May 24, 2011 — -- The Obama administration bypassed procedural steps meant to protect taxpayers as it hurried to approve an energy loan guarantee to a politically-connected California solar power startup, ABC News and the Center for Public Integrity's iWatch News have learned.
The Energy Department in March 2009 announced its intention to award Solyndra Inc. a $535 million loan guarantee before receiving final copies of outside reviews typically used to vet such deals. An independent federal auditor who has reviewed the energy loan program said moving so quickly without completing thorough reviews risked exposing the program to claims of political influence and put taxpayers at greater risk.
"There's a consequence if you don't follow a rigorous process that's transparent," said Franklin Rusco, an analyst with the Government Accountability Office. "It makes the agency more susceptible to outside pressures, potentially."
The Solyndra loan guarantee, advertised by the administration as part of its signature effort to create jobs while weaning the U.S. from traditional energy sources, already has drawn scrutiny on Capitol Hill. Republican members of the House Energy and Commerce Committee have requested documents from the Energy Department as part of an investigation into how the company qualified for government support and then, a year later, closed a plant, laid off workers, and eventually had to renegotiate the terms of the loan guarantee. The shortcuts at the dawn of the deal identified by government auditors have stoked more questions.
Energy Department officials said their analysts had gathered more than enough information to bet on Solyndra. They said politics played no role, and they did not give Solyndra or any other company special treatment.
"All applicants within any solicitation are treated the same way," said Jonathan Silver , executive director of the Energy Department's Loan Programs Office, which oversees the administration's $90 billion in spending on promising alternative energy and on green automobile projects.
The loan guarantee, the administration's first for a clean energy project, benefited a company whose prime financial backers include Oklahoma oil billionaire George Kaiser, a "bundler" of campaign donations. Kaiser raised at least $50,000 for the president's 2008 election effort.
Several political allies of the president have ties to companies receiving Energy Department loans, grants or loan guarantees. For instance, the venture firm of another top Obama bundler, Steve Westly, has financially supported companies that won more than half a billion dollars in energy grants and loans during President Obama's time in office, iWatch News and ABC News reported in March. Relatively few applicants succeed in winning such benefits. The Energy Department said every one of those awards was won on merit.
When the Obama administration announced financing for Solyndra in 2009, the company was only four years old, and had been shipping solar panels for about a year. Officials said the administration was eager to stimulate the economy and encourage green energy start-ups. Energy Secretary Steven Chu promised Solyndra's package alone would create more than 4,000 jobs.
One year later, in March 2010, the signs were not so encouraging. "The Company has suffered recurring losses from operations, negative cash flows since inception and has a net stockholders' deficit," is how Solyndra's accountant, PricewaterhouseCoopers LLC, assessed its financial status in an audit being prepared for an initial public offering. Those factors, it stressed, "raise substantial doubt about its ability to continue as a going concern."
Solyndra has since boosted revenues, though some analysts remain skeptical about its long-term prospects.
Energy Department 'Treated Applicants Inconsistently'
The loan guarantee agreement was among 10 examined by the GAO last year, and Congress' investigative arm singled out Solyndra as one of five applications that had received conditional approvals before outside experts had finished vetting the deals. The auditors said the Energy Department had "treated applicants inconsistently, favoring some and disadvantaging others."
Silver called the decisions to make conditional commitments without full legal reviews routine, and said the arrangements did not subject taxpayers to heightened risk. By the time of the Solyndra closing, six months after Chu's announcement, he said, all required reviews had taken place.
"A conditional commitment is only an interim step to a loan guarantee. It is not a loan guarantee itself," said Silver. "Final legal reports would not be expected at conditional commitment. It would only be expected at final close."
The GAO audit contradicts that, stating that before DOE makes a conditional commitment to guarantee a loan, its "procedures call for engineering, financial, legal, and marketing reviews of proposed projects as part of the due diligence process for identifying and mitigating risk."
The vetting of applicants for government financial packages is not merely a technical, bureaucratic concern. "If you don't have really strong processes in place, and if you're under pressure to get a lot of these dollars allocated, you can make unproductive decisions and ones that ultimately put taxpayers' dollars at risk," said Rusco, director of the GAO's natural resources and environment team.
Obama's desire to shift the nation into more environmentally friendly sources of energy while creating jobs during a recession have fueled a raft of projects involving billions of federal dollars.
Against that backdrop, Solyndra was to be an early prototype for government-boosted private sector innovation. The company was the first recipient of an energy loan guarantee through the Obama administration's $787 billion package of economic stimulus programs. It was the Energy Department's first loan guarantee since the 1980s.
When announcing the Solyndra loan guarantee two months after Obama took office, the Energy Department boasted of its speed. Secretary Chu had set a target of May -- three months into his own tenure -- to announce his initial loan commitment, "but today's announcement significantly outpaces that aggressive timeline," the Energy Department noted in a press release.
"Secretary Chu credited the Department's loan team for their work accelerating the process to offer this conditional commitment in less than two months, demonstrating the power of teamwork and the speed at which the Department can operate when barriers to success are removed," it said.
Obama Bundler George Kaiser
Kaiser's Argonaut Private Equity and its affiliates were the largest shareholder of Solyndra as it pushed for the IPO. Kaiser's firm remains a "significant financial backer of Solyndra," Solyndra spokesman David Miller confirmed. The Oklahoma oil magnate hosted a 2007 Tulsa fundraiser for Obama and regularly visits White House staff, visitor logs show.
Kaiser did not respond to interview requests made through Solyndra, and his Kaiser-Francis Oil Company in Tulsa said he declined comment. Solyndra's Miller said political ties had no bearing.
"We do not believe there was any connection at all," said Miller. "We have created a substantial number of jobs with Solyndra and we're very proud of that. I think people are missing a lot of the story getting into the politics."
He said the company first applied for funding under the Bush administration, though it won it under Obama at a time the commercial financing market was dry.
"I don't think anybody said we didn't go through the full process. After the conditional commitment we still went through extensive due diligence. It was still a competitive process," Miller said. "We applied for the loan guarantee in 2006. It was awarded three years later. It was not like something was done to make this thing really fast. It was a long, arduous process."
Miller said Solyndra's outlook remains bright, and predicted the company would be cash positive by the end of the year. He said Solyndra has 321 more jobs today than at the time of the loan, has already met the 3,000-force construction goal and aims to attain the long-term hiring benchmark. "As we go cash positive, if you were to get that auditor's opinion today, it would tell a different story," he said.
Some analysts are far from convinced.
"If anything, they're still swimming upstream in a very competitive market," said Shyam Mehta , senior solar analyst at Greentech Media Research.
Mehta has long raised questions about the company's manufacturing costs in a world market where China offers stiff competition. He said Solyndra has focused on cutting those costs, but that there's no assurance the company -- or the government loan guarantee -- will prove successful.
"There's a lot at stake here, not just for Solyndra," Mehta said. "This is going to be held up as a cautionary tale if things don't work out for Solyndra. People are watching very closely from all angles."
The Center for Public Integrity is a nonprofit, investigative reporting outlet in Washington, D.C.