An independent audit of the Department of Energy’s loan guarantee program has found little fault with the program but suggests ways for the department to improve management and oversight.
The White House initiated the audit in response to criticism by Republican members of the House of Representatives who are investigating the loan program in the wake of the bankruptcy of loan recipients Solyndra and Beacon Power. To lead the audit, the White House selected Herb M. Allison Jr., former assistant secretary of the Treasury Department, who oversaw the Troubled Asset Relief Program and led government-sponsored mortgage lender Fannie Mae when it was in conservatorship (C&EN, Nov. 7, 2011, page 8).
The audit evaluated 30 DOE loan guarantees and loans issued through two programs that support innovative but risky clean energy projects. One program guarantees loans for a variety of clean energy manufacturing efforts—such as solar energy, wind energy, and nuclear power—and the other provides loans for advanced vehicle manufacturing.
Some $2.7 billion is at risk of default out of current loans totaling $23.7 billion, according to a methodology used by Allison’s team of auditors. The report stresses that the methodology cannot exactly predict failure and DOE has ample opportunities and “robust tools” available to protect itself against such risk.
The report notes, however, that “given the novelty, complexity and scale of the projects and the exacting covenants in their loan structures, many projects are likely to seek relief at some point during the term of the DOE loan or loan guarantee.” To better manage the large loan portfolio, the report recommends adding a new risk management structure, including appointing a new chief risk officer independent of the loan office to serve as loan monitor. The report also urges DOE to establish explicit objectives, guidelines, and standards of performance for managing the program.
The auditors found problems with the loan program office itself. Although it employs 92 staff and 60 contractors, the office has some key positions unfilled, and it relies on acting directors and outside contractors. At least one manager is acting head of several departments, and the executive director is an interim appointment. The position of director of credit is vacant. DOE has tried to fill those positions with permanent employees without success, the report says. The report predicts that DOE should be better able to hire permanent, highly qualified individuals if it adopts the audit’s recommendations.
Energy Secretary Steven Chu heralded the audit immediately after its Feb. 10 release. He noted that Allison found that the loan guarantee program’s exposure to risk is far less than some $10 billion Congress budgeted for failures when the DOE programs were first created by energy legislation passed in 2005 and 2007.
“We have always known that there was inherent risk in backing innovative technologies at full commercial scale,” Chu said, “and it is very likely there will be companies in the portfolio that won’t succeed.” He added, however, that DOE’s loan programs have directly generated some $40 billion in private investments and 60,000 jobs.
House Republicans were not swayed and said they will continue to seek more White House documents on the loan guarantee program. In statements after the audit’s release, Rep. Jim Sensenbrenner Jr. (R-Wis.) called the report an “umbrella to deflect criticism,” and Rep. Fred Upton (R-Mich.), chair of the House Energy & Commerce Committee, said that one key lesson from the program “is that taxpayers should not have been placed in the position to lose one dollar, let along billions.”
“It would be a stunning case of bureaucratic disregard to declare victory because the government is expecting to lose ‘just’ $3 billion,” Upton added.