Salary: $39,000
Workweek: 60 hours
Education: Baylor University, physics
Other companies started: Burnett Design, Amarillo, Tex.; designed underground houses
Last job held: Consulting engineer
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FINANCIALS
Waste Energy Inc. Projected Operating Statement
($ in thousands) Year 1 Year 2 Year 3
Sales $45,829 $161,323 $393,861
Cost of sales $15,288 $53,868 $131,967
Gross Profit $30,541 $107,455 $261,894
Marketing costs $7,802 $27,427 $66,957
Salaries and general $3,181 $10,893 $26,588
and administrative costs
Pretax Income $19,558 $69,135 $168,349
WHAT THE EXPERTS SAY
OBSERVER
WALTER A. ZITLAU
Former president and chief executive of San Diego Gas & Electric Co.; now a consultant for independent power producers
Burnett's customers apparently will qualify as small power producers under the Public Utility Regulatory Policies Act (PURPA). Before they can sell any energy back to the power companies, they will have to get "qualified facility" numbers from the Federal Energy Regulatory Commission. That's not terribly difficult to do. But after that, either they or Waste Energy will have to negotiate contracts with the particular utilities they wish to tie into. That can get tricky because the utility's legal department always gets involved.
Some utilities are quite friendly to cogeneration. Others are more standoffish, but under PURPA they have to negotiate -- you are entitled to be paid the utility's "avoided cost" for any power you sell back to it. Avoided cost is not fuel alone; it includes fixed costs as well. So avoided-cost calculations are complicated.
The small power producer has an advantage in that, presumably, it will be selling power back during its hours of operation, say, 6 a.m. to 9 p.m., Monday through Friday. That coincides with the utility's peak-load period. But to get a good contract, a company must show the utility that it is going to be operated intelligently and on a continuing basis.
FINANCIER
RICK DEFIEUX
General partner, Edison Venture Fund, Lawrenceville, N.J., a $100-million venture capital firm with a half dozen investments in environmental companies
Overall, this thing has a certain appeal. However, I see three potentially overwhelming negatives. First and most important, how reasonable is it to ask these small operators to tackle the complex task of securing environmental permits for this kind of facility, as well as to monitor and comply with the ever-changing body of regulations? If Waste Energy wants to assist in the permit process and offer it as a customer service, it will have to become expert in air-quality and other regulations of all 50 states.
It is also quite possible that mandated air-emissions controls will make these units uneconomical. In that case, you'd have to wonder if centralized off-site alternatives for disposal of waste oil and other trash would have the advantage of significant economies of scale.
Finally, there is the question of what the residuals from these units will be. In the worst case, you could be turning nonhazardous waste into hazardous waste by converting waste oil and solid waste into small quantities of ash or other residuals that are considered hazardous.
CUSTOMER
FRANK SICILIANO
Owner of a $250,000-a-year Texaco Express Lube in New Haven, Conn.
I have ordered a $16,500 Goldfire, which is a big investment for someone like me. I haven't paid for it yet, because first I want to see one that's working under stress conditions to see how it holds up. Its reliability is my biggest concern.
We generate around 1,000 gallons of waste oil a month, and we spend about $500 a month on electricity. I get 10¢ a gallon for the used oil -- $140 a month, tops. This unit would wipe out our power bill and provide enough electricity to sell maybe $150 or $200 a month back to the power company. My only bill would be a bank note of $400 a month, for five years, on the loan to buy the machine.
I figure I'd roughly break even for about five years, even if I don't get paid anything from the electric company, because I could depreciate the machine. Once it is paid off, the savings will go right to the bottom line. And if you can avoid the liability you face when waste oil leaves your site, that alone is probably reason enough to buy one.
OBSERVER
JOHN GAFFNEY
Chemical engineer and former chief financial officer of International Power Technology Inc., a cogeneration concern; now a consultant on cogeneration
There's a tendency for customers to underestimate the auxiliary costs of using a product like this. Look at the example of the farmer with $200 worth of energy in cornstalks. Maybe that's true, but who is going to go out to pick up all that stuff and feed it into the machine? Those kinds of costs are real.
The customers here don't understand power generation and don't want to think about it. So it's natural for the supplier to offer turnkey installation, permitting, performance guarantees, and maybe warranties. Those are all reasonable for the customer to ask for, but they are expensive to provide. If you are not really careful, your business costs can get out of hand. This is remarkably complicated stuff -- dealing with air-quality people, negotiating with utilities -- and takes considerable resources and energy. You might win, but it could be a Pyrrhic victory.
But assuming all those things go well, the barriers to entry are still relatively low. Burnett talks about opening a plant for $50,000. I was in charge of intellectual property at my old job, and it is very difficult to come up with a patent that would preclude competitors from offering something very similar. He can't get a patent on burning waste oil to make power. What he can do is get a bunch of operating units in the field and get experience on them. Then he has a leg up on everybody else. You can't buy operating experience.
