[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]





                    DEPARTMENT OF ENERGY OVERSIGHT:
                     THE DOE LOAN GUARANTEE PROGRAM

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

                             JOINT HEARING

                               BEFORE THE

                        SUBCOMMITTEE ON ENERGY &
                       SUBCOMMITTEE ON OVERSIGHT

              COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             March 3, 2016

                               __________

                           Serial No. 114-64

                               __________

 Printed for the use of the Committee on Science, Space, and Technology


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]





       Available via the World Wide Web: http://science.house.gov

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              COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY

                   HON. LAMAR S. SMITH, Texas, Chair
FRANK D. LUCAS, Oklahoma             EDDIE BERNICE JOHNSON, Texas
F. JAMES SENSENBRENNER, JR.,         ZOE LOFGREN, California
    Wisconsin                        DANIEL LIPINSKI, Illinois
DANA ROHRABACHER, California         DONNA F. EDWARDS, Maryland
RANDY NEUGEBAUER, Texas              SUZANNE BONAMICI, Oregon
MICHAEL T. McCAUL, Texas             ERIC SWALWELL, California
MO BROOKS, Alabama                   ALAN GRAYSON, Florida
RANDY HULTGREN, Illinois             AMI BERA, California
BILL POSEY, Florida                  ELIZABETH H. ESTY, Connecticut
THOMAS MASSIE, Kentucky              MARC A. VEASEY, Texas
JIM BRIDENSTINE, Oklahoma            KATHERINE M. CLARK, Massachusetts
RANDY K. WEBER, Texas                DON S. BEYER, JR., Virginia
JOHN R. MOOLENAAR, Michigan          ED PERLMUTTER, Colorado
STEVE KNIGHT, California             PAUL TONKO, New York
BRIAN BABIN, Texas                   MARK TAKANO, California
BRUCE WESTERMAN, Arkansas            BILL FOSTER, Illinois
BARBARA COMSTOCK, Virginia
GARY PALMER, Alabama
BARRY LOUDERMILK, Georgia
RALPH LEE ABRAHAM, Louisiana
DARIN LaHOOD, Illinois
                                 ------                                

                         Subcommittee on Energy

                   HON. RANDY K. WEBER, Texas, Chair
DANA ROHRABACHER, California         ALAN GRAYSON, Florida
RANDY NEUGEBAUER, Texas              ERIC SWALWELL, California
MO BROOKS, Alabama                   MARC A. VEASEY, Texas
RANDY HULTGREN, Illinois             DANIEL LIPINSKI, Illinois
THOMAS MASSIE, Kentucky              KATHERINE M. CLARK, Massachusetts
STEPHAN KNIGHT, California           ED PERLMUTTER, Colorado
BARBARA COMSTOCK, Virginia           EDDIE BERNICE JOHNSON, Texas
BARRY LOUDERMILK, Georgia
LAMAR S. SMITH, Texas
                                 ------                                

                       Subcommittee on Oversight

                 HON. BARRY LOUDERMILK, Georgia, Chair
F. JAMES SENSENBRENNER, JR.,         DON BEYER, Virginia
    Wisconsin                        ALAN GRAYSON, Florida
BILL POSEY, Florida                  ZOE LOFGREN, California
THOMAS MASSIE, Kentucky              EDDIE BERNICE JOHNSON, Texas
DARIN LaHOOD, Illinois
LAMAR S. SMITH, Texas














                            C O N T E N T S

                             March 3, 2016

                                                                   Page
Witness List.....................................................     2

Hearing Charter..................................................     3

                           Opening Statements


Statement by Representative Randy K. Weber, Chairman, 
  Subcommittee on Energy, Committee on Science, Space, and 
  Technology, U.S. House of Representatives......................     8
    Written Statement............................................    11

Statement by Representative Alan Grayson, Ranking Minority 
  Member, Subcommittee on Oversight, Committee on Science, Space, 
  and Technology, U.S. House of Representatives..................    13
    Written Statement............................................    14

Statement by Representative Barry Loudermilk, Chairman, 
  Subcommittee on Oversight, Committee on Science, Space, and 
  Technology, U.S. House of Representatives......................    16
    Written Statement............................................    18

Statement submitted by Representative Donald S. Beyer, Jr., 
  Ranking Minority Member, Subcommittee on Oversight, Committee 
  on Science, Space, and Technology, U.S. House of 
  Representatives................................................    20
    Written Statement............................................    22

                               Witnesses:

Mr. Mark McCall, Executive Director, Loan Program Office, U.S. 
  Department of Energy
    Oral Statement...............................................    24
    Written Statement............................................    27

Dr. Frank Rusco, Director, Natural Resources and Environment, 
  Government Accountability Office
    Oral Statement...............................................    38
    Written Statement............................................    40

Gregory Kats, President, Capital E
    Oral Statement...............................................    61
    Written Statement............................................    63

Mr. Nick Loris, Herbert and Joyce Morgan Fellow, Thomas A. Roe 
  Institute for Economic Policy Studies, Heritage Foundation
    Oral Statement...............................................    72
    Written Statement............................................    75


Discussion.......................................................   100

             Appendix I: Answers to Post-Hearing Questions

Mr. Mark McCall, Executive Director, Loan Program Office, U.S. 
  Department of Energy...........................................   116

Dr. Frank Rusco, Director, Natural Resources and Environment, 
  Government Accountability Office...............................   124

            Appendix II: Additional Material for the Record

Statement submitted by Representative Eddie Bernice Johnson, 
  Ranking Member, Committee on Science, Space, and Technology, 
  U.S. House of Representatives..................................   130

Report submitted by Representative Barry Loudermilk, Chairman, 
  Subcommittee on Oversight, Committee on Science, Space, and 
  Technology, U.S. House of Representatives......................   132

Slide submitted by Representative Barry Loudermilk, Chairman, 
  Subcommittee on Oversight, Committee on Science, Space, and 
  Technology, U.S. House of Representatives......................   168

 
                    DEPARTMENT OF ENERGY OVERSIGHT:
                     THE DOE LOAN GUARANTEE PROGRAM

                              ----------                              


                        THURSDAY, MARCH 3, 2016

                  House of Representatives,
                 Subcommittee on Energy and
                  Subcommittee on Oversight
               Committee on Science, Space, and Technology,
                                                   Washington, D.C.

    The Subcommittees met, pursuant to call, at 9:37 a.m., in 
Room 2318 of the Rayburn House Office Building, Hon. Randy 
Weber [Chairman of the Subcommittee on Energy] presiding.


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    Chairman Weber. The Subcommittees on Energy and Oversight 
will come to order. Without objection, the Chair is authorized 
to declare recesses of the Subcommittee at any time.
    Today's hearing is entitled ``Department of Energy 
Oversight: The DOE Loan Guarantee Program.'' I recognize myself 
for five minutes for an opening statement.
    Good morning, and we're glad you all showed up, so thank 
you for being here. Today, we will hear from the Department and 
a number of expert witnesses on the Department of Energy's loan 
program, and will examine the market impact and the risk 
associated with federal loan guarantees for energy innovation.
    The DOE Loan Guarantee Program was established in 2005, and 
was designed to use loan guarantees to advance commercial 
application for innovative clean energy technology. Through the 
Section 1703 program, the Department ``guarantees'' a private 
loan given to an energy company. To guarantee a loan, DOE tells 
private investors that if the company defaults, then the 
taxpayers, that's us, will foot the bill. Instead of the 
private sector taking on risk to fund scale-up of new 
technology, the government steps in, risking federal dollars on 
the hopes for success of energy projects. DOE also provides 
direct loans to large automobile companies through the Advanced 
Technology Vehicle Manufacturing (or ATVM) program.
    As a part of the stimulus in 2009, Congress temporarily 
expanded the Loan Guarantee Program, and gave DOE another $2.4 
billion, with a B, to subsidize the costs of loan guarantees. 
In these subsidized loans, known as Section 1705 loans, 
companies not only received government backing for their loan 
but additional taxpayer dollars to pay the ``credit subsidy 
cost'' of the loan, or the estimated cost to the federal 
government over the lifetime of the loan. With political 
pressure to issue loans before the temporary subsidy program 
expired, DOE rushed loan applications, issuing some $16 billion 
in loans to just 26 projects.
    But both the DOE Inspector General and GAO found that DOE 
did not have the necessary expertise or the metrics to 
effectively evaluate these loans. What's worse, it seems the 
loan guarantees for President Obama's political allies were 
often fast-tracked, with little consideration for project merit 
or benefits to the taxpayer.
    Companies that received Section 1705 loans had no skin in 
the game and weren't carefully considered. And we're all 
familiar with the results. With high-profile defaults like the 
$535 million loan guarantee provided to Solyndra in 2011, $68 
million lost when Abound Solar filed for bankruptcy in 2012, 
and $139 million lost from a direct loan to Fisker Automotive, 
the Department has lost over $800 million on bad loans.
    According to GAO estimates, the total cost for the current 
loan portfolio is $2.2 billion with a B, plus another $312 
million in program administrative costs. These costs will 
increase if another loan defaults or if the Department issues 
more loan guarantees to projects with any financial risk.
    And unlike a private lender, there is no benefit to the 
taxpayer if the guaranteed loan is paid in full. Regular 
Americans take on the liability of the full loan; they do not 
see a return even if the project is successful and the loan is 
paid back. American tax dollars subsidize loans for large 
companies with billions in available capital like Ford, Goldman 
Sachs, Google, GE, and Berkshire Hathaway. DOE loans and loan 
guarantees have been overwhelmingly awarded to subsidiaries of 
large companies or companies with high-profile private 
investors who jump, quite frankly, at the chance for government 
security. But if something goes wrong, these big companies 
aren't stuck with the bill. The America people are stuck with 
the bill.
    While supporters of the Loan Guarantee Program often cite 
the low percentage of default loans, those numbers don't tell 
the whole story. First, the DOE loan program is a prime example 
of the government trying to do something that the private 
sector actually does better. GAO has consistently criticized 
DOE for lacking the appropriate expertise, both technical and 
financial, to evaluate and monitor those loans. Private sector 
investment firms have this expertise, and they make investment 
decisions based on profit, not on political favors. It's no 
surprise that mistakes are made when rushing loans without 
proper scrutiny is the main priority. And political pressure to 
issue loan guarantees will only increase as this Obama 
Administration comes to a close.
    Second, loan guarantees are only one piece of the billions 
of taxpayer dollars President Obama has spent on his clean 
energy agenda. A quick look at the loan portfolio reveals 
companies that benefited from countless subsidies, from tax 
credits and cash grants from other government programs, not to 
mention federal and state mandates that push utilities to enter 
into power purchase agreements for higher-cost energy from 
renewable power.
    In the case of SolarReserve's Crescent Dunes project in 
Nevada, a concentrating solar power project that received a 
$737 million loan guarantee, Nevadans will pay 66 percent more 
per kilowatt hour for electricity produced by that plant. So 
the loan program risks American tax dollars, and then the 
tradeoff is it rewards Americans, Nevadans in this case, with 
more expensive utility bills when the project is finally 
complete.
    Finally, federal meddling in the energy market crowds out 
investment for innovative technologies that don't receive loan 
guarantees.
    By subsidizing loans to favored technologies, DOE has 
driven private investors to choose projects based strictly on 
loan security, not necessarily market success or innovation. 
Why would a private investor take a risk on an innovative 
technology when they can invest in a project backed by the 
government? The federal government should get out of the way, 
focus our limited resources on research and development, and 
let the market drive investment for energy innovation.
    I do want to thank Mr. McCall and all of our witnesses for 
testifying to the Committee today, and we look forward to a 
review of the DOE's loan portfolio.
    As some of our witnesses will point out today, the DOE loan 
programs are just one more way the Obama Administration is 
picking winners and losers in the energy market. We can't 
afford to risk American tax dollars or increase costs for the 
American people to play favorites. The fact is, when those 
loans fail, like Solyndra,the American taxpayers are the 
losers.
    [The prepared statement of Chairman Weber follows:]
    
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    Chairman Weber. So at this time I'll recognize the Ranking 
Member for his statement.
    Mr. Grayson. Thank you, Mr. Chairman.
    I welcome our witnesses to today's hearing on the 
Department of Energy's Loan Programs Office. I strongly support 
the efforts of the Loan Programs Office to commercialize and 
deploy innovative new clean energy technologies.
    The Loan Programs Office manages a large and diverse 
portfolio comprising more than $30 billion in loans, loan 
guarantees, and commitments covering more than 30 major 
projects across the entire United States. These projects 
include launching utility-scale solar power plants and 
accelerating the resurgence of the U.S. auto manufacturing 
industry. Overall, these loans and loan guarantees have 
resulted in more than $50 billion in total project investments 
in energy in the United States.
    The Loan Programs Office has maintained strong financial 
performance even though its mission carries some degree of risk 
inevitably since it includes financing innovative clean energy 
projects. The Loan Programs Office record actually compares 
favorably with private financing of conventional energy 
projects in the United States.
    Congress identified an area where the lending market wasn't 
meeting our national needs, and we directed the Department of 
Energy to take on this task. By statute, this meant that the 
Department was allowed to take on some risk. As with any 
financial portfolio, gains may come with some losses, but the 
basis of modern lending is the acceptance of some level of risk 
to provide our economy with greater access to capital to grow.
    Despite this risk, the Loan Programs Office has had an 
overall success rate of over 90 percent. Losses to date 
represent only 2.27 percent of the Department's $34 billion 
loan and loan guarantee portfolio and less than ten percent of 
the $10 billion in loan loss reserves that Congress set aside 
to cover expected losses in these programs. In fact, interest 
rate payments to the federal government received to date for 
these loans now total more than $500 million more than the 
estimated losses to the portfolio.
    This program was not a partisan issue when the Department 
of Energy was first directed to carry out these activities in 
the Energy Policy Act of 2005 and then expanded twice more in 
2007 and 2009. The statutory authority for the two active 
programs, the Loan Programs Office, were crafted in bipartisan 
legislation and signed into law by a Republican President.
    I applaud the Department for its efforts to apply lessons 
learned from its few unsuccessful investments, and I look 
forward to learning how the loan program has evolved to better 
protect the taxpayers' interests. I also look forward to 
hearing the GAO's recommendations and Mr. McCall's plans on how 
the program can continue to improve and meet our goal of a 
great America.
    I look forward to hearing each of your testimonies today, 
and I yield back.
    [The prepared statement of Mr. Grayson follows:]
    
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    Chairman Weber. Thank you, Mr. Grayson.
    I now recognize the Chairman of the Subcommittee on 
Oversight, Mr. Loudermilk, for his opening statement.

    Mr. Loudermilk. Well, thank you, Mr. Chairman. And I'd like 
to thank all of our witnesses for being here today.
    Today's hearing is an examination of the Administration's 
effort to use taxpayer dollars to fund a massive green energy 
experiment. The 2009 stimulus directed billions of dollars 
toward green energy initiatives like the Department's Loan 
Guarantee Program. President Obama said we will ``harness the 
sun, the winds, and the soil'' to fuel our cars and to run our 
factories. The President is referring to the billions of 
dollars spent propping up the solar industry, not just in loans 
and loan guarantees, but through subsidies, grants, tax 
credits, and federal and state renewable energy mandates.
    The resulting renewable power dotted across our nation is 
threatening the reliability of our electrical grid. To make 
matters worse, mandates like the renewable fuel standard will 
release more emissions across their lifecycles than 
conventional fuels do while increasing the cost of fuel at the 
pump.
    Several years ago--or several years into this experiment, 
it became clear these efforts have wasted vast sums of taxpayer 
dollars, and yet in August 2015 the President announced that 
the Department of Energy Loan Program Office would make an 
additional one billion dollars in loan guarantees available for 
commercial-scale distributed energy projects. This committee 
welcomes and embraces new business and technologies with open 
arms, but it's important that these technologies be brought to 
commercial scale by market forces, not political whims.
    In the President's second inauguration speech, he stated 
``The path towards sustainable energy sources will be long and 
sometimes difficult.'' President Obama was referring to the 
five Department of Energy Loan Program Office projects that 
failed to the tune of $800 million taxpayer dollars lost. The 
same Loan Program Office failed to properly monitor the risks 
and financial measures of Solyndra, which defaulted on a $500 
million loan guarantee.
    The Loan Program Office has faced strong criticism from 
Congress in the past. This Committee, the Energy and Commerce 
Committee, and the Oversight and Government Reform Committee 
held many hearings outlining concerns with the program. In one 
hearing, the former Loan Program Office Director, Jonathan 
Silver, faced harsh criticism from Congressman Jim Jordan for 
using a personal email account to conduct official business and 
intentionally circumventing the Federal Records Act. Director 
Silver also used his personal email account to lobby White 
House officials on approving loan guarantee projects based on 
their political impact, not on their financial merits. 
Additionally, it was commonplace among staff in the Loan 
Program Office to use personal email to avoid recordkeeping 
requirements. This is just one of the concerns the Oversight 
and Government Reform Committee highlighted in its report on 
the program, which I would like to enter into the record.
    Chairman Weber. Without objection.
    [The information appears in Appendix II]
    Mr. Loudermilk. It is abundantly clear that billions of 
taxpayer dollars were put at undue risk though the Loan Program 
Office, which often lacked the expertise to even evaluate loan 
applications. The DOE Inspector General described the Loan 
Program Office as ``attaching a garden hose to a fire 
hydrant.'' Had it not been for Congress drawing attention to 
the problems with the Loan Program Office, the losses could 
have been far greater.
    Mr. McCall is here today to explain the improvements of the 
Loan Guarantee Program and to ensure that this type of conduct 
does not take place under his watch. I want to be clear, Mr. 
McCall, that this committee holds you accountable for the 
billions of taxpayer dollars at your discretion, as will the 
American people. I look forward to hearing how Mr. McCall plans 
to learn from the mistakes of his predecessor and prevent these 
problems from happening again.
    I also look forward to hearing from Dr. Rusco from the 
Government Accountability Office on the recommendations GAO has 
made for the Loan Program Office, particularly the outstanding 
recommendations that have not been implemented by the loan 
program. I also welcome Mr. Loris from the Heritage Foundation, 
who has testified on this matter a number of times before 
Congress.
    And thank you, Mr. Chairman. I yield back.
    [The prepared statement of Mr. Loudermilk follows:]
    
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    Chairman Weber. Thank you, Mr. Loudermilk.
    And I'll--before I recognize the gentleman from Virginia, 
they're going to be calling votes pretty quick here, and what 
we thought we would do for the benefit of the Committee is we 
will probably just kind of go in shifts. Chairman Loudermilk 
and myself will take turns here, and we'll probably keep this 
thing rolling, which means you all might be a little safer. 
There'll be less of us here to ask those hard questions.
    I now recognize Mr. Beyer for his opening statement.
    Mr. Beyer. Thank you, Mr. Chairman. And thank you for the 
logistical plan.
    Thank you, Chairman Weber and Chairman Loudermilk, for 
holding this hearing today on the DOE loan program.
    Fundamentally, I believe the federal government has a 
crucial role to play in fostering scientific innovation in the 
development of advanced technologies. Throughout the past 
century, the U.S. Government has banked--backed and bankrolled 
a host of technical discoveries from global positioning 
satellites, semiconductors, nuclear power, and a vast array of 
medical and healthcare-related devices. Economist Mariana 
Mazzucato points out that one dozen of the key technologies 
that make the iPhone possible, from microprocessors to touch 
screens to lithium-ion batteries, were developed with the 
investment and support of federal agencies from the National 
Science Foundation to the Department of Defense to the 
Department of Energy.
    I believe the DOE Loan Program helps to advance the 
commercialization of new and emerging clean energy 
technologies. It encourages private investment in these key 
areas that would have been absent without federal support. Just 
like in the private sector, however, not every venture proves 
viable; not every investment is an automatic success. But not 
every failure is reason to dismember a program or withdraw from 
federal support of innovation that has been the established 
norm in this country for well over a century.
    Some of my friends in the Majority have acknowledge this 
fact, but investments the federal government has chosen to make 
in key technologies have helped spawn new industries, including 
the information revolution, and solidified America's place as 
the global hub of scientific innovation, revolutionary 
discoveries, and advanced technological development. I believe 
our government should also strive to be a leader in developing 
clean energy technologies as well, and the DOE Loan Program 
helps us do just that.
    However, ensuring that federal dollars in these enterprises 
are well invested, thoughtfully managed, and efficiently 
distributed is proper and appropriate. And I look forward to 
hearing from Mr. McCall today about how the DOE Loan Program is 
doing just that and from our other witnesses, including Frank 
Rusco from GAO, about how the program can improve to be better 
in the future.
    The Majority has expressed particularly interest in three 
projects related to a company named Abengoa that received 
funding from the DOE Loan Program. Their particular interest in 
these loans is understandable because Abengoa, based in Spain, 
has recently begun insolvency proceedings. Fortunately, the 
$132 million loan for an Abengoa-related bioenergy project 
backed by a DOE loan guarantee has been repaid in full, repaid 
in full. And the other two projects named Solana and Mojave are 
currently operating and repaying principal and interest on 
these DOE loans as scheduled.
    I look forward to Mr. McCall explaining how federal dollars 
have been protected by the structure of these loans, and I hope 
you can clear up some of the misinformation in the media about 
the specific Abengoa projects supported by the DOE Loan 
Program.
    I'd also point out that these three Abengoa-related loan 
guarantees combine total almost $2.8 billion, while the DOE 
provided guarantees to nearly three times as much, $8.3 
billion, for construction of the new Vogtle nuclear plant in 
Georgia, which I very much support.
    And I would remind the majority that the U.S. Government 
has provided more than $470 billion--$2.8 billion--$470 billion 
in subsidies to the oil and gas industry over the past 100 
years, and they continue to receive these today.
    Let me just emphasize, a loan guarantee is paid back to the 
taxpayers, very low but a subsidy is never paid back. And the 
Chair talks about picking winners and losers. We've been 
picking winners and losers for over a century.
    Last, I'd also like to express a particularly warm welcome 
to Mr. Gregory Kats. Mr. Kats is uniquely placed to provide a 
broad view of the DOE Loan Program and the critical need for 
this sort of federal investment. Hopefully, you can put--place 
the failures and the successes in the proper context. You're a 
former DOE official, now a venture capitalist and has been on 
the board of directors of two companies which have applied for 
DOE loans. So I look forward to your description of the rigors 
of the DOE Loan Program from your perspective and in the 
private arena investing in clean energy technologies and 
companies that have helped move our country forward.
    So thank you, Mr. Chairman. I yield back.
    [The prepared statement of Mr. Beyer follows:]
    
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    Chairman Weber. I thank the gentleman.
    Misinformation in the media? Gosh. According to the media, 
you would never say anything like that.
    Well, it's a pleasure to be here today. Let me introduce 
our witnesses.
    Our first witness today is Mr. Mark McCall, Executive 
Director of the Loan Programs Office at the Department Of 
Energy. Prior to joining the DOE, Mr. McCall spent 17 years as 
Managing Director and CFO for Lime Rock Partners. You were a 
venture capitalist kind of like Mr. Kats is. Did you all swap 
places? And Mr. McCall received his bachelor's degree from 
Georgetown and his law degree from Yale.
    Our next witness is Dr. Frank Rusco--is that right?
    [Nonverbal response.]
    Chairman Weber. Okay. Director of Natural Resources and 
Environment at the Government Accountability Office. Dr. Rusco 
leads work on a broad spectrum of energy issues, including 
federal oil and gas management, DOE's energy and R&D programs, 
the Nuclear Regulatory Commission oversight, and government-
wide energy programs. What do you do in your spare time? Dr. 
Rusco received his master's and Ph.D. in economics from the 
University of Washington in Seattle.
    Our third witness today is Mr. Gregory Kats, President of 
Capital E. Mr. Kats previously served for five years as 
Director of Financing for Energy Efficiency and Renewable 
Energy at the DOE. Mr. Kats received his bachelor's degree from 
UNC, his MBA from Stanford, and his MPA from Princeton.
    Our final witness is Mr. Nicolas Loris, Herbert and Joyce 
Morgan Fellow for the Heritage Foundation. Before being named 
Morgan Fellow, Mr. Loris was a Policy Analyst specializing in 
energy and environmental issues. Mr. Loris received his 
master's in economics from George Mason University and his 
bachelor's degree in economics, finance, and political science 
from Albright College.
    Welcome, gentlemen.
    Mr. McCall, you're recognized for five minutes.

                 TESTIMONY OF MR. MARK MCCALL,

                      EXECUTIVE DIRECTOR,

                      LOAN PROGRAM OFFICE,

                   U.S. DEPARTMENT OF ENERGY

    Mr. McCall. Chairman Smith, Subcommittee Chairmen Weber and 
Loudermilk, Ranking Members Johnson, Grayson, and Beyer, and 
members of the subcommittees, thank you for the opportunity to 
appear before you today. My name is Mark McCall, and I am the 
Executive Director of the Loan Programs Office at the 
Department of Energy.
    Before joining LPO last July, I spent the prior 17 years at 
a private equity firm focused on investing in the oil and gas 
sector. I served as the Chief Financial Officer for the firm 
and for the first 12 of those 17 years as its general counsel 
as well.
    My investment background in the energy sector has informed 
my view of the challenges and opportunities for the United 
States to be at the cutting-edge of commercialization of new 
energy technologies. I feel privileged to be leading LPO, and I 
appreciate the opportunity to bring my private sector 
experience to public service.
    LPO issues loans and loan guarantees to accelerate the 
commercial deployment of clean energy projects and advanced 
vehicle manufacturing projects in the United States. LPO's 
authority to support these projects comes under two separate 
programs: the Title XVII loan program and the Advanced 
Technology Vehicles Manufacturing, or ATVM, loan program.
    The Title XVII program fills a gap in the marketplace for 
projects that cannot access private debt financing. Deploying 
innovative technologies at commercial scale for the first time 
is often a capital-intensive, long-term process that entails 
both technology and scale-up risks. Because of these risks, 
commercial lenders are often unwilling to finance these 
projects until they have a proven history of performance at 
commercial scale.
    Title XVII portfolio technologies currently in operation 
and under construction range from utility-scale PV and 
concentrating solar thermal to nuclear energy, including plant 
Vogtle in Georgia, the first new nuclear plant in the United 
States in 30 years. LPO currently has over 15 projects in 
operation that generate enough clean energy to power more than 
1 million average American homes.
    The ATVM program fulfills a critical role in the 
marketplace by providing debt financing to help automakers meet 
fuel economy standards. ATVM has played and continues to play 
an important role in recovery of the American auto industry. 
ATVM remains available to both auto manufacturers and vehicle 
component manufacturers.
    Collectively, Title XVII and ATVM projects have supported 
tens of thousands of jobs, and every LPO transaction requires 
private investment. Equity investment from private sources must 
cover at least 20 percent of the total project costs, and 
borrowers frequently invest more. In fact, borrowers have 
committed over $18 billion in financing to their LPO-financed 
projects, meaning they have significant skin in the game.
    Our portfolio has now been significantly de-risked as many 
of LPO's projects have completed construction and begun 
operating in recent years and borrowers have begun repayment of 
their loans. As of January 2016, $5.7 billion in principal and 
nearly $1.4 billion in interest on LPO loans and loan 
guarantees has been repaid. Because of LPO's prudent due 
diligence, losses for the $32 billion portfolio represent just 
above two percent of total commitments, a rate I believe would 
be highly competitive in the private sector for a portfolio of 
this nature.
    With all of these positive results, the portfolio is 
clearly performing well. This good performance is no accident. 
Before making a loan or loan guarantee, LPO conducts extensive 
due diligence, including rigorous financial, technical, legal, 
environmental, and market analysis by DOE's professional staff 
and outside advisors. Transactions are structured to identify 
and mitigate risk.
    After closing, LPO continues to use powerful monitoring 
tools, including strong covenants and strict milestones to 
control the risk that it assumes. LPO requires borrowers to 
meet clear benchmarks before disbursing funds and staggers 
disbursements to ensure borrowers are meeting their 
obligations.
    LPO has benefited from recommendations for improvement from 
Congress, from GAO, DOE's Inspector General, and from 
independent consultants such as Herb Allison. LPO has taken his 
recommendations seriously and implemented changes to address 
them. LPO is always seeking to improve its underwriting and 
monitoring and to incorporate lessons learned and ensure best 
practices to protect taxpayer interests.
    In closing, energy innovation is widely recognized as a key 
driver for the American and global economy. The United States 
needs to lead on innovation so that we develop the intellectual 
capital, we build the enduring companies, and we create good-
paying jobs for our workers. LPO has demonstrated that we know 
how to prudently finance these game-changing projects, get them 
built and operating, and protect taxpayers at the same time.
    Thank you for allowing me to address the Committee, and I 
look forward to your questions.
    [The prepared statement of Mr. McCall follows:]
    
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    Chairman Weber. Thank you, Mr. McCall.
    Dr. Rusco, you're now recognized for five minutes.

            TESTIMONY OF DR. FRANK RUSCO, DIRECTOR,

               NATURAL RESOURCES AND ENVIRONMENT,

                GOVERNMENT ACCOUNTABILITY OFFICE



    Dr. Rusco. Thank you. Chairmen Smith, Weber, and 
Loudermilk, Ranking Members Johnson, Grayson, and Beyer, and 
members of the subcommittees, I am pleased to be here today to 
discuss GAO's oversight of the DOE's Loan Programs Office and 
specifically focusing on its Loan Guarantee Program, or LGP.
    The LGP was authorized by Congress in 2007 to encourage 
investment in innovative energy technologies by guaranteeing 
loans for qualifying energy projects. The original 
authorization required that recipients of such loans were to 
pay for the cost of these loans up front. These upfront costs 
are referred to as credit subsidy costs and are estimated to 
cover the expected losses in the event of default, as well as 
other costs associated with financing and servicing the loans.
    Since 2007, GAO has performed oversight of the loan 
programs, which has resulted in 12 reports and Congressional 
testimonies. We have found that LGP generally has been behind 
the curve in developing its standard operating procedures and 
guidance. For example, in 2010 we found that the LGP had issued 
conditional commitments for loans without going through its due 
diligence process. And in 2014, we found that the Loan Program 
Office had not fully set up or staffed its loan monitoring 
operation despite having made many loans.
    We have issued 24 recommendations to improve the loan 
programs, and to date, DOE has implemented fully 15 or about 63 
percent of those recommendations. This is below the government-
wide implementation rate of 80 percent.
    Under Section 1705, the LGP made its first loan in 2010, 
and through September 2011, had issued 26 additional loans. All 
of these loans were made using Recovery Act money to cover the 
credit subsidy costs. The loans were for commercially viable 
and shovel-ready projects that were required to break ground by 
September 2011 in order to qualify. These loans also came at a 
time when international financial markets were in disarray and 
when the U.S. economy was in a deep recession. As such, the LGP 
provided funding that would likely have not been available 
privately.
    The performance of these loans has been mixed. Most of the 
loans were for utility-scale solar, wind, or geothermal 
projects that got significant additional federal support from 
grants or tax credits and also benefited from state renewable 
portfolio standards requiring utilities to purchase power from 
renewable sources. These projects received off-take agreements 
guaranteeing them a revenue stream sufficient to pay off their 
loans. None of these loans has defaulted, and the expected cost 
of these loans has fallen slightly as the projects have been 
completed and come online.
    On the other hand, four of the loans, three for solar panel 
manufacturers and one energy storage project, did not have any 
such guaranteed revenue streams, and of these loans, one has 
not yet received any funds from LGP while the three that did 
receive funds all defaulted, resulting in losses to the federal 
government of about $623 million.
    Overall, the losses with these defaults can be thought of 
in a couple of ways: first, as a proportion of the total amount 
of money that has been disbursed through 1705. The $623 million 
loss amounts to about 4.74 percent of these disbursements. 
Secondly, the loss amounts to about 43.5 percent of the 
expected initial losses of all loans made. So when the loans 
were made, the credit subsidy cost was the expected cost, and 
43.5 percent of that has now been used.
    Going forward, I believe there are two types of risk facing 
the LGP program. The first is that the program has still not 
fully implemented all of our recommendations. They're taking 
steps to do so but they're not there. Therefore, they are 
operating without full guidelines, standard operating 
procedures, and without being fully staffed. This is risky 
behavior from the perspective of good government.
    Secondly, it is unclear that there is much demand for LGP 
loans going forward. The program was successful in making loans 
when it had Recovery Act money to pay the credit subsidy costs 
and when financial markets were generally not loaning to these 
types of projects. However, now that credit markets have 
recovered and interest rates remain relatively low by 
historical standards, commercial-ready projects, even if they 
are deemed to be innovative enough to qualify for an LGP loan, 
may find it easier and less costly to seek private funding. On 
the other hand, more innovative projects that are less able to 
qualify for private funding will be, by their very nature, more 
risky, and thus will have higher credit subsidy costs.
    The LGP will require such projects to pay their own credit 
subsidy costs upfront going forward, but it is unclear whether 
such projects will be able to do so. So time will tell if there 
is a strong demand for LGP services going forward or if the 
program will end up mostly servicing its existing portfolio.
    Thank you. I will be happy to answer any questions the 
Subcommittee may have.
    [The prepared statement of Dr. Rusco follows:]
    
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    Chairman Weber. Thank you, Dr. Rusco. They have called 
votes but we're going to try to get to the testimony.
    Mr. Kats, five minutes, please.

                 TESTIMONY OF MR. GREGORY KATS,

                      PRESIDENT, CAPITAL E

    Mr. Kats. Thank you for the opportunity to speak with you 
today on this important issue.
    I've had the opportunity to invest in 40 U.S. energy 
companies and to serve on the boards of two dozen firms, two of 
which applied to the DOE Loan Guarantee Program. Based on this 
experience, I can attest that the DOE application process is 
lengthy and rigorous. U.S. firms and projects first seek 
private sector financing, but if the projects involve new 
technology, new scale, or other innovation, private sector 
funding may be difficult or impossible to secure until a 
technology or project scale has been built and demonstrated. 
The DOE loan program allows this to happen.
    I served for five years as the Director of Financing for 
Energy Efficiency and Renewable Energy at the U.S. Department 
of Energy and more recently as a member of the National Academy 
of Science's committee developing policy recommendations to 
strengthen U.S. innovation and competitiveness.
    It remains concerning that, while the United States leads 
in energy innovation, too often countries like China reap the 
benefits by building the commercial plants. This happens in 
large part because our competitors provide large grants and 
subsidized loans. The U.S. DOE loan program allows the United 
States to retain or regain global leadership in key clean 
energy technology areas, including solar PV and advanced 
vehicles. These industries matter because the countries that 
lead the race to supply clean power plants and clean vehicles 
will have millions of well-paid workers in these global 
industries.
    The DOE loan program outlines broad categories of energy 
such as renewable energy or nuclear. Private sector firms 
decide which technologies and which projects and whether they 
apply or not. The requirements include having third-party 
engineering firms undertake independent reviews, and these are 
determinative for DOE loan decisions. The DOE loan program 
therefore does not distort the market.
    The objective of the Loan Guarantee Program is to finance 
projects that cannot otherwise get commercial financing. If 
projects are very low risk, that is investment grade, they 
would have access to commercial funding, and a DOE loan 
guarantee would be an unattractive option. The rigorous nature, 
difficulty, and cost means that a DOE loan guarantee is pursued 
by U.S. firms only when they cannot get competitive private 
sector financing.
    Like other commercial lending programs, the DOE Loan 
Guarantee Program assumes a default rate as normal and 
expected. DOE loan guarantee default rates have proven far 
lower than projected by OMB and Congress. In establishing the 
1705 Loan Guarantee Program, for example, OMB budget predicted 
and Congress budgeted for $2.7 billion to cover expected 
defaults or partial defaults, but defaults have proven to be 
only 1/3 of this.
    In 2011 the DOE Loan Guarantee Program provided guarantees 
to the first five utility-scale solar projects. This scale of 
solar is viewed as important but new and risky by banks and 
therefore require DOE loan program support. Since these five 
DOE-supported utility-scale solar projects, the private sector 
has funded 28 utility-scale solar projects totaling some 7 
gigawatts. This represents several tens of billions of dollars 
in private capital and tens of thousands of good and widely 
distributed U.S. jobs. The DOE loan program clearly unlocks and 
enables expanded private capital investing in clean energy.
    As of October 2015, the DOE loan program metrics were 
strong with principal repayment exceeding $5 billion, interest 
earned by the U.S. Government exceeding $1.2 billion, and 
actual and expected losses of about two percent. This reflects 
a very low default rate. And almost any experienced investor in 
portfolios of projects or for that matter almost anyone with a 
knowledge of investing would recognize this as a very 
successful track record.
    Defaults tend to occur early in the loan cycle, so 
additional default in the existing loan portfolio are unlikely. 
With some $32 billion in loans and loan guarantees issued, 
interest repayment back to the U.S. Government will exceed $5 
billion. A full accounting includes the tax impact of 
additional federal taxes from the jobs created. Conservatively, 
assuming 50,000 jobs created at an average salary of $50,000 
indicates $2.5 billion in taxable wages plus additional 
corporate taxable income generating over $500 million annually 
in federal revenue.
    Overall, the net federal earnings from the DOE loan program 
will be about $10 billion, making the DOE Loan Guarantee 
Program very profitable for the federal government. By any 
reasonable measure, this is a notably cost-effective and 
successful program and has played a large role in allowing the 
United States to allow a global leadership position in clean 
and advanced energy.
    For parties interested in U.S. competitiveness, the DOE 
loan program has proven highly successful. Whether the United 
States wins or loses in the clean energy race matters a great 
deal because the outcome will shape future U.S. employment, 
economic strength, and the linked threats of security and 
climate change.
    Thank you. I'd be happy to answer any questions.
    [The prepared statement of Mr. Kats follows:]
    
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     Chairman Weber. Thank you, Mr. Kats. We were going to 
recess after your testimony.
    Mr. Loris, you're recognized for five minutes.

                  TESTIMONY OF MR. NICK LORIS,

                HERBERT AND JOYCE MORGAN FELLOW,

                  THOMAS A. ROE INSTITUTE FOR

                    ECONOMIC POLICY STUDIES,

                      HERITAGE FOUNDATION

    Mr. Loris. Great. Chairmen Smith, Weber, Loudermilk, 
Ranking Members Grayson and Beyer, and distinguished members of 
the subcommittees, thank you for this opportunity to discuss 
the Department of Energy's loan and loan guarantee programs. 
The views I express in this testimony are my own and should not 
be construed as representing any official position of the 
Heritage Foundation.
    The number of investment opportunities is broad and 
expansive, but the capital to finance them is not. This 
requires that choices be made among different investments. 
Through a number of financing mechanisms of their own, the 
federal government distorts these decisions at the risk of the 
taxpayer and to the detriment of innovation and the American 
economy. Quite simply, it is not the role of the federal 
government to play venture capitalist or prop up specific 
energy technologies. Private stakeholders should take the risk 
and reap the benefits or suffer the losses using their own 
money.
    My submitted written testimony examines each loan and loan 
guarantee recipient and finds several problematic themes 
pervasive throughout the portfolio. I'll briefly address four.
    First, DOE's loan portfolio contains obvious failures that 
couldn't survive even with generous support from the federal 
government. Second, when subsidies influence investment 
decisions, companies divert funds to projects that have higher 
political rates of return than economic ones. This process 
skews the rules of free enterprise and creates tremendous 
opportunity costs. A dollar invested in a taxpayer-backed 
project could not simultaneously be invested into another 
company.
    DOE loans and loan guarantees pull capital out of the 
market and dictate who should receive it. For example, private 
investors sunk over $1 billion each into the failed companies 
Fisker and Solyndra, but much of that private financing came 
after DOE announced and closed the respective loan and loan 
guarantee.
    Private investors look at government loans as a way to 
substantially reduce their exposure. A project may be an 
economic loser but will attract private investment when the 
government covers a substantial portion of the downside with 
guaranteed loans. It essentially becomes, heads, the investor 
wins or, tails, the taxpayer loses.
    Third, it is important to stress that whether a government-
backed investment is profitable or goes bankrupt, the policy 
itself is a failure. Proponents of DOE loan programs often 
argue a few failures are worth the risk because these success 
stories far outweigh bankrupt companies or ones struggling 
financially. But it is a mistake to attribute a project's 
success to the loan guarantee. Companies receive private 
investments all the time because their technology is promising 
and worth the risk. In these cases, especially when the 
government-backed loans go to more established companies, the 
DOE's involvement partially offsets private sector investments 
that would have been made without the federal support.
    Many of the allegedly successful projects within DOE's loan 
portfolio are nothing more than corporate welfare. In numerous 
cases, perhaps out of fear of more bankruptcies, DOE 
distributed loan guarantees to companies with huge market 
capitalizations and were backed by some of the largest 
financiers in the world, including Goldman Sachs, Berkshire 
Hathaway, NRG Energy, Exelon, General Electric, Google, among 
others. These are companies that do not need the taxpayers' 
help.
    And fourth, the business model companies built for these 
projects in the loan portfolio rely on many subsidies. For 
example, many companies collected cash grants from the Treasury 
Department as part of the 2009 stimulus bill. Businesses can 
take advantage of state renewable portfolio standards that 
effectively guarantees a customer for their product, which they 
can sell at a premium. They also benefit from federal tax 
credits, state subsidies, and other DOE spending programs. A 
project artificially constructed by subsidies should not be 
labeled a success.
    And what is most perverse is that these subsidies 
significantly obstruct the long-term success of the very 
technologies they intend to promote. Instead of relying on a 
process that rewards competition and innovation, subsidies 
prevent a company from recognizing the true price point at 
which they will be economically viable. Sure, you'll end up 
with a handful of subsidized wind farms and maybe a few nuclear 
power plants, but government lending handouts will stunt the 
long-term growth and trap valuable resources in unproductive 
places.
    And to be clear, there's absolutely nothing wrong with more 
renewable energy or alternative fuels replacing conventional 
sources of energy, but that shift will be more effective and 
sustainable when driven by market forces, not forced through 
with government playing favorites.
    The fact of the matter is energy is one of the last sectors 
of the economy that needs help from the federal government. 
When left unencumbered, the laws of supply and demand work 
quite well. The demand for energy to light this room, to heat 
our homes, and to fuel our cars, among many other things, isn't 
going anywhere anytime soon. In fact, the global energy market 
is a multi-trillion dollar opportunity. So any successful 
technology won't need help from the federal government or be 
created by any federal government program.
    The prophet incentive reward groundbreaking ideas. Entering 
into this market is not a problem of the so-called valley of 
death where good ideas are unable to attract substantial 
investment. It is a valley of wealth waiting to be had. Private 
actors will make these investments if it is in their best 
interest to do so, but rather than privatizing the gains and 
socializing the losses, as DOE loan programs do, risk and 
reward should be properly aligned.
    In conclusion, the market, not the federal government, is 
much better at determining how to allocate resources to meet 
consumer demand. The government's interference in capital 
markets significantly distorts that process.
    Thank you, and I look forward to your questions.
    [The prepared statement of Mr. Loris follows:]
    
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    Chairman Weber. Thank you, Mr. Loris. We will now recess 
and be back after the last vote.
    [Recess.]
    Chairman Weber. Okay. We are going to reconvene this 
hearing. Thank you. Welcome back. I appreciate the Ranking 
Member finally showing up.
    And the Chair now----
    Mr. Grayson. Right back at you.
    Chairman Weber. And the Chair now recognizes himself for 
five minutes.
    Dr. Rusco and Mr. McCall, we'll start with you, Mr. McCall. 
We'll go this way. In your prepared--well, actually, I'm sorry, 
you're going to have the follow-up to this. Dr. Rusco, so I'll 
start with you. In your prepared testimony you outline the 
number of recommendations made by the GAO to the DOE to improve 
the loan guarantee and direct loan programs.
    You also note the DOE has only implemented 15 of those 24 
recommendations made by the GAO, which I did the calculations 
on that. Thank God for iPhone and the little calculators. 
That's a 62.5 percent rate and so we would call that failing in 
most classes that I grew up in. In your opinion, why has the 
DOE neglected to implement all of those recommendations?
    Dr. Rusco. I think it's a mixed answer. So some they didn't 
concur with. So we felt in one report that they needed to 
implement a timetable and a consolidated system for tracking 
applications because applicants were telling us that they, you 
know, they would call and they wouldn't get information they 
needed.
    DOE didn't--did not concur with that, so they're just--they 
just disagree with us. There are others that they agreed with 
and they've taken some steps to implement and, for example, in 
2014 we said that they needed to staff key monitoring and risk 
management positions, and they needed a complete monitoring and 
risk management policies and procedures. They are taking steps 
to do that and they have made some progress, but we don't close 
it until we think they've made enough progress or shown 
sufficient staying power to actually get there. So once they 
get there, we'll close those if they----
    Chairman Weber. You actually said in another part of your 
testimony that 2010 that there was commitments added before the 
DOE did its due diligence on those loans. Was that one of the 
recommendations to do their due diligence before making those 
commitments?
    Dr. Rusco. We--yes, we recommended that they finish 
standing up their due diligence process and that, yes, that--
it's actually--we didn't have to recommend that they do it 
other than it was their guidance that they should do it.
    Chairman Weber. Right.
    Dr. Rusco. So we said follow your guidance.
    Chairman Weber. I got you.
    And, Mr. McCall, now your follow-up, it seems like 
according to the information we have that DOE has actually told 
committee staff on several occasions that the DOE has 
implemented all of the GAO's recommendations. Is that true?
    Mr. McCall. Thank you for your question, Chairman Weber. 
Yes, we track--as you know, we've received many recommendations 
and a lot of scrutiny in the program, so we've received 
recommendations from the GAO, from the IG, from Congress, and 
we have a system where we're tracking the recommendations that 
we've received. And we believe that we have addressed each one 
of the recommendations that we've received. As Dr. Rusco 
pointed out, we haven't concurred with each one of them, but we 
have tried to take on board the intent of them and it----
    Chairman Weber. Well, how do you implement something if you 
don't concur with it? You said you----
    Mr. McCall. Well, so for certain things if we really don't 
agree with it and we're just not going to do it, then that 
might be one, but there are some where maybe it's just not 
practical to do it in a way that was recommended but we're 
still trying to implement the intent of the provision.
    And I would say, you know, it's actually been very helpful 
to the program to have these recommendations, and I feel like 
we've come a long way. And I think Dr. Rusco, you know, pointed 
out that even on some of the ones that are not listed as closed 
out we have made significant progress. So one of them was 
policies and procedures. I mean, we now have policies and 
procedures for our risk group----
    Chairman Weber. Well, that's----
    Mr. McCall. --and for our portfolio monitoring group.
    Chairman Weber. I'm glad to hear that. Would you agree that 
a 62.5 percent grade as it were, 15 out of the 24, is a failing 
rate?
    Mr. McCall. I would ask you to look at the rate of 
recommendations that have been closed out and fully implemented 
plus the ones that we've made significant progress on because I 
think that would be a better and fairer----
    Chairman Weber. And perhaps they need to be rank ordered in 
priority. I mean, I'll give you that.
    Mr. McCall. Thank you.
    Chairman Weber. Mr. Kats, you state in your opening 
testimony that ``the objective of a loan guarantee program is 
to finance projects that cannot otherwise get commercial 
financing. If energy projects were very low risk, investment 
grade, they would have access to commercial funding and a DOE 
loan guarantee would be an unattractive option.'' That's what 
you state in your testimony.
    Now, we heard from Mr. McCall in his testimony about how 
basically the program is far less risky than it actually 
appears and that the DOE recently issued a loan guarantee with 
a zero credit subsidy cost. That means there is no--zero risk 
subsidy credit cost--no inherent risk of the project 
defaulting. Is that true?
    Mr. Kats. I don't know the specifics of all of the loan 
offerings. I would just say that the way that the private 
sector and the financial community looks at this loan program 
is that it is a second-choice option. And so in the 40 or so 
energy companies that we invested in, they try and get private 
sector financing. When those are unavailable because the 
technology has risk attributes like it's a new technology or 
it's a different scale, they will go to the DOE loan program 
even though that is a very burdensome and rigorous process. It 
typically is a longer process in the private sector. So some 
people have suggested that the loan program substitutes for 
private capital.
    What the financial markets and businesses and industry 
would tell you is that it doesn't substitute for it. What it 
actually does is unlocks and enables private sector financing.
    Chairman Weber. Well, but it is backed up by taxpayers. The 
idea of zero risk really seems like a contradiction to me. I 
mean, you wouldn't need the program if there was zero risk in a 
company defaulting. Is the purpose of the loan program to 
provide financing to technologically advanced, risky projects 
that could otherwise not receive financing or is the purpose of 
the loan program to provide financing to safe projects with 
actually have what's been labeled as zero risk of defaulting? 
How can that be? Does it--is that a contradiction?
    Mr. Kats. So two of the companies that we invested in 
actually applied for DOE loan guarantees, and those are a 
cumbersome process. It's very much a second choice for U.S. 
energy companies that want to get funding. In each case where 
funding occurs that we've looked at, that enables private 
sector financing.
    And if you look at this program relative to China which, 
for example, in 2010 provided $32 billion in very low-cost 
loans just to Chinese solar, that cost the federal government 
of China quite a lot.
    In contrast, the DOE loan guarantee, because of its low 
default rate and because it generates additional tax revenue to 
the government is actually a profit center. And so the way the 
private sector in the United States and the finance sector 
thinks about the loan program is that it achieves a policy 
purpose of supporting and enabling private financing at the 
same time as generating profitability to the U.S. Government. 
That's why the U.S. energy industry and finance industry views 
this as a big success.
    Chairman Weber. Would you agree with that, Mr. Loris? You 
view that as a big success?
    Mr. Loris. I would, and I don't think the Department of 
Energy has any business being a profit center. And when you 
look at Southern Company's Vogtle nuclear power plants, and 
here's a company that said they didn't need the loan guarantee, 
they went forward with it anyway----
    Chairman Weber. I'm aware of it.
    Mr. Loris. --low risk, it's a--I mean, when you have these 
huge companies with huge market capitalizations, you have to 
wonder why the federal government is involved in these projects 
at all.
    Chairman Weber. Okay. Well, I'm out of time so I'm going to 
yield to the Ranking Member.
    Mr. Grayson. Thank you. Mr. McCall and Mr. Kats, you've had 
some major shade thrown at you this morning, I wanted to give 
you a chance to respond. One of my colleagues said earlier that 
the government is trying to do something that the private 
sector does better. Mr. McCall, is that really true or is that 
not so true?
    Mr. McCall. Thank you for your question, Ranking Member 
Grayson. Our sense is that the Congress actually recognized a 
gap in the marketplace. There is a gap in terms of what 
commercial lenders are willing to finance, and in particular, 
when you combine innovative technology and scale up--so we're 
actually typically deploying new technology at the point in 
time where it's scaling up to commercial scale, you're simply 
going to find a case where commercial lenders are not going to 
finance those first few projects. But after it's been 
demonstrated, then they step into that market and are willing 
to carry it forward. So our sense is that we are absolutely 
filling a gap in the marketplace, not competing with private 
lenders.
    Mr. Grayson. All right. Now, you were derided for offering 
loans on the basis of political favors rather than on the basis 
of profit. Is that a fair rap or not?
    Mr. McCall. It is not. We follow a very rigorous due 
diligence process, an application process that we follow in 
each case, and that diligence process includes technical, 
market, legal, environmental due diligence on--and contract due 
diligence. And we engage in many different ways of structuring 
the projects in order to protect the taxpayer, and so I think 
that we--I think the performance is in on the program and it 
shows that we've actually done a very good job of that.
    Mr. Grayson. Mr. Kats, have you seen loans issued on the 
basis of ``political favors''?
    Mr. Kats. I haven't looked closely at every loan program. I 
can just talk about the way the VC community looks at it and 
the companies that apply, which is that the loan program lays 
out very broad requests in areas as broad as nuclear power and 
renewable energy. Private sector companies then make a decision 
to apply or not. Private sector companies decide what projects 
or companies to apply, whether they apply for it, when they 
apply for it, so that decision is all on the basis of the 
private sector.
    I think one of the things that makes the application 
process challenging is that much of the review process is 
outsourced to very well-known third-party engineering firms 
that undertake independent reviews of each application. Those 
third-party reviews are determinative of whether or not the 
loan goes forward. So the process as we've seen it from the 
private and finance sector is really about the private sector 
making the decision to apply or not, and third-party 
engineering firms and others going through the process of doing 
an independent review that ultimately determines whether that 
loan gets made. So we don't see any politics in this.
    I will say, though, with respect to politics that this has 
traditionally received bipartisan support. Republican Governor 
of Iowa, Terry Branstad, writing in the Wall Street Journal 
wrote ``the wind power industry is an American success story 
that's helping to build our manufacturing base, create jobs, 
lower energy costs, and strengthen energy security.''
    This has been a bipartisan-supported issue until recently, 
and it's worrying, I think, in the private sector that this--
the value and importance of the clean energy transition is not 
recognized in a bipartisan way as a supportive of U.S. jobs, 
U.S. finance, and U.S. competitiveness.
    Mr. Grayson. Mr. McCall, another aspersion cast in your 
general direction is the idea that the Obama Administration is 
picking winners and losers in the energy market. What about 
that?
    Mr. McCall. Well, again, as Mr. Kats pointed out, I mean, 
we are responding to applications from private sector parties. 
So we are not actually actively, you know, picking winners and 
losers. We're simply responding to the applications that come 
in and evaluating them using a very rigorous and lengthy 
process, as was pointed out, and involving many third-party 
experts in terms of making that evaluation. So I wouldn't 
characterize it as picking winners and losers.
    Mr. Grayson. Well, you've been accused today of propping up 
the solar industry. What about that?
    Mr. McCall. Well, so we're very proud of the role that we 
played in particularly launching the utility-scale PV market in 
the United States. So, as you may know, prior to 2010 there 
were actually no utility-scale PV facilities in the United 
States and LPO stepped in and financed the first five of them. 
And then we--after having proven the technology, we stepped 
back from that market and the private sector has now taken over 
and financed 28 facilities of that nature.
    And one of the things that we try to do is bring in private 
sector lenders into our deal so that they get comfortable with 
the structure and they see the technology, and in that case we 
were able to do that. And one of the later projects, we brought 
in 14 commercial lenders as part of a syndicate, and that's the 
group that is now out financing those types of projects. So we 
feel like we've been able to successfully launch that industry, 
and we've seen costs come down in that industry as a result of 
the early projects.
    Mr. Grayson. Mr. Kats, you alluded to what's going on in 
other countries. In other countries is there any government 
involvement in the energy industry, for instance, oh, state-
owned oil industries and so on?
    Mr. Kats. There is. One of the members mentioned--Mr. 
Beyer, I think--the $470 billion in subsidies that mostly have 
gone to fossil fuels. I mean, other countries are like that. In 
the last 15 years the European and Asian market intervention to 
support clean energy has been very, very large, tens of 
billions of dollars, because they view this as the energy 
strategy of the future. It makes their economies more 
competitive when they're spending less on energy, when there's 
less pollution, when there's lower health costs. They view this 
as strategically important. And I think part of the traditional 
U.S. Congressional bipartisan support for transition to clean 
energy has been because of this competitiveness issue.
    I was part of a National Academy of Sciences--they came out 
with a book that is a good read if you have problems sleeping 
at night called ``Rising to the Challenge: U.S. Innovation 
Policy.'' And it really talks about the importance of this 
clean energy transition to U.S. competitiveness. Other 
countries recognize that. They put a lot of subsidies into 
supporting clean energy.
    And again, what's remarkable about the DOE loan program is, 
despite a few problems like Solyndra, the success rate, as Mr. 
Rusco pointed out, the losses are less than half projected. And 
when you add in the full benefits back to the U.S. Government, 
this is a program that makes the U.S. Government money, unlike 
Chinese support, which has cost Chinese taxpayers a lot of 
money. So it's been a terrific combination of leveraging the 
market, leveraging the private sector, and it doing it in a way 
that U.S. financial firms find very helpful and that leverages 
and unlocks a lot of U.S. capital, private capital.
    Mr. Grayson. Thank you. I'll yield back.
    Chairman Weber. I thank the gentleman.
    I would note that, you know, most of the majority would 
probably agree we're not in favor of governments taking over 
the oil companies either, much less clean energy companies or 
the healthcare industry for that matter.
    So the Chair now recognizes Mr. Loudermilk.
    Mr. Loudermilk. Thank you, Mr. Chairman.
    Before I start my questioning, Mr. Loris, could you take 30 
seconds and comment on the past politics in the loan program?
    Mr. Loris. Yes, sure. I mean, if you look at what companies 
and what the DOE does, you know, this isn't objectively 
deciding among companies. This is picking winners and losers. 
It's exactly what the program does. And to pad the stats to 
give loans to companies that again have these huge multibillion 
dollar market capitalizations, it's absolutely playing 
favoritism and making this program look better than it is and 
look necessary when it's simply not.
    Mr. Loudermilk. Okay. I thank you.
    Mr. McCall, the IG investigated and issued a report last 
August regarding the much-talked and heard-about Solyndra loan 
guarantee. The IG found that the Department of Energy officials 
repeatedly failed to verify claims made by--about performance 
and sales provide by Solyndra executives. Did the IG make any 
recommendations in their report to you?
    Mr. McCall. I thank you for your question, Chairman 
Loudermilk, and of course we have taken on board the report of 
the Inspector General. And I would note that the Inspector 
General also noted in that report that the actions of the 
Solyndra officials were at the heart of the matter, and they 
effectively undermined the Department's efforts to manage the 
loan guarantee process. And they also stated that the actions 
of certain Solyndra officials were at best reckless and 
irresponsible or at worst an orchestrated effort to knowingly 
and intentionally deceive and mislead the Department.
    Having said that, we are aware of the Inspector General's 
comments on some of the things that the Department could have 
done better nonetheless, and we have tried very diligently to 
improve our processes. And I think you can see that in the 
later performance of the deals that came after that.
    Mr. Loudermilk. Well, I understand Solyndra is a bad 
player, and I don't think they're the only ones out there. So 
we're going to be dealing with others. But have--did the IG 
make any recommendations to you on how to fix this process? And 
have you implemented any of those?
    Mr. McCall. So the IG in that particular report I do not 
believe they made recommendations in that report, although they 
have made recommendations to us in the past that we have taken 
on board and we have done many things to try to improve our 
processes and procedures. And I come from the private sector 
and I want to give you some assurance that I've actually been 
very impressed with what I've seen coming--I started about 7 
months ago and so, you know, quite a long time after the events 
that we're referring to have transpired and am now in a 
position to lead the program sort of now in its current state.
    And what I can tell you is that the staff is very 
professional, very capable, very talented and hardworking and 
has a lot of experience, including private sector experience in 
terms of how to structure these deals and how to diligence them 
and how to monitor them.
    Mr. Loudermilk. Are you working to make this program more 
transparent, more cooperative with Congress?
    Mr. McCall. Absolutely. Yes, we have.
    Mr. Loudermilk. And the IG's findings, of course, with 
Solyndra is, as you have even brought out in your statement 
there, very troubling to me and this committee. But what's more 
troubling is this committee wrote the Department of Energy 
asking for documents regarding the IG's findings, and this was 
in September of last year, of 2015. Are you aware of the 
productions made by DOE in response to the Committee's request, 
what was provided to this committee?
    Mr. McCall. I believe we responded to that letter, Mr. 
Chairman, but I'm not specifically aware of the details.
    Mr. Loudermilk. Okay. So you weren't aware that you 
provided zero of the communications that we requested, none?
    Mr. McCall. Well, we responded to the letter so we 
responded to the inquiries in that letter, and if there's 
anything that was--that you feel that we still need to----
    Mr. Loudermilk. Okay.
    Mr. McCall. --follow up with, we'd be happy to do that.
    Mr. Loudermilk. Well, you didn't provide any of the 
documents that we asked for, and that's completely inadequate.
    Would you commit to this committee today that you will 
provide all the communications we requested in that September 
4, 2015, letter?
    Mr. McCall. We--I will certainly go back with my staff and 
look at the--look at that request, and we will continue to be 
responsive to the Committee.
    Mr. Loudermilk. But you're not willing to commit to give us 
what we asked for?
    Mr. McCall. Well, we will review the request and see what 
is responsive to that.
    Mr. Loudermilk. Does Congress have an oversight authority--
--
    Mr. McCall. Absolutely.
    Mr. Loudermilk. --over agencies?
    Mr. McCall. Absolutely. And we appreciate----
    Mr. Loudermilk. Is not the right of the American people to 
know what's being done with their taxpayer dollars?
    Mr. McCall. We certainly recognize and appreciate the role 
of the Committee in terms of oversight and in terms of ensuring 
accountability to the American taxpayers so----
    Mr. Loudermilk. But yet you're not willing----
    Mr. McCall. --there's no question----
    Mr. Loudermilk. --to commit to get us the communications 
that we asked for out of our authority of having oversight and 
investigatory authority the Constitution gives this body on 
behalf of the American people? You're not willing to commit to 
us that you will get us precisely what we're asking for?
    Mr. McCall. I am willing to commit to continuing to be 
responsive to the Committee and its requests.
    Mr. Loudermilk. Okay. I think we got our answer.
    Can I get another minute, Mr. Chairman?
    Chairman Weber. Yes, sir.
    Mr. Loudermilk. Okay. Thank you.
    Mr. McCall, the Committee wrote the Department of Energy 
again in December of 2015 regarding Abengoa Solar and the $1.45 
billion taxpayer-funded loan guarantees your office provided in 
2010. Are you aware of that letter?
    Mr. McCall. Yes, I am.
    Mr. Loudermilk. Are you aware that the Department of Energy 
has provided the Committee zero requested communications 
regarding that?
    Mr. McCall. My impression was that we had actually made two 
productions to the Committee since the time of that letter that 
have been responsive to the Committee.
    Mr. Loudermilk. You did provide two productions but none of 
the communications that we asked for. Again, will you commit to 
get that to the Committee?
    Mr. McCall. I will commit to the--to continuing to be 
responsive to the Committee.
    Mr. Loudermilk. Is there a reason why we're not getting the 
data we're asking for?
    Mr. McCall. I----
    Mr. Grayson. Will the gentleman yield for a question? What 
does the gentleman mean by communications and data? I'm 
confused at this point.
    Mr. Loudermilk. Emails. Emails seem to be a very popular 
thing these days.
    Chairman Weber. Well, let's hang on. The gentleman didn't 
yield just yet. Hang on.
    Mr. Loudermilk. Okay. I will yield to his question and then 
I'll yield to my answer immediately. We're talking about 
emails, which is--it has been brought up again, but I reclaim 
my time, Mr. Chairman.
    The Abengoa Solar troubles were a shock to me and of course 
many of my colleagues on this committee. The Loan Program 
Office, which you're a head of, maintains a risk list, doesn't 
not?
    Mr. McCall. So we--thank you for your question, Chairman 
Loudermilk. And we have all of the monitoring tools that you 
would expect a program of ours in order to monitor each one of 
our projects.
    Mr. Loudermilk. Can you briefly explain this risk list or 
this monitoring tool?
    Mr. McCall. Well, sir, the Allison report recommended that 
we create certain ways to--early warning if you will reports or 
mechanisms so that we could track emerging risks in the 
portfolio. And so we do that through a number of tools, and we 
continue to monitor each one of our transactions in a very 
diligent and prudent manner, and we have--you know, for 
instance, we have site visits to each one of the projects while 
they're under construction, and we do quite--we devote quite a 
bit of effort to monitoring the portfolio for risk.
    Mr. Loudermilk. And again, this is--this risk list is one 
of the things this committee has asked for but yet has not been 
provided.
    So I know I'm running--I appreciate the Chairman's--giving 
me a little additional time. I do have more questions, but, Mr. 
Chairman, I think we know what the answer will be so I'll yield 
back.
    Chairman Weber. I thank the gentleman.
    Mr. Beyer, you're up.
    Mr. Beyer. Thank you, Mr. Chairman.
    I'd like to thank both Chairman Loudermilk, Chairman Weber 
for pulling this together and in the spirit of bipartisanship 
point out something I didn't know about from the GAO report 
that the Loan Guarantee Program was initiated by a Republican 
Congress and a Republican President in 2005.
    Chairman Weber. The gentleman's time is expired.
    Mr. Beyer. And was expanded in 2007 with a Democratic 
Congress and a Republican President. So we're--this is 
something we want to work together on.
    You know, according to Fitch ratings, U.S. corporate 
default rate is 2.9 percent, and the energy sector tends to 
have an even higher default rate, which is climbing to 4.8 
percent in recent months. And if you'll look at venture capital 
portfolios, the default rate is even worse. The National 
Venture Capital Association estimates that 25 to 30 percent of 
venture-backed businesses fail, which seems to be conservative 
by most estimates.
    And I know this is not quite apples to apples, but I 
noticed that your loan program is 2.7 percent failure rate. I 
have made tens of thousands of auto purchase loans in the last 
42 years. As my dad says, we never made a bad loan, they just 
go bad later.
    So can you--Mr. McCall, based on your experience, would you 
agree with this assessment that the loans that we're making--
that we're guaranteeing on behalf of the federal government 
actually are fairly low risk compared to what's happening in 
the real world, the private sector?
    Mr. McCall. Thank you for your question, Ranking Member 
Beyer. And I would certainly say that the projects that we have 
financed have carried technology risk and scale-up risk, and so 
I wouldn't say that they haven't been--they haven't entailed a 
significant amount of risk at the time that we were financing 
them, but what I would point to is the rigorous due diligence 
that we've done on the projects and the processes and 
procedures that we have to monitor them, including the 
contractual stipulations that we put into the agreements 
whereby the project sponsors have to provide information and 
have to provide access to the project so that we can diligently 
monitor them.
    So I think that the good performance of the portfolio that 
you're pointing out and particularly in comparison to other 
private sector portfolios is really due to the fact of the 
policies and procedures and the people that we have within our 
organization that carry out that work.
    Mr. Beyer. Thank you, Mr. McCall.
    It's been pointed out--we've had a lot of questioning about 
the loan program's ability to follow through with all of the 
GAO recommendations, trying to tighten it up. Do your folks 
meet regularly with GAO to make sure you are making progress on 
their recommendations?
    Mr. McCall. And again, thank you for that question. The GAO 
routinely and regularly comes and does its work with us, and it 
has been very helpful to us to have their recommendations. And 
so we continue to track the recommendations that have been made 
and continue to address them and progress them. And so it's our 
intention to get as many of those fully implemented as 
possible.
    Mr. Beyer. I'm just trying to put myself in your shoes if I 
were you. Looking forward to my next Congressional hearing 
before the Science, Space, and Technology Committee, I'd love 
to be able to say I've met all the GAO recommendations, at 
least the ones we agree with, and I've produced all the 
documents that the Committee has asked for.
    So why--I know you--everyone's been trying to be careful 
here. And we've been trying to characterize you as unresponsive 
for not turning over the documents. What are the issues around 
emails that would make it inappropriate, illegal, reluctant, 
whatever to turn these over to the Committee?
    Mr. McCall. And thank you for that question. And in 
response to the Abengoa inquiry, we've responded to the letters 
that we've received from the Committee, and we've made it clear 
that we actually did not loan any money to Abengoa SA, which is 
the company that's referred to in the letter. So we actually 
don't have exposure to that company. And so, you know, we have 
responded, and we actually--before we received that letter, we 
had reached out to the Committee in a proactive way to try to 
clarify the confusion in the marketplace because there had been 
some reports in media that the loan program had extended loans 
to this company that was in financial trouble.
    And we tried to reach out to the committee proactively to 
make sure that the members were aware that that's not actually 
the case, that our loans have been made to entities that are 
actually owned by a different company now and that they are in 
project finance structures and that we're not concerned about 
the viability of those loans in any way.
    And so, you know, we feel that we have been responsive to 
the important thrust of those letters, and we will continue to 
go through and try to be--continue to be responsive.
    Mr. Beyer. Great. Thank you very much. Mr.--can I put this 
slide in for one sec?
    [Slide.]
    Mr. Beyer. Mr. Chairman, can I request an extra 60 seconds 
to Mr. Kats?
    Chairman Weber. You bet.
    Mr. Beyer. Thank you, sir.
    Mr. Kats, this is a chart of venture funds loaned by 
industry, the fourth quarter, and we see IT is at the very top 
and about the fifth or sixth over industrial energy, only 7--.7 
billion. Obviously, it's a huge difference in capital 
investment infrastructure and the like. Is--do you see--is this 
part of the whole picture about why we need the loan program in 
terms of making investments in energy?
    Mr. Kats. That's a great question. Most of our--I would say 
many of our big banks, including Citi and J.P. Morgan, in the 
last year or two have done studies looking at the projected 
investment required for transition to clean energy, which 
scientists tell us we need to do to limit climate change and 
which businesses tell us we need to do in order to stay 
competitive with other countries. Current investment in clean 
energy is much less than it needs to be. It's ramped up. It's 
been a fivefold increase from a decade ago, but it needs to 
ramp up further.
    That scale-up process necessarily involves risks and new 
technologies that are applying it at scale have not been 
applied before. And this is where the DOE Loan Guarantee 
Program is so helpful because it allows those scale-up risks to 
be addressed in a way that allows the private sector to make 
the choice about what projects to apply to have a rigorous 
third-party review and screen those and make recommendations on 
those.
    Once those projects have been demonstrated at commercial 
scale, the private sector, our big banks, our financial firms 
can step in and finance the expansion to this scale that Citi, 
that J.P. Morgan, that Morgan Stanley, and others in the 
private sector say that we need to invest to get through this 
transition. So my hope is five years from now when you put that 
chart up the private sector investment will be a much larger 
number.
    Mr. Beyer. Thank you, Mr. Chairman.
    Chairman Weber. I thank the gentleman. The Chair now 
recognizes Mr. Rohrabacher.
    Mr. Rohrabacher. A couple observations. First of all, 
earlier on it was mentioned about trying to compare subsidies 
to the oil industry and the gas industry. The Republicans I 
know are against any subsidies to oil and gas or anybody else. 
We believe that, again, picking winners and losers or 
subsidizing corporations--we call it crony capitalism--it's a 
major issue in our party and we are basically against it.
    I think that basically people, however, have been calling 
subsidies what is instead Republican position of permitting 
people to keep more of their own money as if that's a subsidy. 
I think that the numbers that are being bandied around are 
based on that versus taking money from someone else and giving 
it to a large corporate entity. That is a subsidy. Perhaps 
permitting people to keep more of their own money is not. 
That's one observation.
    And the other observation is, with all due respect, Mr. 
McCall, it is disconcerting that the Executive Director of a 
major government program is unwilling to commit, to actually 
commit to providing all the documents that an investigative 
committee of Congress has requested and that the answer is 
being given in using weasel words is what we used to call in 
the press. That is not more--it's more than unbecoming. It's 
depressing to see that someone of your stature will take that 
approach instead of just saying yes, we will provide all the 
documents to an investigative body of Congress that they have 
requested. And this is--to me it's unacceptable.
    I think that, however, this reflects quite often the things 
we have faced from this Administration. Any other 
Administration, I would think, if they were being actually 
serious and they were being--wanted to reach out to Congress 
and goodwill would admonish someone for not saying that they 
were going to be fully cooperating with every document that's 
been requested.
    With that, let me go to a little bit about the basic 
philosophy of this program itself. And, Mr. Kats, I--who is 
actually making the loan? Where does the money come from when 
someone gets a loan guarantee from this agency?
    Mr. Kats. Good question, sir. So, as I understand it, in 
the companies that we've been involved in that have applied for 
the loan, there's broad categories such as nuclear, renewables. 
The private sector companies try to find private sector 
financing----
    Mr. Rohrabacher. Right.
    Mr. Kats. --are not able to do so. They then apply to the 
Loan Guarantee Program, which uses third-party engineering 
firms to screen it. And if they're successful--and one of the 
applications we made actually was not successful to the 
program, which reflects, we think, a lot of rigor, then the 
loan guarantee is made available, the project is built, it's 
demonstrated a new scale, and then the private sector funding 
takes over.
    Mr. Rohrabacher. Who is actually giving the money?
    Mr. Kats. So the DOE loan guarantee makes available a 
credit of the federal government in a way that makes this 
program self-financing. So what I think the private sector 
would say to you, sir, and what industry would say to you is 
that this program both achieves a public policy purpose of 
making the United States more competitive----
    Mr. Rohrabacher. I understand, but whose--who lends the 
money?
    Mr. Kats. --and creates jobs, and yet it's self-financing.
    Mr. Rohrabacher. Let me----
    Mr. Kats. So the money that----
    Mr. Rohrabacher. Okay. So does that mean the----
    Mr. Kats. Are you asking a question----
    Mr. Rohrabacher. federal government is writing the check to 
the company?
    Mr. Kats. The U.S. Government in this self-financing 
program--so there's zero net cost to the federal government of 
this program.
    Mr. Rohrabacher. I--you're not--I'm trying to get specific. 
Who actually gives the money to the company that is now able to 
build their projects?
    Mr. Kats. So the loan program makes available risk support 
to the company to allow construction of projects in order to 
unlock and leverage private capital. That gets returned back--
--
    Mr. Rohrabacher. Who is the----
    Mr. Kats. --to the government----
    Mr. Rohrabacher. Okay. Now----
    Mr. Kats. --in the form of interest----
    Mr. Rohrabacher. Who actually gives the company the money?
    Mr. Kats. So this----
    Mr. Rohrabacher. Is it a private bank? Is it a Goldman 
Sachs? Is it--who gives them the check that says, okay, you now 
have this money and you can move forward with your project?
    Mr. Kats. Let me turn it over to Mr. McCall to answer that 
if I may.
    Mr. Rohrabacher. Okay.
    Mr. McCall. So thank you for the question.
    Mr. Rohrabacher. Please hurry. They just called votes 
again.
    Mr. McCall. Okay. The answer is it could be either private 
sector banks, so if the applicant has--is working with its own 
bank but that bank was unwilling to finance it without a 
guarantee from the government, we can issue the guaranteed to 
that third-party bank or we can issue a guaranteed to the 
federal financing bank.
    Mr. Rohrabacher. Okay. But there are--it's not coming 
from--you don't get a--give them a check to that company?
    Mr. McCall. Well, the Department of Energy doesn't.
    Mr. Rohrabacher. There's no federal checkbook that's 
writing out this? It's going to actually--the only federal 
check would go to a bank or a lending institution that is a 
profit-making lending institution in most cases I would 
imagine, so we have taken a profit-making--Goldman Sachs or 
whoever--and we have told them that they will have a guarantee 
so there will be no risk that they will lose their money. And 
then they give it to the company who needed the investment? Is 
that what it is?
    Mr. McCall. Well, so we would issue the guarantee to the 
bank. I believe in the case of--if it's a----
    Mr. Rohrabacher. Right.
    Mr. McCall. If it's a third-party bank, I think that we're 
limited to only guaranteeing 80 percent of the loan, so I think 
the bank would actually have some of its own capital that----
    Chairman Weber. I'm going to ask the gentleman----
    Mr. Rohrabacher. But just one point here, and that's----
    Chairman Weber. Hurry.
    Mr. Rohrabacher. --if we are taking away the risk for 
people who--and they are making a profit on that loan in a 
private company, this seems like--boy, that is again picking 
winners and losers as well who gets to provide a risk-free loan 
because you're going to make a certain amount of profit on it 
no matter what. So that doesn't seem fair as well.
    Thank you very much, Mr. Chairman.
    Chairman Weber. I thank the gentleman.
    Mr. Knight, you're recognized for five minutes.
    Mr. Knight. I'll be quick, Mr. Chairman.
    In 2015 President Obama said that we're going to guarantee 
another one billion dollars. Has any of that money been sent 
out? Has there been a guarantee on any of that money that's 
been loaned out? And I understand from Mr. Rohrabacher's 
questioning that this is kind of the government having their 
full faith and backing behind or they're guaranteeing a loan 
but they're not actually writing a check. But if there's one 
billion dollars in more loan guarantees for basically the last 
year of a Presidential term, can you tell me how much of this 
money has gone out if there is any money that's gone out, and 
if there is, projects that are coming?
    Mr. McCall. Thank you for the question, Congressman Knight. 
And the answer is that the President was announcing additional 
loan authority for the advanced fossil solicitation and the 
renewable energy solicitation in particular to support 
distributed energy projects because we have learned from the 
market that there is interest in those types of projects, but 
they are--it wasn't clear to the market as to whether they 
would be eligible under our program. So we issued a supplement 
that clarified that those types of projects would be eligible 
and devoted additional resources to that.
    But the specific answer to your question is at this time we 
have not made any of those--or we haven't made any loans----
    Mr. Knight. Okay.
    Mr. McCall. --for those types of projects at this point.
    Mr. Knight. Very good. And then just two more quick 
questions. The Advanced Technology Vehicle Manufacturing 
program, as I understand, hasn't given out any loan guarantees 
in the last five years. Is that correct?
    Mr. McCall. We have--we actually have made conditional 
commitments, so we've made new commitments, but we haven't 
closed any new loans in that----
    Mr. Knight. Okay.
    Mr. McCall. --period of time.
    Mr. Knight. Would we say that that program has been a 
success and that's why we don't need it anymore and we don't 
have to have these kind of guarantees? I guess there's many 
more billions of dollars that can be either loaned out or 
guaranteed for loans coming up in the future. Is that something 
that we could just say we're ending this right here and there 
is no more loan guarantees? And I know I'm using that term 
loosely, but that's basically what we're talking about.
    Mr. McCall. I would tell you that the program has been very 
successful, and I would tell you that what we're seeing now is 
a shift in terms of our applications. So we're receiving 
applications. We still have interest to make loans, and we have 
made a conditional commitment, as I mentioned. And the shift 
that we're seeing is from the auto manufacturing companies 
themselves to component manufacturers because we all know the 
auto industry is doing fairly well at this point in time, but 
the component manufacturers are still facing stiff competition 
from overseas.
    Mr. Knight. Right.
    Mr. McCall. And so as they need to upgrade their facilities 
to produce components that would go into vehicles that would 
assist the automakers in meeting their mileage standards, there 
are projects that need financing and can benefit from the 
program.
    Mr. Knight. Okay. And I guess I just have a quick follow-up 
question. If Congress--and I'm not saying that Congress should 
do this--but if Congress worked on moving the CAFE standards or 
something like that up, as Congress liked to do in the '70s 
quite a bit, would that again infuse this program to be more 
effective? And again, these are all hypotheticals.
    Mr. McCall. Thank you for the question, Congressman. And I 
think that if the mileage--you know, as the mileage standards 
increase, you're going to see an increasing necessity on the 
part of the market to invest in new projects in order to meet 
those standards. So I would say that if the standards do 
increase--and they are scheduled to increase, I think, between 
now and 2025 already--but as they increase, you will see 
increasing appetite for the program.
    Mr. Knight. Okay. And in my last minute, Mr. Loris, give me 
an idea in your--I'll give you 30 seconds here--if the program 
goes away, completely goes away, do you believe that there is 
enough private capital, venture capitalists out there that will 
take care of these needs without the involvement of government?
    Mr. Loris. I do if they're market viable, and that's the 
whole issue. You had politicians and pundits predict that, you 
know, we would never see oil below $100 a barrel again, and 
look where we are today. And so they make these grand plans to 
subsidize electric vehicles or biofuels and put in place these 
programs, but markets time and time again have proved those 
politicians and pundits wrong.
    So I believe there will be substantial investment in 
renewable energy moving forward. You know, these are finite 
resources. We'll see some shift in market scenarios both in the 
United States and globally, but that will happen as the market 
dictates. It won't be necessary for the government to fund any 
of these programs, whether it's through direct subsidies or 
through these loan programs.
    And one more point about your fuel efficiency standards is 
this is the big problem is you have the federal government set 
these regulations, and then you have the government subsidize 
them to meet these regulations. You have the government mandate 
the use of cellulosic biofuels, and then you have the 
government give out loan guarantees to cellulosic biofuel 
plants. This is not a winning formula for innovation and 
economic growth in the renewable energy industry or any energy 
industry.
    Mr. Knight. Okay. Thank you, Mr. Chair. I yield back.
    Chairman Weber. Thank you. I thank the witnesses for their 
valuable testimony and the members for their questions. The 
record will remain open for two weeks for additional comments 
and written questions from the Members.
    The hearing is adjourned.
    [Whereupon, at 11:32 a.m., the subcommittees were 
adjourned.]

                               Appendix I

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                   Answers to Post-Hearing Questions

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]




                              Appendix II

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                   Additional Material for the Record


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