Bain Efficiency vs. Obama Cronyism
President Obama has attacked Bain Capital, co-founded by Mitt Romney, on the grounds that the venture capital firm represents all that's wrong with modern capitalism: a private sector harnessed to making efficiency and profits paramount.
The president's alternative view of how the economy should operate is that government subsidizes the production of expensive services, such as solar power or generous health insurance, and then mandates their use. Producers have a ready-made market, and consumers pay the high price. Other firms lose business, since households have less disposable income to spend.
This was on display at a May 16 hearing by a Republican-controlled House Government Reform and Oversight subcommittee, which threw a spotlight on discussions at the highest levels of the White House to approve government-backed energy loan guarantees for BrightSource Energy, a politically connected corporation whose chairman, John Bryson, became Obama's Secretary of Commerce last October.
In the nadir of the subcommittee's tale, the hearing disclosed that Peter Darbee, CEO of Pacific Gas & Electric, had personally spoken to Obama on BrightSource's behalf in 2010, because PG&E needed solar power to meet California's growing requirements for renewable energy in electricity production.
The hearing also revealed that the Energy Department official responsible for issuing loan guarantees, Jonathan Silver, was asked in March 2011 by BrightSource's CEO to edit a draft email from Bryson to then-White House chief of staff William Daley requesting help in getting the loan guarantee.
Whether Silver complied is as yet unknown. Was he working for the government, one wonders, or BrightSource?
A little background: The authority for the Energy Department to issue loan guarantees for clean energy technologies came from the Energy Policy Act of 2005, signed into law by President George W. Bush. It was expanded in 2007 (Bush) and 2009 (Obama). The first loan guarantee, to the now-bankrupt solar panel company Solyndra, was made in September 2009, after pressure from the White House and the Energy Department, with the urgency of the loan approval documented in a series of emails.
The witnesses at the hearing included a group of CEOs whose companies, BrightSource Energy, First Solar, and Nevada Geothermal Power, had received loans through the program. They defended the program. A fifth CEO, James Nelson, testified that the program was a waste of taxpayer funds and that his company, Solar3D, was profitable without government assistance.
John M. Woolard, president and CEO of BrightSource Energy, testified that his company's $1.6 billion loan guarantee "was awarded completely on the merits of the project."
Nevertheless, the history bristles with signs of political favoritism. The subcommittee chairman, Representative Jim Jordan (R-Ohio), produced an email from Woolard to Matt Rogers, a senior advisor to the Secretary of Energy, dated January 4, 2010, stating that Peter Darbee, CEO of Pacific Gas & Electric, had himself spoken to President Obama.
According to the email, "Darbee at PG&E talked directly to Obama about the program's challenges and the bad situation it puts him in." By "bad situation," Darbee meant that his company would be required by California law to produce 20 percent of its electricity from renewables such as wind and solar by 2017 (later raised to 33 percent by 2020), and that more solar plants are needed to comply with the law.
In addition, according to the email, private equity and investment banks were writing to Energy Secretary Steven Chu in support of the application.
Alluding to such financial sector support, Woolard wrote to Rogers: "Please don't distribute this, but I thought you might want to know there is a large group in NYC focused on this transaction and DOE ability to execute. Things are not good and there is a sizeable group of private equity and investment banks writing a letter to Chu about the status of the program and the inability to get loans through-can you suggest a good time to talk?"
Coincidentally or not, a month later, on February 22, 2010, Secretary Chu announced conditional loan guarantees of $1.37 billion for BrightSolar to build three utility-scale solar power plants on federal land in the Mojave Desert, to be the largest solar power electricity generating complex in the world.
Secretary Chu said, "This is an investment in American jobs and the clean, renewable energy our economy needs." He continued, "We're not going to sit on the sidelines while other countries capture the jobs of the future - we're committed to becoming the global leader in the clean energy economy."
Unfortunately, conditional loan guarantees are not the same as a loan. Over a year later, in March 2011, BrightSource still had no loan. Woolard sent an email to Silver, a political appointee who was executive director of the loan guarantee program at the Energy Department, to see if he could help.
Specifically, Woolard wanted Silver to review a draft email that John Bryson, then-chairman of the board of BrightSolar, now Secretary of Commerce, was planning to send to William Daley, then-chief of staff to Obama. "Either email or call when you can with suggestions," Woolard wrote.
The email stated, "The Whitehouse (sic) needs to focus on finalizing the loan guarantee for what would be the largest solar thermal project in the world. BrightSource Energy's Ivanpah project was conditionally approved by DOE more than one year ago and is in the very final stages of being formally completed...We need a commitment from the WH to quarterback loan closure between OMB and DOE by March18."
Although the email was never sent to Daley, Chairman Jordan said to Woolard, "You're asking the guy who's in charge of making the final decision to proofread an email that your chairman is going to send to the White House chief of staff. And you say there's no political involvement."
In another apparent coincidence (or not), the loan received final approval on April 11, 2011, about a month after Jonathan Silver viewed the proofreading request. The draft email to Daley had served its purpose without being sent.
BrightSource had made sure that the Energy Department knew it was well-connected at the White House. After all, if a political appointee knows that the White House chief of staff is concerned about a loan in his portfolio, he will quickly deal with it.
Cronyism worked, but BrightSource's gain will be California households' losses. Pacific Gas & Electric has committed to buying all the power from BrightSource, no matter how much it costs, in order to fulfill California's requirement, signed into law by Governor Jerry Brown in April 2011, that 33 percent of electricity be generated by renewables by 2020. This is a winner for BrightSource, and a loser for Californians, who must pay higher electricity costs.
There is a larger lesson here, about government use of industrial policy. Back in 2005, when loan guarantees were first signed into law by President Bush, no one knew that in a few years advances in technology would make 200 years of cheap natural gas available. Of course, assuming even the opposite whereby natural gas prices had soared, the subsidies embraced by Republicans were reprehensible.
But with the low price of natural gas today, so low that some companies have stopped drilling, any possible rationale for expensive solar technology has vanished - if possible - even more. Indeed, innovators have achieved low-cost energy on the cheap, without government subsidies. The federal loan guarantee program should be repealed, along with federal and state renewable energy mandates.
While Obama attacks Romney for setting up a successful company which prospered based on its merits, the president's ideal is a company that is completely dependent on government mandates and subsidies. Using political connections to get government subsidies for expensive technology and requiring consumers to buy high-cost energy is the antithesis of the traditional capitalism practiced by Bain and Romney, of which Obama disapproves. And consumers are paying the price.
