Between 2011 and 2016, federal agencies are required by an executive order to acquire $4 billion in energy-efficiency upgrades at their facilities. A key player in reaching those goals is Timothy Unruh, director of the Energy Department's Federal Energy Management Program (FEMP), which manages the government's energy savings performance contract (ESPC) program. Agencies can use these contracts to finance energy-efficiency renovations without the need for upfront appropriations.

Unruh recently discussed with Federal Times Editor Steve Watkins the status of the ESPC program. Following are edited excerpts:

Can you discuss the goals that President Obama has set out for the energy savings performance contract (ESPC) program and what those mean for federal agencies? And, what progress has been made so far toward those goals?

Back in 2011, the president issued us a directive to complete $2 billion of performance-based contracts, which included energy savings performance contracts and utility energy service contracts (UESCs), as well as some other contracts that can be fulfilled and called performance-based contracts. The way they work is the private-sector company will come into a federal facility and develop a project proposal. That project proposal requires a certain amount of investment to occur to make energy-efficiency improvements in that facility. That investment comes from the private-sector company. In other words, they invest into a federal building to make the building operate in a more efficient manner and then that building's operational costs are reduced. Those reduced operational costs are then paid by the federal agency back to that private entity energy service company, or ESO, for the services of the reduction improvement that they made.

For the federal government, what's great for us is, with no appropriations, we get an improvement in a federal facility, we get new equipment, the term of these contracts normally is about 17 years on average, and the size of the projects on average are about $15 million.

As far as the goals are concerned, the president did issue a $2 billion goal and then decided to extend it to $4 billion. What we found in doing more of these projects in the last couple of years is that some of the projects have varying development stages. Some can be developed in a very rapid fashion, but a few of the projects really require more time to insure that we're doing the right thing for the federal facility and that we're making the right decisions for the taxpayer investment. The first [$2 billion] goal was a two-year time period. The second [$2 billion] goal was a three-year time period. We saw that we had a full pipeline in the first goal of over $2 billion to easily achieve the goal. Now, we also believe we can easily achieve the goal and that we have a $4.06 billion pipeline toward the $4 billion goal.

What are the biggest hurdles that agencies face in meeting that goal?

From a management perspective, it's often that you're lacking resources and you're lacking the ability to corral the entire organization into a focused effort to get things done.

Agencies find these contracts attractive because they think they don't have to put up-front resources on the table — there is private-sector financing that covers the funding needed for these renovation projects. So, in terms of resources, what do agencies have to bring to the table?

You're correct that the resources for the dollar value investment come from the private sector. When you think about what these projects do, is they come into an existing facility and they're planning a significant construction job that will renovate the facility to be more efficient. So, if you go into any building, whether it's a performance-based contract or not, and you want to do construction on the existing building, it's fraught with challenges.

You never quite know what may be behind the wall. You never quite know how it's going to affect the occupants. Typically, the use of the building today will be somewhat different than potentially what the design of the building was when it was originally built. It may have groups of occupants that have different missions and roles. Resources from the federal government to do these projects involve the legal to review the contracts, the contracting officer to do the actual acquisition, but even more so it requires project management, management, and coordination amongst a lot of different organizations and entities to make this happen.

It also requires a lot of technical oversight to make sure that the project is really the right thing for the building and it's a good investment for the taxpayers.

What savings in federal energy costs have been achieved so far through the ESPC program?

There's really multiple ESPC programs in the government. There are two primary programs, of which my program — the Federal Energy Management Program at the Department of Energy — has one piece of it and it's a larger piece. At this point, we have good tracking for that project. In that program at FEMP, we've completed 325 projects for $3.41 billion with an overall savings to the federal government of $8.53 billion.

Those savings, to be clear, are considered the full contract savings. So, some of those savings have occurred already and some have yet to occur during the contract fulfillment period.

The ESPC contract program expires in 2016. That's when all the extensions expire and it's essentially time for a follow-on contract vehicle. What's the status of that?

What you're referring to is the Department of Energy's indefinite delivery, indefinite quantity (IDIQ) contract. The IDIQ contract was originally issued in 2008. It ended its first period, which was a five-year period, at the end of 2013. We decided to re-up the program for its first option period, which is a three-year period, which takes it to the end of 2016. The energy savings performance contract, ESPC, statutory authorization does not expire. That's became permanent with ISA 2007 — the Energy Independence and Security Act — where they struck the limitation of the term of the program.

The program is currently preparing to offer a request for proposal for re-compete of that IDIQ contract. We're currently projecting that IDIQ re-compete will come out in the second quarter of fiscal year 2015, which would be January-March of 2015.

When would an award be for that?

Currently, the award for the IDIQ is being projected to occur in the first quarter of fiscal year 2016, which would be toward the end of the 2015 [calendar] year.

What would be the estimated value and number of awardees?

The number of awardees has not been announced. The current contract has 16 awardees on it. It's unclear how many we'll have on the second contract. Once the proposals are in and we analyze those proposals, we'll be better able to make the determination. It is important to note that we have made a reservation in the awards for up to two small business awards.

The value of the contract is not yet determined. Effectively it will be a similar approach to what was done in the current IDIQ. The current IDIQ, 16 companies were granted awards and each company has a $5 billion contract value. That total would be an $80 billion contract value, which for none of the awards have we come close to achieving that limit yet.

Do you anticipate any changes in the mechanics of how the IDIQ contract would work for customer agencies?

The general mechanics will work somewhat the same. The improvements that we have been working on in the program happen, quite frankly, outside of the contract. We've made some improvements even very recently where we've restructured the technical support that FEMP provides out to federal agencies through our project facilitator program. We also have developed a tracking system as part of the president's performance contacting challenge. We saw additional data coming in and a need to track that additional data. So, we created a program called E-Project Builder. [This was unveiled publicly by FEMP at the Nov. 17 National Association of Energy Service Company Conference in California.]

We've also opened the system up for projects beyond the federal government so that state and local programs can use it as well. We believe that system will allow us to have more standardization in the way that contracts are developed as well as the terminology we use to describe the program because performance-based contracts are a widely used tool not only in the federal government, but across all the country.

I've heard a criticism of the ESPC program that, once an agency completes an ESPC project, it becomes hemmed in from doing subsequent renovations because they would interfere with the baseline energy metrics and tracking those savings. Is this something that has come up? Do you see this as an issue at all?

It can be an issue depending upon the type of measurement and verification you select for a project. The International Performance Measurement and Verification Protocol is what the Federal Energy Management Program follows. We've adapted that into FEMP's measurement and verification guidelines. That protocol tells us there are many ways that you can measure savings and be assured that the savings occurred. When you use a total utility bill measurement approach, where you're using the utility bill meter to measure the savings, you can run into difficulties because that's a very macro approach to a very specific thing that you've implemented in the building. It can become challenging to use that meter of a large facility to understand the changes that have occurred in individual locations.

Where can federal agencies that are interested in ESPCs and interested in possibly retrofitting their facilities go to look up best practices?

Best practices are found on the Federal Energy Management Program website. But, I will tell you frankly, because the performance-based contract is so widely used across the country, a straightforward Internet search will often produce website case studies from not only federal, but nonfederal entities as well to give you an idea of how it works.

If you're looking for specific ideas or understanding of how the federal program works, I highly recommend the Federal Energy Management Program website. I believe it represents some of the best information on performance-based contracting that exists across the Web.

Are there any challenges relating to the ease with which private-sector financing can be raised for some of these projects?

Generally, private-sector financing for these projects have been very available. We have a great group of companies that participate with our energy service companies to provide that financing so that we are clear on understanding how the financing works for the federal government. That financing is provided to the energy service company who then provides the project to the federal government.

One of the things that we've worked in the program to try to improve our overall financing effort is to try to standardize some of the financing procedures. A few years back we implemented a program where we asked energy service companies to go out and competitively select financers. We gave them some standardized forms to complete to help make that a more smooth and straightforward process. We believe that has helped us achieve a better interest rate than what we might have received otherwise. But again, those interest rates are provided to the energy service companies, not directly to the federal government. So, we're in sort of indirectly borrowing.

Can you discuss a little bit what are the use cases you see federal agencies applying ESPCs for? And are you seeing any changes or trends in terms of how they're being used?

The types of energy conservation measures that we see in projects traditionally are centered around building systems, such as the building energy management systems, or it could be the lighting systems. We have possibilities of saving water use in the buildings.

We have heating, ventilating and air conditioning equipment where chillers, boilers, air delivery systems, fans and those sorts of components can be replaced. Those are the traditional items that you would find in an energy savings performance contract.

What we're finding in these contracts is that there is a little bit of a shift occurring. We're seeing a larger interest in providing a renewable component.

Agencies have a couple of reasons for adding to their renewable component or maybe even their on-site generation component. One is that there is presently a mandate for federal facilities to use 20 percent of their energy to come from renewable sources by 2020. So, performance-based contracts can be used to help supply that goal.

But, in addition, a lot of sites are concerned about energy security. You can used a performance-based contract to enhance energy security if on-site generation was installed as part of that — in particular, a combined heat power plant could help in energy security.

Are there some agencies — like the departments of Defense or Homeland Security or what have you — that seem to have a particular use case interest for ESPCs?

I'd like to maybe talk about one agency that has done some unique activities that I think we hope to replicate across the federal government. That's the General Services Administration. They have done what they call the National Deep Energy Retrofit Pilot Program. They started this last year. The effort was collaboration between the energy service company industry as well as with the federal agencies. They worked on developing a process that I'll call an integrated design approach where at first they worked out between the different entities providing the work, how do we want to go about doing this and what are our goals in achieving this.

Through that process, the National Deep Energy Retrofit Program was able to double the percent savings that they saw in projects from the average. We typically saw 19 percent savings come in. They saw a 38 percent savings on the National Deep Energy Retrofit Savings Programs. So, they did a really unique, great job of taking the same projects and finding ways to increase the savings. They're currently involved in the second phase of the pilot project of doing another phase of buildings to see if we can replicate that effort or if we just got lucky the first time.

How did they do that? How do you double the percentage of savings?

When it comes to contracting, many entities view contracting as somewhat of a hands-off approach. There's not a lot of what I'll call partnering or interactive communication that occurs in the development cycle. Performance-based contracts — and in FEMP, the performance-based contracts include energy savings performance contracts and utility energy service contracts – they offer a unique opportunity for both the contractor and the contracting entity to come together and discuss the projects upfront and understand what our goals are and what risks we're able to tolerate in developing those projects. If we both have a clear understanding of the things that we think are possibilities in these projects, we can make further advances in the way that we can do these projects and get additional savings. We worked with Rocky Mountain Institute in this process — GSA did — and, in that process, they produced a report that you can find on the Internet that tells about the advances and the results that we had.

How can ESPCs be used on data centers?

In the Federal Energy Management Program, we do have a very robust data center program. We just kicked off at the White House on September 30th the Data Center Better Buildings Challenge.

The Better Buildings Challenge is a national challenge run by our building technologies program asking buildings and organizations across the country to commit to a 20-percent energy reduction. The Better Buildings Data Center Challenge is an offshoot of that where we're asking data centers to commit to that challenge to reduce their energy consumption in those data centers.

Now, our focus on that is not the electronic components — the servers and the hard disk drives and so forth — because that's not our area of expertise. Our area of expertise really focuses on the building support systems. What we have found in data centers is that often as much energy is used by the building support system as in the data center itself. So, we issued a challenge asking for a 20 percent reduction in a portfolio of data centers as part of the Better Buildings Challenge. Performance based contracting has always been used to support those building systems and can continue to be used to support those building systems.

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