NGI The Weekly Gas Market Report
By Congressional mandate, Uncle Sam is supposed to get out ofthe utility business in the first few years of the new century. Howthe government can accomplish the feat at hundreds of militaryinstallations around the globe will become a little clearer by theend of this year when a current round of “requests for interest”(RFI) should be submitted by various private sector companies. Noone has an overall price tag on the facilities worldwide, but itprobably will be in the billions of dollars. There are thousands ofmiles of gas piping, water conduits and electrical lines to besold.
“For now, I think the jury is still out,” said NavigantConsulting’s Don Harker, who is working with a number of Westernmilitary bases on initial evaluation of their electricity, gas andwater systems. “But I think there are a lot of people interested ingetting out there in these markets, so I think eventually [theDepartment of Defense] will be successful.”
A number of major barriers await the effort, including: (1) oldinfrastructure in ill-repair, (2) legal questions about the rightsof public utilities serving areas surrounding the military bases,(3) the level of interest among private sector companies if thecommodity services and infrastructure ownership/operation are keptseparate in the bidding as they are now, and (4) streamliningthebidding/contracting process, which is expected to be completed inless than four years.
The drive behind the privatization move is a desire byCongressional and military leaders to focus the U.S. military onits core competencies that include assuring the defense of the U.S.and its installations and people abroad. That means that unlessthere are security or economic reasons not to do it, every militaryinstallation is expected to find private sector companies or localutilities to own and operate its housing stock and utilityinfrastructure.
In the West, the military concentrations in Southern Californiaand the Puget Sound region of the state of Washington are receivingconsiderable attention, according to Doug Powell, San Diego-basedNaval Contracting Officer, a civilian position responsible for 75sites, involving 215 separate energy and water systems inWashington, Oregon, Nevada, Arizona and California. Many of thesebases, such as the Twenty-Nine Palms Marine base in the high desertnorth of Palm Springs, have infrastructures and public worksdepartments 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 capitalinfusion to bring them up to industry standards. So, that is partof the divesting process, but most private companies are not goingto want to purchase and operate anything that wasn’t up to industrystandard.”
Powell said that the initial RFIs should give the military ideasfor grouping some of the bases and facilities for the formalrequest-for-proposal (RFP) phase that runs through September 2001.Contracts are then supposed to be worked out by the end ofSeptember 2003 and the transition to private ownership by the endof September 2005.
“The whole idea is not to limit competition,” Powell said. “Wewant to get as much competition as possible. We’ve been gettinginterest statements from private utilities, local municipalutilities, and unregulated firms, such as Enron or NewEnergy.There’s been a pretty broad interest level.”
NewEnergy, the newly acquired Los Angeles-based energy servicesfirm now part of AES Corp., the international energy facilitydeveloper/operator, confirmed that it is looking nationwide atpotential military installations for which it may bid.
“The defense department is trying to do something that has neverbeen done before, and in government that is always very difficult,”said Phill Consiglio, NewEnergy’s national director for governmentmarkets. “The good news is that we have commitments of manyhigh-level officials and commitments by people with outstandingcontracting knowledge like Doug Powell. With champions like that, Ithink they’ll work through the hurdles.
“We look forward to working with people on this project. Thereare opportunities for everybody, and we can save the taxpayersmoney, too.”
In addition to the existing infrastructure, several potentialbidders are floating the idea that merchant power plant developmentand commodity energy buying may be business offshoots of aninfrastructure purchase. Thus, a successful bidder on a base’s gasand electric systems, may eventually develop a gas-fired powerplant to sell excess power to the grid, along with brokering thegas supply contract for the base.
“We may or may not be buying the commodity from the new systemowner,” Powell said. “We’re moving more into a competitiveenvironment for purchasing the commodity and we want to maintainthe flexibility for buying it. We don’t want to tie our hands for along period, so one of our goals is to maintain flexibility in thatarea.”
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