Leading By Example: Improving Energy Productivity in Federal Facilities

Reducing the federal government’s massive energy waste through improved energy productivity offers enormous opportunities to save taxpayers billions of dollars and improve the environment. For example, energy-efficiency improvements in federal facilities made from 1985 through 1995 resulted in: .

• Energy savings—Enough energy (138 trillion Btus) was saved annually to fuel all of the cars, buildings, and factories in Vermont.
• Tax savings—Taxpayers saved $687 million annually—$3.78 billion between 1985 and 1995—and received a return on investment of more than 34 percent per year.
• Cleaner environment—Carbon emissions were reduced by 1.7 million metric tons annually.

Federal agencies have already made great progress, but with an investment over the next eight years of $4.7 billion, taxpayers would save an additional $1 billion annually.

Federal Energy Goals and Requirements

Over the last two decades, presidents and Congress have proclaimed numerous goals and requirements to reduce federal energy waste through improved energy management. The Federal Energy Management Improvement Act of 1988 (FEMIA) subsequently ordered agencies to reduce energy use per gross square foot (GSF) by 10 percent from 1985 levels by 1995.

The current goal, issued by President Clinton in 1994 through an executive order, requires agencies to reduce their energy use per GSF by 30 percent by 2005, based on 1985 consumption.

Agencies must also, “to the maximum extent practicable,” install all energyefficiency measures with payback periods of less than 10 years and purchase energyconsuming equipment in the top 25 percent of efficiency or at least 10 percent higher than the Department of Energy (DOE) minimum efficiency standard.

Energy Reduction Targets

It is debatable whether the federal government is meeting its energy reduction goals. While the government as a whole achieved a 14.2 percent reduction between 1985 and 1995, at least eight agencies failed to save even 10 percent.

More importantly, the government has employed two tactics that distort the energy savings it reports.

In 1991, President Bush’s executive order changed the measure of energy consumption that is used by agencies from primary energy to site energy, effectively lowering the goalpost for the 1995 targets. Site energy is the number of Btus that are actually consumed at a building or facility. Primary energy is the total amount of Btus used to produce the energy consumed in a building or facility. Unlike site energy, primary energy includes energy lost in the generation, transmission, and distribution of electricity that is delivered to a building.

Basing the measure on site energy instead of primary energy is an important difference, because approximately two-thirds of the energy consumed at the power plant is lost in the conversion and transmission of the electricity to the building site. The site energy measure ignores this “lost” energy. Electric power conversion losses are now equal to the total site energy used in federal facilities, yet are not counted in the federal energy accounting system.

Changing the measure from primary to site energy helped the federal government meet its energy consumption targets in 1995. If primary energy were still being used as the measure of energy consumption, the federal government would not have met the EPAct goals for 1995. Using primary energy as the measure, GSF energy use fell by only 1 percent, not 14.2 percent.

The second way the federal government distorts its energy savings is by excluding facilities deemed “energy-intensive.” These energy-intensive facilities account for more than 17 percent of total energy use. Because energy-intensive facilities are not clearly defined for reporting, agencies move buildings in and out of the category each year. Some of the energy-intensive operations reported by agencies are suspect: for example, day-care centers, libraries, office buildings, entire residential neighborhoods, chillers, and on-site steam and electric generation plants. To the best of our knowledge, DOE has never challenged an agency’s classification of a facility as an “energyintensive operation.”

If primary energy accounting is used and energy-intensive facilities are included, federal government energy consumption per GSF increased by 2.7 percent since 1985!

Figure S1 illustrates how different measures of federal energy use can lead to different conclusions. The first bar on the left is the percentage change in energy use per GSF when site accounting is used and buildings with “energy-intensive operations” are not included. This is the way that the federal government currently measures progress toward its energy reduction goals. By this measure, the federal government has reduced energy consumption from 1985 to 1995 by 14.2 percent and is nearly on track to meet the energy reduction target for the year 2005.

By other measures, the federal government did not meet the 1995 target and is not on track to meet the 2005 goal of a 30-percent reduction. The second bar shows the percentage change in energy use per GSF when site accounting is used and energy-intensive operations are included. By this measure, energy consumption fell by 9.1 percent. The third bar shows the percentage change in energy use per GSF when energy use is measured at the source and energy-intensive operations are excluded. By this measure, energy use fell by only 1.1 percent.

The fourth bar shows the percentage change in energy use per GSF when energy use is measured at the source and energy intensive operations are included. By this measure, energy use per GSF actually increased by 2.7 percent.

To be fair, energy use would have risen even more if not for agencies’ energy-efficiency efforts. Many energy-efficiency gains were offset by the energy consumed through the increased use of computers, fax machines, and printers in government offices. We estimate that from 1985 to 1995, electronic office equipment increased primary energy use by more than 20 trillion Btus from what it would have been otherwise.

Also, the use of an “energy-per-square-footbasis metric” may mask non-energy-related productivity improvements. For example, the Postal Service claims that facility energy intensity has increased as mail sorting is concentrated into smaller spaces. While this increases the Postal Service’s operational productivity, it also increases the energy used per square foot.

Equipment Purchasing

Assessing whether agencies purchase energyefficient equipment is difficult because of a lack of data. However, based on our conversations with facility managers, it appears that compliance is minimal at best. This is because agency personnel have little incentive to purchase high-efficiency equipment and no way to finance the incremental costs of higher-efficiency equipment. There is also a general lack of enforcement and oversight. Usually it is more convenient to buy the lowest-priced equipment (often less energy-efficient), since the burden of proof is on the purchaser of high-efficiency equipment, not low-efficiency equipment. Even the General Services Administration (GSA) and Defense Logistics Agency (DLA) catalogs that government employees use to purchase much of their equipment needs still list inefficient equipment!

Carbon Emissions Targets

In December 1997, the Clinton administration committed itself to reducing U.S. carbon dioxide emissions to 7 percent below 1990 levels by 2012. There is no congressional or executive branch mandate that requires federal agencies to reduce their carbon emissions. Site energy, which is currently used to track federal energy use, is a poor proxy for carbon emissions.

Project Funding

In order to meet the president’s 30-percent energy reduction goal by 2005, we estimate that federal agencies will need to invest about $4.7 billion over the next eight years in energy-saving projects (see Figure S2 on next page). Given past levels of congressional appropriations for federal energy-saving efforts, agencies will likely face a $2 billion funding shortfall. Consequently, agencies are increasingly turning to energy services companies (ESCOs) and electric and gas utilities to finance their energy-efficiency improvements.

Energy-Saving Performance Contracts (ESPCs)

Over the last decade, agencies have entered into 72 ESPCs, in which ESCOs pay for a project’s capital and operating costs and are then paid back from the energy cost savings. However, while the potential is enormous, ESPCs have been used in only a handful of the 500,000 federal buildings. ESCO investments to date have been just $138 million. This pales in comparison to the $900 million in investment capital that the Federal Energy Management Program (FEMP) estimates could come from ESPCs between 1996 and 2005.

One of the biggest challenges to implementing ESPCs has been the difficulty in qualifying ESCOs and then negotiating contractual elements, including allowable overhead and profits. To simplify this process, FEMP and the Department of Defense (DOD) have each issued regional indefinite-delivery indefinite-quantity contracts (IDIQs) that prequalify about a half dozen ESCOs and allow agencies to enter into simple task order agreements with them. The IDIQs eliminate the need for agencies to qualify ESCOs on a project-by-project basis. The IDIQs will potentially reduce the time it takes to award an ESCO delivery order to six months, whereas in the past it has taken from one to three years. Several problems need to be taken if ESPCs are to be used widely in the federal government:

• Education—The lack of understanding and expertise regarding ESPCs on the part of both senior management and project management staff at agencies.
• Resources—The large amount of government staff time and cost that is often needed to identify and prepare projects prior to involving ESCOs. n Perceptions—The perception that ESPCs are too expensive.
• Approach—The tendency for agencies to implement short-term payback measures in-house, thus leaving only longterm measures for ESPCs.

Area-Wide Agreements With Utilities

Many utilities now offer an array of energy services, including equipment sales and financing, service agreements, and performance contracts. To tap these resources, GSA has implemented what are known as areawide agreements with electric and gas utilities. These agreements allow federal facilities to enter into long-term contracts with their local utility for “energy services,” thus avoiding time-consuming, competitive procurement procedures they would normally have to use to implement energy-saving projects. There are currently 136 utility area-wide agreements in place, with 80 specifically allowing demand-side management options.

Revolving Fund for Energy-Saving Projects

Uncertain funding makes it difficult for agencies to implement a comprehensive long-term energy management strategy. Agencies are forced to look only as far as the next budget cycle and to restrict their investments to simple measures with quick paybacks. Legislation has been introduced to create a Federal Energy Bank that agencies could tap to pay for energy-efficiency projects. The Bank would be capitalized by taking 5 percent of each agencies’ annual energy budget—an annual contribution of $225 million—over a three-year period. FEMP would administer the funds, and agencies would repay the loan with interest.

The Congressional Budget Office (CBO) recently scored the Bank proposal and recommended that loans be limited to projects with paybacks of three years or less. CBO’s analysis failed to take into account that the Federal Energy Bank is a revolving fund (i.e., that as loans are paid off the money can be re-lent) and assumed that the average payback for the loan portfolio is the same as the payback for the loan with the slowest payback. In sum, the fund would achieve positive financial benefits with an average payback for the loan portfolio of four years or less.

Utility Reform and Energy Price Reductions

Many states are reforming their electric utility industry to allow utilities and others to compete for individual customers, which will likely lead to lower electricity prices, especially for large consumers. As of March 2, 1998, 16 states have enacted restructuring legislation or issued comprehensive regulatory orders. The General Accounting Office (GAO) projects that lower electricity prices will enable the federal government to save from $1 billion to $8 billion over the next 18 years; however, up to 40 percent of these savings could be lost if agencies increase their energy use as a result of lower prices.

Energy Education and Technical Assistance

One major barrier to federal energy productivity is the lack of energy-efficiency knowledge on the part of government facility managers, procurement officials, and other relevant personnel, which is exacerbated by the general decrease in the number of government energy managers. In order to meet energy reduction targets and purchase energy-efficient equipment, federal managers need to increase their knowledge about energy-saving technologies and learn how to evaluate, finance, and implement them.

Recommendations

Federal Energy Goals and Requirements

• Impose greater agency accountability— Congress should hold annual oversight hearings on agencies’ energy use, and the Office of Management and Budget should do more to assess agency performance and compliance.
• Raise burden of proof to purchase low-efficiency equipment and provide financing to purchase energy-efficient equipment—Purchasers of equipment that does not comply with the energyefficiency language in Executive Order 12902 should be required to justify their purchases in writing. All equipment listed in the GSA and DLA catalogs should be made to comply with this language, too. FEMP should create “Basic Financing Agreements” to provide private sector financing for the incremental or total cost of widely purchased energyusing equipment to ensure that it is
  energy-efficient.
• Create basic financing agreements to cover incremental costs of highefficiency equipment—FEMP should explore with agencies the creation of Basic Financing Agreements for energyefficient equipment based on FEMP’s
  product recommendations.
• Eliminate the energy-intensive operations exclusion—The excluded-buildings provision should be eliminated, or at a minimum, DOE should clearly define the category and closely monitor
  agencies’ use of the category.
• Create a federal agency carbon emission reduction target—To demonstrate the nation’s commitment to reduce carbon emissions, the president should establish a federal agency carbon emission reduction target similar to those called for in Kyoto, Japan, in December 1997. FEMP
  should begin tracking and reporting carbon
  emissions per GSF, including
  energy-intensive operations.
• Create a joint public–private sector committee to offer recommendations for energy-efficiency implementation— The committee should be created and meet annually to review agency energy management efforts and to identify new means of expediting energy-efficiency projects and ways to increase private sector
  financing.
• Authorize additional audits by inspectors general—Agencies should conduct economy and efficiency audits of their
  in-house energy management programs.

Project Funding

• Provide sufficient and stable appropriations for energy-efficiency projects to agencies—We estimate that agencies will need $522 million annually through 2005 for energy-efficiency improvements in order to meet their energy-saving targets. Congress should appropriate this level of funding, minus projected investments by ESCOs and utilities and, if implemented, the Federal Energy Bank.
• Continue implementing IDIQs and reauthorize the use of ESPCs—FEMP and DOD should accelerate their efforts to streamline ESPC development. FEMP should increase efforts to speed projects through the IDIQ process and devote more personnel to providing technical assistance to agencies developing ESPCs; agencies should take advantage of these efforts. Congress should reauthorize the use of ESPCs as the authorization under the Energy Policy
  Act of 1992 terminates in 2000.
• Establish a Federal Energy Bank to fund energy-efficiency improvements— The Bank should be authorized with at least an average four-year payback, and funds should be available to support ESPC project development as well as to
  implement projects.
• Use savings from lower electricity prices for energy-efficiency improvements— Congress should establish a mechanism for agencies to use energy budget savings from reduced electricity rates for energyefficiency improvements. This would provide more incentive for agencies to reduce their electricity consumption as
  well as to negotiate reduced rates.

Energy Education and Technical Assistance

• Increase training and tap the expertise of the private sector—Congress should increase funding for energy management education and training programs, and FEMP, DOD, and GSA should involve private sector energy-efficiency companies in providing education and training about their technologies free of charge.
• Create centralized ESPC technical support at each agency—Each agency should develop an infrastructure for acquiring and implementing ESPCs. The central offices should provide legal, financial, and technical support to personnel in the field. Agencies should also assign an ESPC specialist to each regional office to ensure that ESPCs
  are executed correctly.
• Review the status of energy management personnel—FEMP should conduct a government-wide review of energy management personnel requirements to ensure that sufficient manpower is being devoted to meet the federal energy reduction targets.