Obama to Streamline the Loan Guarantee Program

The Obama administration is working on streamlining the Department of Energy’s loan guarantee program, a spokesperson for the Office of Management and Budget (OMB) tells me this morning. The move follows a leaked memo (online here) dated October 25, reported by the Wall Street Journal (and picked up by others), from White House officials to the President that lays out several recommendations for ways to revamp the DOE loan guarantee program. One of the recommendations from that memo was moving the remaining loan guarantee program funds to another renewable energy grant program, basically killing the loan guarantee program.

But instead of “reprogramming” the loan guarantee program, the Obama administration and the DOE have decided to remain committed to the program and try to make it better and take less time, the OMB spokesperson tells me.

The OMB sent me this statement from Bill Burton, WH Deputy Press Secretary:

“The Administration is committed to the 1705 loan program and the role it plays in helping us bring about a clean energy economy and creating jobs in this burgeoning industry. The memo was drafted several weeks ago to tee up a wide array of options and issues for consideration. The Administration’s policy is not to propose the re-programming of 1705 funds; our focus instead is to continue our commitment to make the DOE loan program work effectively.  Since the Recovery Act was signed into law, the Administration has worked to implement and improve the process of assessing potential projects and delivering needed funds. Building on these efforts, we are taking steps to streamline the 1705 process while still protecting taxpayers who, ultimately, are the ones investing in these projects.”

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. Greentech startups have been building businesses around these loan guarantees and pulling the plug on the project would probably have a ripple effect across the industry.

But it’s clear to many that the DOE loan guarantee program hasn’t been working as well as it should. Hence, the reason for the original memo, and the meeting with the President. The White House officials (Carol Browner, Larry Summers and Ron Klain) in the memo write that they have been concerned about the DOE loan guarantee program because of three risks: the potential loss of non-obligated funds, fear of criticism of slow implementation of the program, and the risk of making commitments to projects that would have happened anyway.

In the memo one of the things that the White House officials recommended was potentially reprogramming the loan guarantee funds over to the renewable energy grant program, because the typical length of review for the loan guarantee program is 6 months, compared to the 4 to 6 weeks for the grant program. In addition just 8 companies have received loan guarantee commitments, and another 4 received commitments and closed those deals (I updated this line), while 3,851 projects have received renewable energy grant funds.

While the OMB wouldn’t go into many details of how the program will be streamlined going forward, the spokesperson said that the White House and DOE are looking to make the program run “more smoothly,” “take less time,” but also “protect tax payer interest.”

It should be noted that the memo and the streamlining of the loan guarantee program isn’t focused on getting better results to boost energy innovation or create more green jobs in the long term (or fund more solid companies, see Solyndra and the disaster). The memo was focused on politics, and getting funds allocated faster and not ruffling feathers. However, the OMB spokesperson tells me that in addition to examining the process, the Obama administration is keenly focused on “the long term impact and metrics of the program.”

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