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Selling Energy to the Federal Government

Fortnightly Magazine - February 1 1998

utilities is that the government isn't their only customer. The services that utilities furnish to the government they also supply to many private, nongovernmental customers. Government procurement regulations call similar services "commercial items."

For valid public policy reasons, championed by Vice President Al Gore as part of the Reinvention of Government Initiative, government procurement of "commercial items" is not subject to the full panoply of government contracting rules and regulations. For example, procurements of commercial items qualify for an exemption from the requirement to provide cost or pricing data. Even so, commercial item procurements are not risk-free. The government is still the sovereign and requires some things that no commercial customer could demand from a supplier. Nevertheless, when appropriate, commercial item procurements are better for both the government and the contractor. In fact, the new rules for commercial item procurements mark one of the major accomplishments of the recent administrative reform.

Should utility services qualify under the new rules?

For valid historical reasons, the services provided by utilities heretofore have not been explicitly characterized in the regulations as commercial items (em they had their own set of rules for their own noncompetitive environment. But when competition is added to the utility industry, applying the old procurement rules to a competitive environment would be ironic (and nonsensical). Some court might eventually find that under the existing regulations, the services provided are commercial items. But, by then, numerous procurements may have been conducted (em possibly under the inefficient and inappropriate rules for noncommercial items.

There is a solution. All that is needed is a little advance planning and teamwork. In whatever time that remains before competition becomes a reality, utilities should work with the government to amend the procurement rules or at least clarify government-wide practices so that the services provided by utilities are procured using competitive commercial item procedures. Neither the government nor the utilities should move backwards. While the government gets the benefit of competition, both parties should get the benefit of recent procurement reforms. Indeed, there have been some procurements using commercial item procedures. This is an encouraging first step.

Meanwhile, utilities should read their government contracts. There may be a devil in those details. F

Frederick Moring and Raymond F. Monroe are partners in Crowell & Moring LLP, a law firm in Washington, D.C. Moring has specialized in the natural gas law field since 1961 and is a former president of the Federal Energy Bar Association. Monroe specializes in the practice of law relating to government, complex commercial, and energy-related contracts. Monroe received his law degree with distinction from Duke University School of Law in 1980 where he served as executive editor of

the Duke Law Journal.

1 The Competition in Contracting Act of 1984 (CICA), Pub. L. No. 98-369 § 2701-2753, 98 Stat. 1175-1203 (1984).

2 See, e.g., Federal Acquisition Regulations (FAR) 41.204(c). The government has relied on two other statutes for authority to acquire a broad range of energy management services from utilities without competition. See 10 U.S.C. § 2865(d) (military contracts); 42 U.S.C. § 8256(c) (civilian agency