UTILITY PRIVATIZATION PROGRAM

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UTILITY PRIVATIZATION PROGRAM
ARMY LEADS THE WAY

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Utility Privatization Program

• An Overview and Prognosis
• 
  Process
• Progress
• Funding
• Other Services
• Utility Modernization
• Way Ahead

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The Problem
Utility systems Trying to maintain systems with
1950s technology, facing 21st century demands,
with skyrocketing commodity rates, and decreasing
fuel availability.
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The Situation

• Army has 1,104 utility systems
• - 351 in United States
  - 589 in Europe - 164
  in Korea (exempt) and Japan (host nation)
• Privatized 78 in CONUS 216 in USAREUR.
• Cost to prevent further deterioration of CONUS
  systems is in excess of 185 million per year.
• Cost to bring existing CONUS systems to C-2
  standard is over 5 billion.
• Cost avoidance of 78 privatized systems is
  460 million.

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OSD Guidance
The Defense Components shall complete a
privatization evaluation of each utility system
at every Active Duty, Reserve, and Guard
installation, within the United States and
overseas by September 30, 2005. OSD Planning
Guidance, 9 Oct 2002

• Defense Planning Guidance Bring infrastructure
  to C2 by 2010
• Process driven goals
• 30 Sep 03 Close Request For Proposal(s) or
  exempt at least 80 of systems
• 30 Sep 04 Make Source Selection Authority
  decision or exempt 65 of systems
• 30 Sep 05 Complete evaluations for all systems

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Compelling Need

• Utility ownership, operation, and maintenance
  is NOT a core Army function.
• Utility systems must efficiently meet
  operational, readiness, and quality of life
  requirements.
• Army must take advantage of industry's best
  practices, innovations, economies of scale.

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Utilities Privatization Principals

• Total Conveyance of entire system
• Long term contracts 25 to 50 years
• Decision is based on OM cost avoidance not
  cost of the commodity
• Centrally managed centrally funded
• - HQDA pays initial O M contract, first 1
  to 3 years, but not the commodity
• - Economic Analysis

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Cost Performance Risk
Low Performance Risk
High Performance Risk
System Value Annual Costs
5
10
15
0
Years
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Case Study Ft Irwin

• Government As Is Condition
• Single box loop area-wide outages
• Substandard switch gear underground fuses
  low reliability and numerous safety hazards
• 12KV lines laid on surface along road
• Leaking transformers

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Case Study Ft Irwin continued

• Privatization Results
• System mapped and inventoried
• Remote controlled switchgear faster response
  time
• Safety Reliability strict California PUC
  standards
• State-of-the-art technology, new field
  engineering strategies, stringent design
  standards
• 13 less cost over 50 life of contract
• Consistent bill with no MCA / large OMA spikes

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Case Study Ft Irwin continued
Govt So CA Edison Equivalent
Annual Cost 1,922, 980
1,667,789 Access to Capital for No
Yes Upgrades Customers Impacted by
900 30 Outage Length of interruption
Hours Minutes Exposed over ground cable
Yes No Compliance with Standards
No Yes
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Army Progress
351 Army Utility Systems

• W Ft Leavenworth, Ft Rucker
• WW Ft Leavenworth, Ft Rucker

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Status by Region
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PRIVATIZED UNDER SEC 2688 (47)
PRIVATIZED OUTSIDE SEC 2688 (31)
EXEMPT SYSTEMS (27)
NG Natural Gas EL Electric PW Water WW
Wastewater
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Contracting Agencies

• Current Systems using Huntsville 2-step
  process
• Ft. Carson - 4 systems initiated 1999
• Ft. Irwin - 2 systems initiated 2001
• Ft. Polk - 4 systems initiated 2001

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Funding for Privatization
FY 03 Initially Available 33.6 Million
Expended to date 33.4 Million FY
03 UFR 4.5 Million FY 04 Programmed
(30 systems) 79 Million FY 05 Programmed (70
Systems) 119 Million Since FY
2000 Privatization averages 2.2 million per
installation
Sam Houston, Benning, and Sunny Point
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Progress
Army has made greatest progress of all Services

• Other Services exempt systems at ASA level for
  operational reasons
• Army exempts systems at SA level for economic
  or security reasons

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Privatization Goals
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Our Initiatives

• ACSIM
• Implemented Action Plan
• Standard RFP
• Centralizing contracting
• Industry mailing list
• Communication plan
• Contractor support (Bearing Point)
• Standard economic analysis
• UP Tiger Team
• IMA/Regions
• Designated UP POC in each Region IMA
• Command emphasis
• Improving coordination between RCI UP

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Utility Modernization
Funding required to comply with OSD guidance to
upgrade Army owned utility systems to C2 status.
Millions
Assumed over 50 of existing systems are
privatized.
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Way Ahead

• Privatize all systems when economical
• Exempt systems when uneconomical or for
  security reasons
• Properly program funds to modernize systems
  that remain Army owned
• Keep the spotlight on Utilities Privatization
• AUSA Convention
  Garrison Commanders Meeting
  DPW Workshop
• Stay out in front in the UP Program
• Meet established Privatization Goals

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At every crossing on the road that leads to the
future, each progressive spirit is opposed by a
thousand men appointed to guard the past. Count
Maurice Maeterlinck Belgium Philosopher, 1862
1949 Nobel Prize for Literature, 1911