1 Cate Street, 4th Floor
For more than two decades, Environmental Power Corporation has been 'Doing Well by Doing Good'.
Environmental Power Corporation is a New Hampshire-based company that develops, owns, and operates electrical generating facilities using renewable energy sources and non-commodity fuels. Since its founding in the early 1980s Environmental Power has been involved in a dozen clean energy projects, using hydro, resource recovery, and waste-coal power generation facilities to produce more than 200 megawatts of electricity. Most of the company's efforts are now focused on two subsidiaries: Buzzard Power Corporation and Microgy Cogeneration Systems. Since 1993 Buzzard has operated the Scrubgrass facility in Venango County on a leasehold basis. Scrubgrass uses waste coal from abandoned mines in the area to power an 83-megawatt generator, capable of providing electricity to 83,000 homes. Moreover, Scrubgrass has saved the public an estimated $10 million in waste-coal cleanup costs, local groundwater has improved in quality, and over 500 acres of land has been reclaimed and converted into habitat sanctuaries. Environmental Power's other major operation, Microgy, uses a licensed technology to convert manure produced by dairy and hog farms and other large animal operations into a safe, renewable energy source. Environmental Power is a public company trading on an over-the-counter basis.
Industry Grows Out of 1970s Legislation
In response to the energy crisis of the 1970s and America's dependence on foreign oil, the United States enacted the Public Utility Regulatory Policy Act (PURPA) in 1978, opening the way for the alternative energy industry. Until this time only utilities could own and operate electric generating plants, but PURPA now required them to buy power from independent companies capable of producing cheaper electricity. Studies also indicated that within ten to 15 years, the United States would face a energy shortage due to the aging of power plants and the lack of new facilities ready to come online. Environmental Power was founded by two men--Joseph E. Cresci and Donald A. Livingston--neither of whom had a background in the energy industry, but they recognized that PURPA offered an opportunity to form an alternative energy company.
After earning an undergraduate degree from Princeton University and a law degree from Cornell Law School in the 1960s, Cresic practiced law in Philadelphia, Pennsylvania, before becoming the chief operating officer of Garden State Racing Association in 1969. He used that experienced to become president of Ogden Recreation Inc., where he was involved in running a resort, a parking operation, and a promotions company. In 1976 he became chief executive of G.E. Stimpson Company, Inc. and Stimpson Systems, Inc, distributors of commercial office supplies and printing products. After selling the company in 1982 Cresci began looking for a new business to become involved in. He decided to join forces with Donald Livingston to enter the alternative energy field. Livingston had a background in financial services from his days at Capital Resources, Inc. In addition, from 1974 to 1982 he served as the chief executive of Green Mountain Outfitters, Inc., maker of industrial plastic parts. Like Cresci, Livingston was seeking a new challenge after selling his company. The two men decided that Cresci's legal experience and Livingston's banking background, as well as their mutual understanding of tax-advantaged investing, made a good combination for launching an alternative energy company, which would have to face complicated regulatory and fiscal hurdles. In 1982 they founded Cresci Associates, Inc.
Cresci and Livingston initially set up shop in Boston, although they would soon open a Vermont office and ultimately relocate the corporate headquarters to Portsmouth, New Hampshire. They were hardly the only businessmen who saw PURPA as an opportunity to become involved in the energy field, but Cresci and Livingston were much both suited to deal with bureaucratic hurdles in obtaining licenses, gaining local and state governments to approve projects, and putting the necessary financing in place. During the first several years in operation, Cresci Associates developed a successful strategy to succeed in an industry fraught with impediments. The company embraced community involvement and looked to find a balance between generating power and protecting the environment. After winning over a community with a responsive approach, Cresci Associates then had to obtain a license from the Federal Energy Regulatory Commission in order to obtain the right to develop a site. Before it actually began to build a power plant, however, the company also made sure it had in place a long-term power contract to ensure there was a market for the energy. Next, it hired the best available contractors to design and build the plant, coupled with community input to make sure the facility fit in with its surroundings. The company was also responsible for arranging the financing. For organizing and supervising a project, whether it was the upgrading of an existing facility or the building of a new plant, Cresci Associates received a supervisory developer's fee. The company would then make money when the operation was sold.
Late 1980s: A Flurry of Projects
During its first five years, Cresci Associates was involved in several projects. In Maine it upgraded and sold a 0.6 megawatt hydroelectric facility in Dover-Foxcroft. The company developed and built a 2.4 megawatt hydroelectric plant in Quechee, Vermont, and after the facility was sold off, Cresci Associates continued to run it for the new owners. Also during this period, the company upgraded a hydroelectric plant in Hartland, Vermont, to 1.8 megawatts. In 1986 it acquired Texas-based Environmental Protection Resources, which was developing plants in Lubbock and Texas City that burned municipal wastes in combination with limestone to eliminate pollutants. Cresci Associates also opened an office in Camp Hill, Pennsylvania, to develop power facilities that used coal waste. It was during this time that the company began developing the Scrubgrass plant that relied on the burning of tailings from coal mines to generate power. The company also set up a pilot program to use coal mine fires as a source of energy. Abandoned mines often produced smoldering fires that might last for decades, virtually impossible to extinguish, and were a hazardous in a number of ways: The carbon monoxide they threw off made surrounding acreage uninhabitable, and the fires also caused surface cave-ins and ignited forest fires. Cresci Associates' idea was to install vents to draw hot gases from the fire that could be used to drive steam turbines and produce electricity. Moreover, by introducing oxygen, the fires burned quicker, dramatically cutting down on how long the mine fire would last. By the end of the 1980s the company had the technology in place and signed contracts with Virginia Electric & Power Co. to sell electricity generated by two coal mine fires in Virginia.
In 1986 Cresci Associates was reincorporated in Delaware and became Environmental Power Corporation, a name its founders chose to emphasize the company's dual purpose: generatin power in an environmentally sensitive way. In 1987 the company was taken public and completed a $7 million stock offering. Also during that year it paid $5.4 million to West Penn Power Company to acquire Milesburg Energy Inc., which owned a decommissioned oil-fired power plant in Pennsylvania that Environmental Power wanted to upgrade, and it signed a 20-year agreement to sell the electric output of its Scrubgrass Power Station, which would come online in the 1990s. In 1988 Environmental Power paid $1.3 million for a waste-coal project in Sunnyside, Utah, and the rights to build a $96 million power plant.
Despite its promising start, Environmental Power struggled in the late 1980s to turn a profit. It lost $4.7 million on revenues of $514,341 in 1988, followed by a loss of $4.2 million on revenues of $583,026 in 1989. As a result, the company was no longer able to fund development projects, such as the Milesburg facility. The money crunch became so severe that by the spring of 1990 its auditors expressed concerns about the company's ability to "continue as a going concern." Environmental Power managed to survive as it waited for cash flow to pick up as the Scrubgrass and Sunnyside facilities became operational and could sell electricity to buyers already contracted. In July 1993 Environmental Power signed a letter of intent to be purchased by KFX Inc., a Denver environmental technology company, for approximately $36 million. A month later, however, KFX backed out of the deal, leaving Environmental Power to scrape by on its own.
The company was finally able to realize some electricity sales from its power plants in 1993, when revenues totaled $1.6 million because of the Sunnyside plant coming on line. After Scrubgrass became operational sales jumped to $30.7 million in 1994 and the company was able to post a profit of $670,000. At this point Environmental Power sold its interest in Sunnyside for approximately $6 million and its only source of income, other than investments, was the Scrubgrass plant. The company held on to the Milesburg property, which remained in the developmental stage, but in light of cheap oil and gas prices that prevailed during this period, there was little if any investor interested in backing new alternative energy projects.
A New Century and a Hard Look
Power generation revenues total $40.7 million in 1995, and grew to $47.9 million in 1996, when Environmental Power posted a net profit of $1.6 million. In 1997 the Milesburg project was sold for $15 million in a buyout agreement with West Penn Power Company after two years of negotiations. Sale from power generation fell off in the late 1990s but reached $48.3 million in 1999 and improved to $54.3 million in 2000. At this point management decided to take a hard look at the company and determine what course of action was in the best interest of shareholders. After considering the possibility of selling the business or simply liquidating it, Cresci and Livingston decided to use its Scrubgrass revenues to back a effort to grow the company through external means.
In 2001 Environmental Power acquired privately held Microgy Cogeneration Systems Inc. What made Microgy so attractive as a development stage company was the exclusive license it held on a Danish technology called anaerobic digestion to extract methane from animal wastes. Such systems had been in use in Europe for 15 years where land was more scarce and energy prices higher. Essentially, manure was heated to hasten the release of methane gas, which was captured, stored in large bladders, and burned off to generate electricity during times of peak demand. The mostly liquid wastes were reduced during the process and could then be used for compost, fertilizer, or animal bedding. Using manure as a power-generating fuel was hardly a new concept. During the 1980s many of these projects were launched, but they were built and operated by the farmers, whose expertise was in raising animals not generating electricity. What Microgy offered was a new approach. The company would build and maintain the digesters, allowing the farmers to concentrate on their own businesses while enjoying the benefits of using a natural byproduct. Aside from the money the units brought in, they eliminated the smell and the chore of periodically cleaning up lagoons of animal waste. It was an attractive concept and easy to sell to farmers. Microgy signed contracts with Wisconsin farms, followed by an agreement with the Vermont Public Power Supply Authority. The company also began to make inroads in California, the largest dairy producer in the United States and a potentially major market for the Microgy technology.
In 2003 Cresci stepped down as CEO and Livingston as president in favor of Kam Tejwani who they recruited to take over both posts. The company's founders, however, remained very much involved in the business. Cresci stayed on as chairman of the board and Livingston as chairman of the executive management committee. Tejwani had a background in investment banking and also served as the chairman and CEO of Air-Cure Technologies, Inc., maker of air pollution control systems. Tejwani was successful in raising funds to invest further in Microgy and in order to attract greater attention to Environmental Power from the investment community, he engineered a seven-for-one reverse split of the company's stock in November 2004. As a result, the share price increased significantly, and the hope was that investors would gave the company a closer look and ultimately Environmental Power would move beyond its over-the-counter status and gain a listing on a national stock exchange.
After a decade of lying dormant, Environmental Power appeared well positioned to experience strong growth in the years to come. The upside for Microgy was enormous, with the market for its equipment estimated to be $14 billion. Although other companies were also becoming involved in this form of renewable energy, there was an opening for Environmental Power to stake a significant claim in the market. Under new leadership, the company was also actively looking for acquisition opportunities to complement Microgy's business or pursue other alternative energy sources, in particular wind and solar.
Principal Subsidiaries: Buzzard Power Corporation; Microgy Cogeneration Systems, Inc.
Principal Competitors: Covanta Energy Corporation; AES Corporation; PPM Energy, Inc.; U.S. Energy Systems, Inc.
Comment about this article, ask questions, or add new information about this topic: