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The Energy Policy Act of 2005 (EPAct 05) authorized the Department of Energy (DOE) to establish a loan guarantee program (LGP) for projects intended to, decrease air pollutants or man-made greenhouse gases, employ new or significantly better technologies, and have a reasonable prospect of repayment. The Federal Credit Reform Act requires appropriated budget authority for LGP costs before loans can be made. In 2006, DOE solicited preapplications to the LGP, stating it intended to issue up to $2 billion in guarantees. It also issued guidelines for these proposals, stating that borrowers would ultimately pay for all costs, but funding was authorized. This testimony is based on GAO's February 2007 report (Department of Energy: Key Steps Needed to Help Ensure the Success of the New Loan Guarantee Program, GAO-07-339R) and its April 20, 2007 legal opinion (B-308715). GAO discusses the sources and use of funds for the LGP in fiscal years 2006 and 2007; DOE's authority to implement the LGP and to fund the program before Congress had appropriated funding; extent to which the LGP could result in a financial risk to the taxpayer; and steps DOE has taken to ensure that the LGP will be well managed.

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