Energy scrambles to meet deadline for obligating stimulus money

While the Energy Department has obligated 90 percent of the $32.7 billion it received through the 2009 American Recovery and Reinvestment Act, committing the remaining $3.4 billion by Sept. 30 as required under the law poses significant challenges for department officials, according to Energy's inspector general.

In a report released on Friday, Energy Inspector General Gregory Friedman wrote, "We are particularly concerned that delays in the award process for two major fossil energy projects could result in the expiration of funds before all awards are made."

The two projects include $1 billion in funding for the first commercial-scale, fully integrated carbon capture and sequestration project in the country, and $847 million for initiatives involving industrial carbon capture and storage.

While department officials told auditors they had a plan for obligating the $1.8 billion in funding, the officials "would not share any details of the plans with us because of what they described as sensitive procurement issues that could jeopardize the approval, negotiation and award of these projects," the report stated. "These officials indicated that previously planned use of Recovery Act funds for these projects has changed due to technological and economic complexities."

Related problems in the past have prevented Energy from executing similar projects, the report said.

The IG noted department staff members have been working exceptionally long hours to meet the deadline for obligating funds. The Recovery Act Team and Office of the Chief Financial Officer, which have primary responsibility for monitoring and overseeing Recovery Act spending, established an internal dashboard that extracts and aggregates data from financial systems to track the status of obligations, spending, milestones and performance metrics. They also established milestones for procurement actions that take into account the department's ability to process new obligations while maintaining internal controls.

"While we respect the intensity of the department's work effort, we have identified significant challenges that must be addressed if the Sept. 30, 2010, deadline is to be met," the report said.

The IG noted there might not be sufficient time or resources to complete negotiations and finalize awards. Auditors cited at least one situation where a program office had been in negotiations with an award selectee for more than 90 days.

Also, regulatory approval, which is necessary for some projects, is time-consuming and the outcome is beyond the control of department officials. For example, Energy awarded funds to one recipient to install smart grid equipment, but a local public service commission denied approval for the installation. While the recipient continues to negotiate with the commission for regulatory approval, the outcome is uncertain and by the time a decision is rendered, it might be too late for Energy to re-obligate the $200 million in Recovery Act funds awarded for the project.

In addition, inexperienced recipients might not be able to meet award conditions in the time required, causing the department to cancel awards and de-obligate funds. But any awards canceled after the deadline will not be available for new projects, thus diminishing the effectiveness of the award at stimulating the economy, the report said.

The IG recommended Energy officials further intensify efforts to monitor funding, and focus on projects experiencing delays, containing conditional awards and requiring regulatory approval.

Matt Rogers, Energy's senior adviser for Recovery Act implementation, concurred with the IG's findings in a memo accompanying the report.