[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
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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.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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
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Appendix II
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Additional Material for the Record
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