President Obama's Department of Energy helped finance
several green energy companies that later fell into bankruptcy -- but not
before the firms doled out six-figure bonuses and payouts to top executives, a
Center for Public Integrity and ABC News investigation found.
Take, for instance, Beacon Power Corp., the second
recipient of an Energy Department loan guarantee in 2009. In March 2010, the
Massachusetts energy storage company paid cash bonuses of $259,285 to three
executives in part due to progress made on the $43 million energy loan,
Securities and Exchange Commission records show. Last October, Beacon Power
filed for Chapter 11 bankruptcy.
EnerDel, maker of lithium-ion battery systems, landed a
$118.5 million energy grant in August 2009. About one-and-a-half years later,
Vice President Joe Biden toured a company plant in Indiana and heralded its taxpayer-supported
expansion as one of the "100 Recovery Act Projects That Are Changing
America."
Two months after Biden's visit, EnerDel corporate parent
Ener1 paid $725,000 in bonuses to three executives -- including $450,000 to
then-CEO Charles Gassenheimer, who led Biden on the tour. This January, Ener1
filed for Chapter 11 bankruptcy protection.
At least two other firms that benefited from Energy
Department funding -- one a $500,000 grant, the other a $535 million loan
guarantee -- handed out hefty payouts to executives and later went bankrupt.
The Department of Energy, asked about the payments examined
by the Center and ABC, said it is troubled by the practice and intends to
convey that message to loan recipients.
"We don't begrudge companies or their executives for
their success, but it is irresponsible for executives to be awarded bonus
compensation when their workers are losing their jobs," said department
spokeswoman Jen Stutsman. "We take our role as stewards of taxpayer
dollars very seriously, and as such, we will make clear to loan recipients our
view that funds should not be directed toward executive bonuses when the rest
of the company is facing financial difficulty."
The bonuses and bankruptcies come against a growing wave of
trouble for companies financed with Energy Department dollars. Of the first 12
loan guarantees the department announced, for instance, two firms filed for
bankruptcy, a third has faced layoffs and a fourth deal never closed.
The nonprofit Citizens Against Government Waste counts
nearly 20 energy companies that have gotten federal loan guarantees or grants
that have run into financial trouble ranging from layoffs to losses to
bankruptcies. An outside consultant hired by the White House said the Energy
Department's loan pool includes $2.7 billion in potentially risky loans and
suggests the agency hire a "chief risk officer" to help minimize
problems.
To watchdogs, the pattern of firms awarding bonuses only to
file for bankruptcy raises questions about how well the Energy Department chose
its winners, and how thoroughly it kept an eye on them once selected.
"Giving a bonus to the executives under these
circumstances is rewarding failure with our money with no chance of getting it
back," said Leslie Paige, spokeswoman for the nonpartisan Citizens Against
Government Waste.
"Taxpayers need some representation here. They didn't
really get it."
The setbacks have sharpened the focus on the president's
environmental mission, already under scrutiny following the collapse of
Solyndra Inc., the first recipient of an Obama green energy loan.
Solyndra, bankruptcy records show, was among the companies
doling out thousands in executive payments -- in its case, just months prior to
its late August collapse and early September bankruptcy. As a criminal
investigation and House inquiry continue into the company's implosion, the
government must navigate bankruptcy proceedings in hopes of recovering a piece
of its $535 million investment.
In interviews, executives with companies backed by public
dollars defended the payments as proper. Some said bonuses were granted for
work done in a previous year, before financial storm clouds had fully
developed, and that the executive cash infusions were sometimes linked to broad
corporate milestones.
One company executive said the Energy Department explicitly
allows for federal funds to be used to pay out executive bonuses.
DOE does not set salaries and benefits of companies it
backs, "but we do closely scrutinize all of the expenses submitted by the
companies before they are reimbursed to ensure that taxpayer dollars are being
used appropriately," said spokeswoman Stutsman. "Funds are paid out
as the work is actually completed."
Secretary Steven Chu declined an interview request. The
department has long defended the green energy movement as a way for government
to help spur development of cutting-edge products that aid the environment and
economy. Sometimes, they say, investments in potential game-changing
technologies simply don't work. The potential default rate, they say, is within
the parameters set by Congress.
Yet some members of Congress -- already concerned about
lucrative paydays at bankrupt Solyndra -- say they're particularly troubled
that failed companies backed by Energy Department funds would pay bonuses at
all.
"Any company that's going into bankruptcy or any
executive that ran a company into bankruptcy shouldn't be getting bonuses in
the first place," said Sen. Charles Grassley, R-Iowa, former chairman of
the Senate Finance Committee. "In the case where there might be federal
grants or federal loans, I would be very concerned."
Grassley added: "The purpose of our grants for energy
or almost any other grant of government is for the purpose of innovation. It's
not for the purpose of feathering the nest of a private company
executive."
Bruce Kogut, director of the Sanford C. Bernstein Center
for Leadership and Ethics at the Columbia Business School, said it is not
uncommon for corporate bonuses to be awarded when executives meet key
achievement milestones.
"The problematic issue," Professor Kogut said, is
giving out bonuses "near the time of bankruptcy."
Solyndra executives, bankruptcy records show, pocketed
thousands in payments just months before the company dismissed 1,100 workers.
At least 17 company executives received two sets of payments -- ranging from
$37,000 to $60,000 per payment -- on the same days in April and July 2011. The
insider payments, reported last year in the San Jose Mercury News, came as the
company catapulted toward bankruptcy in early September. A Solyndra spokesman
did not reply to interview requests.
Solyndra's crash last August put a sharp focus on the
selection process the Energy Department follows in awarding taxpayer dollars.
The administration backed the upstart firm despite concerns even from some
government officials worried about Solyndra's financial viability, email
records show. And energy officials committed to the financing before all due
diligence was in hand.
Not as well-known are three other firms backed by Energy
Department dollars -- ranging from $500,000 to $118.5 million -- that also
suffered financial downturns. As with Solyndra, each corporate entity rewarded
executives prior to its bankruptcy filing.
One example: Ener1, whose subsidiary EnerDel won the $118.5
million Energy Department grant in 2009 to help expand its manufacturing plant.
The company also received supportive write-ups on the DOE website.
Vice President Biden's January 2011 visit to the company's
Greenfield, Indiana, plant was part of the government's "White House to
Main Street Tour."
"This Administration is forging a new path forward by
making sure America doesn't just lead in the 21st Century, but dominates in the
21st Century," Biden said after a tour with Ener1 CEO Gassenheimer.
"We're not just creating new jobs -- but sparking whole new industries
that will ensure our competitiveness for decades to come -- industries like
electric vehicle manufacturing."
A White House report listed the EnerDel project as No. 67
among the "100 Recovery Projects that are Changing America."
In March 2011, Gassenheimer was awarded a $450,000 bonus,
SEC records show. Two other Ener1 executives pocketed bonuses of $225,000 and
$50,000 for a total payout of $725,000.
In January 2012, one year after Biden's visit, Ener1 filed
for bankruptcy, citing $73.9 million in assets and $90.5 million in debts.
Energy officials noted that while the bonuses were paid to
executives from Ener1, the government grant went to a subsidiary called
EnerDel, which was not part of the bankruptcy case. But the two are closely
related -- bankruptcy records show EnerDel now provides all of the employees
for the parent company. And the distinction is new for the Energy Department --
a press release touting Biden's visit referred to the parent company Ener1 as
the recipient of administration support, not EnerDel.
Gassenheimer, reached for an interview, said he could not
comment. He is no longer with Ener1.
A company spokesman said the bonuses were paid through
Ener1, the corporate holding company, not EnerDel. DOE said the subsidiary's
project is on schedule, and an Ener1 spokesman said the battery company aims to
get back on its feet through reorganization.
Beacon Power's bonuses were specifically linked to
executives' progress in landing the company's $43 million Energy Department
loan guarantee in 2009.
Securing the loan was among the measures used to establish
how much executives would pocket in bonuses, company SEC filings show.
"The DOE loan application was approved by the credit review board, making
us the first public company and the second of 16 applicants to receive the
commitment," the document notes.
President and Chief Executive Officer F. William Capp
received a $133,256 cash bonus in March 2010. Two other company officials
pocketed combined bonuses that month of $126,029.
In an interview, Capp said the company's pay structure was
reasonable and that executives took pay cuts in a bid to help Beacon Power
survive.
"The record is clear on that. The executives have not
enriched themselves," Capp said. "We all agreed to take a 20 percent
reduction in pay just to make the funds last longer in order to keep the team
together. There's hardly been self-enrichment."
Last week regulators approved Beacon Power's sale to an
equity firm that should help it repay $25 million of the $39 million Beacon had
drawn down from the loan. The company, under new ownership, plans to continue
operating the 20-megawatt flywheel energy storage plant in Stephentown, New
York, a project the department said would "ensure the reliable delivery of
renewable energy to the electricity grid." It hopes to build a second
plant in Pennsylvania.
Capp blamed the bankruptcy on a variety of factors,
including government fears about restructuring loans after Solyndra filed for
bankruptcy. His firm, he said, got swept up in "Hurricane Solyndra."
'It All Happened So Quickly'
Other energy companies struggled in the storm.
Among them: SpectraWatt, a New York state manufacturer of
silicon solar cells. In 2009, SpectraWatt secured a $500,000 grant from the
DOE's National Renewable Energy Laboratory Photovoltaic Technology
Pre-Incubator program. In March 2010, U.S. Labor Secretary Hilda L. Solis and a
local congressman toured the company's Hudson Valley Research Park in Hopewell
Junction, N.Y., highlighting the wave of coming green jobs.
"President Obama and I understand and believe that the
first thing we have to do to turn the economy around is provide American
families with good jobs," Secy. Solis said, according to a SpectraWatt
press release. "That is why we are committed to investing in greening our
economy."
Yet, not long after, the company's momentum suddenly
halted.
Last August, SpectraWatt filed for Chapter 11 bankruptcy
protection.
"It all happened so quickly," Richard J. Haug,
SpectraWatt's President and COO, said in an interview. The company's innovative
technology, he said, butted up against changing market and pricing conditions,
competition from the Chinese -- and the fact that some early investors did not
follow through.
"They couldn't locate any new money," he said.
"It was very disappointing."
While the DOE's early grant supported research and
development, Haug said, a later funding request was denied. Last March, he
said, the company laid off its workforce and effectively shut down. "It
became increasingly difficult for us to make any more money. By the end of 2010
we basically dropped down to a cash level … that by March we would be out of
business," Haug said.
In March, the big payouts began. Five company executives,
including Haug, received six-figure payments in late March or early April 2011,
bankruptcy records show. The five "insider payments" totaled more
than $745,000.
Haug said the payouts were not bonuses, but accrued
vacation and pay for executives that had been spelled out in severance
agreements. "There were no golden parachutes," he said. "This
was a very straightforward very honest group of people. I'd go to work with
them again anytime."
Energy officials noted that their early investment in
SpectraWatt was relatively small compared to other project financing. Late last
year, the company held auctions to sell off its plant and property.
In recent weeks, several other companies backed by DOE
dollars have encountered deep financial woes.
At least six Energy Department loan and grant recipients --
from electric car maker Fisker Automotive to electric-car battery maker A123
Systems to Colorado-based Abound Solar -- have laid off workers or suffered
financial woes. Those setbacks come on top of the companies that have already
filed for bankruptcy.
Administration officials, from Obama on down, say they
continue to support the green energy mission. "There were going to be some
companies that did not work out," Obama told reporters in October, after
Solyndra's meltdown. "All I can say is the Department of Energy made these
decisions based on their best judgments."
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