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Santi Ruiz
Hi, I'm Santi Ruiz and this is Statecraft. Today's guest is Narayan Subramanian. Under the Biden administration, he worked in a few different roles at the Department of Energy and later at the White House National Security Council. At the doe, Subramanian helped ensure that a big influx of money could best be used to support innovative energy projects. If you've followed Statecraft for a while, you know, we're really interested in this question of how to actually deploy taxpayer dollars most effectively. Narayan played a key role in making sure that the DOE could do just that. One editor's note well, really a couple editors notes here. One, we discuss the DOE's Loan Programs Office, or LPO, which plays a key role in financing infrastructure that enables new technologies like nuclear power development and domestic mineral production. As of this recording, Doge is reportedly pushing for a more than 50% reduction in headcount at LPO, which would kneecap its ability to manage existing loans, let alone to underwrite new ones. Without technical staff capacity at LPO of the kind that Narayan discusses in our conversation, the federal government risks stalling energy projects that serve national priorities, like nuclear energy development for powering AI. In the audio version of this conversation, we spend a little bit of time at the beginning talking about Narayan's work clearing Oppenheimer's name in federal records. I've left that part out of the transcript for reasons of space. Without further ado, Narayan Subramanian.
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Narayan Subramanian
Narayan, thank you for joining Statecraft.
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Thank you for having me on.
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Will you give listeners a little introduction to what you've been up to the last four years?
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Yeah, so I was a political appointee in the Biden administration. I started on day one. In fact, just minutes after inauguration, I was sworn in to be a legal advisor in the Office of General Counsel. And I was in that role for about the first two and a half years of the administration. And then I moved to the Secretary's office, became an advisor to the secretary, working on implementation for the Bipartisan Infrastructure Law and the Inflation Reduction act. And then the last six months or so, the administration. I was the Director for Energy Transition at the White House National Security Council.
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One of the. This isn't really the focus of what we're going to talk about, but I think one of the fun things you did, or the most interesting things you did, was Oppenheimer security clearance decision. Will you talk a little bit about that?
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Sure thing, yeah. So. And it actually relates a lot, believe it or not, to even the implementation of the Bipartisan Infrastructure Law and the Inflation Reduction act, which I'm sure we'll. We'll get to. So back in the summer of 2022, there was kind of a fever pitch of voices calling for the Secretary of Energy, Jennifer Granholm, to take a second look at the Oppenheimer security clearance decision of 1954. Many of your listeners have probably watched the Oppenheimer movie, and the inside joke at the department was it's the best movie ever made on a SC security clearance hearing. Half the movie, it truly is. Right. And what's amazing about the movie is it quite literally large parts of it follow the script of the Atomic Energy Commission's security clearance hearings. And at the end of the security clearance hearings, the Atomic Energy Commission made an extraordinary decision to strip Robert Oppenheimer of his security clearance. For decades since then, I mean, the pop culture understanding of this, people even then knew that this was kind of a sham proceeding. Everyone knew that Robert Oppenheimer was likely being persecuted for taking positions that were at odds with the administration at the time. Nothing was done really explicitly about that 1954 decision by the Atomic Energy Commission granted years later, 1963, the Fermi Award was given to Robert Oppenheimer as one of the last official acts of John F. Kennedy to select Robert Oppenheimer for the Fermi Award. It was one of the first official acts of Lyndon Johnson is president to award him the Fermi Award. At the end of the movie, you'll see that scene where they're getting the award. Robert Oppenheimer is getting the award. It's at the White House. So that's kind of how the movie ends. But for decades since, I mean, it has indeed had a chilling effect on the scientific enterprise where scientists genuinely felt in the years following that if they spoke up and were at odds with the administration or government in general, they very well could be persecuted. And many scientists and associations of scientists like FAS have come. Come out over the years continuing to call for some kind of rectification. Yeah, like a rectification of that decision. So Secretary Granholm actually had read American Prometheus, the book on which the movie, the Christopher Nolan movie is based on. By that point, there was also a letter from every living and former director of the Los Alamos National Laboratory and the Idaho National Laboratory. There was also a letter from 43 US senators, a bipartisan group, calling for the Secretary to take another look at this. This is not to say that the Department hadn't tried to do this in the past. Past Secretaries of Energy had in fact tried, but they ran Into a pretty big barrier with the General Counsel's office and the general apparatus at DoE of why are you looking at a security clearance for someone that's not alive anymore? You can't posthumously reinstate a security clearance.
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And that you can't give it that person a security clearance.
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Exactly right. You know, that ended up being a significant barrier to anyone even revisiting this, what I did in the General Counsel's office. So I led the effort to take a second look at this. I came at this from two perspectives. One is this was something that was conducted by the Atomic Energy Commission. The Department of Energy is not the Atomic Energy Commission today in a strict sense. The Department of Energy of course has security clearance holders. It has a process for people to re adjudicate security clearance decisions. So you don't want to mess with that for contemporary purposes because people work.
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On nuclear issues today. The security clearance stuff is real.
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Today it's quite real. And that was also a significant barrier that there were. There were legitimate institutional concerns about taking another look at that. What I did was I went back to the Atomic Energy Commission's regulations and looked particularly at what was different in the security clearance regulations then that are not in DOE's regulations now. So that it was very specific to how the Atomic Energy Commission carried out that security clearance hearing. Then went through the fact pattern of how the hearing was actually conducted. So I went up to the archives quite a few times going through all the different stages of the proceedings. What was really interesting is the proceedings were carried out in the spring of 1954 but in January 1954 there was actually this memo, internal memo within the Atomic Energy Commission laying out the whole framework for how they were going to quote unquote, get Robert Oppenheimer and there's this explicit quote that says the element of surprise must be made maintained. This is an official.
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It's on paper.
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It's on paper. It's at the archives. And cc'd at the bottom was Louis Strauss, the then chairman of the Atomic Energy Commission Who's Robert Downey Jr. Robert Downey Jr. Yeah, that was an incredible thing to find for one. Then one of the things that I found that was not covered in American Prometheus was this 50 plus page memo written by an Atomic Energy Commission lawyer just a few years later, just listing out what a sham this process was, how it had deviated significantly from the Atomic Energy Commission's procedures. So I actually was able to get on the phone with Kai Bert, one of the co authors of American Prometheus Spoke to him a few times. He was very, very helpful in pointing me to a few other books as well. We put together the fact pattern, and you'll see the. There was a secretarial order that came out in December of 2022, well before the movie came out. Quite honestly, the decision had nothing to do with the movie itself. It was purely. I mean, there was this chorus of voices asking for the secretary to take another look at. I really have to commend the secretary because she was very dogged in wanting to take another look at this. As she puts it, everyone involved and every historian that's looked at it since knew that this was a kangaroo court. And I had the privilege of getting to go to Los Alamos with the secretary the summer of 2020, right after the movie had come out in which she talked directly to the scientists at Los Alamos, saying, this decision really was for you guys. I want you all, as scientists to hold us, as public leaders, accountable and speak out. I mean, the beauty of the scientific enterprise in the United States is we really want our scientists to be able to register dissent. This is ultimately good. I mean, even think about the energy transition, climate science. There's been a lot of persecution of scientists, and the Secretary felt very, very strongly that this decision should send a signal to scientists all across the country that we've got your back.
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One of the things you mentioned before we started recording was that this kind of archival work and you digging into the history of the Department of Energy ended up not just being helpful for this particular project that you were put on, but also for much broader. Much broader implications. Do you want to talk about that?
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Yeah. The secretarial order, which anyone can find online, the last sentence of that says something along the lines of, pursuant to the authorities vested in me as a Secretary of Energy to carry out the functions of the Atomic Energy Commission, I hereby vacate this 1954 decision. Now, a sentence like that sounds kind of like a throwaway sentence, but actually, from a legal standpoint, I had to go through every delegation of authority going back from the Atomic Energy Commission to the Energy Research and Development Administration, which was an interim body before DOE was created, and then down to DOE to see, you have to actually cite where that authority is coming from. And in the process of doing that, that actually got me thinking, well, what other authorities or functions are vested in the Secretary of Energy that were given to the Atomic Energy Commission?
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And before you get into that, I guess I'm just realizing I don't have a great picture in my Head of how we went from the Atomic Energy Commission to today's Department of Energy. Will you give us that pocket history of. Yeah, the DOE wasn't always this, this entity you had a bunch of.
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And this, this is like fascinating history. So everyone, as a result of the Oppenheimer movie or otherwise, knows what the Manhattan Project was. Wartime mobilization, the whole kind of nuclear enterprise in this country was stood up from scratch within a couple years. The war ends in 1945. And by the spring of 1946, Robert Oppenheimer and others that were involved with the Manhattan Project started calling for a new apparatus to explore the peace uses of atomic energy.
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Because the Manhattan Project is entirely oriented around the bomb.
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Around the bomb, correct. But everyone involved with the project knew that one day this could have spillover effects for a lot of other scientific research that could be used for civilian purposes. The Atomic Energy act was passed in the summer of 1946 and it established the Atomic Energy Commission, a five member commission which Lewis Strauss of Robert Downey Jr. Fame becomes the chairman of later on. Robert Oppenheimer was one of the scientific advisors to the Atomic Energy Commission. And so the Atomic Energy Commission is not only entrusted with continuing to do the weapons research, but also setting up a whole new function to harness the peaceful purposes for atomic energy, figure out ways to better process uranium and fuel supply, all that stuff that's interesting.
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So it's dual use commission, it's still the military applications and nuclear power, whatever else.
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What's fascinating is in the decades after World War II, that's when American consumerism really like takes off. Right? So you have shows like Mad Men that portray that. But really what Mad Men is getting at in terms of a cultural moment is Americans are starting to drive more cars, buy household appliances, dishwashers, toaster ovens, you name it. And so energy use is exploding. And the Atomic Energy Commission exists at a time when that's happening. So we're also in parallel, the government is backing, putting a lot of money into building nuclear reactors. So a lot of the nuclear reactor buildout happens in those decades after the creation of the Atomic Energy Commission. And we pretty much kind of take all that for granted up until 1973. And in 73, in the fall is when the Arab oil embargo happens. And so that's around, I believe, late September, October of 1973. And President Nixon at that time immediately jumps in and gives an Oval Office address, pretty much saying, this is serious and we need to, you know, treat this like we're, we're almost at War. You have all these images from those from that period of time, the long gas lines and all that kind of stuff. And what President Nixon does is he calls immediately for a, quote, unquote, Project Independence. He starts talking about how we really need to figure out a way to address our dependence on foreign oil.
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Sure.
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And in that Oval Office address invokes the Manhattan Project and the Apollo mission, saying, you know, we've done big things before, and we have to treat this crisis with the same seriousness we did when we undertook the Manhattan Project and the Apollo mission.
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Right.
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It's a really incredible speech. And so within a month, there is a new executive order establishing a Federal energy office. Within a few months after that, Congress formally establishes that Federal energy office under the Federal Energy Act. So that's the spring of 1974. And at that point, Congress knows we really need to set up a new apparatus that's not just doing R and D, but has the ability to scale up new energy technologies and do it very quickly. What's interesting is, even when you go back to the statute that established the Atomic Energy Commission, you'll see a lot of references to need to bring in private enterprise and the need for the government to collaborate with private enterprise. So this idea, in the last few years, you've probably heard a lot of folks at the Department of Energy, from from Secretary Granholm to Jigger Shah to David Crane, use phrases like the energy transition must be private sector led, government enabled. That's very much been at the core of energy policy in this country for. For decades, I would say. And industrial policy and energy policy have been intertwined, I would say, for the last even hundred years, even going back before the war, going back to the Federal Power Commission days, but just focusing on the 1970s for a second by the fall of 1974. So now we're a year out from the Arab oil embargo. President Nixon resigns, President Ford takes over, and one of his first speeches is to the World Energy Conference in Detroit. And he addresses them and once again invokes this concept of Project Independence. He talks about the Apollo mission. He talks about the Manhattan Project. He says, you know, we really need a new agency to be able to deal with this crisis.
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That point a year on, are gas prices still through the roof?
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Gas prices are still high. I mean, the supply shortage is still real. Americans are still hurting. There is a really good book called Panic at the Pump that chronicles this. It's by Meg Jacobs, a Princeton historian. She has quotes about how, you know, when the Arab oil embargo took effect. It wasn't like bombs were dropped or anything like that, but the feeling that Americans had was as if bombs had dropped. Like there was almost this like metaphoric silence across the country because we had become so dependent on oil. And so, you know, when you talk to people that live through those times, they'll tell you like, yeah, I remember, you know, waiting hours in a gas line. And so this is very palpable. So this had fully taken up all of the political space at that time. So it's not a coincidence that President Ford felt the need to focus on energy pretty quickly. And so within a few months of him taking office, President Ford signs the Energy Reorganization act of 1974 into law. And so that establishes the Energy Research and Development Administration. And what they do there is they consolidate all of the non nuclear energy R and D functions that are scattered across the National Science foundation and the Department of Interior and they pull it all together under ERDA, as it was known. And even then they knew that ERDA was not going to immediately serve all the the needs. But it was a significant step to consolidate energy functions. So you're not just doing atomic energy, you're doing everything. Now that clearly was not enough. And a couple of years later, President Carter, Jimmy Carter wins election and his famous we're in the moral equivalent of war speech. He gives that speech and he quickly lays out a vision for a new Department of Energy and he pushes that into motion pretty quickly. So there's many plans drafted. A lot of this is very well chronicled also by Jay Hakes, a presidential historian and was also an energy advisor to President Carter. So these are books, I'm just telling you, books that I read along the.
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Way that you did a lot of reading.
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A lot. People that have worked with me at DOE have probably heard me recommend these books ad nauseam just because I think it's really important to know this history.
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So how do we get from there to the place we're at now to paint with a really broad brush? My picture of the Department of Energy is this weird creature that has a bunch of nuclear energy research and security work. The national labs are in there and you've got all this other infrastructure and energy stuff going on. Finish that loop like where do we have Department of Energy is built and why does it end up being this kind of three legged stool or.
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Yeah, actually three legged stool is. It is an excellent way to put it. And maybe I would add a fourth leg in the last couple years or so. So the three legged stool as of, you know, October 1977, with the Doe Organization act was passed, was, okay, this enterprise is going to continue working on nuclear weapons. There's also this whole nuclear cleanup mission which continues today. It's a significant part of the department's budget. And then, gosh, we really got to expand our R and D enterprise. And actually, I would say even back then there was a fourth leg to the stool, which was the R and D enterprise is really, really important. But we also have to figure out how to scale up these technologies and commercialize them. And so you'll see sprinkled throughout the DOE Organization act, all these references to this department is meant to have broad authority to address the energy needs of the country. You'll see also the reference to private enterprise. You'll see the reference. I don't think they use the word commercialization per se, but they pretty much say this department is entrusted with the duty to figure out how to get things essentially out of the lab and out into the real world. So that was very much at the core of the department when it was founded in 1977. And so then you have two bills that pass pretty quickly after that. The first is the National Energy act of 1978. My favorite one is the Energy Security act of 1980, which is passed in June of an election year. And that, I mean, if one could do an alternative history of US Energy policy, I would really focus on the Energy Security act of 1980, because in those days it set up an 88 billion dollar, or authorized an $88 billion Synthetic Fuels Corporation also set up a solar bank, geothermal research, a Renewable Energy Resources act sat within it. So it had all this stuff in there. And one of the first things that came out during the Reagan transition after Jimmy Carter lost the election in 1980, was to dismantle the Department of Energy and pretty much dismantle the Energy security Act of 1980. So the synthetic Fuels Corporation, they tried to implement it for a few years, but they pretty much folded it down pretty quickly. They weren't very serious about implementing the Energy security Act of 1980. So it ends up being a bill that, that goes unfulfilled. And the reason this has importance for, for our conversation today and where do we is at is because do we essentially, in the 1980s, as there are multiple attempts to shut it down as an agency, DOE essentially ends up in this kind of defensive crouch where it goes back to doing R and D, the nuclear weapons work and nuclear cleanup. And that's pretty much what DOE largely ends up doing through the 80s, the 90s, all the way until the early 2000s. And so until the Energy Policy act of 2005, there weren't very serious efforts to get DOE to going back to trying to scale up energy technologies, commercialize energy technologies. The Energy policy act of 2005 is when the DOE loan program's office first gets authorized within that same year as when ARPA E, the DOE version of DARPA get set up. And as you may recall, the 2000s, we were, this is before the fracking revolution really took hold. We were starting to get nervous again about our dependence on foreign oil. So you have the Energy Independence and security act of 2007. So you've got all these things leading up to the financial crisis. And then the Obama administration in 2009 passes the recovery act and that plunges a lot of money into energy, trying to deploy energy, trying to put more money into R and D work. And one of the things that's very interesting there is the whole mission at that time was to get money out the door to shovel ready projects and the ability for the department to really think creatively or look at its authorities and put money out the door in innovative ways. There wasn't much time. It was like we got to get money out the door yesterday. Fast forward to 2021 and 2022 when the bipartisan infrastructure law passes in November 21st and the inflation Reduction act passes in the summer of 22. That's really the first time the DOE then gets a huge influx of money and the ability to kind of deliberately think about how to put this money out in the most innovative catalytic way.
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So you end up in the Biden administration at the Department of Energy as the DOE is trying to move a ton of money for Biden Admin Priorities. Will you just say a little bit about how the DOE is structured at that point? Because you're trying to do a whole lot huge amount of money relatively. And just actually it's billions, millions of dollars that the DOE is trying to move. What tools do you have at that point to move that money out the door?
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Yeah, great question. This was a very live conversation at the time. So do we was still organizationally set up to largely be an R and D enterprise at the time that we came in in January of 2021. But in anticipation of one or both of these bills being passed, there was a lot of work done during transition and before on trying to reorganize DOE to exercise more of a demonstration and deployment function and not just an RD function.
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And Just for laypeople, the difference between an R and D function and a deployment function is what?
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So put simply, R and D, largely, the government is paying you potentially to even fail. The government is fine with you taking, you know, risks with your projects. Right.
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On a new technology, on a new kind of project.
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Yeah. So it can be like an innovative sodium ion battery. Right. Maybe hasn't been proven at scale yet, but it's still being tested out in the lab. And the government is giving out a couple million dollars of grant money for that. Right.
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So you can run some trials in the lab.
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And you're also ultimately being paid under a cost reimbursement structure. Regardless of what the outcomes of your research are, you're getting paid essentially to try.
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Okay. And you basically, you submit a receipt. You're like, here were the costs for the project, and if they're within scope, DOE pays them back and that's it.
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More or less. Yeah, but, but that's, that's essentially what it is. And so then when you think about demonstration and deployment skill, a demonstration project could run upwards of billion, billion plus dollars. So at that stage, government's not just trying to pay you to fill. They really want to make sure that, you know, your technology is proven. They really want to ensure that your project has a higher chance of success. Right. Where they're not just throwing grant money at a highly risky project. Obviously, the government is going to still take risks that the private sector isn't. That's the whole reason why the government is giving that grant money. And so by the time actually President Biden was even sworn into office, the energy act of 2020 had been passed. Was a bipartisan bill in the waning days of the Trump administration. And that bill had authorized the Office of Clean Energy Demonstrations. So there was already this vision that government needs to be putting more money into scaling up technologies at the demonstration level. Now, deployment is, once you've scaled up that technology and it's been demonstrated, then you want to deploy the 2nd, 3rd, 4th, 5th, nth of a kind of that project. And so that at that point you've reached commercialization essentially for that technology. Now, the demonstration and deployment function, it requires a very different skill set. It requires not just technic technical experts.
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Not just prototyping or people that have.
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Worked in finance that actually know a lot of these projects. You've really reached success for energy technology when you can project finance that project. So that means you have an off taker.
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Off taker. Will you just define that? Yeah, that's a word. I learned at ifp, I did not know what offtake agreement was before this job.
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So an offtake agreement is quite literally what it sounds like. I'm selling this thing, let's say it could be batteries or it could be electricity itself. Someone is literally saying, I will buy X amount of those things for Y price. Right. And so that offtake agreement allows one to go to a bank and say, hey, over the next 10 years, if I build this thing and I produce these widgets or electricity, I'm getting paid this much.
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So you literally take that to the bank.
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You literally take that to the bank. And the bank is very, very conservative. And that's why like at the point where you're getting debt for a project, that project has to be technically de risked by that point. There might still be some financial risk. And that's why you're signing these offtake agreements. A bank is only going to give you a loan at that point. So that's how you reach final investment decision for a project. And then the project eventually gets buil and voila, Right?
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Yeah. So you come into the DOE where there's increasing. It's just the mandate has just come from Congress. Do more demonstrations and then a year or two later you get this push from the Biden admin, the infrastructure law, to do a whole bunch more of the deployment side stuff. Did you need to bring a lot of talent in or what did the reorg look like?
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Yeah, well, so actually, even before the reorg, a couple things I'll note. The loan programs office existed for a good decade plus by that point, but they hadn't executed any new loans in years.
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Was that a consequence of the Solyndra blow up? Largely, that there was hesitation to try.
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And try again, one can say. So there's many, many reasons. But the energy act of 2020 started already laying the groundwork for LPO to be reinvigorated as an enterprise within the department. The bipartisan Infrastructure law further amended some of the authorities. And then eventually the Inflation Reduction act gave LPO significantly more loan authority, upwards of $400 billion of loan authority, which Jigar Shah has spoken a lot about. And so, you know, you've got the Energy act of 2020. Biden takes office in January 2021. And pretty much as soon as the new administration gets in place, negotiations have started for the quote, unquote, build back better agenda, which eventually gets broken up, at least on the energy side, into the bipartisan infrastructure law in the inflation Reduction Act. And so there is a recognition that while if one or both of these bills get passed, we're going to need a lot more expertise on the demonstration and deployment side.
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When you say that, you mean the financing side, too, not just the supporting R and D research. Yeah.
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To give you a very concrete example of how the Department was not set up immediately to take this on, there's a little quirk in how the grant structure works at the Department of Energy, where if the Department gives you a grant for a project, the Department essentially has a property interest in that project pretty much in perpetuity until the property or the equipment in that project basically diminishes in value under $7,500 at some point.
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Until the end of the project?
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Well, pretty much, yeah. Yeah, Right. And which is not a big deal for microscopes in a lab or a small lab project. But if you're trying to build something big and you're trying to go to a bank and say, hey, trying to build this thing, and the government might have a running interest, the first question a bank is going to ask is, am I going to be fighting DOE in bankruptcy court for pennies on the dollar if this project fails? You're pretty much scaring a bank away from wanting to invest in one of those projects or provide a loan for one of those projects, because they know.
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They'Ll be rivalrous in a bunch of situations with the federal government.
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Right. And so this had actually been corrected, particularly for nuclear projects and for fossil energy projects along the way. A lot of the way federal agencies are set up is there's a lot of gum and tape along the way that Congress plugs a hole in a leaking ship or adds a little, you know, little thing to the top. When we were getting ready to seriously implement the Bipartisan Infrastructure Law and the Inflation Reduction act, it became very, very clear that this is going to be a huge problem. If you actually look at the Consolidated Appropriations act of 2023, which passed in December of 2022, just a couple months after the Inflation Reduction act, there is now authority for the Secretary of Energy to vest title in any projects undertaken for demonstration or deployment purposes.
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Explain that term.
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That means the Secretary of Energy can essentially say, at the end of this project, there's no running government property interest in this project. The logic behind why the government should have this running property interest made sense in the very, very beginning, probably when it was put in place, which was, this is taxpayer money. We want to make sure that you're not, you know, wasting taxpayer money. But the reality is the government is not trying to recover Pennies on the dollar for a failed project. That's not really what the government is trying. What the government really probably cares about is what happens to the IP associated with that project. Right. You don't want that IP to just be bought up and taken overseas. And that actually had happened for decades and decades prior. There wasn't a good enforcement of the IP rights of the government. And so imagine a world in which the government can essentially reach an agreement with the counterparty. In this case, it'll be the developer of the clean energy technology and their bank perhaps saying, hey, at the end of this project, we will vest title. The only thing we care about is if this project gets sold. We just want to make sure that the IP is not going overseas or to a certain country or whatever it is. It could be as. I mean, it's a lot more complicated than that. But really, like, conceptually, that's, that's how simple it is. But even getting to that place, that thinking of how, how do you structure award terms to ensure that a private bank feels comfortable giving a loan to one of those projects? That requires very different thinking than what DOE had. And so this is precisely why the Undersecretary for Infrastructure was set up at the Department of Energy and a bunch of new offices that were created. The Office of Clean Energy Demonstrations, a new Office of Manufacturing and Energy Supply Chains, a new Office of Grid Deployment. Grid Deployment Office, and then the Existing Loan Programs Office. These offices, along with a few others, were all consolidated under a new Undersecretary for Infrastructure, and that was led by David Crane, the Undersecretary. And then there was also a woman named Leslie Biddle who is the Deputy Undersecretary who came with a very strong finance background.
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Yeah, it's funny because I hadn't, I hadn't put this together until you kind of explained this, but when the Biden admin talked a lot about crowding in private investment, the idea, and I'll tell me if I'm paraphrasing correctly, was that you want to find ways of using federal dollars that encourage private actors into the market. And one of the things that you're talking about that was an issue previously, is that turns out there are all kinds of cases where federal dollars scare off banks from otherwise investing or working with other private actors.
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And being charitable to DOE didn't have that scale of grant money to put out until the Infrastructure bill and the Inflation Reduction act passed.
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New things DOE was being asked to do that generally had not been previously.
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For example, just for batteries and Critical minerals. The Department of Energy was giving out $6 billion of money. That's grant money. That was unprecedented.
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They had not flexed that muscle before.
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Yeah. At all. And because even during the Recovery act, it was, it was a very, very different posture. It was smaller projects and it was just like I said, money out the door yesterday. And it was a lot of money actually given to states directly to then, you know, set up revolving loan funds for energy retrofits and all that kind of stuff.
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There's much more kind of classic Keynesian stimulus, just like put money in the economy, period.
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Right. And so this was not meant to be that. Right. This was supposed to be, let's be deliberate about how we re industrialize parts of the economy. That was, that was part of, very much part of the thinking of the build back better agenda. Also make long term investments in our infrastructure and set up the United States to succeed in the, you know, clean energy race of the future.
- [32:22]
So let me ask you about a really specific thing that you worked on in service of this kind of big Biden admin priorities. It's funny because I think you're very good at explaining this kind of broad, the admin agenda. And the thing I want to talk to you about is this incredibly arcane little weird detail. You spent a lot of time rewriting or writing a guide to using Other Transactions Authority or ota, which we've talked about on here in the past. I was talking to colleagues in the office. I was like, I'm interviewing this guy, he rewrote this guide. And it's like, that sounds like a, like a nightmare. You know, you write this, you know, 100 page document on, you know, contracting and contracting authorities. So what's the point of doing that, you know, of going into the weeds and fixing that.
- [33:00]
Yeah. So like I said, DOE was at an unprecedented moment on the heels of even just the bipartisan infrastructure law being passed. Just that One bill gave DOE about $65 billion of new grant money to put out the door. And so it became. So we not only set up the Undersecretary for Infrastructure and from the General Counsel's office, I was involved with writing the memo to do that. So this once again kind of goes back to the history. How can DOE reorganize itself and all that. It became pretty clear that we were going to have to think about contracting very differently. And there's been a lot of voices out there over the last many years that have been calling for the Department of Energy to exercise this thing called other transactions authority. So what is that for people in the government contracting space? It's, it's kind of this, like, mythological. There's truly like this, like, mythology about OTs and other transactions. Other transactions. And to put it simply, other transactions are defined by what they're not. They're not a traditional grant or cooperative agreement. And I know that's, that's not a very fulfilling response. But what I mean by that is when you are executing a grant or a cooperative agreement as the government, there are a lot of clear rules and regulations around what the terms of the contract can be under.2 CFR 200 and then each, that's the general, you know, contracting regulations. And then each agency has, has its own. There's actually, there's a lot of good that comes out of that. I actually want to take a moment to just recognize that not all, you know, government contracting is rickety and, you know, inefficient. The reason why a lot of that is good is one, it lessens the space for negotiation for contracts. You as the government, and especially when you're doing business with the government, you don't want to be spending years and years negotiating a grant contract. Also, those rules and regulations are in place to prevent waste, fraud and abuse. Right? And as much as people want the government to be big, bold, boisterous, take risks, the government is held to a very, very different standard than the private sector. In fact, I would say the private sector has the luxury to fail and failure is seen as a good thing. When the government fails, it very often is. You know, it becomes a political football. You have got oversight hearings, all that kind of stuff. So the contracting structure is very much a response to that, to ensure that the opportunities for fraud, waste and abuse are minimized as much as possible. So there's cost accounting standards that are attached. There is standards attached on if you're paid for potential failure, you know, let's make sure that you still try just enough and all that kind of stuff. There's very clear rules around the IP rights that the government takes and stuff like that. Right? So these are all very good things. But most, if not all of those regulations were written for with R and D contracts in mind. So typically, taking a few steps back when the government is putting money out the door, you can roughly bucket in two categories. Either the government is procuring or acquiring something, so they're paying someone for anything from chairs for the office to a war fighter, or the government is providing financial assistance, and that's where grants come into play.
- [36:02]
Got it? I'M either buying something as a federal government or I'm supporting you in doing some project out there.
- [36:08]
And then loans are a slightly different flavor. They don't fall under the same regulations, but we'll set that aside. Okay, so do we was very quick to immediately say, well, look like we've done cooperative agreements for big carbon capture and storage projects in the past, for nuclear projects in the past. So you know, we should essentially do that again.
- [36:27]
And just briefly, a cooperative agreement, it's one of the usual contracting things you do and it's what it has these.
- [36:35]
Standard cost accounting standards attached to it. Like I said, the cost performance structure and it's the IP terms are pretty clearly laid out. Competition is pretty explicitly laid out. But all of these contracts envision having a single counterparty that's just doing one thing. And once you get to the demonstration deployment phase where you're potentially even trying to help seed or create a market and you have not just one player but you have a, you have a whole, you know, team of, you've got this developer that's building or scaling up the energy technology, they've got potential off takers, there's all that. You've got a whole supply chain around it. So in essence the government is maybe actually contracting with a consortium or like a hub. Hydrogen Hubs is a good example. So it's not just one entity, it's multiple entities. So you've got like subs under that and all that. Cooperative agreements could still work, but it actually could be quite limiting. And we realized that pretty quickly and at times the government is not just purely executing a procurement or a financial assistance function. For example, the Department of Energy recognized through its hydrogen liftoff reports that hey, we've got a problem setting up a new hydrogen industry where there's not a clear strike price for clean hydrogen. We're trying to literally seed a new commodity market. There's a whole kind of the supply demand stalemate. No one wants to pay a price premium for this thing just yet. No one knows what price to sell it at just yet. And so there was a real need for the government DoE to come in and say, hey, we are going to try to provide demand side support for a few projects and try to enable some market transparency. The other thing with these offtake agreements is very often they're not publicized how much someone is paying for something. And so it's very hard to actually have market transparency and build a whole ecosystem. Whereas when the government is involved they can say, hey, if you're contracting and you're getting government money. One of the conditions the government can put in is you're going to actually publish and publicize how much you're selling this thing for. Because we're actually trying to catalyze the market. We're not just trying to get market.
- [38:44]
Signals that then other actors can look at and use for their own market decisions.
- [38:48]
Exactly. And so it became clear that we needed to look at our contracting apparatus and see, is there a way to, you know, invigorate our use of other transactions authority?
- [39:00]
And just, just in brief, why was it so important to have another tool to do the contracts that wasn't the existing side on the table? What was, what did you want to be able to do that you couldn't, the DOE thought it couldn't do?
- [39:11]
The way I would put it is you actually don't know what you don't know. You often don't know what kind of challenges that are going to arise when you're negotiating a contract until you're really there. I mean, often, I mean, a program office, like the office of Clean energy demonstrations or any manufacturing energy supply chain office may go in saying, hey, we've got a problem where, you know, like I said, like, we're trying to catalyze this market or industry, or we're trying to contract with multiple players under one award. And in those cases, you want to make sure your contract is fit for a purpose. But genuinely, when we undertook this effort, what I was really getting at is this should be a tool in our toolbox that currently does not exist. Yeah, right.
- [39:51]
And especially if you're correct me if I'm wrong, but if you're contracting with the kinds of entities you haven't contracted with before, you don't know what they, what those players want in a contract, what they, what will work for them. And so you, if you don't have the flexibility to think through that contract offer you.
- [40:04]
Yeah.
- [40:05]
You won't be able to come to the deal. Yeah.
- [40:07]
And at the same time, the flip side of this, and I made it a point to emphasize this all the time, which is OTs can't be a hammer in search of a nil just because you have other transactions and you can rip up. One of the things I should have mentioned is another way people describe another transaction agreement is you can literally take a blank sheet of paper and write a contract. And that's something that government is not typically used to doing. You have preset contracts, whereas you and.
- [40:31]
I in the private world can contract basically any way we Want?
- [40:34]
True, true. Right. And so what we decided to do was, well, one, it became very clear that DOE had definitely had other transactions authority going back to at least 2005.
- [40:46]
When that is in the statute, Congress says you can do this.
- [40:51]
So in the Energy Policy act of 2005, and you can tell if you just read the statute that Congress was so frustrated with DOE and the way it contracted, because what Congress did was it cross referenced DoD's other transactions authority and said, hey Doe, you now have this other transactions authority. And by the way, you've got 90 days to promulgate regulations to implement this other transactions authority. That is Congress saying, get off, get your rearing gear. Yeah, like truly.
- [41:22]
And what was that in response to? Was Congress just seeing the existing contracts that DOE was just writing and making and saying like, these are not fit for purpose?
- [41:30]
Yeah, essentially. And so you can tell Congress is impatient. And over the years Congress had gotten increasingly impatient because you would have new grant programs that were stood up where Congress would explicitly say this should be a milestone based other transaction. So the fusion milestone program that the Office of Science at the Department of Energy administers, in the Energy act of 2020, that program was authorized and it explicitly says DOE should do this as another transaction.
- [41:56]
And just for listeners who don't know, a milestone based contract is we'll pay you as you meet certain technological thresholds. If you are able to build a technology that does this and this, you get the big chunk of money and then we move on to the next phase.
- [42:08]
Yeah, and the famous example of this is the SpaceX agreement that NASA entered in 2006. It's kind of like the gold standard for milestone based contracts. And it's different from cost based contract reimbursement, because cost based reimbursement, like I said, you're being paid for trying. A milestone based payment is if you don't hit this technical thread, technical milestone, you're not going to get paid.
- [42:30]
And you do, here's the big chunk.
- [42:32]
Yeah. And so that's actually a great deal for the taxpayer, right?
- [42:36]
Yeah. For success.
- [42:37]
Yeah, you're paying for success, but it also helps push private industry to try their best and succeed. Then there's also another contract structure in between, which is a fixed cost agreement, which is like regardless of how you get to point B, as long as you get there, we'll pay you. So you're incentivized to do it as cheaply as possible so you can pocket the difference. Right. That's basically paying a private enterprise to be as efficient as possible. So that's actually another flavor of other transactions that DoD was very used to.
- [43:07]
So DoD does a fair amount of other transactions, NASA does other transactions. And since 2005, Department of Energy had this authority. So what was going on in the 15 years between then and 2020 that it did not have a robust, you know, it hadn't built the muscle of doing other transactions?
- [43:23]
Yeah, there's a great gao report from 2016 that did a comparative study of all of the agencies. And DOE between 2011 and 2014 did less than 20 OT agreements. NASA had done probably about 10,000. You know, DOD was somewhere in between, but it was, it just wasn't using it, really. Yeah, DOE was not using it. And when we started looking at this, there were only one or two people across the entire Department of Energy enterprise that were warranted to execute another transaction agreement.
- [43:56]
That is, DOE has the authority, but within doe you need a couple people.
- [44:00]
Who had that contracts or agreements officer that is actually writing the contract, signing the contract on behalf of doe, and you need to be warranted in order to execute an other transaction agreement. And there were just a small handful of people and very little institutional knowledge on how to do that. And I got to say, you know, credit to the deep institutional knowledge and the civil servants at doe, there is a really incredible group of folks that have done almost every flavor of contract you can imagine within the existing structures that have also always wanted to explore the use of OTs. There was a couple of bumps in the road here. So one, 2005, Congress passed the Energy Policy act of 2005 and DOE in response to that 90 day shot clock. What DOE does is they pretty much copy paste DoD's regulations and the, and the DoD regulation, the DOE copy pasted. And I say this just very loosely, it's not exactly a copy paste, but like largely modeled.
- [44:56]
Think about it that way.
- [44:56]
These regulations, after those regulations, enable the use of quote, unquote technology investment agreements. So this is what the fixed cost agreement essentially is like. Technology investment agreements enable that. And what DOD had set up, TIAs, as they're known to do, was largely for prototyping and very DoD specific activities. It's not really a good fit. When you're trying to commercialize energy technologies and you're trying to seed new markets, there is no, you know, function. You're really trying to take like a widget or a thing and then prototype it and then, you know, you can scale it up within, within limits, but it's not, you don't get the Full bang for your authority if you just use the TIA flavor of that authority. Congress had cross referenced. So that was a limitation. And then the prevailing wisdom within the Office of General Counsel was even so this authority is not super expansive. What it did do, however, it expanded DOE's ability to offer more IP flexibility. That was actually distinct and people recognized that. But once again the regulations were limiting and so DOE hadn't touched this in nearly 20 years. They hadn't touched this regulation.
- [46:03]
So you're at the General Counsel's office at the Department of Energy and you do what?
- [46:07]
Yeah, so August of 2022. So August 16th, and I remember this, the exact dates because this was somewhat intentional. August 16, the inflation reduction act gets signed into law by President Biden. August 15th, our chief of Staff at DOE kicks off an innovative funding mechanisms working group which I co chaired along with a career civil servant, our senior procurement executive at the time, who, who is now retired. But this is someone with decades of contracting, government contracting experience, had done stints at other agencies as well. So I co chaired this, what's his name? John Bashista, phenomenal public servant, really. I have so much respect for folks like John. And what we did was we pulled together incredible cross cutting team across the DOE enterprise. So the way DOE is set up, you've got DOE headquarters, but then you've got these field offices all across the country. We've got a field office in Golden, Colorado, you've got a field office in Idaho. Each one is kind of attached to the national laboratory that's there. You've got a field office in Pennsylvania and West Virginia. But a lot of the contracting functions, you've also got a field office in Chicago. A lot of the contracting functions actually happen typically through the field offices. So we pulled in the best of the best, both the headquarters and out in the field. We set up a structure where we had kind of an advisory and steering council of heads of each program office as well. And so at the outset we pretty much said we know because of the Bipartisan Infrastructure Law and the Inflation Reduction act, you all are going to be trying to do creative things contracting wise. So we're going to take a second look at our other transactions authority as doe. And that wasn't the only thing we looked at. We also looked at the use of partnership intermediary agreements. But for the purpose of this conversation we'll just focus on the OT side. So you mentioned that other transactions guide. I mean a lot of this work was done by the best of the best career civil servants and so much credit really has to go to them because a couple things have to fall in place for an effort like this to happen. One, you need to bring your best institutional experience, people that know how the contracting system works, the department. But then two, one of the amazing things that happened at DOE over the last few years was as a result of setting up the Undersecretary for Infrastructure and bringing in a lot more commercialization thinking into the department, you had this whole new cadre of folks that came in from the private sector that were very much trying to think in terms of commercial contracts, that were trying to think outside the box. So you had this kind of perfect tension where people wanted to rip up the contracting structure as they knew it, but knew exactly why they wanted to do it. But then you had people in the general Counsel's office and in the contracting apparatus that knew the limits. And so what you got through this effort was essentially kind of like a. I don't want to say a compromise solution, but we got to the end goal of figuring out how to reinvigorate our other transactions authority in a way that could ultimately serve the larger purpose.
- [49:03]
Yeah, I mean, as I understand it, and I'm painting with a broad brush here, but a lot of the people who came in had Wall street experience, had experience in the private sector doing the kinds of project finance stuff that now all of a sudden, DOE was being asked to do. And so there was this impression, I understand, of like, wait, if we were doing this in the private sector, we'd structure the contract this way. We'd do all these things. It doesn't look like we have that flexibility here. And so there's a strong impetus to like, oh, well, best practice out there in the world is to contract this.
- [49:31]
But I literally do this, cannot do this, because the cooperative agreement structure doesn't let me do it. Right.
- [49:36]
Even though if I was at Goldman doing this project finance agreement, we'd do.
- [49:40]
This in flash, if I was a project developer. Yeah, I would structure this totally differently. Right. Among the things we did is we didn't just settle for looking back at the 2005 Other Transactions Authority. And I actually, I want to give a shout out to one of your previous guests on the show, Rick Dunn.
- [49:56]
I heard you guys talked.
- [49:57]
Yeah, Rick Dunn and I had talked a couple of times. And Rick Dunn has been highly critical of all agencies, but he's had special ire for doe, saying that DOE had never exercised its quote, unquote, organic other transactions authority.
- [50:12]
And for context for listeners, Rick Dunn is the Kind of the godfather of other transactions authority in some ways. Just to throw that out there, he.
- [50:19]
Was the general counsel for darpa. He was part of many of the NASA other transactions that were, that were executed. Now he actively is out there, you know, providing thought leadership, sharing his institutional knowledge from back in the day. So had many conversations with Rick Dunne. And one of the things that within DOE was generally believed was that DOE does not have the same other transactions authority as NASA because there's a one word difference in our statutes.
- [50:47]
What's the word difference?
- [50:49]
The NASA statute read something along the lines of the Secretary, the Administrator has the authority to enter into grants, leases, cooperative agreements and other transactions. And the DOE organization Act in 1977 had language along the lines of, of the Secretary has the authority to enter into grants, contracts, leases, cooperative agreements and other similar transactions. So this word similar was different.
- [51:16]
It's not other transactions, it's other similar transactions.
- [51:20]
So for years and years everyone would say so there is a clear distinction. And therefore DOE does not have NASA's.
- [51:27]
Authority because otherwise why would it be different?
- [51:29]
Yeah, okay, so we agonized over this. And so part of this working group, and I can't emphasize it more, the people were so energized to look at the legislative history, they went deep into the legislative history. And so in the committee hearings, I'm.
- [51:46]
Going to pull it up. While you're saying it, I'll pull it.
- [51:48]
Up myself because there's this incredible quote from John Dingell in one of the committee hearings in April of 1977. So the DOE Organization act gets passed.
- [51:57]
In October and John Dingell is who.
- [52:00]
Remind us, he was the chairman of the Energy and Commerce Committee, one of the strongest chairmen of the ENC Committee in many ways you could call him kind of the father of the Department of Energy. He had envisioned this department to kind of be the solution to the energy crisis. And so in the committee hearing there's this great quote where John dingell says, Observe, Mr. Chairman, the great breadth of authority that the Secretary gets. He may enter into and perform contracts, leases and grants. You have cooperative agreements and other transactions with public agencies and private organizations and persons. He can do literally almost anything he wants to in terms of expending money and making agreements. That is very, very broad authority.
- [52:47]
So you go back to the legislative debate and you're like, yeah, you got that.
- [52:51]
And then you've even got a concurrence from the minority in the committee hearing. So this.
- [52:55]
Everybody agrees, everybody agrees.
- [52:57]
And so they very closely modeled this after the Space Act. So. And that's also clear in the committee hearings. And so this leads us to put together a memo which the General Counsel Sam Walsh signs the next summer of 2023 saying actually DOE does have this broad other transactions authority from its inception. And it's not just this one quote from the committee hearing, but when you look at the whole historical context of why DOE was set up. DOE was set up to be a wartime agency. Essentially we were considered to be in a wartime footing in the midst of the energy crises. And you look at all these different quotes in the Organization act that say there's a grave energy crisis and DOE is meant to help solve this. And when you're setting up a new agency, you don't know what that agency is going to have to undertake one day, which is why you entrust that agency with broad authority like this.
- [53:54]
Yeah. So what did you end up doing with that revised other Transactions Authority guidance?
- [54:00]
So pretty quickly you, you would start seeing. So the first thing you saw is so this demand side support for hydrogen. The Office of Clean Energy Demonstrations put out a solicitation for a independent entity to help potentially provide contract for differences and help seed a new hydrogen market. In their solicitation itself, they explicitly said we will enter into agreements pursuant to 42 U.S.C. 7256A. That is the line of the original DOE Organization Act. The other transactions authority that I mentioned that's cross referenced to Dods, that's 7256G. Now you've got both of these authorities together and actually they work very well together because the subsection G authority provides broader IP flexibility. The subsection A authority provides broad flexibility for everything else that's not ip essentially.
- [54:52]
You love this stuff.
- [54:53]
Yeah, I really do.
- [54:55]
Yeah.
- [54:56]
And so in January of this year of 2025, DOE finally also updated the original OT regulations from 2006. So that was almost 20 years in the making. So that was the technology investment agreement, TIA's authority that came under the regulations from 2006. DOE updated that to pretty much actually were not limited by what DoD was doing anymore. And our IP flexibility is broader. Also we have this broader 7256A, original OG Other Transactions Authority. And similarly in a recent solicitation for Gen 3 plus nuclear reactors, the Office of Clean Energy Demonstrations put out a solicitation saying we're going to enter into two contracts at least that are other transactions contracts. And the reason for this is because we're not just contracting with the developer, we're going to contract also with the developer and a potential off taker or fuel supplier as well. So recognizing that there may be multiple stages of this grant agreement where there may be different entities that join this team teaming arrangement. And so there's a need for other transactions authority because we're going to have to develop a pretty bespoke contract to do this thing.
- [56:10]
And just flesh that out for me in that case is because looking for new nuclear reactor models and you want to be able to catalyze that industry.
- [56:17]
And there we. And one of the problems in the nuclear industry is filling out the order book for that reactor. Right. And, and make sure, making sure that you have offtake agreements. And so you have kind of this chicken and egg problem that no one wants to buy the electricity without knowing what the price is going to be. No one wants to build the thing without knowing what people are going to buy, you know, the electricity for. And DOE as an agency can help kind of catalyze that and smooth that.
- [56:47]
Yep. I know we're close to time, but just on your work on OTAs, if you could go back into the Department of Energy, knowing what you know now, and you run through that playbook again, what would you have done differently? Would you have tried to start the OTA working group earlier? Would you have written the guidance differently?
- [57:05]
Yeah, I wish we had kicked off. So we called this the Innovative Funding Mechanisms Working Group. I wish we had kicked that off even sooner. But that being said, I mean, institutional change generally also takes time. Among the things that came out of this effort was so we put this OT guide out publicly because the idea was this is not just to change the zeitgeist within doe, but it's also to make sure that everyone outside knows we're open for business now to do other transactions.
- [57:33]
You do funky interesting stuff that you couldn't contract with us before, talk to us.
- [57:37]
Right. We set up a whole training program within the department. So this comes back to statecraft, state capacity. You have to kind of build that muscle within the department. I do wish we had started perhaps even a year earlier, but I honestly didn't even know really what OTs could unlock, you know, in 2021. Yeah, like there'd been a lot, like I said, a lot of talk about OTs, but it felt very loose. You didn't really know what the use case could be until people were seriously discussing what the Bipartisan Infrastructure Law programs could do or what eventually the Inflation Reduction act programs could do. Also, we were deep in the throes of negotiations and providing Technical assistance to the drafting of the bipartisan infrastructure Law and the Inflation Reduction Act.
- [58:20]
Yeah, let's say Dems are back in the presidency in 2029 and, and they've got these tools available to them at the Department of Energy. What do you want to see? What kinds of contracts do you want to see made then?
- [58:33]
I would actually say even earlier, it doesn't matter. Democrat or Republican, even this administration. Energy Secretary Chris Wright is a supporter of nuclear energy, supporter of geothermal energy. There's so many different. And these are programs that do we still have significant grant dollars to help catalyze these industries? The Department of Energy today can very much take advantage, continue to take advantage of OT authority. But yeah, looking out to 2029, I think there can be a lot more innovative program design for the foreseeable future in the clean energy space. You're going to have a lot of market formation challenges, especially in the face of cheap clean energy products coming in from other countries. And there is a need for industrial policy to help stand up and catalyze industries, other transactions. Authority lets you be more nimble as a government agency. And I do want to actually emphasize one point, which is just because you have OT authority doesn't mean, you know, the cat's out of the bag. There's no guardrails at all. The reason we wrote the guide and the reason we wrote all this internal guidance as well, is to ensure that there's still guardrails. In fact, we even briefed the Inspector General's office right after this effort ended to make sure that they were fully aware of what we were opening up. And we set up all these, you know, processes to make sure that there were checks and balances even for executing an OT agreement. That being said, there's a fine balance. You don't want OTs to become the new cooperative agreement that eventually there's only three ways of doing an OT that defeats the purpose, as Rick Dunn would say.
- [60:03]
All right, well, Narayan, thank you so much for joining.
- [60:05]
Thank you for having me.