Energy is recognized as a core idea in science and, hence, a significant learning objective of science education. The effective promotion of this learning objective posits that teachers themselves possess sound conceptual understanding. This is needed for enabling them to organize effective learning environments for their students. In this study, we report on the results of an empirical investigation of teachers' understanding of energy. In particular, the focus is placed on pre-service teachers' ability to employ energy as a framework for analyzing the operation of physical systems. We have collected data from 198 pre-service teachers through three open-ended tasks that involved the application of the energy conservation principle to simple physical systems. The results corroborate the claim made in the literature that teachers typically do not possess functional, coherent understanding of this principle. Most importantly, the data serve to identify and document specific difficulties that hamper attempts to use energy for the analysis of the operation of physical systems. The difficulties we were able to document lend support to the idea that it is important to introduce the idea of energy degradation alongside the conservation of energy principle. The findings of this study have implications for the design of preparation programs for teachers, about energy. The findings also provide insights into the limitations of conventional teaching of energy, to which the participants had been exposed as students, in fostering coherent understanding of energy conservation.