[Senate Hearing 112-625]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 112-625

                           THE ALLISON REPORT



                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION




                             MARCH 13, 2012

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

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                  JEFF BINGAMAN, New Mexico, Chairman

RON WYDEN, Oregon                    LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota            JOHN BARRASSO, Wyoming
MARY L. LANDRIEU, Louisiana          JAMES E. RISCH, Idaho
MARIA CANTWELL, Washington           MIKE LEE, Utah
BERNARD SANDERS, Vermont             RAND PAUL, Kentucky
DEBBIE STABENOW, Michigan            DANIEL COATS, Indiana
MARK UDALL, Colorado                 ROB PORTMAN, Ohio
JEANNE SHAHEEN, New Hampshire        JOHN HOEVEN, North Dakota
AL FRANKEN, Minnesota                DEAN HELLER, Nevada
JOE MANCHIN, III, West Virginia      BOB CORKER, Tennessee

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

                            C O N T E N T S




Allison, Herbert M., Author of the ``Report of the Independent 
  Consultant's Review With Respect to the Department of Energy's 
  Loan and Loan Guarantee Portfolio''............................     4
Bingaman, Hon. Jeff, U.S. Senator From New Mexico................     1
Chu, Hon. Steven, Secretary, Department of Energy................    25
Murkowski, Hon. Lisa, U.S. Senator From Alaska...................     2

                               Appendix I

Responses to additional questions................................    47

                              Appendix II

Additional material submitted for the record.....................    59

                           THE ALLISON REPORT


                        TUESDAY, MARCH 13, 2012

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:01 a.m., in 
room SD-366, Dirksen Senate Office Building, Hon. Jeff 
Bingaman, chairman, presiding.


    The Chairman. OK. Why don't we get started? Today's hearing 
will provide us an independent snapshot on the loan programs 
within the Department of Energy that were created in the 2005 
and 2007 energy bills. Mr. Allison has had considerable 
expertise, both within the government and in the private 
sector. He has produced a useful review of how the programs are 
being administered, including his suggestions on how 
administration can be improved. We appreciate his willingness 
to come here and share his findings with us.
    As members of the committee know, the issues surrounding 
the United States ability to compete in the international race 
to develop and deploy clean energy technology has been a 
concern to many of us here on the committee for many years. The 
loan programs, in addition to ARPA-E and other efforts to 
support domestic deployment of next generation technologies 
passed in previous energy bills, are part of a concerted effort 
to ensure the U.S. does not fall behind in addressing the 
critical challenges of energy, economic, and climate security 
posed by our current reliance on fossil fuels, from both power 
generation and transportation.
    These programs in particular recognize that it's not enough 
to have the innovative research that our national labs and 
universities conduct. There also needs to be a pathway to 
turning those ideas and inventions into profitable companies.
    I believe it is important to keep this goal in mind as we 
look at these programs today. While these programs need to be 
administered with high standards of professionalism and 
integrity--I believe Mr. Allison's report indicates they are--
it is also necessary to recognize that there is uncertainty 
about what technologies will eventually win the day. If we want 
to be sure that taxpayers lose no money, then it is easy enough 
to just eliminate government support for American efforts to 
compete in developing and deploying these new technologies.
    Unfortunately, our efforts to support domestic players in 
this race through the Loan Guarantee program have been caught 
up with many election year issues. My impression is that 
overall the program is doing what it is designed to do; that 
is, to take on risks that private investors are not willing to 
take on, not that the private sector has not taken on risk. 
Every investment the government has made has followed large, 
risky investments by the private sector. Private markets are 
selecting the winners, at least the companies they believe will 
be winners, and the government is stepping in to help these 
entrepreneurs achieve the scale necessary to give them a chance 
to compete on the global stage.
    Unfortunately, although the U.S. remains one of the 
greatest sources of innovation in the world today, it is not 
clear that we are going to reap the benefits of that 
innovation, or even retain the advantage we have in that 
innovation. In the ever-changing and highly competitive 
environment of high technology, the research and development 
necessarily follows the manufacturing, and before long, the 
next generation of technologies are being developed overseas, 
as well as the manufacturing occurring overseas. So, we have 
seen that scenario play out in such industries as televisions 
and consumer electronics. In my view, it would be tragic if it 
happened again in the technology areas that relate to our 
energy future.
    I believe that is the important context for our 
conversation today. Both our witnesses today have important 
insights on how we can best achieve the goal of advancing clean 
energy in the United States in a way that gives the most value 
to the taxpayers. This will never be a risk-free enterprise. 
Very few things of lasting benefit are, but I look forward to 
their thoughts on how we can best balance those risks with 
potential benefits of fully developing these technologies here 
and at home.
    Let me call on Senator Murkowski for her comments before we 
hear from our first witness.

                          FROM ALASKA

    Senator Murkowski. Thank you, Mr. Chairman, and I 
appreciate you scheduling what I think is a very important 
hearing. I think it is vital for our committee to be conducting 
regular and intensive oversight over the programs and the 
agencies that are under our jurisdiction, especially when we 
see problems that may be unexpected, or certainly serious 
problems begin to surface.
    I understand Secretary Chu will join us later this morning. 
I think it will be helpful to him--to hear from him directly 
about what has gone in this area. Mr. Allison, to you, thank 
you not only for being here this morning, but thank you for 
agreeing to take on the audit of the Department's loan 
    This is one of the more complicated topics that I think our 
committee will be tackling. These loan related authorities and 
the Energy Department's use of them span different 
Administrations, different Congresses, and include 3 separate 
programs, each with their own unique attributes.
    I want to say that I found the independent audit to be 
quite useful. It disaggregates the projects based on risk 
profiles rather than programmatic origin. It discusses 
transparency and reporting shortcomings, reveals the 
concentration risk in the current portfolio. The audit further 
highlights the portfolio's reliance on State and Federal 
mandates to force the creation of markets for certain project 
and products, and it makes some valuable recommendations that 
we and, I think, the Secretary need to consider.
    If there is one shortcoming to the audit, it is that it 
does not delve deeply into the history of these programs, which 
I think is essential to understanding how we have gotten into 
some of the difficulties that we are now facing. Again, we are 
talking about 3 different programs here. You have got the first 
one that was section 1703 from the 2005 energy bill, you have 
from the 2007 energy bill, the ATVM, and then you have section 
1705 from the 2009 stimulus. While there are certain 
similarities between the 3, there are some very important 
distinctions and differences between the 3 programs. I just 
will take a quick moment, Mr. Chairman, to review them.
    Section 1703 was created by a Republican Congress, relied 
heavily upon credit subsidy costs being self-paid by the 
applicants, made any project using new or significantly 
improved technologies eligible. Unfortunately, it is not closed 
on a single loan guarantee. Then you have section 1705, which 
was created by a Democratic Congress, accompanied by $6 billion 
to pay for applicants' credit subsidy costs, narrowly limited 
eligibility to renewable and transmission projects. This 
program has closed on 27 loan guarantees worth approximately 
$16 billion.
    Then you have the ATVM, designed to offer direct loans to 
auto makers, over $7 billion appropriated to cover credit 
subsidy costs, but just 5 loans have been issued. We have heard 
concerns raised around this table here about that. The last 
loan was in March 2011, and then the one prior to that was 
April 2010.
    Many of the remaining applicants are withdrawing. They are 
expressing clear frustration over DOE's apparent inability to 
either make an up or down decision on this. More than half of 
ATVM's lending authority remains unused, and the program, as I 
understand it, is virtually dormant.
    Both the 1705 and the ATVM programs are now dogged by 
questions about political influence, compliance with underlying 
statutes, and sometimes poor investment decisions. I think that 
everyone here is aware of that fact. Some may think that we 
have called for this hearing this morning to pile on, to add to 
those criticisms, but I do not want to take my time today to 
add to the narrative of the scandal and the controversy that 
the Department is already confronting. Instead I would just 
offer this. Hard questions need to be asked and to be responded 
in full.
    These programs should be examined, and I think that they 
should be improved. That is an appropriate role for Congress 
and, more specifically, this committee. We did not expect every 
single project of the Department supported to be a roaring 
success, but we also did not expect to see an accumulation of 
failures so quickly. There are clearly problems that need to be 
sorted out and worked through.
    Your audit, Mr. Allison, I think is a good first step, and 
I think that this hearing moves us in the right direction. 
DOE's loan programs can serve a valuable purpose. I have said 
that repeatedly. But right now we need to know if the loans and 
the loan guarantees that have been issued through them are as 
effective as we had all hoped that they would be.
    We will still have some tough decisions to make going 
forward, and I hope that we learn enough this morning to make 
sure that those decisions are fully informed.
    I thank you, Mr. Allison, and I thank you, Mr. Chairman.
    The Chairman. Thank you. Mr. Herb Allison is the author of 
the ``Report of the Independent Consultant's Review with 
Respect to the Department of Energy Loan and Loan Guarantee 
Portfolio.'' We appreciate your good work on that report, and 
we look forward to your describing it to us and making any 
other comments you would like before we ask questions. Thank 


    Mr. Allison. Thank you, Chairman Bingaman, Ranking Member 
Murkowski, and members of the committee for asking me to 
testify today.
    Last November, I was appointed by the chief of staff of the 
White House to study the Department of Energy's portfolio of 
loans and guarantees to clean energy projects. I was asked to 
perform 3 tasks: first, evaluate the current status of the 
portfolio, second, propose ways to strengthen management and 
oversight of the program, and, third, recommend a system to 
provide early warning of problems that might harm the 
portfolio's value.
    The scope of my assignment did not include investigating 
past decisions and actions because several independent 
investigations are already under way. Given the tight 60-day 
deadline, my team and I relied on readily available 
information. The Department of Energy, or Department of Energy, 
rapidly provided documents and arranged interviews that we 
    We conducted our review and developed our recommendations 
independently of the White House and the Department of Energy. 
We chose 2 methods for estimating future losses in the 
portfolio. The first method is the one that the DOE must use to 
comply with the Federal Credit Reform Act of 1990, or FCRA. Our 
second method, called fair market value, or FMV, is used in the 
capital markets to estimate the discount from a loan's face 
value that investors would demand so they could receive an 
acceptable return if they purchased the loan.
    The FCRA and FMV methods have fundamentally different 
purposes so their outputs are not directly comparable. FCRA, 
the government method, estimates the credit loss on the loans. 
FMV, the market method, estimates a broader set of costs and 
provides information useful in managing the portfolio. But FMV 
does not estimate the cost to DOE if it holds the portfolio 
until the loans are paid off.
    Using the FCRA method we estimated that the expected credit 
loss on the portfolio will be $2.7 billion, about 7 percent 
less than the DOE's recent estimate of $2.9 billion. Using the 
FMV method, we calculate that investors purchasing the loans 
would demand a discount of $5 billion to $6.8 billion from face 
    Importantly, neither FCRA, nor FMV, nor any other financial 
model can reliably predict the eventual loss of the DOE 
portfolio, for several reasons. First, these loans will not 
mature for up to 30 years, well beyond the limits of 
forecasting. Second, most projects are still being built, and 
some rely on unproven technologies. Their performance will not 
be known for some years. Third, as projects prove themselves, 
their risks and expected losses will diminish. Fourth, the 
estimates of loss assume that al projects will be fully funded, 
and that DOE will be a passive bystander, unable to influence 
the portfolio's risk over time.
    But so far, DOE has funded only a third of its total 
commitments. DOE's loan agreements allow it to stop further 
funding and demand more credit protection if projects do not 
meet targets. Some of the riskier projects have not received 
any funding, and others have been funded only partially. If 
those projects do not meet conditions in their loan agreements, 
DOE could cutoff more funding, and the forecasted loss could 
decline substantially.
    For all these reasons, our focus should be less on these 
unreliable forecasts of losses and more on assuring effective 
management of the portfolio going forward. DOE must be an 
active manager, continuously monitoring their projects, 
spotting risk, and limiting taxpayers' exposure to loss.
    The report recommends ways to strengthen management and 
independent oversight of the program and provide early warning 
of potential problems.
    In brief, our recommendations include, first, assuring 
adequate funding and staffing of the program; second, 
protecting taxpayers by strengthening DOE's position as a 
creditor wherever possible, and having a clear policy on 
funding projects that are not meeting targets; third, 
determining whether to hold or sell the loans over time; 
fourth, strengthening internal oversight by forming a risk 
management department and combining several committees in DOE 
that now oversee the program; fifth, establishing a high level 
advisory board to consult with the Secretary of Energy on 
policy matters; sixth, creating an early warning system 
covering market conditions, performance of all projects and 
loans, and internal operation of the program; and last, 
improving public reporting about the program.
    Thank you, and I will be pleased to answer your questions.
    [The prepared statement of Mr. Allison follows:]

Prepared Statement of Herbert M. Allison, Author of the ``Report of the 
   Independent Consultant's Review With Respect to the Department of 
               Energy Loan and Loan Guarantee Portfolio''

    Thank you, Chairman Bingaman, Ranking Member Murkowski and members 
of the Committee for asking me to testify today.
    Last November the Chief of Staff of the White House, then William 
Daley, appointed me to conduct an independent study of the Department 
of Energy's (``DOE'') portfolio of loans and guarantees to clean energy 
projects (hereinafter, ``the Portfolio'').
    I was assigned three tasks:

          1. evaluate the current status of the Portfolio;
          2. recommend ways to strengthen management and oversight of 
        the DOE's program for granting loans and guarantees to clean 
        energy projects (hereinafter, ``the Program''); and
          3. propose an early warning system for spotting potential 
        problems that could affect the value of the Portfolio.

    I was asked to focus on the present and future of the Program, not 
to conduct an investigation into past decisions and actions. Several 
independent investigations were already underway.
    The Chief of Staff requested that I complete the assignments within 
60 days after retaining advisors. I selected Arnold & Porter LLP as 
legal advisor, Greenhill LLC as financial advisor, and David M. 
Johnson, an experienced financial executive, as project advisor.
    Given the tight timeline for the project, my team and I had to rely 
on readily available information. DOE rapidly provided documents and 
arranged interviews with current and former DOE officials that we 
requested. We also interviewed selected officials of the Office of 
Management and Budget and the Department of the Treasury. We evaluated 
30 individual transactions with aggregate loan and guarantee 
commitments of $23.77 billion.
    We conducted our review and developed our recommendations 
independently of the White House and DOE. I decided on the methods of 
valuation and the conclusions about the current status of the 
Portfolio, the recommendations for strengthening management and 
oversight of the Program, and the proposed early warning system. We did 
not include the Solyndra and Beacon loans in our review, as those loans 
are no longer in the Portfolio.
    We used two quantitative methods to assess the loans in the 
    The first is the method that the DOE must use to comply with the 
Federal Credit Reform Act of 1990 (``FCRA''). It calculates the 
``Credit Subsidy Cost'' that is the amount needed to cover expected 
shortfalls in payments from each loan. The Credit Subsidy Cost reflects 
DOE's assessment of that loan's credit quality.
    The FCRA method is appropriate for budgeting the government's wide 
range of loan programs because errors in estimating losses in the 
various programs tend to offset each other over time.
    We also evaluated the Portfolio by the Fair Market Value method, or 
``FMV.'' It is used in the capital markets to estimate the discount 
from a loan's face value that investors would demand so they could 
receive an acceptable return if they were to purchase the loan.
    The FCRA and FMV methods have fundamentally different purposes, so 
their outputs are not directly comparable.

   FCRA estimates the government's expected loss on the loans.
   FMV estimates the discount that investors would require to 
        purchase the loans.

    The FMV discount reflects not only credit risks but also market 
risks and transactions costs that will not affect the government if it 
holds the Portfolio until the loans are paid off.
    We used the FMV method in addition to the FCRA method because FMV 
provides additional insight into the future marketability of these 
loans and guarantees, into the financial incentives that sponsors and 
other parties have to invest in these projects, and into ways that DOE 
should manage the Programs to protect and enhance value to taxpayers 
over time.
    Using the FCRA method, we estimated that the expected credit loss 
on the Portfolio will be $2.7 billion, about seven percent less than 
DOE's own recent re-estimate, which is $2.9 billion. Using the FMV 
method, we estimated that investors would demand a discount of $5.0 
billion to $6.8 billion from the face value of the loans if they were 
to purchase the Portfolio. All estimates of expected credit losses and 
discounts presented in my testimony are as of January 31, 2012, the 
date of my Report.
    To facilitate our analyses, we grouped the loans and guarantees 
into three categories, each with distinctive credit characteristics. 
The categories are:

          1. ``Utility-Linked Loans'' to projects where an 
        investmentgrade public utility has agreed to purchase the 
        output of the project for most or all of its useful life. These 
        20 commitments total $14.4 billion. Because the loans will be 
        supported by power-purchase agreements once the projects are 
        operational, we consider their risk to be moderate.
          2. ``Non-Utility-Linked Loans'' to cellulosic ethanol 
        projects, solar manufacturing companies, and small, start-up 
        automotive manufacturing companies. These commitments to eight 
        projects total $2.01 billion and exclude Solyndra and Beacon 
        Power. On average, these loans are smaller than the Utility-
        Linked Loans and entail greater risk because the projects do 
        not have guaranteed outlets for their production.
          3. Loans to Ford and Nissan, which we view as investmentgrade 
        credits. These loans total $7.355 billion, are secured, and 
        have terms typical of corporate loans.

    The credit ratings we assigned to the Utility-Linked Loans were 
modestly lower than those assigned by DOE. Therefore, our estimate of 
the Credit Subsidy Costs for Utility-Linked Loans using the FCRA method 
is nine percent higher than DOE's reestimate as of December 11, 2011 
($1.696 billion vs. $1.551 billion).
    Using the fair market value method to evaluate the Utility-Linked 
Loans, we estimate that investors would require an aggregate discount 
of $3.5 billion to $5.0 billion to the face value of those loans if 
they were to purchase them.
    In evaluating the Non-Utility-Linked Loans, we assigned lower 
average credit ratings than did DOE. We estimate the Credit Subsidy 
Cost for these loans to be $820 million, 28 percent higher than DOE's 
FCRA re-estimate of $640 million.
    Our fair market value analysis yielded an estimated discount of 
$707 million to $858 million from the face value of the Non-Utility-
Linked loans.
    The Ford and Nissan loans represent a commitment of $7.4 billion. 
We assigned a credit rating to the Ford loans that is four notches 
higher than DOE's rating at re-estimation, but we agreed with DOE's re-
estimate of the Nissan rating.
    Our estimate of the Credit Subsidy Cost of the Ford and Nissan 
loans totals $166 million, 78 percent less than DOE's FCRA reestimate 
of credit loss, which is $753 million as of December 11, 2011.
    We calculated the fair market value discount from the face value of 
the Ford and Nissan loans to be $716 million to $1.021 billion.
    It is important to emphasize that neither FCRA nor FMV nor any 
other financial model can reliably predict the amount of eventual loss 
on the DOE Portfolio.
    The actual loss will depend upon the outcomes of many factors:

   First, the Program's loans have long maturities--up to 30 
        years, well beyond the limits of forecasting.
   Second, most projects are in early development and some are 
        deploying unproven technologies, so their future performance is 
        hard to predict.
   Third, once some projects are completed, their prospects 
        will be clearer, so their risks and estimated losses will 
        diminish in some instances. In other instances, possible 
        changes in factors such as regulations and markets could 
        increase expected losses.
   Fourth, the FCRA and FMV methods assume that all of the 
        projects will be fully funded and the DOE will be a passive 
        bystander unable to influence the Portfolio's risk over time. 
        However, DOE has funded only about a third of its total 
        commitments. Some of the riskier projects have not received any 
        DOE funding and others have been funded only partially.

    DOE has negotiated protections in the loan agreements that enable 
it to cut off further funding and to demand more credit protection if 
projects do not meet targets. If DOE denies further funding to such 
projects, the risks and expected losses will decline.
    For all of those reasons, focusing on forecasts of losses is far 
less productive than is assuring that DOE will effectively manage the 
Portfolio going forward.
    DOE must be an active manager, continuously monitoring the 
projects, spotting risks, exercising its rights in the loan agreements, 
and limiting taxpayers' exposure to loss.
    The Report contains numerous recommendations for strengthening 
management and oversight of the Program and providing early warning of 
potential problems.
    Our recommendations regarding management of the Program include:

   Assuring adequate funding and staffing for management and 
        oversight of the Portfolio for the long-term. That funding will 
        be small compared to the risk of higher losses if the Portfolio 
        is not actively managed.
   Clarifying the authority and accountability of managers 
        along the chain of command.
   Establishing clear goals for the Program, to include 
        defining the vague financial goal in the enabling law for all 
        of the loans except the automobile loans, which is to assure a 
        ``reasonable prospect of repayment.''
   Engaging in long-range strategic planning for the Program, 
        including determining whether to hold or sell loans over time, 
        and whether to outsource management of the Program;
   Protecting taxpayers by strengthening DOE's position as a 
        creditor wherever possible and having well-defined policies for 
        cutting off funds if projects are not meeting targets.

    The laws establishing the Program contain few requirements for 
oversight and reporting. While the DOE has developed policies and 
activities in those areas, we recommend several improvements:

   Strengthen internal oversight of the Program by forming a 
        Risk Management department separate from the office 
        administering the Program and by consolidating various risk 
        committees in the DOE that oversee the Program;
   Establish an interagency Advisory Board composed of senior 
        officials from other agencies and experts from the private 
        sector to review the Program's governance and advise the 
        Secretary of Energy on policy matters concerning the Program;
   Create a comprehensive early warning system covering market 
        conditions affecting the Program, regulatory changes, 
        performance of every project, loan, and involved party, and 
        internal operation of the Program; and, lastly,
   Improve public reporting about the Program by enhancing its 
        content and increasing its frequency.

    Thank you. I will be pleased to answer your questions.

    The Chairman. Thank you very much.
    Maybe I could ask you to elaborate some. Your report 
indicates that changes were made in the program to better 
control risk, both before the program review or the review 
period, and also during the time that you were doing your 
review. I guess I would be interested in any comments you could 
give us on the effect that these either personnel or policy 
changes have made, and whether you think those mid-course 
corrections have been useful or adequate.
    Mr. Allison. Thank you, Chairman Bingaman.
    First of all, in terms of structuring the loans, there have 
been improvements to the structure of the loans. Beginning in 
the middle of 2010, the Department's loan agreement provided 
for more staging of funding, and also provided that the 
sponsors of these projects should fund the initial stage with 
equity before the Department of Energy would be providing loan 
funds. So, the Department would have the opportunity to view 
progress on these projects before the government starts putting 
its own money to work.
    We think that the terms and conditions of these loans, by 
and large, since the middle of 2010, in most cases conform 
closely to commercial practice in the industry.
    In terms of the internal management, there has been a 
gradual evolution of the management and oversight of this 
program within the Department of Energy. We see that, for 
instance, several committees have been formed to oversee and 
make recommendations to the Secretary about committing 
additional loan funds. However, in our view, there still is 
room for improvement, and that is why we have made these 
recommendations, first of all, to fully staff the loan project 
office with permanent professionals. There is a need for more 
expertise in, for instance, project finance.
    Many of the positions are currently financed by consultants 
who are temporary employees. We believe that going forward 
there needs to be consolidated internal oversight and, very 
importantly, the formation of a risk management department. 
Currently the loan project office executive director oversees 
the credit department, for example, the compliance department. 
We believe those should be separated out, and there ought to be 
an independent view within the Department of Energy about the 
risk that is being undertaken as loan are provided, and also 
about the ongoing dynamic changes in risk within these loans.
    An independent oversight would be another check and 
balance. We think that that position should have the ability to 
call for a halt in a funding until the Secretary approves if 
there is a different opinion between the risk management 
department and the loan project office as to whether that loan 
should go forward.
    The Chairman. As I think you are aware, Senator Murkowski 
and I and some others here on the committee have proposed a 
bill called a Clean Energy Deployment Administration to 
establish an independent agency outside the Department of 
Energy that would take over responsibility for administering 
loans. Have you had a chance to look at that? Do you think that 
the general thrust of that legislation would make sense as an 
alternative to continued housing of this activity in the 
Department of Energy?
    Mr. Allison. Chairman Bingaman, I have reviewed the 
legislation. I think that all can agree that there is a need 
for professional oversight and the use of best practices in 
managing and overseeing this portfolio.
    I think that there are several questions that I might pose. 
These are more in relation to policy. Again, my brief here was 
to do a fact-based analysis.
    But in answer to your question, I think that one issue is, 
if there is an independent agency within the Department of 
Energy, who is responsible for policy implementation of this 
program? Is it the new CEDA agency, or is it the Secretary? My 
understanding is that this agency would be completely 
independent from a decisionmaking standpoint from the 
Secretary. So, one, I think the law should provide who is 
really accountable.
    Second, should there be a sunset provision in this bill? 
The purpose of these clean energy loans is to provide funding 
for projects until they reach commercial maturity and funding 
is available in ample amounts in the public markets. Unlike 
many other loan programs administered by the government, which 
have really indefinite futures, like student loans, or FHA, and 
so forth, this intended, I believe, to be a program that would 
run only a certain number of years. So, perhaps there needs to 
be some type of sunset provision.
    The Chairman. Do you have anything else to add? Go ahead if 
you do.
    Mr. Allison. I think, too, as I read the bill, it would 
allow this agency to be able to borrow to fund its operations. 
This could mean that this agency would have not only equity--
perhaps $10 billion--but indefinite funding capability. Is 
there a possibility that it might start to grow in size and 
begin to crowd out private sector financing? That is one 
potential risk. Could it become an independent force in and of 
    So, I think that these types of issues need to be carefully 
looked at before the decision would be made to go ahead.
    The Chairman. Thank you very much.
    Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman.
    Mr. Allison, when we created the Loan Guarantee program, 
there were a number of terms and conditions that were inserted 
at implementation, and I want to ask you 3 questions, I hope 
pretty brief.
    But one condition in the program is that there be a 
``reasonable prospect of repayment.'' In your opinion, what is 
a reasonable prospect of repayment? Is it an 80 percent chance 
that it is going to be repaid, a 70 percent? Is it higher, is 
it lower? What is reasonable?
    Mr. Allison. Senator, that is an excellent question, and we 
actually looked at the history of that term in legislation, and 
it goes back quite a long way. But nowhere could we find a 
definition of reasonable prospect of repayment.
    Senator Murkowski. So, how would you define it?
    Mr. Allison. If it were--I think that is precisely the 
issue, how does one define it? I would say ``reasonable 
prospect'' would probably mean more than a 50 percent 
probability, but others might define it as a 90 percent 
probability. With that amount of vagueness, there is room for a 
great deal of controversy and second guessing----
    Senator Murkowski. Yes.
    Mr. Allison [continuing]. About this program. So, I would 
respectfully recommend that there be greater clarity to these 
policy goal regarding financial recovery.
    Senator Murkowski. Then, let me ask you another one where I 
think we ran into a situation where there was some vagueness. 
Another requirement was that the obligation is not subordinate 
to other financing.
    Mr. Allison. Yes.
    Senator Murkowski. I read that and it is, like, OK, there 
is no subordination there. But apparently there was some 
vagueness there. Do you think that in that situation this 
particular condition of the authorizing statute was vague in 
any way?
    Mr. Allison. Yes. Not being an attorney, let me say in 
reading it, I think that it is quite clear to me that at the 
point of origination, there should not be subordination. The 
question is, later on if a project runs into trouble or a loan 
runs into trouble, DOE's the law allow that in order to 
preserve taxpayer assets, the DOE have the ability to 
    In commercial practice, it is common that where a loan gets 
in trouble, in order to attract additional financing so the 
project can succeed, the existing lenders subordinate. They 
have a better chance of recovery.
    If the objective is recovery for taxpayers, I would 
respectfully submit that there are a couple of techniques 
widely used in the private sector that are missing that are not 
available, or at least are in doubt, to the DOE. One is to be 
able to subordinate because at least you will get something 
back on the investment perhaps. The second is to be able to 
contribute equity or to convert to equity. In this case, it 
looks like that is ruled out.
    I think that if I can speak more broadly about this, there 
is--these laws confine the type of financing that the 
government can make quite a bit. There is virtually no upside 
for taxpayers if these projects succeed. They are strictly 
debt. There is one case, Tesla, where the government did take 
options. Apparently the government can take equity interest as 
a condition for making a loan, but it cannot make an outright 
equity contribution.
    I think for early stages of investments, it might be 
suitable in some cases for the government to contribute equity, 
to prevent a control issue from arising where the government 
controls a project. It might be non-voting. It might be 
convertible preferred or something like that. So, one broad 
observation would be going forward, with legislation like this, 
there might be a wider variety of options. There might be more 
consideration to recovery and gains for taxpayers.
    If a few projects were to pay off a lot, that might help to 
pay for any losses in the portfolio in other projects.
    Senator Murkowski. Let me ask you one more then, and this 
is a requirement to ``provide an amount sufficient to carry out 
the project.'' Got to be pretty difficult to determine the 
overall cost of a project and whether or not available funds 
then will be there or sufficient to cover the amount before we 
have issued this loan guarantee.
    Mr. Allison. Right.
    Senator Murkowski. How do we finesse that one?
    Mr. Allison. Yes. Most of the cost is going to take place 
during the construction phase until this project is up and 
running and begins to generate revenues. In that phase, the 
loan agreements provide that there must be very detailed 
budgets. There must be independent engineering analyses and 
then reports as progress goes along. As I mentioned before, 
there is phase funding, so certain benchmarks and milestones 
must be met before funds are advanced by the Federal 
    Senator Murkowski. Is that happening, though?
    Mr. Allison. Yes. So, it is easier to estimate the cost. 
There still may be overruns, and most of these loans provide 
for some cushion in case of overruns. That is built in. There 
is, to our understanding, frequent reviews of progress in all 
of these projects.
    What is the unknowable is once these projects are 
operating, especially those without a power purchase agreement, 
which is pretty much a guaranteed source of revenue for the 
entire project, the capacity going forward, in the case of the 
manufacturing ventures, they have no power purchase agreement. 
They have to sell into the market. How well they will succeed 
in a dynamic, highly competitive market, for instance, for 
electric cars, that is open to question.
    That is why we divided up the portfolio the way we did into 
utility power purchase agreement type financings to the non-
utility loans, including manufacturing of electrical components 
or cars, for example. Then Ford and Nissan, which is a large 
component of the whole portfolio, those are investment grade 
credits, so we treated them differently. Those are easier to 
    So, the real risk, much of the risk, I would say, in the 
portfolio is in these non-utility manufacturing companies.
    The Chairman. Senator Stabenow.
    Senator Stabenow. Thank you, Mr. Chairman and Mr. Allison. 
Thank you very much for your analysis. It is very helpful to 
    As someone who was deeply involved in authoring the 
advanced technology vehicle manufacturing program or section 
136, working with our chairman, at the time when we put that 
into the energy bill, there were a number of things that were 
happening in terms of the credit markets. But also we were in 
the legislation, the energy bill, in 2007, we were raising the 
fuel efficiency standards and encouraging more smaller, fuel 
efficient vehicles. I was extremely concerned at the time that 
that production would go overseas if we did not, in some way, 
support retooling our plan. So, that how is we came up with 
this particular program.
    In fact, it has done what we wanted it to do, at least at 
the beginning. I mean, it is stuck at the moment here. But when 
we look at Ford Motor Company retooling their Michigan assembly 
in Wayne, Michigan, saving 1,900 jobs. They are actually 
bringing jobs back from Mexico now related to that operation, 
as are a number of other operations.
    So, first I would just, as a statement, Mr. Chairman, when 
we look at the global economy where Germany, China, India, 
Japan, every other country wants to do manufacturing, advanced 
manufacturing, so that they have good middle class jobs, they 
are all providing support in some way for financing, tax 
incentives, and so on. At least as it relates to the ATVM 
Program, that is very much what the goal of that is, is to make 
sure that we are providing that support to keep jobs here in 
    What would you recommend to make this retooling program 
more effective at this point?
    Mr. Allison. First of all, I would point out that these 
programs are intended to encourage risk taking. That is the 
whole point really. So, having risk in the portfolio is 
    I think what is important going forward is to make sure 
that this portfolio is well managed by professionals, that 
there is independent risk oversight of this portfolio, that 
there is ample public reporting on each of these projects and 
how they are doing so that the public and the Congress is kept 
    While these programs are being managed, again, there is 
some room for improvement, and I think that with the 
recommendations that we are putting forth, if those are 
adopted, I think that this portfolio can be very responsibly 
managed going forward.
    Senator Stabenow. Speaking more about the risk, because I 
know there is a concern and there has been criticism related to 
the amount of risk that the Department has taken on the loans 
and loan guarantees. But I found it interesting that your 
report suggests that some of the risks associated with loans 
has actually gone down, and particularly again with the 
retooling, the manufacturing retooling loans. In particular, 
you calculated the risk associated with the Ford retooling loan 
and Nissan had decreased by 95 percent.
    Mr. Allison. That's right.
    Senator Stabenow. Now I would suggest it is, in part, 
because companies like Ford are making fuel efficient vehicles. 
People are buying. Consumers are buying. It is doing well. It 
has been a real success story.
    But I wonder if you could talk a little bit more about 
other reasons for changes in risk assessment that you saw in 
your report.
    Mr. Allison. First of all, some of these projects have 
progressed, and, you know, Ford is the best example. During the 
height of the crisis, all the automobile companies, even 
including Ford, which, you know, did not need a bailout, they 
were also suffering during that time. Ford has staged a 
remarkable recovery, and that is why the debt that the 
government now holds from Ford is rated investment grade. It is 
triple B today. That has had a major effect on the overall risk 
composition of this portfolio.
    So, I think that as projects, as I mentioned in my 
testimony, as they progress, as long as they are progressing 
according to plan, the risk in that project declines. The major 
component of risk in many of these projects is during the 
construction phase, especially for the utility related projects 
because once they are completed, they will have a binding long-
term contract with an investment grade utility to purchase all 
of their production.
    So, I think that, again, in several years, the tenor of 
risk in this portfolio should be demonstrably improved, if all 
goes according to plan.
    Senator Stabenow. Thank you very much.
    The Chairman. Senator Coats.
    Senator Coats. Thank you, Mr. Chairman.
    Mr. Allison, I want to thank you for your work. I think it 
was very important to have someone take an independent look at 
the situation.
    I guess my question goes back to the more fundamental 
question of what the role of government should be in something 
like this. We have some celebrated failures, and it sours the 
public in terms of the use of taxpayer money when they read 
about these failures. We are talking about estimates of several 
billions of dollars of taxpayer money that----
    I guess my question goes to, what is your take on the 
question of the government limiting its investments into basic 
research, and letting the private market take more of the risk 
in terms of the commercialization of various products and new 
innovations? Have we learned some lessons from our efforts to 
direct money to specific industries and specific companies?
    You know, there is always the question of whether there is 
political influence in the decisionmaking process. I mean, 
there are some of these allegations--I am not going to go into 
them--but allegations that on some of these loans there were 
directions from policymakers at the White House or political 
directives coming down in terms of certain industries and so 
forth and so on.
    Are we just--and now we are talking about better management 
of the process, but is the basic process broken to start--have 
a fatal flaw to start with?
    Mr. Allison. No.
    Senator Coats. Could you just give me your thoughts on 
    Mr. Allison. Senator, thanks for the question. That is a 
very important question. I am a big believer in the capital 
markets, having spent most of my years of my professional 
career in the capital markets. I think that if we look back in 
history here, and I am sure you are well aware of this, in the 
energy field and many other fields, like medicine, et cetera, 
transportation, the Federal Government has played an important 
role in getting projects off the ground to the point where they 
could stand on their own. If you look at the space program now, 
we are starting to see commercial launch commercials coming 
into effect and into operation. But the government had to fund 
the initial stage, and the same with most forms of energy. 
Nuclear energy is a great example as well.
    I think--so where there is a policy need, and this is 
where, of course, the Senate and the House of Representatives 
have to make the decisions, there may well be a legitimate role 
for government financing. I think, however, that financing 
needs to be tailored to the policy goal and to the risk 
characteristics of these projects, and to, where possible, 
provide mechanisms for taxpayers to benefit if projects are 
successful with Federal money.
    I do think that there is the so-called valley of death in 
various phases of financing for, say, clean energy, where the 
government can play a constructive role. These projects need to 
be carefully researched, and they need to have financing 
structures that protect taxpayers. There ought to be a finite 
life, as I mentioned earlier, to these types of programs, which 
are intended for a specific purpose, for a certain period of 
time, until these industries mature.
    Senator Coats. I think your recommendations--I mean, should 
we go forward on the basis of what you have just said, would be 
helpful in that regard. But it concerns me when I read that, 
you know, the inability to attract the necessary people with 
necessary skills and experience in order to work in the public 
sector, to make these types of evaluations, particularly when 
they are using someone else's money. When you are making these 
evaluations in the private sector, the bottom line is what 
ultimately counts, and so, therefore, I think this naturally 
would get a much keener and sharper look and due diligence 
before you commit the funds.
    Second, it is outside the political process. I am--you 
know, there is responsibility here that falls on both sides for 
some of these programs in terms of we continue to read about 
the political influence directing things the wrong way. For 
instance, stepping out of this field into another, I can 
remember talking to the head of NIH, and he said, you know, if 
Congress would not direct how we do our--how we allocate our 
money, we could be making breakthroughs in life threatening 
illnesses that are very, very close. But Congress keeps telling 
us, no, you got to put the money somewhere else.
    I am afraid part of the beast here that exists from a 
political standpoint in terms of our thinking that we have, you 
know, or responding to constituent requests or whatever, that 
we have a better ability to direct where the funds go than the 
private sector does. That's where, I think, we get in trouble.
    My time has expired. I just did not really come to preach. 
But you do come out of the private sector, and I think your 
evaluation of this is important for us to hear.
    Mr. Allison. Yes. Senator, may I just respond.
    The Chairman. Go right ahead.
    Mr. Allison. On your final points, Senator, that is why I 
think it is important that these programs be reviewed 
periodically to see whether they are still relevant and ideal 
for the current climate and the objectives that are being 
    I think in terms of making sure that there is professional 
staffing, as we pointed out, there is no provision for long-
term funding of the loan project office. I think one of the 
reasons why it is difficult to attract and retain professional 
talent is that people do not see that if they come into the 
government in one of these roles, that this program will be 
funded down the road. It is funded now out of origination fees. 
So, as loans are closed, funding comes into the Department of 
Energy that underpins this loan project office. But once the 
origination stops, that funding dwindles.
    This program has loans that are going to be out there for 
20 to 30 years. It is going to need active, professional 
management for the entire time that the government holds these 
loans, because decisions will have to be made all along the 
    So, to attract people, I think they need to have assurance 
that the funding will be there. Otherwise, why should they join 
up and oversee this program?
    Senator Coats. If I could just have 10 seconds, but 
wouldn't that go against the whole concept of sunset programs 
30 or 40 years out?
    Mr. Allison. Yes.
    Senator Coats. But assuming that you are talking about 
sunset in the amount of commitment, does not that run counter--
    Mr. Allison. Once----
    Senator Coats [continuing]. The other?
    Mr. Allison. What I am talking about, Senator, is that if 
you have an ongoing program where you are going to making loans 
over time, then I think you need to think about having a sunset 
provision. When do we stop making new loans? When is the 
private market able to finance these types of projects without 
government assistance?
    But once long-term loans like these are made, they are 
going to have to be administered. Now, as we point out, one 
consideration should be, should the DOE sell off these loans? 
Once they are matured and there is a public market for them, 
should they sell them off, or should they hold them? But we 
presume that they are going to hold them for many years. If 
they are going to hold them for many years, there is going to 
have to be professional oversight to make sure that the 
taxpayers are being protected.
    The Chairman. Senator Wyden.
    Senator Wyden. Thank you, Mr. Chairman, and, Mr. Allison, 
thank you for your good work.
    It seems to me that as you drill into this and look at the 
various kinds of loans, you come to the conclusion that not all 
energy loan guarantees are created equal. You then compare that 
to the statute, the loan guarantee statute, which basically 
lumps everything together, and you say to yourself, that sure 
looks like it is right at the heart of what the Congress ought 
to be trying to do. You have made a number of constructive, you 
know, comments today that track with my thinking.
    I mean, if there is private sector investment, for example, 
that signals a message that people can feel more confident that 
this is something that can work. Utility linked loans, for 
example, which the Pacific Northwest, as you know, has been 
very interested in, a utility linked loan ensures that you 
already have a customer lined up. You have got a customer lined 
up from the get go, which also should give a measure of 
    I think my question to you is a result of sort of starting 
with this proposition that not all energy loan guarantees are 
created equal. My question would be to you, would it make sense 
for the Congress to really step back now and look at 
restructuring the loan guarantee statute to, in effect, set up 
different categories that recognize fundamentally different 
risk to the taxpayers? You would measure, for example, 
something that would ensure that there was a market from the 
get go. That could be one category. Something else which was 
exciting and promising, but didn't have the same level of 
support could be a different, you know, category.
    My question to you is, would it make sense to restructure 
the loan guarantee statute along the lines of recognizing 
different risks to taxpayers?
    Mr. Allison. Senator Wyden, I think that is an excellent 
thought. I think that you do have a wide variety of loans in 
this program. I think there needs to be great clarity about the 
purposes of the programs as a whole and what they are designed 
to achieve.
    Again, as I said before, I do not think there is anything 
wrong with making some loans that are admittedly risky as long 
as we are acknowledging at the time the risk in the loans. I 
think one of the causes of controversy about this program is 
that there are differing expectations about what this is 
supposed to be doing. I think your question hits on that.
    You could have some programs, like the utility linked 
loans, where the risks are much better understood, where you 
have much less risk once these projects are built. There are 
certain risk characteristics. That is why we divided up the 
portfolio that way. There may be very good reasons to be 
supporting early stage innovative manufacturing companies in 
green energy to get those industries off the ground. That is 
going to involve higher risk. That ought to be acknowledged. 
There should probably be different types of financing available 
so that, again, greater risk, there are ought to be prospects 
for greater reward for taxpayers.
    The way this program is structured today is kind of one 
size fits all. These are loans at government rates. I am not 
sure that in all cases they need to be at such a low interest 
rate to attract funding. The fees that the DOE can charge are 
very low. There is no provision for upside in terms of some 
type of an equity linked gain. So, maybe there is a different 
type or package of financing that should be available for 
riskier projects than for, say, the utility projects where 
there is a pretty conventional approach to debt structuring.
    Senator Wyden. I thank you, and I thought Senator Murkowski 
also made a lot of sense when she was saying right from the get 
go, nobody goes into this thinking that everything is going to 
be 100 percent, you know, winner in a dramatic opportunity for 
creating scores of new jobs and the like.
    But taxpayers deserve better, it seems to me, than a 
program that lumps Solyndra, in effect, in the same category as 
one of these utility linked projects that has the customer, you 
know, up front. I think this is another area--Mr. Allison, I 
appreciate your answer--where we can do better for taxpayers in 
this country, do better for some of the most exciting and 
promising technologies. I see Senator Sanders here. He has 
talked a lot about the opportunities in renewable energy. I 
think we have got a chance to make some exciting changes in 
this country if we restructure this program.
    Mr. Chairman, I thank you for holding the hearing.
    The Chairman. Senator Barrasso.
    Senator Barrasso. Thank you very much, Mr. Chairman. I 
agree with my colleague, Senator Wyden, that taxpayers do 
deserve better. I appreciate your work on this.
    The report had a section called ``Proactively Protecting 
the Taxpayers' Interests.'' The report says that DOE should 
aggressively strengthen its positions as lender or guarantor in 
cases where borrowers seek relief from requirements in the loan 
repayments. Senator Murkowski addressed that.
    You know, with regard to the situation with Solyndra, the 
Secretary has argued that the Department of Energy did not 
violate the 2005 Energy Policy Act when restructuring 
Solyndra's loan, which they restructured. It worked in a way 
that I thought put the American taxpayers at a disadvantage, 
that they were subordinated to other financing.
    So, you know, I understand the Secretary saying that the 
law applies to origination of loans, not to the restructuring 
of loans. I do not agree with that interpretation. I think that 
the policy--Energy Policy Act of 2005 does not distinguish 
between origination of loans and restructuring of loans.
    So, with that said, would you support legislation to ensure 
that American taxpayers will always be paid before private 
investors, whether it is an origination of a loan or a 
restructuring of a loan?
    Mr. Allison. Senator, thank you for your question. I think 
if the paramount issue is recovery for taxpayers once these 
loans are made for policy purposes, based on my experience in 
the commercial world, I think that the, in this case, the 
Department of Energy, should have some flexibility to 
subordinate because that may be the best way, once the loan has 
been issued on a singular basis, to recover some money for 
taxpayers, because by subordinating, it may make it possible to 
attract additional funding from other debt investors, which can 
help that project succeed.
    Sometimes these projects are going to run into trouble. 
They are, after all, risky. But that does not mean everything 
has to be lost. There needs to be creative refinancing for 
projects as a way to protect taxpayers and actually enhance the 
probability that they will get some of their money back.
    Senator Barrasso. It seems to me that subordination in the 
case specifically of Solyndra did not work----
    Mr. Allison. Yes.
    Senator Barrasso [continuing]. To accomplish that goal. 
Thank you.
    I want to ask you about bonus payments, to follow up on 
what you have said about taxpayers and getting value for their 
money. Several Department of Energy loan and grant recipients 
have recently filed for bankruptcy. They have laid off workers. 
They have experienced financial difficulties. The media has 
reported that several of these companies, including Solyndra, 
awarded large bonuses to executives and other employees, 
specifically the bonuses to executives as other employees were 
being laid off.
    Last week it was reported that Beacon Powers' bonuses were 
specifically linked to executives' progress in landing the 
company's $43 million loan guarantee.
    So, what, if any, protections are in place to ensure that 
American taxpayers do not foot a bill for bonuses awarded at 
failing companies.
    Mr. Allison. Thank you, Senator.
    First of all, let me, again, emphasize that we did not look 
at Solyndra and Beacon. We have not looked at the companies 
that received grants. We are only looking at the loan program.
    I think that it is important--and the provisions in this 
law allow for this, and the Department can certainly have 
policies on this--should be looking at all the expenses planned 
in these programs. They may want to build in the capability to 
review, for instance, compensation programs. I am not sure that 
that provision is in these loan agreements, by the way, but 
that is something that might be considered because I can 
certainly understand the public consternation if people are 
receiving bonuses while a company is veering toward bankruptcy.
    Senator Barrasso. So, that would be one of your 
recommendations in terms of ensuring that abuses like this do 
not take place again.
    Mr. Allison. I think that is a reasonable idea, yes, sir.
    Senator Barrasso. Thank you. Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Sanders.
    Senator Sanders. Thank you, Mr. Chairman. Mr. Allison, 
thank you for being with us.
    In terms of full disclosure, let me just be very clear that 
I happen to believe that global warming is very real. I think 
it is causing enormous problems to our planet today, and I 
think it is totally irresponsible that we are not moving as 
aggressively as possible to reduce greenhouse gas emissions.
    I would mention to my colleagues that a few weeks ago 
Senator Whitehouse and I had a press event with representatives 
of the insurance industry, not generally noted as one of the 
more radical groups in our society. They pointed out the 
enormous damages that extreme weather disturbances are doing to 
their bottom line because of global warming.
    So, it is my view that our country and the Federal 
Government should be investing very, very strongly in energy 
efficiency and sustainable energy in order to reverse 
greenhouse gas emissions and try to protect the planet.
    Now, in a sense, what we are talking about today is the 
role of government in energy, and we have been focusing on 
Solyndra and the 1705 program. But let me ask you a question, 
which I hope you have some familiarity with. Back in the 1960s 
and 1970s, there was a huge overbuild in terms of nuclear 
projects. In fact, as I understand it, about 100 nuclear 
facilities were terminated at huge expense both to rate payers 
and taxpayers.
    Right now, I find it a bit ironic that some of my friends 
talk about picking winners and losers. But would you not agree 
with me that for the last 50 or so years, the U.S. Government 
has picked as one of its winners a very, very risky industry 
called nuclear power, an industry which, and please correct me 
if you disagree with me, would not be in existence today 
without the very, very strong support of the Federal Government 
in terms of the Price-Anderson insurance program and, 
furthermore, in terms of the attempt at least to get rid of 
nuclear waste. So, would nuclear industry not be in the 
existence today if they were solely dependent upon Wall Street 
and the financial community to support them?
    Mr. Allison. Senator, I would like to respond to your 
question, but I must confess I do not have real expertise on 
that question. I think that is a very broad, deep question as 
to whether the government should have been sponsoring nuclear 
    I do believe as a general comment that in any nascent 
industry, and right now you could look at nuclear fusion, which 
could be the answer to a lot of our energy needs and could be a 
very clean source of energy. It may take----
    Senator Sanders. Mr. Allison, I am sorry to interrupt you. 
I have a limited amount of time.
    Mr. Allison. Go ahead.
    Senator Sanders. When people talk about winners and 
    Mr. Allison. Yes.
    Senator Sanders [continuing]. Is it fair to say that for 
the last 50 years, the U.S. Government has decided that one of 
the winners in which we should make huge investments is the 
very, very risky nuclear power industry?
    Mr. Allison. The only comment I would make is that early--
and this is from my own experience, so I comment on this. In 
early phases of any industry, it is very difficult to pick 
winners and losers. Therefore, often you find financing for a 
lot of different approaches to solving a particular problem, 
and over time, one learns a lot.
    Senator Sanders. Right. I agree. I agree with that. The 
only point that I am making----
    Mr. Allison. Yes.
    Senator Sanders [continuing]. Is then when some people talk 
about the riskiness of certain types of sustainable energy or 
the problems with Solyndra, is it fair to say that we have seen 
that maybe 10 times plus in terms of the nuclear industry, 
which has at certain times already lost huge amounts of money 
from the taxpayers of this country? Is that a fair statement?
    Mr. Allison. I would respectfully answer. I think that your 
next witness, Secretary Chu, is a far more qualified expert on 
that question than I am.
    Senator Sanders. All right. Thank you very much, Mr. 
Allison. All that I would say, Mr. Chairman, is, yes, we do 
pick winners and losers, and probably the great winner in terms 
of Federal subsidies is not only the nuclear industry, but the 
fossil fuel industry as well. We have pumped billions and 
billions of dollars into those industries. I, for one, think it 
is time to begin focusing on energy efficiency and sustainable 
    Thank you, Mr. Chairman. Thank you, Mr. Allison.
    The Chairman. Thank you. Senator Lee.
    Senator Lee. Thank you, Mr. Chairman. Thank you, Mr. 
Allison, for being here.
    I certainly agree that an audit of this program is 
warranted wholeheartedly. The real question for me is whether 
the government should even be playing venture capitalists with 
taxpayer money in the first place, whether in this specific 
sector at the energy industry or elsewhere.
    I want to make clear that my concerns over the 
administration of the Loan Guarantee program should not be 
mistaken for tacit approval of the program as a whole. When 
companies like Solyndra and Beacon Power fail, millions of 
taxpayer dollars are wasted, and it is clear that the 
government, in my opinion, truly has no business being in the 
investment business.
    The apparent basis for the program as I understand it is 
that there are just certain types of investments that are so 
inherently risky that only the government can invest in them, 
only the government will invest in them. Today you seem, if I 
am understanding what you are saying correctly, to be somewhat 
downplaying the risk of these investments.
    It is seems a little bit contradictory to say that, on the 
one hand, government intervention is absolutely necessary 
because only the government can do this, and that it is too 
high for private equity markets, and then also to claim that it 
is an appropriate risk of taxpayer funds because there are 
adequate safeguards in place. So, which is it? Is it too risky, 
or is it--or are the risks manageable?
    Mr. Allison. Senator, thank you for your question. I think 
that these are policy questions that Congress needs to grapple 
with and answer. I am not sure that there--you can give a 
blanket answer to your question. I think, and you know this far 
better than I, but the Congress has constantly deliberating 
about what is in the national interest and the public interest 
over the long run, the payoffs such from some initiative to the 
public. They may not be direct financial returns, but they may 
be social consequences, whatever, that make it worth the 
government's while to be involved.
    I think that there are numerous areas where private 
financing--and I am talking about health initiatives, for 
example, and that is why we have NIH doing research, and that 
is why we fund research in universities in physics and lots of 
other areas. So, there may be a legitimate role for government 
where private financing is not available.
    I do believe, as I mentioned earlier, that these programs 
should be constantly reviewed, to the extent that there are 
programs in place, to see whether they are still necessary. Do 
they still meet that policy need, or are there private 
alternatives available today?
    I believe that ultimately the best allocation of resources 
will take place through private interactive markets.
    Senator Lee. Part of that inquiry then now to involve, is 
the risk manageable? If it is manageable, could it not under 
circumstances be manageable from a private capital standpoint, 
    Mr. Allison. That is a very legitimate question.
    Senator Lee. If it is not manageable risk, then perhaps we 
should not be putting taxpayer dollars at risk.
    So, your report did not consider either Solyndra or Beacon 
Power, and that is because, as I understand it, that is no 
longer part of the program. Those are finished.
    Mr. Allison. Senator, yeah. They were no longer really part 
of the portfolio because they were in bankruptcy and their 
eventual value would be determined in the courts and through 
    Senator Lee. Do you have any way of guessing how that might 
have affected your report, what your report might have looked, 
how it might have been different had those still been on the 
books, had those not gone through bankruptcy at the time you 
conducted this report?
    Mr. Allison. I would only be speculating, but certainly we 
would have applied the same methodologies to examining those 
loans if these companies were still extent and not in 
bankruptcy. You know, the process that we used in each case was 
totally independent, and we took a look at voluminous 
information on each one of these loans to try to gauge the risk 
at this time. We look at engineer's report, rating agency 
reports, and so forth.
    So, we would have followed the same process there. You 
know, I would only be speculating as to what we would have 
found, however, because we did not look at those 2 companies.
    Senator Lee. Might this have been one of those instances in 
which, as you acknowledged in your report, certain procedures 
were not followed, certain documents were not completed, and so 
    Mr. Allison. I believe, Senator, that there are--
investigations under way. I would only be speculating about 
that because I have no information about Solyndra that is not 
available in the newspapers.
    Senator Lee. OK. Thank you. I see my time has expired.
    Mr. Allison. Thank you very much.
    Senator Lee. Thank you, Mr. Chairman.
    The Chairman. Thank you. Senator Franken.
    Senator Franken. I think if I just heard Senator Lee 
correctly, you said that if the risk is manageable, we should 
not be putting tax dollars at risk, and if it is not 
manageable, we should not be putting tax dollars at risk. Did I 
hear that correctly?
    Senator Lee. I did.
    Senator Franken. So, therefore, we should not ever put tax 
dollars at risk.
    Now, I agree with Senator Sanders. We have a global climate 
change problem. We had testimony from the director of the 
Forest Service the other day who said that the duration, 
intensity of these forest fires are caused by global climate 
change, and it is just going to get worse. We are spending more 
and more and more and more money on that. There is an actual 
cost to these taxpayer. Taxpayer money is at risk because of 
global climate change.
    The bark beetle is eating more and more of our forests 
because of climate change, because they do not die from severe 
winters at certain elevations when they used to.
    So, it is actually costing the taxpayer dollars are at risk 
if we do not address this and try to get to clean energy. So, 
it seems to me that our tax dollars are at risk if we do not do 
something. That what it seems to me.
    So, it seems like we got to just do this as smart as 
possible. That is what it seems like to me. So, I want to 
follow up on Senator Wyden's comments and questions.
    First of all, I just want to say I appreciate the thorough 
investigation you have conducted here.
    Let me bore down something very specific. One of the most 
important aspects of Loan Guarantee program is the right credit 
subsidy of these loans. If the cost is too high to a company, 
it may not be able to seek a loan, and it may be a technology 
that has a lot of promise. If it is too low, the taxpayer may 
not be adequately protected from possible default.
    As you noted in you report, in some cases these subsidy 
costs were underestimated, while in other cases they were over 
    My question is, can you tell us what you observed with 
respect to transparency of the credit subsidy cost calculation? 
Can the credit subsidy cost calculation for each individual 
project be done in a more transparent process that the public 
can access?
    Mr. Allison. We did look at the credit subsidy process 
because we had to learn it in order to make our own estimates 
of what the credit subsidy we think should be.
    Like any financial model, it has strengths and witnesses, 
given the intended purpose. The purpose of FCRA, the Federal 
Credit Reform Act, method used in budgeting is to have a 
consistent approach that applies to all programs across the 
government. FCRA can certainly do that if, for instance, it 
uses the same government discount rate pretty much for all 
these programs.
    In terms of estimating the loss on these particular loans 
in the DOE portfolio, you then have to calculate a credit 
rating, and because the credit rating is used to determine what 
the default rate is expected to be given that credit. For 
instance, most of these credits are single B or double B 
credits. So, what is done is to look at years of data across 
many different types of loans that are rated, let us say, 
double B, and figure out historically what has been the default 
rate. Then you plug in that rate into the model.
    Then there is a recovery rate. Let us say that the loan 
DOE's go bad and you have to recover in bankruptcy. What has 
been the typical rate of recovery against the amount of the 
loan, and/or the value of the assets after bankruptcy?
    Now, the weakness in that model is that you are using 
indexes on default rates and recovery rates that apply to a 
wide variety of loans that are not particular to the 
idiosyncratic nature of these loans. So, there is no easy way, 
given the novelty of these loans, to calculate what the default 
rates and the recovery rates are going to be.
    Fair market value, another method, has some advantages, and 
that it will apply an estimate of a market rate of discount to 
determine what discount what the investors would demand in 
order to purchase this loan at the interest rate that it has 
and get a market return given the risk.
    That also has weaknesses because you cannot apply that in 
budget very easily across the government because you are--each 
discount rate would be different. There would be a lot of 
contention about what it is an appropriate discount rate for 
each one of these. I think it would be hard to have a standard 
budgeting process.
    So, it is very important with all these models to 
understand what the purpose is, what the strengths and 
weaknesses of the models are. Last, do not give too much 
credence to these models in estimating what the ultimate loss 
will be, especially with loans like these that have 2-year or 
30-year lives that are dealing with novel technology, and where 
the government has the ability to control the risk and its 
exposure in a variety of ways through the loan covenants. It 
does not have to advance all the money, for example, if these 
projects are not meeting their contractual benchmarks.
    So, given all that, that is why we concluded, here are the 
estimates using these models as best as we can do. Do not pay 
too much attention to them or think that, well, we are going to 
lose $2.7 billion. That is not the case. It may be more, it may 
be less. It could be a lot less than is indicated by that 
    What is important is to manage the portfolio very actively 
day to day. You have it. It exists. You better manage it very 
carefully on behalf of the taxpayers and use the terms and 
covenants in the loan agreements to the advantage of taxpayers.
    Senator Franken. So, my time is way up, but what you are 
basically saying is there is not necessarily a scientific 
subsidy calculation here for this subset, of loan guarantees, 
but the management of each guarantee is of tremendous 
    Mr. Allison. Yes.
    Senator Franken. Thank you, Mr. Allison. Thank you for your 
    Mr. Allison. Thank you.
    The Chairman. Senator Paul.
    Senator Paul. Thank you for coming today.
    Do you think that the commissioning of your study had 
anything to do with the political outcry over the bankruptcy of 
    Mr. Allison. Senator Paul, I could not speculate on that.
    Senator Paul. Were you commissioned after it became public 
that Solyndra was going bankrupt?
    Mr. Allison. Yes.
    Senator Paul. OK. I find it curious then that we have this 
public outcry over this huge lapse of oversight where a 
billionaire gets a $500 million loan from the U.S. Government 
and goes bankrupt. Turns out that his attorney's husband works 
in the Department of Energy granting the loans, and we are 
going to study oversight and we are not going to look at 
Solyndra? I find that very, very curious.
    My question to you would be, did anyone from the 
Administration ask you either verbally or in writing not to 
mention or look into Solyndra?
    Mr. Allison. The direct answer to your question is no.
    Senator Paul. Did you have the power to look into Solyndra 
if you wished to? Your mandate looks to me wide open. You are 
supposed to look at oversight. Why would you not look at where 
the problem is?
    Mr. Allison. I was asked to look at the loans, the extent 
loans, the loans that exist now.
    Senator Paul. It is says ``current status of the portfolio, 
strengthen management and oversight of DOE's program.''
    Mr. Allison. Yes, sir.
    Senator Paul. If you are going to strengthen oversight, 
certainly you would have to look where the problems are. I 
would not think--I mean, this seems to be so myopic as to be 
politically motivated. I am very skeptical of why you do not 
look at Solyndra when that is the whole reason you were 
commissioned was over Solyndra.
    But here is the thing is, you have got Solyndra. You have 
got Beacon Energy going bankrupt. You have got BrightSource 
maybe going bankrupt. What about BrightSource? Did you look at 
    Mr. Allison. That was not part of this program, sir.
    Senator Paul. Is BrightSource not part of the current 
portfolio of Department of Energy loans? BrightSource got $1.8 
billion from this loan portfolio.
    Mr. Allison. Yes.
    Senator Paul. The thing is, is who owns BrightSource? 
Robert Kennedy, Junior, another politically connected Obama 
contributor who gets $1.8 billion of our money. You know what 
their profit? Their loss? They lost $13.5 million. They are 
$1.8 in hock. Is BrightSource ever going to get out of debt? 
Why are we giving taxpayer money to a family that has got 
hundreds of millions of dollars?
    This is about crony capitalism. This is not about starting 
up solar panels. It is about giving money to people who have 
already got enough money. Let them make their own loans. If 
they love solar panels, let them do it. But I do not 
understand, and you do not--you did not look at any of the 
problems and how we come to conclusions about oversight if you 
did not look at the companies where the problems originated.
    Mr. Allison. Senator, I think I understand your question. 
First of all, there are several investigations under way. If we 
were going to look at that, we would have needed investigatory 
powers, subpoena powers, the right to demand documents. We 
would have taken probably many months, if not a year, and we 
would have been going on top of the investigations already 
under way.
    Senator Paul. Then, very specifically, the public 
information that is out there on Solyndra that Solyndra's 
attorney's husband worked in the Department of Energy, does 
that have any red flags for you?
    Mr. Allison. Again, Senator, I have not looked at those 
types of questions.
    Senator Paul. If you knew that the attorney for Solyndra's 
husband worked in the loan department granting the loans at the 
Department of Energy, does that send up red flags for you, yes 
or no?
    Mr. Allison. Senator, I do not know the facts of that at 
    Senator Paul. If you knew that in BrightSource somebody 
that used to work for the Kennedy family companies now works in 
the Department of Energy and approved the $1.8 billion loans, 
does that send up red flags? If you are commissioned to look at 
oversight, I mean, your reputation is on the line as an 
independent person----
    Mr. Allison. Yes, sir.
    Senator Paul. You are commissioned to look at oversight, 
and you did not look at where the problems in oversight were.
    Mr. Allison. Actually, Senator, we have looked at that. My 
point is, regardless of those facts, we were going to do as 
thorough a process of reviewing the policies and procedures of 
the Department of Energy regarding the management of this 
    I think we did that. I think that we came to our 
independent conclusions about, first of all, how the portfolio 
is being managed, and you see a number of recommendations--
about a dozen----
    Senator Paul. Do we give loans to foreign companies?
    Mr. Allison. We gave loans--under the law, loans could be 
made to U.S. companies, and these----
    Senator Paul. Fisker Karma got $500 million. My 
understanding is they are spending it building cars in Finland. 
Is that true or not true?
    Mr. Allison. At the time, and, again, we did not 
investigate whether the law was complied with in all cases. 
That was not part of our review. However----
    Senator Paul. Fisker Karma, did they get $500 million 
directed toward jobs in Finland?
    Mr. Allison. The entities that borrowed the money are U.S. 
companies. They may have ownership from abroad, but they are 
U.S. companies. For instance, Nissan North America is a 
borrower, and it is owned by a Japanese company, but it is a 
U.S. corporation.
    Senator Paul. Thank you.
    The Chairman. We have a second panel, which is Secretary 
Chu, and I would suggest we go ahead and thank Mr. Allison for 
his testimony and go ahead to our second panel, unless there is 
any burning reason not to.
    Mr. Allison, thank you very much. We appreciate your being 
here and your testimony today.
    Why do we not see if we could ask Secretary Chu to come in 
so we can hear his perspective and ask him some questions?
    Mr. Secretary, thank you for being here. Welcome back to 
the committee. As you know, we just received testimony from 
Herb Allison about his report reviewing the Department of 
Energy loan and loan guarantee portfolio. We would be anxious 
to hear any thoughts you have on that very same subject, and 
then I am sure senators will have questions. So, go right 


    Secretary Chu. Here we go. Thank you, Chairman Bingaman, 
Ranking Member Murkowski, and members of the committee. Thank 
you for the opportunity to discuss the Department of Energy's 
efforts to strengthen our Loan Programs and to grow America's 
clean energy economy.
    As part of our commitment to be a responsible steward of 
public dollars, the Department has cooperated with Congress' 
request to discuss our loan portfolio and welcomed the 
independent review of Herb Allison.
    Mr. Allison released a thorough, thoughtful report. He made 
some important recommendations to strengthen the management and 
oversight of the loan portfolio. Even before the conclusion of 
Mr. Allison's review, we took steps, many of which are 
consistent with the report's recommendations, to improve the 
Loan Programs.
    This includes working to ensure that our team has a 
sufficient number of skills and experienced personnel to 
monitor and manage the portfolio to protect U.S. taxpayers. We 
have improved, and will continue to improve, processes for 
productive monitoring, loan administration compliance, 
reporting, and resolution capabilities to take into account 
industry best practices. In addition, we have put in place 
rigorous internal and external reviews to hold the Loan Program 
Office accountable.
    The Department takes its responsibility to the U.S. 
taxpayers seriously, and we are looking closely at Mr. 
Allison's recommendations for additional improvements.
    Mr. Allison and his team reviewed each active loan in the 
portfolio, looking at the risk factors behind each loan and 
estimating each loan's cost. Mr. Allison's report concluded the 
Department is using the appropriate risk factors in assessing 
each loan.
    The Federal Credit Reform Act defines the cost of these 
loan programs as the estimated long-term cost to the 
government, including the risk of default. For each loan, the 
subsidy estimate can be thought of as similar to the loan loss 
reserve--to similar to a loan's reserve.
    Congress appropriated $10 billion in credit subsidy under 
the Federal Credit Reform Act for title 17 Advanced Vehicle 
Loan Programs. While the portfolio includes loans to a range of 
projects that carry different levels of risk, the reports finds 
that the Department of Energy has reasonably estimated the 
costs of these risks. In fact, Mr. Allison estimates that the 
long-term costs of the outstanding portfolio is $2.7 billion, 
roughly $200 million lower than the Department's most recent 
    The purpose of the Loan Programs is to provide low cost 
financing to innovative clean energy projects that have a 
unique value to the Nation both in terms of providing clean 
energy and inspiring the development of new industries. 
Overall, the Loan Programs have been successful in growing 
America's clean energy sector.
    The Department supports roughly 3 dozen clean energy 
projects that are expected to employ more than 60,000 
Americans, generate enough clean electricity to power nearly 3 
million homes, and displace nearly 300 gallons of gasoline 
annually. As these are just direct benefits, they do not 
include additional supply chain jobs.
    Our Loan Program is spurring tens of billions of dollars in 
investment in clean energy projects, and helping to unlock 
private capital. Thanks in part to the Loan Programs, last year 
the United States regained its title from China as the world's 
leader in total investment in clean energy.
    The Department of Energy is using all the tools at our 
disposal, including the Loan Programs, to strengthen America's 
clean energy economy so we can compete globally.
    Improvements in technology and dramatic reductions in cost 
are driving a global revolution in clean energy. Last year, a 
record $260 billion was invested globally in clean energy. The 
question is no longer whether a clean energy economy will 
arrive, but whether America will lead it. As the opportunity 
grows, so does the competition. Many countries have established 
supportive policies and are making major investments in 
everything from renewables to electric vehicles, to next 
generation biofuels. To win the clean energy jobs of the 
future, the United States must do more than invent 
technologies. We must also manufacture them, deploy them here 
at home, and sell them around the world. Production of energy 
technologies benefits from scale. Simply put, to have a 
competitive clean energy industry, we need programs that help 
spur deployment and markets.
    America faces a stark choice today. Will we play to win the 
clean energy race, or will we watch the rest of the world 
passes us by? Can we invest in America's workers industries--we 
can invest in America's workers, industries, and innovation, or 
we can send money and jobs overseas to import the technologies 
of tomorrow.
    Throughout our history, from aviation to agriculture to 
computer technologies, the Federal Government has supported the 
private sector to keep the United States at the technological 
forefront of important industries. It is time to take a page 
from our own playbook. We can still win the clean energy race, 
but we must act now.
    I know this committee cares deeply about our energy future, 
and I look forward to working with you to ensure that the 
United States leads in the clean energy economy. So, thank you, 
and I am pleased to answer your questions.
    [The prepared statement of Secretary Chu follows:]

 Prepared Statement of Hon. Steven Chu, Secretary, Department of Energy

    Chairman Bingaman, Ranking Member Murkowski, and Members of the 
Committee, thank you for the opportunity to discuss the Department of 
Energy's efforts to strengthen our loan programs and to grow America's 
clean energy economy.
    The Department's loan programs have been the subject of much public 
attention. As part of our commitment to being a responsible steward of 
public dollars, the Department has welcomed and cooperated with 
Congress' requests to discuss our loan portfolio. We also welcomed the 
independent review by Herb Allison, which we are here today to discuss.
    Mr. Allison was tasked with: 1) analyzing the current state of the 
loan and guaranteed loan portfolio under two Title XVII programs--
Section 1703, Section 1705--and the Advanced Technology Vehicle 
Manufacturing loan program; 2) making recommendations for enhancement 
to the programs, if warranted and practical, to ensure effective 
monitoring and management of the current loan and loan guarantee 
portfolio: and 3) making recommendations, if needed, pertaining to 
early-warning systems to identify and mitigate potential concerns on a 
timely basis.
    Mr. Allison released a thorough, thoughtful report. He made some 
important recommendations to strengthen the management and oversight of 
the loan portfolio. Even before the conclusion of Mr. Allison's review, 
we took steps--many of which are consistent with the report's 
recommendations--to improve the loan programs.
    This includes ensuring that our team has a sufficient number of 
skilled and experienced personnel to monitor and manage the portfolio. 
We continue to work to make certain that the Portfolio Management 
Division has the resource capacity and expertise to actively monitor 
loan and loan guarantee transactions to protect U.S. taxpayers.
    We have improved, and will continue to improve, processes for 
proactive monitoring, loan administration, compliance, reporting, and 
resolution capabilities to take into account industry best practices. 
And we have upgraded the electronic systems of the Loan Programs Office 
to better automate and standardize data, so it can be reviewed and 
acted upon in a timely and streamlined manner, and best inform 
    In addition, we have put in place rigorous internal and external 
reviews to hold the Loan Programs Office accountable. The Department 
takes our responsibility to U.S. taxpayers seriously, and we are 
looking closely at Mr. Allison's recommendations for additional 
    Mr. Allison evaluated both the monitoring efforts of the Loan 
Programs Office and its portfolio. As part of this effort, he and his 
team reviewed each active loan in the portfolio. They looked at the 
risk factors behind each loan and estimated the costs of each loan. Mr. 
Allison's report concluded that the Department is using the appropriate 
risk factors in assessing each loan. In some cases, the report 
recommended minor differences in the weights given to each factor.
    The Federal Credit Reform Act defines the cost of these loan 
programs as the estimated long-term cost to the government, including 
the risk of default net of recoveries; for each loan, the subsidy 
estimate can be thought of as similar to a loan loss reserve. Congress 
appropriated $10 billion in credit subsidy under the Federal Credit 
Reform Act for Title XVII and the Advanced Vehicle Loan Programs. Not 
all of the appropriated credit subsidy has been obligated.
    While the portfolio includes loans to a range of projects that 
carry different levels of risk, the report finds that the Department of 
Energy has reasonably estimated the costs of these risks. In fact, Mr. 
Allison estimates that the estimated long-term cost of the outstanding 
portfolio is $2.7 billion, roughly $200 million lower than Department's 
most recent estimate.
    The purpose of the loan programs is to provide low-cost financing 
to innovative clean energy projects that have a unique value to the 
nation--both in terms of providing the clean energy our nation needs 
and in spurring the development of new industries that can generate 
many more jobs down the line.
    Overall, the loan programs have been successful in growing 
America's clean energy sector. The Department supports roughly three 
dozen clean energy projects that are expected to employ more than 
60,000 Americans, generate enough clean electricity to power nearly 3 
million homes, and displace nearly 300 million gallons of gasoline 
annually. And these are just the direct benefits; they do not include 
additional jobs and investment that come from supply chains.
    Through active projects supported by loans and loan guarantees, our 
Loan Programs are spurring $40 billion in investment in clean energy 
and advanced vehicles and helping to unlock private capital. 
Additionally, the success of these projects is generating additional 
private sector activity by serving as a model for other projects. 
Thanks in large part to the loan programs and other federal programs, 
last year--for the first time since 2008--the United States regained 
the title from China as the world's leader in total investment in clean 
    The Energy Department is using all of the tools at our disposal, 
including the loan programs, to strengthen America's clean energy 
economy so we can compete globally.
    Improvements in technology and dramatic reductions in cost are 
driving a global revolution in clean energy. Last year, a record $260 
billion was invested globally in clean energy, and trillions of dollars 
more will be invested in the coming decades. The question is no longer 
when the clean energy economy will arrive, but whether America will 
lead it.
    As the global clean energy opportunity grows, so does the 
competition. Countries throughout Europe, Asia, and the Western 
Hemisphere have decided that energy technologies are critical to their 
national and economic security in the 21st century. Many countries have 
established supportive policies and are making major investments in 
everything from renewables to electric vehicles to smart grids and the 
next generation of biofuels.
    At least 10 countries have adopted renewable electricity standards, 
and more than 50 countries offer some type of public financing for 
clean energy projects. For example, Germany and Canada operate 
government-backed clean energy lending programs, and China has provided 
strong support to its clean energy industries.
    These countries are determined to win the global clean energy race. 
And by any measure, they are already reaping rewards on their 
investments. Americans invented the silicon solar cell, developed 
modern wind turbines for electricity generation, and developed lithium 
ion batteries, but we are no longer the leader in these industries. 
China has surged into the solar manufacturing lead. Denmark is home to 
the world's largest wind manufacturer, and Japan and Korea lead in 
advanced battery manufacturing, although the United States is making 
strong gains.
    To win the clean energy jobs of the future, the United States must 
do more than invent technologies; we must also manufacture them, deploy 
them here at home, and sell them around the world. The production of 
energy technologies benefits from scale. Simply put, we cannot have a 
competitive clean energy industry without programs that help spur 
deployment and markets.
    America faces a stark choice today. Will we play to win the clean 
energy race--creating U.S. jobs by making and selling clean energy 
technologies--or will we watch the rest of the world pass us by? We can 
invest in America's workers, industries, and innovations or we can send 
more money and jobs overseas to import the technologies of tomorrow.
    Throughout our history, from aviation to agriculture, from 
biotechnologies to computer technologies, the federal government has 
supported the private sector to keep the United States at the 
technological forefront of important industries. In clean energy, other 
countries are running our plays. It's time for us to take a page from 
our own playbook. We can still win the clean energy race, but we must 
act now.
    This is a serious issue that deserves a serious discussion. I know 
this committee cares deeply about our energy future, and I look forward 
to working with you in the coming months to ensure that the United 
States leads in the energy technologies of the 21st century. Thank you, 
and now I am pleased to answer your questions.

    The Chairman. Thank you very much for being here. Let me 
start with a very general question. You advocated strongly for 
winning the clean energy race, which I have heard you say 
before, and I have done myself many times. In fact, I think it 
is clear to all of us that we really have several different 
clean energy races. One, of course, is in the development of 
these new technologies. ARPA-E is working on that. I know the 
Department has various other efforts going to achieve that.
    A second so-called clean energy race might be the 
manufacturing of these technologies so that we create the jobs 
here that are going to be created in this area.
    Third is the deployment of clean energy technologies, and I 
think you correctly point out that there is a real possibility 
that we would essentially cede to the rest of the world the 
ability to develop and manufacture technologies and just decide 
all we can do here is import them and hopefully deploy them. 
But it is a different challenge.
    I guess that Senator Wyden correctly pointed out that when 
we put the Loan Guarantee program into the 2005 law, we had not 
separated out the different types of clean energy or energy 
projects that might require some level of government support 
through a loan guarantee, and we hadn't perhaps adequately 
segregated those out.
    I would be interested in any general thoughts you have 
about the appropriateness of us going back and trying to be 
sure that we are doing all we can in each of these various 
races to be sure that the United States does not drop out of 
the competition.
    Secretary Chu. Sure. I have listened to a portion of Herb 
Allison's testimony, and I agree with him and the report. The 
report took the Loan Program and divided it into certain 
sectors. If you consider a sector where you are deploying a 
known technology, whether it is wind or solar, something which 
has a proven track record, there are considerably--especially 
if that project then has a utility company, which is a solid 
utility company with a good bond rating, with a long-term so-
called power purchase agreement. That is to say, you have 
signed into contract this utility company will pay this amount 
for this electricity generated by wind or solar.
    As long as that utility company is a strong, stable 
company, the risk of that loan is different than the risk of a 
new innovative startup company. It is a considerably less risk, 
but it does help very much in the deployment of these large 
projects. So, that is one class of loans.
    The other class of loans that Congress asked us to invest 
in are investments in clean innovative manufacturing, whether 
it is an ATVM loan or whether it is something in the energy 
generation business. That by its very nature might carry a 
different risk.
    However, the mechanism that we were tasked with using, the 
so-called FCRA rules, tries to assess what are the risks to 
these loans. Using that estimation, the Allison report says 
that we were a little bit higher, but essentially on par with 
their evaluation of the risks of those loans; and that Congress 
had appropriated that money--appropriated, not authorized, 
appropriated, meaning that money could have been spent on other 
things. It could have been spent on research. It could have 
been spent on hiring policemen, firemen, and teachers. But they 
chose to appropriate because they recognized that it was an 
opportunity to actually help these industries and help create 
    The Chairman. Let me ask one other question. I think Mr. 
Allison also said that it is extremely important that you get 
the right professional employees working at the management and 
oversight of this loan portfolio over the long term, and that 
in order to do that, you need to have assured funding for this 
activity so that people might actually consider leaving the 
private sector and coming to work for the Department to pursue 
this management of these loans. Do you have any comment on that 
    Secretary Chu. Yes. I agree with that recommendation. I 
think it is very important, and we are in the process of trying 
to bring in career professionals, because as he noted in the 
report, that many--because we had to stand very quickly, we had 
a number of consultants to give us the financial expertise. We 
would very much want to bring into this program career people 
who have experience in project finance, experience in finance 
in general. So we agree with that.
    It is very important--because of the long tenure of these 
loans, some of them 25, 30 years, it is very important--and 
because have specific grant milestones, that we pay very close 
attention--milestones that then allow the loan program to give 
another tranche of money. It is very important that we follow 
each of the loans carefully.
    The Chairman. Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman. Secretary, 
thank you for being here this morning. It is important to hear 
Mr. Allison speak to the audit, but I think it is equally 
important that you as the Secretary of the Department of Energy 
be here to speak to some aspects of the loan program.
    In the report from Mr. Allison, he states that ``DOE should 
better define the desired balance between policy goals and 
financial goals. I look at that and to me it is a pretty basic 
managerial function, and I guess I was a bit surprised to learn 
that from the audit's perspective, Mr. Allison's perspective, 
that that was, in fact, lacking.
    So, the question to you is, how would you grade the 
Department's implementation of the Loan Guarantee program thus 
    Secretary Chu. When we started, it was new. We have made a 
lot of improvements, and will continue to make improvements, 
especially since we all know that--we all know that sometimes 
the industry that a particular loan might be embedded in could 
rapidly change. That, in particular, is something where you 
need to watch on sometimes a weekly basis.
    So, I could not say an official grade, but I think one of 
the things that the Allison report and Mr. Allison were talking 
about is, for example, the vagueness also goes to not only the 
Department policy, but the law itself. What do you mean by a 
significant chance of payback?
    Senator Murkowski. I mean, that is an important thing.
    Secretary Chu. Right.
    Senator Murkowski. As a committee here, I think we are 
tasked with this oversight program.
    Secretary Chu. Right.
    Senator Murkowski. The Loan Guarantee program is in place. 
I want to make sure that it is working as we had hoped that it 
would, and we would not see, again, some of the somewhat 
stunning failures that we have seen from it. Based on, again, 
the results of the audit, what you have observed in through 
your interactions through your folks, it looks to me like we 
need to do some changes. This is not tweaking a program, but 
some serious changes to this program so that we do have 
assurances to the taxpayers, so that we do have a structure in 
place that provides and allows for a level of accountability.
    I know that Senator Stabenow is probably going to ask about 
the ATVM----
    Secretary Chu. ATVM.
    Senator Murkowski. ATVM, thank you. Program and the fact 
that we have not seen those loans go out the door. Under the 
2005 act, we have not seen any of those loans go forward, and 
then from the results from the stimulus dollars that came in, 
we had a lot of money go out the door, and that is where we are 
seeing some pretty serious concerns.
    So, I am looking at this, and if I had to give a grade, if 
I had to assign a letter grade to the Department at this point 
in time, it is not a passing grade. I think we need to be able 
to do much, much better. You have suggested that you are going 
to be moving forward with some policy changes, but I think we 
need to be aggressive about that.
    Let me ask a question. This is kind of a follow-on to what 
I had asked Mr. Allison. Some of the conditions that are in the 
2005 energy bill as it relates to the Loan Guarantee programs, 
one of them is the reasonable prospect of repayment. We 
certainly faced that with Solyndra and Beacon's failure to 
repay the loan. There is another requirement in the law that 
says that no guarantee shall be made unless the Secretary, you 
determine that the amount of the obligation is sufficient to 
carry out the project.
    It is now clear in hindsight that with Solyndra, that 
condition was not adhered to. Seventy-million dollars had to 
come in from private investors. To make that happen, what we 
saw then was the subordination. DOE put taxpayers second in 
line in that bankruptcy, and that has caused a great deal of 
    Did you make the determination at that time--as the law 
requires, did you make that determination that the amount 
available when the loan guarantee was closed that they were 
sufficient to carry out the Solyndra project? If you did make 
that determination, then how do we get to where we are today, 
which, again, is a bad mark on the books?
    Secretary Chu. When the loan closed during the commitment 
and when the loan closed, there was a world of difference to 
when at the time of the restructuring of the loan. By the time 
of the restructuring of the loan, we knew that the company was 
in deep trouble.
    But to your earlier point about what we intend to do, much 
of the things that were in the Allison report we are doing. We 
have set up a risk committee. Mr. Allison and his colleagues 
recommended that there be a risk management structure. We agree 
with that. But we set up a different independent--a different, 
but a different part of the loan program that would look at 
just strictly the risk as future disbursements go out. So, that 
is something we did before the Allison report was submitted, 
and the report acknowledged that we were doing that.
    We are taking his advice, and we have reached this 
ourselves that we need people outside the loan program per se 
to be part of this evaluation. That is very important that we 
get additional sets of eyes on that.
    So, in terms of the specific loan to Solyndra that you 
mentioned, again, it was a rapidly changing dynamic during this 
period of time, and during that restructuring, we knew that the 
chance of repayment was low. But what we did was we did 
something that would--we thought in the best interest of the 
taxpayer, as Mr. Allison pointed out. When asked specifically 
would you be in favor of a legal requirement that would not 
subordinate anything.
    He pointed out very clearly that we followed the statute, 
at time of origination no subordination. But there have to be 
mechanisms to draw additional investments to give the highest 
chance of recovery to the taxpayer.
    So, what we did, and I think the Allison report confirms 
that, is that we were doing things that would ensure the 
highest return of the taxpayer money given the circumstances, 
the rapidly changed circumstances.
    Senator Murkowski. My time has expired, and I want my 
colleagues an opportunity to speak. But I do think it is 
important that we also look to some of the other aspects of 
that Allison report that speak to the importance of the real 
time controls to make sure that the risks are properly managed. 
I think Solyndra is a perfect case in point where we missed on 
that with regards to the polysilicone issue, and where Solyndra 
was at that point in time as opposed to others in the solar 
panel manufacturing business.
    But I am going to defer to my colleagues so that they have 
an opportunity to question.
    The Chairman. Senator Shaheen, you have not had a chance to 
ask questions. Go ahead.
    Senator Shaheen. Thank you very much, Mr. Chairman, and 
thank you, Mr. Secretary, for being here.
    Yesterday I held a hearing on the USS Kearsage actually 
down at the Norfolk Naval Shipyard. It was the Water and Power 
Subcommittee of this committee. We heard from Secretary of the 
Navy Ray Mabus. We heard from former Secretary of the Navy and 
Senator John Warner, and also from some of the top-ranking 
officials within the Navy and the Marines about what they are 
doing to implement energy efficiency and new sources of energy 
within the Navy and among the Marines who are on the front 
lines in Afghanistan.
    We heard a couple of things that I think are important to 
this discussion. One is that being able to look at alternative 
energy sources, renewables, that can be used out in the field 
are critical. Reducing our dependence on foreign oil is vital 
to our national defense, and that there is a direct correlation 
between our dependence on fossil fuels and casualties on the 
    Now, one of the things that I would hope you might address 
this morning, and I would point out that I know the Energy--the 
Department of Energy is working closely with the Navy, with the 
Department of Agriculture on biofuels, which are a critical 
piece of trying to reduce the dependence of our military on 
foreign oil. But can you talk about how the programs that we 
are talking about as part of the Loan Guarantee program relate 
to our national defense and how critical they are if we are 
going to make some of these changes on the military side of our 
    Secretary Chu. Certainly. Let me begin with biofuels, and 
not only in the Loan Guarantee program, but a lot of the things 
we invest in across energy from the Office of Science to 
Energy, to ARPA-E. We think that biofuels have considerable 
promise. By that, I mean we think they have considerable 
promise in developing technologies that can compete in the open 
market without subsidy, and that is our goal.
    The United States has great agricultural resources. If we 
can use biological waste or things that do not compete with 
prime farmland, we think this is a great opportunity to offload 
some of our dependency on oil, especially if the technology had 
advanced to the point where you can produce biofuels, and sell 
their profit, and make it a business of, let's say, moderate 
price of oil at $80 a barrel, something like that.
    We also do a lot in terms of offloading a lot of other 
dependencies on oil to help not only the military, but the 
consumers and businesses. The advancement of batteries is very 
important. Batteries are very important in a forward deployed 
place, because rather than trucking in through very hazardous 
supply routes, usually diesel fuel to generate electricity, you 
could have a lightweight solar system with a lightweight 
battery that could be part of your supply chain. So, that is a 
    Senator Shaheen. We actually saw a demonstration of that 
yesterday. That was very impressive. We saw the solar blankets 
that are already in use in Afghanistan and heard about how much 
weight it saves our soldiers, and also, again, not having to 
provide those resupply convoys.
    Secretary Chu. Right. So, that is yet another aspect of 
decreasing, you know, as people attack these supply lines. Some 
of our soldiers and employees die from these attacks. We think 
it is very important that we develop these programs.
    Remarkable progress with batteries, for example. Recently 
at an ARPA-E summit conference, a company we supported 
announced that they doubled the world record energy density for 
lithium ion batteries, which appears to have no additional 
costs in the manufacturing. They are actually optimistic it can 
go much better than that. So, this is something that is going 
to be very important.
    So, we look across--and then finally energy efficiency is 
something not only for the forward deployed areas, but in 
general for the military we think it is a very important part 
of stretching the U.S. taxpayer dollars so the military can 
help our security in a way by saving money and by saving 
energy. It is a very important deal, and we have a very close 
working relationship with the Department of Defense on that.
    Senator Shaheen. Again, we saw some excellent examples of 
that, which save money, but also make us less dependent and 
more efficient.
    My time is up, but let me just make one other comment about 
that hearing because one of the other things we heard from all 
of the military officials who testified was the importance of 
sending signals to the private sector about the importance of 
these energy efficiency and renewable technologies that the 
government has a role to play in doing that. That is very 
important to our national security.
    Thank you, Mr. Secretary.
    Senator Stabenow. [Presiding] Thank you. Senator Bingaman 
had to go to the floor to speak to an amendment, and so in his 
stead I will call on Senator Lee.
    Senator Lee. Thank you, Madam Chair. Thank you, Mr. Chu, 
for joining us today.
    Shortly before you became the Energy Secretary, you were 
quoted as saying, ``Somehow we have to figure out how to boost 
the price of gasoline to the levels in Europe.'' The price of 
gasoline in Europe, as I understand it, were about $8 a gallon, 
which is a lot of money. Last week in your testimony over in 
the House of Representatives, it is my understanding that you 
indicated that high gas prices are helpful in some ways in 
spurring research on alternative energy.
    I understand the point. I respectfully disagree with the 
conclusion at least insofar as it is made to the exclusion of 
another, I think, more compelling point, which is a strong 
economy will always provide more capital that can be invested 
for research and development purposes. Research and development 
money is definitely needed to help develop alternative 
energies. So, I hope you take that perspective into account.
    I do not think that high gasoline prices help anyone. I do 
not think they do anything other than the American people. 
Look, I do not how much driving you personally do yourself, and 
so you may not personally be feeling the gouge at the pump. But 
I assure you that hundreds of millions of hardworking Americans 
do feel this. They feel it every time they refuel their cars, 
some a lot more than others, but all feel it.
    While hardworking Americans continue to suffer because of 
the prices they pay at the pump and the corresponding prices 
that they have to pay at the grocery store and everywhere else 
because all of these costs end up getting passed downstream. I 
hope the Administration will take that into account in its 
energy policy and pursue an energy policy that acknowledges the 
fact that whether we like it or not, we as a people, we as 
human beings living in this country today continue to be 
dependent on liquid fuels. We have to continue to have a source 
of them, and that means we need to continue a robust policy of 
aggressive exploration and production of petroleum and natural 
    Instead I have seen a focus on this Administration that has 
placed most of its emphasis in this area on some failed 
policies, including a lot of subsidies of alternative energy 
    On that note, the recent GAO audit of the Loan Guarantee 
program found that ``DOE did not always follow its own process 
for reviewing applications and documenting its analysis and 
decisions, potentially increasing the taxpayer's exposure to 
financial risk from an applicant's default.'' It went on in 
that same report to determine that DOE ``also has not 
completely documented its analysis and decisions made during 
reviews, which may undermine applicants' and the public's 
confidence in the legitimacy of its decisions.''
    Are these accurate? Are these statements accurate in your 
    Secretary Chu. Let me first respond to your first 
statement, Senator, so I can correct the record. Since I walked 
in the door as Secretary of Energy, I have been doing 
everything in my power to do what we can to reduce these, as we 
see these gas price spike, to reduce those prices. The 
Administration, the President, and I personally, yes, we do 
acknowledge and feel the pain of not only the American 
consumers, but American businesses when they see these prices 
    What we can do, is use all the tools available we are 
using. But in the Department of Energy's tool chest, the most 
important thing we are doing is to offload the dependency on 
oil, using natural gas for transportation, electrification, 
biofuels, all of those things.
    Now, regard to the----
    Senator Lee. So, are you saying that you no longer share 
the view that we need to figure out how to boost gasoline 
prices in America.
    Secretary Chu. I no longer share that view.
    Senator Lee. OK. You did then, but you do not now?
    Secretary Chu. When I became Secretary of Energy, I 
represented the U.S. Government, and I think that right now in 
this economic, very slow but, you know, return, that these 
prices well could affect the comeback of our economy, and we 
are very worried about that. So, of course we do not want the 
price of gasoline to go up. We want it to go down.
    But let me go to the GAO report. The other part of the GAO 
report within a few sentences of that said explicitly that the 
diligence that we did in our Loan program was actually 
considerably more thorough than what the private sector did. 
The thing you are referring to, and I admit there is some truth 
in that, is that we had at the beginning of this Loan Program 
which started in 2007--well, ePACT 2005, but in seriousness 
about 2007. A lot of the input was in paper form. A lot of the 
input was such that it was, you know, we are moving toward 
making those records electronic so that you can have a more 
modern data system. This is not only true of our Loan Program 
quite frankly, it is true throughout the Department of Energy.
    As a kind of a techno geeky guy, I actually like the idea 
that we have electronic records rather than paper records, and 
I encouraging the Department to make this transition. We are 
doing it in the Loan Program.
    Senator Lee. You think that will bring about more 
compliance with the Department's own processes?
    Secretary Chu. I believe the GAO report said that because 
the records are here and there and not in a central repository, 
that it would be harder for the Loan Program overall to see 
what is going on. So, as part of this risk management going 
forward, we recognize that we need central repositories of data 
so that you can get instant access. We recognize that.
    Senator Lee. OK. My time has expired. Thank you.
    Senator Stabenow. Thank you very much. Secretary Chu, I 
think it is probably no surprise that I am going to talk to you 
about the vehicle technology program.
    First, let me say in your testimony, when you talk about 
the back bit. To win the clean energy jobs of the future, the 
United States must do more than invent technologies. We must 
also manufacture them, deploy them, sell them around the world. 
I could not agree with you more.
    I appreciate the fact when I was able to make this program 
part of the 2007 energy bill that passed, it was not 
implemented in the last Administration, and that it was a 
priority for you and the Administration. It was, in fact, 
implemented in 2009. That is the good news.
    We have good things to report: jobs being saved, jobs 
coming back from overseas. Now we are in a spot where we have 
incredible delays year after year after year. We have on 
company that, in fact, indicated that after spending $25 
million as a startup on a -year application, their application 
was never completed.
    I am very concerned about where we are right now on 
something that clearly goes to the heart of keeping advanced 
manufacturing in this country. You know that we are competing 
with countries around the world. Our companies are competing 
with countries that are providing tax incentives, that are 
providing financing mechanisms, doing a number of things. The 
retooling loan program goes right to that effort of adding 
advanced technology and manufacturing to keep jobs here rather 
than overseas.
    So, I wonder as we look, of course we want to protect 
taxpayer dollars. Of course that is absolutely critical. But 
how do we streamline this process at this point so that it 
actually is meeting the goal that it was set up to do?
    Secretary Chu. Senator, I think we are very much on the 
same page here. We are in total agreement with regard to the 
importance of the ATVM loans. We believe that that ATVM loans, 
for example, the loans to Ford and to Nissan, saved or 
generated many, many thousands of jobs. Ford alone, I think, it 
is over 30,000. A bit of a success story because that loan 
enabled Ford to retool, to sell--it is now a major leader 
internationally in selling very desirable, competitive cars. 
This is exactly what that loan programs was intended to do.
    Senator Stabenow. Right.
    Secretary Chu. It is a great success. I think the, you 
know, the loan to Nissan to generate--produces cars in 
Tennessee, a place in the United States. Another great success.
    Now, having said that, we do have to look at taxpayer 
money. As conditions change, we have to say--again, going back 
to the original covenant of the law which says in these loans, 
is there a reasonable chance of repayment? In many instances, 
we feel that we would like to see private equity be invested in 
these companies, and then there are milestones after that 
private investment so that we can then say, all right, we can 
help you grow your business.
    So, we are very, very sensitive to those things, again, 
trying to balance the line, as you noted, between stimulating 
the manufacturers with these loans, and, again, one of the big 
success stories of this Loan Program, and making sure that--
especially in a newer company, whether--we independently assess 
whether their market projects do make sense in this very 
rapidly dynamic market--and so we try our best to do that, both 
to look out after taxpayer money, but knowing that we do want 
to stimulate investments in manufacturing in the United States.
    Senator Stabenow. Right, and I appreciate that, Mr. 
Secretary. I would just tell you that the--at this point, the 
way things have gotten bogged down in the slowness of it is 
defeating the whole purpose of what needs to be done, because 
it is creating an untenable situation for businesses that are 
on the edge to be able to move forward, to create these new 
technologies. But waiting 3 years is just too long to be able 
to come up with those judgments.
    Let me ask you one other thing. What changes would you 
suggest to make this program more effective, and possibly add 
more opportunities for companies? We have passed now twice from 
this committee legislation of mine that would expand to medium 
and heavy duty vehicles. We know there is tremendous energy 
savings in larger vehicles, a very exciting work that is being 
done. Would you support something like that, expanding us to 
more opportunities to save energy and create jobs?
    Secretary Chu. I think this is a program I would be 
delighted to talk to you about it to broaden its scope 
certainly as you suggest, but also in certain things when it is 
really advanced technology and it is an advanced technology in 
a new company, you know. Again, working with Congress, I do not 
know if Congress has the appetite, but to change some of that 
money, especially with ATVM, so it could not only be for loans, 
but it also could be for grants for developing new products.
    I think that would do a lot, grants that would allow the 
company to prototype things that could then be made in America. 
So, I would be gladly willing to work with Congress if Congress 
deems that this is an important program to stimulate job growth 
in the United States, advanced manufacturing in the United 
States. That could be another way of broadening the program.
    Senator Stabenow. Thank you. Senator Barrasso.
    Senator Barrasso. Thank you, Madam Chairman. Mr. Secretary, 
I appreciate you being here.
    The Department has awarded a $10 million prize for their 
production of a light bulb that is supposed to be, one, energy 
efficient and, 2, affordable for American families. The prize 
went to Phillips Lighting. Do you know how much the winning 
light bulb retails for in the United States?
    Secretary Chu. I am going to make a guess, about $40 or 
    Senator Barrasso. Actually it is $50. Headline Washington 
Post last Friday, ``Affordability Award Goes to a $50 Light 
Bulb.'' I guess--do you think a $50 light bulb is affordable 
for American families where the government's own figures say 
the average household in the United States has over 40 light 
bulbs? So, it sounds like we are--are we asking American 
families to spend over $2,000 to trade out all their light 
    Secretary Chu. No, absolutely not. We are not asking 
American families to spend $40 or $50 for a light bulb. The 
prize was intended to incentivize the development of new 
technologies. Some of those LED technologies in commercial use, 
in buildings and hard to get places where you have to hire 
people to go up on a crane, already are very affordable. 
Commercial uses in traffic lights, very--already pay for 
themselves. So, the idea was to stimulate future development.
    Senator Barrasso. The President claims that he and his 
Administration are promoting fairness. He talks about fairness 
an awful lot. There was a Thursday story in the Washington Post 
with a headline, ``More Than Half of Obama's Big Fundraisers 
Got Jobs in His Administration.'' The article explained how 
bundlers, those who collected at least $500,000 for the 
President's campaign, were given jobs in the Administration.
    It says one hired--Obama hired bundler Steve Spinner as a 
liaison in the Energy Department, and according to internal e-
mails, Spinner pressed for staff members to finalize a 
government loan for Solyndra in which another campaign bundler 
was a major investor.
    Yesterday the Government Accountability Office released its 
own audit of the Department of Energy loan program. The report 
concluded that the DOE did not follow its own process for 
reviewing applications and documenting its decisions, 
potentially increasing the taxpayers' exposure to financial 
risk from an applicant's default.
    You know, it seems like the Administration is doing a 
pretty good job looking out for its friends, but I want to know 
who is looking out for American taxpayers, and this sure does 
not sound fair to most people.
    Secretary Chu. First, Steve Spinner was absolutely 
firewalled from making any decision or encouragement on what 
you make for any loan, let alone the Solyndra loan. So, what he 
was pressing for was after the conditional commitment was made, 
he was pressing to finalize things. But he was not part of the 
decisionmaking process.
    Senator Barrasso. I would like to ask about additionally 
the gas--I'm sorry, electric vehicles. The President was in 
North Carolina giving another speech on energy, promoting 
electric cars. Last week we learned that General Motors was 
suspending production of its electric car, the Volt, because it 
failed to meet sales expectations. Last month we learned that 
your Department cutoff funds to Fisker Automotive and other 
electric car manufacturers because it failed to meet sales 
    So, I look at electric vehicles, which range from $40,000 
to over $100,000, and I ask if those are practical solutions 
for families who are struggling to pay bills, especially as the 
President is proposing increasing the tax credit for what are 
essentially luxury vehicles, and he wants to increase it from 
$7,500 where he did not get adequate takers and the vehicles 
have not been sold, to now to $10,000.
    Is raising the tax credit for these vehicles that few 
families can afford the right thing to do and the fair thing to 
    Secretary Chu. As you may know, but if you do not, the goal 
of the Department of Energy is to develop the technologies that 
actually will drive down the price of electric vehicles or plug 
in hybrids so that, for example, in the $20,000, $25,000 range, 
the cost of ownership would be less than a conventional 
internal combustion engine car, let us say, of $16,000, because 
you are going to be saving in gasoline bills.
    If, for example, you take a car, an internal combustion 
car, and it gets 30 miles to a gallon, reasonably good combined 
driving numbers, that is, in today's gasoline prices, this is 
horrendous--$1,400 a year. This is a horrible pain to American 
    If you get an electric vehicle that costs, let us say, in 
the low 20s, $20,000, $22,000, to drive the same amount, let us 
say 10,000 miles, it is about $300 in electricity. So, we are 
very focused on driving the costs of those electric vehicles 
down. So, it is is exactly what you say, that the costs of a 
vehicle that the American public can afford.
    Senator Barrasso. Thank you, Madam Chairman--oh, Mr. 
    Senator Sanders. [Presiding] I gather I have the invisible 
gavel here. Mr. Chairman, thanks very much for being with us.
    Let me just ask you--before I ask you a question, I wanted 
to agree with Senator Lee a moment ago, who talked about the 
high price of gasoline and what it does to rural America. I 
come from a rural State and many people travel long distances 
to work. I would hope that some of my Republican friends would 
work with us on what we think is one of the major causes of the 
high price of gas right now; that is, speculation from Wall 
Street companies on the oil futures market.
    We believe, and I think the evidence is pretty clear, that 
over 80 percent of the oil futures market is now controlled not 
by end users--airline companies or fuel dealers, people who 
actually use the product--but by Wall Street companies who are 
speculating on the price of oil and driving oil prices 
substantially up. Goldman Sachs themselves, one of the major 
speculators, estimated that speculation was adding about 56 
cents to a gallon of gas.
    Do you have any comments on that, Mr. Secretary?
    Secretary Chu. I cannot speak to the estimate that Goldman 
Sachs has made and actually put on an additional price that 
adds to the speculation. But I agree with you that, you know, 
whereas futures do play an important role, for example, if 
Southwest Airlines or someone else wants to levelize their cost 
of energy, they buy a future, and they are going to take 
delivery. But they actually are going to use the fuel.
    Senator Sanders. Right.
    Secretary Chu. So, it is a financial mechanism that helps 
them plan for the future. So, futures in that sense play a very 
important role in stabilizing a company's prospects. I would 
agree with you, but when futures get traded back and forth, 
back and forth, back and forth, where no one actually intends 
to take delivery, it enters into a different regime.
    But to the extent of how it modifies prices, I do not know, 
but it is not what it was meant to do.
    Senator Sanders. Let me ask you this. My understanding is 
that right now we have about 100,000 Americans working at more 
than 5,000 solar companies. I think sometimes if we hear 
discussion around here, the impression is that sustainable 
energy is just doing terrible. Companies are not making money. 
We are not creating new jobs. Would you agree with me that, in 
fact, in terms--in recent years, not unrelated to the work that 
you and the Department of Energy are doing, that, in fact, we 
have seen a significant increase in the number of jobs and the 
installations in terms of solar panels and in terms of energy 
being produced from wind? Are we making progress and creating 
jobs in those areas?
    Secretary Chu. We are. We have been making dramatic 
progress, I think, since 2008. It should be used as a 
benchmark. I think we have almost doubled the amount of 
renewable energy with those 2 sources.
    Senator Sanders. That is not insignificant.
    Secretary Chu. Doubling is not insignificant.
    Senator Sanders. Doubling is not, and we are creating 
    Secretary Chu. Yes.
    Senator Sanders [continuing]. As well. Would you agree with 
me that virtually the entire scientific community, not only in 
this country, but around the world recognizes, A, that global 
warming is real and, B, that it is significantly caused by 
human activity, and, C, that if we do not get a handle on 
greenhouse gas emissions, there will be enormous problems 
associated with all kinds of--in the future of this country?
    Secretary Chu. Yes, I agree with that.
    Senator Sanders. OK. Let me ask you this, Mr. Secretary. We 
are talking about the role the Federal Government plays in 
terms of support of various energy technologies. Is sustainable 
energy the only technology that received help from the Federal 
    Secretary Chu. I would say, looking backward, that every 
form of energy received substantial Federal help: oil, gas, 
coal, nuclear, you name it. When they were emerging 
technologies, they received substantial help.
    Senator Sanders. But not only when they were emerging, I 
would agree with that, but they are still receiving help.
    Secretary Chu. In some cases, that is correct.
    Senator Sanders. For example, I find it somewhat ironic 
that some of my friends on this committee express their 
distaste for loan guarantees and then tell us they want to 
build another 100 or 200 nuclear power plants in this country, 
which I--give me your opinion--would not take place at all. You 
will not build one nuclear plant without Federal loan 
guarantees. Is that a fair statement?
    Secretary Chu. Actually that may not be a fair statement, 
but let me go back to the original thing that I think you were 
driving at.
    You know, after we subsidize emerging technology and it 
seems to be very successful on its own, there is a good case 
that can be made that this technology, this industry, may not 
need Federal support. Certainly we think that renewable energy 
will. There will come a day, I do not know whether it is going 
to be this decade or within a decade and a half, but it is not 
30 years from today. The levelized cost of renewable energy 
will be the same as any new form of energy. It will be as 
    But until that day arrives, whether it is, you know, in 
this decade or the next decade and a half, yes, it could use a 
little bit more support, but you can sunset that. When there 
are industries that are doing quite well, we can also ask 
ourselves, do they need continued support?
    Senator Sanders. Mr. Secretary, there is a new plant being 
proposed, the Georgia nuclear power plant. How much Federal 
loan guarantees are involved in that plant?
    Secretary Chu. There is one--there is a Vogtle power 
    Senator Sanders. Right.
    Secretary Chu. That is the one you are talking about, I 
think, that is a consortium of companies led by Southern. I 
believe the loan is a conditional commitment. The loan 
guarantee is about $8.3 billion.
    Senator Sanders. Loan guarantee of $8.3 billion?
    Secretary Chu. It is paid for--the credit subsidy is paid 
for by the applicant, though. So, it is scored by the CBO as a 
1 percent score, but the actual credit subsidy is paid by the 
applicant in that case.
    The reason I was hedging on that is I know that there is--
before NRC approval, another set of 2 nuclear reactors, which 
are not applying for a loan. So, sorry, I do not really--I 
cannot really say definitively.
    Senator Sanders. If the Federal Government--Congress passed 
legislation repealing Price-Anderson, would the--which is, as 
you now, a Federal insurance program if, God forbid, there is 
ever a nuclear accident. Do you think Wall Street would be 
prepared to invest one penny in nuclear power?
    Secretary Chu. I agree with you. I think Price-Anderson 
    Senator Sanders. My only point. Thank you, Mr. Secretary. 
Thank you for the excellent work you are doing
    My only point on all this is I hear sustainable energy 
being attacked, and yet you have an entire major industry that 
people want to greatly expand, for better or for worse, which 
is totally dependent on the support of the Federal Government, 
would not last 2 days from now if the Federal Government 
withdrew all of its support.
    OK. I have the chair. Senator Paul.
    Senator Paul. Thank you for coming, Secretary Chu.
    Have you met George Kaiser?
    Secretary Chu. I think I might have at a roundtable 
    Senator Paul. More than once?
    Secretary Chu. The only one I can recall at the time was 
during a roundtable meeting, yes.
    Senator Paul. Are you concerned about the propriety of 
giving money, $500 million, to a billionaire, you know, and 
then sort of changing the rules some so he gets to, you know, 
maybe get a better deal than taxpayers do?
    Secretary Chu. I am convinced--nothing I have seen in the 
Loan Program or anything in the White House had any connection 
George Kaiser with raising of money, had anything to do with 
the selection of loan.
    As you well know, Solyndra was at the head of the line 
picked by the Department of Energy under a previous 
Administration, and it was the one that career people advanced 
forward as the one that had the most work done on that loan, 
that satisfied the conditions of the intent of the loan.
    Senator Paul. That is sort of troubling, though, that they 
were the best case scenario and had met all the criteria best, 
and then they went bankruptcy.
    But also I think what is troubling to most of us is that we 
have given $500 million loans to a guy who is a billionaire. 
Why in the world would we do that?
    Secretary Chu. There were other investors in Solyndra, also 
very wealthy people, also, but associated with the Republican 
Party. So, again----
    Senator Paul. I would not give it to them either.
    Secretary Chu. The politics of the investors was not part 
of the decision of whether to give a loan to Solyndra.
    Senator Paul. Do you think there is a question of 
propriety, though, when you have got someone who works for you, 
who is married to somebody who works for Solyndra, who you say 
there is this firewall at the beginning maybe, but you are not 
insinuating that he never wrote e-mails and never corresponded 
with people in favor of Solyndra.
    Secretary Chu. For example----
    Senator Paul. He did, correct?
    Secretary Chu. He was corresponding after the loan was 
approved for the timing.
    Senator Paul. Do you think that is appropriate for him to 
be involved at any stage, not just as--to say he was not 
involved in the beginning is a little bit of an excuse for him, 
but he should have never, ever had--the word ``Solyndra'' 
should have never left his lips and never been in any writing. 
I think it was.
    Secretary Chu. The Department of Energy has very rigorous 
standards that we enforce on any potential conflict. As you 
mentioned it, for example, his wife was actually firewalled 
from having to do any business with Solyndra as well.
    Senator Paul. Have you met Robert Kennedy, Junior?
    Secretary Chu. Probably. I am not sure.
    Senator Paul. Do you recall how many times?
    Secretary Chu. Since I am not sure----
    Senator Paul. Are you aware of the Kennedy family fortune, 
that they are pretty wealthy also, probably worth hundreds of 
millions of dollars, and we gave Robert Kennedy, Junior's 
company $1.8 billion? Are you aware that someone works for you 
who used to work for the Kennedys who people say was involved 
with that loan process?
    Secretary Chu. I am not aware of that.
    Senator Paul. I think that is something we need to look 
into as well, and this suggestion will go on with the hearings 
in the House as well, that really this revolving door from big 
business into the Department of Energy to get large loans--$1.8 
billion is a lot of money given, once again, to a large 
campaign contributor of the President's.
    It looks unseemingly, and I do not think that is your 
background, but unfortunately you are the head of this 
organization that has been giving these loans to very wealthy 
people who are donors of the President's. It looks really bad.
    Do you give loans to foreign companies?
    Secretary Chu. We give loans for companies meant to 
manufacture in the United States.
    Senator Paul. What about Fisker Karma? Are they spending 
any of our money in Finland?
    Secretary Chu. We gave a loan that was to a design group in 
Los Angeles, and there is another traunch of the loan if they 
satisfy the covenants of the loan, which would go to 
manufacturing in the United States. So, the money we give in 
loans is very targeted to job creation.
    Senator Paul. My understanding is they were struggling here 
and that this money was actually going to be used in Finland.
    Secretary Chu. As I said before, the loans we give are for 
American jobs, and we are very clear about that. So, if they--
you know, if it is a designer----
    Senator Paul. No money goes to Finland then. Fisker Karma 
is not allowed to use any of that money in Finland?
    Secretary Chu. As I said, we give loans for jobs in 
America, and we are very clear about that.
    Senator Paul. So, Fisker Karma is not using any U.S. 
taxpayer dollars in Finland.
    Secretary Chu. I can get back to you on the details on 
that, but I know the overall scope of the loan is for 
manufacturing in the United States and for design, and it went 
to a design group.
    Senator Paul. You can see our concern, the whole idea of 
picking winners and losers. People are saying that windmills, 
which have been subsidized for years and years now, that even 
though we have paid for the windmills, we have got them up, we 
have got them started, if you take away the subsidies, they 
will never make a profit. They just are not profitable. Talk 
about tilting at windmills. We are just throwing money at 
windmills, and I just do not see the purpose.
    It really gets down fundamentally to what Senator Lee has 
talked about. We should not be in this business at all. The 
thing is, is you are choosing, you know, $50 light bulbs. 
Nobody understands that in America. There is a real problem 
here, and I do not think you are going to win the perception 
war on this. My counseling and advice to you would be, let us 
get out of this business. Let us not be involved with stuff 
like this.
    Also, the thing is, is by your involvement in it, it really 
looks unseemingly. I do not question your character. You are 
known for being an upright person from academia. I mean, but 
the thing is you are overseeing something that really does not 
pass the smell test.
    Thank you.
    Senator Franken. [Presiding] Thank you, Senator. Senator 
Sanders now has to go and vote. I just voted, and Senator Paul, 
you do not have to vote if you do not want to. You got to try 
to, you know, play all the percentages here.
    Thank you, Mr. Secretary. I wanted to ask a little bit 
about just our competition in the world on these technologies. 
I think it is really important that we keep pace and do not 
fall behind China, and India, and Europe.
    Just as I was listening to other questions in this and the 
other panel, I was thinking of all of the above. I know the 
President gets criticized sometimes when, say, for example, he 
may not approve of offshore drilling everywhere. When they say, 
well, what about all the above? My feeling is, like, all off 
the above does not mean all of all of the above.
    But if it does mean all of all the above, certainly it 
means innovation, and it means--which means R&D, like ARPA-E, 
which is basic--which is patterned after DARPA, which created 
the Internet, which I believe--and tell me if I am wrong--has 
created some jobs.
    Secretary Chu. I think you are right.
    Senator Franken. Thank you for that validation.
    It also includes what Mr. Allison referred to as investment 
so that we do not have the valley of death for all these things 
that are discovered at universities and where we have had some 
investment by the Federal Government, but to commercialize it. 
That seems to me what the loan program is about.
    Secretary Chu. That is correct. I think it has been 
mischaracterized inappropriately as the government being a 
venture capitalist. Venture capitalists deal with small amounts 
of money, at a much earlier stage. The valley of death goes to 
beginning to deploy a commercial scale where a large investment 
of capital is needed. When these loan programs were set up in 
ePACT 2005, in 2007, and then authorized--a lot of them 
authorized, especially the end of 2008 and beyond, the credit 
markets froze.
    This is why many countries have some sort of financial bank 
of their own to allow their industries to grow. China has a 
very large--I think a credit line for 1 year is $34 billion, in 
renewable energy and things of that nature. Netherlands, 
Germany, England, they are all looking--many of these countries 
have these type of programs because----
    Senator Franken. Are they not simply looking at the future, 
and not the far future, but the near future in terms of the 
competitive world global environment, in terms of these 
technologies, because we know this is where we are going.
    Secretary Chu. Yes. That is why they are doing this. They 
want their industries in their countries to be advantaged 
relative to other countries that--you know, if all the 
countries said we will not have any sort of government 
financing in any country, that would be one thing. But if a 
large number of countries are going forward and doing this, the 
question we should ask ourselves in the United States, what 
should we be doing?
    Senator Franken. So, we want to be competitive in these 
technologies, which are clearly going to be an enormous part of 
our economy, and of the world economy, and the world energy 
economy, right?
    Secretary Chu. Right.
    Senator Franken. It is kind of ignoring that, to me, seems 
almost willful in not understanding where the world is going.
    Secretary Chu. Yes.
    Senator Franken. I do not mean to be harsh, but would you 
agree with me?
    Secretary Chu. I would phrase it slightly differently. If 
you look at a way of financing as a way of stimulating private 
sector investment, which is what we ultimately want to do, a 
loan program, such as the one we are administering, most people 
agree was stimulating private sector investment at a 10 to 1 
ratio. This is a good thing, and that the losses expected from 
this investment are far less, we think, and Allison also 
reaffirms this, than what was authorized.
    Senator Franken. Right.
    Secretary Chu. So, in the aggregate, while there--you know, 
nobody wants a failure. In the aggregate, it has been very good 
at stimulating private sector investment and success.
    Senator Franken. My time has run out, but I am now the 
chairman, so I yielded my time.
    Solyndra, we must keep in mind, was 3.3 percent--only 3.3 
percent of the entire 1705 program. Look, there are risks. We 
had one senator on the other--my friend and colleague on the 
other side say about the loan program, if the risk is 
manageable for this company we are lending money to, we should 
not be putting tax dollars at risk. They said if the risk is 
not manageable, we should not be putting tax dollars at risk. 
So, in other words, we should never put tax dollars at risk 
according to my colleague.
    Now, he has signed on to all of the above. He has said that 
he is for all the above. So, I would--you know, I would suggest 
that anyone who is for all of the above and who is not for loan 
programs is not really for all of the above.
    So, I would caution them when they, you know, when the 
President is not opening every, you know, every square mile of 
the Continental Shelf to offshore drilling, that the criticism 
that he is being a hypocrite because he signed on to all of the 
above, they should be a little bit careful in that regard.
    How much--OK, you said China is doing $36 billion?
    Secretary Chu. They have offered lines of credit, as I 
understand it, $34 billion in lines of credit to the renewable 
or the clean energy sector.
    Senator Franken. OK. I think it is absolutely crucial for 
all kinds of reasons that we invest in clean and renewable 
energy for obvious reasons, for economic reasons, for climate 
reasons. I also--when I hear about the $50 light bulb and the 
award given for that technology, I think of what laptops were 
when the first laptop came out. I mean, essentially we are 
talking about mainframes, what the cost of a mainframe was 
compared to now everybody who can get a laptop gets a laptop.
    That is what that is about, right? That $50 light bulb that 
is, oh, are you expecting every American to put, you know, 
spend $2,000 a year on light bulbs or whatever that question 
was, strikes me as just disingenuous, or, either that or not 
understanding what the purpose of developing that kind of 
technology is.
    So, let us assume it is the latter, shall we? Can you 
explain again about the $50 light bulb and places where it is 
already being used and already saving money, that technology?
    Secretary Chu. Sure. The LEDs, because they last so long--
10,000 hours--if you are in a place which leaves these bulbs on 
a long time like an exit sign--you know, an emergency exit 
sign, sometimes an office building because they are left on for 
8, 10 hours, and there are very high ceilings. So, you would 
have to hire someone with a crane to go up there and change 
that light bulb. Traffic lights, another good example. They are 
on all the time. In those instances, we already know that 
switching out incandescent light bulbs for LEDs make commercial 
sense today.
    The idea of that light bulb contest was to provide for a 
goal going further down to get a light bulb that eventually 
Americans can afford. You know, no one expects to pay $60 for a 
light bulb. Quite candidly, you know, if you fill your house 
with light bulbs like that, given that they last that long, 
they should be part of your will.
    Senator Franken. I think we will end on that. I just wish 
that when we do these hearings that we did them with the 
purpose of getting the most understanding of what we are 
    Secretary Chu. Yes.
    Senator Franken [continuing]. Both from a broad level and, 
as I asked Mr. Allison a very specific thing about the loan 
subsidies. I think that is the best use of these hearings. I 
thank you, Mr. Secretary, for the tremendous job you are doing.
    Secretary Chu. Right. Thank you. As I said, our goal is to 
get that to a $5 light bulb that lasts 20,000 hours. Then you 
buy this--or even 10,000 hours.
    Senator Franken. You know, for street lights that should be 
on in certain neighborhoods because for safety. It can reduce 
    Secretary Chu. Right.
    Senator Franken. There's all kinds of reasons for that.
    Mr. Secretary, thank you. I assume that the record will 
stay open for--I am making this up now--a week.
    But the hearing is adjourned.
    Secretary Chu. Thank you.
    [Whereupon, at 3:12 p.m., the hearing was adjourned.]



                               Appendix I

                   Responses to Additional Questions


 Responses of Secretary Steven Chu to Questions From Senator Murkowski


    Question 1. I'm interested in your perspective on how performance 
is measured and priorities established within the Loan Programs Office. 
Mr. Allison's report states that, ``DOE should better define the 
desired balance between policy goals and financial goals.'' This seems 
like a pretty basic managerial function, so I was surprised to hear 
that Mr. Allison felt it was lacking.
    Do you have any plans to develop a more formal process for 
establishing goals in the loan program and measuring their attainment?
    Answer. DOE constantly strives to improve the efficiency and 
effectiveness of its underwriting and monitoring processes. Clearer 
goals have been established at the division level and assist senior 
management in driving those elements of the process that DOE can 
control. While known policy directives are shared with division 
managers and incorporated into everyday processes, certain policy 
matters may arise later in the underwriting process or after a 
transaction has closed. In those cases, senior LPO management will 
interact with senior DOE management to resolve any matters where policy 
concerns impact the underwriting or monitoring of a transaction. Those 
decisions are then communicated to the deal teams and incorporated in 
the structuring and monitoring of each transaction.

                      [REFERENCES ATTACHED CHART]

    Question 2. Mr. Allison has talked about the importance of `real-
time controls' to make sure that risks are properly managed. On that 
point, market trends associated with the raw materials needed for solar 
panels are relevant.
    Answer. The majority of solar panels require polysilicon, but 
Solyndra's did not. As a result, when polysilicon prices rose in 2005, 
it created what the Congressional Research Service has called ``a 
strong economic value proposition'' for Solyndra. But then polysilicon 
dropped precipitously.
    This speaks directly to the issue of real-time controls that Mr. 
Allison has raised.
    The Department's official response to Solyndra's bankruptcy was 
that it resulted from a ``totally unexpected'' change in the market. At 
a hearing in November of last year, you also said that your decision to 
guarantee a loan to Solyndra was ``based on the analysis of experienced 
professionals and on the strength of the information they had available 
to them at the time.'' But, as you can see from this chart,* the 
competitive advantage bestowed upon Solyndra by high polysilicon prices 
had disappeared several months before DOE closed on their loan 
    * Chart has been retained in committee files.
    Question 2a. Were you or the advisors you rely upon aware of this 
information at the time the guarantee was issued?
    Answer. As part of its due diligence prior to issuing the Solyndra 
loan guarantee, the Department relied on an Independent Market 
Consultant's Report Solyndra Fab 2 Manufacturing Facility, by R.W.Beck, 
dated April 4, 2009. The Department commissioned additional market 
research from Navigant Consulting, which produced the report 
Independent Market Advisory Services, DOE Loan Program, Solyndra, Inc., 
dated February 22, 2010.
    Based on the market research and the Department's other due 
diligence, it was confident in Solyndra's ability to compete in the 
marketplace at the time of financial close. This confidence was shared 
by the private sector, as evidenced by private equity's significant 
investments in Solyndra both before and after the issuance of the loan 
    It is important to note that polysilicon pricing is only one driver 
of photovoltaic (PV) panel prices. PV module prices are also 
significantly driven by a supply and demand. From the time that the 
Solyndra loan guarantee closed until the bankruptcy, the market shifted 
from supply constrained to oversupplied. While Solyndra was able to 
significantly reduce costs, ultimately it was unable to keep pace with 
the dramatic margin compression that was occurring throughout the 
industry. In addition, market events such as the China Development 
Bank's available lines of credit to six Chinese PV manufactures (in 
2010), negative margins, the bankruptcy of the world's largest PV cell 
manufacturer (Q-cells), and cuts in the European Union's PV subsidies 
below retail pricing, were largely unexpected across all major PV 
forecasting groups.
    Question 2b. If so, why did you close on the loan guarantee? And if 
not, would you agree that this underscores Mr. Allison's point about 
the need for real-time controls to mitigate risk?
    Answer. As indicated in A2a, the Department was confident in 
Solyndra's ability to compete in the marketplace at the time of 
financial close. The Department does agree with Mr. Allison's point and 
believes that it has a robust system of controls and risk mitigation 
strategies in place.


    Question 3. You revised the loan guarantee program's rules shortly 
after taking office, including a re-interpretation of who may have a 
first lien on the assets of a project that has received a loan 
guarantee. Specifically, your rulemaking allowed two new financing 
    One is called tenancy in common, where ``each owner holds an 
undivided interest in the physical project assets, and each owner 
typically finances its investment in the projects separately.'' In such 
a case, the rule states that ``it may not be feasible to obtain a lien 
on all project assets.''
    The other financing arrangement discussed is called pari-passu, 
where sources of financing other than the Department of Energy--such as 
foreign Export Credit Agencies participating as co-lenders or co-
guarantors--may expect to share in ``collateral pledged to secure the 
borrower's debt obligations.''
    These examples are a far cry from what happened with Solyndra, but 
the Department has cited the rule as justification for subordinating 
taxpayers to the private investors of $75 million. Nowhere in the rule 
is the scenario of a firm nearing bankruptcy and incapable of raising 
additional capital unless the Department subordinates itself 
contemplated. And yet, that's exactly what was allowed to happen. That 
required a very broad--and in my view, inconsistent--read of what's 
permitted under even your own rulemaking. So I'd like to know whose 
legal opinion relied upon to make that interpretation.
    Was it DOE's General Counsel, the Department of Justice, or some 
combination of offices? Who said it was legally permissible to 
subordinate taxpayers to private investors, and should you have 
sought--or did you seek--a second opinion?
    What is the Department's current position on the subordination of 
taxpayers to private investors?
    Answer. Before agreeing to the restructuring of the Solyndra loan, 
the Department undertook a thorough legal analysis of the provisions of 
Title XVII of the Energy Policy Act of 2005 (EPAct 2005), and concluded 
that subordination in the context of the Solyndra restructuring was 
permitted under the statute. This analysis was conducted by career 
legal professionals in both the Loan Programs Office and the Office of 
General Counsel and was approved by the General Counsel. It was also 
reviewed by DOE's outside counsel, the law firm of Morrison & Foerster, 
which found the analysis reasonable. The analysis also was discussed 
with and reviewed by lawyers in the Office of Management and Budget's 
(OMB) Office of General Counsel. OMB did not express to DOE any 
disagreement with the analysis. We also note that, on November 10, 
2011, Mary Anne Sullivan, a partner in the law firm of Hogan Lovells, 
wrote in a letter to the Ranking Member of the Committee on Energy and 
Commerce, U.S. House of Representatives, that DOE's analysis Is 
supported by the statute and by DOE's interpretation of the statute as 
reflected in 10 C.F.R. Part 609, the regulations governing the loan 
guarantee program....'' As Ms. Sullivan observed, the regulation, like 
the statute, treats the subordination requirement purely as a condition 
precedent to the issuance of a loan guarantee, and nothing in the 
regulation precludes subordination in this context.
    The Department has not changed its position on the legality of 
subordination in the context of the Solyndra restructuring.


    Question 4. At a clean-energy forum hosted by the Washington Post 
last year, you stated that ``we can design a program that is actually 
self-paid and still stimulate the most innovative industries.'' I was 
particularly interested in your reference to a self-paid program, which 
is not what the stimulus bill's Section 1705 loan guarantees relied 
upon. As you know, those loan guarantee applicants were granted access 
to $6 billion appropriated to cover their credit subsidy costs.
    Answer. I believe we can design a program to take advantage of 
benefits from authorities and appropriations that allow it to borrow at 
a lower cost than private sector lenders. These might include the right 
to borrow at low cost from the Treasury and the option to raise more 
capital through bonding authority. It would also ideally include a 
substantial initial appropriation, potentially funded in part by 
transferring Title 17 authorities and unobligated balances to the 
    The program could leverage this federal support to attract private 
sector co-investors for manufacturing facilities, deployment projects, 
or generating assets. It would operate with considerable autonomy 
subject to overall portfolio risk management rules such as limits on 
total Treasury borrowing and requirements for sound underwriting for 
each deal.
    With this initial appropriation, the program should be self-
sustaining for a substantial period, roughly ten years. To support 
itself, it can collect fees for financing and services, and it will 
charge a premium to its rate of borrowing from Treasury. Moreover, it 
may securitize its debt to investors in the private sector, 
replenishing the capital available to finance additional projects. 
Ideally, the program should be set up for reauthorization no later than 
twenty years in the future given the likelihood that market conditions 
will evolve dramatically in that time frame.
    Question 4a. In hindsight, do you believe that credit subsidy costs 
should be self-paid?
    Answer. The economics of the projects completed under Sec. 1705 
were such that imposing a self-pay credit subsidy would almost 
certainly have made them uneconomic, particularly in the credit 
environment that existed at the time that Congress appropriated the 
credit subsidy funding for Sec. 1705.
    In FY 2012-2013, the Loan Guarantee Program will focus on portfolio 
management and monitoring activities on the existing portfolio as well 
as originating new loan guarantees to utilize remaining self-pay loan 
authority in the nuclear power, front-end nuclear, fossil, and 
renewable and energy efficiency sectors as well as the $170 million 
appropriated credit subsidy for renewable and energy efficiency 
    Question 4b. Do you think it was wise to appropriate $6 billion in 
the stimulus to pay for applicants' credit subsidy costs?
    Answer. The original appropriation of $6 billion to pay for 
applicants' credit subsidy was ultimately reduced to $2.5 billion after 
subsequent rescissions. However, I do believe the significant amount of 
appropriated credit subsidy was appropriate, particularly given the 
aforementioned market dynamics, to achieve the goals set by Congress in 
establishing Title XVII of EPAct 2005. In hindsight, the number of 
creditworthy projects that could be completed was limited given the 
September 30, 2011 expiration date for the Sec. 1705 program. It was 
nonetheless important to signal to the marketplace that these projects 
were a priority for Congress, and that Congress recognized the inherent 
difficulty for clean energy projects (particularly innovative projects) 
to attract private capital.
    Question 4c. How would you design a self-paid loan guarantee 
    Answer. Please see the answer to Q4 above.


    Question 5. Much attention has been paid to the terms and 
conditions for loan guarantees from the 2005 energy bill. Specifically, 
the question of a ``reasonable prospect of repayment'' is one that you 
have faced given Solyndra and Beacon's failures to repay their loans.
    Another provision of law requires that ``No guarantee shall be made 
unless the Secretary determines that the amount of the obligation [when 
combined with other funds] will be sufficient to carry out the 
project.'' For Solyndra, this condition was not adhered to. Another $75 
million had to come in from private investors, and to make that happen 
DOE put taxpayers second in line during bankruptcy.
    Did you make a determination that the amounts available when the 
loan guarantee was closed were sufficient to carry out the Solyndra 
project and, if so, how do you square that with the fact that they 
    Answer. Professional employees of, and advisors to, the Loan 
Programs Office spend up to a year or more underwriting loan guarantees 
issued under Title XVII of EPAct 2005. In the course of this analysis, 
and the structuring of the loan, significant attention is paid to the 
ability of the borrower to repay the loan and to complete the project. 
Further, the credit subsidy cost estimate reflects that even with a 
reasonable prospect of repayment, there is still some risk of default. 
To ensure adequate funding for completion, the construction budget 
always includes a reserve for contingencies.
    While DOE ultimately makes the statutory determination that there 
is a reasonable prospect of repayment and that the project funding is 
sufficient to complete the project (as was the case for Solyndra and 
Beacon), the determination is necessarily grounded in the analysis and 
recommendation of the experienced professionals in the Loan Programs 
    It is important to bear in mind that Congress wisely crafted the 
two statutory requirements that you cite as determinations that must be 
made before the Department issues a loan guarantee. They are not 
continuing covenants, and a change in circumstances that results in 
shortfalls, either in repayment or in the construction budget, does not 
mean that the statute was ``not adhered to.'' As has been widely 
discussed and reported, the difficulties encountered by both Solyndra 
and Beacon resulted from dramatic changes in the relevant markets that 
were not anticipated at the time the loan guarantees were issued. 
Moreover, at the time of the Beacon bankruptcy filing, the Stephentown 
project was virtually complete, in operation and producing revenue. 
Similarly, Solyndra faced a shortfall in cash because market conditions 
had resulted in less robust revenues than had been forecast.

                              ATVM PROGRAM

    Question 6a. Five loans have been issued under the ATVM program in 
roughly three and a half years, including just one since March 2011. 
More than half of the program's credit subsidy is unused today, despite 
initial claims that the program was `oversubscribed' and statements 
from DOE that more loans were being negotiated and on the verge of 
closing. Many are wondering what, exactly, is happening with this 
    How many applications has DOE received under the ATVM program, and 
how much total loan funding have those applications sought?
    Answer. We have received a total of 141 document submissions, 70 of 
which were deemed as Substantially Complete Applications. Total funding 
requested was in excess of available appropriations authority for the 
program. Requested funding data is based purely on application 
materials received by DOE. A substantial portion of requested funding 
was related to incomplete applications, and requested funding does not 
reflect rejected or withdrawn applications or any adjustments based on 
terms acceptable to the program.
    Question 6b. How many ATVM applications are currently being 
negotiated by DOE?
    Answer. We have a total of 27 open document submissions, 17 of 
which are deemed as Substantially Complete Applications. Of these 17, 
11 applicants have not responded to the program for an extended period 
of time and are considered inactive, while the remaining 6 applications 
are under review.
    Note that application submissions are first reviewed for 
completeness, prior to any due diligence being performed. Once a 
company has provided all the required information, the application is 
deemed ``Substantially Complete'' and the review process can begin. An 
application becoming Substantially Complete does not necessarily 
indicate that an applicant's business plan, technology, market strategy 
or financial position are fully viable, or that they will meet all 
criteria necessary to obtain a DOE loan. It is simply the first step in 
a thorough technical, legal, and financial analysis.
    Question 6c. Last summer, 18 projects were reportedly negotiating 
under ATVM for a total of $9.8 billion in loans. How many of those 
projects are still negotiating for loans, and what would those loans 
    Answer. Of the 18 Substantially Complete Applications that existed 
in the summer of 2011, the ATVM has 17 eligible applicants remaining, 
11 of which are inactive while the remaining 6 applications are under 
    Question 6d. How many ATVM applications have been rejected by DOE 
to date?
    Answer. We have received a total of 141 document submissions, 70 of 
which were deemed as Substantially Complete Applications. Of the 70 
Substantially Complete Applications, 48 have either been rejected or 
    Question 6e. What are the primary factors that are preventing DOE 
from issuing loans through the ATVM program? Is it administrative 
hurdles that cannot be overcome, a lack of viable projects, or other 
    Answer. The ATVM Loan Program is a direct loan program, funded by 
the U.S. Treasury, using taxpayer dollars. The Program takes very 
seriously its responsibility to ensure that such dollars are awarded in 
the most appropriate way to protect the taxpayer's interests. That 
said, the program has entered into loan agreements with five borrowers 
and continues to closely monitor those loan transactions, insisting on 
the completion of milestones and fulfillment of any conditions agreed 
to by the applicant and DOE.
    The ATVM and its staff endeavor to maintain openness and 
transparency with all constituents, including the detailed and timely 
response to inquiries from interested parties across the public and 
private sectors. The ATVM understands that its work has the ability to 
effect a large economic impact across a broad geographic area of the 
United States, including areas that have been negatively impacted 
during the recent economic downturn. Despite a significant increase 
over time in the volume of outside inquiry into ATVM, the program 
continues to work independently with a distinct focus on our core 
competencies relating to the review, analysis, negotiation and 
structuring of loan transactions.
    The program was established to offer a low-cost funding opportunity 
for financially viable companies with technically meritorious projects 
that are ready for commercialization. Early stage companies (which are 
the vast majority of applicants) face many challenges in their efforts 
to obtain a DOE loan. From the financial and credit risks inherent in 
taking on significant senior debt at an early stage in a company's 
lifecycle, the quality and experience of the management team, to the 
technical and execution risks in designing, developing and establishing 
a manufacturing facility, to the market risk of expected penetration 
and sales volumes, applicants must carefully consider all aspects of 
their business plan. These are the same risks analyzed by equity 
investors, who may or may not be identified in the initial application. 
To that end, equity investors must be identified, ideally prior to the 
issuance of a Conditional Commitment Letter, as is the practice in the 
market for commercial loans. ATVM understands that these equity 
investors are evaluating the high degree of risks these business plans 
face, and to achieve an equity return hurdle commensurate with such 
risk, often require a high degree of financial leverage. The statutory 
maximum leverage is 80% against eligible costs, and ATVM seeks to 
strike a balance between the equity return needed to attract investors 
and the appropriate amount of debt that can be supported by the 
    Automotive component suppliers have also had difficulty qualifying 
for ATVM loans. Although these automotive suppliers are potentially 
some of the more credit worthy borrowers within the automotive 
industry, they have found it difficult to provide a direct connection 
between their components and qualified advanced technology vehicles, a 
necessary link to establish eligibility and market acceptance.
    Question 6f. How many ATVM loans does DOE anticipate finalizing 
during Fiscal Year 2013?
    Answer. Beyond the several applications currently in the ATVM 
pipeline, which are always subject to further review and analysis, the 
ability of the program to ``finalize'' loans is entirely dependent on 
the quality of applications received, whether new or existing, and the 
ability of the DOE and an applicant to reach loan terms agreeable to 
each side consistent with the statute. It is DOE's goal to advance the 
state of automotive technologies while minimizing the risk to the 
taxpayer. This requires that DOE balance its mission of fuel efficiency 
and against financial, market, technical and legal risks that may 
threaten the applicants' ability to repay the loan. To the extent that 
the ATVM Loan Program, in its independent analysis, determines that any 
or all of the applicants will not achieve loan funding, we endeavor to 
provide clear feedback to the applicant.


    Question 7a. According to Mr. Allison's report, some positions in 
LPO are either vacant or staffed by acting heads and rely heavily on 
consultants and contractors.''
    Which positions are currently vacant in the LPO? Which are staffed 
by acting heads?
    Answer. The current LPO organizational model and staffing plan 
approved in December 2010 by the Secretary, the DOE Human Capital 
Officer (HC), and the collective bargaining unit allows for the 
recruitment and retention of federal employees compliant with Office of 
Personnel Management (OPM) requirements. Accordingly, the LPO mission 
and functions are aligned to the staffing plan which: establishes the 
roles and responsibilities for all new federal supervisors and staff; 
identifies their reporting structure, authorities, job classifications, 
and grade levels; and provides the framework for recruitment actions, 
which the LPO is undertaking in earnest with the HC organization.
    The LPO organization is headed by the Executive Director (LP-1) who 
reports directly to the Secretary of Energy, and it has seven Divisions 
reporting to LP-1 including the:

          (1) Loan Guarantee Origination Division (LP-10) which manages 
        all aspects of application intake, project evaluations, due 
        diligence, environmental compliance, and origination and 
        underwriting for all projects submitted under Title XVII loan 
        guarantee authority;
          (2) Advanced Technology Vehicle Manufacturing (ATVM) Division 
        (LP-20) which manages all aspects of ATVM loan origination for 
        projects submitted under EISA Section 136 direct loan 
          (3) Technical and Project Management Division (LP-30) which 
        evaluates the technical, scientific, and engineering 
        eligibility and viability of all Title XVII and ATVM projects;
          (4) Credit Division (LP-40) which manages credit modeling, 
        credit calculations, and risk analysis, Credit Committee, 
        Credit Review Board, and interagency risk assessments and 
        management for Title XVII and ATVM projects;
          (5) Portfolio Management Division (LP-50) which provides 
        portfolio monitoring and reporting, loan disbursement and 
        repayment administration; and special assets management for 
        Title XVII and ATVM projects.
          (6) Management Operations Division (LP-60) which provides 
        liaison, reporting, compliance, implementation, and management 
        of the federal budget, contracts, personnel, information 
        systems, correspondence, external communications, audits, 
        safety, and security requirements for the LPO;
          (7) Legal Division (LP-70) which reports to the DOE General 
        Counsel and provides legal expertise on all transactions and 
        loan agreements for Title XVII and ATVM projects.

    The LPO staffing plan allows each Division to have a Director at 
the Senior Executive Service (or equivalent) level to establish, 
manage, and oversee LPO policy, procedures, and operations in 
coordination with LP-1. Currently there are three managers serving in 
an ``Acting'' capacity who function in ``dual-hat'' SES roles. They 
are: the Acting LP-1, who also serves as the LP-10 Director; the Acting 
LP-20 Director, who also serves as a Supervisory Senior Investment 
Officer; and the Acting LP-60 Director, who is also the Director for 
LPO Strategic Initiatives.
    The LP-40 Director position that was mentioned in Mr. Allison's 
report is currently vacant. This position was advertised in January 
2011 through a public notice on USAJobs, which is the OPM official 
federal job vacancy website. After a six-month recruitment effort, the 
competitive advertisement yielded no qualified candidates for this 
position. This was likely due, in large part, to uncertainly 
surrounding the pending expiration of the LPO's Recovery Act authority. 
Since Mr. Allison's report was issued, the LPO has undertaken to revise 
this announcement to incorporate additional risk management functions 
identified in the report and is pursuing multiple notification 
strategies to advertise again for this position.
    Question 7b. What is your plan, if any, to fill these positions?
    Answer. The LPO is engaging in the recruitment for the LP-40 
position under a revised framework. In addition, DOE is currently 
extending offers to eight new loan professionals for asset management 
and supervision in LP-50. At the same time, the LPO has initiated 
recruitment actions for specialists in loan administration, special 
assets, investment and financial analysis.
    As a federal executive agency governed by Title V of the U.S. Code, 
Government Organization and Employees, the LPO adheres to OPM and DOE 
personnel regulations that require competitive public postings for all 
federal vacancies. As a new organization, LPO recruitments have 
required significant advance work to create new federal positions in 
the specialized job series--for investment officers and loan 
specialists with corporate and project finance qualifications--which 
were not previously available at DOE. Combined with the timeframe 
required for OPM announcements, the LPO recruitment actions have 
typically taken six to eight months. The LPO continues working with the 
DOE Human Capital Office to determine ways to streamline the federal 
recruitment process to improve federal hiring for the critical skills 
it requires. At the same time, LPO is trying to find ways to 
incentivize federal incumbents with specialized finance skills in a 
manner that is competitive with other federal finance organizations to 
ensure program stability and that it has the in-house competencies 
needed to meet its mission responsibly. These positions will be posted 
on USAJobs consistent will federal hiring requirements.

                           ADDITIONAL SUBSIDY

    Question 8a. According to a memo written by administration 
officials Carol Browner, Ron Klain, and Larry Summers in October 2010, 
``Project sponsors for all power generation projects under the 1705 
program have indicated that they intend to claim a 1603 grant once they 
enter into service.''
    How many projects ultimately selected by DOE for Section 1705 loan 
guarantees have also claimed a 1603 grant (or will be eligible to do so 
before the `Placed in Service' and `Begun Construction' deadlines of 
October 1, 2012)?
    Answer. As you know, the Department of Treasury is responsible for 
administering the 1603 program and the Investment Tax Credits (ITC). 
Under the 1705 loan program, the Department of Energy closed 26 
transactions, excluding two transactions that withdrew subsequent to 
closing (POET and AES Energy Storage). Of the 26 transactions, 20 are 
expected to claim 1603 payments or ITC. The aggregate project cost for 
the 20 projects is $22.8 billion and the aggregate expected 1603/ITC is 
$5.9 billion or 26% of the project cost after allowing for ineligible 
    Question 8b. What is the total government subsidy (federal and 
state) for Section 1705 loan recipients, including 1603 grants, in 
dollars? Please provide this on a project-byproject basis and as an 
average across all projects.
    Answer. The Department does not track state-level government 
subsidy. The Department cannot release the total project costs of 
specific projects as that is business sensitive information and it 
cannot report on project specific 1603 data as that program is 
administered by the Department of Treasury. Currently most projects 
have not completed the 1603 process and been awarded 1603 payments but 
when those payments are awarded the payments will be public information 
and will be reported on the Treasury website.
    Question 8c. What is the total government subsidy for Section 1705 
loan recipients, including 1603 grants, as a percentage of project 
cost? Please provide this on a project-byproject basis and as an 
average across all projects.
    Answer. The Department can only report on 1603 grant recipients in 
terms of total government subsidy, not on a project specific basis 
although for projects that will be receiving 1603 payments, the 
information on such payments will be available on the Treasury website 
once the payment has been issued. The total aggregate expected 1603 
award as a percentage of aggregate total project costs of the 26 
projects (excluding the two that withdrew subsequent to closing) is 


    Question 9a. A number of Section 1705 loan guarantees rely on power 
purchase agreements between the project sponsor and a utility.
    Have power purchase agreements been signed by all applicable 
parties (including agencies of the federal government) for all relevant 
Section 1705 loan guarantee projects? If not, why not, and when do you 
expect those agreements will be completed?
    Answer. PPAs have been executed by all relevant parties for all but 
one of the Section 1705 energy generation projects. The one exception 
is Project Amp, which will deliver a PPA executed by all relevant 
parties before any disbursement occurs. Project Amp is designed to be 
completed in phases. Approval of a phase (and, therefore, disbursement 
of loan proceeds in connection with a phase) requires a PPA executed by 
all relevant parties, including an investment grade utility offtaker.
    A PPA, which is an agreement to buy generated power, is not 
relevant to Section 1705's non-generation projects, as there is no 
generated power to sell in those projects.
    Question 9b. How is potential liability for damage caused to the 
grid in the event of a plant failure or malfunction addressed in power 
purchase agreements?
    Answer. Measures designed to protect interconnecting high voltage 
transmission systems (i.e., ``the grid'') from power plant failures or 
malfunctions are generally addressed in interconnection agreements 
(rather than in Power Purchase Agreements) between the power plant's 
owner (the ``Interconnection Customer''), the owner of the transmission 
facilities (the ``Transmitting Organization'') and the independent 
Regional Transmission Organization (``RTO''). As these are fairly 
standardized agreements, the information below is based on 
representative interconnection agreements from the California 
Independent System Operator (``CAISO'') and ISO New England (``ISO-
    Grid protective measures are more a technical issue than a legal 
one, as system technical standards are designed to prevent any power 
plant from causing damage to the grid. These standards are imposed 
legally by the interconnection agreement requirement that the 
Interconnection Customer design, construct and operate the power plant 
and appurtenant facilities in accordance with the applicable 
Reliability Council's requirements and ``good utility practice.'' Each 
Interconnection Customer is, therefore, required to install and 
maintain protective equipment designed to prevent interference with, 
and damage to, the interconnected transmission facilities, as specified 
by ``good utility practice'' and the Transmitting Organization's 
standards. Before the in-service date and commercial operation of the 
power plant, the Transmitting Organization and Interconnection Customer 
are also required to perform complete calibration and function tests on 
the system protection facilities to ensure compliance with the 
specified standards.
    In the event of emergency conditions, the RTO is separately 
authorized by the interconnection agreement to shut down transmission 
from the power plant without notice and to take any other actions to 
preserve public health and safety, preserve the reliability of the RTO-
controlled grid or the Transmitting Organization's interconnection 
facilities and distribution system, to limit or prevent damage, and to 
expedite restoration of service.
    From a legal perspective, the interconnection agreements generally 
provide that the RTO, Transmitting Organization and Interconnection 
Customer indemnify each other from all losses arising out of another 
party's actions or inactions under the interconnection agreement, 
except in cases of gross negligence or intentional wrongdoing by the 
indemnified party. Liability for consequential, indirect or punitive 
damages is generally excluded in the interconnection agreements. The 
Transmitting Organization and Interconnection Customer are also 
required by the interconnection agreement to maintain minimum insurance 
coverage, including excess public liability insurance over and above 
general commercial liability policies.

  Responses of Secretary Steven Chu to Questions From Senator Franken

    Question 1. How many companies whose technologies have received 
Department of Energy support through grants, public-private 
partnerships (such as the NP2010 program), loans, or loan guarantees 
have transferred that technology (i.e., intellectual property or trade 
secrets) to China in the past ten years?
    Answer. The Department of Energy does not centrally collect 
information about companies that have received DOE support and have 
transferred that technology to China.
    Question 2. Please provide the names of all companies that have at 
any time over the past ten years transferred technology to China 
subsequent to Department of Energy support for the technology through 
grants, public-private partnerships, loans, or loan guarantees.
    Answer. The Department of Energy does not centrally collect 
information about companies that have received DOE support and have 
transferred that technology to China.
    Question 3. Please provide any relevant information on particular 
support programs that the above-mentioned companies and technologies 
    Answer. The Department of Energy does not centrally collect 
information about companies that have received DOE support and have 
transferred that technology to China.
    Question 4. Please provide a general description of the technology 
that was supported by the Department of Energy and subsequently 
transferred to China.
    Answer. The Department of Energy does not centrally collect 
information about companies that have received DOE support and have 
transferred that technology to China.

    [Responses to the following questions were not received at 
the time the hearing went to press:]

        Questions for Secretary Steven Chu From Senator Barrasso

    Question 1. The Department has made over $16 billion in section 
1705 loan guarantees. Over 80 percent of these loan guarantees have 
been made to the solar industry. In other words, about $13 billion in 
loan guarantees have gone to solar generation companies and solar 
manufacturing companies, including Solyndra. Why has the solar industry 
received 80 percent of all section 1705 loan guarantees?
    Question 2. Again, the Department has made over $16 billion in 
section 1705 loan guarantees. However, it is my understanding that the 
Department has not originated a single section 1703 loan guarantee. As 
you know, section 1703 was enacted almost 4 years prior to section 
1705. Please explain how the Department has been able to make over $16 
billion in section 1705 loan guarantees but not any section 1703 loan 
    Question 3. On March 12, 2012, the Government Accountability Office 
(GAO) released a report on the Department's loan guarantees. Do you 
agree with GAO's conclusion that ``DOE did not always follow its own 
process for reviewing applications and documenting its analysis and 
decisions, potentially increasing the taxpayer's exposure to financial 
risk from an applicant's default''? If not, why not?
    Question 4. I understand that the Department is considering 
transferring depleted uranium to the Bonneville Power Administration 
(BPA). The purpose of these transfers appears to be to assist USEC 
which would enrich the depleted uranium. Please explain in detail what 
the Department is considering. Please include in your answer: (1) the 
exact quantities of uranium that would be transferred to BPA; (2) how 
the depleted uranium would be transferred to BPA and the price BPA 
would pay for the depleted uranium; and (3) the price BPA would pay 
USEC per separate work unit to enrich the depleted uranium.
    Question 5. Will you please explain how the transfers to BPA and 
all of the Department's other uranium dispositions would be consistent 
with the Department's commitment not to dispose of more than 5 million 
pounds of natural uranium equivalent (or 10 percent of the nation's 
domestic fuel requirements) annually into the commercial market? Please 
explain in your answer which years the Department would record the 
transfers to BPA for the purposes of satisfying the Department's total 
cap on annual uranium dispositions.
    Question 6. How would the Department ensure that the uranium 
transferred to BPA will remain out of the commercial market prior to 
consumption? In other words, how would the Department ensure that BPA 
does not swap, loan, or sell the uranium into the market?
    Question 7. What steps would the Department take to ensure that BPA 
will not sell or trade some of its existing uranium inventories into 
the commercial market and replace such inventories with the uranium 
transferred from the Department?
    Responses of Herbert Allison to Questions From Senator Murkowski

                      THREAT OF CONCENTRATION RISK

    Your report goes into some detail about concentration risk in the 
Energy Department's loan portfolio. Specifically, you cite the large 
share of projects for manufacturing solar equipment or generating solar 
power and the reliance upon state and federal mandates to create 
markets for many projects' and products.
    In many ways, this concentration risk is the direct result of a 
Congressional decision to limit eligibility under the stimulus bill's 
Section 1705 program. Compared to the 2005 energy bill's Section 1703, 
a far narrower set of industries--renewable and transmission projects 
only--were allowed to apply for support under Section 1705 from the 

    Question 1. Do you think it was wise for Congress to limit 
eligibility under Sec. 1705, and do you think these concentration risks 
would be more manageable if nuclear, clean coal, or other projects were 
also part of the Department's portfolio?
    Answer. What the Independent Consultant's Report (``Report'') means 
by the term ``concentration risk'' in the existing portfolio is that, 
if one project similar to others in a group were to encounter trouble, 
the others in that group might also be affected. It is not clear that 
the existing concentration risks would be diminished by adding projects 
involving other types of energy production, because they may not offset 
others in the portfolio and the existing risks would still remain.


    In evaluating the Department's loan and loan guarantee portfolio, 
you chose to break out the loans and loan guarantees not by 
programmatic origin, but by certain traits that bear heavily on a 
project's risk profile. Specifically, you chose to disaggregate the 
portfolio into ``Utility-Linked,'' ``Non-Utility Linked,'' and the 
``Ford and Nissan'' categories.
    In that order, ``Ford and Nissan'' were found to have a credit 
subsidy cost of 2%, ``Utility-Linked'' came in at 13%, and ``Non-
Utility-Linked''--without accounting for the already-bankrupt Solyndra 
and Beacon--had a credit subsidy cost of 41%.
    Question 2a. Can you explain why you chose to break the portfolio 
out this way?
    Question 2b. Is there a class or category of project that you think 
should not receive loan guarantees or direct loans from the government 
in the future?
    Answer. As you know, the Independent Consultant's assignment was in 
part to evaluate the loans in the portfolio. To do so, the Independent 
Consultant (which term, as used herein and in the Report, collectively 
refers to myself and the team of advisers that was assembled to assist 
in preparing the Report) estimated the risk of each loan, assigned a 
discount rate appropriate for that risk and then discounted the loan's 
expected cash flows using the two methods of valuation that we 
selected: FCRA and FMV. In order to provide as much information as 
possible about the estimates of expected loss without violating 
confidentiality agreements, the Independent Consultant grouped the 
loans into three categories, each with the distinctive risk and other 
characteristics described in the Report, and disclosed the estimates of 
expected loss for each category.
    The Independent Consultant believes that the answer to the second 
part of the question would depend on a number of factors, including 
policy imperatives at the time, analysis of the project by technical 
experts, the expected economics of the project, and the risks and 
countervailing protections in the financing agreements.


    If our policy objective is to facilitate deployment of new or 
improved energy technologies, there are many tools available to the 
government. To this day, we also utilize tax credits, cash grants, 
mandates, government procurement, prizes, performance standards, and 
other mechanisms to try and alter the nation's energy mix.
    Question 3. Do you think some of these other tools make more sense 
than loan guarantees or direct loans? If so, can you provide examples 
of where one tool is clearly preferable to loan guarantees or direct 
    Answer. As it designs financing programs for energy projects, the 
government should select forms of financing best suited to 
accomplishing the desired policy objectives and to protecting the 
interests of taxpayers. For more innovative, risky projects in early 
stages of development, it may be advantageous to use grants, prizes or 
equity investments. Equity-linked vehicles could enable taxpayers to 
share in returns from successful ventures. Those gains could help to 
pay down the deficit, offset losses from other investments, or finance 
other projects. The forms of financing permitted in the Title XVII and 
ATVM programs expose taxpayers to the downside risk of absorbing 
considerable losses but do not offer taxpayers the possibility of 
profiting alongside project sponsors if projects are successful.


    Question 4. Are market trends related to polysilicon prices--in the 
context of the loan guarantee to Solyndra--something that a Chief Risk 
Officer would have been monitoring ahead of the Department issuing a 
loan guarantee to a company whose competitive advantage was derived, in 
large part, from the fact that they didn't use polysilicon? (Please 
reference question #2 to Secretary Chu for more information and a chart 
from CRS depicting historical polysilicon prices.)
    Answer. The Chief Risk Officer would provide the Department with an 
independent view on markets not only before loans are approved, but 
also before funds are disbursed and throughout the lives of the loans. 
In addition, the recommended Early Warning System would provide 
continuously updated information on markets and developments in 
technologies for producing and delivering clean energy.

                            FEE COLLECTIONS

    Your report notes (p. 17) that the level of fees charged to 
borrowers were under-market and that proceeds from fee collections may 
not be large enough to cover long-term management and oversight of the 
project portfolio. As a result, DOE likely needs additional funding to 
adequately manage the project portfolio over its lifetime.
    Question 5. Should the fee structure for applicants/recipients be 
modified to ensure that the charges are sufficient to cover loan 
origination, loan monitoring and management, and other long-term 
administrative costs? If so, what changes to the fee structure would 
you recommend?
    Answer. Under the current laws and regulations governing the 
Program, most of the fees that fund the Loan Program Office (``LPO'') 
derive from origination of financings. Once the origination phase of 
the Program ends, fee income will decline substantially and may be 
insufficient to fund the activities of the LPO over the lives of the 
loans. DOE cannot unilaterally change the fee structure for existing 
agreements. Therefore, DOE should modify the fee structure to the 
extent it is statutorily authorized if it concludes that revenues are 
likely to be insufficient to fund the LPO over the 20-30 year life of 
the Program. To the extent such modifications require amendment of the 
underlying statutory authorities, Congress should make such necessary 

                           LONG-TERM FUNDING

    The first recommendation in your report (p. 43) is to ``Provide 
Long-Term Funding for the Program.'' Also on page 43, the report states 
that ``adequately funding the management and administration of the 
Programs will depend on obtaining additional budget and appropriated 
funds in the future.'' However, no specific estimate of funding needed 
for the program is provided.
    Question 6. How much funding is needed to adequately manage, 
monitor, and oversee the loan and loan guarantee project portfolio?
    Answer. Determining the amount of funding needed to adequately 
manage, monitor and oversee the portfolio was not part of the 
Independent Consultant's assignment. The Report did state, however, 
that the costs to implement the recommendations should be low compared 
to risk of added losses if the Programs are not well-managed and 
governed. Furthermore, many of the Report's recommendations entail 
little or no cost.

                           EVALUATION METHOD

    Your report evaluates DOE's loan and loan guarantee portfolio using 
two different methods: (1) Federal Credit Reform Act (FCRA) credit 
subsidy cost, and (2) Fair Market Value. However, the report emphasizes 
(pages 33 and 37) that neither method should be relied upon as an 
accurate predictor of estimated losses or costs to the federal 
    Question 7. Is there an evaluation method available that might 
reliably predict government costs for energy project loans and loan 
guarantees such as those currently within DOE's loan and loan guarantee 
    Answer. For purposes of government budgeting, the method set forth 
in the Federal Credit Reform Act of 1990 (``FCRA'') is appropriate, as 
it estimates credit loss and excludes other costs that are applicable 
to private investors but not to the government so long as the 
government holds the loans. Any deviations in the credit subsidy cost 
will likely be offset by countervailing changes in costs of the 
government's other loan programs or be absorbed by taxpayers under 
FCRA's permanent and indefinite authority.
    Nonetheless, no method can reliably forecast the actual losses that 
will ensue over the life of the Programs because any cost to the 
government will be the product of many factors, some unique to an 
individual loan, which the FCRA methodology can neither capture nor 
forecast today. Moreover, the FCRA methodology's present value 
estimates of cost fluctuate materially with changes in assumed long-
term interest rates. The FCRA methodology also assumes that DOE is a 
passive bystander unable to act to reduce or mitigate risk over time, 
when in fact it has robust tools to protect itself against elective 

                        NON-UTILITY LINKED LOANS

    Your evaluation of the non-utility-linked loans category indicates 
that credit subsidy cost estimates have increased 71% since the loans 
were originated (p. 32). This increase is partly a result of six of the 
eight loans in this category having received lower credit ratings than 
those assigned by DOE. The non-utility-linked loans category includes 
loans to cellulosic ethanolprojects, automotive manufacturing 
companies, and solar manufacturing companies.
    Question 8. Could you please explain why six of the non-utility-
linked loans received lower credit ratings than ratings assigned by 
    Answer. The Non-Utility-Linked Loan projects typically rely on 
novel technologies and unproven manufacturing methods. They will not 
benefit from guaranteed purchases of their production and instead will 
have to sell their products into highly competitive markets. Some have 
not been meeting progress milestones. In considering these factors, the 
Independent Consultant assigned lower credit ratings to some of the 
loans than did DOE.

                        FMV AND FCRA EVALUATIONS

    Your evaluation of projects in the non-utility-linked loans 
category resulted in FCRA credit subsidy cost estimates and Fair Market 
Value discounts, which investors would require, that were essentially 
equal. On page 33 of the report, the following statement is made: 
``...results from the legally required FCRA Methodology do not reflect 
the discounts from the loans' face values that investors would demand 
to bear the full set of risks involved in this particular Portfolio.'' 
This statement seems to indicate that FMV discounts would generally be 
larger than credit subsidy cost estimates. The non-utility-linked loans 
include the highest-risk projects in the portfolio, so these projects 
might be expected to command a significant Fair Market Value discount.
    Question 9. For the non-utility-linked loans category, could you 
please explain why the Independent Consultant's estimates of Fair 
Market Value (FMV) and FCRA credit subsidy cost are essentially equal?
    Answer. The fact that the Independent Consultant's estimates of FMV 
(measured as a range) and the FCRA credit subsidy cost for the Non-
Utility Linked Loans are similar is largely coincidental and is a 
function of the assumptions used to calculate the estimates using the 
two methodologies and the individual characteristics of each loan. The 
Independent Consultant evaluated eight Non-Utility Linked Loans 
independently. The estimates of FMV and FCRA credit subsidy costs for 
the Non-Utility Linked Loans presented in the Independent Consultant's 
Report are aggregate values comprised of the individual estimates for 
each of the eight Non-Utility Linked Loans. In some cases, the FMV and 
FCRA credit subsidy costs for individual Non-Utility Linked Loans 
overlap. In other cases, they do not. Viewed as a portfolio, as the 
report does, there is overlap.
    Although the overlap is largely coincidental, the Independent 
Consultant, as a general rule, observed less of a disparity between 
estimates of FMV and FCRA credit subsidy costs, all other factors held 
constant, for credits on the lower end of the credit scale and for 
credits for which low recovery-rate-upon-default assumptions were 
utilized for the FCRA methodology. The Non-Utility Linked Loans tended 
to be on the lower end of the credit scale and utilized relatively low 
recovery rates for the FCRA methodology.

                          TAXPAYER PROTECTIONS

    You recommend (p. 45) actions that would protect taxpayer 
interests. There are references throughout the report that discuss how 
the loan and loan guarantee programs could increase oversight of 
projects and transactions and institute more rigorous covenants and 
conditions prior to funding disbursement. However, once all funds have 
been fully disbursed, taxpayer protection options may be limited to the 
ability of the government to operate or liquidate project assets in the 
event of a default.
    Question 10. After loan or loan guarantee funds are completely 
disbursed to projects, what taxpayer protection options are available 
to the federal government?
    Answer. DOE can claim default if a project does not meet ongoing 
contractual requirements for capital, cash flow, debt/equity ratios, 
project performance, spending rates, debt limits, etc. DOE does not 
have some protections typically available to private lenders, such as 
the ability to contribute equity, and it may not be authorized to 
subordinate its loans to attract additional funding that may improve 
the project's viability and ability to repay DOE.

                          TIMEFRAME OF REPORT

    You mention the `compressed time period for review' (p. 54) in your 
discussion of limitations of the report.
    Question 11a. Was 60 days sufficient to cover all aspects of the 
LPO that you believe are worthy of being examined?
    Question 11b. Ideally, how much time would be allotted to complete 
a comprehensive review of the LPO?
    Answer. The Independent Consultant had sufficient time to complete 
the assigned work of evaluating the LPO's portfolio of loans using the 
available information provided by DOE, making comprehensive 
recommendations for strengthening management of the Program, and 
proposing an Early Warning System. As noted in the Report, with 
additional time the Independent Consultant could have retained outside 
experts (engineering firms, etc.), but the Independent Consultant is 
not convinced that such experts would have materially affected the 
valuations of loans and the recommendations contained in the Report. 
The Independent Consultant's assignment did not include examining day-
to-day operations, record keeping and controls. The Independent 
Consultant assumes that the DOE Inspector General performs those 
                              Appendix II

              Additional Material Submitted for the Record


                                         Bright Automotive,
                            Rochester Hills, MI, December 27, 2011.
Secretary Stephen Chu,
Deputy Secretary Daniel Poneman,
Mr. Owen Barwell,
Mr. Rob Donatucci,
Mr. David Frantz,
Mr. Nick Whitcombe.

Subject: Bright Automotive and its ATVM Loan Program Application

    Dear Secretary Chu, Deputy Secretary Poneman and Messrs. Barwell, 
Donatucci, Frantz, and Whitcombe:

    The purpose of letter is to provide an overview of Bright 
Automotive, to comprehensively convey its experience as it relates to 
the ATVMLP over the past three years and to request the DOE's senior 
leadership's direct and immediate involvement in moving our application 
forward to completion.
    As our experience to date with ATVMLP has been extensive, we want 
to provide a comprehensive summary of our status and situation. An 
executive summary is provided, followed by a more comprehensive 

                           EXECUTIVE SUMMARY

Overview of Bright and its ATVM Loan Process
   Bright was spun out of the of a consortium of Google.org, 
        Rocky Mountain Institute, the Turner Foundation, Alcoa, and 
        Johnson Controls in 2007, and incorporated in January of 2008;
   Bright will produce a light-weight road-coupled PHEV 
        commercial work truck in the U.S. that will create over 675 
        American-based direct and at least 2700 indirect jobs--largely 
        in the Midwest. With an electric-range of over 30 miles and 
        charge-sustaining efficiency of over 35 miles per gallon, each 
        vehicle will save about 40 barrels of oil and reduce 
        CO2 emissions by 16 tons per year;
   Bright's PHEV is the first truck engineered from the ground 
        up as a plug-in electric vehicle (PEV) designed for commercial 
        and government customers that buy over 900,000 vehicles a year 
        in North America, offering a 10-30% lower ``total cost of 
        ownership'' than any competitive vehicle in its class;
   The Bright work truck will advance several of the Federal 
        Government's policy goals, most importantly offering an 
        Alternative Fuel Vehicle alternative for its van and pickup 
        applications to help fulfill the government's 2015 pledge to 
        exclusively procure AFV's;
   Bright's projected CAFE number will be over 85-mpg, and its 
        CO2 will be 102g/mi while having a footprint of over 
        62-sq ft, offering an example of CAFE standards can be exceeded 
        without having to ``downsize'' the fleet;
   Bright has developed key partnerships with large, 
        established entities such as General Motors and AM General;
   The ATVM Loan Program was created by the Bush Administration 
        and expanded by the Obama Administration to encourage the 
        creation of fuel-efficient vehicles in the U.S. Bright 
        Automotive will help fulfill this objective, thereby reducing 
        ownership costs for public and private fleet operators, reduce 
        dependencies on foreign energy sources and develop advanced 
        technologies in the U.S.
   Bright's ATVM loan application was deemed ``substantially 
        complete'' in December 2008 and it has been in the loan 
        approval process since that time;
   In January 2010, senior LPO leadership indicated that if 
        Bright established a strategic partnership with a major OEM, it 
        would greatly speed up its loan approval process.
   Bright established a strategic partnership with General 
        Motors in July-2010, senior LPO leadership indicates a maximum 
        of 2 months to loan approval;
   September 2010, DOE establishes six (6) additional 
        definitive agreements required for CCL. These are achieved by 
        December 2010, covering a technical center lease and various 
        supply, manufacturing and service agreements;
   Due diligence for Bright's loan application establishing 
        technical and market viability was deemed complete in January 
        2011 and a ``near final'' CCL was issued to Bright;
   Consideration for Bright's loan application was suspended in 
        May 2011 on the basis of volume projections from IHS Global 
        Insight which were later found to be significantly flawed; a 
        new study was commissioned and completed by AT Kearny in June 
   In June/July 2011, additional loan covenants were added to 
        Bright's loan package;
   In July 2011, DOE senior leadership indicated to Bright the 
        expectation that its loan would be advanced to the interagency 
        process by September 2011 with loan approval following in 
        October 2011;
   ATVM loan applications were deprioritized in September 2011 
        in favor of Title XVII loan approval activities; further, 
        unfavorable publicity associated with Title XVII and ATVM loan 
        recipients appears to have impacted negatively companies such 
        as Bright that remain in the ATVMLP approval process.
   In December of 2011, the DOE informed Bright that it has 
        completed its credit paper and is awaiting an internal decision 
        on the ``purpose of the ATVM program'' before advancing the 
        application to OMB.
Broad and Bipartisan Support Exists for Bright
   Bright has received comprehensive incentive packages at the 
        state, county and local levels in both Indiana and Michigan;
   Numerous calls of inquiry and letters of support from 
        Congressional and local leaders have been submitted into the 
        DOE--these are included in the body of the text below; a 
        significant amount of Congressional angst over the ATVMLP can 
        be summarized in the following quote from a Senate legislative 
        director: ``perhaps if they'd get more loans out the door they 
        could get some more support from Congress...part of the 
        frustration with the program is the slowness of the process.''
   Bright has completed multiple projects for the US Postal 
        Service and Department of Defense--each one on time and under 
        budget--and expects that non-tactical vehicle orders will be 
        forthcoming from the DoD as well as from the GSA;
   Bright has received confirmed orders from customers like 
        Duke Energy and Snap-on Tools, as well as letters of support 
        from firms such as Comcast, Frito Lay and ServiceMaster;
   Bright has secured all of its equity commitments required 
        for its CCL.
Bright's Options
   Bright remains very committed to the prospect of bringing 
        cutting-edge PEV technology to businesses and to the U.S. 
        Government via the ATVMLP, but is unclear as to what will make 
        this a reality;
   Should ATVM loan approval not be forthcoming, Bright will be 
        forced to pursue its business plans outside of the United 
        States to fulfill other market needs;
   Unfortunately, a primary funding path outside of the U.S. 
        will lead to the transfer of jobs, IP and know-how to foreign 
   Bright has established a relationship with a (non-government 
        affiliated) Chinese investment firm and has a signed term 
        sheet. Also, a China-based Joint Venture Letter of Intent is 
        being finalized;
   These relationships in China can be pursued with or without 
        the presence of an ATVM loan--in the first scenario, it would 
        be an additive growth and value engine to bolster US developed 
        technology; if the latter, to the detriment of our country, the 
        jobs and technology that Bright would otherwise create will 
        move to China.
DOE Requested Actions
   Bright is requesting a meeting between Bright and all of the 
        recipients of this letter, including, respectfully, Secretary 
        Chu. The purpose will be to discuss the current status of the 
        ATVMLP in general and the specific next steps associated with 
        Bright's application. As time is critical, this meeting should 
        be targeted for the week of January 2 or 9, 2012.

    Bright's application fulfills the intent of the ATVMLP program, and 
has been de-risked with the preconditions, equity requirements, and 
partnerships incorporated into its lenders case. The current status is 
having a material impact on our business, thereby forcing us to 
consider moving our operations overseas. Gaining clarity and 
transparency from you on next steps is critical.
    Your prompt attention to this matter is urgently needed and is 
                                             Reuben Munger,
                                                  Chairman and CEO.
                                             Mike Donoughe,
                                           Chief Operating Officer.


Bright Automotive Background
          I. Created in 2007 by a consortium of the Rocky Mountain 
        Institute, Google, Johnson Controls, the Turner Foundation and 
        Alcoa to explore U.S. business opportunities for PHEV's; 
        initial studies determined that a combination of ``platform 
        physics'' and a road-coupled hybrid electric architecture 
        focused on the commercial market could create compelling 
        business economics;
          II. Incorporated in 2008; created its powertrain center of 
        excellence in Anderson, Indiana;
          III. Secured important customer validation in 2008-9, 
        including ``voice of the customer'' work with over 50 large 
        fleets, securing letters of support to the Secretary from 
        fleets including Cox, Comcast, Best Buy, and order letters from 
        Duke, Vectren, and Snap On. Comcast, Cox and Duke letters 
    * Documents have been retained in committee files.
          IV. Delivered Bright IDEA customer prototype in 2009 and 
        began work with the Department of Defense to prove out the 
        merits of the road-coupled PHEV architecture;
          V. Delivered DoD PHEV prototype and USPS EV conversion in 
          VI. Established a strategic partnership with General Motors 
        in July 2010; GM made initial investment in Bright in August 
        2010; additional GM investments of $20 million pending--
        contingent upon receipt of ATVM loan approval;
          VII. Established a strategic partnership and contract with 
        Dickenson Fleet Services, the leading commercial-fleet service 
        provider, in the fall of 2010;
          VIII. Created a Vehicle Engineering Technical Center in 
        Rochester Hills, Michigan in 2011;
          IX. Established a contract assembly contract with AM General 
        in Mishawaka, Indiana--contingent upon receipt of ATVM loan 
          X. Ready to accelerate program activities to create the IDEA 
        platform--once ATVM loan approval is achieved.
Bright's ATVMLP Timeline
          I. December 2008: Bright's ATVM loan application deemed 
        ``substantially complete'';
          II. 2009: loan application processing;
          III. September 2009, after rejecting a $450 million loan 
        application, Matt Rogers and Lach Seward indicate that a loan 
        for less than $300 million would be quickly approved. Bright 
        revises its business plan to support a $284 million loan 
        (subsequently increased to $314)
          IV. November 2009, DOE decides to redo the various consulting 
        studies on Bright's business; this process did not begin in 
        earnest until January 2010.
          V. January 2010: Senior leadership at DOE indicated that if 
        Bright established a strategic partnership with a major OEM, it 
        would greatly speed up its loan approval process, saying the 
        approval would occur in ``weeks, not months.''
          VI. July 2010: Bright and GM sign an MOU and establish a 
        strategic partnership; Senior LPO leadership details a two 
        month timeline to CCL
          VII. August 2010: After securing the GM strategic 
        partnership, Bright leadership informs the DOE about 
        potentially problematic volume forecasting done by IHS Global 
        Insight in early 2010 and asked for the analysis to be 
        reassessed (see Item X below);
          VIII. September 2010: To enable a speedier loan approval, 
        Bright directed to satisfy six additional pre-conditions:

                  a) A definitive vehicle maintenance agreement 
                (service provider);
                  b) Binding commitments for $70 million in equity;
                  c) A definitive agreement with a U.S. contract 
                manufacturer to assemble the IDEA;
                  d) A lease for its vehicle engineering technical 
                  e) A ICE powertrain supply agreement with General 
                  f) A supply contract with General Motors for ``parts 
                bin'' access.

          IX. December 2010: Bright meets each pre-condition;
          X. January 2011: Due diligence phase completed; Bright 
        receives a ``near final'' CCL for a $314 million loan;
          XI. February--May 2011: Loan application package developed 
        and reviewed with credit team;
          XII. May 18, 2011: DOE determines it will no longer actively 
        consider Bright's loan based upon the impact of volume 
        considerations in the DOE-generated lender's case on Bright;. 
        Bright leadership discovers that the early 2010 analysis was 
        never reassessed;
          XIII. May 19, 2011: Bright reaches out to political and 
        business leaders to share the latest status and to garner 
        support for continued loan consideration activities;
          XIV. May 2011:

                  a) Jon Lauckner, President of GM Ventures and prior 
                head of global product planning and global program 
                management, attempts to contact senior LPO leadership 
                to share GM's viewpoint on the market and business 
                opportunity. LPO leadership refuses to speak with Mr. 
                  b) Miscellaneous letters and expressions of support 
                into the DOE are input into the DOE from employees, 
                congressional members, etc. and are attached below.
                  c) PRTM sent the DOE a memo of its independent market 
                assessment of the Bright work truck based on its 
                extensive fleet electrification research it performed 
                for the Electrification Coalition (see attached memo);

          XV. May 24, 2011: DOE initiates a conference call with Bright 
        in which it was indicated the volume study used needed to be 
        updated; a new volume study is commissioned by the DOE to be 
        conducted by A.T. Kearney;
          XVI. June 1, 2011: Bright meets with ATK and DOE to share 
        market analysis and Voice of the Customer data;
          XVII. June 2011: Based on updated volume studies, DOE 
        reinitiates loan application processing;
          XVIII. In June/July 2011, partly as a result of the GAO 
        report of February 2011, additional loan covenants were added 
        to Bright's loan package;
          XIX. July 2011: During a meeting between Bright and DOE, it 
        was indicated to Bright that its credit report package should 
        be advanced to the interagency process by the end of September 
        2011 and that receipt of CCL could be realized no later than 
        October 2011;
          XX. September 2011: Title XVII wind down activities 
        prioritized over ATVM loan application processing and media/
        political attention over loans casts a potentially unfavorable 
        light on other applicants;
          XXI. October 2011: Bright informed that additional equity 
        raise requirements are needed to bolster overall balance sheet 
        and risk profile, which Bright agreed to; December 1 set as 
        ``outside date'' for receipt of CCL;
          XXII. November 2011: Another ``near final'' CCL is received 
        by Bright;
          XXIII. December 28, 2011: Bright submits a comprehensive 
        summary letter to DOE requesting, among other things, a face-
        to-face meeting between Bright and DOE senior leadership to 
        discuss the current status and prospects going forward;
          XXIV. January 2012: Meeting between Bright and DOE?
Bright's Business Plan Attributes
          I. Targeted customers (annual market size is $25 billion, and 
        900,000 vehicles, in North America) and benefits:

                  a. Public--local, state and federal (DoD and GSA) 

                    i. Bright can help the federal government meet its 
                various policy objectives as announced in April 2011 
                [2015: all fleet purchases to be alternative fuel 
                vehicles; 1 million PHEV's on the road by 2016; 2020: 
                reduce oil imports by 1/3 50+mpg CAFE.
                    ii. The IDEA platform is the only domestic 
                engineered and produced all-new PHEV truck; it will get 
                85+mpg CAFE rating;
                    iii. The IDEA platform will represent an enabler 
                for the government to economically lower its operating 
                costs in the face of declining budgets as it is 
                targeting a 10-30% lower overall cost to own and 
                    iv. The IDEA platform may be the only viable PEV 
                work truck that can meet the U.S. government's 2015 AFV 
                purchase requirements while offering uncompromised 
                range and payload

                  b. Private--large and small fleets alike--from AT&T 
                to ``Ernie the Plumber''

                    i. Committed orders already received from Duke 
                Energy, Snap-on Tools and Vectren;
                    ii. Letters of intention to purchase already 
                received from Aramark, Best Buy, Comcast, Cox 
                Communications, DTE Energy, FritoLay, Servicemaster and 
                Staples; these companies have a combined fleet of 
                106,500 vehicles;
                    iii. The IDEA will provide key functional, 
                environmental and economic benefits to address fleet 
                operator challenges:

                      1. Lower total cost of ownership--by 10 to 30 
                percent depending on the vehicle it is replacing;
                      2. Reduced exposure to volatile fuel prices--
                full-sized vans typically use about 10 gallons of 
                gasoline per day, the IDEA will use about 2 gallons;
                      3. Reduced carbon footprint--each vehicle will 
                save 16 tons of CO2 emissions per year;
                      4. Enhanced operator productivity--on-board 
                telematics and user-defined features are incorporated 
                into the IDEA platform based on extensive VOC research.

          II. Jobs creation expectations:

                  a. Direct Jobs:

                    i. Michigan--Vehicle Engineering--200-250
                    ii. Indiana--Powertrain Engineering--25-30
                    iii. Indiana--Vehicle Assembly--450-500

                  b. Indirect Jobs [using a multiplier of 4]: 2700-
                3120; primarily in the supply base

          III. Intellectual property generation:

                  a. Parallel road-coupled PHEV architecture;
                  b. Vehicle, Chassis and Powertrain Control Systems;
                  c. Battery Systems;
                  d. Light-weighting through use of advanced materials 
                including the extensive use of alloys and repurposed 

          IV. Reduction of fuel consumption, generation of GHG's, 
        dependency on foreign energy sources:

                  a. 40 barrels of oil saved per vehicle per year; at 
                planned annual volumes of 50,000, 2 million barrels oil 
                saved per year; over 7 years this equates to 56 million 
                barrels of oil saved;
                  b. Reduced carbon footprint--each vehicle will save 
                16 tons of CO2 emissions per year; at 50,000 
                planned annual volumes, 800,000 tons of CO2 
                not emitted per year; over 7 years this equates to 22.4 
                million tons of CO2 not emitted per year.
                  c. National security benefits:

                    i. Saves lives by reducing `in theatre' supply 
                    ii. Reduces the U.S. trade deficit by lowering 
                imported oil requirements;
                    iii. Reduces the pricing power of OPEC and a 
                funding source for the non-democratic countries that 
                control over 90% of global oil reserves; given current 
                instabilities with Iran and within the Middle East, 
                reducing our exposure has never been more critical.
Bright's Broad and Bipartisan Support:
          I. Local level:

                  a. The communities of Anderson and Mishawaka, IN, and 
                Rochester Hills, MI as well as the Counties of St. 
                Joseph, IN and Oakland, MI have each supported Bright 
                with various incentive programs to support jobs 
                  b. The attached letters were written on our behalf to 
                the DOE:

          II. State Level:

                  a. Both the states of Michigan and Indiana have been 
                steadfast in their support of Bright's initiatives;
                  b. Incentive packages from both states have been 
                approved for Bright to encourage jobs creation and 
                business development in each state.

          III. Federal Level:

                  a. Bipartisan support exists for Bright--including 
                from Congressional members outside of the states of 
                Indiana and Michigan;
                  b. Numerous calls of inquiry to the DOE have been 
                made on Bright's behalf;
                  c. Numerous letters of support, encouragement and, 
                occasionally, frustration have been sent to the DOE by 
                members of Congress--some of them are included here:*
    * Letters have been retained in committee files.
General Details
          I. Bright itself represents a significant voice of support 
        for the ATVM program, and not only for its own purposes, but 
        for the country's. Bright leadership favorably commented on the 
        ATVM program in the USA Today on 26 September (``Green-Car Fund 
        Dodges Bullet.'') As conveyed in the attached OpEd* sent to the 
        Indianapolis Star and Detroit Free Press, Bright strongly 
        supports the merits of the program when understood in the 
        broader context of our country's future competitiveness, and, 
        therefore, well being.
    * Document has been retained in committee files.
          II. Bright is committed to continue this public support of 
        the ATVMLP going forward as needed or requested--in the media, 
        in Congress, etc.
          III. Bright has complied with the ATVM rules and process from 
        day 1--DOE should consider implications from a fairness 
        perspective if it decides to change the ``rules'' after 3 years 
        where Bright has steadfastly followed the process set before it 
        and complied with every request from the DOE on its loan 
          IV. Bright employees have voluntarily reduced/deferred their 
        pay on two separate occasions--currently, 85% of Bright 
        employees are participating;
          V. Bright's top management has committed more than their time 
        and efforts, they have contributed a substantial amount of 
        their net worth in the form of investment and bridge loans to 
        keep the company moving forward while the loan approval process 
          VI. Bright's alternatives and plans going forward should the 
        ATVMLP fail to be administered in the way Congress envisioned 
        when first created in 2007 and 2008 include going to other 
        foreign entities that have expressed interest in Bright:

                  a) China--A Term Sheet was established with a non-
                government investment fund in December 2011; currently 
                a Joint Venture agreement is being finalized;
                  b) Turkey--inquiries have been made by various 
                parties in Turkey and are being investigated;
                  c) Middle East--numerous inquiries from sovereign 
                wealth funds in Qatar and the United Arab Emirates have 
                been received and are being investigated.
                  d) Majority foreign investment has an unfortunate 
                consequence--namely that the jobs, intellectual 
                property and know how would be transferred to the 
                country from which the investments are made.
                  e) Meetings with dozens of leading investment banks 
                and private equity firms have made it clear that 
                domestic funding--due at least in part to the precedent 
                set by other loan recipients--requires an ATVM loan. 
                Thus, any domestic manufacturing scenario for Bright 
                likely requires the completion of the CCL and 
                subsequent loan funding.

                                         Bright Automotive,
                                                 February 23, 2012.
Secretary Steven Chu,
Department of Energy, Washington, DC.
    Dear Secretary Chu: We know that you are well aware of the long 
journey Bright Automotive taken as we await disposition on our DOE ATVM 
loan application. Our letter of December 2011 (attached) outlined the 
process through 2011. Unfortunately, despite the many exhaustive 
efforts by us and your loan team, it has not yet advanced into the 
interagency process--and time is running out.
    Our application was filed in December 2008 and after myriad 
discussions and changes in the requirements we had to meet, we still 
find ourselves today stuck. The engine of our enterprise is still 
running, but we are literally almost out of fuel. If our ATVM 
application is not moved forward to the next level by March 2, 2012, 
our mission ends. Period.
   we need your immediate help and intervention to avoid this outcome
    One and a half years ago we were told by DOE that our loan approval 
was merely ``weeks away.'' And, on a number of occasions we were told 
point blank to ``do this'' and our application was complete and ready 
for the next stage. Even though requirements have been altered numerous 
times, we have continued to be responsive and always in a timely 
manner. That is, until now. The latest revised loan terms received 
earlier today, are unacceptable to us and our potential investors. 
These concerns have been conveyed to your loan team.
    Ironically, while we were meeting with DOE officials in Washington 
D.C. today, our President was giving a speech to college students 
saying ``we need to develop the technology that makes us use less oil 
and gasoline.''
    We understand the political assault and the often misguided and 
partisan criticism unfairly waged against you and your team. For some 
inexplicable reason, those slamming clean energy initiatives do not 
grasp the national security risk in our inaction to free us from a 
dependency on foreign oil, often from countries that just don't like 
    Just the other day, the Iranians stopped selling oil to Great 
Britain and France. Iranian oil represents a pittance of both countries 
oil imports, yet oil immediately shot up to $105 a barrel on world 
markets. Overnight, Americans got another shock at the pump, with more 
shocks predicted on our way to $5 a gallon, clearly threatening the 
fragile recovery of our economy. Consider what will happen if events 
escalate further. Americans will go from being angry to being scared. 
Bright's efforts will help mitigate this.
    Of course, some critics will argue that if Bright Automotive's 
technology is so promising, there should be no problem whatsoever is 
gaining more than enough private funding for our project. We know that 
is not the case. While we will be successful in literally matching a 
potential ATVM loan dollar-for-dollar with private funding, we cannot 
continue without the loan. The market has been distorted in this arena 
and the private capital funds capable of fully funding ventures like 
Bright Automotive are simply nonexistent.
    These same critics have little historical perspective on how 
government funding helped this country succeed in many previous 
advanced technology arenas. The Internet and GPS would not be common 
place, can't-live-without extensions of our lives and livelihoods 
without the U.S. Government serving as the early financial catalyst--
not to mention the contributions the space program has made to society. 
Today, we take those game-changing technologies for granted.
    Unfortunately, irrationality and petty politics have paralyzed your 
agency at a time America needs you most. One cannot score if one does 
not shoot.
    We need our shot and an assist from the DOE. Our team has been 
performing brilliantly for more than three years now. We have 
practiced, got ourselves in peak performance shape and are ready to 
play. Give us the ball and we will shoot to win.
    And what does winning mean for Bright Automotive and our country? 
It means hundreds of great manufacturing and technical jobs and 
thousands of indirect jobs in Indiana and Michigan--the heart of 
America. It means a stellar product; the Bright IDEA plug-in hybrid 
electric commercial vehicle that provides lowest total cost of 
ownership for our commercial fleet customers. It means green technology 
that is truly green when it comes to a business' bottom line. It means 
taking yet another step forward in our national goal to wean America 
away from our addiction to foreign oil and its implications on national 
security and our economic strength.
    Sadly, the deadline I presented earlier in this letter is solid. If 
we reach March 2nd without positive movement on our ATVM application, 
our American jobs, American technological innovation and our promise to 
save commercial fleet customers millions in fuel savings will 
    We trust that you and your DOE team will respond accordingly.
                                             Reuben Munger,
                                             Mike Donoughe,

                                         Bright Automotive,
                                                 February 28, 2012.
Secretary Steven Chu,
Department of Energy, Washington, DC.
    Dear Secretary Chu, Today Bright Automotive, Inc will withdraw its 
application for a loan under the ATVM program administered by your 
department. Bright has not been explicitly rejected by the DOE; rather, 
we have been forced to say ``uncle''. As a result, we are winding down 
our operations.
    Last week we received the fourth ``near final'' Conditional 
Commitment Letter since September 2010. Each new letter arrived with 
more onerous terms than the last. The first three were workable for us, 
but the last was so outlandish that most rational and objective persons 
would likely conclude that your team was negotiating in bad faith. We 
hope that as their Secretary, this was not at your urging.
    The actions--or better said ``lack of action''--by your team means 
hundreds of great manufacturing and technical jobs, union and non-union 
alike, and thousands of indirect jobs in Indiana and Michigan will not 
see the light of day. It means our product, the Bright IDEA plug-in 
hybrid electric commercial vehicle, will not provide the lowest total 
cost of ownership for our commercial and government fleet customers, 
saving millions of barrels of oil each year. It means turning your back 
on a bona fide step forward in our national goal to wean America away 
from our addiction to foreign oil and its implications on national 
security and our economic strength.
    In good faith we entered the ATVM process, approved under President 
Bush with bi-partisan Congressional approval, in December of 2008. At 
that time, our application was deemed ``substantially complete.'' As of 
today, we have been in the ``due diligence'' process for more than 1175 
days. That is a record for which no one can be proud.
    We were told by the DOE in August of 2010 that Bright would get the 
ATVM loan ``within weeks, not months'' after we formed a strategic 
partnership with General Motors as the DOE had urged us to do. We lined 
up and agreed to private capital commitments exceeding $200M--a far 
greater percentage than previous DOE loan applicants. Finally, we 
signed definitive agreements with state-of-the-art manufacturer AM 
General that would have employed more than 400 union workers in Indiana 
in a facility that recently laid-off 350 workers. Each time your team 
asked for another new requirement, we delivered with speed and 
    Then, we waited and waited; staying in this process for as long as 
we could after repeated, yet unmet promises by government bureaucrats. 
We continued to play by the rules, even as you and your team were 
changing those rules constantly--seemingly on a whim.
    Because of ATVM's distortion of U.S. private equity markets, the 
only opportunities for 100 percent private equity markets are abroad. 
We made it clear we were an American company, with American workers 
developing advanced, deliverable and clean American technology. We 
unfortunately did not aggressively pursue an alternative funding path 
in China as early as we would have liked based on our understanding of 
where we were in the DOE process. I guess we have only ourselves to 
blame for having faith in the words and promises of our government 
    The Chairman of a Fortune 10 company told your former deputy, 
Jonathan Silver, that this program ``lacked integrity''; that is, it 
did not have a consistent process and rules against which private 
enterprises could rationally evaluate their chances and intelligently 
allocate time and resources against that process. There can be no 
greater failing of government than to not have integrity when dealing 
with its taxpaying citizens.
    It does not give us any solace that we are not alone in the debacle 
of the ATVM process. ATVM has executed under $50 million of 
transactions since October of 2009. Going back to the creation of the 
program, only about $8 billion of the approved $25 billion has been 
invested. In the meantime, countless hours, efforts and millions of 
dollars have been put forth by a multitude of strong entrepreneurial 
teams and some of the largest players in the industry to advance your 
articulated goal of advancing the technical strength and clean energy 
breakthroughs of the American automotive industry. These collective 
efforts have been in vain as the program failed to finance both large 
existing companies and younger emerging ones alike.
    Our vehicle would have been critical to meet President Obama's 
stated goal of one million plug-in electric vehicles on the road in 
2015 and his commitment to buy 100 percent alternative fueled vehicles 
for the Federal Fleet. So, we are not the only ones who will be 
    The ineffectiveness of the DOE to execute its program harms 
commercial enterprise as it not only interfered with the capital 
markets; it placed American companies at the whim of approval by a 
group of bureaucrats. Today at your own ARPA-E conference, Fred Smith, 
the remarkable leader of FedEx, made the compelling case to reduce our 
dependence on oil; a product whose price is manipulated by a cartel 
which has caused the greatest wealth transfer in our history from the 
pockets of working people and businesses to countries, many of whom are 
not our allies. And yet, having in hand a tremendous tool for progress 
in this critically strategic battle--a tool that drew the country's 
best to your door--you failed not only in the deployment of funds from 
ATVM but in dissipating these efforts against not just false hope, but 
false words.
    For us, this is a particularly sad day for our employees and their 
families, as well as the employees and families of our partners. We 
asked our team members on countless occasions to work literally around 
the clock whenever yet another new DOE requirement came down the pike, 
so that we could respond swiftly and accurately. And, we always did.
                                             Reuben Munger,
                                             Mike Donoughe,

                                         Bright Automotive,
                                Rochester Hills, MI, March 7, 2012.
Subject: Bright Automotive and its 39-Month ATVM Loan Program 
Application History

    Dear Senate Energy Committee Members: Enclosed is a series of 
documentation concerning Bright Automotive's 39-month application to 
the Department of Energy's ATVMLP. On February 28, 2012, Bright 
announced in a letter to DOE Secretary Chu that it would withdraw its 
application and wind-down its operations due to the DOE's lack of good-
faith negotiations and commitment to resolve the loan application in a 
manner that could constructively create a privately-financed deal while 
protecting the taxpayer. It is an unfortunate, if not tragic, outcome 
that we hope can be avoided in the future by getting these facts out in 
front of the public; and holds the unelected officials within the DOE 
ATVMLP to a fair level of accountability.
    As our experience to date with ATVMLP has been extensive, we want 
to provide a comprehensive summary of our status and situation 
throughout the three-plus-year unsuccessful processing of our loan 
application. The most thorough description is contained in the December 
28, 2011 letter sent to Secretary Chu at the request of the DOE. Below 
are an overview and history of Bright and our experience with ATVM. We 
also provide other supporting documentation as described below.
   what bright automotive was offering the country and its customers
   The ATVM Loan Program was created by the Bush Administration 
        and expanded by the Obama Administration to encourage the 
        creation of fuel-efficient vehicles in the face of ever-present 
        dependence on foreign oil. Bright Automotive was to help 
        fulfill this objective, by reducing ownership costs for public 
        and private fleet operators, reduce dependencies on foreign 
        energy sources and develop homegrown advanced technologies;
   Bright was spun out of the of a consortium of Google.org, 
        Rocky Mountain Institute, the Turner Foundation, Alcoa, and 
        Johnson Controls in 2007, and incorporated in January of 2008, 
        well before ATVM was operational;
   Bright was to produce the Bright IDEA: a light-weight road-
        coupled plug-in hybrid electric vehicle (PHEV) in the form of a 
        commercial work truck in the U.S. that would create more than 
        675 American-based direct and at least 2700 indirect jobs--
        largely in the Midwest. With an electric-range of over 30 miles 
        and charge-sustaining efficiency of over 35 miles per gallon, 
        each vehicle would have saved about 40 barrels of oil and 
        reduced CO2 emissions by 16 tons per year;
   Bright's PHEV is the first truck engineered from the ground 
        up as a plug-in electric vehicle (PEV) designed for commercial 
        and government customers that purchase more than 900,000 
        vehicles a year in North America. These customers appreciate 
        and demand the 10-30 percent lower ``total cost of ownership'' 
        the Bright vehicle promised compared to competitive vehicles in 
        its class;
   Bright received confirmed orders from customers including 
        Duke Energy and Snap-on Tools, as well as letters of support 
        sent to DOE Secretary Chu from firms such as Comcast, Frito Lay 
        and ServiceMaster. Consultants to the DOE were told by leaders 
        of companies such as Frito Lay that they were ready to purchase 
        tens of thousands of Bright IDEAs;
   The Bright IDEA was to advance several of the Federal 
        Government's policy goals, most importantly offering an 
        Alternative Fuel Vehicle for its van and pickup applications to 
        help fulfill the government's 2015 pledge to exclusively 
        procure AFV's;
   Bright's projected CAFE number was over 85-mpg, and its 
        CO2 was to be 102g/mi while having a footprint of 
        over 62-sq ft, offering an example of how CAFE standards can be 
        exceeded without having to ``downsize'' the fleet;
   Bright completed multiple projects for the U.S. Postal 
        Service and Department of Defense--each one on time and under 
        budget--and would have likely had non-tactical vehicle orders 
        from the DoD as well as from the GSA;
   Bright developed key partnerships with large, established 
        entities such as General Motors and AM General;
  as the clock starts ticking and the promises begin stacking up, the 
      only constant is the ever-changing requirements from the doe
   Bright's ATVM loan application is deemed ``substantially 
        complete'' in December 2008 and remains in the loan approval 
        process continuously until March of 2012;
   In September of 2009, at the request of senior DOE officials 
        to resubmit its loan request with a lower amount which if 
        ``under $300M would be approved quickly,'' Bright reduces its 
        loan request from $450M to $284M, to be matched with $120 
        million of private equity;
   In January 2010, after receiving little progress with its 
        reduced loan request, Bright is told by senior LPO leadership 
        that if Bright establishes a strategic partnership with a major 
        OEM, the DOE will greatly speed up its loan approval process, 
        saying it will ``move heaven and earth'';
   Bright establishes a strategic partnership and investment 
        with General Motors in July 2010 and senior LPO leadership 
        indicate face-to-face with Bright leadership that the loan 
        approval will be ``weeks, not months;'' promising a maximum of 
        2 months to loan approval;
   September 2010, DOE unexpectedly establishes six (6) 
        additional definitive agreements required for a Conditional 
        Commitment Letter (CCL) in its first draft term sheet. Bright 
        agrees to them all. These added requirements are achieved by 
        December 2010, covering a technical center lease and various 
        supply, manufacturing and service agreements;
   Due diligence for Bright's loan application, establishing 
        technical and market viability, is deemed complete in January 
        2011 and a ``near final'' CCL is issued to Bright, marked up 
        with a slightly higher $314M loan amount. A second draft term 
        sheet is presented to Bright. Bright officials agree to the new 
        terms in the draft;
   Consideration for Bright's loan application is suspended in 
        May 2011 on the basis of volume projections from IHS Global 
        Insight which were found to be significantly flawed--although 
        Bright had highlighted the flawed projections a year earlier. A 
        new study is commissioned and completed by AT Kearny in June 
   In June/July 2011, additional loan covenants are added to 
        Bright's loan package;
   In July 2011, DOE senior leadership indicates to Bright the 
        expectation that its loan will be advanced to the interagency 
        process by September 2011 with loan approval following in 
        October 2011;
   ATVM loan applications are deprioritized in September 2011 
        in favor of Title XVII loan approval activities; further, 
        unfavorable publicity associated with Title XVII (Solyndra) and 
        ATVM loan (Fisker) recipients appears to negatively impact 
        companies such as Bright that remain in the ATVMLP approval 

                        AND THE BEATING GOES ON

   In October of 2011, the DOE informs Bright that the equity 
        requirements would be doubled to roughly $240M for its $314M 
        loan, among other new terms, for its third draft term sheet, 
        Bright quickly agrees to the new terms, including the increased 
        equity. Bright goes on its second ``bridge loan'' and 85 
        percent of the company begin salary deferral to try and 
        maintain cash while it concludes its DOE negotiation process.
   In December of 2011, the DOE informs Bright that it has 
        completed its credit paper and is awaiting an internal decision 
        on the ``purpose of the ATVM program'' before advancing the 
        application to OMB;
   In late January/early February 2012, DOE representatives 
        conduct a three-day site visit of Bright's Indiana and Michigan 
        operations, including detailed discussions regarding all 
        aspects of Bright's business including vehicle development, 
        manufacturing, customers, sales, marketing and finance. At the 
        end of the visit, DOE's technical team leader Jef Walker tells 
        Bright COO Mike Donoughe: ``This is the best site visit I have 
        ever been on.'' Walker had been conducting site visits for at 
        least 15 years.
   In February of 2012, after several urgings to work towards 
        the resolving the third term sheet and quickly get to a deal 
        finalization of a then 38-month process, the DOE presents a 
        fourth draft term sheet, this time raising equity requirements 
        to more than $350M--significantly more than the $314M loan 
        amount Bright is seeking and far more private equity compared 
        to previous loans to Tesla, Fisker, Ford and Nissan. Moreover, 
        the DOE requires for Bright to spend all of the private equity 
        before drawing on the loan, and justifies its decision based on 
        an assessed ``risk of a 9 month delay'' it cannot identify or 
        quantify based on its research; nor can any automotive experts 


   Bright investors and management conclude after this lengthy 
        process that, despite earlier and multiple DOE promises and 
        continuously changing requirements and ``phantom'' concerns, 
        the agency does not intend to find a workable deal with Bright 
        that achieves the objectives of the ATVM program while 
        protecting tax payers.
   Clearly, DOE has been negotiating in bad faith. Without the 
        cash runway required to explore alternative pathways (which 
        Bright had in abundance right after the GM deal in July 2010), 
        it is forced to wind down.
   In March of 2012, Secretary Chu, ironically appearing at a 
        clean-energy truck show in Indianapolis, tells a Bright 
        employee (recorded) that Bright did not get its loan due to 
        ``market issues,'' and although ``its technology is good'' the 
        DOE knew the Bright loan wouldn't work ``for the last year and 
        a half.'' This was never communicated with Bright (see previous 

                         ENCLOSED DOCUMENTATION

    Enclosed is a set of documentation* highlighting Bright's 
experience with the ATVM process. The 12/28/2011 letter contains the 
most thorough documentation of the history, with several supporting 
documents contained within.
    * Documents have been retained in committee files.

   2/28/2012 Letter to Sec Chu announcing withdrawal from ATVM 
        and rationale
   2/23/2012 Letter to Sec Chu requesting action to speed a 
        decision on Bright loan
   12/28/2011 Letter to Sec Chu describing history of Bright 
        ATVM loan (extensive)
   5/20/2011 Email to Sec Chu from Amory Lovins requesting 
        action on Bright ATVM loan
   9/22/2009 Letter to ATVM program resubmitting loan for 
        reduced amount
   Bright-DOE Exchange--tracking of every DOE interaction 
        through 2010
   Calendar--another view of the DOE exchanges from 2009-10
   DOE Timing Log--higher level summary of key DOE interactions
   CCL/term sheet drafts highlighting the changing DOE terms as 
        dated below:

    11/8/10; 1/24/11; 2/3/11; 9/12/11; 12-12-11; 2-23-12

                                             Reuben Munger,
                                                  Chairman and CEO.
                                             Mike Donoughe,
                                           Chief Operating Officer.