At long last, Energy Secretary Steven Chu will testify Thursday morning before the House Energy and Commerce Subcommittee on Oversight and Investigations to discuss his role in the failed Solyndra loan guarantee. Chu has a lot of explaining to do, as the decision to prop up the politically connected solar company, and then to restructure its loan to protect private investors rather than the federal government, could end up costing taxpayers more than half a billion dollars. A few questions:
1. What impact did the changes you made to the Department of Energy loans program have on the DOE’s ability to ensure that Solyndra’s loan application was, in your own words, “subject to proper, rigorous scrutiny”?
One of the first actions Chu took upon joining the Obama administration was to order the fast-tracking of the DOE loans program, which was set to receive an influx of new funding under the American Recovery and Reinvestment Act (the stimulus package). Matthew Rogers, the ARRA adviser to the DOE, testified in March 2009 that “Secretary Chu has directed us to accelerate the process significantly and deliver the first loans in a matter of months.” That was around the same time that the DOE announced its conditional commitment to Solyndra, upon which Chu touted the “speed at which the department can operate.”
Meanwhile, officials at the Office of Management and Budget were complaining that when it comes to evaluating a $535 billion loan guarantee, “speed” is not necessarily a virtue. In fact, e-mails reveal that OMB staff felt pressured to approve the Solyndra loan despite their concerns over the company’s application. “This deal is NOT ready for prime time,” one OMB analyst wrote to a senior White House official on March 10, 2009. The administration announced a conditional commitment for the Solyndra loan just nine days later.
In August 2009, in the days before the loan guarantee was finalized, OMB staff complained that the White House and the DOE were pressuring them to approve the loan before a planned groundbreaking ceremony at Solyndra’s new facility in Fremont, Calif. On August 31, a DOE official e-mailed an OMB staff member citing Vice President Joe Biden’s plans to speak at the September 4 event at Solyndra, and asked if there were “anything we can help speed along on the OMB side?” In response, the OMB staffer suggested that, given the high stakes, the announcement ought to be postponed: “This is the first loan guarantee and we should have full review with all hands on deck to make sure we get it right.” But the loan was ultimately approved in time to allow the groundbreaking, which Chu attended, to go off as planned.
Which brings us to the next question:
2. Given the numerous red flags raised by administration officials both before and after the loan guarantee was finalized, should the DOE have better anticipated the financial problems that Solyndra encountered?
Although Chu has claimed that Solyndra’s failure was “unanticipated,” there were plenty of warning signs, including some that were discussed before the department finalized the initial loan. Just days before the Solyndra groundbreaking, DOE and OMB staff expressed significant concerns over the viability of the loan.
“We still have a major outstanding issue,” reads an e-mail between DOE staff dated Aug. 19, 2009. And another, dated the next day: “The issue of working capital remains unresolved. . . . [Solyndra] seems to agree that the model runs out of cash in September 2011.” The company officially declared bankruptcy on Sept. 6, 2011.
In a recent interview with National Public Radio, Chu said that another “unanticipated” aspect of Solyndra’s predicament was the rapid decline in the price of solar panels over the past several years. However, on Sept. 1, 2009, before the loan guarantee was finalized, OMB staff recommended that the Solyndra deal be “notched down,” citing “the weakening world market prices for solar” — a suggestion that went unheeded.
Months later, on March 16, 2010, Solyndra’s auditor, PricewaterhouseCoopers, noted that the company “had suffered recurring losses from operations, negative cash flows since inception and has a net stockholder’s deficit.” These troubling factors, the auditor determined, “raised substantial doubt about [Solyndra’s] ability to continue as a going concern.” The company was subsequently forced to cancel an initial public offering planned for May 2010.
This prompted OMB officials to enquire about the DOE’s monitoring of the Solyndra loan. According to OMB staff, the DOE’s monitoring reports, turned over to the OMB on April 19, 2010, were surprisingly optimistic: “The project continues to be successful and in accordance with the business plan, despite [Solyndra’s] recent financial audit.”
But later that year, Solyndra’s executives warned the DOE that the company was running out of cash and wouldn’t be able to make a payment that was required under the loan arrangement. In fact, the company technically defaulted on its loan on Dec. 1, 2010. Chu, however, ordered a softening of the loan requirements to allow Solyndra to remain in business, and continued to champion the company in public.
The list goes on and on. There are certainly many words to describe Solyndra’s failure and the potential loss of half a billion dollars in taxpayer money. But given the evidence, “unanticipated” is hardly one of them.