Feds stand behind energy savings performance contracts

Despite some problems, the deals are viewed as an essential tool for modernizing facilities.

Federal leaders on Friday emphasized their support for using energy savings performance contracts to meet efficiency requirements, but told industry leaders they must work together to improve management and oversight of such contracts.

Energy savings performance contracts, or ESPCs, allow agencies to invest in green building upgrades with little upfront cost: companies finance the improvements in exchange for a share of the savings from reduced energy consumption.

"The issue of energy efficiency has never been more relevant for the federal government," said Richard Kidd, program manager for the Federal Energy Management Program at the Energy Department, in an address to members of the National Association of Energy Service Companies in Washington.

Recent laws have put tremendous pressure on agencies to reduce petroleum, water and electricity consumption, and in October 2009 President Obama signed Executive Order 13514, which required agencies to measure and reduce greenhouse gas emissions as well.

But an inspector general analysis of Energy Department ESPC contracts in September found that much of the savings stipulated in the contracts could not be verified, and in some cases equipment installed under the pacts was not being maintained. Some contracts were in such disarray that the department continued to pay for energy savings in four buildings that had been demolished.

"We went back and visited all the DOE sites and found that people involved in development [of the ESPC contracts] were no longer there, and new people were not [knowledgeable] about the contracts," said Ab Ream, a technology program specialist at Energy who spoke to the industry executives.

"It was a huge effort," Ream said, adding that both government and industry officials must perform better. Improving the way energy savings are measured and verified will be central to restoring confidence in the contracts, he said.

Federal officials want future ESPC deals to take a more comprehensive approach to improving efficiency, Kidd said. For example, while it may be worthwhile to upgrade to a more efficient heating system, if heat is escaping through a leaky roof, then those benefits will be minimal.

In addition, Energy wants ESPC contracts to embrace more new technologies being financed through agency laboratories, Kidd said.

Industry officials expressed some concern about whether federal contracting officials were ready to embrace more comprehensive ESPC contracts in the way Kidd described, and wondered how receptive they would be to adopting new technologies. Kidd acknowledged Energy and Obama administration officials must do a better job of training agency contract professionals in making the best use of the tool.