Energy Conservation: Federal Agencies' Funding Sources and Reporting
Procedures (Letter Report, 03/30/94, GAO/RCED-94-70).

The federal government is the largest single energy user in the nation.
In fiscal year 1992, the energy bill for 500,000 federal buildings and
facilities came to more than $3.6 billion.  The National Energy
Conservation Policy Act requires that federal agencies, by the year
2000, cut energy use 20 percent from 1995 levels.  This report provides
the latest information available on the energy activities at the six
largest energy-consuming agencies: the Defense Department, the Energy
Department, the Transportation Department, the Department of Veterans
Affairs, the General Services Administration, and the Postal Service.
GAO identifies (1) energy expenditures, spending on energy conservation,
and energy efficiencies achieved; (2) funding sources available for
energy conservation measures; and (3) procedures used for tracking them.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-94-70
     TITLE:  Energy Conservation: Federal Agencies' Funding Sources and 
             Reporting Procedures
      DATE:  03/30/94
   SUBJECT:  Energy conservation
             Federal facilities
             Energy efficiency
             Energy costs
             Cost control
             Federal agencies
             Reporting requirements
             Monitoring
             Energy consumption
             Federal funds
IDENTIFIER:  Federal Energy Management Program
             Federal Energy Efficiency Fund
             
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Cover
================================================================ COVER


Report to the Chairman, Committee on Governmental Affairs, U.S. 
Senate

March 1994

ENERGY CONSERVATION - FEDERAL
AGENCIES' FUNDING SOURCES AND
REPORTING PROCEDURES

GAO/RCED-94-70

Energy Conservation


Abbreviations
=============================================================== ABBREV

  Btu - British thermal unit
  DOD - Department of Defense
  DOE - Department of Energy
  DOT - Department of Transportation
  ECM - energy conservation measure
  FEMP - Federal Energy Management Program
  GAO - General Accounting Office
  GSA - General Services Administration
  GSF - gross square foot
  O&M - operations and maintenance
  OMB - Office of Management and Budget
  USPS - United States Postal Service
  VA - Department of Veterans Affairs

Letter
=============================================================== LETTER


B-255606

March 30, 1994

The Honorable John Glenn
Chairman, Committee on
 Governmental Affairs
United States Senate

Dear Mr.  Chairman: 

The federal government is the largest single energy user in the
nation.  In fiscal year 1992, approximately 500,000 federal buildings
and facilities consumed energy costing over $3.6 billion.  The
National Energy Conservation Policy Act, as amended, requires that
federal agencies achieve a 20-percent reduction in energy use by the
year 2000 from 1985 levels. 

This report responds to your request that we provide you with the
latest information available--through fiscal year 1992--on the energy
conservation activities at the six largest energy-consuming agencies. 
These are the Department of Defense (DOD), Department of Energy
(DOE), Department of Transportation (DOT), Department of Veterans
Affairs (VA), General Services Administration (GSA), and United
States Postal Service (USPS).  Specifically, the report identifies
(1) energy expenditures, energy conservation-related spending, and
energy efficiencies achieved; (2) the funding sources available for
energy conservation measures (ECM); and (3) the procedures used for
tracking them. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

DOE has already reduced its energy consumption by 20 percent from the
1985 level, and VA and DOT are well on their way to meeting the
reduction requirement.  Through fiscal year 1992, these agencies
achieved energy reductions of 20.6, 11.5, and 9.7 percent,
respectively.  By comparison, GSA, DOD, and USPS have achieved
smaller reductions, ranging from 7.8 to 1.3 percent, and must
continue to make progress if they are to meet the act's reduction
requirement.  Energy conservation-related expenditures totaling about
$1 billion have helped reduce the 1992 energy consumption level at
the six agencies by approximately 7.0 percent compared to the usage
reported in 1985.\1

Federal agencies have numerous funding sources available to support
energy conservation measures.  Funds are available through general
appropriations, such as operations and maintenance or repair and
alterations accounts, and through direct appropriations for specific
projects.  To a lesser extent, funding may also be available to
federal agencies through utility rebate programs and contracts with
an energy services company.\2 Funding may also be available from the
Federal Energy Efficiency Fund, which was authorized by the Energy
Policy Act of 1992.  However, of the agencies in our review, only DOT
is eligible to compete for fiscal year 1994 funds.  The Energy Policy
Act of 1992 excludes USPS, and the guidance promulgated by DOE
excludes the others from competing in fiscal year 1994. 
Additionally, a portion of the savings resulting from energy
conservation measures that have been implemented may be available for
agencies' use.  Federal energy managers at four of the six agencies
believe that current funding sources for energy conservation measures
will be sufficient for each of their agencies to meet the 20-percent
energy-reduction requirement.  GSA said that it is uncertain whether
it will meet the reduction requirement with its current funding
sources, and USPS said that it is ready to meet the requirement if
adequate funding is provided. 

Although each agency has a system to track energy conservation
expenditures, the amounts reported generally understate the total
amount spent on energy conservation.  For example, several agencies'
information management systems did not capture and report energy
conservation-related expenditures that were part of large
modernization projects, and one agency does not report energy
conservation expenditures under $10,000.  Although agency officials
were unable to quantify the cost to modify accounting systems to
capture these amounts, they believed that such expenditures would not
be cost-effective. 


--------------------
\1 This reduction is based on the site energy accounting method,
which recognizes only the resources actually used in the building's
energy systems.  Source energy accounting--the method formerly used
to report federal energy use--encompasses the total resource
requirement to deliver the energy actually used in the building. 
Using source accounting, the changes in energy consumption ranged
from a 13.6-percent decrease to a 3.6-percent increase. 

\2 Energy savings performance contracting is a method whereby the
contractor incurs the cost of implementing energy savings measures in
exchange for a predetermined share of any energy cost savings
directly resulting from implementation of such measures during the
term of the contract. 


   BACKGROUND
------------------------------------------------------------ Letter :2

DOE's Federal Energy Management Program (FEMP) Office coordinates
federal energy efficiency efforts and reports annually to the
Congress on federal agencies' energy consumption and conservation
activities, including those in federal buildings.  FEMP provides
direction, guidance, and coordination among federal agencies to
reduce energy consumption in federal buildings and operations.  FEMP
is designed to play a leadership role in guiding DOE and other
federal agencies' energy management practices, but it has no
responsibility for their programs. 

Specific energy-reduction requirements for federal buildings and
facilities are addressed in (1) the Energy Policy and Conservation
Act, as amended; (2) the National Energy Conservation Policy Act, as
amended; (3) the Federal Energy Management Improvement Act of 1988,
as amended; (4) the Energy Policy Act of 1992; and (5) Executive
Order 12759 on Federal Energy Management. 

Federal agencies are implementing several strategies to help reduce
energy consumption.  These strategies include no-cost and low-cost
energy conservation measures, such as reducing lighting levels;
lowering hot water temperatures; turning off unused equipment; and
installing energy-efficient windows, insulation, and weather
stripping.  Energy-efficient building retrofits and energy
conservation projects--such as lighting system replacements, energy
management control systems, and modernized heating and air
conditioning systems--are also being implemented in federal
buildings. 

DOD, DOE, DOT, GSA, USPS, and VA accounted for 96 percent of the
government's fiscal year 1992 energy use.  Figure 1 shows the amount
of energy each of these agencies used relative to the rest of the
federal government. 

   Figure 1:  Total Energy Use for
   Fiscal Year 1992

   (See figure in printed
   edition.)

Source:  Developed by GAO from FEMP data. 


   AGENCIES ARE MAKING PROGRESS
   TOWARD THE ENERGY-REDUCTION
   REQUIREMENT
------------------------------------------------------------ Letter :3

Information compiled by the FEMP Office indicates that energy
conservation activities at the six agencies are beginning to pay off. 
The six agencies in our review have all made progress toward meeting
the 20-percent energy-reduction requirement of the National Energy
Conservation Policy Act, as amended, in buildings and facilities.  As
figure 2 shows, for fiscal year 1992, the six agencies combined have
achieved a 7.0-percent reduction--based on British thermal units
(Btu) per gross square foot (GSF)\3

--in energy consumption in buildings and facilities relative to
fiscal year 1985.  Individual agencies' reductions range from a high
of 20.6 percent by DOE to a low of 1.3 percent by USPS.\4

   Figure 2:  Energy Use per Gross
   Square Foot for Fiscal Years
   1985 and 1992

   (See figure in printed
   edition.)

Source:  Developed by GAO from FEMP data. 

Furthermore, the amount the six agencies spent collectively on energy
decreased in fiscal year 1992 by about $1.4 billion.  Individual
agencies' consumption data show that DOD (which consumed about 85
percent of the government's energy), DOE, GSA, USPS, and VA are
spending less than in fiscal year 1985.  Although the FEMP data
indicate that DOT is spending more on energy, DOT said that the
methodology it used to develop the fiscal year 1985 data may have
understated the actual energy cost.  DOT has a project under way to
review and revise prior-year cost data, as necessary, and provide any
revisions to FEMP.  (See fig.  3.)

   Figure 3:  Energy Consumption
   Cost Data for Fiscal Years 1985
   and 1992 for Buildings and
   Facilities

   (See figure in printed
   edition.)

Note:  All numbers are in fiscal year 1992 constant dollars. 

\a According to DOT, the methodology used to develop the fiscal year
1985 data may have understated the actual energy costs. 

Source:  Developed by GAO from FEMP data. 

The Congress recognizes that direct investments in energy
conservation measures will help agencies reduce their energy use, and
the National Energy Conservation Policy Act, as amended, requires
agencies to specifically set forth and identify funds that they have
requested for energy conservation measures.  Figures 4 and 5 show
that the six agencies spent approximately $1 billion\5 for energy
conservation measures from fiscal years 1985 through 1992. 

   Figure 4:  Agencies' Spending
   for Energy Conservation
   Measures for Fiscal Years
   1985-92

   (See figure in printed
   edition.)

Note:  All numbers are in fiscal year 1992 constant dollars. 

\a This amount is understated because of the exclusion of some DOT
spending for energy conservation measures beginning in fiscal year
1989. 

Source:  Developed by GAO from FEMP data. 

   Figure 5:  Annual Agency
   Spending for Energy
   Conservation Measures for
   Fiscal Years 1987-92

   (See figure in printed
   edition.)

Note:  All numbers are in fiscal year 1992 constant dollars. 

\a This amount is understated because of the exclusion of some DOT
spending for energy conservation measures beginning in fiscal year
1989. 

Source:  Developed by GAO from FEMP data. 

Energy conservation-related spending expressed as a percentage of
total agency energy expenditures ranges from about 6.5 to under 1.0
percent.  As table 1 shows, the average amount each agency spent for
the 8-year period ranged from about $50 million by DOD to $7 million
by DOT. 



                           Table 1
           
            Energy Conservation-Related Costs as a
           Percent of Energy Costs, 8-Year Averages
                   for Fiscal Years 1985-92

                    (Dollars in thousands)

                          8-year                ECM costs as
                         average        8-year  a percent of
                    total energy   average ECM  total energy
Agency                     costs         costs         costs
------------------  ------------  ------------  ------------
DOD                   $7,354,999       $49,640           0.7
DOE                     $320,802       $15,714           4.8
DOT\a                   $163,808        $7,121           4.3
GSA                     $208,571       $13,527           6.5
USPS                    $355,121       $10,974           3.1
VA                      $202,998       $10,066           5.0
------------------------------------------------------------
\a According to DOT, the agency figures may not be accurate due to
reporting changes since fiscal year 1985. 

Source:  Developed by GAO from FEMP data. 

While information on direct investments for energy conservation
measures provides an indication of agency commitment, it should be
recognized that reduced energy use is achieved through many
mechanisms--from turning off lights, to adjusting room temperatures,
to replacing inefficient heating and cooling systems.  Also,
increased agency mission activities can significantly affect agency
energy consumption--for example, DOD's energy consumption increased
during Operation Desert Storm.  Energy consumption reductions
attributable to direct investments in energy conservation measures
and those brought about by no-cost conservation-related activities or
other factors cannot be pinpointed.  Consequently, a meaningful
analysis could not be performed to explain why some agencies achieved
a greater efficiency per ECM investment than others. 


--------------------
\3 A British thermal unit (Btu) is a standard unit for measuring
energy used in operating buildings and facilities. 

\4 According to USPS officials, USPS' operations have become
increasingly more dependent on the use of highly automated,
energy-intensive equipment that enhances the operations in mail
processing facilities. 

\5 Beginning in fiscal year 1989, DOT's annual spending for energy
conservation measures is understated because, according to DOT, it
did not report conservation spending by its Federal Aviation
Administration that, according to FEMP, should have been included. 


      ENERGY POLICY ACT OF 1992
      ESTABLISHES ADDITIONAL
      ENERGY CONSERVATION
      REQUIREMENT
---------------------------------------------------------- Letter :3.1

The Energy Policy Act of 1992 amends the National Energy Conservation
and Policy Act and establishes an additional energy conservation
requirement for federal agencies.  This requirement mandates that
"each agency shall, to the maximum extent practicable, install in
Federal buildings owned by the United States all energy and water
conservation measures with payback periods of less than 10 years," by
the year 2005, using life-cycle cost methods.\6 To comply with this
requirement, agencies are in various stages of developing plans to
identify energy and water conservation projects.  Agencies are
utilizing in-house energy managers, private contractors, and computer
software to survey the hundreds of thousands of federal buildings and
develop cost estimates for meeting the additional energy conservation
requirement.  Because of the large number of federal buildings that
must be assessed, one agency, for example, reported that the project
prioritization process will be completed in 2002. 


--------------------
\6 With life-cycle costing, the total costs of owning, operating, and
maintaining a building or a building system over its useful life,
including its fuel and energy costs, are determined on the basis of a
systematic evaluation and comparison of alternative building systems. 


   VARIOUS ENERGY CONSERVATION
   FUNDING SOURCES ARE AVAILABLE
   TO AGENCIES
------------------------------------------------------------ Letter :4

As discussed in the previous section, federal agencies have used
hundreds of millions of federal dollars to support energy
conservation initiatives.  These funding sources include general and
direct appropriations, demand-side management program participation,
energy savings performance contracting, the Federal Energy Efficiency
Fund, and retained energy savings. 


      GENERAL AND DIRECT
      APPROPRIATIONS
---------------------------------------------------------- Letter :4.1

Five of the six federal agencies receive energy conservation measure
funding from general appropriations and direct appropriations for
specific energy conservation projects from the Congress.  USPS, a
quasi-governmental organization that receives no appropriated funds
for energy conservation measures from the Congress, uses funds
generated from postal rates to implement such measures.  Agencies
generally have the discretion to use general appropriation
accounts--which depending on the agency can include operations and
maintenance, military construction, or repair and alteration
accounts--to fund energy conservation-related projects.  For example,
in fiscal year 1992, GSA committed $37 million for energy
conservation projects from its repair and alteration budget.  DOD, in
fiscal year 1992, spent $30 million from its Energy Conservation
Investment Program and $19.6 million from its operations and
maintenance funds for energy conservation activities. 

The Congress maintains direct control over some energy
conservation-related activities.  Two of the six agencies have
legislatively mandated dollar thresholds for energy projects.  DOD
and GSA officials said that they must present project proposals for
energy conservation initiatives exceeding $300,000 and $1.65
million,\7 respectively.  These agencies must present projects that
exceed these amounts as separate line items in their budget requests. 
In addition, DOE has a self-imposed project amount of $5 million for
congressional notification.  Information on how the six agencies
develop their overall energy conservation-related budgets is
contained in appendix II. 


--------------------
\7 GSA also has an $825,000 congressional approval limit for repair
and alteration funds for projects in leased properties. 


      DEMAND-SIDE MANAGEMENT
      PROGRAMS
---------------------------------------------------------- Letter :4.2

Where available, utility demand-side management programs are designed
to improve electricity efficiency by encouraging utility customers to
buy and use more efficient technologies.  Utilities encourage greater
efficiency through such measures as (1) directly installing new, more
efficient technologies; (2) rebating or subsidizing the purchase or
installation costs of efficient technologies; and (3) providing
information to customers about the opportunities and benefits of
using electricity more efficiently.  The National Energy Conservation
Policy Act, as amended by the Energy Policy Act of 1992, encourages
federal agencies to participate in energy efficiency programs, such
as utility rebate programs, and thus benefit from lower capital
equipment costs for implementing energy conservation measures. 
Similarly, the National Defense Authorization Act for fiscal year
1991 explicitly authorizes defense agencies to participate in utility
rebate programs. 

Two projects illustrate the benefits available to federal agencies
that take advantage of demand-side management programs.  In fiscal
year 1991, VA initiated a lighting retrofit project and a peak
shaving project\8 at its medical center located in Togus, Maine. 
Because these energy conservation projects significantly reduced the
demand placed on the existing capacity, the utility provided rebates
of $113,000 and $200,000, respectively, to VA. 

USPS has also implemented demand-side management initiatives.  In
1992, it successfully completed a no-cost, utility-sponsored lighting
retrofit project at its New York City mail facility that should save
USPS $827,000 during the first year of operation.  In addition, DOT
completed two demand-side management projects in fiscal year 1992 at
its headquarters building.  The two projects resulted in rebates of
over $41,000 for the installation of compact fluorescent lights and
energy-efficient exit signs.  Also of note, GSA has reported
receiving rebates in excess of $7 million to date. 


--------------------
\8 A peak shaving project is designed to reduce the electricity
demand at its highest point through various measures.  For example, a
utility operator using a radio-controlled device may manipulate
"peak" demands for electricity used in water heaters or in heating or
air conditioning units. 


      ENERGY SAVINGS PERFORMANCE
      CONTRACTING
---------------------------------------------------------- Letter :4.3

Four of the agencies we reviewed are using energy savings performance
contracts, as shown in table 2.  Such contracts (which were called
shared energy savings contracts before the Energy Policy Act of 1992)
allow agencies to engage energy services companies to install,
finance, and maintain efficiency improvements in agency facilities. 
These contracts can be used especially when federal funding is not
available.  This type of contract allows the agency and the energy
services company to share the energy cost savings resulting from
energy conservation measures.  Examples of energy savings performance
contracts that are in place are discussed in the next section. 

In 1988, USPS implemented the first successful energy savings
performance contract awarded by any federal agency.  This project
involved a complete renovation of the interior lighting of the San
Diego General Mail Facility.  USPS reported a net savings in excess
of $100,000 through fiscal year 1991, and the project has freed up
4,600,000 kilowatt hours of electricity for other users.  Another
example is DOE's headquarters lighting renovation.  This lighting
initiative is expected to produce energy savings of over $1 million
each for DOE and the energy services contractor, with no capital cost
to DOE.  In addition, the local utility provided a rebate of over $1
million for the purchase of equipment used in this project. 



                           Table 2
           
              Funding Provided by Energy Savings
           Performance Contractors, as of September
                           15, 1993

                                Amount    Number
                              provided        of      Agency
                                    by  contract    share of
Agency                      contractor         s   savings\a
--------------------------  ----------  --------  ----------
DOD                         $14,279,50         7  $23,071,90
                                     8                     2
DOE                          1,700,000         2   1,222,959
DOT                                  0         0           0
GSA                                  0         0           0
USPS                           974,793         4   738,365\b
VA                           3,940,000         1     880,000
============================================================
Total                       $20,894,30        14  $25,913,22
                                     1                     6
------------------------------------------------------------
\a Savings are for the term of the contracts, which ranges from 5 to
25 years. 

\b USPS provided revised figures to GAO in January 1994. 

Source:  Developed by GAO from FEMP data. 


      FEDERAL ENERGY EFFICIENCY
      FUND
---------------------------------------------------------- Letter :4.4

The Federal Energy Efficiency Fund is a grant program established by
the Energy Policy Act of 1992.  The Fund provides grants from DOE to
federal agencies, except USPS, to assist them in meeting energy
management requirements.  Grants will be awarded competitively after
the proposals are assessed for technical and economic effectiveness. 
The Fund was not authorized for funding in fiscal year 1993.  In
fiscal year 1994, appropriations of $6 million were made to support
the Fund.  DOE, in complying with congressional guidance in Senate
and House fiscal year 1994 appropriations reports, is not making
funds available to DOD, DOE, GSA, and VA for fiscal year 1994.  Thus,
of the agencies we reviewed, only DOT is eligible to compete for
fiscal year 1994 funds. 


      RETAINED ENERGY SAVINGS
---------------------------------------------------------- Letter :4.5

Another funding source available to federal agencies for energy
efficiency improvements is a portion of the energy savings realized
by an agency from energy conservation measures that have been
implemented.  To date, DOD and GSA have procedures in place to allow
them to use retained savings, according to agency officials. 

Under the National Defense Authorization Act of 1991, DOD retains
two-thirds of the energy cost savings resulting from energy
conservation, with the remaining one-third returned to the Treasury. 
Of the two-thirds DOD retains, one-half is to be made available to
implement additional energy conservation measures at DOD facilities,
and the remainder is for discretionary use to improve or enhance the
facility.\9 DOD finalized procedures to implement this provision and
field-tested the procedures in July 1993. 

For civilian agencies, excluding USPS, the Energy Policy Act of 1992
stipulates that up to 50 percent of the retained energy savings, if
permitted by each agency's appropriations act, would remain available
to each agency for additional energy efficiency activities.  A
DOE-led interagency group and the Office of Management and Budget
(OMB) are examining how to best implement this authorized funding
source in civilian agencies.  The remaining 50 percent of the
retained energy savings is to be returned to the Treasury.  Because
USPS is excluded from this provision of the act, USPS officials said
that USPS can keep the rebate in full. 

Federal energy managers at DOD, DOE, DOT, and VA believe that current
funding sources for energy conservation-related initiatives will be
sufficient for each of their agencies to meet the 20-percent
energy-reduction requirement.  GSA said that it is uncertain whether
it will meet the reduction requirement with its current funding
sources, and USPS said that it is ready to meet the requirement if
adequate funding is provided. 


--------------------
\9 For funds to remain available beyond the end of the current fiscal
year, the DOD appropriation act for the current year must contain
language permitting this action. 


   TRACKING AND REPORTING
   PROCEDURES DIFFER
------------------------------------------------------------ Letter :5

The National Energy Conservation Policy Act, as amended, requires
federal agencies to identify funds that they have requested for
energy conservation measures and report to the Congress with complete
information on their activities.  Each of the six agencies we
reviewed reports energy consumption data and energy conservation
funding levels and activities to the FEMP Office.  However, agencies
have discretion as to the level of detail used to track and report
funding for energy conservation measures, and agency officials told
us that they are not identifying and reporting all funds spent on
energy conservation initiatives.  Although FEMP issues reporting
guidance annually, the guidance is general and contributes to
inconsistency in agency reporting.  For example, agencies differ in
(1) how they account for conservation dollars spent and (2) how and
to what degree of detail agency headquarters, regional, and field
offices track energy conservation activities. 

Accounting for energy conservation funding differs for several
reasons.  Tracking efficiency expenditures is difficult because
agency budgets typically do not contain line items for conservation
expenditures.  Frequently, agencies incorporate many of these costs
in their operations and maintenance accounts.  In some cases,
agencies may have initially identified funds for energy efficiency
improvements but used them for other mission-related or
higher-priority activities.  Other changes to proposed energy
conservation-related spending may include cancellation of an approved
energy project because of a change in the estimated costs that
resulted in the project's no longer being cost-effective.  One agency
official told us that he does not adjust proposed budget estimates to
reflect such cancellations. 

The agencies we reviewed report annually an amount spent on energy
conservation measures to the FEMP Office, as required by FEMP
reporting guidance.  Participating agencies are also required to
report energy consumption data quarterly.  We found that all agencies
had reported energy costs to FEMP quarterly. 

Some agencies do not report energy conservation funds that are (1)
part of large modernization projects or (2) below a certain dollar
amount, for instance $10,000.  At each agency, we identified major
building and equipment modernization, renovation, or repair projects
that contained energy conservation components that were not
identified as part of the agency's energy conservation initiatives. 
For example, under GSA's procedures, the energy conservation portion
of a proposed $40 million to $50 million headquarters renovation that
includes new energy-efficient windows, lighting, and heating and
cooling systems would not be captured as an expenditure for energy
conservation. 

Finally, the expenditure amounts reported do not include all funds
from which energy efficiency improvements are realized.  Agencies
generally only report those funds that are (1) easily identified as
expenditures for an energy conservation project and (2) above a
certain minimum dollar amount.  For example, GSA does not include
energy conservation-related expenditures for amounts under $10,000
that are part of larger renovation projects in reports to the FEMP
Office.  Some agency officials said that further efforts to collect
data on all energy conservation-related activities would require
extensive tracking system modifications that would be expensive and
not productive. 

Some agency officials said that capturing all energy
conservation-related activities would not be useful.  One agency
official said that in 10 to 15 years set-aside funding for energy
conservation may not be needed because all conservation and
efficiency work will have been completed.  For example, once the
existing stock of old, less-efficient buildings is renovated,
destroyed, or replaced with new buildings, everything should comply
with DOE's architectural and design guidelines for energy efficiency. 
Furthermore, some agency officials said that as long as they can
report that the agency will achieve the energy-reduction goals of the
Energy Policy Act of 1992, they feel that current reporting
procedures are adequate and that additional data collection efforts
would not be useful. 


      EFFORTS TO REVISE REPORTING
      REQUIREMENTS
---------------------------------------------------------- Letter :5.1

The Energy Policy Act of 1992, which was enacted in October 1992,
required OMB in cooperation with other agencies to develop cost
accounting and management guidance, within 120 days, for all federal
agencies to follow.  OMB and DOE are still developing these
guidelines.  No drafts were available for us to review, but agency
officials told us that the revised guidance should help alleviate
variances in agencies' reporting practices.  As of February 23, 1994,
OMB estimated that the new guidance would be finalized in April 1994. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :6

We obtained comments on a draft of this report from DOD, DOE, DOT,
GSA, VA, and USPS.  OMB did not provide comments.  DOD, DOT, and USPS
generally agreed with the information presented; however, they
provided some clarifying comments that have been incorporated into
the report where appropriate.  These agency responses are included in
this report as appendixes III, V, and VII, respectively.  In lieu of
providing written comments, VA chose to provide its general agreement
with the report orally.  DOE and GSA provided written comments, which
we reviewed and address below. 

DOE provided some editorial changes, also included in the report
where appropriate, and elaborated on some concepts in the draft
report that it believed could be misleading.  These concepts included
several federal energy managers' statements that they could achieve
agency energy-reduction goals with the existing funding levels and
the likelihood of agency participation in the Federal Energy
Efficiency Fund.  DOE said that it was unclear in the draft whether
the existing funding sources included both federal and nonfederal
funds.  DOE also said that language in the current appropriations
bill precludes some agencies from participating in the Federal Energy
Efficiency Fund in fiscal year 1994.  Regarding DOE's first concern,
the energy managers' responses were addressing achieving
energy-reduction requirements on the basis of current funding
"sources," not current funding levels.  These sources include federal
funds and nonfederal funds, such as utility rebates and energy
savings performance contracts.  We have updated the section on the
Federal Energy Efficiency Fund to reflect the agency participation
restrictions issued by DOE in January 1994.  DOE's response is
included as appendix IV. 

GSA said that the draft report did not fully reflect its efforts and
progress in energy conservation activities.  While we did not intend
to minimize GSA's energy conservation activities, the scope of our
audit was limited to the fiscal years 1985 through 1992 time frame. 
Executive Order 12759 established 1985 as the base year for measuring
energy reductions in buildings and facilities.  Notwithstanding a
40-percent reduction in energy consumption since 1973 reported by
GSA, our draft report stated that GSA had achieved a "more modest
reduction" since fiscal year 1985 than the other agencies in our
review.  We acknowledge that GSA has achieved a 7.8-percent reduction
in energy use as of fiscal year 1992.  GSA also wanted highlighted
the data in figure 5 showing an upward trend in its investment in
energy conservation improvements.  We believe that figure 5
adequately illustrates this fact.  GSA also commented on its
participation in utility rebate programs.  While we did not include
specific examples for each agency on conservation activities, in
response to this comment, we did incorporate the information that GSA
has reported receiving more than $7 million in rebates to date. 
GSA's response is included as appendix VI. 

We performed our work between November 1992 and February 1994 in
accordance with generally accepted government auditing standards. 
Appendix I provides more information on our objectives, scope, and
methodology. 


---------------------------------------------------------- Letter :6.1

As arranged with your office, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 30 days after the date of this letter.  At that time, we will
send copies to appropriate congressional committees; federal
agencies; the Director, Office of Management and Budget; and other
interested parties.  We will also make copies available to others on
request. 

Please contact me at (202) 512-3841 if you or your staff have any
questions.  Major contributors to this report are listed in appendix
VIII. 

Sincerely yours,

Victor S.  Rezendes
Director, Energy and Science Issues


OBJECTIVES, SCOPE, AND METHODOLOGY
=========================================================== Appendix I

The Chairman, Senate Committee on Governmental Affairs, requested
that we obtain information on the energy conservation activities at
the six largest energy-consuming agencies that participate in the
Federal Energy Management Program (FEMP).  These agencies are the
Department of Defense (DOD), Department of Energy (DOE), Department
of Transportation (DOT), Department of Veterans Affairs (VA), General
Services Administration (GSA), and the United States Postal Service
(USPS).  As agreed with the Chairman's office, we obtained
information on

  energy expenditures, energy conservation-related spending, and
     energy efficiencies achieved, based on the latest available
     data--through fiscal year 1992;

  the funding sources available for energy conservation measures
     (ECM); and

  the procedures used for tracking ECM expenditures. 

To determine how each agency plans, budgets, and reports energy
conservation and consumption data, we interviewed the energy managers
at the six agencies regarding their energy management plans, funding,
tracking and accounting systems, reporting procedures, and other
energy management functions.  From DOE's FEMP Office, we obtained
energy conservation and consumption data as reported by each federal
agency.  We also talked with FEMP officials as well as two
contractors that perform data analysis and report preparation
activities for FEMP.  We reviewed legislation, executive orders, and
federal regulations relevant to federal energy management. 

In addition, we talked with Office of Management and Budget (OMB)
officials to obtain progress reports on OMB's progress in developing
legislatively mandated energy reporting guidance. 


FEDERAL AGENCIES' FUNDING FOR
ENERGY CONSERVATION ACTIVITIES
========================================================== Appendix II

The National Energy Conservation Policy Act, as amended, requires
each agency to specifically set forth and identify funds requested
for energy conservation measures.  Federal agencies have various
funding sources and budgeting methods for implementing energy
conservation measures.  The following information provides an
agency-by-agency description of how energy conservation initiatives
are carried out. 


   DEPARTMENT OF DEFENSE
-------------------------------------------------------- Appendix II:1

The majority of energy conservation projects are funded by operations
and maintenance (O&M) funds.  Installations are allocated a portion
of O&M dollars at the beginning of each fiscal quarter to carry out
assigned missions.  Installation commanders have authority and
flexibility in deciding how these O&M funds are spent.  According to
DOD, even when O&M funds are specifically designated for energy
conservation efforts, commanders can reallocate the funds to other
priorities.  In addition, in a declining budget environment, the
installation commander could easily defer O&M funding for energy
retrofit projects in favor of mission essential requirements. 

The Military Construction Program is another source of energy
conservation funds.  The Congress controls this program by line-item
approval of each individual project.  A portion of the Military
Construction Program budget is for the Energy Conservation Investment
Program fund.  This fund is for energy conservation retrofit
construction projects valued at $300,000 or more.  According to DOD,
competition for program funds is fierce, but a well thought out, high
savings-to-investment project has an excellent chance of being
funded.  Project documentation must clearly show project costs and
expected savings. 

DOD's Energy 2005 Program allows the services and defense agencies to
retain two-thirds of their energy cost savings--one-half of which is
to be used for new energy-saving efforts and one-half for
discretionary use by the installation's commanding officer.  The
Energy 2005 Program provides DOD installations an opportunity to fund
energy retrofit projects that normally are funded from O&M funds. 
The funding amount allocated depends on the size of the
installation's utility budget and the energy savings actually
documented.  Using Energy 2005, an energy manager can create a
dedicated sole source for funding energy projects.  Cost savings are
not limited to 1-year money; installations have an additional year to
spend their funds, following the year in which the funds were saved. 

DOD also uses energy savings performance contracting.  This funding
source uses private-contractor financing for initial investments in
energy projects.  A portion of the savings from energy savings
performance contracting projects are then available to be reinvested
for additional energy conservation projects. 

DOD's energy manager said that energy conservation funds can be
carried over for up to 5 years. 


   DEPARTMENT OF ENERGY
-------------------------------------------------------- Appendix II:2

DOE officials told us a separate conservation budget is appropriated
by the Congress annually for DOE's conservation activities, dating
back to 1977, through DOE's In-House Energy Management Program.  This
budget is dedicated to funding energy conservation projects that meet
life-cycle-costing and savings-to-investment ratio requirements. 
Once the budget is set, project proposals are submitted, evaluated,
and ranked.  The budget is used to fund as many projects as possible
until the funds are expended, based on the priority list.  This
budget may be used for retrofit projects, energy surveys, and
converting vehicles to use alternative fuels. 

Energy conservation funds can be carried forward indefinitely,
according to DOE's energy manager. 


   DEPARTMENT OF TRANSPORTATION
-------------------------------------------------------- Appendix II:3

DOT funds some energy conservation projects from its O&M budgets
within each of its nine operating administrations and its
headquarters office.  DOT occupies some GSA-leased space, which
enables it to apply for project funding from GSA's "set-aside" fund. 

DOT is pursuing energy savings performance contracting as a funding
source for energy conservation activities.  DOT's energy manager said
that the Coast Guard is in the process of implementing several energy
savings performance efforts and that the Federal Aviation
Administration is ready to employ energy savings performance
contracting initiatives. 

Energy conservation funds may only be used during the year in which
they are appropriated, according to DOT's energy branch chief. 


   DEPARTMENT OF VETERANS AFFAIRS
-------------------------------------------------------- Appendix II:4

The energy conservation activities carried out by VA are funded from
a portion of the nonrecurring maintenance budget.  The Congress
approves VA's nonrecurring maintenance budget annually, and VA then
determines what portion it should dedicate to energy conservation
activities. 

Once the energy conservation allotment is determined, all of VA's
medical centers may submit project proposals to headquarters for
evaluation and ranking (using savings-to-investment ratio and
life-cycle-costing requirements).  Projects are funded from the
priority list until the funds are fully obligated. 

VA's energy manager said that energy conservation funds may only be
used during the year in which they are appropriated. 


   GENERAL SERVICES ADMINISTRATION
-------------------------------------------------------- Appendix II:5

GSA allots a portion of the repairs and alterations budget for energy
conservation activities.  For the past few years, this set-aside has
been approximately 12 percent of GSA's utility budget.  This
set-aside is used to finance energy conservation projects in GSA's 10
regions and its headquarters office.  Project proposals are submitted
and evaluated using life-cycle-costing requirements and cost-savings
criteria.  Projects are selected for funding from the priority list,
and projects are selected until the funds are fully obligated. 

According to one agency official, GSA has not used energy savings
performance contracting because it has a designated energy
conservation budget.  The officials believe that it is not an
attractive method to implement ECMs because of the complexity and
resource intensiveness involved. 

According to GSA's energy manager, energy conservation funds can be
carried forward indefinitely. 


   UNITED STATES POSTAL SERVICE
-------------------------------------------------------- Appendix II:6

USPS is a quasi-governmental organization that does not receive
appropriated funds for energy conservation initiatives from the
Congress.  USPS uses funds generated from postal rates to implement
energy conservation measures.  USPS' headquarters energy conservation
funds come from a designated allotment managed by Maintenance
Policies and Programs.  The allotment is provided at the beginning of
each fiscal year.  Field personnel submit projects identified during
surveys conducted by field maintenance personnel.  The projects are
ranked using criteria such as operational need, safety issues, and
economic benefits.  Projects are approved for headquarters funding in
the order of their ranking until the designated allotment is
committed. 

Energy projects may also be implemented using local and area office
funds.  These projects are identified and budgeted for as part of
USPS' repair and alteration program and are accomplished independent
of the headquarters review process.  Expenditures for these projects
may be tracked using the Postal Service energy account number. 

According to USPS' energy manager, energy conservation funds may only
be used for 1 year. 




(See figure in printed edition.)Appendix III
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
========================================================== Appendix II




(See figure in printed edition.)Appendix IV
COMMENTS FROM THE DEPARTMENT OF
ENERGY
========================================================== Appendix II



(See figure in printed edition.)




(See figure in printed edition.)Appendix V
COMMENTS FROM THE DEPARTMENT OF
TRANSPORTATION
========================================================== Appendix II



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)




(See figure in printed edition.)Appendix VI
COMMENTS FROM THE GENERAL SERVICES
ADMINISTRATION
========================================================== Appendix II



(See figure in printed edition.)



(See figure in printed edition.)




(See figure in printed edition.)Appendix VII
COMMENTS FROM THE UNITED STATES
POSTAL SERVICE
========================================================== Appendix II



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
======================================================== Appendix VIII

RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION, WASHINGTON,
D.C. 

Jim Wells, Associate Director
Michael T.  Blair, Assistant Director
Charles B.  Hessler, Assignment Manager
Nancy Bowser, Evaluator-in-Charge

OFFICE OF THE GENERAL COUNSEL

Jackie A.  Goff, Senior Attorney

RELATED GAO PRODUCTS

Energy and Science Reports and Testimony:  1992 (Apr.  1993). 

Energy Conservation:  Efforts Promoting More Efficient Electricity
Use (GAO/T-RCED-92-74, June 23, 1992). 

Energy Conservation:  DOE's Efforts to Promote Conservation and
Efficiency (GAO/RCED-92-103, Apr.  16, 1992). 

GSA's Energy Conservation Efforts (GAO/T-GGD-92-32, Apr.  8, 1992). 

General Services Administration:  A Status report on Energy
Conservation Efforts (GAO/GGD-92-22, Jan.  13, 1992). 

Electricity Supply:  Utility Demand-side Management Programs Can
Reduce Electricity Use (GAO/RCED-92-13, Oct.  31, 1991). 

Energy Conservation:  Federal Shared Energy Savings Contracting
(GAO/RCED-89-99, Apr.  17, 1989). 

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