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Summary:

A spotlight has been shining on the Department of Energy’s loan guarantee program as of late, and now the DOE’s Inspector General has joined in and found that the DOE loan guarantee program hasn’t been keeping as good electronic records as it should be.

Was the DOE Loan Guarantee for Solyndra a Mistake?

A spotlight has been shining on the Department of Energy’s loan guarantee program as of late, from some Republican lawmakers, concerned White House officials, and the media. Now the DOE’s Inspector General has joined in, and after an extensive audit, has found the DOE loan guarantee program hasn’t been keeping electronic records as detailed as it should be.

The problem with not having good records to back up the choices for which companies receive the loan guarantees is that the DOE is making decisions to award guarantees to potentially risky companies that haven’t proven themselves in the marketplace yet. Loan guarantees essentially serve as a promise by the government to make good on a loan if the company can’t, and typically enable better interest rates and lower costs than would otherwise be available to a company for project financing.

If a loan guarantee for a particular company comes under question — like the one for thin-film solar maker Solyndra has been lately — the government will need good records to justify its choice, in a potential court case, or to the OMB. It also needs good records to make sure choices are being made in a consistent way across management.

In particular, the Inspector General found the loan guarantee program could “not readily demonstrate … how it resolved or mitigated relevant risks prior to granting loan guarantees,” in other words, how it decided one company would be a more successful technology that should receive funding, vs, say, a competitor.

Out of 18 projects that received loan guarantees, the Inspector General found there was no information electronically recorded for three projects; there was limited data for 12 projects, and there was more robust data for the remaining three projects, but still didn’t have all the necessary information for how to evaluate the projects to deem them credit worthy.

The Inspector General says there are two reasons for the incomplete records: The loan guarantee office didn’t know it had to keep such good records doing the due diligence process — specifically records from consultants and third-party advisors — and also has been under a lot of pressure to work quickly.

The positive aspect of the report is that the Inspector General says the loan guarantee office has recognized its need to keep better records and has started on the path to doing so.

Solyndra raised about $970 million in private equity by the end of 2009, when it was planning for an initial public offering, and also snagged a $535 million loan guarantee — the DOE’s flagship — to build a solar factory. But in the midst of building that solar factory last year, the company cancelled its IPO plan and opted to raise $175 million in convertible promissory notes instead to tie it over until it could get the factory up and running. Last November, Solyndra’s new CEO, Brian Harrison, announced a plan to close the first factory and lay off about 40 employees. The company also wasn’t going to renew contracts with about 135 temporary workers.

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  1. James Monachino Wednesday, March 9, 2011

    DOE – Initiate, Record, Report & Evaluate

    Before we cast stones at any one organization we should look around and begin to see a pattern that needs to be corrected regarding government sponsored programs.

    “What happens after we guarantee the program — Where did the money go?”

    Accountability is important and nothing to be afraid of. Success and failure are two sides of the same coin. Issues I would encourage the DOE to consider are:

    • Initiate: Process appears to be in place and functioning.
    • Record: Department appears to be working on a standardize template for all to follow.
    • Report: Summarize and disclose via internet/C-span how the publicly guaranteed projects are progressing.
    • Evaluate: Upon completion of the project, grade the success of the project.

    Intuitively, most of us know about financial accountability but the political realities of the day often slow us down and blur our focus.

    James Monachino

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