Until February 2009, the LGP was working exclusively under section 1703  of the Energy Policy Act of 2005, which authorized loan guarantees for  new or innovative energy technologies that had not yet been  commercialized. DOE  estimated that the funding would be sufficient to provide about $18 billion  in guarantees under section 1705. DOE Has Made $15.1 Billion in Loan Guarantees but Does Not Maintain Consolidated Data on Status of Applications

For 460 applications to the LGP from its nine solicitations, DOE has made  $15.1 billion in loan guarantees and conditionally committed to an  additional $15 billion, representing $30 billion of the $34 billion in loan  guarantees authorized for the LGP. However, when we requested data  from the LGP on the status of the applications to its nine solicitations, the  LGP did not have consolidated data readily available but had to assemble  them from various sources. The elapsed time for LGP to process loan applications generally  decreased over the course of the program, according to LGP data. Because it took months to assemble the information required for our  review, it is also clear that the LGP could not be conducting timely  oversight of the program. Thus, providing managers with access to aggregated, updated  data could facilitate more efficient management of the LGP. Furthermore, without consolidated data about applicants, LGP actions,  and application status, LGP staff may not be able to identify weaknesses,  if any, in the program’s application review process and approval  procedures. In March 2011, the LGP acknowledged the need for such a system. In October 2011, LGP officials  stated that while the LGP has not maintained a consolidated application  tracking database across all solicitations, the program has started to  develop a more comprehensive business management system that  includes a records management system called “iPortal” that also could be  used to track the status of applications. The  LGP followed most of its established review process, but the LGP’s actual  process differed from this established process at least once on 11 of the  13 applications we reviewed, in part because the process was outdated. The LGP Did Not Consistently Follow Its Established Review Process, in Part Because the Process Was Outdated

We identified 43 key steps in the LGP credit policies and procedures  manual and its other guidance that establish the LGP’s review process for  assessing and approving loan guarantee applications. According to private lenders we contacted who finance energy projects,  the LGP’s established review process is generally as stringent as or more  stringent than those lenders’ own due diligence processes. The version of the manual in use at the  time of GAO’s review was dated March 5, 2009, even though the manual  states that it was meant to be updated at least on an annual basis and  more frequently if needed. We reviewed the revised manual and found  that the revisions addressed many of the differences that we identified  between the LGP’s established and actual review processes. The LGP Did Not Always Fully Document Review Steps

In addition to the differences between the actual and established review  processes, in another 18 cases, we could not determine whether the LGP  had performed a given review step. In some of these cases, the  documentation did not demonstrate that the LGP had applied the required  criteria. First, it reduces the LGP’s assurance that it has treated  applications consistently and equitably. As  DOE continues to implement section 1703 of the LGP, it is even more  important that it fully implement a consolidated system for overseeing the  application review process and that LGP adhere to its review process and  document decisions made under updated policies and procedures. Furthermore, the absence of adequate  documentation may make it difficult for DOE to defend its decisions on  loan guarantees as sound and fair if it is questioned about the justification  for and equity of those decisions. Recommendations for Executive Action

To better ensure that LGP managers, DOE, and Congress have access  to timely and accurate information on applications and reviews necessary  to manage the program effectively and to mitigate risks, we recommend  that the Secretary of Energy direct the Executive Director of the Loan  Programs Office to take the following three actions:
Commit to a timetable to fully implement a consolidated system that  enables the tracking of the status of applications and that measures  overall program performance. Because of questions  regarding inconsistent treatment of applications raised by the most recent  report in this mandated series, this report, also in response to the  mandate, assesses (1) the status of the applications to the LGP’s nine  solicitations and (2) the extent to which the LGP has adhered to its  process for reviewing applications for loans that the LGP has committed  to or closed. These data were to provide  a current snapshot of the program by solicitation and allow analysis of  various characteristics. 2. DOE disagrees with the recommendation to implement an application  tracking system. Department Of Energy: Further Actions Are Needed to Improve DOE’s  Ability to Evaluate and Implement the Loan Guarantee Program. Recovery Act: Factors Affecting the Department of Energy’s Program  Implementation. American Recovery and Reinvestment Act: GAO’s Role in Helping to  Ensure Accountability and Transparency for Science Funding.
Why GAO Did This Study

The Department of Energys (DOE) Loan Guarantee Program (LGP) was created by section 1703 of the Energy Policy Act of 2005 to guarantee loans for innovative energy projects. Currently, DOE is authorized to make up to $34 billion in section 1703 loan guarantees. In February 2009, the American Recovery and Reinvestment Act added section 1705, making certain commercial technologies that could start construction by September 30, 2011, eligible for loan guarantees. It provided $6 billion in appropriations that were later reduced by transfer and rescission to $2.5 billion. The funds could cover DOEs costs for an estimated $18 billion in additional loan guarantees. GAO has an ongoing mandate to review the programs implementation. Because of concerns raised in prior work, GAO assessed (1) the status of the applications to the LGP and (2) for loans that the LGP has committed to, or made, the extent to which the program has adhered to its process for reviewing applications. GAO analyzed relevant legislation, regulations, and guidance; prior audits; and LGP data, documents, and applications. GAO also interviewed DOE officials and private lenders with experience in energy project lending.

What GAO Found

The Department of Energy (DOE) has made $15 billion in loan guarantees and conditionally committed to an additional $15 billion, but the program does not have the consolidated data on application status needed to facilitate efficient management and program oversight. For the 460 applications to the Loan Guarantee Program (LGP), DOE has made loan guarantees for 7 percent and committed to an additional 2 percent. The time the LGP took to review loan applications decreased over the course of the program, according to GAOs analysis of LGP data. However, when GAO requested data from the LGP on the status of these applications, the LGP did not have consolidated data readily available and had to assemble these data over several months from various sources. Without consolidated data on applicants, LGP managers do not have readily accessible information that would facilitate more efficient program management, and LGP staff may not be able to identify weaknesses, if any, in the programs application review process and approval procedures. Furthermore, because it took months to assemble the data required for GAOs review, it is also clear that the data were not readily available to conduct timely oversight of the program. LGP officials have acknowledged the need for a consolidated system and said that the program has begun developing a comprehensive business management system that could also be used to track the status of LGP applications. However, the LGP has not committed to a timetable to fully implement this system.
The LGP adhered to most of its established process for reviewing applications, but its actual process differed from its established process at least once on 11 of the 13 applications GAO reviewed. Private lenders who finance energy projects that GAO interviewed found that the LGPs established review process was generally as stringent as or more stringent than their own. However, GAO found that the reviews that the LGP conducted sometimes differed from its established process in that, for example, actual reviews skipped applicable review steps. In other cases, GAO could not determine whether the LGP had performed some established review steps because of poor documentation. Omitting or poorly documenting reviews reduces the LGPs assurance that it has treated applicants consistently and equitably and, in some cases, may affect the LGPs ability to fully assess and mitigate project risks. Furthermore, the absence of adequate documentation may make it difficult for DOE to defend its decisions on loan guarantees as sound and fair if it is questioned about the justification for and equity of those decisions. One cause of the differences between established and actual processes was that, according to LGP staff, they were following procedures that had been revised but were not yet updated in the credit policies and procedures manual, which governs much of the LGPs established review process. In particular, the version of the manual in use at the time of GAOs review was dated March 5, 2009, even though the manual states it was meant to be updated at least annually, and more frequently as needed. The updated manual dated October 6, 2011, addresses many of the differences GAO identified. Officials also demonstrated that LGP had taken steps to address the documentation issues by beginning to implement its new document management system. However, by the close of GAOs review, LGP could not provide sufficient documentation to resolve the issues identified in the review.

What GAO Recommends

GAO recommends that the Secretary of Energy establish a timetable for, and fully implement, a consolidated system to provide information on LGP applications and reviews and regularly update program policies and procedures. DOE disagreed with the first of GAOs three recommendations; GAO continues to believe that a consolidated system would enhance program management.