New Energy Brokers Use Oil Companies As Model
We're an oil and gas company, but without the oil and gas," says Steven Levy, the chief financial officer of Energenics Systems Inc.
Levy's company, based in Washington, D.C., develops alternative energy projects as if they were oil and gas deals. "We may own, lease, or develop a hydropower dam site, for instance," explains Levy, "and then get a group of investors to finance the necessary equipment to generate electricity. The power, in turn, is sold to a local utility or company."
The investors, says Pete Smith, Energenics's chairman of the board, are able to claim a portion of the deal's substantial tax benefits -- a 10% investment tax credit, an 11% energy tax credit, and depreciation on equipment. He estimates an investor's return on equity to be around 20% to 30% a year.
Three years ago, says Smith, such deals would have been impractical. "The mentality in the utilities was to oppose alternatives," he says. "They used to tack on surcharges to make projects like ours uneconomical." All that changed in 1978 when Congress passed the Public Utility Regulatory Policies Act (PURPA), which requires all utilities to purchase electricity from alternative power producers for whatever it would cost them to generate an equivalent amount of power from a conventional source. The law opened up the field for "energy brokers" like Energenics Systems.
The company is currently working on deals ranging from $500,000 to $25 million, and has applied for 150 smallscale hydroelectric plant construction permits.