Breakout Session # 306

1. NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

2. Energy Savings Performance Contracts (ESPCs) and Utility Energy Service Contracts (UESCs): New Ways to Streamline Procurement Breakout Session # 306 Cyndi Vallina, Office of Federal Procurement Policy Date: April 27, 2004 Time: 1:30 PM NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”

3. Overview • Status • Federal Role • Laws and FAR • Benefits • Assistance and Tools • Success Stories • Next Steps NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

4. ESPCs are paid from savings — guaranteed. No increase in government spending occurs. • Pay a lower utility bill • Pay the contractor • Achieve cost savings for the government NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

5. Status • ESPC authority currently in limbo • UESC authority not affected; program is actively proceeding • Administration supports ESPC reauthorization NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

6. Federal Role — Lead by Example • U.S. government, largest energy consumer • $7.35 billion for all energy in FY 00 • $3.4 billion for buildings energy in FY 00, about 1.5% of U.S. buildings total • 500,000 federal facilities • $250 billion annually spent on products and services NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

7. Administration Supports Use of ESPCs and UESCs • Historically low natural gas inventories • Increasing demand for electricity • High prices for natural gas • OMB memo of June, 2003 — ESPCs and UESCs are key tools to resolve national problems, reduce energy costs, and obtain new capital equipment NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

8. It Is the Law — ESPCs • National Energy Conservation Policy Act (42 U.S.C. 8287) • As amended by: Federal Energy Management Improvement Act, 1988, and Energy Policy Act, 1992 • Provided authority for Federal agencies to enter into ESPCs • Agencies required to make energy efficiency improvements with simple paybacks of ten years or less NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

9. It Is the Law — UESCs • Energy Policy Act of 1992 (P.L.102-486) • Authorized and encouraged to participate in energy efficiency programs • Accept financial incentives, goods, or services available from a utility • Established a program for conserving energy NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

10. It Is the Law — UESCs (continued) • Department of Defense Legislation, 10 UESC 2865 and 2866 • Authorized DoD facilities to enter into procurements from gas or electric utilities to design and implement cost-effective demand-management and conservation services NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

11. Executive Order 13123 • “Efficient Energy Management” issued June 3, 1999 • Major goal is to reduce government’s energy use by 30% by 2005 and 35% by 2010 as compared to 1985 usage • Specifically recommends the use of ESPCs and UESCs to reach these goals NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

12. Federal Acquisition Regulation (FAR) • Programs have been implemented in the FAR • Part 2 provides definition of ESPC • Part 23 – Under an ESPC, agency can contract with energy service company (ESCO) for a period of up to 25 years NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

13. FAR (continued) • Part 23 - No direct capital cost to the U.S. Treasury • ESCO finances and implements capital improvements, then receives a predetermined share of guaranteed cost savings • Part 41 – Provides policies and procedures for utility service contracts NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

14. Benefits of Using ESPCs and UESCs • National policy • Streamlined procurement process – reduces time to award contracts • Guaranteed cost savings cover contract payment • Helps meet federal energy goals • Energy use reduction and cost savings • Minimal up-front costs NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

15. ESPC Benefits Since 1988 • $3 billion in private investment • $125 million annually in guaranteed savings covers debt repayment and services such as maintenance • 7 trillion Btu saved per year • Enough energy to supply 68,000 U.S. households NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

16. UESC Benefits • $1.25 billion in private investments to improve agency facilities and help meet federal energy and water goals • $132 million — FY 2003 Total NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

17. Distinctions Between ESPCs and UESCs • Most important factors for most agencies: Service providers’ capabilities to address agency’s needs, and agency’s confidence in service providers for long-term partnership • Contract type: UESC – many, flexible; IDIQ ESPCs – uniform, flexible • Government involvement: IDIQ ESPCs are between ESCOs and particular agencies (DoD, DOE); UESCs are between serving utility and individual agency/facility NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

18. Distinctions Between Super ESPCs and UESCs (continued) • Contract term: ESPC max 25 years; UESC max typically 10 years • Guarantees/M&V/O&M: Required in ESPCs, details are negotiable; UESCs – project validation; M&V required by some agencies • Optimum project size: UESCs – any; ESPCs – generally best >$500K • Availability: ESPCs – U.S. and territories, tech-specifics go worldwide; UESCs – where offered by utility, permitted by regulators NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

19. 100% 90% 80% • BuildingRetrofits71% 70% 60% 50% Total Agency Energy Use Reductions 40% 30% • Other • 29% 20% 10% 0% FY 1999 - 2002 Key to Progress on Energy Goals • 34%—ESPC • 20%—UESC • 17%—Appropriations NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

20. Investment in 2001- 2010 Required to Meet 35% Energy Reduction Goal NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

21. ESPC IS a Streamlined Process NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

22. Streamlined Process • Indefinite-delivery, indefinite-quantity (IDIQ) ESPCs streamline the procurement process • Prime contracts awarded in compliance with FAR and satisfy competition requirements NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

23. ESPCs and UESCs Can Be Faster • No multi-tiered, multi-step competition between sites within agencies • Funding is certain — No waiting for appropriations • Private sector partners are motivated to move projects forward • Access to private-sector expertise and FEMP assistance NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

24. Fair and Reasonable Pricing • Agencies must certify that pricing is fair and reasonable before awarding any delivery order • Pricing is open-book — All pricing detail is available to agencies NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

25. FEMP Provides Assistance and Tools • FEMP has developed acquisition planning tools • Technical/design assistance • Project facilitators • Training workshops NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

26. Success Stories • General Service Administration Public Building Service • Presidential Award Winner • Awarded 23 ESPCs and 21 UESCs to finance priority projects • Saved enough energy to power 5,300 households for a year NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

27. Success Stories (continued) • Navy Region Southwest • Presidential Award Winner • Used ESPCs and UESCs to invest $21 million in energy conservation measures • Saved $1 million and 5 million kwh in 3 months at 3 bases • Expected to save $4.5 million annually NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

28. Success Stories (continued) • Fort Monmouth, New Jersey • Took 98 days from kickoff to award • Awarded $24 million ESPC project • Large project included building automation systems, energy management systems, and geothermal heat pumps NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

29. Success Stories (continued) • Great lakes Naval Air Station, Great Lakes, Illinois • Established UESC with local utility to implement energy improvements in 34 buildings • Expected to save $790,000 per year NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

30. Next Steps • Attempt an ESPC/UESC project • Train and educate other procurement personnel on ESPC/UESC • Transmit guidance and information on ESPCs/UECs • Ask FEMP to conduct awareness and outreach programs on ESPCs/UESCs • Communicate with your peers NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

31. Summary • Use of ESPCs and UESCs • Saves procurement time • Saves energy • Makes good business sense • Helps perform mission cost-effectively • Enhances partnerships with industry • Wins awards and recognition for federal agencies NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”

32. Contacts • Cyndi Vallina, 202-395-4544, Cynthia_A._Vallina@omb.eop.gov • ESPC – Tatiana Strajnic, 202-586-9230, tatiana.strajnic@ee.doe.gov • UESC – Brad Gustafson, 202-586-5865, brad.gustafson@ee.doe.gov • Web site: www.eren.doe.gov/femp NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management within the Business Cycle”