On August 20, 2009, an Energy Department staffer examining a pending loan to a California clean energy start-up came to a startling conclusion: The company would run out of money by September 2011. The government would, in effect, be placing taxpayers on the hook for a business likely to founder.
Still, things moved – and fast.
Only 15 days after the staffer’s warning, the Obama administration announced its commitment to lend Solyndra Inc., a California manufacturer of rooftop solar panels, $535 million as part of the stimulus program to spark the nation’s sagging economy and put Americans back to work.
Energy Secretary Steven Chu attended the groundbreaking of Solyndra’s new Fremont, Calif., factory, to be built with the money. Vice President Joe Biden, speaking on a big-screen TV set up amid construction equipment at the site, noted the “unprecedented investment this administration is making in renewable energy” and asserted that “we are not only creating jobs today but laying the foundation for long-term growth.”
But the staffer had been right.
Solyndra ran out of money, sure enough -- and in the very month foreseen. Some 1,100 workers immediately lost their jobs and creditors now are circling in bankruptcy proceedings, where taxpayers come second to private investors. The company that the Obama administration had helped catapult from relative obscurity to poster child for the green energy movement has instead become a symbol for critics to exploit of environmental and economic recovery policies gone awry -- and for assertions of cronyism. The company's prime investor had been a major fundraiser for President Obama's 2008 campaign.
Those criticisms burst into public view Wednesday during a congressional hearing, eliciting partisan fireworks. But newly disclosed emails shed light on intriguing exchanges behind the scenes, some between powerful, seemingly impatient officials in the West Wing and bureaucrats trying to follow usual procedures at the Energy Department.
The Energy Department staffer’s prescient warning, unearthed as part of a House investigation into the government’s failed half-billion dollar investment in the fledgling firm, underscores a theme running through a batch of emails obtained by news organizations and described at the hearing: Again and again, the Obama administration pressed forth in support of Solyndra in the face of glaring warning signs sent up from even its own staffers.
The company’s spectacular failure has stirred more than pundits and politicians. Investigators from multiple agencies are examining the company’s books and questioning executives. A spokesman for the Treasury Department’s inspector general confirmed to iWatch News and ABC News on Wednesday that it had launched an investigation into the handling of the loan to Solyndra by the Federal Financing Bank, which manages taxpayer-backed loans.
Investigations already involve the FBI, which executed a search warrant at Solyndra’s headquarters and visited the homes of three executives and former executives last week, and the Energy Department’s inspector general. “We’re going to look at everything the FFB had to do with its role in this thing,” Rich Delmar, the spokesman for the Treasury Department's inspector general, told the iWatch News and ABC News.
Earlier this month, iWatch News and ABC News disclosed that Solyndra received a rock-bottom interest rate of 1 to 2 percent -- lower than those affixed to other Energy Department green energy projects. The low rate was set even as an outside agency, Fitch Rating, scored Solyndra as a B+ -- "speculative" -- investment. Energy Department officials said the bank set the rate, based on formulas including the payout length, and that Solyndra did not receive special treatment.
The trove of emails excerpted by congressional investigators open a window on recurring attempts by top Obama administration officials to question Energy Department officials and push approvals for the loan to Solyndra – despite frequent red flags about Solyndra’s ailing financial condition arising within other federal agencies early in the process of considering whether to put tax dollars on the line.
“The issue of working capital remains unresolved,” the Energy Department staffer noted that August, according to a summary provided as part of Wednesday’s congressional hearing. “The issue is cash balances, not cost. [Solyndra] seems to agree that the model runs out of cash in Sept. 2011 even in the base case without any stress. This is a liquidity issue.”
The employee then asked, “How can we advance a project that hasn’t funded working capital requirements and that generates a working capital shortfall of $50 [million] when working capital assumptions are entered into the model?”
Other flags went up from inside government – each one raised at the two most crucial stages of the government financing, first in March 2009 when Chu announced the Energy Department’s intention to issue a loan guarantee to Solyndra, and then in the closing six months later.
On March 10, 2009, an employee with the Office of Management and Budget sent a pointed missive: “This deal is NOT ready for prime time,” the OMB employee wrote, according to the investigative summary.
Ten days later, the DOE announced Solyndra was in line to be the first company to secure a green energy loan guarantee. In the press release, Chu boasted of the speed at which the office moved. “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 release said.
The cost of that speed is now clear, with a company gone belly up, taxpayers waiting second in line to collect in bankruptcy court, mass layoffs in California.
For months, iWatch News and ABC News have reported how Obama’s administration fast-tracked the approval for Solyndra – at times putting taxpayers at risk by skipping safeguards. From the dawn of the deal, analysts, rating agencies and government auditors have raised other questions – many questioning the merit of putting a half billion dollars behind a young company with new technology but high costs.
The newly released emails reveal that, internally, some staffers pushed back against a press even from the White House to move ahead with the loan. Solyndra’s largest private investor is George Kaiser, a bundler of campaign donations for Obama in 2008.
On August 31, 2009, for instance, the special assistant to Biden – eager for the vice president to take part in the September loan closing announcement – asked in an email whether “there is anything we can help speed along on OMB side?” according to a summary released by the House investigation.
An OMB staff member responded: “I would prefer that this announcement be postponed … This is the first loan guarantee and we should have full review with all hands on deck to make sure we get it right.
“We have ended up with a situation of having to do rushed approvals on a couple of occasions (and we are worried about Solyndra at the end of the week). We would prefer to have sufficient time to do our due diligence reviews and have the approval set the date for the announcement rather than the other way around.”
The flag did not slow the loan, with the closing announced four days later.
For months the government has said it conducted deep due diligence on Solyndra and put its money behind a company that also drew large investments from veteran private investors. It said any such venture carries inherent risk, and blamed market factors for Solyndra’s downfall.
During Wednesday’s hearing, two witnesses – Jeffrey Zients, Deputy Director of OMB; and Jonathan Silver, Executive Director of DOE’s Loans Programs Office – continued to defend the loan. Each said their respective wing of government conducted a thorough review.
Their answers did not always please members of the committee, particularly Republicans who launched an investigation in February. Chief among the criticism: That the government let investors – including Kaiser – stand first in line with a chance to collect up to $75 million in bankruptcy before the government gets a chance.
And, Republicans contended Wednesday that that arrangement may have broken the law, violating an Energy Policy Act of 2005 provision that says the government loan guarantees cannot be “subordinate to other financing.”
Their investigation continues next Friday, when Solyndra executives are scheduled to appear.