Form 8-K FUELCELL ENERGY INC Due: Sept. 29
Item 8.01.Other events.
Project Update – Groton Sub Base – The Groton Project
As previously reported in its Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2022, upon restarting the commissioning process for the 7.4 MW platform at the US Navy in Groton, Connecticut (the “Project Groton”), FuelCell Energy, Inc. (the “Company”) experienced performance anomalies primarily in the Mixer Ejector Oxidizer (“MEO”), which is a Sophisticated Groton project-specific equipment designed to optimize fuel and airflow within the rig. The company further revealed that it was in talks with the Connecticut Municipal Electric Energy Cooperative (“CMEEC”) and the United States Navy about operating the project at a reduced power of 3.0 MW per platform ( a total system power of 6.0 MW) at the start. business operations to optimize the performance of each of the two MEO units while implementing upgrades to each of the two MEO units. The upgrades should bring the system to peak production in about a year.
On September 29, 2022, the United States Navy granted an extension of the deadline by which commercial operations must be completed at the Groton Project from September 30, 2022 to November 30, 2022. The Groton Project has completed operations at approximately 6.0 MW and has passed a seven-day performance test required by the US Navy and is therefore operating at the level at which the company has proposed to begin commercial operations. However, the Company requires CMEEC and US Navy approval to begin commercial operations at reduced production. Although discussions are progressing, there can be no assurance that CMEEC and the US Navy will provide such final approval to begin commercial operations at 6.0 MW.
In addition, as previously disclosed, in August 2021, the Company entered into a tax equity financing transaction with East West Bancorp, Inc. (“East West Bank”) for the Groton project. East West Bank’s tax fairness pledge is $15 million. As part of the initial closing, the Company drew $3.0 million. Under the original terms of the Company’s agreement with East West Bank, the Company would have been eligible to draw down the remaining amount of the commitment, approximately $12 million, once the Groton project reaches commercial operation. In addition, under the original terms of the Company’s agreement with East West Bank, the Groton project had a required commercial exploitation deadline of October 18, 2021. East West Bank granted several extensions to the exploitation deadline. trade, who collectively extended the deadline to May. 15, 2022, in exchange for a total fee of $0.4 million. Since business operations were delayed beyond May 15, 2022, East West Bank had a conditional withdrawal right to request the return of its investment in an amount equal to 101% of the investment amount.
On July 7, 2022, the Company and East West Bank amended their tax equity financing agreement. Under this amended agreement, the deadline for trade operations has been extended to September 30, 2022. In addition, the terms of East West Bank’s remaining investment commitment of $12.0 million have been amended so that East West Bank will contribute $4.0 million on each of the first, second and third anniversaries of commercial operation of the Groton Project, rather than contributing the full $12.0 million when the Groton Project will reach commercial exploitation. These contributions are subject to certain conditions precedent from the customer, including certification by an independent third party that the plant is operating in accordance with the power purchase agreement. Along with this amendment, the Company agreed to an aggregate fee of $0.5 million (which includes the costs of the previous extensions described above), which will be payable by the Company upon commencement of commercial operations of the plant.
The Company continues to provide periodic updates to East West Bank regarding its discussions with CMEEC and the US Navy regarding the commencement of commercial operations at the Groton Project at approximately 6.0 MW and has advised East West Bank of receipt by the US Navy of an extension of the deadline for commercial operations until November 30, 2022.
On October 4, 2022, the Company and East West Bank further amended their tax equity financing agreement to extend the deadline by which commercial operations must be completed at the Groton Project from September 30, 2022 to November 30, 2022. If the project has not completed commercial operations by November 30, 2022, East West Bank will then have a conditional withdrawal right to request the return of its investment in an amount equal to 101% of the amount of the investment. In addition, changes to the Groton Project documents between CMEEC and the Company following an agreement to commence operations at less than 7.4 MW may require East West Bank’s approval under the rights of East West Bank under the agreement between East West Bank and the Company. If such approval is required, the Company cannot guarantee that East West Bank will give its approval.