The day before he was sworn in as President on January 20, 2009, Barack Obama said,

We’ll put nearly half a million people to work building wind turbines and solar panels, constructing fuel-efficient cars and buildings, and developing the new energy technologies that will lead to new jobs.

Once in office he included $90 billion in the American Recovery and Reinvestment Act – the stimulus — to fund them.  Today, perhaps, he regrets the optimism of those heady pre-inauguration days – especially the part about solar panels.

The failure of a number of green energy companies that received such financing has proven to be a continuing source of embarrassment to Obama as he seeks re-election.  For example, Beacon Power, an energy-storage company that received a $43 million loan guarantee (a loan guarantee allows a company to borrow money more easily, since the government promises to pay the loan back in case of default) from the federal government, filed for bankruptcy in October, 2011.  Abound Solar, a solar-panel maker that received $70 million in taxpayer funds (but had been approved by the Department of Energy for $400 million), filed for bankruptcy in July, 2012.  And another solar panel manufacturer, Amonix, closed a plant in Nevada that had been awarded $5.9 million in stimulus money from the Obama administration (the company had also received a $15.6 million grant from the Bush administration in 2007, but the Obama administration had given its funds specifically for the plant that closed).

But the best known green energy bust is Solyndra, the California-based company that – once again – made solar panels.  It was the first company in many years to receive a loan guarantee from the Department of Energy, obtaining one in the amount of $535 million, $528 million of which the company would eventually use.  While many companies that receive loan guarantees receive funding from private banks, Solyndra received a loan from the Federal Financing Bank, a government corporation.  On August 31, 2011, however, Solyndra announced it would lay off remaining workers and declare bankruptcy.  A few days later, on September 8, the FBI raided its offices in search of evidence as to whether the company filed misleading data with the government.

On August 2 of this year, after an investigation lasting almost eighteen months, House Republicans issued a report on the causes of Solyndra’s massive default.  Among their conclusions:

  • The company provided faulty information, never identified by the Department of Energy, in its application for the loan guarantee.
  • The White House had scheduled the closing event for Solyndra, complete with a visit by Energy Secretary Steven Chu and a satellite message from Vice President Joe Biden, even before the President’s Office of Management and Budget had begun its review of Solyndra’s application.  As a result, OMB rushed the review, taking a mere 9 days, instead of the usual 28.
  • George Kaiser, a bundler of donations for President Obama, and whose fortune funds a foundation that was a major investor in Solyndra, was closely involved in financial and lobbying efforts on behalf of the company.

In the light of the Congressional report, it is useful to recall the story of how Solyndra received and lost over half a billion dollars in taxpayer funds from the government.

According to the company, it had applied for a loan guarantee in 2006, during the Bush administration.  However, the Department of Energy had not provided any loan guarantees since the 1980s, and the one given to Solyndra once Obama had come into office was the first since then. 

Funding green energy projects was such a priority for the new administration that they planned to have the first loan guarantees available in May of 2009, a scant four months after President Obama took office.  In fact, Solyndra’s preliminary approval was in place two months before that, in March, 2009, and when it was announced Secretary Chu predicted that 4000 jobs would be created with it.  Indeed, a press release at the time of the approval boasted of how fast the process had been, but the speed came at a price:  final copies of outside reviews had not been received by the time approval was given.  An analyst for the Government Accountability Office, which audited the loan guarantee, stated

If you don’t have really strong processes in place, and if you’re under pressure to get a lot of these dollars allocated, you can make unproductive decisions and ones that ultimately put taxpayers’ dollars at risk.

Problems quickly began to surface.  It became clear that the company had been losing hundreds of millions of dollars for years by the time final approval came in September, 2009.  In 2010 both Congress and the Government Accountability Office began to investigate the deal, with the GAO suggesting that the Energy Department had granted the loan guarantee without securing all the necessary paperwork.   In March, 2010, the accounting firm PricewaterhouseCoopers LLP, warned that Solyndra’s financial difficulties were sufficient to “raise substantial doubt about its ability to continue as a going concern.”

Despite the warning signs of impending problems, just two months later, on May 26, 2010, President Obama visited Solyndra’s headquarters in Fremont, CA, telling the crowd that

through the Recovery Act, this company received a loan to expand its operations.  … Every day that you build this expanded facility, as you fill orders for solar panels to ship around the world, you’re demonstrating that the promise of clean energy isn’t just an article of faith — not anymore. … And we are poised to generate countless new jobs, good-paying middle-class jobs, right here in the United States of America.

Later that year, however, in August, Shyam Mehta, Senior Solar Analyst at GTM Research, noted that

Solyndra is a high-risk play, and I’m not sure that the risk/reward pays off. There’s nothing out of the ordinary about its earnings growth potential, nor is it superior to other technologies in terms of cost efficiency.

By December of 2010, the company was running out of cash.  The House report notes that on December 8 an official at the Office of Management and Budget who worked on energy issues emailed the White House, stating that “Solyndra is in the midst of a severe liquidity crisis [emphasis in original]” and that a deadline set by the Department of Energy “may precipitate a meltdown that would likely be very embarrassing for DOE and the Administration” (p. 87; emphasis in original; all subsequent page references are to the report).

In fact, Solyndra’s financial situation was sufficiently dire that the company asked DOE to restructure the terms of the original loan guarantee.  At the time an official at OMB who was reviewing the request by Solyndra wrote to a colleague, “[Solyndra] may avoid default with a restructuring, there is also a good chance it will not” (p. 98; emphasis in original).

Nevertheless, in February, 2011, the Energy Department did agree to restructure the loan guarantee, but the terms would prove controversial (pp. 80, 140).  If Solyndra filed for bankruptcy, the first $75 million that was recovered would go to Argonaut Private Equity, a company that served as the investment arm of the George Kaiser Family Foundation, and another company called Madrone Capital Partners (pp. 71-72).  The next $150 million would be returned to the Department of Energy.  After that, another $75 million would go to other, unnamed investors that both Solyndra and the DOE were hoping would invest money in the floundering business.  Lastly, all the other taxpayer money would be paid back.  The report provides emails from officials of both the President’s Office of Management and Budget and the Department of the Treasury questioning whether the Department of Energy had the legal right under the Energy Policy Act of 2005 to pay back taxpayers after private investors (pp. 137-8).

Interestingly, the George Kaiser Family Foundation held about a 36.7% share of the company.  Oklahoma oil billionaire George Kaiser was a strong backer of President Obama and hosted a fundraiser in Tulsa for him in 2007.  Kaiser was also a “bundler” of campaign funds for his 2008 presidential bid, raising at least $50,000.  In October, 2009, soon after the loan guarantee was approved, the CEO of Solyndra emailed the managing director of Argonaut, telling him, according to the report, “The Bank of Washington continues to help us!” (p. 47).

By May of 2011, Solyndra’s cash-flow problems were so acute that the company’s executives informed their board that without additional funds they would have to initiate bankruptcy proceedings (p. 143).  The firm began negotiations with the Department of Energy to again restructure the loan guarantee to gain time for the cash-flow situation to improve.  The company hoped that by the end of 2011 it would get further private investment totaling $150 million, and the DOE was willing to consider restructuring if that funding came through.  Investors were willing to contribute half that amount, but because no one would contribute the other half, in the end the only option left was bankruptcy (p. 140), which finally occurred at the end of August last year, leading to the loss of almost 2000 jobs.  It is not yet known how much of the taxpayers’ investment, if any, can be recouped through the sale of assets.

Certainly a report issued in an election year by members of the opposing party in the House of Representatives, critically examining a large expenditure by the Obama administration that did not turn out well, could be dismissed as an episode of partisan politicking, but that would be a mistake.  White House spokesman Eric Schultz said, incredibly, that the bottom line of the report was “… [The loan guarantee to Solyndra] was a merit based decision made by the Department of Energy,” and he also complained that the Republicans were not telling how much their investigation into the matter cost.

Since the central finding of the report is that politics drove much of the administration’s pressure to approve the loan guarantee for Solyndra as quickly as possible and to keep the company afloat even after it became apparent that it was hemorrhaging money, it seems odd for Schultz to assert that the Republicans believe the decision was based on merit.  And however much the investigation cost, it was nowhere near the more hundreds of millions of dollars endangered when Solyndra capsized.

Indeed, many of the details of the Solyndra debacle have been well documented in the press for a long time, and while the report adds important new details, it does not alter the basic outline of the story.  Furthermore, it provides copious references to phone calls, emails, and testimonies of Solyndra executives, administration officials, and those with knowledge of the situation outside of the government.  It is clear that members of the President’s Office of Management and Budget and the Department of the Treasury, among others, had serious reservations about this project. 

Also, the fact that a wealthy donor to the President and his party, whose company, perhaps in violation of the 2005 Energy Policy Act, was allowed to receive compensation from Solyndra’s bankruptcy before anything was returned to taxpayers, merits at the very least close scrutiny.  Finally, the Solyndra catastrophe, far from being an isolated incident, was merely the most notorious in a string of failures that arose from the government’s attempt to choose which industries and technologies will succeed in the marketplace.  The truth is that government is often poor at guessing correctly, and to gamble with taxpayer money is unfair to taxpayers – and voters.

 

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One Response to The Collapse of Solyndra: A Timeline

  1. Magnificent. I agree.