Grace Signorelli-Cassady
Jenner & Block’s Native American Law Practice
Nationwide, technology companies are increasingly reaching out to Native American tribes to propose large-scale data center developments. The appeal is not difficult to understand.
Data companies may seek out tribes given their sizable lands, valuable water rights, and real or perceived favorable regulatory and legal landscapes. A data company may believe, for example, that by working with a tribe it can avoid otherwise-applicable zoning restrictions or other construction delays caused by government red tape, all on land with ample room for potential expansion and with guaranteed water rights in regions otherwise besieged by historic levels of drought.
Whether a tribe decides to move forward with a data center development is, of course, an exercise of each tribe’s sovereignty — its authority over its people and territory. It is a decision that belongs solely to the tribe, and one which should be taken only upon careful consideration of factors including the tribe’s resources, revenue expectations, environmental concerns, and local opinion.
Thus far, many data center proposals on tribal lands have garnered significant opposition.
For one, several tribes have banned such developments outright. Concerns include increased pollution, noise, water consumption, strain to electrical grids, and environmental impact, all layered on top of a long history of prior exploitation.
Some tribes are also fighting data centers outside their reservations. Often, such tribes have found themselves excluded from critical decisions regarding nearby data center development, despite those data centers’ potential impact on nearby tribal communities. Concerns include that such developments will deplete critical water supplies, destroy important ecosystems, or impact sites of cultural significance. Fears continue to mount, given the scale of the anticipated nationwide data center buildout.
Litigation to stop the data center builds has already started and will surely increase. Non-tribal litigants are already challenging approvals, asserting that data centers are community nuisances, and citing threats to water and air quality. Tribal litigants opposed to data centers have joined the fight as well and can be more formidable data center opponents given they may bring additional weapons to the litigation arsenal, such as tribal consultation requirements or data centers’ potential threats to tribes’ treaty-backed rights. The analysis, of course, will be different for every tribe and every proposed data center project.
For tribes that do decide to consider a potential data center development, however, it will be crucial that such tribes structure those deals to protect their tribe’s sovereignty, resources, core values, and long-term economic growth. To do so, there are several key points to keep in mind, namely the money, the law, and the future.
The money
The most obvious negotiation point, of course, will always be payment. Here there is ample room for negotiation and flexibility to find the right fit. A simple route would be a monthly rental payment, akin to the payments tribes often receive as a result of various rights-of-way. But that may leave significant money on the table, and in a negotiation where tribes have a uniquely strong negotiating position.
Tribes might thus explore options by which the tribe shares in the data center’s profitability. This may take the form of a payment tiered to use — similar to a tribe receiving a royalty tied to oil-and-gas production on an oil-and-gas lease — except that here use might be measured based on the data center’s overall storage capacity, its water and electrical consumption (thus also encouraging the data center to conserve these resources), or other factors.
Fair payment should also reflect the quantifiable and non-quantifiable market advantages to the data center of locating on the tribe’s reservation, including the advantage from any behind-the-meter power arrangement.
For example, a data company operating on tribal land may benefit from a shortened timeline to initiate data center development, avoidance of state data center regulation, and lessened litigation in opposition to the data center development, as well as potential avoidance of certain state taxes depending on the business structure. These are tangible monetary benefits for the company which should be shared with the tribe.
In addition, if the tribe has sufficient land and allows the data center to build some or all of its needed power generation onsite, the data company may avoid needing to immediately interconnect to the grid. Instead, power would be generated onsite and then flow directly to the data center, thereby allowing the data center to reap the advantages of its power being “behind the meter.” Data centers are already pursuing this approach elsewhere by generating and storing their own power onsite.
Overall, fair payment to tribes should compensate for all these intrinsic and unique market advantages to the data company of locating a data center, as well as any infrastructure to power it, on Native American sovereign land.
Another option is tribal investment, partial ownership, a governance structure that gives the tribe a meaningful seat at the table, or a combination thereof.
A data center is a long-term project that requires significant capital investment upfront and a sustained relationship. A deal might thus be structured to give a tribe the option to participate in the project’s financing, giving the tribe a long-term revenue stream and encouraging a durable partnership for the success of the project. Indeed, this novel approach in a similar deal involving an $800 million project resulted in my colleagues at Jenner & Block previously receiving the Government Impact Deal of the Year Award by the Native American Finance Officers Association.
Tribes can also get creative in other ways. After all, a deal’s financial considerations can take forms beyond direct payment.
For example, a common concern with data centers is their use of land and resources, something not to be overlooked. But data centers can be designed in ways that at least lessen their environmental impact, including utilizing solar energy, reclaimed water, rainwater collection, closed-loop water systems, and eco-friendly designs that integrate green space.
In short, tribes that choose to allow data center developments do, to some degree, have a unique opportunity to demand data centers be built to their specifications and in line with their tribe’s values.
The law
Beyond payment, another critical negotiating point will be the applicable law.
Data companies are seeking to avail themselves of a tribe’s favorable regulatory and legal landscape, meaning everyone in the negotiation would likely agree that tribal law applies to the actual development project and its ongoing operations.
But check the contract – if a dispute arises, is that also subject to tribal law and resolution in tribal courts? Or is the company seeking to have its cake and eat it too, on one hand availing itself of tribal law in relation to the data center’s development and ongoing operations, yet on the other hand suggesting that disputes be resolved in a non-tribal court and subject to non-tribal law? The tribe, of course, may decide to agree to this, but alternatively may also insist that tribal law apply across the board. If so, this will surely be a central point of negotiation, and tribes must then be cautious of seemingly neutral compromises, such as arbitration clauses, as in some contexts these can be deemed to waive the tribe’s sovereign immunity.
Of course, like with any sovereign, the tribe’s laws may change, and the contract struck would still be subject to that changed legal landscape. Key contractual provisions, such as payment, can always be exempted from changes in tribal law, should the parties so choose, but overall the tribe retains sovereign authority to update its laws, just as any other sovereign might.
This should give tribes some comfort, as they can adjust certain laws — including provisions relating to emissions, pollution, and discharges — as needed down the line.
Beyond applicable law, another aspect of the negotiation will undoubtedly center around the tribe’s sovereign immunity from suit. Generally, tribes are immune from suit, unless Congress abrogates this immunity or the tribe waives it. While data companies may seek waivers of tribal immunity, such waivers may still be limited such that a tribe’s assets unrelated to the data development are nevertheless protected.
The future
Finally, tribes should also consider the endgame.
Data companies may go bankrupt, change locations, or data centers may, for whatever reason, become obsolete, leaving the tribe’s landscape dotted with vacant buildings. It is thus critical that contracts account for decommissioning, site restoration, and remediation, so structures and hazards can be removed and the land returned to its natural state without that cost landing on the tribe and its people.
Relatedly, tribes may consider including bonding provisions to ensure that money actually exists when the time comes, regardless of the data company’s later financial state.
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In sum, legal counsel navigating this new landscape will be writing deals in real-time, and tribes will need to weigh whether the deal is worth the leap. But tribes are presently bargaining from a relative position of strength, so may have a unique chance to call the shots.
Grace Signorelli-Cassady is a member of Jenner & Block’s Native American Law Practice, representing tribes in high-stakes litigation, investigations, and a variety of tribal energy and infrastructure matters. Grace has also spoken at several conferences regarding the intersection of artificial intelligence, data centers, and tribal economic growth.
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