DOD Electric Procurement Causes Industry Schism

Fortnightly Magazine - November 15 1995

A U.S. House-Senate conference committee may remove a provision in present law that requires the Department of Defense (DOD) to buy electricity solely from its local distribution company. The House of Representatives has already voted DOD (300 to 126) the right to buy electricity from the most economical source. A first step toward allowing retail wheeling for military bases, the provision is part of the House fiscal year 1996 Defense Authorization bill. However, it does not appear in the Senate's authorization bill; intense lobbying on both sides of the issue has given the provision a life of its own.

Since passage of the 1984 Competition in Contracting Act, DOD has been required to purchase goods and services on a competitive basis. But a 1988 appropriations bill made an exception for electricity purchases. That exception was inserted with no hearings.

A broad-based coalition of independent energy producers, cogenerators, alternative and renewable electricity producers, industrial users, and consumer advocate groups have joined together to urge lawmakers to approve the reform.

"Department of Defense is the largest purchaser of electricity in the United States, spending nearly $2 billion per year," said David L. Sokol, chairman of the board and CEO of California Energy Co., Inc., a leading proponent of reform and a member of the reform coalition. "According to the Office of the Deputy Assistant Secretary of Defense, Economic Reinvestment and Base Closure, a recent study done for the Air Force suggests that the Department of Defense could save between $95 to $235 million annually if allowed to competitively procure its electricity, as many cities and municipalities are already doing now."

Sokol pointed to a provision in the Energy Policy Act of 1992 that allows municipalities to competitively procure electricity, yielding remarkable savings. Many U.S. cities report a one-third cost reduction. "Singling out electricity as the only commodity that cannot be purchased competitively amounts to little more than corporate welfare for electric utilities," Sokol added.

Sokol testified on the proposed reform before a Republican-sponsored public policy think tank, the National Policy Forum, in a hearing entitled, "Electricity in the 21st Century: The Future is Bright." Sokol hopes the reform makes it into the final legislation in the House-Senate conference committee, which meets to reconcile the two bill versions.

Meanwhile, two investor-owned utilities, UtiliCorp United and Wisconsin Electric Power Co. (WEP), have broken with their electric industry colleagues, agreeing that competitive shopping is the best path.

UtiliCorp chairman and president Richard C. Green, Jr. pressed for reform in a letter to Senate Armed Services Committee chairman Strom Thurmond (R-SC): "Although you have no doubt heard from other electric utilities who oppose section 357, the industry is not of one mind on this issue. Some utilities see a market threat; others such as UtiliCorp see a market opportunity and benefit to our country." Green pointed to a study by Exeter Associates, commissioned by DOD, which found that the Air Force alone could save as much as $77.6 million per year given open access to the electric market.

"This is an opportunity to show that competition can save customers and taxpayers money," said a WEP spokesman. "Allowing the Department of Defense to competitively procure its electricity is the right thing to do for taxpayers and the right thing to do for our military."

Jim Sims, a spokesman for the Geothermal Energy Association, said that no matter what happens with the competitive electric procurement provision this time, the "genie is out of the bottle." t


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