Bloomberg News

Energy Loans a Safer Bet Than Congress Anticipated, Review Shows

February 13, 2012

Feb. 11 (Bloomberg) -- Potential losses from U.S. energy loan programs are likely to be less than projected by the White House and Congress, according to an independent analysis that Democrats said validated support for clean-energy innovation.

The Obama administration ordered the review in response to pressure from Republicans, who criticized the loans as an effort to pick “winners and losers” after the collapse of Solyndra LLC, which won a $535 million loan guarantee.

The long-term loss on 30 U.S.-backed clean-energy and auto loans might be about $2.7 billion, or $200 million less than the department’s estimate, Herbert Allison, a former Treasury Department official, found in his review released yesterday.

“Mr. Allison identifies less risk for the overall portfolio than the department’s analysis, and less than Congress estimated when it set aside a $10 billion reserve in anticipation of losses associated with funding these emerging industries,” Eric Schultz, a White House spokesman, said in a statement yesterday.

The Obama administration hired Allison, 68, to review the loan-guarantee programs after Republicans faulted U.S. backing for Solyndra, a solar-panel maker that filed for bankruptcy protection in September, about two years after winning its loan. The report was released three days before the White House’s budget request for fiscal year 2013, which may include support for loan guarantees.

‘Just $3 Billion’

“It would be a stunning case of bureaucratic disregard to declare victory because the government is expecting to lose ’just’ $3 billion,” House Energy and Commerce Committee Chairman Fred Upton, a Michigan Republican, and Representative Cliff Stearns, a Florida Republican and head of the committee’s investigation panel that is examining the Solyndra loan, said in a joint statement.

Senator Jeff Bingaman, a New Mexico Democrat and chairman of the Energy and Natural Resources Committee, said the report offers a “reassurance” that Energy officials were correctly weighing the risks.

The Allison report shows that the loan program is working, said Representative Henry Waxman of California, the senior Democrat on the House energy committee.

Allison didn’t review loans to Solyndra, of Fremont, California, or Beacon Power Corp., an energy-storage company that sought bankruptcy protection in October, after receiving a $43 million U.S. loan guarantee in August 2010.

Risk Officer

The Energy Department’s estimate of the government’s long- term cost of the 30 loans being reviewed in the $23.87 billion portfolio is $2.9 billion, according to the report. Allison estimated $2.7 billion, reflecting lower potential losses on loans to two carmakers.

The department should create the position of chief risk officer to review the chances for default in its loan programs, according to Allison’s analysis.

It also recommended a “more robust website” to provide the public with information on the performance of the projects.

“The report makes clear that the department was operating under congressional requirements to provide loans to projects that would have trouble obtaining private financing, which is why Congress appropriated funds for a loan-loss reserve,” Energy Secretary Steven Chu said in a statement.

While Allison found less risk in the loan program than anticipated by the department, chances for default were higher for the clean-energy program under which Solyndra and Beacon won their awards.

Potential Losses

The department estimated a potential loss of $640 million for eight loans not tied to an electric utility. Allison estimated $820 million, or a 28 percent increase.

For the 20 projects tied to a utility, the Energy Department’s loss estimate was $1.55 billion. Allison estimated $1.7 billion, or 9 percent higher.

“This is less a report than an umbrella to deflect the criticism that’s pouring down on the administration,” Representative James Sensenbrenner, a Wisconsin Republican, said in a statement. Sensenbrenner introduced a bill that requires an assessment of the U.S. loan guarantees already awarded.

Congress set aside $10 billion in the clean-energy and auto loan programs for possible losses, and the Energy Department had initially anticipated as much as $5 billion in losses, Schultz said in an e-mail.

--Editors: Steve Geimann, Daniel Enoch

To contact the reporters on this story: Jim Snyder in Washington at jsnyder24@bloomberg.net; Brian Wingfield in Washington at bwingfield3@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net


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