Among the key questions being raised by Congressional Republicans regarding the $535 million federal loan guarantee provided by the Department of Energy to Solyndra, the California solar technology company that subsequently failed, is why the loan was restructured earlier this year to put private investors ahead of taxpayers in the repayment queue, should just such a failure come about.
"It is clear that Solyndra was a dubious investment, but DOE doubled down in March of this year and restructured the loan, possibly further increasing taxpayers’ liability," said House Energy and Commerce Committee Chairman Fred Upton (R-Mich.) and Oversight and Investigations Subcommittee Chairman Cliff Stearns (R-Fla.) in a joint statement issued immediately after Solyndra's announcement at the end of last month that it was filing for Chapter 11 bankruptcy protection and laying off more than 1,000 workers.
Why the DOE restructured the loan "is a question we want answered," the legislators continued. "In this time of record debt such disregard for taxpayer dollars cannot be tolerated."
Stearns has suggested that such a restructuring may have even been illegal, citing rules laid out in the Energy Policy Act of 2005.
But Rep. Edward Markey (D-Mass.) argued during Friday's hearing before the House Energy Committee -- and in a letter sent to Upton and Stearns this morning -- that subordinating taxpayers' interests to those of private investors on DOE loan guarantees arose in large part due to complaints from the nuclear power industry that the loans, created under the Bush administration, were trickling out too slowly for their own projects.
That view was endorsed by the industry's congressional backers, Markey noted.
"There are many legitimate public policy considerations that Congress should explore regarding the full suite of the Department’s loan guarantee programs," Markey wrote in his letter. "Among those should be a recognition of the fact that the authority to subordinate the taxpayer interest behind that of private investors’ in the event of bankruptcy or liquidation was strongly advocated for by the nuclear industry and adopted by DOE in an open regulatory process."
Among other things, Markey pointed by way of evidence to testimony by Marv Fertel, president and chief executive of the Nuclear Energy Institute, who told the Senate Committee on Energy and Natural Resources in March, 2009, that DOE's interpretation of just who should be repaid when was flawed, and indeed, slowing things down -- not least because private investors were less likely to join the government in financing risky nuclear power plant projects, which can cost $10 billion to build, if they felt their capital was being subjected to greater risk.
The statute creating the loan program, Fertel argued, holds that the "rights of the Secretary, with respect to any property acquired pursuant to a guarantee or related agreements, shall be superior to the rights of any other person with respect to the property.” In other words, the DOE's interest in the project being financed was superior to that of any private investor. "The DOE Ofﬁce of General Counsel has consistently misinterpreted this section," Fertel said, arguing that it only meant the government had a superior interest in that portion of the project it was backing, not the entire project.
In late 2009, DOE revised its interpretation of the statute -- a move celebrated by the nuclear power industry, and one that, according to Markey, paved the way for the restructuring earlier this year.
"I reiterate my request," Markey said in concluding his letter, "for hearings into the implementation of the nuclear power plant loan guarantee program, the issuance of the conditional nuclear loan guarantee that have been awarded, and the role the nuclear industry has had in altering the terms associated with subordination."
Meanwhile, two executives of Solyndra, chief executive Brian Higgins and chief financial officer Bill Stover, sat in stony silence during today's hearing, invoking their Fifth Amendment right to remain silent. The F.B.I., the DOE's own inspector general and two congressional committees are currently investigating the loan and the company's failure.
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