Department of Defense Facilities Energy Conservation Policies and Spending
Released: 2009-02-19T00:00:00

Background

The Department of Defense (DOD) accounts for approximately 63% of the energy consumed by federal facilities and buildings. This makes DOD the single largest energy consumer in the United States, even though consuming only 1% of national site-delivered energy. Its annual spending on facility energy has averaged over $3.4 billion recently.

In the early 1970s, Congress began mandating reductions in energy consumed by federal agencies, primarily by improving the efficiency of buildings and facilities, and by reducing fossil fuel use. Initially, a 10% energy reduction goal was established for federal buildings as measured against a 1985 baseline. By fiscal year (FY) 2005, DOD reported a 28.3% reduction in energy consumption compared to the baseline. Recent legislation and Executive Orders establish further energy reduction goals. President-elect Obama's recently publicized economic recovery plans include improvements in public building energy efficiency. Recently introduced bills in Congress have called for establishing national building efficiency codes.

This report reviews the energy conservation provisions in past and recent legislation applicable to DOD, Executive Orders that apply to all federal facilities and operations, and the Office of the Secretary of Defense (OSD) directives and instructions to the military departments and agencies. DOD spending on facility energy is annually reported to Congress as originally mandated by the National Energy Conservation Policy Act (NECPA). Data reported over the last decade have been summarized in this report. Annual defense appropriations that fund energy conservation measures along with DOD energy conservation investments are also summarized. This report does not cover the subject of transportation fuels.

Energy Efficiency Legislation

Federal government initiatives aimed at reducing energy consumption can be traced back to the start of the Federal Energy Management Program (FEMP) in 1973. The 1978 National Energy Conservation Policy Act (NECPA), Public Law (P.L.) 95-619, began the program of retrofitting federal buildings to improve energy efficiency. The 1985 Deficit Reduction Act ( P.L. 99-272 ) amended NECPA by authorizing energy savings contracts of up to 25 years.

The 1992 Energy Policy Act further amended NECPA by adopting Energy Savings Performance Contracts (ESPCs) that offered federal agencies a novel means of making energy efficiency improvements to aging buildings and facilities (see discussion below). NECPA required federal agencies, including DOD, to report annually on the energy consumption by their buildings, operations, and vehicles. Overall federal energy consumption is reported annually to Congress by the Department of Energy (DOE) Federal Energy Management Program (FEMP). The Federal Energy Management Improvement Act of 1988 ( P.L. 100-615 ) amended NECPA by requiring each agency to achieve a 10% reduction in energy consumption in federal buildings by FY1995 when measured against an FY1985 baseline in terms of British thermal units per gross square foot (Btu/gsf) of building area.

More recently, two major energy bills have been enacted with provisions generally pertaining to all federal agency facilities—the Energy Policy Act of 2005 (EPACT – P.L. 109-58 ) and the Energy Independence and Security Act of 2007 (EISA – P.L. 110-140 ). Annual DOD appropriation bills have also included energy provisions specifically pertaining to defense facilities. Legislation pertaining to the energy efficiency of federal and DOD buildings is summarized below. For bills introduced since the 107 th Congress, refer to the Appendix of this report.

Energy Policy Act of 2005 (P.L. 109-58)

Section 103. Energy Use Measurement and Accountability amended Section 543 of the NECPA with the mandate for using advanced meters to reduce electricity use in federal buildings by October 1, 2012. Section 109. Federal Building Performance Standards amended the Energy Conservation and Production Act by adopting the 2004 International Energy Conservation Code, and requiring revised energy efficiency standards and a 30% reduction in energy consumption of new federal buildings over the previous standards. Section 203. Federal Purchase Requirement requires that the federal government offset its electric energy consumption with an increasing percentage of "renewable energy" from 3% starting in 2005 to not less than 7.5% by 2013 and each fiscal year thereafter. Renewable energy is defined as electrical energy generated from solar, wind, biomass, landfill gas, ocean (including tidal, wave, current, and thermal), geothermal, municipal solid waste, or new hydroelectric generation capacity achieved from increased efficiency or additions of new capacity at an existing hydroelectric project.

Energy Independence and Security Act of 2007 (P.L. 110-140)

Section 431. Energy Reduction Goals for Federal Buildings amends the National Energy Conservation Policy Act (NECPA) by mandating a 30% energy reduction in federal buildings by 2015 relative to a 2005 baseline. Section 432. Management of Energy and Water Efficiency in Federal Buildings requires DOE to issue guidelines and criteria that each federal agency will follow for designating "covered facilities", assigning energy managers, and implementing comprehensive energy and water evaluations. For the purpose of energy and water evaluations, covered facilities constitute at least 75% of facility energy use at each facility. Section 433. Federal Building Energy Efficiency Performance Standards requires 55% reduced fossil energy use in new federal buildings and major renovations by 2010 relative to a 2003 baseline, and 100% by 2030. Section 434. Management of Federal Building Efficiency requires that federal agencies ensure the energy life-cycle cost effectiveness of major equipment replacements (such as heating and cooling systems) and renovations or expansion of existing space. Section 435. Leasing prohibits federal agencies from leasing buildings that have not earned an EPA Energy Star label. Section 436. High Performance Green Federal Buildings directs the establishment of federal high-performance green building standards for all types of federal facilities, and the establishment of green practices that can be used throughout the life of a federal facility. Section 512. Financing Flexibility authorizes federal agencies to use a combination of appropriated funds and private financing for Energy Savings Performance Contracts (ESPC). Section 514. Permanent Authorization enacts permanent authorization of ESPCs, and restricts federal agencies from limiting the duration of ESPCs to less than 25 years or limiting the total amount of obligations. Sec. 518. Study of Energy and Cost Savings in Nonbuilding Applications directs DOD to study the potential use of ESPCs in nonbuilding applications, which include vehicles and federally owned equipment that generate electricity or transport water. Section 526. Procurement and Acquisition of Alternative Fuels prohibits federal agencies from procuring alternative or synthetic fuels, unless contract provisions stipulate that life-cycle greenhouse gas emissions do not exceed equivalent conventional fuel emissions produced from conventional petroleum sources.

National Defense Authorization Act for FY2007 (P.L. 109-364)

Subtitle E (Energy Security), reorganizes 10 U.S.C 2865 to establish new energy performance goals for DOD, establish new goals for using renewable energy, and encourage energy efficiency products and renewable forms of energy in new construction. More specifically:

Section 2851. Consolidation and Enhancement of Laws to Improve Department of Defense Energy Efficiency and Conservation reorganizes 10 U.S.C. 2865 by the insertion of (new) Chapter 173— Energy Security , which requires the establishment of energy performance goals for transportation systems, support systems, utilities and infrastructure; leaves any appropriated funds equal to energy cost savings available for obligation until expended; requires development of a simplified method for contracting energy savings contract services; and authorizes energy conservation construction projects not previously authorized using appropriated funds after notification to Congress. Section 2852. Department of Defense Goal Regarding Use of Renewable Energy to Meet Electricity Needs amends 10 U.S.C. 2911 by making it DOD's goal to produce or procure at least 25% of its electric energy consumption from renewable sources by the year 2025. Section 2853. Congressional Notification of Cancellation Ceiling for Department of Defense Energy Savings Performance Contracts requires Congressional notice when federal agencies award an energy savings performance contract that contains a clause setting forth a cancellation ceiling in excess of $7,000,000. Section 2854. Use of Energy Efficiency Products in New Construction requires that to the maximum extent practicable, energy efficient products meeting Defense Department requirements must be used in new facility construction.

National Defense Authorization Act for FY2008 (P.L. 110-181)

Section 828. Multiyear Contract Authority For Electricity From Renewable Energy Sources authorizes contracts periods of up to 10 years for purchasing electricity from sources of renewable energy. Sec. 2861. Repeal of Congressional Notification Requirement Regarding Cancellation Ceiling for Department of Defense Energy Savings Performance Contracts amends 10 U.S.C § 2913 by striking subsection (e) requiring notification of an ESPC awarded with a cancellation ceiling clause exceeding $7 million.

National Defense Authorization Act for FY2009 (P.L. 110-417)

Section 902. Director of Operational Energy Plans and Programs amends 10 U.S.C. 139 by directing the appointment of a director responsible for the oversight of energy required for training, moving, and sustaining military forces and weapons platforms for military operations. Section 2831. Certification of Enhanced Use Leases for Energy-related Projects amends 10 U.S.C. 26679(h) by requiring certification that a lease exceeding 20 years for an energy production project is consistent with DOD performance goals. Section 2832. Annual Report on Department of Defense Installations Energy Management amends 10 U.S.C. 29259(a) by revising the subsection heading to "Annual Report Related to Installations Energy Management" and adding the reporting requirement for a description and estimate of the progress made by the military departments in meeting the certification requirements for sustainable green-building standards in construction and major renovations as required by Section 433 of EISA 2007.

Executive Order 13423

In signing Executive Order (EO) 13423 - Strengthening Federal Environmental, Energy and Transportation Management , President Bush revoked five earlier executive orders affecting federal agencies' energy and environmental management. Section 11 of the order consolidates and strengthens the five Executive Orders and two Memorandums of Understanding (MOU) and establishes new and updated goals, practices, and reporting requirements for environmental, energy, and transportation performance and accountability. In some cases the new executive order puts in place replacement energy and environmental efficiency goals for previous goals with target dates that have passed.

The new Executive Order also implements and supplements provisions of the EPACT dealing with energy and environmental management by federal agencies. The combination of EPACT (Title I, Part A) and EO13423 define the current energy efficiency objectives for federal agencies. EO13423 directs all federal agencies, including DOD, to improve energy efficiency and reduce greenhouse gas emissions through reduction of energy intensity (3% annually through the end of FY2015, and 30% by the end of FY2015, relative to each agency's baseline energy use in FY2003). Progress in reaching building energy efficiency goals are scored by agencies in terms of reductions in energy consumption versus gross building area (Btu/gsf). For the energy reduction goals of EPACT and EO13423, some inherently inefficient industrial types of buildings are excluded from this scoring.

EO13423 (Section 2f) mandates specific energy reduction targets for new construction and renovations. Executive branch agencies are directed to meet objectives set in the Federal Leadership in High Performance and Sustainable Buildings Memorandum of Understanding ("Sustainable Buildings MOU"). The Sustainable Buildings MOU calls for new buildings to be 30% more cost efficient than industry standards, and for buildings undergoing major renovations to be 20% more cost efficient than a pre-renovation, 2003 baseline. Federal agencies are encouraged to incorporate sustainable practices into projects underway, and are also encouraged to sell or dispose of unneeded assets.

Executive Order 13123, now revoked, had directed improvements in building energy efficiency, promoted the use of renewable energy, and set goals for reduction of greenhouse gas (GHG) emissions associated with energy use in buildings, among other energy-related requirements. The revoked order had also served as the basis of DOD's instruction to the services on energy use. In contrast, the new Executive Order 13423 has no specific GHG reduction target. However, Section 2.a of the new Executive Order does include the goal of cutting GHG emissions by federal agencies through reductions in the energy intensity of agency operations, but does not specify a GHG reduction target.

EPACT only credited electricity from renewable energy sources in meeting federal purchase requirements. EO13423 now requires that at least half of the EPACT renewable energy requirement comes from new (put in service after January 1, 1999) renewable energy sources. Agencies may also use new non-electric renewable energy sources to meet the requirement for new renewable energy. (Examples of non-electric renewable energy include thermal energy from solar ventilation pre-heat systems, solar heating and cooling systems, solar water heating, ground source heat pumps, biomass heating and cooling, thermal uses of geothermal and ocean resources.) However, these non-electric renewable energy sources cannot be used to meet the EPACT renewable electricity requirement (see Table 1 ).

For the purpose of meeting the energy intensity reduction goals under EPACT (Btu/gsf), the credit agencies receive for renewable energy purchases started to phase out in FY2008, and will be reduced to zero by FY2011.

Finally, EO13423 requires each federal agency to annually report to the President. The Office of Management and Budget (OMB) provides general reporting guidance in Circular No. A-11 (Section 55 – Information on Energy Use, Cos ts, and Efficiency ). Detailed reporting guidance is provided in a recent DOE memorandum to federal agency energy coordinators.

Defense Energy Policies

The Office of the Secretary of Defense (OSD) has issued directives and instructions to the military departments and agencies on implementing EO13423 and complying with energy legislation. In an October 23, 2007 Energy Awareness Campaig n memorandum to the service departments and agencies, the Under Secretary of Defense underscored the energy conservation goals of EO13423 and established October as an Energy Awareness month. The memorandum effectively superseded an earlier January 2005 memorandum that referenced EO13123 - Greening the Government through Efficient Energy Management.

DOD's primary guidance on installation energy management appears in DOD Instruction 4170.11. The instruction applies to all military departments and agencies, and pertains to all phases of administration, planning, programming, budgeting, operations, maintenance, training, and materiel acquisition activities that affect the supply, reliability and consumption of facilities energy. In reference to Instruction 4170.11, a November 18, 2005 memorandum on Installation Energy Policy Goals establishes goals of reducing greenhouse gases, reducing energy and water consumption, expanding renewable energy procurement, and reducing petroleum use. It also directs the completion of eligible utility privatization in a process established under the Deputy Secretary of Defense. Further guidance to DOD's installation and facility managers is provided in the DOD Energy Managers Handbook. In particular, the guidance endorses the sustainable building design approach for building and facility life-cycles, and encourages DOD components to obtain the U.S. Green Building Council's Leadership in Energy and Environment Design (LEED) certification. DOD responded to the EPACT Section 103 electric metering provision by revising instructions on installation energy management to require metering at all appropriate facilities in Department of Defense Metering Plan .

Defense Energy Consumption and Spending

DOD reports occupying over 316,000 buildings and additional 182,000 structures on 536 military installations worldwide. In FY2007 DOD spent over $3.4 billion on energy consumed by its facilities as shown in Table 2 ; roughly 13% of Defense-wide operations and maintenance (O&M) budget obligation authority. (In FY2001, it ran as high as 23%.) Electricity represented 45% of energy consumed, followed by natural gas at 33%, fuel oil at 11%. The balance was made up of coal and liquefied petroleum gas (LPG). Renewable energy represented 8.7% of facility electricity use. As shown in the Table 3 , energy consumption (express in British Thermal Units – Btu) has been decreasing over the same period, as has gross building area.

Over the current decade, both electricity rates and natural gas prices steadily increased. DOD's average electricity costs in cents per kilowatt-hr (kWh) have stayed between the range of rates charged to commercial and industrial customers, as shown in Figure 1 .

DOD natural gas costs have generally tracked the price of gas at the local distribution company (LDC) citygate ( Figure 2 ). The citygate is the point at which the LDC takes gas from the transmission pipeline for distribution to it customers. The spike in DOD's cost relative to the falling citygate price is not explained in any DOD reporting.

Renewable Electric Energy Purchases

Reporting requirements for renewable energy have changed over the last decade due to new legislated mandates and Executive Orders. EPACT Section 203 requires federal agencies to replace electricity consumption with increasing amounts of renewable energy. Federal agencies must also meet the new renewable energy requirements of EO13423. In 1999, DOD had not yet begun reporting on renewable energy. A limited capacity of photovoltaic (solar) panels had been installed, but operating statistics under the category of self-generated power had not been compiled until FY2001. As shown in Table 4 , DOD began reporting renewable energy in FY2000. For FY2007, DOD reported using over 1.6 million MWH of renewable electricity, which represented 5.5% of overall electricity consumption. The renewable energy goal by 2025 is 25% of total electricity use.

Defense Energy Efficiency Improvements

Despite reductions in energy consumption, annual energy spending increased up through FY2006 and would likely have been higher without investment in energy efficiency improvements. DOD programs improvements through the Defense Energy Conservation Investment Program (ECIP), and takes advantage of ESPCs, and Utility Energy Savings Contracts (UESCs). Improvements are funded directly through the Defense Military Construction (MILCON) program, and indirectly through Operation and Maintenance (O&M) appropriations.

Energy Conservation Investment Program

Between 1999 and 2009, Congress appropriated $442.9 million in Defense Energy Conservation Projects (summarized in Table 5 ). These projects are accomplished through the DOD Energy Conservation Investment Program (ECIP), which designates projects that specifically save or reduce Defense energy costs, and are funded under MILCON.

According to the Office of the Secretary of Defense: "OSD centrally controls ECIP funding allocation on a by-project basis. In FY 1999 ECIP funds were allocated to those projects with the highest savings to investment ratio (SIR) and the best payback periods, regardless of component. In FY 2001, the Department revised this process to allocate funds based on the components' percentage of total DOD installations BTU consumption. Within the allocated amount, the Component prioritizes their projects based on a combination of SIR and the priorities emphasized by the Energy Policy Act of 2005, Executive Order (EO) 13423, and the Energy Independence and Security Act of 2007. The Department emphasizes the use of ECIP in reducing energy consumption and greenhouse gas emissions, and increasing the use of renewable energy."

Between 2001 and 2007, DOD in turn allocated $260.3 million for 193 ECIP projects (summarized in Table 6 ).

Energy Savings Performance Contracts

ESPCs complement DOD's Energy Conservation Investment Program and Defense Energy Conservation appropriations by providing additional energy efficiency improvements. Qualified Energy Service Companies (ESCOs) finance the improvements through the savings realized by the facility, typically over a life-cycle of 10 to 25 years. These contracts include infrastructure improvements and new equipment to help reduce energy consumption. Examples include new thermal storage systems, chillers, boilers, lights, motors, energy monitoring and control systems, and water saving devices. In return for providing the financing, the ESPC contractor receives a specified share of any resulting energy cost savings.

Between 1999 and 2007, DOD awarded 248 ESPCs for a value exceeding $2.8 billion (summarized in Table 7 ). ESPCs are funded through O&M appropriations. The Congressional Budget Office's (CBO) view of ESPCs found that they imposed a future financial obligation on the federal government. CBO began scoring ESPCs as mandatory spending, coinciding with the expiration of the 1990 Budget Enforcement Act ( P.L. 101-508 ) pay-as-you-go (PAYGO) rules. The CBO scoring reflects how ESPCs create future commitments to appropriations, consistent with how appropriations-funded ECIPs would be scored throughout the budget. The Government Accountability Office (GAO) finds that the benefits of ESPCs could be achieved using upfront funds (that is, fully funded in advance) and with lower financing costs, but agencies generally do not receive sufficient funds upfront for doing so and see ESPCs as a necessary supplement to upfront funding in order to achieve the energy savings benefits.

Utility Energy Savings Contracts

DOD Utility Energy Savings Contracts (UESC) are financed and implemented through utility companies, similar in some respects to ESPCs. Essentially, the same energy efficiency improvements can be accomplished through UESCs as ESPCs. With a UESC, the utility typically finances the capital costs of the project, and is repaid over the contract term from the cost savings generated by the energy efficiency measures. The installation or facility pays for the improvement through O&M appropriated funds. There are no statutory energy savings guarantees for UESCs, unlike ESPCs. Although a facility manager may request such a guarantee at the time of a project's installation. Between 1999 and 2006, DOD reported placing 241 UESCs worth $967.6 million (summarized in Table 8 ).

Policy Considerations and Options for Congress

DOD spending on energy consumed by its facilities worldwide can make up as much as 23% of its annual Operating and Maintenance budget. More than $3.4 billion was spent annually in FY2006 and FY2007. DOD has steadily decreased its buildings' energy-intensity in response to mandated energy reduction goals through investment in energy conservation projects. Over the last decade, Congress has appropriated $443 million in DOD energy conservation projects, DOD investment in energy conservation adds another $250 million, and the value of Energy Savings Performance Contracts (ESPCs) exceeds $2.8 billion. Despite the investments, DOD annual energy spending has been increasing since 1999, as have electricity and particularly natural gas prices. Further investment in energy conservation is expected to meet the future mandated energy reduction goals.

ESPCs have become a preferred means of making energy efficiency improvements because, in part, funds do not have to be directly appropriated (or programmed). However, as Energy Savings Contractors (ESCOs) assume a certain risk in guaranteeing savings through ESPCs, the risk is factored into their cost. Also, ESPC commitments may extend up to 25 years—an indication of the time needed to recoup the ESCO's investment. As energy efficiency improvements made through UESCs do not necessarily come with savings guarantees and thus risk, the lower cost may translate into higher savings. Federal agencies may not be taking full advantage of this savings opportunity. This may be due to individual utilities limited role promoting UESCs, the number of utilties that may offer UESCs, installation managers' unfamiliarity with UESCs, and ESCOs influence in promoting ESPCs.

Aging buildings may have limits in meeting energy efficiency goals, and investment in energy conservation may eventually see diminishing returns in energy savings. Overall goals may be achieved, ultimately, through the replacement of older building with new buildings built to LEED standards and even newer "high-performance" building standards being developed the American Society of Heating, Refrigerating and Air Conditioning Engineers (ASHRAE). Whether future investments in energy conservation projects and ESPC commitments should give way to replacing older inefficient building with new construction is an issue that Congress may eventually wish to consider. Authorizing ESPCs for building renovation could be used to install more efficient equipment, better insulation and windows, and possibly renewable energy sources whose installation might not be accomplished by appropriation alone. Congress may wish to consider expanding the EISA Section 518 EPSC provision (non-building applications), to study renovating energy-inefficient buildings to LEED and high-performance standards.

Under EISA 2007, Congress has authorized mixing appropriated funds with private financing of ESPCs. How funds appropriated for O&M may be applied to ESPCs, though, is unclear. DOE has not yet promulgated rules on the new authority. The lack of rules may prove to be a critical barrier to accomplishing DOD-related provisions in the American Recovery and Reinvestment Act (ARRA) of 2009 ( P.L. 111-5 ). ARRA provides nearly $3.7 billion under O&M for Defense Facilities Sustainment, Restoration, and Modernization that may be applied toward energy efficiency projects and repair and modernization of DOD facilities. Another $300 million for Research Development, Test and Evaluation may be applied to improvements in energy generation on military installations. The combined funding nearly matches the $4.2 billion in ECIP, ESPC, and UESC spending from FY1999 through FY2007. The ARRA appropriation, however, remains available for obligation until September 30, 2010. Acquisition planning for the improvements, not including the year-long acquisition process, may exceed the time–frame of funding availability. Timely acquisition, to meet the economic stimulus intent of ARRA, may also depend on having an adequately trained acquisition workforce in place. Given the lack of rules, comparatively high funding level, and short obligation period, Congress may wish to consider whether DOD may act effectively on the provisions.

Finally, though DOD's average utility energy costs fall in the range of national energy prices, Congress may wish to consider how DOD's energy costs (not just consumption) could be reduced further. As the single largest national energy consumer, DOD might leverage its buying power in negotiating lower utility rates.

Appendix. Legislation