Greenwire - by Emily Yehle, E&E reporter

Recipients of formula grants from the Department of Energy have not yet obligated almost $900 million of stimulus funds, potentially undermining the "basic premise" of the American Recovery and Reinvestment Act, according to the department's inspector general.

IG Gregory Friedman released a management alert today warning officials that a third of the $2.7 billion allocated for Energy Efficiency and Conservation Block Grants remains unobligated. The program provides grants to local, state and tribal governments for projects that reduce fossil fuel emissions, improve energy efficiency and create jobs.

But Friedman's report raises questions about the success of a large chunk of the grants. Hundreds of recipients missed deadlines for obligating funds, and auditors discovered several inaccuracies in the data DOE uses to monitor spending.

"These issues undermine one of the basic premises of the Recovery Act, that is, to promptly stimulate the economy and create jobs," Friedman wrote. "Further, given established deadlines to deploy these Recovery Act resources and the reality of the 'ticking clock,' pressure to expedite both obligations and expenditures significantly increases the risk that program safeguards, important to ensuring that taxpayer interests are protected, may be circumvented."

Under the stimulus law, recipients have until Sept. 30, 2015, to spend the funds. But the grant program requires projects to show results in 36 months, and DOE enforces an 18-month deadline for obligating funds after a grant is awarded.

DOE officials say recipients are making a good faith effort, and the agency launched an effort called "Clear Path" last year that provides technical assistance to recipients who have been slow to obligate and spend.

But Friedman lays out a more regimented approach. DOE must begin to withhold payments or terminate agreements, if necessary, he writes. Of the 1,358 recipients who missed their obligation deadline, 198 formally requested and received extensions.

"While the effort to encourage and assist recipients to complete projects is a positive step, we remain concerned with the slow pace of obligations in the face of the ever shrinking grant performance period," he wrote, noting that the performance periods of a majority of recipients end in the second half of 2012.

"As time passes, there is a greater risk that recipients will be unable to effectively use the funds because of the time required to select and design projects, purchase goods and services in accordance with Federal and state regulations, and comply with legal provisions such as those contained in the National Environmental Policy Act and the National Historic Preservation Act."

IG auditors also found "troubling anomalies" in the agency's database for grant information. Some recipients reported obligations exceeding the amount of their award; others neglected to report funds used internally as obligated.

Furthermore, nine states had inaccurately reported the amount of funds they had obligated to local governments.

Kathleen Hogan, deputy assistant secretary for energy efficiency, said in a written response that officials will review the accuracy of such data and are in the process of developing a plan to handle recipients who are unlikely to obligate their funds by the end of the grant period.

But already, she wrote, DOE has "focused aggressively" on encouraging spending, making more than 1,200 phone calls and 126 in-person visits. In August 2010, grant recipients had spent 9 percent of the total allocation; one year later, they had spent 48 percent.

The EECBG program, she wrote, is the 11th strongest job producer out of 200 stimulus programs ranked by the Recovery Accountability and Transparency Board.

"DOE chose to set milestones that were more aggressive than the statutory requirement to help maximize the economic and job-creation impact of EECBG," she wrote. "While not all EECBG recipients have satisfied DOE's more aggressive milestones, DOE believes that such milestones are an important reason why the vast majority of EECBG grant-funded projects are on track to be completed a full two years ahead of the Recovery Act's statutory end date of September 30, 2015."