RFI - DECo (5AUG24).pdf

Other Transaction Authority (OTA) Consortium Management Organization Request for Information (RFI)

Air Force Office of Energy Assurance

This Request for Information (RFI) is for market research purposes.

The Department of the Air Force (DAF) is seeking capability information for the subject RFI from all interested parties. In accordance with FAR 15.201(e), RFI responses are not offers and cannot be accepted by the government to form a binding contract. This RFI is issued solely for information and planning purposes and does not constitute a request for proposals. Respondents will not be reimbursed for costs incurred in responding to this RFI.

The intended follow-on of this RFI is the release of a competitive solicitation for a Consortium Management Organization (CMO), a legal entity with an established consortium whose members will be compromised of small businesses, traditional and non-traditional defense contractors, utilities, financiers, and others dedicated to addressing DAF’s energy resilience requirements through on ongoing public-private partnership.

The CMO would execute a Consortium Management Agreement (CMA) with DAF to manage prototype projects and sole-source, follow-on production contracts under 10 U.S.C. § 4022.

Commonly referred to as Other Transaction Authority (OTA), 10 U.S.C. § 4022 is an alternative to Federal Acquisition Regulation (FAR)-based acquisitions that allows DoD to access innovative solutions from the marketplace to enhance its mission effectiveness. After executing a CMA, DAF would seek to execute a portfolio of prototype agreements with the CMO on behalf of the consortium members that propose winning, competitively-selected prototype proposals.

Note: DAF is neither obligated to acknowledge receipt of the information received nor to provide feedback to responses. Based on the responses submitted, DAF may choose, at its own discretion, to reach out to individual respondents for further clarifying information.

REQUIREMENTS

Department of Defense (DoD) installations are largely reliant on off-site energy providers to support its globe-spanning national security missions in air, land, sea, space, and cyberspace.

This dependence creates unacceptable risks, because service disruptions from maintenance issues, extreme weather, and attacks by determined adversaries may impact DoD’s ability to maintain mission continuity. The need for mission continuity is so vital to national security that congress mandated that all DoD mission critical loads be 99.9% energy resilient by 2030 (see 10 U.S.C. §2920).

DAF alone has identified nearly 4,000 energy resilience gaps at its installations worldwide that need mitigation as rapidly and cost-effectively as possible. This will require DAF to access innovative energy resilience technologies, deploy commercial off-the-shelf technologies, and implement new business models at an enterprise-wide scale and at commercial speed.

Concerned that DoD and the Services are unable to access or deploy these technologies and business models at the scale, speed, and cost-effectiveness required to meet its energy resilience challenges, Congress has encouraged DoD to leverage its 10 U.S.C. § 4022 authority and partner with a consortium dedicated to military installation resilience and energy innovation.1

Heeding Congress’ call to action, DAF is conducting market research on the creation of the Defense Energy Consortium (DECo), a public-private consortium that can work at the scale and speed necessary to help DAF cost-effectively address the problem of obtaining 99.9% energy resilience for all of its critical loads.

DECo’s unique requirements are described below.

Third-Party Financing

Congress wrote 10 U.S.C. § 4022 broadly enough to allow the entire cost of the prototype to be fully financed (100%) by the performers using third-party capital, if DoD provides some form of consideration (in kind consideration (IKC)), such as access to DoD property and its facilities.2

Because third-party financing is essential for procuring energy services and energy infrastructure at DoD installations, DECo would need the financial resources, expertise, and internal controls to fully finance prototypes worldwide at its own risk. DECo would also need to fully finance, own, operate, and maintain any infrastructure constructed under a sole, source, follow-on contract in which DoD would purchase long-term energy services and/or energy commodity for up to 30 years or longer.

DECo would need to exhibit the capacity to launch a fund that is under the regulatory purview of the Securities and Exchange Commission (SEC), in strict compliance with the Bank Secrecy Act and the USA PATRIOT Act. This includes the implementation of robust Anti-Money Laundering (AML) frameworks and adherence to Know Your Customer (KYC) directives, as outlined in the Anti-Money Laundering Act of 2020, to prevent fraudulent activities, corruption, and terrorism financing. Furthermore, DECo would need to maintain operational competence to engage with the sovereign wealth funds of the nation’s hosting DAF facilities, such as those in Germany, Greenland, Italy, Japan, Portugal, Spain, South Korea, Turkey, and the United Kingdom.

1 See National Defense Authorization Act for Fiscal Year 2023, Section 322(g) (stating that “each Secretary of a military department may enter into a partnership with, or seek to establish, a consortium of industry, academia, and other entities…the primary work of which relates to technologies and business models relating to energy resilience.”) See also S. Rep. No. 117-39 for the National Defense Authorization Act for Fiscal Year 2022, p. 132 (stating the “[C]ommittee is also concerned that the DOD is currently unable to access innovative energy and military installation resilience technologies or deploy technologies and new business models at the scale, speed, and cost-effectiveness required to meet these challenges. Accordingly, the committee encourages the Department to create and/or partner with a consortium of industry, academic, and national laboratory partners dedicated to military installation resilience and energy innovation.”)

2 Ibid. 5-6.

Given the size and scale of DAF’s worldwide energy resilience needs, DAF estimates that DECo initially would need to raise $2 billion in equity and debt capital from institutional investors, investment banks, sovereign wealth funds, limited partners, and others, and work with a custodian bank to hold the financial assets to minimize the risk of theft and loss.

Consortium Management Organization

DECo would be managed by an experienced Consortium Management Organization (CMO). The CMO would be the counterparty to DAF, and both parties would negotiate and execute a Consortium Management Agreement (CMA) detailing the requirements, processes, and terms and conditions of the DECo consortium. The CMA is the bridge between the government and private sector. The CMO, in turn, would have members that execute their own separate member agreements with the CMO.

Membership

DECo’s membership would consist of small/large business innovators, original equipment manufacturers, non-profits, national laboratories, academia, energy service companies (ESCOs), utilities, utility associations and research organizations, suppliers, academia, and professional services companies, all of whom currently provide professional, services, energy services, and/or energy infrastructure to DoD installations.

For overseas installations in Germany, Greenland, Italy, Japan, Portugal, Spain, South Korea, Turkey, and the United Kingdom, DECo would allow participation by the host government and its domestic industry groups.

DECo’s membership would also include financiers, who would work closely with the above performers to fully finance the entire life-cycle of project development – from market research to business plan development, front-end engineering design, construction, commissioning, and long-term operations and maintenance.

Beyond the administrative functions typically performed by 4022 consortia, such as managing and overseeing the overall prototype and/or production contracts and any necessary government reporting requirements, DECo would also need to establish internal procedures for providing financial backing for member prototype project concepts competitively selected by the government and for any sole-source, follow-on projects.

Today, unless performers can self-finance projects using their own balance sheets, they must secure third-party financing on their own. DECo envisions bringing together financiers with performers under one roof to standardize, streamline, and speed up the financing and project development process to reduce overall financing risk and the weighted average cost of capital for projects financed through the consortium. Increasing economic efficiency through DECo’s public-private partnership will help spur technological advances, provide greater value for all taxpayers, and ultimately enhance our national security.

Desired Technologies and Services

• Energy Resilience Technologies. These include, but are not limited to, cutting-edge utility-scale geothermal energy technologies, advanced nuclear generation, microgrids, long duration energy storage, fuel-flexible backup generation, cybersecure and dispatchable onsite generation, tidal and wave technologies, geologic hydrogen, advanced lighting controls, high-performance cooling systems, waste-heat recovery systems, and advanced modeling tools to design and assess the resilience and reliability of installation energy distribution infrastructure.

• Climate Resilience Technologies: These include water, stormwater, and wastewater management systems and other technologies and systems needed to withstand droughts, floods, hurricanes, and other extreme weather so mission critical facilities remain energy resilient and operational.

• Resilient Facility Technologies: These include, but are not limited to, cyber-secure building energy management communications systems, advanced building energy efficiency technologies, and building construction techniques and technologies.

• Operational Demonstrations of Energy Resilient Technologies: Demonstrations of pre-commercial energy resilience technologies and novel applications of commercial energy resilience technologies for defense purposes (e.g., Technology Readiness Levels

(TRL) 5-8).

• Energy Services Process Prototypes: Installation-specific process prototypes that integrate all energy services across an installation’s entire energy delivery chain – offsite commodity procurement, onsite distribution infrastructure upgrades, behind-the-meter generation assets, building envelopes, and building heating, cooling, and electricity loads

– to provide reliable and resilient energy cost-effectively to meet mission owner requirements.

Unlike most DoD 10 U.S.C. § 4022 prototypes, installation energy prototypes require adherence to utility laws and regulations, transmission interconnection rules, National Environmental Policy Act (NEPA) procedures, national ambient air quality standards, and specialized terms and conditions under real estate leases for site control and long-term access to non-excess installation real property.

Installation energy prototypes also require financial proformas that incorporate federal, state, and utility incentives based on the proposed project concept, and potential deal structures with multiple offtakers, including the installation and off-site energy customers. These requirements may need to be included as milestones under a proposed prototype, which will impact the overall cost and timeline of the prototype.

DECo’s members would have to bear all project development costs, including, but not limited to, any permitting and interconnection costs, NEPA assessments, and lease payments or In-Kind Consideration in lieu of payments for leasing surface and subsurface DoD lands.

DECo’s members would be expected to own, operate, and maintain all newly installed energy infrastructure, and to maintain all existing energy infrastructure owned by DAF under this long-term public-private partnership.

Please note, DAF does not intend to privatize its existing energy infrastructure by leveraging the sole-source, follow-on authority under 10 U.S.C. § 4022(f). Pursuant to 10 U.S.C. § 2688, DoD must compete all utilities privatization (UP) contracts, unless the conveyance falls under an enumerated exception to competition. 4022(f)’s sole-source authority, however, is not an enumerated exception under 2688. Thus, any sole-source, follow-on UP contract executed under 4022(f) is prohibited by law.

Consortium Management Agreement (CMA)

Following the competitive selection of the CMO, the CMO and DAF would negotiate a CMA to establish the terms, conditions, requirements, and processes of DECo. These may include the following:

• Membership Recruitment and Membership Fees: DECo would be required to build its membership by attracting, retaining, and mentoring its members in the U.S. and overseas, to help them prepare to compete for forthcoming prototype projects and to execute Federal Acquisition-based (FAR) and non-FAR follow-on contracts. DECo’s membership fees, if any, would need to be kept to a minimum to limit barriers to participation. Local utility engagement, whether the utility is a DECo member or not, would be a requirement.

• Contract Term: The term of the CMA would be for 5-10 years.

• Contract Ceiling and Administrative Fees: Because DECo’s activities would be fully financed by DECo’s members, there would be an unlimited contract ceiling for prototype project awards. All administrative fees for managing DECo, however, would be paid by DECo with zero upfront costs to DAF.

• Financial Controls & Oversight: DECo would need to form a fund that complies with the Securities and Exchange Commission (SEC) regulations, ensuring the fund is accredited and registered. This fund must be managed by financial professionals who are adept in establishing and overseeing such funds, adhering to the SEC’s stringent requirements. In accordance with the Bank Secrecy Act and the USA PATRIOT Act, the fund must meet all Anti-Money Laundering (AML) and Know Your Customer (KYC) obligations, including, but not limited to, the AML program and beneficial ownership rules as stipulated by the Anti-Money Laundering Act of 2020. These certifications are essential for each jurisdiction where DECo plans to finance and execute projects, ensuring full compliance with the SEC’s AML and KYC regulatory framework.

• Follow-on Contract Requirements: DoD has specialized and unique FAR and non-

FAR-based energy procurement authorities (e.g., 10 U.S.C. § 2922a, FAR 41, FAR 41 Indefinite Term Contracts, General Service Administration Areawide Contracts, Energy Savings Performance Contracts (ESPC), ESPC Energy Sales Agreements (ESPC ESA), Utility Energy Service Contract (UESC), 10 U.S.C. § 2667 leases, among others). DECo and its members would need to adhere to all requirements under these specialized authorities for any follow-on contracts executed under 10 U.S.C. § 4022(f)’s sole-source authority, along with any other relevant statutory requirements, such as cost-accounting standards and data rights.

• No Third-Party Beneficiary Relationship: All prototype projects would be done at the financial risk of DECo and its members. DAF would not be held liable by DECo or its members if a prototype project fails, or if DAF chooses not to award a sole-source, follow-on contract. Because DAF would not be a party to the membership agreement between DECo and its members, there would be no third-party beneficiary contract, relationship, or liability between DAF and DECo’s members.

• Portfolio Development: Developing a diversified portfolio of financeable projects based on DAF’s nearly 4,000 energy resilience gaps will take time. At DECo’s own expense, DECo would work with DAF to develop a portfolio of short, medium, and long-term projects that covers DAF’s energy resilience needs at all of its installations, even in instances where the expected return on investment (ROI) of a single installation may fall below DECo’s hurdle rate.

RESPONSE SUBMISSION

Response Format

The narrative response to this RFI proposal shall be prepared in 12-point Times New Roman font and with one-inch margin on all sides. Graphs, photos, and tables must be clear and legible. No hyperlinks are allowed. Responses should not exceed 50-pages, including all attachments. CMOs are encouraged to submit joint RFI responses with other partners who have the capabilities and expertise needed to meet the unique requirements of DECo.

Questions

1. CMO Profile. Please provide the following information on your CMO:

a. Name

b. Address

c. Points of Contact email address, telephone number

d. Unique Entity Identification

e. Business Size/Organization Type (i.e.: Large, Non-Traditional, Academia, etc.)

2. Consortium Membership

a. Existing Consortium: In table format, for each 10 U.S.C. §4022 consortium that the

CMO currently manages, please list the following information:

i. consortium name,

ii. top technology domains of the consortium,

iii. number of members,

iv. contract ceiling,

v. contract term (start/end date),

vi. DoD sponsor

vii. status and level of Facility Clearance held (e.g., active, Top Secret)

viii. total dollar amount of prototypes awarded in calendar year 2023

b. Recruiting New Members:

i. Describe the processes the CMO would follow to recruit additional members in the United States and overseas, including a description of how the CMO currently and regularly interfaces with small business innovators from across the country to remain current with the state of the art.

ii. Please provide examples, if any, of how the CMO or its partners recruited members from the industrial base in countries that host DAF installations.

iii. Please identify whether the CMO or its partners have worked with sovereign wealth funds in Germany, Greenland, Italy, Japan, Portugal, Spain, South Korea, Turkey, and the United Kingdom.

3. Energy Resilience Past Performance

a. U.S. Examples: Because follow-on contracts executed under 10 U.S.C. § 4022 will need to leverage existing FAR and non-FAR-based procurement pathways for energy commodity and energy services, please provide up to three (3) examples of non-Other Transaction Authority contracts executed in the past three (3) years where the CMO and/or its current partner organizations have developed and/or managed, as a prime or subcontractor, a DoD energy resilience project at an installation located in the U.S.

Please include:

i. the names of all non-governmental entities involved in the project,

ii. the DoD/Service sponsor,

iii. the DoD/Service contracting office,

iv. a brief description of the energy resilience project, overall,

v. date of contract execution

vi. a description of the CMO’s or partner’s scope of work,

vii. key lessons learned, and,

viii. the FAR or non-FAR energy commodity or energy services procurement pathway used by DoD.

b. Foreign Country Examples: Please provide up to three (3) examples of energy projects that the CMO and/or its partner organizations have developed and/or financed in the foreign countries that host DAF installations.

4. Consortium Management Agreement (CMA)

a. Example: Please provide an existing 10 U.S.C. § 4022 CMA executed with a DoD office, redacting any confidential information, if necessary.

b. Membership Fees: What membership fees, if any, would the CMO charge its membership, if the CMO is fully financing all activities with no upfront expenses to

DAF?

c. Contract Term: What would be the ideal contract term under the CMA before it is re-competed (e.g., 5 years, 10 years)?

d. Other Terms and Conditions: Given DECo’s unique requirements, what other terms and conditions should the government and the CMO consider and why? Please provide sample language, if possible, and a rationale of why the language is needed to mitigate or address a specific concern.

5. Fund Past Performance

a. SEC: Could you please elaborate on your experience with overseeing private funds that are both accredited and registered with the SEC, particularly in the context of SEC-regulated investment funds?

b. Jurisdictions: Please list all the relevant certifications for all jurisdictions currently held by the fund.

c. AML and KYC: Can you outline the fund's adherence to AML and KYC regulations in accordance with SEC statutes, and describe the best practices the Chief Compliance Officer employs to ensure ongoing compliance with these requirements?

6. Fund Management

a. Transparency:

i. What audits or reports would the CMO, in collaboration with its partners, be able to share with the Department of Air Force to help ensure the CMO is complying with its statutory obligations, particularly in relation to AML and KYC due diligence?

ii. How would the fund vet capital providers, investors, counterparties, and vendors?

iii. Could you provide guidance to the DAF on managing AML/KYC and other financial reporting processes, and suggest specific federal agencies that could assist DAF? For instance, the Financial Crimes Enforcement Network (FinCEN) for AML compliance, the Office of Foreign Assets Control (OFAC) for KYC requirements, and the Securities and Exchange Commission (SEC) for financial reporting regulations. Additionally, could you provide points of contact within these agencies for DAF to contact?

b. Initial Equity and Debt Deployment: How much money would the fund need to raise to ensure it attracts the best long-term and best in class investors?

c. Minimum Rate of Return:

i. Minimum: What would be the minimum rate of return that the CMO needs to service the debt and offer attractive returns to equity investors? Please describe how this rate of return would be calculated.

ii. Terms & Conditions: What terms and conditions would investors need from DAF to ensure the fund’s stability?

d. Portfolio Creation

i. Upfront Investment: How much at-risk capital would the fund provide in the initial years of DECo to conduct the due diligence necessary to develop a portfolio of short, medium, and long-term projects?

ii. Inclusivity: Given that each installation will have a unique ROI based on the installation’s current tariff rates, mission requirements, and energy resilience gaps, how would the CMO ensure that all installations, even those with low ROIs, are included in DECo’s investment portfolios.

iii. Flexibility & Cost-Effectiveness: How would DECo ensure that financiers are given an opportunity to fund prototypes and follow-on projects as active or passive investors, independently or jointly with others, in a manner that produces the most cost-effective projects for the Department of Air Force?

7. CMO Governance:

a. Novel Management Issues: Given the unique requirements of DECo, which combines the administrative functions of a typical CMO with the novel requirements of an SEC-approved fund that would fully finance all prototypes and follow-on projects, what novel issues would the CMO, its financial partners, and DAF need to address when negotiating a CMA? Please list these issues, describe the underlying concern, and possible mitigations, including proposed CMA language, if possible.

8. Performers:

a. Please discuss any potential advantages and disadvantages of becoming a member of

DECo and performing prototype and follow-on projects through DECo?

9. Catch-all: Please discuss any other issues that the CMO and its partners would like to highlight to help ensure the stability and viability of a consortium such as DECo.

Business Sensitive, Proprietary, Or Otherwise Confidential Information:

Responses must be marked as proprietary or restricted data. Responses will not be shared with any other respondent. Respondents will not be notified of the results of the market research. DAF may use responses to this RFI in creating a future solicitation. Not responding to this RFI does not preclude submitting a proposal in response to a future solicitation.

Response Date and Time:

Interested parties must provide the requested information by 3:00 PM EDT, Thursday, September 5, 2024, to kristina.botelho@us.af.mil. Please title the document and address the email subject line as, “CMO RFI _ Company Name.”

mailto:kristina.botelho@us.af.mil