THE FEDERAL GOVERNMENT IS THE NATION'S SINGLE largest energy consumer. It buys billions of dollars of electricity and natural gas from utilities each year. Deregulation, and the competition it brings, will change how the government buys these services.

For utilities that signed contracts with the government in the past few years, the future may be here. Utilities must read their contracts carefully; they must know which rules apply to them, and try to comply. Noncompliance can lead to criminal and civil penalties for the utility and its employees.

There is time, however, to help establish rules for this new competitive federal market. Utilities should try to capture the benefits of recent United States government procurement reforms. If done correctly, both sides, the utilities and the government will come out ahead.

A Safe Haven No More

Utility services have long occupied a niche in federal procurement law, but that niche may soon give way to risk and uncertainty.

In the "normal" contracting situation, the presumption arises that the federal government will acquire goods and services using full and open competition. %n1%n With utility services, however, the statutes and regulations run in virtually the opposite direction. Here, the federal procurement officers must justify the use of competitive procedures. If it cannot make a case for competitive procedures, then the government will acquire utility services without competition. %n2%n As a result, the government buys utility services without full and open competition.

The Federal Acquisition Regulations explicitly acknowledge that this arrangement is highly unusual. The FAR states that agencies "shall acquire utility services by a bilateral written contract" [FAR 41.201(b)]. However, this contract must include only a handful of the myriad of typically required government contract clauses. %n3%n

There are two categories of "mandatory" written sole- source contracts: a separate contract between a utility and a particular federal facility or an "areawide" contract, which covers services provided within the utility's franchise territory or service area. When an areawide contract is in place "[a]ny federal agency having a requirement for utility service within an area covered by an areawide contract shall acquire services under that areawide contract unless¼ service is available from more than one supplier" [FAR 41.204(c)].

In reality, however, utilities often have operated outside even these minimum requirements. For example, some utilities have simply refused to enter either type of written contract, treating the government as just another ratepayer that had to follow the utility's rules. In fact, the government has been forced to recognize this reality. Thus, the federal regulations include procedures for contracting with utilities that refuse to enter a written contract. %n4%n After all, what's the government to do? It needs energy, and the utility has been the only game in town.

Nevertheless, we all know that this game cannot continue. Once competition arrives, it will force changes virtually overnight. Utilities or their marketing affiliates (defined here collectively as "utilities") arguably will be required to comply with many of the same rules applicable to regular government contractors. So long sole-source contracts; hello cost and risk. These changes will cover the entire spectrum