The Federal Energy Management Program (FEMP) offers answers to frequently asked questions about federal utility energy service contracts (UESCs).
1. What is a utility energy service contract?
A UESC is an energy management services contract between a federal agency and its franchised serving utility for the purpose of producing measurable energy or water reductions or measurable amounts of demand reduction.
2. What authorities are applicable to federal agencies for the implementation of UESCs?
Federal agencies are authorized and encouraged to participate in any programs to increase energy efficiency and for water conservation or the management of energy demand conducted by gas, water, or electric utilities and are generally available to customers of such utilities. See 10 U.S.C. §§ 2913 and 2866(a); 42 U.S.C. § 8256(c); see also 40 U.S.C. § 501.
3. What is the benefit of using a GSA AWC to implement a UESC?
A U.S. General Services Administration (GSA) areawide contract (AWC) streamlines the procurement of any type of service that a utility offers, including energy and water management projects. GSA has established approximately 100 AWCs across the nation.
Each federal agency should check with GSA to determine if its serving utility company has an AWC that includes an Exhibit for the Authorization for Energy Management Services (EMSA), which may be used by a contracting officer to establish a bilateral agreement for energy management services. If a federal agency’s serving utility’s AWC does not include an EMSA Exhibit, the AWC may be modified to include one.
4. Why has FEMP published legal opinions and guidance from other federal agencies in its UESC enabling documents?
The use of the UESC contracting mechanism must be approved by each federal agency, which may consider other federal agency positions in its decision-making process. See FEMP’s Utility Energy Services Contracts: Enabling Documents.
5. Can a federal agency enter into a UESC with a utility on an "established source" or "sole source" basis?
UESC task orders issued under a GSA AWC are an exception to the Competition in Contracting Act of 1984. In instances in which there is only one franchised serving utility that offers UESC services, the federal agency would be authorized to award a noncompetitive contract for utility services without the use of full and open competition. It is recommended that the contracting officer prepare a memorandum to the contract file or conduct a Determination and Finding justifying that project implementation on an "established source" or "sole source" basis is in the best interest of the Government and that the costs are deemed fair and reasonable. See FEMP's Utility Energy Service Contract Guide: A Resource for Contracting Officers Working on UESC Projects
When more than one serving utility expresses interest in offering a UESC, an opportunity for fair consideration must be provided to all eligible utilities. See Federal Acquisition Regulation (FAR) 16.505(b).
6. Is a utility required to select its UESC subcontractors through a competitive process?
A utility may perform some or all of the work under a GSA AWC task order itself or through subcontractors. When practical, the utility must select subcontractors using a competitive process in accordance with FAR 52.244-5 for the purpose of determining the reasonableness of subcontractor prices.
When competition is not practical, price reasonableness may be determined by comparing proposed prices with those obtained for the same or similar work, published in independent cost guides, published in competitive price lists, or developed by independent sources. In the execution and administration of a GSA AWC, the regulated utility must submit to GSA an annual small business subcontracting plan for review and approval, as well as report on an annual basis its accomplishments in meeting the goals established in the commercial small business subcontracting plan.
7. Are there any limitations on a UESC contract term?
In determining the appropriate term of a task order for a UESC under a GSA AWC, GSA requires that, unless otherwise provided by law, UESC payments shall be equal to the direct cost of capital or financing amortized over a negotiated payment term commencing on the date of acceptance of the completed installation. In addition, the term of a UESC should be calculated to enable UESC payments to be lower than the estimated cost savings to be realized from its implementation.
The GSA AWC also specifies that in no event may the term of a UESC exceed 80% of the useful life of the equipment or material to be installed. Although individual federal agencies may have agency-specific authorities or policies, GSA’s position is that contract terms may not exceed 25 years for UESCs undertaken under a GSA AWC.
8. Are renewable energy measures acceptable energy conservation measures under a UESC?
Yes. Renewable energy measures that reduce consumption and/or demand meet the criteria for energy management services. See Procuring Energy Management Services with the GSA Areawide Contract: A Practical Guide to Procuring Energy Services through a GSA Areawide Contract.
The Office of Management and Budget (OMB) allows for a UESC that includes on-site energy generation to be scored on an annual basis provided that the federal government retains title to the installed capital goods by the conclusion of the contract and provided that the UESC is not used for the long-term purchase of off-site new renewable generation or to build merchant scale power generating facilities on federal land.
9. Which utilities can offer a UESC?
Natural gas, water, and electric utilities that have an exclusive service territory and an obligation to serve the customers within that territory and that are subject to regulation by a governing body, such as a public utility commission, can offer a UESC. Utilities should propose projects that are "fuel neutral" and comprehensive in nature, meaning, for example, that electric utilities may propose projects that include measures related to natural gas and vice-versa. Utilities also should explore the implementation of water conservation and renewable energy measures whenever feasible.
10. Can a UESC be used to implement efficiency projects in leased space?
A task order for a UESC under a GSA AWC may be implemented in leased space if consistent with agency policy and as long as the contract is between the federal agency and the serving utility, the federal agency pays the utility bill, and the term of the lease is longer than the term of the contract.
11. Is Congressional notification required before awarding a UESC?
UESCs are subject to the requirements of part 17.1 of the FAR, which requires federal agencies to notify Congress at least 30 days prior to the award of certain proposed multiyear contracts. Specifically, for agencies other than the Department of Defense (DOD), the National Aeronautics and Space Administration (NASA), and the U.S. Coast Guard, FAR part 17.1 establishes a requirement for Congressional notification of at least 30 days prior to award of a multiyear contract that includes a cancellation ceiling in excess of $12.5 million. See 48 C.F.R. § 17.108(a). For DOD, NASA, and the U.S. Coast Guard, FAR part 17.1 establishes a similar Congressional notification requirement for multiyear contracts that include a cancellation ceiling in excess of $125 million. See 48 C.F.R. § 17.108(b).
The Congressional notification requirement need not be burdensome or result in undue delay. Notification can be provided when a reasonable estimate of the underlying project’s cancellation ceiling is obtained, which generally occurs well in advance of contract award. Such early notification may also be provided on a periodic basis (e.g., semiannually, quarterly, etc.) and for multiple UESCs.
12. Does the Buy American Act apply to UESCs?
Although the applicability of the Buy American Act to UESCs should be reviewed by each federal agency, certain federal agencies have concluded that the Buy American Act applies to task orders for UESC services under a GSA AWC pursuant to FAR part 41. A federal agency may require a utility to identify foreign equipment upon submission of the investment grade audit in order for a contracting officer to begin the process of determining whether the federal agency may pursue a waiver from the Buy American Act requirements for such equipment.
13. How does a federal agency ensure the performance of equipment over the term of a UESC?
OMB requires energy savings performance assurances or guarantees of the savings to be generated by improvements, which must cover the full cost of the federal investment for the improvements, as a condition for scoring the budget costs on an annual basis.
FEMP developed recommendations with regard to UESC performance assurance, including periodic measurement and verification and commissioning, which OMB has accepted for a UESC to be scored on an annual basis. See Utility Energy Service Contract Guide: A Resource for Contracting Officers Working on UESC Projects.
14. What is the appropriate source of federal agency funds for UESC payments?
Each federal agency has the discretion to make UESC payments from any funds deemed appropriate to pay for utility services.