Inspector Faults Energy Department Over Loan Program

 

By MATTHEW L. WALD
WASHINGTON — Poor record-keeping by the Energy Department has made it difficult for managers to document how decisions were reached in its $71 billion loan guarantee program, the department’s inspector general said in an audit released on Monday.

By the end of last year, the department had made eight loan guarantees totaling $3.9 billion and made conditional commitments for another $12 billion under the program, which was created by the Energy Policy Act of 2005, during the Bush administration. The first loan offer did not come through until March 2009, after President Obama had taken office and the program had received more money under the stimulus act.

The new audit examined 18 loans or conditional loan commitments and found that for three, no information had been placed in the department’s central archives. Only limited data was kept for 12, said the report from the inspector general, Gregory H. Friedman.

The report did not identify the projects that fell into either category or judge the quality of any of the loan decisions. But it warned that poor record-keeping “leaves the department open to criticism that it may have exposed the taxpayers to unacceptable risks associated with these borrowers.”

The guarantees have gone to solar companies, battery companies and other ventures with clean energy technologies that are too untried to qualify for ordinary commercial financing.

Officials in the loan guarantee program, a centerpiece of the Obama administration’s energy policy, told auditors that they based their loan decisions “on the professional judgment of experienced staff,” the report said. But many of the decisions “resulted from informal deliberations or were documented in e-mails that were not maintained,” it added.

Documents that justified decisions “did not always describe actions officials told us they took to address, mitigate and/or resolve risks,” the audit said. Some managers told auditors that they were not even aware that Energy Department policy required such documents to be retained.

Last July, the effort was also faulted in a study by the Government Accountability Office that said the Energy Department had failed to establish clear goals for it in areas like the number of jobs to be created.

The Energy Department, which lacks experience in overseeing this type of program, has also drawn criticism for its slowness in getting the loans out the door. And it faced scrutiny for its first loan guarantee, $535 million for Solyndra, a solar panel manufacturer in California, to build a state-of-the-art robotics plant.

Not long after completing that factory in 2010, the company shut down an older one and laid off some workers, citing adverse market conditions. Solyndra’s future remains uncertain, although it recently secured some private financing.

The audit does not cite that loan guarantee.

The report emphasizes that in guaranteeing risky loans, the government must be prepared to provide proper documentation on how it evaluated the risks — not only to justify the loans politically, but also to protect taxpayer interests in court if there is a default.

Despite the criticisms, it is clear from some recent developments that the Department of Energy has taken a firm line in some cases. For example, negotiations on a loan guarantee for a proposed nuclear plant near Lusby, Md., broke down last fall because the department was demanding an up-front payment from the partnership seeking to build it, as compensation to taxpayers for the risk.

But the partnership said the department’s estimate of the risk and the up-front sum demanded were unreasonably high.

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