The Washington Post

Energy Department failed to sound alarm as Solyndra solar company sank

An auction sign stands at the entrance Solyndra LLC building in Fremont, California. Solyndra filed for bankruptcy protection on Sept. 6, days after shutting its operation and leaving 1,100 workers jobless. (David Paul Morris/BLOOMBERG)

At a number of points in its troubled history, solar-panel manufacturer Solyndra faced dire financial problems that threatened its survival. Yet at each crisis, Energy Secretary Steven Chu and officials at his agency failed to take steps that critics say could have limited taxpayer losses when the company collapsed this summer.

Instead, Energy Department officials monitoring Solyndra and its $535 million federal loan took extraordinary steps to prop up the company, according to a Washington Post analysis of previously confidential documents.

The Post review, which included thousands of pages of internal government documents, offers the clearest picture yet of the tense discussions among officials at the White House, its Office of Management and Budget and the Energy Department about Solyndra’s deteriorating finances and the political impact that would occur if the company defaulted on its loan.

On Friday, the release of a new round of White House documents added more details, showing concerns among senior advisers earlier this year that Solyndra might erupt into a political scandal requiring the replacement of Chu and his agency team. A former Obama campaign adviser wrote to presidential counselor Pete Rouse in February suggesting that Chu be replaced immediately with a manager who could better direct Energy Department funds. Rouse circulated it among other senior officials, asking for feedback.

The memo warned of GOP attacks “that are surely coming over Solyndra and other Energy Department deals that have gone to Obama donors and have underperformed.”

Chu is scheduled to testify next week before a House investigative subcommittee. Republicans are likely to grill him about his role in granting Solyndra the 2009 loan, its unsuccessful second loan application and the company’s other efforts to get federal contracts and assistance.

Republican critics have accused the administration of favoring Solyndra because its largest investors were funds linked to George Kaiser, a fundraiser for President Obama who has denied involvement in arranging the loan. E-mails released this week show that Kaiser and his associates discussed how to win additional federal assistance, and that they believed Chu was “apparently staying involved” in Solyndra’s second loan application. Energy Department officials say Chu was not involved.

White House spokesman Eric Schultz said concerns about the department’s actions are one reason the administration has asked former Fannie Mae president Herbert Allison to independently review the loan portfolio and recommend ways to ensure better monitoring.

Energy Department spokesman Damien LaVera said the agency tried to help Solyndra recover so that workers could keep their jobs and taxpayers would be repaid. He said Chu and other officials supported Solyndra based on information provided by the company.

Attempts within the department to minimize concerns about Solyndra’s performance began as early as May 2010. By then, independent auditors had questioned whether the company could continue as “a going concern” — a determination that deeply troubled industry analysts.

But Chu’s senior adviser, Matt Rogers, played that down in an e-mail, asserting that “going concern” warnings were “standard” for companies contemplating an initial public offering.

Still, OMB and Treasury Department analysts asked Energy staff members in July 2010 to respond to questions about Solyndra’s finances and revenue claims. Then-Energy Department loan director Jonathan Silver assured OMB that the project was “on time and on budget.” Six days later, Solyndra replaced its chief executive.

Under new leadership, it took Solyndra only three months to alert the Energy Department that it needed emergency funding to avoid liquidation.

The warning came as Solyndra faced a contractual requirement to put $5 million into a reserve fund as a taxpayer protection. In December, Solyndra failed to make the payment and violated its loan terms.

With this technical default, the Energy Department could have pulled the plug on the Solyndra deal. Instead, officials discussed rescuing the company by attracting more private capital. A deal was struck to raise $75 million from the company’s investors, but they agreed to participate only if the department placed the new investment ahead of taxpayers for repayment in the event of bankruptcy.

The new loan deal was approved in February. The following month, Chu told an interviewer that Solyndra’s sales were growing and that he was “confident” Solyndra would thrive.

In July, company executives told House committee members in a letter that “the company just completed a record quarter for shipments, with strong demand in the United States. Last year we shipped 65 megawatts of panel production and expect that to double again this year.”

Energy Department officials did not dispute these assertions, which echoed those made four months earlier by Solyndra chief executive Brian Harrison, in an interview with The Post: “We doubled our production from 2009 to 2010. We’ll double it again from 2010 to 2011. ”

But financial records show that the company was selling its panels at a loss and that its revenue in fall 2009 was substantially the same as in spring 2011. An internal White House memo put it this way: “The company has had 0 percent sales growth since [fall] 2009.”

Solyndra hit another liquidity crisis this summer. It generated cash by agreeing to sell up to $75 million of its solar panels and accounts receivable to its investors at a discount. In August e-mail exchanges, Energy Department officials discussed a similar deal under which the discount would total 50 percent — an arrangement that could have increased taxpayers’ losses by as much as $10 million, internal government records show. Officials said it was unclear whether the discount was implemented.

By Aug. 9, with Solyndra weeks away from a bankruptcy filing, OMB career staff members mocked supportive comments offered by Silver, the loan director, in an article, calling Solyndra “significantly misunderstood.”

“Wow . . . I wonder if he was unaware of the true situation at Solyndra,” one OMB staff member said.

Just days before Solyndra closed its doors, agency officials proposed that taxpayers extend an additional $5.4 million to Solyndra to keep it afloat a few more weeks.

A memo prepared for White House discussion shows that OMB objected, pointing out that an outside consulting firm “believes the probability of Solyndra becoming a going concern under anticipated market conditions is near zero.”

White House officials agreed, and the Energy Department dropped the idea after consulting financial consultants. Solyndra received no additional taxpayer support, and three days later, it closed its doors .

Outsiders watching the saga unfold worried months before Solyndra’s collapse that Obama would take a political hit over investing federal money in the company.

In February, outside energy adviser Dan Carol, an Oregon professor who worked on Obama’s 2008 presidential campaign, sent a blistering e-mail to senior White House officials, declaring that the Energy Department had suffered a “deployment failure” and urging Obama to “make major leadership changes as soon as possible.”

“Secretary Chu is a wonderful and brilliant man, but he is not perfect for the other critical DOE mission: deploying existing technologies at scale and creating jobs,” Carol wrote in the e-mail released Friday.

Carol predicted that “GOP attacks . . . are surely coming over Solyndra and other inside DOE deals that have gone to Obama donors and have underperformed. No reason to fuel that coming storm, and believe me it will come.”

Research editor Alice Crites contributed to this article.

Joe Stephens joined The Washington Post in 1999 and specializes in in-depth enterprise reporting.
Carol Leonnig covers federal agencies with a focus on government accountability.

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