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Data center holdup: A question of funding?

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In commenting on a recent FCW article regarding Congress’ requests for answers from the secretaries of the Department of Energy and the Office of Management and Budget regarding a hold on a data center energy savings performance contract, a reader wrote:

I thought this administration was all about "efficiency"; be it energy and/or operational. Could this be an issue on who's providing the financing? Personally, I would rather see private financing help make the federal infrastructure more efficient than my tax dollars continuing to operate the costly, less efficient, federal data centers and IT infrastructure. The ESPC program could definitely help the federal agencies finance their [data-center consolidation] plans.

Frank Konkel responds: Many sources have told me one potential reason for the initial OMB hold on the $70 million deal that would optimize two of DOE’s data centers – paid for by efficiency savings over six years – is that financing for the deals does indeed come from private companies, not from taxpayer dollars allocated at OMB’s discretion. Thus, OMB loses budgetary control and power.

Interestingly, companies like Lockheed Martin – called ESCOs (an acronym for energy savings companies) – must compete for financing among the private companies such as Hannon Armstrong, Bank of America and Dominion Federal that operate in this particular market. Financing is an integral piece of any ESCO’s investment grade audit, which is necessary before any deal can take place. In this particular deal, Lockheed Martin was able to attain an interest rate of less than 2.5 percent – extremely low for an ESPC project of this scope. Low-cost financing, guaranteed savings and no major capital investments up front using ESPC’s as a vehicle for data center optimization sounds like a great deal for federal agencies – some critics argue it’s too good to be true – striving to adhere to OMB’s Federal Data Center Consolidation Initiative, but for reasons unknown, the first ESPC data center optimization deal is still on hold. OMB continues to stay silent on the issue.

Posted by Frank Konkel on Jul 17, 2013 at 12:10 PM

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