[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]


                            RISKY BUSINESS:
                     THE DOE LOAN GUARANTEE PROGRAM

=======================================================================

                             JOINT HEARING

                               BEFORE THE

                        SUBCOMMITTEE ON ENERGY &
                       SUBCOMMITTEE ON OVERSIGHT

              COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 15, 2017

                               __________

                           Serial No. 115-03

                               __________

 Printed for the use of the Committee on Science, Space, and Technology
 
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              COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY

                   HON. LAMAR S. SMITH, Texas, Chair
FRANK D. LUCAS, Oklahoma             EDDIE BERNICE JOHNSON, Texas
DANA ROHRABACHER, California         ZOE LOFGREN, California
MO BROOKS, Alabama                   DANIEL LIPINSKI, Illinois
RANDY HULTGREN, Illinois             SUZANNE BONAMICI, Oregon
BILL POSEY, Florida                  ALAN GRAYSON, Florida
THOMAS MASSIE, Kentucky              AMI BERA, California
JIM BRIDENSTINE, Oklahoma            ELIZABETH H. ESTY, Connecticut
RANDY K. WEBER, Texas                MARC A. VEASEY, Texas
STEPHEN KNIGHT, California           DONALD S. BEYER, JR., Virginia
BRIAN BABIN, Texas                   JACKY ROSEN, Nevada
BARBARA COMSTOCK, Virginia           JERRY MCNERNEY, California
GARY PALMER, Alabama                 ED PERLMUTTER, Colorado
BARRY LOUDERMILK, Georgia            PAUL TONKO, New York
RALPH LEE ABRAHAM, Louisiana         BILL FOSTER, Illinois
DRAIN LaHOOD, Illinois               MARK TAKANO, California
DANIEL WEBSTER, Florida              COLLEEN HANABUSA, Hawaii
JIM BANKS, Indiana                   CHARLIE CRIST, Florida
ANDY BIGGS, Arizona
ROGER W. MARSHALL, Kansas
NEAL P. DUNN, Florida
CLAY HIGGINS, Louisiana
                                 ------                                

                         Subcommittee on Energy

                   HON. RANDY K. WEBER, Texas, Chair
DANA ROHRABACHER, California         MARC A. VEASEY, Texas, Ranking 
FRANK D. LUCAS, Oklahoma                 Member
MO BROOKS, Alabama                   ZOE LOFGREN, California
RANDY HULTGREN, Illinois             DANIEL LIPINSKI, Illinois
THOMAS MASSIE, Kentucky              JACKY ROSEN, Nevada
JIM BRIDENSTINE, Oklahoma            JERRY MCNERNEY, California
STEPHEN KNIGHT, California, Vice     PAUL TONKO, New York
    Chair                            JACKY ROSEN, Nevada
DRAIN LaHOOD, Illinois               BILL FOSTER, Illinois
DANIEL WEBSTER, Florida              AMI BERA, California
NEAL P. DUNN, Florida                MARK TAKANO, California
LAMAR S. SMITH, Texas                EDDIE BERNICE JOHNSON, Texas
                                 ------                                

                       Subcommittee on Oversight

                   HON. DRAIN LaHOOD, Illinois, Chair
BILL POSEY, Florida                  DONALD S. BEYER, Jr., Virginia, 
THOMAS MASSIE, Kentucky                  Ranking Member
GARY PALMER, Alabama                 JERRY MCNERNEY, California
ROGER W. MARSHALL, Kansas            ED PERLMUTTER, Colorado
CLAY HIGGINS, Louisiana              EDDIE BERNICE JOHNSON, Texas
LAMAR S. SMITH, Texas
                            
                            C O N T E N T S

                           February 15, 2017

                                                                   Page
Witness List.....................................................     2

Hearing Charter..................................................     3

                           Opening Statements

Statement by Representative Randy K. Weber, Chairman, 
  Subcommittee on Energy, Committee on Science, Space, and 
  Technology, U.S. House of Representatives......................     4
    Written Statement............................................     6

Statement by Representative Marc A. Veasey, Ranking Member, 
  Subcommittee on Energy, Committee on Science, Space, and 
  Technology, U.S. House of Representatives......................     8
    Written Statement............................................    10

Statement by Representative Darin LaHood, Chairman, Subcommittee 
  on Oversight, Committee on Science, Space, and Technology, U.S. 
  House of Representatives.......................................    12
    Written Statement............................................    14

Statement by Representative Donald S. Beyer, Jr., Ranking Member, 
  Subcommittee on Oversight, Committee on Science, Space, and 
  Technology, U.S. House of Representatives......................    16
    Written Statement............................................    18

Statement by Representative Lamar S. Smith, Chairman, Committee 
  on Science, Space, and Technology, U.S. House of 
  Representatives................................................    20
    Written Statement............................................    22

Statement by Representative Eddie Bernice Johnson, Ranking 
  Member, Committee on Science, Space, and Technology, U.S. House 
  of Representatives.............................................    24
    Written Statement............................................    26

                               Witnesses:

Ms. Diane Katz, Senior Research Fellow in Regulatory Policy, 
  Thomas A. Roe Institute for Economic Policy Studies, The 
  Heritage Foundation
    Oral Statement...............................................    28
    Written Statement............................................    31

Mr. Chris Edwards, Director, Tax Policy Studies, Cato Institute
    Oral Statement...............................................    44
    Written Statement............................................    46

Mr. Dan Reicher, Executive Director, Steyer-Taylor Center for 
  Energy Policy and Finance, Stanford University
    Oral Statement...............................................    56
    Written Statement............................................    58

Dr. Ryan Yonk, Assistant Research Professor, Department of 
  Economics and Finance, and Research Director, Institute of 
  Political Economy, Utah State University
    Oral Statement...............................................    73
    Written Statement............................................    75

Discussion.......................................................    83


             Appendix I: Additional Material for the Record

Documents submitted by Representative Randy K. Weber, Chairman, 
  Subcommittee on Energy, Committee on Science, Space, and 
  Technology, U.S. House of Representatives......................   108

 
                            RISKY BUSINESS:
                     THE DOE LOAN GUARANTEE PROGRAM

                              ----------                              


                      WEDNESDAY, FEBRUARY 15, 2017

                  House of Representatives,
                         Subcommittee on Energy and
                         Subcommittee on Oversight,
               Committee on Science, Space, and Technology,
                                                   Washington, D.C.

    The Subcommittees met, pursuant to call, at 10:09 a.m., in 
Room 2318, Rayburn House Office Building, Hon. Randy Weber 
[Chairman of the Subcommittee on Energy] presiding.
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    Chairman Weber. The Subcommittee on Energy and Oversight 
will come to order.
    Without objection, the Chair is authorized to declare 
recesses of the subcommittee at any time.
    Welcome to today's hearing entitled ``Risky Business: The 
DOE Loan Guarantee Program.'' I recognize myself for five 
minutes for an opening statement.
    Today, we will have the opportunity to review the past, the 
present, and the future of the Department of Energy's loan 
program. I want to thank our panel of witnesses for joining us 
in this important discussion about the appropriate federal role 
in supporting energy innovation.
    Established by the Energy Policy Act of 2005, the DOE loan 
guarantee program was designed to give federal support to 
risky, innovative, clean energy technology. Under a federal 
loan guarantee, instead of the private sector taking on risk to 
fund the scale-up of new technology, the government steps in, 
risking federal dollars on the hopes for success of these 
energy projects.
    Through the section 1703 and 1705 programs, the Department 
guaranteed loans to 30 energy companies, putting about $28 
billion of taxpayer money on the line.
    After Congress approved over $2 billion to subsidize the 
costs of loan guarantees, the DOE then issued more than $16 
billion in guarantees to 26 different projects. In these 
subsidized loans, known as section 1705 loans, companies not 
only received government backing for their loan, but additional 
taxpayer dollars were authorized to pay, quote, the ``credit 
subsidy cost,'' end quote, of the loan, or the estimated cost 
to the federal government to manage the loan over its lifetime.
    Easy money combined with political pressure to issue loans 
before the temporary subsidy program expired led the DOE to 
rush loan applications. Both the DOE Inspector General and the 
Government Accountability Office found that DOE did not have 
the necessary expertise or the metrics to effectively evaluate 
these loans. Predictably, a number of companies that received 
section 1705 loans went into default. In total, over $800 
million in taxpayer money has been wasted by this DOE loan 
program.
    It's clear that the DOE loan guarantee program is 
expensive. The GAO estimates that the cost for the current loan 
guarantees is $2.2 billion with a B. Supporters argue the cost 
is justified if we can help innovative technologies make the 
leap to the commercial market.
    But what if federal meddling in the market actually hurts 
innovation? As we will hear in testimony today, when the 
federal government provides loans and loan guarantees to 
favored technologies, innovation in fact stalls. While federal 
government support helps loan guarantee winners attract 
capital, it draws capital away from other innovative ideas in 
the marketplace.
    And since large companies with the resources to lobby on 
behalf of their projects often have an advantage in the loan 
application process, the DOE loan guarantee program pushes 
capital away from those startups and entrepreneurs that often 
have the most innovative ideas. We need to be opening doors for 
these small innovators, not closing them by pushing investors 
toward federally backed, so-called risk-free investments.
    Additionally, taxpayers often end up paying higher prices 
for their power because of federal government meddling in the 
energy market. For example, when the DOE provided a $1.6 
billion loan guarantee to the Ivanpah solar project in 
California, the state mandated the use of renewable power, and 
utilities entered into contracts to buy power from the DOE-
backed facility. Unfortunately, the ratepayers in southern 
California will now pay two to five more times for power 
generated by this facility in addition to being stuck with the 
bill if the project goes into default.
    The truth is that when the DOE provides loan guarantees, 
there is no benefit for the taxpayer even if the guaranteed 
loan is paid in full. Regular Americans take on the liability 
of the full loan, they don't see a return, and they can end up 
paying more for their electricity if and when the project is 
actually built.
    The DOE loan guarantee program is just another way the 
federal government picks winners and losers in the energy 
market. It doesn't guarantee innovation, doesn't guarantee cost 
savings, and it doesn't guarantee access to the next generation 
of energy technology. The only thing guaranteed for the 
taxpayers is extra cost and extra risk.
    It is our responsibility in this committee to examine 
Department of Energy programs and ensure our limited resources 
prioritize the kind of research and science facilities that 
open doors for all kinds of innovators.The Department cannot 
prioritize the basic research it does best if it's playing 
venture capitalist.
    Therefore, I think we need to take a hard look at the DOE 
loan guarantee program and determine whether it is an 
appropriate way to spend precious federal research dollars. In 
my opinion, and in the testimony you'll hear today, the 
American people would be better served if the federal 
government stopped picking winners and losers, focused on the 
R&D, and let the market drive the investment for energy 
innovation.
    [The prepared statement of Chairman Weber follows:]
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    Chairman Weber. With that, I conclude, and I now recognize 
Ranking Member, Mr. Veasey.
    Mr. Veasey. Thank you, Mr. Chairman. I'm looking forward to 
working with you this Congress in my capacity as Ranking Member 
of the Energy Subcommittee. And given our history together, 
previously, we served in the Texas Legislature together, served 
on the Environmental Regulation Committee together working on 
similar issues here. And so I think that we'll be able to talk 
about some things that we think can help move America's energy 
future together in the right direction.
    Today, we are examining the Department of Energy's Loan 
Programs Office. I hope that by the end of this hearing my 
colleagues on both sides of the aisle can come to the same 
conclusion that so many nonpartisan observers and professionals 
in the finance industry have, that these loan programs have 
been successful by almost every measure.
    Allow me to highlight just a few of these success stories. 
The LPO portfolio has over 30 projects in 18 States. It has 
enabled over $50 billion in private sector investment in clean 
energy technologies. These loan guarantees have created 56,000 
American jobs across our country. And these loan guarantees 
have helped prevent the release of 34.1 million tons of carbon 
dioxide into our atmosphere. All of this is because at 
Congress's direction the DOE intelligently leveraged the 
federal government's strong credit and LPO's deep expertise to 
the benefit of the American taxpayer.
    For my fiscal conservative friends, the loan programs have 
actually helped reduce the national debt. During LPO's 
relatively short life, the loan and loan guarantees have 
returned approximately $980 million to the Treasury. That is 
net revenue from interest payments after accounting for losses. 
It is notable that even the Heritage Foundation left LPO off 
their list of programs to cut or eliminate in their Blueprint 
for Balance. And based on my quick read, there aren't very many 
DOE programs that are spared in that particular report.
    When Congress authorized the loan program we set aside $10 
billion for expect losses that may occur as the federal 
government takes on varying levels of risk with each of these 
projects. While there have been a handful of projects that did 
not pan out, the total losses from all of these projects comes 
nowhere near the $10 billion originally set aside. In fact, it 
is less than ten percent of the amount Congress originally 
projected, with losses so far adding up to $810 million, a 
number that is covered twice over by the interest payments 
collected. So if we consider this program on a strictly cost-
benefit or risk-reward basis, it has clearly performed beyond 
expectations and is tremendously successful.
    But those aren't the only or even the most appropriate 
metrics to consider. The section 1705 loan guarantees are 
responsible for launching the utility-scale PV solar industry. 
These loan guarantees enabled the first five 100 megawatt solar 
PV facilities to be built in the United States. What followed 
that initial investment from DOE perfectly illustrates the role 
that these loan guarantees fill in the market. After DOE 
demonstrated the viability of those first five projects, 
private financing began funding utility-scale solar PV 
independently. As of the last year, there are now 45 other 
projects that have received financing.
    However, LPO does more than just provide loan guarantees to 
renewable energy. In fact, over 1/3 of the portfolio's loan 
guarantee authority funds the Vogtle nuclear project in 
Georgia. And with the announcement of a conditional commitment 
for the first Advanced Fossil Energy Project in Lake Charles, 
Louisiana the portfolio continues to diversify. In fact, the 
carbon captured from the Lake Charles project will be used by 
Denbury, a Texas company for enhanced oil recovery, in 
Southeast Texas. And as the Chairman of the Carbon Dioxide 
Enhanced Oil Recovery Caucus, I certainly support this project.
    And with the enhanced oil recovery occurring near if not in 
the district of the esteemed Chairman, I'm hopeful that maybe 
he will consider being supportive of this particular project as 
well.
    The market for industrial carbon capture has the potential 
to experience the same revolutionary changes that the solar PV 
industry has experienced as a result of LPO's unique role and 
capabilities to foster our innovation pipeline.
    In conclusion, the Loan Programs Office has something for 
everyone. It has investments for fossil energy, renewables, 
nuclear, and it even reduces our national debt. I hope we can 
all recognize the benefits and extraordinary gains that have 
come out of LPO, and furthermore, I hope my colleagues on the 
other side of the aisle are willing to work together to 
constructively support and wherever appropriate improve the 
Department's work in this crucial area.
    Mr. Chairman, I want to thank you. I look forward to 
working with you, and I yield back the balance of my time.
    [The prepared statement of Mr. Veasey follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Weber. Thank you, Mr. Veasey. And I was remiss. I, 
too, look forward to working with you. We had good times in the 
Texas legislature.
    Mr. Veasey. Yes, we did.
    Chairman Weber. You bet. Man, I now recognize the Chairman 
of the Subcommittee on Oversight, Mr. LaHood, for his opening 
statement.
    Mr. LaHood. Well, thank you, Chairman Weber. And it's an 
honor to join you here today for this hearing. I want to thank 
the witnesses for being here today for our hearing titled 
``Risky Business: The DOE Loan Guarantee Program.''
    Today's hearing will provide us with an opportunity to 
examine one of the ways the previous Administration used 
taxpayer dollars to fund massive green energy initiatives with 
the Department of Energy's loan guarantee program. With this 
program, over $28 billion in taxpayer money was used to support 
the loan program's portfolio for 30 projects. Too often, loan 
guarantees were handed out based on political favoritism 
instead of merit.
    Problems with the loan program arose when DOE's first 
approved project, Solyndra, defaulted on its loan after 
receiving $535 million in loan guarantees. Four additional 
projects defaulted on their loans, representing $807 million 
taxpayer dollars lost to date.
    So it's no surprise that the Loan Program Office has faced 
strong criticism from Congress. Rigorous oversight should be 
expected when billions of taxpayer dollars are at stake, 
especially when politics can influence how those dollars are 
spent. This Committee, the Energy and Commerce Committee, and 
the Oversight and Government Reform Committee have held many 
hearings outlining concerns with this program. In addition to 
Congressional oversight, the DOE Inspector General and the 
nonpartisan Government Accountability Office have repeatedly 
raised questions about the mismanagement and accountability in 
the loan program.
    The DOE Inspector General described the DOE Loan Program 
office as, quote, ``attaching a garden hose to a fire 
hydrant,'' unquote. Had Congressional committees not drawn 
attention to the problems with the Loan Program Office, the 
losses could have been far greater. As part of Congress' 
oversight mandate, we have a responsibility to ensure that the 
proper transparency in this place--is the place to ensure that 
DOE is not putting taxpayer dollars at undue risk.
    While this is my first hearing as Oversight Subcommittee 
Chairman, my colleagues on this committee led efforts in the 
last Congress to ensure that the DOE loan guaranteeprogram was 
effectively managed and transparent. I'm committed to 
maintaining oversight of this program in the 115th Congress.
    The loss of taxpayer dollars in the DOE loan program raise 
significant questions about the overall effectiveness of the 
program and what steps Congress may need to take to ensure 
taxpayer dollars are no longer put at risk. We can't keep 
putting American tax dollars on the line when loan guarantee 
recipients are in danger of default. And we can't automatically 
expect the federal government to be better than the private 
sector when it comes to investment and what makes technology 
successful in the commercial market.
    Today's hearing is intended to analyze the future of the 
DOE loan guarantee program. How can it be improved? Is the risk 
to the taxpayers worth the benefits gained? Are the taxpayers 
truly benefiting from the Loan Program Office? Is the DOE loan 
guarantee program operating within its intended purpose, to 
close the gap between innovative technologies and private 
investment? Or is federal government intervention crowding out 
other innovative technologies in the energy marketplace?
    All of these are important questions that require the kind 
of thorough discussion I hope we can have here today. It's our 
job in Congress to ensure responsible management of federal 
resources and determine the path forward for the DOE loan 
program.
    We have a number of excellent witnesses here today that 
will help this committee answer some of these questions and 
provide recommendations on next steps for the DOE loan 
guarantee program. I would like to thank our witnesses for 
joining us here today, and I look forward to the testimony.
    With that, I yield back, Mr. Chairman.
    [The prepared statement of Mr. LaHood follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Weber. Thank you, Mr. LaHood.
    I now recognize the Ranking Member of the Subcommittee on 
Oversight, Mr. Beyer, for his opening statement.
    Mr. Beyer. Thank you. Chairman Weber and Chairman LaHood, 
thanks so much for putting this hearing on today.
    The mission of the Department of Energy's Loan Program 
Office is to help accelerate the deployment of advanced 
innovative clean energy technologies across the United States, 
and the successful deployment of these technologies creates 
jobs, enhances America's competitiveness, and helps to protect 
the environment, the climate, and public health.
    Now, we're likely to hear a lot of criticism about the loan 
guarantee program today. Both witnesses and members are likely 
to say that the federal government should play no role in 
funding energy technologies at all, particularly renewable 
energy technologies. And I think this is philosophically 
congruent with much of the majority's opposition to the Export-
Import Bank, the idea that government doesn't have a role in 
loan guarantees.
    Some even say that the U.S. Government shouldn't have 
provided more than $470 billion in subsidies to the oil and gas 
industry over the last 100 years. But some may also see 
problems with the DOE providing more than $8 billion in loan 
guarantees or 1/3 of its current loan guarantees to construct 
two new nuclear plants in Georgia. The new LPO portfolio that 
includes solar, wind, fossil fuel, nuclear, and other 
technologies comprises more than $30 billion in loans, loan 
guarantees, and conditional commitments covering more than 30 
different projects across multiple energy and transportation 
technologies.
    I believe the possible plan to halt the DOE's loan programs 
completely, as suggested in a memo by President Trump's DOE 
transition team, is supported by some individuals at the 
conservative Heritage Foundation is a spectacularly bad idea. 
Investing in clean energy is smart. It helps to provide 
scientific solutions to combat climate change. It helps to 
protect our environment and the public's health from toxic 
chemicals. It fosters innovation and the development of new 
technologies. It creates new jobs and helps our economy.
    You know, one of the myths here is that somehow we're in a 
perfectly free market. The American companies' workers in our 
advanced energy sector face fierce foreign competition. And the 
international market is certainly not free. Many firms in the 
advanced energy sector benefit from strong home government 
support. China automaker BYD benefits from generous support 
from the Chinese Government, well on its way to becoming the 
world's largest electric car manufacturer. European firms are 
also making significant gains in new plug-in vehicles and 
renewable energy generation.
    The United States should simply not cede its leadership to 
our foreign competitors in the high-tech advanced energy 
sector. This important DOE program is necessary for American 
businesses and American workers to compete in this growing 
field.
    So regardless of whether you believe in the abundant 
scientific evidence that supports the reality of carbon 
pollution and the role of fossil fuel combustion and sea level 
rise, supporting clean, innovative, renewable energy 
technologies that don't damage our waterways, air, and land by 
releasing toxic chemicals is a good idea. The only thing it may 
really threaten is fossil fuel companies that don't clean up 
their act.
    I hope that as Members of Congress we can have some 
foresight and can agree to support federal investments today 
into the clean energy technologies that our nation will need 
tomorrow, clean energy technologies that will never emerge 
without federal support.
    Perhaps the DOE can get an opportunity today to drill down 
on the actual math. The numbers we've seen suggest the loss 
ratio of around two percent, far less than you have in the 
private sector, that we've already received $980 million more 
in total interest payments, more than the total losses even 
projected in the loan program so just on that fact so far it's 
not projected to be a burden on the taxpayers at all. And 
that's not even including all of the taxes generated by the 
many successful businesses funded by this, all the taxes paid 
by the thousands of jobs created by the federal loan program. 
This, at least the evidence we've seen so far, is a huge net 
impact on the positive way against the federal budget deficit 
and for the federal economy. But perhaps I'll have a chance to 
drill down on that even more.
    Thank you very much for being with us today. And, Mr. 
Chairman, Chairman, and Ranking Member, thank you for inviting 
me to be a part of this.
    [The prepared statement of Mr. Beyer follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Weber. Thank you, Mr. Beyer.
    I now recognize the Chairman of the full committee, Mr. 
Smith, for an opening statement.
    Chairman Smith. Thank you, Mr. Chairman. And I also want to 
thank Chairman LaHood for holding this joint hearing today.
    We will hear from a number of expert witnesses on the 
market impact and risk associated with federal loan guarantees 
for energy innovation.
    The Department of Energy loan guarantee program was 
established in 2005. It was intended to provide federal loan 
guarantees to advance commercial application of innovative 
clean energy technology. In short, the Department guarantees a 
loan given to an energy company. By guaranteeing a loan, DOE 
tells private investors that if the company defaults, the 
taxpayers will foot the bill for the loan. This takes the risk 
away from investors who stand to profit and puts it on the 
American people. Instead of the private sector taking on risk 
to develop new technology, the government steps in and risks 
taxpayer dollars on energy projects.
    In 2009, Congress expanded the loan guarantee program and 
gave DOE $2.4 billion and the authority to manage costs of loan 
guarantees. But instead of careful vetting and appropriate 
metrics to avoid risk, the DOE rushed loan applications and 
issued $16 billion in loans to 26 projects. President Obama's 
political allies, like Solyndra, were often fast-tracked, with 
little consideration for project merit or benefits to the 
taxpayer.
    The results were predictable. High-profile defaults 
occurred, like the $535 million loan guarantee to Solyndra in 
2011, $68 million lost when Abound Solar filed for bankruptcy 
in 2012, and $139 million lost from a direct loan to Fisker 
Automotive. These events demonstrate what happens when the 
federal government picks winners and losers in the energy 
market.
    DOE has lost over $800 million on bad loans since 2005. 
According to estimates from the Government Accountability 
Office, the total cost for the current loan portfolio is $2.2 
billion plus $312 million in program administrative costs. This 
is the cost to manage the current loan portfolio over the 
lifetime of the loans. These costs will increase if another 
loan is defaulted or if the Department issues new loan 
guarantees to projects with any financial risk.
    Under the DOE loan guarantee program, American tax dollars 
also subsidize loans for large companies with billions in 
available capital like Ford, Goldman Sachs, Google, GE, and 
Berkshire Hathaway. And if something goes wrong, these 
companies aren't stuck with the bill; the America people are. 
It is unfair to ask American taxpayers to subsidize risky 
loans.
    DOE also provides a government stamp of approval to favored 
technologies through loan guarantees. That means that even when 
DOE backs a successful project, it drives private investment 
away from technologies that don't receive federal loan 
guarantees. Private sector companies can't compete with other 
private sector companies that get loan guarantees.
    It is our responsibility to oversee the use of the 
Department of Energy's resources and only reauthorize those 
programs that provide the best investment for the American 
people.
    Though its loan guarantees have a suspect past, DOE has an 
exemplary track record in basic research. The Department's 
national labs and scientific user facilities provide 
opportunities to university researchers and private innovators 
as they search for the next great breakthrough in energy 
technology. And unlike the DOE loan guarantee program, the 
national labs are open to every innovative entrepreneur, not 
just those with a certain political agenda.
    Mr. Chairman, as we reauthorize the Department of Energy's 
research and development programs, we should prioritize the 
basic and early-stage research that would not be undertaken by 
the private sector.
    Thank you. And I will yield back.
    [The prepared statement of Chairman Smith follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Weber. Thank you, Mr. Chairman. And I now 
recognize the Ranking Member of the full committee, Ms. 
Johnson, for an opening statement.
    Ms. Johnson. Thank you very much, Mr. Chairman. And let me 
express my appreciation to you, Mr. LaHood, and our Ranking 
Members for holding this hearing and I want to thank the 
witnesses for being here today.
    We are here to discuss the record at the Department of 
Energy's Loan Programs Office and the unique role that these 
programs play in our energy innovation pipeline. They provide 
both direct loans and loan guarantees for projects across a 
broad range of energy sector, including nuclear, fossil energy, 
renewables, and advanced vehicles.
    This support has been critical because private lenders are 
typically unwilling or unable to take on the risk associated 
with financing truly innovative and first-of-a-kind projects of 
this scale on their own. And that's true across the board in a 
lot of research and innovation.
    These programs have been instrumental in establishing new, 
American-made, clean energy industries. For example, prior to 
2010, there actually were no large-scale photovoltaic solar 
projects in the United States, but after a careful review of 
both the opportunities and the risk, DOE's loan guarantee 
program supported the first five projects of this kind. And 
since then, the private sector has taken over financing another 
45 utility-scale projects without government involvement. Any 
objective observer will tell you that this simply would not 
have happened if DOE had not fulfilled the loan program's 
unique role of reducing the risk of deploying new energy 
technologies.
    The loan guarantee program is also supporting construction 
of the first U.S. nuclear reactors in 30 years at the Vogtle 
plant in Waynesboro, Georgia. And less than 2 months ago, DOE 
issued a conditional loan guarantee for an exciting new carbon 
capture and methanol production project in Lake Charles, 
Louisiana.
    DOE's advanced technology vehicles manufacturing program 
which issued direct loans, is yet another success story. Not 
only did it help launch one of the leading electric vehicles 
manufacturers in the country today, Tesla Motors, but that 
company paid back its loan with interest almost ten years 
early. Overall, this program has supported the production of 
more than 4 million fuel efficiency cars and more than 35,000 
jobs across eight States.
    The record is also now abundantly clear that DOE has been 
carrying out these key programs in a fiscally responsible 
manner. Even initial critics now view the loan guarantee 
program as a success with losses equaling only 2.23 percent of 
the office's entire portfolio, a rate that is lower than any 
venture capitalist can achieve. While there will undoubtedly be 
instances when an individual project does not meet its goal, 
DOE's overall portfolio remains strong and healthy.
    In closing, I want to emphasize there is no such thing as a 
free market when it comes to energy. You can tell that by all 
these Texans on this committee. The full cost of taxpayers of 
producing and ensuring the safe transportation of oil on the 
global market is not reflected in its price. Further, the 
growing cost of carbon pollution have yet to be priced into the 
energy sector unfortunately. And Germany, China, India, and 
other leading competitors have implemented their own robust 
energy loan and loan guarantee programs to help them across 
what's often called the "valley of death" between clean energy 
and technology development and commercialization.
    So DOE's loan programs are vitally important for enabling 
the United States to compete effectively on the world stage, 
and more broadly, for fostering an American-made clean energy 
future for all of us.
    Again, I thank each of you for joining us today, and with 
that, Mr. Chairman, I yield back.
    [The prepared statement of Ms. Johnson follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Weber. Thank you, Ranking Member Johnson.
    Our first witness today is Ms. Diane Katz, Senior Research 
Fellow in Regulatory Policy at the Thomas A. Roe Institute for 
Economic Policy Studies at the Heritage Foundation. Prior to 
joining the Heritage Foundation, Ms. Katz was a member of the 
editorial board of the Detroit News for nine years. I guess 
that proves there is life after editorializing. Okay. Ms. Katz 
holds a bachelor's degree in philosophy from Thomas Jefferson 
College and a master's degree in journalism from the University 
of Michigan. Welcome.
    Our next witness is Mr. Chris Edwards, Director of Tax 
Policy Studies at the Cato Institute. Before joining Cato, Mr. 
Edwards was a Senior Economist on the Congressional Joint 
Economic Committee. In addition, he was a member of the Fiscal 
Future Commission of the National Academy of Sciences. Mr. 
Edwards received his bachelor's degree in economics from the 
University of Waterloo and his master's degree in economics 
from George Mason. Welcome, Mr. Edwards.
    Our third witness today is Mr. Dan Reicher, Executive 
Director of the Steyer-Taylor Center for Energy Policy and 
Finance at Stanford University. Mr. Reicher previously served 
as Assistant Secretary of Energy for the Office of Energy 
Efficiency and Renewable Energy and the Department of Energy 
Chief of Staff both under President Clinton. Mr. Reicher, it 
says here you received your bachelor's degree in biology from 
Dartmouth, your law degree from Stanford, and your honorary 
doctorate from the State University of New York. Welcome.
    And our final witness is Dr. Ryan Yonk, Assistant Research 
Professor in the Department of Economics and Finance and 
Research Director in the Institute of Political Economy at Utah 
State University. Dr. Yonk received his master's degree in 
political science from Utah State and his Ph.D. in political 
science from Georgia State. Welcome, Doctor. Is it Yonk or 
Yonk?
    Dr. Yonk. Yonk.
    Chairman Weber. It is Yonk. Well, welcome.
    I now recognize myself for five minutes--whoops. I now 
recognize Ms. Katz--I'm sorry. I'm getting ahead of myself--for 
five minutes of testimony, although I've got questions I would 
like to ask you. So, Ms. Katz, you're recognized.

                  TESTIMONY OF MS. DIANE KATZ,

          SENIOR RESEARCH FELLOW IN REGULATORY POLICY,

      THOMAS A. ROE INSTITUTE FOR ECONOMIC POLICY STUDIES,

                    THE HERITAGE FOUNDATION

    Ms. Katz. Mr. Chairman, and Members of the Subcommittee, 
thank you for the opportunity to address you today. My name is 
Diane Katz, and I'm a Senior Research Fellow in Regulatory 
Policy at the Heritage Foundation. The views I express in this 
testimony are my own and do not represent any official position 
of the Heritage Foundation.
    My purpose here is to provide economic context to the loans 
and loan guarantees issued by the Department of Energy. Few 
Americans are aware that, collectively, we shoulder more than 
$18 trillion in debt exposure from loans, loan guarantees, and 
subsidized insurance provided by some 150 federal programs. 
Among them are 35 programs administered by the Department of 
Energy and nine other agencies that provide loans and loan 
guarantees for clean energy projects. This redistribution of 
taxpayer dollars and credit risk erodes the nations 
entrepreneurial spirit, undermines innovation, and fosters 
cronyism.
    The government credit portfolio consists of subsidized 
financing for energy, housing, agriculture, education, 
transportation, exporting, small business, and others. Federal 
insurance programs cover bank and credit union deposits, 
pensions, flood damage, declines in crop prices, and acts of 
terrorism. Capital for mortgage lending by banks is provided by 
Fannie Mae and Freddie Mac. Researchers with the Federal 
Reserve Bank of Richmond in their bailout barometer estimate 
that 61 percent of all liabilities throughout the U.S. 
financial system are explicitly or implicitly backed by 
taxpayers.
    Among--Americans across the political spectrum were rightly 
indignant to witness Washington bailing out banks and 
corporations during the 2008 financial crisis. In similar 
fashion, the Department of Energy routinely uses taxpayers' 
dollars to finance projects that benefit wealthy investors and 
titans of industry. With a market cap exceeding $573 billion, 
Google does not need loan guarantees from the Department of 
Energy. Ford Motor Company, with a market cap of $50 billion, 
does not need loans from the Department of Energy. Neither does 
British Petroleum, Chevron, or Morgan Stanley, but they benefit 
from them nonetheless.
    With some government loans extending decades, the burden of 
federal credit will encumber generations to come without their 
consent. Advocates insist that the subsidies are necessary to 
equalize opportunity, create jobs, and fill gaps in private 
financing. However, the actual lending patterns and outcomes do 
not reflect the purported goals.
    Government credit is a poor substitute for private 
financing. The purposes of the two are entirely different, as 
are the results. Private lenders offer credit to generate 
profit. The challenge they face is to minimize risk and 
maximize return within ever-changing market conditions. Under 
threat of loss, they must take great care in lending.
    In contrast, government financing is detached from the 
profit motive and its inherent discipline because taxes provide 
an endless source of revenue, and federal agencies are largely 
shielded from accountability. Consequently, double-digit 
default rates are common among federal credit programs.
    Too often, policymakers create subsidized financing to 
offset costly regulatory demands, and oftentimes, the 
beneficiaries are those with the most political influence, not 
those with the greatest need. The Department of Energy, for 
example, guaranteed $1.6 billion in loans for a solar thermal 
power facility in Southern California. The facility negotiated 
power purchase agreements with two California utilities, and 
the utilities apply the overpriced power purchases toward 
California's onerous renewable energy quotas. Ratepayers are 
forced to pay four to five times more per megawatt hour than 
they would otherwise. This particular facility is owned by 
Google; NRG Energy, market cap $5 billion; and BrightSource 
Energy, a privately held company that reportedly counts British 
Petroleum, Chevron, and Morgan Stanley among its investors.
    Other beneficiaries of the Department's largesse include a 
Spanish banking consortium with a market cap of $76 billion; 
and ACS Cobra, a world leader in industrial infrastructure, 
market cap $9 billion.
    When the government shifts credit risk to taxpayers, 
borrowers are relieved of the consequences of failure and act 
accordingly. They will still work for success of course, but 
there is less incentive to prevent loss. When companies do not 
compete for private capital based on merit, productivity and 
innovation become less important than political capital. Credit 
worthiness also becomes less relevant to banks that 
increasingly act as pass-through agents for government 
financing. The result is a larger proportion of U.S. assets 
that are inherently weaker than they otherwise would be if 
financed by the private sector.
    And I'll close up. Fisker Automotive is a case in point. 
The Department of Energy awarded the company a $529 million 
loan to produce hybrid plug-in vehicles. Fisker failed to meet 
performance targets and ultimately filed for bankruptcy, 
costing taxpayers $139 million.
    We will never know what innovations have gone undiscovered 
because of preoccupation--the Department's preoccupation with 
electric vehicles, solar panels, and other pet technologies, 
nor does government financing appear to be all that effective. 
The Department of Energy has been financing development of 
electric vehicles for 40 years.
    Reform of government financing should be a Congressional 
priority. Unconstrained spending, unfettered losses, and 
rampant cronyism are only part of the cost. Trillions of 
dollars of credit exposure represents the commandeering of the 
financial services market by the government and is escalating 
power over private enterprise. This should end. Thank you.
    [The prepared statement of Ms. Katz follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Weber. Thank you, Ms. Katz.
    I now recognize Mr. Edwards for five minutes.

           TESTIMONY OF MR. CHRIS EDWARDS, DIRECTOR,

               TAX POLICY STUDIES, CATO INSTITUTE

    Mr. Edwards. Thank you very much.
    [Audio malfunction in hearing room.]
    Chairman Weber. There we go.
    Mr. Edwards. Today, 29 States impose renewable portfolio 
standards that require purchases of renewable energy such as 
solar and wind, so it seems to me with that high level of state 
support, layering on top federal subsidies is overkill.
    Secondly, the failures like Solyndra have been mentioned, 
and it is true that the DOE appears to have a low default rate 
on its loan portfolio. But to an economist the real issue is 
are the benefits of these projects higher than the costs, and 
in a lot of cases I don't think they are.
    And to give you one example, the Ivanpah solar project in 
California has been mentioned. It strikes me that there's been 
very high cost there with moderate or low benefits. The project 
is generating a lot less power than promised. It's using a lot 
more natural gas to fire up its facility every day than 
promised, and the price of power is a lot higher than natural 
gas fuel generation in California.
    I also think the $8 billion loan guarantee for the nuclear 
power plant in Georgia owned by Southern Company, that's been a 
rather dubious loan as well. That project is far behind 
schedule and far over cost.
    A third issue is the corporate welfare and cronyism issue. 
The Washington Post, looking at Obama's subsidies, concluded, 
quote, ``Obama's green technology program was infused with 
politics at every level,'' unquote.
    Public opinion polls over recent years have shown plunging 
support both for federal politicians and for big businesses, 
and I think part of the issue is cronyism. I think both big 
business and federal lawmakers would gain a lot more public 
support if they separated themselves more, if they ended 
corporate welfare, allowed big business to earn profit and loss 
without federal intervention.
    A fourth issue is that the private sector can fund 
alternative energy itself these days. As has been mentioned, 
most DOE loan guarantees in this program have backed wealthy 
investors and large corporations. Warren Buffett's Berkshire 
Hathaway has invested $17 billion in renewable energy projects 
over the last decade. To me this shows that there's a heck of a 
lot of private cash available for renewable energy these days, 
and the time for federal intervention, I think we're beyond 
that. These are large and mature industries these days that 
should be able to fund themselves.
    A fifth issue is that subsidies distort decision-making. In 
technology-based industries like renewable energy, it is the 
leanest and quickest and most adaptive firms that usually 
succeed. I think federal subsidies undermine private 
productivity. I think they tend to make businesses slow and 
slow to change as markets are constantly changing. So I think 
subsidies undermine private innovation and productivity.
    So without programs like this, what can the federal 
government do? I think one thing the federal government can do 
is do major tax reform. Rather than subsidizing debt for 
particular projects like DOE loan guarantee program did, I 
think Congress should look at reforming the tax code to reduce 
the cost of equity financing across the economy. Rather than 
favoring particular projects, Congress should do things like 
reducing capital gains tax rates, which will incentivize more 
venture and angel investment in advanced industries like 
renewable technology.
    Also, I'm a big fan of capital expensing, which is part of 
the House Republican tax plan. Capital expensing is very much a 
green tax policy reform. Not only does--capital expensing would 
benefit a capital-intensive industries like utilities and 
energy, expensing would encourage businesses in all industries 
to more rapidly change and invest, replacing their old 
structures, their old equipment and technologies that tend to 
be less energy-efficient with new structures and new equipment 
and machinery which is more energy-efficient. So I think tax 
reform can very much be an exercise in green policymaking on 
Capitol Hill.
    So to conclude, I think Republicans are in a unique 
position to start cutting back on some business subsidies like 
the DOE loan guarantees because Republicans are also promising 
to reduce taxes and reduce regulation on business. So business 
would lose federal handouts on the one hand but on the other 
hand the regulatory tax burdens faced by businesses would fall. 
I think that would be a good trade that would benefit everyone 
and the economy. Thank you.
    [The prepared statement of Mr. Edwards follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Weber. Thank you, Mr. Edwards.
    Mr. Reicher, you are now recognized for five minutes.

       TESTIMONY OF MR. DAN REICHER, EXECUTIVE DIRECTOR,

                    STEYER-TAYLOR CENTER FOR

                   ENERGY POLICY AND FINANCE,

                      STANFORD UNIVERSITY



    Mr. Reicher. Thank you, Chairmen Smith, Weber, and LaHood 
and Ranking Members Veasey, Johnson, and Beyer. I appreciate 
the opportunity to testify.
    You have my bio, but let me emphasize that I have some 
honest-to-goodness background in energy project investing. I 
cofounded an energy project investment firm where we raised 
$100 million from a major pension fund and a venture-capital 
firm. I also made project investments while working at Google. 
Finally, I worked for an energy technology company that 
received a major venture-capital investment.
    Mr. Chairman, the U.S. Government has long played a vital 
and successful role in helping to commercialize energy 
technologies, including, among others, commercial nuclear 
power, carbon capture and storage, and hydraulic fracturing. I 
am focusing on technology commercialization because that is the 
real core of the DOE loan guarantee program today.
    You will hear lots of arguments today about how the loan 
guarantee program is not an appropriate role for government and 
that the private sector should assume the burden, but these 
comments miss the mark because the loan guarantee program, as 
currently structured and operating, is focusing quite precisely 
on the role where the private sector needs help. And I 
emphasize technologies that have not reached full commercial 
scale and where, because of their risk profile, banks and bond 
issuers are reluctant to provide financing. Once the technology 
has been proven to work at commercial scale, the DOE loan 
program generally has no further role, and that is the case 
today in the DOE loan program where, for example, financing for 
solar PV projects using fully commercialized technologies has 
ended following loan guarantees made about five years ago that 
helped U.S. PV projects get to full utility scale.
    The private sector has financed scores of subsequent 
projects. The DOE loan guarantee program, as authorized by 
Congress and signed by President George W. Bush, is carrying 
out its role across a broad range of energy and transportation 
technologies: advanced fossil, nuclear, renewables, energy 
efficiency, and vehicles. And DOE's Loan Program Office is 
managing the investment portfolio successfully.
    Here are the numbers, the most updated ones. As of December 
31, 2016, 22 projects supported by the Loan Program Office are 
operational and $6.65 billion in loan principal and $1.79 
billion in interest have repaid to the U.S. Treasury. Loan 
losses in the portfolio are approximately $810 million. This is 
barely half of the interest already paid on the DOE loans to 
date. It is only a little over two percent of the program's $36 
billion of loans, loan guarantees, and conditional commitments. 
And these losses are a tiny fraction of the $10 billion set 
aside by Congress to cover failed loans.
    I would note that in her testimony, Ms. Katz indicates 
that, quote, ``double digit default rates are common among 
federal credit programs.'' The DOE rate is barely in the single 
digits, and the LPO's two percent loan loss ratio is less loss 
ratio in the loan portfolios of virtually every U.S. money-
centered bank. And these banks are generally not making loans 
for energy projects deploying advanced technologies and 
certainly not in the riskier commercialization stage.
    I also want to emphasize that the focus today is on loans, 
not grants. Loans get paid back, grants do not, and they get 
paid back with interest to the U.S. Treasury, also known as 
U.S. taxpayers. A lot of the testimony today confuses grants 
and loans.
    Looking ahead, the Loan Program Office has more than $40 
billion in remaining authority with $12.5 billion for advanced 
nuclear projects, $8.5 billion for advanced fossil, $4.5 
billion for renewable energy and efficiency, and $16 billion 
for advanced transportation projects. Importantly, the office 
has recently received more than 70 applications in response to 
its current solicitations for almost $50 billion in loans and 
loan guarantees.
    Mr. Chairman, U.S. infrastructure has emerged as an area of 
both substantial national need and bipartisan support. The good 
news is that there are multiple areas where the DOE loan 
guarantee program can provide much-needed infrastructure 
investment from already authorized funds and simultaneously 
support important technology innovation. This includes 
infrastructure projects involving, for example, electricity 
transmission, advanced nuclear technology, carbon capture 
utility-scale storage, and advanced vehicles.
    Infrastructure investing, Mr. Chairman, can divine the next 
phase of the DOE loan guarantee program with no new 
authorization or appropriations. This is a very nice down 
payment on the proposed trillion-dollar infrastructure program 
that is the subject of so much discussion.
    A final point: In the next 20 years the International 
Energy Agency projects that the world will spend roughly $48 
trillion on energy infrastructure, one of the biggest economic 
opportunities of the 21st century. China is organized to take 
the biggest piece of this economic pie. It has no reluctance 
helping energy project developers raise capital to 
commercialize technologies and sell them to the world. We 
ignore China's resolve and impressive success to date at our 
peril, and it is the situation that makes the attacks on 
federal energy technology commercialization like the DOE loan 
program so misguided.
    The Congress and the new Administration should build on the 
loan guarantee program's success to date and substantial 
remaining loan authority to jumpstart infrastructure investing 
and advance the U.S. economy and environment and security in 
the process. Thank you very much.
    [The prepared statement of Mr. Reicher follows:]
    [[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Weber. Thank you, Mr. Reicher.
    Dr. Yonk, you're recognized for five minutes.

                  TESTIMONY OF DR. RYAN YONK,

                 ASSISTANT RESEARCH PROFESSOR,

              DEPARTMENT OF ECONOMICS AND FINANCE,

                     AND RESEARCH DIRECTOR,

                INSTITUTE OF POLITICAL ECONOMY,

                     UTAH STATE UNIVERSITY

    Dr. Yonk. Mr. Chairman, Members of the Subcommittee, it's 
my pleasure to speak with you this morning to share some of my 
thoughts and results of preliminary research we've done in the 
Institute of Political Economy at Utah State.
    To begin, the loan guarantee programs were conceived as an 
idea to push financing towards underdeveloped clean energy 
technology and to improve the environment, to promote economic 
growth, and to produce a more secure energy supply. However, 
the title 17 loan guarantee program has likely failed to meet 
these objectives and instead has been used as a political tool, 
diverted funding from alternative clean energy investments, and 
primarily benefited large politically connected corporations.
    Government loan guarantees programs present a number of 
policy difficulties, and the Department of Energy's program is 
no exception. My testimony today and my full written testimony 
illustrate how the Department's loan guarantee programs distort 
markets, misdirect funds, and fail to promote truly innovative 
technology.
    Loan guarantee programs offered by governments and the 
private sector are intended to close a fiduciary gap between 
burgeoning ideas and private investment. By promising to cover 
loan payments if a company fails, loan guarantors allow 
entrepreneurs easier access to private capital. And presenters 
of government programs in this area argue that private capital 
is too risk-adverse to properly finance whatever it is that 
they seek to subsidize.
    The loan guarantee program is well-intentioned, as most 
policy generally is, but its designers failed to consider a 
number of unseen effects. The Department of Energy's program 
has deterred investment in other areas and made it more 
difficult for some to receive private investments, been used as 
a political tool, encouraged mal-investment, and primarily 
benefit established companies with access to--with pre-existing 
access to capital for research and development.
    Now, federal loan guarantees can only be said to serve a 
public benefit if they accomplish what we might call 
additionality, meaning the program must be offering loans to 
projects that would not otherwise have garnered funding in the 
open market. A program that extends government assistance to 
projects and companies that would have little trouble securing 
private financing accomplishes little, adds unnecessary 
administrative costs, and ultimately puts taxpayer money at 
risk.
    Some exploratory research on the additionality of loan 
guarantee programs for energy technology from both the 
Department of Energy and the Department of Agriculture have 
revealed poor additionality. However, even if government loan 
guarantees managed to accomplish perfect additionality, this 
alone would not sufficient justification for the continuation 
of the program.
    Many conceive of loan guarantee programs as marginally 
shifting the risk calculus for private investment. 
Realistically, loan guarantees completely shift the entire 
calculation of private investors. Securing a government loan 
guarantee proves to be a highly political process, and private 
capital often follows public capital.
    Now, despite the appealing tenor of that statement, this 
unfortunately means that only the politically connected are 
funded. Most section 1705 funding has gone to large 
corporations who already have access to capital for investments 
in research development and deployment. And it's here that the 
fundamental problem with this form of subsidy emerges because 
it makes it more difficult for new ideas to emerge and come to 
fruition as it further entrenches establishments.
    Government support, as the previous Chief Marketing Officer 
at Tesla motors complained, may make life easier for those who 
receive support, but it also makes it difficult for new ideas 
to gain private funding and grow.
    Loan guarantee programs, like any subsidy, move resources 
towards the subsidized good. A subsidy redirects private 
capital towards the subsidy because it changes the risk 
calculation investors go through. The subsidy distorts the 
market signals of profit and loss to appear as if the 
subsidized industries provide more value than they do. 
Political power and lobbying prowess, not the collective 
intelligence of all individuals in the market allocate the 
funding of these programs.
    My own analysis indicates that the unseen costs are greater 
than we often anticipate, and this position rests in large part 
on a counterfactual. How do you measure what did not happen? 
The question of what could have been, the opportunity cost of 
these loans, is a serious consideration, even if it is a 
difficult empirical one.
    Preliminary examinations of the Department of Energy and 
USDA's programs have been discouraging. Though the entire 
literature pleads for more concerted research efforts, the 
political problems associated with the funding justify further 
skepticism towards section 1705 and section 1703, as do the 
very nature of the recipients of the guarantees.
    In place of these programs, government would do well to 
simply step out of the way of entrepreneurs and individuals. As 
the development of the technology industry demonstrates, 
allowing experimentation and markets to drive innovation is a 
promising avenue for improving the world. Government officials 
should clear a path for entrepreneurial experimentation 
unfettered by precautionary regulation and subsidization. A 
policy of permission-less innovation is more likely to find 
successful solutions to pressing environmental and energy 
questions such as climate change and pollution than government 
agencies choosing projects based on political considerations. 
Thank you.
    [The prepared statement of Dr. Yonk follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Weber. Thank you, Dr. Yonk.
    Heritage was actually mentioned earlier, a discussion of 
the Heritage Foundation about they were not recommending to do 
away with the loan program, and yet we have a Blueprint for 
Reform that they update every year, in 2017, ``Mandate for 
Leadership'' Series. And on page 51 they actually do recommend 
doing away with it. I want to submit this into the record, 
without objection.
    [The information appears in Appendix II]
    Chairman Weber. And then furthermore, before I get going, I 
have a letter from the Mercatus Center, Veronique de Rugy, also 
a letter about the loan program I, too, want to submit into the 
record. Without objection, so ordered.
    [The information appears in Appendix II]
    Chairman Weber. I now recognize myself for five minutes of 
questioning.
    Mr. Edwards, according to a report by the Mercatus Center 
that I just cited, 90 percent of the section 1705 loans went to 
subsidize lower-risk power plants backed by big companies, 
which actually had pretty good access to capital. These 
companies included Goldman Sachs, NextEra Energy, and General 
Electric. If these projects would have been built without 
government guarantees, why do you think that DOE would be 
wanting to subsidize them? And do you think this is just yet 
another form of corporate welfare?
    Mr. Edwards. It does seem to me that you can divide the 
section 1703 and 1705 projects into two sort of pots. The great 
majority of them were subsidies for projects in my view 
would've gone ahead anyway because, as I said, 29 States now 
have these renewable purchasing requirements, mandates that are 
escalating and increasing over time. These projects were going 
to get built, and when federal subsidies were layered in, it 
just meant that the investors like Warren Buffett and others 
earned higher returns than otherwise. Then, there was a smaller 
group of other investments in the very risky projects like 
Solyndra and a few others that didn't pan out and, you know, 
those didn't have those sort of state subsidy backing.
    So I think in both cases federal intervention doesn't make 
sense. I think the state government subsidized renewable so 
much now not only with the purchase requirements, with the tax 
credits, their own subsidies, federal subsidies are overkill. 
And I have in my testimony some discussion from The New York 
Times which looked at this and agreed that during the Obama 
years there really was overkill in subsidies.
    Chairman Weber. Thank you. I want to follow up with you, 
Dr. Yonk. And I want to come back to something you said in your 
written testimony. The follow-up is that with all of these 
large companies applying for loan guarantees, what does that 
mean for the little guy, number one? What about a small 
business startup or one innovative entrepreneur? Do they have 
the resources to compete against the lobbying power of these 
big companies? What has been your findings?
    Dr. Yonk. Yes, Mr. Chairman. I think you illustrate one of 
the problems with any sort of approach in this regard, and that 
is that precisely those--that entrepreneur in the garage with 
the crazy idea is--will never have access to these sort of loan 
guarantees. What's interesting is, as Mr. Reicher said, these 
are really about commercialization of projects moving from one 
phase to another, as opposed to actually spurring the 
innovation of new technology industries. And so it limits 
greatly the ability of those to do it, and we select on those 
that are already at a certain point and we make a continued bet 
on that same industry over time.
    Chairman Weber. Thank you. You had made the comment that 
you can't measure what has not happened and I was following in 
your testimony and I had actually written down what cannot be 
measured is if the private equity firms adopt a wait-and-see 
posture. They're standing on the sidelines, and you'll never 
know what they contemplated not doing if that's not too many 
negatives, you know. And so I think you make a good point.
    So what does that mean, Dr. Yonk, for innovation in the 
energy market in practical terms? Don't DOE guarantees to some 
companies discourage investment in others? Do you know of 
examples?
    Dr. Yonk. Yes, Mr. Chairman. There are two sort of--let me 
take the first question and then apply it to the second, and 
that is what I believe happens in these regards is, as 
individuals are making these private risk calculations, as 
hedge funds or wherever are, they now incorporate the 
probability of a loan guarantee being brought into it and they 
seek to mitigate risk on their own side by following the loan 
guarantee or the issuance of a loan by government. And as a 
result, we end up primarily betting on--because this again is a 
commercialization issue, we end up betting on technologies that 
are attempting to make the transition into full-scale 
commercial size, as opposed to spurring the innovation at the 
smaller scale.
    And so what I believe happens--and this is where the 
counterfactual comes in--is that we end up seeing that there is 
a flight towards pre-existing alternatives as opposed to what 
might be termed the crazier ideas that in large part if you 
read the background on these loan guarantees, it was meant to 
do risky things.
    So we talk a lot about the risk profile. I hear the risk 
profile of this if it was meant to fund risky technologies of a 
two percent loss rate, that's not encouraging to me if the goal 
was in fact to be spurring the riskier side of innovation.
    Chairman Weber. Thank you. I've got about a minute left. 
Actually, I'm down to 11 seconds. So I tell you what, I'm going 
to stop there and I'm going to recognize the Ranking Member for 
five minutes, Mr. Veasey.
    Mr. Veasey. Thank you, Mr. Chairman. And before I go into 
my questions, I just want to be clear. And I'm not going to 
submit a report for the record--that I specifically referenced 
the Blueprint for Balance while the Chairman specifically 
referenced the Blueprint for Reform, so two different reports 
there that were referenced but just wanted to clarify that.
    And this question is government role for Mr. Reicher. Mr. 
Reicher, some would argue that the government shouldn't have a 
role in issuing loan guarantees or direct loans to companies, 
but this perspective ignores a long history of success that 
loan guarantees have shown not just in the energy sector but 
also the housing market, agriculture market, and many other 
industries. How would you respond to the assertions we've heard 
today that the government should have no role in this space at 
all?
    Mr. Reicher. Thank you, Mr. Veasey. The government has had 
a very long role in commercializing energy technology and in 
providing finance, both loans, loan guarantees, grants. I would 
argue that we would not have seen the development of commercial 
power if the government in the 1950s in the Eisenhower 
Administration had not paid for the development of the early 
plans, could have been delayed, could have been stillborn if 
there was an accident. The private sector was not in a position 
to put its own private capital into those early nuclear power 
plants.
    The government participated with private entrepreneurs in 
the development of fracking. Government put in grants, the 
government put in tax credits, the government provided 
technologies in collaboration with the private sector, and from 
that, in 2006, we saw this technology take off.
    Carbon capture is another example. We would not have seen 
the development of carbon capture to the point that it's 
reached--still a long way to go--had the government not started 
putting federal dollars into this technology in 1997.
    So the government has a long role of commercializing energy 
technology, and I think all this is doing is putting it in a 
smarter form. Remember, these are loans. They have to be paid 
back. These are not grants, which has been the more traditional 
form of government support.
    Mr. Veasey. When you start talking about us being able to 
lessen our dependency from petro-dictators around the world, 
one of the things that has lessened our ability to depend upon 
those petro-dictators have been the advent of renewable 
energies. And in your opinion, would the utility-scale solar 
industry exists as it does today without DOE's loan programs?
    Mr. Reicher. So let's remember where we were in 2008, 2009, 
2010. We were in the depths of the financial crisis. It was not 
easy. In fact, for most companies it was next to impossible to 
go out and get a loan for an energy project. That's number one. 
They were also deploying utility-scale solar. We had never 
built a solar project in this country that was 100 megawatts or 
bigger. Scaling up energy technology is really tough. It's very 
risky.
    Those two things together meant that most banks, most bond 
issuers said we don't either have the money or your project is 
too risky. The federal government stepped in with its 
congressionally authorized loan guarantees and said we're going 
to back the first few projects. Remember, these are just the 
first few projects, number one, number two, number three, not 
30, 40, or 50. The private sector followed from there and the 
photovoltaic project market has exploded.
    Mr. Veasey. Again, us being able to lessen our dependency 
upon foreign oil by investing in our own energy, clean energy 
sectors here, but startup money is a big problem. IT startup 
companies have low capital costs. They are attractive options 
for venture capitalists, but my understanding is that energy 
investments take much longer to pay back and are much riskier. 
In your expert opinion, how do energy sector investments 
compare to other sectors, whether it be information technology, 
health care, or retail?
    Mr. Reicher. Mr. Veasey, Mr. Chairman, I have to say I 
spent several years at Google, and it was fascinating to watch 
the difference between investing in information technology, 
software technology, and investing in energy hardware, 
extraordinarily different. With information technology, 
software engineers sit down. It's often for a few months. They 
develop a new product, and in simple terms, they push a button 
and it's deployed. They make adjustments to it over time, low 
cost, relatively quick.
    In comparison, developing a piece of energy hardware, you 
don't measure things in months. You don't even measure things 
in years. You often measure them in decades. I'll show you any 
number of technologies--you know them well--where it's taken 
10, 20, 30, 40, 50 years to get energy technology to full 
scale. And you don't measure this in billions--I'm sorry in 
millions. You measure it in billions or tens of billions, 
completely different. And that's why these loan guarantees make 
great sense.
    Mr. Veasey. Thank you, Mr. Reicher. Thank you, Mr. 
Chairman.
    Chairman Weber. I now recognize Chairman LaHood.
    Mr. LaHood. Thank you, Mr. Chairman. And I want to thank 
the witnesses for being here today and your valuable testimony.
    And in looking at the DOE loan guarantee program, I guess 
I've tried to objectively look at the program and the 28 
projects that are part of this loan guarantee program. And as I 
look at those projects, many of them have value. There are 
innovative. They present opportunities. They have great people 
involved with them. And so figuring out what role the federal 
government plays with those projects and in looking at that, 
when we think from a public policy standpoint what role we 
should play in that or government should play in that and two 
questions that come up, does the loan guarantee program 
artificially change or alter the marketplace by having this in 
place? And does it dis-incentivize competition in this area?
    And I know, Mr. Reicher, you talked about the role the 
federal government has played and, you know, I guess when I 
look at 2017, you know, if we were $20 trillion of surplus, you 
know, figuring out where to spend money, you know, these 28 
projects would be probably great examples of where to spend 
money. But the reality is we are $20 trillion in debt in this 
country, and that's different from the 1950s where, you know, 
it was a much different country we lived in.
    In 2017 the technology marketplace in this country is 
thriving. We lead the world in innovation. As was mentioned 
earlier, there's a lot of cash in this country that people are 
sitting on waiting to invest. Angel investors were mentioned 
earlier.
    So figuring out that role of how the federal government 
plays a role in this program and that's really objectively what 
I've looked at here. And it seems to me that the role of the 
federal government we always got to keep in mind the fact that 
we're in debt, and that's a problem in this country. And then 
also looking at the marketplace.
    And I guess, Ms. Katz, what I would ask you is when, and 
you mention this in your opening statement, we look at 
government financing, it seems as if government financing is 
divorced from profit motive. Can you elaborate on that 
challenge and also on my statements about those two questions 
on whether we're de-incentivizing competition?
    Ms. Katz. The profit motive requires that you have skin in 
the game, that is, that you're driven to do well by the 
potential for a good return. In government funding programs, 
there is no personal stake. There is no skin in the game in 
terms of a financial incentive, and therefore, the criteria for 
investing money is looser, the demands for, you know, the type 
of performance is looser, and I think those things tend to prop 
up enterprises that tend to be weaker. And then the more of 
those we have, you know, the weaker the economy becomes.
    And given this--the extent to which the federal government 
is now providing credit across the economy, you know, not just 
DOE but, you know, $18 trillion in exposure economy-wide, 
that's very troubling to me in terms of the loss of the 
incentives that are going to make our companies the strongest 
and are going to make them the most competitive.
    In terms of your comment about the effect on competition 
and innovation, absolutely, you know, when government is 
financing certain programs, the private financing tends to 
follow that because that's where the incentives are and that's 
where the, you know, rewards tend to be and that's where the 
regulatory action is also going to occur. And so there's a lot 
of, you know, interest in following that.
    And that--you know, we can say on the balance sheet that 
these programs have a rate of return that's positive. We can 
say they have default rates, but that's only half the equation. 
The other side of the book is all of the distortions that these 
programs cause, among them, loss of competition and innovation, 
and the competitive disadvantage that this creates for all the 
companies that aren't lucky enough to get this largesse.
    Mr. Reicher. Mr. LaHood, could I give a quick answer?
    Mr. LaHood. I'm out of time. Mr. Chairman?
    Chairman Weber. Sure, I think we've got some extra time. Go 
ahead.
    Mr. Reicher. I'll be quick. You mentioned the deficit, the 
debt. Just I want to emphasize these are loans, not grants. 
They're getting repaid and they're getting repaid with 
interest. That's a very different measure I would assert.
    The second thing you mentioned about U.S. leadership in 
energy technology, as much as I'd like to agree, in many ways 
our dominance in energy technology is very much being 
challenged by the Chinese. They have a very well organized 
effort, very well-funded across a whole range of energy 
technologies. We no longer lead in wind or solar. They are far 
ahead of us in many aspects of nuclear and various types of 
turbines and coal-related technology.
    So, Mr. LaHood, I would not assume that we're in great 
shape when it comes to this $48 trillion opportunity we've got 
in energy infrastructure investing over the next 20 years. We 
are not leading in many respects, and programs like this can 
really help.
    Chairman Weber. All right. I thank you, Mr. LaHood, for 
yielding back.
    And I believe that we're going to go to Mr. Foster now.
    Mr. Foster. Thank you, Mr. Chairman.
    Several of you have mentioned and referred to the DOE loan 
programs, which are the subject of this hearing, as a subsidy. 
And I was wondering how is it that a subsidy makes money for 
the taxpayer? That has me a little confused. Is there anyone 
wants to try answering that?
    Ms. Katz. Sure.
    Mr. Foster. We need more of----
    Ms. Katz. So----
    Mr. Foster. --those subsidies, it seems. It could take----
    Ms. Katz. Right.
    Mr. Foster. --the debt down to zero with enough of these.
    Ms. Katz. So because there's virtually no chance that the 
government will not cover a loss, federal credit is provided in 
more favorable terms. Even if the recipient still continues to 
pay fees or interest, it's at a more advantageous rate than 
they would otherwise get in the private financing sector 
because the----
    Mr. Foster. I understand it's a good deal for the recipient 
of the loan, but it's also a good deal for the taxpayer, so it 
seems like this----
    Ms. Katz. Well, it----
    Mr. Foster. --is a win-win.
    Ms. Katz. It's only a good deal for the taxpayers if you 
ignore all of the distortions and costs that are created----
    Mr. Foster. Well, these distortions you hypothesize are 
pretty hard to calculate and, you know, we have--anyway. So 
your argument relies totally on these hypothesized distortions 
and the hypothesized economic damage that they do----
    Ms. Katz. No.
    Mr. Foster. --is that correct?
    Ms. Katz. No, it's not.
    Mr. Foster. All right. Then how does the taxpayer not 
benefit from these? Would the federal debt be higher or lower 
if this--if these projects would not have existed?
    Ms. Katz. It--that's--I don't know.
    Mr. Foster. I think it's a pretty easy----
    Ms. Katz. It's not such an easy equation.
    Mr. Foster. Mr. Reicher?
    Mr. Reicher. Their interest payments exceed the losses. 
It's hard to see how this isn't a net positive. Another----
    Mr. Edwards. The issue is the broader one of opportunity 
constant in the economy. If resources are being steered into 
companies and technologies that are not the best for the 
overall economy, then we've wasted resources, so the issue is 
not just taxpayer resources but the crowding out that occurs in 
the private sector. If you have a big DOE loan office that is 
acting as a venture capitalist, they're drawing some of the 
best minds from Silicon Valley to come here to Washington to 
steer flows of money when I would rather those minds in Silicon 
Valley steering money. That's crowding out----
    Mr. Foster. Well, this is really actually my second 
question here, which is, you know, I'm struck by the lower--the 
very low default rate, lower than a typical VC. And so I was 
wondering how is it that these federal bureaucrats--excuse me, 
these unelected federal bureaucrats seem to be making loan-
making decisions that are better than free-market investors? 
And I----
    Mr. Edwards. Well, the answer is and I think I touched on 
in my testimony, the vast majority of these projects, as has 
been mentioned, have gone to wind and solar projects that have 
been heavily subsidized by state government. State governments, 
particularly California, have very large and increasing----
    Mr. Foster. But those subsidies would be----
    Mr. Edwards. --mandates, requirements, so these projects 
would have been built anyway I think without federal subsidies 
because there's state-level mandates for them.
    Ms. Katz. I also think that it reflects----
    Mr. Foster. Just a minute.
    Ms. Katz. --the fact that these----
    Mr. Foster. But the state-level subsidies are--would be 
available to either a free market investor or one of these----
    Ms. Katz. No.
    Mr. Foster. Is that true, Mr. Reicher?
    Mr. Reicher. Absolutely. The subsidies at the state level 
don't distinguish between a project that's gotten some federal 
support and projects that haven't.
    Mr. Foster. Sure.
    Ms. Katz. Right, but not every company is going to be 
allowed to benefit from state subsidies. They're not available 
to all.
    Mr. Reicher. You qualify for the state subsidy, you get the 
state subsidy. If you can also get some help from the federal 
government--again, this happens across the whole range of 
energy technologies.
    Ms. Katz. When Tesla Motors negotiates tax abatements or 
other benefits with a state, that's not a deal that's available 
to every company.
    Mr. Reicher. It happens--let me let Mr. Foster go ahead.
    Mr. Foster. Yes. I was a little bit confused, Dr. Yonk. You 
seem to be criticizing the fact that there was a low loss rate 
on this at the end of your testimony, and I--it confused--is 
there a consensus whether a high loss rate is a good thing or a 
bad thing and whether low loss--I'm just--I couldn't follow 
that logic there.
    Dr. Yonk. Yes, so let me walk you through the logic, Mr. 
Foster, because I think it's actually an important policy 
question here. If the goal was in fact to provide loan 
guarantees to what was termed as risky technologies that truly 
would see--that were--that the private market was not willing 
to bear the risk of, we would expect to see higher----
    Mr. Foster. But you're advocating for more Solyndra-type 
investments.
    Dr. Yonk. Only if that is the actual goal of the policy. I 
think that's an ill-advised policy given what can happen in the 
larger economy.
    Mr. Foster. Okay. Let's see. I was also struck in your 
testimony that you seem to buy into this legend, I guess, that 
somehow the high-tech industry Silicon Valley started was a 
bunch of entrepreneurs by themselves whereas in fact if you 
look at the history, they were completely dependent on getting 
federal defense contracts, NASA contracts, and so on and that 
the history of that was completely dependent on government 
investment.
    And so I think that really we should all, you know, study 
history a little bit and understand how effective strategic 
government investments are in getting our economy heading in 
directions that will pay off massively in the future.
    And I believe my time is--and I have to yield back at this 
point.
    Chairman Weber. Thank you, Mr. Foster.
    The Chair recognizes Mr. Posey from Florida.
    Mr. Posey. Thank you very much, Mr. Chairman. Mr. Katz and 
Mr. Edwards, how do you measure accountability for government 
funding in the Department of Energy loan guarantee program? Mr. 
Katz first.
    Ms. Katz. I don't know that it is being----
    Mr. Posey. Ms. Katz.
    Ms. Katz. --you know, measured. I can tell you that, you 
know, there are rules for setting program goals and, you know, 
at the end of the year the Department looks at whether it's 
succeeded. And--but most of those are measured in terms of 
inputs not in terms of, you know, that so many dollars were 
spent as opposed to what the--you know, the actual success of 
the program was.
    And this follows on the earlier discussion, which is, you 
know, it--to assume that these projects wouldn't have happened 
anyway or this Silicon Valley, you know, development wouldn't 
have happened without government I think is a conceit. I think 
we've seen that, you know, there are many great developments 
and innovation throughout the--you know, the history of the 
world that have occurred without the government subsidizing 
them.
    Mr. Posey. Well, I appreciate your comments. So often 
government accountability to some people is how much we spend, 
not what actually gets accomplished. And I'm glad to see that 
the focus is on accomplishments.
    Mr. Edwards?
    Mr. Edwards. Yes, I mean, you know, it's the role of this 
Oversight Committee obviously, and it seems like this Oversight 
Committee has done a good job. It strikes me that the 
Republican scrutiny on some of these projects that the Obama 
Administration started dishing out in 2009, the scrutiny has 
been good because it seems to me that the Obama Administration 
started steering the money to safer projects like the ones that 
had the state purchasing requirements for them in order to get 
the loan losses down because they made these initial screw-ups 
with companies like Solyndra. So--and obviously the GAO and the 
IGs do a fantastic job on this account.
    That's--those are all accounting issues. I think the bigger 
issues are the economic ones. Would the private sector steer 
money into the most innovative and most efficient energy 
technologies, and I think the answer is yes without any kind of 
federal subsidy.
    Mr. Posey. Okay. Have either of you read any of Peter 
Schweizer's books? Extortion, throw them all out, great, great 
literature on government accountability or lack thereof and 
crony capitalism. You know, Solyndra gets mentioned quite 
often, but it was a relatively small potato in a bag full of 
litanies of much bigger ones that for one reason or another the 
media seemed to never think was important.
    As a follow-up, do you think there is a reasonable amount 
of upfront investment before taxpayers can expect returns?
    Mr. Edwards. Again, I think--I mean, I don't think this is 
the role--you know, taxpayers should not be investing in these 
sorts of projects. It's been mentioned a couple times by Mr. 
Reicher that--you know, that there's gaps in private markets 
here that the government has to fill. I just don't buy it. I've 
looked at the history of R&D and industrial R&D in the U.S. 
economy and looked at the history of inventions. The vast 
majority of advances and innovations have come from the private 
sector without federal subsidies. Computers and, you know, 
Xerox machines and cell phones and smart phones, that was all 
private risk capital, private entrepreneurs, investors, and 
Silicon Valley putting their money into these projects.
    The energy industry, I don't believe, is any different than 
any other risky industry, and the--I don't believe that these 
so-called gaps exist in private financing. Entrepreneurs can do 
it. They've shown that they're willing to invest in all kinds 
of risky and new technologies, including energy technologies, 
so we should leave the field to them, I think.
    Ms. Katz. Just as a quick follow on, you know, I'm--I don't 
buy the idea that DOE is funding, you know, the most innovative 
and riskiest, but if they were, then it raises the question if 
private investors are not willing to take a risk on a 
particular project, why should taxpayers have to underwrite 
that?
    Mr. Posey. Well, you know----
    Mr. Reicher. Mr. Posey, if I could, I just want to 
emphasize again we're talking about energy technology that has 
huge scale-up costs. We're not talking about computers----
    Mr. Posey. Yes.
    Mr. Reicher. --or cell phones and the like. And the history 
is there. The nuclear power industry got launched in the 1950s 
with major checks being written by the federal government----
    Mr. Posey. My time's up. I just want to make one comment. 
We had some employment downturn in our district and we decided 
to host an entrepreneurs summit, so we took some local ideas 
and had a summit and invited a few angel investors to attend 
and analyze the projects. And I think there was surprising 
amount of action on some funding there. We did several of them 
and we eventually had, you know, a long list, more than we 
could accommodate people who had wanted to invest in these new 
ideas and these new products that people had, and even in dire 
economic times, investors are interested in making investments 
in things that seem plausible and have potential to show return 
on them.
    So I appreciate your comments very much. Thank you, Mr. 
Chairman. I see my time is up.
    Chairman Weber. I thank the gentleman from Florida.
    The gentleman from Virginia----
    Mr. Beyer. Virginia.
    Chairman Weber. --Mr. Beyer, is recognized.
    Mr. Beyer. Thank you, Mr. Chairman, very much. Mr. 
Chairman, I'd like to begin by saying I appreciate the need to 
title these hearings with cool names like ``Making the EPA 
Great Again'' and ``Risky Business,'' but I fear that we're 
going to go down the road of Top Gun and Mission Impossible and 
Jerry Maguire, so I'd like to move that we don't name any more 
after Tom Cruise movies.
    Chairman Weber. I notice you left your six-shooter in your 
locker, so we won't name any after Tom Cruise movies. So 
ordered.
    Mr. Beyer. Okay. Thank you, Mr. Chairman. Also, we talked 
earlier about GAO mismanagement in this program, and we had a 
hearing on this a year ago and one of the--and we had a GAO 
representative at that point who pointed out that only 16 of 
the 24 GAO recommendations for the loan program had been 
fulfilled, but I've discovered this morning that all 24 are now 
fulfilled. So many of the problems that we're talking about are 
historical rather than current.
    The--I also would like to speak to this as a small-business 
person, and I guess I've borrowed more money than any of our 
panelists--that it's hard to borrow money as a small-business 
person. It--we have--what I've learned in 43 years of running a 
family business is that banks only want to lend money to people 
that don't need it. If you need it, it's very, very hard to get 
it, which is one of the reasons why there's $50 trillion in 
private equity sitting on the sidelines right now.
    So to you, Mr. Reicher, is the industry marketplace 
actually free and does government money actually crowd out the 
private investment?
    Mr. Reicher. I would say that we don't have a free market 
for energy. You know, there's been talk about eliminating all 
subsidies at the federal level. I think that's highly unlikely. 
And even if we did, that market is very much determined in many 
ways by the 50 state Public Utility Commissions that have an 
awful lot to say about how the energy markets and the 
electricity markets work.
    Are we crowding out other companies or other technologies? 
I don't think so. This is a limited program, the loan guarantee 
program, that's focused on getting the first couple of big 
projects built to demonstrate a technology.
    Let me say this. In many of these cases, the project 
developers, often thinly capitalized project developers, often 
small businesses, if they could get a loan from a bank or if 
they could float a bond, they would love to do it. Interest 
rates are low right now. It's much easier. It's not painful 
like having to go to the DOE and getting reviewed for a couple 
of years, having to do an environmental impact statement, 
having to pay a credit subsidy, loan spread. That's tough 
stuff. If they could do it in the normal way, they would do it. 
And I've talked to many developers. I was a developer myself. 
These are painful processes going to the Department of Energy, 
but sometimes you can't get the project done.
    Mr. Beyer. Are you suggesting the federal government works 
slowly?
    Mr. Reicher. I would never suggest such a thing.
    Mr. Beyer. Would it even be possible for the Department to 
manage a federal research grant program without picking winners 
and losers?
    Mr. Reicher. Listen, I was Assistant Secretary for Energy, 
for Energy Efficiency, and Renewable Energy. We had a $1.2 
billion budget then. We were always being asked to pick winners 
and losers. We had competitive processes. The Competition in 
Contracting Act told us we had to do it this way. That's what 
the federal government does, and that's what it often should be 
doing with taxpayer dollars. So I don't understand this 
argument about picking winners and losers. If you're Boeing 
competing with Lockheed for a jet contract, you know the 
government is picking winners and losers.
    Mr. Beyer. When President Trump affects the economic 
prospects of American companies by tweeting about Nordstrom's 
or Toyota or Vanity Fair or Carrier, is that an example of the 
federal government picking winners or losers?
    Mr. Reicher. I'll leave that up to the august members of 
this committee to decide.
    Mr. Beyer. I was fascinated by Mrs.--Ms. Katz's testimony, 
especially the--and I very much respect sort of the deep 
philosophical notion that we have this $18 trillion of federal 
loan guarantees, that it has all kinds of pernicious effects.
    But, Mr. Reicher, what's the--what would the U.S. economy 
look like without the FDIC and the--which would keep from the 
bank runs in the Great Recession or without Freddie Mac and 
Fannie Mae and the ownership society that George W. Bush pushed 
so hard or TARP so you wouldn't have General Motors or 
Chrysler, States that Donald Trump won pretty easily, or 
Homeland security's disaster assistance or the Veteran's 
Housing Benefit Program Fund for veterans or business loans to 
the Small Business Administration or to move from federal loans 
to the $470 billion in oil and gas subsidies?
    Mr. Reicher. Very quickly----
    Mr. Beyer. What's the economy look like without that $18 
trillion.
    Mr. Reicher. I wouldn't have been able to buy a home, let 
me say that. But I want to make one more really important point 
that I think we have to emphasize at this hearing. Let's look 
forward. We seem to be looking backwards. There's $41 billion 
worth of loan guarantee authority for nuclear, for fossil, for 
renewables, and for transportation. We could turn this into 
infrastructure investing, which seems to be the great focus, 
Republican and Democrat, on the Hill right now. This is an 
existing down payment we can make on the infrastructure hope 
that a lot of people have up here on Capitol Hill. So let's 
look forward at what we've got, and let's figure out how to 
spend it well.
    Mr. Beyer. Great. Thank you very much.
    Mr. Chair, I yield back.
    Chairman Weber. Thank you, sir. The Chair now recognizes 
Mr. Dunn for five minutes.
    Mr. Dunn. Thank you, Mr. Chairman. I want to say also thank 
you for the opportunity to serve on this committee. It's a 
great pleasure and it really plucks at my heartstrings so I'm 
delighted to be here.
    So I actually am the Chairman of a bank back home. This is 
a community bank. And I want you to know that I have been 
intimately involved in buying failed banks in that capacity. 
Now, that involves reviewing and underwriting a great many 
failed loans, toxic loans if you will. And as I reviewed the 
Department of Energy's loan portfolio for today's committee 
meeting, I find myself in familiar territory. There's a lot of 
loans in here that are highly, highly questionable, and I think 
you would find frankly very few private bankers would actually 
have made loans on the terms that they were made to companies 
like Solyndra, Beacon, Fisker, VPG, and some of the others 
there. I didn't make my way through the entire loan portfolio 
last night. Valentine's Day.
    So this costs the taxpayers hundreds of millions of 
dollars, and I feel like DOE should actually re-examine 
themselves and say are they comfortable in the role of being a 
banker. They apparently have very few staff with any experience 
in corporate lending.
    I want to call attention to a couple things and ask a 
question. So first off, the actual loan loss ratio. I've heard 
people say that this is a two percent loan loss ratio. The 
government allowed $10 billion for losses, so that's the asset 
that you're measuring against. And the loan loss is actually 
about 8.1 percent if you believe the $810 million is all we 
lost. I would argue that that's a low number for a number of 
reasons.
    I also heard that the interest paid back--the loans that 
went bad--I would remind everyone that interest income does not 
equal profit.
    I would like to also underscore the comments Mr. Edwards 
made on the successful back end of the loan portfolio where 
they're being paid off. Most of those loans already enjoyed a 
government guarantee in the form of purchasing the energy that 
was being put out. So we had a company that was guaranteed 
success if you will on the back end and we gave them another 
guarantee, in fact, a loan at a low rate on the front end. So 
I'm not sure that that should count as you pointed out.
    Now, this is my first committee meeting on this very 
fascinating, important subject that's near to my heart, but I 
would look forward in the future to actually seeing a full 
profit and loss on this just the way a bank would publish a 
profit-and-loss statement. And we do that on pretty much a 
monthly basis. If we don't, the FDIC comes after us.
    Mr. Edwards, I want to ask you, do you believe that the 
Department of Energy prospectively put in place the kind of 
lending structures that would properly and soundly administer 
billions of dollars in loans and serve the public in a 
transparent fashion?
    Mr. Edwards. Well, it certainly wasn't transparent, and I 
think as this committee has investigated in past hearings, that 
initially there were not the proper checks and balances in 
place for a lot of these loans. The expertise wasn't there and 
the GAO heavily criticized these programs. And it does seem 
that over time that DOE has improved at administering these 
programs because of all the scrutiny, particularly by this 
committee.
    But again, I think the bigger issues are the broader 
economic issues. Is there really a gap here that the federal 
government has to fill? And I think the answer is no. There are 
a trillion dollars--trillions of dollars available for private 
investment. If we did overall a general tax reform as House 
Republicans want to do, there would be trillions more for all 
kinds of innovative infrastructure and other types of 
investment in the U.S. economy, and we wouldn't be worrying 
about small programs like this.
    Mr. Dunn. Thank you very much, Mr. Chairman. I yield back.
    Mr. Reicher. Mr. Dunn, could I respond for one second?
    Chairman Weber. You have--I'll give you two seconds.
    Mr. Reicher. All right. Very few private bankers----
    Chairman Weber. Thank you very much. No, go ahead.
    Mr. Reicher. You say very few private bankers would have 
made these loans. That's exactly why this program existed, 
particularly in the depths of the recession, number one.
    There is a group of highly professional staff at DOE with 
finance background.
    And third, I guess I do the math. It's $810 million on $36 
billion----
    Mr. Dunn. I think you've got the wrong denominator. The 
denominator was $10 billion. That's how much was placed at risk 
of the taxpayers' money.
    Mr. Reicher. I'm doing the calculation based on the loss to 
date. You--fair enough, you can do it either way, but----
    Mr. Dunn. Well, you do a profit and loss on the same--let's 
run it like a business, you know? And I could tell you it's not 
being run like a business.
    Chairman Weber. If you all want to talk offline, we'd----
    Mr. Reicher. Thank you, Mr. Chairman.
    Chairman Weber. Yes, appreciate that.
    The gentleman from Colorado is recognized.
    Mr. Perlmutter. Thanks, Mr. Chairman.
    And, Mr. Reicher, I just appreciate your comments. And I 
think one of the things that's gone unstated is the fact that 
many of these loans were to the renewable industry because of 
fear that our climate is just getting worse and worse and worse 
and we've got to do something about it. So I appreciate Ms. 
Katz, Mr. Edwards, your comments, wait a second, this is kind 
of political. Well, sometimes it's policy and--you know, and 
policy can be politics. I got it. And I worry about the climate 
so let's just put that aside.
    Mr. Reicher has testified as to, you know, making some $900 
million when you net it all out. That seems to be a positive to 
me, but maybe there are some opportunity costs that aren't 
being considered or maybe there are some benefits to the 
climate that you may not be considering, Mr. Edwards. So, I 
mean, there's a lot of stuff going on here.
    But for me, the two percent loss ratio--I don't know how 
many of you have been in the lending business, but I 
represented lenders for 25 years. They would have loved to have 
two percent loss ratio.
    Having said all of this, Mr. LaHood, after he finished kind 
of his rhetorical comments, you know, really focused on five 
questions that I thought were very important. I wish he were 
here so I could compliment him on that. And some of you have 
brought up points that I really do have a concern about. Ms. 
Katz, you talked about cronyism and the potential for cronyism 
with respect to these loans. And you may be absolutely right 
because I am worried about cronyism under the Trump 
Administration--I really am--and the potential for conflicts of 
interest and where exactly these loan dollars would go. You 
know, forget about Russia for a second but where will they go?
    And so, you know, I appreciate the testimony of all of you, 
but that's the one that has me most concerned. And to a degree, 
even though this--you know, the Republican Congress passed this 
back in 2005, signed by George Bush, used by that 
Administration, used by the Obama Administration, if this 
Congress wants to take this tool away from the Trump 
Administration because they're worried about potential 
cronyism, I may applaud that. I think it's--I think good work's 
been done to benefit a lot of jobs, as Mr. Reicher said, and to 
improve the climate I hope, but you may be right.
    This is subject to cronyism, and under this Administration 
that's refused to give its tax returns, you know, is already in 
hot water with everything that happened yesterday with General 
Flynn resigning, I think, Ms. Katz, you're right to worry about 
cronyism.
    Ms. Katz. I don't think it's just DOE either. It's all of 
these--the programs of this nature invite that----
    Mr. Perlmutter. You think all these loan programs should be 
taken away from the Trump Administration? Is that your 
testimony?
    Ms. Katz. Absolutely.
    Mr. Perlmutter. Okay.
    Ms. Katz. Absolutely.
    Mr. Perlmutter. I yield back.
    Mr. Edwards. Can I give you one comment agreeing with you 
on that, too? During the Bush Administration--during the early 
Bush Administration, the issue was Enron. Enron was the 
recipient of all kinds of cronyism, guaranteed loans, loan 
guarantees that encouraged it to put its millions, billions of 
dollars of taxpayer and its own money into risky foreign 
investments that ended up crashing down and destroying that 
company. So this is an issue with both Republican and Democrat 
Administrations.
    Mr. Reicher. Okay. Mr. Perlmutter----
    Ms. Katz. And just to your comment that most bankers would 
love a two percent default, I think that speaks to exactly the 
point we're making, which is if this is such a riskless or at 
least good bet on the part of taxpayers and that it's 
performing so well, then I can't imagine that, you know, 
private investors wouldn't jump for it.
    Mr. Perlmutter. No, and you may be absolutely right. And 
Mr. Edwards was saying maybe this is--we moved into a mature 
industry where the risk has been reduced because we've been 
doing these things. But I agree with Mr. Reicher. Back in 2007, 
'08, '09, '10 when nobody was making a loan except for the 
federal government, period, because everybody in the market was 
so risk-adverse, sometimes you have to step in to get things 
moving.
    So, Mr. Reicher, you can finish this up and I'll----
    Mr. Reicher. So let me just say this. Again, we're looking 
backwards. DOE is not in the business right now of making loans 
to mainstream solar and wind projects. They're looking ahead.
    Mr. Higgins, in your district, this new carbon capture 
project that just got a conditional loan guarantee for $2 
billion, that's looking forward. That's a smart investment that 
DOE is backing.
    Chairman Weber. Mr. Reicher, I appreciate that. We're going 
to go to Mr. Higgins now for five minutes I hope.
    Mr. Higgins. Mr. Chairman, thank you, sir. I know this 
committee has an extremely important oversight responsibility 
regarding the Department of Energy and its programs, and it's 
clearly understood that the loan guarantee program has had 
serious problems regarding some of the loans in its portfolio, 
including controversial failed projects such as Solyndra.
    But I think although it's clear that there's room for 
improvement in the program, it's important that we give 
reasonable consideration to Department of Energy loans designed 
to commercialize innovative technology in the oil and gas 
industry versus the green industry. The oil and gas industry is 
well-established by generations of Americans. They well 
understand how to navigate the terrain of innovative 
technologies and energy. And energy technology is certainly not 
cell phones.
    So I believe there may be a continued role for the 
government to play, but we have to balance between the wisdom 
of that role and the careful protection of the people's 
treasure. And again, I would point out an example of where an 
oil and gas industry has certainly demonstrated its capacity to 
take advantage of a program like this to help our country.
    The Lake Charles methanol project received its conditional 
loan guarantee from the Department of Energy last year. Now, 
I've heard terms like startup and skin in the game, Mr. 
Chairman. That would seem to indicate, you know, zero 
investment from the private sector when the reality is, for 
example, Lake Charles methanol project has invested about a 
decade of research and development and about $40 billion of 
private capital. And LCM will use cutting-edge technology to 
refine petroleum coke, and that's a waste product of the oil 
industry in the high-value energy and chemical product such as 
CO2, hydrogen, methanol, and industrial gases. And 
all of its products will be sold to major industrial and energy 
customers under long-term market-driven commercial agreements. 
This clean energy manufacturing plant is ready to commence 
construction and will result in 1,500 direct new jobs.
    Now, that's an example to me of a wise investment, 
although, again, it's the duty of this body to balance wise 
investment in things like the commercialization of innovative 
technology in the energy industry versus the careful protection 
of the people's treasure.
    So I'd ask you, Dr. Yonk, would you agree that it's 
reasonable to conclude that investment in innovative 
technologies in the oil and gas sector is a more sound 
investment than sinking money into green energy projects?
    Dr. Yonk. Mr. Higgins, so in general, as my early comments 
indicated, I'm skeptical of the ability of any centrally 
directed program to identify what the most innovative or the 
most likely to be successful is. Instead, what I suggest and 
what I think the evidence bears out over time is that 
entrepreneurs, those acting in the marketplace, responding to 
the market demands, which it's not a free market, although with 
a little luck we might get closer to that, will do better to 
push forward that innovation both in terms of how we produce 
energy and how we get a cleaner environment than simply 
allowing bets on loan guarantees or loan programs or any of 
these sorts of subsidies to make those sorts of decisions.
    And so my belief is that if we actually allow the 
marketplace to make some of these decisions, we will see 
investment across a variety of sectors, including oil and gas 
and--as well as alternative energy.
    Mr. Higgins. In the example of Lake Charles methanol 
project, hasn't the private sector already made decisions in 
the form of hard dollars and a decade of invested research and 
development?
    Dr. Yonk. It certainly seems to have. I know--I don't know 
a terrible amount about that particular project, but 
oftentimes, the issue here is not that there's no private 
investment in these things but that we nudge investment into 
things because they're following public dollars, as opposed to 
the marketplace speaking and acting.
    Mr. Higgins. Thank you, sir, and thank you, ma'am. 
Gentlemen, thank you for your testimony. Mr. Chairman, I thank 
you. I yield back.
    Chairman Weber. I thank the gentleman from what we call 
East Texas.
    And the gentleman from California Mark Takano is recognized 
for five minutes.
    Mr. Takano. Thank you, Mr. Chairman.
    I want to ask a question of each of you. I want to clarify 
for the committee whether any of you have had any experience 
investing in a major clean energy or power project, so being 
involved in any sort of major decision like that? Have you ever 
been involved in a major business investment decision, Ms. 
Katz?
    Ms. Katz. I have not. I think we should--the entire 
committee is--
    Mr. Takano. I appreciate your answer. Mr. Edwards?
    Mr. Edwards. No, not as an investor but my first job out of 
college was with a major nuclear electric utility, so I have a 
background in--
    Mr. Takano. Yes, but you were never involved in a major 
investment----
    Mr. Edwards. No.
    Mr. Takano. --decision? And you, Dr. Yonk?
    Dr. Yonk. I'm an academic that studies these things. I have 
not.
    Mr. Takano. Okay. Mr. Reicher?
    Mr. Reicher. I have, Congressman. I said earlier, raised 
$100 million with some colleagues to make investments in energy 
projects, and then at Google we made several investments that I 
had a part of.
    Mr. Takano. So I think it's fair to say that of all the 
witnesses we have brought before us today, of the four, Mr. 
Reicher, you're the only one that's actually had experience 
actually raising private capital and working with large 
investments, high-stakes investments, investments that stood to 
lose a good sum of money. The others at the table are 
theorists, academics, or, you know, represent organizations 
that have an ideological commitment to--or an emphasis on very 
small government or a libertarian philosophy of government that 
kind of posits pure free markets.
    But you, Mr. Reicher, have operated in an environment of 
reality, of actual pragmatic reality of having to contend with 
real market forces. And can you--well, tell me how does your 
experience in making the investment decisions you've made 
provide you with greater clarity in understanding the role of 
government in the market?
    Mr. Reicher. Congressman, what I found in this energy 
project investment firm is that there were a lot of developers 
out there with interesting project investment needs. They would 
come to us and we'd ask the question, does this work in the 
laboratory? They'd say yes. Has it worked at demonstration 
scale? They'd say yes. Has it worked at commercial scale? 
They'd generally say no. That became the problem for us as the 
equity investors and for the banks as the providers of debt. 
Has it worked at commercial scale? If the answer to that is no, 
you're in real, real trouble. And that's the specific focus of 
this loan program, getting the first couple of projects built 
at commercial scale and then getting out of the way.
    The carbon capture project you just heard about, get it 
built, show that you can turn pet coke into methanol and 
capture the CO2, government helps to do that, and 
then get out of the way. We couldn't invest in so many of the 
projects that we saw--and I'll wrap up and say the following. 
When all was said and done, during the time I was there the 
biggest focus area of investment turned out to be corn ethanol, 
well-established, lots of plants built, you knew what you were 
going to get, you knew it would work, but was that advancing 
technology? It wasn't. It wasn't advancing cellulosic ethanol, 
a better way to do this.
    Mr. Takano. So--and what you're describing there is not 
necessarily--you're talking about the private investors for the 
corn ethanol?
    Mr. Reicher. Private investors. We were private investors. 
We couldn't take the risk and the banks couldn't take the risk 
of making the jump to the next not-fully-commercialized 
technology. There was too much at stake.
    Mr. Takano. So in practicality, to advance research--not 
just ideas but ideas that have been proven in laboratories, 
ideas that have been proven in demonstrations, to actually have 
the possibility of creating whole new markets, whole new 
industries, whole new categories of activity, economic activity 
which would result in jobs, it often takes a government loan 
guarantee program to be able to move that forward.
    Mr. Reicher. The Chinese certainly think that. They are 
investing heavily in all sorts of advanced technologies to get 
them into the marketplace. And that's why, as I said earlier, 
in many ways we are losing the race on energy technology to 
this country that has decided that commercializing energy 
technology of all sorts--renewables, fossil, nuclear--they're 
making that a big part of their future, and that's where I 
worry that if the government steps out of this, carefully, 
surgically focused, just commercializing the technologies, not 
financing them after you've demonstrated them, that's what I 
worry about here.
    Mr. Takano. Mr. Chairman, my time has run out. Thank you.
    Chairman Weber. I thank the gentleman.
    Mr. Marshall from Kansas, you're recognized for five 
minutes.
    Mr. Marshall. Thank you, Chairman.
    My first question for Ms. Katz, are you aware of the 
Department running any type of cost-benefit analysis prior to 
the approval of new DOE loans? And then do we do any type of 
follow-up on a yearly basis after them?
    Ms. Katz. I'm not aware of that, but I'm not an expert on 
DOE per se. My research has been on the--you know, the total of 
loans and loan guarantees across the economy.
    Mr. Marshall. Any other panelists?
    Mr. Edwards. You raise an interesting point, which is that 
the federal government requires cost-benefit analysis of new 
regulations over certain dollar values that are promulgated by 
departments. There is no requirement for cost-benefit analysis 
for federal spending programs, but in my view, there should be. 
These sorts of government investments should be subject to a 
detailed cost-benefit analysis.
    Ms. Katz. And certainly if the government had done a proper 
benefit-cost analysis on ethanol, we would have found that 
government investment in it was a horrible idea because it 
turned out to actually produce terrible environmental effects, 
as well as produce more carbon dioxide than saving carbon 
dioxide.
    Mr. Reicher. Mr. Marshall, can I quickly say----
    Mr. Marshall. Please.
    Mr. Reicher. Let me emphasize the folks at the Energy 
Department who--the career folks who manage these programs, 
they have to do financial modeling and financial pro formas 
before they can make a loan. The proposer of the loan comes in 
with a financial model, with a financial pro forma. That gets 
reviewed. So I don't know about cost-benefit analysis in a 
policy. They're doing the right kind of analysis, which is a 
financial pro forma or financial model.
    Dr. Yonk. Mr. Marshall, might I just add that we do however 
see significant political pressures placed on these programs, 
at least in their historical context, that in fact there have 
been nudges from Administration officials to push for 
particular loans to be approved. And that illustrates that, 
while I have confidence that there is lots of this modeling 
going on, there is a large--there is an interjection of 
politics into these things that becomes problematic. And I 
might suggest this committee ask DOE in particular the very 
question you asked is what is that process they go through.
    Mr. Marshall. Mr. Reicher, I guess I'm going to follow up 
on your statement. Are those pro formas, I guess that's what 
you're referring to, made public? Are they made available to us 
as well?
    Mr. Reicher. I don't know.
    Mr. Marshall. Okay. My last question I'll go back to Mr. 
Edwards. What options exist for the incoming Administration to 
reform the DOE loan programs and address taxpayer liability? 
What role can Congress play in these reforms?
    Mr. Edwards. Well, I don't think Congress should 
appropriate any more money for these programs. I think the time 
for federal subsidies, if there ever was one, has passed. We've 
been subsidizing solar and wind for 40 years now. It's not a 
so-called infant industry anymore. It's a mature industry. 
We've heard today that there's lots of private investment, 
billions of dollars in these industries, and I think what 
Congress should move ahead with, broad-based tax reform, the 
Congressman was mentioning the methanol plant in his district. 
Those sorts of projects, if we did tax reform, they would 
attract more investment by private equity, by corporations if 
we reduce the tax cost of equity in the economy.
    Ms. Katz. And I would just say with all due respect to Mr. 
Reicher, the--our future is not--the direction we should not be 
going in is to be more like China. That's not what's going to 
help the United States.
    Mr. Reicher. Can I just respond to Mr. Edwards? Let me just 
correct something. You don't build energy projects largely with 
equity. You build it with debt. You want to put as little 
equity in a project as you can because equity is expensive. You 
want to put as much debt on a project as you can because debt 
is cheap. Equity can cost you in an energy project 15, 20, 25 
percent. Debt is in the 5 to seven percent range.
    So this idea that somehow lots more equity is going to 
start flowing, that's good. I don't disagree because you have 
to put some equity in the project, but the thing that stumps 
these project developers is raising debt, getting a loan from a 
bank or issuing a bond, and that's the real struggle.
    Mr. Marshall. I guess----
    Mr. Reicher. The last thing I want to quickly say, looking 
ahead, the money is not there for solar and wind in the loan 
guarantee program. There's--the big money that's left, the 
remaining authority, $12.5 billion for advanced nuclear, $8.5 
billion for advanced fossil. There's $4.5 billion for 
renewables and then there's a big chunk for advanced 
transportation. So to Mr. Edwards, this is not about--largely 
about solar and wind as we look ahead at this $41 billion of 
authority.
    Mr. Marshall. A quick question. So through the years it 
seems like big lending institutions are less likely to loan 
money because of all the rules enhanced by Dodd Frank. Is that 
true or false? Do you think it's so much harder nowadays for 
some of these big projects to get funded?
    And I'm over my time. I apologize if you don't have time to 
answer that question.
    Chairman Weber. No, I want to know the answer.
    Mr. Edwards. I think that's true, but I would strongly 
disagree with Mr. Reicher's comment about debt and equity. It 
is a--private return is equity. You lower the tax on the 
marginal investment dollar, you will get more private 
investment by people like Warren Buffett and all kinds of 
energy projects is--equity is the tail that wags the broader 
dog. That is the return in the economy to private investors, 
but the vast trillions of dollars invested in the American 
economy every year is invested because people want to earn 
after-tax return. You lower taxes, you increase after-tax 
return, you get more investment.
    Dr. Yonk. There's no doubt you could get more equity in a 
project if you need it----
    Chairman Weber. If the gentleman would suspend, we need to 
move on. I apologize.
    Dr. Yonk. Mr. Chairman, could I just take six words to 
answer Mr. Marshall, and that is I think your question is in 
fact where the answer to many of these problems lies, and that 
is clearing the path for more of this sort of investment in 
both the regulatory side and cleaning up the subsidy side.
    Chairman Weber. Did anybody count those words? I----
    Dr. Yonk. They were more than six, but I'm an academic.
    Ms. Katz. The most important ones were six.
    Dr. Yonk. Six.
    Chairman Weber. I thank the panel.
    The Chairman now recognizes Mr. McNerney for five minutes I 
think.
    Mr. McNerney. Well, I thank the Chairman. And I'll try to 
keep it to five minutes.
    Mr. Reicher, the Loan Program--the Loan Programs Office is 
known to have a rigorous selection process. How would you 
characterize the application and selection process compared to 
the private sector?
    Mr. Reicher. It's tough. And as I said, I think before you 
came, Congressman, many of these developers would rather get a 
loan from a bank than have to go to the DOE. So they have to do 
things to get these loans from the DOE like often an 
environmental impact statement that can take a lot of time. 
They have lots of charges. They've got to pay a credit subsidy 
cost; they've got to pay a credit-based interest spread; they 
now have a risk-based fee that has been imposed recently. This 
is tough stuff, so I think it's being rigorously managed and I 
think--I don't think the American taxpayer has a huge amount to 
worry about here because of the way this program is being run.
    Mr. McNerney. So that might help explain the two percent 
default rate?
    Mr. Reicher. It does, and I think--that's why I think that 
this is a program because it has been well-run. I'm the first 
to admit there were mistakes--some mistakes made. There were 
some loans that went bad, but that's not how you look at a 
portfolio. Look at the overall portfolio. How do all the 
investments in the portfolio--how are they doing on a portfolio 
basis? I'd love to have an investment portfolio like this.
    Mr. McNerney. And banks really don't have the resources to 
carry out that sort of a rigorous process. Is that right?
    Mr. Reicher. They often do not, and it's certainly the case 
when you're bringing in an untested technology, that's not what 
banks do.
    Mr. McNerney. So would you explain in clear terms, Mr. 
Reicher, the difference between a loan guarantee and a grant?
    Mr. Reicher. A loan guarantee or a loan is----
    Mr. McNerney. That's kind of a rhetorical question.
    Mr. Reicher. Yes, you've got to pay it back.
    Mr. McNerney. Forgive me.
    Mr. Reicher. You get a loan for your house, you've got to 
pay it back. If your grandmother gives--writes you a check for 
$10,000, that's a gift.
    Mr. McNerney. So----
    Mr. Reicher. That's a grant.
    Mr. McNerney. --are both the loan guarantees and grants 
necessarily government subsidies?
    Mr. Reicher. I don't know if they're subsidies. I think if 
they're surgically applied, if they're rigorously reviewed, and 
if you pay the loan back, that seems like a fair distance from 
being a plain old subsidy, particularly if you pay it back and 
the government can go on and use that money for other things.
    Mr. McNerney. So are tax policies such as suggested by Mr. 
Edwards capable of distorting the economy maybe as much of some 
of these loan guarantees?
    Mr. Reicher. Tax policy can help and tax policy can hurt. 
If you get it wrong, you can distort the market in a very 
serious way. So we play around with tax policy and sometimes it 
does a good thing for taxpayers if we play around with it, and 
sometimes it doesn't.
    Mr. McNerney. And loan guarantees don't have that big of an 
impact on the economy I would guess but maybe I'm wrong.
    Mr. Reicher. As compared to grants, as compared to the cost 
of tax subsidies, they get paid back. I think that's the thing 
to answer.
    Mr. McNerney. So what was the intent of the loan guarantees 
that are in question? What was the original intent?
    Mr. Reicher. Let me tell you that most of the ones we're 
talking about here were granted under the so-called section 
1705 program. That was put in place in the depths of the 
recession in order to get people back to work. They were 
focused on so-called shovel-ready projects. They were ready to 
go. It was really hard to get a loan from a bank so the federal 
government stepped in. These projects got built.
    Let me emphasize something. That program is over. It's over 
as of 2011. What we are focused on are the 1703 projects. Those 
you have to prove innovation. There's a whole set of things 
that make them quite different. So that's why I keep saying, 
looking ahead, this is the 1703 project--program, and I think 
we can do a lot with it for infrastructure.
    Mr. McNerney. So in my remaining time could you give any 
examples of successful energy generation as a result of these 
loan programs?
    Mr. Reicher. Sure. You named the category. You know, we've 
heard about renewables. We haven't talked about several other--
a major transmission project got financed using the loan 
guarantee program with an innovative technology. Boy, do we 
need transmission in this country. Our transmission is in rough 
shape. We need to expand it. We need to bring energy in from 
remote areas. So that's a great use. We didn't talk about a 
major storage project.
    Electricity storage is key going forward, and a very 
innovative project got built, is functioning well, proved out a 
very important technology. Then, you heard the project in Mr. 
Higgins' district. Those kinds of carbon capture projects, big 
amount of future authority for doing those. We need those to 
work.
    Mr. McNerney. Thank you. Thank you, Mr. Chairman.
    Chairman Weber. I thank the gentleman for yielding back.
    The gentleman from Kentucky, whose home is off the grid, is 
recognized.
    Mr. Massie. I knew you'd call me out.
    Mr. Reicher, what's the differential in the interest rate 
that these companies can get because of the loan guarantee 
versus if they had to go into the private market and borrow the 
money? Or is it such that some of these projects are so risky 
nobody would loan them the money?
    Mr. Reicher. That is the big challenge, Congressman. Some 
of these projects have enough commercialization risk scaling up 
for the very first time to a full-scale utility project that 
often you can't get a bank to make you a loan. If you can get a 
bank to make you a loan, here's the problem. Not only will they 
charge you a pretty high interest rate, but they'll give you a 
very short term for the loan. That doesn't work when you go out 
to get a power purchase agreement. You've got to pay back the 
whole thing in 5 or six years. So that's why these--this very 
targeted program exists.
    Mr. Massie. Isn't that where venture equity would play? 
Because, you know, I had a startup and I went to banks and they 
weren't going to loan me the money, and so I went to the 
venture capitalists. And if you think the terms of the DOE are 
tough, you should check out the vulture--venture capitalists.
    Mr. Reicher. Fair enough. Here's the answer to that in my 
view. Venture capitalists invest small amounts of money in very 
high-risk situations. They are investing in the early stage of 
these technologies. They've come out of the lab and you want to 
build the first demonstration projects. They are definitely not 
the sort that are going to put big amounts of money into 
actually scaling it up. So this notion that the venture capital 
world is somehow going to scale up these big energy projects 
for the first time, that's not what they do.
    Mr. Massie. Well, you know, what's also true about venture 
capital is they fully expect a lot of their programs to fail--
--
    Mr. Reicher. Yes, but----
    Mr. Massie. --but since this is not how it is structured 
for the taxpayer, you know, a venture capitalist can write off 
nine failures with one good success. I'm not arguing that the 
DOE should become a capital investment firm, but because the 
taxpayer, they just lose one-to-one on all the nine losses and 
then they win back one-to-one on their win. If it were an 
equity investment, that's why this works in an equity 
environment and not in a loan environment. And I think some of 
these programs are so risky that no bank would loan you the 
money and for good reason, and nobody would loan you the money 
unless they had an equity stake and a chance at a multiple 
return on this. Dr. Yonk, do you want to speak to this?
    Dr. Yonk. Just I think what you're illustrating is what I 
described is the way capital moves in these regards and that is 
they're going--they know the program exists. They're going to 
often wait either for not just loan guarantees. They're also 
going to wait for grants and larger-scale loans.
    So with due respect to Mr. Reicher, I think that, yes, he's 
right in describing what venture capitalists have done, but in 
large part that's a construction of both the regulatory and the 
subsidy system that exists today.
    Mr. Massie. Ms. Katz?
    Ms. Katz. Yes, I would just add that the spread between the 
interest rates from--that DOE may offer and the private market 
does, that's just one of a number of types of differences. 
There are--there's a long list. I can tell you that there are 
longer maturities than private loans. There are deferrals of 
interest. There are allowances and grace periods. There are 
waivers or reductions of loan fees, higher loan amounts 
relative to the enterprise value. So there's a, you know, just 
a variety of elements on which they--they're different than--
the government loans are different than the private sector.
    Mr. Massie. But at some cost to the taxpayer?
    Ms. Katz. Well, there's always a cost to the taxpayer in 
part because of the accounting method that the federal 
government uses. What they do is they try to determine what the 
actual cost of the loan is in the present value. That is what, 
you know, all of the future payments are going to bring in 
versus the cost. And I'll try not to get too technical, but 
what the federal government does is it ties the interest rate 
that they use in that calculation to treasuries, which is a 
below-market interest rate so it appears that the loan or the 
loan guarantee at the time the money is out is actually costing 
less than it really does.
    Mr. Massie. So some of the costs are hidden or----
    Ms. Katz. In part.
    Mr. Massie. Yes. Mr. Edwards, would you like to speak to 
this at all?
    Mr. Edwards. No, I think Diane hit it on the head.
    Mr. Massie. Okay. Well, I will yield back seven seconds to 
the Chairman, and thank you.
    Chairman Weber. I thank the gentleman.
    I do want to close today by thanking our witnesses, all of 
whom, I'm sure, while you probably have never paid--well, you 
have not paid into investment schemes--is that the right word, 
Mr. Reicher--have probably paid taxes and have taken note that 
we do have a $20 trillion deficit, and all of you in my opinion 
should be concerned about that, I want to highlight today that 
we have heard concerns about how the DOE loan guarantee program 
can indeed hurt innovation. Some of it we can't measure, but it 
does especially for the little guy and it can distort the 
energy market.
    So with that, I'm going to say thank you all for being 
here. I want to thank you for your testimony. I want to thank 
the members, all two of us, for our questions. And I want to 
say that the record will remain open for two weeks for 
additional comments and written questions from members.
    This hearing is adjourned.
    Mr. Reicher. Thank you, Mr. Chairman.
    [Whereupon, at 12:16 p.m., the Subcommittees were 
adjourned.]

                               Appendix I

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