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S. HRG. 112–625 

THE ALLISON REPORT 

HEARING 

BEFORE THE

COMMITTEE ON 

ENERGY AND NATURAL RESOURCES 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

TO

RECEIVE TESTIMONY ON THE ‘‘REPORT OF THE INDEPENDENT CONSULTANT’S REVIEW WITH RESPECT TO THE DEPARTMENT OF ENERGY LOAN AND LOAN GUARANTEE PORTFOLIO’’ 

MARCH 13, 2012 

( 

Printed for the use of the 

Committee on Energy and Natural Resources 
(II) 

COMMITTEE ON ENERGY AND NATURAL RESOURCES 

JEFF BINGAMAN, New Mexico, Chairman 

RON WYDEN, Oregon 

TIM JOHNSON, South Dakota 

MARY L. LANDRIEU, Louisiana 

MARIA CANTWELL, Washington 

BERNARD SANDERS, Vermont 

DEBBIE STABENOW, Michigan 

MARK UDALL, Colorado 

JEANNE SHAHEEN, New Hampshire 

AL FRANKEN, Minnesota 

JOE MANCHIN, III, West Virginia 

CHRISTOPHER A. COONS, Delaware 

LISA MURKOWSKI, Alaska 

JOHN BARRASSO, Wyoming 

JAMES E. RISCH, Idaho 

MIKE LEE, Utah 

RAND PAUL, Kentucky 

DANIEL COATS, Indiana 

ROB PORTMAN, Ohio 

JOHN HOEVEN, North Dakota 

DEAN HELLER, Nevada 

BOB CORKER, Tennessee 

ROBERT M. SIMON, Staff Director 

SAM E. FOWLER, Chief Counsel 

MCKIE CAMPBELL, Republican Staff Director 

KAREN K. BILLUPS, Republican Chief Counsel 
(III) 

C O N T E N T S 

STATEMENTS 

Page 

Allison, Herbert M., Author of the ‘‘Report of the Independent Consultant’s 

Review With Respect to the Department of Energy’s Loan and Loan Guarantee Portfolio’’ ..................................................................................................... 4 

Bingaman, Hon. Jeff, U.S. Senator From New Mexico ........................................ 1 

Chu, Hon. Steven, Secretary, Department of Energy ........................................... 25 

Murkowski, Hon. Lisa, U.S. Senator From Alaska ............................................... 2 

APPENDIXES 

APPENDIX I 

Responses to additional questions .......................................................................... 47 

APPENDIX II 

Additional material submitted for the record ........................................................ 59 

(1) 

THE ALLISON REPORT 

TUESDAY, MARCH 13, 2012 

U.S. SENATE, COMMITTEE ON ENERGY AND NATURAL RESOURCES, Washington, DC. 

The committee met, pursuant to notice, at 10:01 a.m., in room 

SD–366, Dirksen Senate Office Building, Hon. Jeff Bingaman, 

chairman, presiding. 

OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. 

SENATOR FROM NEW MEXICO 

The CHAIRMAN. OK. Why don’t we get started? Today’s hearing 

will provide us an independent snapshot on the loan programs 

within the Department of Energy that were created in the 2005 

and 2007 energy bills. Mr. Allison has had considerable expertise, 

both within the government and in the private sector. He has produced a useful review of how the programs are being administered, 

including his suggestions on how administration can be improved. 

We appreciate his willingness to come here and share his findings 

with us. 

As members of the committee know, the issues surrounding the 

United States ability to compete in the international race to develop and deploy clean energy technology has been a concern to 

many of us here on the committee for many years. The loan programs, in addition to ARPA–E and other efforts to support domestic deployment of next generation technologies passed in previous 

energy bills, are part of a concerted effort to ensure the U.S. does 

not fall behind in addressing the critical challenges of energy, economic, and climate security posed by our current reliance on fossil 

fuels, from both power generation and transportation. 

These programs in particular recognize that it’s not enough to 

have the innovative research that our national labs and universities conduct. There also needs to be a pathway to turning those 

ideas and inventions into profitable companies. 

I believe it is important to keep this goal in mind as we look at 

these programs today. While these programs need to be administered with high standards of professionalism and integrity—I believe Mr. Allison’s report indicates they are—it is also necessary to 

recognize that there is uncertainty about what technologies will 

eventually win the day. If we want to be sure that taxpayers lose 

no money, then it is easy enough to just eliminate government support for American efforts to compete in developing and deploying 

these new technologies. 
2 

Unfortunately, our efforts to support domestic players in this 

race through the Loan Guarantee program have been caught up 

with many election year issues. My impression is that overall the 

program is doing what it is designed to do; that is, to take on risks 

that private investors are not willing to take on, not that the private sector has not taken on risk. Every investment the government has made has followed large, risky investments by the private sector. Private markets are selecting the winners, at least the 

companies they believe will be winners, and the government is 

stepping in to help these entrepreneurs achieve the scale necessary 

to give them a chance to compete on the global stage. 

Unfortunately, although the U.S. remains one of the greatest 

sources of innovation in the world today, it is not clear that we are 

going to reap the benefits of that innovation, or even retain the advantage we have in that innovation. In the ever-changing and highly competitive environment of high technology, the research and 

development necessarily follows the manufacturing, and before 

long, the next generation of technologies are being developed overseas, as well as the manufacturing occurring overseas. So, we have 

seen that scenario play out in such industries as televisions and 

consumer electronics. In my view, it would be tragic if it happened 

again in the technology areas that relate to our energy future. 

I believe that is the important context for our conversation today. 

Both our witnesses today have important insights on how we can 

best achieve the goal of advancing clean energy in the United 

States in a way that gives the most value to the taxpayers. This 

will never be a risk-free enterprise. Very few things of lasting benefit are, but I look forward to their thoughts on how we can best 

balance those risks with potential benefits of fully developing these 

technologies here and at home. 

Let me call on Senator Murkowski for her comments before we 

hear from our first witness. 

STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR 

FROM ALASKA 

Senator MURKOWSKI. Thank you, Mr. Chairman, and I appreciate you scheduling what I think is a very important hearing. I 

think it is vital for our committee to be conducting regular and intensive oversight over the programs and the agencies that are 

under our jurisdiction, especially when we see problems that may 

be unexpected, or certainly serious problems begin to surface. 

I understand Secretary Chu will join us later this morning. I 

think it will be helpful to him—to hear from him directly about 

what has gone in this area. Mr. Allison, to you, thank you not only 

for being here this morning, but thank you for agreeing to take on 

the audit of the Department’s loan programs. 

This is one of the more complicated topics that I think our committee will be tackling. These loan related authorities and the Energy Department’s use of them span different Administrations, different Congresses, and include 3 separate programs, each with 

their own unique attributes. 

I want to say that I found the independent audit to be quite useful. It disaggregates the projects based on risk profiles rather than 

programmatic origin. It discusses transparency and reporting 
3 

shortcomings, reveals the concentration risk in the current portfolio. The audit further highlights the portfolio’s reliance on State 

and Federal mandates to force the creation of markets for certain 

project and products, and it makes some valuable recommendations 

that we and, I think, the Secretary need to consider. 

If there is one shortcoming to the audit, it is that it does not 

delve deeply into the history of these programs, which I think is 

essential to understanding how we have gotten into some of the difficulties that we are now facing. Again, we are talking about 3 different programs here. You have got the first one that was section 

1703 from the 2005 energy bill, you have from the 2007 energy bill, 

the ATVM, and then you have section 1705 from the 2009 stimulus. While there are certain similarities between the 3, there are 

some very important distinctions and differences between the 3 

programs. I just will take a quick moment, Mr. Chairman, to review them. 

Section 1703 was created by a Republican Congress, relied heavily upon credit subsidy costs being self-paid by the applicants, 

made any project using new or significantly improved technologies 

eligible. Unfortunately, it is not closed on a single loan guarantee. 

Then you have section 1705, which was created by a Democratic 

Congress, accompanied by $6 billion to pay for applicants’ credit 

subsidy costs, narrowly limited eligibility to renewable and transmission projects. This program has closed on 27 loan guarantees 

worth approximately $16 billion. 

Then you have the ATVM, designed to offer direct loans to auto makers, over $7 billion appropriated to cover credit subsidy costs, 

but just 5 loans have been issued. We have heard concerns raised 

around this table here about that. The last loan was in March 

2011, and then the one prior to that was April 2010. 

Many of the remaining applicants are withdrawing. They are expressing clear frustration over DOE’s apparent inability to either 

make an up or down decision on this. More than half of ATVM’s 

lending authority remains unused, and the program, as I understand it, is virtually dormant. 

Both the 1705 and the ATVM programs are now dogged by questions about political influence, compliance with underlying statutes, 

and sometimes poor investment decisions. I think that everyone 

here is aware of that fact. Some may think that we have called for 

this hearing this morning to pile on, to add to those criticisms, but 

I do not want to take my time today to add to the narrative of the 

scandal and the controversy that the Department is already confronting. Instead I would just offer this. Hard questions need to be 

asked and to be responded in full. 

These programs should be examined, and I think that they 

should be improved. That is an appropriate role for Congress and, 

more specifically, this committee. We did not expect every single 

project of the Department supported to be a roaring success, but 

we also did not expect to see an accumulation of failures so quickly. 

There are clearly problems that need to be sorted out and worked 

through. 

Your audit, Mr. Allison, I think is a good first step, and I think 

that this hearing moves us in the right direction. DOE’s loan programs can serve a valuable purpose. I have said that repeatedly. 
4 

But right now we need to know if the loans and the loan guarantees that have been issued through them are as effective as we had 

all hoped that they would be. 

We will still have some tough decisions to make going forward, 

and I hope that we learn enough this morning to make sure that 

those decisions are fully informed. 

I thank you, Mr. Allison, and I thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. Mr. Herb Allison is the author of the 

‘‘Report of the Independent Consultant’s Review with Respect to 

the Department of Energy Loan and Loan Guarantee Portfolio.’’ We 

appreciate your good work on that report, and we look forward to 

your describing it to us and making any other comments you would 

like before we ask questions. Thank you. 

STATEMENT OF HERBERT M. ALLISON, AUTHOR OF THE ‘‘REPORT OF THE INDEPENDENT CONSULTANT’S REVIEW WITH 

RESPECT TO THE DEPARTMENT OF ENERGY LOAN AND 

LOAN GUARANTEE PORTFOLIO’’ 

Mr. ALLISON. Thank you, Chairman Bingaman, Ranking Member 

Murkowski, and members of the committee for asking me to testify 

today. 

Last November, I was appointed by the chief of staff of the White 

House to study the Department of Energy’s portfolio of loans and 

guarantees to clean energy projects. I was asked to perform 3 

tasks: first, evaluate the current status of the portfolio, second, propose ways to strengthen management and oversight of the program, and, third, recommend a system to provide early warning of 

problems that might harm the portfolio’s value. 

The scope of my assignment did not include investigating past 

decisions and actions because several independent investigations 

are already under way. Given the tight 60-day deadline, my team 

and I relied on readily available information. The Department of 

Energy, or Department of Energy, rapidly provided documents and 

arranged interviews that we requested. 

We conducted our review and developed our recommendations 

independently of the White House and the Department of Energy. 

We chose 2 methods for estimating future losses in the portfolio. 

The first method is the one that the DOE must use to comply with 

the Federal Credit Reform Act of 1990, or FCRA. Our second method, called fair market value, or FMV, is used in the capital markets 

to estimate the discount from a loan’s face value that investors 

would demand so they could receive an acceptable return if they 

purchased the loan. 

The FCRA and FMV methods have fundamentally different purposes so their outputs are not directly comparable. FCRA, the government method, estimates the credit loss on the loans. FMV, the 

market method, estimates a broader set of costs and provides information useful in managing the portfolio. But FMV does not estimate the cost to DOE if it holds the portfolio until the loans are 

paid off. 

Using the FCRA method we estimated that the expected credit 

loss on the portfolio will be $2.7 billion, about 7 percent less than 

the DOE’s recent estimate of $2.9 billion. Using the FMV method, 
5 

we calculate that investors purchasing the loans would demand a 

discount of $5 billion to $6.8 billion from face value. 

Importantly, neither FCRA, nor FMV, nor any other financial 

model can reliably predict the eventual loss of the DOE portfolio, 

for several reasons. First, these loans will not mature for up to 30 

years, well beyond the limits of forecasting. Second, most projects 

are still being built, and some rely on unproven technologies. Their 

performance will not be known for some years. Third, as projects 

prove themselves, their risks and expected losses will diminish. 

Fourth, the estimates of loss assume that al projects will be fully 

funded, and that DOE will be a passive bystander, unable to influence the portfolio’s risk over time. 

But so far, DOE has funded only a third of its total commitments. DOE’s loan agreements allow it to stop further funding and 

demand more credit protection if projects do not meet targets. 

Some of the riskier projects have not received any funding, and 

others have been funded only partially. If those projects do not 

meet conditions in their loan agreements, DOE could cutoff more 

funding, and the forecasted loss could decline substantially. 

For all these reasons, our focus should be less on these unreliable 

forecasts of losses and more on assuring effective management of 

the portfolio going forward. DOE must be an active manager, continuously monitoring their projects, spotting risk, and limiting taxpayers’ exposure to loss. 

The report recommends ways to strengthen management and 

independent oversight of the program and provide early warning of 

potential problems. 

In brief, our recommendations include, first, assuring adequate 

funding and staffing of the program; second, protecting taxpayers 

by strengthening DOE’s position as a creditor wherever possible, 

and having a clear policy on funding projects that are not meeting 

targets; third, determining whether to hold or sell the loans over 

time; fourth, strengthening internal oversight by forming a risk 

management department and combining several committees in 

DOE that now oversee the program; fifth, establishing a high level 

advisory board to consult with the Secretary of Energy on policy 

matters; sixth, creating an early warning system covering market 

conditions, performance of all projects and loans, and internal operation of the program; and last, improving public reporting about 

the program. 

Thank you, and I will be pleased to answer your questions. 

[The prepared statement of Mr. Allison follows:] 

PREPARED STATEMENT OF HERBERT M. ALLISON, AUTHOR OF THE ‘‘REPORT OF THE

INDEPENDENT CONSULTANT’S REVIEW WITH RESPECT TO THE DEPARTMENT OF ENERGY LOAN AND LOAN GUARANTEE PORTFOLIO’’ 

Thank you, Chairman Bingaman, Ranking Member Murkowski and members of 

the Committee for asking me to testify today. 

Last November the Chief of Staff of the White House, then William Daley, appointed me to conduct an independent study of the Department of Energy’s (‘‘DOE’’) 

portfolio of loans and guarantees to clean energy projects (hereinafter, ‘‘the Portfolio’’). 

I was assigned three tasks: 

1. evaluate the current status of the Portfolio; 
6 

2. recommend ways to strengthen management and oversight of the DOE’s 

program for granting loans and guarantees to clean energy projects (hereinafter, 

‘‘the Program’’); and 

3. propose an early warning system for spotting potential problems that could 

affect the value of the Portfolio. 

I was asked to focus on the present and future of the Program, not to conduct 

an investigation into past decisions and actions. Several independent investigations 

were already underway. 

The Chief of Staff requested that I complete the assignments within 60 days after 

retaining advisors. I selected Arnold & Porter LLP as legal advisor, Greenhill LLC 

as financial advisor, and David M. Johnson, an experienced financial executive, as 

project advisor. 

Given the tight timeline for the project, my team and I had to rely on readily 

available information. DOE rapidly provided documents and arranged interviews 

with current and former DOE officials that we requested. We also interviewed selected officials of the Office of Management and Budget and the Department of the 

Treasury. We evaluated 30 individual transactions with aggregate loan and guarantee commitments of $23.77 billion. 

We conducted our review and developed our recommendations independently of 

the White House and DOE. I decided on the methods of valuation and the conclusions about the current status of the Portfolio, the recommendations for strengthening management and oversight of the Program, and the proposed early warning 

system. We did not include the Solyndra and Beacon loans in our review, as those 

loans are no longer in the Portfolio. 

We used two quantitative methods to assess the loans in the Portfolio. 

The first is the method that the DOE must use to comply with the Federal Credit 

Reform Act of 1990 (‘‘FCRA’’). It calculates the ‘‘Credit Subsidy Cost’’ that is the 

amount needed to cover expected shortfalls in payments from each loan. The Credit 

Subsidy Cost reflects DOE’s assessment of that loan’s credit quality. 

The FCRA method is appropriate for budgeting the government’s wide range of 

loan programs because errors in estimating losses in the various programs tend to 

offset each other over time. 

We also evaluated the Portfolio by the Fair Market Value method, or ‘‘FMV.’’ It 

is used in the capital markets to estimate the discount from a loan’s face value that 

investors would demand so they could receive an acceptable return if they were to 

purchase the loan. 

The FCRA and FMV methods have fundamentally different purposes, so their outputs are not directly comparable. 

• FCRA estimates the government’s expected loss on the loans. • FMV estimates the discount that investors would require to purchase the loans. 

The FMV discount reflects not only credit risks but also market risks and transactions costs that will not affect the government if it holds the Portfolio until the 

loans are paid off. 

We used the FMV method in addition to the FCRA method because FMV provides 

additional insight into the future marketability of these loans and guarantees, into 

the financial incentives that sponsors and other parties have to invest in these 

projects, and into ways that DOE should manage the Programs to protect and enhance value to taxpayers over time. 

Using the FCRA method, we estimated that the expected credit loss on the Portfolio will be $2.7 billion, about seven percent less than DOE’s own recent re-estimate, which is $2.9 billion. Using the FMV method, we estimated that investors 

would demand a discount of $5.0 billion to $6.8 billion from the face value of the 

loans if they were to purchase the Portfolio. All estimates of expected credit losses 

and discounts presented in my testimony are as of January 31, 2012, the date of 

my Report. 

To facilitate our analyses, we grouped the loans and guarantees into three categories, each with distinctive credit characteristics. The categories are: 

1. ‘‘Utility-Linked Loans’’ to projects where an investmentgrade public utility 

has agreed to purchase the output of the project for most or all of its useful 

life. These 20 commitments total $14.4 billion. Because the loans will be supported by power-purchase agreements once the projects are operational, we consider their risk to be moderate. 

2. ‘‘Non-Utility-Linked Loans’’ to cellulosic ethanol projects, solar manufacturing companies, and small, start-up automotive manufacturing companies. 

These commitments to eight projects total $2.01 billion and exclude Solyndra 

and Beacon Power. On average, these loans are smaller than the Utility-Linked 
7 

Loans and entail greater risk because the projects do not have guaranteed outlets for their production. 

3. Loans to Ford and Nissan, which we view as investmentgrade credits. 

These loans total $7.355 billion, are secured, and have terms typical of corporate loans. 

The credit ratings we assigned to the Utility-Linked Loans were modestly lower 

than those assigned by DOE. Therefore, our estimate of the Credit Subsidy Costs 

for Utility-Linked Loans using the FCRA method is nine percent higher than DOE’s 

reestimate as of December 11, 2011 ($1.696 billion vs. $1.551 billion). 

Using the fair market value method to evaluate the Utility-Linked Loans, we estimate that investors would require an aggregate discount of $3.5 billion to $5.0 billion to the face value of those loans if they were to purchase them. 

In evaluating the Non-Utility-Linked Loans, we assigned lower average credit ratings than did DOE. We estimate the Credit Subsidy Cost for these loans to be $820 

million, 28 percent higher than DOE’s FCRA re-estimate of $640 million. 

Our fair market value analysis yielded an estimated discount of $707 million to 

$858 million from the face value of the Non-Utility-Linked loans. 

The Ford and Nissan loans represent a commitment of $7.4 billion. We assigned 

a credit rating to the Ford loans that is four notches higher than DOE’s rating at 

re-estimation, but we agreed with DOE’s re-estimate of the Nissan rating. 

Our estimate of the Credit Subsidy Cost of the Ford and Nissan loans totals $166 

million, 78 percent less than DOE’s FCRA reestimate of credit loss, which is $753 

million as of December 11, 2011. 

We calculated the fair market value discount from the face value of the Ford and 

Nissan loans to be $716 million to $1.021 billion. 

It is important to emphasize that neither FCRA nor FMV nor any other financial 

model can reliably predict the amount of eventual loss on the DOE Portfolio. 

The actual loss will depend upon the outcomes of many factors: 

• First, the Program’s loans have long maturities—up to 30 years, well beyond 

the limits of forecasting. 

• Second, most projects are in early development and some are deploying 

unproven technologies, so their future performance is hard to predict. 

• Third, once some projects are completed, their prospects will be clearer, so their 

risks and estimated losses will diminish in some instances. In other instances, 

possible changes in factors such as regulations and markets could increase expected losses. 

• Fourth, the FCRA and FMV methods assume that all of the projects will be 

fully funded and the DOE will be a passive bystander unable to influence the 

Portfolio’s risk over time. However, DOE has funded only about a third of its 

total commitments. Some of the riskier projects have not received any DOE 

funding and others have been funded only partially. 

DOE has negotiated protections in the loan agreements that enable it to cut off 

further funding and to demand more credit protection if projects do not meet targets. If DOE denies further funding to such projects, the risks and expected losses 

will decline. 

For all of those reasons, focusing on forecasts of losses is far less productive than 

is assuring that DOE will effectively manage the Portfolio going forward. 

DOE must be an active manager, continuously monitoring the projects, spotting 

risks, exercising its rights in the loan agreements, and limiting taxpayers’ exposure 

to loss. 

The Report contains numerous recommendations for strengthening management 

and oversight of the Program and providing early warning of potential problems. 

Our recommendations regarding management of the Program include: 

• Assuring adequate funding and staffing for management and oversight of the 

Portfolio for the long-term. That funding will be small compared to the risk of 

higher losses if the Portfolio is not actively managed. 

• Clarifying the authority and accountability of managers along the chain of command. 

• Establishing clear goals for the Program, to include defining the vague financial 

goal in the enabling law for all of the loans except the automobile loans, which 

is to assure a ‘‘reasonable prospect of repayment.’’ 

• Engaging in long-range strategic planning for the Program, including determining whether to hold or sell loans over time, and whether to outsource management of the Program; 
8 

• Protecting taxpayers by strengthening DOE’s position as a creditor wherever 

possible and having well-defined policies for cutting off funds if projects are not 

meeting targets. 

The laws establishing the Program contain few requirements for oversight and reporting. While the DOE has developed policies and activities in those areas, we recommend several improvements: 

• Strengthen internal oversight of the Program by forming a Risk Management 

department separate from the office administering the Program and by consolidating various risk committees in the DOE that oversee the Program; 

• Establish an interagency Advisory Board composed of senior officials from other 

agencies and experts from the private sector to review the Program’s governance and advise the Secretary of Energy on policy matters concerning the Program; 

• Create a comprehensive early warning system covering market conditions affecting the Program, regulatory changes, performance of every project, loan, and 

involved party, and internal operation of the Program; and, lastly, 

• Improve public reporting about the Program by enhancing its content and increasing its frequency. 

Thank you. I will be pleased to answer your questions. 

The CHAIRMAN. Thank you very much. 

Maybe I could ask you to elaborate some. Your report indicates 

that changes were made in the program to better control risk, both 

before the program review or the review period, and also during 

the time that you were doing your review. I guess I would be interested in any comments you could give us on the effect that these 

either personnel or policy changes have made, and whether you 

think those mid-course corrections have been useful or adequate. 

Mr. ALLISON. Thank you, Chairman Bingaman. 

First of all, in terms of structuring the loans, there have been 

improvements to the structure of the loans. Beginning in the middle of 2010, the Department’s loan agreement provided for more 

staging of funding, and also provided that the sponsors of these 

projects should fund the initial stage with equity before the Department of Energy would be providing loan funds. So, the Department 

would have the opportunity to view progress on these projects before the government starts putting its own money to work. 

We think that the terms and conditions of these loans, by and 

large, since the middle of 2010, in most cases conform closely to 

commercial practice in the industry. 

In terms of the internal management, there has been a gradual 

evolution of the management and oversight of this program within 

the Department of Energy. We see that, for instance, several committees have been formed to oversee and make recommendations 

to the Secretary about committing additional loan funds. However, 

in our view, there still is room for improvement, and that is why 

we have made these recommendations, first of all, to fully staff the 

loan project office with permanent professionals. There is a need 

for more expertise in, for instance, project finance. 

Many of the positions are currently financed by consultants who 

are temporary employees. We believe that going forward there 

needs to be consolidated internal oversight and, very importantly, 

the formation of a risk management department. Currently the 

loan project office executive director oversees the credit department, for example, the compliance department. We believe those 

should be separated out, and there ought to be an independent 

view within the Department of Energy about the risk that is being 
9 

undertaken as loan are provided, and also about the ongoing dynamic changes in risk within these loans. 

An independent oversight would be another check and balance. 

We think that that position should have the ability to call for a 

halt in a funding until the Secretary approves if there is a different 

opinion between the risk management department and the loan 

project office as to whether that loan should go forward. 

The CHAIRMAN. As I think you are aware, Senator Murkowski 

and I and some others here on the committee have proposed a bill 

called a Clean Energy Deployment Administration to establish an 

independent agency outside the Department of Energy that would 

take over responsibility for administering loans. Have you had a 

chance to look at that? Do you think that the general thrust of that 

legislation would make sense as an alternative to continued housing of this activity in the Department of Energy? 

Mr. ALLISON. Chairman Bingaman, I have reviewed the legislation. I think that all can agree that there is a need for professional 

oversight and the use of best practices in managing and overseeing 

this portfolio. 

I think that there are several questions that I might pose. These 

are more in relation to policy. Again, my brief here was to do a 

fact-based analysis. 

But in answer to your question, I think that one issue is, if there 

is an independent agency within the Department of Energy, who 

is responsible for policy implementation of this program? Is it the 

new CEDA agency, or is it the Secretary? My understanding is that 

this agency would be completely independent from a decisionmaking standpoint from the Secretary. So, one, I think the law 

should provide who is really accountable. 

Second, should there be a sunset provision in this bill? The purpose of these clean energy loans is to provide funding for projects 

until they reach commercial maturity and funding is available in 

ample amounts in the public markets. Unlike many other loan programs administered by the government, which have really indefinite futures, like student loans, or FHA, and so forth, this intended, I believe, to be a program that would run only a certain 

number of years. So, perhaps there needs to be some type of sunset 

provision. 

The CHAIRMAN. Do you have anything else to add? Go ahead if 

you do. 

Mr. ALLISON. I think, too, as I read the bill, it would allow this 

agency to be able to borrow to fund its operations. This could mean 

that this agency would have not only equity—perhaps $10 billion— 

but indefinite funding capability. Is there a possibility that it might 

start to grow in size and begin to crowd out private sector financing? That is one potential risk. Could it become an independent 

force in and of itself? 

So, I think that these types of issues need to be carefully looked 

at before the decision would be made to go ahead. 

The CHAIRMAN. Thank you very much. 

Senator Murkowski. 

Senator MURKOWSKI. Thank you, Mr. Chairman. 

Mr. Allison, when we created the Loan Guarantee program, there 

were a number of terms and conditions that were inserted at im-
10 

plementation, and I want to ask you 3 questions, I hope pretty 

brief. 

But one condition in the program is that there be a ‘‘reasonable 

prospect of repayment.’’ In your opinion, what is a reasonable prospect of repayment? Is it an 80 percent chance that it is going to 

be repaid, a 70 percent? Is it higher, is it lower? What is reasonable? 

Mr. ALLISON. Senator, that is an excellent question, and we actually looked at the history of that term in legislation, and it goes 

back quite a long way. But nowhere could we find a definition of 

reasonable prospect of repayment. 

Senator MURKOWSKI. So, how would you define it? 

Mr. ALLISON. If it were—I think that is precisely the issue, how 

does one define it? I would say ‘‘reasonable prospect’’ would probably mean more than a 50 percent probability, but others might define it as a 90 percent probability. With that amount of vagueness, 

there is room for a great deal of controversy and second guessing—— 

Senator MURKOWSKI. Yes. 

Mr. ALLISON [continuing]. About this program. So, I would respectfully recommend that there be greater clarity to these policy 

goal regarding financial recovery. 

Senator MURKOWSKI. Then, let me ask you another one where I 

think we ran into a situation where there was some vagueness. Another requirement was that the obligation is not subordinate to 

other financing. 

Mr. ALLISON. Yes. 

Senator MURKOWSKI. I read that and it is, like, OK, there is no 

subordination there. But apparently there was some vagueness 

there. Do you think that in that situation this particular condition 

of the authorizing statute was vague in any way? 

Mr. ALLISON. Yes. Not being an attorney, let me say in reading 

it, I think that it is quite clear to me that at the point of origination, there should not be subordination. The question is, later on 

if a project runs into trouble or a loan runs into trouble, DOE’s the 

law allow that in order to preserve taxpayer assets, the DOE have 

the ability to subordinate? 

In commercial practice, it is common that where a loan gets in 

trouble, in order to attract additional financing so the project can 

succeed, the existing lenders subordinate. They have a better 

chance of recovery. 

If the objective is recovery for taxpayers, I would respectfully 

submit that there are a couple of techniques widely used in the private sector that are missing that are not available, or at least are 

in doubt, to the DOE. One is to be able to subordinate because at 

least you will get something back on the investment perhaps. The 

second is to be able to contribute equity or to convert to equity. In 

this case, it looks like that is ruled out. 

I think that if I can speak more broadly about this, there is— 

these laws confine the type of financing that the government can 

make quite a bit. There is virtually no upside for taxpayers if these 

projects succeed. They are strictly debt. There is one case, Tesla, 

where the government did take options. Apparently the govern-
11 

ment can take equity interest as a condition for making a loan, but 

it cannot make an outright equity contribution. 

I think for early stages of investments, it might be suitable in 

some cases for the government to contribute equity, to prevent a 

control issue from arising where the government controls a project. 

It might be non-voting. It might be convertible preferred or something like that. So, one broad observation would be going forward, 

with legislation like this, there might be a wider variety of options. 

There might be more consideration to recovery and gains for taxpayers. 

If a few projects were to pay off a lot, that might help to pay for 

any losses in the portfolio in other projects. 

Senator MURKOWSKI. Let me ask you one more then, and this is 

a requirement to ‘‘provide an amount sufficient to carry out the 

project.’’ Got to be pretty difficult to determine the overall cost of 

a project and whether or not available funds then will be there or 

sufficient to cover the amount before we have issued this loan guarantee. 

Mr. ALLISON. Right. 

Senator MURKOWSKI. How do we finesse that one? 

Mr. ALLISON. Yes. Most of the cost is going to take place during 

the construction phase until this project is up and running and begins to generate revenues. In that phase, the loan agreements provide that there must be very detailed budgets. There must be independent engineering analyses and then reports as progress goes 

along. As I mentioned before, there is phase funding, so certain 

benchmarks and milestones must be met before funds are advanced 

by the Federal Government. 

Senator MURKOWSKI. Is that happening, though? 

Mr. ALLISON. Yes. So, it is easier to estimate the cost. There still 

may be overruns, and most of these loans provide for some cushion 

in case of overruns. That is built in. There is, to our understanding, 

frequent reviews of progress in all of these projects. 

What is the unknowable is once these projects are operating, especially those without a power purchase agreement, which is pretty 

much a guaranteed source of revenue for the entire project, the capacity going forward, in the case of the manufacturing ventures, 

they have no power purchase agreement. They have to sell into the 

market. How well they will succeed in a dynamic, highly competitive market, for instance, for electric cars, that is open to question. 

That is why we divided up the portfolio the way we did into utility power purchase agreement type financings to the non-utility 

loans, including manufacturing of electrical components or cars, for 

example. Then Ford and Nissan, which is a large component of the 

whole portfolio, those are investment grade credits, so we treated 

them differently. Those are easier to analyze. 

So, the real risk, much of the risk, I would say, in the portfolio 

is in these non-utility manufacturing companies. 

The CHAIRMAN. Senator Stabenow. 

Senator STABENOW. Thank you, Mr. Chairman and Mr. Allison. 

Thank you very much for your analysis. It is very helpful to us. 

As someone who was deeply involved in authoring the advanced 

technology vehicle manufacturing program or section 136, working 

with our chairman, at the time when we put that into the energy 
12 

bill, there were a number of things that were happening in terms 

of the credit markets. But also we were in the legislation, the energy bill, in 2007, we were raising the fuel efficiency standards and 

encouraging more smaller, fuel efficient vehicles. I was extremely 

concerned at the time that that production would go overseas if we 

did not, in some way, support retooling our plan. So, that how is 

we came up with this particular program. 

In fact, it has done what we wanted it to do, at least at the beginning. I mean, it is stuck at the moment here. But when we look 

at Ford Motor Company retooling their Michigan assembly in 

Wayne, Michigan, saving 1,900 jobs. They are actually bringing 

jobs back from Mexico now related to that operation, as are a number of other operations. 

So, first I would just, as a statement, Mr. Chairman, when we 

look at the global economy where Germany, China, India, Japan, 

every other country wants to do manufacturing, advanced manufacturing, so that they have good middle class jobs, they are all providing support in some way for financing, tax incentives, and so on. 

At least as it relates to the ATVM Program, that is very much 

what the goal of that is, is to make sure that we are providing that 

support to keep jobs here in America. 

What would you recommend to make this retooling program 

more effective at this point? 

Mr. ALLISON. First of all, I would point out that these programs 

are intended to encourage risk taking. That is the whole point really. So, having risk in the portfolio is understandable. 

I think what is important going forward is to make sure that this 

portfolio is well managed by professionals, that there is independent risk oversight of this portfolio, that there is ample public 

reporting on each of these projects and how they are doing so that 

the public and the Congress is kept well-informed. 

While these programs are being managed, again, there is some 

room for improvement, and I think that with the recommendations 

that we are putting forth, if those are adopted, I think that this 

portfolio can be very responsibly managed going forward. 

Senator STABENOW. Speaking more about the risk, because I 

know there is a concern and there has been criticism related to the 

amount of risk that the Department has taken on the loans and 

loan guarantees. But I found it interesting that your report suggests that some of the risks associated with loans has actually gone 

down, and particularly again with the retooling, the manufacturing 

retooling loans. In particular, you calculated the risk associated 

with the Ford retooling loan and Nissan had decreased by 95 percent. 

Mr. ALLISON. That’s right. 

Senator STABENOW. Now I would suggest it is, in part, because 

companies like Ford are making fuel efficient vehicles. People are 

buying. Consumers are buying. It is doing well. It has been a real 

success story. 

But I wonder if you could talk a little bit more about other reasons for changes in risk assessment that you saw in your report. 

Mr. ALLISON. First of all, some of these projects have progressed, 

and, you know, Ford is the best example. During the height of the 

crisis, all the automobile companies, even including Ford, which, 
13 

you know, did not need a bailout, they were also suffering during 

that time. Ford has staged a remarkable recovery, and that is why 

the debt that the government now holds from Ford is rated investment grade. It is triple B today. That has had a major effect on 

the overall risk composition of this portfolio. 

So, I think that as projects, as I mentioned in my testimony, as 

they progress, as long as they are progressing according to plan, 

the risk in that project declines. The major component of risk in 

many of these projects is during the construction phase, especially 

for the utility related projects because once they are completed, 

they will have a binding long-term contract with an investment 

grade utility to purchase all of their production. 

So, I think that, again, in several years, the tenor of risk in this 

portfolio should be demonstrably improved, if all goes according to 

plan. 

Senator STABENOW. Thank you very much. 

The CHAIRMAN. Senator Coats. 

Senator COATS. Thank you, Mr. Chairman. 

Mr. Allison, I want to thank you for your work. I think it was 

very important to have someone take an independent look at the 

situation. 

I guess my question goes back to the more fundamental question 

of what the role of government should be in something like this. 

We have some celebrated failures, and it sours the public in terms 

of the use of taxpayer money when they read about these failures. 

We are talking about estimates of several billions of dollars of taxpayer money that—— 

I guess my question goes to, what is your take on the question 

of the government limiting its investments into basic research, and 

letting the private market take more of the risk in terms of the 

commercialization of various products and new innovations? Have 

we learned some lessons from our efforts to direct money to specific 

industries and specific companies? 

You know, there is always the question of whether there is political influence in the decisionmaking process. I mean, there are 

some of these allegations—I am not going to go into them—but allegations that on some of these loans there were directions from 

policymakers at the White House or political directives coming 

down in terms of certain industries and so forth and so on. 

Are we just—and now we are talking about better management 

of the process, but is the basic process broken to start—have a fatal 

flaw to start with? 

Mr. ALLISON. No. 

Senator COATS. Could you just give me your thoughts on that? 

Mr. ALLISON. Senator, thanks for the question. That is a very important question. I am a big believer in the capital markets, having 

spent most of my years of my professional career in the capital 

markets. I think that if we look back in history here, and I am sure 

you are well aware of this, in the energy field and many other 

fields, like medicine, et cetera, transportation, the Federal Government has played an important role in getting projects off the 

ground to the point where they could stand on their own. If you 

look at the space program now, we are starting to see commercial 

launch commercials coming into effect and into operation. But the 
14 

government had to fund the initial stage, and the same with most 

forms of energy. Nuclear energy is a great example as well. 

I think—so where there is a policy need, and this is where, of 

course, the Senate and the House of Representatives have to make 

the decisions, there may well be a legitimate role for government 

financing. I think, however, that financing needs to be tailored to 

the policy goal and to the risk characteristics of these projects, and 

to, where possible, provide mechanisms for taxpayers to benefit if 

projects are successful with Federal money. 

I do think that there is the so-called valley of death in various 

phases of financing for, say, clean energy, where the government 

can play a constructive role. These projects need to be carefully researched, and they need to have financing structures that protect 

taxpayers. There ought to be a finite life, as I mentioned earlier, 

to these types of programs, which are intended for a specific purpose, for a certain period of time, until these industries mature. 

Senator COATS. I think your recommendations—I mean, should 

we go forward on the basis of what you have just said, would be 

helpful in that regard. But it concerns me when I read that, you 

know, the inability to attract the necessary people with necessary 

skills and experience in order to work in the public sector, to make 

these types of evaluations, particularly when they are using someone else’s money. When you are making these evaluations in the 

private sector, the bottom line is what ultimately counts, and so, 

therefore, I think this naturally would get a much keener and 

sharper look and due diligence before you commit the funds. 

Second, it is outside the political process. I am—you know, there 

is responsibility here that falls on both sides for some of these programs in terms of we continue to read about the political influence 

directing things the wrong way. For instance, stepping out of this 

field into another, I can remember talking to the head of NIH, and 

he said, you know, if Congress would not direct how we do our— 

how we allocate our money, we could be making breakthroughs in 

life threatening illnesses that are very, very close. But Congress 

keeps telling us, no, you got to put the money somewhere else. 

I am afraid part of the beast here that exists from a political 

standpoint in terms of our thinking that we have, you know, or responding to constituent requests or whatever, that we have a better ability to direct where the funds go than the private sector 

does. That’s where, I think, we get in trouble. 

My time has expired. I just did not really come to preach. But 

you do come out of the private sector, and I think your evaluation 

of this is important for us to hear. 

Mr. ALLISON. Yes. Senator, may I just respond. 

The CHAIRMAN. Go right ahead. 

Mr. ALLISON. On your final points, Senator, that is why I think 

it is important that these programs be reviewed periodically to see 

whether they are still relevant and ideal for the current climate 

and the objectives that are being sought. 

I think in terms of making sure that there is professional staffing, as we pointed out, there is no provision for long-term funding 

of the loan project office. I think one of the reasons why it is difficult to attract and retain professional talent is that people do not 

see that if they come into the government in one of these roles, 
15 

that this program will be funded down the road. It is funded now 

out of origination fees. So, as loans are closed, funding comes into 

the Department of Energy that underpins this loan project office. 

But once the origination stops, that funding dwindles. 

This program has loans that are going to be out there for 20 to 

30 years. It is going to need active, professional management for 

the entire time that the government holds these loans, because decisions will have to be made all along the way. 

So, to attract people, I think they need to have assurance that 

the funding will be there. Otherwise, why should they join up and 

oversee this program? 

Senator COATS. If I could just have 10 seconds, but wouldn’t that 

go against the whole concept of sunset programs 30 or 40 years 

out? 

Mr. ALLISON. Yes. 

Senator COATS. But assuming that you are talking about sunset 

in the amount of commitment, does not that run counter—— 

Mr. ALLISON. Once—— 

Senator COATS [continuing]. The other? 

Mr. ALLISON. What I am talking about, Senator, is that if you 

have an ongoing program where you are going to making loans 

over time, then I think you need to think about having a sunset 

provision. When do we stop making new loans? When is the private 

market able to finance these types of projects without government 

assistance? 

But once long-term loans like these are made, they are going to 

have to be administered. Now, as we point out, one consideration 

should be, should the DOE sell off these loans? Once they are matured and there is a public market for them, should they sell them 

off, or should they hold them? But we presume that they are going 

to hold them for many years. If they are going to hold them for 

many years, there is going to have to be professional oversight to 

make sure that the taxpayers are being protected. 

The CHAIRMAN. Senator Wyden. 

Senator WYDEN. Thank you, Mr. Chairman, and, Mr. Allison, 

thank you for your good work. 

It seems to me that as you drill into this and look at the various 

kinds of loans, you come to the conclusion that not all energy loan 

guarantees are created equal. You then compare that to the statute, the loan guarantee statute, which basically lumps everything 

together, and you say to yourself, that sure looks like it is right at 

the heart of what the Congress ought to be trying to do. You have 

made a number of constructive, you know, comments today that 

track with my thinking. 

I mean, if there is private sector investment, for example, that 

signals a message that people can feel more confident that this is 

something that can work. Utility linked loans, for example, which 

the Pacific Northwest, as you know, has been very interested in, 

a utility linked loan ensures that you already have a customer 

lined up. You have got a customer lined up from the get go, which 

also should give a measure of confidence. 

I think my question to you is a result of sort of starting with this 

proposition that not all energy loan guarantees are created equal. 

My question would be to you, would it make sense for the Congress 
16 

to really step back now and look at restructuring the loan guarantee statute to, in effect, set up different categories that recognize 

fundamentally different risk to the taxpayers? You would measure, 

for example, something that would ensure that there was a market 

from the get go. That could be one category. Something else which 

was exciting and promising, but didn’t have the same level of support could be a different, you know, category. 

My question to you is, would it make sense to restructure the 

loan guarantee statute along the lines of recognizing different risks 

to taxpayers? 

Mr. ALLISON. Senator Wyden, I think that is an excellent 

thought. I think that you do have a wide variety of loans in this 

program. I think there needs to be great clarity about the purposes 

of the programs as a whole and what they are designed to achieve. 

Again, as I said before, I do not think there is anything wrong 

with making some loans that are admittedly risky as long as we 

are acknowledging at the time the risk in the loans. I think one 

of the causes of controversy about this program is that there are 

differing expectations about what this is supposed to be doing. I 

think your question hits on that. 

You could have some programs, like the utility linked loans, 

where the risks are much better understood, where you have much 

less risk once these projects are built. There are certain risk characteristics. That is why we divided up the portfolio that way. There 

may be very good reasons to be supporting early stage innovative 

manufacturing companies in green energy to get those industries 

off the ground. That is going to involve higher risk. That ought to 

be acknowledged. There should probably be different types of financing available so that, again, greater risk, there are ought to 

be prospects for greater reward for taxpayers. 

The way this program is structured today is kind of one size fits 

all. These are loans at government rates. I am not sure that in all 

cases they need to be at such a low interest rate to attract funding. 

The fees that the DOE can charge are very low. There is no provision for upside in terms of some type of an equity linked gain. So, 

maybe there is a different type or package of financing that should 

be available for riskier projects than for, say, the utility projects 

where there is a pretty conventional approach to debt structuring. 

Senator WYDEN. I thank you, and I thought Senator Murkowski 

also made a lot of sense when she was saying right from the get 

go, nobody goes into this thinking that everything is going to be 

100 percent, you know, winner in a dramatic opportunity for creating scores of new jobs and the like. 

But taxpayers deserve better, it seems to me, than a program 

that lumps Solyndra, in effect, in the same category as one of these 

utility linked projects that has the customer, you know, up front. 

I think this is another area—Mr. Allison, I appreciate your answer—where we can do better for taxpayers in this country, do better for some of the most exciting and promising technologies. I see 

Senator Sanders here. He has talked a lot about the opportunities 

in renewable energy. I think we have got a chance to make some 

exciting changes in this country if we restructure this program. 

Mr. Chairman, I thank you for holding the hearing. 

The CHAIRMAN. Senator Barrasso. 
17 

Senator BARRASSO. Thank you very much, Mr. Chairman. I agree 

with my colleague, Senator Wyden, that taxpayers do deserve better. I appreciate your work on this. 

The report had a section called ‘‘Proactively Protecting the Taxpayers’ Interests.’’ The report says that DOE should aggressively 

strengthen its positions as lender or guarantor in cases where borrowers seek relief from requirements in the loan repayments. Senator Murkowski addressed that. 

You know, with regard to the situation with Solyndra, the Secretary has argued that the Department of Energy did not violate 

the 2005 Energy Policy Act when restructuring Solyndra’s loan, 

which they restructured. It worked in a way that I thought put the 

American taxpayers at a disadvantage, that they were subordinated to other financing. 

So, you know, I understand the Secretary saying that the law applies to origination of loans, not to the restructuring of loans. I do 

not agree with that interpretation. I think that the policy—Energy 

Policy Act of 2005 does not distinguish between origination of loans 

and restructuring of loans. 

So, with that said, would you support legislation to ensure that 

American taxpayers will always be paid before private investors, 

whether it is an origination of a loan or a restructuring of a loan? 

Mr. ALLISON. Senator, thank you for your question. I think if the 

paramount issue is recovery for taxpayers once these loans are 

made for policy purposes, based on my experience in the commercial world, I think that the, in this case, the Department of Energy, 

should have some flexibility to subordinate because that may be 

the best way, once the loan has been issued on a singular basis, 

to recover some money for taxpayers, because by subordinating, it 

may make it possible to attract additional funding from other debt 

investors, which can help that project succeed. 

Sometimes these projects are going to run into trouble. They are, 

after all, risky. But that does not mean everything has to be lost. 

There needs to be creative refinancing for projects as a way to protect taxpayers and actually enhance the probability that they will 

get some of their money back. 

Senator BARRASSO. It seems to me that subordination in the case 

specifically of Solyndra did not work—— 

Mr. ALLISON. Yes. 

Senator BARRASSO [continuing]. To accomplish that goal. Thank 

you. 

I want to ask you about bonus payments, to follow up on what 

you have said about taxpayers and getting value for their money. 

Several Department of Energy loan and grant recipients have recently filed for bankruptcy. They have laid off workers. They have 

experienced financial difficulties. The media has reported that several of these companies, including Solyndra, awarded large bonuses 

to executives and other employees, specifically the bonuses to executives as other employees were being laid off. 

Last week it was reported that Beacon Powers’ bonuses were specifically linked to executives’ progress in landing the company’s $43 

million loan guarantee. 
18 

So, what, if any, protections are in place to ensure that American 

taxpayers do not foot a bill for bonuses awarded at failing companies. 

Mr. ALLISON. Thank you, Senator. 

First of all, let me, again, emphasize that we did not look at 

Solyndra and Beacon. We have not looked at the companies that 

received grants. We are only looking at the loan program. 

I think that it is important—and the provisions in this law allow 

for this, and the Department can certainly have policies on this— 

should be looking at all the expenses planned in these programs. 

They may want to build in the capability to review, for instance, 

compensation programs. I am not sure that that provision is in 

these loan agreements, by the way, but that is something that 

might be considered because I can certainly understand the public 

consternation if people are receiving bonuses while a company is 

veering toward bankruptcy. 

Senator BARRASSO. So, that would be one of your recommendations in terms of ensuring that abuses like this do not take place 

again. 

Mr. ALLISON. I think that is a reasonable idea, yes, sir. 

Senator BARRASSO. Thank you. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. 

Senator Sanders. 

Senator SANDERS. Thank you, Mr. Chairman. Mr. Allison, thank 

you for being with us. 

In terms of full disclosure, let me just be very clear that I happen 

to believe that global warming is very real. I think it is causing 

enormous problems to our planet today, and I think it is totally irresponsible that we are not moving as aggressively as possible to 

reduce greenhouse gas emissions. 

I would mention to my colleagues that a few weeks ago Senator 

Whitehouse and I had a press event with representatives of the insurance industry, not generally noted as one of the more radical 

groups in our society. They pointed out the enormous damages that 

extreme weather disturbances are doing to their bottom line because of global warming. 

So, it is my view that our country and the Federal Government 

should be investing very, very strongly in energy efficiency and 

sustainable energy in order to reverse greenhouse gas emissions 

and try to protect the planet. 

Now, in a sense, what we are talking about today is the role of 

government in energy, and we have been focusing on Solyndra and 

the 1705 program. But let me ask you a question, which I hope you 

have some familiarity with. Back in the 1960s and 1970s, there 

was a huge overbuild in terms of nuclear projects. In fact, as I understand it, about 100 nuclear facilities were terminated at huge 

expense both to rate payers and taxpayers. 

Right now, I find it a bit ironic that some of my friends talk 

about picking winners and losers. But would you not agree with me 

that for the last 50 or so years, the U.S. Government has picked 

as one of its winners a very, very risky industry called nuclear 

power, an industry which, and please correct me if you disagree 

with me, would not be in existence today without the very, very 

strong support of the Federal Government in terms of the Price-An-
19 

derson insurance program and, furthermore, in terms of the attempt at least to get rid of nuclear waste. So, would nuclear industry not be in the existence today if they were solely dependent upon 

Wall Street and the financial community to support them? 

Mr. ALLISON. Senator, I would like to respond to your question, 

but I must confess I do not have real expertise on that question. 

I think that is a very broad, deep question as to whether the government should have been sponsoring nuclear energy. 

I do believe as a general comment that in any nascent industry, 

and right now you could look at nuclear fusion, which could be the 

answer to a lot of our energy needs and could be a very clean 

source of energy. It may take—— 

Senator SANDERS. Mr. Allison, I am sorry to interrupt you. I 

have a limited amount of time. 

Mr. ALLISON. Go ahead. 

Senator SANDERS. When people talk about winners and losers—— 

Mr. ALLISON. Yes. 

Senator SANDERS [continuing]. Is it fair to say that for the last 

50 years, the U.S. Government has decided that one of the winners 

in which we should make huge investments is the very, very risky 

nuclear power industry? 

Mr. ALLISON. The only comment I would make is that early—and 

this is from my own experience, so I comment on this. In early 

phases of any industry, it is very difficult to pick winners and losers. Therefore, often you find financing for a lot of different approaches to solving a particular problem, and over time, one learns 

a lot. 

Senator SANDERS. Right. I agree. I agree with that. The only 

point that I am making—— 

Mr. ALLISON. Yes. 

Senator SANDERS [continuing]. Is then when some people talk 

about the riskiness of certain types of sustainable energy or the 

problems with Solyndra, is it fair to say that we have seen that 

maybe 10 times plus in terms of the nuclear industry, which has 

at certain times already lost huge amounts of money from the taxpayers of this country? Is that a fair statement? 

Mr. ALLISON. I would respectfully answer. I think that your next 

witness, Secretary Chu, is a far more qualified expert on that question than I am. 

Senator SANDERS. All right. Thank you very much, Mr. Allison. 

All that I would say, Mr. Chairman, is, yes, we do pick winners 

and losers, and probably the great winner in terms of Federal subsidies is not only the nuclear industry, but the fossil fuel industry 

as well. We have pumped billions and billions of dollars into those 

industries. I, for one, think it is time to begin focusing on energy 

efficiency and sustainable energy. 

Thank you, Mr. Chairman. Thank you, Mr. Allison. 

The CHAIRMAN. Thank you. Senator Lee. 

Senator LEE. Thank you, Mr. Chairman. Thank you, Mr. Allison, 

for being here. 

I certainly agree that an audit of this program is warranted 

wholeheartedly. The real question for me is whether the government should even be playing venture capitalists with taxpayer 
20 

money in the first place, whether in this specific sector at the energy industry or elsewhere. 

I want to make clear that my concerns over the administration 

of the Loan Guarantee program should not be mistaken for tacit 

approval of the program as a whole. When companies like Solyndra 

and Beacon Power fail, millions of taxpayer dollars are wasted, and 

it is clear that the government, in my opinion, truly has no business being in the investment business. 

The apparent basis for the program as I understand it is that 

there are just certain types of investments that are so inherently 

risky that only the government can invest in them, only the government will invest in them. Today you seem, if I am understanding what you are saying correctly, to be somewhat 

downplaying the risk of these investments. 

It is seems a little bit contradictory to say that, on the one hand, 

government intervention is absolutely necessary because only the 

government can do this, and that it is too high for private equity 

markets, and then also to claim that it is an appropriate risk of 

taxpayer funds because there are adequate safeguards in place. So, 

which is it? Is it too risky, or is it—or are the risks manageable? 

Mr. ALLISON. Senator, thank you for your question. I think that 

these are policy questions that Congress needs to grapple with and 

answer. I am not sure that there—you can give a blanket answer 

to your question. I think, and you know this far better than I, but 

the Congress has constantly deliberating about what is in the national interest and the public interest over the long run, the payoffs 

such from some initiative to the public. They may not be direct financial returns, but they may be social consequences, whatever, 

that make it worth the government’s while to be involved. 

I think that there are numerous areas where private financing— 

and I am talking about health initiatives, for example, and that is 

why we have NIH doing research, and that is why we fund research in universities in physics and lots of other areas. So, there 

may be a legitimate role for government where private financing is 

not available. 

I do believe, as I mentioned earlier, that these programs should 

be constantly reviewed, to the extent that there are programs in 

place, to see whether they are still necessary. Do they still meet 

that policy need, or are there private alternatives available today? 

I believe that ultimately the best allocation of resources will take 

place through private interactive markets. 

Senator LEE. Part of that inquiry then now to involve, is the risk 

manageable? If it is manageable, could it not under circumstances 

be manageable from a private capital standpoint, right? 

Mr. ALLISON. That is a very legitimate question. 

Senator LEE. If it is not manageable risk, then perhaps we 

should not be putting taxpayer dollars at risk. 

So, your report did not consider either Solyndra or Beacon 

Power, and that is because, as I understand it, that is no longer 

part of the program. Those are finished. 

Mr. ALLISON. Senator, yeah. They were no longer really part of 

the portfolio because they were in bankruptcy and their eventual 

value would be determined in the courts and through recovery. 
21 

Senator LEE. Do you have any way of guessing how that might 

have affected your report, what your report might have looked, how 

it might have been different had those still been on the books, had 

those not gone through bankruptcy at the time you conducted this 

report? 

Mr. ALLISON. I would only be speculating, but certainly we would 

have applied the same methodologies to examining those loans if 

these companies were still extent and not in bankruptcy. You 

know, the process that we used in each case was totally independent, and we took a look at voluminous information on each one 

of these loans to try to gauge the risk at this time. We look at engineer’s report, rating agency reports, and so forth. 

So, we would have followed the same process there. You know, 

I would only be speculating as to what we would have found, however, because we did not look at those 2 companies. 

Senator LEE. Might this have been one of those instances in 

which, as you acknowledged in your report, certain procedures 

were not followed, certain documents were not completed, and so 

forth? 

Mr. ALLISON. I believe, Senator, that there are—investigations 

under way. I would only be speculating about that because I have 

no information about Solyndra that is not available in the newspapers. 

Senator LEE. OK. Thank you. I see my time has expired. 

Mr. ALLISON. Thank you very much. 

Senator LEE. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. Senator Franken. 

Senator FRANKEN. I think if I just heard Senator Lee correctly, 

you said that if the risk is manageable, we should not be putting 

tax dollars at risk, and if it is not manageable, we should not be 

putting tax dollars at risk. Did I hear that correctly? 

Senator LEE. I did. 

Senator FRANKEN. So, therefore, we should not ever put tax dollars at risk. 

Now, I agree with Senator Sanders. We have a global climate 

change problem. We had testimony from the director of the Forest 

Service the other day who said that the duration, intensity of these 

forest fires are caused by global climate change, and it is just going 

to get worse. We are spending more and more and more and more 

money on that. There is an actual cost to these taxpayer. Taxpayer 

money is at risk because of global climate change. 

The bark beetle is eating more and more of our forests because 

of climate change, because they do not die from severe winters at 

certain elevations when they used to. 

So, it is actually costing the taxpayer dollars are at risk if we do 

not address this and try to get to clean energy. So, it seems to me 

that our tax dollars are at risk if we do not do something. That 

what it seems to me. 

So, it seems like we got to just do this as smart as possible. That 

is what it seems like to me. So, I want to follow up on Senator Wyden’s comments and questions. 

First of all, I just want to say I appreciate the thorough investigation you have conducted here. 
22 

Let me bore down something very specific. One of the most important aspects of Loan Guarantee program is the right credit subsidy of these loans. If the cost is too high to a company, it may not 

be able to seek a loan, and it may be a technology that has a lot 

of promise. If it is too low, the taxpayer may not be adequately protected from possible default. 

As you noted in you report, in some cases these subsidy costs 

were underestimated, while in other cases they were over estimated. 

My question is, can you tell us what you observed with respect 

to transparency of the credit subsidy cost calculation? Can the 

credit subsidy cost calculation for each individual project be done 

in a more transparent process that the public can access? 

Mr. ALLISON. We did look at the credit subsidy process because 

we had to learn it in order to make our own estimates of what the 

credit subsidy we think should be. 

Like any financial model, it has strengths and witnesses, given 

the intended purpose. The purpose of FCRA, the Federal Credit Reform Act, method used in budgeting is to have a consistent approach that applies to all programs across the government. FCRA 

can certainly do that if, for instance, it uses the same government 

discount rate pretty much for all these programs. 

In terms of estimating the loss on these particular loans in the 

DOE portfolio, you then have to calculate a credit rating, and because the credit rating is used to determine what the default rate 

is expected to be given that credit. For instance, most of these credits are single B or double B credits. So, what is done is to look at 

years of data across many different types of loans that are rated, 

let us say, double B, and figure out historically what has been the 

default rate. Then you plug in that rate into the model. 

Then there is a recovery rate. Let us say that the loan DOE’s go 

bad and you have to recover in bankruptcy. What has been the typical rate of recovery against the amount of the loan, and/or the 

value of the assets after bankruptcy? 

Now, the weakness in that model is that you are using indexes 

on default rates and recovery rates that apply to a wide variety of 

loans that are not particular to the idiosyncratic nature of these 

loans. So, there is no easy way, given the novelty of these loans, 

to calculate what the default rates and the recovery rates are going 

to be. 

Fair market value, another method, has some advantages, and 

that it will apply an estimate of a market rate of discount to determine what discount what the investors would demand in order to 

purchase this loan at the interest rate that it has and get a market 

return given the risk. 

That also has weaknesses because you cannot apply that in 

budget very easily across the government because you are—each 

discount rate would be different. There would be a lot of contention 

about what it is an appropriate discount rate for each one of these. 

I think it would be hard to have a standard budgeting process. 

So, it is very important with all these models to understand what 

the purpose is, what the strengths and weaknesses of the models 

are. Last, do not give too much credence to these models in estimating what the ultimate loss will be, especially with loans like 
23 

these that have 2-year or 30-year lives that are dealing with novel 

technology, and where the government has the ability to control 

the risk and its exposure in a variety of ways through the loan covenants. It does not have to advance all the money, for example, if 

these projects are not meeting their contractual benchmarks. 

So, given all that, that is why we concluded, here are the estimates using these models as best as we can do. Do not pay too 

much attention to them or think that, well, we are going to lose 

$2.7 billion. That is not the case. It may be more, it may be less. 

It could be a lot less than is indicated by that number. 

What is important is to manage the portfolio very actively day 

to day. You have it. It exists. You better manage it very carefully 

on behalf of the taxpayers and use the terms and covenants in the 

loan agreements to the advantage of taxpayers. 

Senator FRANKEN. So, my time is way up, but what you are basically saying is there is not necessarily a scientific subsidy calculation here for this subset, of loan guarantees, but the management 

of each guarantee is of tremendous important. 

Mr. ALLISON. Yes. 

Senator FRANKEN. Thank you, Mr. Allison. Thank you for your 

work. 

Mr. ALLISON. Thank you. 

The CHAIRMAN. Senator Paul. 

Senator PAUL. Thank you for coming today. 

Do you think that the commissioning of your study had anything 

to do with the political outcry over the bankruptcy of Solyndra? 

Mr. ALLISON. Senator Paul, I could not speculate on that. 

Senator PAUL. Were you commissioned after it became public 

that Solyndra was going bankrupt? 

Mr. ALLISON. Yes. 

Senator PAUL. OK. I find it curious then that we have this public 

outcry over this huge lapse of oversight where a billionaire gets a 

$500 million loan from the U.S. Government and goes bankrupt. 

Turns out that his attorney’s husband works in the Department of 

Energy granting the loans, and we are going to study oversight and 

we are not going to look at Solyndra? I find that very, very curious. 

My question to you would be, did anyone from the Administration ask you either verbally or in writing not to mention or look 

into Solyndra? 

Mr. ALLISON. The direct answer to your question is no. 

Senator PAUL. Did you have the power to look into Solyndra if 

you wished to? Your mandate looks to me wide open. You are supposed to look at oversight. Why would you not look at where the 

problem is? 

Mr. ALLISON. I was asked to look at the loans, the extent loans, 

the loans that exist now. 

Senator PAUL. It is says ‘‘current status of the portfolio, strengthen management and oversight of DOE’s program.’’ 

Mr. ALLISON. Yes, sir. 

Senator PAUL. If you are going to strengthen oversight, certainly 

you would have to look where the problems are. I would not 

think—I mean, this seems to be so myopic as to be politically motivated. I am very skeptical of why you do not look at Solyndra when 
24 

that is the whole reason you were commissioned was over 

Solyndra. 

But here is the thing is, you have got Solyndra. You have got 

Beacon Energy going bankrupt. You have got BrightSource maybe 

going bankrupt. What about BrightSource? Did you look at 

BrightSource? 

Mr. ALLISON. That was not part of this program, sir. 

Senator PAUL. Is BrightSource not part of the current portfolio 

of Department of Energy loans? BrightSource got $1.8 billion from 

this loan portfolio. 

Mr. ALLISON. Yes. 

Senator PAUL. The thing is, is who owns BrightSource? Robert 

Kennedy, Junior, another politically connected Obama contributor 

who gets $1.8 billion of our money. You know what their profit? 

Their loss? They lost $13.5 million. They are $1.8 in hock. Is 

BrightSource ever going to get out of debt? Why are we giving taxpayer money to a family that has got hundreds of millions of dollars? 

This is about crony capitalism. This is not about starting up 

solar panels. It is about giving money to people who have already 

got enough money. Let them make their own loans. If they love 

solar panels, let them do it. But I do not understand, and you do 

not—you did not look at any of the problems and how we come to 

conclusions about oversight if you did not look at the companies 

where the problems originated. 

Mr. ALLISON. Senator, I think I understand your question. First 

of all, there are several investigations under way. If we were going 

to look at that, we would have needed investigatory powers, subpoena powers, the right to demand documents. We would have 

taken probably many months, if not a year, and we would have 

been going on top of the investigations already under way. 

Senator PAUL. Then, very specifically, the public information that 

is out there on Solyndra that Solyndra’s attorney’s husband worked 

in the Department of Energy, does that have any red flags for you? 

Mr. ALLISON. Again, Senator, I have not looked at those types of 

questions. 

Senator PAUL. If you knew that the attorney for Solyndra’s husband worked in the loan department granting the loans at the Department of Energy, does that send up red flags for you, yes or no? 

Mr. ALLISON. Senator, I do not know the facts of that at all. 

Senator PAUL. If you knew that in BrightSource somebody that 

used to work for the Kennedy family companies now works in the 

Department of Energy and approved the $1.8 billion loans, does 

that send up red flags? If you are commissioned to look at oversight, I mean, your reputation is on the line as an independent person—— 

Mr. ALLISON. Yes, sir. 

Senator PAUL. You are commissioned to look at oversight, and 

you did not look at where the problems in oversight were. 

Mr. ALLISON. Actually, Senator, we have looked at that. My point 

is, regardless of those facts, we were going to do as thorough a 

process of reviewing the policies and procedures of the Department 

of Energy regarding the management of this portfolio. 
25 

I think we did that. I think that we came to our independent conclusions about, first of all, how the portfolio is being managed, and 

you see a number of recommendations—about a dozen—— 

Senator PAUL. Do we give loans to foreign companies? 

Mr. ALLISON. We gave loans—under the law, loans could be 

made to U.S. companies, and these—— 

Senator PAUL. Fisker Karma got $500 million. My understanding 

is they are spending it building cars in Finland. Is that true or not 

true? 

Mr. ALLISON. At the time, and, again, we did not investigate 

whether the law was complied with in all cases. That was not part 

of our review. However—— 

Senator PAUL. Fisker Karma, did they get $500 million directed 

toward jobs in Finland? 

Mr. ALLISON. The entities that borrowed the money are U.S. 

companies. They may have ownership from abroad, but they are 

U.S. companies. For instance, Nissan North America is a borrower, 

and it is owned by a Japanese company, but it is a U.S. corporation. 

Senator PAUL. Thank you. 

The CHAIRMAN. We have a second panel, which is Secretary Chu, 

and I would suggest we go ahead and thank Mr. Allison for his testimony and go ahead to our second panel, unless there is any burning reason not to. 

Mr. Allison, thank you very much. We appreciate your being here 

and your testimony today. 

Why do we not see if we could ask Secretary Chu to come in so 

we can hear his perspective and ask him some questions? 

Mr. Secretary, thank you for being here. Welcome back to the 

committee. As you know, we just received testimony from Herb Allison about his report reviewing the Department of Energy loan 

and loan guarantee portfolio. We would be anxious to hear any 

thoughts you have on that very same subject, and then I am sure 

senators will have questions. So, go right ahead. 

STATEMENT OF HON. STEVEN CHU, SECRETARY, 

DEPARTMENT OF ENERGY 

Secretary CHU. Here we go. Thank you, Chairman Bingaman, 

Ranking Member Murkowski, and members of the committee. 

Thank you for the opportunity to discuss the Department of Energy’s efforts to strengthen our Loan Programs and to grow America’s 

clean energy economy. 

As part of our commitment to be a responsible steward of public 

dollars, the Department has cooperated with Congress’ request to 

discuss our loan portfolio and welcomed the independent review of 

Herb Allison. 

Mr. Allison released a thorough, thoughtful report. He made 

some important recommendations to strengthen the management 

and oversight of the loan portfolio. Even before the conclusion of 

Mr. Allison’s review, we took steps, many of which are consistent 

with the report’s recommendations, to improve the Loan Programs. 

This includes working to ensure that our team has a sufficient 

number of skills and experienced personnel to monitor and manage 

the portfolio to protect U.S. taxpayers. We have improved, and will 
26 

continue to improve, processes for productive monitoring, loan administration compliance, reporting, and resolution capabilities to 

take into account industry best practices. In addition, we have put 

in place rigorous internal and external reviews to hold the Loan 

Program Office accountable. 

The Department takes its responsibility to the U.S. taxpayers seriously, and we are looking closely at Mr. Allison’s recommendations for additional improvements. 

Mr. Allison and his team reviewed each active loan in the portfolio, looking at the risk factors behind each loan and estimating 

each loan’s cost. Mr. Allison’s report concluded the Department is 

using the appropriate risk factors in assessing each loan. 

The Federal Credit Reform Act defines the cost of these loan programs as the estimated long-term cost to the government, including 

the risk of default. For each loan, the subsidy estimate can be 

thought of as similar to the loan loss reserve—to similar to a loan’s 

reserve. 

Congress appropriated $10 billion in credit subsidy under the 

Federal Credit Reform Act for title 17 Advanced Vehicle Loan Programs. While the portfolio includes loans to a range of projects that 

carry different levels of risk, the reports finds that the Department 

of Energy has reasonably estimated the costs of these risks. In fact, 

Mr. Allison estimates that the long-term costs of the outstanding 

portfolio is $2.7 billion, roughly $200 million lower than the Department’s most recent estimate. 

The purpose of the Loan Programs is to provide low cost financing to innovative clean energy projects that have a unique value to 

the Nation both in terms of providing clean energy and inspiring 

the development of new industries. Overall, the Loan Programs 

have been successful in growing America’s clean energy sector. 

The Department supports roughly 3 dozen clean energy projects 

that are expected to employ more than 60,000 Americans, generate 

enough clean electricity to power nearly 3 million homes, and displace nearly 300 gallons of gasoline annually. As these are just direct benefits, they do not include additional supply chain jobs. 

Our Loan Program is spurring tens of billions of dollars in investment in clean energy projects, and helping to unlock private 

capital. Thanks in part to the Loan Programs, last year the United 

States regained its title from China as the world’s leader in total 

investment in clean energy. 

The Department of Energy is using all the tools at our disposal, 

including the Loan Programs, to strengthen America’s clean energy 

economy so we can compete globally. 

Improvements in technology and dramatic reductions in cost are 

driving a global revolution in clean energy. Last year, a record 

$260 billion was invested globally in clean energy. The question is 

no longer whether a clean energy economy will arrive, but whether 

America will lead it. As the opportunity grows, so does the competition. Many countries have established supportive policies and are 

making major investments in everything from renewables to electric vehicles, to next generation biofuels. To win the clean energy 

jobs of the future, the United States must do more than invent 

technologies. We must also manufacture them, deploy them here at 

home, and sell them around the world. Production of energy tech-
27 

nologies benefits from scale. Simply put, to have a competitive 

clean energy industry, we need programs that help spur deployment and markets. 

America faces a stark choice today. Will we play to win the clean 

energy race, or will we watch the rest of the world passes us by? 

Can we invest in America’s workers industries—we can invest in 

America’s workers, industries, and innovation, or we can send 

money and jobs overseas to import the technologies of tomorrow. 

Throughout our history, from aviation to agriculture to computer 

technologies, the Federal Government has supported the private 

sector to keep the United States at the technological forefront of 

important industries. It is time to take a page from our own playbook. We can still win the clean energy race, but we must act now. 

I know this committee cares deeply about our energy future, and 

I look forward to working with you to ensure that the United 

States leads in the clean energy economy. So, thank you, and I am 

pleased to answer your questions. 

[The prepared statement of Secretary Chu follows:] 

PREPARED STATEMENT OF HON. STEVEN CHU, SECRETARY, DEPARTMENT OF ENERGY

Chairman Bingaman, Ranking Member Murkowski, and Members of the Committee, thank you for the opportunity to discuss the Department of Energy’s efforts 

to strengthen our loan programs and to grow America’s clean energy economy. 

The Department’s loan programs have been the subject of much public attention. 

As part of our commitment to being a responsible steward of public dollars, the Department has welcomed and cooperated with Congress’ requests to discuss our loan 

portfolio. We also welcomed the independent review by Herb Allison, which we are 

here today to discuss. 

Mr. Allison was tasked with: 1) analyzing the current state of the loan and guaranteed loan portfolio under two Title XVII programs—Section 1703, Section 1705— 

and the Advanced Technology Vehicle Manufacturing loan program; 2) making recommendations for enhancement to the programs, if warranted and practical, to ensure effective monitoring and management of the current loan and loan guarantee 

portfolio: and 3) making recommendations, if needed, pertaining to early-warning 

systems to identify and mitigate potential concerns on a timely basis. 

Mr. Allison released a thorough, thoughtful report. He made some important recommendations to strengthen the management and oversight of the loan portfolio. 

Even before the conclusion of Mr. Allison’s review, we took steps—many of which 

are consistent with the report’s recommendations—to improve the loan programs. 

This includes ensuring that our team has a sufficient number of skilled and experienced personnel to monitor and manage the portfolio. We continue to work to 

make certain that the Portfolio Management Division has the resource capacity and 

expertise to actively monitor loan and loan guarantee transactions to protect U.S. 

taxpayers. 

We have improved, and will continue to improve, processes for proactive monitoring, loan administration, compliance, reporting, and resolution capabilities to 

take into account industry best practices. And we have upgraded the electronic systems of the Loan Programs Office to better automate and standardize data, so it 

can be reviewed and acted upon in a timely and streamlined manner, and best inform decisions. 

In addition, we have put in place rigorous internal and external reviews to hold 

the Loan Programs Office accountable. The Department takes our responsibility to 

U.S. taxpayers seriously, and we are looking closely at Mr. Allison’s recommendations for additional improvements. 

Mr. Allison evaluated both the monitoring efforts of the Loan Programs Office and 

its portfolio. As part of this effort, he and his team reviewed each active loan in the 

portfolio. They looked at the risk factors behind each loan and estimated the costs 

of each loan. Mr. Allison’s report concluded that the Department is using the appropriate risk factors in assessing each loan. In some cases, the report recommended 

minor differences in the weights given to each factor. 

The Federal Credit Reform Act defines the cost of these loan programs as the estimated long-term cost to the government, including the risk of default net of recov-
28 

eries; for each loan, the subsidy estimate can be thought of as similar to a loan loss 

reserve. Congress appropriated $10 billion in credit subsidy under the Federal Credit Reform Act for Title XVII and the Advanced Vehicle Loan Programs. Not all of 

the appropriated credit subsidy has been obligated. 

While the portfolio includes loans to a range of projects that carry different levels 

of risk, the report finds that the Department of Energy has reasonably estimated 

the costs of these risks. In fact, Mr. Allison estimates that the estimated long-term 

cost of the outstanding portfolio is $2.7 billion, roughly $200 million lower than Department’s most recent estimate. 

The purpose of the loan programs is to provide low-cost financing to innovative 

clean energy projects that have a unique value to the nation—both in terms of providing the clean energy our nation needs and in spurring the development of new 

industries that can generate many more jobs down the line. 

Overall, the loan programs have been successful in growing America’s clean energy sector. The Department supports roughly three dozen clean energy projects 

that are expected to employ more than 60,000 Americans, generate enough clean 

electricity to power nearly 3 million homes, and displace nearly 300 million gallons 

of gasoline annually. And these are just the direct benefits; they do not include additional jobs and investment that come from supply chains. 

Through active projects supported by loans and loan guarantees, our Loan Pro- grams are spurring $40 billion in investment in clean energy and advanced vehicles 

and helping to unlock private capital. Additionally, the success of these projects is 

generating additional private sector activity by serving as a model for other projects. 

Thanks in large part to the loan programs and other federal programs, last year— 

for the first time since 2008—the United States regained the title from China as 

the world’s leader in total investment in clean energy. 

The Energy Department is using all of the tools at our disposal, including the loan 

programs, to strengthen America’s clean energy economy so we can compete globally. 

Improvements in technology and dramatic reductions in cost are driving a global revolution in clean energy. Last year, a record $260 billion was invested globally in 

clean energy, and trillions of dollars more will be invested in the coming decades. 

The question is no longer when the clean energy economy will arrive, but whether 

America will lead it. 

As the global clean energy opportunity grows, so does the competition. Countries 

throughout Europe, Asia, and the Western Hemisphere have decided that energy 

technologies are critical to their national and economic security in the 21st century. 

Many countries have established supportive policies and are making major investments in everything from renewables to electric vehicles to smart grids and the next 

generation of biofuels. 

At least 10 countries have adopted renewable electricity standards, and more than 

50 countries offer some type of public financing for clean energy projects. For example, Germany and Canada operate government-backed clean energy lending programs, and China has provided strong support to its clean energy industries. 

These countries are determined to win the global clean energy race. And by any 

measure, they are already reaping rewards on their investments. Americans invented the silicon solar cell, developed modern wind turbines for electricity generation, and developed lithium ion batteries, but we are no longer the leader in these 

industries. China has surged into the solar manufacturing lead. Denmark is home 

to the world’s largest wind manufacturer, and Japan and Korea lead in advanced 

battery manufacturing, although the United States is making strong gains. 

To win the clean energy jobs of the future, the United States must do more than 

invent technologies; we must also manufacture them, deploy them here at home, 

and sell them around the world. The production of energy technologies benefits from 

scale. Simply put, we cannot have a competitive clean energy industry without programs that help spur deployment and markets. 

America faces a stark choice today. Will we play to win the clean energy race— 

creating U.S. jobs by making and selling clean energy technologies—or will we 

watch the rest of the world pass us by? We can invest in America’s workers, industries, and innovations or we can send more money and jobs overseas to import the 

technologies of tomorrow. 

Throughout our history, from aviation to agriculture, from biotechnologies to computer technologies, the federal government has supported the private sector to keep 

the United States at the technological forefront of important industries. In clean energy, other countries are running our plays. It’s time for us to take a page from our 

own playbook. We can still win the clean energy race, but we must act now. 

This is a serious issue that deserves a serious discussion. I know this committee 

cares deeply about our energy future, and I look forward to working with you in 
29 

the coming months to ensure that the United States leads in the energy technologies of the 21st century. Thank you, and now I am pleased to answer your questions. 

The CHAIRMAN. Thank you very much for being here. Let me 

start with a very general question. You advocated strongly for winning the clean energy race, which I have heard you say before, and 

I have done myself many times. In fact, I think it is clear to all 

of us that we really have several different clean energy races. One, 

of course, is in the development of these new technologies. ARPA– 

E is working on that. I know the Department has various other efforts going to achieve that. 

A second so-called clean energy race might be the manufacturing 

of these technologies so that we create the jobs here that are going 

to be created in this area. 

Third is the deployment of clean energy technologies, and I think 

you correctly point out that there is a real possibility that we would 

essentially cede to the rest of the world the ability to develop and 

manufacture technologies and just decide all we can do here is import them and hopefully deploy them. But it is a different challenge. 

I guess that Senator Wyden correctly pointed out that when we 

put the Loan Guarantee program into the 2005 law, we had not 

separated out the different types of clean energy or energy projects 

that might require some level of government support through a 

loan guarantee, and we hadn’t perhaps adequately segregated 

those out. 

I would be interested in any general thoughts you have about the 

appropriateness of us going back and trying to be sure that we are 

doing all we can in each of these various races to be sure that the 

United States does not drop out of the competition. 

Secretary CHU. Sure. I have listened to a portion of Herb 

Allison’s testimony, and I agree with him and the report. The report took the Loan Program and divided it into certain sectors. If 

you consider a sector where you are deploying a known technology, 

whether it is wind or solar, something which has a proven track 

record, there are considerably—especially if that project then has 

a utility company, which is a solid utility company with a good 

bond rating, with a long-term so-called power purchase agreement. 

That is to say, you have signed into contract this utility company 

will pay this amount for this electricity generated by wind or solar. 

As long as that utility company is a strong, stable company, the 

risk of that loan is different than the risk of a new innovative 

startup company. It is a considerably less risk, but it does help 

very much in the deployment of these large projects. So, that is one 

class of loans. 

The other class of loans that Congress asked us to invest in are 

investments in clean innovative manufacturing, whether it is an 

ATVM loan or whether it is something in the energy generation 

business. That by its very nature might carry a different risk. 

However, the mechanism that we were tasked with using, the socalled FCRA rules, tries to assess what are the risks to these loans. 

Using that estimation, the Allison report says that we were a little 

bit higher, but essentially on par with their evaluation of the risks 

of those loans; and that Congress had appropriated that money— 
30 

appropriated, not authorized, appropriated, meaning that money 

could have been spent on other things. It could have been spent on 

research. It could have been spent on hiring policemen, firemen, 

and teachers. But they chose to appropriate because they recognized that it was an opportunity to actually help these industries 

and help create jobs. 

The CHAIRMAN. Let me ask one other question. I think Mr. Allison also said that it is extremely important that you get the right 

professional employees working at the management and oversight 

of this loan portfolio over the long term, and that in order to do 

that, you need to have assured funding for this activity so that people might actually consider leaving the private sector and coming 

to work for the Department to pursue this management of these 

loans. Do you have any comment on that recommendation? 

Secretary CHU. Yes. I agree with that recommendation. I think 

it is very important, and we are in the process of trying to bring 

in career professionals, because as he noted in the report, that 

many—because we had to stand very quickly, we had a number of 

consultants to give us the financial expertise. We would very much 

want to bring into this program career people who have experience 

in project finance, experience in finance in general. So we agree 

with that. 

It is very important—because of the long tenure of these loans, 

some of them 25, 30 years, it is very important—and because have 

specific grant milestones, that we pay very close attention—milestones that then allow the loan program to give another tranche of 

money. It is very important that we follow each of the loans carefully. 

The CHAIRMAN. Senator Murkowski. 

Senator MURKOWSKI. Thank you, Mr. Chairman. Secretary, 

thank you for being here this morning. It is important to hear Mr. 

Allison speak to the audit, but I think it is equally important that 

you as the Secretary of the Department of Energy be here to speak 

to some aspects of the loan program. 

In the report from Mr. Allison, he states that ‘‘DOE should better 

define the desired balance between policy goals and financial goals. 

I look at that and to me it is a pretty basic managerial function, 

and I guess I was a bit surprised to learn that from the audit’s perspective, Mr. Allison’s perspective, that that was, in fact, lacking. 

So, the question to you is, how would you grade the Department’s 

implementation of the Loan Guarantee program thus far? 

Secretary CHU. When we started, it was new. We have made a 

lot of improvements, and will continue to make improvements, especially since we all know that—we all know that sometimes the 

industry that a particular loan might be embedded in could rapidly 

change. That, in particular, is something where you need to watch 

on sometimes a weekly basis. 

So, I could not say an official grade, but I think one of the things 

that the Allison report and Mr. Allison were talking about is, for 

example, the vagueness also goes to not only the Department policy, but the law itself. What do you mean by a significant chance 

of payback? 

Senator MURKOWSKI. I mean, that is an important thing. 

Secretary CHU. Right. 
31 

Senator MURKOWSKI. As a committee here, I think we are tasked 

with this oversight program. 

Secretary CHU. Right. 

Senator MURKOWSKI. The Loan Guarantee program is in place. 

I want to make sure that it is working as we had hoped that it 

would, and we would not see, again, some of the somewhat stunning failures that we have seen from it. Based on, again, the results of the audit, what you have observed in through your interactions through your folks, it looks to me like we need to do some 

changes. This is not tweaking a program, but some serious changes 

to this program so that we do have assurances to the taxpayers, 

so that we do have a structure in place that provides and allows 

for a level of accountability. 

I know that Senator Stabenow is probably going to ask about the 

ATVM—— 

Secretary CHU. ATVM. 

Senator MURKOWSKI. ATVM, thank you. Program and the fact 

that we have not seen those loans go out the door. Under the 2005 

act, we have not seen any of those loans go forward, and then from 

the results from the stimulus dollars that came in, we had a lot 

of money go out the door, and that is where we are seeing some 

pretty serious concerns. 

So, I am looking at this, and if I had to give a grade, if I had 

to assign a letter grade to the Department at this point in time, 

it is not a passing grade. I think we need to be able to do much, 

much better. You have suggested that you are going to be moving 

forward with some policy changes, but I think we need to be aggressive about that. 

Let me ask a question. This is kind of a follow-on to what I had 

asked Mr. Allison. Some of the conditions that are in the 2005 energy bill as it relates to the Loan Guarantee programs, one of them 

is the reasonable prospect of repayment. We certainly faced that 

with Solyndra and Beacon’s failure to repay the loan. There is another requirement in the law that says that no guarantee shall be 

made unless the Secretary, you determine that the amount of the 

obligation is sufficient to carry out the project. 

It is now clear in hindsight that with Solyndra, that condition 

was not adhered to. Seventy-million dollars had to come in from 

private investors. To make that happen, what we saw then was the 

subordination. DOE put taxpayers second in line in that bankruptcy, and that has caused a great deal of consternation. 

Did you make the determination at that time—as the law requires, did you make that determination that the amount available 

when the loan guarantee was closed that they were sufficient to 

carry out the Solyndra project? If you did make that determination, 

then how do we get to where we are today, which, again, is a bad 

mark on the books? 

Secretary CHU. When the loan closed during the commitment 

and when the loan closed, there was a world of difference to when 

at the time of the restructuring of the loan. By the time of the restructuring of the loan, we knew that the company was in deep 

trouble. 

But to your earlier point about what we intend to do, much of 

the things that were in the Allison report we are doing. We have 
32 

set up a risk committee. Mr. Allison and his colleagues recommended that there be a risk management structure. We agree 

with that. But we set up a different independent—a different, but 

a different part of the loan program that would look at just strictly 

the risk as future disbursements go out. So, that is something we 

did before the Allison report was submitted, and the report acknowledged that we were doing that. 

We are taking his advice, and we have reached this ourselves 

that we need people outside the loan program per se to be part of 

this evaluation. That is very important that we get additional sets 

of eyes on that. 

So, in terms of the specific loan to Solyndra that you mentioned, 

again, it was a rapidly changing dynamic during this period of 

time, and during that restructuring, we knew that the chance of repayment was low. But what we did was we did something that 

would—we thought in the best interest of the taxpayer, as Mr. Allison pointed out. When asked specifically would you be in favor of 

a legal requirement that would not subordinate anything. 

He pointed out very clearly that we followed the statute, at time 

of origination no subordination. But there have to be mechanisms 

to draw additional investments to give the highest chance of recovery to the taxpayer. 

So, what we did, and I think the Allison report confirms that, is 

that we were doing things that would ensure the highest return of 

the taxpayer money given the circumstances, the rapidly changed 

circumstances. 

Senator MURKOWSKI. My time has expired, and I want my colleagues an opportunity to speak. But I do think it is important that 

we also look to some of the other aspects of that Allison report that 

speak to the importance of the real time controls to make sure that 

the risks are properly managed. I think Solyndra is a perfect case 

in point where we missed on that with regards to the polysilicone 

issue, and where Solyndra was at that point in time as opposed to 

others in the solar panel manufacturing business. 

But I am going to defer to my colleagues so that they have an 

opportunity to question. 

The CHAIRMAN. Senator Shaheen, you have not had a chance to 

ask questions. Go ahead. 

Senator SHAHEEN. Thank you very much, Mr. Chairman, and 

thank you, Mr. Secretary, for being here. 

Yesterday I held a hearing on the USS Kearsage actually down 

at the Norfolk Naval Shipyard. It was the Water and Power Subcommittee of this committee. We heard from Secretary of the Navy 

Ray Mabus. We heard from former Secretary of the Navy and Senator John Warner, and also from some of the top-ranking officials 

within the Navy and the Marines about what they are doing to implement energy efficiency and new sources of energy within the 

Navy and among the Marines who are on the front lines in Afghanistan. 

We heard a couple of things that I think are important to this 

discussion. One is that being able to look at alternative energy 

sources, renewables, that can be used out in the field are critical. 

Reducing our dependence on foreign oil is vital to our national de-
33 

fense, and that there is a direct correlation between our dependence on fossil fuels and casualties on the battlefield. 

Now, one of the things that I would hope you might address this 

morning, and I would point out that I know the Energy—the Department of Energy is working closely with the Navy, with the Department of Agriculture on biofuels, which are a critical piece of 

trying to reduce the dependence of our military on foreign oil. But 

can you talk about how the programs that we are talking about as 

part of the Loan Guarantee program relate to our national defense 

and how critical they are if we are going to make some of these 

changes on the military side of our government? 

Secretary CHU. Certainly. Let me begin with biofuels, and not 

only in the Loan Guarantee program, but a lot of the things we invest in across energy from the Office of Science to Energy, to 

ARPA–E. We think that biofuels have considerable promise. By 

that, I mean we think they have considerable promise in developing technologies that can compete in the open market without 

subsidy, and that is our goal. 

The United States has great agricultural resources. If we can use 

biological waste or things that do not compete with prime farmland, we think this is a great opportunity to offload some of our dependency on oil, especially if the technology had advanced to the 

point where you can produce biofuels, and sell their profit, and 

make it a business of, let’s say, moderate price of oil at $80 a barrel, something like that. 

We also do a lot in terms of offloading a lot of other dependencies 

on oil to help not only the military, but the consumers and businesses. The advancement of batteries is very important. Batteries 

are very important in a forward deployed place, because rather 

than trucking in through very hazardous supply routes, usually 

diesel fuel to generate electricity, you could have a lightweight 

solar system with a lightweight battery that could be part of your 

supply chain. So, that is a very—— 

Senator SHAHEEN. We actually saw a demonstration of that yesterday. That was very impressive. We saw the solar blankets that 

are already in use in Afghanistan and heard about how much 

weight it saves our soldiers, and also, again, not having to provide 

those resupply convoys. 

Secretary CHU. Right. So, that is yet another aspect of decreasing, you know, as people attack these supply lines. Some of our soldiers and employees die from these attacks. We think it is very important that we develop these programs. 

Remarkable progress with batteries, for example. Recently at an 

ARPA–E summit conference, a company we supported announced 

that they doubled the world record energy density for lithium ion 

batteries, which appears to have no additional costs in the manufacturing. They are actually optimistic it can go much better than 

that. So, this is something that is going to be very important. 

So, we look across—and then finally energy efficiency is something not only for the forward deployed areas, but in general for 

the military we think it is a very important part of stretching the 

U.S. taxpayer dollars so the military can help our security in a way 

by saving money and by saving energy. It is a very important deal, 
34 

and we have a very close working relationship with the Department of Defense on that. 

Senator SHAHEEN. Again, we saw some excellent examples of 

that, which save money, but also make us less dependent and more 

efficient. 

My time is up, but let me just make one other comment about 

that hearing because one of the other things we heard from all of 

the military officials who testified was the importance of sending 

signals to the private sector about the importance of these energy 

efficiency and renewable technologies that the government has a 

role to play in doing that. That is very important to our national 

security. 

Thank you, Mr. Secretary. 

Senator STABENOW. [Presiding] Thank you. Senator Bingaman 

had to go to the floor to speak to an amendment, and so in his 

stead I will call on Senator Lee. 

Senator LEE. Thank you, Madam Chair. Thank you, Mr. Chu, for 

joining us today. 

Shortly before you became the Energy Secretary, you were 

quoted as saying, ‘‘Somehow we have to figure out how to boost the 

price of gasoline to the levels in Europe.’’ The price of gasoline in 

Europe, as I understand it, were about $8 a gallon, which is a lot 

of money. Last week in your testimony over in the House of Representatives, it is my understanding that you indicated that high 

gas prices are helpful in some ways in spurring research on alternative energy. 

I understand the point. I respectfully disagree with the conclusion at least insofar as it is made to the exclusion of another, I 

think, more compelling point, which is a strong economy will always provide more capital that can be invested for research and development purposes. Research and development money is definitely 

needed to help develop alternative energies. So, I hope you take 

that perspective into account. 

I do not think that high gasoline prices help anyone. I do not 

think they do anything other than the American people. Look, I do 

not how much driving you personally do yourself, and so you may 

not personally be feeling the gouge at the pump. But I assure you 

that hundreds of millions of hardworking Americans do feel this. 

They feel it every time they refuel their cars, some a lot more than 

others, but all feel it. 

While hardworking Americans continue to suffer because of the 

prices they pay at the pump and the corresponding prices that they 

have to pay at the grocery store and everywhere else because all 

of these costs end up getting passed downstream. I hope the Administration will take that into account in its energy policy and 

pursue an energy policy that acknowledges the fact that whether 

we like it or not, we as a people, we as human beings living in this 

country today continue to be dependent on liquid fuels. We have to 

continue to have a source of them, and that means we need to continue a robust policy of aggressive exploration and production of petroleum and natural gas. 

Instead I have seen a focus on this Administration that has 

placed most of its emphasis in this area on some failed policies, including a lot of subsidies of alternative energy projects. 
35 

On that note, the recent GAO audit of the Loan Guarantee program found that ‘‘DOE did not always follow its own process for reviewing applications and documenting its analysis and decisions, 

potentially increasing the taxpayer’s exposure to financial risk from 

an applicant’s default.’’ It went on in that same report to determine 

that DOE ‘‘also has not completely documented its analysis and decisions made during reviews, which may undermine applicants’ and 

the public’s confidence in the legitimacy of its decisions.’’ 

Are these accurate? Are these statements accurate in your opinion? 

Secretary CHU. Let me first respond to your first statement, Senator, so I can correct the record. Since I walked in the door as Secretary of Energy, I have been doing everything in my power to do 

what we can to reduce these, as we see these gas price spike, to 

reduce those prices. The Administration, the President, and I personally, yes, we do acknowledge and feel the pain of not only the 

American consumers, but American businesses when they see these 

prices increase. 

What we can do, is use all the tools available we are using. But 

in the Department of Energy’s tool chest, the most important thing 

we are doing is to offload the dependency on oil, using natural gas 

for transportation, electrification, biofuels, all of those things. 

Now, regard to the—— 

Senator LEE. So, are you saying that you no longer share the 

view that we need to figure out how to boost gasoline prices in 

America. 

Secretary CHU. I no longer share that view. 

Senator LEE. OK. You did then, but you do not now? 

Secretary CHU. When I became Secretary of Energy, I represented the U.S. Government, and I think that right now in this 

economic, very slow but, you know, return, that these prices well 

could affect the comeback of our economy, and we are very worried 

about that. So, of course we do not want the price of gasoline to 

go up. We want it to go down. 

But let me go to the GAO report. The other part of the GAO report within a few sentences of that said explicitly that the diligence 

that we did in our Loan program was actually considerably more 

thorough than what the private sector did. The thing you are referring to, and I admit there is some truth in that, is that we had at 

the beginning of this Loan Program which started in 2007—well, 

ePACT 2005, but in seriousness about 2007. A lot of the input was 

in paper form. A lot of the input was such that it was, you know, 

we are moving toward making those records electronic so that you 

can have a more modern data system. This is not only true of our 

Loan Program quite frankly, it is true throughout the Department 

of Energy. 

As a kind of a techno geeky guy, I actually like the idea that we 

have electronic records rather than paper records, and I encouraging the Department to make this transition. We are doing it in 

the Loan Program. 

Senator LEE. You think that will bring about more compliance 

with the Department’s own processes? 

Secretary CHU. I believe the GAO report said that because the 

records are here and there and not in a central repository, that it 
36 

would be harder for the Loan Program overall to see what is going 

on. So, as part of this risk management going forward, we recognize that we need central repositories of data so that you can get 

instant access. We recognize that. 

Senator LEE. OK. My time has expired. Thank you. 

Senator STABENOW. Thank you very much. Secretary Chu, I 

think it is probably no surprise that I am going to talk to you about 

the vehicle technology program. 

First, let me say in your testimony, when you talk about the 

back bit. To win the clean energy jobs of the future, the United 

States must do more than invent technologies. We must also manufacture them, deploy them, sell them around the world. I could not 

agree with you more. 

I appreciate the fact when I was able to make this program part 

of the 2007 energy bill that passed, it was not implemented in the 

last Administration, and that it was a priority for you and the Administration. It was, in fact, implemented in 2009. That is the good 

news. 

We have good things to report: jobs being saved, jobs coming 

back from overseas. Now we are in a spot where we have incredible 

delays year after year after year. We have on company that, in fact, 

indicated that after spending $25 million as a startup on a –year 

application, their application was never completed. 

I am very concerned about where we are right now on something 

that clearly goes to the heart of keeping advanced manufacturing 

in this country. You know that we are competing with countries 

around the world. Our companies are competing with countries 

that are providing tax incentives, that are providing financing 

mechanisms, doing a number of things. The retooling loan program 

goes right to that effort of adding advanced technology and manufacturing to keep jobs here rather than overseas. 

So, I wonder as we look, of course we want to protect taxpayer 

dollars. Of course that is absolutely critical. But how do we streamline this process at this point so that it actually is meeting the goal 

that it was set up to do? 

Secretary CHU. Senator, I think we are very much on the same 

page here. We are in total agreement with regard to the importance of the ATVM loans. We believe that that ATVM loans, for example, the loans to Ford and to Nissan, saved or generated many, 

many thousands of jobs. Ford alone, I think, it is over 30,000. A 

bit of a success story because that loan enabled Ford to retool, to 

sell—it is now a major leader internationally in selling very desirable, competitive cars. This is exactly what that loan programs was 

intended to do. 

Senator STABENOW. Right. 

Secretary CHU. It is a great success. I think the, you know, the 

loan to Nissan to generate—produces cars in Tennessee, a place in 

the United States. Another great success. 

Now, having said that, we do have to look at taxpayer money. 

As conditions change, we have to say—again, going back to the 

original covenant of the law which says in these loans, is there a 

reasonable chance of repayment? In many instances, we feel that 

we would like to see private equity be invested in these companies, 
37 

and then there are milestones after that private investment so that 

we can then say, all right, we can help you grow your business. 

So, we are very, very sensitive to those things, again, trying to 

balance the line, as you noted, between stimulating the manufacturers with these loans, and, again, one of the big success stories 

of this Loan Program, and making sure that—especially in a newer 

company, whether—we independently assess whether their market 

projects do make sense in this very rapidly dynamic market—and 

so we try our best to do that, both to look out after taxpayer 

money, but knowing that we do want to stimulate investments in 

manufacturing in the United States. 

Senator STABENOW. Right, and I appreciate that, Mr. Secretary. 

I would just tell you that the—at this point, the way things have 

gotten bogged down in the slowness of it is defeating the whole 

purpose of what needs to be done, because it is creating an untenable situation for businesses that are on the edge to be able to 

move forward, to create these new technologies. But waiting 3 

years is just too long to be able to come up with those judgments. 

Let me ask you one other thing. What changes would you suggest to make this program more effective, and possibly add more 

opportunities for companies? We have passed now twice from this 

committee legislation of mine that would expand to medium and 

heavy duty vehicles. We know there is tremendous energy savings 

in larger vehicles, a very exciting work that is being done. Would 

you support something like that, expanding us to more opportunities to save energy and create jobs? 

Secretary CHU. I think this is a program I would be delighted to 

talk to you about it to broaden its scope certainly as you suggest, 

but also in certain things when it is really advanced technology 

and it is an advanced technology in a new company, you know. 

Again, working with Congress, I do not know if Congress has the 

appetite, but to change some of that money, especially with ATVM, 

so it could not only be for loans, but it also could be for grants for 

developing new products. 

I think that would do a lot, grants that would allow the company 

to prototype things that could then be made in America. So, I 

would be gladly willing to work with Congress if Congress deems 

that this is an important program to stimulate job growth in the 

United States, advanced manufacturing in the United States. That 

could be another way of broadening the program. 

Senator STABENOW. Thank you. Senator Barrasso. 

Senator BARRASSO. Thank you, Madam Chairman. Mr. Secretary, 

I appreciate you being here. 

The Department has awarded a $10 million prize for their production of a light bulb that is supposed to be, one, energy efficient 

and, 2, affordable for American families. The prize went to Phillips 

Lighting. Do you know how much the winning light bulb retails for 

in the United States? 

Secretary CHU. I am going to make a guess, about $40 or $50. 

Senator BARRASSO. Actually it is $50. Headline Washington Post last Friday, ‘‘Affordability Award Goes to a $50 Light Bulb.’’ I 

guess—do you think a $50 light bulb is affordable for American 

families where the government’s own figures say the average 

household in the United States has over 40 light bulbs? So, it 
38 

sounds like we are—are we asking American families to spend over 

$2,000 to trade out all their light bulbs? 

Secretary CHU. No, absolutely not. We are not asking American families to spend $40 or $50 for a light bulb. The prize was intended to incentivize the development of new technologies. Some of 

those LED technologies in commercial use, in buildings and hard 

to get places where you have to hire people to go up on a crane, 

already are very affordable. Commercial uses in traffic lights, 

very—already pay for themselves. So, the idea was to stimulate future development. 

Senator BARRASSO. The President claims that he and his Administration are promoting fairness. He talks about fairness an awful 

lot. There was a Thursday story in the Washington Post with a 

headline, ‘‘More Than Half of Obama’s Big Fundraisers Got Jobs in 

His Administration.’’ The article explained how bundlers, those 

who collected at least $500,000 for the President’s campaign, were 

given jobs in the Administration. 

It says one hired—Obama hired bundler Steve Spinner as a liaison in the Energy Department, and according to internal e-mails, 

Spinner pressed for staff members to finalize a government loan for 

Solyndra in which another campaign bundler was a major investor. 

Yesterday the Government Accountability Office released its own 

audit of the Department of Energy loan program. The report concluded that the DOE did not follow its own process for reviewing 

applications and documenting its decisions, potentially increasing 

the taxpayers’ exposure to financial risk from an applicant’s default. 

You know, it seems like the Administration is doing a pretty 

good job looking out for its friends, but I want to know who is looking out for American taxpayers, and this sure does not sound fair 

to most people. 

Secretary CHU. First, Steve Spinner was absolutely firewalled 

from making any decision or encouragement on what you make for 

any loan, let alone the Solyndra loan. So, what he was pressing for 

was after the conditional commitment was made, he was pressing 

to finalize things. But he was not part of the decisionmaking process. 

Senator BARRASSO. I would like to ask about additionally the 

gas—I’m sorry, electric vehicles. The President was in North Carolina giving another speech on energy, promoting electric cars. Last 

week we learned that General Motors was suspending production 

of its electric car, the Volt, because it failed to meet sales expectations. Last month we learned that your Department cutoff funds to 

Fisker Automotive and other electric car manufacturers because it 

failed to meet sales expectations. So, I look at electric vehicles, which range from $40,000 to over $100,000, and I ask if those are practical solutions for families who 

are struggling to pay bills, especially as the President is proposing 

increasing the tax credit for what are essentially luxury vehicles, 

and he wants to increase it from $7,500 where he did not get adequate takers and the vehicles have not been sold, to now to 

$10,000. 

Is raising the tax credit for these vehicles that few families can 

afford the right thing to do and the fair thing to do? 
39 

Secretary CHU. As you may know, but if you do not, the goal of 

the Department of Energy is to develop the technologies that actually will drive down the price of electric vehicles or plug in hybrids 

so that, for example, in the $20,000, $25,000 range, the cost of ownership would be less than a conventional internal combustion engine car, let us say, of $16,000, because you are going to be saving 

in gasoline bills. 

If, for example, you take a car, an internal combustion car, and 

it gets 30 miles to a gallon, reasonably good combined driving numbers, that is, in today’s gasoline prices, this is horrendous—$1,400 

a year. This is a horrible pain to American consumers. 

If you get an electric vehicle that costs, let us say, in the low 20s, 

$20,000, $22,000, to drive the same amount, let us say 10,000 

miles, it is about $300 in electricity. So, we are very focused on 

driving the costs of those electric vehicles down. So, it is is exactly 

what you say, that the costs of a vehicle that the American public 

can afford. 

Senator BARRASSO. Thank you, Madam Chairman—oh, Mr. 

Chairman. 

Senator SANDERS. [Presiding] I gather I have the invisible gavel 

here. Mr. Chairman, thanks very much for being with us. 

Let me just ask you—before I ask you a question, I wanted to 

agree with Senator Lee a moment ago, who talked about the high 

price of gasoline and what it does to rural America. I come from 

a rural State and many people travel long distances to work. I 

would hope that some of my Republican friends would work with 

us on what we think is one of the major causes of the high price 

of gas right now; that is, speculation from Wall Street companies 

on the oil futures market. 

We believe, and I think the evidence is pretty clear, that over 80 

percent of the oil futures market is now controlled not by end 

users—airline companies or fuel dealers, people who actually use 

the product—but by Wall Street companies who are speculating on 

the price of oil and driving oil prices substantially up. Goldman 

Sachs themselves, one of the major speculators, estimated that 

speculation was adding about 56 cents to a gallon of gas. 

Do you have any comments on that, Mr. Secretary? 

Secretary CHU. I cannot speak to the estimate that Goldman 

Sachs has made and actually put on an additional price that adds 

to the speculation. But I agree with you that, you know, whereas 

futures do play an important role, for example, if Southwest Airlines or someone else wants to levelize their cost of energy, they 

buy a future, and they are going to take delivery. But they actually 

are going to use the fuel. 

Senator SANDERS. Right. 

Secretary CHU. So, it is a financial mechanism that helps them 

plan for the future. So, futures in that sense play a very important 

role in stabilizing a company’s prospects. I would agree with you, 

but when futures get traded back and forth, back and forth, back 

and forth, where no one actually intends to take delivery, it enters 

into a different regime. 

But to the extent of how it modifies prices, I do not know, but 

it is not what it was meant to do. 
40 

Senator SANDERS. Let me ask you this. My understanding is that 

right now we have about 100,000 Americans working at more than 

5,000 solar companies. I think sometimes if we hear discussion 

around here, the impression is that sustainable energy is just doing 

terrible. Companies are not making money. We are not creating 

new jobs. Would you agree with me that, in fact, in terms—in recent years, not unrelated to the work that you and the Department 

of Energy are doing, that, in fact, we have seen a significant increase in the number of jobs and the installations in terms of solar 

panels and in terms of energy being produced from wind? Are we 

making progress and creating jobs in those areas? 

Secretary CHU. We are. We have been making dramatic progress, 

I think, since 2008. It should be used as a benchmark. I think we 

have almost doubled the amount of renewable energy with those 2 

sources. 

Senator SANDERS. That is not insignificant. 

Secretary CHU. Doubling is not insignificant. 

Senator SANDERS. Doubling is not, and we are creating jobs—— 

Secretary CHU. Yes. 

Senator SANDERS [continuing]. As well. Would you agree with me 

that virtually the entire scientific community, not only in this country, but around the world recognizes, A, that global warming is real 

and, B, that it is significantly caused by human activity, and, C, 

that if we do not get a handle on greenhouse gas emissions, there 

will be enormous problems associated with all kinds of—in the future of this country? 

Secretary CHU. Yes, I agree with that. 

Senator SANDERS. OK. Let me ask you this, Mr. Secretary. We 

are talking about the role the Federal Government plays in terms 

of support of various energy technologies. Is sustainable energy the 

only technology that received help from the Federal Government? 

Secretary CHU. I would say, looking backward, that every form 

of energy received substantial Federal help: oil, gas, coal, nuclear, 

you name it. When they were emerging technologies, they received 

substantial help. 

Senator SANDERS. But not only when they were emerging, I 

would agree with that, but they are still receiving help. 

Secretary CHU. In some cases, that is correct. 

Senator SANDERS. For example, I find it somewhat ironic that 

some of my friends on this committee express their distaste for 

loan guarantees and then tell us they want to build another 100 

or 200 nuclear power plants in this country, which I—give me your 

opinion—would not take place at all. You will not build one nuclear 

plant without Federal loan guarantees. Is that a fair statement? 

Secretary CHU. Actually that may not be a fair statement, but let 

me go back to the original thing that I think you were driving at. 

You know, after we subsidize emerging technology and it seems 

to be very successful on its own, there is a good case that can be 

made that this technology, this industry, may not need Federal 

support. Certainly we think that renewable energy will. There will 

come a day, I do not know whether it is going to be this decade 

or within a decade and a half, but it is not 30 years from today. 

The levelized cost of renewable energy will be the same as any new 

form of energy. It will be as competitive. 
41 

But until that day arrives, whether it is, you know, in this decade or the next decade and a half, yes, it could use a little bit more 

support, but you can sunset that. When there are industries that 

are doing quite well, we can also ask ourselves, do they need continued support? 

Senator SANDERS. Mr. Secretary, there is a new plant being proposed, the Georgia nuclear power plant. How much Federal loan 

guarantees are involved in that plant? 

Secretary CHU. There is one—there is a Vogtle power plant—— 

Senator SANDERS. Right. 

Secretary CHU. That is the one you are talking about, I think, 

that is a consortium of companies led by Southern. I believe the 

loan is a conditional commitment. The loan guarantee is about $8.3 

billion. 

Senator SANDERS. Loan guarantee of $8.3 billion? 

Secretary CHU. It is paid for—the credit subsidy is paid for by 

the applicant, though. So, it is scored by the CBO as a 1 percent 

score, but the actual credit subsidy is paid by the applicant in that 

case. 

The reason I was hedging on that is I know that there is—before 

NRC approval, another set of 2 nuclear reactors, which are not applying for a loan. So, sorry, I do not really—I cannot really say definitively. 

Senator SANDERS. If the Federal Government—Congress passed 

legislation repealing Price-Anderson, would the—which is, as you 

now, a Federal insurance program if, God forbid, there is ever a 

nuclear accident. Do you think Wall Street would be prepared to 

invest one penny in nuclear power? 

Secretary CHU. I agree with you. I think Price-Anderson is—— 

Senator SANDERS. My only point. Thank you, Mr. Secretary. 

Thank you for the excellent work you are doing 

My only point on all this is I hear sustainable energy being attacked, and yet you have an entire major industry that people want 

to greatly expand, for better or for worse, which is totally dependent on the support of the Federal Government, would not last 2 

days from now if the Federal Government withdrew all of its support. 

OK. I have the chair. Senator Paul. 

Senator PAUL. Thank you for coming, Secretary Chu. 

Have you met George Kaiser? 

Secretary CHU. I think I might have at a roundtable meeting. 

Senator PAUL. More than once? 

Secretary CHU. The only one I can recall at the time was during 

a roundtable meeting, yes. 

Senator PAUL. Are you concerned about the propriety of giving 

money, $500 million, to a billionaire, you know, and then sort of 

changing the rules some so he gets to, you know, maybe get a better deal than taxpayers do? 

Secretary CHU. I am convinced—nothing I have seen in the Loan 

Program or anything in the White House had any connection 

George Kaiser with raising of money, had anything to do with the 

selection of loan. 

As you well know, Solyndra was at the head of the line picked 

by the Department of Energy under a previous Administration, and 
42 

it was the one that career people advanced forward as the one that 

had the most work done on that loan, that satisfied the conditions 

of the intent of the loan. 

Senator PAUL. That is sort of troubling, though, that they were 

the best case scenario and had met all the criteria best, and then 

they went bankruptcy. 

But also I think what is troubling to most of us is that we have 

given $500 million loans to a guy who is a billionaire. Why in the 

world would we do that? 

Secretary CHU. There were other investors in Solyndra, also very 

wealthy people, also, but associated with the Republican Party. So, 

again—— 

Senator PAUL. I would not give it to them either. 

Secretary CHU. The politics of the investors was not part of the 

decision of whether to give a loan to Solyndra. 

Senator PAUL. Do you think there is a question of propriety, 

though, when you have got someone who works for you, who is 

married to somebody who works for Solyndra, who you say there 

is this firewall at the beginning maybe, but you are not insinuating 

that he never wrote e-mails and never corresponded with people in 

favor of Solyndra. 

Secretary CHU. For example—— 

Senator PAUL. He did, correct? 

Secretary CHU. He was corresponding after the loan was approved for the timing. 

Senator PAUL. Do you think that is appropriate for him to be involved at any stage, not just as—to say he was not involved in the 

beginning is a little bit of an excuse for him, but he should have 

never, ever had—the word ‘‘Solyndra’’ should have never left his 

lips and never been in any writing. I think it was. 

Secretary CHU. The Department of Energy has very rigorous 

standards that we enforce on any potential conflict. As you mentioned it, for example, his wife was actually firewalled from having 

to do any business with Solyndra as well. 

Senator PAUL. Have you met Robert Kennedy, Junior? 

Secretary CHU. Probably. I am not sure. 

Senator PAUL. Do you recall how many times? 

Secretary CHU. Since I am not sure—— 

Senator PAUL. Are you aware of the Kennedy family fortune, that 

they are pretty wealthy also, probably worth hundreds of millions 

of dollars, and we gave Robert Kennedy, Junior’s company $1.8 billion? Are you aware that someone works for you who used to work 

for the Kennedys who people say was involved with that loan process? 

Secretary CHU. I am not aware of that. 

Senator PAUL. I think that is something we need to look into as 

well, and this suggestion will go on with the hearings in the House 

as well, that really this revolving door from big business into the 

Department of Energy to get large loans—$1.8 billion is a lot of 

money given, once again, to a large campaign contributor of the 

President’s. 

It looks unseemingly, and I do not think that is your background, 

but unfortunately you are the head of this organization that has 
43 

been giving these loans to very wealthy people who are donors of 

the President’s. It looks really bad. 

Do you give loans to foreign companies? 

Secretary CHU. We give loans for companies meant to manufacture in the United States. 

Senator PAUL. What about Fisker Karma? Are they spending any 

of our money in Finland? 

Secretary CHU. We gave a loan that was to a design group in Los 

Angeles, and there is another traunch of the loan if they satisfy the 

covenants of the loan, which would go to manufacturing in the 

United States. So, the money we give in loans is very targeted to 

job creation. 

Senator PAUL. My understanding is they were struggling here 

and that this money was actually going to be used in Finland. 

Secretary CHU. As I said before, the loans we give are for American jobs, and we are very clear about that. So, if they—you know, 

if it is a designer—— 

Senator PAUL. No money goes to Finland then. Fisker Karma is 

not allowed to use any of that money in Finland? 

Secretary CHU. As I said, we give loans for jobs in America, and 

we are very clear about that. 

Senator PAUL. So, Fisker Karma is not using any U.S. taxpayer 

dollars in Finland. 

Secretary CHU. I can get back to you on the details on that, but 

I know the overall scope of the loan is for manufacturing in the 

United States and for design, and it went to a design group. 

Senator PAUL. You can see our concern, the whole idea of picking 

winners and losers. People are saying that windmills, which have 

been subsidized for years and years now, that even though we have 

paid for the windmills, we have got them up, we have got them 

started, if you take away the subsidies, they will never make a 

profit. They just are not profitable. Talk about tilting at windmills. 

We are just throwing money at windmills, and I just do not see the 

purpose. 

It really gets down fundamentally to what Senator Lee has 

talked about. We should not be in this business at all. The thing 

is, is you are choosing, you know, $50 light bulbs. Nobody understands that in America. There is a real problem here, and I do not 

think you are going to win the perception war on this. My counseling and advice to you would be, let us get out of this business. 

Let us not be involved with stuff like this. 

Also, the thing is, is by your involvement in it, it really looks 

unseemingly. I do not question your character. You are known for 

being an upright person from academia. I mean, but the thing is 

you are overseeing something that really does not pass the smell 

test. 

Thank you. 

Senator FRANKEN. [Presiding] Thank you, Senator. Senator 

Sanders now has to go and vote. I just voted, and Senator Paul, 

you do not have to vote if you do not want to. You got to try to, 

you know, play all the percentages here. 

Thank you, Mr. Secretary. I wanted to ask a little bit about just 

our competition in the world on these technologies. I think it is 
44 

really important that we keep pace and do not fall behind China, 

and India, and Europe. 

Just as I was listening to other questions in this and the other 

panel, I was thinking of all of the above. I know the President gets 

criticized sometimes when, say, for example, he may not approve 

of offshore drilling everywhere. When they say, well, what about all 

the above? My feeling is, like, all off the above does not mean all 

of all of the above. 

But if it does mean all of all the above, certainly it means innovation, and it means—which means R&D, like ARPA–E, which is 

basic—which is patterned after DARPA, which created the Internet, which I believe—and tell me if I am wrong—has created some 

jobs. 

Secretary CHU. I think you are right. 

Senator FRANKEN. Thank you for that validation. 

It also includes what Mr. Allison referred to as investment so 

that we do not have the valley of death for all these things that 

are discovered at universities and where we have had some investment by the Federal Government, but to commercialize it. That 

seems to me what the loan program is about. 

Secretary CHU. That is correct. I think it has been 

mischaracterized inappropriately as the government being a venture capitalist. Venture capitalists deal with small amounts of 

money, at a much earlier stage. The valley of death goes to beginning to deploy a commercial scale where a large investment of capital is needed. When these loan programs were set up in ePACT 

2005, in 2007, and then authorized—a lot of them authorized, especially the end of 2008 and beyond, the credit markets froze. 

This is why many countries have some sort of financial bank of 

their own to allow their industries to grow. China has a very 

large—I think a credit line for 1 year is $34 billion, in renewable 

energy and things of that nature. Netherlands, Germany, England, 

they are all looking—many of these countries have these type of 

programs because—— 

Senator FRANKEN. Are they not simply looking at the future, and 

not the far future, but the near future in terms of the competitive 

world global environment, in terms of these technologies, because 

we know this is where we are going. 

Secretary CHU. Yes. That is why they are doing this. They want 

their industries in their countries to be advantaged relative to 

other countries that—you know, if all the countries said we will not 

have any sort of government financing in any country, that would 

be one thing. But if a large number of countries are going forward 

and doing this, the question we should ask ourselves in the United 

States, what should we be doing? 

Senator FRANKEN. So, we want to be competitive in these technologies, which are clearly going to be an enormous part of our 

economy, and of the world economy, and the world energy economy, 

right? 

Secretary CHU. Right. 

Senator FRANKEN. It is kind of ignoring that, to me, seems almost willful in not understanding where the world is going. 

Secretary CHU. Yes. 
45 

Senator FRANKEN. I do not mean to be harsh, but would you 

agree with me? 

Secretary CHU. I would phrase it slightly differently. If you look 

at a way of financing as a way of stimulating private sector investment, which is what we ultimately want to do, a loan program, 

such as the one we are administering, most people agree was stimulating private sector investment at a 10 to 1 ratio. This is a good 

thing, and that the losses expected from this investment are far 

less, we think, and Allison also reaffirms this, than what was authorized. 

Senator FRANKEN. Right. 

Secretary CHU. So, in the aggregate, while there—you know, nobody wants a failure. In the aggregate, it has been very good at 

stimulating private sector investment and success. 

Senator FRANKEN. My time has run out, but I am now the chairman, so I yielded my time. 

Solyndra, we must keep in mind, was 3.3 percent—only 3.3 percent of the entire 1705 program. Look, there are risks. We had one 

senator on the other—my friend and colleague on the other side 

say about the loan program, if the risk is manageable for this company we are lending money to, we should not be putting tax dollars 

at risk. They said if the risk is not manageable, we should not be 

putting tax dollars at risk. So, in other words, we should never put 

tax dollars at risk according to my colleague. 

Now, he has signed on to all of the above. He has said that he 

is for all the above. So, I would—you know, I would suggest that 

anyone who is for all of the above and who is not for loan programs 

is not really for all of the above. 

So, I would caution them when they, you know, when the President is not opening every, you know, every square mile of the Continental Shelf to offshore drilling, that the criticism that he is being 

a hypocrite because he signed on to all of the above, they should 

be a little bit careful in that regard. 

How much—OK, you said China is doing $36 billion? 

Secretary CHU. They have offered lines of credit, as I understand 

it, $34 billion in lines of credit to the renewable or the clean energy 

sector. 

Senator FRANKEN. OK. I think it is absolutely crucial for all 

kinds of reasons that we invest in clean and renewable energy for 

obvious reasons, for economic reasons, for climate reasons. I also— 

when I hear about the $50 light bulb and the award given for that 

technology, I think of what laptops were when the first laptop came 

out. I mean, essentially we are talking about mainframes, what the 

cost of a mainframe was compared to now everybody who can get 

a laptop gets a laptop. 

That is what that is about, right? That $50 light bulb that is, oh, 

are you expecting every American to put, you know, spend $2,000 

a year on light bulbs or whatever that question was, strikes me as 

just disingenuous, or, either that or not understanding what the 

purpose of developing that kind of technology is. 

So, let us assume it is the latter, shall we? Can you explain 

again about the $50 light bulb and places where it is already being 

used and already saving money, that technology? 
46 

Secretary CHU. Sure. The LEDs, because they last so long— 

10,000 hours—if you are in a place which leaves these bulbs on a 

long time like an exit sign—you know, an emergency exit sign, 

sometimes an office building because they are left on for 8, 10 

hours, and there are very high ceilings. So, you would have to hire 

someone with a crane to go up there and change that light bulb. 

Traffic lights, another good example. They are on all the time. In 

those instances, we already know that switching out incandescent 

light bulbs for LEDs make commercial sense today. 

The idea of that light bulb contest was to provide for a goal going 

further down to get a light bulb that eventually Americans can afford. You know, no one expects to pay $60 for a light bulb. Quite 

candidly, you know, if you fill your house with light bulbs like that, 

given that they last that long, they should be part of your will. 

Senator FRANKEN. I think we will end on that. I just wish that 

when we do these hearings that we did them with the purpose of 

getting the most understanding of what we are doing—— 

Secretary CHU. Yes. 

Senator FRANKEN [continuing]. Both from a broad level and, as 

I asked Mr. Allison a very specific thing about the loan subsidies. 

I think that is the best use of these hearings. I thank you, Mr. Secretary, for the tremendous job you are doing. 

Secretary CHU. Right. Thank you. As I said, our goal is to get that to a $5 light bulb that lasts 20,000 hours. Then you buy this— 

or even 10,000 hours. 

Senator FRANKEN. You know, for street lights that should be on 

in certain neighborhoods because for safety. It can reduce crime. 

Secretary CHU. Right. 

Senator FRANKEN. There’s all kinds of reasons for that. 

Mr. Secretary, thank you. I assume that the record will stay open 

for—I am making this up now—a week. 

But the hearing is adjourned. 

Secretary CHU. Thank you. 

[Whereupon, at 3:12 p.m., the hearing was adjourned.] 
(47) 

* Chart has been retained in committee files. 

APPENDIXES 

APPENDIX I 

Responses to Additional Questions 

RESPONSES OF SECRETARY STEVEN CHU TO QUESTIONS FROM SENATOR MURKOWSKI

MEASURING PERFORMANCE AT THE LOAN PROGRAMS OFFICE

Question 1. I’m interested in your perspective on how performance is measured 

and priorities established within the Loan Programs Office. Mr. Allison’s report 

states that, ‘‘DOE should better define the desired balance between policy goals and 

financial goals.’’ This seems like a pretty basic managerial function, so I was surprised to hear that Mr. Allison felt it was lacking. 

Do you have any plans to develop a more formal process for establishing goals 

in the loan program and measuring their attainment? 

Answer. DOE constantly strives to improve the efficiency and effectiveness of its 

underwriting and monitoring processes. Clearer goals have been established at the 

division level and assist senior management in driving those elements of the process 

that DOE can control. While known policy directives are shared with division managers and incorporated into everyday processes, certain policy matters may arise 

later in the underwriting process or after a transaction has closed. In those cases, 

senior LPO management will interact with senior DOE management to resolve any 

matters where policy concerns impact the underwriting or monitoring of a transaction. Those decisions are then communicated to the deal teams and incorporated 

in the structuring and monitoring of each transaction. 

IMPORTANCE OF REAL-TIME CONTROLS TO MANAGE RISK

[REFERENCES ATTACHED CHART]

Question 2. Mr. Allison has talked about the importance of ‘real-time controls’ to 

make sure that risks are properly managed. On that point, market trends associated 

with the raw materials needed for solar panels are relevant. 

Answer. The majority of solar panels require polysilicon, but Solyndra’s did not. 

As a result, when polysilicon prices rose in 2005, it created what the Congressional 

Research Service has called ‘‘a strong economic value proposition’’ for Solyndra. But 

then polysilicon dropped precipitously. 

This speaks directly to the issue of real-time controls that Mr. Allison has raised. 

The Department’s official response to Solyndra’s bankruptcy was that it resulted 

from a ‘‘totally unexpected’’ change in the market. At a hearing in November of last 

year, you also said that your decision to guarantee a loan to Solyndra was ‘‘based 

on the analysis of experienced professionals and on the strength of the information 

they had available to them at the time.’’ But, as you can see from this chart,* the 

competitive advantage bestowed upon Solyndra by high polysilicon prices had disappeared several months before DOE closed on their loan guarantee. 

Question 2a. Were you or the advisors you rely upon aware of this information 

at the time the guarantee was issued? 

Answer. As part of its due diligence prior to issuing the Solyndra loan guarantee, 

the Department relied on an Independent Market Consultant’s Report Solyndra Fab 

2 Manufacturing Facility, by R.W.Beck, dated April 4, 2009. The Department commissioned additional market research from Navigant Consulting, which produced 
48 

the report Independent Market Advisory Services, DOE Loan Program, Solyndra, 

Inc., dated February 22, 2010. 

Based on the market research and the Department’s other due diligence, it was 

confident in Solyndra’s ability to compete in the marketplace at the time of financial 

close. This confidence was shared by the private sector, as evidenced by private equity’s significant investments in Solyndra both before and after the issuance of the 

loan guarantee. 

It is important to note that polysilicon pricing is only one driver of photovoltaic 

(PV) panel prices. PV module prices are also significantly driven by a supply and 

demand. From the time that the Solyndra loan guarantee closed until the bankruptcy, the market shifted from supply constrained to oversupplied. While Solyndra 

was able to significantly reduce costs, ultimately it was unable to keep pace with 

the dramatic margin compression that was occurring throughout the industry. In 

addition, market events such as the China Development Bank’s available lines of 

credit to six Chinese PV manufactures (in 2010), negative margins, the bankruptcy 

of the world’s largest PV cell manufacturer (Q-cells), and cuts in the European 

Union’s PV subsidies below retail pricing, were largely unexpected across all major 

PV forecasting groups. 

Question 2b. If so, why did you close on the loan guarantee? And if not, would 

you agree that this underscores Mr. Allison’s point about the need for real-time controls to mitigate risk? 

Answer. As indicated in A2a, the Department was confident in Solyndra’s ability 

to compete in the marketplace at the time of financial close. The Department does 

agree with Mr. Allison’s point and believes that it has a robust system of controls 

and risk mitigation strategies in place. 

CHANGING INTERPRETATIONS OF STATUTORY AUTHORITIES

Question 3. You revised the loan guarantee program’s rules shortly after taking 

office, including a re-interpretation of who may have a first lien on the assets of a 

project that has received a loan guarantee. Specifically, your rulemaking allowed 

two new financing arrangements: 

One is called tenancy in common, where ‘‘each owner holds an undivided interest 

in the physical project assets, and each owner typically finances its investment in 

the projects separately.’’ In such a case, the rule states that ‘‘it may not be feasible 

to obtain a lien on all project assets.’’ 

The other financing arrangement discussed is called pari-passu, where sources of 

financing other than the Department of Energy—such as foreign Export Credit 

Agencies participating as co-lenders or co-guarantors—may expect to share in ‘‘collateral pledged to secure the borrower’s debt obligations.’’ 

These examples are a far cry from what happened with Solyndra, but the Department has cited the rule as justification for subordinating taxpayers to the private 

investors of $75 million. Nowhere in the rule is the scenario of a firm nearing bankruptcy and incapable of raising additional capital unless the Department subordinates itself contemplated. And yet, that’s exactly what was allowed to happen. That 

required a very broad—and in my view, inconsistent—read of what’s permitted 

under even your own rulemaking. So I’d like to know whose legal opinion relied 

upon to make that interpretation. 

Was it DOE’s General Counsel, the Department of Justice, or some combination 

of offices? Who said it was legally permissible to subordinate taxpayers to private 

investors, and should you have sought—or did you seek—a second opinion? 

What is the Department’s current position on the subordination of taxpayers to 

private investors? 

Answer. Before agreeing to the restructuring of the Solyndra loan, the Department undertook a thorough legal analysis of the provisions of Title XVII of the Energy Policy Act of 2005 (EPAct 2005), and concluded that subordination in the context of the Solyndra restructuring was permitted under the statute. This analysis 

was conducted by career legal professionals in both the Loan Programs Office and 

the Office of General Counsel and was approved by the General Counsel. It was also 

reviewed by DOE’s outside counsel, the law firm of Morrison & Foerster, which 

found the analysis reasonable. The analysis also was discussed with and reviewed 

by lawyers in the Office of Management and Budget’s (OMB) Office of General 

Counsel. OMB did not express to DOE any disagreement with the analysis. We also 

note that, on November 10, 2011, Mary Anne Sullivan, a partner in the law firm 

of Hogan Lovells, wrote in a letter to the Ranking Member of the Committee on Energy and Commerce, U.S. House of Representatives, that DOE’s analysis Is supported by the statute and by DOE’s interpretation of the statute as reflected in 10 

C.F.R. Part 609, the regulations governing the loan guarantee program....’’ As Ms. 
49 

Sullivan observed, the regulation, like the statute, treats the subordination requirement purely as a condition precedent to the issuance of a loan guarantee, and nothing in the regulation precludes subordination in this context. 

The Department has not changed its position on the legality of subordination in 

the context of the Solyndra restructuring. 

SELF-PAID VS. APPROPRIATED CREDIT SUBSIDY COSTS

Question 4. At a clean-energy forum hosted by the Washington Post last year, you 

stated that ‘‘we can design a program that is actually self-paid and still stimulate 

the most innovative industries.’’ I was particularly interested in your reference to 

a self-paid program, which is not what the stimulus bill’s Section 1705 loan guarantees relied upon. As you know, those loan guarantee applicants were granted access 

to $6 billion appropriated to cover their credit subsidy costs. 

Answer. I believe we can design a program to take advantage of benefits from authorities and appropriations that allow it to borrow at a lower cost than private sector lenders. These might include the right to borrow at low cost from the Treasury 

and the option to raise more capital through bonding authority. It would also ideally 

include a substantial initial appropriation, potentially funded in part by transferring 

Title 17 authorities and unobligated balances to the program. 

The program could leverage this federal support to attract private sector co-investors for manufacturing facilities, deployment projects, or generating assets. It would 

operate with considerable autonomy subject to overall portfolio risk management 

rules such as limits on total Treasury borrowing and requirements for sound underwriting for each deal. 

With this initial appropriation, the program should be self-sustaining for a substantial period, roughly ten years. To support itself, it can collect fees for financing 

and services, and it will charge a premium to its rate of borrowing from Treasury. 

Moreover, it may securitize its debt to investors in the private sector, replenishing 

the capital available to finance additional projects. Ideally, the program should be 

set up for reauthorization no later than twenty years in the future given the likelihood that market conditions will evolve dramatically in that time frame. 

Question 4a. In hindsight, do you believe that credit subsidy costs should be selfpaid? 

Answer. The economics of the projects completed under §1705 were such that imposing a self-pay credit subsidy would almost certainly have made them uneconomic, particularly in the credit environment that existed at the time that Congress 

appropriated the credit subsidy funding for §1705. 

In FY 2012-2013, the Loan Guarantee Program will focus on portfolio management and monitoring activities on the existing portfolio as well as originating new 

loan guarantees to utilize remaining self-pay loan authority in the nuclear power, 

front-end nuclear, fossil, and renewable and energy efficiency sectors as well as the 

$170 million appropriated credit subsidy for renewable and energy efficiency 

projects. 

Question 4b. Do you think it was wise to appropriate $6 billion in the stimulus 

to pay for applicants’ credit subsidy costs? 

Answer. The original appropriation of $6 billion to pay for applicants’ credit subsidy was ultimately reduced to $2.5 billion after subsequent rescissions. However, 

I do believe the significant amount of appropriated credit subsidy was appropriate, 

particularly given the aforementioned market dynamics, to achieve the goals set by 

Congress in establishing Title XVII of EPAct 2005. In hindsight, the number of creditworthy projects that could be completed was limited given the September 30, 2011 

expiration date for the §1705 program. It was nonetheless important to signal to the 

marketplace that these projects were a priority for Congress, and that Congress recognized the inherent difficulty for clean energy projects (particularly innovative 

projects) to attract private capital. 

Question 4c. How would you design a self-paid loan guarantee program? 

Answer. Please see the answer to Q4 above. 

ADHERENCE TO STATUTORY TERMS AND CONDITIONS

Question 5. Much attention has been paid to the terms and conditions for loan 

guarantees from the 2005 energy bill. Specifically, the question of a ‘‘reasonable 

prospect of repayment’’ is one that you have faced given Solyndra and Beacon’s failures to repay their loans. 

Another provision of law requires that ‘‘No guarantee shall be made unless the 

Secretary determines that the amount of the obligation [when combined with other 

funds] will be sufficient to carry out the project.’’ For Solyndra, this condition was 
50 

not adhered to. Another $75 million had to come in from private investors, and to 

make that happen DOE put taxpayers second in line during bankruptcy. 

Did you make a determination that the amounts available when the loan guarantee was closed were sufficient to carry out the Solyndra project and, if so, how 

do you square that with the fact that they weren’t? 

Answer. Professional employees of, and advisors to, the Loan Programs Office 

spend up to a year or more underwriting loan guarantees issued under Title XVII 

of EPAct 2005. In the course of this analysis, and the structuring of the loan, significant attention is paid to the ability of the borrower to repay the loan and to complete the project. Further, the credit subsidy cost estimate reflects that even with 

a reasonable prospect of repayment, there is still some risk of default. To ensure 

adequate funding for completion, the construction budget always includes a reserve 

for contingencies. 

While DOE ultimately makes the statutory determination that there is a reasonable prospect of repayment and that the project funding is sufficient to complete the 

project (as was the case for Solyndra and Beacon), the determination is necessarily 

grounded in the analysis and recommendation of the experienced professionals in 

the Loan Programs Office. 

It is important to bear in mind that Congress wisely crafted the two statutory requirements that you cite as determinations that must be made before the Department issues a loan guarantee. They are not continuing covenants, and a change in 

circumstances that results in shortfalls, either in repayment or in the construction 

budget, does not mean that the statute was ‘‘not adhered to.’’ As has been widely 

discussed and reported, the difficulties encountered by both Solyndra and Beacon 

resulted from dramatic changes in the relevant markets that were not anticipated 

at the time the loan guarantees were issued. Moreover, at the time of the Beacon 

bankruptcy filing, the Stephentown project was virtually complete, in operation and 

producing revenue. Similarly, Solyndra faced a shortfall in cash because market conditions had resulted in less robust revenues than had been forecast. 

ATVM PROGRAM

Question 6a. Five loans have been issued under the ATVM program in roughly 

three and a half years, including just one since March 2011. More than half of the 

program’s credit subsidy is unused today, despite initial claims that the program 

was ‘oversubscribed’ and statements from DOE that more loans were being negotiated and on the verge of closing. Many are wondering what, exactly, is happening 

with this program. 

How many applications has DOE received under the ATVM program, and how 

much total loan funding have those applications sought? 

Answer. We have received a total of 141 document submissions, 70 of which were 

deemed as Substantially Complete Applications. Total funding requested was in excess of available appropriations authority for the program. Requested funding data 

is based purely on application materials received by DOE. A substantial portion of 

requested funding was related to incomplete applications, and requested funding 

does not reflect rejected or withdrawn applications or any adjustments based on 

terms acceptable to the program. 

Question 6b. How many ATVM applications are currently being negotiated by 

DOE? 

Answer. We have a total of 27 open document submissions, 17 of which are 

deemed as Substantially Complete Applications. Of these 17, 11 applicants have not 

responded to the program for an extended period of time and are considered inactive, while the remaining 6 applications are under review. 

Note that application submissions are first reviewed for completeness, prior to any 

due diligence being performed. Once a company has provided all the required information, the application is deemed ‘‘Substantially Complete’’ and the review process 

can begin. An application becoming Substantially Complete does not necessarily indicate that an applicant’s business plan, technology, market strategy or financial position are fully viable, or that they will meet all criteria necessary to obtain a DOE 

loan. It is simply the first step in a thorough technical, legal, and financial analysis. 

Question 6c. Last summer, 18 projects were reportedly negotiating under ATVM 

for a total of $9.8 billion in loans. How many of those projects are still negotiating 

for loans, and what would those loans total? 

Answer. Of the 18 Substantially Complete Applications that existed in the summer of 2011, the ATVM has 17 eligible applicants remaining, 11 of which are inactive while the remaining 6 applications are under review. 

Question 6d. How many ATVM applications have been rejected by DOE to date? 
51 

Answer. We have received a total of 141 document submissions, 70 of which were 

deemed as Substantially Complete Applications. Of the 70 Substantially Complete 

Applications, 48 have either been rejected or withdrawn. 

Question 6e. What are the primary factors that are preventing DOE from issuing 

loans through the ATVM program? Is it administrative hurdles that cannot be overcome, a lack of viable projects, or other factors? 

Answer. The ATVM Loan Program is a direct loan program, funded by the U.S. 

Treasury, using taxpayer dollars. The Program takes very seriously its responsibility to ensure that such dollars are awarded in the most appropriate way to protect the taxpayer’s interests. That said, the program has entered into loan agreements with five borrowers and continues to closely monitor those loan transactions, 

insisting on the completion of milestones and fulfillment of any conditions agreed 

to by the applicant and DOE. 

The ATVM and its staff endeavor to maintain openness and transparency with 

all constituents, including the detailed and timely response to inquiries from interested parties across the public and private sectors. The ATVM understands that its 

work has the ability to effect a large economic impact across a broad geographic 

area of the United States, including areas that have been negatively impacted during the recent economic downturn. Despite a significant increase over time in the 

volume of outside inquiry into ATVM, the program continues to work independently 

with a distinct focus on our core competencies relating to the review, analysis, negotiation and structuring of loan transactions. 

The program was established to offer a low-cost funding opportunity for financially viable companies with technically meritorious projects that are ready for commercialization. Early stage companies (which are the vast majority of applicants) 

face many challenges in their efforts to obtain a DOE loan. From the financial and 

credit risks inherent in taking on significant senior debt at an early stage in a company’s lifecycle, the quality and experience of the management team, to the technical and execution risks in designing, developing and establishing a manufacturing 

facility, to the market risk of expected penetration and sales volumes, applicants 

must carefully consider all aspects of their business plan. These are the same risks 

analyzed by equity investors, who may or may not be identified in the initial application. To that end, equity investors must be identified, ideally prior to the issuance 

of a Conditional Commitment Letter, as is the practice in the market for commercial 

loans. ATVM understands that these equity investors are evaluating the high degree of risks these business plans face, and to achieve an equity return hurdle commensurate with such risk, often require a high degree of financial leverage. The 

statutory maximum leverage is 80% against eligible costs, and ATVM seeks to strike 

a balance between the equity return needed to attract investors and the appropriate 

amount of debt that can be supported by the project. 

Automotive component suppliers have also had difficulty qualifying for ATVM 

loans. Although these automotive suppliers are potentially some of the more credit 

worthy borrowers within the automotive industry, they have found it difficult to provide a direct connection between their components and qualified advanced technology vehicles, a necessary link to establish eligibility and market acceptance. 

Question 6f. How many ATVM loans does DOE anticipate finalizing during Fiscal 

Year 2013? 

Answer. Beyond the several applications currently in the ATVM pipeline, which 

are always subject to further review and analysis, the ability of the program to ‘‘finalize’’ loans is entirely dependent on the quality of applications received, whether 

new or existing, and the ability of the DOE and an applicant to reach loan terms 

agreeable to each side consistent with the statute. It is DOE’s goal to advance the 

state of automotive technologies while minimizing the risk to the taxpayer. This requires that DOE balance its mission of fuel efficiency and against financial, market, 

technical and legal risks that may threaten the applicants’ ability to repay the loan. 

To the extent that the ATVM Loan Program, in its independent analysis, determines that any or all of the applicants will not achieve loan funding, we endeavor 

to provide clear feedback to the applicant. 

VACANCIES

Question 7a. According to Mr. Allison’s report, some positions in LPO are either 

vacant or staffed by acting heads and rely heavily on consultants and contractors.’’ 

Which positions are currently vacant in the LPO? Which are staffed by acting 

heads? 

Answer. The current LPO organizational model and staffing plan approved in December 2010 by the Secretary, the DOE Human Capital Officer (HC), and the collective bargaining unit allows for the recruitment and retention of federal employees 
52 

compliant with Office of Personnel Management (OPM) requirements. Accordingly, 

the LPO mission and functions are aligned to the staffing plan which: establishes 

the roles and responsibilities for all new federal supervisors and staff; identifies 

their reporting structure, authorities, job classifications, and grade levels; and provides the framework for recruitment actions, which the LPO is undertaking in earnest with the HC organization. 

The LPO organization is headed by the Executive Director (LP-1) who reports directly to the Secretary of Energy, and it has seven Divisions reporting to LP-1 including the: 

(1) Loan Guarantee Origination Division (LP-10) which manages all aspects 

of application intake, project evaluations, due diligence, environmental compliance, and origination and underwriting for all projects submitted under Title 

XVII loan guarantee authority; 

(2) Advanced Technology Vehicle Manufacturing (ATVM) Division (LP-20) 

which manages all aspects of ATVM loan origination for projects submitted 

under EISA Section 136 direct loan authority; 

(3) Technical and Project Management Division (LP-30) which evaluates the 

technical, scientific, and engineering eligibility and viability of all Title XVII 

and ATVM projects; 

(4) Credit Division (LP-40) which manages credit modeling, credit calculations, and risk analysis, Credit Committee, Credit Review Board, and interagency risk assessments and management for Title XVII and ATVM projects; 

(5) Portfolio Management Division (LP-50) which provides portfolio monitoring and reporting, loan disbursement and repayment administration; and 

special assets management for Title XVII and ATVM projects. 

(6) Management Operations Division (LP-60) which provides liaison, reporting, compliance, implementation, and management of the federal budget, contracts, personnel, information systems, correspondence, external communications, audits, safety, and security requirements for the LPO; 

(7) Legal Division (LP-70) which reports to the DOE General Counsel and 

provides legal expertise on all transactions and loan agreements for Title XVII 

and ATVM projects. 

The LPO staffing plan allows each Division to have a Director at the Senior Executive Service (or equivalent) level to establish, manage, and oversee LPO policy, procedures, and operations in coordination with LP-1. Currently there are three managers serving in an ‘‘Acting’’ capacity who function in ‘‘dual-hat’’ SES roles. They 

are: the Acting LP-1, who also serves as the LP-10 Director; the Acting LP-20 Director, who also serves as a Supervisory Senior Investment Officer; and the Acting LP60 Director, who is also the Director for LPO Strategic Initiatives. 

The LP-40 Director position that was mentioned in Mr. Allison’s report is currently vacant. This position was advertised in January 2011 through a public notice 

on USAJobs, which is the OPM official federal job vacancy website. After a sixmonth recruitment effort, the competitive advertisement yielded no qualified candidates for this position. This was likely due, in large part, to uncertainly surrounding the pending expiration of the LPO’s Recovery Act authority. Since Mr. 

Allison’s report was issued, the LPO has undertaken to revise this announcement 

to incorporate additional risk management functions identified in the report and is 

pursuing multiple notification strategies to advertise again for this position. 

Question 7b. What is your plan, if any, to fill these positions? 

Answer. The LPO is engaging in the recruitment for the LP-40 position under a 

revised framework. In addition, DOE is currently extending offers to eight new loan 

professionals for asset management and supervision in LP-50. At the same time, the 

LPO has initiated recruitment actions for specialists in loan administration, special 

assets, investment and financial analysis. 

As a federal executive agency governed by Title V of the U.S. Code, Government 

Organization and Employees, the LPO adheres to OPM and DOE personnel regulations that require competitive public postings for all federal vacancies. As a new organization, LPO recruitments have required significant advance work to create new 

federal positions in the specialized job series—for investment officers and loan specialists with corporate and project finance qualifications—which were not previously 

available at DOE. Combined with the timeframe required for OPM announcements, 

the LPO recruitment actions have typically taken six to eight months. The LPO continues working with the DOE Human Capital Office to determine ways to streamline the federal recruitment process to improve federal hiring for the critical skills 

it requires. At the same time, LPO is trying to find ways to incentivize federal incumbents with specialized finance skills in a manner that is competitive with other 

federal finance organizations to ensure program stability and that it has the in- 
53 

house competencies needed to meet its mission responsibly. These positions will be 

posted on USAJobs consistent will federal hiring requirements. 

ADDITIONAL SUBSIDY

Question 8a. According to a memo written by administration officials Carol 

Browner, Ron Klain, and Larry Summers in October 2010, ‘‘Project sponsors for all 

power generation projects under the 1705 program have indicated that they intend 

to claim a 1603 grant once they enter into service.’’ 

How many projects ultimately selected by DOE for Section 1705 loan guarantees 

have also claimed a 1603 grant (or will be eligible to do so before the ‘Placed in 

Service’ and ‘Begun Construction’ deadlines of October 1, 2012)? 

Answer. As you know, the Department of Treasury is responsible for administering the 1603 program and the Investment Tax Credits (ITC). Under the 1705 

loan program, the Department of Energy closed 26 transactions, excluding two 

transactions that withdrew subsequent to closing (POET and AES Energy Storage). 

Of the 26 transactions, 20 are expected to claim 1603 payments or ITC. The aggregate project cost for the 20 projects is $22.8 billion and the aggregate expected 1603/ 

ITC is $5.9 billion or 26% of the project cost after allowing for ineligible costs. 

Question 8b. What is the total government subsidy (federal and state) for Section 

1705 loan recipients, including 1603 grants, in dollars? Please provide this on a 

project-byproject basis and as an average across all projects. 

Answer. The Department does not track state-level government subsidy. The Department cannot release the total project costs of specific projects as that is business 

sensitive information and it cannot report on project specific 1603 data as that program is administered by the Department of Treasury. Currently most projects have 

not completed the 1603 process and been awarded 1603 payments but when those 

payments are awarded the payments will be public information and will be reported 

on the Treasury website. 

Question 8c. What is the total government subsidy for Section 1705 loan recipients, including 1603 grants, as a percentage of project cost? Please provide this on 

a project-byproject basis and as an average across all projects. 

Answer. The Department can only report on 1603 grant recipients in terms of 

total government subsidy, not on a project specific basis although for projects that 

will be receiving 1603 payments, the information on such payments will be available 

on the Treasury website once the payment has been issued. The total aggregate expected 1603 award as a percentage of aggregate total project costs of the 26 projects 

(excluding the two that withdrew subsequent to closing) is 23.3%. 

POWER PURCHASE AGREEMENTS AND LIABILITY

Question 9a. A number of Section 1705 loan guarantees rely on power purchase 

agreements between the project sponsor and a utility. 

Have power purchase agreements been signed by all applicable parties (including 

agencies of the federal government) for all relevant Section 1705 loan guarantee 

projects? If not, why not, and when do you expect those agreements will be completed? 

Answer. PPAs have been executed by all relevant parties for all but one of the 

Section 1705 energy generation projects. The one exception is Project Amp, which 

will deliver a PPA executed by all relevant parties before any disbursement occurs. 

Project Amp is designed to be completed in phases. Approval of a phase (and, therefore, disbursement of loan proceeds in connection with a phase) requires a PPA executed by all relevant parties, including an investment grade utility offtaker. 

A PPA, which is an agreement to buy generated power, is not relevant to Section 

1705’s non-generation projects, as there is no generated power to sell in those 

projects. 

Question 9b. How is potential liability for damage caused to the grid in the event 

of a plant failure or malfunction addressed in power purchase agreements? 

Answer. Measures designed to protect interconnecting high voltage transmission 

systems (i.e., ‘‘the grid’’) from power plant failures or malfunctions are generally addressed in interconnection agreements (rather than in Power Purchase Agreements) 

between the power plant’s owner (the ‘‘Interconnection Customer’’), the owner of the 

transmission facilities (the ‘‘Transmitting Organization’’) and the independent Regional Transmission Organization (‘‘RTO’’). As these are fairly standardized agreements, the information below is based on representative interconnection agreements 

from the California Independent System Operator (‘‘CAISO’’) and ISO New England 

(‘‘ISO-NE’’). 

Grid protective measures are more a technical issue than a legal one, as system 

technical standards are designed to prevent any power plant from causing damage 
54 

to the grid. These standards are imposed legally by the interconnection agreement 

requirement that the Interconnection Customer design, construct and operate the 

power plant and appurtenant facilities in accordance with the applicable Reliability 

Council’s requirements and ‘‘good utility practice.’’ Each Interconnection Customer 

is, therefore, required to install and maintain protective equipment designed to prevent interference with, and damage to, the interconnected transmission facilities, as 

specified by ‘‘good utility practice’’ and the Transmitting Organization’s standards. 

Before the in-service date and commercial operation of the power plant, the Transmitting Organization and Interconnection Customer are also required to perform 

complete calibration and function tests on the system protection facilities to ensure 

compliance with the specified standards. 

In the event of emergency conditions, the RTO is separately authorized by the 

interconnection agreement to shut down transmission from the power plant without 

notice and to take any other actions to preserve public health and safety, preserve 

the reliability of the RTO-controlled grid or the Transmitting Organization’s interconnection facilities and distribution system, to limit or prevent damage, and to expedite restoration of service. 

From a legal perspective, the interconnection agreements generally provide that 

the RTO, Transmitting Organization and Interconnection Customer indemnify each 

other from all losses arising out of another party’s actions or inactions under the 

interconnection agreement, except in cases of gross negligence or intentional wrongdoing by the indemnified party. Liability for consequential, indirect or punitive damages is generally excluded in the interconnection agreements. The Transmitting Organization and Interconnection Customer are also required by the interconnection 

agreement to maintain minimum insurance coverage, including excess public liability insurance over and above general commercial liability policies. 

RESPONSES OF SECRETARY STEVEN CHU TO QUESTIONS FROM SENATOR FRANKEN

Question 1. How many companies whose technologies have received Department 

of Energy support through grants, public-private partnerships (such as the NP2010 

program), loans, or loan guarantees have transferred that technology (i.e., intellectual property or trade secrets) to China in the past ten years? 

Answer. The Department of Energy does not centrally collect information about 

companies that have received DOE support and have transferred that technology to 

China. 

Question 2. Please provide the names of all companies that have at any time over 

the past ten years transferred technology to China subsequent to Department of Energy support for the technology through grants, public-private partnerships, loans, 

or loan guarantees. 

Answer. The Department of Energy does not centrally collect information about 

companies that have received DOE support and have transferred that technology to 

China. 

Question 3. Please provide any relevant information on particular support programs that the above-mentioned companies and technologies received. 

Answer. The Department of Energy does not centrally collect information about 

companies that have received DOE support and have transferred that technology to 

China. 

Question 4. Please provide a general description of the technology that was supported by the Department of Energy and subsequently transferred to China. 

Answer. The Department of Energy does not centrally collect information about 

companies that have received DOE support and have transferred that technology to 

China. 

[Responses to the following questions were not received at the 

time the hearing went to press:] 

QUESTIONS FOR SECRETARY STEVEN CHU FROM SENATOR BARRASSO

Question 1. The Department has made over $16 billion in section 1705 loan guarantees. Over 80 percent of these loan guarantees have been made to the solar industry. In other words, about $13 billion in loan guarantees have gone to solar generation companies and solar manufacturing companies, including Solyndra. Why has 

the solar industry received 80 percent of all section 1705 loan guarantees? 

Question 2. Again, the Department has made over $16 billion in section 1705 loan 

guarantees. However, it is my understanding that the Department has not originated a single section 1703 loan guarantee. As you know, section 1703 was enacted 

almost 4 years prior to section 1705. Please explain how the Department has been 
55 

able to make over $16 billion in section 1705 loan guarantees but not any section 

1703 loan guarantees? 

Question 3. On March 12, 2012, the Government Accountability Office (GAO) released a report on the Department’s loan guarantees. Do you agree with GAO’s conclusion that ‘‘DOE did not always follow its own process for reviewing applications 

and documenting its analysis and decisions, potentially increasing the taxpayer’s exposure to financial risk from an applicant’s default’’? If not, why not? 

Question 4. I understand that the Department is considering transferring depleted 

uranium to the Bonneville Power Administration (BPA). The purpose of these transfers appears to be to assist USEC which would enrich the depleted uranium. Please 

explain in detail what the Department is considering. Please include in your answer: (1) the exact quantities of uranium that would be transferred to BPA; (2) how 

the depleted uranium would be transferred to BPA and the price BPA would pay 

for the depleted uranium; and (3) the price BPA would pay USEC per separate work 

unit to enrich the depleted uranium. 

Question 5. Will you please explain how the transfers to BPA and all of the Department’s other uranium dispositions would be consistent with the Department’s 

commitment not to dispose of more than 5 million pounds of natural uranium equivalent (or 10 percent of the nation’s domestic fuel requirements) annually into the 

commercial market? Please explain in your answer which years the Department 

would record the transfers to BPA for the purposes of satisfying the Department’s 

total cap on annual uranium dispositions. 

Question 6. How would the Department ensure that the uranium transferred to 

BPA will remain out of the commercial market prior to consumption? In other 

words, how would the Department ensure that BPA does not swap, loan, or sell the 

uranium into the market? 

Question 7. What steps would the Department take to ensure that BPA will not 

sell or trade some of its existing uranium inventories into the commercial market 

and replace such inventories with the uranium transferred from the Department? 

RESPONSES OF HERBERT ALLISON TO QUESTIONS FROM SENATOR MURKOWSKI

THREAT OF CONCENTRATION RISK

Your report goes into some detail about concentration risk in the Energy Department’s loan portfolio. Specifically, you cite the large share of projects for manufacturing solar equipment or generating solar power and the reliance upon state and 

federal mandates to create markets for many projects’ and products. 

In many ways, this concentration risk is the direct result of a Congressional decision to limit eligibility under the stimulus bill’s Section 1705 program. Compared 

to the 2005 energy bill’s Section 1703, a far narrower set of industries—renewable 

and transmission projects only—were allowed to apply for support under Section 

1705 from the Stimulus. 

Question 1. Do you think it was wise for Congress to limit eligibility under Sec. 

1705, and do you think these concentration risks would be more manageable if nuclear, clean coal, or other projects were also part of the Department’s portfolio? 

Answer. What the Independent Consultant’s Report (‘‘Report’’) means by the term 

‘‘concentration risk’’ in the existing portfolio is that, if one project similar to others 

in a group were to encounter trouble, the others in that group might also be affected. It is not clear that the existing concentration risks would be diminished by 

adding projects involving other types of energy production, because they may not 

offset others in the portfolio and the existing risks would still remain. 

CATEGORIES OF RISK AND LESSONS LEARNED

In evaluating the Department’s loan and loan guarantee portfolio, you chose to 

break out the loans and loan guarantees not by programmatic origin, but by certain 

traits that bear heavily on a project’s risk profile. Specifically, you chose to 

disaggregate the portfolio into ‘‘Utility-Linked,’’ ‘‘Non-Utility Linked,’’ and the ‘‘Ford 

and Nissan’’ categories. 

In that order, ‘‘Ford and Nissan’’ were found to have a credit subsidy cost of 2%, 

‘‘Utility-Linked’’ came in at 13%, and ‘‘Non-Utility-Linked’’—without accounting for 

the already-bankrupt Solyndra and Beacon—had a credit subsidy cost of 41%. 

Question 2a. Can you explain why you chose to break the portfolio out this way? 

Question 2b. Is there a class or category of project that you think should not receive loan guarantees or direct loans from the government in the future? 

Answer. As you know, the Independent Consultant’s assignment was in part to 

evaluate the loans in the portfolio. To do so, the Independent Consultant (which 
56 

term, as used herein and in the Report, collectively refers to myself and the team 

of advisers that was assembled to assist in preparing the Report) estimated the risk 

of each loan, assigned a discount rate appropriate for that risk and then discounted 

the loan’s expected cash flows using the two methods of valuation that we selected: 

FCRA and FMV. In order to provide as much information as possible about the estimates of expected loss without violating confidentiality agreements, the Independent 

Consultant grouped the loans into three categories, each with the distinctive risk 

and other characteristics described in the Report, and disclosed the estimates of expected loss for each category. 

The Independent Consultant believes that the answer to the second part of the 

question would depend on a number of factors, including policy imperatives at the 

time, analysis of the project by technical experts, the expected economics of the 

project, and the risks and countervailing protections in the financing agreements. 

OTHER TOOLS AVAILABLE TO SUPPORT INNOVATIVE ENERGY TECHNOLOGIES

If our policy objective is to facilitate deployment of new or improved energy technologies, there are many tools available to the government. To this day, we also utilize tax credits, cash grants, mandates, government procurement, prizes, performance standards, and other mechanisms to try and alter the nation’s energy mix. 

Question 3. Do you think some of these other tools make more sense than loan 

guarantees or direct loans? If so, can you provide examples of where one tool is 

clearly preferable to loan guarantees or direct loans? 

Answer. As it designs financing programs for energy projects, the government 

should select forms of financing best suited to accomplishing the desired policy objectives and to protecting the interests of taxpayers. For more innovative, risky 

projects in early stages of development, it may be advantageous to use grants, prizes 

or equity investments. Equity-linked vehicles could enable taxpayers to share in returns from successful ventures. Those gains could help to pay down the deficit, offset losses from other investments, or finance other projects. The forms of financing 

permitted in the Title XVII and ATVM programs expose taxpayers to the downside 

risk of absorbing considerable losses but do not offer taxpayers the possibility of 

profiting alongside project sponsors if projects are successful. 

CHIEF RISK OFFICER RECOMMENDATION

Question 4. Are market trends related to polysilicon prices—in the context of the 

loan guarantee to Solyndra—something that a Chief Risk Officer would have been 

monitoring ahead of the Department issuing a loan guarantee to a company whose 

competitive advantage was derived, in large part, from the fact that they didn’t use 

polysilicon? (Please reference question #2 to Secretary Chu for more information and 

a chart from CRS depicting historical polysilicon prices.) 

Answer. The Chief Risk Officer would provide the Department with an independent view on markets not only before loans are approved, but also before funds 

are disbursed and throughout the lives of the loans. In addition, the recommended 

Early Warning System would provide continuously updated information on markets 

and developments in technologies for producing and delivering clean energy. 

FEE COLLECTIONS

Your report notes (p. 17) that the level of fees charged to borrowers were undermarket and that proceeds from fee collections may not be large enough to cover 

long-term management and oversight of the project portfolio. As a result, DOE likely needs additional funding to adequately manage the project portfolio over its lifetime. 

Question 5. Should the fee structure for applicants/recipients be modified to ensure that the charges are sufficient to cover loan origination, loan monitoring and 

management, and other long-term administrative costs? If so, what changes to the 

fee structure would you recommend? 

Answer. Under the current laws and regulations governing the Program, most of 

the fees that fund the Loan Program Office (‘‘LPO’’) derive from origination of 

financings. Once the origination phase of the Program ends, fee income will decline 

substantially and may be insufficient to fund the activities of the LPO over the lives 

of the loans. DOE cannot unilaterally change the fee structure for existing agreements. Therefore, DOE should modify the fee structure to the extent it is statutorily 

authorized if it concludes that revenues are likely to be insufficient to fund the LPO 

over the 20-30 year life of the Program. To the extent such modifications require 

amendment of the underlying statutory authorities, Congress should make such necessary amendments. 
57 

LONG-TERM FUNDING

The first recommendation in your report (p. 43) is to ‘‘Provide Long-Term Funding 

for the Program.’’ Also on page 43, the report states that ‘‘adequately funding the 

management and administration of the Programs will depend on obtaining additional budget and appropriated funds in the future.’’ However, no specific estimate 

of funding needed for the program is provided. 

Question 6. How much funding is needed to adequately manage, monitor, and 

oversee the loan and loan guarantee project portfolio? 

Answer. Determining the amount of funding needed to adequately manage, monitor and oversee the portfolio was not part of the Independent Consultant’s assignment. The Report did state, however, that the costs to implement the recommendations should be low compared to risk of added losses if the Programs are not wellmanaged and governed. Furthermore, many of the Report’s recommendations entail 

little or no cost. 

EVALUATION METHOD

Your report evaluates DOE’s loan and loan guarantee portfolio using two different 

methods: (1) Federal Credit Reform Act (FCRA) credit subsidy cost, and (2) Fair 

Market Value. However, the report emphasizes (pages 33 and 37) that neither method should be relied upon as an accurate predictor of estimated losses or costs to the 

federal government. 

Question 7. Is there an evaluation method available that might reliably predict 

government costs for energy project loans and loan guarantees such as those currently within DOE’s loan and loan guarantee portfolio? 

Answer. For purposes of government budgeting, the method set forth in the Federal Credit Reform Act of 1990 (‘‘FCRA’’) is appropriate, as it estimates credit loss 

and excludes other costs that are applicable to private investors but not to the government so long as the government holds the loans. Any deviations in the credit 

subsidy cost will likely be offset by countervailing changes in costs of the government’s other loan programs or be absorbed by taxpayers under FCRA’s permanent 

and indefinite authority. 

Nonetheless, no method can reliably forecast the actual losses that will ensue over 

the life of the Programs because any cost to the government will be the product of 

many factors, some unique to an individual loan, which the FCRA methodology can 

neither capture nor forecast today. Moreover, the FCRA methodology’s present value 

estimates of cost fluctuate materially with changes in assumed long-term interest 

rates. The FCRA methodology also assumes that DOE is a passive bystander unable 

to act to reduce or mitigate risk over time, when in fact it has robust tools to protect 

itself against elective risk. 

NON-UTILITY LINKED LOANS

Your evaluation of the non-utility-linked loans category indicates that credit subsidy cost estimates have increased 71% since the loans were originated (p. 32). This 

increase is partly a result of six of the eight loans in this category having received 

lower credit ratings than those assigned by DOE. The non-utility-linked loans category includes loans to cellulosic ethanolprojects, automotive manufacturing companies, and solar manufacturing companies. 

Question 8. Could you please explain why six of the non-utility-linked loans received lower credit ratings than ratings assigned by DOE? 

Answer. The Non-Utility-Linked Loan projects typically rely on novel technologies 

and unproven manufacturing methods. They will not benefit from guaranteed purchases of their production and instead will have to sell their products into highly 

competitive markets. Some have not been meeting progress milestones. In considering these factors, the Independent Consultant assigned lower credit ratings to 

some of the loans than did DOE. 

FMV AND FCRA EVALUATIONS

Your evaluation of projects in the non-utility-linked loans category resulted in 

FCRA credit subsidy cost estimates and Fair Market Value discounts, which investors would require, that were essentially equal. On page 33 of the report, the following statement is made: ‘‘...results from the legally required FCRA Methodology 

do not reflect the discounts from the loans’ face values that investors would demand 

to bear the full set of risks involved in this particular Portfolio.’’ This statement 

seems to indicate that FMV discounts would generally be larger than credit subsidy 

cost estimates. The non-utility-linked loans include the highest-risk projects in the 
58 

portfolio, so these projects might be expected to command a significant Fair Market 

Value discount. 

Question 9. For the non-utility-linked loans category, could you please explain 

why the Independent Consultant’s estimates of Fair Market Value (FMV) and FCRA 

credit subsidy cost are essentially equal? 

Answer. The fact that the Independent Consultant’s estimates of FMV (measured 

as a range) and the FCRA credit subsidy cost for the Non-Utility Linked Loans are 

similar is largely coincidental and is a function of the assumptions used to calculate 

the estimates using the two methodologies and the individual characteristics of each 

loan. The Independent Consultant evaluated eight Non-Utility Linked Loans independently. The estimates of FMV and FCRA credit subsidy costs for the Non-Utility 

Linked Loans presented in the Independent Consultant’s Report are aggregate values comprised of the individual estimates for each of the eight Non-Utility Linked 

Loans. In some cases, the FMV and FCRA credit subsidy costs for individual NonUtility Linked Loans overlap. In other cases, they do not. Viewed as a portfolio, as 

the report does, there is overlap. 

Although the overlap is largely coincidental, the Independent Consultant, as a 

general rule, observed less of a disparity between estimates of FMV and FCRA credit subsidy costs, all other factors held constant, for credits on the lower end of the 

credit scale and for credits for which low recovery-rate-upon-default assumptions 

were utilized for the FCRA methodology. The Non-Utility Linked Loans tended to 

be on the lower end of the credit scale and utilized relatively low recovery rates for 

the FCRA methodology. 

TAXPAYER PROTECTIONS

You recommend (p. 45) actions that would protect taxpayer interests. There are 

references throughout the report that discuss how the loan and loan guarantee programs could increase oversight of projects and transactions and institute more rigorous covenants and conditions prior to funding disbursement. However, once all 

funds have been fully disbursed, taxpayer protection options may be limited to the 

ability of the government to operate or liquidate project assets in the event of a default. 

Question 10. After loan or loan guarantee funds are completely disbursed to 

projects, what taxpayer protection options are available to the federal government? 

Answer. DOE can claim default if a project does not meet ongoing contractual requirements for capital, cash flow, debt/equity ratios, project performance, spending 

rates, debt limits, etc. DOE does not have some protections typically available to private lenders, such as the ability to contribute equity, and it may not be authorized 

to subordinate its loans to attract additional funding that may improve the project’s 

viability and ability to repay DOE. 

TIMEFRAME OF REPORT

You mention the ‘compressed time period for review’ (p. 54) in your discussion of 

limitations of the report. 

Question 11a. Was 60 days sufficient to cover all aspects of the LPO that you believe are worthy of being examined? 

Question 11b. Ideally, how much time would be allotted to complete a comprehensive review of the LPO? 

Answer. The Independent Consultant had sufficient time to complete the assigned 

work of evaluating the LPO’s portfolio of loans using the available information provided by DOE, making comprehensive recommendations for strengthening management of the Program, and proposing an Early Warning System. As noted in the Report, with additional time the Independent Consultant could have retained outside 

experts (engineering firms, etc.), but the Independent Consultant is not convinced 

that such experts would have materially affected the valuations of loans and the 

recommendations contained in the Report. The Independent Consultant’s assignment did not include examining day-to-day operations, record keeping and controls. 

The Independent Consultant assumes that the DOE Inspector General performs 

those functions. 
(59) 

APPENDIX II 

Additional Material Submitted for the Record 

BRIGHT AUTOMOTIVE, 

Rochester Hills, MI, December 27, 2011. 

SECRETARY STEPHEN CHU, 

DEPUTY SECRETARY DANIEL PONEMAN, 

MR. OWEN BARWELL, 

MR. ROB DONATUCCI, 

MR. DAVID FRANTZ, 

MR. NICK WHITCOMBE. 

Subject: Bright Automotive and its ATVM Loan Program Application 

DEAR SECRETARY CHU, DEPUTY SECRETARY PONEMAN AND MESSRS. BARWELL, 

DONATUCCI, FRANTZ, AND WHITCOMBE: 

The purpose of letter is to provide an overview of Bright Automotive, to comprehensively convey its experience as it relates to the ATVMLP over the past three 

years and to request the DOE’s senior leadership’s direct and immediate involvement in moving our application forward to completion. 

As our experience to date with ATVMLP has been extensive, we want to provide 

a comprehensive summary of our status and situation. An executive summary is 

provided, followed by a more comprehensive overview. 

EXECUTIVE SUMMARY

Overview of Bright and its ATVM Loan Process 

• Bright was spun out of the of a consortium of Google.org, Rocky Mountain Institute, the Turner Foundation, Alcoa, and Johnson Controls in 2007, and incorporated in January of 2008; 

• Bright will produce a light-weight road-coupled PHEV commercial work truck 

in the U.S. that will create over 675 American-based direct and at least 2700 

indirect jobs—largely in the Midwest. With an electric-range of over 30 miles 

and charge-sustaining efficiency of over 35 miles per gallon, each vehicle will 

save about 40 barrels of oil and reduce CO2 emissions by 16 tons per year; 

• Bright’s PHEV is the first truck engineered from the ground up as a plug-in 

electric vehicle (PEV) designed for commercial and government customers that 

buy over 900,000 vehicles a year in North America, offering a 10-30% lower 

‘‘total cost of ownership’’ than any competitive vehicle in its class; 

• The Bright work truck will advance several of the Federal Government’s policy 

goals, most importantly offering an Alternative Fuel Vehicle alternative for its 

van and pickup applications to help fulfill the government’s 2015 pledge to exclusively procure AFV’s; 

• Bright’s projected CAFE number will be over 85-mpg, and its CO2 will be 102g/ 

mi while having a footprint of over 62-sq ft, offering an example of CAFE standards can be exceeded without having to ‘‘downsize’’ the fleet; 

• Bright has developed key partnerships with large, established entities such as 

General Motors and AM General; 

• The ATVM Loan Program was created by the Bush Administration and expanded by the Obama Administration to encourage the creation of fuel-efficient 

vehicles in the U.S. Bright Automotive will help fulfill this objective, thereby 

reducing ownership costs for public and private fleet operators, reduce dependencies on foreign energy sources and develop advanced technologies in the U.S. 

• Bright’s ATVM loan application was deemed ‘‘substantially complete’’ in December 2008 and it has been in the loan approval process since that time; 
60 

• In January 2010, senior LPO leadership indicated that if Bright established a 

strategic partnership with a major OEM, it would greatly speed up its loan approval process. 

• Bright established a strategic partnership with General Motors in July-2010, 

senior LPO leadership indicates a maximum of 2 months to loan approval; 

• September 2010, DOE establishes six (6) additional definitive agreements required for CCL. These are achieved by December 2010, covering a technical center lease and various supply, manufacturing and service agreements; 

• Due diligence for Bright’s loan application establishing technical and market viability was deemed complete in January 2011 and a ‘‘near final’’ CCL was 

issued to Bright; 

• Consideration for Bright’s loan application was suspended in May 2011 on the 

basis of volume projections from IHS Global Insight which were later found to 

be significantly flawed; a new study was commissioned and completed by AT 

Kearny in June 2011; 

• In June/July 2011, additional loan covenants were added to Bright’s loan package; 

• In July 2011, DOE senior leadership indicated to Bright the expectation that 

its loan would be advanced to the interagency process by September 2011 with 

loan approval following in October 2011; 

• ATVM loan applications were deprioritized in September 2011 in favor of Title 

XVII loan approval activities; further, unfavorable publicity associated with 

Title XVII and ATVM loan recipients appears to have impacted negatively companies such as Bright that remain in the ATVMLP approval process. 

• In December of 2011, the DOE informed Bright that it has completed its credit 

paper and is awaiting an internal decision on the ‘‘purpose of the ATVM program’’ before advancing the application to OMB. 

Broad and Bipartisan Support Exists for Bright 

• Bright has received comprehensive incentive packages at the state, county and 

local levels in both Indiana and Michigan; 

• Numerous calls of inquiry and letters of support from Congressional and local 

leaders have been submitted into the DOE—these are included in the body of 

the text below; a significant amount of Congressional angst over the ATVMLP 

can be summarized in the following quote from a Senate legislative director: 

‘‘perhaps if they’d get more loans out the door they could get some more support 

from Congress...part of the frustration with the program is the slowness of the 

process.’’ 

• Bright has completed multiple projects for the US Postal Service and Department of Defense—each one on time and under budget—and expects that nontactical vehicle orders will be forthcoming from the DoD as well as from the 

GSA; 

• Bright has received confirmed orders from customers like Duke Energy and 

Snap-on Tools, as well as letters of support from firms such as Comcast, Frito 

Lay and ServiceMaster; 

• Bright has secured all of its equity commitments required for its CCL. 

Bright’s Options 

• Bright remains very committed to the prospect of bringing cutting-edge PEV 

technology to businesses and to the U.S. Government via the ATVMLP, but is 

unclear as to what will make this a reality; 

• Should ATVM loan approval not be forthcoming, Bright will be forced to pursue 

its business plans outside of the United States to fulfill other market needs; 

• Unfortunately, a primary funding path outside of the U.S. will lead to the 

transfer of jobs, IP and know-how to foreign countries; 

• Bright has established a relationship with a (non-government affiliated) Chinese investment firm and has a signed term sheet. Also, a China-based Joint 

Venture Letter of Intent is being finalized; 

• These relationships in China can be pursued with or without the presence of 

an ATVM loan—in the first scenario, it would be an additive growth and value 

engine to bolster US developed technology; if the latter, to the detriment of our 

country, the jobs and technology that Bright would otherwise create will move 

to China. 

DOE Requested Actions 

• Bright is requesting a meeting between Bright and all of the recipients of this 

letter, including, respectfully, Secretary Chu. The purpose will be to discuss the 

current status of the ATVMLP in general and the specific next steps associated 
61 

* Documents have been retained in committee files. 

with Bright’s application. As time is critical, this meeting should be targeted for 

the week of January 2 or 9, 2012. 

Bright’s application fulfills the intent of the ATVMLP program, and has been derisked with the preconditions, equity requirements, and partnerships incorporated 

into its lenders case. The current status is having a material impact on our business, thereby forcing us to consider moving our operations overseas. Gaining clarity 

and transparency from you on next steps is critical. 

Your prompt attention to this matter is urgently needed and is appreciated. 

Sincerely, 

REUBEN MUNGER, 

Chairman and CEO. 

MIKE DONOUGHE, 

Chief Operating Officer. 

DETAILS

Bright Automotive Background 

I. Created in 2007 by a consortium of the Rocky Mountain Institute, Google, 

Johnson Controls, the Turner Foundation and Alcoa to explore U.S. business opportunities for PHEV’s; initial studies determined that a combination of ‘‘platform physics’’ and a road-coupled hybrid electric architecture focused on the 

commercial market could create compelling business economics; 

II. Incorporated in 2008; created its powertrain center of excellence in Anderson, Indiana; 

III. Secured important customer validation in 2008-9, including ‘‘voice of the 

customer’’ work with over 50 large fleets, securing letters of support to the Secretary from fleets including Cox, Comcast, Best Buy, and order letters from 

Duke, Vectren, and Snap On. Comcast, Cox and Duke letters follow:* 

IV. Delivered Bright IDEA customer prototype in 2009 and began work with 

the Department of Defense to prove out the merits of the road-coupled PHEV 

architecture; 

V. Delivered DoD PHEV prototype and USPS EV conversion in 2010; 

VI. Established a strategic partnership with General Motors in July 2010; 

GM made initial investment in Bright in August 2010; additional GM investments of $20 million pending—contingent upon receipt of ATVM loan approval; 

VII. Established a strategic partnership and contract with Dickenson Fleet 

Services, the leading commercial-fleet service provider, in the fall of 2010; 

VIII. Created a Vehicle Engineering Technical Center in Rochester Hills, 

Michigan in 2011; 

IX. Established a contract assembly contract with AM General in Mishawaka, 

Indiana—contingent upon receipt of ATVM loan approval; 

X. Ready to accelerate program activities to create the IDEA platform—once 

ATVM loan approval is achieved. 

Bright’s ATVMLP Timeline 

I. December 2008: Bright’s ATVM loan application deemed ‘‘substantially 

complete’’; 

II. 2009: loan application processing; 

III. September 2009, after rejecting a $450 million loan application, Matt Rogers and Lach Seward indicate that a loan for less than $300 million would be 

quickly approved. Bright revises its business plan to support a $284 million 

loan (subsequently increased to $314) 

IV. November 2009, DOE decides to redo the various consulting studies on 

Bright’s business; this process did not begin in earnest until January 2010. 

V. January 2010: Senior leadership at DOE indicated that if Bright established a strategic partnership with a major OEM, it would greatly speed up its 

loan approval process, saying the approval would occur in ‘‘weeks, not months.’’ 

VI. July 2010: Bright and GM sign an MOU and establish a strategic partnership; Senior LPO leadership details a two month timeline to CCL 

VII. August 2010: After securing the GM strategic partnership, Bright leadership informs the DOE about potentially problematic volume forecasting done by 

IHS Global Insight in early 2010 and asked for the analysis to be reassessed 

(see Item X below); 

VIII. September 2010: To enable a speedier loan approval, Bright directed to 

satisfy six additional pre-conditions: 
62 

a) A definitive vehicle maintenance agreement (service provider); 

b) Binding commitments for $70 million in equity; 

c) A definitive agreement with a U.S. contract manufacturer to assemble 

the IDEA; 

d) A lease for its vehicle engineering technical center; 

e) A ICE powertrain supply agreement with General Motors; 

f) A supply contract with General Motors for ‘‘parts bin’’ access. 

IX. December 2010: Bright meets each pre-condition; 

X. January 2011: Due diligence phase completed; Bright receives a ‘‘near final’’ CCL for a $314 million loan; 

XI. February—May 2011: Loan application package developed and reviewed 

with credit team; 

XII. May 18, 2011: DOE determines it will no longer actively consider Bright’s 

loan based upon the impact of volume considerations in the DOE-generated 

lender’s case on Bright;. Bright leadership discovers that the early 2010 analysis was never reassessed; 

XIII. May 19, 2011: Bright reaches out to political and business leaders to 

share the latest status and to garner support for continued loan consideration 

activities; 

XIV. May 2011: 

a) Jon Lauckner, President of GM Ventures and prior head of global 

product planning and global program management, attempts to contact senior LPO leadership to share GM’s viewpoint on the market and business opportunity. LPO leadership refuses to speak with Mr. Lauckner 

b) Miscellaneous letters and expressions of support into the DOE are 

input into the DOE from employees, congressional members, etc. and are 

attached below. 

c) PRTM sent the DOE a memo of its independent market assessment of 

the Bright work truck based on its extensive fleet electrification research 

it performed for the Electrification Coalition (see attached memo); 

XV. May 24, 2011: DOE initiates a conference call with Bright in which it 

was indicated the volume study used needed to be updated; a new volume study 

is commissioned by the DOE to be conducted by A.T. Kearney; 

XVI. June 1, 2011: Bright meets with ATK and DOE to share market analysis 

and Voice of the Customer data; 

XVII. June 2011: Based on updated volume studies, DOE reinitiates loan application processing; 

XVIII. In June/July 2011, partly as a result of the GAO report of February 

2011, additional loan covenants were added to Bright’s loan package; 

XIX. July 2011: During a meeting between Bright and DOE, it was indicated 

to Bright that its credit report package should be advanced to the interagency 

process by the end of September 2011 and that receipt of CCL could be realized 

no later than October 2011; 

XX. September 2011: Title XVII wind down activities prioritized over ATVM 

loan application processing and media/political attention over loans casts a potentially unfavorable light on other applicants; 

XXI. October 2011: Bright informed that additional equity raise requirements 

are needed to bolster overall balance sheet and risk profile, which Bright agreed 

to; December 1 set as ‘‘outside date’’ for receipt of CCL; 

XXII. November 2011: Another ‘‘near final’’ CCL is received by Bright; 

XXIII. December 28, 2011: Bright submits a comprehensive summary letter 

to DOE requesting, among other things, a face-to-face meeting between Bright 

and DOE senior leadership to discuss the current status and prospects going 

forward; 

XXIV. January 2012: Meeting between Bright and DOE? 

Bright’s Business Plan Attributes 

I. Targeted customers (annual market size is $25 billion, and 900,000 vehicles, in North America) and benefits: 

a. Public—local, state and federal (DoD and GSA) governments 

i. Bright can help the federal government meet its various policy objectives as announced in April 2011 [2015: all fleet purchases to be alternative 

fuel vehicles; 1 million PHEV’s on the road by 2016; 2020: reduce oil imports by 1/3 50+mpg CAFE. 

ii. The IDEA platform is the only domestic engineered and produced 

all-new PHEV truck; it will get 85+mpg CAFE rating; 
63 

iii. The IDEA platform will represent an enabler for the government to 

economically lower its operating costs in the face of declining budgets as it 

is targeting a 10-30% lower overall cost to own and operate; 

iv. The IDEA platform may be the only viable PEV work truck that can 

meet the U.S. government’s 2015 AFV purchase requirements while offering uncompromised range and payload 

b. Private—large and small fleets alike—from AT&T to ‘‘Ernie the Plumber’’ 

i. Committed orders already received from Duke Energy, Snap-on Tools 

and Vectren; 

ii. Letters of intention to purchase already received from Aramark, Best 

Buy, Comcast, Cox Communications, DTE Energy, FritoLay, Servicemaster 

and Staples; these companies have a combined fleet of 106,500 vehicles; 

iii. The IDEA will provide key functional, environmental and economic 

benefits to address fleet operator challenges: 

1. Lower total cost of ownership—by 10 to 30 percent depending on 

the vehicle it is replacing; 

2. Reduced exposure to volatile fuel prices—full-sized vans typically 

use about 10 gallons of gasoline per day, the IDEA will use about 2 gallons; 

3. Reduced carbon footprint—each vehicle will save 16 tons of CO2

emissions per year; 

4. Enhanced operator productivity—on-board telematics and user-defined features are incorporated into the IDEA platform based on extensive 

VOC research. 

II. Jobs creation expectations: 

a. Direct Jobs: 

i. Michigan—Vehicle Engineering—200-250 

ii. Indiana—Powertrain Engineering—25-30 

iii. Indiana—Vehicle Assembly—450-500 

b. Indirect Jobs [using a multiplier of 4]: 2700-3120; primarily in the supply base 

III. Intellectual property generation: 

a. Parallel road-coupled PHEV architecture; 

b. Vehicle, Chassis and Powertrain Control Systems; 

c. Battery Systems; 

d. Light-weighting through use of advanced materials including the extensive use of alloys and repurposed materials. 

IV. Reduction of fuel consumption, generation of GHG’s, dependency on foreign energy sources: 

a. 40 barrels of oil saved per vehicle per year; at planned annual volumes 

of 50,000, 2 million barrels oil saved per year; over 7 years this equates to 

56 million barrels of oil saved; 

b. Reduced carbon footprint—each vehicle will save 16 tons of CO2 emissions per year; at 50,000 planned annual volumes, 800,000 tons of CO2 not 

emitted per year; over 7 years this equates to 22.4 million tons of CO2 not 

emitted per year. 

c. National security benefits: 

i. Saves lives by reducing ‘in theatre’ supply lines; 

ii. Reduces the U.S. trade deficit by lowering imported oil requirements; 

iii. Reduces the pricing power of OPEC and a funding source for the 

non-democratic countries that control over 90% of global oil reserves; given 

current instabilities with Iran and within the Middle East, reducing our exposure has never been more critical. 

Bright’s Broad and Bipartisan Support: 

I. Local level: 

a. The communities of Anderson and Mishawaka, IN, and Rochester 

Hills, MI as well as the Counties of St. Joseph, IN and Oakland, MI have 

each supported Bright with various incentive programs to support jobs creation. 

b. The attached letters were written on our behalf to the DOE: 
64 

* Letters have been retained in committee files. 

* Document has been retained in committee files. 

II. State Level: 

a. Both the states of Michigan and Indiana have been steadfast in their 

support of Bright’s initiatives; 

b. Incentive packages from both states have been approved for Bright to 

encourage jobs creation and business development in each state. 

III. Federal Level: 

a. Bipartisan support exists for Bright—including from Congressional 

members outside of the states of Indiana and Michigan; 

b. Numerous calls of inquiry to the DOE have been made on Bright’s behalf; 

c. Numerous letters of support, encouragement and, occasionally, frustration have been sent to the DOE by members of Congress—some of them are 

included here:* 

General Details 

I. Bright itself represents a significant voice of support for the ATVM program, and not only for its own purposes, but for the country’s. Bright leadership 

favorably commented on the ATVM program in the USA Today on 26 September (‘‘Green-Car Fund Dodges Bullet.’’) As conveyed in the attached OpEd* 

sent to the Indianapolis Star and Detroit Free Press, Bright strongly supports 

the merits of the program when understood in the broader context of our country’s future competitiveness, and, therefore, well being. 

II. Bright is committed to continue this public support of the ATVMLP going 

forward as needed or requested—in the media, in Congress, etc. 

III. Bright has complied with the ATVM rules and process from day 1—DOE 

should consider implications from a fairness perspective if it decides to change 

the ‘‘rules’’ after 3 years where Bright has steadfastly followed the process set 

before it and complied with every request from the DOE on its loan application. 

IV. Bright employees have voluntarily reduced/deferred their pay on two separate occasions—currently, 85% of Bright employees are participating; 

V. Bright’s top management has committed more than their time and efforts, 

they have contributed a substantial amount of their net worth in the form of 

investment and bridge loans to keep the company moving forward while the 

loan approval process continues; 

VI. Bright’s alternatives and plans going forward should the ATVMLP fail to 

be administered in the way Congress envisioned when first created in 2007 and 

2008 include going to other foreign entities that have expressed interest in 

Bright: 

a) China—A Term Sheet was established with a non-government investment fund in December 2011; currently a Joint Venture agreement is being 

finalized; 

b) Turkey—inquiries have been made by various parties in Turkey and 

are being investigated; 

c) Middle East—numerous inquiries from sovereign wealth funds in 

Qatar and the United Arab Emirates have been received and are being investigated. 

d) Majority foreign investment has an unfortunate consequence—namely 

that the jobs, intellectual property and know how would be transferred to 

the country from which the investments are made. 

e) Meetings with dozens of leading investment banks and private equity 

firms have made it clear that domestic funding—due at least in part to the 

precedent set by other loan recipients—requires an ATVM loan. Thus, any 

domestic manufacturing scenario for Bright likely requires the completion 

of the CCL and subsequent loan funding. 

BRIGHT AUTOMOTIVE, 

February 23, 2012. 

SECRETARY STEVEN CHU, 

Department of Energy, Washington, DC. 

DEAR SECRETARY CHU: We know that you are well aware of the long journey 

Bright Automotive taken as we await disposition on our DOE ATVM loan application. Our letter of December 2011 (attached) outlined the process through 2011. Un-
65 

fortunately, despite the many exhaustive efforts by us and your loan team, it has 

not yet advanced into the interagency process—and time is running out. 

Our application was filed in December 2008 and after myriad discussions and 

changes in the requirements we had to meet, we still find ourselves today stuck. 

The engine of our enterprise is still running, but we are literally almost out of fuel. 

If our ATVM application is not moved forward to the next level by March 2, 2012, 

our mission ends. Period. 

WE NEED YOUR IMMEDIATE HELP AND INTERVENTION TO AVOID THIS OUTCOME

One and a half years ago we were told by DOE that our loan approval was merely 

‘‘weeks away.’’ And, on a number of occasions we were told point blank to ‘‘do this’’ 

and our application was complete and ready for the next stage. Even though requirements have been altered numerous times, we have continued to be responsive 

and always in a timely manner. That is, until now. The latest revised loan terms 

received earlier today, are unacceptable to us and our potential investors. These 

concerns have been conveyed to your loan team. 

Ironically, while we were meeting with DOE officials in Washington D.C. today, 

our President was giving a speech to college students saying ‘‘we need to develop 

the technology that makes us use less oil and gasoline.’’ 

We understand the political assault and the often misguided and partisan criticism unfairly waged against you and your team. For some inexplicable reason, those 

slamming clean energy initiatives do not grasp the national security risk in our inaction to free us from a dependency on foreign oil, often from countries that just 

don’t like America. 

Just the other day, the Iranians stopped selling oil to Great Britain and France. 

Iranian oil represents a pittance of both countries oil imports, yet oil immediately 

shot up to $105 a barrel on world markets. Overnight, Americans got another shock 

at the pump, with more shocks predicted on our way to $5 a gallon, clearly threatening the fragile recovery of our economy. Consider what will happen if events escalate further. Americans will go from being angry to being scared. Bright’s efforts 

will help mitigate this. 

Of course, some critics will argue that if Bright Automotive’s technology is so 

promising, there should be no problem whatsoever is gaining more than enough private funding for our project. We know that is not the case. While we will be successful in literally matching a potential ATVM loan dollar-for-dollar with private funding, we cannot continue without the loan. The market has been distorted in this 

arena and the private capital funds capable of fully funding ventures like Bright 

Automotive are simply nonexistent. 

These same critics have little historical perspective on how government funding 

helped this country succeed in many previous advanced technology arenas. The 

Internet and GPS would not be common place, can’t-live-without extensions of our 

lives and livelihoods without the U.S. Government serving as the early financial catalyst—not to mention the contributions the space program has made to society. 

Today, we take those game-changing technologies for granted. 

Unfortunately, irrationality and petty politics have paralyzed your agency at a 

time America needs you most. One cannot score if one does not shoot. 

We need our shot and an assist from the DOE. Our team has been performing 

brilliantly for more than three years now. We have practiced, got ourselves in peak 

performance shape and are ready to play. Give us the ball and we will shoot to win. 

And what does winning mean for Bright Automotive and our country? It means 

hundreds of great manufacturing and technical jobs and thousands of indirect jobs 

in Indiana and Michigan—the heart of America. It means a stellar product; the 

Bright IDEA plug-in hybrid electric commercial vehicle that provides lowest total 

cost of ownership for our commercial fleet customers. It means green technology 

that is truly green when it comes to a business’ bottom line. It means taking yet 

another step forward in our national goal to wean America away from our addiction 

to foreign oil and its implications on national security and our economic strength. 

Sadly, the deadline I presented earlier in this letter is solid. If we reach March 

2nd without positive movement on our ATVM application, our American jobs, American technological innovation and our promise to save commercial fleet customers 

millions in fuel savings will evaporate. 

We trust that you and your DOE team will respond accordingly. 

Respectfully, 

REUBEN MUNGER, 

CEO. 

MIKE DONOUGHE, 

COO. 
66 

BRIGHT AUTOMOTIVE, 

February 28, 2012. 

SECRETARY STEVEN CHU, 

Department of Energy, Washington, DC. 

DEAR SECRETARY CHU, Today Bright Automotive, Inc will withdraw its application 

for a loan under the ATVM program administered by your department. Bright has 

not been explicitly rejected by the DOE; rather, we have been forced to say ‘‘uncle’’. 

As a result, we are winding down our operations. 

Last week we received the fourth ‘‘near final’’ Conditional Commitment Letter 

since September 2010. Each new letter arrived with more onerous terms than the 

last. The first three were workable for us, but the last was so outlandish that most 

rational and objective persons would likely conclude that your team was negotiating 

in bad faith. We hope that as their Secretary, this was not at your urging. 

The actions—or better said ‘‘lack of action’’—by your team means hundreds of 

great manufacturing and technical jobs, union and non-union alike, and thousands 

of indirect jobs in Indiana and Michigan will not see the light of day. It means our 

product, the Bright IDEA plug-in hybrid electric commercial vehicle, will not provide 

the lowest total cost of ownership for our commercial and government fleet customers, saving millions of barrels of oil each year. It means turning your back on 

a bona fide step forward in our national goal to wean America away from our addiction to foreign oil and its implications on national security and our economic 

strength. 

In good faith we entered the ATVM process, approved under President Bush with 

bi-partisan Congressional approval, in December of 2008. At that time, our application was deemed ‘‘substantially complete.’’ As of today, we have been in the ‘‘due 

diligence’’ process for more than 1175 days. That is a record for which no one can 

be proud. 

We were told by the DOE in August of 2010 that Bright would get the ATVM 

loan ‘‘within weeks, not months’’ after we formed a strategic partnership with General Motors as the DOE had urged us to do. We lined up and agreed to private capital commitments exceeding $200M—a far greater percentage than previous DOE 

loan applicants. Finally, we signed definitive agreements with state-of-the-art manufacturer AM General that would have employed more than 400 union workers in 

Indiana in a facility that recently laid-off 350 workers. Each time your team asked 

for another new requirement, we delivered with speed and excellence. 

Then, we waited and waited; staying in this process for as long as we could after 

repeated, yet unmet promises by government bureaucrats. We continued to play by 

the rules, even as you and your team were changing those rules constantly—seemingly on a whim. 

Because of ATVM’s distortion of U.S. private equity markets, the only opportunities for 100 percent private equity markets are abroad. We made it clear we were 

an American company, with American workers developing advanced, deliverable and 

clean American technology. We unfortunately did not aggressively pursue an alternative funding path in China as early as we would have liked based on our understanding of where we were in the DOE process. I guess we have only ourselves to 

blame for having faith in the words and promises of our government officials. 

The Chairman of a Fortune 10 company told your former deputy, Jonathan Silver, 

that this program ‘‘lacked integrity’’; that is, it did not have a consistent process and 

rules against which private enterprises could rationally evaluate their chances and 

intelligently allocate time and resources against that process. There can be no greater failing of government than to not have integrity when dealing with its taxpaying 

citizens. 

It does not give us any solace that we are not alone in the debacle of the ATVM 

process. ATVM has executed under $50 million of transactions since October of 

2009. Going back to the creation of the program, only about $8 billion of the approved $25 billion has been invested. In the meantime, countless hours, efforts and 

millions of dollars have been put forth by a multitude of strong entrepreneurial 

teams and some of the largest players in the industry to advance your articulated 

goal of advancing the technical strength and clean energy breakthroughs of the 

American automotive industry. These collective efforts have been in vain as the program failed to finance both large existing companies and younger emerging ones 

alike. 

Our vehicle would have been critical to meet President Obama’s stated goal of one 

million plug-in electric vehicles on the road in 2015 and his commitment to buy 100 

percent alternative fueled vehicles for the Federal Fleet. So, we are not the only 

ones who will be disappointed. 
67 

The ineffectiveness of the DOE to execute its program harms commercial enterprise as it not only interfered with the capital markets; it placed American companies at the whim of approval by a group of bureaucrats. Today at your own ARPAE conference, Fred Smith, the remarkable leader of FedEx, made the compelling 

case to reduce our dependence on oil; a product whose price is manipulated by a 

cartel which has caused the greatest wealth transfer in our history from the pockets 

of working people and businesses to countries, many of whom are not our allies. And 

yet, having in hand a tremendous tool for progress in this critically strategic battle—a tool that drew the country’s best to your door—you failed not only in the deployment of funds from ATVM but in dissipating these efforts against not just false 

hope, but false words. 

For us, this is a particularly sad day for our employees and their families, as well 

as the employees and families of our partners. We asked our team members on 

countless occasions to work literally around the clock whenever yet another new 

DOE requirement came down the pike, so that we could respond swiftly and accurately. And, we always did. 

Sincerely, 

REUBEN MUNGER, 

CEO. 

MIKE DONOUGHE, 

COO. 

BRIGHT AUTOMOTIVE, 

Rochester Hills, MI, March 7, 2012. 

Subject: Bright Automotive and its 39-Month ATVM Loan Program Application History 

DEAR SENATE ENERGY COMMITTEE MEMBERS: Enclosed is a series of documentation concerning Bright Automotive’s 39-month application to the Department of Energy’s ATVMLP. On February 28, 2012, Bright announced in a letter to DOE Secretary Chu that it would withdraw its application and wind-down its operations due 

to the DOE’s lack of good-faith negotiations and commitment to resolve the loan application in a manner that could constructively create a privately-financed deal 

while protecting the taxpayer. It is an unfortunate, if not tragic, outcome that we 

hope can be avoided in the future by getting these facts out in front of the public; 

and holds the unelected officials within the DOE ATVMLP to a fair level of accountability. 

As our experience to date with ATVMLP has been extensive, we want to provide 

a comprehensive summary of our status and situation throughout the three-plusyear unsuccessful processing of our loan application. The most thorough description 

is contained in the December 28, 2011 letter sent to Secretary Chu at the request 

of the DOE. Below are an overview and history of Bright and our experience with 

ATVM. We also provide other supporting documentation as described below. 

WHAT BRIGHT AUTOMOTIVE WAS OFFERING THE COUNTRY AND ITS CUSTOMERS

• The ATVM Loan Program was created by the Bush Administration and expanded by the Obama Administration to encourage the creation of fuel-efficient 

vehicles in the face of ever-present dependence on foreign oil. Bright Automotive 

was to help fulfill this objective, by reducing ownership costs for public and private fleet operators, reduce dependencies on foreign energy sources and develop 

homegrown advanced technologies; 

• Bright was spun out of the of a consortium of Google.org, Rocky Mountain Institute, the Turner Foundation, Alcoa, and Johnson Controls in 2007, and incorporated in January of 2008, well before ATVM was operational; 

• Bright was to produce the Bright IDEA: a light-weight road-coupled plug-in hybrid electric vehicle (PHEV) in the form of a commercial work truck in the U.S. 

that would create more than 675 American-based direct and at least 2700 indirect jobs—largely in the Midwest. With an electric-range of over 30 miles and 

charge-sustaining efficiency of over 35 miles per gallon, each vehicle would have 

saved about 40 barrels of oil and reduced CO2 emissions by 16 tons per year; 

• Bright’s PHEV is the first truck engineered from the ground up as a plug-in 

electric vehicle (PEV) designed for commercial and government customers that 

purchase more than 900,000 vehicles a year in North America. These customers 

appreciate and demand the 10-30 percent lower ‘‘total cost of ownership’’ the 

Bright vehicle promised compared to competitive vehicles in its class; 

• Bright received confirmed orders from customers including Duke Energy and 

Snap-on Tools, as well as letters of support sent to DOE Secretary Chu from 

firms such as Comcast, Frito Lay and ServiceMaster. Consultants to the DOE 
68 

were told by leaders of companies such as Frito Lay that they were ready to 

purchase tens of thousands of Bright IDEAs; • The Bright IDEA was to advance several of the Federal Government’s policy 

goals, most importantly offering an Alternative Fuel Vehicle for its van and 

pickup applications to help fulfill the government’s 2015 pledge to exclusively 

procure AFV’s; • Bright’s projected CAFE number was over 85-mpg, and its CO2 was to be 102g/ 

mi while having a footprint of over 62-sq ft, offering an example of how CAFE 

standards can be exceeded without having to ‘‘downsize’’ the fleet; • Bright completed multiple projects for the U.S. Postal Service and Department 

of Defense—each one on time and under budget—and would have likely had 

non-tactical vehicle orders from the DoD as well as from the GSA; • Bright developed key partnerships with large, established entities such as General Motors and AM General; 

AS THE CLOCK STARTS TICKING AND THE PROMISES BEGIN STACKING UP, THE ONLY

CONSTANT IS THE EVER-CHANGING REQUIREMENTS FROM THE DOE

• Bright’s ATVM loan application is deemed ‘‘substantially complete’’ in December 

2008 and remains in the loan approval process continuously until March of 

2012; • In September of 2009, at the request of senior DOE officials to resubmit its loan 

request with a lower amount which if ‘‘under $300M would be approved quickly,’’ Bright reduces its loan request from $450M to $284M, to be matched with 

$120 million of private equity; 

• In January 2010, after receiving little progress with its reduced loan request, 

Bright is told by senior LPO leadership that if Bright establishes a strategic 

partnership with a major OEM, the DOE will greatly speed up its loan approval 

process, saying it will ‘‘move heaven and earth’’; 

• Bright establishes a strategic partnership and investment with General Motors 

in July 2010 and senior LPO leadership indicate face-to-face with Bright leadership that the loan approval will be ‘‘weeks, not months;’’ promising a maximum 

of 2 months to loan approval; 

• September 2010, DOE unexpectedly establishes six (6) additional definitive 

agreements required for a Conditional Commitment Letter (CCL) in its first 

draft term sheet. Bright agrees to them all. These added requirements are 

achieved by December 2010, covering a technical center lease and various supply, manufacturing and service agreements; 

• Due diligence for Bright’s loan application, establishing technical and market 

viability, is deemed complete in January 2011 and a ‘‘near final’’ CCL is issued 

to Bright, marked up with a slightly higher $314M loan amount. A second draft 

term sheet is presented to Bright. Bright officials agree to the new terms in the 

draft; 

• Consideration for Bright’s loan application is suspended in May 2011 on the 

basis of volume projections from IHS Global Insight which were found to be significantly flawed—although Bright had highlighted the flawed projections a 

year earlier. A new study is commissioned and completed by AT Kearny in June 

2011; 

• In June/July 2011, additional loan covenants are added to Bright’s loan package; 

• In July 2011, DOE senior leadership indicates to Bright the expectation that 

its loan will be advanced to the interagency process by September 2011 with 

loan approval following in October 2011; 

• ATVM loan applications are deprioritized in September 2011 in favor of Title 

XVII loan approval activities; further, unfavorable publicity associated with 

Title XVII (Solyndra) and ATVM loan (Fisker) recipients appears to negatively 

impact companies such as Bright that remain in the ATVMLP approval process; 

AND THE BEATING GOES ON

• In October of 2011, the DOE informs Bright that the equity requirements would 

be doubled to roughly $240M for its $314M loan, among other new terms, for 

its third draft term sheet, Bright quickly agrees to the new terms, including the 

increased equity. Bright goes on its second ‘‘bridge loan’’ and 85 percent of the 

company begin salary deferral to try and maintain cash while it concludes its 

DOE negotiation process. 

• In December of 2011, the DOE informs Bright that it has completed its credit 

paper and is awaiting an internal decision on the ‘‘purpose of the ATVM program’’ before advancing the application to OMB; 
69 

* Documents have been retained in committee files. 

• In late January/early February 2012, DOE representatives conduct a three-day 

site visit of Bright’s Indiana and Michigan operations, including detailed discussions regarding all aspects of Bright’s business including vehicle development, 

manufacturing, customers, sales, marketing and finance. At the end of the visit, 

DOE’s technical team leader Jef Walker tells Bright COO Mike Donoughe: 

‘‘This is the best site visit I have ever been on.’’ Walker had been conducting 

site visits for at least 15 years. 

• In February of 2012, after several urgings to work towards the resolving the 

third term sheet and quickly get to a deal finalization of a then 38-month process, the DOE presents a fourth draft term sheet, this time raising equity requirements to more than $350M—significantly more than the $314M loan 

amount Bright is seeking and far more private equity compared to previous 

loans to Tesla, Fisker, Ford and Nissan. Moreover, the DOE requires for Bright 

to spend all of the private equity before drawing on the loan, and justifies its 

decision based on an assessed ‘‘risk of a 9 month delay’’ it cannot identify or 

quantify based on its research; nor can any automotive experts validate. 

‘‘UNCLE’’ 

• Bright investors and management conclude after this lengthy process that, despite earlier and multiple DOE promises and continuously changing requirements and ‘‘phantom’’ concerns, the agency does not intend to find a workable 

deal with Bright that achieves the objectives of the ATVM program while protecting tax payers. 

• Clearly, DOE has been negotiating in bad faith. Without the cash runway required to explore alternative pathways (which Bright had in abundance right 

after the GM deal in July 2010), it is forced to wind down. 

• In March of 2012, Secretary Chu, ironically appearing at a clean-energy truck 

show in Indianapolis, tells a Bright employee (recorded) that Bright did not get 

its loan due to ‘‘market issues,’’ and although ‘‘its technology is good’’ the DOE 

knew the Bright loan wouldn’t work ‘‘for the last year and a half.’’ This was 

never communicated with Bright (see previous history). 

ENCLOSED DOCUMENTATION

Enclosed is a set of documentation* highlighting Bright’s experience with the 

ATVM process. The 12/28/2011 letter contains the most thorough documentation of 

the history, with several supporting documents contained within. 

• 2/28/2012 Letter to Sec Chu announcing withdrawal from ATVM and rationale 

• 2/23/2012 Letter to Sec Chu requesting action to speed a decision on Bright loan 

• 12/28/2011 Letter to Sec Chu describing history of Bright ATVM loan (extensive) 

• 5/20/2011 Email to Sec Chu from Amory Lovins requesting action on Bright 

ATVM loan 

• 9/22/2009 Letter to ATVM program resubmitting loan for reduced amount 

• Bright-DOE Exchange—tracking of every DOE interaction through 2010 

• Calendar—another view of the DOE exchanges from 2009-10 

• DOE Timing Log—higher level summary of key DOE interactions 

• CCL/term sheet drafts highlighting the changing DOE terms as dated below: 

11/8/10; 1/24/11; 2/3/11; 9/12/11; 12-12-11; 2-23-12 

Respectfully, 

REUBEN MUNGER, 

Chairman and CEO. 

MIKE DONOUGHE, 

Chief Operating Officer. 

Æ