Alaska's Pirate Ship

To: U.S. Senators Mark Begich & Lisa Murkowski
      Or Anybody of Authority that gives a Rat's Ass!

From: Big Dog(Anonymous due possible retaliation)

Date: September 5^th – Labor Day

Privatization of Alaska's Military Base Utilities – Pirateering Concern 

Big Dog(a.k.a. John and/or Jill Doe), brings this concern to your attention as a concerned citizen in hopes that in your position with representative authority as a U.S. Senator, inherent in your sworn responsibility, you can see to it that this “illegal” practice is stopped, as it is no doubt harming the U.S. Taxpayers' wellbeing so falls under the umbrella of an “illegal” act, in-line with the False Claims Act.

Recap: This concern is long-winded, maybe boring to the end, so a “Recap” puts this concern into perspective. There comes a $4-Billion dollar business opportunity between the private sector and the U.S. Government Defense Agency. A group of Fairbanks businessmen, most attorneys by experience and education and already involved as limited shareholders in a local utility, they take an interest in this opportunity. Their utility is facing uncertainty growth due a dwindling customer base, and that means their income is suffering. And the state regulators are investigating this utility, for unfair pricing hikes, so the utility may have to cough up millions in rebates. Basically, their investment is loosing ground. This long-term opportunity with the Defense Agency could be lucrative, based on an estimated “Cost Avoidance” reaching a billion dollars over the term of the contract and thus a saving grace opportunity for the businessmen's dilemma. The bid goes public and open to the public. That doesn't sit well with the businessmen, as it provides competition and could wreck havoc their plan. So with friends in power and high places, like the U.S. Senate, the bid is changed to “Set-Aside”, basically available only to disadvantaged entities defined small by the SBA, and in Alaska that means an Alaskan Native Corporation. Now the businessmen align themselves with a local native corporation, start a joint-venture then set out to underwrite a winning bid. But the SBA decides that the venture is illegal and takes away the “small” status which knocks the venture out of the bidding process. The venture appeals the ruling and looses. So with friends in power and high places, the bid is changed back to “open competition” after other qualified entities have bailed out due the “Set-Aside” status and with a limited time line for bid entries, true competition ceases to exist. So it appears a done deal for the businessmen. In the bid they deliver, they convince the government that there is no data that allows for a viable cost to perform, so engineer a fictitious model, that proves to provide astronomical profit margins. Realizing that this contract will deliver huge profits, at least while the model is in effect for the first few years in operation or until caught and questioned by the regulators involved, they set out to sell their interest in the business – their almighty share of the dwindling utility that is now aligned with the lucrative government contract. The government contract award affords their prior minuscule investment to skyrocket in value as it is guaranteed income, based on a false pretense “Required Income” on a 50-year contract, basically at the expense of the U.S. Taxpayers. So the value of their investment is inflated above and beyond through U.S. Taxpayer money falsely appropriated by “False Claims” contract. It is estimated that the 10 shareholders behind this malfeasance had acquired well over $100-million in shareholder equity and asset value fortunes before the inflated sell-off to a Canadian investment firm. And the abuse continues today, wherein the principals - as board members of the venture - bounce the checks between the government proceeds, totaling $5-million per month, and a large percentage passed on through to outside entities. And it appears that this set-up may be buying bad debt of other failed ventures, for easy payoff, as the money keeps on coming home. This is what will give an Alaskan Native Corporation a bad name, used as a convenient front for what appears to be pure unadulterated “White Man“ Greed. 

Historical: In 2005, the ARMY through various defense procurement agencies advertised for “Privatization” of the military bases' “utility” infrastructure here in Alaska(SP0600-05-R-0024). This included the utilities like electric power generation, centralized heating plants, water and waste-water facilities located at Ft. Richardson(FRA), Ft. Wainwright(FWA) and Ft. Greely(FGA) proper. To some extent, the U.S. Government was very transparent this solicitation and bidding process through the final award and past performance of one particular utility - the Ft. Wainwright CHPP - was made public in several reports authored by the CERL(ARMY-Construction Engineering Research Laboratory), the latter providing a very good guide as to what to expect it may cost to maintain and operate such facilities - even into the future. To date, following the “Privatization” award(SP0600-07-C-8263), it includes 12 CPCN(Certificates of Public Convenience and Necessity) on file with the Regulatory Commission of Alaska(RCA), CPCN#717 through #728). Doyon Utilities, LLC., a 50%/50% joint venture of Fairbanks Sewer & Water(FS&W, now owned by Inland Pacific Resources Inc., a Canadian investment firm) and Doyon Properties/Doyon Limited(An Alaska Native Corporation) was awarded all 12 utility privatization contracts. I guess anti-trust can no longer be trusted! And this was only after a long process wherein the bid requirements went from “Not Set-Aside” to “Set-Aside(8A)” and then back to “Not Set-Aside” like a yo-yo, and during this period Doyon Utilities as a joint venture with FS&W lost its SBA “small” status, thus knocking it out of the bidding process. A non-contender until such time the bid went mysteriously “Not Set-Aside” again as it was in the original solicitation. This may have disenfranchised other entities experienced that had walked away from the bid process early on when it went “Set-Aside” and had not time to deliver a viable bid when the status was changed back. That entire “bid change” is suspect but not part of this concern. Do you realize that Doyon tried to get a court approved estoppel(Docket#SIZ-2006-12-12-73) allowed upon the SBA! Isn't that an attempt to bring a lawsuit against the government for misconduct? They lost on appeal and an ALJ ruled in favor of the SBA's definition of small, a loss to Doyon and FS&W in its efforts to be defined as “small” and thus non-eligible to bid on what may be the most lucrative “Privatization” contract ever let loose by the Defense Department through the Defense Logistics Agency. It was FS&W's past history that faulted the “small” definition, based on operational data and income. Tikigaq Engineering Services attempted the same with appeals(Docket#SIZ-2006-12-12-74), as this LLC had joined forces with Western Solutions in the “Privatization” bid venture, again this joint venture denied “small” status under SBA guidelines due Western's past economic history. From the beginning, with lawsuits, appeals and suspicious activity upon the “size status”, the “Privatization” attempt here in Alaska was going in the wrong direction. It was tainted from the beginning and it is tainted today. But herein exists the real problem, which I believe borders on illegal profiteering. As an example, in a report published by the CERL in 2005(ERDC/CERL TR-07-35) the overall costs for running the Ft. Wainwright Central Heat & Power Plant(CHPP), one of the 12 utilities privatized and by far the most costly, this data was made available to the public. In that report, the costs to the government for Operation & Maintenance(O&M) plus overhead for a crew of 45 FTE(Full Time Employees) along with General & Administrative(G&A) costs(@25% of the O&M labor) shows as a “Yearly Total” the amount of $14,587,738.00 required for this endeavor. This included $10,000,000.00 in “Support Utility Costs”, like coal, the fuel used to run this plant and keep the base warm and lights on. Take away the fuel costs and the total rests at $4,587,738.00, “for everything else”. Please remember that the intent of “Privatization” was to save the U.S. Taxpayers money, due historic economic inefficiencies when under control of civil servants. In its 2nd full year of ownership(2010) under “Privatization”, Doyon Utilities was paid an “Inception Rate” of approximately $32-million dollars in “Utility Operating Revenue” for the FWA CHPP, which didn't include the cost of the coal, well over $10-million in additional cost burdens upon the U.S. Taxpayers. In comparison with the “for everything else” totaling just over $4.5-million when under government control in 2005, that comparison indicates that Doyon required approximately $12-million for the same activity only 5-years later, an increase above and beyond any reasonable COLA creep or escalation factor, with the G&A at $5-million, or 43% of the labor costs. When the government ran this business, in 2005 the G&A accounted for only $780-thousand dollars, or like already mentioned 25% of the labor costs. The received revenue appears to be way overboard any reasonable profit margin required by the now owners, Doyon Utilities. Especially in the profit margin with respect to the G&A, which almost equals the same dollar amount as the entire O&M budget requirements. And when under government control, a “revenue” for the shareholders wasn't required. Doyon Utilities is requiring the same amount of FTEs to operate and maintain this facility, so the CERL report with normal escalation factors(COLA creep and other economic factors) paints a very good picture too what the taxpayers should have realized under “Privatization”. In a nutshell, for 2005 the cost was $4-million with civil servants. In 2010 under “Privatization”, it cost the taxpayers $32-million! We are getting ripped off and somebody is benefiting. There is definitely something wrong this picture. At most, and a time tested “good practice” requirement for most utilities in Alaska is an 18% G&A requirement. Even under government, this only amounted to 25% for the military base utility infrastructure, a figure scrutinized as too, too high. Now under “Privatization” this figure approaches 100% of the combined O&M budget, and this is money that is bleeding out to outside interests as it surely is not going towards increasing the workers' hourly wage! And it is not going back into the aging infrastructure. Now Doyon Utilities' bid underwriters were very smart when dealing with the ARMY, and based their winning bid on the proposal that there was not enough operating data available to formulate a valid “Tariff” to justify a reasonable cost to operate the military base utility infrastructure. I remind you that before the bid was awarded, the ARMY listed all deficiencies, as this was still the burden of the government to pay for the fix, so it is not a burden upon the recipients profits or future investments, that of Doyon Utilities. So in the interim, the RCA allowed for what is called an “Inception Rate” proposed in the bid, instead of a “Tariff”. The “Inception Rate” offered and accepted was based on a “Utility Model” provided by Doyon Utilities, due “No Historical Data”. Doyon is quoted, “During the period Inception rates will be in effect, DU has the risk of utility operations even though there is no actual operational experience upon which to really determine operational exposure”. That is an untrue statement and in my belief a grounds for a fraud investigation and possibly a False Claims investigation. Why the contract negotiators on the government side sided with Doyon lieutenants and accepted this notion is also suspect or a genuine dereliction of duty to the U.S. Taxpayers. Was acceptance truly a lack of knowledge wherein an expert witness should have been hired to assess what Doyon was trying to sell with this “No Data Available Inception Rate”? When one looks at the difficulty that FS&W has had recently with trying to raise the consumer “Tariff” on its own water and waster-water infrastructure in Fairbanks, it appears there are many “expert witnesses” at their lawyer's disposal, so why not here with the “Privatization”? Because, an expert witness would laugh at the “Inception Rates” proposed in comparison to local time tested utility costs. Doyon's revenue requirement calculation was based on a very generous A&G expense, unheard of in the utility sector. The “Revenue Requirement” calculation takes into account Operational and Maintenance expenses(O&M), Administrative and General expenses(A&G), depreciation expense(DE), Other Taxes including Income Tax(OT & IT), plus Cost of Capital(COC). This is a valid equation, except for what the A&G proposed, well above and beyond decency when dealing with the government, that out-of-bounds requirement is just pure extra profit. No wonder IPRI under the auspices of the Corix Group payed a substantial “goodwill” to take over FS&W after the military contract was signed then sealed and delivered, when the shareholders gave themselves a going away pat on the back in the tune of $50-million in “preferred stock” options. Goodwill is defined as a valuation over the fair market value. You only offer this if there is a guaranteed payback. In this case it was a no brainer, as payback would come without even the slightest bit of hesitation, courtesy Uncle Sam through monthly “Inception Rate” payments. Now FS&W(50% owner of this so far lucrative privatization deal) operates several water and waste-water utilities in Fairbanks, so to say there is not enough operating data available, it was a squeeze play upon the ARMY who didn't know any better. And due the fact that the utilities in Alaska are regulated, there exists all kinds of financial reports on record and available to the public for estimating what it would cost to perform such a business venture. I believe there was an attempt to fool with fraud, as the principles that put this bid together should have known better, take that back, they did know better but used this opportunity to pull the wool and get rich. And FS&W was partially owned(50%) by the Corix Group, and utility entity with water and waste-water “utility privatization” experience, throughout the United States and Canada. And there was no valid data available? And due the fact that there is suspicion upon the “status”change from Not Set-Aside to Set-Aside(8A) then back again, it may be that there came very few bid submittals, thus giving Doyon an advantage in its efforts to engage in fraud against the United States of America. The professionals on record in the winning bid had many years experience in the Alaska utilities. Now it appears they are laughing all the way to the bank, or offshore tax haven. And all the time, the ARMY felt comfortable because Doyon Utilities sought regulation through the RCA, as a means to trick the ARMY and RCA. As this is a catch-22 scenario, as when DU requested an “Inception Rate” increase, all that was required was an approval letter to the “Contract Administrator”, a Defense Logistics agent back in Virginia, who most likely realized that the RCA was to oversee the validity of any increase requests, and at the same time DU would send the RCA a letter saying the “Customer” has agreed as if it were an all around slam dunk done deal. What can the RCA say, or do? Nothing! The ARMY is on record as a single customer, so any increases could be a slam dunk, as was the original “Inception Rate” forecast for the next 50-years. So this has placed the ARMY and the regulators in a very awkward position. Who's on 1^st ring a bell of suspicious activity? But there existed loads of operational and financial data to prove up a respectable “Inception Rate” for the “privatization” attempts, over that of an inferior and ridiculous “Utility Model” never before tested, as the latter would not be acceptable to consumers. When the RCA has a “Tariff” increase request before the board, it requires participation by the consumers. In the case of Doyon, they have convinced the RCA that with a single customer - the ARMY - that a public participation period is not necessary. It basically bars the U.S. Taxpayer from interfering with this scam. But the fact that Doyon used the excuse of “No Available Operating Data”, it is preposterous. A 3^rd grade class would have come up with a better economic forecast then what we have before us today. From Anchorage one could look at AWWU for water and wastewater operational data, ML&P and CEA for electric generation data and from Fairbanks, like already mentioned, FS&W and Aurora Energy(AE) for steam heat operating data details(AE is listed as a consultant to Doyon Utilities in reference to the bid award). And wait there is more! How about GVEA, for local electric generation data and for years providing electricity and wheeling megawatts for the ARMY, between Ft. Wainwright and Ft. Greely. So the excuse that there was no data that warranted the use of a model, it is highway robbery. It must be stopped now, as the momentum is growing wherein it may be difficult for a retreat back to normal costs and this will continue to burden the U.S. Taxpayers for a venture that was too deliver just the opposite, cost savings. Maybe it is time to revert back to civil servants! Remember, it is a 50-year contract being enjoyed by Doyon and this entity's secret affiliates. Matter of fact with respect to true O&M data over a lousy “model”, the 1^st attempt at “privatization” occurred when the Elmendorf Air Force Base CHPP was contracted to Chenega Corporation(F65501-98-C0001{Nov. 97 through Sep. 2002}). Chenega, an Alaskan Native Corporation, this entity took over a plant that is almost an exact replica of the Ft. Wainwright CHPP, so that contract reflects exactly what it takes for a private entity to operate and maintain an existing facility wherein the fuel is still the responsibility of the U.S. Government. Where a modest profit can be garnished for the efforts at “privatization”. With respect to the EAFB CHPP which generated more steam and electricity then the Ft. Wainwright CHPP unit, the O&M and G&A accounted for approximately $3-million a year, in line with what the CERL report found for the Wainwright CHPP. So this “Inception Rate” should be challenged, as it is costing a whole lot more then what was intended. Why? It is my belief that those in the know back then realized a pot of gold along with the vulnerability of the ARMY at this type of “new” venture and are now profiting above and beyond anybodies expectations, except themselves, due pure unadulterated American Greed. With the information I have provided, please take this into serious consideration to get involved, as it appears the U.S. Treasury is at risk should this continue unabated. The data is out there to support a reasonable “Inception Rate” and there are expert witnesses that could provide a reasonable cost estimate to run the utilities and at the same time the operator could realize a modest profit, not a windfall like is occurring today on your watch. And there are a whole lot of other fishy things this venture, like FS&W's sell-off after the bid award, wherein 10-shareholders made millions in preferred stock options. Most of those shareholders continue to hold executive positions within the DU ranks, they write the checks is what I am getting at. In the 1^st year of operation, Doyon Utilities paid Corix, the shell behind IPRI, over $9-million, for what reason is suspect. In 2009, that amount shifted upward to $15-million. It appears that the entire scam is nothing short a kick-back ordeal. And there are other locals involved, like Usibelli's Aurora Energy, on record as a so called “outside consultant” getting paid over $400,000 a year for again what? Sure, there is an individual from AE that hangs out at the FWA CHPP, drives an AE truck, shows up for his 40-hour work week, but is his worth honestly worth the $400K? I would doubt it in comparison to honest business associations and deliverables. It appears nothing for something at the taxpayers' expense. And another note on the Usibelli name. Usibelli sells the coal to operate the FWA CHPP and other military coal burners throughout Alaska, it is the lowest grade coal money can buy at escalated prices. It has a very low heat content along with a very high ash content, basically it is mine run reject coal. And Usibelli was awarded over $138-million, to supply this coal to the Defense Department. A 14% increase for delivered coal when the rest of America's military bases that burn coal saw a 5% decrease for delivered coal. Supply and demand? How about supply and be damned. Matter of fact, coal exports to Korea from this mine are cheaper than what is afforded Uncle Sam, to protect this country. “Ask not what you can do for your country, find out how to screw your country!” And with that, there is no incentive for energy efficiency in the “Privatization” contract and a mind-set to burn as mush coal as possible, because Doyon is not paying for the coal. Matter of fact, in efforts to produce more electricity at the FWA CHPP during the early part of summer this year, massive volumes of high pressure steam went vented to the atmosphere, vented as waste, increasing air-borne pollutants from increased coal usage and a waste of toxic chemicals for additional water treatment makeup. This would not be tolerated at consumer level based utilities. The excess power was sold to a local electric utility for 9-cents a kW then repurchased by Uncle Sam for 11-cents? This “Privatization” is a double-dip, maybe triple-dip attack against reasonableness. And when Doyon's bid was accepted, it was clear and convincing that the financing of projects would be through local Alaskan banks, like Wells Fargo and 1^st National Bank of Alaska. In the bid proposal accepted by the government it read; “Establish a $100 million Revolving Credit Facility with its Relationship Banks (Wells Fargo and First National Bank of Alaska)”. What happened, as all financing is done through Toronto Dominion, a Canadian Bank, an outside interest that is benefiting when it should be local interests' benefiting. There exist many questions this “Privatization” contract that need to be answered if ever the government wants a good deal as it was supposed to be upon the very basic concept of “Privatization”. It appears that the profits are filling more then enough wallets, and outside interests are also benefiting. It appears that Doyon did not hold up its promise, but its principles may have never intended it so. Again, this is happening on your watch, so please take the initiative to investigate this concern as it cannot, I repeat, cannot be a benefit to the U.S. Taxpayers. All told, it appears that “Privatization” of the military base utility infrastructure here in Alaska is costing the taxpayers in excess of 8 times what it cost under government control. Not to mention that Doyon Utilities has been penalized with citations by OSHA for unsafe working conditions for the workers, “Serious” violations at that. The CHPP is an asbestos nightmare as is the lead based paint(LBP) remains. The management, most who were affiliated with FS&W, they knew about this health hazard and made mention that it was so bad that it might prevent ownership or leasing such facilities from the government. It didn't stop the move in once the bid was awarded, a 50-year endeavor that in the end, if allowed, will bring the shareholders millions close to billions in profits. And what exactly is the connection between the 10 FS&W shareholders, who were paid handsomely in “Goodwill” in the speculative amount of $23-million when FS&W was sold to the Corix Group, just what is the connection with Corix, IPRI, CAI Capital Management and bcIMC? And why did FS&W merge with Corix Sonoran Valley wherein FS&W assumed all the debt as the survivor corporation, debt owed to TD? If a debt carryover scam, who gets to pay for that debt? Surely not the FS&W consumer, but most likely the U.S. Taxpayers. So it appears that this entire deal was done as a ways and means to scam the American Taxpayer. Yes Mr. Young, this smells of a rabid Skunk, you know what I mean by that! It goes on and on, the difficulties of accepting this process aligning “Privatization” upon this state's military utility infrastructure as an honest deal is so far frightening. Just what in hell is our hard earned taxable income buying, besides providing wealth for a few corrupt individuals and a health hazard for the workers? And if your investigation finds this just a slight oversight problem, a simple mistake upon the concerns I bring forward, then I stand corrected, but it sure appears to be the typical Alaskan style “Corrupt Bastards Club” mentality and activity alive and well - even today. If we can't get it right, may as well shut these dreaded old dilapidated military bases down, what maybe should have happened under the BRAC as it would have been a whole lot cheaper! So find herein enough evidence to paint a picture of something truly gone haywire with “Privatization” here in Alaska. The fact that a single entity has taken control, it is mind boggling in this day and age of anti-trust. All the elements of distrust exist, all the elements of corruption exist, all the elements of malfeasance exist, the question is, what can you do about it?

Cautiously Submitted By: Big Dog on September 5^th, 2011

Contact: Knowno@gci.net for assistance this concern.

 

Cc: U.S. Senator Claire McCaskill, Congressmen Don Young, President Barack Obama

Note to U.S. Senator Claire McCaskill:

Realizing that you have questioned the Alaska Native Corporations(ANCs) and “Set-Aside” contracts negotiated with the United States, here is proof that it is an ugly situation, at least here in Alaska. The blame cannot be upon the native corporations alone, as it appears, like is well known, that the ANC is used as a front by and for other interests, sometimes to the detriment of righteousness. - Big Dog