Case Study 8: Privatization of Power Facilities at Savannah River Site

Background

The DOE Savannah River Site (SRS), near Aiken, South Carolina, has a 70megawatt electric- and steam-generating powerhouse, more than 100 miles of electrical transmission lines, and 16 substations. These facilities were built in the early 1950s for power supply. Westinghouse Savannah River Company (WSRC) is the current management and operating contractor for the site.

The Effort

In late 1994, the DOE Savannah River Operations Office determined that the lowest cost for power to the site could be obtained through the privatization of onsite power production and transmission facilities. Privatization also would eliminate the need for an upgrade to the existing plant, a project that had been authorized for a total project cost of $91 million. In this case, the effort included aspects of two types of privatization—namely asset transfer and contracting out.

As the utility with legal territorial rights in this area, South Carolina Electric and Gas Company (SCE&G) was the only company from which DOE could purchase retail electricity. Therefore, a sole-source procurement action was pursued. Privatization was accomplished through a utility contract that included a 10-year lease for the site’s 484–D Powerhouse, supporting facilities, and steam pipelines, and a 40-year lease for transmission facilities and substations. Both leases were executed under the authority of section 161g of the Atomic Energy Act.

Based on the results of the first year of the contract, DOE projects that cost reductions for power and steam will exceed $150 million over a 10-year period. The management contractor projected a loss of 150 to 200 jobs; however, SCE&G would employ about 50 of these employees.

Current Status

The actual transfer of facilities to SCE&G occurred on October 1, 1995, and the necessary environmental permits were transferred shortly thereafter. Transfer of occupational safety and health jurisdiction was problematic. The State of South Carolina did not want to assume jurisdiction, and it took 7 months to work out the details of transfer to the Federal Occupational Safety and Health Administration (OSHA).

The first 3 months of billing for electricity and steam by SCE&G was approximately $5.4 million less than would have been billed by WSRC using fiscal year 1994–95 actual costing rates. The actual realized savings will be somewhat less due to direct transition costs and the general and administrative overhead costs of the management contractor, which cannot be fully eliminated. However, DOE expects actual savings to grow as transition activities are completed and overhead is reduced.

Lessons Learned

One of the lessons learned in privatizing the powerhouse at Savannah River is that if a potential privatization involves external regulation, the Department’s Office of Environment, Safety and Health and appropriate regulatory agencies must be notified and engaged very early in the privatization process.

Another lesson learned is that failure to properly communicate the Department’s intentions to organized labor, which had been employed in the maintenance of the facility for many years, has strained local labor relations.

A third lesson learned concerns theapplicability of the Davis-Bacon Act (see Key Legal Authorities, at the end of this chapter). The Department has taken the position that this privatization is an acquisition of utility services and not a contract to operate a powerhouse. The powerhouse is leased to SCE&G, who may choose to utilize the D-Area powerhouse to meet its contract obligations; however,SCE&G’s obligation to provide steam and electricity to the Savannah River Site is independent of the D-Area powerhouse lease. Because the utility service contract with SCE&G does not contain requirements for construction work, the Davis-Bacon Act does not apply.