Utility Energy Service Contract Basics

Utility energy service contracts (UESCs) offer a unique opportunity for collaboration between utility providers and federal agencies to achieve energy efficiency, reduce carbon footprints, and enhance energy resilience. The information below addresses common inquiries from utilities and provides valuable insights into the basics of UESCs.

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FEMP's Utility Toolkit addresses the preliminary steps to prepare your stakeholders for UESCs.

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What is a UESC?

A utility energy service contract (UESC) is a limited-source acquisition between a federal agency and serving utility for energy management services, including energy and water efficiency improvements and energy demand reduction. Under the Energy Policy Act of 1992 (codified as 42 U.S.C. § 8256), federal agencies are authorized and encouraged to participate in utility incentive programs that promote such improvements and that are generally available to the utility's customers.

UESCs provide a streamlined approach for federal agencies to contract for the broad spectrum of energy management services offered by local utilities. The utility partner assesses the opportunities, designs, and implements the desired energy conservation measures (ECMs)—which can range from lighting retrofits to renewable energy systems. 

The agency may use any combination of appropriations and financing to pay for the project, providing useful flexibility. If the project is financed, the utility or the implementing energy service company (ESCO) will obtain financing for the project. 

A UESC can be used for any size project and UESCs have been awarded for amounts in between $36K and over $100M. FEMP's case study map provides historical examples of UESCs in the federal government.

Who is eligible to offer a UESC?

All electric, water, and natural gas distribution utilities serving the site.

What goals do UESCs help agencies accomplish?

UESC projects help federal agencies meet their energy and greenhouse gas (GHG) emission reduction, carbon pollution-free (CFE) electricity use, and resilience goals, as well as adhere to the Energy Act (EA) of 2020 and Executive Order (EO) 14057. The EA 2020 requires agencies to use performance contracting to implement at least 50% of the ECMs identified through required energy audits (see 42 U.S.C. § 8253(f)(4)(B)).

UESCs also help agencies meet the Administration's Climate Smart Building Initiative which requires agencies to establish emission reduction targets that should be delivered through performance contracting. EO 14057 goals include a requirement to use 100% carbon pollution-free electricity by 2030, reduce emissions by 50% by 2032 (with net-zero emissions building portfolio by 2045) and reduce scope 1 and 2 GHG emissions by 65% by 2030 from 2008 levels. UESC projects help agencies achieve these goals by updating aging and inefficient infrastructure.

How are UESCs executed?

UESCs are typically executed via the General Services Administration (GSA) Areawide Contract (AWC). A basic ordering agreement or a separate contract can also be used. Once a utility has been selected by an agency, the project will progress in phases through audits (preliminary assessment and then investment grade audit), design, construction, and performance.

Who is interested in UESCs?

All federal agencies interested in reducing their energy consumption and carbon footprint, as well as making facility upgrades and replacing outdated equipment via performance contracting may be interested in pursuing a UESC. Municipalities, universities, schools, and hospitals (the MUSH market) may also be interested in UESC projects.

What is the investment cost, kilowatt-hour savings, and other associated benefits of UESCs?

The initial capital investment from the federal agency can be as low as zero dollars. 42 U.S.C. § 8253(f)(10)(B)(i) provides federal agencies the flexibility to use any combination of appropriations, and financing. Agencies may also use grants provided under the AFFECT authority at 42 U.S.C. § 8256(b). Energy savings are variable, but typically amount to 20-40% beginning the first year of the performance period. One of the primary UESC benefits is the agency's ability to obtain ECMs for no upfront capital investment, allowing them to divert annual operations and maintenance funds for other non-ECM related maintenance and repair activities.

How do UESCs differ from energy savings performance contracts (ESPCs)?

The primary difference between the two contracts is that they are authorized under different statutory authorities and are therefore subject to different statutory requirements: 42 U.S.C. § 8256 and 10 U.S.C. § 2913 (Department of Defense authority) provide the authority for UESC and 42 U.S.C. § 8287, et seq. provides the authority for ESPC. Other key differences include:

  • The utility provider is the prime contractor under a UESC and an ESCO is the prime contractor for an ESPC (an ESCO is often a subcontractor in a UESC).
     
  • UESCs require a performance assurance plan while ESPCs have a statutory savings guarantee that requires an annual audit met through measurement and verification activities. 
     
  • Most federal ESPC projects have been implemented as task orders awarded under U.S Department of Energy (DOE) indefinite-delivery, indefinite-quantity (IDIQ) ESPCs. Other options include DOE ESPC ENABLE (procured through the GSA Supply Schedule SIN 334512), stand-alone contracts with a DOE-qualified ESCO or agency specific contracts (e.g. , VA IDIQ, USACE MATOC, etc.) UESC contracts are typically executed via a GSA AWC.

What factors do agencies consider when deciding to execute a UESC?

The main factor agencies consider when deciding to execute a UESC is the fact that the utility provider, as the prime contractor, has in-depth knowledge of the federal site to be served. During the UESC implementation process, the utility provider will use this historical knowledge to recommend ECMs that will help the agency meet their goals.

An agency may also consider using a UESC because of the inherent flexibility of the contract vehicle.

Examples include:

  • UESCs projects can be large and small, with many ECMs or a single ECM
  • The ability to use any combination of appropriations, AFFECT and other grants, and financing
  • The ability to reduce energy and water use to meet goals
  • A streamlined contract method with an established source
  • Partnership with their utility and capitalizing on that utility's expertise
  • UESC projects are appropriate for a wide range of projects and facilities, including leased space.

What factors do utilities consider when deciding to execute a UESC?

A utility may consider using a UESC because of their ability to help meet the needs of their largest customers. Examples include:

  • Meet public utility commission requirements
  • Increase incentive program impact and participation
  • Reduce the need for new generation and/or transmission/distribution upgrades by reducing customer electricity demand, especially during the utility's peak demand periods
  • Improve system reliability through improved customer load profiles
  • Assist agencies in achieving their goals including the EA 2020 and EOs
  • Provide exemplary customer service by demonstrating expertise and the ability to successfully implement energy projects, and to assist with solving future energy challenges.

What are specific community benefits of UESCs?

UESC projects can improve the economic, health, and consumer confidence levels of the served communities. The projects accomplish these improvements via:

  • Peak demand reduction
  • Overall lower energy use
  • Increased renewable energy production
  • Reduced carbon emissions and pollution 
  • Energy resilience and reliability 
  • Grid stabilization.

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