2013: Veils of Secrecy as More ‘Green’ Taxpayer Money Disappears

Money down the drainLast year at this time NLPC reviewed 2012 as “The Year of Taxpayer ‘Green’ Waste,” and that description applied to 2013 as well. But additional trends of government opaqueness and inattention to safety and security – often related to stimulus-funded programs and their corporate beneficiaries – were also revealed.

EPA, Dept. of Energy Secretive About Communications

As President Obama began his second term, watchdogs of the administration’s environmental (EPA, Dept. of Interior) and energy (Department of Energy) cabinet spaces discovered that officials maintained secret email accounts to conduct government business out of public view. Chris Horner of the Competitive Enterprise Institute uncovered a fake identity maintained by EPA Administrator Lisa Jackson while researching his book The Liberal War on Transparency. The effort to access her messages and those of other officials has been protracted.

EPA began producing records in January from Jackson’s “Richard Windsor” email account that had a lot of text obliterated with black marker – so much that Horner called it a “defective compilation (that) boasts an impressively anemic content-to-volume ratio.” Even the name “Windsor” was redacted from the messages.

“I don’t know any other agency that does this,” said Anne Weismann, chief counsel of the watchdog group Citizens for Responsibility and Ethics in Washington, to Politico. “Why would you pick a fictitious name of someone of different gender? To me it smacks of…trying to hide.”

It did, and the scrutiny and Freedom of Information Act requests got to the point where Jackson – even though she had left EPA and was working for Apple, Inc. – in August hired a lawyer as new details of her use of private email accounts to conduct official government business were revealed. She underwent intense scrutiny in a September hearing before the House Committee on Oversight and Government Reform, and tried to make the case that it was perfectly normal to direct officials that she regulates to communicate with her via a difficult-to-detect independent email account.

The same hearing featured testimony from Jonathan Silver, former director of the Department of Energy’s Loan Program Office. He came under fire – especially from Committee Republican Jim Jordan of Ohio – about his directives to subordinates to keep messages out of the public eye. The Congressman confronted Silver, who came to the loan program from the venture capital realm, with an email he sent in August 2011 from his personal account to a few staff members.

“Don’t ever send an email on doe email with private addresses,” Silver wrote to a DOE colleague’s Gmail account. “That makes them subpoenable (sic) (i.e., subject to subpoena).”

Silver’s explanations about his desire for secrecy were equal in flimsiness to his justifications for funding failed loan program recipients such as Fisker Automotive and Solyndra.

“Not every investment will be successful, but the vast majority have been,” Silver testified.

“The taxpayer got the shaft all the way around in this program,” Jordan said.

Inspector General scrutiny

It wasn’t only Republicans who were critical of the way DOE handled its business – the agency’s Inspector General, Gregory Friedman, was exasperated to learn that DOE withheld information as his staff conducted an audit earlier this year of electric vehicle charging company Ecotality. It forced the IG to issue a second report that slammed DOE for its concealment of facts.

“Information that raised questions about Ecotality’s ability to meet its project goals, including completing planned EV charger installations and the collection of EV usage data, was not provided even though the data had a readily apparent connection to our in-process audit,” the IG reported in November.

There were many other examples of Friedman’s office finding fault with how DOE managed projects and oversaw funding recipients. In the original Ecotality audit – which still found plenty of problems despite missing information – the IG discovered that the $135 million EV Project administered by Ecotality largely squandered funds on electric auto owners for things like Internet service and home chargers in order to get them to participate in the program. The intent was to gather data on how the chargers were used by EV owners, but weaker than expected demand for electric cars meant there was a diminished need for chargers, so fewer were deployed in the identified markets. As a result the chargers were underused and data collection was weaker than expected, thus making the entire project a waste of time and money.

Friedman has investigated other DOE stimulus recipients, including electric vehicle battery maker LG Chem, which received a $151 million grant but had little for its employees to do. Reports in 2012 told of workers on the clock playing Texas Hold ‘Em and video games, doing Sudoku and crossword puzzles, and volunteering at nonprofits like Habitat for Humanity – all of which Friedman confirmed in a February 2013 audit. He reported that DOE “did not always take sufficient action to ensure adequate oversight of project progress” and said monitoring was so poor that – despite the obvious evidence in early 2012 of LG Chem employee furloughs, construction delays and cost overruns – no red flags were raised at DOE.

“Our review revealed that LG Chem Michigan inappropriately claimed and was reimbursed for labor charges incurred…for activities that did not benefit the project…,” the IG’s report said. “We were unable to calculate the exact loss to the government because LG Chem Michigan did not track labor activities in detail.”

The IG’s discoveries at DOE extended beyond fun and games on the taxpayer dime – in an April report Friedman revealed that mismanagement and unprofessionalism under previous Secretary Steven Chu led to compromises in security. In a review of the department’s Office of Special Operations, which is tasked with the protection of the Secretary and other top officials within the branch, the IG uncovered a situation among staff in which there was mistrust, unwillingness to work together, irreconcilable differences and low morale. He said there were numerous examples of agents who registered complaints about each other, and noted a deep animosity of employees towards one another.

As a consequence, security staff was poorly trained and lacked equipment they needed. Unfortunately the IG’s findings were not a shock, as the waste, fraud and dysfunction were the continuation of a trend under Chu and the Obama administration.

Bankrupt Companies Sold on the Cheap

As the year began, one of the biggest embarrassments (there are so many) for DOE – battery maker A123 Systems – finished its bankruptcy process and the sale of its remaining assets to Chinese-owned Wanxiang America Corp. The sale was controversial, as current and retired elected officials and military leaders, who were concerned about the transfer of U.S.-funded intellectual property and military know-how to businesses closely tied to the Communist regime. A U.S. News & World Report piece by former Reps. Ike Skelton, a Democrat, and Duncan Hunter, a Republican, questioned why a sale of A123’s valuable battery technology to a company owned by one of China’s wealthiest tycoons – Lu Guanqiu, a longtime member of the National People’s Congress – was even a consideration.

“The trade secrets and patents that would be controlled by the Wanxiang Group resulted from a decade of trial and error by some of America’s finest scientists, with much of the work funded by U.S. taxpayers,” the former congressmen wrote. Nevertheless the deal received the needed approval from the Committee on Foreign Investment in the United States.

The electric vehicle company whose official bankruptcy declaration has been anticipated for over a year – Fisker Automotive – shopped themselves in China also, as well as elsewhere in Asia. While national security concerns were not at stake over the technology of Fisker’s $102,000 drivable electric toy for rich people, Republican members of Congress were still not thrilled at the prospect of another company funded by millions of U.S. taxpayer dollars being sold on the cheap to the Chinese.

“Obama’s green energy investments appear to be nothing more than venture capital for eventual Chinese acquisitions…,” said Republican Sen. John Thune of South Dakota. “After stimulus-funded A123 was just acquired by a Chinese-based company, it’s troubling to see that yet another struggling taxpayer-backed company might be purchased under duress by a Chinese company.”

As it turned out, Thune’s concerns were totally unfounded – instead Fisker was sold to a group called Hybrid Technology LLC, led by Richard Li, the son of Hong Kong’s richest man, which is buying the leftovers for $25 million. Bloomberg reported that Fisker listed assets of $500 million and debts of up to $1 billion in its Chapter 11 filing. As the deal was announced at the end of November, DOE said the ultimate loss to U.S. taxpayers would be $139 million. The state of Delaware, which forked out $21 million to Fisker for the purpose of producing vehicles at a former GM plant, won’t see its “investment” recovered either. The fact that a handful of company executives continued to pay themselves well into six-figures all last year, while producing no vehicles, added insult to taxpayers’ injury.

Another electric vehicle company, Smith Electric Vehicles, showed in July that its viability is almost entirely dependent on the continuation of subsidies and giveaways backed by taxpayers. The company backed off of a planned initial public offering, showing little evidence it can inspire demand for its electric commercial trucks. Smith Electric lost $17.5 million in 2009, $30.3 million in 2010, $52.5 million in 2011, and $27.3 million through June 30 of 2012, and the Kansas City Star reported in early September that Smith cut its production expectations and warning it is running low on cash, citing filings with the Securities and Exchange Commission.

In January NLPC associate fellow Mark Modica discovered a CBO report that estimated the cost to taxpayers for federal policies to subsidize the manufacture and purchase of electric vehicles. The outlook was that federal subsidies would cost taxpayers $7.5 billion over the next few years for little or no benefit to total gas consumption or emissions. Last month Modica reported in an analysis that, based upon the $3 billion it cost for taxpayers to subsidize General MotorsChevy Volt, Americans paid $176 per gallon to save the equivalent of 17 million gallons of gasoline. How “sustainable” is that?

Tale of Two Teslas

For the majority of 2013 Tesla Motors – led by celebrity CEO Elon Musk of Paypal and SpaceX fame – saw its popularity and its stock price skyrocket. Shares quadrupled as Wall Street and tech fanboys proclaimed the first success of an electric vehicle business. The California-based phenomenon claimed two consecutive profitable quarters, but only because of revenue generated from the sales of the Golden State’s zero emissions credit program. New Energy Secretary Ernest Moniz announced that DOE would renew its efforts to generate interest in the Loan Program’s Advanced Technology Vehicles Manufacturing program – which the GAO said had a “negative public image” because of all media coverage of its beneficiaries had received – thanks to the Tesla “success.”

Alas, the shine began to wear off in late autumn, thanks to three fires in Tesla Model S’s within a six-week period. Some formerly fawning media and investors have suddenly become skeptical, despite Tesla’s claims that the fires only occurred because the car’s lithium ion battery – which extends along the undercarriage of the Model S – were punctured because they ran over large metallic objects or in the case of one fire, suffered a collision. Nonetheless the National Highway Traffic Safety Administration announced it would investigate Tesla, and correspondingly Tesla’s stock price has declined roughly 25 percent from the peak it experienced in late September.

Another fire, this time in a southern California Model S owner’s garage, occurred last week. While it clearly did not involve the car itself, there is debate between Tesla and local fire authorities about the culpability of the charging system.

Boeing’s Unsolved Battery Fires

Scarier than the electric car battery fires – called “thermal runaway” events – were those that struck Boeing’s new Dreamliner as the year began. The new “green” jet, which was built to satisfy customers’ desires for greater fuel savings, was grounded for months because of unexplained blazes in two Japanese airlines’ 787 models.

As investigations progressed in the first quarter of the year, it was revealed that All Nippon Airways replaced defective lithium ion batteries 10 times, Japan Air Lines replaced “quite a few,” and United Airlines replaced “multiple batteries,” in the months preceding the smoke emergency that grounded their Dreamliners. Boeing had worked on the 787 for 10 years or so, with an ample amount of time to determine what kind of battery technology would be functional with the “super-efficient” jet with “exceptional environmental performance.” Had the Chicago-based manufacturer –and its airline customers – concerned themselves more with achievable plans that built on proven fossil-fuel designs and economic sensibility rather than appeasement of environmental activists, and the accompanying millions of dollars in government subsidies for such, they might not be burning through millions of dollars in costs and lost productivity due to idle airplanes.

Fortunately no one was injured in the incidents. But investigators were ultimately confounded by the cause of the fires, and in an effort to “get the planes flying passengers again,” proposed a remedy that would include “a heavy-duty titanium or steel containment box around the battery cells” and high-pressure tubes to vent dangerous gases outside the fuselage in cases of “thermal runaway,” or fires. So ultimately safety regulators – and Boeing’s engineers – decided it was sufficient to “contain” a fire, not just to prevent one.

“Even if we never know the root cause,” top Boeing engineer Michael Sinnett told reporters, “the enclosure keeps the airplane safe, it eliminates the possibility of fire, it keeps heat out of the airplane, it keeps smoke out of the airplane, and it ensures that no matter what happens to the battery, regardless of root cause, the airplane is safe.

“In some ways it almost doesn’t matter what the root cause was.”

The Federal Aviation Administration green-lighted Boeing to move ahead with the solution in April, and the Dreamliner returned to the skies. But the decision was based on a puzzle that was never solved, and watchdogs like the Air Line Pilots Association – who said fires of any type were “unacceptable” – seem to have accepted it. But compare the decision to that of Boeing’s competitor Airbus, who dumped the lithium ion battery for their competitor to the Dreamliner – the A350. The Paris-based manufacturer announced they would opt for nickel-cadmium battery systems instead, adding the weight equivalent of an adult male passenger.

Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.