Green Energy's Mr. Fixit

Green
Energy's Mr. Fixit

The following is believed to be an acceptance letter from
Herbert M. Allison, a former chief financial officer of Merrill Lynch, chosen
by the White House to advise on the Department of Energy's "green"
loan program. He was recruited after the collapse of Solyndra, a solar company
that received $535 million in federal loan guarantees.

Dear Mr. President:

Thank you for placing your confidence in a non-Goldman
alum. Your chief of staff, citing my long career in business, said I was hired
because I'm "tough" and "always tell it like it is." This
is most flattering. I fully understand that these words are used in the
Washington sense.

Per discussions with your staff, I understand my mission
will be to ensure that, in the future, the "i's" are properly dotted
and "t's" properly crossed, that the highly effective habits of
highly effective managers are highly effectively employed, and that best
practices are practiced in the best practical way in the DOE loan program.

It won't be my job to question whether the policy itself
is stupid overly zealous.

I see, for instance, that four loans have been approved
to build solar power plants in California. DOE maintains these loans are
low-risk for taxpayers because contracts already are in place to sell the power
to local utilities. In April, Gov. Brown signed a law requiring California
utilities to get 33% of their power from "renewables" by 2020.

I will refrain from noting that California remains a
democracy and Gov. Brown and his policies may not be popular by the time the
plants are built. Voters may decide not to allow their electricity rates to be
increased by 50% to secure DOE's loans.

I also see that 15 electric vehicle models are expected
by 2014, with potential production four times greater than J.D. Power's
estimate of consumer demand, even assuming continuation of today's
$7,500-per-buyer tax credit.

The latest data also indicate that the average Chevy Volt
buyer has an annual income of $175,000. I will not examine the political
viability of an industry premised on taxing average Americans to subsidize cars
for wealthy Americans.

I also understand that the long-term economic viability
of the electric-car business depends on the adoption of unpopular policies that
neither you nor your predecessors nor any other candidate for federal office
has been willing to endorse, such as higher gasoline prices.

However, my focus will be on making sure the right forms
are filled out in the right order by the DOE's loan portfolio monitors.

As you know, I was previously hired to run Fannie Mae
after it went bust. It will not be among my duties to draw attention to
similarities between Fannie Mae and DOE's energy loan program.

I will also refrain from contradicting a meme by one of
your administration's supporters in the media, who claims a solar-based
"energy transformation" is at hand due to the operation of
"Moore's Law."

Solar-panel prices have come down sharply, it's true, but
the reason is not big efficiency gains. Under Moore's Law, computer chips
doubled their capacity every 18 months. It took 25 years for commercial solar
panels to double their efficiency to today's 10% or so, and no "transformations"
appear to be in the offing. Solyndra went bankrupt because its panels, with 12%
efficiency, couldn't be delivered at a competitive price.

The solar-panel price collapse has two causes: Chinese
overproduction and decisions by governments around the world that it no longer
is politically feasible to subsidize the industry. Listen to the words of
Chairman Michael Ahearn of First Solar Inc. on a conference call last week:
"Declining subsidy pool . . . Shrinking subsidy programs . . . European
countries reducing their subsidies . . . No significant new state-level solar
programs . . . Moving downward in terms of subsidies . . . A much lower subsidy
level . . . Solar industries feeding mostly off of legacy subsidies in
California."

My focus, however, will be on procedures, not on the
wisdom of taxpayer money being used to create a solar industry addicted to
subsidies and unable to survive without them, in a world where strapped
governments can't meet basic commitments to citizens.

Once again, thank you for the faith you have placed in
me. At Merrill, our rule was to invest in businesses that could sell their
products to willing consumers at prices greater than the cost of producing
them. A different approach has been adopted by DOE. I respect this difference.

In sum, if forms that should have been filled out in
triplicate were, wastefully, filled out in quadruplicate, or alternatively,
filled out malfeasantly in duplicate, I will leave no stone unturned to
identify the culprits.

I will not point out that Americans are made poorer by
all this, or that many of the beneficiaries of solar subsidies are large
campaign donors, or that the biggest danger now is political pressure for more
subsidies to cover up the failure of those already offered.

Pointing this out is not my job. It's the job of the
super committee.

Respectfully,

Herbert M. Allison Jr.

Credit: By Holman W. Jenkins, Jr.