	Introduction

From the mid-1980s to the end of FY2003, federal agencies had been authorized to enter intoEnergy Savings Performance Contracts (ESPCs) with contractors that privately financed andinstalled energy conservation measures in federal buildings and facilities. In return, the contractorsreceived specified shares of any resulting energy cost savings. The term "energy conservationmeasure" (ECM) applies to energy-efficiency improvements such as energy- and water-savingequipment, and renewable energy systems such as solar energy panels. (1) 
The contractor, referred to as an Energy Service Company (ESCO), provided the design,acquisition, installation, testing, operation, maintenance, and repair services for the ECM. TheESCO also had to guarantee a fixed amount of energy and cost savings throughout the term of thecontract, and bore the risk of the ECM's failure to produce a projected energy savings. The sum ofthe ECM cost and its reduced level of energy cost could not exceed the pre-ESPC energy cost. To date more than 340 ESPCs have been awarded, according to the Department of Energy(DOE), and no ESCO has failed to produce an energy and cost savings. (19) In comparison to ESPCs, $3.17 billion in appropriated funds wasinvested in energy-reducing capital improvements between FY1985 and FY2001.Appropriations-funded projects peaked at $288 million in FY1995 and declined to $131 million byFY2001. After an extensive review of whether ESPCs imposed a futurefinancial obligation on the federal government, CBO began scoring ESPCs as mandatory spending,coinciding with the expiration of the BEA. Policy Considerations

Since the 1970s, both the executive branch and Congress have promoted energy efficiencywithin federal agencies. When the federal government's energy-efficiency and conservationprograms received severe budget cuts in the 1980s, Shared Energy Savings and later Energy SavingsPerformance Contracts were devised as part of the strategy to meet federal energy reduction goals. Appropriations-funded energy conservation projects have been declining since FY1995, and federalmanagers have increasingly turned to ESPCs as a remedy to fund energy conservation measures. Congress may decide once again to extend the sunset provision,as had been authorized in the 1998 legislation.
Since the 1970s, both the executive branch and Congress have promoted energy efficiencywithin federal agencies. When the federal government's energy-efficiency and conservationprograms received severe budget cuts in the 1980's, Shared Energy Savings and later Energy SavingsPerformance Contracts were devised as part of the strategy to meet federal energy reduction goals.
Energy Savings Performance Contracts (ESPCs) offered federal agencies a novel means ofmaking energy-efficiency improvements to aging buildings and facilities. In return for privatelyfinancing and installing energy conservation measures, a contractor received a specified share of anyresulting energy cost savings. The contractor, referred to as an Energy Service Company (ESCO),guaranteed a fixed amount of energy and cost savings throughout the term of the contract, and borethe risk of the improvement's failure to produce a projected energy savings. The sum of theimprovement's cost and its reduced level of energy cost could not exceed the pre-ESPC energy cost. The term "energy conservation measure" (ECM) was applied to energy-efficiency improvementssuch as energy- and water-saving equipment, and renewable energy systems such as solar energypanels.
ESPCs were authorized in 1992 by amendments to the National Energy Conservation PolicyAct. Federal agencies' authorization to enter into ESPCs expired October 1, 2003. Legislativeattempts to reauthorize ESPCs in the 108th Congress stalled when the Congressional Budget Office(CBO) scored ESPCs as mandatory spending that imposed a future financial obligation on the federalgovernment.
To date more than 340 ESPCs have been awarded with a total value of approximately $1.6billion in private sector investments. None have failed to produce energy and cost savings. Incomparison to ESPCs, $3.17 billion in appropriated funds was invested in energy-reducing capitalimprovements between FY1985 and FY2001, peaking at $288 million in FY1995 and declining to$131 million by FY2001. As appropriations-funded energy conservation projects have beendeclining since FY1995, federal managers have increasingly turned to ESPCs to fund energyconservation measures.
Options for Congress include taking no further action on the sunset provision that endedagencies' authorization to enter into ESPCs, extending the sunset provision, or extending the ESPCauthorization with amendments. Such amendments could include reducing the maximum contractlength and expanding the contract scope to non-building applications. This report will be updatedas the situation warrants.