DOE breaks its own rules in reviewing loan guarantees

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Michael Bastasch DCNF Managing Editor
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A recent report by the Government Accountability Office (GAO) found that the Department of Energy is not following its own rules when granting loan guarantees to green-energy companies.

For 11 of the 13 loan guarantee applications that received conditional commitments by the end of 2010, the Energy Department skipped or poorly documented at least one step of the approval process, the GAO found. The report warns that “omitting or poorly documenting review steps may pose increased financial risk to the taxpayer and result in inconsistent treatment of applications.”

“What we found was problems in how they followed their process and in some cases deviated from the process without a clear explanation why,” said Frank Rusco, the GAO auditor who wrote the report. “This has gotten the program in trouble in the past and certainly raises questions that are hard for them to answer.”

The GAO interviewed private lenders who finance energy projects and found that the DOE’s established review process was “generally as stringent as or more stringent than their own.” The DOE, however, doesn’t always follow its own procedures.

Solyndra, one of the biggest DOE loan guarantee failures, was green-lighted to receive taxpayers dollars, despite warning signs that the company was troubled. “An independent federal auditor who has reviewed the energy loan program said that moving so quickly without completing thorough reviews exposed the program to perceptions of political influence and put taxpayers at greater risk,” iWatch News reported last year.

The GAO has noted this problem with the loan guarantee program before. A 2010 audit by the GAO found that the “DOE’s implementation of the LGP has treated applicants inconsistently, favoring some and disadvantaging others. … DOE conditionally committed to issuing loan guarantees for some projects prior to completion of external reviews required under DOE procedures.”

The 2010 audit further noted, “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,” the audit continued.

The recent report also indicated that the Energy Department did not have any consolidated data for the loan guarantee program. The DOE didn’t have the data readily available for auditors and had to assemble the data over several months and from a variety of sources.

“LGP managers do not have readily accessible information that would facilitate more efficient program management,” the report found. “LGP staff may not be able to identify weaknesses, if any, in the program’s application review process and approval procedures.”

Congressional Republicans who have been critical of the loan program quickly attacked the loan guarantee program.

“This report underscores the principle that you can’t manage what you can’t measure,” Sen. Tom Coburn, R-Okla., said in a statement. “It will be difficult for the administration and Congress to tell taxpayers they have gotten a good deal when DOE can’t document how loans have performed.”

Despite criticism, the Energy Department continued to defend its loan guarantee program. In a letter to the GAO, a DOE official acknowledged the report’s findings but said that it is wrong to say that “oversight was in any way ineffective,” USA today reports.

David Frantz, the acting director of the program, said the program “succeeded in making an unprecedented level of clean energy investments while maintaining standards that are as high or higher than major financial institutions.”

So far, the DOE has issued $15.1 billion in guaranteed loans and has committed another $15 billion, according to the GAO.

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