DoD’s Preferred Method for UpgradingDoD’s Preferred Method for UpgradingUtility SystemsUtility Systems

National Defense Industrial Association29th Environmental and Energy

Symposium and Exhibition2003

22

Utilities PrivatizationUtilities Privatization

u

u

u

u

33

State of Utility SystemsState of Utility Systems

u Utility systems have beenunder-funded for years

u Utility system O&M has notconsistently met industrystandards

44

DoD Vision for Utility SystemsDoD Vision for Utility Systems

u Provide adequate funding and managementn Bring all systems up to standards by 2010n A management review is inherent in the

privatization evaluation processu Incorporate private sector innovation and

efficienciesn Utilities Privatization is preferred method to

modernize and sustainn Utilities Services is not a core functionn Complex process, success requires partnership

with utilitiesØ Thorough communicationØ Clear understanding of assumed risks and baseline

of costs

55

UP Status SummaryUP Status Summary

Over 1300EvaluationsRemaining

Ownedby Others

Pending Solicitation, 408

Owned by Others, 750

Privitized without 10 USC 2688 authority, 350

Security or Mission Exempt, 89

Privatized Using 10USC2688

Authority, 43

Economic Exemption, 41

Active Solicitations, 929

DoD Utility SystemsTotal of about 2600 systems

(As of DEC 2002)

$50B Value

66

Performance Risks DuringPerformance Risks DuringUpgrades and AfterUpgrades and After

0 5 10

SystemValue

&AnnualCosts

“As Is”“As Is”ValueValue(FMV)(FMV)

Replacement CostReplacement CostNew New (RCN Modified)

Year

Period

of

High P

erform

ance

R

isk

Period of

Low Performance Risk

Recapitalization

Upgrades

Ops & Sustainment

System Value

77

Should Utility Industry be interested?Should Utility Industry be interested?

u The 1300 DoD systems remaining to beevaluated represent a potential rate baseexpansion of $Billions

n Increased economies of scale

u Utility gains a solid customer for the long term

n Reasonable profit is generated

n Government pays its bills

n Investment should have high rating from financialmarket

88

Industry ConcernsIndustry Concerns

u Inadequate or untimely communicationu Contract Accounting System requirementu Data provided in RFP is not understood

n Risk of performance shortfalls resulting from unforeseenconditionsØ Major inventory discrepancies

u RFP technical requirements overly prescriptiveu Service standards required by RFPu Utilities wary of investing resources to

develop packages and wait years for adetermination

99

Utilities Privatization GuidanceUtilities Privatization Guidance

uNew Utilities Privatization GuidanceuComplete evaluations of all systems by

Sep 05n Interim goals in Sep 03 and Sep 04

uRequires consistent economic analysisuRequires competitionuUtilities Privatization is preferred tooluApproved by Deputy Secretary 9 Oct 02uRequires permanent title transfer

1010

Over 1300EvaluationsRemaining

Ownedby Others

0

100

200

300

400

500

600

700

800

Owned byOthers

Privatized Exempt SSADecisions

MadePending

Notification

RFPsClosed

pendingSSA

Decision

RFPsReleasedpendingClosure

ActivePending

RFP Release

Deferred orOn Hold

USAF

Army

Navy

DLA

Status by ComponentStatus by Component

1111

Summary

u

u

u

u

u

Questions?Questions?

(703)-697-6195(703)-697-6195Richard.Marrs@osd.milRichard.Marrs@osd.mil

www.acq.osd.mil/ie/utilities/privatization.htmwww.acq.osd.mil/ie/utilities/privatization.htm