Back in November the Department of Energy boasted that its loan program for renewable energy technologies and “advanced” (mostly electric) vehicles had achieved a positive balance, which many in the media lapped up after so many failures such as Solyndra.
But now that the Government Accountability Office has revealed in a detailed study that the true cost of the loan program to taxpayers is $2.2 billion – plus administrative expenses – journalists are nowhere to be found. As for DOE, they still stick to their story.
The GAO explained that the staggering sum reflects the “credit subsidy cost” of the loans and loan guarantees in the portfolios of Loan Guarantee Program and the Advanced Technology Vehicles Manufacturing program, which now have been combined. The credit subsidy cost is defined by GAO as “the net present value of the difference between projected cash flows to and from the government over the life of the loan.” It takes into account the failures – which include Solyndra, Abound Solar and Fisker Automotive – as well as “projected cash flows for default risk and other factors.”
Accuracy in government accounting was curiously missing in the misleading November 2014 announcement from Loan Programs Office executive director Peter Davidson (in photo).
“Today, actual and estimated loan losses to the portfolio are only approximately $780 million, or only a little over 2 percent of the program’s loans, loan guarantees and commitments – and less than the more than $810 million in interest payments the program has earned to date,” Davidson wrote on the DOE Web site.
In its report last week, GAO seemed to call out Davidson and DOE for the inaccurate representation of the Loan Program. In a cover letter addressed to several members of Congress, GAO said the $810 million figure, and expected $5 billion in interest payments over the lives of the loans, painted an incomplete picture.
“In part because this report did not include the interest that DOE pays the government to finance its lending, the information on expected interest earnings has been misinterpreted in several press accounts as projecting $5 billion in profits for the DOE loan programs,” the report stated. “In light of the confusion around costs of the DOE loan programs, this report focuses on the federal government’s official method of accounting for loan programs.”
In addition – and not included in the $2.2 billion estimated costs – are the government’s expenses for administration of the loans and loan guarantees, which include evaluation of applications, making credit assessments, originating the loans, and whatever else the processing entails. As NLPC has reported in the past, DOE hired high-powered law firms under six- and seven-figure contracts to provide legal advice, conduct due diligence, and review documents for applicants under the Loan Program. Records show that many of the firms – which provided no more than one or two employees for loan review services (which counted as “green jobs” by DOE) – had contributed hundreds of thousands of dollars to President Obama and fellow Democrats for their political campaigns.
It’s not as if DOE wasn’t aware in November of the $2.2 billion actual cost of the loans – GAO noted more than once in its report that the figure came from DOE’s own estimates. And in his formal response to the study, Davidson assented to GAO’s determinations about credit subsidy costs, but anticipated that the $2.2 billion figure would shrink as loans are paid off and projects begin operations. Nonetheless Davidson issued the deceptive statement in November about interest payments exceeding program losses anyway.
“As a whole, the portfolio is performing very well…,” Davidson wrote. “We expect the portfolio’s financial performance to remain very strong and continue to help move us toward our clean, low-carbon energy future.”
The federal “investment” isn’t the only hit to taxpayers. Most of the states in the country have significant subsidies and tax breaks for renewables in place, as well as mandates that force electric utilities to pay for their power. But as Heritage Foundation economist Nicolas Loris explains, even that doesn’t fully capture the economic damage inflicted by “green” subsidies.
“Because capital is in limited supply, a dollar loaned to government-backed projects will not be available for some other (possibly more viable) project,” Loris wrote for Heritage online publication The Daily Signal. “This means that the companies that drive innovation and bring new technologies into the market may not get support, while companies with strong political connections or those that produce something politicians find appealing, like carbon-free energy technologies, will get support.
“Whether the programs ultimately end up with taxpayers on the red or the black side of the ledger, the policy itself is a loser.”
And unlike in November, that’s the true outcome, which no one in the media has shown any interest in.
Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.