An independent review of the U.S. Department of Energy’s (DOE) loan guarantee program (LGP) finds that the program is working, but recommends several strategies to better protect government investments from failure.
Overall, the program was found to be a success. LGP funding has leveraged $40 billion in direct private investment into the U.S. economy, according to the review. In addition, the review states the LGP has $2.9 billion of risk on its books, which is about a third of the risk Congress allotted for the program when enacted on a bipartisan basis in 2005.
However, the report also calls on DOE to create a “Management Information Reporting System” (MIRS) to monitor market and regulatory trends that could impact LGP projects. In addition, the report urges DOE to monitor the status of loans, borrowers, contractors, and off-take parties that could affect loan recipients.
The report also urges DOE to create a Chief Risk Officer to lead a Risk Management unit that houses all DOE oversight functions. Combined with the MIRS, this early warning system would identify problems with the loans before they could reach bankruptcy.
The White House ordered the review in October 2011 at the height of Republican criticism of DOE’s loan program after Solyndra filed for bankruptcy protection. Herb Allison, a former Treasury Department official during the Bush Administration who also oversaw the Troubled Asset Relief Program (TARP), was tasked with conducting the review.
Allison reviewed 30 loans issued by DOE, including five for advanced vehicle technology, totaling about $24 billion dollars. Only $8.3 billion of these loans, has been drawn down. Notably, the report did not analyze the DOE loans to Solyndra or Beacon Power, both of which filed for bankruptcy. While Solyndra has not found a buyer, Beacon Power recently announced it had been bought and would return 70 percent of the DOE loan.
The new report’s findings largely track with other independent analyses, including a Bloomberg Government report from December 2001. The Bloomberg analysis found 87 percent of the LGP loans were “low-risk” and the controversy over Solyndra was “not proportional to its impact” because it equaled roughly .00051 percent of the federal government’s outstanding loan commitments.
Earlier this week, DOE Secretary Steven Chu defended the program, saying the DOE improved the program before and after Solyndra’s bankruptcy. “There’s a lot going forward that the Department of Energy has to be on top of and make sure that these taxpayer investments are protected as much as possible while trying to help these companies,” said Chu.
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