The internal watchdog at the Department of Energy released an audit report (PDF) this month detailing profligate spending, approved by the Office of Fossil Energy, on a clean coal initiative that was supposed to result in a 400MW carbon capture-enable plant.
The Office of Fossil Energy had partnered with a private company called Summit Texas Clean Energy LLC (owned by the Seattle-based Summit Power) to complete the project. Fossil Energy committed to funding $450 million of the $1.8 billion project, which would have been built outside of Odessa, Texas. Summit claimed that its plant would have captured 90 percent of the carbon it created.
Instead, Fossil Energy broke off the partnership in June 2016 when the same DOE internal watchdog (known formally as the Office of the Inspector General, or OIG) issued a report pointing out significant project delays and the inability of Summit to secure enough additional private funding to complete the project. In October 2017, Summit Texas Clean Energy declared bankruptcy.
All in all, the report identified $38 million in reimbursement payments that the Office of Fossil Energy made to Summit without proper and thorough documentation. But before the partnership between Fossil Energy and Summit ended, a third-party auditor had signed off on most of those payments as being kosher, so the OIG said it wouldn’t tread that ground again, despite its reservations. However, at least $2.5 million in expenses that were paid out during the lifetime of the project potentially broke the rules about what federal government funds can and can’t reimburse.
Those unallowable expenses included millions in lobbying for Summit (lobbying expenses can not be paid with federal funds) as well as spa service, limousines, and business-class travel.
The $2.5 million
Although the OIG identified $38 million in poorly-documented invoices, its primary concern in its report was $2.5 million in unallowable expenses.
More than $1.2 million of those charges appeared to reimburse three consultants for lobbying services, with one of those three consultants receiving more than $1 million. US law prohibits firms like Summit from using federal money to influence government officials.
The payment appears to have been approved on the basis of some delicate wording on agreements submitted to the Office of Fossil Energy by Summit. “Lobbying” wasn’t detailed, but “meeting with” government officials was. So was “soliciting support” and “soliciting financial incentives” from government officials. One consultant paid by Summit met with a law firm whose services had perviously been denied because using that firm was considered “unallowable lobbying costs.”
In many ways, the agreements seem to have been hiding “lobbying” in plain sight: one consultant firm that Summit hired even outlined the services it provided for Summit on its website, which included meeting “with members of Congress to secure support for the Project,” the report stated. “The Website indicated that its efforts resulted in a revision to legislation regarding tax credits for clean energy projects.”
The report also found more than $1.3 million in travel or personal expenses. “For example, we identified over $650,000 in consultant charges for items such as a spa service, alcohol, first-class travel, limousine services, receipts in foreign currency, and business meals that were prohibited or not fully substantiated,” the report states. Many of the expenses came from one consulting firm contracted by Summit, but the Inspector General found travel expenses for Summit employees on that consultant’s invoices, which raised questions as to whether those expenses had been double-counted.
The other bad invoices
The separate $38 million in poorly-documented invoices may or may not have been unallowable, but their lack of detail made it hard to tell. The OIG wrote that $16.9 million of the total sum reflected subcontractor costs that didn't report what kind of work was performed and why. “Our review of documentation... for one subcontractor revealed that the monthly fee fluctuated between $20,000 and $50,000; however, none of the invoices included a justification for the changes,” the report wrote. “On one of the invoices, we noted that the original monthly fee was crossed out and replaced with a new, higher fee with no explanation for the adjusted amount.”
An additional $10.8 million was claimed for labor without proper documentation. “This was of concern since about 65 percent, or approximately $7 million, was charged for seven executives who held positions for multiple entities affiliated with Summit.” Without proper documentation, the OIG could not tell whether the services performed were for the project or for some other unrelated duty involving another position held by the executive.
More than $8.2 million in subcontractor costs were also paid in foreign currency, without details of the exchange rate at the time of the payment. (Summit signed contracts with Chinese and Canadian engineering firms, according to its website.)
Despite all those red flags, the OIG said it was outside the scope of its audit to probe further into those expenses because Summit had already been obligated to have a third-party review its expenses while the company was partnered with the DOE. “However, we noted that these audits were not typically conducted until well after Summit had been reimbursed,” the OIG wrote.
Carbon capture projects have struggled to get off the ground in the US. With such high capital costs and considering that carbon capture usually requires significant energy input, critics have said that money developing clean coal is better directed toward cheaper renewable energy or greenhouse gas-free nuclear and hydro. In a blow for the technology associated with carbon capture, Southern Company’s Kemper plant in Mississippi recently announced that it would discontinue use of its expensive coal gasification unit in favor of burning much cheaper and cleaner natural gas.
But regardless of the state or economics of carbon capture technology, a lax approach to spending can stunt a project’s growth and lead to cost overruns. The OIG recommended that the Assistant Secretary of Fossil Energy (a Trump appointee, who was not in charge of the Office of Fossil Energy when it worked with Summit) work to recover some of the $2.5 million in potentially unallowable costs that it discovered. In a letter included with the report, the Assistant Secretary noted “that given Summit’s bankruptcy, it would be highly unlikely that it would have the financial resources to settle any unallowable assessments.”
Ars contacted the Office of Fossil Energy and Summit Texas Clean Energy’s parent company, Summit Power, for comment, and we have not yet received a response.
The report does come at a time when the Trump administration has put forward a budget proposal to increase the Office of Fossil Energy’s budget from $421 million in 2017 to $501 million (PDF). The hope is that contracts going forward will be more diligently scrutinized.