Department of Energy
Further Actions Are Needed to Improve DOE's Ability to Evaluate and Implement the Loan Guarantee Program
Gao ID: GAO-10-627 July 12, 2010
Since the Department of Energy's (DOE) loan guarantee program (LGP) for innovative energy projects was established in Title XVII of the Energy Policy Act of 2005, its scope has expanded both in the types of projects it can support and in the amount of loan guarantee authority available. DOE currently has loan guarantee authority estimated at about $77 billion and is seeking additional authority. As of April 2010, it had issued one loan guarantee for $535 million and made nine conditional commitments. In response to Congress' mandate to review DOE's execution of the LGP, GAO assessed (1) the extent to which DOE has identified what it intends to achieve through the LGP and is positioned to evaluate progress and (2) how DOE has implemented the program for applicants. GAO analyzed relevant legislation, prior GAO work, and DOE guidance and regulations. GAO also interviewed DOE officials, LGP applicants, and trade association representatives.
DOE has broadly indicated the program's direction but has not developed all the tools necessary to assess progress. DOE officials have identified a number of broad policy goals that the LGP is intended to support, including helping to mitigate climate change and create jobs. DOE has also explained, through agency documents, that the program is intended to support early commercial production and use of new or significantly improved technologies in energy projects that abate emissions of air pollutants or of greenhouse gases and have a reasonable prospect of repaying the loans. GAO has found that to help operationalize such policy goals efficiently and effectively, agencies should develop associated performance goals that are objective and quantifiable and cover all program activities. DOE has linked the LGP to two departmentwide performance goals, namely to (1) double renewable energy generating capacity by 2012 and (2) commit conditionally to loan guarantees for two nuclear power facilities to add a specified minimum amount of capacity in 2010. However, the two performance goals are too few to reflect the full range of policy goals for the LGP. For example, there is no performance goal for the number of jobs that should be created. The performance goals also do not reflect the full scope of program activities; in particular, although the program has made conditional commitments to issue loan guarantees for energy efficiency projects, there is no performance goal that relates to such projects. Without comprehensive performance goals, DOE lacks the foundation to assess the program's progress and, more specifically, to determine whether the projects selected for loan guarantees help achieve the desired results. DOE has taken steps to implement the LGP for applicants but has treated applicants inconsistently and lacks mechanisms to identify and address their concerns. Among other things, DOE increased the LGP's staff, expedited procurement of external reviews, and developed procedures for deciding which projects should receive loan guarantees. However, GAO found: (1) DOE's implementation of the LGP has treated applicants inconsistently, favoring some and disadvantaging others. For example, DOE conditionally committed to issuing loan guarantees for some projects prior to completion of external reviews required under DOE procedures. Because applicants must pay for such reviews, this procedural deviation has allowed some applicants to receive conditional commitments before incurring expenses that other applicants had to pay. It is unclear how DOE could have sufficient information to negotiate conditional commitments without such reviews. (2) DOE lacks systematic mechanisms for LGP applicants to administratively appeal its decisions or to provide feedback to DOE on its process for issuing loan guarantees. Instead, DOE rereviews rejected applications on an ad hoc basis and gathers feedback through public forums and other outreach efforts that do not ensure the views obtained are representative. Until DOE develops implementation processes it can adhere to consistently, along with systematic approaches for rereviewing applications and obtaining and addressing applicant feedback, it may not fully realize the benefits envisioned for the LGP. GAO recommends that DOE develop performance goals reflecting the LGP's policy goals and activities; revise the loan guarantee process to treat applicants consistently unless there are clear, compelling grounds not to do so; and develop mechanisms for administrative appeals and for systematically obtaining and addressing applicant feedback. DOE said it is taking steps to address GAO's concerns but did not explicitly agree or disagree with the recommendations.
Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director:
Franklin W. Rusco
Team:
Government Accountability Office: Natural Resources and Environment
Phone:
(202) 512-4597
GAO-10-627, Department of Energy: Futher Actions Are Needed to Improve DOE's Ability to Evaluate and Implement the Loan Guarantee Program
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
July 2010:
Department Of Energy:
Further Actions Are Needed to Improve DOE's Ability to Evaluate and
Implement the Loan Guarantee Program:
GAO-10-627:
GAO Highlights:
Highlights of GAO-10-627, a report to congressional committees.
Why GAO Did This Study:
Since the Department of Energy‘s (DOE) loan guarantee program (LGP)
for innovative energy projects was established in Title XVII of the
Energy Policy Act of 2005, its scope has expanded both in the types of
projects it can support and in the amount of loan guarantee authority
available. DOE currently has loan guarantee authority estimated at
about $77 billion and is seeking additional authority. As of April
2010, it had issued one loan guarantee for $535 million and made nine
conditional commitments. In response to Congress‘ mandate to review DOE‘
s execution of the LGP, GAO assessed (1) the extent to which DOE has
identified what it intends to achieve through the LGP and is
positioned to evaluate progress and (2) how DOE has implemented the
program for applicants. GAO analyzed relevant legislation, prior GAO
work, and DOE guidance and regulations. GAO also interviewed DOE
officials, LGP applicants, and trade association representatives.
What GAO Found:
DOE has broadly indicated the program‘s direction but has not
developed all the tools necessary to assess progress. DOE officials
have identified a number of broad policy goals that the LGP is
intended to support, including helping to mitigate climate change and
create jobs. DOE has also explained, through agency documents, that
the program is intended to support early commercial production and use
of new or significantly improved technologies in energy projects that
abate emissions of air pollutants or of greenhouse gases and have a
reasonable prospect of repaying the loans. GAO has found that to help
operationalize such policy goals efficiently and effectively, agencies
should develop associated performance goals that are objective and
quantifiable and cover all program activities. DOE has linked the LGP
to two departmentwide performance goals, namely to (1) double
renewable energy generating capacity by 2012 and (2) commit
conditionally to loan guarantees for two nuclear power facilities to
add a specified minimum amount of capacity in 2010. However, the two
performance goals are too few to reflect the full range of policy
goals for the LGP. For example, there is no performance goal for the
number of jobs that should be created. The performance goals also do
not reflect the full scope of program activities; in particular,
although the program has made conditional commitments to issue loan
guarantees for energy efficiency projects, there is no performance
goal that relates to such projects. Without comprehensive performance
goals, DOE lacks the foundation to assess the program‘s progress and,
more specifically, to determine whether the projects selected for loan
guarantees help achieve the desired results.
DOE has taken steps to implement the LGP for applicants but has
treated applicants inconsistently and lacks mechanisms to identify and
address their concerns. Among other things, DOE increased the LGP‘s
staff, expedited procurement of external reviews, and developed
procedures for deciding which projects should receive loan guarantees.
However, GAO found:
* DOE‘s implementation of the LGP has treated applicants
inconsistently, favoring some and disadvantaging others. For example,
DOE conditionally committed to issuing loan guarantees for some
projects prior to completion of external reviews required under DOE
procedures. Because applicants must pay for such reviews, this
procedural deviation has allowed some applicants to receive
conditional commitments before incurring expenses that other
applicants had to pay. It is unclear how DOE could have sufficient
information to negotiate conditional commitments without such reviews.
* DOE lacks systematic mechanisms for LGP applicants to
administratively appeal its decisions or to provide feedback to DOE on
its process for issuing loan guarantees. Instead, DOE rereviews
rejected applications on an ad hoc basis and gathers feedback through
public forums and other outreach efforts that do not ensure the views
obtained are representative.
Until DOE develops implementation processes it can adhere to
consistently, along with systematic approaches for rereviewing
applications and obtaining and addressing applicant feedback, it may
not fully realize the benefits envisioned for the LGP.
What GAO Recommends:
GAO recommends that DOE develop performance goals reflecting the LGP‘s
policy goals and activities; revise the loan guarantee process to
treat applicants consistently unless there are clear, compelling
grounds not to do so; and develop mechanisms for administrative
appeals and for systematically obtaining and addressing applicant
feedback. DOE said it is taking steps to address GAO‘s concerns but
did not explicitly agree or disagree with the recommendations.
View [hyperlink, http://www.gao.gov/products/GAO-10-627] or key
components. For more information, contact Frank Rusco at (202) 512-
3841 or ruscof@gao.gov.
[End of section]
Contents:
Letter:
DOE Has Broadly Indicated the Program's Direction but Is Not Well
Positioned to Evaluate Progress:
DOE Has Taken Steps To Implement the LGP but Has Treated Applicants
Inconsistently and Lacks Mechanisms to Identify and Address
Applicants' Concerns:
Conclusions:
Recommendations for Executive Action:
Agency Comments:
Appendix I: Scope and Methodology:
Appendix II: Performance Measures for the LGP:
Appendix III: Application Review Process:
Appendix IV: Standardized Fees Associated with Obtaining a Loan
Guarantee, by Solicitation:
Appendix V: Loan Guarantee Amounts Available and Amounts Applicants
Sought for Technology Categories Targeted in Solicitations:
Appendix VI: Comments from the Department of Energy: GAO Comments:
Appendix VII: GAO Contact and Staff Acknowledgments:
Table:
Table 1: Technology Categories Targeted by Solicitations Issued for
the LGP and Amounts Available under the Solicitations, as of April
2010:
Figures:
Figure 1: 2008 Solicitation for Energy Efficiency, Renewable Energy,
and Advanced Transmission and Distribution Technologies:
Figure 2: 2008 Solicitation for Coal-based Power Generation and
Industrial Gasification Facilities That Incorporate Carbon Capture and
Sequestration or Other Beneficial Uses of Carbon and for Advanced Coal
Gasification Facilities:
Figure 3: 2008 Solicitation for Nuclear Power Facilities:
Figure 4: 2008 Solicitation for Front-End Nuclear Facilities:
Abbreviations:
CRB: Credit Review Board:
DOE: Department of Energy:
EPAct: Energy Policy Act of 2005:
FIPP: Financial Institution Partnership Program:
GPRA: Government Performance and Results Act:
LGP: Loan Guarantee Program:
NETL: National Energy Technology Laboratory:
Recovery Act: American Recovery and Reinvestment Act:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
July 12, 2010:
The Honorable Byron L. Dorgan:
Chairman:
The Honorable Robert F. Bennett:
Ranking Member:
Subcommittee on Energy and Water Development:
Committee on Appropriations:
United States Senate:
The Honorable Peter J. Visclosky:
Chairman:
The Honorable Rodney P. Frelinghuysen:
Ranking Member:
Subcommittee on Energy and Water Development:
Committee on Appropriations:
House of Representatives:
Through calendar year 2009, the Department of Energy's (DOE) Loan
Guarantee Program (LGP) received more than 170 applications seeking
over $175 billion in loan guarantees, generally to bring innovative
energy technologies to market. Under normal economic conditions,
companies can face obstacles in securing enough affordable financing
to survive the "valley of death" between developing innovative
technologies and commercializing them. Because the risks that lenders
must assume to support new technologies can put private financing out
of reach, companies may not be able to commercialize innovative
technologies without government assistance. The financial crisis that
emerged in late 2008, together with the associated economic decline,
has further reduced access to capital markets for innovative energy
technologies. In this constrained economic environment, even companies
that might ordinarily rely on private financing are turning to the
federal government for assistance.
Federal loan guarantee programs such as DOE's can help companies
obtain affordable financing because the federal government agrees to
reimburse lenders for the guaranteed amount if the borrowers default,
which encourages lending by reducing the lenders' financial risks. In
addition, to the extent that a federal loan guarantee signals
confidence in a project, such guarantees can help companies raise
capital from other sources, for example by selling equity. However,
loan guarantee programs can also expose the government to substantial
financial risks. In the past, problems with loan guarantee programs
have occurred, in part, because agencies did not exercise due
diligence during the loan origination and monitoring processes.
Since the LGP was authorized under Title XVII of the Energy Policy Act
of 2005 (EPAct), its scope has expanded.[Footnote 1] The act--
specifically section 1703--originally authorized DOE to guarantee
loans for projects that (1) use new or significantly improved
technologies as compared with commercial technologies already in
service in the United States and (2) avoid, reduce, or sequester
emissions of air pollutants or man-made greenhouse gases. In February
2009, Congress passed the American Recovery and Reinvestment Act
(Recovery Act), which amended Title XVII by adding section 1705.
[Footnote 2] Under section 1705, DOE may guarantee loans for projects
using commercial technologies. Projects supported by the Recovery Act
must employ renewable energy systems, electric power transmission
systems, or leading-edge biofuels that meet certain criteria; begin
construction by the end of fiscal year 2011; and pay wages at or above
market rates.
The LGP's loan guarantee authority has also increased. In fiscal year
2007, Congress authorized up to $4 billion in loan guarantees for
projects that meet the criteria in section 1703. By fiscal year 2009,
Congress had authorized an additional $47 billion in loan guarantees
for projects that meet these criteria.[Footnote 3] Congress did not
appropriate funds to cover the associated credit subsidy costs--that
is, the government's estimated net long-term cost, in present value
terms, of direct or guaranteed loans over the entire period the loans
are outstanding (not including administrative costs). Consequently,
borrowers who obtain loan guarantees under section 1703 must pay fees
to cover these costs. Under the Recovery Act, Congress has provided
nearly $4 billion to cover the credit subsidy costs for projects that
meet the criteria in section 1705.[Footnote 4] While the Recovery Act
appropriation did not specify the amount of new loan guarantee
authority, DOE officials said that the department believes credit
subsidy costs will average at least 15 percent of the value of loan
guarantees. Accordingly, the nearly $4 billion Recovery Act
appropriation to pay credit subsidy costs could increase the amount of
loans that the LGP guarantees by about $26 billion, raising the
program's total estimated loan guarantee capacity to about $77 billion.
As of April 2010, the department had issued eight solicitations
inviting applications for projects using various categories of
technologies (see table 1). It had also issued one loan guarantee for
$535 million to Solyndra, one of the companies that responded to DOE's
initial LGP solicitation issued in 2006, and had made nine conditional
commitments to issue additional loan guarantees.[Footnote 5] The one
loan guarantee and four of the conditional commitments were made under
the Recovery Act; the other five conditional commitments were made
under section 1703.
Table 1: Technology Categories Targeted by Solicitations Issued for
the LGP and Amounts Available under the Solicitations, as of April
2010:
Targeted technology category: Mixed[A];
Solicitation issuance date: Aug. 8, 2006;
Amount available: $4.0 billion[B].
Targeted technology category: Nuclear power facilities;
Solicitation issuance date: July 11, 2008;
Amount available: $18.5 billion.
Targeted technology category: Front-end nuclear facilities[C];
Solicitation issuance date: July 11, 2008;
Amount available: $2.0 billion[B].
Targeted technology category: Coal-based power generation and
industrial gasification facilities that incorporate carbon capture and
sequestration or other beneficial uses of carbon and for advanced coal
gasification facilities;
Solicitation issuance date: Sept. 22, 2008;
Amount available: $8.0 billion.
Targeted technology category: Energy efficiency, renewable energy, and
advanced transmission and distribution technologies (EERE);
Solicitation issuance date: Oct. 29, 2008;
Amount available: $10.0 billion.
Targeted technology category: EERE;
Solicitation issuance date: July 29, 2009;
Amount available: $8.5 billion.
Targeted technology category: Electric power transmission
infrastructure projects;
Solicitation issuance date: July 29, 2009;
Amount available: $5.0 billion[D].
Targeted technology category: Commercial technology renewable energy
generation projects under the Financial Institution Partnership
Program (FIPP);
Solicitation issuance date: Oct. 7, 2009;
Amount available: $5.0 billion[D].
Source: GAO presentation of DOE data.
[A] The 2006 mixed solicitation invited applications for all
technologies eligible to receive loan guarantees according to the
Energy Policy Act of 2005 except for nuclear facilities and oil
refineries.
[B] DOE received authorization to guarantee up to $4 billion in loans
in fiscal year 2007 and had planned to use this authority to support
projects submitted in response to the 2006 mixed technology
solicitation. On March 25, 2010, DOE informed Congress of its
intention to use up to $2 billion of its fiscal year 2007 loan
guarantee authority for projects submitted in response to the 2008
front-end nuclear facilities solicitation.
[C] Front-end nuclear facilities are to accelerate deployment of new
uranium enrichment capacity and distribution.
[D] This amount is an estimate because the solicitation did not
specify how much DOE would issue in loan guarantees. This estimate is
based on the solicitation's stated plan to use $750 million to cover
credit subsidy costs and assumes credit subsidy costs of 15 percent,
which DOE has told us is consistent with credit subsidy estimates to
date.
[End of table]
For fiscal year 2011, DOE is seeking an additional $36 billion in loan
guarantee authority for nuclear power facilities and $500 million to
cover the credit subsidy costs for energy efficiency and renewable
energy projects eligible under section 1703.[Footnote 6] DOE estimates
that this $500 million will cover the credit subsidy costs for about
$3 billion in loan guarantees.
We have an ongoing mandate under the 2007 Revised Continuing
Appropriations Resolution to review DOE's execution of the LGP and to
report our findings to the House and Senate Committees on
Appropriations.[Footnote 7] Our previous reviews focused on the
department's efforts to establish the tools needed to evaluate the
program's effectiveness and to process applications. In 2007 and 2008,
we recommended that the department take steps to further develop and
improve its capabilities in these areas.[Footnote 8] In light of these
recommendations and following discussions with your staffs, we
assessed (1) the extent to which DOE has identified what it intends to
achieve through the LGP and is positioned to evaluate progress and (2)
how DOE has implemented the LGP for applicants.
To address these objectives, we analyzed Title XVII of EPAct, the
Recovery Act, the Government Performance and Results Act (GPRA) and
our prior work on GPRA, and DOE's program guidance and regulations. In
addition, we interviewed relevant DOE officials and--to obtain a broad
representation of views on DOE's implementation of the LGP--LGP
applicants and trade association representatives. We selected the
applicants and trade associations using a mix of criteria, including
the amount of the loan guarantee requested and the relevant
technology. Our review did not evaluate the technical or financial
soundness of the projects that applied for DOE loan guarantees. In
April 2010, we briefed your offices on the preliminary results of our
review.
We conducted this performance audit from January 2009 through July
2010 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives. A further
discussion of the scope of our review and the methods we used is
presented in appendix I.
DOE Has Broadly Indicated the Program's Direction but Is Not Well
Positioned to Evaluate Progress:
DOE has broadly indicated the direction of the LGP but has not
developed all the tools necessary to evaluate progress. DOE officials
have identified a number of broad policy goals that the LGP is
intended to support, including helping to ensure energy security,
mitigate climate change, jumpstart the alternative energy sector, and
create jobs. Additionally, through DOE's fiscal year 2011 budget
request and a mission statement for the LGP, the department has
explained that the program is intended to support the "early
commercial production and use of new or significantly improved
technologies in energy projects" that "avoid, reduce, or sequester air
pollutants or anthropogenic emissions of greenhouse gases, and have a
reasonable prospect of repaying the principal and interest on their
debt obligations."
To help operationalize such policy goals efficiently and effectively,
principles of good governance identified in our prior work on GPRA
indicate that agencies should develop associated performance goals and
measures that are objective and quantifiable.[Footnote 9] These
performance goals and measures are intended to allow comparison of
programs' actual results with the desired results. Each program
activity should be linked to a performance goal and measure unless
such a linkage would be infeasible or impractical.
DOE has linked the LGP to two departmentwide performance goals:
* "Double renewable energy generating capacity (excluding conventional
hydropower) by 2012."
* "Commit (conditionally) to loan guarantees for two nuclear power
facilities to add new low-carbon emission capacity of at least 3,800
megawatts in 2010."
DOE has also established nine performance measures for the LGP (see
appendix II).
However, the departmentwide performance goals are too few to reflect
the full range of policy goals for the LGP. For example, there is no
measurable performance goal for job creation. The performance goals
also do not reflect the full scope of the program's authorized
activities. For example, as of April 2010, DOE had issued two
conditional commitments for energy efficiency projects--as authorized
in legislation--but the energy efficiency projects do not address
either of the performance goals because the projects are expected to
generate little or no renewable energy and are not associated with
nuclear power facilities. Given the lack of sufficient performance
goals, DOE cannot be sure that the LGP's performance measures are
appropriate. Thus, DOE lacks the foundation to assess the program's
progress, and more specifically, to determine whether the projects it
supports with loan guarantees contribute to achieving the desired
results.
DOE Has Taken Steps to Implement the LGP but Has Treated Applicants
Inconsistently and Lacks Mechanisms to Identify and Address
Applicants' Concerns:
As the LGP's scope and authority have increased, the department has
taken a number of steps to implement the program for applicants. For
example, DOE has substantially increased the LGP's staff and in-house
expertise, and applicants we interviewed have commended the LGP
staff's professionalism. DOE officials indicated that, prior to 2008,
staffing was inadequate to review applications, but since June 2008,
the LGP's staff has increased from 12 federal employees to more than
50, supported by over 40 full-time contractor staff. Also, the LGP now
has in-house legal counsel and project finance expertise, which have
increased the program's capacity to evaluate proposed projects. In
addition, in November 2009, the Secretary named an Executive Director,
reporting directly to the Secretary, to oversee the LGP and to
accelerate the application review process.[Footnote 10]
Other key steps that DOE has taken include the following:
* DOE has identified a list of external reviewers qualified to perform
legal, engineering, financial, and marketing analyses of proposed
projects. Identifying these external reviewers beforehand helps to
ensure that DOE will have the necessary expertise readily available
during the review process. DOE officials said that the department has
also expedited the procurement process for hiring these external
reviewers.
* DOE developed a credit policies and procedures manual for the LGP.
Among other things, the manual contains detailed internal policies and
procedures that lay out requirements, criteria, and staff
responsibilities for determining which proposed projects should
receive loan guarantees.
* DOE revised the LGP's regulations after receiving information from
industry concerning the wide variety of ownership and financing
structures that applicants or potential applicants would like to
employ in projects seeking loan guarantees. Among other things, the
modifications allow for ownership structures that DOE found are
typically employed in utility-grade power plants and are commonly
proposed for the next generation of nuclear power generation
facilities.
* DOE obtained OMB approval for its model to estimate credit subsidy
costs. The model is a critical tool needed for the LGP to proceed with
issuing loan guarantees because it will be used to calculate each loan
guarantee's credit subsidy cost and the associated fee, if any, that
must be collected from borrowers. (We are evaluating DOE's process and
key inputs for estimating credit subsidy costs in other ongoing work.)
Notwithstanding these actions, the department is implementing the
program in a way that treats applicants inconsistently, lacks
systematic mechanisms for applicants to appeal its decisions or for
applicants to provide feedback to DOE, and risks excluding some
potential applicants unnecessarily. Specifically, we found the
following:
DOE has treated applicants inconsistently. Although our past work has
shown that agencies should process applications with the goals of
treating applicants fairly and minimizing applicant confusion,
[Footnote 11] DOE's implementation of the program has favored some
applicants and disadvantaged others in a number of ways. First, we
found that, in at least five of the ten cases in which DOE made
conditional commitments, it did so before obtaining all of the final
reports from external reviewers, allowing these applicants to receive
conditional commitments before incurring expenses that other
applicants were required to pay. Before DOE makes a conditional
commitment, LGP procedures call for engineering, financial, legal, and
marketing reviews of proposed projects as part of the due diligence
process for identifying and mitigating risk. If DOE lacks the in-house
capability to conduct the reviews, external reviews are performed by
contractors paid for by applicants.[Footnote 12] In one of the cases
we identified in which DOE deviated from its procedures, it made a
conditional commitment before obtaining any of the external reports.
DOE officials told us this project was fast-tracked because of its
"strong business fundamentals" and because DOE determined that it had
sufficient information to proceed. However, it is unclear how DOE
could have had sufficient information to negotiate the terms of a
conditional commitment without completing the types of reviews
generally performed during due diligence, and proceeding without this
information is contrary to the department's procedures for the LGP.
Second, DOE treats applicants with nuclear projects differently from
applicants proposing projects that employ other types of technologies.
For example, DOE allows applicants with nuclear projects that have not
been selected to begin the due diligence process to remain in a queue
in case the LGP receives additional loan guarantee authority, while
applicants with projects involving other types of technologies that
have not been selected to begin due diligence are rejected (see
appendix III). In order for applicants whose applications were
rejected to receive further consideration, they must reapply and again
pay application fees, which range from $75,000 to $800,000 (see
appendix IV). DOE also provided applicants with nuclear generation
projects information on how their projects ranked in comparison with
others before they submitted part II of the application and 75 percent
of the application fees. DOE did not provide rankings to applicants
with any other types of projects. DOE officials said that applicants
with nuclear projects were allowed to remain in a queue because of the
expectation that requests would substantially exceed available loan
guarantee authority and that the applications would be of high
quality. According to DOE officials, they based this expectation on
information available about projects that are seeking licenses from
the Nuclear Regulatory Commission. DOE officials also explained that
they ranked nuclear generation projects for similar reasons--and also
to give applicants with less competitive projects the chance to drop
out of the process early, allowing them to avoid the expense involved
in applying for a loan guarantee. However, all of the solicitations
issued through 2008 initially received requests that exceeded the
available loan guarantee authority (see appendix V), so nuclear
projects were not unique in that respect. In addition, applicants with
coal-based power generation and industrial gasification facility
projects paid application fees equivalent to those paid by applicants
with nuclear generation projects but were not given rankings prior to
paying the second application fee (see appendix IV). To provide EERE
applicants with earlier feedback on the competitiveness of their
projects, DOE instituted a two-part application for the 2009 EERE
solicitation--a change from the 2008 EERE solicitation. DOE officials
stated that they made this change based on lessons learned from the
2008 EERE solicitation. While this change appears to reduce the
disparity in treatment among applicants, it remains to be seen whether
DOE will make similar changes for projects that employ other types of
technologies.
Third, DOE has allowed one of the front-end nuclear facility
applicants that we contacted additional time to meet technical and
financial requirements, including requirements for evidence that the
technology is ready to move to commercial-scale operations, but DOE
has rejected applicants with other types of technologies for not
meeting similar technical and financial criteria. DOE has not provided
analysis or documentation explaining why additional time was
appropriate for one project but not for others.
DOE lacks systematic mechanisms for applicants to appeal its decisions
or provide feedback to DOE. In its solicitations, DOE states that a
rejection is "final and non-appealable." Once a project has been
rejected, the only administrative option left to an applicant under
DOE's documented procedures is to reapply and incur all of the
associated costs. Nevertheless, DOE said that, as a courtesy, it had
rereviewed certain rejected applications. Some applicants did not know
that DOE would provide such rereviews, which appear contrary to DOE's
stated policy and have been conducted on an ad hoc basis.
DOE also lacks a systematic mechanism for soliciting, evaluating, and
incorporating feedback from applicants about its implementation of the
program. Our past work has shown that agencies should solicit,
evaluate, and incorporate feedback from program users to improve
programs.[Footnote 13] Unless they do so, agencies may not attain the
levels of user satisfaction that they otherwise could. For example,
during our interviews with applicants, more than half said they
received little information about the timing or status of application
reviews. Applicants expressed a desire for more information about the
status of DOE's reviews and said that not knowing when a loan
guarantee might be issued created difficulties in managing their
projects--for example, in planning construction dates, knowing how
much capital they would need to sustain operations, and maintaining
support for their projects from internal stakeholders.
According to DOE officials, the department has reached out to
stakeholders through its Web site, presentations to industry groups
and policymakers, and other means. DOE has also indicated that it has
changed the program to make it more user-friendly, based on lessons
learned and applicant feedback. For example, unlike the 2008 EERE
solicitation, the 2009 EERE solicitation includes rolling deadlines
that give applicants greater latitude in when to submit their
applications; a simplified part I application that provides a
mechanism for DOE to give applicants early feedback on whether their
projects are competitive; and delayed payment of the bulk of the
"facility fee" that DOE charges applicants to cover certain program
costs. While DOE said that these changes were based, in part, on
feedback from applicants, because DOE has no systematic way of
soliciting applicant feedback, the department has no assurance that
the views obtained through its outreach efforts are representative,
particularly since the means that DOE uses to obtain feedback do not
guarantee anonymity. The department also has no assurance that the
changes made in response to feedback are effectively addressing
applicant concerns.
DOE risks excluding some potential applicants. Even though the
Recovery Act requires that applicants begin construction by the end of
fiscal year 2011 to qualify for Recovery Act funding, DOE has not yet
issued solicitations for the full range of projects eligible for
Recovery Act funding under section 1705. DOE has issued two
solicitations specific to the Recovery Act for the LGP, but neither
invites applications for commercial manufacturing projects, which are
eligible under the act.[Footnote 14] While DOE has announced that it
will issue an LGP solicitation for commercial manufacturing projects,
it has given no date for doing so. The 2009 EERE solicitation provided
an opportunity for some manufacturing applicants to receive Recovery
Act funding, but because DOE combined the Recovery Act's requirements
with the original section 1703 requirements, applicants with
commercial manufacturing projects were excluded. DOE officials told us
that they combined the requirements to ensure that projects that are
initially eligible under section 1705 but that fail to start
construction by the deadline can remain in the LGP under section 1703.
Conclusions:
DOE has made substantial progress in building a functional program for
issuing loan guarantees under Title XVII of EPAct; however, it may not
fully realize the benefits envisioned for the LGP until it further
improves its ability to evaluate and implement the program. Since
2007, we have been reporting on DOE's lack of tools necessary to
evaluate the program and process applications and recommending that
the department take steps to address these areas. While DOE has
identified broad policy goals and developed a mission statement for
the program, it will lack the ability to implement the program
efficiently and effectively and to evaluate progress in achieving
these goals and mission until it develops corresponding performance
goals. As a practical matter, without such goals, DOE will also lack a
clear basis for determining whether the projects it decides to support
with loan guarantees are helping achieve the desired results,
potentially undermining applicants' and the public's confidence in the
legitimacy of those decisions. Such confidence could also be
undermined by implementation processes that do not treat applicants
consistently--unless DOE has clear and compelling grounds for
disparate treatment--particularly if DOE skips steps in its review
process prior to issuing conditional commitments or rereviews rejected
applications for some applicants without having an administrative
appeal process. Furthermore, while DOE has taken steps to increase
applicants' satisfaction with the program, it cannot determine the
effectiveness of those efforts without systematic feedback from
applicants that preserves their anonymity.
Recommendations for Executive Action:
To improve DOE's ability to evaluate and implement the LGP, we
recommend that the Secretary of Energy take the following four actions:
* Direct the program management to develop relevant performance goals
that reflect the full range of policy goals and activities for the
program, and to the extent necessary, revise the performance measures
to align with these goals.
* Direct the program management to revise the process for issuing loan
guarantees to clearly establish what circumstances warrant disparate
treatment of applicants so that DOE's implementation of the program
treats applicants consistently unless there are clear and compelling
grounds for doing otherwise.
* Direct the program management to develop an administrative appeal
process for applicants who believe their applications were rejected in
error and document the basis for conclusions regarding appeals.
* Direct the program management to develop a mechanism to
systematically obtain and address feedback from program applicants,
and, in so doing, ensure that applicants' anonymity can be maintained,
for example, by using an independent service to obtain the feedback.
Agency Comments:
We provided a draft of this report to DOE for review and comment. In
its written comments, DOE stated that it recognizes the need for
continuous improvement to its Loan Guarantee Programs as those
programs mature but neither explicitly agreed nor disagreed with our
recommendations. In one instance, DOE specifically disagreed with our
findings: the department maintained that applicants are treated
consistently within solicitations.
Nevertheless, the department stated that it is taking steps to address
concerns identified in our report. Specifically, DOE pointed to the
following recent or planned actions:
* Performance goals and measures. DOE stated that, in the context of
revisions to its strategic plan, the department is revisiting the
performance goals and measures for the LGP to better align them with
the department's policy goals of growing the green economy and
reducing greenhouse gases from power generation.
* Consistent treatment of applicants. DOE recognized the need for
greater transparency to avoid the perception of inconsistent treatment
and stated that it will ensure that future solicitations explicitly
describe circumstances that would allow streamlined consideration of
loan guarantee applications.
* Appeals. DOE indicated that its process for rejected applications
should be made more transparent and stated that the LGP continues to
implement new strategies intended to reduce the need for any kind of
appeals, such as enhanced communication with applicants including more
frequent contact, and allowing applicants an opportunity to provide
additional data at DOE's request to address deficiencies DOE has
identified in applications.
While these actions are encouraging, they do not fully address our
findings, especially in the areas of appeals and applicant feedback.
We continue to believe that DOE needs systematic mechanisms for
applicants to appeal its decisions and to provide anonymous feedback.
DOE's written comments on our findings and recommendations, along with
our detailed responses, are contained in appendix VI. In addition to
the written comments reproduced in that appendix, DOE provided
technical comments, which we incorporated as appropriate.
We are sending copies of this report to the appropriate congressional
committees, the Secretary of Energy, and other interested parties.
This report also is available at no charge on the GAO Web site at
[hyperlink, http://www.gao.gov].
If you or your staffs have any questions concerning this report,
please contact me at (202) 512-3841 or ruscof@gao.gov. Contact points
for our Offices of Congressional Relations and Public Affairs may be
found on the last page of this report. Key contributors to this report
are listed in appendix VII.
Signed by:
Frank Rusco:
Director, Natural Resources and Environment:
[End of section]
Appendix I: Scope and Methodology:
To assess the extent to which the Department of Energy (DOE) has
identified what it intends to achieve through the Loan Guarantee
Program (LGP) and is positioned to evaluate progress, we reviewed and
analyzed relevant provisions of Title XVII of the Energy Policy Act of
2005 (EPAct), the American Recovery and Reinvestment Act of 2009
(Recovery Act); DOE's budget request documents; and Recovery Act
planning information, as well as other documentation provided by DOE.
We discussed strategic planning and program evaluation with cognizant
DOE officials from the LGP office, the Office of the Secretary of
Energy, the Office of the Chief Financial Officer, and the Credit
Review Board (CRB) that is charged with coordinating credit management
and debt collection activities as well as overall policies and
procedures for the LGP. As criteria, we used the Government
Performance Results Act (GPRA), along with our prior work on GPRA.
To evaluate DOE's implementation of the LGP for applicants, we
reviewed relevant legislation, such as EPAct and the Recovery Act;
DOE's final regulations and concept of operations for the LGP;
solicitations issued by DOE inviting applications for loan guarantees;
DOE's internal project tracking reports; technical and financial
review criteria for the application review process; minutes from CRB
meetings held between February 2008 and November 2009; applications
for loan guarantees; application rejection letters issued by DOE; and
other various DOE guidance and procurement documents related to the
process for issuing loan guarantees. We interviewed cognizant DOE
officials from the LGP office, the Office of the Secretary of Energy,
the Office of the Chief Financial Officer, the Office of Headquarters
Procurement Services, and program offices that participated in the
technical reviews of projects, including the Office of Electricity
Delivery and Energy Reliability, the Office of Energy Efficiency and
Renewable Energy, the Office of Nuclear Energy, and the National
Energy Technology Laboratory (NETL). In addition, we interviewed 31
LGP applicants and 4 trade association representatives, using a
standard list of questions for each group, to obtain a broad
representation of views that we believe can provide insights to
bolster other evidence supporting our findings. We selected the
applicants and trade associations using a mix of criteria, including
the amount of the loan guarantee requested and the relevant
technology. As criteria, we used our prior work on customer service.
We did not evaluate the financial or technical soundness of the
projects for which applications were submitted.
We conducted this performance audit from January 2009 through July
2010 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
[End of section]
Appendix II: Performance Measures for the LGP:
DOE has developed the following nine performance measures for the LGP:
* percentage of projects receiving DOE loan guarantees that have
achieved and maintained commercial operations;
* contain the loss rate of guaranteed loans to less than 4 percent;
* contain the loss rate of guaranteed loans to less than 11.81 percent
in fiscal year 2009 (11.85 percent for fiscal years 2010 and 2011) on
a long-term portfolio basis;
* newly installed generation capacity from power generation projects
receiving DOE loan guarantees;
* average cost per megawatthour for projects receiving DOE loan
guarantees;
* forecasted greenhouse gas emissions reductions from projects
receiving loan guarantees compared to 'business as usual' energy
generation;
* forecasted air pollutant emissions (nitrogen oxides, sulfur oxides,
and particulates) reductions from projects receiving loan guarantees
compared to 'business as usual' energy generation;
* average review time of applications for Section 1705 guarantees; and:
* percentage of conditional commitments issued to qualified applicants
relative to plan.
[End of section]
Appendix III: Application Review Process:
Figure 1: 2008 Solicitation for Energy Efficiency, Renewable Energy,
and Advanced Transmission and Distribution Technologies:
[Refer to PDF for image: flow-chart]
DOE issues solicitation:
2 paths:
First path:
Stand-alone or manufacturing projects submit application:
25% of application fee due ($18,750-$31,250); Fee paid for credit
assessment[A].
DOE reviews for responsiveness and innovativeness;
- Application rejected; or:
DOE notifies applicant of intent to proceed with review.
75% of application fee due ($56,250-$93,750).
DOE performs formal review:
- Application rejected; or:
Underwriting and due diligence:
- DOE performs/contracts out financial, legal, market, environmental,
and technical reviews;
- Term sheet negotiations:
External reviewer fees due; 20% of facility fee due.
DOE makes conditional commitment;
Fee paid for credit rating[A]; Credit subsidy calculations.
DOE issues loan guarantee;
Credit subsidy fee due: All or part of maintenance fee due; 80% of
facility fee due; Final credit subsidy fee calculated.
DOE services loan through term;
Any remaining maintenance fee due ($50,000-$100,000 annually).
Second path:
Large-scale integration projects submit part I of the application;
25% of application fee due ($18,750-$31,250); Fee paid for credit
assessment[A].
DOE reviews for responsiveness and innovativeness;
- Application rejected; or:
DOE notifies applicant of intent to proceed with review.
Applicant submits part II of application;
75% of application fee due ($56,250-$93,750).
DOE performs formal review;
- Application rejected; or:
Underwriting and due diligence:
- DOE performs/contracts out financial, legal, market, environmental,
and technical reviews;
- Term sheet negotiations:
External reviewer fees due; 20% of facility fee due.
DOE makes conditional commitment;
Fee paid for credit rating[A]; Credit subsidy calculations.
DOE issues loan guarantee;
Credit subsidy fee due: All or part of maintenance fee due; 80% of
facility fee due; Final credit subsidy fee calculated.
DOE services loan through term;
Any remaining maintenance fee due ($50,000-$100,000 annually).
Source: GAO presentation of DOE data.
[A] Required for projects with estimated total costs exceeding $25
million.
[End of figure]
Figure 2: 2008 Solicitation for Coal-based Power Generation and
Industrial Gasification Facilities That Incorporate Carbon Capture and
Sequestration or Other Beneficial Uses of Carbon and for Advanced Coal
Gasification Facilities:
[Refer to PDF for image: flow chart]
DOE issues solicitation:
Applicant submits part I of application;
25% of application fee due ($200,000); Fee paid for credit
assessment[A].
DOE reviews part I;
- Application rejected; or:
Applicant submits part II of application;
75% of application fee due ($600,000).
DOE reviews part II;
- Application rejected; or:
Underwriting and due diligence:
- DOE performs/contracts out financial, legal, market, environmental,
and technical reviews;
- Term sheet negotiations:
External reviewer fees due; 20% of facility fee due.
DOE makes conditional commitment;
Fee paid for credit rating[A]; Credit subsidy calculations.
DOE issues loan guarantee;
Credit subsidy fee due: All or part of maintenance fee due; 80% of
facility fee due; Final credit subsidy fee calculated.
DOE services loan through term;
Any remaining maintenance fee due ($200,000-$400,000 annually).
Source: GAO presentation of DOE data.
[A] Required for projects with estimated total costs exceeding $25
million.
[End of figure]
Figure 3: 2008 Solicitation for Nuclear Power Facilities:
[Refer to PDF for image: flow chart]
DOE issues solicitation:
Applicant submits part I of application;
25% of application fee due ($200,000); Fee paid for credit
assessment[A].
DOE reviews part I;
- Application rejected; or:
DOE provides initial ranking for the application:
- Applicant withdraws, or:
Applicant submits part II of application;
75% of application fee due ($600,000).
(During the remainder of the process, applicant provides updates every
90 days)
DOE reviews part II;
- Application rejected; or:
- Application not selected for due diligence”remains in queue; or:
Underwriting and due diligence:
- DOE performs/contracts out financial, legal, market, environmental,
and technical reviews;
- Term sheet negotiations:
External reviewer fees due; 20% of facility fee due.
DOE makes conditional commitment;
Fee paid for credit rating[A]; Credit subsidy calculations.
DOE issues loan guarantee;
Credit subsidy fee due: All or part of maintenance fee due; 80% of
facility fee due; Final credit subsidy fee calculated.
DOE services loan through term;
Any remaining maintenance fee due ($200,000-$400,000 annually).
Source: GAO presentation of DOE data.
[A] Required for projects with estimated total costs exceeding $25
million.
[End of figure]
Figure 4: 2008 Solicitation for Front-End Nuclear Facilities:
[Refer to PDF for image: flow chart]
DOE issues solicitation:
Applicant submits part I of application;
25% of application fee due ($200,000); Fee paid for credit
assessment[A].
DOE reviews part I;
- Application rejected; or:
Applicant submits part II of application;
75% of application fee due ($600,000).
(During the remainder of the process, applicant provides updates every
90 days)
DOE reviews part II;
- Application rejected; or:
- Application not selected for due diligence”remains in queue; or:
Underwriting and due diligence:
- DOE performs/contracts out financial, legal, market, environmental,
and technical reviews;
- Term sheet negotiations:
External reviewer fees due; 20% of facility fee due.
DOE makes conditional commitment;
Fee paid for credit rating[A]; Credit subsidy calculations.
DOE issues loan guarantee;
Credit subsidy fee due: All or part of maintenance fee due; 80% of
facility fee due; Final credit subsidy fee calculated.
DOE services loan through term;
Any remaining maintenance fee due ($200,000-$400,000 annually).
Source: GAO presentation of DOE data.
[A] Required for projects with estimated total costs exceeding $25
million.
[End of figure]
[End of section]
Appendix IV: Standardized Fees Associated with Obtaining a Loan
Guarantee, by Solicitation:
Solicitation: 2008 Front-end nuclear facilities;
Application fee: 1st payment of 25%: $200,000;
Application fee: 2nd payment of 75%: $600,000;
Facility fee[A]: ½ of 1% of guaranteed amount;
Annual loan maintenance fee: $200,000-400,000.
Solicitation: 2008 Nuclear power facilities;
Application fee: 1st payment of 25%: $200,000;
Application fee: 2nd payment of 75%: $600,000;
Facility fee[A]: ½ of 1% of guaranteed amount;
Annual loan maintenance fee: $200,000-400,000.
Solicitation: 2008 Coal-based power generation and industrial
gasification facilities;
Application fee: 1st payment of 25%: $200,000;
Application fee: 2nd payment of 75%: $600,000;
Facility fee[A]: ½ of 1% of guaranteed amount;
Annual loan maintenance fee: $200,000-400,000.
Solicitation: 2008 Energy efficiency, renewable energy, and advanced
transmission and distribution technologies (EERE):
Loan guarantee amount: $0 - 150,000,000;
Application fee: 1st payment of 25%: $18,750;
Application fee: 2nd payment of 75%: $56,250;
Facility fee[A]: 1% of guaranteed amount;
Annual loan maintenance fee: $50,000-100,000.
Loan guarantee amount: Above $150,000,000 - 500,000,000;
Application fee: 1st payment of 25%: $25,000;
Application fee: 2nd payment of 75%: $75,000;
Facility fee[A]: $375,000 + 0.75% of guaranteed amount;
Annual loan maintenance fee: $50,000-100,000.
Loan guarantee amount: Above $500,000,000;
Application fee: 1st payment of 25%: $31,250;
Application fee: 2nd payment of 75%: $93,750;
Facility fee[A]: $1,625,000 + 0.50% of guaranteed amount;
Annual loan maintenance fee: v50,000-100,000.
Solicitation: 2009 EERE:
Loan guarantee amount: $0 - 150,000,000;
Application fee: 1st payment of 25%: $18,750;
Application fee: 2nd payment of 75%: $56,250;
Facility fee[A]: 1% of guaranteed amount;
Annual loan maintenance fee: $50,000-100,000.
Loan guarantee amount: $150,000,000 - 500,000,000;
Application fee: 1st payment of 25%: $25,000;
Application fee: 2nd payment of 75%: $75,000;
Facility fee[A]: $375,000 + 0.75% of guaranteed amount;
Annual loan maintenance fee: $50,000-100,000.
Loan guarantee amount: Above $500,000,000;
Application fee: 1st payment of 25%: $31,250;
Application fee: 2nd payment of 75%: $93,750;
Facility fee[A]: $1,625,000 + 0.50% of guaranteed amount;
Annual loan maintenance fee: $50,000-100,000.
Solicitation: 2009 Electric power transmission infrastructure projects;
Application fee: 1st payment of 25%: $200,000;
Application fee: 2nd payment of 75%: $600,000;
Facility fee[A]: ½ of 1% of guaranteed amount;
Annual loan maintenance fee: $200,000-400,000.
Solicitation: 2009 Commercial technology renewable energy generation
projects under the Financial Institution Partnership Program (FIPP);
Application fee: 1st payment of 25%: $12,500;
Application fee: 2nd payment of 75%: $37,500;
Facility fee[A]: ½ of 1% of guaranteed amount;
Annual loan maintenance fee: $10,000-25,000.
Source: GAO presentation of DOE data.
[A] According to agency documentation, this fee is intended to cover
the LGP's cost of loan setup and associated legal and finance fees.
[End of table]
[End of section]
Appendix V: Loan Guarantee Amounts Available and Amounts Applicants
Sought for Technology Categories Targeted in Solicitations:
Targeted technology category: Mixed[A];
Solicitation issuance date: Aug. 8, 2006;
Amount available: $4.0 billion;
Amount applicants sought: $8.6 billion.
Targeted technology category: Nuclear power facilities;
Solicitation issuance date: July 11, 2008;
Amount available: $18.5 billion;
Amount applicants sought: $93.2 billion.
Targeted technology category: Front-end nuclear facilities;
Solicitation issuance date: July 11, 2008;
Amount available: $2.0 billion;
Amount applicants sought: $4.0 billion.
Targeted technology category: Coal-based power generation and
industrial gasification facilities;
Solicitation issuance date: Sept. 22, 2008;
Amount available: $8.0 billion;
Amount applicants sought: $18.6 billion.
Targeted technology category: Energy efficiency, renewable energy, and
advanced transmission and distribution technologies (EERE);
Solicitation issuance date: Oct. 29, 2008;
Amount available: $10.0 billion;
Amount applicants sought: $20.1 billion.
Targeted technology category: EERE;
Solicitation issuance date: July 29, 2009;
Amount available: $8.5 billion;
Amount applicants sought: $22.8 billion[B].
Targeted technology category: Electric power transmission
infrastructure projects;
Solicitation issuance date: July 29, 2009;
Amount available: $5.0 billion[C];
Amount applicants sought: $4.3 billion.
Targeted technology category: Commercial technology renewable energy
generation projects under the Financial Institution Partnership
Program (FIPP);
Solicitation issuance date: Oct. 7, 2009;
Amount available: $5.0 billion[C];
Amount applicants sought: $3.1 billion.
Source: GAO presentation of DOE data.
[A] The 2006 mixed solicitation invited applications for all
technologies eligible to receive loan guarantees under the Energy
Policy Act of 2005 except for nuclear facilities and oil refineries.
[B] DOE is still accepting applications in response to the 2009 EERE
solicitation, so the final total amount that applicants will seek is
not yet known. Through November 2009, applicants were seeking a total
of $22.8 billion.
[C] This amount is an estimate because the solicitation did not
specify how much would be issued in loan guarantees. This estimate is
based on the solicitation's stated plan to use $750 million to cover
credit subsidy costs and assumes credit subsidy costs of 15 percent,
which DOE has told us is consistent with credit subsidy estimates to
date.
[End of table]
[End of section]
Appendix VI: Comments from the Department of Energy:
Note: GAO comments supplementing those in the report text appear at
the end of this appendix.
Department of Energy:
Washington, DC 20585:
June 17, 2010:
Mr. Frank Rusco:
Director, Natural Resources and Environment:
Government Accountability Office:
Washington DC, 20548:
Dear Mr. Rusco:
Thank you for the opportunity to comment on the Government
Accountability Office's (GAO) draft report on the Department of
Energy's (DOE or Department) Loan Guarantee Program (LGP), Further
Actions Are Needed to Improve DOE's Ability to Evaluate and Implement
the Loan Guarantee Program. The Department is committed to managing
the LGP carefully and maintaining the integrity of the LGP as well as
promoting the objectives of the Title XVII program. The Department's
paramount concern is protecting the American taxpayer.
As noted in your report, the Department has made substantial progress
in building a functional program for issuing loan guarantees under
Title XVII of the Energy Policy Act of 2005. Significant achievements
include:
* Leveraging external experts: DOE has identified external experts to
assist with legal, engineering, financial, and marketing analyses of
proposed projects. Identifying these external experts beforehand helps
to ensure that DOE will have the necessary expertise readily available
during the application review process. The Department has also
expedited the procurement process for hiring these external experts.
* Revising LGP regulations: DOE has revised the LGP's regulations
after receiving information from potential applicants, lenders, and
other industry professionals concerning the wide variety of ownership
and financing structures that applicants would like to employ in
projects seeking loan guarantees. For example, LGP regulations were
revised to allow for ownership structures that are typically employed
in utility-grade power plants and are commonly proposed for the next
generation of nuclear power generation facilities.
* Developing policies and procedures: DOE has developed a credit
policies and procedures manual for the LGP. Among other things, the
manual contains detailed internal policies and procedures that lay out
requirements, criteria, and staff responsibilities for determining
which proposed projects should receive loan guarantees.
* Approval for credit subsidy model: DOE obtained Office of Management
and Budget approval for its model to estimate credit subsidy costs.
The model is a critical tool needed for the LGP to proceed with
issuing loan guarantees because it will be used to calculate the
amount of each loan guarantee's credit subsidy and the associated fee,
if applicable.
While the report recognizes key steps that DOE has taken to implement
the LOP program, it also discusses opportunities for improvement in
LGP's performance goals and measures, the transparency of its
treatment of loan applicants, and mechanisms for systematic feedback
from applicants. The Department recognizes the need for continuous
improvement to its Loan Guarantee Programs as those programs mature,
and is taking steps to address the concerns noted in the report.
Enclosed arc the Department's detailed responses to GAO's specific
recommendations and separate technical and factual comments on
specific language in the draft report. We look forward to working with
your team on future engagements.
Sincerely,
Signed by:
Jonathan M. Silver:
Executive Director of the Loan Programs:
Office of the Secretary:
Enclosures:
[End of letter]
U.S. Department of Energy:
GAO-10-627 ” "Department Of Energy: Further Actions Are Needed to
Improve DOE's Ability to Evaluate and Implement the Loan Guarantee
Program:
Response to GAO Recommendations for Executive Action:
Technical and Factual Comments:
Recommendation 1: The Secretary of Energy should direct the program
management to develop relevant performance goals that reflect the full
range of policy goals and activities for the program, and to the
extent necessary, revise the performance measures to align with these
goals.
DOE Response: The Department recognizes the need for relevant and
targeted performance metrics and is working to ensure that appropriate
metrics are identified for Loan Guarantee Programs. Currently, the
program evaluates a project based on the ability to optimize multiple
metrics that are consistent with overall program objectives, and there
is no mandate from Congress regarding a specific target for the number
of jobs created. In the context of preparing the LGP's contribution to
the Department's Strategic Plan, which is still under development, the
LGP is revisiting its performance goals and measures to better align
with the Department's policy goals of growing the green economy and
reducing green house gases in power generation. [See comment 1]
Recommendation 2: The Secretary should direct the program management
to revise the process for issuing loan guarantees to clearly establish
what circumstances warrant disparate treatment of applicants so that
DOE's implementation of the program treats applicants consistently
unless there are clear and compelling grounds for doing otherwise.
DOE Response: DOE disagrees with GAO's assertion that applicants are
treated inconsistently but recognizes the need for greater
transparency to avoid the perception of inconsistent treatment.
Currently, each solicitation states the process for submitting
applications and criteria for approving loan guarantees. The
Department believes that within each solicitation, the rules have been
applied consistently, and no applicants have been disadvantaged. The
Department will ensure that future solicitations explicitly describe
circumstances that would allow for streamlined consideration of loan
guarantee applications. [See comment 2]
It is important to note that there is no one-size-fits-all approach
across the various energy sectors, and processes may legitimately vary
for the different energy sectors. One area highlighted by GAO was the
ranking of the nuclear projects while not performing a similar ranking
for other energy sectors. The LGP ranked nuclear generation projects
because most nuclear power applications satisfied the requirements to
proceed to due diligence, but the program did not have the loan
authority to support all of the projects. A detailed analysis was
required to differentiate those projects that had the strongest
likelihood of readiness to proceed beyond the due diligence phase.
[See comment 3]
The LGP does not provide a comparable ranking to applicants under the
energy efficiency/renewable energy solicitations because the loan
authority is adequate to support all viable projects. However, DOE
provides applicants under the energy efficiency/renewable energy
solicitations with early feedback on the viability of their
application and the opportunity to avoid 75% of the application fee by
using a Part I and Part II application process. [See comment 3]
In the case of the fossil energy solicitation, DOE met with all eight
of the advanced fossil project sponsors who submitted Part I
applications. The Part I applicants were informed that the
solicitation was significantly over-subscribed and that there was a
strong possibility that a loan guarantee approved by DOE for the
selected projects could be substantially lower than the amount
requested. Five applicants chose to proceed and submit Part II
applications. Four of the five were invited to final due diligence.
DOE had no reason to rank the four remaining projects because the $8.3
billion requested was in line with the authorized loan guarantee
authority of $8 billion. [See comment 3]
Recommendation 3: The Secretary should direct the program management
to develop an administrative appeal process for applicants who believe
their applications were rejected in error and document the basis for
conclusions regarding appeals.
DOE Response: The Department believes that the current process for
rejected applicants is working, but agrees that the process should be
made more transparent to loan applicants. As GAO pointed out, DOE has
reconsidered some previously rejected applications. In these
situations, applicants have demonstrated to DOE that there may have
been an error made in the interpretation of their data. [See comment 4]
More importantly, LGP continues to implement new strategies to
increase efficiencies and improve the loan guarantee application
process that should reduce the need for any kind of appeals to the
final loan decisions. These strategies include enhanced communication
with applicants including more frequent contact and greater
transparency. Applicants are allowed to improve their applications by
providing additional data at DOE's request. Applicants with Part I
submissions denied further review are provided with written
notification detailing the reasons for this determination. Briefings
on rejected applications are given when requested. Additionally, we
are improving our intake procedures, allowing for a formal dialogue
between DOE and the applicant and making decisions more quickly on
applications and their readiness to move to Part II. On March 22,
2010, DOE instituted this new policy to allow applicants the
opportunity to address deficiencies identified by DOE during the
technical and financial review. [See comment 4]
Recommendation 4: The Secretary should direct the program management
to develop a mechanism to systematically obtain and address feedback
from program applicants, and, in so doing, ensure that applicants'
anonymity can be maintained, for example, by using an independent
service to obtain the feedback.
DOE Response: The Department agrees with the overall goal of this
recommendation, but believes that use of a third-party to obtain
feedback to preserve anonymity is not necessary. LGP stakeholders have
not been reticent about expressing their views on the program. The
Department believes that the LGP staff should be accountable for
obtaining feedback from stakeholders. DOE has already implemented a
variety of processes for soliciting, evaluating, and incorporating
feedback from applicants about its administration of the program. DOE
has proactively reached out to stakeholders using a myriad of venues.
Program representatives have addressed renewable energy groups,
banking and finance organizations, and state policy makers. In the
process to update the LGP Final Rule, DOE received over 1,000 comments
from stakeholders. DOE routinely meets with prospective and current
applicants. Through Requests for Information, DOE seeks out opinions
of the energy and finance industries on new solicitations. DOE also
maintains the LGPO website which is a source for informing the public
and potential applicants. [See comment 5]
DOE is constantly using information it gathers from lessons learned to
improve procedures and increase efficiencies and effectiveness. For
example, the Department shortened the intake and screening procedures,
and is now in the process of automating and standardizing the
application submission process. [See comment 5]
The following are GAO's comments on the Department of Energy's (DOE)
letter dated June 17, 2010.
GAO Comments:
1. DOE appears to concur with the spirit of our recommendation. Best
practices for program management indicate that DOE should have
objective, quantifiable performance goals and targets for evaluating
its progress in meeting policy goals DOE has identified for the LGP.
Such goals and targets are important tools for ensuring public
accountability and effective program management.
2. Our finding about inconsistent treatment of LGP applicants is based
on information obtained from applicants corroborated by documents from
DOE. In the instance we identified in which DOE made a conditional
commitment before obtaining any of the required external reports, the
external reviewers were not fully engaged until after DOE had
negotiated the terms of the conditional commitment, which is contrary
to DOE's stated procedures and provided an advantage to the applicant.
Other applicants who received conditional commitments before
completion of one or more of the reports called for by DOE's due
diligence procedures also had a comparative advantage in that they
were able to defer some review expenses until after DOE had publicly
committed to their projects. We continue to believe that DOE should
revise the process for issuing loan guarantees to treat applicants
consistently unless there are clearly established and compelling
grounds for making an exception.
3. We agree that there may be grounds for treating applicants
differently depending on the type of technology they employ but do not
believe that DOE has adequately explained the basis for the
differences among the solicitations. For example, DOE's response does
not address the possibility that lack of ranking information for
fossil energy projects, combined with the knowledge that the
solicitation was significantly oversubscribed, could have factored
into applicants' decisions to drop out of the process, especially
given the relatively high fees associated with submitting part II of
the application.
4. We disagree that DOE's current process for rereviewing rejected
applications is working. As we state in our report, some applicants
did not know that DOE would provide rereviews. While we are encouraged
by DOE's efforts to reduce the need for appeals, we believe that an
administrative appeal process would allow DOE to better plan and
manage its use of resources on rejected applications.
5. We applaud DOE's efforts to reach out to stakeholders and to use
lessons learned to improve procedures and increase efficiencies and
effectiveness. However, we continue to believe that DOE needs a
systematic mechanism for applicants to provide anonymous feedback,
whether through use of a third party or other means that preserves
confidentiality. Several applicants we interviewed expressed concern
that commenting on aspects of DOE's implementation of the LGP could
adversely affect their current or future prospects for receiving a
loan guarantee. Systematically obtaining and addressing anonymous
feedback could enhance DOE's efforts to improve procedures and
increase efficiencies and effectiveness.
[End of section]
Appendix VII: GAO Contact and Staff Acknowledgments:
GAO Contact:
Frank Rusco (202) 512-3841 or ruscof@gao.gov:
Staff Acknowledgments:
In addition to the individual named above, Karla Springer, Assistant
Director; Marcia Carlsen; Nancy Crothers; Marissa Dondoe; Brandon
Haller; Whitney Jennings; Cynthia Norris; Daniel Paepke; Madhav
Panwar; Barbara Timmerman; and Jeremy Williams made key contributions
to this report.
[End of section]
Footnotes:
[1] Pub. L. No. 109-58, Title XVII (Aug. 8, 2005).
[2] Pub. L. No. 111-5 (Feb. 17, 2009).
[3] Omnibus Appropriations Act, 2009, Pub. L. No. 111-8, Div. C, Title
III (Mar. 11, 2009). The act provided that of the authorized amount of
$47 billion, $18.5 billion shall be for nuclear power. Further
congressional direction about the allocation of loan guarantee
authority among technology categories was contained in the explanatory
statement accompanying the act. Use of the funds appropriated for the
program was subject to certain conditions, such as a requirement for
DOE to submit an implementation plan to the appropriations committees
prior to issuing any new solicitations inviting applications for loan
guarantees.
[4] Pub. L. No. 111-5, Div. A, Title IV (Feb. 17, 2009). Congress
originally appropriated nearly $6 billion to pay the credit subsidy
costs of projects supported under section 1705, with the limitation
that funding to pay the credit subsidy costs of leading-edge biofuel
projects eligible under this section would not exceed $500 million.
Congress later authorized the President to transfer up to $2 billion
of the nearly $6 billion to expand the "Cash for Clunkers" program.
Pub. L. No. 111-47 (Aug. 7, 2009). The $2 billion was transferred to
the Department of Transportation, leaving nearly $4 billion to cover
credit subsidy costs of projects supported under section 1705.
[5] A conditional commitment is a commitment by DOE to issue a loan
guarantee if the applicant satisfies specific requirements. The
Secretary of Energy has the discretion to cancel a conditional
commitment at any time for any reason prior to the issuance of a loan
guarantee.
[6] When asked if DOE plans to use the $500 million to cover the
credit subsidy costs for projects that are currently under review or
for projects that apply under a new solicitation, the department
stated that the $500 million, if approved, will be used by the LGP at
its discretion across the full spectrum of qualified energy efficiency
and renewable energy projects.
[7] Pub. L. No. 110-5 §20320(c) (Feb. 15, 2007).
[8] GAO, The Department of Energy: Key Steps Needed to Help Ensure the
Success of the New Loan Guarantee Program for Innovative Technologies
by Better Managing Its Financial Risk, [hyperlink,
http://www.gao.gov/products/GAO-07-339R] (Washington, D.C.: Feb. 28,
2007); GAO, Department of Energy: New Loan Guarantee Program Should
Complete Activities Necessary for Effective and Accountable Program
Management, [hyperlink, http://www.gao.gov/products/GAO-08-750]
(Washington, D.C.: July 7, 2008).
[9] GAO, Agencies' Annual Performance Plans under the Results Act: An
Assessment Guide to Facilitate Congressional Decisionmaking,
[hyperlink, http://www.gao.gov/products/GAO/GGD/AIMD-10.1.18]
(Washington, D.C.: February 1998, ver. 1.); GAO, The Results Act: An
Evaluator's Guide to Assessing Agency Annual Performance Plans,
[hyperlink, http://www.gao.gov/products/GAO/GGD-10.1.20] (Washington,
D.C.: April 1998, ver. 1).
[10] The Executive Director also oversees DOE's Advanced Technology
Vehicles Manufacturing Loan Program.
[11] GAO, Grants Management: Grants.gov Has Systemic Weaknesses That
Require Attention, [hyperlink, http://www.gao.gov/products/GAO-09-589]
(Washington, D.C.: July 15, 2009).
[12] LGP staff have generally conducted the financial reviews for the
projects that have received conditional commitments or a loan
guarantee to date.
[13] GAO, Transportation Research: Opportunities for Improving the
Oversight of DOT's Research Programs and User Satisfaction with
Transportation Statistics, [hyperlink,
http://www.gao.gov/products/GAO-06-917] (Washington, D.C.: Aug. 15,
2006).
[14] The solicitations specific to the Recovery Act are the 2009
solicitations targeting electric power transmission infrastructure
projects and commercial technology renewable energy generation
projects.
[End of section]
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