After more than a year of tribal outreach, roundtables and policy discussion, the Senate Committee on Indian Affairs has released a discussion draft of the Indian Energy Promotion and Parity Act of 2010 (the “bill”). The bill proposes to encourage efficient energy development by Indian tribes and nations and reduce impediments to energy development on Indian land. The bill seeks to achieve these goals by focusing on three key areas: energy planning, energy development and efficiency, and energy financing. A summary of the bill’s provisions with respect to each of these areas follows.

Energy Planning

The bill aims to significantly increase tribal capacity for energy development in a number of ways, including establishment of three one-stop shops in Regional and Agency offices of the Bureau of Indian Affairs (BIA), each with higher levels of resources to expedite permitting, provide technical assistance, and enhance tribal development and management of resources by coordinating amongst the BIA, the Bureau of Land Management (BLM), the U.S. Fish and Wildlife service, and other federal agencies. The bill requires that the Secretary of the Interior inventory and publish federal energy programs available to assist tribes and also removes the requirement for Secretarial approval of predevelopment feasibility activities in favor of tribal determinations as long as the activity is undertaken for a period of not more than two years.

In addition, the bill outlines a program for tribal development of comprehensive energy resource plans; streamlines and expands education and capacity-building grants; and affords Indian tribes greater roles in appraisals related to the fair market value analysis in energy-related transactions. Still more capacity-building opportunity is found in the bill’s proposal to increase the connection between Indian tribes and the National Laboratories in order to increase the scientific and technical resources available to tribes. Lastly, the bill grants tribes certain governmental preference rights (previously afforded only to states and municipalities) with respect to the issuance of preliminary permits or licenses for dams, reservoirs, or other works for the development and improvement of navigation and for the development and utilization of power across, along, from, or in navigable waters.

Energy Development and Efficiency

The bill places significant focus on leasing and siting provisions, proposing to lengthen the maximum term of years under various development statutes and bundling leasing and rights-of-way approvals. The bill offers permissive bundling of leasing and rights-of-way determinations on both allotted and unallotted lands, amending both 25 U.S.C. §396 and 25 U.S.C. §396(a) to allow for one Secretarial approval for leases and associated rights-of-way by allowing the Secretary to include in leases any ROWs that are “necessary and reasonable for mining purposes on the leased land.” Additionally, the bill extends the available lease term under the Long-term Leasing Act, 25 U.S.C. 415(a) from 25 to 99 years for tribal lands and 25 years for allotted lands. The bill also extends the term of years available to Section 17 corporations organized pursuant to the Indian Reorganization Act to sell, mortgage or lease any trust or restricted lands within reservation boundaries from 25 to 99 years, although it continues to limit grazing leases to periods of not more than 10 years. The bill makes similar changes with respect to the Oklahoma Indian Welfare Act.

The bill also clarifies that fees assessed by the BLM for Applications for Permits to Drill (APDs) on federal lands pursuant to recent Appropriations Acts may not be collected for any APDs on tribal lands. The present $6500 fee, in place since November 2009, has been driving development away from tribal lands in favor of state and private lands with vastly lower associated fees.

Effective National Environmental Policy Act implementation is another goal of the bill, which provides that the Secretary may delegate to any participating Indian tribe the responsibility to carry out any environmental review, decision-making or other NEPA activity. The bill requires that the Secretary promulgate regulations to carry out any such NEPA delegation after consultation with the Council on Environmental Quality. The bill mandates that those regulations provide a monitoring mechanism for any tribal NEPA reviews; facilitate training for tribal NEPA reviews; and provide a mechanism for suspension or termination of any such delegation. The bill also preserves review of any tribal NEPA determinations by requiring that tribal officers consent to suit in United States district and circuit courts for enforcement purposes.

The bill also makes Department of Energy loan guarantees more readily available for amounts not more than 90 percent of the unpaid principal and interest due on loans made to tribes or tribal energy resource development organizations for energy development or the integration of energy resources (at the Secretary’s discretion). The bill protects the program by requiring a specific appropriation for the full cost of the guarantee or payment from the borrower for the obligation. The would requires the Secretary of Energy to promulgate implementing regulations by October 1, 2010.

The bill also supports energy efficiency efforts on Indian lands by including tribes on the Department of Energy’s State Energy Conservation Plan Program, providing that not less than five percent of program monies for fiscal years 2010 through 2020 are used to provide assistance to tribes. Similarly, the bill provides direct grants to Indian tribes for weatherization of Indian homes, directing that 10 percent of amounts available under the Weatherization Assistance Program for Low-Income Persons go to Indian tribes.

Energy Financing

The bill makes an important change in order to allow a tribal government’s investment in an alternative energy project the full benefit of federal tax credits. Under current law, certain investments in qualified alternative energy projects are eligible for either a 30 percent federal income tax credit, or a tax credit (currently 2.1 cents) for each kilowatt hour of electrical energy sold that is generated from alternative or renewable energy. However, these tax credits are not available to the portion of a project owned by a governmental entity, which includes tribal governments. So under current law, a tribal government’s share of these alternative energy tax credits is wasted without significant restructuring of the project. The bill remedies this situation by allowing a tribal government that is a partner in a qualifying alternative energy project to assign its share of the tax credit to another partner in the venture, so that these tax credits are not wasted. By allowing such an assignment, a tribal government should be able to negotiate a greater overall percentage of the profits from an alternative energy project, since the nonexempt partner in the project will be able to get the benefit of the tribal government’s share of the tax credit.

Even more significant is a change that would allow a tribal government to receive a grant in lieu of taking (and having to assign) this tax credit. Under current law as enacted by the American Recovery and Reinvestment Act of 2009, a taxpayer who invests in a qualified alternative energy project that is placed in service by the end of 2010 can elect to receive a cash grant of 30 percent of the qualified costs in lieu of the 30 percent tax credit. However, under the current law, a governmental entity (including an Indian tribe) is not eligible for this grant in lieu of the tax credit. The bill amends this provision of the American Recovery and Reinvestment Act to specifically allow an Indian tribe to receive the 30 percent grant in lieu of the tax credit. This would allow a tribal government the option of investing in its own alternative energy project without having to bring in a private investor solely to use up the tax credit, since a tribal government does not pay federal income taxes. This may allow for more efficient development by tribal governments. Furthermore, the bill extends the period to receive such a grant for alternative energy projects that are placed in service on Indian land by December 31, 2015, a five-year extension of the current 2010 deadline.

In addition, the bill extends the favorable economic development incentives for private investment on an Indian reservation by non-tribal members. These incentives include favorable depreciation rules that shorten the writeoff period for tax purposes for business property used on an Indian reservation and the Indian employment tax credit for tribal members employed on an Indian reservation. Both of these economic development incentives currently have set expiration dates. In some years, these economic development incentives have been allowed to expire and have had to be renewed retroactively by Congress. This creates great uncertainty as to whether these incentives will be available to a private investor on an ongoing basis, which has the effect of chilling private investment on Indian lands. The permanent extension of these economic development incentives in the bill would give private investors the certainty that they need to assure that these incentives will be available for the entire period of their investment on an Indian reservation.

Next Steps

The Senate Committee on Indian Affairs expects to hold a hearing on the bill some time in April of 2010 and welcomes feedback on the discussion draft.