Solyndra Refinancing Not Illegal, Chu Tells Lawmakers

Steven Chu
Steven Chu, U.S. energy secretary, is sworn in before a House Energy and Commerce subcommittee hearing on bankrupt solar energy company Solyndra LLC in Washington on Nov. 17, 2011. Photographer: Joshua Roberts/Bloomberg

Energy Secretary Steven Chu disputed Republican claims that his agency illegally refinanced a loan for Solyndra LLC, the solar-panel maker that went bankrupt after receiving a $535 million U.S. loan guarantee.

The Energy Department determined that a February rescue package for Solyndra that would let private investors be repaid before taxpayers had the best chance of preventing the company’s failure, Chu said yesterday during five hours of testimony before a House Energy panel investigating the guarantee.

“If we had pulled the plug then, we were certain that Solyndra would go into bankruptcy,” Chu, 63, said. Asked how much of the taxpayer money invested in Solyndra may be recovered, Chu said, “I’m anticipating not very much.”

Solyndra, of Fremont, California, filed for bankruptcy protection Sept. 6, two years after receiving the Energy Department’s first loan guarantee. Republicans asked Chu to explain why the agency backed Solyndra and then provided refinancing even as the company slid toward collapse.

“Red flags” about the company’s prospects were “either ignored or minimized by senior officials” in President Barack Obama’s administration, Representative Fred Upton, a Michigan Republican and chairman of the Energy committee, told Chu.

Chu, who won the Nobel Prize in physics in 1997, lacks the financial acumen to run the loan-guarantee program and should be replaced, Representative Cliff Stearns, the Florida Republican who heads the committee’s investigations panel, told reporters after the hearing.

‘First Dibs’

The Energy Department approved the February refinancing that put taxpayer debt behind $75 million in new funding in a last-ditch effort to rescue Solyndra.

“Does the taxpayer have first dibs?” Representative Steve Scalise, a Louisiana Republican, asked Chu.

“After restructuring? No,” Chu responded.

The agency’s revamping of the loan terms gave Solyndra “a fighting chance to survive,” Chu said. “It was a difficult decision, and we were always, always focused on that path that could get as much taxpayer recovery as possible,” he said.

Republicans said the agreement violated a 2005 energy law prohibiting subordination of public money.

“Your department did not follow the plain language of the law,” Representative Joe Barton, a Texas Republican, said. While Barton questioned the legality of the loan’s restructuring, he said he didn’t think Chu should resign.

Chu said his department’s general counsel determined that the law banned subordinating taxpayer debt only for an initial loan guarantee, not for a refinancing.

Delayed Auction

Solyndra delayed an auction of its business yesterday for a second time, from today to Jan. 19, after failing to get any acceptable bids.

Chu, testifying under oath in his first appearance before Congress since Solyndra’s collapse, denied White House officials sought to influence the decision for political reasons, as Republicans have said.

“The final decisions on Solyndra were mine, and I made them with the best interest of the taxpayer in mind,” Chu said.

Backed by Democrats on the panel, Chu defended federal aid to companies such as Solyndra, saying federal support for clean-energy ventures is necessary to compete in a “fierce global race to capture” a market that will grow by “hundreds of billions of dollars” in coming decades. China has invested aggressively, he said.

Economy, Security

Representative Henry Waxman of California, the top Democrat on the Energy committee, said the U.S. needed to continue to invest in alternative energy.

“Our economic growth and our national security will be determined by whether we succeed in building these new industries,” Waxman said.

Representative Diana DeGette, a Colorado Democrat, said Republicans were using Solyndra to fire “partisan broadsides” at the Obama administration.

Among signs Republicans cited as warning flags was an e-mail written by an Energy Department official in August 2009 noting that a model showed a Solyndra project financed with the loan guarantee would run out of money in September 2011. Solyndra filed for bankruptcy on Sept. 6, 2011.

Stearns called the model “prophetic.”

Chu said the model predicted a cash shortage for the project, not the company. Later analysis didn’t show a similar concern, he said.

Deteriorating Market

Solyndra’s bankruptcy filing was tied to “deteriorating market conditions” from an “acute drop in the price of solar cells,” Chu said.

Solyndra’s biggest investor was the family foundation of George Kaiser, a billionaire campaign fundraiser for Obama. Republicans have questioned whether Kaiser pressed for the guarantee. Kaiser has said he didn’t lobby for the aid.

Chu told the committee he didn’t know about Kaiser’s connection to Solyndra when the loan guarantee was approved.

“I want to be clear: Over the course of Solyndra’s loan guarantee, I did not make any decision based on political considerations,” Chu said.

Republicans also pressed Chu on whether his department pushed Solyndra to delay an announcement of job cuts until after the Nov. 2 election last year.

An adviser to Argonaut Private Equity, the investment arm of Kaiser’s family foundation, said in an e-mail turned over to the committee that Energy Department officials sought a postponement. Solyndra Chief Executive Officer Brian Harrison had told the department he wanted to make the job cuts public on Oct. 28, according to another e-mail.

Chu said he wasn’t aware of an effort to delay the announcement, which was made on Nov. 3, and that it wouldn’t be a “proper way to do business.”

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