Support ESPCs: Taxpayers Know a Good Deal When They See It!

Dear Member of Congress:

        On behalf of National Taxpayers Union’s (NTU’s) many thousands of members throughout the nation, I urge you to lend your maximum support for the deployment of Energy Savings Performance Contracts (ESPCs) throughout the federal government, as well as for budget scorekeeping rules that properly reflect the benefits they deliver to taxpayers. ESPCs can function as a powerful deficit-reduction tool that all lawmakers who pride themselves as fiscal conservatives should enthusiastically embrace.
        As their name implies, ESPCs have for roughly two decades afforded policymakers a uniquely advantageous means of conserving the energy used to operate government facilities. Yet, these contracts are equally adept at conserving precious tax dollars. Utilizing a competitive bidding process, private firms are awarded ESPCs to make energy-efficiency upgrades, using their own up-front financing and employing their own labor. Contractors then recoup their investment from resulting cost savings (which are verified using contractually negotiated criteria), but statutory law stipulates that taxpayers must be first in line to receive the dividends before any appropriations against cost reductions are made. If savings fail to materialize in any given ESPC, the contractor is responsible for making the government whole.
        Fortunately, ESPCs have proven to be success stories rather than failures. According to the Department of Energy, private contractors invested $1.2 billion in federal-level ESPCs between 2009 and 2011; the overall impact in terms of lower costs to taxpayers will be nearly three times as large, at $3.5 billion. It should be noted that other savings not related to the contract can also flow from this process, since the government is spared additional overhead for plant modernization it would otherwise undertake.
        In addition to becoming increasingly popular at the state and local levels, ESPCs do have considerable bipartisan backing in the Congress – a House caucus created to educate policymakers on their virtues currently includes 35 Members. Nonetheless, there are several steps that Senators and Representatives involved in the budgetary process should take now to expand the future use of ESPCs, and thereby expand the opportunities to control expenditures. For instance, in cases where appropriations bills are deemed to be suitable vehicles for policy riders, such legislation should call for adoption of the ESPC model throughout the panoply of federal agencies.
        There is, however, a more immediate step that should be taken, one that is particularly related to your Committee duties. The Office of Management and Budget (OMB) currently assesses ESPCs on an annualized, net present value basis. The result more faithfully reflects the mechanics of the contracts, in that they are generating bona fide returns to the government each year, only after which the service providers are compensated for their investment. The Congressional Budget Office, on the other hand, classifies ESPCs as “mandatory” multi-year contracts which needlessly hinder the accuracy of budgetary accounting, and in the process hinder the more widespread utilization these contracts deserve.
        NTU has often encountered a frustrating tendency among some federal budget scorekeeping systems to effectively consign program management reforms to the dustbin because of rules that fail to properly capture net savings after investments are made. In the case of ESPCs, this bias is even less defensible, since the government is making no initial outlays to obtain a return; plus, the contracts guarantee savings from year one of their operation, not at some point outside a scoring window.
        We therefore urge Members of the Committees to take every opportunity in the policymaking process to ensure that Congress embraces the OMB’s longstanding scorekeeping convention toward ESPCs throughout its deliberations over program outlays.
        Since its founding in 1969, NTU has advocated procurement and contracting reforms that will deliver better value to the citizens who pay government’s bills. Our projects have included open competition for underground infrastructure materials, the incorporation of Life Cycle Cost Analysis methods in various modes, and enhanced whistleblower protections for employees serving with government contractors. ESPCs, whose viability has been tested in a variety of public and private sector settings, are another key part of this reform agenda. Government at all levels should be more aggressively implementing these and other types of cost-saving partnerships.
        As the budget process moves forward, you can provide the vital leadership that will demonstrate to your colleagues the role that ESPCs can have in sound energy, environmental, and, from NTU’s perspective, fiscal policy. Our members are eager to assist you in this task, and thank you in advance for your thoughtful consideration.

Pete Sepp