	DOE Established Program Goals and Set Criteria for Applicant and Project Eligibility and Merit

DOE has taken several steps to implement the ATVM program. First, it set  three goals for the program: increase the fuel economy of U.S. passenger  vehicles as a whole, advance U.S. automotive technology, and protect  taxpayers’ financial interests. In addition, DOE established criteria for ATVM staff, aided by experts  from within and outside DOE, to judge and score the technical and  financial merits of applicants and projects deemed eligible, along with  policy factors to consider, such as a project’s potential for supporting jobs  and whether a project is likely to advance automotive technology. Finally,  the Credit Review Board, composed of senior DOE officials, uses the merit  scores and other information, including Office of Management and  Budget’s approved subsidy cost estimates for projects, to recommend loan  decisions to the Secretary of Energy. The loans made to date represent about a third of the $25 billion  authorized by law, but the program has used 44 percent of the $7.5 billion  allocated to pay credit subsidy costs, which is more than was initially  anticipated. However, the average credit subsidy rate for the $8.4  billion in loans awarded to date is 39 percent—a total of roughly $3.3  billion in credit subsidy costs. These higher credit subsidy costs  were, in part, a reflection of the risky financial situation of the automotive  industry at the time the loans were made. As a result, the program may be unable to loan  the full $25 billion allowed by statute. The ATVM Program Has Begun Overseeing Loans to Ensure Borrowers Comply with Financial and Technical Requirements but Has Not Engaged Engineering Expertise that Would Help Ensure that Projects Are Delivered as Agreed

The ATVM program has set procedures for overseeing the financial and  technical performance of borrowers and has begun oversight, but at the  time of our February report the agency had not yet engaged engineering  expertise for technical oversight as called for by the procedures. To  oversee financial performance, staff are to review data submitted by  borrowers on their financial health to identify challenges to repaying the  loans. Staff also rely on outside auditors to confirm whether funds have  been used for allowable expenses. To oversee technical performance, ATVM staff are to analyze  information borrowers report on their technical progress and are to use  outside engineering expertise to supplement their analysis once borrowers  have begun constructing or retrofitting facilities or are performing  engineering integration—that is, designing and building vehicle and  component production lines. According to our review, several projects  needing additional technical oversight are under way but the program, as  of February of 2011, had not brought in additional technical oversight  expertise to supplement program staffs’ oversight. DOE Lacks the Performance Measures to Enable It to Fully Assess the ATVM Program’s Progress Toward Achieving Its Goals

DOE has not developed sufficient performance measures that would  enable it to fully assess whether the ATVM program is achieving its three  goals. The measures stop short  because they do not isolate the impact of the program on improving U.S.  fuel economy from fuel economy improvements that might have occurred  in the absence of the program—by consumers investing in more fuel  efficient vehicles not covered by the program in response to high gasoline  prices, for example. In addition, the ATVM program lacks performance  measures that will enable DOE to assess the extent to which it has  achieved the other two goals of the program—advancing automotive  technology and protecting taxpayers’ financial interests. In our February 2011 report, to help ensure the effectiveness and  accountability of the ATVM program, we recommended that the Secretary  of Energy direct the ATVM program to (1) accelerate efforts to engage  sufficient engineering expertise to verify that borrowers are delivering  projects as agreed and to (2) develop sufficient and quantifiable  performance measures for its three goals. DOE’s Loan Programs Executive  Director disagreed with the first recommendation, saying that the projects  were in the very early stages of engineering integration and such expertise  had not yet been needed for monitoring.
Why GAO Did This Study

In the Energy Independence and Security Act of 2007, Congress mandated higher vehicle fuel economy by model year 2020 and established the Advanced Technology Vehicles Manufacturing (ATVM) loan program in the Department of Energy (DOE). ATVM is to provide up to $25 billion in loans for more fuel-efficient vehicles and components. Congress also provided $7.5 billion to pay the required credit subsidy costs--the government's estimated net long-term cost, in present value terms, of the loans. This testimony is based on GAO's February 2011 report on the ATVM loan program (GAO-11-145). It discusses (1) steps DOE has taken to implement the program, (2) progress in awarding loans, (3) how the program is overseeing the loans, and (4) the extent to which DOE can assess progress toward its goals.

What GAO Found

DOE has taken several steps to implement the ATVM program. First, it set three program goals: increase the fuel economy of U.S. passenger vehicles as a whole, advance U.S. automotive technology, and protect taxpayers' financial interests. DOE also set technical, financial, and environmental eligibility requirements for applicants. In addition, DOE established criteria for judging the technical and financial merits of applicants and projects deemed eligible, and policy factors to consider, such as a project's potential for supporting jobs. DOE established procedures for ATVM staff, aided by experts from within and outside DOE, to score applicants and projects. Finally, the Credit Review Board, composed of senior DOE officials, uses the scores and other information to recommend loan decisions to the Secretary of Energy. The ATVM program, as of May 2011, had made $8.4 billion in loans that DOE expects to yield fuel economy improvements in the near term along with greater advances, through newer technologies, in years to come. Although the loans represent about a third of the $25 billion authorized by law, the program has used 44 percent of the $7.5 billion allocated to pay credit subsidy costs, which is more than was initially anticipated. These higher credit subsidy costs were, in part, a reflection of the risky financial situation of the automotive industry at the time the loans were made. As a result of the higher credit subsidy costs, the program may be unable to loan the full $25 billion allowed by statute. The ATVM program has set procedures for overseeing the financial and technical performance of borrowers and has begun oversight, but at the time of our February report it had not yet engaged engineering expertise needed for technical oversight as called for by its procedures. To oversee financial performance, staff review data submitted by borrowers on their financial health to identify challenges to repaying the loans. Staff also rely on outside auditors to confirm whether funds have been used for allowable expenses. To oversee technical performance, ATVM staff are to analyze information borrowers report on their technical progress and are to use outside engineering expertise to supplement their analysis, as needed. According to our review, projects needing additional technical oversight are under way, and the ATVM staff lack the engineering expertise called for by the program's procedures for adequately overseeing technical aspects of the projects. However, the program had not yet engaged such expertise. As a result, DOE cannot be adequately assured that the projects will be delivered as agreed. DOE has not developed sufficient performance measures that would enable it to fully assess progress toward achieving its three program goals. For example, DOE has a measure for assessing the fuel economy gains for the vehicles produced under the program, but the measure falls short because it does not account for, among other things, the fuel economy improvements that would have occurred if consumers purchased more fuel-efficient vehicles not covered by the program. Principles of good governance call for performance measures tied to goals as a means of assessing the extent to which goals have been achieved.

What GAO Recommends

GAO is making no new recommendations at this time. In the February report, GAO recommended that DOE (1) accelerate efforts to engage engineering expertise and (2) develop sufficient, quantifiable performance measures. DOE disagreed with the recommendations, stating that such expertise had not yet been needed and that performance measures would expand the scope of the program. GAO continues to believe that these recommendations are needed to help ensure that DOE is achieving its goals and is accountable to Congress.