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C1. CHAPTER 1

DoD's CENTRALIZED NATURAL GAS PROGRAM


C1.1. GENERAL

C1.1.1. Content. This chapter discusses policy guidelines and management responsibilities relative
to centralized acquisition of direct supply natural gas from producers and regular dealers through
competitive procurements. Deregulation of the natural gas industry in the United States and the
availability of open access transportation on interstate and intrastate pipelines have created significant
cost savings opportunities for DoD's installations participating in the centralized direct supply natural gas
acquisition program.

C1.1.2. Authority. Defense Energy Program Policy Memorandum (DEPPM) 91-1, issued October
17, 1990, assigned the mission of centralized acquisition of direct supply natural gas to DLA, with DESC
serving as the implementing agent. DEPPM 93-1, issued January 12, 1993, provides the most current
operating procedures, guidelines, and management responsibilities for participants in DoD's direct supply
natural gas program.

C1.1.3. Applicability. The provisions of this volume apply to the Office of the Secretary of Defense,
Chairman of the Joint Chiefs of Staff, Military Services (including Reserve Components), Combatant
Commands, and Defense Agencies (hereafter referred to collectively as "DoD Components"). As used
herein, the term "Military Services" refers to the Army, Navy, Air Force, and Marine Corps.

C1.1.4. Scope. DoD's installations located in the United States, including Alaska.

C1.2. POLICY

C1.2.1. Joint Objectives - DLA and Military Services shall:

C1.2.1.1. Provide a reliable supply of natural gas at the lowest possible cost to DoD's installations.
Mission support and energy reliability will take precedence over all other considerations in this
acquisition process.

C1.2.1.2. Ensure that DoD's installations have secure and reliable sources of energy to fulfill their
mission.

C1.2.1.3. Cooperate and support the centralized direct supply natural gas acquisition program to
enable DoD to maximize available cost savings.

C1.2.1.4. Ensure that no actions will be taken to bypass Local Distribution Company (LDC)
systems without prior approval of the DUSD (IA:I).

C1.2.2. Participation Guidelines

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C1.2.2.1. All DoD installations using direct supply natural gas will participate in
DoD's direct supply natural gas program. Participation is defined as follows:


C1.2.2.1.1. Providing appropriate natural gas requirements data (e.g., historical and projected
natural gas use, alternative fuel capability, and associated site costs) sufficient to assist DESC in
performing an economic evaluation to determine whether to include the installation's requirements in a
solicitation.


C1.2.2.1.2. Providing the necessary support for contract postaward administrative
requirements (i.e., performing ordering, balancing, and payment functions in accordance with DESCs
contract provisions).

C1.2.2.2. Installations will not be included in DoDs direct supply natural gas program if results
of the economic analyses indicate negligible or improbable savings. Other possible reasons for not
participating in the program are as follows:

C1.2.2.2.1. The LDC will not provide transportation of direct supply natural gas from the
citygate to the installation;


C1.2.2.2.2. Base realignment and closure actions;


C1.2.2.2.3. Existing contractual arrangement with the LDC or with an existing multiyear
direct supply natural gas supplier (contracts awarded by the Military Services) with better prices or with
termination liabilities exceeding DESCs projected direct supply contract cost benefits;

C1.2.2.2.4. Loss of utility-sponsored demand side management program benefits that are
greater than the potential savings available via DESCs direct supply natural gas program;

C1.2.2.2.5. Ongoing or pending legal or regulatory action in which the Government's
interests would be adversely affected by participation in this program.

C1.2.2.3. In cases where DESC and the Military Services cannot reach an agreement, program
participation will be decided by OSD through the Chairman of the Defense Utilities Energy Coordinating
Council (DUECC).

C1.2.3. Economic Criteria

C1.2.3.1. Each installation will pay the actual costs associated with the acquisition of direct
supply natural gas. These costs include the cost of natural gas, applicable pipeline transportation, storage
costs, and backup or standby charges (as applicable and appropriate) for the installation, along with
established operating cost (i.e., general and administrative costs) directly associated with this program.



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C1.2.3.2. The estimated total annual and average unit cost of direct supply natural gas provided
to an installation through this program will be lower than that offered by the LDC at the time of contract
award, or the comparable per unit cost of any alternative energy readily used by the installation, measured
at the burner tip. Cost factors to be utilized in the direct supply natural gas economic analyses are
outlined in paragraph C1.2.3.1., above.

C1.2.4. Contracting

C1.2.4.1. DESC (serving as DLA's agent) has sole responsibility for contracting for direct supply
natural gas requirements within DoD.

C1.2.4.2. Natural gas will be acquired for DoD's installations via DESCs centralized
competitive procurements when such contracts are cost effective and consistent with the policy of
providing secure and reliable service in support of the installations mission.


C1.2.4.3. DESC may enter into advisory and assistance contracts to address all issues associated
with competitive acquisition of direct supply natural gas to include but not limited to market identification,
pipeline transportation, storage, and economic analysis of gas supply options.

C1.2.5. Requirements

C1.2.5.1. In order to enable DoD to maximize available cost savings from the centralized direct
supply natural gas program, maximum participation of eligible DoD's installations in DESCs program is
required.

C1.2.5.2. The Military Services and Defense Agencies shall submit their direct supply natural
gas requirements to DESC-A. Requirements will be submitted electronically to DESC-A via DD Form
2692.

C1.2.5.3. Direct supply natural gas requirements will be coordinated and consolidated by DESC
in an effort to reduce product and transportation costs. Figure C1.F1. of this chapter provides the
geographic breakdown of DESCs current direct supply natural gas procurement areas. The requirement
submission schedule for DESCs direct supply natural gas program is prescribed in DESCI 4220.1,
Requirements Submission Schedules for Energy Commodities and Related Services.

C1.2.6. Budgeting. DLA and the Military Services shall develop, program, and execute independent
budgets to meet their obligations under the direct supply natural gas program. MIPRs will be submitted
to DESC from those installations that desire reimbursable procurement. DESC shall fund contracts using
the Defense-Wide Working Capital Fund and in turn bill those installations accordingly.



C1.3. RESPONSIBILITIES



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C1.3.1. The Office of the Deputy Under Secretary of Defense (Industrial Affairs and Installations)
ODUSD (IA:I) shall:

C1.3.1.1. Establish and coordinate natural gas program policies.


C1.3.1.2. Provide guidance to DoD Components for the management of direct supply natural gas
programs, systems, and procedures, and ensure the effective implementation thereof.

C1.3.1.3. Request access to DoE's natural gas reserves, as needed, in support of DoD's natural
gas requirements pursuant to 10 U.S.C., Section 7430 (l).

C1.3.1.4. Resolve DoD installations program participation differences between DESC and the
Military Services via the Chairman of DUECC.

C1.3.2. The Secretary of Defense Comptroller (OSD(C)) shall:

C1.3.2.1. Establish budgetary and funding policies and guidance for DoD Components relative
to the management of natural gas requirements.

C1.3.2.2. Establish and coordinate policies and guidance for the design and implementation of
management information systems relative to natural gas.

C1.3.3. The Chairman of the Joint Chiefs of Staff shall advise DUSD (IA:I) on policies, programs,
and responsibilities relating to natural gas in support of military forces' contingency plans. Additionally,
the Chairman shall recommend allocation in CONUS during times of crises.

C1.3.4. The Defense Energy S