The Department of Energy’s (DOE’s) loan programs have made more than $30 billion in loans and loan guarantees, but it has not fully developed or consistently stuck to loan monitoring policies, an official from the Government Accountability Office testified before a House subcommittee on May 30. 

Congress authorized the Loan Guarantee Program (LGP) in 2005 and the Advanced Technology Vehicles Manufacturing (ATVM) loan program in 2007, authorizing the DOE to disburse tens of billions of dollars in loans and guarantees, even though both the programs can “expose the federal government to substantial financial risks if borrowers default on their loans,” GAO Director of Natural Resources and Environment Frank Rusco told the House Subcommittee on Oversight, and Investigations at a hearing to assess the status of loan programs.

To date, only two loans, a total $6.2 billion, have been made under Section 1703 (for nuclear projects), and $28.7 billion remains to be disbursed. Under Section 1705, however, for which Congress appropriated funds to pay credit subsidy costs, 31 loans for $15.7 billion have been guaranteed, mostly to renewables projects—and of these three have defaulted, Rusco noted.

Meanwhile, five loans for $8.4 billion have been made under the ATVM loan program, but two of the five have defaulted. And, though $16.6 billion remains to be disbursed, the DOE has not made a single ATVM loan since March 2011. It had only one active application as of February 2014.

“Unless the DOE can demonstrate a demand for new ATVM loans and viable applications, Congress may wish to consider rescinding all or part of the remaining $4.2 billion in credit subsidy appropriations,” Rusco said.

Rusco also outlined a number of GAO-reported ways in which the DOE has fallen short of monitoring loan programs. Activities for evaluating and mitigating program-wide risk remain incomplete or updated, he said.

More significantly, he noted that “during a period of significant program events [2009 to 2013], such as 5 borrower defaults, the DOE was making loans and disbursing funds without a fully developed loan monitoring function.”

DOE Deputy Inspector General for Audits and Inspections Rickey Hass acknowledged his office performed a “series of reviews on various aspects” of the DOE’s Loan Programs Office (LPO).

The DOE had in December 2013 made up to $8 billion in loan guarantee authority available to support advanced fossil energy projects that avoid, reduce, or sequester greenhouse gases, he said. In April, the program also issued a draft loan guarantee solicitation for innovative renewable energy and energy efficiency projects located in the U.S. that curb greenhouse gases, that could make as much as $4 billion available in loan guarantees.

“Given the significant amount of additional funding being made available for loan guarantees and previously identified weaknesses in the Program, we will continue to monitor its activities as part of our normal risk assessment process,” said Hass. “In our view, the Loan Guarantee Program warrants special attention by Department officials and, therefore, has been one of our ‘watch list’ items since 2011.”

Peter Davidson, the executive director for the DOE’s LPO, defended his office, saying its achievements to date are “remarkable.”

“The DOE takes its responsibility to the American taxpayer very seriously,” he said. “The LPO also has one of the largest, most experienced project finance teams in the world that has the capabilities and tools to support a number of different project types, all while managing risk appropriately.”

Davidson said that due in large part to the DOE’s “meticulous due diligence, its commitment to establishing protections within all agreements, and robust project monitoring, the portfolio as a whole continues to perform very well with total losses to date of only about 2%.”

Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)