For thousands of years before environmentalists coined the term "sustainability," the Native peoples in North America made it the foundation of their culture. Respecting the land, air, water and other natural resources, tribal culture assured that future generations would enjoy them in their natural purity. Tribes' tradition of responsible environmental stewardship is widely acknowledged by non-Indians.

Gaming has strengthened tribal sovereignty and given tribal governments the opportunity to pursue self-determination.The benefits of gaming have been especially dramatic for those tribes with locations near a large population center. Gaming enterprises, however, can present a challenge to environmental stewardship due to the usage of energy generated by the burning of coal and other fossil fuels.

Elements of a Cheap and Green Solution

New technologies, tax incentives and creative business structures offer tribes a "green and cheap" solution to the environmental challenge posed by large casinos. By taking advantage of these tools, tribes can not only reaffirm tribal environmental leadership but also lower energy costs and enhance their sovereignty through energy independence. Key elements of the strategy include:

  • Identification of appropriate renewable or other clean energy sources.
  • Aggressive pursuit of federal grants and tax incentives.
  • Leveraging the casino's energy load to attract investors.
  • Significant capital contributions by the investor, who can receive up to a 30 percent investment tax credit, as well as the benefits of accelerated depreciation.
  • A power purchase agreement that provides a favorable return for investors while, at the same time, energy costs that lower the casino's costs now and in the future.
  • Interim ownership of the facility (i.e., wind turbines, solar panels, bio-digester, etc.) by a joint venture between the tribe and a developer that can take advantage of federal income tax credits that the tribe (a non-payer of federal income taxes) cannot use.
  • Ultimate ownership (after 5-6 years) of the facility by the tribe, thus promoting energy independence and strengthening tribal sovereignty.

Replacing Dirty Energy with Clean Energy

Federal grants and tax incentives are available for a broad range of renewable energy sources. As part of the American Taxpayer Relief Act passed January 1, 2013 to avoid the fiscal cliff, Congress retained or extended federal tax incentives for wind, closed-loop biomass, open-loop biomass, geothermal, landfill gas/trash, qualified hydropower, marine and hydrokinetic, solar, fuel cell, and small wind. Expert assistance may be needed to determine what form of renewable energy makes the most sense based on the tribe's location, population and fuel resources. Federal grants are available for this purpose.

Federal incentives take the form of grants, loans and tax credits. The tax credits typically reduce the net cost of the facility (i.e., biodigester, wind turbines, solar panels, etc.) by about 25% which, in turn, reduces the stream of income that an investor needs in order to obtain an attractive return. The Bureau of Indian Affairs and Department of Energy offer grants. Loan components of a project can be guaranteed under the Indian Loan Guaranty Program. Indian Community Development Block Grants and (to the extent that the energy produced powers homes of low-income members) Indian Housing Block Grants can also be included in financing packages.

Attracting an Investor to Provide Financing

High energy usage increases costs and reduces profits - a bad thing. But for tribes seeking to take advantage of federal and other incentives for green energy, a casino's heavy load is a good thing because the tribe-developer joint venture that will own and operate the renewable energy facility will have a large ready-made customer to generate dependable revenues. The tribe's relationship with the tax credit investor would be defined by two principal agreements. First, the tribe and the investor would form a limited partnership or, more likely, a limited liability company (LLC) that would own and operate the renewable energy facility. The LLC operating agreement would address the parties' respective management roles, capital contributions, ownership interests, etc., as well as providing for a "flip" in ownership once the investor has fully harvested the tax credits over a six year period.

The second important agreement would be the power purchase agreement between the LLC and the tribe (or the enterprise that owns the casino) for the purchase of electricity by the casino. Because of the federal subsidies (grants and/or tax credits), the rates that the casino pays under this agreement will likely be lower than the rates of its current utility provider yet still provide an attractive return for the tax credit investor. Not only is the tribe using energy that's cleaner, it's also cheaper.

A quasi-competitive approach for finding a suitable investor partner is recommended. The tribewould identify the green technology it wishes to pursue, provide factual information regarding its energy usage, available potential renewable fuel sources and describe existing financial resources available and other relevant information. Investor/developers would be invited to make proposals addressing their capital contributions, management expertise, technical expertise, energy pricing/savings, etc. The tribe would compare and select the most suitable partner.

The Long Term Payoff: Energy Independence

The investors who take advantage of the investment tax credits and depreciation normally derive all of the potential tax benefits within six years. Initially, the investor would typically have a 99% share of the partnership so that the investor can claim 99% of the tax credits and depreciation and so that the tribe can obtain the maximum capital contribution from the investor in return. Once the six years have expired, however, the parties can "flip" or otherwise change their shares in the partnership, with the tribe assuming up to a 95 percent ownership interest.

Benefits of a Clean and Cheap Energy Strategy

  • The costs of developing, installing and operating the green energy facility are significantly reduced by federal subsidies.
  • The tribe replaces dirty sources of energy with a green source of energy, enhancing its environmental leadership.
  • The tribe may be able to substantially reduce the energy costs incurred by the casino, increasing net revenues and resulting in the facility "paying for itself" over a relatively short period of time;
  • The tribe enhances its sovereignty by going "off the grid" and generating its own energy rather than relying on higher cost energy from the local, state regulated utility.

The economics of a green and cheap energy strategy will vary for each tribe based on energy costs in the locality, green fuel sources, economies of scale and other factors. Formany tribes, however, the strategy offers very significant political and economic benefits.

Previously published by Indian Gaming

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.