“Unleash us from the tether of fuel.”

—Gen. James Mattis, former commander of the 1st Marine Division, during the drive to Baghdad, March 2003

Executive Summary

The Defense Department has embarked on an important set of reforms that focuses on the impact of our energy policies on our armed forces. However, while there is wide agreement on the objectives, and brilliant efforts have already led to some victories, successes are still few and far between. There are islands of excellence, but we are in need of a continent.

The need for action is clear. First and foremost, we need to reduce the vulnerabilities to our armed forces posed by 20th-century strategies regarding energy. A prime example is the high casualty levels suffered by troops guarding oil and water convoys.

Second, we need to reduce overall fuel cost and price volatility. For decades, the Pentagon has failed to accurately capture the cost of fuel. This failure has consequences for both our actual budget as well as our strategic posture.

Third, we must increase energy security. Our foreign policy and national security decisions too often are influenced or even driven by concerns about our fuel supply.

Fourth, we need to adapt and cope with climate change. The dangers of “climate refugees,” changing borders and aggravated social problems in the developing world present an active and increasing security threat for the U.S. and our allies, and perceived indifference will only diminish global respect for the U.S.

In this paper, we recommend that the Pentagon redouble its efforts on energy as part of a larger strategy to achieve a more efficient and effective security posture. This paper focuses on the concept of “energy performance,” which encompasses where the military gets its energy and how it uses it. We believe that maximizing energy performance will require, in large part, increasing the use of renewable energy, energy efficiency and more strategically favorable sources of energy. After a summary of the current costs and liabilities associated with the Pentagon’s energy posture — and some of the efforts already taken to strengthen it — this paper gives an explanation of several potential solutions going forward:

• Reform the acquisitions process. The Pentagon should fully account for the cost of battlefield fuel in all purchasing and logistical decisions.
• Improve in-theater energy performance. The military should implement new energy-performance technology at forward operating bases and other battlefield locations.
• Boost clean energy and efficiency at all Defense Department installations. For domestic bases, in particular, decreasing dependence on fossil fuels and the public electricity grid removes potential liabilities.
• Strengthen research and development and enhance commercialization of nascent clean energy technologies. By taking an active role as developer and customer, the Pentagon can help scale up clean tech innovations.

These efforts would ultimately save considerable taxpayer dollars, strengthen the resilience of U.S. forces and yield innovations that not only would enhance the military’s energy performance but also boost American competitiveness.

Download the full report.

Tuesday’s round of primaries and special elections was pretty momentous, though the chattering classes continue to argue over their larger meaning, if any.

In Pennsylvania, Rep. Joe Sestak edged incumbent, party-switching Sen. Arlen Specter, ending his long and contentious political career. More exciting to political junkies was the relatively easy Democratic victory in a special election in the twelfth congressional district, in Western Pennsylvania, which Republicans had expected to win. Depending on your point of view, this result either meant that Republicans aren’t going to win the kind of landslide in November that so many have predicted, or that Democrats have to separate themselves from the Obama agenda to survive. Meanwhile, in a very low-key primary, Allegheny County Executive Dan Onorato won the Democratic gubernatorial nomination, and begins the general election as an underdog against Republican Attorney General Tom Corbett.

In Kentucky, of course, Rand Paul trounced Secretary of State Trey Grayson, Mitch McConnell’s protégé, for the Republican nomination to succeed Jim Bunning, and instantly became the national symbol of the Tea Party. Attorney General Jack Conway’s strong showing in the Louisville area helped him edge Lt. Gov. Dan Mongiardo for the Democratic nomination in a race largely devoid of substantive differences between the candidates.

In Arkansas, after an expensive campaign all but dominated by out-of-state interests, labor-backed Lt. Gov. Bill Halter forced business-backed Sen. Blanche Lincoln into a runoff three weeks from now.  A third candidate, the very conservative D.C. Morrison, took 13 percent of the vote but refuses to endorse either candidate in the runoff.

And in Oregon, former Gov. John Kitzhaber easily won the Democratic gubernatorial nomination over former Secretary of State Bill Bradbury, while former NBA player Chris Dudley beat conservative activist Allen Alley for the GOP nod.

This has been a very active week for political pollsters. One of the most controversial surveys was, typically, done by Rasmussen, which did a snap poll after the Kentucky primaries and showed Rand Paul with an astonishing 25-point lead over Jack Conway, for a deconstruction of this survey, see Nate Silver.

The Public Policy Institute of California released a major new poll this week, showing a competitive Republican gubernatorial race between former eBay CEO Meg Whitman and Insurance Commissioner Steve Poizner. Whitman has already spent $68 million on her campaign so far, and Poizner’s spent $24 million; their highly negative attack ads against each other are dominating the California airwaves. Meanwhile, Democratic candidate Jerry Brown has moved ahead of both Republicans in PPIC’s general election trial heat. PPIC also showed a close three-way race for the Republican Senate nomination in California, as former Rep. Tom Campbell and former Hewlett Packard executive Carly Fiorina fight for the lead, while conservative hard-liner Chuck DeVore moves up rapidly into contention.  Barbara Boxer, meanwhile, has re-established a lead over all the GOP candidates.

Rasmussen conducted the first poll in several months of the very competitive South Carolina Republican gubernatorial primary, indicating that right-wing favorite Nikki Haley, who trailed the field initially, has leapt into the lead, with Attorney General Henry McMaster, who is the closest thing to a moderate in the race, running second. Controversial Lt. Gov. Andre “Stray Animals” Bauer is running last, with high unfavorables. In a separate poll, Rasmussen found Rep. Vincent Sheehan now running ahead of early front-runner and State School Superintendent Jim Rex in the Democratic gubernatorial contest in South Carolina. Both contests could well be heading for runoffs.

Next door in Georgia, Insider Advantage’s poll of the Republican gubernatorial race shows little change from earlier surveys: State Insurance Commissioner Jim Oxendine leads the field, while former U.S. Rep. Nathan Deal and Secretary of State Karen Handel are battling for second place.  Many Democrats are hoping that Oxendine and Deal, both of whom have been struggling with ethics charges, wind up in a runoff.

And finally, the first post-primary poll in the Pennsylvania Senate race, again by Rasmussen, shows Democrat Joe Sestak running ahead of former U.S. Representative and Club for Growth president, Pat Toomey by four points. This is the first time in many months that Toomey has trailed any Democrat in general election polls, and a very good sign for Sestak.

The 2007 collapse of bridges in Minneapolis and Oakland, which resulted in significant injuries and massive traffic disruptions, vividly demonstrated the decline of our nation’s infrastructure. Decades of neglect are beginning to have very real consequences in the lives of citizens. Left unaddressed, the infrastructure gap will soon begin to have severe repercussions for our nation’s economic capacity.

These issues arise at a time when traditional methods for financing public projects — using general fund revenues, proceeds from the sale of bonds, grant monies from outside agencies to fund the improvements — are proving insufficient. Whether due to economic factors (public entities reaching the limits of their ability to float bonds) or political obstacles (the difficulty of raising taxes), governments are in need of additional ways to finance necessary public improvements.

Attesting to the dire situation was a recent report by a blue ribbon panel examining the inability of the national highway trust fund — a fund financed by the gasoline tax — to keep up with the nation’s highway needs. The current system has failed to keep up with inflation and, ironically, has been undermined by increased fuel economy, as lower tax revenue is brought in for the same number of vehicle miles traveled.

Although the bipartisan commission agreed that substantial additional investment in transportation infrastructure was needed over the next 50 years to support economic growth, it was unable to agree upon a method of financing. While a majority supported an increased fuel tax indexed to inflation, a minority called for using a variety of market-based approaches, including congestion pricing. Unfortunately, while it has authorized interim funding to keep the trust fund solvent, Congress has been unable to summon the political will to comprehensively address this problem.

But a proven financing alternative exists for our public infrastructure needs: the public-private partnership (PPP). PPP approaches have been used successfully in Europe, Canada and other countries. In the U.S., they have been used more sparingly, with a limited number of projects in Texas, Florida and Virginia, among other states. As PPPs have become better understood, more states have adopted laws to facilitate their use. This policy memo provides a brief description of how PPPs work, weighs their risks and benefits, and seeks to emphasize their growing utility in a period of retrenchment for public funding of infrastructure.

What Exactly Are PPPs?

The Federal Highway Administration defines public-private partnerships as “contractual arrangements between public and private sector entities pursuant to which the private sector is involved in multiple elements of public infrastructure projects.” There are many different PPP structures, under which the private role can involve various aspects of the design, construction and operation of a public facility. However, project finance is really the point of PPPs. Under many PPP arrangements, private investors supply the capital to get infrastructure projects built. In exchange for providing funding, those private partners obtain a stream of income from the completed public project to recoup their investment and make a profit.

One of the most attractive features of PPPs is the flexibility they allow in arranging financing. Some PPP projects begin with a valuable asset, like a bridge or toll road, that can be transferred to a private partner in order to raise the cash that is needed to undertake other projects. Some PPP projects allow private partners to take advantage of innovative financing vehicles, such as government credit programs or private activity bonds, which provide tax benefits to firms taking on public infrastructure projects.

Yet another type of PPP transaction involves shifting financial risk to the private entity and the payment obligation to the public users (again, as with toll roads). This approach can prove controversial, however, as the public may object to making payments to a private party for facilities that were previously operated by their government or to rates that are subject to the control of a private company. On the other hand, if the public holds rate-setting power, the private partner will want some assurance that there will be sufficient funds to enable it to meet its obligations.

Although there are no real limits to the type of enterprises that can be undertaken using the PPP model, certain kinds of projects seem like a better fit than others. Projects that produce a steady stream of income, such as toll bridges, toll roads, and water facilities, are particularly well-suited to PPPs, since the revenue stream can be relied upon by the private partner to recoup the costs of developing the project. Other successful PPP’s have included hospitals, schools, offices and penal facilities. (Many such projects are described by the Canadian agency promoting the use of PPP’s, while a list of American case studies is available from the National Council for Public-Private Partnerships.)

But PPPs are not limited to money-producing projects. Many public facilities, such as transit systems, customarily lose money and are supported by public funding. Such facilities can be operated through a PPP approach by means of subsidies, often termed “availability payments,” that provide a stream of income to the private partner for making the facility available for the intended use. These payments can be adjusted to provide incentives to the contractor to maintain the facilities in optimal condition.

The Risks and Rewards of PPPs

Because of PPPs’ potential to inject a stream of private capital into projects that otherwise would have to be deferred, infrastructure experts have become increasingly interested in turning to them. But despite their clear benefits, federal, state, and local governments have been slow to accelerate their use, as the risks of PPPs give government actors pause.

What are those risks? For one, PPP transactions typically involve more complexity than the traditional design-bid-build approach, given the added terms needed to address financing, operations and maintenance. Details that normally would be addressed throughout the course of a facility’s operation must be anticipated and addressed in the initial transaction. In order to handle the added complexity, agencies often turn to outside consulting and legal experts. The upfront cost of such help and the risk that a deal may not ultimately pan out may discourage some agencies from exploring PPP options.

Another risk is political. Sometimes PPP projects meet with opposition, often from public sector labor groups, who may view such projects as a threat to their jobs or bargaining power. Such is the case in California, where legislative initiatives to authorize PPP’s have been opposed by the Professional Engineers in California Government, a union that represents state-employed engineers.

A change in the political winds can also wreak havoc on a proposed PPP transaction. This occurred with the “Texas Trans-Corridor” project, an innovative proposal by Texas Gov. Rick Perry (R) to construct a series of combined infrastructure corridors in that state. While initially positively received, the proposal soon drew opposition from a vocal faction, leading to its demise. As one commentator noted: “It has been said that no single statewide issue in Texas had ever succeeded in unifying business, labor and agriculture interests plus small and large municipalities in a common effort since the Alamo fell.”

But while there are real risks in undertaking PPP transactions, the dilapidated state of our infrastructure leaves us with little choice but to consider them. Besides, the benefits far outstrip the risks – and even the risks are manageable provided agencies follow best practices. In cases where no alternative funding source is available, only PPPs can make public projects happen. One reason that agencies consider the PPP approach is to complete needed projects without increasing their debt load. In some circumstances, the agencies may prefer to shoulder long-term financial obligations (such as long-term leases) rather than bond obligations.

PPPs could lead to the prompt delivery of projects through more efficient contracting and the early initiation of a revenue stream. In some instances, the infrastructure project involves a highly technical facility, such as a desalinization plant, where a supplier can more accurately predict the timing and cost of project delivery. It can then contractually obligate itself to an accelerated delivery schedule with a fair degree of confidence.

PPPs also give public institutions the ability to selectively allocate risk between the public and private partners. Take the case of a toll road for which expected traffic counts might not materialize. Such a project might be unattractive to a private party, which might prefer a fixed payment rather than risk the uncertainty of traffic demands. A public entity in that instance might take such traffic variations in stride and be willing to bear that uncertainty, knowing it won’t face other risks that a private entity would, such as construction claims. The beauty of the PPP approach is that it allows a high degree of flexibility to the parties in intelligently allocating the various risks they face.

Conclusion

The success of PPP projects in Europe and Canada has sparked interest within the U.S., but only a few have been completed. A useful list of case studies of U.S projects highway and transit projects can be found in a report issued by the U.S. Department of Transportation, “Innovation Wave: An Update on the Burgeoning Private Sector Role in U.S. Highway and Transit Infrastructure.”

Examples of successfully completed American projects are the Las Vegas Monorail project and the South Bay Expressway, which links an active commercial port of entry at the Mexican border with the greater freeway network in San Diego County, California. Other American PPP projects under development include highway projects in Florida, Texas and Virginia. The Federal Highway Administration’s website contains useful descriptions of many domestic PPP projects, as well as others using the design-build contracting approach. In Canada, numerous projects have been completed, many of which are featured on the Canadian government’s PPP agency website. Just in time for he 2010 Winter Olympics, Vancouver, B.C. completed the “Canada Line,” a $2.054 Billion, 11.8-mile rapid transit line connecting downtown Vancouver with its international airport.

Although PPP transactions are both complicated and challenging, the prospect of developing significant infrastructure improvements without adding to public debt loads or diverting scarce general funds is a very attractive option. While some may distrust such solutions, a deal that is well-crafted and skillfully presented can engender public support. Given the growing shortfall in meeting our nation’s infrastructure needs, creative approaches like PPPs deserve thorough consideration as a means of delivering projects that might not otherwise come to fruition.

Today is a major primary day, with Pennsylvania, Kentucky and Arkansas holding Senate primaries, and Oregon a gubernatorial primary.  I’ll deal with these by poll closing times: Kentucky at 6 p.m. and 7 p.m. EDT; Pennsylvania at 8 p.m. EDT; Arkansas at 8:30 p.m. EDT; and Oregon at 10 p.m. EDT.

In Kentucky, it looks like Rand Paul is very likely to win the GOP Senate nomination, beating Secretary of State Trey Grayson, the fair-hair child of the Bluegrass Republican establishment, and particularly of Senate Minority Leader Mitch McConnell.  Paul has been leading Grayson steadily in every recent poll, and the latest, from Magellan Strategies, shows Paul pulling away with a 55/30 lead.  Another recent poll, from PPP, shows that fully one-third of Kentucky Republicans think their party is “too liberal,” and it’s these voters who are fueling Paul’s surge.  Even though this is a closed primary and Paul is in many respects a conventional if extreme conservative, as indicated by the endorsements he received from Sarah Palin, Jim DeMint and James Dobson, expect to hear a lot of “Tea Party Insurgency!” hype when the results come in tonight.  Hype aside, Paul’s non-interventionist views on foreign policy, which are similar to his father’s, are unusual for a Republican politician, and it’s quite interesting that Grayson’s attacks on them didn’t gain much traction.

The Democratic Senate primary will likely provide the only real drama in Kentucky tonight, with polls indicating a close race between Lt. Gov. Dan Mongiardo and Attorney General Jack Conway.  Though Conway has been endorsed by MoveOn.org, the contest hasn’t been particularly ideological; both candidates oppose cap-and-trade legislation, and while Mongiardo has said he would have voted against health reform in the Senate, it’s because the bill “didn’t go far enough.”  Conway has had a significant financial edge, and seems to have some late momentum, but the geographical turnout patterns —Mongiardo is from Eastern Kentucky, while Conway is from Louisville — will probably determine the result.  Both candidates trail Paul in general election polls by a considerable margin.

Pennsylvania’s Democratic Senate primary is a genuine barn-burner, with party-switching incumbent Arlen Specter trying to hold off a late surge by Rep. Joe Sestak.  Every poll in the last week has shown Specter losing his relatively large lead over Sestak, as the challenger benefits both from the support of progressives who dislike Specter’s partisan background and from moderate-to-conservative Democrats who don’t like his social liberalism or his current pattern of staunch support for the Obama administration.  It is universally conceded that the race will all come down to turnout, with Specter—who is being backed not only by the Obama administration, the DSCC, and Gov. Ed Rendell’s organization, but also by most major unions—counting on a large turnout from Philadelphia, where he has a huge lead among African-Americans.  Both candidates have trailed Republican Pat Toomey in most polls, though Sestak’s general election numbers have been significantly improving recently.

The other Pennsylvania race drawing national attention has been the special election to replace the late Rep. John Murtha.  It’s the classic Western PA white-working-class district: it’s been represented by Democrats since the New Deal, and was carried by both Al Gore and John Kerry, but not by Barack Obama.  Unsurprisingly, the most recent public polling, by PPP, showed a dead heat between Democrat Mark Critz and Republican Tim Burns.  A Democratic hold in this seat, widely expected to go Republican when Murtha died, would provide a real boost to Democratic morale.

In Arkansas, the marquee contest matches Lt. Gov. Bill Halter against Sen. Blanche Lincoln, but the race has almost been overshadowed by national interests.  Halter has strong backing from a variety of unions who are enraged by Lincoln’s flip-flop on the Employee Free Choice Act, while the incumbent, who chairs the Senate Agriculture Committee, has received massive backing from the agribusiness and financial industries. Millions are being spent on both sides on “independent” ads attacking one candidate or the other.  Lincoln is also being supported by the president and by former president Clinton.

Polls have consistently shown Lincoln leading Halter, but with less than 50 percent of the vote. If Lincoln or Halter is unable to win a majority of the votes, they will faceoff in a runoff election as required in Arkansas. There is a sizable undecided vote among African-Americans, who lean towards Halter, and Lincoln’s campaign has been running Obama and Clinton radio ads aimed at African-Americans.  Regional turnout will also be a big factor, with Lincoln expected to do well in the Delta region she used to represent in the House, and Halter expected to do well in Little Rock.  The contest could well serve as a lab experiment on the ancient proposition that undecided voters invariably turn against incumbents; if Lincoln gets a decent share of the undecided vote, she should win.

The Republican Senate primary is a low-profile affair with eight candidates, and it’s been generally assumed that Rep. John Boozman will win, probably without a runoff.  Boozman will be helped by geography: he represents northwest Arkansas, a heavily Republican area where turnout will be boosted by a highly competitive primary to choose his replacement in the House.  But two other candidates in the field, state senator Gilbert Baker, who is from central Arkansas, and former statewide candidate Jim Holt, a fiery Tea Party-style conservative who shares Boozman’s geographical base, could get enough support to force him into a runoff, particularly if voters respond to attacks on Boozman for supporting TARP.

Every poll taken this cycle has shown both Lincoln and Halter trailing every named Republican in general election trial heats.  The big question is whether Arkansas’ strong tradition of voting Democratic downballot even when support for the national party is weak is finally expiring as it has in other parts of the Deep South.

In Oregon, limited polling predicts that former Gov. John Kitzhaber will easily win the Democratic gubernatorial nomination over former Secretary of State Bill Bradbury.  His Republican opponent is expected to be former Portland Trail Blazer Chris Dudley, but don’t be surprised if conservative Allen Alley pulls an upset, as one late poll suggests is possible.

Finally, in non-primary political news, a major brouhaha has broken out in Connecticut, where Democratic Attorney General Richard Blumenthal, who was the heavy favorite to hold onto Chris Dodd’s Senate seat in November, was the subject of a big New York Times story (fed by one of his Republican rivals) revealing that he has on at least one occasion referred to himself as a veteran of the Vietnam War. It turns out that he’s not; he served in the Marine Reserves during that war, but never deployed.  At the moment, the DSCC is standing by Blumenthal, but Connecticut Democrats do have the option of choosing another candidate in their state convention, which will be held this weekend.

Ed Kilgore’s PPI Political Memo runs every Tuesday and Friday.