DOE data center deal still at impasse

Congress wants to know what is holding up a $70 million Department of Energy data center consolidation with Lockheed Martin.

FCW reported on June 21 that the energy savings performance contract (ESPC) was put on hold in March by the Office of Management and Budget for reasons OMB declined to specify. On June 27, however, a DOE official testified before the House Science Space and Technology Committee's Energy and Oversight Panel that the continued hold is a DOE decision.

A bicameral letter authored by five Congressmen July 10 aims to end the confusion, directing Energy Secretary Ernest Moniz and OMB Director Sylvia Burwell to clarify positions on the ESPC deal.

Specifically, the letter asks what OMB's role is in approving ESPC projects, whether data center ESPC projects are consistent with existing statutory authority and a timeframe for OMB approval of "project(s) currently delayed at the OMB."

The hold "is creating an impasse across the federal government and sending a chilling effect" across multiple agencies pursuing ESPCs for data center consolidation and optimization, according to the letter. It was signed by Reps. Peter Welch (D-Vt.), Gerry Connolly (D-Va.), and Anna Eshoo (D-Calif.), and Sens. Ron Wyden (D-Ore.) and Al Franken (D-Minn.).

The questions come as several federal agencies are exploring the use of ESPCs to optimize their data centers, but all eyes – industry and federal – are focused squarely on the proof-of-concept deal between DOE and Lockheed Martin.

OMB has remained silent on the issue, declining to comment to FCW on why it initially raised concerns about the deal. And the recent DOE testimony seems to place the contract squarely in DOE's hands.

"This is a Department of Energy decision, the contract is under review at DOE," said Dr. Kathleen Hogan, DOE's deputy assistant secretary for energy efficiency, in response to several questions about the hold from Rep. Dan Maffei (D-NY) on June 27.

Maffei alluded to lucrative savings taxpayers may receive if ESPCs prove to be successful vehicles for the optimization of data centers, which consume 100 times more energy than an office building of equivalent size.

While ESPCs have saved the federal government billions of dollars improving infrastructure efficiencies across the country, such contracts have never involved a strictly IT space like data center optimization. But it might not happen at all if one of the major deals fails, Maffei said, suggesting a discouraging chilling effect on agencies that don't want to waste time and contractors who don't want to waste money.

The U.S. Navy, General Services Administration, NASA and Department of Transportation are all in various stages of either selecting ESCOs or releasing notices of opportunity. If the deal falls through, it could lead those agencies to nix their plans and certainly could cost Lockheed Martin the money it spent on this ESPC.

"This particular contact we're working on is under discussion and review, and we're working to get it resolved," Hogan added, before stating she couldn't speak more on the issue.

The gist of an ESPC deal is that an energy savings company (ESCO) – in this case, Lockheed Martin – creates an energy savings project catered to the agency through identified improvements and energy consumption metrics. The cost of the project is paid for from savings realized through improvements, requiring no upfront expenditures from the agency itself. Lockheed Martin's plan for DOE would have been paid off in six years, reducing energy consumption by 70 percent in two of its data centers and generating an additional $6 million in annual lifecycle cost savings.

Why the hold?

DOE was initially excited enough about the deal to present its findings to OMB, which found fault with it but has not publicly explained why.

A government expert familiar with the project told FCW that DOE may be treading cautiously because of a belief that data center optimization in this deal represents a misuse or overstep of ESCP statutes. The agency, the source said, may also feel a disproportionate savings comes from operations and maintenance rather than direct energy consumption.

The source said the potential also exists that OMB could leverage the budget scoring process. OMB has not scored an ESPC deal since 1998, but it could feasibly could score the project outside the scope of ESPCs during the budgeting process, the source said, forcing the agency to pay for a large chunk of the deal in year one, which it could not afford to do. Such a move would also defeat the purpose of an ESPC.

"This is the whole reason ESPCs are around, if you had the money to do the things you're supposed to be doing in data center optimization and these other initiatives, you would just go do it," the source said. "This is the first (ESPC) project that is solely IT, but we are doing nothing conceptually new here.

Traditional projects, we're happy to see 20 percent savings, and here we see 70 percent. It is right in the sweet spot of what ESPCs are designed to do, and if it falls apart, it will have a chilling effect on plug and process load measures in other projects that go far beyond IT."

And while the ball may be in DOE's court regarding this particular deal, congressional oversight committees have picked up on the broader issue, realizing the savings potential that might be repeatable throughout other agencies.

In addition to the House subcommittees on Energy and Oversight, Senate Energy and Natural Resources Chairman Ron Wyden has expressed concern to OMB over the delay in approving ESPC deals in the data center arena. Multiple sources tell FCW that the House Government and Reform Committee has caught wind of the issue as well. Chairman Darrell Issa's (R-Calif.) office did not respond to an inquiry from FCW on the matter by press time.