Inspection Report: DOE-OIG-22-26

February 8, 2022

Los Alamos National Laboratory Steam Plant Energy Savings Performance Contract – Phase One

Federal agencies have the authority to enter into Energy Savings Performance Contracts (ESPCs) for energy savings and facility improvements without upfront capital costs or appropriations from Congress.  During each contract year, the total payments to the ESPC contractor cannot exceed the amount that the agency would have otherwise paid.  National Nuclear Security Administration (NNSA) awarded a $128 million contract for a Steam Plant ESPC at the Los Alamos National Laboratory.

Due to concerns raised by the Department of Energy’s ESPC Review Board that did not appear to be fully addressed, we initiated this inspection to determine whether NNSA could support the guaranteed cost savings identified in the LANL Steam Plant ESPC – Phase One. 

We found that NNSA could not support $75 million of the $128 million in guaranteed cost savings identified in the Los Alamos National Laboratory Steam Plant ESPC – Phase One.  Specifically, the Los Alamos Field Office: (1) could not provide documentation to support that the operation and maintenance labor savings would be realized, putting $32 million in guaranteed energy savings at risk; (2) had documentation to support the initial electric baseline rate used to determine the guaranteed energy savings of the ESPC, however, declines in the electric rates before the contract was finalized put approximately $31 million in guaranteed energy savings at risk; and (3) could not provide sufficient documentation to support the 3 percent electric escalation rate used in the investment grade audit, putting an additional $12 million in guaranteed energy savings at risk.

The issues we identified occurred, in part, because NNSA officials did not fully address concerns raised by a Los Alamos Field Office official responsible for the ESPC and the Department of Energy’s ESPC Review Board, which identified that the Steam Plant ESPC was at risk of not meeting the guaranteed energy savings.  In addition, we identified that the 2014 Federal Energy Management Program ESPC Workshop Handbook did not outline how to account for operation and maintenance labor savings.

Management concurred in principle with Recommendation 1 and provided corrective actions that are responsive to our recommendations.  However, management’s comments related to the ESPC Review Board’s concerns, ESPC training, and the need to reevaluate the viability of the contract regularly were not responsive.  We stand by the need for the Under Secretary for Nuclear Security and Administrator, NNSA, to implement our recommendations.  Therefore, a management decision is required per Department Order 224.3A, Audit Coordination, Resolution, and Follow-Up.