Base Closures Could Jeopardize Renewable Energy Contracts
The next round of military base closures could lead to the cancellation of power purchase agreements, energy savings performance contracts, and utility energy service contracts with the Department of Defense (DoD). A new Government Accountability Office (GAO) report outlines 60 current renewable energy contracts that could be subject to cancellation as a result base closures.
President Obama's budget calls for another round of Base Realignment and Closure (BRAC) in 2014. BRAC is the periodic process that DoD uses to realign and consolidate missions and close unneeded installations. The BRAC process starts with a recommended package of realignments and closures from the Secretary of Defense. These recommendations are then reviewed and modified as necessary by an independent BRAC Commission. The President and the Congress can approve or disapprove the entire package of BRAC Commission recommendations, but they cannot modify it.
During the last BRAC in 2005, we saw firsthand how the BRAC process can create big winners and losers. Just look at Maryland's Aberdeen Proving Grounds’ gain of 27,000 jobs or Georgia's loss of Fort McPherson, Fort Gillem, Naval Air Station Atlanta, and the Naval Supply Corp School. Regardless of when it takes place, the next round of BRAC will create its own winners and losers among the states, but it could also result in losers in some unexpected quarters.
According to a GAO report released this month, there are currently 60 renewable energy projects that would be subject to cancellation in the event of base closure. These renewable energy projects include “Power Purchase Agreements, Energy Savings Performance Contracts, and Utility Energy Service Contracts”. If an installation is closed, its associated renewable energy projects would likely be cancelled under a “convenience of the government” clause. The contracts would not have to be paid in full, but would be settled under terms dictated by the Federal Acquisition Regulation.
Exposure to BRAC closure is already established for these 60 projects. Going forward the Air Force, Army and Navy each have a goal of having 1 gigawatt of renewable energy installed by 2025. Undoubtedly, a significant portion of this will be achieved by the same type of alternative financing that the GAO report considers. Anyone entering into future renewable energy contracts with DoD should pay close attention to the presence of a convenience of the government clause and a cancellation ceiling which limits the government’s liability.