Budget Freeze Will Not Leave Fed's Energy Efficiency Goals Out in the Cold
On October 5, 2009, President Obama signed Executive Order 13514, which provided that "Federal agencies shall increase energy efficiency." Although the Executive Order did not set a specific target for achieving this goal, in a speech earlier in the year, President Obama called on the Federal Government to improve its energy efficiency by 75%. This ambitious plan, which will cost billions of dollars to implement, is important because the U.S. Federal Government is the nation’s largest energy consumer, spending $17.7 billion on energy in fiscal year 2006.
However, in his State of the Union Address this evening, the President will propose a three-year freeze on most domestic spending, with exemptions for military, veterans, homeland security, international affairs, Medicare and Social Security.
Even despite the "budget freeze," Federal agencies can continue to improve the energy efficiency of their facilities through the use of Energy Saving Performance Contracts (ESPCs). In order to achieve energy efficiency at Federal buildings and facilities, Congress has authorized Federal agencies to use ESPCs, a fundamentally different financing method from direct appropriations—the traditional way in which the U.S. Government funds capital-intensive projects.
Federal agencies may enter into an ESPC with an energy service contractor (ESCO) that privately evaluates, designs, finances, acquires, installs, and maintains energy conservation measures (ECMs) in Federal buildings and facilities. ESCOs guarantee a certain amount of cost savings to be delivered by their ESPC projects, based on their estimates of energy and cost savings that the project will deliver. Thus, the ESCO assumes the risk that the improvements will generate sufficient savings to pay for the projects during the life of the contract. In return, the ESCO receives specified shares of any resulting energy cost savings. After the ESCO is paid, the government owns the new equipment and all the savings. As of June 2008, the Federal Government’s net savings from projects funded using ESPCs has been $1.4 billion.
Since ESPCs provide Federal agencies with the ability to spread the acquisition costs of a capital asset over part of the life of the asset, instead of absorbing the entire cost of these relatively high-priced assets in a single year’s budget (which can be prohibitively expensive), the Federal Government has the means to improve its energy efficiency by 75%, even during a "budget freeze."