Cost Avoidance vs. Utility Bill Accounting - Explaining theDiscrepancy Between Guaranteed Savings in ESPC Projects and UtilityBills

Federal agencies often ask if Energy Savings PerformanceContracts (ESPCs) result in the energy and cost savings projected duringthe project development phase. After investing in ESPCs, federal agenciesexpect a reduction in the total energy use and energy cost at the agencylevel. Such questions about the program are common when implementing anESPC project. But is this a fair or accurate perception? Moreimportantly, should the federal agencies evaluate the success or failureof ESPCs by comparing the utility costs before and after projectimplementation?In fact, ESPC contracts employ measurement andverification (M&V) protocols to measure and ensure kilowatt-hour orBTU savings at the project level. In most cases, the translation toenergy cost savings is not based on actual utility rate structure, but acontracted utility rate that takes the existing utility rate at the timethe contract is signed with a clause to escalate the utility rate by afixed percentage for the duration of the contract. Reporting mechanisms,which advertise these savings in dollars, may imply an impact to budgetsat a much higher level depending on actual utility rate structure. FEMPhas prepared the following analysis to explain why the utility billreduction may not materialize, demonstrate its larger implication onagency s energy reduction goals, and advocate setting the rightexpectations at the outset to preempt the often asked question why I amnot seeing the savings in my utility bill?