Stupid Grids

Report: ‘Smart grid’ technology projects funded by stimulus at risk of ‘fraud, waste and abuse’

January 24, 2013

The Energy Department wasted millions of dollars making improper payments to contractors as part of a stimulus-funded program that federal watchdogs warn is highly susceptible to fraud and waste.

The Obama administration’s push for "smart grid" technology could be the centerpiece of a revamped "green energy" agenda during the president’s second term.

However, the federal government’s existing smart grid development effort, funded extensively by the 2009 stimulus spending bill, is riddled with financial problems, according to a report from the Energy Department’s inspector general released Wednesday.

"In the absence of significant improvements, the program is at risk of not meeting its objectives and has an increased risk of fraud, waste, and abuse," the IG warned.

The program’s problems are not new. The IG issued similar warnings in a report a year ago.

DOE’s Office of Electricity Delivery and Energy Reliability received about $4.5 billion in stimulus funding for smart grid technology, which uses centralized information about electricity use to monitor and adjust the operations of the nation’s electrical grid.

Nearly $700 million of that stimulus funding went toward efforts to demonstrate the utility of the technology on a regional level. The Office of Electricity Delivery and Energy Reliability financed 32 demonstration projects.

The IG looked at 11 of those projects, which collectively received $279 million in stimulus funding. The office found extensive financial mismanagement.

Two of the projects submitted requests for reimbursement based on expected costs instead of actual costs. This was a violation of the terms of their contracts and resulted in $9.9 million in overpayments. Another project was reimbursed for $2.4 million that had not been spent.

One contract recipient drew $14 million for DOE’s smart grid effort without informing the department it had already received $2 million for the same work.

DOE approved another awardee’s plan to use proceeds from the sale of a taxpayer-funded energy storage unit to meet cost sharing requirements. Federal regulations prohibit contractors and grantees from using federal funds to meet cost sharing requirements for other federal subsidies.

An IG report released in January 2012 revealed similar financial management problems in DOE’s execution of the smart grid subsidy program.

According to that report, DOE reimbursed a contractor who put $1.8 million in federally sourced funds towards its cost share requirement. DOE reimbursed another contractor twice for the same expenses, and some had insufficient cyber security measures in place.

The IG warned then that the extensive problems in DOE’s stimulus-funded smart grid subsidy program could jeopardize its objectives. Many of those problems remain a year later.

A DOE spokesperson did not return a request for comment.

However, a response from the department in the IG’s most recent report disputed some of its findings.

The department claims it has implemented "processes and procedures ... to help ensure that recipients deliver the intended results in a timely and cost-effective manner and with reduced risks for U.S. taxpayers."

DOE’s smart grid push has also come under scrutiny for apparent cronyism. Duke Energy, whose chairman and chief executive is a major Democratic donor, has received upwards of $230 million in smart grid stimulus subsidies.