Item 8.01.Other Events.
Project Update - Groton Sub Base - The Groton Project
As previously disclosed in its Quarterly Report on Form 10-Q for the fiscal
quarter ended July 31, 2022, during the restarted commissioning process of the
7.4 MW platform at the U.S. Navy Submarine Base in Groton, Connecticut (the
"Groton Project"), FuelCell Energy, Inc. (the "Company") encountered performance
anomalies primarily in the mixer eductor oxidizer ("MEO"), which is a
sophisticated piece of equipment specific to the Groton Project designed to
optimize fuel and air flows within the platform. The Company further disclosed
that it was in discussions with the Connecticut Municipal Electric Energy
Cooperative ("CMEEC") and the U.S. Navy about operating the project at a reduced
output of 3.0 MW per platform (a total system output of 6.0 MW) at the start of
commercial operations in order to optimize performance of each of the two MEO
units while implementing upgrades to each of the two MEO units. The upgrades
are expected to bring the system to its maximum output in approximately one
year.
On September 29, 2022, the U.S. Navy granted an extension of the deadline by
which commercial operations are to be achieved at the Groton Project from
September 30, 2022 to November 30, 2022. The Groton Project has achieved
operations at approximately 6.0 MW and has passed a U.S. Navy-required seven-day
performance test and is therefore operating at the level at which the Company
has proposed commencing commercial operations. Nevertheless, the Company
requires the approval of both CMEEC and the U.S. Navy in order to commence
commercial operations at the reduced output. Although discussions are
progressing, no assurance can be given that CMEEC and the U.S. Navy will provide
such final approval to commence commercial operations at 6.0 MW.
In addition, as previously disclosed, in August 2021, the Company closed on a
tax equity financing transaction with East West Bancorp, Inc. ("East West Bank")
for the Groton Project. East West Bank's tax equity commitment totals $15
million. In connection with the initial closing, the Company drew down $3.0
million. Under the original terms of the Company's agreement with East West
Bank, the Company would have been eligible to draw the remaining amount of the
commitment, approximately $12 million, once the Groton Project achieves
commercial operation. In addition, under the original terms of the Company's
agreement with East West Bank, the Groton Project had a required commercial
operation deadline of October 18, 2021. East West Bank granted several
extensions of the commercial operation deadline, which collectively extended the
deadline to May 15, 2022, in exchange for fees of $0.4 million in the aggregate.
Because commercial operations were delayed beyond May 15, 2022, East West Bank
had a conditional withdrawal right to request the return of their investment at
an amount equal to 101% of the amount of the investment.
On July 7, 2022, the Company and East West Bank amended their tax equity
financing agreement. Under the terms of this amended agreement, the commercial
operations deadline was extended to September 30, 2022. In addition, the terms
of East West Bank's remaining investment commitment of $12.0 million were
modified such that East West Bank will contribute $4.0 million on each of the
first, second and third anniversaries of the Groton Project achieving commercial
operations, rather than contributing the full $12.0 million when the Groton
Project achieves commercial operations. Such contributions are subject to
certain customer conditions precedent, including a third-party certification by
an independent engineer that the plant is operating in conformance with the
power purchase agreement. In conjunction with this amendment, the Company agreed
to aggregate fees of $0.5 million (which are inclusive of the fees from the
previous extensions described above), which shall 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 U.S Navy regarding the commencement of
commercial operations at the Groton Project at approximately 6.0 MW and has
briefed East West Bank on the receipt from the U.S. Navy of an extension of the
commercial operations deadline through 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
are to be achieved at the Groton Project from September 30, 2022, to November
30, 2022. Should the project not achieve commercial operations by November 30,
2022, East West Bank will then have a conditional withdrawal right to request
the return of their investment at an amount equal to 101% of the amount of the
investment. In addition, modifications to the Groton Project documents between
CMEEC and the Company as a result of an agreement to commence operations at less
than 7.4 MW may require the approval of East West Bank as part of East West
Bank's rights under the agreement between East West Bank and the Company. If
such approval is necessary, the Company cannot provide assurance that East West
Bank will provide its approval.
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