Bloom Energy repays $1.5 million to Delaware after failing to hit job goals

Bloom Energy cut a $1.5 million check to the state this month after failing to hit its hiring and payroll targets for the fourth straight year – the largest return of economic development funds in recent state history.

The money is a partial repayment of the $12 million state taxpayer grant that former Gov. Jack Markell's administration extended to the fuel cell maker in exchange for its promise to create 900 new jobs here by 2017.

So far, only a third of those jobs have been created, including 78 added in the last year.

"We're obviously disappointed," said Matt Ross, Bloom Energy's chief marketing officer. "But we still believe we can meet our targets in the years ahead."

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The now-defunct Delaware Office of Economic Development approved the grant to Bloom in 2012 as part of an incentive package that helped convince the company to build a fuel cell manufacturing plant in Newark.

Under the terms of the deal, Bloom was required to spend $108 million on total salaries by the end of September 2017.

To date, the company has spent only $64 million – about 60 percent of what it promised. Its annual payroll is now at about $19 million, an average of about $63,000 per employee.

"That's actually better than the $40,000 average that we targeted in 2012," Ross said. "But, of course, we would rather be driving employment in Delaware."

State officials received Bloom's latest hiring report – and its check – on Tuesday. The job and payroll totals mark the latest in a string of missed milestones for the Sunnyvale, California, company.

Bloom also failed to hit its marks in 2014, 2015 and 2016, although this is the first year it was required to return a portion of the state grant money.

"We've known for several years that Bloom was lagging behind its benchmarks," said Jeffrey Bullock, Delaware's secretary of state. "While these revelations were not completely unexpected, they are no less disappointing."

Officials from Bloom and the state had previously asserted the company would meet its 2017 targets.

Former DEDO Director Alan Levin said in 2014 that the company was making "steady progress" and called the 900 jobs target "attainable." His successor Bernice Whaley also said she expected Bloom to hit its goals in 2016 when the company had just 224 workers and a cumulative payroll of $27 million.

"Anyone who's been paying attention could have seen this coming," said Middletown resident John Nichols, who has twice gone to court to challenge the Bloom project. Both of his cases were dismissed for a lack of standing.

"I predicted they wouldn't hit their job goals after the first public hearing," he said. "Every time you subsidize the over-market cost of power generation, it costs jobs. If you can't learn from history, you're an idiot."

David Stevenson of the libertarian think tank the Caesar Rodney Institute said his organization also predicted Bloom wouldn't meet its job targets during hearings before the Public Service Commission as the grants here were getting approved.

"Bloom Energy simply could not sell as many Bloom Boxes as predicted and wouldn't create as many jobs as advertised," he said via email. "CRI predicted only 270 jobs would be created, not the 900 advertised."

Bloom officials have blamed missed hiring targets on unforeseen "headwinds" the company encountered in trying to build a fuel cell industry from scratch.

Launched in 2002, Bloom makes solid-oxide fuel cell servers – stationary electricity generators that run off of natural gas using an electrochemical reaction. Company officials say that makes them more environmentally friendly than traditional combustion technology.

The company sold its first "Bloom Boxes" to Google. Other customers included eBay, Walmart, The Coca-Cola Co. and JPMorgan Chase.

Thanks to the deal struck by DEDO, Bloom opened a $50 million, full-scale manufacturing facility at the University of Delaware's STAR Campus in 2013.

The nearly 188,000-square-foot plant initially employed 80 people. Today, the company  operates two other leased facilities in the Newark area – totaling another 75,000 square feet – that house its maintenance and pre-installation operations.

The state's incentive package included far more than just a grant for hiring workers. The deal  included legislation that designated Bloom's fuel cells as a source of renewable energy, despite the fact they run on natural gas.

The deal even included a surcharge on the bill of all Delmarva Power customers through 2033 that so far has cost ratepayers $166 million. When initially imposed, the surcharge added 65 cents to customers' bills. The rate is expected to reach $5.83 in November.

Delaware's handout to Bloom is frequently criticized as one of the worst economic development deals approved by the Markell administration, particularly given the company's shaky financial future.

The company has relied on a California state subsidy for clean energy that had paid Bloom more than $400 million as of last year. But state officials there are now turning their focus away from fuel cells and toward batteries.

In 2015, Bloom officials credited its slow employment growth to delays in obtaining the regulatory approval it needed from local governments to install its projects.

Bloom says it suffered another setback last year when Congress voted to extend a 30-percent investment tax credit for solar energy but neglected to include fuel cells, a move the company says "created inequality and uncertainty in the marketplace, stifling Bloom's growth."

Ross declined to estimate how much the loss of that tax credit may have cost Bloom Energy but said it has "significantly slowed down our expansion plans."

It is unlikely Bloom would have made its Delaware payroll targets with the federal tax credit, but it likely would have been closer to its goal, he said.

"Every economic development deal has some risk," Bullock said. "I think the lesson to be learned from Bloom is the challenges of getting into an emerging industry where there are variables beyond the control of the state or the company."

Ross said Bloom Energy remains committed to fulfilling its promises to Delaware, noting that its rate of growth indicates that is still possible to hit its 2017 goal in the next two to three years.

At its current rate of growth, the company is expected to reach the 900 Delaware jobs it promised just as its grant deal with the state expires in 2023. But its local payroll is on pace to hit $108 million by 2021.

That would still not be enough to avoid triggering a second clawback. Under the 2012 deal, Bloom is required to reach a cumulative payroll of $144 million between now and Sept. 2021.  A third clawback would be triggered if Bloom fails to reach a cumulative payroll of $72 million between Oct. 1, 2021 and Sept. 30, 2023.

In total, the company could be on the hook to repay $6.9 million in the event no further jobs are added and annual wages do not increase, state officials said.

"Delawareans have made and will continue to make a big investment in this company with the expectation that hundreds more high paying jobs will be created," Bullock said. "We will continue to work with Bloom and press them to make good on that promise."

He said the $1.5 million received from Bloom will now be transferred to the Strategic Fund, a pot of money Delaware uses to fund economic development incentives.

Contact reporter Scott Goss at (302) 324-2281, sgoss@delawareonline.com or on Twitter @ScottGossDel.