. >> mr. secretary, thank you for being here. as you know, we just received testimony from herb allison about his report reviewing the department of energy loan and guarantee portfolio. and we would be anxious to hear any thoughts you have on that very same subject and then i'm sure senators will have questions. go right ahead.

>> there we go. thank you, mr. chairman. thank you for the opportunity to discuss department of energy's efforts to strengthen our loan programs and grow america's clean energy economy. it's part of our commitment to be a responsible steward of public dollars. the department cooperated with congress's requests q. to discuss our loan portfolio and welcomed the independent review of herb allison. mr. allison released a thorough, thoughtful report. he made some important recommendations to strengthen the management and oversight of the loan portfolio. even before the conclusion of mr. allison's review sh we took steps, many of which are consistent with the report's recommendations to improve the loan programs. this includes working to make sure our team has sufficient number of skilled and experienced personnel to monitor and manage the portfolio to protect u.s. taxpayers. with improved and continued to

improve processes for pro active monitoring, loan administration compliance, reporting and resolution capabilities to take into account industry best practices. in addition, we put in place rigorous incertainly and external reviews to hold loan program office accountable. the department takes this responsibility to the u.s. taxpayers seriously and we're looking closely at mr. allison's recommendations for additional improvements. mr. allison and his team reviewed each loan in the portfolio looking at the risk factors behind each loan and estimating each loan's costs. mr. allison's report concluded that the department is using the appropriate risk factors in assessing each loan. the federal credit reform act defines the cost of the loan programs as the estimated long term cost to the government including the risk of default. for each loan, the subsidy can be thought of as similar to the loan lost reserve -- similar to

a loan lost reserve. congress appropriated $10 billion in credit subsidy under the federal krcredit reform act for vehicle loan programs. while the portfolio includes loans to a range of projects that carry different levels of risk, the report finds that the department of energy has reasonably estimated the cost of these risks. if fact, mr. allison estimates that the long-term cost of the outstanding portfolio is $2.7 billion, roughly $200 million lower than the department's most recent estimate. the purpose of the loan program is to provide low cost financing to innovative clean energy projects that have a unique value both in terms of providing clean energy and inspiring the development of new industries. overall, the loan programs have been successful in growing america's clean energy sector. the department supports three dozen clean energy projects that are expected to ploy more 60,000

americans, generate enough clean tractor-trailer to p electricity to power three million homes and display three million gallons of gasoline annually. as these are just direct benefits, they do in the include additional supply chain jobs. our loan program is spurring tens of billions of dollars in investment in clean energy projects and helping to unlock private capital. thanks in part to the loan programs, last year the united states regained the tight frl china as the world's leader in total investment in clean energy. the department of energy is using all the tools at our disposal including the loan programs to strengthen the clean energy economy to so we can compete globally. costs are driving a global revolution in clean energy. last year a record $260 billion was invested globally in clean energy. the question is no longer whether clean energy economy will arrive or whether america will lead it.

as the opportunity grows, so does the competition. many countries established policies and are making major investments in everything from renewables to electric vehicles to next generation biofuels. to win the clean energy jobs of the future, the united states must do more than invent technologies. we must also manufacture them, employ them here at home and sell them around the world. production of energy technologies benefits from scale. simply put, to have a competitive clean energy industry, we need programs that help spur deployment and markets. america faces a stark choice today. we play to win the clean energy race or will we watch the rest of the world pass us by? can we invest in america's workers and industries -- we can work in america's workers, industries, and innovations or we can send money and jobs overseas to import the technologies of tomorrow. from aviation to agriculture to computer technologies, the government government supported the private sector to keep the

united states at the technological forefront of important industries. it's time to take a page from our own playbook. we can still win the clean energy race but we must act now. i know this committee cares deeply about our energy future and i look forward to working with you to insure that the united states leads in the clean energy economy. so thank you and i'm pleased to answer your questions. >> well, thank you very much for being here. let me start with a very general question. you advocate strongly for winning the clean energy race which i heard you say before. i've done myself many times. in fact, i think it's clear to all of us that we really have several different clean energy races, one, of course, is in the development of these new technologies. rpe is working on that. the department has various other efforts going to achieve that.

a second so-called clean energy race might be the manufacturing of these technologies so that we create the jobs here that are going to be created in this area. third is the deployment of clean energy technologies. and i think you correctly point out that there is a real possibility that we would essentially say to the rest of the world the ability to develop and manufacture technologies and just decide all we can do here is import them. and hopefully deploy them. but it's a different challenge. i guess that senator widen correctly pointed out that when we put the loan guarantee program into the 2005 law, we hadn't separated out the different types of clean energy

or energy projects that might -- might require some level of government support through a loan guarantee. we haven't adequately sent those out. i'd be interested in your thoughts of the appropriateness of us going back and trying to be sure that we are doing all we can in each of these various races to be sure the united states znts drop out of competition. >> i listened to a significant portion of mr. allison's testimony. i agree with him and the report. the report took the loan program and divided it into certain sectors. if you consider a sector where you're deploying a known technology, whether it's wind or solar, something which is a proven track record, there are

considerably -- especially if that project then has a utility company which is a solid utility company with a good bond writing with a long-term power purchase agreement, that is to say that you signed into contract this utility company will pay this amount for this electricity generated by wind or solar. and as long as that utility company is a strong stable company, the risk of that loan is different than the risk of a new innovative start-up company. it's a considerably less risk. it does help very much in the deployment of the projects. so that's one class of loans. the other class of loans that congress asked us to invest in are investments in clean energy -- innovative manufacturing, whether it's atvm or atvm loan or whether it's something in the energy generation business.

that might carry a different risk. however, the mechanism that we were tasked with using the ficra rules tries to assess what are the risks to these loans and using that estimating the allison report says that we were essentially -- we were a little bit higher but essentially on par with their evaluation of the risks of those loans. and congress appropriated -- not appropriated but that money could have spent on research. it could have been spent on hiring policemen, firearm and teache firemen and teachers and they recognized it was an opportunity to actually help these industries and help create jobs. >> let me ask one other question. i think mr. allison also said

that it's extremely important that you get the right professional employees working at the management and oversight of this loan portfolio. and in order to do that, you have to have assured funding for this activity so that people might actually consider leaving the private sector and coming to work for the department to pursue this management of these loans. we had a number of consultants to give us the financial expertise. we very much want to bring in to this program career people who

have experience in project finance, experience in finance in general and so we agree with that. it's very important because of the long tenure of these loans, some of them 25, 30 years, it's very important and because we have specific grant milestones that we pay very close attention -- milestones that then allow the loan program to give another traunch of money is very important that we follow each of the loans carefully. >> mr. secretary, thank you for being herement i think it's important to hear mr. allison speak to the audit, but it's also very important that you be here to speak to some aspects of the loan program. in the report from mr. allison, he states that d.o.e. should better define the desired balance between policy goals and

financial goals. i look at that and to me it's a pretty basic managerial function. and i guess i was a bit surprised to learn that from the audit's perspective, mr. allison's perspective that was, in fact, lacking. so the question to you is how would you grade the department's implementation of the loan guarantee program thus far? well, when we started, it was new. we made a lot of improvements and will continue to make improvements, especially since we all know that -- we all know that sometimes the industry that a particular loan might be imbedded in could rapidly change. that in particular is something where you need to watch and sometimes on a weekly basis. and so we think that -- i couldn't say official grade but i think one of the things that

the allison report and mr. allison were talking about is, for example, the vagueness also goes to not only the department policy but the law itself. what do you mean by significant chance of payback? >> i mean that's an important thing as a committee here. i think we are tasked with this oversight program. the loan guarantee program is in place. i want to make sure that it is working as we had hoped that it would and we would not see again some of the somewhat stunning failures that we have seen from it based on the results of the audit, what you have observed and for your interactions through your folks it looks to me like we need to do some changes. this is not tweaking a program but some serious changes to this program so that we do have assurances to the taxpayers, so

that we do have a structure in place that provides and allows for a level of accountability. i know that the senator is going to ask about the atvm program and the fact that we haven't seen those loans go out the door under the '05 act we haven't seen any of those loans go forward. and then from the results from the stimulus dollars that came in, we had a lot of money go out the door and that's where we're seeing some pretty serious concerns. i'm looking at this. if i had to give a grade, if i had to assign a letter grade to the department at this point in time, it's not a passing grade. i think we need to be able to do much, much better. i would like to think, you suggested that you're going to be moving forward with some policy changes. but i think we need to be aggressive about that. let me ask a question. this is kind of a follow on to

what i had asked mr. allison. some of the conditions that are in the '05 energy bill as it relates to the loan guarantee programs. one of them is the reasonable prospect of repayment. we certainly face that with solyndra and beacon's failure to repay the loan. there's another requirement in the law that says no guarantee shall be made unless the secretary, you determine, that the amount of the obligation is sufficient to carry out the project. and it's now clear in hindsight that with solyndra that condition was not adhered to. $75 million had to come in from private investors. and to make that happen, what we saw it in was the subordination, d.o.e. put taxpayers second in line in that bankruptcy and that has caused a great deal of consternation. did you make the determination at that time as the law requires, did you make that

determination that the amounts available when the loan guarantee was closed that they were sufficient to carry out the solyndra project? and if you did make that determination, then how did we get to where we are today which, again, is a pretty bad mark on the books? >> well, when the loan closed during the commitment and when the loan closed there was a world of difference to when at the time of the restructuring of the loan. by the time of the restructuring of the loan, we knew the company was it deep trouble. but to your earlier point about what we intend to do, much of the things that were in the allison report we are doing. we have set up a risk committee. mr. allison and his colleagues recommended that there be a more risk management structure. we agree with that. but we set up a different independent -- a different -- not a different, but a different part of the loan program that

would look at just strictly the risk as future dispersements go out. so that is something we did before the allison report was submitted and the report acknowledged that we were doing that. we are taking his advice and we ourselves that we need people outside the loan program per se to be part of this evaluation. that's very important until we get additional sets of eyes on that. so in terms of the specific loans to solyndra that you mentioned, again, it was a rapidly changing dynamic during this period of time and during that restructuring, we knew that chance of repayment was low. but what we did was we did something that would have -- we thought in the best interests of the taxpayer as mr. allison pointed out. when asked specifically would you be in favor of a legal

requirement that would not s subordinate anything? and he said we filed the statute in time of origination. there have to be mechanisms to draw additional investments to give the highest chance of recovery to the taxpayer. and so what we did and i think the allison report confirms that is that we were doing things that would insure the highest return of the taxpayer money given the circumstances, rapidly changing circumstances. >> well, my time has expired. i want my colleagues an opportunity to speak. i do think it's important that we also look to the other aspects of that allison report that speak to the importance of the real time controls to make sure that the risks are properly managed. and i think solyndra is a perfect case in point where we missed on that with regards to

the silicone issue and where solyndra was in that point of time and in time as opposed to others in the manufacturing business. so i'm going to defer to my colleagues so they have an opportunity to question. >> you have not had a chance to ask questions, go ahead. >> thank you, mr. secretary, for being here. yesterday i held a hearing at the uss norfolk yard and we heard from secretary of the navy, ray mavis. we heard from former secretary of the navy and senator john warner and also from some of the top-ranking officials within the navy and the marines about what they are doing to implement energy, efficiency, and new

sources of energy within the navy and among the marines who are on the front lines in afghanistan. and we heard a couple of things that i think are important to this discussion. one is that being able to look at energy sources that in the field are critical, reducing our dependence on foreign oil is vital to our national defense and that there is a direct correlation between our dependence on fossil fuels and casualties on the battlefield. now, one of the things that i would hope you might address this morning and i would point out that i know the department of energy is working closely with the navy, the department of

agriculture on biofuels, which are a critical piece of trying to reduce the dependence of our military on foreign oil. but can you talk about how the programs that we're talking about, as part of the loan guarantee program relate to our national defense and how critical they are, if we're going to make some of these changes on the military side of our government? >> certainly. let me begin with biofuels. not only in the loan guarantee program but things that we assess from the office of science and the energy to rv. we think that biofuels have considerable promise. by that i mean, we think they have considerable promise in developing technologies that can compete in the open market and that is our goal. if we can use biological waste

or things that don't compete with farmland, we think this is a great opportunity to offload some of our dependency on oil. especially if the technology is advanced to the point where you can produce biofuels and sell a profit and make a business, let's say, modern price of oil, $80 a barrel of oil. we also do a lot in terms of other dependencies, to not only give the military but consumers and businesses the advancement of batteries is very important. batteries are very important because rather than trucking into very hazardous supply routes usually diesel fuel to generate electricity, you could have a lightweight solar system with a lightweight battery that could be part of your supply choice. >> and we actually saw a demonstration of that yesterday. that was very impressive.

saw the solar blankets that were already in use in afghanistan and heard about how much weight it saves our soldiers and also, again, not having to provide those resupply convoys. >> and that's another effect of decreasing -- as people attack these supply lines and some of our soldiers and employees die from these attacks, we think it's very important that you -- we develop these programs. remarkable progress with batteries, for example, recently at a summit conference, a company we supported announced that they doubled the world record energy density looking at batteries which appear to have no additional costs in manufacturing and they are optimistic that it can go much better than that. so this is something that is going to be very important. so we look across and then find energy efficiency, something that is not only for the foreign deployed areas but for the

general military we think it's a very important part of stretching the u.s. taxpayer dollars so the military can help our security in a way by saving money by saving energy is a very important deal. >> again, we saw some very good examples of that my time is up. let me make one other comment about that hearing. all of the military who testified, the importance of sending signals to the private sector about the importance of these energy efficiency and renewable technologies that the government has a role to play in doing that. that is very important to our national security. thank you, mr. secretary.

>> well, thank you. i will con senatorially. >> shortly before you became the energy secretary you were quoted assaying, somehow we have to figure out how to boost the price of gasoline to the levels in europe. the price of gasoline in europe, as i understand it, were $8 a gallon, which is a lot of money. last week in your testimony it's understood that gas prices are helpful in spurring research on alternative energy. i understand the point. i respectfully disagree with the conclusion, at least insofar as it's made to the exclusion of another, i think, more compelling point, which is a strong economy will always provide more capital that can be

invested for research and development purposes and research and development money is definitely needed to help develop alternative energies. so i hope you take that perspective into account. i don't think that high gasoline prices help anyone. i don't think they do anything other than hurt the american people. look, i don't know how much driving you personally do yourself so you may not personally be feeling the gouge at the pump but i assure you hundreds of hardworking americans feel this. they feel it every time they refuel their cars. some a lot more than others but all feel it. and while hard-working americans continue to suffer because of the prices that they pay at the pump and the kor responding prices that they have to pay

everywhere else, i hope they will pursue an energy policy that acknowledges the fact that whether we like it or not, we as people, we as human beings living in this country today continue to be dependent on liquid fuels and we have to continue to have a source of them and that means we need to continue a robust policy of petroleum and natural gas instead i've seen a focus on this administration that has placed most of its emphasis on failed policies, including a lot of subsidies of alternative energy projects. and on that note, the recent gao audit of the loan guarantee program found that doe did not always follow its own practices

for documenting analysis potentially increasing the taxpayer exposure from an am kabt's default, closed quote. it went on in that same report to determine that doe also has not completely documented its analysis and decisions made during reviews, which may undermine applicants and the public's confidence in the legitimacy of it is decisions, closed quote. are these accurate? are these statements accurate, in your opinion? >> well, since i walked in the door, secretary of energy, i've been doing everything in my power to do what we have to reduce as we see these gas prices, to reduce those gas prices. and yes