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Oct. 7 (Bloomberg) -- President Barack Obama is fighting for his “green energy” initiatives as Republicans in Congress criticize the programs after solar-panel maker Solyndra LLC collapsed.
While the programs are under scrutiny, the political damage to the president is likely to be less severe as long as no other companies that benefited from the federal program collapse -- including at least five others with ties to Obama donors and advisers, said crisis management specialists.
“It’s not going to be Obama’s undoing,” said Eric Dezenhall, a crisis-management strategist who heads Washington- based Dezenhall Resources Ltd. and served as a White House aide under former President Ronald Reagan. “For ‘green jobs’ there’s some risk. A legitimate question can be raised to say this is not the time to be spending money in initiatives that go nowhere.”
Jonathan Silver, the executive director of the program that granted the Solyndra loan guarantee, is stepping down, the Energy Department said yesterday. The loan guarantee was awarded before Silver joined the Energy Department. Silver was criticized by Representative Cliff Stearns, a Florida Republican, for his management of the contract after he arrived.
Jason Grumet, who advised Obama on energy policy during his 2008 campaign and is president of the Bipartisan Policy Center in Washington, said, “It’s entirely predictable that some of these loans will fail. What is surprising is that the administration appears to have done little to prepare the Congress and public for this inevitability.”
Competing With China
Obama made that case during a White House news conference yesterday, as he defended the decision to grant a $535 million loan guarantee to Solyndra as a risk worth taking to help U.S. companies that are developing new technologies. China, Europe and other countries are also subsidizing cutting edge energy companies, he said.
“If we are going to compete, then we have got to dominate in cutting edge technology and dominate in cutting edge manufacturing,” Obama said. “Clean energy is part of that cutting edge package of the future.”
The president added that the administration “knew from the start that the loan guarantee program was going to entail some risk, by definition. But overall the portfolio has been successful.”
Last month, House Republicans said they wanted to cut $1.5 billion from a loan guarantee program for green automobile technologies to offset increases in spending on natural disaster recovery.
In addition, Republicans on the House Energy and Commerce Committee have been searching White House e-mails and records to determine if Obama or his senior advisers pressured the Energy Department to provide the loan. The White House denies it did.
Solyndra filed for bankruptcy protection on Sept. 6 and fired about 1,100 workers without notice. The company in January completed construction on a $733 million factory in Fremont, California, financed in part with a $535 million loan backed by the U.S. Department of Energy. When construction started, the company said it had a $2 billion backlog in orders for its cylindrical solar modules for commercial rooftops.
The Federal Bureau of Investigation raided Solyndra’s offices on Sept. 8. The agency is examining possible accounting fraud and the accuracy of financial representations the company made to the government, said an FBI official, who requested anonymity because the investigation is continuing.
“The company is not aware of any wrongdoing by Solyndra officers, directors or employees” related to the Energy Department loan guarantees or other actions and “is cooperating fully” with the U.S. Attorney in San Francisco, according to a Sept. 20 statement from Solyndra.
The collapse is an embarrassment for Obama, who visited Solyndra in May 2010 to highlight his green energy initiatives. The company has connections to George Kaiser, an Obama campaign fundraiser. The George Kaiser Family Foundation, a charitable organization based in Tulsa, Oklahoma, holds about 37 percent of the company, according to a filing with the Securities and Exchange Commission. Kaiser is the major benefactor of the foundation.
Of the 28 projects that were awarded Energy Department loan guarantees, five went to companies whose executives, employees and investors made significant donations to Obama and Democratic campaign committees, according to a Bloomberg search of records compiled by the Center for Responsive Politics. None of those companies appear to be at risk of default as Solyndra was, according to analysts.
Abound Solar Inc., a solar panel manufacturer that received a $400 million loan guarantee to build a new plant in Indiana, counts Colorado medical device company heiress Pat Stryker among its major investors. Stryker, a Democratic fundraiser, has given $459,000 to Democratic candidates and committees since 2007, including $9,600 to Obama’s campaigns, according to the Center for Responsive Politics. She also donated to Obama’s rivals for the Democratic nomination in 2008, Hillary Clinton and John Edwards.
General Electric Co. and Google Inc. are among the major investors in Caithness Energy’s 32,000-acre wind power project in central Oregon that received a $13 billion guarantee. GE Chief Executive Officer Jeffrey Immelt is an adviser to Obama on jobs and competitiveness and Google Chairman Eric Schmidt is an adviser on science and technology.
Employees of Sempra Energy, California’s third-largest utility, gave $24,200 to Obama’s campaigns, according to campaign disclosure reports. Company officials also donated to both Democratic and Republican committees. The company received a guarantee for a $398 million loan to build a 150-megawatt solar project in Arizona which will generate electricity for PG&E Corp., California’s largest utility.
SunPower Corp. won a guarantee for $1.24 billion to build a 250-megawatt solar generation project in San Luis Obispo County that it sold last week to NRG Energy Inc. The project, known as the California Valley Solar Ranch, also has an agreement to sell its electricity to PG&E.
“These purchase agreements with the California utilities are like building a factory where you already have a customer lined up to buy all the widgets you make,” said Robert Stone, managing director of equity research at Cowen & Co. in Boston.
Stone said the loan guarantees for established companies reduce borrowing costs by about 1.9 percentage points. “It’s nice but it’s not a show-stopper,” he said.
In addition to publicly defending the decision to lend to Solyndra and the “green jobs” program, Democrats are using the congressional inquiry to release e-mails they say show the Solyndra application did not receive special treatment.
On the same day Obama defended the programs in an ABC News interview, Democrats on the Energy and Commerce Committee released internal e-mail showing the White House raised concerns about the Energy Department’s oversight of Solyndra and acknowledged that by investing in new technology, they run the risk of losing some money. The correspondence also showed debate within the administration about the viability of Solyndra
“There were going to be some companies that did not work out; Solyndra was one of them,” Obama said yesterday. “But the process by which the decision was made was on the merits. It was straightforward. And of course there were going to be debates internally when you’re dealing with something as complicated as this.”
The prompt response by the FBI and Energy Department after Solyndra abruptly shutdown, could allow Obama to argue that his administration is being as tough on the company as Congress --or more so.
Still, the mere existence of investigations, especially by the FBI, could taint the entire loan program, said Dezenhall and Ari Fleischer, a former spokesman for President George W. Bush and now a crisis communication consultant.
“The fact that the FBI is investigating sends a neutral signal to everyone regardless of party that there’s something wrong there,” Fleischer said.
“It has the potential to tarnish a whole industry independent of whether or not that industry has the same problem that one company does,” Dezenhall added. “Whenever you’re dealing with an investigation, it has the whiff of broader implications.”
--With reporting by Seth Stern and Jim Snyder in Washington and Chris Martin in New York. Editors: Jeanne Cummings, Justin Blum
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