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Electricity Markets: Actions Needed to Expand GSA and DOD Participation in Demand-Response Activities

GAO-14-594 Published: Jul 11, 2014. Publicly Released: Aug 11, 2014.
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Highlights

What GAO Found

The General Services Administration (GSA) and the Department of Defense (DOD) facilitate participation in electricity demand-response activities by their buildings and installations, but unlike GSA, DOD does not have guidance encouraging this participation. Specifically, GSA has provided information to its building managers about periods of peak demand. GSA also issued guidance encouraging its building managers to participate in demand-response programs. In contrast, DOD has some energy management initiatives underway that could facilitate participation in demand-response programs by DOD installations including expanding the use of advanced meters—meters that measure and record data on electricity use and enable consumers to identify opportunities to reduce use during peak times—but DOD does not have current policies or guidance encouraging installations' demand-response participation.

GSA and DOD have participated in demand-response activities to some extent, and participation at both agencies has provided financial benefits. GSA has not consistently tracked information on participation and financial benefits, therefore, this information is not readily available. But, data GAO collected indicate that GSA's participation in demand-response programs has yielded financial benefits of approximately $888,000 for fiscal year 2012. Similarly, the full extent of military installations' participation in demand-response programs, and any resulting financial benefits, are unknown because DOD does not track this information, but the data GAO collected indicate that at least 56 of 450 domestic DOD installations have participated in demand-response programs since 2009, and participation yielded about $6.8 million in total financial benefits for fiscal years 2011 and 2012. Without consistently tracking participation and benefits, GSA and DOD cannot fully assess their agencies' participation in demand-response programs and may miss opportunities to expand participation.

GSA and DOD face challenges to facilitating broader participation in demand-response activities, including challenges outside of the agencies' control, such as limited program availability in certain regions where demand-response programs are not offered, and challenges they may be able to address, such as technological hurdles associated with automated systems to control building electricity usage. Also, DOD faces challenges in accepting and using financial benefits for participating in programs. Congress has provided DOD facilities with authority to receive financial benefits for participation in demand-response programs as either a cost reduction to their utility bill or a direct payment. However, unlike GSA's authority, any financial benefit not received as a cost reduction to a DOD installation's utility bill must be deposited into a designated Treasury fund and appropriated prior to use and, if appropriated, the funds may not end up back at the installations that earned them. DOD officials told GAO that financial benefits are needed to offset costs of participating in demand-response programs. If installations cannot retain incentive payments, this may discourage participation. Further, DOD officials told GAO that a cost reduction to the utility bill for an installation in 1 year could reduce their utility budget in subsequent years, and some demand-response programs do not offer financial benefits as credits to the utility bill, thus limiting options available to some installations.

Why GAO Did This Study

As electricity demand varies throughout the day and year, operators of the electricity grid respond by continually increasing or decreasing the amount of electricity that they call upon power plants to generate. Some grid operators and other entities offer demand-response programs, which provide customers with financial incentives to reduce their electricity use during periods of peak demand. Consumers, including GSA and DOD—among the federal government's largest electricity users—may enroll in these programs.

GAO was asked to examine GSA and DOD demand-response activities. This report examines: (1) steps these agencies have taken to facilitate their sites' participation; (2) the extent to which these agencies have participated in and benefitted from demand-response activities; and (3) challenges these agencies' sites face participating in these activities. GAO examined agency documents and data on participation and benefits, surveyed GSA regions and 20 selected DOD installations, and conducted interviews with officials.

Recommendations

GAO recommends, among other things, that GSA and DOD consistently track and assess participation in demand-response programs, and DOD establish guidance encouraging participation and ask Congress to provide it with authority similar to GSA, allowing use of payments without further appropriation. GSA and DOD generally agreed with GAO's recommendations.

Recommendations for Executive Action

Agency Affected Recommendation Status
General Services Administration The Administrator of the General Services Administration should consistently track information on demand-response participation and financial benefits received from participation.
Closed – Implemented
GSA has taken steps to improve tracking of demand-response financial benefits. First, GSA developed a dedicated accounting code that allowed them to begin tracking financial benefits from demand response participation. Second, GSA has begun more consistently tracking descriptive data on demand response participation.
General Services Administration The Administrator of the General Services Administration should use information on demand-response participation and benefits to assess the regions' current levels of demand-response participation and develop a strategy to expand economically beneficial participation that addresses challenges to expanded participation.
Closed – Implemented
GSA staff have begun to use information on demand response participation and benefits to strategically identify opportunities to expand economically beneficial demand response by considering factors such as demand response program availability and expected economic return. In addition, in 2017, GSA developed a new approach for identifying potential demand response opportunities, directing that information on demand response potential be incorporated into a federal database that GSA uses for assessing federal building energy management.
Department of Defense The Secretary of Defense, in coordination with the services, should establish formal guidance to encourage economically beneficial demand-response participation and provide information to support participation in demand-response programs.
Closed – Implemented
In FY 2018, the Department of Defense finalized a memorandum that provided guidance to the military services related to participation in demand response activities. This guidance encourages economically beneficial demand-response participation and provides information to support participation in demand-response programs.
Department of Defense The Secretary of Defense, in coordination with the services, should consistently track information on demand-response participation and financial benefits received from participation.
Closed – Implemented
In response to our recommendation, DOD included questions related to demand-response in its annual data collection for the Annual Energy Management Report. The services provided information on whether they participated in demand response, whether demand-response programs were available, financial benefits received from participation, and the method-e.g. rebate or check-through which any financial benefits were received. Officials told us DOD plans to continue including demand-response questions in future years as well.
Department of Defense The Secretary of Defense, in coordination with the services, should use information on demand-response participation and benefits to assess its installations' current levels of demand-response participation and develop a strategy to expand economically beneficial participation that addresses challenges to expanded participation.
Closed – Implemented
In FY 2018, the Department of Defense began an initial assessment of current levels of demand response participation across the services with plans to expand the analysis in the future. Furthermore, in FY 2018, DOD developed formal demand response guidance that, according to a DOD official, articulates the Department's broader strategy of expanding economically beneficial demand response.
Department of Defense The Secretary of Defense, in coordination with the services, should establish the Energy Savings Financial Incentives Fund needed for installations to directly accept payments for participation and establish guidance clarifying (1) how installations should accept and deposit payments resulting from participation in demand-response programs into the fund, and (2) whether, in cases where Congress appropriates these funds for use by DOD or the services, the payments made into the fund will be directed back to the installations where they originated or used in another way.
Closed – Not Implemented
In their initial response to our report, DOD partially concurred with our recommendation. However, DOD has not completed steps to address this recommendation.
Department of Defense The Secretary of Defense, in coordination with the services, should request that Congress provide DOD with authority similar to GSA, allowing participating installations to use direct payments that they receive from providers without further appropriation and, in doing so, DOD should identify specific steps it would take to ensure effective control over the financial benefits received as a result of participation in demand-response programs and how the benefits will be used.
Closed – Implemented
In FY 2018, the Department of Defense developed and shared legislative language with Congressional staff that DOD believes would allow installations to use direct payments that they receive from demand response providers without further appropriation.
Department of Defense The Secretary of Defense, in coordination with the services, should direct the Defense Logistics Agency (DLA) to formally analyze the share of financial benefits that installations receive from demand-response agreements that DLA facilitates and routinely provide this information to installations, where possible, to inform their negotiations with aggregators.
Closed – Implemented
In FY 2018, the Department of Defense finalized a memorandum for the military services that provided demand response guidance. Among other things, this memo outlines an approach for DOD and DLA Energy to formally analyze and share information on demand response financial benefits to, among other things, increase knowledge of the share of benefits received by installations vs. demand response aggregators and to inform installation level negotiations with demand response aggregators.

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Topics

Energy managementElectricityElectric energyElectric utilitiesElectricity demandEnergy consumptionEnergy demandUtility ratesSupply and demandElectricity demand-response