Department of Energy:
Advanced Technology Vehicle Loan Program Implementation Is Under Way, but Enhanced Technical Oversight and Performance Measures Are Needed
GAO-11-145: Published: Feb 28, 2011. Publicly Released: Mar 30, 2011.
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. GAO was asked to review the ATVM program and agreed to (1) identify the steps DOE has taken to implement the program, (2) examine the program's progress in awarding loans, (3) assess how the program is overseeing the loans, and (4) evaluate the extent to which DOE can assess progress toward meeting its goals. GAO analyzed loan documents and relevant laws and regulations and interviewed DOE and ATVM officials.
DOE has taken several steps to implement the ATVM program. First, it set three 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. 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 has 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. Although the ATVM program has set procedures for overseeing the financial and technical performance of borrowers and has begun oversight, it has not yet engaged engineering expertise needed for technical oversight. 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 analyze information borrowers report on their technical progress and are to use outside engineering expertise to supplement their analysis. 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 has 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 the extent to which it has achieved its three program goals. For example, while DOE has a measure for assessing specifically the fuel economy gains for the vehicles produced under the program, the measure falls short of enabling assessment of progress in achieving DOE's broad goal of improving the fuel economy of U.S. passenger vehicles as a whole because it does not account for, among other things, the fuel economy improvements manufacturers would have made, in the absence of the loans, to remain in compliance with increasingly strict federal fuel economy requirements. Principles of good governance call for performance measures tied to goals as a means of assessing the extent to which goals have been achieved. To help ensure the effectiveness and accountability of the ATVM program, GAO recommends that DOE accelerate its efforts to engage the engineering expertise needed for effective technical oversight and develop sufficient, quantifiable performance measures for its program goals. DOE disagreed with GAO's recommendations. GAO continues to believe DOE should engage expertise and reaffirms its recommendation that DOE develop sufficient performance measures.
Recommendations for Executive Action
Status: Closed - Implemented
Comments: Since issuance of our report GAO-11-145, DOE changed its budgeting practices for monitoring ATVM loans to better ensure that funds would be available to engage independent engineering expertise when needed. DOE also changed its policy for engaging technical expertise, making it the same as for the Title XVII loan guarantee program. These actions should better enable DOE to engage necessary engineering expertise for monitoring ATVM loans and are in line with our recommendation to accelerate efforts to engage sufficient engineering expertise to verify that borrowers are delivering projects as agreed. More specifically, as of February 28, 2011, when GAO made its recommendation, DOE had not yet engaged independent engineering expertise to monitor the loans it had made, in spite of policy calling for this action. DOE officials stated that such expertise had not yet been needed and that the agency would engage such expertise in the future. According the Chief Operating Officer for DOE's Loan Program Office, an impediment to engaging engineering expertise was paying for it, since the statute authorizing ATVM required that the loans be made with no transaction cost to the borrowers, requiring DOE, and not borrowers, to pay the costs of engaging independent engineering expertise. This differs from DOE's Title XVII loan programs, in which borrowers are required to fund the costs of such monitoring. In September 2015, the Chief Operating Officer for DOE's Loan Programs Office stated that, in the early days of the ATVM program, and at the time GAO wrote GAO-11-145, the agency had not fully budgeted the funds needed to implement enhanced technical monitoring; that is, engaging an independent engineer with needed automotive industry experience. He clarified that the agency had since implemented practices to ensure that the technical monitoring for ATVM loans would be done in the same manner as other DOE loan programs and that the Loan Programs Office now includes estimates in its annual budget requests of the funds it needs to engage independent engineering expertise for loan monitoring of both existing and potential future loans. We consider this recommendation to have been implemented.
Recommendation: To help ensure the effectiveness and accountability of the ATVM program, the Secretary of Energy should direct the ATVM Program Office to accelerate efforts to engage sufficient engineering expertise to verify that borrowers are delivering projects as agreed.
Agency Affected: Department of Energy
Status: Closed - Not Implemented
Comments: In its original comments to our report GAO-11-145, and in a subsequent statement of its management decisions, DOE stated that it disagreed with our recommendation that the Secretary of Energy direct the ATVM Program Office to develop sufficient and quantifiable performance measures for its three goals. DOE stated its belief that the ATVM program adhered to the requirements of the statute authorizing the program and that the performance measures suggested by GAO would greatly expand the scope of the program--DOE stated it would not develop any new measures not specified by Congress. DOE also noted concerns that the measures GAO specified would create an additional research burden for the program.
Recommendation: To help ensure the effectiveness and accountability of the ATVM program, the Secretary of Energy should direct the ATVM Program Office to develop sufficient and quantifiable performance measures for its three goals.
Agency Affected: Department of Energy