[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
THE AMERICAN ENERGY INITIATIVE, PART 24:
DISCUSSION DRAFTS OF H.R. ----, THE
NO MORE SOLYNDRAS ACT, AND H.R. --------,
THE SMART ENERGY ACT
=======================================================================
JOINT HEARING
BEFORE THE
SUBCOMMITTEE ON ENERGY AND POWER
AND THE
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
JULY 12, 2012
__________
Serial No. 112-163
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 TAMMY BALDWIN, Wisconsin
CHARLES F. BASS, New Hampshire MIKE ROSS, Arkansas
PHIL GINGREY, Georgia JIM MATHESON, Utah
STEVE SCALISE, Louisiana G.K. BUTTERFIELD, North Carolina
ROBERT E. LATTA, Ohio JOHN BARROW, Georgia
CATHY McMORRIS RODGERS, Washington DORIS O. MATSUI, California
GREGG HARPER, Mississippi DONNA M. CHRISTENSEN, Virgin
LEONARD LANCE, New Jersey Islands
BILL CASSIDY, Louisiana KATHY CASTOR, Florida
BRETT GUTHRIE, Kentucky JOHN P. SARBANES, Maryland
PETE OLSON, Texas
DAVID B. McKINLEY, West Virginia
CORY GARDNER, Colorado
MIKE POMPEO, Kansas
ADAM KINZINGER, Illinois
H. MORGAN GRIFFITH, Virginia
(ii)
Subcommittee on Energy and Power
ED WHITFIELD, Kentucky
Chairman
JOHN SULLIVAN, Oklahoma BOBBY L. RUSH, Illinois
Vice Chairman Ranking Member
JOHN SHIMKUS, Illinois KATHY CASTOR, Florida
GREG WALDEN, Oregon JOHN P. SARBANES, Maryland
LEE TERRY, Nebraska JOHN D. DINGELL, Michigan
MICHAEL C. BURGESS, Texas EDWARD J. MARKEY, Massachusetts
BRIAN P. BILBRAY, California ELIOT L. ENGEL, New York
STEVE SCALISE, Louisiana GENE GREEN, Texas
CATHY McMORRIS RODGERS, Washington LOIS CAPPS, California
PETE OLSON, Texas MICHAEL F. DOYLE, Pennsylvania
DAVID B. McKINLEY, West Virginia CHARLES A. GONZALEZ, Texas
CORY GARDNER, Colorado HENRY A. WAXMAN, California (ex
MIKE POMPEO, Kansas officio)
H. MORGAN GRIFFITH, Virginia
JOE BARTON, Texas
FRED UPTON, Michigan (ex officio)
------
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 CHARLES A. GONZALEZ, Texas
STEVE SCALISE, Louisiana DONNA M. CHRISTENSEN, Virgin
CORY GARDNER, Colorado Islands
H. MORGAN GRIFFITH, Virginia JOHN D. DINGELL, Michigan
JOE BARTON, Texas HENRY A. WAXMAN, California (ex
FRED UPTON, Michigan (ex officio) officio)
C O N T E N T S
----------
Page
Hon. Cliff Stearns, a Representative in Congress from the State
of Florida, opening statement.................................. 1
Prepared statement........................................... 4
Hon. Ed Whitfield, a Representative in Congress from the
Commonwealth of Kentucky, opening statement.................... 6
Prepared statement........................................... 8
Hon. Fred Upton, a Representative in Congress from the State of
Michigan, opening statement.................................... 9
Prepared statement........................................... 10
Hon. Joe Barton, a Representative in Congress from the State of
Texas, opening statement....................................... 11
Hon. Diana DeGette, a Representative in Congress from the State
of Colorado, opening statement................................. 11
Hon. John D. Dingell, a Representative in Congress from the State
of Michigan, opening statement................................. 12
Prepared statement........................................... 14
Hon. Henry A. Waxman, a Representative in Congress from the State
of California, opening statement............................... 15
Witnesses
David G. Frantz, Acting Executive Director, Loan Programs Office,
Department of Energy........................................... 17
Prepared statement........................................... 20
Kathleen Hogan, Deputy Assistant Secretary for Energy Efficiency,
Office of Energy Efficiency and Renewable Energy, Department of
Energy......................................................... 25
Prepared statement........................................... 28
David W. Kreutzer, Research Fellow in Energy Economics and
Climate Change, The Heritage Foundation........................ 82
Prepared statement........................................... 84
Diana Furchigott-Roth, Senior Fellow, Manhattan Institute........ 97
Prepared statement........................................... 99
Kenneth Berlin, General Counsel and Senior Vice President for
Policy and Programming, Coalition for Green Capital Action Fund 111
Prepared statement........................................... 113
Paul D. Chamberlin, Associate Vice President for Facilities,
University of New Hampshire.................................... 137
Prepared statement........................................... 140
John Marrone, Vice President, Energy Initiatives, Saint-Gobain
Corporation, on Behalf of Industrial Energy Consumers of
America........................................................ 159
Prepared statement........................................... 161
Jeff Drees, U.S. President, Schneider Electric, on Behalf of
National Electrical Manufacturers Association.................. 165
Prepared statement........................................... 167
Stephen Nadel, Executive Director, American Council for an
Energy-Efficient Economy....................................... 183
Prepared statement........................................... 185
Kateri Callahan, President, Alliance to Save Energy.............. 195
Prepared statement........................................... 197
Submitted Material
Report, dated June 2012, ``Notable & Quotable Voices on Energy
Efficiency: Excerpts from Business, Finance, Science &
Defense,'' Alliance to Save Energy, submitted by Ms. Callahan
\1\
Statement, dated July 12, 2012, of American Chemistry Council,
submitted by Mr. Bass.......................................... 217
Letter, dated July 12, 2012, from Ross E. Eisenberg, Vice
President, Energy & Resources Policy, National Association of
Manufacturers, to subcommittee leadership, submitted by Mr.
Bass........................................................... 220
Statement, dated July 12, 2012, of National Electrical
Contractors Association, submitted by Mr. Bass................. 222
Discussion draft, H.R. --------, the ``No More Solyndras Act''... 225
Discussion draft, H.R. --------, the ``Smart Energy Act''........ 233
----------
\1\ Internet link to the report is available on page 195.
THE AMERICAN ENERGY INITIATIVE, PART 24: DISCUSSION DRAFTS OF H.R. ----
----, THE NO MORE SOLYNDRAS ACT, AND H.R. --------, THE SMART ENERGY
ACT
----------
THURSDAY, JULY 12, 2012
House of Representatives,
Subcommittee on Energy and Power,
joint with the
Subcommittee on Oversight and Investigations,
Committee on Energy and Commerce,
Washington, DC.
The subcommittees met, pursuant to call, at 9:23 a.m., in
room 2123, Rayburn House Office Building, Hon. Cliff Stearns
(chairman of the Subcommittee on Oversight and Investigations)
presiding.
Members present: Representatives Whitfield, Stearns,
Barton, Shimkus, Walden, Terry, Murphy, Burgess, Blackburn,
Bilbray, Bass, Gingrey, Scalise, McMorris Rodgers, Olson,
Gardner, Pompeo, Griffith, Upton (ex officio), Dingell, Markey,
Green, DeGette, Capps, Schakowsky, Christensen, Sarbanes, and
Waxman (ex officio).
Staff present: Anita Bradley, Senior Policy Advisor to
Chairman Emeritus; Maryam Brown, Chief Counsel, Energy and
Power; Allison Busbee, Legislative Clerk; Karen Christian,
Deputy Chief Counsel, Oversight; Patrick Currier, Counsel,
Energy and Power; Todd Harrison, Chief Counsel, Oversight/
Investigations; Cory Hicks, Policy Coordinator, Energy and
Power; Ben Lieberman, Counsel, Energy and Power; Chris Sarley,
Policy Coordinator, Environment and Economy; Jeff Baran,
Democratic Senior Counsel; Phil Barnett, Democratic Staff
Director; Brian Cohen, Democratic Investigations Staff Director
and Senior Policy Advisor; Greg Dotson, Democratic Energy and
Environment Staff Director; Caitlin Haberman, Democratic Policy
Analyst; and Matt Siegler, Democratic Counsel.
OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF FLORIDA
Mr. Stearns. Good morning, everybody, and welcome to the
joint convening of the Energy and Power Subcommittee and the
Oversight and Investigations Subcommittee. And I join my
distinguished subcommittee chairman, Mr. Whitfield from
Kentucky, in convening this joint legislative hearing.
We have two bills before the subcommittee. I will be
addressing my opening statements to the No More Solyndras Act
and then relinquishing the chair for the first panel to my
colleague, Mr. Whitfield. And I yield myself 4 minutes for my
opening statement.
With Chairman Upton, I am a proud sponsor of the No More
Solyndras Act. The act is a product of an 18-month
investigation by the Subcommittee on Oversight and
Investigations. Today marks a turning point in this
investigation. We gather to consider a bill that will fix the
problems we uncovered during our investigation.
The Solyndra investigation and the introduction of the No
More Solyndras Act is a great example of how congressional
oversight should work: ask tough questions, collect all the
facts, identify the problems, and offer legislative solutions.
Solyndra was the first recipient of a DOE loan guarantee
under Title XVII of the Energy Policy Act and a poster child
for President Obama's stimulus-driven green energy program. It
was also the first stimulus-backed recipient of a DOE loan
guarantee and the first to file for bankruptcy just 2 years
after the loan closed and 6 months after DOE restructured the
loan and subordinated its interest to Solyndra's private
investors, all but ensuring taxpayers won't see a dime.
Three of the first five companies which received loan
guarantees issued by the Department of Energy Loan Guarantee
Program have now filed for bankruptcy, and hundreds of millions
of taxpayer dollars will never be recovered.
The reason the committee initiated the Solyndra loan
guarantee investigation are simple. The Democrat majority in
2009 and 2010 conducted zero oversight of DOE's loan guarantee
program, even after it received a massive injection of funding
from the stimulus. Just 1 year after receiving the first loan
guarantee, trumpeted by DOE and the White House, Solyndra
closed its manufacturing facilities and laid off hundreds of
workers.
On behalf of American taxpayers, we have a duty to figure
out what went wrong with the Solyndra loan guarantee and
whether the program was properly managed. The subcommittee's
investigation has been thorough and methodical. The committee
requested, received, and reviewed documents from every
executive branch agency connected to Solyndra and interviewed
more than a dozen administration officials who played a key
role in the loan guarantee.
Some members of the minority have contended that the
investigation of Solyndra only shows that the loan guarantee
was risky. This investigation has shown far more than that.
For example, the investigation has shown that several red
flags were raised in 2009 by DOE and OMB staff about the
company's financial condition and the market for Solyndra's
products, but the administration ignored these warnings. DOE
failed to consult with the Treasury Department, as required by
the Energy Policy Act, prior to issuing a conditional
commitment to Solyndra.
The administration's desire to highlight the stimulus
impacted the quality of OMB's review and resulted in DOE
rushing the loan guarantee out the door.
DOE failed to adequately monitor the loan guarantee,
blindly writing checks to Solyndra as the company hemorrhaged
cash throughout 2010. DOE restructured the loan guarantee in
early 2011 and then, in violation of the Energy Policy Act of
2005, offered to subordinate its repayment position to
Solyndra's private investors in the event of a liquidation.
OMB staff raised serious questions about the legality of
the restructuring and whether it would improve the government's
recoveries after immediate liquidation. Treasury played no role
in reviewing the restructuring but advised DOE to consult with
the Department of Justice about the subordination which DOE
refused to do. And right up to the bankruptcy filing, the
administration was willing to take extraordinary measures to
keep Solyndra afloat for political reasons and ensure that the
first loan guarantee was not a failure.
With Chairman Upton and other members of the O&I committee,
we are sponsoring the No More Solyndras Act to make sure--to
make sure, my colleagues--that these mistakes and misguided
decisions never happen again.
And I give the balance of my time to the chairman, Mr.
Whitfield. Six minutes to Mr. Whitfield.
[The prepared statement of Mr. Stearns follows:]
[GRAPHIC] [TIFF OMITTED] 82216.001
[GRAPHIC] [TIFF OMITTED] 82216.002
OPENING STATEMENT OF HON. ED WHITFIELD, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF KENTUCKY
Mr. Whitfield. Well, thank you, Mr. Stearns; and I am
delighted that the Oversight and InvestigationS and the Energy
and Power subcommittees are joining together today in this
important hearing.
Everyone in America is very much aware of Solyndra, and
Solyndra is troublesome for many reasons. First, the Federal
Government chose to give a $.5 billion loan guarantee to a
company so inept that it has gone bankrupt and left the
American taxpayer holding the bag. Second, the fact that George
Kaiser, a major investor in Solyndra, was also a major
fundraiser for President Obama casts a questioning motivation
of this loan.
And Solyndra is not the only company that received a loan
guarantee that has gone bankrupt. You have got Beacon Power,
you have Abound Solar, and there are others. All things
considered, there is more than enough evidence to declare this
program a failure. In fact, some people have said it really was
a slush fund for the President.
It has been a failure for a lot of reasons: one, lack of
transparency; two, costly for taxpayers at a time when we have
a horrendous Federal debt and annual deficit.
And then the fact that in the case of bankruptcy the
lawyers of Solyndra and the lawyers for the Department of
Energy and the administration agreed to subordinate the
taxpayers so that the private investors would get their money
back first and the taxpayers last is really almost
unbelievable.
And then what role did political connections play in the
receiving of these loan guarantees? The Solyndra case certainly
raises that issue.
And the loan guarantee program, as far as we know, has not
developed many technological breakthroughs at all that would
benefit the American people. Now, the administration talks a
lot about, oh, we have created four million new green jobs. And
yet Chairman Issa and others have had hearings and when you
found out what is declared or what is defined as a green energy
job is someone merely filling up a bus with fuel. That is
considered a green job now.
So they didn't create new jobs. They simply changed the
definition of a green job to mislead the American people. And
that is precisely what has been done in this instance.
And so this legislation, the No More Solyndras Act,
introduced by Chairman Stearns and Chairman Upton, it is
vitally important to protect the American taxpayers that we
pass, that we adopt this legislation.
And then another bill that we are going to be considering
today is the Smart Energy Act, which was introduced by Mr. Bass
of New Hampshire. And we all know that in order to conserve
energy there are a lot of different ways to do it. One is
through efficiency. And Mr. Bass' bill focuses on the
government becoming more efficient in its use of energy, and so
I want to applaud him for that legislation.
And I would also just point out that we have had major
innovations throughout the history of our great country. You
think about Alexander Graham Bell, Henry Ford, the Wright
Brothers, Bill Gates, Steve Jobs, and others. And yet they were
able to develop these new technological breakthroughs with
private dollars and not government money.
So I am delighted we are moving in on this program.
At this time, I would like to yield time to the chairman,
Mr. Fred Upton. The chairman is recognized.
[The prepared statement of Mr. Whitfield follows:]
[GRAPHIC] [TIFF OMITTED] 82216.003
OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Upton. Thank you, both chairmen.
We all want to see innovations and breakthroughs in the
energy sector, and I believe that the Federal Government can
play a constructive role in encouraging them. But when a
Department of Energy program is not delivering on the goal
while costing hundreds of millions of dollars, we owe it to the
American people to pull the plug. And, unfortunately, we have
reached that stage with the loan guarantee program, which is
one of the reasons why I coauthored the No More Solyndras Act.
Again, I want to thank Mr. Stearns, chairman of the
Oversight and Investigations Subcommittee, for his very hard
work and determination in getting to the bottom of the story.
Let's not forget that when our team started the investigation
both the administration and the company itself strongly denied
that there were any problems whatsoever and right up until its
bankruptcy last summer. Solyndra was advertised to the American
people as a stimulus success story. Some even accused us of
witch hunts and fishing expeditions.
I believe there is a legitimate role for the Federal
Government in funding basic research, but with bankruptcies
starting to pile up, our message to the American people has to
be clear there will be no more Solyndras.
I ask unanimous consent my full statement be put into the
record. I yield back the balance of my time to Mr. Barton.
[The prepared statement of Mr. Upton follows:]
[GRAPHIC] [TIFF OMITTED] 82216.004
OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Barton. Thank you, Mr. Chairman.
I think this is a positive step today, the fact that we
have got a draft bill on No More Solyndras. It is a good bill.
I think Mr. Bass' bill is also a good bill.
I would slightly diverge from the party line to say that I
don't necessarily think we have to throw the baby out with the
bath water. I do think we can reform the program, these green
energy loan programs, without totally terminating them; and I
hope in the process of this legislative hearing that we could
discuss some ways to have a win/win on both sides. Keep the
program but make them more open and transparent, put some
penalties in for nonperformance, and, as the chairman and Mr.
Stearns' draft bill does, make it absolutely clear that they
have to work with the Treasury Department, and if they don't
there will be penalties.
So, in any event, I want to commend Mr. Upton and Mr.
Stearns for their draft bill and also Mr. Bass for his bill,
and I look forward to a productive hearing today.
Mr. Stearns. Thank you.
The gentlewoman from Texas is now recognized for 10
minutes, the ranking member, Ms. DeGette from Colorado.
Ms. DeGette. Thank you very much, Mr. Chairman. I yield
myself 3 minutes.
Mr. Stearns. So recognized.
OPENING STATEMENT OF HON. DIANA DEGETTE, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF COLORADO
Ms. DeGette. Mr. Chairman, since I have joined this
committee I have learned a very simple lesson. Good oversight
results in good legislation. And, in contrast, biased and
partisan oversight results in biased and partisan legislation.
And the No More Solyndras Act, the legislation we are
considering today, proves that lesson.
Let me be clear. The loss of taxpayer dollars in the
Solyndra bankruptcy is a serious problem. We should have
conducted a full and fair investigation so we could find out
what happened and make sure it doesn't happen again. Instead,
the DOE and Solyndra oversight have been designed to make cheap
political points in an election year, instead of following the
evidence where it leads.
Unfortunately, Mr. Chairman, I have to respectfully
disagree with your characterization that this committee has
conducted a thorough investigation. Despite our requests, there
were no hearings to understand what U.S. policies are necessary
to ensure that U.S. manufacturers can compete in the global
clean energy market. There has been no testimony from the
largest private equity investors in Solyndra to understand why
the company attracted over a billion dollars in private
capital.
We have refused to investigate the DOE loan guarantee
program's loans to nuclear projects, and we have refused to
invite DOE witnesses to discuss the legal and financial
rationale behind the subordination of the Solyndra loan
guarantee.
The oversight that the minority asked for in these requests
would have provided the proper factual background for
legislative action to actually improve the DOE loan program.
Instead, the majority has conducted a political investigation
ignoring the benefits of the DOE program, making a series of
inflammatory and misleading statements, blocking the release of
exculpatory evidence, and abusing witnesses who invoke their
fifth amendment privileges.
Given the inadequacies of the committee oversight, it is no
surprise to me that this legislation is also problematic. It is
a political statement rather than a serious policy proposal. It
begins with six pages of findings, including the unsupported
statement that the review of the Solyndra loan application was,
quote, ``driven by politics and ideology,'' end quote.
Mr. Chairman, this statement is not supported by our
committee's oversight work. In fact, our investigation revealed
the opposite to be true. The key decisions on the loan
guarantees were made purely on the merits. The discussion draft
ignores the findings and the recommendations of independent
consultant Herbert Allison, who conducted a thorough, detailed
analysis of the program. He found that it was largely
successful and stable, but he did make a series of
recommendations to improve performance and program management.
DOE is working to implement these recommendations, but the
legislation ignores this fact.
Mr. Chairman, I would have loved to have worked on
bipartisan legislation to improve this program, just like I
would have liked to have worked on bipartisan oversight of the
program. But, instead of that, we had a series of very partisan
hearings by led to this very partisan legislation, and I hope
we can shift course after that and change this legislation in a
bipartisan way.
With that, I yield 2 minutes to Mr. Dingell, the chairman
emeritus.
OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Dingell. Mr. Chairman, I have a fine opening statement
which I am going to ask to be put in the record.
We have been suffering through this on many occasions,
having a wonderful set of hearings totally unrelated to the
facts but having about the same reality as Alice in Wonderland,
on a bill that was supported strongly by the leadership and the
Members of the Republican party. And now we hear how we are
going to correct this whole legislation by a new piece of
legislation.
The committee, under the leadership of my Republican
colleagues, has been blundering around, crashing into walls,
finding nothing, issuing the most inflammatory press releases
imaginable, and thinking, apparently, that the constant
repetition of this nonsense is going to make somebody believe
it.
The harsh fact of the matter is that nothing wrong has been
found excepting that a loan failed because the Chinese cut the
prices ofthin film electrical generating stuff that draws its
power from the sun. And so my Republican friends are crashing
around, issuing press releases that sound like Jules Verne in
their imagination but demonstrating the wisdom and vision of an
earthworm.
And so now this morning we are up to repeal legislation
which afforded the United States some opportunity to see to it
that we could compete with Chinese, Koreans, Japanese, and
others whose governments wisely and prudently fund their
national efforts to develop new systems of energy use.
And I would just note that the Volt, which is a superb
piece of American engineering, was driven just recently out of
an American factory, using American technology, on batteries
which were manufactured, guess where, in Korea, because the
Koreans are stealing the technology that the Americans have
taken, because they have government support.
Same thing is true with regard to the Chinese.
So let me simply observe, Mr. Chairman, this is a
prodigious waste of time, waste of opportunity, loss of
opportunity for the United States to really become competitive,
and it is my hope that the Republicans will finally realize
that this is a political exercise and not something which is
conferring any good upon the United States.
I thank you.
[The prepared statement of Mr. Dingell follows:]
[GRAPHIC] [TIFF OMITTED] 82216.005
Ms. DeGette. I yield the balance of my time to Mr. Waxman.
OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Waxman. Mr. Chairman, my colleagues, and members of the
audience, Mr. Dingell is absolutely right. This is a hearing
for politics. That is all it is. And I guess it is an election
year, so we can excuse it.
But this Nation faces an urgent energy challenge. The
recent wildfires, drought, heat waves, extreme weather events
tell us that we must act to address climate change. These are
exactly the types of extreme events that scientists have been
predicting and that Congress has been ignoring.
According to the National Oceanic and Atmospheric
Administration, more than 40,000 high temperature records have
been set this year. At the end of June this year, more than 100
million people in the U.S. were in areas under extreme heat
advisories. Two-thirds of the country is experiencing drought.
More than two million acres have burned in wildfires this year.
We need to act to reduce carbon pollution; and there are a
range of options for doing that, from putting a price on
carbon, to sensible regulations, to incentives for clean
energy.
But House Republicans oppose every potential solution. They
say no to market-based solutions like cap and trade, no to
cost-effective regulations, no to loan guarantees or financial
incentives for clean energy, even if they would improve our
Nation's global competitiveness.
And they even say no to simply understanding the problem.
Representative Rush and I have written to Chairman Upton and
Chairman Whitfield 15 times this year to request hearings on
various climate change reports and topics, and we have yet to
even get the courtesy of a response. Denying the science and
refusing to recognize the laws of nature is completely
irresponsible.
Regrettably, today's bills are just more examples of the
same. No one should mistake the loan guarantee bill we will be
considering for a serious effort at reforming the program. In
fact, most of the bill is composed of inaccurate and misleading
congressional findings.
I am sorry Solyndra happened. We lost $500 million. That is
a shame, but that is why loan guarantees are provided, because
these are risky enterprises and not all of them are going to
succeed.
But there has been no showing of wrongdoing by anybody in
this administration due to the Solyndra loan loss, no showing
of wrongdoing. Despite the claims being made by the
Republicans, there is no evidence for it.
So what are they proposing? Legislation that would, they
say, end this loan guarantee program but instead provide
billions of dollars still to be used, but they do it in a way
that would ignore the best possible technologies. They create a
winner's list of about 50 projects that are eligible, and then
if any new innovative idea comes up this year or next, it
wouldn't be eligible to seek a loan guarantee. Even
technologies Republicans claim to support are abandoned. If an
application for a small modular nuclear reactor or a next
generation nuclear plant is submitted, DOE is required to
reject it.
I don't think this is a way forward. I don't think this is
a way to address the problem. Even energy efficiency, which is
essentially part of any serious plan to address climate change,
it is a low-hanging fruit, reduces pollution while saving
Americans money and creating jobs, whether it is a building
codes or appliance standards or industrial efficiency
improvements. We should be doing much more in this area, and
yet we are not moving forward in any energy efficiency
opportunity.
Both of the bills we will be considering have serious
flaws. We need to step outside the bubble of being in
Washington and being consumed by the quest for political power
and recognize the havoc that extreme weather is causing around
the Nation and develop together solutions to climate change and
the real energy challenges facing our Nation.
Thank you, Mr. Chairman.
Mr. Stearns. I thank the distinguished ranking member of
the full committee, and I would just point out that it took us
almost 8 months since my subpoena back in November to get the
information, and finally the White House was compliant. But
this was an arduous task, and we thought-- we felt very
methodical.
With that----
Mr. Waxman. Mr. Chairman, we are having more time go by
where we are not even getting answers to our letters to the
legal----
Mr. Stearns. Well, we are moving forward, Mr. Waxman, and
we appreciate your concern.
At this point, the opening of the first panel will be
handled by the chairman of the Subcommittee on Energy and
Power. So, with that, I turn the gavel over to Mr. Whitfield.
Mr. Whitfield [presiding]. Thank you, Mr. Stearns, and I
want to welcome the members of the first panel. We appreciate
your taking time to be with us this morning on what we consider
a very important issue. Because our responsibilities as
taxpayers is very important, particularly at a time when we
have a gigantic Federal debt.
Our two witnesses on the first panel are, first, Mr. David
Frantz, who is the Acting Executive Director at the Loan
Programs Office at the U.S. Department of Energy; and the
second is the Honorable Dr. Kathleen Hogan, who is Deputy
Assistant Secretary for Energy Efficiency, Office of Energy
Efficiency and Renewable Energy, at the Department of Energy.
So, once again, thank you for being with us. We appreciate
it.
I am going to call on each one of you to give a 5-minute
opening statement, and then at the end of that time we will
give members an opportunity to ask questions.
So, Mr. Frantz, we will begin with you. You will have 5
minutes for an opening statement.
STATEMENTS OF DAVID G. FRANTZ, ACTING EXECUTIVE DIRECTOR, LOAN
PROGRAMS OFFICE, DEPARTMENT OF ENERGY; KATHLEEN HOGAN, DEPUTY
ASSISTANT SECRETARY FOR ENERGY EFFICIENCY, OFFICE OF ENERGY
EFFICIENCY AND RENEWABLE ENERGY, DEPARTMENT OF ENERGY
STATEMENT OF DAVID G. FRANTZ
Mr. Frantz. Chairmen Whitfield and Stearns, Ranking Members
Rush and DeGette, and members of the subcommittee, thank you
very much for the opportunity to testify before you today. My
name is David Frantz. I am the Acting Executive Director of the
Department of Energy's Loan Programs Office.
In the way of an introduction, I am a career member of the
Senior Executive Service of the U.S. Government. I was the
first employee of the LPO in 2007. Prior to joining the
Department to stand up the LPO, I previously served over 10
years with the Overseas Private Investment Corporation in a
senior management project finance position underwriting and
structuring major energy infrastructure projects around the
world. Prior to this government service, my 40-year career has
been entirely devoted to project finance in the private sector.
And previous to that, I served as a U.S. naval officer, and I
am a Vietnam combat veteran.
At the onset, I want to particularly express my thanks to
all of you and your respective staffs for your continued
interest and attention to the program over the past 5 years. It
is important to reiterate the point that this was a program
initiated by the U.S. Congress with strong bipartisan support
in 2005, and we continually welcomed suggestions from the
committees during the course of the development of the LPO.
Before highlighting the progress we have made over the past
5 years, I would also like to acknowledge and commend the LPO
staff for their unswerving commitment and diligent work
associated with the accomplishments of the program. The staff
is one of the finest project finance teams assembled in the
world today, and its record over the past years is
unprecedented by world standards.
I would hasten to add that the GAO, in its recent audit of
the DOE loan program guarantees, acknowledge that commercial
lenders interviewed by GAO stated that LPO's underwriting and
due diligence standards are as rigorous as, or more rigorous
than, those in the private sector.
It is noteworthy that in 2011 the Loan Programs Office was
recognized as the largest single source of debt financing for
clean energy projects in the United States, public or private.
This occurred during a period of time in which the private
lending market did not have the ability or willingness to
finance the innovative and large-scale clean energy projects
that the LPO supports. In addition, two transactions were
recently recognized for their exceptional structure by
preeminent journals in the project finance field as deals of
the year.
At this time, the LPO has committed or closed $35 billion
in direct loans or loan guarantees which finance nearly three
dozen projects to support more than $56 billion in total
project investments. When it ended on September 30th, 2011, the
1705 program included a portfolio of over $16 billion for 28
renewable projects. Collectively, the LPO projects are expected
to support over 60,000 jobs.
While we have faced challenges in our activities, we have
always made financial decisions based solely on what we believe
at the time will result in the best outcome for the United
States taxpayer. We also have reacted on a continuing basis to
apply fundamental lessons learned. As I emphasize in my written
testimony before you, our work has had substantial and far-
reaching impacts that are beyond the contributions of the
projects themselves. Whole new sub-industries have been
fostered through the supply chains.
With respect to the specific legislation, the
administration is currently reviewing it and has not reached an
official position.
While we certainly share the goal of protecting taxpayer
dollars--that is always our primary objective in the program--
the Department has concerns that this legislation will not
accomplish that goal. In fact, we are concerned that this
legislation potentially could have unintended consequences that
would limit our ability to fulfill the mandate that Congress
gave us and could potentially put taxpayer dollars, frankly, at
risk. Additionally, the legislation could lead to duplication
of interagency efforts and add costs.
Let me express our concerns in a little more detail.
First, the legislation would prohibit the Department from
making any loan guarantees on applications received after 2011.
This provision would make it difficult, if not impossible, to
make use of remaining loan authority provided by Congress,
particularly in the areas of fossil energy. Moreover, going
forward, the Department would increasingly be unable to
guarantee loans with the newest and most innovative
technologies, particularly in the area of nuclear and renewable
projects.
Second, the legislation would extend the consultative role
of the Treasury Department when originating and restructuring
loans. Each agency in the loan guarantee process plays a
particular role based on its existing interests and expertise.
The legislation's additional requirements on the Treasury
Department may increase the transaction cost to the government
by requiring duplication of responsibilities.
And I do note that we have worked very closely and on a
continuing basis with the Office of Management and Budget and
Treasury on each transaction throughout the approval and
closing processes to best utilize their specific areas of
expertise.
Finally, the legislation would prevent the Department from
subordinating our loans during a restructuring. This provision
would weaken the taxpayers' investments by eliminating a tool
that may be the best option for saving projects at risk and, in
fact, protecting the taxpayer. Herb Allison, who conducted an
outside review of the Department's loan portfolio and has
decades of experience in the financial world, stated in his
testimony before the Senate Energy and Natural Resources
Committee that if the paramount issue is taxpayer recovery, he
believes the Department should have some flexibility--and I
emphasize ``flexibility''--to subordinate when necessary.
In conclusion, Mr. Chairman, with your support, we look
forward to continuing to promote opportunities for the United
States to stay at the forefront of innovation and clean energy
generation and manufacturing while supporting projects that
create jobs and reduce pollution. In administering the Title
XVII and ATVM programs, we are continuously striving to improve
our systems and processes in order to manage loan transactions
and portfolios in the most effective and efficient manner
possible, all the while with the interests of the U.S. taxpayer
as our foremost concern.
Thank you very much again, Mr. Chairman, for inviting me
here today. I look forward to responding to your questions.
Mr. Whitfield. Thank you, Mr. Frantz.
[The prepared statement of Mr. Frantz follows:]
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Mr. Whitfield. Dr. Hogan, you are now recognized for 5
minutes. And there is a little box on the desk that when it
says red, that means stop. I won't stop you immediately, but it
will give you some semblance of where you are.
Thank you.
STATEMENT OF KATHLEEN HOGAN
Ms. Hogan. Thank you.
Chairmen Whitfield and Stearns, Ranking Members Rush and
DeGette, and members of the subcommittee, I do thank you for
the opportunity to discuss the Department's efforts to improve
the energy efficiency of the Federal Government and the
industrial sector and to comment briefly on the legislation
being considered by the committee today.
President Obama's all-of-the-above energy strategy is
designed to reduce our dependence on oil, save businesses and
consumers money, make us more energy-secure, protect our
environment, and position the United States as the global
leader in clean energy. And in pursuit of these goals, DOE
supports a broad range of efforts, research and development for
new advanced energy technologies, works to accelerate the
adoption of efficient products and services, and also assists
the Federal Government in leading by example in these areas.
We do want to thank you for your efforts and do support
many provisions of the Smart Energy Act, though we would also
like the opportunity to provide technical assistance in several
places to offer greater clarity or adjustments based on what we
know is already well under way.
I will now go on to talk about DOE efforts related to the
draft act.
First, I want to highlight that the Federal Government is
making great strides leading by example on energy and
sustainability goals set by Congress and the executive branch.
And, indeed, performance contracting is very important to these
efforts. We have Executive orders and enacted legislation such
as EPAct05, EISA 2007, which establish a number of goals for
energy intensity, water intensity, greenhouse gas reductions,
fleet energy use, renewable energy, sustainable procurement,
and datacenter efficiency.
DOE's Federal Energy Management Program, or FEMP, as it is
known, provides assistance across the government to help
achieve these goals cost-effectively as well as reporting on
progress. The results, to date, are significant. We are seeing
reductions in energy use per square foot by about 15 percent,
reductions in water use intensity by more than 10 percent, and
use of renewable energy sources for more than 5 percent of
electric.
And, indeed, performance-based contracting has been
important to much of this progress. Since 2006, FEMP has
assisted Federal agencies in saving offer $5 billion in energy
costs over the average life of the efficiency measures
implemented through these contracts, and is now working with
Federal agencies to help them achieve the President's directive
under the Better Buildings Initiative of engaging in an
additional $2 billion or more in performance-based contracting.
Here we look forward to working with the committee to see how
we can continue to use this mechanism as effectively as
possible.
I also would like to highlight what we are doing with
electric vehicles. They can certainly make a tremendous
contribution to energy security, environmental and economic
objectives. And the Federal Government is doing a lot here.
While DOE supports a broad portfolio of vehicle technology
work, we do also have a strong emphasis on electric vehicles.
Their broad use can have a big impact on reducing our
dependence on foreign oil, provide stable and low fuel prices
for American families, while they also have the convenience of
just plugging in at home, and they can reduce the overall
environmental impact of transportation.
Across the administration, EVs and charging infrastructure
is being adopted into the Federal fleet. Clearly, there is more
opportunity, particularly as the costs for EVs continue to come
down. And we are available to work with the committee to figure
out the best approaches for continuing to advance EVs in the
Federal fleets.
We also do do important new work to bring down the cost of
EVs. We have the new EV-Everywhere Grand Challenge, where DOE
is working with the public and private sectors to set
aggressive goals to develop the next generation of vehicle
component and charging technologies to assure cost-competitive
plug-in electric vehicles. This initiative also aims to put the
U.S. in the lead to manufacture and export the next generation
of advanced plug-in EVs and its components to create high-
paying American manufacturing jobs.
Continuing on the theme of the importance of American
manufacturing jobs, we are also working to strengthen the
Nation's manufacturing sector in ways that can create more jobs
and enhance U.S. competitiveness. The DOE's Advanced
Manufacturing Office supports high-impact manufacturing and
materials research and development. We work and coordinate well
across the National Institute of Standards and Technology, NSF,
the Defense Department, and other government agencies. And we
are particularly prioritizing those crosscutting technologies
that are common to many clean energy technologies and really
many industries so that we can engage in these high-impact
areas.
We also are working with today's industries to help them
save energy and increase profitability. One example is our
Better Buildings, Better Plants program, where energy leaders
agree to set goals to improve their operation energy use by 25
percent or more over 10 years. This program now includes 110
companies representing 14,000 plants across more than 20
industries, and they are making great progress.
Finally, I just want to comment on our continued support
for combined heat and power development. CHP is an efficient
and clean approach to energy generation. Instead of purchasing
electricity and burning fuel separately, you can do it together
with much higher conversion efficiencies. Recognizing the
benefits of CHP and its current underutilization in the U.S.,
we are focused on accelerating the deployment of new and cost-
effective CHP, for example, through our regional Clean Energy
Application Centers, where we assist in transforming the market
for CHP, waste heat to power, and district energy technologies
throughout the country. The centers focus on assessments,
education, outreach, and technical assistance.
So, just in summary, we are making a lot of progress
improving the efficiency of buildings, the Federal sector,
vehicles, industries, but there also continues to be large
additional opportunities in each of these areas where we can
have important impacts for improving security, saving energy,
and protecting our environment.
We really appreciate the opportunity to be here and are
happy to answer your questions.
[The prepared statement of Ms. Hogan follows:]
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Mr. Whitfield. Thank you, Dr. Hogan. And thank both of you
for your testimony.
I will now recognize myself for 5 minutes for the purpose
of asking questions.
Mr. Frantz, when I am back in my district and I talk to
civic clubs in Kentucky and elsewhere, when they find out that
I am involved in the energy policies of the United States
Government, inevitably this question comes up about Solyndra.
It is almost becoming an example of many people's feeling of
incompetence in government. And you know there is a lot of
anger out in the public anyway about taxpayer dollars.
And in your testimony, you indicated that protecting
taxpayer dollars was one of the primary responsibilities that
you have as the Acting Director at the LPO program. And so I
want to ask you some questions regarding this subordination
issue.
Now, the Director of the OMB at that time, Jacob Lew, sent
out this Circular A-129 guidance document to executive
departments which basically prescribed policies and procedures
for designing credit programs, including the loan guarantee
program. And it specifically said, the government claims should
not be subordinated to the claims of other creditors because
subordination increases the risk of loss to the government and
to taxpayers.
Now, Circular A-129 would apply to DOE and the loan
guarantee program, wouldn't it?
Mr. Frantz. Yes, sir.
Mr. Whitfield. And since it does apply and it specifically
says what it does, how did you all feel like you could
subordinate taxpayers to the interests of private investors?
Mr. Frantz. Mr. Chairman, first--and I would answer your
question in two parts, very quickly.
The first part is that the career civil service attorneys,
both on our staff and the general counsel's office of the U.S.
Department of Energy, made a determination in advising us that,
in fact, it was legal for us to subordinate under the
circumstances that we were confronted with for the Solyndra
project. So that is the fundamental decision that was taken.
The other thing, the part two of my answer, would be,
quickly, that, as I indicated in my oral testimony and this
Congress has heard from another very senior expert, Herb
Allison, this tool would only be used in in extremis situations
where we have a very distressed project. And the important
point I tried to emphasize in my oral testimony was that, in
fact, by doing it, it is the one last chance we have to, rather
than liquidate the project----
Mr. Whitfield. OK, so this was a distressed project, and
you all subordinated in the hope that you could save the
project; is that correct?
Mr. Frantz. That is correct, sir.
Mr. Whitfield. I might also say that in the language of the
Energy Policy Act of 2005, it also strictly prohibited
subordination, in that act itself. What did the lawyers say
about that?
Mr. Frantz. The determination, as I just indicated to you,
Mr. Chairman, was that we acted perfectly legally within the
requirements that were at hand and the law.
Mr. Whitfield. Do you feel like that is placing a priority
of protecting the taxpayers of the U.S.?
Mr. Frantz. We certainly do. As I indicated in my oral
testimony to you, this is a last resort. This is not a tool
that is taken lightly. And----
Mr. Whitfield. And how much money has been lost in the
Solyndra case?
Mr. Frantz. I don't have the figure right in front of me,
but we can get that for the record.
Mr. Whitfield. How much money did you all loan to them?
Mr. Frantz. Roughly, it was--I don't remember the exact
number, but for the record I will get it to you.
Mr. Whitfield. Was it, like, $538 million, or how much was
it?
Mr. Frantz. In that range, sir.
Mr. Whitfield. How much do we expect to recover?
Mr. Frantz. Five-twenty-seven was the number, Mr. Chairman.
Mr. Whitfield. Five hundred and twenty-seven. And how much
do we expect to recover?
Mr. Frantz. We don't have a determination yet. There is
still a possibility--as you know, it is in bankruptcy, so it is
being handled by a bankruptcy----
[The information follows:]
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Mr. Whitfield. But we know the taxpayers will be paid back
last, right?
Mr. Frantz. Not necessarily last, but they are not going to
be--they won't be first.
Mr. Whitfield. The private investors will be before the
taxpayers, correct?
Mr. Frantz. Pardon me?
Mr. Whitfield. The private investors will be paid back
before the taxpayers?
Mr. Frantz. I don't know the order of precedence, but----
Mr. Whitfield. That is the purpose of subordination
language.
Mr. Frantz. It is.
Mr. Whitfield. On DOE's Web site, they talk about jobs
being created. And they said that Abound Solar would create or
save 1,200 jobs, so many would be created or saved by Solyndra,
and also by Beacon. And since all of them have not turned out
as planned, it looks like a total of these 1705 projects has
been, like, 1,174 permanent jobs have been created. A total of
loans have been made of $16 billion, which comes to $13,738,075
for every created job.
Do you feel like that is a good return for the American
taxpayer?
Mr. Frantz. Mr. Chairman, I think that you have to think
about that issue in context. From the industries I come from--I
come from the major energy infrastructure industries. You have
to remember that these industries, by definition, are capital-
intensive, not labor-intensive. We have very few manufacturing
plants, which are more labor-intensive, in our portfolio. The
predominance of our portfolio and the objective, really, of the
act is to be creating large infrastructure, utility-scale
projects. And, by definition, they are not a multiplier for job
creation.
Mr. Whitfield. So they are pretty risky, would you say?
Mr. Frantz. We feel just the opposite, Mr. Chairman, that
solar energy generation projects are just the opposite. They
have long-term----
Mr. Whitfield. Well, let me just say, the record shows
quite clearly the taxpayers have lost a lot of money, you all
have deliberately subordinated them to the private investors,
and the jobs created are unbelievably expensive. And that is
why we feel like this program is a total failure.
At this time, I would recognize the gentlelady from
Colorado, Ms. DeGette.
Ms. DeGette. Mr. Chairman, I would just ask, if you or your
staff have this Circular A-129 that you referred to, if we
could put a copy of that into the record, that would be
helpful.
Mr. Whitfield. Oh, good idea. Yes, we will do that.
Ms. DeGette. Thank you, Mr. Chairman.
Mr. Frantz, I want to ask you a couple questions.
First of all, the chairman referred to this Circular A-129.
That circular banned subordination in making the initial loans
under this DOE loan program, correct?
Mr. Frantz. I don't have----
Ms. DeGette. In the making of the initial loans, not in the
restructuring.
Mr. Frantz. That is our interpretation, that----
Ms. DeGette. OK. Thank you.
Mr. Frantz [continuing]. Clearly, the provisions referred
to the origination.
Ms. DeGette. The Energy Act of 2005 that the chairman
referred to, that also prohibited subordination in the making
of the initial loans, not restructuring, correct?
Mr. Frantz. Correct.
Ms. DeGette. And the DOE lawyers looked at this, and they
decided that it would be legal to subordinate the taxpayers'
interest in the restructuring of the Solyndra loan; is that
correct?
Mr. Frantz. Correct.
Ms. DeGette. And can you tell us briefly what--I mean, none
of us likes the idea of the taxpayer position being second, to
be honest, because in a situation like the Solyndra situation,
where the company goes bankrupt, then the private lenders have
a superior position to the taxpayers. And we don't like that.
So I would like you to explain to the committee, very
briefly, why it was determined in the restructuring of the
Solyndra loan that it would be a good idea to subordinate the
taxpayers' interest.
Mr. Frantz. Thank you, Ms. DeGette.
As I said and I indicated in my previous comments, this is
a tool of last resort in restructuring. But it is used
specifically to attract new, refreshed debt and/or equity into
the transaction with the hope of saving the project. That is
precisely what it is used for. And those investors, new money
coming into an already distressed property, almost demand, to
mitigate the risk, that they have a senior position.
Ms. DeGette. So, in other words, because the Solyndra
project was in trouble, it was DOE's hope that they could save
this project by restructuring it; is that right?
Mr. Frantz. Emphatically. Emphatically.
Ms. DeGette. OK. And it was the determination of the DOE
that the only way they could do that, they could attract that
new capital, the only way people would invest, private
investors would invest, is, in fact, if they had this superior
position.
Mr. Frantz. In fact, it was----
Ms. DeGette. Was that your decision, yes or no?
Mr. Frantz. Yes.
Ms. DeGette. OK. So, in the findings--and so, it didn't
really work out, but we still might recover something; is that
right?
Mr. Frantz. Hopefully.
Ms. DeGette. And one of the reasons why we have these DOE
loans is because these are by nature risky businesses; is that
right?
Mr. Frantz. Correct.
Ms. DeGette. And for Solyndra, one thing we heard in the
subcommittee investigation was that because of changing market
conditions, mainly caused by China, Solyndra's business model
really had trouble. Is that what DOE found, as well?
Mr. Frantz. Absolutely correct.
Ms. DeGette. And that was what caused the whole thing to
kind of fall apart; is that right?
Mr. Frantz. Correct.
Ms. DeGette. Now, in the findings, in the six pages of
findings in this bill that we are talking about today, one of
the findings claims that the DOE loan review process was,
quote, ``driven by politics and ideology and divorced from
economic reality.''
Now, Mr. Frantz, you have been the director of the loan
guarantee program since 2007 under the Bush administration, and
that is a career position; is that correct?
Mr. Frantz. Correct.
Ms. DeGette. Now, in your position, do you believe that the
statement that I just made from the findings is an accurate
statement, that it was driven by politics and idealogy?
Mr. Frantz. To the very best of my knowledge, through the
whole history of the program from its inception to today, it
has not been driven by any political considerations whatsoever.
Ms. DeGette. OK.
Mr. Frantz. All of our work and all of the projects are
represented by career and due diligence, and they have been
awarded on the merits of the transactions themselves.
Ms. DeGette. Now, is it fair to say that at the time you
approved the loan you conducted a thorough analysis and
believed that the company would be a worthwhile investment for
the DOE loan program?
Mr. Frantz. In the time that we did the due diligence, that
is absolutely correct, in that time frame.
Ms. DeGette. Can you assure us that the Solyndra decisions
were made on the merits and that there was no favoritism shown
toward Solyndra or any other loan recipient?
Mr. Frantz. I can absolutely make that assurance to you.
Ms. DeGette. Now, sitting here today--of course, hindsight
is always 20/20--do you think that there are improvements that
could be made to this loan program?
Mr. Frantz. There certainly are. And we are, as I indicated
in my testimony, we are employing fundamentally lessons learned
all the time throughout the----
Ms. DeGette. We would really appreciate it if you wouldn't
mind supplementing your testimony today to give this committee
some recommendations of what we can do to strengthen the
program rather than to just be pounding on it for political
reasons.
Mr. Frantz. We certainly will take you up on that.
Ms. DeGette. Thank you very much, Mr. Chairman.
Mr. Whitfield. At this time, I recognize the gentleman from
Florida, Mr. Stearns, for 5 minutes.
Mr. Stearns. Thank you, Mr. Chairman.
Mr. Frantz, I heard you say in your opening statement that
the DOE needs to have the ability to continue, forever almost,
to subordinate taxpayers' interest on these loan guarantees. Is
that your position this morning?
Mr. Frantz. It is----
Mr. Stearns. Just yes or no.
Mr. Frantz. Yes.
Mr. Stearns. OK. And it is DOE's interpretation that
subordination is perfectly legal, in your opinion?
Mr. Frantz. Yes, it is.
Mr. Stearns. OK.
Let me read, Mr. Frantz, read from the Department of Energy
Act of 2005 to you on subordination. ``The obligations shall be
subject to the condition that the obligation is not
subordinated to other financing.'' Do you recognize that
language?
Mr. Frantz. I do, sir.
Mr. Stearns. Does DOE intend to subordinate other loans,
yes or no?
Mr. Frantz. Mr. Chairman, you have to--the question can
only be answered in context.
Mr. Stearns. Well, based upon what your opening statement
is, it appears that for other loans in the future you will
subordinate again. Is that true?
Mr. Frantz. Your staff has the detailed memo to this
effect.
Mr. Stearns. No, but the point is----
Mr. Frantz. We felt that it was--our view and our position
is that that language pertains to the origination of the
transactions----
Mr. Stearns. OK.
Mr. Frantz [continuing]. Not to projects which are in
distress in extremis----
Mr. Stearns. So what you are basically saying is, you are
interpreting the word ``is,'' the meaning and tense of the word
``is.'' The obligation is not subordinated to other financing.
You are saying ``is'' applies only at the beginning and does
not later on. So your interpretation of the word ``is'' is the
focus of your interpretation.
Mr. Frantz. As my older son, who is an attorney, constantly
reminds me, I do not have a license to practice law, Mr.
Chairman----
Mr. Stearns. No, I understand.
Mr. Frantz [continuing]. So I can only rely on the civil
service professional legal staff that is----
Mr. Stearns. OK.
Mr. Frantz [continuing]. Advising the program.
Mr. Stearns. But your legal staff is making the decision on
the word ``is'' and the tense, being it is OK later on but not
in the beginning.
Do you intend to continue to subordinate other loans? Just
yes or no.
Mr. Frantz. Again, I can only--it has to be done in
context. It is a tool of last resort on----
Mr. Stearns. You need to have this continued ability? That
is what your argument is this morning.
Mr. Frantz. Yes, yes, I do. Very definitely we do, because
if a project is in distress, we want the opportunity to save
the project so that----
Mr. Stearns. Well, if this is true, have you subordinated
any other loans? Have you subordinated any other loans?
Mr. Frantz. Not to my knowledge, sir, at all. And we hope
not to have to do it. As I emphasized in my comments, it is a
tool of----
Mr. Stearns. Are there any other loans out there that you
are considering?
Mr. Frantz. Not to my knowledge this morning.
Mr. Stearns. Well, you subordinated Solyndra, and how did
that work out?
Mr. Frantz. Well, again, in time----
Mr. Stearns. It didn't work out.
Mr. Frantz. I think hindsight is always more----
Mr. Stearns. OK. Mr. Whitfield asked----
Mr. Frantz [continuing]. Valuable than foresight.
Mr. Stearns. The question was asked, how much money will
taxpayers get because of Solyndra? Your answer was you didn't
know. Can I tell you what the answer is going to be? They won't
get anything more until $75 million of the two hedge funds that
you subordinate get theirs first. Isn't that true?
Mr. Frantz. As I have expressed, I don't have the details
in front of me in terms of the precedent for each of the
disbursements.
Mr. Stearns. I don't understand. You work for the
administration. They have publicly announced that they don't
think taxpayers will get one thin dime back. Haven't you heard
their arguments?
Mr. Frantz. Well, but, I mean, the final settlement hasn't
been done. It is still in investigation and discussions, sir.
Mr. Stearns. Don't you agree that the loan guarantee
program has had a tough record?
Mr. Frantz. Quite to the contrary, sir. I think it----
Mr. Stearns. OK. All right.
Mr. Frantz [continuing]. Has been an enormous success.
Mr. Stearns. OK. We have Solyndra. We have Beacon. The
third recipient went bankrupt in 2011. That is true, isn't it?
Mr. Frantz. It is.
Mr. Stearns. OK. The fifth DOE loan went bankrupt just a
few weeks ago. Isn't that true?
Mr. Frantz. We have third--two projects.
Mr. Stearns. No, I am asking the questions. Please. Isn't
that true?
The second recipient of a loan guarantee, First Wind, has
withdrawn its IPO and has significant debt. The fourth
recipient, Nevada Geothermal, was also the recipient of a
going-concern letter from its auditor. Three of the first five
are bankrupt, and the other two seem to have significant
problems.
What do these loan guarantees say about the loan guarantee
program portfolio, based upon what I just told you?
Mr. Frantz. Well, I can give you the numbers, sir. The
losses----
Mr. Stearns. So you feel they are strong?
Mr. Frantz [continuing]. On disbursed funds represent 2.59
percent, and that includes a recovery that we obtained 70 cents
on the dollar for the Beacon project.
Mr. Stearns. You feel the future loan guarantees are going
to be strong and there will be no more bankruptcies?
Mr. Frantz. I cannot guarantee that, sir. I think the point
is that in this space there is a high risk in the employment of
new and innovative technologies. And that, in fact, was
accommodated by the $10 billion that Congress authorized for us
for our loan loss reserves.
Mr. Stearns. Mr. Chairman, my time has expired.
Mr. Upton. Thank you.
At this time, I recognize the gentleman from Michigan, Mr.
Dingell, for 5 minutes.
Mr. Dingell. Thank you, Mr. Chairman.
I would note that in the fall when we had our earlier
hearings, we didn't have the Department of Energy here when we
needed them. Today we need the Department of Treasury, and we
don't have them. It is kind of a curious mix. And we do need
the Treasury to discuss the questions we are discussing today.
I note, just by way of history, that seven of the
leadership on the majority side of the aisle supported the
legislation. Seventeen of my Republican colleagues voted for
it, and I did too. I still think it is a good idea.
Having said this, I would like to address this question.
Now, it is not proper to subordinate U.S. interests to those of
other lenders under the legislation in the initial loan or loan
guarantee. Is that right?
Mr. Frantz. Correct, sir.
Mr. Dingell. OK. But you do need the authority to
subordinate in the event that the company gets into trouble?
Mr. Frantz. Yes, sir.
Mr. Dingell. Because at that point you have to refinance,
and it is pretty hard to refinance and bring in a new investor
unless he knows that his money is going to be as safe as it can
be. Is that right?
Mr. Frantz. Yes, sir.
Mr. Dingell. All right. So this is an essential tool in
avoiding bankruptcy and avoiding seeing the company go under.
Isn't that right?
Mr. Frantz. That is always our hope, sir.
Mr. Dingell. It is a standard tool that has been used going
right back to the beginning of the financial world. All right.
Now, so it is not unusual to have, then, the financing, the new
financing, take precedence over financing already in place.
That is a standard practice in the financial industry. Is that
right?
Mr. Frantz. Yes, sir.
Mr. Dingell. All right. Now, will this legislation, then,
jeopardize future or current DOE loans, and will it make it
impossible for there to be a proper restructuring of a loan?
Mr. Frantz. We are of that opinion, yes, sir.
Mr. Dingell. OK. Now, in your opinion, does the Department
of Treasury have the current expertise to review the technology
that would be developed under a section 17 loan?
Mr. Frantz. Congressman, it is not a perfect----
Mr. Dingell. No, the answer is that they don't have that
skill, do they?
Mr. Frantz. They have----
Mr. Dingell. But you folks at DOE do. Isn't that right?
Mr. Frantz. We have particular expertise, and they do, and
they are complementary----
Mr. Dingell. Right. So we need we need DOE to tell us about
the technical questions, and we need the Treasury to tell us
about financing.
Mr. Frantz. Yes, sir.
Mr. Dingell. But we don't have the Treasury here.
Now, in your time as Acting Director of the Loan Programs
Office, have you received any political pressure from the White
House to approve a loan your office deemed not qualified for a
loan?
Mr. Frantz. No. Emphatically no, sir.
Mr. Dingell. And you understand the question?
Mr. Frantz. Yes, sir.
Mr. Dingell. And you stand on your answer?
Mr. Frantz. I do, sir.
Mr. Dingell. All right. How many pages of documents has the
Department of Energy turned over to this committee?
Mr. Frantz. Thousands, I am sure, sir. I don't have the
number in front of me.
Mr. Dingell. Have you rejected the turnover of any
documents?
Mr. Frantz. To the best of my knowledge, we have tried to
fully cooperate with your committee here, sir.
Mr. Dingell. Were the documents turned over on a voluntary
basis or were they subpoenaed?
Mr. Frantz. I can't answer that question.
They were voluntary, I am told.
Mr. Dingell. Thank you.
Well, now, I note, Mr. Chairman, that we have now the
expertise of a witness down there that you called, in which he
points out that this sets a bad precedent and it has the
potential for further jeopardizing taxpayer funds.
So let me just ask, if one of these companies to which you
have a loan guarantee gets into difficulty, if this legislation
goes into place, you wouldn't have the capacity to negotiate a
restructuring of the entity in such way as might make it
possible to save it; is that right?
Mr. Frantz. That is my assertion, sir.
Mr. Dingell. Because you wouldn't be able to draw
additional investors in to help save the public's investment
and to keep the jobs and other things that are necessary.
Mr. Frantz. Yes, sir, that is our interpretation.
Mr. Dingell. All right.
Now, there were some bad decisions, I think, made and
misinformation in the case of Solyndra. But not every
application for a DOE loan is like this.
And could I ask you this question. Since this big fuss
started about Solyndra, have you folks down there at DOE
reviewed and corrected the problems that you found with regard
to Solyndra? Just yes or no.
Mr. Frantz. Yes, sir.
Mr. Dingell. All right.
So the legislation before us today proposes to give new
authority to the Treasury Department, but I note we have no
witnesses or representatives from the Treasury here. Before we
go forward in this, we ought to hear from the people who have
the financial expertise of addressing this.
Now, I am a strong proponent of oversight, and I think that
we do need oversight. And I would note that, as the chairman of
both the Energy and Power Subcommittee and the full committee
and as the chairman of the Oversight subcommittee, I did an
awful lot of investigation. We pulled a lot of folks from both
administrations, Republicans and Democrats, in, and we pulled
the skin off them. But we did a careful job of seeing to it
that we got the facts and we got the witnesses that we needed
to tell us what was going on. I see none of that happening
today. And I think that if the committee really wants to do a
good job, we ought to proceed in that direction so that we can
be proud of what we are doing, rather than having to walk
shamefacedly out of here and say, well, we screwed up.
I yield back the balance of my time.
Mr. Upton. I might say, Mr. Dingell, that we did invite
witnesses from the Treasury Department, and they respectfully
declined to be here.
Mr. Dingell. Well, I have been a member of this committee
for a long time. When you invite somebody, they come, and if
they don't, you have ways of getting them up here. I was always
able. If the gentleman doesn't know how to do it, I will be
glad to assist him.
Mr. Upton. Well, maybe we can meet with you as soon as this
meeting is over.
Ms. DeGette. Mr. Chairman, just for the record, we did
invite members of the Treasury Department. They couldn't come
on the day, which was a couple of days after we asked----
Mr. Upton. Well, the fact is we did invite them.
Ms. DeGette. Yes, but we could have scheduled them to come
a different day.
Mr. Upton. At this time, I recognize the gentleman from
Texas, Mr. Barton, for 5 minutes.
Mr. Barton. Well, I just know I am glad to be here. And I
was invited, and I did accept.
This should be a solutions hearings. I don't think anybody
on either side of the aisle thinks that the Solyndra loan
program, regardless of the political debate, thinks that the
Solyndra loan program has been run very efficiently, to be as
mild as possible. And the draft bill that Mr. Stearns and Mr.
Upton have put out is an attempt to address legitimate concerns
about preventing future Solyndras from happening. It is not a
perfect bill, and the reason we are having a legislative
hearing is because Mr. Upton and Mr. Stearns want to go through
the regular order. We can debate the political issues ad
infinitum, but at some point we should focus on solutions to
protect the American taxpayer in the future.
My first question: We have the Deputy Assistant Secretary
for Energy Efficiency, Dr. Hogan. But my understanding is you
are not here to talk about the Solyndra bill; you are here to
comment on Mr. Bass' bill. Is that correct?
Ms. Hogan. That is correct.
Mr. Barton. Have you been authorized at all to comment on
the Solyndra, or are you just here for Mr. Bass' bill?
Ms. Hogan. I believe we have Mr. Frantz here to discuss the
loan guarantee program, as that is his area of expertise.
Mr. Barton. Well, I know Mr. Frantz has been discussing it.
But you are a career civil servant, is that not correct,
Mr. Frantz?
Mr. Frantz. Yes, sir.
Mr. Barton. And at least theoretically, you are not
supposed to be political. Is that not correct?
Mr. Frantz. That is absolutely correct.
Mr. Barton. So you really don't speak for the Obama
administration, do you?
Mr. Frantz. I speak as a civil servant, sir.
Mr. Barton. As a civil servant. And I understand that.
My first question on policy is going to be on
subordination. Mr. Dingell and I were on the conference
committee when we passed the Energy Policy Act. I was the
chairman and he was the ranking member of this committee. And
we didn't put a lot of debate into this particular part of the
bill, but it was clear that we put the subordination language
in to mean exactly what it says; you don't subordinate. There
has never, until this loan, been a taxpayer-backed loan that
was subordinated. And if I and others on the committee have
anything to do it, there never will be again.
When you, Mr. Frantz, say that, well, in extremis you may
do it, that is taxpayer money. In the private sector, when you
subordinate, you subordinate private-sector dollars that are at
risk that investors have put forward. In the public sector,
these are taxpayer dollars. You put subordination language in
because you do not want to subordinate, period. There are no
exceptions.
And there is no outside legal opinion that has ever been
rendered on this loan that says it is appropriate. You have an
email from an attorney at the law firm that is general counsel
to Department of Energy where an attorney in an email says,
well, maybe it is OK. You don't have a written legal opinion
from an outside counsel that is signed on the letterhead by the
senior partner. You do have a DOE general council memorandum
that is about as tortuous as it is possible to be.
So I would hope on a bipartisan basis one thing we can
agree on is that we are not going to allow subordination. And I
hope we put some penalty--one of the reasons you guys got away
with it is there is no penalty. There is no penalty. I
guarantee you, if you as a loan program officer had been
subject to a $50,000 fine, you know, you might have thought
twice about agreeing to subordination.
So don't insult the common sense of the American people. We
knew what we were doing on subordination, we put it in the
plain English language, and you violated it. That is wrong. And
we ought to be able to stop that.
Now, on the general loan program, I happen to agree with
what Ms. DeGette said, and Mr. Dingell and Mr. Waxman. I don't
think we need to throw out the whole program. I think we can
clean it up. I think we can make it more transparent. I think
that we can put some penalties in, put some caps, you know.
So I guess, even though you are a career civil servant, you
are here for the Department of Energy. Does the Department of
Energy continue to support that there be a loan program for
alternative energy projects? Do you support it or not support
it?
Mr. Frantz. We absolutely support the----
Mr. Barton. You do support it. Do you also, then, support
some reforms to make sure Solyndra does not happen again?
Mr. Frantz. To answer that question, we are constantly
working on the program, Congressman----
Mr. Barton. So you do support some reforms to the program.
Mr. Frantz. Certainly, we do.
Mr. Barton. All right.
Mr. Frantz. And I offered that in my oral testimony.
Mr. Barton. I am sorry, Mr. Chairman. My time has expired,
but I yield back.
Mr. Upton. At this time, I recognize the gentleman from
California, Mr. Waxman, for 5 minutes.
Mr. Waxman. Thank you, Mr. Chairman.
Mr. Frantz, I want to ask you about the Republican loan
guarantee bill. This bill doesn't end the loan program, that
loan guarantee program. Under this proposal, billions of
dollars in new loan guarantees can be issued in the coming
years. But this bill prohibits DOE from considering any new
applications for loan guarantees. It freezes those that can be
considered by--those who came in and applied by the end of
2011.
Well, that is an arbitrary decision of picking winners and
losers. It creates a winners list, potentially, of a few dozen
projects that were submitted before the end of 2011. Those are
the only applications DOE can look at. Everyone else, no matter
how groundbreaking or promising their technology, loses.
This program was created to support innovative energy
technologies. That is its whole purpose. But under the
Republican bill, new breakthrough technologies need not apply.
Is this the right way to structure the program if we want to
support innovative energy technologies?
Mr. Frantz. It certainly is not. As I indicated in my oral
testimony, Congressman, we feel that it would preclude us from
proceeding on new and innovative technologies particularly in
the fossil area, as well as the nuclear, and new renewable
applications, other than those that we have already received.
Mr. Waxman. I want to understand the practical implications
of this bill. If someone develops a new technology this year
that dramatically reduces the cost of solar or wind or
geothermal power and they submit a new application, can DOE
award them a loan guarantee under this bill?
Mr. Frantz. We could not.
Mr. Waxman. Even the technologies that Republicans claim to
support are abandoned. We keep hearing about the importance of
innovative coal and nuclear technologies. Mr. Frantz, earlier
this week, the committee received testimony from a research
administrator at West Virginia University emphasizing the
importance of loan guarantees for advanced coal technologies.
Mr. Frantz. Uh-huh.
Mr. Waxman. Let's say an electric utility submitted a new
application for a power plant that utilized a better, cheaper
carbon-capture technology. Under this bill, could DOE consider
that technology for a loan guarantee?
Mr. Frantz. We could not.
Mr. Waxman. And if an application for a small, modular
nuclear reactor or next-generation nuclear plant is submitted,
DOE is required to reject it; is that right?
Mr. Frantz. That is correct, sir.
Mr. Waxman. And instead of considering the new technology,
DOE would have to dig through the pile of nuclear reactor
applications that were submitted by the end of last year; is
that right?
Mr. Frantz. Correct, sir.
Mr. Waxman. And so the Republican proposal is to prohibit
DOE from considering any new applications for new technologies.
DOE currently has the authority to issue tens of billions
of dollars in loan guarantees for innovative fossil fuel
projects, uranium enrichment projects, other nuclear projects,
and renewable energy. Is there any public policy reason to
think that the applications already submitted are the perfect
projects and that there are no new ideas out there that will be
worth considering in the years to come?
Mr. Frantz. No. We agree, sir.
Mr. Waxman. This Republican bill, it seems to me, is a
terrible idea. It is just the latest Republican assault on
clean energy. It provides no answers to our energy challenges.
It would stifle innovation instead of boosting it.
Now, Mr. Barton made a whole big to-do, very passionate,
that we should not allow subordination of these loans. What is
he talking about when he talks about subordination?
Mr. Frantz. Well, the subordination question is raised in
the context, in our opinion, only and exclusively in projects
that are in severe distress in which we are trying to attract
and save the project for the U.S. taxpayer.
Mr. Waxman. So you look at a proposal for a loan guarantee,
it looks like it has a lot of promise, it looks like the
business is sound enough to succeed, and you give them a loan
guarantee, which means if they can't pay their loans, the
government is going to pay for their loan.
And then they run into financial problems, such as their
competitors suddenly drop their price, and so even if they come
up with this new way of providing this technology, they are not
going to be economically viable. Is that the kind of situation
we are talking about?
Mr. Frantz. Yes, sir.
Mr. Waxman. And it looks like there is some way they can
still succeed, but they need more money. And they go out and
find lenders. Is what Mr. Barton is objecting to the government
standing behind those additional loans?
Mr. Frantz. Well, I think, again, for the general benefit
of the entire committee, Congressman, I think it is an
excellent question. The point is that this is a tool that we
would employ in the last resort. Even in the negotiations in
restructuring, this is not something that we would, and do,
take lightly. It is a tool that is used in extremis. And it is
only used after we have failed in negotiations to attract other
investments to save the project without using it. It is the
last thing we would do.
Mr. Waxman. So it is the last thing you might do to save a
project. And if you can't do that and save the project, then
the taxpayers have to come up with the money for the loan
guarantee?
Mr. Frantz. Yes, sir.
Mr. Waxman. So you either try something out to succeed or
just let all the lawsuits roll?
Mr. Frantz. In my oral testimony, that was the assertion I
made, that you would be hamstringing us and taking a very
important, critical tool that could, in fact, save taxpayer
money.
Mr. Waxman. Thank you.
Thank you, Mr. Chairman.
Mr. Upton. The gentleman's time has expired.
At this time, I recognize the gentleman from Illinois, Mr.
Shimkus, for 5 minutes.
Mr. Shimkus. Thank you, Mr. Chairman.
Mr. Frantz, thank you for your service. As a veteran, I
appreciate that.
And it is very frustrating for me when sometimes I have to
agree with Mr. Waxman on some of his points. And I start
worrying about my district and what is going on here in the
water in Washington.
But a couple concerns is, I did vote for the 2005 Energy
Policy Act which had this provision in it. I side also with
Chairman Emeritus Barton, in that we just have to be careful of
throwing out the baby with the bath water.
But the Congress has changed significantly. And the whole
loan guarantee issue, with the new federalism and deficits and
debts, there really is a debate, is it the government's role?
And if there is, as Mr. Waxman said, a new technology--I am a
big coal guy. There is no current technology for carbon capture
and sequestration. I don't believe there ever will be,
economically feasible. That is the whole climate change debate.
But if there was, why wouldn't the private sector return on the
investment, assume the risk? And that is this whole debate.
Now, I guess the other concern that those of us who haven't
spent all the time that the O&I committee has on this stuff--I
chair the Environment and the Economy Subcommittee; I do a lot
with nuclear waste. I see too many times where I believe the
administration--the language of the law is black and white, it
is on paper. And so this subordination issue really has us
concerned.
And to the authors of the legislation, if we don't ever
want to subordinate anything else again, should they, then,
adjust the language of the legislation to say, if it is a
failed loan provision, you really, really can't subordinate? I
mean, that is what you are saying, because you have used--I am
not a lawyer, and I know you shop around and try to find a
lawyer that may then give you some impetus to do this. But I
think this subordination issue does have traction with the
American public. They wonder how it was done with the clear,
concise aspects of law.
And I am going to yield my time, but I want to go to Ms.
Hogan for just 1 second.
In part of your statement, you talk about--and this is the
vehicle--you talked about electric vehicles and all this stuff.
And I just want to make sure that people understand, you have
electricity that is cheaper, but you never--what people have to
understand is that, to use electric vehicles, you have to
generate electricity. And there are varied prices for
purchasing electricity per kilowatt hour from, you know,
nuclear power being cheap now, coal being cheaper; wind, solar,
expensive. So high-cost electric vehicles based upon charging
capacities on green power is more expensive than traditional
major generation. And you should have that as part of the
analysis.
Now I yield the remaining time to Mr. Griffith from
Virginia.
Mr. Griffith. Thank you, Mr. Shimkus.
Here is the bottom line. The common language of the land is
English. ``The obligation shall be subject to the condition
that the obligation is not subordinate to other financing.''
Your counsel dances around it and says the word ``is'' makes it
only apply for those 5 or 10 minutes during the closing, or
hour during the closing, and immediately after that, not when
the loan is in distress. If you read her opinion, footnote 2
makes it clear that you don't have to be in distress; the
Secretary can do it anytime. But that is inconsistent with
other provisions of the law, as well.
First, in this particular case with Solyndra, the AG was
not notified as I believe, in reading the common English
language, they should have. But your counsel dances around
that, too, and says that not withstanding the fact they were in
default, it wasn't a payment default, it was another kind of
default.
And last but not least, when you start looking at what the
Secretary's powers are under 1702(g)(2) and you look at
(g)(2)(B), it says, plain English, ``The rights of the
Secretary with respect to any property acquired pursuant to a
guarantee or related agreements shall be superior to the rights
of any other person with respect to property.'' That section
makes no sense if you can subordinate anytime you want to.
And further, I would submit to you that when Solyndra went
into default in September of 2010, Secretary Chu testified to
the O&I Committee under oath that he knew in December, he knew
in February when this loan was subordinated, that the Chinese
could sell their product cheaper than Solyndra could make it.
Where were we looking out for the taxpayers of the United
States of America? I submit to you we were not; wouldn't you
agree?
I yield back.
Mr. Upton. Did you want to reply, Mr. Frantz?
Mr. Frantz. When we conducted our due diligence, as I have
indicated without being defensive at all, hindsight is always
much more valuable than foresight. At my level and the staff
level, we were taken completely by surprise. Clearly, in
hindsight, the Solyndra transaction was very appropriate in
that time, in that place; given what we now know, we would
not--we would obviously not have proceeded with the
transaction.
Mr. Griffith. Even the subordination?
Mr. Frantz. The subordination--again, in context,
respectfully, Mr. Congressman, the subordination is a tool that
we would use only under extremis. It is not something that we
would glibly or cavalierly use at any instant. It is only to
save U.S. taxpayers' dollars in the last resort.
Mr. Upton. The gentleman's time has expired.
At this time, I recognize the gentlelady from California,
Ms. Capps, for 5 minutes.
I am sorry, I have been told that it should be Ms.
Schakowsky of Illinois for 5 minutes.
Ms. Schakowsky. Thank you, Mr. Chairman.
Mr. Frantz, I wanted to ask you a few questions about the
DOE's response to the recommendations of Herb Allison, the
independent consultant brought by the White House to review the
loan guarantee program. As you know, Mr. Allison's credentials
and impartiality are well-known. He previously served as the
Assistant Secretary of the Treasury for Financial Stability and
as the national finance campaign chair for Senator McCain's
Presidential campaign.
He produced a serious report with constructive
recommendations. His report, by the way, found that the DOE
loan portfolio as a whole was strong and that the program was
largely working as planned. But Mr. Allison also suggested that
DOE place more emphasis on proactively protecting taxpayer
interests and establish a comprehensive early-warning system
for loans that may be in trouble.
So I wanted to ask you, what types of improvements? We have
talked a lot and you have said that you have done that, but
what types of improvements has the program made in these areas?
Mr. Frantz. Thank you very much, Congresswoman. That is a
very good question.
I would first, at the top of the ledger, indicate to you
and to the full committee that the Department of Energy is in
the process of virtually implementing all of Mr. Allison's
recommendations as they might appropriately be done just as
quickly as we can. So that is in place.
With respect to your specific question, we were very
blessed, quite frankly, with a program of attracting Frances
Nwachuku from the U.S. Ex-Im Bank, who had years of experience
in managing their portfolio. She is our director of portfolio
management for the program. With her she imported over systems
that were already decades tried and true and proven from the
Em-Im experience, as well as those that we obviously operated
at OPEC, as well, given my background.
There is a total watch system that is in place, what we
call a--you know, an oversight that involves weekly interface
with all of our projects and their sponsors. It is now in the
process of being fully systematized and will be completed by
the end of this fiscal year. There are monthly reports. We have
our independent engineers in the field on these projects on a
monthly basis.
So all of the best practices in the industry are being
employed by our program in terms of portfolio management. And
all of them were very consistent with Mr. Allison's views and
oversight.
Ms. Schakowsky. So this would include setting very specific
benchmarks, as well, for these kinds of applications?
Mr. Frantz. Yes, ma'am. We do.
Ms. Schakowsky. OK. What about the internal management and
reporting structures in the Loan Programs Office? Have these
changes been made yet?
Mr. Frantz. We are in the process of making them. They will
be completed by September 30th. We will have a state-of-the-art
system comparable to all the U.S. governmental agencies by that
date. The system is up and running, and we are right now
migrating all of the information into this single system of
information retrieval.
Ms. Schakowsky. So you are saying if you came back on
September 30th, you would be able to report that all of these
systems are now in place and operating?
Mr. Frantz. Yes, ma'am, that is our--I hope I will be able
to. That is our objective.
Ms. Schakowsky. Thank you.
Mr. Chairman, I think we both agree that the mission of the
Loan Programs Office is an important one, and I think that is
why the discussion draft before us today does not eliminate the
program, I am happy to say.
It is clear to me, however, that this legislation is poorly
crafted, as has been pointed out, in terms of the benefit to
the taxpayers, as well. And I don't think the legislation
before us is a serious attempt, or at least an adequate
attempt, to improve the DOE loan guarantee program--which it is
my understanding, Mr. Frantz, from your testimony, is, in fact,
implementing the improvements that have been recommended.
So we need to do better; everyone agrees with that. And I
hope that we can work on a bipartisan solution to help protect
taxpayers and advance the goals that we all share.
I yield back.
Mr. Upton. Thank you.
At this time, I recognize Mr. Terry for 5 minutes.
Mr. Terry. Thank you, Mr. Chairman.
And, Mr. Frantz, as the gentleman from California, Mr.
Waxman, ranking member, had mentioned when he was discussing
the issues with you, that the proposed bill would allow all
those that are in the pipeline to go forward but that the loan
program, 1705, would cease after that. That is how you read the
bill, as well?
Mr. Frantz. Yes, sir. We would not be able to receive new
applications other than those that----
Mr. Terry. And Mr. Waxman suggested that that is picking
winners and losers. Do you agree with that?
Mr. Frantz. I am not sure. There might be a non sequitur.
My view is that--which everybody I think here acknowledges--we
are not clairvoyant enough to know the new technologies that
might be right around the corner that would need some----
Mr. Terry. So do you agree that that is a fair statement,
that the bill is picking winners and losers?
Mr. Frantz. It would certainly preclude us from having an
open forum for the projects, that is for sure. All we would
have----
Mr. Terry. For new projects. OK.
Mr. Frantz. If it is picking----
Mr. Terry. So would it be fair, then, if we are talking
about fairness, to just eliminate all of the current ones that
are in the pipeline, just to die going further on those?
Mr. Frantz. No, no. I----
Mr. Terry. But then you are not picking winners and losers.
Mr. Frantz. No, I think the ones that are in the pipeline,
as we have indicated, we are in the process of reviewing those
that did not make the deadline of September 30th. There are
some very viable----
Mr. Terry. But if there is unfairness to that--and you
didn't say to Mr. Waxman there would be any unfairness to not
going forward. I mean, he accused us of being unfair.
Mr. Frantz. No, I think the point is--and it is in my oral
testimony; I mentioned it----
Mr. Terry. OK.
Mr. Frantz [continuing]. I think we have----
Mr. Terry. Well----
Mr. Frantz [continuing]. Serious concerns if there is a
sunset date of December 31st, 2011, because that will preclude
all new----
Mr. Terry. Well, let's talk about----
Mr. Frantz [continuing]. The implementation of all new
technologies.
Mr. Terry. But DOE's authority to issue loan guarantees
under 1705 expired after September 30th, 2011.
Mr. Frantz. That is correct.
Mr. Terry. And there are several that are in the pipeline
that were filed before then, and you are going forward,
correct?
Mr. Frantz. Yes, sir. And the point is they are 1703----
Mr. Terry. And you were allowed to follow through on those
if they had, quote/unquote, ``commenced construction.''
Mr. Frantz. Well, we are----
Mr. Terry. Correct?
Mr. Frantz. Not necessarily. These are projects that were
1703-eligible. And there was no sunset date on the 1703----
Mr. Terry. So, basically, then, you took some of those
programs and switched some of them from 1705 to 1703?
Mr. Frantz. Yes, sir, as long as they are eligible. And
remember----
Mr. Terry. But in 1705 in the last 3 weeks before September
11th, 2011, there were $10 billion issued to projects. Is that
correct?
Mr. Frantz. I don't remember the exact number, but----
Mr. Terry. Well, maybe your staff guy that helps you out
behind you could help you out.
Mr. Frantz. Well, in all fairness, sir, if you will permit
me, I submitted to your staff when I gave my private testimony,
my private interviews, that all of the projects that were
concluded under the 1705 2011 deadline experienced due
diligence periods. The median was 320 days--320 working days.
Every single one of those projects.
Mr. Terry. Well, I am talking about----
Mr. Frantz. So there was no rush to judgment. We were able
to do it in a----
Mr. Terry. DOE approved----
Mr. Frantz [continuing]. Very deliberate and responsible
way.
Mr. Terry. True or false, DOE approved almost $10 billion
in projects in the last 3 weeks of the program?
Mr. Frantz. I don't remember the exact number, but I can
assure you that the due diligence reflects the analysis that I
provided.
Mr. Terry. Well, did all of those--since you are saying--
you are not saying ``yes'' or ``no,'' so it is hard for me to
go forward. Did all of the projects that were ``commence
construction'' by September 30th, all of those that were funded
within the last 3 weeks?
Mr. Frantz. They did, according to our guidelines.
Mr. Terry. All right. And how does DOE define ``commence
construction''?
Mr. Frantz. I don't have the precise language in front of
me, but we can get that for the record for you, sir.
Mr. Terry. OK. I would appreciate that.
[The information follows:]
[GRAPHIC] [TIFF OMITTED] 82216.146
Mr. Terry. And then, of the approximately $10 billion that
was authorized in the final weeks before the stimulus deadline,
how much has been drawn down? Do you have those numbers.
Mr. Frantz. The actual loans outstanding right now that are
active are $23,353,690,276--I beg your pardon----
Mr. Terry. OK.
Mr. Frantz [continuing]. Yes, that is it.
Mr. Terry. Now, that has been drawn down?
Mr. Frantz. Well, let me get that number for you for the
record. We can get it pretty quickly.
Mr. Terry. Yes, I think that would be appropriate.
[The information follows:]
[GRAPHIC] [TIFF OMITTED] 82216.147
Mr. Terry. And then what I am also curious about is, are
any of the loan guarantee recipients who are not currently
drawing funds due--are any of those that received in the last 3
weeks, have they missed any deadlines or milestones.
Mr. Frantz. No, not to my knowledge.
Mr. Terry. All right. My time is up.
Mr. Upton. Thank you.
At this time, I recognize the gentlelady from California,
Ms. Capps, for 5 minutes.
Mrs. Capps. Thank you, Mr. Chairman.
I am glad the committee is seeking to advance bipartisan
legislation on energy efficiency through one of the topics we
are considering today, the Smart Energy bill. And one of the
important advantages of energy efficiency is that it spans all
the regions of the country, and regardless of what energy
source you support, efficiency is the cheapest, fastest way to
address our energy needs.
And we know that energy efficiency efforts lead directly to
jobs created, which we know also is very important, especially
now at a time when the economy is still struggling. The other
important aspect of energy efficiency is that these
technologies are all readily available. We don't have to wait
on some new, magic technology. We can take advantage of the
existing ones that we know about right away.
So there is tremendous potential for this committee to take
action on energy efficiency and to help our constituents save
money, and that is why I am pleased with the legislation that
has been proposed. And that is really what this is all about.
I thank the witnesses, both of you, for your testimony
today.
And, Dr. Hogan, I want to talk with you about improving
efficiencies in our homes. I went through a project on my own
home in Santa Barbara, California, about a decade ago, and now
I have started the process to complete another upgrade. This
time, I have the advantage of an energy audit of my home, which
is part of a county or locally based incentive structure, and
it uses a local veteran-owned small business which comes
through and then recommends energy-saving projects.
I believe there is a tremendous amount of potential with
programs designed to encourage homeowners--well, any building
owner to make upgrades. And we actually need to have this done
on a regular basis as new technologies become available. This
is countless jobs you can think of. It will also help to jump-
start a whole industry for home energy retrofits.
So, Dr. Hogan, can you describe for us what the Department
is doing with home energy efficiency? And maybe you can give us
a status update on the home energy scoring systems that are now
available.
Ms. Hogan. Yes. Thank you.
So, truly, there is a tremendous amount of savings that can
be delivered to homeowners in their homes through energy
efficiency. There are opportunities of 10 to 20 percent savings
on the average home energy bill; average home energy bill
being, you know, for the average home, $2,200 or so. So that
is, sort of, $400 a year that is really out there for almost
each and every family in an older home. And so the Department
of Energy, the administration, has been very focused on these
opportunities for many years.
One of the areas where we are working very closely with a
number of organizations across the country is something called
the Better Buildings Neighborhood Program, where we are working
to pilot programs that can really take home retrofits to scale.
Some of the programs of the past have been slow to get traction
in the marketplace, because you need a homeowner to want one
and you need the delivery system to be able to come in and
provide, you know, high-quality audits and then follow through
on the projects.
So it is because of that that we are doing things like the
program that you just mentioned, the home energy score. We see
that as a great way to bring homeowners information on the
efficiency on their home, whether it is highly efficient or
very inefficient, and to give them objective, credible
information on the low-cost things they can do to improve their
home, such as added insulation, home sealing--the things that
are very low-cost but can get them a good portion of those
energy savings that are there to be gotten.
We are also working to pilot that program across the
country with 20 or so partners, looking to refine it over the
next year, and then being able to offer it up much more broadly
around the country after that.
Mrs. Capps. Thank you.
I just wanted to get in to underscore what you have been
describing, and this is a company, but I want to share a story
about a company in my district. It is called Gills Onions. Any
kind of onions you eat with your hamburger next time probably
came from this company. They grow, cut, and process a lot of
onions.
But the company is also known for its technology to produce
energy from onion waste, and they use that electricity to run
their operations. They are totally self-sufficient. This
company used some Federal grants to design and build this
project. They have also partnered with another company,
PrudentEnergy, to develop a battery system that will allow
Gills to store some of the electricity that is extra and use
the power in peak hours when electricity costs the most.
Gills uses a lot of power for their equipment and their
refrigeration. So a project like this makes a lot of sense to
them, and it could lessen costs by hundreds of thousands of
dollars a year. It is a big deal. And I think it is a good
example of local economic development. You can talk about the
home use, you can talk about companies using innovation and
technology to help them with their bottom line but also to
create jobs, and we can help businesses this way.
I have--oh, I have already overused my time. I will take
your nods as that you agree.
Thank you.
Mr. Upton. Thank you, Ms. Capps.
At this time, I recognize the gentleman from Pennsylvania,
Mr. Murphy, for 5 minutes.
Mr. Murphy. Thank you.
Mr. Frantz, is it your testimony that loans that closed in
September of 2011 have not missed any milestones?
Mr. Frantz. I beg your pardon, Congressman?
Mr. Murphy. Is it your testimony that loans that closed in
September of last year, 2011, have not missed any milestones?
Mr. Frantz. We have milestones, some of them have, in the
manufacturing space. And we are working with them to----
Mr. Murphy. Have they missed them? Specifically, Amp. Has
Amp missed some of its milestones?
Mr. Frantz. We haven't funded Amp yet. Amp is not even--we
haven't even funded that project.
Mr. Murphy. Can you get us a list of all the loans that are
pending?
Mr. Frantz. Certainly, we can do that, sir. I will do it
for the record.
[The information follows:]
[GRAPHIC] [TIFF OMITTED] 82216.148
Mr. Murphy. Do you have any closings scheduled for this
year?
Mr. Frantz. None right now, no, sir.
Mr. Murphy. None at all? OK.
You know, I get concerned here because this loan program is
one where I hear folks all over the place talking about
subsidies as picking winners and losers. I think there is a
difference between doing this right and doing it wrong. You
look at countries like France, subsidizes nuclear. China seems
to support everything massively. And what concerns me a great
deal is, families in this country have been funding OPEC to the
tune of a $127 billion trade deficit where they are building
palaces and we are trying to get by here.
There are so many indications that something is wrong, and
what really puzzles me is, I don't get a sense yet that the
loan program at Department of Energy gets it. When I look at
all these programs that are failing--Solyndra, the first
recipient, went bankrupt; Beacon, the third recipient, went
bankrupt; Abound, the fifth DOE loan guarantee, went bankrupt a
few weeks ago; First Wind has withdrawn its IPO, has
significant debt; Nevada Geothermal, the fourth recipient, has
a going-concern.
And when you look at the things that we have learned over
time from these hearings, there were so many signs that
Solyndra was having problems. All these Federal agencies and
departments were saying, this is a bad investment. OMB,
Treasury, Justice, DOE employees, investors in Solyndra,
PricewaterhouseCoopers, Lawrence Summers, the President's
economic advisor, are all saying, this is a problem.
And yet, with all of those indications, I think what could
have been a loan program turned into a White House and
Department of Energy earmark program, saying, we are going to
do this anyway, despite all the signs that no one is going to
get paid back, and then ignoring the law about the taxpayers
getting paid less.
What concerns me here and the reason why we need to even
look at this law is, Department of Energy is still not
admitting problems, still not admitting failures in how the
Department of Energy handled this, how they ignored the
warnings of failure, continued on, and even when the Secretary
of Energy is here, having an attitude which concerns the
taxpayers, with regard to throwing money down a hole even
though you knew that hole had no bottom.
If we could make a movie of how the Department of Energy is
handling this, of how the Department of Energy would have a
typical staff meeting to discuss all these failures on how they
handled it, it would look something like this.
Would you play the clip, please?
[Video shown.]
Mr. Murphy. I yield back.
Mr. Upton. At this time, I would like to recognize the
gentleman from Texas, Mr. Green, for 5 minutes.
Mr. Green. Thank you, Mr. Chairman.
And I enjoyed that movie, too, but I don't know if it
relates to the Department of Energy. But thank you, for my
colleague from Pennsylvania.
One of the issues I think I have is that--and my colleague
mentioned it--we have competition for going to more energy
efficiency, whether it be solar or wind power. And I am,
frankly, successful in my part of the country, in Texas; we are
the biggest growing wind power in the country. But unlike some
of our competitive countries, if you do what happened with
Solyndra, in some of our countries you would be taken out and
shot. We don't do that in our country. We call you before
legislative hearings. So I want to welcome you.
I join my colleagues on both side of the aisle in
frustration and anger on the failure of Solyndra. And I have
participated in oversight hearings before and was on the
committee when we wrote the law that created this loan
guarantee program. I remember it was under a Republican House
and a Republican President that we originally authorized the
program. Some of my friends and colleagues on the majority side
championed these provisions. In 2005, we worked in a bipartisan
manner, and we had our political fights then, too, but we
worked together to actually legislate. In that spirit, I want
to invite both Democrats and Republicans to work to fix this
loan program. We can learn from the mistakes that we made and
strengthen a program that once enjoyed broad bipartisan
support.
But I cannot support the legislation just as currently
drafted. It is a transparent attempt at political messaging and
not a serious effort to solve the problems that allowed the
taxpayers to be on the hook for Solyndra. The bill stands no
chance of being taken up by the Senate or even a chance of
being signed by the President. Instead, let's not waste this
opportunity, and we can write a bill that fixes the program.
The American people elected us to govern, and on something like
this it is our obligation to find consensus and not create
irreconcilable political differences.
However, partisan differences can't be solved by our
witnesses, and my questions today revolve around solar panels.
My goal is to do for solar what we have done in wind for our
country. Like I said, in the State of Texas we have done
greatly with wind, and we are going to do it with solar if we
can find some State money to do it.
But, Mr. Frantz, I thank you for appearing today.
I know the DOE acknowledges some mistakes in the case of
Solyndra, and one of the issues that concerned me greatly is
the subordination of a loan. When we passed the 2005 energy
bill, I remember the language being included saying that
taxpayers' interests could not be subordinate to that of any
investor. DOE did some legal gymnastics to justify under the
law that to restructure loan subordination was permitted.
Mr. Frantz, what was the reason to seek outside counsel to
draft that subordination memo instead of going to the
Department of Justice?
Mr. Frantz. I can't answer your question, sir. That was
handled by our chief counsel's office and the general counsel's
office of the Department of Energy, sir.
Mr. Green. OK.
We want to avoid another situation like that we had with
Solyndra. And I understand DOE believed they were doing their
best to save the taxpayers money by subordinating their loan,
but it turns out, in retrospect, the judgment of the agency was
flawed in this regard.
Is it current policy at DOE that loan guarantees can be
subordinated after restructuring?
Mr. Frantz. That is the position that we have taken. We
hope never to have to do it. And as I have indicated in my
testimony as well as in questions from the committee, it is a
tool of last resort in our attempt to save taxpayers money from
a pure liquidation scenario.
Mr. Green. Well, learning what we have learned from
Solyndra, does restructuring seem like a risky bet now?
Mr. Frantz. I guess I don't understand your question,
Congressman.
Mr. Green. Well, you know, we are talking about $500
million, and, obviously, we threw good money after bad. And it
seems like somebody ought to say, hey, that was a bad decision
we made.
Mr. Frantz. The decision that we took, Congressman, again,
was at that time and in that place. Hindsight is always more
valuable than foresight, for sure. And it was a very
appropriate transaction at the time. Obviously, we would not do
it again, knowing the circumstances we do, particularly in the
marketplace.
Mr. Green. Well, my concern is that the 2005 energy bill
put in there that you couldn't subordinate, and there were
efforts to do that by getting some great drafted letters--and I
practiced law, too--but you get three lawyers, I can get you
four opinions, depending on how much you want to pay.
But I think this committee ought to work in making sure
that subordination is not allowed. And I thought that is what
the 2005 energy bill did, but obviously it didn't. And so that
is what I would hope our legislation would be, that we make
sure that the taxpayers' dollars always come first before the
private investors'.
Mr. Chairman, I know I am almost out of time, and thank you
for the time.
Mr. Upton. Thank you very much.
At this time, I recognize the gentleman from Texas, Dr.
Burgess, for 5 minutes.
Mr. Burgess. I thank the chairman for the recognition.
Mr. Frantz, let's stay on the subordination issue. The
Energy Policy Act of 2005, I am sure you are familiar with it
because you were one of the original hires in that loan project
office in 2007 to administer this program. In 1703, the clause
under subordination reads, ``The obligation shall be subject to
the condition that the obligation is not subordinate to other
financing''--a simple, straightforward statement. Even a
nonlawyer like myself can understand it.
The difficulty that--and I think Mr. Green is exactly
right, his line of questioning is exactly correct. But the
difficulty is, then, the law does not go on to prescribe any
penalties, civil or criminal, for a violation of this. So while
I believe the Secretary to have been in technical violation of
this passage of the Energy Policy Act of 2005, there is no
penalty.
So for that reason, earlier this year, I introduced another
bill, 5863, to prescribe civil monetary penalties between
$10,000 and $50,000 for people who violated this statute. The
bill is based on the Antideficiency Act and provides civil and
administrative penalties for executive branch officials who
violate appropriations bills and has over a century of
precedent. And I honestly believe this may be a better way to
get at this problem.
Now, you reference that--well, actually, Secretary Chu came
to our committee, and he referenced other committees that were
on the watch list. Can you provide us with a list of those
companies who are on the watch list? I don't expect you to have
it at your immediate disposal, but will you provide that to the
committee?
Mr. Frantz. Well, let me take that question for the record,
and we will endeavor to be responsive, sir.
[The information follows:]
[GRAPHIC] [TIFF OMITTED] 82216.149
Mr. Burgess. Well, and the reason I want you to be
responsive, the reason why it is important--because, I mean,
the whole purpose of this hearing is no more Solyndras; maybe
it should be no more loan subordination. Are we at risk for the
Department to have to look at subordinating a loan as a last-
ditch effort to save taxpayer dollars, as you have described?
I want to help you here. You keep talking about ``hindsight
is perfect.'' I want to sharpen your foresight so that we can
anticipate the next loan subordination activity and either have
it not happen or if it does happen, make sure we follow the
letter of the law, or if we don't, that people understand that
there are penalties for not following the letter of the law.
Now, also on the issue of hindsight or foresight or
wherever sight we are on right now, I have heard several people
talk about the fact that it was the Chinese that actually
sandbagged Solyndra. They dumped a bunch of stuff on the
market. Do you recall that as being part of the discussion.
Mr. Frantz. Well, I mean, factually, it is a part of the
discussion----
Mr. Burgess. No. Factually, 4 days prior to the closing of
the loan, there is an email from the energy branch chief at
Office of Management and Budget--this is tab 7 in your evidence
binder--there is an email from the energy branch chief at
Office of Management and Budget to his immediate superior that
describes the problems. He wants them to slow down. He says,
``You are going too fast, you are not following the rules,''
and then referencing at the bottom of the email, ``Chinese
solar firm revises price. As prices slump, solar industry
suffers. More sun for less. Solar panels drop in price because
of Chinese imports.''
This was known. This was not a surprise. This was not new
information. Your own Office of Management and Budget was
saying, we need to slow this thing down and follow the rules.
But instead, it was speeded up for reasons that this committee,
to the best of my knowledge, still has not been able to
discern. And that is really where this whole investigation has
hinged.
The administration would have done itself a favor to get
out in front and be honest with the committee if this is a
mistake. And we accept the fact that people make mistakes, and
then we can improve our policy from recognizing those mistakes.
A big mistake was made here, and then it was--you papered over
it, you glossed over it, and went ahead.
Do you have any comment about that?
Mr. Frantz. I don't. I haven't looked at that----
Mr. Burgess. Well, do you have the evidence binder in front
of you?
Mr. Frantz. I do not, sir.
Mr. Burgess. Where is--all right. We will get it for you. I
would like for you to look at that while you are still here.
If I could, Dr. Hogan, I just have one question on the
energy efficiency. You spoke a lot in your testimony about
electric cars. And, in fact, it was kind of interesting, on the
last Energy and Water Appropriations bill, there was an
amendment from a representative from California who wanted--she
said people suffered from range activities in their electric
cars, and she wanted to help them with that. I don't know what
you do, short of a 300-mile extension cord.
But, you know, there are other technologies. And this whole
concept of picking winners and losers--down in my neck of the
woods, T. Boone Pickens talks a lot about using natural gas to
power especially the big rigs on the road. Why would we pick
electric car technology when there are competing technologies
that other people are investigating? Why pick a winner over a
loser in this instance?
Ms. Hogan. First, as I said in my testimony, the Department
of Energy has a full portfolio of R&D in the vehicle space. We
are interested in natural gas and would enjoy having a
conversation with you on that.
But as you look at the different vehicles that are out
there, the different vehicles we use in our economy, from
light-duty to heavy-duty, it does seem that different
technologies have sweet spots in different areas.
Mr. Burgess. And I recognize my time has expired. But the
difficulty that you have is, consumers don't want what you are
trying to make. And we would be far better served if we let the
market absorb the appropriate signals and respond, rather than
us trying to force an issue on the American people.
Mr. Chairman, in the interest of time, I will yield back. I
know we have a vote pending.
Mr. Upton. Thank you.
At this time, I will recognize the gentleman from Georgia,
Dr. Gingrey, for 5 minutes.
Mr. Gingrey. Mr. Chairman, thank you.
Mr. Frantz, I know it seems like we have beat this horse to
death, but I don't think quite so. So I want to go back to this
issue of subordination, particularly in light of the fact that
you have said repeatedly before this committee this morning
that you believe that, under this loan program, you have the
authority to subordinate in an extreme situation. You have said
that a number of times, and I will be happy to have you either
refute that or confirm it.
But here is the situation. In the private sector, if a loan
were to be subordinated, and it is a scenario that you
described, that the borrower is about to default, to declare
bankruptcy or whatever, and the person that made the original
loan that is in the first position is going to likely lose all
their money because of the bankruptcy that is likely to occur.
And a deal could be struck should maybe the original lender has
no more money or is unwilling to put up any more money, throw
good money after bad, as the expression goes, and somebody
else, though, is willing to do that, maybe because they get a
higher rate of interest, to come in and pony up some more
money.
You might be able to restructure a deal like that, but I
would think--now, you have a legal team behind you of young,
bright-looking people, and you have been in business yourself a
long time and maybe done some of these deals--you would have to
go to that lender that is in the first position and get their
approval before you could restructure and subordinate them to a
secondary position, would you not?
Mr. Frantz. You do. You are in consultation with them, as
we were.
Mr. Gingrey. You were not in consultation with me. I am a
taxpayer. You were not in consultation with we, the taxpayer.
That is the problem here, and that is the thing that just
amazes me that you don't seem to get.
Now, there was a memo that our committee obtained that
Jacob Lew, the former Director of OMB, sent not only to the
Department of Energy but, as I understand, to every other
agency and department of the Federal Government, very
specifically saying--it was Circular A-129, to be exact, this
guidance document that was sent by then-Director of OMB Jacob
Lew to heads of executive departments--you cannot do this under
these loan programs, whether they are Department of Energy,
Department of Agriculture, or wherever throughout the Federal
Government; this cannot be done.
And you guys were told repeatedly, consult with the
Treasury. After all, it was in the Department of Treasury where
the money was being lent. And you repeatedly refused to go to
the source of the funding to ask the question if this was OK.
You just, as my colleagues have pointed out, asked some rookie
junior counsel in the Department of Energy to give you a quick
and dirty opinion so you could go ahead and get this done and
get it out the door.
And that is where you--and I say ``you'' and I use that
term, Mr. Frantz, generically. I think you have been a good
witness. I think you have been honest with us. But I think you
are honestly wrong in thinking that you could continue in this
loan program.
And I would like some of my colleagues on both sides of the
aisle--I am not ready to say that we should throw the baby out
with the bath water and just eliminate the loan programs
entirely. I want to think very long and hard on that before I
would vote to do that.
Mr. Gingrey. But if you are telling me that if we continue
the loan program, and you are the guy there, or you are the
straw that stirs the drink in regard to this loan program and
another extreme situation comes up, in your judgment, you would
subordinate the taxpayer; if that is the case, then I would say
let's get rid of the damn thing.
I don't think you have the authority to do that, and if
you--you know, I want you to respond to me, and if you are
unclear about it, you get together with your team, and you all
better look at the documents and study this long and hard,
because I think you are flat wrong on this.
Mr. Frantz. Well, my only response and at the expense of
just the reiteration of my comment, we would hope to never have
to subordinate. It is a tool of the last resort. I have more
experience in the private sector, quite frankly.
Mr. Gingrey. Let me interrupt you for just a second because
you are going down the same path. It is not a tool of last
resort. In your quiver, in your toolbox, you don't have that
tool. Don't you understand that?
Mr. Frantz. The advice, and I, again, do not have a license
to practice law, so I have to depend on the civil service
advice of our general counsels, who reached a different
conclusion, sir.
Mr. Gingrey. Well, I suggest that you go back with your
counsel, and I suggest that you talk with the attorneys and the
bankers in the Department of Treasury, and maybe even, you
know, a little side-bar with Jacob Lew himself and look very
carefully at circular A-129 because, Mr. Chairman, I just, I
again, I apologize to my colleagues for, as I say, going back
to this issue over and over again, but the gentleman just
doesn't seem to get it. And that is the reason why I think we
just need to make sure that he does get it.
And with that, I yield back.
Mr. Whitfield. At this time, I recognize the gentleman from
Kansas, Mr. Pompeo, for 5 minutes.
Mr. Pompeo. Thank you, Mr. Chairman.
Thank you, Mr. Frantz, for being here today. I have heard
two different--we have got this bill. I think it is a good
bill. I am trying to make sure that we don't have anything like
Solyndra. I have heard two different descriptions of the
problem.
Mr. Frantz, you state the problem as inadequate foresight;
not enough data. If you had to do it again, you would do it
differently. You might not make the loan. You might not do the
subordination. That is one identification of the problem. The
second one I have heard from both sides here today is we just
need a few more processes and procedures, and gosh, we won't
ever end up here today. Those are both wrong. The government
has got no business having either the Section 1705 or Section
1703 program in the first instance. The very problem, Mr.
Frantz, and you are stuck here testifying today is, it is
inevitable that there will be--loans go bad. I came from the
private sector. It is absolutely inevitable, and that is why
the government shouldn't be in this business in the first
instance. Because we will always want to second guess and when
we find things like the subordination and we find emails
talking about hurry and get a loan out the door because there
is going to be a press conference with the President or the
Vice President wants to go, the government subjects itself to
this kind of inquiry and when we don't get documents, I think
we have ever right, indeed, an obligation to pursue that line
of inquiry.
So I am going to get you out of this. I am going to get you
out of this completely. You will never have to come testify
about a failed loan again. We will eliminate the program in its
entirety. So I would love to see us do that.
I want to talk to you about, we have got a provision that
does let some folks continue in the 1703 program; those folks
that have already filed applications. If we went further, and
said you couldn't disburse any funds even to those people, tell
me what that would do to you in the loan program office.
Mr. Frantz. Well, I think, Congressman, that point is that
the program was established as a bipartisan program to bring
new and innovative technologies that also reduce, sequester
greenhouse gases and pollutants. This--having spent my whole
career in the energy infrastructure industries, this is high-
risk business.
The other point I would like to make for the benefit of the
entire committee is that this involves what we call
discretionary capital expenditures. Major corporations don't
have to do this. What has happened, though, the success of this
program has, is, that we have brought small investors, as well
as large investors forward to take very high-risk decisions in
employing and bringing new and innovate technologies to the
marketplace. We have done it very successfully, and otherwise,
that would not have happened.
Mr. Pompeo. You didn't answer my question.
Mr. Frantz. You have had a lot of testimony here that other
nations----
Mr. Pompeo. I don't want to debate the policy. You are not
going to convince me. I have more confidence in the private
sector. You have more confidence in government. I understand
that distinction. I asked you a specific question. If we denied
any further guarantees being made, even those folks who had
provided applications to you so far, tell me what that would do
to the loan program.
Mr. Frantz. Well, we have a group of projects which I have
indicated, which are 1703 qualified that did not make the
sunset deadline of September 30, 2011, and within that cadre of
projects, there are new and innovate technologies that we want
to bring to the commercialization.
Mr. Pompeo. How much have these companies expended? I am
concerned about the private entities that have already put
money in at risk and relied on what I think is a terrible
government policy. But nonetheless, they relied on it. I don't
want to do any--I am trying to avoid doing harm to them in this
transition to what I think the new world ought to look like. So
that is my question. Can you tell me what the impact is for
those----
Mr. Frantz. I will have to do it for the record, sir. I
don't have those numbers right in front of me, but we will
follow up with you, sir.
[The information follows:]
[GRAPHIC] [TIFF OMITTED] 82216.150
Mr. Pompeo. Good, thank you. With that, I yield back the
balance of my time.
Mr. Whitfield. The gentleman yields back the balance of his
time.
At this time, I recognize for 5 minutes, the gentleman from
Colorado, Mr. Gardner.
Mr. Gardner. Thank you, Mr. Chairman, I appreciate your
time and to Mr. Frantz, and Ms. Hogan, thank you very much for
being here today. Just a couple of quick questions for you.
When it comes to solar projects, how many loan applications do
you have in this program--or not applications, excuse me. How
many active participants, remind me, are in the program right
now.
Mr. Frantz. Well, if you will, I can--I think I have a
schedule right in front of me. There are--we have in solar
generation, there are 12 projects. In solar manufacturing, we
have four projects, but only two of those four have been
disbursed, or we have gone forward with. Two are on hold for
the reasons that have been identified here in this hearing
today. So those are the major--so it is essentially 12 plus 4
for 16.
Mr. Gardner. So you have got 16. Does that include Solyndra
or Abound?
Mr. Frantz. It does, sir.
Mr. Gardner. It does, so that number does include that.
Mr. Frantz. Yes, sir.
Mr. Gardner. You set a number of benchmarks and milestones.
Mr. Frantz. Yes, sir.
Mr. Gardner. So are those just major milestones, or are you
actually monitoring compliance with terms of the contract
itself?
Mr. Frantz. We are doing both, as a matter of fact.
Mr. Gardner. So you are making sure they are come playing
with every term of the contract?
Mr. Frantz. Yes, sir, we are, on a weekly to monthly basis
on every project. Now, there is a reasonableness. And that is
that what we have done now going forward, we are putting phased
disbursements against absolute, hard milestones, and we will
cease disbursing if in fact they are not meeting their
milestones.
Mr. Gardner. OK, but in terms of the terms of the contract,
are all 12, 14, however in existence today, are they meeting
every term of their contract?
Mr. Frantz. To the best of our knowledge, don't confuse the
milestones with defaults, you know. They are not in default.
The only ones that are in default are the ones that you have
identified, the committee has identified.
Mr. Gardner. But if they are not complying with the terms
of the contract, are they in technical default?
Mr. Frantz. No, they are not. We are working with them if
we can, to permit them time to make them--I mean, for example,
a perfect example you are familiar with. If there is a turbine
that has some blades that aren't working, but it is known that
it can, if there is a fix that is delaying, it might delay the
schedule.
Mr. Gardner. What about the terms of the contract here.
Every single one of these are complying with the terms of their
contract to the T?
Mr. Frantz. To the best of our knowledge. I mean, as I
said, we are monitoring them on a weekly basis.
Mr. Gardner. All of them are paying Davis-Bacon wages as
required?
Mr. Frantz. The best of my knowledge. I don't know of any
that aren't.
Mr. Gardner. Was Solyndra or Abound paying Davis-Bacon
wages?
Mr. Frantz. I would have to take that question for the
record. I don't have that information right in front of me.
[The information follows:]
[GRAPHIC] [TIFF OMITTED] 82216.151
Mr. Gardner. The loan was closed for Abound 10 months
before funding was cut off. What changed in those 10 months.
Mr. Gardner. The marketplace was the deciding factor,
they----
Mr. Gardner. For 10 months, you didn't know that it would
happen? You didn't see it coming?
Mr. Frantz. We didn't until after we had closed.
Mr. Gardner. I will just switch to questioning of Ms.
Hogan.
Ms. Hogan, you talked about energy-savings performance
contracts. I helped lead a letter to the President. Over 20
Republicans signed this letter, actually commending the
President for his work on $2 billion worth of investments in
the energy savings performance contracts making sure that we
encourage those projects to actually go forward and happen. But
there have actually been 55,000 potential energy conservation
measures that have been identified. Can you tell me where we
are in reaching those?
Ms. Hogan. So is your----
Mr. Gardner. Where are we in terms of reaching those 55,000
potential energy conservation measures agencies have
identified. Can you tell me what we are doing to advance these
measures? I mean, where are we on this?
Ms. Hogan. Yes, so certainly the FEMP program is working
with all the agencies around the energy conservation measures
that they have identified. Certainly, one cannot fund all of
the measures just because they have been identified. So one of
the big conversations is, where does the funding come from, and
what appropriations that agencies have to put toward that as
well as what use we can have of the energy performance
contracting.
Mr. Gardner. And of course with energy performance
contracting you don't need to have funding because it is all
done through the private sector.
Ms. Hogan. Correct. So with the energy performance
contracting our big effort right now is to help the Federal
agencies be successful with the President's challenge for the
$2 billion by December 2013.
Mr. Gardner. But we know that in 2011, energy savings
performance contract project investment was $253 million, but
that is the lowest level actually since 2007. Can you talk a
little bit more about why we are not actually encouraging more
energy savings performance contracts to actually get to the $2
billion.
Ms. Hogan. So we are encouraging them as aggressively as we
can. The President's challenge to the Federal agencies has been
a great way to get everyone focused on what performance
contracting can do. And we have got a tracking system in place
where each of the agencies is being measured toward their piece
of the commitment to the President's goal with sort of monthly
tracking to see where they are. And we are right now, on track
to get there. So we are feeling pretty good about that.
Mr. Gardner. Thank you, Ms. Hogan.
Mr. Chairman, I yield back my time.
Mr. Whitfield. At this time, I recognize the gentleman from
Louisiana, Mr. Scalise, for 5 minutes.
Mr. Scalise. Thank you, Mr. Chairman.
I appreciate you having this hearing. I know we have been
looking into the Solyndra and the entire loan program for a
long time now. Our committee I think has done tremendous work
in uncovering not only this scandal related to Solyndra but a
lot of the flaws in the loan program.
I want to ask Mr. Frantz, when we had--you had some
conversations with other Members about subordination in
general. Where in the law is it that you feel you have the
authority to subordinate taxpayers?
Mr. Frantz. Again, Congressman, I have to defer to the
opinions of the civil servants and the General Counsel's Office
of the Department of Energy, and our chief counsel. I do not
have a practice----
Mr. Scalise. Well, you are hiding behind civil service, but
it is my understanding, and I am not sure how much you have
reviewed a lot of the documents that we have reviewed on this
loan program, and especially as it relates to Solyndra, but
going back to prior to the decision to subordinate the
taxpayer, we uncovered some communications, it seems like, with
an outside law firm that the Department of Energy was having on
subordination, whether or not it was legal, and it was our
understanding that there was a draft of a legal opinion from
outside law counsel that it would not be legal to subordinate
the taxpayer. And at that point, the department pulled back and
said no, we are just going to go find somebody in-house to give
us the opinion we wanted. And that is where this memo came
from. Are you familiar with that whole----
Mr. Frantz. No, with all due respect, I can't really
comment on your questions.
Mr. Scalise. Are you disputing any of that happened?
Mr. Frantz. I am sorry?
Mr. Scalise. We have seen some of that information. Are you
disputing that there was outside counsel being talked to about
subordination?
Mr. Frantz. I am not disputing it one way or the other,
sir. I am just not familiar with those communications.
Mr. Scalise. Well, let me ask you, because we have, you
know, we have talked about some of these other problems, and
many of us have disputed whether or not you even had the legal
authority to subordinate. You are saying here today, that you
still think you do have the legal authority to subordinate.
Again, if you can show me in the law where you have it, that is
one thing, but you are hiding behind some kind of legal opinion
that comes from in-house counsel, even though what we seen is
outside counsel was getting ready to tell you don't have the
legal opinion, so then you went and I guess forum shopped. That
is forum shopping in the Department of Energy. But even within
the Obama administration, we have got emails from the
Department of Treasury telling Department of Energy that we
don't think it is legal for you to do this. You ought to go
talk to the Justice Department. Did you see those emails?
Mr. Frantz. I did not, sir.
Mr. Scalise. Now, I don't understand how you can sit here
and tell us you are serious about reforming this loan program.
You told Mr. Barton, you said, we are looking at ways to reform
this. We don't want to make the mistakes of the past. You don't
even know what happened. We had committee hearings. I mean,
this stuff was broadcast on C-SPAN. You can go find all of
this. We had to subpoena some of these documents, and you are
telling us today you didn't even go look at this and that you
are serious about reforming a program when you didn't even go
and review the record that has been out there for months and
months, of what we have uncovered in this investigation.
There is stuff that is out there in the public domain you
can read in the newspaper about the problems leading up to this
subordination, and yet you are telling us you don't even know
what happened. You don't even know this history, but you are
serious about reforming the program, and you don't even know
how it got to this point.
Mr. Frantz. I am familiar with what we did, and how we did
it. I am not familiar with the background information, and----
Mr. Scalise. But the background is part of what got us to
this point, what got the taxpayers to having lost $535 million
of money. It wasn't just us here in Congress on this committee
saying it shouldn't have been done. You had people within other
agencies in the Obama administration saying you shouldn't do
it. And there are emails saying this. And you are telling me
you haven't even read those emails?
Mr. Frantz. No, I have not.
Mr. Scalise. Well, you better go back and read them. I
mean, it is part of your job if you are going to reform the
loan program to know how we lost $535 million of taxpayer money
because there are other loans out there. You are admitting. How
many more billions of dollars in taxpayer money are out there
at risk in these loans?
Mr. Frantz. As I have indicated to you, and to the full
committee, this is a high-risk business.
Mr. Scalise. That is a question. How much money? How many
billions of dollars are at risk in these loans?
Mr. Frantz. I don't--I don't have that. I am not perfectly
clairvoyant.
Mr. Scalise. How can you not have that? You are in charge
of the program.
Mr. Frantz. I am not particularly clairvoyant enough to
know what the future holds. We are working very hard----
Mr. Scalise. How much money? How much taxpayer money is
invested right now in these loans? I would think you would be
able to give me an answer. You run the program.
Mr. Frantz. I can tell you under the 1705 program, $16.1
billion is committed.
Mr. Scalise. So there is $16.1 billion of taxpayer money at
risk. This isn't venture capital money, private sector people
thinking this is a good bet. Obviously, they turned their back
on it. The private sector said we probably don't think these
investments are good enough, so we are not going to invest in
them. So these companies went to the taxpayer. They went to
your agency and they got taxpayer money. And so you are now the
steward of that taxpayer money. I would hope that you would go
back and look at the history of how we have lost hundreds of
millions of dollars of taxpayer money because there is still
billions out there. I mean, do you understand why it is
important that you know this history?
Mr. Frantz. Sure, certainly I do.
Mr. Scalise. Well, then I just find it perplexing that you
are going to sit here and tell me you haven't looked at it yet.
Because we have had hearings on this stuff. We have got Members
on both the Republican and the Democrat side that have read
this. I mean, some people fought us subpoenaing the
information, but we passed it anyway. We got the subpoenas. We
got the documents. We know what the emails say. And many of
those emails said don't do it. And yet you are sitting here
still saying you are going to do it. You would subordinate the
taxpayer, even though there are emails from the Department of
Treasury.
Mr. Frantz. With all due respect, Congressman, this is a
tool of the last resort. We hope to never have to use it again.
Mr. Scalise. But you said you are still willing to use it,
didn't you?
Mr. Frantz. Until the attorneys advise me that it is a
tool----
Mr. Scalise. Which attorneys? Some attorneys were going to
advise you not to do it and so you went and found other
attorneys. I mean, please go look at the history. It is your
job to look at this history because there are billions of
taxpayer money still at risk, not to mention what was already
lost with Solyndra, Beacon, and maybe others.
Mr. Whitfield. The gentleman's time is expired.
Ms. DeGette. We don't apparently have a document notebook
for this hearing, and I would just request that Mr. Scalise
place the documents he is referring to, the outside counsel
opinions saying that the subordination was illegal, into the
record so we could know what he is talking about.
Mr. Scalise. We have got many documents in the record.
Thousands.
Ms. DeGette. I think that would be helpful. Thank you.
Mr. Scalise. We would be happy to continue to go down this
road----
Mr. Whitfield. All of these documents have been in the
record of prior hearings of Oversight and Investigations. We
would be happy to put them in the record of this hearing.
Ms. DeGette. OK.
Mr. Whitfield. At this time, I would like to recognize the
gentleman from California, Mr. Bilbray, for 5 minutes.
Mr. Bilbray. Ms. Hogan, would you clarify something. We
talk about electrification, both for transportation, and for
generation. And both of them in the most efficient form need a
quantity of rare earth to be the most efficient out there. My
question is, when you guys are talking about this, how much
discussion do you have with the Interior Department about if we
want to go to electrification, if we want more wind generation,
if we want to produce this domestically, we have got to have,
or we should have, domestic sources of the central components
of this.
How much interrelationship, or communication do you have
with the Interior Department about opening up public lands for
mining of these rare earths or other components that are
essential? What, there are 70 pounds of rare earths in a Prius.
Is there any discussion at all about assuring their sources for
the raw materials they have to be able to produce these
strategies, things like electrification?
Ms. Hogan. Yes, so we are dealing with the rare earth issue
in a number of ways, and that includes having put together a
strategy on rare earth materials so that we can actually
understand the criticality of them and the things that we need
to do. We are engaged broadly across the Federal Government and
what the opportunities are to sort of assure those supplies.
Mr. Bilbray. You are aware that China is already using the
rare earth strangle on Japan for their foreign policy stuff
based on fishing.
OK, let me go right to the thing. We all agree that
conservation overwhelmingly tends to be the most cost-effective
way of saving energy and saving money, right? We require
mileage efficiency out of our cars, don't we? Do we require
under our transportation funds energy efficiency out of our
roads? University of Texas, University of Missouri show in
studies that inappropriate traffic control can be adding as
much as 22 percent. And I know I sound like a broken record on
this, but when we point fingers at the local, at businesses,
and we point fingers at consumers and say they must change the
way they do business, how can we walk away from one of the
largest opportunities we have to reduce fuel consumption and
pollution when--is it just because it is government so we just
don't hold government to that standard?
Ms. Hogan. I believe what you are referring to are other
strategies you can use to address transportation dealing with
vehicle miles traveled, dealing with congestion issues. Again,
that is an area where the Department of Energy is actively
engaged with the Department of Transportation and others, and
addresses those issues through sort of a clean----
Mr. Bilbray. What kind of outreach do we do to local
governments, counties, the League of California Cities and the
counties. Things like a stop sign is five times more polluting
than not having one. Why are we continuing to not only pay for,
allow but pay for, a local government putting up four-way stops
or putting up--instead of yields, or not synchronizing traffic
signals, or not using more roundabouts, which are one of the
most efficient. Why aren't we as aggressive with our local
government, and our county, our State government as we are with
our auto manufacturers with our CAFE standards?
Ms. Hogan. Well, certainly, we can have a conversation
about what the role of the Federal Government is in this space.
What we have been doing very actively for a number of years is
working with our States and our local governments to bring
forth the best practices to actually show them what the
benefits are with these various strategies so that they can
adopt them. And, you know, that is having a fair amount of
effectiveness.
Mr. Bilbray. OK, I will just tell you because I come from
the local side, but I will tell you, we have spent decades
talking about fuel efficiency in the cars, and I would
challenge that this committee has held more than a few hours,
or even a few minutes discussion about how to require traffic
management to be modified to be the more efficient. And that,
when you talk about studies showing as much as 20 percent of
mobile sources, this is a big deal that I think our credibility
is destroyed if we say, we are going to do this to the private
sector, but if it is the public sector creating the problem, we
are just going to overlook it. You know what it looks like?
It looks likes, rather than being pro-environment and pro-
conservation, we are anti-private sector. I think that we can
gain a lot of credibility by being as tough on our fellow
government agencies as we are on the private sector.
And I will harp on one thing. I have been on Dan Lungren
and the local--about the fact that we can't even allow a
blinking amber light next to this build. Because it is just so
much easier just to have a blinking red light. And it is just,
why bother, because every one of those blinking red lights
forces consumers to burn more fuel and pollute more, but we
stand by and don't bother because it just seems too small to
bother with. And I think when we talk up to 22 percent, don't
you agree, it is something that we need to go revisit and
should be more aggressive on.
Ms. Hogan. I think we should always look at those types of
opportunities and figure out how to share the best strategies
that can get those types of savings, and we would be glad to
have a conversation with you on that.
Mr. Bilbray. I appreciate it, Mr. Chairman.
I will just say to the ranking member, you remember in the
1970s, people said that cars had to be big and heavy to be
safe. They had to be polluting to be safe. And you find people
who use--government will use the same argument, that we have to
have stop signs everywhere. We have to do this. We have to stop
traffic. And I think it is time that we put the pressure on our
mayors and our county supervisors, and our State officials,
just like we put on our automobile manufacturers. And that is
something both sides ought to be able to work on.
Ms. DeGette. Mr. Bilbray, I will just say that in the
1970s, that is when I got my driver's license. I was just glad
to have a car.
Mr. Whitfield. We look forward to working with you on that.
We have votes on the House floor, and I understand we have
like seven votes.
And so we are going to dismiss the first panel, and Mr.
Frantz and Dr. Hogan, I want to thank you for taking time to be
with us this morning. We appreciate your testimony, and we look
forward to working with you as we move forward.
Those panelists on the second and third panels, I do
apologize in advance for this delay. We are going to make every
effort to be back here within 1 hour, which will give everyone
an opportunity to maybe go have a wonderful meal at the
cafeteria, and then you can all come back refreshed and we will
meet you back here hopefully at 15 to 1:00.
So the committee is in recess until then. Thank you.
[Recess.]
Mr. Burgess [presiding]. We will go ahead and reconvene.
The other members are likely to be making their way back from
the House floor, but we do have two panels left to go through
on the Subcommittee on Energy and Power, and Subcommittee on
Oversight and Investigations joint subcommittee hearing. And
for our second panel this afternoon, we are very fortunate to
be joined by Dr. David Kreutzer, who is a research fellow in
energy, economics and climate change from the Heritage
Foundation; Miss Diana Furchtgott-Roth--I didn't get your name
right. Furchtgott-Roth, is that close enough--senior fellow
from the Manhattan Institute for Policy Research; and Mr.
Kenneth Berlin, general counsel, and senior vice president for
Policy and Programming, the Coalition for Green Capital.
We will recognize each of you for 5 minutes for an opening
statement, and though we will not interrupt, I do ask that you
pay attention to the little black box in front.
STATEMENTS OF DAVID W. KREUTZER, RESEARCH FELLOW IN ENERGY
ECONOMICS AND CLIMATE CHANGE, THE HERITAGE FOUNDATION; DIANA
FURCHTGOTT-ROTH, SENIOR FELLOW, MANHATTAN INSTITUTE; AND
KENNETH BERLIN, GENERAL COUNSEL AND SENIOR VICE PRESIDENT FOR
POLICY AND PROGRAMMING, COALITION FOR GREEN CAPITAL ACTION FUND
Mr. Burgess. Dr. Kreutzer, you are recognized for 5 minutes
for the purposes of an opening statement.
STATEMENT OF DAVID W. KREUTZER
Mr. Kreutzer. Thank you very much, members of the committee
for giving me this opportunity to discuss loan guaranties. My
name is David Kreutzer. I am a research fellow in energy,
economics, and climate change at the Heritage Foundation.
However, the views I express are my own and should not be
construed as representing any official position of the Heritage
Foundation.
Today I would like to address several aspects of loan
guarantees and investment in energy markets. My first point is
that private capital markets will fund risky projects, projects
that involve large amounts of capital, and projects that take a
long time to repay their investors. These features are not
characteristic of market failure, nor do they justify
subsidies, loan guarantees or mandates. Ten-year-old Christmas
trees and 20-year old whiskey are both funded by private
investment, as is the development of new drugs, which can take
decades and which can cost billions of dollars.
My second point is that the Section 1705 loan program was
founded on a flawed concept; the concept being that the
Department of Energy can systematically discover projects that
are both commercially viable and unable to attract sufficient
private investment. The definition of commercially viable has
to mean that the expected returns exceed the expected costs in
present-value sense, the sense that matters to financial
markets.
The implication is that the Department of Energy can
consistently uncover profitable investments that profit-seeking
investors have missed. Third, loan guarantees can misallocate
capital even when the loans are repaid. The projects that can
use funding in the economy are many times greater than the
resources available to fund them. So the projects must be
sorted and ranked. This is just what financial markets do.
Projects with higher expected rates of return get funded before
those with lower rates of return.
In my written testimony, I describe a project that was sold
by the initial developer hours after receiving a 1705 loan
guarantee. I estimated that the value of the loan guarantee was
about $100 million, and with this valuable guarantee as part of
the package, the project sold for only $75 million. This
implies that without the loan guarantee, the project had a
negative return. That is, the inputs had a higher value than
would the energy that these projects were going to produce.
My fourth point, the 1705 loan program is likely to fund
two sorts of projects; ones that are not commercially viable,
or on the other hand, ones that should have been financed
privately.
Of the 26 projects listed under the Department of Energy's
Web site as having received 1705 loan guarantees three have
gone bankrupt already. They are Solyndra, Beacon Power, and
Abound Solar.
A fourth company, Nevada Geothermal, appears to be
struggling, its stock having dropped 90 percent since the fall
of 2010.
In the category of firms who should have had the resources
and financial sophistication to fund their own projects are the
Caithness Shepherds Flat project, one of whose partners is
General Electric, a company whose market capitalization is $170
billion. Nevertheless, this project received a loan guarantee
for $1.3 billion.
Cogentrix of Alamosa, which received a loan guarantee of
$90.6 million. Cogentrix is a subsidiary of Goldman Sachs. It
seems incredible that Goldman Sachs, one of the world's most
sophisticated and active financial firms, with a market
capitalization of $47 billion, and one that handled $529
billion of mergers and acquisitions in 2011, could have a
commercially viable project for which they could not get
funding.
Exelon, with a market capitalization of $32 billion,
received a loan guarantee of $646 million.
Granite Reliable received a loan guarantee of $168.9
million. Granite is 75 percent owned by Brookfield Asset
Management, which has a market cap of $20.5 million.
Mesquite Solar 1 received a loan guarantee of $337 million,
yet Mesquite is owned by a subsidiary of Sempra Energy, whose
market cap is $16.5 billion.
NextEra Energy Resources received a loan guarantee of $2.3
billion while they have a market cap of $20 billion.
NRG received loan guarantees of $3.8 billion for three
projects. NRG has a market cap of $3.9 billion. However, one of
energy's projects has partners whose parent companies are BP,
Chevron, and Statoil. Those three companies alone have a market
capitalization that is close to a half a trillion dollars.
Nevertheless, they received a loan guarantee.
Prologis, a real estate trust with a market cap of $15.2
billion, received a loan guarantee of $1.4 billion.
In conclusion, private markets fund risky, large, and long-
term projects. Pretending that loan guarantees are necessary
for commercially viable projects leads to either failure or
unwarranted taxpayer funded subsidies. Firms with tens and
hundreds of billions of dollars, don't need Federal loan
guarantees. Thank you.
[The prepared statement of Mr. Kreutzer follows:]
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Mr. Stearns [presiding]. Yes, you are welcome.
Your opening statement.
STATEMENT OF DIANA FURCHTGOTT-ROTH
Ms. Furchtgott-Roth. Thank you very much, Mr. Chairman. I
would like to introduce the interns who are here with me today,
who have----
Mr. Stearns. Super.
Ms. Furchtgott-Roth. Some of them, it is their first trip
to Capitol Hill. I have Christopher Bien, Leah Loversky, Chi
Zhang, Kris Munger, and my son, Theodore Furchtgott. They are
very privileged to be here at the hearing.
Mr. Stearns. Well, welcome, welcome. Nice to have you.
Ms. Furchtgott-Roth. Solyndra's bankruptcy has been
attributed to factors beyond its control, such as the falling
prices for polysilicon products and lower costs of pricing in
China. The documents filed by Solyndra with the Securities and
Exchange Commission in September 2009, after Vice President
Biden visited the premises and ahead of an initial public
offering that failed in June 2010, show that the company was
fully aware of its risks. PricewaterhouseCoopers, Solyndra's
auditors, expressed public concern about the company. Reuters
reported, quote, ``PricewaterhouseCoopers, LLP said Solyndra's
recurring operating losses, negative cash flows, $532 million
stockholder deficit, and other factors raise substantial doubt
about its ability to continue as a going concern.''
Solyndra itself, in its public filing at the SEC in
September 2009, offered 22 pages of reasons why it might fail.
In case anyone missed the point, the report included a table of
financial and operating data for 2006 to 2009, showing six
different measures of gross and net losses; not one positive
outcome.
On May 24, 2010, Valerie Jarrett, Senior Advisor to the
President, forwarded a blog post by Philip Smith in Cleantech
to Ron Klain, chief of staff of Vice President Biden. The
report outlined the doubts of PricewaterhouseCoopers. The post
stated, quote, ``On a pure business analysis, you have to agree
with the auditors. They are not a going concern.''
Valerie Jarrett said to Klain in an email, quote, ``As you
know, a going concern letter is not good. Thoughts.''
Although Jarrett and Klain knew that Solyndra would go
under, 2 days later, on May 26, 2010, the President visited
Solyndra and declared, ``it is here that companies like
Solyndra are leading the way towards a brighter, more
prosperous future.''
By January 2011, it was clear to many that Solyndra was
going to fail. Still, the Department of Energy helped shore
that by allowing it, as we heard in the previous panel, to draw
on another $68 million in government loans. In addition, the
Department signed off on a restructuring agreement that allowed
$385 million in government loans to take a backseat to $75
million in new investor's funds. In the restructuring, the $75
million from investors became senior to all government debt,
except $143 million.
Although objections were raised from OMB and the Department
of Justice, the Energy Department paid no heed. On August 16,
2011, an unnamed official wrote in an email to Mary Miller,
Assistant Secretary for Financial Markets at Treasury, quote,
``The Title XVII statute and the DOE regulations both require
that the guaranteed loan shall not be subordinate to any loan
or other debt obligation. The DOE regulations state that DOE
shall consult with OMB and Treasury before DOE grants any,
quote, deviation from the requirements of the regulations to
the extent such requirement is not specified by the statute.
That would constitute a substantial change to the financial
terms of the loan guarantee agreement. But I will bet a
quarter, that the DOE lawyers have some kind of theory on how
whatever restructuring they have done and whatever they are
considering does not violate these requirements. Can't wait to
hear it,'' end quote.
The question before us is why is the government, under
pressure from voters and credit rating agencies to reduce the
budget deficit, issuing these loan guarantees at all. That is
why this No More Solyndras bill is so valuable. One answer we
hear repeatedly is fear of China, the new red scare. Now
America is throwing billions of dollars at renewable energy,
electric cars, concerned that China is getting ahead of us and
stealing our jobs. But China is not using solar energy for its
electricity production. As of 2008, 70 percent of China's
energy came from coal. Wind and solar provide less than 2
percent of power for China's electricity. If we are afraid of
China's growth, domestic industrial policy is not the answer.
Rather, we should improve economic growth through more
efficient tax and regulatory policies and increased use of our
own domestic resources such as coal and natural gas. Thank you
for giving me the opportunity to testify.
[The prepared statement of Ms. Furchtgott-Roth follows:]
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Mr. Stearns. Thank you.
Mr. Berlin, welcome.
STATEMENT OF KENNETH BERLIN
Mr. Berlin. Good afternoon, Mr. Chairman, Ranking Member
DeGette and members of the subcommittee.
My name is Ken Berlin. I am senior vice president and
general counsel for the Coalition for Green Capital. The
coalition has been working on a State and national level to
establish what are now commonly called green banks. And they
are basically funds that provide low interest loans to clean
energy and energy efficiency projects. In particular, we have
been working in a part of the market that has really not been
discussed yet today. We are working to provide low interest
loans to very low-risk energy generation projects, such as wind
and solar generation projects.
As such, we are not seeking to provide this financing
because commercial banks find the project is commercially too
risky. Instead, what we are trying to do is provide funding
because the clean energy projects we are dealing with need to
lower their costs so that they can deliver electricity, first,
at a price that doesn't raise cost to consumers and, second,
still allow an adequate rate of return for investors who want
to invest in the project. Because we have a rate at which you
can buy electricity and because the investors have to get a
rate of return, the only way to put all of this together and
get an adequate rate of return is lower the cost and that is
what we are trying to do in these projects.
I am pleased to report that in looking at green banks in
this way, we are getting very, very strong bipartisan support.
We passed the Nation's first green bank in Connecticut in 2011.
It passed the Connecticut Senate 36 to nothing and the
Connecticut House 139 to 8. The Waxman-Markey Climate Change
bill and the amendment approved strongly by this committee
included $7.5 billion in seed capital for a national green bank
that passed on a bipartisan basis. And we are working now in
probably a dozen States working very closely with both
Democratic and Republican legislators to establish these banks.
Now, why are we getting this kind of support even though we
are providing low interest loans to banks? And I think there
are a couple of reasons. I lay out six in my written
submission, but I just want to summarize a couple of them
first.
Energy industries have been, as we all know, core
industries in this country for many, many years. And all of
those energy industries have received government support where
needed. The clean energy industry is a potential, one of the
potential great industries of the 21st Century. It is going to
be a gigantic industry in the United States and around the
world, and we think it deserves and needs support at this point
in time.
Second, by providing this support, we are low-cost
financing. We are benefiting everyone in the market. It helps
consumers by lowering the kilowatt hour price of electricity.
It helps private owners by giving them access to capital. It
creates jobs and economic value by moving these projects from
the board to the construction phase. It also helps, and we
think this is very important, the private-sector spending and
private-sector investment in research and development and R&D,
since greater demand for current technology sparks a virtuous
cycle that would lead to next year's and next decade's
breakthroughs. Most new breakthroughs in the energy area aren't
great discoveries where all of a sudden you have got a new
energy technology that is cheaper than anything out there. They
slowly develop over time.
And it is our view that if you want to create innovation in
this industry, you have to work with these technologies to
bring--as they come down the cost curve. So what we are trying
to do is lower the cost of these projects so that, in fact,
they can come down. And in fact, all of these technologies are
coming down the cost curve at a very, very rapid rate and will
eventually be fully price competitive on their own.
Meanwhile, we are getting technology, innovation as we go
forward. We are also, in doing this, really trying to meet a
demand from the States. Approximately 30 States now have
renewable portfolio standards. There is very strong demand to
build clean energy for many, many reasons, including
sustainability, clean energy, and other reasons. What we are
doing by providing low-cost loans is making sure that States
can implement these renewable portfolio standards without
raising the cost of electricity to their consumers.
Loans may not be enough on their own, but at times they
are, but they certainly make it much easier to reach those
kinds of results.
The key mantra in what we are doing in all of this is that
we cannot--we have to be repaid on these loans. We are working
in an area where there is very low risk. There is tremendous
experience in how these projects work. You can do potentially
much more risky loans, but to do that, you need something very
different. You need a different economic model for the loans.
You need a model that takes into account some projects will
fail. You need a portfolio approach. We think those kind of
loans should be separated out from low-risk loans, and they
should be put in separate windows if we do a green bank, and we
think we need consensus in Congress.
Congress has to be willing to work on manufacturing
projects and get the benefit from encouraging manufacturing in
the U.S. What we would like to see avoided is a situation that
we have now, where the United States has developed most of the
major solar technology in the world. As of today, we don't have
a single one of the largest 10 solar manufacturing companies in
the world in the United States. There are actually ones here,
but it produces outside the country. We want to see those
technologies come back. We want to see manufacturing develop
to. But the green bank is primarily is working on low-risk
technologies. Thank you very much.
[The prepared statement of Mr. Berlin follows:]
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Mr. Stearns. I thank you.
And I will start my questions.
Miss Furchtgott-Roth, the President of the United States,
in a press conference criticized me. He said, the chairman of
the Oversight and Investigation committee thinks we can't
compete with China in a green energy policy. I think he is
wrong, and I think the United States can compete.
Isn't it true that China is not using solar energy for its
electricity production?
Ms. Furchtgott-Roth. That is true. Less than 2 percent of
Chinese electricity production is from wind and solar and other
renewables; 70 percent is from coal.
Mr. Stearns. Isn't it true also that China is importing
coal from the United States to meet their electricity needs?
Ms. Furchtgott-Roth. That is correct and they want to
import the oil from Canada that we cannot have down here
because the Keystone Pipeline has not been approved.
Mr. Stearns. China is subsidizing their solar industry
pretty significantly. I understand it is $30 billion, is that
correct?
Ms. Furchtgott-Roth. Yes.
Mr. Stearns. Is China producing solar panels and wind
turbines for their own use or to export to America?
Ms. Furchtgott-Roth. They are using some for their own use,
but most of the vast majority is for export to America.
Mr. Stearns. So what they are doing is subsidizing an
industry to make it cheap so they can export to America?
Ms. Furchtgott-Roth. That is right. So we can produce more
expensive energy; whereas they have the inexpensive energy that
powers their economy.
Mr. Stearns. So if the President is criticizing me for
saying we can't compete with China, seems like a non sequitur
because China is really just subsidizing so they can compete
with us and sell it to us cheaper than we can manufacture it.
Is that a fair estimate?
Ms. Furchtgott-Roth. That is correct, yes.
Mr. Stearns. Then why should the United States try to
compete with China when they are not really trying to do it
themselves, and they are relying on coal, which we have an
abundance of? So what would you say to the President after he
said that he thinks we can compete with China?
Ms. Furchtgott-Roth. We can compete with China in many,
many ways. We do not want to implement wind and power and solar
energy. The Chinese are not the doing that. The best way for us
to compete with China is to use our own coal, use our domestic
resources. We have far more innovation than China does. We have
far more creativity, and these are the ways in which we compete
with China; not by putting in place expensive forms of energy
that drive up energy costs for American households.
Mr. Stearns. OK, let me ask you a little tougher question,
which will come from this side. How do you respond to
proponents of Federal loan guarantees who contend that unless
the United States Government subsidizes clean energy projects,
the U.S. will lose the clean energy race to China or Spain?
Ms. Furchtgott-Roth. Clean energy projects haven't been
successful in Spain. They are not competitive energy-wise here.
In a couple of weeks households, around the area are going
to get that electricity bills from the heat wave. They are
going to have very high electricity bills from keeping on the
air-conditioning, those who did not lose their power. If we had
wind and solar powering our electricity, their bills would be
two or three times as high.
Mr. Stearns. But you hear Mr. Berlin saying that we are
into a gigantic industry of this green energy.
Let me ask Mr. Kreutzer. How would you respond to the
proponents of Federal loan guarantees who contend that loan
guarantees do not cost the government much since the loans are
supposed to be repaid?
Mr. Kreutzer. Well, unfortunately, we have seen that they
don't always get repaid. The Solyndra loan is costing us, it
looks like over $500 million. The indication is that they are
not going to get much out of the bankruptcy. Abound Solar, not
going to get much out of it. So we see a pattern of the loans
not being repaid, but I think even more fundamentally, we see
loans going to people that don't need loan subsidies. We are
giving loan guarantees to companies worth tens and hundreds of
billions of dollars.
Mr. Stearns. I think that was in your opening statement.
You talked about the Federal Government providing loan
guarantees to companies worth $10 billion, $20 billion, $200
billion to finance projects.
Mr. Kreutzer. Right.
Mr. Stearns. So why should the United States Government go
to the free market that have market caps that are $200 billion?
Why is the President talking about doing this under this
Section 1705 program?
Mr. Kreutzer. I don't understand why myself, and I saw Mr.
Frantz at a presentation saying that two of the criteria that
these loans had to meet was they had to be commercially viable
and they had to demonstrate they couldn't get private
financing. Well, those are mutually exclusive. You can't have a
project that is both of those, so you are going to be funding
one or the other. You are going to be funding projects that
aren't commercially viable, which you don't want to fund, or
you are going to be funding projects who can get private
financing if they were viable. In either case, we shouldn't be
funding them.
Mr. Stearns. What we have is a discussion draft here with
the No More Solyndras Bill. And we are trying, Mr. Upton and I
are trying to come up with the help of all of the members here.
Do you think in this package, we should put some criteria that
if any loan guarantees go out that subject to the market cap,
or if a company is worth $200 billion, it shouldn't get--I
mean, is that a criteria we should use? Do you feel strongly
about that?
Mr. Kreutzer. I feel more strongly of just not having them
go out. I don't think it is an appropriate area for government
activity to guarantee loans for commercially viable projects.
This is not a loan program similar to basic research, which is
a completely different question, but trying to come up with a
loan program for commercially viable projects is one that the
government shouldn't be involved in in the first place.
Mr. Stearns. Such as picking winners and losers, so to
speak.
Mr. Kreutzer. Picking winners and losers, yes.
Mr. Stearns. I will just conclude by----
Mr. Waxman. Regular order, Mr. Chairman?
Mr. Stearns. Yes, I am in the chair, Mr. Waxman.
My only point then is if the government goes out and gives
this money to small companies, you are recommending that they
give the money to research and development that would impact
the innovation in this country, rather than giving it to
companies that have limited market cap or viability. Isn't that
what you are saying?
Mr. Kreutzer. The closer the research gets to the basic
fundamental research, the better the argument is for government
involvement.
Mr. Stearns. Yes.
Mr. Kreutzer. The closer you get to the market
implementation, the worse argument there is for government
involvement.
Mr. Stearns. All right, my time is expired.
And Mr. Waxman.
Mr. Waxman. Thank you, Mr. Chairman.
I want to ask some questions about this proposal that is
before us because we have a very specific bill.
Mr. Berlin, the Republican loan guarantee bill would change
the program. The loan guarantee program itself was created to
support innovative research, innovative energy technologies,
and that is why Congress established the program on a
bipartisan basis in 2005.
Under this bill, the program can continue to issue tens of
billions of dollars in loan guarantees in the years to come,
but this bill prohibits DOE from considering any applications
for loan guarantees submitted after December 31, 2011.
So the Republican bill creates a winner's list of a few
dozen projects that are eligible for future loan guarantees.
Those are the only applications DOE can ever look at. Any
project not on the list can't get a loan guarantee, period. It
doesn't matter how groundbreaking the technology is, if it
isn't on the winner's list, it can't receive support.
Does this approach make sense? Should Congress prevent DOE
from considering new applications for breakthrough
technologies?
Mr. Berlin. I think it is very important for us to think
through how we want to encourage innovation in the United
States and how we want to get innovative new technologies built
and developed. And I think that there are situations where
there is a need for government funding to help get these kinds
of projects off the ground.
Mr. Waxman. You wouldn't limit it to just those
applications that are there now?
Mr. Berlin. I am sorry, I apologize?
Mr. Waxman. You wouldn't limit the loan guarantees only to
those applications that are sitting at DOE right now?
Mr. Berlin. No, that is the reasons people have said, if
you accept that there is a need to support innovation, it
doesn't make much sense in my view to cut it off now when you
might have a new innovative project that comes up tomorrow that
is better than a project that you have in the pipeline now.
Mr. Waxman. This throws innovation out the window, and it
replaces it with a static list of winners who happen to submit
applications by the end of 2011.
Dr. Kreutzer, you wouldn't want this bill to continue
funding projects that are at DOE now? You don't think we ought
to have a loan guarantee at all, isn't that right?
Mr. Kreutzer. Yes, if we are talking about going forward, I
am not sure we want to go back and undo things and agreements
we have already made.
Mr. Waxman. No, this is not an agreement. Excuse me. This
is not agreements that we have made.
Mr. Kreutzer. Right.
Mr. Waxman. These are applications for loan guarantees. And
so the bill allows more loan guarantees, but only for those
that are pending at DOE. Do you think that that makes sense?
Mr. Kreutzer. I think you have to have a cut-off point at
some point. So if you want to go back and cut it off, the ones
that have already received the loans, you know, that would be
one case. I don't know that that is less picking winners and
losers than having a cut-off at December 31st. That is a
separate question. I am generally arguing that loan guarantees
are a bad idea from the government; that innovation will take
place in private markets.
Mr. Waxman. If we agree with you then, we should just end
the program, isn't that right?
Mr. Kreutzer. Yes.
Mr. Waxman. OK, Mr. Berlin, the premise of the Republicans'
bill is that the loan guarantee program has been a big failure.
What do you think? Has the overall portfolio of projects been a
failure?
Mr. Berlin. Well, one of the studies I have read estimates
that about 87 percent of the projects that have been funded by
this really fit in the low-risk category. The energy generation
projects we should see major developments, for example, in
large-scale solar projects as a result of the legislation. So I
certainly would not call it a failure.
Mr. Waxman. Some argue that the government has no role to
play in supporting next-generation clean energy technologies
because these technologies are inherently risky, or they could
get their own capital, and they don't need government
intervention. Some of the same people say we should continue
using taxpayers funds to provide subsidies to well-established
oil and gas companies that have received government support for
decades.
Mr. Berlin, how can the government best create a level
playing field where new clean energy technologies can succeed?
Mr. Berlin. Well, again, I think new energy technologies do
need subsidies for the reasons that I said earlier, which is
they come in when they are first developed, they come in at a
more expensive level almost every time than existing
technologies. We know they are going to move down a cost curve.
That is what happened with existing technologies. And we have
to bring them down the cost curve so they become competitive.
And at the end, there will, in fact, be a very, very large
worldwide market for these technologies.
I don't agree, for example, that China is not putting solar
in place in China. They are putting considerable solar in
place. I don't agree that they are shipping solar to us at a
much cheaper price than we could sell in the United States; it
has raised the cost of energy more than if they had not shipped
to the United States. So I do think we have to be involved in
this, in this effort.
Mr. Waxman. I would like to ask Ms. Furchtgott-Roth, do you
think we ought to continue subsidizing oil and natural gas
through the tax breaks that we give them?
Ms. Furchtgott-Roth. I don't think oil and gas should have
special tax breaks. I think they should have the same tax
breaks as other domestic manufacturing or other industries such
as the pharmaceutical industry.
Mr. Waxman. You just think we ought to have a level playing
field and let everybody compete; is that right?
Ms. Furchtgott-Roth. Exactly, yes, yes. And just as the
domestic manufacturing has a 9 percent deduction, I think oil
and gas should also, being a domestic manufacturer, have a 9
percent deduction. Instead, it has a 6 percent deduction, and
President Obama wants to get rid of that. That puts it on an
unlevel playing field with the rest of domestic manufacturing,
which would be unfair to the oil industry.
Mr. Waxman. And, Dr. Kreutzer, do you agree with that?
Mr. Kreutzer. I absolutely agree with that, that the
section 199 tax deduction, where you get the big numbers that
are called the oil and gas subsidy, the domestic solar panel
manufacturers, windmill manufacturers, newspaper companies,
they all get this 199 deduction. And as Ms. Furchtgott-Roth
pointed out, they get a bigger one. So I think it is
disingenuous to call that an oil and gas subsidy.
Mr. Waxman. OK. Thank you.
Thank you, Mr. Chairman.
Mr. Stearns. And Mr. Whitfield is recognized for 5 minutes.
Mr. Whitfield. Thank you very much.
I want to thank the panel for being with us this afternoon.
And I want to ask you, Dr. Kreutzer and Ms. Furchtgott-
Roth, realizing that this legislation, the No More Solyndras
Act, may not be perfect, but would both of you agree that at
least it is a step in the right direction?
Dr. Kreutzer?
Mr. Kreutzer. Yes, at Heritage, we are not allowed to
support or oppose specific legislation, but I think the policy
of cutting off loans is a good one. The fact that you may not
cut them off at the exact same point that I would choose
doesn't mean it is not a good idea.
Mr. Whitfield. Ms. Furchtgott-Roth?
Ms. Furchtgott-Roth. Yes, I think it is a great bill. And
companies play along with the rules that they are given. Up to
now, we have had the rule that we have had loan guarantees
available. Companies have gone to a great deal of trouble of
putting together applications. It seems sensible to allow those
who have made that investment to still be on the list. It is
not a matter of picking winners and losers; it is a matter of
the time invested by those companies. Then, after December
31st, the program is cut off.
Mr. Whitfield. Mr. Berlin, in responding to Mr. Waxman's
question, talked about that he thought maybe 87 percent of
these projects out of the 1705 loan guarantee program had been
successful, and that was because a lot of them were low-risk.
That is one of the reasons that I am quite concerned about this
program, because most of those very significant loans were made
to well-capitalized companies, most of them on the New York
Stock Exchange, like Google, General Electric, subsidiaries of
Berkshire Hathaway, Goldman Sachs.
And at a time when we have a $16 trillion Federal debt and
this President, particularly, talks about protecting the middle
class, why would we be making loan guarantees to companies that
strong financially?
Dr. Kreutzer?
Mr. Kreutzer. I would agree, Mr. Chairman. And it gets back
to the false premise on which the loan guarantee was based,
that there are market-viable projects that can't get private
financing. They simply don't exist on a regular basis. If it is
a low-risk project and you have a well-capitalized firm and it
is market-viable, they shouldn't need a guarantee. There should
be private financing for it.
Mr. Whitfield. Mrs. Roth?
Ms. Furchtgott-Roth. Yes, I would certainly agree with
that. At the time the program was put in place, in 2005, we had
no idea that we would have a 200-year supply of natural gas at
about $2 per million BTUs. We were concerned about energy
security. With our domestic resources now, with the great
American energy revolution that has occurred the past 3 years,
we have immense supplies of inexpensive domestic energy. We
don't need this program anymore.
Mr. Whitfield. Yes.
Well, you know, people who support 1705 say, well, it was a
bipartisan bill in Congress, and that was a number of years
ago. It was approved. But I can tell you what, if we were
voting on that today, because of today's current financial
situation in America, I do not believe the results would be the
same.
Now, when we have debate here in this committee about
regulations coming out of various Federal agencies and the
purpose of the stimulus funds, we hear about creating new green
jobs. That is what everyone talks about. And I have heard
comments that, oh, 3 million new green jobs have been created.
And when I read some of the definitions of new green jobs, like
antique shop workers because they are recycling, septic tank
workers, janitors, bus drivers, teachers in environmental
studies, that is totally misleading the American people.
So let me ask you all, do you think that these stimulus
packages and these loan guarantees have been successful in
creating significantly new green jobs for America?
Mr. Kreutzer. I would say no. And I would say they don't--
they certainly don't create jobs in aggregate, because, you
know, if you subsidize one group, you have to take the money
from someplace else.
But when you start looking at that green jobs count, it
wasn't just the categories of green jobs but it was the volume.
Over 50 percent of the jobs in steel mills were counted as
green.
Mr. Whitfield. Right.
Mr. Kreutzer. There were 33 times as many green jobs in
septic tank and portable toilet cleaning as in solar utilities.
So the 3.1 million, nobody should even say that number with a
straight face any longer.
Mr. Whitfield. Well--oh, go ahead.
Ms. Furchtgott-Roth. I would agree with that. A large part
of the 3.1 million green jobs is relabeling. People who produce
this cup that has the message, ``We have the power to save
energy,'' that counts as a green job because it has an
environmental and educational message on it. If the cup, on the
other hand, just had ``Architect of the Capitol'' on both
sides, its producers would not have green jobs. And this number
is a fraudulent number. It is imprecise. It shouldn't be used.
Mr. Whitfield. And the American people are blatantly being
misled.
Thank you.
Mr. Stearns. Mr. Sarbanes from Maryland.
Mr. Sarbanes. Thank you, Mr. Chairman.
If the panel would bear with me for one moment, I wanted to
return to some earlier testimony. Mr. Scalise earlier
repeatedly claimed that the Department of Energy had received a
legal opinion from outside council that determined that
subordination was illegal.
And I would like to make this part of the record.
Mr. Scalise's claims are incorrect. The committee received
a rough draft of a contractual and legal analysis produced by
DOE's outside counsel. This document noted the language in
section 1702 prohibiting subordination during the origination
of the loan, but it did not speak to the DOE legal analysis,
which concluded that subordination of the loan during
restructuring was allowed under the law. The document is not a
legal opinion, and it does not declare subordination to be
illegal in a restructuring scenario.
The committee staff interviewed the loan program's chief
council for nearly 6 hours. In those interviews, she indicated
that outside counsel, as well as the general counsel of the
Department of Energy, reviewed and concurred with the legal
opinion that subordination during restructuring was allowed
under the law.
Furthermore, Mr. Chairman, the minority reached out to a
former general counsel of the Department of Energy now in
private practice. She conducted an independent analysis of the
subordination question and found DOE's opinion to be proper and
correct.
All of these documents have previously been made public. In
order to set the record straight, I would ask unanimous consent
to introduce the outside counsel's rough draft analysis
document, two subsequent emails from DOE's outside counsel,
DOE's formal legal opinion, and the opinion of the former DOE
general counsel into the record of this hearing.
Mr. Stearns. It is already--my staff has said it is already
part of the record.
Mr. Sarbanes. Well, in the event----
Mr. Stearns. Secretary Chu, we had him up; we put that in
part of the record.
Mr. Sarbanes. Mr. Chairman----
Mr. Stearns. Unanimous consent, let's put it in again.
Mr. Sarbanes. Great. Thank you.
Now, moving to the panel with my remaining time. Dr.
Kreutzer talked about two categories of projects, and he
suggested that there are only two categories of projects in the
world. One are those that do not require government support
through a loan guarantee program or otherwise, because they
have the sort of backing out there that would allow them to
move forward. In the absence of that, in the other category of
projects are ones that are not commercially viable. And he
implies that those projects can only be ones that are never
going to be commercially viable.
But I think you ought to--we need to parse that further,
divide it into two subcategories: those projects that may never
be commercially viable--and, obviously, you would want the
Department to scrutinize it to try to ascertain that on the
front end, if possible, because sometimes you never know. But I
think there is another category of projects which are not yet
commercially viable. In other words, for purposes of the launch
of that technology, you would say, well, if they were launching
by themselves with no kind of guarantee or other supports,
there is no way they could make it in the market, but the fact
that they are not yet commercially viable does not mean that
they will never be commercially viable.
And I would like you, Mr. Berlin, to speak to that,
because, you know, you move in a space were analysis of what
can be viable if you get it launched is done all the time. My
understanding is you participate maybe after the launch stage
in bringing things that are already kind of out in the market,
bringing that cost curve down over time to accelerate the
competitive position that they can hold relative to the rest of
the market. But, certainly, you must have a view that there has
to be a category of projects, while maybe not yet commercially
viable, certainly could be one day. And that is the role that
can be played by these very valuable and very important loan
guarantee programs.
Mr. Berlin. Yes, I mean, I 100 percent agree with that. We
are actually not setting these up, so we are not doing this
directly ourselves. But I think if you look at wind and solar
technologies right now, they are more expensive--the delivery
cost of electricity from wind and solar projects without
subsidies is higher than delivery cost of electricity from
existing generation. There is virtually no doubt in my mind
that over time these projects will become fully competitive.
And what we really mean in the real world when we talk
about ``commercially viable'' now is this: Let's say we have a
project out there, and a company looks at it and says, if I
build this project using commercial loans, I will get a 9
percent rate of return. I am not going to do a project unless I
get a 10 percent rate of return, because that is the minimum
that I will do a project. That is the reason you help the
companies sometimes in this, because otherwise they just won't
do the project. So we come in as a bank and we say, we want to
put a tranche of that loan, a percentage of that loan, at a low
interest rate so we can bring the cost down so that both the
project sponsor will build the project and the consumers will
get energy at a price that is competitive with their current
price.
So it is both. One is, the division may be very small
before things are commercially viable. But even when it is
larger, like in some of, you know, in some of the technologies,
those costs are coming down. If you look at the curves on all
those, they are all coming down.
And if you look at the history of the energy industry in
the United States, we have subsidized every technology. We have
the same problem with nuclear now, we have the same problem
with carbon capture and sequestration as they do with clean
energy. If we want to develop those projects, we will
ultimately have to--I am not making a choice whether we want
to, but if we want to develop those, we have to figure out a
way to bring those things down the cost curve. Hopefully, they
will get there. We don't know for sure with those. We do know
they will get there with wind and solar.
Mr. Stearns. Thank you. The gentleman's time has expired.
And the gentleman from Texas, Mr. Olson, is recognized for
5 minutes.
Mr. Olson. I thank the chairman.
And good afternoon. Thank the panelists for coming back. I
appreciate your patience and, most important, your expertise.
And I represent Texas 22, which is a suburban district, the
home of the Johnson Space Center, human space flight. And so,
using an analogy from back home, the people I represent are
outraged, they are angry that $500 million of their taxpayer
money was so callously wasted on loan guarantees that the
administration and the people of Texas 22 knew were as risky as
betting our future space exploration on three magic beans. It
is my job to get them answers of how this money could be so
callously spent, and I appreciate your insights to help me
respond to them.
So my first question is for you, Mrs. Furchtgott-Roth. I
was intrigued by your testimony. Your testimony mentioned the
perils of, quote/unquote, ``industrial policy.'' Could you
elaborate on what you mean by ``industrial policy'' and why
policymakers should be very wary about going down this road?
Ms. Furchtgott-Roth. Yes. Industrial policy is picking out
winners and losers. For example, there are many projects in the
United States that are not commercially viable right now that
might be in the future. We have venture capitalists, we have
private equity firms. It is up to them to choose which of these
ventures to invest in, not the Federal Government. The Federal
Government has a role in basic research but not in investing in
enterprises that might some day be profitable.
Amazon.com, for example, when it started out, was not
commercially viable. It became commercially viable over time.
It is a blockbuster now because of private funding. This little
BlackBerry 201, it probably wasn't very commercially viable
when it was first started out. Now, many people have them. It
might go down because RIM is having trouble. It doesn't mean
the Federal Government or the Canadian Government should be
propping up RIM.
Mr. Olson. Do you believe the Obama administration has
learned a lessen from the bankruptcies of Solyndra, Abound
Solar, and Beacon Power? Or do you believe they will simply
double down going forward here?
Ms. Furchtgott-Roth. Well, I don't think that they were
investing in these for cost-benefit reasons. They were
investing in it for political reasons because some of their
supporters, perhaps their campaign contributors, such as George
Kaiser with Solyndra, had an interest in these projects. So I
do not think they have learned their lesson.
There are always pressures for the government to invest in
worthless projects, and it is up to all of you to take a stand
against it.
Mr. Olson. And so you are saying some political operations
or some political pressure was being forced upon the
administration; that is why they have made these decisions that
weren't economically viable in a free-market economy, correct?
Ms. Furchtgott-Roth. I believe that that is one reason,
yes.
Mr. Olson. Any idea why--Bush rejected the Solyndra
proposal in January of 2009, and yet the Obama administration
revived it by March of 2009. Any idea why they revisited
Solyndra as being economically viable at that time, why they
thought it could make money?
Ms. Furchtgott-Roth. George Kaiser was a big investor in
Solyndra. He made many visits to the White House, which are
documented in White House records. And that is perhaps one
reason. You can read the entire email trail where there was
pressure to have Vice President Biden appear at a Solyndra
event in September, and that was why there was a rush. Many OMB
career officials were on record of saying this was too rushed
and they did not approve of the project. DOE apparently
overruled them.
Mr. Olson. Yes, ma'am. There was evidence that they, when
Solyndra announced that they were going to close down some of
the manufacturing facilities, that they delayed the closure
until November 3rd of 2010, the day after the election.
A question for you, Dr. Kreutzer. I just want to ask, who
is better suited to discover commercially viable investment
projects, private investors or the Department of Energy?
Mr. Kreutzer. I would say private investors. They are
subject to a discipline that the Department of Energy is not.
That is, they get a great reward when they hit a home run, and
they suffer a penalty when they strike out. And so they have a
huge incentive to make sure they are sorting out as best as
they can the home runs from the strikeouts, and the Department
of Energy does not have that same discipline on them.
Mr. Olson. How do you respond to proponents of Federal loan
guarantees who contend that, similar to venture capitalists,
some loss of taxpayer money should be expected in financing
risky adventures?
Mr. Kreutzer. Well, it is funny, venture capitalists have
equity positions so that when they get the home runs, they get
a whole lot of money. And maybe that is how they cover the cost
of the losses. We are lending essentially at Treasury bond
rates, almost, to high-risk ventures. That simply doesn't make
sense whether you are--certainly not if you are a venture
capitalist. It doesn't make sense if you are a taxpayer either.
Mr. Olson. Thank you. I am running out of time, but thank
you for your answers. I appreciate you giving your patience
with us going through the votes.
I yield back.
Mr. Stearns. I recognize the gentleman from Texas, Mr.
Green, for 5 minutes.
Mr. Green. Thank you, Mr. Chairman.
And, Mr. Chairman, I know in our subcommittee typically we
swear witnesses. And I would like to ask Ms. Furchtgott-Roth,
you made some statements about--and you, Dr. Kreutzer, also--
about how this decision was made. Are you all privy, either of
you all privy to information on how this decision was made?
Mr. Kreutzer. I don't believe I have made any comments on
how the decision was made. I have talked in general about
markets versus government, but I have no opinion on the
motivation behind this.
Mr. Green. OK. Because our investigators did a lot of
investigating, and your testimony is directly conflicting what
our investigators said.
So, Ms. Furchtgott-Roth, do you have any individual
information that maybe would help us on this? You made some
statements about the decision was made, somebody made a visit
to the White House, and that a great many of the Department of
Energy staff opposed this. Is that true? Did you hear that from
somebody?
Ms. Furchtgott-Roth. I made the statement that the Office
of Management and Budget staff opposed approving Solyndra. That
is in the emails collected by your committee and that have been
released to the public.
I also made the statement that George Kaiser was a major
contributor to President Obama's campaign. That is a matter of
public record, that he made numerous visits, and I have the
number, to the White House before the loan was approved. That
is also a matter of public record.
Mr. Green. Well, some of the judgments you are making are
based on that information----
Ms. Furchtgott-Roth. Correct.
Mr. Green [continuing]. And--but I have to admit, I was
disappointed, as my colleagues are, about the Solyndra problem.
But I also know that this law we have was passed by this
committee in 2005. And, frankly, the Members that are here
today, except for my colleagues that are new, Congressman
Olson, actually supported this law in 2005 that put these loan
guarantees in place. And I supported it also, because I am a
big one for nuclear power in our country, and that was part of
it. Of course, I also come from Texas, where we have had a huge
expansion of wind power that has been not only based on State
assistance but also Federal assistance, because we made a
decision that that is another way we can be the energy capital
of the world. And whatever it is called, whether it is oil and
gas, energy, nuclear, I would love it to be in Texas.
But let me just say that in 11 interviews with career
staff, about 50 hours, there was no evidence that our staff
could come up with that there was any Kaiser influence on the
approval at the Department of Energy.
And you acknowledge that. You are shaking your head
``yes,'' so I assume that you acknowledge that that----
Ms. Furchtgott-Roth. Oh, it is probably just a coincidence
that Mr. Kaiser made so many visits to the White House and that
he was a major investor. It is probably just a matter of
coincidence. I acknowledge that.
Mr. Green. Yes. I have been around here a long time, and a
lot of people visit the White House for lots of things. And,
you know, I am sure there would be more information if we could
do that.
Let me get back to some of the concerns I have, though,
about--and I know that was heard earlier--China's investing.
And somebody invested in a lot of companies in China. The top
10 solar panel producers are from China; is that correct?
Ms. Furchtgott-Roth. I don't have the precise number in
front of me.
Mr. Green. And China is not a free-enterprise country. So I
assume the Government of China or the People's Army invested in
that. So wouldn't that be a significant amount of government
support in China for solar panels?
Ms. Furchtgott-Roth. Oh, yes. It does have a significant
amount of government support. But it doesn't mean that we need
to support it here.
Mr. Green. Well, let me give you an example, though, that
one of the reasons--and would either of you or all three of
you--part of the problem Solyndra had was that they were
producing panels that could not compete with Chinese solar
panels.
Mr. Kreutzer. Solyndra couldn't----
Mr. Green. Dr. Kreutzer?
Mr. Kreutzer [continuing]. Compete with solar panels made
in the U.S. They were the high-cost producer even in the U.S.
So, with or without China, they did not have great prospects,
all right? They had a new technology, and its competitiveness
depended on the polysilicone prices staying very high and
getting higher. Really, they could have gone out of business
anyway. But in any event----
Mr. Green. Well, but, again, the top 10 solar producers in
the world are in China, and they have access to our market.
Mr. Kreutzer. I don't think we should take China as the
economic model to follow.
Mr. Green. Oh, I agree.
Mr. Kreutzer. OK.
Mr. Green. In fact, I believe in our free-enterprise
system; if somebody loses money, they lose it. But in China, if
you had lost $500 million, I don't think we would see you ever
again, because that is the punishment.
Mr. Kreutzer. Perhaps. I don't--I don't have--I am not an
expert on Chinese law.
Mr. Green. I know people talk about in Texas we have the
death penalty. We do have appeals processes. Sometimes China
imposes a penalty before you could ever have an appeal.
Mr. Kreutzer. That is probably true.
Mr. Green. Mr. Berlin, I thank you for coming here today. I
come from Houston and east Harris County. We have an energy
economy. I have 5 refineries and 20-plus chemical plants, and
what I don't have my colleague Congressman Olson has. We are
primarily oil and gas, but our port and our chemical
manufacturers stand to benefit also from alternative energy
sources.
I remember a few years ago there was a hesitation on doing
cogeneration, 25, 30 years ago. And now most of my plants use
cogen in their area, which--we were working in an energy bill
to get them credit for the savings they would get from using
cogeneration.
So I am seeing a change in the industry that is all of the
above. And even though I--oil and gas doesn't get loan
guarantees, but--and I agree with your opinion on the tax
issues, because I have said that, the same thing. All we want
is the same domestic manufacturing tax rate that everybody else
pays in the oil and gas industry.
But the Republican bill on the loan guarantee effectively
ends the program. Is the loan guarantee program good policy?
I apologize, Mr. Chairman. I have run out of time.
Mr. Stearns. The gentleman's time has expired.
And I recognize Dr. Burgess for 5 minutes.
Mr. Burgess. I thank the chairman for the recognition.
Mr. Berlin, I thought my Miracle-Ear had messed up. Did you
say that there was bipartisan support for an amendment to the
Waxman-Markey bill? Did I hear you say that correctly?
Mr. Berlin. The amendment that included $7-1/2 billion for
the green bank I think passed through this committee as part of
a--there were other provisions included. I think it passed
through 44 to 8 or something like that in the committee. In the
committee, not on the floor.
Mr. Burgess. Not on the floor----
Mr. Berlin. Right.
Mr. Burgess [continuing]. Because the bill came up under a
closed rule----
Mr. Berlin. Right.
Mr. Burgess [continuing]. And we were not allowed----
Mr. Berlin. I am sorry, not on the floor.
Mr. Burgess. There were big objections. We were not allowed
to amend Waxman-Markey as it came through on the floor of the
House.
Mr. Berlin. In the committee.
Mr. Burgess. OK.
Ms. Furchtgott-Roth, I mean, as you know, I drew attention
to some of the memos, as well, when we were questioning the
other witnesses. And I would just, for the point of emphasis,
you have an evidence binder at the table there. Under tab 7 is
I believe the email which you referenced, which is an email on
August 31st of 2009. The names are redacted, but my
understanding is it is from an energy branch chief at the
Office of Management and Budget to his immediate superior
issued 4 days prior to the closing of the loan on Solyndra.
And in the email, it says, ``I would prefer that the
announcement be postponed. The credit crew is out on leave this
week. This is the first loan guarantee. We should all have a
full review and all hands on deck to make sure we get it right.
Furthermore, the announcement this week would require us to
have a waiver to the requirement in the rule that 30 days
elapse from when the final credit rating is submitted, setting
a bad precedent.''
So it sounds like the system was blinking red. It sounds
like the traffic cop held his hand up and said, ``Stop. Don't
do this.''
What we don't know and what this committee has endeavored
to find out is where the pressure was coming from to make that
decision so important that we couldn't even follow the simple
rules that were outlined for this procedure. Is that one of the
points that you were trying to make in your testimony?
Ms. Furchtgott-Roth. That is correct, yes.
Mr. Burgess. And it has been so hard to get the
information. Committee staff has made inquiries starting back
to when the Republicans gained the majority in the House and
gained the majority on the committee, beginning with those
document requests back in February. By July, we had members of
the Office of Management and Budget, members of the Department
of Energy who were no-shows to our committee when we were
trying to get answers to some of these questions. The very
first emails were kind of dribbling out and we were getting
these impressions.
But it was because, the day we were to have that hearing,
this witness table had no witnesses that I was forced to offer
a resolution leading to the subpoenas that then allowed us to
get the information that you were quoting.
So it is disingenuous for anyone to say that this committee
has not done its work of oversight, its constitutionally
authorized work of oversight, in order to, no, not just to
embarrass the administration, but to find out where the
problems were. Because this sounds like someone was saying
``whoa'' and someone else off stage was saying ``go.'' And
that, of course, has been what this committee has been trying
to discern. I can't say at the end of the day if we will ever
identify the person with their fist on the ``go'' button, but
clearly that is what was going on.
And then the other part that is so important about this
email--and we heard the testimony on the other panel that, oh,
wait a minute, hindsight, you can always do good in retrospect.
But you didn't--foresight. I mean, the quotes, the citations at
the bottom of the email: ``China racing ahead of U.S. in the
drive to go solar''; ``Chinese solar firm revises price
remark''; ``As prices slump, solar industry suffers''; ``More
sun for less.'' And each of these titles is followed with a Web
site: New York Times, New York Times, Green Inc. blog, New York
Times. Each of those is followed with a Web site that was
easily referenced by anyone who received this email.
Again, the system was blinking red: You are going down a
road where the price is being undercut by a foreign competitor;
and whether it is legitimate or not, whether it is an adverse
government subsidy on the part of the Chinese, nevertheless,
the market is in peril.
Would you agree with that assessment?
Ms. Furchtgott-Roth. Yes. Yes. Well, I would--those emails
are absolutely right, and there are many others that you could
have quoted that also demonstrate this same issue.
2005 was a very different time. I think now it is clear
that solar panels are much--solar power is a far more expensive
form of energy. Whenever the government is in charge of giving
out money, then there are always going to be pressures to pick
winners and not do it on a straight cost-benefit analysis. That
is why this bill, No More Solyndras, is so valuable, and I very
much hope that it becomes law.
Mr. Burgess. Yes. And it is just so--you know, Valerie
Jarrett should have been here in our committee or at least
answered questions from the committee. Mr. Klein, same thing.
This has been a frustrating process from start to finish. The
administration has violated the Lanny Davis principle that when
you get bad news, you get it out early, you get it out often,
and you tell it yourself. I think they should learn something
from this experience.
I will yield back the balance of my time.
Mr. Stearns. The gentleman's time has expired.
And we recognize the gentleman from Massachusetts for 5
minutes.
Mr. Markey. Thank you, Mr. Chairman.
Just to restate Mr. Berlin's point down there, the vote on
the green bank in the Energy and Commerce Committee in 2009--
and that green bank was included in the Waxman-Markey bill--was
51 to 6, including by Mr. Burgess, on that green vote. Just so
that everyone has the history on that.
But this is really a debate not over that, but really a
debate over whether or not, you know, the Republicans really
want to support renewable energy as opposed to any other energy
source. Let's be honest, that is the real debate.
So, Ms. Furchtgott-Roth, welcome back to the committee.
Ms. Furchtgott-Roth. Thank you.
Mr. Markey. I would appreciate answers to these questions.
You, too, Dr. Kreutzer.
Do you agree that if a publicly traded company has been
warned that it may be delisted from the stock exchange because
its shares are trading at under a dollar, that the Federal
Government probably shouldn't be giving a $2 billion taxpayer
loan guarantee?
Mr. Kreutzer. You know, I have been tricked into these yes-
or-no questions before because I don't know what the loan
guarantee----
Mr. Markey. If a publicly traded company has been warned,
already been warned that it could be delisted----
Mr. Kreutzer. OK.
Mr. Markey [continuing]. Should the Federal Government be
giving a $2 billion loan guarantee to that company?
Mr. Kreutzer. I think I have made it clear in the past that
I don't think the government should be in the business of
making loan guarantees.
Mr. Markey. Thank you.
Ms. Furchtgott-Roth?
Ms. Furchtgott-Roth. I don't think the government should
give loan guarantees to any company, period.
Mr. Markey. OK. Thank you.
Ms. Furchtgott-Roth. Delisted, listed, whatever.
Mr. Markey. Thank you. I got it. Thank you.
Solyndra was given a B-plus credit rating before DOE issued
its loan guarantee, which means it was highly speculative. If a
company had an even lower credit rating, for example, a CCC-
plus rating, which means it has junk bond status and is
considered a substantial risk, do you agree that the government
probably shouldn't be giving it a $2 billion loan guarantee?
Dr. Kreutzer?
Mr. Kreutzer. I think I have already answered that. Yes.
Mr. Markey. OK. Thank you.
Ms. Furchtgott-Roth. We have a trillion-dollar deficit. We
are borrowing 40 cents out of every dollar that we spend. We
should not be in the loan guarantee business.
Mr. Markey. I am with you.
Now, what about a project that is already predicting a 7-
month delay and a cost overrun of almost a billion dollars on a
$14 billion project that has barely even begun construction? Do
you agree that the government probably shouldn't be giving it
an $8 billion loan guarantee if it has already basically
doubled its costs?
Mr. Kreutzer. I don't think the government should, in
general, be in this. So I don't know how far down the road they
are, if they have already signed agreements. You know, I don't
think the 26 loan guarantees that were done under here should
be somehow pulled back. I think there needs to be a point where
you say, here is where we stop.
Mr. Markey. Well, I am not talking about hypothetical solar
projects. I am talking about two nuclear----
Mr. Kreutzer. I understand.
Mr. Markey [continuing]. Loan guarantee applications that
this legislation does not preclude from moving forward. And I
would like to work with the majority to preclude them from
moving forward.
The Department of Energy has given a conditional approval
of an $8 billion loan guarantee to the Southern Company to
build two nuclear reactors that the Nuclear Regulatory
Commission's experts warned could, quote, ``shatter like a
glass cup'' in an earthquake. The Department has also provided
hundreds of millions of dollars of taxpayer money in bailouts
to the near-bankrupt United States Enrichment Corporation,
which still has a pending loan guarantee application before the
Department. But we have never had a hearing on these projects,
despite my repeated requests to do so.
The 28 loan guarantees for renewable energy totaled $16
billion, and Congress appropriated $2.5 billion to cover the
possible defaults. So 16 percent of the total loan value of
these projects is backed up by hard currency of the Department
of Energy. But DOE documents indicate that it is only going to
require as little as $195 million or 2 percent of the $8.3
billion nuclear power plant guarantee to mitigate the massive
risks.
Ms. Furchtgott-Roth and Dr. Kreutzer, shouldn't the
Department require a much larger insurance policy before moving
forward with these loan guarantees, given what we have just
learned from the Solyndra incident and given the already very
questionable history of these nuclear power plants?
Mr. Kreutzer. I don't know the particulars of those loans
and what would be an appropriate guarantee. I think I have said
that if I had it to start over again, we wouldn't have the loan
guarantees in the first place. How far down we are the road
with this and to what extent they have been committed, I can't
answer. And I think the committee has put together a bill that
has picked a point beyond which we no longer accept them.
Mr. Markey. Let me just interrupt right there to say, we
have recently begun to hear Republican complaints that some of
the loan guarantees that were issued resulted in manufacturing
jobs being created overseas. And I am hearing what they are
saying, that these loans should not be issued to companies that
plan to use the funds to outsource jobs.
I would just like to point out that both the United States
Enrichment Corporation and the Southern Company plan to utilize
many expensive foreign components. And I am sure my colleagues
will be as distressed about that as I am. And hopefully you
will work with me to make sure that the Southern Company and
the United States Enrichment Corporation cannot be dealing with
those foreigners, so that we have the same policy for foreign
solar panels and the same for the nuclear industry in terms of
the foreign components that are used in our reactors.
So, just a little preview of coming attractions, of the
paradoxical----
Mr. Stearns. I thank the gentleman.
Mr. Markey [continuing]. Nature of dealing with loan
guarantees and trying to segment out solar from nuclear and
pretend that there is an actually coherent policy which has
been constructed.
Thank you, Mr. Chairman.
Mr. Stearns. Thank you.
I would just point out to my colleague that, under the 1703
program, the nuclear companies must pay the credit subsidy
costs, but under the Obama 1705, the taxpayers pay that cost
for the companies.
And, with that, I recognize the gentleman from New
Hampshire for 5 minutes.
Mr. Burgess. Mr. Chairman?
Mr. Stearns. Yes?
Mr. Burgess. I move to strike the last word----
Mr. Stearns. By unanimous----
Mr. Burgess [continuing]. For a brief observation.
Mr. Stearns. Sure. How about 30 seconds?
Mr. Burgess. My question to Mr. Berlin was only to correct
if anyone was watching this and got the mistaken impression
that the Waxman-Markey bill was brought to the floor of the
House under anything but the most closed of rules and we were
not allowed to offer amendments, even though, leaving the Rules
Committee, there were 300 new pages of legislation added to the
Waxman-Markey bill. That is why I was so startled by his
comment.
Yes, I will admit, I occasionally veer off into supporting
Mr. Markey in committee. I will try not to let it happen again.
And I will issue my formal apology to Mr. Markey----
Mr. Stearns. All right. With that----
Mr. Burgess [continuing]. For that lapse in oversight.
And yield back.
Mr. Stearns. OK. We are going to let the second panel go
and call up the third panel, if you would. And thank you for
your patience as we have votes here. And we appreciate your
participation.
Do you want to take over, Ed?
Mr. Whitfield [presiding]. I want to welcome the third
panel. I want to thank you for your patience, and we look
forward to your testimony.
On the third panel, we have with us Mr. Paul Chamberlin,
who is assistant vice president, energy and campus development
at the University of New Hampshire.
And I would like to recognize Mr. Bass of New Hampshire,
because since he is from New Hampshire, I wanted him to make
some comments about you, as well.
Mr. Bass. Thank you very much, Mr. Chairman.
And I want to also thank our witnesses today for their
patience.
And I want to thank you, Mr. Chairman, for having this
hearing on what should be a commonsense component of our
Nation's energy strategy, i.e., energy efficiency.
As we will hear today, the bipartisan Smart Energy Act
would optimize the use of energy savings performance contracts
to reduce the Federal Government's energy consumption and save
taxpayers' dollars as well as encourage economic growth and
create jobs by promoting industrial energy efficiencies like
combined heat and power.
New Hampshire, I am proud to say, is a leader in such
technologies. And I am pleased that Paul Chamberlin from the
University of New Hampshire is here to testify today about
their very innovative cogeneration system and its benefits to
the university and to the people of New Hampshire.
So, with that, Mr. Chairman, I will yield back.
Mr. Whitfield. Thank you.
In addition to Mr. Chamberlin, we have with us today Mr.
John Marrone, vice president, energy initiatives for Saint-
Gobain Corporation. We have also Mr. Jeff Drees, U.S. country
president for Schneider Electric, on behalf of the National
Electrical Manufacturers Association. We have Mr. Stephen
Nadel, executive director, the American Council for an Energy-
Efficient Economy. And lastly, but not least, Ms. Kateri
Callahan, president of the Alliance to Save Energy.
So thank you for being with us. Each one of you will be
given 5 minutes for a statement.
And, Mr. Chamberlin, we will begin with you. You are
recognized for 5 minutes.
STATEMENTS OF PAUL D. CHAMBERLIN, ASSOCIATE VICE PRESIDENT FOR
FACILITIES, UNIVERSITY OF NEW HAMPSHIRE; JOHN MARRONE, VICE
PRESIDENT, ENERGY INITIATIVES, SAINT-GOBAIN CORPORATION, ON
BEHALF OF INDUSTRIAL ENERGY CONSUMERS OF AMERICA; JEFF DREES,
U.S. PRESIDENT, SCHNEIDER ELECTRIC, ON BEHALF OF NATIONAL
ELECTRICAL MANUFACTURERS ASSOCIATION; STEPHEN NADEL, EXECUTIVE
DIRECTOR, AMERICAN COUNCIL FOR AN ENERGY-EFFICIENT ECONOMY;
KATERI CALLAHAN, PRESIDENT, ALLIANCE TO SAVE ENERGY
STATEMENT OF PAUL D. CHAMBERLIN
Mr. Chamberlin. Mr. Chairman, distinguished committee
members, it is my distinct honor to appear before you today
regarding energy efficiency and the University of New
Hampshire's cogeneration plant, which we installed to provide
both power and heating to the university's main campus in
Durham, New Hampshire. I hope our experience and perspective
will inform the committee's deliberations on Representative
Bass' bill, the Smart Energy Act.
Mr. Chairman, prior to 2005, the University of New
Hampshire was purchasing electricity from a local utility, and
heat was generated in the form of steam in an aging central
boiler plant and distributed to the campus by a district
heating system. Rather than investing in an upgrade to the
1950s-era boiler plant, in 2005 UNH invested $20 million in a
cogeneration system that would meet campus heating needs and
provide electric power to meet campus requirements.
This system has resulted in significant benefits: One, the
total cost to provide utilities to the campus is lower. We
estimate a $3 million savings in 2011. Two, air pollution
emissions were reduced. Three, regional greenhouse gas
emissions were also reduced. And, finally, four, demand on the
regional energy system was reduced.
In 2009, UNH placed in operation our EcoLine system, a $49
million project to process and transport landfill gas to the
campus for use as the primary fuel in our cogeneration plant.
Landfill gas is now providing nearly 70 percent of the total
campus energy and 80 percent of the fuel consumed by our
cogeneration plant. We believe our campus is unique among
higher education institutions in using landfill gas as our
primary source of energy.
Cogeneration offers the opportunity to dramatically improve
the efficiency with which fuel energy is converted to usable
forms as heat or electricity and, thus, reduces the demand on
our electric supply. Settings where both forms of energy are
needed, such as college and university campuses, industries
that need both heat and power, cities that have central heating
districts, military installations, are well-suited for
cogeneration application. Locations where there is a large
thermal need and the ability to connect to the grid also offer
the opportunity for cogeneration to meet local thermal needs,
with electricity being exported to the grid.
In all cases, there is a beneficial effect on the grid by
decreasing the need for peaking power necessary to meet system
demand. The technology, in our experience, is mature and, again
in our experience, the equipment is highly reliable.
Mr. Chairman, UNH experience clearly shows that efficient
cogeneration installations with balanced thermal and electric
energy loads can dramatically improve the efficiency with which
fuel energy can be transformed into usable electric and thermal
forms. For this reason, I am pleased to lend my support for
section 203 of Representative Bass' Smart Energy Act, which
calls for the doubling by 2020 of the production of electricity
through the use of combined heat and power plants and waste
heat recovery and the development of a strategic plan to
achieve these energy-efficiency objectives within the
industrial sector.
As the committee examines this set of issues, it should be
noted that widespread application of cogeneration technology
has distinct implications for the management of the power grid
and application of regulatory requirements. And it is
essential, I believe, that these issues be addressed
comprehensively in order for the Nation to fully exploit the
energy efficiency and environmental benefits of cogeneration
systems.
The University of New Hampshire's experience demonstrates
that moving to a cogeneration energy system is not an abstract
idea. Rather, the university sets an example that other
institutions and installations can emulate or follow if there
is a strong commitment to achieve energy savings.
That concludes my opening statement, Mr. Chairman. I want
to thank the members of the committee for this opportunity to
appear before you today. And I look forward to your questions.
Mr. Whitfield. Mr. Chamberlin, thank you very much.
[The prepared statement of Mr. Chamberlin follows:]
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Mr. Whitfield. And, Mr. Marrone, you are recognized for 5
minutes.
STATEMENT OF JOHN MARRONE
Mr. Marrone. Thank you. Chairman Whitfield, Ranking Member
Rush, and subcommittee members, thank you for the opportunity
to testify before you on the Smart Energy Act.
My name is John Marrone. I am the vice president of energy
initiatives for Saint-Gobain Corporation. I am here today to
testify on behalf of Industrial Energy Consumers of America in
support of the Smart Energy Act. We wish to especially thank
Representatives Bass and Matheson for their leadership on the
important issue of industrial energy efficiency.
Saint-Gobain is the world's largest building material
company, as well as a global leader in production of high-
performance materials and glass containers, with sales of $58
billion in 2011 and over a 195,000 employees.
Here in North America, Saint-Gobain recorded sales of
nearly $7 billion in 2011. We employ some 19,000 employees at
more than 260 locations in the U.S. and Canada.
Industrial Energy Consumers of America membership is
exclusively manufacturers who consume energy as fuel and
feedstock to produce value-added products that are consumed by
every sector of the economy. Manufacturing consumes about one-
third of all natural gas and electricity and employs roughly 12
million people. They also compete with tough global
competition.
In many cases, even a small change in price in energy
directly impacts our ability to compete. It is for this reason
that the Industrial Energy Consumers of America and its member
companies advocate for policy that supports reliable and
affordable energy, including cost-effective energy efficiency.
Simplistically speaking, there are two ways a manufacturing
company can improve their competitiveness and increase jobs:
they either increase revenues or decrease costs. Improving
energy efficiency is an excellent way to reduce the costs.
After losing about 5.5 million manufacturing jobs since
2000 due to the loss of competitiveness, and recovering only
about 500 those jobs since 2010, we have a long way to go. We
believe that improving energy efficiency is a solid winning
policy platform that will contribute to capital investment,
emissions reduction, and the increase in jobs that we all
desire.
The Industrial Energy Consumers of America supports the
Smart Energy Act for the following reasons.
First, for some time now, manufacturing investment in
energy efficiency has been mostly relegated to small-capital
projects. Large-capital projects that offer significant
potential energy-efficiency gains are rare. We believe that
Federal and State policies are part of this reason. Section 201
of the bill requires the DOE to examine a variety of potential
barriers and provide guidance on how to fix them.
Second, history can provide a good policy lesson on what
works and what does not. Provision (i) of the bill requires
that the DOE provide examples of past successful Federal and
State policies that resulted in greater use of industrial
efficiency.
Third, some countries have placed a high priority on
improving manufacturing energy efficiency and competitiveness.
We believe it is important to learn from what other countries
are doing. Provision (ii) requires the DOE to examine cost-
effective policies used by foreign governments to foster energy
efficiency.
Fourth, Federal energy-efficiency matching grants are a
policy favored by the industrial sector. The matching grant
program is a powerful economic leveraging tool that encourages
manufacturing companies to open their wallets and spend capital
that would create jobs and help drive the economy. Provision
(C) would require the DOE to estimate the benefits to the
national economy of such a program.
Fifth, section 203 would require the DOE to develop a
strategy to double the CHP and waste heat recovery capacity by
2020. The CHP technology can produce power at up to 80 percent
energy efficiency versus the base load power plant at about 34
percent. The use of CHP and waste heat recovery projects can
significantly improve the competitiveness of a manufacturing
facility. However, since 2005, almost no industrial CHP
facilities have been built because of electricity market
barriers. We welcome the DOE strategy.
In closing, these provisions are being opposed by some
organizations representing the electric utility industry. For
absolute clarity, they represent those who not only benefit
from the barriers that are in place but foster them. The
provisions of this legislation do not change any regulations.
All they do is seek to identify and explore remedies. Congress
should not be deterred from supporting transparency.
Thank you, and I welcome any questions.
Mr. Whitfield. Thank you.
[The prepared statement of Mr. Marrone follows:]
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Mr. Whitfield. Mr. Drees, you are recognized for 5 minutes.
STATEMENT OF JEFF DREES
Mr. Drees. Well, good afternoon, Chairman Whitfield and
members of the subcommittee. I appreciate the opportunity to
testify today.
My name is Jeff Drees. I am the U.S. country president for
Schneider Electric. And we are all about our global specialist
synergy management, and our business is all about energy
efficiency. So, of 18,000 people in the U.S. and energy experts
that, every day when they wake up across 240 locations, they
think about energy and the ways to make it safe, reliable,
efficient, productive, and green. And that is the mantra inside
of our company. As I said, we are all about energy efficiency
as part of our business.
We are members of the National Electrical Manufacturers
Association. We are also members of the Industrial Energy
Efficiency Coalition and the Federal Performance Contracting
Coalition.
We commend Congressmen Bass and Matheson for authoring the
Smart Energy Act draft bill, which really takes a lot of first
critical steps to prioritize energy efficiency within the
construct of the national energy policy.
And I just wanted to reflect on three pretty key points
regarding the Smart Energy Act. The first one is more about how
energy efficiency is the first fuel and also job creator. The
second one about how the Federal Government has an opportunity
to take a leadership position using energy savings performance
contracting as a means for energy efficiency. And the third
point that I want to talk about is how energy efficiency for
the industrial sector can be used as a competitive advantage.
The first point around energy efficiency as the first fuel,
it really is fast, it is economical, and it is the most
effective way for governments, businesses, and individuals to
minimize the uncertainty in energy costs, and also improve the
reliability of the grid and shrink dependence on foreign
sources of energy and reduce our carbon footprint. We also
believe that there is a strong investment need in energy
efficiency that can serve as the catalyst for job creation and
continue to promote economic prosperity. Quite simply, it saves
energy, it saves money, it drives new technology, and it makes
energy for businesses like ours more predictable to manage as
we manage our business going forward.
Also, in this part around how it really can be used as the
first fuel, this is a time for government and industry to come
together, to really come together for the right conditions to
create clear, predictable, long-term economic motivations that
empower businesses to invest in a cleaner, more efficient
energy future.
And the second point around how the Federal Government can
take a leadership role, we all know certainly that we are
under--the Federal Government is under tremendous pressure,
tremendous fiscal pressure, and we all look for ways for saving
energy and managing costs. And, really, the Federal Government
is the world's largest consumer of energy, at $7 billion
annually in energy costs. There is an opportunity here for the
Federal Government to walk the talk, to really use this as one
of the most effective ways to establish energy efficiency as a
national priority and drive innovation that leads to cleaner
and lower-cost infrastructure.
Section 101 of the Smart Energy Act requires Federal
agencies to use private-sector financing, including ESPCs, to
meet the energy-efficiency mandates. This prioritizes the use
of private-sector financing over appropriated funds. A good
opportunity here is it not only will create jobs and drive
energy efficiency when you use ESPCs, but let me be pretty
specific: We are also members of the National Association of
Energy Services Companies, and they state that every $1 billion
worth of performance contracts leads to 11,000 jobs. In fact,
to date, because of ESPCs, more than $5 billion worth of
equipment has been installed at no cost to the government and
$1.4 billion of savings have been generated with no capital
outlays by the Federal Government. As an example, our project
with the U.S. Coast Guard in Puerto Rico netted $22 billion
worth of equipment, 53 percent of energy savings, and 270
jobs--just on one example of working with the U.S. Coast Guard.
Final point around how industrial energy efficiency really
can drive manufacturing competitiveness. You know, our industry
is a strong supporter of moving for a much more efficient
industrial sector. We are a founding member of the Industrial
Energy Efficiency Coalition. And we know, as a manufacturer,
having 40 plants across the U.S., we know that energy
efficiency is at the heart of one of the challenges facing
manufacturing, which includes also reducing production costs,
complying with new regulations, and reducing its environmental
impact.
The industrial sector consumes more energy than all sectors
in the U.S. And while industrial facilities have large
industrial facilities that consume large amounts of energy,
have advanced energy programs, but out of the more than 200,000
manufacturing facilities in the U.S., more than 80 percent
don't. And what we want to propose with Bass-Matheson is the
expansion of the study to include not just the high-end energy-
consuming industrial plants but also a cross-section of all
plants that need help, that don't have the level of
sophistication that maybe a Saint-Gobain would have about how
do we actually get in and help these customers and incentivize
them to move for a much more energy-efficient industrial
setting.
We are very strong and bullish around combined heat and
power. But we think some of the opportunities in the
legislation is, you know, how do you use something like ISO
50001 as the national energy standard just like ISO 9001 is the
standard for quality, using the same kind of rigor and
auditable energy results for industrial setting just like we do
with 9001 in quality. As well as enhancing the workforce
development and really providing more education for Federal
Government around the--and working with energy services
companies on how this can be used as an opportunity to really
free up energy savings and drive capital improvements in
buildings.
And just in closing, as a leader in the energy-efficiency
field, as a leader in energy management, I really appreciate
the opportunity to testify. I look forward to answering any
questions, and we stand ready to assist in this important
legislation. Thank you.
Mr. Whitfield. Thank you.
[The prepared statement of Mr. Drees follows:]
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Mr. Whitfield. And, Mr. Nadel, you are recognized for 5
minutes.
STATEMENT OF STEPHEN NADEL
Mr. Nadel. Thank you very much, Mr. Chairman.
Yes, my name is Steve Nadel, and I am the executive
director of the American Council for an Energy-Efficient
Economy. We are a nonprofit research organization formed in
1980, and just a couple years ago we celebrated our 30th
anniversary.
We are a nonpartisan organization. In our view, energy
efficiency is the quintessential nonpartisan issue. This is
illustrated by the Smart Energy Act that is before us today. We
thank Representatives Bass and Matheson for introducing this
bill and hope that the Energy and Power Subcommittee and the
full committee will report it out favorably soon.
I have a few points I wanted to summarize here in my oral
comments.
First, energy efficiency is a key energy resource for the
United States. As discussed in my written testimony, energy-
efficiency savings since 1970 make energy efficiency our
number-one energy source today. This is shown by improvements
in energy use per dollar of GDP, which has declined
dramatically. Studies by McKinsey and Company, as well as our
own organization, ACEEE, show that further cost-effective
energy-efficiency opportunities can reduce U.S. energy use by
20 percent or more. The costs of energy efficiency are
generally lower than other resources and with a higher
macroeconomic multiplier effect because energy efficiency tends
to be labor-intensive rather than capital-intensive.
Unfortunately, the United is now lagging behind many
leading countries in energy efficiency, which increases waste
in our country and the cost of American goods and services.
Just this morning, ACEEE released our first international
energy-efficiency scorecard, which compared 12 of the world's
largest economies on 27 different metrics dealing with energy
consumption and energy policies.
Mr. Nadel. Across the 12 countries we reviewed, the United
Kingdom came in first, followed by German, Italy and Japan. At
our press conference, we had the United Kingdom's ambassador to
the United States, who talked about how his government really
views energy efficiency as a key strategy for helping to make
them more competitive. He talked about the many business-
friendly and low-cost policies that they are adopting to help
further energy efficiency in their country.
The U.S., unfortunately, was ninth on our score card, far
from the global leader we aim to be. We were fourth on building
efficiency and sixth on industrial efficiency, so pretty good
there, but we really did lack on transportation efficiency.
If we are to fully compete with other countries, we need to
redouble our efforts to be more efficient. A good place to
start is the Smart Energy Act. This Act will have a variety of
useful provisions recognizing the importance of energy saving
performance contracts, as several of the other witnesses have
described, reduces energies for data processing. It sets a goal
of doubling the amount of electricity from combined heat and
power which we agree with the other witnesses is a very
important source of additional power and efficiency. And it
requires a study on ways to reduce barriers to the deployment
of industrial energy efficiency, and we agree, there are large
opportunities there such as through much wider pursuit of use
of ISO 50001.
However, while this still does contain many useful
provisions, much more can and should be done. In my written
testimony, I suggest five possible additions to this bill. Just
to summarize one or two of those now: first, support for model
and State building codes. National model building codes are
developed by two nonprofit organizations. DOE provides
technical assistance to these bodies and also assists States
with considering whether to adopt these codes. We recommend
that DOE set energy-saving goals for the model codes to help
guide their development. We also recommend that DOE expand its
work with the States to assist them to adopt and implement
these codes.
The second suggestion has to do with building training and
assessment centers. Presently, a very effective program the
Department of Energy has, a very small program, just a few
million dollars, is to work with professors at universities to
help train engineering students in industrial energy auditing
techniques. They do audits of small- and medium-sized firms,
helping those firms reduce their energy use, and the students
get very valuable job training. In fact, upon graduation, they
usually have multiple job offers. We recommend that this
program be extended to the building sector and not just the
industrial sector.
Now, ACEEE in May published an analysis of the cost and
benefits of a bill with provisions very similar to those of the
Smart Energy Act, as well as some of the enhancements that we
recommend. We found that such a bill would reduce U.S. Energy
consumption in to 2030 by about 2 percent, and that would drive
annual consumer energy cost savings of about $23 billion.
Furthermore, based on our detailed macroeconomic analysis,
we estimate that such a bill would create about 100,000 jobs by
2020; about 185,000 jobs by 2030.
So, in conclusion, I would say that energy efficiency is
the key part of an all-of-the-above energy strategy. Energy
efficiency has reduced U.S. energy use substantially and much
more is possible, and the Smart Energy Act is a very good place
to start, and we hope you will report it out favorably. Thank
you.
[The prepared statement of Mr. Nadel follows:]
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Mr. Whitfield. Thank you very much.
And Ms. Callahan, you are recognized for 5 minutes.
STATEMENT OF KATERI CALLAHAN
Ms. Callahan. Thank you, Chairman Whitfield, for holding
this hearing today and giving me the opportunity to testify in
strong support of the Smart Energy Act.
And as a fellow native Kentuckian, my gift to you is going
to be to try to be very brief so that you can wind down the
afternoon.
I am Kateri Callahan. I serve as the president of the
Alliance to Save Energy. The Alliance is a bipartisan nonprofit
coalition that is made up of over 160 different businesses,
organizations, and institutions. They span every sector of our
economy, and they come together to promote and drive energy
efficiency worldwide.
We were founded in 1977, by Senator Chuck Percy, a
Republican from Illinois, and Hubert Humphrey, a Democrat from
Minnesota. And we have been working these last 35 years
tirelessly to not only advance energy efficiency, but to do so
in a way to drive productivity and stop energy waste.
We are delighted to count three members of this committee
as our honorary chairs: Dr. Burgess, Mr. Bilbray, and Mr.
Markey, speaking to the wide array of political interests that
we can attract. They join 16 other Members of the Senate and
House who serve as honorary members of our board.
On the Smart Energy Act, and energy efficiency policies
like those contained in the Smart Energy Act, we see those, as
many of my colleagues here have said, as the cheapest, the
quickest, and the cleanest way to address the economic and
security threats that attend to our current wasteful
consumption of energy in this country.
Steve mentioned that we have made a lot of progress through
energy efficiency. Our studies indicate and then in large
measure, it is because of public policy, that today we are
offsetting the need for about 50 quads of energy. Well, what is
that? That is about half of the energy that we use. More
important than just saving the energy is how much money that
translates into. Our studies show that American governments,
consumers, and businesses, are saving $450 billion every year
because of progress that we have made on energy efficiency.
So national policies, like requirements for improved
Federal energy management that you find in the Smart Energy Act
to appliance standards, have important and proven benefits to
our country. And that is recognized not just by nonprofit
groups and advocacy groups like Steve Nadel's and mine, but I
have here 62 pages representing 26 reports from organizations
as diverse as the National Petroleum Council to the Business
Roundtable to Deutsche Bank and on, and on, stating the
benefits, the clear benefits, of national energy policy to our
country.
So I won't go through those because I think a number of
them have been discussed already in this hearing, but I would
like this put forward and into the record if I could, please.
Mr. Whitfield. Yes, it will be admitted into the record.
[The information is available at http://www.ase.org/sites/
default/files/notable_and_quotable_2012_june_12_final.pdf.]
Ms. Callahan. Great. The Alliance commends both Congressmen
Bass, here today, and Jim Matheson for their leadership on the
Smart Energy Act. We see this bill as standing as a testament
to the fact that energy efficiency is an issue that draws
support not just across political boundaries but also have all
regions of the country and all quarters of our economy. The
legislation is supported by scores of businesses and
organizations that don't often find themselves on the same side
of the page. We submitted for the record a letter of support
from 60 different businesses, and you will find on that the
U.S. Chamber of Commerce side by side with the Natural
Resources Defense Council. This is a bill that enjoys very wide
support.
How did they do this? They are using low- to no-cost and
commonsense policies that are going to lower Federal energy
bills and that is going to benefit taxpayers. As Jeff noted,
they are creating good-paying jobs through greater use of
ESPCs, and they are creating government and private sector
partnerships, as noted by Mr. Marrone, that are going to drive
efficiency into the manufacturing sector and therefore enhance
our global competitiveness.
So, at this time in our economy when too many Americans are
suffering financial hardship, energy efficiency, we believe,
can add much needed relief. American households, our studies
indicate, are spending about $5,500 a year on energy costs.
That has increased by 14 percent in just the last 2 years in
this very bad economy. These costs are of greatest concern to
low-income households where they can gobble up as much as 20
percent of the family's monthly income.
Bass-Matheson does not address the residential sector, but
you do have another bill before you by Mr. McKinley, the HOMES
Act, that would provide rebates to consumers for comprehensive
energy efficiency upgrades. We support that bill and put it
forward to you and recommend it to your consideration.
So as we struggle--as you struggle, really, to find ways to
put Americans back to work. We think energy efficiency offers a
path forward. The Brookings Institute released an assessment
last year that indicated that in 2010, the energy resource
efficiency segment of our economy accounted for 830,000 of the
jobs nationwide. And as you seek to right America's economy, we
believe investment in energy efficiency should be a top
priority of this committee and this Congress. With government
assistance, McKenzie Institute has said with a significant
investment in energy efficiency, we could save $1.2 trillion in
avoided energy costs just between now and the end of the
decade.
So the Alliance views the Bass-Matheson proposal really as
an across-the-board win for America, and we urge you to approve
it quickly and get it to the House floor.
We are not kidding ourselves. This is not everything that
the efficiency community wants in terms of national energy
efficiency policy, absolutely not, but it is absolutely a good
move forward, a very meaningful bill, and will benefit all of
America. Thank you.
[The prepared statement of Ms. Callahan follows:]
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Mr. Whitfield. Well, thank you, Ms. Callahan.
And thank all of you for your testimony.
I want to thank you for also bringing to our attention this
International Energy Efficiency Score Card, which I guess was
released today, is that right?
Mr. Nadel. Yes.
Mr. Whitfield. And so were any of you surprised that the
U.S. was that low out of the top 11 or 12 countries?
Mr. Nadel. We hadn't expected the U.S. to be quite as low
when we began it, but we let the data fall where it will.
Mr. Whitfield. And why do you think we are that low?
Mr. Nadel. A couple of reasons. Compared--it is all
relative to other countries. I would say most other countries
have concentrated much more on energy efficiency than we have.
You know, they have cabinet meetings on it. They have major
national policies. As you and everybody else on the committee
knows, we have had great difficulty reaching an agreement on an
energy policy in the United States, and as a result, much less
happens.
Mr. Whitfield. Yes, plus we focus on production, and
efficiency probably is the easiest and best way to improve our
situation.
Mr. Nadel. Right.
Mr. Whitfield. And as someone who doesn't know a lot about
efficiency, I would like to ask you, Mr. Drees, you mentioned a
project, I think that you all had in Puerto Rico.
Mr. Drees. That is right.
Mr. Whitfield. And you were talking about the astounding
improvements that were made there. Could you just list a few
things that you did there, practical things?
Mr. Drees. Some of the things we did, I mean, first of all,
we installed pretty significant renewable solar array on the
rooftops of many of the buildings in the Coast Guard. They get
about 25 cents a kwh in Puerto Rico, so it made it very
economically viable to put in solar. Also, lighting.
Mr. Whitfield. $0.25 per kilowatt hour?
Mr. Drees. Twenty-five cents per kilowatt hour, right.
Across the U.S. the average is somewhere around 10 cents per
kwh in comparison to 25.
Mr. Whitfield. Yes.
Mr. Drees. So along with that we had lighting and lighting
control; also a big part of the mechanical retrofit around
cooling. So for that particular site in many locations, cooling
represented around 40 percent of the total energy consumption
for that customer. So we redesigned, put in a central plant,
and it completely reconfigured and paid for the saving, or paid
for all that with the savings generated. So it was lighting,
lighting control, solar, and a complete redesign of their
central system for cooling.
Mr. Whitfield. I am assuming that at the DOE, the amount of
money available for efficiency efforts would be minute compared
to a lot of other funds that we have. Would that be correct?
Mr. Drees. That would be correct, but that is one--I think
that is why we advocate ESPC so strongly, because there is no--
there is no appropriated funds needed to really drive the
project.
Mr. Whitfield. Right.
Mr. Drees. It is all leverage from non-appropriated funds.
Mr. Whitfield. All right, I haven't talked to anyone at DOE
about Mr. Bass' legislation personally, but I have been told
that they don't want to take a position on this bill. Have any
of you had any conversations with anybody at DOE about this
legislation?
Ms. Callahan. We have had conversations about similar
legislation, companion legislation in the Senate. And I think
that it would be fair to say--I won't speak for the
administration--but that the kinds of approaches that are in
the bills are very much in line with what the administration
has been pursuing. The administration is trying to bump up the
use of ESPCs. The administration is trying to drive greater
efficiency into its own building stock. Forming partnerships
with the private sector is something they want to see. And I
would say, too, that there isn't enough funding for the
programs at DOE in our opinion. You could double it, and for
every dollar that goes into DOE programs, it returns $17 or
more in savings and sparks $10 or more in private-sector
investment. So it is a very, very wise investment for our
government.
Mr. Whitfield. We should have given you all the Solyndra
money. But if--OK, so philosophically, from your conversations,
you are not speaking for the administration, but
philosophically, you feel they would be comfortable with this
approach?
Ms. Callahan. Very much so. And this approach, again, from
the Senate side, I don't want to talk about that too much, but
the vote in the Senate Energy Committee was 18-3 in favor of
the bill.
Mr. Whitfield. OK.
Ms. Callahan. So it has got wide bipartisan support there,
and I only mention it because there is more of a track record
than we have on Bass-Matheson over here.
Mr. Whitfield. Is there any one thing that if you could put
it in the Bass bill that would just kind of jump out, a
provision that you might put in to make it even better than it
is? Can you think of anything offhand?
Mr. Drees. Well, I think it is about the priority, the
prioritization of the ESPC language because right now, I think
it is viewed as it is currently available. Why is it not being
deployed, and if you look at some of the statistics around the
ESPC program just in the last 3 years, there has only been 47
projects deployed. For us to meet the $2 billion initiative
from better buildings, we need roughly 50 to 60 projects per
year. So really making it a priority as the first few
mentioned, making it a first priority to do energy-efficient
projects with the ESPC really is, I think that is----
Mr. Whitfield. All right.
Ms. Callahan. And Steve mentioned a couple of things that
maybe I will just reemphasize here. One of the things that
other countries and businesses have done that drive efficiency
and would pull us up, they set targets and then they go about
trying to meet those targets. In the Senate version of the
bill, it establishes a process for setting national targets for
building energy codes, so improving those codes over time. The
residential and commercial stock uses 40 percent of the energy
consumed in this country. So putting that in place, and it also
gives not a lot of money, a very small amount of money, but it
gives money to States to have them go out and adopt the current
codes, and then enforce them and get compliance with the codes.
So if I had another add to and a wish list that would be my
top priority.
Mr. Whitfield. OK, anybody else have any----
Mr. Nadel. I would agree with that.
In our analysis, the savings from all of these provisions,
the building code provision had by far, the largest savings. We
are a data-driven organization and when you have that much
savings that is the top of our list.
Mr. Whitfield. OK.
OK, Mr. Olson, you are recognized for 5 minutes.
Mr. Olson. I thank the chairman. A belated welcome to the
third panel. We greatly appreciate your stamina, your
persistence, your willpower, and I apologize for the votes.
And I was going to ask 30 minutes of questions, ask
unanimous consent, but I will only stick with the 5 minutes
allotted here.
My first question to you, Mr. Marrone. Your testimony shows
that 5.5 million manufacturing jobs and thousands of
manufacturing facilities have been lost since 2001. I am
concerned by Exhibit C of your testimony, which shows almost no
industrial combined heat power facilities have been built since
2005. Why aren't these facilities being built? You mentioned,
you say the electricity market barriers. What are those
barriers?
Mr. Marrone. I think there is a combination of issues, but
I would key on two. One is accessibility to the electricity
markets and the fact that if you believe that there is
discrimination about getting access, the onus is on the
manufacturer to prove otherwise. And that is a very timely and
costly process, and they are probably not going to take that
route.
Another area of concern is the lack of long-term contracts.
Without a long-term contract, there is a high financial risk
that manufacturers do not want to take.
Mr. Olson. These barriers, are they Federal Government
barriers, market barriers.
Mr. Marrone. I think they are market barriers through the
Energy Policy Act of 2005 and perhaps other things that have
taken place that make it very difficult.
Mr. Olson. Anybody else want to comment on those issues?
Ms. Callahan?
Mr. Nadel. I can add something. A lot of it has to do with
how utilities price power and provide access and what State
regulators permit or do not permit. It is probably more a State
issue than a Federal issue.
Mr. Olson. Federal issue, OK. That is kind of what I
suspect. And I am also intrigued, Mr. Chamberlin, by the
University of New Hampshire. Congratulations on your
cogeneration activities up there. Tell me, why did the
university choose to invest in cogeneration technologies as a
means for the campus' energy needs?
Mr. Chamberlin. It was a combination of the right time. We
had a very aging boiler plant. It was a single-purpose plant.
That plant used, converted about 80 percent of the fuel energy
into usable thermal energy for heating the campus. But we were
importing all of our electricity, and when we ran the numbers
rather than investing in that 50-year-old technology, we ran
the numbers and we realized that we could increase the
efficiency with which the total fuel energy, in other words,
the fuel that the power plants were also using in their single-
purpose plants, which was converting roughly 35 percent of the
fuel energy to electricity, we could substitute our own system,
and we could achieve about an 80 to 85 percent efficiency in
converting fuel energy to usable energy to meet campus needs.
So much more efficient. We also gained a significant reduction
in emissions pollutants. We reduced our greenhouse gas
emissions. And at least in the 2011 data that we have looked
at, it saved us about $3 million.
Mr. Olson. Are there any untoward burdens that we need to
address so that other companies, other universities can use
your example and follow that?
Mr. Chamberlin. I think there are two things that I would
offer to the committee to consider, at least in our experience.
We found that for Clean Air Act enforcement and for air
permitting, the regulators are restrained to look only at your
site. So we were lucky because we already had a major power
plant and as part of our conversion, we were switching from
using heavy oil, with number 6 oil, which is one step up from
road tar, to natural gas. So that actually lead us, was a big
contributor in letting us lower our total emissions. But if I
were an industrial site and wanted to install cogeneration, and
I knew that I was going to reduce the load on the grid because
I was going to make my own power, the regulators have to look
only at my site. And I am going to be increasing the emissions
from my site. And yet they can't look at the regional benefits.
So I think that is an issue that needs some consideration
because it could be, potentially become a barrier to someone
who wanted to move forward with cogeneration.
Mr. Olson. See up here in Washington, when you stay in the
real world sometimes, not just focused on one microcosm of the
real world.
And my last question, Mr. Drees, I am not too familiar with
the ISO 50001, so tell me how this works. What is the advantage
of adopting that?
Mr. Drees. So ISO 50001, if you think about, you know, the
manufacturing environment how quality really needed a standard
just 25 years ago, there really wasn't a sense of, you know,
how do you drive quality? How is there a standard process? So
ISO 9001 was born, and hence, now you can come into any
facility that is ISO 9001 certified and you know the quality
standards that that location adheres to. ISO 50001, we are
saying there needs to be the same audible path for energy
management to say it is about how many BTUs, how many energy
consumption per square foot is this facility. If you have a
corporate sustainability report, how are you tied back all the
way to the utility bill that shows that you are actually
reducing the energy footprint of that site. ISO 50001 puts
audible measurements in place for any facility just like ISO
9001 for quality. So it is applying the same kind of rigor the
manufacturing environment is used to for quality. Let's apply
that for the energy efficiency standard.
Mr. Olson. Thank you, Mr. Chairman.
I am out of time and to use in our Navy term, you can at
your convenience, let the panels, clear them to go ashore.
Mr. Whitfield. Thank you, Mr. Olson.
As you all know, Mr. Bass introduced the legislation that
we are discussing today, and we have as a matter of policy that
the person that introduces the legislation has to go last. And
so when you have a 6-hour hearing, that is how you determine
how committed they are to their bill.
And now we recognize Mr. Bass.
Mr. Bass. Mr. Chairman, thank you, and I have had more fun
with dealing with the Solyndra debate.
I have been waiting for weeks for this hearing.
I want to thank you, again, for giving me special
dispensation here to participate in this hearing and ask a few
questions.
First of all, and I don't want to lead these witnesses too
much, can either you, Mr. Chamberlin, or Mr. Marrone, give us,
or any of you, give us an idea as to exactly what the savings
are through the utilization of combined heat and power? I will
lead you a little bit. Electricity generation, what percent
efficiency? Thermal generation, what percent efficiency?
Combined heat and power, what percent efficiency? And what, if
any, are the savings in terms of big macro numbers that this
Nation could see if we were to increase cogeneration
significantly?
Mr. Marrone. I can't give you exact numbers, the reason
being is that I said we have 260 facilities in North America
and Canada, and I would say certainly in our energy-intense
facilities, about 50 percent of them have some form, either in
the drawing board, or being implemented, or fully implemented.
I can tell you that in energy efficiency, on a spend about $400
million a year, we are easily saving $10 million to $13 million
a year, so it is a significant number.
Mr. Bass. Mr. Chamberlin.
Mr. Chamberlin. Our experience, well, the efficiency issue,
standard electric, single-purpose electric plant converts about
35 percent. A heat, a standard boiler plant, roughly 80
percent. For a typical installation like the university, where
you are producing your own heat, you are buying electricity,
then that nets out at about 50 percent of the fuel energy is
converted into usable forms. So there is a huge increase over
that 35 percent. I am sorry, if you go to cogen, you can get to
85 percent. So there is a huge increase in the efficiency of
the fuel conversion, and so in terms of national impact, the
more of that we can do, clearly, the better off. The available
energy sources are going to go further.
Mr. Bass. Roughly 35 percent, 50 percent thermal, about 85
percent total, so the savings are gigantic.
Mr. Drees, what in your opinion is the biggest barrier to
the use of energy savings performance contracts in the Federal
Government?
Mr. Drees. I think the first thing I would say is probably
just knowledge. It is a different way of doing business. It is
not like your traditional, hire an architect, hire a consulting
engineer, go through the normal construction chains, so it is a
very different process, because it uses design-build energy
performance criteria to justify the project. So it is a very
different way of doing projects. So I think one of the gaps we
have is how we educate the agencies on exactly how this process
works.
Right now that is one of the things that we really should
push is just shorten the amount of time. You know, we can get
to 60 projects a year. We have to shorten the amount of time
the companies get selected, shorten the amount of time the
audits take place so you can actually get it to contract.
Mr. Bass. How do you think the bill would help?
Mr. Drees. How would the bill help?
Mr. Bass. Yes, how would the bill help to overcome these
barriers?
Mr. Drees. Today, status quo doesn't work.
Mr. Bass. Why not?
Mr. Drees. I talked about current state of only 47 projects
over 3 years, and $800 million worth of projects, and we know
that there is roughly $1 billion in savings potential in the
Federal Government. If it is a priority and it makes it as the
first method of reducing energy efficiency, we now know the
agencies have to rely on that and it is going to drive some
innovation. It is going to shorten the cycle time to do these
projects. So by putting it as the priority, we know it will
drive the numbers that we are talking about.
Ms. Callahan. I can put it in a simpler, maybe, way. It
takes the risk out of it for the agency managers. I mean, I
think that is a lot of it. It is an education, and it is a
risk.
Mr. Drees. Right.
Ms. Callahan. They are not going to be paid any more if
they do an ESPC. There is a risk involved in it. And if the
Congress is directing them to use this as a priority, it
removes the risk and we think will open up the flow of
projects.
Mr. Bass. Last question for Mr. Marrone. How do you think
the combined heat and power can benefit this domestic economy
and create jobs?
Mr. Marrone. Well, anything you can do to create
efficiency, you know, in particular, energy, it is going to put
more working capital to other projects. It is going to reduce--
increase our savings. We are going to hire jobs. We are going
to increase profitability. We are going to increase sales. We
are going to increase the economy. Anything in light of CHP or
anything else close to that, any energy efficiency initiatives
will only serve to improve reliability to the grid. It will
serve to create jobs, and stimulate the economy.
Mr. Bass. And lastly, Mr. Marrone, and briefly, can you
elaborate on why industrial energy efficiency from a cost
management perspective is critical to our Nation's
manufacturing process?
Mr. Marrone. I guess maybe a simple way of saying, I look
at energy efficiency as I look at safety. I think we have to
look at a cultural transformation. As businesses and
organizations look at safety in the workplace for their
employees and their factories, we have to think in the same
light and maintain the same mentality when it comes to energy.
Mr. Bass. OK, thank you very much.
And Mr. Chairman, one last little request. I have here
letters of support from the American Chemistry Council, the
National Association of Manufacturers and the National
Electrical Contractors Association. I would ask unanimous
consent that these be entered into the record. And I thank the
chairman for his time and his indulgence.
[The information follows:]
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Mr. Whitfield. Without objection.
Well, thanks for staying with us. We appreciate it, and
with that, we will conclude today's hearing. Once again, thank
you very much for your time, your commitment. I do apologize it
took so long, but all of your testimony has been read. We have
it in the record, and we look forward to working with you as we
take steps to try to improve this Nation's efficiency.
And the record will remain open for 10 days for any
additional material. So that concludes today's hearing. Thank
you.
[Whereupon, at 2:56 p.m., the subcommittees were
adjourned.]
[Material submitted for inclusion in the record follows:]
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