Capitol Power Plant: Architect of the Capitol Should Update Its Long-term Energy Plan before Committing to Major Energy Projects
Published: 2015-09-03T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: AOC's CPP heats and cools 25 buildings in the complex, including the Capitol and House and Senate office buildings. CPP does not have the infrastructure to distribute electricity to the buildings it serves. CPP buys fossil fuels (mostly natural gas) to run boilers that make steam and buys electricity to run chillers that make chilled water. CPP distributes the steam and chilled water for heating and cooling using a network of tunnels. AOC seeks to install a ‘cogeneration' system that would produce steam and electricity.
The House of Representatives report accompanying the Legislative Branch Appropriations Bill, 2014 included a provision for GAO to analyze potential cost savings at CPP. GAO analyzed (1) measures AOC implemented since 2008 to manage the energy-related costs of the complex and opportunities, if any, to further manage these costs, and (2) how AOC decided to procure a cogeneration system and the extent to which AOC followed leading capital- planning practices. GAO analyzed AOC budgets and plans; reviewed federal guidance on capital planning; and interviewed AOC staff and other stakeholders, including other heating and cooling plant operators.
section_title: What GAO Found
paragraphs: The Architect of the Capitol (AOC) implemented many measures since 2008 to manage the energy-related costs of the Capitol Complex (the complex) and has opportunities to further manage these costs. AOC updated some of the Capitol Power Plant's (CPP's) production and distribution systems to reduce energy use and increase efficiency. AOC also implemented measures to reduce energy consumption in the complex, such as conservation projects improving lighting and air-handling systems that yielded monetary savings. AOC has opportunities to implement other conservation measures in the complex. For example, energy audits by contractors identified additional opportunities to implement similar measures or other upgrades to lighting, mechanical, and plumbing systems to achieve additional energy and monetary savings. However, AOC officials said they have not implemented these measures but intend to act as resources become available.
AOC decided to procure a cogeneration system to produce electricity and steam based on a 2009 long-term plan and subsequent partial updates but did not follow key leading federal capital-planning practices. In 2009, AOC issued a long-term energy plan that stated it should pursue cogeneration to meet future steam demand and provide a new source of electricity for its chillers, enabling the agency to decrease electricity purchases. Partial updates to the plan in 2014 sought to justify the choice of a cogeneration system. However, AOC's planning did not follow key leading capital-planning practices developed by GAO and the Office of Management and Budget (OMB). First, though called for by leading federal planning practices, AOC has not fully updated the 2009 long-term plan, although changes in key planning assumptions, such as on fuel prices and the complex's demand for energy, have occurred. Instead, AOC intends to make a decision on implementing an $85 million cogeneration system before updating its long-term plan later in fiscal year 2015. Second, the 2014 partial updates to its 2009 plan that AOC has used to justify the project did not include complete information on the need or problem that the project would address. Third, the 2014 updates did not identify a full range of options for cost-effectively meeting projected future needs, including non-capital measures such as conservation. Fourth, the updates did not have valid sensitivity or uncertainty analyses to test key assumptions about whether the system would achieve sufficient savings over time—from decreased electricity purchases—to justify its costs. Related to this, AOC officials said that since upfront appropriations would likely not be available to procure the system, they had decided to use a third party to finance the project, thereby increasing its costs. These officials also said they relied on federal guidance for analyzing and financing energy projects. However, such guidance does not substitute for first completing an up-to-date capital plan. Finally, GAO's prior work has recommended using independent panels of experts to review complex projects such as a cogeneration system, but AOC has not engaged such a panel to review its 2014 updates to its long-term plan. AOC officials said they were unaware of some of these practices and that they needed to sign a contract quickly to avoid the risk of losing construction and air quality permits. Without updating its long-term energy plan and obtaining independent review, AOC may pursue a project that does not cost-effectively meet its needs.
section_title: What GAO Recommends
paragraphs: AOC should (1) update its long-term energy plan while following key leading practices, including considering a full range of measures to further manage costs, before committing to major energy projects at CPP, and (2) seek independent review of its plan. AOC disagreed with GAO's recommendations; GAO continues to believe they are valid, as discussed further in this report.

section_title: Letter
paragraphs: The Architect of the Capitol (AOC) operates the Capitol Power Plant  (CPP) that provides heating and cooling to the U.S. Capitol and 24  surrounding buildings, often referred to as the Capitol Complex (the  complex). CPP is a “district energy system” that produces steam and  chilled water at a central plant for distribution via tunnels to the complex.  The plant has not produced electricity since 1952 and does not have the  infrastructure to produce or distribute electricity—either for use in the  plant itself or in the buildings in the complex. AOC purchases fossil fuels  (primarily natural gas) for use in CPP’s seven boilers, and purchases  electricity to run the plant’s eight chillers. The cost of operating the plant  totaled about $63 million in fiscal year 2014.
For more than a decade, the Congress has expressed interest in reducing  the costs of heating and cooling the buildings served by CPP, and AOC  currently has multiple capital projects under way that could significantly  affect those costs. For example, AOC has undertaken major building  renovations in the complex that could affect future demand for steam and  chilled water, such as the renovation of the Cannon House Office  Building. In addition, AOC has initiated a planning effort for procuring a  cogeneration system that would generate steam and electricity, in part, to  address a projected gap in steam-generating capacity. A number of  federal leading practices exist to guide such planning efforts.
The House Report accompanying the Legislative Branch Appropriations  Bill, 2014 included a provision for GAO to examine potential cost savings  associated with privatizing CPP. GAO last reported on AOC’s  management of CPP in 2008. Based on discussions with the House and  Senate Appropriations Committees, this report contains information on:  (1) measures AOC implemented since 2008 to manage the energy- related costs of the buildings served by CPP and opportunities, if any, to  further manage these costs, and (2) how AOC decided to procure a  cogeneration system and the extent to which AOC followed leading  capital-planning practices.
To identify measures AOC has implemented to manage heating and  cooling costs since 2008, we examined AOC and CPP appropriations,  obligations, and expenditures data; reviewed relevant reports; and  interviewed AOC and CPP officials. We assessed the reliability of these  data and found them sufficiently reliable for our purposes. To identify  measures AOC could consider implementing to further manage the costs  of heating and cooling the buildings served by CPP, we reviewed AOC  reports and other documents. We also interviewed a nongeneralizable  sample of eight operators of other district energy systems—representing  both public and private entities—to learn about measures they have  implemented to manage costs as well as the benefits and costs of those  measures. We identified these operators based on, among other things,  literature research; interviews with CPP staff and managers of other  district energy systems; and selected operators of district energy systems  with similarities to CPP, such as those located in climates similar to  Washington, D.C. The information collected during these interviews  cannot be generalized to all district heating or cooling systems. However,  because of their characteristics, the select operators provide useful  insights on a range of issues relevant to AOC’s management of CPP. To  review the extent to which AOC has followed leading practices when  planning to meet future steam demands, we reviewed past planning  documents and recent updates—AOC’s 2009 strategic long-term energy  plan and two sets of 2014 AOC planning documents, among others. To  identify key leading capital-planning practices we identified and reviewed  four sources of relevant federal guidance on capital planning: GAO’s  Executive Guide: Leading Practices in Capital Decision-Making, GAO’s  Cost Estimating and Assessment Guide, the Office of Management and  Budget’s (OMB) Capital Programming Guide, Supplement to OMB  Circular A-11, and the National Institute of Standards and Technology’s  (NIST) Life-Cycle Costing Manual for the Federal Energy Management  Program. We also interviewed senior AOC officials and CPP managers.
We conducted our work from December 2013 to September 2015, in  accordance with all sections of GAO’s Quality Assurance Framework  relevant to our objectives. The framework requires that we plan and  perform the engagement to obtain sufficient and appropriate evidence to  meet our stated objectives and to discuss any limitations in our work. We  believe that the information and data obtained, and the analysis  conducted, provide a reasonable basis for the findings and conclusions in  this report. Appendix I provides a more detailed description of our scope  and methodology.
subsections: section_title: Background
paragraphs: AOC manages and operates CPP to support the agency’s strategic goals  and objectives, including stewardship of Capitol facilities and  conservation of resources. AOC must also comply with relevant laws and  regulations, including environmental-protection and energy-reduction  requirements. CPP consists of six main facilities: an administration  building, a boiler plant, the West Refrigeration Plant, the West  Refrigeration Plant Expansion, the East Refrigeration Plant, and a coal  yard at a secondary site (see fig. 1).
CPP serves 25 buildings comprising about 17-million square feet,  including the U.S. Capitol building, House and Senate office buildings, the  Supreme Court, and five buildings not under AOC’s management,  including Union Station and the Government Publishing Office. Figure 2  identifies the primary Capitol Complex facilities served by CPP.
CPP provides steam to 25 buildings and chilled water to 19 buildings.  CPP bills non-AOC customers for its costs under arrangements in various  statutes.
CPP is a district energy system that generates steam and chilled water  for distribution through tunnels and direct buried piping to heat and cool  nearby buildings (see fig. 3). Many district energy systems exist  throughout the country, often at universities and office parks.
In the absence of the district energy system, AOC would likely have to  install a more dispersed system, such as heating and cooling generation  equipment in each building. Alternatively, AOC could potentially obtain  steam and chilled water from another district energy provider, such as the  General Services Administration (GSA), to serve some of the buildings in  the complex, but could face challenges in doing so.
CPP has seven fossil-fuel fired boilers that primarily burn natural gas to  generate steam. The boilers operate primarily on natural gas, but AOC  can burn coal in two boilers when additional steam capacity is needed or  fuel oil in five boilers if, for example, interruptions occurred in the supply  of natural gas (see table 1).
As we previously reported, CPP increased its use of natural gas over coal  and fuel oil beginning in 2008 as a result of the “Green the Capitol’  initiative,” which began at the direction of the House of Representatives.  CPP has continued this practice for environmental and other reasons.
CPP currently has eight electricity-powered chillers to produce chilled  water. AOC officials said CPP has experienced sporadic mechanical and  electrical problems with its oldest chillers. AOC has a long-term plan to  replace its older chillers, referred to as the Refrigeration Plant  Revitalization (RPR) project, which calls for the replacement of several  existing chillers and the addition of cooling towers over several phases by  2018. Table 2 provides information on CPP’s chillers in the West  Refrigeration Plant and its West Refrigeration Plant Expansion.
section_title: AOC Has Implemented Many Measures to Manage Energy-Related Costs and Has Opportunities to Further Manage These Costs
paragraphs: Since 2008, AOC has implemented many measures to manage the  energy-related costs of the buildings served by CPP. AOC’s efforts have  reduced the energy needed to cool the buildings in the complex and the  energy-related costs of operating CPP have fallen since fiscal year 2011.  AOC has additional opportunities to further manage its energy costs.
subsections: section_title: AOC Has Implemented Many Measures to Manage Energy-Related Costs
paragraphs: Since 2008, AOC has implemented many measures to manage the  energy-related costs of the complex.
subsections: section_title: Measures to Reduce Heating and Cooling Production Costs
paragraphs: To reduce the costs of producing steam, AOC replaced some steam- powered water treatment equipment at CPP with new equipment powered  by electricity. Specifically, in fiscal year 2014, AOC replaced two of the  pumps feeding the plant’s boilers, formerly powered by steam, with new  electric pumps. An outside study prepared by a consultant to AOC found  that this would reduce in-plant steam use and improve the overall  efficiency of the system, resulting in an almost 7 percent decrease in  annual fuel costs and a nearly 10 percent improvement in the plant’s  steam output.
Additionally, AOC officials said they secured better terms in fiscal year  2014 for purchasing natural gas to operate the plant’s boilers. Starting in  fiscal year 2014, AOC paid $8.36 per thousand cubic feet of natural gas  as opposed to the $12.95 the agency paid in fiscal year 2013, a reduction  of approximately 35 percent. The contract expires in 2017.
AOC also completed several projects to lower the costs of providing  chilled water. AOC officials said that in fiscal year 2012 they began a  practice known as “free cooling” at CPP to reduce electricity costs. During  winter months, CPP uses outside air, the plant’s cooling towers, and heat  exchangers to chill water rather than using its electric chillers. A 2013  study of the chilled water system shows that CPP should be able to meet  the majority of chilled water demand in winter months using free cooling,  thereby lowering its electricity costs. The study estimated that free  cooling would achieve about $307,000 annually in savings through  reduced electricity use.
Also, in fiscal year 2014, AOC installed new chillers at CPP. The 2013  chilled-water- system audit concluded CPP could produce chilled water  more efficiently if it increased its use of two relatively new and efficient  chillers located in the East Refrigeration Plant, where the chillers were  underused due to the relatively poor condition of the cooling towers there.  AOC initially planned to move the two chillers to the West Refrigeration  Plant Expansion. Ultimately, AOC purchased and installed two new  chillers of similar capacity and efficiency. Additionally, in fiscal year 2014  AOC started construction to add two new chillers and three cooling  towers to the West Refrigeration Plant Expansion as part of the RPR  project. AOC budget documents state the new chillers will operate 50  percent more efficiently than the older chillers.
section_title: Measures to Better Understand Energy Consumption and Identify Opportunities for Conservation
paragraphs: To better understand energy consumption, AOC installed energy meters  at most of the buildings it serves and is installing sub-meters within  selected buildings. Energy meters can provide information on the  consumption of steam, chilled water, and electricity. According to AOC  officials, metering allows the agency to identify changes in energy  consumption that could indicate equipment problems, measure progress  on energy conservation, assist in identifying future conservation  measures, and evaluate energy losses during distribution. Within the last  6 years, AOC installed meters for most of the buildings served by CPP.  AOC does not have meters for individual office spaces, but plans to install  meters for some energy-intensive spaces, such as kitchens and data  centers. According to AOC officials, the agency does not generally track  energy use at the occupant level because of the cost and instead  encourages energy conservation within offices through education and  awareness activities.
Select operators of other district energy systems we interviewed  specifically mentioned the installation of energy meters to minimize the  costs of operating their systems. Some of these operators said they  installed meters at individual buildings served by their systems and are  considering installing or have already installed submeters where  appropriate.
In addition, between 2008 and 2013, AOC commissioned energy audits of  most of the buildings served by CPP. Energy audits involve examining a  building’s physical features and utility history to identify conservation  opportunities. AOC officials told us they engaged an engineering  company to complete energy audits of the buildings operated by AOC,  including the Supreme Court, and Thurgood Marshall buildings at a cost  of $5 million. The audits produced estimates of the implementation cost,  maximum energy and cost-savings potential, and pay-off period for  energy conservation measures in all of the audited buildings.
For the 16 largest buildings in the complex administered by AOC, these  audits recommended several hundred conservation measures that could  result in substantial energy savings. Most of the potential savings could  stem from upgrades to heating and cooling systems. Three buildings—the  Capitol, Madison Building, and Rayburn House Office Building–account  for 52 percent of the potential energy savings from measures  recommended by the contractor. Over one-third of the potential energy  savings from these recommended measures involve the Library of  Congress buildings, with the Madison Building—home of one of the  Library’s largest data centers—accounting for the greatest number of  recommendations and the highest potential energy savings. For example,  the audits estimated that fully replacing heating, ventilation, and air  conditioning (HVAC) control systems in the Madison Building could  reduce the building’s cooling needs by half, and this project accounted for  18 percent of all potential energy savings from the recommended  measures. The contractor estimated that independently implementing all  of its recommended measures could cost $115 million and that each  measure would eventually result in dollar savings, with the payoff period  varying for the different individual measures. As described below, AOC  implemented some measures and intends to implement others as  resources allow.
section_title: Measures to Reduce Energy Consumption
paragraphs: AOC officials subsequently evaluated the energy audits based on factors  such as cost-effectiveness and execution difficulty and approved some  measures for implementation. AOC staff and contractors have already  implemented some of the measures. For example, AOC staff repaired  and optimized some existing HVAC systems.
AOC also hired contractors to improve the energy efficiency of the Capitol  and House and Senate office buildings through conservation measures.  To finance these measures, AOC repays the contractors from avoided  costs. Under Energy Savings Performance Contracts (ESPC), federal  agencies enter into contracts—up to 25 years—with a private company in  which the company incurs the costs of financing and installing energy  efficiency improvements in exchange for a share of any savings resulting  from the improvements. Table 3 describes the energy conservation  measures installed under these contracts.
Air handling unit replacement
HVAC systems and controls upgrades
Lighting retrofit and controls
Steam trap maintenance
Energy efficient lighting upgrades
HVAC and controls upgrades
Steam trap replacement
Water conservation / fixture upgrades
HVAC systems and controls upgrades
HVAC testing, adjusting, and balancing
Insulation of steam system components
Lighting retrofit and controls
Transformer upgrades  During the contract term, agencies typically continue to budget and  request appropriations for energy-related operations and maintenance  based on their baseline energy needs prior to implementation of the  improvements. Agencies repay the company for the costs—such as initial  construction and installation costs, and the company’s borrowing costs  and profit—from appropriations using the savings generated by the  improvements. The federal statute authorizing federal agencies to enter  into ESPCs states that the aggregate annual payments may not exceed  the amount the agency would have paid for utilities without an ESPC. At  the end of the contract, payments to the company cease and the energy  savings may allow agencies to reduce their energy-related expenses.  Figure 4 illustrates the potential effect of an ESPC on an agency’s cash  flows.
We reported in 2004 that although ESPCs provide an alternative funding  mechanism for agencies’ energy-efficiency improvements, for the cases  we examined at that time, such funding costs more than using upfront  appropriations. This is because the federal government can obtain capital  at a lower financing rate than private companies. We also reported in  June 2005 that vigilance is needed to ensure agencies negotiate the best  possible contract terms and that energy savings achieved will cover  agencies’ costs.
To date, AOC’s contractors report that energy and cost savings have  exceeded the guaranteed amounts. In fiscal year 2013, they reported  total savings of over $9.8 million. AOC made nearly $8 million in  payments to the contractors in 2013, resulting in a net savings of  approximately $1.7 million. In September 2012, one of AOC’s contractors  refinanced an ESPC project at a projected savings to the agency of $19.8  million over the term of the project.
For the entire complex, total steam and chilled-water consumption  declined between 2010 and 2013, and adjusting the data to account for  yearly changes in weather shows reductions in energy use, mostly from  greater efficiency in producing chilled water. Because changes in weather  affect the need for steam and chilled water, energy managers evaluate  energy consumption against a measure of the average need for heating  or cooling services. Cooling and heating degree days measure the  number of days with outdoor temperatures above or below, respectively,  65 degrees Fahrenheit and the amount above or below that temperature.  For example, a cooling degree day value of 10 indicates that the average  temperature for the day was 75 degrees. AOC’s annual energy  consumption of chilled water per cooling degree day fell between fiscal  years 2010 and 2013, which shows that consumption of chilled water (i.e.,  cooling) decreased more than would be expected simply due to lower  temperatures. AOC’s steam consumption per heating degree day during  this period fluctuated. Figure 5 shows AOC’s annual steam and chilled- water consumption per heating and cooling degree days.
AOC incurs regularly occurring costs as well as capital costs to operate  and maintain CPP. AOC’s regularly occurring costs to operate CPP,  which include, among other things, the fuels and electricity to power the  plant’s generating equipment and the personnel to operate and maintain  them, rose from fiscal year 2009 to fiscal year 2011 and then fell between  fiscal years 2012 and 2014. AOC’s costs (expressed as total  obligations) to operate CPP were about $59 million in fiscal year 2009,  rose to about $69 million in fiscal year 2011, and then fell to about $63  million by fiscal year 2014 (see table 4).
From fiscal year 2009 to fiscal year 2014, fuel and electricity accounted  for about 46 percent of the costs to operate CPP (in 2015 dollars). AOC’s  total obligations on fuel and electricity for CPP rose from about $32  million in fiscal year 2009 to a high of $33 million in fiscal year 2010,  before declining in the subsequent years to about $24 million in fiscal  year 2014. Changes in a variety of factors can affect CPP’s costs,  including fuel and electricity costs, staffing levels, maintenance needs,  efficiency in using fuels, and consumption patterns. As shown above,  costs for individual line items have varied over time.
section_title: AOC Has Opportunities to Further Manage Energy- Related Costs
paragraphs: While AOC has implemented some conservation measures, AOC has  additional opportunities to manage its energy-related costs. AOC’s past  energy audits identified several hundred additional measures that could  further reduce energy consumption in the complex and related costs and  are expected to pay for themselves. Of these, AOC has selected some  measures it intends to implement when resources become available (see  table 5).
These include upgrades to building lighting, plumbing, and mechanical  systems throughout the complex. For example, such upgrades could  include (1) replacing inefficient light fixtures with modern, more-efficient  fixtures with occupancy sensors, (2) replacing older inefficient plumbing  fixtures with low-flow fixtures with automatic sensors, or (3) replacing  pneumatic air-handling controls with more modern, digital controls. The  measures AOC selected with the largest projected energy reductions  include upgrades to the Library of Congress buildings. AOC officials said  they are considering entering into an ESPC for these buildings that would  include improvements to lighting and HVAC systems, and infrastructure  upgrades to the data center in the Madison Building.
section_title: AOC Decided to Pursue a Cogeneration System Based on Partial Updates of Its 2009 Long-term Plan but Did Not Follow Key Leading Federal Capital-Planning Practices
paragraphs: Based on a 2009 long-term plan and subsequent partial updates, AOC  decided that it should install a cogeneration system to replace aging  boilers, meet future demand for steam, and produce electricity. AOC  officials said that since upfront appropriations would not likely be available  to procure the cogeneration system, they had decided to finance the  project. AOC’s iterative planning did not follow key leading practices we  identified for federal capital planning. AOC officials said they were  unaware of the relevant guidance we cited on leading practices and did  not provide documents to support their claims that the agency needed to  move quickly to execute a contract for the proposed cogeneration system.
subsections: section_title: AOC Decided That a Cogeneration System Was Needed Based on a 2009 Long-term Plan and Subsequent Partial Updates
paragraphs: In 2009, AOC issued a long-term energy plan that concluded the agency  should install a cogeneration system to replace aging boilers, meet future  demand for steam, produce electricity, and serve other agency objectives.  AOC continued to justify the need to pursue cogeneration in subsequent  partial updates to the plan. Cogeneration, also known as combined heat  and power, involves the simultaneous production of electricity and heat  from a single fuel source, such as natural gas. AOC has proposed a  cogeneration system that would use a natural gas combustion turbine to  generate electricity and a recovery unit that would use excess heat from  the turbine’s exhaust stream to heat water and create steam (see fig. 6).
AOC officials stated the cogeneration system, despite initial costs that are  significantly higher than other alternatives, will provide needed steam and  save money over time by producing electricity to power its chillers— thereby avoiding or decreasing the costs of purchasing electricity. In  addition, cogeneration systems can produce excess electricity that can be  sold to local utilities, thereby generating income that helps offset the cost  of the system.
AOC’s 2009 long-term energy plan included a forecast showing that  demand for steam would grow and exceed the plant’s capacity to  generate steam by fiscal year 2016. To address this projected gap in  capacity, the 2009 plan assessed nearly 30 capital alternatives for  installing new steam-generating equipment, including natural-gas- powered boilers, a cogeneration system, or nuclear capabilities. The 2009  plan evaluated the capital alternatives using several criteria, including  total life cycle costs, initial construction costs, air pollution emissions,  energy efficiency, and security. AOC’s 2009 plan recommended that  AOC continue to operate CPP as a district energy system to provide  heating, and in that context, the best options based on life cycle costs and  environmental impacts would involve a new cogeneration system or the  use of synthetic coal. Ultimately, citing concerns about the cost and  availability of synthetic coal as well as environmental concerns, the plan  recommended that AOC procure a cogeneration system.
Specifically, the 2009 long-term plan recommended that AOC purchase a  cogeneration system comprising one 7.5-megawatt cogeneration  combustion turbine, which would represent the first of a three-phase  plan. The 2009 plan also called for the installation (in two subsequent  phases) of five natural gas boilers along with two other combustion  turbines—another 7.5-megawatt turbine and a 15-megawatt turbine—and  the equipment needed to distribute electricity throughout the complex.
The 2009 plan assumed the first combustion turbine would serve only  CPP, but that the later installation of the additional turbines would enable  AOC to distribute electricity throughout the complex and potentially allow  for selling excess electricity to the local utility. The estimated construction  cost for the project was $120 million over its three phases. AOC officials  said that it estimated the construction costs in the 2009 plan through a  benchmarking analysis and did not reflect an actual bid from a vendor.
AOC engaged the National Academies’ National Research Council (NRC)  to review a draft of its 2009 long-term energy plan. In response to AOC’s  request, the NRC organized an expert panel that identified several  shortcomings in the draft plan, including that the energy demand  projections were not supported by firm data and did not account for  mandates to reduce energy consumption. In the final version of the 2009  plan, AOC states it addressed NRC’s concerns and accounted for both  increased utility demand from building renovations and reductions in  demand due to the energy reduction mandates.
AOC subsequently developed the design of the cogeneration project  throughout 2012 and 2013. AOC formally proposed the project during its  fiscal year 2012 appropriations hearings. In 2012, AOC also received two  consultant-authored reports assessing the feasibility of the system. These  reports included an analysis that concluded that the value of a  cogeneration system, which AOC officials said represented the first two  phases of the 2009 long-term plan, was highly dependent on the price at  which AOC could sell the excess electricity generated by the system.  Throughout 2013, AOC worked with a vendor to further develop the  design of a cogeneration system representing the first two phases of the  2009 plan. In November 2013, AOC officials stated that the project’s initial  construction-related costs would total roughly $67 million. The vendor  ultimately provided a bid in late 2013 that resulted in a total project cost  that was $100 million over AOC’s estimate. As a result, AOC initiated  discussions with another vendor in January 2014.
On two occasions in 2014, during the course of the audit work for this  report, AOC provided GAO with draft plans that concluded a cogeneration  system was still the preferred means of meeting steam demand. In July  2014, AOC provided GAO with a draft version of a partial update of the  2009 plan prepared by a consultant, titled Strategic Long Term Energy  Plan Update: Draft Final Report, that concluded new steam-generating  capacity was needed to replace two aging boilers and meet projected  increased future demand for steam. The draft July 2014 partial update  included an updated long-term forecast of demand and, unlike the 2009  plan, did not project a gap in steam capacity occurring in 2016. Instead,  the draft recommended that AOC replace the capacity of two aging  boilers to decrease CPP’s reliance on coal. The draft July 2014 partial  update did not, however, describe the expected life of these boilers.  Unlike the 2009 document, the draft July 2014 partial update was not  comprehensive and reviewed adding new natural gas boilers or eight  different configurations of a cogeneration system (which involved  combining new gas boilers with the systems). When presenting the draft  partial update to GAO in July 2014, AOC officials said that the agency  had not accepted the update as final from the consultant and would likely  ask the consultant to add information and make changes before doing so.  The draft July 2014 update recommended the option with the lowest life  cycle costs: that AOC install a natural gas cogeneration system with two  5.7-megawatt turbines, as well as two natural gas boilers providing a total  of 190,000 pounds of steam per hour.
The draft July 2014 partial update said the electricity generated by the  cogeneration system would only be used within CPP and would not serve  the rest of the complex or be sold to a utility; CPP does not have the  infrastructure to provide electricity to the complex. Because of the low  demand for electricity at CPP during winter months—due to relatively low  chiller use—the plant would idle one of the two 5.7-megawatt units during  peak winter conditions. In the draft July 2014 partial update, AOC’s  consultant estimated the initial construction-related costs for the project at  $56 million.
Later, in December 2014, AOC provided GAO with a draft plan, along  with consultant-generated supporting documents, that assessed a choice  between a cogeneration system and a single natural gas-boiler. Unlike  the 2009 long-term plan and the consultant’s draft July 2014 partial  update, the December 2014 draft plan did not include updated long-term  forecasts of demand for steam. Instead, the draft plan used one year of  demand—calendar year 2013—as the basis for all future years. The  December 2014 draft plan stated CPP needed to replace the steam- generating capacity of two of its oldest boilers, citing their age and  increasing operations and maintenance costs and recommended that  AOC install a natural gas cogeneration system with a single 7.5-  megawatt combustion turbine providing a maximum steam capacity of  100,000 pounds per hour. AOC officials stated this would fulfill the first  phase of its 2009 long-term energy plan. The December 2014 draft plan  stated the electricity generated by the cogeneration system would power  CPP’s electric chillers and not serve the rest of the complex.
In contrast to the draft July 2014 update, the December 2014 draft plan  stated that AOC would sell any excess electricity to the local utility. AOC  officials said they expect to use up to 90 percent of the electricity  generated by the proposed system to operate the plant’s chillers, thereby  avoiding paying for the electricity from the local utility and justifying the  system’s relatively large upfront investment (when compared to other  alternatives). The agency plans to sell the excess 10 percent of electricity  at rates to be determined by a future agreement with the local utility. AOC  officials stated this could involve CPP’s becoming a facility qualified to sell  electricity to the grid under the Public Utility Regulatory Policies Act  (PURPA) of 1978. The officials said they used electricity rates for a  qualified facility in the analysis supporting the December 2014 draft plan  to use the most conservative approach. AOC officials said they are  researching other arrangements for selling the excess electricity that  could prove more economically favorable than as a qualified facility under  PURPA.
Table 6 summarizes some of the key attributes of the recommended  options in AOC’s planning since 2009 for meeting future energy needs.
AOC officials stated the cost estimates in the December 2014 draft plan  reflected two independent cost estimates prepared by consultants and  aligned with a bid received in November 2014 from the second vendor, a  bid that was closer to the original project budget than the previous bid.  AOC informed GAO in December 2014 that the agency desired to  execute a contract with the vendor and proceed with construction of the  cogeneration system—consisting of one 7.5 MW combustion turbine as  described in its December 2014 draft plan. AOC officials said they  continued to negotiate the scope of the project, a negotiation that resulted  in, among other things, a reduction in the interest rate for financing the  project. In March 2015, GAO received updated calculations from AOC  reflecting these changes. As of March 2015, AOC had obligated about  $16 million on design, preliminary site work, and management of the  project.
section_title: AOC Officials Said Appropriations Would Not Likely Be Available and Intend to Finance the Cogeneration Project
paragraphs: AOC intends to procure the cogeneration system using a utility energy  services contract (UESC)—an agreement, similar to ESPCs described  previously, in which, in this case, a utility arranges financing to cover the  upfront costs of an energy project that a federal agency then repays over  the contract term from energy cost savings achieved by the project.  Under the UESC, AOC would pay for financing costs, such as interest  payments to the utility, in addition to repaying the initial capital costs of  the cogeneration project (i.e., construction and other upfront costs) over  the contract period (AOC used an analysis period of two years for  construction and up to a 25-year contract period). According to our  analysis of AOC’s updated data supporting its December 2014 draft plan,  the agency would pay about $28 million more in nominal costs under the  UESC than if the agency acquired the system using upfront appropriated  funds: $16 million more in initial construction costs, due to additional  UESC vendor overhead costs, and $12 million more in financing costs  over the life of the contract. Under a typical UESC, repayments to the  utility reflect the estimated cost savings from the project’s energy  efficiency measures. However, under a UESC like AOC has proposed  where the utility guarantees performance and not savings, the utility does  not guarantee that the project will generate sufficient savings to pay for  itself over time.
Acquiring the system using an upfront appropriation would cost less than  using a third party to finance the project over the proposed 27-year  analysis period. However, AOC officials said that since upfront  appropriations would likely not be available to procure the cogeneration  system, they had decided to pursue the project using a UESC. Because  AOC planned to conduct the project without upfront appropriated funds,  AOC officials stated they had not assessed the proposed cogeneration  project using the agency’s capital-planning prioritization process, by  which the agency ranks proposed capital projects and recommends those  projects scoring the highest for funding through annual appropriations. As  a result, AOC did not analyze the project and its merits relative to other  projects using the agency’s pre-determined criteria for capital planning.  AOC officials stated that the aforementioned ESPC projects did not go  through the agency’s capital planning prioritization process for the same  reason.
AOC intends to use a UESC under an arrangement established by the  General Services Administration (GSA) that could help facilitate the  transaction but narrows the number of entities AOC can engage to  complete the project. Through its UESC arrangement, GSA has  established basic contract terms with select utility companies, and  agencies using this arrangement contract with one of these providers.  GSA has contracts with two providers in the Washington, D.C., area.
While the selection of a UESC vendor is limited to two vendors, AOC  officials said that this will not preclude competition as the selected UESC  vendor will obtain competitive bids from subcontractors for the  construction of the cogeneration system.
Based on independent estimates and in alignment with the bid received in  November 2014, AOC’s latest data show that a cogeneration system  consisting of a 7.5 MW combustion turbine and funded by a UESC would  have a total project cost of about $85 million. This includes about $57  million in initial construction-related costs (including contingency funds),  another $4 million in agency project management costs, and about $24  million in financing costs.
AOC’s data show the project’s life cycle costs as lower than other  alternatives, such as a natural gas boiler procured using upfront  appropriations. These data also show that the cogeneration system  procured using a UESC, AOC’s intended course of action, would result in  savings, when compared to a status quo option, of about $7.3 million over  27 years (in today’s dollars) due to the savings achieved by producing its  own electricity for the plant. AOC’s data show that the project would  repay the UESC vendor in full for the capital and financing costs in 21  years (after the completion of construction and once payments had  begun). By comparison, AOC’s data show that a cogeneration system  procured with upfront appropriations would achieve savings in today’s  dollars of $21.4 million over the analysis period when compared to the  status quo option. Further, AOC’s data show a natural gas boiler procured  with upfront appropriations for $9.3 million would achieve savings of  about $2.7 million over the analysis period when compared to the status  quo option.
AOC’s calculations on life cycle costs did not reflect the nearly $16 million  in funds already obligated for the project. AOC officials said they relied on  the National Institute of Standards and Technology (NIST) handbook on  life cycle costing for federal energy management programs. AOC officials  noted the handbook instructs federal agencies to not include sunk costs  when estimating a project’s life cycle costs. Our analysis of AOC’s data  suggest that the agency could have procured a natural gas boiler  providing the same amount of steam for less than the $16 million the  agency has already obligated for the cogeneration project. AOC’s data  show a cost of about $9.3 million for procuring such a boiler. AOC officials  said they would have had to also obligate funds to prepare the plant for a  new boiler, but they did not identify the amount of funds this would have  required.
section_title: AOC Did Not Follow Key Leading Federal Capital- Planning Practices
paragraphs: Key leading capital-planning practices and other federal guidance we  identified state that agencies should, among other things, (1) update their  plans in response to changes in their operating environment; (2) fully  assess their needs and identify performance gaps; (3) assess a wide  range of potential approaches—including non-capital approaches—for  meeting those needs; (4) conduct valid sensitivity and uncertainty  analyses to identify and quantify the riskiest cost drivers of proposed  projects; and (5) engage independent experts when tackling complex  issues. However, AOC’s planning that led the agency to pursue a  cogeneration system did not follow these key leading practices.
subsections: section_title: AOC Did Not Update Its Long- term Plan in Response to Changes in Key Assumptions
paragraphs: Leading organizations generally revise their decision-making process in  response to a perception of changing needs or a changing environment.  However, AOC did not update its 2009 long-term energy plan until late  2014, did so only partially, and has continued to use the 2009 plan to  justify its decision to procure a cogeneration system. In the meantime,  major changes have occurred in key assumptions affecting AOC’s plans,  such as the price of natural gas and the complex’s demand for steam and  chilled water. For example, in part due to increased supplies resulting  from the boom in domestic shale gas extraction, prices for natural gas for  commercial customers fell by about 20 percent between 2009 and 2012  (when AOC formally proposed the cogeneration project). Furthermore,  since publishing its 2009 long-term plan, AOC completed energy audits of  its buildings and implemented several energy conservation measures in  the complex and reduced the complex’s demand for steam and chilled  water.
Despite these changes, AOC officials stated they did not believe it was  necessary to fully update its 2009 long-term plan to implement the  cogeneration system, which they consider to be a single energy  conservation measure that addresses a need to replace aging boilers.  The officials stated they updated the factors that changed since 2009 that  could affect the choice between cogeneration and a natural gas boiler.  AOC officials also told us they recognized the importance of fully updating  the agency’s long-term energy plan and stated they plan to do so later in  fiscal year 2015 after they have made a decision on implementing the  proposed cogeneration system. However, by not fully updating its 2009  long-term plan, AOC has continued to pursue a cogeneration system  without up-to-date information on a variety of factors, such as the  changes in the natural gas markets and the realized impacts of AOC’s  demand reduction efforts, that could change the relative merits of the full  range of alternatives available to AOC for meeting its long-term needs.
Select operators of other district energy system we spoke with stated they  regularly conduct planning efforts to identify the needs of their systems,  and alternatives to address them. For example, one operator said that  although it prepares a strategic plan every 5 years, the operator also  updates demand forecasts and conducts other planning as part of its  annual budgeting process.
section_title: AOC Did Not Fully Assess Needs or Describe a Performance Gap It Intends to Address with Cogeneration
paragraphs: AOC did not fully assess its long-term steam needs or identify the  performance gap the cogeneration project would address. Leading  practices and federal guidance, including the Office of Management and  Budget’s (OMB’s) Supplement to OMB Circular A-11 and GAO’s Leading  Practices in Capital Decision-Making, state that agencies should  comprehensively assess what they need to meet their goals and  objectives, identify any gaps between current and needed capabilities  (i.e., performance gaps), and explain how a capital project helps the  agency address those gaps and meet its goals. However, AOC’s  December 2014 draft plan—which the agency has used to justify the  current cogeneration project—has not comprehensively assessed the  agency’s needs or identified potential performance gaps. Without fully  assessing its needs, the agency risks committing to a project that does  not fully meet its long-term needs and thereby does not provide the  agency with the most efficient use of its funds.
Specifically, AOC’s December 2014 draft plan did not forecast the future  demand for CPP’s heating and cooling services and instead assumed  2013 levels of demand would continue over the 27-year contract for the  cogeneration system. The agency’s 2009 long-term plan included long- term forecasts of steam and chilled water demand showing that future  demand for steam would exceed current capabilities. However, the  forecast for the 2009 long-term plan is outdated as it does not reflect the  realized effects of AOC’s demand management efforts. AOC included  long-term forecasts of steam and chilled water demand in its draft July  2014 partial update, but AOC did not finalize it. In addition, the demand  forecasts in the 2009 long-term plan and its draft July 2014 partial update  may have overstated future needs as they did not fully consider the  impact of AOC’s completed and ongoing energy conservation measures  and only included factors that would increase overall demand for steam.
AOC’s 2009 long-term plan and draft July 2014 partial update assumed  demand for steam and chilled water would increase due to future building  renovations that would either increase the amount of building space  served by CPP or increase the amount of outside air it heats or cools and  circulates through buildings. In the 2009 long-term plan, AOC assumed  energy reduction efforts would offset these increases. As described  above, AOC’s chilled water use has fallen since that time and its steam  use has fluctuated. The draft July 2014 partial update specifically states  that it did not consider reductions in energy use.
The absence of steam demand forecasts in the December 2014 draft plan  (1) disregards prior forecasts that are either outdated or were not  finalized, (2) ignores the possibility of future changes in demand, and (3)  raises questions about the purpose and sizing of the proposed  cogeneration system and how it will meet future needs. In explaining why  it did not forecast long-term demand for the CPP’s services, AOC officials  said new steam-generating capacity was needed—regardless of potential  changes in the long-term demand for steam—to decrease the plant’s  reliance on two of its older boilers at the end of their service life. AOC’s  December 2014 draft plan stated that doing so would thereby allow AOC  to avoid the increased maintenance costs associated with operating the  boilers infrequently. AOC officials stated that the December 2014 draft  plan was intended to compare installing one natural gas boiler with  installing one cogeneration system and re-validate the 2009 long-term  plan’s recommendation, rather than re‐evaluate all long‐term technical  options for meeting steam demand—thereby making it inappropriate to  include a long-term forecast of demand. Furthermore, the AOC officials  stated that expected future demand that reflects reductions due to AOC’s  conservation measures would not reduce demand to anywhere near the  point where a boiler replacement is not needed. However, AOC’s  December 2014 draft plan that it is using to justify the need and scope of  the cogeneration project does not include any such forecasts to support  these statements.
AOC officials stated the two coal boilers needing replacement are nearly  60 years old and are showing signs of wear. The officials stated the  boilers still operate but are unreliable and suffer frequent breakdowns  requiring emergency repairs. However, AOC has not provided documents  that support these statements. AOC estimated that renovating the boilers,  including the addition of currently lacking air-pollution controls, could cost  up to $10 million per boiler. However, reports on the condition of the  boilers provided by AOC, as well as the agency’s aforementioned  planning documents, did not estimate the expected remaining life of the  boilers—thereby not assessing whether a performance gap exists and  making it unclear how the cogeneration system will meet any long-term  needs.
Furthermore, AOC’s December 2014 draft plan did not make clear to  what extent the proposed system would help AOC avoid the increased  maintenance costs associated with continued operation and maintenance  of the two older boilers which can operate on coal. AOC officials said in  February 2015 that once it had installed the cogeneration system, CPP  would keep at least one of the two boilers in reserve to meet peak steam  demand. The officials added that the cogeneration system would allow  CPP to operate these older boilers on natural gas instead of coal.  However, later in its technical comments, AOC noted that CPP would  maintain only one of the older boilers for occasional use  (decommissioning the other once the cogeneration system is  operational). Therefore, AOC will continue to incur maintenance costs  associated with continued use of at least one of the two older boilers.
AOC’s December 2014 draft plan stated the proposed cogeneration  system would enhance the agency’s ability to meet its environmental  objectives but stated the system is not needed to meet current EPA  emissions standards for hazardous air pollutants. The plan stated CPP  can meet promulgated rules limiting emissions of hazardous air pollutants  (HAP) from industrial, commercial, and institutional boilers without  installing the cogeneration system.
Although the cogeneration system would likely increase emissions of  certain air pollutants from CPP due to the increased use of natural gas,  AOC’s draft plan estimated the system would result in lower regional  emissions overall. The electricity generated by the cogeneration system  using natural gas would result in relatively fewer emissions than the  equivalent amount of electricity purchased from the local utility, which  delivers electricity produced predominantly from coal. The December  2014 draft plan states a cogeneration system would result in 14 fewer  metric tons of regional HAPs annually, or 18 percent less than a new  natural gas boiler providing the same amount of steam. AOC’s draft plan  estimates that the cogeneration system will result in lower regional  greenhouse gas emissions, although federal regulations for limiting such  emissions have not yet taken effect. AOC’s December 2014 draft plan  stated a cogeneration system would result in about 15,000 fewer metric  tons of regional carbon dioxide emissions per year—7 percent less than a  new natural gas-powered boiler, an amount that AOC stated is the  equivalent of removing nearly 3,200 vehicles from local roadways each  year.
Furthermore, the December 2014 draft plan stated meeting the agency’s  energy reduction goals did not depend on the cogeneration project. In the  plan, AOC stated that “due in large part to the results achieved through  the ESPCs and other energy reduction activities, AOC will not require  cogeneration to meet the EISA or EPAct requirements at this time.”  However, AOC officials said that if Congress renews EISA or EPAct and  additional annual energy reduction goals are set for federal agencies,  cogeneration may again become key in future AOC energy reduction  efforts.
section_title: AOC Did Not Identify and Evaluate a Range of Alternatives for Meeting Heating Needs
paragraphs: AOC’s plans have only considered capital options for meeting its heating  needs, and its December 2014 draft plan did not evaluate a range of  alternatives. Federal leading planning practices state that capital plans  should consider a wide range of alternatives for meeting agency needs,  including non-capital alternatives, and evaluate them based on  established criteria. GAO’s Executive Guide: Leading Practices in Capital  Decision-Making states that managers and decision-makers in successful  organizations consider alternatives to investing in new capital projects.  Without considering a wide range of options, including non-capital  options, AOC may choose a more expensive alternative for meeting its  needs.
Specifically, AOC’s 2009 plan broadly considered capital alternatives for  meeting long-term demand for steam, such as nuclear or geothermal  power generation, but did not assess non-capital alternatives for meeting  the agency’s objectives, such as implementing operational changes or  conservation measures to decrease consumption in the buildings served  by CPP. GAO’s capital decision-making guide calls for managers to  consider non-capital approaches among the alternatives for meeting an  agency need, but AOC’s plan did not explicitly examine such options. As  a result, AOC may not have identified the most cost-effective means to  heat and cool the complex.
As we noted earlier, AOC’s 2014 planning documents assessed a  narrower range of capital alternatives—adding a cogeneration system or  new natural-gas powered boilers—to meet the demand for steam. AOC’s  2014 plans also envision smaller cogeneration systems that represent a  significantly reduced scope from the 2009 plan, which recommended the  installation of three turbines in phases to provide power to the entire  complex. For example, the December 2014 draft plan recommends a  single turbine system that provides electricity to CPP and not the complex  The 2014 plans also did not fully take into account AOC’s efforts to  reduce the demand for steam through conservation measures in the  buildings served by CPP–which may include operational changes or  smaller capital investments–on future steam demand. As described  above, AOC has installed some conservation measures in the Capitol and  House and Senate office buildings and has identified many additional  measures that it could implement in the future. The July 2014 plan  ignores energy savings from these measures, while the December plan  used demand data from 2013 without adjustments for measures  implemented since then or in the future.
AOC officials stated its latest plan was not meant to fully update the 2009  plan and thereby assess a broad range of alternatives for meeting the  agency’s needs. AOC officials stated that the 2014 plan was for replacing  current equipment and is consistent with implementing the first phase of  the 2009 plan. AOC officials stated they did not believe it was necessary  to fully update the 2009 plan to implement a single energy conservation  measure that replaces aging boilers—the cogeneration system. AOC  officials added that they intend in fiscal year 2015 to fully update the 2009  long-term plan, after the agency has made a decision on implementing  the proposed cogeneration project.
By only considering a narrow range of alternatives, not accounting for the  agency’s ongoing efforts to reduce its steam demand, or fully updating  the long-term plan before undertaking a costly and risky project, AOC  may be selecting a capital alternative that is not scaled to meet the  agency’s long-term needs and therefore could cost more than necessary.
section_title: AOC Did Not Perform Valid Sensitivity or Uncertainty Analyses
paragraphs: AOC did not perform valid sensitivity or uncertainty analyses when  assessing the cogeneration system and available alternatives for meeting  the agency’s long-term demand for steam. The GAO Cost Estimating  Guide calls for agencies, when considering capital projects, to conduct  both sensitivity and uncertainty analyses to identify and quantify the cost  drivers that pose the most risk of increasing project costs beyond  expectations. Sensitivity analysis shows how changes in a key  assumption affect the expected cost of a program or project, while holding  all other assumptions constant. Uncertainty analysis captures the  cumulative effect of various risks on the expected cost of a project by  changing many assumptions at the same time. Such information can  inform managers about whether their preferred choice remains superior  among a group of alternatives.
In the case of the proposed cogeneration project, the absence of valid  sensitivity and uncertainty analyses makes it unclear whether the project  will generate sufficient savings to cover its costs under a range of future  conditions—raising questions on whether the project is more cost- effective than other alternatives. Furthermore, should AOC’s projections  about the project’s expected savings prove inaccurate, Congress would  likely need to appropriate more funds to cover a portion of AOC’s costs to  own and operate the system—including the financing costs to be paid to  the UESC vendor.
Specifically, in its December 2014 draft plan, AOC did not vary a key cost  driver when it performed a sensitivity analysis on the expected life cycle  costs of the alternatives it considered. When conducting sensitivity  analyses, the Cost Estimating Guide calls for agencies to vary the key  cost drivers of a project’s life cycle costs, particularly those that are most  likely to change over time. The expected life cycle costs of operating  either a cogeneration system or a natural gas boiler depends, in part, on  the demand for heating and cooling over time. However, as noted above,  AOC did not vary demand for heating and cooling in its December 2014  draft plan and instead assumed 2013 levels throughout the forecast  period.
The Cost Estimating Guide also states that valid sensitivity analyses vary  assumptions about key cost drivers in ways that are well-documented,  traceable, and based on historical data or another valid basis. However,  neither AOC nor a laboratory it engaged presented rationales for their  variations of forecasted natural gas and electricity prices from the  expected case. In its December 2014 draft plan, AOC varied its  assumptions by applying a subjective 25 percent change over the 27-year  forecast period. The plan provided no rationale for using 25 percent.
In a separate analysis accompanying the December 2014 draft plan, a  Department of Energy (DOE) laboratory engaged by AOC presented  results of a sensitivity analysis assessing the impact of varying natural  gas and electricity prices that varied their initial values. The analysis  varied the starting values of both natural gas and electricity prices in a  range based on the author’s professional judgment rather than empirical  evidence. Furthermore, the analysis did not assess the impact of varying  natural gas and electricity prices on the alternatives AOC considered. The  Cost Estimating Guide states sensitivity analyses should test the  sensitivity of the ranking of considered alternatives to changes in key  assumptions. However, the analysis did not assess the potential impact of  varying natural gas and electricity prices on the other considered  alternative in AOC’s analysis—a natural gas boiler. AOC officials stated  the laboratory is an acknowledged expert charged with administration of  the federal government’s energy management program.
Furthermore, in its December 2014 draft plan AOC relied on DOE  forecasts of natural gas and electricity prices in its expected case, but  AOC did not use DOE forecasts in its sensitivity analysis. Instead, the  agency chose to vary the prices by 25 percent as discussed above. Using  AOC’s 25 percent adjustment, instead of available DOE forecasts, to vary  future natural gas and electricity prices raises questions about whether  the project remains superior to other options under a range of possible  outcomes.
Specifically, in the Energy Information Agency’s Annual Energy Outlook  2014, DOE created numerous forecasts of natural gas and electricity  prices to represent a range of possible future scenarios. When using  several of these DOE forecasts, we found the expected savings of the  proposed cogeneration project, when compared to other alternatives,  changed significantly. Specifically, in AOC’s expected case the project  financed using a UESC saves about $4.6 million more over the 27-year  period than a boiler acquired with upfront appropriations. Using a DOE  scenario where natural gas is more plentiful and prices are lower than in  the expected case, however, the cogeneration project becomes less  advantageous—saving $1.9 million more than a boiler. Conversely, using  a DOE forecast where natural gas is relatively less available and prices  are higher over time, the savings of the cogeneration project increases  slightly to $5.0 million more than a boiler.
In addition to a sensitivity analysis, the Cost Estimating Guide calls for  agencies to perform an uncertainty analysis to capture the cumulative  effect of various risks on the expected cost of a project. In an uncertainty  analysis, project costs should involve a range of possible costs based on  a specified probability, known as a confidence interval. Unlike sensitivity  analysis, an uncertainty analysis looks at the effects of changing many  assumptions at the same time. This involves, among other things,  identifying key project cost drivers, modeling various types of uncertainty  associated with the cost drivers, and using a simulation method, known  as a Monte Carlo analysis.
AOC performed an uncertainty analysis on the expected initial  construction cost of the project, but did not perform a similar analysis for  the life cycle costs of the options it considered. AOC developed an  uncertainty analysis on the cogeneration project’s initial construction cost  using a Monte Carlo simulation, and agency officials stated this helped  them assess the risks that could cause the initial cost of constructing the  cogeneration system to exceed the expected level. AOC officials also  stated the analysis allowed them to calculate a confidence interval around  the expected initial construction cost and therefore budget an appropriate  amount of contingency funds. However, AOC did not present its  estimates of the project’s savings, derived from its life cycle cost analysis,  as a range of possible costs based on a specified probability. Instead,  AOC presented a point estimate of the project’s life cycle cost without a  confidence interval quantifying the degree of uncertainty.
AOC officials said they did not believe an uncertainty analysis was  required, based on their understanding of NIST’s handbook on life cycle  costs that states uncertainty assessment is more complex and time  consuming than sensitivity analysis and therefore the decision for doing  so depends on an agency’s judgement of a variety factors, including the  relative size of the project, availability of data, and availability of  resources such as time, money, and expertise. However, the estimated  life cycle cost of the project is determined, in part, on the forecasted  prices for key inputs like natural gas and electricity that have historically  been highly variable. Without a credible uncertainty analysis, AOC has  not presented information on which cost drivers pose the most risk to the  project’s life cycle cost.
section_title: AOC Did Not Use an Independent Panel to Review a Full Update of a Long-term Energy Plan
paragraphs: In addition to the capital planning guidance we cite above, our prior work  recommends that federal agencies use independent panels of experts for  conducting comprehensive, objective reviews of complex issues, such as  those facing AOC. As mentioned above, AOC engaged the National  Academies’ National Research Council (NRC) to review a draft of its 2009  long-term energy plan and the final version of the 2009 plan stated that it  addressed NRC’s recommendations. However, unlike its 2009 plan, AOC  has not engaged an independent panel like the NRC to review the  subsequent iterations of its planning. AOC officials stated that they did not  find it necessary to fully update its long-term plan before executing the  contract for the cogeneration system, which the officials stated is a single  energy conservation measure intended to replace aging boilers. However,  the cogeneration system is relatively complex when compared to  available alternatives such as boiler replacement and AOC has obligated  about $16 million in design, preliminary site work, and management for  the project—an amount that AOC’s data suggests could have procured a  new natural gas boiler providing the same amount of steam. Using an  independent panel to review AOC’s planning could have provided more  assurance that AOC was positioning itself to cost-effectively meet its  long-term energy needs.
section_title: AOC Was Unaware of Relevant Leading Practices and Did Not Support Claims on the Need to Quickly Execute Cogeneration Contract
paragraphs: Since issuing its long-term energy plan in 2009, AOC has pursued an  iterative planning approach without fully updating the long-term plan or  following key leading practices. AOC officials said they were generally  unaware of the applicability of the leading practices we cited. AOC  officials said they instead relied on other sources of federal guidance,  such as NIST’s handbook on determining the life cycle costs of energy  conservation projects or DOE’s guidance for using UESCs to finance  such projects, an approach that led them to believe that it was  unnecessary to fully update the long-term energy plan before executing a  contract for the cogeneration project since its intent is to replace aging  boilers. However, the guidance AOC cited generally applies after an  agency has conducted a needs assessment and conducted a capital- planning process using GAO, OMB, and other relevant guidance cited  above. Thus, the guidance AOC officials said they followed does not  substitute for first completing an up-to-date capital plan. Without following  key leading capital practices, AOC’s planning could commit the agency to  a project that does not fully and cost-effectively meet its needs—thereby  not providing taxpayers or Congress with the most efficient use of funds  in a time when the federal government faces significant financial  challenges.
In August 2014, we discussed with AOC shortcomings in its planning for  the cogeneration project relative to leading practices and referred the  agency to documents outlining these practices. AOC officials then  provided the aforementioned set of planning documents in December  2014 that the agency stated were intended to address our concerns.  AOC officials also provided several reasons why they needed to continue  planning the project and quickly execute a contract. These included (1)  that certain existing boilers were near the end of their useful life and that  AOC might face challenges meeting demand for steam in the near future,  and (2) that AOC needed to start construction soon or the Washington,  D.C. government would retract the project’s construction and air quality  permits.
Our review did not identify valid support for these claims. Reports on the  condition of the boilers provided by AOC did not identify the remaining  useful life of the two boilers in question. Additionally, AOC did not provide  documents supporting its statement that the permits for the project were  at risk; AOC officials told us they believed the planning steps the agency  had taken would be sufficient to keep the permits in effect.
section_title: Conclusions
paragraphs: AOC has implemented many measures to manage the costs of heating  and cooling the Capitol Complex and has achieved measurable results.  The agency has additional opportunities to manage these costs through  conservation. AOC and its contractors have identified hundreds of  additional energy conservation measures, and the agency intends to act  on some of them when resources become available.
Related to this, AOC’s planning to evaluate the relative merits of the  currently proposed cogeneration project has not followed key leading  practices identified in OMB, GAO, and other relevant capital-planning  guidance. These include not (1) fully updating the agency’s 2009 long- term energy plan to reflect changes in energy costs and demand that  occurred since the plan was issued; (2) fully assessing long-term energy  needs or the performance gap the project would address in light of  changes in key variables that could affect its relative merits; (3) identifying  a full range of alternatives for meeting future needs, including non-capital  or conservation measures; (4) conducting valid sensitivity or uncertainty  analyses; or (5) engaging an independent panel of experts to review  AOC’s updates of its long-term plan. AOC officials said they were  unaware of some of these leading practices and therefore did not follow  them. AOC’s planning was insufficient for us to discern whether the  cogeneration project would generate enough savings to cover its costs or  prove more cost-effective than other options for meeting the agency’s  needs. Thus, without addressing the shortcomings listed above, AOC’s  planning does not provide confidence that the proposed project will  decrease the need for future energy-related appropriations.
section_title: Recommendations for Agency Action
paragraphs: GAO is making two recommendations to the Architect of the Capitol.
We recommend that the Architect of the Capitol, prior to undertaking  future major capital projects related to its energy needs, fully update its  long-term energy plan while following key leading capital-planning  practices. As part of this effort, the agency should:  fully assess the complex’s long-term needs and identify any  performance gaps, while taking into account the effects of possible  changes in demand—including the impacts of ongoing and planned  energy conservation measures and other factors that could affect the  demand for CPP’s services;  identify and evaluate a range of alternatives for how to best meet the  agency’s needs, including non-capital options and energy  conservation measures that could reduce the demand for CPP’s  services; and  identify key assumptions and risks of the alternatives considered and  perform valid sensitivity and uncertainty analyses to determine which  alternatives could prove the most cost-effective under a range of  potential future conditions.
As AOC updates its long-term energy plan, the Architect should seek a  review of the plan by an independent panel of experts to ensure it follows  key leading practices and provide the results of the review to Congress.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the AOC for review and comment. In  its written comments, included as appendix II, the Architect disagreed  with our findings, conclusions, and recommendations. However, AOC  also said that the agency has effectively implemented our  recommendations in a “manner sufficient to move forward with the  planned cogeneration project.” As we discuss below, AOC provided two  new reports focusing on the need to replace its oldest boilers and  potential risks and costs associated with the proposed cogeneration  project. We did not review these reports because AOC did not provide  them or make us aware of them until after we had completed our work.  We plan to review these studies in the future and discuss them with  Congress. While these reports may expand on the justification for the  cogeneration project, we continue to believe that AOC should first update  its overall long-term strategic energy plan and evaluate a full range of  alternatives for best meeting its needs prior to undertaking major energy  projects in the future. We also acknowledge that AOC may need to  replace certain steam-generating equipment, in part or in whole, at some  point in the future. AOC also provided technical comments, which we  addressed as appropriate in the report.
In its written comments, AOC stated that contrary to our  recommendations and assertions in the draft report, AOC adhered to key  leading capital-planning practices based on its 2009 long-term energy  plan, 2014 revalidation efforts, and additional documentation. AOC’s  written comments contradict statements by AOC officials in April 2015  that they were not aware of the key leading capital-planning practices  cited in our draft report. At that time, these officials said that AOC instead  followed NIST guidance on performing life-cycle cost analyses for energy  conservation projects and DOE guidance for financing energy projects  using non-appropriated funds. Furthermore, the agency did not provide  evidence that contradicted our finding about it not adhering to these  practices during our review. We therefore maintain that we reached the  correct conclusion about AOC’s adherence to key leading capital-  planning practices.
As part of our first recommendation, we said that AOC should fully assess  the complex’s long-term needs and identify any performance gaps. As  part of its written comments, AOC provided additional documentation that  the agency said fully explains how the agency has already assessed  these needs through preparing a justification for replacing the complex’s  aging boilers. The documentation expands on its efforts to support the  proposed cogeneration project, including a report on the condition of two  of its oldest boilers and an updated sensitivity analysis comparing the  long-term benefits of installing new boilers or a cogeneration system. We  did not assess the validity of these documents because AOC did not  provide them or make us aware of them until after we had sent the draft  report for comment. Moreover, AOC did not use this information as part of  the basis for selecting the current planned cogeneration project. We  maintain that AOC should conduct such an analysis prior to making a  decision about energy projects, rather than as part of efforts to validate  decisions made in 2009 and 2014.
Another part of our first recommendation said that AOC should identify  and evaluate a range of alternatives for how to best meet the agency’s  needs, and identify key assumptions and risks of the alternatives.  Regarding identifying and evaluating a range of alternatives, including  non-capital options and energy conservation measures, AOC said that it  did so in 2009 and selected cogeneration to replace the aging boilers.  AOC added that it updated key assumptions used in the 2009 plan in  2014 and further evaluated the two technically feasible options—natural  gas boilers and cogeneration—in extensive detail, which AOC stated  validated that cogeneration remained the best option. We agree that the  2009 long-term energy plan broadly considered a range of alternatives for  meeting the agency’s long-term energy needs, but the analysis conducted  in 2014 focused solely on two options. From 2009 to the present, many  factors have changed that could potentially lead AOC to reach a different,  more cost-effective solution to meet any future performance gaps. For  example, the costs of fuels, electricity, and labor have changed since  2009. In addition, the demand for AOC’s services has changed as the  agency has pursued conservation and other energy-saving efforts.  We  therefore continue to believe that AOC should fully update its long-term  energy plan, taking into account changes in key variables and the full  range of options for how best to meet the agency’s needs, including non- capital options and energy conservation measures.
The last part of our first recommendation said that AOC should identify  key assumptions and risks and perform valid sensitivity and uncertainty  analyses to identify cost-effective alternatives under a range of future  scenarios. In its written comments, AOC said that it identified key  assumptions and risks and subsequently performed valid sensitivity and  uncertainty analyses. The Department of Energy’s National Renewable  Energy Laboratory (NREL), as a third-party reviewer of the cogeneration  validation effort, conducted a deterministic sensitivity analysis of the  cogeneration project’s life-cycle cost, and AOC performed its own  sensitivity analysis in its December 2014 draft plan. Our report identified  shortcomings of these analyses, raising questions about their usefulness  in identifying a cost-effective alternative. AOC also used a different third  party to perform a probabilistic risk assessment of the project’s  construction cost, which we acknowledged in our report. In addition, AOC  said the agency also used another third party to complete an additional  probabilistic risk assessment of the project’s life-cycle cost in May 2015.  We did not assess the validity of this analysis because AOC did not  provide it to us until after we had sent the draft report for comment. While  AOC has conducted some sensitivity and uncertainty analyses, it did so  to support a decision made in 2009, rather than to evaluate alternatives in  the context of a full update of its long-term energy plan. We, therefore,  continue to believe that AOC should fully update its long-term energy plan  and follow leading practices for analyzing alternatives in that context.
Our second recommendation states that, as AOC updates its long-term  energy plan, the Architect should seek an independent review of the plan  by an expert panel to ensure it follows key leading practices and provide  the results of the review to Congress. In its written comments, AOC  stated that it had engaged an outside entity to review AOC’s 2014 effort  to validate its choice to pursue a cogeneration project. However, a review  of a partial update to a 2009 plan does not address our recommendation  that AOC fully update its long-term energy plan and then seek outside  review by an independent panel of experts, as it did in 2009.
AOC’s written comments included additional details about its  disagreement with our findings, conclusions, and recommendations,  which we address in appendix II.
We are sending copies of this report to the appropriate congressional  committees, the Architect of the Capitol, and other interested parties. In  addition, the report is available at no charge on the GAO website at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  Frank Rusco at (202) 512-3841 or ruscof@gao.gov or Lori Rectanus at  (202) 512-2834 or rectanusl@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made key contributors to this report are  listed in appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our work for this report focused on the Architect of the Capitol’s (AOC)  Capitol Power Plant (CPP) and actions taken by AOC to manage the  costs of providing heating and cooling services to the complex. In  particular, this report examines: (1) measures AOC implemented since  GAO’s 2008 report to manage the energy-related costs of the buildings  served by CPP and opportunities, if any, to further manage these costs,  and (2) how AOC decided to procure a cogeneration system and the  extent to which AOC followed leading capital-planning practices.
To identify measures AOC has implemented since 2008 to manage  energy-related costs, we examined AOC and CPP appropriations,  obligations, and expenditures data from 2009 to 2013 to identify the costs  incurred by AOC related to production, distribution, and consumption of  heating, cooling, and electricity by the complex. We assessed the  reliability of these data—for example, by reviewing related documentation  and interviewing knowledgeable AOC budget and finance officials—and  found them sufficiently reliable for our reporting purposes. We also  reviewed relevant AOC reports and documents, and interviewed AOC  and CPP officials.
To identify measures AOC could potentially implement to further manage  its energy-related costs, we reviewed AOC reports and other documents,  such as energy audits of CPP’s steam and chilled water systems. We  assessed the reliability of the data in these audits by reviewing related  documentation and interviewing knowledgeable AOC officials and found  these data sufficiently reliable for our reporting purposes. We also  interviewed eight operators of other district energy systems to learn about  measures they have implemented to manage costs, as well as the  benefits and costs associated with those measures. We identified these  operators based on, among other things, our preliminary research;  interviews with CPP staff and managers of other district energy systems;  we selected the operators based on similarities to the CPP, such as  whether the operators were located in climates similar to Washington,  D.C. We selected eight operators: five in the Washington, D.C., area and  three in the Boston, Massachusetts, area. Four of the operators are public  entities and the remaining four are private, two of which are private  universities (see table 7). The information collected during these  interviews cannot be generalized to all district heating or cooling systems.
To review AOC’s planning effort to further manage its energy-related  costs, we reviewed AOC’s planning documents and recent updates,  including (1) AOC’s 2009 Strategic Long-Term Energy Plan, (2) AOC’s  draft Strategic Long-Term Energy Plan released in the summer of 2014,  and (3) AOC’s draft Cogeneration at Capitol Power Plant Project  Summary and accompanying consultant reports issued in December  2014. We identified four sources of federal guidance on capital planning  and alternatives analysis and compared the guidance in those documents  to AOC’s planning documents. We also interviewed AOC officials to  discuss the agency’s planning documents and efforts.
We conducted our work from December 2013 to September 2015 in  accordance with all sections of GAO’s Quality Assurance Framework that  are relevant to our objectives. The framework requires that we plan and  perform the engagement to obtain sufficient and appropriate evidence to  meet our stated objectives and to discuss any limitations in our work. We  believe the information and data obtained, and the analysis conducted,  provide a reasonable basis for any findings and conclusions in this  product.
section_title: Appendix II: Comments from the Architect of the Capitol
subsections: section_title: See comment 20
paragraphs: Comment 1: We agree that CPP has equipment that may need replacement, in part  or in whole, at some point in the future. However, AOC has not provided information  on the likelihood of any such failures. After we provided our draft report to AOC for  comment, the agency provided a new report on justifying the replacement of some of  its older boilers, dated July 17, 2015, that provides anecdotes on problems AOC has  overcome in maintaining the boilers but did not provide information quantifying the  operational or budget impacts of these problems or estimates of the likelihood of a  sudden failure of the boilers in the near future. Furthermore, AOC has not provided  us with information—other than condition reports we reviewed finding that the boilers  were in good to fair condition for their ages—supporting AOC’s claims that the  boilers are effectively “on life support.”
Comment 2:  We agree that AOC should operate and maintain CPP with the goal of  meeting peak steam demand. However, AOC has not quantified any negative effects  that would occur if CPP had to meet peak steam demand while operating its boilers  only on natural gas and experiencing a temporary boiler outage. Furthermore, as  AOC has noted, the proposed cogeneration system would not provide enough steam  to allow AOC to meet its peak steam demand without using one of the two older  boilers it intends to replace. Therefore, AOC will continue to incur some of the  increased costs associated with infrequent use of one of the two older boilers that  the agency stated the cogeneration project was meant to address. Furthermore, it is  not clear when the agency intends to fully replace the capacity of the two oldest  boilers. We therefore continue to believe that AOC should fully update its long-term  energy plan while following leading capital-planning practices to ensure the agency  fully assesses its needs and finds the most cost-effective ways to meet them.
Comment 3:  We agree that AOC’s 2009 long-term energy plan assessed a broad  range of technical options for providing heating and cooling to the complex.  However, given that many factors have changed that could potentially lead AOC to  reach a different, more cost-effective solution to meet any future performance gaps,  we continue to recommend that AOC fully update its long-term energy plan while  following key leading capital-planning practices and seek an independent review of  the plan and provide the results of this review to Congress. In its letter, AOC noted  that the NRC committee that reviewed its 2009 plan stated that “electric generation  (or Cogeneration) is the best long-term strategy for AOC to achieve its mission of  reliable, cost-effective, efficient, and environmentally sound utility services.”
However, we did not find this statement in the NRC committee’s 2009 report;  instead, it is an AOC statement included in its final 2009 long-term energy plan.
Comment 4:  AOC sought to clarify the progression of its planning efforts, which we  summarized in Table 6 in our report. However, it is unclear why AOC stated that we  mischaracterized its July 2014 Strategic Long Term Energy Plan Update: Draft Final  Report, which we described as a draft plan throughout our report. In August 2014,  we discussed with AOC shortcomings in its planning for the cogeneration project  relative to leading practices and referred the agency to documents outlining these  practices. AOC officials later wrote that the agency addressed the presented  shortcomings by completing the December 2014 draft plan and supporting  documents, which called for a cogeneration system with a configuration that differed  from the July 2014 draft plan.
Comment 5:  AOC stated that its 2014 revalidation addressed the key leading  capital-planning practices we cited, but this revalidation focused on two technical  options and did not, as called for in leading practices, fully assess the complex’s  long-term needs and identify and evaluate a full range of options for best meeting  those needs. We continue to maintain that, prior to undertaking major energy  projects, AOC should fully update its 2009 long-term energy plan as called for in  leading capital-planning practices, given that key factors have changed that could  have changed the plan’s conclusions.
Comment 6:  AOC stated that it completed an evaluation and redeveloped its long- term steam demand forecasts to address the urgent need to replace its older coal- firing boilers. We did not assess the validity of this evaluation because AOC did not  provide it, or make us aware of it, until after we had sent the draft report to the  agency for its comments. This evaluation did not accompany the agency’s December  2014 draft plan, which AOC used to justify the need for and scope of the proposed  cogeneration project.
Comment 7:  We agree that AOC reviewed a broad range of options for meeting its  long-term needs in its 2009 long-term energy plan. However, AOC did not examine  non-capital options in the 2009 plan—such as operational changes or conservation  measures—and it is unclear how or when AOC assessed some of the capital or  financing options it cited in its written comments.  Since 2009, AOC has assessed  two capital options—a cogeneration system or a natural gas boiler. From 2009 to the  present, many factors have changed that could potentially lead AOC to reach a  different, more cost-effective solution to meet its needs. Therefore, we continue to  believe that AOC should identify and assess a wide range of options for meeting its  needs in a full update of its long-term energy plan.
Comment 8:  We have not assessed AOC’s additional sensitivity analysis, as the  agency provided it after we had completed our draft report. We do not know the  basis for AOC's statement that the group of energy conservation measures it  identified would reduce the complex’s steam demand by 20 percent or the basis for  the statement that the cost of the measures—including some or all of the costs of the  Cannon House Office Building Renewal project—would exceed $2 billion.
Comment 9:  AOC disagreed with our statement that the agency did not update its  2009 long-term plan in response to changes in key assumptions, citing the analyses  it performed in 2014 and 2015 on the life cycle costs of the proposed cogeneration  system and an alternative of a natural gas boiler. However, AOC did not update the  key assumptions in the context of a full update of its 2009 plan, which assessed a  broad range of options for meeting the complex’s heating and cooling needs. AOC  stated that it included updated assumptions in its spreadsheets on the life cycle costs  of the proposed cogeneration project and a natural gas boiler alternative, and stated  that we declined its offers to discuss these spreadsheets. However, we reviewed  these spreadsheets containing AOC’s life cycle cost analyses and identified  shortcomings that we describe in our report.
Comment 10:  AOC stated that it completed a probabilistic risk assessment in May  2015 that was consistent with GAO’s Cost Estimating Guide, which identifies some  key leading capital-planning practices. However, AOC did not make us aware of or  provide this assessment until after we had completed our review and prepared our  draft report.
Comment 11:  AOC stated that the Department of Energy’s National Renewable  Energy Laboratory (NREL) provided an independent review of its December 2014  draft plan, which compared the proposed cogeneration system to an alternative of a  natural gas boiler. NREL’s review of a partial update to a 2009 plan, rather than a full  update, does not address our recommendation. AOC needs to fully update its long- term energy plan and then seek outside review by an independent panel of experts,  as it did in 2009.
Comment 12:  We agree that cogeneration can offer benefits in certain settings.  However, given the significantly higher upfront costs of cogeneration when compared  to alternatives like a natural gas boiler, it is important that the planning involved in  selecting the technology over viable alternatives exhibit the aspects of key leading  capital-planning practices we cited—such as fully assessing needs, assessing a  range of alternatives, and using valid sensitivity and uncertainty analyses to identify  key risks and confirm the superiority of a chosen option over its alternatives. To  ensure that AOC’s choices for meeting its long-term energy needs result from  planning that exhibits these leading practices, we continue to believe that AOC  should fully update its long-term energy plan while following the key leading practices  we cited.
Comment 13:  AOC stated that the construction permit for the proposed  cogeneration project will expire in June 2016 and that fully implementing our  recommendations would introduce a delay of approximately two years to either  option for obtaining additional steam generating capacity. We maintain it is important  for AOC to make the correct decisions about its capital and long-term energy needs  through planning that follows key leading capital-planning practices, regardless of  when any permits may expire for a particular project. Furthermore, AOC did not  provide a basis for its claim that fully updating its long-term energy plan would cause  a delay of an additional two years to either option for adding new steam generating  capacity, and if AOC’s claim is accurate then the agency should start the update as  expeditiously as possible. Therefore, we continue to recommend that AOC fully  update its long-term energy plan while following leading capital-planning practices  before undertaking future major capital projects related to its energy needs.
Comment 14:  We agree that AOC faces limits on its continued use of coal at CPP  and on its emission of air pollutants, and we believe AOC should factor in such  constraints in a full update of its long-term energy plan.
Comment 15:  AOC stated in its letter that our report suggested that capital-planning  guidance is clear and leaves no room for misunderstanding or misinterpretation by  agencies. During the course of our review, and after receiving a preview of our  report’s findings, AOC officials said they were generally unaware of the applicability  of the leading practices we cited. We identify in our report GAO’s prior work that  recommends the use of independent panels by agencies when addressing complex  issues such as those facing AOC, and as the agency itself used in 2009 to review its  draft long-term energy plan. As part of fulfilling our recommendation that the agency  fully update its long-term energy plan while following leading capital-planning  practices, we continue to believe AOC should submit the plan for review by an  independent panel of experts and submit the results to Congress.
Comment 16: AOC did not assess the proposed cogeneration project using its  capital planning prioritization process for projects to be funded with upfront  appropriations, stating that it is the agency’s strategy to use a UESC to finance the  proposed cogeneration project—thereby allowing AOC to request appropriations to  fund other critical infrastructure projects for which AOC stated such alternative  funding sources are not available. As we stated in our report, by not assessing the  proposed project using the agency’s capital planning prioritization, AOC did not  analyze the project relative to other projects for which the AOC was seeking  appropriated funding using the agency’s pre-determined criteria for capital planning.
Comment 17:  We agree that, like the proposed cogeneration project, AOC would  have incurred some pre-construction obligations for design and project management  to replace the steam-generating capacity of one or both of its older coal-firing boilers  with a natural gas boiler. AOC’s draft December 2014 plan shows that a natural gas  boiler providing the same amount of steam as the proposed cogeneration system  would cost approximately $9.3 million. It is not clear to what extent this estimate  includes pre-construction obligations, which for the cogeneration project totaled  about $16 million as of March 2015.
Comment 18:  We agree that CPP may not be able maintain adequate capacity to  meet peak demand should both older coal-firing boilers fail at the same time, but this  does not change the need for AOC to fully assess its long-term energy needs and  evaluate a range of alternatives for meeting them in the context of a full update of its  long-term energy plan.
Comment 19:  AOC officials stated appropriations would likely not be available for  the cogeneration project and therefore selected a UESC to finance the project.  Because the agency did not intend to use upfront appropriations to acquire the  system, AOC did not assess the project using its capital planning prioritization  process. As we reported, acquiring the system using a UESC results in more upfront  costs and financing costs than if the agency used upfront appropriations. AOC stated  that it discussed its funding challenges with GAO, but it is not GAO’s role to advise  agencies as they seek funding for their proposed capital projects.
Comment 20:  AOC stated that its selection of the proposed cogeneration project  and its revalidation efforts have followed key leading practices. However, as we state  in our report and our response, we remain unconvinced that AOC’s planning followed  key leading capital-planning practices and therefore AOC has not demonstrated  whether the proposed cogeneration project will prove more cost-effective than other  alternatives for meeting the agency’s needs. We therefore continue to recommend  that AOC, prior to undertaking major energy projects, fully update its 2009 long-term  energy plan while following key leading capital-planning practices, including: fully  assessing its energy needs, identifying and evaluating a range of alternatives for  meeting its needs, and identifying key assumptions and risks and performing valid  sensitivity and uncertainty analyses. We also continue to recommend, given the  complexity of the issues it is facing, that AOC seek a review by an independent panel  of experts as it fully updates its long-term energy plan and provide the results of this  review to Congress.
section_title: Appendix III: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the individuals names above, Michael Armes (Assistant  Director); Michael Hix (Assistant Director); John Delicath; Philip Farah;  Cindy Gilbert; Geoff Hamilton; Dan Paepke; Mick Ray; and Shep Ryen  made key contributions to this report.