Uncle Sam Looks to Privatize Its Energy Infrastructure
By Congressional mandate, Uncle Sam is supposed to get out of
the utility business in the first few years of the new century. How
the government can accomplish the feat at hundreds of military
installations around the globe will become a little clearer by the
end of this year when a current round of "requests for interest"
(RFI) should be submitted by various private sector companies. No
one has an overall price tag on the facilities worldwide, but it
probably will be in the billions of dollars. There are thousands of
miles of gas piping, water conduits and electrical lines to be
"For now, I think the jury is still out," said Navigant
Consulting's Don Harker, who is working with a number of Western
military bases on initial evaluation of their electricity, gas and
water systems. "But I think there are a lot of people interested in
getting out there in these markets, so I think eventually [the
Department of Defense] will be successful."
A number of major barriers await the effort, including: (1) old
infrastructure in ill-repair, (2) legal questions about the rights
of public utilities serving areas surrounding the military bases,
(3) the level of interest among private sector companies if the
commodity services and infrastructure ownership/operation are kept
separate in the bidding as they are now, and (4) finally,
streamlining the government bidding/contracting process, which is
expected to be completed in less than four years.
The drive behind the privatization move is a desire by
Congressional and military leaders to focus the U.S. military on
its core competencies that include assuring the defense of the U.S.
and its installations and people abroad. That means that unless
there are security or economic reasons not to do it, every military
installation is expected to find private sector companies or local
utilities to own and operate its housing stock and utility
In the West, the military concentrations in Southern California
and the Puget Sound region of the state of Washington are receiving
considerable attention, according to Doug Powell, San Diego-based
Naval Contracting Officer, a civilian position responsible for 75
sites, involving 215 separate energy and water systems in
Washington, Oregon, Nevada, Arizona and California. Many of these
bases, such as the Twenty-Nine Palms marine base in the high desert
north of Palm Springs, have infrastructures and public works
departments resembling small cities.
"We have a wide range of age and condition for these systems,"
Powell said. "The ones in really poor condition will need a capital
infusion to bring them up to industry standards. So, that is part
of the divesting process, but most private companies are not going
to want to purchase and operate anything that wasn't up to industry
Powell said the initial RFIs should give the military ideas for
grouping some of the bases and facilities for the formal
request-for-proposal (RFP) phase that runs through September 2001.
Contracts are then supposed to be worked out by the end of
September 2003 and the transition to private ownership by the end
of September 2005.
"The whole idea is not to limit competition," Powell said. "We
want to get as much competition as possible. We've been getting
interest statements from private utilities, local municipal
utilities, and unregulated firms, such as Enron or NewEnergy.
There's been a pretty broad interest level."
NewEnergy, the Los Angeles-based energy services firm now part
of AES Corp., the international energy facility developer/operator,
confirmed that it is looking nationwide at potential military
installations for which it may bid.
"The defense department is trying to do something that has never
been done before, and in government that is always very difficult,"
said Phill Consiglio, NewEnergy's national director for government
markets. "The good news is that we have commitments of many
high-level officials and commitments by people with outstanding
contracting knowledge like Doug Powell. With champions like that, I
think they'll work through the hurdles.
"We look forward to working with people on this project. There
are opportunities for everybody, and we can save the taxpayers
In addition to the existing infrastructure, several potential
bidders are floating the idea that merchant power plant development
and commodity energy buying may be business offshoots of an
infrastructure purchase. Thus, a successful bidder on a base's gas
and electric systems, may eventually develop a gas-fired power
plant to sell excess power to the grid, along with brokering the
gas supply contract for the base.
"We may or may not be buying the commodity from the new system
owner," Powell said. "We're moving more into a competitive
environment for purchasing the commodity and we want to maintain
the flexibility for buying it. We don't want to tie our hands for a
long period, so one of our goals is to maintain flexibility in that
Richard Nemec, Los Angeles