```

[Senate Hearing 110-573]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 110-573
 
                       CLEAN ENERGY TECHNOLOGIES 

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

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                                   TO

RECEIVE TESTIMONY REGARDING LEGISLATION TO IMPROVE THE AVAILABILITY OF 
    FINANCING FOR DEPLOYMENT OF CLEAN ENERGY AND ENERGY EFFICIENCY 
  TECHNOLOGIES AND TO EHNANCE UNITED STATES' COMPETITIVENESS IN THIS 
  MARKET. SPECIFIC BILLS TO BE CONSIDERED ARE S. 3233, INTRODUCED BY 
      SENATOR BINGAMAN AND S. 2730, INTRODUCED BY SENATOR DOMENICI

                               __________

                             JULY 15, 2008

                       Printed for the use of the
               Committee on Energy and Natural Resources

                               ----------
                         U.S. GOVERNMENT PRINTING OFFICE 

45-193 PDF                       WASHINGTON : 2008 

For sale by the Superintendent of Documents, U.S. Government Printing 
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Washington, DC 20402-0001 

               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman

DANIEL K. AKAKA, Hawaii              PETE V. DOMENICI, New Mexico
BYRON L. DORGAN, North Dakota        LARRY E. CRAIG, Idaho
RON WYDEN, Oregon                    LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota            RICHARD BURR, North Carolina
MARY L. LANDRIEU, Louisiana          JIM DeMINT, South Carolina
MARIA CANTWELL, Washington           BOB CORKER, Tennessee
KEN SALAZAR, Colorado                JOHN BARRASSO, Wyoming
ROBERT MENENDEZ, New Jersey          JEFF SESSIONS, Alabama
BLANCHE L. LINCOLN, Arkansas         GORDON H. SMITH, Oregon
BERNARD SANDERS, Vermont             JIM BUNNING, Kentucky
JON TESTER, Montana                  MEL MARTINEZ, Florida

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
              Frank Macchiarola, Republican Staff Director
             Judith K. Pensabene, Republican Chief Counsel

                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Bingaman, Hon. Jeff, U.S. Senator From New Mexico................     1
Domenici, Hon. Pete V., U.S. Senator From New Mexico.............     3
Eckel, Jeffrey, President and CEO, Hannon Armstrong, Annapolis, 
  MD.............................................................    26
Hull, Jeanine, Counsel, Dykema Gossett PLLC......................    16
Karsner, Alexander, Assistant Secretary, Energy Efficiency and 
  Renewable Energy, Department of Energy.........................     4
Denniston, John, Partner, Kleiner Perkins Caufield & Byers, Menlo 
  Park, CA.......................................................     9
Reicher, Dan W., Director, Climate Change and Energy Initiatives, 
  Google.org, Mountain View, CA..................................    20

                                APPENDIX

Responses to additional questions................................    43

                       CLEAN ENERGY TECHNOLOGIES

                              ----------                              

                         TUESDAY, JULY 15, 2008

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.

    The committee met, pursuant to notice, at 10:06 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, sorry for the delay in getting here. This 
is a hearing on various cup of financing bills; one that 
Senator Domenici introduced, one that I introduced.
    Before we call our witnesses and make any opening 
statement, I'm informed that today is going to be the last day 
with the committee for Judy Pensabene. We wanted to recognize 
her great service to this committee during the last 11 years; 
particularly the last 5 years she has been the Chief Counsel 
for the Republicans.
    I understand a resolution is being prepared to convey the 
high regard that the committee has for her and her good work, 
our gratitude for her service to the committee, and our best 
wishes in her future plans. I believe that will be presented to 
her at a later time. Let me just defer to Senator Domenici for 
any comment he wanted on that subject before we proceed to the 
hearing itself.
    Senator Domenici. Thank you very much, Mr. Chairman.
    Yes, I do think this is sort of a bittersweet day for us. 
Judy is attending her last hearing as committee staff member. 
She's served the committee for more than 11 years including the 
last five as the first female Chief Counsel in this committee's 
history. I don't know what that says for this committee. But 
that just happens to be the facts.
    Tomorrow is the first day of a well earned retirement. But 
today's a sad one for us. We'll all greatly miss her. While her 
forthright counsel and her tireless commitment to getting the 
work done she has had countless opposition lodged against our 
bills, seems like in new ways every year. She has found a way, 
one way or another to get them done. I think we all have to say 
a big thank you to her for getting that done.
    Mr. Chairman, I will, later on we will have a resolution. I 
will just read the basic paragraph of it so everybody will 
know. ``And it be it resolved that the members of the Committee 
on Energy and Natural Resources record the retirement and 
commend the service of Judith K. Pensabene on this day, July 
15, 2008. The members hereby offer their congratulations on 
this cordial occasion and extend their best wishes to Judy and 
her family in the years ahead.''
    Thank you, Judy. Thank you so much for years of service 
both to me, personally and to this committee and to the matter 
before us, we thank you, Mr. Chairman for holding this hearing. 
Before I proceed with the rest of my statement, I yield back to 
you.
    The Chairman. Where's Judy? Let's give her a big round of 
applause here.
    [Applause.]
    The Chairman. Ok. Why don't we proceed with the more 
mundane part of today's hearing. I'll make a short statement 
and then Senator Domenici and then we'll call on our witnesses.
    This is a hearing, as I indicated, related to two proposals 
to support the financing for deployment of new, clean energy 
technologies. We've had other hearings in the committee on the 
general subject. But now there are two bills that are pending 
related to this which better focuses our opinion or our 
discussion here.
    I've heard many around here and elsewhere say that what we 
need is a new Apollo Project to solve our energy needs and to 
move to a clean energy economy. Others have said we need a new 
Manhattan Project. These are useful analogies, but I don't know 
that they, either one, capture the entire challenge that we 
have before us.
    I believe Mr. Denniston's colleague, John Door, talked to 
us sometime ago about this challenge requiring not only speed, 
but scale. These bills are intended to deal with this problem 
of speed and scale both. It's like undertaking something more 
akin to nine or ten simultaneous Apollo Projects or essentially 
mobilized in the country in the way that we did for war in 
previous times, World War II, in particular.
    I think it's going to take significant and sustained 
investment to bring the new technologies that we're all hoping 
are developed and useable to a point where they can be deployed 
on a scale necessary to meet our needs. These technologies 
relate to, not only meeting our energy needs, but dealing with 
the problem of climate change. Promising technologies exist 
that can address our oil security needs both in reducing the 
demand for fuel through efficient or electric drive vehicles 
and in replacing gasoline with sustainable biofuels.
    The two bills that have been introduced that we'll be 
talking about today are an attempt to accelerate the time table 
for moving these technologies from the laboratory to the 
marketplace. Obviously there's urgency in trying to get this 
investment made. Our commitment needs to be, to deal with, not 
only greenhouse gas emissions, but the enormous drain on our 
economy from the continued dependence on imported fossil fuels.
    So the need is great. If we fail to make the investments 
necessary to meet the challenge I think we run the very real 
risk that we are passing on a much diminished opportunity for 
our grandchildren and children in the future. So it's a great 
challenge. I think we're all well aware of that. I think these 
bills, at least, begin the discussion of how we can meet one 
part of that very substantial challenge.
    Let me defer to Senator Domenici for his statement, then 
we'll hear from the witnesses.

   STATEMENT OF HON. PETE V. DOMENICI, U.S. SENATOR FROM NEW 
                             MEXICO

    Senator Domenici. Senator Bingaman, fellow members of this 
committee, and the witnesses, let me just say that these are 
unprecedented times, in my opinion. I have said this many 
times. Each time it's a little different setting. But I truly 
believe that our great United States is at peril. I believe 
it's economic peril.
    I believe we're measuring this peril by the anger of the 
American people for the price at the pump. That's obviously 
what's happening and the people are feeling the impact.
    But the truth of the matter is, there's a far greater 
problem than the pump price. It's that the U.S. economy is 
being drained dry. We will soon reach a point where we are 
exporting somewhere between 500 billion and 700 billion a year, 
sending it overseas to other countries for the single purpose 
of acquiring crude oil from them, which will be converted to 
diesel and gasoline fuels to move America.
    The biggest problem is that most of it is used to move the 
automobile and related to mobility machines that we have chosen 
to love so much that we've almost come to the conclusion that 
we can't get along without them. So it came to me months ago 
that what we needed was to find a way to siphon far more 
capital into new projects, new technology. Somehow or another 
in talking with staff and people that are better informed and 
have more time to think about these things than some of us 
Senators, the idea came and was presented to me that we ought 
to be doing something like OPEC, something like the corporate 
structure that we use to finance overseas projects of trade.
    That corporation has existed for a long time. It's self 
sufficient. It's run by a board of directors. It makes loans.
    In my particular case, the bill I put before us had a very 
broad section of powers, loan guarantees and all kinds of 
instruments of equity, transfer and of moving money around to 
try to get more of it directed at energy technology. There are 
a number of ways we can talk about the difference between the 
two bills. But essentially I would say, there's not that big a 
difference.
    There is a little bit of difference in the corporate 
structure, but you could fix that easily if you were interested 
in a bill on two or three other areas where there's some 
distance. That could be solved in one day.
    But obviously the Senate is not working in a formal manner. 
It wouldn't have done Senator Bingaman much good, I don't 
think, had he taken that opportunity to work this bill 3 months 
ago because I don't think we're going to take up a free 
standing energy bill on the floor of the Senate in the 
condition that we're in now. I don't think the majority leader 
would let that happen for reasons unto him and unto the 
partisanship that exists between on energy matters. To bring up 
my bill or his bill 4 months ago would have been to open up the 
entire Senate to a debate on energy matters.
    I wouldn't mind that at all. I would agree to a set of 
working conditions. But I'm not sure that could get done.
    I just say to my friend, Senator Bingaman. It's too bad and 
in saying this I don't blame anybody. But it is too bad that we 
waited so long to come up with your bill which I would call a 
democratic bill that is matched up with mine.
    But we took so long that I think we'll never get it done. 
But maybe you think to the contrary. It surely would make me 
feel good if you actually were to say that you were interested 
in getting this bill done this year. At least gotten out of the 
U.S. Senate because I think capital invested in new technology 
to produce clean energy is the most significant activity that 
we must deal with during the next 10 to 15 years if we're going 
to get out of this enormous, enormous bind that we're in which 
is second to none.
    Thirty-six years into my tenure here in the Senate I have 
not witnessed an economic crisis of this magnitude. This is the 
worst I've seen. We are having more difficulty in getting out 
of the problem than any I've seen.
    You pull out of one, you get another one. You solve one. 
You can't solve the other one. You solve something in energy it 
makes global warming worse. On we go.
    So Senator, I would hope we would get moving. In any event, 
let's get this spread on the record today. I thank you for it. 
Look forward to working with you.
    The Chairman. Thank you very much. Let's go ahead with our 
very distinguished panel of witnesses. Let me just introduce 
the entire panel. Then call on each of you to make whatever 
points you think are important for us to understand. Take a few 
minutes to do that. Then we will have questions.
    The first witness would be Andy Karsner, who is the 
Assistant Secretary for Energy Efficiency and Renewable Energy. 
He's a very frequent testifier before this committee. We 
appreciate his good counsel and advice each time he testifies.
    Next is John Denniston, who's a partner with Kleiner 
Perkins, also a frequent witness before our committee. We 
appreciate him coming all the way from California to testify.
    Jeanine Hull, who is counsel with Dykema Gossett. Thank you 
very much for being here.
    Dan Reicher, who used to be here in a different capacity, 
in a previous administration, he's now the Director of Climate 
Change and Energy Initiatives at Google.org, and we appreciate 
you being here very much.
    Jeffrey Eckel, who is the President and CEO of Hannon 
Armstrong, we appreciate you being here.
    Why don't we start and just go across the table. As I said 
if each of you take five or 6 minutes, make the main points you 
think we need to understand. Then we will have questions. Andy, 
thanks. Thanks for being here.

  STATEMENT OF ALEXANDER KARSNER, ASSISTANT SECRETARY, ENERGY 
     EFFICIENCY AND RENEWABLE ENERGY, DEPARTMENT OF ENERGY

    Mr. Karsner. Thank you, Senator and thank you for the 
opening words from you and the ranking member and the 
leadership you provide.
    Mr. Chairman, Ranking Member Domenici, members of the 
committee, thank you for the opportunity to testify about how 
our Nation might best accelerate large scale capital formation 
and deployment of secure, clean energy technologies in the 
United States. Bills introduced by both Senators Bingaman and 
Domenici, the 21st Century Energy Deployment Corporation and 
the Clean Energy Investment Bank of the United States, 
respectively, boldly seek to address our challenges head on. I 
applaud your leadership, Mr. Chairman in calling this hearing 
to explore the various approaches to meeting these challenges.
    While the Administration has not yet finished its review or 
determined a position on either bill, certain aspects of these 
new government entities and financing mechanisms proposed in 
the bills raise a number of issues and concerns that would need 
to be carefully considered and addressed in the interagency 
process as these bills move forward. Although no single 
technology solution exists to address our Nation's energy and 
environmental responsibilities, all elements of the solution 
share a common basis: the need for unprecedented levels of 
consistent, continuous capital formation to increase market 
penetration of clean, domestic energy sources and technologies.
    As you will hear from the other experts on this esteemed 
panel, the private sector is, of course, the most efficient 
means of delivering the technological transformation to our 
marketplace that we have sought from recent landmark policies. 
But markets alone do not constitute a national strategy. Our 
government can play an indispensable and crucial facilitating 
role in accelerating the outcomes we, as a Nation, seek in a 
timeframe and at a scale that is consequential and commensurate 
with the magnitude of the economic, environmental and national 
security challenges that we face.
    One such mechanism, as you well know, is the Title XVII 
Loan Guarantee Authority that emerged from the landmark, 
bipartisan Energy Policy Act of 2005, which supports early 
commercial use of domestic, advanced energy technologies that 
avoid, sequester or reduce greenhouse gas emissions. On June 
30, the Department issued three new solicitations totaling 
$30.5 billion. These solicitations for renewable, energy 
efficiency, electricity transmission, nuclear power facilities, 
and for the front end of the nuclear cycle.
    DOE anticipates issuing new solicitations later this summer 
for advanced, clean, fossil energy production worthy of $8 
billion. Effectively, these two very complementary pieces of 
legislation seek to enhance the efficiency and efficacy and 
professional risk management capacities of our government to 
deliver on the Congressional intentions to catalyze 
commercialization and large scale financing of clean energy 
technology and energy infrastructure build out.
    Together, Congress and this Administration have taken great 
strides, and on a bipartisan basis we can continue by 
integrating approaches and collaborating further with the 
urgency that the situation merits so that we move beyond 
problem identification and more robustly toward problem solving 
that will improve our energy security and diversify our 
national portfolio and reduce greenhouse gas emissions that 
contribute to climate change. For the past 30 years, DOE has 
helped to reduce the cost of clean energy technologies through 
research and development, demonstration, and deployment.
    The historic core strength of the Department is in fact, 
science and technology, not facilitating commercialization or 
financing which is necessarily constrained by systemic 
limitations inherent in a conventional civil service 
institution. National energy goals now demand accelerated 
market penetration and significant capital formation and growth 
for higher risk technology investments. Meeting our ambitious 
goals will require tremendous investment in emerging 
technologies.
    While the private sector can and will, in fact, continue to 
invest inclean energy technologies, the urgency of the energy 
and environmental challenges that you have addressed and that 
we face requires far, far greater capital formation to occur 
with immediacy in the private sector. The question before us, 
as a Nation, is how will that gap be bridged?
    Before achieving any impact on our national energy goals, 
an advanced energy technology must evolve from a laboratory 
experiment to the bench scale to the pilot scale to a 
technology venture to a scaled infrastructure development 
project. The transition to commercial scale and production 
presents many economic, political and technological risk but to 
name a few. On the positive side secure and free access to 
abundant sun and wind and geothermal resources allows domestic 
renewable energy a fundamental economic advantage over 
conventional energy sources when building out a much needed 
national hedge in diversifying our portfolio.
    While increasingly coming into economic parity and direct 
cost competitiveness, renewable energy assets currently cost 
more per unit of production of capital cost, front and 
installed cost, for their production capacity. The much larger 
profits realized by production costs and much lower operating 
and maintenance costs and zero exposure to fuel priced 
volatility ultimately justify their investments over the 
lifecycle consistently. On the security front, clean energy, 
including nuclear and clean coal with carbon capture and 
sequestration, like renewables, produced from domestic 
resources, ultimately impacts our geopolitical leverage and our 
surrounding strategic interest in energy commodities.
    Additionally, large scale energy infrastructure, 
development, and deployment is amongst the world's most complex 
and capital intensive sectors of our economy. As you will hear 
from this panel, it requires sophisticated, professional risk 
management acumens in both legal and commercial structuring of 
project finance that demands long term, stable, predictable 
cash-flows and long term management stability. Evolving energy 
technology must, in fact, avail conventional financing in order 
to scale.
    High risk technology equity investing that is today 
emerging in record numbers is insufficient in and of itself to 
scale our energy infrastructure needs. I applaud the bipartisan 
leadership and vision of the members of this committee for 
their earnest efforts to introduce disruptive models and 
overcome the systemic constraints that we presently face in the 
execution of our mission for national security environment 
stewardship and economic growth. The Congress and the 
Administration have enumerated numerous concrete goals which 
require unprecedented levels of funding to achieve the policy 
vision at a scale and at a pace that is in fact meaningful.
    This committee's leadership has been instrumental in the 
progress that we have made toward meeting them. When combined, 
the elements of both approaches call on us to go further and 
faster with greater facilities at our disposal. We intend to 
examine these bills thoroughly in the weeks ahead.
    Mr. Chairman, this concludes my prepared statement, and I'd 
be happy to answer any questions the committee members may 
have.
    [The prepared statement of Mr. Karsner follows:]

Prepared Statement of Alexander Karsner, Assistant Secretary for Energy 
         Efficiency and Renewable Energy, Department of Energy
    Mr. Chairman, Ranking Member Domenici, Members of the Committee--
thank you for the opportunity to testify about how our nation can best 
accelerate the large scale capital formation and deployment of clean 
energy technologies in the United States. Bills introduced by Senators 
Bingaman and Domenici, the 21st Century Energy Technology Deployment 
Act and the Clean Energy Investment Bank Act of 2008, respectively, 
seek to address these challenges. I applaud your leadership, Mr. 
Chairman, in calling this hearing to investigate the pros and cons of 
various approaches to meeting this challenge. While the Administration 
has not finished its review of either bill, certain aspects of the new 
government entities and financing mechanisms proposed in the bills 
raise a number of issues concerning Federal credit policies, and 
financial risk and cost to the Federal government, along with certain 
constitutional concerns that the Justice Department has indicated would 
need to be carefully considered and addressed. We would have strong 
concerns about provisions that provide additional exposure of the 
Federal government to large liabilities.
    Although no single technology solution exists to address our 
Nation's energy and environmental responsibilities, all elements of the 
solution share a common basis: increased market penetration of clean 
energy technologies. The private sector is the appropriate and most 
efficient means of delivering the solutions to the market at scale, but 
the government can play a facilitating role, where deemed appropriate 
such as it is currently doing by providing direct funding for research, 
development, and demonstration programs; by providing additional 
support such as risk insurance, loan guarantee programs including Title 
XVII, and production tax credits. We are continuing to review these 
bills and would like to discuss our ongoing energy programs.
    One such mechanism as you well know, is DOE's Title XVII loan 
guarantee authority from the Energy Policy Act of 2005 and the 2007 
Energy and Water Development Appropriations Act, which supports early 
commercial use of advanced energy technologies that avoid, reduce or 
sequester air pollutants or anthropogenic emissions of greenhouse 
gases. The program currently has $42.5 billion in loan volume authority 
that can be used to support a wide-range of innovative technologies 
including but not limited to advanced renewable, energy efficiency, 
electricity transmission, nuclear power, and advanced fossil energy. To 
date DOE has invited 16 projects to submit full applications under the 
first solicitation and has received application fees for the first four 
of these projects, meaning that DOE can begin their due diligence 
evaluation of projects. On June 30 DOE issued three new solicitations 
totaling $30.5 billion. These solicitations are for renewable, energy 
efficiency, electricity transmission, nuclear power facilities, and 
front end of the nuclear fuel cycle projects. DOE anticipates issuing a 
new solicitation later this summer for advanced fossil energy ($8 
billion).
    Together, Congress and this Administration have taken great strides 
to move beyond problem identification and toward problem solving that 
will enhance our energy security, diversify our energy systems, and 
reduce emissions that contribute to climate change. On December 19, 
2007, the President signed the Energy Independence and Security Act of 
2007 (EISA) into law. As you know, EISA includes increased Corporate 
Average Fuel Economy (CAFE) standards and an increased Renewable Fuel 
Standard. Specifically, the Act increases CAFE standards to 35 miles 
per gallon for all passenger automobiles, including light trucks, by 
2020; and mandates the replacement of 36 billion gallons of gasoline 
with renewable fuel by 2022, including 21 billion gallons of advanced 
biofuels. The mandates included in EISA are aligned with Presidential 
initiatives to make the future of energy cleaner and more sustainable. 
These include the Advanced Energy Initiative (AEI), announced in 2006 
to confront our nation's addiction to oil and reduce greenhouse gas 
emissions by developing clean sources of electricity generation, as 
well as the ``Twenty-in-Ten'' initiative, announced in the 2007 State 
of the Union, to reduce gasoline consumption by 20% by 2017.
    The President has also called for expanding domestic supply to 
increase our energy security. Just yesterday, the President lifted the 
executive ban on offshore drilling. He has also asked Congress to:

   lift the legislative ban and allow exploration and 
        development of offshore oil resources;
   eliminate a provision, inserted into last year's omnibus 
        spending bill, that blocks oil shale leasing on federal lands; 
        and
   permit exploration in northern Alaska.

    For the past 30 years, DOE has helped to reduce the cost of some 
clean energy technologies through research and development. The 
President's new national goal to stop the growth in U.S. greenhouse gas 
emissions by 2025 demands market penetration and significant capital 
formation and growth in a new and risky technology arena beyond the 
business-as-usual scenario. Meeting this ambitious goal will require 
tremendous investment in emerging technologies. The International 
Energy Agency estimates that North America will require over $1.5 
trillion in cumulative energy investment by 2020,\1\ although they did 
not disaggregate ``clean tech'' and conventional energy generation.
---------------------------------------------------------------------------
    \1\ IEA World Advanced Energy Outlook, 2003.
---------------------------------------------------------------------------
    This study indicates a need for North American energy investment of 
over $100 billion per year between now and 2020. We expect that a 
significant portion of new energy investment would have to be from 
clean sources to meet the President's goal. In 2007, the U.S. saw 
$15.15 billion in clean energy asset investment according to New Energy 
Finance.\2\ While the private sector can, and I believe will, continue 
to invest in clean energy technologies, the urgency of the energy and 
environmental challenges we face requires that greater capital 
formation occur in the private sector. The question before us, as a 
nation, is how will that gap be bridged?
---------------------------------------------------------------------------
    \2\ Data from New Energy Finance desktop 3.0, ``Asset Financings 
Investment Overview,'' www.newenergyfinance.com
---------------------------------------------------------------------------
          clean energy investment challenges and opportunities
    Before achieving any impact on our national energy goals, an 
advanced energy technology must evolve from a laboratory experiment, to 
a technology venture, to an infrastructure development project. The 
transition to commercial scale presents many economic, political, and 
technological risks.
Economic Risks Include:

   Chicken and egg problems--for example, which comes first: 
        Flex-fuel vehicles or the E85 fuel itself? The availability of 
        critical transmission infrastructure or increased generation 
        capacity? Additionally,
   Historic volatility of energy commodity price signals;
   Unpredictable feedstock availability, pricing, and quality 
        control;
   Limited off-take agreement length; and
   Unknown final design costs due to unforeseen engineering 
        challenges or permitting delays.
Policy Risks Include:
   Changing environmental and economic regulations, including a 
        lack of predictable, longterm tax policies;
   Balkanized regional and state energy policies; and
   Siting, permitting, interconnection, and transmission and 
        transportation challenges.
Technological Risks Include:
   Complications in scaling from laboratory to commercial-scale 
        production; and
   The development and deployment of cost-effective technology, 
        as well as technological obsolescence.

    On the positive side, however, free access to abundant sun, wind 
and geothermal heat allows clean renewable energy a fundamental 
economic advantage over traditional energy sources. While renewable 
energy assets currently cost more per unit of production capacity, the 
larger future profits realized by lower production costs and zero 
exposure to fuel price volatility can economically justify the 
investment. On the security front, clean energy, including nuclear and 
clean coal with carbon sequestration, is generally produced from 
domestic resources which reduces geopolitical leverage surrounding 
strategic energy commodities.
    Financial mechanisms are in place to accelerate research and 
development and project implementation for established technologies, 
but financing for commercialization of new technologies often falls 
short or is deemed too expensive. Additionally, large-scale energy 
infrastructure is a capital intensive business to begin with, requiring 
debt financing and stable or predictable cash flows.
    It is essential that we work not only to accelerate R&D for new 
energy technologies, but also to address the accelerated adoption of 
technologies into commercial products that are widely available at 
reasonable cost to all Americans. We seek to help enable and accelerate 
market transformation toward the use of more efficient and cleaner 
technologies.
                               conclusion
    National security, environmental stewardship, and economic growth 
goals form the basis of robust U.S. energy policy. National security is 
enhanced through diversifying our energy mix and reducing dependence on 
petroleum. Environmental stewardship is maintained through the 
mitigation of greenhouse gas emissions and other negative environmental 
impacts. Achieving global economic competitiveness entails creating a 
more flexible, more reliable, and higher capacity national energy 
infrastructure, as well as improving the energy productivity of the 
U.S. economy and industry. The Congress and the Administration have 
enumerated concrete goals to achieve this policy vision, and this 
Committee's leadership has been instrumental in the progress that we 
have made toward meeting them. Mr. Chairman, this concludes my prepared 
statement and I would be happy to answer any questions the Committee 
Members may have.

    The Chairman. Thank you very much. John, why don't you go 
right ahead?

STATEMENT OF JOHN DENNISTON, PARTNER, KLEINER PERKINS CAUFIELD 
                    & BYERS, MENLO PARK, CA

    Mr. Denniston. Thank you. Thanks very much, Senator 
Bingaman. Good morning, Ranking Member Domenici, members of the 
committee.
    I testified before this committee in March of last year. 
I'm honored to return today to share with you my views on how 
Federal policy might support the financing and development of 
clean energy sources.
    Clean energy offers our best hope of confronting all three 
dimensions of our energy crisis: climate change, energy 
security and American competitiveness. But many breakthrough 
technologies can't get the loans they require primarily because 
the lenders today think they're too risky. You have two pieces 
of legislation before you this morning each of which aims to 
bolster domestic energy supplies by increasing private lending 
activity.
    I know I join millions of other Americans in and outside 
the industry in applauding this basic tactic. But now let's 
look more closely at your options. I believe there are two key 
questions the committee needs to answer.
    First, what kind of banking functions can most efficiently 
increase the supply of credit in the energy market? Credit 
meaning debt, loans. Second, what types of energy projects 
should the new bank target to support.
    On the first question, the question of banking functions, I 
believe the two best available tools are credit enhancement in 
the form of loan guarantees and the creation of a vibrant 
secondary market for energy credits. I'll now briefly address 
each of those two topics.
    S. 2730 provides for loan guarantees backed by the full 
faith and credit of the Federal Government, a tactic I 
heartedly support. Today a key impediment to more rapid 
commercialization of renewable energy is the scarcity of debt 
financing in the market. Expanded credit availability would 
help many emerging green technologies transition to large scale 
production.
    I see this committee is also considering creating a vibrant 
secondary market for energy securities. By enabling this new 
bank to buy credit instruments relating to clean energy 
projects creating an active secondary market will energize 
investment and innovation in the clean energy sector.
    In a novel feature, S. 3233 goes on to allow the 
aggregation of loans made by private sector lenders to 
residential and small business users of distributed generation 
technologies. I enthusiastically support this approach which 
would not only expand the pool of low cost capital that home 
owners and small business owners can tap for new clean energy 
solutions. But also give America's local banks a leadership 
role in the green tech revolution at a time when America's 
financial institutions desperately need new and profitable 
lines of business.
    I realize the committee is also considering empowering the 
new bank to make direct debt and equity investments in clean 
energy projects. I just caution here that while doing so may be 
appropriate under certain circumstances. I think you'll make 
the most progress by focusing attention and resources on the 
loan guarantees and the creation of a secondary market.
    This leads to the second question in front of this 
committee. What kinds of projects should the new bank target to 
support? I recommend the committee clearly direct the new bank 
to prioritize support for breakthrough technologies. Despite 
their financial risk these innovative technologies offer the 
greatest potential to help solve all three dimensions of our 
energy crisis.
    Performance standards will be essential in evaluating new 
energy ventures. We should obviously favor those that can 
deliver the most bang for the buck in terms of all three 
aspects of our energy crisis: reducing greenhouse gas 
emissions, providing alternatives to imported oil and 
strengthening American competitiveness. The problem here 
however, is that under the existing DOE Loan Guarantee Program 
roughly 75 percent of the guarantees are directed right now to 
fossil and nuclear projects. I strongly recommend Congress take 
the approach specified in S. 3233 which aims 75 percent of the 
new support to breakthrough technologies, the ones that will 
address all three dimensions of our energy crisis.
    This is clearly a superior allocation method to address our 
energy needs. Thus if the existing Loan Guarantee Program 
remains within DOE, I would also urge the committee to take 
advantage of this opportunity by amending the allocation 
between industries so it's more in line with S. 3233's 
approach.
    In closing, I want to emphasize how heartened I am to 
witness this committee's resolve to confront our energy 
challenges. Particularly inspiring is your work in passing the 
CAFE legislation and the enhanced Renewable Fuel Standard. Even 
so, it's no secret we need to do much more to move ahead with a 
speed and scale commensurate with the scope of our energy 
crisis.
    Once again I want to thank this committee for inviting me 
here today. I look forward to today's hearing and learning more 
about how we can work together to build a more secure country 
and world.
    [The prepared statement of Mr. Denniston follows:]

Prepared Statement of John Denniston, Partner, Kleiner Perkins Caufield 
                        & Byers, Menlo Park, CA
                              Introduction
    Good afternoon, Chairman Bingaman, Ranking Member Domenici and 
Members of the Committee. My name is John Denniston. I am a partner at 
the venture capital firm Kleiner Perkins Caufield & Byers. I testified 
before this Committee in March of last year, and am honored to return 
today to share my views about how federal policy might support the 
financing and development of clean energy technologies.
    Together with most of the rest of America, venture capital and 
technology industry professionals--Democrats and Republicans alike--are 
deeply concerned about the risks posed by our energy crisis, 
encompassing climate change, the rising scarcity and cost of fossil 
fuels, and increasing threats to our global competitiveness. At the 
same time, our industry is in a unique position to recognize the 
opportunities these challenges present to build our economy, creating 
jobs and prosperity.
    Founded in 1972, and based in California's Silicon Valley, Kleiner 
Perkins is one of America's oldest venture capital firms. We have 
funded more than 500 start-up companies, backing innovative 
entrepreneurs in the digital, life science and green technology 
industries. More than 170 of our companies have gone public, including 
Amazon.com, AOL, Compaq Computer, Electronic Arts, Genentech, Google, 
IDEC Pharmaceuticals, Intuit, Juniper Networks, Millenium 
Pharmaceuticals, Netscape, Sun Microsystems, Symantec, and VeriSign. 
Today, our portfolio companies collectively employ more than 275,000 
workers, generate $90 billion in annual revenue, and contribute more 
than $400 billion of market capitalization to our public equity 
markets.
    Kleiner Perkins is a member of the National Venture Capital 
Association and a founding member of TechNet, a network of 200 CEOs of 
the nation's leading technology companies. I serve on TechNet's Green 
Technologies Task Force. My testimony today reflects my own views.
    You've asked me specifically to address the new energy legislation 
before you. But before I do, I want to offer an overview of how many of 
us in the venture capital industry perceive the energy challenges and 
opportunities facing our country today. I began my testimony last year 
in a somewhat similar fashion, but at the risk of a little repetition, 
I believe we must bear in mind the scope of our challenges as we move 
forward with strategies to address them.
                           the energy crisis
    There's a fast-growing consensus among Americans today about the 
need to confront our three main energy challenges: the climate crisis, 
our dependence on foreign oil, and the risk of losing our global 
competitive edge by failing to champion new technologies that are 
becoming a huge new source of economic growth, jobs and prosperity.
    Renewable energy sources--such as sun, wind, geothermal and 
biofuels--offer this country's best hope of addressing all three of 
these dimensions, and of helping us rebuild our domestic economy and 
regain our edge as an economic superpower.
Climate Change
    Our leading climate scientists predict we have only a short period 
of time to make dramatic cuts in our greenhouse gas emissions or risk 
potentially catastrophic climate change. Global temperatures and sea 
levels are already rising and will continue to do so; the question now 
is whether we can slow down the projected rate of future increases. 
Global warming is not a partisan issue: President Bush and both 
Presidential candidates have publicly declared we must seriously 
confront our climate crisis. Yet perilously, we have so far failed to 
move with the requisite speed and determination.
Energy Security
    As for our energy security dilemma, this Committee is well aware 
that America continues to import approximately 70% of our oil needs. 
Rapid growth in worldwide energy demand has stretched supplies, causing 
energy prices across the board--oil, natural gas, coal, and even 
uranium--to skyrocket. As world population and energy demand increase, 
there's every reason to believe supply and price pressures will 
persist.
Global Competitiveness
    Finally, our future prosperity is at risk, and here I speak from 
very personal experience. As I've traveled on business to China and 
Europe, I've witnessed how the rest of the world is striving, and often 
succeeding, to emulate in the renewable energy sector, the technology 
innovation that has been a hallmark of the U.S. economy and perhaps the 
single most important driver of our enviable standard of living. 
Increasingly, entrepreneurs overseas enjoy advantages in the form of 
determined government policies, including financial incentives and 
large investments in research and education.
    Credible economic studies suggest our technology industries are 
responsible for roughly one-half of American GDP growth. Our country 
would look quite a bit different today had we not, several decades ago, 
become a global leader in biotechnology, computing, the Internet, 
medical devices, semiconductors, software and telecommunications. And 
now we find ourselves with a vast new economic opportunity--to grow 
green energy technologies that seem destined to become the economic 
engine of the 21st Century. But will America again lead the way?
                     renewables: the opportunities
Moore's Law & The Pace of Technological Progress
    In Silicon Valley, we often refer to a principle known as Moore's 
Law: a prediction, credited to Intel co-founder Gordon Moore back in 
the 1960s, that semiconductor performance would double every 24 months. 
Moore's law underpins the information technology revolution of the past 
three decades. Better, faster, and cheaper silicon chips led the way, 
over just the past quarter of a century, from an era of big and 
expensive mainframe computers to affordable handheld cell phones that 
connect us to the Internet and to each other.
    At Kleiner Perkins, we believe we're already seeing a Moore's Law 
dynamic operating in the energy sector, giving us confidence the rate 
of greentech performance improvement and cost reduction will lead to 
energy solutions we can't even imagine right now.
    Alternative energy is becoming increasingly cost-competitive, as 
the price of conventional power skyrockets and costs for clean energy 
such as wind and solar power come down. World-class talent is racing 
into the greentech sector. And a growing sense of urgency regarding our 
energy crisis is boosting demand. We're seeing breakthroughs today in a 
host of scientific disciplines relating to the energy sectors, 
including material science, physics, electrical engineering, synthetic 
chemistry, and even biotechnology.
    These improvements have occurred over a period of time in which 
there was relatively little government policy or entrepreneurial focus 
on these sectors. Solar manufacturers are innovating their way around 
silicon shortages, with next-generation materials including pioneering 
thin-film technologies. The agriculture industry is now beginning to 
produce transportation fuels from non-edible plants. And nanotechnology 
breakthroughs are creating the promise of new ways to store energy, 
which will catalyze an electric transportation revolution. Imagine what 
American ingenuity might accomplish in the future as more and more of 
our best and brightest devote their efforts to the greentech field!
                       renewables: the challenges
    Our opportunities are truly breathtaking. Yet unfortunately, we're 
moving much too slowly to take advantage of them. Three major obstacles 
currently impede faster commercialization of renewable energy.
Scarce Research Funding
    American innovators woefully lack necessary funding for basic, 
translational and applied research in renewable energy. Our leading 
research institutions are begging for federal funding, and faculty 
interest has never been keener. Yet at roughly $1 billion annually--
most of which is ear-marked--DOE funding is microscopic relative to the 
problem at hand.
Credit Scarcity
    Many promising new technologies are being delayed or thwarted by 
the unavailability of commercial loans. In many cases, these new 
technologies are unproven at scale, and the credit markets are 
unwilling or unable to assume the risk to help them grow.
Competitive Market Disadvantage
    The high cost of renewable energy sources, relative to the 
incumbent competition, is the third main barrier to greater capital 
investment and more rapid adoption of clean power. Why does green power 
cost more? Primarily because it's so new, meaning it is produced in 
such low volumes that the industry has yet to benefit from economies of 
scale, and has only just begun a continuous cost reduction process.
    And older power sources have another comparative advantage. Most 
coal-fired and natural-gas plants were constructed many years ago, and 
are now fully amortized. That means those facilities' owners no longer 
need to charge rate-payers for initial construction costs. Clean-power 
companies, in contrast, still need to include construction financing 
costs in their customer pricing, putting them at a major disadvantage.
    On top of this, government policy to date has provided powerful 
advantages to fossil fuels and nuclear energy. In some cases, the 
federal government itself has paid directly for electrical generation 
facilities and transmission and distribution infrastructure.
    Beyond government subsidies, the fossil fuel industry has long 
benefited by escaping responsibility for the costs of the environmental 
consequences of its emissions--instead, society has paid the price. 
Clearly, traditional power sources would become much more expensive, 
and alternative sources of energy more cost-competitive, if plant 
owners had to take on the true costs of these emissions.
    In the special case of nuclear power, the federal government has 
for many decades assumed enormous costs for research and development, 
plant operations, insurance and waste disposal--all of which, if borne 
by nuclear plant operators, would make this power source a much less 
viable option.
                        the pending legislation
Overview
    With anxiety growing throughout America about our energy crisis, 
Congress today has a unique opportunity to tackle the obstacles 
standing in the way of renewable energy development. I'm gratified to 
see some of the steps you are considering in this session may do just 
that.
    You have before you two pieces of legislation: the 21st Century 
Energy Technology Deployment Act (S. 3233), and the Clean Energy 
Investment Bank Act of 2008 (S. 2730). Each, in its way, aims to 
bolster domestic energy supplies by increasing private lending activity 
for energy technologies. I know I join millions of other Americans in 
and outside of industry in applauding this basic strategy. But now 
let's look more closely at the options before you.
Goals
    ``Goals are dreams with deadlines,'' writes the author Diana Scharf 
Hunt. Frankly, the magnitude of our energy problems means we all need 
to start dreaming some very big dreams. Clearly stating our goals at 
the outset is the first step toward fulfilling them. ]
    At the heart of the 21st Century Energy Technology Deployment Act 
is the goal of promoting domestic development of clean, advanced energy 
technologies. I believe this indeed must be our explicit target. Only 
by means of a massive deployment of renewable energy can we hope to 
address all three dimensions of our energy crisis, protecting our 
environment and enhancing our national security, while at the same time 
advancing our economy.
    For that reason, I advise you to include a succinct preamble in 
whatever law you approve that defines both this mission and the 
intended approach. It might read something like this: ``The purpose of 
this Act is to address our three-dimensional energy crisis, 
encompassing climate change, energy security and American 
competitiveness, by accelerating private loans supporting the rapid 
adoption of clean energy solutions.''
    While there are many details to consider in the legislation, I 
believe there are two key questions the Committee needs to answer:

   What banking functions should Congress charter the new bank 
        to perform in order to execute on the mission to expand credit 
        availability?
   Which types of energy projects should the new bank target to 
        support?
Banking Functions
    Both pieces of legislation before you would create an entity with 
banking functions to facilitate new energy technology funding. In my 
view, the best tools available to you are credit enhancement in the 
form of loan guarantees; the creation of secondary markets; the direct 
provision of debt-financing; and, in appropriate circumstances, 
insurance coverage.
            Credit Enhancement
    S. 2730 provides for loan guarantees backed by the full faith and 
credit of the Federal government, a tactic I heartily support. Loan 
guarantees have tremendous potential to help level out the playing 
field for new energy technologies. In order for the loan guarantee 
program to be effective, it is critical the guarantees be supported by 
the full faith and credit of the Federal government.
    As I mentioned earlier, a key impediment to more rapid 
commercialization of renewable energy is the scarcity of debt 
financing. More available credit would help many emerging green 
technologies transition to large-scale production. Yet lenders have 
been hesitant to finance these projects, mostly due to the novelty of 
the technologies and their lack of a track record. This leaves green 
entrepreneurs who want to grow fast with the sole option of financing 
that growth through equity investments. Thus, they start out at a major 
disadvantage compared to most conventional energy sources, which have 
historically had easy access to the credit markets.
    Loan guarantees would not only eliminate that disadvantage but also 
help renewable energy projects get more affordable financing terms. 
That, in turn, would help reduce their production costs, addressing 
another handicap relative to incumbent energy sources.
    Timely government support--be it loan guarantees or even direct 
grants--can make a crucial difference for emerging energy technologies, 
as seen in the recent case of cellulosic biofuels. These, as you know, 
are fuels made from wood chips, switchgrass, and other non-food 
sources. Last year, in a special appropriation, Congress enabled DOE 
grants to innovative companies in this field that would have otherwise 
struggled to obtain debt financing for these new production plants.
    Under the existing DOE loan guarantee program, roughly 75% of the 
guarantees are directed to fossil and nuclear projects. It's not clear 
to me whether S. 2730 intends to have the newly created bank carry this 
type of allocation forward. In contrast, S. 3233 sets aside 75% of the 
new support for breakthrough technologies. S. 3233 introduces an 
indisputably superior allocation methodology because it optimizes the 
impact of the legislation across all three dimensions of our energy 
crisis. If the existing loan guarantee program remains within DOE, I 
would urge the Committee to take advantage of this opportunity to amend 
the allocation between industries so it is more in line with S. 3233's 
method.
            Secondary Markets
    I see this Committee is also considering creating a secondary 
market for energy securities, by enabling a new government entity to 
buy credit instruments relating to clean energy projects. Until now, 
there has been no secondary market for renewable energy credits. 
Creating one could help energize investment and innovation.
    In a novel feature, S. 3233 goes on to enable the aggregation of 
loans made by privately-owned lending institutions to residential and 
small commercial users of distributed generation energy sources 
(Section 6(e)). I enthusiastically endorse this concept, which gives 
America's local banks a leadership role in the greentech revolution, 
while also expanding the pool of low-cost capital that homeowners and 
small business owners can tap for new clean energy solutions.
            Debt Financing
    One of the pieces of legislation before you creates a bank that can 
make direct loans to worthy clean energy projects. While I support 
giving the bank this capability, I believe you'll make the most 
progress by focusing attention and resources on the first two tools 
I've mentioned-- catalyzing the primary credit markets through loan 
guarantees, and creating a secondary market for clean energy credits.
            Insurance
    One of the bills before you considers offering insurance to energy 
facilities. I believe there may be instances in the future where 
insurance could be a useful tool to address our energy crisis, such as 
insuring feedstock supplies for cellulosic biofuels producers. However, 
the legislation is vague on which sectors would be eligible for 
insurance coverage. I would advise this Committee to be clear in the 
legislation that Congress does not intend to expand the nuclear 
industry's already generous federal insurance subsidy under the Price-
Anderson Act.
            Equity Financing
    Another tool before this Committee is to enable the new energy bank 
to make direct equity investments in projects that have not been able 
to attract private capital. This strategy may be appropriate in some 
cases, but if used widely could be inefficient. I'd frankly much rather 
see the government save its scarce dollars for more pressing needs, 
such as funding basic research and facilitating credit, and allow the 
equity markets to serve as a litmus test that alerts the bank to 
credit-worthy projects.
Prioritization of Energy Projects
    This leads to the question of what kinds of energy projects should 
be first in line for this new government support. I recommend the 
Committee clearly direct the new bank to prioritize support for the 
``breakthrough'' energy projects that, despite their risk, offer the 
greatest potential improvement to our energy crisis.
            Impact on Energy Crisis
    Performance standards will be essential for project selection, and 
the bank should obviously favor projects that can deliver the most bang 
for the buck in terms of all three aspects of our energy crisis: 
greenhouse gas emissions reduction, providing alternatives to imported 
oil, and strengthening American competitiveness.
    S. 3233 defines the ``breakthrough'' technologies it prioritizes 
for support as those having been highly rated by the Advisory Council 
yet lacking in private investment due to their perceived high technical 
risk. I heartily support this approach. And I would also strongly 
encourage you to consider including advanced battery technology and 
cellulosic and advanced biofuels projects on the list of prioritized 
projects. Following this agenda, in my view, would help the new law 
achieve maximum impact.
            Development Stage
    I know I speak for a great many Americans when I also urge you to 
prioritize the cleanest and most advanced new technologies, many of 
which are still in their infancy. It would be a serious mistake to 
limit new government support to technologies already in wide commercial 
use. As I've mentioned above, traditional fossil fuel and nuclear power 
sources have long enjoyed heavy government subsidies. We need now to 
level the playing field for the most innovative technologies to unleash 
power from the sun, wind, geothermal, biofuels, and other renewable 
sources.
            Risk
    At issue before you is also the level of risk entailed in projects 
eligible for government support. Especially in our current economy, 
it's hard to imagine creating a banking entity that would continuously 
lose money by supporting only the riskiest projects. On the other hand, 
if such a bank is set up from day one to generate a profit on all the 
projects it supports, it will only fund the safest ventures, losing 
opportunities to back truly breakthrough technologies that will have 
the greatest impact on the three dimensions of our energy crisis.
    My advice here is to steer a middle ground: create a bank with the 
primary purpose of accelerating the market adoption of breakthrough 
technologies, which would therefore be expected to lose money on some 
fraction of those projects. However, the bank could counteract losses 
by reaping profits through fees, and by issuing some of its guarantees 
for more proven technologies. It could then use those revenues to cover 
its losses on some of the more speculative projects.
                    conclusion: what more can we do?
    In closing, I want to emphasize how heartened I am to witness this 
Committee's resolve to confront our energy challenges. Particularly 
inspiring is your work on H.R. 6, the Renewable Fuels Standard, and the 
recent enhancement of CAFE standards.
    Even so, it's no secret we need to do much more so we can move 
ahead with a speed and scale commensurate with the scope of our energy 
crisis. In that spirit, I would like to offer five recommendations 
outside of the scope of this hearing:

          1. We simply must put a price on carbon. And I would urge 
        you, even as Congress deliberates carbon cap-and-trade 
        legislation, to consider the additional potential merit of a 
        carbon tax, as a straightforward signal to the markets.
          2. It is also imperative that we substantially increase 
        Federal funding of renewable energy research and development in 
        American research institutions.
          3. We need to stop the waste in the American energy system. 
        This is one of the specified goals in S. 3233, but it cannot be 
        overemphasized. Energy efficiency is America's hidden 
        powerhouse, with recent estimates that up to 50 billion barrels 
        of oil could be saved between now and the year 2030 with 
        sustained attention to investments in new technologies and 
        simple retrofitting of buildings.
          4. Let's also move forward with other overdue policy changes, 
        such as creating a national renewable portfolio standard and 
        extending federal tax credits--ITC and PTC--for clean energy.
          5. More broadly, we must resolve to give our clean energy 
        campaign an appropriate level of attention and resources. 
        You've heard talk of a program the size of the Apollo and 
        Manhattan projects. Frankly, we need something much larger. And 
        because this kind of commitment won't be free of cost or 
        sacrifice, I suggest we also find more effective ways to 
        communicate about our energy challenges and opportunities with 
        the American public.

            I'd like to suggest one such strategy: a DOE dashboard to 
        monitor our national energy transition. The dashboard would 
        measure greenhouse gas emissions, the share of U.S. energy 
        consumption powered by imported fuel, U.S. market share of the 
        global renewable energy industry, and Federal funding for 
        renewable energy research. Updated monthly and widely 
        disseminated, this tool would remind Americans of the 
        government's resolve to make progress in this vital area, while 
        encouraging public participation.

    Once again, I want to thank the Committee for inviting me to share 
my views with you. I look forward to today's hearing and to learning 
more about how we can work together to build a more secure future for 
America and the world.

    The Chairman. Thank you very much.
    Ms. Hull, go right ahead.

          STATEMENT OF JEANINE HULL, COUNSEL, DYKEMA 
                          GOSSETT PLLC

    Ms. Hull. Thank you, Mr. Chairman, Ranking Member Domenici 
and members of the committee. It is an honor to testify before 
you today in support of S. 3233 and S. 2730. I am currently of 
counsel at Dykema Gossett, a law firm, where I advise clients 
on energy infrastructure and project finance issues. My 
testimony today, however, reflects exclusively my personal 
opinions. I come to this issue with more than 30 years in the 
energy infrastructure and finance sector.
    The introduction of these two bills demonstrates that we 
are finally well passed the point of debating whether this 
country must undertake a massive energy infrastructure 
improvement effort. The relationship between energy and 
security has been well discussed today and is recognized now as 
a national priority. I have integrated into my work what I call 
the four securities. These are energy security, economic 
security, national security and environmental security. I 
believe the first three are familiar to all and the fourth 
environmental security refers to the avoidance of the climate 
change and other pollution scenarios.
    The four securities are symbiotically intertwined. One can 
not be achieved fully without the other three. Both bills 
recognize the need for immediate action to solve the challenge 
of the four securities recognizing that the earlier these 
actions are undertaken the greater and more immediate the 
payoff will be.
    In fact, the amount of agreement between the bills is quite 
encouraging. Both bills create a funding entity which can 
become self supporting to support clean, domestic energy 
technologies. Both bills acknowledge that private investment 
can and ultimately will meet the demand for financing domestic 
clean energy projects.
    But that action is required now to accelerate the ability 
of the private financial markets to rapidly deploy these 
technologies. Both bills acknowledge that the expertise to 
operate the proposed financing facility is not common in the 
civil service. The civil service incentives are unlikely to 
attract the expertise required.
    However, the bills are silent on exactly how the financing 
entity will relate to existing capital markets. It has been my 
experience that the existing markets are attracted to financing 
large projects. Projects that have limited risk.
    The technologies that suffer from a lack of attention are 
not only the projects with technology risk. Which has been 
discussed today. But also the unglamorous projects of 
residential and solar and commercial solar and efficiency 
improvements which are too small to interest investment banks 
and equity funds because they cannot bear the burden of 
significant transaction costs.
    Thus there is a huge opportunity space for the funding 
entity to participate in which will not overlap with existing 
private capital markets. To give you an idea of the scale of 
energy savings opportunities that I'm talking about each ton of 
solar cooling installed using existing technology avoids the 
production of 2.3 tons of carbon equivalent per year. At ten 
cents a kilowatt hour and $12 a dekatherm, each 50,000 tons of 
solar cooling systems will shift ten million dollars per year 
from foreign fossil fuel purchases to domestic renewable energy 
systems that provide good local jobs.
    Over the 20 year useful life of the equipment, each ton of 
solar cooling will reduce fossil fuel purchases by nearly 
$46,000 on an investment of $10,000. That is a huge payoff. The 
technology to achieve this is currently available.
    The only thing lacking is access to affordable financing 
which could be provided by the proposed funding entity. By 
enacting legislation creating a new energy funding entity, 
energy security will be enhanced by the development of 
domestic, affordable, reliable and sustainable sources of 
energy to meet the demand for fuels and electricity. Such a 
system is also less vulnerable to intentional disruption.
    Economic security will be enhanced through increased 
ability to insulate ourselves from the inflationary pressures 
of a petroleum based economy and by slowing the imbalance of 
payments to oil and gas producing nations. Keeping the petro-
dollars at home and focusing them on a greener economy, the 
United States can maintain its manufacturing and intellectual 
competitiveness.
    National security will be enhanced by reducing our need to 
protect foreign oil and gas infrastructure while allowing the 
reduction of troop presence in sensitive areas.
    Environmental security will be enhanced by reducing the 
volume of emissions which contribute to climate change and 
otherwise pollute the air, water and ground.
    Mr. Chairman, thank you and the committee today for the 
opportunity to testify in support of legislation that is so 
vital to our country. I urge the committee to act quickly on 
these bills and to move legislation to the floor as soon as 
possible. Time is truly of the essence on this issue.
    This concludes my prepared remarks. I look forward to your 
questions.
    [The prepared statement of Ms. Hull follows:]

    Prepared Statement of Jeanine Hull, Counsel, Dykema Gossett PLLC
    Mr. Chairman, Ranking Member Domenici, and Members of the 
Committee, it is a distinct honor as well as a pleasure to testify 
before you today in support of S. 3233, the 21st Century Energy 
Technology Deployment Act, and S. 2730, the Clean Energy Investment 
Bank Act of 2008. I am currently of counsel at Dykema Gossett, PLLC, 
where I advise clients on energy infrastructure and project finance 
issues. My testimony today, however, reflects exclusively my personal 
opinions. I come to this issue with more than 30 years in the energy 
sector, and in particular, industry structure and finance.
    These bills address the critical challenge of our generation, which 
is, as the author Thomas Friedman states, to resolve the energy-climate 
problems that will define the stability of the 21st century. Our 
success or failure will determine the living conditions of this 
planet's inhabitants in the near as well as distant future. This 
challenge is critical to each of us personally, it is urgent and it is 
huge. We are now beyond the moral equivalent of war. This is a real 
war, with immediate security impacts. This is a matter of economic, 
physicall, and environmental survival.
    A specific experience of mine is relevant to this testimony. In 
1998, I became a partner in Cantor Fitzgerald LP, with an office on the 
105th floor of the North World Trade Tower. Cantor was and still is the 
leading secondary market for US Treasuries. It achieved this 
distinction by providing a marketplace for bond trading that is open, 
transparent, rules-based and heavily monitored. US Treasuries became 
the benchmark against which all other financial actions could be 
indexed because of the safe, trusted and credit worthy market Cantor 
created. Howard Lutnick, Cantor's chief executive officer, believed the 
same kind of market could be created for electricity and natural gas. 
Cantor hired me to help bring the discipline of the financial trading 
markets to the energy markets. I was working toward that goal on 
September 11, 2001. I am here to talk about it because I was working 
here in Washington on that day of the terrorist attack that destroyed 
the World Trade Towers. Almost everyone I worked with and almost 
everything I had done for five years were vaporized.
    We are well past the point of debating whether this country must 
undertake a massive energy infrastructure improvement effort. The 
relationship between energy and security which became part of my 
personal mission is now recognized as well as a national priority. I 
have integrated into my work what I now refer to as the Four 
Securities. These are: energy security, economic security, national 
security and environmental security. I believe the first three are 
familiar to all. The fourth, environmental security, refers to 
avoidance of the more dire climate change scenarios. The Four 
Securities are symbiotically intertwined, as each of the bills 
recognize, and none can be achieved without success in each of the 
others. The legislation overtly recognizes the need for new financing 
capacity to address the energy and environmental security challenges; 
but it is important not to lose sight of the economic and national 
security benefits as well.
    Both bills recognize the need for immediate action to solve the 
challenge of the Four Securities, recognizing that the earlier these 
actions are undertaken, the greater and more immediate the payoff will 
be.
    Both bills create a funding entity which can become self-
supporting. S. 3233 creates the 21st Century Energy Deployment 
Corporation, while S. 2730 creates the Clean Energy Investment Bank of 
the United States. For simplicity, I will refer to the 'financing 
entity' created by the bills. Furthermore, the bills also acknowledge 
that federal resources may not be adequate to directly fund the effort 
at the level necessary through annual appropriations.
    Both bills appear to acknowledge that private investment can, and 
ultimately will, meet the demand for financing domestic, reliable, 
clean energy development projects, but that action is required now to 
provide the foundation for that investment by bearing the immediate 
risks of technology development.
    Both bills would leverage the unique position of the US Government 
to accelerate the ability of the private financial markets to rapidly 
deploy technologies which have the potential to radically reduce 
reliance upon carbon-based combustion for transportation and 
generation, and to more efficiently use the energy that is produced, 
including more efficient and intelligent delivery systems and markets.
    Both bills acknowledge that the expertise to operate the proposed 
financing facility is not common in the Civil Service and Civil Service 
incentives are highly unlikely to attract the expertise required.
    Both bills are technology neutral, are clearly non-partisan and do 
not pit consuming regions against producing regions, the notorious bane 
of energy legislation. Instead these bills benefit innovators and 
developers who are currently constrained by lack of access to the 
financial markets.
    I turn now to what I believe are the specific strengths of each 
bill.
    S. 3233 recognizes the vast breadth of technologies that are needed 
to meet the Four Security challenges. Its defined term, `Clean Energy 
Technology,' covers any technology `related to the production, use, 
transmission, control or conservation of energy' that will improve the 
efficiency of use or transmission of energy, diversify the sources of 
environmentally sustainable energy, or stabilize greenhouse gas 
(``GHG'') emissions.
    I urge the Committee to retain this definition and to specifically 
recognize the need to update our power delivery system, most of which 
was built after World War II, and which is in desperate need of 
modernization, including the deployment of advanced control and smart 
grid enabling technologies. Our nation's power delivery system is 
generally under tremendous strain, at both distribution and 
transmission voltage levels.
    Adequate transmission is necessary for power markets to function 
properly and to attract sufficient liquidity. Many regional markets 
today are limited by the perception that the delivery system is stacked 
in favor of the transmission owners to the detriment of non-
transmission owning market participants. Although this is not the forum 
to address that market structure issue, it is important to note that 
adequate physical delivery infrastructure is necessary to properly 
address the structure issue. The words `congestion pricing' will 
continue to depress and distort power markets until congestion is 
eliminated.
    Expansion of delivery capacity is not just a ploy to benefit 
speculators and arbitrageurs. Neither the energy generated at remote or 
dispersed renewable energy installations nor that generated from 
existing facilities can be used or priced efficiently without an 
assured delivery system. Increased interconnectivity will also balance 
renewables' intermittency with non-intermittent resources, increasing 
its usefulness. Buildout of new generation and new transmission must be 
coordinated to prevent the costs of achieving energy security being far 
greater than would otherwise be necessary.
    S. 2730 provides the financing entity with a broad selection of 
financing tools and flexibility in selecting which tool to use. None of 
these tools is unique to energy infrastructure and all are used, in 
varying combinations, by other government sponsored programs. Each tool 
has a different specific purpose, cost and risk profile, and no one 
tool can perform all tasks. With this wide array of tools, the 
financing entity can more finely tune the project's need with the 
funding available.
    One tool that S. 2730 does not explicitly include is the one tool 
that S. 3233 provides. Securitizing a portfolio of loans for 
remarketing is critical to adding depth to the private financial 
markets, as it was for home mortgages and farm credit. This tool should 
definitely be available to the financing entity and should be 
specifically stated in the legislation.
    If the goal is to make the financing entity self-supporting, then 
allowing for limited equity investment, perhaps through preferred 
stock, may not only be helpful, but may also be the most cost-effective 
way for the financing entity to support a particular project. The 
dividends would also provide a non-appropriated budgetary source of 
funding. In other cases, the financing entity could issue letters of 
credit (``LOC'') or other credit enhancements, short of loan 
guarantees, to meet the project's need. The transactional costs in time 
and dollars charged to the developer for a LOC would be significantly 
reduced compared to the transactional costs of a loan guarantee. 
Similarly, allowing the financing entity to provide insurance to 
transfer an investor's technology risk on a specific project might be 
the only support necessary for a breakthrough technology to succeed. In 
addition, for new technologies the issue is usually less the interest 
rate than it is of finding an investor willing to incur the technology, 
credit and/or development risks.
    I am mindful of the old adage that warns, if one only has a hammer, 
everything looks like a nail. I urge the Committee to provide the 
financing entity with multiple specialized tools which will enable it 
to deploy and leverage its resources in the most cost-effective way 
possible and support the broadest range of development projects.
    I want to emphasize a point that the bills have in common. Both 
bills recognize that the civil service workforce and rules are not 
conducive to acquiring the sophisticated financial expertise that the 
financing entity requires. This is not a small issue, and I believe it 
is vital that this facility not be restrained by rules and processes 
that make sense in other contexts, but that have not designed to enable 
the agencies to get the most benefit from the expertise created in the 
private markets. It is not a lack of will on the part of the agencies, 
they are as frustrated as anyone. The people involved in building this 
new financing facility will need the ability to move in support of the 
broader private financial markets, exiting one area when private 
markets are capable, and entering others where the market is not yet 
developed.
    The two bills are silent on exactly how the financing entity will 
relate to existing capital markets. It has been my experience that the 
existing markets are attracted to financing very large projects, such 
as hundred or thousand megawatt generating facilities or large 
transmission projects, and projects that have limited risks. The 
technologies that suffer from a lack of attention by the financial 
markets are the `low hanging fruit' of residential and commercial solar 
and efficiency improvements, which are too small to interest investment 
banks and equity funds. Other projects which have difficulty accessing 
capital have one or more disqualifying risk, such as credit, 
technology, regulatory, market or development risk.
    Smaller projects, intended for residential and commercial sectors 
are generally not large enough, individually, to benefit from 
competitive interest rates and cannot bear the burden of significant 
transaction costs. Lack of financing has been an impediment to 
achieving meaningful market penetration of effective, existing 
technologies. Savings that could be accomplished by retrofitting solar 
thermal for heating and cooling in terms of reduced electrical and gas 
loads are greater than any one or ten plants standing alone, but since 
they are so dispersed, they are also difficult to finance and achieve.
    To give you an idea of the type of savings I am talking about, 
according to Solarsa, a solar developer located in Florida: each ton of 
solar cooling installed using existing technology avoids the production 
of 2.27 tons of carbon equivalent per year. At 10 cents/kwh and $12/
Dth, each 50,000 tons of solar cooling systems will shift $10 million 
per year from fossil fuel purchases to renewable energy systems 
providing good local jobs. Over the 20 year useful life of the 
equipment, each ton of solar cooling will reduce fossil fuel purchases 
by $45,890 on an investment of $10,000. That is a huge payoff and the 
technology to achieve this is currently available. (Solarsa is not a 
client of Dykema's.) I understand the European Union expects to meet 
one fourth of its target GHG reductions by 2020 by aggregating a large 
number of these solar thermal and biomass projects.
    This is one area that I can see the financing entity being most 
effective while simultaneously not competing with the private capital 
markets. However, it is important that the new entity be structured to 
focus its efforts on the gaps in the markets, and to exit that specific 
area once the private markets are adequate, so as to enhance funding 
for energy infrastructure and not compete with the private sector.
    To conclude, I believe the financing entity will address each of 
the Four Security challenges as follows:

          Energy Security will be enhanced by the development of 
        domestic, affordable, reliable and sustainable sources of 
        energy to meet the demand for fuels and electricity, and by 
        using energy as the valuable resource it is.
          Economic Security will be enhanced through the increased 
        ability of the United States to insulate itself from the 
        inflationary pressures of dependence on a petroleum-based 
        economy, as well as slow the balance of payments to oil and gas 
        producing nations. By retaining petrodollars at home and 
        refocusing them on a ``green'' economy, the United States can 
        maintain its manufacturing and intellectual competitiveness, 
        create and maintain good jobs and support thriving new 
        technologies.
          National Security will be enhanced by reducing our need to 
        protect foreign infrastructure which produces and transports 
        oil and gas while allowing the reduction of troop presence in 
        sensitive areas.
          Environmental Security will be enhanced by reducing the 
        volume of emissions which contribute to climate change and 
        otherwise pollute the air, water and ground.

    Mr. Chairman, thank you for the opportunity to testify today in 
support of legislation that is so vital to our country. I urge this 
Committee to act on these bills and to move legislation to the floor as 
quickly as possible. Time is truly of the essence.
    this concludes my prepared remarks. I look forward to your 
questions.

    The Chairman. Thank you very much. Dan, go right ahead.

   STATEMENT OF DAN W. REICHER, DIRECTOR, CLIMATE CHANGE AND 
       ENERGY INITIATIVES, GOOGLE.ORG, MOUNTAIN VIEW, CA

    Mr. Reicher. Mr. Chairman, Ranking Member Domenici, members 
of the committee, my name is Dan Reicher. I'm very pleased to 
share my perspective today on legislation to advance the 
deployment of clean energy technology. I'm Director of Climate 
Change and Energy Initiatives for Google.org, a unit of Google 
which has been capitalized with more than $1 billion of Google 
stock to make investments and advance policy in the areas of 
climate change, energy, poverty and health.
    At Google we have been working to lower the cost and 
increase the deployment of renewable energy through our 
Renewable Electricity Cheaper than Coal Initiative and also to 
accelerate the deployment of plug in vehicles through our 
Recharge It Initiative.
    Prior to my position with Google, I was president and co-
founder of New Energy Capital, a private equity firm funded by 
the California State Teachers Retirement System and Vantage 
Point Venture Partners to invest in clean energy projects.
    Prior to my roles in the private sector, I served in the 
Clinton Administration as Assistant Secretary of Energy for 
Energy Efficiency and Renewable Energy.
    Mr. Chairman, the good news is that there is an array of 
clean energy technologies that have been developed with 
government and private sector investment that could address 
many of our energy related challenges. The not so good news is 
that investment in the actual deployment of these technologies 
``steel in the ground'' as we say in the project investment 
world is inadequate.
    Sometimes the risk profile of the technology is too high. 
Sometimes the return profile is too low. Sometimes the 
technology is too costly in comparison with competing 
technologies.
    The most important point I will make today is that 
aggressive Federal policy can drive private sector investment 
measured in the trillions of dollars that will be required to 
move the Nation and the globe toward a more sustainable energy 
future. Among these policy measures, the Federal Government 
must provide financial support to the private sector to help 
move immature, higher risk technologies to the market and from 
there commercial scale. This role is well illustrated by the 
bill you have recently introduced, S. 3233.
    The bill, if enacted, would increase the capital available 
for clean energy projects. Thereby helping to mature the 
underlying technologies and move them to scale. There are 
typically two elements of energy project finance, equity and 
debt.
    Federal tax credits, when they are available, have 
stimulated equity investment in wind, solar and other clean 
energy projects. Securing loans for projects has been more 
problematic, especially for higher risk projects. Bankers are 
generally reluctant to provide a loan for a project involving a 
technology that has not been proven at commercial scale.
    The bankers are critical however, because a commercial 
scale energy project can often cause hundreds of millions or 
billions of dollars, generally beyond the capacity or interest 
of venture capital investors. This problematic moment moving a 
technology from a small pilot project to a full commercial 
scale plant is often the point at which many promising energy 
technologies falter. In the clean energy technology industry we 
call it the ``Valley of Death.''
    Mr. Chairman, the ``Valley of Death'' looms large. Failing 
to bridge it has cost a serious progress on many clean energy 
technologies. In some cases investors from other countries have 
stepped into the breach and the technology has advanced. But we 
have lost the tax and employment benefits of a company based in 
the United States.
    S. 3233 would begin to address this problem. It would 
increase the willingness of banks to make loans for clean 
energy projects by providing a secondary market for their loans 
through the 21st century Energy Deployment Corporation. 
Implemented well, this secondary market should increase the 
capital available for the scale up of clean energy technologies 
with lower risk profiles.
    The critical question is whether the corporation, in its 
operation, would also purchase loans from higher risk, ``Valley 
of Death'' projects. One of the primary purposes of S. 3233 is 
promote access to affordable debt financing for accelerated 
deployment of advanced clean energy technologies and first of a 
kind commercial deployments. I am concerned, Mr. Chairman, that 
the bill will fail to address precisely this kind of higher 
risk, ``Valley of Death'' project as part of a larger portfolio 
projects.
    Mr. Chairman, the legislation you have introduced obviously 
comes at a challenging time with a downturn in the economy, 
tumult in the credit markets and problems at Fannie Mae and 
Freddy Mac. But it is precisely at this moment when clean 
energy projects so vital to our economy, environment and 
security are facing increasing difficulty getting financed that 
the mechanism you propose is so important. This is especially 
the case for projects involving innovative technologies with 
higher associated risk, the very technologies that may well 
hold the keys to addressing the climate crisis, our oil 
dependence, a deteriorating electric grid and also provide a 
major stimulus to the faltering economy. These higher risk 
projects should be part of a broader, risk balanced portfolio 
of loans that enter the secondary market created by the 
corporation you propose in the bill.
    In addition to a secondary market for project loans this 
committee has been focused on various credit enhancement tools 
for some time, including enacting a Loan Guarantee Program in 
the 2005 Energy Bill, potentially refining that program in 
Senator Domenici's pending bill and considering various tools 
during the development of S. 3233. These tools include loan 
guarantees, letter of credits, direct loans and related 
mechanisms. They could directly address these higher risk 
projects.
    Unfortunately S. 3233 as currently written does not provide 
these tools to the corporation. Given the scale of the 
challenge, I suggest you revisit this decision. In sum, S. 3233 
as drafted may not result in loans for high risk projects 
finding a home in the secondary market and will not provide 
credit support such as loan guarantees for these high risk 
projects.
    In March, Senator Domenici introduced S. 2730 which creates 
the Clean Energy Investment Bank. The bank has authority to 
make investments in eligible clean energy projects using a 
variety of tools including loans, loan guarantees and purchase 
of equity shares. The bank however, is restricted to 
investments in deploying a commercial technology. That is, a 
technology in general use in the commercial marketplace. This, 
combined with the requirements that investments be made on a 
``self sustaining basis'' seems to limit the scope of the 
activities to technologies that have already navigated the 
``Valley of Death.''
    So, Mr. Chairman, we have an important dilemma. Your bill, 
S. 3233 has a critical focus on high risk, ``Valley of Death'' 
projects. But as written it does not authorize the corporation 
to use the most effective credit support tools for advancing 
these critical plants.
    Senator Domenici's bill, S. 2730 includes these important 
credit support tools, such as loan guarantees, but does not 
allow the new bank to invest in higher risk, ``Valley of 
Death'' projects.
    I urge the committee to explore the integration of these 
two important bills to ensure that the critical need for 
capital for these projects can be addressed through both 
mechanisms, a secondary market for energy project loans and 
credit support, including direct loans and loan guarantees.
    In conclusion, I strongly support the efforts of this 
committee to greatly increase the debt capital available for 
clean energy projects, especially for high risk ventures that 
might not otherwise cross the ``Valley of Death.'' Mr. 
Chairman, I urge you and Senator Domenici to integrate the best 
aspects of your two bills and thereby provide important 
mechanisms that will stimulate the massive private sector 
investment required to take clean energy technologies to scale. 
We stand ready at Google to help both of you in your important 
legislative efforts.
    Thank you for the opportunity to testify.
    [The prepared statement of Mr. Reicher follows:]

  Prepared Statement of Dan W. Reicher, Director, Climate Change and 
           Energy Initiatives, Google.org , Mountain View, CA
    Mr. Chairman and members of the Committee, my name is Dan Reicher 
and I am pleased to share my perspective on legislation to advance the 
deployment of clean energy technology. I serve as Director of Climate 
Change and Energy Initiatives for Google.org, a unit of Google which 
has been capitalized with more than $1 billion of Google stock to make 
investments and advance policy in the areas of climate change and 
energy, global poverty and global health. At Google we have been 
working to lower the cost and increase the deployment of renewable 
energy through our Renewable Electricity Cheaper than Coal (RE It often starts with government investment in early stage 
        high risk technology research
   It moves to corporate and venture capital funding of 
        technology development
   It then proceeds to actual deployment of technologies 
        through project finance and other mechanisms.

    Your bill is focused primarily on the final stage of this 
continuum--the deployment of clean energy technologies at a scale 
significant enough to actually address our energy-related challenges 
like climate change, national security, economic competitiveness, and 
poverty alleviation.
    The good news is that there is an array of clean energy 
technologies that have been developed with government and private 
sector investment that could address our many energy-related 
challenges.
    The not so good news is that investment in the actual deployment of 
these technologies--``steel in the ground'' as we say in the project 
investment world--is inadequate.

   Sometimes the risk profile of the technology is too high.
   Sometimes the return profile of the technology is too low.
   Sometimes the technology is too costly in comparison with 
        competing technologies.

    The most important point I will make today is that aggressive 
federal policy can drive private sector investment--measured in the 
trillions of dollars--that will be required to move the nation and the 
globe toward a more sustainable energy future. There are several 
critical steps the federal government must take:

   First, the federal government must put a price on greenhouse 
        gas emissions in order to internalize the costs of climate 
        change and move energy investments toward lower carbon and more 
        efficient technologies.
   Second, we must remove barriers to cleaner and more 
        efficient technologies and establish rigorous standards to move 
        these technologies to market.
   Third, we must significantly increase public funding of 
        research and development of advanced energy technologies.
   And fourth, the federal government must provide financial 
        support to the private sector to help move immature and often 
        higher risk technologies to the market--and from there to 
        commercial scale.

    The fourth role is well illustrated by the current debate over the 
reauthorization of tax credits for renewable energy. There is no better 
example of the role of federal policy in stimulating--and retarding--
investment in clean energy projects than the on-again, off-again 
investment in US wind projects because of the on-again off-again nature 
of the wind production tax credits. For more than a decade these 
credits have been here for a year or two and then gone for months or 
years. Investors simply will not back a US wind project if it looks 
like the tax credit authorization will expire prior to completion of 
the project. This has caused a damaging boom and bust cycle in the 
industry.
    This fourth role is also illustrated by the bill you have recently 
introduced, S. 3233, the 21st Century Energy Technology Act. The bill, 
if enacted, would increase the capital available for clean energy 
projects, thereby helping to mature the underlying technologies and 
move them to scale. I welcome your bill and in this testimony provide 
my thoughts on how it might be improved including integration with a 
related bill Senator Domenici introduced in March.
    There are typically two elements of energy project finance: equity 
and debt. Federal tax credits--when they are available--have stimulated 
equity investment in wind, solar and other clean energy projects. 
Securing loans for projects has been more problematic, especially for 
higher risk projects. Bankers are generally reluctant to provide a loan 
for a project involving a technology that has not been proven at 
commercial scale. The bankers are critical, however, because a 
commercial-scale energy project can often cost hundreds of millions or 
billions of dollars, generally beyond the capacity or interest of 
venture capital investors who have often advanced the technology 
through pilot scale. This problematic moment--moving a technology from 
a small pilot project to a full commercial-scale plant--is often the 
point at which many promising energy technologies falter. In the clean 
energy technology industry we call it the ``Valley of Death''. It is a 
major focus of our RE The $1.5 billion US Transcarbon project in Louisiana that 
        gasifies domestic petroleum coke into a synthetic gas to be 
        used in place of expensive natural gas in the nation's 
        fertilizer industry. Among the notable aspects of this project 
        is its 100% carbon sequestration in enhanced oil recovery 
        wells.
   $1.5 billion in energy efficiency investments under the 
        Federal Energy Savings Performance Contracts (``ESPC'') and 
        Utility Energy Savings Contracts (``UESC'') programs, programs 
        that have been dramatically re-energized by the leadership of 
        Asst. Secretary Andy Karsner.
   Commencement of the the first large scale geothermal 
        drilling program in the Salton Sea area of California in over 
        20 years that will result in over $1 billion of new geothermal 
        power production in the next 5 years.

    I am very proud of our activities in the clean energy area and yet 
am fully aware that so much more must be done, on a scale much grander 
than can be addressed by conventional project finance. I believe both 
the 21st Century concept and the Clean Energy Bank concept can fill an 
absolutely critical role in achieving the scale necessary to make a 
difference.
    This is a bold idea, coming at a critical juncture, with an 
extraordinary opportunity to create change. Of course the enemy of the 
great is merely the ``pretty good'' and I respectfully suggest that 
every effort must be made to ensure either concept does not succumb to 
the temptations of the politically popular, but ultimately ordinary, 
investments. Among the concerns I have include:

   The determination of which investments actually fill a 
        market void or instead crowd out private investment is 
        fundamental. This would not be the first government program 
        that had the unintended consequence of reducing private sector 
        investment, despite a mission to expand it. I am particularly 
        concerned by the stated goals of the 21st Century Corporation 
        to 1) ``develop a stable secondary market for clean energy 
        technology loans'' and 2) ``promote access to affordable debt 
        financing''. I would describe those two activities as areas the 
        private sector, my firm included, actually do quite well. More 
        importantly, these two notions are very far from the critical 
        market void I believe this legislation aspires to fill. In my 
        opinion, I do not think the key focus should be on ``lowering 
        interest rates'', a theme that runs though S 3233. Too high of 
        an interest rate is not the problem in today's clean energy 
        finance--it is the lack of debt at any price for the most 
        ambitious efforts we need to accelerate.
   It is absolutely critical to define the type of projects any 
        government corporation would pursue in order to achieve the 
        extraordinary. While the 21st Century concept proposes a very 
        specific and useful list of technologies, it provides latitude 
        to pursue a very broad range of projects. And while the Clean 
        Energy Investment Bank includes a definition of ``Eligible 
        Projects'', an essential concept in my opinion, I would suggest 
        the definition be revised to include only those projects that 
        achieve two goals simultaneously: improve the nation's energy 
        security AND reduce green house gas emissions. As written, this 
        institution would have the latitude to do projects that achieve 
        only one of those objectives, a rather low bar for the 
        opportunity at hand.
   The concept of requiring at least 30% private investment in 
        the Clean Energy Investment Bank seems sound and appropriate on 
        the surface, ensuring that the Bank is not the only institution 
        at risk. But I would suggest that some of the great investments 
        in this country that have made real change have been initially 
        100% government investments. Think of the Niagara and St. 
        Lawrence hydroelectric projects in the 40's, the Interstate 
        Highway system in the 50's, and even the space program in the 
        60's. There are grand scale projects that will need to be done 
        in the areas of carbon sequestration, hot rocks geothermal 
        technology, national transmission lines, the development of a 
        national electric vehicle recharging system among many others, 
        where, if done correctly and on a grand enough scale, will 
        still be too ambitious for private sector capital. Once these 
        grand projects are constructed, operational and proved 
        successful, the investment can be sold down to private 
        investors. As such, I would propose that the 30% private 
        investment target be considered over the life of the project, 
        not soley for the initial capitalization.

    I thank the committee for this opportunity to comment on the 
concept of the 21st Century Energy Technology Deployment Act and the 
Clean Energy Investment Bank.

    The Chairman. Thank you very much. Thank you all for that 
good testimony. Let me start and ask some questions here. I 
just advise folks that we're scheduled, at least the last word 
I got, was that there's supposed to be a vote at 12:15--11:15, 
excuse me. So I'll try to stick by the 5-minutes.
    Let me ask first, a lot of the testimony seems to be that a 
failure of both bills is that we don't really insure a new 
source of financing for the higher risk projects. I think that 
was sort of one of the themes that I heard. At least both from 
Dan and from John and maybe Andy alluded to that.
    I guess a concern I've got is we've sort of got two ends of 
the spectrum here. One is the loan program that we've already 
put in place in the Department of Energy where I believe the 
criteria that they're using or the general rule of thumb is 
they don't want to take on any risky projects. They want every 
project that they provide a loan guarantee for to be a 
successful project; none of them should fail.
    I believe that's the position that they are very open 
about. I don't think I'm misstating that. Now we're saying ok, 
what we want to do is to set up an entity that will take a very 
different view. Perhaps sort of, have a target or a focus of 
looking for some of these risky projects and providing 
assistance there.
    Obviously with all of the turmoil we're seeing in financial 
markets today, I'm sure there are a lot of people who would 
say, wait a minute. That's all the government needs is to find, 
some more risky things to invest in. So Andy, what's your take 
on that?
    I guess neither bill really contemplates substantial focus 
on these riskier projects the way I read the two bills. But I 
think I understood Dan to be saying and maybe John as well that 
that's a piece that needs to be addressed.
    Mr. Karsner. Senator, the word risk is the operative word 
there. That's a very relative term and very broad bandwidth. It 
can be a scary word.
    I'm reminded of people who say well, you know, that mother 
won't let their kid even cross the street. It's too big of a 
risk. From my own experience as a power generation developer, 
the institutional barriers and impediments that we're talking 
about are not risky if you understand the technology.
    I can tell you a tale of two turbines. The V47 Vestas 
turbine which at one time was the world leading, most installed 
turbine and the V52 which evolved from it, which simply turned 
the blades a little bit, turned the nacelle a little bit so it 
could optimize that turbine's capacity performance. I wanted to 
use that later turbine on a project, but I couldn't find 
anybody to finance it because it wasn't already in the 
marketplace.
    Now it dominates the marketplace. That turbine optimization 
technology called variable wind speed was developed by NREL. 
There was nobody in government that would do anything less than 
certify that that was available, that it worked. That it was 
tested. That it should be deployed. That it was operational. 
But you could not find the debt, as Jeff says, at any price, to 
go for something that would be considered new technology.
    So we're distorted. We're forcing our energy industry to be 
what it is, the most conservative, technology-avoiding, risk 
averse industry because of the lack of financing available for 
what we call risk. We're in government, our shop is in the 
business of developing that risk, moving it down the cost 
curve, certifying it, asserting it. Then you all have given us 
the additional mission through the Loan Guarantee Program and 
other mechanisms, grants, Clean Cities etc, to deploy it.
    So overcoming that risk ``Valley of Death'' that Dan's 
talking about. Sometimes isn't jumping the Grand Canyon. It's 
merely understanding managed risk and moving it forward because 
the financial markets are too conservative to act.
    The Chairman. Dan, did you have a perspective on this you 
want to elaborate on here? I guess what I'm hearing from you 
Andy is you're saying that even though it is classified today 
by most as high risk, in fact if you know something about the 
technology, it's not. There may be examples like that.
    But there are other examples, I would assume, that are 
classified as high risk because they are high risk. I think 
John and Dan were saying that we ought to invest in those too. 
We ought to provide credit for those too even though they may 
fail and we may wind up having guaranteed a loan that nobody is 
going to pay back.
    Mr. Reicher. Yes, Mr. Chairman, let me say when I was in 
the private equity world when we were investing in clean energy 
projects, we would be regularly approached by project 
developers with a higher risk project. Our standard line was, 
come back after you've built the first project. We'd love to 
finance them.
    There's lot of people standing in line ready to finance the 
second project. It is indeed the first project that is often 
the real challenge. That's where this comes into play.
    Andy is right. Sometimes this is risk perception. Sometimes 
you just need to push this into the market. People need to see 
it working. Sometimes, as you indicate, the first projects do 
indeed fail. That's precisely the point at which I think the 
Federal Government can step in, in those higher risk areas, and 
move them through that early stage.
    It's not the 50th wind project. It's the first with a new 
technology. There is more exposure. But if we want to make 
progress in these technologies, this is an appropriate role for 
the government.
    The government has taken on risk in the space program, 
building the interstate highways system, building the 
hydroelectric dams. You know, across a whole area of 
technologies, in the early stages of the nuclear program. It's 
the appropriate role for government. Taking people through this 
``Valley of Death'' we will more quickly get to a point where 
the regular commercial credit markets can take over.
    Having said that what you propose, I think, can be put in a 
portfolio approach. There can be a mixture of higher and lower 
risk kinds of loans that are in fact packaged for the secondary 
market. So these are not only high risk. I stress that in the 
testimony. A risk adjusted balanced portfolio.
    But unless we really do support these early stage, high 
risk ``Valley of Death'' projects, we won't be adding very much 
to the current situation.
    The Chairman. Thank you.
    Senator Domenici.
    Senator Domenici. Mr. Chairman, let me just say to the 
witnesses. I introduced the bill after a lot of staff work, 
it's a pretty good document. A lot of work went into it.
    I would think you would consider that here's a Senator, 
full of enthusiasm, trying to find some way to get some real 
money into what's obvious. That is this whole business of 
investing in energy projects that need money to move us ahead. 
I was probably wet behind the ears and enthusiastic as could 
be.
    Now I've experienced the 6-months of the U.S. Government 
trying to get loan guarantees, just plain old loan guarantees, 
nothing, no reinvention of anything, no new technology. Loan 
guarantees for nuclear power plants, which aren't new things. 
They're old dinosaurs.
    We've been building them for 40 years. We got some that are 
40 years old. We can't even get loan guarantees approved and 
ready to go by the government of the United States. You know 
that makes me think that it's all a waste of time, a waste of 
time thinking about this corporation which would do exotic 
things.
    How can you get this through the Federal Government? 
There's more bureaucrats around at different levels that want 
to kill anything that involves something unique and different. 
It's no different now than it was at any time during the last 
36 years that I've been here. When you've got something new and 
different, you just don't have a shot at it.
    But I tell you. We probably won't get this one done because 
we waited too long in the calendar to get it done. But the 
United States of America is not going to be able to make it in 
terms of energy projects that are required with the Loan 
Guarantee Portfolio and the ideas that we have right now of 
loan guarantees for the nuclear industry and eight billion or 
so for the coal industry and whatever the number is for the 
wind industry.
    That's not going to work. That's not going to get much 
done. But I think we've got to get that done, nonetheless to 
show we can do something.
    I don't know how you people in government, including you, 
Andy. I don't see how you can put up with it. How much longer 
do you think it's going to take to get the loan guarantees 
where we can say we're going to do them?
    I'm just fishing around here to get something that would be 
a precursor to this bill. Plain and simple, loan guarantees. 
We've got how many billion of them there? We've got 20 billion, 
20, 21 billion? We haven't used a nickel.
    Now we've already got a GAO report that says they don't 
work. Of course it was done--GAO was asked to do it by somebody 
who's anti nuclear so you know it would come out. Everybody 
thinks GAO is objective. It came out just what the person that 
asked wanted that the program is no good.
    Let's wait about 6 months and Senator Bingaman and I will 
ask them to do one. It will come out the other way. That's how 
great GAO is.
    Now let me ask you what about it? Can we get loan 
guarantees through before we worry too much about this bill?
    Mr. Karsner. Senator, we have to. Of course I can't speak 
for an Administration position on the two bills and how they 
relate to that. But what I can say is we have an obligation in 
the Energy Policy Act to put that up.
    I don't think I've had a hearing with you or this committee 
where this subject matter hasn't come up. So let me speak to it 
in the terms that you're speaking to it. What is the time, 
value, and the opportunity cost of not moving forward?
    I think what you all are discussing today, and I've had a 
good fortune to discuss with all the leaders in this room 
privately, is what are appropriate means of organizing 
ourselves to act expediently and with agility with something we 
know we must do? We're hemorrhaging $700 billion a year. The 
Northwest Passage is open for the first time in human recorded 
history.
    We inevitably will take these risks to deploy technologies 
that the taxpayer has invested in and matured and are available 
and are in our interest. The question is will we do it at the 
point of paying or reactively, or will we do it proactively 
with foresight and vision? I know that's what you all are 
striving to do.
    I would urge you to consolidate and integrate approaches in 
the way that these panelists with more than 100 accumulated 
years of energy experience, infrastructure build-out 
experience, are advocating, and continue to work with the 
Administration to craft a disruptive organizational approach. 
Because that's the only way we're going to see this erupting 
technology.
    Senator Domenici. We don't even know if the Administration 
concurs with this bill, right? Based on your testimony----
    Mr. Karsner. The Administration is still evaluating the 
bills.
    Senator Domenici. Have you had enough time?
    [Laughter.]
    Mr. Karsner. We're doing a very thorough job, sir of 
evaluating the----
    [Laughter.]
    Senator Domenici. The point I'm making, it isn't brand new. 
I mean my bill has been around. We asked them to do it.
    It's been around how many months? You know, unless you're 
against it and don't want to open the blinds, letting sunlight 
in. You could already have this done.
    So I've noticed how you very carefully phrased it when you 
told us. I thought you were saying, my God, I've got to say 
this but it certainly is foolish.
    Mr. Karsner. That's part of my present job description, 
sir, is being very careful.
    Senator Domenici. No, it isn't. You have to state things 
that are foolish. You have to state them anyway.
    The Chairman. Careful, Andy.
    [Laughter.]
    Senator Domenici. Excuse me, Senator. I have questions 
about the make up difference of the two corporations, but look 
to your two high paid people to ask those questions. So I'm 
just going to not ask any.
    You know I think we can put something like this together. 
Senator Bingaman wants to do it. We'll do it and be bipartisan 
and it will be something very different.
    But I don't believe we've got any imagination around. The 
problem is not sufficiently bad for us to be looking for things 
like this. I mean we're down here in the weeds still trying to 
find a way out of this bill that's five years old that provided 
all these things. We didn't even do them.
    You know many of these things are provided in the bill that 
we did, Senator Bingaman. Administration never looked at them. 
They're just sitting there, this 4-year-old, 5-year-old law. 
You know that.
    For me, I've gone all the way from the top of the mountain 
to way down in the valley in terms of what we're going to get 
done. I think this one terrible crisis for the great people of 
this country. I don't think we've ever had anything like it. It 
can't be solved by people running around saying let's do a 
Manhattan Project.
    He's closer to any. He said you don't want one, you need 
eight or ten Manhattan Projects. They're all so different. You 
can't solve all the energy crisis with a Manhattan Project. 
What is the project trying to do?
    So anyway, too much talk by me and I'm going to shut up and 
close my binder up and when I do that you can conclude from 
that whatever you'd like.
    The Chairman. I'll conclude it's time for Senator Salazar 
to ask questions.
    Senator Salazar. Thank you very much, Chairman Bingaman. 
Let me first at the outset say thank you to Judy Pensabene for 
all her hard work on the matters that we've dealt with on this 
committee for the last three and a half years. She's been a 
trooper and a great example for this committee.
    To Andy Karsner, also to you as Assistant Secretary, your 
great work at Enrail. Sometimes it seems that Republicans and 
Democrats can't get along very well in this town. I think your 
work at the National Renewable Energy Lab has shown that in 
fact we can move forward as we try to develop this new energy 
frontier for our world.
    I agree with the panelists in terms of the energy futures. 
John, the three dimensions that you talked about which I think 
are imperatives for us in our country. I would look forward, 
frankly, to working with you, Chairman Bingaman and Senator 
Domenici to see whether we might be able to take the advice of 
the panel and integrate the approaches and try to come up with 
a package that we might even be able to move forward with if we 
can get another energy bill.
    It seems to me that the people of America want us to do 
that. I always say about this energy world that we are in we 
know a lot about what we can do. It's just a matter of how we 
get that technology, to play it out and make it commercialized.
    You know, Colorado, just a quick example with the National 
Renewable Energy Lab leading we formed a collaboratory with the 
University of Colorado School of Minds and with the Colorado 
State University to deploy these new technologies out into the 
private sector. We're doing that with Conoco Philips and a 
whole host of other organizations that are taking these 
technologies and trying to deploy them out. So I appreciate 
what we are doing out there.
    I want to ask just a couple questions and ask maybe each of 
you to take 20, 30 seconds to respond to it. With respect to 
these financing mechanisms that have been proposed in these two 
legislations, how would those financing mechanisms help us with 
two specific technologies that we've been working on? Some of 
which we've made progress on and some of which we are very 
frustrated with. But that is IGCC. We take coal and do what we 
have to do, including carbon sequestration.
    Two, cellulosic ethanol because we know we have limits on 
corn. We have a RFS here that we have passed. So how would 
these financing mechanisms here help us advance those 
technologies? Andy, why don't we start with you and just come 
across the board. If you take 30 seconds each.
    Mr. Karsner. I'll just talk on the basic principle and let 
the pros talk to specific characteristics. But the basic 
principle is all of these technologies have higher up front 
installed capital costs. That they pay for themselves through 
the benefit of how they operate through time.
    So if that's biofuels, the obvious benefits of security in 
emissions and oil dependency and pricing. I mean, we're now 
almost at cost parity for gasoline today on cellulosic. So 
giving a long term project financing framework enables us to 
lower that cost on the project as opposed to all equity up 
front.
    Think of buying your home, all cash up front, verses 
financing it over 30 years. You can do that today with our 
commoditized conventional based economy. You cannot do it with 
something we know we can do, such as the 12 to 17 experimental 
cellulosic biorefineries we're putting in motion.
    When project No. 2 of each of those becomes replicable 
process integration----
    Senator Salazar. So these financing mechanisms will help us 
with those projects along?
    Mr. Karsner. Should help us scale them. Right now we're 
perfecting process integration.
    Senator Salazar. Ok.
    Mr. Karsner. Through the government experiments.
    Senator Salazar. Mr. Denniston, let me, I want to get 
everybody. Since I have like 5 minutes and you guys got a 
minute and a half here left.
    John.
    Mr. Denniston. Yes, thanks, Senator Salazar. It's a great 
question. I think you chose two terrific examples.
    I think that cellulosic and advanced biofuels are the 
poster child for what this legislation can do because one of 
the properties of those advanced technologies is that 
entrepreneurs are now at a point where they are working at 
small scale. What they want to do is to introduce them into the 
market at large scale. That's not been done before.
    Lenders are not signing up to debt finance those projects. 
This is exactly what this new corporation can do with the loan 
guarantee lenders will step up, finance them, some will work, 
some will not. We have to worry about and think about a 
portfolio balance for the new corporation. But it is the case 
in point from my perspective of what this corporation can do.
    In terms of the second, do you have a question?
    Senator Salazar. No, I only got 20 seconds to go through 
the rest of the panel.
    Mr. Denniston. On capture and sequestration I actually 
think that's more of an R and D phase at the point where we 
have capture and sequestration technology, the corporation then 
can give guarantees to put it in the market.
    Senator Salazar. Ok.
    Ms. Hull.
    Ms. Hull. Yes, sir. The risks on both IGCC and cellulosic 
are technology risks on our scale of risks as everyone said. 
There's many other risks. But those are the fundamental risks.
    Loan guarantees address that risk. Insurance addresses that 
risk. The ability to bundle and remarket securities can help 
with that so----
    Senator Salazar. So are these two financing mechanisms then 
help address those risks?
    Ms. Hull. Absolutely.
    Senator Salazar. Ok.
    Dan.
    Mr. Reicher. Very quickly, Senator. Patent number five 
million with all those zeros was issued in the early 1990s for 
cellulosic ethanol. When it was issued we had great hopes that 
we were going to see commercial scale plants by the end of the 
last decade. We still haven't seen commercial scale plants. It 
goes as my colleagues have said to the issue of risk in 
building plant number one and number two, perfect mechanism for 
addressing this.
    The whole point about debt financing, as we call it, debt 
tends to be cheaper than equity. If you have to equity finance 
a project like that, it's very expensive. The venture capital 
world is not prepared to put hundreds of millions or billions 
into a single project. That's where the debt markets come into 
play.
    That's why these debt oriented mechanisms, the secondary 
market and the credit support mechanisms are absolutely 
critical. We're not going to do this on the back of equity 
ownership projects. We're going to have to use the classic mix 
of equity and debt to move these projects forward.
    Senator Salazar. Ok.
    Jeff. Thirty seconds.
    Mr. Eckel. The market void that would be filled by this 
bank on cellulosic ethanol would be to fund the second project. 
The market void that would be filled by this bank on IGCC is to 
fund the first project. Excellent opportunities for this 
institution.
    Senator Salazar. Thank you for your excellent testimony. 
Chairman Bingaman you have put your finger on, I think, one of 
the most important issues that we can work on as an Energy 
Committee. Thank you so much.
    The Chairman. Thank you so much. Senator Craig.
    Senator Craig. Wile our government is suffering from risk 
aversion, we are suffering from political aversion at the 
moment. We're probably hand tied for at least 10 to 12 months. 
I hope it's different than that. But I think the reality is 
that.
    So let me give the panelists an example because when we 
passed the Energy Policy Act and we established a loan 
guarantee program, we hoped it would do a variety of things 
that it has not yet done and in many instances you're saying 
may not be able to do. Phase one of the loan guarantee program 
was solicitation, was issued in August 2006 after the passage 
in 2005. So still no loan guarantees were issued after 2 years.
    DOE received 143 applications in response to this 
solicitation. Still no new projects started. DOE finalized a 
loan guarantee regulations in October 2007, 2 years after it 
was authorized.
    Phase two solicitations were just announced on June 30 to 
cover renewables and nuclear projects. The phase two loan 
guarantees, probably based on simply the reality of who we are, 
a change of Administration, the politics of all of that, 
establishing a new Administration. My guess it's November 2009 
and more likely November 2010 before we see this happen.
    So there's a phenomenal level of frustration here that the 
bureaucracy grinds not only slowly, but sometimes chooses not 
to do anything. Jeanine, I think you used some nice finessing 
words saying civil servants could not? There was a phrase in 
your testimony that was a window of opportunity for me to say, 
were you talking about the inability of DOE to get its act 
together in a timely fashion?
    Ms. Hull. I was talking about the general lack in 
governmental agencies of the type of sophisticated financial 
expertise that is necessary.
    Senator Craig. Ah ha. I thought that's what you were 
saying. You phrased it differently than I. So tell me how this 
is different. These two bills do it differently and how long it 
takes.
    It should take from legislation to policy to law that 
creates it. I mean, we put the money up, everything is there. 
But DOE drags along. Industry out there is now watching it and 
departing.
    Let me suggest on the cellulosic issue. I work very closely 
with Iogen Corporation, one of those new technologies. They 
finally walked away from DOE because of timeliness.
    Another reason, a lot of money out there in the marketplace 
right now that wants to invest in energy. Along came a company 
that had been helping them and said, forget the time lag. We 
want to lead in cellulosic. Here's a check. Go built the plant. 
So they're going ahead. That's good news. Government didn't 
have to finance it.
    The bad news is government had an opportunity to do a lot 
of things that it didn't do. The timeline was several years 
late. What's different about this?
    Ms. Hull. Um, sir. I----
    Senator Craig. Of these two bills, Jeanine?
    Ms. Hull. It's Jeanine. Thank you.
    Senator Craig. Oh, I'm sorry, Jeanine.
    Ms. Hull. Quite alright.
    Senator Craig. My apologies.
    Ms. Hull. Both bills are significantly different from the 
existing loan guarantee program which is, as you noted, housed 
within the Department of Energy and is run by career 
professionals.
    Senator Craig. It's ok. Go ahead.
    Ms. Hull. They are limited by an awful lot of rules and 
regulations that are there and appropriate in other 
circumstances, but are not geared to getting the financial 
programs like this off the ground quickly. So this----
    Senator Craig. So maybe our mistake----
    Ms. Hull. But neither one of these bills, sir, as I 
understand them. I haven't really had a chance to seriously 
analyze the bill that was just, most recently, introduced. But 
both bills, as I understand it, would separate the entity being 
created from the civil service structure and would allow the 
entity to acquire the necessary expertise to be able to make 
this entity capable of responding closer to the timeframe we're 
talking about.
    Senator Craig. So in the context of the current 
circumstances we're in, in the mortgage market, having created 
a quasi governmental marketplace entities that are in trouble 
today. Jeff, how should we do it differently? So we can 
convince not only our colleagues that these are good ideas, but 
we can convince the marketplace that this is something that 
long term, down the road when we've got hundreds of billions 
racked up, doesn't come tumbling down?
    Mr. Eckel. There's no way to guarantee there won't be 
mistakes in the future. There better be mistakes in the future.
    Senator Craig. I was going to say I hope there are a few.
    Mr. Eckel. We're not taking enough risk if there aren't 
mistakes. But simply the very act of making it a private 
corporation. We've done projects where we've borrowed money 
from OPEC, from IFC, from Finish and Dutch Export Credit 
Agencies. It's not super fast, but it's way faster than 
borrowing money from the U.S. Government.
    It's got to be out of the civil service. I think both bills 
achieve that.
    Senator Craig. Thank you. My time's up. Thank you, Mr. 
Chairman.
    The Chairman. Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman. I too, want to 
echo the comments from Senator Salazar that you and Senator 
Domenici have really identified, the crux where we are with our 
energy crisis now. We're talking about a lot of policy and 
we're talking about technologies as if we are utilizing all of 
this in our backyard today.
    The fact of the matter is, is we're not. I think the public 
is also thinking we must be doing it somewhere. Maybe not in my 
State or your State, but we're doing it somewhere because we 
keep talking about carbon capture and sequestration. We keep 
talking about IGCC.
    We keep throwing these around. Then they're not seeing any 
lowering in the prices of their energy, whether it's at the 
pump or what they're paying at home. They don't understand that 
the problem to a certain extent is back here as we put up road 
blocks, if you will, to provide for the financing to get these 
projects off the drawing board and into everybody's backyard so 
we can really be utilizing it.
    I appreciate the frustrations that you have raised, Senator 
Domenici and Senator Craig about the loan guarantees. You know 
we put them in place. We expect them to work and then we don't 
see those outcomes.
    I would like to think with the approach that both energy 
leaders here at this Dias are presenting. That it's more than 
just putting something on paper. That we actually have a 
process that works. That does allow for facilitation of the 
concepts into the market to truly make a difference.
    Secretary Karsner, when we had an opportunity to talk about 
Senator Domenici's legislation some months ago you were 
mentioning the fact that in your former life you were in an 
international wind project developer. We had an opportunity to 
talk about other programs that are available if you're outside 
the borders of the United States. Did you ever utilize the 
United States funded export/import bank or the Overseas Private 
Investment Corporation for projects overseas?
    We talked about them being models for what we could do 
here. Senator Domenici's legislation somewhat crafted around 
similar concepts. But are those ideas that we can meld into 
these two particular pieces of legislation that we have before 
us now?
    Mr. Karsner. Again, not taking an Administration position 
on the specific bills. But as we talked about on that occasion, 
absolutely it was my experience. It is probably my greatest 
single frustration that coming back to my own country with the 
technologies I now preside over in this portfolio. I could use 
the taxpayer funded mechanisms at the Export-Import Bank for 
100 percent credit, if I wanted debt, without ever going to 
Congress or having legislation any day of the week.
    If I wanted to finance a project I could use OPIC for help 
and equity arrangement. I could use the Trade Development 
Agency for walking around money, for anemometry, for site 
development, for permitting, only if it was outside the United 
States. If all the villages that I know you are so concerned 
about in Alaska are hit hardest by these energy situations.
    Whatever has hit it home has hit multiples harder in 
Alaska; where we have geothermal resource, where we have bio-
gas, gassifiers ready to go. They could easily be economically 
justified over their life cycle. But all I can offer them from 
here in Washington is small, annualized increments of potential 
grants from a tribal program rather than a guaranteed outcome 
that would pay for itself.
    So instead of doing the right thing today, we force 
ourselves to do it over time. If Alaska were a foreign country, 
I could walk into any of those institutions that the taxpayers 
already on the book for and fund those things tomorrow, based 
on those technologies that are already in my portfolio.
    So you can imagine the irony and the challenge it is for 
me, mentally, to think that I can deploy these things faster 
abroad than I can deploy them at home.
    Senator Murkowski. It's incredibly, incredibly frustrating. 
Let me ask just generally, I think most of you, Mr. Reicher and 
Mr. Eckel, certainly, indicated that the best way forward is an 
integration of the two concepts that we have from Senator 
Domenici and the chairman. Is it possible to do it the way that 
both gentlemen are approaching it?
    Senator Domenici's perspective is perhaps a little more 
conservative in respect to which projects receive the funding 
as opposed to Senator Bingaman that looks more toward the 
breakthrough concepts. Is it doable to integrate, do you 
believe? Everyone's in concurrence.
    Mr. Denniston.
    Mr. Denniston. No, I do. I agree with Mr. Reicher. I think 
that we have a lot to admire in Senator Domenici's bill and a 
lot to admire in Senator Bingaman's bill. I think there's a 
very happy marriage between the two.
    I think the key question that's left is which projects, 
which energy projects, does the new corporation aim to support? 
What's the prioritization?
    Senator Murkowski. But you could, in fact, have this 
portfolio mix, as some have suggested as well?
    Mr. Denniston. Undoubtedly. The question is what's the mix? 
I think that's where the detail has to----
    Senator Murkowski. Mr. Reicher.
    Mr. Reicher. Senator Murkowski, I think we could do this. I 
think this is one of those situations where Republicans and 
Democrats, environmentalists and folks from industry, you know, 
the left and the right. I think there's an awful lot of 
agreement here. Unlike so many other issues, I think this could 
happen.
    I don't think it would be a huge amount of work to sit 
down, integrate these bills and get some broad agreement. Then 
get down to details about how you put this entity together. I 
think it's really critical that we do it.
    Now, I do have to emphasize the government can fulfill this 
role. I have to say when I was in the private equity world we 
got involved in a bio diesel project. We went to the U.S. 
Department of Agriculture and we got a loan guarantee. That 
enabled a local bank in Delaware to get a loan for a bio diesel 
project.
    So there are programs, well established track records. But 
something of this magnitude, with this sort of risk profiles 
that we're talking about, the time dimensions that are so 
critical. I do think that moving this outside of government 
into some sort of bank or corporation with the government 
oversight, with some government involvement as both bills 
require. I think that makes a lot of sense.
    What I really want to emphasize, I really think we could 
bring all the right players together to get this done.
    Senator Murkowski. Thank you. Thank you, Mr. Chairman.
    The Chairman. Thank you. The vote has started. Why don't we 
go to Senator Sessions? You'll be the last questioner. Then 
we'll dismiss everyone and go vote.
    Senator Sessions. Thank you, Mr. Chairman.
    Senator Domenici. Senator, as you close up would you just 
permit me to make an observation before you do that?
    Senator Sessions. I'd be delighted. Thank you, Chairman 
Bingaman for your cool head and leadership consistency on this 
issue and Senator Domenici for your long term leadership on 
this issue.
    We're going to have some fusses soon, I think over energy. 
I do not believe we need to go home as a Congress until we've 
taken some steps that will deal with the reality that the 
average family, since last year, is paying $100 more per month 
for the same amount of gasoline as they paid the year before. 
This is an incredible hit to their budget which it ripples 
through the economy.
    We've got chemical companies and others that are 
outsourcing to get cheaper natural gas, feed stocks for their 
progress. It's just $700 billion a year wealth transfer.
    So Mr. Karsner, Congress gets it. I think, is beginning to 
get it. The American people want something done.
    And on this loan matter, I remain baffled, has there not 
been a single loan granted under the program that----
    Mr. Karsner. Not as of yet.
    Senator Sessions [continuing]. Senator Domenici put 
through?
    Mr. Karsner. No, sir, there hasn't.
    Senator Sessions. This is most troubling to me. Is there 
some problem with the legislation? I mean is there something? 
Have you asked us to fix some gap in the legislation so this 
could go forward? Because I mean this is the way I see it.
    I'm just simple minded about it. If we could accelerate, 
for example, cellulosic ethanol and accelerate it through 
government intervention, which I don't loathe to do, a free 
market person, but if we could accelerate that and prove its 
commercial viability earlier, could have already have done 
that. We may find that that's a substantial new source of clean 
energy. Is there some problem here that's keeping this from 
happening?
    Mr. Karsner. Sir, first of all let me say my experience 
with you is you are anything but simple minded. So as you know, 
nobody's doing more than Auburn University and Dr. Bransby to 
bring down that price of cellulosic ethanol. As you've heard 
here what you need to do to integrate the process being 
developed there and build it out, physically build it out.
    But when you talk about the impediments, a lot of times 
it's not as complex as just, at the big level, the bureaucracy 
stopping us. I mean, consider the fact that Dan's job before, 
my job now, is a transient management position. Typical average 
on this job might not exceed 24 to 30 months. But it takes me 
17 months to hire one person.
    The likelihood that that person is going to be an MBA or 
have the acumen necessary for this level of risk management for 
$42.5 billion in guaranteed capacity when the whole budget of 
DOE is $25 billion is a mismatch in expectations. I had an 
employee at my former company who was recruited in 3 weeks by 
Korn/Ferry to be part of the Millennium Challenge Corporation. 
He now dispenses money as grants for the U.S. Government. He's 
got 25 years of energy experience. But I couldn't possibly hire 
him at DOE.
    Ok, so we have to deal with the realities, the lack of 
agilities in our institutional infrastructure and posture 
ourselves, not for the cold war, but for the speed of the 
challenge to alleviate the price pressure you're talking about.
    Senator Sessions. This question, do you think that this 
whole concept is doable? I think there've been some government 
sport for range fuels, a biofuel, cellulosic fuel plant on the 
Georgia/Alabama line. I know of three others in the State that 
have gotten no financial assistance.
    They've been delayed as a result of that. Actually one of 
the little projects is running below the radar screen and 
creating from wood product natural gas and less price than the 
commercial natural gas prices. So that's cellulosic without any 
real subsidy.
    But I guess what I'm saying is that our goal is to 
accelerate the production of these items or could we--can you 
help us? Does your program help or do we need to start over 
like Senator Bingaman and Senator Domenici are proposing?
    Mr. Karsner. Our program today, the core strength of it is 
applied science technology, research development, and 
demonstration. So we can do that in the increments that we are 
given by Congress, this year 1.7 billion. So that's almost two-
thirds of a coal-fired power facility.
    We can do that at those increments over time. I think we're 
postured as an organization to do that well. But the challenge 
is a cost benefit versus $700 billion that needs to be 
displaced, and growing. The challenge is to raise the $15 
billion that's in the private markets today to a clip that gets 
us to our goals in multi-years. That's more like $80 billion or 
$100 billion of investment per year.
    So we've got to help accelerate that going to market. The 
current institutional framework of the Department of Energy is 
about science and technology, not commercialization and scale 
deployment.
    Senator Sessions. Thank you.
    The Chairman. Senator Domenici, you had a comment?
    Senator Domenici. I wanted to just comment to you, Mr. 
Chairman. I've kind of indicated in my own way how I was so 
enthusiastic about this as a method of getting some real money 
into the marketplace. How I felt like all our work was probably 
in vain.
    But I want to take all of that back. Say that I leave 
today, if you're willing and I'm willing, let's see if we can 
put a bill together. See if we can do it.
    It's not the solution to all the problems surrounding the 
energy crisis. But it's obviously a vacuum that if we could get 
it done and modeled after either the two that do foreign 
financing. Get it out of Congress and to a President who will 
sign it. I think it could fill a gap.
    I would be willing to spend some time, if you are and want 
to make sure the record reflects that. These wonderful people 
given all their time know that I generally love to get things 
done. It's nothing more thrilling than to do it together as 
bipartisan.
    I don't know anymore whether or not you, but whether the 
hierarchy around here wants things done. So that's what I was 
alluding to a while ago. I don't know.
    If we had something real good to do, I don't know whether 
there is a message out there that even though we have 49, you 
have 51. I don't know whether our 49 can say shall we try 
something or are we just wasting time? I don't and you maybe 
don't know either.
    But at least you know from me that I'm willing to try.
    The Chairman. Thank you very much. Obviously we want to 
work on this and see if we can bring these two bills together 
and fill in any of the gaps that have been identified here by 
the witnesses.
    Let me thank all the witnesses for your excellent 
testimony. We will conclude the hearing.
    [Whereupon, at 11:39 a.m. the hearing was adjourned.]
                                APPENDIX

                   Responses to Additional Questions

                              ----------                              

     Responses of Jeffrey Eckel to Questions From Senator Bingaman
    Question 1. You observe that the primary problem for projects is 
not necessarily the expense of debt financing but rather its 
unavailability. Could a more robust secondary market, make lenders more 
likely to issue debt or do you believe a more direct intervention is 
required?
    Answer. The main reason debt is scarce is not supply (present 
credit crunch notwithstanding) is that the projects are not well enough 
structured to ``deserve'' debt. The existing Federal loan guarantee 
programs fill some of that need and should be fully utilized. That 
said, a secondary market will increase debt supply.
    Question 2. You mention the need to substantially increase the 
scale of the investments in these technologies. What specific 
mechanisms do you see as the most effective for the federal government?
    Answer. First, getting the price signals right: a price on carbon 
is essential to increasing investment. Second, changing the way the 
renewable energy tax credits work would be very effective. Moving to a 
national Renewable Portfolio Standard and eliminating tax credits would 
be a way to accelerate private sector investment. Third, this entity 
should focus on the grand infrastructure projects and enabling 
technologies that change the way energy is used. For example a massive 
transmission project in the west to get wind energy from the plains to 
the load centers, or hydrogen refueling infrastructure or the carbon 
sequestration projects, such as FutureGen.
     Responses of Jeffrey Eckel to Questions From Senator Domenici
    Question 3. Can you elaborate on the role that you see a more 
comprehensive menu of `financial tools' playing in the Bank's 
investments and provide examples as to why different projects may 
require different tools?
    Answer. No comment.
    Question 4. S. 2730 and S. 3233 take different approaches on 
maximum contingent liability. One bill sets that amount at $100 
billion, while the other allows the volume of lending activities to be 
determined by the Corporation itself. Could you provide your views on 
the merits or risks of each approach?
    Answer. No comment.
    Question 5. On the issue of whether or not common stock for the 
financial entity created in either S. 2730 or S. 3233 should be issued, 
I am concerned about the impact that doing so would have on the 
advancement of game-changing technologies that have a higher level of 
default risk. How do you believe that such a process might change the 
posture of the financial entity in terms of its willingness (or 
ability) to take risks versus a likely preference for profit-driven 
operations when shareholders have a role?
    Answer. By definition, if one can sell stock in the entity on 
commercial terms, then it is effectively crowding out private equity 
capital. Having the entity make the large investments, that transform 
technologies and industries will probably not be the kind of investment 
the private sector would make, or it would be doing it now.
     Responses of Jeffrey Eckel to Questions From Senator Martinez
    Question 6a. I would like to get the panelists perspective on a 
provision included in S.3233 that allows a government created and 
sponsored clean energy corporation to issue stock to shareholders. In 
light of the current financial problems facing Fannie Mae and Freddie 
Mac and their historic governance problems, is it a wise idea to give a 
federally-backed lending institution two seemingly contradictory roles?
    Answer. I agree that it is a contradiction. However, the government 
should get equity, if it can, in the enterprises it creates, similar to 
the warrants received under the TARP program.
    Question 6b. Could the drive to maximize shareholder profit 
compromise the public mission of a government-backed institution using 
tax-payer dollars to finance clean energy projects?
    Answer. I think that is a very real risk.
                                 ______
                                 
                                       Dykema Gossett PLLC,
                                Washington, DC, September 12, 2008.
Hon. Jeff Bingaman,
Chairman, Energy and Natural Resources Committee, Dirksen Senate Office 
        Building, Washington, DC.
    Dear Chairman Bingaman: Attached, please find my answers to your 
follow-up questions to my testimony at the July 15, 2008, hearing of 
the Senate Energy and Natural Resources Committee on S. 3233 and S. 
2730. These bills would create a federal funding entity (referred to as 
the ``FFE'' in my response) whose purpose is to invest in energy 
technology which will create a diversified domestic energy industry 
capable of meeting a significant portion of the nation's energy 
requirements and minimize the nation's emission contribution to climate 
change from the energy production or use sectors. This attachment also 
includes my answers to questions from Senators Domenici and Martinez.
    The Committee's questions, and my responses, essentially focus on 
three questions:

          1. What projects should qualify for funding?
          2. What funding mechanisms should be available to the funding 
        entity? And
          3. What risk management measures should be included in the 
        statutory language?

    Although I elaborate on the responses in the attached, my short 
answers are:

          1. Any energy project that can make a meaningful contribution 
        to our energy, environmental, economic or physical security 
        which cannot access private sources of funding due to 
        uncertainties regarding commercial performance, aggregation-
        related credit issues or certain regulatory risks, should be 
        eligible for funding.
          2. The complete suite of financial and funding mechanisms 
        identified in both bills should be available to the funding 
        entity.
          3. An absolute cap on the lending, guarantee and investment 
        authority of the funding entity should be included specifically 
        in the legislative language. However, the cap should be high 
        enough to reflect the scale of funding required (in the order 
        of approximately one trillion dollars over the life of the 
        FFE), and the purpose of encouraging new technology will be 
        undermined with a requirement for the entity to be self-
        sustaining, especially in the early years.

    The FFE needs broad authority to fund energy supply solutions that 
meet the goals of energy and environmental security, from new 
technologies under development to the large pool of technologies that 
are here today but not are not being properly exploited, such as energy 
efficiency and solar thermal installation. It needs the flexibility to 
invest in potentially high-return solutions that currently are a gleam 
in their inventor's eye, as well as moderate-return investments that 
are available today and which provide immediate benefits in job 
creation and energy security of technologies.
    As the front pages of our newspapers tell us, even the best 
intentioned and drafted legislation can cause enormous pain if it is 
not appropriately regulated and audited. It is imperative that any FFE 
created by this Committee not be left to judge its own behavior, but be 
submitted to adequate regular financial and managerial audits by 
disinterested third parties, such as the Office of the Comptroller of 
the Currency or the Federal Reserve Bank Board. Regulation is not the 
bane of free markets. Regulatory failure, not regulation, created the 
savings and loan crisis of the 1980's, the failure of Long Term Capital 
Markets in the 1990's, the implosion of the electrical markets in 2001 
and the recent subprime mortgage market collapse, with its attendant 
disruption of the commercial banking sector. Appropriate regulation 
keeps markets free, open and operating with integrity and competence.
    I elaborate on these and other issues in the Questions and Answers 
attachment.
    Thank you for the opportunity to participate in promoting these 
important legislative initiatives.
                               ATTACHMENT
      Responses of Jeanine Hull to Questions From Senator Bingaman
    Question 1. I agree with your comments on the opportunities in 
aggregating smaller loans to the residential and commercial sectors. 
We've tried to address that area in Section 6(e) of my bill. Do you 
have any recommendations for how we can go further to strengthen or 
expand this program?
    Answer. Section 6(e) is an important recognition of the need to 
enhance the investment profile of residential and commercial scale 
energy efficiency and solar thermal applications by encouraging the 
aggregation of such projects for resale to a government-sponsored 
secondary market. In addition, the definitions in Section 3 of ``clean 
energy technology'' and ``novel technology'' recognize the diversity of 
solutions that should be supported. However, the requirement of Section 
4(d) that 70 percent of the funding portfolio be invested in 
``breakthrough'' technology may limit the ability of the financing 
entity to support solutions that face non-technical barriers to 
financing.
    As a country, we currently have available many technologies which 
are underutilized and do not meet the definition of `novel' or 
`breakthrough.' However, they have, if broadly deployed, the potential 
to significantly and immediately reduce the percent of energy wasted in 
the U.S. today, reduce the per capita use of electricity and natural 
gas, reduce the production of greenhouse gases (GHG), reduce the amount 
of diesel fuels needed to transport coal and other feedstocks and 
relieve over-burdened electrical transmission infrastructure.
    There is no bigger ``bang for the buck'' for a federal dollar than 
loan guarantees, energy-efficient mortgages, and secondary market 
support for energy efficiency, solar thermal applications and other 
similar technologies. It is the cost of aggregations, credit risk and 
low returns that limit the widespread deployment of these deserving, 
but `unsexy' programs. This is exactly the kind of investment that a 
federal funding entity (FFE) should look to make.
    As government investment makes energy efficiency and other programs 
capable of harvesting `low-hanging-fruit' available and widely 
deployed, the private sector will step up to participate. Private 
sector funding is highly unlikely to happen without direct government 
intervention in the market through the tools provided in the bills.
    Question 2. Can you expand further on your comments regarding some 
of the constraints that you see as impeding government programs such as 
the DOE loan guarantee program? What kind of form do you estimate would 
be most successful?
    Answer. The biggest constraint to the success of current government 
financing programs is that the government system is not structured to 
reward the skill sets that are necessary to make efficient judgments 
about financial risk. People making financial risk decisions must be 
experienced in the market sector. They must understand market 
fluctuations and how risks are valued. Learning how to evaluate and 
manage risk effectively is a skill learned primarily through 
experience, and the government has to be ready to pay for that. Using 
consultants to provide these services is an expensive way around the 
civil service structure which fails to provide an in-house capability 
and diffuses decision making responsibility. From my years as a 
consultant, educating senior management and Boards of Directors on the 
management of energy traders, I can say that FFE managers will need to 
thoroughly understand these risk in order to properly manage this 
program.
    Therefore, I recommend that a provision similar to Section 4(e)2 of 
S. 2370, exempting employees of the funding entity from the civil 
service laws and regulations be included the Committee's merged bills.
    This is not to say that there is no role for input from qualified 
civil service employees, including the national labs. The Department 
has exceptionally qualified and talented engineers and scientists who 
are experts in research and development of alternate technologies. 
Basic R&D in these fields is a role that must be performed by 
government, if it is to be performed at all, given the exceptional 
lead-time for commercialization of these technologies. It also provides 
a ready and trained talent pool to assist the financial entity in 
evaluating technologies for investment. The FFE can and should 
reimburse the government for the consulting services of these 
individuals.
    As critical as it is that the FFE get into markets in a timely 
manner, it is equally critical that the government get out of the 
market when it is no longer needed. The FFE should be sunsetted in the 
organic statute. It would be difficult to set up, operate and then 
disband a `permanent' bureaucracy within the existing civil service 
structure.
    Attracting young, bright, well educated (if not highly experienced) 
employees should not be a problem for an entity that can be a jumping-
off place for the lucrative equity finance private sector. In this 
regard, a preventive conflict-of-interest policy should be in place 
early on.
    With respect to the organizational structure of the FFE: I do not 
believe a perfect template exists for an FFE, although similar 
functions can be found in the Highway Trust Fund, Federal National 
Mortgage Association (FANNIE MAE), the Small Business Administration 
Loan and Loan Guarantee Programs, the various development and 
commercialization programs conducted by the Department of Energy and 
Agriculture, the Overseas Private Investment Corporation and the 
Export-Import Bank of the US, among many others.
    The Department of Energy has studies which analyze various 
templates for the FFE which the Committee is presumably studying to 
determine exactly what structure is most appropriate and the powers and 
authorities needed by such an entity. I do not think you will find the 
template for this entity ``on the shelf.''
    The structure, however, will not determine the success or failure 
of this program. That will be determined by the quality of people hired 
to set up the FFE and retained over time to operate it, together with 
policies and procedures that ensure transparency and accountability, 
demand professionalism and avoid to the maximum extent possible 
conflicts of interest, partisanship, politization and other self-
defeating betrayals of the public trust.
    The structure must allow for, indeed encourage, risk-taking within 
the pre-determined bounds of technological potential or commercial 
operability, or rapid deployment of energy-saving methods among lower-
income families who may not be able to pay back the investment, or 
perhaps who should not even be asked to do so.
    These are not normal commercial risks and the entity's progress can 
only be measured accurately over time, in years not in quarters, on a 
total portfolio and societal benefit basis. The FFE's ability to pay 
back all capital or to be self-supporting within a specific time frame 
are not the kind of `success' that is required from this effort. Yes, 
there must be a risk/reward equation which balances, but those who bear 
the risk will not in all cases be the same as those who are rewarded. 
Some benefits, such as unrepaid direct investment in weatherproofing 
low income homes or in energy-efficient transportation systems, should 
be considered valid and appropriate investments and should be 
encouraged. In those cases, all Americans benefit when less energy is 
imported, wasted or exhausted into the atmosphere.
    Question 3. Assuming we were to merge the bills before us today and 
develop an entity that could provide the most important services of 
each entity, that would entail some risk to the taxpayers of businesses 
failing. Beyond this risk of project failure, I'm also concerned that 
safeguards be in place to give us some assurance that the risks 
undertaken by the new entity be prudent and targeted towards providing 
real societal benefits. Can you recommend any additional safeguards or 
standards for a combined bill that might give us such assurance?
    Answer. The manner in which the FFE approaches risk management is a 
key issue that must be addressed in legislation, merging and supporting 
the various approaches identified in S. 2730 and S. 3233.
    The issue is not whether individual projects will fail, since some 
failure is inevitable. A normal private equity sector success ratio is 
that one out of ten projects pay off. There is no reason to think that 
the government will do better. The issue is the overall success of risk 
management, so that gains from successes protect taxpayers (as opposed 
to the financing entity) from bearing the cost of unnecessary failures. 
Note that taxpayers can also lose as a result of inaction in the face 
of opportunity, by not underwriting ``necessary risks.'' If 100 
breakthrough technologies that change the U.S. energy security profile 
are financed as a result of 1,000 investments, the risk will have 
equaled the reward, although, of course, quantification is required.
    Under an optimized merged bill, the FFE would support a number of 
different technologies with widely differing risk profiles. These 
different categories are already defined in the two bills: 
``breakthrough technology,'' ``novel technology,'' and ``commercial 
technology.''\1\ (See S. 3233 Sections 3(3), 3(7), and S. 2730 Section 
2(4) and (5), respectively.) Each definition would represent a separate 
funding silo with different evaluation criteria, funding mechanisms and 
risk-reward characteristics.
---------------------------------------------------------------------------
    \1\ I recommend against inclusion of the provision of S. 2730 that 
requires all `eligible projects' to use commercial technology, and the 
funding allocation of S. 3233, which is heavily biased toward 
breakthrough technology.
---------------------------------------------------------------------------
    The proposed FFE would create a portfolio divided into the three 
silos. Specific investment goals and risk models should be tailored for 
each silo. This is both an additional safeguard that allows more 
effective risk evaluation, and an additional way to ensure that the 
entity will meet its statutory goals. The proportion of funding 
allocated to the three silos should be determined by market and 
opportunity analysis under the leadership of the FFE Board rather than 
legislated, should be flexible, and should be an ongoing evaluation 
task.
    Certain technologies, such as new transmission communications and 
control equipment, which are commercially available today but are more 
expensive than conventional equipment, are subject to prudence reviews, 
multi-state approvals and diversified ratemaking scenarios which expose 
developers to greater regulatory risks. The FFE needs explicit 
authority to backstop these types of risks as well as market-based 
risks. In addition, expansion of the transmission grid to resource 
rich, but currently undeveloped regions, such as the areas with wind 
resources in Wyoming and North Dakota, are subject to a chicken and egg 
guessing game. Lenders are unwilling to lend to wind developers due to 
the lack of transmission service to the areas, and transmission 
developers are unwilling to risk line extensions to an undeveloped 
resource area. The FFE is in the best position to work with the 
regional grid planning entities to ensure that both the supply and 
transmission service projects are developed in a timely manner.
    Oversight would be provided by properly structured boards, the 
Secretary of Energy and either the OCC or Federal Reserve Board. 
Regular and attentive Congressional oversight will have a substantial 
impact on risk management and goal achievement. I will reiterate, 
however, how important it is that the FFE take the risks to be 
enumerated in the legislation, which should include, at a minimum 
technology risk, scale-up risk, certain regulatory risk, operational 
risk for novel technologies and aggregated credit risk.
    From highest risk to lowest risk, the primary tools which should be 
available to the FFE are: equity investments, loans, loan guarantees, 
letters of credit, and insurance. The provision and operation of the 
secondary market is a critical element to support the funding 
authority. Each of these can be found in either S. 2370 or S. 3233.
    The FFE legislation should address the future role of the DOE Loan 
Guarantee Program Office (LGPO), which could continue to provide a 
service in energy financing, or could be rolled into the FFE. In either 
case, the role and limitations of the LGPO should be clearly 
recognized. The LGPO supports technology already demonstrated at pilot 
scale where the primary risk is scaling up. However, due to the 
statutory interpretation that the LGPO be self-sustaining, the 
transaction requirements and costs of LGPO loans may be limited LGPO 
customers to projects of about $20 million or greater, and may result 
in more money being available for loan guarantees than there are 
applicants for the support.
    It is crucial that risk methodology enable the financing entity to 
value the societal benefit of alternatives, and to aggregate these 
benefits when appropriate and necessary to create an efficient 
investment package. One technology may have widespread benefits where 
each application's benefits are small. Nuclear technology risk should 
be limited by the Price-Anderson Nuclear Industries Indemnity Act. 
Direct investments of the entity in nuclear projects should be subject 
to provisions of the Price-Anderson Act covering DOE facilities.
      Responses of Jeanine Hull to Questions From Senator Domenici
    Question 4. Can you elaborate on the role that you see a more 
comprehensive menu of `financial tools' playing in the Bank's 
investments, and then provide examples as to why different projects may 
require different tools?
    Answer. This is one case where that old saw ``one size fits all'' 
definitely does not apply. The projects eligible for financial support 
under a combined bill should be (1) breakthrough, (2) novel and (3) 
commercial technologies, as discussed in the response to Question 3. 
That means that projects will be in early-stage, mid-stage and late 
stage development when they approach the FFE for funding. Just as 
venture capitalists (VCs) have different criteria than commercial 
bankers and different vehicles and mechanisms available for funding, 
the FFE will need to have the tools appropriate for angel, VC, 
mezzanine and quasi-commercial investing. One of the most effective 
risk management tools the funding entity can have is a full set of 
tools specially tailored to various types of risk. The ability to use 
the tool that imposes the least risk on the FFE, while achieving its 
intended function, is a key factor in the entity's ability to 
successfully meet its goal and purpose. Having the appropriate tools 
will also allow the FFE to assist more projects if each project uses 
just the amount of funding or credit capacity it actually needs and no 
more.
    Technologies in the breakthrough silo are dominated by the risk 
they will not work as intended. These technologies will need greater 
support, perhaps for a longer period of time, than a project that has 
been demonstrated at pilot scale where the risk is limited to scale-up, 
or a ``novel'' technology. In the first example, a direct loan or loan 
guaranty may be required to be in place for a period of five or more 
years. In the second example, insurance may be sufficient to encourage 
private lenders to take the funding risk. `Scale-up' insurance may only 
be required for 1 to 3 years, until the commercial-size facility is 
operational. The cost of providing, and receiving, these two types of 
financial support will likely vary greatly. Both are necessary, but not 
for all projects. ``Angel'' investing should be limited, but where 
justified, is likely to take the form of a direct equity investment.
    Question 5. S. 2730 and S. 3233 take different approaches on 
maximum contingent liability. One bill sets that amount at $100 
billion, while the other allows the volume of lending activities to be 
determined by the Corporation itself. Could you provide your views on 
the merits or risks of each approach?
    Answer. I believe in managing to budget limits. Therefore, I would 
encourage the Committee to set an explicit limit on maximum direct 
investment, direct lending and contingent liability as a first line 
risk management tool. Such a limit would serve as a baseline for 
audits, would help force management accountability, and would force 
better decision-making on tough issues. I also believe that Congress 
should revisit the cap on a regular basis to evaluate the overall 
performance of the FFE.
    However, the total amount available to the FFE should be more like 
$500 billion over the life of the program. I would also suggest 
attention to a gradual scaling up of the financial authority of the FFE 
over time. The first year authority will be spent primarily on hiring 
personnel and developing investment policies and screening mechanisms. 
For these reasons, the FFE will not likely be able to provide funding 
until its second year of operation. Depending upon the financing 
mechanism (direct appropriations, a Highway-Trust fund fee approach or 
sales of government Clean Energy Bonds or a combination of these and 
other methods), the total commitment (direct debt and equity) and 
contingent liability caps should be adjusted yearly to make available 
adequate funds and capacity to ensure wise investment decisions, but 
not too much as to encourage unnecessary risk taking.
     Responses of Jeanine Hull to Questions From Senators Domenici 
                              and Martinez
    Question 6. On the issue of whether or not common stock for the 
financial entity created in either S. 2730 or S. 3233 should be issued, 
I am concerned about the impact that doing so would have on the 
advancement of game-changing technologies that have a higher level of 
default risk. How do you believe that such a process might change the 
posture of the financial entity, in terms of its willingness (or 
ability) to take risks versus a likely preference for profit-driven 
operations when shareholders have a role? I would like to get the 
panelists perspective on a provision included in S.3233 that allows a 
government created and sponsored clean energy corporation to issue 
stock to shareholders. In light of the current financial problems 
facing Fannie Mae and Freddie Mac and their historic governance 
problems, is it a wise idea to give a federally-backed lending 
institution two seemingly contradictory roles?
    Could the drive to maximize shareholder profit compromise the 
public mission of a government-backed institution using tax-payer 
dollars to finance clean energy projects?
    Answer. I share your concern that offering shares to the public 
would drastically curtail the ability and willingness of the entity's 
officers and Board of Directors to take the type of risks that must be 
taken for the facility to meet the goal of domestic energy security.
    I am flatly opposed to allowing a government sponsored clean energy 
bank to issue shares of its stock to the public. I would, however, have 
no problem with the sale of government-backed clean energy bonds to the 
public as a means to ensure adequate capitalization of the funding 
entity, but only after the first five years of operation.
    In addition, and I can speak from personal experience on this 
issue, allowing the entity to sell stock to the public would impose a 
significant distraction on management to ensure compliance with state 
and federal securities laws and regulations and would lead to a never-
ending debate over the laws from which the entity should be exempted 
(such as environmental, Freedom of Information, Federal Advisory 
Committee Act and on and on . . .).
    It is key that the funding powers and life expectancy of this 
entity be limited in explicit statutory language. When private capital 
markets are ready and willing to venture into a field cultivated by the 
FFE, the FFE must decamp to another underserved field or roll back 
operations. It will not be easy to determine when there is adequate 
participation by private markets, but there must be specific indicators 
identified and monitored. It is not the role of this entity to compete 
with private capital markets, but to develop them into robust funders 
of a robust domestic energy industry and a rules-based secondary market 
for its debt.
    If, after 5-10 years of operation, there is no greater incursion by 
private markets into energy infrastructure development, then I believe 
the FFE will have failed at one part of its 3-part mission. I believe, 
however, that within the expected 20 years lifespan of the FFE, the FFE 
can jumpstart the creation of a diversified domestic energy industry 
capable of meeting a significant portion of the nation's energy 
requirements and minimize the nation's emission contribution to climate 
change from the energy production or use sectors. It should then remove 
itself from the market completely, allowing private capital markets to 
take over from there.
                                 ______
                                 
    [Responses to the following questions were not received at 
the time the hearing went to press:]

         Questions for Alexander Karsner From Senator Bingaman
    Question 1. Given the significant investments you mention that will 
be needed to achieve market transformation in clean energy 
technologies, in your personal opinion is there an opportunity for the 
federal government to play a constructive role in financing beyond the 
currently authorized programs?
    Question 2. In addition to the loan guarantee program authorized in 
the 2005 bill, the 2007 energy bill authorized a sizable new direct 
loan program for automotive manufacturing to help push forward domestic 
production of fuel efficient vehicles; is it likely that such a program 
would be implemented on a schedule like we've seen with the loan 
guarantee program? Are there advantages inherent in placing such a 
program within or without the Executive Branch?
    Question 3. Based on your experiences in the private sector and in 
government, can you give us your personal perspective on the strengths 
and limitations of financial market interventions in each of the bills 
we are discussing today?
    Question 4. Assuming we were to merge the bills before us today and 
develop an entity that could provide the most important services of 
each entity, that would entail some risk to the taxpayers of businesses 
failing. Beyond this risk of project failure, I'm also concerned that 
safeguards be in place to give us some assurance that the risks 
undertaken by the new entity be prudent and targeted towards providing 
real societal benefits. Can you recommend any additional safeguards or 
standards for a combined bill that might give us such assurance?
         Questions for Alexander Karsner From Senator Menendez
    Question 5. If S. 3233 were enacted, you would serve on the Clean 
Energy Development Corporation's board of directors, and your 
Department would be responsible for developing the technology roadmap 
which would guide Corporation. You would be responsible for balancing 
riskier investments with less risky ones. How large of a role do you 
see for solar panels in this theoretical portfolio?
    Question 6. I am concerned that small investment projects might not 
receive sufficient attention from either the CEIBUS Bank or the Century 
Energy Development Corporation. Many of our country's best 
opportunities for energy efficiency and renewable energy are widely 
distributed. In addition, it can be even more costly to assess the risk 
associated with many small projects. What could be done to improve the 
ability of the proposed Energy Development Corporation to improve its 
ability to finance small, distributed projects?
    Question 7. One of the philosophical differences between S. 2730 
and S. 3233 is that the former only invests in ``commercial 
technology'' which is ``in general use''. It also requires that its 
investments be made on a self-sustaining basis. I am concerned that 
this might preclude a number of technologies which we need in order to 
solve our energy crisis. Could CEIBUS support investments in 
photovoltaic solar power? What about plug-in hybrids? Can you give me 
an estimate of how much Federal incentives are already available for 
the established technologies which it could support, either through 
direct support, tax incentives, or through programs like the DOE Loan 
Guarantee Program?
         Questions for Alexander Karsner From Senator Domenici
    Question 8. As an Assistant Secretary, I would like your opinion on 
how these bills differ in their approach to filling positions on the 
Board of Directors. One provides for Presidential nominations with the 
Senate's advice and consent, while the other relies upon Presidential 
appointments. One requires balanced representation of the political 
parties, while the other does not.
    Question 9. Having faced Senate confirmation, can you discuss the 
advantages and disadvantages of using that process to find the quality 
of individuals that we would seek to run an entity like those 
contemplated by S. 2730 and S. 3233? How important do you believe it is 
to have bipartisan representation on the Board of Directors?
    Question 10. S. 2730 and S. 3233 take different approaches on 
maximum contingent liability. One bill sets that amount at $100 
billion, while the other allows the volume of lending activities to be 
determined by the Corporation itself. Could you provide your views on 
the merits or risks of each approach?
    Question 11. On the issue of whether or not common stock for the 
financial entity created in either S. 2730 or S. 3233 should be issued, 
I am concerned about the impact that doing so would have on the 
advancement of game-changing technologies that have a higher level of 
default risk. How do you believe that such a process might change the 
posture of the financial entity, in terms of its willingness (or 
ability) to take risks versus a likely preference for profit-driven 
operations when shareholders have a role?
         Questions for Alexander Karsner From Senator Martinez
    Question 12. I would like to get the panelists perspective on a 
provision included in S. 3233 that allows a government created and 
sponsored clean energy corporation to issue stock to shareholders. In 
light of the current financial problems facing Fannie Mae and Freddie 
Mac and their historic governance problems, is it a wise idea to give a 
federally-backed lending institution two seemingly contradictory roles?
    Question 13. Could the drive to maximize shareholder profit 
compromise the public mission of a government-backed institution using 
tax-payer dollars to finance clean energy projects?
                                 ______
                                 
           Questions for John Denniston From Senator Bingaman
    Question 1. Mr. Eckel indicated in his testimony that he doesn't 
see a great need for a secondary market in energy project development 
loans, but you seem to disagree. What needs do you see as still going 
unaddressed in this area by the marketplace?
    Question 2. You talked a bit about risk and charting a middle 
course by balancing risk with fees generated through supporting more 
proven technologies. At the same time, one criticism of the DOE loan 
guarantee program is that in attempting to make the program self-
sufficient, they may not be reducing costs sufficiently for the riskier 
technologies. How do you see striking this balance, and over what time 
period would you think a new entity should strive to be self-
sustaining? Or should it be self-sustaining at all-should it leave the 
marketplace at some point?
    Question 3. Assuming we were to merge the bills before us today and 
develop an entity that could provide the most important services of 
each entity, that would entail some risk to the taxpayers of businesses 
failing. Beyond this risk of project failure, I'm also concerned that 
safeguards be in place to give us some assurance that the risks 
undertaken by the new entity be prudent and targeted towards providing 
real societal benefits. Can you recommend any additional safeguards or 
standards for a combined bill that might give us such assurance?
           Questions for John Denniston From Senator Domenici
    Question 4. One of the most constant refrains that we hear from 
witnesses before the Committee is that we must refrain from choosing 
technological winners and losers as we formulate a sound national 
energy policy. And yet, your testimony advocated the exact opposite 
approach-specifying which technologies should get financial assistance 
(batteries and biofuels, in your opinion) and which ones should not 
(nuclear and fossil fuels, again, in your opinion). I have trouble 
squaring your assertion that breakthrough technologies should be a top 
priority with your attempt to cross certain technologies off the list 
from the outset. Is it also your opinion that there are no 
breakthroughs left to be had in the nuclear and fossil sectors-would 
fission and affordable CCS for coal not constitute major breakthroughs?
    Question 5. Your discussion of a three-dimensional energy crisis 
does not include any mention of the need to keep energy affordable for 
Americans. I believe this is done, at least in part, by ensuring a 
healthy supply of energy that is capable of meeting demand for it. Do 
you agree with that assertion?
    Question 6. At the hearing and in your testimony, you discussed 
some concerns with the eligibility criteria in S. 2730, which is 
modeled after Title XVII of the Energy Policy Act of 2005, and I would 
like to better understand those concerns. What technologies, exactly, 
do you believe would not be eligible under S. 2730?
    Question 7. S. 2730 and S. 3233 take different approaches on 
maximum contingent liability. One bill sets that amount at $100 
billion, while the other allows the volume of lending activities to be 
determined by the Corporation itself. Could you provide your views on 
the merits or risks of each approach?
    Question 8. On the issue of whether or not common stock for the 
financial entity created in either S. 2730 or S. 3233 should be issued, 
I am concerned about the impact that doing so would have on the 
advancement of game-changing technologies that have a higher level of 
default risk. How do you believe that such a process might change the 
posture of the financial entity, in terms of its willingness (or 
ability) to take risks versus a likely preference for profit-driven 
operations when shareholders have a role?
    Question 9. In your testimony, you note that you have witnessed 
efforts in other nations, such as China and those in Europe, to 
dramatically accelerate the use of renewable energy. You state that, 
``Increasingly, entrepreneurs overseas enjoy advantages in the form of 
determined government policies, including financial incentives and 
large investments in research and education.''
    Congress has taken significant steps in recent years-particularly 
in the Energy Policy Act of 2005, the America COMPETES Act, and the 
Energy Independence and Security Act of 2007-to improve the United 
States' offerings in those areas. It is my hope that Congress will 
renew the Production Tax Credits for solar and renewable energy 
projects before they expire, and substantial revenues are being 
invested in clean energy in the United States. In Ernst & Young's most 
recent Country Attractiveness Indices for Renewable Energy, our nation 
remained atop the ``All Renewables Index.''
    Can you provide additional details as to why you believe the U.S. 
is falling behind other nations with regard to renewable energy? Could 
you provide specific examples of advantages available in other nations 
that are not being offered by the United States, and provide your 
thoughts on how we can close whatever gaps continue to exist?
    Question 10. I was very interested in your comments on the Loan 
Guarantee Program-in particular, your suggestions for the current 
allocation of funding among the various low-carbon and carbon-free 
energy sectors. The structure of this program is the result of two 
years' worth of bipartisan negotiations with our colleagues in the 
House of Representatives, and I believe its allocations are both 
realistic and appropriate. According to my staff, a total of $42.5 
billion has been made available for loan guarantees. Approximately $4 
billion has been solicited to date, and will be allocated between 13 
renewable projects and 3 coal projects. Of the funds that remain, more 
than 80 percent will be distributed to nuclear and renewable projects-
even though those technologies currently account for just 21 percent of 
our nation's electricity.
    Given the need to keep energy affordable, can you explain in 
greater detail how the theoretical allocations that would be 
established by S. 3233 are an improvement over our current process?
           Questions for John Denniston From Senator Martinez
    Question 11a. I would like to get the panelists perspective on a 
provision included in S.3233 that allows a government created and 
sponsored clean energy corporation to issue stock to shareholders. In 
light of the current financial problems facing Fannie Mae and Freddie 
Mac and their historic governance problems, is it a wise idea to give a 
federally-backed lending institution two seemingly contradictory roles?
    Question 11b. Could the drive to maximize shareholder profit 
compromise the public mission of a government-backed institution using 
tax-payer dollars to finance clean energy projects?

                                    

      
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