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	<title> - RISKY BUSINESS: THE DOE LOAN GUARANTEE PROGRAM</title>
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	[House Hearing, 115 Congress]
	[From the U.S. Government Publishing Office]


	RISKY BUSINESS:
	THE DOE LOAN GUARANTEE PROGRAM

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

	JOINT HEARING

	BEFORE THE

	SUBCOMMITTEE ON ENERGY &
	SUBCOMMITTEE ON OVERSIGHT

	COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY
	HOUSE OF REPRESENTATIVES

	ONE HUNDRED FIFTEENTH CONGRESS

	FIRST SESSION

	__________

	FEBRUARY 15, 2017

	__________

	Serial No. 115-03

	__________

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

	[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


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

	__________


	U.S. GOVERNMENT PUBLISHING OFFICE
	24-668PDF WASHINGTON : 2017

	----------------------------------------------------------------------------------------
	For sale by the Superintendent of Documents, U.S. Government Publishing Office,
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	COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY

	HON. LAMAR S. SMITH, Texas, Chair
	FRANK D. LUCAS, Oklahoma EDDIE BERNICE JOHNSON, Texas
	DANA ROHRABACHER, California ZOE LOFGREN, California
	MO BROOKS, Alabama DANIEL LIPINSKI, Illinois
	RANDY HULTGREN, Illinois SUZANNE BONAMICI, Oregon
	BILL POSEY, Florida ALAN GRAYSON, Florida
	THOMAS MASSIE, Kentucky AMI BERA, California
	JIM BRIDENSTINE, Oklahoma ELIZABETH H. ESTY, Connecticut
	RANDY K. WEBER, Texas MARC A. VEASEY, Texas
	STEPHEN KNIGHT, California DONALD S. BEYER, JR., Virginia
	BRIAN BABIN, Texas JACKY ROSEN, Nevada
	BARBARA COMSTOCK, Virginia JERRY MCNERNEY, California
	GARY PALMER, Alabama ED PERLMUTTER, Colorado
	BARRY LOUDERMILK, Georgia PAUL TONKO, New York
	RALPH LEE ABRAHAM, Louisiana BILL FOSTER, Illinois
	DRAIN LaHOOD, Illinois MARK TAKANO, California
	DANIEL WEBSTER, Florida COLLEEN HANABUSA, Hawaii
	JIM BANKS, Indiana CHARLIE CRIST, Florida
	ANDY BIGGS, Arizona
	ROGER W. MARSHALL, Kansas
	NEAL P. DUNN, Florida
	CLAY HIGGINS, Louisiana
	------

	Subcommittee on Energy

	HON. RANDY K. WEBER, Texas, Chair
	DANA ROHRABACHER, California MARC A. VEASEY, Texas, Ranking
	FRANK D. LUCAS, Oklahoma Member
	MO BROOKS, Alabama ZOE LOFGREN, California
	RANDY HULTGREN, Illinois DANIEL LIPINSKI, Illinois
	THOMAS MASSIE, Kentucky JACKY ROSEN, Nevada
	JIM BRIDENSTINE, Oklahoma JERRY MCNERNEY, California
	STEPHEN KNIGHT, California, Vice PAUL TONKO, New York
	Chair JACKY ROSEN, Nevada
	DRAIN LaHOOD, Illinois BILL FOSTER, Illinois
	DANIEL WEBSTER, Florida AMI BERA, California
	NEAL P. DUNN, Florida MARK TAKANO, California
	LAMAR S. SMITH, Texas EDDIE BERNICE JOHNSON, Texas
	------

	Subcommittee on Oversight

	HON. DRAIN LaHOOD, Illinois, Chair
	BILL POSEY, Florida DONALD S. BEYER, Jr., Virginia,
	THOMAS MASSIE, Kentucky Ranking Member
	GARY PALMER, Alabama JERRY MCNERNEY, California
	ROGER W. MARSHALL, Kansas ED PERLMUTTER, Colorado
	CLAY HIGGINS, Louisiana EDDIE BERNICE JOHNSON, Texas
	LAMAR S. SMITH, Texas

	C O N T E N T S

	February 15, 2017

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

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

	Opening Statements

	Statement by Representative Randy K. Weber, Chairman,
	Subcommittee on Energy, Committee on Science, Space, and
	Technology, U.S. House of Representatives...................... 4
	Written Statement............................................ 6

	Statement by Representative Marc A. Veasey, Ranking Member,
	Subcommittee on Energy, Committee on Science, Space, and
	Technology, U.S. House of Representatives...................... 8
	Written Statement............................................ 10

	Statement by Representative Darin LaHood, Chairman, Subcommittee
	on Oversight, Committee on Science, Space, and Technology, U.S.
	House of Representatives....................................... 12
	Written Statement............................................ 14

	Statement by Representative Donald S. Beyer, Jr., Ranking Member,
	Subcommittee on Oversight, Committee on Science, Space, and
	Technology, U.S. House of Representatives...................... 16
	Written Statement............................................ 18

	Statement by Representative Lamar S. Smith, Chairman, Committee
	on Science, Space, and Technology, U.S. House of
	Representatives................................................ 20
	Written Statement............................................ 22

	Statement by Representative Eddie Bernice Johnson, Ranking
	Member, Committee on Science, Space, and Technology, U.S. House
	of Representatives............................................. 24
	Written Statement............................................ 26

	Witnesses:

	Ms. Diane Katz, Senior Research Fellow in Regulatory Policy,
	Thomas A. Roe Institute for Economic Policy Studies, The
	Heritage Foundation
	Oral Statement............................................... 28
	Written Statement............................................ 31

	Mr. Chris Edwards, Director, Tax Policy Studies, Cato Institute
	Oral Statement............................................... 44
	Written Statement............................................ 46

	Mr. Dan Reicher, Executive Director, Steyer-Taylor Center for
	Energy Policy and Finance, Stanford University
	Oral Statement............................................... 56
	Written Statement............................................ 58

	Dr. Ryan Yonk, Assistant Research Professor, Department of
	Economics and Finance, and Research Director, Institute of
	Political Economy, Utah State University
	Oral Statement............................................... 73
	Written Statement............................................ 75

	Discussion....................................................... 83


	Appendix I: Additional Material for the Record

	Documents submitted by Representative Randy K. Weber, Chairman,
	Subcommittee on Energy, Committee on Science, Space, and
	Technology, U.S. House of Representatives...................... 108


	RISKY BUSINESS:
	THE DOE LOAN GUARANTEE PROGRAM

	----------


	WEDNESDAY, FEBRUARY 15, 2017

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

	The Subcommittees met, pursuant to call, at 10:09 a.m., in
	Room 2318, Rayburn House Office Building, Hon. Randy Weber
	[Chairman of the Subcommittee on Energy] presiding.
	[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

	Chairman Weber. The Subcommittee on Energy and Oversight
	will come to order.
	Without objection, the Chair is authorized to declare
	recesses of the subcommittee at any time.
	Welcome to today's hearing entitled ``Risky Business: The
	DOE Loan Guarantee Program.'' I recognize myself for five
	minutes for an opening statement.
	Today, we will have the opportunity to review the past, the
	present, and the future of the Department of Energy's loan
	program. I want to thank our panel of witnesses for joining us
	in this important discussion about the appropriate federal role
	in supporting energy innovation.
	Established by the Energy Policy Act of 2005, the DOE loan
	guarantee program was designed to give federal support to
	risky, innovative, clean energy technology. Under a federal
	loan guarantee, instead of the private sector taking on risk to
	fund the scale-up of new technology, the government steps in,
	risking federal dollars on the hopes for success of these
	energy projects.
	Through the section 1703 and 1705 programs, the Department
	guaranteed loans to 30 energy companies, putting about $28
	billion of taxpayer money on the line.
	After Congress approved over $2 billion to subsidize the
	costs of loan guarantees, the DOE then issued more than $16
	billion in guarantees to 26 different projects. In these
	subsidized loans, known as section 1705 loans, companies not
	only received government backing for their loan, but additional
	taxpayer dollars were authorized to pay, quote, the ``credit
	subsidy cost,'' end quote, of the loan, or the estimated cost
	to the federal government to manage the loan over its lifetime.
	Easy money combined with political pressure to issue loans
	before the temporary subsidy program expired led the DOE to
	rush loan applications. Both the DOE Inspector General and the
	Government Accountability Office found that DOE did not have
	the necessary expertise or the metrics to effectively evaluate
	these loans. Predictably, a number of companies that received
	section 1705 loans went into default. In total, over $800
	million in taxpayer money has been wasted by this DOE loan
	program.
	It's clear that the DOE loan guarantee program is
	expensive. The GAO estimates that the cost for the current loan
	guarantees is $2.2 billion with a B. Supporters argue the cost
	is justified if we can help innovative technologies make the
	leap to the commercial market.
	But what if federal meddling in the market actually hurts
	innovation? As we will hear in testimony today, when the
	federal government provides loans and loan guarantees to
	favored technologies, innovation in fact stalls. While federal
	government support helps loan guarantee winners attract
	capital, it draws capital away from other innovative ideas in
	the marketplace.
	And since large companies with the resources to lobby on
	behalf of their projects often have an advantage in the loan
	application process, the DOE loan guarantee program pushes
	capital away from those startups and entrepreneurs that often
	have the most innovative ideas. We need to be opening doors for
	these small innovators, not closing them by pushing investors
	toward federally backed, so-called risk-free investments.
	Additionally, taxpayers often end up paying higher prices
	for their power because of federal government meddling in the
	energy market. For example, when the DOE provided a $1.6
	billion loan guarantee to the Ivanpah solar project in
	California, the state mandated the use of renewable power, and
	utilities entered into contracts to buy power from the DOE-
	backed facility. Unfortunately, the ratepayers in southern
	California will now pay two to five more times for power
	generated by this facility in addition to being stuck with the
	bill if the project goes into default.
	The truth is that when the DOE provides loan guarantees,
	there is no benefit for the taxpayer even if the guaranteed
	loan is paid in full. Regular Americans take on the liability
	of the full loan, they don't see a return, and they can end up
	paying more for their electricity if and when the project is
	actually built.
	The DOE loan guarantee program is just another way the
	federal government picks winners and losers in the energy
	market. It doesn't guarantee innovation, doesn't guarantee cost
	savings, and it doesn't guarantee access to the next generation
	of energy technology. The only thing guaranteed for the
	taxpayers is extra cost and extra risk.
	It is our responsibility in this committee to examine
	Department of Energy programs and ensure our limited resources
	prioritize the kind of research and science facilities that
	open doors for all kinds of innovators.The Department cannot
	prioritize the basic research it does best if it's playing
	venture capitalist.
	Therefore, I think we need to take a hard look at the DOE
	loan guarantee program and determine whether it is an
	appropriate way to spend precious federal research dollars. In
	my opinion, and in the testimony you'll hear today, the
	American people would be better served if the federal
	government stopped picking winners and losers, focused on the
	R&D, and let the market drive the investment for energy
	innovation.
	[The prepared statement of Chairman Weber follows:]
	[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

	Chairman Weber. With that, I conclude, and I now recognize
	Ranking Member, Mr. Veasey.
	Mr. Veasey. Thank you, Mr. Chairman. I'm looking forward to
	working with you this Congress in my capacity as Ranking Member
	of the Energy Subcommittee. And given our history together,
	previously, we served in the Texas Legislature together, served
	on the Environmental Regulation Committee together working on
	similar issues here. And so I think that we'll be able to talk
	about some things that we think can help move America's energy
	future together in the right direction.
	Today, we are examining the Department of Energy's Loan
	Programs Office. I hope that by the end of this hearing my
	colleagues on both sides of the aisle can come to the same
	conclusion that so many nonpartisan observers and professionals
	in the finance industry have, that these loan programs have
	been successful by almost every measure.
	Allow me to highlight just a few of these success stories.
	The LPO portfolio has over 30 projects in 18 States. It has
	enabled over $50 billion in private sector investment in clean
	energy technologies. These loan guarantees have created 56,000
	American jobs across our country. And these loan guarantees
	have helped prevent the release of 34.1 million tons of carbon
	dioxide into our atmosphere. All of this is because at
	Congress's direction the DOE intelligently leveraged the
	federal government's strong credit and LPO's deep expertise to
	the benefit of the American taxpayer.
	For my fiscal conservative friends, the loan programs have
	actually helped reduce the national debt. During LPO's
	relatively short life, the loan and loan guarantees have
	returned approximately $980 million to the Treasury. That is
	net revenue from interest payments after accounting for losses.
	It is notable that even the Heritage Foundation left LPO off
	their list of programs to cut or eliminate in their Blueprint
	for Balance. And based on my quick read, there aren't very many
	DOE programs that are spared in that particular report.
	When Congress authorized the loan program we set aside $10
	billion for expect losses that may occur as the federal
	government takes on varying levels of risk with each of these
	projects. While there have been a handful of projects that did
	not pan out, the total losses from all of these projects comes
	nowhere near the $10 billion originally set aside. In fact, it
	is less than ten percent of the amount Congress originally
	projected, with losses so far adding up to $810 million, a
	number that is covered twice over by the interest payments
	collected. So if we consider this program on a strictly cost-
	benefit or risk-reward basis, it has clearly performed beyond
	expectations and is tremendously successful.
	But those aren't the only or even the most appropriate
	metrics to consider. The section 1705 loan guarantees are
	responsible for launching the utility-scale PV solar industry.
	These loan guarantees enabled the first five 100 megawatt solar
	PV facilities to be built in the United States. What followed
	that initial investment from DOE perfectly illustrates the role
	that these loan guarantees fill in the market. After DOE
	demonstrated the viability of those first five projects,
	private financing began funding utility-scale solar PV
	independently. As of the last year, there are now 45 other
	projects that have received financing.
	However, LPO does more than just provide loan guarantees to
	renewable energy. In fact, over 1/3 of the portfolio's loan
	guarantee authority funds the Vogtle nuclear project in
	Georgia. And with the announcement of a conditional commitment
	for the first Advanced Fossil Energy Project in Lake Charles,
	Louisiana the portfolio continues to diversify. In fact, the
	carbon captured from the Lake Charles project will be used by
	Denbury, a Texas company for enhanced oil recovery, in
	Southeast Texas. And as the Chairman of the Carbon Dioxide
	Enhanced Oil Recovery Caucus, I certainly support this project.
	And with the enhanced oil recovery occurring near if not in
	the district of the esteemed Chairman, I'm hopeful that maybe
	he will consider being supportive of this particular project as
	well.
	The market for industrial carbon capture has the potential
	to experience the same revolutionary changes that the solar PV
	industry has experienced as a result of LPO's unique role and
	capabilities to foster our innovation pipeline.
	In conclusion, the Loan Programs Office has something for
	everyone. It has investments for fossil energy, renewables,
	nuclear, and it even reduces our national debt. I hope we can
	all recognize the benefits and extraordinary gains that have
	come out of LPO, and furthermore, I hope my colleagues on the
	other side of the aisle are willing to work together to
	constructively support and wherever appropriate improve the
	Department's work in this crucial area.
	Mr. Chairman, I want to thank you. I look forward to
	working with you, and I yield back the balance of my time.
	[The prepared statement of Mr. Veasey follows:]
	[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

	Chairman Weber. Thank you, Mr. Veasey. And I was remiss. I,
	too, look forward to working with you. We had good times in the
	Texas legislature.
	Mr. Veasey. Yes, we did.
	Chairman Weber. You bet. Man, I now recognize the Chairman
	of the Subcommittee on Oversight, Mr. LaHood, for his opening
	statement.
	Mr. LaHood. Well, thank you, Chairman Weber. And it's an
	honor to join you here today for this hearing. I want to thank
	the witnesses for being here today for our hearing titled
	``Risky Business: The DOE Loan Guarantee Program.''
	Today's hearing will provide us with an opportunity to
	examine one of the ways the previous Administration used
	taxpayer dollars to fund massive green energy initiatives with
	the Department of Energy's loan guarantee program. With this
	program, over $28 billion in taxpayer money was used to support
	the loan program's portfolio for 30 projects. Too often, loan
	guarantees were handed out based on political favoritism
	instead of merit.
	Problems with the loan program arose when DOE's first
	approved project, Solyndra, defaulted on its loan after
	receiving $535 million in loan guarantees. Four additional
	projects defaulted on their loans, representing $807 million
	taxpayer dollars lost to date.
	So it's no surprise that the Loan Program Office has faced
	strong criticism from Congress. Rigorous oversight should be
	expected when billions of taxpayer dollars are at stake,
	especially when politics can influence how those dollars are
	spent. This Committee, the Energy and Commerce Committee, and
	the Oversight and Government Reform Committee have held many
	hearings outlining concerns with this program. In addition to
	Congressional oversight, the DOE Inspector General and the
	nonpartisan Government Accountability Office have repeatedly
	raised questions about the mismanagement and accountability in
	the loan program.
	The DOE Inspector General described the DOE Loan Program
	office as, quote, ``attaching a garden hose to a fire
	hydrant,'' unquote. Had Congressional committees not drawn
	attention to the problems with the Loan Program Office, the
	losses could have been far greater. As part of Congress'
	oversight mandate, we have a responsibility to ensure that the
	proper transparency in this place--is the place to ensure that
	DOE is not putting taxpayer dollars at undue risk.
	While this is my first hearing as Oversight Subcommittee
	Chairman, my colleagues on this committee led efforts in the
	last Congress to ensure that the DOE loan guaranteeprogram was
	effectively managed and transparent. I'm committed to
	maintaining oversight of this program in the 115th Congress.
	The loss of taxpayer dollars in the DOE loan program raise
	significant questions about the overall effectiveness of the
	program and what steps Congress may need to take to ensure
	taxpayer dollars are no longer put at risk. We can't keep
	putting American tax dollars on the line when loan guarantee
	recipients are in danger of default. And we can't automatically
	expect the federal government to be better than the private
	sector when it comes to investment and what makes technology
	successful in the commercial market.
	Today's hearing is intended to analyze the future of the
	DOE loan guarantee program. How can it be improved? Is the risk
	to the taxpayers worth the benefits gained? Are the taxpayers
	truly benefiting from the Loan Program Office? Is the DOE loan
	guarantee program operating within its intended purpose, to
	close the gap between innovative technologies and private
	investment? Or is federal government intervention crowding out
	other innovative technologies in the energy marketplace?
	All of these are important questions that require the kind
	of thorough discussion I hope we can have here today. It's our
	job in Congress to ensure responsible management of federal
	resources and determine the path forward for the DOE loan
	program.
	We have a number of excellent witnesses here today that
	will help this committee answer some of these questions and
	provide recommendations on next steps for the DOE loan
	guarantee program. I would like to thank our witnesses for
	joining us here today, and I look forward to the testimony.
	With that, I yield back, Mr. Chairman.
	[The prepared statement of Mr. LaHood follows:]
	[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

	Chairman Weber. Thank you, Mr. LaHood.
	I now recognize the Ranking Member of the Subcommittee on
	Oversight, Mr. Beyer, for his opening statement.
	Mr. Beyer. Thank you. Chairman Weber and Chairman LaHood,
	thanks so much for putting this hearing on today.
	The mission of the Department of Energy's Loan Program
	Office is to help accelerate the deployment of advanced
	innovative clean energy technologies across the United States,
	and the successful deployment of these technologies creates
	jobs, enhances America's competitiveness, and helps to protect
	the environment, the climate, and public health.
	Now, we're likely to hear a lot of criticism about the loan
	guarantee program today. Both witnesses and members are likely
	to say that the federal government should play no role in
	funding energy technologies at all, particularly renewable
	energy technologies. And I think this is philosophically
	congruent with much of the majority's opposition to the Export-
	Import Bank, the idea that government doesn't have a role in
	loan guarantees.
	Some even say that the U.S. Government shouldn't have
	provided more than $470 billion in subsidies to the oil and gas
	industry over the last 100 years. But some may also see
	problems with the DOE providing more than $8 billion in loan
	guarantees or 1/3 of its current loan guarantees to construct
	two new nuclear plants in Georgia. The new LPO portfolio that
	includes solar, wind, fossil fuel, nuclear, and other
	technologies comprises more than $30 billion in loans, loan
	guarantees, and conditional commitments covering more than 30
	different projects across multiple energy and transportation
	technologies.
	I believe the possible plan to halt the DOE's loan programs
	completely, as suggested in a memo by President Trump's DOE
	transition team, is supported by some individuals at the
	conservative Heritage Foundation is a spectacularly bad idea.
	Investing in clean energy is smart. It helps to provide
	scientific solutions to combat climate change. It helps to
	protect our environment and the public's health from toxic
	chemicals. It fosters innovation and the development of new
	technologies. It creates new jobs and helps our economy.
	You know, one of the myths here is that somehow we're in a
	perfectly free market. The American companies' workers in our
	advanced energy sector face fierce foreign competition. And the
	international market is certainly not free. Many firms in the
	advanced energy sector benefit from strong home government
	support. China automaker BYD benefits from generous support
	from the Chinese Government, well on its way to becoming the
	world's largest electric car manufacturer. European firms are
	also making significant gains in new plug-in vehicles and
	renewable energy generation.
	The United States should simply not cede its leadership to
	our foreign competitors in the high-tech advanced energy
	sector. This important DOE program is necessary for American
	businesses and American workers to compete in this growing
	field.
	So regardless of whether you believe in the abundant
	scientific evidence that supports the reality of carbon
	pollution and the role of fossil fuel combustion and sea level
	rise, supporting clean, innovative, renewable energy
	technologies that don't damage our waterways, air, and land by
	releasing toxic chemicals is a good idea. The only thing it may
	really threaten is fossil fuel companies that don't clean up
	their act.
	I hope that as Members of Congress we can have some
	foresight and can agree to support federal investments today
	into the clean energy technologies that our nation will need
	tomorrow, clean energy technologies that will never emerge
	without federal support.
	Perhaps the DOE can get an opportunity today to drill down
	on the actual math. The numbers we've seen suggest the loss
	ratio of around two percent, far less than you have in the
	private sector, that we've already received $980 million more
	in total interest payments, more than the total losses even
	projected in the loan program so just on that fact so far it's
	not projected to be a burden on the taxpayers at all. And
	that's not even including all of the taxes generated by the
	many successful businesses funded by this, all the taxes paid
	by the thousands of jobs created by the federal loan program.
	This, at least the evidence we've seen so far, is a huge net
	impact on the positive way against the federal budget deficit
	and for the federal economy. But perhaps I'll have a chance to
	drill down on that even more.
	Thank you very much for being with us today. And, Mr.
	Chairman, Chairman, and Ranking Member, thank you for inviting
	me to be a part of this.
	[The prepared statement of Mr. Beyer follows:]
	[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

	Chairman Weber. Thank you, Mr. Beyer.
	I now recognize the Chairman of the full committee, Mr.
	Smith, for an opening statement.
	Chairman Smith. Thank you, Mr. Chairman. And I also want to
	thank Chairman LaHood for holding this joint hearing today.
	We will hear from a number of expert witnesses on the
	market impact and risk associated with federal loan guarantees
	for energy innovation.
	The Department of Energy loan guarantee program was
	established in 2005. It was intended to provide federal loan
	guarantees to advance commercial application of innovative
	clean energy technology. In short, the Department guarantees a
	loan given to an energy company. By guaranteeing a loan, DOE
	tells private investors that if the company defaults, the
	taxpayers will foot the bill for the loan. This takes the risk
	away from investors who stand to profit and puts it on the
	American people. Instead of the private sector taking on risk
	to develop new technology, the government steps in and risks
	taxpayer dollars on energy projects.
	In 2009, Congress expanded the loan guarantee program and
	gave DOE $2.4 billion and the authority to manage costs of loan
	guarantees. But instead of careful vetting and appropriate
	metrics to avoid risk, the DOE rushed loan applications and
	issued $16 billion in loans to 26 projects. President Obama's
	political allies, like Solyndra, were often fast-tracked, with
	little consideration for project merit or benefits to the
	taxpayer.
	The results were predictable. High-profile defaults
	occurred, like the $535 million loan guarantee to Solyndra in
	2011, $68 million lost when Abound Solar filed for bankruptcy
	in 2012, and $139 million lost from a direct loan to Fisker
	Automotive. These events demonstrate what happens when the
	federal government picks winners and losers in the energy
	market.
	DOE has lost over $800 million on bad loans since 2005.
	According to estimates from the Government Accountability
	Office, the total cost for the current loan portfolio is $2.2
	billion plus $312 million in program administrative costs. This
	is the cost to manage the current loan portfolio over the
	lifetime of the loans. These costs will increase if another
	loan is defaulted or if the Department issues new loan
	guarantees to projects with any financial risk.
	Under the DOE loan guarantee program, American tax dollars
	also subsidize loans for large companies with billions in
	available capital like Ford, Goldman Sachs, Google, GE, and
	Berkshire Hathaway. And if something goes wrong, these
	companies aren't stuck with the bill; the America people are.
	It is unfair to ask American taxpayers to subsidize risky
	loans.
	DOE also provides a government stamp of approval to favored
	technologies through loan guarantees. That means that even when
	DOE backs a successful project, it drives private investment
	away from technologies that don't receive federal loan
	guarantees. Private sector companies can't compete with other
	private sector companies that get loan guarantees.
	It is our responsibility to oversee the use of the
	Department of Energy's resources and only reauthorize those
	programs that provide the best investment for the American
	people.
	Though its loan guarantees have a suspect past, DOE has an
	exemplary track record in basic research. The Department's
	national labs and scientific user facilities provide
	opportunities to university researchers and private innovators
	as they search for the next great breakthrough in energy
	technology. And unlike the DOE loan guarantee program, the
	national labs are open to every innovative entrepreneur, not
	just those with a certain political agenda.
	Mr. Chairman, as we reauthorize the Department of Energy's
	research and development programs, we should prioritize the
	basic and early-stage research that would not be undertaken by
	the private sector.
	Thank you. And I will yield back.
	[The prepared statement of Chairman Smith follows:]
	[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

	Chairman Weber. Thank you, Mr. Chairman. And I now
	recognize the Ranking Member of the full committee, Ms.
	Johnson, for an opening statement.
	Ms. Johnson. Thank you very much, Mr. Chairman. And let me
	express my appreciation to you, Mr. LaHood, and our Ranking
	Members for holding this hearing and I want to thank the
	witnesses for being here today.
	We are here to discuss the record at the Department of
	Energy's Loan Programs Office and the unique role that these
	programs play in our energy innovation pipeline. They provide
	both direct loans and loan guarantees for projects across a
	broad range of energy sector, including nuclear, fossil energy,
	renewables, and advanced vehicles.
	This support has been critical because private lenders are
	typically unwilling or unable to take on the risk associated
	with financing truly innovative and first-of-a-kind projects of
	this scale on their own. And that's true across the board in a
	lot of research and innovation.
	These programs have been instrumental in establishing new,
	American-made, clean energy industries. For example, prior to
	2010, there actually were no large-scale photovoltaic solar
	projects in the United States, but after a careful review of
	both the opportunities and the risk, DOE's loan guarantee
	program supported the first five projects of this kind. And
	since then, the private sector has taken over financing another
	45 utility-scale projects without government involvement. Any
	objective observer will tell you that this simply would not
	have happened if DOE had not fulfilled the loan program's
	unique role of reducing the risk of deploying new energy
	technologies.
	The loan guarantee program is also supporting construction
	of the first U.S. nuclear reactors in 30 years at the Vogtle
	plant in Waynesboro, Georgia. And less than 2 months ago, DOE
	issued a conditional loan guarantee for an exciting new carbon
	capture and methanol production project in Lake Charles,
	Louisiana.
	DOE's advanced technology vehicles manufacturing program
	which issued direct loans, is yet another success story. Not
	only did it help launch one of the leading electric vehicles
	manufacturers in the country today, Tesla Motors, but that
	company paid back its loan with interest almost ten years
	early. Overall, this program has supported the production of
	more than 4 million fuel efficiency cars and more than 35,000
	jobs across eight States.
	The record is also now abundantly clear that DOE has been
	carrying out these key programs in a fiscally responsible
	manner. Even initial critics now view the loan guarantee
	program as a success with losses equaling only 2.23 percent of
	the office's entire portfolio, a rate that is lower than any
	venture capitalist can achieve. While there will undoubtedly be
	instances when an individual project does not meet its goal,
	DOE's overall portfolio remains strong and healthy.
	In closing, I want to emphasize there is no such thing as a
	free market when it comes to energy. You can tell that by all
	these Texans on this committee. The full cost of taxpayers of
	producing and ensuring the safe transportation of oil on the
	global market is not reflected in its price. Further, the
	growing cost of carbon pollution have yet to be priced into the
	energy sector unfortunately. And Germany, China, India, and
	other leading competitors have implemented their own robust
	energy loan and loan guarantee programs to help them across
	what's often called the "valley of death" between clean energy
	and technology development and commercialization.
	So DOE's loan programs are vitally important for enabling
	the United States to compete effectively on the world stage,
	and more broadly, for fostering an American-made clean energy
	future for all of us.
	Again, I thank each of you for joining us today, and with
	that, Mr. Chairman, I yield back.
	[The prepared statement of Ms. Johnson follows:]
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	Chairman Weber. Thank you, Ranking Member Johnson.
	Our first witness today is Ms. Diane Katz, Senior Research
	Fellow in Regulatory Policy at the Thomas A. Roe Institute for
	Economic Policy Studies at the Heritage Foundation. Prior to
	joining the Heritage Foundation, Ms. Katz was a member of the
	editorial board of the Detroit News for nine years. I guess
	that proves there is life after editorializing. Okay. Ms. Katz
	holds a bachelor's degree in philosophy from Thomas Jefferson
	College and a master's degree in journalism from the University
	of Michigan. Welcome.
	Our next witness is Mr. Chris Edwards, Director of Tax
	Policy Studies at the Cato Institute. Before joining Cato, Mr.
	Edwards was a Senior Economist on the Congressional Joint
	Economic Committee. In addition, he was a member of the Fiscal
	Future Commission of the National Academy of Sciences. Mr.
	Edwards received his bachelor's degree in economics from the
	University of Waterloo and his master's degree in economics
	from George Mason. Welcome, Mr. Edwards.
	Our third witness today is Mr. Dan Reicher, Executive
	Director of the Steyer-Taylor Center for Energy Policy and
	Finance at Stanford University. Mr. Reicher previously served
	as Assistant Secretary of Energy for the Office of Energy
	Efficiency and Renewable Energy and the Department of Energy
	Chief of Staff both under President Clinton. Mr. Reicher, it
	says here you received your bachelor's degree in biology from
	Dartmouth, your law degree from Stanford, and your honorary
	doctorate from the State University of New York. Welcome.
	And our final witness is Dr. Ryan Yonk, Assistant Research
	Professor in the Department of Economics and Finance and
	Research Director in the Institute of Political Economy at Utah
	State University. Dr. Yonk received his master's degree in
	political science from Utah State and his Ph.D. in political
	science from Georgia State. Welcome, Doctor. Is it Yonk or
	Yonk?
	Dr. Yonk. Yonk.
	Chairman Weber. It is Yonk. Well, welcome.
	I now recognize myself for five minutes--whoops. I now
	recognize Ms. Katz--I'm sorry. I'm getting ahead of myself--for
	five minutes of testimony, although I've got questions I would
	like to ask you. So, Ms. Katz, you're recognized.

	TESTIMONY OF MS. DIANE KATZ,

	SENIOR RESEARCH FELLOW IN REGULATORY POLICY,

	THOMAS A. ROE INSTITUTE FOR ECONOMIC POLICY STUDIES,

	THE HERITAGE FOUNDATION

	Ms. Katz. Mr. Chairman, and Members of the Subcommittee,
	thank you for the opportunity to address you today. My name is
	Diane Katz, and I'm a Senior Research Fellow in Regulatory
	Policy at the Heritage Foundation. The views I express in this
	testimony are my own and do not represent any official position
	of the Heritage Foundation.
	My purpose here is to provide economic context to the loans
	and loan guarantees issued by the Department of Energy. Few
	Americans are aware that, collectively, we shoulder more than
	$18 trillion in debt exposure from loans, loan guarantees, and
	subsidized insurance provided by some 150 federal programs.
	Among them are 35 programs administered by the Department of
	Energy and nine other agencies that provide loans and loan
	guarantees for clean energy projects. This redistribution of
	taxpayer dollars and credit risk erodes the nations
	entrepreneurial spirit, undermines innovation, and fosters
	cronyism.
	The government credit portfolio consists of subsidized
	financing for energy, housing, agriculture, education,
	transportation, exporting, small business, and others. Federal
	insurance programs cover bank and credit union deposits,
	pensions, flood damage, declines in crop prices, and acts of
	terrorism. Capital for mortgage lending by banks is provided by
	Fannie Mae and Freddie Mac. Researchers with the Federal
	Reserve Bank of Richmond in their bailout barometer estimate
	that 61 percent of all liabilities throughout the U.S.
	financial system are explicitly or implicitly backed by
	taxpayers.
	Among--Americans across the political spectrum were rightly
	indignant to witness Washington bailing out banks and
	corporations during the 2008 financial crisis. In similar
	fashion, the Department of Energy routinely uses taxpayers'
	dollars to finance projects that benefit wealthy investors and
	titans of industry. With a market cap exceeding $573 billion,
	Google does not need loan guarantees from the Department of
	Energy. Ford Motor Company, with a market cap of $50 billion,
	does not need loans from the Department of Energy. Neither does
	British Petroleum, Chevron, or Morgan Stanley, but they benefit
	from them nonetheless.
	With some government loans extending decades, the burden of
	federal credit will encumber generations to come without their
	consent. Advocates insist that the subsidies are necessary to
	equalize opportunity, create jobs, and fill gaps in private
	financing. However, the actual lending patterns and outcomes do
	not reflect the purported goals.
	Government credit is a poor substitute for private
	financing. The purposes of the two are entirely different, as
	are the results. Private lenders offer credit to generate
	profit. The challenge they face is to minimize risk and
	maximize return within ever-changing market conditions. Under
	threat of loss, they must take great care in lending.
	In contrast, government financing is detached from the
	profit motive and its inherent discipline because taxes provide
	an endless source of revenue, and federal agencies are largely
	shielded from accountability. Consequently, double-digit
	default rates are common among federal credit programs.
	Too often, policymakers create subsidized financing to
	offset costly regulatory demands, and oftentimes, the
	beneficiaries are those with the most political influence, not
	those with the greatest need. The Department of Energy, for
	example, guaranteed $1.6 billion in loans for a solar thermal
	power facility in Southern California. The facility negotiated
	power purchase agreements with two California utilities, and
	the utilities apply the overpriced power purchases toward
	California's onerous renewable energy quotas. Ratepayers are
	forced to pay four to five times more per megawatt hour than
	they would otherwise. This particular facility is owned by
	Google; NRG Energy, market cap $5 billion; and BrightSource
	Energy, a privately held company that reportedly counts British
	Petroleum, Chevron, and Morgan Stanley among its investors.
	Other beneficiaries of the Department's largesse include a
	Spanish banking consortium with a market cap of $76 billion;
	and ACS Cobra, a world leader in industrial infrastructure,
	market cap $9 billion.
	When the government shifts credit risk to taxpayers,
	borrowers are relieved of the consequences of failure and act
	accordingly. They will still work for success of course, but
	there is less incentive to prevent loss. When companies do not
	compete for private capital based on merit, productivity and
	innovation become less important than political capital. Credit
	worthiness also becomes less relevant to banks that
	increasingly act as pass-through agents for government
	financing. The result is a larger proportion of U.S. assets
	that are inherently weaker than they otherwise would be if
	financed by the private sector.
	And I'll close up. Fisker Automotive is a case in point.
	The Department of Energy awarded the company a $529 million
	loan to produce hybrid plug-in vehicles. Fisker failed to meet
	performance targets and ultimately filed for bankruptcy,
	costing taxpayers $139 million.
	We will never know what innovations have gone undiscovered
	because of preoccupation--the Department's preoccupation with
	electric vehicles, solar panels, and other pet technologies,
	nor does government financing appear to be all that effective.
	The Department of Energy has been financing development of
	electric vehicles for 40 years.
	Reform of government financing should be a Congressional
	priority. Unconstrained spending, unfettered losses, and
	rampant cronyism are only part of the cost. Trillions of
	dollars of credit exposure represents the commandeering of the
	financial services market by the government and is escalating
	power over private enterprise. This should end. Thank you.
	[The prepared statement of Ms. Katz follows:]
	[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

	Chairman Weber. Thank you, Ms. Katz.
	I now recognize Mr. Edwards for five minutes.

	TESTIMONY OF MR. CHRIS EDWARDS, DIRECTOR,

	TAX POLICY STUDIES, CATO INSTITUTE

	Mr. Edwards. Thank you very much.
	[Audio malfunction in hearing room.]
	Chairman Weber. There we go.
	Mr. Edwards. Today, 29 States impose renewable portfolio
	standards that require purchases of renewable energy such as
	solar and wind, so it seems to me with that high level of state
	support, layering on top federal subsidies is overkill.
	Secondly, the failures like Solyndra have been mentioned,
	and it is true that the DOE appears to have a low default rate
	on its loan portfolio. But to an economist the real issue is
	are the benefits of these projects higher than the costs, and
	in a lot of cases I don't think they are.
	And to give you one example, the Ivanpah solar project in
	California has been mentioned. It strikes me that there's been
	very high cost there with moderate or low benefits. The project
	is generating a lot less power than promised. It's using a lot
	more natural gas to fire up its facility every day than
	promised, and the price of power is a lot higher than natural
	gas fuel generation in California.
	I also think the $8 billion loan guarantee for the nuclear
	power plant in Georgia owned by Southern Company, that's been a
	rather dubious loan as well. That project is far behind
	schedule and far over cost.
	A third issue is the corporate welfare and cronyism issue.
	The Washington Post, looking at Obama's subsidies, concluded,
	quote, ``Obama's green technology program was infused with
	politics at every level,'' unquote.
	Public opinion polls over recent years have shown plunging
	support both for federal politicians and for big businesses,
	and I think part of the issue is cronyism. I think both big
	business and federal lawmakers would gain a lot more public
	support if they separated themselves more, if they ended
	corporate welfare, allowed big business to earn profit and loss
	without federal intervention.
	A fourth issue is that the private sector can fund
	alternative energy itself these days. As has been mentioned,
	most DOE loan guarantees in this program have backed wealthy
	investors and large corporations. Warren Buffett's Berkshire
	Hathaway has invested $17 billion in renewable energy projects
	over the last decade. To me this shows that there's a heck of a
	lot of private cash available for renewable energy these days,
	and the time for federal intervention, I think we're beyond
	that. These are large and mature industries these days that
	should be able to fund themselves.
	A fifth issue is that subsidies distort decision-making. In
	technology-based industries like renewable energy, it is the
	leanest and quickest and most adaptive firms that usually
	succeed. I think federal subsidies undermine private
	productivity. I think they tend to make businesses slow and
	slow to change as markets are constantly changing. So I think
	subsidies undermine private innovation and productivity.
	So without programs like this, what can the federal
	government do? I think one thing the federal government can do
	is do major tax reform. Rather than subsidizing debt for
	particular projects like DOE loan guarantee program did, I
	think Congress should look at reforming the tax code to reduce
	the cost of equity financing across the economy. Rather than
	favoring particular projects, Congress should do things like
	reducing capital gains tax rates, which will incentivize more
	venture and angel investment in advanced industries like
	renewable technology.
	Also, I'm a big fan of capital expensing, which is part of
	the House Republican tax plan. Capital expensing is very much a
	green tax policy reform. Not only does--capital expensing would
	benefit a capital-intensive industries like utilities and
	energy, expensing would encourage businesses in all industries
	to more rapidly change and invest, replacing their old
	structures, their old equipment and technologies that tend to
	be less energy-efficient with new structures and new equipment
	and machinery which is more energy-efficient. So I think tax
	reform can very much be an exercise in green policymaking on
	Capitol Hill.
	So to conclude, I think Republicans are in a unique
	position to start cutting back on some business subsidies like
	the DOE loan guarantees because Republicans are also promising
	to reduce taxes and reduce regulation on business. So business
	would lose federal handouts on the one hand but on the other
	hand the regulatory tax burdens faced by businesses would fall.
	I think that would be a good trade that would benefit everyone
	and the economy. Thank you.
	[The prepared statement of Mr. Edwards follows:]
	[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

	Chairman Weber. Thank you, Mr. Edwards.
	Mr. Reicher, you are now recognized for five minutes.

	TESTIMONY OF MR. DAN REICHER, EXECUTIVE DIRECTOR,

	STEYER-TAYLOR CENTER FOR

	ENERGY POLICY AND FINANCE,

	STANFORD UNIVERSITY



	Mr. Reicher. Thank you, Chairmen Smith, Weber, and LaHood
	and Ranking Members Veasey, Johnson, and Beyer. I appreciate
	the opportunity to testify.
	You have my bio, but let me emphasize that I have some
	honest-to-goodness background in energy project investing. I
	cofounded an energy project investment firm where we raised
	$100 million from a major pension fund and a venture-capital
	firm. I also made project investments while working at Google.
	Finally, I worked for an energy technology company that
	received a major venture-capital investment.
	Mr. Chairman, the U.S. Government has long played a vital
	and successful role in helping to commercialize energy
	technologies, including, among others, commercial nuclear
	power, carbon capture and storage, and hydraulic fracturing. I
	am focusing on technology commercialization because that is the
	real core of the DOE loan guarantee program today.
	You will hear lots of arguments today about how the loan
	guarantee program is not an appropriate role for government and
	that the private sector should assume the burden, but these
	comments miss the mark because the loan guarantee program, as
	currently structured and operating, is focusing quite precisely
	on the role where the private sector needs help. And I
	emphasize technologies that have not reached full commercial
	scale and where, because of their risk profile, banks and bond
	issuers are reluctant to provide financing. Once the technology
	has been proven to work at commercial scale, the DOE loan
	program generally has no further role, and that is the case
	today in the DOE loan program where, for example, financing for
	solar PV projects using fully commercialized technologies has
	ended following loan guarantees made about five years ago that
	helped U.S. PV projects get to full utility scale.
	The private sector has financed scores of subsequent
	projects. The DOE loan guarantee program, as authorized by
	Congress and signed by President George W. Bush, is carrying
	out its role across a broad range of energy and transportation
	technologies: advanced fossil, nuclear, renewables, energy
	efficiency, and vehicles. And DOE's Loan Program Office is
	managing the investment portfolio successfully.
	Here are the numbers, the most updated ones. As of December
	31, 2016, 22 projects supported by the Loan Program Office are
	operational and $6.65 billion in loan principal and $1.79
	billion in interest have repaid to the U.S. Treasury. Loan
	losses in the portfolio are approximately $810 million. This is
	barely half of the interest already paid on the DOE loans to
	date. It is only a little over two percent of the program's $36
	billion of loans, loan guarantees, and conditional commitments.
	And these losses are a tiny fraction of the $10 billion set
	aside by Congress to cover failed loans.
	I would note that in her testimony, Ms. Katz indicates
	that, quote, ``double digit default rates are common among
	federal credit programs.'' The DOE rate is barely in the single
	digits, and the LPO's two percent loan loss ratio is less loss
	ratio in the loan portfolios of virtually every U.S. money-
	centered bank. And these banks are generally not making loans
	for energy projects deploying advanced technologies and
	certainly not in the riskier commercialization stage.
	I also want to emphasize that the focus today is on loans,
	not grants. Loans get paid back, grants do not, and they get
	paid back with interest to the U.S. Treasury, also known as
	U.S. taxpayers. A lot of the testimony today confuses grants
	and loans.
	Looking ahead, the Loan Program Office has more than $40
	billion in remaining authority with $12.5 billion for advanced
	nuclear projects, $8.5 billion for advanced fossil, $4.5
	billion for renewable energy and efficiency, and $16 billion
	for advanced transportation projects. Importantly, the office
	has recently received more than 70 applications in response to
	its current solicitations for almost $50 billion in loans and
	loan guarantees.
	Mr. Chairman, U.S. infrastructure has emerged as an area of
	both substantial national need and bipartisan support. The good
	news is that there are multiple areas where the DOE loan
	guarantee program can provide much-needed infrastructure
	investment from already authorized funds and simultaneously
	support important technology innovation. This includes
	infrastructure projects involving, for example, electricity
	transmission, advanced nuclear technology, carbon capture
	utility-scale storage, and advanced vehicles.
	Infrastructure investing, Mr. Chairman, can divine the next
	phase of the DOE loan guarantee program with no new
	authorization or appropriations. This is a very nice down
	payment on the proposed trillion-dollar infrastructure program
	that is the subject of so much discussion.
	A final point: In the next 20 years the International
	Energy Agency projects that the world will spend roughly $48
	trillion on energy infrastructure, one of the biggest economic
	opportunities of the 21st century. China is organized to take
	the biggest piece of this economic pie. It has no reluctance
	helping energy project developers raise capital to
	commercialize technologies and sell them to the world. We
	ignore China's resolve and impressive success to date at our
	peril, and it is the situation that makes the attacks on
	federal energy technology commercialization like the DOE loan
	program so misguided.
	The Congress and the new Administration should build on the
	loan guarantee program's success to date and substantial
	remaining loan authority to jumpstart infrastructure investing
	and advance the U.S. economy and environment and security in
	the process. Thank you very much.
	[The prepared statement of Mr. Reicher follows:]
	[[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

	Chairman Weber. Thank you, Mr. Reicher.
	Dr. Yonk, you're recognized for five minutes.

	TESTIMONY OF DR. RYAN YONK,

	ASSISTANT RESEARCH PROFESSOR,

	DEPARTMENT OF ECONOMICS AND FINANCE,

	AND RESEARCH DIRECTOR,

	INSTITUTE OF POLITICAL ECONOMY,

	UTAH STATE UNIVERSITY

	Dr. Yonk. Mr. Chairman, Members of the Subcommittee, it's
	my pleasure to speak with you this morning to share some of my
	thoughts and results of preliminary research we've done in the
	Institute of Political Economy at Utah State.
	To begin, the loan guarantee programs were conceived as an
	idea to push financing towards underdeveloped clean energy
	technology and to improve the environment, to promote economic
	growth, and to produce a more secure energy supply. However,
	the title 17 loan guarantee program has likely failed to meet
	these objectives and instead has been used as a political tool,
	diverted funding from alternative clean energy investments, and
	primarily benefited large politically connected corporations.
	Government loan guarantees programs present a number of
	policy difficulties, and the Department of Energy's program is
	no exception. My testimony today and my full written testimony
	illustrate how the Department's loan guarantee programs distort
	markets, misdirect funds, and fail to promote truly innovative
	technology.
	Loan guarantee programs offered by governments and the
	private sector are intended to close a fiduciary gap between
	burgeoning ideas and private investment. By promising to cover
	loan payments if a company fails, loan guarantors allow
	entrepreneurs easier access to private capital. And presenters
	of government programs in this area argue that private capital
	is too risk-adverse to properly finance whatever it is that
	they seek to subsidize.
	The loan guarantee program is well-intentioned, as most
	policy generally is, but its designers failed to consider a
	number of unseen effects. The Department of Energy's program
	has deterred investment in other areas and made it more
	difficult for some to receive private investments, been used as
	a political tool, encouraged mal-investment, and primarily
	benefit established companies with access to--with pre-existing
	access to capital for research and development.
	Now, federal loan guarantees can only be said to serve a
	public benefit if they accomplish what we might call
	additionality, meaning the program must be offering loans to
	projects that would not otherwise have garnered funding in the
	open market. A program that extends government assistance to
	projects and companies that would have little trouble securing
	private financing accomplishes little, adds unnecessary
	administrative costs, and ultimately puts taxpayer money at
	risk.
	Some exploratory research on the additionality of loan
	guarantee programs for energy technology from both the
	Department of Energy and the Department of Agriculture have
	revealed poor additionality. However, even if government loan
	guarantees managed to accomplish perfect additionality, this
	alone would not sufficient justification for the continuation
	of the program.
	Many conceive of loan guarantee programs as marginally
	shifting the risk calculus for private investment.
	Realistically, loan guarantees completely shift the entire
	calculation of private investors. Securing a government loan
	guarantee proves to be a highly political process, and private
	capital often follows public capital.
	Now, despite the appealing tenor of that statement, this
	unfortunately means that only the politically connected are
	funded. Most section 1705 funding has gone to large
	corporations who already have access to capital for investments
	in research development and deployment. And it's here that the
	fundamental problem with this form of subsidy emerges because
	it makes it more difficult for new ideas to emerge and come to
	fruition as it further entrenches establishments.
	Government support, as the previous Chief Marketing Officer
	at Tesla motors complained, may make life easier for those who
	receive support, but it also makes it difficult for new ideas
	to gain private funding and grow.
	Loan guarantee programs, like any subsidy, move resources
	towards the subsidized good. A subsidy redirects private
	capital towards the subsidy because it changes the risk
	calculation investors go through. The subsidy distorts the
	market signals of profit and loss to appear as if the
	subsidized industries provide more value than they do.
	Political power and lobbying prowess, not the collective
	intelligence of all individuals in the market allocate the
	funding of these programs.
	My own analysis indicates that the unseen costs are greater
	than we often anticipate, and this position rests in large part
	on a counterfactual. How do you measure what did not happen?
	The question of what could have been, the opportunity cost of
	these loans, is a serious consideration, even if it is a
	difficult empirical one.
	Preliminary examinations of the Department of Energy and
	USDA's programs have been discouraging. Though the entire
	literature pleads for more concerted research efforts, the
	political problems associated with the funding justify further
	skepticism towards section 1705 and section 1703, as do the
	very nature of the recipients of the guarantees.
	In place of these programs, government would do well to
	simply step out of the way of entrepreneurs and individuals. As
	the development of the technology industry demonstrates,
	allowing experimentation and markets to drive innovation is a
	promising avenue for improving the world. Government officials
	should clear a path for entrepreneurial experimentation
	unfettered by precautionary regulation and subsidization. A
	policy of permission-less innovation is more likely to find
	successful solutions to pressing environmental and energy
	questions such as climate change and pollution than government
	agencies choosing projects based on political considerations.
	Thank you.
	[The prepared statement of Dr. Yonk follows:]
	[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

	Chairman Weber. Thank you, Dr. Yonk.
	Heritage was actually mentioned earlier, a discussion of
	the Heritage Foundation about they were not recommending to do
	away with the loan program, and yet we have a Blueprint for
	Reform that they update every year, in 2017, ``Mandate for
	Leadership'' Series. And on page 51 they actually do recommend
	doing away with it. I want to submit this into the record,
	without objection.
	[The information appears in Appendix II]
	Chairman Weber. And then furthermore, before I get going, I
	have a letter from the Mercatus Center, Veronique de Rugy, also
	a letter about the loan program I, too, want to submit into the
	record. Without objection, so ordered.
	[The information appears in Appendix II]
	Chairman Weber. I now recognize myself for five minutes of
	questioning.
	Mr. Edwards, according to a report by the Mercatus Center
	that I just cited, 90 percent of the section 1705 loans went to
	subsidize lower-risk power plants backed by big companies,
	which actually had pretty good access to capital. These
	companies included Goldman Sachs, NextEra Energy, and General
	Electric. If these projects would have been built without
	government guarantees, why do you think that DOE would be
	wanting to subsidize them? And do you think this is just yet
	another form of corporate welfare?
	Mr. Edwards. It does seem to me that you can divide the
	section 1703 and 1705 projects into two sort of pots. The great
	majority of them were subsidies for projects in my view
	would've gone ahead anyway because, as I said, 29 States now
	have these renewable purchasing requirements, mandates that are
	escalating and increasing over time. These projects were going
	to get built, and when federal subsidies were layered in, it
	just meant that the investors like Warren Buffett and others
	earned higher returns than otherwise. Then, there was a smaller
	group of other investments in the very risky projects like
	Solyndra and a few others that didn't pan out and, you know,
	those didn't have those sort of state subsidy backing.
	So I think in both cases federal intervention doesn't make
	sense. I think the state government subsidized renewable so
	much now not only with the purchase requirements, with the tax
	credits, their own subsidies, federal subsidies are overkill.
	And I have in my testimony some discussion from The New York
	Times which looked at this and agreed that during the Obama
	years there really was overkill in subsidies.
	Chairman Weber. Thank you. I want to follow up with you,
	Dr. Yonk. And I want to come back to something you said in your
	written testimony. The follow-up is that with all of these
	large companies applying for loan guarantees, what does that
	mean for the little guy, number one? What about a small
	business startup or one innovative entrepreneur? Do they have
	the resources to compete against the lobbying power of these
	big companies? What has been your findings?
	Dr. Yonk. Yes, Mr. Chairman. I think you illustrate one of
	the problems with any sort of approach in this regard, and that
	is that precisely those--that entrepreneur in the garage with
	the crazy idea is--will never have access to these sort of loan
	guarantees. What's interesting is, as Mr. Reicher said, these
	are really about commercialization of projects moving from one
	phase to another, as opposed to actually spurring the
	innovation of new technology industries. And so it limits
	greatly the ability of those to do it, and we select on those
	that are already at a certain point and we make a continued bet
	on that same industry over time.
	Chairman Weber. Thank you. You had made the comment that
	you can't measure what has not happened and I was following in
	your testimony and I had actually written down what cannot be
	measured is if the private equity firms adopt a wait-and-see
	posture. They're standing on the sidelines, and you'll never
	know what they contemplated not doing if that's not too many
	negatives, you know. And so I think you make a good point.
	So what does that mean, Dr. Yonk, for innovation in the
	energy market in practical terms? Don't DOE guarantees to some
	companies discourage investment in others? Do you know of
	examples?
	Dr. Yonk. Yes, Mr. Chairman. There are two sort of--let me
	take the first question and then apply it to the second, and
	that is what I believe happens in these regards is, as
	individuals are making these private risk calculations, as
	hedge funds or wherever are, they now incorporate the
	probability of a loan guarantee being brought into it and they
	seek to mitigate risk on their own side by following the loan
	guarantee or the issuance of a loan by government. And as a
	result, we end up primarily betting on--because this again is a
	commercialization issue, we end up betting on technologies that
	are attempting to make the transition into full-scale
	commercial size, as opposed to spurring the innovation at the
	smaller scale.
	And so what I believe happens--and this is where the
	counterfactual comes in--is that we end up seeing that there is
	a flight towards pre-existing alternatives as opposed to what
	might be termed the crazier ideas that in large part if you
	read the background on these loan guarantees, it was meant to
	do risky things.
	So we talk a lot about the risk profile. I hear the risk
	profile of this if it was meant to fund risky technologies of a
	two percent loss rate, that's not encouraging to me if the goal
	was in fact to be spurring the riskier side of innovation.
	Chairman Weber. Thank you. I've got about a minute left.
	Actually, I'm down to 11 seconds. So I tell you what, I'm going
	to stop there and I'm going to recognize the Ranking Member for
	five minutes, Mr. Veasey.
	Mr. Veasey. Thank you, Mr. Chairman. And before I go into
	my questions, I just want to be clear. And I'm not going to
	submit a report for the record--that I specifically referenced
	the Blueprint for Balance while the Chairman specifically
	referenced the Blueprint for Reform, so two different reports
	there that were referenced but just wanted to clarify that.
	And this question is government role for Mr. Reicher. Mr.
	Reicher, some would argue that the government shouldn't have a
	role in issuing loan guarantees or direct loans to companies,
	but this perspective ignores a long history of success that
	loan guarantees have shown not just in the energy sector but
	also the housing market, agriculture market, and many other
	industries. How would you respond to the assertions we've heard
	today that the government should have no role in this space at
	all?
	Mr. Reicher. Thank you, Mr. Veasey. The government has had
	a very long role in commercializing energy technology and in
	providing finance, both loans, loan guarantees, grants. I would
	argue that we would not have seen the development of commercial
	power if the government in the 1950s in the Eisenhower
	Administration had not paid for the development of the early
	plans, could have been delayed, could have been stillborn if
	there was an accident. The private sector was not in a position
	to put its own private capital into those early nuclear power
	plants.
	The government participated with private entrepreneurs in
	the development of fracking. Government put in grants, the
	government put in tax credits, the government provided
	technologies in collaboration with the private sector, and from
	that, in 2006, we saw this technology take off.
	Carbon capture is another example. We would not have seen
	the development of carbon capture to the point that it's
	reached--still a long way to go--had the government not started
	putting federal dollars into this technology in 1997.
	So the government has a long role of commercializing energy
	technology, and I think all this is doing is putting it in a
	smarter form. Remember, these are loans. They have to be paid
	back. These are not grants, which has been the more traditional
	form of government support.
	Mr. Veasey. When you start talking about us being able to
	lessen our dependency from petro-dictators around the world,
	one of the things that has lessened our ability to depend upon
	those petro-dictators have been the advent of renewable
	energies. And in your opinion, would the utility-scale solar
	industry exists as it does today without DOE's loan programs?
	Mr. Reicher. So let's remember where we were in 2008, 2009,
	2010. We were in the depths of the financial crisis. It was not
	easy. In fact, for most companies it was next to impossible to
	go out and get a loan for an energy project. That's number one.
	They were also deploying utility-scale solar. We had never
	built a solar project in this country that was 100 megawatts or
	bigger. Scaling up energy technology is really tough. It's very
	risky.
	Those two things together meant that most banks, most bond
	issuers said we don't either have the money or your project is
	too risky. The federal government stepped in with its
	congressionally authorized loan guarantees and said we're going
	to back the first few projects. Remember, these are just the
	first few projects, number one, number two, number three, not
	30, 40, or 50. The private sector followed from there and the
	photovoltaic project market has exploded.
	Mr. Veasey. Again, us being able to lessen our dependency
	upon foreign oil by investing in our own energy, clean energy
	sectors here, but startup money is a big problem. IT startup
	companies have low capital costs. They are attractive options
	for venture capitalists, but my understanding is that energy
	investments take much longer to pay back and are much riskier.
	In your expert opinion, how do energy sector investments
	compare to other sectors, whether it be information technology,
	health care, or retail?
	Mr. Reicher. Mr. Veasey, Mr. Chairman, I have to say I
	spent several years at Google, and it was fascinating to watch
	the difference between investing in information technology,
	software technology, and investing in energy hardware,
	extraordinarily different. With information technology,
	software engineers sit down. It's often for a few months. They
	develop a new product, and in simple terms, they push a button
	and it's deployed. They make adjustments to it over time, low
	cost, relatively quick.
	In comparison, developing a piece of energy hardware, you
	don't measure things in months. You don't even measure things
	in years. You often measure them in decades. I'll show you any
	number of technologies--you know them well--where it's taken
	10, 20, 30, 40, 50 years to get energy technology to full
	scale. And you don't measure this in billions--I'm sorry in
	millions. You measure it in billions or tens of billions,
	completely different. And that's why these loan guarantees make
	great sense.
	Mr. Veasey. Thank you, Mr. Reicher. Thank you, Mr.
	Chairman.
	Chairman Weber. I now recognize Chairman LaHood.
	Mr. LaHood. Thank you, Mr. Chairman. And I want to thank
	the witnesses for being here today and your valuable testimony.
	And in looking at the DOE loan guarantee program, I guess
	I've tried to objectively look at the program and the 28
	projects that are part of this loan guarantee program. And as I
	look at those projects, many of them have value. There are
	innovative. They present opportunities. They have great people
	involved with them. And so figuring out what role the federal
	government plays with those projects and in looking at that,
	when we think from a public policy standpoint what role we
	should play in that or government should play in that and two
	questions that come up, does the loan guarantee program
	artificially change or alter the marketplace by having this in
	place? And does it dis-incentivize competition in this area?
	And I know, Mr. Reicher, you talked about the role the
	federal government has played and, you know, I guess when I
	look at 2017, you know, if we were $20 trillion of surplus, you
	know, figuring out where to spend money, you know, these 28
	projects would be probably great examples of where to spend
	money. But the reality is we are $20 trillion in debt in this
	country, and that's different from the 1950s where, you know,
	it was a much different country we lived in.
	In 2017 the technology marketplace in this country is
	thriving. We lead the world in innovation. As was mentioned
	earlier, there's a lot of cash in this country that people are
	sitting on waiting to invest. Angel investors were mentioned
	earlier.
	So figuring out that role of how the federal government
	plays a role in this program and that's really objectively what
	I've looked at here. And it seems to me that the role of the
	federal government we always got to keep in mind the fact that
	we're in debt, and that's a problem in this country. And then
	also looking at the marketplace.
	And I guess, Ms. Katz, what I would ask you is when, and
	you mention this in your opening statement, we look at
	government financing, it seems as if government financing is
	divorced from profit motive. Can you elaborate on that
	challenge and also on my statements about those two questions
	on whether we're de-incentivizing competition?
	Ms. Katz. The profit motive requires that you have skin in
	the game, that is, that you're driven to do well by the
	potential for a good return. In government funding programs,
	there is no personal stake. There is no skin in the game in
	terms of a financial incentive, and therefore, the criteria for
	investing money is looser, the demands for, you know, the type
	of performance is looser, and I think those things tend to prop
	up enterprises that tend to be weaker. And then the more of
	those we have, you know, the weaker the economy becomes.
	And given this--the extent to which the federal government
	is now providing credit across the economy, you know, not just
	DOE but, you know, $18 trillion in exposure economy-wide,
	that's very troubling to me in terms of the loss of the
	incentives that are going to make our companies the strongest
	and are going to make them the most competitive.
	In terms of your comment about the effect on competition
	and innovation, absolutely, you know, when government is
	financing certain programs, the private financing tends to
	follow that because that's where the incentives are and that's
	where the, you know, rewards tend to be and that's where the
	regulatory action is also going to occur. And so there's a lot
	of, you know, interest in following that.
	And that--you know, we can say on the balance sheet that
	these programs have a rate of return that's positive. We can
	say they have default rates, but that's only half the equation.
	The other side of the book is all of the distortions that these
	programs cause, among them, loss of competition and innovation,
	and the competitive disadvantage that this creates for all the
	companies that aren't lucky enough to get this largesse.
	Mr. Reicher. Mr. LaHood, could I give a quick answer?
	Mr. LaHood. I'm out of time. Mr. Chairman?
	Chairman Weber. Sure, I think we've got some extra time. Go
	ahead.
	Mr. Reicher. I'll be quick. You mentioned the deficit, the
	debt. Just I want to emphasize these are loans, not grants.
	They're getting repaid and they're getting repaid with
	interest. That's a very different measure I would assert.
	The second thing you mentioned about U.S. leadership in
	energy technology, as much as I'd like to agree, in many ways
	our dominance in energy technology is very much being
	challenged by the Chinese. They have a very well organized
	effort, very well-funded across a whole range of energy
	technologies. We no longer lead in wind or solar. They are far
	ahead of us in many aspects of nuclear and various types of
	turbines and coal-related technology.
	So, Mr. LaHood, I would not assume that we're in great
	shape when it comes to this $48 trillion opportunity we've got
	in energy infrastructure investing over the next 20 years. We
	are not leading in many respects, and programs like this can
	really help.
	Chairman Weber. All right. I thank you, Mr. LaHood, for
	yielding back.
	And I believe that we're going to go to Mr. Foster now.
	Mr. Foster. Thank you, Mr. Chairman.
	Several of you have mentioned and referred to the DOE loan
	programs, which are the subject of this hearing, as a subsidy.
	And I was wondering how is it that a subsidy makes money for
	the taxpayer? That has me a little confused. Is there anyone
	wants to try answering that?
	Ms. Katz. Sure.
	Mr. Foster. We need more of----
	Ms. Katz. So----
	Mr. Foster. --those subsidies, it seems. It could take----
	Ms. Katz. Right.
	Mr. Foster. --the debt down to zero with enough of these.
	Ms. Katz. So because there's virtually no chance that the
	government will not cover a loss, federal credit is provided in
	more favorable terms. Even if the recipient still continues to
	pay fees or interest, it's at a more advantageous rate than
	they would otherwise get in the private financing sector
	because the----
	Mr. Foster. I understand it's a good deal for the recipient
	of the loan, but it's also a good deal for the taxpayer, so it
	seems like this----
	Ms. Katz. Well, it----
	Mr. Foster. --is a win-win.
	Ms. Katz. It's only a good deal for the taxpayers if you
	ignore all of the distortions and costs that are created----
	Mr. Foster. Well, these distortions you hypothesize are
	pretty hard to calculate and, you know, we have--anyway. So
	your argument relies totally on these hypothesized distortions
	and the hypothesized economic damage that they do----
	Ms. Katz. No.
	Mr. Foster. --is that correct?
	Ms. Katz. No, it's not.
	Mr. Foster. All right. Then how does the taxpayer not
	benefit from these? Would the federal debt be higher or lower
	if this--if these projects would not have existed?
	Ms. Katz. It--that's--I don't know.
	Mr. Foster. I think it's a pretty easy----
	Ms. Katz. It's not such an easy equation.
	Mr. Foster. Mr. Reicher?
	Mr. Reicher. Their interest payments exceed the losses.
	It's hard to see how this isn't a net positive. Another----
	Mr. Edwards. The issue is the broader one of opportunity
	constant in the economy. If resources are being steered into
	companies and technologies that are not the best for the
	overall economy, then we've wasted resources, so the issue is
	not just taxpayer resources but the crowding out that occurs in
	the private sector. If you have a big DOE loan office that is
	acting as a venture capitalist, they're drawing some of the
	best minds from Silicon Valley to come here to Washington to
	steer flows of money when I would rather those minds in Silicon
	Valley steering money. That's crowding out----
	Mr. Foster. Well, this is really actually my second
	question here, which is, you know, I'm struck by the lower--the
	very low default rate, lower than a typical VC. And so I was
	wondering how is it that these federal bureaucrats--excuse me,
	these unelected federal bureaucrats seem to be making loan-
	making decisions that are better than free-market investors?
	And I----
	Mr. Edwards. Well, the answer is and I think I touched on
	in my testimony, the vast majority of these projects, as has
	been mentioned, have gone to wind and solar projects that have
	been heavily subsidized by state government. State governments,
	particularly California, have very large and increasing----
	Mr. Foster. But those subsidies would be----
	Mr. Edwards. --mandates, requirements, so these projects
	would have been built anyway I think without federal subsidies
	because there's state-level mandates for them.
	Ms. Katz. I also think that it reflects----
	Mr. Foster. Just a minute.
	Ms. Katz. --the fact that these----
	Mr. Foster. But the state-level subsidies are--would be
	available to either a free market investor or one of these----
	Ms. Katz. No.
	Mr. Foster. Is that true, Mr. Reicher?
	Mr. Reicher. Absolutely. The subsidies at the state level
	don't distinguish between a project that's gotten some federal
	support and projects that haven't.
	Mr. Foster. Sure.
	Ms. Katz. Right, but not every company is going to be
	allowed to benefit from state subsidies. They're not available
	to all.
	Mr. Reicher. You qualify for the state subsidy, you get the
	state subsidy. If you can also get some help from the federal
	government--again, this happens across the whole range of
	energy technologies.
	Ms. Katz. When Tesla Motors negotiates tax abatements or
	other benefits with a state, that's not a deal that's available
	to every company.
	Mr. Reicher. It happens--let me let Mr. Foster go ahead.
	Mr. Foster. Yes. I was a little bit confused, Dr. Yonk. You
	seem to be criticizing the fact that there was a low loss rate
	on this at the end of your testimony, and I--it confused--is
	there a consensus whether a high loss rate is a good thing or a
	bad thing and whether low loss--I'm just--I couldn't follow
	that logic there.
	Dr. Yonk. Yes, so let me walk you through the logic, Mr.
	Foster, because I think it's actually an important policy
	question here. If the goal was in fact to provide loan
	guarantees to what was termed as risky technologies that truly
	would see--that were--that the private market was not willing
	to bear the risk of, we would expect to see higher----
	Mr. Foster. But you're advocating for more Solyndra-type
	investments.
	Dr. Yonk. Only if that is the actual goal of the policy. I
	think that's an ill-advised policy given what can happen in the
	larger economy.
	Mr. Foster. Okay. Let's see. I was also struck in your
	testimony that you seem to buy into this legend, I guess, that
	somehow the high-tech industry Silicon Valley started was a
	bunch of entrepreneurs by themselves whereas in fact if you
	look at the history, they were completely dependent on getting
	federal defense contracts, NASA contracts, and so on and that
	the history of that was completely dependent on government
	investment.
	And so I think that really we should all, you know, study
	history a little bit and understand how effective strategic
	government investments are in getting our economy heading in
	directions that will pay off massively in the future.
	And I believe my time is--and I have to yield back at this
	point.
	Chairman Weber. Thank you, Mr. Foster.
	The Chair recognizes Mr. Posey from Florida.
	Mr. Posey. Thank you very much, Mr. Chairman. Mr. Katz and
	Mr. Edwards, how do you measure accountability for government
	funding in the Department of Energy loan guarantee program? Mr.
	Katz first.
	Ms. Katz. I don't know that it is being----
	Mr. Posey. Ms. Katz.
	Ms. Katz. --you know, measured. I can tell you that, you
	know, there are rules for setting program goals and, you know,
	at the end of the year the Department looks at whether it's
	succeeded. And--but most of those are measured in terms of
	inputs not in terms of, you know, that so many dollars were
	spent as opposed to what the--you know, the actual success of
	the program was.
	And this follows on the earlier discussion, which is, you
	know, it--to assume that these projects wouldn't have happened
	anyway or this Silicon Valley, you know, development wouldn't
	have happened without government I think is a conceit. I think
	we've seen that, you know, there are many great developments
	and innovation throughout the--you know, the history of the
	world that have occurred without the government subsidizing
	them.
	Mr. Posey. Well, I appreciate your comments. So often
	government accountability to some people is how much we spend,
	not what actually gets accomplished. And I'm glad to see that
	the focus is on accomplishments.
	Mr. Edwards?
	Mr. Edwards. Yes, I mean, you know, it's the role of this
	Oversight Committee obviously, and it seems like this Oversight
	Committee has done a good job. It strikes me that the
	Republican scrutiny on some of these projects that the Obama
	Administration started dishing out in 2009, the scrutiny has
	been good because it seems to me that the Obama Administration
	started steering the money to safer projects like the ones that
	had the state purchasing requirements for them in order to get
	the loan losses down because they made these initial screw-ups
	with companies like Solyndra. So--and obviously the GAO and the
	IGs do a fantastic job on this account.
	That's--those are all accounting issues. I think the bigger
	issues are the economic ones. Would the private sector steer
	money into the most innovative and most efficient energy
	technologies, and I think the answer is yes without any kind of
	federal subsidy.
	Mr. Posey. Okay. Have either of you read any of Peter
	Schweizer's books? Extortion, throw them all out, great, great
	literature on government accountability or lack thereof and
	crony capitalism. You know, Solyndra gets mentioned quite
	often, but it was a relatively small potato in a bag full of
	litanies of much bigger ones that for one reason or another the
	media seemed to never think was important.
	As a follow-up, do you think there is a reasonable amount
	of upfront investment before taxpayers can expect returns?
	Mr. Edwards. Again, I think--I mean, I don't think this is
	the role--you know, taxpayers should not be investing in these
	sorts of projects. It's been mentioned a couple times by Mr.
	Reicher that--you know, that there's gaps in private markets
	here that the government has to fill. I just don't buy it. I've
	looked at the history of R&D and industrial R&D in the U.S.
	economy and looked at the history of inventions. The vast
	majority of advances and innovations have come from the private
	sector without federal subsidies. Computers and, you know,
	Xerox machines and cell phones and smart phones, that was all
	private risk capital, private entrepreneurs, investors, and
	Silicon Valley putting their money into these projects.
	The energy industry, I don't believe, is any different than
	any other risky industry, and the--I don't believe that these
	so-called gaps exist in private financing. Entrepreneurs can do
	it. They've shown that they're willing to invest in all kinds
	of risky and new technologies, including energy technologies,
	so we should leave the field to them, I think.
	Ms. Katz. Just as a quick follow on, you know, I'm--I don't
	buy the idea that DOE is funding, you know, the most innovative
	and riskiest, but if they were, then it raises the question if
	private investors are not willing to take a risk on a
	particular project, why should taxpayers have to underwrite
	that?
	Mr. Posey. Well, you know----
	Mr. Reicher. Mr. Posey, if I could, I just want to
	emphasize again we're talking about energy technology that has
	huge scale-up costs. We're not talking about computers----
	Mr. Posey. Yes.
	Mr. Reicher. --or cell phones and the like. And the history
	is there. The nuclear power industry got launched in the 1950s
	with major checks being written by the federal government----
	Mr. Posey. My time's up. I just want to make one comment.
	We had some employment downturn in our district and we decided
	to host an entrepreneurs summit, so we took some local ideas
	and had a summit and invited a few angel investors to attend
	and analyze the projects. And I think there was surprising
	amount of action on some funding there. We did several of them
	and we eventually had, you know, a long list, more than we
	could accommodate people who had wanted to invest in these new
	ideas and these new products that people had, and even in dire
	economic times, investors are interested in making investments
	in things that seem plausible and have potential to show return
	on them.
	So I appreciate your comments very much. Thank you, Mr.
	Chairman. I see my time is up.
	Chairman Weber. I thank the gentleman from Florida.
	The gentleman from Virginia----
	Mr. Beyer. Virginia.
	Chairman Weber. --Mr. Beyer, is recognized.
	Mr. Beyer. Thank you, Mr. Chairman, very much. Mr.
	Chairman, I'd like to begin by saying I appreciate the need to
	title these hearings with cool names like ``Making the EPA
	Great Again'' and ``Risky Business,'' but I fear that we're
	going to go down the road of Top Gun and Mission Impossible and
	Jerry Maguire, so I'd like to move that we don't name any more
	after Tom Cruise movies.
	Chairman Weber. I notice you left your six-shooter in your
	locker, so we won't name any after Tom Cruise movies. So
	ordered.
	Mr. Beyer. Okay. Thank you, Mr. Chairman. Also, we talked
	earlier about GAO mismanagement in this program, and we had a
	hearing on this a year ago and one of the--and we had a GAO
	representative at that point who pointed out that only 16 of
	the 24 GAO recommendations for the loan program had been
	fulfilled, but I've discovered this morning that all 24 are now
	fulfilled. So many of the problems that we're talking about are
	historical rather than current.
	The--I also would like to speak to this as a small-business
	person, and I guess I've borrowed more money than any of our
	panelists--that it's hard to borrow money as a small-business
	person. It--we have--what I've learned in 43 years of running a
	family business is that banks only want to lend money to people
	that don't need it. If you need it, it's very, very hard to get
	it, which is one of the reasons why there's $50 trillion in
	private equity sitting on the sidelines right now.
	So to you, Mr. Reicher, is the industry marketplace
	actually free and does government money actually crowd out the
	private investment?
	Mr. Reicher. I would say that we don't have a free market
	for energy. You know, there's been talk about eliminating all
	subsidies at the federal level. I think that's highly unlikely.
	And even if we did, that market is very much determined in many
	ways by the 50 state Public Utility Commissions that have an
	awful lot to say about how the energy markets and the
	electricity markets work.
	Are we crowding out other companies or other technologies?
	I don't think so. This is a limited program, the loan guarantee
	program, that's focused on getting the first couple of big
	projects built to demonstrate a technology.
	Let me say this. In many of these cases, the project
	developers, often thinly capitalized project developers, often
	small businesses, if they could get a loan from a bank or if
	they could float a bond, they would love to do it. Interest
	rates are low right now. It's much easier. It's not painful
	like having to go to the DOE and getting reviewed for a couple
	of years, having to do an environmental impact statement,
	having to pay a credit subsidy, loan spread. That's tough
	stuff. If they could do it in the normal way, they would do it.
	And I've talked to many developers. I was a developer myself.
	These are painful processes going to the Department of Energy,
	but sometimes you can't get the project done.
	Mr. Beyer. Are you suggesting the federal government works
	slowly?
	Mr. Reicher. I would never suggest such a thing.
	Mr. Beyer. Would it even be possible for the Department to
	manage a federal research grant program without picking winners
	and losers?
	Mr. Reicher. Listen, I was Assistant Secretary for Energy,
	for Energy Efficiency, and Renewable Energy. We had a $1.2
	billion budget then. We were always being asked to pick winners
	and losers. We had competitive processes. The Competition in
	Contracting Act told us we had to do it this way. That's what
	the federal government does, and that's what it often should be
	doing with taxpayer dollars. So I don't understand this
	argument about picking winners and losers. If you're Boeing
	competing with Lockheed for a jet contract, you know the
	government is picking winners and losers.
	Mr. Beyer. When President Trump affects the economic
	prospects of American companies by tweeting about Nordstrom's
	or Toyota or Vanity Fair or Carrier, is that an example of the
	federal government picking winners or losers?
	Mr. Reicher. I'll leave that up to the august members of
	this committee to decide.
	Mr. Beyer. I was fascinated by Mrs.--Ms. Katz's testimony,
	especially the--and I very much respect sort of the deep
	philosophical notion that we have this $18 trillion of federal
	loan guarantees, that it has all kinds of pernicious effects.
	But, Mr. Reicher, what's the--what would the U.S. economy
	look like without the FDIC and the--which would keep from the
	bank runs in the Great Recession or without Freddie Mac and
	Fannie Mae and the ownership society that George W. Bush pushed
	so hard or TARP so you wouldn't have General Motors or
	Chrysler, States that Donald Trump won pretty easily, or
	Homeland security's disaster assistance or the Veteran's
	Housing Benefit Program Fund for veterans or business loans to
	the Small Business Administration or to move from federal loans
	to the $470 billion in oil and gas subsidies?
	Mr. Reicher. Very quickly----
	Mr. Beyer. What's the economy look like without that $18
	trillion.
	Mr. Reicher. I wouldn't have been able to buy a home, let
	me say that. But I want to make one more really important point
	that I think we have to emphasize at this hearing. Let's look
	forward. We seem to be looking backwards. There's $41 billion
	worth of loan guarantee authority for nuclear, for fossil, for
	renewables, and for transportation. We could turn this into
	infrastructure investing, which seems to be the great focus,
	Republican and Democrat, on the Hill right now. This is an
	existing down payment we can make on the infrastructure hope
	that a lot of people have up here on Capitol Hill. So let's
	look forward at what we've got, and let's figure out how to
	spend it well.
	Mr. Beyer. Great. Thank you very much.
	Mr. Chair, I yield back.
	Chairman Weber. Thank you, sir. The Chair now recognizes
	Mr. Dunn for five minutes.
	Mr. Dunn. Thank you, Mr. Chairman. I want to say also thank
	you for the opportunity to serve on this committee. It's a
	great pleasure and it really plucks at my heartstrings so I'm
	delighted to be here.
	So I actually am the Chairman of a bank back home. This is
	a community bank. And I want you to know that I have been
	intimately involved in buying failed banks in that capacity.
	Now, that involves reviewing and underwriting a great many
	failed loans, toxic loans if you will. And as I reviewed the
	Department of Energy's loan portfolio for today's committee
	meeting, I find myself in familiar territory. There's a lot of
	loans in here that are highly, highly questionable, and I think
	you would find frankly very few private bankers would actually
	have made loans on the terms that they were made to companies
	like Solyndra, Beacon, Fisker, VPG, and some of the others
	there. I didn't make my way through the entire loan portfolio
	last night. Valentine's Day.
	So this costs the taxpayers hundreds of millions of
	dollars, and I feel like DOE should actually re-examine
	themselves and say are they comfortable in the role of being a
	banker. They apparently have very few staff with any experience
	in corporate lending.
	I want to call attention to a couple things and ask a
	question. So first off, the actual loan loss ratio. I've heard
	people say that this is a two percent loan loss ratio. The
	government allowed $10 billion for losses, so that's the asset
	that you're measuring against. And the loan loss is actually
	about 8.1 percent if you believe the $810 million is all we
	lost. I would argue that that's a low number for a number of
	reasons.
	I also heard that the interest paid back--the loans that
	went bad--I would remind everyone that interest income does not
	equal profit.
	I would like to also underscore the comments Mr. Edwards
	made on the successful back end of the loan portfolio where
	they're being paid off. Most of those loans already enjoyed a
	government guarantee in the form of purchasing the energy that
	was being put out. So we had a company that was guaranteed
	success if you will on the back end and we gave them another
	guarantee, in fact, a loan at a low rate on the front end. So
	I'm not sure that that should count as you pointed out.
	Now, this is my first committee meeting on this very
	fascinating, important subject that's near to my heart, but I
	would look forward in the future to actually seeing a full
	profit and loss on this just the way a bank would publish a
	profit-and-loss statement. And we do that on pretty much a
	monthly basis. If we don't, the FDIC comes after us.
	Mr. Edwards, I want to ask you, do you believe that the
	Department of Energy prospectively put in place the kind of
	lending structures that would properly and soundly administer
	billions of dollars in loans and serve the public in a
	transparent fashion?
	Mr. Edwards. Well, it certainly wasn't transparent, and I
	think as this committee has investigated in past hearings, that
	initially there were not the proper checks and balances in
	place for a lot of these loans. The expertise wasn't there and
	the GAO heavily criticized these programs. And it does seem
	that over time that DOE has improved at administering these
	programs because of all the scrutiny, particularly by this
	committee.
	But again, I think the bigger issues are the broader
	economic issues. Is there really a gap here that the federal
	government has to fill? And I think the answer is no. There are
	a trillion dollars--trillions of dollars available for private
	investment. If we did overall a general tax reform as House
	Republicans want to do, there would be trillions more for all
	kinds of innovative infrastructure and other types of
	investment in the U.S. economy, and we wouldn't be worrying
	about small programs like this.
	Mr. Dunn. Thank you very much, Mr. Chairman. I yield back.
	Mr. Reicher. Mr. Dunn, could I respond for one second?
	Chairman Weber. You have--I'll give you two seconds.
	Mr. Reicher. All right. Very few private bankers----
	Chairman Weber. Thank you very much. No, go ahead.
	Mr. Reicher. You say very few private bankers would have
	made these loans. That's exactly why this program existed,
	particularly in the depths of the recession, number one.
	There is a group of highly professional staff at DOE with
	finance background.
	And third, I guess I do the math. It's $810 million on $36
	billion----
	Mr. Dunn. I think you've got the wrong denominator. The
	denominator was $10 billion. That's how much was placed at risk
	of the taxpayers' money.
	Mr. Reicher. I'm doing the calculation based on the loss to
	date. You--fair enough, you can do it either way, but----
	Mr. Dunn. Well, you do a profit and loss on the same--let's
	run it like a business, you know? And I could tell you it's not
	being run like a business.
	Chairman Weber. If you all want to talk offline, we'd----
	Mr. Reicher. Thank you, Mr. Chairman.
	Chairman Weber. Yes, appreciate that.
	The gentleman from Colorado is recognized.
	Mr. Perlmutter. Thanks, Mr. Chairman.
	And, Mr. Reicher, I just appreciate your comments. And I
	think one of the things that's gone unstated is the fact that
	many of these loans were to the renewable industry because of
	fear that our climate is just getting worse and worse and worse
	and we've got to do something about it. So I appreciate Ms.
	Katz, Mr. Edwards, your comments, wait a second, this is kind
	of political. Well, sometimes it's policy and--you know, and
	policy can be politics. I got it. And I worry about the climate
	so let's just put that aside.
	Mr. Reicher has testified as to, you know, making some $900
	million when you net it all out. That seems to be a positive to
	me, but maybe there are some opportunity costs that aren't
	being considered or maybe there are some benefits to the
	climate that you may not be considering, Mr. Edwards. So, I
	mean, there's a lot of stuff going on here.
	But for me, the two percent loss ratio--I don't know how
	many of you have been in the lending business, but I
	represented lenders for 25 years. They would have loved to have
	two percent loss ratio.
	Having said all of this, Mr. LaHood, after he finished kind
	of his rhetorical comments, you know, really focused on five
	questions that I thought were very important. I wish he were
	here so I could compliment him on that. And some of you have
	brought up points that I really do have a concern about. Ms.
	Katz, you talked about cronyism and the potential for cronyism
	with respect to these loans. And you may be absolutely right
	because I am worried about cronyism under the Trump
	Administration--I really am--and the potential for conflicts of
	interest and where exactly these loan dollars would go. You
	know, forget about Russia for a second but where will they go?
	And so, you know, I appreciate the testimony of all of you,
	but that's the one that has me most concerned. And to a degree,
	even though this--you know, the Republican Congress passed this
	back in 2005, signed by George Bush, used by that
	Administration, used by the Obama Administration, if this
	Congress wants to take this tool away from the Trump
	Administration because they're worried about potential
	cronyism, I may applaud that. I think it's--I think good work's
	been done to benefit a lot of jobs, as Mr. Reicher said, and to
	improve the climate I hope, but you may be right.
	This is subject to cronyism, and under this Administration
	that's refused to give its tax returns, you know, is already in
	hot water with everything that happened yesterday with General
	Flynn resigning, I think, Ms. Katz, you're right to worry about
	cronyism.
	Ms. Katz. I don't think it's just DOE either. It's all of
	these--the programs of this nature invite that----
	Mr. Perlmutter. You think all these loan programs should be
	taken away from the Trump Administration? Is that your
	testimony?
	Ms. Katz. Absolutely.
	Mr. Perlmutter. Okay.
	Ms. Katz. Absolutely.
	Mr. Perlmutter. I yield back.
	Mr. Edwards. Can I give you one comment agreeing with you
	on that, too? During the Bush Administration--during the early
	Bush Administration, the issue was Enron. Enron was the
	recipient of all kinds of cronyism, guaranteed loans, loan
	guarantees that encouraged it to put its millions, billions of
	dollars of taxpayer and its own money into risky foreign
	investments that ended up crashing down and destroying that
	company. So this is an issue with both Republican and Democrat
	Administrations.
	Mr. Reicher. Okay. Mr. Perlmutter----
	Ms. Katz. And just to your comment that most bankers would
	love a two percent default, I think that speaks to exactly the
	point we're making, which is if this is such a riskless or at
	least good bet on the part of taxpayers and that it's
	performing so well, then I can't imagine that, you know,
	private investors wouldn't jump for it.
	Mr. Perlmutter. No, and you may be absolutely right. And
	Mr. Edwards was saying maybe this is--we moved into a mature
	industry where the risk has been reduced because we've been
	doing these things. But I agree with Mr. Reicher. Back in 2007,
	'08, '09, '10 when nobody was making a loan except for the
	federal government, period, because everybody in the market was
	so risk-adverse, sometimes you have to step in to get things
	moving.
	So, Mr. Reicher, you can finish this up and I'll----
	Mr. Reicher. So let me just say this. Again, we're looking
	backwards. DOE is not in the business right now of making loans
	to mainstream solar and wind projects. They're looking ahead.
	Mr. Higgins, in your district, this new carbon capture
	project that just got a conditional loan guarantee for $2
	billion, that's looking forward. That's a smart investment that
	DOE is backing.
	Chairman Weber. Mr. Reicher, I appreciate that. We're going
	to go to Mr. Higgins now for five minutes I hope.
	Mr. Higgins. Mr. Chairman, thank you, sir. I know this
	committee has an extremely important oversight responsibility
	regarding the Department of Energy and its programs, and it's
	clearly understood that the loan guarantee program has had
	serious problems regarding some of the loans in its portfolio,
	including controversial failed projects such as Solyndra.
	But I think although it's clear that there's room for
	improvement in the program, it's important that we give
	reasonable consideration to Department of Energy loans designed
	to commercialize innovative technology in the oil and gas
	industry versus the green industry. The oil and gas industry is
	well-established by generations of Americans. They well
	understand how to navigate the terrain of innovative
	technologies and energy. And energy technology is certainly not
	cell phones.
	So I believe there may be a continued role for the
	government to play, but we have to balance between the wisdom
	of that role and the careful protection of the people's
	treasure. And again, I would point out an example of where an
	oil and gas industry has certainly demonstrated its capacity to
	take advantage of a program like this to help our country.
	The Lake Charles methanol project received its conditional
	loan guarantee from the Department of Energy last year. Now,
	I've heard terms like startup and skin in the game, Mr.
	Chairman. That would seem to indicate, you know, zero
	investment from the private sector when the reality is, for
	example, Lake Charles methanol project has invested about a
	decade of research and development and about $40 billion of
	private capital. And LCM will use cutting-edge technology to
	refine petroleum coke, and that's a waste product of the oil
	industry in the high-value energy and chemical product such as
	CO<INF>2</INF>, hydrogen, methanol, and industrial gases. And
	all of its products will be sold to major industrial and energy
	customers under long-term market-driven commercial agreements.
	This clean energy manufacturing plant is ready to commence
	construction and will result in 1,500 direct new jobs.
	Now, that's an example to me of a wise investment,
	although, again, it's the duty of this body to balance wise
	investment in things like the commercialization of innovative
	technology in the energy industry versus the careful protection
	of the people's treasure.
	So I'd ask you, Dr. Yonk, would you agree that it's
	reasonable to conclude that investment in innovative
	technologies in the oil and gas sector is a more sound
	investment than sinking money into green energy projects?
	Dr. Yonk. Mr. Higgins, so in general, as my early comments
	indicated, I'm skeptical of the ability of any centrally
	directed program to identify what the most innovative or the
	most likely to be successful is. Instead, what I suggest and
	what I think the evidence bears out over time is that
	entrepreneurs, those acting in the marketplace, responding to
	the market demands, which it's not a free market, although with
	a little luck we might get closer to that, will do better to
	push forward that innovation both in terms of how we produce
	energy and how we get a cleaner environment than simply
	allowing bets on loan guarantees or loan programs or any of
	these sorts of subsidies to make those sorts of decisions.
	And so my belief is that if we actually allow the
	marketplace to make some of these decisions, we will see
	investment across a variety of sectors, including oil and gas
	and--as well as alternative energy.
	Mr. Higgins. In the example of Lake Charles methanol
	project, hasn't the private sector already made decisions in
	the form of hard dollars and a decade of invested research and
	development?
	Dr. Yonk. It certainly seems to have. I know--I don't know
	a terrible amount about that particular project, but
	oftentimes, the issue here is not that there's no private
	investment in these things but that we nudge investment into
	things because they're following public dollars, as opposed to
	the marketplace speaking and acting.
	Mr. Higgins. Thank you, sir, and thank you, ma'am.
	Gentlemen, thank you for your testimony. Mr. Chairman, I thank
	you. I yield back.
	Chairman Weber. I thank the gentleman from what we call
	East Texas.
	And the gentleman from California Mark Takano is recognized
	for five minutes.
	Mr. Takano. Thank you, Mr. Chairman.
	I want to ask a question of each of you. I want to clarify
	for the committee whether any of you have had any experience
	investing in a major clean energy or power project, so being
	involved in any sort of major decision like that? Have you ever
	been involved in a major business investment decision, Ms.
	Katz?
	Ms. Katz. I have not. I think we should--the entire
	committee is--
	Mr. Takano. I appreciate your answer. Mr. Edwards?
	Mr. Edwards. No, not as an investor but my first job out of
	college was with a major nuclear electric utility, so I have a
	background in--
	Mr. Takano. Yes, but you were never involved in a major
	investment----
	Mr. Edwards. No.
	Mr. Takano. --decision? And you, Dr. Yonk?
	Dr. Yonk. I'm an academic that studies these things. I have
	not.
	Mr. Takano. Okay. Mr. Reicher?
	Mr. Reicher. I have, Congressman. I said earlier, raised
	$100 million with some colleagues to make investments in energy
	projects, and then at Google we made several investments that I
	had a part of.
	Mr. Takano. So I think it's fair to say that of all the
	witnesses we have brought before us today, of the four, Mr.
	Reicher, you're the only one that's actually had experience
	actually raising private capital and working with large
	investments, high-stakes investments, investments that stood to
	lose a good sum of money. The others at the table are
	theorists, academics, or, you know, represent organizations
	that have an ideological commitment to--or an emphasis on very
	small government or a libertarian philosophy of government that
	kind of posits pure free markets.
	But you, Mr. Reicher, have operated in an environment of
	reality, of actual pragmatic reality of having to contend with
	real market forces. And can you--well, tell me how does your
	experience in making the investment decisions you've made
	provide you with greater clarity in understanding the role of
	government in the market?
	Mr. Reicher. Congressman, what I found in this energy
	project investment firm is that there were a lot of developers
	out there with interesting project investment needs. They would
	come to us and we'd ask the question, does this work in the
	laboratory? They'd say yes. Has it worked at demonstration
	scale? They'd say yes. Has it worked at commercial scale?
	They'd generally say no. That became the problem for us as the
	equity investors and for the banks as the providers of debt.
	Has it worked at commercial scale? If the answer to that is no,
	you're in real, real trouble. And that's the specific focus of
	this loan program, getting the first couple of projects built
	at commercial scale and then getting out of the way.
	The carbon capture project you just heard about, get it
	built, show that you can turn pet coke into methanol and
	capture the CO<INF>2</INF>, government helps to do that, and
	then get out of the way. We couldn't invest in so many of the
	projects that we saw--and I'll wrap up and say the following.
	When all was said and done, during the time I was there the
	biggest focus area of investment turned out to be corn ethanol,
	well-established, lots of plants built, you knew what you were
	going to get, you knew it would work, but was that advancing
	technology? It wasn't. It wasn't advancing cellulosic ethanol,
	a better way to do this.
	Mr. Takano. So--and what you're describing there is not
	necessarily--you're talking about the private investors for the
	corn ethanol?
	Mr. Reicher. Private investors. We were private investors.
	We couldn't take the risk and the banks couldn't take the risk
	of making the jump to the next not-fully-commercialized
	technology. There was too much at stake.
	Mr. Takano. So in practicality, to advance research--not
	just ideas but ideas that have been proven in laboratories,
	ideas that have been proven in demonstrations, to actually have
	the possibility of creating whole new markets, whole new
	industries, whole new categories of activity, economic activity
	which would result in jobs, it often takes a government loan
	guarantee program to be able to move that forward.
	Mr. Reicher. The Chinese certainly think that. They are
	investing heavily in all sorts of advanced technologies to get
	them into the marketplace. And that's why, as I said earlier,
	in many ways we are losing the race on energy technology to
	this country that has decided that commercializing energy
	technology of all sorts--renewables, fossil, nuclear--they're
	making that a big part of their future, and that's where I
	worry that if the government steps out of this, carefully,
	surgically focused, just commercializing the technologies, not
	financing them after you've demonstrated them, that's what I
	worry about here.
	Mr. Takano. Mr. Chairman, my time has run out. Thank you.
	Chairman Weber. I thank the gentleman.
	Mr. Marshall from Kansas, you're recognized for five
	minutes.
	Mr. Marshall. Thank you, Chairman.
	My first question for Ms. Katz, are you aware of the
	Department running any type of cost-benefit analysis prior to
	the approval of new DOE loans? And then do we do any type of
	follow-up on a yearly basis after them?
	Ms. Katz. I'm not aware of that, but I'm not an expert on
	DOE per se. My research has been on the--you know, the total of
	loans and loan guarantees across the economy.
	Mr. Marshall. Any other panelists?
	Mr. Edwards. You raise an interesting point, which is that
	the federal government requires cost-benefit analysis of new
	regulations over certain dollar values that are promulgated by
	departments. There is no requirement for cost-benefit analysis
	for federal spending programs, but in my view, there should be.
	These sorts of government investments should be subject to a
	detailed cost-benefit analysis.
	Ms. Katz. And certainly if the government had done a proper
	benefit-cost analysis on ethanol, we would have found that
	government investment in it was a horrible idea because it
	turned out to actually produce terrible environmental effects,
	as well as produce more carbon dioxide than saving carbon
	dioxide.
	Mr. Reicher. Mr. Marshall, can I quickly say----
	Mr. Marshall. Please.
	Mr. Reicher. Let me emphasize the folks at the Energy
	Department who--the career folks who manage these programs,
	they have to do financial modeling and financial pro formas
	before they can make a loan. The proposer of the loan comes in
	with a financial model, with a financial pro forma. That gets
	reviewed. So I don't know about cost-benefit analysis in a
	policy. They're doing the right kind of analysis, which is a
	financial pro forma or financial model.
	Dr. Yonk. Mr. Marshall, might I just add that we do however
	see significant political pressures placed on these programs,
	at least in their historical context, that in fact there have
	been nudges from Administration officials to push for
	particular loans to be approved. And that illustrates that,
	while I have confidence that there is lots of this modeling
	going on, there is a large--there is an interjection of
	politics into these things that becomes problematic. And I
	might suggest this committee ask DOE in particular the very
	question you asked is what is that process they go through.
	Mr. Marshall. Mr. Reicher, I guess I'm going to follow up
	on your statement. Are those pro formas, I guess that's what
	you're referring to, made public? Are they made available to us
	as well?
	Mr. Reicher. I don't know.
	Mr. Marshall. Okay. My last question I'll go back to Mr.
	Edwards. What options exist for the incoming Administration to
	reform the DOE loan programs and address taxpayer liability?
	What role can Congress play in these reforms?
	Mr. Edwards. Well, I don't think Congress should
	appropriate any more money for these programs. I think the time
	for federal subsidies, if there ever was one, has passed. We've
	been subsidizing solar and wind for 40 years now. It's not a
	so-called infant industry anymore. It's a mature industry.
	We've heard today that there's lots of private investment,
	billions of dollars in these industries, and I think what
	Congress should move ahead with, broad-based tax reform, the
	Congressman was mentioning the methanol plant in his district.
	Those sorts of projects, if we did tax reform, they would
	attract more investment by private equity, by corporations if
	we reduce the tax cost of equity in the economy.
	Ms. Katz. And I would just say with all due respect to Mr.
	Reicher, the--our future is not--the direction we should not be
	going in is to be more like China. That's not what's going to
	help the United States.
	Mr. Reicher. Can I just respond to Mr. Edwards? Let me just
	correct something. You don't build energy projects largely with
	equity. You build it with debt. You want to put as little
	equity in a project as you can because equity is expensive. You
	want to put as much debt on a project as you can because debt
	is cheap. Equity can cost you in an energy project 15, 20, 25
	percent. Debt is in the 5 to seven percent range.
	So this idea that somehow lots more equity is going to
	start flowing, that's good. I don't disagree because you have
	to put some equity in the project, but the thing that stumps
	these project developers is raising debt, getting a loan from a
	bank or issuing a bond, and that's the real struggle.
	Mr. Marshall. I guess----
	Mr. Reicher. The last thing I want to quickly say, looking
	ahead, the money is not there for solar and wind in the loan
	guarantee program. There's--the big money that's left, the
	remaining authority, $12.5 billion for advanced nuclear, $8.5
	billion for advanced fossil. There's $4.5 billion for
	renewables and then there's a big chunk for advanced
	transportation. So to Mr. Edwards, this is not about--largely
	about solar and wind as we look ahead at this $41 billion of
	authority.
	Mr. Marshall. A quick question. So through the years it
	seems like big lending institutions are less likely to loan
	money because of all the rules enhanced by Dodd Frank. Is that
	true or false? Do you think it's so much harder nowadays for
	some of these big projects to get funded?
	And I'm over my time. I apologize if you don't have time to
	answer that question.
	Chairman Weber. No, I want to know the answer.
	Mr. Edwards. I think that's true, but I would strongly
	disagree with Mr. Reicher's comment about debt and equity. It
	is a--private return is equity. You lower the tax on the
	marginal investment dollar, you will get more private
	investment by people like Warren Buffett and all kinds of
	energy projects is--equity is the tail that wags the broader
	dog. That is the return in the economy to private investors,
	but the vast trillions of dollars invested in the American
	economy every year is invested because people want to earn
	after-tax return. You lower taxes, you increase after-tax
	return, you get more investment.
	Dr. Yonk. There's no doubt you could get more equity in a
	project if you need it----
	Chairman Weber. If the gentleman would suspend, we need to
	move on. I apologize.
	Dr. Yonk. Mr. Chairman, could I just take six words to
	answer Mr. Marshall, and that is I think your question is in
	fact where the answer to many of these problems lies, and that
	is clearing the path for more of this sort of investment in
	both the regulatory side and cleaning up the subsidy side.
	Chairman Weber. Did anybody count those words? I----
	Dr. Yonk. They were more than six, but I'm an academic.
	Ms. Katz. The most important ones were six.
	Dr. Yonk. Six.
	Chairman Weber. I thank the panel.
	The Chairman now recognizes Mr. McNerney for five minutes I
	think.
	Mr. McNerney. Well, I thank the Chairman. And I'll try to
	keep it to five minutes.
	Mr. Reicher, the Loan Program--the Loan Programs Office is
	known to have a rigorous selection process. How would you
	characterize the application and selection process compared to
	the private sector?
	Mr. Reicher. It's tough. And as I said, I think before you
	came, Congressman, many of these developers would rather get a
	loan from a bank than have to go to the DOE. So they have to do
	things to get these loans from the DOE like often an
	environmental impact statement that can take a lot of time.
	They have lots of charges. They've got to pay a credit subsidy
	cost; they've got to pay a credit-based interest spread; they
	now have a risk-based fee that has been imposed recently. This
	is tough stuff, so I think it's being rigorously managed and I
	think--I don't think the American taxpayer has a huge amount to
	worry about here because of the way this program is being run.
	Mr. McNerney. So that might help explain the two percent
	default rate?
	Mr. Reicher. It does, and I think--that's why I think that
	this is a program because it has been well-run. I'm the first
	to admit there were mistakes--some mistakes made. There were
	some loans that went bad, but that's not how you look at a
	portfolio. Look at the overall portfolio. How do all the
	investments in the portfolio--how are they doing on a portfolio
	basis? I'd love to have an investment portfolio like this.
	Mr. McNerney. And banks really don't have the resources to
	carry out that sort of a rigorous process. Is that right?
	Mr. Reicher. They often do not, and it's certainly the case
	when you're bringing in an untested technology, that's not what
	banks do.
	Mr. McNerney. So would you explain in clear terms, Mr.
	Reicher, the difference between a loan guarantee and a grant?
	Mr. Reicher. A loan guarantee or a loan is----
	Mr. McNerney. That's kind of a rhetorical question.
	Mr. Reicher. Yes, you've got to pay it back.
	Mr. McNerney. Forgive me.
	Mr. Reicher. You get a loan for your house, you've got to
	pay it back. If your grandmother gives--writes you a check for
	$10,000, that's a gift.
	Mr. McNerney. So----
	Mr. Reicher. That's a grant.
	Mr. McNerney. --are both the loan guarantees and grants
	necessarily government subsidies?
	Mr. Reicher. I don't know if they're subsidies. I think if
	they're surgically applied, if they're rigorously reviewed, and
	if you pay the loan back, that seems like a fair distance from
	being a plain old subsidy, particularly if you pay it back and
	the government can go on and use that money for other things.
	Mr. McNerney. So are tax policies such as suggested by Mr.
	Edwards capable of distorting the economy maybe as much of some
	of these loan guarantees?
	Mr. Reicher. Tax policy can help and tax policy can hurt.
	If you get it wrong, you can distort the market in a very
	serious way. So we play around with tax policy and sometimes it
	does a good thing for taxpayers if we play around with it, and
	sometimes it doesn't.
	Mr. McNerney. And loan guarantees don't have that big of an
	impact on the economy I would guess but maybe I'm wrong.
	Mr. Reicher. As compared to grants, as compared to the cost
	of tax subsidies, they get paid back. I think that's the thing
	to answer.
	Mr. McNerney. So what was the intent of the loan guarantees
	that are in question? What was the original intent?
	Mr. Reicher. Let me tell you that most of the ones we're
	talking about here were granted under the so-called section
	1705 program. That was put in place in the depths of the
	recession in order to get people back to work. They were
	focused on so-called shovel-ready projects. They were ready to
	go. It was really hard to get a loan from a bank so the federal
	government stepped in. These projects got built.
	Let me emphasize something. That program is over. It's over
	as of 2011. What we are focused on are the 1703 projects. Those
	you have to prove innovation. There's a whole set of things
	that make them quite different. So that's why I keep saying,
	looking ahead, this is the 1703 project--program, and I think
	we can do a lot with it for infrastructure.
	Mr. McNerney. So in my remaining time could you give any
	examples of successful energy generation as a result of these
	loan programs?
	Mr. Reicher. Sure. You named the category. You know, we've
	heard about renewables. We haven't talked about several other--
	a major transmission project got financed using the loan
	guarantee program with an innovative technology. Boy, do we
	need transmission in this country. Our transmission is in rough
	shape. We need to expand it. We need to bring energy in from
	remote areas. So that's a great use. We didn't talk about a
	major storage project.
	Electricity storage is key going forward, and a very
	innovative project got built, is functioning well, proved out a
	very important technology. Then, you heard the project in Mr.
	Higgins' district. Those kinds of carbon capture projects, big
	amount of future authority for doing those. We need those to
	work.
	Mr. McNerney. Thank you. Thank you, Mr. Chairman.
	Chairman Weber. I thank the gentleman for yielding back.
	The gentleman from Kentucky, whose home is off the grid, is
	recognized.
	Mr. Massie. I knew you'd call me out.
	Mr. Reicher, what's the differential in the interest rate
	that these companies can get because of the loan guarantee
	versus if they had to go into the private market and borrow the
	money? Or is it such that some of these projects are so risky
	nobody would loan them the money?
	Mr. Reicher. That is the big challenge, Congressman. Some
	of these projects have enough commercialization risk scaling up
	for the very first time to a full-scale utility project that
	often you can't get a bank to make you a loan. If you can get a
	bank to make you a loan, here's the problem. Not only will they
	charge you a pretty high interest rate, but they'll give you a
	very short term for the loan. That doesn't work when you go out
	to get a power purchase agreement. You've got to pay back the
	whole thing in 5 or six years. So that's why these--this very
	targeted program exists.
	Mr. Massie. Isn't that where venture equity would play?
	Because, you know, I had a startup and I went to banks and they
	weren't going to loan me the money, and so I went to the
	venture capitalists. And if you think the terms of the DOE are
	tough, you should check out the vulture--venture capitalists.
	Mr. Reicher. Fair enough. Here's the answer to that in my
	view. Venture capitalists invest small amounts of money in very
	high-risk situations. They are investing in the early stage of
	these technologies. They've come out of the lab and you want to
	build the first demonstration projects. They are definitely not
	the sort that are going to put big amounts of money into
	actually scaling it up. So this notion that the venture capital
	world is somehow going to scale up these big energy projects
	for the first time, that's not what they do.
	Mr. Massie. Well, you know, what's also true about venture
	capital is they fully expect a lot of their programs to fail--
	--
	Mr. Reicher. Yes, but----
	Mr. Massie. --but since this is not how it is structured
	for the taxpayer, you know, a venture capitalist can write off
	nine failures with one good success. I'm not arguing that the
	DOE should become a capital investment firm, but because the
	taxpayer, they just lose one-to-one on all the nine losses and
	then they win back one-to-one on their win. If it were an
	equity investment, that's why this works in an equity
	environment and not in a loan environment. And I think some of
	these programs are so risky that no bank would loan you the
	money and for good reason, and nobody would loan you the money
	unless they had an equity stake and a chance at a multiple
	return on this. Dr. Yonk, do you want to speak to this?
	Dr. Yonk. Just I think what you're illustrating is what I
	described is the way capital moves in these regards and that is
	they're going--they know the program exists. They're going to
	often wait either for not just loan guarantees. They're also
	going to wait for grants and larger-scale loans.
	So with due respect to Mr. Reicher, I think that, yes, he's
	right in describing what venture capitalists have done, but in
	large part that's a construction of both the regulatory and the
	subsidy system that exists today.
	Mr. Massie. Ms. Katz?
	Ms. Katz. Yes, I would just add that the spread between the
	interest rates from--that DOE may offer and the private market
	does, that's just one of a number of types of differences.
	There are--there's a long list. I can tell you that there are
	longer maturities than private loans. There are deferrals of
	interest. There are allowances and grace periods. There are
	waivers or reductions of loan fees, higher loan amounts
	relative to the enterprise value. So there's a, you know, just
	a variety of elements on which they--they're different than--
	the government loans are different than the private sector.
	Mr. Massie. But at some cost to the taxpayer?
	Ms. Katz. Well, there's always a cost to the taxpayer in
	part because of the accounting method that the federal
	government uses. What they do is they try to determine what the
	actual cost of the loan is in the present value. That is what,
	you know, all of the future payments are going to bring in
	versus the cost. And I'll try not to get too technical, but
	what the federal government does is it ties the interest rate
	that they use in that calculation to treasuries, which is a
	below-market interest rate so it appears that the loan or the
	loan guarantee at the time the money is out is actually costing
	less than it really does.
	Mr. Massie. So some of the costs are hidden or----
	Ms. Katz. In part.
	Mr. Massie. Yes. Mr. Edwards, would you like to speak to
	this at all?
	Mr. Edwards. No, I think Diane hit it on the head.
	Mr. Massie. Okay. Well, I will yield back seven seconds to
	the Chairman, and thank you.
	Chairman Weber. I thank the gentleman.
	I do want to close today by thanking our witnesses, all of
	whom, I'm sure, while you probably have never paid--well, you
	have not paid into investment schemes--is that the right word,
	Mr. Reicher--have probably paid taxes and have taken note that
	we do have a $20 trillion deficit, and all of you in my opinion
	should be concerned about that, I want to highlight today that
	we have heard concerns about how the DOE loan guarantee program
	can indeed hurt innovation. Some of it we can't measure, but it
	does especially for the little guy and it can distort the
	energy market.
	So with that, I'm going to say thank you all for being
	here. I want to thank you for your testimony. I want to thank
	the members, all two of us, for our questions. And I want to
	say that the record will remain open for two weeks for
	additional comments and written questions from members.
	This hearing is adjourned.
	Mr. Reicher. Thank you, Mr. Chairman.
	[Whereupon, at 12:16 p.m., the Subcommittees were
	adjourned.]

	Appendix I

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