Solyndra from The Center for Public Integrity

Recurring red flags failed to slow Obama administration's race to help Solyndra

2012-01-23T20:20:51-05:00

Time and again, the government handed breaks to Solyndra Inc., an upstart California solar panel firm backed by a major supporter of the president.

And, time and again, benefits flowed from Washington despite warning signs that the government’s $535 million investment was a risky bet, at best.

The bill for that risk is yet to fully come due, as a criminal investigation expands into whether the company misled the government about its financial health in securing its half billion dollar reward, and in landing a favorable loan refinancing earlier this year.

At the least, taxpayers will lose a chunk of their investment in bankruptcy proceedings. More than 1,100 Solyndra workers already have faced consequences; when the company collapsed Aug. 31, they were fired on the spot.

A deeper political storm has now formed and shows signs of intensifying. The president is facing broadsides about Solyndra from the GOP, criticism sure to escalate as the 2012 election nears. Obama touted the company in a visit to its plant last year, two months after Solyndra’s own auditors raised striking questions about the company’s viability. Wednesday, a House panel investigating the loan is summoning witnesses, and Democrats have joined Republicans in asking questions.

An iWatch News dissection of the financing – based on records, interviews and documents obtained under the Freedom of Information Act – shows that Obama’s Energy Department pressed forth in the face of abundant red flags in awarding its maiden green energy financing. Money approved – even as outside rating agencies assessed the company as speculative. Public announcements heralding the project – before all due diligence was in hand. A presidential visit – even as company auditors questioned Solyndra’s future. A rock bottom interest rate and refinancing – for a company far from a sure bet in the industry.

From the start, evidence suggests the government-backed venture was far from a sure thing.

"The general perception was that that company was not going to stay in business for a long time," said M.J. Shiao., an analyst in solar markets for GTM Research, a firm of analysts and strategic consultants focused on the clean technology industry, which has been championed by President Obama. "They were both a technology risk in that this was a new technology," he added, "and they were a finance risk as well."

First signs came in 2008, as Solyndra, then just three years old, pushed ahead with its application for government backing to build a new plant to produce its unique solar panels. An outside rating agency, Fitch, gave Solyndra a B+ credit rating that August. Two months earlier, in June 2008, Dun & Bradstreet issued a credit appraisal of the company. Its assessment: “Fair.”

Those are not top of the line scores. Fitch Ratings spokeswoman Cindy Stoller said she could not discuss the Solyndra review specifically, but said of a B+ rating: “It’s a non-investment grade rating.” She provided a company ratings definition, showing that B+ falls between a “highly speculative” B and “speculative” BB.

Asked about those ratings, and how significantly the department viewed the risk, energy officials said Monday the department conducted “extensive due diligence” on the application, which included consideration of the Fitch rating.

“We believed the rating, which is used to inform our analysis of potential risks associated with the loan, was appropriate for the size, scale and innovative nature of the project and was consistent with the ratings of other innovative start-up companies,” said spokesman Damien LaVera.

Seven months after the Fitch rating, Solyndra landed its prized support. In March 2009, Energy Secretary Steven Chu announced that his department’s first guarantee, of $535 million, was going to Solyndra. The loan would be provided by the Treasury Department’s Federal Financing Bank, with the Energy Department guaranteeing the issue in case of default.

Bottom line: Taxpayers were bankrolling the young company’s venture.

For the green energy movement, this was a vital moment. Obama came to office vowing to boost innovative technologies, a pitch with a two-pronged benefit of aiding the environment and the economy. Chosen as the first recipient of that energy backing, Solyndra was in the spotlight. The half-billion-dollar loan allowed Solyndra to build its so-called “Fab 2” plant and rapidly escalate production of its panels.

An Energy Department press release issued that March made clear how quickly the new administration moved to issue that support.

“Secretary Chu initially set a target to have the first conditional commitments out by May - three months into his tenure - but today's announcement significantly outpaces that aggressive timeline,” the Energy Department statement said. “Secretary Chu credited the Department's loan team for their work accelerating the process to offer this conditional commitment in less than two months, demonstrating the power of teamwork and the speed at which the Department can operate when barriers to success are removed.”

Yet that quickened pace came with a costly shortcut. The department made the announcement before final marketing and legal reviews were in hand – an omission Government Accountability Office auditors chided, in a 2010 report, as the type of shortcut that showed favoritism and put taxpayers at risk.

The GAO did not name the companies involved, but iWatch News and ABC News, as part of an ongoing exploration of the connections between green energy contracts and politically active investors, disclosed in May that Solyndra was among those case studies cited in its report.

“We believe that all the steps of the due diligence process, especially these main reports, are obviously very important to be able to appropriately assess risk,” Frank Rusco, the GAO auditor who authored the 2010 report, said in an interview. “It confers a benefit for them but also potentially opens the door to risk to taxpayers. There’s a question about how well the department could have assessed the risk. Those steps are very important.”

Recurring losses and negative cash flows

Analysts have long had questions, too, most notably about Solyndra’s cost to manufacture its unusual cylindrical tubes – costs the industry found were significantly greater than competitors’ more traditional panels.

“If you were going to a bank for a loan for your large solar installation, the last thing you want is to use a product from a company you don’t think is going to stay in business. When you add those two risks together, Solyndra had a really uphill battle in front of it,” said clean technology business analyst Shiao.

In interviews over the last several months, Energy officials have said they felt they were on firm ground in issuing the backing. Notably, they said, they received all due diligence in hand before closing the loan in September 2009. They said no applicants received favorable treatment, Solyndra included.

And, the Energy Department has noted that “sophisticated, professional private investors, who put more than $1 billion of their own money behind Solyndra, came to the same conclusion as the Department: that Solyndra was an extremely promising company with innovative technology and a very good investment.”

Buoyed by its government support, Solyndra made plans to go public. In December 2009, the company filed a registration statement with the Securities and Exchange Commission in preparation for an initial public offering of stock.

Yet in March 2010 came a dose of reality. Solyndra’s own auditor, PricewaterhouseCoopers LLP, issued a report that questioned the company’s viability.

“The Company has suffered recurring losses from operations, negative cash flows since inception and has a net stockholders’ deficit that, among other factors, raise substantial doubt about its ability to continue as a going concern,” PricewaterhouseCoopers wrote.

Two months later, in May 2010, President Obama traveled to Fremont, California to visit the new plant being built with taxpayer dollars.

Making no mention of the company’s tenuous financial standing, Obama instead praised Solyndra as a symbol of progress.

“The true engine of economic growth will always be companies like Solyndra,” he said to rounds of applause from company workers, executives and California political leaders.

His visit, like the guarantee, was a major boost to a company founded in 2005. Scores of innovative companies seek government funding, but only a fraction snare that prize. Those that do separate themselves from the pack – and often lure in new investors, helping them even more.

Solyndra already had a heavyweight behind it: George Kaiser, an Oklahoma oil billionaire who raised at least $50,000 for Obama’s 2008 campaign and is a frequent visitor to the White House. Through his corporate affiliates, Kaiser has long stood as Solyndra’s single largest investor. When Solyndra filed bankruptcy papers earlier this month, it said Kaiser’s Argonaut Ventures owned 39 percent of its parent company. Kaiser has not responded to interview requests since March.

Solyndra said political connections were not a factor. Administration officials noted that the company’s initial application was filed under Bush, though it won fast-track approval from the Obama administration. Some top company executives and key investors, including Madrone Capital Partners, an investment firm affiliated with Wal-Mart Stores chairman Rob Walton, have supported GOP candidates.

In June 2010, a month after Obama’s visit, Solyndra canceled its IPO. To outsiders, that was clear evidence the company continued to stand on shaky ground.

Soon, its top investors – and the Department of Energy – would rescue it once more.

In February 2011, Kaiser and other investors raised $75 million to push the company forward. At the same time, the DOE refinanced its loan to push back the payoff date. Already, that loan carried a rock bottom interest rate of 1 to 2 percent. Now, the government was giving Solyndra room to breathe.

In interviews with iWatch News and ABC in May, Jonathan Silver, executive director of the Energy Department’s Loan Programs Office, said the modification “was an effort on our part to ensure we had the tightest and best structured project.”

According to an agreement between the Energy Department and Solyndra, in bankruptcy court investors including Argonaut will stand in line before the federal government and other creditors. After private investors recover $75 million, the U.S. government would next have a chance to seek $150 million of its investment.

With Solyndra hitting financial hurdles, Energy Department officials said they had a choice: See the company collapse, or back its original investment.

“In late 2010, Solyndra faced a cash flow crisis that is very common for innovative start-up companies that are growing quickly,” LaVera wrote. “The Department reached an agreement with Solyndra that gave the company and its 1,100 employees a fighting chance to go forward.”

As part of the restructuring, DOE started sending a representative to sit in on board meetings of Solyndra, ABC and iWatch News reported.

“As one of the conditions for agreeing to approve the restructuring of the loan, the Department gained observer status on the Solyndra board,” LaVera wrote in response to questions last week.

Beyond confirming its “observer status,” Energy Department officials did not answer questions about how many meetings officials attended, what they learned – and what they did about it.

Still, the status is significant. It means that, in the months leading to Solyndra’s implosion, the Energy Department paid particularly close interest. If it saw problems privately, it was not sharing them publicly.

In the May interview, Silver still pitched the loan as a good bet for taxpayers. “I have never seen a company go straight up without a bump along the way,” Silver said. “I have no doubt they will continue to hire more people.”

Silver has not responded to interview requests in recent weeks. He is among the witnesses invited to appear at a House Energy and Commerce hearing scheduled for Wednesday.

A CEO's assertions - and congressional doubts

In July, as the House Subcommittee on Oversight and Investigations escalated its examination of DOE spending by focusing on Solyndra, company President and CEO Brian Harrison came to Washington, meeting with journalists and members of Congress. His pitch: Solyndra was on the way up.

He brought a slide presentation titled, “The Real Story About Solyndra.”

And, he wrote to subcommittee chair Cliff Stearns (R-Fla.), ranking member Diana DeGette (D-Colo.) and other members of Congress about just how well Solyndra was doing, saying its revenues were skyrocketing and its shipments hitting record numbers.

“The company has experienced a total net direct employment increase of over 300 regular, full-time jobs since the DOE made its conditional commitment and Fab 2 planning began. The company continues to hire and grow as our Fab 2 manufacturing ramp continues,” Harrison, named CEO a year earlier, wrote July 13.

David Miller, a Solyndra spokesman, said the company was hopeful it would land more financing to move forward. “When we were there, the circumstances of the company, business was good, we had record shipments. We had momentum in the marketplace,” Miller said in an interview last week.

Little more than a month and a half after Harrison’s letter, on August 31, Solyndra dismissed more than 1,100 full and part-time workers, leaving just a skeletal crew as it looks to sell its assets while in bankruptcy.

Now members of Congress – including Democrats who months earlier had voted against subpoenaing Obama’s Office of Management and Budget for records on Solyndra – want to hear from Harrison. The OMB had reviewed the loan guarantee in 2009, and concluded the risk was greater to taxpayers than DOE had calculated, iWatch News disclosed.

The House committee has called the Solyndra CEO among its witnesses Wednesday.

“Less than two months ago, Mr. Harrison met with us and other Committee members to assure us that Solyndra was in a strong financial position and in no danger of failing,” DeGette and Henry Waxman (D-Calif.) wrote to Republicans leading the investigation.

“At that time, he said the company was projected to double its revenues in 2011, there was ‘strong demand in the United States’ for its shipments, and the company was expected to double the megawatts of panel production shipped this year. These assurances appear to contrast starkly with his company’s decision to file for bankruptcy last week.”

They closed: “Any thorough examination of the Solyndra loan guarantee should include the opportunity to ask Mr. Harrison about his representations. He did not convey to us the perilous condition of the company and the Committee should know why.”

That question – whether Solyndra misled the government about its financial health – appears central to the federal investigation now underway.

When FBI agents surprised Solyndra by showing up at its headquarters early last Thursday morning, seizing boxes of records, they were joined by agents from the Energy Department Inspector General. Federal agents also visited the homes of company CEO Harrison and two founders in an investigation still in its preliminary stages.

The IG’s appearance is a clear signal the half billion dollar loan guarantee, announced with such fanfare but now plagued by a trail of failed promises, is key to the mushrooming investigation.

Skipping safeguards, officials rushed benefit to a politically-connected energy company

2013-03-15T16:42:06-04:00

The Obama administration bypassed steps meant to protect taxpayers as it hurried to approve an energy loan guarantee to a politically-connected California solar power startup, iWatch News and ABC News have learned.

The Energy Department in March 2009 announced its intention to award Solyndra Inc.a $535 million loan guarantee before receiving final copies of outside reviews typically used to vet such deals. An independent federal auditor who has reviewed the energy loan program said moving so quickly without completing thorough reviews exposed the program to perceptions of political influence and put taxpayers at greater risk.

“There’s a consequence if you don’t follow a rigorous process that’s transparent,” said Franklin Rusco, an analyst with the Government Accountability Office. “It makes the agency more susceptible to outside pressures, potentially.”

The loan guarantee, the administration's first for a clean energy project, benefited a company whose prime financial backers include Oklahoma oil billionaire George Kaiser, a “bundler” of campaign donations. Kaiser raised at least $50,000 for the president’s 2008 election effort.

Kaiser did not respond to interview requests made through Solyndra, and his Kaiser-Francis Oil Company in Tulsa said he declined comment. Solyndra spokesman David Miller said political ties had no bearing.

“We do not believe there was any connection at all,” said Miller. “We have created a substantial number of jobs with Solyndra and we’re very proud of that. I think people are missing a lot of the story getting into the politics.”

He said the company first applied for funding under the Bush administration, though it won it under Obama at a time the commercial financing market was dry.

Several political allies of the president have ties to companies receiving Energy Department loans, grants or loan guarantees. For instance, the venture firm of another top Obama bundler, Steve Westly, has financially supported companies that won more than half a billion dollars in energy grants and loans during President Obama’s time in office, iWatchNews and ABC reported in March. Relatively few applicants succeed in winning such benefits. The Energy Department said every one of those awards was won on merit.

The Solyndra loan guarantee, advertised by the administration as part of its signature effort to create jobs while weaning the U.S. from traditional energy sources, already has drawn scrutiny on Capitol Hill. Republican members of the House Energy and Commerce Committee have requested documents from the Energy Department as part of an investigation into how the company qualified for government support and then, a year later, closed a plant, laid off workers, and eventually had to renegotiate the loan guarantee’s terms while working to shore up its finances. Now, the shortcuts at the dawn of the deal identified by government auditors have stoked more questions.

Energy Department officials said their analysts had gathered more than enough information to bet on Solyndra. They said politics played no role, and that they did not give Solyndra or any other company special treatment.

“All applicants within any solicitation are treated the same way,” said Jonathan Silver, executive director of the Energy Department’s Loan Programs Office, which oversees the administration’s $90 billion in spending on promising alternative energy and on green automobile projects. A former venture capitalist, Silver himself has been an early-stage investor in alternative energy technology. He joined DOE after the Solyndra financing.

When the Obama administration announced financing for Solyndra in 2009, the company was only four years old, and had been shipping solar panels for about a year. Officials said the administration was eager to stimulate the economy and spur green energy start-ups. Energy Secretary Steven Chu promised the package alone would create more than 4,000 jobs.

One year later, in March 2010, the signs were not so encouraging. Solyndra’s accountant, PricewaterhouseCoopers LLC, wrote in an audit being prepared for an initial public offering: “The Company has suffered recurring losses from operations, negative cash flows since inception and has a net stockholders’ deficit that, among other factors, raise substantial doubt about its ability to continue as a going concern.” Solyndra has since boosted revenues, though some analysts remain skeptical about its long-term prospects.

Two months later, in May 2010, President Obama visited Solyndra’s Fremont plant and heralded the project as “a symbol of promise” for the loan program.

A month after Obama’s visit, Solyndra canceled its planned IPO.

The loan guarantee agreement was among 10 examined by the GAO last year, and Congress’ investigative arm privately singled out Solyndra as one of five applications that had received conditional approvals before outside experts had finished vetting the deals. The GAO did not identify the companies, but said the Energy Department had “treated applicants inconsistently, favoring some and disadvantaging others.”

ABC and iWatch News pieced together a fuller picture of the circumstances and identified the companies involved. The Energy Department confirmed that Solyndra and two other projects were those cited in the GAO report.

The vetting of applicants for government financial packages is not merely a technical, bureaucratic concern. “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,” said Rusco, director of the GAO’s natural resources and environment team.

The GAO audit said the rules are clear: Before the Energy Department makes a conditional commitment to guarantee a loan, its “procedures call for engineering, financial, legal, and marketing reviews of proposed projects as part of the due diligence process for identifying and mitigating risk.”

Those reviews are meant to form a full portrait of a project’s strengths and potential weaknesses. The legal review explores everything from the equity stake of individual partners to the fine-point details of contracts. The marketing review is crucial in determining a project’s potential to make sales and build a customer base.

In announcing the Solyndra loan guarantee, the Energy Department noted in a public statement that before offering conditional commitments, the government “takes significant steps to ensure risks are properly mitigated” and undertakes “a thorough investigation and analysis of each project’s financial, technical and legal strengths and weaknesses.”

Yet when Chu announced conditional approval for Solyndra that March, neither the legal nor marketing reviews had been finalized, iWatch News and ABC have learned. For Solyndra, the marketing review had special relevance because of the financial troubles that soon surfaced.

Energy officials say they felt they had enough marketing information in hand to proceed. “We had an extensive market analysis conducted prior to the conditional commitment for Solyndra which was updated and finalized prior to closing,” spokeswoman Stephanie Mueller wrote in an email.

Energy Department loan director Silver said Solyndra and two other projects secured conditional commitments without completed legal reviews, which can cost companies thousands of dollars. Red River Environmental Products LLC obtained a $245 million loan guarantee to build an activated carbon manufacturing facility in Red River Parish, La.,and a project to build two new nuclear reactors in Burke, Ga., received an $8.3 billion guarantee. That project involves Georgia Power Company, Oglethorpe Power Corporation and the Municipal Electric Authority of Georgia.

Silver called the decisions to make conditional commitments without full legal reviews routine, and said the arrangements did not subject taxpayers to heightened risk. By the time of the Solyndra closing, six months after Chu’s announcement, he said, all required reviews had taken place.

“A conditional commitment is only an interim step to a loan guarantee. It is not a loan guarantee itself,” said Silver. “Final legal reports would not be expected at conditional commitment. It would only be expected at final close.”

A conditional commitment along with an announcement of financial support from the Energy Department can help startup clean tech firms attract more investors — and distance themselves from competitors lacking the government’s stamp of approval. Final approvals, virtually assured, are granted at closing. By then, companies have already banked on the financial momentum of the agency’s guarantee: The department routinely issues press releases touting its conditional commitments.

Energy boasts of “aggressive timeline” on loan guarantee

Obama’s desire to shift the nation into more environmentally friendly sources of energy while creating jobs during a recession have fueled a raft of projects involving billions of federal dollars.

Against that backdrop, Solyndra was to be an early prototype for government-boosted private sector innovation. The company was the first recipient of an energy loan guarantee through the Obama administration’s $787 billion package of economic stimulus programs. It was the Energy Department’s first loan guarantee since the 1980s.

There’s a long history of federal support for energy exploration. Under past administrations most of those benefiting were from the oil and gas industries. Back room meetings in 2001 between then-Vice President Dick Cheney’s energy task force and top oil executives exemplified what many regarded as coziness between government leaders and Big Oil. When Obama took office, he pledged to help the U.S. pull away from dependence on traditional energy.

When announcing the Solyndra loan guarantee two months after Obama took office, the Energy Department boasted of its speed. Secretary Chu had set a target of May — three months into his own tenure — to announce his initial loan commitment, “but today’s announcement significantly outpaces that aggressive timeline,” the Energy Department noted in a press release.

“Secretary Chu credited the Department's loan team for their work accelerating the process to offer this conditional commitment in less than two months, demonstrating the power of teamwork and the speed at which the Department can operate when barriers to success are removed,” it said.

That financing came at a time the Department of Energy was thin on staffing in its loan office. When Obama took office in January 2009, the energy loan office had just 15-20 people, director Silver said. Now, he said, it boasts 175 and a rigorous application screening process.

To close the loan, Chu said Solyndra had to meet an equity commitment. It took months to happen. Among the key backers of the $198 million raised: Oklahoma oilman Kaiser’s Argonaut Private Equity, as well as Madrone Capital Partners, a private investment firm affiliated with S. Robson Walton, chairman of Wal-Mart Stores Inc.

Kaiser’s Argonaut Private Equity and its affiliates were the largest shareholder of Solyndra as it pushed for the IPO. Kaiser’s firm remains a “significant financial backer of Solyndra,” Solyndra spokesman David Miller confirmed. The Oklahoma oil magnate hosted a 2007 Tulsa fundraiser for Obama and regularly visits White House staff, visitor logs show.

“I don’t think anybody said we didn’t go through the full process. After the conditional commitment we still went through extensive due diligence. It was still a competitive process,” Miller said. “We applied for the loan guarantee in 2006. It was awarded three years later. It was not like something was done to make this thing really fast. It was a long, arduous process.”

The payoff came with financing that bankrolled a manufacturing plant for the company’s proprietary panels for the commercial rooftop market. The loan guarantee helped trigger 3,000 construction jobs to build the new plant and promised to create another 1,000 fulltime jobs once it was fully operating. “This investment is part of President Obama's aggressive strategy to put Americans back to work and reduce our dependence on foreign oil by developing clean, renewable sources of energy,” Secretary Chu said. “We'll rely on America's innovation, America's resources, and America's workers.”

In September 2009, the deal officially closed, with Solyndra using the $535 million loan guarantee from the U.S. Treasury’s Federal Financing Bank to fund construction of the so-called Fab 2 factory, headquarters and customer demonstration facility. Under the terms, taxpayers pick up the tab if the borrower defaults.

At groundbreaking, Chu and then-California Gov. Arnold Schwarzenegger were on hand. “This announcement today is part of the unprecedented investment this administration is making in renewable energy and exactly what the Recovery Act is all about,” said Vice President Joe Biden, appearing via satellite from Washington.

“The promise of clean energy isn’t just an article of faith — not anymore,” Obama told Solyndra workers eight months later. “The future is here.”

Yet Solyndra ran into trouble amid analyst concerns its manufacturing costs were too high. It laid off nearly 180 workers, most of them part-time, as it shuttered another plant and cancelled the IPO.

This year, the Energy Department agreed to a restructuring that pushed back the date on which it will repay lenders. Silver said the modification “was an effort on our part to ensure we had the tightest and best structured project.”

He said early hiccups are not unique for such projects and that the company will prove successful. “I have never seen a company go straight up without a bump along the way,” Silver said. “I have no doubt they will continue to hire more people.”

Despite speed, officials dispute taking shortcuts

During interviews and email exchanges with iWatch News and ABC News, Energy Department officials and independent government auditors told two different versions of exactly when the outside reviews are required — and on the significance of the timing. While the GAO questioned the department for green-lighting loan guarantee commitments without all reviews in hand, energy officials say they have discretion to complete those reports in time for closing.

The GAO noted that the advantages of bypassing the outside reviews were significant, “allowing these applicants to receive conditional commitments before incurring expenses that other applicants were required to pay.” It added, “DOE has treated applicants inconsistently. Although our past work has shown that agencies should process applications with the goals of treating applicants fairly and minimizing applicant confusion, DOE’s implementation of the program has favored some applicants and disadvantaged others in a number of ways.”

The Energy Department’s own documents spell out the importance of the pre-approval scrutiny. “Because each project will be unique and each loan guarantee potentially subjects the Federal government to significant financial liability,” an official notice says, “DOE plans to engage in a rigorous review of a proposed project before determining whether it may be eligible for a Loan Guarantee Agreement and subsequently approving and issuing loan guarantees.”

For its part, Solyndra said the outside legal review was a small matter. “My understanding was it was a procedural thing, there was a step that … happened later,” said Miller. “My understanding is it just had to do with the timing of a form.”

The company has yet to turn a profit. But Miller said Solyndra's outlook remains bright, and predicted the company would be cash positive by the end of the year.He said Solyndra has 321 more jobs today than at the time of the loan, has already met the 3,000-force construction goal and aims to attain the long-term hiring benchmark. “As we go cash positive, if you were to get that auditor’s opinion today, it would tell a different story,” he said.

Some analysts are far from convinced.

“If anything, they’re still swimming upstream in a very competitive market,” said Shyam Mehta, senior solar analyst at Greentech Media Research.

“The outlook for them has improved relative to, say, a year ago when they had to cancel their IPO or six months ago when they had to close their factory, but it doesn’t mean they are out of the water,” Mehta added. “Their viability is far from resolved, and I think it’s a real risk the company would at some point face the threat of insolvency. I don’t want to be extreme about that, but it is a definite possibility when you are competing in the global market.”

Mehta has long raised questions about the company’s manufacturing costs in a world market where China offers stiff competition. He said Solyndra has focused on cutting those costs, but that there’s no assurance the company — or the government loan guarantee — will prove successful.

“There’s a lot at stake here, not just for Solyndra,” Mehta said. “This is going to be held up as a cautionary tale if things don’t work out for Solyndra. People are watching very closely from all angles.”

Energy-backed firms award bonuses, file bankruptcy

2012-10-05T12:04:27-04:00

President Obama’s Department of Energy financed a fleet of green energy companies that later fell into bankruptcy — but not before the firms doled out six-figure bonuses and payouts to top executives, a Center for Public Integrity and ABC News investigation found.

Take, for instance, Beacon Power Corp., the second recipient of an Energy Department loan guarantee in 2009. In March 2010, the Massachusetts energy storage company paid cash bonuses of $259,285 to three executives in part due to progress made on the $43 million energy loan, Securities and Exchange Commission records show. Last October, Beacon Power filed for Chapter 11 bankruptcy.

Ener1 subsidiary EnerDel, maker of lithium-ion battery systems, landed a $118.5 million energy grant in August 2009. About one-and-a-half years later, Vice President Joe Biden toured a company plant in Indiana and heralded its taxpayer-supported expansion as one of the “100 Recovery Act Projects That Are Changing America.”

Two months after Biden’s visit, corporate parent Ener1 paid $725,000 in bonuses to three executives — including $450,000 to then-CEO Charles Gassenheimer, who led Biden on the tour. This January, Ener1 filed for Chapter 11 bankruptcy protection.

At least two other firms that benefited from Energy Department funding — one a $500,000 grant, the other a $535 million loan guarantee — handed out hefty payouts to executives and later went bankrupt.

The Department of Energy, asked about the payments examined by the Center and ABC, said it is troubled by the practice and intends to convey that message to loan recipients.

"We don’t begrudge companies or their executives for their success, but it is irresponsible for executives to be awarded bonus compensation when their workers are losing their jobs,” said department spokeswoman Jen Stutsman. “We take our role as stewards of taxpayer dollars very seriously, and as such, we will make clear to loan recipients our view that funds should not be directed toward executive bonuses when the rest of the company is facing financial difficulty.”

The bonuses and bankruptcies come against a growing wave of trouble for companies financed with Energy Department dollars. Of the first 12 loan guarantees the department announced, for instance, two firms filed for bankruptcy, a third has faced layoffs and a fourth deal never closed.

The nonprofit Citizens Against Government Waste counts nearly 20 government-backed energy companies that have run into financial trouble ranging from layoffs to losses to bankruptcies. An outside consultant hired by the White House said the Energy Department’s loan pool includes $2.7 billion in potentially risky loans and suggests the agency hire a “chief risk officer” to help minimize problems.

To watchdogs, the pattern of firms awarding bonuses only to file for bankruptcy raises questions about how well the Energy Department chose its winners, and how thoroughly it kept an eye on them once selected.

“Giving a bonus to the executives under these circumstances is rewarding failure with our money with no chance of getting it back,” said Leslie Paige, spokeswoman for the nonpartisan Citizens Against Government Waste.

“Taxpayers need some representation here. They didn't really get it.”

The setbacks have intensified the glare on the president’s environmental mission, already under scrutiny following the collapse of Solyndra Inc., the first recipient of an Obama green energy loan.

Solyndra, bankruptcy records show, was among the companies to dole out thousands in executive payments — in its case, just months prior to its late August collapse and early September bankruptcy. As a criminal investigation and House inquiry continue into the company’s implosion, the government must navigate bankruptcy proceedings in hopes of recovering a piece of its $535 million investment.

In interviews, executives with companies backed by public dollars defended the payments as proper. Some said bonuses were granted for work done in a previous year, before financial storm clouds had fully developed, and that the executive cash infusions were sometimes linked to broad corporate milestones.

One company executive said the Energy Department explicitly allows for federal funds to be used to pay out executive bonuses.

DOE does not set salaries and benefits of companies it backs, “but we do closely scrutinize all of the expenses submitted by the companies before they are reimbursed to ensure that taxpayer dollars are being used appropriately,” said spokeswoman Stutsman. “Funds are paid out as the work is actually completed.”

Secretary Steven Chu declined an interview request. The department has long defended the green energy movement as a way for government to help spur development of cutting edge products that aid the environment and economy. Sometimes, they say, investments in potential game-changing technologies simply don’t work. The potential default rate, they say, is within the parameters set by Congress.

Yet some members of Congress — already concerned about lucrative paydays at bankrupt Solyndra — say they’re particularly troubled that failed companies, backed by Energy Department funds, would pay bonuses at all.

“Any company that's going into bankruptcy or any executive that ran a company into bankruptcy shouldn’t be getting bonuses in the first place,” said Sen. Charles Grassley, R-Iowa, former chairman of the Senate Finance Committee. “In the case where there might be federal grants or federal loans, I would be very concerned.”

Grassley added: “The purpose of our grants for energy or almost any other grant of government is for the purpose of innovation. It's not for the purpose of feathering the nest of a private company executive.”

Bruce Kogut, director of the Sanford C. Bernstein Center for Leadership and Ethics at the Columbia Business School, said it is not uncommon for corporate bonuses to be awarded when executives meet key achievement milestones.

“The problematic issue,” professor Kogut said, is giving out bonuses “near the time of bankruptcy.”

Solyndra executives, bankruptcy records show, pocketed thousands in payments just months before the company dismissed 1,100 workers. At least 17 company executives received two sets of payments — ranging from $37,000 to $60,000 each payment — on the same days in April and July 2011. The insider payments, reported last year in the San Jose Mercury News, came as the company catapulted toward bankruptcy in early September. A Solyndra spokesman did not reply to interview requests.

Solyndra’s crash last August put a sharp focus on the selection process the Energy Department follows in awarding taxpayer dollars. The administration backed the upstart firm despite concerns even from some government officials worried about Solyndra’s financial viability, email records show. And, energy officials committed to the financing before all due diligence was in hand.

Bankruptcies and bonuses

Not as well-known are three other firms backed by Energy Department dollars — ranging from $500,000 to $118.5 million — that also suffered financial downturns. As with Solyndra, each corporate entity rewarded executives prior to its bankruptcy filing.

One example: Ener1, whose subsidiary EnerDel won the $118.5 million Energy Department grant in 2009 to help expand its manufacturing plant. The company also received supportive write-ups on the DOE website.

Vice President Biden’s January 2011 visit to the company’s Greenfield, Indiana, plant was part of the government’s “White House to Main Street Tour.”

“This Administration is forging a new path forward by making sure America doesn't just lead in the 21st Century, but dominates in the 21st Century,” Biden said after a tour with Ener1 CEO Gassenheimer. "We're not just creating new jobs — but sparking whole new industries that will ensure our competitiveness for decades to come — industries like electric vehicle manufacturing."

A White House report listed the EnerDel project as No. 67 among the “100 Recovery Projects that are Changing America.”

In March 2011, Gassenheimer was awarded a $450,000 bonus, SEC records show. Two other Ener1 executives pocketed bonuses of $225,000 and $50,000 for a total payout of $725,000.

In January 2012, one year after Biden’s visit, Ener1 filed for bankruptcy, citing $73.9 million in assets and $90.5 million in debts.

Energy officials noted that while the bonuses were paid to executives from Ener1, the government grant went to a subsidiary called EnerDel, which was not part of the bankruptcy case. But the two are closely related — bankruptcy records show EnerDel now provides all of the employees for the parent company. And the distinction is new for the Energy Department — a press release touting Biden’s visit referred to the parent company Ener1 as the recipient of administration support, not EnerDel.

Gassenheimer, reached for an interview, said he could not comment. He is no longer with Ener1.

A company spokesman said the bonuses were paid through Ener1, the corporate holding company, not EnerDel. DOE said the subsidiary’s project is on schedule, and an Ener1 spokesman said the battery company aims to get back on its feet through reorganization.

Beacon Power’s bonuses were specifically linked to executives’ progress in landing the company’s $43 million Energy Department loan guarantee in 2009.

Securing the loan was among the measures used to establish how much executives would pocket in bonuses, company SEC filings show. “The DOE loan application was approved by the credit review board, making us the first public company and the second of 16 applicants to receive the commitment,” the document notes.

President and Chief Executive Officer F. William Capp received a $133,256 cash bonus in March 2010. Two other company officials pocketed combined bonuses that month of $126,029.

In an interview, Capp said the company’s pay structure was reasonable and that executives took pay cuts in a bid to help Beacon Power survive.

“The record is clear on that. The executives have not enriched themselves,” Capp said. “We all agreed to take a 20 percent reduction in pay just to make the funds last longer in order to keep the team together. There’s hardly been self-enrichment.”

Last week regulators approved Beacon Power’s sale to an equity firm that should help it repay $25 million of the $39 million Beacon had drawn down from the loan. The company, under new ownership, plans to continue operating the 20-megawatt flywheel energy storage plant in Stephentown, New York, a project the department said would “ensure the reliable delivery of renewable energy to the electricity grid.” It hopes to build a second plant in Pennsylvania.

Capp blamed the bankruptcy on a variety of factors, including government fears about restructuring loans after Solyndra filed for bankruptcy. His firm, he said, got swept up in “Hurricane Solyndra.”

‘It all happened so quickly’

Other energy companies struggled in the storm.

Among them: SpectraWatt, a New York state manufacturer of silicon solar cells. In 2009, SpectraWatt secured a $500,000 grant from the DOE’s National Renewable Energy Laboratory Photovoltaic Technology Pre-Incubator program. In March 2010, U.S. Labor Secretary Hilda L. Solis and a local congressman toured the company’s Hudson Valley Research Park in Hopewell Junction, N.Y., highlighting the wave of coming green jobs.

“President Obama and I understand and believe that the first thing we have to do to turn the economy around is provide American families with good jobs,” the labor secretary said, according to a SpectraWatt press release. “That is why we are committed to investing in greening our economy.”

Yet, not long after, the company’s momentum suddenly halted.

Last August, SpectraWatt filed for Chapter 11 bankruptcy protection.

“It all happened so quickly,” Richard J. Haug, SpectraWatt’s President and COO, said in an interview. The company’s innovative technology, he said, butted up against changing market and pricing conditions, competition from the Chinese — and the fact that some early investors did not follow through.

“They couldn’t locate any new money,” he said. “It was very disappointing.”

While the DOE’s early grant supported research and development, Haug said, a later funding request was denied. Last March, he said, the company laid off its workforce and effectively shut down. “It became increasingly difficult for us to make any more money. By the end of 2010 we basically dropped down to a cash level … that by March we would be out of business,” Haug said.

In March, the big payouts began. Five company executives, including Haug, received six-figure payments in late March or early April 2011, bankruptcy records show. The five “insider payments” totaled more than $745,000.

Haug said the payouts were not bonuses, but accrued vacation and pay for executives that had been spelled out in severance agreements. “There were no golden parachutes,” he said. “This was a very straightforward very honest group of people. I’d go to work with them again anytime.”

Energy officials noted that their early investment in SpectraWatt was relatively small compared to other project financing. Late last year, the company held auctions to sell off its plant and property.

In recent weeks, several other companies backed by DOE dollars have encountered deep financial woes.

At least six Energy Department loan and grant recipients — from electric car maker Fisker Automotive to electric-car battery maker A123 Systems to Colorado-based Abound Solar — have laid off workers or suffered financial woes. Those setbacks come on top of the companies that have already filed for bankruptcy.

Administration officials, from Obama on down, say they continue to support the green energy mission. “There were going to be some companies that did not work out,” Obama told reporters in October, after Solyndra’s meltdown. “All I can say is the Department of Energy made these decisions based on their best judgments.”

Bundlers on the inside

2013-05-08T11:53:30-04:00

Several of Barack Obama’s top campaign supporters went from soliciting political contributions to working from within the Energy Department as it showered billions in taxpayer-backed stimulus money on alternative energy firms, iWatch News and ABC News have learned.

One of them was Steven J. Spinner, a high-tech consultant and investor in energy companies who raised at least $500,000 for Obama. He became one of Energy Secretary Steven Chu’s key loan programs advisors while his wife’s law firm represented a number of the companies that had applied for loans.

Recovery Act records show Allison Spinner’s law firm, Wilson Sonsini Goodrich & Rosati, received $2.4 million in federal funds for legal fees related to the $535 million Energy Department loan guarantee to Solyndra, a solar company whose financial meltdown has prompted multiple investigations. She pledged to take no portion of the money and did not work on the loan applications.

As House Republicans step up their probe of the Obama administration’s green energy loan program in the wake of Solyndra’s bankruptcy, a key focus – and open question – is whether the president’s political supporters had any hand in influencing which companies received the taxpayer support.

"There is great concern over political influence contaminating the DOE loan guarantee program,” said Rep. Cliff Stearns (R-Fla), who chairs the House Energy and Commerce’s Oversight and Investigations Subcommittee. “The prevalence of fundraisers and bundlers scattered throughout DOE is cause for alarm and is a subject our investigation does not take lightly – we are looking into this and will see where it leads us.”

The administration has repeatedly said that politics has played no role in deciding which companies received federal loans.

Spinner declined requests to be interviewed. Representatives for Spinner, his wife, and for the Energy Department all told iWatch News and ABC News that Spinner and his wife took elaborate steps to avoid conflicts between his government work and her legal work. Spinner obtained a waiver that promised he would not work on cases involving clients of his wife’s firm. And she pledged not to take proceeds from her firm’s work with companies that had applied for loans.

Damien LaVera, an Energy Department spokesman, described Spinner as someone who had “no role” in evaluating loan applications or selecting recipients.

Spinner described his job differently. His online bio for the Center for American Progress, the left-leaning think tank he joined after leaving the administration, states that he “helped oversee the more than $100 billion of loan guarantee and direct lending authority” for the department’s green-energy loan program.

And in a speech at a “Green Tech” conference in June 2010, Spinner described how he “worked very, very closely with all the various organizations, the various offices, in trying to streamline operations and … move the funding opportunity announcements out, get the solicitations out on the street.”

“What the secretary really cared about was he wanted us to get the money out fast, he wanted us to pick and select fantastic projects,” Spinner said.

Spinner was not the only Obama political supporter to play a role at the Energy Department. California venture capitalist Steve Westly, who raised more than $500,000 for Obama, has Secretary Chu’s ear on green energy issues as a member of a high-level volunteer advisory panel. Mackey Dykes, who was a finance manager for the Obama campaign, was hired to be the liaison between the Energy Department and White House. Each declined interview requests.

Obama’s political supporters were also investors in companies that had applied for loans. Westly has had a stake in at least five companies that have won DOE support; four won funding before he joined Chu’s board. While it is common for presidents to reward top donors with ambassadorships or other political posts, the Sunlight Foundation’s Bill Allison said it is unusual to see a major donor such as Spinner given a position inside a relatively obscure government loan program.

“For an administration that won’t hire lobbyists to be hiring fundraisers for that role, that seems to be a bit of contradiction,” said Allison. “Obviously you want to keep all people who are involved in political influence out of positions of responsibility.”

The Energy Department said Spinner brought experience working with startup companies – the type of firms lining up for green energy funding intended to aid the environment and economy.

“Spinner is a Harvard MBA and an experienced business executive with more than 15 years advising innovative start-up companies in the technology, media and retail industries. He advised over 50 start-up companies over the last 10 years,” the Energy Department’s LaVera said.

Both Spinner and Westly were among a California contingent of green energy executives who put their money, and energy, behind Obama.

When President Obama won the White House in 2008, Spinner was one of several Silicon Valley executives to help vault him to victory. Spinner was one of just 52 fundraisers to raise more than half a million dollars for the president. He served the Obama-Biden Presidential Transition Team focused on technology innovation and government reform.

In February 2009, San Francisco Magazine quoted several local Obama backers reflecting on the campaign.

“In May, about 120 of us had an Entrepreneurs for Obama video teleconference with Barack. Afterward, Steve Westly and some other senior Silicon Valley executives stayed and put forth their ideas on tech issues and initiatives and the campaign,” Spinner was quoted as saying. “I really loved that I could help differentiate this campaign’s technology from any others in history. I knew most of the venture capitalists and entrepreneurs, and if there was something good, I could bubble it up to the campaign.”

In April 2009, Spinner joined an Energy Department poised to unleash billions of dollars, becoming a “small business loan guarantee advisor,” a title that later shifted to “loan program advisor,” focused on financing start-up green energy firms and cutting edge car makers. He held the job for 17 months.

The move turned a hearty presidential supporter and frequent energy investor into a DOE insider.

Spinner’s financial disclosure forms showed that was an active investor in energy-related companies. On his final disclosure report signed Oct. 15, 2010, Spinner listed at least 15 purchases and 14 stock sales of energy related stock earlier that year.

An initial review of financial disclosure records by iWatch News and ABC News showed one investment in an energy firm whose subsidiary received funds from the Energy Department while he was working there, and investments in three others that landed Energy Department support after he sold his stakes. Energy officials said they considered his portfolio small enough to fall “within the Executive Branch-wide de minimis exception for interests in securities.”

Spinner reported making $12,155 from a 2008 investment in Atheros Communications. In June 2010, Atheros announced it would receive up to $4.5 million in DOE grant funding. DOE said Spinner sold his Atheros stock before joining the department. On another form, Spinner reported selling off his $1,001-$15,000 investment in Air Products & Chemicals Inc. in February of 2010, four months before Air Products announced it landed $253 million in stimulus funding. “To the best of our knowledge, he had no involvement” with the award, a company official said. Spinner invested $1,001-$15,000 in Exelon. A subsidiary of Exelon was awarded a $200 million DOE grant in late 2009. A spokeswoman said the company never dealt with Spinner as their grant was being considered.

His wife’s role in a law firm representing corporate clients seeking energy funds prompted Energy Department ethics officials to take a closer look, according to documents obtained under the Freedom of Information Act. The law firm has represented several companies that had applied for Energy Department loans and loan guarantees.

On August 18, 2009, four months into his tenure at the Energy Department, Spinner received an ethics opinion involving that connection. Matt Rogers, then a senior advisor to the energy secretary, wrote that Spinner could continue in his duties, but “not participate in any discussion regarding any application involving Wilson [Sonsini].” The opinion said his wife would forgo pay “earned as a result of its representation of applicants in programs within your official duties.”

Rogers said Spinner’s conflict was minimized because his role at the Energy Department was supervisory – “to embrace strategic objectives, inquire on overall progress of applications to the program staff, anticipate and help senior management clear any institutional roadblocks to accomplishment of the program’s objectives.”

Courtney Dorman, a spokeswoman for Allison Spinner’s law firm, Wilson Sonsini, said the firm also took strides to avoid conflicts, establishing a wall between her and client matters involving the Energy Department while Spinner was in office.

One of those law firm clients, SEC records show, was Solyndra – the California solar panel firm whose collapse put half a billion dollars of taxpayer money at risk and prompted an investigation by the FBI and other agencies.

The law firm worked on the solar company’s failed public offering, the records show. And it also provided Solyndra with outside counsel on the DOE loan guarantee transaction. The company was paid $2.44 million for its Solyndra work, records show – money generated by the Energy Department’s stimulus loan guarantee to the solar panel firm.

Allison Spinner “was not involved with that transaction, nor has she ever worked with Solyndra in any capacity,” Dorman said.

The law firm’s website cites Allison Spinner’s work with other clean tech firms – including Amyris Inc. and HCL CleanTech. Both companies had engaged in the time consuming process of applying for green energy grants. Amyris Biotechnologies won $25 million from DOE in late 2009 to develop a diesel substitute and went public the next year – with Spinner’s wife helping handle the IPO. After Spinner left the department, HCL CleanTech landed a $9 million Energy Department grant to convert biomass feedstocks into fuel and chemical products.

Dorman, the firm spokeswoman, said in an email that Wilson Sonsini “established an ethical wall around Allison with respect to WSGR representation of clients in matters involving DOE loan programs.” Dorman also said that Allison Spinner’s clients had DOE loans or grants “that fell outside of Steve’s jurisdiction.”

Steven Spinner was not with the department when Solyndra won a conditional commitment for the loan guarantee in March 2009. But he was on board when the loan closed that September. A few days later, at a clean tech forum in Boston in September 2009, Spinner spoke of the virtue of the DOE’s support.

“We liked the taste of it,” he said, telling the Boston group the company would bring thousands of jobs.

After leaving the department last September, Spinner has continued to cheerlead for its mission. This July, he co-authored an article for the Center for American Progress titled “Don’t Let Clean Energy Funding Die on the Vine.” The House committee’s investigation of the Solyndra financing was just heating up.

“This ‘embattled’ program has by all business metrics proven an outright success,” he wrote. “Even the most controversial loan guarantee recipient—Solyndra, a solar manufacturer—is seeing an operational turnaround…”

Little more than a month later, Solyndra fired 1,100 workers and filed for bankruptcy.

Energy Department auto loan program sputters

2013-03-18T11:57:39-04:00

A Department of Energy loan program, infused with $25 billion to spur a wave of fuel-efficient vehicles, has not closed a loan in two years and is likely to leave two-thirds of the money unspent amid fallout over the Solyndra debacle and other factors.

Those findings, revealed Friday in a U.S. Government Accountability Office report, rekindle questions over how effectively the Energy Department picks winners and losers for its lucrative green energy portfolio.

The audit focuses on DOE loan programs, including one known as ATVM — the Advanced Technology Vehicles Manufacturing program.

That program was pitched as part of a broader government campaign to spur innovative, clean technologies that would both rev up the economy and clean the environment. Under ATVM, the government would help bankroll electric cars and other fuel-saving initiatives; this seed money would, in turn, trigger a domino effect for industry and consumers.

Yet the last loan closed in March 2011, and just $8.4 billion has been spent so far in five projects.

The money, records show, helped stalwarts Ford Motor Co. and Nissan North America transform factories to build fuel-efficient vehicles, and cutting-edge upstarts Tesla Motors and Fisker Automotive develop electric cars and plug-in hybrids. A smaller loan went to a Miami company to develop wheelchair-accessible vehicles to run on compressed natural gas.

Yet not all the projects have found success.

An investigation by The Center for Public Integrity and ABC News, published in October 2011, revealed that DOE made a $1 billion bet on two politically connected California car companies — Tesla and Fisker — despite questions from analysts and others about how well their electric cars would fare in the market.

Both companies said the government investment ultimately would pay off. Yet Fisker’s CEO stepped down this week, as the company seeks new investors to jump-start its production.

The ATVM program was infused with another $7.5 billion to cover credit subsidy costs, yet $4.2 billion remains in that pool of money, the GAO report said.

The Energy Department does not expect to issue any more loans under a program once pitched with promise.

As of January 29, 2013, “DOE was not actively considering any applications for using the remaining $16.6 billion in loan authority or $4.2 billion in credit subsidy appropriations available under the ATVM loan program,” the GAO’s Frank Rusco wrote.

The Energy Department told auditors it had seven ATVM applications on file, totaling $1.48 billion. But those applications were “inactive,” DOE said, “for reasons including insufficient equity or technology that is not ready.”

“DOE is not likely to use the remaining ATVM loan program authority given the current eligibility requirements,” the GAO said.

Some potential applicants said they were hesitant to seek Energy Department funding. One factor: The ghost of DOE’s Solyndra debacle continues to hover over the program.

Solyndra, the first green energy loan guarantee unveiled by the Obama administration, was announced with fanfare in early 2009. Yet the Center and ABC reported in May 2011 that DOE initially green-lighted the $535 million loan without all due diligence in hand, putting taxpayers at risk. Later in 2011, Solyndra shuttered its California headquarters and filed for bankruptcy.

The FBI and the Energy Department’s Inspector General have been conducting a joint investigation of the Solyndra project since 2011. No charges have been filed. “It’s still an ongoing, joint investigation,” an FBI spokeswoman told the Center January 31.

“Most applicants and manufacturers noted that public problems with the Solyndra default and other DOE programs have also tarnished the ATVM loan program, contributing to the challenges,” the GAO wrote. “They believed the negative publicity makes DOE more risk-averse or makes companies wary of being associated with government support.”

Applicants and manufacturers said the loan program is needed to help advance technology. Yet several told auditors the cost of participating “outweigh the benefits.” Some cited a “lengthy and burdensome application and review processes.”

This is not the first time auditors have questioned the ATVM program. An earlier GAO audit, released in 2011, warned that the $25 billion may never fully be spent in a program lacking clear benchmarks to ensure taxpayer dollars were properly spent.

An Energy Department spokesman did not respond to an interview request Friday.

The agency, in a written response to auditors, acknowledged it “is not likely to use the remaining Advanced Technical Vehicles Manufacturing loan program authority under the current eligibility requirements.”

The loan office “would be pleased to share our lessons learned in implementing the program and discuss options for program modifications to improve implementation of the original legislation,” wrote David G. Frantz, the Loan Programs Office’s acting executive director.

Two DOE electric car loans, two different paths

2013-05-23T16:09:18-04:00

They are two cutting-edge electric car makers, headquartered in California and backed by powerhouses of politics and money. In 2009, each secured half-billion dollar loan commitments from President Obama’s Department of Energy to help transform their clean-energy cars from drawing boards to showrooms.

But this week, the fortunes of Tesla Motors and Fisker Automotive took sharply divergent turns.

On Wednesday, the Energy Department announced that Tesla repaid the balance of its $465 million government loan nine years early. Fisker, meantime, has ceased making cars as it weighs potential bankruptcy, confronts a $171 million loan balance with DOE and, last month, faced questions from the House Committee on Oversight & Government Reform.

In October 2011, The Center for Public Integrity and ABC News explored the Energy Department’s risky $1 billion bet on two companies lauded for their innovative design, but facing warnings from experts over the marketability of cars that, in some models, carry price tags hovering around six figures.

In announcing Tesla’s loan repayment this week, the department said the risks were worth taking, coming at a time the industry itself suffered a deep downturn. “The lack of financing for the automotive industry was critical and potentially lethal,” Energy Secretary Ernest Moniz said in a statement. “Providing these loans was a calculated risk — but it was the right decision for the country.”

Yet for Fisker, whose loan was heralded by Vice President Joe Biden, the risks remain ripe. The company’s vision of developing a muscular Karma and more practical sedan faltered amid a series of setbacks from slow- moving government approvals to recalls and financial downturns involving suppliers.

DOE initially agreed to loan Fisker $529 million to help the company develop two lines of plug-in hybrids. Of that, $359 million would help the company re-open a shuttered former GM plant in Delaware, where Fisker would develop “Project NINA” — a mass-market hybrid sedan to be called the Atlantic. “The company estimates it will build 75,000-100,000 of these highly efficient vehicles every year by 2014,” DOE announced in 2009.

The remaining money would help Fisker complete its luxury Karma.

"We understood a new chapter had to be written, a new chapter in which we strengthen American manufacturing by investing in innovation,” Biden said in 2009, citing Fisker’s loan.

Yet reality collided with those projections, and Fisker Automotive has not come close to meeting its goals.

The company began drawing down on the DOE loan in 2010, and by the middle of 2011, had collected $192 million in government money, records show. But then, as Fisker encountered production hiccups, the Energy Department cut off the money spigot. DOE has recouped $21 million of the $192 million it loaned Fisker, leaving the company $171 million in debt to the government as it weighs a potential bankruptcy.

Testifying before the Oversight and Reform Committee late last month, co-founder Henrik Fisker said the company had sold 2,000 Karmas worldwide. He cited a series of setbacks that, like a domino, helped topple production of the company’s fleet.

In 2011, Fisker said, regulatory approvals for the Karma in the United States “took longer than anticipated.” Then, after the company began delivering the car to customers, two parts provided by outside suppliers had to be recalled. “The recalls generated bad publicity, diverted management attention, impacted sales, and further delayed our production schedules,” Fisker said.

Then came a bigger blow: In October 2012, Fisker’s lithium ion battery manufacturer filed for bankruptcy protection. Fisker’s exclusive supplier — another recipient of DOE funding — stopped manufacturing batteries.

“Fisker Automotive had to cease production of the Karma,” Fisker said. “We explored options for other battery suppliers, but due to large investment costs and long development cycles, we could not secure arrangements that would allow us to resume production immediately.

“This was a crippling factor in restarting production of the Karma.”

With Hurricane Sandy came more bad news. More than 330 Karmas, awaiting shipment at Port Newark in New Jersey, were “damaged beyond repair during this unforeseen natural disaster. This constituted a major share of the company's inventory and resulted in a drastic loss in revenue,” Fisker said.

Fisker’s other car, the Atlantic, has yet to go into production.

Henrik Fisker stepped down as CEO in 2012, and resigned from the board in March. Yet he told the committee the company’s technology earned honors, and said Fisker Automotive “still has the potential to build on these achievements” if it can secure financing.

“From the outset, Fisker Automotive aimed to be a new American car company, setting pioneering standards for low-emission technology and cutting-edge design,” he said. “I sincerely hope that the company can find a way to move forward and repay its Department of Energy loans.”

Tesla, the other California electric car company backed by DOE money, repaid its loan this week.

Both companies received backing from heavyweights in business and politics. Fisker’s prime supporters included the California venture capital firm Kleiner Perkins Caufield & Byers, whose partners include former Vice President Al Gore. Tesla’s prime backers include venture capitalist and Obama fundraiser Steve Westly, and Google co-founders Larry Page and Sergey Brin.

While Fisker searches for a potential buyer to help salvage the company, Tesla has, of late, pointed to headlines: Its Model S was recently named Motor Trend Car of the Year. On its website, Tesla prices the sedan from $62,400-$87,400, depending on the model — after a $7,500 federal tax credit. Its six-figure Roadster sports car, it said, is sold out in North America.

Tesla’s $465 million loan, the DOE said, enabled the company to open a shuttered plant in Fremont, California, “and to produce battery packs, electric motors, and other powertrain components.”

In a brief interview Thursday, Diarmuid O’Connell, Tesla’s vice president of business development, said the company raised money to pay off the DOE loan this week.

Asked why the two electric car companies have forged disparate paths, he provided a concise answer.

“Fisker and Tesla have always been on different trajectories, our business models have always been different,” O’Connell said. “What we are focusing now on is building market.”

For the Energy Department, the next focus could be Fisker — and bankruptcy court, should the company take that route. On Thursday, energy officials did not respond to questions about what steps the department would take if Fisker files for bankruptcy, or how much the government anticipates recovering.

Center, ABC win Emmy Award for Solyndra investigation

2012-10-02T11:27:50-04:00

NEW YORK — The Center for Public Integrity and ABC News were awarded an Emmy Award Monday for their yearlong investigation exposing flaws in a U.S. government green energy program meant to boost new and innovative technologies.

Center senior investigative reporter Ronnie Greene and a team from ABC were honored for Green Energy: Contracts, Connections and the Collapse of Solyndra, a series of reports exploring how the Department of Energy awarded lucrative green energy contracts. The coverage detailed breakdowns in the award to solar panel maker Solyndra Inc., which later filed for bankruptcy, and examined connections between Obama campaign bundlers and the DOE.

The prestigious News & Documentary Emmy Awards, presented Monday at Lincoln Center's Rose Hall, honored the Center and ABC for Outstanding Business and Economic Reporting. The ABC team included producer Matthew Mosk and chief investigative reporter Brian Ross.

Click here to read ABC’s story. Watch the segment by ABC World News with Diane Sawyer here.