[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
DEPARTMENT OF ENERGY OVERSIGHT: STATUS
OF LOAN PROGRAMS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
MAY 30, 2014
__________
Serial No. 113-150
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
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COMMITTEE ON ENERGY AND COMMERCE
FRED UPTON, Michigan
Chairman
RALPH M. HALL, Texas HENRY A. WAXMAN, California
JOE BARTON, Texas Ranking Member
Chairman Emeritus JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky Chairman Emeritus
JOHN SHIMKUS, Illinois FRANK PALLONE, Jr., New Jersey
JOSEPH R. PITTS, Pennsylvania BOBBY L. RUSH, Illinois
GREG WALDEN, Oregon ANNA G. ESHOO, California
LEE TERRY, Nebraska ELIOT L. ENGEL, New York
MIKE ROGERS, Michigan GENE GREEN, Texas
TIM MURPHY, Pennsylvania DIANA DeGETTE, Colorado
MICHAEL C. BURGESS, Texas LOIS CAPPS, California
MARSHA BLACKBURN, Tennessee MICHAEL F. DOYLE, Pennsylvania
Vice Chairman JANICE D. SCHAKOWSKY, Illinois
PHIL GINGREY, Georgia JIM MATHESON, Utah
STEVE SCALISE, Louisiana G.K. BUTTERFIELD, North Carolina
ROBERT E. LATTA, Ohio JOHN BARROW, Georgia
CATHY McMORRIS RODGERS, Washington DORIS O. MATSUI, California
GREGG HARPER, Mississippi DONNA M. CHRISTENSEN, Virgin
LEONARD LANCE, New Jersey Islands
BILL CASSIDY, Louisiana KATHY CASTOR, Florida
BRETT GUTHRIE, Kentucky JOHN P. SARBANES, Maryland
PETE OLSON, Texas JERRY McNERNEY, California
DAVID B. McKINLEY, West Virginia BRUCE L. BRALEY, Iowa
CORY GARDNER, Colorado PETER WELCH, Vermont
MIKE POMPEO, Kansas BEN RAY LUJAN, New Mexico
ADAM KINZINGER, Illinois PAUL TONKO, New York
H. MORGAN GRIFFITH, Virginia JOHN A. YARMUTH, Kentucky
GUS M. BILIRAKIS, Florida
BILL JOHNSON, Missouri
BILLY LONG, Missouri
RENEE L. ELLMERS, North Carolina
Subcommittee on Oversight and Investigations
TIM MURPHY, Pennsylvania
Chairman
MICHAEL C. BURGESS, Texas DIANA DeGETTE, Colorado
Vice Chairman Ranking Member
MARSHA BLACKBURN, Tennessee BRUCE L. BRALEY, Iowa
PHIL GINGREY, Georgia BEN RAY LUJAN, New Mexico
STEVE SCALISE, Louisiana JANICE D. SCHAKOWSKY, Illinois
GREGG HARPER, Mississippi G.K. BUTTERFIELD, North Carolina
PETE OLSON, Texas KATHY CASTOR, Florida
CORY GARDNER, Colorado PETER WELCH, Vermont
H. MORGAN GRIFFITH, Virginia PAUL TONKO, New York
BILL JOHNSON, Ohio JOHN A. YARMUTH, Kentucky
BILLY LONG, Missouri GENE GREEN, Texas
RENEE L. ELLMERS, North Carolina HENRY A. WAXMAN, California (ex
JOE BARTON, Texas officio)
FRED UPTON, Michigan (ex officio)
C O N T E N T S
----------
Page
Hon. Tim Murphy, a Representative in Congress from the
Commonwealth of Pennsylvania, opening statement................ 1
Prepared statement........................................... 3
Hon. Janice D. Schakowsky, a Representative in Congress from the
State of Illinois, opening statement........................... 4
Hon. Michael C. Burgess, a Representative in Congress from the
State of Texas, opening statement.............................. 5
Hon. Henry A. Waxman, a Representative in Congress from the State
of California, opening statement............................... 7
Witnesses
Peter W. Davidson, Executive Director of the Loan Programs
Office, Department of Energy................................... 9
Prepared statement........................................... 11
Answers to submitted questions............................... 73
Rickey Hass, Deputy Inspector General for Audits and Inspections,
Department of Energy........................................... 17
Prepared statement........................................... 19
Answers to submitted questions............................... 95
Frank Rusco, Director, Energy and Science Issues, U.S. Government
Accountability Office.......................................... 30
Prepared statement........................................... 32
Answers to submitted questions............................... 98
Submitted Material
Committee memorandum............................................. 68
DEPARTMENT OF ENERGY OVERSIGHT: STATUS OF LOAN PROGRAMS
----------
FRIDAY, MAY 30, 2014
House of Representatives,
Subcommittee on Oversight and Investigations,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 9:20 a.m., in
room 2123, Rayburn House Office Building, Hon. Tim Murphy
(chairman of the subcommittee) presiding.
Present: Representatives Murphy, Burgess, Blackburn,
Gingrey, Scalise, Harper, Griffith, Johnson, Long, DeGette,
Braley, Schakowsky, Tonko, Green, and Waxman (ex officio).
Staff Present: Charlotte Baker, Deputy Communications
Director; Mike Bloomquist, General Counsel; Sean Bonyun,
Communications Director; Matt Bravo, Professional Staff Member;
Leighton Brown, Press Assistant; Karen Christian, Chief
Counsel, Oversight; Carrie-Lee Early, Detailee, Oversight; Brad
Grantz, Policy Coordinator, O&I; Brittany Havens, Legislative
Clerk; Sam Spector, Counsel, Oversight; Peter Spencer,
Professional Staff Member, Oversight; Tom Wilbur, Digital Media
Advisor; Brian Cohen, Minority Staff Director, Oversight &
Investigations, Senior Policy Advisor; Kiren Gopal, Minority
Counsel; Hannah Green, Minority Staff Assistant; Elizabeth
Letter, Minority Press Secretary; and Stephen Salsbury,
Minority Investigator.
OPENING STATEMENT OF HON. TIM MURPHY, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA
Mr. Murphy. Good morning, everyone. This is a hearing of
the Subcommittee on Oversight and Investigations entitled
``Department of Energy Oversight: Status of Loan Programs.''
Today's hearing will examine the status of the Department
of Energy's loan programs and will focus in particular on the
Department's efforts to manage a nearly $30 billion portfolio
of 30 loans and loan guarantees, while the Department at the
same time launches new initiatives to expand that portfolio
with additional loans. These new initiatives will tap into
existing loan authority that at present amounts to another 40
billion. Add this to the fact that the terms of these loans and
guarantees are as long as 20 or 30 years, and it is clear that
DOE will be accountable for managing these programs and
protecting taxpayer interests for a long time.
So has DOE implemented the structure, policies, and
practices to meet its responsibilities? Is it doing so rapidly
and effectively? Should it do more? And how will the agency
sustain effective oversight over this program for the long
term?
It's been evident since this committee first commenced
oversight of these programs more that 3 years ago that
protecting taxpayer interests is no easy task for DOE. Created
under Title XVII of the Energy Policy Act back in 2005, the
Department's advanced energy technology loans authorized by
Congress did not really take off until the stimulus funding of
2009. The stimulus created a category of loan guarantees that
were fully subsidized by the taxpayer. In the ensuing years of
stimulus spending, the DOE's Loan Programs Office focused on
soliciting, reviewing, and closing a flood of applications
under what was known as a Section 1705 program. The agency's
focus with closing loan applications under the stimulus came at
the expense of establishing a strong back-end program necessary
to manage the risks of the loan portfolio.
The result exhibited most prominently by DOE's handling of
the Solyndra loan guarantee were unnecessary taxpayer losses in
the hundreds of millions of dollars. Today half the funds and a
majority of projects in DOE's loan portfolio are comprised of
these stimulus-funded loan guarantees.
In some respects DOE is in a different place now than it
was 3 years ago. The agency has issued only two loan guarantees
since 2011. It has put more attention to developing portfolio
management capabilities and implementing other reform measures.
So today we will take a measure of what DOE has
accomplished and what more it should do to protect taxpayer
interests. This oversight is particularly important because as
the agency transitions focus to portfolio management, it has,
in the recent months, launched new initiatives to generate more
loans and loan guarantees. In February, the agency announced a
new solicitation to tap into $8 billion in loan authority for
advanced fossil energy projects. It has proposed a second
solicitation to tap into $4 billion in loan authority for
renewable energy projects, and it has reminded the automotive
manufacturing industry that some $16 billion in authority is
available for loans for advanced vehicle technologies and
manufacturing.
The status of these new initiatives remain an open
question, but it is important to understand whether the agency
can manage these new solicitations while ensuring appropriate
stewardship of its existing portfolio; and if these new
initiatives expand the loan portfolio, can DOE manage it.
This past month both the Government Accountability Office
and the DOE inspector general issued reports that evaluated
certain elements of DOE's management and monitoring of loans.
While both reports found DOE had made progress strengthening
oversight, both also identified continuing concerns. For
example, GAO found that DOE has not fully developed or
consistently adhered to loan-monitoring policies, and this
inconsistent adherence means that we cannot be sure the agency
is completing activities important to protecting taxpayer
interests.
The inspector general showed the impact of poor loan
monitoring in its examination of Abound Solar Manufacturing,
which defaulted on its DOE loan terms in September 2011 and
declared bankruptcy in July, 2012. The lessons from the Abound
case, the IG noted, underscored the need for the Department to
accelerate loan oversight improvements in light of the amount
of loans in the portfolio. The IG noted that progress has been
made, but more needs to be done.
Frank Rusco of the GAO and Deputy Inspector General Rickey
Hass will discuss these perspectives today, and most important,
of course, are DOE's answers to our questions. We have the
benefit of hearing directly from the head of the loan program,
Mr. Peter Davidson. So, welcome, Mr. Davidson. I look forward
to perspectives on the recommendations made by GAO and the IG,
and your view of the status of the agency's operations and loan
program goals and challenges. And with that, I now yield 5
minutes to Ms. Schakowsky for an opening statement.
[The prepared statement of Mr. Murphy follows:]
Prepared statement of Hon. Tim Murphy
Today's hearing will examine the status of the Department
of Energy's loan programs. It will focus in particular on the
Department's efforts to manage nearly a $30 billion portfolio
of 30 loans and loan guarantees, while the Department at the
same time launches new initiatives to expand that portfolio
with additional loans. These new initiatives will tap into
existing loan authority that, at present, amounts to another
$40 billion.
Add to this the fact that the terms of these loans and
guarantees are as long as 20 or 30 years, and it is clear that
DOE will be accountable for managing these programs, and
protecting taxpayer interests, for a long time.
Has DOE implemented the structure, policies, and practices
to meet its responsibilities? Is it doing so rapidly and
effectively? Should it do more? And how will the agency sustain
effective oversight over this program for the long term?
It has been evident since this Committee first commenced
oversight of these loan programs more than 3 years ago that
protecting taxpayer interests is no easy task for DOE. Created
under Title 17 of the Energy Policy Act of 2005, the
Department's advanced energy technology loans authorized by
Congress did not really take off until the stimulus funding of
2009. The stimulus created a category of loan guarantees that
were fully subsidized by the taxpayer.
In the ensuing go-go years of stimulus spending, DOE's Loan
Programs Office focused on soliciting, reviewing, and closing a
flood of applications under what was known as the section 1705
program. The agency's preoccupation with closing loan
applications under the stimulus came at the expense of
establishing a strong back-end program necessary to manage the
risks of the loan portfolio.
The result, exhibited most prominently by DOE's handling of
the Solyndra loan guarantee, were unnecessary taxpayer losses
in the hundreds of millions of dollars. Today, half of the
funds and a majority of projects in DOE's loan portfolio are
comprised of these stimulus-funded loan guarantees.
In some respects, DOE is in a different place now than it
was 3 years ago. The agency has issued only two loan guarantees
since late 2011. It has put more attention to developing
portfolio management capabilities and implementing other reform
measures.
So today, we will take a measure of what DOE has
accomplished, and what more it should do to protect taxpayer
interests. This oversight is particularly important because, as
the agency transitions focus to portfolio management, it has in
recent months launched new initiatives to generate more loans
and loan guarantees.
In February, the agency announced a new solicitation to tap
into $8 billion dollars in loan authority for advanced fossil
energy projects. It has proposed a second solicitation to tap
into $4 billion in loan authority for renewable energy
projects. And it has reminded the automotive manufacturing
industry that some $16 billion in authority is available for
loans for advanced vehicle technologies and manufacturing.
The status of these new initiatives remain an open
question, but it is important to understand whether the agency
can manage these new solicitations while ensuring appropriate
stewardship of its existing portfolio. And if these new
initiatives expand the loan portfolio, can DOE manage it?
This past month, both the Government Accountability Office
and the DOE Inspector General issued reports that evaluated
certain elements of DOE's management and monitoring of loans.
While both reports found DOE had made progress strengthening
oversight, both also identified continued concerns.
For example, GAO found that DOE has not fully developed or
consistently adhered to loan monitoring policies. And this
inconsistent adherence means that we cannot be sure the agency
is completing activities important to protecting taxpayer
interests.
The Inspector General showed the impact of poor loan
monitoring in its examination of Abound Solar Manufacturing,
which defaulted on its DOE loan terms in September 2011 and
declared bankruptcy in July 2012. The lessons from the Abound
case, the IG noted, underscored the need for the Department to
accelerate loan oversight improvements in light of the amount
of loans in the portfolio. The IG noted that progress has been
made, but more needs to be done.
Frank Rusco of the GAO and Deputy Inspector General Rickey
Hass will discuss these perspectives today.
Most important, of course, are DOE's answers to our
questions. We have the benefit of hearing directly from the
head of the Loan Program Office, Mr. Peter Davidson.
Welcome Mr. Davidson. I look forward to your perspective on
the recommendations made by GAO and the IG and your view of the
status of the agency's operations, and loan program goals and
challenges.
OPENING STATEMENT OF HON. JANICE D. SCHAKOWSKY, A
REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS
Ms. Schakowsky. Thank you, Mr. Chairman. I am sitting in
this morning for the ranking member Diana DeGette and have the
privilege of 5 minutes to give you my take on not only the loan
program, but its goals.
Thank you, Mr. Chairman, for holding this important hearing
on the status of the Department of Energy's loan program, and I
look forward to hearing from our witnesses on this very
important issue.
We are at a critical moment in history. 2013 was the 6th
warmest year on record; 13 of the 14 warmest years have
occurred since 2000. Earlier this month the National Climate
Assessment showed that, without major intervention, oceans will
rise as much as 4 feet, water shortages will increase rapidly,
and the hottest days could be more than 10 degrees hotter by
the end of the century. But we are privileged here to have an
opportunity to fight and win the battle against climate change,
to leave a legacy to which our children and grandchildren can
be proud, and I believe this is an opportunity that we must
take.
Our approach should be multifaceted. It must include strong
rules to reduce harmful emissions as well as a commitment to
promising technologies that will help us achieve that goal.
Investing in clean energy technologies is not only good for the
environment, but it's also in our economic self-interest.
The clean and renewable energy sectors are among the
fastest-growing areas of the global economy and will generate
almost $2 trillion in global investment from 2012 to 2018,
according to PEW. There are three times as many jobs created
per dollar spent on clean energy versus fossil and nuclear
fuels. We should be the undisputed leader in clean energy
technologies and the jobs they support, and, with the right
Federal support, we will be.
Today we are going to hear from witnesses about the status
of loan programs at the Department of Energy. The Government
Accountability Office and the Department's inspector general
have recently issued reports assessing DOE's loan management
and oversight practices. I look forward to hearing about the
progress DOE has made in strengthening its management policies
as well as areas for improvement.
The Loan Programs Office has been successful in financing
groundbreaking solar, advanced vehicle, and wind projects.
These and other projects put the credit and confidence of our
country behind our greatest innovators, allowing them to
succeed where they otherwise might fail. That backing has paid
off in a number of ways. Private-sector clean energy projects
supported by the loan guarantee program have an 87 percent
success rate, far outpacing the performance of typical venture
capital firms. Their failure rate is only 2 percent, better
than that of loan portfolios at typical banks. Add to this the
fact that many of the recipients of DOE loans have trouble
finding financing in the private sector, and the program
success is all the more impressive.
The programs have also helped ensure that our auto sector
can make the investments needed to make top-of-the-line, fuel-
efficient cars. Ford used a DOE Advanced Technology Vehicles
Manufacturing loan to upgrade 13 factories across 6 States,
including my home State of Illinois. That investment increased
the fuel efficiency of Ford cars and created or maintained
33,000 jobs at a time our auto industry was in trouble.
Tesla Motors, another success story, paid off its entire
loan last year, 9 years before full payment was due. I wish I
could afford a Tesla. Each of the 18 large-scale renewable
energy projects backed by DOE's 1705 program have secured power
purchase agreements that will ensure the loans are paid back on
time and in full.
And finally, the programs have encouraged significant
private investment in clean energy technologies. The Solar
Energy Industries Association estimates that DOE loan programs
have sparked $25 billion in private investment in solar alone.
We need to continue to support nascent technologies until they
can attract significant private investment.
Let me just say that in an environment where so many of my
colleagues are denying the existence or the importance of
climate change and global warming, nonetheless there ought to
be an embrace of programs that create--that stimulate our
ability to be leaders around the world in energy technology and
clean energy technology, and I look forward to learning from
our witnesses how DOE's loan program can be improved and
strengthened moving forward. And I yield back.
Mr. Murphy. Thank you for yielding back.
I now recognize Mr. Burgess for a 5-minute opening
statement.
OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF TEXAS
Mr. Burgess. Thank you, Mr. Chairman, and thank you for
holding this hearing because it is an important follow-up to
work that this subcommittee and subcommittee staff has been
performing over the past 3 \1/2\ years.
Certainly the exposition of some of the poor handling of
the 1703 loan guarantee program has been one of the principal
efforts of this committee, because, as we now know, the loss of
hundreds of millions of taxpayer dollars occurred.
The Department of Energy even went so far as to subordinate
the United States' interest in being paid back its money and
allowed private investors to be first in line to receive
funding, a move that many people believe was done in direct
conflict with the very plain language of the law that
authorized the loan guarantee program in the first place.
Following this committee's work, Herb Allison, the former
Assistant Secretary of the Treasury, looked into the
mismanagement of this program by the Department of Energy and
released a report, and released a set of recommendations into
how the program could be more efficiently operated and still
stay within the confines of the authorizing statute.
In the wake of the disastrous results of the first round of
loan guarantees, which, you'll recall, ended in bankruptcy
announcements of companies like Solyndra, Abound Solar, Beacon
Power, the Department of Energy suspended making any further
loan guarantee approvals. In June of 2013, Secretary Chu told
the San Francisco Chronicle, we're going to have more
bankruptcies. Sometimes it will be like Solyndra where you get
3 cents on the dollars; others, it will be 80 cents or
something like that.
You know, the dismissive tone of the former Secretary
making a statement about losing such a profound amount of
American taxpayer money was really upsetting to a lot of us on
the committee. Following a not-brief-enough 3-year hiatus, it's
really been since September of 2011 since there have been any
more loan guarantees, I would question whether any more should
be made, but the Department of Energy announced this year that
it would actually breathe new life into the program. Current
solicitations include loan guarantees for efficiency
automobiles and solar energy.
The subcommittee today must look into how the Department of
Energy intends to operate this program going forward. Does
Secretary Moniz agree with his predecessor's view that more
bankruptcies in this program are inevitable? Following the
Allison report, what changes have been implemented within the
agency to ensure that such failures are minimized? What is the
Department's vision for this program going forward?
The loan guarantee program was really accelerated right
after the inauguration of President Obama in 2009, was part of
a massive stimulus bill, and the President said it was
essential for creating jobs and helping to steer the country
out of an economic recession. Six years later is this still the
goal of the program? At that time, in early 2009, credit
markets were essentially frozen to American companies. Does
this continue to be the case?
If those things have changed, what is the government's role
in any loan guarantee program? If the investment is so
inherently risky that it cannot attract private capital, why
should the American taxpayer be the one that's put at risk?
The loan guarantee programs that the Department of Energy
will be approving apply to loans issued for 20- and 30-year
timeframes, two or three decades. Given that, when the fact
that the Department will need to monitor these loans for
decades to come, what safeguards are in place within the
Department to ensure continuity of oversight over the two- to
three-decade lifetime of the loan?
Moreover, during our last set of hearings over the failures
of the Department of Energy to properly oversee the program, it
became clear that the Department of Energy actively excluded
the Treasury Department from any meaningful input into the
decisionmaking of which company should be receiving loan
guarantees. What has happened to the cooperation between the
two Departments? Does that lack of cooperation continue to
exist, or will the Department of Energy be soliciting more
economic expertise from the Department of Treasury?
These are some of the many questions that are going to come
up today, and I hope they are answered in today's hearing. I
look forward to hearing from our witnesses and welcome them in
their time in the committee.
I yield back to the chair.
Mr. Murphy. The gentleman yields back.
I now recognize Mr. Waxman for a 5-minute opening
statement.
OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Waxman. Thank you, Mr. Chairman. Thank you for holding
this hearing. We're here today to discuss DOE's loan programs.
We should focus on the success of the program and the need for
clean energy financing as the threat of climate change becomes
even more dire.
In 2011 and 2012, and maybe in 2014, this committee was
almost obsessed with the Solyndra loan that went bad. We
reviewed over 300,000 pages of documents, issued multiple
subpoenas, conducted over a dozen interviews, and had 4
hearings. We found no evidence of the wrongdoing to support the
wild claims of House Republicans, but we ignored the big
picture, that the overall loan portfolio was strong, and that
the loan program was helping to enable new breakthrough
technologies to hit the market and employ tens of thousands of
Americans.
Tesla Motors, the Caithness Shepherds Flat wind farm, the
Agua Caliente Solar project, these are the exciting success
stories of the Loan Programs Office, and they are far more
representative of the program as a whole than the handful of
programs that have not worked out.
Ensuring that America generates a much larger share of its
energy from clean sources should be a top priority for our
Nation's energy policy. Doing so is critical to allowing
America to compete for leadership in the global clean energy
market, to helping reduce America's energy cost by improving
efficiency, and to combating climate change.
For the past several years, the Loan Programs Office has
helped meet these goals. Earlier this year the
Intergovernmental Panel on Climate Change, the world's
preeminent authority on climate science, issued a stark warning
on the consequences of failing to take action to address
manmade climate change. The report found that climate change is
already happening and will get much worse if we do not take
action immediately.
In order for the planet to avoid the worst consequences of
climate change, the United States has to be a leader in
reducing carbon pollution, and yet Republicans in Congress
continue to feed the myth that there is a scientific debate
about whether climate change is happening, despite glaciers
melting, despite more powerful and prolonged hurricane and
wildfire seasons. The wild fire season in California doesn't
even end anymore. My Republican colleagues continue to bury
their head in the sand.
This committee should be finding solutions to address
climate change, but House Republicans offer no solutions. They
reject every policy that would reduce our carbon pollution.
They say no to a price on carbon. OK. But then they say no to
cap-and-trade, and then they say no to EPA rules. They even
reject financial support for climate science in DOE's loan
program, which was originally established with bipartisan
support.
Denying the science and rejecting all potential solutions
is not a plan. So as we discuss the Loan Programs Office today,
let's avoid the attempts to make political hay out of Solyndra.
Instead, we should learn what loan program leaders have learned
from past problems and what they are doing to ensure the
program's success as it begins to accelerate the pace of new
loans.
These loan programs can help us develop an energy strategy
for the future that creates jobs, saves money, and positions us
as a leader in the effort to mitigate the worst impacts of
climate change. I thank our witnesses for being here with us
today and to share their expertise on how we can make sure that
the loan program achieves this vision.
Thank you, Mr. Chairman, and I yield back my time.
Mr. Murphy. The gentleman yields back.
We will now proceed with our witnesses to speak. I wanted
to add and tell Members, because we are limited on time, we'll
have a quick gavel at 5 minutes, so please go under your time,
so we will cut you off there so that all of us can ask
questions.
So, Mr. Peter Davidson is the Executive Director of the
Loan Programs Office at the United States Department of Energy.
In this role he oversees the program, more than 30 billion
portfolio of clean energy and advanced vehicle loans and loan
guarantees, making it the largest project finance organization
in the U.S. Government.
Mr. Rickey Hass is the Deputy Inspector General of Audits
and Inspections at the United States Department of Energy. In
this role he directs a Federal workforce of professional
auditors and inspectors, serving at 13 major Department of
Energy sites across the country.
And Mr. Frank Rusco is the Director of Natural Resources
and Environment of the United States Government Accountability
Office. In this role he leads audits and reviews on a broad
spectrum of energy, science, and DOE programmatic issues for
Congress and the committee.
I will now swear in the witnesses.
Are you all aware that this committee is holding an
investigative hearing and, when doing so, has had the practice
of taking testimony under oath? Do you have any objections to
taking testimony under oath?
All of them say no.
The chair will then advise you that under the rules of the
House and the rules of the committee, you are entitled to be
advised by counsel. Do any of you desire to be advised by
counsel during your testimony today?
All the witnesses say no.
So, in that case, if you would please rise, raise your
right hand, I'll swear you in.
[Witnesses sworn.]
Mr. Murphy. Thank you. All of the witnesses have answered
in the affirmative. You are now under oath and subject to the
penalties set forth in Title 18, section 1001 of the United
States Code. You may now each give a 5-minute summary of your
written statement. Mr. Davidson, we will begin with you.
STATEMENT OF PETER W. DAVIDSON, EXECUTIVE DIRECTOR OF THE LOAN
PROGRAMS OFFICE, DEPARTMENT OF ENERGY; RICKEY HASS, DEPUTY
INSPECTOR GENERAL FOR AUDITS AND INSPECTIONS, DEPARTMENT OF
ENERGY; AND FRANK RUSCO, DIRECTOR, ENERGY AND SCIENCE ISSUES,
U.S. GOVERNMENT ACCOUNTABILITY OFFICE
STATEMENT OF PETER W. DAVIDSON
Mr. Davidson. Chairman Upton and Chairman Murphy, Ranking
Members Waxman and DeGette, members of the subcommittee, thank
you for the opportunity to appear before you today. My name is
Peter Davidson. I'm the Executive Director of the Department of
Energy's Loan Program Office, or LPO, a role I assumed almost
one year ago.
LPO issues loans and loan guarantees to accelerate the
commercial deployment of clean energy projects and advanced
vehicle manufacturing in the United States. The program was
designed to fill a critical role in the marketplace, because
the initial commercial deployment of innovative energy
technology is often limited by a project developer's ability to
secure sufficient full-term debt financing to build the
project.
Every transaction supported by the loan program is a
public-private undertaking. While the Department issues loans
and loan guarantees to provide the necessary debt financing for
these projects, the project sponsor must provide sufficient
project-level equity investments of at least 20 percent of the
total cost of every project, and usually represents more than
30 percent. DOE will not issue a loan or a loan guarantee until
substantial private equity support is committed to the project.
The LPO supports these innovative projects by administering two
separate programs, the Title XVII and the Advanced Technology
Vehicle Manufacturing, or ATVM, Program.
We currently manage a portfolio of more than $30 billion of
loan guarantees, loans, and conditional commitments, of 31
projects. As the committee knows, our projects include the
first new nuclear power plant to be licensed and constructed in
the United States in more than 30 years, some of the largest
utility-scale solar facilities in the world, dozens of retooled
auto manufacturing plants producing some of America's best-
selling vehicles, the world's largest solar thermal energy
storage systems, and a variety of other groundbreaking
projects. Overall, these loans and loan guarantees have
resulted in more than $50 billion in total project investment.
Under the Title XVII program, the LPO currently has 17
electricity generation projects in operation that produce
enough clean energy to power more than 550,000 homes annually,
and this number is increasing as new projects come online.
The auto program has supported the production of over 4
million vehicles and approximately 35,000 direct jobs across 8
States: Michigan, California, Illinois, Missouri, Ohio,
Kentucky, New York, and Tennessee.
So even in the context of the program's statutory mandate
to take on technology risk, losses to date are approximately 2
percent of the entire portfolio; 98 percent of the portfolio is
operating and money good. We believe our performance is strong
and compares favorably to the private sector.
Now, the Department of Energy takes its responsibility to
the American taxpayer very seriously. As a result, the LPO
underwrites and structures its loan and loan guarantees to
protect the interests of the taxpayer and maximize prospects
for full repayment. Before making a loan or a loan guarantee,
we conduct extensive due diligence on the application with
rigorous financial, technical, legal, and market analysis by
our professional staff, which includes qualified engineers,
financial experts, and outside advisors. And as noted in
previous GAO reports, some private lenders have observed that
the LPO's due diligence process is as rigorous, if not more
rigorous, than the reviews performed in the private sector.
Despite these efforts we have experienced some losses and
thus constantly seek to improve every aspect of our operations.
We have benefited greatly from recommendations for improvement,
which have come from Congress, from the GAO, from the DOE's
inspector general, and independent consultants such as former
Treasury Department official Herb Allison. DOE has adopted many
of these improvements, including streamlining the application
process, adding transparency to the approval process, filling
key positions with experienced professionals, clarifying
authorities, strengthening internal oversight of the program,
developing a state-of-the-art workflow management system,
establishing a robust early warning system, and improving
reporting to the public. We continuously look for ways to
improve our underwriting and asset-monitoring activities, to
incorporate lessons learned, and ensure best practices to
protect taxpayer interests.
In conclusion, securing economic leadership in the future
requires the support of clean energy innovation and deployment
today. The LPO provides one of the most important tools to
achieve those goals, and, as our global competitors have
learned, that is debt financing on reasonable terms, wisely
targeted, and responsibly deployed.
The achievements of the LPO, I believe, to date are solid,
but they are not enough, and we need to do more to compete on
the global stage, starting with our recently issued advanced
fossil energy project solicitation, and continuing with other
remaining authority, we aim to do just that.
Mr. Chairman, I thank the members of the subcommittee, and
I look forward to answering your questions.
Mr. Murphy. Thank you.
[The prepared statement of Mr. Davidson follows:]
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Mr. Murphy. Mr. Hass, 5 minutes.
STATEMENT OF RICKEY HASS
Mr. Hass. Mr. Chairman and members of the subcommittee, I
appreciate the opportunity to testify on the work of the Office
of Inspector General regarding the Department of Energy's
loan----
Mr. Murphy. Could you pull that microphone real close to
your mouth, please?
Mr. Hass. Little better?
Mr. Murphy. That's much better. Thank you.
Mr. Hass. Because of the significant taxpayer funds
involved, the Office of Inspector General has, over the years,
performed a series of reviews of the Loan Programs Office.
These reviews have identified needed improvements in both the
origination and monitoring of loans.
My testimony today will focus on our review of the
Department's implementation and recommendations that resulted
from an administration-requested review of the LPO by Mr.
Herbert Allison in January of 2012. Prior to doing so, however,
I will discuss our recent report on the failure of the $400
million Abound loan guarantee to provide a benchmark for
understanding the Department's progress and actions yet to be
completed.
Although the Department had identified and taken steps to
mitigate risk, and had reduced its financial exposure by
suspending funding when Abound did not meet its project
milestones, our audit identified several weaknesses in the
administration of the loan. Specifically we found that the
program had not notified the Department's credit review board
of material change in the credit subsidy used to cover
potential loan losses. It had not resolved conflicting opinions
of technical advisors, adequately documented assumptions used
in its financial modeling, and conducted ongoing formal
financial and market analyses.
We concluded that the issues we identified occurred because
the program had not established comprehensive policies,
procedures, and guidance for awarding, and monitoring and
administrating loans. We also pointed out that the weaknesses
in the financial market and monitoring of Abound occurred when
the program had limited staff and was just establishing its
portfolio management division.
The Department's experience with the Abound loan guarantee
provides useful lessons learned for program improvements, which
were generally incorporated in the independent consultant
recommendations. The purpose of our most recent review was to
the determine whether the Department adequately addressed the
independent consultant's twelve recommendations to enhance
program oversight and management.
Our review found that the Department had completed actions
to address four of the twelve recommendations, including
filling a number of key positions and establishing and
communicating management goals. While the Department did not
fully concur with our findings, we consider efforts to address
the remaining eight recommendations to be ongoing, because
policies, procedures, and other plans and efforts were not yet
complete and in place. Examples of remaining actions include
strengthening internal oversight, clarifying authorities, and
incorporating lessons learned into policies and procedures.
We also identified other needed improvements. Specifically
we noted that the Department had not finalized changes in
policies and procedures necessary to address Mr. Allison's
recommendations, and had not developed a formal adjudication
process for resolving differences of professional opinion.
Finally, we found that the program had created a potential
conflict of interest by appointing the Director of Portfolio
Management as a member of the program's risk committee.
While the Department's actions show promise and substantial
progress had been made, we were unable make a determination at
the time of our report as to whether the efforts will be
ultimately fully successful, because, as previously noted, a
number of actions are still ongoing.
Given the significant amount of funding available for loans
and loan guarantees and the previously identified weaknesses,
we'll continue to monitor the loan-related activities as part
of our normal risk-assessment process. In our view, the loan
guarantee program warrants special attention by Department
officials, and as such has been one of our management challenge
watch list items since 2011.
Mr. Chairman, this concludes my statement, and I will be
pleased to answer any questions the subcommittee may have.
Thank you.
Mr. Murphy. I thank the gentleman.
[The prepared statement of Mr. Hass follows:]
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Mr. Murphy. I now recognize Mr. Rusco for 5 minutes.
STATEMENT OF FRANK RUSCO
Mr. Rusco. Thank you. Chairman Murphy, Ranking Member
DeGette, Ms. Schakowsky, and members of the subcommittee, I am
pleased to speak to you today about DOE's loan programs.
Since 2009, DOE has made a total of 38 loans under 3
programs. These loans amount to about $30 billion, and DOE has
about $45 billion in remaining loan authority. Five of the
thirty-eight loans have defaulted, and another four were either
deobligated or withdrew prior to disbursement of the loans. DOE
is in the process of unraveling the defaulted loans and
calculating the losses to the Federal Government.
The Section 1703 Loan Guarantee Program was authorized by
Congress in 2005 and was designed to encourage investment in
commercial use of new or innovative energy technologies. This
program issued its first two loans in February 2014 to support
two nuclear reactors under construction in Georgia. The total
amount of these two loans was about $6.2 billion, and DOE has
about $29 billion in remaining 1703 loan authority.
For 1703 loans, the loan recipients are generally required
to pay for the expected costs of the loans at the time the
loans are made. These expected costs are referred to as credit
subsidy costs. The Advanced Technology Vehicles Manufacturing
Loan Program was authorized by Congress in 2007 and is designed
to encourage the automotive industry to invest in vehicle
technologies resulting in greater fuel efficiency of vehicles
and components. DOE made five loans under the ATVM Program
between September 2009 and March 2011 for a total of $8.4
billion and has $16.6 billion in remaining loan authority. For
ATVM loans, the Federal Government pays the credit subsidy
costs. For the five loans made to date under this program,
these credit subsidy costs were $3.3 billion.
In 2009, as part of the Recovery Act, Congress created the
Section 1705 Loan Guarantee Program to support commercial
energy projects that use renewable energy, electric-power
transmission systems, or leading-edge biofuels. Congress also
appropriated funds to pay the credit subsidy costs for 1705
loans. Thirty-one loans were made under 1705 between September
2009 and September 2011, when loan authority expired. The total
value of the loans made were $15.7 billion, and the credit
subsidy costs for the loans were $1.9 billion.
GAO has evaluated DOE's loan programs on an annual basis
since 2007 and has found that, over time, DOE has set up the
infrastructure to solicit and evaluate loan applications, to
estimate credit subsidy costs, and to issue or guarantee loans.
DOE is also building its capacity to manage the risk of its
existing loan portfolio. In our reports we have made many
recommendations intended to improve the functioning of the
programs, and DOE has generally been responsive in implementing
these recommendations.
There is, however, some question about whether there will
be sufficient demand for all remaining loan authority under the
1703 and ATVM programs. For 1703, the fact that borrowers must
generally pay for the credit subsidy costs at the time the
loans are made may prove to be a deterrent. The 1703 program
has offered numerous solicitations over the past 8 years and
evaluated many dozens of applications, but until February of
this year, it had been unable to make a single loan. It is also
important to note that for the two loans it did make, the
borrowers did not pay any credit subsidy cost because DOE
estimated these costs to be zero.
We are not questioning DOE's cost estimates for these
loans, but we note that under the 1705 program, when the
government was paying these costs, the average credit subsidies
were about 12.5 percent of the loan value. If similar credit
subsidy costs are assessed under the 1703 program in the
future, it is unclear that borrowers would find these loans to
be economically attractive.
Further, the ATVM program has not made a loan since March
2011, despite having loan authorization and appropriated funds
to pay the credit subsidy costs. In a recent report, we found
that as of March 2014, the program had only one active loan
application, and this loan was for about $200 million, a small
fraction of total remaining loan authority. GAO, therefore,
suggested that unless DOE can demonstrate adequate demand for
ATVM loan authority, Congress may wish to consider rescinding
all or part of the remaining $4.2 billion in credit subsidy
appropriations.
Thank you. This completes my oral remarks. I will be happy
to answer any questions you may have.
Mr. Murphy. I thank the gentleman.
[The prepared statement of Mr. Rusco follows:]
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Mr. Murphy. I am now going to recognize myself for 5
minutes.
Mr. Davidson, how long have you been running the DOE's Loan
Programs Office, did you say?
Mr. Davidson. Mr. Chairman, I began there in May of last
year, so one year.
Mr. Murphy. And as the head of the Loan Programs Office,
you report directly to the Secretary; am I correct on that?
Mr. Davidson. Correct.
Mr. Murphy. So, have you had meetings with Secretary Moniz
to discuss the LPO?
Mr. Davidson. Yes.
Mr. Murphy. And what is the Secretary's vision for how the
remaining $40 billion in loan authority should be used?
Mr. Davidson. Thank you for that question. The Secretary's
point of view is that we move ahead and do what we believe the
statute provides for, which is within our area, which is now
the 1703.
Our 1705 funding, which is the stimulus act, that loan
program is over, so now we have the 1703, which is the self-pay
authority.
Mr. Murphy. Pull that mic a little bit closer because I
want to make sure we hear.
Let me ask about specifics. So has he directed you in
anything such as fossil fuel, carbon capture sequestration,
nuclear power plants?
Mr. Davidson. We don't discuss specific transactions. What
we talk about is the ability to put out solicitations. As was
remarked, we have not put out a solicitation in a number of
years. We put out the first new solicitation under 1703 in a
number of years, which is the advanced fossil fuel
solicitation.
Mr. Murphy. But I assume, as head of the LPO, you receive
periodic status reports, loan applications, and the existing
portfolio; is that correct?
Mr. Davidson. Excuse me?
Mr. Murphy. I'm assuming that you receive reports on the
loan applications and the existing portfolio?
Mr. Davidson. Correct.
Mr. Murphy. OK. Do you regularly brief the Secretary on the
current status of all the aspects of the program?
Mr. Davidson. The Secretary and I meet on a quarterly
basis.
Mr. Murphy. Two years ago this committee asked the DOE to
submit a list of projects that applied for loan guarantees. Can
you tell me how many of the active loan guarantee applications
are still in the queue?
Mr. Davidson. We have been providing that to certain areas
of Congress. I'm not sure it did this committee, but we're
happy to do that.
Mr. Murphy. Do you have any idea how many are still in the
queue, by any chance?
Mr. Davidson. Our total applicants?
Mr. Murphy. Yes.
Mr. Davidson. We have a number of applicants still in the
queue. As we shut down, as the 1705 program ended, all those
that were still in the queue were allowed to proceed if they
had been active. So of that, we have a number of active
applications. We don't disclose the exact number, but there are
a handful of active applications. On the renewable side, there
are a handful of active applications from earlier fossil
solicitations we did in 2008.
Mr. Murphy. Can you describe the nature of those fossil
solicitations in general?
Mr. Davidson. Well, Mr. Chairman, if I can go back, I'll go
back. As I know many of you on the committee are aware, we did
a solicitation in 2008 which was really about a coal
gasification. It was a very specific solicitation. At that time
a number of applications came in, I think 10 or so at the time.
Some of those have remained active. And are still in the queue,
and are still being pursued, and are in due diligence. Many of
those projects, the sponsors withdrew the projects primarily
because of what's happened with natural gas. And the decrease
in the cost of natural gas has made those projects not
economically viable, so the developers have withdrawn.
Mr. Murphy. Mr. Rusco, let me ask you, GAO has reviewed the
loan program extensively, as you pointed out. What do you see
as the largest risk in the program as it is currently run both
in terms of the loan origination and the long term?
Mr. Rusco. In terms of the front-end process of the loan
origination, I would say DOE does not have a perfect record of
choosing viable projects to support. Most of their experience
is in the 1705 program, where the Federal Government paid the
credit subsidy cost, but in that program, DOE made loans to
four solar manufacturers, and of those four loans, two have
defaulted, and one was deobligated prior to loan disbursement.
In large part, these problems stem from growing competition
from lower-cost producers of solar panels in China and
elsewhere, but----
Mr. Murphy. Can I interrupt you on that point, because I
know that one of the problems we had with Solyndra when there
was competition from China, unfortunately, is that the issue
was--when you talk about viability, are you referring to
viability of where the company is financially viable, if the
nature of the project itself is going to be viable as new
technologies develop, or both?
Mr. Rusco. Well, I think that the energy sector is changing
rapidly, constantly, and keeping abreast of that and making
sure that you are supporting projects that will remain viable
is a very difficult proposition.
Mr. Murphy. Particularly when you are doing a 20- or 30-
year loan.
Mr. Rusco. Yes, that is a concern, and--so on the back end,
we remain concerned that DOE has not fully set up and staffed
its portfolio risk management procedures and policies. DOE must
remain vigilant to ensure it's well informed and prepared to
respond to any emerging risks to its existing loans, and that
could include risks associated with lower-priced natural gas,
as was mentioned, or any other changes in the markets.
Mr. Murphy. Thank you. I recognize I am out of time. I'll
now recognize--you ready? We'll recognize Mr. Green first for 5
minutes, if you're ready, Mr. Green, from Texas.
Mr. Green. Thank you, Mr. Chairman.
Mr. Davidson, just off the top of my head, why are the
number of applications privileged, that you can't share with a
congressional committee?
Mr. Davidson. I believe it's our DOE policy. We state the
number of applicants who have--the specific number of
applicants we try not to release because there are potential
competitive issues involved. We try and really safeguard the
privacy information of those people that apply, trade secrets,
those types of issues, and the feeling is if people know how
many applied for a certain type of solicitation, it could
determine if there are competitors applying or things of that
nature.
Mr. Green. I understand that, and obviously I want business
records and proprietary information, but it seems like a public
loan would be--at least the information for the number--I'm not
talking about the names even, but that would be helpful, of
someone who's applied, but that's separate from my line of
questions. I just didn't know they were--even the number of
applications, I never had somebody say we can't tell you how
many we have. It just bothers me as a Member of Congress.
In the most recent solicitations released by your office
for advanced fossil energy projects, an eligible project could
apply as an advanced resource development project. These
projects include projects that employ new or significantly
improved technologies to economically develop and recover and
produce traditional fossil energy resources with reduced
greenhouse gas emissions. Just for clarification, an eligible
project could involve either hydraulic fracking as a technology
or natural gas as a traditional resource; is that correct?
Mr. Davidson. Correct.
Mr. Green. Because coming from Texas, I also know we have
some issues that we need to do. If we want to continue the
successful development of natural gas, we need to use
technology, whether it's private sector or public sector, to be
able to safely get that product out of the ground and as clean
as we can do. Is the Department of Energy open to something
like that as a grant project?
Mr. Davidson. Yes. Thank you, Congressman, for that
question.
First of all, on the prior point, let me just say we're
happy to work with your staff to try and get you the
information on the number of applicants, so we'll follow up
with you on that.
I'm glad you brought up the advanced fossil. We are very
pleased to be having issued that in December with the support,
obviously, of the Secretary, and it is the first time in recent
years that we'll be able to move on loans that are not just in
the renewable side and the auto side.
We think there's a great opportunity within the fossil fuel
area. That's all the way from extraction through the generation
side, through the end use in the area of energy efficiency and
combined heat and power. We believe developers and project
sponsors will have many uses for the fossil fuel.
As you know, there are four requirements for any 1703 loan
to be----
Mr. Green. I only have 5 minutes, and let me first--under
the ATVM Program, Secretary Moniz has stated DOE would
specifically reach out to component manufacturers. Has the DOE
reached out to similar technology companies in the hydraulic
fracking sector?
Mr. Davidson. We just don't have the ability to do that the
way our solicitation is structured. What we do is we put out a
solicitation, which we have now done, and then we have to wait
for companies to apply to us. We are not allowed to engage
specifically with companies. We can't go out and pick one
company or another. We just have to say, the Department of
Energy is open for business, here are the requirements, so
please apply for the program. But we very much encourage
companies involved in the front end, the extractive side of the
industry, to apply to the program.
Mr. Green. Mr. Chairman, this wasn't part of the loan
program in the 2005 act, but we did do an amendment to the 2005
act for directional drilling. We had a Texas company who did
its best they could with the technology, and the 2005 act
authorized, but the DOE lab in Wyoming--because of former
Congressman Barbara Cubin--and they did the research so we can.
And part of our success in natural gas is not only
hydrofracking, but also the directional drilling, and
Department of Energy, I think, helped that company in the
industry to be able to extend that reach from 35,000 feet to
more, but--and that's one of the successes, I think, of what
happened in the 2005 Energy Act. It wasn't a loan program, but
it actually helped us with the success we have today.
So I know I'm almost out of time, Mr. Chairman. I
appreciate you and our ranking member having this hearing
today.
Mr. Murphy. The gentleman yields back.
I now recognize the vice chairman of the full committee,
Mrs. Blackburn of Tennessee for 5 minutes.
Mrs. Blackburn. Thank you, Mr. Chairman, and I'm going to
try not to take that full 5, but I want to welcome our
witnesses. We do thank you for being here. As you know, we have
a history, as Dr. Burgess said, of being very concerned and
very interested in this program and the process that takes
place at the LPO.
Mr. Davidson, I have to tell you, I found your background
fascinating, and Blackstrap Communications, and the fact that
you were in the communications world and now you moved over to
the energy world, and how you took that name as a tribute to
your grandfather and with his selling molasses, I thought that
was really quite fascinating. And maybe we should have you come
back when we're talking telecommunications and broadcasting.
A couple of questions for you. On clarification, if I can,
on just how many loans and loan guarantees you all have closed
on and how many you are actively monitoring, what is your
total?
Mr. Davidson. Thank you, Congresswoman. Thank you first for
those nice comments to begin.
The total number of loans we have that we're actively--that
in our portfolio, we've lent money to, are 33.
Mrs. Blackburn. So you do have a total of 33 that are out
there, and you're actively monitoring those. And the amount of
those loans, is it about $28 billion?
Mr. Davidson. It's a little closer to $30 billion now.
Mrs. Blackburn. OK. So it's closer to $30 billion.
And how much of your total loan funds have been disbursed?
Mr. Davidson. Well----
Mrs. Blackburn. By percentage.
Mr. Davidson. Well, the short answer is we have
approximately 26 billion in the 1703 authorization still
available and 16 billion in the ATVM available.
Mrs. Blackburn. OK.
Mr. Davidson. So, a little over $40 billion still
remaining.
Mrs. Blackburn. OK. All righty. And let me ask you this.
What I'd like to know, since we've had so many questions about
due diligence and how the program goes about its due diligence,
describe for me how the LPO actually monitors that portfolio.
Mr. Davidson. Thank you, Congresswoman, for that. First let
me say, as you mentioned, I had been in the private sector for
a number of years. I was in the banking business for a while,
and I've been now in government for the last 5 years, State
government and now here, and I just would like to reassure you,
from what I've seen in the private sector and what I've seen at
the LPO in my one year there, I think our processes, the way we
go through our due diligence, the way we involve both our staff
and outside consultants when we need them, outside engineers
and outside financial advisors, is really first rate, and it's
really very thorough and----
Mrs. Blackburn. I've only got 5 minutes. What I'm looking
for is specifics.
Mr. Davidson. OK.
Mrs. Blackburn. What are some of your benchmarks? What are
some of the components that you're looking for as you do this
due diligence? And if you cannot answer that question right
now, what we want to see is to see that in writing.
And, Mr. Rusco, in your report, you noted that while DOE
had implemented some reforms, they have not done written
policies and procedures for those loan-monitoring activities;
is that correct?
Mr. Rusco. That's correct. There are several areas where we
want to see additional improvements. DOE did not consistently
adhere to its policies for monitoring and reporting on credit
risk, for example, on ongoing loans. They should be reviewing
that credit risk periodically and writing reports.
Mrs. Blackburn. So, they're still conducting their
business, and too much of a subjective format; would that be
correct?
Mr. Rusco. I think that what they were doing is they have
not yet put into place specific policies and guidance that they
are following consistently, and they really need to do that to
ensure that----
Mrs. Blackburn. Sometimes we say that's kind of making it
up as you go along.
OK. Mr. Chairman, I'm going to yield back.
Mr. Murphy. The gentlewoman yields back.
I Now recognize the ranking member Ms. DeGette for 5
minutes.
Ms. DeGette. Thank you, Mr. Chairman, and thank you for
having this hearing. It's been several years, and I think a
review of these programs is really overdue, and I appreciate
it.
I also want to thank Mr. Green for filling in for me while
I was at a preexisting commitment this morning.
I have some questions about how the loan guarantee program
is working, since this is the first hearing we've had since
Solyndra, and I want to start with you, Mr. Davidson. By what
metrics does the Loan Programs Office assess whether the clean
energy loan portfolio is performing well, and what do those
metrics show?
Mr. Davidson. Thank you for the question. Primarily two
ways we look at it. One is on the financial performance, how
we're doing that way. I think, as I mentioned in my statement,
of the 30 billion portfolio outstanding, 98 percent of that
portfolio is performing and paying back. We have had losses of
2 percent that----
Ms. DeGette. Wait. What's the amount of those losses?
Mr. Davidson. The losses are approximately 700 million over
the five projects that have been described.
Ms. DeGette. OK.
Mr. Davidson. Of the 30 billion portfolio. So we look at
the financial performance as one metric, and the others we
really look at the intention was are we bringing new forms of
energy technology to market that would not be possible without
this program?
Ms. DeGette. And what's your view on that?
Mr. Davidson. We think we have been very successful in a
number of ways. If you look at the utility-scale solar
industry, that did not exist. Before the Loan Programs Office
made the first five loans to utility-scale solar, the
government made the first five loans. We stopped making those
loans in the 1705 program, and in 2011, since that time, 10 new
utility-scale solar facilities have been built without a dime
of government money. That's a success.
Ms. DeGette. OK. I'm sorry.
Mr. Davidson. So, we look at the nuclear facility. No
nuclear facility had been built in this country in 30 years.
Now the first one is being built. We think that's directly
related to this program.
And then, finally, a lot of what's happened in the auto
sector with Ford retooling 13 facilities, the $5.9 billion loan
from the ATVM Program went to Ford for that. Nissan was able to
bring the batteries, which they had been producing in Japan. We
brought those and now built a factory in Smyrna, Tennessee,
where we're making those battery packs.
Ms. DeGette. Thanks. OK.
So now, when Congress passed the loan guarantee program,
they did that in order to help encourage funding of programs
that the private sector would find too risky to fund on its
own; is that correct?
Mr. Davidson. That is correct.
Ms. DeGette. And so, therefore, are the amount of losses
that you had described as seeing in line of what was expected
by Congress when they passed that section XVII program into
law?
Mr. Davidson. Thank you, Congresswoman, for that question.
Ms. DeGette. Well----
Mr. Davidson. A member or----
Ms. DeGette. Do you think that was in line with what
Congress expected when they passed that into law?
Mr. Davidson. I think what Congress, when they passed,
there was kind of the credit subsidy number that was mentioned
for ATVM, that number was 7.5 billion, and for the 1705 program
was approximately 2 \1/2\ billion. So essentially Congress said
losses essentially could be high as $10 billion for our
program. As I mentioned, losses to date are 700 million----
Ms. DeGette. So, actually it's less----
Mr. Davidson [continuing]. So more than 90 percent of what
was allocated remains.
Ms. DeGette. It's less than what was expected from
Congress.
Mr. Davidson. Far less than what was----
Ms. DeGette. And how has the DOE program performed compared
to what we'd expect from a private-sector portfolio?
Mr. Davidson. It's a little hard to make that direct
connection because by law and the way Congress set up our
program, we are funding technology risk which normally
commercial lenders would not make.
Ms. DeGette. Right.
Mr. Davidson. So you would expect our portfolio to fare
worse. The fact that we have a 98 percent success rating, I
think, is a testament to the due diligence process we do and
the loan monitoring that we continue.
Ms. DeGette. OK. But nonetheless, you have incurred losses,
and so I'm wondering has DOE made changes and improvements in
response to those lessons learned?
Mr. Davidson. Thank you for that question.
We certainly have learned--and I really would like to thank
the great work that the GAO and the IG have done. We agree
fully with the recommendations that they have made,
particularly on the Allison report. What we have done is our
policies and procedures, as we go through our due diligence,
and as we go through our portfolio monitoring, are very robust,
and I believe that's why we have such a high success rate with
our loans.
What we have not done, and what we are in the process of
doing, is fully documenting our active policies and procedures.
So we agree fully. We need to document what we are doing, but
we are in the process of putting the documents together.
Ms. DeGette. But the GAO report, you agree with the GAO
report, you need to work on documenting?
Mr. Davidson. Exactly. And we were working very closely
with those recommendations----
Ms. DeGette. And when do you expect to have those
recommendations?
Mr. Davidson. We are working on them now. We expect to have
them within the next few months.
Ms. DeGette. Thank you very much.
Mr. Murphy. Thank you. The gentlelady yields back.
I now recognize Dr. Burgess for 5 minutes.
Mr. Burgess. Thank you, Mr. Chairman. So, again, thanks to
our witnesses for being here.
Mr. Davidson, one of the factors we identified as causing
problems during the Solyndra investigation was that deadlines
seemed to be dictated by outside forces, perhaps something in
the stimulus bill or a political deadline, rather than when the
loan guarantee was actually ready to close. So the question is
what deadlines will govern the review of applications that are
being submitted in response to the new loan program
solicitations or under the existing ATVM Program?
Mr. Davidson. Thank you, Congressman, for the question. On
the timeframe of when we get back to applicants?
Mr. Burgess. Yes, sir.
Mr. Davidson. OK. Slightly different by our programs. For
the 1703 advanced fossil solicitation, which is now our only
active solicitation on the 1703 side, we have part 1 and a part
2 application. Part 1, applicants apply to a part 1, and there
we see if they meet the four required criteria, which is a new
technology or significantly enhanced commercial technology;
does it reduce sequestered greenhouse gasses; is the facility
located in the United States or its territories; and do they
have the ability to pay it back, reasonable prospect of
repayment. When applicants submit, our team conducts that part
1 review.
We have only just issued that solicitation. Our first part
1 application date was in February. We had a number of
applicants for that part 1, and I can say now, without trying
to get into too much detail, because we just don't do that,
that those part 1s have now been fully vetted, and many of them
are moving into the part 2. And that has now taken us
approximately 2 or 3 months for that part 1.
Mr. Burgess. You understand the committee's concern. When
reviewing the data around the Solyndra application, it did seem
that there were--you look through the e-mails back and forth,
and it did seem that there were political deadlines that
really--or political pressures that were actually impacting
upon the timeline, and you are comfortable at this point that
that is not occurring now?
Mr. Davidson. Thank you for that question. I'm very
confident that is not occurring now. And I'm currently--as one
of the missions I had when I came in, as I mentioned, I had a
real business background, and I think it's very important that
you be responsive to applicants. And I think that was an issue
we had before. We now are trying to move very quickly to be
responsive to all those in our pipeline and all future
applicants. We are very focused on quickly turning around part
1s, letting applicants know if they will move into part 2 or
will they be out of the process.
Mr. Burgess. There's a semiannual report to Congress from
April 1, 2012, from the Office of Inspector General from the
Department of the Treasury. In that report, on the Department
of Treasury's inspector general's consultation on the Solyndra
loan guarantee, Department of Treasury pledged to work with
Department of Energy to define the circumstances that
constitute a deviation from the material financial terms and
conditions of the loan guarantee and Treasury's consultative
role.
So has the Department of Energy reached a full
understanding with Treasury so that these definitions are now
established, and a plan for cooperation and respective roles
formulated and made public?
Mr. Davidson. Congressman, I have to say I'm not familiar
with that issue, so if it's OK with you, I'll research and get
back to you on that.
Mr. Burgess. So do you and Treasury talk?
Mr. Davidson. We have a very robust interagency process.
Prior to our loans, we meet with OMB to discuss our deals, and
Treasury is invited to that meeting.
Mr. Burgess. With all due respect, the information that
this committee and the committee staff uncovered during the
Solyndra investigation, it really didn't seem that there was a
robust relationship between Department of Treasury and
Department of Energy, and really that's what led to some of the
concerns that are outlined in this report.
I'm quoting here: ``We found that Treasury did perform a
consultation on the terms and conditions of the Solyndra loan
guarantee. However, whether that consultation met the intent of
applicable law and regulation is not clear because Treasury's
consultative role was not sufficiently defined.''
Have we moved past that point?
Mr. Davidson. Congressman, I can't speak to the time before
I was here which that report indicates, but I'm very pleased
now with the relationship we have on an interagency basis with
both Treasury and the Office of Management and Budget. We meet
with them regularly. They are aware of our portfolio.
Mr. Burgess. I would like for you for the record to go back
and do this analysis and report, enter in writing for the
committee as to how going forward we can maintain that
expectation, that the consultation between Energy and Treasury
will, in fact, occur the way it was designed to occur.
Mr. Davidson. OK. We'll look into that.
Mr. Burgess. Thank you.
Mr. Murphy. Thank you.
The gentleman's time is expired. Now recognize Mr. Waxman
for 5 minutes.
Mr. Waxman. Thank you, Mr. Chairman.
The loan guarantee program is important for a number of
reasons. It's creating jobs, it is moving us closer to a
renewable energy economy, and it represents a great opportunity
to develop technologies to address the clear risks of climate
change.
Over the past century we have dramatically increased the
amount of carbon we are emitting into our atmosphere. The
scientific community has hammered home the point through report
after report, warning of what will happen if we do not act to
reverse this trend.
We are witnessing in our very own communities the impacts
of higher sea levels and more frequent instances of flooding,
drought, and intense storms. The projects that these loans are
supporting, solar and wind farms, nuclear plants, grade
integration, these are the energy sources of the future, and
they are the most effective way to deal with the issue of
climate change because they address the root of the problem,
which are, of course, carbon emissions.
Mr. Davidson, how does the loan guarantee program fit into
the President's climate action plan?
Mr. Davidson. Thank you for that question, Mr. Chairman. We
are a key part of the climate action plan. The President
announced the issuance of our $8 billion advanced fossil
solicitation as part of the climate plan announcement, and we
are seen as a key component of the way to both help fund energy
innovation, to work with the private sector, and to help reduce
carbon emissions.
Mr. Waxman. Can you give us an idea of the potentially
transformational reductions in carbon emissions that these
programs will be capable of, and what are we achieving in the
projects that are already online?
Mr. Davidson. Thank you for that question. The projects
online have produced a great deal in our solar and wind
facilities. One of the things I particularly like to remark
upon is with the new nuclear facility, that is avoiding 10
million tons a year of carbon. So there may be controversy
about nuclear power, but it is one of the key areas is
extremely effective in reducing greenhouse gas emissions.
The other aspect I think we'd like to talk about, as you
mentioned, is the jobs impact in the solar facilities, the
utility-scale solar facilities, that we were involved in
financing. Those created directly 7,000 jobs in the
construction and operation of those facilities. And with the 5
concentrated solar facilities that we built, we've been able to
track job creation in 39 separate States across the Union that
have participated directly into the supply chain there.
So it's not only the funding of these projects, but it's
the ripple effect for the supply chain, and that is 7,000 for
the 10 we've funded. Since we've stopped funding, now that
utility-scale solar is a completely bankable industry, more
than 10 utility-scale solar facilities have been built, and we
think the employment there is equally as large. And as you
know, solar now employs over 140,000 people in this country, up
from virtually nothing a decade or two ago.
Mr. Waxman. So these are programs that are now self-
sufficient with private investment, but if we didn't have a
loan guarantee program, would the private sector have moved
forward without this effort on behalf of the government?
Mr. Davidson. Thank you, Congressman. You never know what
could have happened, but the reason Congress established this
program was to provide debt financing to those projects which
were meretricious, but could not attract financing from a
private-sector bank. And that is why we became involved in
photovoltaic solar, that's why we became involved with the
nuclear industry, and that's why we're hoping to find things in
the advanced fossil area can do. There are many things; carbon
capture and sequestration we feel is a very interesting area,
and we're looking forward towards applications in those ways.
Mr. Waxman. Press reports indicate that the EPA will soon
announce new standards for carbon emissions from coal-fired
power plants. Will the breakthroughs you are helping to fund
help meet these goals?
Mr. Davidson. Congressman, as you know, we don't know what
those regs will be until they're issued, but to the extent part
of it is how do we make coal facilities cleaner, our program is
specifically set up for that, for coal operators who would like
to install carbon capture and sequestration; our debt financing
is available for that, or some of the newer technologies,
chemical looping and things of that nature. That is what and
one of the reasons the President announced in the climate
action plan this $8 billion advanced fossil solicitation.
Mr. Waxman. Well, Mr. Chairman, I think the DOE Loan
Programs Office can continue to support break-through
technologies that address the threat of climate change, and I
fully support their efforts.
I yield back my time.
Mr. Murphy. Gentleman yields back. Now go to Mr. Griffith
of Virginia for 5 minutes.
Mr. Griffith. Thank you, Mr. Chairman.
Let me say upfront, I am very pleased to hear you mention
chemical looping, because obviously if that works, and the
plans are going forward on that, we don't have any capture; we
do have sequestration issues, but it eliminates the real need
for capture because it comes out with just CO2. So I
am very pleased to hear that that's on the agenda, support good
loans being made. I know there's some risk involved.
What I'm really concerned with is to make sure that we are
following the laws as it was set up. This is the first time
that we've been back, as Ms. DeGette pointed out, since we had
a lot of hearings on the Solyndra issue, and I'm curious,
because at that time, the last time we had a meeting, the
inspector general's office indicated that investigations were
still ongoing.
Mr. Hass, can you advise us, are the investigations still
ongoing into what happened with Solyndra, and are we expecting
any--or do you know if there's any possible criminal conduct
that may have taken place during this time period?
Mr. Hass. I can say that investigations are still ongoing,
sir.
Mr. Griffith. They are still ongoing?
Mr. Hass. Yes, sir.
Mr. Griffith. All right. And I was a little vexed by
comments made earlier by Mr. Waxman indicating that the
hearings had shown that there was no wrongdoing. Whether or not
there were ever any criminal charges that come out of this, I
think there clearly was wrongdoing, and I hope that in the
future we'll make sure that the law is actually followed. And I
feel compelled to go through a litany of these and ask, have we
learned our lessons? Are we still going down this path?
In regard to Solyndra, on December 13, 2010, DOE sends a
letter to Solyndra advising Solyndra that they are in default.
Section 1702(g)(4)(A) indicates, quote, ``If the borrower
defaults on an obligation, the Secretary shall notify the
Attorney General of the default.'' That is so that under 1702
(2)(g)(4)(B) the Attorney General can be involved in making--or
taking action to make sure that the American taxpayer is
protected. In the Solyndra situation that was not done.
If there are defaults, Mr. Davidson, are you all notifying
the Attorney General so that the Attorney General's Office can
at least be a part of the team in trying to protect the
American taxpayers when we try to collect on a loan that may
default?
Mr. Davidson. If there is a default pursuant to the law,
and we have to get DOJ involved, we do.
Mr. Griffith. OK. Because that did not happen in the
Solyndra situation, and they went on to do a subordination.
Furthermore, in regard to subordination, section 1702(d)(3)
specifically says, quote, ``The obligation shall be subject''--
talking about the loan--``The obligation shall be subject to
the condition that the obligation is not subordinate to other
financing.''
It goes on in another section to say, ``Superiority of
Rights,'' in 1702(g)(2)(B), ``The rights of the Secretary, with
respect to any property acquired pursuant to a guarantee or
related agreements, shall be superior to the rights of any
other person with respect to the property.'' However, the DOE
at the time decided that subordination restriction in section
1702(d)(3), referring to Susan Richardson's memo, the
subordination restrictions, section 1702(d)(3), is a condition
precedent to the issuance of a loan guarantee and not a
continuing obligation restricting restructuring options.
Now, I believe it was wrongdoing to come up with that
opinion, and, as we know, there was a memo that said, well,
this is your best option, but there was never contact with the
Department of Justice on making a decision to subordinate. Even
though someone at Treasury e-mailed back and said, we don't
think you can do this, I believe it was wrongdoing not to
consult with the Department of Justice. I believe it was wrong
under the law to do a subordination in that case, and the
subordination--forget the riskiness of the loan of Solyndra,
the subordination cost the American taxpayers $170 million, and
I believe that was wrongdoing.
Do you believe that those lessons have been learned, or do
you all think that you still have an option of subordinating a
loan, notwithstanding the clear language of the statute?
Mr. Davidson.
Mr. Davidson. Thank you for the question, Congressman.
Now, I realize this issue of subordination is a very
important issue. It's important to you. It's very important to
us in the Department. I can say we have absolutely no plans to
subordinate any loans in our portfolio.
Mr. Griffith. Well, I hope that you not only have no plans,
but I hope that even in a dire circumstance, that if you need
authority, you come back to Congress because it clearly is not
granted in the Code section.
I'm excited about some of the things that are happening in
the energy world. We have had a great resurgence in American
energy. Hopefully we can find even more ways to do that, and if
this loan guarantee program can move that forward, that's
great. I just want to make sure that we're following the law,
and that we are not--after having made a risky investment, and
people can argue about whether that was wise or not, that when
we find that somebody is in trouble, that we follow the law and
we try to protect the American taxpayer at that point in time.
Mr. Chairman, I appreciate it very much, I appreciate the
witnesses being here, and I yield back.
Mr. Murphy. Gentleman yields back, and now we recognize the
gentleman from Iowa Mr. Braley for 5 minutes, if he's ready.
Mr. Braley. Thank you, Mr. Chairman.
I'm delighted to have the opportunity to be here with the
distinguished panel we have in front of us today, and one of
the things that I would like to hear a little bit more about is
the response to the IG report. One of the things that we'd like
to hear a little bit more about in detail is a little bit about
the summary of the findings and recommendations from that
report that you think have an impact on the work of the
committee going forward.
Mr. Davidson. Thank you, Congressman.
The IG report and the GAO report raise some very good
points. We are in full agreement on them about ways we can make
our policies and procedures even better. As I mentioned, we
feel that we have taken a number of steps, partly as a result
of the reports.
Some of those I'd like to go into that we've taken, moved
ahead on, are we've created the Risk Management Division, which
was a key part of the reports, and we've hired a senior credit
officer. We've also significantly staffed up that operation. We
have tasked the Risk Management Division to prepare separate
reports on each one of our credits. We have already been doing
that as part of our portfolio management team, but now we have
a separate set of eyes on every one of our credits coming out
of our Risk Management Division. That began last year. They did
half our portfolio. Now every year they will be analyzing all
of our loans.
We have updated and strengthened the charters for our two
internal oversights boards, the Project Review Committee and
our Risk and Portfolio Management Committee. These are now
staffed by DOE personnel, but the majority of people on that
are non-LPO members. It's a separate set of eyes on all of our
transactions and actively looking at our portfolio on a
biweekly basis. And finally, we've developed a very robust
internal electronic system to control our process and
procedures and track things.
So these are all part of the recommendations, but they're
also just part of our continuing interest in improving, because
we're very, very focused on making sure we are really
safeguarding taxpayer money. We take that extremely seriously.
Mr. Braley. When people use words like ``internal
electronic systems,'' it leaves a lot of us with questions
about, what the hell does that really mean? So can you break
that down as it relates to the changes in this risk management
system in terms of what you're going to be doing differently
that would lead to different outcomes than what we had before?
Mr. Davidson. Yes. Thank you, Congressman, and I don't mean
to be vague in what that was.
Mr. Braley. No, no. I'm one of those people who's just
innately curious.
Mr. Davidson. Yes. Thank you.
We've really just been automating our internal systems. We
had a generation one. We are now on generation three, and we
are planning to roll out generation four. This just allows
people from throughout the organization to talk on the same
platform about the same credit, so people on our origination
team with our risk management team and portfolio management are
fully impacting together on the same schedule.
Mr. Braley. And is that new system fully functional at this
point?
Mr. Davidson. Version three is fully functional, and we're
rolling out the next version within the next few months.
Mr. Braley. And one of the things you also identified in
your description was that separate reports on each one of your
credits were going to be generated as part of this new system.
Can you explain that in a little more detail?
Mr. Davidson. Yes. That's not so much part of that system.
That's part of the creation of our Risk Management Division and
being able to fully staff up, or more fully staff up, that Risk
Management Division. This has always been a goal that's been
one of the recommendations. We do extensive portfolio analysis.
We have 55 people in our Portfolio Management Division, because
when we make a loan, we hold those loans, and we will be
monitoring those loans for the next 25 years. That's one of the
reasons we're taking the time to make sure when we document our
policies and procedures, we do them absolutely correctly,
because these really have to stay in place to manage what we do
for the next 25 years. So we take that responsibility very
seriously.
I lost my train of thought there.
Mr. Braley. Well, let me just move on to a different
question, then. When I talk to lenders and I talk to borrowers,
one of the things they're always concerned about is the
inordinate amount of paperwork associated with the processing
of any loan these days, and sometimes the requirements don't
make sense at face to the people who are being asked to provide
information.
After the S&L crisis, I sold a house, bought a cheaper
house, and was required to fill out an affidavit explaining why
I was buying a house cheaper than the one I just sold. It
didn't make a lot of intuitive sense to someone whose parents
grew up in the Depression.
So as we're looking at how you're providing oversight and
underwriting guidance, are you looking at ways to make sure
that the oversight and the underwriting criteria make sense for
the type of risk that's being underwritten?
Mr. Davidson. Thank you, Congressman, for that question.
We take that very seriously. That is the whole reason we do
such extensive due diligence. I think the GAO has mentioned
that our due diligence is as extensive, if not more extensive,
than what happens in the private sector.
Mr. Braley. Thank you. I'll yield back.
Mr. Murphy. Gentleman's time has expired.
Recognize Mr. Johnson for 5 minutes.
Mr. Johnson. Thank you, Mr. Chairman, and I'd like to thank
our panel for joining us today, as well. Thank you, gentlemen,
for being here.
Mr. Davidson, at the time of the stimulus, the credit
markets for energy projects were in rough shape. Your project
finance people pay close attention to credit market conditions;
is that correct?
Mr. Davidson. Correct.
Mr. Johnson. So what is the current condition of credit
markets?
Mr. Davidson. I'm not an economist, so take that, what I
say, with that caution in mind. But just reading the paper,
credit markets have gotten better than they were certainly in
2009 and early into 2010.
Mr. Johnson. But, obviously, if your Department is paying
close attention to those, your team knows that that improvement
has occurred.
Has the availability of private financing for clean-tech
projects improved since 2009?
Mr. Davidson. That's a very interesting question,
Congressman. Thanks for asking it.
In certain segments it has improved, but, for instance, as
I've mentioned a few times, we made the first loans to the
utility-scale solar industry. At that time, developers--and
some of these were very big-named developers putting hundreds
of millions of dollars into projects--they could not arrange
commercial bank financing. We made those loans, and then we
stopped making those loans.
Mr. Johnson. But I'm not talking about what you did during
the stimulus. We understand that. I'm talking about since 2009
through today, have those credit markets for clean-tech
projects improved?
Mr. Davidson. For some segments of the clean-tech market,
they have. For others, it is still difficult.
Mr. Johnson. OK. So how does that credit market improvement
change the role of the DOE loan programs and the type of
projects that it supports?
Mr. Davidson. Yes. Well, thank you, Congressman. I know you
are concerned, as we are very concerned, that we make the loans
to the right type of companies that need it, and they're not
just coming to us for lower-cost financing. We take the issue
of making sure that the projects we fund are ones that would
find it very difficult, if not impossible, to raise financing
from a commercial source.
The first alternative is always for a project to go to a
commercial lender. If the project sponsor finds that is not
possible, they come to us. We do not go out to anybody. We put
out a solicitation, and we can only deal with applicants if
they respond to a solicitation.
Mr. Johnson. Well, therein lies part of the concern that I
have and that many of my colleagues, many of my constituents
have. If a project goes out to the private sector markets, and
they cannot find funding--I'm a patent holder, and I have
struggled with trying to raise money for tech projects myself.
And so if they go to the private markets and they can't get the
money, what kind of additional due diligence does your
Department do to determine that taxpayer funding should be
spent on something that the credit markets say might not be a
worthy project?
Mr. Davidson. Thank you. That is an excellent question.
It's one we spend a great deal of time thinking about.
Maybe to give some comfort is we will not look at a project
unless it's brought to us by a sponsor that is committing at
least 20 percent by law, but in reality it's always closer to
30 percent of real equity dollars in the project.
Mr. Johnson. Yes.
Mr. Davidson. So someone has to come to us with a project
that 20 percent at least is already equity funded, and all the
other parts of the project have to be in place.
Mr. Johnson. OK.
Mr. Davidson. For instance, we do a great deal of
electricity-generation projects. There has to be an off-take
agreement in place. There has to be equity in place. There has
to be regulatory approval in place.
Mr. Johnson. Mr. Rusco, how would you respond to those
questions? Has the private markets and credit markets improved,
and do you believe that should change the way the DOE loan
programs should work?
Mr. Rusco. Yes. The financial markets have largely
recovered from their collapse in the run-up to the recession. I
do think that that should be an important consideration.
I think that there is an inherent problem with the way that
the 1703 program is set up in that innovative projects that
come there are required to pay their credit subsidy costs. The
less viable they are in the market, the higher the risk is;
therefore, the higher the credit subsidy costs are. And I'm
concerned that may be a deterrent to the program actually being
effective in meeting its goals.
Mr. Johnson. OK. I have one more question and just a short
time. Do you have any loan programs that you're anticipating
granting loans for this year? If so, when do you anticipate
granting your next loan program?
Mr. Davidson. Well, the current active solicitation is an
advanced fossil. We issued that in December. The first
application gate or window for that was in February, a few
months ago. We received a number of applicants. We are moving
those through our system. We have a part 1 and a part 2.
Sometimes the part 2 system, because it involves very thorough
due diligence, can take anywhere from 6 months to--in the case
of the Vogtle transaction, that took over 5 years.
Mr. Johnson. So----
Mr. Murphy. Gentleman's time has expired.
Mr. Johnson. OK. I yield back, Mr. Chairman.
Mr. Murphy. I now recognize Mr. Tonko for 5 minutes.
Mr. Tonko. Thank you, Mr. Chair.
I think that it's important that we set the record straight
of the committee's investigation of the Solyndra loan. I was
not part of the Energy and Commerce Committee at the time of
the investigation, but there has been exhaustive review of the
committee report and the record. And we reviewed over 300,000
pages of documents, issued multiple subpoenas, conducted over a
dozen interviews and had four hearings.
The evidence clearly demonstrated that loan guarantee
decisions were made on merits. The committee found no evidence
that loan guarantee decisions were influenced by political
contributions or political considerations. There was a robust
debate within the administration about the Solyndra loan, and
decisions were made that ultimately turned out to be the wrong
ones. But, Mr. Chair, the committee's investigation found no
evidence of wrongdoing by administration officials with regard
to the Solyndra loan.
With that being said, DOE's support of the American auto
industry through the Advanced Technology Vehicles Manufacturing
Loan Program has resulted in a number of significant success
stories. Director Davidson, as you mentioned in your testimony,
DOE's support of Tesla helped to create thousands of jobs in
California, and the company repaid the entire remaining balance
on its loan 9 years earlier than required. Other auto
manufactures like Ford have modernized factories and produced
new, advanced engines with DOE's support.
I'd like to learn more today about the ATVM program and the
innovative new technologies that it is helping to produce. So,
Director Davidson, what is the purpose of the ATVM program?
Mr. Davidson. Thank you very much, Congressman.
ATVM, the purpose of the program is to assist manufacturing
for OEMs and suppliers in this country to help achieve the
efficiency targets, to help boost fuel efficiency. The goal is
increasing fuel efficiency for lightweight vehicles, and we do
that by providing support for the manufacturing facilities for
car makers and component makers.
Mr. Tonko. So we're creating a better product and more in
keeping with the consumer's demand?
Mr. Davidson. It's a resource to help build the
manufacturing capability in the United States. So for Ford, we
retooled 13 facilities; Nissan, we brought in production, which
had been happening in Japan, we brought it to Tennessee; and
Tesla retrofitted a whole factory. That's why we think there
will be real interest in the program going forward, more on the
side of the suppliers, component suppliers and component
manufacturers. We have been hearing a great deal from them
about interest in the program since Secretary Moniz made an
announcement at a supplier convention last month that the
program was open for business.
Mr. Tonko. Well, in my district, and I'm certain in
districts across America, congressional districts across
America, the number one issue is jobs. How many jobs have you
quantified to have been helped by the ATVM program? How many
have we helped to create?
Mr. Davidson. The number we use, and a lot of these numbers
come from Ford, which is the number one recipient of the money
there, is 35,000 jobs have been created or been sustained as a
result of that.
Mr. Tonko. And how many--is there a cluster of States that
might have seen the majority of those jobs?
Mr. Davidson. The majority of it has been in California,
certainly for Tesla; and then the Ford was really up in the
Midwest in upstate New York, Michigan, Ohio, around there.
Mr. Tonko. Yes.
What recent steps has the Department taken to revitalize
and improve the ATVM program?
Mr. Davidson. Yes. Well, as I mentioned, the Secretary made
an announcement that the program is back up and open for
business, so there is $16 billion remaining, really for helping
companies come in. What we have been hearing is because the
auto industry is doing well now, there are a number of
suppliers, component suppliers, overseas suppliers, that are
looking to possibly build facilities elsewhere; it might be in
the United States, it might be in Mexico or Canada. And as they
look at moving to the United States, we think this could be a
real resource to help them make the decision to locate and
bring those jobs and investment to the United States.
Mr. Tonko. And the whole move to retrofit and move into
advance manufacturing, which is the current MO, I believe, by
many, how has the ATVM program helped to support American
manufacturing?
Mr. Davidson. The whole purpose is how can we retrofit
facilities, build facilities, and do the software and
engineering integration. That is financeable by this program,
the engineering, to really help aid in manufacturing.
Mr. Tonko. And the GAO has raised concerns about whether
there is demand for ATVM loans. And in April, as you indicated,
Secretary Moniz announced improvements to the ATVM program. Can
you build upon, you know, give us more information on some of
those improvements?
Mr. Davidson. Yes. Thank you for that.
As the chairman mentioned, not many loans have been made.
I'm pleased to say there is one active loan in the portfolio
now, so we're working on that one very diligently. And since
the Secretary has made his announcement, and since we've been
actively talking with the supplier sector and the OEMs, we are
finding there is real interest.
There was a certain amount of confusion before about
whether suppliers could apply, the type of things that would be
required. We've been able to clarify that for them, and we are
out speaking and communicating. We've had a number of meetings,
and we are cautiously optimistic that there will be interest,
and we will be seeing if loan applications come in within the
next few months.
Mr. Murphy. We're out of time.
Mr. Tonko. Well, I would think that as we push in
innovation economy, the new technologies, groundbreaking new
technologies, are essential. So I thank you for what the
program is doing, and I yield back.
Thank you, Mr. Chair.
Mr. Murphy. Thank you, Mr. Tonko.
I now recognize Mr. Harper for 5 minutes.
Mr. Harper. Thank you, Mr. Chairman, and thank each of you
for being here.
And, Mr. Davidson, I'd like to start with you. And what I
would ask, I probably would ask Mr. Rusco to follow up with, on
your thoughts on this question. You know, as we look at the
program, try to figure out where it's going, I believe there's,
what, $16 billion left in the program, is that correct,
roughly?
Mr. Davidson. Congressman, there's $16 billion on the auto
side, the ATVM program.
Mr. Harper. Sixteen billion.
Mr. Davidson. In the energy program, 1703, there's $28
billion remaining.
Mr. Harper. OK. Great.
If you look at the existing ATVM program that you just
talked about, you know, you see established automobile
manufacturers such as Ford and Nissan, and you see companies
that are or were startups comparatively, Tesla, Fisker and the
Vehicle Production Group. So it almost appears to be two
different types of projects. So can you elaborate what criteria
you used to determine eligibility for the ATVM program?
Mr. Davidson. Thank you, Congressman, for that question,
and I'm happy to respond and talk more about ATVM.
It's not my criteria, first of all; it's the criteria that
Congress provided for what we can do. And that is, it is to
assist in funding a manufacturing facility, either the new
build, or a rehabilitation, or a reequipping of a facility,
that is either making the car, light vehicle-- making the car
or making the component that will be a part of an advanced
vehicle.
An advanced vehicle is defined as a light vehicle that is
25 percent more fuel efficient than the comparable car was in
2005. So if you can contribute to that fuel efficiency, you are
then a designated component or a designated auto supplier, and
if you're building a facility or reequipping a facility, we can
finance you.
Mr. Harper. All right. You know, just from recent
statements from the Secretary, it appears that maybe the
program goals are changing. Can you elaborate? Are the goals
changing? Are they----
Mr. Davidson. Thank you for that question.
The goals aren't changing. It's really a communication to
the industry, because this is really a program to assist
industry. And the communication to the industry was that
suppliers, component suppliers, are very welcomed and
encouraged to apply.
Mr. Harper. Right.
Mr. Davidson. The suppliers were in very tough shape 4 or 5
years ago, as the whole auto industry was. Now, as we're doing
very well in auto assembly for the OEMs, there seems to be real
demand from the supplier base. And as I mentioned, many of the
suppliers are thinking of relocating to the United States. We'd
like to help them to make that decision to relocate here.
Mr. Harper. Thank you, Mr. Davidson.
Mr. Rusco, your comments on what I've just asked Mr.
Davidson as far as the ATVM loans are concerned.
Mr. Rusco. Well, I think there is some concern about
whether there is a demand out there, and part of the concern
comes from our conversations with the applicants, former
applicants of the original solicitations. Many of the
applicants that we spoke with said that there were
requirements, and the length of time it takes to get through
this process are just not worth it, and they were not
interested in pursuing those.
So, I don't know what's going to happen in the future, and
I know that DOE is trying to rejuvenate this program, but so
far there has not been a lot of actual interest. There's only
one active application.
Mr. Harper. OK. Mr. Rusco, GAO has recommended that unless
DOE demonstrates demand for new ATVM loans, Congress should
consider ending the program. Is that correct?
Mr. Rusco. Yes. We think that unless there is a demand that
can be demonstrated for these loans, that Congress may wish to
rescind some or all of the remaining credit subsidy money and
use it elsewhere.
Mr. Harper. Mr. Davidson, are there any additional active
ATVM loan applications, since the one for $200 million reported
by GAO in March of this year?
Mr. Davidson. Congressman, that is the only active one in
the portfolio. I'd like to mention, the Secretary made the
major announcement at the supplier event. That was just a
little over a month ago.
Mr. Harper. OK.
Mr. Davidson. Since that time we've been--I'm the person
having meetings, having a number of very interesting meetings
with people that I believe will be applicants in the relatively
near term.
Mr. Harper. But no active at this point since that time.
And so we've only got just a few seconds, but how do you do
your outreach to automobile manufacturing companies? How are
you contacting them to determine if they're eligible, or have
interest, or create interest?
Mr. Davidson. Excellent question, Congressman. And because
the program has been fairly quiet for the last few years, that
is an issue we are working with, and it's all the ways we try
and do communication. We're trying to staff up to hire the
right people, going to industry events, and we're doing things
like the Secretary, communicating very publicly that we're open
for applications.
Mr. Harper. When you said you had some that were interested
that you're looking at, if you're talking about, let's say, you
go talk to 10 different potential companies, how many of those
express interest? How many would you say on average might
flatly refuse or reject that?
Mr. Davidson. Well, if they're talking to me, they're
already interested.
Mr. Harper. Yes, but you have some that are not interested;
you have some that are. Fair?
Mr. Davidson. Correct.
Mr. Harper. I yield back.
Mr. Murphy. The gentleman yields back.
I recognize Ms. DeGette for a follow-up question.
Ms. DeGette. Thank you very much.
Mr. Chairman, I know Mr. Tonko talked about those Solyndra
hearings that we had in 2011 and 2012, and he wasn't on the
committee, but I was, and, in fact, I was the ranking member of
the committee. We had 300,000 pages of documents, subpoenas,
interviews, four hearings that went on and on, and we never did
find evidence of wrongdoing. It was clear that the loan
guarantee decisions were made on the merits, but as Mr.
Davidson said today, the reason we have loan guarantees is
because we want to encourage this type of investment, and it
is, by nature, risky.
And I just also want to thank the witnesses for coming
today. And I want to comment that I was pleased to see, number
one, that DOE is recognizing--they're under the losses that
Congress had predicted and anticipated when we passed the loan
guarantee program back under the Bush administration, but also
that they're implementing the recommendations of the GAO.
I look forward to hearing how that implementation goes,
because I think that's important. And I yield back.
Mr. Murphy. Thank you.
Another follow-up question. Mr. Hass, you've been quiet. We
haven't been asking you a lot, but I want to ask you this:
You've had an opportunity to learn extensively the testimonies
from Mr. Davidson and Mr. Rusco here, but also with the GAO
report and analysis of what had taken place, are you satisfied
that the changes you've recommended, that GAO has recommended
have been put into place at the Department of Energy for this
loan program?
Mr. Hass. Well, sir, I will say that we have seen a lot of
progress over the years from our evaluations, and a lot of
things are still ongoing. We can't say that they are 100
percent successful, but it looks like there's a lot of
movement.
Now, in response to our last reports we recently issued,
the Department will be providing a matrix that will set out an
exact timetable on when they expect to have all of the
recommendations resolved, and we should be getting that soon as
part of our normal process.
Mr. Murphy. And then will you continue to follow up with
them, so you'll present the matrix, and you'll continue to
monitor that to see that those plans are being put into place?
Mr. Hass. Yes, sir, especially with the long nature of the
loans, as you've mentioned, and the large value. They're an
important part of our risk assessment we do every year. We have
plans in place to conduct some additional work this year and in
the coming year.
Mr. Murphy. I thank you, and I thank the panel. And I ask
unanimous consent that the Members' written opening statements
be introduced into the record, and, without objection, the
documents will be entered into the record.
And in conclusion, again, Ithank all the witnesses, all the
Members that have participated in today's hearing. I remind
Members they have 10 business days to submit questions for the
record, and I ask that the witnesses all agree to respond
promptly to the questions.
With that, this hearing is adjourned.
[Whereupon, at 10:58 a.m., the subcommittee was adjourned.]
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