Audit Finds Waste in 'Green' Projects

Energy Dept. Acknowledges Problems With Outsourcing, Need for Oversight

The four drafty buildings had been fixtures of the Energy Department complex in Oak Ridge, Tenn., for more than half a century. They burned energy like 1950s sedans.

The buildings seemed like perfect candidates for a federal conservation retrofit program that relies on private contractors that receive a percentage of the money they save. A deal was struck in 2001. The contractors reworked lighting and heating systems, among other things, and began collecting payments.

The project was counted among the department's "green" successes -- until auditors discovered that the buildings had been torn down several years ago, and the government had paid $850,000 for energy savings at facilities that no longer existed.

The audit findings show the potential for waste and abuse at a time when the department is poised to launch billions of dollars more in stimulus spending on an unprecedented welter of green projects across the country.

The initiatives are hallmarks of the $787 billion American Recovery and Reinvestment Act approved by Congress in February. The stimulus law directed almost $17 billion to the department's Office of Energy Efficiency and Renewable Energy, including $3.2 billion for energy-efficiency and conservation block grants and $3.1 billion for state energy programs.

The outsourcing arrangements such as those at Oak Ridge, known as "energy savings performance contracts," or ESPCs, will probably be an integral part of those efforts, according to government and industry officials.

In December, the department issued 16 deals called Super ESPCs that may be worth as much as $80 billion over the next quarter-century.

The explosion in green spending is occurring despite well-documented weaknesses at the core of the strategy: A chronic lack of government officials assigned and properly trained to oversee the financially and technically complex projects.

The problems are not exclusive to Oak Ridge. The auditors, from the department's inspector general's office, also determined that $565,000 had been paid over six years under the same arrangement to a contractor in Texas for a high-efficiency laundry that was no longer in use. The department also paid out $3.4 million on another project without checking whether the conservation measures worked -- and $160,000 for measurements that were never taken.

At the same time, the auditors found, some contractors appeared to use inflated energy cost estimates in their savings calculations, increasing their fees.

"Our review established that weaknesses in the Department's contract management strategy for ESPCs . . . directly contributed to each of the above deficiencies," the department's inspector general, Gregory H. Friedman, wrote in a memo accompanying the report.

The audit report follows other findings about the department's difficulties in curbing energy use.