[Senate Hearing 111-51]
[From the U.S. Government Publishing Office]



                                                         S. Hrg. 111-51

                FINANCING FOR DEPLOYMENT OF CLEAN ENERGY

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                                   TO

RECEIVE TESTIMONY REGARDING LEGISLATION TO IMPROVE THE AVAILABILITY OF 
    FINANCING FOR DEPLOYMENT OF CLEAN ENERGY AND ENERGY EFFICIENCY 
   TECHNOLOGIES AND TO ENHANCE UNITED STATES COMPETITIVENESS IN THIS 
MARKET THROUGH THE CREATION OF A CLEAN ENERGY DEPLOYMENT ADMINISTRATION 
                    WITHIN THE DEPARTMENT OF ENERGY

                               __________

                             APRIL 28, 2009


                       Printed for the use of the
               Committee on Energy and Natural Resources




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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman

BYRON L. DORGAN, North Dakota        LISA MURKOWSKI, Alaska
RON WYDEN, Oregon                    RICHARD BURR, North Carolina
TIM JOHNSON, South Dakota            JOHN BARRASSO, Wyoming
MARY L. LANDRIEU, Louisiana          SAM BROWNBACK, Kansas
MARIA CANTWELL, Washington           JAMES E. RISCH, Idaho
ROBERT MENENDEZ, New Jersey          JOHN McCAIN, Arizona
BLANCHE L. LINCOLN, Arkansas         ROBERT F. BENNETT, Utah
BERNARD SANDERS, Vermont             JIM BUNNING, Kentucky
EVAN BAYH, Indiana                   JEFF SESSIONS, Alabama
DEBBIE STABENOW, Michigan            BOB CORKER, Tennessee
MARK UDALL, Colorado
JEANNE SHAHEEN, New Hampshire

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
               McKie Campbell, Republican Staff Director
               Karen K. Billups, Republican Chief Counsel














                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Bingaman, Hon. Jeff, U.S. Senator From New Mexico................     1
Denniston, John, Partner, Kleiner Perkins Caufield & Byers, Menlo 
  Park, CA.......................................................    13
Hezir, Joseph S., Vice President, EOP Group, Inc.................    27
Hull, Jeanine, Counsel, Dykema Gossett, PLLC.....................    20
McInnis, Michael J., Managing Director, The Erora Group, LLC.....    42
Murkowski, Hon. Lisa, U.S. Senator From Alaska...................     2
Reicher, Dan W., Director, Climate Change and Energy Initiatives, 
  Google.org, Mountain View, CA..................................     7
Rogers, Matthew, Senior Advisor for the American Recovery and 
  Reinvestment Act, Office of the Secretary of Energy, Department 
  of Energy......................................................     3

                                APPENDIX

Responses to additional questions................................    45

 
                       FINANCING FOR DEPLOYMENT 
                            OF CLEAN ENERGY

                              ----------                              


                        TUESDAY, APRIL 28, 2009

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:02 a.m., in 
room SD-366, Dirksen Senate Office Building, Hon. Jeff 
Bingaman, chairman, presiding.

OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW 
                             MEXICO

    The Chairman. OK. Why do we not get started here? Thank you 
all for coming.
    The purpose of today's hearing is to look at the latest 
draft of the proposal that Senator Murkowski and I have put 
together to improve the availability of financing for 
deployment of clean energy and energy efficiency technologies.
    Several of you who are testifying here today have been here 
before to help us understand the challenges that clean energy 
technologies face in reaching the broader commercial 
marketplace and how we might address those challenges with this 
legislation. You have all provided helpful guidance on the 
proposal that we are considering today, and I look forward to 
hearing your judgment on how our thinking has progressed over 
the many months that we have been working on this.
    Yesterday, the President spoke at the National Academy of 
Sciences and recognized our country's proud heritage of 
scientific discovery and innovation that is embodied in that 
institution. He pledged his support for the continued 
leadership of the United States in basic sciences and in the 
pursuit of scientific discovery. Obviously, I think we all 
share his commitment.
    My experience with the national energy laboratories and 
with the academic research institutions in the country gives me 
great confidence that many of the important discoveries needed 
to meet our energy and climate security challenges this century 
will be made here in the United States. The key question that 
we are here to discuss today is will those technologies see 
their commercial fruition here in the United States as well.
    I have said before and I believe that the world is at a 
transition point in the way that we generate and use energy. 
Advances in renewable energy, highly fuel efficient, and 
electric drive vehicles, smart grid technology, ultra-efficient 
lighting and appliances, all of those signal that 
environmentally sustainable alternatives can be available to 
us, but we will need to reach the point where they are 
economically competitive with legacy technologies.
    One part of the foundation for this transition is 
recognizing the cost to our society and our children of 
continuing down the current path of pricing carbon emissions. I 
am glad that we are beginning to seriously engage in that 
debate here in the Congress.
    But another fundamental piece of the puzzle is to recognize 
that even with a price of carbon, there are significant 
barriers to rapidly deploying innovative energy technologies. 
It is a capital-intensive business. New electricity generation 
can easily cost into the billions. Investors are understandably 
cautious to branch out beyond the technologies that they know 
very well. The safer path is to wait for someone else to prove 
the technology can work at a commercial scale before committing 
to make a significant investment in that technology.
    So this leads to a funding gap that stifles innovation, 
impedes our ability to lead in the worldwide competitive 
marketplace for clean energy technologies. The goal of this 
legislation is to find ways to bridge that gap while 
recognizing the difficulty in forecasting exactly which 
technologies should be supported or in what precise way while 
also avoiding the crowding out of private investment. We should 
be careful not to lose sight of the fact that while the current 
credit problems are holding back many technologies, this 
problem of funding innovation was with us before the economic 
downturn and will certainly remain once the economy recovers. 
So the new entity that must be focused on here has to deal with 
the problems of today, but also be able to be flexible in its 
approach to account for changing circumstances.
    We have set an audacious goal to not only address our past 
under-investment in clean energy development but to move to a 
leadership position in the world in developing these 
technologies. I believe that these goals are all achievable. We 
have tried to strike the necessary balances in this draft to 
move us forward in an aggressive, yet prudent way, and I look 
forward to hearing your views on what is now proposed.
    Senator Murkowski, why do you not go ahead?

        STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR 
                          FROM ALASKA

    Senator Murkowski. Thank you, Mr. Chairman. I want to 
welcome the witnesses here this morning, and I want to thank 
you, Mr. Chairman. I always have my back to you and it is not 
because I am not favorably inclined. I just have to put my leg 
this way.
    The Chairman. I understand.
    Senator Murkowski. He understands it, but for those of you, 
we have got a great working relationship here. I think that 
that is demonstrated in the draft that we have before us today. 
I think it is a pretty good bipartisan work product. I think it 
is also the result of identifying a problem and developing a 
solution to that problem.
    The inability of clean energy technology and the project 
developers to obtain financing, I think we all recognize, has 
been a longstanding problem. Back in 2005, with the passage of 
the Energy Policy Act, at that time we took a major step toward 
addressing the problem by creating the loan guarantee program 
there at DOE.
    More recently, this committee considered two bills in the 
110th Congress to build upon the loan guarantee authorities for 
clean technology development, and at those hearings, we heard 
frustration from the clean tech developers. They said that we 
can get support from OPIC. We can go to ExIm for projects 
overseas, but here in the United States, we cannot do that.
    So finding a way to fix that problem is both necessary and 
really very practical. I think through a collaborative process, 
we have attempted to negotiate a solution, and I am confident 
that we have developed one that can actually work.
    There are two factors that underscore my support for 
legislation to create this Clean Energy Deployment 
Administration within DOE. First is a precedent that exists for 
the Federal Government effectively providing credit support to 
promising projects at the Rural Utility Service at OPIC and 
ExIm and it also represents an opportunity to address the 
emission of greenhouse gases in an aggressive way but, at the 
same, does not impose new mandates or regulatory burdens.
    I want my colleagues to understand that a great deal of 
care has been taken to balance the deployment of clean energy 
technologies with a requirement that this entity be responsible 
and absolutely transparent in its operations.
    At last year's hearing when we discussed the bill that you 
had, Mr. Chairman, and that that Senator Domenici had, we were 
looking at two bills at that time. I look forward to hearing 
the witnesses' assessments of our attempt to have merged those 
two bills together, any insights that you might have with that, 
and look forward to your testimony.
    Thank you.
    The Chairman. Thank you very much.
    Let me just introduce the panel and then we will hear from 
each witness. Matt Rogers is the Senior Advisor to the 
Secretary of Energy for the American Recovery and Reinvestment 
Act now in the Department of Energy. Dan Reicher is, of course, 
the Director of Climate Change and Energy Initiatives for 
Google.org, which we are glad to have him back before the 
committee. John Denniston is also a regular testifier here, 
really as all these witnesses are. He is with Kleiner Perkins 
Caufield & Byers in Menlo Park. Jeanine Hull is counsel with 
Dykema Gossett, and Joe Hezir is Vice President of EOP Group.
    Thank you all very much for coming to give us your 
thoughts, and why do we not start with you, Matt? Take 5 or 6 
minutes and tell us the main points that you think we need to 
understand, please.

 STATEMENT OF MATTHEW ROGERS, SENIOR ADVISOR FOR THE AMERICAN 
   RECOVERY AND REINVESTMENT ACT, OFFICE OF THE SECRETARY OF 
                  ENERGY, DEPARTMENT OF ENERGY

    Mr. Rogers. Chairman Bingaman, Senator Murkowski, and 
members of the committee, thank you for this opportunity to be 
before you today to discuss the Department of Energy's loan 
guarantee and direct loan programs, our credit programs, as 
well as the proposed legislation to establish the Clean Energy 
Deployment Administration under the 21st Century Energy 
Technology Deployment Act.
    We appreciate your personal leadership in setting up the 
title 17 loan guarantee program and in seeking the conditions 
for its success.
    As you know, the Department of Energy's credit programs are 
an urgent priority for Secretary Chu. He is personally 
reviewing the programs and is committed to giving the programs 
the attention, departmental resources, and oversight they need 
to succeed while ensuring that taxpayers' interests are 
protected. Delivering on this opportunity to help drive 
economic recovery and make a down payment on the Nation's 
energy and environmental future represents an essential 
leadership role for the Department of Energy.
    The credit programs are comprised of a highly professional 
and rapidly growing group of people. The staff has been 
responsive to Secretary Chu's suggested changes to accelerate 
and streamline procedures, where possible, to make the program 
more user-friendly.
    Within the first 56 days of the administration, Secretary 
Chu entered into a conditional commitment to guarantee a $535 
million loan for Solyndra to support the company's construction 
of a commercial-scale manufacturing plant for its proprietary 
cylindrical solar photovoltaic technologies. The company 
expects to create new U.S. jobs during construction and 
operation of the plant, and while it deploys its solar panels 
across the United States and Europe.
    The credit programs have a strong set of applications from 
5 title 17 solicitations and applications from the Advanced 
Technology Vehicles Manufacturing Incentive Loan program. These 
applications are currently under consideration.
    We continue to greatly improve the processing of 
applications and are looking to expedite evaluation and loan 
and loan guarantee awards under the streamlined processes while 
ensuring responsible stewardship of taxpayer funds, consistent 
with the goals of the American Recovery and Reinvestment Act of 
2009. We are also contemplating the development of new 
solicitations.
    I appreciate the opportunity to comment on the 21st Century 
Energy Technology and Deployment Act as proposed by the U.S. 
Senate Energy and Natural Resources Committee. The 
administration is still evaluating the proposal and looks 
forward to working with the committee to ensure efficient and 
effective programs for providing assistance for energy 
infrastructure investment.
    Our task is to allocate credit assistance where it is most 
effective, maximizes policy goals, and to demonstrate to 
Congress and the American people that loan guarantee programs 
can provide good value for money. DOE is working to implement 
the title 17 program in line with the intent of the Recovery 
Act and consistent with the priorities outlined through the 
Presidential memoranda issued in February and March. DOE has 
received applications from previous title 17 solicitation and 
expects that funds will be utilized consistent with these 
goals.
    I will highlight four principal reactions to the proposed 
legislation.
    First, the experience from the first loan and loan 
guarantees made under the existing credit programs will provide 
a tangible track record and inform program design to make the 
credit programs more effective. We want to make sure that any 
program changes support the Department's ability to provide 
credit assistance quickly, effectively, and transparently while 
protecting the taxpayers.
    Second, appropriations for credit subsidy and for operating 
expenses through the loan guarantee program under the Recovery 
Act were a very positive step forward, enabling the institution 
to develop the appropriate scale organization and deliver a 
consistent loan guarantee pipeline. Ensuring any future loan 
programs have appropriate appropriations is a very important 
design feature.
    Third, we are committed to leveraging private capital, 
including maintaining the requirement for significant equity 
for credit assistance and seeking to engage additional debt 
funding partners to bring private capital off the sidelines 
through our financing activities. The first conditional loan 
guarantee should show that sponsor equity is available for good 
projects. The program will be successful if, and only if, the 
Federal Government becomes a relatively secondary lender in the 
markets, overall, over time where there is significant private 
sector lender involvement and strong credit markets can take 
the place of Federal assistance.
    Right now, in these extreme market circumstances, we need 
to provide loans to mature, renewable technology projects that 
the market was considering funding in full as recently as last 
summer. We will make these loans to spur rapid renewables 
capacity additions in the market and to enhance economic 
recovery.
    But the goal should be to have the Federal Government focus 
on its unique role in accelerating market development for 
advanced technologies. Title 17 support should not be a long-
term financing solution for troubled energy companies, nor 
should the Federal assistance crowd out private lenders who may 
provide better commercial underwriting capabilities than the 
Federal Government; and ultimately more efficient allocation of 
the Nation's resources. The Department of Energy has a clear 
role to play. We will provide strong returns to the American 
taxpayer if we remain focused on our unique role in filling a 
gap in advanced energy technology markets.
    Fourth, the administration believes that the loan program 
should conform to standard budget laws and controls, including 
the Federal Credit Reform Act of 1990, as amended, and with 
Federal credit policies. We would welcome discussions with the 
committee on these and any additional issues that may come to 
light during our review to ensure that any final legislation 
successfully addresses the Nation's energy needs efficiently 
and effectively.
    Mr. Chairman, thank you for the opportunity to appear 
before you today. This concludes my testimony, and I am happy 
to answer any questions. Thank you.
    [The prepared statement of Mr. Rogers follows:]
 Prepared Statement of Matthew Rogers, Senior Advisor for the American 
   Recovery and Reinvestment Act, Office of the Secretary of Energy, 
                          Department of Energy
    Chairman Bingaman, Senator Murkowski and members of the Committee, 
thank you for this opportunity to be before you today to discuss the 
Department of Energy's Loan Guarantee and Direct Loan Programs (or 
``Credit Programs'') as well as the proposed legislation to establish 
the Clean Energy Deployment Administration under the ``21st Century 
Energy Technology Deployment Act.'' We appreciate your personal 
leadership in setting up the Title XVII loan guarantee program and 
seeking conditions for success.
                         introductory statement
    As you know, the Department of Energy's Credit Programs are an 
urgent priority for Secretary Chu. He is personally reviewing the 
programs, and has committed to giving the programs the attention, 
departmental resources and oversight they need to succeed while 
ensuring that taxpayer interests are protected. Delivering on this 
opportunity to help drive economic recovery and make a down payment on 
the Nation's energy and environmental future represents an essential 
leadership role for the Department.
    The Credit Programs are comprised of a highly professional and 
rapidly growing group of people. The staff has been responsive to 
Secretary Chu's suggested changes to accelerate and streamline 
procedures where possible to make the program more userfriendly. Within 
the first 56 days of the Obama Administration, Secretary Chu entered 
into a conditional commitment to guarantee a $535 million loan for 
Solyndra, Inc. to support the company's construction of a commercial-
scale manufacturing plant for its proprietary cylindrical solar 
photovoltaic panels. The company expects to create new U.S. jobs during 
construction and operation of the plant, while it deploys its solar 
panels across the U.S. and in Europe.
    The Credit Programs have an exceptionally strong set of 
applications from five Title XVII solicitations, and applications from 
the Advanced Technology Vehicles Manufacturing Incentive Program 
currently under consideration. We continue to greatly improve the 
processing of applications, and are looking to expedite evaluation and 
loan and loan guarantee awards under streamlined processes, while 
ensuring responsible stewardship of taxpayer funds, consistent with the 
goals of the American Recovery and Reinvestment Act of 2009 (Recovery 
Act). We are also contemplating the development of new solicitations.
             21st century energy technology deployment act
    I appreciate the opportunity to comment on the ``21st Century 
Energy Technology Deployment Act'' (the Act) as proposed by the U.S. 
Senate Energy and Natural Resources Committee. The Administration is 
still evaluating the proposal, and looks forward to working with the 
committee to ensure efficient and effective programs for providing 
assistance for energy infrastructure investment.
    Our task is to allocate credit assistance where it is most 
effective, maximizes policy goals and to demonstrate to Congress and 
the American people that loan guarantee programs can provide good value 
for money. DOE is working to implement the Title XVII program in line 
with the intent of the Recovery Act, and consistent with the priorities 
outlined through Presidential Memoranda issued in February and March. 
DOE has received applications from previous Title XVII solicitations 
and expects the funds will be utilized consistent with these goals. I 
will highlight four principal reactions:
    First, the experience from the first loans and guarantees made 
under the existing credit programs will provide tangible experience to 
inform program design to make the Credit Programs more effective. We 
want to make sure that any program changes support the Department's 
ability to provide credit assistance, quickly, effectively, and 
transparently, while protecting the taxpayers.
    Second, appropriations for credit subsidy and for operating 
expenses through the loan guarantee program under the Recovery Act was 
a positive step forward, enabling the institution to develop the 
appropriate scale organization and deliver a consistent loan guarantee 
pipeline. Ensuring any future loan programs have appropriate 
appropriations is an important design feature.
    Third, we are committed to leveraging private capital, including 
maintaining the requirement for significant equity for credit 
assistance, and seeking to engage additional debt funding partners to 
bring private capital off the sidelines through our financing 
activities. The first conditional loan guarantees should show that 
sponsor equity is available for good projects. The program will be 
successful if and only if the federal government becomes a relatively 
secondary lender in these markets over time--where there is significant 
private sector lender involvement and strong credit markets take the 
place of Federal assistance. Right now, in these extreme market 
circumstances, we need to provide loans to mature renewable technology 
projects that the market was considering funding in full as recently as 
last summer. We will make these loans to spur rapid renewables capacity 
additions in the market. The goal should be to have the federal 
government focus on its unique role in accelerating market development 
for advanced technologies. Title XVII support should not be a long-term 
financing solution for troubled energy companies--nor should the 
Federal assistance crowd out private lenders who provide better 
commercial underwriting capabilities than the Federal government, and 
ultimately a more efficient allocation of the nation's resources. The 
Department of Energy has a clear role to play, and we will provide 
strong returns to the American taxpayer if we remain focused on our 
unique role in filling a gap in advanced energy technology markets.
    Fourth, the Administration believes that loan programs should 
conform to standard budget laws and controls, including the Federal 
Credit Reform Act of 1990, as amended, and with Federal credit 
policies. We would welcome discussions with the committee on these and 
any additional issues that come to light during our review, in order to 
ensure that any final legislation successfully addresses the Nation's 
energy needs efficiently and effectively.
                               conclusion
    Mr. Chairman, thank you for the opportunity to appear before you 
today. This concludes my testimony and I am happy to answer questions. 
Thank you.

    The Chairman. Thank you very much.
    Mr. Reicher.

   STATEMENT OF DAN W. REICHER, DIRECTOR, CLIMATE CHANGE AND 
       ENERGY INITIATIVES, GOOGLE.ORG, MOUNTAIN VIEW, CA

    Mr. Reicher. Chairman Bingaman, Senator Murkowski, and 
members of the committee, thank you for the opportunity to 
testify. I am Dan Reicher and I serve as Director of Climate 
Change and Energy Initiatives for Google.org, a unit of Google 
which has been capitalized with more than $1 billion of Google 
stock to make investments in advanced policy and technology in 
several areas, including energy and climate change.
    Prior to my position with Google, I was President of New 
Energy Capital, a private equity firm that invests in clean 
energy projects. Prior to this position, I was Executive Vice 
President of Northern Power Systems, one of the Nation's oldest 
renewable energy companies. Prior to my roles in the private 
sector, I served in the Clinton administration in several 
positions, including as Assistant Secretary of Energy for 
Energy Efficiency and Renewable Energy.
    Mr. Chairman, as I testified last summer at a hearing in 
this committee, there is an established pathway for investment 
in clean energy. It generally starts with Government investment 
in early stage, high-risk research. It moves to corporate and 
venture capital funding of technology development. It then 
proceeds to large-scale deployment of technologies through 
project finance.
    The bill being reviewed today is focused on the final 
stage, the deployment of clean energy technologies at a scale 
significant enough to actually address our energy-related 
challenges like climate change, energy security, economic 
competitiveness, and job creation. However, the bill has an 
even more particular and critical focus: the point at which an 
energy technology is ready for scale-up from a pilot project to 
a full-scale plant. This problematic moment is often when many 
promising energy technologies die. In the clean energy 
business, we call it the ``valley of death'' and it looms 
large. Failing to bridge it has cost us serious progress in 
many clean energy technologies. In some cases, investors from 
other countries have stepped into the breach, but we have lost 
the tax and employment benefits of a U.S.-based company.
    Looking ahead, the valley of death will be a particular 
challenge for scale-up of promising technologies, including, 
for example, concentrating solar power, enhanced geothermal 
systems, various onshore and offshore wind technologies, 
advanced batteries, and biomass power and fuels. Today's bill 
would increase the capital available for clean energy projects, 
thereby helping critical technologies cross the valley of death 
and get to scale. We welcome the bill and its innovative and 
focused approach.
    There are typically two elements of financing in energy 
projects: equity and debt. Federal tax credits have stimulated 
equity investment in clean energy projects. Securing loans for 
projects has been more problematic, especially for higher-risk 
projects. Bankers are generally reluctant to provide a loan for 
a project involving a technology that has not been proven at 
commercial scale. A common refrain from the bankers is: ``We'd 
be delighted to finance your third or fourth project. Come see 
us after you have built the first couple of full-scale plants 
and you've got solid operating data proving that your 
technology works.''
    Bank financing plays a critical role because a commercial-
scale energy project can often cost hundreds of millions or 
billions of dollars, generally beyond the capacity of venture 
capital investors who have often advanced the technology 
through the pilot stage. The projects also generally have rates 
of return below what the venture community expects.
    Let me provide a bit of perspective. Over the last 5 years, 
venture capital investment in the broad array of renewable 
energy technology companies was roughly $12 billion worldwide. 
In contrast, investment in projects deploying these renewable 
energy technologies was more than 20 times this, at about $275 
billion. In very rough terms, venture investors expect average 
returns on a per-transaction basis to be 35 to 40 percent in a 
basket of deals ranging from home runs to total losses. In 
contrast, returns for equity investors on individual energy 
projects are roughly 8 to 12 percent and 6 to 8 percent for 
banks providing debt, with the expectation that most energy 
projects will perform as promised and none will be outright 
failures.
    Mr. Chairman and Senator Murkowski, the key point is that 
the valley of death projects sit precariously between the 
venture capital and project finance worlds. They are generally 
too big in terms of required capital and too small in terms of 
returns for the venture capital community. They are often too 
risky for project finance players, especially for the banks 
which typically provide the great majority of a project 
investment. This is why the legislation you are proposing is so 
critical.
    The bill is an improvement over the approach you and 
Senator Domenici took last year in two different bills.
    First, there is specific focus in the bill on breakthrough 
technology, i.e., a technology with significant potential to 
advance critical national energy goals but that is not 
commercially ready.
    Second, the Clean Energy Development Administration will 
have a board of directors and an advisory council to help 
ensure consideration of financial and technical risks.
    Third, the bill provides this administration with a broad 
array of tools, including loans, loan guarantees, letters of 
credit, bonds, as well as profit participation.
    Fourth, the Clean Energy Development Administration would 
use a portfolio investment approach to mitigate risk and 
diversify investments.
    Overall, the bill takes the absolutely right approach to 
moving critical technologies across the valley of death to 
full-scale commercialization, but there are some areas for 
further improvement. Critical is ensuring that CEDA, the Clean 
Energy Development Administration, ends up successfully funding 
the right set of projects.
    In addition to reaching out to private financiers on every 
transaction, CEDA might also work to prearrange financing for 
subsequent plants in partnership with private financiers, 
conditional on the initial couple of plants meeting performance 
criteria. Alternatively, CEDA could reserve a senior position 
in the capital structure of the first project.
    Once a project has been selected, the next task is 
structuring the deal and determining the degree to which CEDA 
can benefit from a successful project. The bill provides for 
profit participation, allowing CEDA to be compensated for risk 
with upside and successful projects, thereby helping to make 
the Clean Energy Investment Fund self-sustaining.
    This provision could be further improved if CEDA were 
allowed to take equity positions through purchase of warrants 
in the underlying technology companies or of the right to 
invest in future projects on favorable terms.
    In conclusion, Mr. Chairman and Senator Murkowski, your 
legislation obviously comes in the midst of an economic crisis, 
but this is precisely when clean energy projects are facing 
increasing difficulty in getting finance and your proposal is 
so important. This is especially so for projects involving 
innovative technologies with higher associated risk, the very 
technologies that may well hold the keys to addressing the 
climate crisis, oil dependence, a deteriorating electric grid, 
and the struggling economy. When the economy improves, these 
valley of death projects will continue to need the critical 
financial support that this bill provides, hopefully also 
driven by robust Federal support for the R&D which created them 
and economy-wide limits on carbon emissions that would make 
them so compelling.
    At Google, we stand ready to help you advance this 
important legislation. Thank you very much.
    [The prepared statement of Mr. Reicher follows:]
  Prepared Statement of Dan W. Reicher, Director, Climate Change and 
           Energy Initiatives, Google.org, Mountain View, CA
    Mr. Chairman and members of the committee, my name is Dan Reicher 
and I am pleased to share my perspective on legislation to improve the 
availability of financing for the deployment of clean energy and energy 
efficiency technologies. I serve as Director of Climate Change and 
Energy Initiatives for Google.org, a unit of Google which has been 
capitalized with more than $1 billion of Google stock to make 
investments and advance policy and technology in the areas of climate 
change and energy, global poverty and global health.
    At Google we have been working to lower the cost and increase the 
deployment of renewable energy through our Renewable Electricity 
Cheaper than Coal (RE It often starts with government investment in early stage 
        high risk technology research;
   It moves to corporate and venture capital funding of 
        technology development;
   It then proceeds to actual deployment of technologies 
        through project finance and other mechanisms.

    The bill being reviewed today--the 21st Century Energy Technology 
Deployment Act--is focused on the final stage of this continuum--the 
deployment of clean energy technologies at a scale significant enough 
to actually address our energy-related challenges like climate change, 
energy security, economic competitiveness, and job creation. However, 
the bill has an even more particular and critical focus: the point at 
which an energy technology is ready for scale-up from a pilot project 
to a full-scale plant. This problematic moment is often when many 
promising energy technologies falter--and a significant number die. In 
the clean energy technology industry it is known as the ``Valley of 
Death''. Helping cutting-edge technologies survive this difficult phase 
is an element of our RE First, we must significantly increase public funding of 
        research and development of advanced energy technologies.
   Second, the federal government must put a price on 
        greenhouse gas emissions in order to internalize the costs of 
        climate change and move energy investments toward lower carbon 
        and more efficient technologies.
   Third, we must remove barriers to cleaner and more efficient 
        technologies and establish rigorous standards to move these 
        technologies to market.
   And fourth, the federal government must, in partnership with 
        the private sector, help increase the capital available to move 
        immature and often higher risktechnologies to commercial scale.

    Mr. Chairman, this fourth role is illustrated by the bill you and 
Senator Murkowski have recently introduced, the 21st Century Energy 
Technology Deployment Act. The bill, if enacted, would increase the 
capital available for clean energy projects, thereby helping to mature 
the underlying technologies and move them to scale. We welcome your 
bill and its innovative and attractive approach to improving clean 
energy project finance. In this testimony we provide our thoughts on 
some of the bill's important elements and how the legislation might be 
further strengthened.
          2. the 21st century energy technology deployment act
    There are typically two elements of energy project finance: equity 
and debt. Federal tax credits have stimulated equity investment in 
wind, solar, geothermal and other clean energy projects. Securing loans 
for projects has been more problematic, especially for higher risk 
projects. Bankers are generally reluctant to provide a loan for a 
project involving a technology that has not been proven at commercial 
scale. A common refrain from the bankers is: ``We'd be delighted to 
finance your third or fourth project. Come see us after you've built 
the first couple of full-scale plants and you've got solid operating 
data proving that your technology works.''
    Bank financing plays a critical role because a commercial-scale 
energy project can often cost hundreds of millions or billions of 
dollars, generally beyond the capacity of venture capital investors who 
have often advanced the technology through pilot scale. The projects 
also generally have rates of returns well below what the venture 
community expects. There are other sources of private equity beyond 
venture capital but these players generally require the lower cost debt 
provided by the banks to be part of the project finance deal in order 
to meet their return thresholds.
    Let me provide a bit of perspective on the scale of energy project 
transactions and expected rates of return. Over the last five years 
venture capital investment in wind, solar, biofuels, biomass, 
geothermal, small hydro and marine energy companies was roughly $12 
billion worldwide. In contrast, investment in projects deploying these 
technologies was more than twenty times this, at about $275 billion. 
And in very rough terms, venture investors expect average returns on a 
per transaction basis to be 35-40% in a basket of deals ranging from 
``home runs'' to total losses. In contrast, returns for equity 
investors on individual energy projects are roughly in the 8-12% range 
and 6-8% for the banks providing debt, with the expectation that most 
energy projects will perform as promised--and none will be outright 
failures.
    The key point is that the Valley of Death projects sit precariously 
between the venture capital and project finance worlds. They are 
generally too big in terms of required capital and too small in terms 
of returns for the venture capital community. And they are often too 
risky for the project finance players, especially for the banks which 
typically provide the great majority of a project investment. Mr. 
Chairman, this is why the CEDA is so critical.
    Mr. Chairman, the bill you introduced last year, S. 3233 was 
designed to increase the willingness of banks to make loans for clean 
energy projects by providing a secondary market for their loans through 
the 21st Century Energy Deployment Corporation. I concluded last year 
that if implemented well this secondary market should increase the 
capital available for the scale-up of clean energy technologies with 
lower risk profiles. The question I raised, however, was whether the 
Corporation in its operation would also purchase loans from higher risk 
Valley of Death projects. I was concerned that the bill as drafted last 
year would fail to address precisely the kind of higher risk Valley of 
Death projects--as part of a larger portfolio of projects--that most 
need a smart push from the government.
    I was also concerned that last year's bill did not include critical 
tools, including loan guarantees, letters of credit, direct loans and 
related mechanisms, which could directly address higher risk projects. 
Loan guarantees, for example, help borrowers obtain access to credit 
with more favorable terms than they might otherwise obtain in private 
lending markets because the federal government guarantees to pay 
lenders if the borrowers default. By doing so we could help leverage 
the vast amounts of private sector capital that is so critical to 
taking clean energy technologies to scale.
    The new bill, the 21st Century Energy Technology Deployment Act, 
deals precisely with these issues in several respects and includes a 
number of important provisions to ensure effective and efficient 
financing of clean energy projects. The legislation would incorporate 
the existing DOE loan guarantee program into a new Clean Energy 
Investment Fund. Importantly, it would also create a new financing 
entity called the Clean Energy Deployment Administration (CEDA) housed 
within DOE but with a degree of independence like the Federal Energy 
Regulatory Commission enjoys. The Clean Energy Investment Fund would 
become the seed fund for CEDA.
    The bill is an improvement over last year's approach for several 
reasons:

   First, there is specific focus in the bill on ``breakthrough 
        technology'', i.e. technology with significant potential to 
        advance critical national energy goals but that ``has generally 
        not been considered a commercially ready technology as a result 
        of high perceived technology risk or other similar factors''. 
        It is this breakthrough technology, with its significant risk 
        profile, that faces difficulties raising capital for the first 
        few commercial-scale plants.
   Second, CEDA will have a board of directors and an advisory 
        council that will have the background and skills to help ensure 
        that the financial and technical risks of the agency's clean 
        energy project investments are adequately considered.
   Third, the bill provides a broad array of tools to CEDA to 
        accelerate deployment of clean energy technology including 
        direct loans, loan guarantees, letters of credit, and other 
        credit enhancements. The CEDA may also issue bonds, notes, 
        debentures or other obligations or securities. In addition CEDA 
        can use alternative fee arrangements such as ``profit 
        participation'' to increase the upside in a transaction and 
        offset the risk.
   Fourth, the CEDA would use a portfolio investment approach 
        to mitigate risk and diversify investments across technologies.
                        3. areas for improvement
    Overall, the 21st Century Energy Technology Deployment Act takes 
the right approach to moving critical technologies across the Valley of 
Death but there are some areas where it might be further improved. At 
the core of these improvements is ensuring that CEDA ends up 
successfully funding the right set of projects that will move 
breakthrough technologies through the Valley of Death to full scale 
commercialization.
    We can think about the universe of possible CEDA projects as a 
three-layer cake. The top layer, the most financeable projects, will 
get financed by private investors. The bottom layer involves projects 
that are far too risky and should not be financed at all. The layer in 
the middle has projects that don't quite meet the bar of private 
lenders but have promising technologies and should be financed by CEDA. 
The challenge that CEDA has is figuring out which projects are in the 
middle layer and where the layer starts and ends.
    In meeting this challenge CEDA has three related tasks.

          1. Select the projects that it will fund;
          2. Structure the transactions to mitigate risk and be 
        compensated for residual risk;
          3. Set the loan loss reserve to cover potential losses.

    The bill has mechanisms addressing all these tasks but there is 
little focus on the most obvious mechanism which is to engage private 
financiers in some way. There are several reasons to do so:

   They may have already reviewed the transaction, know the 
        participants, and can identify the risks and issues.
   They will be financing the projects after projects one or 
        two so they can provide the performance criteria required in 
        order to finance subsequent plants.
   Their degree of interest in participation in future projects 
        will be an indicator of future success.

    Engaging the private financiers can be as simple as encouraging 
CEDA to adopt a practice of actively reaching out to private financiers 
on every transaction. CEDA might also run an annual finance conference 
with the private sector to solicit feedback.
    CEDA might also work to pre-arrange financing for the 3rd or 4th 
plant in partnership with private financiers conditional on the initial 
plants meeting certain performance criteria. Alternatively, CEDA could 
reserve a senior position in the capital structure of the first project 
for private lenders. This should be an option rather than a requirement 
since even if the private financiers did not participate in the first 
deal, CEDA would have gained a second opinion on the risk.
    Coupled with CEDA's own assessment, this process would leave CEDA 
better informed on whether to fund a particular project, how to 
structure it and what reserve level to set. It would also provide the 
private investors early exposure to the project so that they could 
track its progress, making it more likely that they would finance later 
projects.
    Once a project has been selected, the next task is structuring the 
deal and determining the degree to which CEDA can benefit from upside 
that comes from a successful project. The bill allows for ``profit 
participation'' under the Alternative Fee Arrangements section.
    This is critical to the success of the program because it allows 
CEDA to be compensated for risk with upside in successful companies. 
This will help meet the critical goal of making the Clean Energy 
Investment Fund, which undergirds CEDA, self-sustaining. This provision 
could be further improved if CEDA were allowed to take equity positions 
through purchase of warrants in the technology companies. CEDA would 
then benefit from the rising value of companies that successfully 
transitioned to commercial products. CEDA could do this either directly 
or through a fund in partnership with private investors. CEDA might 
also acquire rights to invest in additional future projects on 
favorable terms.
    The third task CEDA faces involves setting the loan loss reserve, 
which is the percentage of capital the agency should keep as a buffer 
against potential losses. Since the loan loss reserve depends both on 
the quality of the deals selected and the structure of the 
transactions, progress on the first two tasks above should make it 
easier to set a reasonable loan loss reserve. This is important because 
the lower the loan loss reserve the more loans CEDA can make for the 
same amount of appropriation. For example, the current figures of $10 
billion in appropriations with a 10% reserve--the initial assumption of 
a loan loss reserve in the bill--would provide about $100 billion in 
loans. If the reserve percentage was reduced to 5% then about $200 
billion in loans could be provide for the same $10 billion.
    Some might argue that CEDA should simply charge higher fees for 
riskier projects but that would not mitigate the risk. In fact it might 
increase the risk because it would place additional burden on the 
borrower. This can be problematic when riskier borrowers are charged 
more interest and fees, making them more likely to default.
    A final issue involves collateral sharing: The previous loan 
guarantee program did not share collateral fairly between the 
commercial lender and the DOE. The DOE was first in line for the 
collateral so if the project went bad the commercial banks may have 
limited claim on the assets. This would be roughly equivalent to having 
a first and second mortgage on a house but in the event of a 
foreclosure only the DOE would get the house leaving the commercial 
bank with insufficient recourse. Congress needs to ensure that if CEDA 
is created there is a fair sharing of collateral.
                             4. conclusion
    Mr. Chairman and Senator Murkowski, the legislation you are jointly 
advancing obviously comes in the midst of an economic crisis. But it is 
precisely at this moment - when clean energy projects so vital to our 
economy, environment and security are facing increasing difficulty 
getting financed--that the mechanism you propose is so important. This 
is especially the case for projects involving innovative technologies 
with higher associated risk--the very technologies that may well hold 
the keys to addressing the climate crisis, our oil dependence, a 
deteriorating electric grid and also provide a major stimulus to the 
faltering economy. And when the economy improves, these Valley of Death 
projects will continue to need the critical financial support that this 
bill provides. At Google we stand ready to help you advance this 
important legislation.

    The Chairman. Thank you very much for your testimony.
    John Denniston, we are glad to have you here. Go right 
ahead.

STATEMENT OF JOHN DENNISTON, PARTNER, KLEINER PERKINS CAUFIELD 
                    & BYERS, MENLO PARK, CA

    Mr. Denniston. Thank you. Good morning, Chairman Bingaman, 
Ranking Member Murkowski, members of the committee. My name is 
John Denniston. I am a partner with a venture capital firm, 
Kleiner Perkins Caufield & Byers. I am really honored to be 
here today to share my views on how Federal policy might help 
build a more sustainable energy system for America.
    I am deeply inspired to watch the Clean Energy Deployment 
Act taking shape at such an opportune time, both for our planet 
and for our economy. We must move quickly. America's leading 
scientists predict we only have a short period of time to make 
dramatic cuts in our greenhouse gas emissions or risk 
potentially catastrophic climate change. Time is also of the 
essence as we move ahead to address our energy security and 
restore America's global competitive position.
    Today, to our peril, America is trailing in the race to 
build renewable energy industries, the very industries destined 
to become the economic engine of the 21st Century. The news is 
sobering. Only five U.S. companies appear on the international 
lists of the top 10 firms producing solar modules, wind 
turbines, and advanced batteries. That is only 5 out of the top 
30 companies in these crucial industries, a paltry 17 percent 
market share and a far cry from the dominant market position 
American companies enjoyed during the information technology 
revolution.
    Consider this. Today, more Germans are employed by their 
green tech industry than by their auto industry. If we fail to 
reverse this equation, we will forfeit our hope of solving our 
energy security crisis. Future Americans will still depend on 
other countries for our energy. They will simply be importing 
innovative green technologies instead of crude oil.
    U.S. venture capital and technology industry professionals 
stand ready and are eager to help turn this situation around, 
and we know that America can, once again, lead the way.
    Turning now to the pending Clean Energy Deployment Act, I 
first want simply to repeat my enthusiasm. There is so much to 
praise in the CEDA legislation. I particularly admire the 
adroitly worded goals and the creation of a diversified 
portfolio weighted in favor of breakthrough technologies that 
will surely deliver the biggest bang for the buck in terms of 
combating our energy crisis.
    I am also heartened to see your skillful efforts to level 
the playing field for these credit-starved companies, including 
provisions that may reduce over-burdensome costs.
    But most importantly, this far-sighted bill directly 
addresses one of the most daunting impediments to swift 
adoption of renewable energy sources, the longstanding 
unavailability of loans for breakthrough clean technologies 
which has been greatly aggravated in the current financial 
crisis.
    You heard Dan Reicher speak of the valley of death, a 
period during which companies with breakthrough technologies 
find it difficult, if not impossible, to obtain loans. Dan is 
correct. Most banks just are not interested in lending until 
those novel technologies have been fully demonstrated over a 
period of time in the marketplace. As you might imagine, the 
financial crisis has made this valley of death even drier. CEDA 
will now allow many of these companies to cross the valley of 
death by enabling them to access the credit markets.
    I elaborate on several other reasons for my enthusiasm in 
my written testimony, but would like to take this time to 
mention four suggestions for how to build on your success.
    First, I urge you to review the bill's stipulations 
concerning hiring. American taxpayers will expect CEDA to 
retain the best available talent to make decisions involving 
many billions of dollars' worth of complex loans, loan 
guarantees, and other forms of credit enhancement. But the 
current draft threatens to tie administrators hands with 
restrictive policies when it comes to hiring that talent. This 
provision merits another look.
    Second, I suggest you broaden out the expertise of the CEDA 
advisory council by including professionals with financial and 
energy market know-how, emphasizing experience with renewable 
energy. I am confident you can do this, even while keeping the 
advisory council relatively small in size. While it is clearly 
essential to gain the benefit of scientific input, I believe 
business expertise will also be instrumental.
    Next, CEDA amends the existing DOE loan guarantee program 
in important ways, but I recommend one further step, 
eliminating the need for a credit rating agency review in the 
case of emerging growth companies. These credit agency reviews 
are very costly and, in the case of emerging growth companies, 
simply confirm what everybody already knows, that fledgling 
companies have low credit ratings.
    Finally, in a very short period of time, Energy Secretary 
Steve Chu's team has made remarkable progress on the existing 
DOE loan guarantees, including issuing the first conditional 
guarantee and reducing the complexity and costs of applying for 
the guarantees. I would encourage you to implement CEDA in a 
fashion that does not interfere with the recent impressive 
progress we have witnessed.
    My main wish, however, is for the swift passage of this 
commendable bill which is all the more timely and prescient in 
view of the progress you and your colleagues are making with 
comprehensive energy legislation. As America finally moves to 
limit greenhouse gas emissions, we will obviously need to have 
new, clean energy technologies up and running as soon as 
possible.
    I am heartened by this committee's efforts to address this 
formidable challenge and grateful for the privilege of 
collaborating with you.
    [The prepared statement of Mr. Denniston follows:]
Prepared Statement of John Denniston, Partner, Kleiner Perkins Caufield 
                        & Byers, Menlo Park, CA
    Good morning, Chairman Bingaman, Ranking Member Murkowski and 
Members of the Committee. My name is John Denniston, and I am a partner 
at the venture capital firm Kleiner Perkins Caufield & Byers. I most 
recently testified before you in July of last year, and am honored to 
return today to share my views on how federal policy might help build a 
more sustainable energy future.
    I'm inspired to witness the manner in which you've been tackling 
our energy crisis with bold legislation, including the pending Clean 
Energy Deployment Act, CEDA. This bill couldn't be more essential at 
this juncture, promising to provide not only strong environmental 
stewardship but also well-timed help for our struggling economy, and a 
tonic for U.S. international competitiveness.
    Making the clean energy loans enabled by CEDA even more opportunely 
timed is the progress you and your colleagues are making toward 
adopting comprehensive energy legislation. As America moves forward to 
reduce greenhouse gas emissions and enhance our climate security, it 
becomes all the more urgent to empower our capital markets to support 
new, clean energy technologies.
    Together with most of the rest of America, venture capital and 
technology industry professionals--Democrats and Republicans alike--we 
are deeply concerned about the risks posed by our energy crisis: a 
tripartite challenge encompassing climate change, energy security, and 
increasing threats to our global competitiveness. At the same time, our 
industry is in a unique position to help seize the opportunities these 
challenges present to rebuild our economy, creating jobs and prosperity 
along the way.
    Even in these difficult economic times, the American venture 
capital sector stands ready and able to spur new, innovative businesses 
and boost employment. According to an IHS Global Insight Study soon to 
be released, venture-backed companies in 2008 employed more than 12 
million Americans, and generated nearly $3 billion in U.S. sales, 
corresponding to 10.5% percent of U.S. private sector employment and 
20.5% percent of U.S. GDP. From 2006--2008, venture-backed companies 
grew jobs at three times the rate of the private sector taken as a 
whole.
    In fact, over the past several decades, U.S. technology companies 
have accounted for as much as one-half of GDP growth, providing 
Americans with one of the world's highest standards of living. Our 
country would look quite a bit different today had we not, several 
decades ago, become a global leader in biotechnology, computing, the 
Internet, medical devices, semiconductors, software, and 
telecommunications.
    Founded in 1972, and based in California's Silicon Valley, Kleiner 
Perkins is one of America's oldest venture capital firms. We have 
funded more than 500 start-up companies, backing innovative 
entrepreneurs in the digital, green technology and life science 
industries. More than 170 of our companies have gone public, including 
Amazon.com, AOL, Compaq Computer, Electronic Arts, Genentech, Google, 
IDEC Pharmaceuticals, Intuit, Juniper Networks, Millennium 
Pharmaceuticals, Netscape, Sun Microsystems, Symantec, and VeriSign. 
Today, our portfolio companies collectively employ more than 275,000 
workers and generate nearly $100 billion in annual revenue.
    Kleiner Perkins is a member of the National Venture Capital 
Association and a founding member of TechNet, a network of 200 CEOs of 
the nation's leading technology companies. I serve on TechNet's Green 
Technologies Task Force. My testimony today reflects my own views.
    Before I respond to your invitation to comment on the pending Clean 
Energy Deployment Act, I'd like to briefly recap and augment some of my 
previous testimony--an overview of the way many of us in the venture 
capital industry perceive the energy challenges and opportunities now 
facing our country. I've touched on some of the following points in my 
previous testimonies, but at the risk of a little repetition, I think 
it's worthwhile to bear in mind the scope of our challenges as we move 
forward to address them.
                           the energy crisis
    There's a fast-growing consensus among Americans today about the 
need to confront our three main energy challenges: the climate crisis, 
our dependence on foreign oil, and the risk of losing our global 
competitive edge by failing to champion the new green technologies 
which are destined to become a dominant economic growth engine over the 
coming years and decades.
    Addressing these challenges vigorously may well be our best 
opportunity to alleviate our financial crisis, create jobs and get back 
on the road to prosperity. Green technologies--including sun, wind and 
geothermal power, as well as advanced batteries, electric 
transportation, and waste- to-energy processes--offer this country's 
best hope of combating climate change, rebuilding our domestic economy 
and regaining our edge as an economic superpower. But we have little 
time to spare.
Climate Change
    America's leading scientists predict we have only a short period of 
time to make dramatic cuts in our greenhouse gas emissions or risk 
potentially catastrophic climate change. Global temperatures and sea 
levels are already rising and will continue to do so; the question now 
is whether we can slow down the projected rate of future increases.
    Climate change is no longer a partisan issue: both President Obama 
and Republican former presidential candidate Senator John McCain have 
publicly declared we must confront this crisis, with President Obama 
putting it at the top of his policy agenda. Yet to our peril, we have 
so far failed to move with the requisite speed and determination.
Energy Security
    As for our energy security dilemma, this Committee is well aware 
that America continues to import approximately 70% of our oil needs. 
Given both rising international competition for these supplies and the 
political instability of some of our major suppliers, this is clearly a 
high-risk, unsustainable strategy.
Global Competitiveness
    Finally, our future prosperity is at risk, and here I speak from 
personal experience. As I've traveled on business to Asia and Europe, 
I've watched other governments strive, and often succeed, in emulating 
in the renewable energy sector the technology innovation that has been 
a hallmark of the U.S. economy. Determined public policy has given 
overseas entrepreneurs advantages, including financial incentives and 
large investments in research and education.
    Simply put, America is trailing in the race to build renewable 
energy industries--the very industries that offer us our best hope of 
job creation and a rising standard of living. The news is sobering: 
Only five U.S. companies appear among the international lists of the 
top-ten firms producing solar modules, wind turbines and advanced 
batteries. That's five out of the top thirty companies in those crucial 
industries, a paltry 17% market share, and a far cry from the dominant 
position American companies enjoyed during the information technology 
revolution. Consider this: today, more Germans are employed by their 
greentech industry than by their automobile industry.
    If we fail to reverse this equation, we'll forfeit our hope of 
solving our energy security crisis. In that case, future Americans will 
still be dependent on foreign energy imports--the only difference is 
they'll be importing innovative green technologies instead of crude 
oil.
    As much as we've already fallen behind, however, I'm convinced 
there's still time for the United States to catch up, and once again 
lead a global technological revolution.
                     renewables: the opportunities
Moore's Law & The Pace of Technological Progress
    In Silicon Valley, we often refer to a principle known as Moore's 
Law: a prediction, credited to Intel cofounder Gordon Moore back in the 
1960s, that semiconductor performance would double every 24 months. 
Moore's law underpins the information technology revolution of the past 
three decades. Better, faster, and cheaper silicon chips led the way, 
over just the past quarter of a century, from an era of big and 
expensive mainframe computers to affordable hand-held cell phones that 
today connect people all over the world to the Internet and to each 
other.
    Over the past decade, we at Kleiner Perkins have seen signs of a 
Moore's Law dynamic operating in the energy sector, giving us 
confidence the rate of greentech performance improvement and cost 
reduction will lead to energy solutions we can't even imagine right 
now.
    Alternative energy has become increasingly affordable. We're seeing 
breakthroughs in a host of energy-related scientific disciplines, 
including material science, physics, electrical engineering, synthetic 
chemistry, and biotechnology.
    These improvements have occurred over a period of time in which 
there has been relatively little government policy support or 
entrepreneurial focus on these sectors. Today, we're witnessing many of 
our best and brightest innovators stream into the greentech sector. 
Imagine what American ingenuity might accomplish in the future as we 
combine our world-class entrepreneurial talent with a powerful policy 
push!
                       renewables: the challenges
    Our opportunities are breathtaking. Yet today, three major 
obstacles still impede fastercommercialization of renewable energy.
The Financial Crisis
    Our current economic downturn poses a dire threat to our overdue 
efforts on energy reform. Energy companies--both green and brown--
depend on a flow of debt and equity investments to survive and prosper. 
But the financial crisis has squeezed financial markets, particularly 
prejudicing the emerging clean energy industry.
    Long before this recession began, renewable energy companies with 
breakthrough technologies faced a unique ``valley of death'' challenge: 
it has been difficult, and often impossible, for these innovative 
companies to obtain debt financing on projects at their earliest 
stages. Banks are typically not interested in providing loans to 
companies with novel technologies until they have been fully 
demonstrated, over a period of time, in the marketplace.
    As you might imagine, the global downturn has turned this valley of 
death even drier. Many promising new technologies today are being 
delayed or thwarted by the scarcity of commercial loans. The credit 
markets are unwilling or unable to assume the risk to help them grow.
A Tilted Playing Field
    The high cost of renewable energy sources, relative to the 
incumbent fossil fuel and nuclear competition, is a second barrier to 
greater capital investment and more rapid adoption of clean power. Why 
does green power still cost more? Primarily because it's still so new, 
meaning innovators have only just begun to work on cost-reducing 
breakthroughs, and production volumes are still so low that providers 
have yet to benefit from economies of scale. In other words, these 
cost-down and scale-up phenomena are still in their infancy in the 
renewable energy industries. In contrast, most coal-fired and natural-
gas plants were constructed many years ago, have already achieved the 
benefits of cost reductions, and are now fully amortized, meaning their 
owners no longer need to pass on these costs to ratepayers.
    It's also worth noting that government policy to date has provided 
powerful and costly support for fossil fuels and nuclear energy. In the 
special case of nuclear power, the federal government has for many 
decades assumed enormous costs for research and development, plant 
operations, insurance and waste disposal--all of which, if borne by 
nuclear plant operators, would make this power source a much less 
viable option.
    Beyond government subsidies, the fossil fuel industry has long 
benefited economically by escaping responsibility for the costs of the 
environmental consequences of its emissions--instead, society has paid 
that price. These traditional power sources would become much more 
expensive, and alternative sources of energy more cost-competitive, if 
plant owners had to bear the true costs of these emissions.
Scarce Research Funding
    The third major impediment to swift commercialization of clean 
energy is America's woefully long record of underfunding basic, 
translational and applied research for green technologies. At a time 
when faculty interest in this field has never been keener, our leading 
research institutions are begging for federal funding. Amounting 
roughly to just $1 billion annually--most of which is ear-marked--DOE 
funds dedicated to clean energy research are minuscule relative to the 
problem at hand, especially when you take into account that America's 
energy arsenal lacks a sufficient array of technological strategies to 
solve our energy crisis. If we don't start filling our pipeline with 
innovative new approaches, other countries which have long been more 
prescient about this opportunity will continue to dominate this 
critically important market.
                        the pending legislation
    Turning now to the pending Clean Energy Deployment Act, I first 
want simply to repeat my enthusiasm. This far-sighted and skillfully 
drawn bill directly addresses one of the most daunting impediments to 
the more rapid adoption of renewable energy sources: the longstanding 
unavailability of loans for breakthrough technologies now aggravated by 
our financial crisis.
                            ceda's progress
Goals and Priorities
    While I applaud your efforts in general, I particularly admire 
several specifics of this bill, including the adroitly worded goals, 
and the tactic of creating a diversified portfolio, weighted in favor 
of the most effective technologies. By setting out your goals so 
clearly and drawing on scientific expertise to prioritize projects 
accordingly, you are taking a big step to favor the technologies that 
will give us the biggest bang for the buck, in terms of protecting the 
climate, providing new jobs, and establishing energy security.
Breakthrough Technologies
    I heartily commend CEDA's rational and balanced approach of 
supporting newer technologies, eventhough they carry with them somewhat 
higher commercialization risks than conventional energy sources. The 
loan-loss reserve provisions send a clear signal that CEDA's managers 
are to provide the maximum practicable percentage of support to promote 
breakthrough technologies--a recognition that these innovations will 
lead the way in addressing our energy crisis. In contrast, a zero risk 
tolerance policy would defeat our efforts to mobilize America's 
inventive spirit in this endeavor.
    From my reading of the bill, it also appears that once our current 
financial crisis ends and credit markets return to normal, CEDA 
managers will be authorized to step back from lending to recipients 
that can secure their own private funding. This will allow the federal 
government to focus its limited resources on those breakthrough 
technologies struggling to cross the ``valley of death.''
    Yet another welcome nod to younger companies is CEDA's stipulation 
that its managers, in appropriate cases, may reduce, or even eliminate, 
previously required initial ``loan loss reserve'' payments, currently 
calculated by multiplying the loan guarantee amount by an actuarially 
determined default probability. Most emerging growth companies cannot 
afford these payments. Similarly, CEDA lightens the burden for 
companies pioneering breakthrough technologies by minimizing 
application fees for loan guarantees.
Loan Aggregation
    Loan aggregation is another terrific, and again, timely feature, 
since it will both facilitate the rapid increase of clean energy loans 
and energize the local banks that provide them. Under this approach, 
CEDA will be able to bundle together loans from multiple borrowers, 
which will both finance the upfront cost of renewable energy products 
for large numbers of buyers and reduce the cost of capital by lowering 
interest rates.
A Broadened Range of Eligible Loans
    The legislation furthermore wisely expands the types of loans and 
credit enhancements that may be issued. This flexibility will empower 
federal officials, for example, to help provide financing to 
manufacturers and loan guarantees for customer purchases of clean 
technologies, such as solar panels and fuel cells. In light of the 
credit crisis, many potential manufacturers and customers would be 
otherwise unable to produce and buy renewable energy products.
    Finally, I note that CEDA has been structured in a manner that 
allows government and private sector lenders to collaborate. I can 
imagine that one potential approach would allow CEDA and private 
lenders to share collateral. This could be done, for instance, by 
allowing a private lender to obtain a senior security interest on 
specific equipment, while at the same time, an additional, CEDA-enabled 
loan could attach its senior security interest to the remainder of the 
project. This flexibility will create a multiplier effect on the 
capital made available to clean energy companies under CEDA.
                            recommendations
    All these features go far along the way to ramp up urgently needed 
energy reform. Since you've asked, however, I'd like to recommend five 
ways you might go even further:

1. Loosen Hiring Restrictions
    American taxpayers will expect CEDA to retain the best available 
talent to make decisions involving many billions of dollars worth of 
complex loans, loan guarantees and other forms of credit enhancement. 
The current draft of the legislation allows CEDA to hire up to 20 
employees outside of the customary federal hiring restrictions, and 
only in extraordinary situations, for example, where the CEDA 
Administrator certifies that CEDA ``would not successfully accomplish 
an important mission without such an individual.''
    I recommend CEDA not be bound by unnecessarily restrictive federal 
hiring policies, as the DOE loan guarantee authority is today. These 
hiring restrictions to date have certainly slowed the implementation of 
the loan guarantees authorized under the 2005 Energy Policy Act. I 
believe a better approach would be to allow CEDA to employ and contract 
expertise as it sees fit, providing compensation consistent with 
prevailing private sector rates.
2. Add Business Expertise to the Advisory Council
    While I'm encouraged to note CEDA's refreshing strategy of 
welcoming scientific expertise to the new bank's Advisory Council, I 
recommend you balance that know-how with financial and energy market 
expertise, particularly individuals with experience with renewable 
energy. I believe this combination of scientific and business expertise 
will lead to the best decisions at the Advisory Council level.
3. Address Other Shortcomings of Existing Loan Policy
    CEDA amends the existing DOE loan guarantee program in important 
ways, but I recommend one further step: eliminating by statute the need 
for a credit rating agency review in the case of emerging growth 
companies. Such a review typically costs at least $150,000, and in the 
case of start-up firms simply confirms what everyone already knows--
that fledgling companies have low credit ratings. This requirement 
should be eliminated in the case of young companies.
4. Collaborate with the Department of Energy
    As I'm sure this Committee is already aware, the first conditional 
DOE loan guarantees were issued only very recently, even though 
Congress granted loan guarantee authority more than three years ago, in 
the 2005 Energy Policy Act. Energy Secretary Stephen Chu's team has 
been working hard to correct this state of affairs and get loans out 
the door to credit-starved energy companies. In addition to issuing 
conditional guarantees, Secretary Chu and his team are working to 
reduce the complexity and cost of applying for loan guarantees--efforts 
that will be particularly helpful to start-up companies. I would 
encourage you to implement CEDA in a fashion that doesn't interfere 
with the recent, impressive progress we've witnessed.
5. Communicate Progress and Challenges
    As our government moves ahead with its clean energy campaign, an 
effort that will surely require substantial cost and sacrifice, it will 
be particularly important to communicate to Americans what their tax 
dollars are achieving.
    To this end, I'd like to remind you of a suggestion I've made in 
past testimony, which is to create a national energy dashboard--perhaps 
managed by the DOE--to monitor our national energy transition. Updated 
monthly and widely disseminated, the dashboard might measure greenhouse 
gas emissions, the share of U.S. energy consumption powered by imported 
fuel, U.S. market share of the global renewable energy industry, 
federal funding for renewable energy research, and perhaps now even the 
ramping up of federal loans and credit enhancement.
                               conclusion
    Today's energy challenges are so vast and varied that we're 
ultimately limited only by our imagination in the ways we can most 
effectively address them. Again, however, I'm heartened by this 
Committee's efforts, and grateful you've once again invited me here to 
collaborate with you.
    I look forward to today's hearing and to learning more about how we 
can work together to build a more secure future for America and the 
world.

    The Chairman. Thank you very much.
    Jeanine Hull, we are glad to have you here. Please go right 
ahead.

          STATEMENT OF JEANINE HULL, COUNSEL, DYKEMA 
                         GOSSETT, PLLC

    Ms. Hull. Thank you very much, Mr. Chairman, Ranking Member 
Murkowski, and members of the committee. I am honored to be 
invited to convey my great respect for the work the committee 
and committee staff have done since the last time several of us 
testified on legislation to create a Federal clean energy 
funding entity.
    I am of counsel at Dykema Gossett, a Detroit-based law 
firm, where I advise clients on energy infrastructure and 
project finance issues. My testimony today, however, reflects 
exclusively my personal opinions based upon more than 30 years 
of experience in the energy infrastructure and finance sector.
    In my opinion, the committee's discussion draft of the 21st 
Century Energy Technology Deployment Act, which creates the 
Clean Energy Deployment Administration, or CEDA, has 
brilliantly reconciled and improved the bills introduced in the 
110th Congress by Chairman Bingaman and then-Ranking Member 
Domenici, which were the subject of the July 2008 hearing. 
Although similar to each other in most critical respects, S. 
2730 focused on rapid deployment of existing technology while 
S. 3233 focused on development of breakthrough technologies, 
and each bill authorized the use of different tools to achieve 
its respective purpose. As the discussion draft recognizes, 
however, both purposes and both sets of tools will be required 
to achieve the scope and scale of low and zero carbon 
technology deployment necessary to meet the four challenges of 
reliable domestic energy supply, environmental protection and 
avoidance of major climate change damage, economic growth, and 
physical security.
    The fundamental purpose of CEDA is to use the limited 
financial resources of the Federal Government, combined with 
the expertise found in the outstanding laboratories, operated 
by the Department of Energy and elsewhere, to leverage the 
resources of the private sector capital markets for rapid 
commercialization and deployment of energy efficiency and 
renewable technologies to meet these four challenges. We appear 
to no longer be debating whether such an entity is required, 
only how to ensure that it achieves its mission with minimal 
risk to the taxpayers.
    Those who are concerned about any similarity between CEDA 
and Fannie Mae or Freddie Mac should take comfort in the fact 
that CEDA will terminate after 20 years, not likely long enough 
to compete with other market participants, and in addition, as 
a governmental entity, CEDA is not owned by shareholders and is 
not, therefore, driven by a quarterly earnings requirement and, 
thus, will not be subject to the kinds of incentives and 
pressures applied to Fannie and Freddie.
    However, CEDA can only succeed in its mission to manage 
technological and financial risks if it is built on a solid 
foundation of prudence, transparency, accountability, and 
confidence. I believe such a foundation has been established in 
this draft bill, and in my written testimony, I specifically 
emphasize and support the numerous protections contained in the 
bill to ensure these elements.
    I do, however, want to note specifically that the Secretary 
of Energy is required to establish specific goals for CEDA. 
These goals are further refined by an energy technology 
advisory council which will establish the assessment 
methodology to be applied to all funding requests and provide 
independent due diligence on specific technology approaches. I 
believe this requirement for technology due diligence by the 
council will be one of CEDA's major contributions to the 
market. The council will be composed of experts from a broad 
array of relevant fields, enabling the council to develop a 
more accurate appraisal of specific technology than any 
investor or investor group is likely to be able to produce 
otherwise. Private investors will, therefore, be able to rely 
on the council's assessment which will provide a strong market 
signal of technical feasibility. This in itself should greatly 
facilitate private capital market funding.
    In addition, the administrator is explicitly tasked with 
the responsibility to ensure that the administration operates 
in a safe and sound manner. This is defined as including the 
establishment and review of internal controls, consistent with 
section 404 of the Sarbanes-Oxley Act. Having been a compliance 
officer in energy trading firms, I have come to believe that 
the only controls that are effective on a daily basis are these 
internal hard controls that separate deal initiation or front-
office activities from accounting and other back-office 
activities by having different people perform those tasks who 
themselves report to different officers. Charges of rogue 
employees are simply to me corporate speak for a lack of 
internal controls. That this section is included in the 
discussion draft indicates the care taken to ensure the long-
term viability of this entity.
    I believe that a careful review of the discussion draft 
shows that the committee has gone the extra mile to ensure that 
CEDA's mission is clear, achievable, and focused; that CEDA is 
provided with the necessary tools, authorities, and flexibility 
to achieve its mission; and that CEDA has been structured to 
ensure, as far as possible, that its resources are managed 
carefully and with strict accountability, transparency, and 
prudence, all the while ensuring the safety and soundness of 
the entity.
    However, the other critical task of the legislation is to 
encourage CEDA to take on risky, but promising investments 
necessary for it to meet its mission of fostering breakthrough 
technologies without fear that the failure of one or more of 
those technologies will eliminate support for its risk-taking 
mission. Here again, I believe the committee has done an 
outstanding job.
    It is critical to be very clear that, if enacted, CEDA will 
support some projects that, despite best efforts and thorough 
due diligence, will result in losses. It is very hard for any 
entity to acknowledge and accept losses or failures, but it is 
particularly difficult for an entity subject to public scrutiny 
and accountability to do so.
    This is why I believe the heart and soul of this bill is 
section 7(a)(1)(C), a section simply titled ``Risk.'' The key 
part of this section requires the establishment of a loss 
reserve, the very existence of which acknowledges the 
inevitably of losses and provides a buffer against such losses. 
However, cash held in loss reserves is by definition not 
available for productive use or investment. The initial loss 
reserve requirement, pending setting a requirement tailored to 
its own risk experience, while appropriate for private firms, 
is probably too low for CEDA since CEDA is tasked to facilitate 
the funding of higher-risk projects than private equity is 
willing to fund. However, the goal of loss protection is in 
tension with the need to make as much capital as possible 
available to maximize the number of funded projects, as the 
chairman noted in his opening remarks. This is a perfect 
illustration of the perpetual tug of war between risk 
mitigation and potential payoff, which is the defining 
characteristic of this type of entity.
    Only if CEDA knows that it is acceptable--in fact, 
expected--to recognize losses will it allow itself to take on 
the risk it must take to achieve its mission. I would argue 
that if it does not fail enough, it is not taking the 
appropriate level of risk. Courage and boldness, along with 
prudence, are required on all frontiers, and we are most 
definitely on a technology frontier.
    Mr. Chairman, Ranking Member Murkowski, thank you for the 
opportunity to testify today in support of legislation that is 
so vital to our country. I urge this committee to act on this 
bill and move it to the floor as quickly as possible. Time is 
truly of the essence.
    This concludes my prepared remarks.
    [The prepared statement of Ms. Hull follows:]
   Prepared Statement of Jeanine Hull, Counsel, Dykema Gossett, PLLC
    Good morning Mr. Chairman, Ranking Member Murkowski, and members of 
the Committee. I am honored to be invited back to convey my great 
respect for the work the Committee and Committee staff have done since 
the last time many on this panel were invited to give our thoughts on 
legislation establishing a federal clean energy funding entity.
    I am currently `of counsel' at Dykema Gossett, PLLC, a law firm 
based in Detroit, where I advise clients on energy infrastructure and 
project finance issues. My testimony today, however, reflects 
exclusively my personal opinions based upon more than 30 years in the 
energy infrastructure and finance sector.
    The subject of my comments today is the Committee's Discussion 
Draft of the 2lst Century Energy Technology Development Act which would 
create the Clean Energy Deployment Administration (``CEDA''). In my 
opinion, this Draft has brilliantly reconciled and updated bills 
introduced in the 110th Congress, S. 3233 and S. 2730, by Chairman 
Bingaman and Ranking Member Domenici respectively, which were the 
subject of the July 2008 hearing. Although similar to each other in 
most critical respects, those bills differed in two fundamental 
respects: S. 2730 was focused on rapid deployment of existing 
technology while S. 3233 focused on development of ``breakthrough'' 
technologies, and each bill authorized the use of different tools to 
achieve its respective purpose. As the Discussion Draft recognizes, 
both purposes and sets of tools will be required to achieve the scope 
and scale of low and zero carbon technology deployment necessary to 
meet the four challenges of reliable domestic energy supply, 
environmental protection and avoidance of climate change damages, 
economic growth and physical security.
    Testimony last year focused primarily on the need for a clean 
energy funding facility, the seriousness of our energy related climate 
and security problems, and the need for a federal funding entity to 
facilitate the rapid deployment of not only existing energy efficiency 
and renewable energy technologies, but also of breakthrough 
technologies that have the potential to be `game-changers' in a carbon-
constrained economy.
    There was significant discussion then about the crisis already 
developing in the credit markets which balked at financing novel energy 
technologies, and the decades of failure to achieve significant 
efficiencies in energy use. So many things have changed since that 
hearing in mid-July 2008: among many other things, the advent and 
collapse of $4.50/gal. gasoline; the near total collapse of domestic 
credit markets which spread globally; alarming new findings about how 
much more quickly climate change is occurring than had been predicted 
just 2 years earlier; a change of Administration; failures in key 
domestic economic sectors, and the enactment of a nearly trillion 
dollar federal stimulus package to address some of these events. All 
this occurred in a matter of months!
    The bright spot in this otherwise dreary litany is that now we are 
no longer debating whether to take action, but how. Evidence of the 
seriousness with which this Committee addressed the task of reconciling 
the two excellent bills from last year is before us in form of the 
Discussion Draft. The Committee clearly listened last year, not only to 
the formal witnesses, but also to those whose concerns about federal 
funding entities rose sharply with the trouble experienced last fall by 
Fannie Mae and Freddie Mac, resulting in their takeover by the federal 
government. The drafters of the Discussion Draft have taken great pains 
to tailor the authorities and responsibilities of CEDA, as well as the 
oversight functions of an independent Inspector General, the Government 
Accountability Office and Congress. The drafters also provided a 
focused and specific task, specific goals and the appropriate tools to 
accomplish those goals.
    Last year the Committee was encouraged to leverage the Government's 
resources through the private capital markets and to provide credit 
support or risk transfer to encourage private capital markets to fill 
the gaps in existing lending practices. One specific lending gap 
discussed was the infamous 'valley of death,' that is, the difficulty 
of finding funding for projects attempting to pass from pilot scale 
demonstration to commercial deployment. The other gap identified was 
the lack of funding for widely available and proven, but small scale, 
efficiency and renewable projects which cannot support standard 
transaction costs. Witnesses testified that government funds were 
appropriately applied to offset technology risk in breakthrough or 
novel technologies, and financing/credit risk in small scale 
applications that when deployed in massive numbers can provide 
disproportionately large savings of carbon-based energy. Although it 
has long been recognized that funding of basic research and development 
is an important governmental function, justifying the expenditure of 
millions of dollars annually, we are now beginning to acknowledge the 
need and legitimacy for federal assistance to accomplish rapid and 
widespread commercialization and deployment of appropriate 
technologies.
    Congress tested the waters for deployment support in the 2005 
Energy Policy Act by creating the Loan Guaranty Program within the 
Department of Energy. The fact that as of April 2009, no loan has yet 
been guaranteed is not entirely the fault of the Department. The 
legislative changes to the loan program are ones that should 
substantially improve its ability to perform on a more timely basis. In 
part, the lack of speed of the loan program demonstrates the need for 
more than a single tool to accomplish such a monumental task. This 
challenge has been met with the bill before you.
    The draft 21st Century Energy Technology Deployment Act has 
resolved the tension between the difference in focus and authorities 
granted in S. 3233 and 2730. The new bill sets forth CEDA's mission in 
Section 2 as (in paraphrase) promoting the domestic development and 
deployment of clean energy technologies by creating an attractive 
investment environment through partnership with and support of the 
private capital market, with a priority on breakthrough technologies. 
In short, the goals of both earlier bills have been melded together 
while clearly putting the government in a limited, but critical support 
role with respect to private markets. This subordinate role is 
underscored by the fact that CEDA has a limited life of 20 years. It is 
to provide the foundation for capital market development and then 
terminate, not remain to compete in the markets it helps create. And 
quite soundly, the draft provides all of the tools that were included 
in last year's Bingaman and Domenici bills.
    Those who are concerned about any similarity between CEDA and 
Fannie Mae or Freddie Mac should take significant comfort in the fact 
that CEDA is structured from the 'get-go' as a support facility for 
private capital markets, and is not intended to stay in existence long 
enough to compete in that market with the other for-profit 
participants. This limitation alone is in all likelihood, sufficient to 
prevent CEDA from following the paths of Fannie and Freddie.
    However, CEDA can only succeed in its mission to manage 
technological and financial risks to promote commercialization of clean 
energy technologies if it is built on a solid foundation of prudence, 
transparency, accountability and competence. I believe such a 
foundation is established in this bill and want to specifically 
emphasize and support the need for the following provisions:
                        i. safety and soundness
a. PRUDENCE
    Numerous provisions of the draft require the CEDA Administrator or 
the Secretary of Energy to create a well-thought out plan of how to 
achieve the goals established by the bill. I shall address transparency 
in a moment, but of course, all final planning documents will be 
publicly available and subject to review. This approach carefully 
balances the need for speed and flexibility with the need for prudent 
consideration of various approaches and options.
    Section 5 of the draft requires the Secretary of Energy to 
establish specific goals for CEDA with respect to ensuring adequacy of 
domestic energy supply, reducing reliance on foreign energy resources, 
developing clean manufacturing capabilities, improving and expanding 
energy infrastructure, and preventing energy waste, among other things.
    These goals are further refined by an Energy Technology Advisory 
Council which will establish the assessment methodology to be applied 
by the Administration to all funding requests, and provide independent 
due diligence on specific technological approaches. I must note here 
that the requirement for technology due diligence by the Council will 
be one of CEDA's major contributions to the market. The Council will be 
composed of experts from a broad array of relevant fields, enabling the 
Council to develop a more accurate appraisal of a specific technology 
than any investor or investor group is likely to be able to otherwise 
acquire. Private investors will be able to rely on the Council's 
assessment with confidence, providing a strong market signal of 
technical feasibility. The Council's imprimatur will give great 
credibility to CEDA's decision to fund a particular project or 
technology. This in itself should greatly facilitate private capital 
market funding.
    The Administrator is required to establish and maintain an adequate 
loss reserve, an amount of cash or liquid securities set aside to 
protect the Administration against expected losses. This is consistent 
with safety practices required by the banking, credit union and savings 
and loan regulators, the Securities and Exchange Commission and the 
Commodity Futures Trading Commission in regard to entities subject to 
oversight.
    In addition, the Administrator is explicitly tasked with the 
responsibility to ensure that the Administration operate in a 'safe and 
sound' manner. This is defined as including the establishment and 
review of internal controls, consistent with Sec. 404 of the Sarbanes-
Oxley Act. (See Sec. 6(b)(2)(B) of the Draft).
    Having been a compliance officer in a number of energy trading 
firms, I have come to believe that the only controls that are effective 
on a daily basis are internal ``hard'' controls, not licensing 
requirements or other external behavior prohibitions. Internal controls 
that separate deal initiation, or ``front office activities,'' from 
accounting and other ``back office'' activities, by having different 
people perform those tasks who themselves report to different officers, 
are the best means to avoid ``rogue bankers.'' In my experience, 
charges of ``rogue bankers'' or ``rogue traders'' are simply corporate-
speak for a lack of adequate internal controls, both functional and 
behavioral. That this section is included in the Discussion Draft 
indicates the care taken to ensure the long-term success of this 
entity.
b. TRANSPARENCY
    As part of the US Department of Energy, CEDA is subject to 
oversight by the authorizing and appropriating committees of Congress 
and is required to report annually on its activities to Congress. It is 
subject to oversight by the Office of Management and Budget and it is 
subject to the provisions of the Administrative Procedures Act and the 
Freedom of Information Act, two laws, among others, which can provide a 
substantial level of transparency into CEDA's decision-making and 
activities. Moreover, the Administrator is required to develop policies 
and procedures that promote transparency and openness in CEDA 
operations.
c. ACCOUNTABILITY
    The Administrator, who also serves as chair of the Board of 
Directors, is appointed by the President, reports to the Secretary of 
Energy, and, along with other Directors, may be removed from office by 
the President for cause. The Administrator is responsible and 
accountable for meeting the goals established by the Secretary. In 
addition, the Secretary of the Treasury will have an independent 
responsibility to monitor the aggregate level of activity by the 
Administration.
    The Government Accountability Office is required to audit CEDA on a 
regular basis, and is granted access to all personnel, records, 
property, etc. necessary to perform its audit. Further, the 
Administrator shall annually order an independent audit of CEDA's 
financial statements by an independent public accountant, to be 
conducted in accordance with generally accepted auditing standards. In 
addition, the Administrator shall prepare and submit annual and 
quarterly reports to the Secretary of Energy in the form prescribed by 
the Secretary.
    Taking a page from recent securities legislation, the 
Administrator, as the Chief Executive Officer, and the Chief Financial 
Officer are required to personally certify the accuracy and 
completeness of these reports. Those reports will be made public after 
receipt by the Secretary. An Inspector General will be assigned to CEDA 
on a permanent basis.
d. COMPETENCE
    The Draft recognizes the need for the types of specialized 
expertise and experience which does not normally reside in the federal 
workforce. The Administrator is granted significant flexibility to 
bring in personnel with necessary expertise where justified, subject to 
a limit on the total number of `exempt' staff at any given time, and 
certain other limitations.
    I believe that a careful review of the Committee Draft shows that 
the Committee has gone the extra mile to ensure that CEDA's mission is 
clear, achievable and focused; that CEDA is provided with the necessary 
tools, authorities and flexibility to achieve its mission; and that 
CEDA has been structured to ensure, as far as possible, that its 
resources are managed carefully and with strict accountability for its 
decisions, ensuring all the while the safety and soundness of the 
entity.
                                ii. risk
    After ensuring an appropriate mission and providing a structure for 
safety and soundness, the next important task is to allow CEDA to take 
on risky investments necessary for it to meet its mission of fostering 
breakthrough technologies, without fear that the failure of one or more 
supported technologies or projects will reduce or eliminate support for 
its risk-taking mission. Here again, I believe the Committee has done 
an outstanding job.
    It is critical to be very clear that, if enacted, CEDA will support 
some projects that, despite best efforts and thorough due diligence, do 
not perform as expected, resulting in financial losses to CEDA. This 
will happen and only means that CEDA is doing its job. If there were 
little or no risk in CEDA's mission, there would be no need for it in 
the first place. It is very hard for any entity to acknowledge and 
accept losses or failures, but it is particularly difficult for an 
entity subject to public scrutiny and accountability to do so because 
of the potential for public humiliation in the wake of such loss, 
something CEDA's counterparts in private equity do not usually have to 
face.
    That is why I believe the heart and soul of this bill is Section 
7(a)(1)(C), a section simply titled ``Risk.'' This section requires the 
establishment of a loss reserve, as discussed above, and even provides 
an initial loss reserve requirement, pending sufficient data to create 
a requirement more tailored to its own risk experience. The selected 
loss reserve requirement is one common among private equity and other 
risk firms. This loss reserve level, appropriate for private firms, is 
probably too low for CEDA, since CEDA is tasked to facilitate the 
funding of higher risk projects than private equity is willing to fund. 
However, this goal is in tension with the need to preserve as much 
capital as possible to maximize the number of projects which receive 
funding. This is a perfect illustration of the perpetual tug of war 
between risk mitigation and potential payoffs, which is the defining 
characteristic of this space.
    This section requires a portfolio or diversified approach, while 
other sections of the bill allow for the creation of multiple risk 
silos, with separate qualifications, fees and characteristics to 
accommodate a diversified portfolio. Most importantly, this section 
requires CEDA to provide the ``maximum practicable percentage of 
support to promote breakthrough (i.e., the riskiest) technologies.''
    These provisions are critical to the achievement of CEDA's mission, 
which is nothing short of attempting to retool our economy to support a 
`low-to-no-' carbon footprint. Only if CEDA knows that it is 
acceptable, in fact, expected to recognize losses, will it allow itself 
to take on the risks it must take to achieve its mission. I would argue 
that if it does not `fail' enough, it is not taking the appropriate 
level of risk. Again, what is `enough' failure and what is too much can 
be answered only by experience. We will not crash through the carbon-
based economy barrier with timidity or by being risk averse. Courage 
and boldness are required on all frontiers--and we are most definitely 
on a technology frontier.
           iii. national environmental policy act (``nepa'')
    I encourage the Committee to consider narrowing the applicable 
scope of the National Environmental Policy Act to this program.
    Most of CEDA's activities and support will be focused on leveraging 
private capital markets by providing some means of mitigating 
technology risk, either through loan guarantees, credit support, 
insurance, or by other means short of direct investment or lending. 
When acting in a purely credit support role, it would be beneficial if 
the project under consideration for such support could be subjected to 
significantly less than full NEPA assessment or review. Of course, if 
CEDA is considering investing equity or making a direct loan, a fuller 
evaluation would be appropriate. This is particularly important in view 
of the recognition by both the Department and the Committee that most 
applications should receive a final determination within 180 days of 
submission.
                             iv. conclusion
    In my testimony last year, I identified four primary challenges to 
our nation's future. I believe that, as proposed in the 21st Century 
Energy Technology Deployment Act, CEDA will address each of the four 
security challenges as follows:

          Energy Security will be enhanced by the development of 
        domestic, affordable, reliable and sustainable sources of 
        energy to meet the demand for fuels and electricity while 
        simultaneously making the system less vulnerable to intentional 
        and unintentional disruption.
          Economic Security will be enhanced through the increased 
        ability of the United States to insulate itself from the 
        inflationary pressures of dependence on a petroleum-based 
        economy, as well as slow the imbalance of payments to oil- and 
        gas-producing nations, many of which wish to do us harm. By 
        retaining petro-dollars at home and refocusing them on a 
        ``greener'' economy, the United States can maintain and enhance 
        its manufacturing and intellectual competitiveness, create and 
        maintain good jobs and support (and export) thriving new 
        technologies.
          National (Physical) Security will be enhanced by reducing our 
        need to protect foreign oil and gas infrastructure and reducing 
        our presence in unstable areas which harbor those who may wish 
        to retaliate against the United States on its homeland as well 
        as abroad.
          Environmental Security will be enhanced by reducing the 
        volume of emissions which contribute to climate change and 
        otherwise pollute the air, water and soil.

    Mr. Chairman, Ranking Member Murkowski, thank you for the 
opportunity to testify today in support of legislation that is so vital 
to our country. I urge this Committee to act on this bill and move 
legislation to the floor as quickly as possible. Time is truly of the 
essence.
    This concludes my prepared remarks. I look forward to your 
questions.

    The Chairman. Thank you very much.
    Joe Hezir, we are glad to have you here.

       STATEMENT OF JOE HEZIR, VICE PRESIDENT, EOP GROUP

    Mr. Hezir. Thank you for the opportunity to be here today. 
My comments are going to be perhaps more specific and targeted 
to the budgetary and financial management aspects of the 
committee discussion draft bill, the 21st Century Energy 
Technology Deployment Act.
    I served in several career positions at the Office of 
Management and Budget for over 18 years, and during that period 
of time, I had oversight for energy technology R&D programs, 
including demonstration and deployment activities. I currently 
serve as a consultant and an advisor to a number of entities 
that are participating in the title 17 program, but my comments 
today are my own and reflect the result of my cumulative 
Government and private sector experience and do not represent 
the views of any particular entity.
    Let me speak first to the amendments to title 17 of the 
Energy Policy Act. Title 17 originally established a simple and 
flexible structure for the program at DOE. However, this 
structure, because of its flexibility and lack of definition, 
in some cases has actually contributed to delays or 
uncertainties, and the amendments contained in this bill do 
much to provide needed clarification and direction to DOE.
    I just want to highlight several particular aspects of 
those amendments, such as the revision to the definition of 
commercial technologies which moves the definition to more of a 
financial needs-based definition.
    Second, the amendments give DOE greater flexibility to use 
a combination of fees and appropriated funds to pay for budget 
subsidy credit costs, which gives DOE the flexibility to 
support smaller-scale projects and to support projects with 
higher risk, but greater technological breakthrough potential.
    The amendments also clarify that appropriations act 
authority is not needed for the Department to issue loan 
guarantees that are paid 100 percent by the borrower. This 
amendment codifies an April 20th, 2007 GAO legal opinion that 
ruled that the so-called self-pay authority in the Energy 
Policy Act was independent of the Federal Credit Reform Act and 
not subject to the Federal Credit Reform Act. This amendment 
provides that needed clarification that DOE can proceed with 
the issuance of loan guarantees without further appropriation 
actions in cases where the borrower is willing to pay 100 
percent of the cost of the budget credit subsidy.
    There also is an amendment in this bill that provides 
greater flexibility for DOE to enter into collateral-sharing 
agreements with other lenders, as well as to allow multiple 
equity investors that hold undivided interests in project 
assets. When title 17 was enacted and the original regulations 
were developed, they were developed primarily based on the 
presumption that this program would operate with projects that 
had a single equity holder and a single lender. In reality, the 
financing structures, some of which were described here this 
morning, may involve multiple equity holders, as well as 
several co-lenders, including in some cases foreign export 
credit agencies.
    The amendments in this bill, if accompanied with the 
appropriate changes in the DOE regulations, would enable DOE 
greater flexibility to hold collateral in undivided interest 
structures. It would enable DOE to adopt parallel lending 
structures and would allow DOE to accept other collateral other 
than project assets. This will help to reduce the risk exposure 
to the Federal Government and in many cases enable DOE to 
strengthen its collateral position.
    The amendments also allow for the program to be converted 
to a revolving fund, which is a customary Federal budgetary 
account that allows it to better use its fee revenues and to 
establish loan loss reserves.
    These amendments, I believe, set the stage for the 
establishment of the proposed Clean Energy Development 
Administration, or CEDA. CEDA builds upon this and establishes 
a new entity within DOE without creating a wholly new entity 
such as a Government corporation. I think this balance will 
permit faster startup while ensuring appropriate independence.
    There are four pieces of the CEDA financial mechanisms that 
I would like to briefly comment on.
    The first has to do with what I call the CEDA business 
model. CEDA financing authorities are modeled after the 
successful business models that have been currently used in the 
Federal Government in the U.S. Export Import Bank and the 
Overseas Private Investment Corporation.
    The Export Import Bank, as many of you know, provides 
guarantees for buyers of U.S. goods and services overseas. The 
bank is authorized to engage in credit activities up to $100 
billion, and their programs have been very successful. In fact, 
the bank earns fees in excess of its loan losses and its 
administrative expenses.
    OPIC provides loan guarantees and political risk insurance 
for U.S. investors that are seeking to invest in developing 
countries and emerging markets. They currently have a portfolio 
of about $7 billion, but OPIC also earns net revenues on its 
political risk insurance and it has a cost of only about 2 
percent on its loan guarantee portfolio.
    The other aspect of the bill that I think is important is 
that the Federal Credit Reform Act would apply to the 
transactions of this entity which provides a very rigorous 
risk-based methodology for the CEDA to evaluate and process 
applications.
    The CEDA legislation also, I believe, has a very good 
provision and provides for a portfolio approach with the clear 
objective that the portfolio become self-sustaining.
    I think also it is very important that the legislation 
requires CEDA to establish a loan loss reserve. Establishing a 
clear, up-front policy on loan loss rates, I believe, is 
critical to guide CEDA's risk appetite for clean energy 
technologies.
    Fourth and finally, the bill includes a number of 
provisions to ensure a high level of transparency and 
accountability. These include a separate inspector general, GAO 
reviews and oversight, audited annual financial statements, and 
several reporting requirements to Congress.
    In conclusion, I would just like to say that the proposed 
CEDA will not be risk-free. Financing the deployment of clean 
energy technology projects, including those with potential 
breakthrough possibility, will entail risk. But I believe that 
the framework that is created in the draft bill will provide a 
rigorous framework to ensure prudent risk management.
    Thank you, Mr. Chairman. That concludes my remarks. I would 
be happy to answer any questions.
    [The prepared statement of Mr. Hezir follows:]
       Prepared Statement of Joe Hezir, Vice President, EOP Group
    Mr. Chairman and Members of the Committee:
    Thank you for the opportunity to discuss with you today the 
budgetary and financial management aspects of the Committee discussion 
draft bill, the ``21st Century Energy Technology Deployment Act.''
    I served in several career executive positions at the Office of 
Management and Budget for a period of 18 years, the last 6 years as 
Deputy Associate Director for Energy and Science. While at OMB, I was 
responsible for oversight of energy technology R&D programs, including 
policies for technology demonstration and deployment.
    I currently am a consultant and advisor to a number of companies 
participating in the DOE Title XVII loan guarantee program. I also 
advise several industry trade associations on loan guarantee program 
issues. My comments today are my own and reflect my cumulative 
government and private sector experience and do not represent the views 
of any particular company or organization.
    My comments are focused on three topics:

   the proposed amendments to Title XVII of the Energy Policy 
        Act of 2005;
   the financial management provisions of the proposed Clean 
        Energy Deployment Administration (CEDA); and
   the transition process from the current DOE Title XVII 
        program to the proposed new CEDA.

       amendments to title xvii of the energy policy act of 2005
    The enactment of Title XVII of the Energy Policy Act of 2005 (EPACT 
2005) posed a major challenge to the Department of Energy. Title XVII 
authorized not only a new program in DOE, but one that was of an 
entirely different character than any existing DOE program. 
Implementation of the Title XVII loan guarantee program for innovative 
technologies required the establishment of a new office, hiring of 
staff with expertise that did not exist within DOE, development of new 
regulations, and development of a new business model within DOE. 
Although the pace of implementation has not been as rapid as many 
observers would like, the DOE Loan Guarantee Program Office has made 
substantial progress and has now gained momentum that should become 
evident in decisions in the near future.
    Title XVII of the EPACT 2005 established a relatively simple and 
flexible structure for the DOE Loan Guarantee Program. However, the 
absence of detailed and prescriptive direction in the original statute 
has contributed to delays and uncertainties.
    New developments since the time of enactment, such as the potential 
for co-financing from foreign export credit agencies and the collapse 
of commercial lending and private equity markets, created issues that 
were not envisioned at the time of EPACT 2005.
    The draft bill contains a set of amendments to Title XVII that 
provide much needed clarification and direction. In particular, the 
proposed amendments would:

   revise the definition of ``commercial technologies'' so that 
        the criterion for eligibility for a loan guarantee would 
        reflect the inability of a proposed clean energy technology 
        project to obtain commercial financing, rather than simply the 
        number of times that the technology was deployed in previous 
        projects receiving DOE Title XVII loan guarantees;
   allow DOE to use a combination of fees and appropriations to 
        pay for budget credit subsidy costs, providing DOE flexibility 
        to adjust fees as needed to support smaller scale projects or 
        projects with higher risk but greater technological 
        breakthrough potential;
   clarify that appropriations Act authority is not necessary 
        for the volume of loan guarantees that are supported through 
        100% self-pay fees. This amendment codifies an April 20, 2007 
        Government Accountability Office (GAO) Legal Opinion that the 
        so-called self-pay authority in Section 1702 (b)(2) of EPACT 
        2005 was independent from the requirement of Section 504 (b) of 
        the Federal Credit Reform Act of 1990. Section 1702 (b) of 
        Title XVII provides clear DOE authority to issue loan 
        guarantees through the self-pay mechanism, whereby DOE can 
        charge, collect and deposit in the Treasury such payments 
        without the need for appropriations. This does not limit the 
        ability of Congress to establish limits on self-pay guarantees; 
        it merely clarifies that no further appropriations action is 
        necessary in order for DOE to exercise the authority provided 
        in Section 1702 (b).
   provide greater flexibility for DOE to enter into 
        collateral-sharing agreements with other lenders, especially 
        foreign export credit agencies, as well as allow multiple 
        equity investors that hold undivided interests as joint tenants 
        in project assets. EPACT 2005 and the DOE implementing 
        regulations were premised on an assumption that Title XVII 
        projects would have a single equity holder and a single lender. 
        Financing structures, particularly for larger power generation 
        projects, may involve multiple equity holders, using the 
        ownership structure of joint tenancy, as well as several co-
        lenders. In some cases, equity holders with undivided interests 
        may provide a corporate guarantee beyond their ownership 
        interest in the project which would yield a significantly 
        stronger credit position for DOE. The proposed amendment on 
        subrogation, supplemented with changes in the DOE regulations, 
        will enable DOE to:

    --hold collateral in undivided interest structures;
    --adopt parallel financing structures (including co-lending from 
            Export Credit Agencies), and
    --more easily accept collateral other than project assets.

    These arrangements will lower the risk exposure to federal 
taxpayers and enable DOE in many cases to strengthen its collateral 
position;

   convert the current DOE Loan Guarantee appropriation account 
        into a revolving fund, which is the customary type of federal 
        budgetary account used for business-like transactions. This 
        modification will provide greater funding certainty by enabling 
        DOE to utilize fees immediately upon collection, without 
        further appropriation, to pay for the continuing ramp-up in 
        staff and support services. The proposed change in the budget 
        accounting would reinforce the current requirement for DOE to 
        recover 100% of administrative costs through fees; and
   provide clearer direction to DOE to complete its reviews of 
        project applications within 180 days. This will help guide 
        internal DOE program planning, while providing greater schedule 
        certainty to project applicants.

    In short, these amendments provide DOE greater clarity to overcome 
uncertainties in implementation, and provide greater flexibility to 
respond to the types of project applications received to date. These 
amendments are necessary to achieve expeditious implementation of both 
the original Title XVII program, as well as the new Section 1705 
program authorized by the Recovery Act, without diminishing program 
effectiveness or accountability. However, it will be necessary for DOE 
to promptly make corresponding changes in its Title XVII regulations to 
reflect these changes.
       the proposed clean energy deployment administration (ceda)
    The proposed Clean Energy Deployment Administration (CEDA) builds 
upon and greatly strengthens the current DOE Loan Guarantee Program 
Office without the need to establish a new, wholly independent entity 
such as a government corporation. Placing the CEDA within the 
Department will enable the new organization to achieve operational 
status more quickly, while establishing its independence in the areas 
of personnel management, legal support, procurement and administrative 
services. This organizational placement also will foster better 
integration of CEDA activities with the proposed Energy Technology 
Deployment goals established by the Secretary of Energy.
    The proposed CEDA will have two principal financing authorities:

   direct provision of credit enhancements in the form of 
        loans, loan guarantees and related instruments; and
   indirect encouragement of commercial lending for clean 
        energy technologies through the purchase and resale of 
        commercially-originated loans for clean energy technologies.

    The draft bill provides that, upon transfer of Title XVII functions 
to CEDA, an additional $10 billion in direct funding will be provided 
to CEDA from the Treasury. Assuming that the CEDA manages its portfolio 
with a loan loss target rate of 10 percent or less, the funding should 
be sufficient to support over $100 billion in loans, loan guarantees 
and other forms of credit enhancement. These amounts are in addition to 
the amounts made available in the Recovery Act and the Fiscal 2009 
Omnibus Appropriations Act. In addition, CEDA is authorized to borrow 
$2 billion from Treasury for securitization of clean energy technology 
project loans originated by commercial lenders. The borrowing authority 
will provide the initial capital to ``prime the pump'' as CEDA develops 
a self-sustaining securitization program.
    There are four aspects of the proposed CEDA financing authorities 
that I would like to highlight: (1) the design of the CEDA financing 
provisions based on the experience of other federal credit agencies, 
(2) application of the Federal Credit Reform Act, (3) provisions to 
encourage prudent risk management, and (4) transparency and 
accountability requirements.
    First, it is important to note that the CEDA financing authorities 
are modeled after the successful business models of the U.S. Export-
Import Bank (ExIm Bank) and the Overseas Private Investment Corporation 
(OPIC).

   The ExIm Bank provides loans and loan guarantees to 
        international buyers for the purchases of U.S. goods and 
        services. The Bank is authorized to issue loans and loan 
        guarantees up to a statutory cap of $100 billion. The current 
        portfolio has an outstanding balance of over $40 billion. The 
        ExIm Bank makes credit decisions on the basis of a credit risk 
        model that classifies prospective borrowers by host country and 
        ownership structure. The country risk ratings are developed 
        through an Interagency Country Risk Assessment System (ICRAS) 
        that is applicable to all federal international assistance 
        programs. ExIm Bank's programs have been highly successful. It 
        expects to earn revenues from fees in excess of loan loss 
        reserves and administrative expenses.
   OPIC provides loans, loan guarantees and political risk 
        insurance to encourage U.S. firms to invest in the economic and 
        social development of developing countries and emerging market 
        economies. OPIC also uses the ICRAS system in assessing host 
        country risk. OPIC has a current portfolio of loans and loan 
        guarantees of about $7 billion. OPIC earns net revenues from 
        its political risk insurance program, and has a budget subsidy 
        cost of only about 2 percent on its loan guarantee portfolio.

    The financing authorities of the proposed CEDA are similar to those 
of ExIm Bank and OPIC, and should enable CEDA to manage a large and 
self-sustaining credit portfolio employing a disciplined risk 
management process.
    Second, the proposed CEDA would be subject to the Federal Credit 
Reform Act of 1990 (FCRA), and would utilize the tools of FCRA to 
manage loans and loan guarantees. FCRA provides three benefits: (1) a 
rigorous methodology for evaluating project risk, (2) a disciplined 
process for periodic review and re-estimate of the risks associated 
with credit portfolios, and (3) reliance on permanent indefinite budget 
authority to liquidate any losses in excess of the budget credit 
subsidy cost (or loan loss reserve). The application of FCRA has had a 
beneficial impact on the performance of federal credit programs. At the 
end of fiscal year 2007, the last full fiscal year prior to the current 
economic recession, the federal government held a portfolio of $260 
billion in direct federal loans and $1.2 trillion in loan guarantees. 
OMB budget data show that, on a government-wide basis, the budget 
subsidy cost for new loan guarantees issued during fiscal 2007 was 2.1 
percent, and that losses from guaranteed loans terminated for defaults 
amounted to only 1.03 percent of the outstanding balance of the 
portfolio.
    Third, the draft bill requires prudent risk management. The draft 
bill directs CEDA to adopt a portfolio approach, with a clear objective 
that the portfolio becomes self-sustaining. As part of this portfolio 
approach, the draft bill requires CEDA to establish a loan loss 
reserve, and further states that the Administrator of CEDA ``. . .shall 
consider establishing an initial rate of up to 10 percent for the 
portfolio of investments under this Act.'' The draft bill also provides 
for an annual review of loan loss rates by the Board of Directors and 
an annual report to Congress on the results of that review. 
Establishing a clear, up-front policy on loan loss rates is critical to 
guide CEDA's risk appetite for clean energy technologies, especially 
breakthrough technologies. Regardless of the specific numerical target 
selected by CEDA, the portfolio will encompass a range of project risk, 
and it is likely (and desirable) that a significant portion of the 
portfolio will have loan loss risk that is substantially less than the 
average loss rate used to establish reserves.
    Fourth, and finally, the draft bill provides a number of important 
provisions to ensure a level of transparency and accountability for 
CEDA that exceeds the current Title XVII program. Specific measures 
include:

   a separate, dedicated Inspector General;
   application of Sarbanes-Oxley standards for the maintenance 
        of internal controls and capital adequacy;
   independently audited annual financial statements;
   quarterly and annual reports to the Secretary on CEDA's 
        financial condition;
   annual loss rate review by the Board of Directors and 
        reports to Congress; and
   oversight and audits by GAO at the discretion of the 
        Comptroller General.

    None of these requirements currently apply to the DOE Loan 
Guarantee Program Office. These measures will provide a high degree of 
openness and transparency, providing ample early warning of any 
emerging problems or issues.
    In summary, the CEDA will not be risk free. Financing the 
deployment of clean energy technology projects, and potential 
breakthrough technologies, will entail risks. But the draft bill 
creates a rigorous framework to ensure prudent risk management.
 transition from the current doe loan guarantee program office to the 
                             proposed ceda
    The draft bill contains special provisions to promote a seamless 
transition of the current DOE Title XVII program to the proposed CEDA. 
Currently, the Title XVII program is managed by the Loan Guarantee 
Program Office (LGPO) under the Chief Financial Officer. The LGPO is 
relatively small but has an exceptionally high workload. There may be 
75 or more applications currently pending at the LGPO, and the 
implementation of the new Section 1705 loan guarantee program 
authorized in the Recovery Act will add substantially to that total.
    While the early pace of LGPO has not been as rapid as many outside 
observers would like, it has been gaining momentum, and it is 
reasonable to assume that the Department will complete due diligence 
and take action on a large number of these applications prior to 
activation of the proposed CEDA. Thus, it is critical that the credit 
review activities currently underway within DOE be sustained without 
loss of momentum as the program transitions to the new CEDA.
       impact of the fiscal year 2009 omnibus appropriations act
    The Fiscal 2009 Omnibus Appropriations Act made significant changes 
to the funding resources of the DOE Title XVII program. The Act 
extended indefinitely the previous $38.5 billion in prior year loan 
guarantee volume, and provided for $8.5 billion in additional loan 
guarantee volume, for a total volume of $47 billion. These amounts are 
in addition to the $6 billion appropriated in the Recovery Act to cover 
approximately $60 billion in loan guarantee volume under the new 
Section 1705 loan guarantee program.
    The Omnibus Act also contained new and extremely restrictive 
language regarding the issuance of new loan guarantees that qualify 
within the $47 billion loan guarantee volume limitation. Specifically, 
the Act prohibited DOE from issuance of loan guarantees to projects 
that have other federal contracts, leases or other forms of federal 
assistance. Further, the Act requires a certification by the Director 
of OMB for each loan guarantee issued under this authority. This 
provision unnecessarily restricts the ability of DOE to issue loan 
guarantees to projects that have other legal relationships with the 
federal government, and will inevitably slow the pace of the program 
due to the need for case-by-case OMB determinations.
    The impacts of this provision need to be addressed in the 
consideration of the draft bill because, if left unchanged, the 
restrictions will carry over along with any unused authority that is 
transitioned to the proposed CEDA.
                               conclusion
    In conclusion, the draft bill:

   provides many needed clarifications and modifications to the 
        existing Title XVII authorities. These amendments need to be 
        accompanied by expeditious changes in the implementing 
        regulations;
   creates a sound platform for an effective clean energy 
        technology deployment financing program, with an emphasis on 
        breakthrough technologies;
   provides a robust set of financing tools to accelerate the 
        deployment of clean energy technologies, especially those with 
        breakthrough potential;
   establishes checks and balances to ensure prudent risk 
        management, promote transparency and establish strict 
        accountability; and
   defines a transition mechanism that will sustain the growing 
        momentum of the current Title XVII program.

    This concludes my prepared statement. I would be pleased to answer 
any questions.

    The Chairman. Thank you very much. Thank you all for your 
excellent testimony.
    Let me ask a few questions here and then I am sure Senator 
Murkowski and others will have questions.
    Matt Rogers, let me start with you. One of the concerns we 
heard loud and clear at the previous hearing that we had was 
that if we were to establish any kind of new entity, it might 
impede the ability of the Department of Energy to move out 
aggressively with implementing the current loan guarantee 
program. I think the consensus that I sort of picked up at that 
time from witnesses was that we needed to make changes in the 
law to facilitate a better working of the existing loan 
guarantee program, and we also needed to perhaps have an 
expanded capability in an entity separate from the Department 
of Energy, but that we did not want the second of those to get 
in the way of the first.
    I guess I would ask you whether you think we have found the 
right balance here. Are there provisions in here we need to 
look at changing in order that we not impede what Secretary Chu 
is now trying to do with the existing loan guarantee program? 
We are trying to assist the Secretary with implementation of 
that program rather than impede it, and I want to just be sure 
that we are doing that, if possible.
    Mr. Rogers. We appreciate very much the work that you and 
Senator Murkowski have put into collaborating with the 
Department on the changes necessary to make the current program 
work more effectively.
    There are a couple of technical language changes that we 
can work with staff on to further enhance the ability of the 
current programs to move out efficiently, effectively, and to 
protect the taxpayers' interests, as we move forward here, that 
could be included in the context of this legislation to make it 
stronger both for the near term and long term.
    As we think about that goal, which you set out so clearly, 
it is one that we clearly share, which is to move out the 
existing pipeline of loans within the existing authority that 
you have given us in a very expedited fashion to contribute to 
the Recovery Act. Utilizing vehicles like this to enhance that 
capability, I think that will enhance the Recovery Act and set 
things up for future success.
    The Chairman. Let me ask. One of the suggestions that I 
believe you had in your testimony--I believe it was in yours, 
John--where you talk about the possibility of this CEDA taking 
equity positions. Was that in your testimony? That was in Dan 
Reicher's testimony, I guess, suggesting that we provide 
additional authority in that regard.
    Could you elaborate on that as to what you think is lacking 
in what we currently have before us?
    Mr. Reicher. Mr. Chairman, I think the provision, as 
written, goes a long way, and the suggestion was a further 
improvement. There is what is called profits participation that 
is already spelled out in the bill. The idea would be if there 
was additional equity interest that could be taken, for 
example, in the underlying company that is providing the 
technology for the project that is being deployed. That is a 
fairly standard technique that is used in the project finance 
world, and there are several others that might be looked at. We 
can definitely work with staff to think this through.
    But what overall it would do is basically put this fund 
that you are creating on an even firmer footing so that it is 
in fact self-perpetuating. There will be returns as a result of 
the loans that get made. There also may be upside as well in 
both an ownership interest in the project itself and, as I 
said, potentially even an ownership interest in the underlying 
technology company, and that can be done through warrants or 
any number of other mechanisms.
    The Chairman. Let me ask John Denniston if he has any 
thoughts about this suggestion.
    Mr. Denniston. Yes. So you ask an excellent question. Just 
as a macro perspective, in our current financial crisis, there 
is an extreme scarcity of capital across the board. I believe 
that is your question, both debt and equity. So this 
legislation addresses the debt portion of that challenge, that 
crisis in the market today.
    Your question is should you also do something about equity, 
to encourage equity investment. I think that is a great 
question. It is a complicated question. One of the wonderful 
things that you have done in the legislation is put CEDA in a 
position to not actually write checks, but issue a loan 
guarantee. So actually the expected outlay from the U.S. 
Treasury is relatively small relative to the boost that you put 
into the capital markets from the debt that will come, 
strengthened by and enabled by that guarantee.
    There is an equity scarcity. So people taking equity risks 
on projects--it is very, very difficult to come by that. There 
are two potential paths that Congress could take.
    The first is to actually put the Federal Government in the 
business of writing equity checks. There are concerns around 
that, adverse selection and so forth, because that is an actual 
outlay. But there is clearly a need for it.
    Another path to get to the same point is to create greater 
incentives for the private market to come forward with that 
equity risk capital. Tax incentives are one. There are very 
powerful tax incentives that could be put in place right now 
for green technologies that would be a strong encouragement for 
private sector equity capital to come into clean energy 
technology companies.
    Mr. Reicher. Mr. Chairman, if I might, just adding on that. 
Somewhere in the middle, I think, is this notion of actually 
taking an equity stake. It does not necessarily mean that the 
Federal Government has to make an equity investment but in a 
sense taking an equity stake in the form of warrants or 
something else in the project or in the underlying technology 
company.
    This is a complicated area, and I am the first to admit it. 
But I think it is worth probably another set of discussions 
with staff to frame it in a way that will put this, as I say, 
on the firmest footing to be self-perpetuating and deal with 
this financial crisis we face right now.
    The Chairman. Senator Murkowski.
    Senator Murkowski. It is complicated and it certainly 
raises a whole host of issues. I think when we look at what is 
happening within the automobile industry right now and 
Government looking at taking equity interest, raises great 
concerns. I think we need to be very careful in this area.
    But I am also cognizant of the fact that right now with the 
capital markets as they are and just the upheaval that we have 
seen, this is a different time for us in terms of availability 
of credit for whatever the project, and level of risk. I think 
we are all hoping that we are going to ride through this and we 
are going to get on more stable footing, but right now it 
really complicates the picture.
    Mr. Rogers, I want to go back to your response to the 
chairman regarding anything that we need to be doing right now. 
I appreciate your response that you think we can work through 
some of the language. Recognizing Secretary Chu's desire to 
issue loan guarantees in the next month or so on a very 
expedited basis and I appreciate his enthusiasm and his 
commitment. Is there anything that we need to be doing at this 
point in time, recognizing that this legislation is still in 
the development stages? But we have talked previously about the 
issues of superiority of rights, cross-default issues. Is there 
more that we can be doing to help you at this point in time?
    Mr. Rogers. The two specific issues that are standing out 
there--one is the CBO language that was adopted as part of the 
2009 budget resolution which limits the ability of the Federal 
Government to make loans to entities that are doing business 
with other parts of the Federal Government. That encumbrance 
does, in fact, limit us from making a set of loans to a set of 
very good counter-parties that are currently in the pipeline. 
So it is something that, given that it as part of the statutory 
language of the 2009 budget bill, requires a statutory fix to 
address.
    The same thing is true, we believe, of some of the 
discussions about the undivided interest issue that you raised 
and the cross-default issues there. I think, again some of that 
is addressed in here. There are some language fixes that would 
make it clearer because what we want to do--and there is a set 
of loans, again, coming forward quite quickly where the 
undivided interest and the pari passu treatment would enable 
other parties to co-fund some of these projects in the United 
States with us. The Japanese Export Bank, for example, would 
like to fund some of the nuclear facilities that we have 
currently under consideration. The way the rules are currently 
written, we are not able to do that in a way that works for 
that entity. This is a way to diversify the risk, reduce the 
risk for the American taxpayer, and get these projects done 
more rapidly. So your help in those statutory changes will be 
appreciated.
    Senator Murkowski. Ms. Hull, you mentioned the loan loss 
reserve, and you stated that in your opinion the amount we are 
providing for is perhaps too low at this point in time. I would 
be curious to hear from those of you at the table as to what 
you might consider to be an appropriate percentage limit for 
the loan loss reserves. 10 percent is consistent with the 
safest thrift institutions, CBO's most recent interpretation of 
stimulus funding for the loan guarantee. So there was rationale 
for that. But can you just briefly speak to what you think 
might be a reasonable loan loss reserve? You can start, Ms. 
Hull.
    Ms. Hull. Thank you. I think it is a great idea that there 
is the recognition of the need for a loss reserve. I think what 
the committee has done with that in terms of balancing that 
tension between having sufficient capital available to put to 
productive use versus the capital reserve to protect against 
losses--it is a tough balancing act. As I said, the percentage 
that is the initial percentage structured in the bill, as it 
stands now, is appropriate for what is for private equity now.
    I think, however, since we are asking this entity to do two 
things--not only invest in breakthrough technologies so you 
would need a slightly higher percentage because those are 
technologies that, by definition, have much greater risk than 
what is being financed now, but we are also asking this entity 
to finance energy efficiency and existing renewable technology 
deployment in small-scale applications so that they can be 
aggregated and, therefore, financed in a way that the market is 
just not doing today. That does not entail risk. It does entail 
risk. It does not entail the same level of risk.
    Therefore, you have got two silos. One is very high risk; 
one is very low risk. So as long as all of your projects are 
not in the high-risk silo, you have probably come up with what 
I consider to be a responsible loss reserve. The only issue is 
how much goes into the breakthrough technologies, how much goes 
into the deployment of the low-risk technologies. That is 
something that experience of this entity will dictate the 
appropriate level. So in my opinion, it is something to be 
aware of, but I am not sure I would change anything in the bill 
now.
    Senator Murkowski. My time has expired, but I would ask if 
anybody else has any comments to respond. Mr. Denniston? I 
think, Mr. Reicher, you had suggested it might want to be 
lower.
    Mr. Denniston. I would actually suggest that it be higher. 
Dan--I respect his view, and I am sure he will have great 
insight as well.
    I think what this committee is looking at is two competing 
factors. When you look at the loan loss reserve, which is a 
critical metric in this legislation, the one objective is you 
want to minimize Federal outlays in this budgetary environment. 
The other is that you want to accelerate, as much as possible, 
breakthrough clean energy technologies into the marketplace. In 
my view, as you increase the loan loss reserve--the Government 
is taking greater risk--you accelerate the marketed option of 
breakthrough technologies. That is, I think, what we are trying 
to do.
    So the question for the committee is what is the proper 
percentage to set. It is not scientific, but there is math 
involved with it, and the math is you make a--in this 
legislation, there is a fresh $10 billion appropriation. If the 
loan loss reserve is 10 percent, then the expected Treasury 
outlay is $1 billion. If, for example, you set the loan loss 
reserve at 25 percent, to pick a figure, the expected outlay is 
$2.5 billion.
    So in my view, I would rather see a 25 percent loan loss 
reserve because I think that will send a signal to Matt Rogers 
and his team at DOE that we really want to get breakthrough 
technologies into the market. We want to have advanced 
batteries that triple or quadruple the energy density for 
electric transportation or solar panels that cut in half the 
cost of solar electricity. That is what we are trying to do.
    The implication of that for the U.S. Treasury is the 
difference $2.5 billion outlay at 25 percent and $1 billion. So 
the difference is $1.5 billion. Again, the beauty of what you 
have done is the leverage created through loan guarantees means 
that there is only a Treasury outlay for some percentage of the 
loan authority going out in the marketplace.
    Mr. Reicher. So just following up on that, the other part 
of the math, which is important, is that a 10 percent loan loss 
reserve would provide about $100 billion in loans. If it was at 
5 percent, it would provide about $200 billion in loans. So 
there is a big implication of how you set it.
    But I think the real answer today is we really cannot set 
it today. It is OK to put it as 10 percent nominally, but 
echoing my colleagues, it really is going to depend on the mix 
of transactions, the types of transactions, the relative types 
of risk, the investment structures that we use for those 
transactions. I think this is exactly the sort of thing that a 
smart administrator with a good board of directors and staff 
can establish, and I think it is wise to both set a nominal 
rate now, but give the administrator and the agency the ability 
to adjust that with input and oversight by the board of 
directors. So I think I am comfortable with where it is, and I 
think the important thing is let us get going and let the new 
agency figure this out in the way that the private sector has 
to deal with every day.
    The Chairman. Senator Stabenow.
    Senator Stabenow. Thank you, Mr. Chairman. I want to thank 
you personally for your work and the ranking member's work, and 
I appreciate the opportunity to work with you on what I believe 
to be one of the most important pieces of energy policy to 
really move us forward in terms of new technologies, getting us 
off of not only foreign oil but foreign technologies, and being 
able to create jobs. So I think this is very, very important, 
and we need it yesterday.
    I appreciate, Mr. Chairman, your allowing doubting 
industries to come in in March and testify. Jeff Metz who spoke 
talked about a new injection molding process for wind turbine 
blades, and they are ready to go. These are folks that were in 
the auto industry, ready to move, have developed this new 
technology. But the issue for them is financing. So we see this 
over and over again.
    When I think about the issues for us around not having done 
this, it is costing us jobs. Asia has been so far ahead of us 
around batteries, and we have seen what that has resulted in in 
terms of many challenges, as well as now wind and solar and 
other areas. So I believe this is very, very important that we 
do it and it adds to what we did in the recovery plan.
    I had one technical point. Mr. Denniston, you talked about 
credit rating reviews, eliminating those. I wondered if anyone 
else would want to comment on that. It has been my experience, 
particularly most recently around various issues we have been 
working on with autos and so on, it is very difficult when 
there are challenges and you are trying to help, but 
particularly if it is startups, particularly in high-risk 
situations, as you indicated, we would know what the credit 
rating review would be on this. So I wonder if anyone else 
would want to comment about the suggestion Mr. Denniston had of 
eliminating that language from the bill.
    Yes, Ms. Hull.
    Ms. Hull. Senator, I strongly agree with Mr. Denniston's 
proposal. As he noted--there is really little to add to what he 
noted--the requirement for the credit report is a very 
expensive and time-consuming requirement that provides, I will 
say flatly, zero new information. It is intended as a fig leaf 
or some kind of something to hold onto that really does not 
give you anything additional and is a tremendous burden on the 
applicants.
    Senator Stabenow. Anyone else? Yes.
    Mr. Hezir. Yes, Senator. Just to give you a little bit of 
context for the credit assessment, this was a general 
recommendation that CBO has made for all Government credit 
programs. It tends to make more sense for loans and loan 
guarantees where there is not technological risk because the 
credit rating agencies, for all the reasons that were stated 
here this morning, are just not in a good position to make 
those kinds of assessments when the primary risk is 
technological.
    When DOE wrote the regulations, OMB had asked them to 
include this requirement because it had been part of, as I 
said, a CBO Government-wide recommendation. I think at a 
minimum, it probably needs some greater flexibility because 
there probably are instances where it provides very little, if 
any, additional value.
    Senator Stabenow. Thank you.
    Mr. Reicher. I would just second that.
    Senator Stabenow. Thank you.
    Mr. Chairman, I would hope we would look at that provision 
regarding the credit rating risk. I know what we want to do is 
to be able to encourage quicker deployment of higher-risk kinds 
of investments to get new breakthrough technologies. It seems 
to me this would be potentially a barrier for that.
    I wonder if I might just take a final moment, Mr. Rogers, 
since we have you here, to ask a couple questions regarding the 
recovery plan because we did put in place the $2 billion for 
batteries. I appreciate the efforts now on section 136 and the 
loan guarantees and so on. But we also put in place a 
manufacturing credit of 30 percent, which has a cap on it of 
$2.3 billion, which frankly we could use all of that right now 
in Michigan. So I would love to see us raise that cap or take 
it off.
    But in the investment and production tax credits, we did 
something innovative, which I think is very important, what I 
would like to see expanded, and said if someone is not 
currently making a profit or they are a startup company and 
they qualify for the credits around alternative energy but 
cannot take them because they are in a loss position, they 
would be able to get a grant equaling the value of the credit.
    I wonder if you could just indicate where we are in that 
process. Has that been developed? How soon will businesses be 
able to use that feature in the Recovery Act?
    Mr. Rogers. Senator, the Department of Energy has been 
working quite closely with our colleagues at the Department of 
Treasury to work out the details of how to administer that 
program effectively. It is, as you describe, a program that has 
the industry quite excited because it takes away a set of 
uncertainties and risks and levelizes the playing field between 
firms that are already profitable and firms that are pre-profit 
in this context.
    What we have set out is a plan. Treasury should be 
announcing it here momentarily. I thought they were going to do 
it either in the last couple days or next couple days, but it 
is in a shorter period of time to describe exactly how that is 
going to work.
    In simple terms, the Department of Energy is working with 
Treasury to underwrite some of the risk. One of the things the 
Department of Energy does especially well is reviews at the 
technologies and underwrites whether or not those are advanced 
technologies that meet the terms of the act. But then the 
Treasury is actually quite good at administering the follow-up 
through the IRS. So we are working through that and the details 
have actually been pretty well worked out and that should be 
available shortly.
    Senator Stabenow. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Shaheen.
    Senator Shaheen. Thank you, Mr. Chairman, and thank you for 
your insights to all of the panelists.
    I want to follow up a little bit on Senator Stabenow's 
question about the credit rating because I think, Mr. 
Denniston, you actually very accurately described the conflict 
and the challenges. How do we reassure taxpayers on the one 
hand and, on the other hand, promote lending and risk-taking 
that is required for these new technologies?
    For you or for anybody else, are there other ways that we 
can look at some of these startup companies who are looking for 
funding and say these are good risks, and should we have any 
other means of evaluating or trying to lay that out as part of 
the bill?
    Mr. Denniston. It is a great question, Senator Shaheen.
    Let me come back to the emerging growth company scenario. 
Just so people understand, what is being required today is that 
a company with a very weak balance sheet that is just getting 
going, trying to raise money, has to go out and spend hundreds 
of thousands of dollars to get a credit rating agency review, 
which comes back and says this company has a weak balance sheet 
and is not a AAA rating.
    I think if to check the box, that there needs to be a 
credit rating agency letter, CCC or whatever the lowest rating 
is, you know, quadruple Z, let startup companies say, we 
volunteer, we are the lowest level. If that is 4 Z's, that is 
us. Do not make us spend the $200,000. We will stipulate that 
that is our rating, and you have done what the rating agency 
would have done. Virtually every startup company would say that 
is us.
    I think that this bill has been very skillfully drafted in 
that it establishes an advisory council with scientific 
expertise because the question is which breakthroughs stand the 
best chance of making a difference for our energy crisis. So it 
establishes an advisory council populated with scientific 
expertise. As I said in my testimony, I would add to that, 
augment it with business expertise. That then gives the DOE, 
the CEDA, I think the best viewpoint in terms of how the loan 
and loan guarantee authority ought to be issued.
    This is not a credit rating agency question. Furthermore, a 
lot of these loan guarantee decisions are not on a company. 
They are on a project. Project financing does not relate to the 
credit of the company. It relates to the merits of the project 
itself. So there is no point in having a credit rating agency 
review on a company. It is the merits of the project. The 
advisory council, I would submit to you, has a much better 
informed viewpoint on the merits of that than a credit rating 
agency.
    Mr. Reicher. Senator, let me just echo John's point. The 
focus is on a particular energy-generating or energy-saving 
project. I was in that business for a while and it is a much 
narrower set of issues to analyze. It is a particular 
technology being deployed in a particular place with a 
combination of debt and equity. You can go out and see how the 
venture capital company's pilot plant worked or did not work. 
You can see what other applications there have been. You can do 
some analysis around that project. So you are not starting from 
scratch looking at a technology idea in a small company and are 
they even going to get it to pilot stage. You know that it 
works at pilot stage. Now the question is can you back this at 
a full deployment stage. So, as John said, it is not so much 
around the credit of the company. It is around the quality of 
the project, the people behind it, and the history of the 
technology that undergirds it.
    Senator Shaheen. Thank you. I am not advocating for the 
rating but just echoing the concern that you all raised, that 
there is a real conflict here between what we are trying to do.
    Mr. Rogers, first, I want to thank you for all of the hard 
work that is going on to get those economic recovery dollars 
out as fast as possible. We are looking for them in New 
Hampshire at every opportunity and appreciate that everyone is 
going very hard to try and get administrative rules written, 
but would just echo what I am hearing at home that that is a 
real concern as people are looking at how to apply for dollars.
    I heard as part of a discussion something that is not 
directly pertinent to this legislation, but I think it is 
related and so is worth raising. One of the concerns that I 
heard in meeting with some bankers was a question about how to 
value green technology and how to look at that in terms of 
granting loans and credit. I think there is a real void there, 
as we are looking at trying to encourage lending in the private 
sector for new energy technologies for green buildings, for 
everything related, that there is not a real understanding of 
how this adds additional value or how to value green 
technologies and green buildings at all. I do not have any 
magic ideas for how to address this, but I think it is a 
concern, particularly as we are looking at spending the dollars 
in the economic recovery act and as we think going forward 
about the investments that we are making, how do we help make 
sure that we are valuing these in a way that is real.
    Thank you.
    The Chairman. Senator Cantwell.
    Senator Cantwell. Thank you, Mr. Chairman, and thanks for 
holding this hearing. I certainly support this legislation.
    But I wanted to ask our witnesses today if they could--I 
think, Mr. Reicher, in your testimony you talked about over the 
last 5 years VC capital putting something like $12 billion into 
green technology or various renewable technology programs. My 
first question is just really to understand where we think we 
are today since October in actually getting projects approved. 
I do not mean difficult technologies. I mean basically already 
tried and true, implemented in the marketplace. So where are 
we? Just give me a percentage. What percentage of projects do 
you think, since October, are getting funded? Either Mr. 
Denniston or Mr. Reicher.
    Mr. Reicher. I cannot give you a specific percentage, but I 
can tell you that there really has been a major fall-off in the 
ability to finance basic run-of-the-mill renewable energy 
projects, you know, the 150th or 200th wind project, basic 
established technologies with established forms of debt and 
equity. It is very, very difficult these days to get these 
done, which makes it even harder, obviously, to go out and 
deploy a new, less proven technology. So these two things come 
together in the form of this legislation.
    Senator Cantwell. So fall-off--I am assuming you mean more 
than 50 percent. Probably more like 75 or 80 or 90 percent when 
you say fall-off.
    Mr. Reicher. It is very significant. I just, unfortunately, 
do not have a number for you.
    Mr. Denniston. I do. I have got a couple of data points. 
Actually one which I think is important. Venture capital in the 
first quarter of 2009 in the U.S. was $3 billion. The run rate 
in 2008 on a quarterly basis was roughly $8 billion. So we are 
down by 60 percent just overall venture investment. I think the 
clean tech portion of that is representative. I do not have 
that exact figure.
    What I would say, Senator Cantwell, is that the debt 
markets have gone for renewable energy virtually to zero. So 
that is a 100 percent reduction, which is why this bill is 
absolutely mission-critical. The equity portion I think is 
reflective of the number that I just gave you.
    Senator Cantwell. That is why I think today--and this bill 
is a given. The question is really to me what else we should be 
doing given the crisis. This is not about hard-to-fund 
technologies. This is just about funding technology, and with 
the credit markets frozen up, we have very viable energy 
technology that is basically not being deployed, not being 
implemented, not getting onto the grid, and job creation being 
deterred because we have not gotten our capital markets flowing 
in a way that would fund these projects.
    So one thing that I want to ask about is if you think a 
low-cost capital program either to meet an RES requirement or a 
smart grid requirement, something that would be basically 
amortized over a long period of time, you know, 30 years, 
something like that, would help in providing patient capital 
into the marketplace and help stimulate it. So basically the 
Government putting low-interest, long-term loans out there as a 
way to help build confidence back and boost some of those 
credit markets to come back on line.
    Yes, Mr. Denniston.
    Mr. Denniston. Sure. Senator, I think you are asking the 
right question, which is our capital markets are broken. What 
can the Government do to break the logjam and resolve our 
energy crisis at the same time? So I think your idea of low-
cost loans is a good one.
    Your prior question, which is what is happening on the 
equity market side, a similar question that was raised earlier, 
is exactly right. This bill does not attempt to resolve the 
shortage of equity capital. As I say, there are multiple paths 
to go there. One is for the Government to actually write checks 
for equity investment. The other is to provide incentives 
through the tax system or low-cost capital to do that. There is 
a screaming need for it. I will say that.
    Mr. Reicher. The beauty of the bill is that it does strike 
a balance between breakthrough projects which it finances and 
more standard issue commercial projects. That is, in fact, how 
I think it will ultimately become self-sustaining because those 
standard-issue projects will actually have a good flow of 
capital back and keep this going. So I think it is a start.
    The beauty of the loan guarantees, as opposed to direct 
loans, is the huge leverage. We talk about $10 billion 
leveraging $100 billion in projects. That is a huge leverage.
    So I would second what John said about figuring out 
additional ways to do it, but I think this is a very, very good 
way to start. It is a critical need.
    I will give you one quick data point, as you asked the 
question about the state of the debt markets and funding for 
clean energy. I would note that Wachovia, AIG, and Lehman 
Brothers were in the renewable energy finance business up until 
about a year ago. So even the players that have fallen flat on 
their backs on the street were in there. So we have a real 
serious problem right now moving these projects forward.
    Senator Cantwell. I agree, and so I think we should be even 
bolder.
    I appreciate the boldness that the chairman and the ranking 
member have worked on this, but I think given the fact that 
things are way beyond proven technology and lack of funding, we 
need to do something in addition.
    So thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    I could go on here with other questions, but I think maybe 
we will stop where we are. I think this has been very good 
testimony, and we appreciate the very constructive suggestions 
that we have heard here. We hope to incorporate some of those 
ideas into a new, improved version here and perhaps be in a 
position to introduce this as freestanding legislation later 
this week and then proceed to deal with it here in our 
committee in the next week or so. So that is our hope. Thank 
you all very much.
    That will conclude our hearing.
    [Whereupon, at 11:26 a.m., the hearing was adjourned.]

    [The following statement was received for the record.]
Prepared Statement of Michael J. Mcinnis, Managing Director, The Erora 
                               Group, LLC
    We appreciate the opportunity to share our suggestions about how 
Congress can help improve the availability of financing for deployment 
of clean energy and energy efficiency technologies, in particular coal-
gasification facilities and CO2 pipelines.
    In our view, creation of a new federal ``Energy Bank'' and related 
initiatives will be essential for our nation to achieve a low-carbon 
economy. We thus support measures such as the draft 21st Century Energy 
Technology Deployment Act. A new Clean Energy Deployment Administration 
(CEDA) could help bring to market not only new and unfamiliar green 
energy technologies, but also promising carbon capture and storage 
projects that are well understood but lack financing because of 
constraints in the credit markets. This new agency or a new ``Energy 
Bank'' should have the authority to provide various types of credit, 
including loans, loan guarantees, and other credit enhancements, as 
well as measures that provide secondary market support.
                    cash creek gasification project
    Deploying a fleet of coal-gasification projects plugged into a 
network of dedicated CO2 pipelines will be an important step 
toward a low carbon economy. Coal gasification coupled with carbon 
capture and geologic sequestration in connection with enhanced oil 
recovery is the only cost-effective, near-term, comprehensive solution 
to reducing greenhouse gas emissions utilizing our country's most 
abundant natural resource.
    The prospect of a coal-fired power fleet with the emission profile 
of natural gas combustion turbines is not a distant reality. In fact, 
we are in the final stages of developing the Cash Creek Gasification 
Project (``Project'') in Henderson County, Kentucky. But the financing 
of low-carbon emission coal facilities in the current economic 
environment requires federal support.
    With near-term federal support, the Project will create 1,000-1,500 
construction jobs and 200-300 new permanent employment positions, while 
supporting thousands of manufacturing jobs related to equipment 
purchases. When operational, the project will gasify 2.8 million tons 
of coal per year, producing natural gas and generating electricity in a 
natural gas combined cycle plant. Once built, the plant will be the 
cleanest coal-fueled facility in the country, with a greenhouse gas 
emissions profile similar to that of a natural gas combined cycle 
facility. In fact, the facility will capture nearly 100% of the carbon 
dioxide resulting from the gasification process and greater than 75% on 
a plant-wide basis. The captured carbon dioxide can then be transported 
by pipeline to support enhanced oil recovery in other parts of the 
country or could be geologically sequestered as that opportunity 
arises.
    Our facility has in hand, or soon will have secured, all the 
necessary permits to commence construction, including all required 
water use and air quality permits. By working with local chapters of 
the AFL-CIO and executing a project labor agreement, we have ensured 
that a trained workforce will be ready to commence construction.
    During the course of developing the Cash Creek project, we 
contemplated applying for a loan guarantee under the existing title 17 
program. Even when we had access to adequate sources of project debt 
funding, we decided not to file an application because we faced too 
much economic uncertainty about whether the credit subsidy cost would 
make our project either uneconomic or significantly less economic. In 
the current economic environment, the risks associated with the credit 
subsidy cost process are too great to bear. We were thus pleased that 
Congress agreed to cover with appropriated funds the credit subsidy 
cost in the new title 17 loan program established as part of the 
American Recovery and Reinvestment Act. Congress should do so for 
projects funded under the prior loan program as well. In addition, we 
appreciate the ongoing efforts of Congress and the Department of the 
Energy to streamline the loan guarantee program so that it will not 
stand as an impediment to future projects.
    We set forth below our recommendations on ways that CEDA or an 
Energy Bank could help finance gasification facilities, CO2 
pipelines, and other projects in order to help get lowemission coal 
projects off the ground. In addition, we make recommendations for 
further improvements to the Department's title 17 loan guarantee 
program.
                    ceda/energy bank recommendations
    We believe it is essential that the new entity have the authority 
to provide loans, not just loan guarantees, and that Congress 
appropriate the funds to support it as early as may be practicable. In 
the current and foreseeable economic environment, we do not believe 
loan guarantees will address the principal challenge companies such as 
ours face--access to capital--even if the credit subsidy cost problem 
is addressed.
    In drafting legislation, Congress should authorize the new entity 
to provide loans to support gasification projects and CO2 
pipelines that have the following characteristics:

   Projects that are fueled with domestic sources of solid 
        fuels and that avoid, reduce, or capture and geologically 
        sequester the highest levels of CO2 should receive 
        priority;
   Projects that have necessary air, water, and other permits 
        in hand--and thus are closest to being shovel ready--should 
        receive priority; and
   The new entity should have sufficient funds to allow it to 
        lend up to 80% of the capital costs of up to 10 low-carbon 
        emission coal-gasification facilities and CO2 
        pipelines to geologic sequestration sites, including enhanced 
        oil recovery operations.

                        title 17 recommendations
    We recommend that the Department revise the regulations that 
implement title 17 of the Energy Policy Act of 2005 to address two 
important issues. First and foremost, we believe that the Secretary 
should issue an additional project solicitation and prioritize the 
award of loan guarantees based on a project's greenhouse gas emissions 
profile and how soon the project will have all permits necessary to 
commence construction. Implemented in this way, the title 17 loan 
guarantee program not only would serve as a catalyst to stimulate the 
economy by supporting shovel-ready projects, but also would encourage 
applicants to develop the cleanest possible projects. Second, the 
Department should revise the implementing regulations to streamline the 
application process and to address the implementation problems that 
discouraged us and other companies from seeking loan guarantees as a 
tool to bring commercially available technology to market.
    As a related initiative, Congress should make modest changes to 
section 703 of the Energy Independence and Security Act of 2007 to 
encourage not only research and development projects, but also 
deployable projects that are using state-of-the art technology. With a 
few simple modifications, Congress not only would encourage the 
development of technologies for the large-scale capture of carbon 
dioxide from industrial sources, but also would speed their deployment.
                               conclusion
    If the United States is to retain its economic and technological 
competitiveness, while at the same time making a significant 
contribution to reducing its overall greenhouse gas emissions, it is 
essential that large scale commercially viable CCS and coal 
gasification technologies be deployed. By authorizing CEDA or a new 
Energy Bank to provide loans and by improving the loan guarantee 
program, Congress can address the problems caused by the current credit 
crisis and meet the twin goals of creating new green energy jobs and 
placing a down payment on technology that will make the United States 
more energy efficient and energy independent.
                                APPENDIX

                   Responses to Additional Questions

                              ----------                              

    Responses of Matthew Rogers to Questions From Senator Murkowski
    Question 1. Many questions remain as to DOE'S interpretation of 
Title 17 provisions from the 2005 Energy Policy Act, specifically on 
the superiority of rights and cross default-issues for projects with 
multiple owners or creditors.
    Answer. The Department of Energy is committed to review all issues 
associated with the proposed ownership structures on a case-by-case 
basis. Separately, it is studying these issues in the context of the 
proposed legislation and its current rules. In general, the DOE 
believes appropriately designed project structures can create 
opportunities to reduce the risk to U.S. taxpayers and increase the 
positive impact from the loan guarantee program.
    Question 2. Given Secretary Chu's desire to issue loan guarantees 
in the next month or two, how is the loan guarantee office is 
interacting with applicants to make sure that their questions and 
concerns are addressed?
    Answer. After a Department of Energy loan guarantee application is 
received, it is reviewed for completeness by the loan guarantee office 
and for technical merit at one of the national laboratories. Complete 
applications, that meet the technical and financial requirements under 
the Energy Policy Act of 2005 (EPACT), move into the due diligence 
phase. In this phase, the project is assigned a Senior Investment 
Officer. The Senior Investment Officer consults with the Treasury 
Department on the terms and conditions of the guaranteed loan and works 
with the project sponsors to ensure that all parties understand how the 
project will be evaluated by the Title XVII Loan Guarantee Program and 
addresses any questions or concerns the project sponsor may have, on a 
consistent basis.
    Question 3. There appears to be some disagreement among the 
witnesses as to what is an appropriate percentage limit for the loan 
loss reserve. Ten percent is consistent with the safest thrift 
institutions and CBO's most recent interpretation of Stimulus funding 
for the Loan Guarantee Program.
    Answer. The Department does not set a threshold for an acceptable 
rate of default for projects participating in the program. Title XVII 
requires that there must be a reasonable prospect of repayment in order 
for the Department to issue a loan guarantee. Under Title XVII, 
therefore, each loan is reviewed on its own merits. The Department goes 
through a rigorous due diligence and underwriting process utilizing in-
house as well as independent external advisors to assess and mitigate 
the risks. The Department calculates a quantitative credit subsidy cost 
for each of the loan guarantees under the program; OMB has final 
approval of these cost estimates. Consistent with the Federal Credit 
Reform Act, the actual subsidy cost for any particular Title XVII loan 
guarantee will be determined based on the specific characteristics of 
the individual loan, including credit risks and the terms and 
conditions of the contracts. Moreover, under the Federal Credit Reform 
Act, the subsidy cost reflects the best estimate of the long-term cost 
to Government of the loan or loan guarantee, excluding administrative 
costs. There is no need for a separate loan loss reserve.
    Question 4. Can you elaborate further on what you think is a 
reasonable level for the loan loss reserve to be set at, and how that 
compares to existing treatment of credit subsidy costs for comparable 
programs in the federal government?
    Answer. The Department does not set a threshold for an acceptable 
rate of losses for projects participating in the program. The statute 
requires that there must be a reasonable prospect of repayment in order 
for the Department to issue a loan guarantee. Under Title XVII, each 
loan is reviewed on its own merits. The Department goes through a 
rigorous due diligence and underwriting process utilizing in-house as 
well as independent external advisors to assess and mitigate the risks 
associated with default. The Department calculates a quantitative 
credit subsidy cost for the loan guarantees under the program; OMB has 
final approval of these cost estimates. Consistent with the Federal 
Credit Reform Act, the actual subsidy cost for any particular Title 
XVII loan guarantee will be determined based on the specific 
characteristics of the individual loan, including credit risks and the 
terms and conditions of the contracts. Moreover, under the Federal 
Credit Reform Act, the subsidy cost reflects the best estimate of the 
long-term cost to Government of the loan or loan guarantee, excluding 
administrative costs. There is no need for a separate loan loss 
reserve.
    Question 5. Legislation similar in concept to the draft we are 
discussing today has been introduced in the House. Have any of you had 
a chance to review that bill, and if so, how does its risk profile, 
structure and operation compare to the contents of this Senate draft?
    Answer. The Administration is still evaluating the proposal, and 
looks forward to working with the Committee to ensure efficient and 
effective assistance for energy infrastructure investment.
     Responses of Matthew Rogers to Questions From Senator Barrasso
    Question 6. Would this legislation influence or slowdown the 
Department of Energy's processing of the applications that are already 
pending for the Loan Guarantee Program?
    Answer. The Administration is still evaluating the proposal, and 
looks forward to working with the Committee to ensure efficient and 
effective assistance for energy infrastructure investment. We 
appreciate the Committee's diligent efforts to make the loan guarantee 
program successful. Additionally, any organizational change always 
creates concerns about talent retention.
    Question 7. Would staffing for CEDA come from current DOE Loan 
Guarantee Program employees? What would be the net increase in federal 
employees due to this legislation?
    Answer. The Administration is still evaluating the proposal, and 
looks forward to working with the Committee to ensure efficient and 
effective assistance for energy infrastructure investment. The current 
loan guarantee program is staffing up aggressively to support existing 
loan authorities.
     Responses of Matthew Rogers to Questions From Senator Bennett
    Question 8. Mr. Rogers I understand that since Congress established 
the loan guarantee program in 2005, (EPACT) DOE has received hundreds 
of applications, but has announced that it is in negotiations on only 
its first potential award--(Solyndra--a solar manufacturing company.) 
February 19, 2009 Secretary Chu announced that DOE was going to begin 
offering loan guarantees under the Recovery Act by early summer and 
disperse 70% of the investment by the end of next year. Additionally, 
Secretary Chu has stated that the loan program would be streamlined and 
the process would be simplified. Can you please update the Committee as 
to what the Department's plans are to improve the implementation and to 
make awards under this program and when will DOE issue new guidelines 
consistent with the Secretary's objectives?
    Answer. The Department of Energy's Credit Programs are an urgent 
priority for Secretary Chu. He is personally reviewing the programs, 
and has committed to giving the programs the attention, departmental 
resources and oversight they need to succeed while ensuring that 
taxpayer interests are protected. Delivering on this opportunity to 
help drive economic recovery and make a down payment on the Nation's 
energy and environmental future represents an essential leadership role 
for the Department. The Loan Guarantee Program is moving forward 
aggressively to make loans to companies that have applied for credit 
assistance for a variety of advanced technologies. Our plan is to 
deliver loan guarantees by the end of this year. As required by the 
2009 Omnibus Appropriations Act we have sent an implementation plan to 
the Appropriations Committees in anticipation of issuance of new 
solicitations.
    Question 9. Mr. Rogers, during negotiations on the FY'09 budget, 
CBO raised concerns that the loan guarantee program might encourage the 
federal government to enter into 3rd party financing arrangements that 
could result in increased exposure to mandatory spending. CBO decided 
that if the Subcommittee was to avoid an additional score of ``hundreds 
of millions of dollars'', we must include language in the Energy and 
Water bill that would discourage 3rd party financing arrangements. This 
language is written in a manner that is very broad and has already 
created several unintended consequences including prohibiting several 
legitimate projects from consideration this year. I know this has been 
a frustration of Sen. Dorgan and the entire subcommittee. We have been 
working together to resolve this, but we believe a solution can only be 
crafted if DOE, OMB and Congress work together on a solution. Mr. 
Rogers will you arrange a meeting in the next week with the Deputy OMB 
Director, yourself, Chairman Bingaman, Chairman Dorgan, Sen. Murkowski 
and myself to resolve this issue with CBO to ensure loan guarantees can 
be made consistent with the Act?
    Answer. The Department is working to resolve this issue. We hope to 
find a resolution to it in the near future.
    Question 10. Are you aware of any 3rd party financed loan guarantee 
projects currently being considered by the Department? Would the 
Department undertake any projects that commit the federal government to 
long term financing arrangements with another federal entity without 
first identifying the necessary appropriated funding?
    Answer. The Department is working to resolve this issue. No 
projects have been precluded at this time as we hope to find a 
resolution to it in the near future, however there are several projects 
that have submitted applications that potentially may be adversely 
affected by specific language in the 2009 appropriations, and those 
projects have been communicated to appropriate Congressional staffers.
    Question 11. Mr. Rogers, Congress provided an additional $6 B to 
pay the subsidy cost of loan guarantees made under a new Section 1705 
authority for renewable energy technology and transmission lines. The 
Department has not made any announcements regarding the implementation 
of this new authority and how it will work with the existing 
solicitations for renewable energy technologies. Can you please tell 
the Committee how the two programs will be implemented and when we can 
expect loans to be awarded?
    Answer. The Department is currently developing its approach to 
implementation of the new authority under the American Recovery and 
Reinvestment Act.
    Question 12. As part of the FY'09 Continuing Resolution signed last 
fall (September 30th, 2008), auto companies were give $25 B in loan 
guarantees to help transition these companies to building factories to 
manufacture more energy efficient automobiles. As of yet, I am not 
aware of a single award that has been made to any auto company. What 
are the Department's priorities and goals for this program and how will 
these funds be used to improve the fiscal condition of Detroit 
automakers?
    Answer. The FY 2009 Continuing Resolution signed last fall provided 
funding for the Advanced Technology Vehicles Manufacturing Incentive 
Program (ATVMIP), which was established by Section 136 of the Energy 
Independence and Security Act of 2007. Section 136 of the Energy 
Independence and Security Act of 2007 establishes an incentive program 
consisting of both grants and direct loans to support the development 
of advanced technology vehicles and associated components in the United 
States. Only the loan portion was funded.
    Under Section 136, the ATVMIP provides loans to automobile and 
automobile part manufacturers for the cost of re-equipping, expanding, 
or establishing manufacturing facilities in the United States to 
produce advanced technology vehicles or qualified components, and for 
associated engineering integration costs. Stringent evaluation criteria 
were outlined in statute and regulation for both applicant and project 
eligibility. Included in these eligibility requirements is that the 
applicant be financially viable without the assistance of other federal 
funding for the same project and that the applicant have a positive net 
present value. In addition, several technical criteria were also 
provided, including meeting certain fuel efficiency standards for 
vehicle manufacturers and a verification of future installation on a 
specified advanced technology vehicle (ATV) for component 
manufacturers.
    As a Secretarial priority, the ATVMIP's goal, is to accelerate the 
manufacture and development of fuel efficient, advanced technology 
vehicles. We have completed the technical review of nearly 200 projects 
contained in more than 100 applications and are working through the 
financial viability reviews on more than two dozen companies. We are in 
detailed negotiations with the first group of potential borrowers and 
expect to make a series of loan commitments during the summer.
    Question 13. What is the timeframe for making loans to struggling 
automakers?
    Answer. This program is a high priority for the Department and as 
such, the Department is working quickly and responsibly to ensure that 
the most deserving of applicants have the financing they need to 
develop tomorrow's advanced vehicle technologies. The Department's 
ATVMIP expects to make a series of loan commitments during the summer.
    Question 14. Is your office prepared to act in a timely manner to 
ensure support Raser's bid to transform the Hummer Division of GM to a 
hybrid electric platform, rather than sell the division to a Chinese 
manufacturer?
    Answer. The ATVMIP is prepared to act on any and all applications 
in accordance with the evaluation procedures established in the 
program's Interim Final Rule. This procedure allows for the in-depth 
financial and technical evaluation of all applications. To date, the 
program has received over 100 applications, 40 of which have been 
determined to be substantially complete.
    During the application review period, the Department is not at 
liberty to discuss individual applications due to the sensitivity of 
the application process.
    Question 15. This legislation proposes that the Clean Energy 
Deployment Administration would be retained within the Department of 
Energy, similar to the Energy Information Administration. However, as 
we approach the 4th anniversary of the EPACT's signing, I am skeptical 
that the Department is able to implement this program in an effective 
and timely manner. Over the past several years, DOE has struggled to 
set up this program and fought both OMB and CBO over scoring and 
implementation strategies. While, I don't doubt Secretary Chu's 
commitment to implementing this program, the facts speak for 
themselves. I would prefer see an entity that is entirely focused on 
implementing and supporting the deployment of clean energy based on 
sound financial fundamentals. I fear that political pressures within 
the Department will drive the investment strategy, rather than allowing 
commercial fundamentals and sound risk management strategies to dictate 
the outcome. Do you agree that creating this program within the 
existing DOE bureaucracy, which will compete for personnel and budget 
needs, is in the best interest of the program? Based on DOE's track 
record is this the best organizational model to drive investment into 
our energy sector?
    Answer. The Administration is still evaluating the proposal, and 
looks forward to working with the Committee to ensure efficient and 
effective assistance for energy infrastructure investment. Our task in 
the near term is to demonstrate to Congress and the American people 
that the Department's existing loan guarantee authority represents good 
value for money. Our ability to execute the first loan guarantees 
should provide important information to Congress as it considers 
alternatives for making loan guarantees a long term, sustainable policy 
tool.
    Question 16. This new legislative authority creates a nine member 
board and an eight member advisory council to advise the board of 
technology and investment priorities. Over the past three years, we 
have faced difficulty in implementing this program as a result of 
interference from OMB regarding the implementation of the program rules 
and regulations. It is unclear how an additional layer of bureaucracy 
will improve the program implementation. In addition, as part of the 
Stimulus bill Congress provided $400 M to establish the Advanced 
Research Projects Agency--Energy (ARPA-E) within the Department to 
advise the Secretary in the deployment of energy technology. This 
legislation seems to go out of its way to create new and redundant 
layers of bureaucracy. Does anyone believe it is vital that the 
advisory council be included in this text? Why can't we rely on the 
existing program offices, laboratories and ARPA-E to advise the board 
on the promising technology options?
    Answer. The Administration is still evaluating the proposal, and 
looks forward to working with the Committee to ensure efficient and 
effective assistance for energy infrastructure investment. The current 
program relies heavily on technical support from the Department of 
Energy's core operating programs, including the Office of Nuclear 
Energy, the Office of Fossil Energy, the Office of Electricity Delivery 
and Energy Reliability, and the Office of Energy Efficiency and 
Renewable Energy for reviewing applications, defining program technical 
requirements, and promoting the program. DOE's national laboratories 
also provide essential technical support.
    Question 17. Based on DOE's existing track record and significant 
delays in implementing the existing loan guarantees, do you have any 
concerns about the Department's ability to expand the financial 
offerings prescribed in this bill? Does the Department have sufficient 
capability at the staff level to implement, evaluate and support the 
new authorities provided in this legislation, including securitization 
of energy projects, which has never been done in the federal 
government? (There is no secondary market for these investments) Does 
the Department have any familiarity with financial risk management to 
ensure the investment portfolio is balanced and not overexposing 
taxpayers to unnecessary investment risk?
    Answer. The Administration is still evaluating the proposal, and 
looks forward to working with the Committee to ensure efficient and 
effective assistance for energy infrastructure investment.
    Question 18. Compliance with the National Environmental Policy Act, 
including environmental assessments for loan guarantee projects, has 
contributed to the delays in awarding the Loan guarantees. This 
legislation is a mixed bag when it comes to waiving onerous hiring 
regulations to bring on qualified federal staff and pay them 
competitive salaries, but it also does nothing to accelerate the NEPA 
reviews and it raises the cost of construction of energy projects by 
requiring compliance with Davis Bacon rules. Aside from waiving federal 
hiring and compensation rules are there any other positive reforms that 
would lower the cost of energy projects or speed their deployment? 
Should we do more in this regard?
    Answer. The Department has not conducted research or analysis on 
this issue. However, Secretary Chu has directed us to accelerate the 
loan guarantee review process significantly and deliver the first loans 
in a matter of months, while maintaining appropriate oversight and due 
diligence to protect taxpayers' interests. We are taking steps to 
reduce the cycle time from application to loan guarantee so that viable 
projects are funded, with all due speed and due diligence.
                                 ______
                                 
    [Responses to the following questions were not received at 
the time the hearing went to press:]

           Questions for Jeanine Hull From Senator Murkowski
    Question 1. There appears to be some disagreement among the 
witnesses as to what is an appropriate percentage limit for the loan 
loss reserve. Ten percent is consistent with the safest thrift 
institutions and CBO's most recent interpretation of Stimulus funding 
for the Loan Guarantee Program. Can you elaborate further on what you 
think is a reasonable level for the loan loss reserve to be set at, and 
how that compares to existing treatment of credit subsidy costs for 
comparable programs in the federal government?
    Question 2. Legislation similar in concept to the draft we are 
discussing today has been introduced in the House. Have any of you had 
a chance to review that bill, and if so, how does its risk profile, 
structure and operation compare to the contents of this Senate draft?
            Questions for Jeanine Hull From Senator Bennett
    Question 3. This legislation proposes that the Clean Energy 
Deployment Administration would be retained within the Department of 
Energy, similar to the Energy Information Administration. However, as 
we approach the 4th anniversary of the EPACT's signing, I am skeptical 
that the Department is able to implement this program in an effective 
and timely manner. Over the past several years, DOE has struggled to 
set up this program and fought both OMB and CBO over scoring and 
implementation strategies. While, I don't doubt Secretary Chu's 
commitment to implementing this program, the facts speak for 
themselves. I would prefer see an entity that is entirely focused on 
implementing and supporting the deployment of clean energy based on 
sound financial fundamentals. I fear that political pressures within 
the Department will drive the investment strategy, rather than allowing 
commercial fundamentals and sound risk management strategies to dictate 
the outcome. Do you agree that creating this program within the 
existing DOE bureaucracy, which will compete for personnel and budget 
needs, is in the best interest of the program? Based on DOE's track 
record is this the best organizational model to drive investment into 
our energy sector?
    Question 4. This new legislative authority creates a nine member 
board and an eight member advisory council to advise the board of 
technology and investment priorities. Over the past three years, we 
have faced difficulty in implementing this program as a result of 
interference from OMB regarding the implementation of the program rules 
and regulations. It is unclear how an additional layer of bureaucracy 
will improve the program implementation. In addition, as part of the 
Stimulus bill Congress provided $400 M to establish the Advanced 
Research Projects Agency--Energy (ARPA-E) within the Department to 
advise the Secretary in the deployment of energy technology. This 
legislation seems to go out of its way to create new and redundant 
layers of bureaucracy. Does anyone believe it is vital that the 
advisory council be included in this text? Why can't we rely on the 
existing program offices, laboratories and ARPA-E to advise the board 
on the promising technology options?
    Question 5. Based on DOE's existing track record and significant 
delays in implementing the existing loan guarantees, do you have any 
concerns about the Department's ability to expand the financial 
offerings prescribed in this bill? Does the Department have sufficient 
capability at the staff level to implement, evaluate and support the 
new authorities provided in this legislation, including securitization 
of energy projects, which has never been done in the federal 
government? (There is no secondary market for these investments) Does 
the Department have any familiarity with financial risk management to 
ensure the investment portfolio is balanced and not overexposing 
taxpayers to unnecessary investment risk?
    Question 6. Compliance with the National Environmental Policy Act, 
including environmental assessments for loan guarantee projects, has 
contributed to the delays in awarding the Loan guarantees. This 
legislation is a mixed bag when it comes to waiving onerous hiring 
regulations to bring on qualified federal staff and pay them 
competitive salaries, but it also does nothing to accelerate the NEPA 
reviews and it raises the cost of construction of energy projects by 
requiring compliance with Davis Bacon rules. Aside from waiving federal 
hiring and compensation rules are there any other positive reforms that 
would lower the cost of energy projects or speed their deployment?--
Should we do more in this regard?
                                 ______
                                 
          Questions for John Denniston From Senator Murkowski
    Question 1. There appears to be some disagreement among the 
witnesses as to what is an appropriate percentage limit for the loan 
loss reserve. Ten percent is consistent with the safest thrift 
institutions and CBO's most recent interpretation of Stimulus funding 
for the Loan Guarantee Program. Can you elaborate further on what you 
think is a reasonable level for the loan loss reserve to be set at, and 
how that compares to existing treatment of credit subsidy costs for 
comparable programs in the federal government?
    Question 2. Legislation similar in concept to the draft we are 
discussing today has been introduced in the House. Have any of you had 
a chance to review that bill, and if so, how does its risk profile, 
structure and operation compare to the contents of this Senate draft?
           Questions for John Denniston From Senator Bennett
    Question 3. This legislation proposes that the Clean Energy 
Deployment Administration would be retained within the Department of 
Energy, similar to the Energy Information Administration. However, as 
we approach the 4th anniversary of the EPACT's signing, I am skeptical 
that the Department is able to implement this program in an effective 
and timely manner. Over the past several years, DOE has struggled to 
set up this program and fought both OMB and CBO over scoring and 
implementation strategies. While, I don't doubt Secretary Chu's 
commitment to implementing this program, the facts speak for 
themselves. I would prefer see an entity that is entirely focused on 
implementing and supporting the deployment of clean energy based on 
sound financial fundamentals. I fear that political pressures within 
the Department will drive the investment strategy, rather than allowing 
commercial fundamentals and sound risk management strategies to dictate 
the outcome. Do you agree that creating this program within the 
existing DOE bureaucracy, which will compete for personnel and budget 
needs, is in the best interest of the program? Based on DOE's track 
record is this the best organizational model to drive investment into 
our energy sector?
    Question 4. This new legislative authority creates a nine member 
board and an eight member advisory council to advise the board of 
technology and investment priorities. Over the past three years, we 
have faced difficulty in implementing this program as a result of 
interference from OMB regarding the implementation of the program rules 
and regulations. It is unclear how an additional layer of bureaucracy 
will improve the program implementation. In addition, as part of the 
Stimulus bill Congress provided $400 M to establish the Advanced 
Research Projects Agency--Energy (ARPA-E) within the Department to 
advise the Secretary in the deployment of energy technology. This 
legislation seems to go out of its way to create new and redundant 
layers of bureaucracy. Does anyone believe it is vital that the 
advisory council be included in this text? Why can't we rely on the 
existing program offices, laboratories and ARPA-E to advise the board 
on the promising technology options?
    Question 5. Based on DOE's existing track record and significant 
delays in implementing the existing loan guarantees, do you have any 
concerns about the Department's ability to expand the financial 
offerings prescribed in this bill? Does the Department have sufficient 
capability at the staff level to implement, evaluate and support the 
new authorities provided in this legislation, including securitization 
of energy projects, which has never been done in the federal 
government? (There is no secondary market for these investments) Does 
the Department have any familiarity with financial risk management to 
ensure the investment portfolio is balanced and not overexposing 
taxpayers to unnecessary investment risk?
    Question 6. Compliance with the National Environmental Policy Act, 
including environmental assessments for loan guarantee projects, has 
contributed to the delays in awarding the Loan guarantees. This 
legislation is a mixed bag when it comes to waiving onerous hiring 
regulations to bring on qualified federal staff and pay them 
competitive salaries, but it also does nothing to accelerate the NEPA 
reviews and it raises the cost of construction of energy projects by 
requiring compliance with Davis Bacon rules. Aside from waiving federal 
hiring and compensation rules are there any other positive reforms that 
would lower the cost of energy projects or speed their deployment?--
Should we do more in this regard?
                                 ______
                                 
          Questions for Dan W. Reicher From Senator Murkowski
    Question 1. There appears to be some disagreement among the 
witnesses as to what is an appropriate percentage limit for the loan 
loss reserve. Ten percent is consistent with the safest thrift 
institutions and CBO's most recent interpretation of Stimulus funding 
for the Loan Guarantee Program. Can you elaborate further on what you 
think is a reasonable level for the loan loss reserve to be set at, and 
how that compares to existing treatment of credit subsidy costs for 
comparable programs in the federal government?
    Question 2. Legislation similar in concept to the draft we are 
discussing today has been introduced in the House. Have any of you had 
a chance to review that bill, and if so, how does its risk profile, 
structure and operation compare to the contents of this Senate draft?
           Questions for Dan W. Reicher From Senator Bennett
    Question 3. This legislation proposes that the Clean Energy 
Deployment Administration would be retained within the Department of 
Energy, similar to the Energy Information Administration. However, as 
we approach the 4th anniversary of the EPACT's signing, I am skeptical 
that the Department is able to implement this program in an effective 
and timely manner. Over the past several years, DOE has struggled to 
set up this program and fought both OMB and CBO over scoring and 
implementation strategies. While, I don't doubt Secretary Chu's 
commitment to implementing this program, the facts speak for 
themselves. I would prefer see an entity that is entirely focused on 
implementing and supporting the deployment of clean energy based on 
sound financial fundamentals. I fear that political pressures within 
the Department will drive the investment strategy, rather than allowing 
commercial fundamentals and sound risk management strategies to dictate 
the outcome. Do you agree that creating this program within the 
existing DOE bureaucracy, which will compete for personnel and budget 
needs, is in the best interest of the program? Based on DOE's track 
record is this the best organizational model to drive investment into 
our energy sector?
    Question 4. This new legislative authority creates a nine member 
board and an eight member advisory council to advise the board of 
technology and investment priorities. Over the past three years, we 
have faced difficulty in implementing this program as a result of 
interference from OMB regarding the implementation of the program rules 
and regulations. It is unclear how an additional layer of bureaucracy 
will improve the program implementation. In addition, as part of the 
Stimulus bill Congress provided $400 M to establish the Advanced 
Research Projects Agency--Energy (ARPA-E) within the Department to 
advise the Secretary in the deployment of energy technology. This 
legislation seems to go out of its way to create new and redundant 
layers of bureaucracy. Does anyone believe it is vital that the 
advisory council be included in this text? Why can't we rely on the 
existing program offices, laboratories and ARPA-E to advise the board 
on the promising technology options?
    Question 5. Based on DOE's existing track record and significant 
delays in implementing the existing loan guarantees, do you have any 
concerns about the Department's ability to expand the financial 
offerings prescribed in this bill? Does the Department have sufficient 
capability at the staff level to implement, evaluate and support the 
new authorities provided in this legislation, including securitization 
of energy projects, which has never been done in the federal 
government? (There is no secondary market for these investments) Does 
the Department have any familiarity with financial risk management to 
ensure the investment portfolio is balanced and not overexposing 
taxpayers to unnecessary investment risk?
    Question 6. Compliance with the National Environmental Policy Act, 
including environmental assessments for loan guarantee projects, has 
contributed to the delays in awarding the Loan guarantees. This 
legislation is a mixed bag when it comes to waiving onerous hiring 
regulations to bring on qualified federal staff and pay them 
competitive salaries, but it also does nothing to accelerate the NEPA 
reviews and it raises the cost of construction of energy projects by 
requiring compliance with Davis Bacon rules. Aside from waiving federal 
hiring and compensation rules are there any other positive reforms that 
would lower the cost of energy projects or speed their deployment?--
Should we do more in this regard?
                                 ______
                                 
          Questions for Joseph S. Hezir From Senator Murkowski
    Question 1. There appears to be some disagreement among the 
witnesses as to what is an appropriate percentage limit for the loan 
loss reserve. Ten percent is consistent with the safest thrift 
institutions and CBO's most recent interpretation of Stimulus funding 
for the Loan Guarantee Program. Can you elaborate further on what you 
think is a reasonable level for the loan loss reserve to be set at, and 
how that compares to existing treatment of credit subsidy costs for 
comparable programs in the federal government?
    Question 2. Legislation similar in concept to the draft we are 
discussing today has been introduced in the House. Have any of you had 
a chance to review that bill, and if so, how does its risk profile, 
structure and operation compare to the contents of this Senate draft?
    Question 3. Your testimony focuses on the operation of existing 
entities, like EXIM and OPIC, which are similar to the ``Clean Energy 
Deployment Administration'' as outlined in the draft bill. How do the 
loans, loan guarantees and other forms of credit support provided by 
these similar entities compare to grants and cost-shared demonstrations 
in terms of a return on the use of taxpayer dollars?
          Questions for Joseph S. Hezir From Senator Barrasso
    Question 4. Do you think there is adequate accounting transparency 
to guarantee that the Clean Energy Deployment Administration does not 
over-leverage itself or take irresponsible risks? Are there additional 
steps that can be taken to minimize taxpayer exposure?
    Question 5. The government has a poor track record of picking 
winners and losers in the marketplace. Do you think this legislation 
provides a framework for an independent, pragmatic review of 
applications and not fall prey to political whims?
           Questions for Joseph S. Hezir From Senator Bennett
    Question 6. This legislation proposes that the Clean Energy 
Deployment Administration would be retained within the Department of 
Energy, similar to the Energy Information Administration. However, as 
we approach the 4th anniversary of the EPACT's signing, I am skeptical 
that the Department is able to implement this program in an effective 
and timely manner. Over the past several years, DOE has struggled to 
set up this program and fought both OMB and CBO over scoring and 
implementation strategies. While, I don't doubt Secretary Chu's 
commitment to implementing this program, the facts speak for 
themselves. I would prefer see an entity that is entirely focused on 
implementing and supporting the deployment of clean energy based on 
sound financial fundamentals. I fear that political pressures within 
the Department will drive the investment strategy, rather than allowing 
commercial fundamentals and sound risk management strategies to dictate 
the outcome. Do you agree that creating this program within the 
existing DOE bureaucracy, which will compete for personnel and budget 
needs, is in the best interest of the program? Based on DOE's track 
record is this the best organizational model to drive investment into 
our energy sector?
    Question 7. This new legislative authority creates a nine member 
board and an eight member advisory council to advise the board of 
technology and investment priorities. Over the past three years, we 
have faced difficulty in implementing this program as a result of 
interference from OMB regarding the implementation of the program rules 
and regulations. It is unclear how an additional layer of bureaucracy 
will improve the program implementation. In addition, as part of the 
Stimulus bill Congress provided $400 M to establish the Advanced 
Research Projects Agency--Energy (ARPA-E) within the Department to 
advise the Secretary in the deployment of energy technology. This 
legislation seems to go out of its way to create new and redundant 
layers of bureaucracy. Does anyone believe it is vital that the 
advisory council be included in this text? Why can't we rely on the 
existing program offices, laboratories and ARPA-E to advise the board 
on the promising technology options?
    Question 8. Based on DOE's existing track record and significant 
delays in implementing the existing loan guarantees, do you have any 
concerns about the Department's ability to expand the financial 
offerings prescribed in this bill? Does the Department have sufficient 
capability at the staff level to implement, evaluate and support the 
new authorities provided in this legislation, including securitization 
of energy projects, which has never been done in the federal 
government? (There is no secondary market for these investments) Does 
the Department have any familiarity with financial risk management to 
ensure the investment portfolio is balanced and not overexposing 
taxpayers to unnecessary investment risk?
    Question 9. Compliance with the National Environmental Policy Act, 
including environmental assessments for loan guarantee projects, has 
contributed to the delays in awarding the Loan guarantees. This 
legislation is a mixed bag when it comes to waiving onerous hiring 
regulations to bring on qualified federal staff and pay them 
competitive salaries, but it also does nothing to accelerate the NEPA 
reviews and it raises the cost of construction of energy projects by 
requiring compliance with Davis Bacon rules. Aside from waiving federal 
hiring and compensation rules are there any other positive reforms that 
would lower the cost of energy projects or speed their deployment?--
Should we do more in this regard?
    Question 10. Mr. Hezir, your testimony suggests that the Federal 
Credit Reform Act has had a generally positive effect on the federal 
government's management of credit instruments. However, in the context 
of the Title XVII loan guarantee program there are concerns that the 
credit subsidy cost will be so high that it is a barrier to applicants. 
Is that a result of Federal Credit Reform Act, in general, or has DOE 
and OMB interpreted FCRA too narrowly?
    Question 11. As your testimony notes, the CEDA is directed to 
consider risk on a portfolio-basis. Will this reduce the credit subsidy 
cost for applicants?







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