A Senate appropriations panel will consider a measure that would prevent the Department of Energy from subordinating taxpayers to private investors in the repayment of federally guaranteed loans. The measure is the first legislative proposal created in response to the Solyndra scandal.

Sens. John McCain (R-AZ) and Tom Coburn (R-OK) will offer the measure as an amendment to the spending bill currently making its way through the Senate Appropriations Subcommittee on Energy and Water Development.

The amendment reads:

None of the funds made available by this Act may be used by the Secretary of Energy to provide the cost of loan guarantees that, in any circumstances at the time of, or subsequent to, the issuance of a loan guarantee, make the Secretary subordinate to other financing.

As Scribe reported in the Washington Examiner, DOE developed an unprecedented interpretation of the Energy Policy Act of 2005 in its drive to refinance now-bankrupt Solyndra’s federally-backed loan in January.

The law explicitly prohibits private investors receiving a return before taxpayers in the event of a bankruptcy. But DOE’s restructuring agreement – backstopped by its new legal interpretation – put private investors in the front of the line to recoup $70 million of their investment in the defunct solar company before taxpayers saw a dime.

By DOE’s logic, the law prohibiting subordination only applied to the initial loan guarantee award, and not to any subsequent restructuring agreement. Solyndra was the first – and to date the only – company to benefit from that new legal interpretation.

House Republicans leading the Solyndra investigation have accused the administration of blatantly violating the law. DOE insists that its Solyndra restructuring was perfectly legal. In any case, there is no recourse written into the Energy Policy Act even if illegality were to be firmly established.

The McCain-Coburn amendment would remove some of that uncertainty by explicitly prohibiting DOE from subordinating taxpayers at any stage of financing, but it would keep the loan guarantee program itself intact.

“This amendment provides more clarity to the current law,” noted Heritage energy policy expert Nick Loris, “but the only way to fully protect American taxpayers is to remove funding for the loan guarantee program. The Department of Energy shouldn’t be gambling with other people’s money.”