Energy Department to expedite stimulus spending

Energy Secretary Steven Chu on Thursday announced plans to streamline the process the department uses to disburse loans and grants to inject stimulus funding into the economy as quickly as possible.

"The Department of Energy now has $32.7 billion in grants authority and $130 billion in loan authority to speed up this recovery, and we intend to make those investments efficiently, effectively and responsibly," Chu said at a Feb. 19 roundtable discussion with reporters at the Washington offices of Platts, a commodities information division of McGraw-Hill Cos.

The bulk of the funding will be invested in energy efficiency and renewable energy projects; research in biofuels, fossil fuels, nuclear physics and fusion energy; technologies to modernize and expand energy transmission; as well as loans and grants to develop advanced batteries.

"Given the fact that 600,000 jobs were lost in the last month alone -- that speaks to the urgency of the problem," Chu said.

But the urgency he described coincides with a looming personnel shortage in the Office of the Chief Financial Officer, which has responsibility for handling the funding applications. Hours before Chu made his remarks, Energy's Inspector General Gregory Friedman released a report on the department's loan guarantee program for innovative energy technologies that found serious shortcomings in the program -- separate from the challenges Energy likely will face in managing applications related to stimulus funding.

"In a number of critically important areas the department has not fully developed and implemented controls necessary to successfully manage the program," the IG found. The program was established by the 2005 Energy Policy Act to guarantee loans for new or significantly improved energy production technologies that avoid, reduce or sequester greenhouse gases.

The IG noted that the office responsible for the loan guarantee program has 16 full-time federal employees on staff who are supported by contractors. The office had identified a need to hire 21 more employees this year, but had money to hire only 14 additional staff by the end of March 2009.

Besides managing the loan guarantee programs required in the 2005 law, the staff also is responsible for monitoring and evaluating the yet-to-be-awarded loans to the auto industry for advanced technology vehicles required by the 2007 Energy Independence and Security Act. The IG noted that pressure would rachet up with the stimulus funding.

"We recognize that the goals of expediency and accountability may prove difficult to fully reconcile," the IG wrote. "As such, the department's decision-makers will have to make challenging risk-reward decisions as they proceed."

Steve Isakowitz, Energy's CFO, largely agreed with the IG's findings. In announcing reforms to the loan guarantee program, Chu said he had tapped Matt Rogers to serve as his senior adviser responsible for overseeing the program's reforms and stimulus spending. Rogers, formerly a senior partner with McKinsey & Co., served on the Obama transition team and has been working closely with Energy's CFO office.

Chu said he spent much of his first three weeks on the job examining the way the agency makes loans and loan guarantees. "What we found is the old process required too much paperwork, held prohibitive upfront costs [for applicants] and it simply took too long," he said. "We have undergone a detailed scrubbing of the process."

Instead of setting deadlines for the receipt of applications and then taking months to review them before making investment decisions, the department will conduct "rolling appraisals" as applications are submitted.

Energy can do this credibly because it has enough experience reviewing applications for the kinds of projects to be funded through the 2009 American Recovery and Reinvestment Act to know which ones represent smart investments, according to Chu. "[The department] could triage applications as they come in, moving toward a rolling appraisal of applications," he said.

Chu said the department will have to hire more staff to handle the increased workload, although he did not cite a specific staffing level.

Additionally, Energy will:

• Streamline paperwork and simplify loan application forms.
• Accelerate the loan underwriting process by using outside partners. Essentially this would require applicants to get backing from commercial banks. The idea is if a commercial lender deems an investment viable through its due diligence process, then Energy would accept that assessment as sufficient for its own investment decision.
• Amortize loan application fees over the course of the loan so as to not deter companies for whom those costs may be prohibitive.

"The goal is to begin these investments in months, and not years," he said. The department expects to begin offering loan guarantees by early summer and would like to make 70 percent of the investments by the end of 2010.

"I have to say in the dozen or more discussions with the [staff in the] CFO's office who are responsible for the program, they are excited and ready to go," Chu said. "I'm very optimistic we can meet those goals I just outlined."