Environmental Power Announces 2009 First Quarter Results and Provides Business Update
During the last quarter, the Company undertook a number of initiatives in its transformation from a development based company to a sustainable operating company. These initiatives include the following, which will be further described later in this press release:
- Huckabay Ridge improvements complete and facility is reliably producing our RNG(R) product.
- Closed on
$5.0 millionof convertible notes, and are seeking additional financing.
- Hired Marathon Capital, LLC, to assist us in identifying and managing discussions with entities interested in investing in our projects.
- Aggressively pursued the availability of funds under the federal stimulus package and other federal programs.
- Actively seeking legislation to create tax-credits for the production of renewable natural gas from waste products.
- Evaluating options to reduce our project capital costs and improve project returns.
- Reduced G&A costs by 25% and maintain reductions for 2009.
- Signed 10 year RNG sales agreement with Xcel Energy in
Coloradofor 915,000 MMBtus/yr at a price reflecting the green attributes of our RNG product.
- Entered into a new technology agreement with Xergi/DBT better reflecting EPG’s build/own/operate business model.
- Upon closing of Xergi agreement, Xergi will acquire
$3 millionof EPG’s 14% convertible notes.
We believe these initiatives will ensure that EPC maintains its leadership position in the RNG(R) market.
We continue to experience very positive market conditions for our RNG(R) product as a source of carbon neutral gas for utility and industrial companies and we anticipate that federal renewable energy incentives, a national Renewable Electricity Standard, and a mandatory cap-and-trade program will increase the demand and value of our RNG product and associated greenhouse gas offset credits.
The announcement of the Xcel RNG(R) sales agreement continues to reinforce the value of our carbon neutral gas as a long term, cost effective solution for utilities and industries to meet their renewable goals. Because our RNG(R) product can be used as a fuel in existing plant assets, it is available 24/7, does not require new electric transmission capacity and does not impact food related crops, demand for our RNG(R) product remains high. While “brown” natural gas prices remain low, we believe that our principal competition is not this form of gas but rather the cost of other renewables such as wind and solar on an equivalent energy basis. As shown by a recent analysis by the California PUC, biogas at our green premium pricing is still more competitive than other forms of renewable energy. It is to this standard that we price our RNG(R) product as reflected in the Xcel agreement which has just received Colorado PUC approval. We expect demand for our RNG(R) product to remain high and even increase as both utilities and industrial organizations strive to improve environmental stewardship and voluntarily reduce their carbon footprint.
We believe the market for our unique product which addresses the environmental needs of the agricultural and food processing sectors while creating a versatile and renewable energy product with greenhouse gas offset credits will be a key component in addressing the future energy and environmental needs of the US.
The Company had a net loss applicable to common shareholders of
The results for the three months ended
The net loss from continuing operations was
Revenues. Revenues for the three months ended
Operations and maintenance expenses. These expenses declined by
General and administrative expenses. General and administrative expenses were
Depreciation and amortization expenses. For the first three months of 2009 depreciation and amortization expense was
Operating loss. As a result of the factors described above the operating loss from continuing operations during the first quarter of 2009 was
Interest income. Interest income declined to
Interest expense. Interest expense increased by
Other income (loss). Other income for the three months ended
Caturano & Company, P.C., our independent registered public accounting firm, reported that the Company’s audited financial statements included in our Annual Report on Form 10-K for the year ended
A complete presentation of the Company’s financial results for the three months ended
The Company has undertaken a prioritization of its activities to focus on the build-out of its announced projects, while maintaining oversight of the other projects in its development pipeline. Specifically, our previously announced plan to reduce cash general and administrative expenses by 25% has been implemented.
Convertible Note Closing
The company had previously announced its intention to issue convertible bonds as a source of capital. On
Project Level Investment
In addition, we have been discussing investment at the project level with potential financial and strategic investors. The Company recently hired Marathon Capital, LLC to act as our investment advisor to assist us in managing this process and evaluating various potential investments. Capital raised through these initiatives will be applied toward the Company’s required equity contribution for each of our projects. Marathon has established an organized process for investors to propose a financial structure, amount, and other terms in the Company or its subsidiaries in a manner which minimizes shareholder dilution. As highlighted in previous announcements, the Company has five projects in
At Huckabay Ridge, we have completed comprehensive upgrades to process-instrumentation and controls, the gas conditioning system, and the gas-collection system. These upgrades bring the facility into conformity with the third-generation project design that we are utilizing on our next round of facilities, and we are pleased with the results to date of those upgrades as Huckabay Ridge is currently operating reliably and we expect that it will continue to maintain a high availability factor.
Huckabay Ridge produced salable gas 89% of the time during the month of April and 99% of the time for the first 5 days of May. Production levels have been trending upward as a result of improved operational processes designed to maximize RNG(R) output.
Attributes of improved operations include consistency in meeting specifications for removal of CO2, H2S and H2O, the convergence of production as predicted by our operating model and actual results, and, importantly, the ability of the systems to manage fluctuations in biogas-generation as well as varying ambient conditions.
With enhanced system stability, we have turned our attention to managing other key aspects of this facility to maximize plant RNG(R) product output and profitability. While we are achieving expected biogas production based on substrate concentration being received, we have witnessed a decline in the level of volatile solids contained in our suppliers’ substrate materials. Volatile solids in substrates contribute directly to overall biogas production, and hence lower volatile solid concentrations negatively impact production volumes of our pipeline-grade finished product. We believe that the decline in the level of volatile solids is directly related to recessionary forces, as, for example, facilities from which we have been receiving highly concentrated glycerin have temporarily suspended or curtailed operations due to economic forces in their industry and we are receiving reduced shipments of grease trap waste from suppliers as restaurant patronage has declined.
Our current facility design at Huckabay Ridge accommodates a certain volume of substrate, so that if there is a decrease in the level of volatile solids beyond a threshold limit, aggregate gas production also declines.
We are, therefore, undertaking a number of measures at Huckabay Ridge to address substrate quality. Obviously, in cooperation both with existing vendors and with potential new suppliers, we have expanded our reach for higher-grade materials. In addition, we are pursuing an expanded environmental licensing capability to accept a broader scope of substrate materials, working on material handling designs and capacities that can accept varying substrate consistencies, and working to develop additional strategic relationships with larger and potentially long-term substrate providers that will assist us at Huckabay Ridge and our other
While we believe that the reduced availability of highly concentrated substrates is directly related to recessionary forces, and we fully expect their availability to improve along with an improved economy, designs at all future facilities now take into account the ability to handle lower concentrations of substrate materials. Therefore, should we experience these same type of market conditions, RNG(R) output from our facilities will not be affected. On the other hand, should substrate quality return to the higher volatile solids concentrations as previously experienced, the resulting output of RNG(R) will be higher than previously targeted levels.
We expect to meet with the bondholders of our
The previously announced Rio Leche and Cnossen projects are slated to resume site construction in the second quarter of 2009, pending the timing of the financing initiatives presently underway. Both facilities are fully permitted and have undergone partial site preparation and other precursor-steps to construction. The tax-exempt bond financing for these projects has already been completed, and the Company is in the process of securing the remaining equity required by the Company to supplement that which the Company has already invested. We currently expect the facilities to be operational at the end of the second quarter/beginning of third quarter of 2010.
We expect to benefit from the decreases in raw material prices, as commodities such as steel and copper are a significant component of our facilities. In addition, we are presently analyzing the most appropriate contracting philosophy and timing of orders as we prepare for our extensive construction program.
Bar 20, the third announced facility in
Construction at Microgy’s
RNG(R) to satisfy the agreement will come from Microgy’s first
Xcel Energy will use the RNG(R) to generate carbon-neutral electricity at the company’s Fort St. Vrain Generating Station near
Under the terms of the new agreement, the Company and its wholly owned subsidiary, Microgy, Inc., will continue to have exclusive licensing rights for Xergi’s anaerobic digester technology in
Federal Initiatives Update
The Company continues to pursue a number of initiatives at the federal level in order to secure parity with other biofuel and renewable electricity producers. Specifically, we are pursuing a renewable gas production tax credit and seeking stimulus funds and other federal funding related to our shovel ready projects.
Pressure has greatly increased at the federal level to promote technologies that reduce carbon emissions and increase the production of renewable electricity. We anticipate an increase in efforts to pass legislation that promotes renewable energy such as the national Renewable Electricity Standard which has been introduced in the Senate. We continue to have dialogue with policymakers about the opportunity to include biogas production more broadly in new policy initiatives. As a reminder, we do not rely on such subsidies in our project economics but will pursue them where possible.
Two bills have been introduced in Congress, Senate Bill S306 and House Bill HR1158, which provide for tax credits for renewable gas, manure based projects such as ours, landfill projects and woody biomass based projects. The ten year production tax credit for manure based projects is proposed to be the
The organization has been focused and committed to transforming itself from a late stage development company to a sustainable operating entity and leader in its field. In spite of these turbulent times, we believe that our RNG(R) product continues to be one of the most reliable, cost effective renewable sources of energy that can be used in existing electric production facilities. The uniqueness of our Company, the shovel-ready nature of our projects, and our leadership present a unique opportunity for others to participate in our projects. We like to thank all the investors who have supported our organization, especially during these turbulent economic times.
Management Conference Call
Conference Call Details When: 10:00am Eastern Time; May 8, 2009 Dial-in: U.S. Toll Free: 888-299-4099 Canadian Toll Free: 866-682-1172 International Toll: 302-709-8337 Verbal Passcode: VK10652 Replay Access #: U.S. 800-355-2355 Code 10652# Int. & Canadian Toll: 402-220-2946 Code 10652# The call will be available for 3 days by accessing the number above.
ABOUT ENVIRONMENTAL POWER CORPORATION
Environmental Power Corporation is a developer, owner, and operator of renewable energy production facilities. Our principal operating subsidiary, Microgy, Inc., develops and operates proven large scale, commercial anaerobic digestion based projects which produce a versatile methane-rich biogas from livestock waste and other organic sources. For more information visit the Company’s web site at http://www.environmentalpower.com.
The Private Securities Litigation Reform Act of 1995, referred to as the PSLRA, provides a “safe harbor” for forward-looking statements. Certain statements contained in this press release, such as statements concerning financing, our planned manure-to-energy systems, our sales pipeline, our backlog, our projected sales and financial performance, statements containing the words “may,” “assumes,” “forecasts,” “positions,” “predicts,” “strategy,” “will,” “expects,” “estimates,” “anticipates,” “believes,” “projects,” “intends,” “plans,” “budgets,” “potential,” “continue,” “targets” “proposed,” and variations thereof, and other statements contained in this press release regarding matters that are not historical facts are forward-looking statements as such term is defined in the PSLRA. Because such statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to: uncertainties involving development-stage companies; uncertainties regarding corporate and project financing and our ability to continue as a going concern, the lack of binding commitments and/or the need to negotiate and execute definitive agreements for the construction and financing of projects, the sale of project output, the supply of substrate and other requirements and for other matters; financing and cash flow requirements and uncertainties; inexperience with the development of multi-digester projects; risks relating to fluctuations in the price of commodity fuels like natural gas, and our inexperience with managing such risks; difficulties involved in developing and executing a business plan; difficulties and uncertainties regarding acquisitions; technological uncertainties; including those relating to competing products and technologies; risks relating to managing and integrating acquired businesses; unpredictable developments; including plant outages and repair requirements; the difficulty of estimating construction, development, repair and maintenance costs and timeframes; the uncertainties involved in estimating insurance and implied warranty recoveries, if any; the inability to predict the course or outcome of any negotiations with parties involved with our projects; uncertainties relating to general economic and industry conditions, and the amount and rate of growth in expenses; uncertainties relating to government and regulatory policies and the legal environment; uncertainties relating to the availability of tax credits, deductions, rebates and similar incentives; intellectual property issues; the competitive environment in which Environmental Power Corporation and its subsidiaries operate and other factors, including those described in our most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q, well as in other filings we make with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date that they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
CONTACT: Company Contact Public Relations Contact Scott Tetenman, John Abrashkin Manager of Project Financing and Treasury Ricochet Public Relations Environmental Power Corporation (212) 679-3300 x121 914 631-1435 x42 firstname.lastname@example.org
SOURCE Environmental Power Corporation