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Enron Inks Army Base to 'First-of-its-Kind' Utility Deal

Enron Inks Army Base to 'First-of-its-Kind' Utility Deal

Calling it the first comprehensive grouped-utility privatization contract awarded by the Department of Defense (DOD), the U.S. Army Military District of Washington and Enron Federal Solutions Inc. announced a 10-year $24.8 million deal last week. The Enron subsidiary will manage all of New York-based Fort Hamilton's utility needs. The announcement was made at Fort McNair in Washington D.C.

The utility privatization project is the first comprehensive, grouped solution to meet the Secretary of Defense's Defense Reform Initiative Directive (DRID) 49 which directs all services to privatize their utility systems by September 30, 2003. Fort Hamilton is one of five subordinate installations that belong to the U.S. Army Military District of Washington. The Enron agreement has no bearing on the other installations said Dov Schwartz, an Army spokesman.

The contract transfers ownership of all utilities at Fort Hamilton (electric, gas, water, waste water, and storm water) to Enron, and requires it to operate, rehabilitate, and maintain the utility systems for the 10-year contract period. It is not a supply contract, however, and the Army will continue to purchase its energy on the open market, an Enron spokesperson said.

The deal is not without skeptics. On Dec. 7, the Edison Electric Institute (EEI) issued a request for the FP details to the Army Corp. of Engineers under the Freedom of Information Act (FIA). Patrice Hagmann, an EEI spokeswoman, said the institute is not alleging any wrongdoing yet, but would like to get more information concerning the exact details of the contract. "This is the first of what will be many privatization contracts like this one, and our membership wants to make sure that there is a clear understanding of what the DRID allows."

According to Hagmann, Enron was the only company to bid for the contract. Member companies of the EEI said they did not participate because they thought the DRID required an ownership transfer of the distribution systems. As it stands now, Hagmann said the EEI believes Enron's deal with Fort Hamilton is more of a capital lease for the systems. "There are serious tax and financial differences between the two, and a capital lease is very attractive. Unfortunately, our understanding of the directive led us to believe that transfer of ownership had to occur." Under FIA rules, the EEI will get a response to its filing within 20 working days.

This infrastructure issue is one of many topics industry-watchers said could arise from the privatizing directive (see NGI, Sept. 20).

For its part, Enron said nothing is wrong with the contract. "We simply competed in the RFP," said Peggy Mahoney, an Enron spokeswoman.

John Norris

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