[captions copyright national cable satellite corp. 2012] >> next, the ceo of time warner talks about the impact of digital media. after that, a senate hearing on the loan guarantee program and a senate hearing on the budgets for offshore drilling. now, the time warner chairman discusses how digital media is changing the way we live. he gave these remarks remarks at economic club of washington. >> thank you. tonight, we are privileged to have the chairman and ceo of time warner, jeffrey bewkes,

with us. he has been the chairman and ceo since 2009. he became the chairman in 2009 and ceo in 2008. he had been president and chief operating officer at time warner and rose through the ranks of home box office. he became the head of hbo during one of its most profitable periods. he had worked at citibank and was a graduate of stanford business school and yale. jeff is involved in a number of alleged profit activities. -- philanthropic activities. we are pleased to have you here today. >> thanks. >> we appreciate you taking the

time. the company you run now is one of the largest media companies in the world. it is a $35 billion market cap, 34,000 employees and about $29 billion in revenue. >> $30 billion. >> sorry. running one of the biggest media companies in the world, there is a lot of pressure on you. when you were a boy, you said you wanted to be in the entertainment world. your parents said, that is not possible because you are not jewish. [laughter] is that apocryphal? why did you want to be in entertainment? >> that was a joke. they never actually said that. >> to break up stereotypes. why did you want to do is -- do

it? >> hbo stood out as something different. the company had a mission. it totally changed television. it created a television that has no advertising. >> what is it that hbo does that makes its shows so popular? you pay artists more than other shows?

you have better producers? what makes your shows so popular? >> you are on a key question. we are not trying to make the show's popular. we are not getting paid based on how many people watched the show. that would be ratings based television. there is a lot of birth to -- virtue to that. viewers express your desired shapes tv. in terms of hbo, we are trying to make program link -- programming or by -- or buy it. we are trying to make things that are worth paying for where you don't care how many people watch it. when you think about how many hbo shows, game of thrones -- a show that is popular and that is coming back, or luck, the new

show that david milch wrote. these are not made to draw the maximum audience. they are made to make an intimate show that stands out. >> you must know which shows have the highest ratings when they are over. which shall have the highest ratings that is ever been on a to be a? >> the sopranos in is this year, true blood and game of groans. we do not get paid based on double-game of -- game of thrones. we do not get paid by how many people watch the shows. we get paid if you sign up for hbo. because you know those are on

the network, you will subscribe to the network. we have 1/3 of the citizens in the united states subscribing to hbo. they are paying us each month. we use that money to make a breakthrough programming. >> you were the head of hbo when the aol deal was announced. what was your reaction to that deal? [laughter] >> well -- aol had done a fantastic thing. aol was the biggest internet portal and everyone was signed up to it. we did not know if it was going to work out well or badly. if you were concerned because aol was valued equal to time warner, time warner had

companies making $7 billion or $8 billion. the question was, will these internet stocks justify those valuations? will they grow into the always harder to tell internet future? aol or a yahoo and put it with a content company, what is that going to do? what is the point of that? what became clear at aol and yahoo and msn is that it is not that easy to rationally connect an internet service with somebody new makes movies, tv shows, magazines. it is not clear what that connection is. >> that deal is behind you. you are still a major magazine

publisher. what is the future of magazines in the era of technology? why are you still in the magazine business? >> you hopefully read these every day. that is the content business. it is some entertainment. think of style and celebrity magazines. we have news at time to people with celebrity. all of those are strong with readership. magazine readership is holding up. it is migrating to the web. it is migrating to your tablet. if you pick up in the tablet in you canm and you click, read your magazine for free because you paid for it on that tablet. we put all of our magazines in that format and we were the

first publishing company to do that. we see the future of magazines not just as printed words on the screens and in print, but also moving pictures. if you go to the sports illustrated app or the people app and look for the golden globes, you will see moving pictures. if you want to go deeper into a story or a person, you can do that. the power of all of this journalism that we collect, which we cannot print, we can still give it to you as a reader or a subscriber of that magazine. >> we will still be printing magazines or will everything be online? >> we will be doing both. you will have your choice of whether you want to read your favorite magazine and the paper or have it on your screen. >> the most popular magazine

was people magazine. is that the case? >> yes. it is going up. >> you are a reader of it? >> yes. >> you are the biggest content producer for television. is that true? >> yes. we have the turner networks, hbo, cinemax. the biggest part of time warner is television. >> cnn was started many years ago by ted turner. it was considered a novelty to happen all news network. cnn seems to be in the meeting -- in the middle. is it difficult to be in the middle when so many people want cable shows on the right or the left? >> i think most of us

understand it that way. maybe that is not the full list way to understand it. when we hear down the metal, what we hear is not down the middle -- middle without clarity or points of view. we think it is a journalism. we are trying to do what we all think journalists and was, which is something that is objective, gets you all of the points of view. the idea of shrinking what we do down to one or another political point of view -- that is not the only issue, the political spectrum. there are different things happening in the world. if you are going to cover them objectively, you need to cover them across that spectrum. there is a tremendous amount of things -- there are a tremendous amount of things that are expected -- affected.

demographic developments, cultural developments. it is not to reduce its to politics and pick a side. to us, it is abandoning what we set out to do. >> you had larry king for a while and now you have a new host. how is that working out? >> it is working out well. there has been a lot of vigor in the coverage piers morgan has done on the arab spring. that is an interview show. we are depending on the events of the day. we are mixing cultural or celebrity events or news events happening in the world. he has good range to do both. cnn itself, if you think of isderson cooper's show, broadening out in terms of what

we are covering in depth and analysis. ratings are up. that is not hbo. that is a subscription support it and an ad supported thing. ratings are up this year and the year before. >> when you are watching the election returns, deal ever flip channels to see what the other people are doing? >> absolutely. you all probably do, too. you should. you are getting a fair view. >> i have traveled overseas a bit. i like to know what is going on in the united states. i tried to turn all cnn and there is also something called cnn international. why don't you broadcast cnn here

overseas? it would cost less and most of the americans who are traveling would watch it. what is wrong with that analysis. [laughter] >> there is nothing wrong with that analysis. a lot of our viewers are americans traveling. we have a lot of people who are resident nationals of all the countries. cnn along with bbc is one of the largest tv news sources. you have people of all nationalities around the world watching it to get a view about the u.s., but not exclusively. if we were putting on was served an american audience overseas, we would not be serving those people. he said it well. we get the other half of that debate. people say, when i watch cnn

international and i am in india and hong kong, and i hear this stuff about a municipal thing in the united states, why do you go on about that? this is not the world. i want to hear about what happened in the election in russia. that is what i want from cnn. you cannot please everybody even though we tried. >> today, you are seen by some people as a large media company based in the united states. many of your best customers and it is business is here. how much activity do you have outside of the united states? what are you doing in china or europe? >> we have 30% of the revenue of time warner outside of the united states. that is a mix of activities. we have the world's largest studio, warner brothers, producing films and television

shows. a little more than half of what warner brothers takes in in revenue and puts on tv is outside the united states. when you look at the networks, whether it is cnn or hbo or tnt, turner classic movies, we have a lot of television channels all over the world. when you go to china, there is less business done by american media companies because china and some developing companies do not readily take in on regulated or on edited content, not just -- unregulated or unedited

content. in asia, people are watching our american produced movies. they are not paying us for them. it is a great business for somebody. >> in legislation you have in mind that my 6-? [applause] -- that might fix that? >> i did not want to mention it. there should be some work and thinking done by media companies and pharmaceutical -- pharmaceutical companies and industries that produce intellectual products that depend on patents or rights. we have to figure out how to have those been valued at not hollowed out by what would otherwise be criminal activity for profit. this is not an altruistic sharing. this is people still in drugs or

media products or software made by microsoft and assuming -- and consuming it for free and pain and organized crime syndicate to take it -- to tape it. it is not easy to figure out how to do that and in so doing, to make sure you do not impinge on the freedom. there might be a way to create an internet to preserve it and not have it used by the -- as the avenue for every kind of taking away of the products that people are making. >> time warner is an abrogation of many companies. it was warner communications and they bought time and immersed -- merged with aol. since you have been the ceo, you

have divested some things. you have interest in making acquisitions. when area which electoral which respects -- in which areas would you like to grow in the acquisitions? >> what we have done -- whether it is on the divestiture side or the acquisitions side -- we have tried to fill out, strengthen, support our position in the content creation. we moved to the company from what had been a bit of a conglomerate in cable distribution to what we know how to do, which is to make high- quality movies and television shows, branded magazines. whether it is journalism or entertainment products, we have a pretty good experience dead -- pretty good an experienced man

is the system with people who know how to create evolution in the business model the best experienced -- experienced system with people who know how to create evolution in the business model. we are in the forefront of that whether it is in publishing, networks, or our movie studio. when we look at acquisitions, if we ever need any of those, we are thinking about what we need to help that transition from digital or to help us geographically to make this capability stronger somewhere else. >> you worked with steve ross,

was he a dealmaker? >> he was a forward thinking deal maker. we kind continue that. we had a few deals that did not work well. >> what was it like working with ted turner jim of -- working with ted turner? >> he was a visionary. you could get on the superstation and on your local channel 11. that is how that started. he figured out how to create a 24 hour news channel. if you are on the business side, the real issue was how he get

that this jury did and how you get the money from the cable operators and the subscribers. he tucked the it library of cartoons and made the cartoon network. they grew turner that way. not by deals, but i in-house invention. >> you are in the creative content business. they say the egos are larger in the movie business. how would you compare the egos when you see your television people and your magazine people? who are the easiest to deal with? >> i probably should not answer that. [laughter] >> i would probably insults the movie people if i did not give them a big ego war.

-- award. >> we are in washington today and you had a lunch hosted by the vice president and prime minister kan marin. do you spend a lot -- prime minister david cameron. do you spend a lot of time in washington? >> we had a regulated cable company that we spun off to our shareholders. if any of you out here are shareholders of time warner cable and time warner, you have done better than any other media company. i do not know if people have written that. since we now have content companies, we are not regulated per se.

we do come down in order to try to understand where a regulation is going and what the view in the public sector is. there are various calls for intervention and we want to make sure everybody is educated before some consequences happen. >> when you consider going into government yourself if you would be appointed to a cabinet position? >> i think it would be better for everyone if i stayed in the private sector tried to produce high-quality journalism and tried to create a bold viewpoint in entertainment. >> what technology devices do you use? diaz and ipad, and iphone, black barry? -- do you hughes and ipad, an iphone, a black barry? -- blackberry -- do you use

an ipad, an iphone or a blackberry. >> cnn is the number one side. cnn has more 20 -- twitter followers than any other news source. i do not think public company ceo's are allowed to use twitter or facebook. it does not seem like a good idea. [laughter] >> probably not allowed. you are running one of the largest media companies in the world. what do you do for relaxation? are you a golfer or a high kurt? -- hiker?

>> i go sailing or skiiing. i like to hang around with my kids. >> suppose you are at home and you turn on cnn and you see somebody doing something you do not like. how did you convey your concerns about the show's? >> i like to understate might involvement on injured -- on editorial matters. understated. i do not call. this is serious. we think it is important. it is basically how we deliver the quality that we give in journalists -- journalism and it is how we give the quality that we do. we tend to out-compete the companies in our movies and tv shows.

we sell tv shows to the networks. we are the lead share in the magazine business is that we operate. the way we do that is we have a strong commitment to equality and autonomy of our editorial people, our creative people. that does not mean we have no supervision or involvement with how they try to create that quality. it would not work given the scope, size, diversity of what we do is we have political power is coming down, second-guessing, punishing things that do not go well. i tried to support our people in trying things out and giving them the resources to do break through things. so far, that is not just me. that is the culture of time warner. >> since you have been ceo of

the company, what do you think is the biggest challenge a ceo faces when running a publicly traded company? >> it is good, i guess. there is so much differing opinion that floats around. everyone is skittish and insecure about sticking to a long-term program, whatever it is, whether you are trying to aim for a certain brand or get a certain voice in the a tv show or magazine, whether you are trying to get results over the long run rather than the short run. there is so much confusion out there. currently i would say the biggest source of strange and not particularly logic -- logical fact that you hear is

connected to developments in the internet. there have been so many breakthroughs. they get going because the nature of the internet is connected to billions of people. everyone has gotten used to thinking, maybe this thing is going to take over the world. everyone gets a bit excited. they did not say, what is this new development. how does it work? the idea that those things you have come to know will be overturned every thursday is about what happens. the market wants to turn that into six double-cyclical money. it can make you money on the --

turn that into cyclical money on the way up and down. you have to know which things are real developments and which things are fear and paranoia. >> if the vice president pulled you aside and said, what would you like the government to do to help business in the united states to help your company or all companies? what could the government do to help all companies? >> i do not remember anything or any occasion where we have asked the government for anything specific to our company. we do not think that is appropriate for government. what we think strongly is that we should support protection of internet -- intellectual property and do it in a way that

is equal to how we support physical property. we just have to figure out how to do that. intellectual property is increasingly important to maintaining the most important human activities on the planet. if it works for the physical economy, it should work for that. the second thing goes with that. we should try to keep putting forth a free-trade regime in the world. that means different things to different people. there is a lot to work out. it is in the interest of freedom of expression and political freedom and prosperity and the ability to develop things that your the material needs of the people on the planet to have property protected and not stolen and to have free trade rather than arbitrary political units distorting what people want to do. >> you are in so many different

areas of our economy. you get numbers every month or maybe daily about tv sales our ratings or magazine sales. how do you think our economy is doing now? are we growing at 3% or 4%? what is your biggest concern about the economy in the united states? >> it is somewhere around three or maybe a little under. i would take the television business as a bit of a positive marker on this. the television business in the united states and across the world is strong. i am not saying that -- our company's focus is not so much short term this year. from the long term, where is the business devolving? what business should we be in? the health of the tv business is one of the strongest businesses in the world.

your ship is up. the number of people subscribing is up. the number of hours people want to use their tv is up. the budgets of programming and the quality of programming is up dramatically. the earnings of producers and networks is up. that same thing is true for every continent in the world. most of them, at higher levels. tv is a bursting industry. the big thing about it which is even more positive is that television is going on the internet. we have seen how powerful the internet is and the devices you have connected if you can get that thing the things you choose

connected italve you can get that thing. the things you choose to watch are available all the time. >> you do not care whether people are watching your content on ipad or sony televisions. it makes no difference to you. >> do you care when you watch your favorite show whether the television on did the screen -- you look at the sony, phillips -- you cannot. >> what was the biggest mistake of your career where you thought you would not be around much

longer? was there something that happened that you were worried about? >> hbo was pretty turbulent in the early years. there were numerous ceo's who went over the sides. time warner was delayed during some of those mergers. there were a lot of predictions that the time people would be killed. then the aol merger was such a big merger in dollar terms. the aol side, which was 165 million, but that what it is $65 billion, ended up being the only -- which was $165 billion, ended up being only $10 billion.

what happens in a company where that happens, that causes tremendous -- think about all of the pressures and strains in a political organization like a company. you throw that into it and it really tests everybody's personality and relationships and confidence. from the management wondering who is responsible for this up to the board, which came from both the original companies, it puts a strain on everybody. it has been interesting. >> as you look at the difficulties running a publicly traded company, are their role models you have tried to follow, people have done well? >> i did not know anyone personally. i have had so many mentors

throughout my time at time warner. i actually think -- i will not name names on this -- even some of the people who ran parts of our company who did things that were not good and made mistakes, you could learn from that. they also did things that were good, too. i try to learn from everybody. how did this happen? why did this person get in trouble? can i learn not to do that if i get into that situation? >> what would you like your legacy to be? at some point, you will leave this position. what we do like people to say you did and what would your legacy be? >> i would like the leadership in quality and authenticity of time warner's journalism and our

entertainment, whether it is our movies, shows, networks, i would like us to stay and continue being at the top in terms of that quality and not failing in the fundamental mission of using our mechanics to make content for people and affecting the world that way. in order to do that, this is the business part for the management. we need to evolves the business models that started in print magazines and -- evolved the business models that started in print magazines. everybody gets our products the way they want, is affordable to everyone on the planet to get it so that it increases that

civic aspect of what we do. we need to keep the business bible. we need to preserve economic support. i did not want to be vague about it. there is tremendous freedom that goes with being able to pay for content. it is not the only thing. it is great you can have advertising supported things. some things like broadcast tv can be 100% advertiser supported. there is a big misconception that having things be free, using it means advertising. it goes to a low common denominator. that is not the answer. that is one of the things we should have in our mix. it is a huge advance of the quality of expression. just think of television if you are an american and you go up in

the world of the broadcast networks. it was good commercial stuff. it was free. in order to select those shows, three networks divided up 90% of the audience. it's your show did not have 30% of the audience watching, -- if your show did not have 30% of the audience watching, it was not viable. there are 100 other channels from the discovery channel to fox news to mtv. now you have quality and distinction because you are not stuck with just a scale business run by a giant platform that consolidates the ads. that has been progress in the television business. if you go to the internet, which allows us to get all those different channels and 100 new channels from netflix to youtube and have more choice and

diversity and more business model to support it, there are some platforms that are essentially a gigantic, consolidated commercial platforms. internet advertising is concentrated in the hands of three or four companies. let's all understand what that means if you do not preserve a model of being able to pay for what you want to read or watch. it goes into the hands of a giant advertising platform that tracks everything you do and uses it in ways that the public is going to have some difficulty keeping track of how their information is being used. these are important questions as we go into the future. you asked what i care about for our company. i want our company to evolves

into that state and still provide the choice and quality in entertainment and journalism that we have up to now. >> we have time for one or two questions from our members. anybody have a question? right here? >> how are you doing? thank you for the presentation. i am struggling with your business model. if someone purchases hbo, they purchase it as a network. there are different shows that show on hbo. if you are not concerned with ratings, how do you determine which shows you put on and off hbo? how you make that determination? >> if you are buying the whole service and it is 30 shows, which it is, how do we pick which ones we keep and which ones we produce from scratch? >> without a ratings constructs?

-- ratings construct? >> that is a good question. we tried to put together a total service of shows. some are big hits that will have a wide audience. some are there because we think that story or that audience group has not been served and they have not seen anything focused on them. we put that together on the service and you decide whether or not you want to describe -- subscribe to that service. you will not watch everything on hbo. it is a question of whether you value that choice of having those kind of unusual kinds of stories. what that does -- that is a different model than ratings only tv. that is ok.

i am not speaking against that. there are some commercial, a big appeal shows that are made for the maximum audience. there is nothing wrong with the commercial advertising supported shows. there is nothing wrong with a commercial movie. there is different kinds of media you are serving to the audience. what happens when you get to that spectrum is that the creators that have the script idea or the actors that have to choose, i am working on a movie, i am working on a show for hbo. they have a much richer toys than they used to about a lot of diversity they have to do -- richard choice --richer choice than they used to about the diversity of what they can do. in the television business,

there are excellent movies and shows. the movie business has everything from the artist to a really popular design for the world movie. >> one more question. my question is, what is your favorite show on television when you are watching television? >> i cannot answer. i have to pick one of our shows. it is our show. secondly, it is between our networks, which i will not do. warner produces some shows we sell to other networks that are really good. i am sari. i love all our products. -- i am sorry. >> the ever get complaints about who is the time person of the year? >> we always get complaints. we get more than complaints.

we get people boycotting, calling. people who are really upset about this. that is probably good. it means they are still paying attention. did i mention time magazine was named the hottest magazine of the year by adweek last year? >> i will let you plugged one more thing. -- plub one more thing. -- plug one more thing. on the swimsuit issue for sports illustrated, deal have cancellations or do you have increases? >> there are the mothers cancelling and the fathers signing up. [laughter] >> jeff, i want to thank you

very much. i want to give you a gift. on behalf of the district of columbia, the original map. jeffrey bewkes, thank you very much. [applause] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] >> on "newsmakers," the virginia

attorney general discussing his state's lawsuit challenging the affordable health care act. >> justice roberts, some people look at his joining the majority the week before the federal government filed the motion to dismiss as the harbinger of doom for our side. i do not see it that way. despite the broad language of the comstock case, the last paragraph of the majority opinion brings broad language down through a thin funnel. the federal government cannot get this bill through that funnel. there has not been enough time since the comstock case to assess -- >> this is necessary and proper as it applies to -- >> you can see the entire

interview on "newsmakers" sunday afternoon at 6:00 p.m. and on c- span.org. >> i was quite a radical as a young person. i was the one who thought singing we shall overcome was an effective way of gaining civil rights. i thought more confrontation was needed. >> economics professor, columnist, and substitute for rush limbaugh, walter williams. >> i got a radical was anybody who believed in personal liberty and individual freedom and limited government. that makes you a radical. i have always been a person who believed people should not interfere with me. i should be able to do my own thing as long as i do not violate the rights of other people.

>> more with walter williams on c-span's "q & a." >> energy secretary steven chu testified about the loan guarantee program and the independent review. also testifying is the former assistant treasury secretary for financial stability to issued its final report last month. the review followed the failure of solyndra, a company that received $535 million in loan guarantees from the government. >> we will have an independent snapshot on the loan programs in the department of energy that were created in the to thousand five -- 2000 5and -- 2005 and

2007 loan programs. we appreciate the witness's willingness to come here and shared its finding was -- findings with us. this has been a concern to many of us on the committee for many years. the long programs, in addition to aarpa e and other missions to support next generation technologies are part of a concerted effort to insure the u.s. does not fall behind in addressing the critical challenges of energy, economic, and climate security posed by our current reliance on fossil fuels. these programs, in particular,

recognize it is not enough to have the no data -- innovative research. and it needs to be a pass away to turning those ideas -- there needs to be a pathway to turning those ideas into profits. these programs need to be administered with high standards of professionalism and integrity. it is also necessary to recognize that there is uncertainty about what technologies will win be day. if we want to be sure taxpayers lose no money, it is easy enough to look -- to eliminate government support for american efforts to compete in developing and deploying these new technologies. our efforts to support domestic players in this race through the

loan guarantee program have been caught up with many election- year issues. overall, the program is doing what it is designed to do, that is to take on risks that private investors are not willing to take on. not that the private sector has not taken on risk. private companies are selecting the companies they believe will be winners, and the garment is stepping in to help them achieve the scale necessary to compete on a global stage. although the u.s. remains one of the greatest sources of innovation, it is not clear we will reap the benefits of that innovation or even retain the advantage we have in that innovation. in the ever-changing and highly-competitive environment of technology and the research and development necessarily

follows the manufacturing, and before long the next generation of technologies are being developed overseas, as well as the manufacturing happening overseas. we a cnet scenario in industries such as televisions and concern -- we have seen that scenario played out in industry such as televisions and consumer electronics, and i believe that is the important context for our conversation today. both our witnesses have important insights on how we can best achieve the goal of the dancing clean energy in the united states in a way that could begin dancing clean energy in the united states in a way that gives the most valued -- advancing clean energy in the united states in the way that gives the most value to the american taxpayer parent and look for the rich taxpayer.

i've looked forward to their thoughts of how we can best develop those. let me turn to murkowski for her comments. >> thank you, and i appreciate scheduling an important hearing. i think it is vital for our committee to conduct regular in the intensive oversight in the program in the agencies under our jurisdiction, especially when we see problems that might be unexpected, or certain serious problems begin to surface. i understand secretary chu will join us later this morning. he will be helpful to hear from him directly about what has gone on in this area. mr. herbert allison, thank you for being here and for agreeing to take on the audit of alone programs. this is one of the most complicated problems this committee will be attacking. they spend different it ministrations, different congresses, and include three different programs.

i want to save the life of the independent audit to be quite useful. it dipped -- i found the independent audit to be quite useful. it reveals the concentration risk in the current portfolio. the audit further highlights the reliance on state and federal mandates to force the creation of markets for certain products, and makes it valuable for recognitions we need to consider. if there is one shortcoming to the audit it is that it does not delve deeply into the history of these programs, which i think is essential in understanding how we have gone into some of these difficulties. we are talking about three different programs. the first one was section 17 03, from the 2005 energy bill.

if you have for the 2007 energy belt, and then you have section 17 05, from the 2009 stimulus. while there are certain similarities, there are important distinctions and differences between the three programs. i will take a quick moment, mr. chairman, to redo them. section 1703 was greeted by a republican congress and relied heavily on self payment, making any project using new or significantly improved technologies available, unfortunately is not close no single loan guarantee. then you have section 1705, created by a democratic congress, which narrowly limited eligibility to renewable in transmission projects. the close -- the program has closed down 27 loan guarantees. then you have the apm designed to appropriated -- appropriate costs for auto makers, but just five loans have been guaranteed

als loan was in march, 2011, and prior to that was april, 2010. many of the remaining applicants are withdrawing, expressing clear frustration of over doe ability to make a decision on this. both are now dogged by questions about political influence, compliance with underlying statutes, and compliance with regulations. everyone is aware of that. some might have think we -- might think we have called on this hearing this morning to pile on and add to those criticisms.

i did not want to take my time to add to the narrative of the scandal and the controversy the department is already confronting. instead i would just offer this hard question that needs to be answered in fall -- these programs should be examined, and i think they should be improved. that is inappropriate role for congress and this committee. we did not -- that is an appropriate role for congress, and this committee. we now expect every project to be roaring success, but we did not expect them accumulation of failure so quickly. there are clearly problems that need to be sorted out and work through. your audit, mr. herbert allison, is a good first step, and i think this hearing mostest in the right direction. the program can serve a valuable purpose. right now, we have to know if the loans and the loan guarantees that have been issued through them are as effective as we had all hoped

they would be. we still have tough decisions to make, and i hope we learn enough to make sure those decisions are fully informed. thank you, mr. allison, and mr. chairman. >> thank you. mr. herbert allison is the author of the "report of the independent consultant's review with respect to the department of energy loan and loan guarantee portfolio." we appreciate your good work on that report, and we look forward to your describing it to us and making any other comments before we ask questions. thank you. >> thank you, chairman bingaman, ranking member murkowski, and members of the committee. i was appointed by the chief of staff of white house to study the department of energy portfolio of loans and guarantees to clean energy projects. i was asked to evaluate the current status of the portfolio, proposed ways to strengthen management and

oversight of the program, and recommend a system to provide early warning of problems that might harm the portfolio's value. if the scope of my assignment did not include investigating past decisions and actions because several independent investigations are underway. given a tight 60-day deadline to my team and i relied and readily available information. the department of energy rapidly provided documents and arrange interviews that we requested. we conducted our review and develop recommendations independent of the white house and of the department of energy. we chose two methods for estimating future losses. the first is the one of the department of energy must use to comply with the federal credit reform act of 1990. our second method called fair market value is used in the capital markets to estimate the discount from a loan's face

value that investors would demand so they can receive an acceptable return if they purchased alone. the methods have fundamentally different purposes, so their outputs are not directly compatible. the government met. -- method estimates the credit loss. the market method estimates broader set of costs and provides information useful in managing the portfolio, but does not estimate the cost to doe if it holds the portfolio until loans are paid off. we estimated that the expected credit loss will be $2.7 billion. we calculated the would demand a discount of $5 billion, to $6.8 billion in face value. no financial mall can reliably predict the eventual loss on the doe portfolio for several

reasons at first, these loans will not mature for up to 30 years, well beyond the limits of forecast. second, most projects are still being built and some rely on unproven technologies. if their performance will not be known for some years. third, as practice prove themselves, their risks and expected losses will diminish. fourth, the estimates of lost assumes that all projects will be fully funded and that doe will be a passive bystander, unable to influence the portfolio's risk over time, but so far, doe has found that only one-third of total commitments. they are allowed to demand more credit protection is a registered not mean target, and so for the riskier projects have not received any funding, and

others have been funded only partially. if those projects do not meet conditions in their loan agreements, doe could cut off more funding and a forecast of lost to decline substantially. for all of these reasons, our focus should be more on assuring the effective management of the portfolio going forward. doe must be inactive manager, continuously monitoring the projects, spotting risk, and limiting exposure to loss. the report recommends ways to strengthen management and independent oversight of the program, and provide early warning of potential problems. in base, our recommendations include insuring adequate funding and staffing of the program, protecting taxpayers by strengthening doe's position as a creditor where possible and

having a clear policy on funding projects not meeting products -- objectives, having oversight by forming a risk management department and combining several agencies that now oversee the program, and establishing a high-level advisory board, creating an early-warning system covering market conditions, performance of all projects and loans, in the internal operations of the program, and, lastly, improving public reporting about the program. thank you, and i will be pleased to answer your questions. >> thank you very much. maybe i could ask you to elaborate some. your report indicates that

changes were made in the program to better control risk, both before the program review -- or the review period -- and also during the time you were doing your review. i guess i would be interested on -- in comments you to give us on the effect that either personnel or policy changes have made, and whether you think those midcourse corrections have been useful or adequate? >> thank you, chairman bingaman. in terms of structuring the loans, there have been improvements to the structure of the loans, beginning in the middle of 2010. the department put the loan agreements provided for more staging of funding, and also provide -- the department put all the agreements provided for more staging of funding, and that they should be provided

with equity before the department of energy would be applying loan funds, so progress could be reviewed before the government puts its own money to work. we think that the terms and conditions of these loans, by and large, since the middle of 2010, in most cases conforms closely to commercial practice in the industry. in terms of the internal management, there has been a gradual evolution of the management and oversight of this program within the department of energy. we see, for instance, several committees have been formed to oversee and make recommendations to the secretary about committing additional loan funds. however, in our view, there is still room for improvement and that is why we made these

recommendations, first of all to fully staff the loan project office with permanent professionals. there is a need for more expertise in, for instance, project finance. many positions are currently financed by consultants who are temporary employees. we believe going forward their needs to be consolidated internal oversight, and importantly the formation of a risk management department. currently, the executive director oversees the credit department, for example, the compliance department -- we believe those should be separated and there ought to be an independent view within the department of energy about the risk that is undertaken as loans are provided, and also above the ongoing dynamic changes and risks within these

loans. independent oversight would be another check and balance. we think that position should have the ability to call for a halt in funding until the secretary approves if there is a different opinion between the risk management department and the loan traffic office as to whether the loan should go forward. >> as i think you are aware, senator murkowski and i and other members on the committee have proposed a bill to establish an independent agency outside the department of energy that would take over responsibility for administering loans. have you had a chance to look and dad? do you think the general thrust of that legislation -- look at that? do you think the general thrust would make sense as an alternative? >> i have reviewed the legislation. i think all will agree there is

need for professional oversight and the use of best practices and managing and overseeing this portfolio. i think there are several questions that i might pose. these are more in relation to policy. again, my brief here was to do a fact-based analysis, but in answer to your question, one issue is if there is an independent agency within the department of energy, who is responsible for policy implementation of this program? is it the new agency or the secretary? my understanding is this agency would be completely independent from the decision making standpoint from the secretary. the law should provide who was accountable secondly, should there be a sunset provision in

the bill? the purpose of these clean energy loans is to provide funding for projects until they reach commercial maturity and funding is available in ample amounts in the public markets. unlike many other programs administered by the government, which have in definite futures like student loans and so forth, this is intended, i believe, to run only a certain number of years, so perhaps there needs to be some type of sunset provision. >> do you have anything else to add? >> as i read the bill, it would allow this agency to be able to borrow to fund its operations. this could mean that this agency would have not only equity, perhaps $10 billion,

but indefinite funding capability. is there a possibility that it might start to grow in size and begin to crowd out public sector financing? that is one potential risk. could it become an independent force in and of itself? these issues need to be carefully looked at. >> thank you. senator murkowski. >> thank you, mr. chairman. when we created the loan guarantee program, there were a number of terms and conditions that were inserted at implementation. i want to ask you three questions, i hope to 50 breeze. -- pretty brief. when condition is there be a "reasonable prospect of

repayment." in your opinion, what is a reasonable prospect of repayment? is it an 80% chance it will be repaid, 70%, is it higher or lower -- what is reasonable? >> senator, that is an excellent question. we looked at the history of that term in legislation, and it goes back a long way, but no where could we find a definition. >> how would you define that? >> that is precisely the issue. i would say reasonable prospect would probably mean more than a 50% probability, but others might defined it as a 90% probability, and with that vagueness there is room for controversy in second-guessing. i would recommend there be greater clarity to these policy goals regarding financial

recovery. >> let me ask you another one where we ran into a situation where there was some vagueness. another requirement was that the obligation is not so boardman to other financing. i read that, -- is not so important to other financing. you do you think that was they didn't anyway? >> not being an attorney, in reading it, it is quite clear to me that the point of origination, there should not be subordination. the question is, later on, if a project or a loan runs into trouble, does a lot allow that in order to preserve taxpayer assets the doe have the ability to subordinate? in commercial practice it is

common where a loan gets in trouble in order to attract additional funding. existing lenders subordinate for a better chance for recovery. i would respectfully submit there are techniques used in the private sector that are not available to the doe, and one is to be able to subordinate because it least you get something back on the investment, perhaps, and the second is to be able to contribute equity, or to convert to equity. in this case, it looks like that is ruled out. if i could speak more broadly about this, these laws confine the type of financing the government can make quite a bit. there is virtually no upside for taxpayers if these projects succeed.

there is one case, tesla, where the government did take options. apparently, the government can take equity interest as a condition for making a loan, but it cannot make an outright equity contribution. for early stages it might be suitable for the government to contribute equity to prevent a control issue from are rising. it might be non-voting, or conferred. one option would be going forward with a wider variety of options, more consideration of recovery and games for taxpayers. if a few projects were to pay off a lot, that might pay for losses in other projects. >> let me ask you one more. this is a requirement to

"provide an amount sufficient to carry out a project. gulf that has to be difficult to determine the overall -- project. talks it has to be difficult to determine the overall cost of the project, and whether funds will be there is sufficient to cover the amount before we of issued the loan guarantee. how do we finance that one? >> most of the cost will take place in the construction phase until the project begins to generate revenue. in that phase, the loan agreements provide that there must be very detailed budgets, there must be independent engineering analyses and reports as progress goes along. as i mentioned, there is phase funding, so certain benchmarks and milestones must be met. >> is that happening? >> yes. it is easier to estimate the

cost. there might be overruns, and most of these loans provide for some cushion in case of overruns. that is built in. there is frequent reviews of progress in all of these projects. what is not known is once these projects are operating, especially those without a power purchase agreement, which is pretty much a guaranteed source of revenue, in the case of the manufacturing venture of -- ventures, they have no power purchasing agreement, and how well they will succeed in a competitive market, for instance for electric cars, that is open to question. that is why we divided the portfolio into utility financing, into nonutility loans, including manufacturing of an electrical components or

cars, for example. then, ford and nissan, a large portfolio -- component of the portfolio, those are easier to analyze. much of the risk in the portfolio is in these nine utility manufacturing companies. >> senator debbie stabenow? >> thank you, mr. chairman and mr. allison, thank you for your analysis. it is helpful to us. as someone who was deeply involved in the technology program, working with our chairman, at the time when we put that into the energy belts there were a number of things happening, but also we were in the legislation we were raising

the fuel efficiency standards. we were encouraging more, smaller, fuel-efficient vehicles. i was concerned at the time that production would go overseas. that is how we came up with this particular program. in fact, it is done what we wanted it to do, at least at the beginning. when we look for motor co. retooling their michigan assembly plant in wayne, mich., saving 1900 jobs, their exit bringing jobs back from mexico related to the upper reaches they are actually bringing jobs back from mexico related to -- they are actually bringing jobs back from mexico related to the operation. when we look in a global economy where all countries wanted to advance manufacturing for good middle-class jobs,

they're all providing support in some ways through financing, tax incentives, and so on, and at least as it relates to the program, that is very much with the goal is -- providing the support to keep jobs in america. what would you recommend to make this retooling program more effective at this point? >> first of all, i would point out that these programs are intended to encourage risk- taking. that is the point, really. having risked in the portfolio is understandable. i think what is important going forward is to make sure that this portfolio is well managed by professionals, there is independent risk oversight of this portfolio, but there is ample public reporting time

each of these projects and how they are doing, so the public and congress is kept well informed. while these programs are being managed, again, there is room for improvement. i think with the recommendations that we are putting forth, if those are adopted, i think this portfolio can be responsibly managed going forward. >> speaking about the risks, i know there is concern and criticism related to the amount of rest the department has taken on the loans and loan guarantees, but i find it interesting day your report suggests that some of the risk has actually gone down, particularly with retooling manufacturing loans. you calculate the risk associated with sword and nissan decrease by 95%. i would suggest that it is in

part because companies like ford are making fuel efficient vehicles that people are buying and it has been a success story. i wonder if you could talk for other reasons for changes in risk assessment that you saw in your report. >> first of all, some of these projects have progress. ford is the best example. during the height of the crisis, all of the automobile companies, including ford, which did not need a bailout, but was also suffering at that time, but they're better remarkable recovery. it does have a major effect on the overall risk composition of this portfolio. so, i think there s projects,

as i mentioned in my testimony, as they progress, the risks in that project compliance -- the major component of risk is during the construction phase, especially to the utility- related projects, because once they are completed they will have a binding, long-term contract to purchase all of their production. again, i think in several years the tenor of risk in this portfolio should be demonstrably improved if all goes according to plan. >> thank you very much. >> senator coats. >> thank you, mr. chairman. mr. allison, i think it was

important to have someone take an independent look. my question goes back to the fundamental question of what the goal of government -- role of government should be in something like this. we have some celebrated failures and that sours the public in terms of the use of taxpayer money when they read about these failures. we are talking about estimates of several billion dollars of taxpayers' money. my question goes to what is your take on the question of the government in limiting its investment into basic research and letting the private market

take more of the risk in terms of the commercialization of various projects and new innovations? have we learned some lessons from our efforts to direct money to specific industries and specific companies? there is always the question of political influence in the decision making progress. there are some of these allegations that on some of these loans there were directions from policymakers or political directives coming down. now, we're talking about better management of the project -- process, but is the basic process broken to start? could you give me your thoughts on that? >> thank you for the question. it is an important question. i'm a big believer in the capital markets, having spent most of the years of my professional career in the capital markets. if we look back in history, and i am sure you are well aware of this, in the energy field and other fields like medicine and transportation, the federal government has played an important role in getting projects off the ground. if you look at the space program, we are starting to see commercial launch companies coming into effect and

operation, but the government had to fund the initial stage, and the same with most forms of energy. i think where there is a policy need, and this is where the senate and house of representatives have to make these decisions, there may well be a legitimate role for government financing, but he needs to be tailored to the policy goal and the risk characteristics of these projects and to a, where possible, provide mechanisms for taxpayers to benefit if projects are successful with federal money. i think there is this so called the valley of death in various phases of financing for, say, clean energy, where the government can play a constructive role. these projects need to be

carefully researched and they need to have financing structures that protect taxpayers. and there ought to be a finite life for these programs. >> well, i think your recommendations -- on the basis of what you just said would be helpful in that regard, but it concerns me when i read the inability to attract the necessary people with the skills and experience to work in the public sector to make these evaluations, particularly when they're using someone else's money. in the private sector, the bottom line is what ultimately counts. therefore, i think naturally we would get a much more keen and sharper look at due diligence before you commit the funds.

secondly, it is outside of the political process. responsibility here falls on both sides for some of these programs. we continue to read about political influence. for instance, the stepping out of this field into another, i remember talking to the head of the nih and he said that if congress would not direct how we allocate money we could be making breakthroughs in life- threatening illnesses that are very, very close, but congress keeps telling us we have to put the money somewhere else. i am afraid part of the beast that exists from a political standpoint in terms of our thinking that we have a better ability to direct where the funds go than the private sector does.

that is where i think we get in trouble. my time is expired. if i did not come to preach, the you do come out of the private sector, and i think your evaluation is important to hear. >> and your final points, senator, that is why i think it is important that these programs be reviewed periodically to make sure they are relative and ideal for the current climate and objectives that are being sought. in terms of making sure there is professional staffing, as we pointed held there is no provision for long term funding of alone project office. one reason why it is difficult to attract and retain professional talent is people do not see if they come into the government in one of these roles that this program will be funded down the road.

it is funded out of origination fees, so well as loans are closed, funding comes into the department of energy that underpins this project office. this program has loans that will be out there for 20-to-30 years. one need active professional management for the entire time -- he will make active professional management for the entire time the government holds these loans because decisions will be made along the way. to attract people, they need to have the assurance that the funding will be there, otherwise why should they joined and oversee the program? >> would that not go against the concept of sun setting programs? -- of sunsetting programs? [unintelligible] >> what i am talking about, senator, is if you have an

ongoing program where you will be making loans over time, then i think you need to think about a sunset provision -- when do we stop making new loans? when is the private market able to finance these types of projects without government assistance? when these are made, they will have to be administered. one consideration should be should the doe sell off the loans once they are matured and there is a public market for them, or should they hold them? we presume they will hold them for many years. if they hold them for many years, there will need to be professional oversight to make sure the taxpayers are protected. >> senator white. thank you, mr. chairman, and mr. allison, thank you for your good work. it seems to me that if you look at these loans you come to the conclusion that not all energy

loan guarantees are created equal. he then compare that to the -- you then compare that to the statute that basically lumps everything together, and you say to yourself that looks like it is right at the heart of what the congress ought to do. if there is private sector investment, for example, that signals a message that people can feel more confident that this is something that can work. utility-linked loans, for example, which the pacific northwest has been interested in, insures that you already have a customer lined up. you have a customer lined up from the get go, which should

also give a measure of confidence. my question, as a result of starting with this proposition that not all energy loan guarantees are created equal, my question would be to you, would it make sense for the congress to step back now and look at restructuring the loan guarantee statute to in effect set up different categories that recognizes fundamentally different risks to the taxpayer? you would measure, for example, something that would insure that there is a market from the get-go. that could be one category. something else that was exciting and promising but did not have the same support would

be a different category. would it make sense to restructure the loan guaranteed statute along the lines of recognizing different risks to taxpayers? >> senator wyden, i think that is an excellent sought. you do have a wide variety of loans in this program. i think there needs to be great clarity about the purposes of the programs as a whole, and what they are designed to achieve. as i have said before, i do not think there is anything wrong with making risky loans as long as we acknowledge the risk in

the loans. one of the causes of controversy is there are differing expectations about what this is supposed to be doing. you could have some programs like the utility-linked loans, where the risks are much better understood, you have much less risk once these projects are built. there might be very good reasons to be supporting early- stage, innovative manufacturing companies in green energy to get those industries off of the ground. that will involve higher risk that ought to be acknowledged. that -- there should also be different funding options available. the way it is structured today is one-size-fits-all. these are loans at government rates. i am not sure they need to be of such a low interest rate to attract funding. the fees the doe can charge are

very low. maybe there is a different type or package of financing that should be available for riskier projects than, say, the utility projects were there is a conservative approach to debt restructuring. >> thank you. nobody goes into this thinking everyone will be a 100% winter, and a dramatic opportunity for creating scores of new jobs, but taxpayers deserve better to me that a program that lumps solyndra into the category of one of these link projects category. i believe we can do better for

taxpayers and for some of the most exciting technologies. senator sanders has talked a lot about the opportunities in renewable energy. we have a chance to make exciting changes if we restructure this program, and mr. chairman thomas thank you for holding the hearing. -- chairman, thank you for holding the hearing. >> thank you. i appreciate your work. the report had a section called proactively protecting the taxpayers' interests, saying the -- that was addressed. with regards to solyndra, the secretary has argued the department of energy did not violate the 2005 department of energy act when restructuring the loan. i thought it worked in a way to put american taxpayers at a disadvantage. the secretary says the law applies to the origination, not

the restructuring of loans. i do not agree. i think the energy policy active 2005 does not distinguish. with that said, would you support legislation to insure that american taxpayers will always be paid before private investors, whether it is our origination or restructuring of the loan? >> senator here, thank you for your question. if the paramount issue is recovery for taxpayers once the loans are made, based on my experience in the commercial world, i think that the

department of energy should have some flexibility to subordinate, because that might be the best way once the loan has been issued on a senior basis to recover money for taxpayers because by subordinating it might make it possible to attract additional funding from other data investors, which could help the project succeed. sometimes the project will run into trouble. there are risky, but that does not mean everything needs to be lost. there needs to be creative refinancing as a way to protect taxpayers and enhance the probability they will get money back. >> it seems to me that subordination in the case of solyndra did not work to accomplish that goal. thank you. let me ask about bonus payments. to follow all police said on taxpayers getting value for their money, several loan and grant recipients have recently filed for bankruptcy, laying off workers, and experiencing difficulties, and the media is reporting that several of these

companies including solyndra awarded large bonuses to executives as other employees were laid off. last week it was reported that beacon powers bonuses were linked to executives progress in landing the loan guarantee. what, if any protections are in place to make sure american taxpayers did not stop the bill for bonuses? -- for the bill for bonuses? >> thank you. we are only looking a loan program. i think it is important and the provisions in the slot allow for this comment to look at all the expenses plan in these -- important, and the provisions in the law allow for this, should be looking at all the expenses involved.

they may want to look at programs. i am not sure this provision is in the programs. that is something that should be considered, because i understand public consternation of people are receiving bonuses. >> that would be one recommendation in terms of ensuring the abuses like this did not take place again? >> i think that is a reasonable idea. yes, sir. >> thank you, mr. chairman. >> thank you. senator sanders? >> thank you, mr. chairman. mr. allison, thank you for being with us. in terms of full disclosure, let me be clear that i happen to believe global warming is very real. i think it is causing enormous problems to our planet today, and i think it is irresponsible but we are not moving as

aggressively as possible to reduce greenhouse gas emissions. a few weeks ago we had a press event with representatives of the insurance industry, not generally noted as one of the more radical groups in our society. they pointed out the damages extreme weather disturbances are doing to their bottom line because of global warming. it is my view that our country and the federal government should be investing strongly in energy efficiency and sustainable energy in order to reverse greenhouse gas emissions and try to protect the planet. what we are talking about is the role of government in energy, and we have been focusing on solyndra and the 1705 program. the me ask you a question.

in the 1960's and 1970's, there was a huge over-billed in terms of nuclear projects. in fact, as i understand it, about 100 nuclear facilities were terminated -- a huge expense to rate payers and taxpayers. right now, i find it ironic that some of my friends talk about picking winners and losers, but would you not agree with me that for the last 50 or so years the united states government has picked as one of its winners a very risky industry called nuclear power, an industry, and correct me if you disagree, would not be in existence without the support of the federal government in terms of the insurance program and the attempt to get rid of nuclear waste.

would nuclear industry be in existence if it was solely dependent upon wall street and the financial community? >> i would like to respond to your question, but i must confess i did not have real expertise on that question. that is a broad, deep question, as to whether the government should have been sponsoring nuclear energy. i do believe, as a general comment, that in many nations industry, and right now -- nation industry, and right now you could look in nuclear fusion, which could be a clean source of energy -- >> i'm sorry to interrupt you. i have limited time. when people talk about winners and losers, is it fair to say that the united states government has decided that one of the winners in which we should make huge investments is

a very risky nuclear power industry? >> the only comment i could make from my own experience is that in the early phases of any industry it is difficult to pick winners and losers, therefore you find financing for a lot of different approaches to solving a particular problem, and over time, one learns a lot turned >> i agree with that. the only -- one learns a lot. >> i agree with that. is it fair to say that we've seen their riskiness with solyndra maybe 10 times + with the nuclear industry which is already lost huge amounts of money? >> i respectfully would answer that i think your next witness, secretary chu, is far more qualified to answer that question. >> thank you. all that i would say, mr.

chairman, is yes, we do pick winners and losers, and probably the great winner in terms of federal subsidies is not only the nuclear industry, but the fossil fuel industry as well. we have pumped billions of dollars into those industries, and i think it is time to focus on energy efficiency and sustainable energy. >> thank you. senator lee? >> thank you, mr. chairman, and thank you, mr. allison. i agree that an audit of this program is warranted. the real question is whether the government should even be playing a venture capitalist with taxpayer money in the first place, whether in this specific sector of the energy industry, or elsewhere. i want to make clear that my concerns over the

administration of a loan guarantee program should not be mistaken for approval of the program as a whole. when companies like solyndra and beaten power failed, millions of taxpayer dollars are wasted, and it is clear, in my opinion, the government has no business being in the investment business. the apparent basis for the program, as i understand it, is there are certain investments that are so inherently risky that only the government can or will invest in them. >> it seems contradictory to say that government intervention is absolutely necessary because only the government can do this

and that is too high for private equity market and then also to claim that it is an appropriate risk of taxpayer funds because there are adequate safeguards in place. which is it? is it too risky or the risks manageable? >> senator, thank you for your question. these are policy questions that congress needs to grapple with and answer. i am not sure that you can give a blanket answer to your question. i think we did you know this far better than i do, but the congress is constantly deliberating about what is in the national interest in the public interest over the long run. the payoffs from some initiatives to the public. they may not be direct financial returns, but they may be social consequences or whatever that

make it worth the government's while to be involved. there are numerous areas where private financing -- initiatives, for example, and that is why we have the nih doing research and why we fund research in universities and lots of other areas. there may be a legitimate role for government where private financing is not available. i do believe that these programs should be constantly reviewed it to the extent that there are programs in place to see whether they are still necessary. do they still meet the policy need? are there private alternatives available today? i believe that ultimately, the best allocation of resources will take place through private interactive markets. >> part of that inquiry -- if the risk is manageable, what did not be manageable from a private capital standpoint? >> very good question.

>> perhaps we should not be putting taxpayer dollars at risk. >> -- >> your report did not consider begin power or solyndra because that is no longer part of the program? those are finished? >> they were no longer really part of the portfolio because they were in bankruptcy and their value would be determined in the courts and to recovery. >> do you have any way of guessing how that might have affected your report? what your report might have looked like had those still been on the books? had those not gone through bankruptcy? >> i would only be speculating, but certainly we would have applied the same methodology to examining bill loans if the companies were still not in bankruptcy. the process that we used in each case was totally independent and

we took a look at voluminous information on i each one of these loans to try to gauge the risk. we looked at reports all across the board. we would have followed the same process there and, you know, i do not want to be speculating as to what we would have found because we did not look at those companies. >> might this have been an instance in which certain procedures were not followed? documents were not completed? >> i believe, senator, that they are under investigation. i would only be speculating because i have no information about solyndra that is not available in the newspapers . >> thank you. my time is expired. thank you, mr. chairman. >> thank you. senator frank? >> senator lee said that if the risk is manageable, we should

not be putting taxpayer dollars at risk and if is not, we should not be putting -- we should not ever put tax dollars at risk? we have a global climate change problem. the duration, intensity of these four to fires are caused by global climate change. there is an actual cost to the taxpayer. the taxpayer money is at risk. because of the global climate change.

the beetle is eating more of the forests because they do not die from severe winters when they used to. we are costing the taxpayer dollars if we do not address this and try to get to clean energy. it seems to me that our tax dollars are a risk if we do not do something. that is what seems to me. it seems like we have to do this as hard as possible. that is what it seems like to me. i want to follow-up on senator widen's comments and questions. i appreciate the cerro investigation you have conducted here.

-- the sorrow investigation u.s. conducted here. one of the beast -- one of the most important activities as figuring out the credit subsidy of these loans of the cost is too high to accompany -- to a company, they may not be able to seek a loan. this company may have a lot of promise. if it is too low, the taxpayer may not be protected from possible loan default. as you noted in your report, in some cases, the subsidy costs were underestimated while in other cases they were overestimated. my question is, can you tell us what you observed with respect to transparency of the credit subsidy cost calculation? can that for each individual project be done in a more transparent process that the

public can access? >> we did look at the credit subsidy process because we had to learn it in order to make our own estimates of what the credit subsidy should be. like any financial model, it has strengths and weaknesses given the intended purpose. the purpose of the the credit reform act method used in budgeting is to have a consistent approach that applies to all programs across the government. that method can certainly do that. they use the same discount rate for all of these programs. in terms of estimating the loss on these particular loans in the doe portfolio, you get to calculate a credit rating and because the credit rating is

used to determine what the default rate is expected to be, given that credit -- most of these are single b or double b credits. they look it years of data across many different types of loans that are rated double b and figure out what has been the default rate. then you plug in that rate into the model and then there is a recovery rate. let us say it goes bad and you have to recover in bankruptcy. what is the typical rate of recovery against the amount of alone or the value of the asset? now, the weakness in that model is that you are using indexes on a default rates and recovery rates that are not particular to the idiosyncratic nature of these loans. there is no easy way, given the novelty of all loans, to

calculate what the default rates and the recovery rates will be. >> -- >> fair market value, in other method, has -- and other method, has advantages in that it will apply an estimate of a discount to determine what discount the investors would demand in order to purchase this loan at the interest rate that it has and get a market return. given the risk. that also has weaknesses because you cannot apply that in budgeting very easily across the government because each discount rate would be different. there would be a lot of contention about what is inappropriate rate for each one of these. it would be hard to have a standard budgeting process. it is important to understand what the purpose is. do not give too much credence to these models in estimating what the ultimate loss will be,

especially with loans like these that have 20 or 30 your lives better dealing with novel technology and the government has the ability to control risk and its exposure in a variety of ways through the loan covenants. they do not have to advance of the money if the project are not meeting the contract will benchmarks. given all that, that is why we concluded, here are the estimates using these models. do not pay too much attention to them or think we are going to lose $2.7 billion. that is not the case. it may be more or less. it could be a lot less than is indicated by the number. what is important is to manage the portfolio very actively day to day. you have it. it exist. manage it carefully on behalf of the taxpayers and use the terms in the loan agreements to take advantage -- to help out that

taxpayers. >> and what you are saying is, there is not necessarily scientific subsidy calculation here for this subset, but the management of each guarantee thank you for coming today. do you think that the commissioning of your study had anything to do with the political outcry over the bankruptcy of solindra? >> senator paul, i cooperate speculate on that. >> were you commissioned after it became public that solindra was going bankrupt? >> yes. >> i find it curious that we have this huge public outcry over this huge laps of oversight where a billionaire gets a $500 million loan from the u.s. government and goes bankrupt turns out that his

attorney husband works in the department of energy granting the and we are going to study oversithe and not look at solindra. i find that very, very curious. and my question to you would be did anyone from the administration ask you either verbally or in writing not to mention or look into solindra? >> the direct answer to your question is no. >> did you have the power to look into solindra? your mandate looks wide open. wouldn't you look at where the problem is? >> i was asked to look at the loans that exist now. >> it says current status of the portfolio strengthen management and oversight of dough's program. if you're going to strength oversight, certainly look at the problems are. this seems to be so my opic as to be politically motivated. i'm so skeptqul of why you don't look at sole indra when that was the whole reason you were commission ds was over sole indra. but you've got them. you've got beaken industry

you've got bright source. what about bright source? did you look at bright source? >> that was not part of this program, sir. >> isn't brithes sources part of the current? you've got 1.8 billion from this loan portfolio and the thing is who owns bright source? robert kennedy junior, another politically connected obama contributor who gets $1.8 billion of our money. you know what their profit was? their loss? they lost 14.5 million. they are 1.8 million in hawk. and why are we giving taxpayer money to a family that's got hundreds of millions of dollars? this is about crony capitalism. this isn't about starting up solar panels. it's about giving money to people that already have enough money. make them have their own loans. but i don't understand and you didn't look at any of the problems in how we come to conclusions about how we come

to oversight. >> senator, i understand your question. first of all, there are several investigations under way. and if we were going to look at that, we would have needed investigatory powers, subpoena powers, the right to demand tockments. we would have taken probably many months if not a year of -- and we would have been going on top of the investigations. >> very specifically, the public information that's out there on sole indra, the sole indra attorney's husband worked there. does that have any red flags for you? >> you knew the attorney for her husband worked in the loan department. does that send up red flags for you yes or no? >> well senator i don't know the facts of that. >> if you knew that in bright source somebody that used to work for the kennedy family companies now works for the

department of energy and approved the $1.8 billion loan does that send up red flags? if you're commissioned to look at oversight your reputation is on the line as an independent person. you're commissioned to look at oversight and you didn't look at the problems in oversight. >> actually, senator, we have looked at that. my point is regardless of those facts, we were going to do as thorough a process of reviewing policies and procedures and come to our own independent conclusions. and you see a number of recommendations. >> do we give loans to foreign companies? >> under the law, loans could be made to u.s. companies. >> mr. karma got 500 million. my understanding they're building cars in finland. >> these are at the time and

again we did not investigate whether the law was complied with in all cases. that wasn't part of our review. however -- >> did they get 500 million and is it directed towards jobs in finland? >> the entities that borrowed the money are u.s. companies. they may have ownership from abroad but they're u.s. companies. for instance, nissan north america is a borrower. and it's owned by a u.s. company but -- it is a u.s. corporation. >> we have a second panel which is secretary chew and i would suggest we go ahead and thank mr. alison for his testimony and go ahead to our second panel unless there's any burning reason not to. thank you very much we appreciate your being here and your testimony today. why don't we see if we can ask secretary chew to come in so we

can hear his perspective and ask him some questions. >> thank you for being here. welcome back to the kefment as you know we just received testimony from herb alison about his report, reviewing the department of nrnl loan 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. so go right ahead. >> thank you, chairman. thank you for the opportunity to discuss department of energy's efforts to strengthen our loan programs and to go on grow america's clean energy economy. as part of our commitment to be responsible sturets, the department has and welcomed the independent review of herb alison. mr. alison released a report and made some important recommendations to strengthen the loan portfolio. even before the conclusion of the review we took steps many of which are consistent with the report's recommendations to improve the loan programs. this includes working to ensure

that our team has sufficient number of skills and experienced personnel to monitor and manage the portfolio. with improved and continued to improve processes for monting loan administration compliance reporting and resolution capabilities to take in account industry best practices. in addition, we have put in place rigorous internal and external reviews to hold loan program office accountable. department takes this responsibility to the u.s. taxpayers seriously and we're looking closely if mr. alison's for additional improvements. mr. alison and his team reviewed each active loan in the portfolio looking at the risk factors behind each loan and estimating each loan's cost. mr. alison's report conclude that had the department is using the appropriate risk factors in assessing each loan. the federal credit reform act defines the cost of these loan programs as the estimated long

term cost to the government including the risk of default. for each loan the subsidy estimate can be seen similar to the loan loss reserve. congress appropriated $10 billion in credit subsidy under the federal credit reform act for title 17 and advanced vehicle loan programs. while the portfolio includes loans to arrange projects it carries levels of risk the report finds that the department of has reasonably estimate it had cost of these risks. in fact mr. alison estimates that the long term cost of the outstanding portfolio is 2.7 billion, roughly 200 million lower than the department's most recent estimates. the purpose of the loan programs is to provide low cost financing to innovative clean energy projects that have a unique value to the nation 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 roughly three dozen clean energy projects that are expected to employ more than 60,000 americans generate enough clean electricity to power nearly 3 million homes and displace nearly 300 million gallons of gasoline annually. as these are just direct benefits they do not include additional supply chain jobs. our loan program is spurs 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 rezpwained its title from china as the world's leader in total investment in clean energy. the department of energy is using all the tools at our disposing including the loan program to strengthen the clean energy economy so we can compete demrobally. improvements in technology and dramatic productions in cost 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 but whether america will lead it. as the opportunity grows so does the competition. many countries have established supportive policies are making major investments in everything from renewables to electric vehicles. to win the clean energy jobs of the future, the united states must do more than invent tech nol. we must also manufacture them deploy 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. will 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 industries? we can invest or we can send money and jobs overseas to

import the technologies of tomorrow. throughout our history from aviation to agriculture to computer technology the federal government has supported the private sector to keep the united states at the technological forefront of important industries. it is time to take a page from our own play book. we can still win the clean energy race but we must act now. i know that the committee cares deeply about our energy future and i look forward to working with you to ensure the united states leads in the clean energy economy. so thank you. i am pleased to answer your questions. >> well, thank you very much for being here. let me start with a very general question. you advocated strongly for winning the clean energy race which i heard you say before and i've done myself many times. in fact, i think it is 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. i know the department has various other efforts going to achieve that. a second might be the manufacturing 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 cede 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 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 nerge projects that might require some level of government support through a loan guarantee and we hadn't perhaps adequately segregated those out. i would be interested in any general thoughts you have about 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 that the united states doesn't drop out of the competition. >> sure. well, i listened to a portion of the testimony and i agree with him and the report. he -- the report took the loan program and divided it into certain sectors.

and if you consider a sector where you are deploying a known technology wlrks it is wind or solar, something which has a proven track record, there are considerably -- especially if that project then has the utility company which is a solid utility company with a good bond writing, with a long-term so-called power purchase agreement that is to say 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 startup company. it is a considerably lessdz risk but it does help very much in the deployment of these large 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 loan or whether it's something the energy generation business. and that by its very nay cur might carry a different risk. however, the mechanism that we are 256ked with using the so-called if i can ra rules tries to assess what are the risks to these loans and using that estimation the report says that we were essentially -- we were a little higher but essentially on par with their evaluation of the risks of those loans and that congress had appropriated that money, appropriated not authorized. appropriated means that money could have been spent on other things to hire, could have been spent on research, could have been spent on hiring policemen firemen and teachers but they chose to appropriate because they recognized that it was an opportunity to actually help

these industries and help create jobs. >> let me ask one other question. i think mr. alison also said that it's extremely important that you get the right professional employees working at the management and oversight of this loan portfolio over the long term and that in order to do that you need to have assured funding for this activity so that the people might actually consider leaving the private sector and coming to work for the department to pursue this management of these loans. do you have any comment on that recommendation? >> yes. i agree with that recommendation. i think it's very important and we are in the process of trying to bring in career professionals because as he noted in the report that many -- because we had to stand very

quickly we hired a number of consultants to give us the financial expertise and we would very much want to bring in to this program career people who have experience in project finance, experience in finance in general. 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 the specific mile stones that we pay very close attention, mile stones that then allows the loan program to give another charge of money it's very important that we follow each of the loans carefully. senator mur cow ski. >> thank you for being here this morning this. it's important to hear mr. alison speak to the audit but i think it is equally important that you as the secretary of the department of energy be here to speak to some aspects of the loan program.

in the report from mr. alison he states that dough 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 perspective that 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've made a lot of improvements and will continue to make improvements especially since we all know that sometimes the industry that a particular loan might be embedded 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 that one of the thing that is the alison report and mr. alison were talking about is for example the vagueness is also goes to not only the department's policy but the law itself. what do you mean by a significant chance of payback? >> 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 again the results of the audit what you have observed and through your interaction 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 senator stab now is probably going to ask about the abtv -- >> atvm. >> thank you and the fact that we haven't seen those loans go out the door under the 2005 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. so i'm looking at this and 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. and i think we need to be able to do much, much better and i

would like to think you've 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. alison. some of the conditions that are in the 2005 energy bill. one of them is the reasonable prospect of repayment. we certainly face that with solindra and beacon's failure to repay the loan. there's another requirement of 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 solid ra that condition was not adhered to 75 million had to come in from private investors and to make that happen what we saw then was the subordination dough 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 rireds -- did you make that determination that the amounts available when the loan guarantee was closed that they were sufisht to carry out the solid ra project and if you did make that determination, then how do we get to where we are today which again is a pretty bad mark on the bookeds? >> 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 that time we knew that the company was in deep trouble. but to your earlier point about what we intend to do much of the things that were in the report we are doing. we have set up a risk committee, mr. alison and his colleagues recommended that there be a -- a risk management

structure. we agree with that. but we set up a different independent -- a different part not -- a different part of the loan program that would look at just strictly the risk as future disbursements go out. so that's something we did before the alison report was submitted and the report acknowledged that we were doing that. we are taking his advice and we have reached this ourselves that we need people outside the loan program per se to be part of this evaluation. that's very important that we get additional sets of eyes on that. so in terms of this specific loan to solid ra that you mentioned, again it was a rapidly changing dynamic during this period of time and during that restructuring we knew that the chance of repayment was low but what we did was we did something that would we thought

would be in the best i want rest of the taxpayer as mr. alison pointed out when asked specifically would you be in favor of the requirement that would not subordinate anything? and he pointed out very clearly that to give the highest chance of recovery to the taxpayers. and so what we did and i think the alison report confirms that is that we were doing things that would ensure the highest return of the taxpayer money given the circumstance, the rapidly changed circumstances. >> well, my time has expired and i want my colleagues an opportunity to speak. but i do think it is important that we also look to some of the other aspects of that alison report that speak to the importance of the real time controls to make sure that the risks are properly managed and

i think solid ra is a perfect case in point where we missed on that. with regards to the issue and where they were at that point in time as opposed to others in solar panel manufacturing business. but i'm going to defer to my colleagues so that they have an opportunity to question. >> senator shaheen, you haven't had a chance to ask questions. go ahead. >> thank you very much mr. chairman and thank you mr. secretary for being here. yesterday, i held a hearing on the uss kir sarge down at the nor folk shipyard. and we heard from secretary of the navy ray maybice. 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 frontlines 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 alternative energy sources like renewables that can be used out in the field are critical redution 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 battle field. now, one of the things that i would hope you might address this morning and i would point

out that i know the energy, the department of energy is working closely with the navy with 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 are 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 a lot of the things that we invest in across energy from science to the energy to 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 without subsidy.

and that is our goal. we the united states has great agricultural resource fs we can use biological waste or thing that is 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 for a profit and make it a business of some say price of oil 80 a barrel. something like that. we also do a lot in terms of a lot of other depend sizz to give not only the military but the consumers and businesses the advancement of batteries is very important. batteries are very important in a forward deployed place because rather than trucking in through very hazardous supply routes, usually diesel fuel to generate electricity, you could have a lightweight solar

system. >> and we actually saw a demonstration of that yesterday. that was very impressive saw the solar blankets that are already in use in afghanistan and heard about how much weight it saves our soldiers and not having to provide those resupply convoice. >> so that's yet another aspect of decreasing as people attack these supply lines and some of our soldiers and plis die from these attacks we think it's very important that you we develop these programs. remarkable progress with batteries for example. recently in a summit conference a company we supported announced that they doubled the world record energy density which appears to have no additional cost to manufacturing. and they're actually optimistic it can go much better than that. so this is something that is going to be very important.

so we look across and then finally energy efficiency is something not only for the forward deployed areas but in general for the military we think is 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 and we have a very close important working relationship with the department of defense on that. >> again we saw some excellent examples of that which save money but also make us less dependent and more efficient. and let me -- my time is up but let me just make one other comment about that hearing because one of the other things we heard from all of the military officials who testified was 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. >> thank you. and senator bingaman had to go to the floor to speak to an amendment and so in his sted i will call on senator lee. >> thank you. >> thank you for joining us today. shortly before you became the energy secretary you were quoted as saying, 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 about $8 a gallon which is a lot of money. last week in your testimony over in the house of representatives it's my understanding that you indicated that high gas prices are helpful in some ways 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 guest: 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 and so you may not personally be feeling the gouge at the pump but i assure you that hundreds of millions of hard-working americans do 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 price that they pay at the pump and the corresponding prices that they

have to pay at the grocery store and everywhere else because all of these costs end up getting passed downstream, i hope the administration will take that into account in its energy policy and pursue an energy policy that acknowledges the fact that whether we like it or not, we as a 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 to -- a robust policy of aggressive exploration and production of petroleum and natural gas. instead, i have seen a focus on this administration that has placed most of its emphasis in this area on some failed policies including a lot of subsidies of alternative energy projects. and on that note, the recent g.a.o. audit of the loan

guarantee program found that, quote, dough did not always follow its own process for reviewing applications and documenting its analysis and decisions potentially increasing the taxpayers exposure to financial risk from an applicant ds default. it went on in that same report to determine that d.o.i. --e 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 its decisions. are these accurate? are these statements accurate in your opinion? >> well, let me first respond to your first statement just, senator, so i can correct the record. since i walked in the door secretary of energy i've been doing everything in power to do what we can to as we see these gas prices to reduce the

prices. and the administration, the president and i personally yes we do acknowledge and feel the pain of not only american consumers but american businesses when they see these prices increase and what we can do all the tools available we are using but in the department of energy's tool chest the most important thing we are doing is to offload the dependency on oil using natural gas for transpation electication, biofuels all of those things. now, regards to the -- >> are you saying that you no longer share the view that we need to figure out how to boost gasoline prices in america? >> i no longer share that view. >> you did then but not now? >> when i became secretary of energy i represented the u.s. government right now in this economic very slow but return

that we need to have these prices well will affect the comback of our economy and we're very worried about that. so of course we don't want the price of gasoline to go up. we want it to go down. but let me go to the g.a.o. report. the other part of the g.a.o. report within a few sentences of that showed said explicitly that the diligence that we did in our loan program was actually considerably more thorough than what the private sector did. the thing you are referring to and i admit there is some truth in that is that we had at the beginning of this loan program which started in 2007 well 2005 but in seriousness about 2007 a lot of the input was in paper form. a lot of the input was such that it was we are moving towards making those records

electronic so that you can have a more modern data and this is not only true of our loan program quite frankly it's true throughout the department of energy. as kind of a techno geeky guy i like the idea that we have electronic records rather than paper records. and i'm encouraging the department to make this transition and we are doing it in the loan program. >> and you think that will bring about more compliance with the department's own processes? >> well, i believe the g.a.o. report says that because the records are here and there and not in a central repository, that it would be harder for the loan program overall to see what's going on. and so it's part of this risk management going forward we recognize that we need a central reposstris updated so

that you can get access and we recognize that. >> my time has expired. thank you. >> thank you. secretary chu i think it is no surprise that i'm going to talk to you about the vehicle technology program and first let me say i, in your testimony when you talk about the fact that to win the clean energy jobs of the future the united states must do more than advance technology we must also manufacture them deploy them and sell them around the world. i couldn't agree with you more. and i appreciate the fact that when this, when i was able to make this program part of the 2007 energy bill that passed it was not implemented in the last administration and that it was a priority for you and the administration and it was in fact implemented in 2009. that's the good news. we have good things to report. jobs being saved, jobs coming back from overseas.

and now we're in a spot where we have incredible delays. year after year after year. we have one company that in fact indicated that after spending 25 million as a startup on a three-year application, their application was never completed. i am very concerned about where we are right now on something that clearly goes to the heart of keeping advanced manufacturing in this country. you know that we're competing with countries around the world. our companies are competing with countries that are providing tax incentives, that are providing financing mechanisms doing a number of things. and the retooling loan program goes right to that effort of adding advanced technology and manufacturing to keep jobs here rather than overseas. and so i wonder as we look of course we want to protect taxpayer dollars, of course

that's absolutely critical. but how do we streamline this process at this point so that it actually is meeting the goals that it was set up to do? >> well, senator, i think we're very much in the same page here we're in total agreement with regards the importance of the atvm loans. we believe that the atv mm m loans for example the loans to forward anden saved and generated many thousands of jobs. ford alone i think is over 30,000. a big success story because that loan enabled ford to retool, to sell. it is now a major leader internationally in selling very desireable competitive cars. this is exactly what that loan program was intended to do. and it's a great success. i think the loan to niecen that generates and produces cars in tennessee a place in the united states and another great success. now having said that, we do

have to look out for taxpayer money and as conditions change, we have to say again going back to the original covenant of the law which says in these loans is there a reasonable chance of repayment? in many instances we feel that we would like to see private equity be invested in these companies and then there are mile stones after that private investment so that we can then say, all right, we can help you grow your business. and so we are very, very sensitive to those things again trying to balance the line as you noted between stimulating the mfers with these loans and again one of the big success stories of this loan program and making sure that especially in a newer company whether we have to independently assess whether their market

projections do make sense in this very rapidly dynamic and so that we try our best to do that. so both look out for taxpayer money but knowing that we do want to stimulate investments in manufacturing in the united states. >> again i appreciate that mr. secretary. i would just tell you that at this point the way things have gotten bogged down in the slowness of it is defeating the whole purpose of what needs to be done because it is creating an untenable situation for businesses that are on the edge to be able to move forward to create these new technologies but waiting three years is just too long to be able to come wup those judgments. let me ask you one other thing. what changes would you suggest to make this program more effective especially possibly add more opportunities for companies? we have passed now twice from this committee legislation of mine that would expand to medium and heavy duty vehicles.

we know there's tremendous energy savings in larger vehicles, a very exciting work that is being done. would you support something like that? expanding this more opportunities to save energy and create jobs? >> well, i think this is a program i would be delighted to talk to you about it to broaden its scope. certainly as you suggest. but also in certain things when it's really advanced technology and it's an advanced technology in a new company, you know, again working with congress i don't know if congress has the appetite but to change some of that money so it could not only be for the loans but also could be for grants for developing new products. i think that would do a lot grants that would allow the company to proto type things that could then be made in america. so i would be willing to work with congress if congress deems

this is an important program that stimulates job growth in the united states advanced manufacturing in the united states that that could be another way of broadening the program. u >> the department has awarded a 10 million prize for the production of a lightbulb that is supposed to be affordable and efficient and the prize went to phillips lighting. do you know how much the winning lightbulb retails for in the united states? >> i'm going to make a guess about 40 or 50. >> actually it's $50. headline "washington post" last friday affordability award goes to a $50 lightbulb. i guess, you know, do you think $50 lightbulb is affordable for american families the government own figure says the average household in the united states has over 40 light bubs? it sounds like are we asking american families to spend over

$2,000 to trade out alm their light bubs? >> no. absolutely not. we are not asking american families to spend $40 or $50 for a lightbulb. the process was intended to incentivize the development of new technologies. some of those in commercial use in building in hard to get places where you have to hire people to go up in a crane already very affordable. commercial use is in traffic lights very already pays for themselves. so it was the idea was to stimulate the future development. >> the president claims that he and his administration are promoting fairness. he talks about fairness an awful lot. there was a thursday story in the "washington post" with the headline more than half of obama's fund raisers got jobs in the administration. the article explained how bund lers were given jobs in the administration. it says one hired obama hired bundler steve spinner as a

liaison in the energy department and according to internal e-mails spinner pressed for staff members to finalize a 2k3w069 loan for solid dra in which another was a major investor. yesterday the government accountability office released its own daut of the department of energy's loan program. the report concluded that the doe did not follow its own process for reviewing applications and documenting its decisions potentially increasing the taxpayers exposure to fwinl risk from an applicant's default. it seems like the administration is doing a good job looking out for its friends but who is looking out for american taxpayers? >> first, it was absolutely fire waled from making any decision or encouragement nor any loan. so what he was pressing for was

to finalize thing. >> i would like to ask about additionally the electric vehicles the president was in north carolina giving another speech promoting electric cars. last week we learned that general motors was suspending the volt because it failed to meet sales expectations. last month we learned that your department cut off fund to other car mfers because it failed to meet sales expectation. so i look at these vehicles which range from 40,000 to over 100,000 and i ask if those are practical solutions for families who are struggling to pay bills especially as the president is proposing in increasing the tax credit for whatever essentially luxury vehicles and twoonts increase it from 7500 where he didn't get 50d quat takers to now to

10,000. is raising the tax credit for these vehicles that few families can afford the right thing and fair thing to do? >> as you may know but if you don't the goal of the department of energy is develop the technologies that actually will drive down the price of vehicles or plug-in hybrids so that for example in the 20, 25,000 range, these vehicles would be less costly, the cost of oirnship would be less than a conventional car, say a 16,000 because you're going to be saving in gasoline bills. for example, you take a car an internal combugs car and it gets $30 miles a gallon. that's -- 30 miles a gallon. in today's prices this is horrible pain to american

consumers. if you get an electric vehicle that costs let's say low 20s, drive the same amount, let's say 10,000 miles, it's about 300 in electricity. and so we are very focused on driving the cost of those down so it's exactly what you say that it's the cost of a vehicle for, that the american people can afford. >> thank you. >> mr. chairman. >> i have the invissible 2k3w568 here. thanks very much for being with us. let me ask you, before i ask you a question i wanted to agree with senator lee a moment ago who talked about the high price of gasoline. and what it does to rural america. i come from a rural state and many people travel long distances to work. i would hope that some of my

republican friends would work with us on what we think is one of the major causes of the high price of gas right now that is speculation from wall street companies on the oil futures market. we believe and i think the evidence is pretty clear that over 0% of the oil futures -- 80% is not controlled by end users, airline companies or fuel dealers, people actually use the product but by wall street companies who are speculating on the price of oil and driving oil prices substantially up. goldman sacks themselves one of the major speculators estimated that speculation was adding about 56 cents to a gallon of gas. do you have any comments on that? >> i can't say to the estimate that goldman sachs has made. as the -- and actually put on an additional price that adds to the speculation. but i agree with you that where futures do play an important

role for example if southwest airlines or someone else wants to levelize their cost of energy that they buy a few and they're going to take delivery but they actually are going to use the fuel so it's a financial mechanism that helps them plan for the future. so futures in that sense play a very important role in stabilizing companies prospects. but -- and i would agree with you. but when futures got traded back and forth where no one actually intends to take delivery, and enters into a different regime and but to the extent of how it modifies prices, i don't know. but it's not what it was meant to do. >> let me ask you this. my understanding is that right now we have about 100,000 americans working at more than 5,000 solar companies and i think sometimes if we hear discussion around here the impression is that sustainable energy is just doing terrible.

companies are not making money. we are not creating new jobs. would you agree with me that in fact in terms in recent years not unrelated to the work that you and the department of nrnl are doing, that in fact we have seen a significant increase in the number of jobs and the installations in terms of solar parnls and in terms of energy being produced from wind? are we making progress in creating jobs in those areas? >> we are. we're making dramatic progress i think since 2008 use that as a bench mark i think we've almost doubled the amount of renewable energy in just those two sources. >> that is not insignificant? >> dubbling is not insignificant. >> and we are creating jobs in that process as well. would you agree with me that virtually the entire scientific community not only in this country but rooped the world recognizes a that global warm vealing and b that it is significantly caused by human

activity and c if we don't get a handle on greenhouse gas emissions there will be enormous problems associated with all kind of -- in the future of this country? >> yes. agree with that. >> ok. let me ask you this mr. secretary. we are talking about the role the federal place in terms of support of various energy technologist. is sustainable energy the only technology that has received help from the federal government? >> i would say looking backwards at every form of energy received substantial federal help. oil, gas, coal, nuclear, you name it. when they were emerging technologies they received substantial help. but not only when you were emerging i would agry with that but they are still seaving

help. >> in some cases that is correct. >> in fact i find it somewhat ironic that some of my friends on this committee expressed their distaste for loan guarantees and then tell us they want to build another 100 or 200 nuclear power plants in this country which i, give me your opinion, would not take place at all, you would not build one without federal loan guarantees. is that a fair statement? >> actually that may not be a fair statement. but let me go back to the original thing that i think you were driving at. after we subsidized an emerging technology and it seems to be very successful on its own there's a good case that can be made that this technology this industry may not need federal support. and certainly we think that renewable energy while there will come a day, i don't know whether it's going to be this decade or a decade and a half but it is not 30 years from

today. renewable energy, the levelized cost will be the same as any new form of energy. it will be as competitive. but until that day arrives, you know, in this decade or the next decade and a half, yes, it could use a little bit more support. but you can sunset that. and when there are industries that are doing quite well, we can also ask ourselves do they need continued support? >> mr. secretary, there is a new plant being proposed, a nuclear power plant. how much federal loan guarantees are involved in that plant? >> there's a power plant, that's the one you're talking about, that's a consortium of companies led by southern. i believe the loan is a conditional commitment. the loan guarantee is about $8.3 billion. it's paid for, the credit subsidy is paid for by the

applicant though. and so it's scored by the cbo as 1% score but the actual credit subsidy is paid by the applicant in that case. and the reason i was hedging on that is i know that there is before nrc approval another set of two nuclear reactors which are not applying for a loan. so i can't really say definitively. >> if the federal government, congress passed legislation repealing price anderson, would the nuclear -- which is as you know a federal insurance program if god forbid there's ever a nuclear accident. do you believe wall street would be prepared to invest one penny? >> i agree with you. i think price sanderson is -- >> thank you. i thank you for the excellent work you're doing. my only point on all this is i hear sustainable energy being attacked and yet you have an entire major indsfri that people want to greatly expand.

are we better off or worse, which is totally dependent on the support of the federal government would not last two days from now if the federal government withdraw all its support. i have the chair. i think it is senator -- >> thank you for coming secretary chu. have you met george kaiser? >> i think i might have at a roundtable meeting. >> more than once? >> the only one i can recall at the time was during a roundtable meeting. >> are you concerned about the proprietary of giving money, $500 million to a billionaire and then sort of changing the rules some so he gets to maybe get a better deal than the taxpayers do? >> i am convinced nothing i've seen in a loan program or anything in the white house had that any connection that george kaiser had with raising of money had anything to do with

the selection of the loan. as you well know, solid ra was at the head of the line picked by the previous the department of energy under a previous administration. and it was the one that people advanced forward tazz one that had the most work done on the loan that satisfied the conditions of the intent of the loan. >> that's sort of troubling that they were the best-case scenario and then they went bankrupt. but also i think what's troubling to most of us is that given $500 million to a guy who is a billionaire. why in the world would we do that? >> well, there were the very wealthy people in solyndra. >> i would not give it to them, either. >> the politics of the investors was not part of the decision of whether to give a loan to

solyndra. >> was there a question of propriety when you have someone who works for you who is married to someone who works for solyndra who you say there is this fire wall at the beginning may be but you are not insinuating that he never wrote to e-mails and never corresponded with people in favor of solyndra? he did, correct? prexy he was corresponding -- >> he was corresponding after the loan. >> is that appropriate for him to be involved in any state? he should have never had a word with solyndra. >> the department of energy has a very rigorous standards that we enforce on any potential conflict of interest. as you mentioned, for example, his wife was actually fire wall from having to do any business with solyndra, as will . >> have you met robert kennedy, jr.? >> probably.

>> how many times? >> since i am not positive that -- [laughter] >> are you aware that they are wealthy? we gave robert kennedy jr.'s company $1.8 billion. someone works for you who used to work for the kennedys who people say was involved with the loan process. are you aware of that? >> no. >> we need to look into that, as well. the suggestion will go in that this revolving door from big business into the department of energy to get large loans -- one. billion dollars is a lot of money given to a large campaign contributor of the president. that is not your background, when you are the head of the organization that has been giving these loans to very wealthy people who are donors of the president and it look bad. do give loans to foreign companies?

>> begich loans -- we give loans for things in the u.s. we gave a loan that was to a design group in l.a. and there is another covenants that goes to manufacturing in the u.s. the money we give in loans is very targeted -- >> i understand they were struggling and this money was actually going to be used in finland. >> the loans we give our for american jobs and we are very clear about that. if -- >> no money goes to finland? >> the -- we give loans for jobs in america and we are very clear about that. >> they are now using in the u.s. taxpayer dollars? >> i can get back to you on that but i know the overall scope of the loan is for manufacturing in the u.s. >> you are concerned.

picking winners and losers. >> people are saying windmills, even though we have paid for them and we have been started, if you take away subsidies, they will never make a profit. they're not profitable. we are throwing money at windmills. i do not see the purpose. it get down to what senator lee has talked about. we should not be in this business at all. you are choosing $50 light bulbs. nobody understands that in america. there is a real problem and you will not win the perception war on this. my advice to you would be, let us get out of this business. let us not be involved with stuff like this. by your involvement in it, it really looks unseemly. i do not question your character. you are not bright person from academia. your overseeing something -- you are an upright person from academia. you are overseeing something in question.

>> thank you. senator sanders has to go and vote. senator paul, you do not have to vote if you do not want to. [laughter] >> you have to try to play all the percentages here. [laughter] thank you, mr. secretary. i wanted to ask a little bit about the competition in the world on these technologies. it is very important and that we keep pace and do not fall behind china and india and europe. i -- as i was listening to other questions and the other panel,

i was thinking of all of the above. i know the president gets example, hehen, for may not approve offshore drilling everywhere. when they say, what about all of the above? my feeling is, all of the above does not mean all of all of the above. if it does meet all of all of the above, certainly, it means innovation and it means rnd like rbe, which is patterned after the creator of the internet, which i believe has created some jobs. >> i think you're right.

>> thank you for the validation. it also includes what mr. allison referred to as investments so we do not have the valley of death for all of these things that are discovered at universities where we have had some investment by the federal government. but, to commercialize it. that seems to me what the loan program is about. >> that is correct. i think it has been mischaracterized it appropriately as the government being in a venture capitalist. the venture capitalists to deal with small amounts of money in a much earlier stage. the valley of death goes to beginning to deploy a eighth commercial scale where a large amount capital is needed. when these loan programs were set up back into the five and

two dozen 6 and then authorized -- back in 2005 and 2006 and then authorized, this is why many countries have some sort of of their ownk to allow their industries to grow. china has a very large credit line, $34 billion in renewable energy and things of that nature. the netherlands, germany, england -- they are all looking and have these types of programs. >> are they not simply looking at the future? the near future in terms of the

competitive world global environment. in terms of these technologies because we know this is where we are going. >> that is why we are doing this. they want their industries in their countries to have the advantage relative to other countries. if all the country said we want to have -- we will not have any government financing, that is one thing. if a large number of countries are doing this, the question we should ask ourselves in the u.s. is what should we be doing? >> we want to be competitive in these technologies which are clearly going to be an enormous part of our economy and of the world economy and the world energy economy, right? >> right. >> kind of ignoring that, to me, seems almost willful in not understanding where the world is going.

i do not need to be harsh, but would you agree? [laughter] >> i would phrase it differently. if you look at a way of financing as a way of stimulating the private sector investment, which is what we want to do, a loan program sets is the one we are administering, most people agree would stimulate investment and a 10 to 1 ratio. this is a good thing. the losses expected from this investment are far less than was authorized. while nobody wants a failure, in the aggregate, it has been very good at stimulating private sector investment. >> my time is running out but i am now the chairman. so, i yield my time. [laughter] solyndra was 3.3% of this entire

1705 program. there are risks. we had one senator on the other side say about the loan program if the risk is manageable for the companies we are loaning money to, we should not be putting tax dollars at risk. they said if the risk is not manageable, we should not be putting tax dollars at risk. in other words, we should never put tax dollars are risk according to my colleague t. he has signed onto all of the above. he is for it. i would suggest that anyone who is for all of the above the and who is not for the loan programs, this is for all of the above. so, i would cautioned them when

they, you know, when the president is not opening every, you know, every square mile of the continental shelf to offshore drilling that the criticism that he is being a hypocrite because he signed on to all of the above, they should be careful in that regard. ok, you said china is doing $36 billion? >> $34 billion lines of credit to the clean energy sector. >> ok. i think it is crucial for all kinds of reasons that we invest in clean and renewable energy.

for obvious reasons. economic reasons. climate reasons. i also -- when i hear about the $50 light bulb and the award given for that technology, i think of what laptops were when the first came out. about, we're talking mainframes compared to everybody who can get a laptop gets a laptop. that is what that is about, right? >> that $50 like bald -- >> that $50 light ball. are you expecting every american to spend $2,000 a year of light bulbs or whatever that question was, strikes me as disingenuous

or not understanding what the purpose of developing that kind of technology is. let us assume is the latter, shall we? can you explain about the $50 a light bulb in places where it is already saving money? >> of course. they last socause long, 10 or 20,000 hours, if you are in a place which leaves them on a long time, an exit sign or in an office building, there are high ceilings, you have to hire someone to change a light bulb. traffic lights are on all the time. in those cases, we already know that switching out incandescent

light bulbs for led's makes commercial sense today. the idea of that light bulb and contest was to provide a goal going forward down to get a light bulb that eventually americans cannot afford. no one expects to pay $60 for a light bulb. quite candidly, if you are filling your house with light bulbs like that, they should be part of your will. [laughter] >> we will end on that. you know, i just wish that when we do these hearings that we did them with a the purpose of getting the most understanding of what we're doing. both from a broad level and a

specific question about the loan subsidies, i think that is the best use of these hearings. i thank you, mr. secretary for the tremendous job your doing. >> thank you. our goal is to get that to a $5 light bulb and then you -- >> forestry lights, -- for street lights, that should be on for safety. it can reduce crime. there are all kinds of reasons for that. mr. secretary, thank you. i assume that the record will stay open for a week -- i am making this up now. [laughter] the hearing is adjourned. >> thank you. [captioning performed by

national captioning institute] [captions copyright national cable satellite corp. 2012] >> they would wear garments made of homespun cloth. this would be much more rough textured and less fine than the goods they could import from great britain. by wearing that clot, women were visibly displaying their political sentiment. >> sunday night at 9:00, george mason university professor on the role of women during the revolutionary war. part of american history tv this weekend on c-span3.

>> the strong support we have by which this movement originated gives us an excellent base to more foreword with. with at least the 107 that sat whene electrodoral votes -- you come together with the other states, you have of the electoral votes necessary to win the presidency. >> as candidates campaign for president, we look back at 14 and over in for the office and lost. go to c-span.org/thecontenders to see video who had a lasting impact -- to see video of the contenders who had a lasting impact. >> there has been spirited disagreement and considerable

arguments. do not let anybody be misled by that. you have given here in this place and moving and dramatic display of how americans to forward can move shoulder to shoulder. >> c-span.org/thecontenters/ . >> on wednesday, there is a hearing on the bureau of ocean energy management and the bureau of safety and environmental enforcement. the 2013 budget calls for cutting $200 million from offshore oil and gas development. this is 90 minutes.

>> good morning. welcome to the energy development program within the department of the interior. on behalf of the members of the interior subcommittee, welcome our panel and thank you for joining us here today. before us, we have the the director of the bureau of land management. director of the bureau of ocean energy management. director of the bureau of safety and environmental enforcement. thank you, a gentleman. this is your first hearing about these two new bureaus. we want to offer a special welcome them. the subcommittee was fortunate enough to discuss many aspects of the energy development when secretary salazar showed up before us two weeks ago. am especially grateful that we have the opportunity to discuss offshore wind development to

create new manufacturing and to generate renewable energy in my home state of rhode island and in other states. however, as i know that many of my colleagues on both sides of the aisle will agree, there is much more to discuss about energy policy, which is why we have convened this hearing today. making sure that the right resources and policies are in place is what is safe and responsible. this is a significant part of our jurisdiction. the three agencies we have before the subcommittee today will all play a huge role in insuring the success of the president to attack all of the above the strategy by overseeing development on federal lands and in our federal waters. we must ensure that these three agencies have the right resources and staff in place to fulfill their duties. it is important to start with an overview of where these agencies

are in terms of fiscal year 2013 budget request. the offer perspectives, the budget proposes a large increase to the bureau of safety and environmental enforcement for a total of 200 to $2.2 million. -- $222 million. that is $8 million above 2012 funding levels. the congress proposes to collect $65 million in inspection fees to offset the appropriation's request. the budget requests includes a level of ocean management of $164 million. that is a $3 million increase from last year. the budget increase -- the budget includes a $33 million increase above the fiscal year 2011 level.

the budget also includes a new $40 million inspection program similar to the one we enacted last year for bsee that will offset the appropriations request. i am anxious to hear from director at the how these will be used to strengthen energy development on bom lands. we're going to look at the progress being made to process of sore and onshore permit ands. . since the deepwater horizon incident less than two years ago, major reforms have been made to the way the interior department of overseas -- overseas energy development. concerns are being raised about whether the administration is acting quickly enough to exploit our reserves. it is important to know that lease sales are under way and permits have improved since the incident, including a total of

325 deepwater drilling permits and 116 a shallow water permits approved as of monday march 12. as we move ahead, i think the administration must take the proper balance between speech and insuring that industry is building responsibly and safely, especially in the context of the largest oil spill in our nation's history, which we saw with bp -- the deepwater horizon. we need to make sure we are addressing onshore energy development in environmentally sensitive way. i look forward to discussing efforts to improve the inspection process, that particularly relates to hydraulic fracking. it before we hear from our panel, i would like to recognize senator mikulski and other colleagues if they would like to speak. >> welcome to our witnesses. i appreciate each of you. it was nice to visit with you

and is nice to have an alexi and -- in alaska and at the helm. welcome to each of you. as americans face energy costs rising, it is important that we ensure the agencies that set before us today have the resources they need and the right policies that are in place to maximize the next direction from our federal lands. in number of new authorities were included in last year's interior bill but i hope will give your agencies the tools necessary to improve the pace up permitting an increase our domestic production. for example, the new fees on offshore operators were authorized and 50% must be used to expand capacity and expedite the development of the ocs. authority was given to pay higher sartorius -- salary to address the problem with hiring sufficient numbers of key personnel to review the

exploration plans and the process permits in a timely fashion, as the chairman mentioned. responsibility for reviewing your quality issues in the arctic ocs was transferred from the epa to boem to deal with egregious permitting delays, almost six years in one case. i would like to kier from all of you today about how these new authorities are being utilized and whether you believe that you have the tools to improve the pace of permitting an increase production both on and offshore. and proving that a carbon's performance is important to me in light of recent -- improving the department's performance is important to me in light of recent events. the news reported the production of natural gas declined by 11% in fiscal year 2011 and oil declined by 14%.

a significant portion of this is the result of the moratorium that was put in place in the gulf of mexico following the deepwater horizon. i would like to explore with you what the current pace of permitting is? how many things are operating? have improvements been made to improve the approval of exploration plans and drilling permits? adding there is a difference of opinion between the department and the industry and whether or not things are improving. i would like to hear your perspective. the discrepancy between protection on state and private lands versus federal lands also concerns me as i looked between the policies that are proposed in the fiscal year 13 budget that will make leasing on federal lands less competitive. when companies have the option of oil exploration on march, new reserves on state and private lands, whether it is north dakota or texas or for natural gas in marcella shevell, i questioned the wisdom of

proposals for royalties put on plays at -- put in place. it seems to me that this is just taking us in a direction that will make our federal lands less competitive and we need to continue to trend more investment to the private lands where it will reach other countries. again, i think the with this is for joining us that for the work they do within their respective agencies. i look forward to the questions. >> to you, senator murkowski. -- thank you, senator murkowski. >> he has bought a cabin in montana. >> thank you for holding this

hearing. i want to well, -- welcome everyone to the hearing this morning. i want to say if it -- say a few words about the pardon interior budget. there has been a lot of talk about oil and gas leaks and the need to expand in the development to reduce our dependence on foreign oil. we need to send $1 million a day to countries who do not like us much -- that has not done a very good in securing a developing our economy or enhancing our national security. i think is important we do not confuse reducing our dependence on foreign oil with reducing prices at the pump. we know the price of gasoline is not just about supply and demand factors. a talking point of drove a boudreau is not giving us those results. let us be honest. drilling is out. they're more drilling rigs in the u.s. than there are anywhere else in the world.

a production is up. we are producing more than we have in the last eight years. dependence on imported oil is declining. consumption domestically is down. we are facing competition from china for oil and that is driving go price as well as speculators influence the market and adding as much as 56 cents a gallon at the pump. all of this is to say we need to look at an all of the above solution. there is no magic bullet. in montana, production is feeling the economy. we are producing 500,000 barrels per day. i am proud montana is a part of that expanding energy domesticly. this hearing is not just about extracting fuel. we need to permit renewal energy projects in a timely manner. we need to put just as much effort into those leasing and approvals of those projects to secure our energy future. i look forward to visiting with you today, in particular of on

getting more renewable energy up. once again, i want to think that chairman for holding this string. >> thank you, senator. gentlemen, your statements are part of the record so you may be free to summarize your comments. please begin. >> thank you, mr. chairman and members of the committee. it is always a pleasure to be here before you. in the interest of time, i will keep my opening remarks brief. the boem is responsible for managing over 245 million acres of public lands, primarily states. as well as 700 million acres of onshore subsurface mineral the state's.

this management includes activities as varied as livestock grazing, outdoor recreation, conservation of natural resources. america's public plans provide resources that are critical to the nation's energy security and will continue to play an important role in domestic energy production and mineral development for decades to come. our management of public land resources and protection of public land values are results make economic benefits to local communities into this nation. it is estimated that in 2011, mclellan boem's management contributed $120 billion to the national economy and supported more than 550,000 american jobs. disco year 2013 budget proposal reflects the administration's effort to manage public benefits while recognizing the reality of the current fiscal situation.

the new energy frontier energy to recognizes the value of environmentally sound and scientifically grounded development of both conventional and renewable energy resources on public lands. conventional energy resources on these public lands continue to play a role in meeting the nation's energy needs, producing 41% of the nation's cole, 13% of natural gas, and 5% of the domestically produced oil. during 2011, the bom held sales covering over 4 million acres. onshore mineral leasing revenues are estimated to be $4 billion in 2013. the 2013 budget strengthens the bom's oil and gas inspection through a fee on producers. similar to the fees now charge for offshore inspections. collection of these fees is consistent with the principal users of the public lands pay

for both the cost of use authorization and for providing for oversight activities. this fee will generate $48 million in funds to improve safety and protect and inspections for all oil and gas operations. president obama and secretary salazar have stressed the importance of rigell energies to the nation's energy security job creation and long-term economic development. today, secretary salazar has approved 29 commercial scale renewable energy projects on public lands and these include 16 solar, 5 wind, eight geothermal projects there represent more than 6,500 megawatts and 12,500 jobs. the bom's proposes a $5 million increase for these efforts and we intend to reach our goal of 7,000 megawatts of renewable energy production in 2013.

finally, the budget proposal the legislative -- to remedial abandoned mines and encourage development of non producing oil and gas leases. mr. chairman, members of the committee, thank you for this time. >> thank you, director abbery. -- abbey. >> to beckham chairman. -- thank you comment chairman. thank you for the opportunity to be here today to discuss the fiscal year 2013 budget request for the bureau of ocean energy management and for the opportunity to provide these opening remarks. as we know, the deepwater horizon explosion in oil spill in the gulf of mexico spurred the administration to undertake the most aggressive and comprehensive reforms to offshore oil and gas regulation in the u.s. history. central to these reforms are the structural changes we have made

to federal oversight, including the establishment of new, independent agencies with clearly defined missions to provide effective management and strong safety oversight of the development of our shared offshore energy and mineral resources. simply put, bom is responsible for overseeing the environmentally and economically responsible development of our country's abundant offshore conventional and renewable energy resources. this includes promoting responsible offshore gas development as well as renewable energy projects such as offshore wind. boem's decision making us consider the resource potential of geographic areas on the outer continental shelf, the critical role of sherer energy development plays in the mix of resources necessary to meet the energy demand, the significance of offshore oil and gas to the economy and employment, and the vital need for environmental protection in response -- and

responsible stewardship. these are priority shared by everyone in this room. this budget request is designed to provide boem with the resources necessary to enhance our commitment to a comprehensive, all of the above energy strategy that encourages a irresponsible domestic oil and gas exploration and development as well as pushes forward with the development of offshore wind and other clean, renewable energy resources. the resources we have requested will allow boem to pursue our priorities, which include finalizing in implementing the next five-year offshore oil and gas leasing program, which has proposed, will include 15 potential lease sales and make available more than 75% of the undiscovered oil and gas resources offshore of the u.s. secondly, conducting the rigorous scientific and environmental analyses that are

necessary at all stages of the offshore energy development process. last december, we held the first lease sale following the spill, which was one of the most successful in the history of the gulf of mexico. we will hold a consolidated lease sale for the central gulf of mexico on june 20 of. planning for the sales included rigorous analysis of the information concerning the environmental effects of the deepwater horizon oil spill. 3, we continue to conduct efficient antero reduce of offshore exploration and development plans under the new- standards, which include site specific environmental assessment on every deepwater development plan. four, we have implemented implemented -- innovative terms to ensure that the taxpayer receives their return and that provides incentives for industry to diligently develop their lease holding off shore to meet our energy needs. finally, we are on the forefront of development of offshore

renewal energy resources. over the next year and beyond, we expect to issue a number of commercial leases for offshore wind development, particularly along the lane to coast. boem is focused on the mission to help the u.s. secure its energy future through responsible development of conventional and renewal of for energy. thank you and thank you to this committee. >> thank you. director watson. >> good morning. thank you. i am pleased to be here before you for the first time as director of bsee to discuss the tremendous strides we have made as well as our vision for the future of the agency. we have a critical mission providing safety and environmental oversight of offshore oil and gas operations on the other continental shelf. we are leading positive changes in the city culture of offshore operations. our near-term goal is to restore america's confidence that offshore operations can be

carried out safely and responsibly and without the tragic human and ecological cost that occurred as a result of the deepwater horizon tragedy. in the long term, our goal is to set standards for offshore safety assurance throughout this country and also to be the world leader for safe offshore operations. the key to our success is the employees, . i have met all of the employees and they have made it clear to me that they believe in and are passionate in our mission. iran mention their knowledge of the offshore industry and are making the best use of the resources at their disposal to advance the cause of safety. overseeing safety and environmental performance on the ocs includes drilling permits and managing the orderly development of the nation's offshore oil and gas resources. a lot of attention has been paid to our permiting pace and i sympathize with the people who depend on these permits for the jobs. the same people who were so

negatively impacted by the deepwater horizon strategy, in many cases. permiting is an essential part of our safety mission. we issue permits only when companies have demonstrated that they can conduct their proposed operations safely and responsibly. they are meeting of the enhanced safety standards and they can respond effectively in the event of the worst case just charge. by working closely with the industry, we have decrease the amount of time it takes to approve a permit and and have issued hundreds of permits over this past year. however, those believe the pace should be automatically the same as before deepwater horizon -- they are ignoring the lessons of the disaster. i will root out any efficiencies in making the permitting process as straightforward for the industry as possible, but not at the expense of safety. when coupled with increasing hiring and training of engineers and other personnel, these efforts will further enhance the permitting process

and improve safety irresponsible operations on the ocs. we have made it a trend as we did we have made a tremendous amount of progress. i provided a number of examples of how we spent the time focused on hiring new personnel and acting safety reforms, improving our process, and completing the reorganization of mms. thank you for this opportunity to testify. i look forward to your questions. >> thank you, director watson. we will initiate 6 minute rounds and give my colleagues a chance. let me begin with director beaubreau. beaubreau, in rhode island, you entered accelerating the approval offshoring wind. we have made some significant investments both with federal dollars on local dollars in terms of preparing one of our former navy bases as a potential

site for fabrication. applications for state projects. we have an application for projects for offshore in federal waters to. we have done a lot of planning to drawn nationwide attention as one of the best gabrielle as of the processes to evaluating offshore potential -- to evaluating the offshore potential. we have been falling behind other states in terms of approvals. the next big step for us is to release the environmental assessments. can you give us an indication when that assessment will be completed? >> yes, sir. you are absolutely correct about the work that the state of rhode island has done to promote the development of offshore energy. that work will feed directly into boem's process in

evaluating the wind energy area and the shared area between massachusetts and rhode island, the area of mutual interest. one example is the comprehensive environmental assessment that is relevant to our process underneath us in evaluating the area. that analysis sponsored by the state of rylan feeds directly into our environmental assessment, as will all of the work that the state task force has done. it helped the us define what the potential conflicts might be, including the toxics wedge area, which is very sensitive. in light of all that worked, it work. done by my agency and work done by the state of rhode island, we anticipate issuing a draft of

the environmental assessment this spring. >> one of the reasons we are critical of getting it out is that it looks like august of is we hope 2012, andi that time were the and -- were the final assessment will be used, which will put us on track with the other states along the linney coast. -- the atlantic coast. that will allow us to really began a leasing process at the end of the calendar year 2012 or early in 2013. the furious if we do not, we will fall behind. that is not just a question of where the towers go in the war, it is a question of the land- side operations and where they might be situated. i would urge you again to expedite this draft and then

with similar speed, finalize the environmental assessment so we can begin the leasing process. >> yes, sir. this is a high priority for the secretary and my agency. >> again, i anticipate a second round. last year, we included into your agency, the inspection program. can you tell us what improvements you are making with the fees? director abbey said it will -- it makes sense to basically help the reviews that have the benefits to them drillers. they have less problems down the

road. can you comment about how you will ensure that these fees are being used well and wisely? >> yes, sir. the fees are focused on our safety program, primarily our field operations and our permitting operations. the expense of these operations is mostly in the cost of our workforce. we are increasing the size of that workforce at a pretty steep rate for a small agency. we have already increased the members of inspections -- inspectors by a significant number. we started at 55 and i think we're up to 91 right now. we are headed over 100 into 150 that we need for inspectors. as you increase your number of inspections, you also need

helicopters to get those inspectors offshore, which are costly, as well. turning to the permit side, we are adding almost 100 engineers. these are people who are plan review words for the information submitted to get a permanent. there structural engineers, petroleum engineers, and some geologist who review those permitting applications. we are still challenged to bring the people into the work force, but we have an aggressive outreach program. we got some incentives for hiring these people in the 2012 appropriations, which will be very valuable. >> my time is expired. it is the initial feedback from the industry positive in terms

of the more expeditious permitting process? >> my experience is the industry is looking at the bottom line. how quickly can they get a permit? there also focused on bi competency is of our people. i have not heard any disparaging remarks about our competencies. on permits, the industry has been working to provide more comprehensive and applications than a year ago. in the bsse side, we are better at doing these new safety standards -- bsee side, we are better at doing these new safety standards. between last march and september, our average was 97 days to get a permit process.

and between september and today, it has gone down to 62 days. rider on two months. we can probably make more improvements. as i said in my opening statement, i am not about the number of days to take. i am about safety and protection . >> thank you. centered murkowski -- senator murkowski. >> i want to understand some statistics. it hasn't released his or discussed the one-year -- he released and discussed a secure energy future blueprint. in that, he notes but oil production in up. that statement has been made. he does not disclose where that increase production comes from, whether on federal lands or private. i mentioned in my opening

comments the department of interiors own numbers would seem to indicate that onshore oil production down 14% from mike jarret, offshore down 17%. yesterday, when secretary salazar commented on the president's blueprint, he stated that we are producing more from public lands, both oil and gas offshore and offshore than any time in recent memory. i am trying to understand that our data because i think that this is important. people want to understand what the situation here is in this country. i guess we have a situation where either the data is wrong or it has not man communicated to the secretary.

the question that i have is who is right? when you peel this back, are we seeing increase on federal lands and offshore or not? >> let me take a stab at this, senator murkowski. this is -- oil and gas production is up. last year, more oil was produced in this country since 2003. >> do we dissect that? >> shale gas and oil has led to a shift to private lands in the east and the south where there is less amount of federal mineral states to end those sections -- federal mineral states. and last year, there was more natural gas produced from bom

than in decades. oil production was down somewhat last year. we are moving forward again, offering of additional parcels for leasing. processing more applications for permits to drill. so, we should see an increase in production of both oil on public lands as well as natural gas. >> i will grant you that. i recognize where that natural gas production is coming from on the state and private side. is it accurate to say that 14% onshore -- decrease onshore and offshore down 17% for oil? >> well, again, the statistics speak for themselves. >> this is where the confusion is because the statistics are being used to suggest that there

is this incredible increase in oil and gas production. we all know that oil production and gas production have remarkable opportunities. i support shale. i am trying to understand whether or not our oil production offshore and onshore is up or down. >> oil production from onshore federal minerals was down last year from previous years. where the industry decides to reduce or where they decide to develop is up to them. for example, we have approved 7000 applications for permits to drill that are not being drilled. we have over 25 million acres of lands we have least that are not being developed.

the decision is based on the market. >> i will ask about some of those incentives or disincentives that we impose ose in theth exploration business to go from federal to state lands. i want to ask very quickly to director abbey -- this relates to the legacy well situation in alaska. four members of the committee, this is an interesting situation. back in 40 years ago -- there were explorations by the navy in the national petroleum reserve. they drilled 137 different wells, the around. then, they moved on.

the problem that we face is they moved on without properly abandoning and caring for those wells,. . decades later, we have erosion issues and it is not only unsightly, but it is environmental scar and something that has been difficult to accept because the standards for the environment are exceptionally high in alaska. we want to make sure we are taking care of of land. on the federal government side, they can come in and explore and leave and their responsibility is not attended to. if you were on the private side, you would be fined. the fines could be $40 million. other revenues that have been

received from the national petroleum reserve in alaska are sufficient to help clean this up, but we are on track for cleaning up at a rate of one per year. that will take as 135 years to clean up. i asked the secretary and i will ask you whether or not we can get a commitment to be coordinating between the blm and alaska oil and gas conservation commission to not only provide an inventory of the exact number and the associated costs for plugging them, but a plan so that we can have a reasonable level of assurance that we will move forward. the government will keep their commitment to alaska and the land up there.

>> my responses similar to the secretary's. we are committed to working with alaska to identify areas of cleanup. we have spent millions of dollars cleaning up some of those like is seen wells. very expensive. this year, we do have a sufficient funds to clean up an additional 3. as you said, and i admit, that is slow progress towards dealing with the challenges we face. >> we need to work on this together. thank you, mr. chairman. >> thank you, senator murkowski. >> to live for being here. -- thank you for being here. the number of the rigs operating in the u.s. is bias number in eight or 10 years. the u.s. has more figs operating right now -- rigs operating right now than the rest of the world combined.

our domestic production is at an all-time high. you know, maybe the public land is down some. i want to get into that a little bit. if it is up on state and private, we have more operating in the u.s. -- i talked to a person from eastern montana and they cannot get any rigs because they are all tied up. i do not know -- i want to get your perspective on all of this because 32 million acres of federal land is leased right now. as you mentioned, there are 7000 applications for permits to drill that have been issued and not quadrille. can you give me some insight into why? what are you seeing as trends on

the federal lands? >> senator, i would be happy to. there are a lot of factors coming into play a relative to a decision made by the industry on where they choose to drill. as it relates to the number of applications, we issued 4200 alleged year. that was above up what the number was submitted by the industry. we had a backlog from the previous year and we were able to address that backlog. we issued 4200 applications for permits to drill last year. at the end of the year, we had over 7000 not being drilled. there are several factors for that. sometimes, that is financing. another factor is that the industry has chosen to drill elsewhere where it is more economical. it is a choice they have to make. it is a choice that they make every day. we are moving forward as expeditiously as possible to streamline our revealed process streamline our revealed process these