Case Study 3: Privatization of the Western Environmental Technology Office

Background

The DOE Western Environmental Technology Office (WETO), located in Butte, Montana, has been used as a test center in the development of waste management technology. MSE, Inc., a wholly owned subsidiary of the Montana Energy Research and Development Institute (MERDI), a nonprofit organization, currently operates the facility

The Effort

DOE has recently completed privatizing the WETO facility. The purpose of this privatization was to eliminate DOE’s financial and management obligations, to reduce the Federal Government’s costs of contracting for services to be performed at the site, and to facilitate technology transfer and commercialization activities by attracting greater private sector, university, and other technical support activities.

The DOE privatization proposal for WETO was governed by agreements included within the original land purchase. In 1976, DOE’s predecessor agency, the Energy Research and Development Administration, executed a real-estate agreement with the Butte Local Development Corporation, a nonprofit corporation organized under the laws of the State of Montana. Generally, the agreement provides that the Butte Local Development Corporation would offer a 53.15-acre tract of land to the Government for energy-related projects in exchange for a “right of first refusal” that would allow the Butte Local Development Corporation to purchase the real estate and improvements for approximately the fair market value when DOE no longer needed the land. In early 1996, MERDI initiated a proposal to purchase WETO, in conjunction with the Butte Local Development Corporation, under the right of first refusal. This MERDI proposal was the impetus for DOE’s efforts to determine the feasibility of privatizing WETO.

Current Status

In late 1995, DOE established an intradepartmental group consisting of various Headquarters and field divisions to evaluate privatization possibilities. The DOE Pittsburgh Energy Technology Center (PETC), which administers the site, engaged the Army Corps of Engineers to perform an environmental assessment of the site as well as a real-estate appraisal to determine the fair market value of facilities and improvements. Additionally, PETC hired a contractor to assess the value of real and personal property and fixtures. DOE and the Butte Local Development Corporation began negotiations on the site’s value based upon the result of these efforts.

A second part of the privatization agreement calls for DOE to award a 5-year research program to MSE Technology Applications, Inc., a Butte firm that will operate the facility. DOE intends to provide sufficient funding to ensure a continuing robust environmental program at the facility.

On September 30, 1996, a signing ceremony took place at WETO. The signed agreements transferred financial responsibility for the facility from DOE to the Butte Local Development Corporation and provided for 5 years of research and development effort to be performed by MSE, Inc., at the site.

The Butte facility privatization plan will accomplish key departmental objectives, including immediate fair market value sale of a facility that no longer needs to be owned by the Federal Government (the site was purchased from DOE for $3.4 million), 5-year cost savings to taxpayers (estimated conservatively at $5 million), the minimization of adverse impacts on the local workforce (and the potential for expansion of high-technology jobs in the Butte area), and continuity of existing government research and development programs at the facility.

Lessons Learned

This project underscores the extensive time necessary for real-estate appraisals. For future projects, it would be prudent to factor in additional lead time for receipt of appraisals.