PUBLIC LANDS:

Tribes see brightening of once-bleak energy development prospects

A few years ago at the Fort Berthold Reservation in North Dakota, one could see natural gas flares light up the night in every direction.

Industry surveyors had tapped the largest domestic oil and gas discoveries in the last 30 years, the Bakken shale formation, and the gas flares from the tops of hundreds of exploration wells turned the empty High Plains landscape into a virtual city of light.

The 2-mile-deep reservoir stretched across parts of North Dakota, Montana and Saskatchewan, holding an estimated 4 billion barrels of oil, according to estimates from the U.S. Geological Survey.

Lease activity on the Fort Berthold reservation spiked accordingly, from no leases in 2007 to 2,500 in a matter of a few months. "It was nearly a gold rush," said Rollie Wilson, senior counsel for the U.S. Senate's Committee on Indian Affairs.

Yet despite enthusiasm over the new find, the reservation's oil and gas remained locked underground because the federal agency in charge of processing the lease payments was overwhelmed, Wilson said.

The Bureau of Indian Affairs' office at Berthold had one agent to oversee the leases. Meanwhile, regulators in the agency's Washington, D.C., office were nearing retirement, while other leadership positions within BIA and the assistant Interior secretary's office sat vacant.

"We lacked real leadership to take charge," Wilson told a tribal energy conference last week in Washington, D.C. "Frankly, we fell behind the ball in North Dakota."

The solution was the creation last year of a "one-stop shop" to help streamline oil and gas leasing for Fort Berthold's Mandan, Arikara and Hidatsa peoples, also known as Three Affiliated Tribes, as well as private landowners in the community of New Town, N.D.

Today, about 20 wells are being managed by BIA's Office of Indian Energy and Economic Development, with the expectation of 100 more by next year.

"There was a need for federal staff to operate at the pace that energy markets operate," Wilson said. "We are getting some folks there, and I think we're making some progress."

New optimism

The third annual Tribal Energy Development conference, held in Washington last week, was both an indictment of the federal government's past performance on tribal energy development and also an enthusiastic embrace of the Obama administration's new energy policies, which call for more effective and responsible development of conventional energy resources such as those at Fort Berthold, as well as an unprecedented expansion of renewable energy, including solar, wind, geothermal and biomass fuels.

The new enthusiasm begins at the top, with President Obama's appointment of Larry EchoHawk as assistant secretary of Indian Affairs -- a post that sat empty for many years during the Bush administration. The selection of EchoHawk, a Brigham Young University law professor and member of Okahoma's Pawnee Nation, is seen by many as a sign that the administration is serious about engaging tribes on a range of economic issues, including energy development.

While EchoHawk has a steep learning curve on energy policy -- his aides would not make him available for an interview on the topic -- industry lobbyists, tribal leaders and other stakeholders say he should set BIA toward achieving three main goals: streamlining the permitting process for energy projects on reservations, improving tax incentives for renewable energy partnerships between tribes and private-sector companies, and easing the regulatory process for siting transmission lines and other infrastructure on reservations.

Legislative solutions to such challenges have been all but impossible in Congress, where reform efforts have been thwarted by fractious debates, often between lawmakers from states with significant tribal energy resources, or simply fallen by the wayside as other priorities took precedent. But the new political landscape in Washington -- with solid Democratic control of both legislative chambers and the White House -- has given new optimism to long-frustrated tribes and their development partners.

"Elections have consequences for Indian Country, and in the case of this election, good consequences for Indian Country," said Keith Harper of the law firm Kilpatrick Stockton LLP, a member of the Obama-Biden transition team.

But many of Obama's top energy priorities -- including the construction of a 21st-century transmission grid -- will be difficult to accomplish without closer partnerships with the country's 562 federally recognized tribal communities, Harper said.

Federal officials and private-sector experts note that Indian reservations contain vast energy reserves, both in conventional fossil fuels like coal, oil and gas, as well as renewables that have been virtually untapped. According to federal estimates, the nation's reservations by themselves could produce enough wind power to satisfy about 14 percent of U.S. demand, while solar resources on tribal lands could generate 4.5 times the energy needed to power the entire United States.

"If you're going to reach the energy independence goals of the president, if you're going to reach those climate change goals, you can't do it without effective development of renewable energy in Indian Country," Harper said. "It simply can't be done."

Ownership stake

But many believe that before tribes can become full partners in the nation's energy development goals, the federal government must overhaul its outdated -- and some say exploitive -- way of compensating tribes for the resources they provide.

Historically, tribes have relied on lease agreements to induce investment from private companies to develop resources on reservations. In many cases, the outside firms take full rights and responsibilities over a tribe's natural resources in exchange for modest rent and royalty payments.

"When we sign a lease, we in effect transfer ownership to the lessee," said David Lester, executive director of the Colorado-based Council of Energy Resource Tribes. "We're challenged with changing that paradigm of development."

The Navajo Nation, one of the nation's most aggressive tribal energy developers, has long relied on such agreements with mining firms that have removed hundreds of millions of tons of coal and uranium from beneath reservation lands, in some cases leaving lasting environmental and public health scars. In recent years, the Navajos have also become an increasingly important player in electricity production, with one major coal plant already operating on the reservation and another one in the development process (Greenwire, Jan. 23).

But while such partnerships have generated a degree of economic development for tribes, they have done little to improve tribal independence, and many argue the tribes are consistently shortchanged in the deals, earning pennies on every dollar that goes to the mining firms and electric utilities whose operations are fully dependent upon the reservations.

The current "business as usual" energy development model for tribes -- codified under the Federal Oil and Gas Royalty Management Act and the Indian Mineral Development Act -- means that 90 percent of what tribes pay for their energy leaves the reservation. Under a reformed business model, much of the money could be staying on the reservation to help pay for critical things like housing, roads and water systems, Lester said.

Lester lauded tribes like the Southern Ute in Colorado, which decided 30 years ago that it would never again lease its mineral resources to outside firms. The tribe has since acquired leases as they expired over the years and now owns virtually all of the wells on the reservation, he said.

Leveling the playing field

The current shift in energy priorities -- from fossil fuels to renewable resources -- could provide the necessary impetus for broad policy changes involving tribal energy resources. But several major obstacles remain, including the regulatory status of reservation lands, which are part of the federal public lands system, and tribes' federal tax-exempt status.

But because tribes do not pay taxes, they are unable to benefit from incentives offered by Congress, most recently under the American Recovery and Reinvestment Act, to spur the development of renewable energy projects. As a result, private firms looking to use the new tax incentives to offset the cost of building new wind farms or solar arrays are discouraged from entering partnerships with tribes.

"The whole part of a tax credit is to level the playing field," said Harper, the attorney from Obama's transition team. But the tax structure "makes it so tribes are in more of a royalty relationship with developers."

In some cases, the investment wariness comes from the private sector, said Wilson, the Senate committee counsel. Many CEOs simply do not understand tribal sovereignty or are unwilling to jump through the laborious regulatory hurdles to site new projects, something Sen. Byron Dorgan (D-N.D.) famously called the "49-step permitting process."

But critics note that Congress can resolve a number of these problems by rewriting laws governing American Indian lands, the bulk of which date back to the early years of the Reagan administration.

Parallel legislation offered this year by House Natural Resources Chairman Nick Rahall (D-W.Va.) and Sen. Tim Johnson (D-S.D.) would allow tribes to transfer their share of federal production subsidies to their taxable partners, thus freeing the path for outside investment.

And last month, Rep. Raúl Grijalva (D-Ariz.) introduced legislation before the House Ways and Means Committee that would extend many of the same benefits (Land Letter, July 2).

Grijalva, whose district includes seven tribes in southern Arizona, introduced a similar measure last summer that stalled in committee. But he remains more confident about the current bill's prospects under the new Congress and administration.

"President Obama has raised the bar for tribal issues," Grijalva said. "This legislation is in line with the administration's efforts to incorporate tribes in the dialogue about our nation's future."

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