[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

THE GREEN ENERGY DEBACLE: WHERE HAS ALL THE TAXPAYER MONEY GONE?

=======================================================================

HEARING

before the

SUBCOMMITTEE ON REGULATORY AFFAIRS,
STIMULUS OVERSIGHT AND GOVERNMENT SPENDING

of the

COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

__________

NOVEMBER 2, 2011

__________

Serial No. 112-120

__________

Printed for the use of the Committee on Oversight and Government Reform

Available via the World Wide Web: http://www.fdsys.gov
http://www.house.gov/reform

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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana ELIJAH E. CUMMINGS, Maryland,
JOHN L. MICA, Florida Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina ELEANOR HOLMES NORTON, District of
JIM JORDAN, Ohio Columbia
JASON CHAFFETZ, Utah DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee PETER WELCH, Vermont
JOE WALSH, Illinois JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania

Lawrence J. Brady, Staff Director
John D. Cuaderes, Deputy Staff Director
Robert Borden, General Counsel
Linda A. Good, Chief Clerk
David Rapallo, Minority Staff Director

Subcommittee on Regulatory Affairs, Stimulus Oversight and Government
Spending

JIM JORDAN, Ohio, Chairman
ANN MARIE BUERKLE, New York, Vice DENNIS J. KUCINICH, Ohio, Ranking
Chairwoman Minority Member
CONNIE MACK, Florida JIM COOPER, Tennessee
RAUL R. LABRADOR, Idaho JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee BRUCE L. BRALEY, Iowa
FRANK C. GUINTA, New Hampshire
MIKE KELLY, Pennsylvania

C O N T E N T S

----------
Page
Hearing held on November 2, 2011................................. 1
Statement of:
Friedman, Gregory H., Inspector General, U.S. Department of
Energy; Elliot P. Lewis, Assistant Inspector General, U.S.
Department of Energy; W. David Montgomery, Ph.D., senior
vice president, National Economic Research Associates,
Inc.; Greg Kats, president, Capital-E; and Brett McMahon,
vice president of business development, Miller & Long
Concrete Construction...................................... 5
Friedman, Gregory H...................................... 5
Kats, Greg............................................... 49
Lewis, Elliot P.......................................... 21
McMahon, Brett........................................... 61
Montgomery, W. David..................................... 28
Letters, statements, etc., submitted for the record by:
Friedman, Gregory H., Inspector General, U.S. Department of
Energy, prepared statement of.............................. 8
Kats, Greg, president, Capital-E, prepared statement of...... 51
Lewis, Elliot P., Assistant Inspector General, U.S.
Department of Energy, prepared statement of................ 23
McMahon, Brett, vice president of business development,
Miller & Long Concrete Construction, prepared statement of. 63
Montgomery, W. David, Ph.D., senior vice president, National
Economic Research Associates, Inc., prepared statement of.. 30

THE GREEN ENERGY DEBACLE: WHERE HAS ALL THE TAXPAYER MONEY GONE?

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WEDNESDAY, NOVEMBER 2, 2011

House of Representatives,
Subcommittee on Regulatory Affairs, Stimulus
Oversight and Government Spending,
Committee on Oversight and Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:06 a.m., in
room 2154, Rayburn House Office Building, Hon. Jim Jordan
(chairman of the subcommittee) presiding.
Present: Representatives Jordan, Buerkle, Labrador,
DesJarlais, Kelly, Kucinich, and Cummings (ex officio).
Staff present: Drew Colliatie, staff assistant; Tyler
Grimm, professional staff member; Christopher Hixon, deputy
chief counsel, oversight; Kristina M. Moore, senior counsel;
Michael Whatley, professional staff member; Jaron Bourke,
minority director of administration; Lisa Cody, minority
investigator; Ashley Etienne, minority director of
communications; Jennifer Hoffman, minority press secretary; and
Carla Hultberg, minority chief clerk.
Mr. Jordan. The subcommittee will come to order. We want to
welcome our guests and our panel today. Mr. Kats is on his way.
We have been informed that he will be here in just a few
minutes. So we will get started with opening statements and
then get right to our testimony.
Today's hearing continues the committee's oversight and
examination of this administration's effort to use taxpayer
dollars to fund a massive green energy experiment. The 2009
stimulus directed around $90 billion toward green initiatives,
including loan guarantees for green energy firms, money to
weatherize homes, green jobs training grants, and many other
projects.
The President told the American people that, ``green jobs
would be a major force not just for environmental conservation,
but for economic recovery.'' The President said that we will
harness the Sun and the winds and the soil to fuel our cars and
to run our factories. And he promised that our country would
create millions of green jobs, which would help us compete in
the global economy. However, over 2\1/2\ years into this
experiment, the available evidence demonstrates these efforts
have wasted vast sums of taxpayer dollars, and have possibly
caused economic harm.
Even the Washington Post editorial board recently noted
that ``green jobs offer a dubious rationale for Federal support
of clean-energy technology. To the extent that government
creates jobs by subsidizing particular companies, it does so by
shifting resources that might have created jobs elsewhere.''
This committee welcomes and embraces new businesses and
technologies with the aim of increasing environmental
conservation, but it is important that we--that these be
brought about by market forces, not political whims. Today we
have a panel of expert witnesses who can speak to how the
administration's green energy efforts have panned out and where
we should go from here.
The inspectors general from both the Department of Labor
and Department of Energy have done thorough work evaluating the
challenges we faced as the economy has undergone these green
initiatives. In an audit released in September, the Department
of Labor's inspector general found that a $500 million program
for training people with so-called green skills has so far
produced only 1,336 jobs that have lasted over 6 months, with
$163 million already spent. This amounts to $121,856 per
successful green trainee.
While these numbers are abysmal, the truth of the matter is
even worse. Many of these people who went through this training
to obtain, ``green skills'' are likely worse off because of it.
Instead of spending time looking for sustainable work or
acquiring marketable skills, they acquired skills that are
simply not valued in the marketplace today. This is yet again
another well-intentioned government program that appears to
harm many of the people it was designed to help.
In his inauguration speech, the President stated in areas
where government initiatives fail, ``programs will end.'' And
those of us who manage the public's dollars will be held to
account to spend wisely, to reform bad habits. The available
evidence seems to indicate that programs put forth by this
administration aimed at promoting green energy and green jobs
failed, and, frankly, should end. With an unemployment rate
still over 9 percent and nearly $15 trillion accumulated in
debt, the American people deserve more than to see their
government going further into the red with programs that simply
aren't doing the job.
With that, I would yield to my good friend from Cleveland
for his opening statement.
Mr. Kucinich. Thank you very much, Mr. Chairman.
I think it is right to critically analyze the performance
of specific programs, and that is the purpose of this
committee, and I appreciate your role as chair in doing that.
The attention that has been focused on the Solyndra matter is a
case in point. These are legitimate questions that have to be
asked. But the concern that I have is that the run-up to this
meeting, and generally to the critical analysis of the
administration's inability to be able to bring forward a
massive greenworks program, should not in any way deter us from
moving forward with an effort on the part of the Federal
Government to create a transition in our economy toward more
sustainability in our energy and in our manufacturing.
For example, I have long been an advocate of plussing up
the NASA budget for the purposes of looking at areas of
developing green microtechnologies where you could
theoretically--now, it is theoretical--create millions of new
jobs involved in the design--in the concept, design,
engineering, manufacturing, installation, and maintenance of
millions of wind and solar microtechnologies that would lower
our carbon--reduce our carbon footprint, lower our energy
costs, and enable an economic--an overall economic stimulus
through jobs and lower energy costs.
America cannot rely on coal, which is a nonsustainable form
of energy, one that is damaging to our environment, for our
long-term energy needs. We cannot rely on oil for our long-term
energy needs. If we really had an accurate cost of a gallon of
oil, we would have to factor in the use of our military, which
has been increasingly used to be able to secure oil--access to
oil around the world. And we can't rely on nuclear, which is a
very shaky form of energy with respect to its security and the
disposition of nuclear--the securing of nuclear waste. So we
have to challenge the administration to come forward with new
possibilities. And today, hopefully, we will hear from the
Department of Defense about some of the directions that they
are going in that might lead to some possibilities for the
larger economy.
America inevitably is going to have to go in a direction of
green. Our economy must go in that direction. There is money to
be made in those directions. The fact that we have seen failure
at the beginning, which is important to note, because it--we
need to know what not to do, should not cause us to conclude
that there is little or no hope of being able to not just
restore public confidence, but be able to restore our economy.
Because in the end, that's what we are all concerned about,
getting Americans back to work, and finding ways where America
can seize the opportunity to catch the wave that is inevitably
building of green technologies, and particularly with respect
to energy.
So I want to again thank the chair for holding this
hearing, and I look forward to hearing the witnesses'
testimony.
Mr. Jordan. I thank the gentleman. I think he makes good
points.
I would just point out we are all for--I would think
Members on this side of the aisle are for any new technologies
that can help meet our technology energy needs. We just think
the market is a much better and more efficient way of getting
us there versus the kind of program we are going to hear about
today from our witnesses.
Mr. Kucinich. Would my friend yield?
Mr. Jordan. Be happy to yield.
Mr. Kucinich. Of the things that I remember a few years
ago, and this was in an investor's advice that was being given
to people who were interested in energy stocks, this may have
been 6 years ago, people were being told not to invest in green
energy, or wind and solar energy because they were being seen
as ``fads,'' but to put the investment dollar into oil, coal,
nuclear. Now, the market sometimes will go for the short-term
gain, using whatever resources are there, to max them out
immediately for maximum profit, without any necessary concern
about the society at large and about the future potential.
So, you know, I understand, you and I have had an agreement
on the government not interfering in the market with respect to
the bailout. We both voted the same way on that. But I am also
saying that market forces are not always according to Adam
Smith's invisible hand here.
Mr. Jordan. Does the gentleman from Tennessee--or excuse
me, we now have our vice chairman walking in. Does the
gentlelady from New York wish to make an opening statement?
Ms. Buerkle. Thank you, Mr. Chairman.
Mr. Jordan. The gentlelady is recognized for 5 minutes.
Ms. Buerkle. Thank you, Mr. Chairman.
At a time when people across the United States are
struggling to rebuild our economy and create jobs, I would like
to thank our chairman for calling this hearing to evaluate the
process and the substance of the MACT regulations.
Sorry about that. Wrong hearing.
Thank you, Mr. Chairman. Thank you for calling this
hearing. I will yield back my time. Thank you.
Mr. Jordan. The gentleman from Maryland, distinguished
ranking member of the full committee, is recognized.
Mr. Cummings. Thank you very much, Mr. Chairman.
I want to associate myself with the comments of Mr.
Kucinich, and saying that I think we have to be very careful
and not throw the baby out with the bathwater. I think
government does have a role to play here, and a very important
role. The Recovery Act provided some $49 billion to a variety
of green energy projects, and that funding has been used to
develop crucial new technologies, train workers for the 21st-
century jobs, and improve our national security.
The Departments of Energy, Defense, and Labor, and the
General Services Administration have been instrumental in this
effort; however, only the inspectors general from the
Departments of Labor and Energy are here today. The title of
today's hearing is ``Where Has All the Taxpayer Money Gone?''
One of the largest recipients of the Federal dollars for green
energy programs is the Department of Defense. In a 2010
Memorandum of Understanding with the Department of Energy, the
Defense Department said, ``Energy efficiency can serve as a
force multiplier, increasing the range and endurance of forces
in the field, while reducing the number of combat forces
diverted to protect energy supply lines, as well as reducing
long-term energy costs.''
In addition, we are developing green jobs here at home. The
Brookings Institution estimates that in my home State, for
example, the green jobs in Maryland employ some 43,207
residents, and pay out an average of $44,790 per year, which is
higher than the median salary in my State. At a time when the
middle class of nearly every State is shrinking, these figures
are indeed good news.
Finally, if we are going to remain competitive in the
global economy, we must be willing to make investments going
forward. According to a report released by the Pew Charitable
Trusts in March, China and Germany are leading in green energy
investments, and other countries like Italy, Mexico, and
Argentina are rapidly increasing their investments. The United
States, on the other hand, is falling behind. If we are not
willing to make long-term investments, we risk limiting our
competitiveness in the years to come, something we simply
cannot afford to do.
So I want to thank the witnesses for being here today. I
look forward to your testimony. And I want to, as we look at
this particular problem, I want to know how it is that, you
know, are we looking at one situation here? Are we doing a
blanket indictment of all our efforts in this regard? Because I
think if we are going to paint with one brush this entire
effort, I think that would be a major mistake.
And with that, I yield back.
Mr. Jordan. I thank the gentleman.
Does anyone else wish to make an opening statement?
All right. With that, we will introduce our panel. We first
have Mr. Gregory Friedman, who is the inspector general at the
U.S. Department of Energy. We want to thank the Honorable
Gregory Friedman for being here today. Mr. Elliott Lewis, the
Assistant Inspector General for Audit at the U.S. Department of
Labor. We also have with us Dr. David Montgomery, senior vice
president, National Economic Research Associates, Inc., and is
formerly Assistant Director of the CBO, as well as Deputy
Assistant Secretary for Policy at the U.S. Department of
Energy. As I indicated earlier, Mr. Kats is on his way. And we
also have with us Mr. Brett McMahon, who is president of Miller
& Long, D.C. And we appreciate our panel being here.
We are going to go ahead and swear you guys in. When Mr.
Kats gets here, we will do that. This is a rule of the
committee. So if you would just please stand up, raise your
right hands.
[Witnesses sworn.]
Mr. Jordan. Let the record show that everyone answered in
the affirmative.
You guys know the rules. Five minutes, you know, you get
the light system there. So stick to that as best you can. And
we will start right down the row here with Mr. Friedman. You
are recognized for your 5 minutes.

STATEMENTS OF GREGORY H. FRIEDMAN, INSPECTOR GENERAL, U.S.
DEPARTMENT OF ENERGY; ELLIOT P. LEWIS, ASSISTANT INSPECTOR
GENERAL, U.S. DEPARTMENT OF ENERGY; W. DAVID MONTGOMERY, PH.D.,
SENIOR VICE PRESIDENT, NATIONAL ECONOMIC RESEARCH ASSOCIATES,
INC.; GREG KATS, PRESIDENT, CAPITAL-E; AND BRETT MCMAHON, VICE
PRESIDENT OF BUSINESS DEVELOPMENT, MILLER & LONG CONCRETE
CONSTRUCTION

STATEMENT OF GREGORY H. FRIEDMAN

Mr. Friedman. Thank you, Mr. Chairman.
Mr. Chairman and members of the subcommittee, I appreciate
the opportunity to testify today at your request on the work of
the Office of Inspector General concerning the Department of
Energy's implementation of the American Recovery and
Reinvestment Act of 2009. The intent of the Recovery Act was to
quickly stimulate the economy and create jobs, while fostering
an unprecedented level of accountability and transparency.
The Department received $35.2 billion in Recovery Act
funding, dramatically increasing the budgets traditionally
available for initiatives such as home weatherization,
environmental cleanup, science projects, and loan guarantees to
advance energy technologies. With the passage of the Recovery
Act, the Office of Inspector General immediately launched
efforts to assist the Department. We have issued 68 reports
covering all major Recovery Act initiatives and activities,
initiated over 100 Recovery Act-related criminal
investigations, and conducted 300 fraud awareness briefings
around the country for nearly 16,000 Federal contractors,
State, local, and other officials.
Based on our body of work, we found the efforts by the
Department to use Recovery Act funds to stimulate the economy
was more challenging than many had originally envisioned. Our
reviews identified a fairly consistent pattern of delays in the
pace at which Recovery Act funds had been expended by grant and
other financial assistance recipients. As of October 22, 2011,
according to the Department's own records, recipient
organizations had spent only 55 percent of available Recovery
Act funds.
In terms of the Department's ability to meet the Recovery
Act goals, we found that weatherization work, for example, was
often of questionable quality. In one recent State-level
report, we found that 9 of the 17 homes visited failed
inspections because of substandard workmanship. The success of
the weatherization program was affected by other management
issues as well. For example, one major subrecipient gave
preferential treatment to its own employees and their relatives
for weatherization services over other eligible residents who
were elderly or who had special needs.
The Loan Guarantee Program could not always readily
demonstrate through documentation how it resolved or mitigated
relevant risks prior to granting loan guarantees. And one of
the Department's environmental management sites, relying on
Recovery Act funding, adopted an approach to radioactive waste
processing that could have cost about $25 million more than
necessary.
Further, the Office of Inspector General is investigating
various Recovery Act-related schemes, including submission of
false information, mischarging, and misrepresenting test
results. To date, these investigations have resulted in over
$2.3 million in monetary recoveries, as well as a number of
criminal prosecutions. This includes a series of cases
involving fictitious claims for travel per diem, resulting in
the recovery of $1 million alone in Recovery Act funds.
The Recovery Act established extremely challenging goals
for the Department. Notwithstanding the Department's intense
effort to meet these goals, we have a number of overarching
observations about the Recovery Act's implementation. These
included, first, the demanding nature of the Recovery Act's
implementation placed an enormous strain on the Department's
then-existing infrastructure. Second, dealing with a diverse
and complex set of departmental stakeholders complicated
Recovery Act startup, administration, and execution. Third,
although shovel-ready projects were the symbolic goal of the
Recovery Act, in most cases execution was more challenging and
time-consuming than had been anticipated. Fourth,
infrastructure at the State and local levels was overwhelmed.
Ironically, in several States those charged with implementing
the Recovery Act's provisions had been furloughed due to
economic conditions in those States. Fifth, the pace of actual
expenditures was significantly slowed because of the time
needed to understand and to address specific requirements of
the Recovery Act. And finally, recipients of Recovery Act
funding expressed their frustration with what they described as
overly complex and burdensome reporting requirements. In
summary, a combination of massive funding, high expectations,
and inadequate infrastructure resulted at times in less than
optimal performance.
Over the next year we will further review Recovery Act
expenditures in a number of high-risk areas, and our
investigative efforts continue. Additionally, we are evaluating
how the Department plans to deal with the loss of over 4,000
environmental management jobs by the end of this year, a
significant downsizing of the work force that was dedicated to
Recovery Act-funded work. Further, we are refining our
observations on the Department's implementation of the Recovery
Act, and are drafting a report to highlight other lessons
learned from this experience.
Mr. Chairman, this concludes my statement. I would be
pleased to answer any questions that you or the subcommittee
may have.
Mr. Jordan. I thank the gentleman for his testimony.
[The prepared statement of Mr. Friedman follows:]

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Mr. Jordan. Mr. Lewis, you are now recognized.

STATEMENT OF ELLIOT P. LEWIS

Mr. Lewis. Good morning, Mr. Chairman and members of the
subcommittee. Thank you for inviting me to testify today on the
OIG's recent report regarding the Department's Green Jobs
program.
As part of our oversight responsibilities, and in response
to a congressional request, we conducted this audit to
determine how the Employment and Training Administration had
defined green jobs; how they used the $500 million in funds
provided by the Recovery Act; and what the grantees had
reported achieving with respect to training and placement of
workers, including employment retention.
The OIG's findings and recommendations are based on the
latest data reported by the grantees to ETA as of June 30,
2011. We found that ETA defined green jobs as jobs associated
with products and services that use renewable energy sources,
reduce pollution, and conserve natural resources. ETA derived
this definition from the Green Jobs Act, the Energy Policy Act,
and from its own data base of occupational requirements and
worker attributes.
The Recovery Act mandated that funds be used for projects
that prepare workers for careers in energy efficiency and
renewable energy as described in the Workforce Investment Act.
Therefore, we determined that the definition of green jobs used
by ETA to award grants was in compliance with the requirements
of the Recovery Act.
The second objective of our audit was to determine how the
funds had been used. We found that of the $500 million
provided, ETA awarded the majority of the funding, or $435
million, for training programs to prepare workers, help
targeted populations overcome barriers to employment, help
participants obtain industry-recognized credentials, and place
them into green jobs. Overall, our audit found that although
ETA obligated all of the $490 million in grants as of June 30,
2011, grantees had reported expenditures of $163 million, or 33
percent of the amount awarded, while approximately 73 percent
of the training and nontraining grant periods had already
elapsed.
Our audit also evaluated what grantees had reported
achieving with respect to training and placement of workers,
including employment retention. We found that with 61 percent
of training grant periods having elapsed, grantees had reported
achieving limited performance targets for serving and placing
workers. Grantees reported that 53,000 individuals were served,
42 percent of the targeted 125,000; 47,000 participants
enrolled in training, about 40 percent of the targeted 115,000;
26,000 participants completed training, 27 percent of the
targeted 97,000; and 8,000 participants were placed into
employment, 10 percent of the program's goal of 80,000; and
finally, 1,300 participants retained employment for more than 6
months, about 2 percent of the planned 70,000.
It is important to emphasize that these training programs
are still under way, and we would expect to see changes in the
reported results by the time the programs are completed.
In response to our audit, ETA officials stated that they
expected performance to significantly increase over time due to
an initial lag during the startup phase of the grants. However,
ETA could not demonstrate that grantees were on target to meet
planned outcomes, nor was there a plan to ensure that they
could. In addition, according to interviews we conducted with
ETA regional officials early this year, grantees had expressed
concerns about the overall poor economic conditions, and that
green jobs had not materialized, and therefore job placements
had been much less than expected. As a result, we are concerned
as to whether grantees will effectively use the funds and
deliver targeted employment outcomes by the end of their
grants.
Accordingly, we recommended that ETA evaluate the Green
Jobs program, and in so doing obtain a current estimate of
funds each grantee will realistically spend given the current
job market and the demand for green job-related skills. This
will help the Department identify and correct any performance
issues before the grants expire, and assess whether the grant
funds will remain unspent, and could therefore be recouped and
returned to the U.S. Treasury so they can be available for
other purposes.
In response to our recommendations, ETA stated that it has
put in place appropriate measures to monitor progress and
provide technical assistance to help ensure ultimate grant
success for those grantees that may be at risk of not
delivering all of their outcomes. ETA further stated that it
has obligated all of its Recovery Act funds, and that it
expects all funds will have been expended by September 30,
2013, as required by the Office of Management and Budget.
In conclusion, Mr. Chairman, based upon the results of our
audit, we believe the Department has an opportunity to evaluate
the performance of the Green Jobs program while it is under way
in order to correct any performance issues and maximize
outcomes.
Mr. Chairman, thank you for the opportunity to testify on
our work, and I would be pleased to answer any questions that
you or any members of the subcommittee may have.
Mr. Jordan. Thank you, Mr. Lewis.
[The prepared statement of Mr. Lewis follows:]

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Mr. Jordan. Dr. Montgomery, you are now recognized.

STATEMENT OF W. DAVID MONTGOMERY

Mr. Montgomery. Thank you, Mr. Chairman and members of the
subcommittee. I was honored by your invitation to testify
today. And I think I can summarize my testimony in five points.
First is that the project failures and wasted money that we
are discussing today are not isolated examples of improper
execution of an otherwise worthwhile and potentially successful
program. The entire concept of using stimulus funds to create a
green economy through energy spending is misguided.
Second point I would make to develop that is that green
energy has none of the characteristics that are required to
make effective use of stimulus funding. In countering a
recession, the objective is to expend funds as quickly as
possible--and Mr. Friedman has pointed out that that hasn't
been happening--and also to phaseout that spending as the
economy improves. This kind of stimulus objective is simply
inconsistent with the Department of Energy's mission. Applying
this public works approach to energy would repeat the cycle of
boom and bust that has contributed to the failure of most of
our past efforts to deploy and--to develop and deploy new
energy technology.
My third point would be that the Recovery Act funds have
also been applied at the wrong end of the research,
development, and deployment spectrum, where there is the least
economic rationale for government involvement and the highest
likelihood of waste and failure. I point out in my written
testimony the great disproportion that existed in the
Department of Energy even before the stimulus funds compared to
other research organizations in terms of how much money goes
into basic research and how much goes into funding for large-
scale demonstration projects. The stimulus program made that
far, far worse.
Now, the reason that economists give for a government role
in R&D is the inability of private researchers to appropriate
the full value of their research. This is a serious problem
across the board in basic and in some applied research, but it
is only a problem at the deployment and commercialization stage
if there is no market for their product.
The second point is that peer review makes it possible for
government research organizations to do a good job of
allocating funds to basic research, but government has proven
over and over again that it cannot consistently pick winners in
the application of known technology.
And finally, there is a reason why so much money goes into
this deployment and technology demonstration and why it fails.
These are the projects that have electoral significance. They
attract lobbying, rent seeking, and porkbarrel politics, and
therefore come to be chosen independent of either their
economic or technical merit.
My fourth point would be that the kinds of up-front funding
provided by the Recovery Act basically create hothouse plants.
And I think this has a lot do with what we saw in Solyndra and
with other bankruptcies that we are seeing today. Some of these
hothouse plants will survive--my wife is occasionally lucky--
but it is the exception.
And again, there is a reason for the failures. Up-front
funding is not a universal substitute for the lack of a market.
Green is not enough. Green technology that produces energy that
costs more than its current fossil or nuclear substitutes is
not going to be purchased, and consumers are not going to be
willing to pay enough to cover the cost of ongoing business for
many of the projects that are being funded under the Recovery
Act. The Recovery Act, therefore, has turned into a back-door
and ineffective substitute for what Congress has decided it
does not want, a price on carbon. If there is no price on
carbon, there is going to be not much of a market for green
technology, and these projects will fail. In other words, if it
is not a good idea to put a price on carbon, it is an even
worse idea to loan money and fund projects that need it in
order to survive.
So that, I think, would be my final point, that, in my
opinion, it is very likely that most of the Recovery Act
projects will fail in one of three senses. Some will fail to
survive even with the subsidy that is provided in up-front
funding and loans if the value of their product in the market
isn't enough to cover the ongoing costs of producing it. And I
think, to be fair, many of these projects were originally
conceived with the hope that there would be a price on carbon,
as Mr. Kucinich pointed out.
Second, the Recovery Act funding will fail to jump-start
technologies or industries, because if every new venture has to
have an up-front subsidy in order to overcome the capital
barrier that exists because we don't put a price on carbon and
don't have a market demand for green technology, then things
will end with the Recovery Act projects.
And finally, it seems to me that these projects will fail
to provide a return to the taxpayer ever if the Recovery Act
fails to--if the Recovery Act is supporting projects that can't
pass the cost-benefits test on their own.
Thank you, Mr. Chairman.
Mr. Jordan. Thank you, Mr. Montgomery.
[The prepared statement of Mr. Montgomery follows:]

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Mr. Jordan. Mr. Kats, if you would please rise. We just
need to swear you in. You walked in just after we swore
everyone else in. So if you would just please stand up and
stand and raise your right hand.
[Witness sworn.]
Mr. Jordan. All right. Thank you, Mr. Kats. Sorry about
that. We know were you caught in traffic. We welcome you to the
committee, and you are now recognized for 5 minutes.

STATEMENT OF GREG KATS

Mr. Kats. Thank you very much, Mr. Chairman and members of
the subcommittee. My background is in finance. I have a MBA
from Stanford. I worked as the Director of Financing for Energy
Efficiency and Renewable Energy in the Department of Energy for
the last 10 years. I have been involved in private-equity
financing for clean energy. I have been involved in funding
billions of dollars of clean energy projects, both at a project
development and a venture capital perspective.
The way I look at it is from a finance perspective, and I
can say that our international competitors, Japan, Germany, and
China, are not sitting still. They are heavily subsidizing this
race to a clean-energy future, which is a transition that
pretty much all companies, certainly the U.S. military, and the
large majority of governments now recognize we are involved in.
So the support for ARRA funding and clean energy, although it
has had a steep ramp-up and had some teething problems, on
balance was well timed and has been very important in
supporting the U.S. ability to compete in this critical area.
A recent Brookings study found that between 2003 and 2010
in this clean energy area, there has been an 8.3 percent job
growth. It has been one of the most important areas of job
growth domestically and is an area that our competitors are
investing in. So in terms of economic opportunity and job
growth, it has been an important driver for the economy.
The U.S. military is committed to clean energy because, in
its view, and based on its actual experience, clean energy
allows them to deliver their military purpose and security more
cost-effectively than reliance on fossil fuels. So the security
dimension of clean energy has become much more important. The
U.S. military has been very clear on this particular issue.
There was a--several independent nonpartisan reviews about
the impact of ARRA funding on clean energy. The Council of
Economic Advisers in November 2010 found that as of the third
quarter of 2010, between 2.7 and 3.7 million new jobs had been
created from this ARRA funding, and that it had a positive
impact on GDP of 2.7 percent. In May 2011, U.S. Congressional
Budget Office found that in the first quarter of 2011, the
impact of this ARRA funding had been an increase of between 1.1
and 3.1 percent GDP growth, and an increase in full-time
employment of between 1.6 million and 4.6 million people. These
success stories are being built on.
As discussed, this very steep ramp-up in funding was hard
to deliver because the personnel were not there. As that
funding gets deployed in the field, we expect to see an
increase in economic productivity and an increase in
employment.
The last point I would make is that the OMB in its 1705
Loan Guarantee Program assumed and budgeted for a 12.85 percent
default rate, an almost 13 percent default rate. Solyndra, and
more recently Beacon, which went bankrupt, represented about
1.6 percent of that total funding. We expect to receive back a
portion, that is recover a portion, of that funding. So the
total default rate to date, based on these two companies, will
be about 1 percent. That is less than one-tenth of the
projected default rate expected for and planned for by OMB.
About 90 percent of ARRA funding goes to large, clean-
energy-generation projects. The large U.S. companies like
General Electric who are competing in international markets
have found this funding critical to their ability to compete
and to expand and build on jobs. Funding for Johnson Controls,
for example, in building a 3,000-person clean battery bank--
excuse me, production facility in Michigan, will create 3,000
direct jobs and many more indirect jobs at a cost of under
$100,000 per job.
So it is not a perfect story, but given the rate of ramp-up
expected from this funding, the success story, I think, has
been pretty clear. At least 1 million to 3 million jobs
created, a lot of strengthening of U.S. competitiveness on this
critical international issue. And for investors in clean
technology, it is really a commitment to the future. It is
really a vote for those who are optimistic about America's
capacity to compete successfully in this critical market.
Thank you.
Mr. Jordan. Thank you, Mr. Kats.
[The prepared statement of Mr. Kats follows:]

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Mr. Jordan. Mr. McMahon, you are recognized for 5 minutes.

STATEMENT OF BRETT MCMAHON

Mr. McMahon. Thank you very much, Chairman Jordan, Ranking
Member Kucinich, and other members of the subcommittee. My name
is Brad McMahon. I am the president of the recently founded
Miller & Long DC, Inc. We are a Washington, D.C.-based
subcontractor. My previous employer, Miller & Long Co., Inc.,
was founded in D.C. in 1947. It is one of the Nation's oldest
and largest subcontractors. The company regularly employs
approximately 1,500 people as form building carpenters, cement
finishers, reinforcing rodmen, layout engineers, equipment
operators, laborers, everything that you could think of under
the Sun for our particular trade. We have provided employment
for over 75,000 D.C.-area residents over the last 64 years.
During my 19 years in construction, I personally have
overseen over 50 high-rise concrete structures, and have been
proud to provide employment for over several thousand
construction workers, both here in D.C. and in the Carolinas.
Also active in a number of organizations here locally,
including the D.C. Construction Trades Academy at Cardoza
Senior High School, where we provide the only vocational
training available for construction workers in the District of
Columbia.
I first heard the term ``green collar jobs'' about 4 years
ago. Like many, I was not sure what the term meant. And since
so much of the focus seemed to center around my industry, I
thought it would be wise to at least learn some more about it.
I learned over time that the term was actually a lot more
political than actual. It became clear that it was just a new
label on jobs that actually have existed for years. A lot of
the public relations effort has gone into trying to claim there
is something new here, and, unfortunately, that is not the
case.
Considering this--consider, please, the following example,
because I thought this was the clearest I have ever seen, by a
gentleman named Mark Anderberg from the Texas Workforce
Development Commission in a report labeled ``Green Collar
Workers and Other Mythical Creatures.'' In it, if you have the
testimony in front of you, you will see the picture of two
different toilets. One is a low-flow toilet; one is the old-
fashioned one. And the question that begs from this is what are
the skill differences for installing these two things? What is
the possible difference between installing this one and that
one? And the problem is there isn't one. However, the claim is
that somehow they are trying to say that there is a new job
created because you can install the low-flow toilet instead of
the old one.
For a nonconstruction example, I would hope we could all
agree that the skills necessary to drive an electric car are
the same skills necessary to drive the largest SUV. The same
driver can operate either vehicle just as the same plumber
could install either toilet. The difference is in the product
and not the operator. However, a great deal of effort and tax
dollars have gone to the purpose of convincing the public that
the plumber who installs a low-flow toilet should now be called
a green collar plumber, and that the new label should count as
a new job. This kind of thing makes those of us in construction
wonder where somebody would come up with that idea.
There is something important about the new label that I did
not understand at first. If the new label is more than just a
political talking point, but is actually a formal, new, capital
O ``Occupation Title'' per the U.S. Department of Labor, then a
new problem is created. When a new occupation is designated for
the construction industry, a new set of standards is developed.
In addition to the antiquated and complex determination of a
prevailing wage, a new apprenticeship training standard is
established, even though in this case the only difference is in
nomenclature, not in skill set.
With that understanding, I will relate how this program
unfolded in the District of Columbia. On October 4, 2007, I
attended a meeting in the D.C. Department of Employment
Services. The purpose of the meeting was to discuss the rollout
of the Green Collar Jobs initiative. The meeting was basically
handled by the staff from the Center for American Progress. The
handout we received is attached to this document. I kept it
because it laid out the goals of their program very clearly. It
even included, for the first time I had ever received one from
a D.C.-based meeting, a bar chart schedule detailing new
mandatory apprenticeships that will be required to work on any
project covered by the then brand-new at that time D.C. Green
Building Act.
This proposal was a great concern to me because it took my
company 26 years to get our apprenticeship program passed by
the D.C. Apprenticeship Council. In fact, the only reason we
were finally accepted was because the Apprenticeship Council at
that point had its first and only nonunion member. Union
control over apprenticeship boards is a common roadblock for
the 87 percent of construction workers who have chosen the
merit shop over unions.
So when a new occupation gets its own apprenticeship
training standards, the participating employers must apply to
have their program accepted. Having spent the better part of
three decades getting our current program accepted, we were not
looking forward to going through the whole process again.
In the District, there is a local hiring ordinance known as
First Source, which includes mandatory registered
apprenticeship participation. First Source only applies to
those projects that receive a certain level of assistance from
the District Government. What is shown in this handout is that
the advocates were planning to take the First Source mandatory
apprenticeship concept to a new level. The inset here from the
project schedule is taken from that handout. The advocates were
planning to make new green collar apprenticeship mandates apply
to every project covered by the new D.C. Green Building Act.
Unfortunately, the District of Columbia Green Building Act
actually covers every brick and stick, public or private,
inside the city limits of Washington, D.C. And we were
basically looking at being barred from working inside the
District.
Thank you.
Mr. Jordan. Thank you, Mr. McMahon.
[The prepared statement of Mr. McMahon follows:]

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Mr. Jordan. We appreciate everyone's testimony.
Mr. Friedman and Mr. Lewis, based on your testimony, it
looks like both this weatherization program and the Green Jobs
training program are, by, I guess, anyone's conclusion, just a
complete failure. And I want to start with you, Mr. Lewis, and
walk through this. Based on your testimony, I think I got the
numbers right, $490 million is out the door, but only $163
million has been spent. Is that accurate?
Mr. Lewis. Correct. That was as of June 30.
Mr. Jordan. Okay. And how many of the $163, $162.8, $163
million spent, how many people have been trained?
Mr. Lewis. Completed training, 26,000 people.
Mr. Jordan. And how many now have a job that--how many have
been successful, been trained, and actually are working in this
area and have a job for any length of time, let's say 6 months?
Mr. Lewis. Of the 26,000, about 8,000 people were placed
into a job.
Mr. Jordan. Do you know the math on that? So we have spent
$163 million and trained 20-some thousand; only 8,000 have
actually received a job. Do you know how much we are spending
per person?
Mr. Lewis. I didn't. I had not calculated that.
Mr. Jordan. Several thousand dollars probably, right?
Mr. Lewis. Yes.
Mr. Jordan. Maybe even close to--I mean, maybe
approaching--well, it wouldn't be quite 100,000, but lots of
money spent per job. Do you see any way--in fact, what were the
targets that the Department of Energy had laid out?
Mr. Lewis. Department of Labor.
Mr. Jordan. Department of Labor, I am sorry.
Mr. Lewis. The total grants added up to a plan to train
about 97,000 people. We are at 26,000 had been trained at this
point. I do believe at the end of June there were around 20,000
people that were in the program.
Mr. Jordan. All right. Do we know anything about the folks
in this program? Have they been laid off? Are they on
unemployment? What do we know about the people in the program?
Do we know?
Mr. Lewis. Some of the people in the program were
unemployed, although there were--some of the grants were also
designed to target incumbent workers, so workers who were
already employed, but wanted to upgrade their skills to qualify
for a green job or to maintain a job.
Mr. Jordan. Okay. And so I guess there are two perspectives
to look at. You have several thousand people who have been
trained. Some of them may have been receiving some kind of
benefit from the taxpayer. Now the taxpayer is helping them get
trained. So they could be receiving unemployment and getting
these additional dollars spent. Most of them are not getting a
job. So we've got the harm to the taxpayer, but, frankly, also
the harm to the individual who went through this training and
has maybe not a whole lot to show for it.
Mr. Lewis. If we have trained them in something that there
is not a job for, then, yes, we are not doing them the best
benefit.
Mr. Jordan. Do you think there is any way we can recover--
you said $490 million out the door, but only $163 million
spent. Is there any way we can recover the additional over
$200-some million?
Mr. Lewis. Of course, those numbers were as of June. So
this quarter, which we don't have the reports in yet, there
would be more funding spent. I don't know how much.
Mr. Jordan. Isn't there at some point when you say this
program is not working? This actually reminds me of another
program we have had hearings on, the HAMP program, which was
designed to help 4 million homeowners stay in their homes and
helped a few thousand. Lots of money out the door, but lots of
money hasn't. So is there any way you think we can get the
money back, not do any more harm to people, put them in
training that is not going to benefit them, and actually get
the money back for the taxpayer?
Mr. Lewis. Yeah. And that is what we have asked the
Department to do, to look at how much at this point has not
been spent. And if it isn't going to be----
Mr. Jordan. So is it--the inspector general of the
Department, is your recommendation that we stop the program?
Mr. Lewis. I would want to have more information from the
Department.
Mr. Jordan. How much more do you need? When you look at
these numbers and how bad they are, how much more do you need
to say this is just not working?
Mr. Lewis. Well, I don't know. You know, I know there is
20,000 people in the mill at the end of June. You know, whether
these numbers are going to pick up, there is something we
haven't seen, I can't say.
Mr. Jordan. I mean, at some point we say how much longer do
we give----
Mr. Lewis. But the placement numbers are very far behind.
Mr. Jordan. Yeah, very bad. And is there ever a chance to
catch up to the targets they said they were going to hit?
Mr. Lewis. They could catch up to their targets for
serving. They would have to make a significant increase to
catch up with their placement targets.
Mr. Jordan. Exactly.
Mr. Friedman, real quickly, because I have about 40 seconds
here, the weatherization program, you mentioned, I think, in
your testimony, if I got it right, 9 of 17 homes you visited--
was this homes or commercial?
Mr. Friedman. Homes.
Mr. Jordan. Okay. So homes you visited did not pass
inspection.
Mr. Friedman. That is correct.
Mr. Jordan. How were these 17--did you select them, did the
Department of Energy tell you? How were these 17 selected?
Mr. Friedman. They were not selected by the Department of
Energy. We don't work that way, Mr. Chairman.
Mr. Jordan. Okay. You just randomly picked them or----
Mr. Friedman. They were picked in conjunction with the
States in some cases. This is one example. There are other
examples in other jurisdictions of rejection rates because of
inadequate work and poor quality work.
Mr. Jordan. But based on your sample, over half----
Mr. Friedman. That is correct.
Mr. Jordan [continuing]. Over half the homes didn't meet
the requirements.
Mr. Friedman. In that jurisdiction, that's correct.
Mr. Jordan. So I want to ask you the same question I asked
Mr. Lewis: Is this weatherization program, based upon what you
have seen out there, over half the homes not meeting the
criteria that is outlined and meeting the standard, is this a
program we should end?
Mr. Friedman. Mr. Chairman, that is a long--requires an
extensive answer. So give me a minute or two, if you don't
mind. This program has been in effect since the mid-1970's. The
funding, on an annualized basis for the last several years, has
been about $400 million a year.
Mr. Jordan. It seems to me it doesn't matter how long it
has been in existence. If it is bad, it is bad, and it should
have ended a long time ago. Maybe that is a reason that--but
that shouldn't prohibit us from doing the right thing and
ending it if it's that bad.
Mr. Friedman. Absolutely. And I am not suggesting that is
the case. What I am suggesting is the fact that the program has
a long history, it is a mixed bag. I wouldn't say it is a total
failure. There have been some successes, a number of successes.
The Department reports that over 500,000 homes have been
weatherized around the Nation. So there have been some
successes, there have been some failures. I think--I would
suggest that we fix it, not necessarily end it.
Mr. Jordan. Okay. Not a total failure, just a failure in a
lot of ways.
With that, I will yield to my friend from Ohio, the
gentleman Mr. Kucinich.
Mr. Kucinich. Mr. Friedman, you are not recommending,
though, that the U.S. Government suspend all weatherization
programs; is that correct?
Mr. Friedman. That's correct.
Mr. Kucinich. And this recent audit was 9 of 17 weatherized
homes visited--that were visited failed inspections because of
substandard workmanship. You are not concluding, based on that,
that all weatherization programs don't work; is that right?
Mr. Friedman. That's correct. But, Mr. Kucinich, let me put
this in some perspective. We visited 10 or 20 States around the
Nation, and this was reflective of one particular jurisdiction,
the work of one particular community action organization. There
were problems in a number of jurisdictions that need to be
corrected if the program is going to be continued. The purpose
of--what we were trying to achieve is a sort of a lessons
learned. Here is what has gone wrong; here is what needs to be
corrected if the political judgment is to continue this program
going forward.
Mr. Kucinich. Let's look at this. I mean, who uses
weatherization programs? Primarily lower-income people. So we
don't want to be in a position as a subcommittee in
recommending that lower-income people don't get the help that
they need. We want to do everything we can to lower their
energy costs. So I think that this subcommittee has to be very,
very careful about drawing any sweeping conclusions about
failures that may exist in some areas.
And I will certainly yield to my friend.
Mr. Jordan. I think the gentleman makes a good point, but
we certainly don't want to, whether it is a green jobs training
program or a weatherization program, have a program that
doesn't work; on one hand gives peoples false hope, on the
other hand doesn't give them the standard that they are
entitled to get if we are going to have the program.
Mr. Kucinich. You and I are 100 percent in concurrence on
saying that if Federal dollars are being spent, we expect the
workmanship to be good. That is one of the reasons why I
support Davis-Bacon requirements. It is a workmanship issue.
And so I think that, you know, we are on the threshold of
another winter. It snowed here last weekend. Temperatures are
dropping. There is poor people shivering in their homes. We
don't want to tell them that they are not going to have access
to a weatherization program. I just want to be very careful
about that.
On the issue of workmanship, though, 100 percent in
agreement with you. And we will get Mr. Friedman's help in how
we tighten that up.
Now, Mr. Kats, in the time that I have remaining, you know,
there is an assertion being made here that somehow this green
energy and the potential for profit in it is some kind of a
myth. You are an investor in this, right? Isn't this your
background?
Mr. Kats. Yes, that's correct.
Mr. Kucinich. I mean, can investors make money investing in
green energy or not?
Mr. Kats. Yes, they can. And----
Mr. Kucinich. Do they?
Mr. Kats. Yes, they do. There have been an increasing
number of IPOs and sales to large corporates from firms that we
have invested in. I am on the board of Tendril, for example,
which is a smart grid company that has benefited from ARRA
funding. Beginning last year they were in 100,000 homes, end
this year it will be 4.2 million homes. We expect to get a 10X
return on that. Some companies we have----
Mr. Kucinich. You want to explain that for the uninitiated,
a 10X return?
Mr. Kats. So investments are made in the hope that we are
going to make money. That doesn't always happen. Part of the
portfolio is expected to not perform well, and others are
expected to perform well. In the case of clean energy, we are
seeing more and more companies that are performing well over
time. And as they get purchased, or as they go public, the
investors are returned money. And the expectation is that the
money that they receive back exceeds the money they put in.
Mr. Kucinich. Let me ask you this, the Department of
Defense is spending a lot of money on green energy research, is
it not.
Mr. Kats. Yes.
Mr. Kucinich. Why?
Mr. Kats. They believe it reduces the cost for delivering
support services in the field. They believe it reduces adverse
security concerns. They believe it strengthens the military.
They believe that clean energy is a more cost-effective way of
delivering their obligation.
Mr. Kucinich. Have you worked with people in the Department
of Defense on any of these energy issues?
Mr. Kats. Yes, I have. They're very excited about it. They
think that it strengthens security in a lot of different ways,
and on a cost-effectiveness basis, is a smart investment
strategy.
Mr. Kucinich. And I think it would be interesting for us to
have a hearing just with the Department of Defense on this
issue because what we're seeing is that those people who are
inevitably charged to intervene on energy-related issues, with
the geopolitics being what they are, are themselves cognizant
of the imperative of moving toward green energy, and if the
institution that drives one of the largest parts of the Federal
Government is showing an interest in green energy, I think that
not only should this committee pay attention to that, but I
also think that Wall Street ought to be paying attention to
that as well.
Thank you, Mr. Kats. Thank you, Mr. Chairman.
Mr. Jordan. I thank the gentleman. Just one followup
question if I could with Mr. Friedman.
Half of the homes that you looked at that did not meet the
standard, do you know who did the work, was it a union
contractor or nonunion contractor, do you know?
Mr. Friedman. Well, Davis-Bacon--I don't know in those
particular instances. Davis-Bacon, for the first time in its
35- or 40-year history was introduced to the weatherization
program as a result of the operation of the Recovery Act.
Mr. Jordan. So it is likely--we were talking about union
contractors doing this work?
Mr. Friedman. I don't know. I can't answer that question.
Mr. Jordan. But what you're saying, Davis-Bacon is being
applied now, right, with the stimulus? It's a requirement now,
correct?
Mr. Friedman. I apologize, let me hear--I missed your
statement. Go ahead, please.
Mr. Jordan. Davis-Bacon is now required?
Mr. Friedman. Correct.
Mr. Jordan. You're charged with looking at stimulus dollars
out the door?
Mr. Friedman. Correct.
Mr. Jordan. Your testimony was half the work done was not
to standard, 9 out of 17?
Mr. Friedman. Correct.
Mr. Jordan. And so is it likely to conclude who did the
work?
Mr. Friedman. I can't make that conclusion because it could
have people who were nonunion who were being paid Davis-Bacon
wages.
Mr. Kucinich. Would my friend yield?
Mr. Jordan. Would be happy to yield.
Mr. Kucinich. Since we're both from Ohio, I bet you a bag
of Buckeyes that they weren't union contractors. Thank you.
Mr. Jordan. I now yield to Dr. DesJarlais, gentleman from
Tennessee.
Mr. DesJarlais. Thank you, Mr. Chairman. I guess just to
kind of bring things back in focus, we're here today as a
subcommittee of oversight and reform to take a look at stimulus
oversight in this case, and the hearing, of course, is entitled
The Green Energy Debacle: Where has all the taxpayer money
gone? And that's really why we're here. We're all here to make
sure that all the good taxpayers are getting the best for their
tax dollars, and I think, clearly, the stimulus program has not
lived up to its expectation.
So, Mr. Friedman, just to kind of maybe try to put a cap on
the weatherization issue, we've been beating that horse here
for a while. I think about $5 billion of the stimulus money was
set aside for weatherization projects for paid contractors and
nonprofit groups to make the homes of low-income Americans more
energy efficient.
Being from Tennessee, I think that the program has revealed
countless instances of waste, fraud, and abuse, and in an audit
in Tennessee, the Inspector General found that 246 energy
measures installed in 41 homes revealed only a third were shown
to meet Department-directed minimum energy savings-to-
investment ratios.
So your office has done investigations of stimulus funded
weatherization projects in many different States. Tennessee may
be one, but what are some of the most egregious examples of the
waste your office has uncovered?
Mr. Friedman. Well, first, mischarging, that is, charging
for work that was never accomplished. These are some of the
schemes that we are currently investigating and have
investigated. Second, paying premiums for products that could
be purchased at lower cost. Third is charging for work that was
never done in general. Fourth is abusing the priority sequence
of those who could or should be receiving, were eligible to
receive the weatherization work. And those are four or five of
the most significant finds, and of course, the whole question
of substandard, the quality of work issue. In some cases, it
was actually life threatening.
Mr. DesJarlais. Is it true that weatherization funds can be
used to purchase brand new refrigerators or air conditioners?
Mr. Friedman. I don't want to give you an inaccurate
answer. Certainly, furnaces would be appropriate. I don't know
about--did you say refrigerators?
Mr. DesJarlais. Refrigerators, air conditioning.
Mr. Friedman. There are programs that will give premiums
other than weatherization for purchasing new appliances that
are energy efficient. I don't believe it was covered under the
weatherization program.
Mr. DesJarlais. I'm not sure that would be found anywhere
in the Constitution, that that would be a right, but rumor has
it that is the case. How much weatherization money do you think
we could recover at this point of the $5 billion?
Mr. Friedman. I would suspect that there would be very
little that's recoverable at this point.
Mr. DesJarlais. Okay. Changing gears just a little bit, I
think there was an article in maybe The Washington Post this
morning, but were the State and local governments ready to
receive the massive amounts of money that were allocated to
them from the Department of Energy as part of the stimulus?
Mr. Friedman. Unfortunately, they were not and that was an
issue that I think was predictable, and we, in fact, did
anticipate that that would be a problem.
Mr. DesJarlais. So you don't think it was very wise to send
millions of dollars to local governments who were in the
process of laying off workers because of the recession, they
couldn't handle this influx of money, they weren't ready and
that contributed to the waste?
Mr. Friedman. Well, not meaning to make a joke out of a
very serious subject, but it's been equated to attaching a long
hose to a fire hydrant, that the infrastructure--both at the
Federal, State, and local level simply was not there to accept
the burden.
Mr. DesJarlais. Okay. So you think that that was a great
contributor to the inefficiencies and the waste that the office
has seen?
Mr. Friedman. Certainly.
Mr. DesJarlais. Okay. Thank you. Mr. Montgomery, you state
in your testimony the mission of the Department of Energy and
the purpose of the Recovery Act were not consistent. Could you
please expand on this point for us?
Mr. Montgomery. Yes. The requirements of an effective
energy technology development program are essentially stable
long-term funding. It also requires a careful selection
process, especially if the money is being put at the R&D stage,
and that involves proposals. It involves peer review. It
involves the formation of a program in which the R&D stage is
set.
None of that fits with the classic prescription for
stimulus, which is get the money in fast and turn it off
quickly when it's no longer needed. That's exactly the opposite
of what the Department of Energy needs, and it's the way we
have killed any number of useful programs in the past. For
example, the Solar Energy Initiative, I remember back in the
1970's and early 1980's, was cut off just as it was beginning
to get going somewhere, and in terms of production and bringing
costs down.
Mr. DesJarlais. Based on your decades of experience in
energy policy, does the entire concept of promoting green jobs
make economic sense?
Mr. Montgomery. Not through programs like the Recovery Act.
I would say that green jobs are a solution in search of a
problem. It's not a way of dealing with climate change. It is
not a way of dealing with the government's responsibilities for
R&D. It's not a way of dealing with the other environmental
issues that we face, and it is certainly not a necessity for
getting the U.S. economy to grow. It's something that may or
may not happen if we put policies in place for those other
objectives, but it is not a program that has policies
significant to itself.
Mr. DesJarlais. Okay. And I'm out of time. Thank you,
gentlemen.
Mr. Jordan. I thank the gentleman from Tennessee. Will now
recognize the vice chairman, followed by Mr. Kelly and Mr.
Labrador--oh, excuse me. Mr. Kelly is up first.
Mr. Kelly. Thank you, Mr. Chairman. Mr. Montgomery or
Doctor, let's stay with you.
I know in the opening statements we talked about one of the
problems with our dependency on oil is that there's also a
military investment made. If we were to do it domestically, if
we had a really aggressive domestic energy policy, where we
actually use our own resources--we know that a third of the
world's coal is underneath our surface. We know that in Western
Pennsylvania it's now being called the Saudi Arabia of natural
gas. We have oil onshore, oil offshore. We've done an awful lot
to hinder that development.
And certainly, I listened to John Hoffmeister early in the
spring. He said there's 2 million jobs, a minimum of 2 million
jobs waiting right now in the energy sector if we were to have
an energy policy, a strategy that was aggressive. And I'm
listening to what you're saying. So the cost of military, it's
true we do spend a lot of money in the military. But we
wouldn't have to do it if we produced it in our own country. I
mean, we wouldn't be spending petro dollars in countries whose
ultimate goal is to annihilate us and we're funding that
process.
I have a difficult time when I hear that, yeah, we want
jobs, we want jobs right now, but we keep gaming ourselves, you
know, and this investment that we've made--and only in
government, by the way. I come from the private sector, and I
love this idea of these green jobs and you have to go at them,
when you don't have to worry about a positive return on
investment, you can waste a lot of taxpayer money.
There's hardworking Americans whose money has been invested
and I keep hearing this, there's an element of risk. And I
understand there's an element of risk, but when you take hard-
earned American tax dollars, and you throw it at an agenda
rather than at a strategy, and you see the waste, I mean, it
must really rankle somebody like you, your whole life you have
watched this happen. And only in this town, only in this town
can you squander money and not worry about it because there's
an endless supply of it. If you don't have enough money for
that project, don't worry, we'll get more money. We'll just
raise taxes and we'll throw some more money at that and we'll
re-allot money to you.
I think that's really where we're at today when we ask
about this money has been wasted. There's nobody in the private
sector that would continue to squander the capital that we're
squandering right now on a reelection agenda and not on an
energy policy that makes sense for America.
And I want to hear words. Would it be possible, without
government subsidies, for these green jobs to go forward?
Because you know what, I'll tell you what, in my district, one
of the local business owners, he has a marquee out in front of
his place. He puts down ``green jobs equals red ink.'' And I
tell you what, I think that guy has a better feel for what's
going on about policies right now than a lot of folks inside
this Beltway.
So I mean, really without the subsidies, we talk about--
well, yeah, General Motors is willing to invest in the Volt.
Well, no kidding. They've got a safety net underneath them. I
mean market-driven means you can drive it off the lot, somebody
wants to buy it, not you're going to throw somebody $7,500 of
taxpayer money, Federal money, and $3,500 of Pennsylvania money
for somebody to drive that car off the lot.
And we're already seeing, by the way, and I know this
because I'm a Chevy dealer, this great idea that we're going to
produce 16,000 of these Volts this year. Well, we're selling
about 500 a month. You do the math. There's 10,000 Volts that
are going to have no home to go to. Being a dealer, I know
whose driveway they end up in, or whose lot they end up in.
Just tell me, without the government subsidies, who would
venture into this wonderland, and I mean wonderland, wondering
if they could possibly work if it was their own money?
Mr. Montgomery. Thank you, Mr. Kelly. I think I heard three
questions. Let me go back to the first one which was----
Mr. Kelly. More frustrations than questions, I've got to
tell you.
Mr. Montgomery. Thank you. No, I think there were--well,
there were three topics I would like to talk about.
The first one is energy security. Most of the green jobs
that we are hearing about now are either in the weatherization
area, which we've heard talked about, classifying
construction--certain construction jobs as green, or they have
to deal with generating electricity because in the short term,
the technologies that we are deploying are largely electricity-
related technologies. And the electricity technologies are
already being supported by things like the State level
renewable portfolio standards, and requirements of the various
public accounts, California's requirements for renewable
energy, and that's making a market. Again, it's created by
government, but it's created by regulation.
The opportunities in the near term for actually changing
our oil imports are very, very limited on the green technology
side because biofuels are going to be a long time to develop.
They require serious breakthroughs in order to accomplish
something.
Electric vehicles I think you've described very accurately,
that the market just does not exist for electric vehicles with
the current price of electricity and the current price of those
vehicles, except for people to whom they're a very expensive
toy or people who will be given them for free.
So what are we going to do about energy security? Green
jobs program is not affecting energy security because if you
define energy security as either reducing the amount of world
oil supply that's produced by our enemies or reducing U.S. oil
imports, their production is probably the most rapid way that
we can do something about it. The transportation sector is
going to be very hard to get off oil, and electricity doesn't
consume oil, so putting money into electric technologies
doesn't affect our oil balance at all.
As far as government subsidies go, yes, I think that if--
once Congress makes--made the decision that there was not going
to be a price of carbon in the market, that there was not going
to be a cap and trade program or a carbon tax, that means that
most--that any technology that was depending on that, any
technology that's going to produce renewable energy at a cost
that's 25 percent higher than burning coal is not going to have
a market beyond what's created by the State renewable portfolio
standards, which gets into a third and important issue, I
think, and maybe you will let this have some debate among the
panelists.
But it's that Mr. Kats mentioned that investors can make
money on clean energy. Well, certainly they can if they are
selling into, you know, wind turbines into a market where the
RPS, the renewable portfolio standard, says utilities must buy
wind. Well, investors are going to make money selling wind.
Actually most of the wind is--there's another trade issue about
where the wind turbines are being purchased.
My question is, if a venture that was funded largely by
private equity and made it 10 times return for its private
equity investors when it was sold to a big company, why did it
need Recovery Act funding? It seems to me that we are in a
situation where if you--if you--if you can make a profit on
doing something through private equity, you don't need the
Recovery Act funding, and if there's not a market for the
product, the Recovery Act funding is not going to be enough to
create a sustained industry.
Mr. Jordan. Thank you, doctor. Now recognize vice chairman.
Ms. Buerkle. Thank you, Mr. Chairman, and thank you to our
panelists for being here this morning.
Now, many of us came to Congress in part of the 2010
elections because of the economy, because of jobs, because of
the state of what was going on in our country, and this notion
that the government can spend money to create jobs, and the
stimulus which was touted as you know never going to get
unemployment above 8 percent, we see that we've now got
unemployment and it's been there for 24-plus months at 9
percent or hovering around 9 percent. So the Keynesian
economics didn't work.
Now, we're being pushed another stimulus, well, we need an
additional stimulus because the first stimulus wasn't enough.
Now we're going to have a second stimulus, and we're going to
spend money. And when I'm out in the district and I hear from
some of the supporters of this notion, they say, well, it
creates jobs and we want to create jobs. And we all want to
create jobs. We want to get this economy back on track, but the
government can't do that. It's the private sector's job. The
private sector can do it.
So we look at the stimulus, and my question is for Mr.
Friedman. All of these jobs that were created, these green
jobs, what happens when this money is spent? What happens to
those jobs?
Mr. Friedman. Ms. Buerkle, the Department's $35 billion
plus its loan guarantee authority that came with the Recovery
Act, there are a lot of different ways in which it was spent,
but let me give you one example.
As I reported in my testimony, the Department used a
substantial amount of money to advance its environmental
remediation program, remnants of the Manhattan Project at sites
around the country, and the money has dried up. The money has
come to an end, and between 4,000 and 5,000 people will be
losing their jobs between now and the end of December of this
year.
So you have to look at each bucket somewhat separately, and
certainly in the case of the money that was spent for creation
of these jobs, they come to an end, and which is unfortunate
for those individuals.
Ms. Buerkle. And so the arguments that we hear, well, let's
spend this money and create jobs, these are short-term jobs,
and we will far better served to get a good, solid
transportation bill in place which would have shovel-ready jobs
eventually, and those jobs and the funding would be available
rather than this temporary spending.
Mr. Friedman, I just want to talk a little bit about 1705
loan program, and my question is--and I realize you're going to
be looking into this or you are looking into it and you may not
be able to comment on certain portions of it. And this kind of
goes to what Mr. Kelly was talking about, this notion that when
the government is funding something, it's an endless pit, you
know, there's just more money--if it doesn't work, we'll just
pour more money into it.
When a program like Solyndra, when you identify that
there's such a significant loss, is anything done to make a
change midway through that program and say this isn't working
and we need to restructure this program so it does work, so
we're not throwing good money after bad, and we're not wasting
American taxpayers' money?
Mr. Friedman. Well, Ms. Buerkle, I can talk about the audit
work that we've done with regard to the loan guarantee program.
The most recent report was issued in March of this year of
which we identified problems in the way the Department
documented, the way it addressed risks, and mitigated those
risks. I can certainly talk about that, but in terms of the
specific case that you're referring to, we have acknowledged,
as has the FBI and the Department of the Justice, that we have
an ongoing criminal investigation, and I can't comment beyond
that.
Ms. Buerkle. And last, I have a few seconds left here,
aside from Solyndra, is your office concerned that there will
be other losses with programs where we've given money to them
and that the government, aka, the American taxpayers, will also
sustain losses?
Mr. Friedman. Well, I--at this point I'm not in a position
to--I have not evaluated every loan guarantee in the portfolio,
so I'm not in a position to get--to project or to anticipate
what may occur or may not occur. So I can't give you really a
thorough answer.
Ms. Buerkle. Thank you very much. Mr. Chairman, I yield
back.
Mr. Jordan. I thank the gentlelady. I now recognize the
gentleman from Baltimore, ranking member of the full committee,
Mr. Cummings, and then Mr. Labrador.
Mr. Cummings. Mr. Friedman, one of the things you said that
was very interesting is that the--that part of the problem was
that when these funds went to the States that, in some
instances, the employees who were responsible for dealing with
these had furloughs were an issue? Sir?
Mr. Friedman. Yes.
Mr. Cummings. And was that--did you find that the case in
many instances?
Mr. Friedman. There were several jurisdictions, States in
which that was the case, Mr. Cummings, and it was there's an
irony there which is really unfortunate, which is that here we
come to the States with a program that is designed in part to
stimulate the economy and to create jobs, and yet, the very
people who would administer the program and apply the mechanics
to the program, make it work, were furloughed because of the
State--the condition of the State's economy. It is an
unfortunate irony if that's the right word for it.
Mr. Cummings. And the--and to get these--I mean, it sounds
like, and I think Mr. Lewis said something to this effect,
also--it seems as if there was an effort to get the programs up
and running in a certain amount of time, and in an effort to do
that, a lot of times all the mechanisms weren't in place to
effectively accomplish that. Would be that be a fair statement,
Mr. Lewis?
Mr. Lewis. Certainly, one of the premises of the Recovery
Act was to get money out there quickly. There are a lot of
programs--we did have a lot of new grantees that had not
applied for the program before.
Mr. Cummings. And the DOE $535 million loan guarantee to
Solyndra and the subsequent bankruptcy are well-known, and on
Monday we learned that Beacon Power Corporation, which received
$43 million in stimulus funds through the loan guarantee
program, filed for bankruptcy on October 30th. Now, Mr.
Friedman, isn't it true that DOE'S loan programs office was
specifically designed to provide funding for companies that
because of the type of funding find it difficult to obtain
funding from the private sector? Is that an accurate statement?
Mr. Friedman. Earlier, I think before you returned to the
room, I indicated I can't, because of the criminal
investigation, discuss particular----
Mr. Cummings. I'm sorry.
Mr. Friedman. In terms of the generic question, you're
absolutely correct. That was the reason for the program, and
that was the reason that the office was created as well.
Mr. Cummings. And isn't it true that these companies are
generally pursuing--I think this would be in your purview--
pursuing cutting-edge technology from battery production to
solar to even nuclear power? Is that an accurate statement?
Mr. Friedman. I believe that's accurate, yes.
Mr. Cummings. Isn't it true that the list of companies
funded through DOE's office involves almost 50 companies who
have operations throughout the United States and, therefore,
when we see some failures, wouldn't that be expected given the
high-risk nature of what they do?
Mr. Friedman. I'm a little reluctant to get into the
question of risk and outcomes, but obviously there is a risk,
otherwise these firms would not need government--or the
government loan guarantee.
Mr. Cummings. And when you look back on what you found,
what were your recommendations?
Mr. Friedman. Well, we recommended with regard to the
March--the third of our reports, which was March 2011, we
recommended that the Department develop a much more robust
system for documenting how it evaluates the risks with each
individual applicant and how those risks are mitigated.
Mr. Cummings. Did this funding come under Delaney, Mr.
Delaney.
Mr. Friedman. I'm sorry?
Mr. Cummings. Did this money come under Mr. Delaney's
watch?
Mr. Friedman. Well, I am a member of the Recovery Act
Accountability and Transparency Board so I guess arguably all
the Recovery Act money was within the purview of the board and
Mr. Delaney, so the answer I suppose is yes, but this is a
Department of Energy program outside of that.
Mr. Cummings. I got you. Well, let me tell you why I ask
that. One of the things that he said was that he was trying to
put in mechanisms by which he would prevent these things from
happening, and I was just wondering were there prevention
efforts here, and if so, why did we have so many problems?
Mr. Friedman. Is that directed to me?
Mr. Cummings. Yes.
Mr. Friedman. Certainly, there was a system of due
diligence that was exercised by the Department. Was it
adequate? You know, that remains to be seen, and the due
diligence effort, at least presumably, would have been to
identify the risks, to determine what mitigating circumstances
or what mitigating factors are or controls can be put in place,
was the risk--were the risks tolerable and how you proceed from
there. So, yes, there was a due diligence process in place. The
adequacy I'm not sure I can comment on.
Mr. Cummings. Thank you, Mr. Chairman.
Mr. Kelly [presiding]. I now recognize Mr. Labrador.
Mr. Labrador. Mr. Chairman, I yield my time to you.
Mr. Kelly. Thank you, sir.
Mr. McMahon, I really--these hearings are a great value, I
think, for the American people because it's the only time they
really get to see how their money is being spent. I look at
this as more of a stewardship than anything else. I know it is
an elected office, but really, we're stewards of American
taxpayer money and we have to be responsible to them for the
way this money is being spent. So I've been here 9 months, but
I come from the private sector as you do.
Can you discuss a little bit these green jobs? We found out
in a prior hearing that a bus driver who's driving a diesel
bus, when he switches over to an alternative energy bus now
becomes--we've created a green job. So the fact that the
American public gets gamed so many times with these marketing
efforts to take whatever it is that we're trying to achieve,
and I really struggle sometimes to go back home and tell people
in northwest Pennsylvania we're spending your money the right
way. They say, really, we don't see it that way. So tell me,
again, some of the green jobs that you see in your construction
business.
Mr. McMahon. It's true. It's quite fascinating, because
actually it's all the same jobs that currently exist. The goal
here is to create a new label. It is--it's just a misnomer to
think that somebody who works--who cuts wood from the
sustainable forest has any skill that's any different from
somebody who cuts wood that doesn't come from one. But if you
were to ask the Department of Labor, this current Department of
Labor, that is a new skill-set somehow. It literally is--we've
had carpenters for a long time. We've had sheet metal workers,
reinforcing steel people that maybe they turn bolts to erect a
wind turbine, but it's no different than building a coal-fired
furnace a couple of years ago, literally.
And you will have people, you know, we've done--LEED
standards was started in early 1990's here in D.C. Actually. I
actually worked for the guy who helped write them originally
back in the early nineties, and we've done probably north of a
hundred LEED-certified buildings, several hundred million
square feet, just through the company ourselves, but there's no
skill-set difference between these two people.
The idea here really, what they're trying to do in the
District is really quite nefarious, and it's nice that they
just kind of laid it all out here. They're trying to take a
zoning law, the D.C. Green Building Act, and claim that somehow
there was a new skill-set required to actually work on things
covered that were considered green. Therefore, create this
place where they create a new apprenticeship standard.
I mean, I know that we as a company and every other merit
shop contractor in the District area, we would all have had
our--you know, literally decades of apprenticeship standards
trying to get them passed, we'd have them tossed, and
therefore, we'd be barred, and this wasn't the only
jurisdiction that that was attempted. Texas, northern Virginia,
some of those places where attempting to use a zoning bill,
claim that somehow the skill-set required a new apprenticeship
standard and then people would have to recertify their program.
If I could just quickly answer one quick question, I heard
the ranking member discussing about Davis-Bacon wages. Back in
Title X of the Energy Act that passed at the end of 2007, there
was something included called the Clinton-Sanders amendment. It
altered the Workforce Investment Act. For the first time, you
were required to actually have a union as a partner in order to
qualify for any training grant funds.
Furthermore, the union, in a particular jurisdiction or
covered by a particular trade, would have effectively veto
power over any grant money that was expended. So it is in the
law that--they altered the Workforce Investment Act, which up
to this point had never considered union or nonunion
affiliation as far as grant funding. This actually requires
that you have a union as a partner in order to qualify for the
grant funding under the Green Jobs Act that the Inspector
General is telling us about.
Mr. Kelly. Thank you. And I do think, again, this is a
forum for people like you coming out of the private sector,
getting a chance to actually speak to the American people.
Mr. Lewis, Department of Labor, tell me some of these jobs
that we were training people for, the skills that we're
training them in?
Mr. Lewis. Well, some of them are very technical. They are
very technical skills related to the green energy industry, but
some are, as you've heard this morning, they're jobs that can
be just as easily applied to other industries. So they could be
teaching people to weld for a green manufacturing entity, but
they could use that skill-set elsewhere.
Our real concern, and the results of this job at this point
is still interim, is that, you know, whether you call it a
green job or not, we simply don't see the people getting a job,
any job. The rate of placement to what they had intended for
this program, and compared to our other programs, is
significantly lower.
Mr. Kelly. And I don't doubt for 1 second the intention,
and I think government does this a lot, that the intentions are
always great. It's just that I've seen much better results
coming out of the private sector, when it's your own skin in
the game and you have to measure twice and cut once. You know
you have that dollar to spend one time and that's your dollar
and there's no backup. There's no safety net. So once it's
gone, it's gone, and I think that's the whole purpose of the
hearing today.
Every penny we're talking about comes out of the American
taxpayers' pocket, and not only do they deserve a positive
return on that, they should expect that from us. And when we
get to a point that we can no longer objectively describe where
their money went and that we have to relabel it or game it in
order to make a failure look like it worked, I mean--I would
say, Mr. McMahon, you and I have made many decisions in our
life, and we go before the people that we represent and we say,
look, you know, I made a mistake, I got to tell you, this isn't
working. But we also don't have the benefit of unlimited
sources of revenue, capital, that we don't have to
collateralize, and I think that's the danger of these programs.
Well-intentioned or not, we end up in a situation where we
continue to throw good money after bad because we can't stand
and tell people, you know what, it was a bad policy. It was a
bad program. And we need to backtrack now.
We have money that's been appropriated but not yet spent.
There's got to be a way to pull that money back and put it
somewhere where it's actually going to have a positive effect.
I can say I really appreciate all of you being here today.
I know it's tough to take time out of your personal lives and
come here, but it's important for the American people to
understand that we do have an accountability that we must face
with them, and if it's truly only going to be about reelection,
then we shouldn't run again. It has to be about actually
reforming, what it is that we're doing, and if we're not doing
it the right way, stand up and say we made a mistake and we're
going to change it.
So, again, thank you so much for being here, and at this
point, the hearing is adjourned. Thank you.
[Whereupon, at 11:31 a.m., the subcommittee was adjourned.]