Outage Shines Light on Capstone

When most of the East Coast went dark Thursday, a Frito-Lay factory in Queens and a Harbec Plastics plant near Rochester, N.Y., stayed up and running. And on Friday, Capstone Turbine Corp.’s shares soared 23%.

The connection, which Capstone trumpeted in a press release: The Chatsworth-based company made the refrigerator-sized microturbine generators that kept the lights on at Frito-Lay and Harbec Plastics.

For Capstone, the power failure provided a badly needed boost. The jump on Nasdaq sent the stock to $1.74 a share -- though that was still a long way from where it traded three years ago, when it was close to $100.

“At the minimum, the blackout is a great marketing opportunity for companies involved in distributed generation,” said Scott Tomashefsky, the California Energy Commission’s authority on on-site electricity generation.

Advocates of distributed generation -- a system of mini-generating facilities making electricity on site, freeing homes and offices from the grid -- envision a structure that would make sweeping outages like the one that hit the East and Midwest a thing of the past.

Distributed-energy products include everything from Capstone’s microturbines, which can run on natural gas and other fuels, to solar arrays, windmills and fuel cells.

The Federal Energy Regulatory Commission has proposed rules to make it easier for businesses to hook distributed-energy generators up to big utility grids, so they can work in tandem.

A lack of uniform connection rules and other standardization issues are among the major hurdles blocking widespread adaptation of distributed generation in the U.S., said Edward Gray, director of energy policy at the National Electrical Manufacturers Assn.

That has led to frustration for companies like RealEnergy of Los Angeles, which started to develop small-scale distributed-generation systems for commercial office properties and hotels in 2001, when California was beset with its own blackouts.

RealEnergy found a dizzying array of connection rules for its systems, which are mostly fueled by natural-gas-fired internal combustion engines, and regulations that not only varied by utility but changed depending upon which individual engineer was monitoring the connection with the grid, said Dan Cashdan, the company’s chairman.

Still, Cashdan sees a future for suppliers of distributed-generation products.

“Every DG system that is installed takes a little pressure off the grid,” he said. “If we had hundreds instead of dozens, we could prevent blackouts.”

Ed Wedbush, chief executive of Wedbush Morgan Securities in Los Angeles, said Friday might have been the start of an upswing for several alternative-energy stocks.

He cited Capstone as well as Fuelcell Energy Inc., which jumped 21% to $9.40.

Thursday’s blackout, he said, “is calling to people’s attention that energy is really a problem.”

Capstone has seen that happen before.

Soon after the company went public in June 2000 at $16 a share, the stock moved close to $100 as investors rode hopes that the California energy crisis would stoke demand for microturbines.

Capstone’s are primarily used as backup sources of power for emergencies, though Harbec Plastics relies on 25 Capstone microturbines as its primary energy sources.

During the California crisis, analysts say, Capstone failed to capitalize on the initial burst of publicity its products received.

Now, having never turned a profit, the company is burning through its remaining $126 million in cash at a rate of $6 million to $8 million each quarter, said John Quealy, an analyst at Adams, Harkness & Hill in Boston.

The company sold fewer than 500 generators last year, he noted, and turmoil in its executive ranks, and the lack of a clear strategic plan, helped push its sales rate lower, to 146 units in the first six months of this year.

Capstone competes against two much larger industrial companies interested in similar technology. Ingersoll-Rand Co. has its own line of microturbine generators. General Electric Co. also is exploring the technology, having purchased microturbine patents and equipment from Honeywell International Inc.