Blue Stone Insights

Plan Energy Projects That Bring Prosperity to Your Tribe
Kevin Blaser
November 14, 2022

Reading Time: 10 minutes

The energy space is ripe with potential for Tribes — from energy generation, transmission or even creating your own utility. I would like to give you an overview of the opportunity and then 5 essential steps Tribes must take when taking on or considering energy projects. While the information in this article is applicable and useful for many energy markets, it will focus on energy generation projects that use Tribal land. 

The Energy Market Potential

Energy is a Largely Untapped Massive Source of Revenue

Energy generates remarkably high revenue. Electricity generation across the USA over the last year, that is megawatt hours generated — it was almost $2 trillion worth of value. Some reports project that Tribes could have 6-8% of that total electricity generation market. This translates into a $140-160 billion revenue opportunity for Tribes.

For perspective, let’s compare this number to another source of revenue— gaming. Gaming as a whole, including Las Vegas, is almost $85 billion in revenue over the last year. Tribes account for almost $60 billion of that total. By simply looking at these numbers, we see that energy development, with time and investment, could be two to three times larger than gaming. However, the current presence of Tribes in the energy space isn’t even close to gaming and has considerable room to grow. Keep in mind, this is just using land as a site for energy generation. There are many other energy markets.

Energy development could be two to three times larger than gaming.”

Unprecedented Funding

The transition into a carbon-less renewable electrification system is being funded now in massive amounts. There is an unprecedented amount of federal funds available for renewable energy, grid scale, stored energy, and more. The opportunity is something that’s never happened before and probably will never happen again, simply based on the size of the deficits being created.

The Tribal Advantage – Sovereignty

The regulatory framework of the energy has a long history that significantly complicates and hinders progress for most developers and entities entering the energy market, but Tribal sovereignty is the answer to that problem. Tribes still deal with regulatory bodies but can bypass many of the different local government layers that are normally part of the process because they are sovereign. 

With the right understanding of the process, Tribal energy projects can leverage their sovereignty to make their energy projects a reality. Further down this article, we explain 3 ways Tribal sovereignty can play a major role in your energy projects. 

5 Essential Steps for Planning Tribal Energy Projects

1. Assess Your Tribal Capacity

Leaders should start by evaluating Tribal capacity for an energy project with a comprehensive assessment. That is, understand who you have on staff and what skills and experience they have that are applicable to energy projects. Do you have the staffing expertise for identifying land requirements? A small biodigester (a system that transforms your organic waste into a useful energy) has completely different land requirements from a 25 megawatt grid-scale battery storage or a large solar array. There’s also specialized infrastructure expertise that is needed that can differ from the traditional infrastructure like transmission, roads, water, etc. In addition, there are regulatory needs like legal ordinances, permits, and environmental reviews that can be very complex to navigate. All energy projects touch on these different factors throughout the various stages of its lifecycle and a Tribe needs to assess its existing capabilities to address them.

2. Create a Tribal Energy Strategy

The next step is to create a Tribal energy strategy with goals and processes in place for achieving your energy projects. The best place to start is to figure out what you’re trying to accomplish. Do you want to electrify all of your buildings and have the ability to completely disconnect from the grid? Do you want to control who and how electricity comes to you? Do you want to guide the incumbent utility operations? This is necessary because the energy space is going to outlive any current leaders and sets a vision for the future of a Tribe’s energy. It allows leaders to articulate goals to outside stakeholders, internal stakeholders, Tribal members, and staff. And, it becomes a vetting process for new ideas and projects. Does this fit our Tribal energy vision and strategy? Whether a developer comes to a Tribe with a project or an internal idea from another Department, a Tribal energy strategy quickens the decision-making process before wasting any time or resources and it streamlines the process for any Tribal energy project you take on. 

Tribes need an energy vision becuase energy projects are going to outlive any current leaders.”

3. Understand the Regulatory Framework

With any Tribal energy project, it’s crucial to understand the regulatory framework it will be operating under. There are many moving parts and Tribes have the unique advantage that they can bypass a tremendous amount of oversight due to their sovereignty. But it is still essential to do your due diligence with regulatory research as small mistakes at the front end get magnified very quickly and turn into very big dollars at the back end of these projects. 

Here are 5 important regulatory considerations to look at with each new project:

Is any project area part of an ISO/RTO?

An ISO/RTO is an independent system operator, regional transmission organization. These are big companies that operate the bulk power system at 100K volts and higher. (need some info on the ramifications if it is part of a ISO/RTO?)

What potential oversight does the State Public Service Commission have over the project?

If your project is built outside of tribal trust land there is potential for state oversight from the State Public Service Commission. Incumbent utilities will also try to protect their monopoly which means potential exposure from the State Public Utilities Commission. In these situations, Tribes aren’t as protected by their sovereignty. 

What advantages does Tribal Sovereignty provide?

The first major advantage is that Tribes aren’t beholden to the state’s rate structures, paying for legacy assets that come with interconnection, and being taxed. A Tribe just has to figure out how to pay for its own assets. Without all these factors, a tribe can buy wholesale energy at wholesale prices and mark it up however it wants to be able to make a profit.

Another major advantage is the ability for imminent domain to condemn and take equipment. There is a process involved with imminent domain, but it gives Tribes an advantage in negotiations, especially with resistant utilities.

Finally, what are the easements running through Tribal lands? Have they been filed correctly? Do they expire soon? What can the Tribe do to manage easements to make sure that any energy assets running through its boundaries are being compensated for? Not every easement is straight-forward but it is worthwhile figuring out how easements could impact a project. 

Is the project selling power to non-Tribal entities

If you are generating energy and selling power to non-tribal entities, there are regulations from the Federal Energy Regulatory Commission (FERC) that need to be followed. A legal team that really understands FERC regulations can be of enormous value. Failure to follow regulations can lead to legal trouble that gets expensive very fast. Only a small number of lawyers specialize in FERC and they aren’t afraid to charge.

Project location considerations

Is the project location on trust land or is it on fee simple land? (need definition on fee simple land)  (This leads to whether the State Service Commission has regulatory oversight. It’s not uncommon for projects pitched next to trust land or where a Tribe thinks is part of the reservation but is actually not owned by the Tribe. Land within reservation boundaries doesn’t always mean that the Tribe owns it. It’s important to protect yourself from blindspots in regard to your Tribal land.

4. Evaluate if the Project Is a Right Fit

Thus far we’ve covered important steps that should be addressesed by Tribal Leadership before even having energy projects on the table. Steps 4 and 5 dig into project evaluation. It should be noted that the first 3 steps despite being broad and should be done ahead of time, should always be revisited when considering a new energy project.

Your Tribe’s Role in the Project

What is the role of the Tribe in the energy project? Energy projects most of the time come from a developer that identifies a plot of land within a Tribe and seeks partnership with the Tribe to bring it to fruition. However, what that partnership looks like and how the Tribe benefits depend on the role that the Tribe wishes to take.

Owner, operator, and marketer — a lot of day-to-day oversight and functions like a utility. 

Regulatory oversight and taxation — a developer uses Tribal lands to build their equipment, handles the interconnection, and sells the power. The Tribe simply dictates the regulations and taxes the power that is generated.

Passive Investment — The Tribe leases the land and has no direct involvement in the project. The Tribe makes sure the counter-party is following the terms of the lease agreement and managing payment. Tribes with more land can have leases with 10, 20, or more developers each with their own unique leases which can increase the complexity despite it being passive.

Off-take agreement/Power Purchase Agreement (PPA)  The Tribe has an agreement to purchase a certain amount of the power generated by a developer which allows the developer to seek financing to bring the project to fruition. For example, a casino that needs 15-20 megawatts creates a really strong case for developers to secure their loans because the banks are evaluating the counter-party’s ability to continue to purchase power and pay off the loan.

Technical Location of the Project

A great deal of a project is defined by the distribution systems it is part of and any interconnections it may have. The goal is to understand whether the project generates and distributes energy just within Tribal distribution systems or with other non-Tribal utilities.  We refer to this as the technical location of the project as opposed to the physical location. The technical location of the project can be one of the following:

Front-of-the-meter (FTM) – Interconnects or has access with a utility grid system or has an interconnection with a non-Tribal entity. This means the project will be subject to many more requirements with RTO/ISO, incumbent utilities, FERC, or state public utility commission. The regulatory bodies and oversight of these kinds of projects can quickly ramp up the cost of your project with legal fees, tariffs, connection fees, and more. An important factor in your decision-making.

Back-of-the-meter (BTM) – Typically 100% controlled by the Tribe and only interconnects to Tribal entities. Tribes can leverage their sovereignty and benefit from much less regulation.

5. Prepare for Implementation

After a thorough evaluation process, Tribes need to plan for the implementation and management of the project. Energy projects are long-term assets that change over time and have many costs along the way and long after its been built.

Consider the following when moving into the implementation and management of the project:

Identify Tribal capital contribution – How much is the Tribe paying upfront, for on-going maintenance, and for expansion in the future? Power loads don’t remain static. They grow over time and require financial planning to meet the growing demand.

Identify outside capital sources – What other outside sources of capital can serve as a contribution to the project? A few examples include— national labs across the country that offer free technical assistance for feasibility studies; EFG funds that invest in disadvantaged communities; opportunity zone funds; new market tax credits; and more. However, these outside sources of capital will add layers of complexity to your project. Consider if the cost of managing these capital sources is worth the funding being received.

Tribal permitting & environmental review – Most Tribes have a good understanding of what’s in and under the land that they own but large development projects like these have the potential to uncover environmental factors that could stall out the project such as an endangered species or Tribal remains. Taking the extra precaution to do thorough environmental reviews in the planning process could save a tremendous amount of money in engineering studies, site work, permitting, and more. Additionally, Tribes with the HEARTH act might not need to pay for environmental reviews. 

Feasibility & engineering – Is this a responsibility of the developer or does this need to be outsourced? 

Energy Will Outlast You

Energy development is an opportunity for long-lasting benefits for your Tribe. With a well-established Tribal energy strategy and enough planning, a Tribal energy project will outlast current leadership and continue to serve future generations. In this article, we only covered the potential of using Tribal land for energy generation, but there are many opportunities that Tribes can use to tap into the energy market and leverage it to grow their tribal economy. Over the next 15 to 20 years, we think we’ll see more and more the value of Tribal sovereignty when competing for these growing renewable energy markets. It’s going to open up vast and diverse doors for Tribes to benefit their Tribal members.