Solyndra loan: Is the White House in trouble?

Sep 14, 2011

The White House granted the solar-panel manufacturer Solyndra a $500 million loan, but the company recently announced bankruptcy. Chat with reporter Steve Mufson about the time line of the company, the government loan process, the White House's decision, and how this might affect certain government officials politically.

Ask questions and submit your opinions.

Read: Solyndra loan: White House pressed on review of solar company now under investigation

Thanks for joining me here today to talk about Solyndra and the federal loan guarantee program. The story has been getting more and more interesting, with a lot of passion on all sides. I hope I can help clarify a few issues.

How far can the investigation go considering the government's involvement

Thanks for the question. The investigation by the House Energy and Commerce Committee' s subcommittee on oversight can do a lot, including issuing subpoenas. Of course, it's important to figure out just what they're investigating. "Government involvement" as you say means a lot of things. There is, of course, lots of government involvement in approving any loan guarantee or loan. That's appropriate. What would be inappropriate would be for political figures to urge an agency to disregard its regulatory obligations and that's what the committee is looking for. But it's not necessarily a problem for political folks to wonder what's going on in a program that is a prominent part of the stimulus program that Congress and the White House both approved.

Where was the critical reporting when the loan was being developed and granted in the first place? - Post commenter zippyspeed

We ran a very short item about the granting of the loan guarantee because it was the first one. I think that even at that time people knew that this was a relatively high-cost product seeking to occupy a certain niche and perhaps that niche doesn't exist. Remember that the technology was good in the view of a lot of solar experts; a lot of this is about cost and costs have been varying widely. But even back then, some people in the business believed that Solyndra's strategy wouldn't work and some people thought it might.

as Senator Alexander asked Chairwoman Feinstein at the Energy and Water markup last week, why are we guaranteeing loans for these startup firms and not nuclear? She didn't seem to have an answer so i was hoping you did.

The federal government IS approving loan guarantees for nuclear power plants. Southern Co has received approval for loan guarantees for new nuclear. These are very beneficial for all these capital intensive projects because the federal guarantees sharply lower financing costs.

Who will be held responsible for the loan? What will the repercussions be?

In bankruptcy, the equity investors in Solyndra will be wiped out. Then whatever assets the company has will be sold, and I believe there are some people interested in its technology and equipment. Whatever money is raised that way will go to paying the company's creditors, including the federal government. But given the failure of the firm, it seems likely that there won't be enough to pay off all those debts and taxpayers will end up holding the bag for a substantial part of the $500 plus million guaranteed.

After the restructuring won't the government get the $500M back?

See previous answer. One would hope so, but it isn't clear to me how much can be raised by reorganizing or liquidating the company.

How long does it usually take to approve a prospective business?

Good question. DOE has its process which takes many months, and then OMB gets to review loan guarantees and that can take at least another month. It can take a while.

Was the purpose of the Solyndra loan for the government to make a profit? If it was to help trigger a green energy industry, then why does it matter is one company went bankrupt? All of Solyndra's trained employees, R&D, facilities, intellectual property, etc. are still in the country.

Another good question. The purpose of the loan is to provide capital to a project that might have trouble getting enough equity investors or loans to get launched. Like any other lender, the government is taking a risk that some of these won't work out and the risk is relatively greater than normal in a young industry testing new technologies. So no, it's not surprising that some of them would fail. Whether this is the government's role is another question and many people think it isn't. But once Congress has approved such a program, it's just a question of carrying it out well. And yes, Solyndra employees will presumably turn up elsewhere in the industry and, perhaps, help other companies in some way.

Should the White House try to get all the emails/info, especially if it looks bad, out on the table themselves right now instead of allowing a Republican led committee leak info to the press for months on end? Why don't they come clean and get out ahead of it--the hit will be worse if the other side is the one slowly pulling at threads here right?

That might make a lot of sense. I'm sure the Obama administration would rather not be bickering with the House about Solyndra for an extended period of time. It's hard to say, of course, what, if anything, else there is to release.  We'll see.

Any chance of getting access the Microsoft Excel financial model via FOIA used by OMB to review the loan? I would be interested in seeing and playing around with the assumptions used in the model (and if they ran the right sensitivity analyses like the price of key industry commodities).

I'm afraid I don't know. It would be interesting.

Is there any evidence that there was pressure for a certain decision or just pressure to make a decision by a certain point in time? As a fed, the latter happens not too infrequently, but the former is far more serious.

Great question. This is the crux of the issue, it seems to me. One of the OMB emails described in the story in today's Washington Post talks about "having to do rushed approvals," suggesting the former. In the hearing today, the DOE's Jonathan Silver suggested that OMB raised its estimate of credit subsidy costs to help OMB feel better about approving the guarantee. I think the answer to your question isn't clear. It's what Rep. Terry was trying to discover by trying to get Silver to say whether or not he had talked to White House energy and climate czar Carol Browner about this or other loan guarantee applications.

One other thought: If OMB was dragging its feet on all applications, other parts of the White House might try to find out what was holding up this, especially with the weak economy.

Is there any evidence so far that the Solyndra loan guarantee carried any greater or lesser risk than other loan guarantees that were approved by DOE in the same timeframe? In other words, was Solyndra typical of the kinds of companies and projects DOE was approving at that time or does it appear to have been a riskier investment than all or most?

Every one carried a different risk calculation. I'm not sure how Solyndra compared to the others. Overall, Congress appropriated enough money to assume that about 10 percent or more of the total loan guarantees would go to companies that would fail and that taxpayers would have to pay for those.

Did anyone really think that you'd find any opponents to this technology among experts in solar energy? They rather have a conflict of interest there.

Solar experts -- like people from other industries -- tend to like the idea of government support (tax incentives for oil companies, loan guarantees for nuclear utilities, tax credits for wind, etc). But they have a lot of different ideas about what kind of solar technology is best suited to drive down costs. There are different PV makers, there are solar thermal plant developers, etc.

There is always pressure to rush a process. Does rushing a decision mean the white house influence the process to a desired result?

Good question. Not necessarily.

The Solyndra product works and they have revenue. If the government was betting on the technology, why did the government not give them an order for the product, as they would when they develop a new military aircraft. The government has plenty of roof tops and uses plenty of electricity.

The Energy Department has decided to support a project to install solar on the rooftops of military housing across the country. It would double the number of rooftop solar installations from today's total. But in that project, the solar developer chooses what kind of panels are best. And even if the Pentagon did it directly, it would have to have a bidding process and Solyndra might or might not prevail.

seems low considering the U.S. is investing in creating an INDUSTRY. Green energy is moving fast - and it's difficult to compete with a Socialist country like China that provides billions to Chinese solar companies which lowers the price.

Thanks for your comment. The DOE today is stressing the China angle. In fact, it just sent me a Reuters news item from today saying that the China Development Bank (CDB) has loaned an additional $713 million to the country's largest polysilicon producer.

 

Do you know what they call a friend of mine who lost a couple hundred million on a deal for his large, brand name private equity firm? Partner. Occasional losses of capital are expected by professional investors when making these kinds of investments or loans. Why should it be any different when the government is providing capital? If many of these loans are losing money than that is a problem...

Thanks for this comment.

Will the two reporters who wrote this "exclusive" (emails given to them by the Republicans on the committee to try and politicize this - in fact Democrats did not have access to these) follow up with a balanced report following the subcommittee's hearing this morning. To me this is journalism at its worse.

I think it's safe to say that there will be follow up stories in many newspapers. Stay tuned and keep reading. The e-mails are interesting and worth noting in the paper. Yes, there is more to be done.

Is this currently breaking down solely on party lines? Or is there recognition from either leading Republicans that there could be innocent explanations for this, or from Democrats that there's some possible malfeasance here?

It did seem today to be largely along party lines, though Democrats did say that the subcommittee was right to play an oversight role.

A half a billion dollar loan is big, but it represents less than 2% of the entire loan-guarantee program (according to WaPo's own Five Myths article about it). It's also less than we spent in ONE DAY in Iraq, which was started due to a lie and which led to the death and catastrophic injury of thousands of Americans and countless innocent Iraqis, but for which there have been no investigations, no justice, nothing. The people involved in that are all doing book tours and making bank on the lecture circuit. Seriously? I get that this is a problem, but I can't bring myself to care. I just don't have it in me. It's disgusting to me that somehow a blip in the loan-guarantee program is being treated like a huge scandal, but the major players in one of the nastiest scandals of the last ten years are running free. Call me partisan, but I just don't give a crap.

Thanks for your comment.

Apparently, this companies downfall was in not using silicon like many other panel makers do and then having the price of this commodity fall precipitously (dramatically lowering manufacturing costs for all its competitors). So, if the loan decision had been delayed let's say one month, what other market information could the loan reviewers have received about the silicon market which would have led them to a better decision for taxpayers on this key model assumption? Or was it impossible to predict the silicon commodity market at the time? Did they have silicon prices in their financial models/diligence checklist to begin with?

I cover energy and you can see from that sector just how hard it is to predict prices of commodities of any kind. Silicon is no exception. Some people got it right; a lot of people got it wrong. And just because it's down now doesn't mean it will stay down.

That's all we have time for today. Thanks for all the great questions.

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Steven Mufson
Steven Mufson is a reporter on the national staff of The Washington Post and has served as Beijng bureau chief for the Post.
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