Research

Independent Review Says The DOE Loan Program Could Lose $3 Billion… But Fails To Include The $567 Million Already Lost

The Obama Administration came out with its “Independent Review” of its failed DOE Loan Program. The review says it will “only” lose $3 billion of taxpayer money, while failing to include the $567 billion the government lost on the now bankrupt Solyndra and Beacon Power Loans.

Obama: “Some Technologies Don’t Pan Out; Some Companies Fail.  But I Will Not Walk Away From The Promise Of Clean Energy.” (President Barack Obama, Remarks In The State Of The Union Address, 1/24/12)

“An Independent Review Finds The Government Could Lose About $3 Billion On Energy Department Loans For Green Energy Programs—Far Less Than The $10 Billion Congress Set Aside For The High-Risk Program.” (Matthew Daly, “Report: Energy Loans Could Cost $3B,” The Associated Press, 2/10/12)

The Review Looked At 30 Loans Or Loan Guarantees Loans Totaling $23.8 Billion, But Did Not Involve Solyndra Or Beacon Power, Who Went Bankrupt And Cost The Government $567 Million. “The review, led by former Treasury Department official Herb Allison, looked at 30 loans or loan guarantees totaling $23.8 billion that were offered to green energy companies and auto makers such as Ford and Nissan. The review did not involve Solyndra or Beacon Power, an energy storage company that also went bankrupt after receiving a federal loan. The government has lost a total of $567 million from those two loans.” (Matthew Daly, “Report: Energy Loans Could Cost $3B,” The Associated Press, 2/10/12)

The Report Recommends Several Steps The Energy Department Can Take To Improve The Loan Program. “The report recommends several steps the Energy Department can take to improve the loan program, including creation of a chief risk officer to monitor all of the agency's loans. The risk management unit should be separate from the loan program office and should report directly to senior DOE managers, the report says.” (Matthew Daly “Report: Energy Loans Could Cost $3B,” The Associated Press, 2/10/12)

Among Some Of The “Independent Consultant’s” Findings:

Given The Size And Complexity Of The Projects, The Independent Consultant Believes Many Projects Are Likely To Seek Relief At Some Point During Its Loan. “DOE should aggressively strengthen its position as lender or guarantor in cases where borrowers seek relief from requirements in the loan agreements. Given the novelty, complexity and scale of the projects and the exacting covenants in their loan structures, the Independent Consultant believes that many projects are likely to seek such relief at some point during the term of the DOE loan or loan guarantee.” (“Report Of The Independent Consultant’s  Review With Respect To The Department Of Energy Loan And Loan Guarantee Portfolio,” 1/31/12, p. 10)

What The “Independent Consultant” Really Couldn’t Do To Make This A Real Audit:

The Independent Consultant Was Unable To Obtain All The Information That May Be Required To Evaluate The Loan Recipients. [T]he Independent Consultant was unable to fully obtain, and the Report does not contain, all of the information that may be required to evaluate any of the borrowers, other project participants, loans, assets, projects or other persons referenced in the Report.” (“Report Of The Independent Consultant’s  Review With Respect To The Department Of Energy Loan And Loan Guarantee Portfolio,” 1/31/12, p. 54)

“The Independent Consultant Did Not Have Subpoena Authority Or Any Other Legal Means To Compel The Production Of Documents And Information From Government Agencies Or From Third Parties.” (“Report Of The Independent Consultant’s  Review With Respect To The Department Of Energy Loan And Loan Guarantee Portfolio,” 1/31/12, p. 55)

The “Independent Consultant” Was Not Able To Prove The DOE’s Compliance With Its Request And Had No Legal Way To Require Them To Do So. “While DOE provided substantial information and technical assistance in response to these requests, the Independent Consultant was not able to assess the extent of, or to require certification of, DOE’s compliance with these requests, and did not have access to any form of legal compulsion to require additional assistance.” (“Report Of The Independent Consultant’s  Review With Respect To The Department Of Energy Loan And Loan Guarantee Portfolio,” 1/31/12, p. 55)

The Blatantly Obvious Recommendations That Shouldn’t Have Even Been Recommended From The “Independent Consultant”:

Recommendation From Independent Consultant: "Fill Key Positions In Management With Experienced Professionals" (“Report Of The Independent Consultant’s  Review With Respect To The Department Of Energy Loan And Loan Guarantee Portfolio,” 1/31/12, p. 43)

The Independent Consultant Advised That The DOE Should Define The Tools It Will Use, As Well As The Financial And Policy Goals It Will Pursue In Negotiations With Borrowers In Order To Protect The Taxpayers’ Interest. “To strengthen its ability to protect the taxpayers’ interest, DOE should define the tools it will use (e.g., seeking equity interests and stronger loan covenants) as well as the financial and policy goals it will pursue in negotiating with borrowers.” (“Report Of The Independent Consultant’s  Review With Respect To The Department Of Energy Loan And Loan Guarantee Portfolio,” 1/31/12, p. 10)

The Independent Consultant Advised That The DOE Should Provide Clear Guidance In Its "Vague" Standard Of “Reasonable Prospect Of Repayment" So The “Financial Goal For Managers Is Unambiguous.” “The Title XVII program’s statutory standard of 'reasonable prospect of repayment' is vague. DOE should provide clear guidance regarding the meaning of 'reasonable prospect of repayment' so that the financial goal for managers is unambiguous.” (“Report Of The Independent Consultant’s  Review With Respect To The Department Of Energy Loan And Loan Guarantee Portfolio,” 1/31/12, p. 9)

The DOE Should Clarify Authorities And Accountabilities Of Managers By Assigning Authorities For Decision Making Only To Managers And Never To Committees Where Collective Responsibility Can Obscure Individual Accountability. “Clarify Authorities and Accountabilities of Managers DOE should assign authorities for decision-making only to individual managers and never to committees where collective responsibility can obscure individual accountability.” (“Report Of The Independent Consultant’s  Review With Respect To The Department Of Energy Loan And Loan Guarantee Portfolio,” 1/31/12, p. 44)

The DOE Should Establish And Effectively Communicate Clear Goals For Management By Developing Explicit Standards Of Performance For Managing The Portfolio. “Establish and Effectively Communicate Clear Goals for Management DOE should develop explicit objectives and standards of performance for managing the Portfolio during the construction phase of the projects and beyond.” (“Report Of The Independent Consultant’s  Review With Respect To The Department Of Energy Loan And Loan Guarantee Portfolio,” 1/31/12, p. 44)

The DOE Should Proactively Protect The Taxpayers’ Interest By Continually Looking For Ways To Strengthen Its Position As  Lender Without Compromising The Success Of The Projects. “Proactively Protect the Taxpayers’ Interest DOE should continually look for ways to strengthen its position as lender or guarantor without compromising the success of a project and the incentives of sponsors and counterparties to support that project.” (“Report Of The Independent Consultant’s  Review With Respect To The Department Of Energy Loan And Loan Guarantee Portfolio,” 1/31/12, p. 45)

The DOE Should Improve Reporting To The Public By Providing Clearer, Broader Information To The Public On The Progress And Performance Of The Programs. “Improve reporting to the public DOE should provide clearer, broader information to the public on the progress and performance of the programs and the portfolio.” (“Report Of The Independent Consultant’s  Review With Respect To The Department Of Energy Loan And Loan Guarantee Portfolio,” 1/31/12, p. 46)