United States: Five Tips For Forming A Tribal Electric Utility

Tara S. Kaushik is a Partner in our San Francisco office.

Forming a tribal public utility allows a community to independently manage its own energy resources, procure a cleaner energy supply, operate more efficiently than its current electric service provider, generate steady revenues over the long term, and serve the needs of its community. Below is an overview of five things tribes should consider when forming a tribal electric utility.

1. Determine Your Goals and Create a Plan

To operate a public utility company, it is important for tribal leadership to agree on long term goals that achieve energy independence, save money on utility bills, and serve the tribal community. Once the tribe has determined its priorities, it is important to consider several important questions that will help shape a development plan:

  • What are the facilities on the reservation that consume the most electricity?  Will the facilities require more electricity or expand in the near future?
  • Could the tribe save money by forming a utility company to serve the facilities requiring the most electricity?
  • Should the utility serve electricity to facilities that are located off the reservation?
  • Should the utility engage in wholesale sales of excess power to the power grid?
  • If clean energy is a priority, could a tribal utility procure its electricity from renewable or clean energy resources at a lower rate than its current electrical service provider?  (A feasibility study should be conducted to confirm this.)

2. Do Your Due Diligence

Before investing in the electric utility business, it is essential to determine whether the legal, economic and engineering components will work for the tribe. A feasibility study should be conducted by experts in utility law, utility ratemaking, and electrical engineering to investigate and report on the pros and cons of forming a utility.

It is important that the study evaluate the type of corporate entity to form, the regulations with which it will need to comply, and the regulatory bodies (tribal and non-tribal) that will be responsible for regulating the entity. For instance, if the tribal utility seeks to own its own electric generation and sell excess power to the power grid, the Federal Energy Regulatory Commission may need to approve wholesale sales of electrical power, under the Federal Power Act (16 U.S.C. §§ 791 et seq.). Whereas, if the tribal utility seeks to serve off-reservation facilities within state jurisdiction, state public utilities commissions are responsible for regulating the retail sales of power to end-users.  In most states, a designated power grid operator is responsible to dispatch power in accordance with the power demand and supply throughout the region. In California, the California Independent System Operator (CAISO) has that responsibility. All utilities taking power from the California grid must register with the CAISO and abide by its regulations.    

The feasibility study should also determine cost estimates for the tribal utility to buy out the electrical infrastructure from the incumbent utility, the proposed utility rate charges, and expected revenues. 

3. Determine Who Will Oversee and/or Regulate It

Unlike most corporations, a utility business is a monopoly.  It owns the infrastructure that delivers electricity to end-users, so it would be inefficient for more than one utility to operate within the same area.  A utility needs to spread the costs for its infrastructure and operation among its customers by charging rates.  Naturally, the utility needs to increase its charges as its costs for capital projects and operations increase.  As the utility would have no competition for electric service, it is important that a regulatory body or committee regulate the utility's charges to ensure that its charges are reasonable and prudent for the utility and the community it serves.  The tribe may want to form a committee or entity to provide such oversight and regulation.

4. Reach Out Early to Your Electric Service Provider

Tribal leaders should reach out as early as possible to their electric service provider to discuss how to purchase the electrical infrastructure for the tribal utility to serve the facilities on the reservation.  It can be challenging to negotiate with an electric service provider to purchase a portion of their assets, as the provider will likely be reluctant to lose customers and a portion of its capital assets. 

Accordingly, it is in the tribe's best interests to maintain a cordial relationship with its provider as much as possible throughout the process.  Tribal leaders could also meet with the electric service provider's tribal liaison and management to strategize on how to transition the assets and continue to rely on the provider's services.  For example, the tribe may still rely on the provider's transmission services to deliver the electricity to the reservation, where the tribal utility would then distribute the electricity to end-users or the tribal utility may serve only certain facilities that consume large amounts of energy, but still rely on its electric service provider to distribute electricity to residential and small commercial end-users. 

5. Create a Plan to Build Utility Expertise In-House Over the Long Term

Like any business, a tribal utility will save costs in the long run if it retains employees with the expertise to manage and operate the utility. It is important that the tribal utility retain a general manager with electric utility expertise and experience. The tribal utility should also plan to retain licensed electrical engineers and ratemaking experts who have previous experience working in the utility industry. 

Federal funding may be available to assist with training and education.  The U.S. Department of Energy's Office of Indian Energy has issued a variety of funding notices (up to $3 million currently) to fund tribal efforts to develop and manage clean energy resources. For more information on such resources, see DOE Announces Intent to Issue New Funding Opportunity for Tribal Clean Energy Project Deployment.

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.

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