Cost Avoidance vs. Utility Bill Accounting - Explaining the Discrepancy Between Guaranteed
Savings in ESPC Projects and Utility Bills
Federal agencies often ask if Energy Savings Performance Contracts (ESPCs) result in the energy and cost savings projected during the project development phase. After investing in ESPCs, federal agencies expect a reduction in the total energy use and energy cost at the agency level. Such questions about the program are common when implementing an ESPC project. But is this a fair or accurate perception? More importantly, should the federal agencies evaluate the success or failure of ESPCs by comparing the utility costs before and after project implementation?In fact, ESPC contracts employ measurement and verification (M&V) protocols to measure and ensure kilowatt-hour or BTU savings at the project level. In most cases, the translation to energy cost savings is not based on actual utility rate structure, but a contracted utility rate that takes the existing utility rate at the time the contract is signed with a clause to escalate the utility rate by a fixed percentage for the duration of the contract. Reporting mechanisms, which advertise these savings in dollars, may imply an impact to budgets at a much higher level depending on actual utility rate structure. FEMP has prepared the following analysis to explain why the utility bill reduction may not materialize, demonstrate its larger implication on agency s energy reduction goals, and advocate setting the right expectations at the outset to preempt the often asked question why I am not seeing the savings in my utility bill?