Many of us are familiar with the hit movie Forrest Gump. One of the classic lines in the movie uttered by Mr. Gump is “stupid is as stupid does.”

I’d like to apply such words of wisdom to a hypothetical. Suppose I come to your farm and tell you that I am interested in buying the corn and soybeans that you raise (assuming all those reading this raise corn and soybeans). The first aspect of such an arrangement you would probably want to know is how much I’ll pay per bushel for each crop. Suppose I tell you, as of today, I’ll pay you $7 per bushel for corn, and $15 per bushel for soybeans. Not a bad price, considering that current price levels are far below this. Safe to say, most growers would be asking where they sign.

However, let’s say I then tell you that I want the agreement to be in effect for at least 40 years, with options to extend the agreement up to 100 years. I bet you wouldn’t be so eager to sign under those conditions. We all know that attractive prices of today may not even cover the input costs in years to come. So, signing such a long-term arrangement would probably be worthy of Mr. Gump’s famous line.

Now, let’s apply Mr. Gump’s logic to present-day wind energy contracts. To begin, I have reviewed all kinds of differing wind energy lease agreements for clients. Most of these contracts offer the landowner a per acre amount for signing up, and then a royalty for the amount of megawatt hours of electricity installed. For instance, one particular contract I reviewed offered the landowner $7,500 per year for each megawatt installed on the farm. Not bad, considering if the company was able to install multiple turbines.
However, as you can imagine, no wind energy agreement out there operates on a year-to-year basis. The shortest duration stated in a wind energy contract I have reviewed is 40 years. The longest duration was perpetual. Yep, that’s right - it went forever so long as electricity was being produced by the turbines. Generally, most leases I review are around 70 years or more of duration.

So, a landowner signing an agreement with terms paying $7,500 per year per megawatt with a duration of 70 years will be paid $7,500 per megawatt in 2010 and each and every year thereafter up to the year 2080. Why on Earth would anyone agree to be paid the same amount each year all the way up to the year 2080? I doubt $7,500 buys much in 2080. For this reason alone, I think signing a wind energy agreement for fixed payments over a long period of time would be worthy of Mr. Gump’s quote.

Anyone looking to enter into a long-term wind energy agreement should insist upon the payments being tied to the Consumer Price Index (CPI) or other inflationary index. Thus, as the spending power of the payment diminishes over time, the payments increase.

If the company balks at such, I strongly suggest you run, not walk, away from the agreement. It’s bad enough to tie up your land indefinitely, even worse if the purchasing power of your payments decreases each year.

The moral of the story is that when presented a wind energy lease agreement, don’t be lured into signing an agreement based off of what the payments will be paid to you in the short term. Consider what the payments will be decades down the road. Else, you may find yourself having a wind turbine on your farm that only generates enough income to buy a loaf of bread in the distant future, as well as Mr. Gump’s famous saying hanging over your head.

John J. Schwarz, II, is a farmer and attorney in Steuben County, Ind. He focuses his practice on agricultural law and legal issues important to farming communities. He can be reached at 260-665-9779 or jschwarz@cresslaw.com

These articles are for general informational purposes only. If you have a specific legal question, you should consult an attorney. The views and opinions expressed in this column are those of the author and not necessarily those of Farm World.