The $80 billion-plus in new federal clean energy funding now being distributed under the American Recovery and Reinvestment Act of 2009 (ARRA) brings with it new reporting, transparency and accountability requirements that will put funding recipients into a public fishbowl of intense scrutiny and performance evaluation.
And it is reasonable to anticipate that these new transparency and accountability standards will continue to be applied to follow-on contracts, grants, agreements, loans and loan guarantees, even after the distribution of ARRA funds is completed in the next 12 to 18 months.
Many recipients — agencies, educational institutions, research organizations and companies — have not been in the deep end of this pool before, and certainly have not swum with the sharks for whom the new levels of data disclosure will be irresistible chum.
- Project name and description;
- Prime recipient of finding, amount, source agency and program;
- Uses of funds;
- Identification of any sub-recipients or subcontractors;
- Completion status;
- Number of jobs created or retained by the project or activity;
- Location of recipient and sub-recipients, including city, state, congressional district and
- Names and compensation of the five most highly compensated officers for recipients and sub-recipients/subcontractors receiving 80% or more of revenues, or over $25 million in federal awards.
The Office of Management and Budget (OMB), the agency responsible for assuring transparency and accountability in ARRA expenditures, has instructed federal agencies to make ARRA funding contingent on recipients meeting these reporting requirements. OMB has also indicated it plans to expand the reporting model in the future. Ultimately, the companies and organizations that are spending the money will be accountable for these reporting requirements.
In addition, Congressional action can be expected to expand scrutiny. At a March, 2009 House Oversight and Government Reform Committee hearing, proposals discussed included:
- Structuring the Recovery.gov database to give taxpayers the ability to download the entire database so third parties can track spending and perform analysis;
- Setting uniform federal data collection standards;
- Tracking stimulus money to subcontractors;
- Allocating oversight money to fund more state and local auditors;
- Empowering taxpayer whistle blowers through hotlines and software that allows users to add and edit content.
In a time of expanded cost spreads between renewable and traditional energy sources, compounded by the drying-up of capital market funding for many renewable energy projects, some organizations and companies may have no alternative but to pay the price of transparency — in accountability and competitive risks — in exchange for stimulus funding.
Recipient Accountability Preparations
For clean energy recipients and others awarded a substantial contract with ARRA funding, failure to deliver projects or research on time and on budget may result in unwanted and highly visible negative publicity, as well as adverse reactions from funding sources.
To manage this environment effectively, recipients of AARA funds must have:
- A clear description of why they are receiving ARRA funding;
- A ready-to-go public relations message for use in media and public inquiries;
- An auditable process for reviewing fund expenditures;
- A strong team focused on delivering the project or activity on time and on budget and
- The ability to articulate completion status and an estimate of the number of jobs created or retained by the project or activity.
As these programs roll out across the country, both the public and funding officials will likely see apparently similar projects reporting different costs and progressing at different speeds. Should this occur, explanations will be demanded for these variations.
Although differences may be the result of such regional variables as land costs, labor costs, weather, project complexity or completion status, funding recipients must be prepared to establish with all appropriate audiences the factual foundation for analyzing and reporting costs and comparative variations from the inception of the project.
Recipient Management Preparations
Institutions, organizations and companies that receive ARRA funding, and particularly renewable energy projects, will face a range of new project management challenges generated by accountability mandates and the need for larger-scale operations to move projects from the proof-of-concept level to commercial-scale production.
Organizations that have built projects in the past are accustomed to being accountable to themselves and to investors, but now they must accommodate accountability to the taxpayers, which in effect means that companies are exposed to the mass media looking for a compelling story with legs.
To assist both experienced funding recipients and new project sponsors with the transparency requirements and the associated risks they now face, Protiviti has developed the Stimulus Funding Capital Project Compliance Solution, addressing the major process and exposure areas outlined below, as well as others that are relevant to specific segments and programs:
Multi-million and billion-dollar facilities bring with them substantial operational and financial risks that can jeopardize performance and reputation. Large-scale cost tracking and billing systems are needed to identify the inevitable routine errors and rectify them in a time frame that may not coincide with project reporting time frames. Systems need to provide real-time diligence about expenditures, and avoid disconnects between the people in the field and the cost accounting systems.
Before making payments that will be disclosed on Recovery.gov, recipients will want to be able to satisfy themselves that:
- The goods or services being paid for were actually received;
- The goods or services are as budgeted and scheduled, and are keeping the project on course for completion and
- The personnel being paid are actually on site and working the hours required to warrant receiving the payment being made.
Competitors and other contractors likely will be monitoring project sites very closely. Contractors that were not awarded the contract will want to analyze the project results to assess winning proposals, budgets and project update reports, bringing to the analysis their industry knowledge, comparative data and understanding of funding sources’ interests and sensitivities.
Recipients should anticipate that these contractors might attempt to disrupt or reverse contract- or funding-award decisions on the basis of information disclosed in each periodic Recovery.gov filing. The strongest basis for rebutting competitor claims will be provided by systems that generate auditable cost and progress data, development of a close reporting and supervisory relationship with funding source officials, and establishment of clear upfront agreement on schedules and cost factors.
In addition, as a result of these filings, competitors will have significant insight into the recipient’s costs and profit margins as they compete for future energy sales.
Funding Structure Risks
In at least the first wave of projects funded under the ARRA, many of the federal- and state-level funding and reporting structures will be almost entirely new mechanisms. Not only will most states and recipient organizations be unfamiliar with renewable energy projects, technologies and economics, but also the scale of projects and spending is likely to be orders of magnitude larger than most organizations’ previous experience.
In addition, an unprecedented level of public and media scrutiny is likely to introduce a higher-than-usual level of caution and aversion to mistakes. Despite strong federal pressure to allocate funds promptly, untested structures and the absence of precedents and baselines are likely to produce a need for over-documentation and general uncertainty.
Commodity Price Risks
Any solar, wind or other renewable generation facility that reaches commercial scale will need to develop a commodity risk management infrastructure, or work with others to manage the risks associated with selling volatile power into the wholesale market.
There is no question that disclosure and accountability will create tension, that there will be mistakes involving potentially billions of dollars and that transparency and accountability will not be free. Nevertheless, well-managed organizations will be able to develop well-designed projects that can show the way for both the new age of governmental transparency and the emergence of renewable energy as a significant portion of the U.S. energy supply picture.
David Johnson is a managing director at Protiviti and the global leader of Protiviti’s Energy & Utility Industry practice, working with energy asset owners, producers, utilities and power generators, natural gas and crude oil traders in all facets of their operations.