Base Renewable Projects Legal & Regulatory Hurdles February 16, 2011 Bob Tritt McKenna Long & Aldridge LLP

Legal/Regulatory Issues Real Estate Authority Power Purchase Authority CBO Scoring OMB Scoring State Utilities Laws

Real Estate Authority Enhanced Use Leasing (10 USC § 2667) Underutilized Assets Up to 50 years In-kind consideration But Also – Easements 10 USC § 2668 (Fort Bliss –El Paso Desalination Plant) 40 USC § 1314 (Air Force Academy – Photovoltaic Project) 43 USC § 961 10 USC § 2688

Power Purchase Authority FAR 41.103 10 year, renewable at government option Western Area Power Authority (DOE) At least 20 year authority Western states Energy Savings Performance Contracts (42 USC § 8287) 25 years But revenues only from savings

Power Purchase Authority (cont.) Utilities Privatization (10 USC § 2688) 50 years Cost effective requirement Utility Energy Service Contract 25 years Only local utility 10 USC § 2922(a) (formerly 10 USC § 2394) 30 years Requires Sec Def approval

CONJUNCTIVE VS. DISJUNCTIVE 10 USC § 2922(a) Secretary of military departments may enter into contracts for up to 30 years Under 10 USC § 2917 (geothermal);AND operation of energy production facilities on real property under the Secretary’s jurisdiction…and the purchase of energy produced from such facilities But requires approval of Secretary of Defense CONJUNCTIVE VS. DISJUNCTIVE

CONJUNCTIVE VS. DISJUNCTIVE 1 House Report 10 USC § 2922(a) (1) geothermal (2) provision and operation by others of energy production facilities on government or private land and purchase of energy from such facilities;AND purchase of refuse derived fuel or fuel derived from biomass CONJUNCTIVE VS. DISJUNCTIVE 1 (H.R. Rpt. 97-612 at § 30)

Purchases of Private Sector On Base Generation   FAR § 2922(A) WAPA Special Circumstances Army Army Position: Applies to All Renewables Fort Carson 2MW Solar __________ 17 years w/one 3 year option Fort Detrick Electric Energy not sold Fort Irwin Sold off base to grid Navy Navy Position: Applies to All Renewables Navy Southwest 40 MW Solar 30 years Air Force Nellis AFB 14.2 MW Solar Davis Monthan AFB 14.5 MW solar Edwards AFB 3.5 MW solar Indefinite Term with 1 year Termination AF Position: Only Applies to Geothermal

CBO Scoring Impact on budget from legislation Only arises if change in law Recent legislative effort S. 3251 Sen Carper (D – Del) DOD action needed

OMB Scoring Purchase of Asset vs. Use of Assets Financial Accounting Board Standards (OMB Circular A-11, Appendix A & B)

OMB Scoring (cont.) If Capital lease present value of all [lease] payments If Operating lease one year [lease] payments, plus termination liability

Definition of an “Operating Lease” pv lease payments don’t exceed 90% of asset Fair Market Value, and lease term is not greater than 75% of the economic life of the asset, and no bargain-price purchase option, and ownership of asset remains with lessor and is not transferred to the government, and asset is a general purpose asset, not built for special purpose of the government, and private sector market for the asset

State Utility Laws State laws often restrict who can make retail sales Is it retail? (WAPA) Do state laws apply? Federal law (40 USC § 591) says must buy electricity in accordance with state law But West River Electric Association v. Black Hills Power (918 F.2d 713, 8th Cir. 1990) (if exclusive enclave, still not subject to state law) ESPC and 10 USC § 2922(a) excepted from statute Exceptions for distributed generation Sale through public utility