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Selling Energy to the Federal Government

Fortnightly Magazine - February 1 1998

matter will be resolved under the "disputes" clause. Even if adequate price competition existed during the award of the basic contract, the utility will still need a good accounting system. Without such a system, it may do all of the additional work but only get paid part of its allowable and properly allocable costs.

In addition, if the price of the contract modification incorporating the change is expected to equal $500,000 or more and the modification does not qualify for an exception to the requirement for cost or pricing data, the government may argue that the utility must disclose cost or pricing data in connection with the negotiation of the modification and certify that the data provided is current, accurate, and complete. %n7%n

What if the utility refuses to perform this new work unilaterally imposed by its government customer? The utility will have breached the contract. The government's remedy is nearly all-encompassing. It includes, for example, recovering the excess costs the government incurs in procuring the services from another contractor. When there was no competitor, this just could not happen.

Even if the utility is not in breach, under the standard "termination" clause, the government has an absolute right to terminate the utility's contract for the government's convenience without cause. Subject to complex regulations and case law, the utility in this situation gets its actual allowable and allocable costs, including settlement expenses, that it can prove, plus profit on only the incurred costs. The utility will not recover anticipatory profit. Again, the utility will need that accounting system. But because the utility recovers only its allowable and allocable costs, the utility may not recover all of its costs, and the utility no longer has a contract.

Fines and Penalties?

A competitive environment also heightens the risk that a utility could violate the conflict-of-interest statutes, regulations and contract clauses. The standard conflict-of-interest provisions are complex, vague and confusing. They are often contrary to typical commercial practices. In general, they prohibit: (1) conflicts of interest between a government decisionmaker's responsibilities and his or her outside financial or business interests; (2) certain employment discussions with current government personnel; and (3) employing or assigning certain tasks to former government personnel.

Failure to comply with these provisions can lead to severe criminal and civil penalties for both individuals and the utility. Prison terms of up to five years and fines in the million-dollar range are provided for in the statutes.

There are many more rules, regulations, clauses and certifications that can add to the utility's risks and costs in a competitive federal energy market. Utilities will come to learn that whenever there is a requirement to certify facts (like the requirement to certify that cost or pricing data is current, accurate and complete), the utility and its employees will run the risk of incurring criminal and civil penalties for false statements and false claims. The government does not like to be misled, especially by those upon which it has bestowed the privilege of being a government contractor.

Moreover, utilities may not need to wait for some far-off