Analysis of the ongoing process for privatizing utility systems in the Navy

Abstract

In December 1997, the Deputy Secretary of Defense issued Defense Reform Initiative Directive #9 directing the Military Departments to develop a plan for privatizing all utility systems except those needed for unique security reasons or when privatization is uneconomical. The utilities privatization program is designed to get DoD out of the business of owning, operating and maintaining utility systems. DoD consumes 70 percent of all the energy consumed by the federal government. This costs DoD nearly $6-billion a year, with $2.4- billion of that in infrastructure maintenance. Privatization of DoD utility systems can generate an estimated savings of $327- million annually in reduced infrastructure costs. These savings can be reallocated to DoD's core competencies: warfighting and warfighting support. This thesis analyzed two case studies to help identify emerging problems facing utilities privatization in the Navy and determine their impact to the ongoing implementation process. Three major problems were identified: (1) variance in determination of Fair Market Value, (2) variance in economic analyses, and (3) applicability of State Utility Commissions' authority over utility systems located on DoD installations.