Steven Chu’s Solyndra testimony: Misleading jobs stats and missing context

at 06:00 AM ET, 11/18/2011


(Evan Vucci/AP)

“Through the loan programs, the Energy Department is supporting 38 clean energy projects that are expected to employ more than 60,000 Americans, generate enough clean electricity to power nearly 3 million homes and displace more than 300 million gallons of gasoline annually.”

— Energy Secretary Steven Chu, Nov. 17, 2011, in testimony on Capitol Hill

 “When the bottom of a market falls out and the price of solar decreases by 70 percent in two and a half years, that was totally unexpected, not only by us — if you look at the range of predictions that were being made by financial analysts from the last quarter of 2008, 2009, they — the average — there are some outliers. But the average of those were not expecting these prices to plummet. And so fundamentally this company [Solyndra] and several others got caught in a very, very bad tsunami, if you will.”

— Chu, Nov. 17

In his defense of the Energy Department’s handling of the $535 million loan guarantee to the now bankrupt Solyndra, Energy Secretary Steven Chu made some bold claims about the overall effectiveness of the department’s clean-energy loan programs. He also made the case that the collapse in solar panel prices — which helped sink Solyndra — was “totally unexpected” by most financial analysts at the time when the department went forward with the loan in 2009.

 There are a number of issues in dispute concerning Solyndra, but these two statements by Chu appear to be the most ripe for a fact check because they get to the heart of the issue about whether the clean-energy program is creating many jobs and whether the Energy Department should have seen the red flags concerning the Solyndra investment.

 

The Facts

 We always warn readers to be wary of claims about the number of jobs created by some government, congressional or corporate initiative. These are almost always suspect and based on dubious assumptions. (Chu, we should note, carefully used the word “employ” instead of “create.”)

As it happens, Carol D. Leonnig and Steven Mufson of The Washington Post examined the job-claim figure two months ago and found it wanting. “The program — designed to jump-start the nation’s clean technology industry by giving energy companies access to low-cost, government-backed loans — has directly created 3,545 new, permanent jobs after giving out almost half the allocated amount, according to Energy Department tallies,” they reported on The Post’s front page.

The Energy Department disputed that analysis as “incomplete and inaccurate,” as evidenced by the fact that Chu repeated the claim in sworn testimony before Congress. But if you dig deeper into the 60,000 number, you find that more than half of it comes from a single program — 33,000 jobs at Ford that were supposedly converted to green technology because of a $5.9 billion loan. The Energy Department translated those as “saved” jobs, even though the number amounts to nearly half of Ford’s total workforce.

 It’s one of the oldest tricks in the Washington spin book: Lump a bunch of tiny projects with one big project, and then claim all of them — 38 in this case — created a bunch of jobs.

 The claim of 300 million gallons of gasoline a year displaced is similarly inflated, because DOE figures show that 228 million gallons comes, again, from the same Ford project. (For the record, 300 million gallons is literally a drop in the barrel of annual U.S. fuel consumption — one fifth of 1 percent.)

 The Post article had quoted an economist as saying that the 33,000 job estimate for Ford appeared to be the result of “fuzzy math.” Ford spokeswoman Meghan Keck was quoted as saying that the loan provided flexibility in manufacturing that was key to “helping retain” the jobs. That’s pretty fuzzy language for “saved” and in fact appears to relate more to job security than anything else. Translation: A plant that once had a single truck line would now be able to create four different vehicles, allowing jobs to be shifted as demand changed.

 Indeed, the description of the purpose of the loan on the DOE Web site simply says this: “The project will convert nearly 33,000 employees to green manufacturing jobs.” When the loan was announced in June of 2009, there was no suggestion that Ford was ever considering laying off these workers if it did not get the loan. Ford actually ended up getting a loan half the size of its original request, and the company never said that it would be forced to cut back.

In an interview on CNBC on June 23, 2009, the day the loan was announced, Ford chief executive Alan Mulally in fact played down the notion that the money would be mainly used for retooling factories. “The essence of this investment will be the enabling technologies and the vehicles in themselves,” he said.

 Mark Oline, managing director Fitch Ratings, at the time also told the Detroit News that Ford did not need an incentive to invest in green technologies: “Ford was going to do all of that regardless of whether it received the federal loans, meaning it can now use the money budgeted for these programs for other things.”

 As far as we can tell, the 33,000 figure means the total number of workers at the plants who will get retooled, in part thanks to the loan. On Thursday, Keck repeated the “helping retain” language and provided a couple of news releases that mentioned how investments in the plans “were supported” by the loan program without saying how much it actually contributed.

 When Ford reported the loan in a quarterly filing to the Securities and Exchange Commission, it also described it as part of an already existing plan: “Ford qualified for $5.9 billion in loans from the U.S. Department of Energy for advanced fuel efficient vehicles. Ford plans to invest nearly $14 billion in the U.S. over the next seven years on advanced technology vehicles.” 

 Since Ford was already planning to make those investments, no matter how large the loan was, why should those jobs be credited to this program? Certainly one could make the case that the loan came at the height of the Great Recession, when credit markets were largely frozen, and so the loan helped Ford move ahead faster with its plans. But, even with that caveat, it seems odd to credit all of those jobs as benefiting from the loan.

DOE spokesman Damien LaVera sharply disagreed, saying Ford was worthy of inclusion on the list of jobs created by the loan program, as well as some 7,000 temporary construction jobs that DOE says were needed to build wind and solar power plants.

 Chu’s other quote — concerning the unexpected collapse in solar prices — is also open to question. Chu rightly noted that there were some analysts — “outliers,” as he put it — who might have predicted a huge plunge in the solar module market. But he contended that most did not predict prices would drop below $2.  The chart below illustrates Chu’s point: 

DOE Chart of Solar Analyst Estimates

At the same time, however, the shakiness in the market was readily apparent at the time DOE pressed the White House budget office to sign off on the Solyndra loan. Note the Aug. 31, 2009 e-mail below, from an Office of Management and Budget official to a DOE official, asking that an announcement of the loan be postponed.

The e-mail includes links to articles with headlines like “As Prices Slump, Solar Industry Suffers.”

Email on Solyndra from OMB official to DOE official, August 31, 2009

One article mentioned in the e-mail noted that prices had already dropped 40 percent since the middle of the previous year, and “many experts expect panel prices to fall further, though not by another 40 percent.” (It did.)

 Another article cited in the e-mail noted both the spurt in Chinese production and the softening of demand in Europe. As it happened, those are two factors that Chu cited in his testimony as causing the unexpected price decline: “There was a large production ramping up, namely in China,” he said. “And secondly there was a softening of the market in Europe.”

 While Chu said that Wall Street analysts generally were not predicting such a steep price drop, it is clear from the articles mentioned in the e-mail that they were warning that prices would fall further. The Fact Checker once covered Wall Street, and analysts promoting stocks are almost always bullish. When analysts start getting skittish, it’s time to get wary. In fact, one of the articles cited in the e-mail reported that a major  investment firm had downgraded the solar energy sector from “positive” to “neutral.”

 On Wall Street, that usually translates as “sell.”

 “Nothing in the e-mail you cited or the stories it mentions predicted the prices would fall as far as they did,” DOE spokesman LaVera said. (See UPDATE below.)

 

The Pinocchio Test

 Given the high stakes involved in Chu’s testimony, it seems strange he would repeat talking points about the jobs that had already been called into question by a major news organization. Granted, DOE disputed that article, but we don’t think their rebuttal makes much sense.

 In any case, the job number and the fuel number are greatly inflated by the inclusion of the loan to Ford. As we have demonstrated, these are not new jobs or even saved jobs — just people who might, just maybe, have a little more job security, in part because of the loan.

 Chu’s comments on the unexpected “tsunami” that hit Solyndra are also troubling. The OMB e-mail shows that at least one arm of the government was aware that Wall Street was quickly souring on solar energy and that the tsunami that swept the industry should not have been such a surprise.

 Three Pinocchios

 

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Watch a ‘virtual tour’ of Solyndra’s solar-panel plant

UPDATE: Read memo by Democrats disputing part of this analysis

Memo to Democratic members re Fact Checker column
 
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    About the Blogger

    Glenn Kessler has covered foreign policy, economic policy, the White House, Congress, politics, airline safety and Wall Street.

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