Sunday, November 23, 2014

Spin aside, Dept. of Energy loans are still losing money

The Department of Energy snookered the media last week with a report that seems to show that its clean energy lending programs are profitable. “Remember Solyndra? Those loans are making money,” went a typical headline. ...

Unfortunately, that’s not true. Taxpayers are losing money on DOE lending. ...

DOE takes credit for the interest that companies pay on their loans, but it doesn’t subtract—or even report—the interest costs that taxpayers pay to finance those loans. ...

DOE’s report does not address this issue, except in a footnote in a table (cut and pasted above) revealing that its $810 million of “interest earned” was “calculated without respect to Treasury’s borrowing cost.” ...

The report does not allow us to say just how far behind. We do know, however, that DOE loans are typically made at small, sometimes zero, spreads above Treasury rates. So a large portion of DOE’s “interest earned” must have been offset by borrowing costs. That puts taxpayer losses in the hundreds of millions of dollars. ...

Indeed, the Obama administration still predicts that DOE’s loans will lose money over their lifetimes.

DOE’s lending programs should not be evaluated solely or even primarily based on their profitability or lack thereof. What matters is their overall social impact. ...

If DOE wants to play the profitability card, however, it should do so in an accurate and transparent way. Last week’s report falls woefully short.
--Donald Marron on profiting by ignoring costs