Dan Morain

Dan Morain: A pen stroke led to a sweet subsidy

What a difference 10 days and the stroke of a pen can make.

Just ask Bloom Energy, the Silicon Valley startup that came out on the happy end of a $31.6 million decision by the California Public Utilities Commission.

That decision shows how a well-positioned company operating in a niche favored by political leaders can reap significant rewards. A timely call from a heavyweight helps, too.

Bloom, the focus of a gee-whiz "60 Minutes" segment last year, manufactures sleek fuel cells the size of refrigerators that provide alternative energy sources for Google, eBay and many other businesses.

As I wrote in February, the adulatory treatment omitted that Bloom benefited last year from $210 million – since revised up to $218.5 million – in subsidies through a program approved by the Legislature and overseen by the California Public Utilities Commission.

In February, there were lingering questions. The commission answered one when it released new details showing that $31.6 million of that total was awarded at the end of December, thanks to a decision by commission President Michael Peevey.

First, some background.

During the 2000 energy crisis, when California was at the mercy of slick power merchants, the Legislature created the Self-Generation Incentive Program, intended to encourage entrepreneurs to develop alternative energy sources.

The Public Utilities Commission is responsible for the program, private utilities administer it, and utility customers pay for it through charges on their monthly bills.

The cost is small for residential customers, averaging 39 cents a month in PG&E's territory. Heavy users pay more. Industrial customers pay an average of $308 a month, the commission says. Altogether, the fees generate $83 million a year, all of it earmarked for alternative energy.

In 2010, Bloom Energy dominated the program. The Sunnyvale-based company and its customers stand to receive $218.5 million of the $327.7 million awarded last year.

Acting on behalf of itself and other utilities, PG&E filed a petition on Dec. 22, urging that the Public Utilities Commission suspend payments as of that date, pending a revision of rules governing how the money gets divvied up.

"For us, it is a matter of fairness," said PG&E's Andrew Yip, who helps manage the program. "We know there will be new technologies coming into the program, and we wanted to make sure we have money for all of them."

Bloom is a startup, but it is no neophyte. Its board of directors includes John Doerr, whose venture capital firm, Kleiner, Perkins, Caufield & Byers, is one of the nation's leading funders of tech and green energy firms.

Doerr and his wife, Ann Doerr, are serious players in state and national politics, having hosted a dinner for President Barack Obama earlier this year and given $36 million to California campaigns since 2000.

Doerr became engaged in the fight over PG&E's petition to suspend the program, calling Peevey about it, Peevey's spokeswoman, Terrie Prosper, told me.

Bloom itself answered PG&E, warning in a filing with the commission that a Dec. 22 suspension "would have a deleterious impact on our state at a critical time when we are on the cusp of proving that clean-tech is good for our environment and our economy."

Bloom suggested a compromise – suspending the program starting Jan. 1. Peevey agreed.

"It is unfair to change the rules in the middle of the game, or move the goal posts during the game, and the program they operated under ran until Jan. 1," Prosper said in an email.

The significance of that ruling didn't become clear until earlier this month when the commission released the dates of the final applications for payments.

As it happened, Bloom filed applications for payments for 15 projects between Dec. 23 and Dec. 31, 2010. Subsidies for those fuel cells, installed from San Jose to San Diego, are expected to reach $31.6 million.

Bloom executive Josh Richman said in an email that Peevey's decision "saved California jobs."

"SGIP has enabled companies like Bloom to continue hiring and growing in California while also meeting the renewable energy goals of the state," Richman said.

Back in 2000, legislators envisioned that the Self-Generation Incentive Program would raise $500 million over four years, and end. But programs don't die. Beneficiaries lobby to maintain them and legislators vote to extend them, as has happened twice with the Self-Generation Incentive Program.

The program is supposed to expire again this year. Bloom is involved in an effort to extend it. Assemblyman Manuel Pérez, D-Coachella, is carrying legislation to earmark $83 million a year for another five years but cap payments to a single company at $25 million a year.

"Government has a role to play in encouraging the growth of green energy, reducing greenhouse gas emissions, and creating jobs," Pérez said.

Lobbyist Lenny Goldberg, who represents The Utility Reform Network, a consumer group, said the main reason the program is being extended is that Bloom "sucked up all the money," leaving little for other producers.

Bloom didn't break any rules as it went about collecting almost five times as much as its next nearest competitor. But the rules appear to be have been loose. Bloom may have built the best mousetrap. But its technology appears to be more expensive than many.

Bloom will be back for more, once the program is extended, as seems likely.

Californians do like alternative energy. We have faith that the brains of Silicon Valley will save us from the problems we've created. Of course, it won't be cheap.