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RISKY BUSINESS: 

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 FIFTEENTH CONGRESS 

FIRST SESSION 

FEBRUARY 15, 2017 

Serial No. 115–03 

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

( 

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

COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY 

HON. LAMAR S. SMITH, Texas, Chair 

FRANK D. LUCAS, Oklahoma 

DANA ROHRABACHER, California 

MO BROOKS, Alabama 

RANDY HULTGREN, Illinois 

BILL POSEY, Florida 

THOMAS MASSIE, Kentucky 

JIM BRIDENSTINE, Oklahoma 

RANDY K. WEBER, Texas 

STEPHEN KNIGHT, California 

BRIAN BABIN, Texas 

BARBARA COMSTOCK, Virginia 

GARY PALMER, Alabama 

BARRY LOUDERMILK, Georgia 

RALPH LEE ABRAHAM, Louisiana 

DRAIN LAHOOD, Illinois 

DANIEL WEBSTER, Florida 

JIM BANKS, Indiana 

ANDY BIGGS, Arizona 

ROGER W. MARSHALL, Kansas 

NEAL P. DUNN, Florida 

CLAY HIGGINS, Louisiana 

EDDIE BERNICE JOHNSON, Texas 

ZOE LOFGREN, California 

DANIEL LIPINSKI, Illinois 

SUZANNE BONAMICI, Oregon 

ALAN GRAYSON, Florida 

AMI BERA, California 

ELIZABETH H. ESTY, Connecticut 

MARC A. VEASEY, Texas 

DONALD S. BEYER, JR., Virginia 

JACKY ROSEN, Nevada 

JERRY MCNERNEY, California 

ED PERLMUTTER, Colorado 

PAUL TONKO, New York 

BILL FOSTER, Illinois 

MARK TAKANO, California 

COLLEEN HANABUSA, Hawaii 

CHARLIE CRIST, Florida 

SUBCOMMITTEE ON ENERGY

HON. RANDY K. WEBER, Texas, Chair 

DANA ROHRABACHER, California 

FRANK D. LUCAS, Oklahoma 

MO BROOKS, Alabama 

RANDY HULTGREN, Illinois 

THOMAS MASSIE, Kentucky 

JIM BRIDENSTINE, Oklahoma 

STEPHEN KNIGHT, California, Vice Chair 

DRAIN LAHOOD, Illinois 

DANIEL WEBSTER, Florida 

NEAL P. DUNN, Florida 

LAMAR S. SMITH, Texas 

MARC A. VEASEY, Texas, Ranking Member 

ZOE LOFGREN, California 

DANIEL LIPINSKI, Illinois 

JACKY ROSEN, Nevada 

JERRY MCNERNEY, California 

PAUL TONKO, New York 

JACKY ROSEN, Nevada 

BILL FOSTER, Illinois 

AMI BERA, California 

MARK TAKANO, California 

EDDIE BERNICE JOHNSON, Texas 

SUBCOMMITTEE ON OVERSIGHT

HON. DRAIN LAHOOD, Illinois, Chair 

BILL POSEY, Florida 

THOMAS MASSIE, Kentucky 

GARY PALMER, Alabama 

ROGER W. MARSHALL, Kansas 

CLAY HIGGINS, Louisiana 

LAMAR S. SMITH, Texas 

DONALD S. BEYER, Jr., Virginia, Ranking 

Member 

JERRY MCNERNEY, California 

ED PERLMUTTER, Colorado 

EDDIE BERNICE JOHNSON, Texas 
(III) 

C O N T E N T S 

February 15, 2017 

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 ........................................................................................................... 4 

Written Statement ............................................................................................ 6 

Statement by Representative Marc A. Veasey, Ranking Member, Subcommittee on Energy, Committee on Science, Space, and Technology, U.S. 

House of Representatives .................................................................................... 8 

Written Statement ............................................................................................ 10 

Statement by Representative Darin LaHood, Chairman, Subcommittee on 

Oversight, Committee on Science, Space, and Technology, U.S. House of 

Representatives .................................................................................................... 12 

Written Statement ............................................................................................ 14 

Statement by Representative Donald S. Beyer, Jr., Ranking Member, Subcommittee on Oversight, Committee on Science, Space, and Technology, 

U.S. House of Representatives ............................................................................ 16 

Written Statement ............................................................................................ 18 

Statement by Representative Lamar S. Smith, Chairman, Committee on 

Science, Space, and Technology, U.S. House of Representatives ..................... 20 

Written Statement ............................................................................................ 22 

Statement by Representative Eddie Bernice Johnson, Ranking Member, Committee on Science, Space, and Technology, U.S. House of Representatives .... 24 

Written Statement ............................................................................................ 26 

Witnesses: 

Ms. Diane Katz, Senior Research Fellow in Regulatory Policy, Thomas A. 

Roe Institute for Economic Policy Studies, The Heritage Foundation 

Oral Statement ................................................................................................. 28 

Written Statement ............................................................................................ 31 

Mr. Chris Edwards, Director, Tax Policy Studies, Cato Institute 

Oral Statement ................................................................................................. 44 

Written Statement ............................................................................................ 46 

Mr. Dan Reicher, Executive Director, Steyer-Taylor Center for Energy Policy 

and Finance, Stanford University 

Oral Statement ................................................................................................. 56 

Written Statement ............................................................................................ 58 

Dr. Ryan Yonk, Assistant Research Professor, Department of Economics and 

Finance, and Research Director, Institute of Political Economy, Utah State 

University 

Oral Statement ................................................................................................. 73 

Written Statement ............................................................................................ 75 

Discussion ................................................................................................................. 83 
Page

IV 

Appendix I: Additional Material for the Record 

Documents submitted by Representative Randy K. Weber, Chairman, Subcommittee on Energy, Committee on Science, Space, and Technology, U.S. 

House of Representatives .................................................................................... 108 
(1) 

RISKY BUSINESS: 

THE DOE LOAN GUARANTEE PROGRAM 

WEDNESDAY, FEBRUARY 15, 2017 

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 10:09 a.m., in Room 

2318, Rayburn House Office Building, Hon. Randy Weber [Chairman of the Subcommittee on Energy] presiding. 
2 

LAMAR S. SMITM, Texas 

CHAIRMAN 

~ongrtss of the ilnitcd ~rates 

}louse of Rrprcscntatiocs COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY 

2321 RAYBURN HOUSE OFFICE BUILDING 

WASHINGTON, DC 20515-6301 

Subcommittees on Energy and Oversight 

EDDIE BERNICE JOHNSON Tewas 

RANKING MEMBER 

Risky Business: The DOE Loan Guarantee Program 

Wednesday, February 15, 2017 

1 0:00a.m. - !I ;30 a.m. 

2318 Rayburn House Office Building 

Ms. Diane Katz, Senior Research Fellow in Regulatory Policy, Thomas A. Roe Institute 

for Economic Policy Studies, The Heritage Foundation 

Mr. Chris Edwards, Director, Tax Policy Studies, Cato Institute 

Mr. Dan Reicher, Executive Director, Steyer· Taylor Center for Energy Policy and 

Finance, Stanford University 

Dr. Ryan Yonk, Assistant Research Professor, Department of Economics and Finance, 

Utah State University; Research Director, Institute of Political Economy, Utah State 

University 
3 

U.S. HOUSE OF REPRESENTATIVES 

COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY 

HEARING CHARTER 

February 8, 2017 

TO: Members, Subcommittee on Energy and Subcommittee on Oversight 

FROM: Majority Staff, Committee on Science, Space, and Technology 

SUBJECT: Joint Subcommittee hearing: "Risky Business: The DOE Loan Guarantee 

Program" 

The Subcommittees on Energy and Oversight will hold a joint hearing titled Risky 

Business: The DOE Loan Guarantee Program on Wednesday, February 15, 2017, at 10:00 a.m. 

in Room 2318 of the Rayburn House Office Building. 

Hearing Purpose: 

The purpose of the hearing is to continue the Committee's oversight of the Department of 

Energy's loan gnarantee program, to examine the market impact and risk associated with federal 

direct loans and loan guarantees for energy innovation, and to consider options to reform the 

program in the 115'h Congress. 

Witness List 

• Ms. Diane Katz, Senior Research Fellow in Regulatory Policy, Thomas A. Roe Institute 

for Economic Policy Studies, The Heritage Foundation 

• Mr. Chris Edwards, Director, Tax Policy Studies, Cato Institute 

• Mr. Dan Reicher, Executive Director, Steyer-Taylor Center for Energy Policy and 

Finance, Stanford University 

• Dr. Ryan Yonk, Assistant Research Pr()j'essor, Department of Economics and Finance, 

and Research Director, Institute ()(Political Economy, Utah State University 

Staff Contact 

For questions related to the hearing, please contact Emily Domenech of the Majority 

Staff at 202-226-2179. 
4 

Chairman WEBER. The Subcommittee on Energy and Oversight 

will come to order. 

Without objection, the Chair is authorized to declare recesses of 

the subcommittee at any time. 

Welcome to today’s hearing entitled ‘‘Risky Business: The DOE 

Loan Guarantee Program.’’ I recognize myself for five minutes for 

an opening statement. 

Today, we will have the opportunity to review the past, the 

present, and the future of the Department of Energy’s loan program. I want to thank our panel of witnesses for joining us in this 

important discussion about the appropriate federal role in supporting energy innovation. 

Established by the Energy Policy Act of 2005, the DOE loan 

guarantee program was designed to give federal support to risky, 

innovative, clean energy technology. Under a federal loan guarantee, instead of the private sector taking on risk to fund the scaleup of new technology, the government steps in, risking federal dollars on the hopes for success of these energy projects. 

Through the section 1703 and 1705 programs, the Department 

guaranteed loans to 30 energy companies, putting about $28 billion 

of taxpayer money on the line. 

After Congress approved over $2 billion to subsidize the costs of 

loan guarantees, the DOE then issued more than $16 billion in 

guarantees to 26 different projects. In these subsidized loans, 

known as section 1705 loans, companies not only received government backing for their loan, but additional taxpayer dollars were 

authorized to pay, quote, the ‘‘credit subsidy cost,’’ end quote, of the 

loan, or the estimated cost to the federal government to manage 

the loan over its lifetime. 

Easy money combined with political pressure to issue loans before the temporary subsidy program expired led the DOE to rush 

loan applications. Both the DOE Inspector General and the Government Accountability Office found that DOE did not have the 

necessary expertise or the metrics to effectively evaluate these 

loans. Predictably, a number of companies that received section 

1705 loans went into default. In total, over $800 million in taxpayer money has been wasted by this DOE loan program. 

It’s clear that the DOE loan guarantee program is expensive. The 

GAO estimates that the cost for the current loan guarantees is $2.2 

billion with a B. Supporters argue the cost is justified if we can 

help innovative technologies make the leap to the commercial market. 

But what if federal meddling in the market actually hurts innovation? As we will hear in testimony today, when the federal government provides loans and loan guarantees to favored technologies, innovation in fact stalls. While federal government support helps loan guarantee winners attract capital, it draws capital 

away from other innovative ideas in the marketplace. 

And since large companies with the resources to lobby on behalf 

of their projects often have an advantage in the loan application 

process, the DOE loan guarantee program pushes capital away 

from those startups and entrepreneurs that often have the most innovative ideas. We need to be opening doors for these small 
5 

innovators, not closing them by pushing investors toward federally 

backed, so-called risk-free investments. 

Additionally, taxpayers often end up paying higher prices for 

their power because of federal government meddling in the energy 

market. For example, when the DOE provided a $1.6 billion loan 

guarantee to the Ivanpah solar project in California, the state mandated the use of renewable power, and utilities entered into contracts to buy power from the DOE-backed facility. Unfortunately, 

the ratepayers in southern California will now pay two to five more 

times for power generated by this facility in addition to being stuck 

with the bill if the project goes into default. 

The truth is that when the DOE provides loan guarantees, there 

is no benefit for the taxpayer even if the guaranteed loan is paid 

in full. Regular Americans take on the liability of the full loan, 

they don’t see a return, and they can end up paying more for their 

electricity if and when the project is actually built. 

The DOE loan guarantee program is just another way the federal 

government picks winners and losers in the energy market. It 

doesn’t guarantee innovation, doesn’t guarantee cost savings, and 

it doesn’t guarantee access to the next generation of energy technology. The only thing guaranteed for the taxpayers is extra cost 

and extra risk. 

It is our responsibility in this committee to examine Department 

of Energy programs and ensure our limited resources prioritize the 

kind of research and science facilities that open doors for all kinds 

of innovators.The Department cannot prioritize the basic research 

it does best if it’s playing venture capitalist. 

Therefore, I think we need to take a hard look at the DOE loan 

guarantee program and determine whether it is an appropriate 

way to spend precious federal research dollars. In my opinion, and 

in the testimony you’ll hear today, the American people would be 

better served if the federal government stopped picking winners 

and losers, focused on the R&D, and let the market drive the investment for energy innovation. 

[The prepared statement of Chairman Weber follows:] 
6 

For Immediate Release 

February 15. 2017 

Statement of 

Risky 

Media Contact: Kristina Baum 

(202) 225-6371 

Subcommittee Chairman Randy Weber (R-Texas) 

The DOE Loon Guarantee Program 

Chairman Weber: Today, we will have the opportunity to review the past, present and 

future of the Department of Energy's loan program. I want to thank our panel of 

witnesses for joining us in this important discussion about the appropriate federal role in 

supporting energy innovation. 

Established by the Energy Policy Act of 2005, the DOE loan guarantee program was 

designed to give federal support to risky, innovative, clean energy technology. Under 

a federal loan guarantee, instead of the private sector taking on risk to fund the scale 

up of new technology. the government steps in, risking federal dollars on the hopes for 

success of energy projects. 

Through the Section 1703 and 1705 programs. the Department guaranteed loans to 30 

energy companies. putting 28 billion dollars in taxpayer money on the line. 

After Congress approved over 2 billion dollars to subsidize the costs of loan 

guarantees, DOE issued more than 16 billion dollars in guarantees to 26 different 

projects. In these subsidized loans. known as Section 1705 loans, companies not only 

received government backing for their loan, but additional taxpayer dollars were 

authorized to pay the "credit subsidy cost" of the loan, or the estimated cost to the 

federal government to manage the loan over its lifetime. 

Easy money combined with political pressure to issue loans before the temporary 

subsidy program expired led DOE to rush loan applications. Both the DOE Inspector 

General and Government Accountability Office found that DOE did not have the 

necessary expertise or metrics to effectively evaluate these loans. 

Predictably, a number of companies that received Section 1705 loans went into 

default. In total, over 800 million dollars in taxpayer money has been wasted by the 

DOE loan program. 

It's clear the DOE loan guarantee program is expensive- the GAO estimates that the 

cost for the current loan guarantees is 2.2 billion dollars- but supporters argue the cost 

is justified if we can help innovative technologies make the leap to the commercial 

market. 

But, what if federal meddling in the market actually hurts innovation? As we will hear 

in testimony today, when the federal government provides loans and loan guarantees 
7 

to favored technologies, innovation stalls. While federal government support helps 

loan guarantee winners attract capital, it draws capital away from other innovative 

ideas in the market. 

And since large companies with the resources to lobby on behalf of their projects 

often have an advantage in the loan application process, the DOE loan guarantee 

program pushes capital away from the start-ups and entrepreneurs that often have 

the most innovative ideas. We need to be opening doors for these small innovatorsnot closing them by pushing investors towards federally backed, risk-free investments. 

Additionally, taxpayers often end up paying higher prices for their power because of 

federal government meddling in the energy market. For example, when DOE 

provided a 1.6 billion dollar loan guarantee to the lvanpah solar project in California, 

the state mandated the use of renewable power. and utilities entered into contracts 

to buy power from the DOE-backed facility. Unfortunately, the ratepayers in Southern 

California will now pay two to five times more for power generated by this facility in 

addition to being stuck with the bill if the project fails and goes into default. 

The truth is, when DOE provides loan guarantees, there is no benefit for the taxpayer 

even if the guaranteed loan is paid in full. 

Regular Americans take on the liability of the full loan, they don't see a return, and 

can end up paying more for their electricity if the project is actually built. 

The DOE loan guarantee program is just another way the federal government picks 

winners and losers in the energy market. It doesn't guarantee innovation or cost 

savings, and it doesn't guarantee access to capital for the next generation of energy 

technology. The only thing guaranteed for the taxpayer is extra cost and extra risk. 

It's our responsibility in this Committee to examine Department of Energy programs, 

and ensure our limited resources prioritize the kind of research and science facilities 

that open doors for all kinds of innovators. 

The Department can't prioritize the basic research it does best when it's playing 

venture capitalist. 

Therefore, I think we need to take a hard look at the DOE loan guarantee program, 

and determine whether it's an appropriate way to spend federal research dollars. 

In my opinion, and in the testimony you'll hear today, the American people would be 

better served if the federal government stopped picking winners and losers, focused 

on research and development. and let the market drive investment for energy 

innovation. 

### 
8 

Chairman WEBER. With that, I conclude, and I now recognize 

Ranking Member, Mr. Veasey. 

Mr. VEASEY. Thank you, Mr. Chairman. I’m looking forward to 

working with you this Congress in my capacity as Ranking Member 

of the Energy Subcommittee. And given our history together, previously, we served in the Texas Legislature together, served on the 

Environmental Regulation Committee together working on similar 

issues here. And so I think that we’ll be able to talk about some 

things that we think can help move America’s energy future together in the right direction. 

Today, we are examining the Department of Energy’s Loan Programs Office. I hope that by the end of this hearing my colleagues 

on both sides of the aisle can come to the same conclusion that so 

many nonpartisan observers and professionals in the finance industry have, that these loan programs have been successful by almost 

every measure. 

Allow me to highlight just a few of these success stories. The 

LPO portfolio has over 30 projects in 18 States. It has enabled over 

$50 billion in private sector investment in clean energy technologies. These loan guarantees have created 56,000 American jobs 

across our country. And these loan guarantees have helped prevent 

the release of 34.1 million tons of carbon dioxide into our atmosphere. All of this is because at Congress’s direction the DOE intelligently leveraged the federal government’s strong credit and LPO’s 

deep expertise to the benefit of the American taxpayer. 

For my fiscal conservative friends, the loan programs have actually helped reduce the national debt. During LPO’s relatively short 

life, the loan and loan guarantees have returned approximately 

$980 million to the Treasury. That is net revenue from interest 

payments after accounting for losses. It is notable that even the 

Heritage Foundation left LPO off their list of programs to cut or 

eliminate in their Blueprint for Balance. And based on my quick 

read, there aren’t very many DOE programs that are spared in 

that particular report. 

When Congress authorized the loan program we set aside $10 

billion for expect losses that may occur as the federal government 

takes on varying levels of risk with each of these projects. While 

there have been a handful of projects that did not pan out, the total 

losses from all of these projects comes nowhere near the $10 billion 

originally set aside. In fact, it is less than ten percent of the 

amount Congress originally projected, with losses so far adding up 

to $810 million, a number that is covered twice over by the interest 

payments collected. So if we consider this program on a strictly 

cost-benefit or risk-reward basis, it has clearly performed beyond 

expectations and is tremendously successful. 

But those aren’t the only or even the most appropriate metrics 

to consider. The section 1705 loan guarantees are responsible for 

launching the utility-scale PV solar industry. These loan guarantees enabled the first five 100 megawatt solar PV facilities to be 

built in the United States. What followed that initial investment 

from DOE perfectly illustrates the role that these loan guarantees 

fill in the market. After DOE demonstrated the viability of those 

first five projects, private financing began funding utility-scale 
9 

solar PV independently. As of the last year, there are now 45 other 

projects that have received financing. 

However, LPO does more than just provide loan guarantees to 

renewable energy. In fact, over 1/3 of the portfolio’s loan guarantee 

authority funds the Vogtle nuclear project in Georgia. And with the 

announcement of a conditional commitment for the first Advanced 

Fossil Energy Project in Lake Charles, Louisiana the portfolio continues to diversify. In fact, the carbon captured from the Lake 

Charles project will be used by Denbury, a Texas company for enhanced oil recovery, in Southeast Texas. And as the Chairman of 

the Carbon Dioxide Enhanced Oil Recovery Caucus, I certainly support this project. 

And with the enhanced oil recovery occurring near if not in the 

district of the esteemed Chairman, I’m hopeful that maybe he will 

consider being supportive of this particular project as well. 

The market for industrial carbon capture has the potential to experience the same revolutionary changes that the solar PV industry 

has experienced as a result of LPO’s unique role and capabilities 

to foster our innovation pipeline. 

In conclusion, the Loan Programs Office has something for everyone. It has investments for fossil energy, renewables, nuclear, and 

it even reduces our national debt. I hope we can all recognize the 

benefits and extraordinary gains that have come out of LPO, and 

furthermore, I hope my colleagues on the other side of the aisle are 

willing to work together to constructively support and wherever appropriate improve the Department’s work in this crucial area. 

Mr. Chairman, I want to thank you. I look forward to working 

with you, and I yield back the balance of my time. 

[The prepared statement of Mr. Veasey follows:] 
10 

OPENING STATEMENT 

Ranking Member Marc Veasey (D-TX) 

of the Subcommittee on Energy 

Committee on Science, Space, and Technology 

Subcommittee on Energy and Oversight 

"Risky Business: The DOE Loan Guarantee Program" 

Febmary 15,2017 

Thank you, Mr. Chairman. l am looking forward to working with you this Congress in my capacity as 

the Ranking Member of the Energy Subcommittee. Given our history together in the Texas 

Legislature, l'm hopefi.ll we can work together to ensure America's bright energy future, and the 

Department of Energy continues to be a world leader in fostering energy innovation as well as 

fundamental research. 

Today, we are examining the Department of Energy's Loan Programs Office. l hope that by the end 

of this hearing my colleagues on both sides of the isle can come to the same conclusion that so many 

nonpartisan observers and professionals in the finance industry have that these Joan programs have 

been successful by almost every measure. 

Allow me to highlight just a few of those success stories: The LPO portfolio has over 30 projects in 

18 states. It has enabled over 50 billion dollars in private sector investment in clean energy 

technologies. These loan guarantees have created 56,000 American jobs across the country. And these 

loan guarantees have helped prevent the release of 34.1 million tons of carbon dioxide into our 

atmosphere. All of this is because, at Congress's direction, DOE intelligently leveraged the Fedeml 

government's strong credit and LPO's deep expertise to the benefit of the American taxpayer. 

For my fiscal conservative friends the Joan programs have helped reduce the national debt. During 

LPO's relatively short life, the loans and loan guarantees have returned approximately $980 

MILLION to the Treasury. That is net revenue from interest payments after accounting for losses. It 

is notable that even the Heritage Foundation left LPO off their list of programs to cut or eliminate in 

their "Blueprint for Balance." And based on my quick read, there aren't many DOE programs that 

they spared in that report. 

When Congress authorized the loan program, we set aside $10 billion for expected losses that may 

occur as the Federal government takes on varying levels of risk with each of these projects. While 

there have been a handful of projects that did not pan out, the total losses from all of these projects 

comes nowhere near the $10 billion originally set aside. In fact, it is less than l 0% of the amount 

Congress originally projected, with losses so far adding up to $810 million a number that is covered 

twice over by interest payments collected. So, if we consider this program on a strictly cost-benefit or 

risk-reward basis, it has clearly performed beyond expectations and is tremendously successful. But 

those aren't the only- or even the most appropriate- metrics to consider. 

The Section 1705 loan guarantees are responsible for launching the utility-scale photovoltaic (PV) 

solar industry. These loan guarantees enabled the first five 100-megawatt solar PV facilities to be 

built in the U.S. What followed that initial investment from DOE perfectly illustrates the role that 

these loan guarantees fill in the market. 

After DOE demonstrated the viability of those first five projects, private financing began funding 

utility-scale solar PV independently. As oflast year there arc now 45 other projects that have received 

financing. However, LPO does more than jus/ provide Joan guarantees to renewable energy. In fact, 
11 

over a third of the portfolio's loan guarantee authority funds the Vogtle nuclear energy project in 

Georgia. And with the announcement of a conditional commitment for the first advanced fossil 

energy project in Lake Charles, Louisiana, the portfolio continues to diversify. 

In fact, the carbon captured from the Lake Charles project will be used by Denbury, a Texas 

company, for enhanced oil recovery in southeast Texas. As chainnan of the Carbon Dioxide 

Enhanced Oil Recovery Caucus, I certainly support this project. With this enhanced oil recovery 

occurring near if not in- the district of Chairman Weber, I'm hopeful he'd be supportive of this 

project as well. 

The market for industrial carbon capture has the potential to experience the same revolutionary 

changes that the solar PV industry experienced as a result of LPO's unique role and capabilities to 

foster our energy innovation pipeline. 

In conclusion, the Loan Programs Office has something for everybody. It has investments in fossil 

energy, renewables, and nuclear, and it even reduces our national debt. l hope we can all recognize 

the benefits and extraordinary gains that have come out of LPO. 

Furthennore, I hope my colleagues on the other side of the aisle are willing to work together to 

constructively support and, wherever appropriate, improve the Department's work in this crucial area. 

Thank you again, \.1r. Chairman and I yield back the balance of my time. 
12 

Chairman WEBER. Thank you, Mr. Veasey. And I was remiss. I, 

too, look forward to working with you. We had good times in the 

Texas legislature. 

Mr. VEASEY. Yes, we did. 

Chairman WEBER. You bet. Man, I now recognize the Chairman 

of the Subcommittee on Oversight, Mr. LaHood, for his opening 

statement. 

Mr. LAHOOD. Well, thank you, Chairman Weber. And it’s an 

honor to join you here today for this hearing. I want to thank the 

witnesses for being here today for our hearing titled ‘‘Risky Business: The DOE Loan Guarantee Program.’’ 

Today’s hearing will provide us with an opportunity to examine 

one of the ways the previous Administration used taxpayer dollars 

to fund massive green energy initiatives with the Department of 

Energy’s loan guarantee program. With this program, over $28 billion in taxpayer money was used to support the loan program’s 

portfolio for 30 projects. Too often, loan guarantees were handed 

out based on political favoritism instead of merit. 

Problems with the loan program arose when DOE’s first ap- proved project, Solyndra, defaulted on its loan after receiving $535 

million in loan guarantees. Four additional projects defaulted on 

their loans, representing $807 million taxpayer dollars lost to date. 

So it’s no surprise that the Loan Program Office has faced strong 

criticism from Congress. Rigorous oversight should be expected 

when billions of taxpayer dollars are at stake, especially when politics can influence how those dollars are spent. This Committee, the 

Energy and Commerce Committee, and the Oversight and Government Reform Committee have held many hearings outlining concerns with this program. In addition to Congressional oversight, 

the DOE Inspector General and the nonpartisan Government Accountability Office have repeatedly raised questions about the mismanagement and accountability in the loan program. 

The DOE Inspector General described the DOE Loan Program office as, quote, ‘‘attaching a garden hose to a fire hydrant,’’ unquote. 

Had Congressional committees not drawn attention to the problems 

with the Loan Program Office, the losses could have been far greater. As part of Congress’ oversight mandate, we have a responsibility to ensure that the proper transparency in this place—is the 

place to ensure that DOE is not putting taxpayer dollars at undue 

risk. 

While this is my first hearing as Oversight Subcommittee Chairman, my colleagues on this committee led efforts in the last Congress to ensure that the DOE loan guaranteeprogram was effectively managed and transparent. I’m committed to maintaining 

oversight of this program in the 115th Congress. 

The loss of taxpayer dollars in the DOE loan program raise significant questions about the overall effectiveness of the program 

and what steps Congress may need to take to ensure taxpayer dollars are no longer put at risk. We can’t keep putting American tax 

dollars on the line when loan guarantee recipients are in danger 

of default. And we can’t automatically expect the federal government to be better than the private sector when it comes to investment and what makes technology successful in the commercial 

market. 
13 

Today’s hearing is intended to analyze the future of the DOE 

loan guarantee program. How can it be improved? Is the risk to the 

taxpayers worth the benefits gained? Are the taxpayers truly benefiting from the Loan Program Office? Is the DOE loan guarantee 

program operating within its intended purpose, to close the gap between innovative technologies and private investment? Or is federal government intervention crowding out other innovative technologies in the energy marketplace? 

All of these are important questions that require the kind of 

thorough discussion I hope we can have here today. It’s our job in 

Congress to ensure responsible management of federal resources 

and determine the path forward for the DOE loan program. 

We have a number of excellent witnesses here today that will 

help this committee answer some of these questions and provide 

recommendations on next steps for the DOE loan guarantee program. I would like to thank our witnesses for joining us here today, 

and I look forward to the testimony. 

With that, I yield back, Mr. Chairman. 

[The prepared statement of Mr. LaHood follows:] 
14 

For Immediate Release 

February 15, 2017 

Media Contact: Kristina Baum 

(202) 225-6371 

Statement of Oversight Subcommittee Chairman Darin LaHood (R-111.) 

Risky Business: The DOE Loan Guarantee Program 

Chairman LaHood: Good morning and welcome to today's Oversight and Energy 

Subcommittee hearing reviewing the Department of Energy's Loan Program. 

Today we intend to discuss and evaluate the DOE loan guarantee program. 

Today's hearing will also provide an opportunity to examine one of the ways the 

previous administration used taxpayer dollars to fund massive energy initiatives. 

In the Department of Energy's Loan Guarantee Program, over billion taxpayer 

dollars were used to support the Loan Program's portfolio of 30 projects. Too often. 

loan guarantees were handed out based on political favoritism instead of merit. 

Problems with loan program arose when DOE's first approved project. Solyndra, 

defaulted on its loan after receiving a $535 million loan guarantee. Four additional 

projects defaulted on their loans. representing $807 million taxpayer dollars lost to 

date. 

So it's no surprise that the Loan Program Office has faced strong criticism from 

Congress. Rigorous oversight should be expected when billions of taxpayer dollars are 

at stake especially when politics can influence how dollars are spent. This 

Committee, the Energy and Commerce Committee, and the Oversight and 

Government Reform Committee have held many hearings outlining concerns with the 

program. 

In addition to Congressional oversight, the DOE Inspector General and the nonpartisan Government Accountability Office have repeatedly raised concerns about 

mismanagement and accountability in the loan program. 

The DOE inspector general described the DOE Loan Program office as "attaching a 

garden hose to a fire hydrant." Had Congressional Committees not drawn attention 

to the problems with the Loan Program Office, the losses could have been far greater. 

As par! of Congress' oversight mandate, we have a responsibility to ensure that the 

proper transparency is in place to ensure DOE is not putting taxpayer dollars at undue 

risk. 

While this is my first hearing as the Oversight Subcommittee Chairman, my colleagues 

on this Committee led efforts last Congress to ensure that the DOE loan guarantee 
15 

program was effectively managed and transparent. I'm committed to maintaining 

oversight of this program in the 11Sth Congress. 

The loss of taxpayer dollars in the DOE loan program raises significant questions about 

the overall effectiveness of the program, and what steps Congress may need to take 

to ensure taxpayer dollars are no longer put at risk. 

We can't keep putting American tax dollars on the line when loan guarantee 

recipients are in danger of default. And we can't automatically expect the federal 

government to be better than the private sector when it comes to investment and 

what makes a technology successful in the commercial market. 

Today's hearing is intended to analyze the future of the DOE loan guarantee program 

-how can and should it be improved. Is the risk to the taxpayers worth the benefits 

gained? Are the taxpayers truly benefiting from the Loan Program Office? Is the DOE 

loan guarantee program operating within its intended purpose, to close the gap 

between innovative technologies and private investment? Or is federal government 

intervention crowding out other innovative technologies in the energy marketplace? 

All of these are important questions that require the kind of thorough discussion I hope 

we can have here today. It's our job in Congress to ensure responsible management 

of federal resources, and determine the best path forward for the DOE Loan Program. 

We have a number of excellent witnesses here today that will help this Committee 

answer some of these questions, and provide recommendations on next steps for the 

DOE loan guarantee program. I would like to thank our witnesses for joining us today 

and I look forward to your testimony. With that I yield back to the chairman. 

### 
16 

Chairman WEBER. Thank you, Mr. LaHood. 

I now recognize the Ranking Member of the Subcommittee on 

Oversight, Mr. Beyer, for his opening statement. 

Mr. BEYER. Thank you. Chairman Weber and Chairman LaHood, 

thanks so much for putting this hearing on today. 

The mission of the Department of Energy’s Loan Program Office 

is to help accelerate the deployment of advanced innovative clean 

energy technologies across the United States, and the successful 

deployment of these technologies creates jobs, enhances America’s 

competitiveness, and helps to protect the environment, the climate, 

and public health. 

Now, we’re likely to hear a lot of criticism about the loan guarantee program today. Both witnesses and members are likely to 

say that the federal government should play no role in funding energy technologies at all, particularly renewable energy technologies. 

And I think this is philosophically congruent with much of the majority’s opposition to the Export-Import Bank, the idea that government doesn’t have a role in loan guarantees. 

Some even say that the U.S. Government shouldn’t have pro- vided more than $470 billion in subsidies to the oil and gas industry over the last 100 years. But some may also see problems with 

the DOE providing more than $8 billion in loan guarantees or 1/ 

3 of its current loan guarantees to construct two new nuclear 

plants in Georgia. The new LPO portfolio that includes solar, wind, 

fossil fuel, nuclear, and other technologies comprises more than $30 

billion in loans, loan guarantees, and conditional commitments covering more than 30 different projects across multiple energy and 

transportation technologies. 

I believe the possible plan to halt the DOE’s loan programs completely, as suggested in a memo by President Trump’s DOE transition team, is supported by some individuals at the conservative 

Heritage Foundation is a spectacularly bad idea. Investing in clean 

energy is smart. It helps to provide scientific solutions to combat 

climate change. It helps to protect our environment and the 

public’s health from toxic chemicals. It fosters innovation and the 

development of new technologies. It creates new jobs and helps our 

economy. 

You know, one of the myths here is that somehow we’re in a perfectly free market. The American companies’ workers in our advanced energy sector face fierce foreign competition. And the international market is certainly not free. Many firms in the advanced 

energy sector benefit from strong home government support. China 

automaker BYD benefits from generous support from the Chinese 

Government, well on its way to becoming the world’s largest electric car manufacturer. European firms are also making significant 

gains in new plug-in vehicles and renewable energy generation. 

The United States should simply not cede its leadership to our 

foreign competitors in the high-tech advanced energy sector. This 

important DOE program is necessary for American businesses and 

American workers to compete in this growing field. 

So regardless of whether you believe in the abundant scientific 

evidence that supports the reality of carbon pollution and the role 

of fossil fuel combustion and sea level rise, supporting clean, innovative, renewable energy technologies that don’t damage our water-
17 

ways, air, and land by releasing toxic chemicals is a good idea. The 

only thing it may really threaten is fossil fuel companies that don’t 

clean up their act. 

I hope that as Members of Congress we can have some foresight 

and can agree to support federal investments today into the clean 

energy technologies that our nation will need tomorrow, clean energy technologies that will never emerge without federal support. 

Perhaps the DOE can get an opportunity today to drill down on 

the actual math. The numbers we’ve seen suggest the loss ratio of 

around two percent, far less than you have in the private sector, 

that we’ve already received $980 million more in total interest payments, more than the total losses even projected in the loan program so just on that fact so far it’s not projected to be a burden 

on the taxpayers at all. And that’s not even including all of the 

taxes generated by the many successful businesses funded by this, 

all the taxes paid by the thousands of jobs created by the federal 

loan program. This, at least the evidence we’ve seen so far, is a 

huge net impact on the positive way against the federal budget deficit and for the federal economy. But perhaps I’ll have a chance to 

drill down on that even more. 

Thank you very much for being with us today. And, Mr. Chairman, Chairman, and Ranking Member, thank you for inviting me 

to be a part of this. 

[The prepared statement of Mr. Beyer follows:] 
18 

OPENING STATEMENT 

Ranking Member Don Beyer (D-VA) 

of the Subcommittee on Oversight 

House Committee on Science, Space, and Technology 

Subcommittees on Energy and Oversight 

"Risky Business: The DOE Loan Guarantee Program" 

February 15,2017 

Thank you Chairman Weber and Chairman LaHood. !look forward to working with both of you this 

Congress and 1 appreciate you holding this hearing today. 

The mission of the Department of Energy's (DOE's) Loan Programs Office (LPO) is to help accelerate 

the deployment of advanced, innovative clean energy technologies across the United States. The 

successful deployment of these technologies creates jobs, enhances American competitiveness and helps 

to protect the environment, the climate, and the public's health. 

We are likely to hear a lot of criticism of the loan guarantee program today. Both witnesses and Members 

arc likely to say that the federal government should play no role in funding energy technologies at all, 

particularly renewable energy technologies. Some may even say they don't believe the U.S. government 

should have provided more than $470 billion in subsidies to the oil and gas industry over the past 100 

years. Some may also see problems with DOE providing more than $8 billion in loan guarantees (or onethird of its current loan guarantees) to construct two new nuclear plants in Georgia. The current LPO 

portfolio, that includes solar, wind, fossil fuel, nuclear and other technologies, comprises more than $30 

billion in loans, Joan guarantees, and conditional commitments covering more than 30 different projects 

across multiple energy and transportation technologies. 

I believe the DOE loan programs support our Nation's efforts to innovate, invent, and discover new clean 

energy technologies that help to fuel our economy, enhance our national security and protect our 

environmental legacy. The possible plan to halt the DOE loan programs completely, as suggested in a 

memo by President Trump's DOE transition team and supported by some individuals at the conservative 

Heritage Foundation, for instance, is a spectacularly bad idea. 

Investing in clean energy is smart. It helps provide scientific solutions to combat climate change. It helps 

to protect our environment and the public's health from toxic chemicals. It fosters innovation and the 

development of new technologies. It creates new jobs and helps our economy. 

American companies and workers in our advanced energy sector face fierce foreign competition. The 

international market is not a perfectly free market- many firms in the advanced energy sector benefit 

from strong home government support. For example, China auto maker BYD benefits from generous 

support from the Chinese government and is "on its way to becoming the world's largest electric car 

manufacturer," according to a July 2016 article in Forbes magazine.' European fitms are also making 

significant gains in new plug-in vehicles and renewable energy generation. Tbc United States should not 

simply cede its leadership to our foreign competitors in the high-tech, advanced energy sector. This 

important DOE program is necessary for American businesses and American workers to compete in this 

growing, competitive field. 

Regardless of whether or not you believe in the abundant scientific evidence that supports the reality of 

climate change and the role of fossil fuel production in global warming, supporting clean, innovative, 

renewable energy technologies that do not damage our waterways, air and land by releasing toxic 
19 

chemicals into the environment is a good idea. The only thing they may threaten is fossil fuel companies 

that don't clean up their act. 

I hope that as Members of Congress we have some foresight and can agree to support federal investments 

today into the clean energy technologies that our nation will need tommTow. 

The DOE's loan programs provide vital financial assistance to help innovate our energy infrastructure, 

developing new advanced technologies that will help fuel our energy needs in the future and help build 

the innovative companies contending in the competitive advanced energy international marketplace. 

I look forward to hearing from our witnesses and having a constructive dialogue on these issues. I would 

particularly like to thank the Minority Witness, Mr. Dan Reicher, for being here today. 

Mr. Reicher has tremendous experience in energy policy, finance, and the clean energy industry. He was 

Director of Climate Change and Energy Initiatives at Google and prior to that he was a co-fotmder of a 

private equity finn focused on clean energy projects. 

Mr. Reicher, !look forward to your testimony and the breadth of experience you bring to the table. 

Thank you. I yield back. 

'Mark L. Clifford, Contributor to Forbes magazine, "Chinese Government Subsidies Play Major Part In Electric Car 

Maker BYD's Rise," July 26, 2016, Forbes, http://www.forbes.com/sites/mclifford/2016/07 /26/with-a-/ittle-helpfrom-its·friends-lavish-chinese-government-help-for-top-electric-car-maker-byd/ Accessed: February, 2017. 
20 

Chairman WEBER. Thank you, Mr. Beyer. 

I now recognize the Chairman of the full committee, Mr. Smith, 

for an opening statement. 

Chairman SMITH. Thank you, Mr. Chairman. And I also want to 

thank Chairman LaHood for holding this joint hearing today. 

We will hear from a number of expert witnesses on the market 

impact and risk associated with federal loan guarantees for energy 

innovation. 

The Department of Energy loan guarantee program was established in 2005. It was intended to provide federal loan guarantees 

to advance commercial application of innovative clean energy technology. In short, the Department guarantees a loan given to an energy company. By guaranteeing a loan, DOE tells private investors 

that if the company defaults, the taxpayers will foot the bill for the 

loan. This takes the risk away from investors who stand to profit 

and puts it on the American people. Instead of the private sector 

taking on risk to develop new technology, the government steps in 

and risks taxpayer dollars on energy projects. 

In 2009, Congress expanded the loan guarantee program and 

gave DOE $2.4 billion and the authority to manage costs of loan 

guarantees. But instead of careful vetting and appropriate metrics 

to avoid risk, the DOE rushed loan applications and issued $16 billion in loans to 26 projects. President Obama’s political allies, like 

Solyndra, were often fast-tracked, with little consideration for 

project merit or benefits to the taxpayer. 

The results were predictable. High-profile defaults occurred, like 

the $535 million loan guarantee 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. These events 

demonstrate what happens when the federal government picks 

winners and losers in the energy market. 

DOE has lost over $800 million on bad loans since 2005. According to estimates from the Government Accountability Office, the 

total cost for the current loan portfolio is $2.2 billion plus $312 million in program administrative costs. This is the cost to manage the 

current loan portfolio over the lifetime of the loans. These costs will 

increase if another loan is defaulted or if the Department issues 

new loan guarantees to projects with any financial risk. 

Under the DOE loan guarantee program, American tax dollars 

also subsidize loans for large companies with billions in available 

capital like Ford, Goldman Sachs, Google, GE, and Berkshire 

Hathaway. And if something goes wrong, these companies aren’t 

stuck with the bill; the America people are. It is unfair to ask 

American taxpayers to subsidize risky loans. 

DOE also provides a government stamp of approval to favored 

technologies through loan guarantees. That means that even when 

DOE backs a successful project, it drives private investment away 

from technologies that don’t receive federal loan guarantees. Private sector companies can’t compete with other private sector companies that get loan guarantees. 

It is our responsibility to oversee the use of the Department of 

Energy’s resources and only reauthorize those programs that provide the best investment for the American people. 
21 

Though its loan guarantees have a suspect past, DOE has an exemplary track record in basic research. The Department’s national 

labs and scientific user facilities provide opportunities to university 

researchers and private innovators as they search for the next 

great breakthrough in energy technology. And unlike the DOE loan 

guarantee program, the national labs are open to every innovative 

entrepreneur, not just those with a certain political agenda. 

Mr. Chairman, as we reauthorize the Department of Energy’s research and development programs, we should prioritize the basic 

and early-stage research that would not be undertaken by the private sector. 

Thank you. And I will yield back. 

[The prepared statement of Chairman Smith follows:] 
22 

For Immediate Release 

February 15, 201 7 

Media Contact: Kristina Baum 

(202) 225,6371 

Statement of Chairman lamar Smith (R-Texas) 

Risky Business: The DOE Loon Guarantee Program 

Chairman Smith: I thank the chairmen for holding this morning's joint hearing. 

Today, we will hear from a number of expert witnesses on the market impact and risk 

associated with federal loan guarantees for energy innovation. 

The Department of Energy (DOE) loan guarantee program was established in 2005. It 

was intended to provide federal loon guarantees to advance commercial application 

of innovative clean energy technology. 

In short, the Deportment "guarantees" a loan given to an energy company. By 

guaranteeing a loan, DOE tells private investors that if the company defaults, the 

taxpayers will foot the bill for the loan. 

This takes the risk away from investors who stand to profit and puts it on the American 

people. Instead of the private sector taking on risk to develop new technology, the 

government steps in and risks taxpayer dollars on energy projects. 

In 2009, Congress expanded the loan guarantee program and gave DOE $2.4 billion 

and the authority to subsidize the management costs of loan guarantees. 

Instead of careful and appropriate metrics to avoid risk, the DOE rushed loan 

6 billion in loans to 26 projects. 

President Obama's political allies. like Solyndra, were often fast-tracked, with little 

consideration for project merit or benefits to the taxpayer. 

The results were predictable. High profile defaults occurred, like the $535 million loan 

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. 

These events demonstrate what happens when the federal government picks winners 

and losers in the energy market. 

DOE has lost over $800 million on bod loans since 2005. 
23 

According to estimates from the Government Accountability Office, the total cost for 

the current loan portfolio is $2.2 billion plus $312 million in program administrative costs. 

This is the cost to manage the current loan portfolio over the lifetime of the loans. 

These costs will increase if another loan defaults or if the Department issues new loan 

guarantees to projects with any financial risk. 

Under the DOE loan guarantee program, American tax dollars also subsidize loans for 

large companies with billions in available capital like Ford, Goldman Sachs, Google, 

GE, and Berkshire Hathaway. 

And if something goes wrong, these companies oren 't stuck with the bill -the America 

people are. It is unfair to ask American taxpayers to subsidize risky loans. 

DOE also provides a government "stamp of approval" to favored technologies 

through loan guarantees. That means that even when DOE backs a successful 

project, it drives private investment away from technologies that don't receive federal 

loan guarantees. 

Private sector companies can't compete with other private sector companies that get 

loan guarantees. 

We have a unique opportunity to examine the Department of Energy's programs. It is 

our responsibility to oversee the use of the Department's resources and only 

reauthorize those programs that provide the best investment for the American people. 

Though its loan guarantees have a suspect past, DOE has an exemplary track record 

in basic research. 

The Department's national labs and scientific user facilities provide opportunities to 

university researchers and private innovators as they search for the next great 

breakthrough in energy technology. 

And unlike the DOE loan guarantee program, the national labs are open to every 

innovative entrepreneur- not just those with a certain political agenda. 

As we reauthorize the Department of Energy's research and development programs, 

we should prioritize the basic and early-stage research that cannot be accomplished 

by the private sector. 

### 
24 

Chairman WEBER. Thank you, Mr. Chairman. And I now recognize the Ranking Member of the full committee, Ms. Johnson, for 

an opening statement. 

Ms. JOHNSON. Thank you very much, Mr. Chairman. And let me 

express my appreciation to you, Mr. LaHood, and our Ranking 

Members for holding this hearing and I want to thank the witnesses for being here today. 

We are here to discuss the record at the Department of Energy’s 

Loan Programs Office and the unique role that these programs 

play in our energy innovation pipeline. They provide both direct 

loans and loan guarantees for projects across a broad range of energy sector, including nuclear, fossil energy, renewables, and advanced vehicles. 

This support has been critical because private lenders are typically unwilling or unable to take on the risk associated with financing truly innovative and first-of-a-kind projects of this scale on 

their own. And that’s true across the board in a lot of research and 

innovation. 

These programs have been instrumental in establishing new, 

American-made, clean energy industries. For example, prior to 

2010, there actually were no large-scale photovoltaic solar projects 

in the United States, but after a careful review of both the opportunities and the risk, DOE’s loan guarantee program supported the 

first five projects of this kind. And since then, the private sector 

has taken over financing another 45 utility-scale projects without 

government involvement. Any objective observer will tell you that 

this simply would not have happened if DOE had not fulfilled the 

loan program’s unique role of reducing the risk of deploying new 

energy technologies. 

The loan guarantee program is also supporting construction of 

the first U.S. nuclear reactors in 30 years at the Vogtle plant in 

Waynesboro, Georgia. And less than 2 months ago, DOE issued a 

conditional loan guarantee for an exciting new carbon capture and 

methanol production project in Lake Charles, Louisiana. 

DOE’s advanced technology vehicles manufacturing program 

which issued direct loans, is yet another success story. Not only did 

it help launch one of the leading electric vehicles manufacturers in 

the country today, Tesla Motors, but that company paid back its 

loan with interest almost ten years early. Overall, this program has 

supported the production of more than 4 million fuel efficiency cars 

and more than 35,000 jobs across eight States. 

The record is also now abundantly clear that DOE has been carrying out these key programs in a fiscally responsible manner. 

Even initial critics now view the loan guarantee program as a success with losses equaling only 2.23 percent of the office’s entire 

portfolio, a rate that is lower than any venture capitalist can 

achieve. While there will undoubtedly be instances when an individual project does not meet its goal, DOE’s overall portfolio remains strong and healthy. 

In closing, I want to emphasize there is no such thing as a free 

market when it comes to energy. You can tell that by all these Texans on this committee. The full cost of taxpayers of producing and 

ensuring the safe transportation of oil on the global market is not 

reflected in its price. Further, the growing cost of carbon pollution 
25 

have yet to be priced into the energy sector unfortunately. And 

Germany, China, India, and other leading competitors have implemented their own robust energy loan and loan guarantee programs 

to help them across what’s often called the ′′valley of death′′ between clean energy and technology development and commercialization. 

So DOE’s loan programs are vitally important for enabling the 

United States to compete effectively on the world stage, and more 

broadly, for fostering an American-made clean energy future for all 

of us. 

Again, I thank each of you for joining us today, and with that, 

Mr. Chairman, I yield back. 

[The prepared statement of Ms. Johnson follows:] 
26 

OPENING STATEMENT 

Ranking Member Eddie Bernice Johnson (D-TX) 

House Committee on Science, Space, and Technology 

Subcommittees on Energy and Oversight 

"Risky Business: The DOE Loan Guarantee Program" 

February 15,2017 

Good morning. Thank you Chairman Weber and Chairman LaHood for holding this hearing, and thank 

you to the witnesses for being here today. 

We are here to discuss the record of the Department of Energy's Loan Programs Office and the unique 

role that these programs play in our energy innovation pipeline. They provide both direct loans and loan 

guarantees for projects across a broad range of energy sectors including nuclear, fossil energy, 

rcnewables, and advanced vehicles. This support is critical because private lenders arc typically unwilling 

or unable to take on the risks associated with financing truly innovative first-of-a kind projects of this 

scale on their own. 

These programs have been instrumental in establishing new, American-made clean energy industries. For 

example, prior to 2010 there actually were no large-scale photovoltaic solar projects in the U.S. But after 

a careful review of both the oppmtunities and the risks, DOE's loan guarantee program supported the first 

five projects of this kind, and since then the private sector has taken over- financing another 45 utilityscale projects without government involvement. Any objective observer will tell yon that this simply 

wouldn't have happened if DOE had not fulfilled the Joan programs' unique role of reducing the risk of 

deploying new clean energy technologies. 

The Joan guarantee program is also supporting construction of the first new U.S. nuclear reactors in 30 

years at the Vogtlc plant in Waynesboro, GA. And less than two months ago, DOE issued a conditional 

loan guarantee for an exciting new carbon capture and methanol production project in Lake Charles, 

Louisiana. 

DOE's Advanced Technology Vehicles Manufacturing program, which issues direct loans, is yet another 

success story. Not only did it help launch one of the leading electric vehicle manufacturers in the country 

today, Tesla Motors, but that company paid back its loan with interest almost ten years early. Overall, this 

program has supported the production of more than 4 million fuel-efficient cars and more than 35,000 

jobs across eight states. 

The record is also now abundantly clear that DOE has been carrying out these key programs in a fiscally 

responsible manner. Even initial critics now view the loan guarantee program as a success, with losses 

equaling only 2.23% of the Office's entire portfolio a rate that is lower than many venture capitalists 

achieve. While there will undoubtedly be instances when an individual project does not meet its goal, 

DOE's overall portfolio remains strong and healthy. 
27 

In closing, l want to emphasize that there is no such thing as a "free market" when it comes to energy. 

The full cost to taxpayers of producing and ensuring the safe transportation of oil on the global market is 

not reflected in its price. Furthermore, the growing costs of carbon pollution have yet to be priced into the 

energy sector, unfortunately, and Gcnnany, China, India, and other leading competitors have 

implemented their own robust energy loan and loan guarantee programs to help them cross what's often 

called "valley of death" between clean energy technology development and commercialization. So DOE's 

loan programs are vitally important for enabling the United States to compete effectively on the world 

stage- and, more broadly, for fostering an American-made clean energy future for us all. 

Again, I thank each of you for joining us today, and with that 1 yield back the balance of my time. 
28 

Chairman WEBER. Thank you, Ranking Member Johnson. 

Our first witness today is Ms. Diane Katz, Senior Research Fellow in Regulatory Policy at the Thomas A. Roe Institute for Economic Policy Studies at the Heritage Foundation. Prior to joining 

the Heritage Foundation, Ms. Katz was a member of the editorial 

board of the Detroit News for nine years. I guess that proves there 

is life after editorializing. Okay. Ms. Katz holds a bachelor’s degree 

in philosophy from Thomas Jefferson College and a master’s degree 

in journalism from the University of Michigan. Welcome. 

Our next witness is Mr. Chris Edwards, Director of Tax Policy 

Studies at the Cato Institute. Before joining Cato, Mr. Edwards 

was a Senior Economist on the Congressional Joint Economic Committee. In addition, he was a member of the Fiscal Future Commission of the National Academy of Sciences. Mr. Edwards received his 

bachelor’s degree in economics from the University of Waterloo and 

his master’s degree in economics from George Mason. Welcome, Mr. 

Edwards. 

Our third witness today is Mr. Dan Reicher, Executive Director 

of the Steyer-Taylor Center for Energy Policy and Finance at Stanford University. Mr. Reicher previously served as Assistant Secretary of Energy for the Office of Energy Efficiency and Renewable 

Energy and the Department of Energy Chief of Staff both under 

President Clinton. Mr. Reicher, it says here you received your 

bachelor’s degree in biology from Dartmouth, your law degree from 

Stanford, and your honorary doctorate from the State University of 

New York. Welcome. 

And our final witness is Dr. Ryan Yonk, Assistant Research Professor in the Department of Economics and Finance and Research 

Director in the Institute of Political Economy at Utah State University. Dr. Yonk received his master’s degree in political science from 

Utah State and his Ph.D. in political science from Georgia State. 

Welcome, Doctor. Is it Yonk or Yonk? 

Dr. YONK. Yonk. 

Chairman WEBER. It is Yonk. Well, welcome. 

I now recognize myself for five minutes—whoops. I now recognize 

Ms. Katz—I’m sorry. I’m getting ahead of myself—for five minutes 

of testimony, although I’ve got questions I would like to ask you. 

So, Ms. Katz, you’re recognized. 

TESTIMONY OF MS. DIANE KATZ, 

SENIOR RESEARCH FELLOW IN REGULATORY POLICY, 

THOMAS A. ROE INSTITUTE FOR ECONOMIC POLICY STUDIES, 

THE HERITAGE FOUNDATION 

Ms. KATZ. Mr. Chairman, and Members of the Subcommittee, 

thank you for the opportunity to address you today. My name is 

Diane Katz, and I’m a Senior Research Fellow in Regulatory Policy 

at the Heritage Foundation. The views I express in this testimony 

are my own and do not represent any official position of the Heritage Foundation. 

My purpose here is to provide economic context to the loans and 

loan guarantees issued by the Department of Energy. Few Americans are aware that, collectively, we shoulder more than $18 trillion in debt exposure from loans, loan guarantees, and subsidized 

insurance provided by some 150 federal programs. Among them are 
29 

35 programs administered by the Department of Energy and nine 

other agencies that provide loans and loan guarantees for clean energy projects. This redistribution of taxpayer dollars and credit risk 

erodes the nations entrepreneurial spirit, undermines innovation, 

and fosters cronyism. 

The government credit portfolio consists of subsidized financing 

for energy, housing, agriculture, education, transportation, exporting, small business, and others. Federal insurance programs cover 

bank and credit union deposits, pensions, flood damage, declines in 

crop prices, and acts of terrorism. Capital for mortgage lending by 

banks is provided by Fannie Mae and Freddie Mac. Researchers 

with the Federal Reserve Bank of Richmond in their bailout barometer estimate that 61 percent of all liabilities throughout the U.S. 

financial system are explicitly or implicitly backed by taxpayers. 

Among—Americans across the political spectrum were rightly indignant to witness Washington bailing out banks and corporations 

during the 2008 financial crisis. In similar fashion, the Department 

of Energy routinely uses taxpayers’ dollars to finance projects that 

benefit wealthy investors and titans of industry. With a market cap 

exceeding $573 billion, Google does not need loan guarantees from 

the Department of Energy. Ford Motor Company, with a market 

cap of $50 billion, does not need loans from the Department of Energy. Neither does British Petroleum, Chevron, or Morgan Stanley, 

but they benefit from them nonetheless. 

With some government loans extending decades, the burden of 

federal credit will encumber generations to come without their consent. Advocates insist that the subsidies are necessary to equalize 

opportunity, create jobs, and fill gaps in private financing. However, the actual lending patterns and outcomes do not reflect the 

purported goals. 

Government credit is a poor substitute for private financing. The 

purposes of the two are entirely different, as are the results. Private lenders offer credit to generate profit. The challenge they face 

is to minimize risk and maximize return within ever-changing market conditions. Under threat of loss, they must take great care in 

lending. 

In contrast, government financing is detached from the profit motive and its inherent discipline because taxes provide an endless 

source of revenue, and federal agencies are largely shielded from 

accountability. Consequently, double-digit default rates are common among federal credit programs. 

Too often, policymakers create subsidized financing to offset costly regulatory demands, and oftentimes, the beneficiaries are those 

with the most political influence, not those with the greatest need. 

The Department of Energy, for example, guaranteed $1.6 billion in 

loans for a solar thermal power facility in Southern California. The 

facility negotiated power purchase agreements with two California 

utilities, and the utilities apply the overpriced power purchases toward California’s onerous renewable energy quotas. Ratepayers are 

forced to pay four to five times more per megawatt hour than they 

would otherwise. This particular facility is owned by Google; NRG 

Energy, market cap $5 billion; and BrightSource Energy, a privately held company that reportedly counts British Petroleum, 

Chevron, and Morgan Stanley among its investors. 
30 

Other beneficiaries of the Department’s largesse include a Span- ish banking consortium with a market cap of $76 billion; and ACS 

Cobra, a world leader in industrial infrastructure, market cap $9 

billion. 

When the government shifts credit risk to taxpayers, borrowers 

are relieved of the consequences of failure and act accordingly. 

They will still work for success of course, but there is less incentive 

to prevent loss. When companies do not compete for private capital 

based on merit, productivity and innovation become less important 

than political capital. Credit worthiness also becomes less relevant 

to banks that increasingly act as pass-through agents for government financing. The result is a larger proportion of U.S. assets that 

are inherently weaker than they otherwise would be if financed by 

the private sector. 

And I’ll close up. Fisker Automotive is a case in point. The De- partment of Energy awarded the company a $529 million loan to 

produce hybrid plug-in vehicles. Fisker failed to meet performance 

targets and ultimately filed for bankruptcy, costing taxpayers $139 

million. 

We will never know what innovations have gone undiscovered because of preoccupation—the Department’s preoccupation with electric vehicles, solar panels, and other pet technologies, nor does government financing appear to be all that effective. The Department 

of Energy has been financing development of electric vehicles for 40 

years. 

Reform of government financing should be a Congressional priority. Unconstrained spending, unfettered losses, and rampant cronyism are only part of the cost. Trillions of dollars of credit exposure represents the commandeering of the financial services market by the government and is escalating power over private enterprise. This should end. Thank you. 

[The prepared statement of Ms. Katz follows:] 
31 

Testimony of Diane Katz 

Senior Research Fellow in Regulatory Policy 

The Heritage Foundation 

Before the 

Subcommittee on Energy 

Subcommittee on Oversight 

Committee on Science, Space, and Technology 

February 15, 2017 

The government is not a canny lender. 

-Henry Hazlitt 

Subcommittee Chairman Weber, Subcommittee Chairman LaHood, and Members of the 

Subcommittees, thank you for the opportunity to address you today. My name is Diane Katz, and 

I am a Senior Research Fellow in Regulatory Policy at The Heritage Foundation. The views I 

express in this testimony are my own, and do not represent any official position of The Heritage 

Foundation. 

Few Americans arc aware that, collectively, we shoulder more than $18 trillion in debt exposure 1 

from loans, loan guarantees, and subsidized insurance provided by some !50 federal programs. 

Among these are 35 programs administered by the Department of Energy (DOE) and nine other 

agencies that provide loans and loan guarantees for "clean energy" projects. 2 

This redistribution of credit risk and taxpayer dollars erodes the nation's entrepreneurial spirit, 

undermines innovation, and fosters cronyism and corruption. 

The government credit portfolio consists of direct loans and loan guarantees for housing, 

agriculture, energy, education, transportation, infrastructure, exporting, and small business, 

among other enterprises. Federal insurance programs cover bank and credit union deposits, 

pensions, flood damage, declines in crop prices, and acts of terrorism. Capital for mortgage 

lending by banks is provided by government-sponsored enterprises (GSEs), such as Fannie Mae 

and Freddie Mac. 

Total outstanding loans and loan guarantees backed by taxpayers exceeded $3.4 trillion at the 

end of fiscal year (FY) 2015, 3 including $16 billion in direct loans from the DOE and $3 billion 

in DOE loan guarantees. Add in the exposure of Fannie Mac, Freddie Mac, the Federal Home 

Loan Banks (FHLBs), the Federal Deposit Insurance Corporation (FDIC), and the Pension 

'"Exposure" in this context refers to the amount of potential loss from outstanding federal loans, loan guarantees, 

and subsidized insurance programs. 2Department of Energy, Federal Financing Programs for Clean Energy, 2016, https://energy.gov/downloads/federalfinancing-prob'Tams-clean-energy 

3The total includes S 1 .l trillion in outstanding direct loans and $2.3 trillion in outstanding loan guarantees. Office of 

Management and Budget, "Analytical Perspectives: Credit and Insurance," 

https:/ /www.whitehouse.gov/sitesidefaultlfiles/omb!budgetify20 17/assets/ap 20 credit. pdf (accessed December 7, 

2016). 
32 

Benefit Guarantee Corporation (PBGC), and the total exposure swells to an estimated $18 

trillion. 4 

600 

500 

400 

300 

200 

100 

0 

Taxpayer Liabilities Added 

Each Year 

($Billions) 

-

f---

f--- t--

tE 

t2008 2009 2010 2011 2012 2013 2014 2015 

Source: https ://fiscal. treas.u ry, gov /fsserv ices/ gov! debtColl/pdf/ reports/ debt 14. pJf 

Researchers with the Federal Reserve Bank of Richmond, in their "Bailout Barometer," estimate 

that 61 percent of all liabilities throughout the U.S. financial system are explicitly or implicitly 

backed by government (that is, taxpayers). 5 But the actual liability is greater because federal 

accounting methods understate the costs. Nor do government balance sheets capture the 

economic distortions induced by credit subsidies. 

Federal credit ballooned amid the 2008 financial crisis. Between November 2008 and March 

2012, the government "invested" $187.5 billion in Fannie Mae and Freddie Mac. 6 Similarly, 

under the Troubled Asset Relief Program, the governmene purchased $540 billion in stock from 

Ally Financial, Chrysler, General Motors, AIG, and dozens of banks to shift corporate financial 

risks to taxpayers. 8 Despite the recession ending in June 2009, higher levels of subsidies have 

persisted. 

'Deborah Lucas, "Evaluating the Government as a Source of Systemic Risk," The Journal of Financial 

Perspectives, Vol. 2, No.3 (November 2014), pp. 45- 57, 

http://www.ey.com/Pub lication/vwLU Assets/ Journal_ of_ financia !__perspectives_ 20 143/$FILE/EYJoumal%20of'/o20Financiai%20Perspectives-voi%202%20Issue%203 .pdf (accessed December 7, 20 I 6). 5Liz Marshall, Sabrina Pellerin, and John Walter, "Bailout Barometer How Large Is the Financial Safety Net?'' 

Federal Reserve Bank of Richmond, February 3, 2016, bttps://www.richmondfed.org/safetynet/ (accessed December 

7,2016). 

6

The two GSEs were placed under federal conservatorship by the Federal Housing Finance Agency on September 6, 

2008, making taxpayers liable for the $5 trillion in mortgages currently owned or guaranteed hy Fannie Mae and 

Freddie Mac. See Lucas, "Evaluating the Government as a Source of Systemic Risk." 

'Matthew Ericson, Elaine He, and Amy Schoenfeld, "Tracking the $700 Billion Bailout," The New York Times, 

2009, http://www.nytimes.com/packagcs/html/national/200904_ CREDJTCRISIS/recipients.html (accessed 

December 7, 2016). 8Lucas, ''Evaluating the Government as a Source of Systemic Risk." 

2 
33 

Americans across the political spectrum were (and are) rightfully indignant to see their taxes 

used to protect the profits of banks and multinational corporations. In a great many instances, the 

DOE is continuing that practice by financing projects that benefit wealthy investors and titans of 

industry. 

With a market cap exceeding $573 billion, Googlc does not need government Joan guarantees 

from the Department of Energy. Ford Motor Company, with a market cap of$50 billion, does 

not need government loans from the Department of Energy. Neither does British Petroleum, 

Chevron or Morgan Stanley. 

Appropriations for 

Department of Energy Loans and Loan Guarantees 

Year Loan Authority9 Program 

2007 $4 billion Title XVII Loan Guarantees 

2009 $47 billion Title XVII Loan Guarantees 

2009 $2.5 billion T;tL y,, IT Credit Subsidy Support 

2009 $25 billion Advanced Technology Vehicle Manufacturing Loans 

2009 $7.5 billion Advanced Technology Vehicle Manufacturing Subsidy Support 

2011 ($17 billion) Title XVII Loan Guarantees 

2011 $170 million Title XVII Credit Subsidy Support 

2015 $1 billion Title XVII Loan Guarantees 

2017 $4 billion* Title XVII Loan Guarantees 

•Requested 

With some government loans extending 40 years, the ever-growing burden of federal credit will 

encumber generations to come-without their consent. Advocates insist that the subsidies are 

necessary to equalize opportunity, create jobs and fill gaps in private financing. Upon 

examination, however, the actual lending patterns and outcomes do not fulfill the programs' 

purported goals. 10 

Distortions 

Proponents say that government lending is necessary to spur economic growth, or to mitigate 

"market imperfections," 11 such as gaps in available financing or lack of competition (leading to 

unduly high credit costs). But govemment credit is a poor substitute for private financing. The 

purposes of the two are entirely different, as arc the repercussions. 

Private lenders offer credit to generate profit. The challenge they face is to minimize risk and 

maximize return-within ever-changing market conditions. Under threat of loss (and 

independent of government meddling), great care is taken in lending decisions. 

9Budget of the U.S. Government, Fiscal Year 2017, Analytical Perspectives, 

https://wv..w. gpo.gov/fdsys/pkg/B UDG ET-20 17 -PER/content -detail. html 10Veronique de Rugy, Assessing the Department of Energy Loan Guarantee Program, Mereatus Center, George 

Mason University, June 9, 2012, https://wv.w.mereatus.org/publicationiassessing-department-energy-loanguarantee-program 

''Office of Management and Budget, "Analytical Perspectives: Credit and Insurance."' 
34 

In contrast, govcmment financing is entirely dewchcd from the profit motive (and its inherent 

discipline) because taxes provide an endless source of revenue, and bureaucrats are largely 

shielded from accountability. Losses are dispersed among millions oftaxpaycrs, and arc often 

justified as the cost ofrcduciug inequities in access to capital. Consequently, double-digit default 

rates are common among federal credit programs. 12 

.---------------------------------------------~ 

Agencies with largest Delinquent Debt 

($billions) 

• Small Busines 

• Agriculture 

• Social Security 

a Treasury 

•Transportation 

a Education 

Govemment credit redistributes risk and access to capital. Tn many i.nstances, policymakers 

devise this redistribution to soften costly regulatory demands. And oftentimes, the biggesi 

beneficiaries arc those with the most political influence, not those with the greatest need. 

13 

The DOE, for example, guaranteed $1.6 billion in loans for the lvanpah project, a solar tbennal 

power 14 facility in southern California. The facility entered into long-term contracts with Pacitic 

Gas & Electric and Southern California Edison for the purchase of the power generated there, 

and the utilities will apply these overpriced power purchases toward meeting California's 

onerous renewable energy quotas. 

The loog-tenn contracts with lvanpah also mean ratepayers will pay two to three times as much 

per megawatt-hour as other solar power producers, and four to five times per megawatt-hour as 

natural gas-powered plants. 

15 

110flice of Management and Budget, Federal Crl'dit Supplement: Budget q(the United States Gm•ernme/11. Fiscal 

)'ear 2017, "Supplemental Materials, Direct Loans Assumptions Underlying tbe 20 16 Subsidy Estimates," 

bttps:i/www. whitehouse.gov/sitesldefault/fileslomb/budget/ty20 I 7/assctslcr _supp.pdf (accessed December 7, 20 I 6). 

"See, for example. Diane Katz, "'The Export- Import Sank Corporate Welfare on the Backs of Taxpayers," Heritage 

Foundation Issue IJriefNo. 4198, April I I, 2014. http://thf_mcdia.s3.amazonaws.conli2014ipdfilB4198.p<lf. 

"Mirrors rellect sunlight to boilers that create steam to drive conventional turbines that produce electricity. 

"David Kreutzer, Taxpayers Are Footing Bill for Solar l'roject That Doesn't Work, CNSnews.com, March 30, 

2016. http: //www.cn~news.com commentary david·kreutzer taxpayen•·are-footing l .. solar·project·doesnt·work 

4 
35 

Ivanpah is owned by NRG Energy Inc. (market cap $5.1 billion), Google (market cap $573.8 

billion), and BrightSource Energy Inc., a privately held company that reportedly counts Google, 

BP, Chevron and Morgan Stanley among its investors. 

Other beneficiaries of DOE largesse inclnde Banco Santander, a Spanish banking consortium 

with a market cap of$76 billion, which ranked it as 37th in the Forbes Global2000 list of the 

World's biggest public companies; ACS Cobra, a world leader in industrial infrastructure (market 

cap $9 billion); and Ford Motor Co. (market cap $49.?-billion). 

These companies hardly lack access to private capital. This project is no anomaly among DOE's 

finance programs. 

Well-intended or otherwise, there is abundant evidence that government financing produces 

more harm than benefit for the nation as a whole. For one thing, government credit represents a 

subsidy (either explicitly or implicitly). Because there is virtually no chance that the government 

will not cover a loss, federal credit is provided on more favorable terms than financing from a 

private lender, including: 16 

• Interest rates below commercial levels, 

• Longer maturities than private loans, 

• Deferral of interest, 

• Allowance of grace periods, 

• Waiver or reduction of loan fees, 

• Higher loan amount relative to the enterprise value, and 

• Availability of funds for purposes for which the private sector would not lend. 

Whether government credit is provided as a loan or loan guarantee, it constitutes a risk borne by 

taxpayers for the benefit of a private party. That risk-multiplied by tens of thousands of 

transactions-carries direct and indirect consequences for the nation. 

Indeed, when the government shifts credit risk to taxpayers, borrowers arc largely relieved of the 

consequences of failure, and act accordingly. As noted by economist Henry !Iazlitt, 17 

Responsibility follows risk. When an owner's risk in an enterprise has 

been minimized or eliminated because the government has supplied the 

funds which he otherwise would have to supply, then, speaking 

comparatively, the owner tends to feel no great pain from the failure of the 

enterprise. He would stand to gain by its success, of course, and so he 

16This list appears in James M. Bickley, "Budgetary Treatment of Federal Credit (Direct Loans and Loan 

Guarantees): Concepts, History, and Issues for the !12th Congress," Congressional Research Service, July 27, 2012, 

https://www.fas.org/sgp/crs/misc/R42632.pdf(accessed December 7, 2016), and was paraphrased from U.S. 

Executive Office of the President, Office of Management and Budget, Special Analysis F. Federal Credit Programs, 

Budget of the United Stales. Government. Fiscal Year 1988. 17Henry Hazlitt, "Government Lending," Newsweek, July I, 1956, https://fee.org/articles/government-lending/ 

(accessed December 7, 2016). 

5 
36 

would tend to work for its success; but his position is an unbalanced one 

because he will not try desperately to prevent its failure. 

When borrowers need not compete for private loans based on merit, productivity improvements 

and innovation become less important than political capital. Moreover, credit-worthiness also 

becomes less relevant to banks and mortgage lenders that act as pass-through agents for 

government financing. 

The result is a larger proportion of economic assets (in the form of both property and enterprise) 

that are inherently weaker than they otherwise would be if financed by private lenders instead of 

government (taxpayers). 

Fisker Automotive is a case in point. 18 The DOE awarded the electric car company a $529 

million loan in April20!0 to develop and produce two lines of hybrid ping-in vehicles at a plant 

in Delaware. Fisker's inability to meet performance targets forced the DOE to cap the loan at 

$192 million. Fisker filed for bankruptcy in November 2013, and taxpayers lost $139 million. 

Government financing also distorts the allocation of private lending. As noted by economist 

Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, "These government lending 

programs, by targeting particular market sectors, alter the allocation of credit across markets. 

Consequently, while some market segments benefit from reduced funding costs, others may 

actually see their costs rise as credit is diverted to those markets that have been targeted for 

support." 19 

We will never know what innovations have gone undiscovered because ofWashington's 

financial and regulatory preoccupation with electric vehicles, solar panels and other pet 

technologies. Evidently, the government financing isn't too effective since it never ends. The 

DOE, for example, has been financing development of electric and hybrid vehicles for more than 

40 years. But sales remain a fraction of the auto fleet. Washington evidently bet on the wrong 

horse (so to speak). 

There is also a pernicious regulatory chain reaction when policymakers engage in lending. As 

Hazlitt noted, "[When] the government provides the financing, the private property becomes 

public property instead and the government has the right to decide how, where, when, and by 

whom the property shall be used." 20 

All of which increases the costs to consumers, who take a double-hit: not only are they forced to 

subsidize energy producers, but they pay more for products and services that are heavily 

regulated. 

18Nick Loris. Examining the Department of Energy's Loan Portfolio, March 3, 2016, 

file:///C:/Users/Diane%20Katz1Downloads/Loris Testimony 160303.pdf 19Jeffrey M. Lacker, "Government Lending and Monetary Policy," Federal Reserve Bank of Richmond, remarks at 

the Washington Economic Policy Conference of the National Association for Business Economics, March 2, 2009, 

https://www.richmondfed.org/press _ room/specches/presidentjeff_lacker/2009/lacker _speech _20090302 (accessed 

December 7, 2016). 20Hazlitt, "Government Lending." 

6 
37 

Purported Benefits 

Proponents of government credit contend that the social goals for which the subsidies arc 

employed justify-or at least off~et-the market distortions, regulatory onslaught, and taxpayer 

risk they produce. 

Whether subsidized financing achieves the goals set by policymakers is dubious; there is very 

little measurement of program results, and abundant evidence of negative consequences. Under 

the Government Performance and Results Act of 1993, for example, Congress directed federal 

agencies to set goals and report on their progress. But the metrics largely measure only inputs 

(such as the number ofloans awarded), not outcomes. 

In testimony to this committee last year, my colleague Nick Loris 21 reviewed each of the projects 

in the DOE's loan portfolio. He found repeated incidences of the following: 

• Failed companies that could not survive even with the federal govemmcnt's help. 

• Projects labeled as success stories but arc still in the infancy of their operation and it is 

too early to tell if they will succeed in the long run. 

• Projects that have the backing of companies with large market capitalizations and 

substantial private investors. These companies should have no trouble financing a project 

without government-backed loans if they believe it is worth the investment. 

• Private investors hedging their bets and congregating toward public money. These 

projects on their surface appear to be financial losers but the government involvement 

entices companies to take a chance. 

• Companies and projects that benefit from a plethora of federal, state, and local policies 

that push renewable energy. 

• Government incompetence in administering and overseeing the loans. 

At the very least, any benefit derived from govemment credit is offset by handicapping 

enterprises that operate without subsidies. 

Tracking Costs 

The Federal Credit Reform Act (FCRA) of 1990 requires agencies to estimate the long-term 

costs (including subsidy costs) ofloans and loan guarantees, and to "true up" those figures 

annually (after the end of the fiscal year) to reflect actual loan performance and to incorporate 

any changes in projections of future loan pcrfonnancc. 

However, the methods required by law to do so produce imprecise results, and, consequently, 

faulty projections of budgetary gains and losses. There are also inconsistencies among agencies 

in scoring, and scarce oversight by Congress of payment errors and default rates. 22 

Under the FCRA, the subsidy cost of federal credit is calculated by first converting all future 

loan costs and revenue into a "net present value. " 23 Because $100 to be received a year from now 

21 Nick Loris, Examining the Department of Energy's Loan Portfolio, March 3, 2016, 

file:///C:!Users/Diane%20Katz/Dovmloads/Loris Testimony 160303.pdf 22Government Accountability Office, "Credit Programs: Key Agencies Should Better Document Procedures for 

Estimating Subsidy Costs," GA0-16-269, July 2016, http://www.gao.gov/assets/680/678373.pdf(accessed 

December 7, 2016). 

7 
38 

is not worth as much as $100 today (which could be invested now and grow larger over the next 

year), a discount rate is applied to future revenues when calculating the net present value. Under 

the FCRA, that discount rate is tied to the interest rate on U.S. Treasury securities.24 

If the present value of estimated cash outflows exceeds cash inflows, there is a subsidy cost. If 

the present value of estimated cash inflows exceeds cash outflows, there is a negative subsidy 

cost, referred to as "subsidy income." 

However, as currently calculated, subsidy estimates consistently understate costs because of the 

nature of the discount rate applied when calculating net present value. Treasury yields are lower 

than private securities because there is virtually no risk that the government will default. This 

low rate does not account for the actual risks that government loans represent. Therefore, the 

government's accounting method produces artificially high estimates of future revenue. (In other 

words, the lower the discount rate, the higher the present value of future income.) The use of 

these artificially low discount rates makes government loans appear to generate income for the 

Treasury. 

Inaccurate budget estimates feed the propensity of government to minimize costs, and induce 

policymakers to expand federal credit rather than adopt other policy tools. All of which increases 

the risk to taxpayers. 

Most agencies have been granted "permanent indefinite authority" to obtain additional funds 

from the Treasury to cover higher subsidy costs that result from annual re-estimates. That means 

the actual costs are largely hidden. 

How should agencies calculate subsidy costs? The Financial Economists Roundtable 

recommends that suhsidy costs be calculated using the same discount rates as private lenders. 

Those rates would be higher than Treasury rates, thereby reducing the present value of future 

income-and thereby providing a more accurate estimate of the costs to taxpayers. 

According to Lucas, "Private-sector financial institutions arc responsible for reporting fair values 

[ ofloans and guarantees], so there is an entire infrastructure for providing these values. " 25 

Conclusion 

Reform of government financing has not been a congressional priority. Few taxpayers are aware 

of the extent of the burden, and the subsidies have given rise to powerful constituencies of 

beneficiaries. And unconstrained spending, unfettered loses, and rampant cronyism arc only part 

of the cost of the govemmcnt's vast credit racket. Trillions of dollars of credit subsidies represent 

the commandeering of financial services by government and its escalating power over private 

enterprise. 

23The net present value represents the loan disbursements and claim payments to lenders minus estimated cash flows 

to the government from loan repayments, interest payments, fees, and default recoveries on defaulted loans over the 

life of the loan, excluding administrative costs. 24M ore precisely, "the average interest rate on marketable Treasury securities of similar maturity." Section 502(5E). 25finaneial Economists Roundtable, "Accounting tor the Cost of Government Credit Assistance," October 2012, 

http:/iwww.chandan.com/content/knowledgewharton/real-cost-government-loans-and-credit-guarantees (accessed 

December 7, 2016). 

8 
39 

Loans 

Appendix: 

Federal Credit Programs by Agency 

Agriculture 

Agriculture Credit Tnsurance Fund 

Farm Storage Facility Loans 

Apple Loans 

Boll Weevil Eradication Loan Program 

Distance Learning, Telemedicinc, and Broadband Loans 

Rural Electrification and Telecommunications Loans 

Rural Telephone Bank 

Rural Housing Insurance Fund 

Rural Economic Development Loans 

Rural Development Loan Program 

Rural Community Facilities Program 

Rural Business and Industry Program 

Rural Water and Waste Disposal Program 

Rural Community Advancement Program 

Public Law 480 

Title I Food for Progress Credits 

Multifamily Housing Revitalization Program 

Rural Microenterprise Investment Program 

Commerce 

Fisheries Finance 

Defense-Military Programs 

Military Housing Improvement Fund 

Education 

Federal Direct Student Loan Program 

Temporary Student Loan Purchase Authority 

College Housing and Academic Facilities Loans 

Historically Black Colleges and Universities 

TEACH Grants 

Energy 

Advanced Technology Vehicle Manufacturing Fund 

. Title 17 Innovative Technology Fund 

Health and Human Services 

Consumer Operated and Oriented Plan 

Consumer Operated and Oriented Plan Program Contingency Fund 

9 
40 

Homeland Security 

Disaster Assistance 

Housing and Urban Development 

Green Retrofit Program for Multifamily Housing 

Interior 

Bureau of Reclamation Loans 

Bureau of Indian Affairs Direct Loans 

Assistance to American Samoa 

State 

Repatriation Loans 

Transportation 

Alameda Corridor Loan 

Transportation Infrastructure Finance and Innovation 

Railroad Rehabilitation and Improvement Program 

Highway Infrastructure Investment, Recovery Act 

Treasury 

GSE Mortgage-Backed Securities Purchase Program 

Community Development Financial Institutions Fnnd 

Troubled Asset Relief Program Direct Loan 

Troubled Asset Relief Program Equity 

Small Business Lending Fnnd 

Veterans Affairs 

Veterans Housing Benefit Program Fund 

Native American Veteran Housing 

Vocational Rehabilitation Loans 

Environmental Protection Agency 

Abatement, Control, and Compliance 

International Assistance Programs 

Foreign Military Financing 

U.S. Agency for lntcmational Development, Micro and Small Enterprise Development 

Overseas Private Investment Corporation, OPIC Direct Loans 

IMF Quota4 

Loans to the IMF Direct Loan Program 

Debt Reduction 

Small Business Administration 

Business Loans 

Disaster Loans 

10 
41 

Other Independent Agencies 

Export-Import Bank Direct Loans 

Federal Communications Commission 

Loan Guarantees 

Agriculture 

Agriculture Credit Insurance Fund 

Agriculture Resource Conservation Demonstration 

Biorefinery Assistance 

Commodity Credit Corporation Export Guarantees 

Rural Electrification and Telecommunications Loans 

Rural Housing Insurance Fund 

Rural Business and Industry Program 

Rural Community Facilities Program 

Rural Water and Waste Disposal Program 

Rural Community Advancement Program 

Rural Energy for America 

Rural Business Investment Program 

Commerce 

Fisheries Finance 

Emergency Steel Guaranteed Loans 

Emergency Oil and Gas Guaranteed Loans 

Defense-Military Programs 

Military Housing Improvement Fund 

Defense Export Loan Guarantee 

Am1s Initiative Guaranteed Loan Program 

Education 

Federal Family Education Loan Program 

Energy 

Title I 7 Innovative Technology Fund 

Health and Human Services 

Heath Center Loan Guarantees 

Health Education Assistance Loans 

II 
42 

Housing and Urban Development 

Indian Housing Loan Guarantee 

Title VI Indian Guarantees 

Native Hawaiian Housing 

Community Development Loan Guarantees 

FTIA-Mutual Mortgage Insurance 

FHA-General and Special Risk 

Guarantees of Mortgage-Backed Securities 

Interior 

Bureau of Indian Affairs Guaranteed Loans 

Bureau oflndian Affairs Insured Loans 

Transportation 

Maritime Guaranteed Loans (Title XI) 

Minority Business Resource Center 

Treasury 

Air Transportation Stabilization Program 

Troubled Asset Relief Program 

Troubled Asset Relief Program, Housing Programs 

Veterans Affairs 

V cterans Housing Benefit Fund Program 

International Assistance Programs 

U.S. Agency for International Development 

Development Credit Authority 

Micro and Small Enterprise Development 

Urban and Environmental Credit 

Assistance to theN ew Independent States of the Former Soviet Union 

Loan Guarantees to Israel 

Loan Guarantees to Egypt 

Loan Guarantees to Middle East and North Africa 

Overseas Private Investment Corporation, OPIC Guaranteed Loans 

Small Business Administration 

Business Loans 

Other Independent Agencies 

Export-Import Bank Guarantees 

12 
43 

industry. 

Diane Katz is a Senior research fellow in regulatory policy at 

The Heritage Foundation. 

A policy analyst from DetTOit, Katz joined Heritage's Thomas 

A. Roe Institute for Economic Policy Studies in August 2010. 

She was director of risk, environment and energy 

policy for three years at the Fraser Institute, an independent 

policy research and educational organization in Canada. 

From 2002 to 2008, she was director of science, environment 

and technology for the Mackinac Center for Public Policy, a 

free market think tank in Midland, Mich. 

As a member of the editorial board of the Detroit News for nine 

years, Katz specialized in writing about science and the 

environment, telecommunications and technology, and the auto 

She also covered national issues as a reporter in the newspaper's Washington bureau. Her work 

won top honors from the Michigan Press Association in L 994, 1996, 1997 and 1998. 

Katz's analyses and commentary have been published by The Wall Street Journal, The 

Washington Times, National Review, The Weekly Standard and Reason Magazine in addition to 

dozens of regional and local newspapers. 

She has testified bctorc Congress and several state legislatures. 

Katz was awarded fellowships by the Jack R. Howard Science Institute for Journalists at the 

California Institute of Technology, the Paul Miller Washington Reporting Fellowship of the 

National Press Foundation and programs at the Kinship Conservation Institute and the Political 

Economy Research Center. 

She holds a bachelor's degree in philosophy from Thomas Jefferson 

degree in journalism Ji'om the University of Michigan. 

and a master's 
44 

Chairman WEBER. Thank you, Ms. Katz. 

I now recognize Mr. Edwards for five minutes. 

TESTIMONY OF MR. CHRIS EDWARDS, DIRECTOR, 

TAX POLICY STUDIES, CATO INSTITUTE 

Mr. EDWARDS. Thank you very much. 

[Audio malfunction in hearing room.] 

Chairman WEBER. There we go. 

Mr. EDWARDS. Today, 29 States impose renewable portfolio 

standards that require purchases of renewable energy such as solar 

and wind, so it seems to me with that high level of state support, 

layering on top federal subsidies is overkill. 

Secondly, the failures like Solyndra have been mentioned, and it 

is true that the DOE appears to have a low default rate on its loan 

portfolio. But to an economist the real issue is are the benefits of 

these projects higher than the costs, and in a lot of cases I don’t 

think they are. 

And to give you one example, the Ivanpah solar project in California has been mentioned. It strikes me that there’s been very 

high cost there with moderate or low benefits. The project is generating a lot less power than promised. It’s using a lot more natural 

gas to fire up its facility every day than promised, and the price 

of power is a lot higher than natural gas fuel generation in California. 

I also think the $8 billion loan guarantee for the nuclear power 

plant in Georgia owned by Southern Company, that’s been a rather 

dubious loan as well. That project is far behind schedule and far 

over cost. 

A third issue is the corporate welfare and cronyism issue. The 

Washington Post, looking at Obama’s subsidies, concluded, quote, 

‘‘Obama’s green technology program was infused with politics at 

every level,’’ unquote. 

Public opinion polls over recent years have shown plunging support both for federal politicians and for big businesses, and I think 

part of the issue is cronyism. I think both big business and federal 

lawmakers would gain a lot more public support if they separated 

themselves more, if they ended corporate welfare, allowed big business to earn profit and loss without federal intervention. 

A fourth issue is that the private sector can fund alternative energy itself these days. As has been mentioned, most DOE loan 

guarantees in this program have backed wealthy investors and 

large corporations. Warren Buffett’s Berkshire Hathaway has invested $17 billion in renewable energy projects over the last decade. To me this shows that there’s a heck of a lot of private cash 

available for renewable energy these days, and the time for federal 

intervention, I think we’re beyond that. These are large and mature industries these days that should be able to fund themselves. 

A fifth issue is that subsidies distort decision-making. In technology-based industries like renewable energy, it is the leanest and 

quickest and most adaptive firms that usually succeed. I think federal subsidies undermine private productivity. I think they tend to 

make businesses slow and slow to change as markets are constantly changing. So I think subsidies undermine private innovation and productivity. 
45 

So without programs like this, what can the federal government 

do? I think one thing the federal government can do is do major 

tax reform. Rather than subsidizing debt for particular projects like 

DOE loan guarantee program did, I think Congress should look at 

reforming the tax code to reduce the cost of equity financing across 

the economy. Rather than favoring particular projects, Congress 

should do things like reducing capital gains tax rates, which will 

incentivize more venture and angel investment in advanced industries like renewable technology. 

Also, I’m a big fan of capital expensing, which is part of the 

House Republican tax plan. Capital expensing is very much a green 

tax policy reform. Not only does—capital expensing would benefit 

a capital-intensive industries like utilities and energy, expensing 

would encourage businesses in all industries to more rapidly 

change and invest, replacing their old structures, their old equipment and technologies that tend to be less energy-efficient with 

new structures and new equipment and machinery which is more 

energy-efficient. So I think tax reform can very much be an exercise in green policymaking on Capitol Hill. 

So to conclude, I think Republicans are in a unique position to 

start cutting back on some business subsidies like the DOE loan 

guarantees because Republicans are also promising to reduce taxes 

and reduce regulation on business. So business would lose federal 

handouts on the one hand but on the other hand the regulatory tax 

burdens faced by businesses would fall. I think that would be a 

good trade that would benefit everyone and the economy. Thank 

you. 

[The prepared statement of Mr. Edwards follows:] 
46 

Department of Energy Loan Programs 

Statement of Chris Edwards, Cato Institute 

before the Subcommittees on Energy and Oversight, 

House Committee on Science, Space, and Technology, 

February 15,2017 

Mr. Chairman and members of the committee, thank you for inviting me to testify. I will discuss 

reasons why Congress should end funding for Department of Energy (DOE) loan guarantee 

programs. 

The federal government has subsidized the energy sector for decades. The DOE runs an array of 

programs in support of the conventional and renewable energy industries, and there are about 20 

special breaks for energy activities under the federal income tax. 

DOE projects have often suffered from poor management, and numerous federal energy projects 

over the years have been costly failures. 1 The failures span from the Clinch River Breeder 

Reactor and Synthetic Fuels Corporation projects of the 1970s and 1980s to the FutureGen and 

Solyndra projects of recent years. 

Today's hearing looks at the section 1703 and 1705 guaranteed loan programs created in2005 

and 2009 respectively. Under the American Recovery and Reinvestment Act (ARRA), the DOE 

provided $22 billion of 1703 and 1705 loan guarantees between 2009 and 2015, and it provided 

$8 billion for the Advanced Technology Vehicles Manufacturing (A TVM) loan program. 2 The 

ARRA also included the Section 1603 program, which provided the Department of Treasury 

with $24 billion to hand-out in energy grants. 3 

My testimony looks at these programs and discusses broader concerns about federal subsidies for 

energy businesses. It concludes that spending on applied energy technologies should be left to 

the private sector, and that tax reform would spur investment in both the conventional and 

renewable energy industries. 

Four Decades Is Enough 

Business subsidies are sometimes supported based on the "infant industry" idea. The theory is 

that new companies-such as solar and wind energy firms- need government aid so that they 

can build economies of scale and compete against larger firms. 

However, what we often see in the U.S. economy is that new companies-without subsidiesenter markets and outcompete existing large companies. New products and technologies are 
47 

often pioneered by new companies, not existing ones, and so there is no need to subsidize new 

ventures since they have inherent advantages over other firms. 4 

Even if the "infant industry" idea was valid, it is not relevant for the industries subsidized by 

DOE loan programs. The federal government has been subsidizing the nuclear power industry 

since the 1950s and the renewable energy industry since the 1970s. The Energy Tax Act of 1978, 

for example, included tax credits for solar, wind, and other alternative energy technologies. 

After decades of subsidies, policymakers should allow the conventional and renewable energy 

industries to stand on their own feet. We should move toward a level playing field in energy, but 

we should also make tax and regulatory reforms to foster a dynamic energy marketplace based 

on private research and innovation. 

The head of DOE's loan office tcstiticd to the House in 2016: "Today, solar projects at this scale 

are readily financed by private lenders. " 5 That suggests that such projects no longer need federal 

subsidies. These days the solar and wind industries can raise investment funds through their net 

earnings and private capital markets, just as other industries do. 

Most of the solar and wind projects receiving DOE loan guarantees have been backed by large 

corporations and have gained favorable utility purchase deals. The Government Accountability 

Office noted in 2016, "In DOE's portfolio, 21 of the 30 projects had guaranteed revenue streams 

provided for under a long-term contract, such as a power purchase agreement."6 

Today, 29 states impose "renewable portfolio standards" that require such purchases. 7 In many 

states, the mandated purchase amounts are increasing over time. State and local governments 

also provide a slew of other spending and tax code subsidies for rcnewablcs. The proliferation of 

state aid for renewables indicates that the layering on top offederal subsidies is overkill. 

Failures and Boondoggles 

The most famous recipient of DOE's 1705 program was Solyndra, a maker of solar panels, 

which received a $535 million loan guarantee in 2009. President Baraek Obama visited Solyndra 

and called the company an "engine of economic growth." 8 But the company was spendthrift, and 

its products were uncompetitive. As a result, it went bankrupt and closed its doors in 2011. 

Taxpayers footed the bill for the failed loan. 

There were other failures in the 1705 program. Abound Solar received a $400 million loan 

guarantee in 2010. The company went bankrupt in 2012, leaving behind polluted facilities in 

Colorado. And Fisker Automotive received a $192 million loan in 2010. Vice President Joe 

Biden championed Fiskcr's facility in his home state, but the company went bankrupt and ceased 

operations in 2013. The DOE recovered a portion of the loan amount, but taxpayers were left 

with loss of$139 million for Fisker. 9 

The DOE says that the overall rate of losses on its loan portfolio is low. 10 But that is because 

most of the projects have been solar and wind facilities that have taken advantage of utility 

purchase requirements for renewables. Of course it is a low risk for the government to guarantee 
48 

loans for companies that have guaranteed revenues, but that suggests that federal subsidies were 

not needed in the first place. Federal aid has simply enhanced the profits for the private investors 

in many solar and wind projects. 

DOE's touting of a low failure rate is off-base in another respect. Aside from the bankruptcies, 

other DOE projects have been losers because their costs likely exceed their benefits. DOE 

provided $8.3 billion in loan guarantees to Southern Company and partners for the construction 

of the Vogtle 3 and 4 nuclear reactors in Georgia. The project has turned into somewhat of a 

debacle, as it is years behind schedule and the estimated total costs have risen from $14 billion to 

$21 billion. 11 

In California, the Ivanpah solar thermal project, partly owned by Google and NRG Energy, 

received a $1.6 billion DOE loan guarantee in 20 II. It is generating two-thirds or less of the 

power that was planned, and it burns substantial natural gas to heat up each day. 12 The power it 

produces is expensive, running between $135 and $200 per megawatt-hour, which compares to 

power from California's natural gas plants of about $35 per megawatt-hour. 13 The Ivanpah 

project also kills thousands of birds each year. 14 

Corporate Welfare and Cronyism 

Business subsidies generate a corrupting relationship between businesses and policymakers. 

During the Obama administration, politics played a key role in the awarding of energy subsidies. 

In an investigation, the Washington Post found, "Obama's green-technology program was 

infused with politics at every level." 15 The newspaper found that "$3.9 billion in federal [energy] 

grants and financing flowed to 21 companies backed by firms with connections to five Obama 

administration staffers and advisers." 16 

Solyndra was a classic example of cronyism. The New York Times found that the company 

"spent nearly $1.8 million on Washington lobbyists, employing six firms with ties to members of 

Congress and officials of the Obama White House." 17 And the Washington Post found that the 

"main players in the Solyndra saga were interconnected in many ways, as investors enjoyed 

access to the White House and the Energy Department." 18 A key Solyndra investor was 

billionaire George Kaiser, who was also a major fundraiser for President Obama. The DOE was 

apparently pressured by the White House to approve the subsidy. 19 

The Trump administration would be wise to cut business subsidies and avoid these sorts of 

entanglements. Public opinion polls have shown plunging support for both politicians and big 

businesses over the years, and one of the reasons is the cronyism evident in Washington. The rise 

of populist politicians in 2016--particularly Bernie Sanders and Donald Trump-indicate that 

many Americans think that the "system is rigged." To most people, it is unfair that when 

subsidized companies earn profits they pocket them, but when they go bankrupt taxpayers foot 

the bill, as they did with Solyndra. 

Businesses and policymakers would gain more public respect if they cut ties to each other by 

ending corporate welfare. In energy policy, Congress should end subsidies such as DOE loan 

programs and create a level playing field for energy businesses and technologies. 
49 

The Private Sector Can Fund Alternative Energy 

Many DOE loan guarantees have gone to projects backed by wealthy investors and large 

corporations, such as Warren Buffett and General Electric. 20 Such individuals and companies are 

fully capable of pursuing energy projects with their own private financing. 

The effect of DOE aid is to boost private returns at taxpayer expense. The New York Times 

described the gusher of energy spending in recent years as a "banquet of government subsidies," 

and wondered whether "the Obama administration and state governments went too far in their 

support of solar and wind power projects, some of which would have been built anyway, 

according to the companies involved."21 

Consider, for example, that ethanol is heavily subsidized by the Renewable Fuel Standard and 

other federal programs. Yet, for some reason, the DOE decided to give the U.S. subsidiary of 

Spanish conglomerate Abengoa a $132 million loan guarantee and a $97 million grant for an 

ethanol plant in 2011. 22 

The New York Times stressed the overkill of DOE subsidies: "The government support-which 

includes Joan guarantees, cash grants and contracts that require electric customers to pay higher 

rates-largely eliminated the risk to the private investors and almost guaranteed them large 

profits for years to come. The beneficiaries include financial finns like Goldman Sachs and 

Morgan Stanley, conglomerates like General Electric, utilities like Exelon and NRG-even 

Google." 23 

Consider the Agua Caliente solar project in Arizona, which is owned by NRG, a large energy 

utility. DOE gave it a $1 billion loan guarantee in 2011, which ended up subsidizing Warren 

Buffett whose Berkshire Hathaway purchased 49 percent of the project in 2012. Buffett is one of 

the richest people in America, with wealth of about $60 billion in 2016. 

Similarly, the Alamosa solar project in Colorado did not need federal subsidies. DOE gave it a 

$91 million loan guarantee in 2011 and the Treasury gave it a $35 million 1603 grant in 2012. 

Yet the project had been owned by Goldman Sachs, and is today owned by the Carlyle Group, 

which is one of the largest private equity firms in the world. 

And there is the Shepherds Flat wind tarn1 in Oregon. It is owned by Caithness Energy and 

received large investments by General Electric, Google, and other major corporations. Despite 

these well-heeled backers, the project received a $1.3 billion DOE loan guarantee in 20 I 0, as 

well as state subsidies. 24 Power from the project is being sold to Southern California Edison, 

taking advantage of California's mandate for utilities to purchase renewable power. By the way, 

wind farms may not be so great for the environment because they kill hundreds of thousands of 

birds and bats each year. 25 

Throughout American history, venture investors, entrepreneurs, and businesses have taken risks 

and pumped money into new products and technologies. That is true of the energy sector, and in 

recent years we've seen billions of private dollars flowing to renewable energy projects. Warren 
50 

Buffett's Berkshire Hathaway has invested $17 billion into renewable energy since 200426 With 

that kind of private cash available for rcnewables, we do not need the DOE handing out loan 

guarantees and other business subsidies. 

Subsidies Distort Deeisionmaking 

Federal energy subsidies create counterproductive incentives in the economy. 27 One problem is 

that subsidized finns tend to become slow and spendthrift. Solyndra neglected cost control and 

did not adjust quickly enough as the solar industry was changing. In technology based industries, 

the leanest and quickest finns usually succeed. 

Another problem is that subsidies are not driven by consumer demands, so they can induce firms 

to invest in activities that will not succeed in the marketplace in the long term. No one can 

accurately predict the future of the energy economy, but subsidies distort the best judgement of 

businesses based on market indicators and consumer feedback. 

When private investors are induced by subsidies to put their money into dubious projects, the 

ham1 comes both from the wasting of tax dollars and the wasting of private resources. The more 

that green energy is subsidized by multiple federal and state sources, the more that green 

businesses will be divorced from markets and consumers. 

Subsidies can distort the structure of businesses. As one example, governments always focus on 

the number of jobs created by subsidized projects, but to succeed in competitive markets 

businesses need to minimize labor costs and be as lean as possible. Also, subsidies many induce 

businesses to set up facilities in more costly locations than otherwise, which works against them 

in the long run. One solar executive testifying to Congress noted, "giving companies money to 

set up manufacturing in the U.S. may doom them to failure by financing them into a strategically 

uncompetitive position."28 

Finally, a widely noted effect is that businesses with weak ideas arc often the ones that get in line 

for government handouts because the businesses with good ideas can get private funding and 

often do not want the bureaucratic hassles of subsidies. One economist quipped, "I don't know 

whether the government is better at picking winners rather than losers, but I do know that losers 

are good at picking governments." 

Reform Taxes to Spur Energy Investment 

In the private sector, business investments are financed with earnings, debt, and equity. The DOE 

says that on its loan and loan guarantee projects, there is $18 billion in private investor financing 

and $30 billion in outstanding guaranteed debt. 29 F cdcralloan guarantees subsidize the debt 

financing portion of chosen projects. 

But rather than subsidizing debt for specific projects, the government would spur more economic 

growth by reducing taxes on equity for all investments. Debt is already favored under the federal 

income tax compared to equity, so reforms should aim to reduce the taxation of equity. That 
51 

would increase returns on investment, including in technology industries such as renewable 

energy. 

Capital gains taxes are particularly important for technology industries. Technology investors 

take risks on unproven ventures in the hopes that their bets pay off years down the road. Their 

reward for putting up "patient capital" is a possible capital gain on some of their investments. 

Thus the capital gains tax rate directly affects the willingness of investors to back renewable 

energy and other risky projects instead of safer investments. 

Reducing the capital gains tax rate would spur more investment in start-ups and growth 

companies by angel investors, venture capitalists, and wealthy entrepreneurs. Lower capital gains 

tax rates would also encourage more people to become entrepreneurs because the payoff from a 

successful start-up would be improved compared to a wage job. Historically, Silicon Valley 

roared to life after reductions in the top federal capital gains tax rate from 40 percent in 1978 to 

20 percent in 1981. 

Looking ahead, cutting the top federal capital gains tax rate from 23.8 percent to 16.5 percent, as 

proposed by House Republicans, would be a favorable reform. Nearly all other high-income 

nations have capital gains tax rates below their ordinary rates, partly because they recognize the 

importance of capital gains to growth and technology finns. The average top capital gains tax 

rate across the Organization for Economic Cooperation and Development is about 16 percent. 30 

House Republicans are also proposing a sharp cut to the corporate income tax rate. As noted, 

many large-scale solar and wind projects have been backed by major corporations, and so such 

projects would benefit from a corporate tax rate cut. 

Republicans are also proposing to allow businesses to expense investment, which would 

encourage investment in capital intensive industries such as energy and utilities. One study found 

that current depreciation rules create a hurdle to investment in some green assets, such as 

pollution control equipment and electricity smart meters. 31 Expensing would solve that problem. 

And, in general, expensing would promote the replacement of all types of older capital assets in 

the economy with newer capital assets, which are usually more energy efficient. 

Conclusions 

U.S. energy markets have changed dramatically over the past decade. Technological advances in 

the oil and natural gas industries-particularly hydraulic fracturing and horizontal drilling-have 

led to large increases in domestic production. U.S. imports of oil and gas have plunged, while 

exports have increased. U.S. businesses and consumers have benefited as gasoline and natural 

gas prices have fallen in recent years. 

This energy revolution was driven by private innovation and competitive markets, and it has 

created environmental as well as economic benefits. Cleaner natural gas is replacing coal as a 

fuel source in U.S. electricity production. 32 Over the past decade, coal fell from 49 percent of 

electricity production to 33 percent, while natural gas rose from 20 percent to 33 percent. 33 
52 

The share ofrenewables in U.S. energy production has also increased, and industries such as 

solar and wind have become large players. Indeed, solar and wind have become such large 

industries that it is time to cut offthe federal umbilical cord. That would incentivize renewable 

energy businesses to become leaner and focus on the most efficient products and technologies. 

All areas of federal spending-including the DOE budget-will need to be scrutinized for 

savings in coming years. Federal deficits and debt arc reaching critical levels, which risks 

pushing America into a financial and economic crisis down the road. Policymakers should be 

looking at all areas of the budget to find savings, and business subsidies such as DOE loan 

programs are ripe for cuts. 

Republicans are in a unique position to cut business subsidies, including DOE programs, because 

they plan to cut business taxes and regulations. Businesses would lose handouts, but their tax and 

regulatory burdens would also fall. The U.S. energy sector, including conventional and 

renewable energy, is large, dynamic, and entrepreneurial, and it does not need federal subsidies 

to thrive. 

Thank you for holding these important hearings. 

Chris Edwards 

Director, Tax Policy Studies 

Editor, www.DownsizingGovernment.org 

Cato Institute 

202-789-5252 

cedwards@cato.org 

1 Chris Edwards, "Energy Subsidies," DownsizingGovemment.org, Cato Institute, December 15, 

2016. 

2 Congressional Budget Office, "Federal Support for the Development, Production, and Use of 

Fuels and Energy Technologies," November 2015, Table 3. In addition to the items in the CBO 

table, the Vogtle project received another $1.8 billion loan guarantee in 2015. 3 Department of the Treasury, "Overview and Status Update of the Section 1603 Program," July 

31,2016. 

4 Nathan Rosenberg and L.E. Birdzell found that "new enterprises, specializing in new 

technologies, were instrumental in the introduction of electricity, the intemal-combustion engine, 

automobiles, aircraft, electronics, aluminum, petroleum, plastic materials, and many other 

advances." Nathan Rosenberg and L.E. Birdzell, Jr., How the West Grew Rich (New York: Basic 

Books, 1986), p. 277. We can update that list to include cellphones, smartphones, personal 

computers, biotechnology, and many Internet businesses. This idea has also been explored by 

economist Clayton Christensen. 5 Mark A. McCall, Department of Energy, Testimony to the Subcommittees on Energy and 

Oversight, House Committee on Science, Space, and Technology, March 3, 2016. 6 Frank Rusco, Govemment Accountability Office, Testimony to the Subcommittees on Energy 

and Oversight, House Committee on Science, Space, and Technology, March 3, 2016. 
53 

7 National Conference of State Legislatures, "State Renewable Portfolio Standards and Goals," 

December 28, 2016. 8 Carol D. Leonnig and Joe Stephens, "Obama Was Advised against Visiting Solyndra after 

Financial Warnings," Washington Post, October 3, 2011. 9 Bill Canis and Brent D. Yacobucci, "The Advanced Technology V chicles Manufacturing 

(ATVM) Loan Program: Status and Issues," Congressional Research Service, January 15, 2015, 

p. 13. 10 Mark A. McCall, Department of Energy, Testimony to the Subcommittees on Energy and 

Oversight, House Committee on Science, Space, and Technology, March 3, 2016. 11 Jasper Scherer, "Another Chance for Nuclear Power?" U.S. News and World Report, March 3, 

2016. 

12 Cassandra Sweet, "High-Tech Solar Projects Fail to Deliver," Wall Street Journal, June 12, 

2015. 

13 Cassandra Sweet, "Ivanpah Solar Plant May Be Forced to Shut Down," Wall Street Journal, 

March 16, 2016. 14 Cassandra Sweet, "High-Tech Solar Projects Fail to Deliver," Wall Street Journal, June 12, 

2015. 

15 Joe Stephens and Carol D. Leonnig, "Solyndra: Politics Infused Obama Energy Programs," 

Washington Post, December 25,2011. And see 

www.washingtonpost.com/politics/specialreports/solyndra-scandal. 

16 Carol D. Leonnig and Joe Stephens, "Federal Funds Flow to Clean-Energy Firms with Obama 

Administration Ties," Washington Post, February 14,2012. 17 Eric Lipton and John M. Broder, "In Rush to Assist a Solar Company, U.S. Missed Signs," 

New York Times, September 22,2011. 18 Washington Post, "Greenlighting Solyndra," December 22, 2011, 

www.washingtonpost.com/wp-srv/special/politics/so1yndra-key-players. 

19 Joe Stephens and Carol D. Leonnig, "Solyndra Loan: White House Pressed on Review of 

Solar Company Now Under Investigation," Washington Post, September 13, 2011. 20 Nicolas Loris provides summaries of 1703 and 1705 projects in Nicolas Loris, "Examining the 

Department of Energy's Loan Portfolio," Heritage Foundation, March 3, 2016. See also 

Veronique de Rugy, "Assessing the Department of Energy Loan Guarantee Program," Mereatns 

Center, June 19,2012. 21 Eric Lipton and Clifford Krauss, "A Gold Rush of Subsidies in Clean Energy Search," New 

York Times, November 11, 2011. 22 Nicolas Loris, "Examining the Department of Energy's Loan Portfolio," Heritage Foundation, 

March 3, 2016. Despite all the subsidies, A ben goa Biocncrgy filed for bankruptcy protection in 

20!6, and its U.S. ethanol business was sold. 23 Eric Lipton and Clifford Krauss, "A Gold Rnsh of Subsidies in Clean Energy Search," New 

York 7/mes, November 11, 2011. 24 Controversy surrounds the multiple subsidies the project received from the state government. 

See Ted Sickinger, "Shepherd's Flat Wind Farm's $30 Million in Tax Credits Will be Reviewed 

by Oregon Energy Department," The Oregonian, February 23, 2013. 25 Cassandra Sweet, "lvanpah Solar Plant May Be Forced to Shut Down," Wall Street Journal, 

March 16,2016. And see Brady Dennis, "Stndy: Wind Turbines Kill More Bats than Estimated," 

Washington Post, November 8, 2016. 
54 

26 Stephen Gandel and Katie Fehrenbacher, "Will Donald Tmmp Blow Warren Buffett's CleanEnergy Bet Off Course?" Fortune, December 7, 2016. 27 These ideas are discussed in Veronique de Rugy, "Assessing the Department of Energy Loan 

Guarantee Program," Mercatus Center, June 19, 2012. See also James Nelson, Solar3D, 

Testimony to the House Committee on Oversight and Government Reforn1, Subcommittee on 

Regulatory Affairs, Stimulus Oversight, and Government Spending, May 16,2012. 28 James Nelson, Solar 3D, testimony to the House Committee on Oversight and Government 

Reform, Subcommittee on Regulatory Affairs, Stimulus Oversight, and Government Spending, 

May 16, 2012. 29 Mark A. McCall, Department of Energy, Testimony to the Subcommittees on Energy and 

Oversight, House Committee on Science, Space, and Technology, March 3, 2016. 3

° Chris Edwards, "Advantages of Low Capital Gains Tax Rates," Cato Institute Tax and Budget 

Bulletin no. 66, December 2012. A more recent study found the OECD average to be 18 percent. 

See Kyle Pomerleau, "The High Burden ofFedera1 and State Capital Gains Tax Rates in the 

United States," Tax Foundation, March 24, 2015. 31 Ernst & Young for the American Council for Capital Forn1ation, "International Comparison of 

Depreciation Rules and Tax Rates for Selected Energy Investments," May 2, 2007. 32 Natural gas emits about half the C02 that coal does in electricity production. Wall Street 

Journal, "Energy: Squaring Off," November 14,2016, p. Rl. 33 Wall Street Journal, "Energy: Squaring Off," November 14,2016, p. Rl. 
55 

Chris Edwards 

Director of Tax 

Editor ofDov.'I1tSi2dn;gGov1errnn•en1t.Org 

Chris Edwards is the director 

editor 

federal state tax 

Edwards was a senior on the <Wn<Y''"~qionnl 

Economic a manager with Pricewater·hons•eOJoj)ers, 

and an economist Tax Foundation. Edwards has testified 

to Congre&s on fiscal issues many times, and his articles on tax and 

budget polieies have in the Washington Post, the Wall 

Street .Journal, and newspapers. He is the author 

coauthor 

Edwards holds a BA and an MAin economies, and he was a member of the'·""""""'~""""""' 

~'J!!.!!!llil"-W!.ll of the National Academy of Sciences. 
56 

Chairman WEBER. Thank you, Mr. Edwards. 

Mr. Reicher, you are now recognized for five minutes. 

TESTIMONY OF MR. DAN REICHER, EXECUTIVE DIRECTOR, 

STEYER-TAYLOR CENTER FOR 

ENERGY POLICY AND FINANCE, 

STANFORD UNIVERSITY 

Mr. REICHER. Thank you, Chairmen Smith, Weber, and LaHood 

and Ranking Members Veasey, Johnson, and Beyer. I appreciate 

the opportunity to testify. 

You have my bio, but let me emphasize that I have some honestto-goodness background in energy project investing. I cofounded an 

energy project investment firm where we raised $100 million from 

a major pension fund and a venture-capital firm. I also made 

project investments while working at Google. Finally, I worked for 

an energy technology company that received a major venture-capital investment. 

Mr. Chairman, the U.S. Government has long played a vital and 

successful role in helping to commercialize energy technologies, including, among others, commercial nuclear power, carbon capture 

and storage, and hydraulic fracturing. I am focusing on technology 

commercialization because that is the real core of the DOE loan 

guarantee program today. 

You will hear lots of arguments today about how the loan guarantee program is not an appropriate role for government and that 

the private sector should assume the burden, but these comments 

miss the mark because the loan guarantee program, as currently 

structured and operating, is focusing quite precisely on the role 

where the private sector needs help. And I emphasize technologies 

that have not reached full commercial scale and where, because of 

their risk profile, banks and bond issuers are reluctant to provide 

financing. Once the technology has been proven to work at commercial scale, the DOE loan program generally has no further role, and 

that is the case today in the DOE loan program where, for example, financing for solar PV projects using fully commercialized technologies has ended following loan guarantees made about five years 

ago that helped U.S. PV projects get to full utility scale. 

The private sector has financed scores of subsequent projects. 

The DOE loan guarantee program, as authorized by Congress and 

signed by President George W. Bush, is carrying out its role across 

a broad range of energy and transportation technologies: advanced 

fossil, nuclear, renewables, energy efficiency, and vehicles. And 

DOE’s Loan Program Office is managing the investment portfolio 

successfully. 

Here are the numbers, the most updated ones. As of December 

31, 2016, 22 projects supported by the Loan Program Office are 

operational and $6.65 billion in loan principal and $1.79 billion in 

interest have repaid to the U.S. Treasury. Loan losses in the portfolio are approximately $810 million. This is barely half of the interest already paid on the DOE loans to date. It is only a little over 

two percent of the program’s $36 billion of loans, loan guarantees, 
57 

and conditional commitments. And these losses are a tiny fraction 

of the $10 billion set aside by Congress to cover failed loans. 

I would note that in her testimony, Ms. Katz indicates that, 

quote, ‘‘double digit default rates are common among federal credit 

programs.’’ The DOE rate is barely in the single digits, and the 

LPO’s two percent loan loss ratio is less loss ratio in the loan portfolios of virtually every U.S. money-centered bank. And these 

banks are generally not making loans for energy projects deploying 

advanced technologies and certainly not in the riskier commercialization stage. 

I also want to emphasize that the focus today is on loans, not 

grants. Loans get paid back, grants do not, and they get paid back 

with interest to the U.S. Treasury, also known as U.S. taxpayers. 

A lot of the testimony today confuses grants and loans. 

Looking ahead, the Loan Program Office has more than $40 billion in remaining authority with $12.5 billion for advanced nuclear 

projects, $8.5 billion for advanced fossil, $4.5 billion for renewable 

energy and efficiency, and $16 billion for advanced transportation 

projects. Importantly, the office has recently received more than 70 

applications in response to its current solicitations for almost $50 

billion in loans and loan guarantees. 

Mr. Chairman, U.S. infrastructure has emerged as an area of 

both substantial national need and bipartisan support. The good 

news is that there are multiple areas where the DOE loan guarantee program can provide much-needed infrastructure investment 

from already authorized funds and simultaneously support important technology innovation. This includes infrastructure projects involving, for example, electricity transmission, advanced nuclear 

technology, carbon capture utility-scale storage, and advanced vehicles. 

Infrastructure investing, Mr. Chairman, can divine the next 

phase of the DOE loan guarantee program with no new authorization or appropriations. This is a very nice down payment on the 

proposed trillion-dollar infrastructure program that is the subject 

of so much discussion. 

A final point: In the next 20 years the International Energy 

Agency projects that the world will spend roughly $48 trillion on 

energy infrastructure, one of the biggest economic opportunities of 

the 21st century. China is organized to take the biggest piece of 

this economic pie. It has no reluctance helping energy project developers raise capital to commercialize technologies and sell them to 

the world. We ignore China’s resolve and impressive success to 

date at our peril, and it is the situation that makes the attacks on 

federal energy technology commercialization like the DOE loan program so misguided. 

The Congress and the new Administration should build on the 

loan guarantee program’s success to date and substantial remaining loan authority to jumpstart infrastructure investing and advance the U.S. economy and environment and security in the process. Thank you very much. 

[The prepared statement of Mr. Reicher follows:] 
58 

Summary of Testimony on the DOE Loan Guarantee Program 

House Committee on Science Space and Technology 

Dan W. Reicher 

February 12, 2017 

The U.S. government has long played a vital and successful role in helping to commercialize 

energy technologies including, among others, commercial nuclear power, carbon capture and 

storage, and hydraulic fracturing. The DOE loan guarantee program, as authorized by 

Congress and signed into law by President George W. Bush, has continued this role across a 

broad range of energy and transportation technologies. The DOE's Loan Program Office (LPO) 

is carrying out its Congressionally-directed mission very capably, both helping to 

commercialize advanced fossil, nuclear, renewable, energy efficiency and vehicle technologies 

and managing the related investment portfolio successfully. 

As of December 31, 2016, 22 projects supported by LPO arc operational and $6.65 billion in 

loan principal and $1.79 billion in interest have been repaid to the U.S. Treasury. Loan losses 

in the portfolio are approximately $810 million, or only a little over 2 percent of the program's 

$36 billion of loans, loan guarantees and conditional commitments and a small fraction of the 

$10 billion set aside by Congress to cover failed loans. LPO's -2% loan loss ratio is less than 

the loss ratio in the loan portfolios of virtually every U.S. money center bank, and these banks 

are generally not making loans for energy projects deploying advanced technologies and 

certainly not in the riskier commercialization stage. 

The LPO has more than $40 billion in remaining authority, with $12.5 billion for advanced 

nuclear projects, $8.5 billion for advanced fossil projects, $4.5 billion for renewable energy 

and energy efficiency projects, and $16 billion for advanced transportation technologies. 

Importantly, LPO has recently received more than 70 applications, in response to its current 

solicitations, for almost $50 billion in loans and loan guarantees. 

U.S. infrastructure has recently emerged as an area of both substantial national need and 

bipartisan support. There are several areas where the DOE loan guarantee program can provide 

much needed investment in U.S. infrastructure and simultaneously support important 

technology innovation. This includes infrastructure projects involving, for example, electricity 

transmission, advanced nuclear technology, carbon capture and storage, advanced vehicles and 

components, and utility-scale storage. 

In the next twenty years, the International Energy Agency projects that the world will spend 

roughly 48 trillion dollars on energy infrastructure, one of the biggest economic opportunities 

of the 21st century. China is getting organized to take the biggest piece of this economic pie. 

We ignore China's resolve- and impressive success to date- at our peril. And it is this situation 

that makes the attacks on federal energy technology commercialization, like the DOE loan 

guarantee program, so misguided. 

The Congress and the new administration should build on the loan guarantee program's 

successful work to date and substantial remaining loan authority to advance the U.S. economy, 

environment and security. 
59 

Statement of Dan W. Reicher 

Executive Director 

of the 

Stanford University Steyer-Taylor Center for Energy Policy & Finance 

and 

Professor, Stanford Law School 

Lecturer, Stanford Graduate School of Business 

to the 

House Committee on Science, Space and Technology 

Subcommittee on Energy 

and 

Subcommittee on Oversight 

Hearing on the Department of Energy Loan Guarantee Program 

February 15, 2017 

Chainnan Smith, Ranking Member Johnson, and members of the subcommittees, my name is Dan 

Reicher and I am pleased to share my perspective on the Department of Energy loan guarantee 

program, as authorized by Congress and administered by DOE's Loan Programs Office. I am Director 

of Stanford University's Steyer-Taylor Center for Energy Policy and Finance and a faculty member 

of the Stanford Law School and the Graduate School of Business. I am testifying in my individual 

capacity and my views do not necessarily reflect those of Stanford University. 

I am also a senior fellow at the Brookings Institution, have been a member of the Secretary of Energy 

Advisory Board since 2013, and recently finished a 10-year tcnn on the National Academy of 

Sciences Board on Energy and Environmental Systems. I also chair the board of directors of the 

American Council on Renewable Energy. 

Prior to my role at Stanford, I was Director of Climate Change and Energy Initiatives at Google. I 

also served on President Obarna's transition team where I helped develop the stimulus package for 

clean energy. Prior to my position with Google, I was President and Co-Founder of New Energy 

Capital, a private equity finn funded by the California State Teachers Retirement System and Vantage 

Point Venture Partners to invest in clean energy projects. Prior to this position, I was Executive 

Vice President of Northern Power Systems, a venture capital-backed renewable energy company. 

Prior to my roles in the private sector, 1 served in the Clinton Administration as Assistant Secretary 

of Energy for Energy Efficiency and Renewable Energy, the Acting Assistant Secretary of Energy 

for Policy, and Department of Energy Chief of Staff. 

Introduction 

The Department of Energy's (DOE) Loan Programs Office (LPO) implements a key program, 

originally signed into law by President George W. Bush, that helps innovative U.S. energy and 

transportation technologies cross the colorfully but accurately named '·valley of death" that sits 

between the early development of an advanced energy or vehicle technology and its full conunercial 

deployment. By helping to cut the risk in technology commercialization, the LPO has increased U.S. 
60 

private sector investment in advanced energy and vehicle technology deployment, with the attendant 

economic, environmental and security benefits. 

The loan guarantee program is at a pivotal point with the arrival of a new administration and 

questions in some quarters about the need for LPO investment. In sum, I believe the LPO is carrying 

ont its Congressionally-directed mission very capably, both helping to commercialize important 

energy and transportation technologies and managing the related investment portfolio successfully. 

With more than $40 billion in remaining authority, the LPO is well positioned to advance important 

bipartisan U.S. priorities, particularly supporting a broad range of critically important energy and 

transportation-related infrastmcture investments. 

I. My Background in Energy Technology Commercialization 

Let me briefly personalize the energy technology commercialization story, before I tum to a broader 

discussion of the federal government's role in commercialization and DOE's loan guarantee program 

in particular. For two decades I have walked the ups and downs of the energy research, development, 

demonstration and deployment (RDD&D) pathway. I started my journey at DOE under President 

Clinton where we invested substantially in advancing the full range of energy technologies. Energyrelated R&D was and is a high-risk enterprise where the only certainty is that it almost always 

takes longer and costs more than originally anticipated to get an energy technology to a point where a 

private sector investor might invest and take things from there. 

I left DOE at the end of the Clinton administration and joined a renewable energy company that had 

recently received significant venture capital investment. Our mandate was to take this high-risk 

capital and use it to tum the fruits of energy R&D into commercialized products that were successful 

enough that a bigger company would want to buy our firm or we could take it public. It was tough 

sledding at this company, in part because the route to successful commercialization of energy 

technologies is so challenging. One example: the company developed a more efficient and lower 

maintenance wind turbine but didn't have the cash it took to deploy enough of them for a long 

enough time - to satisfy energy project lenders that they could back these turbines in utility-scale 

wind projects. 

Proceeding down the RDD&D pathway, I helped form a private equity fim1, with $100 million in 

capital we raised from a large public pension fund and a venture capital finn to invest in clean energy 

projects. We were the "equity" in these projects and we worked with banks and other "debt" providers 

- as well as engineering and construction firms - to get energy projects built and operating. It was at 

this firm that I reached perhaps the most challenging point along the energy RDD&D pathway. 

Day after day our firm received investment proposals for energy projects based on technologies with 

profiles that simply exceeded the risk threshold of our capital. Had the underlying technologies been 

proven in a lab? Generally yes. Had they operated in a pilot plant? Sometimes. Had they operated at 

commercial scale for a long enough period of time that bankers would lend to projects that deployed 

them? Rarely. 

We received so many project proposals- from wind, solar, biomass and geothermal, to advanced 

coal and natural gas projects, to nuclear power and beyond - but there were so few where we could 

actually make an investment. So what were we left with? Well, the truth is that the biggest chunk of 

2 
61 

our capital, when I was at the firm, was used to finance com ethanol plants - a technology well 

proven at large commercial scale for decades. We and most other private equity finns simp! y 

couldn't shoulder the risk inherent in the initial commercial scale-up of an energy technology, where 

a single project can costs hundreds of millions or even billions of dollars. 

It was interesting landing next at Google, primarily a software company where engineers spend time 

generally measured in months- writing computer code for a new software product, test it internally, 

and then one day determine it's ready for initial commercial deployment. In my simple terms, they 

push a button and it's deployed. If the product needs improvements then Google engineers make them 

and a new version is launched. There are certainly very tough engineering challenges and products 

that fail. It's just that with software my perception is that a product generally succeeds - or fails -

faster and more cheaply than with energy technology. In the energy technology world, months tum 

into years, and years into decades, and billions can be spent on a single technology before even one 

commercial-scale plant is operating. 

Following the 2008 election, I joined President Obama's transition team. I spent a significant time 

helping to develop the energy provisions of the stimulus package, eventually adopted by the Congress 

in the 2009 American Recovery and Reinvestment Act (ARRA). Among other things, the ARRA 

created a time-limited loan guarantee program to stimulate investment in shovel-ready energy projects 

during the depths of the financial crisis. 

At Stanford I have continued to focus on the energy technology commercialization challenge, including 

in a course for graduate students in business, law and engineering on how to develop and finance 

energy projects. 

II. The Importance of Federal Support for Energy Technology Commercialization 

There is a view in our count1y today, mostly inside the D.C. beltway, that the federal government 

shouldn't play a role in commercializing energy technology. This view flies in the face of longstanding U.S. history- and basic business logic. The U.S. government has long played a vital and 

successful role in helping to commercialize energy technology and it is a role that should continue, 

especially in light of unprecedented competition from other countries, in particular China. Three 

examples follow. 

a. U.S. Commercial Nuclear Power 

The federal government, in the Eisenhower administration, financed the commercialization of civilian 

nuclear power, fully funding an Idaho reactor (EBR-1) "where usable electricity was first generated 

from nuclear energy in 1951 ". The federal government spent approximately $550 million in current 

dollars on the Idaho project. 1 Further govenunent-funded civilian reactors followed, including six 

years later the federally-financed Shippingport reactor in Pennsylvania, "the world's first full-scale 

atomic electric power plant devoted exclusively to peacetime uses."2 It was not until 1960 that we 

saw ''the first U.S. nuclear power plant built without government funding."3 

1 http://v.'W\v4vipjnl.gov/ebr/ 

1 https://wv.>''.rm:.gov/about~nrc/emerg-preparedness/history.html 

'Id. 

3 
62 

The federal government has stayed in the nuclear power commercialization business helping to 

finance the scale-up of various technologies, some successful and some not. This includes federal 

funding of breeder reactors4 and in recent years significant DOE investment in the development of 

small modular reactors, involving a number of U.S. companies. 

Recently, the LPO backed the construction of the first new reactors in the U.S. in decades. The 

Vogtle project in Georgia is using the "'next generation of nuclear reactors that incorporate a number 

of new safety features, including .... passive safety systems that are able to respond in an emergency 

without any human intervention or electrical power."5 

Recently, a bipartisan report to Secretary of Energy Moniz concluded that the successful 

development, commercialization and deployment of advanced reactor technologies in the U.S. at 

gigawatt-scale beginning in 2030 would require significant govemment investment, measured in the 

billions of dollars6 

b. Carbon Capture and Storage 

The Department of Energy launched its program to develop and commercialize carbon capture and 

storage ( CCS) technology in 1997. Over the past 20 years, it has relied on a variety of federal support 

mechanisms and incentives - R&D funding, grants, federal tax credits, private activity bonds and 

loan guarantees to advance the technology. This array of federal support, measured in the billions 

of dollars, has helped advance first-time applications of CCS at a number of different types of U.S. 

facilities, for example a coal-fired power plant in Texas, an ethanol plant in Illinois, a Texas oil 

refinery and, most recently, a project that will help demonstrate CCS technology in natural gas-fired 

power generation. 

Recently, the DOE LPO issued a conditional commitment for the first loan guarantee made under the 

Depmiment's $8 billion Advanced Fossil Energy Project solicitation. The $2 billion loan guarantee 

would back the world's first methanol production facility to employ carbon capture technology, in 

Lake Charles, Louisiana. The captured carbon dioxide would be utilized for enhanced oil recovery 

(EOR) in Texas. The project would also be the first petroleum coke (petcokc)-to-methanol facility in 

the U.S. 7 Petcoke is a byproduct from oil refining. Methanol is one of the world's most widely used 

industrial chemicals in applications like paints, plastics, automotive parts and fuel blending. 

c. Hydraulic Fracturing 

The federal government played an important role in the commercialization of hydraulic fracturing 

("fracking"), the process by which the U.S. has been able to access substantial deposits of shale gas, 

tight gas and tight oil. The private sector, particularly pioneers like George Mitchell, were 

instrumental in the development of [racking but the federal government supported commercialization 

of this important technology in a variety of ways. These include: shale fracturing and direct drilling 

technologies developed by the federal government and federal labs; public-private shale drilling 

demonstration projects in the I 970s; the section 29 production tax credit for unconventional gas in 

4 https:flen.wikipedia.org!wiki!Clinch_River_Breeder_Reactor_Project 

5 https://www.energy.gov/articles/vogtle-big-resu Its-nuclear-power 

~ llttps:l /~,W.'\\'.energy.gov/sites/prod/tiles/20 16/1 O/f33/9-22-16 __ SEAB%20Nuc!ear%20Powe~'020TF'%20Report%20and%20transmittal.pdf 7 https://energy.gov/articleslenergy-department-offers-conditional-commitment-first-advanced-fossi!-energy-loan-guarantee 

4 
63 

effect from 1980 to 2002; federal funding of cost-shared [racking projects including Mitchell Energy's 

first horizontal well in 1991; and 3-D microseismic imaging developed by DOE Sandia National 

Lab. As a 2102 study concluded: 

These federal investments, coordinated in close concert with gas industly representatives, 

were predicated upon a single mission: the commercialization of shale gas extraction 

technology. As a result of these efforts carried out over the course of 30 years, shale gas went 

from inaccessible deposits locked in Uf!f'amiliar geologic formations to the fastest growing 

contributor to the nation's energy por(folio. 8 

d. The Business Case for Federal Support of Energy Technology Commercialization 

These and many other examples point to the long-standing role the federal government has played 

through Republican and Democratic administrations alike - in commercializing energy technology. 

As explained above, energy project developers and investors often can't or won't shoulder all the risk 

inherent in the initial commercial scale-up of an energy technology, where a project can costs 

hundreds of millions or even billions of dollars and there are a number of reasons the first-time 

project can fail. 

The federal government, for decades, has been willing to step up, sometimes completely funding an 

initial commercial-scale project or cost-sharing it. From a business standpoint the government's role 

makes eminent sense. Back in the 1950s there was no way that an individual company or private 

investor was going to take the full risk of developing an early nuclear power plant. The technical 

unknowns and safety concerns were simply too great. Without the major investment the federal 

government made in the first generation of civilian reactors measured in the billions of today's 

dollars plus the brainpower and facilities provided by federal labs commercial nuclear power would 

not have developed at the pace and scale that it did, or perhaps would have been stillborn with an 

early accident. 

Similarly, it is highly unlikely that utilities or energy companies would have shouldered the cost 

alone of the initial applications ofCCS at U.S. power plants, refineries and other industrial facilities. 

While some of the underlying technologies, for example amine chemistry, had been used in other 

industries, the technical risks of a new application were too great for an individual company or utility 

to shoulder alone. This was particularly the case given cmTent CCS economics in the U.S.- with no 

serious carbon pricing and a volatile market for the sale of C02 (tied to the price of oil) tor enhanced 

oil recovery. Securing a commercial loan for an initial scale-up plant in a setting like this was next to 

impossible. 

And the partnership between the federal government and the natural gas industry was crucial in the 

efforts to develop hydraulic fracturing, a game-changing technology in the energy industry. George 

Mitchell, often called the "father of fracking", was a bold businessman but he enjoyed strong backing 

from the federal government in getting his important technology to commercial scale. It is 

conceivable he and others in the private sector could have succeeded without government help, but it 

is highly doubtful given modem fracking's dependence on government-born technologies like 3-D 

seismic imaging, along with generous government tax credits and early cost-shared projects. 

~ http:/ /thebrcakth rough. orglarc hive/ shale _gas_ frack ing_ history_ and 

5 
64 

The federal government backs energy technology commercialization efforts because they advance 

the economic, security, and environmental interests of our nation. Cutting our dependence on foreign 

energy sources, for example, partially drove the federal government's substantial support over decades 

in commercializing fracking. The future of fossil fuels in the U.S. and around the globe depends 

on cutting their environmental footprint and CCS has a major role to play. Adding to its benefits, 

the C02 captured in some CCS projects finds a ready market in enhanced oil recovery, helping 

to squeeze out additional oil from older fields and leaving the C02 back in the ground where it started. 

And the federal government may sec some of the upside through royalty payments for oil on federal 

lands, while also increasing tax revenues to state and local federal coffers. 

Outside of the energy context we don't generally have this debate about whether the federal 

government should back technology development and deployment. Thus the federal government, 

through DARPA, has had a major and well-supported hand in the development and application of 

revolutionary technologies ranging from the Internet and videoconferencing to GPS and the Cloud9 

e. China Is Poised to Dominate Clean Energy Globally 

There is another reason why the federal govemment should continue its efforts in clean energy 

technology commercialization: the Chinese government and private sector have a well-organized and 

executed plan to dominate the energy technology industry, with all of its attendant economic, security 

and environmental benefits. From wind, solar and storage to nuclear power, advanced vehicles, 

steam turbines and transmission, China is not only dominating in low-cost manufacturing and 

domestic deployment but increasingly in energy technology R&D and commercialization, traditionally 

the U.S. strong suit. My Stanford center is finishing up a major report on the Chinese solar industry, 

funded by DOE, and it has been eye opening to understand how far the Chinese have come in solar 

R&D, including recently posting an important world record iu solar cell efficiency. The Chinese 

government and industry have a well-organized partnership to dominate the solar industry, and 

several other energy technologies as well. 

In the next twenty years, the International Energy Agency projects that the world will spend roughly 

48 trillion dollars on energy infrastructure, one of the biggest economic opportunities of the 21" 

century. China is getting organized to grab the biggest piece of this economic pie. We ignore China's 

resolve - and impressive success to date - at our peril. And it is this situation that makes the 

attacks on federal energy technology commercialization, like the DOE loan guarantee program, 

so misguided and troubling. 

f Should the Government Pick Winners and Losers? 

In the debate over the DOE loan guarantee program there is also this argument: "the government 

shouldn't be picking winners and losers." The DOE loan guarantee program, as designed by Congress, 

has a broad technology focus with specific funding allocations across an array of technologies, 

including nuclear, fossil, renewables and efficiency. This ensures that no particular technology is 

favored. While much of the early LPO investment was in renewables, the current remaining Title 

XVII authorization is largely for nuclear and fossil projects. Furthermore, by far the largest loan 

guarantee to date has been for the Vogtle nuclear reactors and the most recent LPO 

9 http://wv.">v.alphr.com/features/373546/IO-bri!liant-darpa-inventions/page/0/1 

6 
65 

conditional guarantee is for the Lake Charles petroleum coke CCS project. And it should be noted 

that the LPO is an application-based process: companies must apply for a loan guarantee, meet a 

number of explicit and well-established eligibility criteria, and pay significant fees, in order to secure 

a loan or loan guarantee. 

More broadly, this argument against picking winners and losers collides head long with reality. The 

federal government picks winners and losers all the time and in fact the Congress, through the 1984 

Competition in Contracting Act 10 , has generally insisted on competition in discretionary federal 

funding programs. Thus, as Boeing and Lockheed-Martin know well, the Pentagon has required 

competition in the procurement of the military's next jet fighter. The General Services Administration 

generally does the same for a range of products and services supporting the work of government 

agencies. And it should come as no surprise that DOE generally insists on competition and often 

private sector cost share - for much of its energy technology funding, including recent support for 

small modular reactors, CCS and off-shore wind. 

III. The Case for Federal Loan Guarantees 

President George W. Bush signed legislation launching the two key DOE Joan programs under 

discussion today. Title XVII of the 2005 Energy Policy Act, enacted by a Republican-led Congress, 

directed DOE to issue Joan guarantees to support the commercial deployment of energy projects that 

"employ new or significantly improved technologies as compared to commercial technologies in 

service in the United States at the time the guarantee is issued" and cut greenhouse gas emissions. 

The Title XVII program covers a number of eligible technologies including advanced fossil, nuclear, 

and renewable energy, and energy efficiency. 

Congress authorized the Advanced Technology Vehicles Manufacturing (ATVM) program under 

Section 136 of the Energy Independence and Security Act of 2007. It authorizes the DOE to issue 

direct loans to auto manufacturers and component suppliers for manufacturing of advanced 

technology vehicles and associated components in the U.S. 

President Obama signed a third bill in 2009, the American Recovery and Reinvestment Act (the 

"stimulus bill"), that authorized a new deployment-oriented loan guarantee program to stimulate job 

creation during the financial crisis and also appropriated funds to cover "credit subsidy" costs for 

borrowers. This program, which fi.mded a number of LPO loan guarantees for ··shovel-ready" energy 

projects, expired in 20 II. The Congress the same year also appropriated funds to cover credit subsidy 

costs for the A TVM program and in 20 II did the same for energy efficiency and renewable energy 

projects under Title XVII. 

The two current loan guarantee programs - Title XVTI and ATVM - enjoyed Republican and 

Democratic support for a reason: they are a smart way to leverage private capital in advancing the 

commercialization of an innovative energy technology or increasing domestic manufacturing of fuelefficient vehicles. In simple terms, the programs support energy and transportation technologies that 

are ready for commercialization but face challenges raising capital in the debt markets. 

10 https://fUs.orgtsgp/crs/misc/R40516.pdf 

7 
66 

In contrast with federal grants, which constitute one-time "money out the door" expenditures, loans 

and loan guarantees are the federal financial mechanism ''that keeps on giving". Thus the innovative 

U.S. auto manufacturer Tesla Motors received a $465 million ATVM loan at a critical moment in its 

efforts to buy a shuttered former GM-Toyota manufacturing plant in California. The loan was pivotal 

in Tesla's efforts to reopen the factory, creating more than 3000 full-time jobs in the process. And 

critical to today's hearing, in May 2013 Tesla repaid the federal government the entire remaining 

balance on its loan- nine years early and with interest. 

To this end, LPO loans and loan guarantees are structured to be fully repaid with interest over the life 

of the loan. Each project in the portfolio must begin repaying the principal and interest on its loan 

around the time it reaches completion. As many of LPO's projects have reached completion in recent 

years, project sponsors have been repaying their loans. As of December 31, 2016, LPO borrowers 

repaid $6.65 billion in principal and $1.79 billion in interest. So not only is an LPO loan repaid 

but the federal treasury- aka U.S. taxpayers- see the upside in the form of major interest payments 

a. The LPO's Strong Financial Track Record 

Beyond the debate over the philosophy underlying the Title XVII and A TVM programs, c1itics of the 

programs have raised issues regarding LPO's financial management and track record. There has been 

a great deal of hand-waving on this subject, particularly focused on a few failures in the LPO 

portfolio, chief among tl1em the Solyndra loan guarantee. What all of the noise about Solyndra 

obscures is LPOs admirable track record in commercializing energy technology and increasing U.S. 

production of advanced technology fuel-efficient vehicles with thousands of related jobs. 

The best way to take stock of LPOs financial management is to do what any portfolio manager would 

do: scrutinize pmifolio results to date and the status of individual investments. A quick review should 

give members of the committee, and U.S. taxpayers more generally, confidence about the LPO track 

record. 

As of December 31, 2016 22 projects supported by LPO are operational and generating revenue. 

These projects are now repaying their loans to the U.S. Treasury, which issued the loans guaranteed 

by the DOE primarily through the Federal Financing Bank. Already, as noted above, $6.65 billion in 

loan principal has been repaid on these long-term loans, which have an average tenor of 22 years. 

Importantly, the U.S. Treasury has received more than $1.79 billion in interest payments. For loans 

that have been disbursed to date, more than $5 billion in total interest payments are expected over the 

fhll term of the loans - to the benefit of taxpayers. 

However, losses arc also anticipated in any lending portfolio. And because the mission of LPO is to 

finance innovative technologies that have not been deployed at commercial scale in the U.S., the 

program was designed to carry some level of risk. In light of this Congress set aside funds to cover 

those losses whcu the program was established. But today, actual and estimated loan losses to the 

portfolio are approximately $810 million, or only a little over 2 percent of the program's loans, 

loan guarantees and commitments - and roughly half of the approximately $1.79 billion in 

interest payments the program has earned to date. Importantly, this $810 million in loan losses 

is a small fraction ofthe $10 billion set aside by Congress to cover failed loans. 

As projects continue to repay loans and as LPO issues new loans and loan guarantees with its more 

than $40 billion in remaining authority, these portfolio numbers will continue to change. But given 

8 
67 

the strong portfolio management by the highly experienced team of LPO professionals, DOE expects 

the pmifolio's financial performance to remain strong and continue to advance the commercialization 

and deployment of key energy and transportation technologies. 

In the last ten years, the Government Accountability Office (GAO) has published eight reports 

reviewing the loan guarantee program and providing recommendations to DOE. Of the 24 

recommendations GAO has made conccming the program, the DOE has fully implemented 15. The 

LPO is actively working towards fully implementing three more, has partially implemented one, and 

has concurred with GAO's findings for two more. Of the 24, LPO has only disagreed with and 

declined to work towards implementing 4 of the recommendations. It should also be noted that GAO 

has made no additional recommendations in either its 2015 or 2016 report. 

b. A Few Losses Shouldn 'I Obscure The Overall Success qfthe LPO 

Despite the overall success of the LPO portfolio there has been much focus on a handful of losses. 

Most well-known among them is Solyndra, which was indeed a major loss in the LPO portfolio but it 

has been used for years to impugn the overall program more broadly. This is unfortunate because as 

described above the full portfolio is in admirable shape. A key fact: LPO has about a 2% loss 

ratio, less than the loss ratio in the loan portfolios of just about every U.S. money center bank, 

and these banks are generally not making loans for energy pro,jects deploying advanced 

technologies- and certainly not in the riskier commercialization stage. 

It should also be noted that most of the loans and loan guarantees in the Title XVII LPO portfolio 

have been for energy projects secured by a long-te1m power purchase agreement from a major utility 

or corporation or similar commitment. The rationale for a DOE loan guamntee in these cases is that 

(a) the borrower, generally an energy project developer, is credit worthy because of the long-tetm 

off-take agreement but (b) there are technical or scale-up risks in the underlying technology that 

lenders will not take. In contrast, Solyndra involved a loan for a solar manufacturing plant selling 

products into a commodity solar panel market without the benefit of a long-term sales contract. This 

was a riskier bet in a broader portfolio that is mostly built around projects with long-tCim off-take 

commitments and therefore a safer risk profile. 

c. DOE Has Addressed the Credit Subsidy hsue 

There have been issues under Title XVII whether DOE has been adequately charging for the cost of 

the liability that govemment takes on in issuing a loan guarantee. To this end, Title XVII specifics 

that the DOE must receive either a federal appropriation for the Credit Subsidy Cost (CSC) - the 

expected long-term liahility to the Federal Government in issuing the loan guarantee- or payment of 

that cost hy the bon·owcr. Under the current Title XVII program borrowers pay the CSC directly. 

Additionally, LPO determined that a credit-based interest rate spread will be added to certain loans 

that are issued by the Federal Financing Bank (FFB) and backed by a I 00 percent loan guarantee 

issued by the DOE. Jn simple terms the lower the credit score of a particular project the higher the 

interest rate spread. 

Further strengthening the govemment 's coverage of its liability, just last month DOE adopted a final 

rule imposing a "Risk-Based Charge" taking into account all interest and interest-related costs. The 

rule is intended to make DOE's charges and costs consistent with commercial markets and other 

federal credit programs. This Risk-Based Charge will be used only to the extent the aggregate of 

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other interest-related charges do not sufficiently reflect creditworthiness or specific risks arising from 

individual transactions. 

With this recent rule change DOE appears to have addressed concerns about adequately covering the 

federal government's long-tetm liability for particular projects. 

IV. A Strong Future for the Federal Loan Guarantee Program 

The DOE loan guarantee program rests on a solid base: a strong need for its services and an 

admirable track record lo date in providing them. ln setting a path forward for the program there arc 

several considerations: 

a. There is Substantial Remaining Funding Authority 

While the LPO has used about half of its loan and loan guarantee authority provided by Congress, 

there is $41.5 billion in remaining authority. This includes $16 billion in the ATVM program and 

$25.5 billion in the Title XVII program, with $12.5 billion for advanced nuclear projects, $8.5 billion 

for advanced fossil projects and $4.5 billion for renewable energy and energy efficiency projects (the 

relative small allocation for rencwablcs and efficiency reflects greater LPO investment in these 

technologies in initial phases of the program). Importantly, there is also strong interest among 

applicants for additional support. DOE reported in r>ecember that LPO has received more than 

70 applications in response to its current solicitations for almost $50 billion iu loans and loan 

guarantees.U 

b. Some Needs Have Already Been Addressed- LPG Success in Utility-Scale Solar 

Some technology areas have been addressed and are unlikely to need additional LPO support. For 

example, prior to 2010, there were no utility-scale PV projects in the United States greater than 100 

megawatts. LPO helped finance the first five utility-scale PV projects, and since then the private debt 

markets have taken over, financing many more projects. 12 There are now 48 other privately financed 

U.S. PV projects greater than 100 megawatts operating as of January 2017. Another 83 planned solar 

PV farms greater than 100 megawatts have been announced, representing over 20 gigawatts of new 

utility-scale capacity. 

In addition to solar PV, Title XVII also supported a number of projects involving Concentrating 

Solar Power (CSP). 13 U.S. leadership on these technologies has placed the developers of these Title 

XVII-supported projects at the forefront of the global CSP market. The developer of the Crescent 

Dunes project, California-based SolarReserve is now exporting the CSP technology used at the 

project to other global markets - including Chile and South Africa, where SolarReserve has been 

approved for a 100 MW plant. BrightSource, the original developer of the fvanpah CSP project, is 

also expanding its work to other nations. The company's solar field technology is being deployed at 

the world's tallest CSP tower now under construction in Israel. BrightSource also formed a joint 

venture with Shanghai Electric Group to sell its technology in China, and the JV's first project was 

one of20 chosen from 109 applications under China's 1.35 gigawatt CSP Pilot Program. 

11 https:/fenergy.gov/artides/energy·department-offers-conditional-commitment-first-advanc\.'d-fossil-energy-loan-guarantee 

12 https://wv..'w.energy.govllpo/atticles/mesquite-solar-highlights-ho\v-doe-loan-guarantecs-helped-launch-utility-scale-pv-solar 

l

3 h ttps :/I energy .gov/lpo/ artides/cclebrati n g-potent ial-energy -storage-techno logy 

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69 

c. There Are Several Emerging Areas of Need For LPO Support- b?frastructure In Particular 

Infrastructure has emerged as an area of both substantial national need and bipartisan support. There 

arc several areas where the DOE loan guarantee program could provide much needed investment in 

U.S. infrastructure and simultaneously support important technology innovation. Several examples 

follow. 

Electricity Transmission Projects: To date the LPO has provided support for one U.S. 

transmission project deploying advanced technology. DOE provided a $343 million Title XVII 

loan guarantee for the One Nevada Line that uses tubular guyed-V transmission towers with a 

much smaller footprint and easier and more cost-effective construction. 14 The LPO could do 

more to support much needed transmission development and the commercialization of advanced 

transmission technologies. New transmission is needed across the nation to upgrade current 

capacity and add new lines to move renewable generation from resource-rich areas to distant load 

centers. When he was govemor, DOE Secretary-designee Perry oversaw the nation's most 

successful development of new transmission capacity that helped Texas become the top wind 

energy producing state in the nation. 

Electricity Storage Projects: LPO has provided one Title XVII loan guarantee for an electricity 

storage project the Stephentown Spindle - a flywheel storage project in New York State. 15 

Electricity storage, especially long-duration utility-scale systems, is critically needed in our 

electrical system and there are an an·ay of technologies that could benefit from commercialization 

support, including thetmal systems, compressed air, advanced pump storage, and new battery 

technologies. 

Carbon Capture and Storage: As described above, LPO has provided one loan guarantee for a 

CCS project - a $2B Title XVII guarantee for the Lake Charles Methanol project, the world's 

first methanol production facility to employ CCS tcclmology. 16 The captured carbon would be 

used for enhanced oil recovery (EOR) in Texas. This project is the first loan guarantee made 

under LPO's $8 billion Advanced Fossil Energy Project solicitation. LPO has significant 

remaining authority to advance other CCS projects deploying advanced technologies. There are 

an array of proposed projects that could commercialize CCS in both power and industrial 

applications. One of those is the use of CCS iu natural gas-fired power plants. Exelon and Net 

Power are demonstrating one approach17 and DOE has recently funded another demonstration 

projece 8 but full-scale projects will be necessary to establish the commercial viability of the 

approach and suppmt mainstream project finance. There may also be opportunities to support 

C02 pipeline infrastructure related to a CCS project 

Advanced Nuclear Technology: LPO has provided one loan guarantee for a nuclear power plantthe Vogtle project in Georgia, as discussed above. There are an array of new nuclear technologies 

that could benefit from additional LPO support. To that end, in September 2016, DOE invited 

Terrestrial Energy Inc. to submit the second part of its application for a loan guarantee for an 

integrated molten salt reactor. 19 And earlier DOE provided a conditional $2B loan guarantee for a 

14 https://energy.gov/!po/one-nevada-line 15 https:/lenergy.gov/lpo/stephentown-spindle 

16 https://energy.gov/articles!energy-department-offers-conditional-commitment-first-advanced-fossil-energy-loan-guarantec 

17 https:l 1\\'W\\I.snLcom!interactiveX/ Article.aspx?cdid""'A-31571952-12589 18 http://W\vw.utilitydive.com/news!doe-a\vards-80m-for-first-1arge-scale-supercritical-co2-pllot-plant/428552/ 

19 http://\\'WW. forbe:..com/sites/rodadams/20 16/09/ 14/terrestlial-energys-advanced-nuclear-tcchnology-the-imsr-takcs-sevcml-stepsfor.vardi#6927c049733e 

II 
70 

uranium enrichment plant in ldaho.20 LPO has significant remaining authority to advance other 

nuclear projects deploying advanced tcclmologies. Principal among them could be the first U.S. 

small modular reactor project. 

Vehicle Charging and Fueling infrastructure: LPO recently announced that Title XVII loan 

guarantees could support the development of electric vehicle charging facilities as well as vehicle 

refueling infrastructure using hydrogen, liquefied natural gas (LNG), compressed natural gas 

(CNG), and biofuels. 21 

Advanced Transportation Vehicle Manufacturing: LPO has substantial remaining financing 

authority under the ATVM program. ATVM loans may be used to finance the cost of 

reequipping, expanding or establishing manufacturing facilities in the U.S. to produce advanced 

teclmology vehicles or qualifYing components. They can also be used for engineering integration 

in the U.S. of advanced vehicles or qualifYing components. To date LPO has provided financing 

for advanced vehicle projects focused on upgrading facilities to produce more fuel-efficient 

engines (e.g. for the t'ord F-150 truck), new battety production capacity, all-electric vehicle 

assembly, and powertrain and electric motor production. These kinds of investments, plus other 

technologies like "light-weighting" of auto components, could be helpful as our nation seeks to 

slow the loss of its domestic auto and auto parts manufacturing capacity to other countries and 

also stimulate growth in the competitive electric vehicle manufacturing business, where China is 

increasingly leading the world. 

V. Next Steps 

The new administration, in particular the new Secrctaty of Energy. will need to focus on next steps 

for the loan guarantee program, building on the successful work currently undetway at LPO. The 

likely trajectoty is to allocate the remaining funding to a set of projects reflecting the remaining 

balances, which are largely focused on advanced nuclear, fossil and transportation projects. Along 

the way, Congress, working with the president, might authorize additional LPO loan authority to 

advance critical energy and transportation technologies vital to both U.S. competitiveness and 

environmental goals. President Obama proposed this approach in his FY2017 budget, inclnding 

another $4 billion in new loan authority for advanced fossil, renewable energy and energy efficiency 

projects. 

Another option would be to transition existing loan authority from the LPO to an independent federal 

revolving fund. The LPO already has a successful program structure in place, including the needed 

staff and resources, to manage such a fund. This might be part of a larger independent federal entity 

with a broader set of tools, such as the Clean Energy Deployment Administration (CEDA), introduced 

in bipartisan legislation by then Senate Energy Committee Chair Jeff Bingaman (D-NM), with support 

from current committee chair Senator Lisa Murkowski (R -AK) 

CEDA would administer various types of credit instruments, such as loan guarantees, insurance 

products, and clean energy backed-bonds to accelerate private sector investment in the commercial 

deployment of new energy technologies. Initially funded with an appropriation of $10 billion, CEDA 

could become a self-sustaining entity based on "profit participation" mechanisms that would allow it 

take a financial stake in the projects it backs. This "evergreen" approach would distinguish it from 

:<l https://cnergy.gov/lpo/areva 

21 hups://v."Ww.energy.gov/lpo/electric-vehicles-and-altcmative-filel-vehicles 

12 
71 

the current LPO that cannot recycle repayment of loan principal and interest into new investments. 

Also, while CEDA would be established as an agency within DOE it would be under the direction of 

an administrator, a board of directors, and technical advisory council and would enjoy a degree of 

independence from what may be perceived as an administration's influence on its investment 

decisions. 

Conclusion 

The DOE loan guarantee program has a strong track record and a bright future, particularly helping 

to advance the current bipartisan interest in increasing investment in energy and transportationrelated inlhstructure. With more than $40 billion in remaining authority, the loan guarantee program, 

as administered by the highly professional DOE loan programs office, could do much to help 

commercialize advanced U.S. energy and transportation technologies in support of our nation's 

economy, environment and security. 

13 
72 

Dr. Ryan Yonk Summary of Testimony on Title XVII Programs 

Conceived as an idea to push financing towards underdeveloped clean energy 

technology to improve the environment, promote economic growth, and produce a more secure 

energy supply the Title XVII loan guarantee program has likely failed to meet these objectives. 

Instead, it has been used as a political tool, exposed taxpayers to unnecessary risk, diverted 

funding from alternative clean energy investments, and primarily benefitted large, politically 

connected corporations. 

Loan guarantee programs, offered both by governments and the private sector, are 

intended to close a fiduciary gap between burgeoning ideas and private investment. By 

promising to cover loan payments if a company fails, loan guarantors allow entrepreneurs easier 

access to private capital. Progenitors of government programs argue that private capital is too 

risk averse to properly finance whatever it is they seek to subsidize. 

Not all cases in which "promising" technology fails to secure private financing can be 

considered justification for government intervention. The inability of high-risk projects to get 

private backing is a feature of a free market system, not a bug. The market is generally good at 

making strategic, risk-conscious investments and research indicates loan guarantees indeed 

attract riskier investments and encourage mal-investment. 

Much of the funding from the programs goes to established corporations who should 

already have access to capital. The full ramifications of supporting mainly large corporations are 

rarely understood. It does not simply mean that large corporations make risky investments and 

leave taxpayers to pick up the tab. The fundamental problem is that the loan guarantee program 

makes it more difficult for new ideas to emerge since it further entrenches established ideas. 

Research on new energy technology has stalled at least in part because of government's 

involvement. Government support may make it easier for those who receive support, but it also 

makes it more difficult for new ideas to gain private funding and grow. The net result of loan 

guarantee programs is likely a loss in meaningful innovation. 

The primary take away from my analysis is that government's attempt to promote 

innovation have likely done exactly the opposite. In place of these programs government would 

do better to simply step out of the way of entrepreneurs and individuals. As the development of 

the technology industry demonstrates, allowing experimentation and markets to drive innovation 

is a promising avenue for improving the world. In contrast to policymakers propensity to want to 

plan for every contingency, permissionless innovation, an idea developed by the Adam Thierer, 

is more likely to provide the new ideas needed to solve energy and environmental issues. It 

calls for government officials to clear a path for entrepreneurial experimentation unfettered by 

precautionary regulation. 

A policy of permissionless innovation is more likely to find successful solutions to the 

pressing environmental and energy questions, such as the potential dangers from climate 

change and the health issues caused by pollution, than government bureaucrats choosing 

projects to fund based on political considerations. 
73 

Chairman WEBER. Thank you, Mr. Reicher. 

Dr. Yonk, you’re recognized for five minutes. 

TESTIMONY OF DR. RYAN YONK, 

ASSISTANT RESEARCH PROFESSOR, 

DEPARTMENT OF ECONOMICS AND FINANCE, 

AND RESEARCH DIRECTOR, 

INSTITUTE OF POLITICAL ECONOMY, 

UTAH STATE UNIVERSITY 

Dr. YONK. Mr. Chairman, Members of the Subcommittee, it’s my 

pleasure to speak with you this morning to share some of my 

thoughts and results of preliminary research we’ve done in the Institute of Political Economy at Utah State. 

To begin, the loan guarantee programs were conceived as an idea 

to push financing towards underdeveloped clean energy technology 

and to improve the environment, to promote economic growth, and 

to produce a more secure energy supply. However, the title 17 loan 

guarantee program has likely failed to meet these objectives and 

instead has been used as a political tool, diverted funding from alternative clean energy investments, and primarily benefited large 

politically connected corporations. 

Government loan guarantees programs present a number of policy difficulties, and the Department of Energy’s program is no exception. My testimony today and my full written testimony illustrate how the Department’s loan guarantee programs distort markets, misdirect funds, and fail to promote truly innovative technology. 

Loan guarantee programs offered by governments and the private sector are intended to close a fiduciary gap between burgeoning ideas and private investment. By promising to cover loan 

payments if a company fails, loan guarantors allow entrepreneurs 

easier access to private capital. And presenters of government programs in this area argue that private capital is too risk-adverse to 

properly finance whatever it is that they seek to subsidize. 

The loan guarantee program is well-intentioned, as most policy 

generally is, but its designers failed to consider a number of unseen 

effects. The Department of Energy’s program has deterred investment in other areas and made it more difficult for some to receive 

private investments, been used as a political tool, encouraged malinvestment, and primarily benefit established companies with access to—with pre-existing access to capital for research and development. 

Now, federal loan guarantees can only be said to serve a public 

benefit if they accomplish what we might call additionality, meaning the program must be offering loans to projects that would not 

otherwise have garnered funding in the open market. A program 

that extends government assistance to projects and companies that 

would have little trouble securing private financing accomplishes 

little, adds unnecessary administrative costs, and ultimately puts 

taxpayer money at risk. 

Some exploratory research on the additionality of loan guarantee 

programs for energy technology from both the Department of Energy and the Department of Agriculture have revealed poor 
74 

additionality. However, even if government loan guarantees managed to accomplish perfect additionality, this alone would not sufficient justification for the continuation of the program. 

Many conceive of loan guarantee programs as marginally shifting 

the risk calculus for private investment. Realistically, loan guarantees completely shift the entire calculation of private investors. Securing a government loan guarantee proves to be a highly political 

process, and private capital often follows public capital. 

Now, despite the appealing tenor of that statement, this unfortunately means that only the politically connected are funded. Most 

section 1705 funding has gone to large corporations who already 

have access to capital for investments in research development and 

deployment. And it’s here that the fundamental problem with this 

form of subsidy emerges because it makes it more difficult for new 

ideas to emerge and come to fruition as it further entrenches establishments. 

Government support, as the previous Chief Marketing Officer at 

Tesla motors complained, may make life easier for those who receive support, but it also makes it difficult for new ideas to gain 

private funding and grow. 

Loan guarantee programs, like any subsidy, move resources towards the subsidized good. A subsidy redirects private capital towards the subsidy because it changes the risk calculation investors 

go through. The subsidy distorts the market signals of profit and 

loss to appear as if the subsidized industries provide more value 

than they do. Political power and lobbying prowess, not the collective intelligence of all individuals in the market allocate the funding of these programs. 

My own analysis indicates that the unseen costs are greater than 

we often anticipate, and this position rests in large part on a 

counterfactual. How do you measure what did not happen? The 

question of what could have been, the opportunity cost of these 

loans, is a serious consideration, even if it is a difficult empirical 

one. 

Preliminary examinations of the Department of Energy and 

USDA’s programs have been discouraging. Though the entire literature pleads for more concerted research efforts, the political 

problems associated with the funding justify further skepticism towards section 1705 and section 1703, as do the very nature of the 

recipients of the guarantees. 

In place of these programs, government would do well to simply 

step out of the way of entrepreneurs and individuals. As the development of the technology industry demonstrates, allowing experimentation and markets to drive innovation is a promising avenue 

for improving the world. Government officials should clear a path 

for entrepreneurial experimentation unfettered by precautionary 

regulation and subsidization. A policy of permission-less innovation 

is more likely to find successful solutions to pressing environmental 

and energy questions such as climate change and pollution than 

government agencies choosing projects based on political considerations. Thank you. 

[The prepared statement of Dr. Yonk follows:] 
75 

Introduction 

Testimony to 

Joint Energy Subcommittee and Oversight Subcommittee 

by 

Ryan M. Yonk PhD, Utah State University 

Department of Economics and Finance 

3565 Old Main Hill Logan Utah 84321 

ryan.yonk@usu.edu 

Conceived as an idea to push financing towards underdeveloped clean energy 

technology to improve the environment, promote economic growth, and produce a more secure 

energy supply' the Title XVII loan guarantee program has likely failed to meet these objectives. 

Instead, it has been used as a political tool, exposed taxpayers to unnecessary risk, diverted 

funding from alternative clean energy investments, and primarily benefitted large, politically 

connected corporations. 

The loan guarantee programs supported under Title XVII in general aim to provide 

financing to projects that would otherwise be unable to secure funding in the private market. 

When governments initiate loan guarantee programs, they generally target fledgling companies 

or struggling industries. In contrast, the Department of Energy program targets specific 

technologies irrespective of the company investing in them. The Loan Programs Office (LPO) 

offers loan guarantees under authority granted in Title XVII of the Energy Policy Act of 2005 and 

expanded in the American Recovery and Reinvestment Act of 2009. Loan guarantees are 

currently available only under Section 1703, which funds high-risk clean energy technology. 

While the LPO still oversees loan guarantees made under the Section 1705 program (of 

Solyndra fame), that program that expired in 2011. 2 The latter program was more expansive and 

thus makes up the lion's share of the LPO's portfolio. 3 The LPO presides over a third program 

financing advanced vehicle technology, but that program utilizes direct loans rather than loan 

guarantees and will not be discussed in this testimony. 

Government loan guarantee programs present a number of policy difficulties and the 

Department of Energy's program is no exception. This testimony will illuminate how the 

Department's loan guarantee program distorts markets, misdirects funds, and fails to promote 

truly innovative technology. 

1 Federal Register. Loan Guarantees for Projects That Employ Innovative Technologies. 1 0 CFR Part 609. 

Vol. 74, No. 232. Pg. 63544. Retrieved from 

https://energy .gov/sites/prodlfiles/20 14/03/114/FR-1 7 03-Dec4. pdf 2 Brown, Phillip. 2012. "Loan Guarantees for Clean Energy Technologies: Goals, Concerns, and Policy 

Options". Congressional Research Service. Retrieved from: https://fas.org/sgp/crs/misc/R42152.pdf 3 Government Accountability Office. 2015. "DOE LOAN PROGRAMS: Current Estimated Net Costs Include 

$2.2 Billion in Credit Subsidy, Plus Administrative Expenses." Retrieved from 

http://www.gao.gov/assets/670/669847.pdf 
76 

Loan Guarantee Programs in General 

Loan guarantee programs, offered both by governments and the private sector, are 

intended to close a fiduciary gap between burgeoning ideas and private investment. By 

promising to cover loan payments if a company fails, loan guarantors allow entrepreneurs easier 

access to private capital. Progenitors of government programs argue that private capital is too 

risk averse to properly finance whatever it is they seek to subsidize. Credit guarantees in private 

agreements are used to mitigate risks when individuals are considering investments, but the 

lender is unsure of the borrower's ability to repay the loan4 

Not all cases in which "promising" technology fails to secure private financing can be 

considered justification for government intervention. The inability of high-risk projects to get 

private backing is a feature of a free market system, not a bug. The free market is generally 

good at making strategic, risk-conscious investments. Evidence from the Richmond Federal 

Reserve Bank indicates that loan guarantees indeed attract riskier investments and encourage 

entrepreneurs to overinvest.5 This is a classic moral hazard problem; when the costs of risks are 

removed without a corroborating reduction in reward, entrepreneurs will take risks more 

flagrantly. 6 The burden of proof lies with those who claim that private financiers are indeed 

failing particular markets. Even then, as the aforementioned Richmond Federal Reserve study 

concluded, grants, direct loans, or other public financing options might be superior. 

Some economists do argue that adverse selection among lenders, lender apprehension 

about particular technologies, industries, or geographical areas, or the existence of a credit 

crunch can all offer theoretical justification for loan guarantees. 7 Still others attest that clean 

energy technologies ought to be subsidized by the government because they provide social 

benefits in excess of what can be returned to lenders, prompting private markets to underinvest. 

While clean energy technology does not create any positive externalities per se, it does crowd 

out carbon-emitting sources of energy and therefore may counteract a negative externality. Of 

course, there are more direct and efficient ways of targeting the carbon problem, but subsidizing 

clean energy is often taken as a politically viable next best alternative. 

History and Background 

4 Henehan, Patrick. 2009. "Partial credit guarantees: Principles and practice." Journal of Financial Stability. 

6 (201 0) 1-9. 5 Li, Wenli. 1998. "Government Loan, Guarantee, and Grant Programs: An Evaluation." Economic Quarterly 

84 (1998) 25-51. 6 Vogel, Robert C., Dale W Adams. 1996. "The Benefits and Costs of Loan Guarantee Programs". The 

Financier. Vol. 4, No. 1 & 2. 22-29. Retrieved from: 

https:/lwww.microfinancegateway.org/sites/defaultlfiles/mfg-en-paper-the-benefits-and-costs-of-loan-guarant 

ee-programs-1996.pdf 

7 Henehan, Patrick. 2009. "Partial credit guarantees: Principles and practice." Journal of Financial Stability. 

6 (2010) 1-9. 

2 
77 

If there is one reason to be skeptical of loan guarantee programs in general, it is the 

paucity of conclusive academic research on their effectiveness. In my review of the academic 

literature it became glaringly obvious that there is still much important research to be performed 

on the questions of the loan guarantee program's effects, its costs and benefits, and best 

program design.' Data that is exact enough to make meaningful conclusions is difficult to 

collect. Studies are often too specific, meaning they examine one particular program and may 

not provide generalizable results, or too broad to have enough data to employ proper statistical 

analyses. This problem is further compounded by the many types of loan guarantee programs. 

Some provide funding for businesses to start-up, others guarantee business expansions, and in 

the program in question today, encourage the use of certain technologies. 

As illustrative examples, here is what preliminary economics research has said about 

some international forays into loan guarantees. A French program targeting new firms was said 

to have no impact on the total number of companies, to increase their average size, and 

significantly increase their risk of default.9 An investigation into a Malaysian small and medium 

sized enterprise program claims "there is sufficient evidence that the Scheme has failed to meet 

all [its] objectives.''10 

Policy Issues in the Loan Guarantee Program 

The loan guarantee program is well-intentioned, as most policy is, but its designers failed 

to fully consider many unseen effects. The Department of Energy's program has deterred 

investment in other areas and made it more difficult for some to receive private investments, 

been used as a political tool, encouraged malinvestment, and primarily benefitted established 

companies with plenty of preexisting access to capital for research and development. 

8 Bartik, Timothy, and Richard Bingham. 1995. Can Economic Development Programs be Evaluated? 

Upjohn Institute Staff Working Paper 29; Boocock, Grahame, and Mohd Noor Mohd Shariff. 2005. 

Measuring the Effectiveness of Credit Guarantee Schemes: Evidence from Malaysia. International Small 

Business Journal23, no. 4, Aug: 427-52; Cressy, Robert. 2002. FUNDING GAPS: A SYMPOSIUM. 

Economic Journal 112; Green, Anke. 2003. Credit Guarantee Schemes for Small Enterprises: An Effective 

Instrument to Promote Private Sector-Led Growth? UN I DO: SME Technical Working Paper: Vienna, 10; 

Levitsky, Jacob. 1997. CREDIT GUARANTEE Schemes for SMEs: An International Review. Small 

Enterprise Development 8, no. 2, June; O'Bryan Ill, William E. 2010. "An Analysis of Small Business Loan 

Guarantee Funds". Thesis. Retrieved from: 

http://digitalcommons.unl. edu/cgi/viewcontent.cgi?article= 1 003&context=arch _ crp _theses; Cowling, Marc 

and Peter Mitchell. 2003. "Is the Small Firms Loan Guarantee Scheme Hazardous for Banks or Helpful to 

Small Business?" Small Business Economics. 21: 63-71. 9 Lelarge, Claire, David Sraer, David Thesmar. 2010. "Entrepreneurship and Credit Constraints: Evidence 

from a French Loan Guarantee Program". Chapter from International Differences in Entrepreneurship. 

Lerner, Josh and Antoinette Schaar (ed). National Bureau of Economic Research (NBER). Retrieved from: 

http://www.nber.org/chapters/c8218 .pdf 10 Boocock, Grahame and Mohd Noor Mohd Shariff. 2005, August 1. "Measuring the Effectiveness of Credit 

Guarantee Schemes Evidence from Malaysia". International Small Business Journal. Retrieved from: 

https://doi.org/1 0. 1177/0266242605054054 

3 
78 

One key insight from policy analysis is that we must measure what matters. In the case 

of loan guarantee programs, simply because the program expands entrepreneurs' access to 

credit does not make the program a success. There are other important aspects that must be 

considered. Government action is not justified rnerely because there is a market failure. 

Government ought to act to fix market failures only when the net gains from resolving those 

problems, given the possibility of government failure, are positive. As Professor and governor of 

the Central Bank of Ireland Patrick Hanahan writes, "With many competing pressures for public 

funds, an economically coherent argument in favor of a subsidized credit guarantee system 

needs to go a lot further than the observation that such a scheme would increase availability of 

credit."" 

Federal loan guarantees can only be said to serve a public benefit if they accomplish 

what economists call additionality, meaning the program must be offering loans to projects that 

would not have otherwise garnered funding in the open market. A program that extends 

government assistance to projects and companies that would have no trouble securing private 

financing accomplishes little, adds unnecessary administrative costs, and puts taxpayer money 

at risk. 

Some exploratory research on the additionality of loan guarantee programs for energy 

technology from both the DOE and UDSA reveals poor additionality. 12 The early evidence 

suggests few loans are extended that would not otherwise be attained. Given the size and 

robust access to financing of many companies seeking Title XVII funding, which I will discuss 

momentarily, poor additionality should come as no surprise. 

Even if government loans managed to accomplish perfect additionality, this alone would 

not be sufficient justification for the continuation of a program. Many conceive of loan guarantee 

programs as marginally shifting the risk calculus for private investment. In other words, 

guarantees allow projects that would previously have been considered barely too risky to 

finance to get funding. Realistically, loan guarantees completely shift the entire calculation of 

private investors. Securing a government loan guarantee proves to be a highly political process. 

Private capital often follows public capital. Despite that statement's appealing tenor, this is not a 

positive outcome. It means only the politically connected are funded and the extent of that 

problem is compounded beyond the bare dollar value of the government program. 

The source of problems with government support for particular energy sources is that 

corporations and interest groups subvert the program to serve their private interests. Funding is 

11 Honohan, Patrick. 2009. "Partial credit guarantees: Principles and practice." Journal of Financial Stability 

6 (2010) 1-9. 12 Juchau, Chris and David Solan. 2014, April4. "Draft: Energy Technology Loan Guarantee Programs: The 

Search for Additionality in Support of Commercialization". Energy Policy Institute. Working Paper from 

WPSA 2014. Retrieved from: 

https:/lwpsa.research.pdx.edu/papers/docs!WPSA%202014%20-%20Energy%20Technology%20Loan%20 

Guarantee%20Programs.pdf 

4 
79 

allocated by political processes instead of the free choice of individuals who judge it to be a 

worthwhile investment. The fundamental problem at the heart of the Solyndra scandal, for 

example, was not that the business failed after securing a loan guarantee. After all, some failure 

will arise out of any loan guarantee program. Rather, the evidence that emerged following that 

failure demonstrated that Solyndra's path to securing a government loan guarantee had been 

dictated by political pressure, not market viability. As documented in a chapter of Nature 

Unbound, my book with two of my colleagues, Solyndra's application rushed through or even 

skipped critical oversight steps in order to reach approval before a California trip President 

Obama had planned. Even when failure was imminent, personnel at the Department of Energy 

urged even more funding to be pumped into Solyndra in an attempt to save face, despite 

warning from the OM8. 13 

The 2015 Inspector General's report on Solyndra confirmed that "the Department missed 

opportunities to detect and resolve indicators that portions of the data provided by Solyndra 

were unreliable" and that employees "felt tremendous pressure, in general, to process loan 

guarantee applications [ ... J based on the significant interest in the program from Department 

leadership, the Administration, Congress, and the applicants." 14 Solyndra shed light on this 

malfeasance, but political interference is a structural problem with loan guarantee programs, not 

merely the fault of a single public officer, agency, or administration. 

One point that is too often underemphasized is that this argument against government 

interference applies equally to subsidizing fossil fuels. When President Carter's administration 

pushed for energy independence it meant government support for coal companies along with 

the research funding for and promotion of renewables. 15 These are at least equally problematic, 

and considering their size, perhaps even moreso. 

Most Section 1705 funding has gone to large corporations who already have access to 

capital for investments in research, development, and deployment. Recipients of LPO 

guarantees include multiple Fortune 200 companies, utility companies, and multinationals. Many 

are wholly owned by yet larger companies. 16 The application process itself all but ensures that 

13 Yank, Ryan, Randy T Simmons, and Ken Sims. 2016. Nature Unbound: Bureaucracy vs. the 

Environment. Independent Institute. 14 U.S. Department of Energy Office of Inspector General. 2015, August 24. "The Department of Energy's 

Loan Guarantee to Solyndra, Inc.". OIG Case No. 11-0078-1. Retrieved from: 

https://energy .gov/sites/prod/files/20 15/08/f26/11-0078-l. pdf 15 Carter, Jimmy. 1977. "The President's Proposed Energy Policy." 18 April1977. Vital Speeches of the Day, 

Vol. XXXXIII, No. 14, May 1, 1977, pp. 418-420. Retrieved from: 

http://www.pbs.org/wgbh/americanexperience/features/primary-resources/carter-energy/; Carter, Jimmy. 

1977, April20. "National Energy Program Fact Sheet on the President's Program". Retrieved from: 

http://www.presidency.ucsb.edu/wsi?pid~7373 

16 de Rugy, Veronique. 2012. "Assessing the Department of Energy Loan Guarantee Program." Testimony 

Before the House Committee on Oversight and Government Reform. 

https:J/www.mercatus.org/publication/assessing-department-energy-loan-guarantee-program 

5 
80 

only large, established companies will be capable of participating in the program. Applicants can 

expect to pay between $150,000 and $400,000 in fees before even being considered. 17 

The full ramifications of supporting mainly large corporations are rarely understood. It 

does not simply mean that large corporations make risky investments and leave taxpayers to 

pick up the tab, but the fundamental problem is that it makes it more difficult for new ideas to 

emerge since it further entrenches established ideas. Research on new energy technology has 

stalled at least in part because of government's involvement. Government support, as a 

previous chief marketing officer at Tesla Motors complained, may make it easier for those who 

receive support, but it also makes it more difficult for new ideas to gain private funding and 

grow.'8 

Loan guarantee programs, like any subsidy, move resources towards the subsidized 

good. A subsidy redirects private capital towards the subsidy because it lowers the risk and 

changes the risk calculation investors go through. In general, the subsidized industries see 

growth and investment. The unsubsidized, however, see lower investment. The subsidy distorts 

the market signals of profit and loss to appear as if the subsidized industries provide more value 

than they do. 

The net result of loan guarantee programs is likely a loss in meaningful innovation. This 

is the fundamental problem with loan guarantees. Even if the additionality was 100 percent, the 

program employs poor methodology to pick those to subsidize. Political power and lobbying 

prowess, not the collective intelligence of all individuals in the market, allocate the funding of 

these programs. My analysis indicates that the unseen costs are much greater than anticipated. 

To some extent this position rests on a counterfactual--how do you measure what did not 

happen? The question of what could have been, the opportunity cost of these loans, is a serious 

consideration even if it is a difficult empirical one. 

Conclusion 

Preliminary examinations on the Department of Energy and USDA's programs have 

been discouraging, though the entire literature pleads for more concerted research efforts. The 

political problems associated with the funding justifY further skepticism towards Section 1705 

and Section 1703, as do the characterics of their recipients. 

The primary take away from my analysis is that government's attempt to promote 

innovation have likely done exactly the opposite. In place of these programs government would 

do better to simply step out of the way of entrepreneurs and individuals. As the development of 

the technology industry demonstrates, allowing experimentation and markets to drive innovation 

17 Loans Programs Office. n.d. "Title XVII Application Process". Department of Energy. Retrieved February 

3, 2017 from https://energy.gov/lpo/title-xvii-application-process 

'

8 Siry, Darryl. 2009. "In Role as Kingmaker, the Energy Department Stifles Innovation". Wired. Retrieved 

from: https://www.wired.com/2009/12/doe-loans-stifle-innovation/ 

6 
81 

is a promising avenue for improving the world. In contrast to policymakers propensity to want to 

plan for every contingency, permissionless innovation, an idea developed by the Adam Thierer, 

is more likely to provide the new ideas needed to solve energy and environmental issues. 19 It 

calls for government officials to clear a path for entrepreneurial experimentation unfettered by 

precautionary regulation. 

A policy of permissionless innovation is more likely to find successful solutions to the 

pressing environmental and energy questions, such as the potential dangers from climate 

change and the health issues caused by pollution, than government bureaucrats choosing 

projects to fund based on political considerations. 

19 Thierer, Adam. 2016, March 15. Permissionless Innovation: The Continuing Case for Comprehensive 

Technological Freedom. Mercatus Center. Retrieved from: 

https://wm;.mercatus.org/publication/permissionless-innovation-continuing-case-comprehensive-technologic 

al-freedom 

7 
82 

Ryan M Yonk is an Assistant Research Professor in the Department of Economics and 

Finance at Utah State University. His books include Green V. Green (with Randy Simmons and 

Brian Steed), Direct Democracy in the United States (with Shauna Reilly), Nature Unbound: 

Bureaucracy vs. the Environment (with Randy Simmons and Ken Sim), and a forthcoming 

booking Reality of American Energy (with Jordan Lofthouse and Megan Hansen). Dr. Yonk is 

the author of numerous academic journal articles and policy reports focused on the intersection 

of public policy, economics, and politics with particular interest in questions around energy and 

environmental policy. 

In his work he emphasizes the importance of understanding public policy using the tools of 

the public choice economist and political scientist. This work along with a strong interest 

in energy and environmental policy comprises much of his current research agenda. At the core 

his research explores how energy and environmental policy can be better crafted to achieve 

greater individual autonomy and prosperity. 

Dr. Yonk received his Ph.D. in political science from the Georgia State University in 2011. 

He was previously an assistant professor of political science at Southern Utah University, where 

he was also the director of the Institute for Policy Analysis. Also at Utah State University, he is 

the research director of the Institute of Political Economy. 
83 

Chairman WEBER. Thank you, Dr. Yonk. 

Heritage was actually mentioned earlier, a discussion of the Heritage Foundation about they were not recommending to do away 

with the loan program, and yet we have a Blueprint for Reform 

that they update every year, in 2017, ‘‘Mandate for Leadership’’ Series. And on page 51 they actually do recommend doing away with 

it. I want to submit this into the record, without objection. 

[The information appears in Appendix II] 

Chairman WEBER. And then furthermore, before I get going, I 

have a letter from the Mercatus Center, Veronique de Rugy, also 

a letter about the loan program I, too, want to submit into the 

record. Without objection, so ordered. 

[The information appears in Appendix II] 

Chairman WEBER. I now recognize myself for five minutes of 

questioning. 

Mr. Edwards, according to a report by the Mercatus Center that 

I just cited, 90 percent of the section 1705 loans went to subsidize 

lower-risk power plants backed by big companies, which actually 

had pretty good access to capital. These companies included Goldman Sachs, NextEra Energy, and General Electric. If these projects 

would have been built without government guarantees, why do you 

think that DOE would be wanting to subsidize them? And do you 

think this is just yet another form of corporate welfare? 

Mr. EDWARDS. It does seem to me that you can divide the section 

1703 and 1705 projects into two sort of pots. The great majority of 

them were subsidies for projects in my view would’ve gone ahead 

anyway because, as I said, 29 States now have these renewable 

purchasing requirements, mandates that are escalating and increasing over time. These projects were going to get built, and 

when federal subsidies were layered in, it just meant that the investors like Warren Buffett and others earned higher returns than 

otherwise. Then, there was a smaller group of other investments in 

the very risky projects like Solyndra and a few others that didn’t 

pan out and, you know, those didn’t have those sort of state subsidy backing. 

So I think in both cases federal intervention doesn’t make sense. 

I think the state government subsidized renewable so much now 

not only with the purchase requirements, with the tax credits, their 

own subsidies, federal subsidies are overkill. And I have in my testimony some discussion from The New York Times which looked at 

this and agreed that during the Obama years there really was 

overkill in subsidies. 

Chairman WEBER. Thank you. I want to follow up with you, Dr. 

Yonk. And I want to come back to something you said in your written testimony. The follow-up is that with all of these large companies applying for loan guarantees, what does that mean for the little guy, number one? What about a small business startup or one 

innovative entrepreneur? Do they have the resources to compete 

against the lobbying power of these big companies? What has been 

your findings? 

Dr. YONK. Yes, Mr. Chairman. I think you illustrate one of the 

problems with any sort of approach in this regard, and that is that 

precisely those—that entrepreneur in the garage with the crazy 

idea is—will never have access to these sort of loan guarantees. 
84 

What’s interesting is, as Mr. Reicher said, these are really about 

commercialization of projects moving from one phase to another, as 

opposed to actually spurring the innovation of new technology industries. And so it limits greatly the ability of those to do it, and 

we select on those that are already at a certain point and we make 

a continued bet on that same industry over time. 

Chairman WEBER. Thank you. You had made the comment that 

you can’t measure what has not happened and I was following in 

your testimony and I had actually written down what cannot be 

measured is if the private equity firms adopt a wait-and-see posture. They’re standing on the sidelines, and you’ll never know what 

they contemplated not doing if that’s not too many negatives, you 

know. And so I think you make a good point. 

So what does that mean, Dr. Yonk, for innovation in the energy 

market in practical terms? Don’t DOE guarantees to some companies discourage investment in others? Do you know of examples? 

Dr. YONK. Yes, Mr. Chairman. There are two sort of—let me take 

the first question and then apply it to the second, and that is what 

I believe happens in these regards is, as individuals are making 

these private risk calculations, as hedge funds or wherever are, 

they now incorporate the probability of a loan guarantee being 

brought into it and they seek to mitigate risk on their own side by 

following the loan guarantee or the issuance of a loan by government. And as a result, we end up primarily betting on—because 

this again is a commercialization issue, we end up betting on technologies that are attempting to make the transition into full-scale 

commercial size, as opposed to spurring the innovation at the 

smaller scale. 

And so what I believe happens—and this is where the counterfactual comes in—is that we end up seeing that there is a flight 

towards pre-existing alternatives as opposed to what might be 

termed the crazier ideas that in large part if you read the background on these loan guarantees, it was meant to do risky things. 

So we talk a lot about the risk profile. I hear the risk profile of 

this if it was meant to fund risky technologies of a two percent loss 

rate, that’s not encouraging to me if the goal was in fact to be spurring the riskier side of innovation. 

Chairman WEBER. Thank you. I’ve got about a minute left. Actually, I’m down to 11 seconds. So I tell you what, I’m going to stop 

there and I’m going to recognize the Ranking Member for five minutes, Mr. Veasey. 

Mr. VEASEY. Thank you, Mr. Chairman. And before I go into my 

questions, I just want to be clear. And I’m not going to submit a 

report for the record—that I specifically referenced the Blueprint 

for Balance while the Chairman specifically referenced the Blueprint for Reform, so two different reports there that were referenced but just wanted to clarify that. 

And this question is government role for Mr. Reicher. Mr. 

Reicher, some would argue that the government shouldn’t have a 

role in issuing loan guarantees or direct loans to companies, but 

this perspective ignores a long history of success that loan guarantees have shown not just in the energy sector but also the housing 

market, agriculture market, and many other industries. How would 
85 

you respond to the assertions we’ve heard today that the government should have no role in this space at all? 

Mr. REICHER. Thank you, Mr. Veasey. The government has had 

a very long role in commercializing energy technology and in providing finance, both loans, loan guarantees, grants. I would argue 

that we would not have seen the development of commercial power 

if the government in the 1950s in the Eisenhower Administration 

had not paid for the development of the early plans, could have 

been delayed, could have been stillborn if there was an accident. 

The private sector was not in a position to put its own private capital into those early nuclear power plants. 

The government participated with private entrepreneurs in the 

development of fracking. Government put in grants, the government put in tax credits, the government provided technologies in 

collaboration with the private sector, and from that, in 2006, we 

saw this technology take off. 

Carbon capture is another example. We would not have seen the 

development of carbon capture to the point that it’s reached—still 

a long way to go—had the government not started putting federal 

dollars into this technology in 1997. 

So the government has a long role of commercializing energy 

technology, and I think all this is doing is putting it in a smarter 

form. Remember, these are loans. They have to be paid back. These 

are not grants, which has been the more traditional form of government support. 

Mr. VEASEY. When you start talking about us being able to lessen our dependency from petro-dictators around the world, one of 

the things that has lessened our ability to depend upon those 

petro-dictators have been the advent of renewable energies. And in 

your opinion, would the utility-scale solar industry exists as it does 

today without DOE’s loan programs? 

Mr. REICHER. So let’s remember where we were in 2008, 2009, 

2010. We were in the depths of the financial crisis. It was not easy. 

In fact, for most companies it was next to impossible to go out and 

get a loan for an energy project. That’s number one. They were also 

deploying utility-scale solar. We had never built a solar project in 

this country that was 100 megawatts or bigger. Scaling up energy 

technology is really tough. It’s very risky. 

Those two things together meant that most banks, most bond 

issuers said we don’t either have the money or your project is too 

risky. The federal government stepped in with its congressionally 

authorized loan guarantees and said we’re going to back the first 

few projects. Remember, these are just the first few projects, number one, number two, number three, not 30, 40, or 50. The private 

sector followed from there and the photovoltaic project market has 

exploded. 

Mr. VEASEY. Again, us being able to lessen our dependency upon 

foreign oil by investing in our own energy, clean energy sectors 

here, but startup money is a big problem. IT startup companies 

have low capital costs. They are attractive options for venture capitalists, but my understanding is that energy investments take 

much longer to pay back and are much riskier. In your expert opinion, how do energy sector investments compare to other sectors, 

whether it be information technology, health care, or retail? 
86 

Mr. REICHER. Mr. Veasey, Mr. Chairman, I have to say I spent 

several years at Google, and it was fascinating to watch the difference between investing in information technology, software technology, and investing in energy hardware, extraordinarily different. 

With information technology, software engineers sit down. It’s often 

for a few months. They develop a new product, and in simple 

terms, they push a button and it’s deployed. They make adjustments to it over time, low cost, relatively quick. 

In comparison, developing a piece of energy hardware, you don’t 

measure things in months. You don’t even measure things in years. 

You often measure them in decades. I’ll show you any number of 

technologies—you know them well—where it’s taken 10, 20, 30, 40, 

50 years to get energy technology to full scale. And you don’t measure this in billions—I’m sorry in millions. You measure it in billions or tens of billions, completely different. And that’s why these 

loan guarantees make great sense. 

Mr. VEASEY. Thank you, Mr. Reicher. Thank you, Mr. Chairman. 

Chairman WEBER. I now recognize Chairman LaHood. 

Mr. LAHOOD. Thank you, Mr. Chairman. And I want to thank 

the witnesses for being here today and your valuable testimony. 

And in looking at the DOE loan guarantee program, I guess I’ve 

tried to objectively look at the program and the 28 projects that are 

part of this loan guarantee program. And as I look at those 

projects, many of them have value. There are innovative. They 

present opportunities. They have great people involved with them. 

And so figuring out what role the federal government plays with 

those projects and in looking at that, when we think from a public 

policy standpoint what role we should play in that or government 

should play in that and two questions that come up, does the loan 

guarantee program artificially change or alter the marketplace by 

having this in place? And does it dis-incentivize competition in this 

area? 

And I know, Mr. Reicher, you talked about the role the federal 

government has played and, you know, I guess when I look at 

2017, you know, if we were $20 trillion of surplus, you know, figuring out where to spend money, you know, these 28 projects would 

be probably great examples of where to spend money. But the reality is we are $20 trillion in debt in this country, and that’s different from the 1950s where, you know, it was a much different 

country we lived in. 

In 2017 the technology marketplace in this country is thriving. 

We lead the world in innovation. As was mentioned earlier, there’s 

a lot of cash in this country that people are sitting on waiting to 

invest. Angel investors were mentioned earlier. 

So figuring out that role of how the federal government plays a 

role in this program and that’s really objectively what I’ve looked 

at here. And it seems to me that the role of the federal government 

we always got to keep in mind the fact that we’re in debt, and 

that’s a problem in this country. And then also looking at the marketplace. 

And I guess, Ms. Katz, what I would ask you is when, and you 

mention this in your opening statement, we look at government financing, it seems as if government financing is divorced from profit 

motive. Can you elaborate on that challenge and also on my state-
87 

ments about those two questions on whether we’re de-incentivizing 

competition? 

Ms. KATZ. The profit motive requires that you have skin in the 

game, that is, that you’re driven to do well by the potential for a 

good return. In government funding programs, there is no personal 

stake. There is no skin in the game in terms of a financial incentive, and therefore, the criteria for investing money is looser, the 

demands for, you know, the type of performance is looser, and I 

think those things tend to prop up enterprises that tend to be 

weaker. And then the more of those we have, you know, the weaker 

the economy becomes. 

And given this—the extent to which the federal government is 

now providing credit across the economy, you know, not just DOE 

but, you know, $18 trillion in exposure economy-wide, that’s very 

troubling to me in terms of the loss of the incentives that are going 

to make our companies the strongest and are going to make them 

the most competitive. 

In terms of your comment about the effect on competition and innovation, absolutely, you know, when government is financing certain programs, the private financing tends to follow that because 

that’s where the incentives are and that’s where the, you know, rewards tend to be and that’s where the regulatory action is also 

going to occur. And so there’s a lot of, you know, interest in following that. 

And that—you know, we can say on the balance sheet that these 

programs have a rate of return that’s positive. We can say they 

have default rates, but that’s only half the equation. The other side 

of the book is all of the distortions that these programs cause, 

among them, loss of competition and innovation, and the competitive disadvantage that this creates for all the companies that aren’t 

lucky enough to get this largesse. 

Mr. REICHER. Mr. LaHood, could I give a quick answer? 

Mr. LAHOOD. I’m out of time. Mr. Chairman? 

Chairman WEBER. Sure, I think we’ve got some extra time. Go 

ahead. 

Mr. REICHER. I’ll be quick. You mentioned the deficit, the debt. 

Just I want to emphasize these are loans, not grants. They’re getting repaid and they’re getting repaid with interest. That’s a very 

different measure I would assert. 

The second thing you mentioned about U.S. leadership in energy 

technology, as much as I’d like to agree, in many ways our dominance in energy technology is very much being challenged by the 

Chinese. They have a very well organized effort, very well-funded 

across a whole range of energy technologies. We no longer lead in 

wind or solar. They are far ahead of us in many aspects of nuclear 

and various types of turbines and coal-related technology. 

So, Mr. LaHood, I would not assume that we’re in great shape when it comes to this $48 trillion opportunity we’ve got in energy 

infrastructure investing over the next 20 years. We are not leading 

in many respects, and programs like this can really help. 

Chairman WEBER. All right. I thank you, Mr. LaHood, for yielding back. 

And I believe that we’re going to go to Mr. Foster now. 

Mr. FOSTER. Thank you, Mr. Chairman. 
88 

Several of you have mentioned and referred to the DOE loan programs, which are the subject of this hearing, as a subsidy. And I 

was wondering how is it that a subsidy makes money for the taxpayer? That has me a little confused. Is there anyone wants to try 

answering that? 

Ms. KATZ. Sure. 

Mr. FOSTER. We need more of—— 

Ms. KATZ. So—— 

Mr. FOSTER. —those subsidies, it seems. It could take—— 

Ms. KATZ. Right. 

Mr. FOSTER. —the debt down to zero with enough of these. 

Ms. KATZ. So because there’s virtually no chance that the government will not cover a loss, federal credit is provided in more favorable terms. Even if the recipient still continues to pay fees or interest, it’s at a more advantageous rate than they would otherwise get 

in the private financing sector because the—— 

Mr. FOSTER. I understand it’s a good deal for the recipient of the 

loan, but it’s also a good deal for the taxpayer, so it seems like 

this—— 

Ms. KATZ. Well, it—— 

Mr. FOSTER. —is a win-win. 

Ms. KATZ. It’s only a good deal for the taxpayers if you ignore 

all of the distortions and costs that are created—— 

Mr. FOSTER. Well, these distortions you hypothesize are pretty 

hard to calculate and, you know, we have—anyway. So your argument relies totally on these hypothesized distortions and the hypothesized economic damage that they do—— 

Ms. KATZ. No. 

Mr. FOSTER. —is that correct? 

Ms. KATZ. No, it’s not. 

Mr. FOSTER. All right. Then how does the taxpayer not benefit 

from these? Would the federal debt be higher or lower if this—if 

these projects would not have existed? 

Ms. KATZ. It—that’s—I don’t know. 

Mr. FOSTER. I think it’s a pretty easy—— 

Ms. KATZ. It’s not such an easy equation. 

Mr. FOSTER. Mr. Reicher? 

Mr. REICHER. Their interest payments exceed the losses. It’s hard 

to see how this isn’t a net positive. Another—— 

Mr. EDWARDS. The issue is the broader one of opportunity constant in the economy. If resources are being steered into companies 

and technologies that are not the best for the overall economy, then 

we’ve wasted resources, so the issue is not just taxpayer resources 

but the crowding out that occurs in the private sector. If you have 

a big DOE loan office that is acting as a venture capitalist, they’re 

drawing some of the best minds from Silicon Valley to come here 

to Washington to steer flows of money when I would rather those 

minds in Silicon Valley steering money. That’s crowding out—— 

Mr. FOSTER. Well, this is really actually my second question 

here, which is, you know, I’m struck by the lower—the very low default rate, lower than a typical VC. And so I was wondering how 

is it that these federal bureaucrats—excuse me, these unelected 

federal bureaucrats seem to be making loan-making decisions that 

are better than free-market investors? And I—— 
89 

Mr. EDWARDS. Well, the answer is and I think I touched on in 

my testimony, the vast majority of these projects, as has been mentioned, have gone to wind and solar projects that have been heavily 

subsidized by state government. State governments, particularly 

California, have very large and increasing—— 

Mr. FOSTER. But those subsidies would be—— 

Mr. EDWARDS. —mandates, requirements, so these projects would 

have been built anyway I think without federal subsidies because 

there’s state-level mandates for them. 

Ms. KATZ. I also think that it reflects—— 

Mr. FOSTER. Just a minute. 

Ms. KATZ. —the fact that these—— 

Mr. FOSTER. But the state-level subsidies are—would be available to either a free market investor or one of these—— 

Ms. KATZ. No. 

Mr. FOSTER. Is that true, Mr. Reicher? 

Mr. REICHER. Absolutely. The subsidies at the state level don’t 

distinguish between a project that’s gotten some federal support 

and projects that haven’t. 

Mr. FOSTER. Sure. 

Ms. KATZ. Right, but not every company is going to be allowed 

to benefit from state subsidies. They’re not available to all. 

Mr. REICHER. You qualify for the state subsidy, you get the state 

subsidy. If you can also get some help from the federal government—again, this happens across the whole range of energy technologies. 

Ms. KATZ. When Tesla Motors negotiates tax abatements or other 

benefits with a state, that’s not a deal that’s available to every 

company. 

Mr. REICHER. It happens—let me let Mr. Foster go ahead. 

Mr. FOSTER. Yes. I was a little bit confused, Dr. Yonk. You seem 

to be criticizing the fact that there was a low loss rate on this at 

the end of your testimony, and I—it confused—is there a consensus 

whether a high loss rate is a good thing or a bad thing and whether low loss—I’m just—I couldn’t follow that logic there. 

Dr. YONK. Yes, so let me walk you through the logic, Mr. Foster, 

because I think it’s actually an important policy question here. If 

the goal was in fact to provide loan guarantees to what was termed 

as risky technologies that truly would see—that were—that the private market was not willing to bear the risk of, we would expect 

to see higher—— 

Mr. FOSTER. But you’re advocating for more Solyndra-type investments. 

Dr. YONK. Only if that is the actual goal of the policy. I think 

that’s an ill-advised policy given what can happen in the larger 

economy. 

Mr. FOSTER. Okay. Let’s see. I was also struck in your testimony 

that you seem to buy into this legend, I guess, that somehow the 

high-tech industry Silicon Valley started was a bunch of entrepreneurs by themselves whereas in fact if you look at the history, 

they were completely dependent on getting federal defense contracts, NASA contracts, and so on and that the history of that was 

completely dependent on government investment. 
90 

And so I think that really we should all, you know, study history 

a little bit and understand how effective strategic government investments are in getting our economy heading in directions that 

will pay off massively in the future. 

And I believe my time is—and I have to yield back at this point. 

Chairman WEBER. Thank you, Mr. Foster. 

The Chair recognizes Mr. Posey from Florida. 

Mr. POSEY. Thank you very much, Mr. Chairman. Mr. Katz and 

Mr. Edwards, how do you measure accountability for government 

funding in the Department of Energy loan guarantee program? Mr. 

Katz first. 

Ms. KATZ. I don’t know that it is being—— 

Mr. POSEY. Ms. Katz. 

Ms. KATZ. —you know, measured. I can tell you that, you know, 

there are rules for setting program goals and, you know, at the end 

of the year the Department looks at whether it’s succeeded. And— 

but most of those are measured in terms of inputs not in terms of, 

you know, that so many dollars were spent as opposed to what 

the—you know, the actual success of the program was. 

And this follows on the earlier discussion, which is, you know, 

it—to assume that these projects wouldn’t have happened anyway 

or this Silicon Valley, you know, development wouldn’t have happened without government I think is a conceit. I think we’ve seen 

that, you know, there are many great developments and innovation 

throughout the—you know, the history of the world that have occurred without the government subsidizing them. 

Mr. POSEY. Well, I appreciate your comments. So often government accountability to some people is how much we spend, not 

what actually gets accomplished. And I’m glad to see that the focus 

is on accomplishments. 

Mr. Edwards? 

Mr. EDWARDS. Yes, I mean, you know, it’s the role of this Oversight Committee obviously, and it seems like this Oversight Committee has done a good job. It strikes me that the Republican scrutiny on some of these projects that the Obama Administration 

started dishing out in 2009, the scrutiny has been good because it 

seems to me that the Obama Administration started steering the 

money to safer projects like the ones that had the state purchasing 

requirements for them in order to get the loan losses down because 

they made these initial screw-ups with companies like Solyndra. 

So—and obviously the GAO and the IGs do a fantastic job on this 

account. 

That’s—those are all accounting issues. I think the bigger issues 

are the economic ones. Would the private sector steer money into 

the most innovative and most efficient energy technologies, and I 

think the answer is yes without any kind of federal subsidy. 

Mr. POSEY. Okay. Have either of you read any of Peter 

Schweizer’s books? Extortion, throw them all out, great, great literature on government accountability or lack thereof and crony 

capitalism. You know, Solyndra gets mentioned quite often, but it 

was a relatively small potato in a bag full of litanies of much bigger 

ones that for one reason or another the media seemed to never 

think was important. 
91 

As a follow-up, do you think there is a reasonable amount of upfront investment before taxpayers can expect returns? 

Mr. EDWARDS. Again, I think—I mean, I don’t think this is the 

role—you know, taxpayers should not be investing in these sorts of 

projects. It’s been mentioned a couple times by Mr. Reicher that— 

you know, that there’s gaps in private markets here that the government has to fill. I just don’t buy it. I’ve looked at the history 

of R&D and industrial R&D in the U.S. economy and looked at the 

history of inventions. The vast majority of advances and innovations have come from the private sector without federal subsidies. 

Computers and, you know, Xerox machines and cell phones and 

smart phones, that was all private risk capital, private entrepreneurs, investors, and Silicon Valley putting their money into 

these projects. 

The energy industry, I don’t believe, is any different than any 

other risky industry, and the—I don’t believe that these so-called 

gaps exist in private financing. Entrepreneurs can do it. They’ve 

shown that they’re willing to invest in all kinds of risky and new 

technologies, including energy technologies, so we should leave the 

field to them, I think. 

Ms. KATZ. Just as a quick follow on, you know, I’m—I don’t buy 

the idea that DOE is funding, you know, the most innovative and 

riskiest, but if they were, then it raises the question if private investors are not willing to take a risk on a particular project, why 

should taxpayers have to underwrite that? 

Mr. POSEY. Well, you know—— 

Mr. REICHER. Mr. Posey, if I could, I just want to emphasize 

again we’re talking about energy technology that has huge scaleup costs. We’re not talking about computers—— 

Mr. POSEY. Yes. 

Mr. REICHER. —or cell phones and the like. And the history is 

there. The nuclear power industry got launched in the 1950s with 

major checks being written by the federal government—— 

Mr. POSEY. My time’s up. I just want to make one comment. We 

had some employment downturn in our district and we decided to 

host an entrepreneurs summit, so we took some local ideas and had 

a summit and invited a few angel investors to attend and analyze 

the projects. And I think there was surprising amount of action on 

some funding there. We did several of them and we eventually had, 

you know, a long list, more than we could accommodate people who 

had wanted to invest in these new ideas and these new products 

that people had, and even in dire economic times, investors are interested in making investments in things that seem plausible and 

have potential to show return on them. 

So I appreciate your comments very much. Thank you, Mr. 

Chairman. I see my time is up. 

Chairman WEBER. I thank the gentleman from Florida. 

The gentleman from Virginia—— 

Mr. BEYER. Virginia. 

Chairman WEBER. —Mr. Beyer, is recognized. 

Mr. BEYER. Thank you, Mr. Chairman, very much. Mr. Chairman, I’d like to begin by saying I appreciate the need to title these 

hearings with cool names like ‘‘Making the EPA Great Again’’ and 

‘‘Risky Business,’’ but I fear that we’re going to go down the road 
92 

of Top Gun and Mission Impossible and Jerry Maguire, so I’d like 

to move that we don’t name any more after Tom Cruise movies. 

Chairman WEBER. I notice you left your six-shooter in your locker, so we won’t name any after Tom Cruise movies. So ordered. 

Mr. BEYER. Okay. Thank you, Mr. Chairman. Also, we talked 

earlier about GAO mismanagement in this program, and we had a 

hearing on this a year ago and one of the—and we had a GAO representative at that point who pointed out that only 16 of the 24 

GAO recommendations for the loan program had been fulfilled, but 

I’ve discovered this morning that all 24 are now fulfilled. So many 

of the problems that we’re talking about are historical rather than 

current. 

The—I also would like to speak to this as a small-business person, and I guess I’ve borrowed more money than any of our panelists—that it’s hard to borrow money as a small-business person. 

It—we have—what I’ve learned in 43 years of running a family 

business is that banks only want to lend money to people that don’t 

need it. If you need it, it’s very, very hard to get it, which is one 

of the reasons why there’s $50 trillion in private equity sitting on 

the sidelines right now. 

So to you, Mr. Reicher, is the industry marketplace actually free 

and does government money actually crowd out the private investment? 

Mr. REICHER. I would say that we don’t have a free market for 

energy. You know, there’s been talk about eliminating all subsidies 

at the federal level. I think that’s highly unlikely. And even if we 

did, that market is very much determined in many ways by the 50 

state Public Utility Commissions that have an awful lot to say 

about how the energy markets and the electricity markets work. 

Are we crowding out other companies or other technologies? I 

don’t think so. This is a limited program, the loan guarantee program, that’s focused on getting the first couple of big projects built 

to demonstrate a technology. 

Let me say this. In many of these cases, the project developers, 

often thinly capitalized project developers, often small businesses, 

if they could get a loan from a bank or if they could float a bond, 

they would love to do it. Interest rates are low right now. It’s much 

easier. It’s not painful like having to go to the DOE and getting reviewed for a couple of years, having to do an environmental impact 

statement, having to pay a credit subsidy, loan spread. That’s 

tough stuff. If they could do it in the normal way, they would do 

it. And I’ve talked to many developers. I was a developer myself. 

These are painful processes going to the Department of Energy, but 

sometimes you can’t get the project done. 

Mr. BEYER. Are you suggesting the federal government works 

slowly? 

Mr. REICHER. I would never suggest such a thing. 

Mr. BEYER. Would it even be possible for the Department to 

manage a federal research grant program without picking winners 

and losers? 

Mr. REICHER. Listen, I was Assistant Secretary for Energy, for 

Energy Efficiency, and Renewable Energy. We had a $1.2 billion 

budget then. We were always being asked to pick winners and losers. We had competitive processes. The Competition in Contracting 
93 

Act told us we had to do it this way. That’s what the federal government does, and that’s what it often should be doing with taxpayer dollars. So I don’t understand this argument about picking 

winners and losers. If you’re Boeing competing with Lockheed for 

a jet contract, you know the government is picking winners and 

losers. 

Mr. BEYER. When President Trump affects the economic prospects of American companies by tweeting about Nordstrom’s or 

Toyota or Vanity Fair or Carrier, is that an example of the federal 

government picking winners or losers? 

Mr. REICHER. I’ll leave that up to the august members of this 

committee to decide. 

Mr. BEYER. I was fascinated by Mrs.—Ms. Katz’s testimony, especially the—and I very much respect sort of the deep philosophical 

notion that we have this $18 trillion of federal loan guarantees, 

that it has all kinds of pernicious effects. 

But, Mr. Reicher, what’s the—what would the U.S. economy look 

like without the FDIC and the—which would keep from the bank 

runs in the Great Recession or without Freddie Mac and Fannie 

Mae and the ownership society that George W. Bush pushed so 

hard or TARP so you wouldn’t have General Motors or Chrysler, 

States that Donald Trump won pretty easily, or Homeland security’s disaster assistance or the Veteran’s Housing Benefit Program 

Fund for veterans or business loans to the Small Business Administration or to move from federal loans to the $470 billion in oil and 

gas subsidies? 

Mr. REICHER. Very quickly—— 

Mr. BEYER. What’s the economy look like without that $18 trillion. 

Mr. REICHER. I wouldn’t have been able to buy a home, let me 

say that. But I want to make one more really important point that 

I think we have to emphasize at this hearing. Let’s look forward. 

We seem to be looking backwards. There’s $41 billion worth of loan 

guarantee authority for nuclear, for fossil, for renewables, and for 

transportation. We could turn this into infrastructure investing, 

which seems to be the great focus, Republican and Democrat, on 

the Hill right now. This is an existing down payment we can make 

on the infrastructure hope that a lot of people have up here on 

Capitol Hill. So let’s look forward at what we’ve got, and let’s figure 

out how to spend it well. 

Mr. BEYER. Great. Thank you very much. 

Mr. Chair, I yield back. 

Chairman WEBER. Thank you, sir. The Chair now recognizes Mr. 

Dunn for five minutes. 

Mr. DUNN. Thank you, Mr. Chairman. I want to say also thank 

you for the opportunity to serve on this committee. It’s a great 

pleasure and it really plucks at my heartstrings so I’m delighted 

to be here. 

So I actually am the Chairman of a bank back home. This is a 

community bank. And I want you to know that I have been intimately involved in buying failed banks in that capacity. Now, that 

involves reviewing and underwriting a great many failed loans, 

toxic loans if you will. And as I reviewed the Department of Energy’s loan portfolio for today’s committee meeting, I find myself in 
94 

familiar territory. There’s a lot of loans in here that are highly, 

highly questionable, and I think you would find frankly very few 

private bankers would actually have made loans on the terms that 

they were made to companies like Solyndra, Beacon, Fisker, VPG, 

and some of the others there. I didn’t make my way through the 

entire loan portfolio last night. Valentine’s Day. 

So this costs the taxpayers hundreds of millions of dollars, and 

I feel like DOE should actually re-examine themselves and say are 

they comfortable in the role of being a banker. They apparently 

have very few staff with any experience in corporate lending. 

I want to call attention to a couple things and ask a question. 

So first off, the actual loan loss ratio. I’ve heard people say that 

this is a two percent loan loss ratio. The government allowed $10 

billion for losses, so that’s the asset that you’re measuring against. 

And the loan loss is actually about 8.1 percent if you believe the 

$810 million is all we lost. I would argue that that’s a low number 

for a number of reasons. 

I also heard that the interest paid back—the loans that went 

bad—I would remind everyone that interest income does not equal 

profit. 

I would like to also underscore the comments Mr. Edwards made 

on the successful back end of the loan portfolio where they’re being 

paid off. Most of those loans already enjoyed a government guarantee in the form of purchasing the energy that was being put out. 

So we had a company that was guaranteed success if you will on 

the back end and we gave them another guarantee, in fact, a loan 

at a low rate on the front end. So I’m not sure that that should 

count as you pointed out. 

Now, this is my first committee meeting on this very fascinating, 

important subject that’s near to my heart, but I would look forward 

in the future to actually seeing a full profit and loss on this just 

the way a bank would publish a profit-and-loss statement. And we 

do that on pretty much a monthly basis. If we don’t, the FDIC 

comes after us. 

Mr. Edwards, I want to ask you, do you believe that the Department of Energy prospectively put in place the kind of lending structures that would properly and soundly administer billions of dollars 

in loans and serve the public in a transparent fashion? 

Mr. EDWARDS. Well, it certainly wasn’t transparent, and I think 

as this committee has investigated in past hearings, that initially 

there were not the proper checks and balances in place for a lot of 

these loans. The expertise wasn’t there and the GAO heavily criticized these programs. And it does seem that over time that DOE 

has improved at administering these programs because of all the 

scrutiny, particularly by this committee. 

But again, I think the bigger issues are the broader economic 

issues. Is there really a gap here that the federal government has 

to fill? And I think the answer is no. There are a trillion dollars— 

trillions of dollars available for private investment. If we did overall a general tax reform as House Republicans want to do, there 

would be trillions more for all kinds of innovative infrastructure 

and other types of investment in the U.S. economy, and we 

wouldn’t be worrying about small programs like this. 

Mr. DUNN. Thank you very much, Mr. Chairman. I yield back. 
95 

Mr. REICHER. Mr. Dunn, could I respond for one second? 

Chairman WEBER. You have—I’ll give you two seconds. 

Mr. REICHER. All right. Very few private bankers—— 

Chairman WEBER. Thank you very much. No, go ahead. 

Mr. REICHER. You say very few private bankers would have 

made these loans. That’s exactly why this program existed, particularly in the depths of the recession, number one. 

There is a group of highly professional staff at DOE with finance 

background. And third, I guess I do the math. It’s $810 million on $36 billion—— 

Mr. DUNN. I think you’ve got the wrong denominator. The de- nominator was $10 billion. That’s how much was placed at risk of 

the taxpayers’ money. 

Mr. REICHER. I’m doing the calculation based on the loss to date. 

You—fair enough, you can do it either way, but—— 

Mr. DUNN. Well, you do a profit and loss on the same—let’s run 

it like a business, you know? And I could tell you it’s not being run 

like a business. 

Chairman WEBER. If you all want to talk offline, we’d—— 

Mr. REICHER. Thank you, Mr. Chairman. 

Chairman WEBER. Yes, appreciate that. 

The gentleman from Colorado is recognized. 

Mr. PERLMUTTER. Thanks, Mr. Chairman. 

And, Mr. Reicher, I just appreciate your comments. And I think 

one of the things that’s gone unstated is the fact that many of 

these loans were to the renewable industry because of fear that our 

climate is just getting worse and worse and worse and we’ve got 

to do something about it. So I appreciate Ms. Katz, Mr. Edwards, 

your comments, wait a second, this is kind of political. Well, sometimes it’s policy and—you know, and policy can be politics. I got it. 

And I worry about the climate so let’s just put that aside. Mr. Reicher has testified as to, you know, making some $900 million when you net it all out. That seems to be a positive to me, but 

maybe there are some opportunity costs that aren’t being considered or maybe there are some benefits to the climate that you may 

not be considering, Mr. Edwards. So, I mean, there’s a lot of stuff 

going on here. 

But for me, the two percent loss ratio—I don’t know how many 

of you have been in the lending business, but I represented lenders 

for 25 years. They would have loved to have two percent loss ratio. 

Having said all of this, Mr. LaHood, after he finished kind of his 

rhetorical comments, you know, really focused on five questions 

that I thought were very important. I wish he were here so I could 

compliment him on that. And some of you have brought up points 

that I really do have a concern about. Ms. Katz, you talked about 

cronyism and the potential for cronyism with respect to these 

loans. And you may be absolutely right because I am worried about 

cronyism under the Trump Administration—I really am—and the 

potential for conflicts of interest and where exactly these loan dollars would go. You know, forget about Russia for a second but 

where will they go? 

And so, you know, I appreciate the testimony of all of you, but 

that’s the one that has me most concerned. And to a degree, even 
96 

though this—you know, the Republican Congress passed this back 

in 2005, signed by George Bush, used by that Administration, used 

by the Obama Administration, if this Congress wants to take this 

tool away from the Trump Administration because they’re worried 

about potential cronyism, I may applaud that. I think it’s—I think 

good work’s been done to benefit a lot of jobs, as Mr. Reicher said, 

and to improve the climate I hope, but you may be right. 

This is subject to cronyism, and under this Administration that’s 

refused to give its tax returns, you know, is already in hot water 

with everything that happened yesterday with General Flynn resigning, I think, Ms. Katz, you’re right to worry about cronyism. 

Ms. KATZ. I don’t think it’s just DOE either. It’s all of these— 

the programs of this nature invite that—— 

Mr. PERLMUTTER. You think all these loan programs should be 

taken away from the Trump Administration? Is that your testimony? 

Ms. KATZ. Absolutely. 

Mr. PERLMUTTER. Okay. 

Ms. KATZ. Absolutely. 

Mr. PERLMUTTER. I yield back. 

Mr. EDWARDS. Can I give you one comment agreeing with you on 

that, too? During the Bush Administration—during the early Bush 

Administration, the issue was Enron. Enron was the recipient of all 

kinds of cronyism, guaranteed loans, loan guarantees that encouraged it to put its millions, billions of dollars of taxpayer and its 

own money into risky foreign investments that ended up crashing 

down and destroying that company. So this is an issue with both 

Republican and Democrat Administrations. 

Mr. REICHER. Okay. Mr. Perlmutter—— 

Ms. KATZ. And just to your comment that most bankers would 

love a two percent default, I think that speaks to exactly the point 

we’re making, which is if this is such a riskless or at least good 

bet on the part of taxpayers and that it’s performing so well, then 

I can’t imagine that, you know, private investors wouldn’t jump for 

it. 

Mr. PERLMUTTER. No, and you may be absolutely right. And Mr. 

Edwards was saying maybe this is—we moved into a mature industry where the risk has been reduced because we’ve been doing 

these things. But I agree with Mr. Reicher. Back in 2007, ’08, ’09, 

’10 when nobody was making a loan except for the federal government, period, because everybody in the market was so risk-adverse, 

sometimes you have to step in to get things moving. 

So, Mr. Reicher, you can finish this up and I’ll—— 

Mr. REICHER. So let me just say this. Again, we’re looking backwards. DOE is not in the business right now of making loans to 

mainstream solar and wind projects. They’re looking ahead. 

Mr. Higgins, in your district, this new carbon capture project 

that just got a conditional loan guarantee for $2 billion, that’s looking forward. That’s a smart investment that DOE is backing. 

Chairman WEBER. Mr. Reicher, I appreciate that. We’re going to 

go to Mr. Higgins now for five minutes I hope. 

Mr. HIGGINS. Mr. Chairman, thank you, sir. I know this committee has an extremely important oversight responsibility regarding the Department of Energy and its programs, and it’s clearly un-
97 

derstood that the loan guarantee program has had serious problems regarding some of the loans in its portfolio, including controversial failed projects such as Solyndra. 

But I think although it’s clear that there’s room for improvement 

in the program, it’s important that we give reasonable consideration to Department of Energy loans designed to commercialize innovative technology in the oil and gas industry versus the green industry. The oil and gas industry is well-established by generations 

of Americans. They well understand how to navigate the terrain of 

innovative technologies and energy. And energy technology is certainly not cell phones. 

So I believe there may be a continued role for the government 

to play, but we have to balance between the wisdom of that role 

and the careful protection of the people’s treasure. And again, I 

would point out an example of where an oil and gas industry has 

certainly demonstrated its capacity to take advantage of a program 

like this to help our country. 

The Lake Charles methanol project received its conditional loan 

guarantee from the Department of Energy last year. Now, I’ve 

heard terms like startup and skin in the game, Mr. Chairman. 

That would seem to indicate, you know, zero investment from the 

private sector when the reality is, for example, Lake Charles methanol project has invested about a decade of research and development and about $40 billion of private capital. And LCM will use 

cutting-edge technology to refine petroleum coke, and that’s a 

waste product of the oil industry in the high-value energy and 

chemical product such as CO2, hydrogen, methanol, and industrial 

gases. And all of its products will be sold to major industrial and 

energy customers under long-term market-driven commercial 

agreements. This clean energy manufacturing plant is ready to 

commence construction and will result in 1,500 direct new jobs. 

Now, that’s an example to me of a wise investment, although, 

again, it’s the duty of this body to balance wise investment in 

things like the commercialization of innovative technology in the 

energy industry versus the careful protection of the people’s treasure. 

So I’d ask you, Dr. Yonk, would you agree that it’s reasonable to 

conclude that investment in innovative technologies in the oil and 

gas sector is a more sound investment than sinking money into 

green energy projects? 

Dr. YONK. Mr. Higgins, so in general, as my early comments indicated, I’m skeptical of the ability of any centrally directed program to identify what the most innovative or the most likely to be 

successful is. Instead, what I suggest and what I think the evidence bears out over time is that entrepreneurs, those acting in the 

marketplace, responding to the market demands, which it’s not a 

free market, although with a little luck we might get closer to that, 

will do better to push forward that innovation both in terms of how 

we produce energy and how we get a cleaner environment than 

simply allowing bets on loan guarantees or loan programs or any 

of these sorts of subsidies to make those sorts of decisions. 

And so my belief is that if we actually allow the marketplace to 

make some of these decisions, we will see investment across a vari-
98 

ety of sectors, including oil and gas and—as well as alternative energy. 

Mr. HIGGINS. In the example of Lake Charles methanol project, 

hasn’t the private sector already made decisions in the form of 

hard dollars and a decade of invested research and development? 

Dr. YONK. It certainly seems to have. I know—I don’t know a terrible amount about that particular project, but oftentimes, the 

issue here is not that there’s no private investment in these things 

but that we nudge investment into things because they’re following 

public dollars, as opposed to the marketplace speaking and acting. 

Mr. HIGGINS. Thank you, sir, and thank you, ma’am. Gentlemen, 

thank you for your testimony. Mr. Chairman, I thank you. I yield 

back. 

Chairman WEBER. I thank the gentleman from what we call East 

Texas. 

And the gentleman from California Mark Takano is recognized 

for five minutes. 

Mr. TAKANO. Thank you, Mr. Chairman. 

I want to ask a question of each of you. I want to clarify for the 

committee whether any of you have had any experience investing 

in a major clean energy or power project, so being involved in any 

sort of major decision like that? Have you ever been involved in a 

major business investment decision, Ms. Katz? 

Ms. KATZ. I have not. I think we should—the entire committee 

is— 

Mr. TAKANO. I appreciate your answer. Mr. Edwards? 

Mr. EDWARDS. No, not as an investor but my first job out of college was with a major nuclear electric utility, so I have a background in— 

Mr. TAKANO. Yes, but you were never involved in a major investment—— 

Mr. EDWARDS. No. 

Mr. TAKANO. —decision? And you, Dr. Yonk? 

Dr. YONK. I’m an academic that studies these things. I have not. 

Mr. TAKANO. Okay. Mr. Reicher? 

Mr. REICHER. I have, Congressman. I said earlier, raised $100 

million with some colleagues to make investments in energy 

projects, and then at Google we made several investments that I 

had a part of. 

Mr. TAKANO. So I think it’s fair to say that of all the witnesses 

we have brought before us today, of the four, Mr. Reicher, you’re 

the only one that’s actually had experience actually raising private 

capital and working with large investments, high-stakes investments, investments that stood to lose a good sum of money. The 

others at the table are theorists, academics, or, you know, represent organizations that have an ideological commitment to—or 

an emphasis on very small government or a libertarian philosophy 

of government that kind of posits pure free markets. 

But you, Mr. Reicher, have operated in an environment of reality, of actual pragmatic reality of having to contend with real 

market forces. And can you—well, tell me how does your experience in making the investment decisions you’ve made provide you 

with greater clarity in understanding the role of government in the 

market? 
99 

Mr. REICHER. Congressman, what I found in this energy project 

investment firm is that there were a lot of developers out there 

with interesting project investment needs. They would come to us 

and we’d ask the question, does this work in the laboratory? They’d 

say yes. Has it worked at demonstration scale? They’d say yes. Has 

it worked at commercial scale? They’d generally say no. That became the problem for us as the equity investors and for the banks 

as the providers of debt. Has it worked at commercial scale? If the 

answer to that is no, you’re in real, real trouble. And that’s the specific focus of this loan program, getting the first couple of projects 

built at commercial scale and then getting out of the way. 

The carbon capture project you just heard about, get it built, 

show that you can turn pet coke into methanol and capture the 

CO2, government helps to do that, and then get out of the way. We 

couldn’t invest in so many of the projects that we saw—and I’ll 

wrap up and say the following. When all was said and done, during 

the time I was there the biggest focus area of investment turned 

out to be corn ethanol, well-established, lots of plants built, you 

knew what you were going to get, you knew it would work, but was 

that advancing technology? It wasn’t. It wasn’t advancing cellulosic 

ethanol, a better way to do this. 

Mr. TAKANO. So—and what you’re describing there is not necessarily—you’re talking about the private investors for the corn 

ethanol? 

Mr. REICHER. Private investors. We were private investors. We 

couldn’t take the risk and the banks couldn’t take the risk of making the jump to the next not-fully-commercialized technology. There 

was too much at stake. 

Mr. TAKANO. So in practicality, to advance research—not just 

ideas but ideas that have been proven in laboratories, ideas that 

have been proven in demonstrations, to actually have the possibility of creating whole new markets, whole new industries, whole 

new categories of activity, economic activity which would result in 

jobs, it often takes a government loan guarantee program to be 

able to move that forward. 

Mr. REICHER. The Chinese certainly think that. They are investing heavily in all sorts of advanced technologies to get them into 

the marketplace. And that’s why, as I said earlier, in many ways 

we are losing the race on energy technology to this country that 

has decided that commercializing energy technology of all sorts— 

renewables, fossil, nuclear—they’re making that a big part of their 

future, and that’s where I worry that if the government steps out 

of this, carefully, surgically focused, just commercializing the technologies, not financing them after you’ve demonstrated them, that’s 

what I worry about here. 

Mr. TAKANO. Mr. Chairman, my time has run out. Thank you. 

Chairman WEBER. I thank the gentleman. 

Mr. Marshall from Kansas, you’re recognized for five minutes. 

Mr. MARSHALL. Thank you, Chairman. 

My first question for Ms. Katz, are you aware of the Department 

running any type of cost-benefit analysis prior to the approval of 

new DOE loans? And then do we do any type of follow-up on a 

yearly basis after them? 
100 

Ms. KATZ. I’m not aware of that, but I’m not an expert on DOE 

per se. My research has been on the—you know, the total of loans 

and loan guarantees across the economy. 

Mr. MARSHALL. Any other panelists? 

Mr. EDWARDS. You raise an interesting point, which is that the 

federal government requires cost-benefit analysis of new regulations over certain dollar values that are promulgated by departments. There is no requirement for cost-benefit analysis for federal 

spending programs, but in my view, there should be. These sorts 

of government investments should be subject to a detailed cost-benefit analysis. 

Ms. KATZ. And certainly if the government had done a proper 

benefit-cost analysis on ethanol, we would have found that government investment in it was a horrible idea because it turned out to 

actually produce terrible environmental effects, as well as produce 

more carbon dioxide than saving carbon dioxide. 

Mr. REICHER. Mr. Marshall, can I quickly say—— 

Mr. MARSHALL. Please. 

Mr. REICHER. Let me emphasize the folks at the Energy Department who—the career folks who manage these programs, they have 

to do financial modeling and financial pro formas before they can 

make a loan. The proposer of the loan comes in with a financial 

model, with a financial pro forma. That gets reviewed. So I don’t 

know about cost-benefit analysis in a policy. They’re doing the right 

kind of analysis, which is a financial pro forma or financial model. 

Dr. YONK. Mr. Marshall, might I just add that we do however see 

significant political pressures placed on these programs, at least in 

their historical context, that in fact there have been nudges from 

Administration officials to push for particular loans to be approved. 

And that illustrates that, while I have confidence that there is lots 

of this modeling going on, there is a large—there is an interjection 

of politics into these things that becomes problematic. And I might 

suggest this committee ask DOE in particular the very question 

you asked is what is that process they go through. 

Mr. MARSHALL. Mr. Reicher, I guess I’m going to follow up on 

your statement. Are those pro formas, I guess that’s what you’re 

referring to, made public? Are they made available to us as well? 

Mr. REICHER. I don’t know. 

Mr. MARSHALL. Okay. My last question I’ll go back to Mr. 

Edwards. What options exist for the incoming Administration to reform the DOE loan programs and address taxpayer liability? What 

role can Congress play in these reforms? 

Mr. EDWARDS. Well, I don’t think Congress should appropriate 

any more money for these programs. I think the time for federal 

subsidies, if there ever was one, has passed. We’ve been subsidizing 

solar and wind for 40 years now. It’s not a so-called infant industry 

anymore. It’s a mature industry. We’ve heard today that there’s 

lots of private investment, billions of dollars in these industries, 

and I think what Congress should move ahead with, broad-based 

tax reform, the Congressman was mentioning the methanol plant 

in his district. Those sorts of projects, if we did tax reform, they 

would attract more investment by private equity, by corporations 

if we reduce the tax cost of equity in the economy. 
101 

Ms. KATZ. And I would just say with all due respect to Mr. 

Reicher, the—our future is not—the direction we should not be 

going in is to be more like China. That’s not what’s going to help 

the United States. 

Mr. REICHER. Can I just respond to Mr. Edwards? Let me just 

correct something. You don’t build energy projects largely with equity. You build it with debt. You want to put as little equity in a 

project as you can because equity is expensive. You want to put as 

much debt on a project as you can because debt is cheap. Equity 

can cost you in an energy project 15, 20, 25 percent. Debt is in the 

5 to seven percent range. 

So this idea that somehow lots more equity is going to start flowing, that’s good. I don’t disagree because you have to put some equity in the project, but the thing that stumps these project developers is raising debt, getting a loan from a bank or issuing a bond, 

and that’s the real struggle. 

Mr. MARSHALL. I guess—— 

Mr. REICHER. The last thing I want to quickly say, looking 

ahead, the money is not there for solar and wind in the loan guarantee program. There’s—the big money that’s left, the remaining 

authority, $12.5 billion for advanced nuclear, $8.5 billion for advanced fossil. There’s $4.5 billion for renewables and then there’s 

a big chunk for advanced transportation. So to Mr. Edwards, this 

is not about—largely about solar and wind as we look ahead at this 

$41 billion of authority. 

Mr. MARSHALL. A quick question. So through the years it seems 

like big lending institutions are less likely to loan money because 

of all the rules enhanced by Dodd Frank. Is that true or false? Do 

you think it’s so much harder nowadays for some of these big 

projects to get funded? 

And I’m over my time. I apologize if you don’t have time to answer that question. 

Chairman WEBER. No, I want to know the answer. 

Mr. EDWARDS. I think that’s true, but I would strongly disagree 

with Mr. Reicher’s comment about debt and equity. It is a—private 

return is equity. You lower the tax on the marginal investment dollar, you will get more private investment by people like Warren 

Buffett and all kinds of energy projects is—equity is the tail that 

wags the broader dog. That is the return in the economy to private 

investors, but the vast trillions of dollars invested in the American 

economy every year is invested because people want to earn aftertax return. You lower taxes, you increase after-tax return, you get 

more investment. 

Dr. YONK. There’s no doubt you could get more equity in a 

project if you need it—— 

Chairman WEBER. If the gentleman would suspend, we need to 

move on. I apologize. 

Dr. YONK. Mr. Chairman, could I just take six words to answer 

Mr. Marshall, and that is I think your question is in fact where the 

answer to many of these problems lies, and that is clearing the 

path for more of this sort of investment in both the regulatory side 

and cleaning up the subsidy side. 

Chairman WEBER. Did anybody count those words? I—— 

Dr. YONK. They were more than six, but I’m an academic. 
102 

Ms. KATZ. The most important ones were six. 

Dr. YONK. Six. 

Chairman WEBER. I thank the panel. 

The Chairman now recognizes Mr. McNerney for five minutes I 

think. 

Mr. MCNERNEY. Well, I thank the Chairman. And I’ll try to keep 

it to five minutes. 

Mr. Reicher, the Loan Program—the Loan Programs Office is 

known to have a rigorous selection process. How would you characterize the application and selection process compared to the private 

sector? 

Mr. REICHER. It’s tough. And as I said, I think before you came, 

Congressman, many of these developers would rather get a loan 

from a bank than have to go to the DOE. So they have to do things 

to get these loans from the DOE like often an environmental impact statement that can take a lot of time. They have lots of 

charges. They’ve got to pay a credit subsidy cost; they’ve got to pay 

a credit-based interest spread; they now have a risk-based fee that 

has been imposed recently. This is tough stuff, so I think it’s being 

rigorously managed and I think—I don’t think the American taxpayer has a huge amount to worry about here because of the way 

this program is being run. 

Mr. MCNERNEY. So that might help explain the two percent default rate? 

Mr. REICHER. It does, and I think—that’s why I think that this 

is a program because it has been well-run. I’m the first to admit 

there were mistakes—some mistakes made. There were some loans 

that went bad, but that’s not how you look at a portfolio. Look at 

the overall portfolio. How do all the investments in the portfolio— 

how are they doing on a portfolio basis? I’d love to have an investment portfolio like this. 

Mr. MCNERNEY. And banks really don’t have the resources to 

carry out that sort of a rigorous process. Is that right? 

Mr. REICHER. They often do not, and it’s certainly the case when 

you’re bringing in an untested technology, that’s not what banks 

do. 

Mr. MCNERNEY. So would you explain in clear terms, Mr. 

Reicher, the difference between a loan guarantee and a grant? 

Mr. REICHER. A loan guarantee or a loan is—— 

Mr. MCNERNEY. That’s kind of a rhetorical question. 

Mr. REICHER. Yes, you’ve got to pay it back. 

Mr. MCNERNEY. Forgive me. 

Mr. REICHER. You get a loan for your house, you’ve got to pay 

it back. If your grandmother gives—writes you a check for $10,000, 

that’s a gift. 

Mr. MCNERNEY. So—— 

Mr. REICHER. That’s a grant. 

Mr. MCNERNEY. —are both the loan guarantees and grants necessarily government subsidies? 

Mr. REICHER. I don’t know if they’re subsidies. I think if they’re 

surgically applied, if they’re rigorously reviewed, and if you pay the 

loan back, that seems like a fair distance from being a plain old 

subsidy, particularly if you pay it back and the government can go 

on and use that money for other things. 
103 

Mr. MCNERNEY. So are tax policies such as suggested by Mr. 

Edwards capable of distorting the economy maybe as much of some 

of these loan guarantees? 

Mr. REICHER. Tax policy can help and tax policy can hurt. If you 

get it wrong, you can distort the market in a very serious way. So 

we play around with tax policy and sometimes it does a good thing 

for taxpayers if we play around with it, and sometimes it doesn’t. 

Mr. MCNERNEY. And loan guarantees don’t have that big of an 

impact on the economy I would guess but maybe I’m wrong. 

Mr. REICHER. As compared to grants, as compared to the cost of 

tax subsidies, they get paid back. I think that’s the thing to answer. 

Mr. MCNERNEY. So what was the intent of the loan guarantees 

that are in question? What was the original intent? 

Mr. REICHER. Let me tell you that most of the ones we’re talking 

about here were granted under the so-called section 1705 program. 

That was put in place in the depths of the recession in order to get 

people back to work. They were focused on so-called shovel-ready 

projects. They were ready to go. It was really hard to get a loan 

from a bank so the federal government stepped in. These projects 

got built. 

Let me emphasize something. That program is over. It’s over as 

of 2011. What we are focused on are the 1703 projects. Those you 

have to prove innovation. There’s a whole set of things that make 

them quite different. So that’s why I keep saying, looking ahead, 

this is the 1703 project—program, and I think we can do a lot with 

it for infrastructure. 

Mr. MCNERNEY. So in my remaining time could you give any examples of successful energy generation as a result of these loan 

programs? 

Mr. REICHER. Sure. You named the category. You know, we’ve 

heard about renewables. We haven’t talked about several other— 

a major transmission project got financed using the loan guarantee 

program with an innovative technology. Boy, do we need transmission in this country. Our transmission is in rough shape. We 

need to expand it. We need to bring energy in from remote areas. 

So that’s a great use. We didn’t talk about a major storage project. 

Electricity storage is key going forward, and a very innovative 

project got built, is functioning well, proved out a very important 

technology. Then, you heard the project in Mr. Higgins’ district. 

Those kinds of carbon capture projects, big amount of future authority for doing those. We need those to work. 

Mr. MCNERNEY. Thank you. Thank you, Mr. Chairman. 

Chairman WEBER. I thank the gentleman for yielding back. 

The gentleman from Kentucky, whose home is off the grid, is recognized. 

Mr. MASSIE. I knew you’d call me out. 

Mr. Reicher, what’s the differential in the interest rate that these 

companies can get because of the loan guarantee versus if they had 

to go into the private market and borrow the money? Or is it such 

that some of these projects are so risky nobody would loan them 

the money? 

Mr. REICHER. That is the big challenge, Congressman. Some of 

these projects have enough commercialization risk scaling up for 
104 

the very first time to a full-scale utility project that often you can’t 

get a bank to make you a loan. If you can get a bank to make you 

a loan, here’s the problem. Not only will they charge you a pretty 

high interest rate, but they’ll give you a very short term for the 

loan. That doesn’t work when you go out to get a power purchase 

agreement. You’ve got to pay back the whole thing in 5 or six 

years. So that’s why these—this very targeted program exists. 

Mr. MASSIE. Isn’t that where venture equity would play? Because, you know, I had a startup and I went to banks and they 

weren’t going to loan me the money, and so I went to the venture 

capitalists. And if you think the terms of the DOE are tough, you 

should check out the vulture—venture capitalists. 

Mr. REICHER. Fair enough. Here’s the answer to that in my view. 

Venture capitalists invest small amounts of money in very highrisk situations. They are investing in the early stage of these technologies. They’ve come out of the lab and you want to build the 

first demonstration projects. They are definitely not the sort that 

are going to put big amounts of money into actually scaling it up. 

So this notion that the venture capital world is somehow going to 

scale up these big energy projects for the first time, that’s not what 

they do. 

Mr. MASSIE. Well, you know, what’s also true about venture capital is they fully expect a lot of their programs to fail—— 

Mr. REICHER. Yes, but—— 

Mr. MASSIE. —but since this is not how it is structured for the 

taxpayer, you know, a venture capitalist can write off nine failures 

with one good success. I’m not arguing that the DOE should become a capital investment firm, but because the taxpayer, they just 

lose one-to-one on all the nine losses and then they win back oneto-one on their win. If it were an equity investment, that’s why this 

works in an equity environment and not in a loan environment. 

And I think some of these programs are so risky that no bank 

would loan you the money and for good reason, and nobody would 

loan you the money unless they had an equity stake and a chance 

at a multiple return on this. Dr. Yonk, do you want to speak to 

this? 

Dr. YONK. Just I think what you’re illustrating is what I described is the way capital moves in these regards and that is 

they’re going—they know the program exists. They’re going to often 

wait either for not just loan guarantees. They’re also going to wait 

for grants and larger-scale loans. 

So with due respect to Mr. Reicher, I think that, yes, he’s right 

in describing what venture capitalists have done, but in large part 

that’s a construction of both the regulatory and the subsidy system 

that exists today. 

Mr. MASSIE. Ms. Katz? 

Ms. KATZ. Yes, I would just add that the spread between the interest rates from—that DOE may offer and the private market 

does, that’s just one of a number of types of differences. There 

are—there’s a long list. I can tell you that there are longer maturities than private loans. There are deferrals of interest. There are 

allowances and grace periods. There are waivers or reductions of 

loan fees, higher loan amounts relative to the enterprise value. So 

there’s a, you know, just a variety of elements on which they— 
105 

they’re different than—the government loans are different than the 

private sector. 

Mr. MASSIE. But at some cost to the taxpayer? 

Ms. KATZ. Well, there’s always a cost to the taxpayer in part because of the accounting method that the federal government uses. 

What they do is they try to determine what the actual cost of the 

loan is in the present value. That is what, you know, all of the future payments are going to bring in versus the cost. And I’ll try not 

to get too technical, but what the federal government does is it ties 

the interest rate that they use in that calculation to treasuries, 

which is a below-market interest rate so it appears that the loan 

or the loan guarantee at the time the money is out is actually costing less than it really does. 

Mr. MASSIE. So some of the costs are hidden or—— 

Ms. KATZ. In part. 

Mr. MASSIE. Yes. Mr. Edwards, would you like to speak to this 

at all? 

Mr. EDWARDS. No, I think Diane hit it on the head. 

Mr. MASSIE. Okay. Well, I will yield back seven seconds to the 

Chairman, and thank you. 

Chairman WEBER. I thank the gentleman. 

I do want to close today by thanking our witnesses, all of whom, 

I’m sure, while you probably have never paid—well, you have not 

paid into investment schemes—is that the right word, Mr. 

Reicher—have probably paid taxes and have taken note that we do 

have a $20 trillion deficit, and all of you in my opinion should be 

concerned about that, I want to highlight today that we have heard 

concerns about how the DOE loan guarantee program can indeed 

hurt innovation. Some of it we can’t measure, but it does especially 

for the little guy and it can distort the energy market. 

So with that, I’m going to say thank you all for being here. I 

want to thank you for your testimony. I want to thank the members, all two of us, for our questions. And I want to say that the 

record will remain open for two weeks for additional comments and 

written questions from members. 

This hearing is adjourned. 

Mr. REICHER. Thank you, Mr. Chairman. 

[Whereupon, at 12:16 p.m., the Subcommittees were adjourned.] 

(107) 

Appendix I 

ADDITIONAL MATERIAL FOR THE RECORD
108 

DOCUMENTS SUBMITTED BY SUBCOMMITTEE ON ENERGY

CHAIRMAN RANDY K. WEBER
109 

under ATMV! The potential exposure of taxpayers is substantial. Also, contrary to what 

some arc claiming,5 the programs are not profitable when considering the federal 

government's borrowing costs.6 

As I and others have noted, the problems with loan guarantees like Sections 1703 and 1705 

are much more fundamental than the cost of one or more failed projects.7 In fact, the 

economic literature shows that every loan guarantee program transfers the risk from 

lenders to taxpayers, is likely to inhibit innovation, and increases the overall cost of 

borrowing. 8 

At minimum, such guarantees distort crucial market signals that determine where capital 

should be invested, causing unmerited lower interest rates and a reduction of capital in the 

market for more worthy projects. At their worst, loan guarantees introduce political 

incentives into business decisions, creating the conditions for businesses to seek financial 

rewards by pleasing political interests rather than customers. This is called cronyism, and it 

entails real economic costs.9 

Loan guarantees are particularly attractive from a political perspective. Congress can 

approve billions of dollars in loan guarantees with little or no impact on appropriations 

figures or the deficit because such loans are almost entirely off budget. Moreover, unlike 

the Solyndra case, most failures either take years to occur or never occur; this is because the 

many of the companies were not risky borrowers in the first place and had plenty of access 

to capital-as with 90 percent of the Section 1705 loan program recipients.10 This 

allows politicians to appease parochial interests by granting loans to local companies with 

few negative consequences. The projects will most likely succeed, or it will be years before 

the projects default. 

4 Catalogue of Federal Domestic Assistance, "Federal Loan Guarantees for Innovative Energy Technologies," 

accessed February 13, 2017. 5 Paul Krugman, "When Government Succeeds," New York Times, November I6, 2014; and Max Ehrenfreund, 

"Remember Solyndra? Those Loans Are Making Money," Washington Post, November I3, 2014. 6 Donald Marron, "Spin Alert: Despite What DOE Says, Its Loans Are Not Making Money," Forbes, November 

17, 2014; and Veronique de Rugy, "No, the Program That Gave Us Solyndra Is Obviously Not Profitable," The 

Corner, National Review Online, November 19, 2014. 7 Veronique de Rugy, "Assessing the Department of Energy Loan Guarantee Program" (Testimony before the 

House Committee on Oversight and Government Reform, Mercatus Center at George Mason University, 

Arlingtou, VA, June 19, 2012). Also see Chris Edwards, "Energy Subsidies" (Downsizing the Federal 

Government, Cato Institute, Washington, DC, December 16, 2016); and House Budget Committee, "The Empty 

Promise of Green Jobs: The Costly Consequences of Crony Capitalism," September 22, 2011. 8 Matthew D. Mitchell, The Pathology of Privilege: The Economic Consequences of Government Favoritism 

(Arlington, VA: Mercatus Center at George Mason University, 2012); and Veronique de Rugy, "A Guarantee for 

Failure: Government Lending under Sec. 1705" (Testimony before the House Committee on Oversight and 

Government Reform, Subcommittee on Regulatory Affairs, Mercatus Center at George Mason University, 

Arlington, VA, July 18, 2012). 9 Mitchell, The Pathology of Privilege. 10 de Rugy, "Assessing the Department of Energy Loan Guarantee Program." 
110 

It is also easy to understand why companies and company executives benefit from these 

loans and may seek them out. However, this should not obscure the fact that this 

preferential treatment comes at the expense of taxpayers, competitors, and consumers-and 

ultimately at the expense of our market and political system. 

For all of the above reasons, the right thing to do is to permanently terminate these loan 

programs, along with all other energy subsidies. As Chris Edwards explains, 11 

This energy revolution was driven by private innovation and competitive markets, 

and it has created environmental as well as economic benefits. Cleaner natural gas is 

replacing coal as a fuel source in U.S. electricity production. Over the past decade, 

coal fell from 49 percent of electricity production to 33 percent, while natural gas 

rose from 20 percent to 33 percent .... 

. . . The oil and gas revolution shows that businesses and markets can generate major 

innovations and progress with their own resources. Furthermore, investors and 

major corporations have stepped up to the plate and pumped billions of dollars into 

alternative energy technologies in recent years. The U.S. energy sector is vast, 

dynamic, and entrepreneurial, and it does not need subsidies to thrive. 

With that in mind, a plan to reform the DOE's loan guarantee programs should: 

• Cancel all remaining loan guarantee authority under Section 1703 and the ATMV 

program (approximately $25 billion for Section 1703 and $13 billion for ATVM). 

• Abolish the programs permanently. 

• Continue to appropriate funds to the DOE's Loan Programs Office, which would 

administer the wind-down of the loan portfolios ($15.7 billion in Section 1705 

guarantees, $6.2 billion in Section 1703 guarantees, and $8.4 billion in ATMV). 

Alternatively, transfer the loan obligations to the Department of the Treasury to 

administer or auction them off to the private sector. 

Eliminating these loan guarantee programs will level the playing field for all firms, end a 

cycle of counterproductive cronyism, and allow the crucial energy sector to continue to 

thrive and innovate, with beneficial effects on the environment. 

Sincerely, 

Veronique de Rugy 

Senior Research Fellow 

Mercatus Center at George Mason University 

11 Edwards, "Energy Subsidies." 
111 

for Reform 
112 

Blueprint for Reform: A Comprehensive Polh.y Agendafora New Administration in 2017 

minerals, or wind or solar power. Ideally, states 

should be given charge of managing resource development within their boundaries and off their shores.' 

The federal estate is massive, consisting of some 635 

million acres. The majority of this land is not classified 

as a national treasure, like Yellowstone or the Grand 

Canyon, but large swaths of open space with tremendous economic potential·-as well as potential for environmental improvement. The federal footprint is even 

larger because limitations on federal lands often affect 

the use of adjacent state and private lands; government 

agencies lock up lands through informal designations 

and study areas. The next presidential budget should 

explore and begin the process of turning over more 

management of the federal estate to states and the private sector. Federal land should be categorized according to what can be sold to individuals and what can be 

transferred to state and local control. 

In the meantime, the President's budget should 

make clear that the federal government will open all 

federal waters and all non-wilderness, non-federal 

monuments to exploration and production of all of 

America's natural resources. Congress should require 

that the DOl conduct lease sales if a commercial interest exists, whether for offshore oil or offshore wind. 

Congress should also force the DOl to take any steps 

within its authority to attract interest in federal lands, 

including streamlining bureaucratic processes or 

reducing royalties.' 

Open access, however, means more than simply 

permitting energy exploration and development. Borders should not dictate whether or not an individual 

can sell a product, nor should they force consumers to 

pay artificially high prices for goods in the form oftariffs. Yet laws restrict opportunity, whether by encouraging unnecessary bureaucratic barriers to exports of 

liquefied natural gas or by imposing tariffs on solar 

technology. Freely importing and exporting energy 

and energy technologies would yield tremendous 

economic benefits, providing Americans with more 

opportunities to sell products to more customers 

and to buy cheaper goods and services from abroad. 

Free trade in energy also bolsters national security by 

increasing supply diversity and providing choices for 

allies; it will have beneficial geopolitical implications 

for every region of the world! 

ELIMINATE PREFERENTIAL TREATMENT 

FOR ALL ENERGY COMPANIES 

In public policy, preferential treatment in the 

energy sector takes many forms. Over the years, 

Congress has implemented numerous policies that 

use the political process to support the production 

or consumption of one good over another, including 

direct cash grants, special tax treatment, taxpayer-backed loans and loan guarantees, socialized risk 

through insurance programs, mandates to produce 

biofuels or force energy conservation, tariffs, and 

energy sales at below-market costs. Politically connected energy companies received a big boost when 

President Obama signed the American Recovery 

and Reinvestment Act of 2009 into law. 

Whatever shape the favoritism takes, the results 

are the always the same: The government delivers 

benefits to a small, select group and disperses the 

costs across families and consumers. Free market competition, not political favoritism through 

the government, should determine the allocation 

of resources. 

In some instances, the federal government has 

squandered taxpayer dollars on economic losers, 

like the much-maligned solar manufacturer Solyndra. Even with a $535 million loan guarantee from 

the Department of Energy, Solyndra could not survive. The economic pain cuts deeper than wasted 

taxpayer money because government intervention 

allows Washington to direct the flow of private-sector investments. The number of investment opportunities is broad and expansive, but available capital is 

limited. Of course, investors must choose among the 

different projects, but government favoritism diverts 

limited capital by dictating who should receive it. 

This makes some projects appear Jess risky because 

they enjoy the confidence of the government. 

Private investors sank $1.1 billion into Solyndra. 

Much of the private financing came after the Department of Energy announced that Solyndra was one of 

1,6 companies eligible for a loan guarantee in 2007. 

The opportunity cost is not only the lost taxpayer 

dollars, but also the $1.1 billion that might have been 

invested elsewhere in the economy. 

In other instances, the federal government has 

awarded subsidies to very profitable, well-established 

companies or ones that already enjoy federal, state, or 

local subsidies. The current and long-term success of 

these companies often depends on subsidies, which 

explains why they continually plea for more of them. 

In cases where companies quite simply have 

an innovative, money-making technology, private 

actors should bear the full risk and reap the benefits 

of investing in such endeavors, rather than padding 

their bottom lines with taxpayer dollars. 

22 The Heritage Foundation I heritage.org 
113 

Æ 

The full report can be found here: http:/ /www.heritage.org/budget-and-spending/report/blueprintreform-comprehensive-policy-agenda-new-administration-2017