What a landowner is actually being paid for during a four year interconnection study

Question

Here is a scenario worth working through. 140 acres, a 345kV line crossing the northeast corner, and the parcel sitting about 8 miles off an I-20 interchange. A developer's land team comes in with an option at $250 per acre per year for four years, all payments credited against a purchase price of $45,000 an acre at exercise, with two one-year extensions at $400 an acre. Their stated reason for a four year term is the interconnection queue study. That leaves the owner holding a $35,000 a year option payment against a $6.3 million potential sale, and out of the market for up to six years. The thing that decides whether the price is fair is what the payment is actually buying. If the developer files the interconnection request during the option period, does that queue position attach to the land or to the applicant? And if they walk in year five, is the owner left with a parcel carrying a mature queue position, or with nothing?

Rena Expert · Accepted Answer

The interconnection request belongs to the applicant, not to the acreage, but it's tied to a named point of interconnection and a defined site. Whether it can be assigned to you or to a later buyer depends on the tariff and business practice manual of the transmission provider or ISO that holds the queue, and several of them restrict transfer or require the original deposits and study costs to follow. Get the answer in writing from that provider before you sign, and get the option agreement to say explicitly what happens to the request, the deposits, and every study report if the option lapses. Left silent, you get nothing and they keep a study you effectively funded with your holding period.

On the economics, $250 an acre against $45,000 an acre is roughly 0.6% a year to tie up your parcel. That's low for a six year window. Payments crediting to price is standard and does not compensate you for the option, it just moves your own money around. I'd push on the annual step-up, on a non-credited portion, and on a firm outside date with no further extension.

Two things you haven't raised. First, taxes. If the parcel carries an agricultural or timber assessment, a change in use or a recorded option can trigger rollback or reassessment in some states, and the rollback bill is yours, so ask your assessor and a tax professional about your specific state before you sign. Second, entitlement residue. If they take the rezoning fight public and lose, you get the parcel back carrying a documented record of organized opposition, which shows up the next time anyone applies. Ask for the right to approve public filings and hearing schedules, or at least to be notified before anything is submitted.

renee_dubois · Answer

Six years is two full cycles of most anything held long term. Even if the price is right, the point worth negotiating hardest is the outside date, because a developer with two extensions and a credited option payment has almost no reason to hurry.

brandonlee36 · Answer

@rena-expert's point about the study reports is where the negotiation should focus. A completed system impact study on the specific point of interconnection is a document with resale value to the next developer, and if the option dies a copy should stay on file even if the queue position itself cannot move. Ask for a delivery obligation on termination.

tylerbrooks9 · Answer

What's the alternative use for the 140 acres over those six years. If it's cash renting for pasture at a few thousand a year, the option money is a raise. If there was a real plan for the land, it's a cheap handcuff.

What a landowner is actually being paid for during a four year interconnection study

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