DCCUMENT FESUMS

03700 - B2774015]

Federal Agencies Can Do Mere to Prcmote Energy Conservation byGovernment Contractors. ED-77-62; B-178205. September 30, 1977.42 pp. + 8 appendices (30 pp.).

Report to the CongreEs; by Robert P. Keller, Acting ComptrollerGeneral.

Issue Area: Energy: Effect f Federal Efforts on EnergyConservation (16C7); Pederal Procurement of Goods andServices (1900).

Contact: Energy andA M!.neral.s Div.Budget Function: National Defense: Department of Defense -

Procurement s Contracts (058); Natutral escurces,Environmea.t, ad Energy: Energy 305).

Organizatin Concerned: Department of Energy; Department ofCommerce; Department eo Defense; Offiche of Management andBudget.

congressional Relevance: Hovse Committee on Armed Services;Senate Committee on Armel Services; Congres.

It has been estimated that from 4 to 7% of energyconsumed in the United States is in support c Government'spurchases of goods and services. Energy conservation programswere reviewed at 23 overnment contractors' plants to evaluatetheir effectiveness and to assess efforts of Federal agencies inhelping to establish viable programs. Findi.gr/Conclusions: Allcontractors reviewed were taking scme conservation measures, butfew had viable energy management programs. Most companies werereluctant to invest in adequate staff or equipment that did notrecov= costs in a short time. Federal agencies did not: supplyadequate leadership as evidenced by the following: (1) energyconservation information was not effectively disserinated tocontractors; (2) lighting level guidelines were not generallyused or interpreted consistently; and (3) improvements wereneeded in the Department of Defense's energy management program.Although there was agreement on the need for furtherconservation, several contractors disagreed on amounts of energythat could be conserved. The National Energy Plan proposal rogive tax credit to industzy for investing in conservationmeasures is desirable. I'he new Department of Energy should helpbring together fragmented programs. Recommendations: TheDirector, Office of Management and Budget, and the Secretary ofEnergy should juintly develop a procurement polity that requirescontractors to establish viable energy management rograms.Other measures for improving programs should inclu&a:establishing reasonable goals, monitoring contractors' efforts,and reporting tc Congress; use of Government contractingpersonnel to disseminate informaticn; developing easilyunderstood lighting guidelines; planning for coordinated effortsby Department of Defense elements; expanding the scope ofDefense Contract Audit Agency energy aidits; and advising

contractors of funding under the Energy Conservation InvestmentPrograu. (HTI)

REPORT TO THE CONGRESS

BY THE COMPTROLLER GENERAL. As,' OF THIE UNITED STATES

Federal Agencies Can Do MoreTo Promote Energy ConservationBy Government Contractors

Although the Federal Government has beenpromoting energy onservatior since late1973 and several agencies have programsthat deal with industrial energy conservation,these programs and actions have had littleeffect at Government contractors' plants.

All contractors had taken some conservationactions at the facilities reviewed. Very few,however, had viable energy management pro-grams.

Contractors can do more to ave energy. Thepotential for achieving additional reductionsin energy use is more than 20 percent insome plants.

Because of possibly high energy savings, theGovernment must work effectively as a unitto foster and promote energy conservation.

EMD-77-62 SEPTEMBER 30, 1977

COMtPitOLKR GENERAL OF HE UNITED STATESWAHINQ TON, D.C. 3014

B-178205

To the Pres dent o the Senate and tneSpeaker of the House of Representatives

In view of the importance of conservation as an elementof a national energy policy, ar.d as a followup to earlierwork we performed, we reviewed the energy conservation pro-grams at 20 Government contractors' plants. Our reviewevaluated the effectiveness of the contractors' prog:ams andassessed the efforts of Federal agencies in assisting con-tractors to establish viable conservation programe.

Although the Federal Government has been promotingenergy conservation since late 1973 and several agencieshave programs that deal with industrial energy conservation,these programs and actions have had little effect at con-tractors' plants. Through its procurement plicies, theGovernment has an opportunity to promote energy conservationactions by contractors. In view of the large nergy savingsthat could be realized, we believe the Govcrnment must assumea more effective and coordinated leadership role to fosterand promote energy conservation.

We made our review pursuant to the Budget and AccountingAct, 1921 (31 U.S.C. 53), and the Accounting and Auditing Actof 1950 (31 U.S.C. 67). Contractors' records were examined byour authority as set forth in 10 U.S.C. 2313(b).

Copies of this report are being sent to the Director,Office of Management and Budget; the Secretaries of Energy,Defense, and Commerce; the Administrators of the FederalEnergy Administration, the Office of Federal ProcurementPolicy, and the General Services Administration; and thechairmen of energy-related congressional committees.

Acting Comptroller Generalof the United States

COMPTROLLER GENTrHAL'S FEDERAL AGENCIES CAN DO MOREREPORT TO THE CONGRESS TO PROMOTE ENERGY CONSERVATION

BY GOVERNMENT CONTRACTORS

This report provides Federal agenies and the

This report provides Federal agencies and theCongress wilt, information on the effectivenessof agency efforts to promote voluntary energyconservation by Government contractors. Theseefforts have not been very effective. Whilecontractors have taken specific energy con-servation actions, further energy savings arepossible if all contractors set up viableenergy management programs in their plants.

At 20 Government contractors' plants:

-- All contractors were taking some conserva-tion measures. However, reductions inenergy consumption only partly resultedfrom conservation; much of the decr, asesstemmed from economic factors. By operat-ing more efficiently and using more efficientequipment and techrc.ogies, contractorscan reduce their energy consumption--perhapsby over 20 percent in some plants. (Seech. 2.)

-- Few contractors have viable energy manage-ment programs. While most contractorshave issued energy policy statements andformed conservation committees, few havefollowed up with adequate program staffingand funding. (See ch. 3.)

-- Several factors have ipeded the develop-ment of energy managerent programs. In-ternally, program costs seem to be themajor inhibiting factor. For example, manycompanies did not assign full-time staffto their programs and were reluctant to in-vest in energy-saving equipment that didnc: recover its cost in a relatively shorttitde. The most important external impedi-ment appears to be a lack of strong Federalleadership. (See chs. 3 and 4.)

yArL$h Upnu, ram. 1. tho rvrtAt- - rsM s i) rv r. 1 . i EMD- 77- i

What are Federal agencies doing to help con-tractors establish viable energy manage-ment programs? Not enough.

-- Energy conservation publications andmaterial were not effectively sent tocontractors. (See p. 23.)

-- Lighting level guidelines and standards,established by several Federal agenciesand technical societies, are not generallyaccepted and used by contractors. Theguidelines are interpreted and applieddifferently. (See p. 24.)

-- Improvements are needed in the Depart-ment of Defense's energy management pro-gram. (See p. 27.)

The contractors reviewed and the FederalEnegy Administration, Office of Managementand Budget, Department of Commerce, Depart-ment of Defense, and General Services Ad-ministration agreed that further conserva-tion is necessary. Several contractorsdisagree on how much more energy could beconserved. Some feel that financial -centives such as accelerated depreciationand investment tax credits are needed tohelp them do more to conserve energy.

The Office of Management and Budget, De-partment of Commerce, and Department ofDefense agreed with GAO's recommenda-tions, except for developing a procurementpolicy that would require Government con-tractors to establish viable energy msnage-ment programs. The Federal Energy Adminis-tration and General Services Administrationare willing to work with the other threeagencies to develop a procurement policy.

Recently, the administration and the Con-gress acted to more effectively deal withthe Nation's energy problem. On April 29,1977, the President's proposed NationalEnergy Plan was isbsed and legislationcreating the Department of Energy was signedAugust 4, 1977.

ii

The National Energy Plan proposes tax creditsfor industry and business when they investin energy-saving equipment and conservationmeasures. GAO supports these proposals.

The new Department of Energy was giventhe authority and programs necessary tofoster, encourage, and require energy con-servation. This should hel bring togetherthe Government's fragmented nergy policiesand programs.

These actions are a positive response to theissues raised by the contractors and agenciesin the~' comments and could alleviate or re-aive barriers that have prevented contrac-tors from developing viable energy manage-ment programs. However, these actions, bythemselves, may not be enough. The Govern-ment should develop a procurement policythat requires contractors to establish energymanagement programs that adequately incor-porate the following five elements.

-- Commitment by top management.

--Development of comprehensive energy-usesurveys.

--Goal setting based on survey evaluations.

---Employee motivation campaigns.

-- Monitoring programs and their results.

A means should be established for the Govern-ment to monitor and evaluate the overalleffectiveness of the contractors' energymanagement programs, including the actionsthat are taken in response to any new taxincentives.

RECOMMENDATIONS

GAO recommends that:

--The Director, Office of Management andBudget, and the Secretary of Energy jointlydevelop an energy conservation-related

iii

procurement policy that requires Governmentcontractors to establish viable energy man-agement programs that include the five pro-gram elements listed above.

-- The Secretary of Energy establish reasonable¢energy conservation targets and goals formajor Government contractors, monitorthe contractors' efforts oward achievingthese goals, and report to the Congress within24 months on the progress being made arnwith recommendations as to whether any newfinancial incentives that are pr)vided bythe Congress for energy conservation aresufficient, or whether mandatory standardsare necessary.

--The Secretary of Energy and the Secretaryof Commerce use Government contractingpersonnel in the Department of Defense,the General Services Administration, andother agencies to isseminate energy con-servation publications and materials tocontractors.

-- The Secretary of Energy review the variouslighting guidelines and standards that arecurrently in existence and develop na-tional lighting guidelines and standardsthat can be easily understood and consis-tently applied in commercial, public, andindustrial buildings.

-- The Secretary of Defense:

Develop a formal plan for a coordinated anduniform effort to be exerted by all Depart-ment of Defense elements to promote energyconservation by its contractors.

E-pand the scope of the Defense ContractAudit Agency energy audits and use tech-nical assistance in these audits forevaluating contractors' energy manage-ment programs.

Use the Agency's energy audits to monitorcontractors' efforts to establish and main-tain viable energy management programs.

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Advise all contractors operating Government-owned plants, and the military services re-sponsible for administering such plants, thatprojects can be submitted for funding nderthe Energy Conservation Investment Program.

MATTERS FOR CONSIDERATIONBY THE CONGRESS

A National Energy Plan containing financial in-centives for industry to conserve energy isexpected t be enacted. GAO supports investmenttax credits -as one incentive. The Federal agen--cies and contractors responding to this reportbelieve that these incentives will be an iduce-ment for contractors, and all industry, to con-serve more energy.

Because the Congress must ultimately decidewhether voluntary or mandatory energy conserva-tion programs are needed in industry, GAO be-lieves the Congress should maintain closeoversight of this area. The Congress couldinclude, in any new legislation, a requirementthat the Secretary of Energy monitor and reporton industry's efforts in response to any newfinancial incentives that are provided forenergy conservation.

v

Page

V Letter dated April 28, 1977, from theDepartment of Commerce 57

VI Letter dated May 19, 1977, from theDepartment of Defense 64

VII Letter dated April 20, 1977, from theGeneral Services Administration 68

VIII Principal officials responsible foradministration of activitiesdiscussed in this report 71

ABBREVIATIONS

ANSI American National Standards InstituteDCAA Defense Contract Audit AgencyDOD Department of DefenseECIP Energy Conservation Investment ProgremERDA Energy Research and Development AdministrationFEA Federal Energy AdministrationFMC Federal Management CircularGAO General Accounting OfficeGSA General Services AdministrationCOGCO Government-owned, contractor-operatedHVAC heating, ventilating and air-conditioningIES Illuminating Engineering SocietyOFPP Office of Federal Procurement PolicyOMB Office of Management and BudgetPBS Public Building Serxice

Con tents

DIGEST i

CHAPTER

1 INTAODUCTION 1The need for energy conservation 1Ene:-gy U- by the Federal Government 2GAO reviews f contractors' energy

conservation programs 2Energy use in contractors' plants 3

2 ACTIONS HAVE BEEN TAKEN TO CONSERVE EERGYBUT THE POTENTIAL FOR FURTHER CONSERVATIONIS HIGH 5Much of the reductions in energy con-sumption c'n be attributed toeconomic f a'tors 5A three-phase approach for conservingenergy 6More emphasis needs to be given toeliminating waste in easilyrecognized areas 7Capital investments will be needed toachieve further reductions in energyuse 10

Improvements in technology can signifi-cadntly improve energy-use efficiency 13

3 NEED FOR VIABLE ENERGY MANAGEMENT PROGRAMS 15Programs lack emnphasis and continuity 15

Need for top management to provideemphasis and resources 16

Comprehensive energy-use surveysare needed 17Need to establish realistic goals l1

More effective employee motivationneeded 18

Need for conservation actions andprograms to be monitored 18

Increasing energy costs have not stimu-lated improved energy managementprograms 19Impediments to developing energy manage-ment programs 20

Page

CHAPTER

4 O(!lr. AREAS WHERF IMPROVEMENTS ARE NEEDED'O POMOTE ENERGY CONSERVATION 21Federal procurement policy should

include energy conservationdirect.on for contractors 21

Publications and information must bemore effectively disseminated 23

Recommendation 24National lighting guioelrines ad

standards should be developed 24Recommendation 27Improvements .eeded in Department ofDefense energy management program 27

Recommendations 31

5 AGENCY AND CONTRACTOR COMMENTS AND OUREVALUATION 32Contractor comments 3',Federal Energy Administration comments 34Office of Management and Budget

comments 35Department of Commerce comments 36Department of Defense comments 38General Services Administration

comments 39Overall conclusions 4GRecommendations to the Director,Office of Management and Budgetand the Secretary of Energy 41

Matters for consideration by theCongress 42

APPENDIX

Schedule showing contractor energy seand cost information for 1975 43

II Statistical analysis explaining variationsin energy ,se 44

III Letter dated March 29, 1977, from theFederal Energy Administration 49

IV Letter dated April 21, 1977, from theOffice of Management and Budget 54

CHAPTER 1

INTRODUCTION

In 1958, for thle first time, the United States consumedmore energy than it produced. Since then the gap betweendomestic energy supply and demand has widened. Demand peakedin 1973 and actually declined somewhat in 1974 and 1975apparently because of reduced economic activity, higher fuelprices, and conservation measures. In 1976, however, energydemand resumed its upward trend while domestic production con-tinued to fall.

The gap between supply ard demand has been largely filledby oil imports. In 1975 petroleum products provided about 46percent of the Nation's total energy, and 37 percent of thesepetroleum products were imported. The dependence on foreignoil rose to about 42 percent in 1976 and is expected to climbto about 46 percent in 1977. The cost of oil imports hasgrown from $3 billion in 1970 to about $27 billion in 1975and is projected to reach $32 billion in 1977.

THE NEED FOR ENERGY CONSERVATION

The Nation's increasing reliance on imported oil leavesit vulnerable to supply disruptions which could adverselyaffect the national economy. 'Jut this reliance could belessened by reducing energy demand. Depending on policyactions taken to change consumption patterns, demand can sub-stantially var-.. In April 1977 the President issued theNational Eneryy Plan, hich combines legislative, adminis-trative, and budgetary proposals aimed at solving the Nation'senergy problem. The plan calls for measures ranging from bothmandatory and voluntary conservation actions to expanded re-search on nonconventional energy sources. The administrationestimates that if the plan is fully implemented, energy demandgrowth during the next 10 years can be reduced from thehistorical rate of 3.5 percent to 2.2 percent annually. Theplan also proposes a goal of reducing the growth rate tobelow 2 percent a year by 1985 through additional voluntaryconservation measures.

In simple terms, energy conservation means using lessenergy and using it more efficiently. Several Federalagencies, including the Energy Research and Development Admin-istration (ERDA) and the Federal Energy Administration (FEA),1

1Although FEA is discussed throucghout this report, our recom-mendations in chapters 4 and 5 are addressed to the newly es-tablished Department of Energy to which the functions of FEAhave been assigned. See p. 40 for information on the re-sponsibilities of the Department of Energy.

have found that conservation provides a potentially cheaperalternative for developing additional sources of supply.They have shown that it often costs less to save a barrel ofoil than to develop a new one.

ENERGY USE BY THE FEDERAL GOVERNMENT

The Federal Government is the Nation's largest singlepurchaser of energy, directly consuming almost 3 percent ofthe energy used in the United States. Although this percert-age seems small, it represents the equivalent of about 300million barrels of oil, costing about $3 billion a year. Inaddition, the Government uses much energy indirectly throughits purchasing and other activities. It relies heavily onprivate industry to provide goods and services needed to sup-port and carry out its missions.

The total amount of energy used by the thousands ofprivate contractors that do business wth the Government isnot known. However, available information indicates thatfrom 4 to 7 percent of the energy consumed in the UnitedStates'is in support of the Government's purchases of goodsand services. Thus, the total amount of energy used by theGovernment comprises 7 to 10 percent of national consumption.It is clear that the Government has a large potential forsaving energy and providing leadership in the developmentand implementation of an gS assive national energy conserva-tion effort.

GAO REVIEWS 0O CONTRACTORS'ENERGY CONSERVATION PROGRAMS

In October 1974 we issued a report o the results of asurvey of five Government contractors' energy conservationprograms.: In the report we pointed out that although someactions had been taken to conserve energy, further commitmentby both tbh contractors and Federal agencies was needed toassure viible conservation programs. In view of the impor-t,nce of conservation as an element of a national energypolicy, and as a followup to our earlier work, we reviewed theenergy conservation programs of an additional 20 contractors.Our review evaluated the effectiveness of the contractors'programs and assessed the efforts of Federal agencies inr.ssisting contractors to establish viable conservationprograms.

1Letter report to the Secretary of Defense and the Administra-tors of the Federal Energy Administration and General ServicesAdministration. B-178205, October 29, 1974.

2

The contractors included in our review were selected for

broad geographical coverage and importance in terms ofbusiness volume and energy use) Their total sales in 1975

exceeded $3.68 billion. Their energy costs totaled more than

$45 million, ranging from about $319,000 to over $11 million

per year. The energy used by these contractors represented

the equivalent of 4.6 million barrels of oil. A list of the

contractors and their associated energy use, by type, is

shown in appendix I.

ENERGY USE IN CONTRACTORS' PLANTS

Industrial companies use energy for manufacturing opera-

tions, transportation, heating, cooling, and lighting. Elec-

tricity was the major type of energy used by most of the

contractors we visited. In 15 of the 20 locations, electricity

accounted for over 50 percent of total energy consumption.Heating fuel was also a large energy source in many-of the

locations. It is often converted to steam or hot water, which

is piped throughout the facility for space heating and for

various manufacturing functions.

Energy use varies with facility design and operationalcharacteristics (such as single and multiple shifts), energy

intensity of production activities, and climatic conditions.

At many locations it was not possible co trace the patterns of

energy use because consumption was generally not submetered

to major pieces of equipment or functional operations within a

plant. For five locations where we were able to develop

approximate energy-use profiles, the dominant energy users

were more often lighting and heating, ventilating, and air-

conditioning (HVAC) rather than manufacturing operations.

The estimated distribution of energy consumption for five

companies is shown in the following table.

Distribution of Total Annual Energy Use

Manufacturing

Contractor Lightirq HVAC and other

----------- (percent)----

A 15 44 41

B 19 54 27

C 17 32 51

D 50 35 15

E 29 44 27

3

Voluntary reductions in annual energy consumption, aswell as potential conservation actions advocated by FEA, theGeneral Services Administration (GSA), and the Department ofCommerce, heavily emphasize curtailments in and more effi-cient use of lighting and HVAC operations. As shown above,these activities account for a major portion of annual energyuse, and waste in these areas is often easily identified.

4

CHAPTER 2

ACTIONS HAVE BEEN TAKEN TO CONSERVE ENERGY BUT

THE POTENTIAL FOR FURTHER CONSERVATION IS HIGH

All contractors had taken some conservation measures atthe facilities included in our review. However, the reduc-tions in energy use experienced by many contractors onlypartially stemmed from these efforts. A substantial portionwas attributable to economic factors. Our statistical anal-ysis indicated that while some conservation actions may havebeen stimulated by increases in the cost of energy, changesin consumption are more closely linked to changes in employ-ment levels and plant areas. Thus, much of the decrease inenergy use experienced by the contractors could be temporaryand may disappear as the national economic climate improves.

The potential for additional energy reductions a in-dividual plants is high. In our opinion, 1975 consumptionlevels could be cut more than 20 percent. Few of the con-tractors had implemented all the easily identified andgenerally recommended energy corservation measures whichrequire no expenditure of capital funds. Much more couldbe done in this area. In addition, relatively few energyconservation projects requiring capital spending had beenimplemented. By replacing existing equipment with new techno-logicaily advanced energy-efficient equipment, energy usecould be further reduced by a significant amount.

MUCH OF THE REDUCTIONS IN ENERGY CONSUMPTIONCAN BE ATTRIBUTED TO ECONOMIC FACTORS

We obtained data from the 20 contractors on employmentlevels, plant areas, manufacturing activities, and types andcost of energy used. The basic data indicated to us thatchanging levels of business activity, as reflected in changesin employment and plant utilization, may have influenced theenergy consumption patterns of the contractors.

Using statistical analys:s, we assessed the impact thatemployment, plant area, energy unit prices, heating degreedays, and the contractors' voluntary energy conservationefforts had on their energy use. The analysis included 18of the 20 contrectors for the years 1972 through 1975. Twocontractors were excluded from the analysis; one because itoperated in an energy intensive field and the other due toinsufficient data.

5

Employment, plant area, and energy unit prices wrestatistically significant factors in the overall use ofenergy by these companies. Our analysis showed that employ-ment was the most important element in electricity consump-tion, accounting for almost 67 percent of the variation inelectrical energy use. Plant area was the most importantfactor in explaining heating fuel consumption. It accountedfor roughly 74 percent of the variation in the fuel used forheating. The summary results of the statistical analysisare included in appendix IT.

While it was difficult to separate the effects of volun-tary efforts from those of increasing energy costs, we be-lieve that higher prices may have had more of an impart inconserving energy. From 1972 through 1975, energy costs in-creased significantly. For example, average electricityprices for 12 contractors rose 88 percent, and average heat-ing fuel prices went up 130 percent.

The results of our analysis were in general agreementwith data released by the Department of the Interior onApril 5, 1976, which showed that total energy use in theUnited States declined by 2.5 percent in 1975. Interiorreported that several factors, including higher fuel prices,energy conservation efforts, and reduced economic activitycrntributed to this drop. Reduced economic activity wasindicated as the strongest force in restraining energy use.

A THREE-PHASE APPROACH FORCONSERVING ENERGY

Energy conservation activities can be grouped into threephases. Phase I includes what are generally known as com-mon sense type measures, such as turning off lights andequipment when not needed, reducing light levels, and utiliz-inc more efficient light sources. Such efforts require rela-tively little capital investment and prior analysis. PhaseII involves those projects requiring more extensive engineer-ing studies and capital outlays with the potential of earlycost recovery. Examples include air-conditioning economizingsystems and automated facility central control systems. PhaseIII projects refer to major renovations which may require ex-tensive economic feasibility studies, major capital outlays,and cost recovery periods of over 10 years. Such projectsmight involve installation of heat recovery systems, doubleglazing of windows, and insulation of building walls and roofsto reduce HVAC loads.

6

The identified potential for further reductions in energy

use for six contractors is shown in the following table.

Estimated Potential for Further Reductions

in Energy Use for Selected Contractors

Potential

Identified potential by phase reductions

Contractor I II III relative to 1975

(therms) -- (percent)

A 1,219,425 3,041,232 720,000 19

B 1,596,910 891,867 - 15

C 1,118,277 167,420 - 17

D 877,270 365,530 - 17

E 322,804 190,400 251,204 20

F 2,031,711 612,360 3,127,680 23

These estimates of potential energy-use reductions were

identified through partial energy-use surveys either by the

contractors or by our staff members in the plants, or a combi-

nation of both, and were agreed to by the contractors. These

potential reductions relate to specific identified actions that

could be taken and do not represent the total potential for

energy conservation that might be identified through compre-

h-nsive energy-use surveys. Although we recognize that the po-

tential in individual plants depends on many factors, including

tha past efforts that have bean made to reduce energy use, we

believe that this potential exceeds 20 percent in many plants.

The fact that a contractor listed in the table has a large

potential fcr future conservation does not necessarily imply

that little effort has been made to save energy. In some

cases, the fact that the potential can be stated indicates that

the contractor has tried to identify new cost-effective conser-

vation projects.

MORE EMPHASIS NEEDS TO BE GIVEN TO ELIMINATINGWASTE IN EASILY RECOGNIZED AREAS

All of the contractors had implemented conservationmeasures involving such obvious Phase I type actions as turn-

ing lights and ventilation fans off in unoccupied building

areas at night, on weekends, and holidays and changing thermo-

stat levels to around 780 F in the summer and 680 F in the

winter. Nevertheless, we found that much more can be done in

many of these areas.

7

Several of the suggested Phase conservation measures arelisted below together with the number of contractor locationsat which the measures were implemented and the number of lo-cations where more could be done. To provide some idea of therelative energy savings resulting from each of the measures,the estimated savings of one of the largest contractors areshown.

Frequently Implemented Phase I TypeConservation Measures

Estimatedannualenergy

Number of locations savingsMeasures Could do for oneConservation measures implemented more contractor

(millions)

Turn off lights whennot needed 19 17 20.2 kwh

Change from uniform totask lighting andlower light levels 15 15 24.9 kwh

Utilize economize:light bulbs 12 11 6.1 kwh

Change thermostatsettings to 780 F 9.2 kwhin summer; 680 F andin winter 15 5 0.4 therms

Turn off ventilation 35.0 kwhfans when buildings andare largely unoccupied 12 9 1.8 thermsTurn off boilers used

for comfort heatingwhen not needed 6 5 2.4 therms

A reduction of 1 million kwh is equivalent to saving 1,724barrels of oil. Thus, the total energy saved by the contractor,for which the estimated annual energ- savings are shown above,comes to approximtely 248,000 barrels of oil. Obviously, thepotential for reducing energy consumption through such easilyimplemented, low-cost Phase I conservation measures is g:eat.The following are some specific examples of what can beaccomplished.

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Reducing lighting associated energy use

Lighting is a major consumer of electrical energy ii.buildings. Much of the energy used to light buildings iswasted through poor design practices and maintaining exces-sively high light levels. There are various actions that canbe taken to reduce substantially the energy consumed by thelighting system, while still providing building occupants withthe quality and quantity of illumination required to performtheir various tasks and functions.

At one location, we found that the contractor had cut hisenergy use by about 19 percent. Despite the contractor's ap-parently successful efforts, we identified additional potentialenergy savings in lighting of about 19 percent, or 12.3 millionkwh, as shown below.

Annual Estimatedenergy Cost to Annual

Opportunity savings implement savings

(millionkwh)

Use of economizerfluorescent lights 2.6 $10,422 $ 64,100

Reduce light levels 6.8 - 170,700

Install switcAes to turnoff office lights whennot in use 2.9 70,000 72,500

Total 12.3 $80,422 $307,300

Many areas at this particular location were designei withhigh uniform light levels averaging 110 footcandles in officeareas and 150 footcandles in assembly areas. The light levelshad been lobered in some areas (primarily hallways) but gener-ally, t levels in work areas had not been reduced. Based orselected light level readings, the plant manager agreed thatthe lighting in office, assembly, and warehouse areas could becut anywhere from 35 to 45 percent with a savings of 6.8million kwh a year or about $170,000.

We also suggested the use of more economical fluorescentlights as a way to conserve energy. The plant manager deter-mined that the first year savings were greater than the ad-ditional cost of the new lights and, therefore, decided to usethem.

9

Turing off ventilation fans

Ventilation and climate control operations can signifi-cantly affect a building's total energy consumption. It iscommon practice to ventilate areas such as offices and con-ference rooms 24 hours a day, rather than just when they arein use. Conservation guidelines issued by sveral govern-mental agencies and industry associations point out that

energy use could be reduced considerably.if such areas wereonly ventilated when they are occupied.

Twelve of the facilities we visited were trying to con-serve energy by turning off ventilation fans. However, wefound many opportunities for greater sa: ils. For example,at one location, 125 fans were in operat go. At the time ofour review, 12 operated constantly to cox.rol the humidityfor certain production needs while the remaining 113 werefor employee comfort and, therefore, could be turned offafter working hours. But only 1 of the 113 fans was shutdown during nonworking hours.

A central plant security monitoring system is plannedwithin the next 2 years which will be designed to cycle theventilation fans. We observed that until the central controlsystem is installed, the 112 fans could be switched off man-ually during nonduty hours. The plant manager agreed thatthe fans could be turned off at night and on in the morning.The estimated annual savings would be more than 2.7 million kwhor the equivalent of about 4,700 barrels of oil. The annualdollar savings would amount to about $82,000.

CAPITAL INVESTMENTS WILL BE NEEDED TOACHIEVE FURTHER REDUCTIONS IN ENERGY USE

While substantial energy savings can be realized for lit-tle or no cost, many measures require capital investment.At several locations, we noted significant potential for fur-ther reductions in energy use from Phase II and III projects.However, without appropriate incentives, the capital neededfor such projects may not be forthcoming because the paybackperiods may be considered unduly long or projects with higherpriority may preempt available funds.

Examples of Phase II and III type projects include the in-stallation of central automatic facility and equipment con-trols, localized light switches, ventilation economizer sys-tems, and wall and roof insulation. Energy savings fromthese kinds of projects can exceed 15 percent. Cost recoveryperiods based on energy savings alone vary from about a yearfor some economizer systems to about 4 years for such thingsas localized light switches.

10

Installation of central, automatedfacility control systems

Energy can be conserved in many plant operations throughincreased use of automated control systems. We noted that 10of the 20 contractors were considering or had recently pur-chased such systems. Installation cost, estimated costrecovery periods, and estimated percentage reductions intotal facility energy use are shown in the following tablefor five contractors.

Cost to Estimated cost Reduction in energyContractor install recovery period use relative to 1975

(years) (percent)

A $ /0,00 0.8 5

B 225,000 .6 11

C 220,000 1.7 ?

D 89,000 1.3 2

E 250,000 2.2 2

The estimated cost recovery periods vry from less thana year to about 2 years, depending on plant size and systemcomplexity, and on the basis used for estimating cost sav-ings. Relatively low percentage savings in energy may be de-ceiving. For instance, the 2 percent reduction in annualelectricity use for contractor E corresponds to 5.5 millionkwh or the equivalent of 9,483 barrels of oil.

Installing localized liqght switches canbe helpful in reducing electricity use

We found only three facilities with effective lights-offprograms. At a number of the facilities, it appeared to usthat the installation of localized switches to trn off un-needed lights would result in significanL energy savings.

At one location, facility engineers estimated that theinstallation of about 4,000 local switches would produce an-nual electricity savings in excess of 7 million kwh, about 3percent of the facility's power use. The annual cost savingswould amount to about $14U,000. Installation costs for theswitches were estimated to be about $500,000, thereby makingthe cost recovery period somewhat less than 4 years. Butthis project was not considered econosnically attractive bythe contractor.

11

At another location, however, a contractor had modifiedthe centrally switched facility to semilocalized switchingby rewiring and installing 77 individual switches, The costto install the s itches was about $8,000. The estimated sav-ings amounted to 810,000 kwh per year or about $13,800, cor-responding to a cost recovery period of less than a year.

Improving the efficiency of theclimate control system an resultin significaint energy savings

While many contractors were improving the efficiencyof their HVAC operations, there is much more that can bedone in this area. We noted that only 7 of 17 facilitieswhich could use automatic fresh air economizers had done so.The remaining 10 companies were either not equipped witheconomizers or existing economizers were inoperative due tolack of proper maintenance. The following table, which isbased on information from a consultant's study of onefacility, illustraCes some of the potential for energy con-servation associated with HVAC systems operation.

HVAC Enery Conservation Study Results

EstimatedEnergy Cst- Reductions

conservation Implementation Annual erergy recovery in enerqy useopportunity cost cost rduction pe ri od Electricity Heating fuel

(years) (kwh) (therms)

Turn off air-conditioning sy-tems on weekendsand at niht 5 - 240,000 11,300,000 150,000

Repair and installair economizersystrem ~44,000 32,000 1.4 1,800,000 -60,000

Incorporate variableair volume tempera-ture controls 141,000 66,970 2.2 2,300,000 150,000

Total $185,000 $338,970 15,400,000 240,000

The potential energy savings shown above correspond toabout 10 percent of the total energy used at the facility in1975. The contractor had partially implemented the air-conditioning turnoff program suggested by the study and was ne-gotiating a contract for about $35,000 to repair existingfresh air intake economizers and install new ones where ap-propriate. The installation of variable air volume tempera-ture controls was postponed pending verification of savingsrealized from the other two measures.

12

IMPROVEMENTS IN TECHNOLOGY CAN SIGNTFICANTLYIMPROVE ENERGY-USE EFFICIENCY

Advancements in technology can improve the energy effi-- ·ncy of facility operations and industrial processes. Many

-hese, such as waste heat recuperators, promise efficien-.s of mora than 30 percent. Our review indicated, however,

that potential users may be reluctant to invest in advancedtechnologies because of a lack of confidence in new equipmentperformance and reliability. Examples of some new energy ef-fi-Lent technological products which we noted during our re-view are discussed below.

Chiller condenser cleaning brushes

In industrial companies, chiller operations alone canaccount for more than 25 percent of electrical energy con-sumption. Automated brush cleaning of the internal parts ofthe chiller condenser tubes can reduce energy use from be-tween 10 to 30 percent in most instances. Systems installa-tion cost is about $15 for each 12,000 Btu's of capacity andist recovery periods range from about i to 2 years.

Exhaust air heat recovery systems

The use of exhaust ir heat recovery systems is recom-mended by several Federal agencies as a cost-effective wayto conserve energy. Such systems can recover up to 8 per-cent of the waste energy in the exhaust air fr useful tasks,such as space heating or preheating combustion air.

The systems are most effectively used in industrial proc-es.es where exhaust air temperatures exceed 1500 F or sub-stantial amounts of processed air are exhausted. In suchcases, system cost recovery periods are often less than 3years.

For example, at one private company, a heat recoveryunit was installed over a paint shop. Exhaust air frompaint baking and drying ovens was about 2250 F. In the re-covery unit, heat from the exhaust air was transferred to thecold, incoming air which was used in turn to space heat thepaint shop. Purchase and installation costs amounted toabout $22,000. Annual cost savings from reduced heating re-quirements were estimated to be about $13,000, and the costrecovery period is less than 2 years.

We observed many contractor operations such as paintbooths, welding shops, and chemical treatment areas in whichlarge quantities of air were exhausted. Most of these oper-ations exhausted processed air without attempting to recover

13

the energy it contained. We believe that much improvement

can be made in this area and that contractors should evalu-ate their operations to assess the possibilities for cst-effective application of exhaust air heat recovery systems.

14

CHAPTER 3

NEED FOR VIABLE ENERGY MANAGEMENT PROGRAMS

Energy management involves the same basic techniquesthat apply to production, purchasing, finance, and adminis-t-ation. Little attention was given to energy managementin the past because energy was plentiful and cheap. Butwith energy costs climbing, energy management programs arebecoming more important.

Contractors have taken many specific energy conserva-tion measures. However, few have established viable energymanagement programs. At many facilities, we observed inac-tive or lagging conservation programs. While most contrac-tors had issued coInservation poli-y statements and formedenergy conservation committees, ew had adequate programstaffing and funding. None h developed comprehensiveenergy-use profiles, and goals for reducing energy use weregenerally set more or less arbitrarily.

A number of factors have impeded the development ofenergy management programs. Program costs seem to be thestrongest internal factor while a lack of strong Federalleadership appears to be the most important external factor.

PROGRAMS LACK EMPHASIS AND CONTINUITY

Although several contractors appeared to be slowly devel-oping energy management programs, none h 4 established pro-grams which adequately incorporated the five program elementsadvocated by FEA and the Department of Commerce. The fiveelements are

-- top management commitment,

-- development of comprehensive energy-use surveys,

-- goal setting based on survey evaluations,

-- employee motivation campaigns, and

-- monitoring program implementation and results.

The relative lack of emphasis and continuity of thecontractors' energy conservation programs is indicated by thefact that average percentage energy-use reductions were muchlarger in 1974 than in ither 1973 or 1975. In general, thecontractors were more aggressively implementing conservationmeasures in 1974 than in either of the other 2 years.

15

Need for top management toprovide emphasis and resources

Company conservation programs are as strong as the com-mitment of top management and the resources allocated tosupport them. In the plants we visited, most corporateheadquarters had issued policy statements supporting conserva-tion efforts. Most of the companies had also establishedenergy conservation committees and assigned part-time energycoordinators. However, prior to our review only one companyhad a full-time staff member assigned to its program and onlysix companies supported their programs with capital fundsexceeding 3 percent of their annual energy costs.

In a budget-balancing mcre, one company simply laid offall four technicians who had been assigned to energy conserva-tion projects. We noted that the technicians could have morethan offset their annual salaries if the company had takensuch easily implemented conservation measures as loweringlight levels and turning off lights and ventilation fans atnight.

At another company, top management seemed generallyunaware of the status of its conservation program. In aletter to FEA, the company's president designated the managerof facility engineering as the energy coordinator. owever,in discussions with the energy coordinator, we learned that hehad not been told what his responsibilities were, except toact as a focal point to z-ceive information from FEA. In ad-dition, many companies had not allocated adequate funds 4-the energy conservation programs. At several companies,proposed projects with less than 3-yeaL cost recovery periodshad not been funded.

While there were numerous instances of inadequate manage-me-t support for energy conserva._sn programs, there were alsosome indications of increasing management interest in develop-ing such programs. In this connection, during our review acorporate official for one company advised us that while thecompany had not completed the Phase I energy conservationmeasures, they have been energy conscious for years and had avery active program during 1974. He stated that it was thecompany's intention to return to an active program. He alsoadvised us that a formal policy and procedure for energy con-servation had been prepared. On the important point offunding, the official advised us that, as the company's fi-nancial position improveL, consideration will be given tothe more sophisticated conservation measures requiring greatercapital expenditures. He stated that, due to the rapid fluc-tuations in the company's financial position, a definite pay-back period had not been established for evaluating energy

16

conservation proposals, but he believed a 2- to 3-year write-off period would be acceptable in the near future.

Comprehensive energy-use surveys are needed

Detailed knowledge of plant and equipment energy use isnecessary to (1) identify areas of energy waste in facilityand equipment operations, (2) justify the cost effectivenessof proposed energy conservation projects, and (3) verify thesuccess of implemernt.d conservation actions. Yet, at the timeof our review, none of the contractors had completed suchcomprehensive energy-use surveys. As a result, energy conser-vation coordinators at many companies were unable to quantifyenergy savings from specific, implemented conservation meas-ures. They could not separate the impact of business condi-tions on energy use from the effects of genuine, long-termconservation actions. Further, the efforts of many energyconservation coordinators may be frustrated by the lack ofcredible data when they try to justify capital outlays forproposed conservation projects.

In carrying out Phase I type conservation actions,detailed surveys may not always be necessary since such meas-ures as turning off lights and fans, reducing light levels,and resetting thermostats are clearly effective energy savers.However, once the more obvious actions have been taken, con-tinued energy-use reductions depend on identifying moredifficult areas and following up with action. Representativesof three companies indicated, though, that they believeddetailed surveys were too costly and required too much man-power. Several other executives felt that company staffs aresufficiently acquainted with plant and equipment operations toidentify energy wste without lengthy studies.

We believe, however, that after the obvious energy wastehas been eliminated, furthe: major conservation measures arerarely identified and implemented without a detailed survey ofplantwide energy use. At two facilities, for instance, pro-fessional consultants' studies of plantwide HVAC systems turnedup major energy waste areas. In addition, a consultant's studyof the chemical process and heating operations at a Government-owned, contractor-operated (GOCO) plant found that energy costscould be cut by 25 percent if all identified conservation op-portunities were implemented.

17

Need to stablish realistic goals

FEA and Commerce energy management guidelines point outthat goals for reducing energy use should be realistic andbased on evaluation through energy-use surveys. We observedthat only two companies had based their energy conservationgoals on engineering estimates corresponding to potential,identified energy conservation actions. Four companies hadno quantifiable goals, whereas the goals in the remaining 14companies were based on arbitrary considerations or were im-posed on the companies by external sources, such as the localPublic Utilities Commission.

More effective employee motivation needed

Even though most of the companies surveyed had madenumerous appeals to employees to help conserve energy, we be-lieve that these efforts need to be expanded and improved.Company publicity efforts typically included newspaper arti-cles, top management memoranda to employees, posters, andnotices on light switches. Yet the lights-off programs in17 companies we visited were only partially effective. Inone company, more than 26,000 violations were reported duringan 11-month period. We also noted uring our night inspec-tions that numerous violations were still occurring.

Need for conservation actionsand programs to be monitored

It is important for management to review the progressand effectiveness of implemented eergy conservation projects.This review process often requires onsite inspections becausereductions in energy use resulting from specific conservationprojects are usually not traceable when monitoring on a plant-wide basis. Monitoring is particularly necessary to insureimplementation of those Phase I type actions which requireemployee participation to be successful.

We noted during our plant visits that few companiesadequately monitored conservation efforts. Mst of the com-panies either had no monitoring program, or their existingprograms were ineffective. An official of one company firsttold us that the company had an effective conservation programand had put into effect all conservation actions which didnot require capital funding. He was somewhat surprised, how-ever, when we demonstrated to him (backed up by his ownfacility engineering staff) that plantwide electricity usecould be further reduced another 10 percent by simply enforc-ing the lights-off program, by reducing light levels tocompany recommended standards, and by using watt-economizer

18

fluorescent light bulbs. A a result of our discussions. thecompany took action to put a periodic monitoring program intoeffect.

INCREASING ENERGY COSTS AVE NOT STIMULATEDIMPROVED ENERGY MANAGEMENT PROGRAMS

In spite of rapidly rising energy costs, the conservationefforts at many of the plants we visited appeared to haveslowed down or even halted after initial low-cost Phase Itype conservation actions had been implemented. This is con-trary to the claims of several contractors that rising energycosts stimulate their conservation efforts. Further, we notednumerous instances where energy conservation investmentopportunities with payback periods of 1 ye-.r or less had notbeen acted on.

In 1975 total energy costs for the 20 plants we visitedwere more than $45 million--an increase of 61.5 percent over1973. Total energy cost increases during this period rangedfrom about 15 percent to 100 percent. Unit energy pricesincreased even more, ranging from about 137 percent forelectricity to over 180 percent for heating fuel. As shownbelow, 14 companies experienced their highest annual energycost increases in 1974 while the remaining 6 companies'energy costs increased most rapidly in 1975.

Schedule of Energy Cost Increases for 1973-1975

Number ofcompanies Average percentage

showing high- change in energyAverage est year to unit prices over

energy cost year percent- preceding yearYear per company age increase Electricity Heating fuel

(millions)

1975 $2.27 6 20.8 33.5

1974 1.79 14 45.4 70.7

1973a 1.41 - 11.0 17.8

a/1972 as a base year applied only to 12 companies.

Considering that increases in the cost of energy are fore-cast for the future, it appears that energy is becoming a moresignificant cost of doing business. Nevertheless, increasing

19

energy costs have not acted as a stimul'us for contractors toestablish viable energy management programs or allocateadequate financial resources to the program.

IMPEDIMENTS TO DEVELOPINGENERGY MANAGEMENT PROGRAMS

Our review indicated that from a contractor's viewpoint,a number of factors, both internal and uxternal, impede thedevelopment of viable energy management programs. As previ-ously noted, program costs appear to be the strongest internalimp diment. Many companies did not assign full-time staffingto their programs. Also, many companies were reluctant toinvest in energy-saving equipment unless the investment couldpay back its costs in a relatively short time period--l to 2years in some cases. In addition, conservation projects mustcompete for funding with business expansion, equipment replace-ment, and required occupational safety and environmentalinvestments.

E 4:ternally inhibiting is the fact that, until recently,the Federal Government has not effectively emphasized the needfor energy conservation. The voluntary nature of the Govern-ment's program and continuing doubts about the necessity ofconservation may have contributed to contractors' reluctanceto initiate actions that might cause their eployees some in-convenience.

The credibility gap concerning the reality of the energyproblem and the need for conservation still lingers. Accord-ing to one contractor executive, the Government still has notconvinced people that conservation is necessary Anotherofficial pointed out that energy conservation was given highpriority during the 1973 Arab oil embargo, but now that oilis available, conservation has dropped in 'rioiity and becomejust another area of potential cost reduction. We believethat the lack of resources provided by contractors to developenergy management programs and to fully implement known conser-vation measures are to some extent attributable to doubtspeople have regarding the need for conservation.

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CHAPTER 4

OTHER AREAS WHERE IMPROVEMENTS ARE NEEDEDTO PROMOTE ENERGY CONSERVATION

The Federal Government has been promoting energy conlser-vation since late 1973. Ahough several Federal agencieshave programs dealing with industrial energy conservation,these programs have had little effect at Government contrac-tors' plants. As we have noted, this lack of impact stemsfrom the fact that the need for energy conservation has notbeen effectively emphasized; also, agencies have relied on avoluntary energy conservation philosophy in their relation-ships with contrdctors.

In view of the significant energy savings that could berealized, the Government must assume a more effective andcoordinated leadership role to promote energy conservation.There are several issues which we believe need to be consid-ered. They include the development of an energy conservation-related procurement policy, more effective dissemination ofenergy conservation information and techniques, the develop-ment of national lighting guidelines and selected improve-ments which we feel are needed in the Department of Defense(DOD) energy management program. These issues are discussedin the following sections of this chapter.

FEDERAL PROCUREMENT POLICY SHOULD INCLUDE ENERGYCONSERVATION DIRECTION FOR CONTRACTORS

In October 1974 we issued a report to the Secretary ofDefense and the Administrators of FEA and GSA on the resultsof an initial survey of five contractors' energy conservationprograms. We concluded that although the contractors hadtaken some actions to save energy, there was a need for theagencies to become more directly involved and provide guid-ance and direction to contractors for establishing effectiveenergy conservation programs. We suggested the developmentof a tormal Government-wide contractor energy conservationpolicy and a unified Federal approach to require contractorsto adopt, through the contracting process, viable energyconservation programs.

In responding to our report, the three agencies (DOD,FEA, and GSA) indicated they preferred to rely on voluntaryrather than mandatory actions for achieving energy conserva-tion at contractors' plants. DOD stated that the use of anenergy conservation clause in contracts had been studied ex-tensively in coordination with GSA, and it was determined tobe administratively unworkable. Both FEA and GSA advised us,

21

however, chat they supported our suggestion on the need for aformal Government-wide contractor energy conservation policyand that effo' were being made to evelop such a policy.

Such efforts by FEA and GSA were curtailed when the Of-fice of Federal Procurement Policy (OFPP) rejected a GSAproposed contract clause. In this respect, in February 1975GSA advised OFPP of several alternatives and actions thathad been considered to encourage or require contractors toconserve energy. GSA stated that the time was right forestablishing a Federal procurement policy which rquests that,in contracts over $10,000, contractors voluntariy agree touse their best efforts to conserve energy. GSA, therefore,recommended that the Federal procurement community, throughOFPP, take the initiative and institute a voluntary contrac-tor energy conservation clause.

On April 28, 1975, OFPP advised GSA of its oppositionto the inclusion of an energy conservation compliance clausein Government contracts. OFPP questioned whether the bene-fits to be gained by the proposal would outweigh the addi-tional burdens that would be imposed on the procurement proc-ess and on the contractors. OFPP concluded that the FederalGovernment should not open the procurement process to theimplementation of socioeconomic programs by administrativedirection unless a determination was made that -uch actionwas compelling in the national interest.

We believe the rep ,vanced by OFPP for rejectingGSA's proposal are qL _~ e. Energy conservation is avital part of the national . awe to halt our growing de-pendence on imported oil. Th. Federal Government, perhapsmore than any other sector of the economy, must develop andimplement an aggressive conservation effort to limit itsgrowth of energy demand. The Government is a large energyuser. It has influence in many sectors of the economy. An3it has an obligation to responsibly establish and imple:entpolicies it advocates for adoption by others. Given therange of activities existing in the Federal Government, ithas a unique opportunity to show what can be done.

We believe this report clearly demonstrates that thereare numerous opportunities for contractors to use energymore efficiently. Many of the actions that could be takenby the contractors to conserve energy are cost effective.Some actions can be accomplished at no cost while othersmay require minimal capital expenditures. For example, onecontractor had the opportunity to achieve energy savings of12 million kwh annually and realize cost savings of over$225,000 by reducing light levels and installing switchesto turn off lights when not in use.

22

To realize these savings, however, the factors whichsave impeded the development of energy management programsmust be removed. A wide range of Government procurementpolicy options are available to encourage contractors toconserve energy. These range rom voluntary programs andreporting to mandatory development, implementation, and sub-mission of energy conservation plans. A procurement policyrequiring the development of energy management programs and

a provision allowing contractors to share in the cost savingsmay be the motivation and incentive heeded to assure realiza-tion of substantial energy savings. Accordingly, we believethat the Office of Management and Budget (OMB) should haveOFPP, in line with its statutory responsibility to provideoverall direction of procurement and procurement-relatedpolicies:

--Work with the Department of Energy, GSA, DOD, andother appropriate executive branch agencies to de-velop an energy conservation-related procurementpolicy and contract clause that would require Govern-ment contractors to establish viable energy manage-ment programs.

--In developing this policy, give consideration to al-lowing contractors to share in the cost savings whichaccrue from the implementation of energy conservationopportunities.

PUBLICATIONS AND INFCRMATION MUSTBE MORE EFFECTIVELY DISSEMINATED

Federal agencies have developed or contracted out fornumerous publications and studies to assist industry in con-serving energy. For example, FEA, Commerce, and the NationalBureau of Standards have jointly developed a handbook entitled"Energy Conservation Program Guide for Industry and Commerce(EPIC)" which focuses on two aspects of energy conservation.First, it presents the key steps necessary to implement an

energy conservation program. Second, it presents informa-tion on specific energy conservation opportunities whichhave been identified by industry as ways to reduce energyuse. In spite of all of the agencies' efforts in fundingstudies and publishing handbooks and brochures, we foundthat very few of the contractors' plant personnel had re-ceived any of this information.

The District Director of one of Commerce's field officestold us that representatives from his office were spending 2days a week visiting business concerns throughout the areaencouraging them to conserve energy and providing them withinformation on how this can be accomplished. The Director

23

stated, however, that large firms, such as the contractors wewere reviewing, were not being visited by representatives fromhis office. He said the Department's efforts were directedprimarily at medium and small size firms, and he felt thatlarge firms have the means to produce a conservation programwith-,ut the help of Commerce.

\ believe some of the material developed by these agen-cies "ould be very useful in assisting contractors to estab-lish and implement energy management programs. We feel thatFEA and Commerce should coordinate their efforts to dissemi-nate this material through DOD and GSA in order to take ad-vantage of their network of contract administration repre-sentatives who are in day-to-day contact with firms doingbusiness with he Government. In this way, FEA and Com-merce will be able to reach thousands of business firms, bothlarge and small, who could greatly benefit from receivingthis information.

RECOMMENDATION

We recommend that the Secretaries of Energy and Commerce:

--Use Government contracting personnel in DOD, GSA, andother agencies to disseminate energy conservationpublications and materials to contractors.

NATIONAL LIGHTING GUIDELINES ANDSTANDARDS SHOULD BE DEVELOPED

During the past few years, FEA has stressed reducinglighting levels in buildings as a major means of conservingenergy. Lighting level guidelines and standards have beenpromulgated by several Federal agencies and technical soci-eties. But these guidelines and standards are not generallyaccepted and used by the contractors, and the lighting levelsin many facilities exceed the applicable standards. We foundthat there are problems in interpreting and applying theguidelines and, in some instances, t'ie various standards con-flict with each other.

On November 18, 1974, FEA called for a voluntary 25 per-cent reduction in energy used for lighting, heating, cooling,and operating commercial, public, and industrial buildings.As part of this effort, FEA published a booklet entitled"Lighting and Thermal Operations, Energy Managemeat ActionProgram for Commercial Public Industrial Buildings."

These guidelines recommerded lighting levels rangingfrom 50 to 100 footcandles for office work centers, 30 foot-candles for office space where there were no immediate tasks,

24

and 10 footcandles for hallways and corridors. For tasksperformed in manufacturing areas, the guidelines suggestedthat the levels at the work stations should be no greaterthan those established by the American National StandardsInstitute (ANSI). The ANSI standards were based on stand-ards that had been developed by the Illuminating EgineerigSociety (IES).

We observed that most of the contractors were stillusing uniform, overall lighting systems and that the light-ing levels at many plants exceeded the FEA recommended stand-ards. For example, at one location we took 77 differentlight level readings and found that 66 exceeded the applica-ble standard. At another location, our tests showed thatthe light levels generally exceeded the standards as follows:

FEA FootcandlesLocation standards measured

Secretary's desk 50±10 90Reading desk, computer room 50±10 125Day superintendent's desk 50±10 100Supervisor's desk 50±10 130Manager's desk 50±10 120

At this same plant, we took light level readings invarious manufacturing areas and found that they exceeded thestandards published by ANSI and IES as shown below:

ANSI-IES FootcandlesLocation standard measured

Machine shop tool crib 50 200Machine shop final

inspection 100 200Machinte shop grinders 50 90Weld shop 50 95

There are several reasons why the guidelines and stand-ards were not being used. Several contractors indicatedthat they do not agree with the FEA guidelines. They believethat lowering light levels to the recommended levels wouldadversely affect employee morale and productivity.

Furthermore, the FEA guidelines stress that the light-ing levels recommended by them are for nonuniform tasklighting. That is, only the task itself is fully illumi-nated at the recommended light level and the surroundingareas drop off in illuminaticn. We found that there is aproblem using the guidelines and standards because the tasksthemselves are often poorly defined and the definitions canbe confusing. For example, the guidelines define some office

25

tasks as "Normal office work, such as reading and writing

* * ',," others as "Prolonqed office work which is somewhat

difficult visually * * *," and still others as "Prolonged

office work which is visually difficult and critical in

nature * * *." The guidelines state that visual difficulty

is not only a function of the type of task and :he lighting

system, but also of the length of time theA.4sk must be per-

formed. In our discussions with contractor ,.rsonnel, they

pointed out that these types of definitions ca n mean dif-

terent things to different people.

An official of IES told us that many people take their

recommended light levels out of context and use them to

uniformly light areas surrounding tasks to recommended task

levels. He said the IES had not been very successful in

obtaining widespread acceptance that its recommended levels

are for task lighting only and not for uniform lighting.

GSA has also issued two sets of office lighting guide-

lines and standards. One set was intended primarily for

internal use by the Public Building Service (PBS) of GSA

in the maintenance and operation' of buildings in its inve!n-

tory. The second set was issued under a Federal Management

Circular (FMC) to the heads of executive departments and

agencies and was applicable to all buildings owned or leased

by executive departments and agencies, including GOCO facil-

ities.

A comparison of the various standards showed that in

addition to the problems of interpretat.on and application,

the lighting levels recommended by FEA and GSA are differ-

ent from each other. And both are dif.'erent from the levelsrecommended by IES for office tasks which are similar in

nature. To illustrate the variations, the following is a

comparison of several tasks and the recommended lighting

levels.

26

Recommended lighting level

Task description FEA FMC PBS IES

-(footcandles)

Drafting 100±20 50 100±20 150 to 200Reading poorreproductions 75±15 50 75±15 150

Reading handwriting inhard pencil or on poorpaper; reading fairreproductions 75±15 50 $5±15 100

Reading handwriting inink or medium pencil ongood quality paper 50±10 50 50±10 70

Reading high contrast orwell printed materials 50±10 50 50±10 30

The Energy Policy and Conservation Act (Public Law94-163) requires the development and implementation of anenergy conservation plan for buildings owned or leased byagencies of the United States. This plan is to include man-datory lighting efficiency standards. The act also requiresStates to establish mandatory lighting efficiency standardsfor public buildings if they want to qualify for Federalassistance for their State energy conservation programs. Inview of these requirements, we believe that the variouslighting level guidelines and standards currently in exist-ence should be reviewed, and national lighting guidelinesand standards that can be easily understood and consistentlyapplied should be developed.

RECOMMENDATION

We recommend that the Secretary of Energy:

-- Review the various lighting guidelines and standardsthat are currently in existence and develop nationallighting guidelines and standards that can be easilyunderstood and consistently applied in commecial,public, and ndustrial buildings.

IMPROVEMENTS NEEDEr IN DEPARTMENT OFDEFENSE ENERGY MANAGEMENT PROGRAM

DOD was responsible for the greatest part of the Govern-ment business at each of the 20 plants we visited. Over thepast few years, DOD has taken a number of actions to moreeffectively manage its energy resources and promote energyconservation. In January 1974, a Director for Energy was

27

appointed to be primarily responsible for energy matters

within DOD. His duties include managing the Department'soverall energy conservation program and coordinating the

efforts of the various DOD elements involved in performingenergy-related functions.

We were told by the Director that DOD has tried to mo-tivate and encourage contractors to voluntarily conserveenergy. For instance, DOD issued a procurement circularwhich requested defense contractors to implement energy con-servation measures.

We recLgnize that DOD has taken actions to promoteenergy ccnservation, but we believe that there are severalareas in which more can be done to strengthen and improvethe Department's energy management program.

Formal plan needed fr promotingenergy conservation by contractors

In October 1974 we reported to DOD that there were in-consistencies in the manner in which it was promoting energyconservation at contractors' plants. We suggested that aformal plan should be developed for providing energy con-servation guidance and direction to contractors.

In our current review, we found that the efforts beingmade by DOD are still not being carried out in a coordinatedand consistent manner. For example, contractors operatingArmy-owned plants were requested to use the lighting stand-ards established by GSA, while contractors operating AirYorce- and Navy-owned plants were not asked to do so.

DOD is in a unique position, through its network of

plant representatives, to give energy conservation guidance,encouragement, and direction to contractors. We noted, how-ever, that the plant representatives generally have littleto do with contractors' conservation programs. One plantrepresentative told us he does not believe he is in a posi-tion to take action to encourage the contractor to conserveenergy because there are no energy conservation provisioni,in the contract. At another location, the Government plantrepresentative's staff member, who was designated as theenergy conservation coordinator, said he was not familiarwith the contractor's energy conservation program and didnot know who on the contractor's staff was involved in it.

In view of the many opportunities for contractors toconserve energy, we believe DOD should develop a formal planfor a coordinated and uniform effort to promote maximumenergy conservation by contractors.

28

Defense Contract Audit Agency' energyaudits should be expanded

In February 1974 the Defense Contract Audit Agency(DCAA) initiated audits of defense contractors' energy con-sumption. The DCAA regional offices were to determine ifcontractors had program plans to adequately monitor the useand cost of energy and if they intended to institute addi-tional procedures to further reduce energy use.

The DCAA audit reports and additional infrmation weremade available to the DOD Director for Energy when he testi-fied in April 1975 before the Senate Committee on GovernmentOperations. He s' jd that only 4 of 127 contractors whereDCAA audits had ben completed were considered to have ene- j-use programs that were lacking in some respect.

As part of our review, we looked at te DCAA audits andheld discussions with DCAA officials. We found that the workdone by DCAA was generally restricted to a review of energyuse documents and published contractor programs. Further,DCAA informed us that if the contractor had reduced energyconsumption by 5 percent, which was the nationwide oal atthe time of their audits, the program was deemed adequate.In our opinion, DCAA's efforts were too limited to assessthe overall adequacy of a contractor's program. We believethat if DCAA had expanded the scope of their work, signifi-cant additional potential for energy reductions would havebeen readily identified. As noted throughout this report,we found many opportunities for contractors to conserveenergy through such easily recognized Phase I type measuresas turning off lights and ventilation fans and using moreefficient lighting.

We believe that the Director for Energy could get use-ful information for the Defense energy management programfrom the DCAA energy audits. They could serve as a means ofmonitoring contractors' efforts to establish and implementviable energy management programs. The audits should be ex-panded, however, to determine whether contractors' conserva-tion programs adequately incorporate the five elements recom-mended by FEA and Commerce: (1) top management commitment,(2) development of comprehensive energy-use surveys, (3)goals based cn survey evaluations, (4) employee motivationcampaigns, and (5) internal monitoring of the program. Inaddition, we believe that DCAA should use technical assist-ance where necessary to insure that the audits are compre-hensive enough to properly assess contractors' programs.

29

Action should be taken on proposals for EnergyConservation Investment Program undalng

Seven of the 20 plants reviewed were GOCO facilities.Capital investments for plant and equipment additions andmodifications at these facilities are nor.nally funded fromthe procurement budgets of the DOD organization owning theplant. Items which are considered normal maintenance andupkeep are paid for by the contractor.

We noted that generally, those energy conservation proj-ects requiring capital investment from procurement fundshad to compete with other capital investment projects forlimited funds. Projects which were production-related orthose which were needed in order to comply with environ-mental and safety regulations took precedence over energyconservation investments regardless of cost recovery periods.For example, one GOCO contractor submitted nine energy con-servation projects in its fiscal year 1977 procurementbudget request. These projects were subsequently deletedin spite of the fact that three of the projects had costrecovery periods of from 2 to 8 months. When we discussedthe reasons for dropping these projects with DOD officialsat the plant, we were told they were deleted because of theunavailability of funds. One official said that unless theprojects have a beneficial effect on production, there waslittle chance of them being approved.

In March 1975 DOD established an Energy ConservationInvestment Program (ECIP) which started in fiscal year 1976.The purpose of this program was to reduce energy consumptionthiough self-amortizing, retrofit projects to existing fa-cilities. The program was intended to operate for 6 yearsand funding levels of over $100 million per year wereestablished.

Proposed projects and cost estimates for ECIP fundingwere requested by DOD from a number of GOCO plants, includ-ing the one discussed above. This contractor submitted thesame nine projects that were previously deleted from hisfiscal year 1977 cpital budget request plus one additionalproject. Five of the 10 projects appeared to meet thefunding criteria that had been established for the ECIPprogram, but none were approved.

In discussions with DOD program officials, we learnedthat very few GOCO projects were being submitted by themilitary services for ECIP funding. We were advised thatGOCO projects could be funded if they meet the criteria. Wealso discussed this matter with officials in the office of

30

the Director for Energy. They indicated they were unawareof the high deletion rate of energy conservation projects atGOCO lants and the lack of participation in ECIP.

It appears that there has been a lack of communicationand coordination within DOD on the funding of energy conser-vation projects at GOCO plants. We believe that actionshould be taken to insure that all DOD elements and GOCOcontractors are aware that ECIP funding is available andthat requests for such funding will be considered if a proj-ect meets established criteria.

RECOMMENDATIONS

We recommend that the Secretary of Defense take actionto improve DOD's energy management program by:

-- Developing a formal plan for a coordinated and uni-form effort to be exerted by all DOD elements topromote energy conservation by its contractors.

-- Expanding the scope of the DCAP energy audits andusing technical assistance in these audits for evalu-ating contractors' energy conservation programs.

-- Using the DCAA energy audits to monitor contractors'efforts to establish and maintain viable energymanagement programs.

-- Advising all contractors operating Government-ownedplants and the military services responsible foradministering such plants that projects can be sub-mitted for funding under the ECIP.

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CHAPTER 5

AGENCY AND CONTRACTOR COMMENTS

AND OUR EVALUATION

We furnished a draft of this report for revil w and com-ment to the 20 contractors whose plants we visitea and tothe five Federal agencies (FEA, OB, GSA, DOD, and Commerce)responsible for the matters discussed throughout this report.The contractors and the Federal agencies agreed that furtherconservation of energy resources was necessary; however,there were differences of opinion expressed by a number ofthe contractors as to how much more energy could be conserved.Some of the contractors also expressed the view that what isneeded to assist industrial firms to improve and expand theirefforts to conserve energy are financial incentives such asaccelerated depreciation and nvestment tax credits.

OMB, DOD, and Commerce agreed with all of our recommenda-tions except for developing a procurement policy that wouldrequire Government contractors to establish viable energyma gement programs. The primary reason cited by theseagencies was the lack of a coordinated national policy forenergy conservation. FEA and GSA indicated a willingness towork with the other three agencies in the development of anappropriate procurement policy that would adequately addressthis subject.

Discussed below are the major comments on our report,along with our evaluation where differences exist.

CONTRACTOR COMMENTS

With respect to the actions that have been taken by con-tractors to conserve energy and the potential for furtherconservation, eight of the contractors advised us of variousconservation actions that had been taken since the time wevisited their plants. These actions included improvementsmade in their energy management programs, such as assigninga full-time coordinator to manage the program, and actionsto reduce their energy consumption by means of relamping andinsulation programs.

Concerning the potential for further conservation, fivecontractors informed us that they believe the 20 percent re-duction figure we cite may be too optimistic for those con-tractors who have already embarked on and implemented conser-vation programs. Conversely, one contractor stated that theyare reasonably sure the 20 percent reduction can be aclievee-7Another contractor informed us that, subsequent to our review,

32

they significantly expanded their conservation program, andin 1976 consumption of electricity decreased 27 percent andnatural gas decreased 16 percent compared to 1975 consumption.It was evident from the comments made by the contractors thatthere are differing views on the amount of energy savingsthat can reasonably be expected to be realized n industrialplants. Our review clearly indicated that the potential forenergy reductions in individual plants is igh. We recognize,of course, that the reductions achieved will vary widely d-pending on many factors, including the past efforts that havebeen made to reduce energy use and the commitment that manage-ment makes to establish and carry out a viable energy manage-ment program.

In their comments, a number of the contractors expressedthe view that they have good energy management programs andthat what is needed to assist industrial firms to improve andexpand their efforts to conserve energy are financial incen-tives such as accelerated depreciation and investment taxcredits. As stated earlier, financial constraints are amajor impediment to companies' development of viable energymanagement programs. For eample, many companies requirevery short cost recovery plods for in estments in energy-saving projects and equipment. We believe that conservationshould have top priority for Government financial assistancebecause it has the greatest potential payoff and is mostattractive on an incremental cost basis. Areas offering thegreatest opportunity include insulption and other measures toconserve energy in new and existing buildings and the use ofmore efficient equipment and processes in industrial plants.Still, there is a need, as discussed in this report, for con-tractors to establish viable energy management programs andto allocate more financial and staff resources to their pro-grams.

We support the concept of investment tax credits as anincentive fcr achieving energy conservation in the industrialsector. In our March 17, 1975, Alternative Energy Proposalslwe proposed a 10-year industrial investment tax credit of 10percent for the installation of equipment which would resultin improved energy efficiency. We also proposed that modelperformance standards be developed for industrial processesin key energy-using industries based on the most efficienttechnology available. The standcards were to include increased

1Alternative Energy Proposals Developed by the General count-ing Office in Response to Congressional Inquiries: St..ementof Comptroller General before House Ways and Means Committeeon March 17, 1975.

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energy efficiency in steam generation, heat recuperation, andmaterials recycling.

More recently, in our report on the President's NationalEnergy Plan,1 we agreed witll the administration's proposalsto provide a 5-year, 10-percent investment tax credit for in-dustry for investments in approved energy-saving industrialequipment and a 10-percent tax credit for business invest-ments in approved energy conservation measures. We believethat these financial incentives may result in additional ef-forts by industry to conserve energy by making energy-savinginvestments more economically attractive.

FEDERAL ENERGY ADMINISTRATION COMMEN'IS

FEA stated that it agreed with our general conclusionsthat while Government contractors have taken specific energyconservation actions, there are many opportunities for achiev-ing further significant energy savings if viable conserva-tion programs were established by all contractors in theirplants. FEA agreed that the Government, through its procure-ment policies, can promote positive energy conservation ac-tions by contractors and advised us that it partially con-curs with our recommendation for the development of a pro-culrement policy and contract clause that would require Gov-crnment contractors to establish viable energy managementprograms. PEA said it is their feeling that all segments ofindustry should have viable programs and that requiring onlyGovernment contractors to have such program; iimits the po-tential benefits as compared to an appeal to the entire in-dustrial community. FEA said it has worked with OFPP in thepast on this subject and will continue to in the futur ifsuch a reql'rement is decided upon.

We agree with the view expressed by FEA that all seg-ments of industry should have viable energy conservat'onprograms. We believe, however, that FEA should not proposeinaction on the part of the Federal Government developingand implementing an energy conservation procurement policyfor contractors simply on the basis of limited potentialbenefits which it believes can be realized when compared tothe entire industrial community. Benefits are benefits fromwhatever source they come. We believe there are significantbenefits to be gained from the action we proposed. TheFederal Government is a large energy user, and we believeit has an obligation to responsibly establish and implementpolicies it advocates for adoption by ohers.

lAn Evaluation of the National Energy Plan. EMD-77-48,July 25, 1977.

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With respect to our two reconmmendations for FEA to useGovernment contracting personnel to disseminate publicationsand materials to contractors and to pursue the developmentof national lighting guidelines and standards, FEA advisedus that it concurred with the intent of our recommendationsand thdt actions were being taken on these matters.

OFFICE F MANAGEM ENT AND BUDGET COMMENTS

OMB stated that it does not support our recommendationfor OFPP to develop an energy conservation-related procure-ment policy and contract clause that would require contrac-tors to establish viable energy management programs. OMB'sre sons weze the lack of a coordinated national policy foren rgy conservation and the lack of a quantification of thecost and benefits for such socioeconomic programs.

On April 29, 1977, a very important first step was takentoward the development of a national energy policy when theadministration presented its National Energy Plan. The panis based on a number of principles, strategies, and goalswhich the administration believes must be pursued if the Na-tion is to solve its energy crisis. The first principle setforth n the plan states, in part, that the energy problemcan be effectively addressed only by a Government that ac-cents responsibility for dealing with it comprehensively.The sixth principle--the cornerstone of a National EnergyPolicy--is that the growth of energy demand must be re-strained through conservation and improved efficiency. Inour view, a further step in the direction of developing andimplementing such a policy would be for OMB to demonstrateits commitment to supporting the cornerstone of the admini-stration's energy plan through the development of a Govern-ment-wide procurement policy that calls for all contractorsto establish viable energy management programs. We believethis report clearly points out the need for such a policy.It shows the energy waste that is now occurring and the po-tential for savings in this area.

Regarding the need for quantification of the cost andbenefits of an energy conservation program, we again believethat tis report adequately demonstrates the savings, bothin terms of dollars and energy, that can be achieved throughenergy conservation programs. The report also recognizesthat some energy conservation projects may require extensiveeconomic feasibility studies, capital outlays, and cost re-covery periods exceeding 10 year's. In fact, a few of thecontractors we visited had conducted selected studies thatshowed, for individual conservation projects, what the costs,benefits, and payback periods would be. Thus, the quantifi-cation of costs and benefits has been done to some extent,

35

but more is needed. Since a good energy conservation pro-gram would include these studies as an integral part, OMB'sstatement that more cost/benefit studies are needed beforefurther action can be taken seems to us to be contradictoryand not well founded. Further, as this report shows, signif-icant savings can be achieved through common sense type ac-tions, such as turninq off lights and equipment when notneeded, reducing light levels, and using more efficient lightsources. Actions of this type require little investment forthe substantial benefits or savings that can be achieved,and have long been recognized as being cost effective.

DEPARTMENT OF COMMERCE COMMENTS

Commerce stated that the report certainly shows a needfor improvement in Government energy conservation effortsaimed at the type of companies reviewed. It also statedthat the report suggests a specific and reasonable way to im-prove the dissemination of information to contractors aboutenergy conservation, and it intends to implement our recom-mendation on this matter.

Commerce does not believe, however, that the reportfully identified the reasons for the inadequate energy con-servation programs found in the companies reviewed, and forthis reason, suggested that we eliminate our recommendationfor the development of an energy conservation procurementpolicy that would require contractors to establish viableenergy management programs. The agency's comments seem toindicate several concerns. On the one hand, they believethat some of our findings show that a voluntary programshould be continued because of the achievements that havebeen made; on the other hand, they are concerned that someof our findings may result in the premature abandonment ofthe voluntary approach to energy conservation. They pointedout, however, that the agency does not suggest that mandatorymeasures are never appropriate, but only that they are a lastresort, to be used where normal incentives such as the costof energy, as well as the desire of individuals and indus-tries to promote the public interest cannot be relied upon toaccomplish the needed result.

We believe that the voluntary approach to energy conser-vation has not been fully effective. It has not been effec-tive because many of the companies visited were simply notaware of how to go about establishing and implementing an f-fective conservation program. They were also not aware ofthe potential savings involved. Perhaps this would not havebeen the ase if agencies like Commerce had been more effec-tive in disseminating information to these co.apanies on

36

energy conservation. For example, in commenting on our re-port one contractor stated that:

"Dissemination of useful information should beimproved. Our experience here is that we havereceived essentially no information from Federalagencies except the FEA guidelines on lightingwhich were received during the GAO review ofthis plant."

Despite the lack of awareness by contractors of thepotential savings involved from a good energy conservationprogram, Commerce stated that their programs have stressedthe distribution of information and use of seminars to pro-mote understanding of these savings. We believe, however,that Commerce's efforts to disseminate information were verylimited. Further, the Director of one of the agency'sfield offices told us that large firms, such as the contrac-tors we reviewed, were not being visited by their represen-tatives because he believed that these firms had the meansto develop a conservation program without help from Commerce.While large firms may be capable of developing a good con-servation program, our review showed that most had not, andthey could have used some help.

Commerce questioned whether our findings have wide-spread applicability since (1) they ae based on a sampleof only 20 contractors, (2) some of the firms may have littleincentive to reduce costs because of the types of contractsthey held, and (3) a numb¢ - of the plants reviewed were GOCOfacilities. The 20 firms we elected for review were basedon a judgment sample and, therefore, cannot be statisticallyprojected to all Government contractors. The contractorswere chosen to provide broad geographical coverage and weresignificant in terms of business volume and energy use.These were large firms, with total annual energy costs rang-ing from $319,000 to over $11 million. Since significantsavings can be realized from adoption of better conservationmeasures by them, we believe our assessment of their energyuse provides a useful input for energy conservation policydecisions. The widespread presence of conservation oppor-tunities among these contractors also leads us to believethat similar opportunities may be present, to some extent,in other Government contrz:tors' facilities.

We agree with Commerce that, to the extent that costsare a factor in energy conservation, procedures need to beworked out by the agencies to increase the cost incentivesfor certain types of contracts and contractors. Our analy-sis shows that price does not have a great effect on some

37

contractors' energy use because of their type of contract.This was shown by the low-price elasticities of both electricenergy and heating fuel energy uise.

Commerce stated that, in assessing the effectiveness ofconservation programs, economic factors cannot be differenti-ated from the impact that voluntary conservation efforts hadon the program. Commerce said that GAO tries to make such adistinction through the use of statistical techniques to de-termine which of these factors has contributed most to thedegree of energy conservation actually achieved. In explain-ing their position, Commerce pointed out that its program andFEA's program both have relied upon understanding of the costeffectiveness of energy conservation as a primary motivatingfactor and thus, to separate economic considerations from theimpact of voluntary conservation programs is fallacious.

We believe it i possible through statistical techniquesto assess the relationship that economic actors such as em-ployment, plant ;aea and energy unit prices) and voluntaryconservation efforts have on reducing ti.e use of energy. Asshown in appendix II, we tested this belief by including thevoluntary program as an explanatory variable n our statisti-cal analysis. The analysis showed that the economic factorswere statistically significant in explaining overall energyuse by the contractors. It was difficult to separate theeffects of voluntary conservation efforts from those of in-creasing energy costs; however, we believe that increasedprices may have had more of an impact in conserving energythan the voluntary efforts. In addition, and more impor-tantly, we did not rely solely on our statistical analysis tomeasure the voluntary program's full impact on energy used.As shown in our report, we relied extensively on t findingsfrom our reviews at the contractors' plants to assess the vol-untary efforts that were being made to conserve energy.

DEPARTMENT OF DEFENSE COMMENTS

DOD advised us that the report would be helpful as iticontinues to develop measures to insure that contractors usetheir energy more efficiently. DOD concurred with the recom-mendations we made for improving its internal energy manage-ment program ancd advised us of the actions that had beentaken on these matters.

While DOD concurred that it can improve its energy con-servation efforts at contractors' plants, it was also totallyagainst developing a contract clause requiring contractors toestablish viable energy management programs. The reasons

38

were much the same as those given by OMB and Commerce. DODsaid it was their view that an effective industrial energyconservation program should emanate from the highest levelof Government concerned with overall energy policy and man-agement. DOD said that pending some movement of the Govern-ment in this direction, it feels the best approach for DODin complying with existing guidance is to continue currentpromotional efforts with its contractors.

During our review, we did not find that DOD's promo-tional efforts were very effective. From our experience,Government contractors are usually reluctant to actively pur-sue accomplishing socioeconomic objectives. Therefore, webelieve it is necessary for DOD nd other agencies to takemore positive action to assure that contractors comply. Inthis case, an appropriate contractual clause in all majorcontracts appeared to be a logical course of action.

DOD also commented that it feels, given the dramaticallyrising energy prices during the period 1972-1975, decreasesin employment could not adequately explain the significant'decline in energy use experienced by the contractors duringthis period. As discussed in chapter and appendix II, ourstatistical analysis shcded that plant area, employment,heating degree days, and price are important variables in ex-plaining energy use. We have added estimates of average en-ergy use by the contractors in 1972 and 1975 in table 2 ofappendix II to more fully respond to the question raised byDOD. This table implies that not only is the coefficient ofthe particular variable important in explaining changes inerergy use, but how much that variable itself changes is alsoa actor. Thus, for example, during the period, large pricechanges with a low coefficient account for more of the elec-trical energy decline than employment. Also, for heating fuelenergy use, we agree with DOD that some of the reduced plantareas may have been because of conservation efforts hy thecontractors. On the other hand, we believe that economicfactors are also important in explaining this change.

GENERAL SERVICES ADMINISTRATION COMMENTS

GSA stated that it cormpieiey supports the efforts tosave energy in every way possible. GSA stated that it wouldbe willing to assist OFPP in developing appropriate parts ofthe energy conservation procurement policy and contractclause which we recommended for Government contracts. GSAalso informed us that i agreed with our recommendation forimproving the distribution of energy conservation publicationsand advised us of several actions it was taking in thisregard.

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OVERALL CONCLUSIONS

Our basic purpose in this report has been to provide theresponsible Federal agencies and the Congress with informa-tion on the effectiveness of the agencies' efforts to promotevoluntary energy conservation by Government contractors. Webelieve these efforts have not been very effective. Whilecontractors have taken many specific energy conservation ac-tions, there are numerous opportunities for achieving furthersignificant energy savings if viable energy management pro-grams were established by all contractors in their plants.

The factors which our review indicated have impeded thedevelopment of energy management programs are twofold: (1)the overall financial constraints that a e associated withestablishing and implementing the program; these include thecost of staffing and funding for proposed conservation proj-ects, the relatively short payback periods that are requiredfor capital investments, and the fact that energy conserva-tion projects nust compete for fu-nding with other capital in-vestment projects and required occupational safety and envir-onmental investments and (2) a lack of strong Federal leader-ship emphasizing the need for energy conservation. Webelieve our identification of these factors as primary impedi-ments has been confirmed to a large extent by the commentsmade by some of the contractors and agencies that a coordi-nated national energy policy and financial incentives, suchas investment tax credits, are needed to motivate and assistcontractors to improve and expand their efforts to conserveenergy.

Within recent months, two important actions have beentaken by the administration and the Congress to more effec-tively deal with the Nation's energy crisis. These two ac-tions were the issuance by the President on April 29, 1977,of a proposed National Energy Plan and the legislation thatwas signed on August 4, 1977, (Public Law 95-91, 42 U.S.C.7101) creating the new Department of Energy. As discussed onpage 34, the National Energy Plan contains proposals toprovide tax credits for industry and business for invest-ments in energy-saving equipment and conservation measures.We support these proposals.

The new Department of Energy was established by reorgan-ization of energy functions within the Federal Government inorder to secure effective management to assure a coordinatednational energy policy. Under the legislatic , the Depart-ment was given the authority and programs necessary to foster,encourage, and--where appropriate--require energy conserva-tion. In addition to the consolidation of conservation pro-grams from the primary energy agencies (FEA and ERDA), the

40

Department acquired authority from Commerce for the Govern-ment's program to promote voluntary industrial energy con-servation. This reorganization should help bring the Govern-ment's heretofore fragmented energy policies and programsinto a structure capable of both developing and implementingan overall national energy plan.

We believe the two actions discussed above re a posi-tive response to the issues raised by the contractors andagencies in their comments, and could have a direct and sig-nificant impact on alleviating or removing the barriers whichour work indicates have impeded the development of viableenergy management programs by Government contractors. We areconcerned, however, whether these actions standing alone aresufficient and believe that the Government should develop anenergy conservation-related procurement policy requiring con-tractors to establish energy management programs that ade--quately incorporate the following five program elements: (1)top management commitment, (2) development of comprehensiveenergy-use surveys, (3) goal setting based on survey evalua-tions, (4) employee motivation campaigns, and (5) monitoringprogram implementation and results. We believe a meansshould also be established for monitoring and evaluating theoverall effectiveness of the contractors' energy managementprograms, including the actions that are taken in response toany new tax incentives that are provided for energy conserva-tion purposes. We believe this could be accomplished byadopting a suggestion made by FEA that contractors be re-quired to submit their energy conservation plans as a partof their proposals when bidding on Government contracts, andthese plans could then be evaluated as a part of the sourceselection process. After coctract award, the effectivenessof a contractor's energy management program could be evalu-ated against prescribed standards by the contract administra-tive services and the contract audit agency.

RECOMMENDATIONS TO THE DIRECTOR,OFFICE OF MANAGEMENT AND BUDGETAND THE SECRETARY OF ENERGY

We recommend that_the Director, Office of Managementand Budget and the Secretary of Energy jointly develop anenergy conservation-related procurement policy that requiresGovernment contractors to establish viable energy managementprograms which include the five program elements previouslylisted. This policy should provide for contractors to sub-mit their program plans as part of their contract proposalsand for subsequent evaluation of the effectiveness of heprogram by contract administrative and audit agency persoin-nel.

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We also recommend that the Secretary of Energy establishreasonable energy conservation targets and goals for majorGovernment contractors. Using information obtained by offi-cials of the agencies responsible for awarding and adminis-tering the contracts, the Secretary should monitor the prog-ress of the contractors' efforts toward achieving thesegoals. The Secretary should then report back to the Congresswithin 24 months on the progress being made and with recom-mendations as to whether any new financial incentives thatare provided by the Congress for energy conservation are suf-ficient, or whether mandatory standards are necessary.

MATTERS FOR CONSIDERATIONBY THE CONGRESS

Within the near future, a National Energy Plan is ex-pected to be enacted which will contain financial incentivesfor industry to pursue with more vigor the conservation ofour energy resources. We support the concept of investmenttax credits as an incentive for achieving energy conservationin the industrial sector. The Federal agencies and contrac-tors responding to our report believe that these incentiveswill be an inducement for contractors, and all of industry,to conserve more energy.

Because the Congress must ultimately decide whether vol-untary or mandatory energy conservation programs are neededin industry, we believe that the Congress should maintainclose oversight of any new programs and incentives it pro-vides for industry in this area. We believe this could beaccomplished by means of the report which we have recom-mended that the Secretary of Energy provide to the Congress.The Congress could include a specific requirement for thisreport in any legislation thac is enacted to provide finan-cial incentives for industrial energy conservation.

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APPENDIX ISCIDELN lOIOIIG CONTRACTOR NCRGY use *APPENDIX IAND COl? I INFlfAlON FRo 1975 Inote )

Total ftcil ty energysneroy vIn leuivlOnt (note b)

Contractor Electricity (note c) heros mrrel* of oil energy coot

(000 kho) (000 therm l (000)

1. Aerojet olid Propulaion Company(note d) Sacramento, Califerni 35,394 3,320 6,b59 S10 5 1,325

2. Dell Telophone Laboratorieslhippony, Now Jerey 23,357 1,094 3,429 59 835

3. Control Dte CorporationAsroapaoe Divilion,inneapolia, inneoota 14,666 260 1,726 30 319

4. Geneorl Dynenicsfort worth DivialonFort o-th, Texas 113,780 14,102 25,480 439 2,520

5. neral lloc:rio oponyOrd,.- * staie -Pittlfield, lrtachuuetts 31,464 1,573 4, 739 2 1,110

6. Ocneral lectric CompanySpace Dii irionValley rcrge, Pennsylvania $6,714 1,210 ',81 119 1,911

7. Goodyear A iopce CorporationAkron, nh., 32,971 3,668 6,96 120 1,363

i. Roleton Defense Corporation (note o)lolston Army mlunition Plantringport, Tenneeooe 86,712 70,462 79,153 1,365 11,062

9. loneywell Inc.Twin Cities Ary Ammunition PlantNow Brighton, Minneoota 23,721 1,446 3,520 i6 902

10. Hughes Aircraft Componyground Systoem GroupFullerton, ClitornT 63,500 1,015 7,365 127 1,642

11. CT United States, Inc. (note o)Indinoa Army Ammunition PlantCherleotown, Indiaon 18,760 2,962 4,836 63 643

12. Lockheed iolsileo nd Spae ComnpavSunnyvale, Clifornic 210 4 4,614 25,663 442 4,306

13. Nirtin Marietta ArompaceOrlando DivisionOrlondo, lorida 65,651 705 7,270 125 1,678

14. lockwell International (not f)Columbus Aircraft DivisionColumbus, Ohio 76,447 6,608 16,453 264 2,655

15. perry Rind Corporationsperry DivisionGreat Neck, New York 33,084 1,633 5,141 69 1,522

16. T Inc.TIM quipment 'oupluclid, Ohio 96,713 4,357 14,229 245 2,564

17. tr Inc.TII ytoenms and noergy Groupledondo sach, California 138,918 3,319 17,211 297 3,714

)J. United Technologies Corporationordon Divilion

lorwllk, Conneoticut 15,564 74) 2,306 40 GilIt. Vought Corporation yoteno Division

D llas, Tas 150,101 10,622 25,632 442 3,31120. Westinghouseo lectric Corporecion

lletro-Nechaniol DivisionCheowirk, Pennsylvani 31.672 ,,4 375 2 o5 747

Total 1.324,077 2l 6l612 _1/436

*/Tbe date hown i for calndar yeor 1975 xcept horo otherwise noted. For thoeo oxceptions the dtcorreponde to fiscal yeor bait aso used by these contrcetor.

b/By total facility energy in quivalent theornt, rotoer to the combined consumption of electricity mndbeating fuel (converted to equivalont therea. In converting electricity usage to quivalent therms,we used the conversion factor of 10,000 tu' equals I kwh, reflecting resource energy inputs t thepowerplents. In converting to equivilont brrolo of oil, we used the conversion fector for crude oiluosed by the Dopartment of the Interior--5,600,000 tu's per barrel.

/Ibeating uel is theo su, in equivaleont trms (I ther -* 100,000 tu ), of the uls used in the tfcilritieand includes, whereo ppltceble, fuel oil, natural gas, coal, purchased steam, nd propane.f/Daota hown i on fiscol year bisl December 1, 1974 - November 30, 1973./Data hown i on fiscal year boosist uly i, 1974 - Juno 30, 1975.

'/Dota hown io on fiscaol year bDoitl October 1, 1974 - September 30, 1975.!/Colun does not dd to total due to rounding.

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APPENDIX II APPENDIX II

STATISTICAL ANALYSIS

EXPLAINING VARIATIONS IN ENERGY USE

SUMMARY OF RESULTS

We performed a number of regression analysesl to esti-mate the relationships between total energy use and the areaof the plant, the number of employees of the company, heatingdegree days, the relative price of energy (total cost of thatenergy divided by the total energy used), and a variable tomeasure the effect of the "voluntary energy conservationprogram."

Several of these variables were highly correlated, mak-ing it difficult to separate the effects of one from theother. This was true of plant area and employment and alsoof the price variable and the variable representing the "vol-untary energy conservation proqram" in 1974 and 1975. Tabl-1 on page 47 shows that while the price variable svas signi-ficant, the variable used to measure the conservation programwas not when both were included in the same equation. On theother hand, the conservation program variable was significantwhen the price variable was not included in the estimatingrelationship. We analyzed electrical energy used and energyused for heating separately to eliminate the problem of cor-relation between employment and plant area. The results ofthese two analyses ze summarized in the following tablewhich lists the coefficients of the most significant esti-mated regression equations.

Electrical Energy usedVariable energy used in heating

Employment 0.77 (a)

Energy price -.53 -0.35

Area (a) 1.21

Degree days heating (a) .50

aNot included in equation.

1A statistical technique that attempts to measure the rela-tionship between a given variable (in our cse energy use)and other variables o interest (area, employment, relativeprice, etc.).

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APPENDIX II APPENDIX II

These values can be explained in the following manner. Thecoefficient of 0.77 for employment in the electrical energy-use equation means that a 1-percent increase in employment,other things elng equal, will result in a 0.77 (i1-percentincrease in electric=l energy use. 1A 1-percent increase inthe price of eectricity means a 0.5: (2)-percent decrease inenergy used.

The sign of the price coefficient confirms economictheory that price increases redlice quantity consumed whileprice decreases would increase uantity consumed. These twoexamples should aid in interpreting relationships that aredirectly related (shown by a positive value) and those thatare inversely related (shown by a negative value). 3 Othervalues in the chart have similar explanations.

1The value of G.77 is the best single estimate; however, amore precise statistical statement would be that we may be95 percent confident that the value lies between 0.63 and0.91.

2Similarly, for 95 percent confidence, the value lies be-tween 0.23 and 0.83.

3Direct or positive relationship means that an increase inthe independent variable results in an increase in the de-pendent variable, while a decrease in the independent vari-able resiu 7in a decrease-in the dependent variable. Aninverse relationship means an increase in the independentvariable results in a decrease in the dependent variable,and a decrease in the independent variable results in anincrease in the dependent variable.

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APPENDIX II APPENDIX II

TECHNICAL DETAILS

Initially, we used regression analyses to determine tilerelationship between overall energy consumption and employ-ment, plant area, heating degree days, unit price of energy,and a variable to control for the effect of the voluntary pro-gram. Graphs of energy consumption plotted against the othervariables (factors) indicated that some of the variables myvary nonlinearly with energy use. For this reason and thefact that the use of logarithms allows elasticities to be ob-tained directly from the coefficients of the regressionequations, we primarily used natural logarithms of the datain our analysis.

Our analysis on a year-to-year basis indicated that somevariables thought to be significant were not. We increasedthe sample size to 66 observations by pooling te data forthe 18 companies for the 3 or 4 years where data was avail-able. Whereas some of the variables were not statisticallysignificant when estimated on a year-by-year basis, they be-come significant when estimated using the pooled data.

We found that some of our explanatory variables werehighly correlated to each other as well as to energy use.For example, employment and area, two of the more importantexplanatory variables, are closely correlated. Also, unitprice and the control variable for the volunteer program areclosely related. This phenomenon makes it difficult to sep-arate the impact of the different explanatory variables onenergy use.

Separating the regression analysis into two equations,one representing electrical energy used and the other repre-senting energy used for heating helped alleviate this prob-lem. Further, it was logical to make this division sincesome of the explanatory variables relate only to either heat-ing energy or electrical energy. 1

To determine which variables contributed the most explan-atory power to our equations, we ran a number of regressionsin log form using dfferent combinations of explanatory var-iables. The results are summarized in the following table.

-For example, heating degree days clearly correlates onlywith energy used for heating.

46

APPEND . ' I APPENDIX IITABLE 1

REGRESSION ANALYSIS RESULTS ON LOGARITHMIC

VALUES USING THE LEAST SQUARES METHOD

… _ …_2................. .) Deendent Variable--Overall Enerqy Useegree lFrLcedays of Program P2

Eguation No. Constant Area EMl1oyment heat energy (note-a) (note b)

1 2.207 0.927 d/ d d/ a/c/(4.76) (14.85) 0.7751

2 2.673 d/ 0.779 d/ d/ d/(4.12) (9.89) .6045

3 1.569 .616 .246 d/ -0.465 d/(3.63) (7.03) (3.10) (-4.17) .8430

4 1.866 .732 .231 d/ d/ -0.201(3.91) (8.08) (2.67) (-2.23) .8140

5 2.274 .575 .213 -0.075 -.657 .178(2.56) (6.15) (2.43) (-1.18) (-3.74) (1.37) .8504

__________ ___________ _2__ndent Variabe--Electric Energy_ UsePriceof Program 2

Eguation No. Constant EmloXyrent electricity (note a) (note b)

I 1.885 0.821 a/ d/(3.15) (11.32) 0.6671

2 2.061 .811 d/ -0.177(3.42) (11.26) (-1.50) .6787

3 1.311 .769 -0.528 d/(2.27) (11.19) (-3.43) .7194

4 .9b2 .763 -.684 .161(1.50) (11.06) (-3.21) (1.06) .- 244

____......................... De dent vr at na .............F u.. I..feat.ng Degree

Plant fuel days Proaram RfEquation No. Constant area Lrice heat (notea) (note b)

1 -0.575 1.139 d/ d/ d/(-.907) (13.37) 0.7363

2 -5.931 1.206 -0.352 0.497 d/(-6.38) (15.77) (-3.12) (6.78) .8509

3 -5.191 1.296 a/ .442 -0.246(-5.54) (17.87) (6.09) (-2.35) .8416

4 -5.850 1.216 -.318 .492 -.435(-6.01) (14.89) (-1.9b) (6.53) (-.301) .8511

a/Program-Dummy variable for "voluntary" program to start in 174. 197k ant, 173coded zero, and 1974 and 1975 coded 1. The program variable is not expressedas a logarithm.

b/R -A measure of the amount of variance in the dependent variable that is ex-plained by variations of the independent variables.

c/Numbers in pa:entheses are T values--a value of 1.96 or larger indicates astatistically significant variable at the 95-percent level of confidence.

d/Variable no, included in the euation.

47

APPENDIX II _ ,i APPENDIX II_ [ ,I--i E/) I e Nf11 El O uN c 41 l

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48

APPENDIX III APPENDIX III

FEDERAL ENERGY ADMINISTRATIONWASHINGTON, D. C. 20461

March 29, 1977OFCE OF HE ADMINISTIATOR

Mr. Monte Canfield, Jr.DirectorEnergy and Minerals DivisionU.S. General AccountinS OfficeWashington, D.C. 20548

Dear Mr. Canfield:

Thank you for your letter of February 24, 1977, enclosingcopies of the draft report to Congress on "Improvements Neededin Federal Agencies' Programs and Efforts to Promote EnergyConservation by Government Contractors."

1 appreciate the opportunity o review and comment on the reportand I agree with your generr.l conclu·ons that:

-Government contractors have taken specific energyconservation action; however, there are many oppor-tunities for achieving further significant energysavings if viable energy conservation programs wereestablished by all contractors in their plants.

The Government, through its procurement policies, canprcmote positive energy conservation actions bycontractors.

Federal agencies should increase their efforts ofdisseminating energy conservation materials toGovernent contractors.

There is a need to develop uniform lighting guidelinesand standards for use in commercial, public andindustrial buildings.

49

APPENDIX III APPENDIX III

In a few instances, I do have some concern about specificdetails in your recommendations. These are noted in theenclosed colments on the individual recommendations.

Your report will be most helpful to the Federal EnergyAdministration and other Federal agencies as we strive todevelop measures to ensure that Government contractors usetheir energy more efficiently in the future.

Sincerely,

F O'LearyAdministrator

Enclosure

50

APPENDIX III APPENDIX III

COMMENTS ON RECOMMENDATIONS

Recommendations: "We recommend that the Office of FederalProcurement Policy, in line with is statutory responsi-bility to provide overall direction of procurement andprocurement-related policies:

Work with the Federal Energy Administration, the GeneralServices Administrati.on, the Department of Defense, andother appropriate Executive Branch agencies in thedevelopment of an energy conservation related procure-ment policy and contract clause that would requireGovernment contractors to establish viable energymanagement programs."

"In developing this policy, give consideration toallowing contractors to share in the cost savings whichaccrue from the implementation of energy conservationopportunities."

Comments: We partially concur. It is our feeling thatall segments of industry should have viable energyconservation programs. Requiring only Government con-tractors to have such programs severely limits thepotential benefits as compared to an appeal to theentire industrial community. However, if such a .equire-ment is decided upon, what constitutes a viable energyconservation program should be clearly defined. Oncethis has been established, contractors could be requiredto submit their energy conservation plans as a part oftheir proposals when bidding on Government contractsand these plans would be evaluated as a part of thesource selection process. There are additional consider-ations, such as whether to exclude certain sizes ortypes of contracts, which would have to be explored andadministrative decisions made in order to implement therecommendations. After contract award, the effectivenessof a contractor's energy conservation program couldthen be evaluated against a standard by the contractadministrative services and the contract audit agency.The Federal Energy Admfnistration (FEA) has worked withthe Office of Federal Procurement Policy in the past onthis subject and will continue to in he fu'ure.

We concur in that portion of the recommendation concern-ing sharing of energy conservation cost savings withcontractors.

51

APPENDIX III APPENDIX III

Recommendations: "We recommend that the Federal EnergyAdministrat' n and the Department of Commerce:

Use Go e .. !nt contracting personnel in the Departmentof De' i n', _ 9 General Services Administration, andother B4e ches to disseminate energy conservationpublicz-i-r.s a .- materials to contractors."

Comments% We concur in the intent of this recommenda-tion. FEA Lw, used this communication channel a fewtimes in the past. It is a valuable channel, and weintend to make use of it in the future whenever we havepublications and materials appropriate to this audience.The Government can also learn from industry. Governmentpersonnel ho have access to contractor facilitiesshould look for energy conservation techniques thatcould be used by Federal agencies. A good example ofthis type of information exchange has been in thevehicular area. Several Government agencies are incor-porating in their operations some of the energy conser-vation techniques developed by Douglas Aircraft Companyin their very successful vehicular energy conservationprogram.

Recommendations: "We recommend that the Federal EnergyAdministrat.in:

Review the various lighting guidelines and standardsthat are currently in existence and develop nationallighting guidelines and standards that can be easilyunderstood and consistently applied in commercial,public and industrial buildings."

Comments: We concur in the intent of this recommenda-tion. The several existing lighting standards are beingreviewed by FEA, in conjunction with the NationalBureau of Standards and the Energy Research and Develop-ment Administration, for development of a Federallighting standard in response to the Energy Policy andConservation Act (EPCA) requirements. Housing andUrban Development has been assigned responsibilityunder EPCA for development of national building standards.We believe promulgation of a lighting standard forcommercial, public, and industrial buildings would bemore appropriately done in conjunction with that work.In any case, implementation of the recommendation wouldrequire legislative authority if the standard wereanything more than a guide for voluntary action.

52

APPENDIX III APPENDIX III

Recommendations: "We recommend that the Department of Defensetake action to improve its energy management program .... "

Comments: FEA has no direct interest affected by thisrecommendation. However, we have assisted the Departmentof Defense in its promotion of energy conservationprograms in the past and will continue to do so in thefuture.

53

APPENDIX IV APPENDIX TV

EXECUTIVE OFFICE OF THE PRESIDENTOFFICE C.' MANAGEMENT AND BUDGET

WASHINOTON. D.C. 0503

April 21, 1977Mr. Monte Canfield, JrDirector, Energy ar6d Mnerals

DivisionGeneral Accounting OfficeWashington, D. C. 20548

Dear Mr. Canfield:

By letter dated February 24, 1977, Mr. R. W. Gutmann,Director, Procurement and Systems Acquisition Division,General Accounting Office, forwarded to this Officecopies of a draft report entitled, "Improvements Neededin Federal Agencies' Programs and Efforts to PromoteEnergy Conservation by Government Contractors."Mr. Gutmann requested our conments on the draft reportand advised that these comments could be referred toyour Division.

The draft report has been carefully reviewed and evaluated.The initial recommendations enunciated in the draft reportaddress the Office of Federal Procurement Policy (OFPP),an element of the Office of Management and Budget. Therecommendations were (1) that OPPP work with otherexecutive branch agencies to develop an energy conservationrelated procurement policy and contract clause requiringGovernment contractors to establish viable energy mnage-ment programs, and (2) that in developing this policy,OFPP give consideration to allowing contractors to sharein cost savings.

As you know, President Carter has moved tA form aDepartment of Energy and to develop a comprehensivenational energy conservation policy. It can be presumedthat a sizeable portion of this policy, when developed,will address itself to energy conservation mattersapropos of industry in general.

An essential benefit of such a national policy, in ourjudgment, is that it can be uniformly applied. It can beimposed industry-wide, not just on that segment of industrycontracting with the Government.

The history of attempting to implement socic- 3conomicobjectives through the procurement process has been unevenand in many cases produced unsatisfactory results even

54

APPENDIX IV API NDIX IV

when backed by statutory requirements and concertedimplementation efforts. This has been caused principallyby (1) disparaties in business conditions created betweenindustry as a whole and that minority which holds Federalcontracts, and (2) because cost and benefits have beengenerally unknown, presenting questions over effectivenessand efficiency of government procurement as well as inpursuing the particular non-procurement objective. TheCommission on Government Procurement, whicl. theComptroller General was a ember, reported that "thecumulative effect of programs already imposed on theprocurement process and the addition of those contemplatedcould overburden it to the point of threatening breakdown."The conclusion is even more valid today.

Pending development of a national policy, we are pleased toadvise you that the OFPP has been active and successful inimplementing its responsibilities for those national policiesthat have been promulgated to assist energy conservation. OnAugust 6, 1976 the Administrator for Federal ProcurementPolicy issued OFPP Policy Letter 76-1 to the Heads ofExecutive Departments and Establishments. This policy letter,which implements, in part, Executive Order 11912, requiresthat the principles of energy conservation and efficiencybe adhered to where meaningful and practicable; e.g., indeveloping Government requirements and in source selectiondecisions. The Department of Defense will implement thispolicy in a soon to be released Defense Procurement Circular.A copy of the proposed Department of Defense implementationhas been provided to the General Services Administration fo;implementation in its Federal Procurement Regulations.

On February 2, 1977, OFPP issued its Policy Letter 77-1,again to the Heads of Executive Departments and Establishments.This policy letter was issued in compliance with the SolidWaste Disposal Act, as amended by Public Law 94-580, theResources Conservation and Recovery Act of 1976, enacted onOctober 21, 1976. The letter directed that Federal procure-ment be effected in a manner that maximizes the use ofrecovered or recycled materials.

Pending the development of a coordinated national policy forenergy conservation with uniform industry-wide procedures;and pending further quantification of the cost and benefitsfor such socio-economic provisions, we do not support therecommendations directed to the OFPP but have directed theoffice to continue to aggressively look for opportunities topromote energy conservation.

55

APPENDIX IV APPENDIX IV

The remaining recommendations in the draft report areaddressed to other agencies or offices. Theserecommendations should be useful to those eventuallycharged with development of national energy conservationstandards and programs.

Sincerely,

J s T. McIntyre, Jr.Daputy Director

56

APPENDIX V APPENDIX V

fi W ITIED TATES OL. ARTMENT OF COMMERCETh Assistant Sstary for AdminstratlionWashington, D.C. 20230

April 28, 1977

Mr. Monte Canfield, Jr.Director, Energy andMinerals Division

U.S. General Accounting OfficeWashington, D. C. 20548

Dear Mr. Canfield:

This is in reply to your letter of February 24,1977, requesting comments on the draft reportentitled Improvements Needed In Federal Agen-cies' Programs and Efforts To Promote EnergyConservation by Government Contractors."

We have reviewed the enclosed comments of theAssistant Secretary-designate for Domestic andInternational Business and believe they areresponsive to the matters discussed in thereport.

Sincerely,

AssistrAt Secretary-designatefor Administration

Enclosure

d .4

7s0.T1o,

57

APPLr)IX V APPENDIX V

,IZ 7t UNITED STATES LPARTEWiT OF COMMERCEv~P l The Assistant Scnetar for Domdstio

and Intrnational BusinessWashington, D.C. 2230

April 19, 1977

Mr. Monte Canfield, Jr.Director, Energy andMinerals Division

U. S. General Accounting OfficeWashington, D.C. 20548

Re: GAO Report "Improvements Needed inFederal Agencies' Programs and Effortsto Promote Energy Conservation byGovernment ontractors"

Dear Mr. Canfield:

Enclosed is the response of the Domestic and Internatio 1Business Administration to the above-referenced report.

We believe that the report makes several valuable reconmmen-dations but the report aso, we feel, gives an unfair pictureof the present Voluntary Industrial Energy ConservationProgram (VIECP). The enclosed response treats thoseconcerns in some detail.

Sincerely,

F ank A. WeilAssistant Secretary-designateDomestic and International Business

Enclosure

580s~l

APPENDIX V APPENDIX V

COMMENTS OF

_OMESTIC AND INTEP'~%TIONAL BUSINESS ADMINISTRATION

DEPARTMENT OF COMMERCE

ON

DRAFT GAO REPORT

ENTITLED

"IMPROVEMENTS NEEDED IN FEDERAL AGENCIES'

PROG dqs AND EFFORTS TO PROMOTE ENERGY

CONSERVATION BY GOVERNMENT CONTRACTORS"

59

APPENDIX V APPENDIX V

Analysis of Draft GAO Resort "ImprovementsNeeded in Federal Agencies' Programs and Efforts

to Promote Energy Conservation by Government Contractors"

The draft GAO Report "Improvements Needed in Federal Agencies'Programs and Efforts to Promote Energy Conservation by Govern-ment Contractors" is valuable and correct in a number of respects.It certainly shows a need for improvement in Government energyconservation efforts aimed at the type of company investigated:i.e., large companies--primarily in the aerospace industry--having defense procurement contracts. The study also suggestsa specific and reasonable way to improve the dissemination ofinformation to Government contractors about energy conservation

by FEA and the Department of Commerce. This suggestion, whichwe intend to implement, is tit this Department and the FEAshould "utilize Government tcntracting personnel in the Depart-

ment of Defense, the General Service Administration, and otheragencies to disseminate energy conservation publications andmaterials to contractors." Also, by describing several instances

in which Government contractors voluntarily implemented energyconservation measures whose value had been demonstrated by theinvestigators, the study gives practical and credible examples

of the workability of voluntary energy conservation programsbased on understanding rather than coercion.

On the other hand, insofar as the study purports to indicatethat the inadequate energy conservation practices found werethe result of the voluntary approach to energy conservation,it seems invalid, and reliance upon such evidence by theCongress may result in the premature abandonment of thevoluntary approach to energy conservation. We do not suggestthat mandatory measures are never appropriate, but only thatthey are a last resort, to be used where normal incentivessuch as the cost of energy, as well as the desire of

60

APPENDIX V APPENDIX V

individuals and industries to promote the public interest,cannot be relied upon to accomplish the needed result. Wealso believe that a study limited to a few defense contractorsis an inadequate Lasis upon which to assess the overalleffectiveness of voluntary conservation programs.

[See GAO note 1, p. 63.1

A further skewing factor is the fact that about one-third ofthe firms in the sample were Government-owned, contractor-operated (GOCO) plants with respect to which there was aGovernment policy that placed low priority on energy con-servation projects involving capital expenditures As tothese plants, the study noted: "Projects which w'e productionrelated or those which were required to comply withenvironmental and safety regulations took precedence overenergy conservation investments regardless of cost recoveryperiods." (See p. 48.) With such a ample, the study couldbe exp(ected to show a need for improvement in energy conservation.

On page 34 it is stated that Government energy conservationprograms ad actions have had little effect at Governmentcontractors' plants, and that " . . . the primary reason forthis lack of impact is that the need for energy conservationhas not been effectively emphasized and the agencies haverelied on a voluntary energy conservation philosophy." Theonly evidence in the study that might be relevant to suchan assertion is: (a) facts that show that companies in thegroup studied had not effectively implemented known conserva-tion measures; and (b) a regression analysis purporting toindicate that, for the companies studied, increased energycosts were a more significant factor in promoting energyconservation than was the Government's voluntary conservationprogram.

(See GAO note 2, p. 63.1

61

APPENDIX V APPENDIX V

As to the first of the above types of evidence, we notethat one cannot conclude from data showing inaction onenergy conservation--without more--that such inactionresults from unwillingness to act where a company is awareof the potential benefits achievable. On the contrary,there are numerous instances recounted in the study (See,e.q., pp. 13, 14, 15, 18, 28 and 30) in which the contractorsimplemented measures suggested by the investigators as soonas they understood the magnitude of the savings that couldbe achieved. Also, in some cases involving GOCO plants, agencypolicies directly blocked management's intended implementationof conservation measures.

[See GAO note 1, p. 63.]

All of these impediments to the operation of natural costreduction incentives--i.e., lack of understanding, Governmentagency policies which directly discourage investment in enera,conservation investments at GOCO plants [See GAO note 1, t. 63.]

need to be removed before one can conclude that avoluntary approach to energy conservation cannot work.

The regression analysis is the other evidence relied uponto indicate the ineffectiveness of voluntary conservationefforts as compared to "economic factors" such as the risingcost of energy. Before addressing the analysis itself, would like to point out a fallacy involved in the attemptto differentiate between "economic factors" and the response tovoluntary conservation program efforts. The DOC and FEAprograms have relied upon understanding of the cost effective-ness of energy conservation as a primary motivating factor,because there are large potential energy conservation possibili-ties that not only would serve the national interest, butwould be demonstrably cost effective. Our programs havestressed the distribution of information and the conduct ofseminars to promote understanding of these savings possibilities,which are often a direct function of the cost of energy. Thus,to "separate" economic considerations from the impact ofvoluntary conservation programs is fallacious.

However, the stady purports to make just such a distinction,and to determine, using statistical techniques, which ofthese factors has contributed most to the egree of energyconservation actually achieved. (See p. 8.) Appendix IIIof the paper, at p. 6, shows that for the "voluntary program"factor, a dummy variable (set at zero and 1 for differentperiods) was uses, even though it was recognized that 47efactor of energy price was "highly correlated" with thfactor. The use of a dummy vriable in such situation

62

APPENDIX V APPENDIX V

generally oes not yield meaningful results. In the presentcase, wheks the variables are not only "highly correlated,"but fundamentally the same, as discussed above, the resultobtained would seem to be meaningless.

The study thus did not adequately analyse the reasons for thepoor energy conservation programs found n the companiesstudied. Furthermore, while the study (p. 37) notes that a"wide range of Government procurement policy options areavailable to encourage contractors to conserve energy," theseoptions are not outlined or discussed in any detail. Nor areoptions outside the procurement process iscussed, It ismerely stated, without explicit analysis: "e believe thata procurement policy requiring the development of energymanagement programs and a provision allowing contractors toshare in the cost savings may be the motivation and incentiveneeded to assure timely realization of substantial energysavi ngs."

For the above reasons, the study, while helpful in denti-fying certain problems, is inadequate in its analysis ofboth the causes of those problems and the effectivenessof alternative solutions nvolving changes in basic Governmentpolicies, either with respect to standard contract provisionsor to fundamentally new approaches to energy conservationby the Government. The study would be greatly improved bythe elimination of those sections either explicitly orimplicitly recommending such basic changes until the defi-ciencies of the study and subsequent report have been remedied.

GAO notes:

1. Deleted comments refer to material contained in thedraft report which has been revised or which hasnot been included in the final report.

2. Page references throughout this appendix refer toour draft report and may not correspond to :isfinal report.

63

APPENDIX VI APPENDIX VI

ASSISTANT SECRETARY OF DPSEWASIN' rON, .C. sas01

Manpower, Reserve 19 May 1977Affairs aiid Logistics

Mr. Monte Canfield, Jr.Director, Energy and Minerals DivisionUnited States General Accounting OfficeWashington, D. C. 20548

Dear Mr. Canfield:

This is in reply to a letter from Mr. R. W. Gutrann, Director,Procurement Division, GAO, dated 24 February 1977, to the Secretaryof Defense regarding a draft report on "Improvements Needed in FederalAgencies' Programs And Efforts To Promote Energy Conservation ByGovernment Contractors, " GAC Code 95n272, OSD Case #4558.

We appreciate the opportunity to z.* riew and comment on the draft report.The report will be most helpful as the Department of Defense and otherGovernment age.acies continue to develop measures to ensure thatGovernment contractors use their ene!gy more efficiently.

With reqgrd to the specific recommendations concerning the Departmentof Derense (DoD):

We concur that a viable energy program needs to be promotedto encourage private industry to make energy conservation investmentsin cont~tctor-owned and contractor-operated plants.

- The Defense Contract Audit Agency (DCAA) as prepared anoperations audit program for energy conservatio that substantiallyexpands our original adequacy test. This pogram incorporates thefive program elements advocated by the Federal Energy Administrationas outlined in the draft report and utilizes technical assistance fromother DoD sources. It was programmed into our audit schedule inFebruary 1977 for defense contractor locations having an auditabledollar value of $150 million or more The program will also beaccomplished at other locations as resources permit.

Even though the Energy Conservation Investment (ECI)Program was developed for in-house facilities, we concur with theGAC recommendations that Government-owned Contractor-operated(GOCO) plants be included within the program. The Department of

64

APPENDIX VI APPENDIX VI

the Army currently has a small number of ECI projects or GOCOfacilities in the 1979 and 980 programs. Next year's Planning andProgramming Guidance Memorandum will provide the opportunity toaccomplish more energy conservation projects in these facilities.

With respect to the recommendation that the Office of FederalProcurement Policy work with other agencies to develop a contractclause that woull require Government contractors to establish viableenergy management programs, we believe it would b impractical todevelop a meaningful clause until such time as the cognizant Federalagencies develop the necessary energy standards.

Addressing the overall thrust of the report, it must be recognized thatDoD is a promoter of industry energy management programs and isactively engaged in this effort with contractors. A copy of the latestDefense Logistics Agency (DLA) guidan.e to Defense ContractAdministration Services Regions is at Enclosure 1. DLA will alsocontinue to provide technical assistance to DCAA in their expandedenergy audits. [See GAO note 1, p. 67.1

We concur that DoD can always mprove its energy conservation effort withindustry. However, the largest industrial users of energy are the basicmaterial producers, i. e,,, al.minum, steel, castings, forgings, etc.DoD has very minor direct procurement from these elements of industry.Additionally, )oD procurement represents a relatively small portion ofthe average contractor's total business, so our procurement impact onthe corporate energy management policy is of minor importance. Sinceen'aergy usage is .t4 generally susceptible to control or accountability ona contract by contraLt basis, meaningful conservation measures mustemanate from plant or corporate policy.

It is our view that an effective industrial energy conservation programshould emanate from the highest level of Government conr-rned withoverall energy policy and management. This type program could bepursued with the "captains of industry" with the full force of majorpublic policy and would include the total industrial community. Pendingsome movement of our Government in this direction, we feel the bestapproach for DoD in complying with existing guidance is to continuecurrent promotional efforts with defense contractors.

65

APPENDIX VI APPENDIX VI

Generally speaking, it is recommended that the savings and thevoluntary efforts of the contractors visited be presented in a morepositive fashion in the report, adding objectivity. Some suggestedclarifications and corrections to the text are at Enclosure 2.

Sincerely,

DALE R. BABIONEActing Principal Deputy Assistant

Secretary of Defense (Logistics)

Enclosures (2)

66

APPENDIX VI '.PPENDIX VI

SPECIFIC COMMENTS ON THE REPORT

While the report stateL defense contractors had made some conservationefforts, it does not fairly present the significant reductions repcrted onpage 30. Energy costs at the 20 locations surveyed increased only61. 5 percent in the test period while unit prices for electricity and heatingfuel increased 139 and 180 percent respectively. The observations onpages 7-9 (and Appendix III) relate to increases and decreases in energyconsumption which correlate with conditions such as employment, con-servation programs, energy cost, degree days and plant area. Althoughthe energy use by these companies is affected by such factors, the infor-mation presented does not demonstrate that the significant reductions inenergy consumption at the 20 locations were caused by decreases inemployment. It is also noted that reduction in occupied plant area is aconservation opportunity exercised by many contractors as part of theirconservation programs. The opinion expressed that an "observeddecrease in annual energy use could be temporary and may disappearas the national economic climate improves" is related to the conclusionsof the Department of the Interior reported on page 9 and not the 20 locationswhich GAO reports "may" have been influenced by changes in employmentlevels and plant area. A reader would have a serious misunderstandingthat the voluntary programs of the 20 locations had little impact on thesignificant savings reported on page 30.

(See GAO note 2.1

[See GAO note 3.]

GAO notes:

1. The enclosure r..rred to in this paragraph hasnot been included as part of this appendix,

2. Deleted comments refer to material contained inthe draft report which has been revised or whichhas not been included in the final report.

3. Page references throughout this appendix referto our draft report and may not correspond tothis final report.

Encl 267

APPENDIX VII APPENDIX VII

UNITED STATES OF AMERICA

GENERAL SERVICES ADMINISTRATIONWASHINGTON. DC 20

April 20, 1977

Honorable Elmer B. StaatsComptroller General of the United StatesGeneral Accounting OfficeWashington, DC 20 48

Dear Mr. Staats:

We have reviewed your Draft Report "Improvements Needed inFederal Agencies' Programs and Efforts to Promote EnergyConservation By Government Contractors", and have includedour comments as an enclosure.

The General Services Administration completely supports theefforts to save energy in every way possible. We have demon-strated strong agency programs to save energy--in the designof new buildings, operation of existing buildings, motorvehicle management, appliance procurement and other areas.We are attempting to do more and are confident that we cansave additional energy.

We appreciate the opportunity to submit our comments on thisreport.

'icerely,

Robert T. GriffinActing Administrator

Enclosure

Keep Freedom in rour Future With U.S. Savuings Bods

68

APPENDIX VII APPENDIX VII

GSA FACT SHEETPublic Buildings ServiceMarch 22, 1977

SPECIFIC COMENTS ON RECOMMENDATIONS IN IHE REPORT INVOLVING GSA

Rcommendation page 53 - The Office of Federal Procurement Policy (OFPP)should work with the FEA, GSA, DOD, and other appropriate ExecAtive Branchagencies in the development of an energy conservation related procurementpolicy and contract clause that would require Government contractors toestablish viable energy management programs.

Response - GSA will assist OFPP in developing appropriate parts of thepolicy action cited in this recommendation.

Recommendation, page 53 - Give consideration to allowing contractors toshare n the cost savings which accrue from the implementation of energyconservation opportunities.

Response - GSA is operating a Value Management program in both of itslargest procuring entities, the Public Buildings Service (PBS) and theFederal Spply Service (FSS). These programs recognize and reward costsa\ings and performance improvement, including energy savings.

Recommendation, page 53 - The FEA and Department of Commerce shouldutilize Government contracting personnel in the DOD, GSA, and otheraqencies to disseminate energy conservation publications and materialsto contractors.

Response - GSA will take and/or continue several actions to increase thedistribution of its energy conservation publications. We expect to:

- Continue the availability of GSA energy publications at ourRegional Business Service Centers which are frequented bycontractors and prospective contractors. To date, thousandsof our publications, applicable to the building ndustry,have been provided to interested parties at a nominal ee,and provided to state and local governments at no charge.

- Encourage functional personnel to urge contractors to readand use our energy conservation publications.

- Consider distributing its energy conservation publicationsthrough the National Technical Information Service (NTIS),with the result that more organizations would becomeaware of their availabillty.

[See GAO note . 70 .]

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APPENDIX; VII APPENDIX VII

- Continue to stress the importance of energy conservationthrough our regional energy conservation conferences.Since October 1976, more than 1,200 persons have attendedGSA energy conservation seminars which have been held inBoston, New York City. Philadelphia and Washington.Instructions on how to request energy conservation infor-mation are presented at each conference.

- Ctntinue incorporating building energy conservationguidelines in each architech/engineer contract.

- Work with trade and professional associations topromote energy conserva!tion with their members.

Recommendation, page 53 - The FEA shoulJ review the various lightingguidelines and starad s that can be easily understood and consistentlyapplied in commercial, pblic and industrial :uildings.

Response - GSA has made substantial progress in reducing the energy usedor lighting in both new and existing buildings and stands ready to assistFEA in this matter, if desired. Existing legislation requires FEA todevelop lighting efficiency standards.

GAO note: Page references throughout this apperlix referto our draft report and may not corre',on tothe final report.

70

APPENDIX VIII APPENDIX VIII

PRINCIPAL OFFICIALS RESPONSIBLE

FOR ADMINISTRATION OF ACTIVITIES

DISCUSSED IN THIS REPORT

Tenure of officeFrom To

OFFICE OF MANAGEMENT AND BUDGET

DIRECTOR:James T. McIntyre, Jr.

(acting) Sept. 1977 PresentBert Lance Jan. 1977 Sept. 1977James T. Lynn Feb. 1975 Jan. 1977Roy L. Ash Feb. 1973 Feb. 1975

DEPARTMENT OF ENERGY

SECRETARY OF ENERGY:James R. Schlesinger Aug. 1977 Present

OFFICE OF FEDERAL P)CUREMENT POLICY

ADMINISTRATOR:Lester A. Fettig May 19/7 PresentJames D. Currie-(acting) Feb. 1977 May 1977Hugh E. Witt Dec. 1974 Feb. 197'

FEDERAL ENERGY ADMINISTRATION

ADMINISTRATOR:John F. O'Leary Feb. 1977 PresentGorman Smith (acting) Jan. 1977 Feb. 1977Frank G. Zarb Dec. 1974 Jan. 1977John C. Sawhill May 1974 Dec. 1974William E. Simon Dec. 1973 May 1974

DEPARTMENT OF COMMERCE

SECRETARY Ck COMMERCE:Juanita Freps kan. 1977 Pre'sentElliot L. Richardson Fe-. 1976 Jan. 1977Rcdgers C. B. Morton May 3975 Feb. 1976John K. Tabor (acting) Mar. 1975 Apr. 1975Frederick B. Dent Feb. 1973 Feb. 1975

71

APPENDIX VIII APPENDIX VIII

Tenure of officeFrom To

DEPARTMENT OF DEFENSE

SECRETARY OF DEFENSE:Harold Brown Jan. 1977 PresentDonald Rumsfeld Nov. 1975 Jan. 1977James R. Schlesinger July 1973 Nov. 1975

GENERAL SERVICES ADMINISTRATION

ADMINISTRATOR:Joel W. Solomon May 1977 PresentRobert T. riffin (cting) Feb. 1977 May 1977Jack Eckerd Nov. 1975 Feb. 1977Arthur F. 'ampson June 1972 Oct. 1975

(950272)

72