Taxpayers line up for money from bankrupt Aquion Energy




Five years ago, Aquion Energy — flush with cash from investors and grant money from state and federal agencies — joined then-Pennsylvania Gov. Tom Corbett for some big news.

After considering “aggressive offers” from other states, the Carnegie Mellon University spin-out promising a “revolutionary” idea for battery technology announced it would open a manufacturing plant in Westmoreland County.

Mr. Corbett praised Aquion’s commitment to create more than 300 jobs in the region by the end of 2015. Aquion’s CEO, Scott Pearson, applauded “the efforts of the state, regional and local economic development agencies that worked closely with Aquion to make this expansion possible.”

Now it is the agencies that are lining up for money.

Aquion, which filed for Chapter 11 bankruptcy last week, received nearly $19 million in grants and loans from the Pennsylvania Department of Community and Economic Development. Because Aquion has failed to hold up its end of the bargain, the agency said it will pursue full recovery of that money in the bankruptcy reorganization proceeding.

“This announcement is a reminder of the critical need to ensure that taxpayer dollars for economic development projects are spent appropriately and that intended outcomes are met,” said David Misner, the department’s communications director, in a statement.

“Revenue recovered by DCED from companies that fail to live up to previous commitments will be reinvested to further promote economic growth in the Commonwealth,” he added.

Aquion’s bankruptcy comes as the state is pushing for tougher accountability measures for such grants and loans. In his 2017-18 budget proposal in February, Gov. Tom Wolf said companies that receive state economic development grants should be required to maintain any job created for at least five years after the grant was received, and keep operations in the state for at least eight years.

The state would require full repayment of the grant amount if a company fails to create the promised jobs. If a company leaves the state early, it would have to repay the grant, as well as a 10 percent penalty.

During the most recent fiscal year, the agency found 23 projects that received funding to be out of compliance, prompting the state to demand back about $2.1 million, Mr. Misner said.

At the time Aquion moved into its 250,000-square-foot space in East Huntingdon, leased from the Regional Industrial Development Corp. of Southwestern Pennsylvania, the company had convinced the state it was worthy of funding.

After all, the Lawrenceville-based company stood a chance to succeed in a hotly competitive market. Batteries like Aquion’s are considered the “holy grail” for widespread renewable energy development because they can store large amounts of energy for use during times when it is not easily produced — such as when the sun is not shining or when the wind is not blowing.

In applying for a funding package, Mr. Misner said, Aquion promised the state it would create 341 jobs and retain the 70 people it already employed. It said it would invest at least $64.4 million of private capital in the factory.

In exchange, the state approved a series of incentives, including an opportunity grant totaling $5.6 million; an Alternative Clean Energy grant of $2 million; and a “Discovered in PA, Developed in PA” grant of $1 million. It issued another $10 million in loans to be used for machinery and equipment and for development of the manufacturing facility.

The department monitored Aquion’s performance through annual updates beginning in 2013. In February 2016, the company reported to the state it had created 50 jobs and secured $108 million in private investment. At that time, the company asked for two more years to create the promised jobs, Mr. Misner said, and the state gave it a one-year extension.

The company is due to update the state by March 31 — “at which time DCED will respond accordingly in coordination with our legal department who is aware of the [bankruptcy] filing,” Mr. Misner said.

Aquion’s chief restructuring officer, Suzanne Roski, did not return a request for comment Monday.

In its bankruptcy filing, Aquion listed the $8.6 million grant money it owes the Department of Community and Economic Development as the top three creditors, among more than 200 creditors based around the world.

Short on cash

By many measures, Aquion Energy found success.

The company had been spun out from Carnegie Mellon University in 2009 by Jay Whitacre, a CMU professor of materials science and engineering, attracting funding from venture capital firm Kleiner Perkins Caufield & Byers. It can list tech entrepreneur Bill Gates among its believers.

It received hype and accolades as recently as seven weeks ago, when it was named the 2016 North American Company of the Year by the Global Cleantech Group, a San Francisco-based group that recognizes companies annually.

But the company said last week it ran short of cash to maintain its operations. “Despite our best efforts to fund the company and continue to fuel our growth, the company has been unable to raise the growth capital needed,” Mr. Pearson wrote in a statement.

There are few cases in recent memory of companies running aground or shutting down after receiving as much money as Aquion.

In 2015, food giant Kraft Heinz, after forming by the merger of Pittsburgh-based H.J. Heinz and Chicago-based Kraft Foods, announced it would shut down a plant in Lehigh Valley, after Kraft had received a grant from the Department of Community and Economic Development to expand the facility and hire more workers. The company said it was repaying $200,000 to the state.

Stephen Herzenberg, an economist with the Keystone Research Center, said it might be safer for government to target funding to organizations that support lots of companies instead of individual companies.

“Individual cases of company failure don’t prove that government shouldn’t invest in innovation,” Mr. Herzenberg said, pointing to groups such as America Makes, an industry-university partnership based in Youngstown, Ohio, that receives public money to support 3-D printing enterprises.

He added that where it makes sense to invest government money in an emerging company, “Taxpayers shouldn’t give money out to individual companies with no accountability. That’s a no-brainer.”

Daniel Moore: dmoore@post-gazette.com, 412-263-2743 and Twitter @PGdanielmoore.

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