Additional Data and Guidance Needed for Alternatively Financed Energy Projects
GAO-17-461: Published: Jun 20, 2017. Publicly Released: Jun 20, 2017.
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What GAO Found
The military services have used alternative financing arrangements—entering into about 38 private-sector contracts annually from 2005 through 2016—to improve energy efficiency, save money, and meet energy goals. However, the military services have not collected and provided the Department of Defense (DOD) complete and accurate data, such as total contract costs and savings. For example, GAO was unable to identify and the military services could not provide total contract costs for 196 of the 446 alternatively financed energy projects since 2005. Furthermore, some data provided on select projects did not include the level of accuracy needed for planning and budgeting purposes. According to officials, the military services did not always have complete and accurate data because authority for entering into these projects has been decentralized and data have not been consistently maintained. As such, neither the military departments, which include the military services, nor DOD have complete and accurate data on the universe of these projects. Without complete and accurate data on all alternatively financed energy projects, decision makers will not have the information needed for effective project oversight or insight into future budgetary implications of the projects, including impacts on utility budgets.
DOD's alternatively financed energy projects that GAO reviewed reported achieving expected savings. Specifically, GAO's review of 13 operational alternatively financed energy projects found that all 13 projects reported achieving their expected savings. However, the military services have varying approaches for verifying whether projected savings were achieved for all utility energy service contracts (UESC)—an arrangement in which a utility arranges financing to cover the project's costs, which are then repaid by the agency over the contract term. DOD guidance requires the military services to track estimated and verified savings and measurement and verification information for all energy projects, but DOD's guidance is inconsistent with more recent Office of Management and Budget guidance. This inconsistency and DOD's interpretation of Office of Management and Budget guidance have resulted in the military departments developing varying approaches for verifying savings of UESC projects. Without clear guidance from DOD on how the military services should be taking steps to verify savings associated with UESC projects, the military services will continue to interpret guidance differently and are likely to take inconsistent approaches to verifying the savings of UESC projects spanning potentially a 25-year duration.
DOD and military service officials identified benefits and disadvantages, as well as other potential costs, of using alternative arrangements to finance energy projects rather than using up-front appropriations. According to officials, benefits include the ability to fund projects that would not otherwise be funded due to budgetary constraints, to complete projects more quickly, and to have expert personnel available to implement and manage such projects. However, officials also identified disadvantages, including higher costs and the risks associated with long-term financial obligations. In addition, GAO found that some potential costs for these alternatively financed energy projects, such as costs associated with operation and maintenance and repair and replacement of equipment, add to overall project costs and may not be included in the total contract payments.
Why GAO Did This Study
DOD, the largest energy consumer in the federal government, has been addressing its power needs by diversifying its power resources, reducing demand, and implementing conservation projects. To address its goals for energy projects, DOD also has been using alternative financing from private-sector contracts rather than relying solely on annual federal appropriations to fund projects upfront.
The House and Senate reports accompanying their respective bills for the National Defense Authorization Act for 2017 included provisions that GAO review DOD's alternatively financed energy projects. This report (1) evaluates the military services' use of alternative financing arrangements since 2005 and data collected and provided to DOD on those projects; (2) assesses reported project savings and verification of reported performance, and (3) describes benefits and disadvantages and potential other costs of using alternative financing rather than up-front appropriations. GAO analyzed and reviewed DOD data, relevant guidance, and project documentation; interviewed cognizant officials; and reviewed a nongeneralizable sample of projects.
What GAO Recommends
GAO recommends that the military services collect and provide DOD complete and accurate data on all alternatively financed energy projects and that DOD update its guidance to clarify requirements for verifying UESC savings. DOD concurred with the first recommendation and nonconcurred with the second. GAO continues to believe its recommendation is valid, as discussed in this report.
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Recommendations for Executive Action
Status: Closed - Implemented
Comments: DOD concurred and has taken action to address our recommendation. In July 2018, the Deputy Assistant Secretary of Defense for Installation Energy issued a memorandum stating that it was taking steps to improve the accuracy and consistency with which data are reported in order to improve oversight as was outlined in our recommendation. Specifically, the department directed each military component to enter performance-based facility energy efficiency contracting information into a tracking spreadsheet on a quarterly basis and to submit corresponding task order schedules for each new award or contract modification. The department also directed the military components to collect and submit the annual measurement and verification reports for each project once the reports have been reviewed and accepted by the contracting officer or the contracting officer's representative. By issuing this guidance and taking these steps to better collect data on alternatively financed energy projects, the department will improve the accuracy and consistency with which data are reported, thus improving oversight of these projects, as GAO recommended.
Recommendation: To assist DOD and Congress in their oversight of DOD's alternatively financed energy projects, the Secretary of Defense should direct the military services to collect complete and accurate data on their alternatively financed energy projects, including data on the services' financial obligations and cost savings, and provide the data to DOD at least annually to aid departmental oversight.
Agency Affected: Department of Defense
Status: Closed - Implemented
Comments: DOD nonconcurred but has taken steps to address our recommendation. In response to GAO's report, the department stated that there is no statutory requirement for annual measurement and verification of the energy, water, or cost savings, or a contractual guarantee of those savings for Utility Energy Service Contracts (UESC) as there is for Energy Savings Performance Contracts. However, the department noted that DOD would continue to require its components to accomplish necessary tasks to assure continuing performance of the equipment or systems installed in a UESC to ensure expected energy and/or water consumption and cost reductions. Despite DOD's non-concurrence, in July 2018, the Deputy Assistant Secretary of Defense for Installation Energy issued a memorandum directing the military components to submit documentation of the performance requirements of UESCs, in which energy savings are not a contract-stipulated requirement, and how the requirements will be verified. By taking this step, the department will help assure the performance of their UESC projects over the life of the contracts, as GAO recommended.
Recommendation: To help ensure that the military departments conduct the level of assessment required to assure the performance of their UESC projects over the life of the contract, the Secretary of Defense should direct the Office of the Assistant Secretary of Defense (Energy, Installations and Environment) to update its guidance to clarify the requirements for the verification of savings for UESC projects.
Agency Affected: Department of Defense