According to the US Department of Energy Office of Inspector General (DOE-OIG), the Department of Energy (DOE) could improve its oversight of demonstration and deployment projects. The DOE-OIG is an independent oversight agency established in 1977 to monitor the DOE. Its primary mission is to protect taxpayer interests by promoting efficiency and integrity while preventing misconduct.
According to its latest audit, “opportunities exist to improve the Department’s oversight of demonstration and deployment projects. It was specifically critical of DOE’s handing of Carbon Free Power Project (CFPP) involving NuScale Power. The 26-page report notes that DOE’s Office of Nuclear Energy (Nuclear Energy) awarded a $1.36bn cost-share financial assistance award to the Carbon Free Power Project in October 2020 to demonstrate and commercially deploy an economically competitive and viable first-of-a-kind NuScale Power small modular reactor plant at the Idaho National Laboratory (INL).
In November 2023, the CFPP was terminated by mutual agreement between CFPP and NuScale Power. “We performed this audit to determine whether Nuclear Energy effectively managed the Project and to share lessons that can be applied to current and future awards and Department efforts,” OIG noted.
“We found that Nuclear Energy did not effectively manage the Project, and lessons learned can be applied to future awards. Specifically, we found that Nuclear Energy did not effectively evaluate critical risks prior to award, structure the award to monitor risks, perform sufficient oversight of the Project, and ensure costs were allowable.”
OIG “attributed these issues to Nuclear Energy not following existing requirements and guidance regarding merit reviews, project performance risk, risk management and evaluation, reducing perceived bias, and enforcement of award terms”. Also, “Nuclear Energy agreed to front-load the cost-share, placing the Government at risk of losing almost $143.5 million since the Project terminated”.
As a result, “Nuclear Energy’s project management failures may have contributed to the Project’s termination”. The weaknesses in addressing risks throughout the Project’s life cycle “placed Nuclear Energy and the taxpayer at a higher-than-necessary risk of project failure”. While Nuclear Energy stated that the Project achieved some useful results in progressing deployment of small modular reactors in the US, “the Project’s key objective was not met, and Government funds of approximately $183 million were spent without key results”. OIG added: “We believe that the Department’s senior leadership should take action to ensure that additional taxpayer funds are not put at risk.”
Similar issues occurred on another DOE demonstration project – the Texas Clean Energy Project (TCEP). “We identified that the TCEP was terminated by the Department, in part, because Summit Texas Clean Energy, could not obtain the required commercial debt and equity financing. In that case, the Department accelerated the use of American Recovery and Reinvestment Act of 2009 funds and reduced the Summit Texas Clean Energy’s cost-share requirement to help with liquidity needs, both of which put more taxpayer funds at risk if the TCEP did not move forward.”
Increased costs associated with ongoing financing efforts “raised serious questions about the Department’s continued support”. DOE subsequently initiated actions to terminate the TCEP, citing OIG findings. “If Nuclear Energy had taken a more concerted approach to address risks throughout the Project’s life cycle, it may have changed the outcome of the Project or prevented the expenditure of Government funds without achieving key results. We believe that Nuclear Energy should thoroughly evaluate the issues identified in this report and apply lessons learned to similar projects.”
To address the issues identified in the report, OIG made five recommendations “that, if fully implemented, should help ensure that risks are properly managed, requirements are followed and enforced, perceived bias is sufficiently reduced, and costs and cost-share are reasonable and allowable for this and future projects”.
For projects moving forward, OIG recommended that the Principal Deputy Assistant Secretary, Nuclear Energy, instruct programme offices to:
- Implement project management principles in accordance with the Department’s Grant Funding Agreement and related guidance, and applicable regulations to include evaluating risk; and identifying, analysing, and formally documenting sound mitigation strategies for project performance risks.
- Structure award performance measures to reflect project risks and the related level of substantial involvement to meet the specific objectives of its cooperative agreements.
- Take steps to ensure that financial assistance award terms and conditions are enforced, including Normal Federal Stewardship and Substantial Federal Involvement responsibilities in accordance with applicable law.
OIG recommended the contracting officer at the Idaho Operations Office, to:
- Determine the allowability of the questioned legal costs identified in this report, as well as legal costs billed by the same vendor in the balance of Project invoices… and address costs determined to be unallowable.
- Resolve the questioned cost-share amounts in accordance with the cost-share terms in the agreement and applicable law.
OIG noted that DOE disagreed with the OIG’s conclusion that Nuclear Energy did not effectively manage the Project and stated that “the report’s baseline conclusion is based on a flawed and overly critical assessment of [Nuclear Energy]’s project management”. The Department further stated that “it may not have completed some oversight actions to the degree desired by the OIG.”
OIG responded, saying that Nuclear Energy did not demonstrate how the report’s conclusion was flawed and overly critical. “As shown in the report, we reviewed Nuclear Energy’s oversight activities to determine whether it fulfilled those responsibilities, and we found that Nuclear Energy did not sufficiently manage the Project or oversee subscription. As identified in our report, the Project’s key objective was not met due to the lack of subscription and Nuclear Energy did not perform many of its oversight responsibilities related to Project risks throughout the Project’s lifecycle.”
