DEFENSE 

INFRASTRUCTURE

Additional Data and 

Guidance Needed for 

Alternatively Financed 

Energy Projects

Report to Congressional Committees

June 2017

GAO-17-461

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-17-461, a report to 

congressional committees

June 2017

DEFENSE INFRASTRUCTURE

Additional Data and Guidance Needed for 

Alternatively Financed Energy Projects

What GAO Found

The military services have used alternative financing arrangements—entering 

into about 38 private-sector contracts annually from 2005 through 2016—to 

improve energy efficiency, save money, and meet energy goals. However, the 

military services have not collected and provided the Department of Defense 

(DOD) complete and accurate data, such as total contract costs and savings. For 

example, GAO was unable to identify and the military services could not provide 

total contract costs for 196 of the 446 alternatively financed energy projects since 

2005. Furthermore, some data provided on select projects did not include the 

level of accuracy needed for planning and budgeting purposes. According to 

officials, the military services did not always have complete and accurate data 

because authority for entering into these projects has been decentralized and 

data have not been consistently maintained. As such, neither the military 

departments, which include the military services, nor DOD have complete and 

accurate data on the universe of these projects. Without complete and accurate 

data on all alternatively financed energy projects, decision makers will not have 

the information needed for effective project oversight or insight into future 

budgetary implications of the projects, including impacts on utility budgets.

DOD’s alternatively financed energy projects that GAO reviewed reported 

achieving expected savings. Specifically, GAO’s review of 13 operational 

alternatively financed energy projects found that all 13 projects reported 

achieving their expected savings. However, the military services have varying 

approaches for verifying whether projected savings were achieved for all utility 

energy service contracts (UESC)—an arrangement in which a utility arranges 

financing to cover the project’s costs, which are then repaid by the agency over 

the contract term. DOD guidance requires the military services to track estimated 

and verified savings and measurement and verification information for all energy 

projects, but DOD’s guidance is inconsistent with more recent Office of 

Management and Budget guidance. This inconsistency and DOD’s interpretation 

of Office of Management and Budget guidance have resulted in the military 

departments developing varying approaches for verifying savings of UESC 

projects. Without clear guidance from DOD on how the military services should 

be taking steps to verify savings associated with UESC projects, the military 

services will continue to interpret guidance differently and are likely to take 

inconsistent approaches to verifying the savings of UESC projects spanning 

potentially a 25-year duration.

DOD and military service officials identified benefits and disadvantages, as well 

as other potential costs, of using alternative arrangements to finance energy 

projects rather than using up-front appropriations. According to officials, benefits 

include the ability to fund projects that would not otherwise be funded due to 

budgetary constraints, to complete projects more quickly, and to have expert 

personnel available to implement and manage such projects. However, officials 

also identified disadvantages, including higher costs and the risks associated 

with long-term financial obligations. In addition, GAO found that some potential 

costs for these alternatively financed energy projects, such as costs associated 

with operation and maintenance and repair and replacement of equipment, add 

to overall project costs and may not be included in the total contract payments.

View GAO-17-461. For more information, 

contact Brian J. Lepore at (202) 512-4523 or 

leporeb@gao.gov.

Why GAO Did This Study

DOD, the largest energy consumer in 

the federal government, has been 

addressing its power needs by 

diversifying its power resources, 

reducing demand, and implementing 

conservation projects. To address its 

goals for energy projects, DOD also 

has been using alternative financing 

from private-sector contracts rather 

than relying solely on annual federal 

appropriations to fund projects upfront.

The House and Senate reports 

accompanying their respective bills for 

the National Defense Authorization Act 

for 2017 included provisions that GAO 

review DOD’s alternatively financed 

energy projects. This report (1) 

evaluates the military services’ use of 

alternative financing arrangements 

since 2005 and data collected and 

provided to DOD on those projects; (2) 

assesses reported project savings and 

verification of reported performance, 

and (3) describes benefits and 

disadvantages and potential other 

costs of using alternative financing 

rather than up-front appropriations. 

GAO analyzed and reviewed DOD 

data, relevant guidance, and project 

documentation; interviewed cognizant 

officials; and reviewed a 

nongeneralizable sample of projects.

What GAO Recommends

GAO recommends that the military 

services collect and provide DOD 

complete and accurate data on all 

alternatively financed energy projects 

and that DOD update its guidance to 

clarify requirements for verifying UESC 

savings. DOD concurred with the first

recommendation and nonconcurred 

with the second. GAO continues to 

believe its recommendation is valid, as 

discussed in this report.
Page i GAO-17-461 Defense Infrastructure

Letter 1

Background 7

The Military Services Have Used Alternative Financing for 

Hundreds of Energy Projects since 2005, but Have Not 

Collected and Provided Complete and Accurate Data to DOD 12

DOD Reported Savings on Selected Energy Projects, but the 

Military Services Have Not Consistently Verified Project 

Performance 19

The Military Services Identified Benefits and Disadvantages, as 

Well as Potential Other Costs, of Using Alternative Financing 

for Selected Energy Projects 31

Conclusions 39

Recommendations for Executive Action 40

Agency Comments and Our Evaluation 40

Appendix I Scope and Methodology 44

Appendix II Comments from the Department of Defense 53

Appendix III GAO Contact and Staff Acknowledgments 55

Related GAO Products 56

Tables

Table 1: Alternative Financing Arrangements Available to the 

Department of Defense (DOD) 9

Table 2: Reported Number of Department of Defense (DOD) 

Energy Projects Using Alternative Financing 

Arrangements and the Estimated Costs of the Projects, 

Fiscal Years 2005 through 2016 14

Table 3: Savings for Selected Department of Defense (DOD) 

Energy Savings Performance Contracts (ESPC) as 

Reported in the Most Recent Contractor Measurement 

and Verification Reports 20

Table 4: Installations Visited or Contacted During Our Review 50

Contents
Page ii GAO-17-461 Defense Infrastructure

Abbreviations

DOD Department of Defense

ESPC Energy Savings Performance Contract

PPA Power Purchase Agreement

UESC Utility Energy Service Contract

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Page 1 GAO-17-461 Defense Infrastructure

441 G St. N.W.

Washington, DC 20548

June 20, 2017

Congressional Committees

The Department of Defense (DOD) is the largest energy consumer in the 

federal government, spending $3.9 billion on facilities energy in fiscal year 

2015. DOD has reported that it considers energy to be a critical resource 

across the full range of military operations and has found that ensuring 

the availability of energy is a substantial expense that competes with the 

department’s other investments in manpower and equipment.1 To 

address its power needs, DOD has diversified its power sources to 

include renewable and alternative sources of energy and has reduced its 

demand for installation energy by investing in efficiency and conservation 

projects on its installations.2 The department has used alternative 

financing arrangements in addition to using up-front appropriations to 

fund a portion of its infrastructure related to renewable energy generation, 

energy efficiency, power generation, and energy security on military 

installations. These alternative financing arrangements include energy 

savings performance contracts (ESPC), utility energy service contracts 

(UESC), power purchase agreements (PPA), and some forms of 

enhanced use leases. These arrangements rely on the private capital 

obtained by energy service companies, utilities, and private developers to 

fund the up-front investment of such projects. The installation generally 

repays the cost of the project using appropriated funds based on the 

savings attributable to the energy project, such as those resulting from 

lower utility bills, or on the utility rates paid by DOD in accordance with 

the power purchase agreement. DOD has increasingly relied on 

alternative financing arrangements to decrease energy intensity on 

military installations and to fund energy projects as the agency attempts 

to implement such projects at a time when constrained budgets have 

 1

DOD, Office of the Assistant Secretary of Defense (Energy, Installations, and 

Environment), Department of Defense Annual Energy Management Report, Fiscal Year 

2015 (June 2016).

2

DOD distinguishes installation energy from operational energy. According to DOD, 

installation energy includes energy needed to power fixed installations and enduring 

locations, as well as non-tactical vehicles, whereas operational energy is the energy 

required for training, moving, and sustaining military forces and weapons platforms for 

military operations, to include energy used by tactical power systems and generators at 

non-enduring locations.

Letter
Page 2 GAO-17-461 Defense Infrastructure

limited the appropriated funding available to meet increasing energy 

efficiency goals.3

We have previously reported on DOD’s use of alternative financing 

arrangements for its energy projects. In 2012, we reported on DOD’s use 

of up-front appropriations and alternative financing arrangements for 

renewable energy projects and recommended that DOD issue 

comprehensive guidance on completing business case analyses of 

different financing options and improve information-sharing resources, 

including best practices and lessons learned, on financing such projects.4

DOD generally concurred with the recommendations and has taken steps 

to implement them. Specifically, DOD and the military services have 

issued guidance on developing business case analyses, and DOD has 

established a renewable energy integrated process team where officials 

from the Office of the Secretary of Defense meet regularly with officials 

from the military services to discuss DOD renewable energy plans and 

processes. Moreover, in 2015, we found that in 14 out of 20 ESPC 

projects that we reviewed, contractor reports overstated some cost and 

energy savings of these contracts.5 We made three recommendations to 

DOD aimed at improving the oversight of its ESPC projects through 

clearer reporting of savings, among other things. DOD generally 

concurred with our recommendations, and officials told us that they sent 

additional guidance on measurement and verification reports to the 

energy service companies. In addition, in 2016, we reported that DOD 

used various approaches to analyze the financial costs and benefits of 17 

renewable energy projects.6 We made eight recommendations, including 

that DOD should clarify guidance for project documentation, such as 

including information on land values and how projects will help DOD meet 

 3

Executive Order 13693 defines energy intensity as energy consumption per gross square 

foot of building space. See Executive Order 13693, Planning for Federal Sustainability in 

the Next Decade (Mar. 19, 2015).

4

GAO, Renewable Energy Project Financing: Improved Guidance and Information Sharing 

Needed for DOD Project-Level Officials, GAO-12-401 (Washington, D.C.: Apr. 4, 2012).

5

GAO, Energy Savings Performance Contracts: Additional Actions Needed to Improve 

Federal Oversight, GAO-15-432 (Washington, D.C.: June 17, 2015). Because of the large 

number of factors that can result in overstated or understated savings, we did not 

determine the net effect of all factors on projects’ achieved savings. For example, some 

energy conservation measures in the projects we reviewed outperformed expectations, 

which may have offset the lower-than-expected savings of other energy conservation 

measures in those projects.

6

GAO, DOD Renewable Energy Projects: Improved Guidance Needed for Analyzing and 

Documenting Costs and Benefits, GAO-16-487 (Washington, D.C.: Sept. 28, 2016).
Page 3 GAO-17-461 Defense Infrastructure

its energy security objective. DOD concurred with our recommendations 

and to date has implemented one of the recommendations by issuing 

revised guidance on renewable energy projects involving long-term power 

purchase agreements.7

The House and Senate reports accompanying proposed bills for the 

National Defense Authorization Act for Fiscal Year 2017 included 

provisions for us to review DOD energy projects funded with alternative 

financing arrangements.8 In this report, we (1) evaluate the extent to 

which the military services have used alternative financing arrangements 

to fund energy projects since 2005 and collected and provided DOD 

complete and accurate data on those projects; (2) assess the extent to 

which the military services reported achieving expected savings and 

verified the reported performance of selected projects; and (3) describe 

the benefits and disadvantages reported by the military services—as well 

as potential other costs—of using alternative financing arrangements for 

selected energy projects rather than using up-front appropriations.

To evaluate the extent to which the military services have financed 

energy projects with alternative financing arrangements since 2005 and 

collected and provided DOD complete and accurate data on those 

projects, we reviewed available data and documentation on the 

alternatively financed projects from fiscal years 2005 through 2016 that 

were previously reported by DOD in the Annual Energy Management 

Reports or we collected during previous reviews.9 We focused on this 

time frame because, with the passage of the Energy Policy Act of 2005, 

the military services began contracting for more alternatively financed 

energy projects.10 We included 2016 data as they capture the most recent 

complete fiscal year of data.11 We used this information to develop prepopulated spreadsheets for each of the military services on their 

 7

The guidance calls for submitted information to include the fair market value of the leased 

land and to describe how the compensation received for the leased land will be applied to 

the renewable energy project, such as for a reduction in utility rates.

8

H.R. Rep. No. 114-537 at 105-106 (2016) and S. Rep. No. 114-255 at 129 (2016).

9

GAO-15-432 and GAO-12-401. We also used information obtained during our review of 

the effects of base closures on alternative financing agreements. GAO, Defense 

Infrastructure: Improved Guidance Needed for Estimating Alternatively Financed Project 

Liabilities, GAO-13-337 (Washington, D.C.: Apr. 18, 2013).

10Pub. L. No. 109-58, § 203 (2005) (codified at 42 U.S.C. § 15852).

11We excluded any contracts associated with the territories of the United States or other 

overseas locations.
Page 4 GAO-17-461 Defense Infrastructure

alternatively financed contracts and then requested that they verify the 

information and add new projects, as appropriate, in order to obtain data 

on the universe of these projects for the specified time period. We 

assessed the reliability of the data we received by interviewing DOD 

officials and comparing the multiple data sets we received from the 

military services with data reported in the Annual Energy Management 

Report and obtained through prior reviews to ensure that there was 

consistency in the data provided. We determined that the data were 

sufficiently reliable for our purposes of meeting our objectives. We 

reviewed the statute requiring DOD to report data on alternatively 

financed energy projects and DOD’s guidance requiring the military 

departments to maintain a utility energy reporting system to prepare data, 

including data on energy consumption and costs, for the Annual Energy 

Management Report.12 We compared the military services’ tracking of 

their data, such as total contract costs, estimated cost savings, and the 

length of the contract, on alternatively financed energy projects to DOD’s 

guidance and statutory requirements for tracking such data. We also 

compared DOD’s data collection efforts with Standards for Internal 

Control in the Federal Government, which identify standards for collecting 

and providing accurate and complete data.13 We also interviewed Office 

of the Secretary of Defense and military department officials to discuss 

the availability of data related to their alternatively financed energy 

projects.

To assess the extent to which the military services reported achieving 

expected savings and verified the reported performance of selected 

projects, we reviewed DOD, Department of Energy, and Office of 

Management and Budget guidance on the different levels of 

measurement and verification or performance assurance that are required 

 12See 10 U.S.C. § 2925 and Department of Defense Instruction 4170.11, Installation 

Energy Management (Dec. 11, 2009) (Change 1, Mar. 16, 2016). (Hereinafter cited as 

DOD Instruction 4170.11 (Dec. 11, 2009)).

13GAO, Standards for Internal Control in the Federal Government, GAO-14-704G 

(Washington, D.C.: September 2014).
Page 5 GAO-17-461 Defense Infrastructure

for alternatively financed energy projects.14 Using the data on the 

alternatively financed energy projects that we obtained from the military 

services, we then selected a non-generalizable sample of 17 projects—13 

of which were in operation at that time—as case studies to discuss and 

observe during our site visits to the 11 installations where the projects 

were in operation. We selected these projects to obtain a cross section of 

projects by military service; type of alternative financing arrangement; 

year the contract was awarded; and contract vehicle (Army, Department 

of Energy, General Services Administration area-wide,15 or stand-alone 

contract). We then compared measurement and verification efforts for the 

13 operational projects in our sample with DOD guidance requiring 

measurement and verification for all energy projects to determine the 

extent to which installation officials followed guidance requiring 

verification of savings.16 We also collected and analyzed data and 

documentation on the expected and reported savings for the 13 

operational projects in our sample, and we documented reasons for any 

differences. We assessed the reliability of the project data by reviewing 

the internal controls DOD officials used to observe and corroborate the 

data contractors reported in their annual measurement and verification 

reports; the data collection and monitoring the officials did for 

performance assurance; and the data the officials used to assess project 

savings. We determined that the data were sufficiently reliable for our 

purposes of describing the extent to which the military services reported 

achieving expected savings and verified the reported performance of 

selected projects. Additionally, we interviewed officials at the 11 

 14DOD Instruction 4170.11 (Dec. 11, 2009); U.S. Department of Energy Federal Energy 

Management Program, M&V Guidelines: Measurement and Verification for PerformanceBased Contracts Version 4.0, DOE/EE-1287-0286 (November 2015); U.S. Department of 

Energy Federal Energy Management Program, Utility Energy Service Contract Guide,

DOE/EE-0952 (Revised October 2016); Office of Management and Budget, Memorandum 

M-98-13, Federal Use of Energy Savings Performance Contracting (Washington D.C.: 

July 25, 1998); and Office of Management and Budget, Addendum to Office of 

Management and Budget Memorandum M-98-13 on Federal Use of Energy Savings 

Performance Contracts (ESPCs) and Utility Energy Service Contracts (UESCs)

(Washington, D.C.: Oct. 3, 2012).

15An area-wide contract is an agreement between the General Services Administration 

and a utility for a range of utility services for periods up to 10 years. According to its 

guidebook, the General Services Administration is the only agency authorized to sign an 

area-wide contract, but once signed, the agreement can be used by any federal agency in 

that particular utility service territory. General Services Administration, Utility Areawide 

Guide: A Practical Guide to Procuring Utility Services through a GSA Areawide Contract

(August 2015).

16DOD Instruction 4170.11 (Dec. 11, 2009).
Page 6 GAO-17-461 Defense Infrastructure

installations in our sample and their contracting or engineering commands 

to discuss these projects and their latest measurement and verification 

report or other assessment, and officials at the Office of the Secretary of 

Defense and the military departments to discuss guidance on assessing 

the performance of UESCs during the contract performance period.

To describe the benefits and disadvantages reported by the military 

services—as well as potential other costs—of using alternative financing 

arrangements for selected energy projects rather than using up-front 

appropriations, we reviewed DOD, Department of Energy, and military 

service guidance on the use of alternative financing arrangements and 

the cost-effectiveness of those arrangements to determine the 

requirements for life-cycle cost analyses. For the 17 projects in our 

nongeneralizable sample, we collected project planning documentation 

and reviewed available life-cycle cost analyses and contract 

documentation. Additionally, we interviewed officials at the installations in 

our sample, their contracting or engineering commands, or their military 

service headquarters to discuss the projects in our sample, including the 

benefits and disadvantages of using alternative financing arrangements 

for those energy projects. We also discussed how the individual contracts 

identified the costs to operate and maintain the energy conservation 

measures or power-generating equipment. Finally, we interviewed 

officials from the Department of Energy’s Federal Energy Management 

Program to discuss federal policies and guidance related to alternative 

financing arrangements for energy projects and officials from the General 

Services Administration to discuss the agency’s area-wide contracts with 

utility companies to gain an understanding of issues related to the 

benefits and costs of such projects. Further details on our scope and 

methodology can be found in appendix I.

We conducted this performance audit from June 2016 to June 2017 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.
Page 7 GAO-17-461 Defense Infrastructure

The Deputy Assistant Secretary of Defense (Installation Energy), under 

the Office of the Assistant Secretary of Defense (Energy, Installations and 

Environment), has the role and responsibility for, among other things, 

overseeing DOD’s installation energy program. The office also is 

responsible for issuing installation energy policy and guidance to the DOD 

components and serving as the primary adviser for matters regarding 

facility energy policy.17 In addition, the office provides management for 

energy conservation and resources, including establishing goals for the 

department’s energy conservation program, developing procedures to 

measure energy conservation, and developing policy guidance for 

reporting energy use and results of conservation accomplishments 

against goals for federal energy conservation and management. These 

goals and requirements are found in, but are not limited to, the Energy 

Independence and Security Act of 2007, the Energy Policy Act of 2005, 

and Executive Order 13693, Planning for Federal Sustainability in the 

Next Decade.18 Also, the military departments have established goals 

related to developing renewable energy projects. For example, the 

Secretary of the Navy has established goals to obtain half of the Navy’s 

energy from alternative sources and to produce at least half the shorebased energy requirements from renewable sources, such as solar, wind, 

and geothermal. Further, each military department has issued 

department-level guidance to develop 1 gigawatt of renewable energy, for 

a total of 3 gigawatts by 2025.

In addition, DOD’s instruction on energy management states that the 

Secretary of a military department is responsible for developing an energy 

program management structure to meet DOD requirements, with the 

primary objectives of improving energy efficiency and eliminating energy 

 17DOD guidance defines components, collectively, as the Office of the Secretary of 

Defense, the military departments, the Office of the Chairman of the Joint Chiefs of Staff 

and the Joint Staff, the combatant commands, the Office of the Inspector General of the 

Department of Defense, the defense agencies, DOD field activities, and all other 

organizational entities within DOD. See Department of Defense Directive 5100.01, 

Functions of the Department of Defense and Its Major Components (Dec. 21, 2010). For 

this review, we focused on the military departments, which are components of DOD and 

which include the military services. The Department of the Navy includes both the Navy 

and the Marine Corps.

18Pub. L. No. 110-140, § 431 (codified at 42 U.S.C. § 8253); Pub. L. No. 109-58, § 203 

(2005) (codified at 42 U.S.C. § 15852); and Executive Order 13693 of Mar. 19, 2015.

Background

Roles and Responsibilities 

for Installation Energy 

Management and 

Reporting
Page 8 GAO-17-461 Defense Infrastructure

waste, while maintaining reliable utility service. Each military service has 

assigned a command or headquarters to provide guidance and funding, 

with regional commands or military installations managing site-specific 

energy programs. According to DOD’s instruction, DOD component 

heads are to provide facilities with trained energy program managers, 

operators, and maintenance personnel for lighting, heating, power 

generating, water, ventilating, and air conditioning plants and systems.19

At the installation level, the departments of public works, general facilities, 

or civil engineering oversee and manage the day-to-day energy 

operations.

Each year, DOD is to submit the Annual Energy Management Report to 

the congressional defense committees, as required by section 2925 of 

title 10 of the United States Code. This report describes the department’s 

progress toward meeting its energy performance goals and, among other 

items, provides information on all energy projects financed with 

alternative financing arrangements. The Annual Energy Management 

Report is required to contain the following information on DOD’s 

alternatively financed projects: the length of the contract, an estimate of 

the financial obligation incurred over the contract period, and the 

estimated payback period. The DOD components maintain a utility energy 

reporting system to prepare the data for submission of this report, which 

DOD describes as the primary vehicle by which it tracks and measures its 

performance and energy efficiency improvement.

DOD has used partnerships with the private sector as a tool for 

alternative financing arrangements to further energy efficiency efforts and 

allow installations to improve infrastructure through upgrades to existing 

systems and the purchasing of new equipment. Each financing 

arrangement leveraged by private capital has distinct requirements and 

legal authorities, and sometimes DOD components combine 

arrangements to finance the same project. Table 1 summarizes the main 

alternative financing arrangements that are available to DOD for funding 

its energy projects.

 19DOD Instruction 4170.11 (Dec. 11, 2009).

Types of Alternative 

Financing Arrangements
Page 9 GAO-17-461 Defense Infrastructure

Table 1: Alternative Financing Arrangements Available to the Department of Defense (DOD)

Financing arrangement Brief summary of arrangement

Energy Savings Performance 

Contract (ESPC)

A multiyear contract between a federal agency and an energy service company. Based on the 

results of a comprehensive energy audit, the energy service company, in consultation with the 

federal agency, designs and constructs a project to save energy and arranges the necessary 

financing for the project. The contractor guarantees that the improvements will generate 

energy cost savings sufficient to pay for the project over the term of the contract, with all 

additional cost savings accruing to the agency after the contract ends. A single contract can 

combine multiple energy conservation measures, such as more efficient equipment and 

renewable energy, and contract terms can extend up to 25 years.a

Utility Energy Service Contract 

(UESC)

A contract between a federal agency and its serving utility for the purpose of producing 

measurable energy or water reductions or measurable amounts of demand reduction. The 

utility arranges financing to cover the capital costs of energy-efficiency and renewable energy 

projects, and the costs of the project are repaid by the agency over the contract term. The 

agency’s repayments are usually based on estimated cost savings generated by the energyefficiency measures, but the UESC authority does not require a guarantee of the savings. The 

length of the agreements typically has not exceeded 10 years, but DOD took steps in May 

2016 to clarify that contracting officers can enter into such agreements for up to 25 years.b

Power Purchase Agreement (PPA) An agreement negotiated between DOD and an energy supplier to purchase specified 

quantities of electricity at specified prices for a specific period of time. PPAs range from 10 

years or less up to 30 years. Revenues that developers receive under PPAs can be used to 

repay the costs of constructing and operating a renewable energy project on a DOD 

installation.c

Enhanced Use Lease A long-term lease of property to a private developer for uses including the installation of 

renewable energy systems in exchange for cash or in-kind services. These leases are usually 

for 25 years or more, up to 50 years.d In many cases, enhanced use leases do not include a 

specific provision to purchase electricity produced from the project.e

Source: GAO analysis of alternative financing approaches and statutory authorities. | GAO-17-461

a

The authority for ESPCs is found in 42 U.S.C. § 8287 et seq. Our prior work provides more 

information on how federal agencies develop and implement ESPC projects. See Energy Savings 

Performance Contracts: Additional Actions Needed to Improve Federal Oversight, GAO-15-432 

(Washington, D.C.: June 17, 2015).

b

The authorities for UESCs are found in 10 U.S.C. § 2913 and 42 U.S.C. § 8256. DOD issued its final 

rule to amend the Defense Federal Acquisition Regulation Supplement to clarify that contracting 

officers may enter into an energy savings contract for a period not to exceed 25 years. See 48 C.F.R. 

§ 241.103. UESCs are not always funded using alternative financing. They may be awarded for 

periods of one year or less or be paid for using up-front appropriations. For this report, we are 

including only those UESCs that were funded using alternative financing arrangements.

c

DOD has several authorities for entering into PPAs. For example, under 10 U.S.C. § 2410q, DOD 

can enter into contracts for up to 5 years generally, or up to 10 years in certain circumstances. Under

10 U.S.C. § 2922a, DOD may enter into agreements of up to 30 years. According to officials from the 

Office of the Secretary of Defense, DOD does not refer to its 2922a projects as PPAs but rather as 

2922a contracts. In the fiscal year 2015 Annual Energy Management Report, DOD describes the 

funding arrangement used under the 2922a authority as utility service contracts that enable the 

department to enter into agreements for the provision and operation of energy production facilities 

and the purchase of energy from such facilities. Under 10 U.S.C. § 2809, subject to certain 

conditions, DOD may enter into contracts of up to 32 years, excluding the period for construction.

d

We have previously reported that these leases are often entered into for periods longer than 25 

years, and as much as 50 years. See GAO, Defense Infrastructure: The Enhanced Use Lease 

Program Requires Management Attention, GAO-11-574 (Washington, D.C.: June 30, 2011).

e

The military services refer to certain leases of real property undertaken pursuant to the authority in 

10 U.S.C. § 2667 as “enhanced-use leases.”
Page 10 GAO-17-461 Defense Infrastructure

In December 2011, the President challenged federal agencies to enter 

into $2 billion in performance-based contracts, including ESPCs and 

UESCs, through the President’s Performance Contracting Challenge to 

meet the administration’s goals of cutting energy costs in agency facilities 

as part of a broader effort to reduce energy costs, cut pollution, and 

create jobs in the construction and energy sectors.20 In May 2014, the 

President expanded the challenge by an additional $2 billion, bringing the 

total goal to $4 billion in performance-based contracts across the federal 

government by the end of calendar year 2016.21 According to DOD, as of 

December 31, 2016, the three military departments and the other defense 

agencies combined had awarded 194 ESPCs and UESCs that totaled 

over $2.28 billion.22 DOD reported that these results exceeded its target 

of awarding over $2.18 billion in such contracts over this period.

DOD and military service audits have examined the development and 

management of DOD’s alternative financing arrangements. For example, 

in May 2016, the DOD Inspector General found that the Air Force Civil 

Engineer Center did not effectively manage the Air Force’s existing 

ESPCs and made recommendations to improve controls and validate 

energy savings.23 In January 2017, the DOD Inspector General found that 

the Naval Facilities Engineering Command did not effectively manage the 

Navy’s 38 ongoing ESPCs that were in the performance phase.24 The 

DOD Inspector General stated that management was not effective 

because the command did not appoint contracting officer’s 

representatives for 31 of the ongoing projects and did not develop a 

quality assurance surveillance plan for any of them. Additionally, the DOD 

 20White House Memorandum, Implementation of Energy Savings Projects and 

Performance-Based Contracting for Energy Savings (Dec. 2, 2011).

21White House Fact Sheet: President Obama Announces Commitments and Executive 

Actions to Advance Solar Deployment and Energy Efficiency (May 9, 2014). The 

President’s Performance Contracting Challenge ended in 2016, and there have been no 

additional efforts announced yet.

22According to DOD officials, the other defense agencies included the Defense Logistics 

Agency, the Defense Intelligence Agency, and the National Security Agency.

23DOD, Office of Inspector General, Air Force Civil Engineer Center Management of 

Energy Savings Performance Contracts Needs Improvement, DODIG-2016-087 

(Alexandria, Va.: May 4, 2016).

24DOD, Office of Inspector General, Naval Facilities Engineering Command Management 

of Energy Savings Performance Contracts Needs Improvement, DODIG-2017-044 

(Alexandria, Va.: Jan. 26, 2017).

Related DOD and Military 

Service Audits
Page 11 GAO-17-461 Defense Infrastructure

Inspector General reviewed five other projects in more detail and found 

questionable contract payments. The DOD Inspector General 

recommended the appointment of contracting officer’s representatives for 

ESPCs and that the Naval Facilities Engineering Command Expeditionary 

Warfare Center—which oversees the Navy’s ESPCs—document the 

validity of prior year energy savings for the selected ESPCs.25 In addition, 

in September 2014, the Army Audit Agency found that the Army’s 

renewable energy projects were generally operational and contributed to 

renewable energy goals.26 However, the audit also identified the need for 

improvements to ensure projects were performing as intended and that 

installations were reporting renewable energy output sufficiently to help 

the Army meet federal mandates and the DOD goals for renewable 

energy. At the time of the Army Audit Agency review, the Army was not 

meeting the federal and DOD renewable energy goals.

 25The Navy concurred with the DOD Inspector General recommendations. According to 

Navy officials, as of October 2016, the Navy had appointed contracting officer’s

representatives for all ESPCs in the performance phase. In addition, Navy officials stated 

that they are obtaining documentation to validate contractor claimed energy savings for 

select ESPCs and expect to complete this effort in the spring of 2017.

26U.S. Army Audit Agency, Performance of Renewable Energy Projects, A-2014-0114-IEE 

(Fort Belvoir, Va.: Sept. 29, 2014). DOD officials told us that the Office of the Assistant 

Secretary of the Army for Installations, Energy and Environment had requested this review 

because of the increased task order volume to ensure that the program delivered 

promised results and guaranteed savings. Officials stated that the efforts resulted in 

publication of revised ESPC implementation guidance and greater efforts to strengthen

contract management and oversight systems.
Page 12 GAO-17-461 Defense Infrastructure

Since 2005, the military services have used alternative financing 

arrangements for hundreds of energy projects to improve energy 

efficiency, save money, and meet energy goals; however, the military 

services have not collected and provided DOD complete and accurate 

data to aid DOD and congressional oversight of alternatively financed 

energy projects.

Based on the data provided by the military services, the services have 

used alternative financing arrangements for 464 energy projects or 

contracts since 2005, entering into about 38 contracts annually from fiscal 

year 2005 through fiscal year 2016.27 The Army entered into the most 

alternatively financed contracts (305), followed by the Navy (90), the Air 

Force (50), and the Marine Corps (19). Military service officials attributed 

the continued use of alternative financing to three separate factors. First, 

officials cited the President’s Performance Contracting Challenge, issued 

in December 2011, which challenged federal agencies to enter into $2 

billion in performance contracts, such as ESPCs and UESCs. Second, 

officials stated that they did not have sufficient appropriated funds to 

accomplish many of these projects, making alternative financing an 

attractive option for addressing needed repairs, obtaining new equipment 

designed to improve operations, and reducing energy consumption. Third, 

service officials stated that alternative financing reduces the risk for 

equipment maintenance and budgeting. Specifically, many contracts 

 27The total number of alternatively financed energy projects was derived from military 

service officials during this review, from our prior audit work, and from past Annual Energy 

Management Reports. The total includes ESPCs, UESCs, and PPAs from the Army, Air 

Force, Navy, and Marine Corps. It also includes about a minimum of 30 projects that the 

services have completed, terminated, or bought out at some cost to the government. A 

service can buy out a contract if, for example, it wishes to shorten the contract length and 

reduce the amount of interest it will be paying for the energy conservation measures over 

time. For the purposes of this review, we refer to each individual ESPC or UESC project 

as a separate contract, even if multiple projects are under a single contract. Therefore, if a 

contract was awarded with multiple project delivery orders, we counted them as separate 

projects and would report them as ESPC or UESC “contracts” above.

The Military Services 

Have Used 

Alternative Financing 

for Hundreds of 

Energy Projects since 

2005, but Have Not 

Collected and 

Provided Complete 

and Accurate Data to 

DOD

Military Services Have 

Used Alternative Financing 

Arrangements for 

Hundreds of Energy 

Projects since 2005
Page 13 GAO-17-461 Defense Infrastructure

include a cost-savings guarantee, which requires that the contractor 

maintain the equipment in good working order over the life of the contract. 

Additionally, many contracts have fixed annual payments regarding 

projects, so the services have certainty in terms of budgeting for portions 

of an installation’s annual energy costs.

The alternative financing contracts the military services awarded have 

obligated the government to pay billions of dollars to contractors over the 

next 25 years, as shown in table 2. According to military service officials, 

these contractual obligations are must-pay items from their annual 

budgets. In order to account for these must-pay items in their budgets, 

they said that the military service headquarters must have visibility into 

certain data, such as the costs of such projects. We found that from fiscal 

years 2005 through 2016, the military services have used UESCs more 

often than the other types of alternative financing arrangements we 

reviewed. Specifically, the military services have entered into contracts for 

245 UESCs compared to 201 ESPCs.
Page 14 GAO-17-461 Defense Infrastructure

Table 2: Reported Number of Department of Defense (DOD) Energy Projects Using Alternative Financing Arrangements and 

the Estimated Costs of the Projects, Fiscal Years 2005 through 2016

Alternative

financing arrangement

Reported number of 

contracts identifieda

Reported number of 

contracts with total 

contract costs identified

Estimated cost to the government 

based on total contract costs 

identified

(then-year dollars)b

Energy savings performance 

contracts (ESPC)

Army 131 89 $3.2 billion

Navy 27 25 925 million

Air Force 38 30 722 million

Marine Corps 5 5 110 million

Total ESPC 201 149 $5 billion over the next 25 yearsc

Utility energy service contracts 

(UESC)

Army 167 25 $278 million

Navy 59 58 243 million

Air Force 8 7 77 million

Marine Corps 11 11 79 million

Total UESC 245 101 $677 million over the next 17 yearsc

Source: GAO analysis of DOD data, Annual Energy Management Reports, and prior audit work. | GAO-17-461

a

These figures are based on the project and cost information provided by the military services. They 

do not include contracts identified by the military departments that had a duration of one year or less 

and that were paid for up front with appropriated funds. Although officials from the military 

departments identified some of these one-year contracts as UESCs, those projects did not involve 

financing and did not include annual payments to the utility over time. To the extent we could identify 

such one-year contracts from the data provided by the military departments, we removed those 

contracts from our counts. The Navy provided us project and cost information for all of the Marine 

Corps’ alternatively financed energy projects that they identified as being awarded from fiscal years 

2005 through 2016.

b

These estimated costs are based on the number of projects for which we identified contract cost data 

and do not cover all of the projects that were identified. We define total contract costs as the overall 

amount a military service will pay for the project(s) over the life of the contract, which includes 

payments to the energy service company or utility over time for its costs to implement and finance the 

project up front, interest on the financing, and other services that the company or utility may provide, 

such as operating and maintaining the equipment. Additionally, we did not have cost data broken 

down by year in most cases, so we are unable to provide the present discounted values of these 

costs.

c

The military services did not provide cost data for all of these projects, but we gathered cost data 

from other sources, such as the Annual Energy Management Report and our prior audit work. We 

used the maximum contract length to indicate the number of years for the estimated cost to the 

government. Not every ESPC or UESC in the project data is extended over this maximum contract 

length.

In addition to ESPCs and UESCs, the military services have also entered 

into financing agreements through PPAs. We found that of the 18 PPAs 

that either we or the military services identified as being awarded since 
Page 15 GAO-17-461 Defense Infrastructure

2005, 10 have been awarded since 2014. In these military power 

purchase agreements, a private entity will purchase, install, operate and 

maintain renewable energy equipment, and the military service will 

purchase the electricity generated by the equipment.

Since 2005, the Army, Navy, and Marine Corps have reported contractor 

project investment costs totaling almost $1.46 billion for PPAs.28 Some of 

these projects, such as solar arrays, can have significant project 

investment costs to the contractor, and the military services compensate 

the contractors over time, either in part or in full, through payments for 

their energy usage. However, we identified challenges in determining the 

true costs of these PPA projects to the government for several reasons. 

First, the future cost to the government could exceed $1.46 billion 

because some of the PPAs are still in the design and construction phase 

and cost data are not known. Second, minimum purchase agreements 

are typically set in the contracts, but in some cases the service could 

purchase more than the minimum amount of energy required, which 

would increase the costs. Third, the energy providers have other ways of 

recouping their project investment costs, which means the military 

services may not be responsible for repaying all of the costs. In addition 

to possible rebates and tax incentives, energy developers may be able to 

take advantage of renewable energy credits, which can lower the up-front 

costs of projects by reimbursing either the military or the energy 

provider.29 Lastly, in some cases, the energy provider can take excess 

energy produced by the equipment and sell it to other customers as 

another means of recouping its investment costs and reducing the costs 

to the military services.

 28We initially defined project investment costs as the total price of the contract or task 

order, to include the cost of the equipment, labor for installation, and other direct project 

costs, but not the cost of financing. However, because each annual payment varies based 

on the amount of energy purchased, the services provided their best estimates where they 

could. The Air Force did not report any project investment costs for its PPA projects.

29According to Department of Energy guidance, renewable energy credits represent the 

technological and environmental attributes of energy generated from renewable 

resources. Developers can use these credits to meet state requirements or they can sell 

the credits to others. DOD must retain ownership of these credits to claim the energy 

produced by these projects toward its energy consumption goal or purchase credits to 

replace them. A goal of the Energy Policy Act of 2005 is for federal agencies to consume, 

to the extent it is economically feasible and technically practicable, not less than 7.5 

percent of electrical energy from renewable sources each year. See Department of 

Energy, Office of Energy Efficiency and Renewable Energy, Renewable Energy 

Requirement Guidance for EPACT 2005 and Executive Order 13423 (Jan. 28, 2008).
Page 16 GAO-17-461 Defense Infrastructure

Since 2005, the military services have not collected and provided 

complete and accurate project data to DOD on alternatively financed 

energy projects. Specifically, the military services provided partial data on 

total contract costs, savings, and contract length related to their 

respective alternatively financed energy projects during this time frame. 

However, we were unable to identify and the military services could not 

provide complete data on the range of their alternatively financed 

projects, to include data on total contract cost for 196 of 446 ESPC and 

UESC projects.30 In particular:

• The Army could not provide total contract costs for about 42 of its 131 

ESPCs.31 Moreover, the Army could not provide total contract costs 

for about 142 of its 167 UESCs.

• The Navy could not provide total contract costs for 1 of its 59 UESCs 

and 2 of its 27 ESPCs.

• The Navy also provided a list of Marine Corps projects and relevant 

data related to total contract costs for those projects. However, we 

identified discrepancies between the list of projects provided to us and 

those that DOD reported receiving.

• The Air Force could not provide total contract costs for 8 of its 38 

ESPCs and 1 of its 8 UESCs.

Additionally, the military services could not provide data related to either 

cost savings for 195 contracts or contract length for 232 contracts.

Furthermore, some of the data provided by the Army and Navy on their 

alternatively financed energy projects did not include the level of accuracy 

needed for better or improved planning and budgeting purposes. For 

example, we contacted three installations where the Army had identified 

UESCs in the Annual Energy Management Report to Congress, but 

 30These totals do not include the PPA projects, for which total contract prices are not 

available.

31DOD officials told us that 25 of the 42 Army ESPC projects that did not include the total 

contract costs were modifications that are counted as separate task orders. The 

department stated that the total costs for these modifications may be wrapped up in the 

total cost of the original task orders as modified and tracked by the contracting offices. 

However, we could not determine from the data the Army provided whether or not the 

costs for these modifications were included in the total contract costs for the original 

contracts. Further, Army officials did not identify whether or not the Army’s ESPC 

contracts had been modified, as we had requested in our data call.

Military Services Have Not 

Collected and Provided 

Complete and Accurate 

Project Data to DOD
Page 17 GAO-17-461 Defense Infrastructure

officials from two of those installations told us that no UESC existed.32

The Navy provided data on most of its projects, but Navy headquarters 

officials acknowledged that they had low confidence in the accuracy of 

the data on three specific ESPCs because they had not actually reviewed 

the contract documents, which were awarded by one of the Navy’s 

subordinate commands. Also, cost and other data reported by Navy 

headquarters for UESC projects at one of its installations did not match 

the cost data and project details provided by the regional command 

overseeing the installation’s contracts. Additionally, military service 

headquarters and installations or other service entities provided

information that did not always match. For example, an Army official told 

us about discrepancies in the service’s internal tracking documents that 

officials had to resolve prior to providing their data to us.

According to the DOD instruction, the military services are required to 

track and store data on energy projects, including data on all estimated 

and actual costs, interest rates, and mark-ups, among others, as well as 

any changes to project scope that may affect costs and savings.33

Moreover, section 2925 of title 10 of the United States Code requires 

DOD to report to Congress after each fiscal year on its alternatively 

financed energy projects, to include information on the projects’ duration 

and estimated financial obligations, among other things, which requires 

that DOD have reliable information about these projects so that DOD and 

the Congress will be better able to conduct oversight and make informed 

decisions on programs and funding.34 Furthermore, Standards for Internal 

Control in the Federal Government state that management should obtain 

 32We did not include these two UESCs in the 464 total of alternatively financed contracts 

or projects that the military services have awarded since fiscal year 2005. The two 

projects were among 14 of the total UESC projects that the military departments initially 

identified but that we did not include in our total contract count because the military 

departments either could not confirm the contracts or they were not funded using 

alternative financing arrangements. Of these two Army UESCs, one was a study that was 

funded using up-front appropriations but for which no project was developed to implement 

energy conservation measures because the study did not identify an economical project 

that met the installation’s requirements. The other UESC was funded using up-front 

appropriations rather than alternative financing arrangements.

33DOD Instruction 4170.11 (Dec. 11, 2009).

34See 10 U.S.C. § 2925. DOD reports on its energy projects financed through alternative 

financing arrangements through its Annual Energy Management Report. However, we 

reported in 2016 that DOD’s 2013 Annual Energy Management Report was not fully 

reliable or complete. See GAO, Defense Infrastructure: Improvement Needed in Energy 

Reporting and Security Funding at Installations with Limited Connectivity, GAO-16-164 

(Washington D.C.: Jan. 27, 2016).
Page 18 GAO-17-461 Defense Infrastructure

quality information that is, among other things, complete and accurate in 

order to make informed decisions.35

During the course of this review, military service and DOD officials stated 

that one reason that the military departments and DOD headquarters 

levels did not always have complete and accurate data is because the 

military services have decentralized authority for entering into 

alternatively financed projects and for maintaining associated data. Given 

this decentralized authority, the data maintained are not always tracked in 

a manner that captures the full range of data needed at the headquarters 

level for oversight, nor are they consistently reported to the headquarters 

level. Therefore, the military departments and DOD do not have complete 

and accurate information on the universe of active alternatively financed 

energy projects to aid oversight and to inform Congress. Specifically, 

complete and accurate data are also necessary for DOD to meet its 

requirement to report annually to Congress on the department’s 

alternatively financed energy projects through the Annual Energy 

Management Report, to include data on projects’ respective duration, 

financial obligation, and payback period. Having complete data on total 

contract costs, cost savings, and contract length are all necessary data 

points in order for the military departments to also formulate accurate cost 

estimates for annual budget requests and project expenses. Without 

these data, the military departments also will not have a full 

understanding of the cumulative impacts of these alternative financing 

arrangements on their installations’ utility budgets over periods of up to 25 

years. Furthermore, if the military departments do not provide complete 

and accurate data to DOD, decision makers within the department and in 

Congress may not have all information needed for effective oversight of 

the projects, which could hinder insight into future budgetary implications 

of the projects.

 35GAO-14-704G. Per paragraph 13.05 of these standards, “quality information” is 

appropriate, current, complete, accurate, accessible, and provided on a timely basis. 

Management uses quality information to make informed decisions and evaluate an entity’s 

performance in achieving key objectives and addressing risks.
Page 19 GAO-17-461 Defense Infrastructure

DOD reported achieving expected savings or efficiencies on the 

operational alternatively financed energy projects we reviewed; however, 

the military services have not consistently verified project performance on 

its ESPC and UESC projects to confirm that the reported savings were 

achieved.36 Without more consistent verification of performance for all 

alternatively financed projects, DOD cannot be certain that all projects are 

achieving their estimated savings.

In our review of a nongeneralizable sample of 17 alternatively financed 

energy projects across the military services, we found DOD reported that 

13 were considered operational and that all 13 of these projects—8 

ESPCs, all 3 of the UESCs, and 2 PPAs—achieved their expected 

savings.37 Installation officials measured savings for these projects 

differently, depending on which type of alternatively financed arrangement 

was used.38

• For the 8 ESPCs in our sample, we reviewed the most recent 

measurement and verification reports provided by the contractors and

found that each project reported achieving its guaranteed savings.39

The measurement and verification reports provided by the contractors 

 36A project is considered operational if its energy conservation measures have been 

installed. We asked the military services to identify projects that were operational, in 

design or construction, terminated, or bought out.

37Three of the remaining four projects were still under construction at the time of our 

review and thus the military services had not yet begun reporting on their actual cost 

savings or efficiencies. The fourth project had recently completed construction but had not 

been in operation long enough for the contractor to have reported on its annual energy or 

cost savings.

38Some savings are also measured using formulas that do not necessarily account for 

changes that occur over time on the installation, as we describe later in this report.

39For ESPCs, the military services are required to measure savings. The expected cost 

and energy savings for an ESPC project are established during project development, 

finalized when the contract is awarded, and measured and verified over the course of a 

project’s performance period. Measurement and verification is required to assure that the 

project is meeting the guaranteed cost savings levels that must be achieved in order for 

the contractor to be fully paid, which is done using appropriated funds. We describe 

energy and cost savings for ESPCs and the measurement and verification process in 

more detail in GAO-15-432.

DOD Reported 

Savings on Selected 

Energy Projects, but 

the Military Services 

Have Not 

Consistently Verified 

Project Performance

Selected Projects 

Generally Reported 

Achieving Expected 

Savings
Page 20 GAO-17-461 Defense Infrastructure

reported guaranteed savings of between 100 and 145 percent for the 

ESPC projects we reviewed, as shown in table 3.40

Table 3: Savings for Selected Department of Defense (DOD) Energy Savings Performance Contracts (ESPC) as Reported in 

the Most Recent Contractor Measurement and Verification Reports

Military service and project location

Guaranteed

cost savingsa

(then-year $)

Reported

cost savingsb

(then-year $)

Ratio of reported to 

guaranteed savings

(percentage)

Army

Fort Irwin, California $1,279,494 $1,318,779 103

Fort Jackson, South Carolina 1,626,509 2,121,460 130

Joint Base Myer-Henderson Hall, Virginia 1,796,083 2,603,697 145

Air Force

Joint Base Charleston, South Carolina 2,362,475 2,536,885 107

Nellis Air Force Base, Nevada 746,515 924,366 124

Navy

Naval Base Kitsap-Keyport, Washington 2,285,165 2,322,730 102

Marine Corps

Marine Corps Air Station Beaufort, South Carolina 328,584 411,768 125

Marine Corps Base Quantico, Virginia $586,285 $586,285 100

Source: GAO summary of contractor measurement and verification reports provided by DOD. | GAO-17-461

a

For this review, officials provided us with their most recent measurement and verification reports, 

which had end dates ranging from November 2015 through October 2016.

b

Because of the large number of factors that can result in overstated or understated savings, we did 

not determine the net effect of all factors on projects’ achieved savings.

• For the three UESCs in our sample, we found that installation officials 

used various performance assurance methods to maintain energy 

savings by ensuring that the installed equipment was operating as 

 40Federal ESPC projects must include guaranteed annual cost savings, which are a 

specified level of cost savings the contractor must provide. The agency keeps any cost 

savings that result from energy savings above the guaranteed savings levels. If a project 

does not meet its guaranteed savings levels, the agency may decrease its payment to the 

contractor.
Page 21 GAO-17-461 Defense Infrastructure

designed.41 For UESCs, identification of project savings can include 

either annual measurement and verification or performance 

assurance. The authority for UESCs, unlike that for ESPCs, does not 

have a requirement for guaranteed savings, but the agency’s 

repayments are usually based on estimated cost savings generated 

by the energy-efficiency measures. At Fort Irwin, California, officials 

stated that they used efficiency gauges installed on the equipment to 

verify that the equipment was operating properly. At Naval Air 

Weapons Station China Lake, California, officials stated that operation 

and maintenance personnel performed systems checks to ensure the 

installed equipment is functioning properly. At Naval Base KitsapBangor, Washington, officials used the energy rebate incentives 

issued by the utility company as a proxy to ensure that savings were 

being met. The officials stated that if they received the rebate, then 

they were achieving the requisite energy and cost savings.42

• For the two PPA solar array projects that we reviewed, officials 

reported that purchasing power through the contract remained 

cheaper than if they had to purchase power from non-renewable 

energy sources. For PPAs, savings measurement does not include 

annual measurement and verification. PPAs are an agreement to 

purchase power at an agreed-upon price for a specific period of time, 

and as such, they do not require continuous measurement and 

verification. However, DOD officials informed us that their contracts 

require such projects to be metered so that they can validate the 

receipt of electrical power before payment for the service. Officials 

also reported that they periodically assessed and reported on whether 

 41According to officials with the Department of Energy, a UESC instead includes a 

performance assurance plan aimed at verifying the performance of the installed 

equipment throughout the term of the contract through appropriate operation and 

maintenance, inspection, and improvements. The Department of Energy provides federal 

agencies guidance on the level of recommended performance assurance for UESCs, and 

officials described an effective performance assurance plan as one that includes 

measurement and verification, generally for one to five years, and a commissioning plan. 

A commissioning plan identifies a systematic process of verification and documentation to 

ensure energy conservation measures operate according to their design intent and can be 

properly operated and maintained during their useful life. While performance assurance is 

a method of ensuring the installed equipment functions as designed, it does not include 

the same guarantees of cost savings that is provided through the measurement and 

verification of ESPCs.

42Officials from the installation and Naval Facilities Engineering Command Northwest 

explained that maximizing energy efficiency enables utilities to avoid the capital cost of 

new power generation projects. Utilities pay out rebates and incentives for proven energy 

conservation measures and establish requirements for customers to measure, verify, and 

report savings to the serving utility in order to qualify for those rebates and incentives.
Page 22 GAO-17-461 Defense Infrastructure

the utility rates remained at levels that were profitable for the project. 

Projects remained profitable when the prices to generate electricity 

from the solar panels were below the market rate for electricity 

obtained through the utility company. For example, through monitoring 

of utility rates, one official reported that the installation’s PPA project 

obtained a favorable rate for electricity of 2.2 cents per kilowatt hour, 

well below the prevailing market rate of 7.2 cents per kilowatt hour. 

This rate is fixed over the course of this 20-year contract, whereas the 

current market rate fluctuates, and the official estimated that the 

project saved the installation approximately $1 million in utility 

payments in fiscal year 2016. For the other PPA project we reviewed, 

installation officials reported that the project terms were still profitable 

and estimated that without the PPA, the cost for electricity would be 

about 80 percent higher than the cost they were getting through the 

PPA. However, according to the officials, a state regulation governing 

electricity usage requires that the installation obtain a specific amount 

of electricity from the utility company. Installation officials told us that 

they had to curtail some of the project’s own energy production to 

meet this requirement, which resulted in the project not always 

operating at the capacity they had planned. For example, contractor 

documents show that from September 2013 through August 2014, the 

electricity generated monthly by the project was curtailed by between 

0.1 percent to 14.2 percent.

In our review of eight military service ESPC projects that had reported 

achieving or exceeding their guaranteed cost savings, we found that the 

cost savings may have been overstated or understated in at least six of 

the eight projects. Expected cost and energy savings for ESPC projects 

are established during project development, finalized when the contract is 

awarded, and measured and verified over the course of a project’s 

performance period. These savings can include reductions in costs for 

energy, water, operation and maintenance, and repair and replacement 

directly related to a project’s energy conservation measures. ESPC 

projects generally include two types of expected savings: (1) proposed 

cost and energy savings, which contractors estimate will result from the 

energy conservation measures installed, and (2) guaranteed cost 

savings, which must be achieved for the contractor to be fully paid. For 

five of the six projects where we found that cost savings may have been 

overstated or understated, we identified two key factors that have affected 

Two Factors May Have 

Affected Reported Savings 

of Selected ESPC Projects
Page 23 GAO-17-461 Defense Infrastructure

reported savings—project modifications and agency operation and 

maintenance actions.43

• Project modifications44—We found that the installations had modified 

some of the energy conservation measures in at least 4 of the ESPC 

projects for which cost savings may have been overstated or 

understated. Specifically, we found instances where officials had 

completed demolitions or renovations to facilities where energy 

conservation measures were installed or had demolished equipment. 

For example, at one installation, the most recent measurement and 

verification report indicated that buildings associated with the project 

savings were demolished or scheduled to be demolished in four of the 

nine years following the project’s completion. Based on the 

contractor’s report, we calculated that the building demolitions, 

closings, and renovations negated approximately 30 percent of the 

project’s annual cost savings for 2016. According to the report, these 

changes have compromised the project to such an extent that the 

contractor recommended the service modify the contract with a partial 

termination for convenience to buy out portions of the project where 

 43For the sixth project, the measurement and verification report identified that one installed 

energy conservation measure was found to be not operational, but the report did not 

specify if this issue was due to agency or contractor actions. The report identified that 

savings for this energy conservation measure were not being included in the verified 

savings; however, it was unclear how long the system had been inoperable, and because 

the contractor was not reporting any savings for the equipment, it is possible that cost 

savings may have been understated. We also found one instance where project changes 

that may have affected the energy and cost savings were neither the fault of the agency 

nor the contractor. Officials told us that the installation experienced two floods in three 

years, with each flood damaging or destroying boiler and chiller equipment contained 

within its ESPC. Because this equipment needed to be replaced before the end of its 

useful life, the contract was modified to have the contractor replace the equipment 

destroyed in the 2013 flood, which was funded using emergency funding from the Army.

According to Department of Energy officials, because project savings are verified in 

accordance with the contractually agreed upon measurement and verification plan, some 

agency actions may result in savings in excess of the guaranteed savings and thus 

savings higher than were reported. Because of the large number of factors that can result 

in overstated or understated savings, we did not determine the net effect of all factors on 

projects’ achieved savings. For example, contractors reported that some energy 

conservation measures in the projects we reviewed outperformed expectations, which 

may have offset the lower-than-expected savings of other energy conservation measures 

in those projects.

44For this review, we define project modifications as instances when changes to the 

project, such as demolitions or renovations to buildings where energy conservation 

measures were installed, required modifications to the contract.
Page 24 GAO-17-461 Defense Infrastructure

changes have occurred and savings were affected.45 At another 

installation, the measurement and verification report indicated that 

cost savings came directly from those cost savings that were 

established in the contract and did not reflect equipment that had 

been demolished or required repair. In its report, the contractor 

verified that the equipment was in place and documented issues that 

negatively affected the energy conservation measures, but it did not 

adjust the savings to account for those issues. In both of these cases, 

the contractor continues to report meeting guaranteed cost savings 

levels and the service is required to continue making its full payment. 

Project modifications can occur, such as when missions change at an 

installation, but we found that these changes may prevent the 

project’s cost savings from being fully realized.

• Agency operation and maintenance actions46—We found that such 

agency actions were identified as an issue for the ESPCs in our 

review and may have reduced the savings realized for five of the six 

ESPC projects for which cost savings may have been overstated or 

understated. Specifically, we found instances where the measurement 

and verification reports identified that some replacement items were 

installed incorrectly or left uninstalled and some light fixtures and 

sensors were poorly maintained or removed. For example, at one 

installation, the most recent measurement and verification report 

showed that base personnel disabling installed energy conservation 

measures, such as installing incorrect lamps or removing lighting 

control sensors, coupled with abandoned or faulty equipment, have 

reduced cost savings for this project. Contractors are not generally 

required to reduce the amount of savings they report or measure the 

effect of project changes for which the contractor is not responsible. 

The contractor stated that the energy and cost savings in its 

measurement and verification report were derived directly from the 

calculated energy and cost savings negotiated as a part of the original 

contract and do not reflect reductions due to abandoned equipment or 

 45Contracts entered into under the Federal Acquisition Regulation include a legal right to 

termination for convenience prior to completion when circumstances, such as closing a 

DOD installation, mean termination is in the government’s interests. A termination for 

convenience, however, comes at a cost to the government because the military service 

must pay the contractor a negotiated settlement for reimbursable costs, such as incurred 

costs for work performed, termination costs, plus, in some cases, a reasonable profit or 

fee on its completed work, minus all payments made to date and the value of the property 

the contractor retained upon termination.

46For this review, we define agency operation and maintenance actions as instances 

when installation personnel did not always operate or maintain equipment as agreed to or 

when they removed or modified energy conservation measures.
Page 25 GAO-17-461 Defense Infrastructure

other factors outside of the contractor’s control.47 At another 

installation, the most recent contractor measurement and verification 

report indicated that some bulbs were burned out and lighting fixtures 

were dirty. As a result, the contractor lowered the calculated savings 

for the lighting energy conservation measure for that year, while also 

noting that the savings still exceed the proposed savings for that 

measure. Officials at one installation described the challenge of 

preventing installation personnel from acting in ways that detract from 

the projects’ energy savings, such as by removing low-flow shower 

head controls, adjusting water temperatures, or removing or adjusting 

heating and cooling controls.

In June 2015, we described similar factors as potentially reducing energy 

savings on select ESPC projects in seven federal agencies, including the 

Air Force, Army, and Navy.48 In that review, we found that the contractor 

is generally not required to either reduce the amount of savings they 

report or to measure the effects of such factors on reported savings when 

factors beyond their control reduce the savings achieved. Further, we 

reported that agencies were not always aware of the amount of expected 

savings that were not being achieved among their projects, in part 

because contractors generally do not provide this information in their 

measurement and verification reports. In the 2015 report, the savings 

estimates that were reported but not achieved ranged from negligible to 

nearly half of a project’s reported annual savings. As a result, we 

recommended then that the Secretary of Defense specify in DOD 

guidance or ESPC contracts that measurement and verification reports 

for future ESPC projects are to include estimates of cost and energy 

savings that were not achieved because of agency actions, and DOD 

agreed with our recommendation. Given similar findings with respect to 

the ESPC projects we examined as part of this review, we continue to 

believe that our 2015 recommendation is valid.

 47Depending on the terms established in the contract, some ESPC projects may have 

stipulated savings, which are precalculated savings amounts that are not required to be 

altered when changes occur. In this example, officials had not consistently reviewed the 

measurement and verification reports at the installation level prior to the contracting entity 

making the payment to the contractor, which might have resulted in officials identifying 

these issues earlier. According to DOD officials, stipulation of savings is no longer 

allowed, and officials noted that no Army contracts after 2008 contain stipulated savings. 

In this example, we were reviewing an ESPC that was awarded prior to 2008.

48GAO-15-432.
Page 26 GAO-17-461 Defense Infrastructure

The military departments have varying approaches for verifying whether 

all of their alternatively financed UESCs are achieving expected savings. 

Army, Navy, and Air Force officials described their processes and 

guidance for verifying savings for their UESCs, and we found that they did 

not consistently follow all requirements in both DOD and Office of 

Management and Budget guidance.49 Alternatively financed UESCs must 

meet certain requirements in order to allow the use of private sector 

funding to develop the project and to have the ability to repay the project, 

generally using appropriated funds over the contract term instead of 

having to fund the entire project cost up front. Additionally, according to 

DOD’s 2009 instruction, repayments for UESCs are based on estimated 

cost savings generated by the energy conservation measures, although 

energy savings are not necessarily required to be guaranteed by the 

contractors.50 This instruction further requires DOD components to verify 

savings to validate the performance of their energy efficiency projects, 

thereby providing assurance that such projects are being funded with 

generated savings or as agreed to in specified contracts. Specifically, the 

instruction requires the military departments to track all estimated and 

verified savings and measurement and verification information for its 

energy projects. Tracking and verifying savings associated with such 

alternatively financed energy projects is necessary because the projects 

require a long-term investment from the department—in some cases 

allowing the military services to budget for these projects for a period of 

up to 25 years—and it is not until contractors have been fully repaid for 

the costs of the energy conservation measures and related contract costs 

that agencies retain any savings the project continues to generate.51

In addition, DOD uses guidance issued by the Office of Management and 

Budget. Specifically, in 2012, the Office of Management and Budget 

 49Officials from the military departments also told us that they refer to the Department of 

Energy’s guide for implementing UESCs.

50DOD Instruction 4170.11. Measurement and verification is the process used to calculate 

the annual energy and cost savings achieved by energy conservation measures. 

Measurement and verification is required for projects to ensure that they are meeting the 

guaranteed cost savings levels that must be achieved in order for the contractor to be fully 

paid. As noted earlier, identification of project savings for UESCs can include either 

annual measurement and verification or performance assurance.

51The costs of the energy conservation measures include interest and other costs 

associated with financing the measures, and related contract costs include any operation 

and maintenance services the contractor provided. We provide more information on 

project costs later in this report.

The Military Departments 

Have Varying Approaches 

for Verifying Savings for 

UESC Projects
Page 27 GAO-17-461 Defense Infrastructure

updated guidance,52 stating that UESCs may be scored on an annual 

basis if the UESC requires performance assurance or savings guarantees 

and measurement and verification of savings through commissioning or 

retro-commissioning.53 According to officials from the Office of the 

Secretary of Defense, the department has interpreted the Office of 

Management and Budget guidance as giving federal agencies the option 

of requiring either performance assurance, savings guarantees, or 

measurement and verification for UESCs. Each of the various techniques 

provides a different level of assurance that the installed equipment is 

functioning as designed and the project is performing as expected, but 

the Office of Management and Budget’s guidance does not specify the 

type of measurement technique required. Also, Office of the Secretary of 

Defense officials stated that the military services are required to adhere to 

the Office of Management and Budget’s guidance in order to determine 

whether they can enter into an alternatively financed agreement, and then 

adhere to the requirements for determining whether the project is 

performing as expected.

 52Office of Management and Budget, Memorandum M-98-13, Federal Use of Energy 

Savings Performance Contracting (Washington D.C.: July 25, 1998). In 1998, the Office of 

Management and Budget issued guidance outlining requirements for federal agencies to 

follow in developing and entering into alternatively financed contracts for ESPCs, to 

include requirements for the budgetary scoring of such projects. The Office of 

Management and Budget does not reflect—or “score”—the full amount of the 

government’s financial commitment under an ESPC up front in the budget when the 

contract is signed. Rather, under the Office of Management and Budget’s scoring 

treatment, an agency must obligate, at the time a contract is executed, sufficient 

budgetary resources to cover contract payments for the fiscal year in which the contract is 

signed. For each subsequent fiscal year during the contract period, the agency must 

obligate funds to cover the contract payments the agency is required to make for that 

year. Without this guidance, scoring rules require agencies to obtain sufficient 

appropriations for the full project up front to ensure that the consequences of budget 

decisions are considered when the decision to buy is made.

53Office of Management and Budget, Addendum to OMB Memorandum M-98-13 on 

Federal Use of Energy Savings Performance Contracts (ESPCs) and Utility Energy 

Service Contracts (UESCs) (Washington, D.C.: Oct. 3, 2012). This updated guidance 

emphasizes requirements for performance assurance as a condition of annual scoring for 

the life of the contract. These conditions include: (1) energy savings performance 

assurances or guarantees of the savings to be generated by improvements, which must 

cover the full cost of the federal investment for the improvements; (2) measurement and 

verification of savings through commissioning and retro-commissioning; and (3) 

competition or an alternatives analysis as part of the selection process prior to entering 

into a UESC. According to the Department of Energy, commissioning is a process used to 

ensure that facilities perform in accordance with the intended design and operational 

needs. Retro-commissioning is a process used to improve and optimize energy 

performance in an existing building.
Page 28 GAO-17-461 Defense Infrastructure

As noted earlier, energy savings for UESCs are not necessarily required 

to be guaranteed by contractors, and repayments are usually based on 

estimated cost savings generated by the energy conservation measures. 

We found that the guidance issued by both DOD and the Office of 

Management and Budget require a verification of savings for UESCs, 

though the requirements differ. The DOD instruction requires the military 

services to track all estimated and verified savings and measurement and 

verification information for its energy projects, while the Office of 

Management and Budget requirement is for measurement and verification 

through commissioning and retro-commissioning rather than ongoing 

through the life of the project. We found that DOD’s interpretation of this 

Office of Management and Budget requirement—which DOD officials said 

gives the military departments the option of having either performance 

assurance, savings guarantees, or measurement and verification at 

certain points for UESCs—differs from the department’s own guidance.54

Additionally, DOD’s interpretation of this guidance has resulted in the 

military departments developing varying approaches for verifying savings 

of their UESC projects. The Navy has taken and the Air Force is taking 

steps to require that all UESC projects be assessed to determine actual 

savings, with approaches focused more on measurement and verification 

as opposed to performance assurance, whereas Army officials told us 

that they do not plan to require measurement and verification for their 

UESCs. Specifically,

• Navy: The Commander, Navy Installations Command, issued 

guidance in March 2015 requiring Navy installation officials to assess 

all Navy UESC projects to verify energy project savings through 

measurement and verification.55 According to the guidance, the 

installations will report on their energy and cost savings each year to 

enable the Commander, Navy Installations Command, to monitor the 

effectiveness of UESC projects because the Navy has significantly 

increased its investment in ESPC and UESC projects and will use this 

analysis to help manage risk. The Navy’s assessment will be 

conducted with the Navy’s energy return-on-investment tool, which is 

 54DOD issued Change 1 to DOD Instruction 4170.11 in March 2016 to incorporate energy 

resilience into the instruction and other changes, but according to DOD officials, the Office 

of Management and Budget guidance was not included in the revisions.

55Department of the Navy, Commander, Navy Installations Command, CNICINST 4101.2, 

Evaluation of Energy Project Investment Performance (Mar. 16, 2015).
Page 29 GAO-17-461 Defense Infrastructure

a set of project tools used to conduct analysis and track project 

requirements.56

• Air Force: The Air Force has engineering guidance that addresses 

management of UESCs, but headquarters officials told us that this 

guidance requires only the standard requirement of performance 

assurance for these projects.57 According to officials, the Air Force is 

developing a UESC manual, which it expects to complete in 

September 2017, to replace the existing guidance. These officials 

stated that the manual will include a measurement and verification 

requirement for UESCs that will adhere to the same levels required for 

ESPCs. However, headquarters and engineering center officials 

stated that the two alternative financing arrangements may continue 

to have some differences in requirements.58

• Army: The Army had not issued guidance for its UESCs at the time of 

our review, according to an Army headquarters official, and instead 

was relying on its ESPC policy manual to guide its UESC projects. 

The official told us that the Army is working to issue UESC guidance 

that is similar to that for ESPCs, but stated that the guidance will not 

include a requirement to perform measurement and verification of 

these projects. The official stated that although the Army cannot be 

completely certain that savings levels are being achieved using 

performance assurance, the current approach provides an acceptable 

 56The Navy UESCs in our sample were awarded prior to the issuance of this guidance in 

2015 and did not include measurement and verification, and Navy headquarters officials 

told us that operation and maintenance checks generally were made in lieu of 

measurement and verification prior to the 2015 policy. Navy officials told us that 10 UESC 

projects were awarded with the new measurement and verification language since the 

2015 guidance was issued; however, because Navy UESCs typically have a two-year 

construction period and one year of performance before the measurement and verification 

report is obtained, they will not receive the first UESC measurement and verification report 

to review until later in 2017.

57Department of the Air Force, Headquarters Air Force Civil Engineer Support Agency, 

Engineering Technical Letter (ETL) 12-10: Utility Energy Service Contracts (UESC)

(Tyndall Air Force Base, Fla., Apr. 3, 2012).

58The officials initially stated that this manual will include instructions for all UESCs 

moving forward to adhere to the same levels of measurement and verification required of 

ESPCs, following guidelines from the Department of Energy, although headquarters and 

engineering center officials later indicated that these assessments would be less stringent 

than those for ESPCs.
Page 30 GAO-17-461 Defense Infrastructure

level of assurance while avoiding the increased costs associated with 

performing measurement and verification.59

We found that the military services have taken different approaches to 

verifying the savings associated with UESCs because DOD has not 

clarified requirements in guidance that reflect the intent of the department 

and the Office of Management and Budget. Verification of savings to 

validate project performance of all alternatively financed energy projects 

across the department is necessary to ensure that the projects are 

meeting expected energy and costs savings required to fulfill DOD’s 

requirement that these projects be paid for entirely through the projects’

generated cost savings. This verification would help the military services 

ensure they are appropriately budgeting for the projects over the life of 

the contract, which are expected to increase in number. Specifically, in 

2016, DOD issued a rule amending the Defense Federal Acquisition 

Regulation Supplement that authorizes a contract term limit for UESCs for 

a period up to 25 years, which is also the limit allowed for ESPCs.60

Without updated and clear guidance about requirements on how the 

military departments should verify savings associated with UESCs, the 

military services will likely continue to interpret DOD guidance differently 

and are likely to take inconsistent approaches to assuring the 

performance of UESC projects, which could limit DOD’s visibility over 

projects that commit the departments to long-term payments.

 59According to the official, measurement and verification is not required for UESC projects 

because utility companies do not provide savings guarantees and, as a result, the Army 

cannot withhold payments if the savings are not met. Therefore, the Army prefers to use 

performance assurance to maintain equipment efficiencies by focusing on completing 

regular operation and maintenance of the installed energy conservation measures.

60See 48 C.F.R. § 241.103.
Page 31 GAO-17-461 Defense Infrastructure

Alternative financing arrangements provide the military services the 

opportunity to partner with the private sector to finance energy projects; 

however, there are benefits and disadvantages to these projects. DOD 

and military service officials we contacted regarding their renewable 

energy generation, energy efficiency, power generation, and energy 

security projects identified benefits to financing energy projects through 

alternative arrangements, including funding projects that otherwise would 

not be funded through appropriated funding, shorter time frames, and the 

availability and expertise of personnel to implement and manage such 

projects, as described below.

• Funding Projects—At the military department level, officials told us 

that alternative financing arrangements enabled them to fund energy 

projects they might not otherwise have been able to pay for due to 

limited appropriated funding for developing and implementing such 

projects and the need to use their service budgets for mission 

requirements. We previously reported that implementing projects to 

meet energy requirements and goals can be costly, and obtaining upfront appropriations for such projects has been particularly challenging 

for agencies because of constrained federal budgets.61 The military 

services’ reliance on alternative financing arrangements has enabled 

them to more easily take on larger projects and combine several 

different energy conservation measures or installations into one 

contract rather than undertaking them individually over time. Of the 

eight installations we contacted whose contracts had a renewable 

energy component, officials at six of those installations told us that 

they would not have been able to undertake those projects without the 

 61GAO-15-432.

The Military Services 

Identified Benefits 

and Disadvantages, 

as Well as Potential 

Other Costs, of Using 

Alternative Financing 

for Selected Energy 

Projects

Officials Have Identified 

Benefits and 

Disadvantages of Using 

Alternative Financing 

Arrangements Instead of 

Up-front Appropriations for 

Energy Projects
Page 32 GAO-17-461 Defense Infrastructure

use of alternative financing arrangements or would have had to scale 

down the scope of the projects. For example, one official told us that 

the military service’s ability to fund its large solar arrays, which cost 

over $1 million to develop, would not have been a viable option for the 

installation with up-front appropriations because mission requirements 

take priority over energy conservation or renewable energy 

production. Some officials also said that power purchase agreements 

are useful from a budget standpoint because the installation does not 

have to provide financing for the project but rather pays for the energy 

that is produced through its energy bill.

According to agency officials, alternative financing arrangements may 

also save operation and maintenance costs because, in many cases, 

using alternative financing arrangements results in the contractor 

installing new equipment and sustaining that equipment during the 

contract performance period.62 Officials from one service told us that 

energy efficiency does not decline over the life of the project because 

the contractor brings the project to industry standards and then 

maintains the project over the course of the contract. Officials at two 

military service headquarters told us that it would be challenging to 

operate and fully maintain the equipment installed for energy projects 

funded through up-front appropriations because funds for maintaining 

equipment are also limited. Some officials at the installation level 

stated that alternatively financed energy projects can assist with 

budget certainty, as many of the contracts require the utility or energy 

company to cover operation and maintenance costs for installed 

equipment and equipment replacement costs over the life of the 

contract, compared to funding those ongoing costs each year through 

their appropriated funding. Further, some installation officials noted 

that the initial assessments for large energy projects were generally 

rolled into the costs of the contracts and the installation would have 

had to pay those costs up front if they had to fund those aspects of 

the projects. Other installation officials commented on the budgeting 

certainty these alternative financing arrangements provide. For 

example, according to one Marine Corps official, ESPCs provide a 

benefit during the utility budgeting and programming process. With an 

ESPC, a large portion of the utility budget is constant for many years 

out, which decreases the number of variables, such as weather 

 62We have previously reported that payments to contractors for ESPCs generally cover 

the costs associated with equipment and installation, contractor-provided operation and 

maintenance services, financing charges, and other costs. See GAO-15-432. However, as 

described later in this report, contractor maintenance is not included for all ESPCs.
Page 33 GAO-17-461 Defense Infrastructure

conditions and usage, in the utility budget that must be considered in 

the budget forecasting process, resulting in more accurate budgeting.

• Time frames—We previously reported that officials told us, for 

renewable energy projects funded through military construction 

appropriations, it can take a military service three to five years from 

project submission through the beginning of construction because of 

the length of the budget and appropriations cycle.63 Some officials 

representing installations in our sample also considered the reduced 

time frames for developing an energy project to be another benefit of 

using alternative financing arrangements. For example, through these 

arrangements, officials can bundle several smaller projects together 

into a single package as opposed to implementing the projects 

individually over the course of several years. In addition, according to 

some officials, working with a local utility or energy company to 

develop large energy-saving projects can take much less time than 

attempting to achieve the same results through the military 

construction process. For example, officials at Naval Base KitsapBangor, Washington, said its multiphase UESC, which includes 

replacing exterior, street, and parking lot lighting on several 

installations with new energy-efficient technology, has been 

implemented faster than it could through another approach. Some 

other installation officials said that using the indefinite-delivery, 

indefinite-quantity ESPC contract vehicles awarded through the 

Department of Energy or the U.S. Army Corps of Engineers or 

working through the service engineering commands for ESPCs and 

UESCs took much less time and is less cumbersome than going 

through the services’ acquisition process for new equipment.64

• Expertise or Availability of Personnel—Officials we met with at six 

installations said they often did not have personnel at the installation 

level with the needed expertise or in sufficient numbers to assist in the 

 63GAO-12-401.

64Both the Department of Energy and the Army Corps of Engineers have awarded 

indefinite-delivery, indefinite-quantity ESPC contract vehicles to a set of prequalified 

energy service companies. Under an indefinite-delivery, indefinite-quantity contract, 

agencies may award more than one contract to more than one contractor from a single 

solicitation. An indefinite-delivery, indefinite-quantity contract provides for an indefinite 

quantity of supplies or services within stated limits, during a fixed period. These contracts 

can allow agencies to develop and implement an ESPC project in less time because the 

process of competitively selecting qualified contractors has already been completed and 

key aspects of contracts have been broadly negotiated.
Page 34 GAO-17-461 Defense Infrastructure

development, operation, and maintenance of such projects.65 For 

example, officials at one installation said that the energy service 

company had personnel with the technical expertise to do some 

things, such as development of life-cycle cost analyses and 

measurement and verification, better than installation officials. 

Officials at another installation cited a shortage of personnel at the 

time the contract was awarded that made it challenging to operate 

and maintain energy projects. Installation energy managers were able 

to work around some of these personnel constraints by including 

requirements for contractors to operate and maintain the installed 

energy conservation measures, including repairing and replacing 

equipment as needed during the performance period. We reported in 

2016 that working with private developers allows DOD to leverage 

private companies’ expertise in developing and managing projects 

and limits the number of personnel DOD has to commit to projects.66

In addition to some of the benefits they described, officials identified some 

disadvantages of using alternative financing arrangements for their 

energy projects, including higher overall costs, a delay in their ability to 

take advantage of savings initially through funding with up-front 

appropriations, and risks associated with long-term financial obligations. 

First, some officials said that the overall costs over the contract term are 

generally higher than those funded using up-front appropriations. For 

example, for one of the ESPCs we reviewed, we found that the estimated 

cost for using alternative financing was about 15 percent higher than if the 

project had been funded using up-front appropriations. In 2004, we 

reported that alternative financing arrangements may be more expensive 

over time than full, up-front appropriations since the federal government’s 

 65Officials from the military services confirmed that they have the expertise at their 

headquarters and regional command levels to assist installations in developing energy 

projects. The installation officials we met with were not discounting this support, but were 

focused on whether they had a sufficient number of trained personnel at the installation 

level to operate and maintain such equipment once installed.

66Conversely, a lack of DOD expertise can be a drawback for contractors. As we noted in 

our recent report on the costs and benefits of renewable energy projects, one drawback of 

entering into agreements with private developers is that it can require staff to help the 

developers understand specific requirements for development on installations. In 

particular, developing projects inside installations involves a complex combination of 

financing, regulatory requirements, ensuring that the projects are compatible with the 

installations’ military missions, and other needs that require DOD expertise. See 

GAO-16-487.
Page 35 GAO-17-461 Defense Infrastructure

cost of capital is lower than that of the private sector.67 Second, some 

officials noted that they would prefer to use appropriated funds for 

projects because with alternative financing arrangements, the installation 

pays the energy service company out of the savings rather than retaining 

those savings. As a result, when relying on alternative financing for 

energy projects, installations do not actually realize the savings until after 

the contract is completed, which could be up to 25 years later for ESPCs 

and UESCs. Similarly, although spreading costs over 25 years may 

provide greater certainty for installation utility budgets, these 

arrangements also tie up those funds over that period, resulting in less 

flexibility in managing future budgets. Third, officials at one service 

headquarters stated that the risk associated with a 20- to 25-year contract 

can pose a disadvantage, such as in cases where a base realignment or 

closure action occurs.68

There are different costs associated with the implementation of the 

ESPCs and UESCs we selected for our review, and some potential costs 

may affect the overall cost of a project or may not always be included in 

total contract payments.69 However, we found some potential costs that 

may add to the overall cost of a project or may not always be included in 

total contract payments. In our review of the life-cycle cost analyses and 

contract documentation for the selected ESPCs and UESCs in our 

sample, we found that contracts varied in how they funded other potential 

costs associated with the projects, such as operation and maintenance 

and the repair and replacement of installed equipment, as well as some 

 67GAO, Capital Financing: Partnerships and Energy Savings Performance Contracts 

Raise Budgeting and Monitoring Concerns, GAO-05-55 (Washington, D.C.: Dec. 16, 

2004). For the six ESPC case studies GAO reviewed for the 2004 report, we found that 

the government’s costs of acquiring assets increased from 8 to 56 percent by using 

ESPCs rather than timely, full, and up-front appropriations.

68We have previously reported that liabilities will likely exist for renewable energy projects 

in the event of base closure because these projects commit the government to making 

future payments over a period of years, although those liabilities may be limited by 

termination for convenience clauses in agreements. See GAO-13-337.

69We defined the implementation price of a contract as the cost of the equipment, the 

labor for installation, and other direct costs for developing and constructing a project. We 

further defined the total contract cost as the overall amount a military service will pay for 

the project over the life of the contract. These total contract costs include payments to the 

energy service company or utility over time for its costs to implement and finance the 

project up front, interest on the financing, and other services that the company or utility 

may provide, such as operating and maintaining the equipment.

Contracts for Selected 

Alternatively Financed 

Energy Projects Varied in 

Their Treatment of Costs
Page 36 GAO-17-461 Defense Infrastructure

other energy project costs that may or may not be included in the 

payment to contractors.

• Operation and maintenance costs—Officials representing installations 

in our sample identified different approaches for how they manage the 

costs for operation and maintenance of their alternatively financed 

energy projects, and those costs may not always be included in the 

total contract costs. As noted earlier, one benefit of alternative 

financing arrangements that military service officials identified is the 

reduced risk and savings in operation and maintenance costs that can 

be achieved when a contractor installs and sustains the energy 

conservation measures. According to officials, the ongoing and 

periodic maintenance of the equipment by the contractor that is 

generally provided by ESPCs can free limited installation budgets for 

other maintenance requirements. Further, with UESCs, operation and 

maintenance costs associated with the project may decrease, but it is 

usually the responsibility of the agency, not the utility, to pay for these 

decreased costs. Further, depending on the contract terms, 

contractors are not always responsible for operation and maintenance 

of all of the energy conservation measures for a project. In these 

cases, an installation would provide manpower, spare parts, and 

potentially replacement equipment during the life of the contract. 

Based on our review of select projects, we found different ways in 

which the installations approached the funding for these costs. For 

example, officials at one installation decided not to include the costs 

for operation and maintenance services in the contract. The officials 

instead opted to have the contractor that was already providing 

operation and maintenance support for the facility continue to provide 

these services for all of the equipment. They also reported that the 

cost of that operation and maintenance contract was reduced due to 

the efficiencies that came with some of the measures installed 

through the ESPC, which resulted in manpower savings.70 At another 

installation, however, officials opted to have the ESPC contractor take 

over maintenance not only of equipment installed as part of the 

contract, but also of existing equipment in the same buildings that had 

been maintained by the base operating support contractor so that the 

installation would not have two contractors maintaining different parts 

of systems within the same building.

 70The ESPC contractor checks the support contractor’s maintenance logs to ensure 

maintenance requirements are carried out as required for guaranteed savings.
Page 37 GAO-17-461 Defense Infrastructure

• Repair and replacement funds—Some contracts also establish and 

manage repair and replacement accounts using either an installation’s 

operation and maintenance funding or the savings from the energy 

conservation measures. These accounts may allow the installation to 

ensure the continued operation and maintenance of equipment 

installed as part of the alternatively financed project for which the 

contractor or utility may not have responsibility, such as items not 

covered under their warranty or that are manufactured by another 

company, by setting aside funds to cover the costs to repair or replace 

equipment that fails during the contract performance period. These 

accounts are included in the total contract costs. In our review of 

select ESPC projects, we found different ways in which these 

accounts were established and operated. For example, at one 

installation, officials told us they set up two repair and replacement 

accounts that are part of their monthly payments, which cover repairs 

to installed equipment not covered under the contract, such as 

equipment that was not manufactured by the contractor and controls 

components that were integrated onto the existing system. Funding 

for these two accounts is included in the installation’s annual payment 

to the contractor, and unused funds in the larger contractor equipment 

repair and replacement account roll over into the next year to cover 

any required maintenance as well as the replacement of equipment at 

the end of the contract term, if needed. At another installation, the 

ESPC was established with an account for repair and replacement 

funds to cover costs other than normal preventive maintenance, and 

this account is also funded annually as part of the payment to the 

contractor. According to installation officials, the purpose of this 

account is to have funding available to pay for a larger piece of 

equipment in case it needed to be replaced, and unused funding for 

this account is also expected to roll over and be available in future 

years. Installation officials told us that because labor is a large part of 

the repair and replacement of equipment, the account has generally 

been drawn down in full each year and there generally have not been 

funds available to roll over into the next year.

• Other energy project costs—There are some costs associated with 

energy projects that installations may incur regardless of the funding 

arrangement used—some of which may not be included in the total 

contract costs—and potential other costs installations may pay to 

bring down the total contract payments. For example, despite the 

funding source used, a project may require land valuations or 

environmental assessments. There are also project development 

costs, such as design and engineering services, as well as preliminary 

energy surveys for identifying potential energy conservation 
Page 38 GAO-17-461 Defense Infrastructure

measures, which the contractor or utility may prepare and fund. 

Additionally, officials from the military service headquarters told us 

that some alternatively financed energy projects are managed by 

other DOD or federal entities, such as the Army Corps of Engineers or 

the Department of Energy, which may require contract administration 

fees that are paid either through a one-time up-front payment or at 

least annually through the life of the contract. For example, at two 

installations we visited, officials told us they would be paying either 

the U.S. Army Corps of Engineers or the Naval Facilities Engineering 

Command for items such as developing a request for proposal; 

conducting life-cycle cost analyses; and providing supervision, 

inspection, and overhead services whether they used up-front 

appropriations or alternative financing arrangements for their energy 

projects. These costs would not be included in the total costs because 

they are paid to the contracting officer at the federal agency rather 

than to the energy service company or utility.71 For example, officials 

at one installation told us they paid approximately $23,000 to the 

Naval Facilities Engineering Command for project management and 

oversight of the installation’s UESC. Finally, we found instances 

where installations used some up-front funds to reduce the amount 

financed for their projects. These up-front payments were still included 

in the total payments to the contractors, but the installations were able 

to reduce the amount on which they had to pay interest, thereby 

reducing the total amount they would have owed had they not made 

the up-front payments. For example, at one installation, we found that 

the total amount financed for the project was less than the cost to 

implement the project because the installation paid almost $2 million 

up front in pre-performance payments. According to an installation 

official, the installation had planned to repair some mechanical 

systems and had already set aside Facilities Sustainment, 

Restoration, and Modernization funds for this project. With the ESPC, 

the installation was able to use those funds to instead pay for more 

energy-efficient technologies to replace rather than repair those 

systems, using the funds to reduce the amount to be financed for the 

ESPC.

 71According to DOD officials, the Army reports contracting support fees to the Office of the 

Secretary of Defense as part of the Annual Energy Management Report data. Officials 

stated that these fees are reported as a program cost rather than as an individual project 

cost since project costs are typically reported as costs to repay the contractor.
Page 39 GAO-17-461 Defense Infrastructure

DOD has taken various actions to meet its needs as the largest energy 

consumer in the federal government, including diversifying power 

sources, implementing conservation and other efficiency actions to 

reduce demand, and relying on private-sector contracts through 

alternative financing arrangements in lieu of using up-front appropriations 

to fund energy projects. Since 2005, DOD has awarded 464 contracts for 

alternatively financed energy projects. While DOD guidance requires the 

military services to track and store data related to energy projects, the 

military services have not collected complete and accurate data or 

consistently provided the data to the military department or DOD 

headquarters level on an annual basis to aid DOD oversight and to inform 

Congress. If DOD does not require the military services to provide DOD 

with complete and accurate data on all alternatively financed energy 

projects, decision makers within the department and Congress may not 

have all information needed for effective oversight of these projects, 

which represent long-term budgetary commitments for periods of up to 25 

years.

Confirming savings and validating project performance of all alternatively 

financed energy projects are necessary to ensure that the projects are 

meeting expected energy and costs savings and that the military services 

are appropriately budgeting for the projects over the life of the contract. 

The military services have taken some steps to verify project performance 

and confirm savings, and the alternatively financed energy projects we 

reviewed that were operational reported achieving expected savings or 

efficiencies. However, because guidance on when verification of savings 

is required is not clear, the military services have taken varying 

approaches for confirming UESC savings and lack full assurance that 

expected savings are being realized for the entirety of their UESC 

projects. DOD’s guidance requires the military departments to track 

estimated and verified savings and measurement and verification 

information for all energy projects, whereas the Office of Management 

and Budget guidance states that UESCs may be scored on an annual 

basis if the UESC requires performance assurance or guarantees and 

measurement and verification of savings at specific points in time—

commissioning and retro-commissioning—rather than ongoing through 

the life of the project. However, DOD’s interpretation of this Office of 

Management and Budget requirement assumes that the military 

departments have the option of conducting either performance 

assurance, savings guarantees, or measurement and verification for 

UESCs, which differs from the department’s own guidance on verification 

of savings for all energy projects. Without updated and clear guidance on 

how the military departments should be taking steps to verify savings 

Conclusions
Page 40 GAO-17-461 Defense Infrastructure

associated with UESC projects to validate project performance, the 

military services will likely continue to interpret DOD guidance differently 

and are likely to take inconsistent approaches to assuring the 

performance of UESC projects, which could limit DOD’s visibility over 

projects that commit the departments to long-term payments.

To assist DOD and Congress in their oversight of DOD’s alternatively 

financed energy projects, we recommend that the Secretary of Defense 

direct the military services to collect complete and accurate data on their 

alternatively financed energy projects, including data on the services’

financial obligations and cost savings, and provide the data to DOD at 

least annually to aid departmental oversight.

To help ensure that the military departments conduct the level of 

assessment required to assure the performance of their UESC projects 

over the life of the contract, we recommend that the Secretary of Defense 

direct the Office of the Assistant Secretary of Defense (Energy, 

Installations and Environment) to update its guidance to clarify the 

requirements for the verification of savings for UESC projects.

We provided a draft of this report for review and comment to DOD and 

the Department of Energy. In written comments, DOD concurred with our 

first recommendation and nonconcurred with our second 

recommendation. DOD’s comments on this report are summarized below 

and reprinted in their entirety in appendix II. In an e-mail, the audit liaison 

from the Department of Energy indicated that the department did not have 

formal comments. DOD and the Department of Energy also both provided 

technical comments, which we incorporated as appropriate.

DOD concurred with our first recommendation that the Secretary of 

Defense direct the military services to collect complete and accurate data 

on their alternatively financed energy projects, including data on the 

services’ financial obligations and cost savings, and provide the data to 

DOD at least annually to aid departmental oversight.

DOD nonconcurred with our second recommendation that the Secretary 

of Defense direct the Office of the Assistant Secretary of Defense 

(Energy, Installations and Environment) to update its guidance to clarify 

the requirements for the verification of savings for UESC projects. In its 

response, DOD stated that UESCs are service contracts for utility 

services and that the only financial requirement on federal agencies is the 

Recommendations for 

Executive Action

Agency Comments 

and Our Evaluation
Page 41 GAO-17-461 Defense Infrastructure

obligation of the annual costs for these contracts during each year that 

the contract is in effect. The department stated that there is no statutory 

requirement for annual measurement and verification of the energy, 

water, or cost savings, or a contractual guarantee of those savings as 

there is for ESPCs. However, the department noted that DOD will 

continue to require its components to accomplish necessary tasks to 

assure continuing performance of the equipment or systems installed in a 

UESC to ensure expected energy and/or water consumption and cost 

reductions.

We agree that UESCs do not include guaranteed cost savings. In 

response to DOD’s comments, we made changes to the draft report to 

emphasize that, while UESCs do not include guaranteed cost savings, 

repayments for UESCs—which can commit the department to a contract 

term limit for a period of up to 25 years—are based on estimated cost 

savings generated by the energy conservation measures. Thus, 

verification of savings to validate project performance is necessary to 

ensure that the projects are meeting expected energy and costs savings 

required to fulfill the requirement that these projects be paid for entirely 

through the projects’ generated cost savings. We further noted in our 

report that guidance from DOD does not align with that of the Office of 

Management and Budget, and this misalignment results in the military 

services taking different approaches to validating achievement of benefits 

expected from these UESC projects. In addition, we did not recommend 

that the department annually measure and verify UESC projects. Rather, 

we recommended that DOD clarify and update its guidance for verifying

savings for these projects to help the military services appropriately 

budget for the projects over the contract’s life. Without updated and clear 

guidance about requirements on how to verify savings associated with 

UESCs, the military services will likely continue to interpret DOD 

guidance differently and take inconsistent approaches to assuring the 

performance of UESC projects. Doing so could limit DOD’s visibility over 

projects that commit the departments to long-term payments.

We are sending copies of this report to appropriate congressional 

committees; the Secretary of Defense; the Secretaries of the Air Force, 

Army, and Navy; the Commandant of the Marine Corps; and the 

Secretary of Energy. In addition, the report will be available at no charge 

on the GAO website at http://www.gao.gov.
Page 42 GAO-17-461 Defense Infrastructure

If you or your staff have any questions about this report, please contact 

me at (202) 512-4523 or leporeb@gao.gov. Contact points for our Offices 

of Congressional Relations and Public Affairs may be found on the last 

page of this report. GAO staff who made major contributions to this report 

are listed in appendix III.

Brian J. Lepore

Director, Defense Capabilities and Management
Page 43 GAO-17-461 Defense Infrastructure

List of Committees

The Honorable John McCain

Chairman

The Honorable Jack Reed

Ranking Member

Committee on Armed Services

United States Senate

The Honorable Thad Cochran

Chairman

The Honorable Richard Durbin

Ranking Member

Subcommittee on Defense

Committee on Appropriations

United States Senate

The Honorable Mac Thornberry

Chairman

The Honorable Adam Smith

Ranking Member

Committee on Armed Services

House of Representatives

The Honorable Kay Granger

Chairwoman

The Honorable Pete Visclosky

Ranking Member

Subcommittee on Defense

Committee on Appropriations

House of Representatives
Appendix I: Scope and Methodology

Page 44 GAO-17-461 Defense Infrastructure

To evaluate the extent to which the military services have financed 

energy projects with alternative financing arrangements since 2005 and 

collected and provided the Department of Defense (DOD) complete and 

accurate data on those projects, we reviewed available data and 

documentation on the alternatively financed energy projects that had 

previously been either reported by DOD or the Department of Energy in 

its published documents or collected by us or other audit agencies during 

previous reviews. Based on these criteria, we scoped our review to focus 

on the following types of alternatively financed energy projects for which 

the military services had awarded contracts from fiscal years 2005 

through 2016: Energy Savings Performance Contracts (ESPC), Utility 

Energy Service Contracts (UESC), and Power Purchase Agreements 

(PPA). We focused on this time frame because with the passage of the 

Energy Policy Act of 2005, the military services began contracting for 

more alternatively financed energy projects.1 Moreover, we reported in 

2005 that data prior to this time was incomplete. We included 2016 data 

as they capture the most recent full fiscal year of data. We reviewed data 

on projects awarded for installations in the United States and excluded 

the territories and other overseas installations.

We developed a data collection instrument to confirm the completeness 

and accuracy of data we already had on existing alternatively financed 

energy projects, obtain any missing or revised data on those projects, and 

gather information on projects that had been awarded since our previous 

reviews. We pre-populated our data collection instrument for each of the 

military services using data from the following sources:

• Project level data from DOD’s Annual Energy Management Reports 

for fiscal years 2011 through 2015;

• A list of 10 USC 2922a PPA projects provided by Office of the 

Secretary of Defense officials;2

 1

Pub. L. No. 109-58, § 203 (2005) (codified at 42 U.S.C. § 15852).

2

Under 10 U.S.C. § 2922a, DOD can enter into power purchase agreement contracts for 

up to 30 years.

Appendix I: Scope and Methodology
Appendix I: Scope and Methodology

Page 45 GAO-17-461 Defense Infrastructure

• Data from our prior reviews on renewable energy project financing 

using both appropriated funding and alternative financing 

arrangements and on ESPCs for the military services;3 and

• Publicly available data from the Department of Energy on DOD 

projects funded using its indefinite-delivery, indefinite-quantity 

contract.

In order to obtain consistent data among the services, for each 

spreadsheet in the data collection instrument, we developed separate 

tabs containing the pre-populated data on the three types of alternative 

financing arrangements on which we focused our review. For each type of 

arrangement, we also developed a separate definitions sheet that 

explained the data we were requesting so that the services would be 

responding with consistent data. We provided these pre-populated 

spreadsheets to the military services and requested that they verify 

existing information, provide additional information, and add new projects, 

as appropriate, in order to obtain data on the universe of these projects 

for the specified time period. We then discussed with those officials any 

questions we had about the quality and completeness of the data that 

were provided. While we took these steps to identify all of DOD’s 

alternatively financed energy projects since 2005, the data reflected may 

not represent the entire universe of projects.

In addition to the data above, we reviewed key guidance that DOD 

provides to the DOD components on managing installation energy, 

including DOD Instruction 4170.11, Installation Energy Management, and 

DOD guidance letters on developing energy projects.4 We also reviewed 

the DOD instruction to learn about the requirement for the military 

departments to maintain a utility energy reporting system to prepare data,

including data on energy consumption and costs, for the Annual Energy 

Management Report to determine DOD’s visibility over the energy 

projects. We reviewed guidance from the Department of Energy’s Federal 

Energy Management Program on alternative financing arrangements, 

 3

GAO, Renewable Energy Project Financing: Improved Guidance and Information Sharing 

Needed for DOD Project-Level Officials, GAO-12-401 (Washington, D.C.: Apr. 4, 2012); 

Energy Savings Performance Contracts: Additional Actions Needed to Improve Federal 

Oversight, GAO-15-432 (Washington, D.C.: June 17, 2015); and DOD Renewable Energy 

Projects: Improved Guidance Needed for Analyzing and Documenting Costs and Benefits, 

GAO-16-487 (Washington, D.C.: Sept. 8, 2016).

4

DOD Instruction 4170.11, Installation Energy Management (Dec. 11, 2009) (Change 1, 

Mar. 16, 2016) and DOD memorandums, Guidance on Development of Energy Projects

(Nov. 3, 2016) and Financing of Renewable Energy Projects Policy (Nov. 9, 2012).
Appendix I: Scope and Methodology

Page 46 GAO-17-461 Defense Infrastructure

including its overviews of the different arrangements and national lab 

reports on agencies’ use of these arrangements.5 We reviewed the 

relevant statute to determine what, if any, requirements applied to DOD’s 

data collection efforts related to energy projects.6 We then reviewed the 

project information provided by the military services for the presence of 

certain data points, such as total contract costs, estimated cost savings, 

and the length of the contract, and compared the military services’

tracking of their data on alternatively financed energy projects to DOD’s 

guidance and statutory requirements for tracking such data. We reviewed 

the data we collected for completeness and accuracy and estimated the 

total number of ESPCs, UESCs, and PPAs for each of the military 

services as well as the total contract costs, where available. We excluded 

from our analysis those UESCs for which the military departments had 

identified a contract term of one year or less or for which a project had 

previously been identified in DOD reporting but had not ultimately been 

funded as an alternatively financed energy project. We assessed the 

reliability of the data we received by interviewing DOD officials and 

comparing the multiple data sets we received from the military services 

with data reported in the Annual Energy Management Report and 

obtained through prior reviews to ensure that there was consistency in the 

data provided. We determined that the data were sufficiently reliable for 

meeting our objective.

We compared DOD’s data collection efforts with Standards for Internal 

Control in the Federal Government, which identify standards for collecting 

and providing accurate and complete data.7 We also reviewed guidance 

documentation from the military services on developing and managing 

energy projects, including the Army’s guide for developing renewable 

energy projects, the Air Force’s instructions on cost analyses and 

business case analyses, and the Navy and Marine Corps energy project 

management guide. We met with officials from Office of the Secretary of 

 5

U.S. Department of Energy Federal Energy Management Program, M&V Guidelines: 

Measurement and Verification for Performance-Based Contracts Version 4.0, DOE/EE1287-0286 (November 2015); U.S. Department of Energy, Federal Energy Management 

Program, Utility Energy Service Contract Guide, DOE/EE-0952 (Revised October 2016); 

and U.S. Department of Energy, Oak Ridge National Laboratory, Reported Energy and 

Cost Savings from the DOE ESPC Program: FY 2013 (Oak Ridge, Tenn.: December 

2013).

6

10 U.S.C. § 2925.

7

GAO, Standards for Internal Control in the Federal Government, GAO-14-704G 

(Washington, D.C.: September 2014).
Appendix I: Scope and Methodology

Page 47 GAO-17-461 Defense Infrastructure

Defense; the military departments; and the military departments’

engineering, installation, or contracting commands to discuss their 

guidance and policies on how they managed and tracked their 

alternatively financed energy projects and the availability of data on such 

projects. Finally, we spoke with Office of the Secretary of Defense 

officials about the President’s Performance Contracting Challenge, which 

challenged federal agencies to enter into a total of $4 billion in 

performance-based contracts, including ESPCs and UESCs, by the end 

of calendar year 2016, to gain an understanding of the results of DOD’s 

participation in this effort.

To assess the extent to which the military services reported achieving 

expected savings and verified the reported performance of selected 

projects, we reviewed agency-level guidance on the different levels of 

measurement and verification or performance assurance that are required 

for alternatively financed energy projects, such as DOD’s instruction on 

installation energy management and the Department of Energy’s most 

recent guidelines for measurement and verification and performance 

assurance, to determine requirements for measuring savings for the 

different types of projects.8 Using the data on the alternatively financed 

energy projects that we obtained from the military services, we selected a 

nongeneralizable sample of 17 projects as case studies to discuss during 

our site visits and to evaluate how those projects reported achieving their 

estimated savings and the extent to which installation officials verified 

those reported savings. We then compared measurement and verification 

efforts for the 13 projects in our nongeneralizable sample that were 

already in operation with DOD guidance requiring measurement and 

verification for all energy projects to determine the extent to which 

installation officials followed guidance requiring verification of savings. We 

also collected and analyzed data and documentation on the expected and 

reported savings for the 17 projects in our sample to assess the extent to 

which the estimated savings compared to the savings that were reported 

and we documented reasons for any differences. We assessed the 

reliability of the project data by reviewing the internal controls DOD 

officials used to observe and corroborate the data contractors reported in 

their annual measurement and verification reports; the data collection and 

 8

Department of Defense Instruction 4170.11, Installation Energy Management (Dec. 11, 

2009) (Change 1, Mar. 16, 2016); U.S. Department of Energy, Federal Energy 

Management Program, M&V Guidelines: Measurement and Verification for PerformanceBased Contracts Version 4.0, DOE/EE-1287-0286 (November 2015); and U.S. 

Department of Energy, Federal Energy Management Program, Utility Energy Service 

Contract Guide, DOE/EE-0952 (Revised October 2016).
Appendix I: Scope and Methodology

Page 48 GAO-17-461 Defense Infrastructure

monitoring the officials did for performance assurance; and the data the 

officials used to assess project savings. We determined that the data 

were sufficiently reliable for our purposes of describing the extent to 

which the military services reported achieving expected savings and 

verified the reported performance of selected projects.

For the eight ESPC projects in our sample that were operational, we 

collected and analyzed the most recent measurement and verification 

report to identify the guaranteed savings that were expected and the 

savings that were being reported by the contractor. We then interviewed 

military service officials at the installations we visited to discuss these 

projects and the reported results of their latest measurement and 

verification report or other assessment. We also talked with officials from 

the installations and, in some cases, also with officials from the 

installations’ supporting engineering or contracting commands, about how 

they verified the savings for the three UESC projects and the two PPAs in 

our sample and to learn about how they developed, managed, and 

tracked these alternatively financed projects. For UESCs, we reviewed 

DOD guidance outlining requirements to conduct measurement and 

verification and compared that with the requirements outlined in Office of 

Management and Budget guidance. We also contacted officials from the 

Office of the Secretary of Defense and the military departments to discuss 

their current and planned guidance related to measuring, verifying, and 

reporting the performance of UESCs during the contract performance 

period to assure that savings are being achieved.

To describe the benefits and disadvantages reported by the military 

services, as well as potential other costs, of using alternative financing 

arrangements for selected energy projects rather than using up-front 

appropriations, we reviewed previously discussed DOD, Department of 

Energy, and military service guidance on the use of alternative financing 

arrangements and their cost-effectiveness to determine the requirements 

for life-cycle cost analyses and how project costs are identified in 

contracts and other documents. For the 17 selected projects in our 

nongeneralizable sample, we collected project planning documentation 

and reviewed available life-cycle cost analyses and contract 

documentation for those projects to obtain information on how costs were 

identified and where they were documented. Additionally, we interviewed 

officials at the installations in our sample, their contracting or engineering 

commands, or their military service headquarters to discuss the projects 

in our sample, including the benefits and disadvantages of using 

alternative financing arrangements for those energy projects. We also 

discussed how the individual contracts identified the costs to operate and 
Appendix I: Scope and Methodology

Page 49 GAO-17-461 Defense Infrastructure

maintain the energy conservation measures or power-generating 

equipment for the selected energy projects in our sample as well as any 

costs associated with the projects that might not be reflected in the total 

contract costs. For one ESPC in our sample, we also compared the costs 

of the alternative financing arrangement with the use of up-front 

appropriations by calculating the present value of the costs had the 

government directly incurred the debt to finance the amount that had 

instead been financed by the energy service company. In addition, the 

team interviewed officials from the Department of Energy’s Federal 

Energy Management Program about federal policies and guidance 

related to alternative financing arrangements for energy projects and from 

the General Services Administration about that agency’s area-wide 

contracts with utility companies to gain an understanding of issues related 

to the benefits and costs of such projects.

In order to select installations and identify case studies from which we 

gathered information for our objectives, we used data collected in 

response to our request to the military services. We developed a 

nongeneralizable sample representing 17 projects at 11 installations that 

had awarded an ESPC, a UESC, or a PPA between fiscal years 2005 and 

2016. Our case studies included 11 ESPCs, 3 UESCs, and 3 PPAs. We 

selected our case studies to identify projects representing:

• Each of the military services, including one from the reserve 

components;

• The different types of alternative financing arrangements (ESPC, 

UESC, and PPA);

• The year the contract was awarded;

• The different types of contracting vehicles (Army or Department of 

Energy, General Services Administration area-wide, or standalone 

contract); and

• Different project types (energy efficiency, energy cost savings, and 

power generation).

We included at least three large-scale renewable energy projects, which 

we defined as projects with a generating capacity of 10 megawatts or 

greater. We also attempted to include projects that were both operational 

and had not been included in other recent audits by us or other audit 

agencies. Finally, we considered geographic variation when selecting 

sites. In addition to discussing these alternatively financed projects with 

installation officials, we also observed selected energy conservation 
Appendix I: Scope and Methodology

Page 50 GAO-17-461 Defense Infrastructure

measures that had been installed.9 Table 4 outlines the installations we 

visited or contacted during our review.

Table 4: Installations Visited or Contacted During Our Review

Organization or agency and location Type of project Year contract awarded

United States Army

Fort Irwin, California ESPC 2005

Fort Jackson, South Carolina ESPC 2007

Joint Base Myer-Henderson Hall, Virginia ESPC 2010

Fort Irwin, California UESC 2012

Fort Irwin, California ESPCa 2013

Fort Jackson, South Carolina ESPC 2014

Arlington Hall Station, Virginia ESPC 2014

United States Navy

Naval Base Kitsap–Keyport, Washington ESPC 2010

Naval Base Kitsap–Bangor, Washington UESC 2011

Naval Air Weapons Station China Lake, California PPA 2011

Naval Air Weapons Station China Lake, California UESC 2012

Navy Renewable Energy Program Office, Washington, D.C. PPAb 2015

United States Marine Corps

Marine Corps Base Quantico, Virginia ESPC 2006

Marine Corps Air Station Beaufort, South Carolina ESPC 2009

United States Air Force

Joint Base Charleston, South Carolina ESPC 2005

Nellis Air Force Base, Nevada ESPC 2005

Nellis Air Force Base, Nevada PPA 2007

Legend: ESPC = energy savings performance contract; UESC = utility energy service contract; PPA = power purchase agreement

Source: GAO. | GAO-17-461

a

We did not originally include this ESPC in our sample because, although the contract had been 

awarded in fiscal year 2013, it was not yet operational at the time of our site visit. However, 

installation officials wanted to discuss this project with the team, so we added it to our sample.

 9

We did not observe the energy conservation measures for the ESPC at Joint Base 

Meyer-Henderson Hall because of time constraints. We did not observe the Navy’s PPA 

for 14 Navy and Marine Corps installations in California because it covers multiple 

locations, the power is generated in Arizona, and it was not yet operational at the time of 

our site visit. Instead, we met with the officials in the Navy’s Renewable Energy Program 

Office that are managing this project.
Appendix I: Scope and Methodology

Page 51 GAO-17-461 Defense Infrastructure

b

Although the Navy’s 14-installation PPA in California was not yet operational, we selected it for our 

case studies due to its unique nature, both in the amount of power-generating capacity and the 

number of installations covered by the agreement.

In addition, for each of our objectives, we contacted officials and, when 

appropriate, obtained documentation from the organizations listed below:

Office of the Secretary of Defense:

• Office of the Assistant Secretary of Defense, Energy, Installations and 

Environment

Army:

• Assistant Secretary of the Army (Installations, Energy and 

Environment), Deputy Assistant Secretary of the Army for Energy and 

Sustainability and its Office of Energy Initiatives

• Assistant Chief of Staff for Installation Management

• Headquarters, U.S. Army Corps of Engineers

Navy:

• Director, Shore Readiness Division (N46)

• Assistant Secretary of the Navy for Energy, Installations and 

Environment, Deputy Assistant Secretary of the Navy (Energy)

• Renewable Energy Program Office10

• Headquarters, Naval Facilities Engineering Command, and two 

Facilities Engineering Commands–Northwest and Southwest

Air Force:

• Air Force Installations, Environment and Energy

• Air Force Civil Engineer Center

Marine Corps:

• Marine Corps Installations Command, Facility Operations and Energy

 10On December 31, 2016, the Renewable Energy Program Office merged with the Naval 

Facilities Engineering Command Headquarters Energy Office to form the Resilient Energy 

Program Office.
Appendix I: Scope and Methodology

Page 52 GAO-17-461 Defense Infrastructure

We conducted this performance audit from June 2016 to June 2017 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.
Appendix II: Comments from the Department 

of Defense

Page 53 GAO-17-461 Defense Infrastructure

Appendix II: Comments from the Department 

of Defense
Appendix II: Comments from the Department 

of Defense

Page 54 GAO-17-461 Defense Infrastructure
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 55 GAO-17-461 Defense Infrastructure

Brian J. Lepore, (202) 512-4523 or leporeb@gao.gov

In addition to the contact named above, Kristy Williams (Assistant 

Director), Edward Anderson, Karyn Angulo, Michael Armes, Tracy 

Barnes, William Cordrey, Melissa Greenaway, Carol Henn, Amanda 

Miller, Richard Powelson, Monica Savoy, Matthew Spiers, Karla Springer, 

and Jack Wang made key contributions to this report.

Appendix III: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments
Related GAO Products

Page 56 GAO-17-461 Defense Infrastructure

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Planning. GAO-17-27. Washington, D.C.: November 14, 2016.

Renewable Energy Projects: Improved Guidance Needed for Analyzing 

and Documenting Costs and Benefits. GAO-16-487. Washington, D.C.: 

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Defense Infrastructure: Energy Conservation Investment Program Needs 

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Defense Infrastructure: Improvement Needed in Energy Reporting and 

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Defense Infrastructure: DOD Efforts Regarding Net Zero Goals. 

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Energy Savings Performance Contracts: Additional Actions Needed to 

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Electricity Generation Projects: Additional Data Could Improve 

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Defense Infrastructure: Department of Defense Renewable Energy 

Initiatives. GAO-10-681R. Washington, D.C.: April 26, 2010.

Defense Infrastructure: DOD Needs to Take Actions to Address 

Challenges in Meeting Federal Renewable Energy Goals. GAO-10-104. 

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Energy Savings: Performance Contracts Offer Benefits, but Vigilance Is 

Needed to Protect Government Interests. GAO-05-340. Washington, 

D.C.: June 22, 2005.

Capital Financing: Partnerships and Energy Savings Performance 

Contracts Raise Budgeting and Monitoring Concerns. GAO-05-55. 

Washington, D.C.: December 16, 2004.

(100918)
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