As noted earlier, the House Energy and Commerce Subcommittee on Oversight and Investigations held a hearing today on the Solyndra loan debacle. Members heard testimony from Jonathan Silver, executive director at the loans program office at the Department of Energy, and Jeffrey Zients, deputy director at the Office of Management and Budget, who answered questions about the Obama administration’s role in approving, and later restructuring, of the disastrous loan guarantee to the California solar-panel company.
On Tuesday, a number of e-mails were uncovered suggesting that not only did the White House ignore warnings in regard to Solyndra’s viability, but may have even pressured OMB staff to rush through a decision on the loan so as to coincide with a public appearance by Vice President Joe Biden. Committee Republicans presented additional documents at today’s hearing that raise questions about what the White House knew and when, and whether they exerted pressure on administration officials to approve the Solyndra loan despite substantial reservations about the company’s prospects. A few notes:
– Bush did it. Committee Democrats, as well as both witnesses at the hearing, repeatedly pointed out that the DOE loan-guarantee program was started under George W. Bush and a Republican Congress. Not only that, but Solyndra submitted its initial loan application in 2006 and was reviewed by the administration. However, shortly before President Obama’s inauguration in January 2009, a DOE credit committee decided to remand the Solyndra application, saying its approval would be “premature” and citing a number of unresolved concerns. On Jan. 26, 2009, just six days after Obama was sworn in, a DOE staff member wrote in an e-mail: “We are approaching the beginning of the approval process for Solyndra again.”
– Unresolved concerns. The Solyndra loan guarantee was formally awarded on Sept. 9, 2009, just days after Vice President Biden spoke at a groundbreaking event at the company’s new plant in Fremont, Calif. “This announcement today is part of the unprecedented investment this administration is making in renewable energy,” he said. “And exactly what the Recovery Act is all about.”
However, just days before the announcement, DOE and OMB staff were expressing 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 Sept. 2011 even in the base case without any stress . . . how can we advance a project that hasn’t funded working capital requirements and that generates a working capital shortfall of $50 [million] when working capital assumptions are entered into the model?” As referenced in the e-mail, the financial model used by the credit-rating agency reviewing Solyndra’s loan file which showed that the project would “run out of cash” in Sept. 2011 seems rather prescient now (the company filed for bankruptcy on Sept. 6, 2011).
OMB staff, on the other hand, in late August 2009 lamented what they viewed as an effort by the White House and DOE to “jam us” on the loan decision. In an August 27, e-mail, one OMB staffer wrote: “Given the time pressure we are under to sign-off on Solyndra, we don’t have time to change the model.” On August 31, a DOE official e-mailed an OMB staff member citing the vice president’s September 4 announcement at the Solyndra facility, and asked if there was “anything we can help speed along on the OMB side.” In response, the OMB staff member 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.” Another e-mail states that OMB would prefer to “have the approval set the date for the announcement rather than the other way around.”
– Back to the trough. In 2010, once Solyndra’s financial troubles had become impossible to ignore, the company entered negotiations with the DOE and two major private investors to restructure the terms of the loan guarantee. DOE claimed that the restructuring agreement, finalized in February 2011, positioned the DOE and U.S. taxpayers for “maximum recovery” of guaranteed funds. But that wasn’t the case. According to documents obtained by committee staff, DOE explained to OMB at the time that they had to “restructure the loan to create a situation whereby investors felt there was a value in their investment.” Otherwise, no private investors were willing to put up funds. As a result, private investors were given priority over the government (and taxpayers) with respect to the first $75 million recovered in the event of Solyndra’s collapse.
Committee Republicans suggest that DOE may well have violated the law with its decision to grant this priority to private investors. According to the Energy Policy Act of 2005, which created the DOE loan program, the government’s loans “shall be subject to the condition that the obligation is not subordinate to other financing.” Republicans argue that the DOE decision was a “direct contravention” of this statute.
But even as DOE was claiming that restructuring would provide for “maximum recovery” of the Solyndra loan, OMB analysts were drawing a different conclusion. They determined that the immediate liquidation of the company would be a better deal for the government than restructuring, to the tune of about $170 million. Furthermore, OMB doubted whether Solyndra could remain in business even if the loan agreement was restructured. This concern was noted in an e-mail between OMB staff: “While the company may avoid default with a restructuring, there is also a good chance it will not. . . . At that point, additional funds would have been put at risk, recoveries may be lower, and questions will be asked.” Turns out they were right on all counts, especially the last one.