Applicants in high-stakes loan guarantee competition turn to lobbyists

Department of Energy loan guarantee programs created to nurture innovative power projects have birthed a boon for lobbyists, with many of the companies that are seeking the federal money hiring well-connected advocates to shepherd loan applications.

At least 47 companies since 2008 have hired lobbyists to help access the $50 billion DOE loan programs. Other companies vying for the loan funding are working with lobbyists they've had on the payroll for many years.

Because the Energy Department won't release the names of more than 175 loan program applicants, it's difficult to know precisely what proportion are working with lobbyists.

But paying a lobbyist, at least for a few, appears to bring some value. Of the six companies that have won loans or loan guarantees since the beginning of the year, five have lobbyists.

"If people know there's a trough of potential money for research and development, obviously, they employ people who have access to key decision-makers in the administration and Congress," said Charles Ebinger, director of the Energy Security Initiative at Brookings Institution, a Washington, D.C., think tank.


"It's the way Washington works," Ebinger added. "Unless you're a specialist, you might have a great project, but you'll never get heard by someone who's a key decision-maker."

DOE plans to issue more loan guarantees this fall, and the tie-in of lobbyists may become clearer at that point. In the meantime, interest in the program is keen. So far, there are 15 applications for loans in the $18.5 billion nuclear energy loan program, 60 submissions in the $6 billion renewable energy program and more than 100 applications in the $25 billion advanced vehicle technology program, DOE said.

"I have a fairly long list of clients that have great interest in it," said Matt Maloney, head of the clean-tech practice at Silicon Valley Bank in Santa Clara, Calif., which primarily works with entrepreneurial technology and life science companies. "Many have made applications. Quite a few would like to."

Energy Secretary Steven Chu, who has said he wants his department to act as an engine for innovation, has pledged to recharge and streamline the loan guarantee program. But those efforts are set against a backdrop of failures in earlier administrations.

Presidents in recent years, analysts said, have failed to structure loan efforts as part of a comprehensive energy program, instead making choices driven by ideology. The most spectacular failure, Ebinger said, came in the Ford administration with the creation of the Synthetic Fuels Corp., an effort to convert coal and shale to liquid.

"We spent $100 billion, and it went down a rathole," Ebinger said.

Chu and President Obama believe they have the chance to ignite a new energy economy. But there's tremendous pressure to pick the right projects and avoid accusations that they've wasted taxpayer dollars.

DOE, meanwhile, discounted the role of lobbyists in the high-stakes competition.

"All of the loan guarantee applications go through an objective review process based on the merits," said DOE spokeswoman Stephanie Mueller. "All applications must demonstrate financial stability and technological viability. We're working to make the process transparent and expeditious, supporting worthy projects that will put Americans to work in the clean energy economy."

'We needed to get noticed'

The DOE loan guarantee program was first authorized in 2005, but no guarantees were offered until this year. Beginning in March, DOE agreed to issue guarantees to California-based solar panel maker Solyndra; California-based Nordic Windpower USA; Massachusetts-based Beacon Power, a power storage developer. In addition, Ford Motor Co., Nissan North America and Tesla Motors Inc. will receive loans for work on more fuel-efficient vehicles. That money comes under DOE's separate advanced vehicle technology program created in 2007.

That flurry of loan activity attracted attention from startup companies and well-established businesses, as well as banks that want to partner in the loans and have a say in how the funding rules are written.

Lobbyists say their work with loan guarantee applicants is less about securing access and more about helping companies tailor their paperwork in a way that shows a project meets the Obama administration's goals.

It's the narrative that counts, said Steve McBee, founder and CEO of McBee Strategic, which represents companies with energy interests, including two of the companies that have received loan guarantees: Tesla Motors and Solyndra.

Applicants must ask, "How does this solicitation for capital meet policy objectives related to climate change and energy independence," such as lowering greenhouse gas emissions, creating jobs, driving economic development and spurring investment in new energy technologies, explained McBee.

Lobbyists, McBee said, understand "where the decision-makers are trying to go" and know how to tell a company's story "in a way that helps the decision-maker understand how [the project] will help advance those policy goals."

"There's the criteria and really getting behind the criteria, and trying to understand what's driving the decision-maker," McBee said.

Lobbyists also help with congressional access, however. They secure introductions to lawmakers or their aides, giving the companies a chance to explain their technology -- and in many cases, win a letter of support from lawmakers.

John Rogers Jr., who applied for a loan for his Massachusetts-based company, Local Motors, worked with a lobbyist and obtained a letter of support from Sens. Edward Kennedy and John Kerry and Rep. Barney Frank, all Democrats from Massachusetts.

"Local Motors has developed a truly innovative approach to car manufacturing that has the potential to create new jobs, reduce environmental damage and revitalize economically depressed areas," Kennedy, Kerry and Frank wrote in the letter to the director of the advanced vehicles technology loan program. The letter ends with "we strongly urge you to give the application by Local Motors your utmost consideration."

Rogers, who aims to open small "microfactories" and make more fuel-efficient cars specifically tailored to different regions, said he hired lobbying firm Nelson Mullins Riley & Scarborough because, "We needed to get noticed."

"When you open up the kitty saying we're going to loan money, everybody and their mother comes rushing through the door," Rogers said. Congressional offices are so busy, he said, "there was definitely the opportunity to get lost in the process. We wanted to make sure that our voice was heard."

"You can have elected politicians talk to DOE and ask them where you are," Rogers said. As an individual, he said, "You cannot do that."

Other companies with lobbyists also secured letters.

In April, seven members of Iowa's congressional delegation wrote a letter to Chu encouraging him to consider a $300 million loan guarantee for Clipper Windpower Inc., another client of McBee Strategic.

"The Department has recognized Clipper as having the 'most advanced and efficient wind turbine in the industry,' the 2.5 [megawatt] Liberty wind turbine," reads the letter from Reps. Dave Loebsack (D), Tom Latham (R), Leonard Boswell (D), Steve King (R), Bruce Braley (D) and Sens. Tom Harkin (D) and Chuck Grassley (R), all of Iowa.

The letter concludes: "Further development and commercialization of Clipper's Liberty wind turbine will provide benefits nationwide and help meet the Department of Energy's goal of generating 20 percent of U.S. electricity by wind by the year 2030. We respectfully urge you to fully and carefully consider Clipper's application without delay, keeping in mind the critical national importance of developing wind energy."

Lobbyist McBee acknowledged that "it's important to be able to show that you have the support of your congressional delegation." For lobbyists, he said, "performing that part of it, that's basic blocking and tackling."

But he downplayed it as a major factor.

"This is an environment where ideas really matter, where the science really matters," McBee said. As well, "having political support matters. But in the end, nothing matters more than the merits of the technology and the quality of the application."

None the less, he said companies that attempt the loan applications without help are "likely to fail or take on so much opportunity costs" that it wouldn't make economic sense.

The loan applications are highly technical, McBee said, and complying with that part is essential. His firm contracts with another company to help clients fill out the paperwork properly. In many ways, McBee said, it's more like a Securities and Exchange Commission financial filing than a grant application.

"It's rigorous," McBee said. "It requires a lot of detail."

"The lobbying function is by far the least important part," McBee added.

Rogers, head of Local Motors, agreed that the process is arduous. He graduated from Princeton and has a chartered financial analyst degree from Harvard, but sought help with the application beyond the lobbying aspect.

"It ended up for us being a five-month project," with a final submission that was 450 pages and cost more than $80,000, "which for a small business is just an enormous time suck and money suck," Rogers said. "If you can't spare that, you're just out of luck."

The difficulty of the application process might not be inappropriate, McBee said.

"It's taxpayer money in an emerging market that's full of risk," McBee said. "There's going to be an inevitable tension between making the process move at a pace that's required for industry and making sure to set the bar high enough" that the projects chosen are economically viable and meet the administration's policy goals.

Program is 'the only viable financier'

Companies seeking the loans aren't the only ones hiring lobbyists to work on the issue. Silicon Valley Bank also sought lobbying help from DLA Piper US LLP.

Silicon Valley Bank wanted to influence the regulations DOE is crafting on the guarantees, particularly which lender will have the right to assets of a company if it defaults on a loan. Under the preliminary rules, said Maloney with Silicon Valley Bank, the federal government would get all of the defaulting company's assets, even if a bank contributed a portion of the loan.

In the past few weeks, DOE issued a proposed modification to its language, Maloney said. The new language would split the assets of the defaulting company between the federal government and a bank, based on the percentage each contributed to the loan.

"The good news is they heard and are listening and are trying to do something about it," Maloney said.

Silicon Valley Bank would like to be involved in issuing loans, which it sees as vital right now to helping entrepreneurs move forward.

The loan program's popularity is driven in large part by the lack of other available research and development funding, according to companies, lobbyists and analysts.

"If you just sort of look at funding opportunities in the economy, the economy is still very fragile," said Stephen Brown, non-resident fellow at Resources for the Future, a nonprofit that researches environmental and economic issues. "I don't think there are a lot of private-sector investors who are willing to step up to the plate. If you have loan guarantee coming from the federal government, that's very attractive."

Obtaining financing for the first project using a new technology is particularly challenging, said lobbyist McBee.

"Nobody wants to fund the first one or the second one," McBee said. Proving commercial viability is expensive. In this economy, he said, "project finance guys with deep enough pockets aren't funding early-stage projects."

"The only viable financier that can step in and make that happen is the federal government," McBee added.

The loan guarantee program is essential, McBee argues, if developers are going to create technologies that can mitigate carbon emissions and meet proposed requirements that utilities generate a portion of their power from renewable sources. Otherwise, he said, "the mandates are useless."

"The loan guarantee program is the most important thing the Department of Energy could do right now," McBee said. "If you don't have the technology that can help you meet the policy goals, the policy goals aren't worth the paper they're written on."

'Picking the technologies'

There's disagreement about how effective the loan guarantees can be.

Ebinger with Brookings Institution is skeptical, and believes "it's time for the wind and the solar industries to be able to step up to the table and compete in the marketplace" with their own funding. "You've simply got to ask at this point, how long do we want to subsidize these new technologies?" he said.

He believes more money should be put toward a smart grid, so that wind, solar and other renewable power can be transmitted. Ebinger also said more money should be put toward technologies to remove and sequester carbon from coal. The Energy Department yesterday announced $27.6 million in funding for projects to monitor and evaluate geologic storage of carbon dioxide.

Brown with Resources for the Future believes the program has great potential, and doubts mistakes will be made similar to those seen, for example, with Synthetic Fuels Corp.

"The government was trying to pick winners" in the '70s, Brown said. "What we're seeing with the loan guarantees is the investor is picking the technologies."

"The purpose of this program is a little different," Brown added. "It's to encourage people to go beyond the current set of technologies to new technologies, and to make a new set of investments to do that."

Senior reporter Ben Geman contributed.

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