IG audit found Recovery Act stimulus funds were misused, just as President Obama is pitching new clean-energy investments.
A company that received $150 million in government stimulus funds to build a facility to manufacture battery cells for electric cars has yet to begin mass-market production and misused some of the funds in questionable labor costs, according to the Energy Department’s Inspector General.
In a report released Wednesday, the IG found that LG Chem Michigan Inc. (formerly Compact Power Inc.) had yet to produce a single battery cell and was likely to miss the grant’s May 2013 deadline for completion. What’s more, the project created fewer than half of the projected 440 new jobs anticipated by proponents.
The IG also reported that through a cost-sharing arrangement between Energy and the company, the department footed the bill for at least $842,189 in “questionable labor costs” when plant employees spent time during business hours playing video and card games, volunteering at the local Habitat for Humanity and watching movies. While the Energy Department did secure a refund from the company for those costs, the IG said that the actual figure could not be “quantified” because LG Chem didn’t track labor activities in detail and the amount of “non-productive work” could feasibly total $1.6 million.
The company was awarded money from the 2009 American Recovery and Reinvestment Act in February 2010 to build the $300 million facility in Holland, Mich. It was expected to begin production in 2012 and manufacture battery cells for 60,000 electric cars by the end of 2013.
The IG’s report comes as President Obama made a new appeal in his State of the Union address Tuesday night for sustainable energy programs to help combat climate change. Administration officials said on Wednesday they would seek $2 billion in new funding for clean-energy transportation projects using fees paid by oil and gas producers on federal land, Reuters reported.
Obama said he would resort to executive action if Congress did not work to produce legislation that develops domestic clean energy programs.
“I urge this Congress to get together, pursue a bipartisan, market-based solution to climate change,” Obama said on Tuesday night.
However, even market-based approaches can face major pitfalls. The IG’s audit found that officials at LG Chem were holding back the manufacture of the batteries and construction of additional production lines because of low demand from U.S consumers. The batteries were meant to power the Chevrolet Volt, a vehicle that has seen lower than anticipated sales, according to Reuters.
“Yet, until the shift in production takes place or some alternative use for the plant is developed, U.S. taxpayers will receive little direct benefit from a plant for which they provided up to half of the funding,” the report said.
The IG report noted “only about 60 percent of the production capacity set forth in the grant agreement was constructed, even though nearly $142 of $151 million (94 percent) of the department’s share of project funds had been spent.” When it became clear that LG Chem would not complete the promised production lines and would continue to fill U.S. demand with battery cells made in South Korea, the IG said Energy Department officials should have considered suspending the grant. “Ironically, program officials told us that they were considering a request from LG Chem Michigan to extend the grant period until 2016,” the report said.
Kathleen Hogan, the Deputy Assistant Secretary for Energy Efficiency, acknowledged the fledgling demand for the company’s lithium-ion polymer batteries, but said the program was helping domestic manufacturers adapt to the growing global market. In a letter to the IG, she said that the choice had come down to whether the U.S would “lead” a valuable future market, or give up because of market setbacks like the ones cited by the company.
“Emerging technologies and industries often face struggles early on, but the race will be won by those who remain focused and committed to the end goal,” Hogan wrote.