Sep 14: The House Energy and Commerce Subcommittee on Oversight and Investigations held a hearing on "Solyndra and the DOE Loan Guarantee Program" as part of its seven month investigation into DOE's $535 million stimulus loan guarantee to the now-bankrupt solar company involved in the manufacturing of cylindrical, thin-film, solar cells. Last year, Solyndra was recognized by the Massachusetts Institute of Technology's Technology Review as one of the "50 Most Innovative Companies in the World" and included by the Wall Street Journal in its review "The Next Big Thing: Top 50 Venture Backed Companies."
The hearing included testimony from: Jeffrey Zients, Deputy Director, Office of Management and Budget; and Jonathan Silver, Executive Director, Loans Programs Office, U.S. Department of Energy. Solyndra President and CEO Brian Harrison and Senior Vice President and CFO W.G. Stover, Jr. were invited to testify but did not appear; however, counsels for Harrison and Stover assured the panel that both Solyndra executives will appear voluntarily to testify before the Oversight Subcommittee the week of September 19.
Solyndra was awarded the first stimulus DOE loan in the spring of 2009 and has been widely promoted as a stimulus jobs "success story" ever since; with President Obama visiting the plant in May 2010. Solyndra announced its bankruptcy on August 31, 2011, and was the subject of an FBI raid on September 8, 2011. House Republicans indicated in a release indicated that, "Despite partisan roadblocks and repeated pushback, protest, and misleading claims on Solyndra's viability by administration officials, company executives, and Congressional Democrats, the Energy and Commerce Committee has continued investigating the highly publicized loan guarantee."
Energy and Commerce Committee Chairman Fred Upton (R-MI) and Oversight and Investigations Subcommittee Chairman Cliff Stearns (R-FL) issued the following statement ahead of the hearing saying, "Solyndra was the hallmark of the President's green jobs program and widely promoted by the administration as a stimulus success story, right up until its bankruptcy and FBI raid. We had a sense Solyndra was a bad bet from the beginning and its failure raises significant red flags for the entire loan guarantee program. It is not the role of government to pick winners and losers in the market. With taxpayers potentially on the hook for this half-billion dollar bust, it's time to sound the alarm about the remaining $10 billion in loan guarantees set to expire September 30. Let's learn the lessons of Solyndra before another dollar goes out the door."
In an opening statement at the hearing, Chairman Upton said, "We started looking into the DOE Loan Guarantee program and Solyndra's deal in February. Some questioned the basis for this investigation. After four months of wrangling with the Obama Administration to produce relevant documents, the Committee was forced to issue a subpoena to OMB. I think Solyndra's recent
bankruptcy filing and last week's FBI raid clearly show that the Committee was more than justified in its scrutiny of this deal. Pursuant to our oversight functions, we have an important responsibility to pursue answers regarding the use of the taxpayer's money.
"Our investigation raises several questions about whether the Administration did everything it could to protect taxpayer dollars. Why did the Administration think Solyndra was such a good bet? Why did the Administration push ahead with restructuring the Solyndra guarantee this year, when some in the government voiced serious concerns about the commercial viability of the company? Why did DOE and OMB allow the government to be subordinated to the private investors, in apparent violation of the law?. . .
"Was Solyndra just one bad bet by an Administration rushing to claim credit for the first loan guarantee, or is it the tip of the iceberg? DOE has closed over $8 billion in loan guarantees to other "green tech" companies, and it has about $10 billion left to spend in the next few weeks, before the September 30 deadline. If the administration was so wrong about Solyndra after nine months of due diligence, how can it possibly exercise the proper controls when doling out $10 billion dollars in a matter of weeks?. . ."
Representative Henry Waxman (D-CA), Ranking Member of the full Committee issued an opening statement saying, "Taxpayers have over $500 million at risk as a result of Solyndra's bankruptcy. We need to understand what happened, who should be held accountable, and how we avoid future losses. We also need to ask whether Solyndra misled federal officials. In July, the company's CEO met with me in my office. He assured me the company was in a strong financial condition and in no danger of failing. In fact, he said the company was going to double its revenues in 2011. I have a hard time reconciling those representations with the company's decision to file for bankruptcy one month later. Committee staff have now reviewed thousands of pages of internal documents from the Department of Energy and the Office of Management and Budget. They raise a number of questions.
"The documents show that under both the Bush Administration and the Obama Administration, DOE officials strongly backed Solyndra. They believed its silicon-free solar panels offered cost savings and its tubular shape reduced installation costs. And they thought the internal reviews they conducted and the external studies they commissioned showed Solyndra could compete successfully in the global marketplace. . ."
Rep. Waxman indicated in his statement that by late 2010, both DOE and OMB knew Solyndra was facing difficulty meeting its loan obligations. This triggered a vigorous internal debate about what the government should do to protect the taxpayer. DOE projected that an immediate liquidation would return less than 20 cents on the dollar to the government, so it favored restructuring because of the potential for recovering more of the taxpayer's investment. Some OMB officials, though, warned against restructuring on the grounds that it might not be enough to avoid bankruptcy and default.
Aside from the factual and legal matters of the Solyndra issue which appear to have bipartisan concerns, Rep. Waxman highlighted the policy considerations and differences between Republican and Democratic positions. He said, "I disagree vehemently, however, with the policy conclusion my Republicans colleagues have already drawn. They say the collapse of Solyndra shows the folly of federal investments in solar and other clean energy technologies. And they argue the government should not pick 'winners' and 'losers' in the energy marketplace. This sounds superficially appealing, but there is a fundamental flaw in their logic. The majority of Republicans on this Committee deny that climate change is real. If you are a science denier, there is no reason for government to invest in clean energy. . ."
OMB testified, "With respect to the Solyndra loan guarantee, OMB's approval of DOE's proposed credit subsidy cost was conducted in August and September of 2009. . . it is my understanding that OMB's review of the cost estimate was informed by the terms and conditions of the loan guarantee agreement, a credit rating report from an independent credit rating agency, additional independent reports on the engineering aspects of and market conditions surrounding Solyndra's proposal, and a proposed credit subsidy cash flow analysis by DOE. . .
"In February 2011, DOE undertook a restructuring of Solyndra's debt in light of acute financial troubles the company was experiencing. . . OMB determined that DOE's analysis was reasonable, and reflected the information as it was understood at that time. . . Since then, a challenging global solar market has continued to affect a number of solar manufacturers, including Solyndra. The company's recent announcement that it was suspending operations and filing for bankruptcy. . . will limit the Government's recovery of funds loaned to the company. . . Congress designed the Title XVII loan guarantee program to fund innovative clean energy projects that might not otherwise receive the necessary capital for deployment. The program envisions that while some of these projects might not succeed, others will contribute to the United States' ability to achieve its clean energy goals. . ."
DOE testified that "Solyndra submitted its initial application in 2006, and much of the extensive due diligence on the transaction was conducted between 2006 and the end of 2008. By late 2008, Solyndra was considered by those involved in the DOE loan programs to be the project most advanced in the due diligence process, and the likely recipient of the program's first loan guarantee. . . After the Obama Administration took office, the loan programs' staff, and their advisors, continued their comprehensive review of the transaction and, in March 2009, on the exact timeline that had been developed during the Bush Administration, the program issued Solyndra a conditional commitment for a $535 million loan guarantee."
DOE said that, "Unfortunately, changes in the solar market have only accelerated in 2011, since the restructuring -- making it much more difficult for the company to compete. Chinese companies have flooded the market with inexpensive panels, and Europe — currently the largest customer base for solar panels -- has suffered from an economic crisis that has significantly reduced demand and forced cuts in subsidies for solar deployment that were important to Solyndra's business model. The result has been a further and unprecedented 42% drop in solar cell prices in the first eight months of 2011. . . Without DOE's agreement to restructure Solyndra's loan, the company likely would have faced bankruptcy much earlier -- in December 2010. . ."
DOE summed up saying, "While we are all disappointed in the outcome, securing America's leadership in this vital new industry requires that we support innovation and deployment. Solyndra's situation should not overshadow the great work that the Department's loan programs have done to date, or the need to continue to find ways to support clean energy in this country. . . developing a robust clean energy manufacturing sector in the United States is crucial to our long-term national interests, and we need to ensure that American companies and workers are given the tools they need to succeed in this competitive space. . . This isn't picking 'winners' and 'losers' -- it is helping ensure that we have winners here at all. We invented this technology, and we should produce it here."
Access the prehearing statement from House Republicans (click here). Access Republican hearing website for a background memos, a slide show, opening statements from Reps. Upton & Stearns and the witness testimony (click here). Access a Republican Committee collection of news reports on the Solynda issue (click here). Access Democrat hearing website for an opening statement from Rep. Waxman, videos and the witness testimony (click here). [#Energy/Solar]
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