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Recent US Department of Defense Solicitation for Up To $7 Billion of Renewable or Alternative Energy Utilizing Power Purchase Agreements

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  • Ralph Parrott
    Subject: Legal Update: Recent US Department of Defense Solicitation for Up To $7 Billion of Renewable or Alternative Energy Utilizing Power Purchase Agreements
    Message 1 of 1 , Aug 14, 2012

      Subject: Legal Update: Recent US Department of Defense Solicitation for Up To $7 Billion of Renewable or Alternative Energy Utilizing Power Purchase Agreements
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      Mayer Brown

      Legal Update | August 13, 2012

      Recent US Department of Defense Solicitation for Up To $7 Billion of Renewable or Alternative Energy Utilizing Power Purchase Agreements

      Under mandates that require the US Department of Defense (DOD) to produce or procure from renewable resources at least 25 percent of its total facility energy needs by 2025, the DOD, through the US Army Engineering and Support Center, Huntsville, Alabama (CEHNC), has recently issued1and posted2 a solicitation (RFP) for up to $7 billion of renewable or alternative energy (RAE) generation over 10 years. The RFP calls for a two-step process. 

      As the first step, CEHNC intends to award multiple indefinite delivery/indefinite quantity (ID/IQ) contracts to qualified and responsible respondents whose offers receive minimum acceptable evaluation ratings and whose price is realistic and reasonable. As the second step, task orders will be awarded using fair opportunity procedures discussed in the Federal Acquisition Regulation (FAR) 16.505 in addition to the competitive source selection procedures identified in DFARS 216.505-70. Task orders will be firm fixed-price. Prospective respondents should note that an award of a contract does not assure the recipient of any particular work, Only the second step task order does so. Respondents should expect to expend significant time and efforts in the first step without assurance of resulting task orders.

      The government intends only to purchase energy produced, and not to acquire assets—contractors are to develop, finance, design, build, operate, own and maintain the energy plant. The government will contract to purchase the energy for up to 30 years in accordance with site/project specific agreements resulting from task orders awarded. The RFP states that the RAE sources that will be considered include solar, wind, geothermal, biomass, and other alternative energy technologies, and provides the government with significant flexibility among these resource types.

      The RFP includes small business set-asides for generation facilities less that 4 megawatts (MW) and for facilities between 4 and up to 12 MW (unless fewer than two letters of interest are received from small businesses, in which case the related task order will be open to unrestricted competition). For purposes of the RFP, a small business is a firm which, together with its affiliates, has less than 4 million megawatt hours (MWh)total electric generation in the prior fiscal year.

      For generation facilities greater than 12MW, the RFP requires unrestricted competition.

      Notably, the multiple ID/IQ contracts will be awarded for a base three-year term, with seven one-year optional term extensions (for a maximum term of 10 years if all extension options are exercised). In addition, the DOD will evaluate the related market at least every 18 months during the term of the ID/IQ contracts to determine if the DOD should open an “on-ramp” or an “off-ramp.” During a contact on-ramp, the DOD will invite new proposals to “refresh” the technology and provide the DOD with better buying power. During an off-ramp, the DOD may elect to remove a poor performing firm from the ID/IQ contract pool. However, such removal will not affect previously awarded task orders.

      The RFP states that the task orders will include a power purchase agreement or equivalent (PPA) that may include the following:

      • Asset ownership identification;
      • Fixed unit rate;
      • Fixed escalation rate
      • Period of performance;
      • Energy supply start date;
      • Minimum annual purchase amount;
      • Maximum demand limitation;
      • Metering;
      • Payment terms;
      • Maximum maintenance down time allowance;
      • Termination for convenience value schedule for each year of the contract (if necessary). Termination value schedules may include both termination settlement floors and ceiling amounts. The termination floor and ceiling will normally decrease in value each fiscal year. A termination for convenience value schedule should include the type of foreseeable damages anticipated by both parties. In the event of a termination, no anticipatory profits will be compensable;
      • Real estate access terms and conditions; and
      • Site security, protection and end of contract restoration responsibilities.

      The task order and accompanying real estate access agreement will specify what is to become of the contractor-owned energy plant and associated equipment at the end of the contract term if there is no follow-on PPA or lease agreement extension. The government intends to retain the option to require the removal of the facility and the restoration of the property to its original condition or to purchase the facility at fair market value or to renew the real estate access agreement if a follow-on contract is awarded to the incumbent contactor.

      The DOD may incorporate whatever terms, conditions, economic price adjustment provisions, etc., it finds appropriate in power purchase agreements for a particular RAE technology application to achieve a fair and reasonable agreement consistent with applicable laws, regulations and agency policies; however, these terms and conditions will not conflict with the terms and conditions of the basic contract. Such details may be decided or negotiated at the task order level. It is the DOD’s intent to determine on a case-by-case basis for each task order whether to retain all or a portion of the Renewable Energy Credits (RECs) associated with or offered as a replacement to achieve federal mandates.

      Questions regarding the RFP are due by August 24, 2012, and are required to be submitted through the ProjNet website. Firms must be registered or must self-register in order to submit questions or other comments. Instructions regarding self-registration are included in the RFP.

      The RFP states that the DOD intends to hold a pre-proposal conference, tentatively to be held in Chicago, with further details to be made available on the FedBizOpps website when available.

      If you have any questions, please contact David F. Dowd, J. Paul Forrester, Cameron S. Hamrick or Marcia G. Madsen.

      Learn more about our Government Relations and Renewable Energy practices.

      Visit us at mayerbrown.com

      1 The DOD issued a pre-solicitation notice for W912DY-11-R-0036 on July 26, 2012.
      2 The notice was updated with the final solicitation on August 7, 2012.


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