▶ 0:13:23Subcommittee on Energy will come to order. Without objection, the chair is authorized to declare recesses of the subcommittee at any time. Welcome to today's hearing entitled Risky Business Part Two, the DOE loan guarantee program. Opening statements for me. I'm going to recognize myself for five minutes. Today, the energy subcommittee will hold the second installment of risky business. The DOE loan guarantee program.
▶ 0:13:51This is a timely update from the first installment we held February of 2017, a hearing I also had the opportunity to chair. This morning, we will examine the Department of Energy's loan program office or LPO in this taxpayer investment portfolio made during the Biden administration. Further, we will explore LPO's role in future in supporting the next generation of energy technologies.
▶ 0:14:16In the energy policy act of 2005, Congress authorized the sect of energy under the title 17 to provide loan guarantees to innovative and advanced energy technologies including fossil energy, nuclear energy, renewable energy, and energy efficiency. However, Congress didn't stop there.
▶ 0:14:36Two years later, it expanded this authority by creating the advanced technology vehicles manufacturing or ATVM loan program in the energy independence and security act of 2007 which supported the domestic production of fuelefficient advanced technology vehicles. With these vastly expanded authorities, the Obama administration made a series a series of investments which actually embroiled in bankruptcy.
▶ 0:15:01One famous case was the solar company Celindra which defaulted after receiving oh only a mere half a billion with a B dollars in loan guarantees from the Department of Energy. During our committee's 2017 hearing, I sat in this very seat and voiced my concern over the potential cost to the American taxpayer if any one of the many proposed projects like the Ivanp solar project were to fail and default.
▶ 0:15:28Fast forward now to earlier this year and the project has has announced that it will close ahead of schedule perhaps as early as the end of next year. The original plan was for this facility to operate under 20039 eventually paying back the 1.6 billion with the B dollar loan DOE awarded the company. But this is no longer going to be the case.
▶ 0:15:51With the passage of the energy act of 2020, infrastructure investment, jobs act, IJA, and the inflation reduction act, LPO again expanded its loan capacity in the scope of the projects. The energy act of 2020, excuse me, expanded eligible projects that use already commercialized technologies.
▶ 0:16:13Likewise, I AJ I AJ expanded the scope of eligible projects under the ATVM to include medium and heavy duty vehicles, trains, maritime vessels, and hydro hyperloop technologies. The inflation reduction act established new programs such as the energy infrastructure reinvestment EIR program under section 1706 of title 17 and increased LPO's loan authority over 10fold from 40 billion to
▶ 0:16:43412 billion. New programs like the ER program were given 250 billion in loan capacity while the carbon dioxide transportation infrastructure finance innovation program was given a mere 25 billion. This does not include the 62 billion authorized for title 17 and 55 billion for ATVM.
▶ 0:17:07So with these massive increases in scope and loan authority in October 2022, then ranking member Frank Lucas and I sent a letter to DOE highlighting our concern regarding LPO's ability to quote manage its programs and make sound investments with federal funds given their past shortcomings and mismanagements end quote. Despite our concerns, the Biden administration worked quickly to use its expanded authorities and eligible projects.
▶ 0:17:34The Government Accountability Office, GAO, released a report in February highlighting that LPO closed almost 25 billion in loan guarantees in the last quarter of 2024 alone. That is a rapid increase to the point GA stated in his report, quote, it is uncertain whether LPO can still ensure it has the capacity and expertise to effectively monitor these loans and guarantees. You can't make this stuff up.
▶ 0:18:02Now almost 3 years later, the concerns highlighted in our original letter were clearly wellfounded. Today, I hope we can engage in a productive conversation about the merits and programs that this program has historically demonstrated and hopefully our vision will go where it should be moving forward. I thank our esteemed panel of witnesses for their being here today to look for their testimony.
▶ 0:18:27With that, I yield back the balance of my time and I now recognize a ranking member represent from North Carolina for her opening statement. Well, good morning and thank you, Chairman Weber, for convening this hearing today to discuss the Department of Energy's loan program office and frankly its impressive return on investment for our taxpayers. I also want to thank our witnesses for being here to share their testimony and insights on this topic.
▶ 0:18:55Our nation's energy industry and ecosystem are at an inflection point. On one side of the equation, we have energy demand growth predicted to be at levels that we have not seen in decades, thanks in part to data centers being built, electrification of cars and homes, and population growth, which would all normally be good signs that our economy continues to grow.
▶ 0:19:23However, we're also seeing real challenges on the other side of the equation. Our nation is facing a multitude of supply side headwinds. Our electrical grid is reaching capacity and requires significant upgrades. Extreme weather events, which my state of North Carolina is no stranger to, continue to strain current power sources. New energy capacity, including natural gas, is taking several years to come online.
▶ 0:19:53And I know we're going to hear a little bit about nuclear today. And now both high interest rates and new tariffs threaten to increase the cost of supplies for building new power generation. If we do not focus on addressing these challenges right now, they will be passed down as higher energy prices that Americans will be burdened with.
▶ 0:20:16During my time on the committee, we've had the opportunity to hear about some exciting new emerging technologies like advanced nuclear fusion grids scale energy storage and artificial intelligence grid systems that if widely deployed would make our electric grid cleaner, more reliable, and more resilient and of course get more power.
▶ 0:20:39Yet, private capital's unwillingness to fund risky emerging technologies or capital intensive infrastructure projects like new nuclear plants that won't see investment returns for years has been a major obstacle and has left us in a situation that is untenable. And here is where the Department of Energy's loan program office comes in.
▶ 0:21:03Congress under Republican president and a Republican majority in both the House and Senate set up this loan guarantee authority to take some risk and tackle two main issues. One, help innovative technologies cross the valley of death between the lab and fullscale commercialization and fund badly needed law largescale utilityled infrastructure projects that help put more clean power on the grid.
▶ 0:21:33And again, we'll be hearing about that today from the state of And this loan guarantee program's performance and track record have actually exceeded expectations. That does not mean that there haven't been losses, but in the main it has performed well.
▶ 0:21:52The loan program office is one of our best shots at ensuring our energy future isn't riddled with rolling blackouts, overdependence on outdated and envir environmentally harmful sources of energy, and unable to handle once in a hundred year storms every other year.
▶ 0:22:12That said, I'm very concerned about recent reports that staffing at this office has already been dramatically reduced as a result of actions taken by this administration, leaving less than a 100 employees to manage a portfolio of up to a half a trillion dollars. This will severely hamstring the effectiveness of this office going forward and just lead to higher energy prices for American rateayers and our consumers.
▶ 0:22:42I look forward to discussing this matter with all of our witnesses and thank you, Chairman, and I yield back. Thank you, Rank Member Ross. I now recognize the chairman of the full committee, Dr. Babman, for a statement. Thank you, Mr. chairman and uh thank you uh witnesses for being here. We really appreciate it. I want to thank uh um all of you folks. Uh today we're be discussing and evaluating the DOE loan guarantee program.
▶ 0:23:11And while the program plays an important role in helping companies commercialize emerging energy uh it must avoid duplicating efforts that the private sector can already deliver. This hearing will also provide an opportunity to review how the previous administration directed taxpayer dollars toward massive green energy initiatives.
▶ 0:23:34Since the Department of Energy's loan guarantee program was established, more than 137 billion in taxpayer dollars have been used to support a portfolio of over 90 projects. Too often, loan guarantees are handed out based on political favoritism instead of merit.
▶ 0:23:52I'm also very concerned about the $3 billion uh loan guarantee that DOE provided in 2023 to the solar company Sova Energy that's now at risk of bankruptcy and becoming a Celindra 2.0. Rigorous oversight should be expected when billions of taxpayer dollars are at stake, especially when politics can influence how these dollars are spent.
▶ 0:24:18This committee along with the Energy and Commerce Committee and the Oversight and Government Reform Committee has held numerous hearings over the years highlighting concerns with the program. In addition to congressional oversight, the DOE Inspector General and the Nonpartisan Government Accountability Office have repeatedly flagged concerns about mismanagement and lack of accountability within this loan program.
▶ 0:24:42In December, the DOE Inspector General's office expressed concerns about the DOE loan program offic's handling of potential conflicts of interest. As part of Congress's oversight mandate, we have a responsibility to ensure that the proper transparency is in place to protect taxpayer dollars from unnecessary risk.
▶ 0:25:04The loss of taxpayer dollars through the DOE loan program raises serious questions about its overall effectiveness and what actions that Congress must take to better safeguard taxpayer funds. We cannot keep putting American tax dollars on the line when loan guarantee recipients are in danger of default. Nor can we assume the federal government is better equipped than the private sector to determine which technologies will succeed in the commercial market.
▶ 0:25:34Picking in winners and losers is not healthy. Today's hearing will examine the future of the DOE loan guarantee program, how it can and should be improved. Is the risk to taxpayers worth the benefits gained? Are taxpayers truly seeing a return from the loan program office?
▶ 0:25:52Is the program fulfilling its intended purpose of bridging the gap between innovative technologies, private investment, or is the federal intervention crowding out other innovation in the energy marketplace? These are critical questions that deserve the kind of insightful discussion that I hope that we will have today. It is Congress's duty to ensure careful management of the federal resources and determine the very best path forward for the DOE loan program.
▶ 0:26:22We're very fortunate to have a strong panel of witnesses today here to help with this help the committee answer some of these important questions and offer recommendations for the future of the DOE loan guarantee program. I want to thank each of you for joining us today and I look forward to your testimony. And with that I yield back. Mr. Chairman. Thank you Chairman Babman. I now recognize ranking member Len of the full committee for a statement. Uh thank you Mr. Chairman.
▶ 0:26:46We're here today to discuss the Department of Energy's loan uh program office and really the unique role that its programs play in our energy innovation pipeline. They provide both direct loans and loan guarantees for projects across a broad range of energy sectors including nuclear, carbon capture uh and management, renewables, transmission, energy storage, hydrogen, advanced vehicles and energy relevant critical materials and supply chains.
▶ 0:27:16This support is important because private lenders are often unwilling or unable to take on the risks associated with financing truly innovative first ofind projects on this scale on their own. These programs have been instrumental in establishing new Americanmade clean energy industries. For example, I know we'll hear more from Mr. Hood.
▶ 0:27:39Uh the loan guarantee program supported construction of the first new nuclear reactors in 30 years at Vogle plant in Georgia and is now supporting the revival of the Palisades plant in Michigan. Last year DOE issued a loan guarantee for a project that will help detect harmful and costly methane leaks from our oil and gas infrastructure in eight states including California, Texas, Pennsylvania, and North Dakota.
▶ 0:28:07And I also have to note that Elon Musk's Tesla received $465 million in loans in 2010, and that played a crucial role in the company's rise as a global leader in electric vehicles until Mr. Musk um trashed his brand. The record is now abundantly clear that DOE has been carrying out these programs in a fiscally responsible manner.
▶ 0:28:32Even initial critics now view the loan guarantee program as a is a success with losses equaling only 3% of the office's entire portfolio. That's a rate that's lower than most venture capitalists achieve. And the interest provided by these loans to the US Treasury is now more than five times greater uh than those losses. So on top of everything else, uh these programs are a money maker for American taxpayers.
▶ 0:29:01Well, there I'm sure will be instances where an individual project does not meet its goal. LPO's overall portfolio has been strong and healthy. Uh I do believe, as the chairman has said, we need to have oversight of this program, but I'm also deeply concerned about reports that due to the sweeping actions of this administration across the federal government, the staffer LPO will now be reduced by as much as 60%.
▶ 0:29:28And that's before expected reductions in force actions may cut it even more. Now, this office oversees roughly 100 billion dollars in next generation clean energy projects, and they'd been doing it remarkably well with their previous staffing levels. I haven't seen any evidence uh that there was an analysis of the office's performance that would somehow improve uh through uh firing half of the staff.
▶ 0:29:56So, I hope that we can dig into that uh issue this morning. Uh with that, Mr. Chairman, much as I agree that Congress has an important role to play in oversight, the staff of the department has the essential role in managing uh these loans and overseeing the program.
▶ 0:30:15I'm very concerned that these indiscriminate uh Doge uh delivered firings are going to be um injurious to the American taxpayer. And with that, I thank the witnesses for being here and I yield back, Mr. Chairman. Thank you, Ranking Member Lkin. I'm going to introduce our witnesses today. Our first witness today is Dr. Ryan Yon, senior research fellow and director of education at the American Institute for Economic Research. Uh welcome, Dr.
▶ 0:30:45Our next witness is John Mr. John Haggood, assistant treasur at Southern Company. Welcome, Mr. Hood. Our final witness is the Honorable Sam Walsh, former general counsel of the US Department of Energy. Welcome, Mr. Walsh. I now recognize Dr. Yon for five minutes to present his Thank you, uh, Mr. Chairman, Ranking Member Ross.
▶ 0:31:06I appreciate the opportunity to participate in an oversight hearing like this uh in large part because programs like the LPO uh must have the review of Congress periodically to evaluate not just their importance but also their effectiveness and whether they remain a reasonable policy instrument uh to attempt to achieve its goals.
▶ 0:31:24However, since its creation uh in 2005, the Title 17 loan guarantee program has largely failed to meet its objectives and instead has become a political tool that exposes taxpayers money to unnecessary risk, all while diverting capital from alternative energy investments that might otherwise be made in the private market. Governmentbacked loans distort markets, misallocate funds, and fail to promote welfare enhancing innovations in the sectors where they are applied.
▶ 0:31:55When we think about federal loan guarantees or direct lending, they serve a public benefit only when they accomplish what economists call additionality, meaning the program must be offering loans to projects that would not otherwise have garnered funding in the open market. If they fail to do so, they are simply adding unnecessary transaction costs and putting taxpayers money at risk.
▶ 0:32:17Exploratory research on the additionality of LPOS's programs reveals relatively poor additionality and an opportunity for far better oversight in that regard. Although it may seem commendable for the government to help fund energy companies in a desire to produce more and cheaper energy, unintended consequences abound of these activities and go undetected among those that are spellbound by the rhetoric that both surrounds alternative energy as well as greater and cheaper production.
▶ 0:32:48The decision to pick winners and losers through government programs in the quest to correct perceived market failures and jumpstart industries has failed to promote innovation and has most likely done the opposite.
▶ 0:33:02And here I will share a short story from a company I met with while conducting a a DOE funded research project on alternative energy where we met with uh founder of a small wave generation company and as we chatted with him he expl he explained uh really two major concerns that he had. The first was that he had trouble getting access in the private market capital, the private market system. Absolutely was a major concern of his.
▶ 0:33:28And then he turned to questions about whether or not things like the LPO would be willing to help. And he pointed out that given where he was located and the sort of industry he was in, he he was not able to engage those programs effectively. And so in the end, he we arrived at the same result in the private market and in LPO, albeit for different reasons.
▶ 0:33:49And at the root of this is the reality that any program where government picks winners and losers, we end up with the opportunity for them to fall prey to rent seekers, political agendas, and moral hazards. Instead, using private markets where lenders seek borrowers who will pay them back by providing innovative and profitable products and services that consumers values leads us to both innovation and success.
▶ 0:34:15When both parties want to benefit from these arrangements and as a result they as a result both lenders and borrowers try to avoid activities where which are too risky because they will ultimately bear the cost and instead their focus is on mutually beneficial actions that they can agree have the potential for return.
▶ 0:34:37As a result, in lie of LPO's programs, the government, this committee, and others would do better to simply step out of the way and let entrepreneurs and the market develop the necessary technology for better energy production. And as the current Department of Energy, uh, Chris head Chris Wright said in his in part of his interview with the Daily Caller last month, the first and primary tool is private capital and private business. Most of these things with a reasonable business climate will happen in the marketplace.
▶ 0:35:08And with that, the reasonable marketplace means stepping out of the way and allowing these markets to develop in detail and allowing them to innovate without picking winners and losers. Thank you, Mr. Chairman. Um, thank you. I now recognize Mr. Hood for five minutes. Thank you.
▶ 0:35:31Uh, Committee Chairman Babin, Committee Ranking Member Loofrren, Subcommittee Chairman Weber, Subcommittee Ranking Member Ross, and distinguished members of the subcommittee. Good morning. Thank you for the opportunity to speak with you today. I'm John Hagood, head of Treasury of Southern Company and our subsidiaries. It's my distinct honor to sit before you.
▶ 0:35:51Today, I'll discuss the critical role of the Department of Energy's loan program office in advancing our nation's energy Specifically, I will highlight the importance of continuing this program to advance the administration's goals of energy dominance, continue leadership and artificial intelligence, and lower energy bills for Americans. Southern Company is one of the nation's leading energy companies.
▶ 0:36:17We have three state regulated electric utilities across Georgia, Alabama, and Mississippi. Four state regulated gas distribution companies across Georgia. Tennessee, Virginia, and Illinois. A competitive wholesale power generation company, a nuclear company, a distributed energy company, and a telecommunications company.
▶ 0:36:40All together, Southern Company subsidiaries are privileged to serve the energy needs of over 9 million customers and employ over 28,000 people who work every day to make sure that the lights are on and the gas is flowing. The Southeast, where Southern Company's electric utilities operate, is experiencing unprecedented growth, particularly in large load manufacturing customers and AIdriven data center demand.
▶ 0:37:08Atlanta has become the number one market for data center development. With 40% of the US market share for planned data centers located in Georgia, Alabama, and Mississippi, this growth necessitates a robust and diverse energy portfolio and new energy infrastructure to ensure clean, safe, reliable, and affordable power. A prime example of the DOE loan program success is the loans for plant Vogal units three and four.
▶ 0:37:37These loans were instrumental in securing lowcost financing for the nation's first new nuclear plants in over 30 years. They helped mitigate capital markets risk, saved our customers over half a billion dollars, and contributed to America's energy The construction of Vogal units three and four proved to be quite challenging as it faced multiple unforeseen events including the bankruptcy of our prime contractor and impacts from the CO 19
▶ 0:38:07pandemic. The DOE loans provided the necessary financial backing to navigate these challenges, ensure that this country could bring new nuclear units online, which is perhaps more relevant now than ever before as this nation is seeing such significant demand growth. The DOE loan program can be a cornerstone of the strategy to meet the administration's objectives.
▶ 0:38:32By supporting infrastructure projects that enhance grid reliability and expand American energy capabilities, we can ensure the United States remains a leader in artificial intelligence and energy innovation.
▶ 0:38:47The Southern Company system is currently advancing several projects with wide-ranging benefits across a broad portfolio of assets including natural gas infrastructure updates, hydro, solar, battery energy storage, nuclear and electric grid investments. These projects enhance operational efficiency, extend the life of critical assets, and create highquality jobs supporting economic growth and stability.
▶ 0:39:17DOE loans are a powerful tool to drive energy infrastructure and innovation. I urge the subcommittee to support the continuation and enhancement of this program, ensuring it remains a cornerstone of our nation's energy strategy. Together, we can meet the challenges of today and secure a prosperous energy future for generations to come. Again, thank you for this opportunity, your time, and consideration of my testimony. Thank you, Mr. P. Good. Mr. Walsh, you're now recognized for five minutes.
▶ 0:39:48Chairman Weber, Ranking Member Ross, members of the subcommittee. My name is Sam Walsh, and I'm pleased to share my perspectives on DOE's loan guarantee program, a program that I observe closely as DOE general counsel. I'm testifying today solely in my individual capacity. Our country has some of the best scientists and engineers in the world. Yet time and again, we see technologies invented in the US and commercialized abroad.
▶ 0:40:10This is especially clear in energy and transportation sectors where we've seen China take a leading position in the manufacturing and follow-on innovation of solar PV, batteries, including critical minerals, and now electric vehicles. We also face an energy affordability crisis. In 2022, Congress expanded DOE's authority by adding the energy infrastructure reinvestment or 1706 program. That program authorized LPO to finance projects that replace energy infrastructure that has retired.
▶ 0:40:40The 1706 program achieves two critical objectives. It enables utilities to make needed investments with a lower cost of capital and therefore with a lower impact on rates. And it directs those investments to the areas that have lost economic activity due to infrastructure DOE's loan guarantee program is one of the few tools we have to address these challenges, and it's not one we can afford to lose.
▶ 0:41:03Congress created the program to confront what's sometimes called the valley of death, a name for the financing challenge companies face when they try to grow new technologies from pilot to commercial scale. Banks often lack willingness to provide debt financing for first-of-akind projects, especially if they lack the technical expertise to evaluate technology risks. Over this valley of death, LPO offers what it calls a bridge to bankability.
▶ 0:41:28Successful applicants receive access to debt financing that is patient, customized to their project, and comparatively low cost. The pattern we see is that once one or two projects have succeeded, future projects of that kind no longer need the program, and can rely on commercial financing. The program comes with strong protections. Before LPO can issue a loan, the secretary must determine that there exists a reasonable prospect of repayment.
▶ 0:41:52To carry out that obligation, LPO has built a review process that is at least as demanding and perhaps more demanding than those of commercial lenders. LPO's due diligence process includes a thorough assessment conducted by LPO staff, by technical experts from other offices within DOE and from the national labs, and by external consultants and outside counsel from top law firms, all of whom are selected by LPO, but paid for by the applicant.
▶ 0:42:18The title of this hearing is risky business, but of course, all finance involves risk. The question is not whether we're taking risks, but whether we're taking smart risks and whether we're getting an adequate return. So, let's look at the record of this program with that in mind. How much financial risk has been imposed on US taxpayers and what have we gotten in return? Well, so far, LPO has issued loans and guarantees totaling $69 billion of which 40.5 billion has been dispersed.
▶ 0:42:45Program losses have totaled 1.03 billion as compared to 5.6 billion in interest payments received. uh this means the program is in the black. In other words, despite the fact that it has funded innovative technologies, the program has achieved a positive rate of return for US taxpayers. On the other side of the ledger, what sort of return have we gotten for our investment? The answer is that the program has empowered dozens of US companies to scale their production, to become leaders in their industries, and to create over 47,000 permanent jobs.
▶ 0:43:15When we look at the data, we see a program whose benefits vastly exceed its costs. Now, when new administrations come to office, they may have new priorities. Secretary Wright says he wants to focus on nuclear, geothermal, and transmission, among other things. These are important goals that LPO can advance. I'll highlight just one, nuclear energy. As we know, LPO financed the first two nuclear reactors built in this country in nearly 30 years. It's also now financing the first restart of a retired of of a retired reactor in our country's history.
▶ 0:43:45And as we look to the future, we see a new crop of American companies looking to build advanced reactors. LPO is ideally suited to work with these companies, and indeed, many are already in LPO's pipeline. With its access to experts in DOE's Office of Nuclear Energy and the National Labs, LPO can conduct a diligence process that evaluates and mitigates technology risks for advanced nuclear in a way that no commercial bank could match. And for projects that make it through, LPO can offer patient and customized debt financing that sets them up for success.
▶ 0:44:16As I said earlier, LPO is not a tool that our nation can afford to lose. The risky business we're engaged in now is that we might. This is a program that runs on its people, its finance professionals, engineers, lawyers, etc. And yet there are reports that LPO staff have been encouraged to resign and that half of them have opted to leave so far to issue new loans, let alone manage its existing portfolio. LPO needs to continue to be funded and it needs to retain its professional staff. Thank you very much.
▶ 0:44:48Thank you. Gentleman yields back and I recognize myself for five minutes for Um, as I noted in my opening statement today, DOE's loan program office looks much different from when I last chaired chaired a hearing in risky business part one on on the same subject in 2017. Some might say it has significantly improved and despite what you may have heard, this is thanks to the Trump administration.
▶ 0:45:14For example, in the Energy Act of 2020, President Trump signed robust reforms to LPO that added guard rails on the specific terms and conditions of loan guarantees in the Title 17 program. He also took the necessary steps to refocus LPO on activities essential for American energy dominance.
▶ 0:45:36His executive orders like executive order 13817 expanded LPO's advanced technology vehicle manufacturing program to support onshoring supply chains specifically for critical minerals. These actions were later authorized in the infrastructure investment and jobs act. So Mr. Hagen, my first question is for you. Uh you drew the short straw.
▶ 0:46:01Over the last 5 years, as DOE has implemented the Trump administration's reforms, how have you seen your organization's engagement with LPO change? First of all, thank you for your question, Chairman Weber. Uh, I will note that Southern Power Company, one of Southern Company's subsidiaries, has renewable facilities in Texas of over 1,900 megawws.
▶ 0:46:27uh in and we appreciate Uh to address your question, sir, Southern Company has been involved with a loan program office back to the administration back in 2008. We applied for our first loans for Plant Vogle. Uh we were we closed on our loans under the Obama administration. Have continued to work through the loans with the Trump administr first Trump administration and now the Biden administration.
▶ 0:46:58And you know each uh each part of the loans we've we've seen as new administrations come in, they rightfully evaluate the program and put their own uh color on the program. And so, you know, from our perspective, we have had very constructive conversations all throughout the process.
▶ 0:47:20And the new uh 1706 loans have given us uh additional interest to meet our significant uh investment needs to serve the unprecedented demand growth that we're currently seeing and all to the benefit of our customers. So, were you there in 2008? I was. We neither one of us had gray hair back then. I know.
▶ 0:47:47So, what additional improvements would you like to see in this office to better serve the national interest and protect Yeah. So, a couple of things. Um the the first element is really around Davis Bacon Act and you know we have great relationships with our labor unions. They were very instrumental in bringing plant vogal online.
▶ 0:48:15Um we have no problem paying prevailing wages. What is a challenge is we pay bi-weekly. Our collective bargaining agreements contemplate bi-weekly pay and moving to weekly pay is extremely administratively burdensome for utilities. very costly and all that cost goes back to our customers or eats into the benefits of the loan.
▶ 0:48:42So that would be the the the biggest lowing hanging fruit that help move through the process. All right. Thank you for that. Mr. Walsh, I'm coming to you. In your testimony, you discussed how Title 17 was aimed at the valley of death. uh addressing the the lack of banks willing to provide debt finance to a to the what's called a first of a kind projects.
▶ 0:49:07However, we have seen these loans repeatedly provided to some of the largest companies in the world including the likes of Next Era Energy, NRG Energy and Goldman Sachs via their wholly owned subsidiary code Gentrex. So my question for you is why should the government provide loans to these multibillion with a B dollar companies that could more than likely have easily raised the funds themselves if they thought the venture was viable.
▶ 0:49:37Um well uh thank you chairman Weber for the question. I think you know even big companies will face financing challenges when it comes to first of a kind technologies. first of a kind technologies face schedule risk, cost risk, regulatory risk in some in some cases. And very often um these companies like if you're say an electric utility, you don't really have much of an incentive be to be the first one to deploy a new technology. You'd rather be the second and you rather be be the third than the second, right?
▶ 0:50:06So, but there's a benefit to the entire market when someone takes that first step. And so this that's part of what this program can offer. It it it kind of provides an inducement for even large companies that want to take a leadership role in a particular industry. And my I'm a little bit past my time, but I want to very quickly ask make this observation with those kind of multi-billion dollar companies. Isn't it safe to say that they're not risking their own capital, they're risking taxpayers capital? Well, no, that that's not right.
▶ 0:50:35I mean, there's always um a very substantial equity contribution to any one of these um projects, right? Even by law um DOE cannot finance more than 80% of the project cost of any particular project and in fact it rarely even approaches that level. So uh you you would often see um when big companies are involved you'd often see substantial equity you might see parent guarantees and things like that. Okay. Thank you for that. I'm now going to yield to the to Miss Ross for her questions.
▶ 0:51:05Thank you Mr. Chairman. Um Mr. Hey, good. I'm also going to start with you um as somebody from the southeast who has been watching nuclear. Um North Carolina has nuclear, South Carolina had a very bad experience with um the Santi Cooper plant. Um and in general, I'm not a big fan of construction work in progress. Uh projects where the ongoing cost to build is passed down to the rateayers and along with the risk.
▶ 0:51:33I think that they force the rateayers to absorb the project risks without incentive or in an efficient manner. Um, does Southern Company use construction work in and did you use it on the vocal plants? So, first of all, uh thank you for your question and uh I'll note that our southern power entity also has two natural gas and two solar facilities in North Carolina. Thank you.
▶ 0:52:04Totaling 17 over 1750 megawws. Um so to your question uh recovery of financing cost during construction especially long live construction like a new nuclear plant is very important to mitigate uh credit risk and provide credit support and it is not uh recovery of any hard assets is truly just recovering of the financing cost and yes we did have sea weapon rates
▶ 0:52:34plant vogal construction so when you have when you do use construction work in progress. Can the DOE loan guarantees be used to minimize some of the rateayer costs in that situation? That's correct. All of those benefits go back to customers. Great. Um that's why I like the DOE loan program for this.
▶ 0:52:57Um, so I I just want to make it clear if you take advantage of the DOE loan guarantees as you did with the Vogal plants, um, there's a triple benefit, less cost passed down to the rateayers for the projects under construction. The American taxpayers see a return on their investment in the form of the interest payments that you pay back for the DOE loan program. and we as a nation can move forward on building badly needed critical energy infrastructure.
▶ 0:53:27Would you agree with that? I couldn't say it any better. Well, thank you. Thank you. Um Mr. Walsh, um turning to you now. Um, I've been very clear before that I'm concerned that the reports of DOA's access to systems at DOE and now their involvement in the encouragement of DOE employees to take an offer to vi voluntarily resign regardless of the impacts of um the staff departures are going to really decimate
▶ 0:53:57the agency. I've seen recent reports uh that LPO will likely be losing around 60% of the staff due to the latest round of resignations. Do you believe that Doge is in any way qualified to understand the massive loss of this expertise at the LPL?
▶ 0:54:15Well, I I think that, you know, if these reports are accurate and if this, you know, number of staff leaves, it will be um cause a serious harm to the ability of the program to fulfill the goals, the bipartisan goals that I think that everyone here has has expressed desire to see it fulfill. Um, you know, you have a a very talented team of um engineers, finance professionals, lawyers, many of whom have come to their uh from the private sector, right? and and for those folks to be told, hey, we want you to quit.
▶ 0:54:45We don't care, you know, how good you are at your job. We don't care uh, you know, what you've accomplished in your career. We we just want you to quit. It's going to be very hard to get those folks back, right? And and so I'm um, you know, moreover, you know, we're talking about, you know, 50 60% across the entire office, but it's this is simp that's simply the number of folks who have chosen to to resign, right? Like they could be coming from any part of the office.
▶ 0:55:09you could have some specialties or functions within the office that sees uh resignations greater than 60% in which case you'll have some serious bottlenecks and performance problems and so I mean doge the e is supposed to be efficiency are we seeing any efficiency from this cut well um I I I would not expect it so you know if you um the as of January you had a headcount in uh LPO of uh maybe 250 something like that.
▶ 0:55:40Um if the reports are right, that number could get down to say 100, right? Um or below, you know, if you if you take um uh if you remove 150 of those um federal employees, you might save $30 million a year, probably less. Meanwhile, you've severely degraded your ability to manage a portfolio of, you know, $25 billion of outstanding principle and growing.
▶ 0:56:05you've severely degraded your ability to process loans that are um you know drawing right now and you've severely degraded your ability to underwrite and um make new loans. So it it doesn't seem like a good trade-off is what I'm trying to say. Not very efficient. Um Mr. Chairman, I'd like to submit a letter from a coalition of um stakeholders in support of the Without objection. Thank you. I yield back. Gentle yields back.
▶ 0:56:33I now recognize Jen L from South Carolina for five minutes or good morning. However much you need. Thank you, Mr. Chairman, and thank you to the witnesses for being here for this hearing today. So, South Carolina and our entire nation, we're approaching a point of energy um I guess almost a critical point. Our demands continue to grow faster than our energy generation.
▶ 0:57:01So the DOE lawn guarantee program has had mixed successes in securing our energy dominance and we know how important that is for our nation. So while there have been some notable successes, there have been many high profile h highp profofile failures and defaults in project terminations, especially in the green energy space.
▶ 0:57:27America needs an all of the above strategy, not market manipulation that picks winners and lo loers based on political agendas. So my question is to Hood. How did the Vogle plants achieve success through the DOE loan programs and what set this project apart from many of the others that had less success?
▶ 0:57:55Yeah, thank you representative Biggs for your question. so as we began uh plant Vogle, um, we we recognized there were several risks ahead of us. Um, we were one of the first new nuclear units uh, to have to establish supply chains in over 20 years.
▶ 0:58:19Um we had capital markets risk obviously construction risk and so and as we moved through the process we actually recognized some of those risks. Fukushima happened which delayed the licensing process. Uh our prime contractor declared bankruptcy and our subsidiary Southern Nuclear had to take over construction and then we had to navigate through the CO 19 pandemic.
▶ 0:58:45And so having the loan program, the ability to access capital at a fixed credit spread was uh very beneficial to our customers, ultimately saving them over half a billion dollars through the Great. Thank you very much. And I'm going to offer this question. I'd really like to hear all three of your perspectives.
▶ 0:59:10How can the DOE loan guarantee programs be streamlined to increase energy generation and unleash American energy without picking winners and losers in the market? And I would to we'll start on this end. Thank you, Representative Vigs. Um, so as I said in my in my testimony, one of the key issues that emerges when you pick winners and losers is that you've selected one over the other rather than in response to market forces and those things.
▶ 0:59:41And part of the issues that we've heard about today is regulatory uncertainty and regulatory overreach in many cases makes it more expensive for new technologies to enter. And so one of the things I would suggest to the subcommittee is that as you think about the LPL LPO program, you're also thinking about the regulatory side because in in many instances, the reason why capital is more difficult for new technologies or what we might call riskier technologies to enter the market is because the regulatory
▶ 1:00:11uncertainty makes lenders and investors less willing to take the chance. And so without reforms on both sides, you're not likely to get a real clear market signal. Thank you, Mr. Hagood.
▶ 1:00:26So, LPO loans uh can provide loans to fund money for many forms of energy infrastructure, and many forms of infrastructure will be needed to serve the incredible growth we're experiencing and ultimately meet the president's energy dominance agenda. Thank you. Well, you know, we've been hearing this talking point about picking winners and losers for about 15 years, and there have been a lot of hearings like this, and I've never heard any testimony from any losers.
▶ 1:00:54Um, and that's because you hadn't been paying attention. Well, when when LPO when LPO finances a new technology, it's not just the company that gets the funding that benefits. It help what it does is derisk the entire technology area, the tire sector.
▶ 1:01:12So let's say utility scale solar the first utility scale solar plants in this country were financed through LPO you know those b compan companies benefited but all the entire sector benefited right now other companies that want to build utility sales solar can get go to commercial banks they have supply chains available there are dozens of companies competing in that space now uh no one even remembers the ones that got the first couple loans let's think ahead to advanced nuclear right let let's say we we uh LPO finances a couple advanced nuclear plants that's going to help the entire sector It's going to help
▶ 1:01:42commercial banks realize that the that these projects are worth financing. It's going to help build out workforce. It's going to help build out supply chains. For advanced nuclear, you have a particular supply chain issue, which is the provision of fuel, high SA, lowenriched uranium. You need a critical mass of reactors that are actually out there using it, creating demand. So, uh I don't um I think that the the bigger risk is that we kind of hold back, right? I I think that we should be pushing forward with this program.
▶ 1:02:09It's going to um has a lot of you know a lot of potential across a lot of areas including um the ability to meet the um low growth challenges that you referenced. Thank you. Thank you very much. And I yield back sir. Gentle lady yields back. The chair now recognizes the ranking member Zolofkin for as at least five minutes. Well thank you very much Mr. Chairman and this is an important hearing. You know I hear winners and losers but actually if you take a look at it we've been picking winners.
▶ 1:02:38um because the return of a 5.1% interest is considerably higher than the losses. Um and the taxpayers are making money on this, but even more um as as you've just mentioned, Mr. Walsh, the being the first is hard to get the funding, but once you've proven that you can be successful, then you can go to the commercial market. uh and we've seen that in a variety of uh energy uh areas.
▶ 1:03:08I just want to ask I know that uh the ranking member uh addressed this, but in terms of the staff reductions, um I'd like you if you can, Mr. uh Haywood or Mr. Walsh to compare the um finalized loans totaling close to half a trillion dollars being managed uh at a staff level of less than 100 employees and it may go down from there.
▶ 1:03:38How does that compare to what a commercial lending institution would have by staffing to oversee a similar portfolio? Is it scant? Well, uh, first of all, you know, the the total, um, authority that the program has, um, across all programs might be half a trillion, but, that's not actually what's outstanding. I just want to, uh, speak to that. Right.
▶ 1:04:04We have 69 billion of of closed loans and guarantees, and I think it's something like, uh, 40.5 billion uh, dispersed. Um so um what I was trying to say before I I I don't you know I can't sit here and say what the exact right number of uh personnel in the um office should be but given the amount of money that's being managed um there was a reference earlier to concerns about having enough staffing to monitor the existing portfolio.
▶ 1:04:30It's kind of pennywise, pound foolish to be trying to save money on the salaries of federal employees when you have that much money that needs to be monitored and and handled appropriately. That's common sense. Let me ask you, Mr. Hey, good. I um your testimony is very interesting. Thank you for the innovative things you've done. I understand that Southern is an affiliate member of the Fusion Industry Association, which is something that many of us on a bipartisan basis here in Congress are very interested in and supportive of.
▶ 1:05:01Can you tell us anything about your company's interest in fusion and any activities in this area that you've been engaged in to date? Uh, yes. Thank you, Ranking Member Lorren. And I also have to note that our Southern Power subsidiary has 14 solar and battery facilities in California totaling over,450 megawatts. Thank you. Um so our we have a proprietary research and development team.
▶ 1:05:29They have an object objective to determine the value proposition of fusion technology. Currently the main activity is technology scouting via epriusion forum, fusion industry association or FIA and direct engagement with fusion developers.
▶ 1:05:46Participation in the FIA allows us to easily access many of the stakeholders in the fusion community and maintain awareness of policy and regulatory decisions affecting fusion One of the things thinking about fusion, there is a lot of venture capital money in uh in the fusion space. Actually more than the federal government is spending on fusion at at this point if you discount the national uh the weapons program.
▶ 1:06:16Um but at some point once ignition is achieved, they're going to be in the same spot as you were with the first ad, you know, advanced nuclear thing and they're going to need to be able to develop this stuff. Have you I don't know if you've had discussions with the fusion industry association or that whether your company might be in a position to bring that to uh online or whether that's premature.
▶ 1:06:41Some of these uh venture funded companies are predicting that they will be able to produce to the grid in 2028 2029 time frame. I don't know if that's too too arcane to ask you Mr. Hagood, but it's an important issue for the committee. Yeah, most of our objectives are to make sure we understand different technologies and to stay engaged.
▶ 1:07:04Uh we believe there's going to be a broad solution of technologies that are needed in the future and we want to be uh we want to have a good understanding of all of them. Thank you very much. And Mr. Chairman, my time is expired. Thank the gentle lady. The representative Morgan is now recognized for five minutes. Thank you, Chair Weber and Ranking Member Ross, and to our witnesses today for being here.
▶ 1:07:27In Oregon, one of our major utilities, Pacific Core, has a conditional commitment from LPO to support several major transmission projects right now. And like many states, we face the challenge of substantial load growth far from new generation opportunities, making transmission a key element of the clean energy equation. In our case, the low growth is concentrated in the Wamut Valley, including right in my district, whereas the development opportunities for clean energy are largely on the other side of the mountains out in eastern Oregon.
▶ 1:07:58Mr. Hood, you mentioned that uh Southern Company is taking advantage of LPO financing to upgrade and expand transmission on the grid. Can you expand on the work that you're doing particularly in terms of how these grid investments facilitate adding more clean energy into the mix and thereby potentially reducing rates overall for customers? Sure. Uh and thank you for your question.
▶ 1:08:21Um, so similar to your state, uh, Georgia, most of the plentiful land and solar facilities are located in South Georgia versus the big load centers are in the Atlanta area. And so therefore, you have a need for new transmission to effectively move move the energy.
▶ 1:08:44Uh we also have some reconductoring work making our transmission lines more efficient and reducing line losses and and all of um if you think about our overall portfolio of of transmission um and other investments um the the DOE loans absolutely help reduce that cost and goes directly back to customers. Great. Thank you.
▶ 1:09:14I I noted that our projects in Oregon still only have a conditional commitment and we've seen reporting the Trump administration may try to backtrack on some of these conditional commitments. Um Mr. again, Mr. Haggood, uh speaking from your own experience, what would happen to projects if LPO financing failed to materialize when the company may be expecting or on their, you know, on the road to to finalizing an agreement? Would there be other ways to finance that work? and how would that ultimately affect rateayers?
▶ 1:09:44So, there could be other ways to finance it. Uh, it will be more expensive. Um, you know, we're kind of at a time when utilities around the country are seeing unprecedented load growth and an unprecedented need to expend capital to build out our infrastructure or improve our infrastructure.
▶ 1:10:06And so all of that pressure on the capital markets effectively puts uh puts challenges in in the ability to raise the capital and could potentially either we have to delay construction of a project because we can't raise sufficient capital or at the best it puts upward pressure on that capital which all flows back to Thank you.
▶ 1:10:34And yeah, businesses back home, from what I'm hearing, they are having some capital project challenges right now. Um, with interest rates being unstable and the market also being a bit unstable. So, I do want to just address for a minute um staffing reductions um at LPO that threaten the office's ability to actually carry out some of its core functions with, you know, almost 200 active applications. Um, but yet we're hearing about reports of about 60% of LPO's workforce getting pushed out due to pressures from Doge.
▶ 1:11:04Um, I'm very concerned about what this means. So, Mr. Walsh, how would a 60% staff reduction affect LPO's ability to process almost 200 applications? And how would a slowdown in finalized loans affect the amount or pace of revenue that they could actually generate for the taxpayer? Well, I think it would have a very severe detrimental impact. Um, you know, that's a organization that was um you have a lot of professionals working very hard.
▶ 1:11:33If 60% of them, if 60% of people in any organization leaves overnight, you're going to have very serious performance problems. As I mentioned before, it's not um as though um somebody planned which 60% was going to go. It's the folks who decided to take a deal. So, they could be coming could be coming from uh any uh part of the organization at any particular level of seniority. So I I don't think that it is going to um uh uh I think I I think it it um it's going to cause performance problems.
▶ 1:12:03What will happen to those conditional commitments? I I couldn't say, but in all likelihood um those projects will get slowed down um at in the best case. Thank you. My time's nearly expired. I yield back. All right. The chair now represents now recognizes representative Riley from New York for five minutes. Uh thank you Mr. Chairman. Um Dr. York, some of my colleagues earlier today talked about the importance of uh scrutinizing uh conflicts of interest in this program. You agree that's important, correct?
▶ 1:12:34And some of my uh colleagues talked about the importance of demanding transparency in these programs. You agree that's important, correct? Sure. Uh you're here representing um the American Institute for Economic Research. Is that correct? That is correct. And uh the American Institute for Economic Research owns the American Investment Services. Is that correct? That is a wholly owned subsidiary. Yes. Yeah. Uh wholly owned subsidiary, meaning that it fully owns it. Yes.
▶ 1:12:59Um and American Investment Services holds millions of dollars in stock from Chevron and Exxon. Is that correct? I have I have no specific knowledge about their holdings. I work on the research and education side of the house, not in the investment side. You don't know one way or the other whether the entity that you're here representing uh owns a subsidiary that owns stock in Exxon and Chevron. That's your testimony. You're not aware of that. I I do not know. Mr.
▶ 1:13:21Chairman, without objection, I'd like to enter into the record the stock holdings of the American uh investment services which shows that they own millions of dollars in stock of Chevron and Exxon. Mr. Chairman, may I be allowed to answer his question? No, this is my time and uh you somebody else could uh could could give you that opportunity. Um would you be willing to provide uh for this committee a list of all of the funders of American Institute for Economic Research? Uh those are not decisions that I make.
▶ 1:13:50I work as a researcher at the institute. We are funded by a variety of sources including individuals and foundations. In the interest of uh transparency and examining conflicts of interest, I'd appreciate it if you would come back to us and let us know whether you would uh make that disclosures. you wrote in your um testimony um on page seven that historically most of the loans guaranteed by the LPO have subsidized lower risk power plants. That's actually not accurate though, is it? I believe it is accurate. On what basis? Uh the basis of the analysis done and through my own research.
▶ 1:14:20Uh well the is your basis for saying that most of the loans are guaranteed by the LPO the study that you cited in your testimony. the study I cited as well as my own work from the earlier renditions where I have specifically looked at loans issued by the LPO. How many how many loans has LPO issued? I at this time I do not have that immediately in front of me, Mr. Riley. Okay. What what you say most of the loans guaranteed by LPO have subsidized lower risk power plants. What's the percentage? I I do again I do not have that information in front of me.
▶ 1:14:48It would have been helpful would it not have been for you to have cited your basis for making that statement in your written testimony? I could certainly provide you that information. Yeah, please do because the one uh study that you did site in your testimony is uh over 12 years old. Sure. Correct. Uh and that study actually when was the last time you you looked at that study, the Dr. Rouji study that you rely on your testimony? I reviewed it uh immediately prior to writing this testimony. When did you write the testimony? I wrote the testimony about four four days ago. Okay.
▶ 1:15:18Um so were you aware when you reviewed that study that it actually has nothing to do with section 1703 programs? It has to do with loans in general, uh, dealing with, um, federal loans, right? Just generally federal loans, but not not specifically the programs that we're talking about here today. Correct. Correct. Right. Um, LPO's portfolio is available online, you understand that, correct? And, uh, when was the last time you looked at the portfolio? I I skimmed through the portfolio about a week ago. About a week ago. I looked at it this morning.
▶ 1:15:44Did you go through and look at how many of the uh, programs under the portfolio are actually uh, low-risk power plants? Uh I I look through it and I would have to do a more detailed review. I was asked to testify relatively recently and I've done a significant amount of work particularly on the green energy side of things and I have concerns not just about green all energy loans is is so uh what I'm trying to get is you're here telling us that most of the projects funded under this program are
▶ 1:16:14one thing but it looks like you don't actually have you've not provided any data showing that that's right. most of the data actually show that it's it's not right. I'd like to enter into the record also unanimous consent the actual portfolio so people can see for themselves that the witness's testimony is not accurate in that regard. Um without objection uh you wrote that and you said again today that some exploratory research on additionality of loan guarantee programs for energy technologies from both DOE and USDA reveals poor additionality.
▶ 1:16:41In fact, however, there's no evidence showing that section 1703 is financing projects that would have been financed anyway. Correct. The the evidence suggests that uh additionality is not significant under these programs in general. Under No, no, no. Not talking about in general. Talking about the specific program that we're here to talk about today, section 1703. Is your testimony that there is evidence showing that section 1703 is funding projects that would not have been funded otherwise? Is that your testimony?
▶ 1:17:10My testimony is that federal loans in order for them to have serve a public benefit requires evidence of additionality and additional research must be done on these specific programs. So that's very different to say additional research must be done than to say what you just told this committee which is that the research shows that there's no additionality. So are you revising your testimony to say you don't know one way or the other under section research indicates poor initi additionality additional research is necessary. If I might Mr. Chairman, just one last thing.
▶ 1:17:38If the additional research that you are referring to is what you cited in your testimony, I would note that the one thing you cited in your testimony for that proposition is a draft study that was never published. It's over 10 years old and it looks at only two section 1703 projects. I think the next time you come here and ask us to dismantle a program that's saving the planet for my kids and creating jobs, you should provide us some accurate facts about it. The gentleman time has expired.
▶ 1:18:06The chair and I recognize the gentleman from Indiana, Representative Baird, believing that he's ready. Representative Bair, you're recognized for five minutes. Thank you, Mr. Chairman, and ranking member. We appreciate all of our witnesses being here today. Uh Dr. Yon, would you have any u regard to the last questioning? Do you have any rebuttal to that or you I'm going to give you floor time to I I appreciate that. Yes.
▶ 1:18:36The expectation that uh a senior research fellow within an organization that has a wholly owned subsidiary that is operated separately uh would have knowledge of how that operates uh is an unrealistic expectation and one that would in fact uh be counter to our mission at AIR of conducting independent research and then communicating that research to the general public.
▶ 1:18:56And so I have nothing to do with the operations of that subsidiary and have uh no knowledge of what it invests in uh beyond my own 401k that is all invested in long run funds. Uh the second is uh while Mr. Riley raises lots of sort of angry points about old studies.
▶ 1:19:13He actually highlights a very important problem and namely that is additional research on these loan programs is necessary if we are in fact going to answer the questions about whether or not many of the claims that have been made about their incredible opportunity and how much they've done can actually be answered uh conclusively.
▶ 1:19:32In reviewing the literature on these loans, part of what became clear is that additional studies are necessary and yet at the same time we find preliminary evidence that additionality is poor. And so rather than it being a wholesale attempt to dismantle a program, I believe in fact what needs to happen is that additional research has to be engaged in in order for these things to actually be evaluated effectively.
▶ 1:20:00That's a good point and you know um that leads me to my next question which goes to you again Dr. Yan and Mr. Baltz but anyway uh as a researcher I know it's very difficult sometimes to find and and conduct basic research because you're not sure how that's going to turn out and so the risk the risk is there.
▶ 1:20:21Uh so uh I guess I'm just asking what are some of the reasons that you think that promising technology might not receive private funings funding and uh it is often because of the true market f is it because of the true market failure or is this more the market doing its job and weeding out risky projects. So to the both of you Dr. Yant you go. So so I so there are two primary responses I would give to that question. The first is market failures do exist.
▶ 1:20:51The question then is, is the cure to the perceived market failure worse than the actual failure itself? Meaning if we intervene to try to correct it, what are the unseen things that can happen in that process? And the second is when we look at attempts to do things like correct market failures that there's not enough capital uh in the system for example we should ask the question have other things been induced that create created that limitation including the regulatory side which I think is one of the primary reasons why capital
▶ 1:21:21is reluctant to be the first actor because of the regulatory uncertainty and so those two things together I think would uh be the primary uh things I would point to in addition to many of the technical questions that exist.
▶ 1:21:36I I like your response from the standpoint that you know when you add the additional risk of regulatory uh actions in addition to taking on a risky business uh then that that precludes people from wanting to invest in that kind of activity. So your point is well taken. Uh so Mr. Waltz, you got any thoughts in that arena? Sure. I mean, this program aims at debt financing for first of a kind projects. We're talking about 1703 now. Um, and Mr.
▶ 1:22:06W le lean toward your mic just a little. Thank you. Um, this this program aims at um, uh, first-s innovative technology, right? That's what 1703 does. Um, first ofind projects often struggle to get debt financing because they have cost risks, schedule risks, they have regulatory risks. And so what this program um does is it provides a proof of concept.
▶ 1:22:32First pro the first project comes in, if it can get financing, if it can get off the ground and succeed, it opens the door for commercial lending for all the other um types of uh projects with that want to use that technology. And in in the process, it helps to build out your workforce. It helps to build out your supply chain, all the other things, you know, regulatory, proof of concept, all the other things that other projects in that category would need. Uh, Mr.
▶ 1:22:59Hood, we've got about 24 seconds if you can condense it down. Um well, you know, so we've benefited tremendously from the the loan programs uh to help us reduce our financing risk and ultimately being bring forth the first new nuclear plants in three decades. Good answer. You did a great job. So I yield back, Mr. Chairman.
▶ 1:23:30The chair now recognizes uh Representative Fushi from North Carolina for at least five minutes. Thank you to the chairman and ranking member for holding this hearing today and thank you to the witnesses for being here with us today.
▶ 1:23:44We find ourselves at a truly historical moment defined by rapid advances in artificial intelligence, machine learning, data analytics, and other breakthroughs in emerging technologies like quantum that are reshaping entire industries and redefining the way we live and work.
▶ 1:24:03With the demand surging for compute resources and AI data center infrastructure across the country, it is imperative that Congress and the federal government play its role in making sure that the energy demands of the future are met responsibly. As a member of our inaugural bipartisan AI task force, assessing and understanding AI's rising environmental and energy impacts have been one of my top Mr.
▶ 1:24:33Walsh, you wrote in your testimony about the valley of death facing companies that seek to advance new energy technologies from pilot to commercial scale as we seek to meet our nation's growing energy needs with the rise of AI.
▶ 1:24:49Can you speak about how the federal government is taking stock of future potential energy strains on the grid caused by the arrival of new technologies like AI and how the DOE loan program office has played a role in supporting innovation and development of new technologies and more efficient energy sources across the United States. Thank you for the the question, Representative.
▶ 1:25:17Um one uh sort of positive by additional positive byproduct from the kind of data center demand is that a lot of these hyperscaler companies are very interested in working with advanced nuclear right we've seen that those projects like that um are a very good fit for the scale and the and the um reliability demands that data centers have so this program um as I was speaking about earlier um is ideally suited to work with these startup companies
▶ 1:25:47that are developing new advanced reactors um and uh put them in a position to actually deploy those reactors, the first generation of those new reactors um in time to meet some of this uh AI data center demand. Thank you. Duke Energy is the largest energy provider in my home state of North Carolina, not including electric cooperatives.
▶ 1:26:09Shortly after the 2024 presidential election, Duke announced that they would be halting their applications to access DOE funds through the loan program office because of the uncertainty surrounding the program with an incoming Trump administration. Mr. Hey, good.
▶ 1:26:28Can you share how a large utility like the Southern Company is having to adapt its long-term strategy for energy development given the current atmosphere surrounding the LPO caused by the administration? Thank you for your question, Representative Faly.
▶ 1:26:47Um, the Southern Company has worked with the loan program office back to the Bush administration, uh, and has worked through several administration changes each time the new administration comes in.
▶ 1:27:01and it's their prerogative to look at the program, make changes they see fit, and the company has continued to uh constructively work with the loan program office through this change and hope to continue to to work constructively to to bring our loans to fruition. Thank you, Mr. Walsh.
▶ 1:27:22As a former general counsel for the department of energy, I know that you are keenly aware of the critical role the department plays in spurring federal energy production, research, development, and deployment.
▶ 1:27:37Can you talk about the role the LPO has played in advancing these goals and the challenges that might arise if the LPO is no longer able to provide capital investments for these important and much needed advances in R&D for the American indust energy Sure.
▶ 1:27:59when um companies in the US can't get debt financing to take their new technologies from the pilot scale to commercial scale. Um they're going to look abroad, right? They're going to look to countries like China where they might see more opportunities to do that. And what what is lost when that happens? What what's lost when we see, you know, industries like solar PV and batteries go to China?
▶ 1:28:25Well, um, for one thing, it's all the jobs, of course, and the economic activity, but those then become the places where all the follow-on innovation, all the new sort of hands-on learning occurs. They're in a position to then improve those technologies and to kind of dominate them going forward. Thank you. That's my time, Mr. Chair. I yield back. Gentle lady yields back. Chair now recognizes uh Mr. Riley from New York. I'm going to recognize myself. Staff tells me. Okay.
▶ 1:28:54Good, good to know. You know what they say behind every successful member of Congress, their staff telling them what to do. So, I'm going to go to you, Dr. Y. short of shutting down LPO, how best do you ensure that projects are selected on a merit-based or as you mentioned in your testimony, a maximum additional uh initiality approach instead of what you outlined in your testimony as a political tool that shifts quite frankly with every administration.
▶ 1:29:24Yes, the the shifting between administrations is one of the the major issues that emerges as any of these types of programs that as the priorities change suddenly the these different sectors within the industry and different companies find themselves on the short end of the sort of political stick. And so one of the major issues is that I think would would improve the program would be actual analysis of whether or not the additionality is being achieved by DOE.
▶ 1:29:52So a DOE internal study as well as the opportunity for um further studies outside of DOE that examine the additionality and the unseen uh things that have been foregone as a result of selecting to invest in this set of industries or others. And when we speak of winners and losers, we're not most often speaking about individual companies, but rather we're speaking somewhat more broadly. Namely, that we're identifying that now we're going to move towards nuclear and geothermal.
▶ 1:30:20Previously we were moving towards wind and solar or other areas. And so we end up moving not based on market demand or where innovation is occurring but rather based on the political realities of what it means to actually work in a bureaucracy and in a political system. Yeah. Well, a friend of mine likes to say that a bureaucrat is run by a bunch of mental midgets.
▶ 1:30:43I don't know what he means by that but uh and he makes an interesting point because one of the things I guess I want to follow up with is shouldn't that tell us something that if the financeers who are closer to the project and the market by the way and actually have skin in the name if they won't do it why would we think that government bureaucrats could keep up who are far removed from decisions and the risks why would we think they would be better suited to make calls your thoughts those kinds of calls calls
▶ 1:31:13your thoughts. So, in the first place, I've never interacted with a government bureaucrat from DOE or any other agency that I would classify as a mental I think you wouldn't rec you wouldn't recognize one if you saw it walking down the street. I've never interacted with someone who works in the agencies that isn't deeply committed and wellqualified. And I want to make that very clear. Good point.
▶ 1:31:31Now, one of the major issues that then comes is not just that they financiers that are close know better, which I do believe they do, but also oftentimes financing is then waiting knowing that these loan programs exist to see if there will be a first actor uh from government support that they can then wait uh and transfer the risk onto the program. And so, it's a duplicate it's a duplicate problem.
▶ 1:31:57One is there may in fact be a lack of knowledge of the specifics of time and place with projects for individual bureaucrats um or individual agencies. But at the same time, you may have financing that's being done in the marketplace that is waiting to see if these programs will actually be utilized and whether or not they can wait and then make loans later on once the regulatory uncertainty has been solved. Mr. Edgood, would you agree with that? I would say the program is a a win-winwin. Okay.
▶ 1:32:26It's a win for our customers because it puts downward pressure on their rates and derisks the capital funding. It puts uh returns provides a return back to the American taxpayer as we paid $1.15 billion dollar in interest on our loans. And it also helps further the president's energy dominance agenda as we build out our infrastructure to serve new AI and large customers. Right.
▶ 1:32:54And this is an interesting question just came to mind. So your company, Southern Company, must have at least one person or a whole office that is dedicated to managing looking at that risk, calculating the risk, the cost of money today uh and in the future and making that decision. Is that safe to say? We have several teams and Yeah.
▶ 1:33:20Would you say it's 10 people, 15 people to 45 people, or do you do you really do you know? Well, we have a pretty broad integrated resource planning process. Okay. Mr. Walsh, I'm going to come to you. Do you agree with what Dr. Yon or Mr. Hood has has just outlined? Well, first of all, let me say that a mental would have not have lasted one day in LPO. It's a very demanding. They last in Congress, unfortunately.
▶ 1:33:46Well, uh, um, there is a very talented team of folks, many of whom recruited from the private sector, from finance, law, consulting, etc. Um, and but when you talk about comparing LPO's decision-m to the decision-making of private sector lenders, you got to remember that LPO has access to the 10,000 scientists and engineers across the DOE complex, including the national labs, and they have the patience to work with these companies, right?
▶ 1:34:14So you might have a company that comes in with a new technology. You can bring in the best folks from the office of nuclear energy to look at it and they can take time. They can they can sit down with those companies and they can um come up with you know ways to mitigate the technology risk that sometimes will take the form of conditions president um before the company can close a loan or draw on the loan. These are which may never come right. Some there are some projects that get to conditional commitment that never ever close because they never meet their technical milestones.
▶ 1:34:43Banks don't really have an interest in doing that. They I mean they of course don't typically don't have the technical expertise, but they don't really have the time and patience to work on deals for a long time that may never close. Yeah. Well, I would say that banks probably have a broader purview. They have a broader marketplace, if you will, not just those who are trying to get a foot an initial start. But anyway, thanks for that observation. I'm going to yield uh now uh to the representative from California, Representative Freriedman. Thank you, Chair Weber and Ranking Member Ross, and to our witnesses for coming to testify today.
▶ 1:35:14Uh, Mr. Walsh, a very notable company in California, one that you're probably very familiar with, benefited enormously from the ATVM loan, which is the Department of Energy's advanced technology vehicles manufacturing program. Do you know which company I'm talking about? I suspect you're referring to Tesla Motors. Exactly.
▶ 1:35:33Uh, it's funny to me that Elon Musk, whose company received $465 million in loans from this very program in 2010, is now actively working to dismantle the federal program that helped him launch launch his success. Uh, the contradiction is pretty striking. Musk has directly benefited from a government-backed program that spurs innovation.
▶ 1:35:56yet he now seeks to undermine that those very same programs that foster innovation and progress in clean energy and transportation, something that is so important. Mr. Walsh, can you speak to your success implementing DOE's clean energy financial assistant programs and how DOE's Office of General Counsel will suffer from Musk's purging of the people that make this program successful? Uh, sure. Uh, thank you for the question, Representative Freeman.
▶ 1:36:22um you know uh we're talking about losses to the program of you know at least 60% based on these press reports and maybe more if the um threatened reductions in force take place. I I don't think that the office is going to be able to function uh at the level at the capacity that the American people should expect um if you have that that level of kind of abrupt terminations. So Tesla was a startup and it's now a global leader.
▶ 1:36:50It's a vehicle that people enjoy and it's a huge American success story. And why should one company benefit from this and then try to pull that ladder up from everyone else? Isn't there a benefit to all of our American startups to having this kind of innovative funding for innovation? I think there is. Yes. So in California, you know, we are very committed to clean energy. We have huge smog problems that we've dealt with the difference in the air quality from a couple years ago and now.
▶ 1:37:18It's really profound because of the regulations we have and the investments that it's spurned. So, we are investing in renewables and battery storage and local energy resilience. And we are at the forefront of reinforcing our nation's energy dominance. Um, and the goal is very simple. It's to generate clean, affordable, reliable energy that's immune to global energy price shocks and threats from adversarial regimes. It's homegrown energy. and that investment is central to the state's 100% clean energy by 2045 goal.
▶ 1:37:49We are a top recipient in California of LPO's supported clean energy projects. U Mr. Walsh, in your opinion, would California's leadership in clean energy exist without the DOE's loan program office and what what do you think California should be prepared for going into the future with with this Um so um I have not studied exactly the benefits to California but it it is clear to me um that California has for you know decades been kind of the
▶ 1:38:19seedbed of innovation in uh energy in addition to other tech areas. And so lots of companies we talked about one but there are lots of companies that have benefited. Um the pioneering of utility scale solar that I referenced earlier has had uh immense um positive uh impacts for the state of California. Um and if we want to keep that record of innovation going, if we want want to continue to add new resources to to the grid to sort of develop our US supply chains, we need to keep this program going. Right?
▶ 1:38:46So in California, we're now the fourth largest economy in the world as of last week. And we have a STEM economy. We have a creative economy that where our investments that we put into science and into innovation creates the companies that are going to solve the world's problems and also power our economy. So it seems to me very shortsighted to reduce America's competitiveness when other nations other nations invest in science in their se in their countries because they see the benefit to their strategic interests but also to their economies.
▶ 1:39:16Mr. Dr. Hgood, can you speak to Southern Company's clean energy pro uh projects that wouldn't have moved forward without this program? And more broadly, do you think the private sector should and can do it alone or do we have a multiplier effect from having government partnerships and Yeah, we so first of all, thank you for your question. We we do believe in an all the above approach. We have a lot of technologies that we're looking to deploy.
▶ 1:39:41Um, we've of course just put online our first the nation's first new nuclear plants in the last 30 years. Uh, ultimately utilities need capital to finance our projects. Uh, the existing capital markets alone can't efficiently finance the amount of infrastructure that utilities need to develop and deliver on the president's energy dominance agenda.
▶ 1:40:04LPO dollars therefore accelerate that infrastructure Thank you very much for for your clear and concise answers and I yield back. Gentle lady yields back and chairman I recognize a gentleman from Indiana, Dr. Thank you, Mr. Chairman.
▶ 1:40:22Uh, you know, I want to move um since we've got such expert talent here, I'd like to move to where we can get your perspective on what this committee might or should be doing to help uh improve this project.
▶ 1:40:35So, so I guess I'm going to start with this question in should Congress require regular DOE reporting on project funding and the status to provide greater oversight and accountability of this LPO process and uh on other demonstration project expenditures. So, Dr. Young, you get to start again. I think the the clear answer to that is yes.
▶ 1:40:58more oversight from this committee and the members are essential to programs operating within the parameters that are set by the law and by Congress. Thank you, Mr. Walls. Uh, absolutely. I mean, the LPO has or or at least as of January was u issuing annual reports and monthly activity reports. Puts a lot of data out on its website, but I think you know more transparency the better.
▶ 1:41:25Uh how much how much peer review do you think occurs in this process? I mean you said it's on the website. Uh how much how much are other scientists uh monitoring that or giving feedback or input or well um in terms of the financing decisions there are mult multiple points of what you might consider sort of peer or external review. Um, every one of these loans is separately reviewed by the office of management and budget budget by the department of treasury.
▶ 1:41:54Uh, there is uh a risk management division within LPO that's separate from the deal teams that looks at each deal and then there's a credit review board which is composed of senior leaders from the department um from places outside of LPO who all look at and scrutinize uh each loan or loan guarantee that goes through the process. Mr. Hood, how's your experience been with the Southern? It's a very rigorous review process.
▶ 1:42:19Um, and to some extent, rightfully so, uh, the loan program office needs to ensure that the projects are eligible under the statutes. I do believe that for investment grade counterparties like Southern Company that pay our debt, uh, there should be a little bit more streamlined process.
▶ 1:42:38Uh, we're rated by each of the rating agencies and probably a little less, um, uh uh investigate so investigation needs to be uh to take place. So then one final question. Um you know I am really pleased that we have the national laboratories. They do a lot of the basic research that I think stimulates the the economy, stimulates investment.
▶ 1:43:08So I would just ask your perspective on the national labs and how they interact with with the LPOS and having the information necessary to make the kind of decisions to make loans. So they certainly could be a resource that would should can and should be utilized. U beyond that I don't have comments.
▶ 1:43:30Uh yeah well well they are I mean they're they are utilized and that's one of the great benefits of this program right if you if you want to build a new advanced nuclear uh facility in the United States you have world-class experts from Idaho National Lab from Oakidge and other places that are there um available to um LPO to uh to kind of think through its decision- making to think through um technology risks and how to mitigate
▶ 1:44:03Mr. Hag, I I don't really have anything to add. Thank you. Well, I thank all of you. I appreciate your information and I yield back. Yields back. Chair now recognize Representative Riley from New York for five minutes. Uh, thank you, Mr. Chairman. Dr. Yon, I'm going to continue on the conversation we were having earlier. Think after our exchange I I heard you say I counted three times that additional research was needed with respect to various uh parts of the program. Was that correct? Probably.
▶ 1:44:31Um is one of the areas that you think additional research is needed uh with respect to whether uh title 17 programs are meeting their objectives with respect to economic growth that requires additional research. Correct. I think additional research would be valuable in that area because we can't at this point draw definitive conclusions about it. Correct. At no point in a policy process can you do draw final definitive. And so if the program is to continue, additional research is always valuable. Right.
▶ 1:44:57And and you haven't uh conducted yourself any independent study of the relationship between section 1703 and economic growth. Correct. That is correct. Um you don't dispute that LPO's created about 50,000 permanent jobs across the country. Correct. I have no reason to dispute that at this time. Right. And you have no reason to dispute that it's also created tens of thousands of additional temporary jobs particularly in construction. Correct. I have no information that would suggest that's inaccurate. Okay.
▶ 1:45:22So when you wrote in your testimony and then told us today quote since the since its creation the title 17 loan guarantee program has largely failed to meet its objectives of promoting economic growth. You actually don't know one way or the other whether that's the case. Correct.
▶ 1:45:38I think there were largecale and very broad suggestions that it would do incredible things and I don't think it's delivered that level based on just your thoughts and your feelings about it based on the analysis of the available evidence which is inaccurate inadequate and needs more research done. Okay. So so it would have been more accurate for you to have testified to this committee that since its creation the title 17 loan guarantee program may may be failing to uh meet its objectives on economic growth but more research is needed. I I don't agree with that characterization.
▶ 1:46:07So you stand by your testimony as a definitive conclusion that the title 17 loan guarantee program has largely failed to meet its objectives of promoting economic growth. I stand by that being my interpretation of the available data. And what available data is this exactly? Because in that very definitive and conclusive statement that you offered to this committee. You didn't provide any citation to any research whatsoever. We we've gone through this before, Mr. Riley. I have nothing additional to add. It's still unclear to me if you can name one study. Name one. We have two minutes.
▶ 1:46:37You can think about it. Can you name one study that shows that quote the Title 17 loan guarantee program has largely failed to meet its objectives of promoting economic growth? You you've asked this question multiple times. I haven't gotten an answer to it. I have no additional information to provide you. Do you have can you site one study that supports that proposition? I do not. You can't. Um how about with respect to uh improving the environment?
▶ 1:47:02Uh do you think additional research is needed uh to determine whether title 17 has been successful for improving the environment? I do I do not I believe additional research is always is always valuable. I don't think it's needed to indicate that there have not been substantial environmental effects of these programs. Your testimony is so sorry I'm having a hard time understanding what your testimony is. Are you saying that the Title 17 loan program has failed to meet its objectives of improving the environment? Yes. You're saying and based on what?
▶ 1:47:33Based on research I've done throughout the the green energy sector and the policies that have been implemented. I'm not talking about the green energy sector generally. I'm talking about what we're talking about this hearing, what you wrote in your testimony. Title 17. Have you conducted any study to determine whether Title 17 loan guarantee program has met its objectives with respect to improving the environment? Have you conducted any of those studies? Yes or no? Not conducted a specific conduct.
▶ 1:47:59conducted a general one of the of of general programs that include these that include section 1703. What's that study? That study was published in Nature Unbound. It was about at the midpoint of the current use of the program and that and what year was that? That was in 2015. 2015. So over 10 years ago uh in the last 10 years then and did that pro did that study specifically look at section 1703? It was those were included as part of the programs operated by DOE. What did you find in your what did you find in your study with respect?
▶ 1:48:30Let me finish my question, please. What did you find in your study with respect to the connection between section 1703 loan programs and environmental impacts? That there was not an indication that there was substantive effects of any particular loan in changing the environmental outcomes. Okay. Um would you please provide that to the committee and very specifically your basis for your testimony that the Title 17 loan guarantee program has largely failed to meet its objectives of improving the environment?
▶ 1:48:57I'd like to see exactly what you're relying on for that statement because you don't deny, do you, that the section 17 program has uh displaced over 80 million tons of CO2. Do you deny that? I I do not have any basis on which to make a determination if that's accurate in front of me. Okay. and you're going to be saved by the bell here in a second, but I'll look forward to um I'll submit some additional questions uh uh for the record. Thank you. Gentlemen's time is expired. I want to thank the witnesses for your valuable testimony today and the members for their questions.
▶ 1:49:24Uh the record will remain open for 10 days for additional comments and written questions from the members. This hearing is adjourned.