Pentagon retools plans to privatize utilities at military bases

The Defense Department is retooling its plans to privatize utilities at military bases across the country after initial attempts to turn the systems over to contractors failed.

According to Get Moy, director of utilities and energy for the Defense Department, only 29 systems have been privatized at military bases and facilities in the last few years. That's far short of the Pentagon's goal five years ago. Then, it said it wanted more than 1,600 utility systems privatized by September 2003. A combination of factors has hamstrung the effort, Moy said. Those factors include underestimating the complexity of privatization, the deregulation of the electric utility industry, and the California energy crisis.

There are 2,660 electric, gas, water and wastewater systems at U.S. military bases. About 1,000 of those systems cannot be privatized because they are already leased from contractors, owned by utility companies, or must be operated by military personnel for security reasons. Moy said the remaining systems must be privatized because Defense cannot afford the necessary repairs and maintenance to keep them running and operating efficiently.

Running those utilities is a potentially lucrative market. Defense buys more than $2 billion in energy annually and the systems carrying that energy are valued at more than $50 billion. The privatization deals call for utility firms to own and operate the systems under 50-year service agreements.

By June, the Defense Department will issue new rules for utility privatization that push back the 2003 deadline by a year or two, Moy said. The new rules will set standards for how the services should write requests for contract proposals. They will also create common ground on how the services procure the systems and how contractors are evaluated, and will grant the military services greater flexibility in following federal acquisition regulations, he said.

Ken Meeks, a lobbyist for Business Executives for National Security in Washington D.C., said those changes are long overdue. "There were more hang ups than you can count, it was a demonstration of how not to do it," Meeks said of utility privatization efforts over the past five years. For example, the services initially released dozens of request for proposals simultaneously, which limited the number of projects utility companies could bid on. In addition, the Pentagon offered little guidance to the services on how to pursue privatization, Meeks said.

Moy said the new guidance would allow the services to take different approaches to privatization. For example, the Army is hiring different utility companies to operate systems at each base, while the Navy and Marine Corps are looking for utility providers to oversee systems at multiples bases. The Air Force said it will test several approaches to find the one that works best.