Calling it the first comprehensive grouped-utility privatizationcontract awarded by the Department of Defense (DOD), the U.S. ArmyMilitary District of Washington and Enron Federal Solutions Inc.announced a 10-year $24.8 million deal last week. The Enronsubsidiary will manage all of New York-based Fort Hamilton’sutility needs. The announcement was made at Fort McNair inWashington D.C.

The utility privatization project is the first comprehensive,grouped solution to meet the Secretary of Defense’s Defense ReformInitiative Directive (DRID) 49 which directs all services toprivatize their utility systems by September 30, 2003. FortHamilton is one of five subordinate installations that belong tothe U.S. Army Military District of Washington. The Enron agreementhas no bearing on the other installations said Dov Schwartz, anArmy spokesman.

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

The deal is not without skeptics. On Dec. 7, the Edison ElectricInstitute (EEI) issued a request for the FP details to the ArmyCorp. of Engineers under the Freedom of Information Act (FIA).Patrice Hagmann, an EEI spokeswoman, said the institute is notalleging any wrongdoing yet, but would like to get more informationconcerning the exact details of the contract. “This is the first ofwhat will be many privatization contracts like this one, and ourmembership wants to make sure that there is a clear understandingof what the DRID allows.”

According to Hagmann, Enron was the only company to bid for thecontract. Member companies of the EEI said they did not participatebecause they thought the DRID required an ownership transfer of thedistribution systems. As it stands now, Hagmann said the EEIbelieves Enron’s deal with Fort Hamilton is more of a capital leasefor the systems. “There are serious tax and financial differencesbetween the two, and a capital lease is very attractive.Unfortunately, our understanding of the directive led us to believethat transfer of ownership had to occur.” Under FIA rules, the EEIwill get a response to its filing within 20 working days.

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

For its part, Enron said nothing is wrong with the contract. “Wesimply competed in the RFP,” said Peggy Mahoney, an Enronspokeswoman.

John Norris

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