**Senate Subcommittee**

**on Trade, Tourism, and Economic Development**

**August 16, 2006, Eugene, Oregon**

**Testimony of Ronald Suppah,**

**Tribal Council Chair,**

**The Confederated Tribes of the Warms Springs Reservation of Oregon**

# **Introduction**

The Confederated Tribes of the Warm Springs Reservation of Oregon
("Tribe") is a federally recognized tribe comprised of three tribes --
the Warm Springs, Wasco and Paiute Tribes occupying the Warm Springs
Indian Reservation ("Reservation") in north Central Oregon. The Tribe is
one of several northwest Indian tribes that is currently involved in
renewable energy projects and/or is planning such projects.

For example, there are three operating tribal utilities in the Pacific
Northwest. With the likely changes to the Bonneville Power
Administration ("BPA") rate structure to tiered rates, these utilities
will be required to either meet their own load growth or pay BPA's
higher rate. At least one tribal utility is actively considering a
renewable resource for this purpose. There are likely 5-6 other area
tribes interested in forming utilities that will be faced with the same
issue. Among non-utility tribes there are a number of existing renewable
projects on tribal land, including small wind at Blackfeet, biomass and
hydro power at Colville and hydro power at Spokane. A number of tribes
are considering wind, wave generation, biomass and solar, and all tribes
are interested in energy efficiency, which is one of the best form of a
renewable resource.

As described more fully below, given our significant resources and
expertise, the Tribe is poised to expand significantly our current
involvement in energy generation and transmission. This involves adding
generation capacity, facilitating well-planned transmission, and
participating in policy discussions relating to renewable energy. In
fact, the General Manager of our Warm Springs Power and Water
Enterprises, Jim Manion, is participating on Governor Kulongoski's
Renewable Energy Work Group which is defining the standard that should
be considered for the State to implement a renewable energy portfolio
policy. In short, our experience and expertise in energy matters,
including renewable energy, is well recognized.

For the Tribe, renewable energy projects---in particular, woody biomass,
"green" hydroelectric power, wind, and geothermal---represent a
significant economic development opportunity that could further the
Tribe's self-governance, the welfare of our tribal members and the
region's diversification of energy production. In addition, the Tribe's
generation capacity can play an important role in assisting utilities
and states in achieving a balanced renewable energy portfolio and in
meeting renewable energy portfolio targets. Unquestionably, renewable
energy will continue to play an ever more valuable role in the region's
overall energy generation; however, there are still significant
development constraints for renewable energy development in general and
also as specifically related to tribes.

The purpose of this testimony is to highlight the central importance
that renewable and other energy development plays in the economic and
social welfare of the Tribe and to identify select ways that critical
development constraints could be met to facilitate renewable energy
generation on reservations and elsewhere.

# **Tribal Sovereignty and the Warm Springs Reservation**

Participation in renewable and other energy projects is a central way to
further and strengthen our sovereignty and to provide for the welfare of
our tribal members. Tribal sovereignty must be understood in the context
of the history of Indian reservations and in the context of our cultural
beliefs. Respecting and strengthening our tribal sovereignty, in turn,
is a vital component to ensuring the welfare of our tribal members.

The Warm Springs and Wasco Tribes entered into a treaty with the United
States on June 25, 1855. In that treaty, the tribes ceded title to
approximately 10 million acres of land in north Central Oregon and
reserved for their exclusive use the Warm Springs Reservation, which is
approximately 640,000 acres of land. The Warm Springs Reservation is
beautiful, but remote. It lacks the infrastructure and proximity to
population centers that may provide more traditional commercial and
industrial economic development opportunities. Furthermore, the
Reservation as a whole is much less productive than our traditional
lands for our time-honored ways of sustaining our families and
communities through hunting, fishing and gathering.

Through the years, our tribal government has been required to seek new
ways to provide for our people. However, it is a critical element of our
culture that we do so in a way that is in balance with the land and that
never uses more of our precious natural resources than can be sustained
forever. Indeed, although Federal law recognizes us as a sovereign
people, we ultimately view our sovereignty not only as a construct of
U.S. laws but fundamentally as given to us in the form of laws given by
the Creator and by the land itself. Accordingly, we seek to develop
economic opportunities in a way that honors and respects our traditional
beliefs and provides opportunities for future generations to carry out
the cultural traditions of our community.

The Warm Springs Reservation---comprised of approximately 640,000 acres,
about 2/3 forest lands and 1/3 range land---has been the Tribe's
greatest economic asset. Historically, timber resources have been the
mainstay of tribal revenue; however, the Tribe has more recently
asserted our own brand of stewardship over these resources and has
changed the course from over harvesting to sustainable yield management.
In the context of the global timber market, timber revenues no longer
can play the same role in providing for the welfare of our members.

It is well known that the Warm Springs Reservation community, like many
other tribal communities, is a community in distress. Among other
issues, our community has high poverty and unemployment rates, and high
mortality and high education drop out rates for our young. Participation
in the energy sector is a critical way for the Tribe to reverse these
social and economic trends, provide for our members and to further our
sovereignty.

In short, the renewable and other energy resources available on the
Reservation provide a unique opportunity to advance our sovereignty,
self-sufficiency, the vitality of our traditional culture, and the well
being of our members.

# **Renewable Energy Potential and Existing Energy Projects on the Warm Springs Reservation**

The Warm Springs Tribe is already an energy producer and has embarked on
a course to become a significant supplier of renewable energy in the
Pacific Northwest. It currently owns a one-third interest in the 440 MW
Pelton-Round Butte Hydroelectric Project with Portland General Electric
("PGE"). The Tribe also owns the 19 MW Reregulating Dam Hydroelectric
Project and a 7 MW biomass project that operates using wood waste from
the Tribe's lumber mill. Future energy projects on the Reservation
include development of a new 17 MW biomass facility at the Tribe's
lumber mill utilizing materials removed from tribal and adjoining
national forests in connection with forest health and wildfire reduction
projects. The Tribe is also completing a comprehensive wind energy
assessment for Tribal lands under a grant from the US Department of
Energy. Finally, the Tribe continues to inventory and study significant
geothermal resources on the Reservation for future development.

## [Tribal Participation in Existing Energy Generation---The "Greening" of Hydro]{.underline}. The 440 MW Pelton-Round Butte Hydroelectric Project ("Project") includes approximately 2,161.9 acres of Tribal land within the Reservation. The Tribe has regulatory authority within the Reservation and under an April 12, 2000 Long-Term Global Settlement and Compensation Agreement by and among the Tribe, the United States Department of the Interior acting by and through the Secretary of the Interior (the "DOI") and PGE, the Tribe acquired a one-third ownership interest in the Project. Under agreement with PGE the Tribe will eventually acquire a controlling interest in the Project. The Tribe is a co-licensee of the Project license. The Tribe also owns a 19 MW Reregulating Dam Hydroelectric Project.

There is no dispute that hydroelectric power generation has historically
had significant environmental downsides; however, we include this
project as part of this "renewable energy testimony" because, as with
our experience in timber management, the Tribe is endeavoring to change
the historical course of dam operations on the Reservation to produce
more up-sides.

Over several years of negotiations with PGE and various stakeholders,
the Tribe and these parties in 2004 reached a historic Settlement
Agreement Concerning the Relicensing of the Pelton Round-Butte
Hydroelectric Project, No. 2030 (the "Settlement Agreement"). Important
provisions related to fish and wildlife and riparian habitat of this
Settlement Agreement have been incorporated in the current license for
the Project (issued June 21, 2005). The Settlement Agreement and new
license require the project licensees to invest millions of dollars in
Project improvements related to, among others, improving fish passage,
improving water quality, riparian and fish habitat and protecting
cultural resources.

The economic potential of the Project and Regulating Dam project are
significant to the Tribe. Currently, these projects generate
approximately \$11 million per year to the Tribe. This could grow as the
Tribe opts to assert more control over Project operations in future
years.

## [17 MW Biomass Energy Generation Proposal]{.underline}. The Tribe already operates a 7 MW biomass generation facility co-located at the Warm Springs Mill site. With the assistance of a DOI grant and a USDA Woody Biomass Utilization Grant the Tribe has conducted a feasibility study to expand the generation capacity of the facility to 17 megawatts. Generated electricity from such an expanded facility would be sold on the open market and waste steam from the plant would be utilized to dry lumber at the kilns. 

Expansion of the Tribe's biomass facility (the "Expanded Facility") is
expected to generate revenue for the Tribe, but its value goes well
beyond the expected revenue generation. The Expanded Facility would
provide us with the opportunity to replace 1930's era boilers to
maximize efficiency at the mill, reduce water usage, and lower air
emissions. In addition, the Expanded Facility would provide the
potential to address hazardous forest fire threats on the Reservation
and on adjacent federal lands, to co-manage off-reservation treaty
resources on federal lands, and to add jobs for tribal members at the
mill and in the woods. Indeed, the Tribe recently executed an historic
Memorandum of Understanding with the US Forest Service and Bureau of
Land Management (the "MOU") on adjacent federal lands to facilitate
forest fuel reduction and forest and rangeland resource management
projects of interest to the Tribe. The MOU recognizes the agencies'
special Trust relationship to the Tribe and the Tribe's Treaty reserved
rights to hunt, fish and gather food at usual and accustomed stations on
federal lands. It is expected that one of the first Tribal Forest
Protection Act projects will be coordinated under this MOU.

The Expanded Facility will facilitate these benefits because it provides
a ready market for the woody biomass generated from forest thinning and
other forest or rangeland projects. In other words, the Expanded
Facility provides a long term market-based solution for the serious
forest health issues in Oregon and the Northwest caused by decades of
fire suppression that have lead to the fuels buildup resulting in many
recent catastrophic wildfires.

A recognized challenge for the establishment of biomass facilities
around the United States is the ability of project proponents to secure
a stable and economical supply of woody biomass. Indeed, the Government
Accountability Office (GAO) was asked to explore obstacles that are
impeding the use of woody biomass for energy. The GAO has found that
challenges associated with woody biomass usage included insufficient
supply and that supply from federal lands was particularly uneven. *See*
GAO, *Natural Resources, Report to the Chairman, Committee on Resources,
House of Representatives; Woody Biomass Users' Experiences Offer
Insights for Government Efforts Aimed at Promoting Its Use*, March 2006
(GAO-06-694T); GAO, *Natural Resources, Federal Agencies Are Engaged in
Numerous Wood Biomass Utilization Activities, but Significant Obstacles
May Impede Their Efforts*, May 2005 (GAO-05-741T).

Under the tribal and federal agency MOU, with the cooperation of BIA
forest managers, and with the ready availability of urban wood, the
Tribe's biomass facility has been able to demonstrate to potential power
purchasers, equity investors and financing entities that such a stable
supply is available for our efforts to construct the Expanded Facility.

The Expanded Facility is very competitive from a market perspective. The
likelihood of obtaining a favorable power purchase agreement is high.
Potential power purchasers have shown concentrated interest, and we are
in substantive negotiations for a power sale agreement. Similarly, we
have entertained significant interest from potential equity investors
and financing entities.

Like many renewable projects, however, modest federal and state
incentives are important in the overall cost structure of the biomass
project. Indeed, the GAO biomass study found that one of the most
important factors facilitating biomass use was the availability of
financial incentives or benefits and that government grants were
deciding variables. (GAO-06-694T) At issue today is the sunsetting on
January 1, 2008, of the Renewable Electricity Production Tax Credit
("PTC") in Section 202 of the Energy Policy Act of 2005 ("2005 EPAct").
I have urged members of the Senate Finance Committee, including Senators
Wyden and Smith, to support inclusion of an extension of at least two
years, and preferably five years, for the PTC in energy legislation to
be enacted by Congress and signed into law this year.

The extension is critical for the following reasons. Currently, the PTC
can provide over a million dollars per year for the first ten years of
the project. That is significant for a roughly \$40 million dollar
project. The PTC is an essential element in attracting the equity
investment required by the Warm Springs to move forward with the
projects for an Expanded Facility. Unfortunately, the time it is taking
to finalize a power purchase agreement for the electric output of the
project -- which is another essential element for the project's
financing -- now appears likely to delay our equipment acquisition and
installation and place our "in service date" beyond the current January
1, 2008 deadline. Consequently, we need, and Oregon's forests need, an
extension of the PTC of at least two to five years. In short, the
extension of the PTC as provided in the 2005 EPAct is not sufficient
time for a power developer to get all the \"pieces\" together without
taking significant implementation risk.

In addition, the PTC places a distinction between different forms of
renewable generation. In particular, the PTC permits 1.5 cents per
kilowatt hour tax credit for wind, solar, closed-loop biomass and
geothermal generation and .75 cents per kilowatt hour tax credit for
open-loop biomass generation. The Tribe believes that this distinction
is misplaced, especially if one understands the numerous social,
environmental and economic benefits that a biomass facility can
generate. Furthermore, open-loop biomass provides a steady and secure
stream of electrical generation and has a valuable place in any energy
portfolio that seeks to balance less steady energy generation such as
wind generation. The Tribe would urge parity between open-loop biomass
and other renewable energy generation in the PTC.

## [Wind Energy Potential]{.underline}. With a Department of Energy ("DOE") grant, the Tribe is assessing what potential we may have for a commercial wind development. Preliminary results indicate that there may be sufficient resource present to advance to the next phase. We encourage the continued support from the DOE to explore the resources and assist the Tribe in developing this energy resource. As noted in the biomass discussion above, extension of the PTC will be critical to any wind development taking place on the Reservation. In addition, authorization of a new category of private activity tribal tax exempt bonds for renewable energy projects would assist the Tribe in contributing to the construction of wind towers.

## [Geothermal]{.underline}. The Tribe is also assessing whether there are adequate geothermal resources exist to justify commercial-scale generation. In the 1990's, the Tribe had conducted some assessment of the resource, concluding that the market potential was not yet ripe for development. With the assistance of a DOE grant awarded in 2005, the Tribe is reviewing the material that was compiled in the 1990's. With a world-renowned consulting firm, we are reassessing this resources and the market potential. We are preparing an updated report on this potential due to be completed in the fall of 2007. We are encouraged by the geothermal resource potential on the Reservation and the market potential for commercial development; however, for the reasons noted above, the PTC would be a critical incentive for such development. Tribal tax-exempt bonds could also be a critical factor facilitating commercial development of geothermal generation on the Reservation, but the Internal Review Service on August 9, 2006, released a notice stating that it expects to issue Regulations prohibiting use of tribal tax-exempt bonds to finance any commercial or industrial enterprise -- even if states and local governments engage in such activities themselves. In addition, given that tribes lack the economic resources to undertake such projects unless they partner with for--profit entities, a new category of private activity tax-exempt "exempt facility bonds" should be created by Congress to facilitate such projects. For example, such bonds could be used to drill test exploration wells, which could easily cost \$1 million per well.

## [Energy Transmission]{.underline}. Although energy transmission is not, itself, a "renewable" energy project or resource, no discussion of renewable projects is complete without considering the transmission picture. Only if renewable projects, often located in remote areas, can secure adequate and economical transmission of the generated electricity to market can they be viable. This is a common challenge for many renewable projects in the Northwest region and in the United States. The April 2006 Bonneville Power Administration White Paper titled, "Challenge for the Northwest, Protecting and Managing an Increasingly Congested Transmission System" states that "problems presented by congestion have been growing steadily and have become increasingly urgent as dispatchers find themselves operating more and more in an "emergency" mode." Non-utility power sellers that do not have preexisting transmission arrangements to meet load, such as tribes wishing to sell renewable power must either pay large fees to 'get into the transmission queue' to acquire firm transmission (which generally does not exist), rely on non-firm transmission (which is often scarce) or provide the capital for necessary new facilities in advance. 

The Tribe sees itself as a partner in developing a regional solution for
ensuring that renewable energy and other energy has adequate
transmission. The Warm Springs Reservation is currently criss-crossed by
numerous energy rights-of-way. BPA, Pacificorp, PGE, Wasco Electric
Cooperative and the Tribe, itself, all maintain transmission/and or
distribution rights-of-way. The Tribe and these entities view each other
as partners in ensuring the viability of critical transmission capacity
and reliability. As partners, we can address the particularized needs of
the Tribe, BPA, the utilities, and the public. Indeed, the Tribe is in
active negotiations with BPA to determine how we can meet each others
needs.

It is critical, however, that the Tribe's sovereignty be respected in
any regional solution to transmission capacity and reliability. We have
submitted comments related to the 2005 EPAct Section 1813 Tribal land
Right of Way Study. In those comments, attached hereto as an exhibit
(Exhibit "A"), we detail our objections to any authorization that would
undermine tribal consent to rights-of-way across tribal lands.
Importantly, the draft 1813 Tribal land Right-of-Way study has just been
released recommending that condemnation is one option to permit
rights-of-way across tribal lands. ***The Tribe absolutely objects to
any option that would permit condemnation of Reservation lands***.

Putting aside all of the important reasons detailed in our comment
letter as to why Congress should respect tribal sovereignty issues, no
need exists to undermine and damage our sovereignty. Tribal entities,
including the Tribe, have a long track record of working with energy
partners to ensure adequate transmission, and we continue to work with
BPA and others to ensure a long-term capacity and reliability for
transmission. Tribes are part of the states and regions in which they
live. It is to all of our benefit to ensure that we all have reliable
and adequate transmission capacity.

# **Partnerships and Federal Incentives Are Critical**

Fully or even partially realizing the potential for the Tribe to utilize
energy as a way to fulfill its obligations to its tribal members,
requires focused and critical federal assistance/incentives and the
continued recognition of Tribal sovereignty. It is well understood that
the price of energy still does not reflect the true cost of production
of fossil fuel generation. As a result, many renewable energy sources
have a higher than market cost. Furthermore, the reality on the Warm
Springs Reservation is the lack of infrastructure. Although there are
significant transmission facilities that can be utilized, expanded
transmission and other infrastructure needs may increase the cost of
such generation.

Equally as important is trying to find ways to create partnerships with
other energy entities and to capitalize on market solutions where they
may exist to maximize the commercial appeal of renewables. As noted
above, the biomass proposal provides an excellent example of trying to
create a market solution to address the condition of our forests and
rangelands and further our treaty rights and the condition of these
resources. Similarly, the Tribe has entertained equity investment in the
biomass facility to take advantage of existing state and federal
incentives available for such projects. The fact of the matter, however,
is that federal and state incentives still play a key role in renewable
energy development in Indian country and in the region. Below is a brief
discussion of selected federal incentives that have been and can
continue to be helpful to the Tribe in our energy generation
opportunities.

## [Production Tax Credit.]{.underline} The PTC provides an attractive incentive for potential equity investors for the Tribe's potential biomass, wind and geothermal projects. These projects all, and in particular the biomass project, have the potential to be very competitive on the energy market. The PTC can help to meet the small gap between project costs and market rates. In summary, the PTC is a good value for the federal government given the significant up-sides that the PTC will create by facilitating more renewable energy generation. Although the Tribe began planning the biomass plant well before the 2005 EPAct PTC extension, the current sunsetting of the PTC on January 1, 2008, simply does not allow a project developer to put together all of the requisite pieces. We urge this Committee to support passage of an extension of the PTC for at least two additional years and preferably five years in energy legislation this year. 

## [Tax exempt bonds]{.underline}. Providing authorization for and adequate funding for tribal tax exempt bonds could also greatly facilitate renewable energy generation on the Reservation. The Internal revenue Service has been increasingly hostile to the use of tax-exempt bonds by Indian tribes. In response to recommendations by many, including the Tribal Government Tax-Exempt Bond Parity Act of 2006 recently proposed by Senator Smith, that Congress intended Indian tribes to be able to issue tax-exempt bonds for any purpose for which non-tribal governments issue them, the IRS released a notice last week proposing to issue Regulations that would prohibit tribes from issuing tax-exempt bonds for the purpose of generating revenue -- even if non-tribal governments customarily issue bonds for such purpose. In addition, given that most tribes lack the economic resources to pursue such projects without the involvement of private enterprise, the only practical way to access tax-exempt financing for these projects would be for Congress to create a new category to "exempt facility bonds" that would permit the issuance of tax-exempt bonds by tribes for tribally owned renewable energy projects in Indian country. 

## [Credit Enhancements]{.underline}. A difficult issue as it relates more particularly to *tribal* energy projects, including renewable and non-renewable generation and other energy projects are the expectations of some power purchasers and investors related to performance guarantees. Given the structure of tribes and the federal protections in place related to tribal assets, reaching a mutually acceptable manner in which the Tribe can provide performance guarantees can be problematic. Although purchasing such guarantees if available may be one way, such credit would increase the overall cost of tribal facilities and put them at a disadvantage vis-à-vis non-tribal renewable and other energy generation facilities. A federal solution to this issue may be necessary. For example, such a solution could be expanding or creating a new program similar to the guarantee program authorized by section 502 of the 2005 EPAct. Under this program, the Department of Energy is authorized to guarantee up to 90% of the unpaid principal and interest due on any loan made to an Indian tribe for energy development purposes (generally, activities that promote the generation of electric energy or production of fossil fuels on Indian lands). 

## [Office of Indian Energy]{.underline}. The Tribe applauds Congress for creating the Office of Indian Energy in section 503 the 2005 EPAct. Such an office can greatly enhance tribal opportunities to develop the technical expertise and conduct the necessary due diligence and technical studies to assess resources and market potential. The Tribe is a grateful beneficiary of federal agency grant programs to assess the feasibility of the biomass, wind and geothermal projects and urges Congress to continue to support such grant programs. The Office can be used to coordinate technical assistance programs and grants between the Department of Interior broadly, the Bureau of Indian Affairs, and the Department of Energy, among other federal departments and agencies; thereby obtaining maximum value from such programs. The Office also can help to coordinate other important federal incentives related to federal portfolio standards and preference power. The Office of Indian Energy, however, can only be effective if is adequately funded.

## [Portfolio standards and Preference Power]{.underline}. The Tribe also applauds Congress for including in the 2005 EPAct federal agency renewable portfolio standards, Indian energy double credit provisions, and federal power purchase preferences for Indian energy. In particular, Section 203(a) of the EPAct requires that the federal government use not less than 3 percent in renewable energy in fiscal years 2007 to 2009, not less than 5 percent in renewable energy in fiscal years 2010 to 2012, and not less than 7.5 percent in renewable energy in fiscal year 2013 and years after. Section 203(c) provides for double credit if the energy used is produced on Indian land. Section 503 permits federal agencies to give a purchase preference to Indian power. These incentives all help to create and bolster the market demand for renewable energy in general and Indian renewables in particular. To date, however, it has been difficult to realize the full benefits of these incentives. The Tribe believes that the Office of Indian Energy can provide significant assistance in coordinating these incentives. 

# **Conclusion**

The Tribe appreciates the opportunity to submit these comments. We are
encouraged by the growing market for renewable resources and the growing
viability for such markets. Renewable energy generation, including
"green" hydroelectric and energy transmission solutions, will play a
vital role in the Tribe's economic future and well-being. It also will
play a critical role in honoring and sustaining our culture and
sovereign rights. It is still a fact of life, however, that modest
federal and state incentives, such as the Production Tax Credit, are
necessary to bring renewable projects, such as our biomass project, to
market. I ask this Committee to keep that in mind and to continue to
support these important incentives, including extending the PTC. Equally
important, however, is trying to find ways to create partnerships with
other energy entities to capitalize on market solutions where they may
exist to maximize the commercial appeal of renewables. As an
energy-producing Tribe, we pledge to continue to do that.