ELECTRCITY DELIVERY AND ENERGY RELIABILTY, RESEARCH, DEVELOPMENT AND ANALYSIS CAPABILITIES AND PLANNING FOR SMART GRID

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1 APRIL ELECTRCITY DELIVERY AND ENERGY RELIABILTY, RESEARCH, DEVELOPMENT AND ANALYSIS State Project/Program: ENHANCING STATE GOVT ENERGY ASSURANCE CAPABILITIES AND PLANNING FOR SMART GRID Federal Authorization: US Department of Energy Energy Policy and Conservation Act, Public Law , 42 U.S.C ; Balanced Budget Down Payment Act II of 1996, Public Law ; National Energy Conservation Policy Act of 2009; Department of Energy Organization Act of 1977, Public Law 95-91, 42 U.S.C CFR 420, 10 CFR Part 600, OMB Circulars A-21, A 87, A-133, A-122, FAR 31.2 and the American Recovery and Reinvestment Act of 2009, Public Law NC Department of Commerce State Energy Office Agency Contact Person Program Starlette Hodge Section Chief, Grants Administration Agency Contact Person Financial Amy Robinson Business Officer Address Confirmation Letters To: Ward Lenz Director, State Energy Office ] The auditor should not consider the Supplement to be safe harbor for identifying audit procedures to apply in a particular engagement, but the auditor should be prepared to justify departures from the suggested procedures. The auditor can consider the supplement a safe harbor for identification of compliance requirements to be tested if the auditor performs reasonable procedures to ensure that the requirements in the Supplement are current. The grantor agency may elect to review audit working papers to determine that audit tests are adequate. Auditors may request documentation of monitoring visits by the State Agencies. I. PROGRAM OBJECTIVES Through research, development, demonstration, technology transfer, and education and outreach activities, lead national efforts to modernize the electric grid; enhance security and reliability of the energy infrastructure; and mitigate the impact of, and facilitate recovery from, disruptions to the energy supply. Develop cost-effective technology that enhances the reliability, efficiency, and resiliency of the B

2 electric grid, while enabling the effective utilization of emerging and renewable generation sources and promoting the rapid deployment and integration of advanced digital "Smart Grid" technology that is needed to modernize the nation s electric delivery network for enhanced operational intelligence and connectivity. II. PROGRAM PROCEDURES The State Energy Program is administered by the, State Energy Office (SEO), 1830-A Tillery Place, Raleigh, North Carolina 27604, (919) The State submits a copy of the final State plan and the grant application to the Department of Energy. State submits applications and plans (or amendment to plans) in response to 10 CFR 420. These plans detail how the state selected these goals, how it will measure progress toward attaining the goals, and how the proposed activities will address its goals and achieve the energy savings identified. States must include a monitoring plan that provides oversight of all activities implemented by subrecipients. Projects may be proposed by Private Individuals, Commercial Organizations or Government Agencies. The projects are evaluated by the SEO program staff and, based on their merit, submitted for approval by DOE as part of the plan submittal of the SEP and the Recovery Act SEP.. A contractual agreement with an administering agency (the entity that is receiving the funds on a reimbursement basis from the State Energy Office) is used to execute each specific project approved by DOE. The contractual agreement describes the details of the program, applicable Federal Regulations, program administrative procedures and any appropriate restrictions imposed by the funding source. The administering agencies are reimbursed for actual expenditures in accordance with terms specified in the contractual agreement. The contractual agreement consists of a section describing the applicable laws, rules and regulations, a section describing the detailed scope of work and deliverable items selected for these goals, how it will measure progress toward attaining the goals, and how the proposed activities will address its goals and achieve the energy savings identified. III. COMPLIANCE REQUIREMENTS A. & B. Activities Allowed or Unallowed and Allowable Costs/Cost Principles Allowable costs and expenditures under the State Energy Program are defined in Cost Principles for Educational Institutions (OMB Circular A-21), Cost Principles for State, Local and Indian Tribal Governments (OMB Circular A-87), and Cost Principles for Nonprofit Organizations (OMB Circular A- 122), which are cited in the DOE Financial Assistance Rules, Section The Cost Principles contain basic guidelines for determining whether a cost is allowable, distinguishing between direct and indirect costs, and allocating shared costs across programs. It also includes standards to determine the allowability of selected items of cost. The State Energy Program is subject to regulations regarding the types of projects that can be done. Program funds should be expended as budgeted. Line item transfers in excess of ten percent of the approved budget must be approved by the U. S. Department of Energy. Some projects are prohibited, depending on the source of funds. Other regulations limit the amount of money that can be spent to administer the programs. According to 10 CFR in Appendix B the states are prohibited from using SEP financial assistance to: Build mass-transit systems or exclusive bus lanes, or for the construction or repair of buildings or structures. Purchase land, buildings, or structures, or any interest therein. Subsidize fares for public transportation. B

3 Subsidize utility rate demonstrations or State tax credits for energy conservation or renewable energy measures. Conduct, or purchase equipment to conduct research, development, or demonstration of energy efficiency or renewable energy techniques and technologies not commercially available. However, demonstrations of commercially available energy efficiency or renewable energy techniques and technologies are permitted. States may use SEP funds for the purchase and installation of equipment and materials for energy efficiency and renewable energy measures, including reasonable design costs, with the following conditions according to 10 CFR in Appendix B: Such use must be included in the State Plan. If PVE funds are used, States must adhere to administrative terms and conditions imposed upon State use of such funds. A State may use no more than 50 percent of all funds allocated by the State to SEP in a given year, regardless of source. This limitation does not include regular or revolving loan programs funded with PVE funds and is subject to waiver by DOE for good cause. Buildings owned or leased by the United States are not eligible for energy efficiency or renewable energy measures under SEP. Funds must be used to supplement not supplant weatherization activities under the Weatherization Assistance Program for Low-Income Persons (WAP) under 10 CFR 440. States may use a variety of financial incentives to fund purchases and installation of materials and equipment including, but not limited to, regular loans, revolving loans, loan buy-downs, performance contracting, rebates, and grants. States are not allowed to use rebates for more than 50 percent of the total cost of purchasing and installing materials and equipment or loan guarantees. No more than 20 percent of the annual Federal allocation can be spent for office supplies, library materials, and equipment. The limit does not apply to supplies, library materials, and equipment that are integral to a program activity, such as brochures distributed as part of an education program or equipment used in preparing a demonstration. The 20 percent limitation does not apply to PVE funds used under SEP. Review provisions of the State plan and contracts with sub-recipients to become familiar with the scope of the State Energy Program, funding levels, and operating and administrative arrangements. Determine compliance with the requirement to spend no more than 20 percent of the annual Federal allocation for office supplies, library materials, and equipment. Test financial and related records to determine the costs reported are allowable. C. Cash Management The sub-recipient receives reimbursement after expenditures. Sub-recipients do not draw down funds or receive advances. Therefore, this requirement has not been passed down to the sub-recipient and no testing is required by the local auditor. F. Equipment and Real Property Management The sub-recipient must receive prior written approval for the purchase or disposal of Fixed Assets costing $500 or more. The actual purchase must be reported to the State Energy Office by submission of B

4 a Fixed Asset Purchase form for purchases of $500 or more with the monthly reports. A North Carolina Department of Commerce Fixed Asset Tag will have been sent to the sub-recipient for affixing to the fixed asset with a purchase price of $500 or more. The fixed asset should be included in the fixed asset records of the sub-recipient, with a notation that the State Energy Office, as Grantee, has reversionary right to the fixed asset. Inquire if a required physical inventory of equipment acquired under Federal awards was taken within the last two years. Test whether any differences between the physical inventory and equipment records were resolved. Review copies of written approvals and purchase invoices. Verify that a North Carolina Department of Commerce Fixed Asset Tag is affixed to the asset. Verify that the property records contain the following information about the equipment: description (including serial number or other identification number), source, who holds title, acquisition date and cost, percentage of Federal participation in the cost, location, condition, any ultimate disposition data including, the date of disposal and sales price or method used to determine current fair market value. Select a sample of equipment identified as acquired under Federal awards from the property records and physically inspect the equipment including whether the equipment is appropriately safeguarded and maintained. Determine the amount of equipment dispositions for the audit period and perform procedures to verify that dispositions were properly classified between equipment acquired under Federal awards and equipment otherwise acquired. For dispositions of equipment acquired under Federal awards, perform procedures to verify that the dispositions were properly reflected in the property records. For dispositions of equipment acquired under Federal awards with a current per unit fair market value in excess of $5,000, test whether the awarding agency was reimbursed for the appropriate Federal share. G. Matching, Level of Effort, Earmarking Each state shall provide cash, in-kind contributions, or both, for State Energy Office activities in an amount totaling not less than 20 percent of the federal financial assistance allocated to the State. Nothing in this paragraph shall be read to require a match for petroleum violation escrow funds used in the program. The type and amount of the State cost sharing shall be identified in the annual application for a plan (10 CFR (s)). Sub-recipient matching requirements, if any, are specified b Suggested Audit Procedure Review expenditures to determine if the match was met. H. Period of Availability of Federal Funds The State Energy Office program commences July 1 and ends June 30 of each year. Funds are allocated and approved for disbursement to sub-recipients once an official notification is received from the U.S. Department of Energy through a Notice of Financial Assistance Award (NFAA). Contracts to subrecipients are executed once the NFAA is received. No sub-recipient should expend funds for that specific program without receiving an official contract. The State Energy Division is not permitted to expend funds for any given program year until the NFAA is received. If funds are left over at the end of the year, these funds are carried over to the next year. An amended plan is completed and funds are not available to expend until the plan approving carryover funds is approved by the US Department of Energy and a NFAA is received. B

5 Check the records to determine that a NFAA was executed for any given program year. In addition, assess whether contracts were granted to the sub-recipients or expenditures were made in advance of receiving the NFAA for that given year or after the end of said year. Determine if a contract exists between the State Energy Office and the sub-recipient. Determine whether expenditures for the given program year commenced before or after the program year started, and the contract with the State Energy Office was officially executed beforehand. I. Procurement and Suspension and Debarment The State Energy Office contract specifies the prior written approvals that must be obtained before any equipment (fixed assets) is purchased or acquired. Sub-recipients should be using State procurement policies and procedures to make purchases and this should be communicated to the sub-recipient. Equipment and other fixed assets with a cost of $500 or more purchased by a sub-recipient must have a fixed asset tag affixed to the individual asset. Also, equipment with a cost of $5,000 or more purchased by a sub-recipient must be approved by the U. S. Department of Energy prior to the purchase. Check the contract between the State Energy Office and the sub-recipient to identify language which prohibits a sub-recipient from procuring goods or services from a company, firm, or organization that has been suspended or debarred by the State of North Carolina or Federal Government. Verify written approval if equipment was purchased exceeding the $5,000 per unit cost limit. L. Reporting The sub-recipient is responsible for submitting a monthly financial report fifteen days following the calendar month of the first expenditure. The sub-recipient is also responsible for submitting a quarterly narrative report ten days following each calendar quarter, and a final narrative report 30 days following contract termination. Requests for payment shall be based on allowable costs and/or encumbrances incurred with the project or the fixed fee schedule; however, allowable reimbursement shall not exceed the cost of the Agreement. Final requests for payment are due within 90 days of Agreement termination. Trace data in selected reports to supporting documentation and general ledger accounts. N. Special Tests and Provisions Sub-recipient personnel who spend part of their working hours related to this grant should document the portion of their time chargeable to the grant. The sub-recipient s accounting system should be adequate to charge the grant the correct amount. Timesheets and payroll records must be maintained to support all matching charges to the grant. s Analyze appropriate records for payroll to assure that any time charged to the grant is supported with the proper documentation. B