farm operations.
All farmers probably know the importance of insurance to protect their livelihood and their farm assets. However, few farmers take the time to read and understand their insurance policy. The failure to read policies is not a result of apathy but more likely due to the almost unreadable nature of an insurance policy. Reading and understanding an insurance policy is difficult for anyone other than those in the insurance industry.
While each policy is unique, most farm policies do share some common terms or characteristics. The following is a discussion explaining the more general parts of a farm insurance policy. Understanding the different parts of a policy and the concepts of the policy can help to better evaluate a policy to determine if it provides adequate coverage for a farm.
An Insurance Policy Is a Contract
An insurance policy is a legal contract between an insurance company (the “insurer”) and the person or business entity being insured (the “insured”). The policy holds the insurer responsible for paying the insured for eligible claims. Furthermore, the contract requires the insured to meet certain obligations such as the timely reporting of claims. Once the policy becomes active, both the insurer and the insured are legally bound to the terms of the policy. This legal obligation is present even if the insured is unaware of some or all of the terms of the policy. It is the obligation of the insured to understand the policy.
Structure of an Insurance Policy
Most insurance policies contain the following sections:
- Declaration Page - identifies the person/entity insured and details about the policy
- Insuring Agreement – summary of terms and conditions of the policy
- Exclusions - specifically identifies what the insurance policy does not cover
- Conditions - provisions that can limit an insurance company’s obligation to pay or perform
- Endorsements and Riders - provisions that add, subtract, or modify the original insurance policy
What Does a Typical Farm Insurance Policy Cover?
Areas of Protection. A typical farm policy includes the following areas of protection:
- Liability
- Home and contents
- Farm personal property
- Farm structures
- Other additional coverages
A farm insurance policy typically covers both farm assets and household personal property. Having all assets covered under one policy is usually less expensive than having one policy for the farm assets and another policy for non-farm coverage. Noticeably absent from the above list are vehicles. A separate policy may be issued for the coverage of vehicles for both liability and property loss.
Liability Coverage. Liability coverage protects against most risks associated with the farm operation such as bodily injury, medical expenses and property damages caused by accidents associated with the farming operation. Also, and sometimes just as importantly, the policy will cover attorney’s fees associated with defending the liability incidents.
Property Loss Coverage. A farm policy will provide coverage for the loss of farm assets due to a covered peril. Farm assets are typically divided into two categories within the policy: personal farm property (machinery, grain, livestock) and farm structures. In the event of damage or destruction of a farm asset due to a covered peril, the insurance company will pay at least some, but necessarily all, of the value of the covered asset to the farm operation.
Types Of Coverage
Basic Coverage. A policy that provides basic coverage is only going to cover the insured for named perils. If an event that is not named in the policy occurs, no coverage is provided. Common perils that are often included in basiccoverage are:
- Fire
- Lightning
- Windstorm or Hail
- Explosion
- Smoke
- Vandalism
- Aircraft or Vehicle Collision
- Riot or Civil Commotion
- Sinkhole Collapse
Each of these perils will also include exceptions to coverage. For example, the Vandalism coverage usually excludes any buildings that have been vacant for more than 30 days. Again, any perils that are not expressly provided for are not covered under a basic coverage policy.
Broad Coverage. Broad coverage is more expansive than basic coverage but is still limited to only the named perils. This type of coverage will include the perils identified in the basic coverage plus additional named perils. The additional perils covered by broad coverage often include the following:
- Burglary/Break-in damage
- Falling Objects (like tree limbs)
- Weight of Ice and Snow
- Freezing of Plumbing
- Accidental Water Damage
- Artificially Generated Electricity
- Accidental Tearing Apart
- Loading/Unloading Accidents
Like basic coverage, the broad coverage perils often include exceptions. An example of a broad coverage exception is freezing of plumbing may not be covered in a building which does not maintain heat.
Special Coverage. Special coverage is the most comprehensive coverage available. Unlike basic and broad coverage, special coverage includes everything except the identified exceptions. Instead of identifying the perils covered, special coverage applies coverage to everything except what is specifically identified as an exception. Special coverage provides more comprehensive coverage because everything is included unless excepted. Remember, basic and broad coverage only applies to those perils expressly identified.
Special coverage may include many exceptions. For example, special coverage will likely include an exception for vandalism in buildings that have been vacant for 30 days. It is important to know what exceptions are included with special coverage.
Incorporation of Basic, Broad, and Special Coverage in The Insurance Policy
A policy may include one or more of the different types of coverages. For example, a policy may include specialcoverage on all farm machinery but broad coverage on all other personal property. It is important to know what assets are covered under which type of coverage. Special coverage is best for the most comprehensive coverage, but specialcoverage is also more expensive than basic and broad coverage. Weighing the additional cost of special coverage versus the benefit of comprehensive coverage provided is an important analysis to be done for each insurance policy.
In Part #2, we will discuss obtaining, managing and maintaining a farm insurance policy.
A new year always brings new leadership appointments. Sometimes those appointments result in a change, but sometimes they bring back previous leaders. As we settle into 2023, we’re following what has changed and what remains the same and considering how leadership will impact agriculture in the coming year. Here’s a summary of what we’re seeing in the leadership landscape.
Ohio ODA and EPA. Here in Ohio, two of the agencies we commonly deal with will have new leaders. Governor DeWine has nominated Brian Baldridge to head the Ohio Department of Agriculture and Anne Vogel as director of the Ohio EPA. Baldridge is from a livestock and crop operation in Adams County, and previously served as a Representative, county commissioner, and township trustee. Vogel was previously DeWine’s Policy Director and Energy Advisor. She has a background in the energy industry and helped the governor establish the H2Ohio program.
Ohio General Assembly. A few leadership changes are also in place at the Ohio legislature. The House Speaker position has shifted to Rep. Jason Stephens (R-Kitt Hill) following a divisive race against Rep. Derek Merrin (R-Monclova Township) determined by Democrat support for Rep. Stephens. Rep. Allison Russo (D-Upper Arlington) is the new minority leader, replacing Emilia Sykes, recently elected to the U.S. House of Representatives. Sen. Matt Huffman (R-Lima) returns as the Senate President, joined by Sen. Nickie J. Antonia (D-Lakewood) in her new role as minority leader.
Ohio legislative committees. Most important to agriculture is the leadership of the House and Senate agriculture committees. On the House side, Rep. Rodney Creech (R-West Alexandria) will now chair the House Agriculture Committee after serving as the Vice Chair last session. The new Vice Chair is newly elected Rep. Roy Klopfenstein (R-Haviland). Both representatives have agricultural backgrounds; Rep. Creech resides on his family farm in Preble County and Rep. Klopfenstein farms with his family in Paulding County. Rep. Juanita Brent (D-Cleveland) returns for her second term on the committee and will be the minority leader. We await other committee member appointments.
The Senate Agriculture and Natural Resources Committee continues this session under the leadership of Tim Schaffer (R-Lancaster). The committee will have a new Vice Chair, Sen. Al Landis (R-Dover), serving in his first term as a senator after four terms in the House. Both have served on the Senate and House agriculture committees previously, but neither are from farm backgrounds. Paula Hicks-Hudson (D-Toledo) returns as the minority ranking member on the committee. Only two additional Senators have been appointed to the committee, Sen. Sandra O-Brien (R-Ashtabula), who was on the committee last session, and Sen. Shane Wilkin (R-Hillsboro), serving in his first term as a Senator after two terms in the House.
Congress. As with Ohio, the U.S. House of Representatives endured a divisive race for leadership. Rep. Kevin McCarthy (R-Calif.) eventually won the role of Speaker. Less controversial was the election of Rep. Hakeem Jeffries (D-NY) to the Democrat leadership position that Rep. Nancy Pelosi stepped away from after 20 years in that role. No changes occurred in the Senate, with Sen. Charles Schumer (D-NY) remaining as the Majority Leader and Sen. Mitch McConnell (R-KY) as the Minority Leader.
Congressional committees. Sen. Debbie Stabenow (D-MI) is the returning Chair of the Senate Agriculture, Nutrition & Forestry Committee and Rep. Glenn Thompson (R-PA), is the new Chair of the House Committee on Agriculture. Sen. John Boozman (R-AR) remains Ranking Member on the Senate side, and Rep. David Scott (D-GA) moves from Chair to Ranking Member on the House side. Ohioans that will serve on those committees include Sen. Sherrod Brown on the Senate committee and Representatives Max Miller and Shontel Brown on the House committee.
What to watch for?
A new Farm Bill will be the heavy lift for the agriculture committees in Congress. Major conflicts the committee leaders will have to navigate are expected to be debt reduction, climate programs, and the SNAP nutrition program. Despite the upcoming challenges, both committee leaders have promised to wrap up a Farm Bill by September.
Here in Ohio, the budget bill will take priority right away and will involve the new agency directors and legislature. One new ag-related budget item we might see is a proposal by Governor DeWine to increase the H2Ohio program with a “Rivers Initiative” that would address water quality in Ohio rivers.
In the legislature, we expect to see an eminent domain bill much like House Bill 698 that was introduced late last session. One of that bill’s sponsors was the newly appointed Chair of the House Agriculture Committee, Rep. Creech. The bill proposed streamlining the process for landowners who challenge compensation for land taken by eminent domain, increasing the burden of proof on an agency proposing a taking, expansion of attorney fee and expense rewards for landowners, and a prohibition on takings of land for recreational trails. There was also talk of the return of a “community solar” bill (H.B. 450) in the House, but both sponsors of that bill no longer serve in the House of Representatives.
What other changes might the new leadership bring? That’s always a tough question, but we’ll keep an eye out and let you know what we see as we continue into 2023.
Tags: Ohio department of agriculture, Ohio EPA, Ohio legislature, congress, farm bill
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The world loves a good baker. If you’re one of those good bakers and you want to sell your baked goods, do you need a license? Maybe. Our newly revised law bulletin, “The Home Bakery Registration Law in Ohio,” explains when a license or “registration” is necessary for selling home baked goods in Ohio.
Whether you need to register for a Home Bakery license depends on the type of baked good you’ll produce. Certain foods are at lower risk of a food safety concern when produced at home, which we refer to as “non-potentially hazardous” foods. Those foods might fall under the Ohio Cottage Food Law, which does not require a license or registration for those who want to produce and sell foods that are on the cottage foods list. When a home baked good does pose higher food safety risks, however, the home bakery law applies to that food and additional practices are necessary to reduce food safety. The producer who wants to sell that type of home baked good must register as a “Home Bakery" with the Ohio Department of Agriculture to help ensure that food safety practices are in place.
Which home-baked foods fall into which category? This chart illustrates the differences between non-potentially hazardous “cottage" foods and potentially hazardous “home bakery” foods. If a food falls into the “potentially hazardous” category, the producer needs to apply for a Home Bakery license.
What’s required for the Home Bakery registration? Our law bulletin explains the registration and inspection process and labeling requirements. Read more about those parts of the Home Bakery Registration Law in our bulletin, available on the Farm Office Food Law Library at https://farmoffice.osu.edu/our-library/food-law.
Tags: food law, home bakery, starting a food business, cottage foods, Ohio Cottage Food Law, Ohio Home Bakery Law
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Recently, there has been renewed interest in a tax strategy involving excess fertilizer in farmland. The idea behind this strategy is to allocate a value to any residual fertilizer in farmland that was recently purchased or inherited. The value of the fertilizer is then deducted to offset income. While this strategy does have merit, it is considered by some tax professionals to be an aggressive tax strategy and caution should be used when implementing.
This strategy is centered on excess fertilizer being in the soil when farmland is acquired. Excess fertilizer is that amount of fertilizer over and above the base nutrient levels. The excess fertilizer is treated as a separate asset that can be distinguished from the soil. A value is attributed to the excess fertilizer and that value is amortized based on the depletion rate of the fertilizer. In essence, the new owner of the farmland is claiming they can put a verifiable value on the excess fertilizer and then amortize the value of the fertilizer.
In a 1992 Technical Advice Memorandum (TAM), the IRS stated that to amortize the cost of fertilizer acquired with land, the landowner must establish the extent of the fertilizer, the value of the fertilizer and the depletion rate of the soil nutrients. The burden is on the taxpayer seeking the deduction to prove the extent, value and depletion rate of the soil nutrients. It is important to note that a TAM is not legal authority and cannot be cited as authority, but it does potentially give insight as to the position the IRS would take in a similar matter.
To help explain this concept, consider the following example:
Arthur applied $15,000 of fertilizer to his farm in November 2022 in anticipation of growing a crop in 2023. In January 2023, Arthur dies unexpectedly, and his son Alex inherits the farm. Alex is a farmer and intends to grow a corn crop on the farm in 2023. Alex hires an agronomist who determines that all the fertilizer applied by Arthur is in excess of base nutrient levels and will be depleted over a three-year period. Alex deducts the $15,000 of excess fertilizer in 2023, 2024 and 2025.
If an attempt is made to deduct excess fertilizer, something like the above example is an ideal scenario. The fertilizer applied is easily documented, no crop has yet been planted, and the agronomist can establish the depletion rate. All aspects of the strategy should be carefully documented, including a report from the agronomist. Peril awaits those who implement this strategy after they have applied additional fertilizer, grown a crop or can otherwise not properly document the excess fertilizer and/or depletion rate.
While the above example uses an inherited farm, the same strategy can be used with purchased farms. Farms purchased at public auction may sell for a premium if excess fertilizer is present. The premium, if properly documented, can potentially be deducted as excess fertilizer. For farms purchased at private sale, the buyer and seller should address excess fertilizer in the purchase contract and declare a mutually agreeable amount and value. If the buyer allocates a portion of the purchase price to excess fertilizer but the seller does not, the inconsistency in reporting could cause the IRS to deny the strategy.
While identifying excess fertilizer can be a benefit to the buyer, it may be detrimental to the seller. The seller should treat the excess fertilizer as a sale of fertilizer which is subject to ordinary income and thus possibly a higher tax rate. Thus, the seller may be reluctant to participate in allocating a portion of the purchase price to excess fertilizer. Also, if the buyer were to sell the land in the future, they will need to recapture the excess fertility as ordinary income.
As stated above, allocating a value to excess fertilizer in newly acquired farmland does have merit. However, this strategy has never been formally approved by the IRS and, until it is, comes with the risk that the IRS could reject the deduction of excess fertilizer. Additionally, states are not obligated to follow the IRS’ lead and one state, Minnesota, has a history of closely scrutinizing the strategy. For anyone considering implementing this strategy, they should seek advice from their tax advisor to minimize risks of an adverse IRS ruling and employ an experienced agronomist or soil scientist to provide technical guidance on fertilizer levels and depletion rate. In addition to seeking good, qualified advice, the landowner should be sure that every aspect of the strategy is well documented.
Note: this strategy can apply to any addition to the soil such as lime or micronutrients.
The solar energy “boom” in Ohio continues to encounter opposition from local communities that would be home to large-scale solar developments. Yesterday, the Ohio Power Siting Board (OPSB) denied a solar project application in Defiance County due to “general opposition by local citizens and governmental bodies.” Just before the holidays, a project in Greene County met the same fate. The cases now bring the number of solar project rejections in Ohio to three. Each one highlights the role community opposition can play in project denial, particularly when local governments are part of that opposition.
How does OPSB review a proposed solar project?
The OPSB is responsible for reviewing applications for solar energy projects that are over 50 MW in capacity. Currently, the members of the OPSB include the chair of the Public Utilities Commission of Ohio, directors of the EPA and departments of Agriculture, Development, Health, and Natural Resources, and a public member, along with four non-voting legislators. In the future, a county commissioner and township trustee will also join in the OPSB review process.
Ohio law requires the OPSB to analyze eight criteria when reviewing an application and deciding whether to grant a certificate to construct a major utility facility. The law states in Ohio Revised Code 4906.10(A) that OPSB shall not grant a certificate unless it finds and determines all of the following:
(1) The basis of the need for the facility if the facility is an electric transmission line or gas pipeline;
(2) The nature of the probable environmental impact;
(3) That the facility represents the minimum adverse environmental impact, considering the state of available technology and the nature and economics of the various alternatives, and other pertinent considerations;
(4) In the case of an electric transmission line or generating facility, that the facility is consistent with regional plans for expansion of the electric power grid of the electric systems serving this state and interconnected utility systems and that the facility will serve the interests of electric system economy and reliability;
(5) That the facility will comply with Chapters 3704., 3734., and 6111. of the Revised Code and all rules and standards adopted under those chapters and under section 4561.32 of the Revised Code. In determining whether the facility will comply with all rules and standards adopted under section 4561.32 of the Revised Code, the board shall consult with the office of aviation of the division of multi-modal planning and programs of the department of transportation under section 4561.341 of the Revised Code.
(6) That the facility will serve the public interest, convenience, and necessity;
(7) In addition to the provisions contained in divisions (A)(1) to (6) of this section and rules adopted under those divisions, what its impact will be on the viability as agricultural land of any land in an existing agricultural district established under Chapter 929 of the Revised Code that is located within the site and alternative site of the proposed major utility facility. Rules adopted to evaluate impact under division (A)(7) of this section shall not require the compilation, creation, submission, or production of any information, document, or other data pertaining to land not located within the site and alternative site.
(8) That the facility incorporates maximum feasible water conservation practices as determined by the board, considering available technology and the nature and economics of the various alternatives.
Once all required elements of an application for a certificate are submitted and the application is complete, which can take many months, the OPSB staff and board begins its evaluation of the application to decide whether to grant the certificate. The review process, which might include intervening parties and multiple hearings, can last for many months or even a year or more. During that time, the OPSB must examine the application to determine if it meets the criteria in ORC 4906.10(A), relying on the expertise and recommendations of OPSB technical staff.
Recently approved solar projects
In December, the OPSB approved the application of Springwater Solar, a 155 MW solar project proposed to be built on 1,085 acres in Madison and Franklin counties, holding that the project met all of the criteria in ORC 4906.10(A). The decision brings the total of approved solar projects in Ohio to 34, representing 6,175 MW to be built on 63,554 acres, as illustrated on the map below. The map also displays additional pending applications totaling 3,139 MW and 29,076 acres.
Source: Ohio Power Siting Board, available at https://opsb.ohio.gov/about-us/resources/solar-farm-map-and-statistics.
Recently denied solar projects
Two solar project applications recently reviewed by OPSB did not receive a green light from the board. In December, the OPSB denied an application by Kingwood Solar that proposed to construct a 175 MW solar facility on 1,200 acres in Greene County. And on January 18, the OPSB denied a Cepheus Energy proposal to construct a 68 MW solar project on 649 acres in Defiance County. Before those two rejections, the OPSB had only previously denied one solar project application—the Birch Solar application rejected last October. In all three instances, the OPSB based its denial on ORC 4906.10(A)(6), stating that the projects would fail to serve the “public interest, convenience, and necessity” due to general opposition.
In the Cepheus application, the board focused on local public interaction and participation, reviewing public testimony and 600 pages of public comments on the project. The board also noted that seven local governments had expressed concern or opposition to the project, including the Defiance Soil and Water Conservation District, Delaware and Sherwood Township trustees, Defiance County Economic Development Office, Defiance County Board of Commissioners, Delaware Township Fire Department, and Sherwood Area Economic Development Corporation.
The interests of these impacted local government bodies was “especially compelling” given that the organizations have the responsibility for preserving the health, safety, and welfare of their citizens, OPSB noted. Stating that there was “general opposition from local citizens and governmental bodies” and that local impacts would outweigh the project’s benefits, the board concluded that the project would not serve the public interest, convenience, and necessity.
The Cepheus rejection is similar to the Kingwood Solar project denied by OPSB in December. In that case, the board reviewed Kingwood’s assertions of the positive economic impacts and renewable energy choices the project would bring the community, then focused on local responses to the project. About 76% of those testifying during a 6.5-hour hearing were opposed to the projects and expressed an overarching concern that the project was not compatible with local land use plans and would “unalterably change the rural nature of the community.” The board also noted concerns by the Citizens for Greene Acres, a local group that intervened in the case, regarding the unique characteristics of the wildlife, parks, recreation, cultural, and historic areas that would be affected and the high density of residents that would reside within 500 feet of the project.
But once again, a critical concern for OPSB was the clear opposition of local governments impacted by the project. Cedarville Township, Xenia Township, Miami Township, and the Greene County Commissioners had all intervened in the case and adopted resolutions opposing the project. Although Kingwood Solar had agreed to address 39 conditions of development that it had offered in a Stipulation agreement, none of the local governments agreed to the Stipulation and instead opposed approval of the project. OPSB concluded that local opposition, “especially as demonstrated by Greene County and the three townships affected by the project,” warranted a conclusion that the project would not serve the public interest, convenience, and necessity.
Now what happens?
It’s typical in a rejection of a utility application for the developer applicant to exercise the right to request a rehearing. That has already occurred for the Birch Solar and Kingwood Solar projects, and we can expect a rehearing request for the Cepheus denial that just occurred on January 19. Interestingly, it was not just the solar developer that requested a rehearing of the Kingwood project application—Greene County, the affected townships, and the Citizens for Greene Acres also requested a rehearing. While those parties stated support for the decision of the OPSB that denied the certificate, they argue that in its findings, OPSB failed to determine that there were many other grounds for denying the certificate such as incompatibility with local land use planning, incapacitation of 1,025 acres of productive farmland, and negative local economic impacts.
Now we await the determinations by OPSB on the rehearing applications. The projects are each on hold, and construction cannot move forward unless the OPSB reverses its decision and approves the applications.
More questions
The recent decisions by OPSB leaves us asking a few questions. Does three rejections establish a trend in solar project denials due to community opposition? Did the communities involved in the 34 solar projects approved by OPSB oppose those projects? Do the local communities in the projects that are still pending before the OPSB oppose or support the projects, and how will community voices affect the review of those projects? While we don’t have the answers, we’ll keep monitoring developments in large-scale solar development as we consider these important questions.
Tags: solar energy, solar leasing, OPSB, Ohio Power Siting Board, renewable energy
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The 2023 Farm Office Live Season kicks off this Friday, January 20, 2023, from 10:00 - 11:30 AM. Our team of specialists and attorneys will be presenting on:
- Federal Program Updates
- Upcoming Programming
- Power of Attorney Documents
- Legislative and Regulatory Documents
- Crop Inputs and Budget for 2023
- Timely Tax Issues
The monthly Farm Office Live webinar is always free, and registration is available at go.osu.edu/farmofficelive. Register once and you'll receive notices of all of our 2023 webinars. The registration site also houses our archive of all Farm Office Live webinar recordings and materials.
Tags: Farm Office Live, Webinar, Ag Law, tax, Crop Budgets, Federal Programming, farm management
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As farm machinery has become more complex and reliant on computer software, the right-to-repair issue has become a prominent issue in the farm community. Farmers are sometimes prevented from repairing their own equipment because they do not have access to needed diagnostic tools or are otherwise barred due to embedded software. Farmers have voiced their criticism of manufacturers as right-to-repair has become a prominent issue in the agricultural community.
In an effort to address the right-to-repair issue, the American Farm Bureau Federation (AFBF) and John Deere recently entered into a memorandum of understanding (MOU) in which Deere agrees to provide access to documentation, data and diagnostic tools used by the company’s authorized dealers. This development was likely a response to pressure that Deere and other manufactures were under to allow right-to-repair. New York recently passed a right-to-repair law and Senator Tester introduced right-to-repair legislation in the U.S. Senate earlier this year.
Software User License
The issue of right-to-repair is related to a user’s license. The term “license” has a specific meaning under the law. Someone who holds a license for a product is allowed to use the product but does not own the product. In 2016, Deere began using a user’s license for the software in its machines. Essentially, when a customer would buy a machine from Deere, the buyer had ownership of the steel but did not own the software that makes the machine operate.
Software licensing has its roots in 1980’s software. The burgeoning consumer software industry initially sold its software to customers and retained no rights to the software. These software developers began to see purchasers of their software reverse engineer the software and development slightly different software that resulted in the same functionality. In essence, a person could buy the software, make a change to the software to potentially avoid copyright infringement, but end up with software that did the same thing as the originally purchased software. This process essentially allowed for the stealing of intellectual property from the software developer, but the developers had little legal recourse.
To overcome this loss of intellectual property, software developers began selling a license to use the software. The software license allowed the purchaser to use the software, but the software developer retained ownership. The license agreement expressly prohibited reverse engineering or using the software in other ways that jeopardized the software developer’s intellectual property. By keeping ownership, software developers could take legal action against people who tried to copy and resell the software.
The software license worked reasonably well for many years. The vast majority of software users were oblivious to the license agreement and continued using the software as they always had. The licensing arrangement help protect the software developers’ intellectual property. However, in the last twenty years or so, software began to be embedded in electronic devices blurring the lines between the software and the hardware. A new tractor seems to be as much a computer running software as it does a power unit pulling implements.
Right-to-Repair
The integration of software into farm machines came to light in 2016 when John Deere implemented a software user license agreement to presumably protect its intellectual property. Its licensing agreement clearly stated that reverse engineering or copying of the software is prohibited. However, Deere seems to have taken it one step further. Farmers and independent repair shops were prohibited from having the diagnostic tools and manuals required to make repairs. This denial of diagnostic tools effectively made it impossible for farmers and independent mechanics to make repairs on some John Deere equipment. Many people in the farm community expressed their concern about the license agreement and saw it as scheme to keep the repairs, and the fees from those repairs, all within the John Deere dealer network. Farmers wanted to be able to repair their own equipment, or use other independent third parties, to potentially save money and to have more timely service, especially during busy times like planting and harvest.
Due to pressure from a combination of the new legislation in New York, the right-to-repair legislation introduced in the Senate and dissatisfaction expressed by farmers, John Deere likely felt it was best to make some concessions with farmers while keeping ownership of the software. This speculation is supported by the fact that AFBF agreed to “refrain from introducing, promoting, or supporting federal or state "Right to Repair" legislation that imposes obligations beyond the commitments in this MOU.” So, it seems AFBF agreed not to pursue right-to-repair legislation in exchange for Deere loosening its prohibitions of right-to-repair.
While it is impossible to foresee all the future implications for an agreement like the one between AFBF and Deere, it does seem that it is a reasonable compromise. Farmers can now have access to diagnostic tools to allow for self-repairs while Deere keeps ownership of its software. Critics argue the agreement does not go far enough and Deere still has too much control over self-repairs. We will see over the next few years if the agreement is, in fact, a reasonable compromise.
Memorandum of Understanding
It is noteworthy that the agreement between AFBF and John Deere is memorialized within a Memorandum of Understanding. For those not familiar with an MOU, there may be some curiosity as to its legal context. MOUs are most often used at the beginning of a negotiation to ensure that both parties are starting with the same understanding of their current positions, to make clear what each party is seeking from the negotiation and that it is worthwhile for both parties to move forward. Unlike a contract, an MOU is generally not legally enforceable. Because the agreement is an MOU, neither AFBF nor Deere is legally bound to its terms. Neither party has legal recourse if the other party does not honor its commitments as outlined in the MOU. If either party reneges on its commitments, the party at fault will likely receive criticism in the public opinion realm but will likely have no legal liability.
Conclusion
The John Deere software licensing issue is a good example of how new technology can require new strategies and concepts in the law. Prior to the 1980’s, copyright law had worked just fine for books and movies but it did not work well for the new medium of software. So, the concept of software licenses was developed to address the threats to the software industry. Twenty years later when the line between software and hardware began to blur, software licenses were again modified to protect the developer of the software. In the case of John Deere, perhaps they went a bit too far in enforcing their licenses. The threat of unfavorable legislation and criticism from customers probably caused John Deere to walk back their stance on prohibition of diagnostic tools to allow self-repairs. Hopefully, the agreement between John Deere and AFBF has found a reasonable middle ground that benefits all parties.
The Environmental Protection Agency (EPA) made a big splash when it released its final rule for defining “waters of the United States” (WOTUS) on December 30. Immediate criticism and support for the new rule surfaced as many undertook the unenviable task of interpreting the rule’s 514 pages of text. Perhaps some enjoyed the challenge of deciphering the latest development in WOTUS. But how many responded with a bit of weariness, asking what this “new” rule really means for agriculture and, more importantly, does it really matter?
What does the new final WOTUS rule mean for ag?
There are several answers to this question. The first and most practical answer is that the rule changes which waters are subject to federal jurisdiction under the Clean Water Act (CWA). Through its permit programs, the CWA aims to protect water quality by preventing discharges of pollutants, dredge, or fill into a water that fits within the rule’s definition of “waters of the United States.” A water that falls into any of five categories now laid out in the new WOTUS rule is a “water of the United States” that will be subject to CWA permit requirements and regulations, once the rule is effective. But the rule also contains exceptions and exclusions to CWA jurisdiction, and waters that fall into these categories won’t be subject to CWA regulation.
The categories, exceptions, and exclusions all attempt to draw lines around waterways that are at risk for pollution and dredge and fill activities and thus should be protected under the CWA. It is the less “obvious” waterways, like wetlands and ephemeral streams, that create consternation and raise the eternal question: when is a water sufficiently connected to an “obvious” water body, and thus at risk for harm, to warrant CWA regulation? The new rule tries, once again, to answer this difficult question. As it does so, it repeats many of the categories, exceptions, and exclusions that we’ve seen in previous WOTUS rules, but there are some changes and attempts at clarification. For an explanation of the new rule’s categories, exceptions, and exclusions, see this summary of the rule by our partner, the National Agricultural Law Center. Agricultural interests have reacted to the changes in the rule; see this article for those reactions.
A second and more skeptical answer to the question of what the rule really means for agriculture is that it modifies the landscape for legal challenges to WOTUS. As history illustrates, the new WOTUS rule will be challenged as the agencies interpret and enforce the rule against agriculture and other regulated communities. New rule, new arguments, new court decisions--it’s a cycle we’ve witnessed before. And a legal challenge to the validity of the rule itself, not just to an application of the rule, is also likely. The court cases that arise from such challenges might help answer the question of what the rule really means for agriculture or might instead create more confusion and continued battles.
Does the new rule really matter?
If you’ve followed WOTUS recently, you may know that the United States Supreme Court (SCOTUS) heard an appeal in October by the Sacketts, landowners who were affected by an agency interpretation that subjected their property to CWA jurisdiction. That challenge centered on whether the “significant nexus” test is an appropriate test for determining whether the wetlands on the Sackett property fall into the definition of “waters of the United States.” The new WOTUS rule contains a renewed EPA attempt to clarify the “significant nexus” test and also introduces a new “material influence” standard for smaller waters and wetlands. As we await the SCOTUS decision, we must acknowledge that its outcome could require EPA to rewrite any parts of the rule, especially the significant nexus and material influence provisions, that conflict with the Court’s holding.
Due to the impending SCOTUS decision and potential legal challenges to the rule, the WOTUS rule might not even go into effect. The rule cannot be effective until 60 days have passed from the date it is published in the Federal Register. It has not yet been published in the Federal Register, so the 60-day time clock is not yet ticking. There’s a slight possibility SCOTUS will rule before that effective date, and also a possibility that if the rule does become effective, immediate legal challenges will put the rule on hold. In both situations, we have an answer to the question of what the rule means for ag: possibly nothing.
WOTUS weariness
I have never experienced such exhaustion over a legal issue as I have with WOTUS. That’s because we have yet to solve the problem despite a long, long, parade of court cases and revised rules. We still await clarity to the definition of WOTUS and certainty on which waters should be subject to CWA. Congress could take a shot at doing so, given that Congress enacted the CWA and established the very term, “waters of the United States.” Yet Congress sits silent on the issue.
For me, it is the overlooked questions, and the need to examine the big picture, that most contribute to WOTUS weariness. Is the WOTUS battle effectively addressing water quality? Is it time to admit that a fix to WOTUS might require a new approach? Under the old adage of “check your premises,” perhaps we should examine the premise upon which WOTUS rests—waters that are “inside” the scope of the definition are similar, all under the same risks, and should all be regulated by CWA. While the obvious and easily identifiable water bodies can benefit from WOTUS and CWA, should we quit trying to define those other waters and instead focus on different mechanisms that manage water quality risks to them? Would we get further, faster, with a new approach?
The final question: is there actual improvement in water quality that comes with yet another rule, another change, and more challenges to the scope of the definition of WOTUS? The answer to that question, I fear, is no--but a focus on that question could be a way to overcome WOTUS weariness.
Read the new WOTUS rule from the EPA, and additional EPA resources about WOTUS. More on the Sackett case is in this recent blog post.
Tags: WOTUS, waters of the United States, EPA, Clean Water Act, water law, water quality
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