ENERGY POLICY:

DOE asking highest fees of applicants for fossil loan guarantees

The Department of Energy is asking individuals or companies interested in developing low-emissions fossil energy projects with support from a federal loan guarantee program to pay higher fees than those paid by applicants developing any other technology eligible for support under the program.

Applicants for the $8 billion in loan guarantees DOE announced yesterday are being asked to pay at least eight times more than for applications filed under previous solicitations targeting renewable energy, efficiency or clean manufacturing, according to an analysis of solicitations on DOE's loan program website.

Yesterday's draft solicitation listed a $1 million application fee. For comparison, the 2009 solicitation for loan guarantee applications under a program established by the economic stimulus law lists application fees in the range of $75,000 to $125,000, depending on the size of the project. A 2008 solicitation for nuclear energy projects included an $800,000 application fee.

A DOE spokesman said in an email that the fees "reflect the cost of processing the application" and noted that the bulk of the fee is only due for applications that proceed to a second stage of the review process. Applicants are required to pay 25 percent of the total fee when they submit the first part of a loan guarantee application. The remaining 75 percent is due only from those applicants invited to submit a second, more detailed application following an initial review by DOE.

The spokesman did not respond when asked to explain why it would cost more to process applicants under yesterday's solicitation compared with the earlier ones.

Walter Howes, who ran DOE's loan program under President George W. Bush, said it was unclear whether the fossil loan guarantee fee would cover more types of expenses than the earlier fees and suggested that the cost would be a focus of numerous comments filed on the draft solicitation before it is finalized. He said the fee may be designed to cover additional "due diligence" costs to defray some predicted criticism from congressional Republicans.

Yesterday's announcement marked the first new loan guarantee solicitation since 2010 from DOE. The program faced years of intense criticism from congressional Republicans following the 2011 bankruptcy of solar manufacturer Solyndra and other recipients of loan guarantees distributed as part of the 1705 program established with the 2009 economic stimulus law. The fossil loan guarantees will be funded with existing money authorized under Section 1703 of the Energy Policy Act of 2005, Energy Secretary Ernest Moniz said yesterday.

Some observers suggested that the higher fees may reflect an attempt to provide more diligent oversight to avoid future criticism that the program was poorly run.

"It definitely speaks to a focus at DOE of applicants that have more skin in these projects, which is maybe a post-Solyndra type of reaction to some of the criticism that's been leveled at the program," said Salo Zelermyer, a former senior counsel to DOE during the Bush administration who now works for the Washington lobbying firm Bracewell & Giuliani.

The higher fees also could indicate DOE's expectation that the technologies that would be funded under the new program are more advanced and require a more thorough technical review.

"I don't know what DOE would say, but I could imagine the argument that these are newer technologies and probably would require more diligence on the technical side of things than the 1705 program did," said Richard Caperton, director of clean energy investment at the Center for American Progress, a liberal think tank closely aligned with the Obama administration.

On a conference call with reporters yesterday, Moniz defended the performance of the existing $34 billion loan guarantee portfolio, pointing to the recent decision by electric vehicle maker Tesla to repay its loan nine years early and noting that the loan loss reserve fund established by Congress has lost just 2 percent of its funds.

Moniz acknowledged that "not every investment is going to succeed" because of the nature of funding cutting-edge technology but pledged that applications would be reviewed aggressively to minimize any potential losses, while still aiming to approve new guarantees quickly.

"We're going to move forward with reasonable caution but with the idea of trying to close out loans as rapidly as we can with due diligence and do that to introduce new technologies that are pushing the marketplace," Moniz said.

The solicitation expands the universe of fossil projects compared with a 2008 proposal that primarily focused on gasification and carbon capture and sequestration projects. DOE is calling for applicants pursuing a variety of new technologies to reduce pollution from coal mining, hydraulic fracturing and electricity generation (E&ENews PM, July 2).

The draft solicitation will be subject to 60 days of public comment before DOE finalizes it and begins reviewing loan guarantee applications later this year.

In addition to the formal public input, the proposal is likely to come in for additional scrutiny on Capitol Hill, where House Republicans led the charge in pointing to projects like Solyndra to question the value of the program.

"The DOE loan guarantee program's history of mismanagement, bankruptcies and failure to deliver the jobs promised raises significant concerns about whether risking an additional $8 billion under this program is the best use of taxpayer dollars at a time when we are $16 trillion in debt," a spokeswoman for the House Energy and Commerce Committee said yesterday.

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