VA Testimony of Kenneth Clark before Congress on March 18, 1998

STATEMENT OF
KENNETH J. CLARK
CHIEF NETWORK OFFICER
VETERANS HEALTH ADMINISTRATION
DEPARTMENT OF VETERANS AFFAIRS
BEFORE THE
HOUSE COMMITTEE ON VETERANS' AFFAIRS,
SUBCOMMITTEE ON OVERSIGHT & INVESTIGATIONS
CONCERNING ENERGY MANAGEMENT PROGRAM
AND
ENERGY SAVINGS PERFORMANCE CONTRACTS

Mr. Chairman, I appreciate the opportunity to discuss Veterans Health Administration’s (VHA’s) Energy Management Program.

The Department of Veterans Affairs (VA) has been actively involved in energy conservation since 1975. E.O. 12003 issued in July 1977 mandated that all Federal Agencies reduce their overall energy consumption by 20% in Btu per square foot by the end of FY 1985 in existing buildings and a 45% reduction from the 1975 base year in new construction.

During the ten year period from 1975 - 1985 VA exceeded its reduction of 20% in spite of the fact that the installed air conditioning tonnage was increased by 70% and gross square footage of space by almost 16% during this period.

The National Energy Conservation Policy Act signed in 1978 required each agency to reduce its energy consumption by 10% in Btu per gross square foot by FY 1995 as compared to its consumption in FY 1985, (new base year). In 1986, A consultant was hired who analyzed existing data, conducted energy audit surveys and compared VA with current private industry practices. Based upon this study, new target goals for FY 1995 were established for each VA medical center.

E.O. 12759 issued in 1991 required all agencies to reduce their consumption in Btu per gross square foot by an additional 10% by FY 2000 as compared to their consumption in FY 1985. E.O. 12902 issued in 1994 requires all agencies to reduce their consumption in Btu per gross square foot by 30% by FY 2005 as compared to consumption in FY 1985. New target goals for each medical center were again established in FY 1995 to meet the requirements for FY 2005.

Each VA medical center is required to develop and annually update a five year energy management plan which is submitted to Veterans Integrated Service Networks (VISNs). These plans are reviewed nationally to identify those areas offering the most potential for energy savings based upon the life cycle cost analysis and to provide the basis for funding of energy conservation projects.

Four times annually, a consultant contracted for the entire agency monitors the performance of VA medical centers in achieving established target goals, through a quarterly report that tracks various types of fuel consumption and cost data. This information is then used to prepare quarterly performance reports to Department of Energy (DOE). As of the first quarter of FY 1998, we have achieved almost half of the reduction required by FY 2005.

Some energy conservation projects were accomplished with the VA’s active participation in local utilities rebate programs that have saved VA millions of dollars in investment of our funds as well as savings in utilities cost.

VA medical centers may also contract directly with local utilities to provide similar services to those available from independent ESPC contractors. This option may offer attractive opportunities for savings. VA Medical Centers, Tucson, AZ, and Canandaigua, NY, were able to significantly reduce their energy costs by negotiating with their local power provider.

In other initiatives to reduce the cost of utilities, VA has participated in wellhead gas contracts i.e., buying gas directly from a contractor rather than a utility company. The number of these contracts has increased in recent years and at present we are saving over $5 million dollars per year from these contracts.

In total, since 1975, we have invested about 200 million dollars on energy related projects which have produced cost avoidance of about 300 million dollars in various utilities costs. A critical aspect of identifying the most cost effective energy projects is the training and development of technical staff at each facility. The national energy consultant and the Chief of the Energy Management Division in the Chief Network Office have developed numerous programs for VISN and facility staffs. Combinations of conference calls, written guidance, and limited face-to-face training in areas of well-head gas contracting, energy conservation principles, energy audits, utility company rebates and negotiations, ESPCs, and life cycle cost analysis have been provided, and are continually repeated as new regulations and technologies emerge.

For the future, the VA intends to develop a national strategy to systematically review our facilities to identify opportunities using the various means available to achieve energy consumption reductions and cost savings that will accrue to improve medical care. The VA expects to have this strategy completed by end of this fiscal year.

The Energy Policy Act (Public Law 102-486) also required all agencies to use Energy Savings Performance Contracts (ESPC), and E.O. 12902 strongly endorsed the use of ESPC in meeting energy reduction goals.

An ESPC provides for the acquisition of energy efficiency improvements at no capital cost to the Government. Under an ESPC, an independent contractor makes capital improvements by replacing existing inefficient energy consuming devices with efficient energy consuming devices. These devices may include lighting fixtures; boilers; heating, ventilating, and air-conditioning units; chillers; energy management controls and others. During the contract period, the contractor may propose additional energy conservation cost-effective projects. An ESPC may be awarded for a period not to exceed 25 years. Throughout this term, the agency never pays more than what the utility bill would have been had no ESPC been awarded. Under this contract, the contractor installs, operates, and maintains all the equipment and receives a certain percentage of the savings generated by his efforts in avoided utility costs.

The VA awarded its first ESPC contract at the VA Medical Center West Haven, CT, in October, 1992. The entire cost of this project, which included replacement of lighting and cooling systems together with the maintenance of the new chiller equipment, was funded from rebate programs provided by Southern Connecticut Gas and Illuminating Company and from guaranteed savings in energy costs achieved over a period of 15 years under this contract. This project included the replacement of two existing 800 ton each centrifugal chillers installed in 1963 with the new 800 ton centrifugal electrical chiller and one 1,000 ton steam absorption chiller. These chillers were operational in 1993. Also, 8,500 lighting fixtures were replaced with energy efficient fixtures. The medical center has reported that this project has been very successful and has achieved the anticipated annual energy savings of about $550,000.

In October 1996, formal guidance including sample contract language, guidelines, and technical specifications was issued to all VA medical centers. A guidebook also was prepared in July 1997 by the National Center for Cost Containment, with technical help from Headquarters and field engineers, to assist VA field personnel with improving energy conservation and facilitating the replacement of aging and inefficient equipment through ESPC. Many medical centers have taken advantage of ESPC training conducted by DOE that has helped them to issue Requests for Proposals (RFPs). Also, we are using the U.S. Army Engineering and Support Center to assist VA with the implementation of ESPC.

The following highlights some of the ESPC projects underway at various medical centers:

Army Engineering and Support Center, Huntsville, Alabama, for various services including preparing the solicitation, evaluating the contract proposals, awarding the contract, administering the contract and addressing post-award issues.

In an effort to simplify the ESPC process, DOE has established Super ESPCs through multiple awards of indefinite delivery, indefinite quantity contracts in each of its six regions. There will be a limited number of DOE approved contractors designated in each region to perform ESPCs under the Super ESPC format. DOE will then authorize facilities that wish to issue delivery orders against the contract to contract through any one of the contractors on a sole source or competitive basis. DOE has selected contractors for its western and southeast regions. VA is currently evaluating its participation in this Super ESPC process.

VA will meet its energy consumption reduction goal of 30% by FY 2005 as mandated by E.O. 12902. VA has historically met all previous energy consumption reduction targets through management’s continuous emphasis on this program and wise investment in cost-effective energy conservation projects. Reduced funding availability from traditional capital accounts in Minor construction and Non-Recurring Maintenance are planned to be offset with aggressive and increased use of ESPC and Super ESPC. Our national strategy will emphasize selecting best value approaches to improving the efficiency of our use of energy resources.