posted at 10:45 am on October 31, 2011 by Ed Morrissey
Stop me if this sounds familiar. The Department of Energy approves multi-million-dollar loan to green-tech energy firm as part of its job-stimulus bill, only instead of stimulating jobs, the company declares bankruptcy. In this case, it only took a year after the loan was granted for Beacon Power to file for protection from its creditors:
Beacon Power Corp filed for bankruptcy on Sunday, just a year after the energy storage company received a $43 million loan guarantee from a controversial Department of Energy program.
The bankruptcy comes about two months after Solyndra — a solar panel maker with a $535 million loan guarantee — also filed for Chapter 11, creating a political embarrassment for the administration of President Barack Obama, which has championed the loans as a way to create “green energy” jobs.
Beacon Power drew down $39 million of its government-guaranteed loan to fund a portion of a $69 million, 20-megawatt flywheel energy storage plant in Stephentown, New York.
Well, who could have seen this coming? Er … anyone who could read a ledger, apparently:
The Tyngsboro, Massachusetts-based company was spun off of SatCon Technology Corp in 1997 and went public in 2000. It said in documents filed with Delaware’s bankruptcy court that it had $72 million in assets and $47 million in debts.
Beacon currently operates at a loss and its revenues are not enough to support its operations, it said in court documents.
How well did Beacon operate? NASDAQ delisted the company not too long after getting the DoE loan, and no one else but the DoE was prepared to offer financing for a company that couldn’t turn a profit even with taxpayer-backed loans. Beacon blames this on the “current political climate,” but it sounds a lot more like the problem is Beacon’s current economic model.
That’s not the only noteworthy taxpayer-backed loan recipient to go under in the last few days. The other case doesn’t involve a green-tech firm, nor did its loan originate in the Obama administration. However, it’s a good object lesson in crony capitalism and in regulatory interference. Open Range promised that it could deliver high-speed Internet access via satellite to isolated, rural areas, but despite having a $267 million line of taxpayer credit, never delivered:
As the government prepares Thursday to commit billions of dollars to bring high-speed Internet to rural areas, the biggest-ever such project has collapsed.
The company Open Range, backed by a commitment of $267 million in loans from the Agriculture Department, filed for bankruptcy this month. Taxpayers are on the hook for $74 million that the upstart hasn’t repaid. And now the company, some analysts and a senior government official are blaming poor judgment and Washington bureaucracy as the reasons Open Range failed.
Democrats are demanding a probe of Open Range, thinking that the Bush-era loan guarantees will soften the blow of Solyndra and Beacon, among other Obama Porkulus flops. However, there is more to this story than just the original loan, and the Washington Post points to a regulatory effort to boost an Obama crony. In order to make its system work, Open Range had to get the FCC to approve waivers for usage of frequency ranges — but the FCC chose a different company to boost instead:
The FCC’s handling of the matter has come under scrutiny by lawmakers partly because the agency promoted a similar venture called LightSquared about the same time it was turning its back on Open Range. Critics of the FCC have accused the agency of favoring LightSquared because it is backed by Democratically connected hedge fund financier Philip Falcone.
“There is clearly the perception of favoritism,” said Tim Farrar, an independent analyst at TMF Associates. Farrar said his consultancy has no financial interests in LightSquared or Open Range’s venture. A similar charge was levied by Globalstar in a recent letter to the FCC.
Readers will remember the LightSquared story, where a 4-star Air Force general accused the White House of pressuring him to change his Congressional testimony to favor the firm, and a second witness got “guidance” to do the same. The House Oversight Committee is already probing LightSquared’s deal. What we can say at the moment that having government conduct these loans tends to distort the marketplace, and it’s hardly a coincidence that those distortions end up favoring political allies — at the expense of taxpayers.
Update: Verum Serum makes a notable catch on the Beacon Power story, which is that the firm was alerted to a possible NASDAQ delisting before the DoE granted the loan:
In mid-September , Beacon received word from NASDAQ that it was out of compliance with the exchange’s minimum trading-price of $1 per share. Beacon Power closed at 72 cents a share the day NASDAQ sent its notice. Beacon said it believes it meets applicable standards, other than the minimum bid price requirement.
So how did Beacon get the loan? The company spokesman explained in 2009:
Beacon is using the money to develop a 20 MW regulation plant at a site in Stephenton, NY. The site will use several 1 MW flywheels to store energy as well as electrical and technological equipment.
Company spokesman Gene Hunt said Beacon didn’t have financial advisors per se, just its outside law firm of Edwards, Angell, Palmer & Dodge. “We also used our in-house expertise and we have good relationships with our congressional members.”
Who needs financial advisers when you have Congressmen in your pocket? Other than taxpayers, I mean.
In: Regional News
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