	DOE Has Broadly Indicated the Program’s Direction but Is Not Well Positioned to Evaluate Progress

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. 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. 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. 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. DOE Has Taken Steps to Implement the LGP but Has Treated Applicants Inconsistently and Lacks Mechanisms to Identify and Address Applicants’ Concerns

As the LGP’s scope and authority have increased, the department has  taken a number of steps to implement the program for applicants. 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. Specifically, we found the following:  DOE has treated applicants inconsistently. 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. 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. DOE lacks systematic mechanisms for applicants to appeal its decisions  or provide feedback to DOE. Conclusions

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. 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. Recommendations for Executive Action

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. Appendix I: Scope and Methodology

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. 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. GAO Comments

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Why GAO Did This Study

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.

What GAO Found

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.

What GAO Recommends

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.