Kaine Launches Ambitious Energy-Savings Initiative

Gov. Timothy M. Kaine has ordered state agencies to cut energy costs by one-fifth by the end of his term in January 2010. In theory, the initiative could save $58 million a year.

Said Kaine in a prepared statement: “Reducing our energy consumption and costs and protecting our natural resources is a priority for my administration. Last year, Virginia state government spent over $290 million in energy costs to operate our facilities and travel on state business. To reduce the environmental consequences of that level of energy consumption and save taxpayer dollars, I am directing state government to use proven and innovative conservation technologies and energy procurement processes.”

(Christina Nuckols with the Virginian-Pilot has the story here.)

I applaud Gov. Kaine’s initiative. It’s a perfect example of the kind of cost-cutting that can generate significant savings in the state budget. An older generation of lawmaker looked at the state budget in departmental silos and defied critics of government spending to identify which programs they wanted to cut. That’s not where the waste in government resides. The waste resides in functions and processes that cut across departments, as in energy, information technology and human resources.

By targeting energy, Kaine gets a two-fer: He can save taxpayer dollars while reducing the impact on the environment.

I have little doubt that the state can achieve its targets eventually: many, many energy-saving technologies and best practices are available. However, I do have a couple of concerns. Energy saving projects come in all shapes and sizes, and they vary widely in their Return on Investment and the length of their payback. In a rush to achieve the 20 percent goal by the end of Kaine’s term, will state agencies consider only those investments with quick paybacks and ignore those with longer implementation cycles?

One difficulty in justifying long-term capital investments for the purpose of cutting costs is that Virginia works in two-year budget cycles. Installing Compact Fluorescent Light bulbs is a no-brainer in a two-year budget cycle. Building a cogeneration heating/cooling/ electric generation facility with a 20-year life expectancy is not, no matter how substantial the anticipated savings over the long run. Between the two extremes are all manner of potential projects, from office hoteling programs to building automation systems.

To help achieve that 20 percent energy savings, the Commonwealth should consider issuing $100 million or more in intermediate- or long-term bonds to pay for projects that can’t be funded out of operating budgets. If the project generates a 25 percent Return on Investment in the form of energy savings, and the cost of capital to the state is six percent, it is irresponsible not to borrow the money.

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