Initially, Congress  provided no appropriation to cover the credit subsidy costs of loan  guarantees under section 1703, requiring all borrowers receiving a loan  guarantee to pay to offset the credit subsidy costs of their own projects. DOE Has Made Efforts to Improve Loan Program Implementation and Oversight by Implementing Some but Not All Related GAO Recommendations

DOE has made efforts to improve its loan program implementation and  oversight and, to date, has taken actions in response to 15 of our 24 prior  recommendations. In  2007, 2008, and 2010—which covered the early stages of the LGP—we  made 15 recommendations to address numerous issues where DOE had  moved forward with the program before key elements were in place. DOE implemented 11 of our 15 recommendations from this period. For  example:  In our February 2007 report, we found that DOE’s actions had  focused on expediting program implementation—such as soliciting  preapplications for loan guarantees—rather than ensuring the  department had in place the critical policies, procedures, and  mechanisms necessary to better ensure the program’s success. We made five recommendations addressing these concerns. As Congress expanded the DOE loan programs to include 1705 projects  and ATVM, we issued additional reports in 2011, 2012, and 2014  highlighting our concerns about DOE making loans and disbursing funds  without having sufficient expertise and performance measures, among  other things. For example:  In February 2011, we found that DOE was using ATVM staff with  largely financial, and not technical, expertise to evaluate the  progress of projects to produce more fuel-efficient passenger  vehicles and their components. We recommended that DOE develop sufficient  and quantifiable performance measures for its program goals. Estimated Net Costs of DOE’s Loan Programs Include about $2.2 Billion in Credit Subsidy Costs, Plus Administrative Expenses

In our April 2015 report, we found that DOE estimated the credit subsidy  costs of the loans and loan guarantees in its portfolio to be about $2.2  billion as of November 2014, including about $807 million for five loans  on which the borrowers had defaulted. The estimated $2.2 billion in credit subsidy costs was a decrease from  initial DOE estimates totaling about $4.5 billion, and we found that  changes in credit subsidy cost estimates varied by loan program and the  type of technology supported by the loans and loan guarantees, and by  other factors, such as the availability of a steady stream of revenue for a  project. Specifically, defaults on loan guarantees for two solar  manufacturing projects and one energy storage project were largely  responsible for an increase in the credit subsidy cost estimate for DOE’s  LGP portfolio from $1.33 billion (when the loan guarantees were issued)  to $1.81 billion as of November 2014. Borrowers also defaulted on two  ATVM loans, but the credit subsidy cost estimate for DOE’s ATVM loan  program’s portfolio decreased from initial DOE estimates totaling about  $3.16 billion to $404 million as of November 2014, mainly because of a  significant improvement in the credit rating of one loan. None of the projects with loans in default had  revenue streams that were provided for under long-term contracts for the  sale of energy produced by the project pursuant to a power purchase  agreement, offtake agreement, or similar contractual language. In DOE’s portfolio, 21 of the 30 projects supported by the program  included power purchase or offtake agreements. Regarding administrative costs, our April 2015 report found that such  costs for the programs have totaled about $312 million from fiscal year  2008 through fiscal year 2014, including approximately $251.6 million for  LGP and $60.6 million for the ATVM loan program. In addition, according to DOE, in  November 2008 the Office of Management and Budget  approved the LGP’s model for calculating the credit  subsidy costs of loan guarantees. DOE Loan Programs: DOE Has Made More Than $30 Billion in Loans  and Guarantees and Needs to Fully Develop Its Loan Monitoring  Function. Department of Energy: Status of Loan Programs. Department of Energy: Observations on Actions to Implement the New  Loan Guarantee Program for Innovative Technologies.
Why GAO Did This Study

DOE's Loan Programs Office administers the LGP for certain renewable or innovative energy projects and the ATVM loan program for projects to produce more fuel-efficient vehicles and components. Both programs can expose the government to substantial financial risks if borrowers default. DOE considers these risks in calculating credit subsidy costs. The law requires that the credit subsidy costs of DOE loans and loan guarantees be paid for by appropriations, borrowers, or some combination of both.
This testimony summarizes (1) DOE's progress in addressing GAO's prior recommendations related to the implementation and oversight of its loan programs and (2) GAO's 2015 report on the credit subsidy costs of the DOE loan programs.
This statement is based on a body of work that GAO completed between February 2007 and April 2015. GAO made numerous recommendations in these reports and obtained updates from agency officials. GAO is not making any new recommendations in this testimony.

What GAO Found

The Department of Energy (DOE) has made efforts to improve the implementation and oversight of its loan programs and, to date, has taken actions to address 15 of 24 of GAO's prior related recommendations. DOE's Loan Guarantee Program (LGP), authorized by Congress in 2005, was designed to encourage certain types of energy projects (e.g., nuclear, solar, and wind generation; solar manufacturing; and energy transmission) by agreeing to reimburse lenders for the guaranteed amount of loans if the borrowers default. DOE's Advanced Technology Vehicles Manufacturing (ATVM) loan program, authorized by Congress in 2007, was designed to encourage the automotive industry to invest in technologies to produce more fuel-efficient vehicles and their components. In 2007, 2008, and 2010—which covered the early stages of the LGP—GAO made 15 recommendations to address numerous concerns where DOE had moved forward with that program before key elements were in place. For example, in its February 2007 report, GAO found that DOE's actions had focused on expediting program implementation—such as soliciting preapplications for loan guarantees—rather than ensuring the department had in place the critical policies, procedures, and mechanisms needed to better ensure the program's success. DOE has implemented 11 of the 15 recommendations. In 2011, 2012, and 2014, as Congress expanded the loan programs, GAO made 9 additional recommendations to address concerns about DOE making loans and disbursing funds without having sufficient engineering expertise, sufficient and quantifiable performance measures for assessing program progress, or a fully developed loan monitoring function, among other things. Although DOE generally agreed with most of the 9 recommendations, to date it has implemented only 4 of them.
In an April 2015 report, GAO found that DOE estimated the credit subsidy costs of the loans and loan guarantees in its portfolio—that is, the total expected net cost to the government over the life of the loans—to be about $2.2 billion as of November 2014, including about $807 million for five loans on which borrowers had defaulted. The estimated $2.2 billion in credit subsidy costs was a decrease from DOE's initial estimates totaling about $4.5 billion. GAO found that changes in credit subsidy cost estimates varied by loan program and the type of technology supported by the loans and loan guarantees, among other factors. Specifically, defaults on loan guarantees for two solar manufacturing projects and one energy storage project were largely responsible for an increase in the credit subsidy cost estimate for the LGP's portfolio from $1.33 billion when the loan guarantees were issued to $1.81 billion as of November 2014. Borrowers also defaulted on two ATVM loans, but the credit subsidy cost estimate for the ATVM loan program's portfolio decreased from $3.16 billion to $404 million as of November 2014, mainly because of a significant improvement in the credit rating of one loan. In DOE's portfolio, 21 of the 30 projects had guaranteed revenue streams provided for under a long-term contract, such as a power purchase agreement, but none of the five defaulted loans supported projects with such a contract. GAO also found that administrative costs of the loan programs totaled about $312 million from fiscal year 2008 through fiscal year 2014; these costs are not included in credit subsidy costs.