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DOD Partnership Results in an Energy-Efficient Office

At a Glance

Environmental Attributes:
The U.S. Department of Defense (DOD) conducted an energy-efficiency upgrade at one of its leased office buildings using a unique funding mechanism called a shared energy savings protocol. The capital costs were paid for by the building owner but were partially offset by savings from future utility bills.

Contract Language:
Not available, since the building owner (not DOD) hired the contractor.

Key players:

Environmental Information Sources:

The project will save DOD $431,000 per year in energy costs.

Contact Information:
Listed at the end of the case study.

While numerous federal agencies have made significant environmental and economic improvements in government-owned facilities, the U.S. Department of Defense (DOD) has demonstrated that the same is possible for leased facilities. The modernization of DOD's Hoffman II building proves that energy efficiency upgrades can be effectively conducted in government-leased facilities using unique funding mechanisms to finance the upgrades. The Hoffman II modernization demonstrates that energy-efficiency upgrades can be both environmentally and financially preferable.

The Process

DOD has occupied Hoffman II, a 643,000-square-foot office building in Alexandria, Virginia, for more than 30 years. In 1996, DOD decided to undertake a complete energy-efficiency upgrade of the building in order to comply with Executive Order (EO) 13123 [PDF], which requires federal agencies to reduce energy consumption in government-owned buildings. Although DOD does not own Hoffman II, it has the sole responsibility for paying the building's utility bills. As a result, DOD staff faced the challenge of gaining the building owner's support for the project before proceeding. DOD worked with the contractor, Pepco Services, Inc. Exit Disclaimer, and the building owner, Hoffman Management, to craft a triparty agreement that satisfied all parties. The result was the first "shared energy savings protocol" undertaken in a government-leased facility in the Washington, DC, area.

The shared energy savings protocol stipulates that DOD will pay Hoffman Management a portion of its utility bill savings over a predetermined period. Hoffman Management agreed to finance the energy renovation project even though it will not be able to recover 100 percent of its capital outlay. To gain the owner's commitment to finance the project in this way, DOD entered into a supplemental lease agreement with the owner.

Even though the renovation contract was awarded by Hoffman Management, DOD was involved in the contractor selection process and obtained the help of the Technical Assistance Office of the U.S. Department of Energy's (DOE's) Federal Energy Management Program (FEMP) to analyze the energy efficiency measures proposed by the contractor.

To win the contract, potential contractors first submitted preliminary analysis reports that provided an overview of the existing condition of the building's energy system. Next, two contractors were selected to submit estimates of how much it would cost to prepare a Detailed Feasibility and Design Report (DFDR) outlining the proposed energy-saving renovations. Finally, the contractor with the lowest cost estimate was asked to prepare a DFDR, which was scrutinized by both DOD and the DOE to ensure that all proposed energy-efficiency measures and equipment complied with the appropriate FEMP recommendations. The contractor's DFDR also included estimates of the expected energy savings, total cost of the project, and payback period. All calculations were analyzed by DOD and DOE for accuracy. Upon approval of all proposed energy-efficiency measures, the contractor began the renovations outlined in its DFDR.

Use of Energy-Efficient Products

The following energy-efficiency upgrades were completed as part of the Hoffman II modernization project:

Cost Considerations

The Hoffman II modernization cost $3.8 million, and DOD will save a minimum of approximately $431,000 per year in energy costs. This is a 20 percent reduction from DOD's current costs. The simple payback period is just 8.9 years.

Lessons Learned

DOD learned that a shared energy savings protocol can be an effective tool to gain the support of building owners in funding energy-efficiency upgrades in government-leased facilities. Since the owner of Hoffman II does not pay the utility bills, the protocol provided the incentive the owner needed to commit to the project. As a result, the owner was able to recover a portion of its investment and DOD was able to comply with EO 13123 [PDF] and achieve significant reductions in energy consumption. "The biggest surprise was how well the three parties worked together for one common goal," said Josephine Johnson, energy coordinator for DOD's Leased Facilities Division.

As a result of this successful project and its unique shared energy savings protocol, DOD has decided to use the same mechanism for future projects involving government-leased property and the installation of energy-efficient technologies. These projects will involve the same steps that contributed to the success of the Hoffman II modernization:

For more information on the Hoffman II energy renovation project, contact Josephine Johnson with DOD's Leased Facilities Division at 703 604-5730.

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