NASA Inspector General Paul K. Martin today released a report examining NASA’s management of energy savings contracts. In response to Federal mandates to reduce energy consumption, six NASA Centers have entered into over $130 million of energy savings performance contracts to fund conservation measures.
An energy contract is a partnership between a Federal agency and an energy company that allows the agency to undertake energy conservation measures without having to fund the associated upfront capital costs. The contracts, which may have terms as long as 25 years, are designed to help Federal agencies meet energy efficiency, renewable energy, water conservation, and emissions reduction goals by leveraging private-sector funding for energy management projects. The energy company guarantees the conservation measures will generate cost savings sufficient to pay for the capital improvements over the term of the contract, and the agency pays the company out of proceeds generated by those cost savings. The guarantee of a specified level of cost savings and performance is at the heart of energy contracts and, consequently, effective management and oversight of the contracts is crucial to ensure the mechanism works as designed.
The Office of the Inspector General (OIG) evaluated whether NASA effectively managed, monitored, and controlled energy contracts to ensure that payments do not exceed the guaranteed savings. We focused our review on contracts at Johnson Space Center (Johnson) and Ames Research Center (Ames) in an effort to provide “lessons learned” for additional contracts underway or planned at other Centers.
We found that Johnson mismanaged its $42.7 million fixed-price contract, which was designed to save approximately $2 million a year in energy and operational costs for 22 years. Specifically, Johnson officials did not require the energy company to submit annual savings verification reports and accepted a flawed report for the first year; did not consider the effect of renovations to or demolition of facilities on the guaranteed savings rate; and added work to the contract without ensuring that energy savings would cover the additional costs. As a result, Johnson may have overpaid the energy company because it cannot verify that the conservation measures installed under the contract resulted in the guaranteed $2 million in annual savings.
Ames appears to be effectively managing its energy contracts, although it has not yet been faced with having to adjust the contracts to account for facility renovation or demolition. In addition, because the energy contracts at other Centers are in their first year of performance, issuance of improved guidance and training could help managers there avoid future problems.
In its report, the OIG recommended that NASA: (1) ensure that guaranteed energy savings are being achieved at Johnson and if not, determine whether the contract needs to be modified; (2) finalize new policy to ensure employees have specific guidance for managing energy contracts; (3) revise Agency policy to require that estimates for renovation or demolition of facilities include the loss of guaranteed savings from conservation measures installed pursuant to energy contracts; and (4) ensure that procurement and technical staff who are responsible for awarding and administering energy contracts are adequately trained.
NASA disagreed with our first recommendation, stating that Johnson’s accounting practices are consistent with the Department of Energy’s standards and that implementing any changes to the contract would be almost impossible and certainly impractical. The OIG disagrees and continues to believe that annual verification of savings is essential to ensuring NASA receives the promised return. Therefore, this recommendation remains unresolved and we will continue to monitor NASA’s efforts to ensure that guaranteed energy savings are being achieved at Johnson. The Agency agreed with our other recommendations.
The full report can be found on the OIG’s website at http://oig.nasa.gov/ under “Reading Room” or at the following link: http://oig.nasa.gov/audits/reports/FY13/IG-13-014.pdf
Please contact Renee Juhans at 202-358-1220 if you have questions.
