CHAPTER 8 THE INDIAN ENERGY PROMOTION AND PARITY ACT OF 2010: OPPORTUNITIES FOR RENEWABLE ENERGY PROJECTS IN INDIAN COUNTRY
| Jurisdiction | United States |
(Mar 2011)
THE INDIAN ENERGY PROMOTION AND PARITY ACT OF 2010: OPPORTUNITIES FOR RENEWABLE ENERGY PROJECTS IN INDIAN COUNTRY
Beatty & Wozniak, P.C.
Denver, Colorado and Santa Fe, New Mexico
Robert S. Thompson III
Beatty & Wozniak, P.C.
Denver, Colorado
KELLY DE LA TORRE chairs the Renewable Energy and Transmission practice group and practices in the Denver and Santa Fe law offices of Beatty & Wozniak, P.C. Kelly advocates on behalf of energy clients before the Colorado Public Utilities Commission and the New Mexico Public Regulation Commission and regularly interacts with state infrastructure authorities in the rocky mountain region. Kelly uses her extensive experience in facilitating integration and commercialization of emerging technologies to create legislative strategies for renewable and emerging energy technologies, craft legislation and identify rules and rule changes to support these initiatives, and focuses on regulatory matters relating to project development. She has a strong technical background and is a member of the U.S. Patent Bar. She uses this background in the regulatory arena to focus on regulatory challenges to energy and electrical power transmission development and to facilitate discussions and coordinate interactions with policy makers, supporting agencies and other stakeholders in the states of Colorado and New Mexico. Kelly holds a B.S. in biochemistry, an M.S. in chemistry and a J.D. from Rutgers School of Law-Camden.
ROBERT S. THOMPSON, III. Upon graduation from the University of Wisconsin Law School in 1979, Rob was selected for the Solicitor's Honors Program and moved to Washington, D.C., to serve in the Solicitor's Office of the Department of Interior. Following his departure from government service in 1981, he entered private practice and focused on Indian law, federal litigation and natural resource development. Rob is a member of the Wisconsin and Colorado Bars, and is admitted to practice before various tribal court bars, the United States Supreme Court, the United States Court of Claims, and the United States Courts of Appeal for the Eighth, Ninth, and Tenth Circuits. Rob has acted as general or special counsel for 12 Indian tribes and as litigation, transactional, and business counsel to numerous oil and gas industry clients. Some of his representative accomplishments include: (1) negotiation and passage of legislation addressing the dual severance tax imposed on Indian lands; (2) participation in recent revisions to Onshore Order No. 1 and successful insertion therein of procedures to ensure federal and Indian oil and gas lessees access to split estate, surface lands; (3) negotiation, drafting and completion on the part of the oil and gas industry, of traditional and non-traditional development agreements on Indian lands, including those of the Blackfeet Tribe, Northern Ute Tribe, Ute Mountain Ute Tribe, and Shoshone and Arapaho Tribes; (4) representation of gas pipeline companies and the natural gas industry in the Congressionally mandated Section 1813 Study dealing with rights-of-way on Indian lands; (5) participation as a committee member on the group drafting the existing valuation regulations for natural gas production from Indian lands; (6) establishment of reserved water rights as counsel for the Northern Arapaho Tribe in adjudication of the Wind River in Wyoming; (7) negotiation and drafting of joint venture agreements and partnerships dealing with natural gas transportation systems between oil and gas companies and between oil and gas companies and Indian tribes; and (8) identification of acceptable and proper manufacturing allowances for natural gas in Shoshone and Arapaho Tribes v. Hodel, 903 F.2d 784 (10th Cir. 1990). Rob is a nationally recognized expert on the development of federal and Indian natural resources and the statutory and regulatory requirements applicable to such development. He has made presentations on issues pertaining to development of Indian minerals and enforcement of mineral agreements covering those lands to the National Academy of Sciences, the Rocky Mountain Mineral Law Foundation, and the Federal Indian Bar Association. Rob is an enrolled member of the Cherokee Nation of Oklahoma and he and his wife, Trish, are the proud parents of three adult children.
Introduction
As a result of the location and relocation policies of the United States, and the fact that non-Indian homesteaders were less than enamored by the reservation lands granted to Indian tribes, Indian tribes now possess substantial hydropower, wind, geothermal, solar and other renewable energy potential. However, development of these renewable resources lags far behind the progress made on non-tribal lands, due primarily to cumbersome procedures, additional regulatory requirements and policy challenges attending the development of tribal resources.
These challenges exist despite efforts on the part of the Division of Indian Energy Policy Development, an office of the Department of Interior ("Interior") under the direct supervisory authority of the Assistant Secretary-Indian Affairs, and enactment of the Indian Tribal Energy Development and Self-Determination Act of 2005 ("Energy Policy Act");1 the latter being intended to empower tribal energy development. While the Energy Policy Act directs Interior and the Department of Energy ("Energy") to provide assistance and incentives to facilitate energy development on tribal lands,2 three major challenges have been identified and described in a concept paper distributed by the U.S. Senate Committee on Indian Affairs entitled, Draft Indian Energy Concepts Paper ("SCIA Paper"), these being:3
1. Difficulty in obtaining financing for tribal energy projects;
2. Lack of tribal access to the transmission grid; and
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3. Inadequate Federal staffing and technical assistance.4
This paper provides an overview of incentives that normally drive renewable energy development, and the challenges that appear to be inhibiting the growth of renewable energy projects on Indian lands. It will set out the background for the types of structures that work to drive energy development and current progress to open the door to these incentives in the context of tribal renewable energy development.
A. Key Mechanisms to Incentivize Renewable Energy Development.
As a practical matter, policy support is necessary to enable renewable energy to compete with conventional energy. Two mechanisms to incentivize renewable energy development have been particularly successful in driving project development: (1) state renewable portfolio standards ("RPS") also referred to as renewable energy standards ("RES"); and (2) tax and financial incentives.5
In general, depending on the state, an RPS mandates that between 4 and 30 percent of electricity be generated from renewable resources by a specified date; thus requiring renewable energy resources to come on-line within defined timeframes.6 In effect, the RPS mandate forces utilities to consider and integrate renewable energy into resource planning, thereby creating market demand.
The second significant impetus for renewable energy development is access to tax equity financing. This financing is typically provided by large financial institutions such as banks, insurance companies and utility assets that use the investment to offset other tax liabilities. In tax equity financing, an investor receives a return based on federal and state income tax benefits in addition to cash flow from the project.7 The primary drivers in this sector are the Production Tax Credit ("PTC") and the Investment Tax Credit ("ITC"). To be effective, however, these tools require access to capital markets and large tax liabilities.
The PTC stimulates development by providing tax credits for electricity that is produced and sold. The effect is to supplement after tax earnings. The PTC provides a tax credit per
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kWh, currently a credit of 2.1 cents per kilowatt-hour8 that the electric farm generates and sells to an unrelated person.9 The tax credit varies by resource and can be applied for the first ten years measured from the date the project is placed in service. The PTC is not, though, permanent tax law, and its effectiveness should be analyzed in light of its enactment history. Since its establishment in 1992, it has been allowed to lapse three times, in 2000, 2002 and 2004. Subsequent to each lapse, the industry experienced sharp declines in new capacity during each three year period.10
The effectiveness of the PTC can be further analyzed in light of the recent financial crisis. The financial crisis chilled lending opportunities and thus made the PTC undesirable to investors that no longer needed tax credits to offset income.11 Congress nevertheless recognized the value of the PTC in driving wind energy development and provided additional federal support in the American Recovery and Reinvestment Act of 2009 (ARRA). Congress supported wind energy in three ways, by: (1) extending the PTC through the end of 2012;12 (2) enabling a thirty percent ITC in lieu of the PTC;13 and (3) providing for a grant in the amount of the ITC that the developer would be otherwise able to access under Section 1102, generally referred to as the 1603 Grant.14
Much of the cost of a wind farm is borne by the equipment, namely turbines, blades and towers.15 Because most of this equipment is depreciable, the ITC provides the opportunity for owners of these facilities to elect an up-front tax credit equal to 30% of these costs, as eligible.
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Tax grants under §1603 allow for a grant payment in the amount of "the applicable percentage of the basis of such property."16 "For wind, the applicable percentage is thirty percent, and the basis will be the cost of purchasing the wind machine components and other property at the site reduced by any...
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