U.S. Department of Energy - Energy Efficiency and Renewable Energy

Federal Energy Management Program

Federal Energy Management Advisory Committee - 06/02 Memo of Record

Meeting Minutes
June 3-4, 2002
Palm Springs, CA

The Federal Energy Management Advisory Committee (FEMAC) conducted two mini public meetings on June 3 - 4, 2002, in Palm Springs, California. The meetings were held in conjunction with Energy 2002, an annual workshop and exposition co-sponsored by the Department of Energy (DOE), General Services Administration (GSA), and Department of Defense (DOD). FEMAC was established by Executive Order 13123 - Greening the Government through Efficient Energy Management to provide DOE with input on meeting Federal energy management goals; the committee is coordinated by DOE's Office of Federal Energy Management Programs (FEMP) and chaired by Beth Shearer, Director of FEMP. The ten other committee members represent a cross-section of interests including the Federal Government, the utility and energy service industries, equipment manufacturers, and energy consumers. Attachment A provides a list of FEMAC members present at the June meetings.

SUMMARY OF DISCUSSION

Mary-Lynn Wrabel, of Energetics, Inc., moderated the meetings, since Rick Klimkos, Acting Designated Federal Officer for FEMAC, was unable to attend. Representatives from both the public and private sectors participated in both meetings. A summary of the discussion is provided in Attachment B.

NEXT MEETING

The next FEMAC meeting will coincide with the Presidential Awards for Leadership in Energy Management and the FEMP Energy and Water Management Awards from October 22 - 25, 2002, in Washington, D.C.

ATTACHMENT A

FEDERAL ENERGY MANAGEMENT ADVISORY COMMITTEE
MEMBERS PRESENT - JUNE 3 - 4, 2002

Ms. Beth Shearer, Director, Federal Energy Management Program
Mr. Jared Blum, Polyisocyanurate Insulation Manufacturers Association
Mr. Robert Collins, Tampa Electric Company
Mr. Dick Earl, Parsons Brinkerhoff Facilities, Inc.
Ms. Shelley Fidler, Van Ness Feldman
Mr. Erbin Keith, Sempra Energy Solutions
Ms. Vivian Loftness, Carnegie Mellon University
Ms. Mary Palomino, Salt River Project
Mr. Mitch Rosen, Liberty Total Comfort Systems
Ms. Cindy Vallina, Office of Management and Budget

ATTACHMENT B

SUMMARY OF DISCUSSION - JUNE 3, 2002

At the beginning of each meeting, Mary- Lynn Wrabel, of Energetics, Inc., provided background on the Federal Energy Management Advisory Committee (FEMAC):

The committee was established to bring together industry and government stakeholders and consumer organizations to advise the Secretary of Energy on how to enhance energy management in Federal facilities. FEMAC meets three to four times a year and has been briefed by virtually all the relevant program components of the Department of Energy's (DOE) Office of Energy Efficiency and Renewable Energy (EERE). During the Energy 2002 public meetings, the committee sought first- hand information about the experiences of facility managers at Federal facilities, equipment manufacturers, utility companies, Energy Service Contractors (ESCOs), and various other organizations that have been or would like to become involved in Federal energy management projects.

FEMAC members introduced themselves:

• Beth Shearer, Director of the Office of Federal Energy Management Programs (FEMP). She asked the audience to describe their Federal energy management experiences; comments will be used to enhance FEMAC's knowledge base about Federal energy management as well as their advice to the Department of Energy.
• Jared Blum, President of Polyisocyanurate Insulation Manufacturers Association, represents the industry group and Chairs the Alliance to Save Energy's Federal Productivity Task Force, which produced the document entitled, "Leading By Example."
• Robert Collins, Federal and State Government Accounts Manager for Tampa Electric Company, TECO Energy, provides a utility perspective including experience working with states and Federal agencies.
• Dick Earl, Senior Vice President with Parsons Brinkerhoff Facilities, Inc., represents the consulting/engineering company point of view.
• Shelley Fidler, a partner at Van Ness Feldman law firm, brings the perspective of someone who has worked both inside and outside the Federal Government. While working for Congress, she was involved in drafting the law that established energy savings performance standards.
• Erbin Keith, Senior Vice President of Operations for Sempra Energy Solutions, represents the Energy Service Company (ESCO) industry.
• Vivian Loftness, Professor of Architecture at Carnegie Mellon University, represents the architectural and university research perspectives, focusing on advanced technologies, natural technologies, and their impact on energy and the environment.
• Mary Palomino, Business Account Manager for the Salt River Project, a utility in Phoenix, Arizona, promotes and markets products and services to help commercial customers reduce their energy loads.
• Mitch Rosen, President of Liberty Total Comfort, a mechanical contracting company, represents the point of view of small businesses trying to participate in energy conservation projects in Federal facilities.
• Cyndi Vallina, an Office of Management and Budget (OMB) Management Analyst, works with Federal agencies to implement Executive Order 13123, bringing a Federal perspective to the committee's recommendations.

Ms. Wrabel explained that FEMAC has established four working groups:

• Budget Working Group Chaired by Mr. Earl, the group focuses on the annual appropriations process and provides DOE with recommendations on what FEMAC regards as program budget priorities.
• Strategic Planning Working Group Co-chaired by Ms. Vallina and Ms. Fidler, the group is developing a strategic plan to guide and streamline FEMP activities.
• ESPC/UESC Working Group Chaired by Ms. Vallina, the group explores the effectiveness and possible expansion of Energy Savings Performance Contracts (ESPC) and Utility Energy Savings Contracts (UESC) in the Federal sector.
• Communications/Networking Working Group Co-chaired by Ms. Palomino and Mr. Rosen, the group focuses on identifying strong advocates for energy management throughout the Federal Government and within the Administration.

Prior to the meeting, FEMAC members identified the following issues as important topics of discussion at the Energy 2002 FEMAC public meetings:

• Overcoming obstacles to the marketing of energy saving products to the Federal Government
• Determining the utility of Leadership for Energy and Environmental Design (LEED) as a standard for Federal buildings
• Improving the efficacy of FEMP's outreach activities and ESPC procurement vehicles
• Understanding the relationship between greening issues and energy reduction goals
• Understanding and promoting Executive Order 13123

Ms. Fidler explained that Executive Order 13123 requires the Federal Government to continue to reduce energy consumption using alternative financing tools such as ESPCs and UESCs.

An unidentified participant said Executive Order 13123 should be more closely connected with reporting and measurement. The speaker prioritized working with those who fund line items for construction and ensuring sufficient funding to carry out the executive order. There has been no change in his agency's funds regarding compliance with the executive order.

A representative from the Navy said that his agency's budget for energy efficiency rises and falls over time; for example, the military construction program received a $30 million increase over the FY 2001 supplemental because of the California energy crisis.

Ms. Loftness asked if there are proof sets showing the value of investments that can be used to leverage more Federal resources. The same Navy representative responded positively, reporting 1:10 leverage on appropriated dollars.

A Department of Defense (DOD) representative said that his agency did not receive more attention as a result of the executive order. DOD has been meeting goals and generally complying with the executive order, but there is stiff competition for limited funds. Payback is typically longer than one year, and there is always a trade off regarding whether the agency should allocate funds to support these programs or, for example, increase military readiness.

An unidentified audience member promoted the concept of a dedicated revolving fund to capture money saved from reduced energy use.

Ms. Loftness inquired whether the California energy crisis had an effect on utility investments in energy conservation strategies in buildings. An audience member responded that there has been no reduction in industry use of ESPCs/UESCs.

Mr. Blum asked whether the Navy is aggressively using LEED as restructuring criteria. An audience member replied that the Naval Facilities Command (NAVFAC) has a major initiative to use sustainability concepts.

Ms. Loftness explained that LEED is a tool launched by the U.S. Green Building Council (USGBC) to serve as a rating system to evaluate commercial buildings on energy and water conservation.

Mr. Blum said he believes the Federal Government should lead by example and asked how the government can continue to expand its use of LEED and the ENERGY STAR® rating system.

An unidentified audience member responded that LEED is usually successful when mandated from the top down, but this can backfire when moving up the chain of command. He cited competition between aesthetics design and LEED.

A representative from the Navy said that while Naval facility managers and engineers may want to use LEED criteria, managers of the funds are not authorized to do so. When there are budget cuts, LEED-related items are the first to be eliminated.

A representative from Oak Ridge National Laboratories (ORNL) described the laboratory's problems with LEED: certification costs are high; Architectural and Engineering firms lack program knowledge; there is limited ability to use local people; point scoring is politically motivated; and project mangers do not fully understand LEED, as a result, outside experts must be brought in.

Ms. Fidler said that DOD's use of primarily appropriated dollars is more efficient for an agency like DOD, which has the funds and internal expertise. Since most agencies do not have these advantages, alternative financing is a preferable option.

An Air Force representative said that his agency's attempts to use the ESPC procurement vehicle have been unsuccessful. The Air Force cannot use DOE's Super ESPC contracts because of the Air Force's interpretation of the Economy Act. Problems associated with the regular ESPC program include: a long development cycle of up to three years; 30 percent to 50 percent rise in expenditures; restrictions on regional contractors, which makes negotiations more difficult; the lack of one consistent ranking system, manpower issues, higher than normal costs to resupply, under-designed projects, and Monitoring and Verification (M&V) problems. The speaker said that UESCs work better because the Air Force has more control over project design and the M&V is less intensive. He recommended that DOE revamp the ESPC program.

Ms. Shearer explained that the Air Force is the only agency in the Federal Government whose legal counsel has determined that the Economy Act prevents the use of DOE's Super ESPC procurement vehicle.

An unidentified audience member said that the Air Force's decision to limit the use of ESPCs created many obstacles for the agency. He recommended that DOE ask OMB for a determination that the Economy Act does not prohibit use of Super ESPCs.

A representative from the Navy said that judging from his experience in the field, the Navy has accomplished savings using alternative financing.

Another representative from the Navy said that the agency invests $100 million annually to meet its energy reduction goals. This sum is a mix of appropriated dollars and about $70 million in alternative financing.

Ms. Loftness cited the problem that industries manufacture separate product, which are not required to be compatible with other product pieces. She asked whether there is an industry effort to encourage subcomponent manufacturers to produce "plug and play" lighting systems that are pre-engineered in the factory.

An industry representative explained that regarding Super ESPCs, GSA has worked to make it easier for those in the field to use alternative financing. But ESPCs and UESCs work only for large markets and facilities. He recommended that agencies be provided with as many tools as possible. For example, ESPC and UESC contracts should be expanded in order to address a smaller dollar value for installatio ns. Currently, small business contractors must work through larger contractors. He agreed with Ms. Vallina that an energy bank, if it consisted of direct appropriations to spend through small contractors, would help alleviate the situation.

Ms. Vallina suggested directing funds towards specialized technologies and small businesses instead of making ESPCs larger.

The same Army representative continued, promoting the GSA schedules as a great advancement in procurement. The same thing could be done for ESPCs, by providing a mechanism for small contractors to work without the overhead charged by utilities and large ESCOs seeking larger projects. If this were the case, more companies would use these procurement tools.

A representative from the Air Force requested more choice in contractors.

A representative of Texas A&M University spoke to Ms. Loftness' prior technologybased question. He said that every contract in a complex building should take into consideration the impact a retrofit has on other building systems.

Ms. Loftness agreed that "plug and play" will not happen in the near term, but that it is important for manufacturers that produce various parts for one assembly to coordinate their efforts.

A representative from the National Renewable Energy Laboratory (NREL) spoke about small projects in the Federal sector. She said that for six years, the Bonneville Power Administration (BPA) has been successful in bundling small projects through a pool of funding. The purpose of bundling is to obtain mo re favorable interest rates and sign interagency agreements to do projects as small as $5,000. Agencies sign contracts with utilities as well as an agreement with BPA for the financing. BPA uses third-party financiers and establishes a pool of funds for contracts.

A BPA representative said that the company's financing program is available in most regions of the Nation. BPA is very selective in choosing among Federal agency requests, ensuring that the project cannot be served by customary methods. He said that BPA makes sure not to get caught between the Super ESPC delivery proposal and the agency. The company coordinates and communicates effectively with FEMP, provides financing for aggregations of small projects, works with the Air Force to provide financing for projects without adequate financing options, and BPA helps implement ESPC proposals that have been rejected by agencies. Because the company uses government credit, interest rates are 150 to 180 points below private sector rates. BPA uses the lower rates to allow agencies with ten-year payment constraints to implement projects by adding lower financing costs, making the payback time acceptable. BPA provides approximately $40 million to $60 million annually in investments; this does not include refinancing.

Ms. Shearer said the BPA financing mechanism was established specifically to support UESCs with regulated utilities that do not provide the offering themselves. The regulated utility works with the agency and BPA provides the financing.

A FEMP representative reported on the use of ESPCs at DOE sites. Sixteen sites use ESPCs; out of those, four projects never went forward because they were not economically viable, their payback was longer than the 20-year contract term, or the projects were not large enough to garner sufficient interest. Of the remaining 12, most were 15-year to 20- year contracts, in which all of the savings were paid to contractors. He said that the Federal Government is taking a big risk in all of these contracts, since the government does not receive the savings; in addition the contracts are long term. The FEMP representative commented on the attrition of funds for energy management and the resultant scale back in projects. He said that revolving funds and appropriations are essential as additional tools.

Ms. Vallina asked if it is useful to ask agencies to fund implementation of Executive Order 13123 specifically, or whether Congressional funding is the only factor.

The FEMP representative responded that the agency has used the executive order to encourage the use of ESPCs. Investments have been significant - about $85 million at the 16 ESPC sites. This represents one third of the total number of DOE sites.

A representative from Lawrence Berkley National Laboratory urged FEMAC to address the issue of FEMP's funding of the national laboratories. He said that there are misunderstandings about the relationship between the national laboratories and FEMP. He said that the laboratories are involved in both research and development and the commercialization of energy technologies. Since FEMP deals with technology, there is a direct is a relationship between technology development and deployment.

An industry stakeholder from California described his company's business. Real Energy owns and operates private, on site power systems, and sells power to facilities over a 15- year term at a price below the indexed rate. He said the private sector is under the impression that some agencies can implement enhanced- use leases and while others cannot. His company is trying to determine if the enhanced-use lease is a tool to deliver more environmentally and cost-efficient energy.

Ms. Shearer said that three agencies have the authority to enter into enhanced-use leases. Department of Veterans Affairs (VA) uses the leases most extensively, and DOE wants to encourage DOD to learn from VA's example. DOE can use enhanced-use leases in some specific cases, for example, facilities that came through the Atomic Energy Commission. FEMP is looking at the Real Energy model in an effort to determine whether FEMP will use Super ESPCs to encourage marketplace adoption of combined heat and power (CHP) technology.

Ms. Wrabel concluded and adjourned the meeting.

JUNE 4, 2002

At this second meeting, opening remarks similar to the June 3 public meeting were made regarding the purpose of the public meeting along with an introduction of FEMAC members. A representative from DOE reported that he has worked successfully with FEMP to promote UESCs including measures to standardize the way in which delivery orders are processed. He said that a 2001 delivery order under the model program initiative was controversial. The delivery order preface described how a facility, working with utilities, could work effectively through the process. The proposal was based on the idea that proposals should be generated in accordance with the model contract, a very effective tool. The speaker worked on refining a process that included submission of proposals in a standardized format, followed by technical appendices. The speaker suggested that FEMP should compare projects on delivery order with the model contract, examine life cycle cost effectiveness, and ensure that the contract term is appropriate. His group attempted to delegate most of the responsibility for addressing the details to the field. The primary goal is to increase the speed and efficiency with which delivery orders are processed.

A Navy representative urged FEMAC to consider advocating a legislative change to allow non-ESPC funds to pay off ESPCs. He said that it is in the best interest of the taxpayer to pay off ESPC loans to avoid interest payments. He said that the Navy Comptroller and the Naval Facilities Contracts Office prohibit allocating money from other sources to pay off these loans.

Ms. Shearer responded that some agencies do allow this mixing of funds and that GSA handles the matter.

A representative of the Department of Health and Human Services (HHS) described his agency's in- house energy awards program, which began five years ago. HHS uses the same criteria as DOE to award five to ten winners each year who have demonstrated a commitment to energy conservation efforts. The program has generated an increase in energy consciousness and champions within the agency. The agency has made appropriated dollars, UESCs, and ESPCs available for the conservation work.

Another representative involved in ESPC projects encouraged FEMAC to discuss the importance of Executive Order 13123 with political appointees in the Administration. She said that procurement level staff, Senior Energy Officials, and others are waiting for an Administration regarding priorities. In particular, FEMAC should contact the Senior Energy Officials at GSA; DOD; John Howard, who has been promoting environmental management systems; and Angela Stiles at the Office of Federal Procurement Policy. While the Administration's energy-related decision makers are still in a transition stage, FEMAC should seize the opportunity to urge them to champion ESPCs and the Executive Order 13123. FEMAC should target VA, NASA, GSA, DOD, DOE, the National Aeronautic and Space Administration (NASA) and the Department of Agriculture (USDA).

A representative from the Navy agreed that FEMAC and FEMP should embrace opportunities presented by the transition in Administration. He said that many agencies in the Western U.S. and in the field want to collaborate more extensively with offices in Washington D.C., initiating more dialogue with the Environmental Protection Agency and others. His group is currently working through the Federal Network for Sustainability.

Mr. Blum said that funding impediments have been removed to a large degree. With respect to the change in Administration, the DOE infrastructure that delivers services, technical assistance, and funding to various agencies continues to work well. The main hurdle is communicating the importance of energy efficiency to other agencies.

A participant responded that people want to know the Administration's policy regarding buying energy efficient products.

The same representative from the Navy who spoke about collaboration with the field continued that some states have expressed a willingness to share information and infrastructure, and could function as potential partners.

Mr. Collins said that state energy offices are diverse; the Florida Energy Office administers solar grants in that state.

Ms. Loftness commented that most executives underestimate the percentage of energy use that buildings represent. She urged the community of energy professionals to publicize that buildings represent 30 percent to 40 percent of total energy use.

Ms. Fidler asked members of the audience affiliated with industry to comment on the ease with which they partner with the Federal Government.

A representative from Siemens, who arranges financing for the company, said that his group provides tax-exempt rates of 4 1/2 percent to 5 percent in the municipal arena for ESPCs. He said that budget neutrality is hindered by the fact that the Federal Government, though it has the highest credit rating in the world, is borrowing at extremely high rates of 9 percent and more. These contracts reduce payment to the lender because they do not receive the energy savings. He said that the size of transactions could increase by 25 to 50 percent if the government borrowed at a more reasonable rate.

A representative from the Navy questioned the necessity of the Davis Bacon Act, which adds additional expenses for the Federal Government.

Ms. Fidler stressed that the Federal Government attempts to make as many tools as possible available to Federal agencies to save energy and money. Although the least expensive option is to use appropriated dollars, alternative financing mechanisms are useful because many long-term projects would never come to fruition without private industry partnerships.

The Siemens representative recommended a centralized funding mechanism.

A representative from ORNL said that there are contractual remedies that could yield lower interest rates for the government. But there is strong resistance on the part of contracting officers to to use some of these options; for example, agencies want to lock rates months before they sign a delivery order. She suggested the following as more ideal: the lender is guaranteed that the agency will pay and if there is a shortfall, money is taken from the ESCO, but the guaranteed loan payments remain untouched. This way, the government's stellar credit rating is recognized, and agencies can receive lower interest rates.

A representative from USDA summed up the discussion as one revolving around competition for resources - money, time, and attention. She encouraged FEMAC to develop a strategy to work with the Office of Homeland Security to ensure that energy goals are integrated into its plan. Energy goals could include funding for renewables so that the U.S. is less reliant on foreign oil, providing energy security for Federal buildings, and employ the use of biomass. The speaker reported that her agency does not focus on complying with Executive Order 13123 since there are no fines or consequences to noncompliance.

Ms. Wrabel concluded and adjourned the meeting.