Battery Maker A123's Bankruptcy Drawing Scrutiny Of Obama's Green Stimulus Before Debate

FILE- This Thursday, Aug. 6, 2009, file photo, shows A123 Systems Inc.'s high power Nanophospate Lithium Ion Cell for Hybrid
FILE- This Thursday, Aug. 6, 2009, file photo, shows A123 Systems Inc.'s high power Nanophospate Lithium Ion Cell for Hybrid Electric Vehicles batteries in Livonia, Mich. Short of cash and hurting from slow sales of electric cars, battery maker A123 Systems Inc. sent its U.S. operations into bankruptcy protection on Tuesday, Oct. 16, 2012, and quickly sold its automotive assets. The Chapter 11 filing in Delaware came one day after A123 warned that it likely would miss some debt payments and could be headed for court-supervised restructuring. (AP Photo/Paul Sancya, File)

With the second presidential debate just hours away, a bankruptcy announced Tuesday by a company that received federal stimulus funding under President Barack Obama threatened to provide new ammunition for critics of the president's energy and environmental spending and put the White House on the defensive.

The company, A123 Systems, Inc., a maker of advanced batteries, received a $249 million grant in August 2009, as part of the Obama administration's federal stimulus package. The grant allowed the company to open manufacturing facilities in Michigan -- one of which was marked at its grand opening in September 2010 with a phone call from President Obama.

"You guys are making us proud," the president said, according to a White House transcript. "The work you're doing will help power the American economy for years to come. And so everybody there should just feel very, very good about what you guys are doing. And I am looking forward to continuing to see the great work that you guys do in the years to come."

A123 announced on its website Tuesday that it would be filing for Chapter 11 bankruptcy protection and selling its automotive operations to Wisconsin-based Johnson Controls for $125 million. As part of the deal, Johnson Controls would license back to A123 "certain technology for its grid, commercial and government businesses," which may also be sold in the future, according to a company statement.

Johnson Controls also pledged $72.5 million in bridge financing to help satisfy the fledgling company's debt and allow the Michigan facilities, which employ about 800 workers, to continue operating. Earlier negotiations for a significant stake of A123 to be acquired by a Chinese firm, which drew complaints from congressional Republicans, were also shelved, the company said.

To date, A123 had drawn a little over half of the full $249 million federal grant. As part of the wider stimulus program, a total of $90 billion was set aside for "government investments and tax incentives to lay the foundation for the clean energy economy of our future," according to the Department of Energy. A123 Systems joins a handful of other companies that received some form of stimulus funding but have subsequently fallen on hard times, including the California solar panel maker Solyndra, which went belly-up last year after receiving a $535 million loan guarantee through a DOE program.

The Solyndra failure became a totem for opponents of the president's green programs, sparking a year-long investigation spearheaded by congressional Republicans. While that probe highlighted several potential errors in judgment, the most damning charges wielded by Republicans in the weeks and months following the Solyndra bankruptcy, including suggestions of political favoritism in awarding of loan guarantees, were not substantiated.

According to federal data, some 27,266 energy- and environment-related projects have so far received roughly $34 billion in loans, grants or other incentives.

Dan Leistikow, a Department of Energy spokesman, suggested at the agency's website that the news from A123 is simply part of the natural evolution of a nascent industry. "In an emerging industry, it's very common to see some firms consolidate with others as the industry grows and matures," Leistikow said.

"A123, which has been building batteries for electric vehicles as well as for the nation's power grid, quickly established itself as an innovative player in the market," he added later. "Today's news means that A123's manufacturing facilities and technology will continue to be a vital part of America's advanced battery industry."

But the A123 bankruptcy filing quickly drew comparisons to the failure of Solyndra and fresh recriminations from the Republican Party and the campaign of its presidential nominee, Mitt Romney.

"Green investments Obama said would take the country forward are going belly up, taking jobs and taxpayer cash with them," the Republican National Committee declared in a blog post. In a prepared statement, Romney campaign spokeswoman Andrea Saul said, "A123's bankruptcy is yet another failure for the President's disastrous strategy of gambling away billions of taxpayer dollars on a strategy of government-led growth that simply does not work."

In an emailed statement, Darrel Issa, the California Republican and Chairman of the House Oversight and Government Reform Committee, which led the Solyndra investigation, said, "We're not going to know the full cost to the economy created by the ill-conceived stimulus for many years. Taxpayer dollars have been utterly wasted in foolish attempts by the government to pick winners and losers. A123's financial trouble is the latest cautionary tale against the administration using taxpayer dollars to sponsor pet projects and then running from responsibility when they're not successful."

On his Twitter account, Pete Hoekstra, the former Republican congressman hoping to unseat Sen. Debbie Stabenow (D-Mich.) in November, also slammed President Obama -- as well as Stabenow -- for supporting the A123 grant:

The White House and its backers quickly noted, however, that support for funding A123 through the stimulus program was a bipartisan affair. Leistikow, for example, linked to a May 2009 letter addressed to DOE Secretary Steven Chu, in which both Democratic and Republican members of Congress from Michigan solicited stimulus funding for several advanced battery and motor manufacturers in the state, including A123. Hoekstra was among the signatories.

Adam Fetcher, an Obama campaign spokesman, fired back at the Romney campaign in an email message. "Despite the bipartisan support for a clean energy economy, Romney would give up on this progress, abandon the President's goal of out-innovating the rest of the world and cede those jobs to countries like China and Germany," Fetcher said. "Not only that, but Romney is again hypocritically hiding the truth: he picked his own winners and losers with taxpayer dollars as Governor of Massachusetts, loaning millions to two companies run by his donors. They later defaulted on those loans, leaving taxpayers with the bill and eliminating jobs."

Fetcher attached an eight-page document detailing Romney's own industry funding allocations as governor of Massachusetts, including several clean-tech and other "green" investments.

At the DOE Web site, Leistikow also noted that A123 Systems had received a $6 million dollar grant from the Bush administration in 2007, and that the full complement of investments in advanced battery technologies had reduced costs and facilitated efforts to grow a market for much more fuel efficient, and far less polluting, vehicles.

"Prior to this investment, a battery with a 100 mile range cost $33,000," Leitstikow noted. "Because of technology improvements and the high volume manufacturing capability we have today, the estimated cost is down to about $17,000 and is expected to drop to $10,000 by 2015. As costs come down even further, the market for hybrids and electric vehicles -- which has nearly doubled in the U.S. since last year -- will grow even further."

Still, the fallout from the bankruptcy seemed certain to provide ammunition for critics of the Obama administration's clean-tech investments, and several observers were predicting that the subject would receive an airing at Tuesday evening's debate at Hofstra University.

The Wall Street Journal's "Corporate Intelligence" blog declared: "Obama's A123 Call, Coming To A Debate Near You."

In the first debate, President Obama's Republican challenger, Mitt Romney, criticized the president's green spending, suggesting that about half of the companies that received funds had gone out of business. That charge was quickly debunked.

Stephen Lacey, the deputy climate progress editor at the Center for American Progress Action Fund, said the A123 Systems bankruptcy and sale provided "a good opportunity for Obama to stand up and defend federal investments in clean energy."

"Polls show the American people still want to see strong federal investments in clean energy technologies," Lacey said in a blog post. "When this issue inevitably comes up tonight, Obama should be able to look confidently at the American people and explain why he believes they are economically and environmentally important -- as well as put the record straight on the accomplishments we've made."

This article has been updated to correct the attribution for the final quote, which comes from Stephen Lacey at the Center for American Progress Action Fund.