Energy Savings Performance Contracts: Reauthorization Issues

Publication Date: September 2004

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Energy

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Abstract:

Since the 1970s, both the executive branch and Congress have promoted energy efficiency within federal agencies. When the federal government's energy-efficiency and conservation programs received severe budget cuts in the 1980's, Shared Energy Savings and later Energy Savings Performance Contracts were devised as part of the strategy to meet federal energy reduction goals.

Energy Savings Performance Contracts (ESPCs) offered federal agencies a novel means of making energy-efficiency improvements to aging buildings and facilities. In return for privately financing and installing energy conservation measures, a contractor received a specified share of any resulting energy cost savings. The contractor, referred to as an Energy Service Company (ESCO), guaranteed a fixed amount of energy and cost savings throughout the term of the contract, and bore the risk of the improvement's failure to produce a projected energy savings. The sum of the improvement's cost and its reduced level of energy cost could not exceed the pre-ESPC energy cost. The term "energy conservation measure" (ECM) was applied to energy-efficiency improvements such as energy- and water-saving equipment, and renewable energy systems such as solar energy panels.

ESPCs were authorized in 1992 by amendments to the National Energy Conservation Policy Act. Federal agencies' authorization to enter into ESPCs expired October 1, 2003. Legislative attempts to reauthorize ESPCs in the 108th Congress stalled when the Congressional Budget Office (CBO) scored ESPCs as mandatory spending that imposed a future financial obligation on the federal government.

To date more than 340 ESPCs have been awarded with a total value of approximately $1.6 billion in private sector investments. None have failed to produce energy and cost savings. In comparison to ESPCs, $3.17 billion in appropriated funds was invested in energy-reducing capital improvements between FY1985 and FY2001, peaking at $288 million in FY1995 and declining to $131 million by FY2001. As appropriations-funded energy conservation projects have been declining since FY1995, federal managers have increasingly turned to ESPCs to fund energy conservation measures.

Options for Congress include taking no further action on the sunset provision that ended agencies' authorization to enter into ESPCs, extending the sunset provision, or extending the ESPC authorization with amendments. Such amendments could include reducing the maximum contract length and expanding the contract scope to non-building applications. This report will be updated as the situation warrants.