For immediate release February 15, 2022

DOE Inspector General: $128 Million Contract to Upgrade Los Alamos Power Plant with Private Financing May Be Illegal

Contract expands on-site generation 17-fold, part of larger plans to double LANL electricity use this decade for nuclear weapons mission

Study Group: NNSA is overpaying between $63 and $75 million to fast-track this project, avoid congressional scrutiny and DOE regulations, and skip environmental analysis. Payments should halt pending audit.

Contact: Greg Mello, 505-265-1200 office, 505-577-8563 cell

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Albuquerque, NM -- In a February 8, 2022 Inspection Report, the Department of Energy (DOE) Inspector General (IG) found that the National Nuclear Security Administration (NNSA) could not justify $75 million (59%) of its 17-year, $128 million (M) contract with Siemens Government Technologies (Siemens) to upgrade the on-site electrical generation plant at Los Alamos National Laboratory (LANL), located in Technical Area (TA-) 3.

The work includes installing a high-pressure natural gas pipeline, replacing existing boilers, and upgrading its combustion gas turbine generator (CGTG). Operation of the combined heating and electricity-generating plant is expected to increase from about 400 hours/year to nearly 5,000 hours/year.

The maximum electrical capacity of the plant appears unchanged, at 27 megawatts (MW) (p. 14) or 25 MW (slide 16).

As a result, LANL expects the share of its electricity needs supplied by its on-site CTGT plant to increase from 1% in fiscal year 2020 (FY20) to 15% in FY22 (p. 13), even as the total electrical energy increases from 600,000 megawatt-hours (MWh) to 700,000 MWh over the same two-year period (p. 12; for FY20 see this presentation, slide 16).

Evidently the TA-3 power plant once had a larger capacity, possibly as much as 47 MW. In 2011, LANL was operating a 27 MW CGTG and up to 10 MW from two steam-driven turbine generators (#1 and #2), for a total of 37 MW. However the steam-driven generators had not been used for several years at that point, and a third steam-driven turbine generator (#3, with a 10 MW capacity), had been out of service due to a condenser failure (p. 3-9; LANL SWEIS Yearbook 2009, p. 3-15).

By FY30, LANL expects its electricity use to rise to 1,100,000 MWh annually (p. 12), tripling LANL's electricity use since FY99, when LANL consumed 369,000 MWh ( p. 4-138).

NNSA's contract with Siemens has been largely invisible to Congress -- and everyone else. A special federal law authorizes agencies to enter into "Energy Savings Performance Contracts" (ESPCs) up to the value of the annual utility savings expected to accrue from the work performed under the contracts. No further congressional authorization or appropriations are required. The projects involved in ESPCs are not managed under DOE's formal capital asset acquisition process. Funds for the project are fronted by the contractor. The contractor and its investors are then repaid using federally-appropriated operating dollars. ESPCs are created without a formal Request for Proposals. While cost must be taken into account in choosing an ESPC proposal, the statutory selection criteria are open-ended.

The DOE IG found that NNSA was at high risk of noncompliance with 42 U.S. Code § 8287 for three reasons:

• Some $32 M in labor cost savings were credited to the project, without any plan to actually lay off these workers. The special law authorizing this project does not credit cost savings to such redirected labor and those "savings" cannot be used to justify a larger contract amount. In effect, NNSA is taking out a $32 M private loan to staff unspecified projects, programs, and overhead, contrary to law. NNSA has no authority to borrow private funds to pay staff.
• The initial electricity costs NNSA used to justify this project were too high, creating $31 M in illusory "savings."
  
• The contract assumes LANL's electricity rates will increase by 3% annually for 17 years. This is unproven, creating $12 M in questionable future "savings." In fact a proposed additional two phases of what was originally going to be a three-phase contract were cancelled by NNSA because electricity rates were going down, not up (p. 1).

Originally, concurrence from the DOE's ESPC Review Board was mandatory before any ESPC was finalized. By the time this particular ESPC was signed, the Review Board had become merely advisory, and the "significant concerns" the Review Board raised about this project in July 2018 in its recommendation against proceeding with this contract (p. 7) were never addressed by NNSA. There were at least four of these concerns; the DOE IG could find no reason why three of them -- listed above -- were not still valid.

There was a fourth concern raised by the Review Board, which was whether the upgraded power plant would be able to run the assumed 4,978 hours per year -- more than 12 times the previous rate -- without violating LANL's air quality permit, and also whether needed maintenance would abridge operations to below the projected level, cutting into the credited savings. After review, the IG believes the expanded hours are realistic.

This ESPC also included construction of a "high-pressure natural gas pipeline" (p. 1), the nature, location, and scope of which are not immediately apparent to us.

ESPCs require annual audits to verify cost savings; aggregate annual payments to utilities and ESPC contractors may not exceed what the agency would have paid to utilities without an ESPC.

In addition to this ESPC, LANL electrical capacity has been upgraded, and is planned to be upgraded, in a variety of different projects, too many to attempt to gather and list here. This fractured effort, of which this ESPC is a part, has never been comprehensively described in any public document. Neither has it been analyzed under the National Environmental Policy Act (NEPA).

Notably, the LANL Electrical Power Capacity Upgrade (EPCU) Project is a current line-item project, estimated to cost $119 M through FY24, of which $2.4 M was spent over the FY18-FY20 period. The total cost and duration of this project have not been revealed (see pp. 270, 282, 287). Inexplicably, no information about this project was provided in the FY21 or FY22 NNSA federal budget requests and its budget, scope, and status won't be known until the upcoming federal budget request for FY23. This project includes the construction of a third power line to LANL (see "Third power line proposed for Los Alamos," Apr 19, 2021). The proposed Environmental Assessment for this project has not appeared.

NNSA headquarters staff approved this ESPC over the objections not just of the official DOE ESPC Review Board but also the objections of a reviewer at the Los Alamos NNSA Field Office. NNSA headquarters said they wanted an audit that created "as much scope as possible" and "flexibility," telling the Field Office reviewer "to focus on the positive" so an award recommendation could be made (pp. 6-7).

The DOE IG concluded that ordinary congressional appropriations "may have been more suitable to protect the taxpayer's interests."

NNSA weapons czar Charles Verdon did not concur with the DOE IG's mild recommendations, essentially telling the IG that the ends achieved -- the new power plant -- justified the means used in getting it (pp. 16-22). NNSA essentially thumbed its nose at the IG.

Study Group director Greg Mello:

This report raises a lot of issues, by itself and in context with other current and proposed electrical projects at LANL. Assuming the DOE IG is correct, this contract is anywhere from $63 to $75 million too large to be authorized under this special law. The new power plant may or may not have been "worth it," but NNSA and LANL don't seem to care about that much. The point was to build a new power plant outside DOE acquisition rules, congressional scrutiny, without environmental impact analysis, and without revealing the larger picture -- either of LANL electrical expansion or of LANL expansion overall.

The fake labor "savings" should be immediately subtracted from the contract amount, and so should any savings based on fallacious electrical rates. Future electricity rates are unknown, obviously. The Secretary of Energy should halt payments to Siemens until the issues raised by the Los Alamos Field Office, DOE Review Board, and Inspector General are resolved to their satisfaction.

These shenanigans are just a small part of a much larger sustainability problem at LANL, as LANL itself has described. There is really no way of getting around it -- LANL is an multifaceted environmental disaster. Sneaking in a new fossil-fueled power plant to feed LANL's vast and growing appetite for electricity for the lab's nuclear weapons mission doesn't help at all.

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