Subcommittee to probe Pentagon’s bulk biofuel purchase

Source: Ariel Wittenberg, E&E reporter • Posted: Friday, April 22, 2016

Months after the Defense Department’s first bulk biofuels purchase, a House Armed Services subcommittee is questioning whether the deal was cost-competitive.

The Subcommittee on Readiness is asking the Defense Logistics Agency (DLA), which administers all the Pentagon’s competitive bulk fuel bids, for a briefing on the biofuels purchase and how it was determined that the fuel was cost-competitive.

The demand comes in a provision of the subcommittee’s defense authorization bill, which was released yesterday and will be marked up by the panel tomorrow.

“The committee continues to believe that the procurement of alternative fuels for operational purposes by the Department of Defense should be pursued only when the fully burdened cost of such fuels is cost-competitive with conventional fuels,” lawmakers said in their bill summary.

As part of the briefing, they wrote, they want to hear “how DLA evaluates and determines whether an alternative fuel is cost-competitive with conventional fuels, what criteria are used to calculate the fully burdened costs of fuel, and how funds provided by the [Department of Agriculture] factor into DLA’s analysis of whether an alternative fuel is cost-competitive.”

Navy Secretary Ray Mabus has been the Pentagon’s biofuel champion, saying it is critical that the service relinquish its dependence on foreign oil. As part of that effort, he created the Great Green Fleet, which set sail on biofuels in January.

To facilitate the fleet, DLA recently opened its competitive bidding fuel procurement process to biofuel suppliers.

AltAir Fuels became the first-ever biofuel company to be awarded a bulk contract this winter. In that purchase, the Navy paid roughly $2 per gallon for the 77 million gallons of fuel in the bid, with USDA chipping in an additional 14 cents per gallon (E&ENews PM, Jan. 20).

The Pentagon’s biofuel program has been a perennial target for the Armed Services Committee, whose members have questioned whether the Defense Department should be using alternative fuels, especially if they are more expensive than traditional petroleum. The Pentagon had attempted to assuage such concerns in a nonbinding policy that it would not purchase biofuels in bulk unless they were cost-competitive with petroleum.

Last year, lawmakers codified that policy into law as part of the National Defense Authorization Act for fiscal 2016.

House subcommittee members are now questioning whether the AltAir purchase actually followed that directive.

“While DLA has stated that procurement of this alternative fuel was cost-competitive with conventional fuels, the committee believes additional information is needed to understand how DLA determines how the price of a fuel is cost-competitive in compliance with requirements” of last year’s authorization, the committee wrote.

Energy savings contracts

Lawmakers are more supportive of the Pentagon’s energy initiatives for renewable energy.

The subcommittee bill would authorize 16 energy conservation projects costing at least $2 million each for a total of $113.3 million.

While subcommittee members recognize the importance of energy-saving projects, they write in the bill summary that they have become increasingly concerned by the military’s reliance on “energy savings performance contracts.”

Military bases use such contracts to afford energy conservation and renewable energy generation projects. The contracts allow bases to forgo paying large upfront costs for projects such as installing a solar farm or switching a military base’s light bulbs to LEDs; instead, they pay contractors from energy savings realized once the project is complete.

But reports released by the Government Accountability Office in recent years have found that contractors employed by the military often overstate the savings attributable to the contracts, the committee wrote.

“The GAO findings raise concerns about the financial performance of these projects and the extent of fiscal exposure the Department is experiencing by using appropriated funds in their budgets to repay contractors on these alternative financing arrangements,” the committee said.

As such, the defense authorization package would require the comptroller general of the United States to review whether the Pentagon is “effectively leveraging appropriations to repay developers for alternatively financed energy savings, efficiency or generating capacity projects.”

The energy portion of the House defense authorization bill will be marked up by the subcommittee tomorrow, and the full committee will mark up the bill next week. Committee aides say they expect amendments on both the biofuels program and the military’s interaction with public lands owned by the Department of the Interior to be discussed at the full committee markup.

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