by David Flint
Beacon Power’s frequency regulation plant in Stephentown is still running, but the company has filed for bankruptcy.
On Sunday, October 31, the parent company along with its subsidiaries, Stephentown Holding LLC and Stephentown Regulation Services LLC, requested relief under Chapter 11 in U.S. Bankruptcy Court, District of Delaware. Total assets were listed as $72 million and total debts as $47 million. The company has asked permission to use cash collateral assets to facilitate restructuring and to continue operating during bankruptcy proceedings
Stephentown Town Supervisor Larry Eckhardt said he was shocked to hear that Beacon had filed for bankruptcy. He had mentioned at a recent Town Board meeting that he thought their technology was brilliant, but he wondered about economic realities and whether the company could actually begin to earn money for its investors. He thought that if it came to a crunch, however, Beacon might ask for extension of loans rather than enter bankruptcy. “But maybe this is the better route,” he said, “Chapter 11 allows for reorganization. They are not calling it quits. It’s not like the lights are off and nobody’s home.” Eckhardt was not sure what effect the bankruptcy would have on Beacon’s property tax payments or the escrow accounts that the company has with the Town of Stephentown. He would have to research that and the status of the Town as a creditor with the Town’s attorney.
Since its founding in 1997 the company has been basically in a research and development mode. They began developing their flywheel systems in 2002 to act as a sort of high speed storage battery for regulating electricity flow on the grid. Their first commercial plant, on Grange Hall Road, enabled with a $43 million loan guarantee from the US Department of Energy (DOE), was completed just this past June. Some revenue began coming in earlier in the year when the plant was only partially complete. But until a ruling by the Federal Energy Regulatory Commission (FERC) just last month, the flywheel regulation, though much speedier, could be compensated only at the same rate as that provided by fossil fuel powered plants.
According to Bill Capp, Beacon Power President and CEO, revenues were just not sufficient to support business operations that included building a first rate technical team, refining technologies, perfecting and protecting patents, obtaining regulatory approvals and producing new flywheel systems. The company has been operating at a loss, he said, and, “In addition, the current uncertain economic and political climate, loan conditions mandated by the Department of Energy, as well as Beacon’s recent delisting notice from NASDAQ (because the stock price was below $1), have severely restricted access to additional investments through the equity markets.” Capp and Beacon’s Board of Directors therefore saw filing for Chapter 11 as “a necessary and prudent step that will allow us to operate our business without interruption. We will use the Chapter 11 process to more rapidly restructure our overhead, pursue potential investors and definitively resolve our loan obligations. In the meantime, our 20 MW flywheel plant in Stephentown is functioning at full capacity, and it is our intention for it to remain operational.”
Beacon Power has been linked in the news lately with Solyndra, a manufacturer of solar panels that went bankrupt two months ago. Solyndra had also received a DOE loan guarantee. Theirs was in the amount of $535 million. Florida Republican Rep. Cliff Stearns, who is leading an investigation into the Solyndra bankruptcy, said of the Beacon filing, “This latest failure is a sharp reminder that DOE has fallen well short of delivering the stimulus jobs that were promised. Now taxpayers find themselves millions of more dollars in the hole.”
But Capp pointed out important differences in the two situations. Beacon, he said, used the funding to build a first-of-its-kind flywheel energy storage plant that provides a critical electric power balancing service, is fully operational and is earning revenue with excellent performance. Solyndra built a facility to manufacture proprietary solar panels, the contents of which are being auctioned off. And, whereas Solyndra closed its doors immediately, firing more than 1,000 employees, Beacon employees remain on the job and all have accepted a 20% pay reduction. He noted, too, that the DOE is first in line as the sole secured creditor of the Stephentown plant, unlike the Solyndra situation where DOE is second in line behind a $75 million private loan.
“Despite the need for this restructuring, we believe that our long term prospects are favorable,” Capp said. “Our goal in taking this action is to minimize job loss and to continue to find ways to apply our innovative technology in the frequency regulation and energy storage markets. We remain committed to maintaining our business and shareholder relationships and aim to resolve this matter as quickly and efficiently as possible.”
DOE spokesman Dan Leistikow, in a statement on the Department’s website, defended Beacon’s loan guarantee and affirmed some of Capp’s distinctions with respect to the Solyndra case. “The Stephentown facility,” he said, “is equivalent to a ‘shock absorber’ for the power grid, in the sense that it can absorb sudden power surges and make up for sudden losses of power. It is the first of its kind in the world and the largest operating flywheel or battery energy storage facility in North America. Ultimately, similar facilities could be built around the country and exported around the world.” He noted that the loan guarantee was for the project and for Stephentown Regulation Services, which owns the plant. That subsidiary is not responsible for the liabilities of the parent company, and the DOE is the only senior, secured lender of SRS. The plant itself – which continues to operate and is earning revenue – is collateral on the loan, in addition to which the company has cash reserves and proceeds from plant operation that it was required to hold as collateral on the loan. And because the plant came in under budget, $4 million of the loan guarantee amount has not yet been tapped by the company.