Department of Energy: Further Actions Are Needed to Improve DOE's Ability to Evaluate and Implement the Loan Guarantee Program
Published: 2010-07-12T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Since the Department of Energy's (DOE) loan guarantee program (LGP) for innovative energy projects was established in Title XVII of the Energy Policy Act of 2005, its scope has expanded both in the types of projects it can support and in the amount of loan guarantee authority available. DOE currently has loan guarantee authority estimated at about $77 billion and is seeking additional authority. As of April 2010, it had issued one loan guarantee for $535 million and made nine conditional commitments. In response to Congress' mandate to review DOE's execution of the LGP, GAO assessed (1) the extent to which DOE has identified what it intends to achieve through the LGP and is positioned to evaluate progress and (2) how DOE has implemented the program for applicants. GAO analyzed relevant legislation, prior GAO work, and DOE guidance and regulations. GAO also interviewed DOE officials, LGP applicants, and trade association representatives.
section_title: What GAO Found
paragraphs: DOE has broadly indicated the program's direction but has not developed all the tools necessary to assess progress. DOE officials have identified a number of broad policy goals that the LGP is intended to support, including helping to mitigate climate change and create jobs. DOE has also explained, through agency documents, that the program is intended to support early commercial production and use of new or significantly improved technologies in energy projects that abate emissions of air pollutants or of greenhouse gases and have a reasonable prospect of repaying the loans. GAO has found that to help operationalize such policy goals efficiently and effectively, agencies should develop associated performance goals that are objective and quantifiable and cover all program activities. DOE has linked the LGP to two departmentwide performance goals, namely to (1) double renewable energy generating capacity by 2012 and (2) commit conditionally to loan guarantees for two nuclear power facilities to add a specified minimum amount of capacity in 2010. However, the two performance goals are too few to reflect the full range of policy goals for the LGP. For example, there is no performance goal for the number of jobs that should be created. The performance goals also do not reflect the full scope of program activities; in particular, although the program has made conditional commitments to issue loan guarantees for energy efficiency projects, there is no performance goal that relates to such projects. Without comprehensive performance goals, DOE lacks the foundation to assess the program's progress and, more specifically, to determine whether the projects selected for loan guarantees help achieve the desired results. DOE has taken steps to implement the LGP for applicants but has treated applicants inconsistently and lacks mechanisms to identify and address their concerns. Among other things, DOE increased the LGP's staff, expedited procurement of external reviews, and developed procedures for deciding which projects should receive loan guarantees. However, GAO found: (1) DOE's implementation of the LGP has treated applicants inconsistently, favoring some and disadvantaging others. For example, DOE conditionally committed to issuing loan guarantees for some projects prior to completion of external reviews required under DOE procedures. 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. (2) DOE lacks systematic mechanisms for LGP applicants to administratively appeal its decisions or to provide feedback to DOE on its process for issuing loan guarantees. Instead, DOE rereviews rejected applications on an ad hoc basis and gathers feedback through public forums and other outreach efforts that do not ensure the views obtained are representative. Until DOE develops implementation processes it can adhere to consistently, along with systematic approaches for rereviewing applications and obtaining and addressing applicant feedback, it may not fully realize the benefits envisioned for the LGP.
section_title: What GAO Recommends
paragraphs: GAO recommends that DOE develop performance goals reflecting the LGP's policy goals and activities; revise the loan guarantee process to treat applicants consistently unless there are clear, compelling grounds not to do so; and develop mechanisms for administrative appeals and for systematically obtaining and addressing applicant feedback. DOE said it is taking steps to address GAO's concerns but did not explicitly agree or disagree with the recommendations.

section_title: Letter
paragraphs: Through calendar year 2009, the Department of Energy’s (DOE) Loan  Guarantee Program (LGP) received more than 170 applications seeking  over $175 billion in loan guarantees, generally to bring innovative energy  technologies to market. Under normal economic conditions, companies  can face obstacles in securing enough affordable financing to survive the  “valley of death” between developing innovative technologies and  commercializing them. Because the risks that lenders must assume to  support new technologies can put private financing out of reach,  companies may not be able to commercialize innovative technologies  without government assistance. The financial crisis that emerged in late  2008, together with the associated economic decline, has further reduced  access to capital markets for innovative energy technologies. In this  constrained economic environment, even companies that might ordinarily  rely on private financing are turning to the federal government for  assistance.
Federal loan guarantee programs such as DOE’s can help companies  obtain affordable financing because the federal government agrees to  reimburse lenders for the guaranteed amount if the borrowers default,  which encourages lending by reducing the lenders’ financial risks. In  addition, to the extent that a federal loan guarantee signals confidence in a  project, such guarantees can help companies raise capital from other  sources, for example by selling equity. However, loan guarantee programs  can also expose the government to substantial financial risks. In the past,  problems with loan guarantee programs have occurred, in part, because  agencies did not exercise due diligence during the loan origination and  monitoring processes.
Since the LGP was authorized under Title XVII of the Energy Policy Act of  2005 (EPAct), its scope has expanded. The act—specifically section  1703—originally authorized DOE to guarantee loans for projects that (1)  use new or significantly improved technologies as compared with  commercial technologies already in service in the United States and (2)  avoid, reduce, or sequester emissions of air pollutants or man-made  greenhouse gases. In February 2009, Congress passed the American  Recovery and Reinvestment Act (Recovery Act), which amended Title XVII  by adding section 1705. Under section 1705, DOE may guarantee loans for  projects using commercial technologies. Projects supported by the  Recovery Act must employ renewable energy systems, electric power  transmission systems, or leading-edge biofuels that meet certain criteria;  begin construction by the end of fiscal year 2011; and pay wages at or  above market rates.
The LGP’s loan guarantee authority has also increased. In fiscal year 2007,  Congress authorized up to $4 billion in loan guarantees for projects that  meet the criteria in section 1703. By fiscal year 2009, Congress had  authorized an additional $47 billion in loan guarantees for projects that  meet these criteria. Congress did not appropriate funds to cover the  associated credit subsidy costs—that is, the government’s estimated net  long-term cost, in present value terms, of direct or guaranteed loans over  the entire period the loans are outstanding (not including administrative  costs). Consequently, borrowers who obtain loan guarantees under  section 1703 must pay fees to cover these costs. Under the Recovery Act,  Congress has provided nearly $4 billion to cover the credit subsidy costs  for projects that meet the criteria in section 1705. While the Recovery Act  appropriation did not specify the amount of new loan guarantee authority,  DOE officials said that the department believes credit subsidy costs will  average at least 15 percent of the value of loan guarantees. Accordingly,  the nearly $4 billion Recovery Act appropriation to pay credit subsidy  costs could increase the amount of loans that the LGP guarantees by about  $26 billion, raising the program’s total estimated loan guarantee capacity  to about $77 billion.
As of April 2010, the department had issued eight solicitations inviting  applications for projects using various categories of technologies (see  table 1). It had also issued one loan guarantee for $535 million to Solyndra,  one of the companies that responded to DOE’s initial LGP solicitation  issued in 2006, and had made nine conditional commitments to issue  additional loan guarantees. The one loan guarantee and four of the  conditional commitments were made under the Recovery Act; the other  five conditional commitments were made under section 1703.
For fiscal year 2011, DOE is seeking an additional $36 billion in loan  guarantee authority for nuclear power facilities and $500 million to cover  the credit subsidy costs for energy efficiency and renewable energy  projects eligible under section 1703. DOE estimates that this $500 million  will cover the credit subsidy costs for about $3 billion in loan guarantees.
We have an ongoing mandate under the 2007 Revised Continuing  Appropriations Resolution to review DOE’s execution of the LGP and to  report our findings to the House and Senate Committees on  Appropriations. Our previous reviews focused on the department’s efforts  to establish the tools needed to evaluate the program’s effectiveness and  to process applications. In 2007 and 2008, we recommended that the  department take steps to further develop and improve its capabilities in  these areas. In light of these recommendations and following discussions  with your staffs, we assessed (1) the extent to which DOE has identified  what it intends to achieve through the LGP and is positioned to evaluate  progress and (2) how DOE has implemented the LGP for applicants.
To address these objectives, we analyzed Title XVII of EPAct, the  Recovery Act, the Government Performance and Results Act (GPRA) and  our prior work on GPRA, and DOE’s program guidance and regulations. In  addition, we interviewed relevant DOE officials and—to obtain a broad  representation of views on DOE’s implementation of the LGP—LGP  applicants and trade association representatives. We selected the  applicants and trade associations using a mix of criteria, including the  amount of the loan guarantee requested and the relevant technology. Our  review did not evaluate the technical or financial soundness of the  projects that applied for DOE loan guarantees. In April 2010, we briefed  your offices on the preliminary results of our review.
We conducted this performance audit from January 2009 through July  2010 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives. A further discussion of the  scope of our review and the methods we used is presented in appendix I.
subsections: section_title: DOE Has Broadly Indicated the Program’s Direction but Is Not Well Positioned to Evaluate Progress
paragraphs: DOE has broadly indicated the direction of the LGP but has not developed  all the tools necessary to evaluate progress. DOE officials have identified a  number of broad policy goals that the LGP is intended to support,  including helping to ensure energy security, mitigate climate change,  jumpstart the alternative energy sector, and create jobs. Additionally,  through DOE’s fiscal year 2011 budget request and a mission statement for  the LGP, the department has explained that the program is intended to  support the “early commercial production and use of new or significantly  improved technologies in energy projects” that “avoid, reduce, or  sequester air pollutants or anthropogenic emissions of greenhouse gases,  and have a reasonable prospect of repaying the principal and interest on  their debt obligations.”
To help operationalize such policy goals efficiently and effectively,  principles of good governance identified in our prior work on GPRA  indicate that agencies should develop associated performance goals and  measures that are objective and quantifiable. These performance goals  and measures are intended to allow comparison of programs’ actual  results with the desired results. Each program activity should be linked to  a performance goal and measure unless such a linkage would be infeasible  or impractical.
DOE has linked the LGP to two departmentwide performance goals:  “Double renewable energy generating capacity (excluding conventional  hydropower) by 2012.” “Commit (conditionally) to loan guarantees for two nuclear power  facilities to add new low-carbon emission capacity of at least 3,800  megawatts in 2010.”
DOE has also established nine performance measures for the LGP (see  app. II).
However, the departmentwide performance goals are too few to reflect the  full range of policy goals for the LGP. For example, there is no measurable  performance goal for job creation. The performance goals also do not  reflect the full scope of the program’s authorized activities. For example,  as of April 2010, DOE had issued two conditional commitments for energy  efficiency projects—as authorized in legislation—but the energy efficiency  projects do not address either of the performance goals because the  projects are expected to generate little or no renewable energy and are not  associated with nuclear power facilities. Given the lack of sufficient  performance goals, DOE cannot be sure that the LGP’s performance  measures are appropriate. Thus, DOE lacks the foundation to assess the  program’s progress, and more specifically, to determine whether the  projects it supports with loan guarantees contribute to achieving the  desired results.
section_title: DOE Has Taken Steps to Implement the LGP but Has Treated Applicants Inconsistently and Lacks Mechanisms to Identify and Address Applicants’ Concerns
paragraphs: As the LGP’s scope and authority have increased, the department has  taken a number of steps to implement the program for applicants. For  example, DOE has substantially increased the LGP’s staff and in-house  expertise, and applicants we interviewed have commended the LGP staff’s  professionalism. DOE officials indicated that, prior to 2008, staffing was  inadequate to review applications, but since June 2008, the LGP’s staff has  increased from 12 federal employees to more than 50, supported by over  40 full-time contractor staff. Also, the LGP now has in-house legal counsel  and project finance expertise, which have increased the program’s  capacity to evaluate proposed projects. In addition, in November 2009, the  Secretary named an Executive Director, reporting directly to the  Secretary, to oversee the LGP and to accelerate the application review  process.
Other key steps that DOE has taken include the following:    DOE has identified a list of external reviewers qualified to perform legal,  engineering, financial, and marketing analyses of proposed projects.  Identifying these external reviewers beforehand helps to ensure that DOE  will have the necessary expertise readily available during the review  process. DOE officials said that the department has also expedited the  procurement process for hiring these external reviewers.
DOE developed a credit policies and procedures manual for the LGP.
Among other things, the manual contains detailed internal policies and  procedures that lay out requirements, criteria, and staff responsibilities for  determining which proposed projects should receive loan guarantees.
DOE revised the LGP’s regulations after receiving information from  industry concerning the wide variety of ownership and financing  structures that applicants or potential applicants would like to employ in  projects seeking loan guarantees. Among other things, the modifications  allow for ownership structures that DOE found are typically employed in  utility-grade power plants and are commonly proposed for the next  generation of nuclear power generation facilities.
DOE obtained OMB approval for its model to estimate credit subsidy  costs. The model is a critical tool needed for the LGP to proceed with  issuing loan guarantees because it will be used to calculate each loan  guarantee’s credit subsidy cost and the associated fee, if any, that must be  collected from borrowers. (We are evaluating DOE’s process and key  inputs for estimating credit subsidy costs in other ongoing work.)
Notwithstanding these actions, the department is implementing the  program in a way that treats applicants inconsistently, lacks systematic  mechanisms for applicants to appeal its decisions or for applicants to  provide feedback to DOE, and risks excluding some potential applicants  unnecessarily. Specifically, we found the following:  DOE has treated applicants inconsistently. Although our past work has  shown that agencies should process applications with the goals of treating  applicants fairly and minimizing applicant confusion, DOE’s  implementation of the program has favored some applicants and  disadvantaged others in a number of ways. First, we found that, in at least  five of the ten cases in which DOE made conditional commitments, it did  so before obtaining all of the final reports from external reviewers,  allowing these applicants to receive conditional commitments before  incurring expenses that other applicants were required to pay. Before DOE  makes a conditional commitment, LGP procedures call for engineering,  financial, legal, and marketing reviews of proposed projects as part of the  due diligence process for identifying and mitigating risk. If DOE lacks the  in-house capability to conduct the reviews, external reviews are  performed by contractors paid for by applicants. In one of the cases we  identified in which DOE deviated from its procedures, it made a  conditional commitment before obtaining any of the external reports. DOE  officials told us this project was fast-tracked because of its “strong  business fundamentals” and because DOE determined that it had sufficient  information to proceed. However, it is unclear how DOE could have had  sufficient information to negotiate the terms of a conditional commitment  without completing the types of reviews generally performed during due  diligence, and proceeding without this information is contrary to the  department’s procedures for the LGP.
Second, DOE treats applicants with nuclear projects differently from  applicants proposing projects that employ other types of technologies. For  example, DOE allows applicants with nuclear projects that have not been  selected to begin the due diligence process to remain in a queue in case  the LGP receives additional loan guarantee authority, while applicants  with projects involving other types of technologies that have not been  selected to begin due diligence are rejected (see app. III). In order for  applicants whose applications were rejected to receive further  consideration, they must reapply and again pay application fees, which  range from $75,000 to $800,000 (see app. IV). DOE also provided  applicants with nuclear generation projects information on how their  projects ranked in comparison with others before they submitted part II of  the application and 75 percent of the application fees. DOE did not provide  rankings to applicants with any other types of projects. DOE officials said  that applicants with nuclear projects were allowed to remain in a queue  because of the expectation that requests would substantially exceed  available loan guarantee authority and that the applications would be of  high quality. According to DOE officials, they based this expectation on  information available about projects that are seeking licenses from the  Nuclear Regulatory Commission. DOE officials also explained that they  ranked nuclear generation projects for similar reasons—and also to give  applicants with less competitive projects the chance to drop out of the  process early, allowing them to avoid the expense involved in applying for  a loan guarantee. However, all of the solicitations issued through 2008  initially received requests that exceeded the available loan guarantee  authority (see app. V), so nuclear projects were not unique in that respect.  In addition, applicants with coal-based power generation and industrial  gasification facility projects paid application fees equivalent to those paid  by applicants with nuclear generation projects but were not given rankings  prior to paying the second application fee (see app. IV). To provide EERE  applicants with earlier feedback on the competitiveness of their projects,  DOE instituted a two-part application for the 2009 EERE solicitation—a  change from the 2008 EERE solicitation. DOE officials stated that they  made this change based on lessons learned from the 2008 EERE  solicitation. While this change appears to reduce the disparity in treatment  among applicants, it remains to be seen whether DOE will make similar  changes for projects that employ other types of technologies.
Third, DOE has allowed one of the front-end nuclear facility applicants  that we contacted additional time to meet technical and financial  requirements, including requirements for evidence that the technology is  ready to move to commercial-scale operations, but DOE has rejected  applicants with other types of technologies for not meeting similar  technical and financial criteria. DOE has not provided analysis or  documentation explaining why additional time was appropriate for one  project but not for others.
DOE lacks systematic mechanisms for applicants to appeal its decisions  or provide feedback to DOE. In its solicitations, DOE states that a rejection  is “final and non-appealable.” Once a project has been rejected, the only  administrative option left to an applicant under DOE’s documented  procedures is to reapply and incur all of the associated costs.  Nevertheless, DOE said that, as a courtesy, it had rereviewed certain  rejected applications. Some applicants did not know that DOE would  provide such rereviews, which appear contrary to DOE’s stated policy and  have been conducted on an ad hoc basis.
DOE also lacks a systematic mechanism for soliciting, evaluating, and  incorporating feedback from applicants about its implementation of the  program. Our past work has shown that agencies should solicit, evaluate,  and incorporate feedback from program users to improve programs.  Unless they do so, agencies may not attain the levels of user satisfaction  that they otherwise could. For example, during our interviews with  applicants, more than half said they received little information about the  timing or status of application reviews. Applicants expressed a desire for  more information about the status of DOE’s reviews and said that not  knowing when a loan guarantee might be issued created difficulties in  managing their projects—for example, in planning construction dates,  knowing how much capital they would need to sustain operations, and  maintaining support for their projects from internal stakeholders.
According to DOE officials, the department has reached out to  stakeholders through its Web site, presentations to industry groups and  policymakers, and other means. DOE has also indicated that it has  changed the program to make it more user-friendly, based on lessons  learned and applicant feedback. For example, unlike the 2008 EERE  solicitation, the 2009 EERE solicitation includes rolling deadlines that give  applicants greater latitude in when to submit their applications; a  simplified part I application that provides a mechanism for DOE to give  applicants early feedback on whether their projects are competitive; and  delayed payment of the bulk of the “facility fee” that DOE charges  applicants to cover certain program costs. While DOE said that these  changes were based, in part, on feedback from applicants, because DOE  has no systematic way of soliciting applicant feedback, the department has  no assurance that the views obtained through its outreach efforts are  representative, particularly since the means that DOE uses to obtain  feedback do not guarantee anonymity. The department also has no  assurance that the changes made in response to feedback are effectively  addressing applicant concerns.
DOE risks excluding some potential applicants. Even though the  Recovery Act requires that applicants begin construction by the end of  fiscal year 2011 to qualify for Recovery Act funding, DOE has not yet  issued solicitations for the full range of projects eligible for Recovery Act  funding under section 1705. DOE has issued two solicitations specific to  the Recovery Act for the LGP, but neither invites applications for  commercial manufacturing projects, which are eligible under the act.  While DOE has announced that it will issue an LGP solicitation for  commercial manufacturing projects, it has given no date for doing so. The  2009 EERE solicitation provided an opportunity for some manufacturing  applicants to receive Recovery Act funding, but because DOE combined  the Recovery Act’s requirements with the original section 1703  requirements, applicants with commercial manufacturing projects were  excluded. DOE officials told us that they combined the requirements to  ensure that projects that are initially eligible under section 1705 but that  fail to start construction by the deadline can remain in the LGP under  section 1703.
section_title: Conclusions
paragraphs: DOE has made substantial progress in building a functional program for  issuing loan guarantees under Title XVII of EPAct; however, it may not  fully realize the benefits envisioned for the LGP until it further improves  its ability to evaluate and implement the program. Since 2007, we have  been reporting on DOE’s lack of tools necessary to evaluate the program  and process applications and recommending that the department take  steps to address these areas. While DOE has identified broad policy goals  and developed a mission statement for the program, it will lack the ability  to implement the program efficiently and effectively and to evaluate  progress in achieving these goals and mission until it develops  corresponding performance goals. As a practical matter, without such  goals, DOE will also lack a clear basis for determining whether the  projects it decides to support with loan guarantees are helping achieve the  desired results, potentially undermining applicants’ and the public’s  confidence in the legitimacy of those decisions. Such confidence could  also be undermined by implementation processes that do not treat  applicants consistently—unless DOE has clear and compelling grounds for  disparate treatment—particularly if DOE skips steps in its review process  prior to issuing conditional commitments or rereviews rejected  applications for some applicants without having an administrative appeal  process. Furthermore, while DOE has taken steps to increase applicants’  satisfaction with the program, it cannot determine the effectiveness of  those efforts without systematic feedback from applicants that preserves  their anonymity.
section_title: Recommendations for Executive Action
paragraphs: To improve DOE’s ability to evaluate and implement the LGP, we  recommend that the Secretary of Energy take the following four actions:    Direct the program management to develop relevant performance goals  that reflect the full range of policy goals and activities for the program, and  to the extent necessary, revise the performance measures to align with  these goals.
Direct the program management to revise the process for issuing loan  guarantees to clearly establish what circumstances warrant disparate  treatment of applicants so that DOE’s implementation of the program  treats applicants consistently unless there are clear and compelling  grounds for doing otherwise.
Direct the program management to develop an administrative appeal  process for applicants who believe their applications were rejected in  error and document the basis for conclusions regarding appeals.
Direct the program management to develop a mechanism to systematically  obtain and address feedback from program applicants, and, in so doing,  ensure that applicants’ anonymity can be maintained, for example, by  using an independent service to obtain the feedback.
section_title: Agency Comments
paragraphs: We provided a draft of this report to DOE for review and comment. In its  written comments, DOE stated that it recognizes the need for continuous  improvement to its Loan Guarantee Programs as those programs mature  but neither explicitly agreed nor disagreed with our recommendations. In  one instance, DOE specifically disagreed with our findings: the department  maintained that applicants are treated consistently within solicitations.
Nevertheless, the department stated that it is taking steps to address  concerns identified in our report. Specifically, DOE pointed to the  following recent or planned actions:    Performance goals and measures. DOE stated that, in the context of  revisions to its strategic plan, the department is revisiting the performance  goals and measures for the LGP to better align them with the department’s  policy goals of growing the green economy and reducing greenhouse gases  from power generation.
Consistent treatment of applicants. DOE recognized the need for greater  transparency to avoid the perception of inconsistent treatment and stated  that it will ensure that future solicitations explicitly describe  circumstances that would allow streamlined consideration of loan  guarantee applications.
Appeals. DOE indicated that its process for rejected applications should  be made more transparent and stated that the LGP continues to implement  new strategies intended to reduce the need for any kind of appeals, such  as enhanced communication with applicants including more frequent  contact, and allowing applicants an opportunity to provide additional data  at DOE’s request to address deficiencies DOE has identified in  applications.
While these actions are encouraging, they do not fully address our  findings, especially in the areas of appeals and applicant feedback. We  continue to believe that DOE needs systematic mechanisms for applicants  to appeal its decisions and to provide anonymous feedback.
DOE’s written comments on our findings and recommendations, along  with our detailed responses, are contained in appendix VI. In addition to  the written comments reproduced in that appendix, DOE provided  technical comments, which we incorporated as appropriate.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of Energy, and other interested parties. This  report also is available at no charge on the GAO Web site at  http://www.gao.gov.
If you or your staffs have any questions concerning this report, please  contact me at (202) 512-3841 or ruscof@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this report. Key contributors to this report are listed in  appendix VII.
section_title: Appendix I: Scope and Methodology
paragraphs: To assess the extent to which the Department of Energy (DOE) has  identified what it intends to achieve through the Loan Guarantee Program  (LGP) and is positioned to evaluate progress, we reviewed and analyzed  relevant provisions of Title XVII of the Energy Policy Act of 2005 (EPAct),  the American Recovery and Reinvestment Act of 2009 (Recovery Act);  DOE’s budget request documents; and Recovery Act planning information,  as well as other documentation provided by DOE. We discussed strategic  planning and program evaluation with cognizant DOE officials from the  LGP office, the Office of the Secretary of Energy, the Office of the Chief  Financial Officer, and the Credit Review Board (CRB) that is charged with  coordinating credit management and debt collection activities as well as  overall policies and procedures for the LGP. As criteria, we used the  Government Performance Results Act (GPRA), along with our prior work  on GPRA.
To evaluate DOE’s implementation of the LGP for applicants, we reviewed  relevant legislation, such as EPAct and the Recovery Act; DOE’s final  regulations and concept of operations for the LGP; solicitations issued by  DOE inviting applications for loan guarantees; DOE’s internal project  tracking reports; technical and financial review criteria for the application  review process; minutes from CRB meetings held between February 2008  and November 2009; applications for loan guarantees; application  rejection letters issued by DOE; and other various DOE guidance and  procurement documents related to the process for issuing loan guarantees.  We interviewed cognizant DOE officials from the LGP office, the Office of  the Secretary of Energy, the Office of the Chief Financial Officer, the  Office of Headquarters Procurement Services, and program offices that  participated in the technical reviews of projects, including the Office of  Electricity Delivery and Energy Reliability, the Office of Energy Efficiency  and Renewable Energy, the Office of Nuclear Energy, and the National  Energy Technology Laboratory (NETL). In addition, we interviewed 31  LGP applicants and 4 trade association representatives, using a standard  list of questions for each group, to obtain a broad representation of views  that we believe can provide insights to bolster other evidence supporting  our findings. We selected the applicants and trade associations using a mix  of criteria, including the amount of the loan guarantee requested and the  relevant technology. As criteria, we used our prior work on customer  service. We did not evaluate the financial or technical soundness of the  projects for which applications were submitted.
We conducted this performance audit from January 2009 through July  2010 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: Performance Measures for the LGP
paragraphs: DOE has developed the following nine performance measures for the LGP:    percentage of projects receiving DOE loan guarantees that have achieved  and maintained commercial operations;   contain the loss rate of guaranteed loans to less than 4 percent;    contain the loss rate of guaranteed loans to less than 11.81 percent in fiscal  year 2009 (11.85 percent for fiscal years 2010 and 2011) on a long-term  portfolio basis;    newly installed generation capacity from power generation projects  receiving DOE loan guarantees;   average cost per megawatthour for projects receiving DOE loan  forecasted greenhouse gas emissions reductions from projects receiving  loan guarantees compared to ‘business as usual’ energy generation; forecasted air pollutant emissions (nitrogen oxides, sulfur oxides, and  particulates) reductions from projects receiving loan guarantees compared  to ‘business as usual’ energy generation;   average review time of applications for Section 1705 guarantees; and    percentage of conditional commitments issued to qualified applicants  relative to plan.
section_title: Appendix III: Application Review Process
paragraphs: Appendix III: Application Review Process Required for projects with estimated total costs exceeding $25 million.
Required for projects with estimated total costs exceeding $25 million.
Required for projects with estimated total costs exceeding $25 million.
Required for projects with estimated total costs exceeding $25 million.
section_title: Appendix IV: Standardized Fees Associated with Obtaining a Loan Guarantee, by Solicitation
paragraphs: Appendix IV: Standardized Fees Associated  with Obtaining a Loan Guarantee, by  Solicitation $600,000   ½ of 1% of guaranteed  600,000   ½ of 1% of guaranteed  600,000   ½ of 1% of guaranteed  2008 Energy efficiency, renewable energy, and advanced transmission and distribution technologies (EERE)   1% of guaranteed amount  $375,000 + 0.75% of  guaranteed amount  $1,625,000 + 0.50% of  guaranteed amount  1% of guaranteed amount  $375,000 + 0.75% of  guaranteed amount  $1,625,000 + 0.50% of  guaranteed amount  600,000   ½ of 1% of guaranteed  2009 Commercial technology renewable  energy generation projects under the  Financial Institution Partnership Program  (FIPP)
section_title: Appendix V: Loan Guarantee Amounts Available and Amounts Applicants Sought for Technology Categories Targeted in Solicitations
paragraphs: Coal-based power generation and industrial gasification facilities   Energy efficiency, renewable energy, and advanced transmission and  distribution technologies (EERE)
Electric power transmission infrastructure projects  Commercial technology renewable energy generation projects under the  Financial Institution Partnership Program (FIPP)
The 2006 mixed solicitation invited applications for all technologies eligible to receive loan  guarantees under the Energy Policy Act of 2005 except for nuclear facilities and oil refineries.
section_title: Appendix VI: Comments from the Department of Energy
paragraphs: The following are GAO’s comments on the Department of Energy’s (DOE)  letter dated June 17, 2010.
subsections: section_title: GAO Comments
paragraphs: 1.  DOE appears to concur with the spirit of our recommendation. Best  practices for program management indicate that DOE should have  objective, quantifiable performance goals and targets for evaluating its  progress in meeting policy goals DOE has identified for the LGP. Such  goals and targets are important tools for ensuring public accountability  and effective program management.  2.  Our finding about inconsistent treatment of LGP applicants is based on  information obtained from applicants corroborated by documents  from DOE. In the instance we identified in which DOE made a  conditional commitment before obtaining any of the required external  reports, the external reviewers were not fully engaged until after DOE  had negotiated the terms of the conditional commitment, which is  contrary to DOE’s stated procedures and provided an advantage to the  applicant. Other applicants who received conditional commitments  before completion of one or more of the reports called for by DOE’s  due diligence procedures also had a comparative advantage in that  they were able to defer some review expenses until after DOE had  publicly committed to their projects. We continue to believe that DOE  should revise the process for issuing loan guarantees to treat  applicants consistently unless there are clearly established and  compelling grounds for making an exception. 3.  We agree that there may be grounds for treating applicants differently  depending on the type of technology they employ but do not believe  that DOE has adequately explained the basis for the differences among  the solicitations. For example, DOE’s response does not address the  possibility that lack of ranking information for fossil energy projects,  combined with the knowledge that the solicitation was significantly  oversubscribed, could have factored into applicants’ decisions to drop  out of the process, especially given the relatively high fees associated  with submitting part II of the application.  4.  We disagree that DOE’s current process for rereviewing rejected  applications is working. As we state in our report, some applicants did  not know that DOE would provide rereviews. While we are  encouraged by DOE’s efforts to reduce the need for appeals, we  believe that an administrative appeal process would allow DOE to  better plan and manage its use of resources on rejected applications.  5.  We applaud DOE’s efforts to reach out to stakeholders and to use  lessons learned to improve procedures and increase efficiencies and  effectiveness. However, we continue to believe that DOE needs a  systematic mechanism for applicants to provide anonymous feedback,  whether through use of a third party or other means that preserves  confidentiality. Several applicants we interviewed expressed concern  that commenting on aspects of DOE’s implementation of the LGP  could adversely affect their current or future prospects for receiving a  loan guarantee. Systematically obtaining and addressing anonymous  feedback could enhance DOE’s efforts to improve procedures and  increase efficiencies and effectiveness.
section_title: Appendix VII: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Karla Springer, Assistant  Director; Marcia Carlsen; Nancy Crothers; Marissa Dondoe; Brandon  Haller; Whitney Jennings; Cynthia Norris; Daniel Paepke; Madhav Panwar;  Barbara Timmerman; and Jeremy Williams made key contributions to this  report.