United States

United States

Legal process to take a year

The legal process following Kenetech's bankruptcy will take about one year to resolve and the company's 3000 creditors will never be paid in full. Company employees will receive no severance pay and individuals who invested their savings in stocks face big losses. Former engineers say their warnings regarding technical problems were ignored in attempts to show shareholders better profits.

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As the dust settles following the Kenetech bankruptcy little seems clear except two grim facts -- the legal process will take about one year to resolve and Kenetech's 3000 creditors will never be paid in full. Even if Kenetech emerges from bankruptcy successfully, it may operate as no more than a purely maintenance company, the company's chief executive, Mark Lerdal, told the Tri-Valley Herald in an article published June 20.

The bankruptcy in late May of Kenetech Windpower Inc, a subsidiary of Kenetech Corp of San Francisco, California, rocked the wind and other renewable energy sectors throughout the world. Kenetech, once billed as the world's largest wind company, listed $193 million in assets and $274 million in liabilities in its bankruptcy petition filed on May 30 in Oakland. Under the US bankruptcy code, a company is protected from creditors while it comes up with a business plan to reorganise its finances.

It will be about a year before the major issues in Kenetech's bankruptcy are resolved, says Alan Pedlar of the Los Angeles firm of Stutam Treister & Glatt, which is handling the bankruptcy. The firm is known for having handled the widely-watched and massive bankruptcy of Orange County in southern California last year. Pedlar also says no decision has yet been made on whether Kenetech Windpower will go into liquidation or will be reorganised successfully to emerge from Chapter 11. That process, too, may take something like a year to become clear, according to Pedlar. On July 1, a hearing was scheduled in the bankruptcy court regarding, among other matters, the sale of the recently-completed Kenetech wind farm in Costa Rica.

At a previous hearing in bankruptcy court, on June 19, a federal judge approved new service contracts with 20 wind farm customers that allows the cash-strapped Kenetech subsidiary to keep its turbines spinning during the summer wind season. In federal court in Oakland, Judge Leslie Tchaikovsky approved a deal to allow the bankrupt Livermore-based subsidiary of Kenetech Corp to continue financing operation and maintenance for 3700 turbines in the Altamont Pass.

The new contracts can be halted at relatively short notice by either side, says Pedlar. Observers have said that it appears that Kenetech will want to turn the maintenance over to another party at some future time. Kenetech has argued that it needs the O&M funding as it has run out of money and would otherwise face losing the $500,000 in daily revenues that can be generated during the wind season. Kenetech Windpower provides the O&M to other companies that own the wind turbines.

Other steps to keep Kenetech turbines turning are underway. LG&E Energy Corp executives told a meeting of industry analysts in June that it hopes to operate some Kenetech wind plants through an LG&E Power subsidiary. The Louisville-based energy services holding company also said it expects its partnership interests with Kenetech, on several US and international wind power projects, to be financially isolated from Kenetech's bankruptcy.

Also last month, the Vancouver-based firm Consolidated Envirowaste Industries announced that on June 11 it had acquired all of the shares of Kenetech Resource Recovery Inc for some $1.6 million. The Kenetech subsidiary apparently employed 75 people in Florida-based wood waste recycling.

employees speak out

While attorneys and corporate creditors start fighting over the pickings of Kenetech, disgruntled former employees are talking to media in the Livermore area. And what these men have to say is poignant -- no severance pay for those ousted in recent months and big losses for individuals who invested their savings in stocks.

Former engineers, too, are talking angrily about how their warnings regarding technical problems were ignored. They say there was so much cost cutting -- in attempts to show shareholders better profits -- that the KVS-33 turbine was not designed or tested properly. Although it worked in the Altamont Pass, they note that in harsher weather it fared poorly.

Among the several hundred people fired in Livermore since the autumn is Frank Steinberg, father of two. He told the Tri-Valley Herald that he was earning $55,000 a year before he was laid off without a severance cheque. "They squandered their most valuable resource -- their employees," the manufacturing engineer told the newspaper. "They didn't listen to them." Steinberg, who worked for Kenetech for 11 years, added, "Myself and a lot of really good people put in a lot of hard work and our efforts were undermined by management. He said many of Kenetech's problems had become apparent when the company three years ago started catering primarily to its shareholders. David Davenport, an electro-mechanical technician laid off in December, agreed. "They tried to put it together too fast and they did not care about cutting corners," he said. "A lot of engineers tried to tell them this wasn't going to work, the way they went about it. It just fell on deaf ears."

One of those engineers was Jerry McNerney, 36, who had started with the company back in Burlington, Massachusetts, almost ten years ago. Eventually he was fired for, he says, trying to point out that cutting costs was undermining technological development and that the Model KVS-33 was not properly tested. He says the company simply underestimated how fast the turbine would turn into the wind. "The calculations that were done were just assumed to be correct," he told the newspaper. He added that the problems were not so much in the design concepts and testing but that the work and computer calculations of engineers were never validated in the field. McNerney, who has a PhD in applied maths, says he even sat down with former chief executive Gerry Alderson to express his concerns. "I took it as far as I could and I was eventually fired for it." He did receive a severance package, though.

Those who invested in Kenetech stock -- perhaps for their retirement -- lost out too. Norman Nieberlein, a 61-year-old technical writer had worked there for five years before he was laid off in April. He lost about $2,000 in stock before he sold it. Kenetech shares at one point in June were down to 37.5 cents, compared with a 52-week-high of $12.375.

Kenetech confirms that ordinary workers did not receive severance packages and must join the line of creditors. Under US bankruptcy law those who are owed wages are given preference as creditors, but the men are still not optimistic. "I've lost a lot of money working for this company," Nieberlein told the newspaper.

Executives for the company point out that disagreements amongst engineers or between an engineering division and the financial men are not uncommon. Mark Lerdal -- now chief executive of the bankrupt company which has admitted widespread technical problems in the KVS-33 -- even dismissed the comments. " I've never met an engineer who felt the company spent enough money on engineering a product," he said. Still the former employees do say they are indebted to the company, and not just financially. "The most valuable thing I learned at Kenetech over my years there was how not to run a company," Steinberg told the Tri-Valley Herald. "I will take that with me. That was a pretty valuable lesson," he said bitterly.

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