of funds for use by agencies which do not have well established energy and water conservation programs; The use of a combination of direct appropriations to agencies and to a centralized fund can increase the energy and water cost savings compared to the use of only direct appropriations to agency accounts; The use of a revolving fund will increase the administrative costs of providing funds for energy and water conservation projects compared to direct appropriations; The use of a revolving fund may not ensure a stable funding source for energy and water conservation since revolving funds will likely be subject to the potential destabilizing effects of limits on annual authorizations as a means of controlling spending authority, in a manner similar to current limits on direct appropriations for energy or water conservation projects; The use of higher cost, non-Federal funds for energy savings performance contracts is generally less expensive than delaying energy conservation projects until lower cost Federal funds become available; The authority to enter into performance contracts to achieve water or water cost savings, without saving energy, does not currently exist and, if authorized could increase the potential investment of non-Federal funds; and The use of non-Federal funds to finance energy and water cost saving projects which could be accomplished by methods other than energy savings performance contracts is being studied as a means of supplementing any shortfalls in Federal funding and providing a stable long term source of funding. References 1. Federal Energy Efficiency Fund: Needs Assessment and Benefits Analysis, Examination of State Experience, and Administrative Issues, Advanced Sciences, Inc. March 31, 1993, Prepared for the Office of Federal Energy Management Programs, U.S. Department of Energy, Washington, D.C. 2. Federal Energy Efficiency Fund for Reducing Energy Consumption in Existing Federal Buildings. Princeton Synergetics, Inc. May 1992, Prepared for the Office of Federal Energy Management Programs, U.S. Department of Energy, Washington, D.C. 3. Financing the Future, Report of the Commission to Promote Investment in America's Infrastructure, February 1993, available from the Office of Economics, U.S. Department of Transportation, Washington, D.C. 4. Water Efficiency in Federal Facilities and Programs, June 1993, Marilyn L. Arnold and Don Gray, Environmental and Energy Study Institute, Washington, D.C. 5. Draft Report Water Management Study, Chet Holifield Federal Building, Laguna Niguel, California, February 1994, Pequod Associates Inc., Prepared for the Metropolitan Water District of Southern California. 6. Water Circulation Potential in Fish Culture at the Northwest Fisheries Science Center, September 24, 1993, Northwest Fisheries Science Center, National Marine Fisheries Service, Seattle, Washington. 7. Executive Order 12902, Energy Efficiency and Water Conservation at Federal Facilities, March 8, 1994. The White House, Washington D.C. 8. Electric-Utility DSM Program Costs and Effects: 1991 to 2001, Eric Hirst, May 1993, Oak Ridge National Lab (ORNL) Energy Division. 9. Annual DSM Industry Report 1993. Prepared by Energetics, Inc. for the Assoc. of DSM Professional Managers, 1994. 10. Electric Power Annual - 1992, Energy Information Administration, 1993. 11. Annual Report to Congress on Federal Government Energy Management and Conservation Programs FY 92, U.S.DOE, 1994. 12. Utility Demand-Side Management Programs: A Framework for Strategic Planning, prepared for U.S. DOE FEMP, 1994. 13. Renewables and Energy Efficiency Planning (REEP) Study, U.S. Army Concepts Analysis Agency Progress Report, July 1994. 14. Energy Policy Act, P.L 102-486-October 24,1992, 102d Congress. The Economics of Energy Efficiency and Appendix A The discussion of the results of the Army REEP analysis and water conservation investments includes many of the important elements of the economics of efficiency investments. Key factors discussed include: ⚫ the energy savings goals; ⚫ the investment cost to achieve the goals; ⚫ the rate at which the project delivers the cost savings; • the number of years a project will continue to return savings; and, ⚫ the total cost savings in future energy bills. In addition to these factors are the underlying economic factors of the economy including: ⚫ the interest rate at which funds are borrowed to make the investments; and, ⚫ the future escalation of the prices of energy and construction costs. Use of these factors can form the fundamental relationships of any energy project. These relationships are defined by such terms as simple payback period, discounted payback period, savings to investment ratio and return on investment. Using a simple example, of an inefficient electric motor being replaced by an efficient motor, the following conditions will illustrate the relationships. The original motor used 20,000 kilowatt hours per year of electricity. The new motor is 10 percent more efficient and will consume only 18,000 kilowatt hours per year of electricity. The savings will be 2,000 kilowatt hours per year of electricity. The new motor will deliver savings for 15 years before an investment in another new motor will be required. The investment cost for the new motor is $450 more than the old motor. The current cost of electricity is 5 cents per kilowatt hour. Electricity costs are expected to stay stable at 5 cents per kilowatt hour into the future. Borrowing rates to make the investment are 8 percent per year. The calculation of the economics would yield the following: The total investment increase for the motor is $450. The energy cost savings per year is: 2000 kilowatt hours X 5 cents per kilowatt hour, for a total of $100 per year. The simple payback for this investment is: $450 invested / $100 saved per year, for a simple payback of 4.5 years for the original investment. Over the 15 year life of the motor investment, a total cost savings of 15 years X The savings to investment ratio would be: $1500 / $450, for a total of 3.33 This is When the borrowing rate is factored in to reduce, or discount, the value of dollar With a total discounted savings of nearly $900, the discounted savings to investment ratio is $900 / $450 or 2.0. This is also called the discounted return on investment of the project. The net discounted savings would be $450 for this. project. When the borrowing rate is factored into the payback calculation, the pay back period becomes slightly longer. In this case it takes 5.3 years to pay back the investment so the discounted payback period is 5.3 years. Q7.3 In the case of retrofits, please explain how that will be at "no cost to taxpayers." A7.3 In the past, the government relied upon direct appropriations to finance energy Cutting Greenhouse Gases through Energy Savings Performance Contracts (ESPCs) The July 25, 1998 Presidential Memorandum on “Cutting Greenhouse Gases ... It addition, the Memorandum states that the President has "asked the Office of Management and Budget (OMB] to provide new guidance to agencies that will help remove barriers and provide more incentives for using ESPCs. This guidance will change the budgetary treatment of these contracts to be consistent with the unique statutory authority for ESPCs. Specifically, the full amount of budget authority for the contract will no longer be needed up front, but can be made available over a number of years. In addition, this guidance will encourage agencies to permit up to 50 percent of the energy savings from ESPCs to remain at the facility or site where they occur. Both of these policies will help motivate Federal energy managers to make greater use of ESPCs and reduce agency operating costs.” Q8.1 Please explain the extent of the use of the Section 801 contracting authority since the enactment of the Energy Policy Act of 1992, and identify any problems with such use. A8.1 Since the late eighties, 61 energy savings contracts have been awarded. These projects were carried out using a conventional contracting approach where each facility undertook its own contracting. In order to expedite the contracting process, DOE and DOD implemented plans to put regional contracts in place that all agencies can use. These contracts, known as Super ESPCs and regional awards, allow all Federal agencies and facilities to place delivery orders under an umbrella contract in order to undertake individual improvement projects. Agencies can select contractors through a more streamlined process, given that a smaller number of qualified suppliers and providers have already been chosen through a competitive process. These contractors are authorized to perform work at specific |