A Massachusetts company that received a $39 million loan from the Department of Energy before declaring bankruptcy won interim approval Wednesday from a Delaware judge to use cash collateral for the loan to help pay operating expenses during its reorganization.

Judge Kevin Carey overruled an objection by the DOE in granting permission to Beacon Power Corp. to use some $3 million in cash collateral to keep its business going.

Beacon, based in Tyngsboro, Mass., makes flywheel energy storage systems used to keep power frequency steady on electrical grids. The company filed for Chapter 11 protection Sunday.

At hearing Wednesday, Beacon attorney William Baldiga blamed the bankruptcy filing on the political fallout surrounding the failure of Solyndra Inc., a California solar energy company that sought bankruptcy protection in Delaware after receiving a half-billion-dollar loan from the Obama administration.

According to government documents released Wednesday just hours before a House subcommittee was to vote on a plan to subpoena White House documents related to Solyndra, the administration considered a bailout of Solyndra.

Baldiga told Carey that Beacon got caught in the "political firestorm" surrounding Solyndra, which is the subject of investigations by the FBI and scrutiny by Republicans in Congress.

"Frankly, your honor, it's been a storm that the company has not been able to withstand without the protection of this court," he said.

Beacon CEO F. William Capp said in affidavit submitted earlier this week that the company's long-term financial prospects are positive, but that efforts to build its business have been capital intensive and that it has been operating at a loss. Capp also said the economic and political climate and other factors have hampered Beacon's ability to attract additional equity investments.

"We intended to raise $10 million this year, which we have not been able to do," Capp testified during Wednesday's hearing.

The judge granted several routine first-day motions filed by Beacon, including requests for authorization to continue paying wages to some 65 employees, make tax payments, and to prevent utilities from discontinuing service.

The only motion subject to an objection was Beacon's request to use cash collateral on the DOE loan to pay operating expenses.

Baldiga said Beacon would not be able to operate very long without the money.

"The company does obviously need to continue to operate," he said.

But Matthew Troy, a Justice Department attorney representing the DOE, said Beacon is sitting on $700,000 of its own unrestricted cash that it doesn't want to spend.

Troy also argued that the DOE loan was made directly to a Beacon subsidiary for construction and operation of a 200-flywheel, 20-megawatt frequency regulation facility in Stephentown, N.Y. The parent company should not be allowed to use cash collateral for the loan on anything that is not directly related to the Stephentown facility, he said.

"DOE ... did not lend to Beacon Power to pursue other projects," said Troy, who suggested the company might use collateral on the DOE loan to help pay for construction of a similar facility in Hazle Township, Pa.

Beacon was awarded a $24 million Smart Grid stimulus grant in 2009 to build the Hazle plant, and Pennsylvania kicked in an additional grant of $5 million. But Troy said Beacon has been unable to attract private funding for the project.

In response to Beacon's request to use the cash collateral, the DOE asked for a breakdown of expenses related to the Stephentown facility. Baldiga said providing a breakdown is virtually impossible because the company is highly integrated.

"There are virtually no expenses that are paid at the Stephentown level," said Baldiga. He argued that DOE would be adequately protected if the cash collateral is used because the Energy Department has additional security interests in the flywheel technology being demonstrated at Stephentown.

"That's the core assets of this entire company," Baldiga said.

While granting what he described as a "modest" request by Beacon to use the cash collateral pending a Nov. 18 hearing on final approval, the judge told Beacon officials that they need to give DOE more information regarding the costs of operating the Stephentown facility.

"It's entitled to the information," Carey said.

Beacon has drawn $39.1 million from last year's $43 million DOE loan offer for construction of the Stephentown facility outside Albany, which has been operating since June and, according to Baldiga, is about 97 percent complete.

"There have been some bugs that we have had to work out," he admitted, noting that two of the plant's 200 flywheels have failed.