Subpoenaed emails stoke uproar over DOE loan program

By Herman Wang

September 19 - Just days before the Obama administration triumphantly announced the closing of a $535 million loan guarantee to now-bankrupt California solar panel maker Solyndra in September 2009, a White House budget staffer fretted that not enough due diligence was performed on the deal.

"I would prefer that this announcement be postponed," the staffer wrote in an August 31, 2009, email to an Energy Department official. "This is the first loan guarantee, and we should have full review with all hands on deck to make sure we get it right."

That same day, another staffer in the White House Office of Management Budget wrote to an aide for Vice President Joseph Biden that "we are worried" about the Solyndra loan guarantee.

"We would prefer to have sufficient time to do our due diligence reviews and have the approval set the date for the announcement, rather than the other way around," the staffer's email said.

But apparently undeterred by those concerns, the Obama administration closed on Solyndra's loan guarantee on September 4, 2009, in a much-hyped ceremony at the company's Fremont, California, headquarters, featuring Energy Secretary Steven Chu and then-California Governor Arnold Schwarzenegger, as well as a video address from Biden.

That haste to announce the deal has House Republicans howling that the Obama administration was reckless with taxpayer dollars. And with Solyndra's recent filing for Chapter 11 bankruptcy protection, they are now demanding that heads roll in what has become an embarrassing debacle for the White House.

Representative Cliff Stearns, a Florida Republican who is spearheading the House Energy and Commerce Committee's investigation into the Solyndra deal, said last Thursday that Jonathan Silver, the executive director of DOE's loan programs office, should be fired, even though he was not at DOE when the loan guarantee was vetted and then finalized.

Silver, a former venture capitalist and hedge fund manager, joined DOE in November 2009, two months after the Solyndra loan guarantee closed, though he oversaw a restructuring of the company's financing in March 2010 that Republicans have said may have violated the law.

"I think he should be fired," Stearns said on the Fox Business network. "And I think the person that he replaced, the person before him should have been fired. The problem is with these scandals, no one gets fired, and they're all covered up."

Solyndra, the first recipient of a loan guarantee under the Obama administration, has been a darling of the White House's green jobs campaign, and President Barack Obama in March 2010 even visited the solar panel manufacturing plant built with the help of the financing to praise the company as a clean-tech leader.

The internal OMB emails are among hundreds of pages of White House documents that the House Energy and Commerce Committee subpoenaed. Republicans on the committee say they show how the Obama administration pressured OMB and DOE staffers to approve Solyndra's loan guarantee, despite being well aware of the company's financial problems.

One particularly prescient August 20, 2009, email between DOE staff evaluating Solyndra's business model even predicted that the company would go bankrupt by September 2011.

"[Solyndra] seems to agree that the model runs out of cash in Sept. 2011, even in the base case without any stress," the DOE staffer wrote. "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?"

At a hearing of the committee's oversight subcommittee last Wednesday in which they grilled Silver and OMB Deputy Director Jeffrey Zients about the loan guarantee, Republicans accused the Obama administration of putting public relations before responsible stewardship of taxpayer dollars.

"What the documents also show is that the rush to push out stimulus dollars may have impacted the depth and quality of DOE and OMB's review," Stearns said.

Louisiana Republican Representative Steve Scalise said the emails show that "crony capitalism" drove loan guarantee decisions, and that the missives are evidence of a political agenda to advance clean energy.

"There was pushback from the administration somewhere to push this forward," Scalise said at the hearing. "Crony capitalism was trumping the due diligence that should have been going on. $535 million of taxpayer money is now at risk."

Solyndra abruptly announced on August 31 it was shutting down operations at its Fremont, California, manufacturing plant, filing for Chapter 11 bankruptcy protection, and laying off 1,100 workers, almost its entire workforce.

The company makes unique cylindrical solar panels, but the technology proved uneconomical, and Solyndra officials blamed intense cost pressures from cheaper Chinese solar panels for its inability to stay afloat.

Just days after it filed for bankruptcy, federal agents on September 8 raided Solyndra's headquarters and also visited the home of President and CEO Brian Harrison, as part of a joint investigation of the FBI and DOE's Office of Inspector General. Though affidavits for that investigation remain sealed, observers have said the raid likely centers around whether Solyndra executives misrepresented the company's finances to federal officials.

The Treasury Department has also launched an investigation into Solyndra's $535 million credit line — backed by the DOE loan guarantee — that it took out with the Federal Financing Bank. House Republicans have been separately investigating the loan guarantee since February.

But White House officials and Democrats on the committee say the Republicans' investigation is a political witch hunt and have noted that Solyndra first submitted its loan guarantee application in 2006, during the Bush administration.

White House Press Secretary Jay Carney told reporters traveling with Obama in North Carolina that the emails cited by Republicans merely show an urgency to plan an event around the loan guarantee closing, which also included the company's groundbreaking — not any political influence.

"It is a big proposition to move the president or to put on an event and that sort of thing," Carney said. "So, people were simply looking for answers about whether or not we could move forward … with that."

Silver told the subcommittee that the bulk of the due diligence of the Solyndra loan guarantee application was performed between 2006 and 2008.

"In fact, by the time the Obama administration took office in late January 2009, the loan programs' staff had already established a goal of, and timeline for, issuing the company a conditional loan guarantee commitment in March 2009," Silver said.

He added that private investors had already invested almost $1 billion into the company.

Zients said his agency carefully vetted DOE's review of the Solyndra application, as well as a restructuring of the loan in March that Silver said allowed the company to avoid an earlier bankruptcy.

OMB asked DOE to address several questions about its analysis, "including those focusing on the financial relationship between Solyndra and its project finance subsidiary, the liquidation analysis underlying DOE's proposed estimates, the customer contracts Solyndra had lined up, the market trends in prices for solar panels, and field testing of greater efficiencies and lower installation costs associated with the unique design of Solyndra's panels," Zients said.

After reviewing that information, he said, "OMB determined that DOE's analysis was reasonable, and reflected the information as it was understood at that time."

But Republicans said the Obama administration appeared to ignore a January 9, 2009 vote by the DOE Credit Committee against offering a conditional commitment to Solyndra, saying that the deal was premature.

"Only after the Obama administration took control, and the stimulus passed, was the Solyndra deal pushed through," Stearns said.

Silver said the Credit Committee did not outright reject the Solyndra application, but referred it back to DOE for further review. He said such an action is not atypical, and that DOE subsequently performed more market analyses and other reviews related to the application.

Then in March, two months later, the same Credit Committee, composed of career civil servants, voted to send the deal forward, Silver said.

"The loan program career staff that [completed the due diligence on the Solyndra application] in 2008 under a Republican-appointed [chief financial officer], continued to do the same work under the same person that was carried over by the Obama administration," Silver said.

Committee Republicans also said Obama administration may have violated the law in restructuring Solyndra's loan guarantee in March, when DOE agreed to give Solyndra more time to repay its government loan (IE, 7 March, 1). Under terms of the restructuring, DOE allowed a group of investors that provided about $75 million in financing to be first in line to recoup their losses from a sale of Solyndra's assets in a bankruptcy liquidation.

But Republicans pointed out a clause in the Energy Policy Act of 2005, which created the loan guarantee program, that stipulates that the government should not be "subordinate to other financing." Asked how DOE could have allowed the restructuring to put US taxpayers second in line, despite that clause in the law, Silver said his staff relied on the advice of DOE's attorneys.

"I'm not a lawyer, so I defer to the judgment of counsel," Silver said.

Replied Georgia Republican Representative Phil Gingrey: "You've got a bad lawyer, and I believe you got bad advice."

Silver later explained that the restructuring only subordinates the government in the case of a liquidation.

If the company is sold in whole, which Silver said "is very much a possibility," the government would retain its higher position, though ultimately how the assets are parceled out would be up to a bankruptcy court to decide.

Silver and Zients, who were the only witnesses at the hearing, also testified that there were no political considerations involved in the Solyndra loan guarantee decision. Republicans raised questions on whether the Obama administration pushed through the deal to benefit a major fundraiser, George Kaiser, who is the company's largest shareholder. But Silver and Zients said neither they nor their staffs have had any interaction with Kaiser.

"I've never spoken to the man, and from I understand of my staff, neither have they," Silver said.

Democrats on the panel said they are perturbed by how Solyndra collapsed just a few weeks after CEO Harrison in July made the rounds with lawmakers on Capitol Hill to say that Solyndra was growing and on track to be cash-flow positive by the end of the year (IE, 25 July, 12). Harrison and other Solyndra officials had been invited to testify at last Wednesday's hearing, but will instead appear before the committee this Friday (September 23). Solyndra spokesman David Miller said the executives were tending to bankruptcy matters last week.

"I'm perplexed how they could be in my office in July telling me things were looking better and filing for bankruptcy two months later," said Representative Diana DeGette, a Colorado Democrat.

California Representative Henry Waxman, the top Democrat on the House Energy and Commerce Committee, said Solyndra's bankruptcy should not derail the loan guarantee program, which aims to help the US gain energy independence and better compete in clean-energy technology against the likes of China, which is robustly investing in that sector.

Even as he accused Republicans of playing politics with their investigation, he declared that Republicans would never allow the committee to hold hearings on oil and gas subsidies.

"The majority of Republicans on this committee deny that climate change is real," Waxman said. "If you are a science denier, there's no reason for government to invest in clean energy."

Meanwhile, the White House said it would continue to support the loan guarantee program, which Carney said would play a key role in Obama's goal of doubling renewable energy generation by 2012.

"If the choice is, you know what, let's just lay back and see what happens, Americans will spend the 21st century buying these essential technologies from the Chinese and other countries," Carney said. "That is unacceptable to this president. That's why he's committed to the loan guarantee program [and] committed to the investments that need to be made in clean energy technology."

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