Tamar Hallerman
GHG Monitor
3/29/13
Department of Energy officials overseeing the Office of Fossil Energy’s Industrial Carbon Capture and Storage (ICCS) program have “not always effectively managed” the projects receiving stimulus funding from the scheme, the DOE Inspector General said in a March 26 audit report. The IG said FE management at the National Energy Technology Laboratory at times did not file proper documentation following major award decisions, finding that staff approved up to $18.3 million worth of reimbursement claims that appear to be “questionable.” “The issues we identified occurred, in part, because program officials had not always provided effective monitoring and oversight of recipient activities,” the IG said in an accompanying letter to Energy Secretary Steven Chu. “Specifically, the Department had not implemented certain performance monitoring controls that would have allowed for more thorough reviews of costs prior to reimbursement.”
The IG audited a portion of the $1.5 billion ICCS program, funded as part of a greater multi-billion investment in carbon capture and storage technology under the 2009 American Recovery and Reinvestment Act. Under the ICCS program, FE approved cooperative agreements for 46 projects aimed at cleaning up carbon-intensive industries like cement, steel and chemical production. The IG said it focused on 15 of those projects between February 2012 and March 2013, whose cooperative agreements comprised a total of $1.1 billion of the program’s budget.
Only 42 Percent of Funding Spent, IG Says
In his letter to Secretary Chu, DOE IG Gregory Friedman faulted FE management for not “adequately document[ing] the approval and rationale” of shifting $575 million of the ICCS program money to further fund existing projects in an uncompetitive manner rather than proceeding with a new funding solicitation. He also pointed to $90 million in funding approved for three projects that had “significant” financial or technical issues associated with them, as identified by an internal merit review process. Instead of addressing underlying issues, DOE “accepted increased risk and lowered the recipient’s required cost share,” the IG said, adding that those three projects to date have had trouble meeting benchmarks and have experienced delays. “In light of the difficulties identified during the merit review process, we believe the problems highlighted in our report were reasonably predictable and placed the projects at significant risk for failure,” the audit says.
DOE also did not “adequately ensure” during the procurement process that some of the grant recipients and vendors selected for projects “represented the best value to the government,” according to the watchdog. The IG said the Department was not doing enough to ensure that there were no conflicts of interest within the projects it granted money to. Friedman pointed out that in the two years since the program has kicked off, only $623 million, or about 42 percent of total funding, has been spent. “In light of the issues we identified, we believe that Recovery Act and Carbon Program goals may not be achieved without implementation of corrective actions. Specifically, projects may not be completed, deliverables might not be received, job creation will not meet anticipated targets and Recovery Act funding could go unspent,” according to the report.
IG Touts Cooperative Agreements
The IG, however, did tout the phased structure of FE’s cooperative agreements as successful in mitigating some of the risks associated with the ICCS projects. By requiring awardees to reach technical milestones before handing out grant money, FE has made the spending process more prudent, the watchdog said. “The Department considered alternatives, such as segmenting projects into modules, to allow additional time to raise cost share or to finalize preliminary design efforts and allow some work to begin while negotiations continued,” the IG said in its report.
The IG ultimately recommended that FE management “enhance” its monitoring procedures of the program by spending more time scrutinizing files to support costs claimed by awardees and increasing documentation of major decisions. The office also called on DOE officials to develop more thorough policies to ensure that DOE conducts reviews to identify and mitigate conflicts of interest and enforce requirements having to do with documenting procurement decisions. It said that FE should also conduct a review of the $18.3 million in “questionable” reimbursements identified by the auditors.
Management Concurs with Most Recommendations
In his official response to the report, then-Assistant Secretary for Fossil Energy Chuck McConnell concurred with most of the IG’s recommendations, saying that FE has begun taking actions to boost monitoring procedures and project oversight. But McConnell did dispute the idea that some of the projects did not meet an internal merit review process, arguing that FE does not use minimum scores to exclude projects from selection. He defended FE’s position to give the $575 million in funding to existing projects. McConnell said that management did not receive the number of new project applications that it had expected during the ICCS solicitation but that FE did not have enough time to issue another call for projects prior before the ARRA allocation deadline at the end of Fiscal Year 2010. He said program officials worked with the White House and with Congressional staff to ensure that the funding shift was not breaking the law.
McConnell did not concur with the IG’s recommendations surrounding procurement documentation and the identification of conflict of interest concerns. “FE notes that with regard to the recommendation for full documentation of pre-award decisions, it is neither practical nor required to have such procedures or receive such information,” McConnell said. He underscored that it is the primary responsibility of the organizations receiving the ICCS grants to identify and stop any conflicts of interest from occurring using internal policies. “FE has developed an award provision that requires an assurance from recipients regarding the absence of any potential conflicts of interest, and requires recipients to notify DOE of any new or modified sub-awards or contracts they make,” he said.
Novel Projects are Riskier, McConnell Says
In a subsequent interview, McConnell emphasized the novel nature of many of the projects funded. “FE has a portfolio of demonstration projects aiming to demonstrate first-of-a-kind technologies. Some of these projects are not going to happen,” he said. “The easiest thing to do at any stage along the way is the stop. The most challenging thing to do is to find ways to continue. We’ve done all the due diligence that can possibly be done … When we’re looking out five, six years into the future and attempting to move a first-of-a-kind technology and a program forward, it’s always fraught with challenges. We’ve tried to stay true throughout, understanding that we do have a portfolio. We aspire that our success rate will be high but recognize that the nature of R&D is that not only will there be some programs that may not yield a success, there actually should be. To bat 1,000 in R&D is to be too conservative.”
