Taxpayers are on the hook for more than $2.2 billion in expected costs from the federal government’s energy loan guarantee programs, according to a new audit Monday that suggests the controversial projects may not pay for themselves, as officials had promised.
Nearly $1 billion in loans have already defaulted under the Energy Department program, which included the infamous Solyndra stimulus project and dozens of other green technology programs the Obama administration has approved, totaling nearly about $30 billion in taxpayer backing, the Government Accountability Office reported in its audit.
The hefty $2.2 billion price tag is actually an improvement over initial estimates, which found the government was poised to face $4 billion in losses from the loan guarantees. But as the projects have come to fruition, they’ve performed better, leaving taxpayers with a shrinking — though still sizable — liability.
“As of November 2014, DOE estimates the credit subsidy cost of the loans and loan guarantees in its portfolio — that is, the total expected net cost over the life of the loans — to be $2.21 billion, including $807 million for loans that have defaulted,” the GAO said in its report to Congress.
The green program loan guarantees were created in a 2005 law and boosted by the 2009 stimulus. The first applications were approved in 2009, and through 2014 the Obama administration had issued some 38 loans and guarantees, covering 34 projects ranging from nuclear power plants to fuel-efficient vehicles to solar panels and wind-generation technology.
The Energy Department said it considers the loan program a success.
“We believe that the data presented demonstrates that the department’s Loan Programs Office is achieving its statutory mission to accelerate the deployment of innovative clean energy projects and advanced vehicle manufacturing facilities in the U.S., while being a responsible steward of taxpayer dollars,” Peter W. Davidson, executive director of the loan programs, said in an official reply to the GAO.
Mr. Davidson said the expected loss to taxpayers has dropped some $2.28 billion since the initial estimates, and he predicted that the cost will continue to drop as projects mature and repay their loans.
But most of that improvement came from one green vehicle loan where the project’s credit rating improved dramatically, making it far less likely the project would default. Another green vehicle program, Tesla Motors Inc., has already repaid its loan in full, helping the government’s balance sheet.
Indeed, leaving the vehicle loan program aside, the loan guarantees office is deeper in the red than it was initially, by nearly $500 million, chiefly due to defaulted loans.
Across the entire loan program there have been five defaulted loans: two solar panel manufacturers, Solyndra Inc. and Abound Manufacturing Solar LLC; two green vehicle programs, Fisker Automotive Inc. and the Vehicle Production Group LLC; and one energy storage project, Beacon Power.
GAO investigators said those technology projects were risky from the start, and each had a shaky credit rating. By contrast, the more than 20 projects up and running that focused on energy generation or transmission have done well, with not a single default, the investigators said.
GAO investigators have been warning for nearly a decade that the loan programs are unlikely to pay for themselves overall.
From the beginning, the investigators said because companies knew more about their projects and their own creditworthiness, they had an advantage over the Energy Department. The GAO said the companies were more likely to accept a federal loan guarantee if the Obama administration underestimated the actual risk of a project, leaving taxpayers on the hook.
Most of the loans are still in their infancy, but some are paying off.
As of the end of 2014, the projects in the program have repaid $3.6 billion in principal and another $810 million in interest. The Energy Department says it expects, over the life of the loans, to earn $5 billion in total interest — though that has to be offset against the costs the federal government incurs for borrowing to finance its spending, so that’s not pure profit.
In addition to the risky loans, the program isn’t collecting enough money in fees to cover the costs of administering itself, GAO investigators said, calculating that less than half of the $312 million in administrative costs has been offset by fees.
Part of the problem is that the loan office didn’t even have sufficient staffing until 2011, which meant it wasn’t able to properly assess administrative fees. That problem has been fixed, and the program is getting better at matching fees with costs, the GAO said.
“At this time, it is too early to tell whether [the Energy Department‘s] actions will result in sufficient funds to offset [the loan guarantee program’s] future administrative costs,” investigators said.
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