[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
THE SOLYNDRA FAILURE: VIEWS FROM DEPARTMENT OF ENERGY SECRETARY CHU
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
----------
NOVEMBER 17, 2011
----------
Serial No. 112-104
Printed for the use of the Committee on Energy and Commerce
THE SOLYNDRA FAILURE: VIEWS FROM DEPARTMENT OF ENERGY SECRETARY CHU
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
NOVEMBER 17, 2011
__________
Serial No. 112-104
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Energy and Commerce
energycommerce.house.gov
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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.................................... 11
Prepared statement........................................... 13
Hon. Joe Barton, a Representative in Congress from the State of
Texas, opening statement....................................... 14
Prepared statement........................................... 15
Hon. Henry A. Waxman, a Representative in Congress from the State
of California, opening statement............................... 17
Hon. Michael C. Burgess, a Representative in Congress from the
State of Texas, prepared statement............................. 565
Witness
Steven Chu, Secretary, Department of Energy...................... 19
Prepared statement........................................... 21
Answers to submitted questions............................... 567
Submitted Material
Letter, dated November 10, 2011, from Mary Anne Sullivan,
Partner, Hogan Lovells UP LLP, to Mr. Waxman, submitted by Ms.
DeGette........................................................ 8
Article, ``Solyndra: Energy Dept. pushed firm to keep layoffs
quiet until after midterms,'' dated December 13, 2010, The
Washington Post, submitted by Mr. Gingrey...................... 64
Letter, dated December 13, 2010, from Jonathan Silver, Executive
Director, Loan Programs Office, Department of Energy, to
Solyndra Inc., submitted by Mr. Griffith....................... 71
Solyndra Chronology, undated, submitted by Mr. Barton............ 87
Email, dated January 4, 2011, to Kelly T. Colyar and Fouad P.
Saad, submitted by Ms. DeGette................................. 116
Subcommittee exhibit binder...................................... 123
THE SOLYNDRA FAILURE: VIEWS FROM DEPARTMENT OF ENERGY SECRETARY CHU
----------
THURSDAY, NOVEMBER 17, 2011
House of Representatives,
Subcommittee on Oversight and Investigations,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 10:03 a.m., in
Room 2123, Rayburn House Office Building, Hon. Cliff Stearns
(chairman of the subcommittee) presiding.
Members present: Representatives Stearns, Terry, Myrick,
Sullivan, Murphy, Burgess, Blackburn, Bilbray, Gingrey,
Scalise, Griffith, Barton, Upton (ex officio), DeGette,
Schakowsky, Ross, Markey, Green, Christensen, Dingell, and
Waxman (ex officio).
Also present: Representatives Pompeo and Kinzinger.
Staff present: Carl Anderson, Counsel, Oversight; Michael
Beckerman, Deputy Staff Director; Allison Busbee, Legislative
Clerk; Stacy Cline, Counsel, Oversight; Todd Harrison, Chief
Counsel, Oversight and Investigations; Kirby Howard,
Legislative Clerk; Alexa Marrero, Communications Director;
Carly McWilliams, Legislative Clerk; Andrew Powaleny, Assistant
Press Secretary; Krista Rosenthall, Counsel to Chairman
Emeritus; Alan Slobodin, Deputy Chief Counsel, Oversight; Sam
Spector, Counsel, Oversight; Peter Spencer, Professional Staff
Member, Oversight; John Stone, Counsel; James Thomas, Policy
Coordinator, Oversight; Kristin Amerling, Minority Chief
Counsel and Oversight Staff Director; Alvin Banks, Assistant
Clerk; Jeff Baran, Minority Senior Counsel; Phil Barnett,
Minority Staff Director; Stacia Cardille, Minority Counsel;
Brian Cohen, Minority Investigations Staff Director and Senior
Policy Advisor; Karen Lightfoot, Minority Communications
Director and Senior Policy Advisor; and Matt Siegler, Minority
Counsel.
OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF FLORIDA
Mr. Stearns. Good morning, everybody. We will open the
subcommittee hearing of Oversight and Investigations on the
Solyndra failure and views from the Department of Energy
Secretary Chu.
My colleagues, we welcome this hearing of the Subcommittee
on Oversight and Investigations to further examine the
Department of Energy's review and approval for the $535 million
loan guarantee to Solyndra as well as its repeated efforts to
keep this company atop President Obama's green-jobs pedestal.
While our investigation continues, it is readily apparent that
senior officials in the administration put politics before the
stewardship of taxpayers' dollars.
My colleagues, we have methodically investigated the
circumstances surrounding Solyndra's failure for 9 months now
and have followed the facts every step of the way. Our goal is
to determine why the Department of Energy and the
administration tied themselves so closely to Solyndra and why
they were so desperate to repeatedly prop up this company. Why
did DOE make these bad decisions? And what can we do to prevent
a waste of taxpayer dollars in the future?
But as our investigation has unfolded, many more questions
have emerged about the loan guarantee to Solyndra, the
subsequent restructuring and subordination of the taxpayers'
money, and the extent of the White House involvement. So,
today, we are focused on the loss of $535 million of taxpayers'
money.
When DOE was reviewing the Solyndra application at the end
of the Bush administration, too many issues with the parent
company's cash flow and liquidity remained unresolved, leading
them to end discussions with Solyndra and remand the
application itself.
Later that month, President Obama was inaugurated, and
Secretary Chu took over the reins of the Department of Energy.
He implemented an acceleration policy for the loan guarantee
reviews. And despite the deal posing significant financial
problems, Solyndra was labeled a litmus test for the program's
ability to fund good projects--quickly, too.
Secretary Chu and Vice President Biden's ribbon-cutting
ceremony was scheduled before DOE even presented the final deal
to OMB. OMB staff did not feel as though they had sufficient
time to conduct adequate due diligence, and their concerns
about models showing Solyndra running out of cash in September
2011, prophetically, were apparently ignored.
Only 6 months after the loan closed, Solyndra's financial
problems became increasingly severe. Nonetheless, President
Obama visited Solyndra in May of 2010 and proclaimed, quote,
``The true engine of economic growth will always be companies
like Solyndra,'' end quote.
It is important to understand how Secretary Chu addressed
these concerns and the extent of authority he was granted to
make sure this company, so closely connected with the fate of
President Obama's green-jobs agenda, ultimately succeeded. In
the fall of 2010, just 1 year after the loan closed, Solyndra
had basically flat-lined and started to default on the terms of
the loan. Documents show DOE granting the company several
waivers, including waivers from Davis-Bacon requirements, and
desperately trying to figure out ways to keep it afloat.
In early December, after several lengthy negotiation
sessions with Solyndra's primary investors and despite clear
language in the statute barring them to from doing so, DOE made
a last-minute offer that would subordinate taxpayers with
regard to the first $75 million recovered in the event of
liquidation. We have since uncovered serious disagreements
within the administration about not only the legality of this
arrangement but whether it was a good deal for anyone involved
but the rich hedge-fund investors.
As I said before, if Solyndra really is a litmus test, we
have a much bigger problem on our hands. Two of the first three
deals approved under Secretary Chu's acceleration policy have
now blown up and filed for bankruptcy. GAO has serious concerns
about DOE's ability to monitor the loans. The White House
itself now has initiated a review of the portfolio. No one has
admitted any fault whatsoever, and the President and our
Democrat colleagues just shrug it off and say, ``Hey, sometimes
things just don't work out,'' end quote.
The administration is still refusing to allow DOE and OMB
witnesses to testify under oath. And OMB refuses to make some
important witnesses available to us at all, with no one from
the administration taking responsibility.
With that, that concludes my opening statement, and I
recognize my distinguished colleague, Ms. DeGette from
Colorado.
[The prepared statement of Mr. Stearns follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Ms. DeGette. Thank you.
Before I start my opening statement, Mr. Chairman, which
witnesses has the White House refused to produce to testify
under oath? Please give me their names.
Mr. Stearns. We will be glad to give you a list, and
certainly----
Ms. DeGette. If I could have a list before----
Mr. Stearns. Sure.
Ms. DeGette [continuing]. The conclusion of this hearing--
--
Mr. Stearns. We will be glad to give it to you.
Ms. DeGette [continuing]. We will use our exercise to get
those witnesses. Thank----
Mr. Stearns. Just between you and me, I think you know.
Ms. DeGette [continuing]. You very much. No, I would like
to know, please. Thank you.
OPENING STATEMENT OF HON. DIANA DEGETTE, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF COLORADO
Now, Mr. Secretary, I would like to welcome you and thank
you for joining us today. Mr. Waxman and I have been urging the
majority for some number of weeks now to have you over to
discuss the important and legitimate issues relating to the
Solyndra loan guarantee and the broader issue of the efficacy
of loan guarantees for solar energy.
This investigation, we all believe, is of critical
importance to the American public, both so we can get to the
bottom of what happened to over half a billion dollars of
taxpayer money in the short term and also to ensure the
knowledge we gain from this situation can inform our efforts to
drive American clean energy innovation for the long term.
Unfortunately, instead of conducting a serious inquiry into
the facts relating to Solyndra and the lessons we can learn
from this case, the majority, to date, as evidenced by my
colleague's opening statement, has focused on firing partisan
broadsides at the Obama administration. For example, 2 weeks
ago, the committee created an unnecessary and unprecedented
subpoena battle with the White House, despite good-faith
efforts on the part of the White House to negotiate an
accommodation to produce information regarding key committee
concerns in the investigation. And then, last week, when the
White House did produce documents, the majority selectively
released to the press three emails that presented a distorted
account of Mr. Kaiser's activities while withholding documents
and communications, as well as statements by Mr. Kaiser in his
interview with both Democratic and Republican staff, that
directly contradicted the majority's interpretation.
But let me be clear: None of us on my side of the aisle are
here to defend or to apologize for the actions of anyone in the
administration or in the White House in particular. In my 15
years on this committee, we have had a strong tradition of
thorough and meaningful bipartisan investigations. And as
ranking member of this distinguished subcommittee, it had been
my hope that we could have continued that tradition in order to
fulfill our oversight duties to the American people.
Unfortunately, this has not been the case.
The point of this inquiry should not be to score partisan
victories or to smear individuals who happen to support one
political party over the other. What we should be trying to do
is figure out what happened with the Solyndra loan guarantee so
we can bring accountability to the American people and improve
our ability to advance the United States as a leader in the
clean energy market.
Toward that end, I hope the Secretary's appearance here can
provide relevant information on several key issues that we are
allegedly investigating.
First, we need to examine whether appropriate due diligence
occurred before DOE's September 2009 approval of the loan
guarantee. Committee staff recently conducted interviews of key
former and current DOE officials who were involved with the
loan guarantee decisions, including Steve Isakowitz, who was
appointed by President Bush and served as chief financial
officer from July 2007, under the Bush administration, through
July 2011, under the Obama administration.
Mr. Isakowitz told the committee staff that he believed the
DOE award of a loan guarantee to Solyndra was based on the
merits and that Secretary Chu did not ask anyone to cut corners
on the decision. Other DOE officials who were interviewed made
similar statements. I am looking forward to hearing the
Secretary's perspective on the process that led to the Solyndra
loan guarantee award.
Second, we need to look at whether DOE exercised good
judgment by restructuring the loan guarantee and subordinating
part of the government's interest in early 2011 when Solyndra
was verging on default. Some members of this committee have
alleged that subordination violates the Energy Policy Act. To
help the committee assess this issue, we asked a former DOE
general counsel to review DOE's legal rationale for
subordination.
The former DOE general counsel concluded the analysis was
reasonable, stating, quote, ``I conclude from the statute, the
loan guarantee regulations, and DOE's prior interpretations of
Section 1702 that, had it expressly considered the question of
its authority to subordinate its guaranteed debt in a post-
restructuring before the Solyndra default situation arose, DOE
likely would have reached the same conclusion reflected in the
opinion and that its conclusion is legally supported,'' end
quote.
Mr. Chairman, I ask unanimous consent that this letter be
included in the record today.
Mr. Stearns. So ordered.
Ms. DeGette. Thank you.
[The letter follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Ms. DeGette. Along those lines, I would like to hear from
Secretary Chu about the lessons we can learn from DOE's
experience with restructuring the Solyndra loan guarantee.
Third, I would like to hear from the Secretary regarding
the status of DOE's efforts to monitor the Solyndra loan
guarantee and the extent to which this has evolved over his
tenure. I hope the Secretary can give us insight into whether
Solyndra made accurate representations to DOE throughout the
loan guarantee process.
And, finally, given the majority's heavy emphasis on
allegations relating to corruption, we also need to hear from
the Secretary whether political fundraising by Mr. Kaiser or
anyone else had any bearing on decisions relating to the
Solyndra loan guarantee.
More broadly, I hope this three-ring circus leads us to a
robust discussion relating to the state of our national energy
policy and, in particular, renewable energy. This situation is
an excellent opportunity for us to learn how to best develop
and implement policies that provide U.S. innovators the support
they need to make the United States a clean energy market
leader.
Thank you very much, Mr. Chairman.
Mr. Stearns. I thank my colleague.
I now recognize the full chairman of the Energy and
Commerce Committee, the distinguished 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, for holding this
hearing on the Department of Energy's role in the approval and
subsequent restructuring of the Solyndra loan guarantee.
And welcome, Mr. Secretary.
The central focus of the investigation is to understand why
DOE did and what it did and how we find ourselves with this
taxpayer-funded debacle. The number of red flags about Solyndra
that were raised along the way, many from within DOE, and
either ignored or minimized by senior officials is astonishing.
Before the loan guarantee was approved, DOE and OMB staff
repeatedly questioned the financial health of Solyndra. And
based on the rate it was burning through cash and other
troubling issues, the truth is, the expert staff were, indeed,
concerned that the company was bound to fail.
We have heard from President Obama and even from you, Mr.
Secretary, that nobody had a crystal ball and no one could have
predicted Solyndra's demise. But the truth is that DOE staff
did predict this. One of the models reviewed by DOE staff
specifically showed that Solyndra would run out of cash in
September of 2011. And in March of 2010, just 6 months after
the initial loan agreement was finalized, Solyndra's auditors
echoed many of the same issues about working capital and
recurring losses and warned that Solyndra was going to have
problems staying afloat.
These concerns were not only shared by industry experts,
they reached the highest levels of the West Wing. Yet, at DOE,
officials were shrugging it off and calling it par for the
course. Two months later, the President actually went to
Solyndra's headquarters and gave a speech touting the company
as an economic success story, in spite of numerous warnings
from both supporters and government staffers.
These are just a few examples of the red flags DOE could
have acted on to limit taxpayer losses. Instead, at every
opportunity, Solyndra and DOE officials, including you, Mr.
Secretary, publicly assured the American people that Solyndra
was on track and would eventually thrive, right up until the
time that Solyndra declared bankruptcy.
They continued telling this story even when they clearly
should have known it was not the case. DOE was receiving
financial reports showing that Solyndra was bleeding cash and
going bankrupt. DOE also failed to mention that, behind the
scenes, they were continually taking extraordinary steps to
keep Solyndra on financial life support.
So, Mr. Secretary, what did you know about the situation at
Solyndra, when did you know it, and how did you act on that
information, if at all? These are important questions that all
of us will be asking today. Your testimony is an important
piece of the overall puzzle, and we will work methodically,
following the facts, to get to the bottom of why taxpayers are
now on the hook for more than half a billion dollars.
And I yield back the balance of my time to Mr. Barton.
[The prepared statement of Mr. Upton follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Stearns. Mr. Barton is recognized for the balance of
the time.
OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Barton. Thank you, Chairman Upton and Chairman Stearns.
And thank you, Mr. Secretary, for being here this morning.
We appreciate you agreeing to voluntarily testify about the
Solyndra loan guarantee program. I have been on this committee
25 years. Rarely, if ever, have I seen a more--to put it as
positively as possible, a more mismanaged program than the
Solyndra loan guarantee. We are hopeful that you will be able
to answer a number of our questions today. And I know, as a man
of integrity, you are going to do your best, because I do
sincerely mean that, that you are a man of integrity.
But the first question that I hope you will answer is, why
did the Obama Department of Energy reverse the Bush Department
of Energy decision that the Solyndra loan guarantee was not
ready for prime time? To this day, that puzzles me.
Secondly, I would like to hear your answer as to why
apparently you made the decision to violate the clear letter of
the law in Title XVII of the Energy Policy Act that plainly
states that a loan guarantee financed by the taxpayers cannot
be subordinated to private investors. That just absolutely
puzzles me.
And, finally, what guarantees do we have on behalf of the
taxpayers that changes are going to be made in the existing
loans that have been put out on this program, I think to the
tune of about $16 billion, that we are not going to have a
repeat of this fiasco?
This is an important program. I happen to continue to
support a loan guarantee for alternative energy, contrary to
what some of my friends on the Democratic side of the aisle
state. But I cannot continue to support it if we can't get some
assurances that this isn't going to be history that will be
repeated.
So thank you, Mr. Secretary, for being here, and I look
forward to your answers.
[The prepared statement of Mr. Barton follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Stearns. I thank my colleague and recognize the
distinguished gentleman from California, the ranking member of
the full Energy and Commerce Committee, Mr. Waxman.
OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Waxman. Thank you, Mr. Chairman.
And, Secretary Chu, I want to welcome you to our hearing
today.
As I have said from the outset, I believe in this oversight
on the Solyndra loan guarantee issue. It is part of our job. We
want to know about these taxpayers' dollars that have been lost
and how we can learn from this experience not to have it
repeated.
But I don't support the way Chairman Stearns and Chairman
Upton have been running this investigation. They held an empty-
chair hearing. They humiliated witnesses for asserting their
constitutional rights. They denied Democratic requests for
witnesses. They resisted the release of exculpatory documents
and provoked a gratuitous conflict with the White House. And,
just last week, they released cherry-picked emails that were
contradicted by other documents and unjustly smeared George
Kaiser. And, as we learned today in the newspaper, they
criticize you for awarding loan guarantees at the same time
they were seeking loan guarantees for solar energy projects in
their own districts.
That is no way to conduct a responsible investigation. We
should be fair and impartial, and our goal should be to find
the truth.
We also need to put this investigation into context and ask
the most important question: How do we make the transition to
the clean energy economy of the future?
Last week, the International Energy Agency released its
``World Energy Outlook.'' While Solyndra stories made news
across the country, there was virtually no coverage of the
International Energy Agency's findings, yet they are far more
important to the future of our country and the business of this
committee than whether the Department of Energy asked Solyndra
to delay announcing a plant closure.
The International Energy Agency found, and I quote, ``We
cannot afford to delay further action to tackle climate change
if the long-term target of limiting the global average
temperature increase to 2 degrees Celsius is to be achieved. If
stringent new action is not forthcoming by 2017, the energy-
related infrastructure then in place will generate all the CO2
emissions allowed, leaving no room for additional power plants,
factories, and other infrastructure unless they are zero-
carbon.''
What this means is that our future depends on developing
clean energy. There will be $38 trillion invested in the new
energy infrastructure over the next 20 years. Our economic
growth, our national security will be determined by whether we
succeed in building these new industries.
Our competitors recognize this. China spent $30 billion to
subsidize solar energy in the last year alone, and jobs in
manufacturing facilities are booming in China as a result. Our
chairman of the subcommittee says the answer is to give up.
Last month, Mr. Stearns said, and I quote, ``The United States
can't compete with China to make solar panels and wind
turbines.''
Well, I don't believe in surrender, Mr. Chairman. We can't
out-compete China, but to succeed we have to reject the anti-
science, anti-progress policies of the Republicans in Congress
and their oil and coal industry allies.
The agenda of congressional Republicans is clear: Do
everything possible to maintain our addiction to fossil fuels
and cripple clean energy companies that could compete with oil
and coal. House Republicans voted against putting a price on
carbon pollution, which would have created market opportunities
for clean energy. House Republicans voted to slash funding for
energy research and development into the clean technologies.
And now they are opposing government investments in solar,
wind, and other clean energy companies.
We need to move past Solyndra and to begin addressing our
pressing energy challenges. The voluminous records before the
committee--and we have received over 186,000 pages of documents
from the Department of Energy, over 13,000 pages from the
Office of Management and Budget, over 1,000 pages from the
White House, nearly 200 pages of documents from the Treasury--
all of these records show that the decision to award a loan
guarantee to Solyndra was based on the merits, not political
considerations. As Steve Isakowitz, a Bush appointee, the chief
financial officer at DOE, told us, the integrity of the review
process was never compromised.
It is time for House Republicans to stop dancing on
Solyndra's grave and start getting serious about energy policy.
And it is shameful for members of this committee to deny the
science and pretend that we do not need a comprehensive clean
energy policy.
Something far more important is at stake today than scoring
partisan political points. The future of our economy and the
health of our planet will be at risk until we find a way to
come together and enact policies that stop weather-changing
carbon pollution and make our Nation the world leader in clean
energy.
Thank you, Mr. Chairman.
Mr. Stearns. I thank the gentleman.
Since he--I will take the chairman's prerogative here,
since you mentioned my quote from NPR. It was taken out of
context. And without elaborating, I would point out that if we
intend to subsidize our industries to compete with China, who
is subsidizing their industries, I think that is not a good way
to handle it.
With that, now we will welcome our witness, Secretary Chu,
and thank him for coming.
You have a book to your left there with tabs with lots of
quotes that the committee members will be using, so we will
just refer you to that tab.
Before we go any further, we have a member from the full
committee, from Kansas, Mr. Pompeo--oh, Mr. Kinzinger from
Illinois, rather, is here as a member from the full committee,
but he does not want to participate, but he would like to be in
the hearing, with unanimous consent. Is that acceptable to the
minority?
So ordered. He is welcome.
As you know, Mr. Secretary, the testimony you are about
give is subject to Title 18, Section 1001 of the United States
Code. When holding an investigative hearing, this committee has
a practice of taking testimony under oath. Do you have any
objection to testifying under oath?
Mr. Chu. No.
Mr. Stearns. 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?
Mr. Chu. No.
Mr. Stearns. In that case, if you would please rise and
raise your right hand, I will swear you in.
[Witness sworn.]
Mr. Stearns. Welcome. And, Mr. Secretary Chu, you are
welcome to give your opening statement, 5 minutes.
STATEMENT OF STEVEN CHU, SECRETARY, DEPARTMENT OF ENERGY
Mr. Chu. Thank you, Chairman Stearns, and thank you,
Ranking Member DeGette and members of the subcommittee, for the
opportunity to speak with you today.
Investments in clean energy reached a record $243 billion
last year. Solar photovoltaic systems alone represent a global
market worth more than $80 billion a year today. In the coming
decades, the clean energy sector is expected to grow by
hundreds of billions of dollars.
We are in a fierce global race to capture this market. In
the past year and a half, the China Development Bank has
offered more than $34 billion in credit lines to China's solar
companies. China is not alone. To strengthen their countries'
competitiveness, governments around the world are providing
strong support to their clean energy industries. Germany and
Canada operate government-backed clean energy lending programs.
And more than 50 countries offer some type of public financing
for clean energy projects.
In the United States, Congress established Section 1703 and
1705 loan guarantee programs as well as the Advanced Technology
Vehicles Manufacturing program, all of which provide support to
cutting-edge clean energy industries that involve technology
and market risks. In so doing, Congress appropriated nearly $10
billion to cover potential losses in our total loan portfolio,
thereby acknowledging the inherent risks of funding new and
innovative technologies and also ensuring that those risks are
properly accounted for in the budget.
We appreciate the support that the loan programs received
from many Members of Congress, who have urged us to accelerate
our efforts and to fund worthy projects in their States. In
total, the Department received nearly 500 congressional letters
about the loan programs.
Through the loan programs, the Department of Energy is
supporting 38 clean energy projects that are expected to employ
more than 60,000 Americans, generate enough clean electricity
to power 3 million homes, and displace more than 300 million
gallons of gasoline annually. These important investments are
helping to make America more competitive in a global clean
energy economy.
Today, we are here to specifically discuss the Solyndra
loan guarantee. The Department takes our obligation to the
taxpayers seriously and welcomes the opportunity to discuss
this matter. As you know, the Department has consistently
cooperated with the committee's investigation, providing more
than 186,000 pages of documents, appearing at hearings, and
briefing or being interviewed by committee staff eight times.
As this extensive record has made clear, the loan guarantee
to Solyndra was subject to proper, rigorous scrutiny and
healthy debate during every phase of the process. As the
Secretary of Energy, the final decisions on Solyndra were mine,
and I made them with the best interests of the taxpayer in
mind.
And I want to be clear: Over the course of Solyndra's loan
guarantee, I did not make any decision based on political
considerations. My decision to guarantee a loan to Solyndra was
based on the analysis of experienced professionals and on the
strength of the information they had available to them at the
time.
Solyndra's potential was widely recognized outside the
Department. Highly sophisticated, professional private
investors, after conducting their own reviews, had collectively
invested nearly a billion dollars in the company, which was
named as one of the world's, quote, ``50 Most Innovative
Companies'' by MIT's Technology Review in February of 2010. In
March of 2010, the Wall Street Journal included Solyndra in its
ranking, ``The Next Big Thing: The Top 50 Venture-Backed
Companies.''
It is common for it to take some time for startup
companies, especially manufacturing companies, to turn a
profit. And in the 2 years since the Department issued the loan
guarantee, Solyndra faced deteriorating market conditions.
Solar PV production has expanded at the same time, and the
demand has softened due to the global economic downturn and the
decline in subsidies in countries including Spain, Italy, and
Germany. The result has been an acute drop in the price of
solar cells, which has taken a toll among many solar companies
in Europe, Asia, and the United States.
Meanwhile, countries like China are playing to win in the
solar industry. China has invested aggressively to support its
companies, and, in recent years, China's market share in solar
cell and solar module production has grown significantly, to
roughly half the market today.
While we are disappointed in the outcome of this particular
loan, we support Congress' mandate to finance the deployment of
innovative technologies and believe that our portfolio of loans
does so responsibly. The President asked for a review of the
Department's loan portfolio. We support that review, and I look
forward to the results.
The Energy Department is committed to continually improving
and applying lessons learned in everything we do because the
stakes could not be higher for our country. When it comes to
the clean energy race, America faces a simple choice: compete
or accept defeat. I believe we can and must compete.
I thank you and welcome your questions.
[The prepared statement of Mr. Chu follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Stearns. Thank you, Mr. Secretary.
And I will start off with my questions. As I mentioned, we
have a book to your left there with different tabs we will be
asking you to look at. When my questions are asked, I would
like you to answer ``yes'' or ``no,'' and I phrased my
questions in such a way that you could do that.
In that book, on tab 5, there is an interview you had with
the Wall Street Journal on February 6th, 2009. And you were
simply asked what percentage of the roughly $37 billion that
you had to spend at DOE for these loan guarantee programs. You
replied you wanted about half to be spent in a year.
So the question is, are you aware that the Department of
Energy inspector general testified just this month that the
Department had spent, not allocated, had spent only 45 percent
of the stimulus funds nearly 3 years later, yes or no?
Mr. Chu. I am aware that we did not----
Mr. Stearns. OK, just--you are aware, yes.
So the Department of Energy stimulus program failed to meet
even your, based upon that interview in the Wall Street
Journal, 50 percent performance target you set. Is that
correct?
Mr. Chu. That is correct.
Mr. Stearns. OK.
Now, you have repeatedly stated, in hindsight--you keep
mentioning hindsight, 20/20--no one could have predicted about
Solyndra going bankrupt. But here is the crux and here is the
problem we have: In August 2009--and this is tab 14--before you
signed off on the loan guarantee, one of your own Department of
Energy staffers actually predicted, prophetically, that
Solyndra would go bankrupt. And I will quote: ``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.''
So the bankruptcy was predicted 2 years ahead of time.
Knowing of this assessment, you are the Secretary of Energy,
continued to give tranches of money to Solyndra all through the
next 2 years, even though your staff had predicted that
Solyndra would go bankrupt in September 2011.
When you signed off on the loan guarantees, were you aware
of this, of these emails and of these concerns from DOE? And
OMB emails also showed that. Were you aware of that, that
Solyndra was a bad bet, yes or no?
Mr. Chu. This is not--sir, this is not a yes-or-no
question. Let me explain the context of what this----
Mr. Stearns. Well, I----
Ms. DeGette. You know, let's hear him out.
Mr. Chu [continuing]. Email was about.
Mr. Stearns. OK. OK.
Ms. DeGette. Do you want the information?
Mr. Stearns. I don't want you to take all my time, but can
you just give a short answer?
Mr. Chu. Very shortly, this email--the cash flow had to do
with the construction of Fab 2 facility. And if you look at the
full analysis of that facility and the cash flow of that
facility, it was going to go very rapidly into the black. In
fact, that Fab 2 facility was completed on time, on budget. And
the parent company----
Mr. Stearns. OK, I understand that. But yes or no, were you
aware of these DOE emails that said it would go bankrupt? That
is the basic question. Were you aware of them, yes or no?
Mr. Chu. I wasn't aware of this particular email at the
time.
Mr. Stearns. Were you not aware of it?
Mr. Chu. I was--it was an issue of an analysis that was in
the----
Mr. Stearns. No, the question is, were you aware that your
own staff that worked for you was predicting bankruptcy in
2011, prophetically, 2 years, yes or no?
Mr. Chu. It wasn't predicting bankruptcy of the company. It
was predicting a cash-flow issue that, upon further analysis,
did not appear and, in fact, did not appear in reality.
Mr. Stearns. Were you aware of it at the time?
Mr. Chu. I was not aware of this email at the time.
Mr. Stearns. OK.
During an interview with committee staff, the DOE chief
financial officer admitted that he did not remember the
Department validating any assumptions about the Chinese market
before approving the application.
Was that, in hindsight, the Department should have known?
And wasn't that the failure of DOE?
Mr. Chu. Could you repeat the question, please?
Mr. Stearns. Sure. Basically, just asking, did you do any
research about the Chinese market before you approved this
loan, yes or no?
Mr. Chu. I personally did not do it, but I am----
Mr. Stearns. OK.
Mr. Chu [continuing]. Sure my loan people have done many
market surveys.
Mr. Stearns. OK.
When Solyndra ran into financial problems and you
authorized taxpayers' funds to be subordinated to these two
hedge funds, were you aware that DOE staff originally told
Argonaut and the DOE funds could not be subordinated under the
Energy Policy Act of 2005, yes or no?
Mr. Chu. When we discussed the subordination of the loan
with my general counsel, it was the decision of the general
counsel of the Department of Energy--their considered opinion
was that the subordination was proper.
Mr. Stearns. OK.
The President recently appointed Mr. Allison to look at the
DOE's loan, the entire portfolio. Doesn't the fact that the
President appointed somebody outside of DOE show that he
doesn't think you have the wherewithal, the financial acumen,
to step in and actually understand the condition of all these
loan guarantees? Doesn't this mean simply--it does to me--that
the President has lost confidence in you and your management--
your financial-management acumen of this loan guarantee
program?
Mr. Chu. We welcome outside eyes, and we welcome Herb
Allison and his investigation. I made no bones about it. I
should also say, before that happened, we, ourselves, within
the loan program, we looked outside the loan----
Mr. Stearns. So, basically, you don't take it as any
affront on your----
Mr. Chu. Pardon? Pardon?
Mr. Stearns. You don't take it as a personal affront on
your integrity to run the DOE that the President has an outside
group looking at it?
Mr. Chu. No. I----
Mr. Stearns. I accept that.
Mr. Chu [continuing]. I--I----
Mr. Stearns. Let me complete with one last question. Were
you aware in early 2011 that, to subordinate this loan, the
chief financial officer of the Department of Treasury said, in
his 28 years, he has never seen taxpayers subordinated to
outside commercial loans? Were you aware that Mr. Burner said
that?
Mr. Chu. No, I was not aware he said that.
Mr. Stearns. Are you aware of it today?
Mr. Chu. Yes.
Mr. Stearns. And do you think that he is right, or do you
disagree with him?
Mr. Chu. I believe that other loan--like OPIC and Ex-Im,
have, in some cases, subordinated loans.
Mr. Stearns. We are talking about taxpayers.
Mr. Chu. Well, OPIC and Ex-Im----
Mr. Stearns. All right.
Mr. Chu [continuing]. Serve the taxpayers.
Mr. Stearns. My time has expired, and we recognize the
gentlelady from Colorado.
Ms. DeGette. Thank you very much, Mr. Chairman.
Secretary Chu, did any Obama campaign donor ever contact
you and ask you to take any action relating to the Solyndra
loan guarantee or to the restructuring of that loan guarantee?
Mr. Chu. No. No one did. No Obama campaign----
Ms. DeGette. You are under oath.
Mr. Chu. Yes.
Ms. DeGette. OK.
Now, are you, as Secretary of Energy, aware, personally
aware, of any contact by any Obama campaign donor to any
employee of the Department of Energy asking them to take any
action relating to the loan guarantee or to the restructuring?
Mr. Chu. I am not aware of any such----
Ms. DeGette. Have you asked your employees and the folks
involved with Solyndra if they----
Mr. Chu. They were having discussions, and no one has said
that something like that occurred. No one----
Ms. DeGette. OK.
Mr. Chu. They, in fact, said that, to the best of their
knowledge, it has not occurred.
Ms. DeGette. Did anyone from the White House ever contact
you--anyone from the White House ever contact you--to take any
action on the Solyndra loan guarantee or restructuring for any
reason other than the actual financial analysis?
Mr. Chu. No.
Ms. DeGette. Now, are you aware of any contact by someone
from the White House to anybody in the DOE? Did anybody bring
that to your attention, asking them to take an unusual action
relating to the loan guarantee or to the restructuring?
Mr. Chu. No, I am aware of no communication from White
House to Department of Energy saying to make the loan or to
restructure.
Ms. DeGette. Now, in your responses to the chairman's
question, you said the decisions were yours based on
professionals within the Department. Briefly, can you describe
the process for--I mean, originally, the loan was not approved
under the Obama administration; it was the Bush administration.
But, certainly, the tranches of money were given under the
stimulus, and then there was the restructuring.
So the question is, which professionals did you rely on
within the Department to make those decisions?
Mr. Chu. So, what happened when I came in as Secretary of
Energy is that there was, beginning with the confirmation
hearings, tremendous interest in the loan program, getting it
going. When I came into the Department, I asked, what are the
loans first in line that have been prepared? And I was told by
Department of Energy career people that Solyndra was the first
loan; this was first in line.
Ms. DeGette. These are people who had been there
previously. They were career Department of----
Mr. Chu. They were career people who had been there during
the previous administration.
Ms. DeGette. OK.
Mr. Chu. And they said that this was the first in line. It
went before--I think in early January it went before the review
committee, the credit review committee. And the credit review
committee said there was incomplete information, we needed more
information, for example on market surveys, things of that
nature. So they gave it back to the loan originators--again,
career people--and said, we need more information before we can
make a decision yes or no.
And so that is what happened. So, one set of career people
told the loan originators, go back and we need this additional
information before we can make an up-or-down vote.
Ms. DeGette. And then what happened?
Mr. Chu. And then, several months later, after these things
were obtained--market surveys, things of that nature--they came
back to the credit review committee, and, at that time, the
same career folks said, ``OK, you have satisfied our questions,
and we recommend moving forward with the loan.''
Ms. DeGette. And so you moved forward with the loan.
Mr. Chu. Right. At that time----
Ms. DeGette. Now, then, some months later, the bottom
really fell out. Why do you think that happened? Was it
improper reviews and data used by the career people in that
analysis, in getting that market analysis? Very briefly,
because I have about the same amount of time as the chairman.
Mr. Chu. Very briefly, the largest issue of why that
happened is, the price of solar panels dropped precipitously.
And by ``precipitously'' I mean in a single year it dropped by
40 percent.
Ms. DeGette. And was that primarily because of China's
infusion of capital, or were there other market reasons for
that as well?
Mr. Chu. There were two factors. First, there was a large
production ramping up, namely in China. And, secondly, there
was a softening of the market in Europe.
Ms. DeGette. OK.
Mr. Chu. A lot of subsidies were being--they were
decreasing, and the demand was softening.
Ms. DeGette. Now, at some point, there was a decision,
then, to restructure the loan, correct?
Mr. Chu. Yes.
Ms. DeGette. And why didn't the Department just walk away
from the loan? Why was this decision made to restructure?
Mr. Chu. By that time, the Department knew that because of
the very competitive nature of solar--I said 40 percent in 1
year; 70 percent over a 3-year period of time, which was
unheard of--we had a half-completed factory. And it was a
difficult decision. We had two choices: We either had to stop
the loan, which would make Solyndra go into immediate
bankruptcy, with a half-empty factory--half-completed factory;
or we could say, we can continue on the contract of the loan,
which was to build this factory. Once the factory was complete,
Solyndra would have a fighting chance of continuing or it could
offer that factory sale as a whole unit.
Ms. DeGette. So there was some hope that you could recoup
the taxpayers' money?
Mr. Chu. Yes. And we----
Ms. DeGette. Now, one last question. Why was the decision
made to subordinate the government's interest to the private
investors in the restructuring?
Mr. Chu. At the time, the investors--in the time where we
were disbursing the loans, again, it was a contractual
arrangement with the Department of Energy, the investors were
putting in more equity. And as the rapidly changing market
conditions dictated, the investors said, if you want us to put
in another--first $75 million, followed by another $75 million,
this first $75 million should come ahead of the Department of
Energy.
And, again, we faced--after discussing the legality of
that--and, again, our general counsel advised me that it was
legal--then we faced this difficult decision. Do you stop
giving them the money that was agreed upon and force them into
bankruptcy, or do you go forward?
And so, this whole--it was a difficult decision, and we
were always, always focused on that path that could get as much
taxpayer recovery as possible.
Ms. DeGette. Thank you, Mr. Chairman.
Mr. Stearns. I thank my colleague.
I recognize the full chairman, Mr. Upton, the gentleman
from Michigan, for 5 minutes.
Mr. Upton. Thank you, Mr. Chairman.
I am going to follow the Dingell model of asking yes-and-no
questions, if I can.
Were you aware, Mr. Secretary, that DOE staff was concerned
throughout 2009 that the company did have a liquidity problem?
Mr. Chu. I am aware now--well, yes. I was aware----
Mr. Upton. Were you aware then?
Mr. Chu [continuing]. There was a liquidity problem in--it
wasn't a liquidity--it was a temporarily liquidity problem in
the project, which was what we were funding, namely the
construction of Fab 2, but it was only a 1-month. And
afterwards----
Mr. Upton. All right.
Mr. Chu [continuing]. It was not an issue.
Mr. Upton. That goes back to the question that Mr. Stearns
asked, but I am looking at a--on October 8th, 2010, Solyndra
executives informed DOE that the company's situation--this is a
quote now--``situation has changed quote dramatically,'' end
quote. Bill Stover, the CEO, informed DOE that it would not be
able to raise capital by the end of the year, as it originally
had planned to do so, and, quote, ``Without access to FFB loans
in October, November, and December for work that has been
completed, Solyndra would run out of cash in November,'' end
quote.
So that is there, in addition to the email that was sent in
2009 which said that they would run out of cash by the end of
August of 2011, which, of course, was true.
So were you aware of either one of those two emails to DOE?
Mr. Chu. Again, I want to not conflate the issue. The issue
of the first instance I believe was----
Mr. Upton. It shows to me that there was a pattern, that
they announced that they were going to run out of cash.
Mr. Chu. There was one instance when, in the construction
of the Fab 2 project, where--which is, I believe, the first one
you were referring to. And that, as you said--if you then go to
the next month, it goes into the black and it was a modeling
issue. In fact, history shows that that fab was constructed on
time, on budget.
Mr. Upton. But in the email from nearly a year ago, they
indicated, again, that they were going to run--without access
to funds, they would run out of cash in November of last year.
There was another email--are you aware of that email?
Mr. Chu. I believe those emails are still about the
construction of Fab 2.
Mr. Upton. All right. Were you aware of the company's
problem containing costs, that it had a cash burn rate of
almost $10 million a week, yes or no?
Mr. Chu. We knew that they had--in fact, their business
model--and this is true of many companies, especially
manufacturing companies. You have a cash burn rate, you build
up your factory, you build up your sales, you begin to sell
your product, and there was a business plan that they were
going to--which, again, nearly $1 billion of equity investments
by savvy people knew of this plan.
Mr. Upton. Were you aware in 2010 that both OMB and
Treasury were concerned that DOE was not monitoring the loan
and did not have a grip on Solyndra's financial condition?
Mr. Chu. We were, in fact, monitoring the loan. In fact,
about that time--first, we started by monitoring the loan, and
then we set up, later, a different entity. So a person that was
not part of the loan origination by that time was beginning to
monitor the loan. We set up----
Mr. Upton. Yes.
Mr. Chu. We further set up another organization within the
loan program to monitor the loan. And now what we have done is
set up organizations outside the loan program but who have
expertise----
Mr. Upton. It is our understanding that you weren't
monitoring very closely until after it was restructured.
Do you stand by the restructuring even though the
arrangement put Solyndra's interest and investors ahead of the
taxpayers?
Mr. Chu. As I said, this was a difficult choice. There was
a lengthy discussion----
Mr. Upton? So you do.
Mr. Chu [continuing]. About that. And it was a difficult
choice for us to make. And, at that time, we felt that the
first $75 million--the company would not put in--the investors
would not put in an additional $75 million in order to continue
this project. And so it was a choice of either facing immediate
bankruptcy, as I said before----
Mr. Upton. So, because of that decision, how much money do
you think the Federal Government will be able to recover?
Mr. Chu. Well, that remains to be seen, but I----
Mr. Upton. Well, what is your----
Mr. Chu [continuing]. Am anticipating not very much. But we
would not have, had we said no, stopped disbursement of funds,
stopped the completion of the factory and have it a half-
complete factory. We felt that we weren't going to recover much
of anything at all, at that point, as well.
Mr. Upton. Documents produced to the committee show that
negotiations between Solyndra, its investors, and DOE came to a
head this last August, August 26th, over whether DOE should
advance yet another almost $5.5 million to the company. The
decision was made when OMB, DOE, Treasury--the decision was
collectively no; it was stopped. And 2 days later, they
declared bankruptcy.
What was DOE's position among those three? Were they in
favor of this additional money in August?
Mr. Chu. No. In fact, during that time, there were some
phone calls. I wanted to--we got another outside, independent--
Lazard, another outside firm, to give us their estimate----
Mr. Upton. So your----
Mr. Chu [continuing]. Of the condition of Solyndra.
Mr. Upton. So, was it a decision that you were afraid to
send more good money after bad?
Mr. Chu. From their analysis and from----
Mr. Upton. The writing was on the wall?
Mr. Chu. At that time, in August of 2011--or July of 2011?
Mr. Upton. Last question. I know my time has expired. Based
on what you know and what has happened, who is to apologize for
the half a billion dollars that is out the door?
Mr. Chu. Well, it is----
Mr. Upton. DOE?
Mr. Chu. It is extremely unfortunate what has happened to
Solyndra. But if you go back and look at the time decisions
were being made, was there incompetence? Was there any
influence of a political nature? And I would have to say no.
Mr. Upton. So no apology?
Mr. Chu. Well, it is extremely unfortunate what has
happened to Solyndra. And I think you and I both feel the same.
But when the bottom of a market falls out and the price of
solar decreases by 70 percent in 2-1/2 years, that was totally
unexpected, not only by us, but if you look at the range of
predictions that were being made by financial analysts from the
last quarter of 2008, 2009, the average--there are some
outliers, but the average of those were not expecting these
prices to plummet. And so, fundamentally, this company and
several others got caught in a very bad tsunami, if you will.
Mr. Stearns. The gentleman's time has expired.
The gentleman from California, Mr. Waxman, is recognized
for 5 minutes.
Mr. Waxman. Thank you, Mr. Chairman. I hope you will be as
generous to me in the time allotted to me as you have to our
other colleagues. I will try to stay within the 5 minutes, but
I might go a little bit over it, as the others have as well.
Secretary Chu, you are a scientist, and I want to ask you a
science question. Many House Republicans, including many
Republicans on this committee, deny that climate change is
occurring. Are they right? Is climate change a hoax, or is it
real?
Mr. Chu. No, the climate is changing, and there is much
compelling evidence to suggest that a large part of it is due
to human activity.
Mr. Waxman. And that is because most of our world's energy
comes from fossil fuels, like coal and oil, that emit
quantities of carbon pollution; is that right?
Mr. Chu. That is correct, that it is due to greenhouse gas
emissions, carbon dioxide being the biggest.
Mr. Waxman. Does our future economic prosperity depend on
building new energy industries?
Mr. Chu. Yes.
Mr. Waxman. And that is for our economic wellbeing, but it
is also for stopping the climate change, if that is possible;
isn't that correct?
Mr. Chu. That is absolutely true. I think because of these
two factors that we will need clean energy. But there is
another very important factor, that if you look at the market
and you look at what the price is going to be for solar and
wind, the expectation is that wind--wind, right now, according
to Bloomberg New Energy Finance, costs, levelized cost, 7 cents
a kilowatt hour. This is getting in the range of the cost of
any new form of energy.
Mr. Waxman. Well, you mentioned in your comments, your
opening statement, China and Germany. Are we in a race with
China and other countries to make the solar panels and wind
turbines that will be the cornerstone of the clean energy
economy for the future?
Mr. Chu. Yes, we are.
Mr. Waxman. I ask you these questions because they are the
lens in which we need to understand Solyndra. Investing in
Solyndra involved risk, but it was a risk that you thought was
worth taking because of the importance of clean energy to our
economic future; is that right?
Mr. Chu. That is correct.
Mr. Waxman. Members on this committee say they are
shocked--shocked--that you would invest in a company as risky
as Solyndra. But, in March 2009, before Solyndra received its
conditional commitment, you said publicly that you were going
to set aside some loan guarantees for higher-risk projects,
which you said were projects that had a default rate as high as
10 to 30 percent.
I want to show you on the monitor what you said. Quote,
``We should be making some higher-risk loans. These would be
much more innovative, might be more likely to fail, but could
create bigger changes in the long run,'' end quote. You said
this in March 2009 before the Energy Department gave Solyndra a
loan.
When DOE awarded Solyndra the loan guarantee, were you
aware there was a risk that the project could fail?
Mr. Chu. I think, not only was I aware of it, all of
Congress, in passing the bill, as they said, they appropriated
$10 billion to cover for loan losses. That appropriation is
very valuable; it could have been appropriated for other worthy
causes. And so Congress knew of the risks.
Mr. Waxman. Secretary Chu, your reputation for integrity is
unimpeachable. You have just told us that you gave Solyndra a
loan guarantee that you knew was risky because we are in a race
with China and other nations to develop a clean energy economy
for the future. Republicans on this committee paint a very
different picture. They say you gave Solyndra a loan guarantee
as a political favor to a campaign contributor to President
Obama.
Can you tell us unequivocally that the decision to give
Solyndra a loan guarantee was made on the merits?
Mr. Chu. Absolutely, it was made only on the merits.
Mr. Waxman. And can you tell us unequivocally that campaign
contributions played no role in that decision?
Mr. Chu. Yes. They played no role.
Mr. Waxman. It's pretty obvious what's going on in this
hearing room. House Republicans and their coal and oil industry
allies are manufacturing a scandal, trying to discredit you,
President Obama, the clean energy companies. That's a great
deal if you're an oil company or a coal executive, but it's
unfair to you and a disservice to the American people. This was
a decision made on the merits because of the urgent need to
build a clean energy economy. There is no evidence in the
voluminous records before the committee to support the
allegations of political favoritism.
The Republicans on this committee have said over and over
again, they haven't been able to get the information they've
requested. Your Department has already turned over to this
committee 186,000 pages of documents. Is there anything you are
holding back?
Mr. Chu. No. In fact, we--I've instructed my staff to be as
cooperative as possible with this committee.
Mr. Waxman. And there have been 13,000 pages of documents
from the Office of Management and Budget, and over a thousand
pages of documents from the White House, which the White House
was willing to give this committee, but the committee rushed to
a subpoena to force it, and there are nearly 200 pages of
documents from the Treasury.
With all of these documents in before this committee, I
don't think the Republicans have been able to sustain the
accusations that they've tried to make, mainly on innuendo,
that this was a loan guarantee that should not have been made
or that should not have been continued when the loan was
restructured. I thank you for your cooperation in today's
hearing.
Mr. Stearns. The gentleman's time has expired.
Recognize the gentleman from Texas, Mr. Barton, for 5
minutes.
Mr. Barton. Thank you, and Mr. Secretary, I, too, will
stipulate that I think you're a man of integrity, so I do share
that sentiment with Chairman Waxman.
He and Ms. DeGette have just made a big deal of asking you
about political influence, and you have stated under oath that
there was no political influence and that you are not aware of
any, and I believe that you believe that.
Having said that, who at the White House or the Department
of Energy, since there was no political influence, asked
Solyndra to delay the announcement of plant closures and
layoffs until after the election in November of 2010, since
there was no political influence on this? Who made that
request?
Mr. Chu. Sir, I don't know. I just learned about that. I
think----
Mr. Barton. You do know that it was made, though, don't
you?
Mr. Chu. I just learned about it very recently.
Mr. Barton. So you all don't operate in a total vacuum. I
mean, you know, you know who George Kaiser is, I'm sure?
Mr. Chu. Yes, I know now.
Mr. Barton. You knew that he was a major investor in a
venture capital firm that had a major stake in Solyndra; you
knew that?
Mr. Chu. Not at the time of the evaluation of the loan, not
at the time of the restructuring. I know now what his
connection--what his role has been. He was one of the equity
investors.
Mr. Barton. I believe that you're being truthful when you
state that he never asked you about this particular loan
program. I absolutely believe that, but it's the elephant in
the room. Everybody and their dog at DOE knew who he was and
knew what he was involved in, and we have on the record that he
was in and around the White House at least 16 times in the time
period that the Solyndra loan program was being reviewed after
the Bush administration has said that it wasn't ready.
I'm going to ask you a series of questions here, and I hope
that you can answer them with a yes or no answer.
Could we put up on the screen the Energy Policy Act,
Section 1702?
Mr. Secretary, I'm sure that you've read Section 1702 of
the Energy Policy Act, conditions, part D, subsection 3,
regarding subordination, and it reads, item No. 3, the
obligation shall be subject to the condition that the
obligation is not subordinate to any other financing. You've
read that, right?
Mr. Chu. Yes.
Mr. Barton. OK. Do you understand what the word ``shall''
means?
Mr. Chu. Yes.
Mr. Barton. OK. I believe that the Solyndra loan
restructuring program was in violation of this law because--and
your department did not follow the plain language of the law--
because the obligation shall not be subordinate to other
financing. In fact, since you made the opposite decision, who
did you consult with before you made that decision?
Mr. Chu. The general counsel of the Department of Energy.
Mr. Barton. The general counsel.
Mr. Chu. And I believe that that was about the origination
of the loan, and under the conditions of the origination of the
loan, we shall not subordinate to any other----
Mr. Barton. So the general counsel would be Susan
Richardson?
Mr. Chu. No, this would be Scott Harris.
Mr. Barton. Who is Susan Richardson?
Mr. Chu. She works--she's a counsel who works in the loan
program, and she----
Mr. Barton. She works, OK. I understand that she is the
chief counsel of the loan program. Is that your understanding
also?
Mr. Chu. That is my understanding.
Mr. Barton. OK. Did she consult directly with you about the
language of the law that we've just read?
Mr. Chu. She consulted extensively with the General
Counsel's Office, with Scott Harris and others. There was an
extensive discussion about that issue, and it was again when it
was finally brought to me by the general counsel, Scott Harris,
it was their opinion that this did not violate the terms of the
law.
Mr. Barton. When did Mr. Harris bring that to you?
Mr. Chu. This was in a discussion as we were discussing
whether we should subordinate or not, and it had to do with
restructuring, and so before we could even think of
restructuring in a subordination, we had to make sure that it
was legal.
Mr. Barton. What date was that?
Mr. Chu. I can't----
Mr. Barton. Well, my--the reason----
Mr. Chu. I don't remember the exact date, but it was----
Mr. Barton. I don't want to cut you off, Mr. Secretary, but
the reason the dates is important is that my understanding is
the decision was made to subordinate before the memo accepting
subordination was prepared. So there was a decision, and then
after the decision made--at least I'm told this--the decision
was made to subordinate, but the action memo which authorized
it wasn't signed until after the decision had been implemented.
Is that true to your knowledge?
Mr. Chu. No, I don't--I would not know that, but it
certainly would not be the way we do things in business, the
way we do things in the Department of Energy. One has to first
decide whether what are the legal bounds----
Mr. Barton. My time is just about to expire. Does the name
the law firm Morrison & Foerster mean anything to you?
Mr. Chu. Yes.
Mr. Barton. What are they?
Mr. Chu. They're a law firm in California in the Bay Area.
Mr. Barton. All right. And they're also a consultant for
your Department of Energy. Are you aware that they prepared a
memo saying that this subordination was illegal and shouldn't
be allowed? Are you aware of that?
Mr. Chu. No, I'm not aware of that.
Mr. Barton. Even though you said you welcome outside ears
and eyes, and they were asked to prepare a draft memo, but once
they prepared it and your general counsel saw what was in the
draft memo, they basically said, we don't want to hear that.
Are you aware of that?
Mr. Chu. I'm not aware of that. I'm aware of the fact that
there was a lot of discussion with Morrison & Foerster with our
General Counsel's Office.
Mr. Barton. OK, my time has expired, Mr. Chairman, but
we're going to do more than one round; is that not correct?
Mr. Stearns. That's correct.
Mr. Barton. Thank you, Mr. Secretary.
Mr. Stearns. Recognize the distinguished gentleman from
Michigan, Mr. Dingell, for 5 minutes.
Mr. Dingell. Mr. Chairman, thank you.
Mr. Secretary, these questions are yes or no. Did DOE hire
experienced people in loan programs to do the analysis on loan
applications?
Mr. Chu. Yes, we did.
Mr. Dingell. Did DOE hire experienced outside consultants
to help in analyzing industries, markets, and other areas of
concern to the Loan Programs Office?
Mr. Chu. Yes.
Mr. Dingell. Did the Loan Programs Office share information
with OMB and Treasury during due diligence process?
Mr. Chu. Yes.
Mr. Dingell. Was that process open and transparent?
Mr. Chu. We shared a lot of information with OMB and
Treasury.
Mr. Dingell. So it was open?
Mr. Chu. I mean, I don't know what you mean----
Mr. Dingell. Yes or no.
Mr. Chu. It was open between OMB and Treasury and us.
Mr. Dingell. Thank you.
Now, you mentioned in your opening statement that Members
of Congress submitted letters for projects in their districts.
I happen to know I did. As a matter of fact, I did with my good
friend Mr. Upton, we submitted it together for a project in
Michigan, which, curiously enough, happens to be in trouble
because of a similar market collapse.
Now, did DOE or the Loan Programs Office take these letters
into account when examining loan applications?
Mr. Chu. Yes.
Mr. Dingell. So it's correct that DOE or the Loan Programs
Office only examined the merits of loan applications and did
not consider any influence from the Congress or the White
House, yes or no?
Mr. Chu. We did not consider any influence.
Mr. Dingell. All right.
Now, let me look at this. We've heard all these complaints
about the fact that the Federal guarantee was subordinated to
private loans. It was superior to earlier private loans, was it
not?
Mr. Chu. Yes.
Mr. Dingell. OK.
Mr. Chu. Well----
Mr. Dingell. It was not superior to and it was subordinated
to subsequent private loans; is that right?
Mr. Chu. Yes. The first $75 million of the initial funds.
Mr. Dingell. Now let me keep going.
Without that step, you would not have been able to get any
private money to assist the Federal guarantee in saving
Solyndra; is that right?
Mr. Chu. That is correct.
Mr. Dingell. OK.
Now, I'm sure you're aware this committee has issued
subpoenas for documents to OMB and to the White House, and we
have not done so for DOE, your agency, and for your department
because you've provided us over 186--pieces of documents
related to this issue. Are you aware of any of the 186,000
documents included in communications between the DOE and the
White House?
Mr. Chu. Are you asking am I aware of all 186,000 pages?
Mr. Dingell. Well, the question is, are you aware of any of
these documents that were communications between DOE and the
White House?
Mr. Chu. I'm not sure what communications there were
between DOE and the White House, but certainly we did not
communicate with the White House on whether we should approve a
loan and especially the Solyndra loan. That was our
responsibility.
Mr. Dingell. OK. So did you have any personal
communications with President Obama, with the Vice President,
or campaign donors or others who had financial interests in
Solyndra?
Mr. Chu. No, I did not.
Mr. Dingell. Now, based on the information you have
received and have reviewed regarding the due diligence done by
DOE during the Bush and Obama administrations, do you believe
that the Solyndra loan was awarded based on the merits of the
application? Yes or no.
Mr. Chu. Yes, I believe it was awarded on the merits of the
application.
Mr. Dingell. So here--do you agree with this statement: I
believe that, first of all, you had a law which said that you
should make these guarantees.
Second of all, you have got a situation where the Chinese
are eating our lunch. They're producing batteries and solar
panels and all kinds of things because, as you have observed,
their government, through the China Development Bank, has
offered more than $34 billion in credit lines to China solar
companies alone. Other countries are doing the same thing,
Japan, Korea, and probably other South Asian countries.
Now, having said this--and of course, Germany and Canada
are doing exactly the same thing. So you found yourself in a
position where you had a law that says you've got to do
something. You had a depression on your hands. And you were
trying to produce jobs. And you had an industry that you were
trying to develop in the United States so that we're going to
be able to compete instead of the Chinese dominating the
market, as they seem now to be proceeding to do. Is that a fair
statement?
Mr. Chu. They certainly want to dominate the market, and we
were executing the laws as passed by Congress on the loan
program.
Mr. Dingell. This is one of the things that motivated you
to try to get Solyndra into the business, isn't that so?
Mr. Chu. That is true. I mean, this is a worldwide
competition, as I said before.
Mr. Dingell. Now, what caused the big problem as near as I
can gather is that the market collapsed; is that right?
Mr. Chu. Well, the price of solar modules plummeted, that
is correct.
Mr. Dingell. That's what I'm saying. I yield back the
balance of my time.
Thank you, Mr. Secretary.
Mr. Stearns. Thank the gentleman.
The gentleman from Nebraska, Mr. Terry, is recognized for 5
minutes.
Mr. Terry. Thank you.
And, you know, the ultimate question before this
subcommittee is really, was it a meritorious loan? Is it
something that should not have been finalized and spent? That's
why you're here, so we can ask the questions and get the
feelings.
So, first of all, the Solyndra loan was finalized in
September 2009, is that your understanding?
Mr. Chu. That's my understanding.
Mr. Terry. All right. So you were one of the--I mean, you
have a premier resum, one of the most respected people in the
Cabinet, and you were sworn in. You were confirmed easily. And
what was the first day you took office?
Mr. Chu. I think it was January 22nd.
Mr. Terry. And when were you first briefed by DOE staff on
the Solyndra application?
Mr. Chu. Actually, I don't know about the Solyndra
application, quite candidly. Certainly early on, once I became
Secretary, there was--I was focused on trying to get the loan
program going. As I said before, in my confirmation hearings,
that was a central theme among many Members of Congress.
Mr. Terry. So you don't--you can't identify when you were
first briefed on this loan?
Mr. Chu. On Solyndra? No, I--I think early on, it was----
Mr. Terry. Certainly you knew about it before September
2009?
Mr. Chu. Yes.
Mr. Terry. OK. Then you testified earlier that you were
aware of the January 9th credit committee voted against
offering a conditional commitment to Solyndra, noting, quote,
number of issues unresolved makes a recommendation for approval
premature at this time.
Were you aware of that January 9th decision----
Mr. Chu. I'm aware----
Mr. Terry. [continuing]. Prior to the loan being finalized
in September of 2009?
Mr. Chu. I'm aware of it now, but was I aware of it when
the loan was being finalized? I think it's safe to say that it
was just remanded back for additional information, and so,
quite often, when the loan program tells me about the loan,
what it is, whether we should be funding it----
Mr. Terry. All right. So you didn't know that there was a
decision that it was premature at the time, direct quote, until
later on?
Mr. Chu. There are many instances, sir, when----
Mr. Terry. Let me ask you----
Mr. Chu [continuing]. Applications are incomplete or there
is not enough----
Mr. Terry. I appreciate that.
Did you know that the credit committee also noted that it
had, quote, questions regarding the nature and strength of the
parent guarantee for the completion of the project and
Solyndra's ability to scale up the production, also stated in
that January 9th document? Were you aware of that before the
loan was finalized January--I'm sorry, September 2009?
Mr. Chu. I was aware, as it was briefed to me at the time,
this was before March, and the conditional commitment at that
time----
Mr. Terry. So you received a briefing in March?
Mr. Chu. I received a briefing.
I'm not exactly sure when I received the first briefing,
but certainly since Solyndra was at the head of the line, based
on the work of--during the previous administration, then it was
the one that----
Mr. Terry. Did you----
Mr. Chu [continuing]. Came up.
Mr. Terry. February 12, 2009, DOE stimulus adviser stated,
quote, litmus test for the loan guarantee program's ability to
fund good projects--that Solyndra, I'm sorry. That Solyndra is
the, quote, litmus test for the loan guarantee program ability
to fund good projects quickly. Were you aware of his quote?
Mr. Chu. I'm aware of it now.
Mr. Terry. Before September?
Mr. Chu. But I think what we were--this was Matt Rogers,
and both Matt Rogers and I felt very focused to make the loan
program, and from time of application of a complete application
to the time of approval, something akin to about a year of due
diligence.
Mr. Terry. All right, but he stated that on February 12,
2009.
Mr. Chu. Right.
Mr. Terry. Did you have a discussion in around February 12,
2009, that Solyndra is the litmus test?
Mr. Chu. I believe by ``litmus test,'' what he meant was
that this was going to----
Mr. Terry. No, I'm sorry, I didn't ask you for your
interpretation of his statement.
Mr. Chu. Right.
Mr. Terry. But he said Solyndra is a litmus test. Were you
aware of that statement?
Mr. Chu. You know, I don't recall that, but if he went and
said that, I'm sure we----
Mr. Terry. All right. And you had a conversation with
Matt--what was his last name?----
Mr. Chu. Rogers.
Mr. Terry [continuing]. Rogers around middle of February of
2009 about this Solyndra application?
Mr. Chu. Right, because Solyndra was first on the line----
Mr. Terry. Did you hire Matt Rogers?
Mr. Chu. I did.
Mr. Terry. Pardon me?
Mr. Chu. I did.
Mr. Terry. You hired him, OK. Was he recommended by the
White House?
Mr. Chu. No.
Mr. Terry. You just out of the blue said I need a stimulus
adviser?
Mr. Chu. Actually, yes. What I wanted, because the--at the
time, the U.S. economy was in free fall; we were losing
hundreds of thousands of jobs a year, and I wanted someone that
could manage this huge portfolio to spend the money wisely but
also to spend it quickly to put Americans back to work.
Mr. Terry. All right, thank you.
Mr. Chu. Mr. Chairman, could I----
Ms. DeGette. The witness would like to add something.
Mr. Chu. Yes. Mr. Chairman, could I----
Mr. Stearns. Yes, go ahead.
Mr. Chu. Could I just interrupt just briefly. I just wanted
to correct the record. My staff told me Morrison & Foerster,
the legal firm in the Bay Area, had specifically reviewed the
Susan Richardson memo and approved her analysis, at least
that's what my staff tell me. They approved it.
Mr. Stearns. Your counsel approved the memo?
Mr. Chu. The outside counsel Morrison & Foerster.
Mr. Stearns. Outside counsel, OK. Do we have a copy of
that?
Mr. Chu. We'll be glad to give it to you.
Mr. Stearns. If not, I think we would like a copy. That
would be good.
Dr. Christensen is what we show on our records.
Dr. Christensen, you're recognized for 5 minutes.
Mrs. Christensen. Thank you, Mr. Chairman.
And welcome, Secretary Chu. We really thank you for your
willingness to come and help us to better understand what's
happening.
I think everyone agrees that we need to understand what
went wrong with the Solyndra loan guarantee and how the loan
guarantee programs can be improved going forward. We all also
should be supporting innovative technologies, while, of course,
as we have been doing, watching out for the taxpayer, but we
also need to understand the big picture.
The loan guarantee program doesn't just support solar,
wind, and other renewable energy projects. A substantial
portion of the incentives are also available for nuclear
projects. In fact, Congress has authorized $18.5 billion in
loan guarantees for nuclear plant construction costs. An
additional $4 billion in loan guarantees is available for
uranium enrichment facilities. The Vogtle nuclear plant project
has already received a conditional commitment. The loan
guarantee would be worth over $8 billion. That's 16 times the
size of the Solyndra loan. A $2 billion conditional commitment
has also been provided to Areva for a uranium enrichment
facility in Idaho.
So my first question, Secretary Chu, I think it's important
to have a balanced program. If we're going to provide billions
of dollars in loan guarantees for new nuclear power plants, we
should also support innovative solar, wind, and geothermal
energy projects. What do you think?
Mr. Chu. I agree.
Mrs. Christensen. You agree.
Unlike the nuclear industry, the renewable energy industry
is still in the early stages of development. Some of the
technologies supported by the loan guarantee program have never
before been built at utility scale. So Secretary Chu, what role
do you think the loan guarantee program should play in
encouraging the development of emerging technologies?
Mr. Chu. Well, according to the bill passed by Congress,
and I agree with their sentiment, precisely that we should be
investing in innovative technologies. We should be investing in
first-of-a-kind or first large-scale deployment of some of
these innovative technologies, and by doing so, we create a
marketplace within the United States. And also we, as we invest
in innovative manufacturing technologies, we are in the race of
a high technology race that is in a sweet spot of the United
States.
The United States invented the modern solar photovoltaic
technologies, not only silicon but also the thin film
technologies, and I believe we can compete and compete
successfully in those technologies for what will be a hundreds-
of-billion-dollars-a-year market.
Mrs. Christensen. I agree. And we just can't afford to sit
on the sidelines and allow other countries like China to
dominate the market. We need those jobs and investments.
When we try to help U.S. companies compete against heavily
subsidized Chinese competitors, not every project is going to
succeed, but we cannot just let Solyndra's failure be an excuse
to throw up our hands and give up on this huge market.
Secretary Chu, can you share your thoughts about why we
need to compete for this clean energy market, whether
American--well, I guess you've really answered that we need to
compete. American companies can be successful. As you said, we
invented the photovoltaic solar machinery.
Mr. Chu. Right. Well, let me add again----
Mrs. Christensen. But also what policies should we put in
place to help make this happen beyond what we've already done?
Mr. Chu. Well, first, let me tell you about the size of the
market. As I said in my opening remarks, it's something of a
$235 billion renewable energy market. According to some recent
analysis by Bloomberg New Energy Finance, by 2020, that's
expected to be close to $400 billion a year. By 2030, that's
expected to be roughly $460 billion a year renewable energy,
most of it, 80 percent of it roughly, in wind and solar
technologies. By 2030--2020 or even less than 2020, wind is
expected to reach parity with any form, new form of energy.
Solar, there's a debate whether it becomes as inexpensive as,
let's say, gas, by 2020 or 2030 or 2025, but there's a heavy
expectation in the business world that these technologies will
become competitive without subsidy in a short period,
relatively short period of time.
And so the whole issue, and this is why it's so important
to the United States, is that in this hundreds-of-billion-
dollars-a-year market, do we want to be buyers or sellers? And
we have the intellectual capacity to be the sellers.
Mrs. Christensen. And with all of that investment comes
jobs, correct?
Mr. Chu. Yes.
Mrs. Christensen. Lots of jobs?
Mr. Chu. Lots of jobs, lots of wealth creation in the
United States.
Mrs. Christensen. Thank you.
Mr. Chu. And there's a world market out there.
Mrs. Christensen. Thank you.
Mr. Stearns. Ms. Myrick is recognized for 5 minutes.
Mrs. Myrick. Thank you, Mr. Chairman.
Mr. Secretary, were you aware that Solyndra sent the
committee a letter on July 13th of 2011, describing the
financial condition of the company?
Mr. Chu. I can't say to the exact date, but around that
time, the company was in trouble.
Mrs. Myrick. Well, Mr. Harris wrote the committee at that
time with the purpose of providing us with the most accurate
and up-to-date information regarding Solyndra and our
performance in the market, and that's a quote. And he also
wrote the following fact, and I quote, Solyndra's revenues grew
from $6 million in 2008 to $100 million in 2009 to $140 million
in 2010, and for 2011, revenues are projected to nearly double
again. PriceWaterhouseCoopers audited the financial statements
that were completed on June 30th in 2010, and they
substantially agreed with that, but there were several points
that they didn't mention, and I would like to state those.
They didn't mention that the 2010 revenue amount was
exactly half of the $284 million they had originally projected
in their loan application. And they did not mention that
audited cost of revenue was $162 million in 2009 and $284
million in 2010 for a gross loss of 61 percent and 100 percent
of revenue respectively. Additionally, audited operating
expenses showed a loss from operations, and Solyndra did not
mention that audited net loss was a staggering $172 million in
2009 and another $329 million in 2010. They didn't mention that
cash flows from operations showed a massive outflow of net cash
used of $170 million in 2009 and $194 million in 2010. This, to
me, is a large red flag as cash flow from operations is usually
a source of cash, not a use, and cash flow showed cash
depleting at a rapid rate, from $82 million in 2008, $52
million in 2009 to $32 million in 2010. So when did you become
aware of this what I think is misleading information that
Solyndra submitted to Congress? And, you know, if you did, when
you became aware of it, what did you do, if anything?
Mr. Chu. Well, certainly, I became aware that the company
was in financial stress at the time of restructuring, as we
were discussing what to do, and as time progressed, became
increasingly aware that the projections of the company were not
being met, and so certainly by 2011, by the spring of 2011, I
knew that this company was in deep trouble.
Mrs. Myrick. Well, Mr. Silver, when he testified at the
committee in September, said he's doing the best job we know
how to do and the company was meeting projections.
Also, were you made aware of the fact that based on this
data, the auditors issued a going concern qualification in
March of 2010 that raised substantial doubt about the company's
ability to continue in business?
Mr. Chu. I'm aware of it now. I believe that was the
PriceWaterhouseCoopers audit.
Mrs. Myrick. Correct.
Mr. Chu. And I think in that instance that they were asked
to assist and give an audit as to whether Solyndra could have
an initial public offering, and due to the circumstances of
Solyndra and due to the market in a terrible recession, they
said no, this was not the time to have an IPO.
Mrs. Myrick. Did anyone in DOE review that financial
information then and raise the concerns?
Mr. Chu. I'm sure they did, but I don't know personal
knowledge of to what extent they reviewed the
PriceWaterhouseCoopers analysis.
Mrs. Myrick. Did Solyndra say how the sales were going to
cover its selling and general administrative costs?
Mr. Chu. I believe that Solyndra had expectations of sales
that, as you pointed out, did not come to pass.
Mrs. Myrick. And also they, their manufacturing cost was up
to twice sales revenue for a gross loss, that was part of it as
well?
Mr. Chu. I certainly knew they had--that they were--their
sales were not up, that they had to be selling at a discount
because, again, all companies had to sell their product at a
discount. Solar panels, although very high tech, are a
commodity, and when prices go down by 70 percent in 2.5 years,
you're knuckling down. All the companies are knuckling down;
they're trying to ride out this storm.
Mrs. Myrick. Did that auditors' growing concern question--
raise concern within the department? Was that expressed and
talked about at all?
Mr. Chu. Certainly, first, the growing concern, that is
kind of a standard language. In a start-up company, there is a
question as to whether, as you start this company, as you start
up the manufacturing, the business plans, are you going to have
negative cash flows, and at sometime those cash flows turn
positive. The investors, the very savvy investors who invested
nearly a billion dollars, the part of their business plan was
that it would be sometime in 2011 before they would actually go
in the black, and that turned out to be incorrect, and then
more recent projections pushed that back several quarters.
Mrs. Myrick. Thank you.
Mr. Stearns. The gentlelady's time has expired.
The gentleman from Massachusetts, Mr. Markey, is recognized
for 5 minutes.
Mr. Markey. Today Americans are focused on the oversized
influence of the oil companies and others through the Occupy
Wall Street movement, yet Republicans are pushing their own
pre-occupy movement in the hopes that Americans will be too
preoccupied with this one loan to a clean energy company that
they won't see the tens of billions of dollars in government
subsidies given to the oil, coal, and nuclear industries, the
Republican favorites. The result, we're getting a distorted
picture of the real market conditions that threaten our
economic future.
Who we should really be talking about are not the
bureaucrats at DOE, but the bureaucrats in China, who have made
a strategic decision to drive foreign competitors out of the
solar market. They did it with the rare earth minerals industry
in the 1990s, and they are doing it right now with the solar
industry.
Secretary Chu, many of my colleagues on this committee
think renewable energy is the stuff of the Jetsons. They think
solar panels are just like flying cars or life-sized robots
that do housework, maybe some day way in the future. They're
completely oblivious to the revolution that is going on.
Mr. Secretary, last year globally 194,000 megawatts of new
electrical generating capacity was installed on the planet.
What percentage of that new electrical generation power came
from renewable sources? One-half of it in 2010. Half. And solar
is by far the fastest growing energy industry in the world.
Over the last 5 years global solar installments have increased
1,000 percent to 17,400 megawatts in 2010. For every new
nuclear power plant globally that went online last year, four
times as much new solar capacity was deployed. In the U.S.,
there are now 85,000 employees in the coal industry; 85,000
employees in the wind industry; and 100,000 employees in the
solar industry. That's the story here. Solar has big coal and
big nuclear and the established energy sector scared stiff, and
they've enlisted the Republican party to do something about it.
That's the real story here.
The Republicans have now essentially eliminated loan
guarantees for renewable energy this year, and they have left
$30 billion for nuclear and coal as loan guarantees. They
passed legislation to cut the solar research budget for next
year by 64 percent, but they've increased the budget for
nuclear and fossil energy. In their budget, they promised to
cut clean energy investments by 90 percent over the next 3
years.
Historically, just as there has been a Moore's law for
computer chips, there also has been a Moore's law for solar.
For every doubling of solar deployments worldwide, the price
declines by 18 percent. At least that was the case until this
year. Through the first 8 months of this year, the price of
solar panels has fallen 42 percent, a 42 percent drop in just 8
months. So the irony here is that the Republicans attack
renewable energy because they claim it's too expensive, but
Solyndra failed because solar is getting too cheap. The price
of solar and wind and other clean energy is dropping while coal
and oil prices have risen. And the Republicans and the fossil
fuel industry can't let clean energy win.
And why has this happened? Why has there been a 42 percent
drop? I will tell you why. Our country is in a race right now.
There's a global race to become the leading maker of solar
technology, and we have some fierce competitors. Last year
alone, China gave five solar companies $31 billion in financing
assistance. That's on top of free land, extensive tax breaks.
That's on top of a domestic currency that is substantially
undervalued and allegations of dumping by Chinese state-
sponsored solar companies into the U.S. market by our solar
industry.
Secretary Chu, do you agree that this massive intervention
into the market by China has fundamentally altered the market
for solar panels and in fact made it very difficult for solar,
for Evergreen, for Energy Conversion Devices in Michigan to
survive, that the prices have plummeted and just like pets.com
and the dot-com bubble, there are individual companies that are
going to fail inside of a larger success story for solar and
renewables?
Mr. Chu. Yes, I agree with that. Certainly, as I've
indicated before, China has targeted all renewable energies as
on their critical path for their future prosperity, not only
for their domestic use, and they're going to be the leading
user of renewable energies, but also they see a huge export
market.
Mr. Markey. So when the price of silicon dropped
dramatically, 90 percent, that hurt the technology of Solyndra
because it was something that they were depending upon to have
a much higher price point.
Mr. Chu. Right.
Mr. Markey. And that price point collapsed for them?
Mr. Chu. That is correct. Silicon and solar modules in
general dropped, you said 42 percent in 8 or 9 months and 70
percent in a couple years. That's unheard of. It was violating
the learning curve, the Moore's law that you spoke about, it
was----
Mr. Markey. That's what happened with cell phone prices
because of action in this, is that the price dropped 90 percent
for cell phones after we passed three bills out of this
committee. We don't mourn the old brick size of phones. We all
decided to put those phones at under 10 cents a minute in our
pocket. That's what's happening in the solar market.
Mr. Stearns. The gentleman's time has expired, and
recognize Mr. Sullivan for 5 minutes.
Mr. Sullivan. Thank you, Mr. Chairman.
Thank you, Secretary, for being here today, and I hear my
good friend from Massachusetts talking about all these jobs
that have been created, and you've talked about all these jobs
that have been created in renewable energy and solar and wind,
and looking at your Web site, it says you've created 60,000
American jobs. Is that true?
Mr. Chu. I believe that to be correct.
Mr. Sullivan. And, you know, these jobs seem pretty
expensive to me, you know. You talk about the low cost, you
know. At least in the coal and gas and oil industry, we're not
paying for these jobs. These are private sector jobs that
aren't helped by the government. And on your Web site, we took
the 60,000 in Section 1703, you obligated $10,647,000,000 for
those jobs. Sir, that's $1,625,000 per job. On Section 1705,
05, you obligated $16,128,500,000 for those jobs. That cost
$963,585 per job. The ATV program you obligated $9,129,000,000,
that's a cost of $221,557 per job. I mean, that's a lot. How do
you justify paying that much? I mean, sir, I want to have jobs;
14 million people out of work and unemployment at 9 percent, I
want jobs, but I think paying for them like this is a really
bad idea. What do you have to say about that?
Mr. Chu. Well, let's start with, for example, the nuclear
loan. I believe that was something like an $8 billion loan. The
Federal funds, the company, the applicant that applied for the
loan had to pay the credit subsidy for that loan. I think it
was 3 or 4 percent; I'm not exactly sure how much. So the
amount of government taxpayer dollars that went into that $8
billion or $9 billion loan was essentially zero, and so because
the company itself paid for that.
Mr. Sullivan. Do you stand by paying this much for these
jobs?
Mr. Chu. I'm trying to explain, sir, that when you have a
1703 program where the company, the applicant pays for the
credit subsidy, they are actually--that's not taxpayer dollars.
That's coming from the company.
Mr. Sullivan. Back to the Solyndra loan, would you do that
loan again, knowing what you know today?
Mr. Chu. Would I do Solyndra knowing----
Mr. Sullivan. Knowing what you know today, would you
approve that loan?
Mr. Chu. Certainly knowing what I know now, we would say
no, but you don't make decisions, you fast forward 2 years in
the future and then go back. I wish I could do that.
Mr. Sullivan. How closely were you involved in the loan
process there?
Mr. Chu. In the loan process, I was--I have to approve all
the loans, and I have to be briefed on all the loans, and I ask
questions about the loans as they come up.
Mr. Sullivan. But, Mr. Secretary, with respect to the
Solyndra loan application, were you aware that Solyndra
reported zero sales in 2005 and 2007? You talked about that
model being acceptable earlier.
Mr. Chu. 2005, I'm not even sure they actually had a fab
plant up in that time, in the early days, when it was first
formed as a company. You first have to build a factory, you
have to build product, and then you sell.
Mr. Sullivan. Well, in 2010, you were Secretary at that
time; is that correct?
Mr. Chu. Yes.
Mr. Sullivan. And Solyndra at that time, did you notice--
you said earlier you noticed they were having some difficulty,
and they expressed that to you, right?
Mr. Chu. Certainly by the end--certainly by 2011, we knew
that there were--Solyndra was in trouble.
Mr. Sullivan. Did you know that from then, in 2010, did
they discuss with you that they potentially would have to lay
people off and do some downsizing?
Mr. Chu. They did not discuss that with me.
Mr. Sullivan. They never discussed anything like that with
you?
Mr. Chu. They might----
Mr. Sullivan. Did they discuss it with anyone at the
Department of Energy?
Mr. Chu. They may have discussed it with people in the loan
program.
Mr. Sullivan. OK. So they discussed it with people in the
loan program, so they were aware that Solyndra was having some
difficulty in 2010. Would you say that, yes or no, is that
correct, that that was expressed to someone in the loan
department?
Mr. Chu. I would say that people in the loan department
would know about it.
Mr. Sullivan. Why--who put the pressure on you or them to
delay divulging that knowledge until after the elections?
Mr. Chu. There was no pressure. I was not part of that
decision, and I certainly would not have been in favor of that
decision.
Mr. Sullivan. And I believe you to be truthful in that
statement, but someone put pressure on them to not--delay that
divulging of that information on Solyndra until after the
elections in 2010, and that's very political. I think it was
done for political reasons. Do you think that's a proper way to
do business?
Mr. Chu. No, I don't think it's a proper way to do
business.
Mr. Sullivan. Thank you.
Now, who at the White House put pressure on you to get
these loans done so quickly without doing the proper due
diligence?
Mr. Chu. First, no one in the White House. We never cut
corners in doing the proper due diligence. As I said before, if
you look at the average time of due diligence from the time of
formal application of the loans, it's something like 300----
Mr. Sullivan. Would you say proper due diligence by you
would be no information on projected sales, general
administrative expenses or estimated net profits, is that
proper due diligence, and then get the loan out before getting
that kind of information?
Mr. Chu. The business plan of Solyndra and of any start-up
company is that as you're building the factory and building
sales, you expect to be taking losses. The business plan was
they actually expected to be in the red until sometime around
2011, and with that business plan, remember, there's a lot of
savvy investors who spent nearly, invested nearly a billion
dollars before the U.S. Government looked at them.
Mr. Sullivan. Thank you, Mr. Secretary.
Mr. Stearns. The gentleman's time has expired.
Recognize the gentleman from Texas, Mr. Green, for 5
minutes.
Mr. Green. Thank you, Mr. Chairman.
Thank you, Secretary Chu, for appearing before the
subcommittee. The events surrounding Solyndra are of great
concern to me because--and a number of us were on this
committee in 2005 when we put the loan program into effect and
authorized it. It was a program that championed by both
Democrats and Republicans in 2005, first passed by a Republican
House and then signed by President Bush.
When I voted for the 2005 energy bill, I never intended
that taxpayer money would be made a lesser priority for
repayment than other outside investors, and I know we saw the
section of 1701(d)(3) on the board a few minutes ago, and I've
read the opinion from an outside counsel that went into the
decision of saying that that's really not true, but, you know,
the black letter law typically is the one that we all look at.
I understand that the taxpayer money was subordinated for those
outside investments as part of the restructuring and not the
original loan.
Can you explain how the department came to that conclusion
that you would be living up to your fiduciary relationship as
Secretary of Energy, just like we have a fiduciary relationship
to the taxpayers, and responsibility for that subordination?
And like I said, I did read the section and the opinion. I
obviously disagree with the opinion of the outside counsel
that, all of a sudden, you could subordinate that loan. Was it
based on that outside counsel opinion to the Department of
Energy?
Mr. Chu. As I said, we went through a very rigorous
process, starting with Susan Richardson and the General
Counsel's Office in the Department of Energy, also outside
counsel, as pointed out in the opening statements of
Congresswoman DeGette. The previous general counsel, a previous
general counsel of the Department of Energy also concurs that
that was a decision that was within the bounds of the law. So
this was a decision that was heavily vetted through our system.
And I'm not a lawyer, but in discussing with them, the first
one was in the instance of the loan, would it be subordinated?
No, that was very clear. But as the record stands for itself on
the decision both by the memo that was communicated to me
through Scott Harris and also outside counsel and also,
finally, a previous general counsel of the Department of Energy
had no bone to pick in no way one way or the other, so we have
a number of people saying that this is commensurate with the
law.
Mr. Green. OK. Well, has the Department of Energy or, if
you know of, any Federal agency ever subordinated a Federal
loan to an outside investor?
Mr. Chu. In the case of when a loan is in trouble and in
the case of a restructuring, I do know, as I said, I've been
told that, you know, in very rare instances to be sure that Ex-
Im or OPEC, I forget which one, has done this. Usually what
happens in a restructuring is either the government takes an
equity position or a subordination, and so when you do do a
restructuring, if there's not additional money, what we were
facing was the imminent bankruptcy of a company, and we looked
at both cases, of whether it goes bankrupt now or it goes
bankrupt later, or when you have a complete factor, if it goes
bankrupt, what would be the chance of recovery?
Mr. Green. Well, I guess I have some concern about it
because, except for OPEC--and I would appreciate any
information on that because we tried to receive that from the
Department of Energy--and we couldn't, I cannot, couldn't find
any example of where we subordinated the United States interest
to someone else, but I appreciate if you could get that to us.
And I understand if you went with lawyers and outside
lawyers, previous counsel. But, as you know, sometimes like 10
economists, you'll get 11 different opinions. If you hire 10
lawyers, you may get 11 different opinions on it, but those of
us who are on the committee and actually helped draft that law
and support that program didn't ever intend that, and
hopefully, for the record, that in the future, that will be the
case, and if we have to, we'll change the language to what this
outside opinion says, but the language is pretty clear, that
subordination shall be subject to a condition that the
obligation is not subordinate to other financing. I don't know
how else you can read that except, you know, maybe getting
around it saying, this is a second, we're trying to refinance
the loan, but it seems like the refinancing should have been
under the same rules as the original loan application because I
couldn't find any time in history--I know all of us, if we
have, if we owe the Federal Government and I owe Bank of
America or Chase, believe me, the Federal Government gets our
payment first, and so that's why I think it's unusual. But you
may have had--counsel may have not been correct. Did you talk
with the Department of Justice at all? I know you talked with
in-house counsel at the Department of Energy. Was there ever
any effort to talk with the Department of Justice for an
interpretation on that?
Mr. Chu. No. We talked--I talked with our in-house counsel,
and as I noted, the Department of Energy people also sought
opinion of Morrison & Foerster.
Mr. Green. You know, it seemed like subordination is not
the common practice. Was there any concern at all except for
getting opinions of, like you said, previous counsel to the
Department of Energy or outside counsel, that you were making
precedent here or breaking precedent?
Mr. Chu. There was a discussion, and you're quite right, in
the time of origination of the loan, we could not subordinate
to any other equity partners or things of that nature, and so
there is another clause in that act that said above all, we
have to look out after the taxpayer interests and maximize
recovery, and that also is part of that act.
Mr. Green. Was it ever offered that we would take, the
taxpayers would take an equity portion of Solyndra in exchange
for our secondary----
Mr. Chu. There's a discussion about equity position. Again,
this is a new loan program, and I'm not even sure whether this
loan program can actually--I was just referring to a practice
of Ex-Im and OPEC.
Mr. Stearns. The gentleman's time has expired.
Mr. Green. Well, Mr. Chairman, I would like to make sure,
though, if we need to change the law because I don't think our
committee made that----
Mr. Stearns. I think you made that clear. In fact, you were
on the conference committee when you made that law.
Mr. Green. Well, I wasn't on the conference committee; I
was on this committee. But having supported that loan guarantee
program, because I support both the solar, the wind, the
nuclear, you name it. In fact, I've been disappointed we
weren't able to do a more aggressive program in alternative
energy, but we need to change that law because I don't think we
ever ought to let the taxpayers be subordinate to a new
investor even under a----
Mr. Stearns. Well, I understand that.
Mr. Green [continuing]. Restructuring.
Mr. Stearns. But I think you made a very excellent point
that that's--how Mr. Chu used the law was not how it was
intended, and I think you made a good point on that.
Ms. DeGette. Well, now, wait a minute.
Mr. Stearns. I mean, that's my interpretation as the
chairman.
Mr. Waxman. Well, Mr. Chairman, that's your interpretation,
but the lawyers said otherwise----
Mr. Stearns. Well, I appreciate that.
Mr. Waxman [continuing]. And that has to weigh on the
Secretary far more than your opinion or Mr. Green's opinion.
Mr. Stearns. Well, I certainly think----
Mr. Waxman. The rest of us are not willing to go along in
changing the law.
Mr. Stearns. Well, Mr. Green's opinion is what I'm agreeing
with, not yours.
Let me recognize the gentleman from Pennsylvania, Mr.
Murphy.
Mr. Murphy. Thank you, Mr. Chairman.
Secretary Chu, at the Solyndra ground breaking on September
4, 2009, you said your agency, ``moved aggressively to get
stimulus money out the door.'' Were you aware that 4 days
earlier, August 31st, the staff of OMB wrote to your agency and
said, quote, I would prefer that this announcement be
postponed, this is the first loan guarantee, and we should have
full review with all hands on deck to make sure we get it
right. Were you aware of that?
Mr. Chu. I'm aware of it now.
Mr. Murphy. All right and not before that. Were you aware
that the following day, on September 1st, 2009, OMB downgraded
Solyndra's credit rating because of the, quote, weakening world
market prices for solar generally?
Mr. Chu. What--another way of saying that, yes, is that
the----
Mr. Murphy. OK.
Mr. Chu [continuing]. Credit subsidy score went up
slightly.
Mr. Murphy. There's also an email--I appreciate that. I'm
just trying to move, sir. There's an email between Steven
Mitchell, managing director at Kaiser's venture capital firm,
Argonaut Private Equity, and George Kaiser on March 5th, 2010,
where Mitchell writes that, ``Chu is apparently staying
involved in Solyndra's application and continues to talk up the
company as a success story.'' That's on tab 23. Now, is that a
fair characterization, to say that you were personally
interested and personally involved in Solyndra's effort to get
Federal financing? Is that a yes or no?
Mr. Chu. As I said, Solyndra was the first company, the
head of the line by the loan program, and so what we were doing
is in order to get the loans out, we said, all right, who are
at the head of the lines, who are the most promising, what are
the most promising loans? Again----
Mr. Murphy. The most promising, you said, sir?
Mr. Chu. The most promising in the opinion----
Mr. Murphy. Let's hang on to that word. Let me just--
because I have to ask you some questions because most promising
is important. So were you aware then on March 16, 2010, in
Solyndra's IPO filing with the SEC, PriceWaterhouseCoopers said
it had, ``substantial doubt about Solyndra's ability to
continue as a growing concern''? Were you aware of that?
Mr. Chu. I am aware of it now.
Mr. Murphy. That doesn't sound most promising. Were you
aware that in the following month, OMB staff began expressing
concern about your agency's monitoring of the loan?
Mr. Chu. Sorry, say that again?
Mr. Murphy. Were you aware that in the following month,
that's April of 2010, that OMB staff began expressing concern
about your agency's monitoring of the loan?
Let me help you with that. What they said in April was that
when evaluating the riskiness of Solyndra, they said, ``DOE
seems to separate the parent from the project, but I think the
deal is structured in a way that does not support that view.''
So at that time were you worried that your agency's calculation
of the project's risk was completely different from the OMB
model?
Mr. Chu. I think there's lots of robust conversations that
go on between OMB and Department of Energy, and in the end, I
think OMB did not object to----
Mr. Murphy. Can you just--I've got to----
Mr. Chu [continuing]. The restructuring.
Mr. Murphy. So were you aware then, in May of 2010, 2 days
before the President's visit to Solyndra, the White House
Adviser, Valerie Jarrett, and Vice President Biden's chief of
staff, Ron Klain, contacted your chief of staff to express
their worries about the ``growing concern'' letter from Price
Waterhouse, were you aware of that conversation?
Mr. Chu. No.
Mr. Murphy. At any point in the spring of 2010, did you
discuss with the White House the, quote, growing concern letter
or the disagreements between OMB and DOE on Solyndra's
financial strength?
Mr. Chu. As time progressed, there was certainly----
Mr. Murphy. At that point?
Mr. Chu. I can't say exactly at that point.
Mr. Murphy. OK.
Mr. Chu. But certainly as time progressed.
Mr. Murphy. So were you aware--let me just try and get
these in. Were you aware that in June, after Solyndra cancelled
its IPO, an Office of Management and Budget staffer have
suggested this would be a good moment to, quote, insist that
DOE ramp up its monitoring function immediately? I mean was
your agency monitoring or not monitoring up to that point?
Mr. Chu. I was told that by that time, we were monitoring
the loans, but we had--I'm not really sure of the exact timing,
but we had one--Solyndra was our first loan, and we then
established a loan monitoring program, which has consistently
been made more robust as time progressed.
Mr. Murphy. So the following, month you had a meeting with
OMB director Peter Orszag about policy issues; is that correct?
Do you recall that meeting?
Mr. Chu. Yes.
Mr. Murphy. OK. Now, the day before the meeting, OMB and
Treasury both sent your agency a list of information needed
about Solyndra's finances. Did you discuss Solyndra with Mr.
Orszag?
Mr. Chu. No, we were discussing much higher policy issues
than a particular loan, I believe, at that time.
Mr. Murphy. So he didn't ask you for any critical
information about Solyndra's finances, including financial
statements, actual performance information, market price
reduction?
Mr. Chu. Well, my recollection at the time was that we were
discussing loans, for example, about whether if you took the
loan plus 1603 plus production factors, other things, State
subsidies, that some of the loans might be getting, there's a
policy issue about----
Mr. Murphy. Well, let me ask you this, then: Were you aware
that prior to your meeting with Mr. Orszag, OMB staffers said
on June 22nd, quote, if DOE does not stay on top of the
project, it risks becoming embarrassing, given the high profile
S1 POTUS and VPOTUS events over the past year. So I have to
ask, you said it was promising, we have lots of other agencies
saying and PriceWaterhouseCoopers and OMB and Treasury people
saying this was not going to work out. So my question is, will
you admit that there were problems in monitoring this loan and
getting you the information or you having the information
reviewed to draw a conclusion that this was promising?
Mr. Chu. By the word ``promising,'' what I mean is that
that loan was the head of the line; it was the people in the
loan program that were from the previous, who were there in the
previous administration.
Mr. Murphy. Well, I didn't ask you where they were in the
line, I asked if you there were problems you were aware of that
you were monitoring or not in spite of it being promising----
Mr. Chu. Well, at the time of the origination of the loan
after OMB's assigned credit subsidy score was something like
7.8 percent. What that means effectively is that there is a
very low probability at the time in the OMB estimation that one
would enter into default.
Mr. Murphy. And that was when?
Mr. Chu. This was at the time of the--when the loan----
Mr. Murphy. But it was restructured later on, sir.
Mr. Chu. No, after restructuring, certainly, then you
reevaluate, and our loan program does this all the time.
Mr. Murphy. Well, can you just tell me then finally, were
you aware or not of the problems of monitoring this loan?
Mr. Stearns. The gentleman's time has expired.
Mr. Chu. We are making the loan monitoring more robust. We
have a separate office, and we continue to make it more robust.
Mr. Murphy. I'm asking you, were you aware, do you admit
there were problems with monitoring this loan by your agency?
Mr. Chu. At the beginning, when we had one loan, we began
to set up a loan monitoring office. It was roughly at about the
same time when OMB said we want you to set up a monitoring
office, we did set it up, and so within certainly weeks----
Mr. Stearns. The gentleman's time has expired.
Mr. Murphy. Thank you.
Mr. Stearns. Ms. Schakowsky is recognized for 5 minutes,
the gentlelady.
Ms. Schakowsky. Thank you.
Secretary Chu, as you can see, the Solyndra bankruptcy has
generated a political controversy, as you might expect when
taxpayers take this big a hit. And the debate is not a bad
thing if we use it to learn lessons about the most effective
means of government support for clean energy, the amount of
risk we are willing to accept to create jobs and help our
country lead the energy industries of the future.
Unfortunately, I don't feel like that is the direction the
majority has taken in this investigation. In fact, what we have
seen are misstatements of fact and the use of selective
documents out of context.
I want to ask you some questions to see if we can get the
record straight regarding the history of the Solyndra loan
guarantees. Solyndra applied for a DOE loan during the Bush
administration; is that correct?
Mr. Chu. That is correct.
Ms. Schakowsky. When you received early briefings on the
loan program's project pipeline, was Solyndra presented as an
ongoing application that had undergone due diligence and was
nearly ready to proceed, or was it presented as an application
that had been rejected by the previous administration?
Mr. Chu. It was presented as an application that the
various processes recommended that we go forward with this
loan.
Ms. Schakowsky. I would like to address one specific
refrain from our Republican colleagues, the assertion that the
Bush administration rejected--that is a quote--Solyndra's
application, only to have it revived by the Obama
administration.
There is a document, tab 73 in your binder, that was sent
to the director of the Loan Programs Office during the final
months of the Bush administration. It lists Solyndra as one of
the three highest priorities through January 15th--it says
2008, but given the time of the email, it is obvious that means
2009, because the email was December of 2008.
Mr. Chairman, I would like to have this document made part
of the record.
Mr. Terry [presiding]. Not hearing an objection, so
ordered.
[The information appears at the conclusion of the hearing.]
Ms. Schakowsky. In early January 2009, Solyndra's
application was reviewed by the credit committee at DOE. They
raised some specific questions about the loan and remanded it
for further consideration, quote, ``without prejudice.'' The
committee staff interviewed David Frantz, who has served as the
director of the Loan Programs Office since 2007. The committee
also interviewed Steve Isa--Isakow----
Mr. Chu. Isakowitz.
Ms. Schakowsky. Thank you--Isakowitz, who was appointed by
President Bush to serve as CFO of the Department. Mr. Isakow--
Isakowitz--I don't know----
Mr. Chu. Isakowitz.
Ms. Schakowsky. Yes. I should talk, ``Schakowsky.''
Anyway--who was appointed by President--he continued to serve
as CFO until July of 2011 and was Mr. Frantz's supervisor as
Solyndra's application was reviewed.
Do you have any reason to doubt the credibility of these
individuals?
Mr. Chu. No.
Ms. Schakowsky. Both ``Mr. I.'' and Mr. Frantz made it
clear that Solyndra's application was not in any way rejected
by the Bush administration. They stated that the career DOE
team in the Loan Programs Office continue to gather more
information and negotiate a better equity split for the
taxpayers after the first credit committee.
Both of these officials confirmed that consideration of the
Solyndra application went on unabated as the Bush
administration left office and the Obama administration came
into office. Is that your understanding, as well?
Mr. Chu. That is my understanding.
Ms. Schakowsky. Was it ever your understanding that the
Solyndra application had been rejected during the previous
administration or that the application was somehow on the
shelf, only to be, quote, ``revived by the Obama
administration''?
Mr. Chu. No, not--quite the contrary. The career folk in
the Department of Energy in both administrations felt that this
loan was at the head of the line of the ones that we should be
looking at. And it was progressing according to the procedures.
Ms. Schakowsky. Well, I thank you, Mr. Secretary, because I
think it is very important to clarify the record regarding the
history of the loan guarantee and to put to rest some of the
statements that were made that contradict that record.
And I am happy that we have the email and the documents
that I think clearly show that this was something that was
proceeding forward and was recommended to proceed forward when
the Bush administration left and handed this over, with these
career people that--Dr. Frantz was still there, as I understand
it.
Mr. Chu. Yes.
Ms. Schakowsky. And I yield back my time. Thank you.
Mr. Terry. All right. The gentleman from Texas, Mr.
Burgess, you are recognized for 5 minutes.
Mr. Burgess. I thank the chairman for the recognition.
Secretary, thank you for being here today, and thank you
for your generous time that you are spending with the
committee.
I just want to say at the outset, I think solar energy has
a place in the future of this Nation's armamentarium of energy
sources. But I must say, what has happened with Solyndra--and
the hearing we are having today kind of underscores it--I think
it has set back the prospect for perhaps some time.
Let me ask you a question. You said earlier it is
regrettable what happened and that some of these were going to
fail. And, in fact, the first two out of three, between
Solyndra and Beacon, the first two out of the three projects
that you approved have failed. The President has said it could
be as high as a 50 percent failure rate.
So what is an acceptable failure risk for this type of
project?
Mr. Chu. I would say that, given the credit--the total
credit subsidy that was appropriated and set aside, the $10
billion, which included $2.4 billion for the 1705 program,
certainly if we approached something on that number, that would
be very bad. I, personally, don't think we are going to get
anywhere close.
And if you take the loan program in its total, not only
1705 but the ATVM Loan Program, it would----
Mr. Burgess. Yes, let me stop you there for a second,
because my time is going to be very limited. They won't let me
go over like others. You watch.
Mr. Terry. Thank you for recognizing that.
Mr. Burgess. But here is the deal. I mean, the confluence
of the loan guarantees, coupled with the rapid injection of
dollars from the stimulus bill, has really led, in my opinion,
to some touchy decisions being made. And it has led you, as the
Secretary of the Department of Energy, to behave like a venture
capitalist.
But you are the Secretary of Energy. You hold the Nation's
nuclear secrets. You maintain the Nation's nuclear arsenal. You
are not supposed to be a venture capitalist who takes risk. Is
that correct?
Mr. Chu. First, the loan program is not a venture capital--
it is actually for something beyond the initial stages of
investment. And the loan program, as set up by Congress, said,
here is the money, here is appropriate funds to cover for
losses, but we need----
Mr. Burgess. Yes, but the bottom line is, with all due
respect, you are--I mean, look, I was in private business. I
understand what it is like to take a risk. I understand what it
is like to fail. But you are the Secretary of Energy. You earn
almost $200,000 a year. If you approve a program that fails, at
the end of the day you go home and you are still earning
$200,000 a year. None of your assets are attached, nothing of
yours personally is put at risk, because these are taxpayer
dollars that were put on the line.
Do you understand how people are uncomfortable with this
concept of the Department of Energy behaving as a venture
capitalist?
Mr. Chu. Well, as I said before, this loan program was set
up by Congress, and Congress appropriated in the 1705 program
$2.4 billion to account for the losses.
Mr. Burgess. As someone who was sitting in this committee
in 2005 when the loan guarantee program was approved, I don't
think any of us could have foreseen what was around the corner
with, again, the rapid injection of cash from the stimulus
bill. Most of us on this side of the dais oppose that.
Let me ask you some questions about subordination, because
my colleague from Texas, Mr. Green, asked some. You said it was
a difficult choice to make, about the subordination, correct?
Mr. Chu. It was difficult because, by that time, we knew
that the company was in trouble, and we, again, were trying to
maximize taxpayer recovery. And so, all our actions were
focused on maximizing taxpayer recovery.
Mr. Burgess. Yes. And, you know, this almost seems like a
tortured legal opinion that have we come to. But do you see how
some people could look at this and say, this was a violation of
the law, 1702, that has been much talked about this morning,
where taxpayer obligations were not allowed to be subordinated?
And I realize there was, again, what I would describe as a
tortured legal opinion. But do you understand that the average
person looking at this says, that is not right, that shouldn't
have happened?
Mr. Chu. Again, we had--I had the opinion of general
counsel I trusted, I had the opinion of many others, it went
through a rigorous review process within the Department of
Energy----
Mr. Burgess. Correct, and I don't dispute that. I will
stipulate to that. But, with all due respect, do you see how
regular people would look at this and say, I don't think that
is right?
Now, I will be the first to admit that in the Energy Policy
Act of 2005--perhaps just an oversight, certainly could be
regarded as a mistake--there is no penalty, civil or criminal,
no penalty for violation of that.
But do you feel--and, again, at the end of the day, you are
still earning your salary whether things work out or not. But
do you feel that you owe people an apology for having
subordinated the taxpayer dollar to what now turns out to be a
very risky venture?
Mr. Chu. I think, certainly, it was very regrettable what
happened to Solyndra. But I go back and say that when the
market was falling out, the prices were falling out, we were
focused on trying to recover as much of the taxpayer dollars as
possible under those conditions.
Mr. Burgess. One last thing. Again, in my mind, this was
technically a violation of the law, although there is no
penalty. Have you discussed with your boss whether or not you
should continue in your position, having violated the spirit of
the Energy Policy Act of 2005?
Mr. Chu. Have I discussed with my boss that? No.
Mr. Burgess. Is he comfortable, do you think, with you
continuing your position----
Mr. Chu. I believe so.
Mr. Burgess. [continuing]. When there was a violation of
law, even though there is no penalty?
Mr. Chu. We believe there was no violation of the law.
Mr. Burgess. Again, that is a fairly tortured legal
explanation that has been provided to this committee. I think
the language is straightforward. Mr. Green, a Democrat, was
very uncomfortable about the subordination aspect. I remain
very uncomfortable. And I have to tell you, I haven't seen a
poll done on this, but I think, broadly, across the country,
people understand that this was not right.
Mr. Terry. Let the record show we let you go 1 minute over
like everybody else.
The gentleman from Arkansas is recognized for 5 minutes.
Mr. Ross. Thank you, Mr. Chairman.
And, Mr. Secretary, I believe it is important to Members on
both sides of the aisle to understand exactly why Solyndra went
bankrupt and to make sure the Department of Energy is doing
enough to protect the taxpayers. There has been a lot of
partisan and political rhetoric associated with this
investigation. I want to try to take it beyond that and remove
the partisan and the political nature of it and try to get to
the facts.
And, as I understand it, the Department of Energy was not
the only entity that believed in Solyndra. Private equity
investors made significant investments. In March of 2010, the
Wall Street Journal ranked Solyndra number 5 in a list of the
top 50 venture-backed companies. In that same year, MIT's
Technology Review named Solyndra one of the world's 50 most
innovative companies.
Mr. Chairman, hindsight is 20/20, and predicting the future
of innovative technologies is particularly difficult. In the
case of Solyndra, none of us like the end result, just as any
banker does not like to make a loan that ends up defaulting.
But it is clear that the Department of Energy wasn't the only
entity convinced that the company had a good shot at success.
Smart investors, smart market analysts, smart technology
experts from Wall Street to MIT, and other outside observers
also got this one wrong.
So how do we learn from this, and how do we move forward
while continuing to advance alternative and renewable forms of
energy, something I feel very strongly about? We are shipping
about $300 billion a year overseas to buy energy. That is a
$300 billion annual payroll we could have right here at home in
America if we could learn how to grow and make more of our own
energy.
So I want to ask you some questions until I run out of time
on the type of due diligence done on the Solyndra application.
Given your scientific background, I would also like to get your
views on why the Department of Energy and major private
investors decided to bet on the company's technology.
In 2007, the Department of Energy submitted Solyndra's
application to the National Renewable Energy Lab in Golden,
Colorado, for review, and the National Renewable Energy Lab
gave Solyndra the highest technical merit score of any
application DOE has ever received. And I might add, that was in
the previous administration when all that happened.
So, Secretary Chu, you are a Nobel Prize-winning physicist,
and, during your academic career, you ran a national laboratory
that did work on renewable energy. So what can you tell us
about the National Renewable Energy Lab process that really
helped us to get to where we are today?
Mr. Chu. Well, the NREL, National Renewable Energy Lab, is
one of our national laboratories. They have great expertise in
solar technologies. And, in fact, I should say that out of the
NREL grew another thin-film technology called cad telluride
that is--that patent has now been licensed to General Electric.
And General Electric today is investing in--$400 million
investment in cad telluride that grew out of NREL. And this
is--I just spoke with Jeff Immelt, the CEO of GE, and he said,
no, we think that this is going to be a very competitive
technology; we think we can compete head-to-head with the
Chinese.
And, going back, this is work that came out of Department
of Energy laboratories, but in addition to dropping new
technologies, they are also experts in assessing technologies.
Mr. Ross. After the Department of Energy's own
technological review, Solyndra was invited to submit a full
application to the Department of Energy. And during this
process, it underwent multiple third-party reviews. The
consultant CH2M HILL submitted a technology and manufacturing
review for Solyndra. Solyndra's business plan relied on studies
by PHOTON Consulting, Navigant Consulting, and New Energy
Finance. DOE relied on outside marketing reviews of Solyndra by
a host of experts on energy markets, creditworthiness, and
engineering, including Dun & Bradstreet, R.W. Beck, Black &
Veatch, Fitch, and Navigant Consulting.
So, Secretary Chu, given all of this internal and external
analysis, dating back to 2007, as it relates to Solyndra, do
you feel confident that the DOE did its due diligence on the
Solyndra loan? And, if not, what could we have done differently
to ensure that we wouldn't be here today?
Mr. Chu. As you recounted, I mean, there is extraordinary
due diligence not only in the Solyndra loan but every loan. And
that is why it took, on a rough scale, even with the processes,
a year or 2 years to actually do the due diligence on these
loans.
And so, it was this combination of events, the most
striking being the rapid drop in prices that affected and is
stressing companies all around the world, not only in the
United States but in Asia, as well as in Europe.
Mr. Ross. Mr. Secretary, I would encourage you to try to
figure out what went wrong, keep this from ever happening
again, while continuing to advance alternative renewable
American-made energies here at home.
Mr. Chu. We, in fact, have--if the chairman will allow me--
we, in fact, based on the Solyndra experience, not only have
now a separate team within our loan office to monitor the loans
and the disbursements, but we are also bringing in others. For
example, in the Department of Energy, Renewable Energy, there
is a group that is expert in solar; it is called our SunShot
team. It is headed by someone we recruited, a member of the
National Academy of Engineering, understands the business very
well. And they provide yet another set of independent eyes to
monitor the loans and disbursements.
So what we are doing, as these loans go forward, is we are
going to be watching like a hawk, especially given the rapid
changing market conditions.
Mr. Terry. The gentlelady from Tennessee is recognized for
5 minutes.
Mrs. Blackburn. Thank you, Mr. Chairman.
And, Mr. Secretary, thank you for being with us today.
I feel almost the need to sit here and remind all of us in
this room, this hearing today is not about solar power. The
hearing today is about the possible abuse of Executive power
and of the taxpayers' money. And we desperately want to get,
and we are being diligent in trying to get, to exactly what
happened with this process and where it ran so far afield.
Now, we have been through a series of red flags that
existed and seem to have been transparent prior to the loan
being approved, but I want to pick up right there. After that
loan closed in September 2009, at that point did DOE require
Solyndra to provide DOE with financial information or other
additional data? After that loan was approved, did you go back
to them and say, we need to find some additional data?
Mr. Chu. After a loan is approved and as we go through
disbursements, we are in constant communication with the
company. Otherwise--because these disbursements--we have a
contractual agreement, and as they build the fab plant, they
have to be building it as they said they would build it, and
then we disburse the funds after they have spent it to build
it. So we are in constant communication the whole----
Mrs. Blackburn. You are in constant contact. But the
question is really a yes-or-no: Did you or did you not require
additional financial information from Solyndra?
Mr. Chu. Yes.
Mrs. Blackburn. Yes. OK.
Were you aware that DOE staff repeatedly raised the issue
of Solyndra's parents' financial health and the lack of working
capital as a cause for concern?
Mr. Chu. Now, there are two parts of this. One part was the
working capital in order to complete the project. And, as I
said, there was a model which--that there would be an
interruption of cash flow, but in actual fact, upon re-
examining this, it was not an issue, and in actual fact the
plant was built on budget, on time.
Mrs. Blackburn. OK. So, given that you were aware there was
a possibility of an interruption of cash flow, why wouldn't you
have gotten additional financial information on their cash flow
and on the cash burn rate?
Mr. Chu. I believe during this time there was communication
with the company on this cash-flow issue. And, again, it was
relayed to me that this was a particular model that said this.
In 1 month, it would come to a point, but then the following
months that they would be just fine in the building out of that
plant.
Mrs. Blackburn. Looking at lessons learned, does the DOE
now require financial information about the parent companies of
its project financial deals?
Mr. Chu. Well, we always do. And, as I said before on
lessons learned, when there is a rapidly changing situation,
rapidly changing market, we have additional sets of eyes, not
only within the loan program but also outside the loan program.
Mrs. Blackburn. OK. And the Loan Programs Office has
engaged in the kind of enhanced monitoring that you are saying
you have put on Solyndra in these type situations. Are you
doing these with the other companies, the 28 other----
Mr. Chu. We are now monitoring----
Mrs. Blackburn [continuing]. Companies that are in the loan
program?
Mr. Chu. Of course. We are monitoring all the loans on a
minimum of a monthly basis because----
Mrs. Blackburn. What about weekly cash flows?
Mr. Chu. Actually, in some instances, weekly, absolutely.
Mrs. Blackburn. What about a board observer seat?
Mr. Chu. As you know, we did have a board observer seat in
Solyndra after the restructuring. And in that board observer
seat, as with the equity investors, again, it was a rapidly
changing dynamic, and the equity investors were as surprised as
we were.
Mrs. Blackburn. OK. Let's go back to the cash burn rate
issues because you have talked about the savvy investors that
were there for Solyndra. They had a billion dollars in cash.
But we keep hearing about that cash burn rate.
In your opinion, was DOE and were you aware of those cash
burn rate issues before or after that loan was closed in
September 2009?
Mr. Chu. I believe that they were aware of what would be
happening, the business plan. And with any manufacturing plant,
a new manufacturing plant, as you manufacture, as you build up
the----
Mrs. Blackburn. Were you personally aware, or was----
Mr. Chu. I was aware----
Mrs. Blackburn [continuing]. It just the analysts?
Mr. Chu. In general, as I said, I certainly have enough
experience with looking at startup companies to know that that
is very----
Mrs. Blackburn. Did anyone brief you specifically on
Solyndra's cash burn rate issues?
Mr. Chu. As the loan progressed, yes, they did.
Mrs. Blackburn. But not before the loan closed?
Mr. Chu. Not before the loan closed, not that I recall. But
I can't be sure.
Mrs. Blackburn. What did you know about the financial
health of Solyndra before you approved that deal?
Mr. Chu. It was believed to be a healthy company at the
time of closing. I think the bond rating was something like a
B-plus at the time of closing----
Mrs. Blackburn. OK.
Mr. Chu [continuing]. As dictated by, actually, the OMB.
Mrs. Blackburn. Let me ask you this. Why did you allow that
company to continue to pull down millions of taxpayer dollars
after you discovered the financial problems in that company?
Mr. Chu. OK. That is an excellent question.
So, as we began to know that the company had--the parent
company had cash-flow problems, not the project, we faced a
decision. You are building--the loan was to build a factory.
The factory was half-built, roughly speaking, or two-thirds
built. And if we had pulled the plug then, we were certain that
Solyndra would go into bankruptcy.
And then we did two analyses. If you completed the factory
and sold the factory and give them a fighting chance to survive
as an ongoing company, what was the probability. So we faced
this difficult choice. And we felt, in the taxpayers' interest,
the highest probability of recovering as much as possible of
taxpayer dollars was to disburse the funds.
Mrs. Blackburn. Was it in the taxpayer interest or in the
desire for green energy jobs that you made that decision?
Mr. Chu. When we make a loan, we have a very green eye-
shaded approach to this loan. It is a business transaction. And
so, when we make this loan, we said--we have to, by statute of
the law, say that there is a reasonable prospect of this loan
being paid back.
Now, having said that, we have also been mandated to make
innovative loans. And, again, the loan loss reserve was
designed and appropriated by Congress in order to take care of
unfortunate instances such as the one in Solyndra.
Mrs. Blackburn. I yield back.
Mr. Stearns. [presiding.] The gentlelady's time has
expired.
And the gentleman from California, Mr. Bilbray, is
recognized for 5 minutes.
Mr. Bilbray. Thank you very much for being here today, Mr.
Secretary.
Mr. Secretary, I had the pleasure of listening to your
testimony back on March 3rd of 2010. And, at that time, you
stated quite distinctly that you believe that nuclear energy
remains a safe and secure and economical source of clean
energy. Do you still believe that today?
Mr. Chu. Well, if you are asking--yes, I believe nuclear
energy can be safe and secure. We----
Mr. Bilbray. That is all I needed to know. I just wanted to
make sure that----
Mr. Chu. All right.
Mr. Bilbray. You are a high energy physicist. You are
somebody who knows that. Probably of anybody who has ever been
sitting in your chair, you probably understand the realities of
that technology better than most, if not all, of your
predecessors.
You are also well versed in not just nuclear technology,
but you have been on a steep learning curve when it comes to
photovoltaic technology, too, right?
Mr. Chu. Well, the learning curve started perhaps 10 years
ago.
Mr. Bilbray. OK. My question is this. You distinctly
understand the difference, the advantages and disadvantages, of
poly, mono, and amorphous or thin-film technologies, right?
Mr. Chu. I do know the advantages and disadvantages, yes.
Mr. Bilbray. Now, do you personally own a solar array, a
photovoltaic of any configuration?
Mr. Chu. No. Oh, well, little flashlights, solar ones, but
not on my roof.
Mr. Bilbray. Yes, a little flashlight solar would be thin
film.
Mr. Chu. Yes.
Mr. Bilbray. With what you know today and if you were
buying something today you were going to put on your roof and
you had the choice of the three different divisions, which
technology would you choose?
Mr. Chu. It would really depend on the price, the
guarantee, the warranty, how long the panels would last. So it
would be an economic decision.
Mr. Bilbray. Knowing what you know with those three
categories, with the same square-footage array, same price,
wouldn't you agree that a reasonable consumer at this time
would be choosing either mono or poly crystal if you were going
to use it on your own residence at this time?
Mr. Chu. No, I--it is not clear, because the thin-film
technology is actually a very, very good technology, and this
is why U.S. companies are investing, in part, in thin-film
technology.
Mr. Bilbray. Are you saying the production of thin film is
equal to the other two technologies?
Mr. Chu. Well, there are companies like General Electric
placing big bets, saying that it is going to be superior.
Mr. Bilbray. Big bets for the future.
Mr. Chu. Well, they are investing today.
Mr. Bilbray. And the existing technology today doesn't
reflect that.
Mr. Chu. No, sir. I would disagree with that. I think----
Mr. Bilbray. OK. I appreciate that. And I am very surprised
that you are disagreeing with that. But when we make reference
to China and China's investment, are you aware that the
overwhelming majority of China's investment is in poly and mono
and not in amorphous technology?
Mr. Chu. I am aware of that.
Mr. Bilbray. OK. Was that, the fact that the Chinese were
betting on the traditional, proven technology, was that in your
understanding or was that sold as being a reason to move into a
new, pretty radical concept of how to produce solar panels
using the amorphous technology, was there a conscious effort
that you were going to be able to then sort of jump over and
beat the Chinese at the game by using a new type of approach
that they were not willing to invest in?
Mr. Chu. Well, what the Chinese do, typically, is they take
an existing technology and they bring it to a very, very large
scale and they get economy of scale. And that is, in fact----
Mr. Bilbray. But was that a decision, that you knew that
the Chinese weren't really placing bets on amorphous and, thus,
there was a market--there could be a market opportunity to move
and beat them to it?
Mr. Chu. Well, the Chinese actually--this is thin film. The
Chinese actually were investing in amorphous silicon, but that
turned out to be a bad bet for the Chinese. What was
happening----
Mr. Bilbray. Mr. Secretary, I must interrupt you. It seems
like it was a bad bet for us, too, on this one, too. So I am
just saying, and I think you will reflect, that the false
starts in photovoltaics--the worst problem we have had with the
failed projects have been in amorphous, that the Chinese have
run into?
Mr. Chu. Well, I think you mean thin film.
Mr. Bilbray. Thin film.
Mr. Chu. No, I think--first of all, this is not at
Department of Energy. We have loan applicants--there are other
companies investing in thin film.
The reason they are investing in thin-film technology is
because, first of all, since we invented both the silicon
technology, the cad telluride, the CIGS technology, there is
more technological headroom in thin film. It is much cheaper to
manufacture. The quantum efficiency--efficiency of the thin
film is coming up much more rapidly. And so, this is why----
Mr. Bilbray. But, historically, it has also had a much
bigger problem--historically, it has had a problem with
durability and production, except for in very low-light
applications.
Mr. Chu. No, I think----
Mr. Bilbray. You think the durability of thin film
traditionally has been equal?
Mr. Chu. You again may be mixing up, conflating amorphous
silicon with cad telluride.
Mr. Bilbray. OK. Cad telluride is hopefully the new
breakthrough that we will see coming in the future?
Mr. Chu. Well, this cad telluride, again, it was developed
in a national laboratory, licensed to other companies. And it
is very competitive with----
Mr. Bilbray. Was Solyndra proposing to use that?
Mr. Chu. No. Solyndra was using another technology called
CIGS. This is----
Mr. Bilbray. Which does not have the same capabilities as
cad telluride.
Mr. Chu. No, it has the same capabilities as cad telluride
in terms of the overall theoretical efficiency. At the time,
they were in the same place in terms of the production
efficiency, and they were making improvements.
Mr. Bilbray. Thank you, Mr. Chairman. I think the big issue
was----
Mr. Stearns. The gentleman's time has expired.
Mr. Bilbray [continuing]. ``Theoretical'' was the big word
there. Thank you.
Mr. Stearns. The gentleman from Georgia is recognized for 5
minutes.
Mr. Gingrey. Mr. Chairman, I thank you.
Dr. Chu, I hate to start off with a sports analogy, but in
regard to the restructuring of the Solyndra loan, I think I
will give you a little sports analogy.
This Sunday, the Atlanta Falcons were playing the world-
champion New Orleans Saints in Atlanta, and they went to
overtime tied. And the Falcons coach made a decision deep in
his own territory, 4th and 1, to go for the first down, knowing
that if he punted the ball back to the New Orleans Saints and
their great quarterback Drew Brees that they would be unlikely
to stop them. So he goes for a first down, and he misses it.
And two plays later, the New Orleans Saints have a chip-shot
field goal, and they win the game.
So he takes a chance, makes, I think, a ridiculous
decision, but it wasn't against the law. It was not against the
law.
Now, in this situation of restructuring the Solyndra loan,
I think what was done by the Department of Energy, despite what
the counsel has said, is breaking the law under the Energy
Policy Act.
And I would just like to know from you, Mr. Secretary, when
the folks at Treasury, the people that actually made the loan--
because this wasn't a $535 million loan guarantee; it was a
loan coming straight out of the Federal Financing Bank. And
they said in a letter or an email to your folks at the
Department of Energy, ``Before you do this restructuring, I
think you better get an opinion from the Justice Department.''
Now, the Department of Energy ignored that and went ahead and
got their own letter from in-house counsel and came up with
some, in my opinion cockamamie, idea of why it was OK to do
this. And the law was broken.
You have explained to us here today that, you know, your
feeling about all of that was, well, if you didn't do it, the
taxpayer was very likely almost immediately to see a bankruptcy
of the company and a total loss of the loan, the $535 million,
and that if you restructured and allowed them to come in with
$75 million more of private equity, that that that might save
the day.
And so, it was a tough decision, and you approved and went
ahead with this restructuring of the loan--clearly breaking the
law. I mean, the language--and you have seen the slide
earlier--the language is pretty clear. And the result, of
course, was the same, not unlike what happened in Atlanta this
past Sunday when Coach Smith made that fateful decision. My
colleague here from Louisiana says it was a good decision. But
everybody says that this decision that you made was a bad
decision.
And I just don't understand why you didn't go ahead and
submit this to the Justice Department and ask one of their
high-powered lawyers, assistant attorney generals or whatnot,
to give you a legal opinion on that. Why not?
Mr. Chu. It is my understanding that one goes to Justice if
there is a change in the conditions of the loan, if you, for
example, decrease the amount that would be paid back or a
decrease in the interest rate--things of that issue. And,
again, it was not only the opinion of the counsel within the
Department of Energy, with Susan Richardson, in a very vigorous
review process----
Mr. Gingrey. Well, Mr. Secretary, I apologize for
interrupting you, but I don't think the folks within the
Department of Energy in that loan program were the experts in
this case. The bankers of the Federal Financing Bank in the
Treasury Department, clearly, they are the experts, who--all of
a sudden, they are worried about the loan.
Let me move on to another subject, and I want to ask you if
you are familiar with a recent Washington Post article--I
believe this is November 15th, so just a couple of days ago--by
Carol Leonnig and Joe Stephens. And the title of this, Mr.
Secretary, ``Solyndra: Energy Department Pushed Firm to Keep
Layoffs Quiet Until After Midterm Elections.''
Now, this article--and, Mr. Chairman, I would like to ask
unanimous consent to submit this for the record.
Mr. Stearns. So ordered.
[The article follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Gingrey. In this article, basically, they are saying
the Solyndra people were trying to make sure that the bank, the
Federal Financing Bank, would continue to advance them loan
proceeds, maybe even a little in advance of when they were due.
And, basically, the Department of Energy, according to this
article, said, ``Well, look, we know you all are going to have
some layoffs coming up. It has been leaked to the press. And we
would prefer that you not make those layoffs, at least the
announcement of it, until November 3rd, 1 day after the midterm
elections.'' And then, of course, they got their advancement of
the loan. A little bit suspicious.
Do you have any comments on that at all, the timing of
that?
Mr. Chu. Yes. First, I was not aware of any communications
with our loan office with the Solyndra people until that
article came out. It is not the way that I do business. We
don't--I am looking at the loan, the process of repayment,
looking after the taxpayer interest, and those factors are not
part of our consideration. Something like that was not
discussed with me, and I would have not approved it----
Mr. Gingrey. Mr. Secretary, I believe you. I believe you.
But this looks highly political.
Mr. Chairman, I yield back.
Mr. Stearns. I thank the gentleman.
And the gentleman from Louisiana, Mr. Scalise, is
recognized for 5 minutes.
Mr. Scalise. Thank you, Mr Chairman. I appreciate you
having this hearing.
Mr. Secretary, thank you for coming before our committee.
I want to express similar sentiments as Dr. Burgess and
others expressed. I strongly support an all-of-the-above energy
policy. I think, frankly, in our country, we are sadly lacking
a real energy policy that allows us to utilize the natural
resources we have in this country. We have to use all the
things we have, including wind and solar. But, clearly, as we
can see, those technologies still haven't advanced to the level
that they need to.
And what is at heart here is this question of this Solyndra
loan, the $535 million of taxpayer money that have been lost,
and how did we get to this point.
I think one of the big issues that I have struggled with,
and others, is when we get to this question of subordination,
as the loan was restructured, you know, we go back and we look
at the law--this is the law of the United States--and it seems
clear to those of us who have looked at the law that you cannot
subrogate the taxpayer, meaning you can't put the taxpayer in
the back of the line when you come to this decision of whether
or not you are going restructure.
And so, this is--first, this is the document, this is the
actual restructuring that we got from your agency. This is the
document that initiated the restructuring of the loan,
including the subordination of the taxpayer. And I notice that
on the last page, is this your signature on this page? Did you
sign off on this document? This is noted as tab 59.
Mr. Chu. Fifty-nine?
Mr. Scalise. Department of Energy--and this actually deals
with the restructuring of the loan guarantee to Solyndra,
including the restructuring. Did you sign off on this? I think
you have said----
Mr. Chu. Yes, I did.
Mr. Scalise [continuing]. In some public statements I have
seen. I just want to verify----
Mr. Chu. Yes, I did.
Mr. Scalise [continuing]. This is your signature on this
document?
Mr. Chu. That is my signature.
Mr. Scalise. And so, clearly, when you go back and look at
the law--and I would hope--did you look at the law, yourself,
before you signed off on this document?
Mr. Chu. Yes.
Mr. Scalise. And this is not a long law. It is not 50
pages. It is not even a paragraph.
Mr. Chu. That is right. In----
Mr. Scalise. You looked at this law, you looked at this one
paragraph, and you said, even though it says, ``The obligation
shall be subject to the condition that the obligation is not
subordinate to other financing,'' you can tell me you read this
and you can still determine that it is OK for you to
subordinate the taxpayer even though the law says it is not?
Mr. Chu. We did not subordinate the taxpayer under the
terms of the original loan, and we followed the law.
Mr. Scalise. Does the taxpayer have first dibs on the $535
million----
Mr. Chu. At the time of the----
Mr. Scalise. [continuing]. When the first dollar comes in
from Solyndra, if one even does?
Mr. Chu. At the time of the original----
Mr. Scalise. That is a yes-or-no question.
Mr. Chu. Right now, after the----
Mr. Scalise. Yes or no, Mr. Secretary? Does the taxpayer
have first dibs, or is some other company going to get first
dibs on the first dollar that comes in or the first $75
million?
Mr. Chu. After restructuring----
Mr. Scalise. Yes or no----
Mr. Chu [continuing]. No.
Mr. Scalise [continuing]. The American taxpayer?
Mr. Chu. No.
Mr. Scalise. What was your answer?
Mr. Chu. After restructuring, no.
Mr. Scalise. No. OK, so, you did that.
Now, let's go back to your legal counsel. Your legal
counsel did look at this. Not only did your legal counsel look
at this and their determination--and I will go to page 5 of the
legal opinion; that is tab 67. Their legal opinion says that
``this reading of the provision is reinforced by the use of the
word 'is.''' So here we go again with it is going to come down
to the definition of the word ``is,'' if that is really how you
are going to hang your hat.
But let's go beyond your department's attorneys. We have an
email--and we discussed this in a previous hearing in our
committee. I would hope you have seen this. Gary Burner over at
the Treasury said, ``The statute rests with the Department of
Justice the authority to accept the compromise of a claim to
the U.S. Government in those instances.''
They recommended that you all go to the Department of
Justice. Did you do that?
Mr. Chu. We did not because we----
Mr. Scalise. Why would you not go to the Department of
Justice? If you are getting--this isn't within, this isn't
somebody on our side. This is the Obama administration, the
Treasury Department, saying, you ought to go to the Department
of Justice because we don't think it is legal to put the
taxpayer in the back of the line on a $535 million loan.
Why didn't you at least do that due diligence?
Mr. Chu. Because when you--within the covenant of the loan
and within the boundaries of the original loan, if you are
acting within those original agreements, you need not go to the
Justice Department. My understanding----
Mr. Scalise. Then I guess that is your opinion. I think it
is wrong, and I think it is going to come out that you did
violate the law in that regard. And it is a shame for the
taxpayer.
I want to know who all the people were in the decision-
making process. Was anyone at the White House involved in the
decision to restructure the loan, not just to subordinate the
taxpayer but to restructure? Did you get any pressure?
Because we have emails showing there was pressure coming
from the White House. That is one of the reasons why we are
still trying to get documents from the White House. We haven't
been able to get that. We had to subpoena it, and we still
haven't gotten it all.
Who in the White House was talking to you about
restructuring the loan?
Mr. Chu. To the best of my knowledge, I have no knowledge
of anyone saying, ``You need to restructure this loan.'' This
was something that they repeatedly----
Mr. Scalise. And if you get any information on that, we are
still going to try to get the facts here. We are trying to get
to the bottom of the loss of $535 million.
I have heard a lot of talk about politics. I have seen a
lot of emails from within the administration about politics. As
we have seen, The Washington Post had the front-page story
talking about emails from within your department, Department of
Energy, pressing Solyndra. They are not concerned about the
layoffs; they are not concerned that people are going to lose
their jobs. They are just concerned about the timing, the
politics. ``Wait until after the election.'' This is
disgusting.
And I would hope that you are going to go, in your
department--it happened under your nose. You testified here,
under oath, you knew nothing about it. It happened in your
agency. I hope you will go back in your agency and have some
heads roll. People need to be held accountable. Because
political decisions were being made in your department. They
were being made in the White House above you; they were being
made below you. And, hopefully, maybe you weren't making any of
those. But it sure is strange that they are being made all
around you.
And I hope that somebody is going to be held accountable,
because we are going to fight to hold people accountable
because $535 million in taxpayer money was lost. I don't see
any chain of emails looking out for the taxpayer money. I see a
whole lot of emails in the administration that are concerned
about the politics. That is what stinks the most about this.
And so, I know we are going have another round. I look
forward----
Mr. Stearns. The gentleman's time has expired.
Mr. Scalise. I yield back.
Mr. Stearns. Just to follow up, you still don't know who at
the White House, and you have no interest in finding out, based
upon this Washington----
Mr. Chu. We----
Mr. Stearns. Excuse me--in your department, you don't have
any--you don't know who in your department was involved with
this and you----
Mr. Chu. We----
Mr. Stearns [continuing]. Have no interest in finding out?
Mr. Chu. No, we do have interest in finding out. And we----
Mr. Stearns. When are you going to do it?
Mr. Chu. Well, certainly, our general counsel's office will
look at who was doing these things.
Mr. Stearns. The gentleman from Virginia is recognized for
5 minutes.
Mr. Griffith. Thank you, Mr. Chairman.
Take a deep breath. It has been a long day.
I am going in a slightly different direction. 1702(d)(3) is
the subordination section, and I will be getting back to that.
But, first, I would draw your attention to 1702(g)(4)(A). It is
a slightly different--it is the same question with a slightly
different legal basis for it. And that would be--the language
of that is, ``If the borrower defaults on an obligation, the
Secretary shall notify the Attorney General of the default.''
I point out to you a December 13, 2010, letter to Solyndra
from Mr. Silver, Jonathan Silver, who is the head of the
program, and that is not in your book.
Mr. Chairman, may that document be admitted to the record,
by unanimous consent?
Mr. Stearns. So ordered.
Mr. Griffith. And if we could get a copy to----
Ms. DeGette. Reserving the right to object.
Mr. Griffith. Here are a couple copies.
It is a letter from Mr. Silver, who testified previously,
the executive director of loan programs, to Solyndra Fab 2 and
to Solyndra, Inc. In that letter, he notices them that they are
in default. This is December 13, 2010.
Mr. Stearns. The gentleman will suspend.
Without objection, the document is part of the record.
[The letter follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Stearns. Thank you.
Mr. Griffith. Thank you.
In that document, he notices the Solyndra folks that they
are in default and then goes through the reasonings why that is
in default and says that the Department is not going to waive
any--if it doesn't take action immediately, it is not waiving
any of its rights under the contract.
Further, I would point you to what is document 67, which is
the memorandum from Susan Richardson authorizing the
subordination. And in that, she indicates in paragraph 3, first
sentence, ``A default relating to a financial requirement has
occurred under the loan agreement. When that default occurred
on December 1st, 2010, $95 million of the guaranteed loan
commitment remains to be advanced.''
And, further, in an email from--tab 59--in February, Silver
further acknowledges that there was a default in December by
Solyndra.
That being said, Mr. Secretary, did your office, in
compliance with the code 1702(g)(4)(A), the section that
requires if a borrower defaults the Secretary shall notify the
Attorney General of the default, did you do that?
Mr. Chu. First, I have to look back at this code of the
Justice Department.
Now, this particular letter is about----
Mr. Griffith. I am just asking you if you notified the--
when there was a default, in December, did you notify the
Attorney General, as required by the code? I am not asking for
your interpretation of the letters. I have laid those out;
everybody can look at those later. I only have a certain amount
of time. I want to know if you notified the Attorney General,
in accordance with the law.
Mr. Chu. That, I will get back to you on that. But this was
a deposit in an----
Mr. Griffith. So you don't recall--I understand. But you
don't--the bottom line is your people said it was a default and
it looks like a default. And on a default, you are supposed to
notify the Attorney General. I am just asking you, did you do
it? Do you have any recollection of doing it?
Mr. Chu. I don't have--I can get back to you on that.
Mr. Griffith. Thank you. I appreciate that.
Let me ask you this. Do you know what the value of the
patents and other IP, intellectual properties, of Solyndra are?
Do you know what those values are?
Mr. Chu. No.
Mr. Griffith. Do you believe that they have value?
Mr. Chu. They should have some value, yes.
Mr. Griffith. And do you believe it will be greater than or
less than $75 million?
Mr. Chu. The IP? I couldn't have any way of assigning that.
Mr. Griffith. OK.
And I would draw your attention to tab 68 in your book. We
are now talking about that it appears from that particular
tab--do you have that in front of you?
Mr. Chu. Sixty-eight? Yes, I do.
Mr. Griffith. OK. It appears that there is something going
on--it is during the time period that they were beginning to
discuss the subordination, and a lot of it is redacted. Do you
have any idea who that was from and who it was to? It looks
like it might have been from Susan Richardson.
Mr. Chu. No, I don't.
Mr. Griffith. And do you know why all of that information
was redacted?
Mr. Chu. No, I don't.
Mr. Griffith. Can you find out for me as to what the
purpose--I mean, I understand there may be some reason, but can
you find out why all that information was redacted?
Mr. Chu. We can get that back to you.
Mr. Griffith. And were you aware that there were numerous
discussions about Solyndra's default and the problems they were
having and subordination came up fairly early in December of
2010? Were you aware of that?
Mr. Chu. I am now, that they were thinking of
subordination. But, again, one can't move forward until one
understands the law.
Mr. Griffith. But do you understand that Solyndra was
looking at bankruptcy at that point, and without some
understanding that there would be a new $75 million they would
have had to file bankruptcy pretty quickly?
Mr. Chu. That is my understanding. About that time scale,
they had this cash flow issue, and they needed funds to
continue. And that is why one restructures.
Mr. Griffith. I understand that, but don't the records
reflect that there was already an understanding within the
Department of Energy with Francis Nwachuku that there was going
to be a subordination, even before the lawyers had had an
opportunity to determine whether or not they could?
Mr. Chu. We do not do anything until--I mean, is it OK to
look at things in parallel? Yes. But before our lawyers----
Mr. Griffith. OK.
Mr. Chu [continuing]. Determined whether it was legal or
not----
Mr. Griffith. I understand you couldn't do anything.
Mr. Chu [continuing]. We could not move forward.
Mr. Griffith. But do you understand that, based on the
documents that have been provided, it is pretty clear from the
record that Solyndra would have had to have filed bankruptcy,
that the investors were not willing to put the $75 million in,
unless DOE subordinated? And, therefore, when writing the legal
memorandum, everybody in your department knew that, unless they
could figure out a way to subordinate, Solyndra was going down.
Mr. Chu. Sir----
Mr. Griffith. Isn't that true?
Mr. Chu. No. I--no. That is not correct. Our counsel's
office, general counsel's office, and Susan Richardson's
responsibility, as lawyers, to protect the Department of
Energy, to make sure we act under the law, that always comes
first.
Mr. Griffith. You know, it is interesting, I just
questioned why you didn't--and I go back to some of the other
questions--why you didn't get opinions, when you had OMB and
Treasury saying that they didn't think it was legal, why you
didn't go to Justice. Were you afraid of getting an answer that
you didn't like?
Mr. Chu. First----
Mr. Stearns. The gentleman's time has expired.
Mr. Griffith. I yield back.
Ms. DeGette. I think you should let him answer.
Mr. Stearns. Oh, no, I want to let you answer. Go ahead.
Mr. Chu. OK, certainly.
We are required to go to Justice because if there was a--in
a revision of the loan that meant we were not going to get paid
back as much, things of that nature, we went to Justice. We
did, as you know, go to outside counsel and sought other
opinions. And, as noted earlier, there was a previous general
counsel of the Department of Energy, upon looking at the
decision, who also concurred with that decision.
Mr. Stearns. The gentleman's time had expired.
The gentleman from Kansas is recognized for 5 minutes.
Mr. Griffith. Mr. Chairman, if I might?
Mr. Stearns. Sure.
Mr. Griffith. Because I haven't seen it, I have only seen
the draft that flags that you can't do the subordination, if we
could get that outside counsel's opinion, I would greatly
appreciate it.
Mr. Stearns. Mr. Secretary, can we get that opinion?
Mr. Chu. Yes.
Mr. Stearns. Is that possible to get it today? Do you have
access to that?
Mr. Chu. I don't know about today. But we have an opinion
of the previous general counsel of the Department of Energy.
Mr. Stearns. But I think the gentleman is asking----
Mr. Griffith. I am asking for what you had at the time the
decision was made, not a Monday-morning-quarterbacking coverup.
Mr. Chu. We could certainly make those records available.
Mr. Stearns. We need the final, is what the gentleman is
asking for.
Mr. Griffith. That is correct.
Mr. Stearns. OK. Correct.
The gentleman from Kansas is recognized for 5 minutes.
Mr. Pompeo. Great. Thank you, Mr. Chairman.
Thank you, Secretary Chu, for being with us this morning.
You know, you have been asked a couple times if there is
anybody who ought to apologize. So far, as far as we have been
able to get you is to say ``unfortunate'' and ``regrettable.''
I have a different view. I would use ``reckless'' and ``grossly
mismanaged'' as a program.
And you have talked about some of the changes you have made
to try and strengthen that oversight, and I appreciate that. I
want to test that just a little bit.
When the loan was originally applied for, it was applied
for under Section 1703; is that correct?
Mr. Chu. The Solyndra loan? Yes.
Mr. Pompeo. And then it became--then when Section 1705
Obama stimulus money became available, it changed to a Section
1705 program; is that correct?
Mr. Chu. That is correct.
Mr. Pompeo. Did you approve the decision to change it from
a 1703 loan to a 1705 loan?
Mr. Chu. Did I approve? I think this is an action of the
company and the loan program.
Mr. Pompeo. Got it. So you weren't involved in that
process, the decision to allow it to be moved from 1703 to
1705?
Mr. Chu. No.
Mr. Pompeo. Great.
And, you know, the difference in those two programs is that
in 1703 the company has skin in the game and has an incentive
to make their company successful and make the loan less risky,
but in Section 1705 it is very different. Is that correct, Mr.
Chu?
Mr. Chu. No, that is not correct. As I said, the company
had a billion dollars' skin in the game.
Mr. Pompeo. Right. But in Section 1705, this credit subsidy
that you have referred to several times doesn't get paid by the
company. Under Section 1705, the American taxpayer provides the
credit subsidy.
Mr. Chu. Yes, the American taxpayer provides the credit
subsidy, but, in addition to that, going forward, there is a
minimum of 20 percent additional that the equity people would
have to put in.
Mr. Pompeo. Right. But that is very different. You would
agree. I mean, this legislation that has the credit subsidy,
the Federal Credit Reform Act, had a reason that they wanted
these credit subsidies paid for by the company, correct?
Because it caused the company to have a greater interest in
success. There was a reason that the private entities were
designed to be the ones that paid the credit subsidy. So it is
a change in risk, would you agree?
Mr. Chu. There was a--the 1705 bill that was passed by
Congress was passed because they acknowledged that many of the
renewable companies would not be able to afford the credit
subsidy. And, therefore, they said that tax dollars would be
used to pay for that credit.
Mr. Pompeo. So these were such bad investments that the
company couldn't even afford that minimal amount to pay of that
credit subsidy.
Mr. Chu. No. I was going back to the way that bill was
designed by Congress.
Mr. Pompeo. Let me ask a question. The credit subsidy that
was calculated, do you know what it was under the Section 1775
program? Do you know what the calculation said?
Mr. Chu. I believe it was something like 7.8 percent.
Mr. Pompeo. Right. So on a $535 million loan, we are
talking about $40 million, $50 million, right? Ten percent of
535 is 53. You are talking $40 million, $50 million that the
company couldn't afford to pay.
Mr. Chu. The credit subsidy score, again, it is something--
and the credit subsidy as appropriated by Congress was there
for a reason.
Mr. Pompeo. Right. The company couldn't afford to pay it,
so the government stepped in to take care of that little
incremental 40 million bucks. Is that correct? That is what
happened.
Mr. Chu. Well----
Mr. Pompeo. Yes or no? That is what happened, correct?
Mr. Chu. That is what happened.
Mr. Pompeo. Great.
I want to ask you something. In light of the bankruptcy,
has the DOE changed that credit subsidy score, the calculation?
Mr. Chu. Of course.
Mr. Pompeo. What is it now for the Section 1705 program?
Mr. Chu. It is presumably quite high, because we--when we
constantly re-evaluate loans, as the marketplace changes, as
the health of the company changes, we are constantly updating
what the risk is. That is reflected, in part, by the credit
subsidy score.
Mr. Pompeo. So how does that--what is the change? It went
from, you said, roughly 7 percent to----?
Mr. Chu. I would guess it would probably be--just sort of a
raw guess--probably in the 80s.
Mr. Pompeo. Wow.
Mr. Barton. Would the gentlemen yield?
Mr. Chu. That is because when you change it, you know that
the company is now in deep financial trouble, and that reflects
the risk to the taxpayer.
Mr. Pompeo. Have you changed the credit subsidy scores for
the other loans in the portfolio, as well, to reflect this
increased risk?
Mr. Chu. We--well, in some instances, the credit subsidy
decreases, as, for example, our loan, a $5.9 billion loan, to
Ford Motor Company. That credit subsidy score is greatly
decreased because we feel that Ford is an ongoing, stable
company, and that loan did what it was supposed to do.
Mr. Barton. Would the gentlemen yield briefly?
Mr. Pompeo. Yes.
Mr. Barton. Just to point out on this point, since the
Secretary put this $10 billion on the table, nowhere in the
law, nowhere in the definitions does it say that that program
is to subsidize the loss of principle.
Mr. Pompeo. Thank you. Appreciate that.
Mr. Barton. The gentleman from Kansas was absolutely
correct that it is designed for subsidized interest rates,
longer maturities, deferral of interest, but it is not designed
to cover the loss of principle. So your opening statement, Mr.
Secretary, is incorrect in asserting that it is.
And I yield back.
Mr. Pompeo. Thank you, Mr. Barton.
I would agree. I want to talk about that $10 billion
number, as well. That is for the entire program, not just for
Section 1705. That $10 billion that was appropriated was for
the entire portfolio of loans, correct?
Mr. Chu. Pardon?
Mr. Pompeo. I am trying to make sure--in your opening
statement, you said there was $10 billion to cover potential
losses, which I think Mr. Barton and I both agree is not what
that $10 billion was designed for. It wasn't designed to cover
losses; it was designed to cover interest rates and subsidies.
But even the $10 billion overstates what was appropriated for
the Section 1705 program.
Mr. Chu. It was designed to cover losses in the loans if
the company could not--my understanding of what a credit
subsidy--what the credit subsidy and what the appropriated
funds were for was for in the event that, as we invest in
innovative companies, that some of those companies might have
difficulty paying back their loans.
Mr. Pompeo. We have a different view of that. Section 1705
number was $2.5 billion; that's the amount of money
appropriated for the Section 1705 loans.
Mr. Chu. That's right, the $10 billion, as I said before,
was 1705 plus a little bit of 1703 and ATVM.
Mr. Pompeo. I have one more question. You talked about all
the other cross subsidies. We have production tax credits. We
have mandates in States. When you provide your credit subsidy
score, what is the assumption about the continuation of those
other subsidies; that is, when you're calculating the risk, do
you assume that these programs, these other enormous subsidies
will be renewed or do you assume that they will expire as the
law directs that they will expire?
Mr. Chu. The major part that goes into the credit subsidy
is the financial health of the company, the assets of the
company, and most of the loans are on projects, whether it's a
new fabrication plant or a project that installs solar, wind or
something like that. And the credit subsidy score goes to the
fact that in the event of a problem with the company or the
parent company or the project, how much can the U.S. Government
get repaid back? And it reflects that uncertainty and the
evaluation of ultimately the OMB as to whether, what's the
probability of default on the loan?
Mr. Pompeo. Well, I yield back my time.
Mr. Chu. In rough----
Mr. Stearns. The gentleman's time has expired.
Mr. Pompeo. I yield back my time. I did not get an answer
to that question.
Mr. Stearns. Mr. Secretary, we're going to do a second
round, and it appears mostly Republicans, I don't know how many
are going to do a second round, but I would, out of deference,
would you like a break of about 15 minutes for any reason, or
would you like us to continue on?
Mr. Chu. I'll take a break.
Mr. Stearns. OK, all right.
So, Mr. Secretary, we're going to reconvene here at 1:15.
Mr. Chu. All right, thank you.
Mr. Stearns. Yes, thank you.
[Recess.]
Mr. Stearns. The subcommittee will reconvene. The ranking
member is on her way, and I will open with a second round of
questions.
And my questions will start, you know, obviously with
Solyndra going bankrupt, you go back and look what the
President said in his press conference about Solyndra, he said
it was the true engine of economic growth and there will always
be companies like Solyndra to make it possible for this growth.
Then when Beacon Power went bankrupt, we were also
concerned about that, and of course, we found out that a quote
from the administration on that company that went bankrupt was
100 percent--100 Recovery Act projects that are changing
America, Beacon Power being one of them.
And so the question is, when you have two of the first
three loans out of the 1705 program go bankrupt, the question
for you is, how many loan guarantees that you are involved with
and covering and monitoring are going to fail, in your opinion?
Mr. Chu. Well, it's very hard to predict, but if I look at
the portfolio----
Mr. Stearns. You've indicated that these kinds of things go
bankrupt, and it is sort of an anomaly, and it's what happens
in life. Are you also saying there is going to be more
bankruptcies in the loan guarantee? Yes or no.
Mr. Chu. I could not say one way or the other, but I could
say that the majority of our loans were not--they were loans,
for example, to establish wind farms or solar farms where there
were power----
Mr. Stearns. OK. Are any of your loans in trouble today?
Can you categorically say that none of your loans are in
trouble today or are they in trouble?
Mr. Chu. Like I was--as I was saying, that if you look at
the portfolio of loans, many of the loans, the majority of the
loans are loans where you establish a wind farm, a solar farm,
something of that ilk, and there is a power----
Mr. Stearns. Wasn't Beacon Power similar to your definition
of what you're talking about?
Mr. Chu. No, not----
Mr. Stearns. Was Solyndra similar to what you're talking
about?
Mr. Chu. No, these----
Mr. Stearns. So the question is, are any of these loans
guarantee in financial trouble, yes or no?
Mr. Chu. As I said, it's very hard to predict what will
happen.
Mr. Stearns. Just say no.
Mr. Chu. But I would say----
Mr. Stearns. Well, let me ask you this, let's help you out
a bit. Are any of them in high risk?
Mr. Chu. There are different varies----
Mr. Stearns. You're not answering the question, Mr.
Secretary.
Mr. Chu. There are high risk----
Mr. Stearns. I mean, you know, this Mr. Ellison is going to
come back and tell us which ones are in high risk and which
ones possibly could go under. You're the Secretary of Energy.
Tell me today are any of these loans going to go bankrupt, yes
or no, your opinion? This is all your opinion.
Mr. Chu. Sir, this is like saying do I believe that the
nuclear reactors in the United States are safe.
Mr. Stearns. Well, OK, let's back up then. Are any of them
in financial trouble? You certainly should be able to tell that
as Secretary of the Energy. You're monitoring this. You're
trying to convince us that you're on top of the situation.
Mr. Chu. Right, right.
Mr. Stearns. Are any of them in financial risk, yes or no?
Mr. Chu. There are always risks, and then----
Mr. Stearns. So all of them are in financial risk?
Mr. Chu. No, there are always risks regarding the loan, and
that's when we are tasked to invest in----
Mr. Stearns. It doesn't sound like you're answering the
question. I'm just asking you, yes or no, are any of them in
financial risk?
Mr. Chu. There are varying degrees of risk.
Mr. Stearns. So some of them are?
Mr. Chu. Well, whenever you invest in high risk, innovative
companies----
Mr. Stearns. I'll accept your statement, yes, some of them
are in financial risk. I want to go back to what a lot of
people are saying, that who could predict these problems with
the Chinese market. During an interview with committee staff,
your committee staff, the former Department of Energy chief
financial officer, Isokowitz, said that the department should
have validated assumptions about the Chinese market before they
went ahead with these loans. Were you aware of his remarks on
this?
Mr. Chu. No, I'm not aware of those remarks, but certainly
we were validating what the Chinese were doing. That's why we
had extensive, both inside and outside, and what the market----
Mr. Stearns. He distinctly said your office did not
validate any of the market's assumptions about the Chinese
market. That's what he said. He's the Department of Energy
chief financial officer. That's his opinion. Do you disagree
with what he's saying?
Mr. Chu. Well, I would have to look at what his statement
was in the full context, and so I can't really comment.
Mr. Stearns. Well, in full context, he basically said that
you guys did not, your office did not look and validate any
assumptions about the Chinese market.
Mr. Chu. He could have been talking, for example, about the
ability to sell in China. I don't really know. Again, I would
have to look at the full context of that----
Mr. Stearns. OK.
Mr. Chu [continuing]. That remark.
Mr. Stearns. He also cautioned that, he went on to caution
that he felt when you deal with a commodity, you should have--
that should have sent up red flags immediately because
commodity prices have a tendency to fluctuate, which you would
agree. For example, the Department of Energy had a terrible
experience in 1980s with the Synthetic Fuels Corporation, which
was undercut by a flawed assumption about the continued rise in
oil prices. Given the concerns cited by this CFO and the
Department of Energy's experience with the Synthetic Fuels
Corporation, didn't the department err in failing to validate
assumptions about the conditions of the Chinese market before
it approved this Solyndra?
Mr. Chu. If you look back at the history of how solar
prices were developing and fluctuating, there was a constant
decrease in the price over----
Mr. Stearns. No, I understand what your opinion is, but the
point I'm making is, I don't see the Department of Energy doing
what Mr. Isokowitz said, and he validates you did not do it, so
that's my--now let me just close here before my time runs out.
You've been here this morning and this afternoon; lots of
times you've said you were unaware or you were aware, but sort
of anytime anything came up, you had sort of an ambivalent
statement. We talked about the August 2009 email predicting
Solyndra would go, be out of cash in September 2011; you knew
about that, but you didn't seem to know about that. The
PriceWaterhouseCoopers concerns about Solyndra, you didn't seem
to be real concerned or weren't aware of it. The White House
emailing your chief of staff regarding their concerns with the
PriceWaterhouseCoopers report, you didn't seem to know too much
about your chief of staff's awareness of that. Request to hold
off announcement of the DOE loan and request by your agency to
Solyndra to hold off announcing layoffs until after the midterm
election, you don't have any recollection of this.
So what I'm saying is throughout all of this, you seem to
have an unawareness, which goes to what I think my last
question is, we have an email from February 2010 from Dan
Carol, who is a former chief energy adviser to the President in
his campaign. Are you aware of his email?
Mr. Chu. I became aware of it.
Mr. Stearns. So you weren't--you became aware of it when it
hit the press. He stated you should be replaced because of
incompetence. He felt, based upon what I just told you, you
didn't seem to have an awareness of any of these very major
issues here which we're bringing up, and that's why Dan Carol
said you should be replaced, so I guess my comment is, what
would you say to Dan Carol today?
Mr. Chu. First, let me go back to your previous statements.
I tried to explain to you, I'll try to explain again, about the
cash flow issue and the building up of the Fab 2 plant. I was
aware of it, and what was happening is that there was 1 month
in a particular model, there would be an issue, but subsequent
months, it would go into the black, and as I stated previously,
experience has borne out that in fact there was no issue in
building the Fab 2 plant, and so I never said I was unaware in
terms of what that issue was because it was being sometimes
conflated with the cash flow problems later on with the parent
company.
Mr. Stearns. My time has expired.
The gentlelady from Colorado.
Ms. DeGette. Thank you, Mr. Chairman.
Now, obviously, Mr. Secretary, we're all concerned about
the failure of this Solyndra situation because the taxpayers
are out almost half a billion dollars, and I heard what you had
said about the initial loan. I mean, it sounds to me like the
DOE was trying to administer this correctly in that originally
the loan application was made under the Bush administration,
the committee came back and said they needed more market data.
That data was obtained, the guarantee was made. Then, because
of market conditions, the company was about to go into
bankruptcy before the factory was built, and a decision was
made to restructure the loan and to subordinate the
government's interests. That's pretty much of a summary,
correct?
Mr. Chu. That's correct.
Ms. DeGette. And a lot of us are very unhappy with the idea
that the taxpayers were subordinated to the private investors.
In your opinion, was there anything else that could have been
done, or did the department explore any alternatives to
subordinating that interest to the private investors' interest?
Mr. Chu. Yes. It was the opinion of our loan specialist
that certainly the private investors were not willing to put in
added equity unless they had certain conditions met, and so it
was, as described to me and during our discussions in making
this decision, it was clear if we said, all right, if we don't
allow this, then the company would go bankrupt, and again, the
discussion after clearing the legal hurdle and being told by my
general counsel that it was permissible and legal, then the
discussion focused on what would be in the best taxpayer
interests to get the most recovery from----
Ms. DeGette. Right, so I got that. So you were involved in
those conversations----
Mr. Chu. Yes.
Ms. DeGette [continuing]. About should the taxpayers take a
secondary position or not, right?
Mr. Chu. I was certainly----
Ms. DeGette. And you were pretty well convinced that if you
didn't make that concession, then Solyndra would go into
bankruptcy and the chances of recovering that money would be
greatly lessened or zero, right?
Mr. Chu. That's right.
Ms. DeGette. OK. Now, so, I mean, we can argue about
whether we agree or disagree with that decision, but that was
the rationale. It seemed like it was a prudent rationale at the
time, correct?
Mr. Chu. Correct.
Ms. DeGette. So here's my question. The DOE has the Loan
Programs Office, you're administering three different loan
programs, and we've been talking about them, the Section 1703,
the 1705, and then the technology vehicles manufacturing
program.
So my question is, it follows a little bit on what the
chairman was saying, are any of the loans that are currently
out there in those three programs in a situation where it looks
like they are about to fail and someone's coming in and asking
for restructuring right now?
Mr. Chu. Right now, no.
Ms. DeGette. OK. Do you expect that----
Mr. Chu. I mean, there's Solyndra, and there's the
flywheel.
Ms. DeGette. Right, right, yes, and those are the two. And
that's out of how many loans?
Mr. Chu. Something like 38 loans.
Ms. DeGette. Thirty-eight loans. And of those 38--so of the
36----
Mr. Chu. And 28, yes--It's 1705, 28; ATVM, 5; and 5 in
1703.
Ms. DeGette. OK, about 38 loans.
Mr. Chu. 33 loans----
Ms. DeGette. So, of the rest of the loans besides, those
two, the Solyndra and the other, do you foresee market--and I
should say, does your staff who report to you foresee market
conditions changing so those loans are going to go into a
default type of a situation?
Mr. Chu. Well, again, the majority of our loans were loans
where you install something like a wind farm or a solar farm;
you have a power purchase agreement. That means the utility
company has a contract, we will buy your power at a certain
price.
Ms. DeGette. OK.
Mr. Chu. And those loans, we feel, are going to be very
safe.
Ms. DeGette. Solid, those are solid.
Mr. Chu. Those are solid loans.
Ms. DeGette. Now of those loans, how many jobs have been
created by those companies?
Mr. Chu. Well, so far there is something like 44,000 jobs
created by our loans, and we expect--and these are direct jobs,
these are construction jobs; they're manufacturing jobs, and
discounting some of the supply chain, so 44,000. We expect it
to go over 60,000.
Ms. DeGette. And, you know, you've had a lot of time now
over the last recent months after the failure of Solyndra to
reflect on this as Secretary of Energy, and this is something
we're trying to reflect on, on this committee, and even my
friend from Texas I see down at the end has said he supports
solar energy, and he supports supporting solar energy. What can
we do and what can you do to improve the administration and the
approval of these loans to maximize our stewardship of the
taxpayer money while at the same time promoting the idea of
development of alternative energy?
Mr. Chu. Well, actually, there are several people, not only
Mr. Barton, but several people on both sides of the aisle view
the support of the solar industry in the United States as
important and the renewable industry as important, and so I----
Ms. DeGette. So what can we do to better our stewardship--
--
Mr. Chu. Right, right.
Ms. DeGette [continuing]. Of the taxpayers' money while
furthering----
Mr. Chu. Well, certainly we have done many of these things,
and we're going to go into a heightened part. Of the loans we
have now given out but where they have not been disbursed, we
will have to watch very closely change in market conditions and
the conditions of the company, and so we have already begun to
undertake that.
Again, it's very important that decisions going forward on
how to disburse the loans be made not only by the people who
originated the loans but by people independent of them because
it's a very natural thing if you give birth to a loan, you
might have predisposed to want it to succeed, and so we have
already done that. We've set up an independent office within
the loan program to monitor. We have experts as we--experts in
the Department of Energy outside the loan program, but experts
in a particular field, whether it be solar or wind, to actually
assist in understanding the market conditions and what--where
this company's business plan sits within the competitive
fields.
Ms. DeGette. Mr. Chairman--Mr. Secretary, I would ask if
you would supplement your testimony today within 30 days and
provide this committee with a summary of the changes----
Mr. Chu. I would be delighted.
Ms. DeGette [continuing]. That you've done internally to
improve your oversight and administration.
Mr. Chu. I would be delighted.
Ms. DeGette. Thank you very much.
Mr. Stearns. Thank you. The gentlelady's time has expired.
The gentleman from Nebraska, Mr. Terry, is recognized for--
--
Mr. Terry. Mr. Barton.
Mr. Stearns. Oh, I'm sorry, Mr. Barton. I'm sorry.
Mr. Barton is recognized for 5 minutes.
Mr. Barton. Thank you, and thank you, Secretary Chu, for
again agreeing to testify voluntarily. That's not something you
absolutely had to do.
I want to state before I ask my questions, I've been asked
half a dozen times today whether I think you should resign, and
I said every time that I don't think you should resign. I do
think you're a man of integrity. I think you're trying to do
your job as the best that you can.
I also happen to believe that it's possible you're being
set up to be the fall guy. There's some memos and some emails
that have been leaked that you may have to go, and I'm sure
you're aware of that.
I do think, though, that you're culpable for the
subordination decision, and I want to focus on that in this
round.
I have a timeline that's been prepared by majority staff,
and we will share it with the minority, and we'll put it in the
record. I'm going to go through this very quickly. If there's
anything on this timeline that you fundamentally think is
wrong, I wish you would flag it for me. This deals with the
issue of subordination. The reason subordination is key is
because, one, we have the law that says you can't subordinate.
If you don't subordinate this loan guarantee and Solyndra goes
bankrupt, the taxpayers are first in line to be repaid if
there's anything that they can be repaid with, and Solyndra is
in bankruptcy, but they do have assets.
Mr. Stearns. Will the gentleman suspend for one thing?
Would you like to see a chronology of what he's talking about?
Mr. Chu. Sure.
Mr. Stearns. Is that possible, Mr. Barton?
Mr. Barton. Yes, if we can make a copy. Do you have a copy,
and can we get a copy?
Could we suspend the clock while we're doing this? I don't
want my time to be----
Mr. Stearns. We've suspended it, Mr. Barton.
Mr. Barton. All right.
Mr. Stearns. Make a copy and then give it to the ranking
member and myself so we'll be able to follow this as closely as
possible.
Mr. Barton. OK. So I won't say anything while we're in
suspense here.
Mr. Stearns. Well, just so everybody's on the same page
here.
Ms. DeGette. It's OK, I won't----
Mr. Barton. I don't want to play unfairly.
Mr. Stearns. Well, does the ranking member want us to
continue to go on?
Mr. Barton. This won't take but 2 or 3 minutes.
Mr. Stearns. Continue, we'll put you back on the clock.
Mr. Barton. All right. Well, the subordination is important
because if there is no subordination and a company goes
bankrupt, which Solyndra did, then the taxpayers get repaid
first, and there is some value in Solyndra, even though it's in
bankruptcy.
If you subordinate the loan guarantee, then the taxpayers
go to the end of the line, and it's very unlikely once you pay
the private sector creditors, that there's going to be money
left to pay Solyndra.
On December the 6th and December the 7th, and this is the
memo that we just prepared, that we presented you with, DOE and
Solyndra negotiated a restructuring agreement. On December the
7th, and this is 2010, the subordination of the loan is put on
the table. On December the 8th, there is an email from Susan
Richardson, the chief counsel of the loan program at DOE,
requesting a meeting as soon as possible to brief Scott Harris,
who is the DOE general counsel, on a serious problem with
Solyndra. This is about the subordination which DOE has now
offered to do.
On December the 10th, the DOE lead negotiator circulates a
DOE summary to the DOE staff that includes subordination, OK?
That's in December. December the 22nd, OMB asks for DOE's
written analysis of subordination.
On January the 3rd, OMB again asks for a written legal
analysis of subordination. On January the 3rd, the outside
counsel for Department of Energy, Morrison & Foerster, sends
two draft documents to DOE on the legal analysis of
subordination in which they say, state that it cannot be done.
On January the 6th, OMB again asks for DOE's written legal
analysis of subordination. On January the 13th, Susan
Richardson, the chief counsel of the Loan Programs Office,
begins to draft her own legal memo on subordination, which she
ultimately gives to you. On January the 20th, Susan Richardson
sends a copy of her draft legal memo to OMB.
On February the 10th, the Treasury Department emails Susan
Richardson at DOE to discuss subordination, and the Treasury
Department is of the--it doesn't say this here, but the
Treasury Department is of the opinion that you cannot
subordinate the loan. And finally, Mr. Secretary, on February
the 22nd, you signed the action memo modifying restructuring
the loan that does allow for subordination.
So, instead of you making a decision and then they
negotiate subordination, your staff at DOE agrees to
subordination, and then draft a convoluted legal opinion that
they get you to sign that basically covers their rear.
Now, do you have any disagreement with anything in this
timeline?
Mr. Chu. Well, sir, your characterization--let me make a
few statements. First, we were not going--the first $75 million
of new money invested by the equity holders was ahead of us,
but then after that, we were sharing in the pay back of the
loan, so we were not, quote, going to the back of the line.
The OMB, when it saw what was being prepared and the legal
opinions within the Department of Energy, did not object to
this position, and believe me, the OMB is not shy to objecting
if they disagree with anything we or any other agency does.
Finally, Treasury was not offering a legal opinion. They
were suggesting that we could check with Department of Justice,
but under the guise of the--under the statute, you check with
the Department of Justice if the terms of the loan change,
especially if they are decreased, and the taxpayers--the terms
of the agreement are changed. And so our general counsel and
the counsel of the loan program said that this was within the
confines of the original agreement. Therefore, we need not go
to the Department of Justice.
Mr. Barton. Well, my time has expired, but last question.
Knowing what you know now, if you were presented a document to
subordinate the Solyndra loan, would you still agree to
subordinate?
Mr. Chu. Well, I think what we would need to do--let's take
a step back, and if----
Mr. Stearns. Mr. Secretary, I think that's a yes or no
question.
Mr. Barton. I'll let him answer it however he wants, but
it's a straight-up Texas question.
Mr. Chu. Well, we stand by--I think we still agree from the
General Counsel's Office and the loan program office that it
was within the bounds of this. This would be a last ditch
thing. Again, if should there be a loan that goes in trouble in
the future, one wants to recover as much of the taxpayer money
as possible. If you do pull the plug and if should there be a
distress situation and you do pull the plug, then you have to
make the decision: If you go into bankruptcy, what assets can
be recovered; if you go forward what--with new capital in order
to weather the storm, should there be a situation like that.
Mr. Barton. But the law clearly states you can't
subordinate?
Mr. Stearns. Well, I think that's what Mr. Barton is
saying.
Mr. Chu. I think the law----
Mr. Barton. Yes. I want to put into the record officially
the timeline that I just gave the Secretary.
Mr. Stearns. OK. So ordered. Is that--if there's no
objection?
Ms. DeGette. No.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Chu. But the law clearly states that we cannot
subordinate at the time of origination of the loan.
Mr. Stearns. The time of the gentleman has expired, but out
of courtesy to the gentleman, you've indicated that the
Secretary is culpable, do you think, in your opinion, that the
law is broken?
Mr. Barton. If you're asking me the question, yes, sir, I
think he broke the law.
Mr. Stearns. OK. I think that's what I want to make clear
that with your line of questioning, I think that's what you're
saying, the law is broken, and it's an illegal act is what
you're saying.
Mr. Barton. That's what I'm--that's my opinion.
Mr. Stearns. Well, that's what I want to hear.
All right, the gentleman from Nebraska, you're recognized
for 5 minutes.
Mr. Terry. Thank you, and I understand that the--sorry,
I'm--can we break for a second?
Ms. DeGette. I want to see what this says.
Mr. Stearns. We'll put you back to 5.
Mr. Terry. I was distracted.
Mr. Stearns. Mr. Terry, I have the capability of giving you
another 5 seconds.
Mr. Terry. What's that?
Mr. Stearns. I have the capability of giving you another 5
seconds.
Mr. Terry. Oh, 5 seconds. Well, I felt like I was
stammering a lot longer.
Dr. Chu, on January 13, 2009, before you were confirmed and
sworn in or undertook your duties, there was a memo that from
the credit committee--well, it wasn't a memo. It was an email
stating, quote, after canvassing the committee, it was the
unanimous decision not to engage further discussions with
Solyndra at that time. Are you aware of that email?
Mr. Chu. Yes, I am aware of it now.
Mr. Terry. A couple things that I want to clear up just
from my--because I'm confused.
Mr. Chu. Sir, could I interrupt just a second? The decision
not to engage with Solyndra, that there was no more information
they could give us, and we were doing--so we disengaged in
order to do further due diligence further to understand what
the market was and get independent eyes on the program and what
the loan was about.
Mr. Terry. OK. Well, then we can go--you're diverting me
from where I'm going, but I'll just state for the record, then,
on January 26th, that DOE staff sent another email saying that
we're approaching the beginning of the approval process for
Solyndra. It seems interesting that in 13 days, you've got the
credit committee saying we're shutting this file down with a
not to engage in further discussions, and then 13 days later,
it seems like it's full steam ahead.
But I'm concerned about the Dow Jones news wires on
December 11, 2009. You were quoted, we've been told that it's
imminent that they're--Solyndra--going to announce this, and
that the loan is theirs as long as they get the additional
capital that's required by statute. Then following, or on that
date, a DOE employee from the loan program emailed, quote, no
idea where Dr. Chu's info on the equity raise is coming from,
but the conclusion that, quote, the loan is theirs, end quote,
doesn't help our negotiation.
So the question here is, where did you get the information
that the equity loan or the equity is imminent and that the
loan is theirs? Those are two separate questions.
Mr. Chu. First, I would--I was being informed about the
progress of the loan through Matt Rogers, who was a special
assistant reported to me on the Recovery Act. The issue there,
I believe, was that the career employee--what the Department of
Energy tries to do is to get as favorable a bargain or an
agreement that protects the assets of the----
Mr. Terry. Where did you get the information, that was what
the employee----
Mr. Chu. From Matt Rogers.
Mr. Terry. From Matt Rogers. Does Matt Rogers report and
communicate to the White House during this time period?
Mr. Chu. No, he reports to me.
Mr. Terry. So where would Matt Rogers get the information
that the equity is forthcoming and that they will get the loan?
Mr. Chu. My understanding, since he was in charge of
assisting in the Recovery Act in the Department of Energy, that
was his role in the Department of Energy, as a special
assistant to me, he was certainly in communication with the
loan people.
Mr. Terry. So his understanding that the loan, that they
will get the loan, came from you?
Mr. Chu. No, no.
Mr. Terry. To Matt Rogers.
Mr. Chu. It goes the opposite.
Mr. Terry. This seems to be a little circular. He's the one
supposed to be telling you, but I can't figure out who's
telling Matt Rogers----
Mr. Chu. Exactly.
Mr. Terry [continuing]. That they're going to get the loan
and that they have the equity?
Mr. Chu. No, no, excuse me. Matt Rogers is overseeing the
Recovery Act, which included the loan program. I was not
communicating directly with the people in the loan program. I
communicated with Matt Rogers, who then talks to people in the
loan program.
Mr. Terry. So that it was the people in the loan program
that told Matt Rogers that the equity is coming and they will
get the loan?
Mr. Chu. Well, I'm not--it's the people in the loan
program--I think my--again, what is happening is this person in
the loan, who is--the career folk in the loan program are
always trying to get the best position possible for the Federal
Government.
Mr. Terry. I'm not sure that answers the question, but my
time is up.
Mr. Stearns. The gentleman's time has expired.
The gentleman from Pennsylvania, Mr. Murphy, is recognized
for 5 minutes.
Mr. Murphy. Thank you, Mr. Chairman.
Mr. Secretary, on June 27th of this year, you were briefed
in advance of your meeting with President Obama by advisers on
Solyndra. Were you specifically briefed about the company's
financial health and were you told the company was on a path to
bankruptcy at that time?
Mr. Chu. When was the date again?
Mr. Murphy. June 27, 2001, before you met with----
Mr. Chu. 2011?
Mr. Murphy. Of 2011, yes, before you met with the
President, sir, were you briefed about the financial problems
of the company on a path to bankruptcy?
Mr. Chu. I certain--by around that time, I was certainly
aware of the fact that----
Mr. Murphy. They were going to go bankrupt?
Mr. Chu. That they were--well, that they were in deep
trouble.
Mr. Murphy. Did you speak with the President about that
time about the status of Solyndra's financial problems.
Mr. Chu. No, I didn't. When you meet with the President,
it's not about a particular transaction. It was actually a much
higher level discussion about----
Mr. Murphy. I appreciate that. Let me ask a little bit
more, then.
Mr. Secretary, when Solyndra came to DOE in the fall of
2010 and explained it was running out of cash, did DOE consider
at anytime just letting the company go bankrupt?
Mr. Chu. I think this is always something that we consider
if it looks that----
Mr. Murphy. So that was an option? That was an option?
Mr. Chu. It is--every time we're disbursing funds, if a
company, if any company looks like it has a high probability of
going into bankruptcy, you--one goes into another mode where
you say, what will be the best pay for----
Mr. Murphy. Right. As the law said, the original 2005 bill
said that you shouldn't be giving loans to companies that
appear they can't pay back the principal and interest, you're
aware of that, that part?
Mr. Chu. Absolutely.
Mr. Murphy. OK. Now, yet you made a decision, even though
you're aware that's an option, just let them go bankrupt, you
made a decision to move forward anyway?
Mr. Chu. Sorry----
Mr. Murphy. Was there a specific wording in any law that
says you don't have to follow the law that says you can't give
the money if they can't make it?
Mr. Chu. If you're talking about in the original loan, we
made a decision to fund Solyndra. The credit subsidy score
would reflect the probability of the loan.
Mr. Murphy. I understand, but you can't give the money if
they're not going to pay it back.
Mr. Chu. Pardon?
Mr. Murphy. Yes, but the law says you can't give them money
if they're not going to pay it back, and I'm asking is there
some law you're citing that gave you permission to override the
law that says you don't have to----
Mr. Chu. We're not--we weren't going against the law. The
law said----
Mr. Murphy. Well, I hope--sir, I'm asking if you can cite
something for me and get back to us to show us where in the law
it says you don't have to pay attention to the law? That's what
I want to know. Sir, let me ask you this.
Mr. Chu. We paid very close attention to the law. The law
says that we can only make a loan where there's a likelihood of
being paid back.
Mr. Murphy. I understand, but it sounds like you're saying
a subjective decision was here----
Mr. Chu. No.
Mr. Murphy. Based upon things you're citing about China and
solar power, et cetera. But let me ask about this.
So you testified, quote, I approved restructuring of the
loan guaranteed to give taxpayers the best chance of recovery;
you just made a decision here. Did you weigh in with Jonathan
Silver and tell him to restructure the loan?
Mr. Chu. No.
Mr. Murphy. Now, on September 14th, I asked Mr. Silver
during our hearing about the decision to restructure. I said,
and I quote, did the Secretary of Energy have anything to do
with this decision? And he said, not to my knowledge. So my
question is, Silver says you were not, you say you were
involved with the decision, who's telling the truth here?
Mr. Chu. Sorry, the decision to restructure was something
the loan program developed and brought to me for approval, and
so that's the precise nature of what was going on.
Going back to making a loan and thinking that there is a
high chance of recovery or a reasonable prospect of recovery,
which is what the law states, I have to say that given the
credit subsidy risk, the loan loss reserve for this particular
loan was 7.8 percent. That's roughly speaking, it gives us 7.8
percent probability that the loan will get into trouble.
Mr. Murphy. 7.8 percent.
Mr. Chu. 7.8 percent, so that's a high likelihood----
Mr. Murphy. We have Treasury, OMB, people from Solyndra,
and people from the White House who said the government is a
crappy venture capitalist, so that sounds like a number of
people are sending information on to you, but we have
established in my previous question of you, I'm not sure that
even your chief of staff has told you about meetings that were
taking place.
Now, sir, you're a scientist and I'm also trained in
science, and one of the things that we are trained in is do not
avoid, in fact seek out information which may contradict your
paradigms and your premises, that's important, that's how
science moves forward in this. But here you're aware now the
Treasury Department suggests that DOE get a legal opinion on
the restructuring of this loan, and you're aware that other
Federal agencies are recommending this, but now what puzzles
me, sir, is it sounds like you've acknowledged that this is a
subjective decision for other reasons, even though the law says
you can't give money if they can't pay it back, and with this
subjective decision and with your background in science, and
even though staff around you knew this, you're saying that you
didn't have this information or you didn't seek out this
information to make that decision? I don't understand what goes
into subjective decision then.
Mr. Chu. First let me go back to the determination if the
OMB, which is very independent of us, makes a credit subsidy
determination and comes up with 7.8 percent, that's effectively
saying----
Mr. Murphy. But I'm saying the Treasury said you should
have consulted----
Mr. Chu. Oh, you're----
Mr. Murphy. Get a legal opinion on the subordination.
Mr. Chu [continuing]. Citing two issues, one is when we
make the loan in the first place, and we would not make a loan
if there was not a reasonable chance of being paid back.
Mr. Murphy. Sir, but other people are telling you that
there's a strong chance you won't get paid back, even a memo
that says this company is going to go bankrupt, the liquidity
is gone by September 2011, and that's when they did. That's
more than a 7.8 percent chance. My concern is that with this,
you had a lot of information coming at you. Even though the law
says you cannot give money if they're not going to pay it back,
but you made a subjective decision which I think runs against
the law.
I yield back.
Mr. Stearns. The gentleman's time has expired. Just caution
all members, I think votes are coming up. I would like to get
through the second round, and so I'm going to have to hold all
of you to your 5 minutes.
Mr. Waxman.
OK, I'll take the next one. Mr. Waxman will take it later.
Dr. Burgess is recognized for 5 minutes.
Mr. Burgess. I thank the chairman.
Mr. Secretary, again, thank you for your indulgence today.
I'm going to ask you a series of questions that pertain to tabs
32, 34, and 35 in your binder, those are a series of emails,
and I'm just telling you that for reference. I'll give you the
background information.
First off, there was the inability to proceed with the IPO
from Solyndra, and Chris Gronet, former CEO of Solyndra,
suggested that they go to the Bank of Washington. I guess that
means the Federal Government.
Mr. Chu. Excuse me, I've lost my train of thought because I
was looking for tabs 32, 34, and 35. I don't seem to have them.
Mr. Burgess. We'll get them to you. The tabs themselves--
I'll give you the information. But so Bob Peck was contacted by
Secretary Silver, Bob Peck being the commissioner of public
buildings of the GSA, connecting him with the CEO, former CEO
of Solyndra, Chris Gronet, asking him to meet with Solyndra,
Silver, Secretary Silver said he would personally appreciate
it. Now, did you approve of that exchange?
Ms. DeGette. Mr. Chairman, I would ask that the Secretary
be given these documents----
Mr. Burgess. The Secretary has the documents.
Ms. DeGette [continuing]. Before he's expected to answer.
Mr. Stearns. The tab was pointed out to the Secretary, the
staff has shown it, so----
Mr. Chu. OK.
Mr. Stearns. Continue Dr. Burgess.
Mr. Chu. It turns out to be tab A, so let me catch up. And
it was not 32, 34, and 35.
Mr. Stearns. All right, I understand.
Mr. Chu. So now, sir, can you continue with the question?
Mr. Burgess. Here's the deal. Secretary Silver connected
Chris Gronet from former CEO of Solyndra with Bob Peck, the
commissioner of public buildings of the General Services
Administration. They've lost the ability to do the IPO. They
want to come to the Bank of Washington. So was it appropriate
for Secretary Silver to connect those two entities, the CEO of
Solyndra and the head of the General Services Administration
public buildings?
Mr. Chu. Well, this is the first time I've been made aware
of this--I've seen this email, and so----
Mr. Burgess. Well, I was going to ask you, did you speak
with anyone at General Services Administration or Department of
Defense----
Mr. Chu. No.
Mr. Burgess [continuing]. About purchasing Solyndra panels.
Mr. Chu. Did I? No.
Mr. Burgess. And did you speak to anyone at the White House
about this?
Mr. Chu. No.
Mr. Burgess. OK. Then, following, on August 10th, Tom
Baruch, the former member of one of the venture capitalists and
an investor in Solyndra, emailed one of his colleagues, quote,
getting business from Uncle Sam is a principal element of
Solyndra's energy strategy. When President Obama visited
Solyndra, Chris Gronet spoke very openly to the President about
the need for installation of Solyndra's rooftop solar on U.S.
Government buildings. I heard the President actually promise
Chris that he would look into it when he returned to
Washington.
Do you know about these conversations and do you know of
any follow-up conversation that was then contained within that?
Mr. Chu. No, I didn't know about that conversation, and
certainly the President----
Mr. Burgess. Can you see why the committee would be
interested in the follow--if that conversation occurred and the
follow-up?
Mr. Chu. Well, certainly, first, the President didn't talk
to me about Solyndra regarding government installations, things
of that nature, and I was not aware of the then CEO of the
company Solyndra talking to the President regarding he felt the
need to have government buildings install his panels. I was not
aware of that.
Mr. Burgess. OK, so there was--you were aware, then, that
the----
Mr. Chu. I was not aware of that conversation.
Mr. Burgess. But you were aware that there was at least a
business model to pursue the funding from the Bank of
Washington and getting a government purchase of these panels?
Mr. Chu. No. These details of these 38 loan transactions
are--I am not aware of. What I view my job is to do is to set
in the Department of Energy those measures that guarantee that
we make the best judgments possible when we decide that we make
a loan and that it has a probability of being paid back.
Mr. Burgess. I appreciate that. I'll stipulate that you had
the best of intentions. I just want to follow up on what Mr.
Barton ended his questioning. I mean, it was his opinion that
the part of the Energy Policy Act that prevented subordination
was, in fact, violated, and that is my opinion as well, and I
rather suspect that's a fairly broadly held opinion across from
sea to shining sea today. So given that fact, do you feel you
owe it to your boss a discussion with him in light of the fact
that it appears I may have broken the law?
Mr. Chu. No, I----
Mr. Burgess. That you should not continue in your
employment?
Mr. Chu. Respectfully, our legal staff, our General
Counsel's Office, Susan Richardson, others, the OMB looked at
what our decision, our pending decision would be, did not
object to it, and so I would say I would rather take the
opposite opinion, that when you have independent people looking
at this loan outside the Department of Energy as well as a very
thorough discussion within the Department of Energy, it is
not----
Mr. Burgess. But if you had the opportunity to make the
same decision again today, say, with Beacon, you wouldn't make
it, would you?
Mr. Chu. Well, what--let me step back and say that, again,
should----
Mr. Stearns. The gentleman's time has expired, but you can
complete your answer.
Mr. Chu. OK, thank you. The issue is, should there be a
stress in a loan going forward. We--I would love to work with
this committee and with Congress in how to guarantee that we
can recover as much as possible.
Mr. Stearns. OK.
The gentleman from California, Mr. Waxman, is recognized
for 5 minutes.
Mr. Waxman. Thank you, Mr. Chairman.
Well, on that last point, if you don't have the flexibility
to deal with a loan that you want repaid, you're just going to
pull the rug out, and then the money's lost for sure. So
sometimes allowing the subordination will hopefully save the
situation. There ought to be that flexibility.
Mr. Chu. You need some flexibility once a loan has become
stressed, and I agree absolutely with you, and this happens all
the time in the private sector, and to protect the taxpayer
interests, you need some flexibility to guarantee as much pay
back as possible.
Mr. Waxman. Well, the Republicans have accused you of
acting illegally in subordinating the loan, but I just don't
think that's a case they can sustain. Your general counsel
signed off on the subordination, and when we asked a former
general counsel of her opinion, general counsel at the
Department of Energy, her opinion, she agreed it was lawful.
One of my colleagues earlier said, well we ought to change
the law, that's what we thought we were doing. That's a good
lesson for Members of Congress to take heart. If you think you
know what you're doing, you better be sure you've done it
because that isn't what the law provides.
The Republicans accused you of granting the Solyndra loan
to benefit a campaign donor, George Kaiser, but the record
before this committee shows you acted on the merits. Steve
Iskowitz, a Bush appointee, who was your chief financial
officer, said the process was never compromised. David Frantz,
who was a career official, who was also the director of the
loan office, told us he did not even know who Mr. Kaiser was.
Matt Rogers, who was your senior adviser on these loans, told
us he had no idea Mr. Kaiser had given any political
contributions and his name never came up. You told us today
that you also did not know Mr. Kaiser had contributed to
President Obama until you read about it in the newspapers after
the fact.
So that should put to rest that allegation, that you were
influenced by political considerations.
The only other allegation that remains is that someone may
have asked Solyndra to delay announcing a plant closure for a
few days until after the 2010 election. Now, I don't condone
this action if it's true, but let's keep this in perspective:
Asking Solyndra to delay its announcement did not put any
taxpayer dollars at risk. It didn't change Solyndra's business
decisions. It had nothing to do with any of the loan guarantee
decisions. It's all that our committee has found after
reviewing hundreds of thousands of pages of documents and
interviewing countless witnesses, and it's really small
potatoes.
Now, you've been here this whole day, and you've been very
forthright in answering a lot of questions, and there's been a
lot of posturing by the Republicans who think this is a
scandal. We have lost the money, it's unfortunate, but there's
no scandal there, there's nothing there.
I want to put this in perspective, Dr. Chu. You've been
trying to move our Nation to a clean energy economy, and that's
essential to protect American families from fires and droughts
and floods and other extreme weather that climate change will
bring, and it's essential to our future economic growth. As
you've repeatedly said, we want to be selling the clean energy
technologies of the future, not buying them from the Chinese.
Now, on the other side, my Republican colleagues on this
committee have been trying to block these efforts every step of
the way. Republicans in Congress and their allies in the coal
and oil industry oppose efforts to put a price on carbon
pollution. They oppose funding research into new clean energy
technologies. They oppose investments in clean energy
companies, which, like Solyndra, would produce new power, but
we hope, unlike Solyndra, will be successful.
You're on the right side of this debate, and I think you
are on the right side of history. The Republicans are on the
wrong side, and I think what they're doing is leading us
astray. But my message to my colleagues is to stop dancing on
Solyndra's grave. You're trying to--they're trying to
manufacture a scandal where there is none. This is a
distraction from the work that we should be doing.
What Congress ought to be spending its time doing is trying
to get Americans jobs and back to work and get the economy
moving again. What Congress should be doing in energy policy is
to encourage development of new energy sources so that we don't
have to rely on oil and coal and nuclear so we can have a more
diversified portfolio, we can be more independent as a Nation,
we can produce greater economic benefit, and we can stop the
terrible consequences of global warming.
So I thank you for all that you've done. I do not see that
you've done anything wrong. If anything, you're trying to do
exactly the right thing, and I commend you for it.
Mr. Stearns. Thank you.
The gentleman's time has expired.
Mr. Waxman. Did you want to respond?
Mr. Stearns. Sure, yes, go ahead.
Mr. Chu. Can I make a comment?
Mr. Stearns. Sure, absolutely. Go ahead.
Mr. Chu. First, let me just say, thank you for those
comments. Many, many years ago, it seems forever now, I had
left Stanford University to head the directorship of Lawrence
Berkeley Lab because I felt that we were running--if we
continued--we in the United States and the world, if we
continued on this path, we would, there will be serious risks
in climate change, and then as I got into this and began to
encourage the folks at Lawrence Berkeley Lab to look at
renewable energy, I began to also see an incredible economic
opportunity that is in the direct sweet spot of the best that
America has to offer, our research and development and our
entrepreneurial system and the ability to manufacture things
like high tech----
Mr. Stearns. Mr. Secretary, I need you to wrap up. We've
got a vote, and we also want to get a couple members in.
Mr. Chu. So I would agree with you, this has a lot to do
with America's economic prosperity and future as well as the
legacy we leave to our children.
Mr. Waxman. Thank you.
Mr. Stearns. The gentlelady from Tennessee is recognized
for 5 minutes.
Mrs. Blackburn. Thank you, Mr. Chairman.
And I have to tell you, Mr. Secretary, it's really
troublesome to me the number of times I've heard you say today
that this is the first time you've been made aware of something
or that you know something now, you didn't know it then, so it
leads me to believe that maybe you had some staff that was kind
of keeping you out of the loop on some decisions.
Let me ask you this: Did anyone from DOE talk to anyone
from the White House about restructuring or subordination? Was
there any communication between DOE and the White House about
the restructuring and the subordination of that loan?
Mr. Chu. Certainly at the time that we were discussing
this, I was aware of no communication whatsoever with the White
House.
Mrs. Blackburn. Are you aware of any communication now?
Mr. Chu. I was made aware of it as of yesterday.
Mrs. Blackburn. That there was communication between DOE
and the White House on the restructuring and the subordination?
Mr. Chu. Well, there are some communications, again, about
the restructuring. This is something which is the
responsibility of the Department of Energy, and again, we were
looking out for the taxpayers.
Mrs. Blackburn. Would you like to provide us with the
information of who that communication was between?
Mr. Chu. Yes, I will.
Mrs. Blackburn. Thank you.
Did the White House approve of or sign off on in any way,
did they approve of or sign off on the restructuring and the
subordination of this loan?
Mr. Chu. Again, my understanding is that this was within
the responsibility of the Department of Energy, it was our
responsibility within the interpretation----
Mrs. Blackburn. Mr. Secretary, let me ask it another way.
If you all had communication and the White House was made aware
that you were going to subordinate this loan, then----
Mr. Chu. Oh, absolutely----
Mrs. Blackburn. Then did they sign off on this?
Mr. Chu. Well, as I said before, the OMB looked, knew what
we were doing, and they went ahead and said, they said--they
did not say, no, you cannot do this.
Mrs. Blackburn. Anybody in the White House other than OMB?
Mr. Chu. Other than OMB concerning what?
Mrs. Blackburn. The subordination or the restructuring.
Mr. Chu. There may have been other opinions, and we can get
that information back to you, but I'm saying----
Mrs. Blackburn. I would like to know the names of anyone in
the White House that was involved in that process.
Mr. Chu. Right.
Mrs. Blackburn. Let's go back to the board observer. Did
you approve the board observer, or did anyone from the White
House or the Vice President's Office, did anyone else have
input into who that board observer would be?
Mr. Chu. I didn't approve of the choice of the board
observer.
Mrs. Blackburn. Who approved the choice?
Mr. Chu. I would imagine it was part of the loan program
and Jonathan Silver.
Mrs. Blackburn. OK. Could you provide that information to
me?
Mr. Chu. Sure.
Mrs. Blackburn. OK. Did that board observer report to you
on the interactions and the conversations and the contents of
the meetings?
Mr. Chu. No, that board observer was there. It's an
observer so that we could have a closer eye on the events that
were happening in Solyndra.
Mrs. Blackburn. Correct, OK.
Mr. Chu. As part of our due diligence in moving forward
with the loan.
Mrs. Blackburn. Sir, you did not appoint them until after
you had restructured that loan, that was my understanding.
Mr. Chu. That was part of the condition of restructuring,
that we needed----
Mrs. Blackburn. OK. Now who did they report to of their
interactions?
Mr. Chu. I would say that the board observer would be
reporting to the loan program.
Mrs. Blackburn. To the loan program, to Mr. Silver?
Mr. Chu. Well, I can get back to you on exactly, but----
Mrs. Blackburn. OK. That would be great. Did the board
observer inform you or anyone at DOE of the impending
bankruptcy filing?
Mrs. Blackburn. The--well, as I said, the board observer
doesn't report to me; he reports to someone in the loan
program. And certainly as the events rapidly changed, both the
board observer and the board of Solyndra were notified of a
rapidly changing condition by the management of Solyndra and--
--
Mrs. Blackburn. Did anyone from DOE report to either the
loan program, Treasury, OMB, the White House or DOJ that there
would be an impending bankruptcy filing from Solyndra?
Mr. Chu. I think by that time, this is very late in the
game, when, especially when Solyndra the company in a board
call meeting said that they're making different projections of
when they would go into the black.
Mrs. Blackburn. OK. Well, I find it--and I think you need
to realize our frustration with having people from DOE or from
Solyndra come up here as late as July and saying things were
fine and then to know that there was a board observer that had
been approved by DOE that was sitting in on those meetings that
may know, may have known that things were not going well, and
yet we were being given different information. I see a certain
amount of--well, let me just say that is very troublesome to
me, and I would hope that it is very troublesome to you.
Mr. Chu. Well, my--as I've been made aware of this, both,
as I said before, the board observer with the board were
equally surprised, and the fact that we have a board observer
and the board itself being surprised that very suddenly the
projections of the company Solyndra to the board----
Mrs. Blackburn. Then who was choosing to keep us all in the
dark?
Mr. Chu. Well, look, I'm not going to speculate on that.
I'm only just saying that both the board and the board observer
learned about these events together.
Mr. Waxman. Point of order, Mr. Chairman.
Mr. Stearns. Yes, point of order.
Mr. Waxman. Mr. Chairman, the Secretary has been here for
over 4 hours----
Mr. Stearns. I think you have got a good point there.
Mr. Waxman. We have a vote on the House floor that is going
to take us 45 minutes.
Mr. Stearns. I agree. All right, the gentlelady's time----
Mr. Waxman. Just a minute, Mr. Chairman.
Mr. Stearns. Sure.
Mr. Waxman. The Secretary has been here. I think it's
abusive to have the Secretary, any Cabinet-level Secretary here
and then make him wait another 45 minutes to have members ask a
second round. There's no entitlement to a second round of
questioning.
Mr. Stearns. All right.
Mr. Waxman. And I think we ought to let the witness go
about his job.
Mr. Stearns. All right.
Mr. Waxman. And adjourn this meeting.
Mr. Stearns. All right, I appreciate your opinion.
The gentlelady's time has expired, and I think you finished
answering her question.
We want to complete the second round for those members that
are interested, so, Mr. Secretary, we are going to take a half-
hour break, come back at 2:45.
Mr. Waxman. Mr. Chairman, I move the committee do now
adjourn.
Mr. Stearns. The gentleman has a motion on the floor that
the committee adjourn.
Is there objection?
Mr. Scalise. Objection.
Mrs. Blackburn. Objection.
Mr. Stearns. Objection. So we'll call the roll. Is that
correct? While we're waiting for the clerk, Mr. Secretary, can
we, if we adjourn for 2:45 and come back, could you----
Mr. Waxman. I guess the question to the Secretary, it's up
to you, but it seems to me you've done more than you could
possibly do to answer every question. The questions are getting
to be quite repetitive, and I don't think it's fair to the
Secretary.
Mr. Stearns. OK, that's your opinion.
Mr. Secretary, we have a few members who want to come back
right after, it would be less than a half hour. Can you stay
for that?
Ms. DeGette. No, it won't be.
Mr. Chairman, it's going to be 45 minutes.
Mr. Stearns. Are you willing to come back or stay for a
second round?
Mr. Waxman. Mr. Chairman, is the Secretary willing to
respond in writing to those members that have additional
questions?
Mr. Stearns. No, I think we have a hearing here, we want to
continue.
Are you receptive to 30 minutes?
Mr. Chu. Mr. Chairman, certainly, you know, I really have
nothing to hide, but I think Mr. Waxman is correct; these
questions are going over and over and over again of old
territory.
Mr. Stearns. Oh, I understand.
Mr. Chu. If they want to continue that----
Mr. Stearns. Well, I think we have about----
Mr. Scalise. Mr. Chairman, I have some questions that
haven't been asked, unlike some who had the opportunity to have
a second round, I haven't. I would appreciate that opportunity.
Mr. Stearns. Normally in an oversight committee, we have at
least two rounds, so I'm asking you to consider----
Ms. DeGette. No.
Mr. Stearns [continuing]. To come back or just to delay for
another less than 30 minutes, we'll be back and we have three
or four members that will finish up and then we'll wrap up. So
with your indulgence, would that be OK? Could you accept that?
Good, we'll do that.
Mr. Waxman. Well, Mr. Chairman, I don't--you are again
being abusive of the witness.
Mr. Stearns. We have a motion on the floor, but as I
understand it----
Mr. Waxman. Is this the only thing you have to do today,
Mr. Secretary?
Mr. Chu. No, I have other, I have other business, of
course.
Ms. DeGette. Mr. Chairman----
Mr. Waxman. So you've been asked about all these issues.
Ms. DeGette. As a compromise, I would like to suggest a
compromise.
Mr. Stearns. OK.
Ms. DeGette. The compromise I would like to suggest is that
we release the Secretary no later than 3:30 this afternoon. So
we can go vote, we can come back.
Mr. Stearns. I think that's reasonable.
Ms. DeGette. Thank you, let's do that.
Mr. Stearns. Let's do that. We'll do that.
And as I understand this motion to adjourn, and we object
to it, I think is----
Mr. Waxman. Mr. Chairman, I'll withdraw the motion.
Mr. Stearns. OK. So we're going to adjourn--it's temporary
adjourn, and--recess, we're going to temporarily recess, and
we'll be back here in less than 30 minutes at 2:45, and we'll
try to get you out of here at 3:30.
[Recess.]
Mr. Stearns. The subcommittee will come to order, and we
will resume our second round of questioning.
And the gentleman from California is recognized for 5
minutes.
Mr. Secretary, are you ready?
Mr. Chu. Yes, I am.
Mr. Stearns. Thank you for coming back and offering us the
opportunity.
Mr. Bilbray, you are recognized for 5 minutes.
Mr. Bilbray. Thank you.
For the record, Mr. Secretary, I supported you when you
were appointed, and I support you now. I think you have the
greatest potential to fulfill the promise of the Energy
Department that has been so lacking for so long, and because I
feel that you have a basis in science, not in politics. So I
just wanted to say that for the record.
I do have a concern, though, as I say that, that foot for
foot, square foot by square foot, you think that the three
basic divisions of photovoltaics are created equal. Because
there must be some information out there that is not available
to the general public. You know, there are distinct advantages,
historically, with poly and mono over thin film, not just in
its initial performance but in its longevity.
And that is a big reason why I was very suspect when I saw
Solyndra propose a 20-year warranty on a technology that has
only been able to really deliver a 4- or 5-year guarantee. And
you may not agree, but I think you would understand why I would
have those concerns.
Mr. Chu. Well, if you would allow me to explain, if you
look at the thin-film technologies, there are two thin-film
technologies--cad telluride, what we refer to as CIGS--and how
does it stack up against both single crystal silicon and
polycrystalline silicon.
Mr. Bilbray. Well, let me just stop and say, you still say
that you think the three are equal and that there is not--the
thin film was not a more risky venture as opposed to the other
two?
Mr. Chu. I think that thin film has great promise. And this
is the reason why General Electric today is investing in a
solar----
Mr. Bilbray. OK. I understand General Electric. We also
keep referring to China, and you know exactly where they have
laid their bets.
My biggest thing is that I worry that the way this moved
was moved not by criminal intent but through naivete or wishful
thinking that all solar energy was created equally and that
anything green must be good. And I think we have seen the
mistake of that with the application 15 years ago of ethanol,
and now we have seen the problems that that has created, both
environmentally and economically. And my concern was this
naive, almost religious approach that if it is green, it must
be good and it is going to work out.
But that aside, you know, my concern is that when we
approach the technologies, was the concept that because the
Chinese weren't going at this that we could have a quantum leap
in technology that is so far ahead of where we have been
before, that the Chinese would be left behind because of our
research, and this breakthrough would make a technology that
they had basically left behind themselves, weren't willing to
invest in, that we could jump ahead of the Chinese at that
time?
Mr. Chu. If you would allow me to finish, what I am trying
to say here is that in the thin-film technology, like cad
telluride, there are certain results of efficiency in the
laboratory of companies and then there are certain production
efficiencies. When they started in production, they were
getting roughly 11 percent efficiency. Silicon was higher;
silicon was roughly 14 or 15 percent efficiency. They both
have--so what you had in silicon is, you had less, what I would
call, headroom to improve the technology.
Now, since we have started in cad telluride, as an example,
companies are now achieving results and beginning to go into
production where they are expecting something on the scale of
14 percent efficiency. That is a huge improvement----
Mr. Bilbray. I am sorry to interrupt. But, historically,
the advantage of thin film was a lower cost even though it was,
like, 15 to 20 percent less efficient initially and had a
higher degrading level in the first year of application.
Mr. Chu. Well, what is happening is, it is certainly much
lower cost, and in the instance of cad telluride it is actually
beginning to rapidly approach the efficiency of silicon. And so
this is a good thing. This----
Mr. Bilbray. When you say ``rapidly approaching,'' wait a
minute, you know, we are looking at 20 percent historically. We
have closed that to 10 percent, 5 percent?
Mr. Chu. The dominant silicon being sold today is what is
called poly silicon, and----
Mr. Bilbray. Right.
Mr. Chu [continuing]. That is roughly about 15 percent
efficiency. And, as I said, cad telluride started at 11
percent, and they are making great advances in the efficiency.
And so----
Mr. Bilbray. OK. Getting back to the--you were thinking,
though, that this would be a bet to be able to have a quantum
leap so we could jump over where the Chinese were going?
Mr. Chu. They--sorry. We weren't making bets. There were
companies that were investing in this and applied for a loan.
And we think, going forward, that cad telluride, some of these
thin-film technologies, can be very competitive.
Mr. Bilbray. OK. I just need to interrupt because of my
time. Because my concern is this issue, that we can jump so far
ahead that we will be able to--production, when we are paying
twice the price for electricity as China, when they can get the
permits, when they have the access. You know, we talk about
wind energy. They have 98 percent of the rare earth, and we
haven't opened up our public lands for rare earth so we could
produce it domestically, so we would have to buy the rare earth
because of the permanent magnet technology. All of these things
are tied together.
And I would like to see the Energy Department be able to
talk to our colleagues; that if they want to see wind
generation, then they have to change regulations to allow
access to rare earth. If they want to talk about these
technologies being made available, they have to be able to make
it legal for us to produce it competitively.
My only problem is, if we make this quantum leap, we spend
all the taxpayers' money to develop the technology, the Chinese
will take that technology and outproduce us because of our
government regulation obstructionism.
I yield back.
Mr. Stearns. The gentleman's time has expired.
And I recognize the gentleman from Georgia for 5 minutes.
Mr. Gingrey. Dr. Chu, Mr. Secretary, I want to associate
myself with the initial remarks my colleague from California
just made in regard to you being in the right position at the
right time.
You know, I do question, though, your judgment in regard to
the restructuring of the loan. I feel that that essentially was
throwing good money after bad. I think the decision should have
been made to cut our losses, advance no further loan proceeds
to the company, and try to recover as much of the $530 million
under a structured bankruptcy sale of assets for the taxpayer.
You know, in fact, the investors that were coming behind
with the $75 million, I am sure many of those were involved in
the original billion-dollar investment to start the company up,
and so they were in the same kind of position.
But be that as it may, I just think that maybe the advice
from the Justice Department over the question of whether or not
it was legal to restructure and put the taxpayer in a secondary
position, you would have gotten the right answer, and that
would have avoided that trap.
The ranking member of the overall committee said earlier
before we broke that, you know, it is time quit dancing on the
grave of Solyndra, and, you know, we are talking about small
potatoes, it is a non-issue. In fact, the President, himself,
was quoted as saying, well, hey, you win some, you lose some. I
made a football analogy in my first round of questions, and you
win some, you lose some in football. But in a situation like
this, you know, you don't lose $535 million and maybe win a $15
million investment. The balance is just not there. And, quite
honestly, half a billion dollars, to most of us, is not small
potatoes.
Let me just ask you a few questions in the remaining time
that I have left. And this is about the issue of the second
loan guarantee application, so-called Fab 3. I am not sure many
of us even realized until here lately that there was the
possibility of Solyndra getting yet another loan.
When were you first made aware of Solyndra's pursuit of a
second loan guarantee?
Mr. Chu. Recently. But, just for the record, when we have
an announcement of application for loans, companies apply for a
loan. That doesn't mean the company was going to get a loan.
And, in fact----
Mr. Gingrey. Well, Mr. Secretary, I understand that. Of
course, in January of 2010, executives from Solyndra appear to
have met with DOE officials, including Mr. Jonathan Silver,
gone now, and Matt Rogers, on several occasions to discuss the
idea. And you were aware of those meetings--were you aware of
those meetings?
Mr. Chu. I believe I was aware of an application for a
third fab plant, but that really, as you know, progressed
nowhere.
Mr. Gingrey. Right. Right. So is it safe to say that you
did have conversations with Jonathan Silver and/or Matt Rogers
before or after these meetings regarding the second loan?
Mr. Chu. No. In an--I am not informed of applications for
all loans. There are many, many applications. When I am brought
in is when it comes time to approve the loan, because that is
my responsibility. Many applications go into the Department and
then the loan people determine that they are not going get a
loan.
Mr. Gingrey. Yes. Well, here again, some of the other
folks, the band of brothers that you fell in with,
inadvertently I guess we could say.
According to one Solyndra executive, on February 9th,
another meeting with Solyndra executives, Jonathan Silver
appeared to acknowledge that they would, quote, ``likely move
to the due diligence stage when he directly engaged in a
discussion of the potential political challenges that a second
Solyndra loan guarantee would present.'' And that is the end of
his quote.
He then asked for Solyndra's assistance in crafting answers
to four questions that he anticipated receiving about this
second loan guarantee. One of these questions was why DOE
should give additional loan guarantees to a company that had
not yet achieved significant milestones of success with the
first loan.
Did Jonathan Silver ever present to you reasons why he
thinks Solyndra should get a second loan guarantee, when there
are, as you point out, a lot of other companies desperate
wanting--renewable energy companies, with good plans, wanting
to have a first bite at the apple, and here he was sort of
pushing for Solyndra to get a second bite of the apple? What
did he say to you?
Mr. Chu. Well, I am not sure he was pushing to get a second
bite of the apple. What I do know is that this did not come
before me to the point where there was serious consideration to
give Solyndra the second loan.
Mr. Gingrey. And they subsequently did not get that second
loan.
Mr. Chu. We did not.
Mr. Gingrey. Right. Thank you, Mr. Secretary.
And, Mr. Chairman, I will yield back.
Mr. Stearns. The gentleman's time has expired.
The gentleman from Louisiana, Mr. Scalise, is recognized
for 5 minutes.
Mr. Scalise. Thank you, Mr. Chairman. I appreciate you
letting us have a second round of questions.
And I disagree with the comment you made earlier, that a
lot of these are redundant questions that are being asked.
Because, frankly, I think there a lot of questions that have
been asked that we haven't been able to get answers to.
In fact, when the chairman, Mr. Stearns, at the beginning
of the second round, asked you some very specific questions
about other loans out there, what other loans are in trouble, I
am surprised that you can't give an answer to that question.
Can you get us, this committee, an answer to that question
of what other loans are in trouble right now?
Mr. Chu. As I said before, we watch all the loans. We, in
learning from the experience of Solyndra, we are now watching
the loans at a minimum of every month and sometimes weekly.
But----
Mr. Scalise. So can you tell, if you are watching them
weekly, how many are in trouble? Obviously you are watching
them weekly. There are a lot more out there.How many are in
trouble right now?
If you are watching them, you have to know. It is either
none or some number in between none and the total number that
are still out there.
Mr. Chu. I----
Mr. Scalise. What is that answer?
Mr. Chu. What, that----
Mr. Scalise. I don't think that is an unreasonable
question, Mr. Secretary. How many loans that you are watching--
you are watching them weekly--how many loans are in trouble
that are still outstanding?
Mr. Chu. Again, we watch----
Mr. Scalise. A number. I am asking you for a number.
Mr. Chu. All right. We have two loans that are in trouble,
Solyndra and Beacon.
Mr. Scalise. Well, they went bankrupt. Those aren't--what
other ones are in trouble besides those two? Is it just those
two?
Mr. Chu. No, I--we would be glad to look at and tell you
our procedures and give you, not in this forum--but we would be
glad to work with you and----
Mr. Scalise. Well, a public forum. I mean, it ought to be--
there has to be transparency in what is going on here. We are
trying to get to the facts, and we have been having a hard time
getting those answers. So I would appreciate if you would get
the committee that information on what loans are in trouble,
starting with Solyndra and Beacon, if there are any others.
When we talk about the subordination--and I know it is
going to come back to this a few times because I still don't
think this issue is resolved. And, frankly, you know, I
disagree with you, and, obviously, a lot of us on this
committee disagree with your interpretation. I more share the
concerns of another part of the Obama administration, in
Treasury, where they said the Justice Department ought to be
involved. You chose not to get involved with the Justice
Department.
I am asking for the Justice Department to get involved.
And, frankly, what I would like to see is for the Justice
Department to challenge, right now, to challenge the
subordination of the taxpayer. Because, frankly, it is the only
way that we have a shot at getting that first $75 million of
taxpayer money back.
Mr. Stearns. Would the gentleman yield just for a second?
Mr. Scalise. I would yield.
Mr. Stearns. I think he is asking a very legitimate
question. He is asking you not the company names; he is just
asking the number.
And staff has advised me we sent a letter some time ago
asking for a list of all the companies, and we have not got a
reply yet. So I think the gentleman's question of ``what is the
number'' is a legitimate question.
If you are looking at it weekly, can you tell----
Mr. Chu. We believe that most of the loans are in good
shape. We would be glad to talk about this with you and tell
you what process we have in place. We have given you a lot of
company confidential information. You have respected that
confidentiality; we appreciate that. We would be willing to
continue do that.
Mr. Stearns. We are not asking for the names.
Ms. DeGette. Would the gentleman yield?
Mr. Stearns. All he is asking for--as I understand, Mr.
Scalise, you are asking for just the number.
Mr. Scalise. A number is all I ask for right now. And,
obviously, we would like to follow up once we see a number.
But, you know, maybe the number is just two; maybe it is just
Solyndra and Beacon. But if it is more than Solyndra and
Beacon, then clearly we would want to look more into that.
Ms. DeGette. Will the gentleman from Louisiana yield?
Mr. Scalise. I would be happy to.
Ms. DeGette. Thank you.
Mr. Secretary, is part of your reticence in saying how many
companies you think might be in trouble or which ones they are
in this public forum this concern about proprietary
information?
Mr. Chu. There is always concern that we would have, as you
would understand. But in terms--because we will tell you what
we know of the companies and how we found out about it in
detail, but not in a public forum.
Ms. DeGette. So----
Mr. Chu. But we believe--I will say that we believe the
majority of the portfolio seems to be in good shape.
Ms. DeGette. So, Mr.----
Mr. Chu. In fact, a large majority.
Ms. DeGette. So I would suggest--I think that is a
legitimate concern. You don't want to--we have already been
contacted, for example, by a company that is actually in Mr.
Gardener's district, and they are concerned, because of the
adverse publicity around the Solyndra loan, that it is hurting
their ability to get capital and financing, and they are an
ongoing company.
So perhaps we could get--we could get a number--we could
try to get a number, but then any additional----
Mr. Scalise. Right. And that was the gist. Reclaiming my
time, I never asked for any specific names, but, clearly, I
would like the numbers.
But then the next question I have regards going back to the
restructuring. You know, I want to see the Justice Department
go back and challenge the legality of the restructuring,
whether or not the taxpayer should have been subordinated.
Because that gives us the best chance to protect taxpayer
money.
Would you agree that the Department of Justice should go
and challenge that?
Mr. Chu. As I said, we have gone through this in great
detail with our lawyers within the Department of Energy. This
went to----
Mr. Scalise. And ignored other legal opinions that
contradicted it.
Mr. Chu. No.
Mr. Scalise. Including the Treasury.
Mr. Chu. The Treasury, as I said before, did not offer a
legal opinion. They did not say that----
Mr. Scalise. This is a letter from Treasury. I would
imagine you have seen it. It said that you all should go to the
Department of Justice before you do this. I mean, I don't know
if you want to call that a legal opinion. You have attorneys
telling you, go to the Department of Justice before you do
this, and you didn't do that. Now, whether it is a legal
opinion or just a personal opinion, it was sent on their
stationery, it was sent in their email form, on a government
email, so I would imagine it is in their official capacity.
But let's just say, right now--and, you know, I don't want
names--are there any loans that you are currently considering
restructuring that are in your portfolio right now?
Mr. Chu. I think I have answered that before. But we are--
before us, no loans that we are considering----
Mr. Scalise. I would hope, if any did come before you, you
would absolutely not subordinate the taxpayer. That is a whole
other issue.
But when we go back to some of the other things that were
going on around you--and you gave testimony that you weren't
aware of those, some of the things that were very political in
nature: you know, in your department, encouraging people to--
encouraging Solyndra to delay firing people. Again, they
weren't concerned, in anything I have seen, that 1,100 people
were going to lose their job; they just wanted to make sure it
happened after the election. And it did happen after the
election, so, obviously, the folks in your agency were listened
to.
Are you going to do the due diligence to go and find out
who did that and hold them accountable? And what kind of things
would you do to hold them accountable?
Mr. Chu. Well, we certainly will, as I said before,
investigate actually the facts in this matter and take
appropriate actions as we find out what actually happened.
Mr. Scalise. And I would hope you would share that with our
committee. Would you be willing to do that?
Mr. Chu. Yes.
Mr. Scalise. Now, a final question, because I see I am
running out of time.
The President, himself, has described this--when we talked
about the loan program early off, he was asked and he said,
basically, he said, we place bets. Now, would you view this as
betting? Because, I mean, clearly, there are a lot of other
loans out there. There are $4.7 billion of loans that went out
on the last day of this loan program. Just on that last day
$4.7 billion went out.
Knowing all of the problems now that happened with
Solyndra--and that was the very first one that went bust--have
you changed any processes? When you, on that last day--I would
imagine you approved all of those. So how many loans were
approved on that last day, accumulating to $4.7 billion? And
did you use a different methodology, a different formula to
assess whether or not those were bets, as the President said,
that were good for the taxpayer or not, or did you use the same
process that failed for Solyndra?
Mr. Chu. Well, let me step back and tell you about the last
several months of the loan program, the 1705 loan program.
There were, I think in May or June, roughly May of this
year, we told many of the loan applicants there was no time to
complete due diligence and that we are sorry, even though some
of these applications were being considered and before us for a
year or more. And so, at that time, we said, we cannot have the
time to do due diligence.
On the last of the loans, there were many of the loans
where we also felt on those last days we could not make the
deadline and do the due diligence. And so what we were deciding
was which ones can we complete the due diligence. Under no
circumstances was anyone ever in the loan program trying to
rush it by cutting corners, not doing the due diligence.
And so what happened is, you used the maximum time
possible. There were another set of loans that we were working
with companies that we did not--we were not able to complete
our due diligence, and those loans were not made.
Mr. Scalise. But the specific question I asked you was----
Mr. Stearns. The gentleman's time has expired.
Mr. Scalise [continuing]. How many loans were approved on
the last day, and did you use the same process that you used
under Solyndra for that $4.7 billion package?
Mr. Chu. As you know, we have a very rigorous process in
our----
Mr. Scalise. How many? And yes or no?
Mr. Stearns. The gentleman's time has expired.
Mr. Chu. Well, I believe I agree with you that there were
four, and there were a number of loans that were not--and the
last day, we said, we are sorry, to those companies, we cannot
complete these loans. So under no circumstances were we
rushing.
Mr. Stearns. All right. Thank you, Mr. Scalise.
Mr. Scalise. And did you use the same process?
Mr. Stearns. And the gentleman from Virginia----
Mr. Scalise. He won't answer that question. I am just
asking if he can answer that question.
Mr. Stearns. The gentleman from Virginia is recognized.
Mr. Scalise. Did you use the same process as under Solyndra
for those last $4.7 billion of loans?
Mr. Chu. Well, actually, I would imagine, as time goes on,
our processes were being strengthened. As we get better at
doing these things, we were actually improving the processes,
just as we will continually improve the process in looking at
how the loans are going forward in the disbursements. This is a
process where we would hope to have continuous improvement,
and----
Mr. Stearns. All right. The gentleman from Virginia is
recognized for 5 minutes.
Mr. Griffith. Thank you, Mr. Chairman.
Secretary Chu, can you tell me, do you know what the value
of the building that Solyndra owns, the one that was built, do
you know what the value of that is, as far as the bankruptcy
court is concerned, or what the sales price might be?
Mr. Chu. No, I don't.
Mr. Griffith. All right. And here is my concern. Eight to
11 months ago, when you were making the decision to
subordinate, you said that you thought it was better, instead
of calling it quits in December and not giving them the
additional $95 million, and instead of subordinating--or, you
all made the decision you were going to subordinate because you
thought it would put the taxpayers in a better position.
The problem is, you told me earlier you didn't know the
value of the intellectual property and the patents that the
company might own. You don't know the value of the building. If
you don't know those things in a fire sale or in a situation
like this, how can you make a determination just 8 to 11 months
ago that it was in the taxpayers' best interest to subordinate?
I think it is a rhetorical question because I don't know that
you can answer that.
And let me move on to the next question that I have,
because we also talked earlier--Mr. Barton brought it up first,
and then I brought it up--this legal analysis by Morrison &
Foerster. And all we have is the draft. And I don't think that
you have intentionally misled the committee, but I think that
there may never have been a legal opinion from Morrison &
Foerster on this, a written legal opinion.
Do you know if there was actually a written legal opinion
made?
Mr. Chu. I do know that there was an email, a determination
by Morrison & Foerster of what--and they concurred with us in
an email, in a final email, saying that this was a reasonable
interpretation of the law, and they concurred with it.
Mr. Griffith. Because I don't believe we have seen that.
And so, if you could provide that email for us, I would greatly
appreciate it, because we just haven't seen it. And so, you
know, we have a draft that says--it has a whole section
entitled ``You Can't Subordinate,'' basically. It says
subordination is not allowed. So that is of great concern.
And if all there was was an email and there originally was
going to be a full legal memo, can you find out why there was
not a full legal memorandum done from Morrison & Foerster in
regard to the subordination issue? Can you do that for us?
Mr. Chu. Yes. Well----
Mr. Griffith. And let me say that the reason that I
question this is that you have referred to it a number of times
today, but it appears that you, you know, relied on maybe some
casual communication with them but never got the formal
opinion, even though one was started. And it appears you relied
significantly and exclusively on your own folks.
But a lot of times, you know, when you are trying to make
an important decision, just as when you are making an important
decision for your children, you consult other people before you
decide, OK, are they too young to have a new car or what about
that cell phone. And, in this case, you have acknowledged that
you were making a very significant decision on the
subordination of this loan, and yet you didn't consult with
Justice, you didn't pay attention to other folks, OMB and
Treasury.
And it appears--I mean, if my kids did that to me and that
is what they were saying, ``Well, we didn't check''--it appears
that the Department of Energy adopted the policy of, well, it
is better to ask for forgiveness than to make sure we get the
answer right in the first place because we are afraid they will
come back and say we can't do it.
And it is true that without that subordination you knew
that this company would go bankrupt last December. Isn't that
true?
Mr. Chu. Well, let me first step back and tell you what I
know of the interactions with Morrison & Foerster.
There was an initial email that said, we have to step back
and look at this. And then there was a final determination by
Morrison & Foerster in an email that was sent to us that said,
the determination made by the counsel's office in the----
Mr. Griffith. Did you not see their full draft, which was
pages long, in which one section said--it highlighted and
flagged that subordination was not allowed? You didn't see
that? All you saw were a couple little brief emails?
Mr. Chu. No. What I said is that certainly the
subordination of the initial loan was not allowed, and they
made that very clear. But in the end, the final email----
Mr. Griffith. Let's get to that point, then. I understand
what you are saying. And if there is something more than that,
we would like to have it. And if I could have that email.
Here is my problem with that. At the beginning, you know,
the initiation of the loan, if you read the memorandum--did you
read the Susan Richardson memorandum?
Mr. Chu. Yes.
Mr. Griffith. OK. If you read that and you read it closely,
including the footnote, I believe it is the second footnote in
that memorandum, you will see that the conclusion was that we
can do it--we don't have to have an excuse of default; we can
do it at any time subsequent to the original closing of the
loan.
And so I ask you--because you are a very bright man, much
brighter than I am; you know, I know you didn't leave your
brain at the door--I ask you if it makes sense to you that
Congress would pass a bill that says at 10 o'clock in the
morning you can't subordinate the loan to anybody else, but
after eating lunch and reflecting on it, at 2 o'clock in the
afternoon of that very same day, you legally could subordinate
the loan. Because that is the opinion that Susan Richardson
puts forward, if you take it to its natural conclusion, and
particularly when you look at that footnote.
Does that make sense to you, as a thinking, intelligent
man?
Mr. Chu. As a thinking, intelligent man, it was very clear
that, at the time of the origination of the loan, we could not
subordinate--we did not subordinate.
Mr. Griffith. But 2 hours later, based on the opinion that
you are relying on today and that you have relied on this whole
time, you could have. Do you really think that makes sense,
that that would have been Congress' intent?
Mr. Chu. Well, if you mean by ``2 hours later'' you mean--
--
Mr. Griffith. I mean 4 hours later, but 2 hours later is
the same. I am just giving you an example, that you ate lunch
and you reflected on it and you had a new opinion.
Mr. Chu. Well, then when the loan became stressed and in
trouble----
Mr. Griffith. But there was nothing in the Richardson
opinion, am I not correct--I am correct, but I will just tell
you--there is nothing in there that says it had to be stressed.
In fact, they talked about that and said it didn't have to be
stressed, that you could do it at any time that you wanted to
once the original loan had taken place, which means you could
circumvent the entire law based on the reading of the law that
your department decided to take.
And I submit to you that, as a thinking, intelligent man,
if you weren't sitting here on the hot seat today, you would
have to admit that that does not make sense and, clearly, what
you all did violated the intent of Congress and, I believe, the
letter of the law, as well.
Thank you. I yield back my time.
Mr. Stearns. The gentleman yields back his time.
We offer the gentleman from Illinois 5 minutes.
Mr. Barton. Mr. Chairman, before you--could I ask unanimous
consent to speak out of order just for 1 minute to read this
email, which apparently is the email that they are----
Mr. Stearns. By unanimous consent, so ordered.
Ms. DeGette. Which email is it?
Mr. Barton. It is the email that Secretary Chu is referring
to, where he alleges that Morrison----
Ms. DeGette. What is the date on it?
Mr. Barton. It is dated January the 13th, 2011. It is from
Panagiotis Bayz to Frederick Jenney.
May I read that?
Mr. Stearns. Sure. How long is it going to take?
Mr. Barton. Thirty seconds.
Mr. Stearns. OK, go ahead.
Mr. Barton. It is very quick.
It says, ``Rick, red line to the prior version of the memo
attached. The only substantive comment''--this is relating to
the memo that the Department of Energy has sent for their
comments--``is that 19(c)(4) discussion. This reads a bit
tortured, so I added a note for Ken to consider deleting.''
Here is the key phrase: ``Otherwise, I think it makes the best
case possible based on a reasonable interpretation, supported
by the restructuring policy arguments.''
That does not say that it is legal. It says it makes the
best case possible based on a reasonable interpretation. And,
apparently, that is what the Secretary is relying on to say
that the internal Department of Energy memo is OK.
Mr. Stearns. Thank you.
And the gentleman from Illinois for 5 minutes. Go ahead.
Mr. Secretary, you wanted to say--well, go ahead, Mr.
Secretary. By unanimous consent, go ahead.
Mr. Chu. I think the email from Morrison & Foerster said
that it was a reasonable interpretation. Is that not correct?
Ms. DeGette. Yes.
Mr. Chairman, I ask unanimous consent to put that email in
the record so it is clear.
And it does, in fact, say that, Mr. Secretary.
Mr. Stearns. But just because it is reasonable does not
mean it is the correct interpretation. You would agree with
that?
Mr. Chu. It was a reasonable interpretation of the law----
Ms. DeGette. It says ``reasonable interpretation.''
Mr. Stearns. Well, the long and short of it, we have had
this discussion, and it appears that you have your opinion, and
of course we have ours.
Ms. DeGette. Mr. Chairman, I renew my request to put this
document in the record.
Mr. Stearns. Sure. By unanimous consent.
Mr. Barton. Yes. I want it in the record.
Mr. Stearns. Mr. Barton is asking for unanimous consent to
put it in the record. And it will be put in the record.
Mr. Barton. I concur with Ms. DeGette.
[The email follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Stearns. And, Mr. Illinois, you are on.
Mr. Kinzinger. ``Mr. Illinois.'' Thank you.
Thank you, Mr. Secretary. Obviously, when we deal with this
amount of money, it is important to get all these questions
out. And we appreciate you being here. We appreciate your
service. And thank you for coming before us today.
Let me ask you--and I know you have addressed it already,
to an extent, but I want to ask you, did the stimulus deadlines
accelerate the review of Solyndra's case, specifically? The
deadlines put in by the stimulus, did it accelerate the review
of the case?
Mr. Chu. No, it did not. You know, from the time of the
completed application to the time we closed on the loan, it was
about 980 days. I would not consider that----
Mr. Kinzinger. OK. Because in congressional testimony dated
March 19th, 2009, DOE stimulus advisor Matt Rogers stated that
you ``directed us to accelerate the process significantly and
deliver the first loans in a matter of months, while
maintaining the appropriate oversight and due diligence.''
Did you direct the loan programs officer to speed up the
process?
Mr. Chu. Yes. We wanted very much--so that the loans would
not all be taking 980 days. That is correct.
Mr. Kinzinger. But you didn't--so you wanted it sped up
after the acceleration of the--or, after the Solyndra loan, is
what you are saying.
Mr. Chu. No. As I said, when I was before Congress in the
confirmation hearing, there was on both sides of aisle much
concern that the loan program was not getting the loans out.
Again, the economy was in free-fall. Hundreds of thousands of
jobs were being lost each month. And it was considered by both
sides of the aisle that this loan program was an effective way
of getting capital and helping that capital be invested in
energy projects, renewable energy and those things.
And so, it was the concern--and, as said, nearly 500
letters from Members of Congress on both sides of the aisle,
saying----
Mr. Kinzinger. OK. Thank you.
And, in January of 2009, DOE documents show that the Loan
Programs Office credit policy group listed 14 outstanding
issues that needed to be resolved on the Solyndra deal,
including analyzing the parents' working capital needs and
evaluating the parents' funding requirements and financial
health. A market report for Solyndra had yet to be submitted.
One staff member reviewing the engineering reports listed eight
different questions about its findings, including about
Solyndra's plans to scale up production.
Yet, on March 17th, DOE offered a conditional commitment to
Solyndra, just a few weeks later. So you are telling me that
DOE was able to resolve, in that short amount of time, all 14
credit policy issues?
Mr. Chu. I think if you are talking about these issues in
the beginning of January versus March--and we resolved many of
those issues when we offered our conditional commitment, then
these--before the loan disbursements start, that the company
will have to resolve all issues. And that is what a conditional
commitment means: There will be additional conditions before we
actually disburse any funds.
Mr. Kinzinger. Let me ask you also, too, being as how this
is all, you know, stimulus-related, stimulus-financed, how
would you define the concept of shovel-ready projects? And do
you think we realized those goals?
Mr. Chu. I think what we were looking for, what Congress
was looking for, what the administration was looking for, were
those projects that could put Americans back to work in a very,
very desperate time. And I think many of the loans--for
example, if you consider the Ford loan----
Mr. Kinzinger. Right.
Mr. Chu [continuing]. Which we think is a big success,
saving some 30,000-plus jobs and----
Mr. Kinzinger. So ``shovel-ready'' is, even at the cost of
million of dollars a job, putting people back to work?
Mr. Chu. No. As very clearly stated in the law and clearly
state in what we do, we wanted to make sure that there is a
reasonable chance of payback. And in all our loans going
forward, that is----
Mr. Kinzinger. Thank you.
Mr. Chu. And that probability of being paid back is
reflected in credit subsidy scores.
Mr. Kinzinger. OK. Thank you.
And with my time left, I would like to yield my remaining
time to Dr. Burgess from Texas.
Mr. Burgess. And I thank Mr. Illinois for yielding.
Secretary, again, your indulgence today is commendable.
Like other members of the committee, we all stipulate that you
are probably the smartest man in town, and that is why some of
this is so baffling to us.
One of the things that grabbed a lot of headlines a few
weeks ago was the amount of money spent on legal bills by
Solyndra and, by implication, the fact that there were big
loans going to this company that was money that we were paying
for Solyndra's legal bills. And I think the figure given was
$2.4 million spent in the 2-1/2 years of Solyndra's tortured
existence.
You are following the loans very carefully now, you are
looking at things weekly, you are looking at balance sheets and
expenditures and burn rates. Is this number of dollars for
legal fees that Solyndra went through, is that unusual in this
portfolio?
Mr. Chu. I can't actually speak to that. But, certainly,
one doesn't want--you know, I can't actually address why
Solyndra was spending those amounts of funds on legal matters
and legal bills.
Mr. Burgess. There was a man on your staff whose wife
worked for the law firm----
Mr. Chu. Right.
Mr. Burgess. [continuing]. That was representing Solyndra.
That, obviously, gets some attention.
You know, I mean, here is the thing. At the end of this
day, you are the Secretary of Energy. You are the holder of the
Nation's nuclear secrets. You are the civilian manager of the
Nation's nuclear arsenal. And many of these decisions that were
made in this loan guarantee program seem to be almost the kind
of decisions you would expect a riverboat gambler to make.
I really ask, again, that you talk to your employer----
Ms. DeGette. Mr. Chairman? The gentleman's time has
expired, and he is badgering the witness. I would ask that you
suspend this hearing.
Mr. Burgess [continuing]. You talk to the President, and
you need to have that honest conversation with him.
Mr. Stearns. The gentleman's time has expired.
Mr. Secretary, we are done. And, as we agreed upon in the
committee, we have 3:30 in mind to end.
I want to ask the ranking gentlelady from Colorado if she
has any concluding comments, and then I have just a very short
concluding comment.
Ms. DeGette. Mr. Chairman, I just want to thank the
Secretary for coming.
As I said in my opening statement, I have been on this
subcommittee for 15 years. I don't believe that I have ever
seen a Secretary, a Cabinet Secretary, of either party in any
of the three administrations I have served under patiently give
us so much time.
And so I just want to thank you. It helps us begin to
understand the basis for this loan program, what we can do. And
I hope that we can work with you to improve this program in the
future so that we can support solar energy.
Thank you.
Mr. Stearns. I thank the gentlelady.
And, by unanimous consent, I would put the document binder
in our record.
So ordered.
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Mr. Stearns. Mr. Secretary, also, I would echo the ranking
member's comments. But I would say, in conclusion, that after
listening to you for almost 3 \1/2\, almost 4 hours, you seemed
to fail to monitor the loan guarantee program; failed to heed
the warning sign of the Treasury Department, OMB, and even your
own legal counsel; you ignored subsequent Solyndra bankruptcy
predictions 2 years by your staff; you disregarded the ongoing
possibility that you should have got Department of Justice's
opinion. The legal opinion you got in an email is really not
credible.
And I think even most Members on both of sides agree, Mr.
Green pointed out, from Texas, that illegal subordination of
taxpayers to two hedge funds I think shows a high degree of
mismanagement and ineptitude. And I would think, under the
circumstances, that it could have been done a lot better.
Don't you feel, in retrospect, that this was poorly
managed?
Mr. Chu. I think, as I look back at the events and at the
time and what did we know and when we knew it, decisions were
made--competent decisions were made by the people in the loan
program.
And, again, going back, this is very important, that the
United States be supporting these innovative technologies. The
wisdom of Congress in that bill supported that. And, again,
they acknowledged that there were risks in supporting
innovative companies and innovative projects, and that is why
there was this large loan loss reserve that was set aside and
appropriated. That money could have been appropriated for other
things.
Mr. Stearns. Well, I will conclude by saying, I don't know
how many loan risks of a half a billion dollars we can afford
to lose as taxpayers.
And, with that, the subcommittee is adjourned.
[Whereupon, at 3:35 p.m., the subcommittee was adjourned.]
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