performance contracting at Federal facilities, which is where I would like to concentrate my remarks. Assistant Secretary Garman mentioned that the Federal Government is the largest consumer of energy in the country, and that is true. We are spending billions in heating those 500,000 buildings in the Federal inventory. This year, the Federal Government's energy electric bill is going to be higher than ever, just as it is for many consumers. The Department of Defense alone, their overbudget, or unanticipated electric bill is $500 million this fiscal year. That is where energy savings performance contracting comes in. As you know, you can see from the chart, energy service companies privately finance the investment of energy efficient equipment with no up-front cost to the Government. The building owner, the Government, then pays for those retrofits for this new equipment over time. The CHAIRMAN. Can you just turn that thing a little bit? There is a big glare on it, so we cannot see it. That is better, thanks. Mr. WAGNER. The energy service company guarantees those savings. That means the Government does not pay more for utility costs than they would have paid under the ESPC, and they get the new equipment after the investment is paid off. The Government gets all the subsequent savings. It is truly a win-win situation. Energy service companies are helping Federal agencies all over the country do this. One new project that we just installed is at the Denver Federal Center, where we upgraded 27 buildings. This entire project will save the Government $450,000 per year in energy and operational cost, while reducing more than 6.6 million pounds of harmful emissions. There is a number of ESPC examples at Federal facilities. I am proud to say one of the first ones ever was in New Mexico at Los Alamos, where that ESPC is still saving the Government over $2 million a year, and has a 40-percent reduction in emissions, and so this is truly a great program, but it can be even better, and I would like to quickly mention six quick, specific legislative proposals to comment on. First of all, we support expanding authority of ESPC's to include water in addition to energy. Currently, water projects are not really allowed under civilian agency ESPC programs. Consequently, many Federal facilities miss out on tremendous potential cost savings, and water resources continue to be wasted. In contrast, water savings have been allowed at defense facilities, because they are authorized under a different statute. You can see from the Fort Polk project that we did at an Army military base the benefit of combining energy and water savings. When you change out and you save hot water as well and you can take those water savings you are much better able to finance projects and put together much more comprehensive projects. At non-defense facilities like veterans' hospitals, water savings often cannot get approved, and many Federal agencies could benefit by such change. Second, we advocate removing the sunset provision for ESPC's and grant permanent authority for this great program, because they are a proven, reliable method to save energy for the Federal Government. Third, the FPCC also supports expanding the ESPC authority for replacement authorities. Having this could open up new opportunities for energy savings. However, it could mean developing some projects where we do not have a lot of experience. I might suggest that the committee think about developing some pilot projects in this area, or authorizing some. This could do a number of interesting things. First, we could get off the ground quickly with some pilot projects where there is opportunities already identified without waiting for the Department to implement regulations and policy, which might take months, or maybe even longer. Second, we would get some lessons learned from those pilot projects that could help develop regulations, and then third, during those pilot projects we could inventory them to find out where else we could do these types of projects. That is just a suggestion. Fourth, the FPCC supports high performance school programs, insofar as grant funding could be used to help defray some of the contracting costs for ESPC. Fifth, the Federal Procurement Contracting Coalition strongly opposes any effort to extend the utility financed contracts currently beyond their 10-year time frame. ESPC contractors are required to guarantee their savings. In other words, if the savings do not materialize, we do not get paid, and we are required to perform measurement and verification methods. Unfortunately, under those utility projects they do not have to do that, so if there is any extension, we would encourage extending those requirements to utility contracts. Finally, we support the concept of an energy efficiency bank, or source of Federal funds that could be used to implement energy efficiency projects at facilities. Financing projects with ESPCs may not be the appropriate tool in every instance, and over the years there has been a lack of Federal funds to do projects directly rather than financing. The committee may also wish to consider making these funds available to buy down the ESPC projects that have longer terms, or to help make renewable energy projects more feasible under ESPC. On behalf of the FPCC, I appreciate the opportunity to speak before you today and provide testimony. Thank you, Mr. Chairman. [The prepared statement of Mr. Wagner follows:] PREPARED STATEMENT OF MARK. F. WAGNER, DIRECTOR, FEDERAL GOVERNMENT RELATIONS, JOHNSON CONTROLS, INC. Mr. Chairman and members of the Subcommittee, thank you for inviting me to address the various legislative proposals related to energy efficiency. I am Mark Wagner, Director of Federal Government Relations for Johnson Controls, Inc. and am testifying today on behalf of the Federal Performance Contracting Coalition (FPCC), a group of Energy Savings Performance Contractors who upgrade federal facilities. I would like to concentrate my remarks on proposals that affect private sector financing of energy improvements in Federal government facilities. Johnson Controls is a global market leader in facility services and control systems. Since the 1880s when Warren Johnson invented the thermostat, Johnson Controls has been working with government facilities, schools, hospitals and commercial buildings to help create comfortable, productive and safe building environments that are energy efficient. Like other energy service companies that are members of the FPCC, we design, install and service new energy efficient equipment, such as monitoring and control systems, HVAC systems, chillers and lighting, so that buildings use less energy. Included in our service offering is energy savings performance contracting (ESPC) which I will discuss in more detail later. According to the U.S. Department of Energy, there are some 4.5 million existing commercial buildings involving 55 billion square feet of space. These buildings consume 30-40% of all energy and use 60% of all electricity. It's estimated these facilities use 20-40% more energy than necessary. The largest single consumer of energy in the United States is the federal government, spending $4 billion a year for its 500,000 buildings. According to the Department of Energy, the federal government has over three billion square feet of floor space, located in all climates. High-rise offices, research laboratories, aircraft hangars, libraries, hospitals, tourist areas, parks, and prisons must all be considered. În total they consume over 60 billion kilowatt-hours of electricity each year. This year, the federal government's electric bill will be even higher, just as it is for many consumers. For the Department of Defense alone, its unanticipated energy bill for this year is expected to be $500 million. Immediate conservation measures such as turning up the thermostats this summer and shutting down escalators are only temporary solutions, saving energy today but doing nothing about the problem tomorrow. True energy efficiency is achievednot by fiddling with the thermostat, but by retrofitting existing building with energy efficient equipment. That is where Energy Savings Performance Contracting (ESPC) comes in. Under an ESPC, an energy services company like Johnson Controls, Honeywell, Duke Solution, Sempra Energy Services, NORESCO and others, privately finance the investment of installing energy efficient equipment with no up-front costs to the customer. The investment includes identifying building energy requirements and acquiring, installing, operating, and maintaining the energy-efficient equipment. The building owner pays for these retrofits and new equipment over time with dollars saved on energy and maintenance bills. The energy service company guarantees the savings. This means the government agency does not pay any more for utility costs than they would have paid without the ESPC and the new equipment. After the investment is paid off, the building owner gets all the subsequent savings. It's a winwin situation. Energy service companies are helping federal agencies all over the country save energy through ESPCs. For example, Johnson Controls, entered into an ESPC with the Denver Federal Center to upgrade 27 buildings. New chillers, building controls and lighting are being installed, and we are re-commissioning an existing solar domestic hot water heating system. The entire project will save $450,000 per year in energy and operational costs for the next 11 years while reducing more than 6.6 million pounds of carbon dioxide emissions. As mentioned, other ESPC companies are making similar improvements to federal facilities all around the country-and at a cost to the government customer of only contracting and auditing. Other good examples of federal ESPCs are at: • Los Alamos National Lab in New Mexico, saving $2.3 million annually; • Army National Training Center at Fort Irwin, California, saving $169,000 per year; • Veterans Affairs Medical Centers in San Francisco and Salt Lake City, each saving $500,000 per year. ESPC is a great tool for the federal government. But it can be even better. I would like to outline several provisions included in pending legislation under this Committee's jurisdiction that enhance the program and save more energy and tax dollars. 1. Expand the Authority of ESPCs to Include Water, in Addition to Energy Currently water saving projects are not allowed under civilian agency ESPC programs. Consequently, many federal facilities miss out on tremendous potential cost savings and water resources continue to be wasted by the government. DOE General Counsel has ruled that water savings are limited under the statute governing ESPCS at civilian agencies (42 USC 8287). In contrast, water savings have been allowed for years at DOD facilities. A different defense statute, (Title 10, Sections 2865 & 2866) authorizes ESPCs for DOD facilities and it allows water savings. When the Defense Department originally passed Section 2865, it quickly realized that water savings were not allowed under the legislation. One year later Congress, through the Armed Services Committees, approved DOD's request to add water cost savings to ESPC under Section 2866. The Army's Fort Polk in Louisiana is a great example of an ESPC project which combines both energy and water savings. The project includes: Replacing bathroom equipment (toilets, flush valves, showerheads and faucets) with water conserving models in the barracks. Water Savings: 42 million gallons of water annually Energy Savings: 43,500 therms of natural gas annually • Replacing all 450 washers and dryers on base with new horizontal axis washers that use half the water and clean just as well. Energy Savings: 46,000 therms of natural gas and 135,000 kWh of electricity Installing hot water loop controls brining water temperature up only when Energy Savings: 517,000 therms annually In total this project is saving Fort Polk over $500,000 per year in energy, water and operational costs. At non-defense sites like Veterans Hospitals, water savings often cannot get approved. Many federal agencies could benefit greatly from a change in the ESPC authority to allow water savings, such as the provision included in section 7 of S. 352. 2. Remove the Sunset ESPC Contractual Authority as Provided by S. 352 ESPCs are a proven, reliable method to save energy, reduce operations and maintenance costs, provide new equipment for federal agencies and reduce pollution. Why would the federal government want to stop? Unless the statute is again extended, current authority for federal agencies to enter into ESPCs will expire in 2003. Certainly another four-year extension could be granted for the program as provided by S. 388, but we would advocate removing the sunset provision completely and provide permanent authority for ESPCs. Experience has shown that when the sunset date approaches, some agencies become concerned and reluctant to begin developing projects for fear the authority may not last. Removing the sunset provisions would solve that problem. 3. Allow Replacement Facilities To Be Eligible for Federal ESPCs as Provided by S. 352 and S. 388 The Federal Performance Contracting Coalition also supports expanding ESPC authority programs to allow them to be applied to replacement facilities. Having this new authority could open up new opportunities for energy savings. However, it would mean developing some projects for which there is little or no experience either in the government or commercial arena. The Committee may want to consider authorizing several pilot projects. This would have numerous advantages, including: • Several projects that already have been identified could begin immediately, without waiting for the Department of Energy to spend months or longer developing regulations and policy governing the implementation of this new authority. • Government and industry would quickly gain from the lessons learned at these sites, which could then aid in writing better regulations and policy for broader authority. While the pilot projects are being developed, the Department of Energy could identify other federal buildings that could be candidates for projects and determine the magnitude of the potential. 4. High Performance Schools Program in Section 1302 of S. 597 The FPCC supports this legislation insofar as the grant funding for school facility improvements can be used for the contracting costs of Energy Savings Performance Contracts. 5. Oppose Extending Utility Contracts to 25 Years Without Safeguards The Federal Procurement Contracting Coalition strongly opposes any efforts to extend the term of utility financed contracts beyond their current 10-year time frame without requiring a guarantee of energy savings, a measurement and verification of those savings and a reporting requirement to Congress. When Congress passed the Energy Policy Act of 1992 providing authority for ESPC, it wisely required certain safeguards. Congress demanded that if agencies were allowed to commit future unappropriated dollars to pay for energy-financed contracts, the dollar savings would have to pay for the cost of the contract. To ensure that result, ESPC contractors are required to: 1. Guarantee the energy savings. In other words, if the savings don't materialize we don't get paid. 2. Perform annual measurement and verification, which is the method to prove the savings are real. Unfortunately, utility financed contracts currently do not have these same requirements and safeguards. But they should. Our position is also consistent with separate memorandums (June 1999) from the DOE General Counsel and from the GSA Assistant Commissioner of the Office of Financial and Information Systems. Both memos call for guarantee of savings and measurement and verification for utility financed energy contracts. However, it is not clear that these requirements have been enforced consistently for utility contracts. 6. Federal Energy Efficiency Bank We support the concept of an energy efficiency bank or source of federal funds that could be used to implement energy efficiency projects at federal facilities. Financing projects with an ESPC may not be the appropriate tool in every instance. Over the years there has been a lack of federal dollars to directly pay for worthwhile energy efficiency projects. The committee may also wish to consider making funds from the bank available to "buy down" ESPC projects that have long terms or help make renewable energy measures more affordable under ESPCs. On behalf of the FPCC, I also want to mention two "congressional actions" that can assist in helping the Federal government get the maximum out of the ESPC process. First, the Department of Energy's Federal Energy Management Program (FEMP) provides technical assistance for many of these projects. Their appropriated funding must continue at a robust level. This assistance is critical to helping federal agencies implement ESPC projects. Second, congressional oversight could make all the difference in assuring that federal agencies are indeed taking advantage of the energy savings provided by ESPCS. A few years ago, a hearing on ESPCs by the Veterans Affairs Oversight Subcommittee sparked a dramatic increase in projects at VA Medical Centers. The Subcommittee asked the Department of Veterans Affairs to provide quarterly reports on ESPCS being implemented at medical centers throughout the country. Similar oversight could be very helpful in getting agencies to use these innovative types of energy efficiency and infrastructure improvement contracts. In other words, we should stop asking agencies, "Where can you do an ESPC" and begin asking, "Why aren't you using them everywhere?" Thank you for the opportunity to testify today and I would be happy to answer any questions. The CHAIRMAN. Well, thank you, thank all of you very much for your testimony here. Let me just ask a few questions. Ms. Manoogian and Ms. Choate, maybe you could both respond to this. One of the differences that exist in our pending bills here is that in the proposal to increase the LIHEAP funding for the future we have two different ways we are proposing to do it. I have proposed in the bill that I have introduced to increase the base program more, and not really increase the emergency contingency fund authorization. Senator Murkowski's proposal was to increase the emergency level. Is there a preference on the part of LIHEAP administrators as to how this authorization ought to be accomplished, this increased authorization? Do either of you have a point of view on that? Ms. MANOOGIAN. It would be preferable to have the base funding increased, only because, for example, it provides us with an opportunity to be able to establish what is necessary to operate the program for the program year. Instead of raising the contingency funds, then it is on an emergency basis, so it does not provide a meaningful tool to be able to identify what should your eligibility criteria be for an upcoming season, what should your benefit level be set at. |