On March 12, 2012, the Government Accountability Office (“GAO”) released a report concerning the Department of Energy’s (“DOE”) $30 billion Loan Guarantee Program (“Program”).  The report, titled “Further Actions Are Needed to Improve Tracking and Review of Applications,” reviewed data provided by DOE on its loan applications and the established process through which DOE reviews loan applications.  The report expressed concern regarding the lack of meaningful and centralized data on the loan program. GAO recommended that the Secretary of Energy direct the Executive Director of the Program Office to undertake specific actions to help manage the program and mitigate risks.

The Program has come under increased scrutiny in the last six months following the bankruptcy of two loan guarantee recipients, Solyndra, Inc. and Beacon Power Corporation (see September 23, 2011 andNovember 7, 2011editions of the WER).  The Program represents an important potential financing source for energy efficiency and renewable projects, particularly for wind developers who are facing the expiration of the Federal Production Tax Credit in 2012.

In its report, the GAO found that although DOE has made $15.1 billion in loan guarantees and conditionally committed to $15 billion more, the Program does not have consolidated data readily available for review.  The Program staff took three months to compile the data GAO requested and to address errors and omissions identified.  Further, GAO identified differences between the actual and established processes for reviewing applications, and in some cases, incomplete documentation of steps in that review.  GAO warned that poorly documenting or omitting decisions during the review process could affect the ability of the Program to address default risk associated with efficiency and renewable projects.

Overall, GAO reported that the Program needs to “fully” implement a consolidated system to oversee the application review process and document decisions according to current policies and procedures.  On a positive note, GAO indicated that the Program developed a process for performing due diligence that may “equal or exceed” those private lenders use to assess and mitigate project risks.

Ultimately, GAO issued the following recommendations for executive action:

  1. Commit to a timetable to fully implement a consolidated system that enables the tracking of the status of applications and that measures overall program performance.
  2. Ensure that the new records management system contains documents supporting past decisions, as well as those in the future.
  3. Regularly update the Program’s credit policies and procedures manual to reflect current program practices to help ensure consistent treatment for applications to the program.

GAO provided DOE with a draft copy of its report for comment.  DOE disagreed with the first recommendation and agreed with the second and third.  The Acting Executive Director stated that the Program office did not agree to a timetable for implementing the first recommendation.

A copy of the GAO report is available here.