Recent reforms that trim the red tape for leasing on tribal land might provide a boost for wind energy projects on South Dakota’s Indian reservations.
Interior Secretary Ken Salazar said the new Bureau of Indian Affairs rules, published last week in the Federal Register, represent the most comprehensive overhaul of Indian Country leasing laws in a half-century.
“This reform will expand opportunities for individual landowners and tribal governments to generate investment and create jobs in their communities,” he said in a news release.
The reforms, which go into effect Jan. 4, give more power to tribal governments to negotiate and execute lease agreements and speed up the process, something that has stymied wind projects in Indian Country.
Delays in obtaining BIA approval can prove especially cumbersome for renewable energy projects, which are broken into a separate category of review.
In 2004, for example, the Oglala Sioux Tribe had negotiated a deal with a wind developer to build a 250-megawatt wind farm on the reservation. The tribe was ready to pull the trigger, even though “back then we weren’t too familiar with how those operations worked,” said Lyle Jack, a tribal council member at the time.
The BIA wasn’t oo familiar with the operations, either. It took more than three years for the agency to complete its valuation review.
“By then, the developers had walked away,” said Jack, now a development manager in the tribe’s office of economic development.
Among other things, the BIA now will defer to tribal governments in negotiating lease values, rather than requiring outside appraisals, and it will have to meet deadlines for reviewing the agreements.
If the BIA doesn’t act on a lease agreement within a specific time frame — 30 or 60 days, depending on the type of lease — it is approved automatically.
South Dakota Secretary of Tribal Relations J.R. LaPlante called the reforms “monumental.”
“When it comes to the use of tribal trust lands, it’s a very slow and tedious process. … This law really gives the tribe a lot more decision-making authority in how they use those lands,” he said.
The Rosebud Sioux Tribe, for example, waited 18 months for BIA to review an agreement it had approved for the tribe’s Owl Feather War Bonnet project, which the tribe began developing in 2003, said Ken Haukaas, who developed wind projects for the tribe until last fall.
He said the tribe is about 80 percent finished with the predevelopment work on the project, a 30-megawatt wind farm proposed for south of St. Francis. Developers have some investment lined up and are ready to sell power on nearby transmission lines.
Rosebud’s other utility-scale proposal is the 190-megawatt North Antelope Highlands wind farm, which the tribe is developing with help from Citizens Energy, a nonprofit organization from Boston.
But the tribe is having trouble obtaining a power purchase agreement for either project.
“It’s a tough environment right now, as anyone in the wind business knows,” said Brian O’Connor, a spokesman for Citizens Energy.
If the Keystone XL pipeline is approved, the tribe hopes to be included in discussions about delivering power to the pumping stations moving oil through the pipeline, said Paul Valandra, an economic development adviser in the president’s office.
Securing power purchase agreements also has been something of a Catch-22 for the Oglala Sioux Tribe, too, Jack said. Investors want a power-purchase agreement in place to ensure steady returns, and the utilities want to make sure the project has adequate financial backing.
“We’ve been through this for years and years,” Jack said. “It’s just like banging your head on the wall.”
The Department of Energy estimated in 2010 the wind potential on tribal lands in the contiguous U.S. at 535 billion kilowatt-hours of energy — 14 percent of total annual U.S. energy generation at the time the estimate was made.
Tribes hoping to develop wind projects face the same challenges as the rest of the industry, such as the low price of competing natural gas and a longstanding transmission bottleneck in rural areas.
They face additional roadblocks. Besides the additional BIA review, financing a tribal wind project is complicated by thorny legal and political issues inherent in the tribes’ status as sovereign nations.
As tax-exempt entities, for example, tribes cannot capture the federal Production Tax Credit, which developers say is crucial for large wind projects.
“If you don’t qualify for the PTC, unless you have the capital to build a merchant plant and sell it on the open market (without a power purchase agreement), it’s hard to make any money,” Haukaas said.
There’s also the question of how the state taxes tribal projects.
South Dakota has taxation agreements with seven of South Dakota’s nine tribes. For wind projects owned by those tribes, state taxes would be applied only in accordance with those agreements, said Tony Venhuizen, a spokesman for Gov. Dennis Daugaard. Projects owned by nonmembers would be fully taxed.
But collaborations between tribal and nontribal entities are more complicated. Venhuizen said the state has no position on taxing these types of partnerships: The Department of Revenue would structure each partnership’s tax bill on a case-by-case basis.
Tribes raise revenue through taxes, too, and “what ends up happening is that sometimes these industries are subject to double taxation,” said Elizabeth Kronk, an associate professor at the University of Kansas School of Law who has studied renewable energy development on tribal land.
Ron Rebenitsch, executive director of the South Dakota Wind Energy Association, said commercial developers sometimes are reluctant to develop wind projects in Indian Country because of uncertainty about enforcing contract law with a sovereign nation.
Rebenitsch, who has developed wind projects for Basin Electric, said the BIA reforms are a step in the right direction, but it remains risky to plan multimillion-dollar projects on the reservation.
LaPlante said tribal governments are making progress in this area.
“It’s a legitimate concern, but I will say there are two tribes that have adopted a version of the Uniform Commercial Code,” LaPlante said — the Oglala Sioux and Cheyenne River tribes.
Additionally, he said, there are now more training opportunities to help tribal judges become familiar with adjudicating contract claims.
Two years ago, the Oglala Sioux Tribe incorporated a renewable energy development authority with power to negotiate and develop wind projects.
The tribe now has two projects in active development: a series of small, 100-kilowatt turbines that will plug directly into the buildings they power, and a 250-megawatt commercial wind farm.
Jack hopes the latter project eventually will anchor a much more ambitious undertaking: the Oglala Sioux Nation Power Authority, an intertribal organization set up to market wind power from reservation turbines.
“If we could get four tribes, that would be a gigawatt of power,” Jack said. That, in turn, would represent about $1 billion of investment and create hundreds of jobs.
Representatives of South Dakota tribes are meeting with the Bush Foundation to discuss a grant to cover the governance costs, Jack said. Former North Dakota Sen. Byron Dorgan, an adviser at the Washington, D.C., law firm that represents the tribe, has been aiding the process.
In retrospect, Jack said, it’s probably for the best that the original deal in 2004 fell through.
“That (delay) gave us a chance to get educated on this,” he said.
The same challenges loom, of course. The industry remains in a slump. The tribes still need to find someone to buy the power, to build the transmission, to finance the projects.
But if they can clear those hurdles, opportunities are excellent to sell the electricity to coastal states hungry for wind power to meet renewable energy mandates, Jack said.
“They’re going to have to get it from somewhere. Why not from us?”
The PUC’s role
It’s unclear what role the South Dakota Public Utilities Commission would play in approving a large tribal wind project.
The PUC has siting authority for wind energy projects of 100 megawatts and greater. It never has presided over a siting docket for a large tribal wind project, however, and it’s far from certain that the commission would have that authority, PUC Chairman Chris Nelson said.
“There isn’t a clear answer to that question,” he said. “Some of the things we would need to consider: Is the project entirely on tribal-owned land? … Are there nontribal members involved in the project?”
The agency’s legal staff would have to review relevant case law to determine the extent of its jurisdiction over a tribal project, he said.
Wind potential, in megawatts, on South Dakota reservations:
Lake Traverse (Sisseton-Wahpeton): 37,429
Standing Rock: 88,943
Pine Ridge: 104,832