At 10 a.m. today, Energy Secretary Steven Chu will go before the House Energy and Commerce Committee to testify about Solyndra, the California-based solar manufacturer that went bankrupt after receiving $535 million in federal loan guarantees. We’ll be blogging the hearing and weighing in with analysis here and there, so check this post for updates.
10:14 am. How many loans have actually gone bad? Rep. Cliff Stearns (R-Fla.) opened his hearing on Solyndra by noting that two of the Energy Department’s first three high-profile alternative-energy loans have gone bad. But how many have gone bad overall? A Bloomberg report notes that the default rate on the department’s $16.1 loan portfolio has been just 3.6 percent. The White House planned for (and budgeted for) a 12.85 percent default rate. It’s very possible that we could still see more defaults, but experts quoted by Bloomberg think it’s unlikely that we’ll ever get to the planned-for 13 percent.
10:30 The specter of China. Whenever talk turns to clean energy, China always gets hauled out as the great green menace. Secretary Chu mentions that the China Development Bank has offered more than $34 billion in credit lines to China’s solar companies. (And, he might’ve added, in the process they’ve inadvertently created a glut in the solar market that has driven a lot of companies out of business.) “Countries like China are playing to win in the solar industry,” says Chu.
And the partisan lines on this are fairly clear. Earlier, Rep. Henry Waxman (D-Calif.), in his opening statement, had declared that “We can’t lose this race, Mr. Chairman.” Rep. Cliff Stearns (R-Fla.), by contrast, takes a more sanguine view of China, noting that “If we intend to subsidize our industries to compete with China, who subsidized their energy, that’s not a good way to handle it.”
10:33 Trouble in getting the stimulus out. Stearns criticizes Chu for the fact that the Energy Department has only spent about 45 percent of its stimulus funds three years later, far below Chu’s stated goals. Here’s an earlier piece I wrote looking back at the pressure Chu faced in 2009 to transform a department ill-suited for clean-energy spending — remember, the Energy Department has historically spent most of its budget on nuclear weapons and waste clean-up — and push out billions in stimulus money that had been dumped in Chu’s lap. In retrospect, it shouldn’t be so surprising that the agency failed to meet its goals.
10:50 Why Solyndra failed. Secretary Chu argues that Solyndra failed because “the price of solar panels dropped precipitously, in a single year dropped by 40 percent.” He chalks this up to two factors—ramped-up production in China and decreasing subsidies in Europe that softened the market. So why, when Solyndra first ran into trouble, did the Energy Department decide to restructure the loan? “At that point,” Chu says, “we had a half-completed factory, and we had two choices — we either had to stop the loan, which would’ve put Solyndra into immediate bankruptcy, or we could continue on contract of the loan to build the factory.” That restructuring put taxpayers at greater risk of not recouping their investment (although it remains to be seen how much the government will actually recover). “It was a difficult decision,” Chu concedes.
10:56 Solyndra in one sentence. Over at Scientific American, David Biello has a longer piece explaining why Solyndra failed: “Solyndra turned out to be an answer to a problem that no longer exists: expensive silicon solar panels.”
11:02 The Kaiser connection. One thing about the Solyndra affair that Republicans are pointing to is the fact that George Kaiser, a major Obama donor, was connected to the venture-capital firm that invested in Solyndra. But Chu tells Rep. Joe Barton (R-Tex.) that he had no idea about Kaiser’s connection at the time that the loan was approved.
11:11 Chu says Solyndra was approved on the merits. “We did not communicate with the White House on whether we should approve a loan, and especially the Solyndra loan,” he says. “That was our responsibility.” Meanwhile, the Washington Post earlier this week had reported that the Energy Department had asked Solyndra to postpone its announcement until after the 2010 midterms. At the hearing today, Chu says he had no knowledge of this at the time.
11:14 The big question. Step back from the hearing for a minute. Why is Congress (remember, both parties broadly supported the original loan guarantee) and the Energy Department subsidizing companies it expects to fail? Alex Trembath offers a detailed explanation and defense.
11:20 Solar loans vs. nuclear loans. Donna Christensen, the Democratic delegate to the Virgin Islands pointed out that the bulk of energy loan guarantees go to nuclear power. That’s somewhat true. The Energy Department has conditionally committed to $10.6 billion worth of loan guarantees for nuclear projects, including $8 billion for a big new reactor being planned by Southern Company in Georgia (those loans are under a slight different program than Solyndra; unlike the solar company, nuclear companies have to put up a 3 percent credit-subsidy fee). Overall, the department has $18 billion in loan authority for nuclear.
Nuclear projects can be quite risky, too — thanks to ever-tightening regulations, uncertainty over what we’ll do with the waste, and cost overruns, nuclear loans run a fairly high chance of defaulting. But Republicans tend to look more favorably on nuclear (while Democrats have hushed their nuclear criticism during the Obama years) and the politics are markedly different.
11:38 Moore’s law, redux. Rep. Ed Markey (D-Mass.) and Steven Chu banter back and forth about whether solar power is following the same “Moore’s Law” trajectory as computer chips have—doubling in power every 18 months or so. See here and here for some earlier posts (taking both an optimistic and pessimistic view) on this very question.
11:44 How much does it cost to create energy jobs? Rep. John Sullivan (R-OK) raised a point that the Energy Department’s $38.6 billion loan guarantee program has only created 60,000 jobs according to agency figures. Isn’t that a lot of money per job created? Something like $600,000 per job? Except, as Chu hinted in response, and as Scott Thomasson of the Progressive Policy Institute explains more fully, this isn’t quite the right way to look at it.
The actual cost to taxpayers of the Energy Department loan program in question will be about $2.5 billion (that’s how much was appropriated to the program, and how much the Office on Management and Budget expects the program to cost). That’s because most of those energy loans will be repaid. So that’s 60,000 jobs created with $2.5 billion which equals about $42,000 per job.
11:57 Was the loan restructuring illegal? One of the most aggressive lines of questioning Chu has received came from, surprisingly, a Democrat. Rep. Gene Green (D-Tex.) tore into Chu over the fact that the Energy Department restructured Solyndra’s loan guarantee so that the newer outside investors who were pouring additional money in would get repaid before taxpayers if the company went bankrupt. Green says that Congress never intended that to happen when it passed the loan-guarantee program back in 2005.
Rep. Michael Burgess (R-Tex.) cites Green and argues that the Energy Department violated the 2005 Energy Policy Act. “We believe there was no violation of the law,” says Chu. “That seems like a tortured legal reading of a fairly straightforward law,” retorts Burgess.
12:02 “I’m aware now.” Republicans keep asking Chu about various Solyndra-related emails that have been released over the past few months. Chu’s frequent response? “I’m aware now.”
12:17 Was taxpayer protection the main focus? Rep. Marsha Blackburn (R-Tenn.) asks whether the Energy Department was making loan guarantees primarily in the interest of promoting green energy or primarily with protecting taxpayers in mind. Chu concedes that the department has to balance both interests, but noted that, by law, taxpayer-protection had to take a high priority. “We take a green eyeshade approach to this,” Chu said.
1:10 Boiling down the scandal. The hearing is on a short lunch break, but as best I can tell, here’s the crux of Republican complaints about the Solyndra affair. When Solyndra first ran into trouble earlier this year, the Energy Department moved to restructure the company’s loan in a way that would put taxpayers behind the newest investors if the Solyndra went bankrupt. Republicans (and at least one Democrat) have argued that this violated the spirit of the 2005 energy law. Rep. Joe Barton (R-Tex.) said, “I think that’s illegal.” But is it? That’s the key question.
At the time, the Energy Department’s legal counsel concluded — and an outside law firm agreed — that it was perfectly legal to restructure a loan guarantee in this way. Republicans have argued that Chu and the Energy Department should have gone to the Justice Department to get an opinion. (And, as my colleagues have reported, some Treasury officials insisted at the time that they should’ve done so.) In the end, Energy Department officials decided that it was appropriate to move ahead without Justice. In February of this year, Chu approved the restructuring.
2:00 Waxman: “There’s no scandal there!” Republicans: Yes there is! Towards the end of the hearing, Rep. Henry Waxman (D-Calif.) throws up his hands and says, “There’s no scandal there, there’s nothing there!” Waxman diligently recounts the various defenses of the Energy Department: Chu had no idea that an Obama donor was involved, there was no political involvement in approving the loan, the restructuring was a reasonable gamble to take. He then argues that the only scandalous thing Republicans have unearthed, amid thousands of pages of e-mails, is that someone in the Energy Department asked Solyndra to hold off on announcing layoffs until after the 2010 midterms (Chu says he has no idea who did this, but he promises to look into it). “Stop dancing on Solyndra’s grave,” Waxman exclaims.
Chu then pivots into a speech about how clean energy is an “economic opportunity” for America. But just 20 seconds in, Cliff Stearns impatiently orders him to please wrap it up quickly. And Rep. Marsha Blackburn (R-Tenn.) follows up by bringing things back to the question of whether the White House was involved in the restructuring of Solyndra’s loan. “I find it troubling that there was so much you weren’t aware of,” Blackburn says, frowning. No surprise, Republicans don’t agree with Waxman at all.