In the News

WASHINGTON—The Treasury Department Friday declined to say whether it believes the Energy Department acted illegally when it decided earlier this year to rework a federal loan to Solyndra LLC in an effort to keep the struggling company afloat.

A hearing called by Republicans on the House Subcommittee on Oversight and Investigations was supposed to examine whether that decision was legal, but the two Treasury officials called to testify Friday said they were not in a position to render legal opinions. More hearings are planned, with the Energy Department officials who approved the decision, including Energy Secretary Steven Chu, expected to be invited to testify.

At issue is whether the Energy Department violated part of the 2005 Energy Policy Act when it allowed Solyndra to take out new loans in February 2011. The department agreed that $75 million in new loans from private investors would be paid back before federal loans worth more than $500 million if the company had to be liquidated. Solyndra filed for bankruptcy last month and is trying to sell its assets.

In emails released recently, officials at the Treasury Department questioned whether the reworking of the loan was proper. They suggested the Justice Department should have been consulted. But the two witnesses from Treasury did not criticize the Energy Department Friday.

"We did not have a legal conclusion or render a legal judgment," said Gary Grippo, Treasury's deputy assistant secretary for government financial policy. He said the department was merely "flagging" the issue and it was up to the Energy or Justice departments to determine the legality of the loan restructuring.

Republicans contend the 2005 law says federal debt must always be paid back first. The Energy Department says that section of the statute does not apply. The department also says restructuring the loan was the best bet at the time.

"The proposed new loan provided terms that were expected to be more favorable to taxpayers than any other financing options that were available to the company at that time," Jonathan Silver, then head of the department's loan program, said in Sept. 14 testimony before the subcommittee.

Mr. Silver said giving new loans priority over existing loans "is typical in cases where distressed companies seek new debt financing."

Rep. Morgan Griffith (R., Va.), said that in arranging the new financing, the administration was "trying to cover up a fact that they made a bad loan and they went and broke the law."

Democrats said they supported a continuing investigation, but said the Republican accusations weren't supported by the evidence. "There was no criminal or serious misbehavior here. There was just some dumbness," said Rep. John Dingell (D., Mich.).