Capstone Turbine Eyes IPO as State Prepares New Rules
As state regulators and utilities gear up for the advent of
distributed generation, one of California's native sons and the
first company in the nation to market commercial distributed power
generation systems for businesses, Capstone Turbine Corp., is
preparing for its own $115 million IPO later this spring.
Woodland Hills, CA-based Capstone is one of several dozen
special interests from both the private and public sectors that
filed testimony with state regulators earlier this month as part of
year-long effort to facilitate a smooth entrance for distributed
generation into California's restructured electricity market. The
first of two phases of hearings begins next month in San Francisco
with everyone from Enron to the Turlock (municipal) Irrigation
District putting in its two-cents-worth of advice.
Despite the advent of new state rules and a head start on most
of its competitors, 12-year-old Capstone is awash in red ink and
expects to stay that way at least through fiscal year 2001,
according to documents it filed with the Securities and Exchange
Commission as part of its preparations for going public. A
spokesperson for the 156-employee firm said an SEC-imposed "quiet
period" prohibits Capstone from commenting on either the state
regulatory proceedings or the pending IPO.
Capstone's 1999 results produced $6.6 million in revenues, but a
net loss of $29.5 million, for the calendar year ended Dec. 31,
1999. This compared to revenues of $84,000 the previous year and a
$5.3 million loss. Commercial sales began in December 1998, so
before that the company essentially spent a decade in a research
and development mode. In 1999, it said 211 units were shipped on
customer orders of 521 units, leaving an order backlog of 310 units
at the end of last year.
From its inception, Capstone has received more than $260 million
in private equity capital, some coming in the mid-1990s from
Microsoft co-founder Paul Allen's venture capital group, supporting
a series of national beta tests, according to Capstone's IPO filing
and its president/CEO Ake Almgren. Operating losses over its
12-year history top $120 million.
Nevertheless, the mostly natural gas-fired small power
generating turbines in the long run are going to be produced and
distributed profitably, according to the company's filing
"Since the commercial release of the Capstone Micro Turbine,
demand has continued to grow and it is anticipated to accelerate as
successful results from early adapters and new applications are
recognized in the distributed generation market," Capstone stated.
"To accommodate this increased demand we are increasing the scale
of our operations, including the hiring of additional personnel,
resulting in higher operating expenses. We believe these increased
operating expenses will enable us to realize accelerated revenue
Capstone makes a 30 kW microturbine, sub-assemblies and
components that can be fueled by natural gas, or in part by
propane, sour gas, kerosene and diesel. It is committed to
developing other products, however, including some cogeneration
The California Public Utilities Commission is in the midst of a
proceeding begun at the end of last year to tackle the politically
and economically sensitive issues inherent in distributed
generation, including the question of whether incumbent regulated
distribution utilities by virtue of their market power should be
excluded from the emerging small-scale power generator business.
In establishing a formal proceeding expected to result in new
rules and the need for some new state laws, the CPUC took a more
cautious approach to the broader issue of whether there eventually
should be competition in local electricity distribution, the
so-called "wires" business monopolized by either private or public
sector utilities for the past 100 years.
In the midst of all of these tricky issues, some of the
participants, such as Enron and the major natural gas utilities in
California, want to have some discussion of distributed
generation's projected impact on the state's natural gas
infrastructure, too. To date, the gas companies are embracing the
advent of distributed generation as another means of assuring their
role in the production of electricity in the state.
Richard Nemec, Los Angeles