During a nationwide search that produced a number of candidates, the board of directors of Blue Earth, Inc. (Nasdaq: BBLU - 0.66) headed by Chairman Laird Q. Cagan determined that the ideal person to become the new CEO should possess a substantial knowledge of the solar energy industry in particular, among other key qualities for the top executive spot. Among the criteria are a great deal of energy experience, strong financial background, international experience, experience at large corporations, relationships with large financial institutions and substantial knowledge to assist creating a new publicly traded yield company (YieldCo) named E2B Growth. One is essential to help finance the scalability of the billions of independent power generation projects in Blue Earth's pipelines. When you convince the customer of an electric utility you can cut power costs you often also have to come up with a way of financing the idea or it's no sale.
Enter Bob Powell: On September 1st dynamic 52-year-old G. Robert Powell assumed the CEO reigns to lead Blue Earth focusing on being an independent power generation company. Bob has over 25 years of experience in the global energy sector. After earning a degree in engineering and an MBA from the Georgia Institute of Technology, this CPA spent 15 years consulting with some of the largest energy companies at Arthur Andersen and then PricewaterhouseCoopers.
Then Powell was recruited to join PG&E (Pacific Gas &Electric), the largest electric utility in the U.S. and became its CFO.
When solar energy in the U.S. was taking off, Powell joined Solar Power Partners, one of the nation's early solar developers and became its CEO. He built it and sold it to the nation's largest independent power producer NRG Energy Inc. There he worked with the team to launch the first renewable energy YieldCo , NRG Yield Inc. (NYSE:NYLD). It currently has almost 4 gigawatts of energy generation assets, including wind, solar and thermal plants. Next Powell was recruited to be President of Asia Capital Markets for SunEdison. Soon he became President of SunEdison's largest business unit, North America. He has been a key player in three of the top ten most prominent YieldCos in the market.
As Bob Powell Sees It: What better way to see a company in transition than through the eyes of the new CEO who has just assessed the situation and decided to come on board?
Flaherty Financial News Editor Bob Flaherty caught up with Powell who was looking for new office space. "The intention is to move headquarters (from Nevada) to the San Francisco Bay area," Powell explained. "For clean energy San Francisco is ground zero. It is a spectacular place to be located if you are building a great enterprise which is focused on clean energy. That is also one of the reasons why I make the Bay area my home."
Question: "You are also recruiting a new CFO to be in the new office?"
Answer: "Yes. If we land a CFO who has YieldCo experience that would be spectacular but not essential. What I really want is a CFO who understands our power generation business and capital formation as well. Somewhere down the line we will be raising money."
Question: "Batter up! Here is the hardest question I will ask you today: Critics argue that Blue Earth is too small to create a YieldCo so the idea is 'ludicrous' because the resulting high cost of capital would bankrupt the company and make the stock worthless. But if Blue Earth can't create a yield company to finance energy generation projects you can't achieve scalability and monetarize the billions of potential in your pipelines. Can a company of your size create a YieldCo?"
Answer: "We can absolutely," he laughed. "Being competitive even with a small cap company is doable. I've seen it in my past for over 25 years in this business. We can be very successful in developing our own projects and very importantly being partners to people in a marketplace where their own large enterprises or institutions may be small. There are an enormous amount of great power projects out there.
"We can certainly create a YieldCo. While there's work to be done on this effort, I expect we will be able to create a vehicle such as this to allow us to finance our projects in a low cost manner. I see us having the ability to create something very special here and to be very competitive in the market."
Question: "Give more detail about your YieldCo experience?"
Answer: "For me the idea around YieldCo started in 2009 when I was running Solar Power Partners as CEO. To be successful I wanted to find a way to attract a low cost of capital so we could compete well in the marketplace. Besides coming up with ideas to reduce costs and generate power more efficiently you often have to be able to help finance the projects. Having worked in the oil patch I immediately thought of limited partnerships and restructurings. But what those of us who have been involved have done collectively is taken independent power generation assets and put them in a vehicle where we could take advantage of very low- risk, high- quality returns. Investors seeking yields love them.
"I spent a few years of research on that idea before I sold my company to NRG Energy (NYSE:NRG). The key was their embracing of it. NRG CEO David Crane wanted a YieldCo with an IPO. We spent time together on how we did it. That YieldCo, NRG Yield, Inc. (NYSE:NYLD) has become a great vehicle." (Currently it has a stock market value of over $1.5 billion which is impressive!)
"After being involved in creating the first renewable energy YieldCo, I've also been though my paces with other ones. Of course, you know finance is part of my background."
Question: "Here's another fast ball. How do you get Blue Earth moving? There is a tremendous contrast between trailing 12 month's revenues of under $22 million versus over $1 billion each in the pipeline of Blue Earth's Combined Heat and Power (CHP) and Solar Power businesses. And I do understand that what's in a pipeline has not yet been converted into backlog. Did you study the gap before you decided to take the job?"
Answer: "Sure. I saw that we can be really successful with the CHP and our solar business teams we have, hopefully strengthened by adding myself and others."
Question: "When will we see all that turned into big revenue?"
Answer: "For a growing power generating business revenue is not the right measure. Look at broader metrics. Growth in the pipeline is absolutely essential. On a short- term basis we need to ensure that we are building a great business from a growth perspective.
"Also study how well we are executing that pipeline. If we can demonstrate we have the growth, there is value in it and then we are creating a team that executes and takes ideas and opportunities to projects that are turned on and finally have revenues and are cash flowing, that's what to look for.
"Expect to see good execution and growth in all areas. That's how to judge if we are successful. Over time you will also see occurring financial results like very large revenues, high growth rates and added value.
"Still, you're right. Taking these pipeline projects and turning them on is very important. But it all comes from good execution results."
Question: "How are you doing on that? You only have one customer, a chicken products producer Colorado-based Pilgrim's Pride (Nasdaq:PPC) for which you have only built only one independent power plant plus a fraction of another?"
Answer: "You're referring to our existing relationship JBS, (which is their Brazil-based parent and the world's largest protein producer.) I personally visited the Sumter, SC power plant now online and operating and the other plant under process in Alberta, Canada. JBS is a great client, excited about the relationship. As I see it, they want us to hit the accelerator button and move forward.
"Because of what we have demonstrated with the first project and they see in the second, JBS sees a lowering of their energy costs opportunity that is substantial. That allows them to take money saved and put it back into their operations. As one of the largest food processors in the world they want to be very good at that. They see the power of what we have to affect them as we progress in the first two projects of the original seven. I expect to see we will do even more of their projects.
"If you build a very substantial enterprise you need to continue to build up a client base. In the CHP business we will be adding other great customers as well and expanding."
In July, David Prezioso joined BBLU as CEO of Blue Earth Combined Heat and Power, Inc. (BE CHP). Previously he was CEO of Ice Energy. Within two years, he had successfully secured Ice's funding and product lines, culminating in groundbreaking energy storage contracts with some of the largest utilities in the U.S.
One goal is more scalability where Blue Earth will get more clusters of power projects from large customers. Each office will have a team of engineers focused on performing energy analysis on multiple CHP customer sites and develop modularized, standard CHP packages to minimize engineering costs and to facilitate and expedite energy plant installations.
Blue Earth Combined Heat and Power designs, builds and operates combined heat and power plants for large manufacturing and processing facilities. It designs, engineers, and constructs appropriately sized co-generation systems to match the thermal requirements of the host facility.
Question: "Don't you have a smaller CHP business called Blue Earth Generator primarily up in the New York City Metropolitan area?"
Answer: "Their CHP business provides steam at rates very beneficial to the high rate Con Edison provides. We do that mainly for individual buildings in the City of New York or we will service existing power islands inside of buildings. That is a great book of business and we have several excellent customers up there. It's a wonderful base to grow on right now."
Question: "Can you set more realistic goals? Some investors anticipated that Blue Earth would be doing one sizable power plant constructed per month by now."
Answer: "I'm not prepared to get specific on that point yet. As I assess the situation here I will deliver a message our investors can believe in whether it is one plant a month or x new projects a year. As we get up and running investors will see we are executing on a great pipeline."
Question: "Can you shed some sunshine on your solar business? About 18 months ago Ruben Fontes from Chevron Energy Solutions took over your Photo-Voltaic division for engineering, procurement and construction of distributed solar energy generation projects for commercial and industrial customers. Now your website mentions a solar pipeline of over $1 billion, but no one understands what is going on."
Answer: "Here's some sunshine. Ruben Fontes and his team are amazing! One of the reasons I thought it was a great decision to join Blue Earth is our really nicely growing solar business. As you see progress in solar in the future I believe you'll agree."
Question: "What is this strange business of independent power production instead of just continuing to rely on the regulated utilities and the power grid? Why does IPP even exist?"
Answer: "IPP is a great business," he began carefully. Stressing that he had proudly worked inside of America's largest utility PG&E, he admires the folks who continue to run utilities. Utilities are doing their own great things to improve our environment. Also utilities will always be important customers of IPPs including Blue Earth.
"Because of utility rate base regulation the business model is not one where utilities are incented to drive down costs for reliable energy. Independent power producers are beginning to change the equation. In this IPP business we go out and we are motivated to get power costs lower but we also have to serve and provide reliability because that is what our customers buy from us. That is a win for the energy consumer that historically had insufficient choices to power. So, independent power producers and providers offer a widening range of attractive alternatives.
"As the costs of solar technology, power storage and CHP (combined heat and power units) go down we offer solutions as an independent, not a utility. We can lower your costs, provide reliable power and then offer you a choice. Independent power produced distributed energy with the choice it provides consumers is absolutely the future of the electricity industry."
Question: "Doesn't politics complicate it by raising issues like climate change or trying to make the world better by reducing the carbon footprint?"
Answer: "Of course. Forget politics and I don't want to debate about climate change. When we spew particulate matter into our atmosphere it is not a cleaning or neutral effect. If you can offer clean and affordable energy then you hit a home run for all of us. We love clean streams. We need clean air to breathe. Why in the world not be involved in that effort? So now you understand why being CEO of Blue Earth sounded so exciting."
Question: "Have you known Blue Earth Chairman Laird Cagan long?"
Answer: "Not personally. My first real discussion with him was about joining Blue Earth. Laird is so impressive as a company builder also as the current chair of a world-class board of directors. He's a great businessman. He's done a wonderful job personally with many of the things in which he's been involved."
At Goldman, Sachs and Co. and Drexel Burnham Lambert Laird Cagan, a holder of three degrees from Stanford University, was involved in over 30 transactions valued at more than $15 billion. His success in building an ideal board for an energy company is also a homerun.
Blue Earth's board includes Governor Bill Richardson, former Secretary of the United States Department of Energy who has been nominated several times for the Nobel Peace Prize. As two- time governor, Richardson made New Mexico the "Clean Energy State" by requiring utilities to meet 20% of New Mexico's electrical demand from renewable sources.
Director James Kelly served 38 years with the second -largest utility in the U.S., Southern California Edison. Director Mike Allman served 14 years at Sempra Energy, the owner of San Diego Gas & Electric and most recently as Chairman and CEO of SoCalGas, America's largest natural gas distribution company. Combining this duo with new CEO Powell, a former CFO of PG&E, puts previous senior executives from all three of California's largest public utilities in the Blue Earth team's lineup.
Strategic restructuring: Dr. Johnny Thomas resigned on September 1st as CEO and director of Blue Earth to devote his full time as CEO and a director of newly created Blue Earth technology subsidiary EnSite Power Inc. It is expected to be spun off to shareholders and then taken public in an IPO. EnSite was formed especially to expedite the commercialization of two of Blue Earth proprietary technologies.
One: Patent-pending UPStealth� Battery Backup System is a lead-acid free, 98% efficient, intelligent digital environmentally friendly battery backup system that powers signalized intersections during loss of utility power. With its nickel-zinc chemistry the unique properties of the UPStealth� system which is specifically designed for data centers and telecom markets could apply to numerous vertical markets beyond the traffic industry including data centers and telecom. Its flexible battery packs can even bend to fit in odd spaces.
Two: Patented system architecture and Real-Time Intelligence EDGE (RTi EDGE) product line uses hardware and software to provide bi-directional communication and distributed control across a broad range of electro-mechanical systems including solar, HVAC, refrigeration, lighting, security and much more. Continuous commissioning optimizes system performance while collecting pre-emptive maintenance data. Doing so increases energy efficiency, equipment lifespan, and reduces energy usage and cost.
"This financing program is expected to allow us to achieve technology success without diluting our Blue Earth shareholders," said Dr. Thomas during his final conference call late last August as Blue Earth's CEO.
A New Beginning: Look what's ahead! Three ways to win. Investors of a record date to be determined are going to get spinoffs of two intriguing companies- a YieldCo named E2B Growth which should pay dividends and the newly created technology unit EnSite Power with environmentally friendly non-zinc bendable batteries and other disruptive ideas. At the remaining base stressing excellent execution, new Blue Earth CEO Bob Powell leads a fine well motivated team in place to focus on independent power generation with a credible plan. Wow! -RJF
RISKS
It is critical for tiny start-ups like Blue Earth that the new CEO does not make a major mistake until this concept company has grown to the point where it is self- sustaining. Then it can survive the unexpected knocks. That risk always accompanies the excitement of building a new enterprises Because renewable energy projects are capital intensive Blue Earth must succeed in boosting its ability to continuously raise funds for project scalability by successfully expanding its YieldCo leasing company E2B Power.
The growth rate of the entire independent power generation industry would suffer if the next administration changes direction. There is still a degree of uncertainty within the investment community concerning our national commitment on tackling climate change by shifting America's dependence away from politically powerful coal and oil toward cleaner natural gas and the enormous benefits of renewable/alternative energy like solar and wind. Remember President Reagan dismantled the earlier innovative solar efforts started under President Carter. Our current chaotic stop and start legislative leaders are way too short term for good business planning.
COMPANY CONTACT INFORMATION
Blue Earth, Inc.
INVESTOR RELATIONS
Liviakis Financial Communications, Inc.
Michael Bayes
Phone: 415-389-4670
FOLLOW UP: Contrarians to the core, my son Brian and I dedicated our August 27, 2015 issue of Flaherty Financial News Newsletter #50 to the unique approach of cancer immunotherapy pioneer CEL-SCI Corporation (NYSE:CVM-0.59) and called the stock "Bob's Best Bargain." Put simply CEL-SCI wants to boost the immune system of newly identified cancer patients for three weeks during the brief four week window before current global standard of care mandates that surgery plus radiation and/or chemotherapy commence. In contrast , all its rival cancer immunotherapy peer group aim to boost the immune system afterwards when the immune system has been debilitated or even destroyed by the toxicity from radiation and chemotherapy.
We reported that CEL-SCI remains "the most undervalued Phase III biotech" while management battles "the mother of all credibility gaps."
Its unique $50 million 24 countries Phase III global head and neck cancer patient immunotherapy treatment trial advances. In 2017 when the 298th enrolled patient dies a 10% improvement in overall survival of CEL-SCI's Multikine drug-treated patients versus non-Multikine treated patients only receiving the current standard of cancer care could send the stock price soaring over $1 billion.
The stock price rose nicely. Now shares have fallen a bit. On the Yahoo.finance Bulletin Board a short seller using the handle Cassandra mimics the crazy prophetess no one believed as she warned about the coming fiery fall of Troy. Using the vilest language, he predicts the same fate for CEL-SCI.
Be of good cheer. On October 1st CEL-SCI reported enrolling 30 new patients in September for its Phase III head and neck cancer trial. That brings enrollment up to 570. Only 310 more to reach the goal of enrolling 880 patients in 24 countries. Doing that seemed impossible two years ago. Now it is only difficult.
We proudly keep CEL-SCI as a strong buy. Reaffirming what we wrote on August 27th, this stock remains Bob's Best Bargain. If CEL-SCI achieves its major Phase III trial milestones in 2015 and 2016 their future looks very bright.-RJF
