[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
SOLYNDRA AND THE DOE LOAN GUARANTEE PROGRAM
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 14, 2011
__________
Serial No. 112-84
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COMMITTEE ON ENERGY AND COMMERCE
FRED UPTON, Michigan
Chairman
JOE BARTON, Texas HENRY A. WAXMAN, California
Chairman Emeritus Ranking Member
CLIFF STEARNS, Florida JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky Chairman Emeritus
JOHN SHIMKUS, Illinois EDWARD J. MARKEY, Massachusetts
JOSEPH R. PITTS, Pennsylvania EDOLPHUS TOWNS, New York
MARY BONO MACK, California FRANK PALLONE, Jr., New Jersey
GREG WALDEN, Oregon BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska ANNA G. ESHOO, California
MIKE ROGERS, Michigan ELIOT L. ENGEL, New York
SUE WILKINS MYRICK, North Carolina GENE GREEN, Texas
Vice Chairman DIANA DeGETTE, Colorado
JOHN SULLIVAN, Oklahoma LOIS CAPPS, California
TIM MURPHY, Pennsylvania MICHAEL F. DOYLE, Pennsylvania
MICHAEL C. BURGESS, Texas JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee CHARLES A. GONZALEZ, Texas
BRIAN P. BILBRAY, California JAY INSLEE, Washington
CHARLES F. BASS, New Hampshire TAMMY BALDWIN, Wisconsin
PHIL GINGREY, Georgia MIKE ROSS, Arkansas
STEVE SCALISE, Louisiana JIM MATHESON, Utah
ROBERT E. LATTA, Ohio G.K. BUTTERFIELD, North Carolina
CATHY McMORRIS RODGERS, Washington JOHN BARROW, Georgia
GREGG HARPER, Mississippi DORIS O. MATSUI, California
LEONARD LANCE, New Jersey DONNA M. CHRISTENSEN, Virgin
BILL CASSIDY, Louisiana Islands
BRETT GUTHRIE, Kentucky KATHY CASTOR, Florida
PETE OLSON, Texas
DAVID B. McKINLEY, West Virginia
CORY GARDNER, Colorado
MIKE POMPEO, Kansas
ADAM KINZINGER, Illinois
H. MORGAN GRIFFITH, Virginia
_____
Subcommittee on Oversight and Investigations
CLIFF STEARNS, Florida
Chairman
LEE TERRY, Nebraska DIANA DeGETTE, Colorado
SUE WILKINS MYRICK, North Carolina Ranking Member
JOHN SULLIVAN, Oklahoma JANICE D. SCHAKOWSKY, Illinois
TIM MURPHY, Pennsylvania MIKE ROSS, Arkansas
MICHAEL C. BURGESS, Texas KATHY CASTOR, Florida
MARSHA BLACKBURN, Tennessee EDWARD J. MARKEY, Massachusetts
BRIAN P. BILBRAY, California GENE GREEN, Texas
PHIL GINGREY, Georgia DONNA M. CHRISTENSEN, Virgin
STEVE SCALISE, Louisiana Islands
CORY GARDNER, Colorado JOHN D. DINGELL, Michigan
H. MORGAN GRIFFITH, Virginia HENRY A. WAXMAN, California (ex
JOE BARTON, Texas officio)
FRED UPTON, Michigan (ex officio)
(ii)
C O N T E N T S
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Page
Hon. Cliff Stearns, a Representative in Congress from the State
of Florida, opening statement.................................. 1
Prepared statement........................................... 4
Hon. Diana DeGette, a Representative in Congress from the State
of Colorado, opening statement................................. 6
Hon. Fred Upton, a Representative in Congress from the State of
Michigan, opening statement.................................... 25
Prepared statement........................................... 27
Hon. Joe Barton, a Representative in Congress from the State of
Texas, opening statement....................................... 29
Hon. Michael C. Burgess, a Representative in Congress from the
State of Texas, opening statement.............................. 29
Prepared statement........................................... 30
Hon. Henry A. Waxman, a Representative in Congress from the State
of California, opening statement............................... 31
Hon. Marsha Blackburn, a Representative in Congress from the
State of Tennessee, prepared statement......................... 153
Witnesses
Jonathan Silver, Executive Director, Loan Programs Office,
Department of Energy........................................... 33
Prepared statement........................................... 36
Answers to submitted questions............................... 167
Jeffrey D. Zients, Deputy Director for Management, Office of
Management and Budget.......................................... 42
Prepared statement........................................... 44
Answers to submitted questions............................... 182
Submitted Material
Department of the Environment and Office of Management and Budget
staff emails, dated January to August 2009, and OMB staff
email, dated January 31, 2011, submitted by Ms. DeGette........ 8
Credit Committee Recommendation re: Solyndra Fab 2 LLC submission
as of January 9, 2009, submitted by Ms. DeGette................ 50
Article, ``The Solar Hype Cycle: Don't Let The Sun Go Down On
Me,'' dated August 4, 2008, by Mark Modzelewski for
Xconomy.com, submitted by Mr. Pompeo........................... 94
Credit Committee Paper Request for Loan Guarantee Approval of
Solyndra Fab 2, LLC, project, dated March 11, 2009, submitted
by Ms. DeGette................................................. 104
Majority supplemental memo, dated June 23, 2011, submitted by Mr.
Stearns........................................................ 129
Majority slide presentation, submitted by Mr. Stearns............ 154
SOLYNDRA AND THE DOE LOAN GUARANTEE PROGRAM
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WEDNESDAY, SEPTEMBER 14, 2011
House of Representatives,
Subcommittee on Oversight and Investigations,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 9:35 a.m., in
room 2123 of the Rayburn House Office Building, Hon. Cliff
Stearns (chairman of the subcommittee) presiding.
Members present: Representatives Stearns, Terry, Sullivan,
Murphy, Burgess, Blackburn, Myrick, Bilbray, Gingrey, Scalise,
Gardner, Griffith, Barton, Upton (ex officio), Pompeo, DeGette,
Schakowsky, Markey, Green, Christensen, Dingell, and Waxman (ex
officio).
Staff present: Carl Anderson, Counsel, Oversight; Gary
Andres, Staff Director; Sean Bonyun, Deputy Communications
Director; Karen Christian, Deputy Chief Counsel, Oversight/
Investigations; Todd Harrison, Chief Counsel, Oversight/
Investigations; Carly McWilliams, Legislative Clerk; Andrew
Powaleny, Deputy Press Secretary; Krista Rosenthall, Counsel to
Chairman Emeritus; Alan Slobodin, Deputy Chief Counsel,
Oversight; John Stone, Counsel, Oversight/Investigations;
Kristen Amerling, Minority Chief Counsel and Staff Director,
Oversight; Phil Barnett, Minority Staff Director; Brian Cohen,
Minority Senior Policy and Staff Director, Investigations;
Karen Lightfoot, Minority Communications Director; Elizabeth
Letter, Minority Press Assistant; Alvin Banks, Minority
Investigator; Matthew Siegler, Minority Counsel; Stacia
Cardille, Minority Counsel; and Anne Tindall, Minority Counsel.
OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF FLORIDA
Mr. Stearns. Good morning, everybody. We convene this
important hearing of the Subcommittee on Oversight and
Investigations to examine the involvement of the Department of
Energy and the White House Office of Management and Budget in
the review, approval, and subsequent restructuring of the $535
million loan guarantee to Solyndra.
The Obama administration has repeatedly touted its green
energy plan as the savior for our faltering economy. Solyndra
was the first loan guarantee issued by the Obama administration
using stimulus dollars. Administration officials held out the
company as a shining example of how the stimulus was creating
jobs and invigorating the economy. However, just after 2 years
of receiving this half-of-a-billion-dollar loan guarantee, and
6 months after DOE restructured the terms of the deal, Solyndra
has closed its door, laid off over a thousand employees, and
filed for bankruptcy. Last week, the FBI agents raided the
facility.
One of our witnesses today, Mr. Silver, attempts to claim
in his written testimony that the Bush administration is
equally at fault for approving Solyndra's deal and that
Solyndra was a train ready to leave the station when President
Obama took office. But in reality, on January 9, 2009--at the
end of the Bush administration--the DOE Credit Committee voted
against offering a conditional commitment to Solyndra, saying
that the real deal was premature and questioning its underlying
financial support. Only after the Obama administration took
control, and the stimulus passed, was the Solyndra deal pushed
through.
We have been asking questions for almost 7 months about
this deal. We have gathered documents from the Department of
Energy. In a party-line vote, the committee was forced to
subpoena OMB in July in order to get even basic information
showing their role in the Solyndra deal. Now, committee
Democrats have questioned the basis of our investigation and
actually have accused the committee of engaging in a fishing
expedition and abusing our subpoena power. But what the
committee's review of these documents clearly show is that we
were right all along to ask questions about this loan. It
should not take a financial restructuring, bankruptcy, and FBI
raid for my colleagues on the other side of the aisle to put
politics aside and join us in our efforts.
The documents demonstrate that when DOE was reviewing the
Solyndra guarantee in 2009, it was well aware of the financial
problems the deal posed. What the documents also show is that
the rush to push out stimulus dollars may have impacted the
depth and quality of DOE and OMB's review. In fact, the White
House had scheduled Vice President Biden's and Secretary Chu's
appearing at Solyndra's groundbreaking event prior to DOE even
making its final presentation to OMB on the terms of the
Solyndra deal. An email from a senior OMB staff member to the
Office of the Vice President sums up this disturbing
revelation. In it, he states, ``We have ended up with a
situation of having to do rushed approvals on a couple of
occasions. We would prefer to have sufficient time to do our
due diligent reviews and have the approval set the date for the
announcement rather than the other way around.''
Only 6 months after the loan closed, Solyndra's financial
troubles became increasingly severe. In March 2010, an
independent auditor issued a report stating, ``the Company has
suffered recurring losses from operations, negative cash flows
since inception and has a net stockholders' deficit that, among
other factors, raises substantial doubt about its ability to
continue as a going concern.'' Nonetheless, President Obama
visited Solyndra in May and proclaimed, ``the true engine of
economic growth will always be companies like Solyndra.''
Just one year after the loan closed, Solyndra was almost
out of cash. In late fall of 2010, DOE began negotiations with
Solyndra and two of its main investors about restructuring the
loan in order to keep the company afloat. Under the
restructuring agreement, Solyndra's private investors were
given priority over the government with regard to the first $75
million recovered in the event of liquidation. Documents
reviewed by the committee staff raise serious concerns about
whether this deal was better for the taxpayers. These concerns
are spelled out in an email between OMB staff in late January
2011, which notes that, ``while the company may avoid default
with a restructuring, there is also a good chance it will not.
At that point, additional funds would have been put at risk,
recoveries may be lower, and questions will be asked.''
So my colleagues, we are here today to ask those very
questions. If Solyndra really is the ``litmus test for the Loan
Guarantee Program's ability to fund good projects quickly,'' as
DOE's stimulus advisor called it in an email to DOE officials,
I am very concerned about where the $10 billion DOE that they
have left to spend before the September 30 deadline is gone,
taxpayers would be better served by not risking even more of
their money, instead using it to reduce our mounting national
deficit.
Thank you, and with that I recognize the distinguished
colleague from Colorado, Ms. DeGette.
[The prepared statement of Mr. Stearns follows:]
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OPENING STATEMENT OF HON. DIANA DEGETTE, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF COLORADO
Ms. DeGette. Thank you very much, Mr. Chairman.
While China's initiatives continue to threaten our Nation's
renewable energy industry and while we continue to try to
revive our economy, it should be clear to everybody in this
room that solar energy development is not a Democratic or a
Republican issue; it is an issue of securing American energy
innovation for decades to come. And so we should have a larger
discussion about how government can appropriately support the
development of domestic clean energy technologies. As we all
know, and as we can tell from the chairman's opening statement,
there has been a great deal written in the media about today's
hearing, and unfortunately, the issue has become very
politicized.
The narrow purpose of today's hearing is to thoroughly
examine the process and decisions surrounding the Solyndra loan
guarantee, but we can't help but look at the issue through the
larger lens of what our national energy policy should be going
forward. And as we think about the broader issues, it is
important to see just what happened with the Solyndra loan.
Now, the chairman said that the minority opposed this
investigation, and that couldn't be farther from the truth. We
believe this investigation into Solyndra is important to
understand both what happened here and also what our
appropriate energy policy is. And furthermore, we never oppose
production of any documents. We oppose the subpoena because we
believe that the documents were being produced in good time.
But having said that, I am happy that we now have the
documents, and I think those documents should be made available
to everybody.
The documents and briefings that I have reviewed show that
the Department of Energy in both the Bush and Obama
administrations supported Solyndra's loan guarantee
application. In 2007, the Bush administration DOE invited
Solyndra to submit a full application, and by the end of the
Bush administration, DOE had submitted the application to its
Critical Committee for review. After President Obama took
office, DOE continued to work on the application and ultimately
approved the loan guarantee in September 2009.
In spring of 2010, a pre-IPO audit of Solyndra raised
concerns about Solyndra's viability, and by late 2010, DOE had
determined that the company was headed towards default. DOE was
faced with a choice at this point: restructure the loan to
increase the chances that Solyndra could repay the taxpayers'
funds or cut their losses and accept the high possibility of
default. Ultimately, DOE determined restructuring was the
course of action most likely to preserve the full recovery of
the loan value. Under terms approved in February 2011, Solyndra
was given more time to repay the loan, the government obtained
additional collateral, and Solyndra was required to raise an
additional $75 million from private investors that would have
primacy over the government's interest in the event of
liquidation before 2013.
Now, this July, Solyndra's CEO visited my office as well as
other members' and talked about the strong demand for the
company's product and how 2011 revenues were projected to
double from 2010. Now, as we all know, less than 2 months
later, the company announced it would file for bankruptcy. And
now, the Federal Government's recovery of over $500 million
loaned to Solyndra is at grave risk. It is always easier to
assess decisions in hindsight, but particularly with a loan
this big, it is critical that we get answers to several key
questions.
First, did the Bush and Obama administrations conduct
appropriate due diligence before September 2009 guarantee
approval? Second, did the Department of Energy sufficiently
monitor the financial status of Solyndra after loan
disbursements began, particularly as the market forces seemed
to be against them? Third, did Solyndra make accurate
representations to the government about its financial prospects
both before and after approval of its loan guarantee? And when
Solyndra's financial situation deteriorated, did the government
make the correct decisions about restructuring the loan?
In examining these issues, I want to underscore that we not
only lose sight of the policy context for the Loan Guarantee
Program that supported Solyndra. This program was designed to
help U.S. companies to grow and compete in a global clean
energy market in which countries like China and others are
providing a wide range of incentives and support for domestic
industry. Even if we conclude that bad judgments were made on
the Solyndra loan, we have got to continue to work hard to
develop and implement appropriate policies that give American
clean energy investors the support they need to make the U.S. a
market leader in the future and also that protect the U.S.
taxpayer.
These are critical decisions. Ranking Member Waxman and I
have asked that the Solyndra CEO and CFO be called, and I
believe that is going to be happening in short order. Because I
am perplexed at how they can be in my office in July telling me
things were looking better and filing for bankruptcy 2 months
later.
With that, Mr. Chairman, I yield back.
Mr. Stearns. The gentlelady mentioned in her opening
statement about the documents we have been reviewing. Would she
consider a unanimous consent request that all those documents
be made part of the record?
Ms. DeGette. Yes.
Mr. Stearns. So ordered.
[The information follows:]
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Mr. Stearns. With that, we recognize the distinguished full
chairman of the Energy and Commerce Committee, the gentleman
from Michigan, Mr. Upton.
OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Upton. Well, thank you, Mr. Chairman. In 2009, Solyndra
was the first company to receive a DOE energy loan funded with
stimulus dollars. Just 2 years after getting $535 million in
taxpayer money, and being touted by President Obama as a model
for how the government's venture capital program in green
technology should work, the company has filed for bankruptcy
and been raided by the FBI.
We are starting to look at the DOE Loan Guarantee Program
and Solyndra's deal in February. Some questioned the basis for
this investigation. And after 4 months of wrangling with the
administration to produce relevant documents, the committee was
forced to issue a subpoena to OMB. I think Solyndra's recent
bankruptcy filing and last week's FBI raid clearly show that
the committee was more than justified in its scrutiny of the
deal. Pursuant to our oversight functions, we have an important
responsibility to pursue answers regarding the use of
taxpayers' money.
Our investigation raises several questions about whether
the administration did everything that it could to protect
taxpayer dollars. Why did the administration think Solyndra was
such a good bet? Why did the administration push ahead with
restructuring the Solyndra guarantee this year, when some in
the government voiced serious concerns about the commercial
viability of the company? Why did DOE and OMB allow the
government to be subordinated to the private investors in
apparent violation of the law?
I look forward to the testimony of Mr. Zients from OMB and
Mr. Silver, Executive Director of DOE's Loan Program Office. I
want to know what the Solyndra failure means for the Loan
Guarantee Program. Was Solyndra just one bad bet by an
administration rushing to claim credit for the first loan
guarantee, or is it the tip of the iceberg? DOE has closed over
$8 billion in loan guarantees to other ``green tech''
companies, and it has about $10 billion left to spend in the
next few weeks before the September 30 deadline. If the
administration was so wrong about Solyndra after 9 months of
due diligence, how can it possibly exercise the proper controls
when doling out another $10 billion in the next couple of
weeks? In this time of record debt, I question whether the
government is qualified to act as a venture capitalist, picking
winners and losers in speculative ventures and shelling out
billions of taxpayer dollars to keep them afloat.
We began this investigation to shine a bright light on a
program shrouded in secrecy and uncertainty. New details are
coming to the forefront today about who decided to allocate
billions in taxpayer dollars, and where, and why. This is
important information, and the public has a right to know how
their hard-earned dollars are being spent. But it is not the
end of our inquiry. The answers we have turned up so far spark
additional questions, and I am committed to pursuing this
investigation and conducting rigorous oversight of the Loan
Guarantee Program and its recipients. I hope the administration
and our friends on both sides of the aisle will share our
commitment to getting answers.
I yield to the gentleman from Texas, Mr. Barton.
[The prepared statement of Mr. Upton follows:]
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OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Barton. Thank you, Chairman Upton.
I think this is a litmus test of how this subcommittee is
going to work together to investigate something that obviously
needs to be investigated. I was very gratified to hear Ranking
Member DeGette's request that the record include all the
documents that have been discovered so far because at the
beginning of this investigation, my friends on the minority
side did not support the subpoena to get those documents.
Mr. Chairman, I support Loan Guarantee Programs for
alternative energy. Having said that, I do not support the
process by which this particular loan guarantee was announced.
It is curious to me that in January of 2009, the Credit
Committee unanimously recommended against this loan guarantee,
but 2 months later after President Obama had been sworn in, the
Credit Committee approved, as far as I can tell, the identical
loan commitment with no intervening improvement in the process.
A DOE staff member at the time said this project is going to
run out of cash in September of 2011. And how prescient was
that, Mr. Chairman? As we all know, they declared bankruptcy
last week.
I look forward to the testimony of these officials and I
look forward next week to the testimony of the members of the
company. And Mr. Chairman and subcommittee chairman and Ranking
Member DeGette and Ranking Member Waxman, I strongly support
you all working together to pursue this investigation on a
bipartisan basis. And I yield back to the chairman.
Mr. Upton. I thank the gentleman and I yield the balance of
the time to Dr. Burgess.
Mr. Burgess. Thank you, Mr. Chairman.
OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF TEXAS
Ranking Member DeGette referenced the fact that going back
to the Bush administration this discussion was going on in the
Department of Energy. I just do want to take a moment to point
out that the Credit Committee at the Department of Energy
January 12, 2009, the last dates of the Bush administration,
the day after their meeting it was a unanimous decision not to
engage in further discussions with Solyndra at this time.
Now, we all know the stimulus bill was about shovel-ready
projects. It appeared that the shovel that this project was
ready for was to bury it somewhere. And yet it was resurrected.
Now, I believe in redemption, I believe in the afterlife, but I
don't believe this was this wisest and best use. I do want to
convey the message to members of the administration that when
this committee calls, you respond. When we ask for documents,
you produce them. When we schedule a hearing, you show up. We
are a coequal branch of government. We have a responsibility to
protect the people's money as well, and it does not appear that
those interests were followed. And unfortunately, now the
taxpayer is going to suffer.
I yield back the balance of my time.
[The prepared statement of Mr. Burgess follows:]
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Mr. Stearns. The gentleman yields back. The distinguished
ranking member, the gentleman from California, Mr. Waxman, is
recognized.
OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Waxman. Thank you, Mr. Chairman.
Today, we are holding a hearing on the loan guarantee
provided by the Department of Energy in 2009 to Solyndra, a
U.S. solar panel manufacturer. And this is an important
hearing. Taxpayers have over $500 million at risk as a result
of Solyndra's bankruptcy. We need to understand what happened,
who should be held accountable, and how we can avoid future
losses. We also need to ask whether Solyndra misled federal
officials.
In July, the company's CEO met with me in my office. He
assured me that the company was in a strong financial condition
and in no danger of failing. In fact, he said the company was
going to double its revenues in 2011. I have a hard time
reconciling those representations with the company's decision
to file for bankruptcy 1 month later. Committee staff have now
reviewed thousands of pages of internal documents from the
Department of Energy and the Office of Management and Budget.
And they raise a number of questions. The documents show that
under both the Bush administration and the Obama administration
DOE officials strongly backed Solyndra. They believed its
silicon-free solar panels--Mr. Chairman, may I have an
opportunity to speak?
Mr. Stearns. Absolutely. Committee will be in order to
listen to the gentleman's statement.
Mr. Waxman. They believe that silicon-free solar panels
offered cost savings and its tubular shape reduced installation
costs. And they thought the internal reviews they conducted and
the external studies they commissions showed Solyndra could
compete successfully in the global marketplace. Well, these
rosy scenarios were not realized. Today, we will ask why. Is
the reason unforeseen developments in the global marketplace as
Solyndra and DOE argue? Or is the reason sloppy or inadequate
vetting, or worse yet, corporate malfeasance?
By late 2010, both DOE and OMB knew Solyndra was facing
difficulty in meeting its loan obligation. This triggered a
vigorous internal debate about what the government should do to
protect the taxpayers. DOE projected that an immediate
liquidation would return less than 20 cents on the dollar, so
they favored restructuring because of the potential for
recovering more of the taxpayers' investment. Some OMB
officials warned against restructuring on the grounds that it
might not be enough to avoid bankruptcy and default. Well, that
was not an easy decision and we need to ask whether the right
choice was made.
Given the bankruptcy of Solyndra and the dollars now at
risk, we have an obligation to the taxpayer to investigate the
transaction thoroughly. That is why I welcome this hearing and
why Ranking Member DeGette and I have urged Chairman Stearns to
hold another hearing where we can question Solyndra's CEO.
I disagree vehemently, however, with the policy conclusions
my Republican colleagues have already drawn. They say the
collapse of Solyndra shows the folly of federal investments in
solar and other clean energy technologies, and they argue the
government should not pick winners and losers in the energy
marketplace. This sounds superficially appealing but there is a
fundamental flaw in their logic. The majority of Republicans on
this committee deny that climate change is real. If you are a
science-denier, there is no reason for government to invest in
clean energy.
It is ironic that at this very moment in Washington, CEOs
of a number of corporations, including Bill Gates from
Microsoft; Mr. Immelt from GE; Norm Augustine, former Lockheed-
Martin chairman; Chad Holliday, Bank of America; Tim Solso, CEO
of Cummins, are all here representing American Energy
Innovation Council, and they are calling for major new
investments in alternative energy and renewable energy so that
we don't fall behind the Chinese and others who are competing
in this area and outcompeting us.
If you live in reality, you know the world cannot continue
its dependence on fossil fuels, that we are in danger of losing
this industry to our competitors, especially China. And last
month alone, 3 U.S. solar manufacturers have declared
bankruptcy because they couldn't compete with Chinese
companies.
This weekend, the business columnist Steve Pearlstein wrote
in the Washington Post, ``listening to the Republicans talk
about the economy and economic policy is like entering into an
alternative universe.'' He is right. Republicans on this
committee oppose putting a market price on carbon emissions.
They oppose EPA regulation of carbon pollution, and now they
oppose government investment that promote clean energy
alternatives. That is an economic dissonance for fledgling
clean energy companies that have to compete against both an
entrenched fossil fuel industry and heavily subsidized foreign
firms. And it is a grievous blow to our future prosperity.
Thank you, Mr. Chairman.
Mr. Stearns. I thank the gentleman. And with that, the
opening statements are concluded. And I ask unanimous consent
that the written opening statements of the members be
introduced into the record, anyone who wishes to do it. Without
objection, the documents will be so entered.
To our witnesses, you are aware that the committee is
holding an investigative hearing, and when doing so has had the
practice of taking testimony under oath. Do you have any
objection to taking testimony under oath?
The chair then advises you that under the rules of the
House and the rules of the committee, you are entitled to be
advised by counsel. Do you desire to be advised by counsel
during your testimony today? No. In that case, if you would
please rise and raise your right hand, I will swear you in.
[Witnesses sworn.]
Mr. Stearns. You are now under oath and subject to the
penalties set forth in Title XVIII, Section 1001, of the United
States Code.
We welcome you to give a 5-minute summary of your written
statement. So with that, Mr. Silver, we welcome you with your
opening statement.
TESTIMONY OF JONATHAN SILVER, DIRECTOR, LOAN PROGRAMS OFFICE,
DEPARTMENT OF ENERGY; AND JEFFREY D. ZIENTS, DEPUTY DIRECTOR
FOR MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET
TESTIMONY OF JONATHAN SILVER
Mr. Silver. Thank you, Chairman Stearns, Ranking Member
DeGette, and members of the subcommittee. My name is Jonathan
Silver, and I am the executive director of the Loan Programs
Office. I joined with the Department of Energy and took this
position in November of 2009.
In 2005, recognizing that there was a systemic shortage of
private debt financing for innovative clean energy projects
from renewable to clean coal to nuclear power, President Bush
signed bipartisan legislation that established the Title XVII
Loan Program. The program was specifically designed to support
next-generation energy projects, which involved technology and
market risks that private sector lenders often cannot or will
not underwrite.
Other governments have recognized the value of such
programs as well. Germany and Canada already operate
government-backed clean energy lending programs. The U.K.,
Australia, and India have announced the intent to do the same.
But none have been as aggressive as the Chinese Government,
which last year alone provided more than $30 billion in credit
to its country's largest solar manufacturers. That is roughly
20 times larger than America's investment in the same period.
Why is China making this investment? Because the race for solar
manufacturing jobs is a race worth winning. Over the next few
decades, this will become a global market worth trillions of
dollars.
In 1995, the United States manufactured more than 40
percent of the solar cells and modules sold worldwide. Today,
it is 6 percent. Meanwhile, China's share has grown from 6
percent in 2005 to 54 percent today. China is now home to 5 of
the 10 largest solar panel manufacturers in the world. Seven of
the 10 largest are in Asia. Only 2 are in the United States. It
is in this context that we should discuss the Solyndra
transaction.
Solyndra submitted its initial application in 2006. By late
2008, the Loan Program staff considered Solyndra the most
advanced of the projects it had reviewed and the likely
recipient of the program's first loan guarantee. In fact, by
the time the Obama administration took office, the career staff
had already established a timeline for issuing the company a
conditional loan commitment in March of 2009. In March, on the
exact schedule that had been developed during the Bush
administration, the program issued Solyndra a conditional
commitment. In September, after several more months of
additional due diligence and documentation, DOE finalized the
loan guarantee. Although I was not at the Department at that
time, it is my understanding that the transaction went through
nearly 3 years of rigorous internal and external due diligence,
including reviews by a leading independent engineering firm,
the Department's own solar experts, and a blue chip law firm
all before any taxpayer funds were put at risk.
The Federal Government was not alone in its assessment of
Solyndra's potential. Some of America's most sophisticated
professional investors collectively invested nearly $1 billion
in the company after conducting extensive due diligence of
their own, and again, before any taxpayer dollars were
deployed.
In 2009, Solyndra appeared to be well positioned to compete
and succeed in the global marketplace. Solyndra manufactures
cylindrical thin-film solar cells, which avoided both the high
cost of polysilicon--a critical component in making
conventional solar panels--and certain costs associated with
installing flat panels. But polysilicon prices subsequently
dropped significantly taking Solyndra and many industry
analysts by surprise and by providing a significant benefit to
several of the company's Chinese competitors.
These developments made Solyndra's business model more
challenging. The company took steps to respond, cutting costs
even as revenues increased 40 percent between 2009 and 2010
from $100 million to $140 million. Despite increasing revenue,
the company ran short of cash and faced imminent bankruptcy
without an emergency influx of new capital from its investors.
The Department of Energy faced a difficult choice: whether a)
to refuse the proposed terms of that financing ensuring that
the company would close and the government would recover only a
small amount of its loan; or b) to allow the company to take
the financing, giving it and its almost 1,000 workers a
fighting chance at success and the government the possibility
of a higher recovery on that loan.
After extensive analysis both internally and from
independent market and financial advisors and using the same
tools and approaches that private lenders use in such
circumstances, the Department concluded that restructuring the
loan gave the U.S. taxpayer the best chance of being repaid.
Unfortunately, the changes in the solar market have only
accelerated. Chinese companies have flooded the market with
inexpensive panels, and Europe, historically the largest
purchaser of solar panels, is in the midst of an economic
crisis that has significantly reduced demand. The result has
been a further and unprecedented 42 percent drop in solar cell
prices in the first 8 months of 2011 alone.
These changes were particularly damaging to Solyndra, and
as you know, the company declared bankruptcy earlier this
month. While we are all disappointed in the outcome, Solyndra's
situation should not overshadow the professional work that the
Department's loan programs have done to date or the need to
continue to find ways to support clean energy in this country.
Developing a robust clean energy manufacturing sector in
the United States is critical to our long-term national
interests and one of the most important tools as our global
competitors have already learned is low-cost financing
effectively targeted and deployed. This isn't picking winners
and losers; it is helping ensure that we have winners here at
all. We invented this technology and we should produce it here.
The question is whether we are willing to take on this
challenge or whether we will simple cede leadership in this
vital sector to other nations and watch as tens of thousands of
jobs are created overseas. The administration believes this is
a battle we must fight and win.
Mr. Chairman, I thank the members of the committee and I
look forward to answering your questions.
[The prepared statement of Mr. Silver follows:]
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Mr. Stearns. Thank you. Mr. Zients?
TESTIMONY OF JEFFREY D. ZIENTS
Mr. Zients. Chairman Stearns, Ranking Member DeGette,
members of the subcommittee, thank you for inviting me here
today to testify on OMB's role in the implementation of the
Department of Energy's Loan Guarantee Program.
The DOE Loan Guarantee Program authorized by Congress in
Title XVII of the Energy Policy Act of 2005 is a key part of
the administration's efforts to promote economic growth and
create jobs across the country and to jumpstart the clean
energy economy. As you know, OMB engages in general oversight
of the programs being executed by federal agencies. Therefore,
OMB has been an active participant in interagency discussions
about major milestones and DOE's implementation of Title XVII
helping to ensure they are consistent with the statutory
framework and administration policy.
These interagency discussions are an important forum for
asking tough questions and pressure-testing assumptions,
respectful of DOE's statutory authority to make final
programmatic decisions on Title XVII loan guarantees.
OMB also has a particular statutory role in the Title XVII
program under the Federal Credit Reform Act of 1990, known as
FCRA. Pursuant to FCRA, OMB reviews and must approve credit
subsidy cost estimates for all loan and loan guarantee
programs, including the credit subsidy cost estimates generated
by DOE for the Title XVII program. OMB ensures that costs are
accounted for appropriately. In performing its statutory role
under FCRA, OMB works closely with agencies' credit subsidy
cost models. Based on these models, OMB reviews and exercises
final approval authority over credit subsidy costs to ensure
that the costs of direct loans and loan guarantees are
presented, and reflect estimated risks, consistently across
federal agencies so that taxpayer funds are invested in a
prudent and effective fashion. By contrast, the final decision
on whether to issue the loan or guarantee rests with the agency
implementing the applicable program--DOE in the case of Title
XVII.
In the Solyndra loan guarantee, OMB's approval of DOE's
proposed credit subsidy cost was conducted in August and
September of 2009. While I was not directly involved in this
aspect of the transaction, what I have learned since indicates
that the approval process reflected a thorough examination and
analysis of DOE's calculation of this estimated cost. OMB staff
addressed with DOE a series of specific questions about its
analysis. Based on these discussions, OMB and DOE ultimately
agreed on the credit subsidy cost, and OMB ensured it was
budgeted and accounted for appropriately. The loan guarantee
was then issued in September 2009.
In February 2011, DOE undertook a restructuring of
Solyndra's debt in light of the acute financial troubles the
company was experiencing. OMB's statutory role in the
restructuring transaction was the same as its role in the
original transaction--to ensure that the credit subsidy cost
was appropriately accounted for, consistent with OMB's
responsibilities under FCRA. OMB worked closely with DOE to
understand the specifics of the proposal before making a cost
determination. DOE ultimately provided information and analysis
to OMB to show that the loan was in imminent default and that
the restructuring proposal was expected to be less costly to
taxpayers than other options, including liquidation. OMB
determined that DOE's analysis was reasonable and reflected the
information as it was understood at that time.
Since then, a challenging global solar market has continued
to affect a number of solar manufacturers, including Solyndra.
The company's recent announcement that it was suspending
operations and filing for bankruptcy is without a doubt a very
unfortunate outcome and one that will limit the government's
recovery of funds loaned to the company.
Congress designed the Title XVII Loan Guarantee Program to
fund innovative clean energy projects that might not otherwise
receive the necessary capital for deployment. The program
envisions that while some of these projects might not succeed,
others will contribute to the country's ability to achieve its
clean energy goals. OMB will continue to work diligently with
DOE to help make the Title XVII program a success and to ensure
that the costs associated with the inherent risks in the
program are budgeted and accounted for to protect taxpayers'
interests.
Mr. Chairman and members of the subcommittee, I would be
pleased to answer any questions you have.
[The prepared statement of Mr. Zients follows:]
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Mr. Stearns. I thank the gentleman, and I will start with
opening questions. And they are directed to you, Mr. Silver,
and if you could possibly just answer yes or no.
In your testimony, you claim that some of Solyndra's due
diligence was done by the end of the Bush administration. Is
that correct?
Mr. Silver. Yes, the application was received----
Mr. Stearns. Yes, that is all I need. Isn't it true,
though, that at the end of the Bush administration a DOE Credit
Committee met on January 9, 2009, to consider the Solyndra
guarantee? Were you aware of that?
Mr. Silver. The Credit Committee is made up of----
Mr. Stearns. No, I am not asking you--just answer the
question.
Mr. Silver. Which met in early 2009----
Mr. Stearns. Right. OK, so you agree. That Credit Committee
recommended that the Solyndra loan guarantee be remanded to the
Loan Programs Office stating, ``The number of issues unresolved
make a recommendation for approval premature at this time.''
Were you aware of the Credit Committee's meeting when you
submitted your testimony to the committee this morning?
Mr. Silver. I was. And, as I said, Congressman, I was not
there at the time, but it is my understanding that it was not--
it was remanded back for additional data----
Mr. Stearns. No, I am asking the questions. I just need a
yes or no.
Mr. Waxman. Let him give the answer.
Mr. Stearns. Well, I think he has given an answer. In an
email sent a few days after the January Credit Committee
meeting, a member of that Credit Committee sent an email to his
fellow members. In that January 13, 2009, email he states,
``After canvassing the committee, it was a unanimous decision
not to engage in further discussions with Solyndra at this
time.'' Do you understand that the Credit Committee in the Bush
administration essentially decided that the due diligence was
not complete at this point?
Mr. Silver. No, Mr. Chairman. In fact, the Credit Committee
that you are referring to, as I said, made up of a group of
career professionals is also exactly the same Credit Committee
that then approved----
Mr. Stearns. I understand that, but the point is what I
just quoted to you is the truth, isn't that correct? That quote
is accurate?
Mr. Silver. I don't--haven't seen that email, sir.
Mr. Stearns. OK.
Mr. Silver. I wasn't there at the time.
Mr. Stearns. Well, you can assure it is. And the DOE should
quit talking with Solyndra. That was the recommendation. Now,
Mr. Silver, in your testimony, you stated that regarding
Solyndra, ``Much of the extensive due diligence on the
transaction was conducted between 2006 and the end of 2008.'' I
would like to bring this information to your attention. Isn't
it true that the Loan Programs Office didn't hire its first
federal employee until August 1, 2007?
Mr. Silver. I am not aware of that but it sounds about
right.
Mr. Stearns. OK. If you don't know, we can provide this
information. We provided it to the committee staff through a
PowerPoint presentation. Now, by the end of 2007, isn't it true
that the office had only 8 federal employees?
Mr. Silver. Again, I don't know the exact numbers.
Mr. Stearns. OK. So who was doing all this extensive due
diligence that you keep talking about in 2006 and 7 at the loan
program?
Mr. Silver. Well, sir, the Department--if you would like an
answer to that question----
Mr. Stearns. Sure.
Mr. Silver [continuing]. The Department is made up of
115,000 working professionals, including about 70,000
scientists a number of whom are solar experts----
Mr. Stearns. But the DOE Credit Committee was the
responsible authority for approving the credit of Solyndra.
Isn't it----
Mr. Silver. No, actually----
Mr. Stearns. OK.
Mr. Silver [continuing]. Technically, sir, the Credit
Committee actually simply reviews a transaction and recommends
it----
Mr. Stearns. Right.
Mr. Silver [continuing]. For approval.
Mr. Stearns. I think we have established they did not think
they should go ahead. Isn't it also true that during that time
period, DOE was reviewing the 140 or so applications that it
received in response to its first solicitation, how did DOE
have time to do extensive due diligence on Solyndra from 2006
to 2007 like you indicated? That baffles us.
Mr. Silver. If you will give me a moment to explain, I
think I can. The 2006 solicitation resulted in 143 submissions.
The loan program staff and others at the Department reviewed
those for eligibility, which is a thinner review than the full
due diligence, and recommended 16 applications to file a full
application.
Mr. Stearns. But----
Mr. Silver. Eleven did so. Solyndra was one of those and
the Department conducted due diligence on all of those 11.
Mr. Stearns. But Mr. Silver, isn't it true the first draft
of the independent marking report wasn't even submitted until
March 2009? You were there. Isn't that correct?
Mr. Silver. No, I was not there at that time, sir. It is my
understanding, though, from reviewing the record that there
were several market research reports that were directly
relevant that were used as the basis for assessment, and there
was subsequently a direct marketing report done for the
project, which was produced in the time frame----
Mr. Stearns. Our records show an independent engineer
report that you cited in your testimony was submitted in early
January 2009. Is that correct?
Mr. Silver. I think that is the case, yes, sir.
Mr. Stearns. The due diligent legal memorandum submitted by
the Morrison and Forester, which you have also cited in your
written testimony, that also was submitted in early 2009,
correct?
Mr. Silver. I believe that is the case.
Mr. Stearns. Given this, how do you explain the statement
in your testimony that the extensive due diligence was
conducted in 2006 and 2008?
Mr. Silver. Actually, I didn't say it was conducted in
2006. I said the application was receive in 2006 and due
diligence began and continued from late 2007 through 2008. It
would be logical for the reports that you are making reference
to here to be completed after that work was done during that
period.
Mr. Stearns. Well, Mr. Silver, I think my time has expired,
but I think what we have established is that the Credit
Committee during the Bush administration found the Solyndra
deal to be premature and remanded it for further work. And we
have all the evidence and all the clear evidence, so we are a
little puzzled with your opening statement. With that, my time
has expired and I recognize the ranking member, Ms. DeGette.
Ms. DeGette. Thank you very much, Mr. Chairman.
I would like to start my questions by asking unanimous
consent to put the Credit Committee Recommendation that the
chairman referred to into the record so that we can know what
we are talking about.
Mr. Stearns. By unanimous consent, so ordered.
[The information follows:]
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Ms. DeGette. Thank you very much.
Mr. Silver, I had staff hand you a copy of this Credit
Committee Recommendation. Have you seen this document before?
Mr. Silver. No, ma'am, I have not.
Ms. DeGette. OK. This is the document that the chairman was
referring to where the Credit Committee remanded the project to
LGPO that they denied the application and they remanded it for
more information. That is the thing the chairman was referring
to. And it was also the information that he had up on the
screen. It was from this memo. Now, as I read this document, it
says, ``While the project appears to have merit, there are
several areas where the information presented did not
thoroughly support a finding, but the project is ready to be
approved at this time.'' And then it lists 4 areas that it says
need to be supplemented. Do you see that?
Mr. Silver. Yes, ma'am.
Ms. DeGette. And then at the bottom is said, ``the Credit
Committee is appreciative of the hard work done by the
origination staff but believes the number of issues unresolved
makes the recommendation for approval premature at this time.''
Do you see that?
Mr. Silver. I do.
Ms. DeGette. And then it concludes, ``Therefore, the
committee, without prejudice, remands the project to the LGPO
for further development of information addressing the issues
outlined above. Correct?
Mr. Silver. Yes, ma'am.
Ms. DeGette. So this document is not a complete denial of
the application; it is remanding it for more information,
correct?
Mr. Silver. Not only is it not a complete denial, it would
be typical of a credit committee in both the public and the
private sector to perform its function in exactly this way. If
they believed additional data was----
Ms. DeGette. And was that data eventually developed and
submitted to the DOE? No?
Mr. Silver. The----
Ms. DeGette. The data that was requested----
Mr. Silver. The data was additionally developed and the
summary of that data was represented to the Credit Committee.
Ms. DeGette. And subsequently, in March of 2009, the
application was approved, correct?
Mr. Silver. Yes, ma'am.
Ms. DeGette. And was that data submitted as part of that
application, this data that was requested?
Mr. Silver. Again, I wasn't there, but it is my
understanding that that was the case.
Ms. DeGette. OK, thank you. Now, I wanted to ask you a
couple of questions about what kind of policies and incentives
that we need to have in the United States to promote
competitiveness in the clean energy market? This is what you
talked about in your testimony. In your written testimony, what
you said was in between 1995 and 2010, the share photovoltaic
cells and panels manufactured in the U.S. dropped from over 40
percent to just 6 percent. We have seen this with some Colorado
companies that are trying to develop solar but they can't
actually find cells that are manufactured in this country.
Since 2005, China's market share has actually increased from 6
percent to 54 percent, and half of the world's 10 largest solar
panel manufacturers are now Chinese. So the question I have is
what does that tell us about the state of play in the solar
manufacturing industry?
Mr. Silver. Congresswoman, I think it tells us that the
rest of the world takes this industry and this industry
opportunity enormously seriously, has a multi-decade
perspective on its importance, believes, as we do, that it will
be a multi-trillion-dollar market that will generate tens of
thousands of jobs and is deeply committed to it.
Ms. DeGette. Now, what is the Chinese Government doing that
you know of to provide support to its solar industry?
Mr. Silver. The Chinese Government has already committed up
to $30 billion of credit to its 4 or 5 largest solar panel
manufacturers. It generally and frequently provides both zero-
cost financing, occasionally free land, and other kinds of
incentives and subsidies to that sector.
Ms. DeGette. And does cheap labor play a part in China's
ability to dominate the world market on this solar development?
Mr. Silver. It certainly has in the past and cheap labor
does play a material role in other parts of the world in their
competitiveness. Increasingly, however, the challenge is
becoming one related to government support for the industry
itself, financially.
Ms. DeGette. So it is not as much cheap labor as capital
that the Chinese Government is providing in your view?
Mr. Silver. Correct. Access to inexpensive debt capital,
yes, ma'am.
Ms. DeGette. OK. So based on your experiences at DOE and
the private sector and your understanding of initiatives of
other governments like China, do you really think it is worth
us having policies like this Title XVII Loan Program and other
policies to support solar or should we just walk away from it
altogether as a government?
Mr. Silver. I can't imagine a scenario in which we would
willingly as a country walk away from what will be undoubtedly
one of the largest if not the largest industries in the world
over the next several decades.
Ms. DeGette. Well, do you think though that there is any
way we can actually compete?
Mr. Silver. Yes, we have an incredibly strong and
innovative workforce, but what we have got to be able to
support not only innovation at the R&D level, we also have to
be able to support commercial deployment. Without commercial
deployment, we cannot continue to recognize the benefits that
come from innovation.
Ms. DeGette. So irrespective of the details of the Solyndra
case which are still unfolding to this day, you think that
these kinds of loan-support programs are important to
development of the U.S. solar energy and jobs. Is that right?
Mr. Silver. I think they are critical. They are only part
of the fabric of what is necessary but they are critical.
Ms. DeGette. Now, Mr.--pronounce your name for me.
Mr. Zients. Zients.
Ms. DeGette. Zients. Mr. Zients, I wanted to ask you
because you talked about this Title XVII funding and there are
a number of other projects that are receiving--and I believe
over 40. Has that worked in other projects? Is it working in
other loan situations?
Mr. Zients. Well, the program is, as you know, relatively
new, so loans have recently closed for the most part. And we
have every reason to be optimistic that the portfolio as a
whole will perform.
Ms. DeGette. And how large is the portfolio as a whole?
Mr. Zients. I defer to Jonathan on specific numbers. I
think you have a good estimate in what you said.
Ms. DeGette. Thank you very much. Thank you, Mr. Chair.
Mr. Stearns. The gentleman from Texas, Mr. Barton, is
recognized for 5 minutes.
Mr. Barton. Thank you, Mr. Chairman.
Just for the record, are you two gentlemen career civil
service employees or are you political appointees?
Mr. Silver. Political appointees, sir.
Mr. Zients. Political appointee.
Mr. Barton. Both, OK. Chairman Stearns alluded to this but
I want to follow up a little bit. While President Bush was
still in office on January the 9th of 2009, the Credit
Committee, which is a part of the Department of Energy I
believe did recommend against going forward with the Solyndra
loan. Less than 2 months later, on March the 12th of 2009, the
Credit Committee conditionally approved the loan. First of all,
is that factually correct?
Mr. Silver. The timeline is correct, sir. The Credit
Committee--the first Credit Committee that met did not reject
the loan. They remanded it back for further analysis. But your
timeline with respect to the 2 Credit Committees is correct.
Mr. Barton. The individuals that are on the Credit
Committee, are those political appointees or civil service?
Mr. Silver. Civil service.
Mr. Barton. OK. Were the 2 Credit Committees identical in
their makeup?
Mr. Silver. I believe that to be true.
Mr. Barton. So the same people in the same agency--to use
your terminology--needed additional information--or anyway,
they did not approve it in January but in March, the same
committee made up of the same people did approve or
conditionally approve. That is correct, right?
Mr. Silver. No, sir. Technically, the Credit Committee does
not approve a conditional commitment. The Credit Committee
recommends a transaction for approval, which is then further
reviewed by a group called the Credit Review Board, the CRB,
and they----
Mr. Barton. Well, instead of putting up a red light, they
put up a green light or at least a yellow light?
Mr. Silver. They indicated that the initial questions that
had been--they had raised in the first meeting had been
addressed. And they----
Mr. Barton. All right. Now, what changed in the intervening
period?
Mr. Silver. Additional due diligence was conducted----
Mr. Barton. Specifically, what changed?
Mr. Silver. Well, as I say, additional due diligence was
conducted----
Mr. Barton. Well, specifically, what additional due
diligence?
Mr. Silver. Market--additional market research was
developed and----
Mr. Barton. Is that available and does the committee staff
have it?
Mr. Silver. I believe the committee staff has it. We have
turned over over 35,000 pages of materials.
Mr. Barton. But for purposes of this hearing under oath you
are saying that what changed is additional information that
wasn't available in January became available in the intervening
period, is that correct?
Mr. Silver. Additional due diligence was done----
Mr. Barton. But additional due diligence doesn't cut it,
OK? We need, you know, half a billion dollars was not supported
in January under the Bush administration was supported,
conditionally recommended in March. We know the one thing
changed is that the President changed. We know that changed.
Mr. Silver. I will be happy to get back to you, sir, with
the additional information----
Mr. Barton. But due diligence is a generic term.
Mr. Silver. Well, it is a generic term but it covers very
specific things, particularly research on market conditions,
financial conditions, technical----
Mr. Barton. Is it possible that one of the things that
changed was political influence?
Mr. Silver. I don't believe so, sir. I wasn't there but
there is no indication in the record----
Mr. Barton. Nobody commented to the White House that this
project should go forward? There were no supporters of the
President that stepped forward and had meetings and there were
no White House officials that encouraged people at the
Department of Energy to just--this was all done under a bubble
top and purely on merit?
Mr. Silver. Well, sir, I can't speak to that because I
wasn't there, but what I will say to you is that the loan
program career staff that was doing--did the work in 2008 under
a Republican-appointed CFO continued to do that work under the
same individual who was a----
Mr. Barton. Well, let me ask one final question because my
time is about to expire. Is it typical of a loan guarantee that
a project 1) gets a half a billion dollars, and 2) that half a
billion is 2/3 of the cost of the project, and 3) that the
federal obligation is subordinated to private sector capital,
which is a direct violation of federal law?
Mr. Silver. There is no typical, sir, in answering that
because every project financing is different and depends on the
size, structure, and the technology that is being----
Mr. Barton. So if myself and Mr. Scalise and Mr. Gardner
and maybe for good measure Mr. Markey and Mr. Dingell put
together a deal and asked for a half a billion dollars, it is
acceptable under this program for it to be approved?
Mr. Silver. Well, sir, if you had a legitimate project that
went through----
Mr. Barton. I think we could have a legitimate project that
wouldn't go bankrupt within 2 years.
Mr. Silver. If you had a project that met the criteria of
the solicitation and was deemed to be eligible and went through
technical, legal, financial regulatory and other kinds of due
diligence and was deemed to be a potential process, then
perhaps yes.
Mr. Barton. OK. Thank you, Mr. Chairman.
Mr. Stearns. I thank the gentleman. The distinguished
ranking member, Mr. Waxman, is recognized for 5 minutes.
Mr. Waxman. Thank you, Mr. Chairman.
As I understand it, in 2005, the Congress passed the Loan
Guarantee Program. We did this on a bipartisan basis because we
wanted to move forward with these enterprises that would give
us renewable and alternative energy rather than continue our
reliance on fossil fuels. The idea of a loan guarantee is that
we want them to borrow the money but we know there is an
inherent risk in a new startup. Isn't that correct, Mr. Silver?
Mr. Silver. Yes, sir. When Congress set up the program, it
set it up specifically to compensate for the lack of debt
financing for innovative energy and recognized the inherent
risks in that by providing credit subsidy, which is essentially
loan loss reserve.
Mr. Waxman. No one wants to go and invest in the market in
a solar energy, wind power, anything else, unless they know it
is really going to return the investment and give them a
profit. So the government has decided we will help these groups
get started because it is important for our Nation to move to
alternative energy.
Mr. Silver. I agree with that and I would only add one
caveat. We don't actually start these companies. They--the
private sector does. In the case of Solyndra, almost a billion
dollars of private equity had gone into this company before the
government made its loan. And all the transactions that we work
on have very, very significant private capital behind them.
Mr. Waxman. I was taken aback by the figure that between
1995 and 2010 the share of photovoltaic cells and panels
manufactured in the United States dropped from 40 percent to
just 6 percent. At the same time just since 2005, China's
market has increased from 6 percent to 54 percent. So half of
the world's largest 10 solar panel manufacturers are now
Chinese. And we would like to be able to compete as well. And I
gather your answer to Ms. DeGette is one of the reasons that
China is outmaneuvering us is that the government is putting a
lot more money behind their solar industry than we are doing.
Is that right?
Mr. Silver. Yes, sir. As I said, China has committed at a
minimum $30 billion from the China Development Bank and another
several billion----
Mr. Waxman. And that is 20 times more than we are providing
by way of any subsidies or loan guarantees.
Mr. Silver. At least because there are other subsidies and
incentives that the Chinese Government provides as well.
Mr. Waxman. Well, who would be against such a thing? Well,
I will tell you who would be. Entrenched fossil fuel industry
wouldn't like this. This is competition for them. And I think
that is playing a part in some of the reactions that I am
hearing. But one of the key issues of this investigation, as
identified by Chairman Stearns, has been whether DOE issued the
Solyndra loan guarantee as a favor to George Kaiser, a major
donor to President Obama's campaign. These are serious
allegations. Mr. Stearns said the administration gives ``some
of this money out to people who are either contributors or
strong supporters.'' And he implied that the Solyndra loan
decision was based on political favoritism.
Before I ask you about these allegations, I would like to
get a bit of background on this loan guarantee. My
understanding is Solyndra applied to this loan in 2006 when
Bush was president.
Mr. Silver. That is correct, sir.
Mr. Waxman. And the DOE invited the company to submit a
full application to the program in October 2007.
Mr. Silver. Yes, sir.
Mr. Waxman. And December 4, 2008, DOE documents outline the
Solyndra loan as one of the three highest priorities of the
next 45 days. And all of this took place during the Bush
administration.
Mr. Silver. Yes, sir.
Mr. Waxman. Now, in fact, January 5, 2009, email to a DOE
official, John Scott of Solyndra, said, ``We think that a
public announcement would acknowledge the hard work of the
existing administration and the appointees in DOE and the LGPO
as well as benefit Solyndra's fundraising efforts for the
equity contribution.'' And in this email Mr. Scott was talking
about the Bush administration. But the fact that the loan
didn't close until President Obama took office seems to have
given rise to allegations of political favoritism. Well, this
Kaiser Group wasn't the only private investment. A lot of the
investment came from another group that is called Madrone, and
that is a Walton family. They give to Republicans. But they
were looking to make an investment in a loan that was being
guaranteed by the Federal Government.
I would like to you ask you, Mr. Silver and Mr. Zients,
about your interactions with Mr. Kaiser and his impact on this
loan. Did you or your staff have any interaction with Mr.
Kaiser relating to the Solyndra loan guarantee?
Mr. Silver. Well, sir, as I said before, I was not here at
that time. But no, I have never met or spoken to the man. And
as I understand from my staff, neither have they.
Mr. Waxman. And the staff of civil servants?
Mr. Silver. Yes, sir.
Mr. Waxman. Who have been around----
Mr. Silver. Yes.
Mr. Waxman [continuing]. Even to the time of the Bush
administration. Mr. Zients, is that the same answer for you?
Mr. Zients. Same for me, both personally and my knowledge
of the OMB staff interaction.
Mr. Waxman. Did either of you instruct anyone to give the
loan guarantee to Solyndra or restructure the loan because of
the donations to the President by Mr. Kaiser?
Mr. Silver. No, sir.
Mr. Zients. No.
Mr. Waxman. Did anyone in the administration instruct you
or your staff to grant or restructure the loan guarantee
because of the donations to the President by Mr. Kaiser?
Mr. Silver. No, sir.
Mr. Zients. No.
Mr. Waxman. Are you aware of anything that would suggest
that Mr. Kaiser's donations to the President were a factor in
determining whether to grant the Solyndra loan guarantee?
Mr. Silver. No, sir. Again, I wasn't there but I have no
reason to believe that.
Mr. Zients. I was not actively involved but have no reason
to believe that.
Mr. Waxman. Can you assure us if the Solyndra decisions
were made on the merits and that there was no favoritism shown
towards Solyndra for any reason?
Mr. Silver. It is my understanding that that is correct.
Mr. Zients. My understanding is the same.
Mr. Waxman. Our chairman has made some serious allegations.
I think the real question before us is whether the vetting was
done appropriately and whether it was done based on full
representation by Solyndra about their economic viability. And
I don't think we ought to use this failure of this particular
guarantee to discredit was it an important loan guarantee in
order to move to be able to compete in this area with China and
to move our country away from dependence on fossil fuel.
Thank you, Mr. Chairman.
Mr. Stearns. I thank the gentleman. Dr. Burgess, the
gentleman from Texas, recognized for 5 minutes.
Mr. Burgess. And I thank the chairman. And I will agree
with Ranking Member Waxman. We do want the availability of
solar at the retail level of this country. I look forward to
the day where I can reduce my electricity bill by putting some
type of solar panel on my roof or in my yard, but have we
advanced that vision of the future with the activities that
have occurred in regards to this case, and in particular, the
jurisdictions for which you two are responsible for, the
Department of Energy and the Office of Management and Budget,
which does have the responsibility for direct oversight?
Now, Mr. Zients, in your testimony to us today, you talk
about pressure testing I believe when you were talking about
the interagency discussions, an important forum for asking the
tough questions and pressure-testing assumptions. Well, let us
think about that for a moment. A lot of emails that have now
been produced to the committee, to the committee staff, and in
going through those, we keep coming up against the notion that
there was pressure all right but this is a pressure cooker.
This wasn't a pressure test. This was we got to get this thing
out the door because we have got a groundbreaking. And it might
involve a trip by the President or a satellite appearance by
the Vice President. So yes, there was pressure but it was
pressure applied in pushing this thing out the door. In
retrospect, was that the wrong kind of pressure to apply?
Mr. Zients. Are there specific emails that you are
referring to?
Mr. Burgess. Yes, I would be happy to do that.
Mr. Zients. Can I get a copy?
Mr. Burgess. Were we providing him a copy of those emails?
I think we are. I don't want to reference anyone's name because
that is not appropriate.
Ms. DeGette. Mr. Chairman, if I could be provided a copy of
those emails, that would be helpful.
Mr. Burgess. Will do it. We will be glad to do it.
Mr. Zients. I am just looking at the top line at the dates
here----
Mr. Burgess. These are all available.
Mr. Zients [continuing]. They appear to be in the August
time frame where I am not, best of my knowledge, and the author
of any of these emails are actually even on any of these emails
as I was not actively involved. So I will comment but I don't
know the intention of any specific email.
At that period of time, OMB was playing its statutory role
under FCRA to ensure that an appropriate credit subsidy score
was given to the project. So this is not about whether the loan
should go forward or not. This is about the accounting for the
loan. And there was some scheduling requests from the VP's
office and the VP's office was interested in potentially being
part of an announcement of the closing of the very first loan.
But I want to be crystal clear as to my understanding from my
interactions with the staff in preparation for this hearing
that those scheduling requests had no impact whatsoever on the
credit subsidy score that was given to this project. OMB staff,
based on its analysis, decided to increase the credit subsidy
score to make it more conservative and DOE agreed with that, so
the closing occurred after OMB staff had done a thorough
analysis of the credit subsidy score and decided to increase
the credit subsidy score to make it more conservative.
Mr. Burgess. Well, let us----
Mr. Zients. But the scheduling logistics had not been----
Mr. Burgess. I am running out of time. Let me just
reference August 27, 2009, 4:40 p.m., and this is an email from
someone in OMB--``as long as we make it crystal clear to the
Department of Energy that this is only in the interest of time,
there is no precedent set that I am OK with it, but we also
need to make sure that they don't jam us on later details so
there isn't time to negotiate those, too,'' implying that there
was pressure placed upon----
Mr. Zients. Well, again, not being involved and not being
on this email chain, I think what is clear is that OMB staff
was--to the best of my understanding based on my discussions
with OMB staff because I was not actively involved--comfortable
with the credit subsidy score, which is the statutory
responsibility of OMB, and in fact, the credit subsidy score
was increased during the period of time----
Mr. Burgess. Yes, and with all due respect, sir----
Mr. Zients [continuing]. And DOE agreed with that----
Mr. Burgess [continuing]. It doesn't sound like they were
comfortable. They say it is in the interest of time. This time
we will let it go, but tell those guys over at DOE that they
are not going to jam us on this also.
Mr. Zients. In preparation for this hearing, I talked to
the OMB career staff and no one hesitated in my discussions
with them as to whether they were comfortable with the final
determination of the credit subsidy score for this project. And
as I said, the credit subsidy score was increased--i.e., made
more conservative--as a result of the OMB analysis and DOE
agreed with that.
Mr. Burgess. Let me just in the remaining time, Mr. Silver,
ask you, this is the filing with the SEC on the S-1 report from
March 2010 on the planned initial public offering, and
Solyndra's auditor, PricewaterhouseCoopers, stated the
company's S-1 amended, ``though the company has suffered
recurring losses from operations, negative cash flow since
inception, it has a net stockholder deficit, and it raised
substantial doubt about its ability to continue as going
concern,'' did this prompt any curiosity on your part or did it
change anything about the Department of Energy's behavior about
this application?
Mr. Silver. Well, let me respond first, Congressman, as a
former venture capitalist and tell you that frequently
companies, particularly high-growth companies like Solyndra,
will make filings for companies that, while they are growing
rapidly, still are continuing to burn case. A going concern
review by an independent auditor is--accompanies that kind of
scenario. I should also point out that in the time frame----
Mr. Burgess. Sir, I am going to run out of time, but with
all due respect, venture capital is different from a government
investment, a taxpayer subsidy----
Mr. Stearns. The gentleman's time has expired.
Mr. Burgess. This is a different universe and your response
as a venture capitalist is likely not consistent with being a
good steward of the taxpayers' money. And I will yield back to
the chairman. Thank you.
Mr. Stearns. The gentleman yields back. We recognize the
chairman emeritus of the Energy and Commerce Committee, the
gentleman from Michigan, Mr. Dingell, for 5 minutes.
Mr. Dingell. You are most kind. Thank you, Mr. Chairman. I
am very pleased to see that we are having proper oversight and
it is my hope as we move forward that if the majority has
evidence of wrongdoing, they will present it to us so we can
take proper action.
Mr. Silver, you say in your testimony that Solyndra first
applied for a guaranteed loan in 2006 when President Bush was
still in office, is that correct?
Mr. Silver. Yes, sir.
Mr. Dingell. I understand you had people who worked within
the Loan Program Office and who do the due diligence on
determining the quality and feasibility of loan applications.
Are these people political appointees?
Mr. Silver. No, sir, career----
Mr. Dingell. They are career?
Mr. Silver. And analysts and advisors.
Mr. Dingell. Good. So the staff reviewing application for a
guaranteed loan over the past 5 years are not political
appointees but instead are rather career, nonpolitical
employees who serve from administration to administration, is
that right?
Mr. Silver. Yes, sir.
Mr. Dingell. All right. Now, although I understand that you
haven't yet been at the loan office, is it your assessment that
the guaranteed loan was awarded based on the project proposal
and the strength of the application and not on any political
influence? Remember, you are under oath.
Mr. Silver. To the best of my knowledge--and as you point
out I wasn't there--but to the best of my knowledge, yes.
Mr. Dingell. OK. So nonpolitical career Department of
Energy employees while serving under the Bush administration
recommended a timetable to award Solyndra a guaranteed loan.
Was this the timetable against which the loan was eventually
committed?
Mr. Silver. The career staff identified the timeframes
after having brought it forward in the first Credit Committee
as marked for a second Credit Committee and produced it at that
time, yes.
Mr. Dingell. All right. Let us go fast-forward a year to
2010 when Solyndra approached the Department of Energy for
further assistance. Was this due to low-cost competition from
Chinese manufacturers, Solyndra needed help? If your office had
not agreed to restructure the loan, would Solyndra have gone
bankrupt in 2010?
Mr. Silver. Yes, sir.
Mr. Dingell. Now, without the structured loan or
restructured loan, would Solyndra have had any chance of
success?
Mr. Silver. It is hard to imagine how since they had a
liquidity crisis. They were out of operating capital.
Mr. Dingell. Now, would the company's 1,100 workers been
laid off in 2010, then?
Mr. Silver. I would assume so, yes.
Mr. Dingell. Solyndra secured an additional $75 million
from investors as part of a loan restructuring. Is it a
standard in loan restructuring for new investment to have
priority in the case of a liquidation?
Mr. Silver. It is very typical.
Mr. Dingell. Now, Mr. Chairman, I have been waiting
anxiously to hear what we have to show that there is wrongdoing
here, and I am still waiting to see something that makes me be
concerned that we have here some wrongdoing. And I don't want
us to proceed just on suspicions or doubtful questions or
misinterpretations of emails or finding emails where none
exist. Now, let us try and see what took place.
First, during the Bush administration, Solyndra submitted a
pre-application for a loan guarantee. Second, that then a
financial and technical review were conducted. In October 2007
the Department of Energy invited Solyndra and 15 other
applications to submit full applications. Solyndra submitted
their full application in 2008. Later, in 2008, the Department
of Energy indicated that Solyndra was in the best position to
receive the first loan guarantee. You remember this was under
the Bush administration. In January 2009, during the final days
of the Bush administration, the Department set forth a timeline
to complete due diligence on the Solyndra application that
would lead to approval by the spring of 2009. Next came in the
administration of President Obama. Now, during that spring of
2009, the Department continued to do its due diligence and
completed its work in August. The loan guarantee was issued in
September 2009, 3 years after the pre-application was
originally submitted.
I am looking forward to hearing from the committee
leadership and from the committee staff is there anything in
the record to suggest this proposal was rushed through or that
improper consideration was given or that there was any improper
or illegal pressure or political activity which might have led
to us being where we are today? I would urge my colleagues to
look hard for the facts and take all the facts into
consideration and to see to it that as we go about our
business, we are careful in finding the truth and not just
having a splendid time making unjust accusations regarding the
program and the administration. Thank you.
Mr. Stearns. The gentleman's time has expired. I recognize
the gentleman from Nebraska, Mr. Terry.
Mr. Terry. Thank you, Mr. Chairman. And I would agree with
the chairman emeritus that we do need to do our due diligence
and find out on behalf of the taxpayers what went wrong here.
And that does need to be our ultimate mission.
There is a theme that I am picking up in the questioning,
and that is I think everyone must agree that there is some
scandal involved in this. And I am reaching this conclusion by
the amount of time spent to ensure that people believe that
this was somehow approved and all of the work done under the
Bush administration. That seems to be the MO is if there is a
crisis that occurs today, blame it on the past administration.
And so just to set some facts straight because even you,
Mr. Silver, mentioned in your written testimony provided to us
that Solyndra submitted its initial application in 2006 and
much of the ``extensive due diligence on the transaction was
conducted between 2006 and 2008,'' but the irrefutable fact is
that on January 9, 2011, the Bush administration DOE Credit
Committee remands the Solyndra application calling it premature
and citing unresolved issues. So it seems to me that not all of
the ``extensive due diligence'' on the transaction was
conducted between 2006 and 2008 but that the Bush
administration said very specifically that the application
required much more due diligence.
Then you said, Mr. Silver, if I am correct that you said in
2011 more due diligence was done that led to the approval. Is
that a correct statement?
Mr. Silver. I believe you mean 2009, Congressman?
Mr. Terry. Well, yes.
Mr. Silver. Yes, additional due diligence--it is my
understanding that additional due diligence was done from the
time the initial Credit Committee remanded it back to the loan
program effort through to the next Credit Committee, which met
subsequently in March. And during that time, additional work on
market research and legal and technical matters and other kinds
of things that would normally make up the responses to the
questions that the Credit Committee had asked were developed
and answered.
Mr. Terry. Then after the president was inaugurated, an
email from a DOE staffer states that we are approaching the
beginning of the approval process for Solyndra again. So the
work continued on the application, correct?
Mr. Silver. Yes, that is my understanding.
Mr. Terry. Now, what we would like to know is--Mr. Waxman
was going down this path so I am going to follow up on his
questions--he asked in a way that made you responsible for
assuming motives of other people. I am just going to ask you
point-blank. After you started your role at DOE or in your
role, did you receive any communications from a White House
employee, personnel, Carol Browner, Rahm Emanuel, anybody
regarding the Solyndra loan?
Mr. Silver. You mean in----
Mr. Terry. Yes or no. Did you----
Mr. Silver. When I joined?
Mr. Terry. Yes.
Mr. Silver. No, when I joined----
Mr. Terry. You had no communications from anyone----
Mr. Silver. The Solyndra loan, it was closed in September,
sir, and I arrived in November.
Mr. Terry. What about the restructuring time period?
Mr. Silver. Well, the restructuring occurred approximately
a year later, was largely conducted on a staff-to-staff basis.
There were interactions----
Mr. Terry. Were there interactions then--if you are denying
that you received any communications directly from the White
House to you----
Mr. Silver. No, what I am trying to describe to you----
Mr. Terry. That is my question, so please answer my
question. Did you receive during your time there any
communications from anyone from the White House regarding the
Solyndra loan? That is an easy question. It is either yes or
no.
Mr. Silver. And it actually has an easy answer. We work
regularly on this transaction and every other transaction with
our interagency colleagues at OMB and at the----
Mr. Terry. I said White House.
Mr. Silver. I am not sure what distinction that is. We work
with the OMB----
Mr. Terry. Oh, really?
Mr. Silver [continuing]. And any----
Mr. Terry. How about--you want me to start naming
individuals. Carol Browner and her staff, did you receive any
communications? I think the question is very clear and you
are----
Mr. Silver. It is and what--the answer to this----
Mr. Stearns. Mr. Silver, you are under oath and you need to
answer the question yes or no.
Mr. Silver. The question is do we interact with elements--
with different agencies and the answer to that question is yes,
extensively.
Mr. Terry. I did not say different agencies. I said White
House.
Mr. Silver. Well, individuals in those agencies, we work--
--
Mr. Terry. OK. So you did receive communications directly
to you from somebody in the White House?
Mr. Silver. I don't recall who would have been involved
directly. What I can tell you is the discussions around these
transactions as Mr. Zients referred to are conducted on a
staff-to-staff--career staff-to-career staff basis working to
develop the transaction.
Mr. Terry. So once again, have you received--you received
any communications regarding the Solyndra loan from anyone from
the White House?
Mr. Silver. Well, I mean Mr. Zients and I have talked about
it.
Mr. Terry. OK. Mr. Zients, have you? It is fairly clear
obviously Mr. Silver is not going to answer the question.
Mr. Zients. Well, again, as to the loan itself, I wasn't
involved when the loan was closed. As to the restructuring,
yes, I do interact with components of the White House. I would
make a distinction between OMB and the White House to get--to
tap into their expertise on energy and on financial markets.
Mr. Terry. OK. And who was the person that you were
communicating with in the White House?
Mr. Zients. The primary expertise resided at the time what
was then the Office of Energy and Climate Control.
Mr. Terry. That was Carol Browner's office?
Mr. Zients. Carol Browner led that office, yes.
Mr. Terry. Did they suggest to you--my time is up.
Mr. Stearns. Thank you, gentleman. And the gentleman from
Massachusetts, Mr. Markey, is recognized for 5 minutes.
Mr. Markey. Thank you, Mr. Chairman, very much. I will just
note, first of all, that if you want to waste American
taxpayers' dollars, let us talk about the oil industry at
record high profits getting $41 billion worth of tax money from
taxpayers. And secondly, if you want to talk about loan
guarantees, the Southern Company has received a loan guarantee
15 times larger than Solyndra, and if we are going to reexamine
whether or not that is a good investment after Fukushima, after
the earthquake near the North Anna Plant, let us have that
hearing, because I think that money is in jeopardy if you are
really concerned. That is 15 times larger. We know we will
never have a hearing on the oil industry or the nuclear
industry in this committee. This is all part of an agenda here
that deals with the solar industry, the wind industry.
So let us go back in time here, Mr. Silver, and it is back
in 2009. You are looking at this loan guarantee. What does the
market look like for solar?
Mr. Silver. Well, although I wasn't at the Department in
2009, I do have a point of view on the solar industry then.
Polysilicon prices were extraordinarily high and the cost--what
they call balance-of-systems costs of putting conventional
solar paneling on roofs, which involved penetrating the roofs
as well, was very, very expensive. So the Solyndra technology,
which had received a lot of attention during that period, was
particularly innovative because it addressed both of those key
problems.
Mr. Markey. In general you are not providing this financing
to Fortune 500 companies. You are providing them to companies
that are largely startups with innovative technologies to
ensure that we are in this marketplace. Is that not correct?
Mr. Silver. That is, Congressman, and with the added
addition that the companies themselves are required to raise
substantial amounts of capital and Solyndra had already raised
many, many hundreds of millions of dollars.
Mr. Markey. Now, when these loan guarantees were being
provided, at any time did your agency or any part of the
Federal Government project a 42 percent drop in the price of
solar panel prices in an 8-month period?
Mr. Silver. Well, not only did they not project the 42
percent drop this year, but between 2008 and now, that price
had dropped about 80 percent. And most analysts were surprised
by that.
Mr. Markey. So just so we can have an honest discussion
here, there is a Moore's Law for solar, and I hold up the
chart, and that is that every time there is a doubling of solar
panels worldwide in deployment, the cost of producing them goes
down by 18 percent. And that phenomenon has become very
predictable. Now, in 2011, so we can see the forest for the
trees, the Chinese funded $20 billion for 4 solar companies in
2010. And we have seen in the first 8 months of this year a 42
percent collapse in the price of these solar panels. Was that
foreseeable in 2009?
Mr. Silver. It was not, although China's commitment to this
was increasingly clear. And actually, I believe, Congressman,
that number is closer to $30 billion.
Mr. Markey. Did anyone in the marketplace predict a 42
percent drop in the price of these solar panels in 2011?
Mr. Silver. I can't speak for every analyst out there but
certainly many, many professionals following the industry were
surprised.
Mr. Markey. Were surprised. Now, let us go to the
marketplace at large. Evergreen went bankrupt this year in the
United States. SpectraWatt went bankrupt. German Solar SE shut
down their Arizona solar facility. BP Solar shut down their
facility in Frederick, Maryland. Emerging Conversion and
Daystar Technologies lost 80 percent of their market value this
year. This 42 percent drop this year is as a result of the
Chinese intervention in this marketplace. This was not knowable
in 2009. This was not knowable in 2010. This was a market
intervention.
Now, if the Republicans think that like Johnny Carson's
Carnac that there is an envelope, you know, with the answer in
it that was available in 2009, they are kidding themselves. We
are in a race. We are in a global race here and we are doing
our best to make this case to the Republicans on this
committee. While they keep the loan guarantees for nuclear
intact as they pass their budget, while they continue to
protect those oil company tax breaks up to $41 billion, they
are turning on a pin on a collapsing market here in the United
States on something that really is related to the fact that we
are not focusing upon the Chinese intervention into this
marketplace.
So I just hope that the administration and their policy of
financing these kinds of programs--and I think for the most
part it has been a big success story and I think we have to
keep that in mind as well--is something that this committee
keeps in their mind as we move forward.
I thank you, Mr. Chairman.
Mr. Stearns. Mr. Sullivan is recognized for 5 minutes.
Mr. Sullivan. Thank you, Mr. Chairman. I appreciate you
holding this.
Mr. Silver, on January 9, 2009, the Credit Committee during
the Bush administration found the Solyndra deal to be premature
and stopped all further work. An email sent by DOE Credit
Committee a few days later stated that it was a unanimous
decision not to engage in further discussions with Solyndra at
this time, and yet on January 26, 2009, after the Obama
administration came in, a DOE staffer notes in an email that
``DOE has decided to restart the approval process for
Solyndra.'' What prompted this decision?
Mr. Silver. Well, Congressman, again, since I wasn't there
I can only give you my review of the record, but it appears to
me when the first Credit Committee remanded it back, what they
specifically did was to say we have specific questions which we
need answered before we can take this application up again. The
career staff in the loan programs office then went to work
answering those questions, and when they had been resolved,
brought the transaction forward again.
Mr. Sullivan. This was about 2 weeks before the stimulus
was signed into law. Didn't that have something to do with it?
Mr. Silver. Not to my knowledge, no.
Mr. Sullivan. Secretary Chu directed DOE to accelerate the
process and deliver the first loan in a matter of months. Is
that right?
Mr. Silver. I don't know what the Secretary said
specifically, but the Recovery Act certainly had a focus on
bringing projects forward quickly. In fact, as you know,
Congressman, there is a sunset date of September 30 of this
year to get the 1705 projects done. And you know, a lot of work
has gone into this and other programs to move monies as
efficiently, effectively, and yet as prudently as possible.
Mr. Sullivan. Solyndra's application was part of Secretary
Chu's acceleration process. You know that is right, don't you?
Mr. Silver. I assume that to be true, but again, I wasn't
there.
Mr. Sullivan. So you say yes?
Mr. Silver. I assume that to be the case.
Mr. Sullivan. OK. What did DOE do to accelerate this
process? At this time, the DOE loan programs office was very
thinly staffed, is that right?
Mr. Silver. It depends on your definition of thinly, but
yes, there were not very many people there.
Mr. Sullivan. How many employees did it have?
Mr. Silver. I don't know at the time, sir, but I believe it
was between 10 and 20.
Mr. Sullivan. Did it even have the resources to do the
review under the Secretary's accelerated time frame?
Mr. Silver. Yes. Remember, the loan program's professionals
make use of outside advisors as well.
Mr. Sullivan. Well, I want to resolve a discrepancy here.
You stated that Solyndra was accelerated per Secretary Chu's
policy and yet in your testimony you state that Solyndra
proceed, ``on the exact timeline that had been developed under
the Bush administration.'' Which is it and can you clarify
this?
Mr. Silver. Well, I don't think those 2 statements are
incompatible. The career staff in the loan programs office
identified the March time frame as when they would come back to
the Credit Committee when the proposal was originally sent back
to them.
Mr. Sullivan. You mentioned earlier when I just came in
that you are a private equity or you worked on Wall Street or
what did you----
Mr. Silver. A bit of everything.
Mr. Sullivan. OK. So you have looked at businesses and you
have seen if they are worthy or not. In that capacity, would
you lend a half a billion dollars to this company in the
information----
Mr. Silver. Well, I am by training and background both a
venture capitalist and a hedge fund investor, but I am in
position really to second-guess having not been there what the
transaction that occurred. What I can tell you is this.
Extensive due diligence was done across multiple years on all
of the relevant characteristics that would go into a typical
project financing.
Mr. Sullivan. OK. If we could look at Slide 10, could
someone pull that up?
[The information appears at the conclusion of the hearing.]
I would like to ask you about this, OMB. ``Given the time
pressures we were under to sign off on Solyndra, we don't have
time to change this model.'' This is what they are saying
between each other. ``As long as we make it crystal clear to
DOE that this was only in the interest of time and that there
was no precedent set, then I am OK with it. But we also need to
make sure they don't jam us on later deals so there isn't time
to negotiate those, too.'' This was on August 27. Biden wants
to do an appearance very soon after that. The stimulus was done
on September 4. What do you have to say about this?
Mr. Zients. I wasn't involved in this but based on what is
on the screen here, I think this has to do with the closing of
the transaction and OMB's role at that point is to make sure
that the credit subsidy score is correct from a budgeting-cost
perspective. It is not about the loan overall at that stage; it
is about the credit subsidy score. And my understanding, having
talked to staff in preparation for this hearing, is that staff
was very comfortable and had no hesitation as to its final
determination of the credit subsidy score, which as I mentioned
earlier, the credit subsidy score has actually increased as a
result of OMB's analysis and DOE concurred with that. So the
credit subsidy score was made more conservative in that period
of time as it was signed off in preparation for closing of the
loan.
Mr. Sullivan. Well, she said there was a problem with the
model. Do you think that is a problem----
Mr. Zients. Again, not having been there, not knowing the
author's intent, what I can tell you that in preparation for
this hearing, I have talked to OMB career staff and there was
no hesitation that they expressed to me as to whether the final
credit subsidy score was indeed one that they were comfortable
with. And it was increased as a result of the OMB analysis and
DOE agreed with that increase.
Mr. Sullivan. Well, the Solyndra----
Mr. Stearns. The gentleman's time has expired.
Mr. Sullivan. Thank you, Mr. Chairman.
Mr. Stearns. Ms. Christensen is recognized for 5 minutes.
Mrs. Christensen. Thank you, Mr. Chairman. I want to also
just thank our ranking members for insisting that we hear from
the Solyndra officials. It is important that we get the fullest
picture, especially since my reading of the testimony suggests
that DOE and OMB appear to have done adequate due diligence and
that part of the collapse of Solyndra at least appears to be
due to forces beyond their control.
Nevertheless, this subcommittee has the responsibility to
determine all the facts and apply relevant lessons learned
going forward. But I also think it is important that we accept
that innovation always carries some degree of risk, and it is
also important that we not use the failure in this instance or
even others as an excuse to turn away from the pursuit of green
energy, a green economy, and the U.S. leadership in this area.
So my questions, then, are to Mr. Silver. I would like to
ask you to take me through the DOE's monitoring system for
loans as it existed in 2009, 2010, and how it exists now. I do
want to point out that a series of GAO and DOE Inspector
General reports dating to the Bush administration have
identified problems with management and controls in the DOE
Loan Guarantee Program. So it is fair to point out that these
programs did not begin with you. Still, it is important to
ensure accountability for how this program is run.
So the first question, after the Solyndra loan guarantee
was first closed in 2009, what mechanisms did DOE use to
monitor Solyndra's cash flow?
Mr. Silver. In addition to our origination teams, our
credit teams, our legal teams, our technical teams, and our
regulatory teams, we also have a portfolio management group,
and their responsibility is to monitor transactions post-
closing against the covenants in each individual transaction.
Mrs. Christensen. Were there site visits to California or--
--
Mr. Silver. There are regular site visits.
Mrs. Christensen. How did DOE's practices change when the
loan was restricted in 2011?
Mr. Silver. Well, the principle difference was that in
addition to picking up certain additional collateral for the
loan, we negotiated and took an observer's seat in this
particular transaction. Now, I should say, Congresswoman, that
that is an unusual thing to do and to have. Typically lenders,
including lenders in the private sector, do not have board
seats or even generally board observe seats, but we thought it
was important to do that in order to be able to continue to
monitor it.
Mrs. Christensen. So despite this ongoing monitoring, it
does not appear that DOE anticipated Solyndra's deep financial
troubles this summer. So Mr. Silver, how would you explain
this, that you were not able to anticipate the deep financial
troubles?
Mr. Silver. Well, as several members have mentioned and as
I mentioned in my opening remarks, the precipitous price drop
of the silicon and panel prices has deeply contributed to that.
I should note that we, too, anticipated there would need to be,
you know, additional support for this company in the out years
as it continued to grow, and that was built into the
restructuring transaction as well.
Mrs. Christensen. Mr. Silver, I know that Solyndra was
raided by the FBI and the DOE Inspector General following the
bankruptcy announcement. Do you know why this raid occurred?
Mr. Silver. No, ma'am, I have no idea. I am not part of
that investigation or privy to it.
Mrs. Christensen. Did Solyndra ever mislead DOE that you
know of? Do you have any reason to think that the company was
not providing you with all appropriate information?
Mr. Silver. I have no reason sitting here today to believe
that we were misled.
Mrs. Christensen. So what lessons have you learned? Have
DOE's loan monitoring practices changed since you began as
director of the Loan Guarantee Program in the fall of 2009? Do
you anticipate making further changes in response to the loss
of taxpayer funds as a result of the Solyndra bankruptcy?
Mr. Silver. Well, the entire program has changed,
Congresswoman. When I got there, there were about 35 people. We
know have between 180 and 200 people, deep bench strength in
each of the areas that I identified. We built out, among other
things, an electronic portal which permits applicants to submit
electronically, thereby capturing all their data and shrinking
the intake time. I might mention as an aside that we won a
national award for that software. We built out a complete
records management piece which had not existed heretofore and
we will continue to make additional improvements as can.
Mrs. Christensen. Thank you for this information. One of
the key roles for the committee moving forward will be to
understand why DOE did not foresee the Solyndra bankruptcy
earlier-you have helped us at least some information regarding
that--and whether there are ways to improve the system from
monitoring projects that better fit the program. Thank you for
your responses.
Mr. Silver. Thank you, ma'am.
Mrs. Christensen. I yield.
Mr. Stearns. The gentlelady yields back. The gentlelady
from Tennessee is recognized for 5 minutes, Ms. Blackburn.
Mrs. Blackburn. Thank you, Mr. Chairman. And thank you both
for being here with us. Just a couple of questions and I know
you have been here for quite a while.
I have got a couple of emails I want to put up here. Mr.
Silver, you said you had worked on Wall Street and----
Mr. Silver. No, I didn't work specifically on Wall Street.
Mrs. Blackburn. OK.
Mr. Silver. Midtown but for a hedge fund, yes.
Mrs. Blackburn. For a hedge fund. OK. So you are pretty
used to reviewing companies and looking at the history of
companies and deciding if something is going to be a good
investment or not, correct?
Mr. Silver. Yes, ma'am.
Mrs. Blackburn. OK. And I would imagine that DOE had a file
that was passed onto you when you came into your position. Did
they have a file that contained the different loans that had
been approved and the tracking on those, the accountabilities
to the taxpayer? Because, you know, we are about fairness for
the taxpayer.
Mr. Silver. Yes, as are we, and yes, there were files.
Mrs. Blackburn. OK. So you did have files. OK. Mr. Zients,
did you get a file at OMB on Solyndra and the due diligence
that was done and then the process that was followed?
Mr. Zients. I became involved with Solyndra around the
period of the restructuring.
Mrs. Blackburn. Not the question. Did you receive a file
that goes back to day one?
Mr. Zients. No.
Mrs. Blackburn. So you had no knowledge of the history?
Mr. Zients. Well, OMB's role here, as I have talked about
before is specifically on FCRA around----
Mrs. Blackburn. Sir, not my question. Did you get a file?
Was there some history of the process?
Mr. Zients. I was briefed by our staff on the history of
the process.
Mrs. Blackburn. But nothing in writing?
Mr. Zients. I reviewed documents that the staff produced
but there is not one comprehensive----
Mrs. Blackburn. Sir----
Mr. Zients [continuing]. File that I had been exposed to.
Mrs. Blackburn [continuing]. There is no Solyndra loan
guarantee file at OMB is what you are saying?
Mr. Zients. My assumption would be, although I don't--I
have not seen it--that the career staff, yes, maintains a file
on Solyndra. That is not something----
Mrs. Blackburn. But you have not seen that?
Mr. Zients. No.
Mrs. Blackburn. OK. All right. Now, there are 2 emails here
and let us talk about these for a minute. The first one, August
19, an email between the DOE staff--dated the 19th--stated that
``We still have a major outstanding issue, the issue of working
capital assumptions.'' Mr. Silver, I assume you know a little
bit about that--``has been a major issue repeatedly raised
since December '08. You want to pay attention to those dates.
Now, let us look at the next day there is an email. Now, Mr.
Markey was concerned that no one seemed to be Carnac and have a
silver ball. Well, it looks like we might have somebody that
was doing a little bit of looking ahead. So let us talk about
this. That email says, ``The issue of working capital remains
unresolved. The issue is cash balances not cost. Solyndra seems
to agree that the model runs out of cash in September 2011 even
in the base case without any stress. This is a liquidity
issue.'' Mr. Silver, what do you say to that?
Mr. Silver. Well, that would not be surprising in a
modeling scenario. That is, in fact, exactly what you use
modeling to do, to identify where there are holes in the
project. It also does----
Mrs. Blackburn. Have you ever seen this email?
Mr. Silver. I have not seen this specific----
Mrs. Blackburn. This is the first time you have seen this
email. Were you aware that the liquidity issue had arisen?
Mr. Silver. I was aware that the liquidity----
Mrs. Blackburn. Was that in the file?
Mr. Silver. I don't honestly remember if that was in the
file or not. Again, I arrived in November----
Mrs. Blackburn. Just remember you are under oath.
Mr. Silver. I am deeply aware of that, Congresswoman.
Mrs. Blackburn. OK. Let us go on to the rest of this.
Mr. Silver. Just to be clear, though, I arrived in November
of 2009 and since the loan was already issued at that point, we
essentially move into the role that a bank managing a mortgage
would. We manage the loan.
Mrs. Blackburn. Yes, sir. And I appreciate that. That is
why I asked if you were passed a file. My assumption would be--
and you know, Mr. Chairman, my goodness, I would think if we
have got loan guarantee programs going in different agencies
and there is not a comprehensive file that will give the
history of that that would show the due diligence that would
document this, that would show the orderly process that was
followed, or as Mr. Waxman was so concerned about the vetting
process, my goodness, we should be reviewing every one of these
loan programs. Is OMB not looking at this on a comprehensive
basis to make certain that individuals are meeting their
timelines, that someone is following this. Are they just
sending this money out in droves and nobody is doing the
follow-up? So we will want to do that. Let us look at the rest
of this email. And I am quoting----
Ms. DeGette. Chairman, with all due respect, I believe she
is badgering the witness and I would----
Mr. Stearns. Let the gentlelady finish her testimony.
Mrs. Blackburn. ``How we can advance a project that
hasn't''----
Ms. DeGette. Time has expired.
Mrs. Blackburn [continuing]. ``Funded working capital
requirements if it generates a working capital shortfall of $50
million when working capital assumptions are entered into this
model?'' Now, that was the question that was asked. And to all
of my colleagues, I just think that, you know, when you look at
this and you see that someone at DOE was asking those questions
and was looking at that modeling, it should cause us to seek to
do a little bit more review and oversight. And I yield back.
Mr. Stearns. The gentlelady's time has expired. Ms.
Schakowsky is recognized for 5 minutes.
Ms. Schakowsky. All right. Thank you, Mr. Chairman. You
know, I agree that we should closely examine what went wrong
and how the loan guarantee process can be improved if it needs
improvement. But I am very concerned here that this is an
attack on a program that, let us face it, when you invest in
various innovative and novel technologies that we need to do,
it is not true, Mr. Silver, that there is some inherent risk
associated with each of these deals, not with just Solyndra?
Mr. Silver. There is risk and almost by definition in the
identification of the innovation itself, in building out that
innovation at scale, there is an old adage that every bank
wants to be the first bank to do your second loan. The program
is intended to be the first bank to do the first loan.
Ms. Schakowsky. You know, my colleagues certainly obviously
want to make this a political issue, but they also talk about
not wanting to pick winners and losers. And for heaven's sake,
as my colleague said, we are investing right now billions of
dollars in oil and gas companies. We are investing, as my
colleague Mr. Markey said, in a questionable technology, risky
technology called nuclear. But I want to know that in selecting
projects for loan guarantees, what efforts have you taken to
ensure that you have appropriately diversified our portfolio?
Mr. Silver. Well, thank you for that question. I want to be
quite clear on this. The Loan Guarantee Program does not
perceive itself to be in the business of picking winners or
losers at all. In fact, the marketplace is the place to do
that. And as someone who has come directly from that, I
certainly support and attest to that. We don't actually look at
projects that have not already garnered or will, as part of the
process, attract substantial private capital. In fact, private
capital is one of the bedrock requirements for the issuance of
a loan guarantee.
The question isn't really so much are we picking winners
and losers because we not only, as you point out, invest across
a diversified portfolio--we invest in wind, solar, geothermal,
biofuels and the like--we also invest in directly competing
technologies within those sectors because it is the program
objective, the program mandate to introduce a wide range of
innovative technologies so that the marketplace, seeing these
projects, can then replicate them on their own. And when the
markets are in those areas, we exit.
But the real issue is how are we going to pick--if we are
not going to substantially--if we are not going to be
significant participants in this, then how are we going to
build these American companies at all? Because China and the
rest of the world are spending billions and billions of dollars
to build out these industries.
Ms. Schakowsky. Now, on September 2, 2011, a Forbes article
noted that this program should be judged based on its entire
portfolio as opposed to one individual loan. I wonder if you
could talk about that, just put this particular loan in
context, either one of you.
Mr. Silver. Absolutely. I am happy to do so. We have
invested, as I said, in a wide range of technologies. I do want
to point out that the vast majority of our investments have
been in generation projects rather than in manufacturing
projects. And the reason that is important is because
generation projects have what are called off-take agreements
through PPAs, power purchase agreements typically with
utilities, which means that the power that is being created,
the clean energy power that is being created is already
contracted for. And it has--the generation projects which make
up the vast majority of our portfolio have a vastly different
risk profile than manufacturing projects do. We have actually
only done 4 manufacturing projects in the 40-odd projects we
have done across the program.
Ms. Schakowsky. What would be the consequences do you think
if this investigation ended up in a conclusion that making
investments in companies that do alternative energy, solar in
particular, what would the consequences for our country be if
we were to divest of those kinds of loans?
Mr. Silver. I think the consequences would be profound and
they would be profoundly negative. We are competing with
countries around the world who see this as one of the largest
industrial sectors and industrial opportunities of the next
generation, and if we cede the field, if we walk off of the
field, there is no way that we can succeed because this--these
industries are different in kind than perhaps the software
industry. You need platform companies here in order to be able
to succeed.
As I pointed out earlier in my testimony, five of the
largest solar panel companies are in China. Seven are in Asia.
The eighth is in Europe, and there are only two here. You need
to build out at scale. You need to deploy commercially because
that is how you build out the supply chains in these countries.
You have to create what economists call demand pull. And if you
don't do that, you can't keep those supply chains alive and
they can't, in turn, reduce their costs. So consequently, we
have underinvested in the supply chains in this country in
clean energy for decades and we are only now beginning to catch
up.
Ms. Schakowsky. Thank you. Thank you for your work.
Mr. Silver. Thank you.
Mr. Stearns. The gentlelady's time has expired. The
gentleman from Georgia, Mr. Gingrey, is recognized for 5
minutes.
Mr. Gingrey. Mr. Chairman, thank you.
I first off wanted to make a statement in regard to a
couple of my colleagues on the other side of the aisle
comparing Solyndra--this bankrupt company totally unproven
technology--to the Southern Company. I take a little exception
to that comparison. Southern Company owns Mississippi Power,
Alabama Power, Georgia Power, among others, and employs
literally thousands of people. It is closely regulated by the
Georgia Public Service Commission, has 3 nuclear power
facilities, 2 in Georgia, 1 in Alabama with 5 reactors that
have been in production for years. So this loan guarantee to
start up 2 additional reactors at Plant Vogtle by the Southern
Company, comparing that loan guarantee to this loan guarantee
for a company like Solyndra is a little disingenuous.
But let me go ahead and start the questioning with you, Mr.
Silver. When you met with committee staff in March of this
year, you represented that the restructuring agreement your
agency reached with Solyndra in 2011, I believe February, had
positioned the DOT and the United States taxpayer for maximum
recovery. But the company is now bankrupt and it turns out the
government is now in a second position to Solyndra's investors
in the deal, those that put up an additional 75 million in that
restructuring. Why did the DOT allow Solyndra's investors to be
first in line to recover rather than the taxpayer? Under the
Energy Policy Act, isn't your number one duty to protect the
taxpayer funds?
Mr. Silver. It is absolutely one of our essential concerns
to focus as much as we can on the security of the taxpayer
monies, and that is why we reached the decision we did. A
restructuring is always by definition a decision among a set of
tough choices because it means by definition a company is
struggling. The fundamental question that we were trying to
answer----
Mr. Gingrey. Yes, but let me interrupt you. If you have the
legal authority to make those tough choices, the Energy Policy
Act of 2005 expressly states ``the obligation on loan guarantee
shall be subject to the condition that it is not subordinate to
other financing.'' This language makes Congress' intent seem
pretty clear to me, to protect the taxpayers' money. Isn't this
exactly what the Solyndra restructuring did, make the
taxpayers' interest subject to other financing? Doesn't the
Solyndra restructuring violate the law?
Mr. Silver. Congressman, I am not a lawyer but I will tell
you that the decision was reviewed by the Loan Guarantee
counsel, by DOE counsel, and by OMB counsel, and the conclusion
of that analysis was that projects needed to have--be in the
senior-secured position at issuance, as indeed this loan was,
as indeed every of our loans is. But I will tell you--while not
a lawyer, I will tell you as a businessman that if you do not
permit restructuring of transactions and the tools required to
do that, lenders will be----
Mr. Gingrey. Let me interrupt. I understand that. I
understand that in the private sector, and of course, you came
from the private sector. I think you mentioned earlier involved
in hedge fund activity and that sort of thing and a lot of
wheeling and dealing and that is permitted. But in this
particular instance--now, you said you received a legal
memorandum on DOE's interpretation of the Energy Policy Act,
correct?
Mr. Silver. As I said, counsel at--from the loan program at
the general counsel of the DOE and at OMB all reviewed this
matter.
Mr. Gingrey. Who reviewed the memorandum?
Mr. Silver. Which lawyers?
Mr. Gingrey. Yes.
Mr. Silver. I am not sure which.
Mr. Gingrey. But it was approved by the general counsel.
You just don't know which lawyers?
Mr. Silver. I don't know which staff lawyers did the work,
no, sir.
Mr. Gingrey. OK. But it was approved by the general
counsel?
Mr. Silver. It was certainly reviewed.
Mr. Gingrey. I want to discuss one part of the legal
opinion. Will the committee clerk please put the language from
the statute on the screen? I believe that is slide number 1.
Yes. Just look at what it says and let me read it to you
because I am kind of in the corner here and I can't read the
monitor. But number 3, subordination, ``The obligation shall be
subject to the condition that the obligation''--the loan--``is
not subordinate to other financing.'' That is part of the
Energy Policy Act of 2005. The DOE legal opinion seems to be
based on the use of the word ``is'' in the statute. The legal
opinion states, ``The reading of the provision is reinforced by
the use of the word 'is,' which we viewed as confirming the
intent that the condition be satisfied at a single point in
time,'' meaning you can't subordinate when the guarantee is
issued but you can at restructuring. Is DOE basing its opinion
that taxpayers can be second in line to investors based on what
the meaning of 'is' is? Wasn't DOE's tortured interpretation
exactly the opposite of that plain language in the statute?
Mr. Silver. I am not a lawyer, sir. I relied on counsel's
judgment on that.
Mr. Gingrey. You didn't have a very good lawyer and I think
you got bad advice. I yield back.
Mr. Stearns. The gentleman from Texas is recognized for 5
minutes, Mr. Green.
Mr. Green. Thank you, Mr. Chairman. And I have some
questions but I am shocked that my Republican colleagues be
concerned about somebody coming from a private sector to the
government payroll. I thought that is what we needed more folks
from the private sector. So, you know, I don't like wheelie-
dealie either but it sounds terrible when you hear it.
But Mr. Silver and Mr. Zients, I want to ask some questions
about that legal basis on restructuring the loan, and if you
could put that section back up that my colleague from Georgia
had because that is the series of questions I am going to ask
about.
The committee's investigation revealed that there appears
to have been 2 major legal questions under discussion as the
Solyndra restructuring was going forward--the first to the
extent which the DOE had authority to subordinate the U.S.
creditor position to private investors, and second was whether
the restructure should be considered a modification of the
loan. The first question, Mr. Silver, what does it mean to
subordinate an interest?
Mr. Silver. It means that new capital coming in would be in
a prime position on exit depending on the structure of the
exit. I might point out here, Congressman, that typically in a
restructuring in which new capital comes in--and you have to
ask yourself the very obvious question--why would any capital--
new capital come into a troubled situation if they did not come
in in a prime position? But here--and typically in the private
sector and in loans in other federal agencies, the prime trumps
other subordinated capital all the way through. In the
transaction we structured, we actually were able to ensure that
it was only in the event of liquidation that that would be a
senior position. In the event that the company as a sold as a
turnkey operation, which is still possible, it will not be in a
senior position.
Mr. Green. OK. There is language in Section 1702 that my
colleague pointed out in the Energy Policy Act that the senior
position is designed to prevent the subordination of
government's interest in these loans. It reads, ``the
obligation shall be subject to the condition that the
obligation is not subordinate to other financing,'' but your
legal staff determined that there was a legitimate legal basis
to subordinate the government's interest in Solyndra in this
case. Can you describe for us your staff's legal rationale?
Mr. Silver. Yes, as best I can not being a lawyer, and that
is that the judgment was made that the law required that the
loans at issuance be in a senior secured position as I said,
indeed, as Solyndra was and in fact I want to assure the
committee as all the transactions that we have closed to date
are. But that in the event that a project struggled and there
is no surprise as to the fact that projects struggle from time
to time, we had the authority to figure out other solutions. I
should remind the committee that absent the ability to do this,
this company would have closed then with the 1,100 jobs lost
then and the likelihood of any real recovery to the taxpayer
being relatively de minimis because at the time the loan was
restructured, although the physical building has been built,
the plant had not been fitting out. It is also an adage of
project finance and particularly restructuring work in project
finance that the value of a completed project is infinitely
greater than an incomplete project.
Mr. Green. The documents provided to the committee by the
OMB suggest that your staff may have had some concerns about
this approach. However, ultimately, you did not step in and
stop DOE from subordinating the interest. Why not?
Mr. Zients. OMB's role here is in oversight of the program
and OMB's career staff and lawyers--and again I am not a
lawyer--determined that----
Mr. Green. You know, I keep hearing that but I don't know
if----
Mr. Zients. General counsel----
Mr. Green [continuing]. A law license shows anything on
common sense.
Mr. Zients. General counsel's determination was that this
was--was that the DOE approach was reasonable.
Mr. Silver. Congressman, if I could just add one thing to
that. You have asked--people have asked about the
subordination. I want to make it clear that the billion dollars
of equity--of private equity that went into this company
originally is wiped out in that scenario. We are not talking
about all of that private capital coming forward, just the
newest piece of money that came in in order to provide the
company with a fighting chance to restructure its operations.
Mr. Green. The second legal issue raised by the
restructuring was whether it was a modification of the loan
agreement. My understanding is that the Federal Credit
Reporting Act generally prohibits loan modifications that
increase taxpayer cost but the definition of modification does
not include a restructuring to work out a troubled loan or a
loan that is in imminent default. Is my understanding correct?
Mr. Zients. This situation was ultimately deemed a workout
for 2 reasons: first, that the company was in imminent default,
which it clearly--DOE had determined it was; and secondly, that
it was in the best interest of taxpayers to restructure the
loan as opposed to liquidation. So when those 2 conditions are
met, a loan is considered a workout in that scenario.
Mr. Green. OK. So it was a workout and not a modification?
Mr. Zients. Yes.
Mr. Green. OK. Mr. Silver, what was the DOE's rationale for
determining that restructuring did not constitute a
modification?
Mr. Silver. Exactly as Mr. Zients has indicated.
Mr. Green. Mr. Zients, your staff has also expressed
concern over whether the restructuring constituted
modification. What analysis did your staff go through making
the determination that the change is not a legal modification
of the loan?
Mr. Zients. At the beginning of the process when we first
heard about the financial troubles, the staff's orientation is
going to be that there could be a modification. As the staff
worked with DOE to understand the dire financial situation and
the fact that the company was in imminent default and that
DOE's analysis was reasonable, that the taxpayers were better
served through a restructuring rather than a liquidation, OMB
career staff determined that it was indeed a workout.
Mr. Stearns. The gentleman's time has expired.
Mr. Green. Thank you, Mr. Chairman.
Mr. Stearns. The gentleman from Pennsylvania, Mr. Murphy,
is recognized for 5 minutes.
Mr. Murphy. Thank you.
Mr. Silver, I just want to get a couple things on this in
terms of your expertise. When you were managing director of
Core Capital Partners, had you ever managed something--a loan
of this size before?
Mr. Silver. Core Capital Partners was a venture fund, sir,
so we didn't provide that. We provided equity.
Mr. Murphy. You provided equity. Have you ever provided
equity of this size?
Mr. Silver. Not individually in a loan at Core Capital but
in other configurations, yes.
Mr. Murphy. At Tiger Management had you ever----
Mr. Silver. Yes, sir.
Mr. Murphy. So you are used to that. You are used to
reviewing these things. And I go back to this on Slide 5 if
somebody could up Slide 5. In this when they had in August of
2009, someone wrote this. I can't quite read that up there--but
wrote this in terms of saying that some issues with regard to
the concerns about the health of the company there, major
outstanding issues at the point in 2008, but it says an email
the following day states, ``the issue of working capital
remains unresolved. The issue is cash balances, not cost.
Solyndra seems to agree that the model runs out of cash
September 2011 even in the base case without any stress. There
is a liquidity issue.'' When did you become aware of that
email?
Mr. Silver. I have not seen this specific email. That email
was written in August of 2009. I arrived in November of 2009.
There would have been no reason for me to know of its existence
while we worked on the company but----
Mr. Murphy. So you would not have known of anybody's
concern that there wasn't enough capital to keep the company
going?
Mr. Silver. Certainly. The career staff monitoring this was
deeply aware of the issues and----
Mr. Murphy. And your job is to have oversight over this
staff?
Mr. Silver. My job is to have oversight over the staff.
Mr. Murphy. So you are saying you had oversight but you
were not aware of a memo saying this company didn't have the
money to keep going?
Mr. Silver. Well, I am not aware of this particular email,
but certainly I was aware of the company's status and
situation.
Mr. Murphy. At that time? And yet things were still going
through?
Mr. Silver. Well, the loan had already gone through, sir.
We----
Mr. Murphy. But what I am concerned about here is as we are
looking at this--and next we can move forward to the
restructuring. Now, the restructuring----
Mr. Silver. Maybe I should clarify exactly what the loan
was for. We provided a loan guarantee to support the
construction of a physical plant called Fab 2.
Mr. Murphy. And when was that approved?
Mr. Silver. That is what the loan was for. It was approved
in September and that plant actually was delivered on time and
on budget. The way the loan worked----
Mr. Murphy. On time on budget for a company that staff are
saying couldn't function regardless of what they had in terms
of a building.
Mr. Silver. No, that doesn't actually say, sir, that the
company can't function. That says that there will be a
liquidity issue in 2011, several years in----
Mr. Murphy. Meaning they run out of money.
Mr. Silver. No, meaning that they will have to address that
issue.
Mr. Murphy. And if they don't, they run out of money.
Mr. Silver. Conceivably, yes.
Mr. Murphy. I am just trying to establish your job is you
have handled loans like this. Would you offer a loan to a
company that says they are not going to have the money to pay
it back unless they make some changes?
Mr. Silver. Well, again, I wasn't there when this loan was
issued, sir, but what I can tell you is----
Mr. Murphy. But in the time you have been there, you became
aware of this. Did you begin to address these issues with
Solyndra to say show me the money?
Mr. Silver. Well, staff talked with the company on a
regular----
Mr. Murphy. Sir, I really want you to stop throwing
everybody else under the bus. I hear you throwing all your
staff under the bus. I want to know. You are in charge, you
have handled loans of this size, and now you are saying it is
everybody else's fault but you except you are in charge. You
tell me what you as a person in charge did with half a billion
dollars of taxpayers' money now saying it is all my staff's
fault, I didn't know, I can't do anything about it. You tell me
what you are going to tell the taxpayers when we are in the
hole for so much money in this country and you are dealing with
this in a very casual cavalier way. Whose fault is it?
Mr. Silver. Well, sir, first let me say that the 200-odd
professionals working in the Loan Guarantee Program are
exceptional professionals----
Mr. Silver. And you throw them all under the bus it is a
pretty bumpy ride, but you are the driver, Mr. Silver. You are
the driver. And now you are saying this is restructured. And
going back to the slide that says, ``the obligation shall be
subject to the condition that the obligation is not subordinate
to other financing and now it gets restructured so the
taxpayers don't get their money back.
Mr. Silver. The restructuring--any restructuring,
Congressman, is based on a binary decision as to what is the
better outcome for recovery, a liquidation, a sale of assets at
a moment in time or a restructuring.
Mr. Murphy. Who was it that made the decision that this act
passed into law by the Federal Government was going to not be
adhered to? Who made that decision?
Mr. Silver. As I said it was reviewed by legal counsel for
the loan program----
Mr. Murphy. So you have no responsibility in this either.
So we are throwing him under the bus, too?
Mr. Silver. I am not a lawyer, sir. I rely on counsel.
Mr. Murphy. Are we throwing her under the bus, too? Did the
Secretary of Energy have anything to do with this decision or
is he under the bus, too?
Mr. Silver. Not to my knowledge.
Mr. Murphy. So no one is responsible. This is an incredible
organization you work for. No one in the Federal Government is
responsible for half a billion dollars of taxpayers' money.
This is phenomenal. What do you do for a living? If you don't
know what is happening and everybody else is to blame, what do
we go back and tell our constituents who have to work hard with
so many people in this country in poverty, so many people in
problems, we are saying this federal agency is saying we don't
take any responsibility. It is everybody else's fault.
Mr. Silver. We work to the fullest of our capabilities,
Congressman, to ensure that these projects are as de-risked as
possible----
Mr. Murphy. I understand but now the taxpayers are on the
hook for this.
Mr. Silver. As was pointed out earlier, there are always
challenges in investing in innovation. And I should point out
that Congress through the appropriation of $2.4 billion of
credit----
Mr. Murphy. When did this company actually get their check?
Mr. Silver. It doesn't work like that, Congressman. They
draw against a loan----
Mr. Murphy. Exactly. And at any point you could have
stopped it when you found out the information that they
couldn't exist. And that was under your watch, Mr. Silver.
Mr. Silver. Our transaction--our loan was for the
construction of a physical plant.
Mr. Murphy. And at some point when you realized they
couldn't function anymore in that physical plant, that is when
you step in and take leadership and stop throwing your staff
under the bus. I yield back.
Mr. Stearns. The gentleman yields back, but the question
Mr. Murphy is really asking, should someone be fired, Mr.
Silver? Should anybody be fired? Yes or no?
Mr. Silver. The people in the Loan Guarantee Program at the
Department of Energy, at OMB, our colleagues at OMB and alike
have worked----
Mr. Stearns. OK. So you are saying no one should be fired.
Mr. Silver. I am saying that we are doing the best job we
know how to do----
Mr. Stearns. All right. All right. I understand what you
are saying. The gentleman from Virginia, Mr. Griffith, is
recognized for 5 minutes.
Mr. Griffith. Thank you, Mr. Chairman. If we could have
Slide 1 again. Yes, I am concerned about this ``is'' situation,
but I would point out in paragraphs 1 and 2 it references that
``no guarantee shall be made unless'' which gives some
flexibility, but in paragraph 3 of Section 1702 it says, ``the
obligation shall be subject to condition that the obligation is
not subordinate to other financing. Have you read the
memorandum of law on this?
Mr. Silver. I have not read the full memorandum, no, but I
have been briefed by counsel----
Mr. Griffith. Would it shock you to know that if you read
it and you pay attention to what is being said--and I have it
right here. I would be happy to give you a copy with my notes
on it if you want them. It looks like it is a law school
project where you are told to come up with an answer. Here is
the question, give me the right answer, defend it the best you
can. That is what it looks like.
Because under this analysis, what it says is is that if we
close the loan in the morning and at lunch somebody has an
epiphany and says you know what? I think that we should see if
we can get some more money from somebody else and we are going
to subordinate that money and we are not going to follow this
paragraph. Because there is no line. And in fact somebody
raised that issue the memorandum points out. Somebody raised
the issue. Should there be a line between when the loan is
granted and possible default? And they said no, that is not
necessary because the law doesn't say that. You can change it
anytime you want to if the Secretary thinks it is appropriate.
Does that make good common sense as Mr. Green pointed out to
you? You don't have to be a lawyer to know good common sense.
Does it make common sense that the Congress of the United
States responsible for setting our legislative policy would say
that you are not to subordinate but under the interpretation of
your lawyers, they could subordinate it after lunch for a loan
closed in the morning? Does that make good common sense to you,
sir?
Mr. Silver. Well, Congressman, what makes sense to me is to
ensure that we have the tools available to us to do whatever is
necessary in a troubled situation to secure the taxpayers'
interest.
Mr. Griffith. Even if it is in violation of the law and
what common sense would tell you, the common English always
trumps legal mumbo-jumbo and the common English makes it clear
you are not to subordinate. But in January when you were at the
helm your people subordinated $75 million of this money,
American taxpayer dollars to private investors. And part of the
deal was they were going to invest more money in August. Isn't
that true?
Mr. Silver. That is true.
Mr. Griffith. And they did not do so. Isn't that also true?
Mr. Silver. That is true.
Mr. Griffith. And when did your observer tell you that they
weren't going to invest anymore money so that you might have
been able to anticipate the bankruptcy? When did your observer
tell you that?
Mr. Silver. In late July.
Mr. Griffith. And weren't we trying to get information from
you all at that time or was that the other fellow?
Mr. Silver. I don't know what you are referring to,
Congressman.
Mr. Griffith. The documents that we were requesting when we
had a subpoena. I guess that was in----
Mr. Silver. We sent you, as I said, 35,000 pages of
material.
Mr. Griffith [continuing]. July. All right. Just so we
know, you have got all these other loans out there, 4 to
manufacturers, which would be in a similar situation to this
one. Have you subordinated any of that money?
Mr. Silver. No other transactions have had subordinations.
I would go further and say that of the 2--there are only 2
deals that have actually closed and completed construction and
both of those are repaying on a timely basis.
Mr. Griffith. All right. And if you didn't look at the
memorandum, attached to the memorandum there are all kinds of
charts on how Solyndra is going to make money. Did you look at
those financial charts?
Mr. Silver. Sure, I have seen the company's financials.
Mr. Griffith. All right. You earlier testified that part of
the reason Solyndra went under was the fact that the Chinese
were able to make their product cheaper and the Europeans
stopped buying. Now, while it may have gotten worse, wasn't
that also true in January when you restructured this loan?
Mr. Silver. It has been true for the last several years.
Mr. Griffith. OK. In that I would have to ask you, then,
when you look at these numbers, how in the world if you know
that and your analysts have told you that, how in the world
could you anticipate that profits at Solyndra would double next
year? Because that is in all the models that are attached to
the legal memorandum.
Mr. Silver. I will leave it to the company's management
team to describe their financial projections, but what I will
say to you----
Mr. Griffith. Wait a minute. Wait a minute. You are
concerned enough you put an observer on the board and you
subordinated American taxpayer dollars but you are going to
leave it to their management to determine how they can say that
they are going to double it? Doesn't that sound like that is
not common sense again?
Mr. Silver. Well, with all due respect, revenues are not
actually the driver of how a loan or loan guarantee would
necessarily get paid. What we focus on are cash flows and those
can be managed in a variety of different ways.
Mr. Griffith. But you would acknowledge that if their model
was somewhat weak to begin with--and I recognize there is risk
whenever you are doing something new--but if their model was
weak to begin with and then market gets worse, doesn't that
mean that maybe we should have just not thrown good money after
bad because now we are in a worse position in the bankruptcy
courts to get our money back, are we not?
Mr. Silver. Well, at the time----
Mr. Griffith. Are we in worse position than we would have
been if we had just let them go into bankruptcy, Chapter 11,
last January? We are or are we not?
Mr. Silver. That will depend--not necessarily. That will
depend on the outcome of the bankruptcy. As I tried to indicate
before, when you are looking at this issue and admitting that
there are no good choices, one of the issues is liquidation and
you have to determine a liquidation----
Mr. Griffith. Is it the administration's policy that
bankruptcy is a good thing?
Mr. Silver. I can't speak for the administration but common
sense would suggest that it is not.
Mr. Griffith. I would agree with you. I yield back.
Mr. Stearns. The gentleman yields back, time has expired.
The gentleman from California, Mr. Bilbray, is recognized for 5
minutes.
Mr. Bilbray. Thank you very much, Mr. Chairman. Mr.
Chairman, before I go on, I would like to just address the
ranking member of this committee because I hope she recognizes
and we all recognize this is not a Democrat or Republican issue
when we are talking about this ``is.'' This is specifically a
threat to the legislative process when you can have an attorney
play this word game and does that mean that Democrat or
Republican, when they specifically direct in legislation that
we now have to say not only it will not happen but we must say
it will not and shall never be allowed to happen? Do we have to
play this word game? Because I don't think it is a Democrat or
Republican issue. I think this is an issue about the law is the
law and I don't care how convoluted an attorney wants to do it.
This doesn't pass the smell test in any way in the world. So I
just think this is really an affront on both sides of the aisle
by this manipulation. And just admit it that it was. We tried
to get the job done and we crossed over a line to a commonsense
person and anybody rational would say you crossed the line of
what the law specifically said.
Now, that aside, there are a lot people talking about solar
power here, some of us who worked at citing solar factories
here. Mr. Silver, are you comfortable, first of all, with the
thin film technology that was chosen by this company? Did you
have any concerns about them using thin film technology?
Mr. Silver. Congressman, I am, first of all, not a solar
technical analyst but I am highly comfortable with the fact
that the solar experts at the Department of Energy, of whom
there are many, and the independent engineers which were well
known and well respected firms were qualified----
Mr. Bilbray. Were you informed that there has been more
false starts and more failure in thin film than any other form
of photovoltaic production?
Mr. Silver. I don't know that to be true or not but----
Mr. Bilbray. OK. And were you aware that when we talk about
China that China has concentrated almost ostensibly in
polycrystalline technology and avoid thin film?
Mr. Silver. Well, China has focused on the market segment
you are describing in part because it is a very cost-effective
way to mass produce those panels. The Solyndra technology was
designed in its time and place to circumvent or to overcome 2
fundamental challenges--the very high price of polysilicon and
the installation costs which they refer to as----
Mr. Bilbray. And they also have in fact the historical
problem of a lack of durability and the loss of proficiency of
thin film as opposed to mono- and poly-technologies. But my
question to you, you are a business man. You are looking at a
company. Did you review their proposal for the construction of
their factory, the technology, the siting of it, the planned
development of it, and its related costs and oversight?
Mr. Silver. I am sorry. What is the----
Mr. Bilbray. Did you look at where they were talking about
building this factory, how they were building it, and the
related issues of the cost of just building the factory?
Mr. Silver. No, sir, because the loan was issued before I
arrived at the Department.
Mr. Bilbray. OK. When you went and renegotiated it, did you
take a look at what was being proposed?
Mr. Silver. Well, at that point, the plant was largely
built, although it was not, as I say, fitted out.
Mr. Bilbray. OK. Did anybody down the line raise the issue
that the proposal was to build the facility in the State of
California in the Bay area in a nonattainment area, can you
think of as a business man anywhere in America where you
probably have more regulatory obstructionism to the
construction of a manufacturing operation than you would have
in a nonattainment area in the State of California?
Mr. Silver. I am not qualified to answer that question, but
what I can say is that the investors that backed this company
and the management team that originally led it must have
concluded that this was the right place to do it.
Mr. Bilbray. Mr. Silver, are you aware of anybody in your
department that have notified grant applicants that if they
want to go get the grant that their production should be moved
out of the State of California to a State that has less
regulatory obstructionism?
Mr. Silver. We don't issue grants in the loan program, sir,
but I am not aware of that, no.
Mr. Bilbray. OK. Well, maybe we ought to talk about the
fact--let me just point out, this grant application was asking
to take 30 acres of agricultural land in the State of
California in a nonattainment area. It was going to be required
to be able to go not just through the DOD and the U.S. but
having to get the Environmental Quality Act under Sequel for
California, has to get a permit from the city, air quality from
the Bay area, air quality which is nonattainment area with some
of the strictest air pollution regs in the entire world. It was
going to require a general permit for discharge and storm
water, which means that not only did you have the California
environmental agencies involved, not only did you have the
State Water Quality Control Board involved, you had the local
regional water Quality Control Board that you have to get a
permit from.
The fact is is that the California Department of
Occupational Safety, which has some of the most restrictive
regulations in the world you had to get a permit from, you had
the hazardous waste generation, which California again under
HAZMAT has some of the most restricted funds. Then you get into
wastewater discharge, and these are just some of the permits
down the line.
Nobody in your department or when they reviewed this raised
the issue that this is not only a terrible place to try to site
a facility but you are proposing--didn't anybody raise the
issue of why build a whole new facility rather than moving into
an existing abandoned facility in a State that has 12 percent
unemployment and huge empty resources? Anybody even talk about
the question of why would you build a new facility when there
are warehouses available?
Mr. Chairman? Would he answer the question?
Mr. Stearns. Time has expired but you are welcome, Mr.
Silver, to answer the question yes or no.
Mr. Silver. Sure, I will to the best of my knowledge. At
the risk of repeating myself since I wasn't there, I don't know
what the nature of the discussions were, but I can tell you
that applicants for loan guarantees are required to have all of
their siting permits and other kinds of permits in place by the
time the project is undertaken.
Mr. Bilbray. And all of it was stated down that it will
attain it before construction when they get in the line? And
all I got to say is somebody who is siting--we are siting
existing warehouses. It is absurd with the kind of vacancy we
have in the State of California for anybody to even talk about
or come to you or any government agency and say we want to
build a whole new area on ag land. I yield back.
Mr. Stearns. The time of the gentleman has expired. The
gentleman from Louisiana, Mr. Scalise, is recognized for 5
minutes.
Mr. Scalise. Thank you, Mr. Chairman. I want to thank you
for calling this hearing. You know, we have been pressing on
this issue and asking a lot of questions about this Solyndra
loan program for months now on this subcommittee, but I think
it is really important that we have this hearing now because
while Solyndra was touted as really one of the poster children
by President Obama of his first stimulus bill, and clearly
there is a lot of evidence that shows that this was something
that the White House really wanted to move through quickly and
the emails indicate that.
But while this was one of the poster children of the first
stimulus bill, the President right now is touting what I call
son of stimulus, another bill to come through, spend more
taxpayer money, to do more things like this. And in fact if you
look at some of the issues that we have raised about this loan
program, some of these projects that were funded by stimulus,
just Solyndra alone was touted to create 3,000 jobs. The
President touted that. It is going to be a great success story.
And of course, we have seen the failure there. And a lot of us
are questioning this kind of double down son of stimulus
approach where they are going to come back and do more of this
kind of same failed policy of just spending money we don't
have.
And, you know, of course the President said in front of our
chamber last week, pass the bill now. We hadn't even seen the
bill. The President didn't even give us the text of the bill
and he said pass the bill now, called on the American people
ask us to pass the bill now. I hope you understand now why a
lot of us are real skeptical when the President says pass a
bill now because he did that with the stimulus bill and we see
the failure there. He did that with the healthcare bill. We are
still unearthing problems there. So when the President says
pass a bill, you can wonder why some of us say let me read the
bill first and let us look at the details.
But now when we get specifically to this issue of what
happened with Solyndra, Mr. Silver, I know you have testified
that you weren't in your position until November of 2009. When
you came in, you have acknowledged there was a file on
Solyndra. Did you read that file?
Mr. Silver. I read through all of the materials for the
entire program when I arrived.
Mr. Scalise. Did you see the concerns that were being
raised by your own agency back then prior to your coming that
under what they were looking at, Solyndra could go bankrupt by
September of 2011?
Mr. Silver. I certainly saw all of the materials that were,
you know, related to that discussion. I need to reemphasize,
Congressman, that the loan guarantee was specifically for the
construction of a physical factory, which was done. And the way
that works----
Mr. Scalise. And look, it is your job ultimately to go
through that loan guarantee and see if there are things that
meet the taxpayer interests----
Mr. Silver. That is correct.
Mr. Scalise [continuing]. But also I think you need to also
be aware of the way that the program is being implemented.
After you came in, the Government Accountability Office did a
report that was, I think, pretty scathing about your loan
program. They actually made some recommendations. They pointed
out some problems. They pointed out, again, after you came in,
GAO put this report out. They pointed out that the loan program
treated applicants inconsistently favoring some and
disadvantaging others. And they gave examples. Did you read
this GAO report?
Mr. Silver. I did, Congressman, and if you will give me a
minute to respond to----
Mr. Scalise. I can't give you that long. I don't have that
much time.
Mr. Silver [continuing]. The GAO question. First, let me
note that while the report did come out after I arrived, it
covers the 2008 and 2009 time period, and so I was there for
approximately 1 month----
Mr. Scalise. So did you make any changes based on the
problems that they now know?
Mr. Silver. Yes, we have actually made substantial changes
as we have grown the organization.
Mr. Scalise. All right. But let me ask you this. You were
here after you all did the restructuring of Solyndra's loan.
Who made the decision to put the taxpayers in the back of the
line and subordinate in violation of federal law? Who made that
decision?
Mr. Silver. Well, first, Congressman, as I have said
before, I don't know that it was in violation of any law. There
were multiple----
Mr. Scalise. Someone made the decision. Did you make the
decision to subordinate----
Mr. Silver. There were a variety of legal----
Mr. Scalise. Did you? Did you make it?
Mr. Silver. The loan program----
Mr. Scalise. This is a yes or no question. Did you make the
decision to subordinate the taxpayers and put them in the back
of the line when the decision was made to restructure because
you were there?
Mr. Silver. The question is not--does not have a yes or no
answer, Congressman.
Mr. Scalise. So you don't know? You either made the
decision or you didn't. I think----
Mr. Silver. The process----
Mr. Scalise [continuing]. That is a straightforward
question. And look, we have been asking for months now, in
fact, we on this subcommittee asked your agency for some of
these documents prior to the modification of the loan, prior to
the restructuring, and you all stonewalled us as you are
stonewalling right now refusing to answer a direct question.
And $535 million of taxpayer money is at stake. Maybe if you
would have given us that information back months ago when we
asked for it before you restructured, the taxpayers wouldn't be
in the back of the line today. So you can understand, I would
hope, why we are saying who made the decision to put the
taxpayers in the back of the line? Can you get me that
information if you can't answer it directly now?
Mr. Silver. I am happy to meet with you to describe the----
Mr. Scalise. No, I want in writing--I am going to ask on
behalf of the committee, Mr. Chairman, if you can get us in
writing the names of the people in the decision-making
process--and it might be multiple people--who made the decision
to put the taxpayers in the back of the line meaning
subordinate the taxpayers in what many of us think are in
violation of the law. I don't know what your counsel thinks and
your counsel may be part of this list, but I want to know if
you are part of the list. I want to know if the Secretary is
part of the list. I want to know if anyone in the White House
is part of that decision-making chain that said we are going to
subordinate the taxpayers of the United States in restructuring
this Solyndra loan. I think we deserve that answer and I am
asking you to get that information, however many people it is.
But somebody made that decision or multiple people, but you
can't say nobody made it because the decision was made. Would
you at least agree with that and then get that information to
this committee?
Mr. Silver. We will work with you to provide you what you
need.
Mr. Scalise. Thank you. And I yield back.
Mr. Stearns. The gentleman's time has expired. The
gentleman from Colorado, Mr. Gardner, is recognized for 5
minutes.
Mr. Gardner. Thank you, Mr. Chairman, and thank you to the
witnesses as well for your time today. And I would yield the 30
seconds to my colleague, Mr. Bilbray, from California.
Mr. Bilbray. Mr. Silver, my biggest concern I just want to
say in closing as somebody who supports solar energy, I think
we got to keep the science not the blind faith, and it appears
to me that this entire process was driven more by an assumption
that anything solar was good and you could force it through and
it was all going to work out. And the lack of critical review
for this production I think is the greatest threat for future
solar. It is this kind of blind faith that we have got to
avoid. This should be driven by science and good investment,
not by an assumption that whatever is renewable obviously is
going to be great. And I think this failure was driven more by
that. I don't think it was a criminal intent. But that criminal
intent you can bust one guy. The trouble is with this kind of
prejudice for a technology blindly, there is more threat to
that happening in the future and not just financially but the
energy independence of this country and the competitiveness of
this country. And that is what I am critical on.
Mr. Silver. Congressman, I wholeheartedly agree with you
that we ought to back the science, which is why a large group
of sophisticated private investors who have done their own--had
done their own due diligence, why the loan program staff from
the 2007 to 2009 time frame using independent engineers, other
outside advisors, and the solar experts at Department of Energy
came to that conclusion.
Mr. Bilbray. Well, the record shows that there was
political interjection, there was PR issues. The preconceived
idea that if it was solar, it had to be a great package, and
frankly there is good stuff, there is bad stuff, and the
greatest threat to the good stuff is allowing garbage to get
through the system and being treated as if its sacred rather
than being critical about it. And it wasn't critical enough and
history has proven that it wasn't a critical review of this. We
got to make sure that doesn't happen again. I yield back to the
gentleman.
Mr. Gardner. Thank you. And reclaiming my time.
Mr. Silver, I want to go back to this issue of the emails
and the dismissal by the Credit Committee of this project.
January 9--it is a Friday--2009, an email was sent from the
Credit Committee remanding the Solyndra application calling it
premature and citing a number of unresolved issues. In your
testimony, you have said that this was over nothing big, no big
details----
Mr. Silver. No, I didn't. I never said that, Congressman.
What I said was the Credit Committee remanded it back for
additional work and due diligence was done on that work. And
then it was brought forward in the time frame that--I should--
if I may----
Mr. Gardner. Well, let me just talk----
Mr. Silver [continuing]. I would like to just point out one
other----
Mr. Gardner [continuing]. About this due diligence----
Mr. Silver. I would like to just point out one other thing
which is that----
Mr. Gardner. Reclaiming my time. This is my time. I am
sorry because I want to talk about these matters of due
diligence on January 9, what you said, due diligence took place
over. Let me read these to you. It is Slide #2 if you could put
that on there. ``There is presently not an independent market
study addressing long-term prospects for this specific company
beyond the sales agreement already placed. Since the
independent credit assessment raised the issue of obsolescence
in marketing this project, it is important to have an
independent analysis of that issue as well as the current state
of the competitive market.'' Point 2, ``while the sales
agreement is said to have been analyzed by the outside legal
advisor assigned to this case, the committee did not have
access to this document.'' Point 3, ``there are questions
regarding the nature and strength of the parent guarantee for
the completion of the project.'' Point 4, ``while it is
encouraging to see the apparent progress in the development of
the product at the Fab 1 facility, there is concern regarding
the scale-up of production assumed in the plant for Fab 2.''
That was in an email on January 9. That is the areas of due
diligence that you are saying that you did and you did it by
January 26, a Monday, 2009?
Mr. Silver. Congressman, I don't know where--what dates you
are referring to. Let me----
Mr. Gardner. These are the emails when the Credit Committee
said no, we are not going to do this and then all of a sudden
an email just days later, 10 working days later----
Ms. DeGette. Will the gentleman yield?
Mr. Gardner [continuing]. We are going to go forward.
Ms. DeGette. Does the gentleman have copies of those
emails? The minority has----
Mr. Gardner. I am happy to provide----
Ms. DeGette. I would appreciate that.
Mr. Gardner. Sure.
Ms. DeGette. We don't have copies of those emails and I
don't think the witness does either and I am getting a little
lost here.
Mr. Gardner. On January 9, 2009, the Credit Committee sent
an email, and I think if you go to Slide 4 you can see what I
am talking about. There we go, 2009, talking about the Credit
Committee remand of Solyndra application calling it premature.
January 26, we are approaching the beginning of the approval
process. So the areas of due diligence that you said took place
took place in 10 working days? These are pretty significant
issues.
Mr. Silver. No, that is not accurate, Congressman, and if
you will give me just a moment to try to answer your question.
There are actually--there is actually an extended period of due
diligence that takes place here. The Credit Committee--the
first Credit Committee met; then there was a several-month
period before it met again and I need to make sure this is
clear because I don't think it is because I don't----
Mr. Gardner. It didn't meet when they made their decision
to move forward?
Mr. Silver. What gets approved at that juncture,
Congressman, is a conditional commitment, not the final close
of the loan. The loan itself didn't close until September and
so additional due diligence takes place from the conditional
commitment through the close of the loan, as is true in every
transaction.
Mr. Gardner. What changed, then, between January 9 when
they needed that information and January 26, 10 days later,
when they evidently didn't need that information.
Mr. Silver. I don't know what the January 26 date is that
you are referring to.
Mr. Gardner. The January 26 email was right there. It says,
``a DOE staff member states that we are approaching the
beginning of the approval process for Solyndra again.'' The
Credit Committee met and said they didn't do it because they
needed this information.
Mr. Silver. Why do you assume that language says we are
beginning--approaching the beginning of an approval process
necessarily means anything about the time frame for which due--
under which due diligence took place?
Mr. Gardner. Well, I am assuming that the Credit Committee,
their observations were taken into account, were they not?
Mr. Silver. Absolutely, but the beginning--as I read it as
you are now showing it to me, we are approaching the beginning
of the approval process, that suggests a pretty open-ended
period of time during which due diligence was----
Mr. Gardner. So the Credit Committee then at that point, it
doesn't matter what the Credit Committee is concerned----
Mr. Silver. No, the Credit Committee met again in March.
Mr. Gardner. Because they said we are going to end this.
Mr. Silver. No, they said that we were--they were going to
meet again in March, which they did.
Mr. Dingell. Mr. Chairman, where are all----
Mr. Stearns. The gentleman's time has expired.
Mr. Dingell. Mr. Chairman, where are----
Mr. Stearns. We are on the first round----
Mr. Dingell. I have a unanimous consent request----
Mr. Stearns. Yes, you are recognized.
Mr. Dingell. Can we put all of these emails into the
record? I am sitting here, I am seeing a wee bit of information
carefully yellow-lined that is supposed to tell me what has
happened here. I don't think there is any lawyer that would
tell you that that would be sufficient evidence of anything.
The whole document should be placed before us so we know----
Mr. Stearns. Well----
Mr. Dingell. If there is wrongdoing here, by golly, let us
dig it out. But let us see the whole thing.
Mr. Stearns. OK.
Mr. Dingell. So far we are getting a lot of assumptions and
understandings and comments from the other side in which they
are saying oh, this is terrible. What has happened here? But I
don't know what has happened and to speak perfectly frank with
you, I don't see anything up there which tells me that we have
a clear picture of the problems to which we are inquiring. So
if we are going to inquire, let us inquire fairly. Let us let
everybody see them. Is it possible that my Republican
colleagues have seen these papers and the rest of us have not?
Mr. Stearns. We will take the constructive criticism under
advisement. We have unanimous consent in which all the
documents will be made available and a part.
Mr. Stearns. And I ask my side, the counsel, to provide the
gentleman and your side all these documents, which we have. And
they have been produced, I am told, so I guess the question is
they haven't got to you. Is that a fair assumption?
Ms. DeGette. Well, if the gentleman will yield?
Mr. Dingell. I want them in the record, Mr. Chairman.
Mr. Stearns. Oh, OK. So you have the same documents we do,
you just want to make sure they are part of the record?
Mr. Dingell. I want----
Ms. DeGette. If the gentleman will yield?
Mr. Dingell [continuing]. To see them----
Mr. Stearns. And we pass the unanimous consent----
Mr. Dingell [continuing]. I want to know what they said----
Mr. Stearns. OK.
Mr. Dingell [continuing]. And I want them in the record.
Mr. Stearns. They will be put in the record. We had
unanimous consent to do so.
Ms. DeGette. Yes, and if the gentleman would yield?
Mr. Stearns. Yes.
Ms. DeGette. We were told that the documents were produced
under an agreement with the majority that they were to be
confidential and were not to be copied or in any way
disseminated. We----
Mr. Stearns. At the request of OMB, right?
Ms. DeGette. OK. But----
Mr. Stearns. Yes.
Ms. DeGette [continuing]. What happened was in between
yesterday when I found this out at about 7:00 p.m. last night
and today, it turned out that lo, number one, the majority
released a number of these documents to the press and, number
two, the majority apparently took some of these documents and
excerpted them in the way that the chairman emeritus is saying
and put them on slides, which we have never been provided. I am
going to tell you, Mr. Chairman, I have been on this
subcommittee for 15 years and I am just as much concerned about
this Solyndra loan as everybody else is, but the way that the
information has just been parceled out, the witnesses don't
have the full copies of the emails in front of them, the
minority doesn't have the full copies of the emails in front of
them until we asked for them, that is not in the grand
tradition of this subcommittee.
Mr. Stearns. We have heard your argument in your opening
statement and we made a unanimous consent that you all be part
of the document. I am told that you were given, your staff was
given all these documents. OMB----
Ms. DeGette. We were told we couldn't copy it.
Mr. Stearns. OMB is the one that specified that. We have
now agreed that we are going to make them all public.
Ms. DeGette. Mr. Chairman, they were subpoenaed from OMB.
OMB doesn't have the right to tell us whether we can copy----
Mr. Stearns. I understand that.
Ms. DeGette [continuing]. The documents or not.
Mr. Stearns. I understand that but we have all agreed that
OMB can't tell us and we are going to make these public.
Ms. DeGette. Thank you.
Mr. Stearns. And so I appreciate your concern. We have a
unanimous consent from a member who is on the committee but not
on the subcommittee, the gentleman from Kansas, Mr. Pompeo. Is
there any objection to allowing him in the first round--we are
going to go for a second round----
Mr. Waxman. Well----
Mr. Stearns [continuing]. Is there any objection to allow
him to ask questions?
Mr. Dingell. I have no objection but I would like to
understand if we are going to get those documents and if we are
going to have a second----
Mr. Stearns. Your point is you have the documents but you
want to make sure the documents are available to----
Mr. Dingell. No, I want to see them.
Mr. Stearns. OK. Well, as I understand from my counsel, we
have provided all the documents to you. They were produced to
both sides. You have them. Now, is it possible your staff has
not made them available to you?
Mr. Dingell. I understand that it is the committee staff to
make these available to all members of the committee and I
understand this committee staff works for all of us.
Mr. Stearns. Well, I think that----
Mr. Dingell. And if I am in error----
Mr. Stearns. My staff has told me that we have----
Mr. Dingell [continuing]. Tell me so.
Mr. Stearns [continuing]. Provided you----
Ms. DeGette. Mr. Chairman, what happened was we were told
we could look at the documents but we couldn't copy them and
that under some kind of agreement the majority made with the
OMB that the documents could not be disseminated in any way,
which is frankly a ridiculous agreement----
Mr. Stearns. Well, no, I think you made that----
Ms. DeGette [continuing]. If the majority made that, but in
addition, always in the past in this subcommittee, if we
questioned on documents, we had the full document available for
everybody and for the witnesses so that they could review those
and give their answers. Instead, what we have had today is
these slides which were made taking quotes out of the documents
without providing the documents to anybody.
Mr. Stearns. In conclusion, I think the fact that you and
Mr. Dingell's point is that these documents should have been
made available in a tab so that they can go to the tab.
Mr. Sullivan. Mr. Chairman? Mr. Chairman, if I can ask a
question?
Mr. Stearns. Sure.
Mr. Sullivan. I think from everything I am hearing, the
emails that are in question are emails from Department of
Energy staff. Doesn't Mr. Silver already have access to all of
that?
Mr. Stearns. He doesn't necessarily have access----
Mr. Sullivan. Chairman, those are people that work under
him in his agency who communicated back and forth that we had
to subpoena, but I don't think he has to subpoena to get his
own internal documents from----
Mr. Dingell. Mr. Chairman, we are not complaining about
whether Mr. Silver has these emails or not. I am complaining
that we do not have the emails.
Ms. DeGette. Well, and also----
Mr. Dingell. And I find myself affronted that I am reading
about these things in the newspaper and am not having them
presented to me. That is a most curious way----
Mr. Stearns. OK. All right.
Mr. Dingell. --to proceed about a congressional
investigation.
Mr. Stearns. Well, we have a little disagreement here but
out of deference to you, I will take your criticism under
advisement. And let us continue on.
Mr. Dingell. That does not comfort----
Mr. Zients. May we have a 2-minute break?
Mr. Dingell [continuing]. Me when you take it under
advisement. That means I might hear about it----
Mr. Stearns. Well, I think----
Mr. Dingell [continuing]. Sometime before the end of the
session if I am lucky.
Mr. Stearns. All right.
Mr. Dingell. I do not view that as being an adequate answer
for my concerns. I don't like the precedent which I see being
set here that I am going to read about these things in the
press. And I don't like at all the fact that we are having all
manners of inferences drawn by the majority while the minority
has not seen the documents. And so I am not comforted by these
matters being taken under advisement.
Mr. Stearns. Well, the gentleman has done this job much
more than----
Mr. Dingell. They should be addressed now----
Mr. Stearns. Yes.
Mr. Dingell [continuing]. Not at some future----
Mr. Stearns. OK. The gentleman----
Mr. Dingell [continuing]. Time.
Mr. Stearns [continuing]. Has done this job more years than
I have ever done it or will do. I respect his opinion. We have
a little disagreement and the fact is we say we have given you
all the documents. The fact that you don't have it in front of
you is not necessarily our fault because your staff----
Mr. Dingell. Maybe I have to raise the question of whose
staff we are going to fire. Are we going to fire the majority
staff or the minority staff?
Mr. Stearns. Well, I think there is a----
Mr. Dingell. If the majority staff is making this kind of a
decision, they are going well beyond their powers----
Mr. Stearns. Well----
Mr. Dingell [continuing]. And well beyond their
authorities. If the minority staff is doing it, we are going to
thrash this out inside the minority and find out why in the
hell they are doing it this way.
Mr. Stearns. I suggest you do that and then you and I talk.
Mr. Dingell. Well, I suggest that we talk now because this
is the business of the committee and I find the business of the
committee being conducted in a curious way.
Mr. Stearns. Well, the curious way is that you don't
recognize that you have all the documents when my staff has
provided all the documents to you. So we are a little puzzled
why we are discussing why you don't have all the documents when
you do.
Ms. DeGette. No, the problem is----
Mr. Dingell. Where are the documents----
Mr. Stearns. Let Mr. Dingell finish.
Mr. Dingell [continuing]. Then----
Mr. Stearns. OK.
Mr. Dingell [continuing]. If I have had them presented to
me, I am anxious to see them.
Mr. Stearns. OK. Well, I think what we are going to do is
continue this discussion, but I want to let the gentleman from
Kansas--I recognize him for 5 minutes.
Mr. Pompeo. Thank you, Mr. Chairman. And thank you to the
minority for allowing me to participate in the hearing today.
You know, Mr. Waxman started this hearing an awful long
time ago talking about the fact that the Solyndra folks came in
his office in July, told him everything was great and then
filed bankruptcy shortly thereafter and he couldn't understand
why. There is a simple reason. Nobody in that room had any skin
in the game. This is exactly what we get when the Federal
Government tries to put money into businesses and try to pick
winners and losers. And in fact because I have heard Mr. Zients
speak, your task is really to pick just amongst losers. Every
one of these has a credit subsidy, right? Is that correct? The
Federal Credit Reform Act, you are out there looking at every
one of these loans and deciding how much of a loser this
guarantee is going to be.
Mr. Zients. No, I mean the point is to put a credit
allowance----
Mr. Pompeo. A score, a cost to the taxpayer.
Mr. Zients. That is the purpose of the program----
Mr. Pompeo. Right.
Mr. Zients [continuing]. Is the 1705 program----
Mr. Pompeo. Right.
Mr. Zients [continuing]. Does loans with credit subsidies.
Mr. Pompeo. Right. Look, I am very familiar with FCRA. I
actually, oddly enough, wrote about this when I was in law
school and was published so I know a fair amount about the
process that you go through there. And you talked about your
score having changed. What were the 2 scores that were given
both in 2009 and then I guess twice in 2011?
Mr. Zients. Well, the score in 2009, I don't know the exact
percent of the score----
Mr. Pompeo. And you got that----
Mr. Zients [continuing]. But it increased----
Mr. Pompeo. If you can get me the 2 scores, what the
original scoring was and what the subsequent scoring was?
Mr. Zients. I am sorry?
Mr. Pompeo. Can you provide to me and to this committee the
original score and the subsequent score?
Mr. Zients. Yes, we can follow up on that request.
Mr. Pompeo. OK. So you will provide that information to the
committee?
Mr. Zients. We will work with staff to make sure that that
information is provided.
Mr. Pompeo. Right. And then you will give us also the score
in 2011 during the restructuring? You decided this was how much
additional subsidy will need to be provided.
Mr. Zients. Well, in 2011 as part of the restructuring, the
determination was that it was a workout based on the fact that
the loan was in imminent default and that a workout or a
restructuring was in the best interest of taxpayers. That would
be reflected, the cost of that, in the budget.
Mr. Pompeo. So it was a negative score. It was good for the
taxpayers that this restructuring was taking place?
Mr. Zients. No.
Mr. Pompeo. It was going to cost them less?
Mr. Zients. No, the restructuring in the budget--in the
annual budget it will be reflected that the loan--the condition
of the loan----
Mr. Pompeo. This is exactly what happens when folks without
skin in the game get involved in trying to do credit analysis.
Let me go back, Mr. Silver, I want to ask you. Mr. Markey spoke
about Carnac, that no one could have known what was going to
happen to the price of photovoltaic cells, PV cells, that this
was just unimaginable that Solyndra's sales price would fall
below its cost of production. Do you agree with that? And he
said in 2008 who could have known?
Mr. Silver. Well, I think many, many analysts and observers
have been surprised by the speed and rate of the decline in
cell prices, yes.
Mr. Pompeo. Mr. Chairman, I ask unanimous consent to place
into the record an article. It is from August 4, 2008. It
appeared in Xconomy. It is written by a man named Mark
Modzelewski, the technology commentator. In August of 2008 he
wrote, ``the cost of PVs, you hear a lot about companies
working toward price parity and grid parity--and here is the
potentially really bad news for investors. Some big players in
the private equity and research side have hypothesized that the
price of solar cells is about to plummet so quickly that
manufacturers will enter a netherworld where their cost of
production exceeds their sales price.'' So it didn't take
Carnac. It just took Mark. Is that correct?
Mr. Dingell. What is the status of----
Mr. Stearns. The gentleman will--does he have a point of
information?
Mr. Dingell. No, I don't.
Mr. Stearns. OK.
Mr. Dingell. I have a reservation to a unanimous consent
request just made.
Mr. Stearns. OK. The gentleman from Michigan objects and it
will not be put in the record.
Mr. Dingell. I don't object. I just want to know are the
papers, the emails and other things that I have been discussing
with the chair going to be put in the record and are they going
to be made available to us?
Mr. Stearns. Yes, they are.
Mr. Dingell. I want to make sure everybody is treated
alike.
Mr. Stearns. Absolutely.
Mr. Dingell. If the gentleman wants to put something in, I
probably won't object, but I just want to make sure that I am
getting what I----
Mr. Stearns. With that understanding, do you still object?
Mr. Dingell. I don't object.
Mr. Stearns. All right.
Mr. Pompeo. Thank you.
Mr. Stearns. With unanimous consent, so ordered.
[The information follows:]
[GRAPHIC] [TIFF OMITTED] 74404.033
[GRAPHIC] [TIFF OMITTED] 74404.034
[GRAPHIC] [TIFF OMITTED] 74404.035
[GRAPHIC] [TIFF OMITTED] 74404.036
Mr. Pompeo. Thank you. Thank you, Mr. Chairman. Thank you,
Mr. Dingell. Mr. Silver, was DOE aware of these concerns? I
know you weren't there at the time but you said there are
files. Were they aware of the concerns about the pricing of
these cells which were central to Solyndra's ability to repay
the government's money?
Mr. Silver. Well, Solyndra's cylindrical thin film cells
were always more expensive than conventional matters, but the
issue is total cost of ownership and you have to combine the
cost of the cell with the installation, the balance of systems
payments to understand the total cost of ownership. And at that
time and in that place, that was a very competitive
opportunity.
Mr. Pompeo. I understand. You know, you have said you have
gone from 35 to 180 folks or so in your organization.
Mr. Silver. Approximately.
Mr. Pompeo. You said that proudly. It troubles me a great
deal that the Federal Government has an agency that has grown
by almost 6 times. I hope you hired Mark as one of those folks
that you brought on board going from 30 to 180.
Mr. Silver. Actually, we have hired an enormously large and
talented pool of former private sector, public finance experts
and executives, so I think we have built a very good team. And
it was designed simply to exist to put out monies----
Mr. Pompeo. I appreciate that. You talked about this loss
of market share, that we have lost this market share because
these prices have fallen. Isn't that precisely what these
programs are intended to do, to develop products so that the
cost of production will come down and solar can compete with
all of the other great energies in the world?
Mr. Silver. That----
Mr. Pompeo. Shouldn't you be thrilled that the price has
come down? Instead, you act as if it is sad because we lost
half a billion dollars of taxpayer money.
Mr. Silver. No, it is--you are completely correct. It is
our collective effort to try to find innovative technology to
in fact do that. We issued--just as an example, we issued a
different solar manufacturing loan guarantee just recently to a
company whose improvement is a process improvement rather than
a product improvement----
Mr. Pompeo. Right.
Mr. Silver [continuing]. And allows it to cut the cost of
solar panel manufacturing by 50 percent.
Mr. Pompeo. Right. So the globe succeeded in reducing the
price but the American taxpayers lost half a billion dollars by
us trying to pick a particular business that was going to
benefit from that price reduction. Isn't that precisely what
happened here?
Mr. Silver. Well, what is happening is that we are putting
together a portfolio of innovation----
Mr. Pompeo. This was a bad outcome. I have listened. I have
been here for the entire hearing today save for about 2
minutes, and I have heard not a single person stand up and take
any accountability for a single dollar of taxpayer money that
is gone. We ask who made decisions, we asked who was
responsible, and the two of you stand here and point to other
people and take no accountability to the taxpayers in America
and in Kansas for having lost half a billion of their dollars.
And for me, that is unacceptable. I yield back my time, Mr.
Chairman.
Mr. Stearns. The gentleman's time has expired. The
witnesses have indicated a request--personal request of 5-
minute break, so we will recess our subcommittee and come back
at 12:30.
Mr. Silver. Thank you.
Mr. Stearns. And we appreciate your support. I remind all
members we are going to have a second round.
[Recess.]
Mr. Stearns. The Committee on Oversight and Investigation
will reconvene and we will start our second round. And if the
witnesses will have forbearance here, we will try and wrap up
very soon. There are a couple on my side and just I think one
at this side if Mr. Dingell doesn't show up.
I will start with my questions here and I need someone in
counsel here to take care of the clock so that I keep myself on
schedule.
Mr. Silver, I was just going back to when I asked you
questions in the beginning. In response to my question about
Department of Energy conducting due diligence back in 2006, you
testified under oath--we are reading exactly what you said. We
got the exact transcript. ``Actually, I didn't say that it was
conducted in 2006. I said the application was received in 2006
and due diligence began and continued from late 2007 through
2008.'' But this is at odds and opposite with the written
testimony that you submitted to the committee where you state,
``extensive due diligence on the transaction was conducted
between 2006 and the end of 2008.'' Did the ``extensive due
diligence'' that you referred to beginning at the end of 2000,
as you stated in your verbal testimony, or the 2006, as you
submitted in your written testimony? I am giving you an
opportunity to correct it.
Mr. Silver. Thank you. I don't think those statements are
incompatible. The solicitation was issued in 2006 and pre-
applications were received at that time. The Loan Program
Office received 143, began reviews of those----
Mr. Stearns. Do you stand by your written testimony or your
oral testimony?
Mr. Silver. There is due diligence that takes place in
order to ensure eligibility and then there is further due
diligence that takes place in order to----
Mr. Stearns. Well, you said to me that due diligence was
not conducted in 2006 but yet in your written testimony it says
it was. So which is which? Just yes or no. Is it your written
testimony or your oral testimony this morning?
Mr. Silver. Well, it is both, Congressman. There are
certain kinds of----
Mr. Stearns. You can't have due diligence in 2006 because
in one you said it wasn't and the other you said it was.
Mr. Silver. The due diligence done in 2006 was to ensure
the eligibility of the project and----
Mr. Stearns. So it was 2 different types of due diligence
is what you are saying.
Mr. Silver. Yes, sir, exactly.
Mr. Stearns. And what are these 2 different types?
Mr. Silver. Well, the----
Mr. Stearns. Due diligence to me means due diligence. Are
you saying due diligence has two different meanings?
Mr. Silver. I am. Due diligence here--I am exactly saying
that. Due diligence here was to decide whether or not an
application was in fact eligible, and therefore, the due
diligence was around technical and financial issues only. Once
it was deemed eligible, it was--the company was invited to
submit a full application and full due diligence began. That
would include substantially greater kinds of due diligence than
what was done to ensure eligibility.
Mr. Stearns. OK. I certainly give you an opportunity to
correct that.
Mr. Zients, you testified that OMB did ``a thorough
examination and analysis.'' And Mr. Silver, you also testified
that DOE conducted months of rigorous and comprehensive due
diligence and documentation. I think both of you have indicated
that. Is that correct?
Mr. Zients. I assume this is around the credit subsidy?
Mr. Stearns. Well----
Mr. Zients. It is hard to react to that----
Mr. Stearns. OK.
Mr. Zients [continuing]. Out of context. If you give me the
full context----
Mr. Stearns. Yes. Well, the full context is whether
Solyndra itself would be a viable company and that doing this
due diligence we are talking about, both of you had performed
due diligence in that respect. So----
Mr. Zients. Just to be clear, OMB's statutory
responsibilities around FCRA and the credit subsidy----
Mr. Stearns. OK.
Mr. Zients [continuing]. And around the credit subsidy
score, yes, it was a thorough analysis.
Mr. Stearns. OK. So when I am alluding to the fact we had 2
government agencies doing what they are supposed to do under
the law and both of you testified that you did your thorough
analysis, examination, rigorous and comprehensive due diligence
and documentation. So the question I think for me on this
committee and I think for both Democrats and Republicans, this
creates some very serious questions about each of your
abilities to put aside the administration's what appears to
be--and I still stand by this--a political agenda. And you
should have protected the taxpayers and made some forceful
actions here after this analysis because you should have seen
the problems and you should have said taxpayers need to be
protected and this has got to stop. And I think what, in the
larger sense, we are worried about is with this project and
others that are stimulus projects is the comprehensive analysis
done by both your agencies sufficient so the taxpayers can feel
a good deal of comfort that you will protect taxpayers in the
future and we won't see these out-of-control stimulus projects
like Solyndra continue. So that is my basic concern, and I
think anybody that watches this hearing will have the same
concern that you folks did your due diligence, did the
comprehensive, and yet this thing not only went into bankruptcy
but now we have the FBI investigating. And that is what I would
like to move to, Mr. Silver, with you.
You said you are a venture capitalist. This company
Solyndra raised $1.5 billion. As I understand it, roughly a
billion dollars from venture capitalists plus the taxpayers at
half a billion plus the hedge funds came in for $75 million. Is
that correct?
Mr. Silver. Approximately, yes.
Mr. Stearns. OK, approximately. So let us say 1.5 billion,
and they did a burn rate of 1.5 billion in less than 2 years,
is that correct?
Mr. Silver. Not--a burn rate would be the amount of money
they go through per month----
Mr. Stearns. Well, let us say they went through a
significant cash burn, is that a correct statement?
Mr. Silver. Yes, they did.
Mr. Stearns. Now, with all your experience on the private
sector and in hedge funds that you talked about, don't you
think that to look at that kind of cash burn rate would send
some alarms to you and to others at the Department of Energy,
something is seriously wrong here, and you have got to protect
taxpayers?
Mr. Silver. I think you have to put this in context,
Congressman. The company's revenues actually were--grew very
dramatically during this period. They had $6 million of revenue
in 2008. They had $100 million in revenue of 2009, $140 million
in revenue in 2010, and so that is what you would expect a burn
rate----
Mr. Stearns. But even the emails we have shown you said
that they are going to run out of money by September 2011. So I
guess the problem we have is what was Solyndra burning all this
money on? Do you know? Can you tell me today? Of this 1.5
billion, where was it all going?
Mr. Silver. In the most general terms--and I can't give you
dollars and cents sitting here today--but they built this brand
new huge fabrication facility, which was approximately a 700-
and-change-million-dollar facility equipped with advanced-state
robotics. They had a smaller prototype plant if you will called
Fab 1, and they had hired--which was also part of the set of
objectives--they had hired hundreds of additional people. There
were 3,000 people who were involved in the construction of
the----
Mr. Stearns. OK. I will accept what you are saying. I am
just saying with your experience as a venture capitalist, I am
surprised that you didn't see this cash burn rate as a serious
flag----
Mr. Silver. We did, Congressman, and we talked with the
company about it regularly, but I need to underscore something
I said before. As lenders and particularly with lender
liability issues, we are not actually in a position to force a
company----
Mr. Stearns. OK.
Mr. Silver [continuing]. To do anything. So there were
regular----
Mr. Stearns. Let me just close by this question. In your
mind's eye, why did the FBI raid Solyndra?
Mr. Silver. I have no idea, sir.
Mr. Stearns. Was it a surprise to you?
Mr. Silver. Yes.
Mr. Stearns. Was it a surprise to you?
Mr. Zients. Yes.
Mr. Stearns. And all your colleagues have no idea why the
FBI raided it? And you had no advanced warning?
Mr. Silver. I can't speak for all my colleagues but I was
not aware of any investigation.
Mr. Stearns. Do you suspect there is a reason why?
Mr. Silver. I wouldn't even hazard a guess, sir.
Mr. Stearns. OK. My time has expired. The ranking member is
recognized for 5 minutes.
Ms. DeGette. Thank you, Mr. Chairman.
I guess, Mr. Silver, I would ask you what were the main
reasons DOE concluded Solyndra was worth the government's
investment?
Mr. Silver. In 2008 and 2009, as the due diligence was
being done, the price of polysilicon, which is the fundamental
component for building out conventional solar panels, was very
high and had been high for an extended period. It was expected
to remain high. In addition, the cost of installation, as I
have indicated, called balance-of-systems costs for installing
conventional solar paneling is very expensive. That is because
the panels themselves are flat, they need to penetrate the
roof, there are air uplift issues and the like. The cylindrical
thin film technology obviates all of that, and while the
cylinders themselves are more expensive than the panels, the
total cost of ownership, particularly absent the price of the
expensive polysilicon was very attractive.
Ms. DeGette. So what happened in the market or with
technology that caused those 2 things to not pan out basically?
Mr. Silver. Well, a number of different things. First, the
price of poly silicon actually came down more dramatically than
expected as plants came on quickly to ramp up production. China
began flooding the world market with increasingly inexpensive
conventional solar panels because, as we have discussed
earlier, the Chinese Government through both the China
Development Bank and other smaller banks has provided multiple
tens of billions of dollars of credit and credit subsidies plus
other forms of support to their solar manufacturing industry.
In addition, other countries have become actively involved in
supporting those areas as well. So all of that drove the price
curve down in a very significant fashion.
Ms. DeGette. And here is my question. Why didn't DOE
predict those events?
Mr. Silver. I think we did understand that there were
challenges in the marketplace. The fundamental responsibility
and objective of this program is to identify innovative
technologies that can be built out at scale and therefore
leapfrog the traditional price curves that these technologies
are on. But if the slope of the curve is more dramatic than
anticipated, you will have this kind of event.
Ms. DeGette. So you did predict it in a way but you didn't
think it would be this dramatic or what?
Mr. Silver. Well, we have--as you know, we have a large
number of solar experts and solar industry experts at the
Department. In addition, on this particular project, a number
of different analysts and independent advisors were brought on
board to analyze this as well.
Ms. DeGette. Do you think there are things DOE could have
done to prevent really this whole debacle with the Solyndra
loan? Was there more due diligence that could have been done?
Was it rushed too fast to approval? What could have been done?
Mr. Silver. It clearly wasn't rushed too fast because there
were several years of due diligence that went on. There are
always going to be changes and shifts in market dynamics. I
remind the committee that the loan which was to build out the
plant actually built out the plant on time and on budget and at
the same time revenues were dramatically increasing. There was
a significant--as I--again, I--there was a significant customer
base as well. But I guess the fundamental challenge is to
ensure that we are doing everything we can to de-risk these
projects, and that is why we build in--the terms and conditions
of these things are, you know, dozens and dozens and dozens of
pages long to do everything we can to de-risk these projects.
Ms. DeGette. So you don't think there is anything else that
could have been done here? Is that your bottom line?
Mr. Silver. By the time of the restructuring, the plant was
built but had not been fitted out, and so one might
conceivably, you know, have identified a different plant
configuration. But again, I hesitate to second-guess because it
is the private sector that brought this project forward. I want
to remind the committee----
Ms. DeGette. Yes. I don't have much time left. Mr. Zients,
what is your opinion? Is there anything we could have done to
predict this or to stop this?
Mr. Zients. Well, I think it is the nature of backing
innovative technologies, that there are technology risks in
some situations, market risks--we are competing in a global
market so I think the lesson learned here is that marketplaces
can change even more rapidly than one would have anticipated in
terms of the cost curve that we talked about before. I don't
think anyone would have thought that the cost could decrease
and the price could decrease so dramatically. Going forward, we
need to make sure that we understand those types of market
shifts can occur.
Ms. DeGette. Thank you.
Mr. Chairman, I just want to reiterate my request for
unanimous consent that the documents that have been referred to
in the hearing today by the members be included in the record.
And in addition, there is a document that I have which I think
would help complete the record. It is the Credit Committee
paper request for loan guarantee approval dated March 11, 2009.
And I think that would help answer some of the follow-up
questions about what happened after this January 9 meeting. My
only one concern is at the top of this document it does say
``restricted distribution, privileged business information,''
and as I flip through it, it does look like there might be
business information. So the caveat I would have is to look and
see if there is privileged business information in here before
we make the whole thing part of the record.
Mr. Stearns. OK. By unanimous consent, so ordered.
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Mr. Stearns. And also we want to put our supplemental
report by unanimous consent also.
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Ms. DeGette. Thank you.
Mr. Stearns. With that, we will move to Mr. Griffith. The
gentleman from Virginia is recognized for 5 minutes.
Mr. Griffith. Thank you, Mr. Chairman.
Mr. Silver, we talked earlier about other companies in
similar circumstances, and I am not sure that I asked the
question on observers. I asked others that had been
subordinated, whether the taxpayers' money had been
subordinated. Are there observers on any other boards as a part
of this Loan Guarantee Program?
Mr. Silver. No, sir. Nor would there typically be.
Mr. Griffith. And in regard to the observer, I am
concerned. You indicated to me that they told you that
bankruptcy was most likely by the end of July. Is that not what
you told me earlier?
Mr. Silver. That the company was, you know, facing imminent
troubles. I don't know that I would describe it as bankruptcy
because, of course----
Mr. Griffith. Because I asked bankruptcy before and you
said end of July.
Mr. Silver. Well, they were clearly having financial
troubles again and we are going to need to figure out what to
do or would face a bankruptcy.
Mr. Griffith. All right. Because that raises a real concern
for me that I think every member of this committee is concerned
about. Apparently they--not you all--Solyndra was here on
Capitol Hill speaking to Members of Congress indicating
everything was on track at the same time that your observer was
telling you all that there was a problem. Again, I am not
saying that you all knew they were up here telling fibs, but I
am concerned that they were up here telling fibs. That being
said, what was your observer's role, because clearly they were
in trouble, and what recommendations did he make to you all and
did you all send word through him to the board on what they
should do to protect the taxpayer dollars?
Mr. Silver. Well, first, Congressman, in this particular
case, the observer is a woman----
Mr. Griffith. Thank you.
Mr. Silver [continuing]. But what she did--and she is also
the head of our portfolio management group and a career civil
servant who ran that express function at the Export Import Bank
for many, many years. She is a highly----
Mr. Griffith. OK.
Mr. Silver [continuing]. Highly achieved----
Mr. Griffith. She is a great lady.
Mr. Silver. Great lady.
Mr. Griffith. I am not going to dispute that. What did she
say we should do? Did she give you all advice on what should be
done? Did she take messages back to the board saying we want to
protect the taxpayer dollars? I mean they laid off all the
employees. Why couldn't they have laid off half--those kind of
questions. Was that going on?
Mr. Silver. Yes, on a regular basis.
Mr. Griffith. And can you provide us some kind of written
documentation as to what was going on and what steps were being
taken to try to protect the taxpayers' dollars once you learned
that even after the restructuring, this company was going to
fail or was likely to fail?
Mr. Silver. I don't know if there are any documents
specifically related to that, but I do know that we have now
turned over, as I said, close to----
Mr. Griffith. I understand. I am asking you if you can----
Mr. Silver. I don't think there are any other documents. I
mean I think we have----
Mr. Griffith. I am asking you to create a document. Can
somebody give us something in writing as to what was being done
from July until the announcement that they were going bankrupt
to try to protect the taxpayers' dollars?
Mr. Silver. We can certainly work with you on that, yes.
Mr. Griffith. All right. Thank you. And all the problems
that you cite regarding Solyndra with maybe the exception of
the cost of the polysilicon--I apologize if I got that wrong--
dealing with the competition from China and the economic
instability in Europe and so forth where they buy more of these
things, on the other loans that you have, are those pressures
not also present?
Mr. Silver. Well, as I said, the vast majority of our
portfolio----
Mr. Griffith. Or production. I am talking about the 4
manufacturing.
Mr. Silver. They are to a certain degree. The project that
I made reference to earlier actually is a process project
rather than a product product. So it produces a standard
conventional panel, but it does it in a much more cost-
effective way with about half the use of materials and about
half the time. So it is a bit of a different configuration.
Mr. Griffith. So how much money do we have--that we have
guaranteed a loan for that company?
Mr. Silver. I think--I will have to check the exact number
but it is about $135 million.
Mr. Griffith. OK. So we gave 535 to the company that is
riskier and 135 to one. And are they doing well?
Mr. Silver. So far. Again, these projects are only now just
beginning construction most of them.
Mr. Griffith. Will you tell us if these companies start to
have problems so that we can anticipate this and try to figure
out what we need to do as the folks who are ultimately
responsible for the spending of the taxpayers' money?
Mr. Silver. Happy to work with you on that, sir.
Mr. Griffith. All right. And then, you know, we act like
sometimes--and I know there is no perfect world and maybe one
guy or one gal got it right, but we act like, you know, we
didn't see this coming and yet, you know, there are indications
that somebody on your team--and I know you weren't there at the
time the loan was made, but somebody on your team had it
figured out and I am just wondering what steps have you taken
knowing that someone on your team raised a concern that the
models wouldn't work. What steps are you taking to make sure
that even it is a minority viewpoint, when it comes to spending
half a billion dollars of the taxpayers' money, that maybe you
will pay attention to every warning sign.
Mr. Silver. Well, as a matter of practice, with every
transaction we do, we run a series of sensitivity analyses
which change variables in the assumptions and therefore----
Mr. Griffith. Is that different now than it was in August
of 2009 when somebody raised the warning flag and nobody seemed
to pay attention?
Mr. Silver. I don't know for sure but I doubt it. I doubt
that it was different. I mean it----
Mr. Griffith. You are using the same model?
Mr. Silver. It is standard practice to run sensitivity
analyses.
Mr. Griffith. And now that we have had this hearing, are
you going to go back and take a look at it and see if you can
come up with a better-tuned or finer-tuned model?
Mr. Silver. We will continue to work with OMB to improve
the models, yes.
Mr. Griffith. All right. I yield back my time.
Mr. Stearns. The gentleman yields back his time and the
gentleman emeritus of the Energy and Commerce Committee is
recognized for 5 minutes, Mr. Dingell of Michigan.
Mr. Dingell. Mr. Chairman, I thank you for your courtesy.
I got a few little questions here to ask. I have been
looking sort of at how these events occurred and perhaps, Mr.
Silver, you could help me with this. On January 9, Solyndra
transaction was reviewed by a DOE Credit Committee and remanded
for further analysis, right?
Mr. Silver. Yes, sir.
Mr. Dingell. It was not rejected.
Mr. Silver. I am sorry?
Mr. Dingell. It was not rejected. It just----
Mr. Silver. It was not formally rejected. It was remanded
back.
Mr. Dingell. OK. Then, on the 15th of January, loan program
staff notified DOE Credit Review Board that it had developed a
schedule to complete Solyndra due diligence that would bring
the project to approval in early March 2009 and final closing
by early to mid-April 2009, is that right?
Mr. Silver. I think that was the original projection.
Mr. Dingell. OK. Then, Obama came into office on January
20, 2009, 5 days later. So then, if I look here I see on
February, March 2009, DOE continues to negotiate terms and
conditions with Solyndra, is that right?
Mr. Silver. I believe so, yes, sir.
Mr. Dingell. OK. And then on March 12, DOE Credit Committee
considers and approves Solyndra transaction. Is that right?
Mr. Silver. Yes, a recommendation for----
Mr. Dingell. Who was on that Credit Committee?
Mr. Silver. I would have to get you the specific names but
it is the same group----
Mr. Dingell. Please.
Mr. Silver [continuing]. Of career professionals that were
on the first committee.
Mr. Dingell. No political appointees?
Mr. Silver. No political appointees, no, sir.
Mr. Dingell. All right. So then, on the 20th of March, DOE
issued a conditional commitment to Solyndra, is that right?
Mr. Silver. That is correct.
Mr. Dingell. Now, what were the conditions in that
conditional commitment?
Mr. Silver. Well, there were a number of them. Conditions
precedent are simply things that company, the applicant, needs
to do in order to complete its responsibilities before we can
close.
Mr. Dingell. And what you say is if you do those things, we
will make----
Mr. Silver. Right. Among them, for example, was the raise
of an additional several hundred million dollars of capital,
which they did. And during the time they were doing their CP
work, we were continuing to do additional due diligence. It is
important to remember that due diligence continues post-
conditional commitment all the way to final close.
Mr. Dingell. OK. Now, then, on the 27th of April,
independent market consultant report was submitted, is that
right?
Mr. Silver. I believe so, yes.
Mr. Dingell. Now, what did that report contain?
Mr. Silver. Well, the market--and independent market report
generally describes the market for the product, examines the
competitive landscape, looks at relative cost attributes, and
the kind of classic documentation you would describe around
that.
Mr. Dingell. OK. Now, my colleagues on the other side of
the aisle appear to be of the view that at some point, the
Department of Energy denied the loan to Solyndra on January 9
of 2009. Now, isn't it true that at that time the Department's
Credit Review Board simply asked for further information and
did not reject the request?
Mr. Silver. The Credit Committee, sir, not the Credit
Review Board. But yes, the Credit Committee.
Mr. Dingell. OK. And then in your comments you have
indicated shortly after the request for more information, the
Loan Program Office outlined a timeline to complete the due
diligence on the Solyndra request. Is that right?
Mr. Silver. Yes, sir.
Mr. Dingell. When did that occur? What date or
approximately what time?
Mr. Silver. I don't know the exact date but they came back
rather quickly and said we will be in a position to bring this
back some time in the March time frame.
Mr. Dingell. OK. Now, when was that timeline developed?
Before or after President Obama came into office?
Mr. Silver. Before the Obama administration took office.
Mr. Dingell. It was, OK. So what I am seeing here, then,
this was followed up by the bankruptcy of Solyndra. When was
that bankruptcy filed?
Mr. Silver. I don't know the specific date but sometime in
early September.
Mr. Dingell. All right. Now----
Mr. Stearns. The gentleman--it is September 6 of this year
is the bankruptcy.
Mr. Dingell. Thank you, Mr. Chairman. I would note that the
bankruptcy, though, is not complete. It is going to throw
Solyndra into reorganization. Is that right?
Mr. Silver. I believe so.
Mr. Dingell. So the end result of that will be that the
United States will be a creditor, right?
Mr. Silver. I am sorry, will be what?
Mr. Dingell. The United States will be a creditor?
Mr. Silver. A creditor, yes. I am sorry. Um-hum.
Mr. Dingell. And now, the practical result of that is that,
first of all, we have done things to get ourselves in a
position where we see that Solyndra had a chance, at least
during this, to provide jobs, put forward a new technology in
the United States. Is that right?
Mr. Silver. Yes, sir. The value--the analysis that produced
the going concern valuation suggested that it was a 2 to 4x
greater recovery likely to the taxpayer than a liquidation
analysis.
Mr. Dingell. OK. And during that time, the buildings and so
forth were completed?
Mr. Silver. Yes.
Mr. Dingell. Is that right? And I want to thank you, Mr.
Chairman, for your courtesy here, but I just got just a couple
more small questions.
I would note that the government's chance of recovery from
that reorganization are better both in amount and certainty
than if we had seen Solyndra go into bankruptcy earlier, is
that right?
Mr. Silver. We expect so. We will have to see what happens
actually in the bankruptcy process, but we have a completed and
operating plant fully fitted out, inventory and all kinds of
things that did not exist during the first restructuring.
Mr. Dingell. Very good.
Mr. Chairman, you are very kind. Thank you for your
courtesy.
Mr. Stearns. The gentleman's time has expired. Then we
recognize the gentleman from Texas, Dr. Burgess, for 5 minutes.
Mr. Burgess. Thank you, Mr. Chairman.
Gentlemen, I appreciate your perseverance and endurance in
the hearing today.
This morning's Washington Post references an email exchange
between an assistant to Rahm Emanuel, then the White House
Chief of Staff, August 31 of 2009, to the Office of Management
and Budget about the upcoming announcement where we talked
about this before. This was the groundbreaking where Secretary
Chu was going to be at the company on September 4 and Vice
President Biden was going to appear by satellite. And this
staffer was concerned about the upcoming Biden announcement on
Solyndra and asked whether there is anything we can do to help
speed along the OMB side? And an OMB staffer responded, ``I
would prefer this announcement be postponed. This is the first
loan guarantee that we should have full review with all hands
on deck and make sure we get it right.'' I mean that seems
pretty reasonable from OMB.
Now, when the OMB staff briefed committee staff last
spring, well, there was, as you know, quite a lot of difficulty
in getting any of these documents to the committee staff from
OMB. It took 4 months to get any emails or communications in
reviewing Solyndra's loan guarantee. And in fact this committee
in July had a business meeting to subpoena those documents
because we were having no success in acquiring those. And now
we have them and we see that the White House scheduled
announcement date before the OMB even began reviewing the deal
in August 2009, we also see that OMB was aware that the
groundbreaking event and it felt time pressures to do their
work possibly resulting in the use of a wrong financial model.
Is this why the committee had to subpoena the documents? Was
there something here that you didn't want us to see?
Mr. Zients. Can I see the email that you are referring to?
Mr. Burgess. Well, actually, it is a Washington Post
article from this morning, but I am sure we have the same
emails in the document binder that can be provided.
Ms. DeGette. Mr. Chairman, give him the email.
Mr. Stearns. Gentlemen, continue. The gentleman has the
time.
Mr. Burgess. Well, they are looking for the emails and we
will come back to that. Let me just ask for both of you, would
you be able to provide to this committee, not today but get
back to us and provide the names to the committee of every
career and political appointee at both Department of Energy and
Office of Management and Budget and the West Wing who worked on
the project or inquired about the project and provide access to
committee staff to any of those individuals that the committee
believes is necessary to question for this investigation.
Mr. Zients. OMB has been cooperating with the committee----
Mr. Burgess. Sir, we subpoenaed the documents in July. You
can't characterize that as cooperation.
Mr. Zients. A few days before the subpoena, which we
thought was unnecessary, we turned over----
Mr. Burgess. Unnecessary? We had this hearing----
Mr. Zients [continuing]. 1,000 pages----
Mr. Burgess [continuing]. And your chair was empty in July.
Your chair was empty. There was no one there. No one responded.
Mr. Zients. Well, as to that, I was given less than 4 days'
notice. I had a personal reason why I could not be here. I
expressed to Chairman Stearns directly on the telephone that I
was willing to come if there could have been an alternative
time. The decision was made there was no alternative time but I
want to be clear that I was willing to come to the committee as
long as I had either sufficient notice----
Mr. Burgess. In the sense of time, I mean this has been
going on for a long time.
Mr. Zients. So in----
Mr. Burgess. And here is the thing that is really
concerning a lot of us. Had you responded to the committee
staff, had you responded to the committee's request, could we
perhaps have preserved some of those taxpayer dollars that have
now been lost in a bankruptcy proceeding and subordinated to a
venture capital firm?
Mr. Zients. Prior to----
Mr. Burgess. Had there been cooperation from your office,
would this loss to the taxpayer have been as great?
Mr. Zients. Prior to the subpoena, which I believe was mid-
July, OMB worked with committee staff, turned over 1,000 pages
of documents, did numerous meetings. Since mid-July OMB has
turned over over 9,000 pages of documents. There have been----
Mr. Burgess. Yes, sir, I have got to interrupt you because
I am going to run out of time. That letter was in March and it
took a long time to get anything back.
Mr. Zients. I am sorry?
Mr. Burgess. I have a couple of things--and you have gotten
now the emails. I am going to ask you to take those and we will
get you the question in writing, and I would appreciate a
response to that question----
Mr. Zients. I am sorry, can you repeat the question?
Mr. Burgess. Well, I am going to submit the question to you
in writing regarding those emails so we are all clear about
what we are asking and what we are answering. And then I also
have a memo from October 25 of 2010 to the President from Carol
Browner, Ron Klain, and Larry Summers. And I have a series of
questions that I want to ask you about this memo as well, and
because of time constraints, obviously, I can't get to them. We
will provide you this memo and we will provide you the
questions. And I would appreciate a timely response to those
interrogatories. Thank you.
Mr. Zients. Thank you.
Mr. Burgess. And I will yield back, Mr. Chairman.
Mr. Stearns. The gentleman yields back.
Mr. Scalise is recognized for 5 minutes.
Mr. Scalise. Thank you, Mr. Chairman.
I want to ask Mr. Zients--is that the proper way to say it?
I want to get that right.
Mr. Zients. Thank you.
Mr. Scalise. Sure. You were at OMB throughout this whole
process with Solyndra from when they got the original loan?
Mr. Zients. No.
Mr. Scalise. When did you come into OMB?
Mr. Zients. When I came into OMB I was confirmed by the
Senate in late June of 2009. So the conditional commitment
period, the earlier administration period I was not at OMB.
Mr. Scalise. And when was the loan to Solyndra finalized?
Mr. Zients. In September so I was there----
Mr. Scalise. So you were there at OMB----
Mr. Zients. I was at OMB at the time. I was not----
Mr. Scalise. At the time that Solyndra first got the loan,
first was approved----
Mr. Zients. When it closed, yes.
Mr. Scalise [continuing]. For and got the loan.
Mr. Zients. When it closed.
Mr. Scalise. Following up on some of the questions that Dr.
Burgess had----
Mr. Zients. Just to clarify, I was not personally involved
in----
Mr. Scalise. Well, and these are the questions that I am
going to ask you about because there is involvement between OMB
and the Department of Energy and the White House, and what we
have been trying to establish is just exactly what was that
relationship between OMB, the Department of Energy, and the
White House relating to the Solyndra loan? And of course, we
did start asking for this information months ago. Prior to the
restructuring--and your office was not complying and getting us
some of the information we were requesting to the point we did
have to subpoena. And there is a timeline issue that a lot of
us have concerns with, too, because if we were able to stop the
restructuring from happening, for example, then the taxpayers
would not have been pushed in the back of the line to where now
they are subordinated in bankruptcy----
Mr. Zients. Just so we have our timelines correct, I
believe that the restructuring was completed in February.
Mr. Scalise. And our staff started asking for some of this
documentation prior to that time.
Mr. Zients. Is that--that is not my understanding.
Mr. Scalise. That is the timeline I have. But regardless of
that, I want to get to some of these specific emails because
these emails span throughout the entire length of the Solyndra
loan and restructuring, and it seems to indicate a pattern.
Starting going back in Slide 7 if we can put that up and that
way you can see it--and by the way, these emails were all
provided to the minority as soon as we got them. So everybody
had access to these emails on this committee and subcommittee.
Ms. DeGette. Does the witness have these emails that Mr.
Scalise is referring to?
Mr. Scalise. I think they just gave him these emails. Some
of these came from----
Mr. Zients. I don't think that----
Mr. Scalise [continuing]. His own agency, of course. Some
of these are from OMB.
Mr. Zients. Talking about specific emails, I agree with the
Congresswoman----
Mr. Scalise. Well, and I want to ask you a question about
this email. I think it does show though--what I want to do is
show that there was a pattern of expediency, of rushing----
Ms. DeGette. Does the witness have this email?
Mr. Stearns. Point of order? What is your point of order?
Mr. Zients. I do--if I am going to respond to an email, I
need to make sure I have it.
Mr. Stearns. Does Mr. Zients have that?
Mr. Scalise. Mr. Chairman, is the clock still running? If
we can just get the clock to stop while----
Mr. Stearns. Well, we gave you about 2 minutes before you
even started the clock, so you are well into it. But now the
witness has the emails, is that correct?
Mr. Zients. I am going to need to absorb this. What he has
just handed me is not what is on the screen. I can look through
and see----
Mr. Scalise. Page 7, I will read the quote. ``In
congressional testimony''--and by the way this is congressional
testimony. This isn't some email that we just got. This was
testimony going back to March of 2009, a senior Department of
Energy official said that Secretary Chu ``has directed us to
accelerate the process significantly'' talking about the loan
process. And I will go to some OMB emails. Of course, on page 9
on Slide 9----
Mr. Zients. The email I have in front of me to the best of
my knowledge--and again, I wasn't actually in seat on March 17,
2009, but to the best of my knowledge doesn't have any OMB
people on it, so it is very difficult----
Mr. Scalise. Right, but there is a March of 2009 email on
Slide 9, ``this deal is not ready for prime time.'' Go to the
next slide. ``Given the time pressure we are under to sign off
on Solyndra, we don't have time to change the model''--that is
an OMB staff email from August of 2009 after you came on board.
Another quote from that same email, ``but we also need to make
sure they don't jam us on later deals so there is a time to
negotiate those, too.'' Next page----
Mr. Zients. So----
Mr. Scalise [continuing]. More OMB emails. And I will ask
if I want to get all of these into record. Again, they are
available to both committee staffs. ``If there is anything we
can help speed along on the OMB side''----
Mr. Zients. If I am going to respond, then I need to--we
need to as we go case by case, I need to understand what email
you are referring to, I need to have that email in front of
me----
Mr. Scalise. Sure. There is a communication on Slide 11,
for example, August 31, 2009, the special assistant noted the
Vice President's announcement at Solyndra on September 4 and
whether ``there is anything we can help speed along on OMB
side.'' So were you involved? And forget about the emails. Were
you involved in any communications with the White House to push
the Department of Energy to speed this thing along?
Mr. Zients. No.
Mr. Scalise. You were not?
Mr. Zients. No.
Mr. Scalise. Were you aware that anyone else at OMB was
involved----
Mr. Zients. I am now aware in my preparation for the
hearing that there was a request from the Vice President's
office about scheduling logistics for a potential event. This
again has nothing to do with the decision to give the loan or
not give the loan to the company. This process has to do with
OMB's statutory responsibility to determine the right credit
subsidy. The right--the credit subsidy was actually increased
during----
Mr. Scalise. Well, then I don't know if that was credit
subsidies. I will go to Slide 12 because this is specifically
an OMB email and I will read it and you can look at it.
Mr. Zients. Well, OMB----
Mr. Scalise. This is an OMB email that specifically talks
about the approval. ``We have ended up with a situation of
having to do rushed approvals on a couple of occasions, and we
are worried about Solyndra at the end of the week. We would
prefer to have sufficient time to do our due diligence reviews
and have the approval set the date for the announcement rather
than the other way around.'' This was a communication between
OMB and Terrell McSweeny at the office of the Vice President.
Mr. Zients. This does have to do with the credit subsidy
score. This does not have to do with the yes/no on the loan.
This has to do with the credit subsidy score. As I mentioned
before, the credit subsidy score was actually increased----
Mr. Scalise. Right. And so the question, then--and I am
almost out of time----
Mr. Zients. Let me just say one thing.
Mr. Scalise. There is clear----
Mr. Zients. In my preparation for this hearing----
Mr. Scalise [continuing]. Communication between OMB and the
White House and Department of Energy regarding all this,
whether it was just about a ribbon cutting, but I think it
shows that crony capitalism is running amok relating to this
program. And I think this is a classic example. And there was a
PricewaterhouseCoopers study that was done back in 2010. USA
Today writes about it in an article, in an editorial today when
they talk about PricewaterhouseCoopers saying there is
substantial doubt about its ability to continue going as a
concern, Solyndra. And so this was over a year ago they
reported a serious concern about Solyndra going forward and
obviously----
Mr. Zients. That is----
Mr. Scalise [continuing]. That was pushed back from the
administration somewhere to push this thing along.
Mr. Zients. I am sorry. The chronology of events is not
consistent. You are asking about a period of time in August/
September of 2009. You are now referencing----
Mr. Scalise. I am going throughout the whole process. I am
not just focusing----
Mr. Zients. You are now referencing----
Mr. Scalise [continuing]. On one area because there was a
loan, there was a restructuring. There has continued to be----
Mr. Zients. To respond to your question about----
Mr. Scalise [continuing]. Advancements of plenty and yet
there were warning signs at every level, and yet it seems like
crony capitalism was trumping the smart decision-making process
and due diligence that should have been going on and a lot of
these emails show that out to be the case. And yet $535 million
of taxpayer money are now at risk. And so I hope you can
understand and maybe you weren't directly involved but somebody
at your agency was----
Mr. Stearns. The gentleman's time has expired.
Mr. Scalise [continuing]. In that chain. I yield back.
Mr. Stearns. The gentleman from--Mr. Griffith is recognized
for 5 minutes. Oh, Mr. Markey. Mr. Markey, do you wish to ask
questions in the second round? Yes, I mean you are up if you
want to go right now.
Mr. Markey. May I reserve this time?
Mr. Stearns. OK. You can reserve, yes. Mr. Griffith from
Virginia is recognized for 5 minutes.
Mr. Griffith. Mr. Chairman, I already had a second round. I
am glad to take a third round.
Mr. Stearns. OK. Then we can go to the gentleman who is not
on the subcommittee but he is on the full committee, the
gentleman from Kansas is recognized for 5 minutes.
Mr. Pompeo. Thank you, Mr. Chairman.
Mr. Zients, following up on Representative Scalise, were
you not aware that the staff was being jammed, that they were
being rushed? Were you at any time aware that they were being
hurried and that they felt hurried or were you just oblivious
to that?
Mr. Zients. What period of time are we talking about?
Mr. Pompeo. At any. How about we will start at any----
Mr. Zients. No.
Mr. Pompeo [continuing]. Period of time.
Mr. Zients. So I was not involved so I would not have been
aware at the time. In my preparation for this hearing----
Mr. Pompeo. Um-hum.
Mr. Zients [continuing]. I talked to OMB staff, and again,
what we are talking about here is the credit subsidy.
Mr. Pompeo. I understand.
Mr. Zients. And on the credit subsidy, the OMB staff has
presented to me that they had no hesitation as to the final
decision, and the final decision of the credit subsidy actually
increased the credit subsidy----
Mr. Pompeo. Right.
Mr. Zients [continuing]. Which made it more conservative.
Mr. Pompeo. Right, they could still have been wrong because
they were hurried. Do you think these emails, they were just
wrong, they were making this stuff, they weren't hurried? When
they----
Mr. Zients. At the end of the day, the OMB career staff,
which has deep expertise in credit scoring, felt comfortable--
--
Mr. Pompeo. Yes.
Mr. Zients [continuing]. With the credit subsidy score.
Mr. Pompeo. That expertise is very apparent in a half a
billion dollars being lost by the American taxpayer. It is
readily apparent to us.
Mr. Zients, there is a January 4 memorandum I want to just
read to you. It is an OMB memorandum prepared by the OMB staff.
It says, ``even under DOE's proposed restructuring, we are
skeptical about the long-term viability of the company.
Bankruptcy or default are real possibilities and Solyndra's
product is priced at a premium in the market with rapidly
declining prices and the company's cost structure does not
cover operating margins. It is not clear that Solyndra would be
able to achieve the scale and efficiency improvements necessary
to improve margins.'' This was during the restructuring time.
Why did OMB not stop the restructuring from going forward?
Mr. Zients. OMB----
Mr. Pompeo. Or recommend that?
Mr. Zients. OMB pressure-tested DOE's analysis. OMB
determined that the company was in imminent default, and then
OMB determined that DOE's recommendation that the company be
restructured was preferable to liquidation, that that was a
reasonable outcome that DOE had reached.
Mr. Pompeo. Would you please provide the witness, there is
a series of emails in and around that same time, January 4,
2011, one of them at 2:08 p.m.? Can you just make sure he has
got a copy of that? Thank you.
I will summarize but this is an email chain where it is
very clear that the data are suggesting to staff at this moment
in time that liquidation will cost the taxpayers a lower loss
than will restructuring. Do you see, it says liquidation--it is
underlined, it has got some analysis for expected recovery, and
then it shows ``restructured, expected loss.'' The difference
under bankruptcy at the time they expected losses estimated by
this person on your staff to be $141 million, and it says if we
do the restructuring, your staff says it will be about $385
million loss. Do you see what I am referring to there?
Mr. Zients. Yes. I am not on this email chain but----
Mr. Pompeo. No, sir, you are not, but they work for you.
Mr. Zients. I am sorry?
Mr. Pompeo. You are not on the chain but they work for you.
Mr. Zients. Right. So, you know, our staff is obviously
pressure-testing and understanding an evolving situation, the
restructuring was actually done in February----
Mr. Pompeo. Right.
Mr. Zients [continuing]. Off of DOE's recommendation. OMB
decided that that was reasonable. At this point in time, there
was information that the staff was looking at. The information
obviously evolved across that period of time. As OMB got more
information, the DOE made its final recommendation. OMB
determined that DOE's recommendation was reasonable to
restructure the loan.
Mr. Pompeo. Can you show me that evolution because there is
no evidence in the documents I have reviewed of any evolution.
This is what your agency though on January 4 of 2011, and I
have seen no data that would suggest there was an evolution
other than your testimony here this morning.
Mr. Zients. Well, first of all, this is an email from one
analyst----
Mr. Pompeo. Multiple emails.
Mr. Zients. I would not represent----
Mr. Pompeo. Read the whole----
Mr. Zients [continuing]. That that is to what the agency--
--
Mr. Pompeo. Read the whole chain, sir. These folks think
this is a horrible idea to go forward with this restructuring.
They think the taxpayers will lose. And these are the only
government officials in the entire process that seem to me to
have demonstrated to have concern for taxpayer finances.
Mr. Zients. OMB's role here is to make sure that this
budgeted for correctly. Ultimately, DOE has--is ultimately
responsible for the decision as to whether or not to
restructure or liquidate.
Mr. Pompeo. Yes.
Mr. Zients. OMB determined that that was a reasonable
conclusion.
Mr. Pompeo. Do you think it was a reasonable conclusion
today, sitting here today? Do you think it was a reasonable
conclusion?
Mr. Zients. It is unclear----
Mr. Pompeo. Well, what is your opinion, sir? Do you think
it was a reasonable conclusion?
Mr. Zients. To restructure the loan when it does?
Mr. Pompeo. Um-hum.
Mr. Zients. I think that there is reason to believe that
that was reasonable at that point in time.
Mr. Pompeo. Reason to believe it was reasonable and you are
not a lawyer? I mean an answer like that----
Mr. Zients. It was a reasonable conclusion at that point in
time.
Mr. Pompeo. Mr. Silver, do you think it was a reasonable
conclusion to do the restructuring at this time?
Mr. Silver. Yes, I do, Congressman. We did a detailed
liquidation analysis, which suggested that the returns would be
2 to 4x below what they would be as a going concern. And to do
that, we evaluated the price of the buildings and the land. We
also evaluated the value of inventory on a going concern basis.
What you do on a going concern basis, just to be clear, is you
match it with what are called IBA----
Mr. Pompeo. I am very familiar with that----
Mr. Silver. So you use--and since you are, you will know
that we scour the market for comparables. We took the low end
of the comparables, and then we measured that against the
liquidation.
Mr. Pompeo. So you were just wrong? But you still believe
you might be right because----
Mr. Silver. Well, you don't know what will happen----
Mr. Pompeo. Right. So what do you think? Do you think we
did a good deal?
Mr. Silver. I think that when you are called on to make a
judgment at the time with the best available information you
have, you go with the probabilistic return.
Mr. Pompeo. Right. And so you think it was realistic to
subordinate the taxpayer at that time as well as part of that
restructuring?
Mr. Silver. Every piece of data that we had from
independent analysts about the technology at that time--which
we re-underwrote the technology and the market space. We had
another market report done--all seemed to suggest that that
could happen.
Mr. Pompeo. I appreciate it. I just want to ask one more
question. My time is up. I have listened to you for several
hours now, just yes or no, do you both just treat this as just
the normal cost of doing business? Is that how you think this
failure at Solyndra--you just think this was the normal cost of
doing business? You talk about portfolio theory, this stuff
happens, bad things happen. Would you both just say yes or no?
This is just the way things go? Yes or no.
Mr. Silver. I think that while it is very regrettable, the
loss was anticipated and when Congress set out the credit--
appropriated credit subsidy----
Mr. Pompeo. You think it is very normal. Mr. Zients?
Mr. Zients. It is not normal. It is a very disappointing
outcome, but it comes with the terrain of backing innovative
technologies.
Mr. Pompeo. Yes, it is part of what happens when the
government gets involved in things like this. I agree.
Mr. Silver. Well, it is also what is required in order to
compete successfully with what is happening around the world,
particularly in China.
Mr. Pompeo. Solyndra certainly wasn't capable of competing
even in spite of all of this government assistance, were they?
Mr. Stearns. The gentleman's time has expired.
Mr. Pompeo. Thank you. Thank you, Mr. Chairman.
Mr. Stearns. I think we are ready to close----
Mr. Markey. Mr. Chairman?
Mr. Stearns. --end the committee unless the gentleman from
Massachusetts wishes to participate in the second round.
Mr. Markey. Mr. Chairman? Mr. Chairman.
Mr. Stearns. Oh, Mr. Bilbray, too. So Mr. Bilbray, you will
be after the gentleman from Massachusetts. We have recognized
Mr. Markey for 5 minutes.
Mr. Markey. Thank you, Mr. Chairman.
I have to compliment my Republican colleagues on their
discipline, but after weighing these relentless and very
serious allegations of lawbreaking and inappropriate
politicization of the loan guarantee process, I am unconvinced.
Three years of due diligence was exercised in considering this
application. OMB completed their review process, albeit in
expedited manner due to the nature of a Recovery Act that
needed to get money out the door as quickly as possible. I
would add that the chairman of the subcommittee and the full
committee expressed a need to get Recovery Act money out the
door quickly after that law was passed.
Mr. Silver, do you believe that the Department cut corners
in considering this loan guarantee in the months and years
leading up to its finalization in September of 2009?
Mr. Silver. Again, with a review of the record--I wasn't
there, but with a review of the record, no, I don't believe so.
Mr. Markey. Mr. Zients, was OMB able to do and exercise
their oversight role to complete a comprehensive review of the
Department of Energy's loan package to Solyndra?
Mr. Zients. Yes. My belief is yes.
Mr. Markey. When you pulled thousands of pages of emails,
can you tell whatever story you would like when you look back
retrospectively? You know, we live life forwards but we
understand it backwards. Is it possible to----
Mr. Silver. I believe that----
Mr. Markey [continuing]. Create any storyline?
Mr. Silver. I believe that can happen, yes, sir.
Mr. Markey. The majority has chosen to politicize this
program and it is attempting to discredit clean energy the same
way they have tried to do to climate science. It is that
simple. That simple.
What this really reminds me of, to be honest with you, is
the late 1990s after this committee had passed the
Telecommunications Act of 1990 and there was a boom on
broadband. And many companies failed. Pets.com., the list is
long. On the other hand, there were companies that, in the new
environment that we had created, were successful. EBay, Amazon,
Google, YouTube, the list goes on. There were many successes,
many failures because we created a paranoia-inducing Darwinian
marketplace. What is different here, of course, and what no one
anticipated in 2009--although we were in a competition with the
Chinese--and by the way, when we passed the Telecommunications
Act, we were trying to make sure we branded it Made in the USA,
which we did. That is how people view that internet revolution
in Egypt and Tunisia and countries around the world. But here,
the Chinese have now decided to dump $20 billion into 4
companies. Can you talk about that, Mr. Silver? Can you talk
about this environment now within which American solar
companies, wind companies are now competing against a state-run
set of corporations against our private-sector companies?
Mr. Silver. Yes, Congressman, I would be happy to. Not
only, as you pointed out, has China underwritten its solar
manufacturing industry with tens and tens of billions of
dollars, they have, as I indicated earlier, produced and
provided a wide array of additional support facilities
including free land and other kinds of things. There are also
mechanisms in place for the purchase of those panels in the
domestic market that don't exist here.
But I don't think we should limit our focus to China alone.
Countries around the world understand the importance and the
viability of this space, and it is important that we take this
as a global challenge. There will only be one opportunity for
us to become a winner here and if we miss that window, we will
have missed a multitrillion-dollar market.
Mr. Markey. I thank you. I think if we keep China here as
the headline and we understand what we were trying to do in
putting together a plan, we had a plan for telecom. China and
the United States are pretty much starting at the same point in
solar and wind. We were trying to put together a plan,
batteries as well.
Let me also say this. You can look back and I can right now
say there is an NRC senior scientist who has a memo to all the
NRC commissioners saying that the AP1000, which is the reactor
the Southern Company wants to build, will crack like a glass
cup if there is an earthquake. Now, you can keep that memo and
you can say that is the reason we should give no loan
guarantees to the Southern Company or other companies. We can
just say we waited in the totality of all the evidence.
I am hearing my Republican colleagues expressing a great
deal of angst about whether or not a $535 million loan
guarantee should have been given to Solyndra when there is no
evidence that they have expressed any concerns about far larger
guarantees that have been given to the Southern Company, to
other companies that could in fact wind up with billions of
dollars ultimately being put on the shoulders of the taxpayers
in our country. And I am talking specifically about the nuclear
sector. There is a fundamental crisis happening in Japan and
Germany and other countries. We are part of a global story and
it is impacting the domestic nuclear industry. Those loan
guarantees could come back to haunt the taxpayers in our
country and I hope that we see a similar interest in that
subject, because that is happening right now. And now is the
time for this committee to exercise the due diligence to
protect the taxpayer.
Thank you, Mr. Chairman.
Mr. Stearns. The gentleman's time has expired and the
gentleman from California, Mr. Bilbray, is recognized.
Mr. Bilbray. Yes, Mr. Chairman. Let me join with my
colleague from Massachusetts and call for a hearing on the
nuclear issue because I think, you know, the gentleman from
Massachusetts has to remember that like just last week in San
Diego, the plants shut down exactly as planned during a
blackout exactly as posed to get the facts from Japan. And as
somebody who has a nuclear facility in his county, I am more
confident now of the safety of our technology than I was
beforehand and remind the gentleman from Massachusetts that the
beautiful bay of San Diego Bay is full of nuclear reactors
being run by 20-something-year-old kids. And it is safer and
cleaner because we have those reactors in San Diego Bay. But
getting back to the issue here is that the technology was not
keeping up with the hype. And as somebody that still feels
strongly about the opportunity of clean technology, I think the
inappropriate application of political influence or
perception--and I don't think this was an intentional misdeed.
I think it is a much deeper problem that this was a prejudiced
for a broad definition of technology as if somehow this was
going to be the answer for everything.
First of all, let me clarify the gentleman from
Massachusetts pointed out that China has been aggressive on
this, I will remind you that this plant was cited where the
electricity was 22 cents a kilowatt, twice of what it is in
Ohio and where China is producing them in an area where there
is 6 cents a kilowatt is what they are charging. So, Mr.
Silver, all of this does relate to the productivity and the
ability to compete in a world market, doesn't it?
Mr. Silver. Yes. Certainly, citing issues are relevant.
Mr. Bilbray. And shouldn't these things be considered along
with the specific technology that is being proposed to provide
a certain product by asking for the grant?
Mr. Silver. Once again, Congressman, we don't provide
grants, but I think what you mean is----
Mr. Bilbray. The loan guarantee.
Mr. Silver. The technologies that we underwrite are those
that are spelled out in the legislation. We don't search out
those that aren't.
Mr. Bilbray. OK. I have a question for you specifically.
This part of the stimulus bill, San Diego we are siting a
French facility to build solar panels specifically because we
have a stationary source. First thing we do is not try to build
a new facility. California, as everyone knows, has had
businesses fleeing. We have huge open warehouses, and the logic
our mayor is making and we are making working with him is why
don't we go ahead and retrofit existing structures rather than
building one? The fact that this was proposing to take virgin
farmland and go from the ground up and build all the
construction of a whole new building with all the related so-
called stimulus of building on virgin land on the ground up,
did that have any influence in the fact that this was included
in the stimulus bill, not just the green part of it, of the
hope that all solar was going to be good, but the fact that you
had a whole new factory being build in California, probably the
only one even being considered? Do you think that had any
influence on the approval of this process that the fact that
they were capitalizing a whole new facility rather than
retrofitting an existing one?
Mr. Silver. I don't know how to answer that. The
applications that we receive come in from the sponsors
themselves, so the proposal, the project has already been put
together by private sector actors, including the investors in
whatever project it is.
Mr. Bilbray. But that is in the prospectus.
Mr. Silver. No, they are making--they are actually filing
an application for a specific--funding for a specific project.
Mr. Bilbray. But the technical review had that in
consideration.
Mr. Silver. Well, the technical review----
Mr. Bilbray. That was part of the documentation they gave
the Technical Review Board.
Mr. Silver. The technical review is intended to ensure that
the technology works, which clearly it did--they sold hundreds
of millions of dollars worth of product--and to ensure that the
plant will be built in such a way as to produce them
appropriately.
Mr. Bilbray. OK. So in other words, do you or do you not
feel that the fact that they had a major capital improvement
proposed in this package helped sell it as part of the stimulus
package?
Mr. Silver. I don't know the answer to that. We don't
evaluate projects on the basis of their impact for non-project-
specific activities. We manage them against a criteria and
objectives of the program.
Mr. Bilbray. OK. I am going to ask you again because you
had time to talk to your staff about it. Are you aware or has
anybody made you aware of your agency actually intervening
about the siting of where production sites should be placed as
a condition of getting the loan guarantee?
Mr. Silver. I am not aware of that, no.
Mr. Bilbray. OK. I would ask you to specifically ask that
question and investigate that question.
Mr. Silver. I am happy to do so.
Mr. Bilbray. Because I have good information that that
specifically has been made a condition of some grants, at least
one, that the production line needs to built in a certain area
and not in another area and that is something that has been
documented to me very strongly. And I think it is real
critical.
My biggest problem here, again, is that the perception that
solar is good means all solar proposals are good and why don't
we move it?
Mr. Silver. Congressman, if I may, we received literally
hundreds and hundreds of applications, dozens and dozens of
solar----
Mr. Bilbray. Let me just say that this was a half-a-
billion-dollar mistake and I would ask that we point out that
there was an action taken by your body under a justification of
a legal definition that I think is a threat to both Democrats
and Republicans that the word ``is'' is, and that for somebody
to sit there and ignore the law and redefine the word ``is'' I
think the American people are outraged that a half-a-billion-
dollar issue was raised while legal jargon was ignoring the
fact that the law is in there. And I don't think Democrat or
Republican wants to have to add in every law that it will never
happen.
I yield back to the gentleman.
Mr. Stearns. The gentleman's time has expired. I think we
have finished and we have had a very good discussion. I want to
thank the witnesses.
Does the ranking gentlelady have any concluding comments
before I wrap up?
Ms. DeGette. I want to thank the witnesses for coming
today. I think we had a very spirited and interesting
discussion about both the specifics of this deal and also the
future of Federal Government's role in solar energy. I am very
much looking forward to the testimony of the executives of
Solyndra next week and I would hope, Mr. Chairman, that we can
have a more orderly way of presenting documents.
Mr. Markey. Would the gentlelady yield?
Ms. DeGette. I yield, sure.
Mr. Stearns. Well, we are just trying to conclude this----
Mr. Markey. Through the gentlelady I would like to urge
that we have a hearing on the risk premium which DOE and OMB
are charging to the nuclear industry for loan guarantees post-
Fukushima and post the Wall Street reassessment. This is
happening right now. We should get ahead of this issue and hold
these hearings.
Mr. Stearns. I will take that under advisement.
Let me conclude by just saying to both of you that I think
you should, based upon what I hear today, go back and look at
all solar panel projects of stimulus package. I think when you
realize that the solar industry is truly dependent on subsidies
and the government pays about 30 percent of the cost of
businesses to invest, consumers get a federal tax credit of
$2,000 for their renewables, States are throwing in a hefty
portion of additional incentives, and they are offering a
subsidy of residential solar as much as $2.50 per installed
watt, and you look at all of this and you do the analysis, even
at $140 a barrel, the idea that solar panels are going to break
even is questionable. So I think with that, particularly in
light of what is happening in China, I think your office would
be well to look at all the other stimulus package dealing with
photovoltaic cells.
And with that, the subcommittee is adjourned.
Mr. Burgess. Mr. Chairman?
Mr. Stearns. Yes?
Mr. Burgess. May I just ask a question before adjourning?
Our written questions will be permitted and they will be
responded to and included in the record?
Mr. Stearns. They will. They will be. And the witnesses
will be responsible for answering these questions under the
order of the House.
Mr. Burgess. And further, Mr. Chairman, I am grateful we
have the CEO and CFO of Solyndra coming in. I think it is very
important that we have the Secretary of Energy and the
chairman----
Mr. Stearns. I think Secretary Chu should be invited, I
think he should attend, and because the questions both sides
have brought up, I think his credibility on this project should
be part of the witness process. And so I think----
Mr. Burgess. Secretary Lew as well?
Mr. Stearns. Secretary Lew as well, yes.
Mr. Burgess. All right. Thank you.
Mr. Stearns. Thank you. Subcommittee is adjourned.
[Whereupon, at 1:38 p.m., the subcommittee was adjourned.]
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