STRATEGIES FOR ACQUIRING AN INTEREST IN REAL PROPERTY U.S. DEPARTMENT OF ENERGY LABORATORY OPERATIONS BOARD FUTURE LABORATORY INFRASTRUCTURE SUB-GROUP MARCH 2014

Challenge The Department has the authority to use a wide variety of methods to acquire an interest in real property to fulfill a mission need. However, we have not routinely availed ourselves of these flexibilities. 2

Gaining Interest in Real Property Methods available to DOE 1.Line Item Construction 2.General Plant Projects (GPP) 3.Institutional General Plant Projects (IGPP) 4.Operating Lease 5.Third-Party Financing 6.Energy Savings Performance Contracts (ESPC) 7.Gift or donation 8.Capital Lease 9.Purchase of Existing Property 10.Transfer from Another Agency/GSA 11.Permit from Another Agency 12.Mission Repurpose of Existing Facility with Overhead/IGPP 13.Exchange of Existing Property 14.Exchange for Services 15.Grants 3 97%

National Laboratories Facility Funding Profile (FY11-FY13) 4

5 Office of Science National Laboratories Facility Funding Profile (FY11-FY13)

6 Energy National Laboratories Facility Funding Profile (FY11-FY13)

7 NNSA National Laboratories Facility Funding Profile (FY11-FY13)

8 Environmental Management National Laboratories Facility Funding Profile (FY11-FY13)

STRATEGIES FOR ACQUIRING AN INTEREST IN REAL PROPERTY 1.Line Item Construction: Appropriation is provided for capital line item construction projects greater than $10M. Subject to OMB Circular A-11 for establishing agency funding requests. Examples: NREL – Energy Systems Integration Facility (ESIF) SNL/LANL – National Infrastructure Simulation and Analysis Center (NISAC) BNL – Interdisciplinary Science Building (ISB) LANL – Radiological Laboratory Utility Office Building (RLUOB) PNNL – Physical Sciences Facility (PSF) ORNL – Modernization of Laboratory Facilities Appropriate Use: Unique facilities Long-term mission need 9

STRATEGIES FOR ACQUIRING AN INTEREST IN REAL PROPERTY 2.General Plant Projects (GPPs): GPPs are relatively small new construction projects <$10M. GPPs may used to design and construct: Additions and improvements to land, buildings and utility systems Small new buildings Replacements or additions to roads General area improvements Example: SNL – Building 704, Office Building Appropriate Use: Various facilities, improvements on established DOE sites 10

STRATEGIES FOR ACQUIRING AN INTEREST IN REAL PROPERTY 3.Institutional General Plant Projects (IGPPs): Class of GPPs for a general site-wide need Generally funded by overhead (tax on all work performed) Used for: Multi-programmatic/interdisciplinary lab and office space Institutional training facility Site-wide maintenance facilities, utilities, new roads Multi-programmatic “quality of life” facilities Examples: PNNL – Systems Engineering Facility ORNL – Building 4500N Wing 3 Modernization Project Appropriate Use: Shared infrastructure, improvements on established DOE multi-program sites 11

STRATEGIES FOR ACQUIRING AN INTEREST IN REAL PROPERTY 4.Operating Lease: Meets OMB A-11 criteria Ownership of asset remains with lessor No bargain-price purchase option Lease term ≤ 75% of asset’s economic life Total lease payments ≤ 90% of asset’s market value General purpose asset, no unique Government specifications Private-sector market exists for the asset Requires obligation of funding for minimum term lease payments & alterations Examples: INL – Energy Systems Laboratory (ESL) PNNL – Systems Engineering Facility (SEF) ORNL – Carbon Fiber Technology Center Appropriate Use: General-purpose facilities on privately-owned property Short/medium term need for facility 12

STRATEGIES FOR ACQUIRING AN INTEREST IN REAL PROPERTY 5.Third Party Finance (Alternative Finance) Acquiring the use of capital assets through private development capital under an operating lease DOE Alternative Financing Guide (DOE G ) published May be lower cost than a line item over the full lifecycle of a facility Examples: ANL – Theory and Computing Sciences Building (TCS) PNNL – Biological Sciences Facility and Computational Sciences Facility ORNL – Computational Sciences Building Appropriate Use: General purpose facilities on privately-owned land Short/medium term need Facility not presently available in local commercial real estate market 13

STRATEGIES FOR ACQUIRING AN INTEREST IN REAL PROPERTY 6.Energy Savings Performance Contracts (ESPC) Contract with an energy service company (ESCO) ESCO designs and constructs a project to generate energy cost savings to pay for the project over the term of the contract (up to 25 years). Normally, no up-front capital costs or Congressional appropriations Examples: NREL – Renewable Fuel Heating Plant (RFHP) FNL – New Boiler at Central Utility Building ORNL – Power Supply Increase Appropriate Use: Energy-efficiency improvements/modifications to existing facilities New, efficient, energy and utility infrastructure (including renewable generation) 14

UNDER-USED STRATEGIES FOR ACQUIRING AN INTEREST IN REAL PROPERTY 7. Gift or Donation: Real estate acquisition without compensation to owner or transfer of property rights (partial or total) to DOE. Requires approval of Secretary of Energy with concurrence by General Counsel. Clean title and appraisal is required or owner must waive right to appraisal in writing. Examples: ANL - Advanced Protein Crystallization Facility (APCF) FNL - Illinois Accelerator Research Center Appropriate Use: Donor with landholdings and public-interest focus (State, University) Long-term need, partnership with donating entity 15

UNDER-USED STRATEGIES FOR ACQUIRING AN INTEREST IN REAL PROPERTY 8. Capital Lease: Requires up-front funding of entire lease term Examples: No recent examples Appropriate Use: Asset available by long-term lease, lease-purchase Funding available up-front 9. Purchase of Existing Property: Subject to OMB Circular A-11 for establishing Agency funding requests. Appropriation is provided for sole source or competitive procurement of large completed facilities and land holdings. Used primarily to purchase land Examples: No recent examples Appropriate Use: Existing property meets long-term mission need 16

UNDER-USED STRATEGIES FOR ACQUIRING AN INTEREST IN REAL PROPERTY 10. Transfer from Another Agency/GSA: An excess property may be transferred by GSA from one Agency to another to fulfill a permanent mission need. Same custody and control as if acquired by purchase Appropriated funding is required for any alterations and each year to cover costs of ownership. Example: Chesapeake Light Tower transfer from Coast Guard for offshore windmill testing Appropriate Use: Existing, Federally-owned property Excess to agency currently holding property Meets DOE mission need 17

UNDER-USED STRATEGIES FOR ACQUIRING AN INTEREST IN REAL PROPERTY 11. Permit from Another Agency: An Agency may permit another Agency to occupy an underutilized facility under an intergovernmental agreement. Limited interest in property, subject to permitting agency discretion Appropriated funds may be exchanged for reimbursement of actual incurred costs. Examples: National Training Center located on Kirtland AFB, New Mexico via permit from USAF Appropriate Use: Existing, Federally-owned property Unutilized or under-utilized by agency currently holding property Meets DOE mission need 18

UNDER-USED STRATEGIES FOR ACQUIRING AN INTEREST IN REAL PROPERTY 12. Mission Repurpose of Existing Facility with Overhead/IGPP Alter or convert facility to meet changed mission Contractor and lead program agree on scope and funds Funded within IGPP/contract overhead Example: ORNL -- Building 4500N Wing 3 Modernization Project Appropriate Use: Established DOE multi-program sites Property no longer needed for previous mission, or no longer meets mission Alteration/conversion more cost-effective than demolition/new construction 19

UNDER-USED STRATEGIES FOR ACQUIRING AN INTEREST IN REAL PROPERTY 13. Exchange of Existing Property GSA is authorized to enter into contracts for the disposal of surplus property after public advertising for bids Used to acquire real estate and interests in real estate through exchange Appropriated funds may not be required Examples: Not used by DOE. GSA has completed exchanges with other agencies. Appropriate Use: DOE excess property that attracts private-sector interest Existing, privately-owned land, that meets DOE mission need Similar market values, or ability to fund difference 20

UNDER-USED STRATEGIES FOR ACQUIRING AN INTEREST IN REAL PROPERTY 14. Exchange for Services GSA is authorized to exchange real property for in-kind consideration, including the performance of construction services on another Federal property. Examples: Not used by DOE. GSA has completed exchanges with other agencies. Appropriate Use: DOE Excess Property that attracts private-sector interest Private entity willing to construct facility for DOE Similar market values, or ability to fund difference 21

STRATEGIES FOR ACQUIRING AN INTEREST IN REAL PROPERTY 15. Grants DOE provides grant funding to construct facility Private entity owns and operates facility DOE, and public, can use facility Example: Facility for Rare Isotope Beams at Mich. St. Univ. Appropriate Use: Mission need for facility No need for DOE ownership/exclusive control User facility 22

Description of Other Potential Methods Legislative Approaches 1.Enhanced Use Leasing (EUL) Authorize DOE to retain rental proceeds and accept in-kind consideration for DOE-controlled, underutilized real property Proceeds or in-kind consideration could be used for the acquisition of new facilities and lease of facilities at the site generating the rental Submitted to OMB in March 2011 OMB rejected in December

Description of Other Potential Methods (Continued) 2.Public-Private Venture (PPV) Authorize DOE to enter into a lease-purchase contract to purchase/construct facilities and accrue equity resulting in: DOE owning the facility DOE holding an option to purchase the facility at a price reduced by the equity accrued Submitted to OMB in January 2013 Rejected upon receipt 3.Special Legislation Authorize specific projects or waive general requirements in specific instances, for specific parcels/facilities 24

OBSERVATIONS Shrinking budgets necessitate the greater use of all available financing authorities Need a more systematic approach to evaluating financing options Need to improve knowledge of all possible strategies Current strategy of approaching OMB on special financing for individual projects isn’t working 25

IDEAS FOR DISCUSSION Enhance the CD-1 process and budget process to systemically consider and identify financing strategies Use a portfolio approach to determine the most appropriate approach to finance each project Use the FY 2016 budget process to identify test cases (ideally for all or many of the financing strategies) and present a comprehensive package to OMB Educate programs and laboratories on the different strategies 26