The Department of Energy has made $15 billion in loan guarantees and conditionally committed to another $15 billion, but its loan guarantee program lacks much-needed consolidated data on application status, which could make easier efficient management and program oversight, a new report from the Government Accountability Office (GAO) has found. The report was released on Monday, just before Energy Secretary Steven Chu defended the Obama administration’s loan programs before a Senate committee.

Congress’ investigative arm says in its report, Further Actions Are Needed to Improve Tracking and Review of Applications, that for the 460 applications to the Loan Guarantee Program (LGP), the DOE has made loan guarantees for 7% and committed to an additional 2%. “The time the LGP took to review loan applications decreased over the course of the program, according to GAO’s analysis of LGP data. However, when GAO requested data from the LGP on the status of these applications, the LGP did not have consolidated data readily available and had to assemble these data over several months from various sources,” it says.

The GAO says that without consolidated data on applicants, LGP managers could not have readily accessible information that would facilitate more efficient program management, and LGP staff may not be able to identify weaknesses in the program’s application review process and approval procedures.

“Furthermore, because it took months to assemble the data required for GAO’s review, it is also clear that the data were not readily available to conduct timely oversight of the program,” it says. Improvements are under way, the GAO notes, however. LGP officials acknowledged the need for a consolidated system and said that the program has begun developing a comprehensive business management system that could also be used to track the status of LGP applications. “However, the LGP has not committed to a timetable to fully implement this system,” it finds.

GAO: DOE Strayed From Established Application Review Processes

The organization also lambasts the DOE for straying from its established process, which occurred at least once on 11 of the 13 applications the GAO reviewed. Though private lenders who finance energy projects that the GAO interviewed found that the LGP’s established review process was generally as stringent as or more stringent than their own, the GAO found otherwise, it says. For example, actual reviews skipped applicable review steps. In other cases, the GAO could not determine whether the LGP had performed some established review steps because of poor documentation.

The DOE’s LGP staff said one reason for this was because they were following procedures that had been revised but were not yet updated in the credit policies and procedures manual, which is dated March 5, 2009. The manual states it was meant to be updated at least annually.

“Omitting or poorly documenting reviews reduces the LGP’s assurance that it has treated applicants consistently and equitably and, in some cases, may affect the LGP’s ability to fully assess and mitigate project risks. Furthermore, the absence of adequate documentation may make it difficult for DOE to defend its decisions on loan guarantees as sound and fair if it is questioned about the justification for and equity of those decisions,” it says.

The DOE’s LGP was created by section 1703 of the Energy Policy Act of 2005 to guarantee loans for innovative energy projects. Currently, the DOE is authorized to make up to $34 billion in section 1703 loan guarantees. In February 2009, the American Recovery and Reinvestment Act added section 1705, making certain commercial technologies that could start construction by September 30, 2011, eligible for loan guarantees. It provided $6 billion in appropriations that were later reduced by transfer and rescission to $2.5 billion. The funds are expected to cover the DOE’s costs for an estimated $18 billion in additional loan guarantees.

The GAO’s study stems from an ongoing mandate to review the program’s implementation. Prior work had raised concerns regarding the status of the applications to the LGP and loans that the LGP has committed to or made. It also sought more clarity on the extent to which the program has adhered to its process for reviewing applications.

A key recommendation made by the GAO in its study—and one that the DOE disagreed with—urges the energy secretary to establish a timetable and fully implement a consolidated system to provide information on LGP applications and reviews and regularly update program policies and procedures.

Chu: Loan Programs Necessary for U.S. Competitiveness

The GAO’s report coincided with the White House-commissioned independent review of the DOE’s loan guarantee portfolio by Herbert M. Allison, an independent consultant. Recommendations from his report, as Allison explained to the Senate Committee on Energy and Natural Resources on Tuesday, included ensuring adequate funding and staffing for management and oversight of the loan guarantee portfolio for the long term.

It also recommended that the DOE clarify authority and accountability of managers along the chain of command, and that it establish clear goals for the program, including "defining the vague financial goal in the enabling law for all of the loans except the automobile loans, which is to assure a reasonable prospect of repayment.”

On Tuesday, Energy Secretary Chu said the report was "thorough" and "thoughtful." "Even before the conclusion of Mr. Allison’s review, we took steps—many of which are consistent with the report’s recommendations—to improve the loan programs," he told the Senate committee.

The U.S. is struggling to stay ahead in the clean energy race, he stressed. "To win the clean energy jobs of the future, the United States must do more than invent technologies; we must also manufacture them, deploy them here at home, and sell them around the world. The production of energy technologies benefits from scale. Simply put, we cannot have a competitive clean energy industry without programs that help spur deployment and markets."

Sources: POWERnews, GAO, Senate Committee on Energy and Natural Resources