[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
                   GREEN BUILDINGS--AN EVALUATION OF

                  ENERGY SAVINGS PERFORMANCE CONTRACTS
=======================================================================


                             JOINT HEARING

                               BEFORE THE

                      SUBCOMMITTEE ON OVERSIGHT &

                         SUBCOMMITTEE ON ENERGY

              COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY

                        HOUSE OF REPRESENTATIVES


                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                        THURSDAY, JUNE 27, 2013

                               __________

                           Serial No. 113-39

                               __________

 Printed for the use of the Committee on Science, Space, and Technology


       Available via the World Wide Web: http://science.house.gov




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              COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY

                   HON. LAMAR S. SMITH, Texas, Chair
DANA ROHRABACHER, California         EDDIE BERNICE JOHNSON, Texas
RALPH M. HALL, Texas                 ZOE LOFGREN, California
F. JAMES SENSENBRENNER, JR.,         DANIEL LIPINSKI, Illinois
    Wisconsin                        DONNA F. EDWARDS, Maryland
FRANK D. LUCAS, Oklahoma             FREDERICA S. WILSON, Florida
RANDY NEUGEBAUER, Texas              SUZANNE BONAMICI, Oregon
MICHAEL T. McCAUL, Texas             ERIC SWALWELL, California
PAUL C. BROUN, Georgia               DAN MAFFEI, New York
STEVEN M. PALAZZO, Mississippi       ALAN GRAYSON, Florida
MO BROOKS, Alabama                   JOSEPH KENNEDY III, Massachusetts
RANDY HULTGREN, Illinois             SCOTT PETERS, California
LARRY BUCSHON, Indiana               DEREK KILMER, Washington
STEVE STOCKMAN, Texas                AMI BERA, California
BILL POSEY, Florida                  ELIZABETH ESTY, Connecticut
CYNTHIA LUMMIS, Wyoming              MARC VEASEY, Texas
DAVID SCHWEIKERT, Arizona            JULIA BROWNLEY, California
THOMAS MASSIE, Kentucky              MARK TAKANO, California
KEVIN CRAMER, North Dakota           ROBIN KELLY, Illinois
JIM BRIDENSTINE, Oklahoma
RANDY WEBER, Texas
CHRIS STEWART, Utah
VACANCY
                                 ------                                

                       Subcommittee on Oversight

                   HON. PAUL C. BROUN, Georgia, Chair
F. JAMES SENSENBRENNER, JR.,         DAN MAFFEI, New York
    Wisconsin                        ERIC SWALWELL, California
BILL POSEY, Florida                  SCOTT PETERS, California
DAVID SCHWEIKERT, Arizona            EDDIE BERNICE JOHNSON, Texas
KEVIN CRAMER, North Dakota
LAMAR S. SMITH, Texas
                                 ------                                

                         Subcommittee on Energy

                  HON. CYNTHIA LUMMIS, Wyoming, Chair
RALPH M. HALL, Texas                 ERIC SWALWELL, California
FRANK D. LUCAS, Oklahoma             ALAN GRAYSON, Florida
RANDY NEUGEBAUER, Texas              JOSEPH KENNEDY III, Massachusetts
MICHAEL T. McCAUL, Texas             MARC VEASEY, Texas
RANDY HULTGREN, Illinois             MARK TAKANO, California
THOMAS MASSIE, Kentucky              ZOE LOFGREN, California
KEVIN CRAMER, North Dakota           DANIEL LIPINSKI, Illinois
RANDY WEBER, Texas                   EDDIE BERNICE JOHNSON, Texas
LAMAR S. SMITH, Texas
                            C O N T E N T S

                        Thursday, June 27, 2013

                                                                   Page
Witness List.....................................................     2

Hearing Charter..................................................     3

                           Opening Statements

Statement by Representative Paul C. Broun, Chairman, Subcommittee 
  on Oversight, Committee on Science, Space, and Technology, U.S. 
  House of Representatives.......................................     8
    Written Statement............................................     9

Statement by Representative Dan Maffei, Ranking Minority Member, 
  Subcommittee on Oversight, Committee on Science, Space, and 
  Technology, U.S. House of Representatives......................    10
    Written Statement............................................    10

Statement by Representative Cynthia Lummis, Chairwoman, 
  Subcommittee on Energy, Committee on Science, Space, and 
  Technology, U.S. House of Representatives......................    11
    Written Statement............................................    12

Statement by Representative Eric Swalwell, Ranking Minority 
  Member, Subcommittee on Energy, Committee on Science, Space, 
  and Technology, U.S. House of Representatives..................    13
    Written Statement............................................    14

Statement by Representative Eddie Bernice Johnson, Ranking 
  Member, Committee on Science, Space, and Technology, U.S. House 
  of Representatives.............................................    15
    Written Statement............................................    15

                               Witnesses:

Dr. Kathleen Hogan, Deputy Assistant Secretary for Energy 
  Efficiency, U.S. Department of Energy
    Oral Statement...............................................    17
    Written Statement............................................    19

Dr. Woodrow Whitlow, Jr., Associate Administrator, Mission 
  Support Directorate, National Aeronautics and Space 
  Administration
    Oral Statement...............................................    27
    Written Statement............................................    29

Ms. Jennifer Schafer, Executive Director, Federal Performance 
  Contracting Coalition
    Oral Statement...............................................    34
    Written Statement............................................    36

Mr. Ron King, President Advisor, National Insulation Association
    Oral Statement...............................................    42
    Written Statement............................................    44

Discussion.......................................................    60

             Appendix I: Answers to Post-Hearing Questions

Dr. Kathleen Hogan, Deputy Assistant Secretary for Energy 
  Efficiency, U.S. Department of Energy..........................    78

Dr. Woodrow Whitlow, Jr., Associate Administrator, Mission 
  Support Directorate, National Aeronautics and Space 
  Administration.................................................   111

Ms. Jennifer Schafer, Executive Director, Federal Performance 
  Contracting Coalition..........................................   115

Mr. Ron King, President Advisor, National Insulation Association.   122

            Appendix II: Additional Material for the Record

Letter submitted by Representative Eric Swalwell, Ranking 
  Minority Member, Subcommittee on Energy, Committee on Science, 
  Space, and Technology, U.S. House of Representatives...........   130


                   GREEN BUILDINGS--AN EVALUATION OF


                  ENERGY SAVINGS PERFORMANCE CONTRACTS

                              ----------                              


                        THURSDAY, JUNE 27, 2013

                  House of Representatives,
                                Subcommittee on Oversight &
                                     Subcommittee on Energy
               Committee on Science, Space, and Technology,
                                                   Washington, D.C.

    The Subcommittees met, pursuant to call, at 10:04 a.m., in 
Room 2318 of the Rayburn House Office Building, Hon. Paul Broun 
[Chairman of the Subcommittee on Oversight] presiding.

[GRAPHIC] [TIFF OMITTED] 

    Chairman Broun. Good morning. This joint hearing of the 
Subcommittee on Oversight and the Subcommittee on Energy will 
come to order.
    Good morning and welcome to today's joint hearing. In front 
of you are packets containing the written testimony, the 
biographies, and truth-in-testimony disclosures for today's 
witnesses. Before we get started, since this is a joint hearing 
involving two Subcommittees, I want to explain how we will 
operate procedurally so all Members will understand how the 
question-and-answer period will be handled. As always, we will 
alternate between the majority and the minority Members. We 
will recognize those Members present at the gavel in order of 
seniority on the full Committee, and those coming in after the 
gavel will be recognized in the order of their arrival.
    I now recognize myself for five minutes for an opening 
statement.
    Today's hearing is titled, ``Green Buildings--An Evaluation 
of Energy Savings Performance Contracts.'' Energy Savings 
Performance Contracts, also known as ESPCs, are a unique 
mechanism by which the private sector pays for energy 
conservation measures at Federal facilities, and are reimbursed 
for their work out of the resulting savings in utility cost. 
Each contract creates jobs in the private sector while the 
Federal Government benefits from valuable upgrades without 
putting taxpayers on the line.
    That last part is what makes this program particularly 
appealing, because during these constrained economic times, it 
is imperative that we manage our limited funds as best we can 
and be creative about accomplishing our goals while maximizing 
our strained resources.
    However, as I have realized in my experience as a Member of 
Congress, when it comes to government programs, no matter how 
effective and efficient, they can all be improved. A couple of 
reports on ESPCs have raised some legitimate concerns about the 
complexity of these contracts. A 2005 GAO report, the most 
recent one on the subject, questioned whether agencies were 
getting the best deal possible from energy service companies in 
part based on the limited number of financiers available to the 
private sector for such projects.
    A NASA IG report from earlier this year raised specific 
questions about an early contract involving Johnson Space 
Center. The report questioned if NASA employees were 
sufficiently trained in handling ESPCs because the Johnson 
contract did not require annual reports to verify the energy 
conservation measures were generating savings.
    I realize the GAO report is dated and that the NASA IG 
report focused on an early contract, but they raise important 
questions. The most important features of these contracts are 
their flexibility in not relying on taxpayer dollars for the 
services provided and the ability to categorically identify and 
measure savings. To be assured of the success and effectiveness 
of ESPCs, we need meaningful transparency, accountability, and 
oversight during the length of all contract terms.
    Additionally, despite a 2011 memo from the President 
encouraging agencies to engage in $2 billion worth of 
performance-based contracting by the end of this year, Federal 
agencies continue to encounter challenges in their efforts to 
``green'' their buildings. The White House Council on 
Environmental Quality and the Office of Management and Budget 
recently released their annual agency energy and sustainability 
scorecards. Ironically, the green buildings category was 
notably problematic because out of 19 agencies that provided 
timely information, 10 scored in the red and yellow categories, 
while 5 others could not even be scored.
    Perhaps instead of continuing to announce new broad and 
sweeping policies related to global warming, the President 
could focus on his current costly regulations that are already 
in the books. Perhaps instead of bypassing Congress to 
implement a plan by Executive Order that launches a ``war on 
coal''--as well as a war on jobs--this Administration could 
work with Congress on an all-of-the-above energy approach that 
includes coal, energy efficiency, and everything in between.
    While my Democratic colleagues and I don't always see eye-
to-eye on the issues that we review in this hearing room, I do 
believe we agree on the value and benefit of ESPCs, and I look 
forward to hearing from our witnesses on how we can improve the 
program.
    [The prepared statement of Mr. Broun follows:]
     Prepared Statement of Representative Paul C. Broun, Chairman, 
                       Subcommittee on Oversight

    Today's hearing is titled ``Green Buildings--An Evaluation of 
Energy Savings Performance Contracts.''
    Energy Savings Performance Contracts, also known as ESPCs, are a 
unique mechanism by which the private sector pays for energy 
conservation measures at federal facilities, and are reimbursed for 
their work out of the resulting savings in utility costs. Each contract 
creates jobs in the private sector while the federal government 
benefits from valuable upgrades without putting taxpayers on the line. 
That last part is what makes the program particularly appealing, 
because during these constrained economic times, it is imperative we 
manage our limited funds as best we can, and be creative about 
accomplishing our goals while maximizing our strained resources.
    However, as I have realized in my experience as a Member of 
Congress, when it comes to government programs, no matter how effective 
and efficient, they can all be improved. A couple of reports on ESPCs 
have raised some legitimate concerns about the complexity of these 
contracts. A 2005 GAO report, the most recent one on the subject, 
questioned whether agencies were getting the best deal possible from 
energy service companies in part based on the limited number of 
financiers available to the private sector for such projects. A NASA IG 
report from earlier this year raised specific concerns about an early 
contract involving Johnson Space Center. The report questioned if NASA 
employees were sufficiently trained in handling ESPCs because the 
Johnson contract did not require annual reports to verify that the 
energy conservation measures were generating savings.
    I realize the GAO report is dated and that the NASA IG report 
focused on an early contract, but they raise important questions. The 
most important features of these contracts are their flexibility in not 
relying on taxpayer dollars for the services provided, and the ability 
to categorically identify and measure savings. To be assured of the 
success and effectiveness of ESPCs, we need meaningful transparency, 
accountability and oversight during the length of all contract terms.
    Additionally, despite a 2011 memo from the President encouraging 
agencies to engage in $2 billion worth of performance-based contracting 
by the end of this year, federal agencies continue to encounter 
challenges in their efforts to ``green'' their buildings. The White 
House Council on Environmental Quality and the Office of Management and 
Budget recently released their annual agency energy and sustainability 
scorecards. Ironically, the green buildings category was notably 
problematic because out of 19 agencies that provided timely 
information, ten scored in the red and yellow categories, while five 
others could not even be scored.
    Perhaps instead of continuing to announce new broad and sweeping 
policies related to global warming, the President could focus on his 
current costly regulations already in the books. Perhaps instead of 
bypassing Congress to implement a plan by executive order that launches 
a ``war on coal''--as well as a war on jobs--this Administration could 
work with Congress on an ``all of the above'' energy approach that 
includes coal, energy efficiency, and everything in-between.
    While my Democratic colleagues and I don't always see eye-to-eye on 
the issues we review in this hearing room, I do believe we agree on the 
value and benefit of ESPCs, and I look forward to hearing from our 
witnesses on how we can help improve the program.

    Chairman Broun. Now, I will recognize the Ranking Member, 
my good friend and gentleman from New York, Mr. Maffei, for his 
opening statement.
    Mr. Maffei. I thank you, Mr. Chair. And I do want to thank 
both you and Chairwoman Lummis for holding this hearing today, 
and indeed all of the Members. And we are also honored to be 
joined by the distinguished Ranking Member of the full 
Committee, Ms. Bernice Johnson--Eddie Bernice Johnson from 
Texas. I am always honored to be in the same room with her.
    And I do want to concur with the statements of the Chairman 
in terms of Energy Savings Performance Contracts. I will submit 
my full statement to the record, but these are--at a time when 
all Federal agencies are fiscally challenged, these are an idea 
worth pursuing. ESPCs are widely seen as a good idea with 
potential large savings to the Federal Government and the U.S. 
taxpayer.
    Like any government program, they need to be properly 
managed and carefully overseen. They have been implemented so 
far primarily through the Department of Energy's Federal 
Emergency--I am sorry--Federal Energy Management Program. And 
since 1998, the program has awarded ESPC projects through 25 
separate Federal agencies for a total estimated savings of $7.2 
billion. And most of these projects have occurred without any 
indication of abuse.
    However, a recent audit of NASA Energy Savings Contracts by 
the NASA Inspector General found that that is not always the 
case. And while the NASA IG documented a case of poor 
government oversight, I believe if properly managed, Energy 
Savings Performance Contracts, our partnership between the 
Federal Government and the business community that can well 
serve the U.S. taxpayers and help conserve and protect our 
natural resources.
    So I do look forward to hearing from the witnesses today 
about how to properly manage and oversight these contracts that 
improve the energy efficiency while reaping potential large 
Federal cost savings.
    And I do again want to thank the Chairman for holding this 
hearing. I do note this is particularly well-timed with the 
President's speech on Tuesday. I don't know if you are 
coordinating that on purpose. But I do appreciate you doing 
this because I do think that these--this is a really good idea 
potentially, very--offering very much savings as long as we 
execute it correctly, and Congressional oversight is an 
important component of that.
    I yield back.
    [The prepared statement of Mr. Maffei follows:]
   Prepared Statement of Representative Dan Maffei, Ranking Minority 
                   Member, Subcommittee on Oversight

    Thank you Chairman Broun and Chairwoman Lummis for holding this 
hearing today.
    Energy Savings Performance Contracts or E-S-P-Cs are contracting 
vehicles that have permitted federal agencies to meet energy 
efficiency, renewable energy, water conservation and emissions 
reduction goals since they were first established by Congress in 1986. 
They allow federal agencies to implement energy efficient projects with 
limited up-front costs and significant long-term savings in unique 
public-private partnerships.
    As part of these arrangements private sector Energy Service 
Companies (ESCOs) conduct comprehensive energy audits of federal 
facilities and identify long-term energy savings that will pay for the 
cost of the project over the term of the contract with the federal 
agency. The private contractor is responsible for paying for the 
building or facility's modifications up front and once the contract 
ends the cost savings accrue to the federal agency.
    E-S-P-Cs have been implemented primarily through the Department of 
Energy's Federal Energy Management Program (FEMP) and since 1998 the 
program has awarded ESPC projects through 25 separate federal agencies 
for a total estimated savings of $7.2 billion dollars.
    At a time when all Federal agencies are fiscally constrained I 
believe ESPCs are an idea worth pursuing. ESPCs are widely seen as a 
good idea with potential large savings to the federal government and 
U.S. taxpayer. But like any government program they need to be properly 
managed and carefully overseen. A recent audit of NASA's Energy Savings 
Contracts by the NASA Inspector General found that is not always the 
case.
    While the NASA IG documented a case of poor government oversight, 
but I believe if properly managed Energy Savings Performance Contracts 
(ESPCs) are a win-win for the federal government, American taxpayer and 
U.S. business community.
    I look forward to hearing from our witnesses today about how to 
ensure proper management and oversight of these contracts that improve 
federal energy efficiency while reaping potentially large federal cost 
savings.

    Chairman Broun. Thank you, Mr. Maffei.
    The Chair now recognizes the Chairman of the Subcommittee 
on Energy, Mrs. Lummis, for her opening statement. You are 
recognized.
    Mrs. Lummis. Thank you very much, Mr. Chairman. And 
welcome, all, to this morning's hearing on Energy Savings 
Performance Contracts.
    Improved energy efficiency can be a commonsense, market-
oriented solution to lower energy bills. Just as consumers may 
choose to purchase more efficient vehicles to save on fuel 
costs and homeowners install insulation to reduce energy bills, 
the Federal Government should take similar steps when they make 
economic sense.
    ESPCs are a mechanism to do that. ESPCs provide for a 
public-private partnership to increase the energy efficiency of 
federally owned facilities. The private sector assumes the 
upfront costs while sharing the rewards of reduced energy costs 
with American taxpayers. The Federal Government owns or leases 
almost 400,000 buildings, so even minor improvements to 
individual facilities can accumulate into major savings.
    As with all government initiatives, it is important that 
ESPCs are implemented with maximum effectiveness. ESPC projects 
must be monitored for quality control and energy savings must 
be verified. Federal agencies should look at the overall 
impacts of a project. I look forward to hearing from the 
witnesses today on exploring opportunities and challenges 
associated with the use of ESPCs.
    While ESPCs represent a mutually beneficial, market-based 
approach to reducing energy costs, they contrast sharply with 
the regulatory onslaught that President Obama announced on 
Tuesday. The President is again pushing an agenda that will 
punish hard-working American families. His approach consists of 
policies already rejected by Congress in a bipartisan fashion. 
He wants expensive energy mandates, job-killing regulations, 
and hidden energy taxes.
    These increased energy costs and burdensome regulations 
will punish our economy, especially for my State of Wyoming; it 
is the Nation's second-leading energy producer. Even more 
concerning are the direct consequences of higher energy costs 
on American households living paycheck to paycheck. And we have 
new information that shows how many people are living paycheck 
to paycheck. As household energy costs soar, moms' and dads' 
economic security slips away. As American families struggle to 
pay the Obama electricity tax, they will have less for their 
children's college fund, less for emergencies like unexpected 
illnesses or job loss, less to provide care for their aging 
parents, less for day-to-day expenses just to make ends meet. 
And why? So the President can impose more regulation, more 
mandates, and more taxes, chasing carbon reductions that are 
already occurring under current law.
    While increasing the cost of energy might make the most 
privileged among us gleeful, you will forgive the millions of 
underprivileged Americans and the billions of poor around the 
world living in the literal dark for not supporting this 
elitist regime.
    President Obama's efforts to threaten family energy 
security stand in stark contrast to my views and those of my 
colleagues on the Republican side of the aisle, pro-family 
energy strategies that take full advantage of America's 
abundant domestic energy supply, including natural gas, coal, 
oil, nuclear, renewables, and energy efficiency, which we will 
be discussing here today. I hope the President takes notice. We 
don't need carbon policy dictated from the White House. We need 
to work together to produce real results.
    Thank you for the time, Mr. Chairman. I yield back.
    [The prepared statement of Mrs. Lummis follows:]
   Prepared Statement of Representative Cynthia Lummis, Chairwoman, 
                         Subcommittee on Energy

    Chairman Lummis: Improving energy efficiency can be a commonsense, 
market-oriented solution to lower energy bills. Just as consumers may 
choose to purchase more energy efficient vehicles to save on fuel 
costs, and just as homeowners install insulation to reduce electric 
bills, the Federal government should take similar steps when they make 
economic sense. Energy Savings Performance Contracts, or ESPCs, are a 
mechanism to do just that.
    ESPCs provide for a public-private partnership to increase the 
energy efficiency of federally owned facilities. In doing so, the 
private sector assumes the upfront costs, while sharing the rewards of 
reduced energy costs with American taxpayers. The Federal government 
owns or leases almost 400,000 buildings, so even minor improvements to 
individual facilities can accumulate into major savings.
    However, as with all government initiatives, it is important that 
ESPCs are implemented with maximum effectiveness. For example, ESPC 
projects must be monitored for quality control and energy savings must 
be verified. Federal agencies should look at the overall impact of a 
project, not solely at the dollar value attached to it. I look forward 
to hearing from the witnesses today and exploring opportunities and 
challenges associated with the use of ESPCs. It is important to note 
that, while ESPCs represent a mutually, beneficial, market-based 
approach to reducing energy costs, they contrast sharply with the 
heavy-handed regulatory onslaught that President Obama announced on 
Tuesday.
    The President is again pushing an extremist environmental agenda, 
the costs of which will fall most harshly on hard-working American 
families. His approach consists of worn policies already rejected by 
Congress in a bipartisan fashion, and doubles down on his preferred 
approach of expensive energy mandates, job-killing regulations, and 
hidden energy taxes.
    These increased energy costs and burdensome regulations will 
throttle our economy, especially for my state of Wyoming, the nation's 
leading energy producer. Even more concerning are the direct 
consequences of higher energy costs on American households, living 
paycheck to paycheck.
    As household energy costs soar, moms and dads will be left grasping 
as their economic security slips away. They will have less for their 
children's college fund. They will have less for an emergency, such as 
an unexpected illness or job loss. They will have less to provide care 
for their aging parents. They will have less for day-to-day expenses, 
all so the President can have more regulation, more mandates, and more 
taxes.
    President Obama's policies stand in stark contrast to House 
Republicans' ``all of the above'' energy strategy. This strategy takes 
full advantage of America's abundant domestic energy supply, including 
coal, oil, nuclear, natural gas and energy efficiency, as we will 
discuss here today.Thank you for the time and I yield back.

    Chairman Broun. Thank you, Mrs. Lummis.
    The Chair now recognizes Mr. Swalwell for his opening 
statement. You are recognized for five minutes.
    Mr. Swalwell. Thank you, Chairman Broun, Chairman Lummis, 
also Ranking Member Maffei, and of course our Committee Ranking 
Member, Ms. Bernice Johnson. I look forward to having this 
hearing today.
    Energy Savings Performance Contracts, also known as ESPCs, 
are truly a win-win-win tool for the Federal Government and the 
U.S. taxpayer. The Federal Government is the largest energy 
customer in the country with over 1.2 million buildings that it 
is responsible for and hundreds of thousands of acres that it 
is also responsible for. ESPCs save money, improve energy 
efficiency, and reduce carbon pollution all with little to no 
upfront cost required.
    As I am sure we will hear about more from this panel today, 
ESPCs, as well as Utility Energy Service Contracts, or UESCs, 
have a proven track record of saving the government billions of 
dollars and hundreds of trillions of BTUs so far.
    I know these contracts work well because when I served as a 
city councilmember in the City of Dublin, California, I worked 
to implement our own local equivalent of an Energy Savings 
Performance Contract, and when I served on the Council, we saw 
a savings of approximately $100,000 per year over the life of 
the lease that we signed.
    The City of Livermore, our neighbor in Dublin, also enjoys 
an annual savings of $74,000 a year over the life of their 
lease. Of course, these improvements will last longer than the 
15 years it will take to repay the lease, and in year 16, each 
city anticipates a savings of roughly $675,000 a year.
    They will also tell you that, in addition to the savings, 
the real advantages of the program are the ability to move 
forward with these energy-saving improvements with very little 
risk and the access it gives communities like Livermore and 
Dublin to expertise that they wouldn't be able to otherwise 
afford.
    One example we should be particularly proud of is the NASA 
Ames Research Center project. Thanks to the partnership between 
NASA and Pacific Gas and Electric, also known as PG&E, they 
were able to craft a plan that will exceed their energy 
efficiency and renewable energy goals. The UESC will result in 
an annual energy savings of 159 million BTUs, which will 
provide an 11 percent reduction in overall energy intensity. In 
short, these contracts are not only good for local economic 
budgets, for the Federal budget, they are also good to make our 
Earth healthier.
    PG&E also has a UESC project with the Veterans 
Administration in California. This project includes five 
separate medical center projects throughout California and over 
two million square feet. The project will save 15.7 million 
gallons of water, 1.3 million burns of natural gas, 9 gigawatt 
hours of electricity, and $1.6 million annually in water and 
energy costs. Federal energy programs not only benefit the 
government entities that realize the savings from these 
improvements, but they also enjoy broad support from private 
industry.
    To that end, I would like to submit to the record with 
permission from the Chair a letter from a number of groups and 
businesses, including the Chamber of Commerce and the Business 
Roundtable applauding the Obama Administration for their focus 
on energy efficiency and encouraging continuation and expansion 
of these activities.
    I look forward to discussing how this unique authority 
might be improved upon and used for a wider range of 
applications such as the Federal vehicle fleet at our Nation's 
array of energy-hungry data centers. I expect that our national 
laboratories--we also have two of those in my Congressional 
District, Sandia and Lawrence Livermore--would be able to make 
great use of such improvements as well.
    Thank you again, Mr. Chair, and I yield back the balance of 
my time.
    [The prepared statement of Mr. Swalwell follows:]
 Prepared Statement of Representative Eric Swalwell, Ranking Minority 
                     Member, Subcommittee on Energy

    Thank you Chairman Broun and Chairman Lummis for holding this 
hearing today, and I also want to thank the witnesses for being here.
    Energy Savings Performance Contracts, or ESPCs, are truly a win-
win-win tool for the federal government and the U.S. taxpayer. The 
federal government is the largest energy customer in the country and 
ESPCs save money, improve energy efficiency, and reduce carbon 
pollution, all with little-to-no upfront cost required. As I'm sure 
we'll hear more about from this panel, ESPCs, as well as Utility Energy 
Services Contracts, or UESCs, have a proven track record of saving the 
federal government billions of dollars and hundreds of trillions of 
BTUs so far.
    I know these Contracts work because I have seen them work in my own 
district. In Dublin, California where I served on the City Council, we 
have seen a savings of approximately $100,000 annually over the life of 
the lease.
    The city of Livermore, California will enjoy an annual savings of 
$74,000 a year over the life of their lease. Of course these 
improvements will last longer than the 15 years it will take to repay 
the lease and in year 16, they anticipate a savings of approximately 
$675,000 a year. They will also tell you that, in addition to the 
savings, the real advantages of this program are the ability to move 
forward with these energy-saving improvements with very little risk and 
the access it gives communities like Livermore and Dublin to expertise 
that they otherwise couldn't afford.
    One example we should be particularly proud of is the NASA Ames 
Research Center Project. Thanks to the partnership between NASA and 
Pacific Gas & Electric, they were able to craft a plan that will exceed 
their energy efficiency and renewable energy goals. This UESC will 
result in an annual energy savings of 159,909 million BTUs, which will 
provide an 11 percent reduction in overall energy intensity.
    PG&E also has a UESC project with the Veterans Administration in 
California. This project includes five separate medical centers 
throughout California and over two million square feet. The project 
will save: 15.7 million gallons of water; 1.3 million therms of natural 
gas; 9 gigawatt-hours of electricity; and $1.6 million annually in 
water and energy costs.
    Federal energy efficiency programs not only benefit the government 
entities that realize savings from these improvements, but they enjoy 
broad support from private industry. To that end, I would like to 
submit for the record a letter from a number of groups and businesses, 
including the Chamber of Commerce and the Business Roundtable, 
applauding the Obama Administration for their focus on energy 
efficiency and encouraging continuation and expansion of these 
activities.
    I look forward to discussing how this unique authority might be 
improved upon and used for a wider range of applications, such as the 
federal vehicle fleet or our nation's array of energy hungry data 
centers. I expect that our national laboratories, like Lawrence 
Livermore and Sandia, would be able to make great use out of such 
improvements.

    Chairman Broun. Mr. Swalwell, did I hear unanimous consent 
request to enter that letter into the record?
    Mr. Swalwell. Yes, please, Mr. Chair.
    Chairman Broun. We have a unanimous consent request. 
Hearing no objections, so ordered.
    [The information follows:]
    Chairman Broun. I now recognize the Ranking Member of the 
full Committee, my dear friend from Texas, Ms. Eddie Bernice 
Johnson. Ms. Johnson, you are recognized for five minutes.
    Ms. Johnson. Thank you very much, Mr. Chairman.
    And I want to thank you for holding this hearing along with 
Chairwoman Lummis to evaluate Energy Savings Performance 
Contracts. And I want to thank the witnesses as well for being 
here today.
    Energy Savings Performance Contracts, or the ESPCs, are 
tools capable of providing substantial financial and 
environmental benefits to both the Federal Government and 
companies in the private sector. A study conducted by the Oak 
Ridge National Laboratory earlier this year found that the 
extra cost savings of an ESPC project to the government are 
nearly twice as great as the guaranteed savings.
    Investments in energy efficiency improvements can reduce 
energy costs, as well as generate much-needed jobs through the 
acquisition and development of necessary infrastructure and 
equipment. Often, the useful life of the equipment extends well 
beyond the performance period of the ESPCs.
    Another key component of many ESPCs is the training and 
implementation of sustainable energy practices. I look forward 
to hearing from these witnesses on how we encourage the use of 
ESPCs to help make the Federal Government a leader and a leader 
in energy efficient building technology.
    And I thank you and I yield back the balance of my time.
    [The prepared statement of Ms. Johnson follows:]
  Prepared Statement of Representative Eddie Bernice Johnson, Ranking 
           Member, Committee on Science, Space and Technology

    I want to thank Chairman Broun and Chairwoman Lummis for holding 
this hearing to evaluate energy savings performance contracts, and I 
want to thank the witnesses on the panel as well.
    Energy Savings Performance Contracts, or ESPCs, are tools capable 
of providing substantial financial and environmental benefits to both 
the Federal government and companies in the private sector. A study 
conducted by Oak Ridge National Laboratory earlier this year found that 
the actual cost savings of an ESPC project to the government are nearly 
twice as great as the guaranteed savings.
    Investments in energy efficiency improvements can reduce energy 
costs as well as generate much needed jobs through the acquisition and 
development of necessary infrastructure and equipment. Often the useful 
life of the equipment extends well beyond the performance period of the 
ESPC. Another key component of many ESPCs is the training and 
implementation of sustainable energy practices.
    I look forward to hearing from these witnesses on how we can 
encourage the use of ESPCs to help make the Federal Government a leader 
in energy efficient building technologies.

    Chairman Broun. Thank you, Ms. Johnson.
    If there are Members who wish to submit additional opening 
statements, your statements will be added to the record at this 
point.
    At this time I would like to introduce our panel of 
witnesses. Our first witness is Dr. Kathleen Hogan, Deputy 
Assistant Secretary for Energy Efficiency at the U.S. 
Department of Energy. Our second witness is Dr. Woodrow 
Whitlow, Jr., Associate Administrator of the Mission Support 
Directorate of the National Aeronautics and Space 
Administration. Our third witness is Ms. Jennifer Schafer, 
Executive Director of the Federal Performance Contracting 
Coalition. And our final witness is Mr. Ron King, President 
Advisor of the National Insulation Association.
    As our witnesses should know, spoken testimony is limited 
to five minutes each. And if you all would try to constrain 
yourself to five minutes. After which the Members of Congress 
will have five minutes each to ask questions. Your written 
testimony will be included in the record of the hearing.
    And it is the practice of the Subcommittee on Oversight to 
receive testimony under oath. Now, if you would please stand.
    Do any of you all have an objection to taking an oath?
    Let the record show that all witnesses indicated by shaking 
their head from side to side in the usual manner to indicate 
they have no objections.
    Now, if you would raise your right hand.
    Do you solemnly swear or affirm to tell the whole truth and 
nothing but the truth, so help you God?
    Okay. You may be seated. Let the record reflect that all 
the witnesses participating have taken the oath.
    And before I recognize our first witness, let me say that I 
am anxious to hear your testimony, Dr. Hogan. I was even more 
anxious or eager to hear it 48 hours ago when it was due. I 
understand and I hope that you are not directly responsible and 
personally responsible for the tardiness in submitting your 
testimony to this Committee, but I would like for you to pass 
on this message to the appropriate person or persons that it is 
inconsiderate to provide testimony 18-1/2 hours before a 
hearing when the deadline is 48 hours. And we have seen this 
problem before out of your Department.
    When testimony is delivered this late, it does not provide 
Members of this Committee sufficient time to review and prepare 
to engage in an informative discussion with you about the 
program. This is not the first time that the Department has 
exhibited such irresponsible behavior before this Committee, 
and it is a pattern that reflects very poorly on the Department 
and the Administration by default.
    Further, if you will please confirm that you will 
personally ensure this Committee receives its responses to our 
questions for the record following the hearing in a timely 
manner that is closer to two weeks than two months? Would you 
personally guarantee that, Dr. Hogan?
    Dr. Hogan. Yes, we are committed to a timely response and 
we also do apologize for the delay in the submittal of the 
testimony.
    Chairman Broun. Okay. Is that an affirmative that we will 
get our responses to written questions for the record closer to 
two weeks than two months?
    Dr. Hogan. Yes, that is.
    Chairman Broun. Thank you, ma'am. I appreciate that.
    I thank everybody for your indulgence. And I now recognize 
Dr. Hogan for five minutes.

                TESTIMONY OF DR. KATHLEEN HOGAN,

                 DEPUTY ASSISTANT SECRETARY FOR

                       ENERGY EFFICIENCY,

                   U.S. DEPARTMENT OF ENERGY

    Dr. Hogan. Thank you, Chairman Broun, Chairman Lummis, 
Ranking Members Maffei and Swalwell, and Members of the 
Subcommittee. And thank you for inviting me to testify today on 
behalf of the Department of Energy regarding energy efficiency 
and performance contracting.
    We all know energy efficiency is a large, untapped resource 
in the United States that can provide savings for consumers, 
improve competitiveness, build jobs, and reduce reliance on 
foreign oil. And as the Nation's largest energy consumer, the 
Federal Government has a tremendous opportunity to reduce 
energy use, save taxpayer money, and lead by example.
    Consider, as we have already heard mentioned, that the 
Federal Government operates a very large number of buildings 
and other structures comprising more than three billion square 
feet, operates a fleet of more than 600,000 civilian and non-
tactical military vehicles, and does pay approximately $25 
billion for energy each year. This is approximately the same 
energy use as the city of Hong Kong or of all of New Zealand.
    The size of the government has prompted a number of Federal 
energy management and sustainability goals to be established 
through statute and Executive Orders, and the preliminary data 
from Fiscal Year 2012 indicate that the Federal Government is 
making steady progress in achieving its energy, water, and 
greenhouse gas savings goals as outlined in my written 
testimony.
    We also know that performance contracting does play an 
important role in helping the Federal Government unlock the 
considerable energy efficiency potential embedded in our 
Federal buildings as part of meeting these goals. Energy 
Savings Performance Contracts, or ESPCs, are one kind of 
performance-based contract. They are an arrangement between a 
Federal agency and an energy service company, known as an ESCO, 
who conducts a comprehensive audit for the Federal facility, 
identifies energy and/or water conservation measures, and 
implements those measures using their capital.
    The ESCO also guarantees that the improvements will 
generate cost savings sufficient to pay for the project over 
the term of the contract, and therefore, these contracts allow 
agencies to undertake energy savings projects without upfront 
capital outlays.
    ESPCs do have built in accountability. The ESCO is required 
to conduct periodic measurement and verification to ensure that 
the guaranteed savings are being realized. Once the contract is 
complete, the agency and the U.S. taxpayer receive the full 
benefit of the remaining energy efficiency savings.
    Since the Department's ESPC program began in 1998, there 
have been over 280 ESPC projects awarded through the Department 
of Energy's contract vehicle in particular for a total 
investment of about 2.7 billion and total guaranteed savings of 
about 7.2 billion. And on top of that, we do have the 
Presidential Performance Contracting challenge for the Federal 
Government to enter into a minimum of 2 billion in performance 
contracts by the end of this year, which is catalyzing 
additional use of this mechanism.
    As of June, the agencies have identified projects in the 
pipeline or awarded with an estimated value of $2.3 billion in 
investment, and so far, about 64 projects have been awarded 
with an investment value of over $575 million. And clearly, 
there are more projects in the pipeline.
    In addition, the President's issued Climate Action Plan 
this week did call for a number of actions to further 
strengthen efforts to promote energy efficiency through 
performance contracting.
    At the Department of Energy, we do have the Federal Energy 
Management Program, which helps all the Federal agencies 
implement strong performance contracts, specifically that 
provides tools, training, and expertise to the agencies to help 
them achieve their statutory and Executive Order goals. This 
technical assistance and guidance helps overcome some of the 
barriers that we have seen such as limited agency contracting 
and technical staff familiar with the ESPC process.
    Technical support is available at each stage of the ESPC 
process. That includes helping agencies determine whether an 
ESPC project is feasible, guiding them through project 
development and project acceptance, and also coordinating with 
the agencies and ESCOs as we provide life-of-contract support. 
FEMP also compiles best practices for the agencies and 
continues to improve the program where possible.
    So looking forward, we see continued opportunity. As of 
March of this year, agencies have identified a potential for 
over 700 million a year in annual energy savings for audits 
they have already completed for energy and water savings. We 
know that ESPCs will be critical in achieving much of these 
savings and will provide multiple benefits to both the Federal 
Government and the American people.
    So again, I thank you for the opportunity to be here today 
and look forward to our discussion and happy to answer any 
questions you may have.
    [The prepared statement of Dr. Hogan follows:]

    [GRAPHIC] [TIFF OMITTED] 

    Chairman Broun. Thank you, Dr. Hogan. I now recognize our 
next witness, Dr. Whitlow. Dr. Whitlow, you are recognized for 
five minutes.

             TESTIMONY OF DR. WOODROW WHITLOW, JR.,

                    ASSOCIATE ADMINISTRATOR,

                  MISSION SUPPORT DIRECTORATE,

                      NATIONAL AERONAUTICS

                    AND SPACE ADMINISTRATION

    Dr. Whitlow. Chairman Broun and Lummis, Ranking Members 
Maffei and Swalwell, and Members of the Subcommittees, thank 
you for the opportunity to appear here today to discuss NASA's 
use of the ESPCs.
    NASA has established policies and procedures to improve 
energy efficiency through the reduction of energy use and 
implementation of sustainable energy practices. The use of 
performance contracting vehicles such as ESPCs and UESCs 
enables NASA to protect and leverage the value of its 
appropriated facilities funding while providing a guaranteed 
return on investment in conservation measures that help the 
Agency to achieve Federal energy and water reduction and 
renewable energy goals.
    NASA's field centers actively consider and pursue the use 
of energy savings contracts in order to repair and renew our 
infrastructure. This is consistent with NASA's master planning 
goals. ESPCs contribute to better facility operational 
conditions while reducing our energy consumption. This reduced 
utility consumption ultimately decreases energy and water risks 
to NASA's missions.
    NASA field centers have awarded over $174 million in ESP 
contract value across 20 projects since we began using ESPCs in 
1999. These projects resulted in annual energy consumption 
reductions of approximately 495 billion BTUs and $8.5 million 
in savings. NASA's ESPC projects contribute significantly to 
the $2 billion Federal investment in energy savings projects 
directed by President Barack Obama in December 2011. We pledged 
to award $19.6 million of investment value in ESPCs and UESCs 
before the end of this year. Our field centers awarded $28 
million of investment value by November 2012, 24-1/2 million of 
this via ESPCs, making us the first Federal agency to fulfill 
its pledged investment amount.
    Specifically, Goddard Space Flight Center's Wallops Flight 
Facility in Virginia continues to conduct a particularly 
noteworthy ESPC project with a total contract value of nearly 
$36 million. The associated infrastructure energy efficiency 
improvements resulted in significant reductions in Wallops' 
energy and water intensities and in greenhouse gas emissions. 
Virginia recognized the first phase of this project among the 
Gold Medal winners of the 2012 Governor's Environmental 
Excellence Award, and the Department of Energy featured this 
project on an energy action campaign poster.
    As mentioned, in April of this year, the NASA IG issued a 
report on NASA's management of energy savings contracts, and 
its review included an examination of our first use of ESPCs, a 
DOE contract task order awarded by the Johnson Space Center in 
1999. The IG identified shortcomings in the administration of 
this first contract and provided recommendations for management 
actions to reduce the risk of error in management of ongoing 
and future ESPCs.
    Accordingly, we have undertaken actions to ensure that 
sound management practices are applied to the implementation of 
ESPCs. We have issued interim direction for the immediate 
implementation of these requirements as we finalize our 
procedural requirements.
    In conclusion, ESPCs represent an important tool that is 
available to NASA field centers in the ongoing effort to repair 
and renew agency facility and utility infrastructure in order 
to improve energy and water efficiency and security. We expect 
to continue to actively utilize this tool to support our 
mission in the years ahead.
    Again, thank you for the opportunity to appear here today.
    [The prepared statement of Mr. Whitlow follows:]

    [GRAPHIC] [TIFF OMITTED] 

    Chairman Broun. Thank you, Dr. Whitlow. I now recognize Ms. 
Schafer for five minutes.

               TESTIMONY OF MS. JENNIFER SCHAFER,

                      EXECUTIVE DIRECTOR,

           FEDERAL PERFORMANCE CONTRACTING COALITION

    Ms. Schafer. Good morning, Mr. Chairman and Members of the 
Committee.
    My name is Jennifer Schafer. I am the Executive Director of 
the Federal Performance Contracting Coalition, which represents 
many of the leading energy service companies that do work with 
the Federal Government. Our members include--and I am going to 
read them--Ameresco, Chevron Energy Services, Constellation 
Energy, Honeywell, Johnson Controls, Lockheed Martin, NextEra 
Energy Solutions, NORESCO, Schneider Electric, Siemens 
Government Technologies, and Trane/Ingersoll-Rand.
    This group of ESCOs performs about 90 percent of the work 
with the Federal Government and has done so historically. These 
companies have been improved through a very rigorous process to 
pursue ESPCs with the Federal Government through an indefinite 
delivery and indefinite quantity contract. Basically, that 
contract prequalifies companies to pursue opportunities with 
Federal facilities and individual sites.
    The contract has been updated several times over the past 
several years, particularly in the area of measurement and 
verification and in operations and maintenance. In fact, the 
most recent contract, which was initiated in 2009, has very 
aggressive protocols to ensure that the government gets what it 
pays for. Ranking Member Johnson mentioned the Oak Ridge 
National Lab report that bears this out and says that Federal 
ESPC-based projects save almost twice what is guaranteed by the 
contractor.
    ESPCs aren't just for saving energy and therefore saving 
money; they also provide the government with critical 
infrastructure, energy-related infrastructure, that they can't 
afford to purchase right now; critical operations and 
maintenance support, which we can't afford the staff right now; 
and they also solve individual problems for facilities.
    In 2011 when the U.S. Chamber of Commerce testified about 
ESPCs before this Subcommittee--excuse me, full Committee--they 
emphasized the expertise brought by the ESCOs, the jobs created 
in the private sector, and the guarantee of energy savings.
    There have been studies indicating that compared to 
projects achieved with appropriated dollars or other ways to 
get energy efficiency, comprehensive efficiency projects in the 
Federal Government, ESPCs deliver a much better value overall 
to the taxpayer even though they include financing costs. Right 
now, those costs are very low.
    A 2006 Oak Ridge study asserted that even at the higher 
interest rates in 2006, ESPCs were a better deal for the 
government because they ensure the performance of the 
equipment. In a design-build project, operations and 
maintenance are generally not as rigorous and efficiencies and 
therefore dollars saved can erode very quickly.
    Another major benefit of the ESPCs is that they are set up 
to provide an abundance of information about performance, which 
is not the case with other types of projects. There is no other 
program in the Federal Government that requires this level of 
measurement and verification, which may just be that 
transparency--that is why they have been examined so frequently 
over the years.
    Questions or concerns about ESPCs typically revolve around 
the fact that contracting for them is not business as usual. 
Changes in personnel at agencies and elsewhere make education a 
critical and ongoing effort. Often, delays in executing 
projects stem from legal, contracting, or other personnel who 
simply are unfamiliar with the contracting vehicle. The DOE has 
done much to address this through training and other efforts. 
Our group also constantly works on that same thing.
    This program has evolved and improved over the years. It is 
now time to take it to the next level, time to focus on shorter 
contracting cycles, bigger project scopes, and frankly, just 
more ESPCs. Even at the current enhanced run rates under the 
President's initiative, the companies on the IDIQ contract have 
excess capacity.
    We would like to see a continued focus on ESPCs as, 
thankfully, has been the case for the last three 
Administrations. We now have a bipartisan caucus here in the 
House that is chaired by Congressman Welsh and Congressman 
Gardner that really works on reducing barriers to their use. 
Citizens against Government Waste recently supported their 
efforts in a June 7 commentary entitled ``ESPC Zone: Everybody 
Scores with Energy Efficiency.''
    Using private sector money and expertise to reduce energy 
and infrastructure expenditures is a natural during this time 
of constrained budgetary Federal budgets, so I appreciate the 
opportunity to talk about the program and look forward to 
answering questions. Thank you.
    [The prepared statement of Ms. Schafer follows:]

    [GRAPHIC] [TIFF OMITTED] 

    Chairman Broun. Thank you, Ms. Schafer.
    I now recognize our final witness, Mr. Ron King.

                   TESTIMONY OF MR. RON KING,

                       PRESIDENT ADVISOR,

                NATIONAL INSULATION ASSOCIATION

    Mr. King. Chairman Broun, Chairwoman Lummis, and Ranking 
Members Maffei and Swalwell and Members of the Oversight and 
Energy Committee, thank you for the opportunity to participate 
in this hearing and to discuss the importance of Energy Savings 
Performance Contracts.
    My name is Ron King. I am the President Advisor and a past 
president of the National Insulation Association. Our industry, 
the vast majority of which are small businesses, represent over 
120,000 employees across the United States and have an 
extensive track record of providing energy efficiency and 
emission reduction initiatives in manufacturing facilities and 
private and government buildings across the country.
    I sit here today as a supporter of energy performance 
contracts being employed by Federal agencies and to express to 
you the value that mechanical insulation can provide to 
achieving energy efficiency and financial return objectives.
    Thermal insulation for piping, equipment, and other 
mechanical devices, known as mechanical insulation, is a proven 
energy efficiency and emission-reduction technology that can 
create tens of thousands of jobs. It is also important to note 
that 95 percent of the products utilized in this industry are 
manufactured in the United States.
    Unfortunately, the benefits of mechanical insulation are 
often overlooked by all pipeline stakeholders in new 
construction, in retrofit, and in maintenance opportunities. 
The benefits of this technology are further reduced because 
minimum requirements in new construction and retrofit 
applications are seldom exceeded and maintenance opportunities 
are completed in a non-timely and proper manner.
    The National Insulation Association estimates that 
implementing a comprehensive mechanical insulation maintenance 
program in the commercial and industrial market segments would 
lead to annual energy savings of 1.2 quads of primary energy or 
savings of roughly $3.8 billion per year with a return of 
investments ranging from 25 percent to over 100 percent while 
reducing CO2 emissions by 105 million metric tons.
    Even with a relatively slow implementation rate, these 
numbers on a compounded basis over 10- or 20-year period would 
yield tremendous savings and this does not include the 
additional savings of going beyond minimum standards in new 
construction and retrofit applications.
    As you are aware, buildings are responsible for 40 percent 
of the United States' energy demand and greenhouse gas 
emissions, which makes efficiency gains in this area crucial if 
we are to markedly reduce America's energy consumption. Energy 
performance contracts can be and usually are comprehensive and 
employ a wide array of cost-effective measures to achieve 
energy savings. These measures often include the high-profile 
energy efficiency measures such as lighting, heating and air-
conditioning, efficient motors, centralized energy management 
systems. Mechanical insulation and potentially other less-known 
and proven energy efficiency initiatives they or may not be 
included.
    Unfortunately, we have found that mechanical insulation is 
easily and often overlooked. Mechanical insulation typically 
yields a return on investment ranging from a few months to less 
than seven years. As an example, a mechanical insulation energy 
appraisal was conducted on low-pressure steam and domestic hot 
water systems in a variety of State of Montana facilities. 
Estimated energy savings represent roughly eight percent of the 
total natural gas consumption with an annualized rate of return 
of 24 percent.
    The use of energy performance contracts by Federal agencies 
is an excellent means to which to achieve high-performance 
building objectives. These types of contracts have led the 
effort to verify results rather than imperially rely on 
estimates. Prescriptive measures like mechanical insulation are 
well-suited, add value, and should be an integral part of 
energy performance contracts and the resulting holistic savings 
verification process.
    As another example, one of our Members completed a 
mechanical insulation energy appraisal of four different 
operating systems at the National Institute of Health in 
Bethesda, Maryland. They determined by insulating areas not 
previously insulated and where insulation was missing, the 
potential of annual savings of $400,000 with a simple payback 
of 3.3 years and over 6 million pounds of CO2 
emissions reduction was attainable.
    Inclusive or independent of energy performance contracts, 
the return on investment of implementing and maintaining a 
proper and timely insulation maintenance program is compelling 
and easy to implement without extensive engineering support, 
and in many cases, any disruption of the workplace.
    We are committed to working with Congress, the Department 
of Energy and key stakeholder groups on energy performance 
contracts that will lead to greater energy efficiency 
nationwide, including working with the Department of Energy and 
other agencies to bring together a coalition to develop, 
implement, and provide mechanical insulation research, 
education, and training programs. Mechanical insulation is a 
simple, proven, prescriptive technology that can contribute to 
successful execution of Energy Savings Performance Contracts.
    Thank you for the opportunity to submit testimony in 
support of a program that is critical to job creation, economic 
growth, energy savings, and emissions reduction. I look forward 
to answering any questions you may have. Thank you.
    [The prepared statement of Mr. King follows:]

    [GRAPHIC] [TIFF OMITTED] 

    Chairman Broun. Thank you, Mr. King. I now want to publicly 
thank you for your very timely and efficient response to the 
request from this Committee for information, and I thank you so 
much. You are an example that every person who testifies before 
any Committee in the Congress should be utilized as an example 
of response for somebody whose testimony is requested. So thank 
you so much.
    I thank all the witnesses for their testimony. Reminding 
Members that Committee rules limit questioning to five minutes, 
the Chair at this time will start the first round of questions, 
and I recognize myself for five minutes.
    Dr. Hogan, given that the credibility of ESPCs rest on 
strong measurement and verification of energy savings, who is 
currently responsible for monitoring and verifying energy 
savings?
    Dr. Hogan. So each performance contract in the Federal 
Government has a contracting officer that would reside in the 
agency that is putting that contract in place. So that is where 
the responsibility does reside. What our Federal Energy 
Management Program does is provide guidance on how to do that 
MTV well starting with sort of what the MTV plan should be at 
the start of the contract that gets written into the upfront 
contract as well as how to effectively do the ongoing 
monitoring. So we provide assistance, but it is the contracting 
officer in each agency who would be ultimately responsible.
    Chairman Broun. During your testimony, you indicated that 
you are monitoring these things, and during my opening 
statement, I indicated that five couldn't even be scored and 
numerous of them were in the red and yellow as far as their 
energy scoring. This is intolerable as far as I am concerned.
    Following up on that response, I would also like to ask Dr. 
Whitlow and Ms. Schafer to answer this: considering that the 
estimated savings directly relates to the financial payback of 
the ESCOs, would you support regular, mandatory, third-party 
measurement and verification of all projects over a certain 
threshold? Dr. Whitlow?
    Dr. Whitlow. Well, when we implement our projects, we have 
our measurement verification, which we then use to verify 
saving. If third parties were to come in and provide some 
additional oversight of our savings, I think that would only 
verify the savings that we report. So there would be no 
objections to third party oversight.
    Chairman Broun. So that is a yes?
    Dr. Whitlow. That would be a yes.
    Chairman Broun. Yes. Okay. Ms. Schafer?
    Ms. Schafer. You know, my organization hasn't discussed 
that as a group but--so I don't have really an official 
position. I would think that, you know, the guaranteed savings, 
the savings, they guarantee the savings. So if somebody is 
watching over their shoulder, I am sure that is great. The 
agencies do that already. DOE does that.
    DOE has something called life-of-contract oversight, which 
is really nice because every year they come in as a third party 
and they look at what the agency is getting and then they can 
say, oh, well, you know, agency actually didn't ask for--or you 
didn't respond to this MTV or this piece doesn't look right. 
How do we deal that? So some of that is being taken care of.
    One thing is if you have a third-party come in, if it is a 
government person who is a third party or a nongovernment 
person who is a third-party, it is not part of the contract. So 
again, we are going to have to find funding for that, which is 
an ongoing problem with getting more efficient in the Federal 
Government right now.
    Chairman Broun. I am trying to figure out if your answer is 
yes, no, or maybe.
    Ms. Schafer. You know, I don't have an official position.
    Chairman Broun. Okay.
    Ms. Schafer. I can get one because we haven't discussed it, 
but it seems to me as though we have that going on both with 
the agency and with the Department of Energy doing that, the 
labs actually doing that, on a yearly basis to verify that the 
MTV is correct.
    Chairman Broun. Okay. Dr. Hogan, what is your opinion about 
this, having third-party assessment?
    Dr. Hogan. So I think what we are interested in doing is 
having a program of continuous improvement. We are interested 
in looking at any number of ideas that can continue to deliver 
value for the Federal Government and we would be happy to 
engage in this conversation.
    Chairman Broun. Okay, thank you.
    Mr. King, comparatively speaking, what are some benefits of 
mechanical insulation versus--as you mentioned in your 
testimony, ``high-profile energy efficiency measures'' such as 
high-efficiency lighting, high-efficiency heating and air-
conditioning?
    Mr. King. Because mechanical insulation is dealing with the 
installation of domestic hot water or steam systems and so 
forth, the temperature differentials are much greater. Thus, 
the energy savings on a per-dollar, per-capita basis is 10, 20, 
50 times that of a lighting or air-conditioning primarily 
driven by just the science of energy efficiency based on 
thermal conductivity and what we are dealing with.
    Chairman Broun. Very good. I hope our government will start 
looking more at insulation as a process, and I am sure you 
would be happy with that.
    My time is about expired. I now recognize Mr. Maffei for 
five minutes.
    Mr. Maffei. I thank the Chairman and agree with him on that 
last point about insulation.
    My understanding--Dr. Hogan, my understanding is that there 
is a current performance contract that involves energy 
efficiency gains and a data center that OMB is holding up. Do 
you have any idea why OMB's holding that up? I know that the 
Energy Department is trying to do its best to administer it, 
but you are not allowed to go forward, I suppose, until OMB 
gives the go-ahead? So do you have any idea why they are 
holding that up? This is the one involving Lockheed Martin and 
the Department of Energy. It is a $70 million contract. Are you 
aware of the one I am talking about?
    Dr. Hogan. Yes, so this, of course, is a particular 
contract that we are working on. It is under discussion and 
review. We are working to get it resolved. And I can't really 
speak to much more than that at this time other than we hope to 
resolve it as soon as we can.
    Mr. Maffei. All right. I respect that. Do you know who can 
speak to it? Is it--does it have to be OMB to speak to it or--I 
mean we do have oversight responsibility so I understand why 
you and the Department may not be able to, but is it OMB that 
has to address----
    Dr. Hogan. Certainly, this is a Department of Energy 
decision and the contract is under review at the Department of 
Energy. We are happy to engage with you after the hearing today 
to further figure out what we can talk about here.
    Mr. Maffei. Yes. No, okay. I would like as close as you can 
a specific answer as to why that is being delayed. And the 
reason is, it is not just--I am not just trying to pick on this 
one contract but I do think that with all the good things we 
have been saying about these ESPCs, there is a chilling effect 
if one of the major ones that is--has been presented that as 
far as anybody can see is a good idea is being held up in this 
way, it is a--it creates this perception that there is going to 
be a lot of red tape. So I do think it is important not just 
for this particular contract but for others.
    Ms. Schafer, one of the issues that we face as we look at 
the savings in this is the fact that the Congressional Budget 
Office refuses to score the savings from these contracts. I 
presume that your group disagrees with their position. Can you 
enlighten us at all as to why CBO has that position and why it 
is, you believe, incorrect?
    Ms. Schafer. Yes, thank you. In 2002 or 2003 CBO started to 
score ESPCs for the first time. That became apparent to us when 
our 40 was about to expire. As we understand it--and this is 
been the case for the past several years with the CBO, although 
not the case with the OMB--they do not score it and haven't--
and it has been reaffirmed through three Administrations.
    But they assume that in ESPC you enter into a mandatory 
contract to pay back the contractor. So you are going to pay 
them back over several years. You are going to get paid back 
out of energy savings. So what you have now is a mandatory 
expenditure on the books according to the CBO and discretionary 
money--energy bills--that pay that back. We don't count energy 
bills in the CBO sort of--they don't have a way to rectify 
those things. They assume anything that is appropriated is 
discretionary money. It could not be appropriated. You could 
just not appropriate money for those energy bills. So it 
doesn't count the same as the mandatory expenditure that is on 
the books. So that is the large part of it.
    The other part is some of the savings that accrue, accrue 
outside of the ten-year scoring window. So----
    Mr. Maffei. So does your organization--what do you say in 
response to that? You have actually explained it very, very 
well, I think, but what do you say in response to it?
    Ms. Schafer. Well, we don't believe the score makes any 
amount of sense, and I don't know how else to say it other 
than, you know, there should be a way to find, you know, we 
have got admissions from CBO in the past that are somewhat 
different because there is a guarantee of savings. It is the 
only thing where there is a guarantee of savings. It is the 
only thing where OMB and CBO do not agree on how to score it.
    And our point is--I mean, Chairman Nichols of the Budget 
Committee, his line was ``ignore the score'' several years ago, 
you know, tough to do these days.
    Mr. Maffei. Well, yes, particularly since it is in the 
Congressional rules that we can't ignore the score.
    Dr. Whitlow, do you--have you seen the savings from this 
that isn't scored by CBO in the contracts you have worked on?
    Dr. Whitlow. I will have to go and----
    Chairman Broun. Turn on the mike.
    Mr. Maffei. You know, that is fine, and I am out of time 
anyway----
    Dr. Whitlow. Yeah.
    Mr. Maffei. --but, yes, I am looking for specific instances 
where clearly there has been savings. I--this is very 
frustrating because it is one of those issues where I think all 
of us--and I didn't even ask Mr. King; I am just presuming that 
you would agree. I think all of us sort of see clear savings 
here and yet, you know, there is all these sort of inside 
baseball technical reasons or whatever. So I do want to look at 
that further.
    And, Mr. Chairman, I apologize for going over and I yield 
to you.
    Chairman Broun. Well, I thank you, Mr. Maffei. And I think 
we all want answers to those questions because I think it is 
critical for the taxpayers to have those answers because this 
scoring problem is certainly something that we need to get to 
the bottom of it.
    Mr. Maffei. If the Chairman would yield, yes, absolutely. 
It prevents us from doing something that is going to save the 
taxpayers money if there is absolutely no way that we can 
record that it is likely to save the taxpayers money. It just 
doesn't make any sense. I thank you for your comments on that.
    Chairman Broun. Absolutely. I agree. I now recognize Mr. 
Hultgren for five minutes.
    Mr. Hultgren. Thank you, Chairman. Thank you all for being 
here.
    With the President's budget continuing to slash funding for 
discovery sciences in the Department of Energy in order to pay 
for ever-expanding loan guarantee programs and energy 
subsidies, I have seen personally how our labs must find 
creative ways to reduce their cost so they can continue their 
groundbreaking work.
    In my district, I have Fermilab. And just Fermilab alone 
has over 400 buildings on its site, as they talked about in 
their last newsletter, and there is no question that we can 
find energy savings with 400 buildings in our laboratories and 
we need to do that.
    First question, Dr. Hogan, if I can address it to you, can 
you tell me how much energy consumption has been reduced at 
agencies due to ESPC usage and how that figure can be verified?
    Dr. Hogan. Yes, so as we have been talking about within the 
energy performance contracts, there is guaranteed savings. 
There are MTV plans that go with that guaranteed savings. In 
the program that the Department of Energy runs--and keep in 
mind that is just a piece of what goes on in the performance 
contracting space--we have been able to report on $2.7 billion 
of investment in energy efficiency projects and $7.2 billion in 
savings that go with those contracts.
    Mr. Hultgren. And how are those verified?
    Dr. Hogan. So that is, as we have been discussing, through 
ongoing monitoring and verification. There is an MTV plan that 
is part of every contract in terms of what the pieces of 
equipment need to do to perform to sort of meet the elements of 
the contract and then the ongoing monitoring that shows indeed 
that those pieces of equipment do perform that way.
    Mr. Hultgren. Shifting or getting a little more specific, 
in 2009, DOE awarded a 15-year ESPC at Fermilab for 1.4 million 
in upfront cost projecting savings of 3.25 million over the 
life of the contract. I wonder if you could tell me how 
realistic these savings are looking and how quickly they are 
coming into place?
    Dr. Hogan. I certainly can go back and look specifically--
--
    Dr. Hogan. --into that contract----
    Mr. Hultgren. If you could and if you can respond maybe in 
writing.
    Dr. Hogan. Sure.
    Mr. Hultgren. I will follow up with you on that.
    Dr. Hogan. Absolutely.
    Mr. Hultgren. And wonder if you can also respond how long 
after the life of these contracts can we expect to see savings?
    Dr. Hogan. So that is actually one of the topics that is 
taken up in this Oak Ridge report that people are talking 
about. You know, the average life of a contract has been on the 
order of 17 years. Clearly, some of the measures that go into 
these buildings, such as a chiller, can have a lifetime of 25 
years. So indeed a fair amount of time there for additional 
savings beyond the guaranteed savings in the contract.
    Mr. Hultgren. Shifting over to Ms. Schafer, as interest 
rates fluctuate, can ESPCs be renegotiated to take advantage of 
lower financing rates that we have seen recently? If so, how 
many FPCC companies have done this?
    Ms. Schafer. Well, several FPCC companies have been working 
with their agency customer and the financing community on 
potential refinancing opportunities. That really is something 
that the financial community has to do. We are sort of in the 
middle of that. So some of them will agree to them. Often, they 
will agree to a refinance if there is additional scope. And we 
work to see if we can make that happen when it makes sense for 
the site.
    Mr. Hultgren. Okay. You had testified about the work at Oak 
Ridge National Laboratory saving twice the guaranteed amount. 
Is this common for these type of contracts and can you tell me 
how that number was derived?
    Ms. Schafer. I can tell you as much as I know because I am 
not the technical guy at Oak Ridge, but what I understand is 
that when we went under ESPC, an ESCO guarantees an amount of 
savings over the life of the contracts. So say it is a 15-year 
contract, and over that lifetime they will guarantee X dollars. 
Generally, more occurs because they underestimated whatever it 
might be, and that savings goes directly to the agency, to the 
customer during the life of the contract. After the contract, 
you get a lot more savings because then you don't pay back for 
all the investment that the ESCO did. And so that is included, 
too, and so it is those types of things that have really 
increased the value of the ESPC.
    The other thing that isn't counted is the fact that you get 
things. So agencies generally enter into an ESPC because they 
need something. My chiller is in bad shape, I have got to get a 
new one. That is infrastructure expenditures that go away 
upfront.
    Mr. Hultgren. Right. Okay. I have only got 30 seconds left.
    Real quickly, I wonder if you could again, Ms. Schafer, 
staying with you, can you tell me of any of the downsides to 
the Federal use of ESPCs?
    Ms. Schafer. Well, I think that depends on who you are 
talking to. I think some people feel that financing an ESPC, 
financing energy projects is a bad idea, that it is cheaper to 
do it with appropriated dollars. Oak Ridge in a 2006 report 
said that is not the case, but if you just look at it flat out, 
you say why should I pay financing charges if I don't have to? 
That is a potential downside.
    Some people may want to have the expertise in-house; we 
can't really afford that right now, so for the time being, I 
don't see a lot of downside to an ESPC.
    Mr. Hultgren. Well, my time is expired so I do want to 
yield back, but if any of you would have a response to that, 
other thoughts of things we should be watching for, be 
concerned about, potential downsides, and maybe if we can 
follow up with some other questions, that would be great as 
well.
    So with that, I yield back. Thank you, Mr. Chairman.
    Chairman Broun. Now the Chairman recognizes Mr. Swalwell 
for five minutes.
    Mr. Swalwell. Thank you, Mr. Chairman.
    We have seen locally in the cities that I referred to, 
Dublin and Livermore, that having these types of contracts not 
only reduce the city's energy bill but the installation of the 
different types of upgrades that take place and the maintenance 
that is required thereafter creates new local jobs.
    And so I am wondering, Ms. Schafer, if you can talk about 
if there is a correlation between creating jobs and also 
reducing the Federal Government's energy bill?
    Ms. Schafer. Well, the nice thing about Energy Savings 
Performance Contract or really any energy efficiency project is 
it is local. You can't offshore efficiency upgrades to a 
building that is here. We have estimated that we get about 10 
jobs per million dollars of investment. So it does add up. The 
Chamber testified to, you know, I think it was like 400,000 
jobs or something from ESPCs already so----
    Mr. Swalwell. And also, do you see a potential--and I would 
also ask Dr. Hogan this question--do you see a potential to 
increase the role that ESPCs play with respect to data centers? 
And we know that data centers, you know, a growing trend to add 
more and more data centers across the country or move 
information into the cloud. I mean they really do consume a lot 
of energy. Now, are there more opportunities out there to use 
ESPCs for data centers? And I will start with Dr. Hogan.
    Dr. Hogan. Well, I think that is a great question. 
Certainly, there are some sort of data center configurations 
that we can use ESPCs for now given the reliance on, you know, 
intensive air-conditioning in data centers. But we do know that 
there is interest in figuring out how to do more with these 
ESPCs and we would be happy to respond to any proposals that 
people might have in that space.
    Mr. Swalwell. Great. And Ms. Schafer?
    Ms. Schafer. We are very concerned about the data center 
area. It--we feel it is completely in the authority of existing 
ESPCs. There are--the government has definitely seen some 
opportunity for data centers. They have put out notices of 
opportunity to our ESCO community asking them to bid on 
projects for data center consolidations. We have had selections 
for those from NASA Glenn at GSA and in the Navy. We have also 
had just NOOs that are some of them a little bit held up 
because of this current holdup on the first one with the 
Department of Transportation, the Air Force, and with the USDA.
    So we do--the government definitely sees it as an 
opportunity and so do our members.
    Mr. Swalwell. Can you--ESPCs be applied to the Federal 
vehicle fleet under existing law? And we saw Dr. Hogan refer 
to, I think, 600,000 civilian vehicles. And I know there are 
efforts underway, but what role can ESPCs play in upgrading our 
vehicle fleet to hybrid or electric cars? And, Dr. Hogan, I 
will start with you.
    Dr. Hogan. So as the statute is currently written, it does 
not allow us to use ESPCs for our fleets.
    Mr. Swalwell. And, Ms. Schafer, is that--would that be a 
positive change? Is there interest in industry to compete for 
that if it was available?
    Ms. Schafer. There definitely would be and we have seen 
legislation, bipartisan legislation in the past trying to do 
this. But it triggers a score from CBO because it is an 
expansion of our authority. So scores are triggered both when 
we try to expand the authority into things that are non-
building-related or non-plug-load-related, as well as when we 
actually say from a Congressional angle, hey, get more 
efficient if they might use us to--use an ESPC, then that also 
scores. So it is back to the scoring.
    Mr. Swalwell. I am glad the scoring has been brought up and 
maybe this is an opportunity that the Chairman and I and 
Ranking Member Maffei can work on to address and try and 
correct this because it sounds like there is agreement among 
the three of us that it is just a--kind of a mindless 
approached to scoring and there are opportunities for further 
savings that we could look into.
    Chairman Broun. Mr. Swalwell, you are suggesting the 
Federal Government is mindless?
    Mr. Swalwell. Not too mindless, that you and I, Mr. Broun, 
couldn't fix it.
    Chairman Broun. Well, I will agree with that, Mr. Swalwell.
    Mr. Swalwell. Well, thank you, and I yield back.
    Chairman Broun. Thank you so much. Now, the Chairman will 
recognize Mr. Cramer for five minutes.
    Mr. Cramer. Thank you, Mr. Chairman, Ranking Members, for 
this, and thank you to all of the witnesses.
    I am still trying to get over the fact that the Federal 
Government manages half-a-million buildings in the United 
States, and that speaks to a whole other challenge, which I 
think, frankly, is symptomatic of why Administration officials 
and bureaucrats can come in here and give roundabout answers to 
direct questions. The bureaucracy is too big.
    That said, I want to expand this discussion on efficiency a 
little bit because my personal belief is that efficiency ought 
to be its own reward. It shouldn't be this complicated. I have 
always found it frustrating that it requires a whole bunch of 
people creating a whole bunch of jobs to screw in a light bulb 
that will save money, and that ought to be fairly self-evident.
    I know a little bit more about it, however, because I do 
think, even as the largest landlord, largest energy user in the 
country, we have a broader responsibility as well, and that is 
to the rest of the ratepayers that are also affected in areas 
where we may find efficiencies in our federally owned 
buildings. I know there are a number of models that utilities 
can use to determine the value of energy efficiency, and it 
shouldn't be done in a vacuum. And it is not just the one 
customer that uses an energy efficiency that has an impact in 
my energy efficiency, especially in a down economy. There are 
stranded costs in our plant, for example, that have to be paid 
for by the number of ratepayers that there are in any given 
service area.
    And so I would like somebody to speak to me about the 
various models and whether or not we consider other ratepayers 
than simply the Federal Government, because the Federal 
Government, while we can find efficiency in a particular 
building or a particular agency, those savings are going to 
be--the cost--there is still a cost somewhere else that 
somebody else has to bear as a result of those savings in some 
cases.
    So do you know what kind of modeling is used to determine 
whether there is a negative impact even of--and, by the way, I 
support this kind of thing, just so you know. But even in a 
savings to the Federal Government, do we measure the 
possibility that that savings will be a cost of the ratepayers 
not in their taxes but perhaps in their utility rates? If 
somebody could speak to that if it makes sense to anybody.
    Ms. Schafer. The only thing I can think of is if we get 
more efficient anywhere on the grid----
    Mr. Cramer. Um-hum.
    Ms. Schafer. --everywhere would be better on the grid. 
Then, you reduce the need to build new power plants, which cost 
money to do and that gets rate-based and affects all taxpayers. 
And I don't--but I am having--I don't think I understand 
about----
    Mr. Cramer. Okay. So let me ask you this----
    Ms. Schafer. --the--if you get more efficient here, does it 
make it more expensive over here? I don't think that is--I 
don't understand that part. I apologize.
    Mr. Cramer. That is--okay. Let me get Dr. Hogan and then I 
will----
    Dr. Hogan. But you were going in the right direction 
because many utilities run energy efficiency programs. I think 
if you look across the country, more than half the States have 
policies in place where they are looking to procure energy 
efficiency whenever the energy efficiency costs less than the 
construction of the next power plant. And then they have 
energy-saving goals so that they know they don't have to build 
that next power plant.
    And I think it is the programs that we are engaged with as 
well that help feed into the utilities planning and their 
ability to sort of avoid the construction of that next power 
plant.
    Mr. Cramer. Teed up perfectly. I think that is exactly 
right. So then my question becomes what you have just described 
is what I would call a total resource cost-and-benefit 
analysis. But there is also a ratepayer impact model that I 
think we are ignoring in this discussion because your 
assumption, while usually true, I don't think is always true.
    And when you consider in a down economy like we have today 
where there is plant built--and there is a lot of plant in 
certain areas that there isn't the next generation of plants to 
be built unless, of course, we issue mandates that they have to 
be closed down.
    And, by the way, with regard to jobs creation, building new 
power plants is pretty good jobs creation as well. So this bias 
sort of against that, I think we need to put energy efficiency 
in a broader context and that is to consider not just the 
participants in an energy efficiency program but the 
nonparticipants and their ``benefits'' as well because in many 
utility situations that I am familiar, the cost to the 
nonparticipant is quite high. And generally, the 
nonparticipants are people that can't afford the new 
refrigerator or the new lights or the new insulation at all 
this other things.
    So when we talk about energy efficiency, I don't think we 
should talk about in the vacuum nor necessarily assume that the 
next plant is a negative to either society or to the local 
economy or to the ratepayer.
    With that, my time is expired.
    Chairman Broun. Thank you, Mr. Cramer. Now, Mr. Peters, you 
are recognized for five minutes.
    Mr. Peters. Thank you, Mr. Chairman. I want to first agree 
with the comments about scoring. One of the things that has 
been most surprising to me about the Federal Government is the 
rigidity with which they observe this scoring that doesn't give 
you any benefit for what you might spend today in terms of the 
future. And this is not the way that any family or small 
business or local government would make a decision.
    And we would look--if we were ever to evaluate any 
investment, you would look at what you get back in the future. 
That is what distinguishes an investment from spending. And so, 
again, we see that today and I just want to say that don't just 
leave it at the three of you, Mr. Swalwell. I would like to 
join up and be part of this conversation.
    The question I had for you, though, and perhaps this is for 
Dr. Hogan or Ms. Schafer, I love the idea of using these--it 
reminds me of a power purchase agreement kind of plan that 
would--it is a way to get significant savings for Federal 
facilities with minimal cost implications, really if any, and I 
think it is a great program.
    But I am interested in the context because, as we think 
about upgrading Federal facilities in general to be making 
improvements, I wonder whether you might tell me whether this 
model could assist in making Federal facilities more resilient 
to the kind of big weather events we have been seeing lately. 
That can be enhancing structural activity, the building 
envelope, moving infrastructure to where it is less vulnerable 
to floods or earthquake or wind, and also maybe improving the 
strength of glass in the window. Have you given any thought to 
that and how might the big weather be accounted for in this 
kind of program where we are going to be making these 
improvements? And I would be interested in hearing your answer 
to that.
    Dr. Hogan. Well, I think we do have to start with an 
understanding that the performance contract is helping the 
government put in place things without having the upfront 
capital that can get paid back with a saving stream. So within 
that construct, we can look at, you know, what can fit into 
that type of contract.
    I guess one area I would pull out in particular that we 
have been doing a lot of work in right now is with combined 
heat and power, right, which many people also believe is a 
resiliency measure that provides for some amount of power 
activity on a base or in a facility during an extreme weather 
event. But we are happy to look at what can be built into the 
construct of a performance contract in that space.
    Mr. Peters. Ms. Schafer?
    Ms. Schafer. Our members are very excited about the 
resiliency and the security--we do a lot of defense 
facilities--possibilities. We do do a lot of onsite generation, 
distributed generation, whether it be with renewables or with 
natural gas, CHP, whatever it is, and we are looking to do 
more.
    Mr. Peters. Okay. I would just ask you it just makes sense 
if we are going to be making these improvements to think about 
some of these new realities we are facing.
    Thank you, Mr. Chairman. I yield back.
    Chairman Broun. Thank you, Mr. Peters.
    I next recognize Mr. Schweikert for five minutes.
    Mr. Schweikert. Thank you, Mr. Chairman.
    You know, this is one of those where you have a dozen sort 
of questions and you are hoping none of them make you actually 
look--what is the term--oh, yes, stupid. But mechanically, 
first--and is it Ms. Hogan or Dr.--how many spots do we have 
where we have entered into these types of agreements and it 
happens to be in a state or a regulated area where there is a 
purchase buyback? So you are doing distributed generation and 
we have had a contract, we have put solar panels on the 
building, and certain times of the day we are generating more, 
we turn the meter backwards, and the municipal or private power 
producer has to buy that power. Do you know of that existing in 
any of these contracts?
    Dr. Hogan. Yes, I certainly don't have those numbers off 
the top of my head. We can collect that information for you.
    Mr. Schweikert. Ms. Schafer--is it Schafer-Soderman?
    Ms. Schafer. Schafer. We generally do small-scale 
renewables or small-scale generation that is used within the 
fence. So there isn't a lot of selling back to the grid. There 
have been a few projects in the past. Currently, the 
Administration is--has different ways that they would like to 
do power purchase agreements. They don't really want to put 
them within an ESPC so we sort of don't do a lot of that at 
this point.
    Mr. Schweikert. Okay. I know that is becoming actually 
quite an issue in California, Arizona, and others where the 
distributive generation is actually creating some fascinating 
curve on adoption and sort of transfer pricing.
    But that is--walk me through--if I were actually describing 
this to my constituents--the benefit of using sort of a private 
financing mechanic as we do here compared to an appropriated 
one?
    Ms. Schafer. So you get a couple of benefits and you--it is 
a different construct but what happens is you go into--you 
select a contractor based on maybe some preliminary audits and 
that type of thing, and then you work with them very 
collectively. It is a very cooperative program between the 
government customer and the ESCO deciding what all do we want 
in here? Here is our immediate problem. What else can we do to 
help pay for that? What else--what other beneficial things do 
you want? And it is a back and forth, back and forth, back and 
forth. It is very different than a design-build type of 
contract. You actually don't sign a contract with the Energy 
Service Company until you get all of that done.
    Mr. Schweikert. Okay. We are a little off.
    Ms. Schafer. Okay. I am sorry.
    Mr. Schweikert. But--okay. Let me box it in.
    Ms. Schafer. Okay.
    Mr. Schweikert. Will the benefit of the contract change 
much if interest rates, cap rates, the costs change?
    Ms. Schafer. It is locked in so whatever you lock in at the 
time of----
    Mr. Schweikert. But that is in the contract that is signed 
today?
    Ms. Schafer. The contract signed today.
    Mr. Schweikert. How about into the future if we are sitting 
here and a year from now we are back at historically normal 
interest rates, do you think the value of these contracts----
    Ms. Schafer. Well, you have locked in it really good 
rates----
    Mr. Schweikert. No, one more time----
    Ms. Schafer. --you did it today----
    Mr. Schweikert. New contract----
    Ms. Schafer. Oh, okay, new contract----
    Mr. Schweikert. --a year in the future under current----
    Ms. Schafer. Okay.
    Mr. Schweikert. --more normalized interest rate 
environment.
    Ms. Schafer. So in 2006, as Oak Ridge report said, that 
even if the interest rates then, which were significantly 
higher than they are today, they were still a very good deal, a 
better deal than a project done with appropriated dollars 
straight up.
    Mr. Schweikert. Okay. That----
    Ms. Schafer. And that----
    Mr. Schweikert. Is it Dr. Whitlow? And let's see if I can 
come up with the proper way to build this box and this 
question.
    I have a government facility. I have infrastructure needs. 
I need a new chiller, I need a new air conditioner, I--it is 
time for new windows. Does this become an alternative way to 
finance capital costs, as well as being able to talk about the 
energy savings? And I am sort of curious what ultimately--on 
occasion does--do I have multiple motivators here of this is a 
way to sort of strip certain capital costs off my budget and 
find another way to finance them?
    Dr. Whitlow. Right. It is a way to finance the project 
without using the appropriated funds, and then the big 
advantage is when we enter into these projects, it is the 
guaranteed savings that we get.
    Mr. Schweikert. Well, but in that case, if I am financing 
these improvements, it would have been in my capital budget. Do 
I have any sort of movement of what those appropriated dollars 
would be? So, you know, a budget is built, we have a capital 
value, we are going to build a new chiller, all of this, and I 
enter into one of these agreements. I get my chiller. Do those 
dollars end up being fungible and move somewhere else?
    Dr. Whitlow. Well, what we will not do if, when we enter 
into these agreements, our appropriated dollars don't come into 
play because when we use this alternative--this--well----
    Mr. Schweikert. They wouldn't come into play but you have 
actually--is the term subrogation? I have covered my costs here 
so I still have that dollar in my budget line items. I am not 
saying it is bad or evil; I am just trying to understand. Is it 
something we should look more to when we are building budgets 
saying, hey, there is an ESPC possibility on this facility; 
therefore, certain capital cost shouldn't be in their line 
items?
    Dr. Whitlow. Well, I certainly think it would be an 
advantage to us to look at that mechanism----
    Mr. Schweikert. Okay.
    Dr. Whitlow. --because it allows us to use our appropriated 
dollars, as you say, use our appropriated dollars other places 
and not have to use them to do these capital improvements, 
which result in these energy segments.
    Mr. Schweikert. I am over my time. Thank you, Doctor.
    Mr. Chairman, thank you for your patience.
    Chairman Broun. Thank you, Mr. Schweikert.
    Now, Mr. Veasey, you are recognized for five minutes.
    Mr. Veasey. Thank you, Mr. Chairman. And I wanted to ask 
Dr. Hogan specifically about the ESPCs and other options. Are 
there other options that are available besides the ESPCs and 
direct funding that agencies can consider to pay for energy-
saving projects?
    Dr. Hogan. Yes, we talked about performance contracting 
generally with Energy Savings Performance Contracts being one 
mechanism. We have also talked about appropriated dollars being 
available to the extent that agencies have those dollars in 
their facility budgets. And then I think we also talked a 
little bit today about the service contracts that utilities can 
provide, UESCs, which are also an important mechanism that many 
agencies have availed themselves of but again are different 
than the federally administered contract mechanisms.
    Mr. Veasey. Let me move over to Energy Independence and 
Security Act of 2007. Of course, that authorized the use of any 
appropriated funds for upfront ESPC financing. And I wanted to 
ask Dr. Whitlow about NASA.
    I was really curious what effect that would be on NASA and 
other Federal agencies if the ability to use other funds were 
removed?
    Dr. Whitlow. Well, if we remove that ability, what it does, 
it gives us more flexibility in meeting our energy and water 
reduction goals because we have found that just the use of the 
tools that we have available such as ESPCs have provided us 
great benefit and great savings not only in our energy usage, 
our water usage, and has resulted in significant dollars 
savings annually as well. So additional tools would benefit the 
agency.
    Mr. Veasey. Dr. Schafer, do you want to add anything?
    Ms. Schafer. I guess I was trying to understand--okay. So 
in 2007 I think there was language that said something about 
you can mix money so you could use appropriated dollars in with 
an ESPC. This doesn't mean you are suddenly replacing it 
necessarily. What it means is if you have got some really 
expensive widget that you want to install along with a bunch of 
energy conservation measures and you want to use some money up 
front that you have so you do have appropriated dollars for 
efficiency, you could put that in, too, and shorten your 
timeline of payback. Some agencies have done this in the past; 
other agencies are--don't do it and still don't do it. I don't 
think the language really had any impact at all on whether and 
which agencies.
    Mr. Veasey. Thank you, Mr. Chairman. I yield back my time.
    Chairman Broun. Thank you, Mr. Veasey. I now recognize Mr. 
Weber for five minutes.
    Mr. Weber. Thank you, Mr. Chairman.
    Dr. Hogan, among the dozens of actions the President 
announced on Tuesday as part of his Climate Action Plan, was a 
commitment to complete numerous new energy efficiency 
regulations for appliances. I understand those regulations are 
promulgated under your supervision, is that right?
    I have the list of current active rulemakings. They include 
virtually every appliance you can either do what we call 
hardwire or plug into an outlet. That would be ceiling fans, 
air conditioners, heat pumps, furnaces, boilers, refrigerators, 
and on and on and on--heaters included and on and on and on. 
And executing the President's directive under your supervision, 
which rulemakings do you expect to finalize first and how soon 
should we expect to see these?
    Dr. Hogan. We can certainly provide you with a list of the 
rule actions that are currently in play. I think it is great to 
think about the amount of energy savings that these appliance 
standards have brought forth to the American consumer. You 
know, just the ones that have been put in place over the last 
four years are helping save something close to $400 billion 
through 2030. So they are a great way to help consumers and 
businesses save energy.
    Mr. Weber. Well, let me--I will just editorialize for a 
second. The government's role is to protect us from our 
enemies. When it decides it has to protect us from ourselves, 
we have a problem. And my concern with these rules beyond the 
principle that the Federal Government should not be in the 
business of designing appliances--and I own an air-conditioning 
company----
    Dr. Hogan. Um-hum.
    Mr. Weber. --is that they limit consumer choice. They will 
raise the purchase price of these appliances, actually reduce 
the sales for manufacturers because as--and I have witnessed 
that in my own company--as units get more and more efficient, 
people cannot afford to purchase them. And they actually have 
the old one repaired. Now, what does that say about higher 
efficient standards or reducing the energy cost? And many 
manufacturers have actually filed comments with DOE along those 
lines.
    And just one example, remanufacturing comments on the DOE's 
rule for residential furnace fans say that the rule would 
result in--and, of course, I am reading from their comments and 
I can attest to them in my own business--higher initial cost, 
which would lead to consumers switching to less-efficient 
products. They literally will buy a less-efficient air-
conditioning system because the price is higher or because in 
many ways the rules promulgated, what manufacturers have to do. 
Higher initial cost, as I stated earlier, will push consumers 
to repair rather than replace their units. And I can go on and 
on and on. Window units might be used as opposed to buying a 
whole complete central system, which we have experienced in our 
business.
    Let me just ask you, when is the last time you bought an 
air conditioner or furnace?
    Dr. Hogan. Certainly within the last 10 years.
    Mr. Weber. Within the last ten years. And then I would--let 
me just go down the panel.
    And Dr. Whitlow, when is the last time you bought one? And, 
by the way, yours is inefficient now. You need to replace it.
    Go ahead.
    Dr. Hogan. It was efficient when I bought it.
    Mr. Weber. Well, I understand. And as often as we have 
these meetings and change the rules, there--you know, there--
you are going to be replacing it more often.
    Go ahead, Dr. Whitlow.
    Dr. Whitlow. The last air-conditioning and furnace I bought 
was in 2000 when I purchased my home.
    Mr. Weber. Okay.
    Ms. Schafer. 2007.
    Mr. Weber. Okay.
    Mr. King. 2009.
    Mr. Weber. Well, Mr. King, there is hope for yours for at 
least a couple more years. Gosh, I got lots of questions.
    You talk about increasing energy efficiency and power on 
the grid but you don't--did you--Dr. Hogan, do we weigh the 
impact, lost opportunity--investment opportunity when you don't 
build that new power plant? Those investors don't get a return 
on their money, for example, number one. Number two, new power 
plants are a lot more efficient than the older power plants, so 
we can actually bring them online, less emissions. Do we 
measure the amount of money that will be spent on trying to get 
carbon pollution out of the air or do we just say we want to 
reduce energy usage so that new plants are not built and we 
keep driving the old '60 model Chevy Caprice?
    Dr. Hogan. I think the premise behind energy efficiency--
and we sort of talk loosely about avoiding the construction of 
the next power plant. I mean I think what we are all interested 
in is providing the services that people want and to be doing 
it as efficiently as possible because efficiency aligns with 
lower cost----
    Mr. Weber. Okay. But I am----
    Dr. Hogan. --to the consumer.
    Mr. Weber. --running out of time so bear with me for one 
second. That is a private decision. If a company wants to 
invest in a power plant and they can produce energy at a more 
reasonable rate and do it more environmentally friendly, why 
would we want to deter that?
    Dr. Hogan. I think you are sort of putting me now in the 
position of being a state regulatory commissioner, right, who 
is responsible for overseeing these types of decisions for our 
regulated electricity industry, but I think generally, people 
are looking for solutions that deliver the least-cost energy to 
the American customer.
    Mr. Weber. Well, and I am sorry. Forgive me. As we seek to 
justify higher and higher efficiency ratings that we impose on 
manufacturers, in essence, we are stepping in between state 
regulatory agencies and we are saying, look, you are going to 
have to build more efficient units that use less electricity. 
And the net result may be that we actually defer the building 
of more efficient, more environmentally friendly plants. And I 
think that cost needs to be taken into account.
    Mr. Chairman, thank you for your indulgence. I yield back.
    Chairman Broun. Thank you, Mr. Weber.
    Now, the Chairman recognizes Mr. Lipinski for five minutes.
    Mr. Lipinski. I thank you, Chairman Broun. I unfortunately 
had another hearing at the same time so I apologize for not 
being here to hear the--your spoken testimony.
    But in going through the written testimony, I know, Mr. 
King, you highlighted the amount of energy savings from 
mechanical insulation and it seems like it could be very 
helpful for manufacturers and industries who are trying to 
boost their competitiveness. I wanted to ask not only Mr. King 
but the entire panel. Do you see a greater potential role for 
things like mechanical insulation in Energy Savings Performance 
Contracts or in other ways--other use by the Federal 
Government? So let's start with Mr. King.
    Mr. King. We would certainly hope so. One of the biggest 
hurdles I would say, barriers today with mechanical insulation 
in existing buildings is when they are looking at existing 
buildings outside of a major performance contract, it is 
basically referred to as a maintenance expense. And whether it 
is government or private business, people are cutting expenses 
and not completing things that are energy efficiency that do in 
fact have a tremendous return on investment from an efficiency 
standpoint. And, as a result of that, it is--nothing is being 
done because of budgetary restraints. They are looking at it as 
an operating expense as opposed to an energy efficiency 
investment.
    So it is the fact that the energy performance contracts, 
when you look at it holistically, if they would look at the 
proven prescriptive items like mechanical insulation--and there 
are others--to be included in that, all inclusive in that, it 
actually helps the implementation of those types of measures.
    Mr. Lipinski. Thank you. And anyone else want to--Ms. 
Schafer?
    Ms. Schafer. We definitely use insulation and--when we do 
mechanical work when we replace chillers, decentralized 
boilers, all those things. So it is used. We are getting in to 
deeper and deeper retrofits in Federal buildings, working on 
Net Zero with the Department of the Army right now, and there 
will be even more opportunities for insulation.
    Another place that we really see a role for both ESPCs and 
an increase used in mechanical insulation is in the industrial 
markets, which we don't have a lot in the Federal Government, 
but it is a huge opportunity to save energy at very low cost.
    Mr. Lipinski. Thank you. Dr. Whitlow?
    Dr. Whitlow. When we work with the DOE to identify 
potential projects and the task orders that we would do to 
improve our energy efficiency, if there is a role for 
insulation in meeting our goals and then certainly we would use 
insulation as appropriate.
    Mr. Lipinski. Thank you. Dr. Hogan, anything to add?
    Dr. Hogan. Certainly, as we give guidance out to the 
Federal agencies around the types of measures that are 
appropriate for use in performance contracting, you know, we 
include a complete slate of those measures and certainly 
insulation will be part of that.
    Mr. Lipinski. Great. Thank you. With that, I will yield 
back.
    Chairman Broun. Thank you, Mr. Lipinski.
    And I think we have exhausted our numbers of Members that 
wanted to ask questions, and so our first round is over.
    And I want to thank the witnesses for your valuable 
testimony and Members for their questions. Members may have 
additional questions. In fact, I will promise you we do. And I 
thank you, Dr. Hogan, for your promise to get the responses 
back for these questions for the record back in a very 
expeditious manner, within two weeks. I hope.
    So Members--the record will remain open for two additional 
weeks for additional comments and for the questions that are 
being provided to the panel.
    I thank you all for your being here today and for your 
excellent testimony and very interesting testimony. We have got 
a lot of things that we need to be doing to try to promote more 
energy efficiency and savings to the taxpayer, particularly in 
these hard times economically for the government and for 
everybody. The witnesses are excused and the hearing is now 
adjourned.
    [Whereupon, at 11:35 a.m., the Subcommittees were 
adjourned.]
                               Appendix I

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                   Answers to Post-Hearing Questions




                   Answers to Post-Hearing Questions
Responses by Dr. Kathleen Hogan

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Responses by Dr. Woodrow Whitlow, Jr.

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Responses by Ms. Jennifer Schafer

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Responses by Mr. Ron King

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                              Appendix II

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                   Additional Material for the Record




    Submitted letter for the record by Representative Eric Swalwell

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