Volume 4 - Issue 4
A Lean, Green Fighting Machine?
Part 1: The Regulatory Risk Posed by the Army's Renewables Initiative

On March 15, 2012, the United States Army (“Army”) released a draft request for proposal for ’up to $7 billion in renewable energy sources,’ a massive procurement to be overseen by the Energy Initiatives Office Task Force (“EITF”).1 The EITF was established by the Army to focus on ‘large-scale renewable, almost utility-scale renewable projects’ that will provide alternative forms of energy to ‘offset all or part of the energy needs of a permanent installation.’2 These initiatives are intended to support the Army’s net-zero strategy, whereby an Army installation is to produce as much energy as it consumes, its plan to enable installations to ‘island’ in the event of power grid failure, and its efforts to meet its renewables mandates.3

The final ‘Request for Proposal for Large Scale Renewable Energy Production for Federal Installations’ was issued on August 7, 2012 in the form of an Indefinite Delivery Indefinite Quantity Multiple Award Task Order Contract (“MATOC”).4 The scheme outlined in the MATOC is one that relies on the authority of the Army under 10 U.S.C. §2922a (“§2922a”) to enter into contracts with terms of up to 30 years to procure energy (“power purchase agreements” or “PPAs”) as a means of attracting investment in greenfield renewable power projects to be built on-base. Applicants will be pre-qualified by the Army and then will receive task orders inviting bids on identified project opportunities in each of the areas of wind, solar, geothermal, biomass and other alternative energy technologies. The expectation is that a contractor that is awarded a task order will enter into a PPA with the Army, and this long-term payment commitment from the Army will enable the contractor to raise the private sector financing necessary to construct and operate a power plant that will produce the renewable energy required to satisfy project PPA obligations for 30 years.

This large-scale adoption of a long-term PPA approach to renewable energy procurement by the Army has caused great excitement because it represents a material change in Army energy procurement practice and promises to stimulate a large volume of investment in the renewable power sector. However, the novel approach has also generated concerns amongst both those already engaged in supplying energy to Army installations and those new to the scene. A review of the complex legal issues underlying the Army’s renewable energy initiative demonstrates that these concerns are valid. If not addressed and resolved by the Army from the outset, legal uncertainties have the potential to dampen private sector interest, slow EITF momentum, and result in higher renewable energy costs to the Army.

The application by the Army of §2922a as a means of offering a long term PPA is without precedent. The conventional approach to energy procurement by government is embodied in a Utility Service Agreement. Under this sort of contract, the military is a retail customer generally agreeing to a year-to-year (or a maximum 10 year term) contract for electricity supply at retail rates. The generation mix, as well as transmission and distribution arrangements in respect of the electricity the Army purchases, is generally a function of the local regulatory environment; and options to ensure that a significant portion of energy purchases meet the idiosyncratic requirements of the Army’s renewables mandates are limited. As a result, the Army needed a new way of doing business with the private sector.

It was in this context that the Army roused §2922a PPA authority from nearly three decades of dormancy. It had been adopted in 1982 in connection with a bill addressing the construction of military housing, but apparently never employed. However, on its face, §2922a seemed to offer a straightforward solution to the Army’s renewables conundrum by providing broad authority to enter into 30 year power purchase agreements.

However, the real complications associated with §2922a PPAs are outside of the statute. One area that a private party entering into a §2922 PPA should be alert to is the potential for conflict between the Army’s proposed PPA and the law of the state in which a power project is to be located. A federal statute (40 U.S.C. §591) commonly referred to as ‘§8093’ states that ‘[a] department…of the Federal Government may not…purchase electricity in a manner inconsistent with state law governing the provision of electric utility service…’ The scope of this statute has been the subject of years of litigation and, ultimately, legislative and regulatory action to require federal agencies to defer to state law when buying electricity.5

As a practical matter, it seems that the Army has admitted to the application of §8093 to Army electric power purchases and, for purposes of the MATOC, is relying on a statute that happens to be an exception to §8093 in the form of §2922a. §8093 expressly provides that it ‘does not preclude the Secretary of a military department from entering into a contract under [§2922a]...’ Thus, it would appear that, even if to do so would be inconsistent with state law governing the provision of electric utility service, the Army may enter into a §2922a PPA.

Unfortunately, this is where the next level of complexity begins. This is because, even as the §2922a exception informs the Army of its position relative to state regulatory law, it is silent as to the position of the Army’s PPA counterparty. We are left to wonder how a contractor is to be regulated, if at all, in a world in which §8093 does not apply. The question becomes even more pressing in the context of a specific project that is interconnected with the grid and, particularly in the case of intermittent resources such as wind or solar, is an integrated piece of a larger puzzle that relies on back-up energy from the local utility.6

The Army’s renewable energy initiative represents an historical opportunity in the U.S. to achieve government infrastructure objectives using project development and finance methodology. If the Army takes the lead to address the regulatory concerns of all stakeholders in this new way of doing business, the initiative may serve as a powerful example of public-private and federal-state partnership success.

 McIlvaine, R. “Army commits to security through renewable energy.” Army News Service (Dec. 18, 2012, 3:57 PM), https://www.army.mil/

2 Lopez, C. Todd. “New task force to focus on renewable energy.” Army News Service (Dec. 19, 2012, 12:35 PM), https://www.army.mil/article/63389

3 Id.

4 Department of the Army, Pre-Solicitation Notice for W912DY-11-R-0036: Renewable and Alternative Energy Power Production for DoD Installations (2012), https://www.fbo.gov/

5 Black Hills Power and Light Co. v Weinberger, 808 F.2d 665 (8th Cir. 1990); West River Elec. Ass’n, Inc. v. Black Hills Power and Light Co., 918 F.2d 713 (8th Cir. 1990); Baltimore Gas & Elec. Co. v. United States, 133 F. Supp. 2d 721 (D. Md 2001).

6 For further discussion of federal and state regulatory jurisdiction, see [ET&D]

Maura Goldstein, a Partner in the Global Projects Group of the law firm of Baker Botts L.L.P., represents developers, equity investors and lenders in connection with major infrastructure projects, including power projects, worldwide. Maura has extensive experience structuring gas and coal-fired, solar, wind, energy storage, and biomass power projects, and negotiating power purchase agreements, project site leases, construction contracts, technology procurement, and project financing arrangements for power projects. Baker Botts’ energy and transactional associates Katrina Smith, Yuefan Wang, and Kyle Wamstad, provided valuable assistance in the research and development of this article. Maura can be contacted at Maura.Goldstein@bakerbotts.com

Maura Goldstein, Baker Botts L.L.P.
Maura.Goldstein@bakerbotts.com