U.S. DEPARTMENT OF ENERGY
OFFICE OF INSPECTOR GENERAL
 
 
 
AUDIT OF ELECTRICAL SYSTEM CONSTRUCTION PROJECTS
AT THE NEVADA OPERATIONS OFFICE
 
 
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Report Number:  WR-B-97-01
Western Regional Audit Office
Date of Issue:  November 6, 1996
Albuquerque, New Mexico 87185
 
AUDIT OF ELECTRICAL SYSTEM CONSTRUCTION PROJECTS
AT THE NEVADA OPERATIONS OFFICE
 
 
TABLE OF CONTENTS
 
 
                                                            Page
 
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
 
PART I   - APPROACH AND OVERVIEW. . . . . .. . . . . . . . . . 2
 
   Introduction . . .. . . . . . . . . . . . . . . . . . . . ..2
 
   Scope and Methology . .. . . . . . . . . . . . . . . . . . .2
 
   Background . .  . . . . . . . . . . . . . . . . . . . . .  .3
 
   Observation and Conclusions . .  . . . . . . . . . . . . . .3
 
PART II  - FINDING AND RECOMMENDATION . . . . . . . . . . . . .5
 
   Electrical System Projects at the 
   Nevada Operations Office . . .. . . . . . . . . . . . . . . 5
 
PART III - MANAGEMENT AND AUDITOR COMMENTS . . . . . .. . . . .7
 
 
 
 
U.S. DEPARTMENT OF ENERGY
OFFICE OF INSPECTOR GENERAL
OFFICE OF AUDIT SERVICES
WESTERN REGIONAL AUDIT OFFICE
 
AUDIT OF ELECTRICAL SYSTEM CONSTRUCTION PROJECTS
AT THE NEVADA OPERATIONS OFFICE
 
Audit Report Number:  WR-B-97-01
November 6, 1996
 
SUMMARY
 
       The Nevada Test Site became the nation's continental
nuclear weapons test site on January 11, 1951.  Over the years,
the Nevada Operations Office (Nevada) built an extensive
infrastructure to support and conduct nuclear tests at the site
and in Las Vegas.  Roads, housing, test towers, electrical
systems, and water systems are just a few of the construction
projects that have been required by the Site's nuclear testing
mission.  Nuclear testing continued through 1992.  A presidential
decision directive issued in October that year stopped the
testing but required Nevada to conduct an experimental program
and maintain a readiness posture to resume nuclear testing within
6 months through Fiscal Year 1995.  The directive further
required that, beginning with Fiscal Year 1996, Nevada maintain a
2- to 3-year readiness posture.  This change in Nevada's mission
coupled with Department downsizing requires that only cost
effective projects with defined mission needs be undertaken.
 
       Although Nevada has changed and rescoped some construction
projects in response to the changing Test Site mission, there are
two projects, one underway and one planned, that contain unneeded
overlap of capability.  Specifically, the audit identified two
electrical system projects that provided unnecessary duplicate
capability at a cost of about $1.35 million.
 
       Management concurred with our finding and agreed to
implement the recommendation. Details of management's comments
and our response are included in Part III.
 
 
                                   ________________________________
                                   OFFICE OF INSPECTOR GENERAL
 
PART I
 
APPROACH AND OVERVIEW
 
INTRODUCTION
 
     During the Cold War, the Department used the Nevada Test
Site to test nuclear weapons.  In order to meet the mission,
Nevada had to construct many facilities, including infrastructure
support.  However, the Cold War has ended and a Presidential
Directive in October 1992 placed a moratorium on nuclear testing
that is still in effect.  Since these events changed the Test
Site's mission substantially, this audit assessed whether Nevada
was constructing cost effective projects with defined mission
needs.
 
SCOPE AND METHODOLOGY
 
     The audit was conducted from November 1995 through July
1996, at the Nevada Operations Office and at the Nevada Test
Site, located about 65 miles northwest of Las Vegas.
 
     To accomplish the audit objective, we:
 
*  determined the universe of construction projects;
 
*  selected a judgmental sample of projects for detailed review;
 
*  reviewed selected projects for justification based on defined
   mission needs;
 
*  interviewed Nevada and contractor personnel involved with the
   construction projects reviewed;
 
*  reviewed selected projects for cost effectiveness where
   appropriate;
 
*  toured existing facilities and sites where construction projects
   were either ongoing or planned; and,
 
*  reviewed prior reports of other groups on the management of
   selected projects.
 
     In addition, to provide evaluations of justifications for
projects that involved technical requirements of electric power
systems, we interviewed technical experts outside of Nevada.
Specifically, we interviewed a Manager of Communication,
Engineering Construction and Maintenance for Nevada Power
Company, and a Telecommunications and Control Engineer for the
Department's Western Area Power Administration.
 
     Currently, Nevada has 77 construction projects either
underway or planned to begin in the near future.  These projects
have a total estimated cost of $206.6 million.  We judgmentally
selected and reviewed 11 of these projects with a total value of
$96.8 million.  Since some projects were conceived and planned
before the moratorium on nuclear testing began, we evaluated
these projects to determine whether they still met a defined
mission need.
 
     The audit was performed according to generally accepted
government auditing standards for performance audits and included
tests of internal controls and compliance with laws and
regulations to the extent necessary to satisfy audit objectives.
We limited the review of internal controls because the audit
focused on the need and cost effectiveness of specific
construction projects.  Because the review was limited, it would
not necessarily have disclosed all internal control deficiencies
that may have existed at the time of our audit.  We did not rely
extensively on computer-processed data and, therefore, did not
fully examine the reliability of that data.  On July 2, 1996, we
met with the Director, Engineering Division, Office of Assistant
Manager for Technical Services, to discuss the audit.  We
discussed the initial draft report and management's response to
the report with the Nevada Operations Office Field Chief
Financial Officer on September 10, 1996.
 
BACKGROUND
 
     The Nevada Test Site became the nation's continental nuclear
weapons test site on January 11, 1951.  Over the years, Nevada
built an extensive infrastructure to support and conduct nuclear
tests at the site and in Las Vegas.  Roads, housing, test towers,
electrical systems, and water systems are just a few of the
construction projects that have been required by the Site's
nuclear testing mission.  Nuclear testing continued through 1992.
A presidential decision directive issued in October that year
stopped the testing but required Nevada to conduct an
experimental program and maintain a readiness posture to resume
nuclear testing within 6 months through Fiscal Year 1995.  The
directive further required that, beginning with Fiscal Year 1996,
Nevada maintain a 2- to 3-year readiness posture.  This change in
Nevada's  mission coupled with Department downsizing requires
that only cost effective projects with defined mission needs be
undertaken.
 
OBSERVATIONS AND CONCLUSIONS
 
     In response to changes in its mission, Nevada canceled some
projects, rescoped others, and eliminated parts of projects.  For
example:
 
The $4.5 million Liquid Waste Treatment System project was
canceled when needs changed.
 
Over $6 million worth of nuclear test support power lines and
equipment were cut from the Power Distribution Systems project
after the moratorium on nuclear testing eliminated the need for
them.
 
The general scope of the Power Distribution Systems project was
changed from nuclear testing support to general power system
infrastructure revitalization.  This change included upgrades to
the power communication system.
 
     Although Nevada had changed and rescoped some construction
projects, two projects contained electrical communications
capabilities that were unnecessarily duplicative.  The first
project included digital-microwave and fiber-optic communications
at a cost of $1.1 million; the second included a pure fiber-
optics communication capability costing $2.6 million.  By its own
estimate, Nevada could avoid about $1.35 million by taking action
to eliminate this duplication.  This situation occurred because
of Nevada's uncertainty with the funding levels that would be
provided for the pure fiber-optic system.
 
PART II
 
FINDING AND RECOMMENDATION
 
Electrical System Construction Projects at the Nevada Operations
Office
 
FINDING
 
     Department policy requires that project planning include the
integration with other projects where applicable.  However, our
audit determined that Nevada had two projects, one underway and
one planned, that contained unnecessary duplication of
capability.  As part of the ongoing project, Nevada is
constructing digital-microwave and fiber-optic communications.
Within four years, however, Nevada plans to update the
communications with a pure fiber-optic capability.  This
situation occurred because of Nevada's uncertainty with the
funding levels that would be provided for the future project.  As
a result, Nevada could spend about $1.35 million unnecessarily.
 
RECOMMENDATION
 
     We recommend that the Manager, Nevada Operations Office,
pursue the most cost effective communications capability that
meets overall technical requirements.
 
MANAGEMENT REACTION
 
     Nevada management concurred with our recommendation.
Management's comments and our responses are summarized in Part
III.
 
DETAILS OF FINDING
 
     Department policy is to plan, acquire, operate, maintain,
and dispose of physical assets as valuable national resources.
DOE Order O 430.1 requires that stewardship of these resources
shall be accomplished in a cost effective manner to meet the DOE
mission.  The order also requires that the project planning
process include the integration with other projects where
applicable.
 
DUPLICATIVE PROJECTS
 
     The audit determined that Nevada had two projects that
included duplicative power  communications capabilities:  the
Power Distribution project (Distribution project) and the planned
138 kV Substation Modernization project (Modernization project).
Although an upgrade to existing power communications is
necessary, we determined that the projects overlapped, providing
unnecessary duplication.
 
Power Communication System
 
     An essential part of Nevada's electrical system is the power
communication system.  While this system, itself, does not supply
power, it ensures the reliable operation of the Test Site power
system.  If there is an interruption of power, for example, the
communication system would sense the problem.  It, then, would
rapidly shut off power to effected areas and communicate
information about the outage to the switching station.  This
communication allows the dispatch of repair crews to effected
areas.  Without a reliable communication system, any power
failure has the potential to cause a system-wide blackout as well
as power surges that could inflict extensive damage to the
electrical equipment.  Since the Test Site's communication
system, which is over 25 years old, has outdated equipment and
has experienced numerous failures, an upgrade to the existing
system is necessary.
 
     Nevada responded to the need for a communications upgrade in
March 1993 by including a fiber-optics capability as part of the
Modernization project.  The fiber-optics would meet
communications requirements and provide for additional future
capacities such as video surveillance and fire suppression at
power system substations.  Further, this all new capability
would have an expected life of 20-30 years.  However, as Nevada
rescoped the Distribution project from direct support of the test
program to basic infrastructure revitalization, it added  digital-
microwave and fiber-optic communications, for $1.1 million, to be
operational in 1997.  This alternative would use some new
microwave equipment with 15-25 year life expectancies as well as
some 12 year old existing microwave equipment.  The baseline
change to the Distribution project that added the digital-
microwave and fiber-optics justified the addition by stating that
$2.6 million could be cut from the Modernization project to
delete the fiber-optics and avoid duplication between the two
projects.  However, Nevada never removed the fiber-optics
included in the Modernization project.
 
BUDGET UNCERTAINTY
 
     Nevada has not taken action to avoid duplication between the
two projects because it was uncertain what level of funding would
be provided to the Modernization project.  Therefore, Nevada is
moving forward to construct the digital-microwave and fiber-
optics capability with the intent of replacing it within 4 years
with the pure fiber-optics.  Project personnel prefer the pure
fiber-optics over the digital-microwave and fiber-optic
combination because the latter will use some older existing
equipment with limited remaining life.  However, Nevada has been
reluctant to remove the digital-microwave and fiber-optics from
the Distribution project because the Modernization project has
not yet been funded.  Nevertheless, Nevada management agreed that
rescoping the projects to avoid duplication would be appropriate.
 
COSTS
 
     The audit showed that by continuing on its present course,
Nevada will spend between $1.1 million and $2.6 million for
unnecessary duplication between the Distribution and
Modernization projects.  Nevada's own estimate is that $1.35
million in costs can be avoided.
 
PART III
 
MANAGEMENT AND AUDITOR COMMENTS
 
     On September 10, 1996, we discussed Nevada's responses to
our initial draft report with the Nevada Operations Office Chief
Financial Officer.  A brief summary of the Chief Financial
Officer's comments and our responses follows.
 
     Management Comments.  Management concurred and the Chief
Financial Officer stated that Bechtel Nevada was currently
analyzing the merits of the two projects and that action would be
taken to avoid duplication when Bechtel completes its analysis.
Bechtel Nevada completed its analysis and a copy of the report
was provided to the IG on September 25, 1996.  Based on the
analysis, $1.35 million in costs for microwave equipment can be
avoided by proceeding directly to a pure fiber-optic system.
Engineering department personnel state that this course of action
will be taken if Congress provides requested Substation
Modernization project funding for FY 1997.  This funding level
should be known by the end of October 1996.
 
     Auditor Comments.  Nevada's intended action is responsive to
our recommendation.
 
 
 
 
IG Report No. WR-B-97-01
 
 
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