Tribe pushes forward with wind farm
A map of the Cherokee Nation’s property around the old Chilocco Indian Boarding School in Kay County in central Oklahoma. CNB WIND PROJECT PRESENTATION
TAHLEQUAH, Okla. – During the past 10 years, the Cherokee Nation and Cherokee Nation Businesses have considered entering the wind energy business. On May 13, Tribal Councilors authorized the tribe to move forward on a wind farm project in Kay County.
The authorization allows tribal officials to enter into leases with PNE Wind USA for the placement of 90 turbines on 6,000 acres, 3,000 of which is CN-owned, near the former Chilocco Indian Agricultural School. The tribe is expected to earn approximately $16 million in 20 years.History of Chilocco Wind Farm
According to tribal documents, the wind farm was conceived as a Cherokee project, but CNB did not pursue it alone. After discussions with possible developers, CNB selected PNE Wind USA, a North American subsidiary of PNE Wind in Germany.
“PNE was the only developer not to require CNB to pay up-front for the evaluation and development of the project,” tribal documents state. “A Memorandum of Understanding was signed between PNE and CNB to develop the Chilocco Wind Project in September 2010.”
From 2003-09, CNB received from the Energy and Interior departments approximately $581,000 for predevelopment of a wind farm. In 2010, CNB received a grant from the Energy Department totaling $990,550. According to documents, CNB has received $1.57 million in federal grants for the project.
In addition to the grants, CNB has spent $588,000 on the project, while PNE has spent $1.26 million.
Documents show that on Jan. 11 CNB contacted Cimarron Power Ventures to review project agreements and provide recommendations. CPV is a consulting subsidiary of Walters Power International LLC in Oklahoma City. Former Oklahoma Gov. David Walters owns WPI.
According to tribal documents, the review resulted in an increase in CN’s returns beyond those anticipated when the Tribal Council voted to approve the project and two types of leases on Dec. 10. CNB and CN officials reviewed the findings and CPV followed up with the council’s Resource Committee on March 11.
CNB hired former Principal Chief Ross Swimmer as a government relations officer in 2009. During that time he helped develop business opportunities, one being the wind project.
“I worked on probably $30 to $50 million worth of business development that came into the businesses,” Swimmer said. “As I was doing that though, I was made aware of this particular project by a lady named Carol Wyatt. Carol had actually worked a little bit with the Kaw Nation that owns a tract of land at Chilocco back in about 2000 or 2001. And the Kaw had decided that they would like to do a wind farm on their portion of the Chilocco land. At that time there really wasn’t any federal money to do renewable energy. Carol had brought that idea with her to Cherokee Nation Businesses when she was hired as a technician there and said you know ‘maybe this is something the Cherokee Nation would like to pursue or Cherokee Nation Businesses.”
Swimmer said he’s glad to hear the tribe is continuing with the wind farm but voiced concern that the project has moved from CNB to CN.
“The one major advantage that we have always had, and I started it in the 1970s, is to insure that there is a bright line between business and politics,” he said. “And when that bright line gets blurred and we see business kind of going directly to the Cherokee Nation and visa versa then that can cause problems. I would rather see the project developed strictly as a business opportunity with CNB and managed over the years and frankly that CNB would own it.”
According to tribal documents, CN requested that it rather CNB be the contracting party so that all proceeds go directly to CN upon achieving commercial operations and the sale of the investors. CN therefore retains 100 percent of the proceeds and not a 35 percent cash dividend, documents state.
“This transition will also simplify the contracting since CN has the leases and CNB had the development agreements,” documents state.
With the current project setup, the tribe expects to make a $16 million in 20 years for its General Fund, records show.Project Ownership
According to tribal documents, PNE Wind USA owns Chilocco Wind Farm LLC, which is the special purpose vehicle used as the project’s development entity.
Phase 1 of the project calls for CWF holding the ground and wind resource leases from CN. Phase 2 involves PNE holding similar leases issued by the Ponca, Pawnee, Kaw and Otoe-Missouri tribes that cover their portions of the Chilocco lands.
PNE will sell the project to investors after its completion and it has achieved commercial operations. Documents state that PNE guarantees the project’s construction and performance and may stay on as operator but not as an owner. Owners of CWF will include General Electric Finance Corp., as the tax equity investor. So far an equity investor has not been signed onto the project. A final participant includes the banks and investors that are loaning the debt portion of the project’s financing.
Debt financing extends over a 31-year period. Except for debt service requirements, GE and the pension fund will take 99 percent of the available tax earnings and cash flow in the early years, with the equity owner entitled to 1 percent of the cash flow. Once their investment is repaid, plus their margin, GE and the owner will flip positions, with GE earning 1 percent of the cash flows and the equity owner earning 99 percent. Debt service requirements will be paid out of total cash flows before payout to GE or the equity owner. The equity owner will own 99 percent of the project once GE and the pension fund achieve payout, with GE owning 1 percent.
Later, there may be an opportunity for CN to take on ownership of the project. According to tribal documents, “CPV is currently reviewing the option of CN borrowing the equity required to own the project, recourse only to the project, and have the equity loan retired from the tax savings that result from CN’s ownership.”
“This is still in the exploration stage. As an overview, PNE has offered CN the opportunity to own 99 percent of CWP, which includes both Phases 1 and 2,” documents state. “If CWP’s project finance structure is as outlined above, CN would own 99 percent of CWP but initially only have a claim to 1 percent of the cash flows.”
If that occurs, after 10 years, when GE and the equity loan are fully repaid, plus margin, CN would be entitled to 99 percent of the cash flows and see significant earnings materialize. The financial forecasts suggests that this type of ownership would generate approximately $200 million over 20 years with a net present value (discounted at 10 percent) of approximately $42 million, documents state.
Tribal Councilor Chuck Hoskin Jr. said the current deal, estimated at $16 million for the tribe, was better than previous deals considered by the Nation and probably the best deal it could get.
“I can tell you that one of the reasons the council took as long as it did to get to this point…is that there was a lot of discussion about improving the deal, and it has improved,” Hoskin said. “So I do think that we’ve got really the best deal we can get.”
The legislation that passed earlier on May 13 included a limited waiver of sovereignty that was necessary, Hoskin said, to allow Chilocco Wind Farm LLC to bring action if the tribe defaulted under its lease terms.
If a claim were brought against the tribe, it would allow Chilocco Wind Farm LLC to access the Chilocco lands to retrieve its possessions, Hoskin said.
Hoskin said this is a great venture for the tribe because it allows it to use an under-utilized resource.
“The land we have out in the Chilocco area, number one, it’s a good use of our resources which we should always improve upon. Number two, it makes us a leader in renewable energy,” he said. “This will be the largest wind power project of any tribe in the U.S., and it’s really fitting that Cherokee Nation be a leader on this. We are leaders in so many areas. Why shouldn’t we be a leader in renewable energy while at the same time generating millions of dollars for the people?”
Hoskin said there is not presently a plan in place to deliver the electric to the tribe or any of its entities. The power would be fed into the power grid for power companies to utilize and purchase.