$1 million payday, but a green energy bust Featur
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Featured: Charles Gassenheimer, former CEO, Ener1
Originally published: March 13, 2012
Imagine being a CEO who collects a six-figure bonus that equals 75% of your salary, just three months before a major customer blows up and about nine months before your company files for bankruptcy in part because of that blowup.
And all the while, your company is getting tens of millions of dollars in U.S. taxpayer subsidies.
Nice deal -- and a tangled tale. But in the world of subsidized green-energy companies, it seems to be par for the course.
You've probably heard about Solyndra , the taxpayer-subsidized green energy company that handed out big bonuses right before it went bankrupt. So now, let me introduce you to another example of this taxpayer subsidy-bonus-bankruptcy merry-go-round.
This one features Ener1, a lithium-ion battery company run at the time by CEO Charles Gassenheimer -- whom I'm making my latest "One-Percenter of the Week."
Ener1 handed out $725,000 in bonuses to top execs in March 2011, just three months before trouble at a major customer set Ener1 on a path to bankruptcy. CEO Gassenheimer got a $450,000 bonus on top of his $600,000 salary -- not huge by CEO standards, but 75% of his annual paycheck.
This was just a month after his company extended extra loans to a foundering customer that would fail three months later, helping push Ener1 over the edge. "It doesn't look good," says Tom Schatz, the president of Citizens Against Government Waste. "Congress threw billions of dollars at these programs, and these bonuses are raising the ire of taxpayers."
A rich road to ruin
Here's the background to this tale of subsidies, bonuses and bankruptcy, one that's apparently fairly common in the world of green energy, according to recent research by the Center for Public Integrity .
At the start, this situation looked good on paper. Ener1 was a promising developer of lithium-ion batteries used in hybrid cars and industry, and it may still be. It had prestigious names on its customer list, including Volvo . (Ener1 stock trades over-the-counter as HEVVQ .)
Its lithium-ion battery subsidiary, called EnerDel, won a $118.5 million grant from the Department of Energy in August 2009 to build U.S- based plants that make batteries for hybrid vehicles. The money was part of a $2 billion federal stimulus plan to promote green-energy battery plants in the U.S. The company was paid by DOE as it purchased equipment, and it had to match grant money with equal amounts of its own funds.
Through the end of 2010, it had received $44.7 million in grant money from the DOE. So far, so good.
But in March 2011, the company reported dismal earnings results for the prior year. It also handed out the bonus to Gassenheimer. It's not entirely clear to me why.
I realize Ener1 posted an impressive 112% increase in 2010 revenue to $77.4 million, and a bump in gross profit margins by 18%. And technically, the CEO did meet some of the criteria for a bonus. He limited the company's cash burn by enough to qualify. And revenue grew enough for him to hit the sales growth hurdle, but just barely. He cleared that hurdle by just $100,000 in sales.
But Gassenheimer came up decidedly short on several counts. He missed the goal for new business, which required him to add just one customer in 2010. And expenses rose faster than sales in 2010. Net losses -- which matter most to investors -- jumped 34% to $68.8 million from $51.5 million.
Plus, trouble was brewing. Just a few weeks before the bonus was paid, on Feb. 28, 2011, Ener1 announced that it had upped its line of credit to a customer named Think Global , a Norwegian company that was buying batteries from Ener1 to use in its Th!nk City electric cars. The line of credit jumped to $15 million from $5 million.
Just a few months later on June 22, Ener1 announced that Think Global was filing for bankruptcy, one of several times it has done this, forcing Ener1 to eat $35.4 million in losses.
When Ener1 itself filed for bankruptcy in January, it cited the Think Global blowup as one of the reasons. In the bankruptcy reorganization approved last month, Ener1 survived with $81 million in financing from a Russian company called Bzinfin SA , enough to give the company a controlling stake in Ener1. Gassenheimer left the company in October.
So, in effect, U.S. taxpayers are now subsidizing a Russian company, via a company that handed out big bonuses to its top executives just before going bankrupt. In fairness, the same Russian company was a major stockholder at the time Ener1 was getting DOE money before the bankruptcy.
The good news is that Ener1's U.S. plants are still on track, and there were no U.S. job losses as a result of the bankruptcy, according to comments from the DOE and the company in Center for Public Integrity and press reports. Judging by DOE comments in the media, it has no intention of eliminating the subsidies. "While it's unfortunate that Ener1, the parent company, has entered a restructuring process," the investment of "private capital demonstrates that the technology has merit," said Jen Stutsman, a spokeswoman for the Energy Department. Both the DOE and Ener1 declined to comment on this report.
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