I testified before Congress earlier this week about the Section 1705 loan guarantee program of the Department of Energy. That’s the loan program that guaranteed $538 million in loans for the now-bankrupt energy company Solyndra. I came strongly against these DOE loan-guarantee programs because, among other reasons, they introduce distortions to market signal. For the record, I think all loan guarantee programs by the government should be abolished — not just energy.
It’s interesting to look at the flow of Department of Energy loans to evaluate who receives them and whether the department is meeting its stated policy objectives, such as promoting new start-ups or companies that have a hard time accessing capital, and encouraging the creation of green jobs.
Since 2009, Department of Energy has guaranteed $34.7 billion in loans, 46 percent through the 1705 loan program, 30 percent through the 1703 program, and 14 percent through the Advanced Technology Vehicles Manufacturing loan program.
#more#The data show that:
- 26 projects were funded under the 1705 program, with guarantees of roughly $16 billion in total.
- Some 2,378 permanent jobs were claimed to be created under the program. This works out to a taxpayer exposure of $6.7 million per job.
- The recipient of the most 1705 loans is NRG Energy, Inc. NRG Energy received a $3.8 billion guarantee (23.7 percent of the overall amount guaranteed under 1705).
- Four companies received 64 percent, or $10.3 billion, of the total amount guaranteed under the 1705 program.
- 90 percent of loans went to subsidize large and well-established companies
In most cases it’s not start-ups, like Solyndra, that received the loan guarantees, but large established companies that are likely able to get access to large amounts of capital. It wouldn’t be under the extremely favorable terms that the government guarantee allows them to get, but they would get capital. Also, they would likely have to put down more equity relative to debt than they do with the 1705 loan program. In other words, the program encourages these large companies to leverage more than the open market would allow them to. I thought we had learned the hard way that too much leverage isn’t a good thing, but apparently not.
More important, in the process of looking into these loans, I realized the level of double-dipping that these companies are involved in, too. In my testimony I give several examples of companies benefiting from multiple assistance programs initiated during this period. And, of course, that happens in many other industries.
My testimony is here, and here is the video. I was testifying next to four CEOs, including the head of NRG Energy. There was also serious questioning about why Congentrix, a wholly-owned subsidiary of financial giant Goldman Sachs, needs the help of government and political influence.