Department of Energy:

Further Actions Are Needed to Improve DOE's Ability to Evaluate and Implement the Loan Guarantee Program

GAO-10-627: Published: Jul 12, 2010. Publicly Released: Jul 12, 2010.

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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.

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. 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.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: According to DOE officials, the Loan Guarantee Program (LGP) adheres to and supports the current DOE Strategic Plan. DOE's 2014 - 2018 Strategic Plan has one Agency Priority Goal related to LGP: Providing up to $8 billion in loan guarantees for advanced fossil energy technologies that reduce greenhouse gas emissions by the end of FY 2017. However, LGP could not provide documentation or evidence of either an improvement in alignment between DOE performance goals and LGP policy goals or the revision of LGP performance measures. GAO continues to believe that relevant and revised performance goals and measures would improve DOE's ability to evaluate and implement the LGP.

    Recommendation: To improve DOE's ability to evaluate and implement the LGP, the Secretary of Energy should 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.

    Agency Affected: Department of Energy

  2. Status: Closed - Not Implemented

    Comments: DOE did not concur with the recommendation and has not taken action to implement it. At the time of the report DOE stated in its agency comment letter that it disagreed with GAO's assertion that applicants were treated inconsistently. DOE noted that there is no one-size-fits-all approach across the various energy sectors, and processes may legitimately vary for the different energy sectors. GAO agreed that there may be grounds for treating applicants differently depending on the type of technology they employ, but did not believe that DOE had adequately explained the basis for the differences among the solicitations. GAO also noted that DOE had treated individual applicants differently from others, for example, by making/issuing conditional commitments before completion of one or more of the reports called for by DOE's due diligence procedures. GAO continues to believe that DOE should revise the process for issuing loan guarantees to clearly establish what circumstances warrant disparate treatment of applicants.

    Recommendation: To improve DOE's ability to evaluate and implement the LGP, the Secretary of Energy should 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.

    Agency Affected: Department of Energy

  3. Status: Closed - Not Implemented

    Comments: DOE did not concur with the recommendation and has not taken action to implement it. At the time of the report DOE stated in its agency comment letter that the agency believed their process for rejected applicants was working and noted that in some cases DOE has reconsidered previously rejected applications. According to DOE, the Loan Guarantee Program (LGP) has implemented new strategies and procedures to increase efficiencies and improve the loan guarantee application process to reduce the need for any kind of appeals to the formal loan decision. Thus, DOE does not believe it is necessary to implement a formal appeals process in light of the many opportunities applicants are given to discuss their proposed projects with the LGP. According to DOE, such an appeals process would be detrimental to the LGP, as it would create an unnecessary administrative burden and draw scarce personnel and resources away from achieving program goals. GAO disagreed that DOE's process for rereviewing rejected applications was working, as some applicants did not know that DOE would provide rereviews. As of September 2014, DOE's two active solicitations did not note the possibility of a rereview, stating that DOE's decision not to proceed further with issuance, due diligence review, or negotiation of a Term Sheet shall be final and non-appealable. While GAO is encouraged by DOE's efforts to reduce the need for appeals, GAO continues to believe that an administrative appeal process would allow DOE to better plan and manage its use of resources on rejected applications.

    Recommendation: To improve DOE's ability to evaluate and implement the LGP, the Secretary of Energy should direct the program management to 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.

    Agency Affected: Department of Energy

  4. Status: Closed - Implemented

    Comments: In September 2010, DOE created a mechanism for submitting feedback--including anonymous feedback--through its Web site. We have tested this mechanism and were able to submit feedback without providing a name or email address. According to DOE, all feedback is emailed to the lgprogram@hq.doe.gov email address, and the account is monitored daily. Certain matters may result in a posting on the site's list of frequently asked questions. In cases where the feedback is not anonymous, DOE said that it provides a direct response. DOE promotes the feedback mechanism by including it as a standard element on pages in its Web site. These actions meet the spirit of GAO's recommendation.

    Recommendation: To improve DOE's ability to evaluate and implement the LGP, the Secretary of Energy should direct the program management to 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.

    Agency Affected: Department of Energy

 

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