This is the accessible text file for GAO report number GAO-10-627 
entitled 'Department Of Energy: Further Actions Are Needed to Improve 
DOE's Ability to Evaluate and Implement the Loan Guarantee Program' 
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Report to Congressional Committees: 

United States Government Accountability Office: 
GAO: 

July 2010: 

Department Of Energy: 

Further Actions Are Needed to Improve DOE's Ability to Evaluate and 
Implement the Loan Guarantee Program: 

GAO-10-627: 

GAO Highlights: 

Highlights of GAO-10-627, a report to congressional committees. 

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: 

* 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. 

* 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. 

View [hyperlink, http://www.gao.gov/products/GAO-10-627] or key 
components. For more information, contact Frank Rusco at (202) 512-
3841 or ruscof@gao.gov. 

[End of section] 

Contents: 

Letter: 

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

DOE Has Taken Steps To Implement the LGP but Has Treated Applicants 
Inconsistently and Lacks Mechanisms to Identify and Address 
Applicants' Concerns: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments: 

Appendix I: Scope and Methodology: 

Appendix II: Performance Measures for the LGP: 

Appendix III: Application Review Process: 

Appendix IV: Standardized Fees Associated with Obtaining a Loan 
Guarantee, by Solicitation: 

Appendix V: Loan Guarantee Amounts Available and Amounts Applicants 
Sought for Technology Categories Targeted in Solicitations: 

Appendix VI: Comments from the Department of Energy: GAO Comments: 

Appendix VII: GAO Contact and Staff Acknowledgments: 

Table: 

Table 1: Technology Categories Targeted by Solicitations Issued for 
the LGP and Amounts Available under the Solicitations, as of April 
2010: 

Figures: 

Figure 1: 2008 Solicitation for Energy Efficiency, Renewable Energy, 
and Advanced Transmission and Distribution Technologies: 

Figure 2: 2008 Solicitation for Coal-based Power Generation and 
Industrial Gasification Facilities That Incorporate Carbon Capture and 
Sequestration or Other Beneficial Uses of Carbon and for Advanced Coal 
Gasification Facilities: 

Figure 3: 2008 Solicitation for Nuclear Power Facilities: 

Figure 4: 2008 Solicitation for Front-End Nuclear Facilities: 

Abbreviations: 

CRB: Credit Review Board: 

DOE: Department of Energy: 

EPAct: Energy Policy Act of 2005: 

FIPP: Financial Institution Partnership Program: 

GPRA: Government Performance and Results Act: 

LGP: Loan Guarantee Program: 

NETL: National Energy Technology Laboratory: 

Recovery Act: American Recovery and Reinvestment Act: 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

July 12, 2010: 

The Honorable Byron L. Dorgan: 
Chairman: 
The Honorable Robert F. Bennett: 
Ranking Member: 
Subcommittee on Energy and Water Development: 
Committee on Appropriations: 
United States Senate: 

The Honorable Peter J. Visclosky: 
Chairman: 
The Honorable Rodney P. Frelinghuysen: 
Ranking Member: 
Subcommittee on Energy and Water Development: 
Committee on Appropriations: 
House of Representatives: 

Through calendar year 2009, the Department of Energy's (DOE) Loan 
Guarantee Program (LGP) received more than 170 applications seeking 
over $175 billion in loan guarantees, generally to bring innovative 
energy technologies to market. Under normal economic conditions, 
companies can face obstacles in securing enough affordable financing 
to survive the "valley of death" between developing innovative 
technologies and commercializing them. Because the risks that lenders 
must assume to support new technologies can put private financing out 
of reach, companies may not be able to commercialize innovative 
technologies without government assistance. The financial crisis that 
emerged in late 2008, together with the associated economic decline, 
has further reduced access to capital markets for innovative energy 
technologies. In this constrained economic environment, even companies 
that might ordinarily rely on private financing are turning to the 
federal government for assistance. 

Federal loan guarantee programs such as DOE's can help companies 
obtain affordable financing because the federal government agrees to 
reimburse lenders for the guaranteed amount if the borrowers default, 
which encourages lending by reducing the lenders' financial risks. In 
addition, to the extent that a federal loan guarantee signals 
confidence in a project, such guarantees can help companies raise 
capital from other sources, for example by selling equity. However, 
loan guarantee programs can also expose the government to substantial 
financial risks. In the past, problems with loan guarantee programs 
have occurred, in part, because agencies did not exercise due 
diligence during the loan origination and monitoring processes. 

Since the LGP was authorized under Title XVII of the Energy Policy Act 
of 2005 (EPAct), its scope has expanded.[Footnote 1] The act-- 
specifically section 1703--originally authorized DOE to guarantee 
loans for projects that (1) use new or significantly improved 
technologies as compared with commercial technologies already in 
service in the United States and (2) avoid, reduce, or sequester 
emissions of air pollutants or man-made greenhouse gases. In February 
2009, Congress passed the American Recovery and Reinvestment Act 
(Recovery Act), which amended Title XVII by adding section 1705. 
[Footnote 2] Under section 1705, DOE may guarantee loans for projects 
using commercial technologies. Projects supported by the Recovery Act 
must employ renewable energy systems, electric power transmission 
systems, or leading-edge biofuels that meet certain criteria; begin 
construction by the end of fiscal year 2011; and pay wages at or above 
market rates. 

The LGP's loan guarantee authority has also increased. In fiscal year 
2007, Congress authorized up to $4 billion in loan guarantees for 
projects that meet the criteria in section 1703. By fiscal year 2009, 
Congress had authorized an additional $47 billion in loan guarantees 
for projects that meet these criteria.[Footnote 3] Congress did not 
appropriate funds to cover the associated credit subsidy costs--that 
is, the government's estimated net long-term cost, in present value 
terms, of direct or guaranteed loans over the entire period the loans 
are outstanding (not including administrative costs). Consequently, 
borrowers who obtain loan guarantees under section 1703 must pay fees 
to cover these costs. Under the Recovery Act, Congress has provided 
nearly $4 billion to cover the credit subsidy costs for projects that 
meet the criteria in section 1705.[Footnote 4] While the Recovery Act 
appropriation did not specify the amount of new loan guarantee 
authority, DOE officials said that the department believes credit 
subsidy costs will average at least 15 percent of the value of loan 
guarantees. Accordingly, the nearly $4 billion Recovery Act 
appropriation to pay credit subsidy costs could increase the amount of 
loans that the LGP guarantees by about $26 billion, raising the 
program's total estimated loan guarantee capacity to about $77 billion. 

As of April 2010, the department had issued eight solicitations 
inviting applications for projects using various categories of 
technologies (see table 1). It had also issued one loan guarantee for 
$535 million to Solyndra, one of the companies that responded to DOE's 
initial LGP solicitation issued in 2006, and had made nine conditional 
commitments to issue additional loan guarantees.[Footnote 5] The one 
loan guarantee and four of the conditional commitments were made under 
the Recovery Act; the other five conditional commitments were made 
under section 1703. 

Table 1: Technology Categories Targeted by Solicitations Issued for 
the LGP and Amounts Available under the Solicitations, as of April 
2010: 

Targeted technology category: Mixed[A]; 
Solicitation issuance date: Aug. 8, 2006; 
Amount available: $4.0 billion[B]. 

Targeted technology category: Nuclear power facilities; 
Solicitation issuance date: July 11, 2008; 
Amount available: $18.5 billion. 

Targeted technology category: Front-end nuclear facilities[C]; 
Solicitation issuance date: July 11, 2008; 
Amount available: $2.0 billion[B]. 

Targeted technology category: Coal-based power generation and 
industrial gasification facilities that incorporate carbon capture and 
sequestration or other beneficial uses of carbon and for advanced coal 
gasification facilities; 
Solicitation issuance date: Sept. 22, 2008; 
Amount available: $8.0 billion. 

Targeted technology category: Energy efficiency, renewable energy, and 
advanced transmission and distribution technologies (EERE); 
Solicitation issuance date: Oct. 29, 2008; 
Amount available: $10.0 billion. 

Targeted technology category: EERE; 
Solicitation issuance date: July 29, 2009; 
Amount available: $8.5 billion. 

Targeted technology category: Electric power transmission 
infrastructure projects; 
Solicitation issuance date: July 29, 2009; 
Amount available: $5.0 billion[D]. 

Targeted technology category: Commercial technology renewable energy 
generation projects under the Financial Institution Partnership 
Program (FIPP); 
Solicitation issuance date: Oct. 7, 2009; 
Amount available: $5.0 billion[D]. 

Source: GAO presentation of DOE data. 

[A] The 2006 mixed solicitation invited applications for all 
technologies eligible to receive loan guarantees according to the 
Energy Policy Act of 2005 except for nuclear facilities and oil 
refineries. 

[B] DOE received authorization to guarantee up to $4 billion in loans 
in fiscal year 2007 and had planned to use this authority to support 
projects submitted in response to the 2006 mixed technology 
solicitation. On March 25, 2010, DOE informed Congress of its 
intention to use up to $2 billion of its fiscal year 2007 loan 
guarantee authority for projects submitted in response to the 2008 
front-end nuclear facilities solicitation. 

[C] Front-end nuclear facilities are to accelerate deployment of new 
uranium enrichment capacity and distribution. 

[D] This amount is an estimate because the solicitation did not 
specify how much DOE would issue in loan guarantees. This estimate is 
based on the solicitation's stated plan to use $750 million to cover 
credit subsidy costs and assumes credit subsidy costs of 15 percent, 
which DOE has told us is consistent with credit subsidy estimates to 
date. 

[End of table] 

For fiscal year 2011, DOE is seeking an additional $36 billion in loan 
guarantee authority for nuclear power facilities and $500 million to 
cover the credit subsidy costs for energy efficiency and renewable 
energy projects eligible under section 1703.[Footnote 6] DOE estimates 
that this $500 million will cover the credit subsidy costs for about 
$3 billion in loan guarantees. 

We have an ongoing mandate under the 2007 Revised Continuing 
Appropriations Resolution to review DOE's execution of the LGP and to 
report our findings to the House and Senate Committees on 
Appropriations.[Footnote 7] Our previous reviews focused on the 
department's efforts to establish the tools needed to evaluate the 
program's effectiveness and to process applications. In 2007 and 2008, 
we recommended that the department take steps to further develop and 
improve its capabilities in these areas.[Footnote 8] In light of these 
recommendations and following discussions with your staffs, we 
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 LGP for applicants. 

To address these objectives, we analyzed Title XVII of EPAct, the 
Recovery Act, the Government Performance and Results Act (GPRA) and 
our prior work on GPRA, and DOE's program guidance and regulations. In 
addition, we interviewed relevant DOE officials and--to obtain a broad 
representation of views on DOE's implementation of the LGP--LGP 
applicants and trade association representatives. We selected the 
applicants and trade associations using a mix of criteria, including 
the amount of the loan guarantee requested and the relevant 
technology. Our review did not evaluate the technical or financial 
soundness of the projects that applied for DOE loan guarantees. In 
April 2010, we briefed your offices on the preliminary results of our 
review. 

We conducted this performance audit from January 2009 through July 
2010 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. A further 
discussion of the scope of our review and the methods we used is 
presented in appendix I. 

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.[Footnote 9] These 
performance goals and measures are intended to allow comparison of 
programs' actual results with the desired results. Each program 
activity should be linked to a performance goal and measure unless 
such a linkage would be infeasible or impractical. 

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 
appendix II). 

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. Given the lack of sufficient performance 
goals, DOE cannot be sure that the LGP's performance measures are 
appropriate. 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. For 
example, DOE has substantially increased the LGP's staff and in-house 
expertise, and applicants we interviewed have commended the LGP 
staff's professionalism. DOE officials indicated that, prior to 2008, 
staffing was inadequate to review applications, but since June 2008, 
the LGP's staff has increased from 12 federal employees to more than 
50, supported by over 40 full-time contractor staff. Also, the LGP now 
has in-house legal counsel and project finance expertise, which have 
increased the program's capacity to evaluate proposed projects. In 
addition, in November 2009, the Secretary named an Executive Director, 
reporting directly to the Secretary, to oversee the LGP and to 
accelerate the application review process.[Footnote 10] 

Other key steps that DOE has taken include the following: 

* DOE has identified a list of external reviewers qualified to perform 
legal, engineering, financial, and marketing analyses of proposed 
projects. Identifying these external reviewers beforehand helps to 
ensure that DOE will have the necessary expertise readily available 
during the review process. DOE officials said that the department has 
also expedited the procurement process for hiring these external 
reviewers. 

* DOE developed a credit policies and procedures manual for the LGP. 
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. 

* DOE revised the LGP's regulations after receiving information from 
industry concerning the wide variety of ownership and financing 
structures that applicants or potential applicants would like to 
employ in projects seeking loan guarantees. Among other things, the 
modifications allow for ownership structures that DOE found are 
typically employed in utility-grade power plants and are commonly 
proposed for the next generation of nuclear power generation 
facilities. 

* DOE obtained OMB approval for its model to estimate credit subsidy 
costs. The model is a critical tool needed for the LGP to proceed with 
issuing loan guarantees because it will be used to calculate each loan 
guarantee's credit subsidy cost and the associated fee, if any, that 
must be collected from borrowers. (We are evaluating DOE's process and 
key inputs for estimating credit subsidy costs in other ongoing work.) 

Notwithstanding these actions, the department is implementing the 
program in a way that treats applicants inconsistently, lacks 
systematic mechanisms for applicants to appeal its decisions or for 
applicants to provide feedback to DOE, and risks excluding some 
potential applicants unnecessarily. Specifically, we found the 
following: 

DOE has treated applicants inconsistently. Although our past work has 
shown that agencies should process applications with the goals of 
treating applicants fairly and minimizing applicant confusion, 
[Footnote 11] DOE's implementation of the program has favored some 
applicants and disadvantaged others in a number of ways. 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. Before DOE makes a conditional 
commitment, LGP procedures call for engineering, financial, legal, and 
marketing reviews of proposed projects as part of the due diligence 
process for identifying and mitigating risk. If DOE lacks the in-house 
capability to conduct the reviews, external reviews are performed by 
contractors paid for by applicants.[Footnote 12] In one of the cases 
we identified in which DOE deviated from its procedures, it made a 
conditional commitment before obtaining any of the external reports. 
DOE officials told us this project was fast-tracked because of its 
"strong business fundamentals" and because DOE determined that it had 
sufficient information to proceed. 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. 

Second, DOE treats applicants with nuclear projects differently from 
applicants proposing projects that employ other types of technologies. 
For example, DOE allows applicants with nuclear projects that have not 
been selected to begin the due diligence process to remain in a queue 
in case the LGP receives additional loan guarantee authority, while 
applicants with projects involving other types of technologies that 
have not been selected to begin due diligence are rejected (see 
appendix III). In order for applicants whose applications were 
rejected to receive further consideration, they must reapply and again 
pay application fees, which range from $75,000 to $800,000 (see 
appendix IV). DOE also provided applicants with nuclear generation 
projects information on how their projects ranked in comparison with 
others before they submitted part II of the application and 75 percent 
of the application fees. DOE did not provide rankings to applicants 
with any other types of projects. DOE officials said that applicants 
with nuclear projects were allowed to remain in a queue because of the 
expectation that requests would substantially exceed available loan 
guarantee authority and that the applications would be of high 
quality. According to DOE officials, they based this expectation on 
information available about projects that are seeking licenses from 
the Nuclear Regulatory Commission. DOE officials also explained that 
they ranked nuclear generation projects for similar reasons--and also 
to give applicants with less competitive projects the chance to drop 
out of the process early, allowing them to avoid the expense involved 
in applying for a loan guarantee. However, all of the solicitations 
issued through 2008 initially received requests that exceeded the 
available loan guarantee authority (see appendix V), so nuclear 
projects were not unique in that respect. In addition, applicants with 
coal-based power generation and industrial gasification facility 
projects paid application fees equivalent to those paid by applicants 
with nuclear generation projects but were not given rankings prior to 
paying the second application fee (see appendix IV). To provide EERE 
applicants with earlier feedback on the competitiveness of their 
projects, DOE instituted a two-part application for the 2009 EERE 
solicitation--a change from the 2008 EERE solicitation. DOE officials 
stated that they made this change based on lessons learned from the 
2008 EERE solicitation. While this change appears to reduce the 
disparity in treatment among applicants, it remains to be seen whether 
DOE will make similar changes for projects that employ other types of 
technologies. 

Third, DOE has allowed one of the front-end nuclear facility 
applicants that we contacted additional time to meet technical and 
financial requirements, including requirements for evidence that the 
technology is ready to move to commercial-scale operations, but DOE 
has rejected applicants with other types of technologies for not 
meeting similar technical and financial criteria. DOE has not provided 
analysis or documentation explaining why additional time was 
appropriate for one project but not for others. 

DOE lacks systematic mechanisms for applicants to appeal its decisions 
or provide feedback to DOE. In its solicitations, DOE states that a 
rejection is "final and non-appealable." Once a project has been 
rejected, the only administrative option left to an applicant under 
DOE's documented procedures is to reapply and incur all of the 
associated costs. Nevertheless, DOE said that, as a courtesy, it had 
rereviewed certain rejected applications. Some applicants did not know 
that DOE would provide such rereviews, which appear contrary to DOE's 
stated policy and have been conducted on an ad hoc basis. 

DOE also lacks a systematic mechanism for soliciting, evaluating, and 
incorporating feedback from applicants about its implementation of the 
program. Our past work has shown that agencies should solicit, 
evaluate, and incorporate feedback from program users to improve 
programs.[Footnote 13] Unless they do so, agencies may not attain the 
levels of user satisfaction that they otherwise could. For example, 
during our interviews with applicants, more than half said they 
received little information about the timing or status of application 
reviews. Applicants expressed a desire for more information about the 
status of DOE's reviews and said that not knowing when a loan 
guarantee might be issued created difficulties in managing their 
projects--for example, in planning construction dates, knowing how 
much capital they would need to sustain operations, and maintaining 
support for their projects from internal stakeholders. 

According to DOE officials, the department has reached out to 
stakeholders through its Web site, presentations to industry groups 
and policymakers, and other means. DOE has also indicated that it has 
changed the program to make it more user-friendly, based on lessons 
learned and applicant feedback. For example, unlike the 2008 EERE 
solicitation, the 2009 EERE solicitation includes rolling deadlines 
that give applicants greater latitude in when to submit their 
applications; a simplified part I application that provides a 
mechanism for DOE to give applicants early feedback on whether their 
projects are competitive; and delayed payment of the bulk of the 
"facility fee" that DOE charges applicants to cover certain program 
costs. While DOE said that these changes were based, in part, on 
feedback from applicants, because DOE has no systematic way of 
soliciting applicant feedback, the department has no assurance that 
the views obtained through its outreach efforts are representative, 
particularly since the means that DOE uses to obtain feedback do not 
guarantee anonymity. The department also has no assurance that the 
changes made in response to feedback are effectively addressing 
applicant concerns. 

DOE risks excluding some potential applicants. Even though the 
Recovery Act requires that applicants begin construction by the end of 
fiscal year 2011 to qualify for Recovery Act funding, DOE has not yet 
issued solicitations for the full range of projects eligible for 
Recovery Act funding under section 1705. DOE has issued two 
solicitations specific to the Recovery Act for the LGP, but neither 
invites applications for commercial manufacturing projects, which are 
eligible under the act.[Footnote 14] While DOE has announced that it 
will issue an LGP solicitation for commercial manufacturing projects, 
it has given no date for doing so. The 2009 EERE solicitation provided 
an opportunity for some manufacturing applicants to receive Recovery 
Act funding, but because DOE combined the Recovery Act's requirements 
with the original section 1703 requirements, applicants with 
commercial manufacturing projects were excluded. DOE officials told us 
that they combined the requirements to ensure that projects that are 
initially eligible under section 1705 but that fail to start 
construction by the deadline can remain in the LGP under section 1703. 

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. Since 
2007, we have been reporting on DOE's lack of tools necessary to 
evaluate the program and process applications and recommending that 
the department take steps to address these areas. While DOE has 
identified broad policy goals and developed a mission statement for 
the program, it will lack the ability to implement the program 
efficiently and effectively and to evaluate progress in achieving 
these goals and mission until it develops corresponding performance 
goals. As a practical matter, without such goals, DOE will also lack a 
clear basis for determining whether the projects it decides to support 
with loan guarantees are helping achieve the desired results, 
potentially undermining applicants' and the public's confidence in the 
legitimacy of those decisions. 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. Furthermore, while DOE has taken steps to increase 
applicants' satisfaction with the program, it cannot determine the 
effectiveness of those efforts without systematic feedback from 
applicants that preserves their anonymity. 

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. 

* Direct the program management to revise the process for issuing loan 
guarantees to clearly establish what circumstances warrant disparate 
treatment of applicants so that DOE's implementation of the program 
treats applicants consistently unless there are clear and compelling 
grounds for doing otherwise. 

* Direct the program management to develop an administrative appeal 
process for applicants who believe their applications were rejected in 
error and document the basis for conclusions regarding appeals. 

* Direct the program management to develop a mechanism to 
systematically obtain and address feedback from program applicants, 
and, in so doing, ensure that applicants' anonymity can be maintained, 
for example, by using an independent service to obtain the feedback. 

Agency Comments: 

We provided a draft of this report to DOE for review and comment. In 
its written comments, DOE stated that it recognizes the need for 
continuous improvement to its Loan Guarantee Programs as those 
programs mature but neither explicitly agreed nor disagreed with our 
recommendations. In one instance, DOE specifically disagreed with our 
findings: the department maintained that applicants are treated 
consistently within solicitations. 

Nevertheless, the department stated that it is taking steps to address 
concerns identified in our report. Specifically, DOE pointed to the 
following recent or planned actions: 

* Performance goals and measures. DOE stated that, in the context of 
revisions to its strategic plan, the department is revisiting the 
performance goals and measures for the LGP to better align them with 
the department's policy goals of growing the green economy and 
reducing greenhouse gases from power generation. 

* Consistent treatment of applicants. DOE recognized the need for 
greater transparency to avoid the perception of inconsistent treatment 
and stated that it will ensure that future solicitations explicitly 
describe circumstances that would allow streamlined consideration of 
loan guarantee applications. 

* Appeals. DOE indicated that its process for rejected applications 
should be made more transparent and stated that the LGP continues to 
implement new strategies intended to reduce the need for any kind of 
appeals, such as enhanced communication with applicants including more 
frequent contact, and allowing applicants an opportunity to provide 
additional data at DOE's request to address deficiencies DOE has 
identified in applications. 

While these actions are encouraging, they do not fully address our 
findings, especially in the areas of appeals and applicant feedback. 
We continue to believe that DOE needs systematic mechanisms for 
applicants to appeal its decisions and to provide anonymous feedback. 

DOE's written comments on our findings and recommendations, along with 
our detailed responses, are contained in appendix VI. In addition to 
the written comments reproduced in that appendix, DOE provided 
technical comments, which we incorporated as appropriate. 

We are sending copies of this report to the appropriate congressional 
committees, the Secretary of Energy, and other interested parties. 
This report also is available at no charge on the GAO Web site at 
[hyperlink, http://www.gao.gov]. 

If you or your staffs have any questions concerning this report, 
please contact me at (202) 512-3841 or ruscof@gao.gov. Contact points 
for our Offices of Congressional Relations and Public Affairs may be 
found on the last page of this report. Key contributors to this report 
are listed in appendix VII. 

Signed by: 

Frank Rusco: 
Director, Natural Resources and Environment: 

[End of section] 

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. 
We discussed strategic planning and program evaluation with cognizant 
DOE officials from the LGP office, the Office of the Secretary of 
Energy, the Office of the Chief Financial Officer, and the Credit 
Review Board (CRB) that is charged with coordinating credit management 
and debt collection activities as well as overall policies and 
procedures for the LGP. As criteria, we used the Government 
Performance Results Act (GPRA), along with our prior work on GPRA. 

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. We interviewed cognizant DOE 
officials from the LGP office, the Office of the Secretary of Energy, 
the Office of the Chief Financial Officer, the Office of Headquarters 
Procurement Services, and program offices that participated in the 
technical reviews of projects, including the Office of Electricity 
Delivery and Energy Reliability, the Office of Energy Efficiency and 
Renewable Energy, the Office of Nuclear Energy, and the National 
Energy Technology Laboratory (NETL). In addition, we interviewed 31 
LGP applicants and 4 trade association representatives, using a 
standard list of questions for each group, to obtain a broad 
representation of views that we believe can provide insights to 
bolster other evidence supporting our findings. We selected the 
applicants and trade associations using a mix of criteria, including 
the amount of the loan guarantee requested and the relevant 
technology. As criteria, we used our prior work on customer service. 
We did not evaluate the financial or technical soundness of the 
projects for which applications were submitted. 

We conducted this performance audit from January 2009 through July 
2010 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Performance Measures for the LGP: 

DOE has developed the following nine performance measures for the LGP: 

* percentage of projects receiving DOE loan guarantees that have 
achieved and maintained commercial operations; 

* contain the loss rate of guaranteed loans to less than 4 percent; 

* contain the loss rate of guaranteed loans to less than 11.81 percent 
in fiscal year 2009 (11.85 percent for fiscal years 2010 and 2011) on 
a long-term portfolio basis; 

* newly installed generation capacity from power generation projects 
receiving DOE loan guarantees; 

* average cost per megawatthour for projects receiving DOE loan 
guarantees; 

* forecasted greenhouse gas emissions reductions from projects 
receiving loan guarantees compared to 'business as usual' energy 
generation; 

* forecasted air pollutant emissions (nitrogen oxides, sulfur oxides, 
and particulates) reductions from projects receiving loan guarantees 
compared to 'business as usual' energy generation; 

* average review time of applications for Section 1705 guarantees; and: 

* percentage of conditional commitments issued to qualified applicants 
relative to plan. 

[End of section] 

Appendix III: Application Review Process: 

Figure 1: 2008 Solicitation for Energy Efficiency, Renewable Energy, 
and Advanced Transmission and Distribution Technologies: 

[Refer to PDF for image: flow-chart] 

DOE issues solicitation: 

2 paths: 

First path: 

Stand-alone or manufacturing projects submit application: 
25% of application fee due ($18,750-$31,250); Fee paid for credit 
assessment[A]. 

DOE reviews for responsiveness and innovativeness; 
- Application rejected; or: 

DOE notifies applicant of intent to proceed with review. 

75% of application fee due ($56,250-$93,750). 

DOE performs formal review: 
- Application rejected; or: 

Underwriting and due diligence: 
- DOE performs/contracts out financial, legal, market, environmental, 
and technical reviews; 
- Term sheet negotiations: 
External reviewer fees due; 20% of facility fee due. 

DOE makes conditional commitment; 
Fee paid for credit rating[A]; Credit subsidy calculations. 

DOE issues loan guarantee; 
Credit subsidy fee due: All or part of maintenance fee due; 80% of 
facility fee due; Final credit subsidy fee calculated. 

DOE services loan through term; 
Any remaining maintenance fee due ($50,000-$100,000 annually). 

Second path: 

Large-scale integration projects submit part I of the application; 
25% of application fee due ($18,750-$31,250); Fee paid for credit 
assessment[A]. 

DOE reviews for responsiveness and innovativeness; 
- Application rejected; or: 

DOE notifies applicant of intent to proceed with review. 

Applicant submits part II of application; 
75% of application fee due ($56,250-$93,750). 

DOE performs formal review; 
- Application rejected; or: 

Underwriting and due diligence: 
- DOE performs/contracts out financial, legal, market, environmental, 
and technical reviews; 
- Term sheet negotiations: 
External reviewer fees due; 20% of facility fee due. 

DOE makes conditional commitment; 
Fee paid for credit rating[A]; Credit subsidy calculations. 

DOE issues loan guarantee; 
Credit subsidy fee due: All or part of maintenance fee due; 80% of 
facility fee due; Final credit subsidy fee calculated. 

DOE services loan through term; 
Any remaining maintenance fee due ($50,000-$100,000 annually). 

Source: GAO presentation of DOE data. 

[A] Required for projects with estimated total costs exceeding $25 
million. 

[End of figure] 

Figure 2: 2008 Solicitation for Coal-based Power Generation and 
Industrial Gasification Facilities That Incorporate Carbon Capture and 
Sequestration or Other Beneficial Uses of Carbon and for Advanced Coal 
Gasification Facilities: 

[Refer to PDF for image: flow chart] 

DOE issues solicitation: 

Applicant submits part I of application; 
25% of application fee due ($200,000); Fee paid for credit 
assessment[A]. 

DOE reviews part I; 
- Application rejected; or: 

Applicant submits part II of application; 
75% of application fee due ($600,000). 

DOE reviews part II; 
- Application rejected; or: 

Underwriting and due diligence: 
- DOE performs/contracts out financial, legal, market, environmental, 
and technical reviews; 
- Term sheet negotiations: 
External reviewer fees due; 20% of facility fee due. 

DOE makes conditional commitment; 
Fee paid for credit rating[A]; Credit subsidy calculations. 

DOE issues loan guarantee; 
Credit subsidy fee due: All or part of maintenance fee due; 80% of 
facility fee due; Final credit subsidy fee calculated. 

DOE services loan through term; 
Any remaining maintenance fee due ($200,000-$400,000 annually). 

Source: GAO presentation of DOE data. 

[A] Required for projects with estimated total costs exceeding $25 
million. 

[End of figure] 

Figure 3: 2008 Solicitation for Nuclear Power Facilities: 

[Refer to PDF for image: flow chart] 

DOE issues solicitation: 

Applicant submits part I of application; 
25% of application fee due ($200,000); Fee paid for credit 
assessment[A]. 

DOE reviews part I; 
- Application rejected; or: 

DOE provides initial ranking for the application: 
- Applicant withdraws, or: 

Applicant submits part II of application; 
75% of application fee due ($600,000). 

(During the remainder of the process, applicant provides updates every 
90 days) 

DOE reviews part II; 
- Application rejected; or: 
- Application not selected for due diligence—remains in queue; or: 

Underwriting and due diligence: 
- DOE performs/contracts out financial, legal, market, environmental, 
and technical reviews; 
- Term sheet negotiations: 
External reviewer fees due; 20% of facility fee due. 

DOE makes conditional commitment; 
Fee paid for credit rating[A]; Credit subsidy calculations. 

DOE issues loan guarantee; 
Credit subsidy fee due: All or part of maintenance fee due; 80% of 
facility fee due; Final credit subsidy fee calculated. 

DOE services loan through term; 
Any remaining maintenance fee due ($200,000-$400,000 annually). 

Source: GAO presentation of DOE data. 

[A] Required for projects with estimated total costs exceeding $25 
million. 

[End of figure] 

Figure 4: 2008 Solicitation for Front-End Nuclear Facilities: 

[Refer to PDF for image: flow chart] 

DOE issues solicitation: 

Applicant submits part I of application; 
25% of application fee due ($200,000); Fee paid for credit 
assessment[A]. 

DOE reviews part I; 
- Application rejected; or: 

Applicant submits part II of application; 
75% of application fee due ($600,000). 

(During the remainder of the process, applicant provides updates every 
90 days) 

DOE reviews part II; 
- Application rejected; or: 
- Application not selected for due diligence—remains in queue; or: 

Underwriting and due diligence: 
- DOE performs/contracts out financial, legal, market, environmental, 
and technical reviews; 
- Term sheet negotiations: 
External reviewer fees due; 20% of facility fee due. 

DOE makes conditional commitment; 
Fee paid for credit rating[A]; Credit subsidy calculations. 

DOE issues loan guarantee; 
Credit subsidy fee due: All or part of maintenance fee due; 80% of 
facility fee due; Final credit subsidy fee calculated. 

DOE services loan through term; 
Any remaining maintenance fee due ($200,000-$400,000 annually). 

Source: GAO presentation of DOE data. 

[A] Required for projects with estimated total costs exceeding $25 
million. 

[End of figure] 

[End of section] 

Appendix IV: Standardized Fees Associated with Obtaining a Loan 
Guarantee, by Solicitation: 

Solicitation: 2008 Front-end nuclear facilities; 
Application fee: 1st payment of 25%: $200,000; 
Application fee: 2nd payment of 75%: $600,000; 
Facility fee[A]: ½ of 1% of guaranteed amount; 
Annual loan maintenance fee: $200,000-400,000. 

Solicitation: 2008 Nuclear power facilities; 
Application fee: 1st payment of 25%: $200,000; 
Application fee: 2nd payment of 75%: $600,000; 
Facility fee[A]: ½ of 1% of guaranteed amount; 
Annual loan maintenance fee: $200,000-400,000. 

Solicitation: 2008 Coal-based power generation and industrial 
gasification facilities; 
Application fee: 1st payment of 25%: $200,000; 
Application fee: 2nd payment of 75%: $600,000; 
Facility fee[A]: ½ of 1% of guaranteed amount; 
Annual loan maintenance fee: $200,000-400,000. 

Solicitation: 2008 Energy efficiency, renewable energy, and advanced 
transmission and distribution technologies (EERE): 

Loan guarantee amount: $0 - 150,000,000; 
Application fee: 1st payment of 25%: $18,750; 
Application fee: 2nd payment of 75%: $56,250; 
Facility fee[A]: 1% of guaranteed amount; 
Annual loan maintenance fee: $50,000-100,000. 

Loan guarantee amount: Above $150,000,000 - 500,000,000; 
Application fee: 1st payment of 25%: $25,000; 
Application fee: 2nd payment of 75%: $75,000; 
Facility fee[A]: $375,000 + 0.75% of guaranteed amount; 
Annual loan maintenance fee: $50,000-100,000. 

Loan guarantee amount: Above $500,000,000; 
Application fee: 1st payment of 25%: $31,250; 
Application fee: 2nd payment of 75%: $93,750; 
Facility fee[A]: $1,625,000 + 0.50% of guaranteed amount; 
Annual loan maintenance fee: v50,000-100,000. 

Solicitation: 2009 EERE: 

Loan guarantee amount: $0 - 150,000,000; 
Application fee: 1st payment of 25%: $18,750; 
Application fee: 2nd payment of 75%: $56,250; 
Facility fee[A]: 1% of guaranteed amount; 
Annual loan maintenance fee: $50,000-100,000. 

Loan guarantee amount: $150,000,000 - 500,000,000; 
Application fee: 1st payment of 25%: $25,000; 
Application fee: 2nd payment of 75%: $75,000; 
Facility fee[A]: $375,000 + 0.75% of guaranteed amount; 
Annual loan maintenance fee: $50,000-100,000. 

Loan guarantee amount: Above $500,000,000; 
Application fee: 1st payment of 25%: $31,250; 
Application fee: 2nd payment of 75%: $93,750; 
Facility fee[A]: $1,625,000 + 0.50% of guaranteed amount; 
Annual loan maintenance fee: $50,000-100,000. 

Solicitation: 2009 Electric power transmission infrastructure projects; 
Application fee: 1st payment of 25%: $200,000; 
Application fee: 2nd payment of 75%: $600,000; 
Facility fee[A]: ½ of 1% of guaranteed amount; 
Annual loan maintenance fee: $200,000-400,000. 

Solicitation: 2009 Commercial technology renewable energy generation 
projects under the Financial Institution Partnership Program (FIPP); 
Application fee: 1st payment of 25%: $12,500; 
Application fee: 2nd payment of 75%: $37,500; 
Facility fee[A]: ½ of 1% of guaranteed amount; 
Annual loan maintenance fee: $10,000-25,000. 

Source: GAO presentation of DOE data. 

[A] According to agency documentation, this fee is intended to cover 
the LGP's cost of loan setup and associated legal and finance fees. 

[End of table] 

[End of section] 

Appendix V: Loan Guarantee Amounts Available and Amounts Applicants 
Sought for Technology Categories Targeted in Solicitations: 

Targeted technology category: Mixed[A]; 
Solicitation issuance date: Aug. 8, 2006; 
Amount available: $4.0 billion; 
Amount applicants sought: $8.6 billion. 

Targeted technology category: Nuclear power facilities; 
Solicitation issuance date: July 11, 2008; 
Amount available: $18.5 billion; 
Amount applicants sought: $93.2 billion. 

Targeted technology category: Front-end nuclear facilities; 
Solicitation issuance date: July 11, 2008; 
Amount available: $2.0 billion; 
Amount applicants sought: $4.0 billion. 

Targeted technology category: Coal-based power generation and 
industrial gasification facilities; 
Solicitation issuance date: Sept. 22, 2008; 
Amount available: $8.0 billion; 
Amount applicants sought: $18.6 billion. 

Targeted technology category: Energy efficiency, renewable energy, and 
advanced transmission and distribution technologies (EERE); 
Solicitation issuance date: Oct. 29, 2008; 
Amount available: $10.0 billion; 
Amount applicants sought: $20.1 billion. 

Targeted technology category: EERE; 
Solicitation issuance date: July 29, 2009; 
Amount available: $8.5 billion; 
Amount applicants sought: $22.8 billion[B]. 

Targeted technology category: Electric power transmission 
infrastructure projects; 
Solicitation issuance date: July 29, 2009; 
Amount available: $5.0 billion[C]; 
Amount applicants sought: $4.3 billion. 

Targeted technology category: Commercial technology renewable energy 
generation projects under the Financial Institution Partnership 
Program (FIPP); 
Solicitation issuance date: Oct. 7, 2009; 
Amount available: $5.0 billion[C]; 
Amount applicants sought: $3.1 billion. 

Source: GAO presentation of DOE data. 

[A] The 2006 mixed solicitation invited applications for all 
technologies eligible to receive loan guarantees under the Energy 
Policy Act of 2005 except for nuclear facilities and oil refineries. 

[B] DOE is still accepting applications in response to the 2009 EERE 
solicitation, so the final total amount that applicants will seek is 
not yet known. Through November 2009, applicants were seeking a total 
of $22.8 billion. 

[C] This amount is an estimate because the solicitation did not 
specify how much would be issued in loan guarantees. This estimate is 
based on the solicitation's stated plan to use $750 million to cover 
credit subsidy costs and assumes credit subsidy costs of 15 percent, 
which DOE has told us is consistent with credit subsidy estimates to 
date. 

[End of table] 

[End of section] 

Appendix VI: Comments from the Department of Energy: 

Note: GAO comments supplementing those in the report text appear at 
the end of this appendix. 

Department of Energy: 
Washington, DC 20585: 

June 17, 2010: 

Mr. Frank Rusco: 
Director, Natural Resources and Environment: 
Government Accountability Office: 
Washington DC, 20548: 

Dear Mr. Rusco: 

Thank you for the opportunity to comment on the Government 
Accountability Office's (GAO) draft report on the Department of 
Energy's (DOE or Department) Loan Guarantee Program (LGP), Further 
Actions Are Needed to Improve DOE's Ability to Evaluate and Implement 
the Loan Guarantee Program. The Department is committed to managing 
the LGP carefully and maintaining the integrity of the LGP as well as 
promoting the objectives of the Title XVII program. The Department's 
paramount concern is protecting the American taxpayer. 

As noted in your report, the Department has made substantial progress 
in building a functional program for issuing loan guarantees under 
Title XVII of the Energy Policy Act of 2005. Significant achievements 
include: 

* Leveraging external experts: DOE has identified external experts to 
assist with legal, engineering, financial, and marketing analyses of 
proposed projects. Identifying these external experts beforehand helps 
to ensure that DOE will have the necessary expertise readily available 
during the application review process. The Department has also 
expedited the procurement process for hiring these external experts. 

* Revising LGP regulations: DOE has revised the LGP's regulations 
after receiving information from potential applicants, lenders, and 
other industry professionals concerning the wide variety of ownership 
and financing structures that applicants would like to employ in 
projects seeking loan guarantees. For example, LGP regulations were 
revised to allow for ownership structures that are typically employed 
in utility-grade power plants and are commonly proposed for the next 
generation of nuclear power generation facilities. 

* Developing policies and procedures: DOE has developed a credit 
policies and procedures manual for the LGP. 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. 

* Approval for credit subsidy model: DOE obtained Office of Management 
and Budget approval for its model to estimate credit subsidy costs. 
The model is a critical tool needed for the LGP to proceed with 
issuing loan guarantees because it will be used to calculate the 
amount of each loan guarantee's credit subsidy and the associated fee, 
if applicable. 

While the report recognizes key steps that DOE has taken to implement 
the LOP program, it also discusses opportunities for improvement in 
LGP's performance goals and measures, the transparency of its 
treatment of loan applicants, and mechanisms for systematic feedback 
from applicants. The Department recognizes the need for continuous 
improvement to its Loan Guarantee Programs as those programs mature, 
and is taking steps to address the concerns noted in the report.
Enclosed arc the Department's detailed responses to GAO's specific 
recommendations and separate technical and factual comments on 
specific language in the draft report. We look forward to working with 
your team on future engagements. 

Sincerely, 

Signed by: 

Jonathan M. Silver: 
Executive Director of the Loan Programs: 
Office of the Secretary: 

Enclosures: 

[End of letter] 

U.S. Department of Energy: 

GAO-10-627 — "Department Of Energy: Further Actions Are Needed to
Improve DOE's Ability to Evaluate and Implement the Loan Guarantee 
Program: 

Response to GAO Recommendations for Executive Action: 

Technical and Factual Comments: 

Recommendation 1: The Secretary of Energy should 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. 

DOE Response: The Department recognizes the need for relevant and 
targeted performance metrics and is working to ensure that appropriate 
metrics are identified for Loan Guarantee Programs. Currently, the 
program evaluates a project based on the ability to optimize multiple 
metrics that are consistent with overall program objectives, and there 
is no mandate from Congress regarding a specific target for the number 
of jobs created. In the context of preparing the LGP's contribution to 
the Department's Strategic Plan, which is still under development, the 
LGP is revisiting its performance goals and measures to better align 
with the Department's policy goals of growing the green economy and 
reducing green house gases in power generation. [See comment 1] 

Recommendation 2: The Secretary should direct the program management 
to revise the process for issuing loan guarantees to clearly establish 
what circumstances warrant disparate treatment of applicants so that 
DOE's implementation of the program treats applicants consistently 
unless there are clear and compelling grounds for doing otherwise. 

DOE Response: DOE disagrees with GAO's assertion that applicants are 
treated inconsistently but recognizes the need for greater 
transparency to avoid the perception of inconsistent treatment. 
Currently, each solicitation states the process for submitting 
applications and criteria for approving loan guarantees. The 
Department believes that within each solicitation, the rules have been 
applied consistently, and no applicants have been disadvantaged. The 
Department will ensure that future solicitations explicitly describe 
circumstances that would allow for streamlined consideration of loan 
guarantee applications. [See comment 2] 

It is important to note that there is no one-size-fits-all approach 
across the various energy sectors, and processes may legitimately vary 
for the different energy sectors. One area highlighted by GAO was the 
ranking of the nuclear projects while not performing a similar ranking 
for other energy sectors. The LGP ranked nuclear generation projects 
because most nuclear power applications satisfied the requirements to 
proceed to due diligence, but the program did not have the loan 
authority to support all of the projects. A detailed analysis was 
required to differentiate those projects that had the strongest 
likelihood of readiness to proceed beyond the due diligence phase. 
[See comment 3] 

The LGP does not provide a comparable ranking to applicants under the 
energy efficiency/renewable energy solicitations because the loan 
authority is adequate to support all viable projects. However, DOE 
provides applicants under the energy efficiency/renewable energy 
solicitations with early feedback on the viability of their 
application and the opportunity to avoid 75% of the application fee by 
using a Part I and Part II application process. [See comment 3] 

In the case of the fossil energy solicitation, DOE met with all eight 
of the advanced fossil project sponsors who submitted Part I 
applications. The Part I applicants were informed that the 
solicitation was significantly over-subscribed and that there was a 
strong possibility that a loan guarantee approved by DOE for the 
selected projects could be substantially lower than the amount 
requested. Five applicants chose to proceed and submit Part II 
applications. Four of the five were invited to final due diligence. 
DOE had no reason to rank the four remaining projects because the $8.3 
billion requested was in line with the authorized loan guarantee 
authority of $8 billion. [See comment 3] 

Recommendation 3: The Secretary should direct the program management 
to develop an administrative appeal process for applicants who believe 
their applications were rejected in error and document the basis for 
conclusions regarding appeals. 

DOE Response: The Department believes that the current process for 
rejected applicants is working, but agrees that the process should be 
made more transparent to loan applicants. As GAO pointed out, DOE has 
reconsidered some previously rejected applications. In these 
situations, applicants have demonstrated to DOE that there may have 
been an error made in the interpretation of their data. [See comment 4] 

More importantly, LGP continues to implement new strategies to 
increase efficiencies and improve the loan guarantee application 
process that should reduce the need for any kind of appeals to the 
final loan decisions. These strategies include enhanced communication 
with applicants including more frequent contact and greater 
transparency. Applicants are allowed to improve their applications by 
providing additional data at DOE's request. Applicants with Part I 
submissions denied further review are provided with written 
notification detailing the reasons for this determination. Briefings 
on rejected applications are given when requested. Additionally, we 
are improving our intake procedures, allowing for a formal dialogue 
between DOE and the applicant and making decisions more quickly on 
applications and their readiness to move to Part II. On March 22, 
2010, DOE instituted this new policy to allow applicants the 
opportunity to address deficiencies identified by DOE during the 
technical and financial review. [See comment 4] 

Recommendation 4: The Secretary should direct the program management 
to develop a mechanism to systematically obtain and address feedback 
from program applicants, and, in so doing, ensure that applicants' 
anonymity can be maintained, for example, by using an independent 
service to obtain the feedback. 

DOE Response: The Department agrees with the overall goal of this 
recommendation, but believes that use of a third-party to obtain 
feedback to preserve anonymity is not necessary. LGP stakeholders have 
not been reticent about expressing their views on the program. The 
Department believes that the LGP staff should be accountable for 
obtaining feedback from stakeholders. DOE has already implemented a 
variety of processes for soliciting, evaluating, and incorporating 
feedback from applicants about its administration of the program. DOE 
has proactively reached out to stakeholders using a myriad of venues. 
Program representatives have addressed renewable energy groups, 
banking and finance organizations, and state policy makers. In the 
process to update the LGP Final Rule, DOE received over 1,000 comments 
from stakeholders. DOE routinely meets with prospective and current 
applicants. Through Requests for Information, DOE seeks out opinions 
of the energy and finance industries on new solicitations. DOE also 
maintains the LGPO website which is a source for informing the public 
and potential applicants. [See comment 5] 

DOE is constantly using information it gathers from lessons learned to 
improve procedures and increase efficiencies and effectiveness. For 
example, the Department shortened the intake and screening procedures, 
and is now in the process of automating and standardizing the 
application submission process. [See comment 5] 

The following are GAO's comments on the Department of Energy's (DOE) 
letter dated June 17, 2010. 

GAO Comments: 

1. DOE appears to concur with the spirit of our recommendation. Best 
practices for program management indicate that DOE should have 
objective, quantifiable performance goals and targets for evaluating 
its progress in meeting policy goals DOE has identified for the LGP. 
Such goals and targets are important tools for ensuring public 
accountability and effective program management. 

2. Our finding about inconsistent treatment of LGP applicants is based 
on information obtained from applicants corroborated by documents from 
DOE. In the instance we identified in which DOE made a conditional 
commitment before obtaining any of the required external reports, the 
external reviewers were not fully engaged until after DOE had 
negotiated the terms of the conditional commitment, which is contrary 
to DOE's stated procedures and provided an advantage to the applicant. 
Other applicants who received conditional commitments before 
completion of one or more of the reports called for by DOE's due 
diligence procedures also had a comparative advantage in that they 
were able to defer some review expenses until after DOE had publicly 
committed to their projects. We continue to believe that DOE should 
revise the process for issuing loan guarantees to treat applicants 
consistently unless there are clearly established and compelling 
grounds for making an exception. 

3. We agree that there may be grounds for treating applicants 
differently depending on the type of technology they employ but do not 
believe that DOE has adequately explained the basis for the 
differences among the solicitations. For example, DOE's response does 
not address the possibility that lack of ranking information for 
fossil energy projects, combined with the knowledge that the 
solicitation was significantly oversubscribed, could have factored 
into applicants' decisions to drop out of the process, especially 
given the relatively high fees associated with submitting part II of 
the application. 

4. We disagree that DOE's current process for rereviewing rejected 
applications is working. As we state in our report, some applicants 
did not know that DOE would provide rereviews. While we are encouraged 
by DOE's efforts to reduce the need for appeals, we believe that an 
administrative appeal process would allow DOE to better plan and 
manage its use of resources on rejected applications. 

5. We applaud DOE's efforts to reach out to stakeholders and to use 
lessons learned to improve procedures and increase efficiencies and 
effectiveness. However, we continue to believe that DOE needs a 
systematic mechanism for applicants to provide anonymous feedback, 
whether through use of a third party or other means that preserves 
confidentiality. Several applicants we interviewed expressed concern 
that commenting on aspects of DOE's implementation of the LGP could 
adversely affect their current or future prospects for receiving a 
loan guarantee. Systematically obtaining and addressing anonymous 
feedback could enhance DOE's efforts to improve procedures and 
increase efficiencies and effectiveness. 

[End of section] 

Appendix VII: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Frank Rusco (202) 512-3841 or ruscof@gao.gov: 

Staff Acknowledgments: 

In addition to the individual named above, Karla Springer, Assistant 
Director; Marcia Carlsen; Nancy Crothers; Marissa Dondoe; Brandon 
Haller; Whitney Jennings; Cynthia Norris; Daniel Paepke; Madhav 
Panwar; Barbara Timmerman; and Jeremy Williams made key contributions 
to this report. 

[End of section] 

Footnotes: 

[1] Pub. L. No. 109-58, Title XVII (Aug. 8, 2005). 

[2] Pub. L. No. 111-5 (Feb. 17, 2009). 

[3] Omnibus Appropriations Act, 2009, Pub. L. No. 111-8, Div. C, Title 
III (Mar. 11, 2009). The act provided that of the authorized amount of 
$47 billion, $18.5 billion shall be for nuclear power. Further 
congressional direction about the allocation of loan guarantee 
authority among technology categories was contained in the explanatory 
statement accompanying the act. Use of the funds appropriated for the 
program was subject to certain conditions, such as a requirement for 
DOE to submit an implementation plan to the appropriations committees 
prior to issuing any new solicitations inviting applications for loan 
guarantees. 

[4] Pub. L. No. 111-5, Div. A, Title IV (Feb. 17, 2009). Congress 
originally appropriated nearly $6 billion to pay the credit subsidy 
costs of projects supported under section 1705, with the limitation 
that funding to pay the credit subsidy costs of leading-edge biofuel 
projects eligible under this section would not exceed $500 million. 
Congress later authorized the President to transfer up to $2 billion 
of the nearly $6 billion to expand the "Cash for Clunkers" program. 
Pub. L. No. 111-47 (Aug. 7, 2009). The $2 billion was transferred to 
the Department of Transportation, leaving nearly $4 billion to cover 
credit subsidy costs of projects supported under section 1705. 

[5] A conditional commitment is a commitment by DOE to issue a loan 
guarantee if the applicant satisfies specific requirements. The 
Secretary of Energy has the discretion to cancel a conditional 
commitment at any time for any reason prior to the issuance of a loan 
guarantee. 

[6] When asked if DOE plans to use the $500 million to cover the 
credit subsidy costs for projects that are currently under review or 
for projects that apply under a new solicitation, the department 
stated that the $500 million, if approved, will be used by the LGP at 
its discretion across the full spectrum of qualified energy efficiency 
and renewable energy projects. 

[7] Pub. L. No. 110-5 §20320(c) (Feb. 15, 2007). 

[8] GAO, The Department of Energy: Key Steps Needed to Help Ensure the 
Success of the New Loan Guarantee Program for Innovative Technologies 
by Better Managing Its Financial Risk, [hyperlink, 
http://www.gao.gov/products/GAO-07-339R] (Washington, D.C.: Feb. 28, 
2007); GAO, Department of Energy: New Loan Guarantee Program Should 
Complete Activities Necessary for Effective and Accountable Program 
Management, [hyperlink, http://www.gao.gov/products/GAO-08-750] 
(Washington, D.C.: July 7, 2008). 

[9] GAO, Agencies' Annual Performance Plans under the Results Act: An 
Assessment Guide to Facilitate Congressional Decisionmaking, 
[hyperlink, http://www.gao.gov/products/GAO/GGD/AIMD-10.1.18] 
(Washington, D.C.: February 1998, ver. 1.); GAO, The Results Act: An 
Evaluator's Guide to Assessing Agency Annual Performance Plans, 
[hyperlink, http://www.gao.gov/products/GAO/GGD-10.1.20] (Washington, 
D.C.: April 1998, ver. 1). 

[10] The Executive Director also oversees DOE's Advanced Technology 
Vehicles Manufacturing Loan Program. 

[11] GAO, Grants Management: Grants.gov Has Systemic Weaknesses That 
Require Attention, [hyperlink, http://www.gao.gov/products/GAO-09-589] 
(Washington, D.C.: July 15, 2009). 

[12] LGP staff have generally conducted the financial reviews for the 
projects that have received conditional commitments or a loan 
guarantee to date. 

[13] GAO, Transportation Research: Opportunities for Improving the 
Oversight of DOT's Research Programs and User Satisfaction with 
Transportation Statistics, [hyperlink, 
http://www.gao.gov/products/GAO-06-917] (Washington, D.C.: Aug. 15, 
2006). 

[14] The solicitations specific to the Recovery Act are the 2009 
solicitations targeting electric power transmission infrastructure 
projects and commercial technology renewable energy generation 
projects. 

[End of section] 

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