Jicarilla Apache Nation - 1995 Project

Project Description

Introduction

The Jicarilla Apache Reservation is rich in fossil and renewable energy resources. Over the past 35 years, numerous wells have been drilled on the reservation for the production of oil and natural gas. Since 1980, the tribe has financed, drilled, produced, and marketed oil and gas in partnership with more than 50 operating companies. The Jicarilla Apache Tribe also anticipates final settlement of its water rights claim, which entitles the tribe to approximately 40,000 acre-feet of water per year from the Navajo River and the San Juan-Chama Project. Accordingly, the tribe is examining the feasibility of using its water to generate hydroelectric power, in addition to other multiple uses. There is also potential for wind and solar projects on the Jicarilla Apache Reservation.

Despite its valuable fossil and renewable resource base, the Jicarilla Apache Tribe pays among the highest electricity rates in the country. This is due in part to the fact that the tribe's current electricity providers (Jemez Mountains Electric Cooperative and Northern Rio Arriba Electric Cooperative) are embroiled in the growing financial troubles of Plain Electric Generation and Transmission Cooperative, Inc. As a result of these financial problems, radical changes in the management of the local electricity system serving Jicarilla might be in the offing at the same time that radical changes are occurring in the overall structure of the electricity industry regionally, nationally, and even globally. Unless the tribe is vigilant and proactive, electricity consumers on the reservation could face even higher energy costs than they do now.

Historically, Indian tribes have had very little control over the development of electrical energy resources on their reservations, and the Jicarilla Apache Tribe has been no exception. A small number of tribes — including the Jicarilla — have benefited from the development of primary energy resources on their reservations. However, the principal benefits from energy resource development on Indian lands has typically come in the form of royalty payments; energy-related employment has historically been low, and energy companies have not aggressively worked to broaden reservation economic bases. Although Indian tribes have been excluded from participating in the energy and electric utility industry, public policy over the past 15 years has been changing in ways that are slowly removing barriers to Indian Tribal-government energy development and participation in the electric utility industry.

In general, there are many reasons a tribe might want to consider establishing a tribal utility authority. These include:

dissatisfaction with the current electricity supplier;
the existing electric utility is unwilling to expand service at a reasonable cost;
the desire for self-determination and economic growth; and
to take advantage of legislative incentives for tribal enterprise.

The high rates paid for electricity, combined with other factors, including the restructuring of the electricity industry, provide an impetus to the Jicarilla Apache Tribe to consider alternatives that would reduce its electricity costs and provide greater opportunities for the tribe's economic development and energy independence. This project describes some of the paths the tribe might pursue in its drive to become more energy-independent, including the development of a Jicarilla Apache Tribal Utility Authority.

Goals and Objectives

The goals and objectives of this feasibility study may be summarized as tribal examination of the factors surrounding these major headings:

Reasons to Consider Forming a Jicarilla Apache Tribal Utility Authority — documenting the electrical rates currently being paid by reservation consumers, as well as highlighting industry developments and other opportunities, thereby providing a context for the formation of a Jicarilla Apache Tribal Utility.
Options for the Jicarilla Apache Tribal Utility Authority — discussing the different approaches the tribe might use to pursue the goals of lower electricity rates and more self-determination with respect to its own electric energy future.
Precedents — describing the experiences other tribes have gained in forming their own tribal utility authorities.
Benefits and Risks of Establishing a Jicarilla Apache Tribal Utility Authority — presenting specific risks and benefits that the Tribal Council will want to consider carefully before moving forward with tribal utility authority formation.

Project Actions and Resultant Data

Overview

The Jicarilla Apache Tribe's interest in the Department of Energy's (DOE) Title XXVI, "Indian Energy Resources" grant program stemmed from the impending settlement of the tribe's water rights claim which entitles the tribe to approximately 40,000 acre-feet of water per year from the Navajo River and the San Juan-Chama project. The tribe competed for and was awarded a Title XXVI grant to study the feasibility of adapting 16 mW of generating capacity to Heron Reservoir, one of the principal facilities in the San Juan Chama system. In its proposal to DOE, the tribe envisioned taking delivery of its 40,000 acre-feet of water in Heron and using this hydro resource to generate electric power.

About mid-way through the Jicarilla Apache Tribe's feasibility analysis, it became apparent that the Heron site and the hydroelectric program designed around it, posed severe obstacles to the kind of independent hydroelectric venture the tribe sought to pursue. The geographic scope of the hydroelectric feasibility analysis was thus broadened to include other nearby reservation sites for the possible location of a 16 mW facility. This dualistic focus of the project team (i.e., continuing to assess the feasibility of Heron while simultaneously evaluating the feasibility of nearby alternative reservation sites) revealed that Heron was largely unsuitable and alternative nearby sites were superior. The evidence of this was so overwhelming that the tribe's president, vice president, and members of the Tribal Council resolved that the remaining grant resources should be applied exclusively to the reservation site analysis. The deficiencies associated with the Heron Reservoir option and the promise and potential associated with nearby reservation sites, thus made the reservation sites the central focus of the tribe's Title XXVI project. Accordingly, they, not Heron, constitute the heart of this final report to the DOE.

The Jicarilla Apache Tribe's feasibility analysis has employed conventional feasibility criteria, applying these first, to the Heron setting and then later, to the alternative reservation sites noted above. The first and principal feasibility criterion deals with the adequacy of the hydro resource. As noted in the body of this report, the bifurcated nature of the tribe's water resource supply (part in Williams Fork/Heron, part in the Navajo River) is of major importance in determining adequacy. Second, the financial features of the project, as envisioned by the project team, constitute an important criterion. In this regard, the need faced by the tribe to build water conveyance and storage facilities on the reservation to secure maximum benefit from its water resource has the effect of eliminating the need and cost for conveyance and storage facilities that would otherwise be required for the hydroelectric facility. In other words, the hydroelectric project can "piggy-back" on the water development efforts of the tribe.

Third, the civil engineering requirements and constraints represent an important criterion of the feasibility analysis at Heron and at the nearby reservation sites, and the analysis has been limited to reconnaissance level analysis due to budget limitations and policy direction of the Tribal Council. Specifically, the Department of Energy cut the tribe's proposed budget by approximately $40,000 at the onset of the project with no commensurate adjustment in scope.

The vice president also made the decision that utilizing grant funds to assess the overall feasibility (not simply engineering feasibility) of alternatives sites to Heron seemed far more logical than expending grant resources for detailed civil engineering studies at Heron. The civil engineering component of the tribe's feasibility analysis thus became a major responsibility of the staff engineer of the tribe's principal contractor, the Center for Applied Research. The Center's evaluation of civil engineering issues was supplemented with a site engineering study performed by Benham-Holway.

The capacity and commitment of the Jicarilla Apache Tribal Council and Executive Branch to sponsor the project served as an important criterion for determining feasibility.

Other Considerations in the Feasibility Analysis

Title XXVI was enacted by Congress in part, to promote economic development in reservation economies, and to reinforce tribal environmental goals and values. For this reason, one of the Jicarilla Tribe's implicit objectives in its Title XXVI grant program was to identify means by which the hydroelectric project could stimulate long-term employment and income opportunities on the Jicarilla Apache Reservation, without sacrificing sustainable development and environmental values.

The Title XXVI grant project in this regard has been: (1) the conceptualization of, and commitment by council to, a Jicarilla Apache Tribal Utility Authority, which would manage the hydro and all related electric generation programs, as well as oversee the distribution and use of electrical energy on the reservation; and (2) the identification of other renewable energy development opportunities that can, for practical reasons, be linked closely to the core hydro electric generation component. These other opportunities include the installation of 100 kW of wind generation near Enbom Lake, and the installation of 300 kW of PV cell (solar electric) generation capacity at the Jicarilla airport.

These, albeit secondary, objectives under the Jicarilla Apache Tribe's Title XXVI hydroelectric feasibility analysis have posed an exciting possibility for expanding the tribe's initial renewable energy development strategy (i.e., hydro electric development) to include a combination of renewables.

The formation of a Jicarilla Apache Tribal Utility Authority will enable the tribe to advance a complete renewable resource portfolio under a permanent organizational structure of the tribal government. Indeed, the Jicarilla Apache Tribal Council has already authorized the Title XXVI project manager to request additional DOE financial support to complete the feasibility analysis contained herein, and to begin the actual design and development of the hydroelectric project. The council is also considering appropriating a cash match of tribal funds to complete the feasibility analysis begun with FY 1995 DOE Title XXVI funds. It may be said that these tribal funds will in effect "restore" grant funds that were expended early on in the Heron site context.

Finally, the advent of the Task Force on Renewable Energy Development in Indian Country and an avid interest in the Jicarilla Apache Tribe's project expressed by the Center for Resource Management, Bechtel Corporation, the Electric Power Research Institute, Energy Conversion Devices, investor-owned utilities, the Western Area Power Administration, and other entities, are encouraging developments. The tribe is continuing to build on this interest to move its project toward fruition - and its reservation toward energy independence.

Background

The Opportunity at the Jicarilla Apache Reservation

Despite its valuable fossil and renewable energy resource base, the Jicarilla Apache Tribe currently pays among the highest electricity rates in the country. The promise of deregulation and restructuring in the electricity industry offers hope that these rates can be reduced, but it is essential that the tribe take the steps necessary to insure that it can take advantage of the benefits of restructuring and avoid its pitfalls. This report describes some initial steps the tribe can take to become more energy independent and begin the process of developing a more integrated and independent energy industry within its control.

The tribe currently buys electricity from two electrical cooperatives, Jemez Mountain (Jemez) and Northern Rio Arriba (NORA) Electric Cooperative, both of which buy power from Plains Electric Generation and Transmission Corporation (Plains). The generally high rates prevalent in rural areas, together with the limited options available to the tribe today result in very high electricity rates on the reservation. Whereas Plains charged an average of 5.7 cents per kilowatt-hour (kWh) to all member cooperatives in 1994, prices to all Jemez and NORA customers average 10.25 and 12.15 cents/kWh, respectively. The Center for Applied Research estimates that Jicarilla Reservation residents paid an average of 12.8 cents/kWh during 1995-1996.

These high rates, particularly in the context of electricity industry restructuring, provide an impetus to the Jicarilla Apache Tribe to consider alternatives that would reduce its electricity costs and provide greater opportunities for economic development in the future. The Title XXVI project examined the tribe's potential for achieving these goals by developing hydroelectric generation capacity on the reservation.

Overall Approach

Under its Title XXVI project, the approach that the tribe considered to achieve energy independence and savings was the development of hydroelectric generation capacity and the concurrent development of a Jicarilla Tribal Utility Authority (JTUA) to manage and sell electricity to reservation residents and to other utilities. This report focuses on the development of hydroelectric power as a source for generating electricity. The marketing and sale of electricity by the JTUA could include other renewable and conventional energy sources as well.

Diversification

As a first step in taking advantage of the benefits of electric industry restructuring, the Jicarilla Tribe wishes to increase its energy independence by diversifying its position in the energy market from that of an exporter of primary energy products to that of an integrated energy producer, with the capacity to generate and market electricity.

Over the past 35 years, the Jicarilla Tribe has been actively involved in the exploration, drilling, and production of natural resources, primarily developing and marketing the oil and gas resources on the reservation. The tribe recognizes that this position of exporting nonrenewable resources has limited potential for sustaining a long-range and predictable economic base on the reservation. By exporting essentially raw materials, the tribe is always at the mercy of the national and regional oil and gas markets, and fails to exploit the economic advantages of adding value to primary energy resources.

The Title XXVI study identified certain initial steps the tribe can take to diversify its energy industry, first by generating electricity for internal reservation use and then providing power for sale off the reservation.

San Juan-Chama Diversion

As part of the Colorado River Storage Project (CRSP), the United States government built the Azotea Tunnel and other related dams and tunnels in order to divert water from the San Juan River basin into the Rio Grande River basin. Taken together, the diversion projects resulted in the capacity to divert up to 950 cubic feet of water per second over the Continental Divide. This transbasin diversion, together with other projects in the CRSP, provides water to the arid region east of the Jicarilla Reservation. Ultimately the CRSP resulted in the development of impoundment facilities at El Vado, Nambe and Heron Lakes as well as other storage projects important to the region.

Water Settlement

The Title XXVI analysis of the potential for development of hydroelectric generation capacity necessarily begins with a consideration of the potential water resource that could be used to generate electricity. Currently, the Jicarilla Tribe has access to about 6,500 acre-feet per year (afpy) of water supplied to the tribe via the San Juan-Chama project of the U.S. Department of Interior, Bureau of Reclamation. Ultimately, the tribe will have access to an additional 33,500 afpy of water as a result of the settlement of related water rights.

In 1992, the U.S. Congress passed and the president signed into law the Jicarilla Apache Tribe Water Settlement Act, which empowers the secretary of interior to negotiate a final settlement of Jicarilla water claims. This act recognizes the rights of the tribe to a total of 40,000 afpy of water and authorizes $6 million to be given to the tribe to develop this water right. This right, available in perpetuity to the tribe, provides a resource that can be exploited in multiple uses before its consumption. By strategic development, the tribe can use its water to generate electricity before it is committed to reservation and/or downstream uses.

The authorization of $6 million of the settlement is intended primarily to provide funds for conveyance of water to the reservation. The primary obstacles to conveyance of water from the Azotea Tunnel to an appropriate storage facility on the reservation and to the efficient use of the water conveyed are: 1) the distance (at least 10 miles); and 2) the elevation changes in conveying water to the reservation; and 3) the need for an adequate impoundment facility to store water for use.

A central thesis of the Title XXVI project is that in overcoming these obstacles, the tribe can accommodate a combination of objectives, including water conveyance and energy generation goals. The development of one or more water impoundment facilities provides the opportunity to use the facilities for both water supply and energy production. The conveyance of water over Tecolote Mesa, for example, would require pumping from an elevation of no more than 2,300 meters (about 7,550 feet) to an elevation of at least 2,600 meters (8,550 feet). This offers an ideal opportunity to generate hydroelectricity as the water flows down from the mesa. Two primary options for development of a primary water impoundment facility were evaluated in the Title XXVI project as discussed in this report: Heron Lake Reservoir, located in the eastern part of the reservation; and Horse Lake, located within the reservation, just west of Heron.

The Energy Policy Act of 1992 (EPAct)

Title XXVI of the Energy Policy Act of 1992 (EPAct) describes Congress's intent to encourage the efficient development of energy resources on tribal lands, and provides resources for supporting energy projects on Indian lands. The Jicarilla Title XXVI project meets the EPAct's intent by reducing the cost of energy to tribal members and tribal enterprises on the Jicarilla Reservation, and by expanding the economic base of the reservation through energy integration.

FERC Order 888/889 and Electric Industry Restructuring

The EPAct also established the process for increasing competition in the wholesale electricity market. The Federal Energy Regulatory Commission (FERC) was charged under the Act with the responsibility to promulgate regulations that would begin the transition away from the old standard of electric monopolies toward greater competition. FERC Order 888/889 provides the regulatory foundation for restructuring the electric industry requiring open access by wholesale consumers to electricity supply. Among the implications of electric industry restructuring is the prospect for customer shopping for the lowest possible rate for electricity among competitors. The Jicarilla Apache Tribe can become both a customer and a seller in this emerging market.

Municipalization

The restructuring of the electric industry represented by the EPAct and FERC Order 888/889 has led local governments and large electrical consumers to consider developing "municipal" electric utilities. The benefits of municipal utilities include federal tax exemption, access to tax-exempt financing, and access to low-cost federal power. The concept of municipalization is increasingly relevant to the Jicarilla Apache Tribe.

Community Choice Models

Once a jurisdiction (e.g., the Jicarilla Apache Tribe) completes the steps necessary to provide electricity service, the community (tribe) can select an electricity provider that meets the preferences and needs of its customers. Municipalization allows a community with a strong preference for electricity produced by renewable energy to select a company that uses these primary sources to supply electricity to the community. In the case of the Jicarilla Apache Tribe, there is an additional option: the tribe (as a "municipal" provider) could purchase electricity from a third party, such as NORA or Jemez, or from a tribally owned electricity generator and marketer such as the Jicarilla Tribal Utility Authority. Under the community choice model, the tribe through the JTUA could control the choice of primary energy that will generate electricity, and the residential, commercial, and industrial users of electricity on the reservation could buy power from the JTUA.

Key Elements of the Report

The final report provides a preliminary feasibility analysis of the potential for hydroelectric generation on the Jicarilla Reservation. The primary site considered for development of hydroelectric generation was the Heron Lake Reservoir located in the eastern part of the reservation. Ultimately, an alliterative site for power generation (Horse Lake), located within the reservation, was also considered carefully. If electricity is one of its primary production inputs, it is likely that the primary concern of the large customers is obtaining lower rates. To the extent that these customers are able to realize lower rates by negotiating with the current power provider (Jemez or NORA), they might not be a strong advocate of a Jicarilla Apache Tribal Utility Authority. Without this constituency "on board," the tribe might not be able to aggregate enough load to make a utility authority a feasible option.

The tribe will want to fully understand the impacts its utility authority formation will have on its current power providers, Jemez and NORA, once it leaves their systems and contracts with an alternative power provider for electricity and service. It appears from a review of the data on Jemez and NORA that the Jicarilla Apache Reservation represents a significant portion of NORA's business, and less so for Jemez. Consequently, Jemez and NORA are likely to be negatively impacted if the tribe forms a utility authority and leaves their systems, and it is possible the utilities would pass these negative impacts on to their remaining customers. These customers may seek relief through state or federal regulatory forums, which could possibly make demands on the Jicarilla Apache Tribal Utility Authority to mitigate the negative impact on Jemez and NORA caused by the tribe' s leaving their systems. One way of mitigating the impacts on Jemez and NORA, may be through stipulations that would ensure that Jemez and NORA staff are contracted or employed by the new power provider selected by Jicarilla. The impacts that would be sustained by Jemez and NORA if the tribe purchased their respective systems and contracted with a new power provider need to be analyzed more carefully, especially in the context of the Plains/Tri-State consolidation that is currently unfolding.

Results, Conclusions, Findings, and Recommendations

This project was accomplished for the Jicarilla Apache Tribal Council and presents a brief overview of the issues and considerations involved in forming a Jicarilla Apache Tribal Utility Authority. The Jicarilla Apache Tribe pays among the highest electricity rates in the country, despite its valuable fossil and renewable resource base. The tribe's current electricity providers, Jemez Mountain and Northern Rio Arriba Electric Cooperative, are facing a radical change in their operations, as their parent utility, Plains Electric G&T, is facing bankruptcy, loan defaults, and a possible impending merger with (or takeover by) the Colorado-based utility, Tri-State G&T. In addition, the Jicarilla Apache Tribe will be eligible for a wholesale power allocation from the Western Area Power Administration in two to five years, which it must be prepared to accept and use to its greatest advantage. All of these factors point to the need for the tribe to be informed of and organized to participate in any negotiations that might affect its future vis-à-vis electricity provision on the reservation.

Furthermore, the electric utility industry is undergoing rapid change and while it is still difficult to predict the specific implications for Indian tribes, it seems clear that tribes will be able to, at the very least, act decisively on behalf of reservation consumers to achieve lower rates and better service. Many tribes (e.g., Crow, Blackfeet, Fort Peck) are making aggressive plans to become significant players in the restructured electric utility industry by providing retail power and service to reservation consumers while also generating power for sale in more competitive wholesale markets. One purpose of this paper is to inform the Jicarilla Apache Tribal Council and leadership of these developments and of the paths the tribe might take to capitalize on the opportunities presented by electric utility industry restructuring, the Plains/Tri-State merger proceedings, and other events that affect the tribe's potential for increasing its autonomy in the electricity industry.

This paper also describes the preceding experiences of tribes that have created tribal utility authorities and highlights some of the barriers, untested areas, and financial risks that may impact future tribal utility authority formation efforts. However, as noted earlier in this paper, some of the most important benefits of establishing a tribal utility authority, such as independence and self-determination, cannot necessarily be monetized, and many of the costs of establishing a tribal utility authority are not known, due to relatively few precedents and the unique contexts governing each tribe's efforts. Therefore, the Jicarilla Apache Tribe and its leadership will ultimately have to define the balance between costs and benefits that is appropriate for the tribal government and for the reservation as a whole.

There is one scenario for a Jicarilla Apache Tribal Utility Authority that seems, at this point, potentially feasible and profitable for the tribe to consider pursuing. This scenario involves the following: (1) the Jicarilla Apache Tribal Utility Authority's purchase of the existing distribution lines on the reservation from Jemez and NORA; (2) the Utility Authority's contracting with a different power provider to purchase electricity at a lower cost; (3) the Utility Authority's assignation of its WAPA allocation to its new provider; and (4) the Utility Authority's working with the new provider to eventually take over the provision of electricity to reservation residents by developing its own generation resources (e.g., natural gas, hydropower).

The need for the Jicarilla Apache Tribe to consider alternatives that would reduce its electricity costs and provide greater opportunities for the tribe's economic development and energy independence is clear. In considering its options, the tribe should become more informed about the various developments that are occurring in the electric industry that will have a direct impact on the tribe — the Plains/Tri-State merger, restructuring in the industry, the WAPA resource allocations, and so on — to take actions to protect and serve tribal interests.

The principal conclusions of this feasibility analysis are:

The Jicarilla Apache Tribe's 40,000 acre-feed of water is an extremely valuable resource, both from the commodity and usability aspect of the water itself and from the ability of the water to serve as a renewable fuel for electric energy generation;
The tribe's water right settlement will necessitate the formulation of a water development plan; the water must be diverted from the basin and diverted in a manner that allows for carry-over storage year-to-year. The tribe's water development will be financed in part, by a $6 million Congressional appropriation already authorized in the settlement legislation;
Heron Reservoir is not suitable as a site for either water or hydroelectric power development;
Hydroelectric generation can "accompany" the water development whenever and in whatever configuration the water development takes place. This "host" status of the water conveyance and storage facilities eliminates the need for a water storage facility designed and built exclusively for hydroelectric generation;
The preferred candidate location of the hydroelectric generation facility on the reservation will provide a stimulus for other renewable energy development. The new Jicarilla Apache air field, near the preferred Horse Lake hydroelectric site, is perfectly situated for up to 200 kW of photovoltaic cell generation; the residential developments near Enbom Lake and the gas wells at the south end of the reservation are also ideally situated for up to 200 kW of wind power.
The power market in the vicinity of the Jicarilla Apache Tribe is characterized by high electric rates. Electric industry restructuring is now posing excellent opportunities for spot sales or firm delivery (if gas generation is included).
The establishment of a Jicarilla Apache Tribal Utility Authority, while not of absolute necessity in realms of the feasibility of the hydroelectric development, is nevertheless central to a maximization of the economic benefits that will flow to the tribe. This conclusion has been reached after studying the opportunities associated with electric utility industry restructuring, chief among these being the ability of the tribe to municipalize and contract for wholesale power and service. The benefits emanating from an Indian tribe's municipalized status have been most clearly articulated in the work of Tom Starrs of Kelso, Starrs and Associates.
The Jicarilla Apache Tribe, whether through the aegis of a Jicarilla Apache Utility Authority, or through the municipalized status of the tribal government as a whole, will immediately be able to obtain electricity and service at dramatically reduced rates.

Project Contact

Jicarilla Apache Tribe
PO Box 507
Dulce, NM 87528-0507
Telephone: (505) 759-3242
Fax: (505) 759-3264

Tribe/Awardee Jicarilla Apache NationLocation Dulce, NMProject Title Assessing the Feasibility of a Jicarilla Apache Tribe Hydroelectric Facility at the Heron Dam SiteType of Application FeasibilityDOE Grant Number DE-FG48-95R810573Project Amounts DOE: $562,136 Awardee: $180,115 Total: $742,251Project Status CompleteProject Period of Performance Start: September 1995 End: November 1999