A recently released report by the Inspector General of the Department of Energy calls into question the idea that loans made by the Department of Energy are made by uninterested experts, who care deeply about taxpayer dollars:
The Department of Energy ignored warnings by internal solar experts when it subsidized a solar company backed by a major Democratic donor that went bankrupt in 2012, according to a report from federal watchdogs.
Abound Solar filed for Chapter 7 bankruptcy protection in June 2012 and laid off 125 employees. By that time it had drawn on almost $70 million of its $400 million DOE loan guarantee.
According to a DOE inspector general report released on Thursday, market conditions led to Abound’s collapse, but the department, while aware of those conditions, ignored the advice of its own experts when it continued financing the company in 2011.
You can read the report here. Below are a few gems from the report:
We found that Program had not consulted with the Board concerning a material change in the credit subsidy for the loan subsequent to the recommendation to approve conditional commitment. Specifically, the Program lowered its recovery rating estimate, the potential recovery in the event of default, from 38 percent originally presented to the Board at loan commitment to 8.3 percent prior to loan closing and did not consult with the Board concerning the reduction. The Program’s policies and procedures require Board reconsideration when there are material changes to the terms and conditions of a loan. Additionally, Program officials asserted that a loan could be resubmitted to the Board if the key credit characteristics of the transaction materially changed.
When making a loan, one thing to consider is the amount of money that you can recover by selling remnants of the company or its raw materials in the event of a bankruptcy. For whatever reason, the initial estimate indicated that the company would recover a significant portion of money. An updated estimate was much smaller, only an estimated 8 percent recovery compared to a 38 percent recovery. A huge change in the recovery estimate required another approval, which the Department of Energy did not attempt to get.
Additionally, some internal solar analysts at the Department of Energy suspected that handing over any additional money (after the first disbursement of funds) was not a good idea:
While the Program’s Independent Engineer believed that Abound’s plans to address the issues were achievable and the project funding should continue, the Program’s internal solar expert recommended the Program not approve additional disbursements at that time based on the number, severity, and frequency of Abound’s product and quality control issues.
Further, we found that the internal solar expert had previously expressed concerns to the Program regarding deficiencies in Abound’s quality control. Specifically, 1 month prior to the on-site visit, the solar expert, following a presentation by Abound on its technical issues and proposed fixes, concluded that a multi-month verification program was appropriate before proceeding with the expansion of the Colorado facility beyond executing its proposed corrections on one line. Despite the technical shortfalls and the identified concerns regarding quality control, the Program approved the restart of disbursements in April 2011, without reconciling the conflicting opinions of the independent Engineer and the solar expert.
And finally, the mega-donor who backed the investment donated lots of money to Obama’s election campaign. Surprised?
Abound was backed financially by Bohemian Companies, an investment firm owned by Democratic mega-donor Pat Stryker. Bohemian was also one of Abound’s largest customers, purchasing its solar panels for the company’s Loveland, Colo., headquarters.
Stryker has given national Democrats more than $523,000 since 2007, but her chief interests remain in Colorado, where she has given $3 million to political organizations over that time. Stryker trails only Polis and Gill for the title of Colorado’s largest political donor.
One of the many reasons the government shouldn’t be playing venture capitalist.