Liveblogging: AlwaysOn: Tapping the Trillions

Moderator: Michael Zolandz, Partner, Sonnenschein

Owen Barwell, Deputy CFO, Dept. of Energy; Christine Tezak, Senior Analyst, Energy & Environmental Policy Research, Robert W. Baird & Co; Wes Coulum, Exec. Dir Gov’t Relations, Morgan Stanley.

Owen. Out of our $24-25 billion budget, most of our money doesn’t go to what is reported in the press today. We spend around $9 billion as stewards of nations nuclear stockpile. $6 billion cleaning up from cold war activities. $4-5 billion to run the nation’s science labs. Only after that do we get to spend money on civilian energy activities. Our dept. is really the dept. of nuclear military energy and science. Last year it was clear that both presidential candidates thought energy was important. So we were trying to prepare for changes that were coming. Under the new administration it has been a massive shift. Almost a 180-degree shift in energy policy. The economy has resulted in the Recovery Act. We were endowed with $40 billion in Recovery Act money in addition to our normal $24-25 billion annual budget. Most of the money in the Recovery Act is focused on the energy problems that are in the press today. So our energy efficiency and renewable division normally has a $2 billion budget, but now they have $16 billion that is supposed to be deployed quickly. Our organization that oversees the grid, has a $200 million annual budget, and now they are endowed with $4-5 billion to get us to a smart grid. Very difficult to manage a 30x greater budget. We have obligated $17.5 billion already. We are overseeing how quickly it gets deployed and how wisely it gets spent. We have 3 major loans programs: one is the advanced vehicle manufacturing program which Fisker referred to earlier today. Nuclear, biofuel, grid technologies–somewhere around $100 billion in loan guarantee authority. It’s been great to be a part of this as well. It has been an extraordinarily busy and challenging time.

Wes. The scope and size of what government has put out there is unprecedented, in terms of grants and loans for private entities. The stimulus package was about a trillion, deficit is a trillion and a half, so we are getting to some very big numbers. Compared to the past, we had tax credits in the energy space, some grants for renewable energy, but nothing like today. You have $7.5 billion for broadband infrastructure, $10 billion for life-science research. It’s unprecedented across the board in scope. Given the seizing up of the credit markets, the new administration had the opportunity to put their money into their spending priorities. So how do private companies get a piece of this? We are seeing the credit markets start to loosen. There have been renewable energy tax credits in the past, they are moving forward. One important thing is that these are government contracts and programs. You approach them differently. There are procurement rules and guidelines that companies need to think about to get this funding. When you do get a grant or loan guarantee, there should be private funding to go along with it to create a multiplier effect. Think about the state and local govt also. Funding center has shifted from New York to DC, but state capitols are also important. States are given money to dole out also. States have programs. They have individual laws and regulations also. California is the primary example of stimulus in the renewable energy space. Fed govt is the big player. As capital markets return, there will be more private sector funding for follow on funding to build on what has already been established.

Christine. There’s a bit of chicken and egg in the renewable energy–they got everything they asked for in the bail out and in the stimulus. But the economy is so weak, they are still struggling. If the economy has contracted and the number of KW hours you sell has shrunk, as a utility you may not be able to sign a purchase power agreement on renewable energy projects. You don’t get the cash until the service is delivered. So it’s a challenge to get utilities and regulators to get back into the procurement process before the demand has returned. We are close to the tipping point. It will be critical to see how the industry adjusts to information sharing among jurisdictions. Or will each area insist on doing their own pilots. The whole machinery can be moving if something works in one area and other areas get on board. We need a good news story. The Obama administration wants to convert to cleaner, greener, as part of their overall program. Jobs, photo ops, “here’s your government dollars at work.” As Congress comes back in January for Climate legislation, we want this momentum to be in place.

Michael: We are approaching half of the money being deployed already. What gets private companies attention from the government? What are the characteristics of success?

Wes. It takes some experience with govt procurement and contracts. Govt officials will look at these applications. You probably need to hire some consultants to help you through the process. Financials will be important. How will the project be financed. What is the financial strength of the project is important. And getting applications in early is important.

Owen. Fundamentally these are new programs in unprecedented times to accelerate a lot of what we do, but at the end of the day, you are a customer trying to deal with the fed govt, so those who understand the procurement process, whether it is a loan or grant, they already know how this works. Frankly, this can be quite exclusionary. We are doing our level best to try to engage companies and individuals to get them familiar with the program along the way. I really care about trying to get our message out. That is why I’m here today. While the opportunity is huge, this is far from “dumb money.” Working with us is harder than working with Wall Street. Senior debt, credit risk, they pretty much want their money back. Even that criteria in recent history may have been lenient. For the government, we also want to back technologies that may not be funded by the private sector in the normal environment, so we have a lot of rigor. Our deputy general counsel said, referring to the complexity of the rules and regulations that apply here, he referred to regulatory Darwinism. If you are sophisticated, you should be able to get through the hurdles. But on the other hand we should make it as easy as possible. We’re somewhere in the middle. You do need some kind of advice to understand the interface. Don’t be afraid to pick up the phone and make contact directly with someone in the department.

Michael. There are two criticisms of the stimulus: it’s not moving fast enough, and then what happens after it ends? The renewable companies got everything they wanted, but it’s still not enough. What does it look like 6-12 months from now?

Christine. Some of the companies hope to be able to accelerate their deployments, doing in 2 years what would normally take 5. This means purchasing has to happen. So we will see if the orders will come fast enough, so that companies can commit their manufacturing, so costs can come down, so we don’t have to subsidize everything. Another question: will this go into some act in 2010 to perpetuate this going forward. We may continue to struggle for deployment in this industry. We are hoping to see the ramp up and the response from the industry to this money, so we can see the manufacturing gears moving, so it becomes reinforcing.

Michael. Traditionally when you talk about federal dollars was it was research. But you are saying we are looking at manufacturing again. Is that an alternate view that hasn’t traditionally come from fed funding?

Wes. Yes, it’s now loan guarantees to build manufacturing plants, not just research. Inherently these are risky projects and risky technologies. Probably analysis a year from now will show where we are at. Will we need to extend loan guarantees in a year? Or can the fed govt pull back and let the private sector take it from here. These are risky projects and there needs to be some certainty.

Michael. How much interdepartmental cooperation is there?

Owen. I have seen a lot of cross department collaboration. I was with Ed Montgomery, Presidents advisor, he pulled together people from Labor, Energy, states, HUD. Energy Secretary has been working closely with HUD on weatherization. It’s top down and bottom up driven. We have people that want to work across those boundaries to get things done.

Audience question: how is the DOE responding to visibility requirements to show Congress they are doing what they are supposed to be doing.

Owen. and — there has been an unprecedented (unprecedented has been used an unprecedented number of times today), the office of budget and management has reporting requirements for all of our transactions. They are all online. We disclose all obligations, estimates and reports of recipients about jobs created. We have made significant investments in the past so we can generate financial reports. So I could go into the office this morning and generate reports to the penny on how much we have invested so far.

Christine. The biggest problem is succeeding in how to get the money in the first place. Utility companies have a hard time understanding all the requirements up front. The follow on reporting required is not that challenging, compared to the application process.

Wes. Private companies are not used to reporting like public companies. The transparency and jobs numbers are going to be important 6 months from now to demonstrate how effective the programs have been. So it’s key.

Christine. I can’t imagine it’s something that VCs and financial investors are already looking for.

Audience question for Christine. Europe has a lot of manufacturing and renewables. How do you see us doing manufacturing for renewables, including wind energy, when Europe is looking at longer term horizons?

Christine. The most important thing we need to do as a nation in 10-20 year time frame. Wind is not the only one struggling. I don’t think you’ll see durations extended here. The way Congress pays for things with tax credits, we’re going to continue to hamstring ourselves, until we determine what our carbon reduction strategy is going to be. I don’t think any subsidies, even if they are extended 10 years, will get you the manufacturing base we need. We need to figure out carbon pricing.

Michael. What do you see as the possibility of a second stimulus?

Wes. You won’t call it a second stimulus, there may be efforts to finish spending the first. It depends on what happens the economy. A lot of promises were made. Next year is an election year, so politicians will talk about jobs that were created.

Michael. What is the expected timeline for deploying the resources from the first stimulus?

Owen. The funds have a time limit to them. Our focus has been to get the funding obligated as quickly as possible. Once we put the money in the hands of states and local govts, we are doing our best to make sure they have plans to execute. It’s not stimulus unless it’s actually spent. Our focus in 2010 will be to make sure the recipients of Recovery Act funding are spending it.

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