Energy Savings Performance Contracts

Another example of the use of private capital for federal government infrastructure is the Energy Savings Performance Contract. The projects are multiyear, privately financed contracts to upgrade or improve the energy efficiency of government facilities. The contractor is paid an amount designed to cover its investment through proceeds that come from reduced expenditures on energy. The contracts are scored and paid on a recurring annual basis, and not upfront, as in a lease purchase or capital lease. This is the case even though the government retains the improvements at the end of the contract term.

An exception within Circular A-11, Appendix B, permits the ESPC to be scored on an annual basis if it is used to fund an "energy conservation measure." A project is defined as an energy conservation measure if it meets the following criteria:

  It is applied to a federal building.

  It improves energy efficiency.

  It is "life-cycle cost-effective," meaning that the project reduces the total costs of owning, operating, and maintaining a building over its useful life.

  It involves energy conservation and may include cogeneration facilities, renewable energy sources, improvements in operations and maintenance efficiencies, or retrofit activities.

This exception is codified within Circular A-11, Appendix B, and is the result of a 1998 OMB memorandum (M-98-13, Federal Use of Energy Savings Performance Contracting), although the CBO has never accepted this practice and continues to score ESPCs as federal spending.