Ed Markey

Congressman Ed Markey (D-MA), the ranking Democratic member on the House Committee on Natural Resources, along with Rush Holt (D-NJ), yesterday made a formal request to the U.S. Government Accountability Office (GAO) to examine US federal subsidies systematically across fuel sources.  The request effectively broadens a research request submitted to GAO in October by Republican Reps. Fred Upton, Ed Whitfield, Tim Murphy and Mike Pompeo that was overly narrow in scope and would have resulted in inaccurate and misleading data.

Because different fuels receive their most important subsidies via different policy instruments, research mandates narrowly focused on one or two of the subsidy methods (often tax breaks and grants) will inherently produce inaccurate results.  For example, fossil energy heavily benefits from below-market access to fuels on federal lands, and from market interventions to address supply stability.  Fossil fuels also benefit disproportionately from special tax-exempt corporate structures such as Master Limited Partnerships.  Nuclear power receives few tax breaks, but is heavily subsidized through a variety of risk transfer mechanisms related to plant finance, accident risk, and long-tail operating risks such as managing nuclear waste. 

Narrow casting research on subsidies not only skews energy policy decisions, but can also greatly understate the fiscal benefits from subsidy reform.  This would be an unfortunate outcome given the efforts now underway to address very serious fiscal imbalances in the federal budget.

In addition to the problems with the Upton research scope, Markey and Holt hope to avoid a repeat of the politicized subsidy research mandates given to the Energy Information Administration in both 2007 and 2010.  The result was a dramatic undercount of federal support levels, as well as unreliable relative support estimates across fuels.  Senator Lamar Alexander, a long-time booster for nuclear energy and ridiculer of wind carefully crafted the 2007 research terms, which were adopted by others nearly verbatim in 2010. 

Clearly, every Member of Congress is free to hold his or her own opinions on all sorts of issues, and these opinions often widely diverge.  However, ensuring that key statistical and oversight agencies of the federal government -- such as EIA and GAO -- have the full independence to conduct unbiased research is a prerequisite for a functioning government.  This is something that I hope both parties would strongly support. 

Natural gas fracking well in Louisiana

Congressman Ed Markey (D-MA) sent an interesting letter to Fred Upton (R-MI) late last week.  The correspondence outlined some of the history of the Title 17 loan guarantee program and the nuclear industry's push to make it their own.  It also included examples of the role the Nuclear Energy Institute played to weaken federal recourse in a loan default, and the pressure it brought to bear to expedite loans to its members.  These are indeed crass examples of political lobbying that put billions (and potentially tens of billions) of dollars of taxapayer money at risk. 

However, the most troubling element of this event to me was the political intervention with OMB's traditional role in financial oversight of federal programs by then-Senator Pete Dominici.  This is from Markey's letter:

Additionally, at the July 26, 2007 Senate Budget Committee hearing on the nomination of Congressman Jim Nussle to be the Director of the White House Office of Management and Budget (OMB), then-Senator Peter Domenici raised the pace and problems associated with DOE's implementation of the loan guarantee program:

"But OMB has been dragging their feet and I do not know which cabinet members have been involved.  I surmise as of now the Secretary of Treasury is himself involved.  But I can tell you, Mr. Nussle, that this is one of the most important provisions of the Energy Act.  It should have already been done and it should have had $25 billion to $30 billion in the loan guarantee fund.  It is still not ready and the recommended amount by OMB is $9 billion.  That will not fly...It seems to me all the work that has been done, you have got about 48 hours, to sit down and get this fixed."

On August 2, 2007, Senator Domenici lifted his hold on Mr. Nussle's nomination and voted to confirm him after receiving "a commitment from the Office of Management and Budget to fulfill the vision of Congress with regard to the Department of Energy loan guarantee program."

As I noted in my earlier blog post on Solyndra, this default is not just about subsidies to one industry or another.  It is about what role governments should play in the marketplace; and whether we are able to set up governmental structures that align the incentives of parties properly, and that both establish and retain appropriate checks and balances to reduce the risk of corruption and taxpayer loss. 

Domenici has always felt passionate about nuclear power in this country.  Yet even if we grant him that his promotion of nuclear has been rooted only in his belief of what was good for the country, his actions are inexcusable.  Undermining the program structure for something he likes creates flaws that quickly spread more widely to all sorts of programs, bleeding the country in the process.  Will the appointment of competent fiscal management for OMB now rest upon the whims of key Congressional members pushing for OMB to reinterpret financial reviews in their favor?  What other tests for how many other positions will crop up in its wake?  Parochial interests can very quickly corrode the basic structures we need to govern effectively if they are allowed to run unchecked.

In the Solyndra bankruptcy, Congressman Upton has been given an opportunity to put the loan guarantee program overall under scrutiny that was not possible back in 2007.  There are records of decisions, a number of commitments, and a broader context of financial failure and recession against which to judge the initiative.  Because I know the Congressman cares about the country, he would do us all a service to ensure his review looks not only at Solyndra, but at the way the other deals were struck as well.  That includes the the $10.3 billion in nuclear deals that Congressman Markey has asked be reviewed, and of course the next largest single commitment as well -- $5.9 billion to Ford Motor Company

Under the terms of Title 17, many of the borrowers must pay advance funds to cover their "credit subsidy."  This has been roughly estimated as the probability of default times the net losses to the feds (after any recoveries in bankruptcy) should one occur.  The industry has consistently pushed for lower credit subsidies, arguing that not only did their deal have a low risk of default, but even if it did default, taxpayer recoveries in bankruptcy would be high.  The Solyndra bankruptcy provides a real-world case study to put test these claims.  Congressman Upton's review of Solyndra should look very carefully at how high those recovery rates really are.  Will they be 50% of the investment?  25%?  Close to zero?  This will provide quite important information by which we can judge credit subsidy estimates in any future deals.