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CORRESP
1
filename1.htm

      Unassociated Document

              RICHARD
                A. KRANTZ

              Financial
                Centre

              695
                East Main Street

              P.O.
                Box 10305

              Stamford,
                CT 06904-2305

              Main
                (203) 462-7500

              Fax
                (203) 462-7599

              rkrantz@rc.com

              Direct
                (203) 462-7505

              Also
                admitted in New York

              and
                Massachusetts

    June
      1,
      2006

    Ms.
      Kate
      Tillan

    Assistant
      Chief Accountant

    United
      States Securities and Exchange Commission

    450
      Fifth
      Street, N.W.

    Washington,
      D.C. 20549

              Re:

              FuelCell
                Energy Inc.

                Form
                  10-K for the year ended October 31, 2005

                Filed
                  January 17, 2006

                File
                  No. 001-14204

    Dear
      Ms.
      Tillan:

    This
      correspondence is in response to your letter dated May 25, 2006 to Joseph G.
      Mahler, Senior Vice-President and Chief Financial Officer of FuelCell Energy,
      Inc. (“FuelCell” or the “Company”). We will respond to the comments in the order
      presented.

    Form
      10-K for the year ended October 31, 2005

    Financial
      Statements

    Consolidated
      Balance Sheets, page 67

    Note
      12. Shareholders’ Equity, page 85

            1.

              FuelCell
                acknowledges the Staff’s comments and the responses below correspond to
                each of the Staff’s bulleted items.

            ·

              FuelCell
                refers the Staff to Note 8 of the Notes to Consolidated Financial
                Statements in the proposed amended Form 10-Q/A at Appendix A. The
                information requested by the Staff has been added to the disclosure
                of the
                terms of the Series 1 Preferred stock.

    Ms.
      Kate
      Tillan

    Securities
      and Exchange Commission

    June
      1,
      2006

    Page
      2

            ·

              FuelCell
                acknowledges the Staff’s comment and provides clarification to its
                previous response number 4. The Series 1 Preferred shares do not
                contain
                any mandatory or conditional redemption features. As such, SFAS 150
                and
                EITF Topic D-98 do not apply. The redemption terms of the Series
                1
                Preferred shares are only at the option of and solely within the
                control
                of FuelCell Energy, Ltd. Holders of these shares have no redemption
                rights
                under any circumstance. FuelCell refers the Staff to Note 8 of the
                Notes
                to Consolidated Financial Statements in the proposed amended Form
                10-Q/A
                at Appendix A for additional disclosures included under the redemption
                terms of the Series 1 Preferred shares.

            ·

              FuelCell
                advises the Staff that it had considered issuing the Series 1 Preferred
                shares at the parent company level (i.e., FuelCell). As evidenced
                by the
                terms and characteristics of the Series 1 Preferred shares, the party
                bearing the ultimate economic responsibility of these shares to the
                holder, Enbridge Inc. (“Enbridge”), is FuelCell and not FuelCell Energy,
                Ltd. In the absence of the request made by Enbridge to issue such
                shares
                by a Canadian entity to provide Enbridge with certain tax advantages,
                the
                Series 1 Preferred shares would have been equity issued by FuelCell,
                and
                accounted for as such.

    FuelCell,
      after consultation with its Independent Registered Public Accounting Firm,
      has
      considered whether the issuance of the Series 1 Preferred shares out of a
      wholly-owned subsidiary of FuelCell Energy, Inc. (FuelCell Energy, Ltd.) should
      change the underlying substance and accounting of this transaction. The specific
      accounting literature considered by FuelCell in approaching the “substance over
      form” accounting conclusion were SEC Rule 3A-02 and Concepts Statement #2
      (“Concept #2”). Although Rule 3A-02 does not list specific criteria that needs
      to be considered in determining whether an entity should be consolidated, it
      emphasizes the need to consider substance over form to determine appropriate
      consolidation policy and that such determination requires the use of judgment
      by
      registrants and their independent accountants. It states “in deciding upon
      consolidation policy, the registrant must consider what financial presentation
      is most meaningful in the circumstances and should
      follow in the consolidated financial statements principles of inclusion or
      exclusion which will clearly exhibit the financial position and results of
      operations of the registrant.”
      FuelCell also considered Concept #2, which defines “representational
      faithfulness as correspondence or agreement between a measure or description
      and
      the phenomenon
      it purports to represent.”
      FuelCell believes that the underlying substance of the Series 1 Preferred share
      transaction represents the issuance of equity at the parent company
      level.

    Ms.
      Kate
      Tillan

    Securities
      and Exchange Commission

    June
      1,
      2006

    Page
      3

    In
      analyzing whether substance over form should dictate the accounting for this
      transaction or if the Series 1 Preferred shares should be accounted for as
      minority interest in accordance with Rule 5-02.27, the five criteria listed
      below were identified as specific characteristics of the issuance that indicate
      that the underlying substance of the transaction was more akin to FuelCell
      issuing the Series 1 Preferred shares, rather than FuelCell Energy,
      Ltd.

    (1)
      FuelCell pays the dividends on such shares since there are no ongoing operations
      or sufficient assets of FuelCell Energy, Ltd. or requirements to have sufficient
      assets of FuelCell Energy, Ltd. to pay the dividend.

    FuelCell
      analysis–
      the fact that
      FuelCell Energy, Ltd. can be liquidated by FuelCell without any requirement
      for
      approval from the Series 1 holder indicates that such holder ultimately is
      not
      concerned about the asset levels in the very entity in which it retains an
      ownership interest. This is not consistent with what would be expected from
      a
      traditional minority interest holder in an entity requiring accounting in
      accordance with Rule 5-02.27.

    (2)
      The
      Series 1 Preferred shares are convertible into FuelCell common stock.

    FuelCell
      analysis –
      this characteristic is further evidence that the Series 1 holder is more akin
      to
      an equity holder of FuelCell, rather than a minority interest holder in FuelCell
      Energy, Ltd., which would require accounting in accordance with Rule
      5-02.27.

    Ms.
      Kate
      Tillan

    Securities
      and Exchange Commission

    June
      1,
      2006

    Page
      4

    (3)
      FuelCell guarantees the obligations to the Series 1 Preferred
      shareholders.

    FuelCell
      analysis –
      this guarantee provided to the Series 1 holder indicates which entity is the
      underlying obligor and is not consistent with the concept of a holder of
      minority interest of FuelCell Energy, Ltd.

    (4)
      The Series 1 Preferred shares have a priority claim over the Company’s other
      equity holders on the assets of FuelCell in the event of liquidation or
      dissolution of FuelCell.

    FuelCell
      analysis –
      this priority claim in the assets of FuelCell provided to the Series 1 holder
      indicates which entity is the underlying obligor to the Series 1 holder and
      is
not consistent with the concept of a holder of a minority interest only in
      FuelCell Energy, Ltd. requiring accounting in accordance with Rule 5-02.27.
      This
      analysis is also consistent with the guidance in paragraph 5 of EITF D-98,
      which
      states that “ordinary liquidation events, which involve the redemption and
      liquidation of all equity securities, should not result in a security being
      classified outside of permanent equity.”

    (5)
      The
      Series 1 Preferred shares have a senior claim on the assets of FuelCell Energy,
      Ltd. However, FuelCell is not prohibited and approval is not required from
      the
      Series 1 holders under the terms of Series 1 Preferred shares from transferring
      the assets of FuelCell Energy, Ltd. to FuelCell.

    FuelCell
      analysis –
      the absence of a claim on the assets of the specific entity being invested
      in
      (FuelCell Energy, Ltd.) does not appear to be consistent with what would be
      expected from a true minority interest holder in FuelCell Energy, Ltd.

    Based
      on
      the above analysis and consideration of all the facts and circumstances of
      this
      transaction, the Company believes that the most meaningful presentation of
      the
      Series 1 Preferred shares for readers of its financial statements is to assume
      that such shares were issued by FuelCell, rather than FuelCell Energy, Ltd.

    Ms.
      Kate
      Tillan

    Securities
      and Exchange Commission

    June
      1,
      2006

    Page
      5

    Draft
      Amendment No. 1 to Form 10-Q for the Quarterly Period Ended January 31,
      2006

    Consolidated
      Balance Sheets, page 3

            2.

              FuelCell
                refers the Staff to the Consolidated Balance Sheet in the proposed
                amended
                Form 10-Q/A at Appendix A. The column headings for each period have
                been
                labeled as “Revised”.

            3.

              FuelCell
                acknowledges the Staff’s comment and advises the Staff that FuelCell has
                further reviewed paragraph 15 of EITF D-98 and concluded that the
                fair
                value of the Series B preferred stock at the date of issuance was
                $98,990,000 (gross proceeds of $105,875,000, less issuance costs
                of
                $6,885,000). Accordingly, FuelCell has revised the Consolidated Balance
                Sheet in the proposed amended Form 10-Q/A at Appendix A.

    FuelCell
      further advises the Staff that, in accordance with paragraph 15 of EITF D-98,
      it
      has evaluated the probability of redemption and concluded that it is not
      probable at this time that the security will become redeemable, which can only
      occur upon a fundamental change. As a result, the value of these preferred
      shares would not be adjusted until such time that a fundamental change, as
      defined, becomes probable. In accordance with paragraph 15 of EITF D-98,
      FuelCell has included disclosure in Note 1 and Note 8 of Notes to Consolidated
      Financial Statements in the proposed amended Form 10-Q/A at Appendix A stating
      that redemption at this time is not considered probable.

    Note
      1. Summary of Significant Accounting Policies, page 6

    Reclassification
      of Series B Cumulative Convertible Perpetual Preferred Stock, page
      7

            4.

              FuelCell
                refers the Staff to Note 8 of the Notes to Consolidated Financial
                Statements in the proposed amended Form 10-Q/A at Appendix A. Additional
                disclosure has been included with regard to the events that constitute
                a
                fundamental change and to clarify that shares of the Series B Preferred
                shares will not be redeemable by FuelCell, except in the case of
                a
                fundamental change whereby holders may require FuelCell to purchase
                all or
                part of their shares at a redemption price equal to 100% of the
                liquidation preference of the shares of Series B preferred stock
                to be
                repurchased, plus accrued and unpaid dividends, if any.

    Ms.
      Kate
      Tillan

    Securities
      and Exchange Commission

    June
      1,
      2006

    Page
      6

    FuelCell
      acknowledges the following:

            -

              FuelCell
                is responsible for the adequacy and accuracy of the disclosure in
                its Form
                10-K for the year ended October 31,
                2005;

            -

              Staff
                comments or changes to disclosure in response to Staff comments do
                not
                foreclose the Commission from taking any action with respect to the
                FuelCell’s Form 10-K for the year ended October 31, 2005;
                and

            -

              FuelCell
                may not assert Staff comments as a defense in any proceeding initiated
                by
                the Commission or any person under the federal securities laws of
                the
                United States.

    Sincerely,

    /s/
      Richard A. Krantz

    Richard
      A. Krantz

    cc:
      Joseph G. Mahler

    Appendix
      A

    UNITED
      STATES

    SECURITIES
      AND EXCHANGE COMMISSION

    Washington,
      D.C. 20549

    Form
      10-Q/A

              x

              Quarterly
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934

    for
      the quarterly period ended January 31, 2006

    or

              o

              Transition
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934

    for
      the transition period from
      to

    Commission
      File Number 1-14204

    FUELCELL
      ENERGY, INC.

    (Exact
      name of Registrant as Specified in its Charter)

              Delaware

              06-0853042

              (State
                of Incorporation)

              (I.R.S.
                Employer Identification Number)

    3
      Great Pasture Road

    Danbury,
      Connecticut 06813

    (Address
      of Principal Executive Offices)

    Telephone
      (203) 825-6000

    Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes x  No  o

    Indicate
      by check mark whether the Registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Act). Yes x  No o

    Indicate
      by check mark whether the Registrant is a shell company (as defined in Rule
      12b-2 of the Act). Yes  o No  x

    Securities
      registered pursuant to Section 12(b) of the Act: None

    Securities
      registered pursuant to Section 12(g) of the Act:

    Common
      Stock, par value $.0001 per share, outstanding at March 8, 2006: 48,858,396.

    Explanatory
      Note

    This
      Form