[Federal Register Volume 77, Number 99 (Tuesday, May 22, 2012)]
[Notices]
[Pages 30321-30322]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-12397]


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DEPARTMENT OF THE INTERIOR

National Park Service

[NPS-WASO-CONC-0427-10012: 2410-OYC]


Proposed Concession Contract for Yellowstone National Park--
Alternative Formula for Calculating Leasehold Surrender Interest

AGENCY: National Park Service, Interior.

ACTION: Notice; request for comments.

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SUMMARY: The National Park Service (NPS) invites public comments on a 
proposed alternative formula for the value of leasehold surrender 
interest (LSI) to be included in its proposed 20-year concession 
contract for Yellowstone National Park (YELL077-13). The contract will 
cover operation of the lodging, food and beverage, retail sales, 
transportation and other services at the park.

DATES: Public comments will be accepted on or before June 21, 2012.

ADDRESSES: Send comments to Ms. Jo A. Pendry, Chief, Commercial 
Services Program, National Park Service, 1201 Eye Street NW., 11th 
Floor, Washington, DC 20005 or via email at [email protected] or via 
fax at 202/371-2090.

FOR FURTHER INFORMATION CONTACT: 
    Jo A. Pendry, 202/513-7156.

SUPPLEMENTARY INFORMATION: The NPS intends to solicit proposals for the 
operation of the lodging, food and beverage, retail sales, 
transportation and other services at Yellowstone National Park in 2012. 
The new contract is intended to be for a term of 20 years and will 
include an alternative formula for calculating LSI. In this notice, we 
are soliciting comments on our use of this alternative formula. While 
we are not required by law to solicit comments on this alternative 
formula, we are providing an opportunity for public comment because 
this is only the third time that we have proposed using an alternative 
LSI formula.
    LSI is the interest in real property improvements that a 
concessioner provides under an NPS concession contract. Public Law 105-
391 of 1998 (the 1998 Act) established the standard LSI valuation 
formula. The formula is generally as follows:
     The initial construction cost of the related capital 
improvement;
     Adjusted by the percentage increase or decrease in the 
Consumer Price Index (CPI);
     Less physical depreciation of the related capital 
improvement.
    The 1998 Act also allows alternative LSI-value formulas for 
contracts with an LSI value over $10 million. Because the LSI value of 
the new contract for Yellowstone National Park will exceed $10 million, 
we are proposing to use an alternative LSI formula. Under our proposed 
alternative formula, the LSI value of all eligible capital improvements 
will be depreciated annually, in equal portions, on a 40-year, 
straight-line basis during the contract's 20-year term.

We Have Made Two Determinations

    We have determined, subject to consideration of public comments, 
that:
     The proposed alternative LSI formula, in comparison to the 
standard LSI formula, is necessary to provide a fair return to the 
Government and to foster competition for the new contract by providing 
a reasonable opportunity for profit to the new concessioner.
     The proposed alternative LSI formula is consistent with 
the objectives of the 1998 Act, particularly, as discussed below, with 
respect to the fair return it will provide to the Government and the 
new concessioner and the enhanced competition it will foster.
    The 1998 Act does not require these determinations or this Federal 
Register notice for alternative LSI formulas (such as the one we 
propose) that are based on annual straight line depreciation of the 
initial value as provided under 1998 Federal income tax laws and 
regulations. However, because this is only the third time that we have 
proposed using an alternative LSI formula, we have made these 
determinations and are publishing this notice to solicit public 
comment.
    If we adopt the alternative LSI formula, it will apply only to the 
new contract, YELL077-13. We have made no decision to apply the 
proposed LSI formula or any other LSI alternative to other future 
concession contracts. If we consider using an alternative LSI formula 
for any other contracts, we will ask for public comments if required or 
appropriate.

First Determination: Fair Return to the Government

    We have determined, subject to consideration of public comments, 
that the proposed alternative LSI formula is necessary to provide a 
fair return to the Government, as well as helping to provide a fair 
return to the new concessioner.
    We consider that ``fair return'' to the Government includes the 
requirement of the 1998 Act that we include in concession contracts a 
franchise fee payable to the Government that is based upon 
consideration of the probable value to the concessioner of the 
privileges granted by the contract. However, under the standard LSI 
formula, the amount of money that we would pay (directly or indirectly) 
for LSI as of the expiration of the new contract is inevitably 
speculative as of the time of contract solicitation, contract award, 
and during the contract term. This is because we and prospective 
concessioners must estimate in advance the future CPI rate, the amount 
of depreciation that will occur over the term of the contract, and the 
cost to cure the depreciation.
    Thus, if we use the standard LSI formula to establish the required 
minimum franchise fee for the new contract, that fee will reflect 
speculative estimates of CPI and depreciation rates over the term of 
the contract. Likewise, when a prospective concessioner offers to meet 
or exceed the minimum franchise fee that we would establish under the 
standard LSI formula, this business decision relies on speculative 
estimates of future CPI and depreciation rates. A more dependable LSI 
value will allow us to better project the long-term cost of the 
concessioner's investment and to calculate a franchise fee that 
provides a fair return.
    For these reasons, we consider it necessary to include the proposed 
alternative LSI formula in the new contract in order to provide a fair 
return to the Government.

[[Page 30322]]

Second Determination: Fostering Competition

    Elimination of the speculative nature of LSI value by using the 
proposed LSI formula is also considered necessary to foster competition 
for the new contract by providing a reasonable opportunity for the 
concessioner to make a profit under the new contract. This is because 
prospective concessioners will know with a high degree of certainty 
(subject only to estimates of the value of any new capital improvements 
constructed or installed during the term of the contract) how much 
money they will be paid for initial LSI upon the expiration of the new 
contract. The proposed LSI formula eliminates speculation regarding CPI 
and depreciation required under the standard LSI formula. The resulting 
lower risk and greater certainty in the business opportunity provides 
the concessioner a reasonable opportunity for profit under the terms of 
the new contract. It should also encourage businesses to apply for the 
new contract, thereby fostering competition.
    Private firms not familiar with the NPS concession program have 
indicated that the complexities and uncertainty of the standard LSI 
formula have deterred them from submitting offers for concessions. We 
believe that using the proposed alternative LSI formula in the new 
contract will foster competition by providing interested entities with 
a reasonable opportunity for profit that, with respect to LSI, is 
assured, understandable, and more comparable to practices in the 
private sector.
    In addition, the estimated lower LSI payment under the alternative 
formula (as opposed to a higher estimated value provided by the 
standard LSI formula) allows us to charge a lower minimum franchise 
fee. This will ensure the concessioner greater cash flows during the 
term of the contract, in contrast to the standard LSI formula's higher 
(and uncertain) LSI payment at the expiration of the contract. Since 
many prospective concessioners likely will prefer the higher cash flows 
throughout the contract term under the proposed LSI formula, the 
alternative formula should foster competition for the new contract.
    The proposed LSI formula also will enhance competition for the 
concession contract that will succeed the new contract. This is because 
the final value of the contract's LSI should be significantly lower 
than it would be under the standard LSI formula, thereby lowering the 
amount of LSI purchase money needed by a prospective new concessioner. 
This lower entry cost should encourage competitive proposals from 
prospective concessioners.
    The proposed LSI formula should not materially affect the new 
concessioner's projected rate of return under the new contract. This is 
because, in developing the new contract's minimum franchise fee, we 
assessed projected revenues and expenses and used industry standards to 
estimate a fair return to the new concessioner. This estimate includes 
the cost of acquiring existing LSI.
    The minimum franchise fee in the new contract, thus, reflects the 
financial consequences of the proposed LSI formula. This means that the 
estimated fair return to the new concessioner would be approximately 
the same whether the new contract included the standard LSI formula or 
the proposed LSI formula (taking into account the time value of money). 
The proposed LSI formula will not materially change the projected fair 
return to the new concessioner, but will reduce the speculative nature 
of LSI value under the standard formula. With respect to the rate of 
return, the impact of the use of the proposed LSI formula is neutral 
and not adverse to the requirement of fostering competition.

Elective Franchise Fee Reduction/LSI Buy Down Provision

    The NPS also points out that it intends to include an elective 
franchise fee reduction/LSI buy down provision in the terms of the 
prospectus for YELL007-13. If the selected offeror elects to accept 
this provision, it will be included in the new contract. If elected, 
the provision would (i) reduce the franchise fee otherwise proposed by 
the successful offeror (which original proposed fee cannot be less than 
the minimum Franchise Fee set forth in the prospectus) by two and one-
half percent (2.5%), and, (ii) apply to the ending LSI value under the 
terms of the contract an amount equal to the difference between the 
dollar amounts that would have been produced under the original offered 
franchise fee and the dollar amounts produced under the reduced 
franchise fee. For example, if the franchise fee offered by the 
successful offeror (if it elected this provision) is 7.5% of gross 
receipts, the franchise fee to be included in the new contract would be 
5% of gross receipts (7.5 - 2.5 = 5). Upon the expiration (or earlier 
termination) of the contract, an amount equal to two and one-half 
percent (2.5%) of the cumulative gross receipts under the contract will 
be deducted from the ending LSI value of the LSI Improvements.
    NPS believes that an offeror may consider that it would be in its 
best interest to elect to accept the elective franchise fee reduction/
LSI buy down provision because of the significantly higher cash flows 
the provision would provide the offeror during the term of the new 
contract.
    However, the NPS will not consider the offeror's choice as to 
whether or not to include this provision in the contract in evaluating 
its proposal.

Public Availability of Further Information

    Complete details and further explanation of the proposed LSI 
formula will be in the proposed prospectus for the new contract that 
(is/will be) publically available at http://www.nps.gov/commercial 
services. We will provide notice of the availability of the prospectus 
in FedBizOpp.gov. If consideration of public comments in response to 
this notice causes us to alter the proposed alternative LSI formula, we 
will amend the prospectus accordingly (and publish a notice of such 
amendment in FedBizOpp.gov) before the deadline for submission of 
proposals.
    We invite your comments and will consider all comments that we 
receive by the deadline in the DATES section of this notice. Before 
including your address, phone number, email address, or other 
identifying information in your comment, you should be aware that your 
entire comment, including your personal identifying information, may be 
made publicly available at any time. While you can ask us in your 
comment to withhold your personal identifying information from public 
review, we cannot guarantee that we will be able to do so.

Peggy O'Dell,
Deputy Director, Operations.
[FR Doc. 2012-12397 Filed 5-21-12; 8:45 am]
BILLING CODE 4312-53-P