Bloom Energy’s “tangled web”
By Paul Driessen and Clint Laird
Bloom Energy executives, investment bankers, venture capitalists, politicians, regulators and others involved in advancing Bloom’s business, reputation and financial dealings are living the complicated life that flows from lying. Lies typically start small. Often, they’re small deceptions. But deceptions can metastasize into a tangled web of lies that threatens corporate survival, as truth intrudes over time from all sides.
For years the truth about Bloom’s business and ethics has intruded. But Bloom successfully parried them, going public on the New York Stock Exchange in July 2018. Its stock came out at $15 and has doubled.
Prior to going public, a competitor’s CEO said he hoped the oft-delayed IPO would happen because it would force Bloom to “dial back their practice of playing very loose with the truth.” He meant the Securities and Exchange Commission would be watching, to protect the public. He proved prophetic.
Within a day of going public, Bloom’s PR people were walking back its CEO’s rosy, inappropriate and unfounded financial predictions. Death by a thousand SEC and other cuts is the fate that awaits Bloom, now that it’s public. It may come sooner and with greater effect than most over-hyped green company failures – especially after a recent Heritage Foundation program exposed many of its shenanigans.
Bloom makes solid oxide fuel cells, which use an electrochemical reaction to convert natural gas into electricity on the customer’s site. Bloom claims cost advantages in generation and from no transmission lines.
Bloom also claims its “green” electricity costs 9-11 cents per kilowatt-hour (kWh), close to what its competitors charge. But Bloom’s promoted rates come after it receives federal, state and sometimes county subsidies. Absent these, Bloom’s rates would be 25-30 cents a kWh, making it seriously uncompetitive. Even its IPO statements admit a critical dependence on subsidies.
Bloom claims “greenness,” but the USEPA says its fuel cells produce hazardous materials in the filters needed to “scrub” impurities from the natural gas. While acknowledging the hazmats, Bloom claims it is somehow exempt from being labeled a “hazmats generator” – which is critical for Bloom’s marketing.
EPA and Bloom are battling this in the courts. Meanwhile, at least one Bloom customer has paid an environmental fine (without admitting fault) for improperly handling (Bloom’s) hazmats. If Bloom loses this lawsuit, it has another hazmat exemption up its sleeve. Get cut by a sword, parry a stroke, get cut by another.
Everyone likes being green. Apple brags it’s 100% green, although its solar panels and Bloom generators at the Maiden, NC site don’t provide electricity to Apple. Instead, this electricity goes directly to Duke Power, which must pay top retail prices when the sun shines and Bloom cells function. Apple reaps this income while also getting Duke Power’s lowest rates as a high-volume customer. What a sweet arrangement.
But what Apple and other Bloom customers really like are the subsidies they receive when installing “virtuous” Bloom generators. A manufacturer can sell a lot of anything when someone else pays for it. Of course, in this case, the “someone else” is taxpayers and ratepayers.
The federal Investment Tax Credit for fuel cell manufacturers like Bloom ran out in 2016. Sales predictably declined. But Senators Carper (D-DE), Blumenthal (D-CT) and Schumer (D-NY) successfully lobbied to reinstate the ITC retroactively for 2016 and into the future. That will cost the taxpayers between $600 and $900 million. The fuel cell industry will show appreciation in Washington’s typical swampy ways.
Thanks to the ITC reinstatement, Bloom also got fawning financial reporting, and its much-delayed IPO became a reality. The company had been running on fumes and losing $30 million per month. The instant $270 million in reinstated subsidies breathed new life into it.
Bloom’s financial parent is the impressive venture firm Kleiner Perkins. In February 2010, KP’s chief John Doerr put top executives from Google, eBay, Walmart, FedEx and Coca-Cola onstage to promote Bloom technology. To open his long adulation, Doerr said the event reminded him and Google co-founder Larry Page of Google’s own IPO. His slick, alluring statement helped bolster Bloom’s prominence and value.
Page then praised Bloom, saying Google was Bloom’s first customer and he foresees Bloom powering a “whole data center running on [its fuel cells] at some point” (time mark 15:55 in the video). But Google installed only four 100 kW Bloom generators at its headquarters in July 2008. This is a pittance, and only one generator “needed to work” at a mere 60% capacity for just 30 days to permit or persuade Google to endorse Bloom’s technology and help Morgan Stanley raise $100 million for Bloom later that year.
Since then, Google has added no more Bloom generators – an endorsement of a very different sort.
Other deceptions played out in Delaware, where Bloom cut a sweetheart deal involving 30 megawatts of fuel cell generating capacity (75 times Google’s total install) and a virtually free manufacturing facility. Bloom promised 900 jobs, monthly consumer costs of under $1, and 96% operating “up” time. They delivered 277 jobs, $5/month (and rising) electricity costs and 86% “up” time.
The missing jobs triggered a $1.5 million penalty – versus the $12 million that Delaware paid Bloom to locate there and some $200+ million that Bloom has received so far from state ratepayers under its sweetheart deal. The 623 missing Delaware jobs are in India.
In 2013 Bloom was found guilty of hiring Mexican workers for a third of the federal minimum wage and paying them in pesos. It also violated overtime and record-keeping provisions.
These ethics violations and operational deceptions highlight bigger questions. Can a company actually thrive or even survive if it has lost $2+ billion, has annual interest expenses exceeding $100 million, and produces a product that exists only because of multiple subsidies? Can the company be kept on life support and “media spin” long enough for insider investors to cash out?
(But would you want to bet against Kleiner Perkins and its powerful business and political accomplices?)
It’s instructive that several top Kleiner Perkins people have recently left or announced their departure; its top tier has shrunk from nine to five. This month, top tier player Mary Meeker announced that she and her team will leave to form their own firm. It’s rumored that these departures were precipitated, at least in part, by KP’s decisions to back “clean tech,” the financial disappointments from that decision, and rumblings about misstatements of material facts to legislators and regulators.
Several years ago, Advanced Equities investment bank executives argued that Bloom (and others) had misled them, and they in turn simply passed the deceptions on to investors. In 2012, the SEC shut the bank down and fined two of its top executives for doing insufficient due diligence. It will be interesting to see how the SEC and other government agencies treat KP executives and others involved in Bloom’s web of deception.
Equally intriguing, in filing for its IPO, Bloom disclosed large payments to the two Advanced Equities execs – including post-IPO shares, hundreds of thousands of preferred shares and warrants, and a $5 million loan. Many wonder, were these payments and their accompanying non-disclosure agreements illegal hush money?
Others say Bloom personifies influence peddling among the swamp denizens of Washington and state legislatures. Eventually taxpayers and ratepayers will demand comprehensive reform to end this behavior. Savvy Wall Street analysts are already catching on.
In Delaware, Bloom’s costs are transparently displayed on monthly consumer electric bills. People are already asking, “What are all these renewable energy charges, and why do we have to pay them?”
In 1906, Upton Sinclair’s The Jungle portrayed the harsh conditions and exploited lives of immigrants in Chicago, exposing the meat-packing industry’s flagrant corruption. Despite the absence of radio and television at the time, the book created a national uproar and call for reform, which quickly resulted in the Meat Inspection Act and the Pure Food and Drug Act of 1906.
Today’s digital and social media could (and should) generate taxpayer and consumer reactions to Bloom’s crony corporatist subsidy saga akin to public response to The Jungle. Consumers will learn to trust their electric bills, not the tangled web of deceptions woven in our political swamps.
Paul Driessen is senior policy analyst for several think tanks and author of books and articles on energy, climate change and economic development. Clint Laird focuses on energy issues for The Caesar Rodney Institute, a research and education think tank that promotes public policy cost transparency.