A federal contract allowing a steam power plant to be overhauled at Los Alamos National Laboratory without a normal congressional review is at risk of cost overruns due to miscalculations, according to a government watchdog.

The National Nuclear Security Agency, which oversees the lab, entered into a contract in 2018 with Siemens Government Technologies to replace much of a 67-year-old steam plant and be paid for the power it generates, with the guarantee of $128 million in energy cost savings over 17 years.

But at least $75 million of the guaranteed savings — which enabled the project to bypass congressional scrutiny — have been overestimated, the U.S. Energy Department’s inspector general said in a February report.

Known as an energy savings performance contract, the agreement with Siemens is supposed to ensure that in return for a more streamlined process, the plant will pay for itself and, ideally save money, the report said.

A more costly contract defeats the purpose and violates federal codes, the report said, adding that “is not in the Department’s or taxpayer’s best interest.”

It’s not clear whether work has started yet on the plant, which will generate heat and power for campus buildings. The work will include installing a natural gas pipeline, replacing boilers and upgrading the gas turbine generator.

The upgrades will increase the plant’s operating hours to almost 5,000 a year from 400.

The inspector general said in a summary the report was completed in response to concerns raised by a contract review board — concerns that the National Nuclear Security Agency didn’t adequately address.

By the time the contract was drawn up, the review board could no longer issue edicts. During a reorganization, the board was put in an advisory role, with most of its authority stripped.

“However, the Department expects the Review Board’s questions to be addressed in completing the evaluation of the project,” the inspector general said in the report.

Nuclear security officials declined to comment. Spokeswoman Kate Hewitt said the agency’s written statements in the report, made in response to the inspector general’s recommended actions, would suffice.

A longtime critic of the lab complained too much was done behind closed doors.

“There needs to be an audit of this project to see if Siemens is being grossly overpaid,” said Greg Mello, executive director of Los Alamos Study Group.

One discrepancy is an apparent $32 million overestimation in labor savings, the report said, adding officials have supplied no documentation to support the estimates and seem to be reshuffling employees rather than trimming the actual workforce.

Another key issue is the agency and Siemens locked in power rates that turned out to be higher than the average rates on the open market in 2018, the report said.

The initial baseline rate was set at $65 per megawatt-hour, even though power prices were falling and wound up at an average of $53 per megawatt-hour for the year, the report said. The contract’s higher prices put $31 million in projected savings at risk.

The escalation rate — a yearly increase in power prices — also was set high at 3 percent, even though an energy rate calculator estimated it should be 2.2 percent, the report said. That called another $12 million in savings into question.

No documentation was provided to justify the higher escalation rate, the report said, other than a Siemens official telling the Los Alamos field office it’s the normal rate.

Using the 3 percent escalation rate and the $65 baseline, the prices will climb to $113 per megawatt-hour in

17 years, according to the report.

That’s considerably higher than the $80 per megawatt-hour that would have resulted during the same period if the baseline had been $53 and the escalation rate was 2.2 percent, the report said.

The inspector general’s recommendations included:

u Ensuring contracts are adequately reviewed before signing them and verifying the baseline and escalation rates reflect the current market.

u Addressing the review board’s concerns adequately before finalizing a contract.

u Reassessing the viability of a contract regularly during construction and at startup.

The nuclear agency agreed somewhat with the first recommendation and rejected the others.

Officials made clear the review board is only advisory.

“Ultimately after considering the [board’s] comments, NNSA determined that moving forward with the contract was in the best interest of the government,” they wrote. “NNSA considers this recommendation closed.”

They dismissed the inspector general’s call for repeatedly assessing the contract as “vague and not actionable.” Although fluctuating electricity rates pose some cost risks, the contract benefits the government by modernizing the lab’s steam plant and campus heating infrastructure, they wrote. “[The new plant] will increase energy security, reliability and resilience, and reduce the carbon footprint without capital investments.”

Mello said if officials think the project is so beneficial, they should be willing to conduct an environmental impact study.

“There’s no plan that anybody can see,” he said.