Is EV Recharging Company Ecotality Another Bad Obama 'Bet'?

Printer-friendlyPrinter-friendlyEmail to friendEmail to friend

eTec logoIn the aftermath of the Solyndra scandal, in which $535 million guaranteed by taxpayers for the solar company’s loan has been lost, President Obama told ABC News his people “felt that it was a good bet.”

It’s chilling that our country has come so far, that few people flinch at the idea that government habitually gives away money to enterprises, whether they are worthwhile “investments” or not. It doesn’t matter if they are (say, Apple or Google) or are not (Solyndra) – if there are going to be “bets,” they should be made by entities who don’t have the power to forcibly take money from others (that is, to tax). Some call it crony capitalism, which is only a byproduct of the whole concept of corporate welfare, which John Locke Foundation economist Roy Cordato has coined “corporate socialism.”

Nevertheless taxpayer-backed “Green” investments are the flavor of the moment, whether they are renewables such as wind or solar companies – many of which are fledgling and therefore struggling, unless they are part of a larger corporation such as General Electric. And then there is the transportation sector and electric vehicles.

The need to create recharging infrastructure is perhaps an even bigger example of waste and inefficiency that the federal government – mostly through the Department of Energy – is “investing” in its electric vehicle experiment, whose centerpiece is the Chevy Volt. As with other Obama administration “Green” energy initiatives, billions of taxpayer dollars are pouring into that effort. 

As a result, owners of Volts or Nissan Leafs (not “Leaves,” I guess) are given $1,200 vehicle recharging stations, installed, for their homes or businesses. Also getting them are public utilities and government complexes, and some major retailers have accepted them – although Costco has concluded that the stations are a waste of space (even in California) and is having them removed from their 64 stores that have them. “Nobody ever uses them,” said Dennis Hoover, the general manager for Costco in northern California, to the New York Times.

Nevertheless it’s full-steam ahead, with at least one recipient of massive government funds that looks somewhat Solyndra-esque. San Francisco-based Ecotality was awarded two Department of Energy grants that totaled $115 million to install 14,000 of its Blink vehicle charges in 18 metropolitan areas around the country. Energy Secretary Steven Chu praised Ecotality subsidiary Electric Transportation Engineering Corporation (eTec, but now called Ecotality North America) at the Washington Auto Show in January 2010, at the same time he announced a $1.4 billion loan agreement with Nissan North America to retrofit its Smyrna, Tenn. plant to produce the Leaf. 

“eTec is working on the largest EV infrastructure deployment in the world,” Chu said, “and we are working very closely to get EVs on the road.”

Like Solyndra, Ecotality appears to be another shaky “bet” for the Obama administration. Formerly Alchemy Enterprises, the company was launched in the April 1999 with the intent to become a wholesaler of environmentally friendly cleaning products. Alchemy’s starry-eyed founder, John Yamada, started the company with the idea it would compete with the giant in the industry (and his former employer), multinational corporation Ecolab, where he had worked and achieved the position of district sales manager. Other prospective competitors included Dow Chemical and Proctor and Gamble. Prior to Ecolab, the extent of Yamada’s experience was as an executive chef and kitchen supervisor at various restaurants. By mid-2004 he had amassed $34,455 in working capital to take on his former bosses, but according to SEC filings was hindered by a non-competition agreement. By the end of 2004 he had attracted a couple of other minor investors, but Yamada resigned as sole officer and director in December 2004 and returned to work for Ecolab. He turned his stock ownership in Alchemy over to another partner, Harold Sciotto, who was left with two-thirds ownership of the company.

In March 2005 Alchemy restated itself to the SEC under new leadership, but still with plans to sell biodegradable cleaning products purchased from other chemical manufacturers, with Alchemy’s product labels slapped on the bottles. But the company generated no revenues over the course of its existence, and had accumulated $26,881 in net loss. That humble existence would change within one year.

In February 2006 Sciotto/Alchemy informed the SEC of a planned stock split. The change, effective March 1, 2006, brought in Jonathan Read of Scottsdale as part of the ownership group and as company president. Read was previously Chairman and CEO of the Park Plaza Hotel chain, which he sold in 2003 to Carlson International and another investment group. During the first quarter of 2006 the mission of Alchemy was converted from biodegradable products to development of “electric power cell technology,” and apparently Read’s solid profile and connections enabled the company to draw another $750,000 in private investment, some of which was used to purchase the intellectual property of the fuel cell technology and commit to devote $1.35 million more to further develop the technology in conjunction with NASA’s Jet Propulsion Laboratory in Pasadena, Calif. Under the new arrangement, Alchemy would also commit to paying Read and Sciotto $120,000 each annually, which was automatically renewable every year.

It wouldn’t be long before the deficits became much larger. By the end of the second quarter of 2006, Alchemy’s net loss had reached $9.3 million, thanks largely to a license agreement with California Institute of Technology, operator of the Jet Propulsion Laboratory, which transferred more fuel cell intellectual property to Alchemy at a cost of $8.2 million. But the venture capital investments continued also, as another infusion of more than $12 million would come in later in the year thanks to another sale of stock in the company. And in December, Alchemy would announce its name change to Ecotality, Inc.

The big changes to the company in 2006 were paralleled by almost unprecedented – and not seen since – campaign contributions by Read. Other than a $2,000 contribution to Democrat presidential candidate John Kerry in 2004, records compiled by the Center for Responsive Politics show Mead had not given to political campaigns before. But in the 2006 election cycle, as he tried to get Alchemy/Ecotality off the ground, he took a sudden interest in providing financial help to Arizona Democrat congressional candidates.

He began by donating $1,000 in December 2005 to Rep. Gabrielle Giffords. That was followed by three separate donations totaling $3,600 to the successful Congressional campaign of Harry Mitchell, a former state Senator and Mayor of Tempe, who unseated Republican J.D. Hayworth (Mitchell lost his “swing” district seat in 2010 to Republican David Schweikert). Victories like Mitchell’s helped President Obama and House Speaker Nancy Pelosi maintain their hold on Congress. Twenty-seven-year-old Colin Read, who is Ecotality’s Vice President for Corporate Development, was Mitchell’s assistant finance director in 2006. Jonathan Read also gave $2,100 to the 2006 Senate campaign of former Arizona Democratic Party leader Jim Pederson, who lost to Sen. Jon Kyl, and he also gave $5,000 to the state party.

Similarly Ecotality board member Slade Mead, an attorney and sports agent, engaged in a brief flurry of donations to federal candidates in the 2006 campaign, giving Mitchell the maximum allowed $4,200 and Giffords $3,915, plus another $500 to her for 2008. 

Besides voting for the stimulus bill, Mitchell served on House committees that oversaw Science and Technology, and Transportation and Infrastructure – both key interests for Ecotality. But whether he had any influence in Ecotality’s receipt of $115 million from the Department of Energy via the stimulus is unclear. Read has not made any political contributions to federal candidates since 2006, according to Center for Responsive Politics.

What is clear is that Ecotality – from the time Read joined the company – has rewarded its executives well, spent heavily on technology rights, made acquisition after acquisition, and repeatedly issued more stocks for needed cash. Part of Read’s compensation is stock in Ecotality valued at more than $2.4 million at the time it was issued. Among its purchases were companies with futuristic names such as Fuel Cell Store, Innergy, and the aforementioned eTec.

Despite all the funding it has attracted from private investors, and its ambitious efforts on other fronts, Ecotality’s $115 million DOE contract for the EV Project accounted for 51 percent of its revenues this year through June 30 (page 15). The company reported a net loss of $12.3 million for the same period. An industry Web publication, PluginCars.com, reported last month that the rollout of charging infrastructure under the DOE agreement has been slow, which Ecotality blamed on the Japanese earthquake’s effect on Nissan’s ability to produce the Leaf. Lax sales of the Volt probably aren’t helping either.

"We're the tail on the dog, and the EV rollout is moving a little slower than had been anticipated,” said Don Karner, president of ECOtality North America. “We have applied to the Department of Energy for a new completion date of the second quarter of 2012."

PluginCars.com also reported that only 3,300 chargers had been installed as of mid-September – far short of the 14,000 Ecotality announced, in April, it would have placed by the end of 2011. The publication also noted several problems that users of Ecotality’s Blink system had with frozen screens, system crashes, and problems with Wi-fi connectivity. The same April press release boasted of $5.8 million received from the DOE contract and a $10 million “strategic investment” from the ABB Group, another international corporation that lives partially on government subsidies for battery cell research. That Ecotality gained a large percentage of its income from taxpayers, and by turning over 20 percent of its stock (and two slots on its board of directors) to ABB (whose CEO – surprise! – is a former GE executive), is not exactly the equivalent of winning massive sales to customers in a free market. The big net losses are indicative of that.

As for the government grant, in the 1 ¾ years since the project’s inception, Ecotality reported to the DOE that it had created 129 jobs as the result of $12.18 million in expenditures from the grant, which averages to $94,396 per job.

The same week Secretary Chu praised Ecotality/eTec at the auto show, President Obama cited the company as an example of success that resulted from the stimulus. 

“The plan that has made all of this possible, from the tax cuts to the jobs, is the Recovery Act,” the president said in his 2010 State of the Union address. “Economists on the left and the right say that this bill has helped saved jobs and avert disaster. But you don’t have to take their word for it. Talk to the small business in Phoenix that will triple its work force because of the Recovery Act.”

So you can believe the man who said Solyndra was “a good bet” that bottom-line loser Ecotality is similarly worthy, or you can trust what a DOE expert had to say about the stimulus “investments” last year after another $4.2 million grant to ABB.

"These are all high-risk projects," said Arun Majumdar, the energy department's director of advanced energy research, to The News & Observer of Raleigh in July 2010. "There's a potential high rate of failure. You never know which one is going to succeed commercially."

Just what you want to hear about “investments” of taxpayer money, isn’t it? But all that matters to the politicians is that the jobs get “created” and that they get the credit. The blame for failure and destruction of those jobs can be laid at others’ feet.

Paul Chesser is an associate fellow for the National Legal and Policy Center and is executive director of American Tradition Institute.