The National Defense Authorization Act for Fiscal Year 2012 (NDAA; P.L. 112-81 , §2824) directs the Secretary of Defense "to establish a policy to maximize savings for the bulk purchase of replacement renewable energy certificates (RECs) in connection with the development of facility energy projects using renewable energy sources." The provision requires that each service acquire replacement RECs through either a centralized purchasing authority within the respective department, or the Defense Logistics Agency (DLA). It presumes that either agency brings the commensurate expertise in the RECs to purchase them and obtain the best value for the military department. Central purchasing could offer inherent advantages in efficiency and economy. DOD's executive agent for purchasing energy in bulk is the Defense Logistics Agency-Energy (DLA-E), which operates through a working capital fund to purchase fuel and power for its clients—the armed services and some non-defense federal agencies. Purchasing RECs would logically extend DLA-E's mission (which DLA-E already does to a limited extent). The federal renewable energy policies that serve as the backdrop for the NDAA-REC provision evolved from several decades of effort directed toward reducing federal building energy-intensity; an era marked by increasing energy costs and expectations for increased energy demand throughout the commercial and domestic sectors. The 1978 National Energy Conservation Policy Act (NECPA, P.L. 95-619 ) initiated a program of retrofitting federal buildings to improve energy efficiency. It also required federal agencies, including DOD, to report annually on their progress in meeting energy consumption goals for facilities. The Consolidated Omnibus Budget Reconciliation Act of 1985 (also called the Deficit Reduction Act, P.L. 99-272 ) amended NECPA by authorizing energy savings contracts of up to 25 years. The 1992 Energy Policy Act ( P.L. 102-486 ) further amended NECPA by authorizing Energy Savings Performance Contracts (ESPCs) that offered federal agencies a novel means of making energy efficiency improvements to aging buildings and facilities. The Energy Policy Act of 2005 ( P.L. 109-58 , EPAct), in Section 203, established renewable energy goals for federal government agencies. For total energy consumed by the federal government, EPAct required increasing minimum amounts of energy to come from renewable sources to the extent "economically and technically feasible": Not less than 3% in fiscal years 2007 through 2009; Not less than 5% in fiscal years 2010 through 2012; and Not less than 7.5% in fiscal year 2013 and each fiscal year thereafter. Executive Order 13423 (Strengthening Federal Environmental, Energy, and Transportation Management, 2007) required that at least half the required renewable energy that a federal agency consumed in a fiscal year should come from "new renewable energy sources, and … to the extent feasible, the agency implements renewable energy generation projects on agency property for agency use." While federal agencies can choose to purchase renewable electricity or obtain renewable energy by other means, the executive order also directed them to build their own renewable energy projects on federal property (when feasible) so that they can consume the renewable power produced on-site. The Department of Energy's Federal Energy Management Program (FEMP) has advised, "Because it defines renewable energy broadly, many different REC types can count towards an agency's renewable energy consumption requirement under EPAct 2005." Section 203 of EPAct 2005 specifies that renewable energy must be consumed to be credited toward the renewable energy goal (42 U.S.C. 15852(a)). However, Congress has not provided federal agencies explicit statutory authority to purchase RECs for meeting EPAct goals. Both U.S. total energy demand and U.S. energy generation have declined in the last decade. The last two decades, in particular, mark a rapid change in the deregulation and re-regulation of the electric power industry that has created opportunities for renewable energy generators, created niche markets and incentives for renewable energy, and created a market for issuing and tracking renewable energy credits. RECs became an attractive option for some federal facilities intent on meeting renewable energy mandates, particularly where renewable power was not readily available. Early on, federal agencies purchased RECs without purchasing the associated electricity in order to meet the building energy-intensity reduction goals of NECPA. State renewable portfolio standards (RPS) have created a market for trading RECs. Every megawatt-hour of power generated from eligible renewable sources creates a certain amount of RECs, usually in a one-to-one ratio. In some markets, RECs can trade separately from the power they represent, while in others they must remain "bundled" together. The market for purchasing RECs is complex and evolving. Some states already require that electric utilities obtain certain amounts of the electricity they deliver to end-use customers from renewable-generated electricity. Electricity markets already offer three main products: capacity (megawatts); power (traded in megawatt-hours); and ancillary services (services that ensure reliability and support transmission of electricity from generators to customer loads). Power and capacity sold in bundled form represents "firm power"—power or producing capacity intended to be available during the period covered by a guaranteed commitment to deliver, even under adverse conditions. This is the pricing plan for renewable and non-renewable energy purchases used widely by commercial and industrial customers (including DOD). Federal spending on electricity represents only from 17% to 18% of total federal energy use, and roughly one-third-of-1% of the federal discretionary budget. When FEMP last reported on federal energy consumption in 2007, spending on electricity amounted to $4.4 billion for 56,497 gigawatt-hours at an average cost of roughly $78 per MWh. At the time, electricity rates ranged from $82/MWh for industrial users to $120/MWh for commercial users. DOD as late as FY2012 reports spending $4.10 billion on energy for its facilities worldwide. DOD activities occupy more than 316,000 buildings and an additional 182,000 structures on 536 military installations worldwide. In FY2010 DOD reported that it consumed approximately 211,000 billion British thermal units (Btu) of energy in its facilities. DOD's U.S. facilities consumed closer to 187,759 billion Btu. Approximately 45% of the energy DOD facilities consumed came from electricity; 34% from natural gas; and the remaining percentages were fuel oil (9%), coal (7%), purchased steam (3%), and liquefied petroleum gas/propane/other fuels (2%). (See Figure 1 .) CRS estimated that DOD consumed 24,765 thousand MWh of electric power at its U.S. facilities by applying a factor of 45% to total site-delivered energy (in Btu) and then converting Btu to electric power. To mark their progress towards reducing energy intensity in buildings under NECPA and later EPAct, DOD and other federal agencies aggregate overall energy use in Btu per square foot of building space for reporting purposes. Neither policy requires DOD or other federal agencies to report their electricity consumption on a state-by-state basis. In order to gauge the best opportunities for DOD to purchase RECs in the current REC market, CRS needed some measure of state-by-state electricity use, and made an "across the board" assumption on electricity use based on Figure 1 . By aggregating site-delivered energy data (Btu) that DOD reported by facility, CRS was able to estimate DOD power demand (MWh) by state ( Table 1 ). The Table 1 estimates are intended for comparative purposes only, as factors such as regional climate variations, geography, and the availability of natural gas are likely to skew overall energy preference for, or use of, electricity. As Table 1 shows, DOD consumed over half of its estimated power demand (some 13,167 thousand MWh) in 10 states: Virginia, Maryland, California, Texas, North Dakota, Alaska, North Carolina, Georgia, Florida, and Washington. As this report discuss further below, these states' policies promoting renewable energy use vary considerably. In states with restructured power markets, for example, DOD may take advantage of retail choice programs and buy power directly from merchant generators through a local utility. The Public Utility Regulatory Policies Act of 1978 (PURPA) and the Energy Policy Act of 1992 (EPAct '92) had obligated retail utilities to buy capacity and energy from certain types of "qualifying facilities." In 1996, the Federal Energy Regulatory Commission (FERC) issued Order 888 to encourage wholesale competition through non-discriminatory open access to public utility transmission lines. The order offered customers the opportunity to contract power separately from distribution through their local utility (i.e., unbundled service), and various states have since moved toward restructuring their power markets. Ideally, restructuring promised electricity consumers the opportunity to contract with the lowest cost supplier of electric power independent of local utility service. Today, only 16 states have fully restructured to allow their utility customers retail choice in purchasing power ( Figure 2 ). These states presumably should offer DOD the opportunity to purchase RECs and the associated power (if available). In states that remain regulated, DOD may be restricted to purchasing bundled electric service from local utilities. PURPA also defined a new class of qualifying generating facilities (QFs) that would receive special rate and regulatory treatment under FERC, and allowed these entities to sell power to electric utilities. Under PURPA, QFs include "small power" production facilities that generate less than 80 megawatts using solar, wind, geothermal, biomass, or waste; that is, renewable energy generators. In response to restructuring, states began instituting requirements for utilities to include a certain portion of new sources of renewable-generated electricity in their generating capacity.