Cover Story
CEOCFO Current Issue
Cover Story Archives
Private Equity Review
CEOCFO Interview Index
Future Features
Analyst Interviews
Corporate
Financials
Contact
& Ordering |
This is a printer friendly page!
MicroPlanet Technology
is bringing products to the market that improve
electric power grids, both in terms of reliability and efficiency, thereby benefiting both
the utility and the consumer
Technology
Energy Technology
(MP-TSXV)
MicroPlanet Technology Corp.
100 South King Street, Suite 240
Seattle, WA 98104
Phone: 206-625-0851
Brian Reidy
President and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
November 3, 2005
BIO:
Brian Reidy
President and CEO
Mr. Reidy is a founder of MicroPlanet and MicroPlanet, Ltd., the predecessor of
MicroPlanet. Mr. Reidy has been Chief Executive Officer of MicroPlanet since 2001 and a
director of MicroPlanet since 1994. From 1999 to 2001, Mr. Reidy was a practice leader for
Towers Perrin, an international consulting firm. From 1995 to 1999 he worked for Hewitt
Associates, an international consulting firm, where he successfully established the Calgary,
Alberta office as well as the compensation consulting practice in New Jersey. From 1994 to
1995, Mr. Reidy was a Vice-President of the Chase Manhattan Bank. From 1991 to 1994, he
worked as a process improvement expert and human resources strategist for Kraft General
Foods. Prior to that, Mr. Reidy was a compensation consultant for The Wyatt Company and an
IT Consultant for Anderson Consulting.
Mr. Reidy has a Bachelor of Science in marketing and
advertising from Indiana University and a M.B.A. in finance and IT from the University of Colorado.
Company Profile:
About MicroPlanet Technology Corp.
Based in Seattle, Washington, MicroPlanet is a distributed-energy technologies company
that offers least-cost energy solutions for utilities and customers to promote more
reliable power delivery and electrical energy conservation. The Company manufactures and
markets a proprietary line of electronic voltage regulation products. MicroPlanet's Low
Voltage Regulator™ (LVR™), High Voltage Regulator™ (HVR™), Enterprise
Voltage Regulator™ (EVR™) and Enterprise Voltage Regulator 3P™ (EVR 3P™),
regulate the voltage delivered to a business or home, reducing the amount of electricity
needed. MicroPlanet’s voltage compliance products provide electric utilities a new
tool for peak load reduction, conservation, low voltage mitigation and an interface for
distributed generation.
MicroPlanet is a public
company whose common shares are listed for trading on TSX Venture Exchange (TSXV) under
the symbol: “MP”. The Company has approximately 21.0 million common shares
outstanding. Visit MicroPlanet at: www.microplanetltd.com and www.investorfile.com.
CEOCFO: Mr. Reidy,
please tell us what was your vision when you founded MicroPlanet and where are you today?
Mr. Reidy: “MicroPlanet is a technology company that is
devoted to improving the efficiency of the electric utility grid. In fact, if we look at
it more broadly, MicroPlanet is in the business of improving the human condition by
intelligently using technology to reduce inefficiency.”
CEOCFO: How do you improve efficency?
Mr. Reidy: “Our first foray is into electric utility
infrastructure and we have a line of products in what is called ‘distributed energy
technology’. MicroPlanet’s HVR, EVR and EVR 3P help improve electric power
grids, both in terms of reliability and efficiency. They are point-of-service voltage
regulators that use power electronics; the products integrate both digital technology
(e.g., computer technology), as well as traditional physics in the form of a transformer.
These ‘electronic voltage regulators’ are installed at the delivery interface
between the electric grid and the each of the utilities customers. This means at the
meter; most people in the United States and Canada have a meter and you would install
MicroPlanet’s products at the meter.”
CEOCFO: How does your meter benefit the customer?
Mr. Reidy: “We have several different product lines, but
there are two primary applications and the first one is for reliability. There are about 5
million to 10 million customers in the United States that don’t consistently get
voltage within the regulatory standards, which is 114 and 126 volts. The impact to these
customers is that their lights flicker and it takes a long time for hot water to boil, if
ever, on an electric stove. It can also cause T.V. screens to be smaller and decrease the
life span of electronic equipment. It is a very frustrating situation for people with low
voltage. Our product, the LVR, installed at the meter will actually help improve low
voltage and therefore improve the reliability of delivered voltage, which translates into
whether or not these customers have electricity. So this first line of products from
MicroPlanet deals with reliability. The product is sold to the utility and it is installed
at individual customer sites to help with that problem.
The second set of products that MicroPlanet offers, help improve the efficiency of the
distribution system. Both problems, poor reliability and efficiency, stem from the fact
that the electric utility grid is about 50 years old. In fact the structure of the current
electric grid was conceived of by Thomas Edison. Therefore, the fundamental model that we
have is really 100 years old. Much of the infrastructure on the grid is 50 years old at
worst and at best 20 to 30 years old, so it’s a very old system. In fact, the
standard, the 114 to 126 volts, was designed and agreed upon by regulators in 1954.
MicroPlanet believes that there have been an awful lot of advances in technology since
1954, and many of them improve the precision of things around us, whether it is lighting,
air conditioning or a computer. Hence, the basic premise of our technology is to use new
technology to improve the precision of the electric grid.
Getting back to the efficiency side, because of this 1954 standard and the old grid, most
of us either get too much voltage, which translates into a higher electric bill and/or a
decreased life span for your electronic equipment. MicroPlanet also has products for
commercial organizations; these are mid-sized commercial organizations such as a fast food
restaurant or convenience store. The product is installed at the meter and it will reduce
the voltage that the utility delivers. The average voltage delivered in the United States
is about 122 volts; if you reduce voltage down to 114 volts, it is a reduction of 8 volts,
so you should see a savings of around 10%. I was on a call with some folks from one of the
several Congressional committees that are talking about energy and the term ‘energy
emergency in the United States’, is starting to by used in some of these dialogues.
In the stage of crisis that we are in, 10% would be larger on the electric utility grid
than almost any other adjustment that’s been made on the grid over the last 20 or 30
years. The flip side, there is a small portion of customers in the United States, 5
million to 10 million that receive too little voltage, which is a frustration for the
customers.”
CEOCFO: You are selling to the electric utilities?
Mr. Reidy: “Yes, we are selling our products today to
the electric utilities to help them deal with capacity shortfalls. People on the east
coast would probably be familiar with the blackout experience a couple of years ago and
some of the capacity problems that you ran into. On the west coast in California, we have
the same kinds of problems in August and July when people are running their air
conditioners. The HVR could be installed by the utilities to help resolve capacity
shortfalls. It could be done in a timeframe and a cost that is less expensive than
traditional infrastructure.”
CEOCFO: Since your products can save consumers 10% and help
the utilities as well shouldn’t there be a rush to install them? Don’t the
utilities care?
Mr. Reidy: “I think it’s a great question; I feel
the question really is why do the utilities give the appearance of not caring. The answer
has to do with the two problems that I mentioned – reliability and energy efficiency.
On the reliability side, the utilities care about the reliability problem; the reason they
care about customer reliability is that if there are a large number of customers that
complain to the Public Utility Commission in a state or local area, the utility will have
a hard time getting a rate increase. Therefore, when they go in for a rate case, which
happens periodically with every utility; if reliability has been a demonstrated problem in
their service territory they would have to explain why. If they don’t deal with these
concerns the regulatory bodies will basically, A, tell them to come back when you fix
these, or B, we are not going to give you the rate increase, which could be a major
problem. So they care about reliability.
The second one, energy efficiency is in direct conflict with the goals of investor owned
utilities. You must understand that the utility industry is made up of about 3 or 4
different types of utilities. Most of the ones that people are serviced by are the
investor owned utilities that are designed to make a profit. If we put a product in that
saves energy and the regulatory incentive structure does not identify the product as a
value added piece of infrastructure allowing the utility to capitalize the asset, the
utilities will loose revenue and have a capital expense. So they get hit both on the
revenue side and the expense side, so it’s not a rational economic decision for them
to put these products in. Therefore, utility reluctance to move programs forward in some
instances is very rational, because it will impact their revenue and their profitability
and therefore their share price with their investors, which is a very reasonable and
logical response. So the issue rests with the incentives structures that are in place
today, which are essentially also 50 years old. The regulatory incentive model that we’ve
always used in the United States is that you are better off to build more infrastructure,
put more capital in the ground and we will pay you for doing that. When the country was
growing like the Chinese or Indian infrastructure, which occurred in the US right after
World War II, and until the 70’s and 80’s; that incentive structure made sense.
So the problem rests with old incentive programs that the regulators governing these
industries use to drive utility industry behavior. The US electric demand is growing
consistently but not at such a rapid pace that the industry should be motivated to put new
infrastructure in the ground as a first response. We should be taking the infrastructure
that we have and find more ways to make it efficient first, then move to build.
So in summary, I would say that the utilities care.
We never have a problem motivating a utility to talk to us. Despite the lack of regulatory
incentives many utilities have taken the position that they are trying pilot programs with
us and looking at ways to make our products work for them, so that’s to their credit.
When the regulatory environment moves around and the incentives structures are onside, I
don’t think that we will have an issue with the utilities in moving product.”
CEOCFO: How does MicroPlanet, sitting on this good
opportunity, get the changes you need to make it a reality?
Mr. Reidy: “First, I’d like to mention the markets
that we are tackling. We have two commercial products – the EVR and EVR 3P - these
products are sold directly to corporate entities. For example, while these organizations
are not customers today, facilities such as a stand alone McDonalds or Exxon Mobil
mini-mart are targets. In the commercial sale, we sell our product to the customer who
installs it on the customer side of the meter and all of the benefits in terms of
electrical usage and increased life span of invested capital accrue to the customer. That
market is moving right now; we are bringing our first products out to the market today and
we already have customers signed up to put them into their sites.”
CEOCFO: MicroPlanet has a very timely product!
Mr. Reidy: “I would like to tell you that we planned it
that way, but it is as much luck as good planning.”
CEOCFO: What are you doing to encourage the regulators?
Mr. Reidy: “On the regulatory side, we are working with
various regulators and we have had an introductory discussion with the Federal Energy
Regulatory Commission that if a utility is favorably inclined to install MicroPlanet’s
technology, FERC will work with the local utility and PUC to find a way to make the rate
structure work. We have done some lobbying, working through the regulatory bodies in the
U.S. in different parts of the country and then work with utilities that are not investor
owned utilities, which are public entities. The public entities actually are less profit
orientated and generally look at more ways to conserve capital and help their customers.
Of the 3,200 utilities in the United States there are probably 100 or 200 that are
investor owned and those are very big utilities, another 3,000 of these smaller public
utilities that are not so motivated by profit. We have a very large project out in the Pacific
Northwest, where we are installing 500 of the HVR units to demonstrate to the utilities
and the regulators that there are savings. I can tell you that the first of those units
are installed and the results are coming back, quite favorably in terms of the energy
savings.”
CEOCFO: Are there competitive products?
Mr. Reidy: “There are other products that do voltage
regulation, but to our knowledge there are no other companies selling an electronic
voltage regulator for point of delivery or point of service. Other products exist that
work at the utility line level or a substation level and there is old technology that was
marketed years ago. Most of these other technologies are electro-mechanical and as a
result are physically very large – the size of an electrical closet or central air
conditioning unit for example. In contrast, our product is about the size of a desktop
computer…there are a number of issues such as cost, footprint and target size that
differentiate MicroPlanet’s products. We are not aware of any company within our
target customer space. We are talking to utilities in Asia, South America, Europe, the
United States and Canada, so we’ve got a pretty good global coverage from our
dialogue. We suspect that if someone else was putting out a product like ours, with our
major selling points, it would have been pointed out to us.”
CEOCFO: What is the financial picture at MicroPlanet today?
Mr. Reidy: “We started out originally as all early stage
companies do, with support from a great group of Angel investors. There is a fairly good
community of people in Seattle, who had done pretty well during the late 90’s and
early 2000’s with software technology. Also, it helped that many of the people in the
Pacific Northwest are inclined towards energy efficiency and conservation. As the market
opportunities got bigger, we had to look for more and larger investment opportunities. In
the recent past, we’ve gone out and talked to the venture capital community and had a
lot of discussions, but found out that they were not ready for a product like ours just
yet. So we wound up looking for alternative forms of financing. Our product is an energy
play and investors have to understand both the infrastructure and then the marginal cost
of energy in terms of the commodity market. There are probably two markets in North
America that understand energy and related costs well - Calgary and Houston.
Since I had connections in Calgary, we went up to Calgary almost on a whim and one of the
guys that I worked with who had been an early investor felt that he could pull some
friends together and he did. Therefore, on a one-day trip we raised almost as much money
as we did with our Angel investors over a couple of year period. We then realized that
there was potential in the Canadian market and one of the investors suggested that we
consider an alternative market structure in Canada called the Toronto venture exchange or
the TSXV. It is a mini AMEX or mini NASDAQ that allows retail people to participate in
small early stage companies. The TSXV has a structure called a Capital Pool Company that
operates almost like a public venture capital firm; in a Capital Pool Company a group of
business people or industrialists get together and pool their money, they look for
companies to try to find a fit for their investment dollars. We found a CPC group that we
liked and agreed to do a simultaneous secondary financing through the capital markets for
this transaction. We closed that round in April of this year (2005) and it was about $7
million Canadian. Hence, those have been our two primary sources of financing, Angel
investors and the transaction through the TSXV.”
CEOCFO: In closing, address potential investors. Why should
they be interested and what should they realize that they may miss when they first look at
your material?
Mr. Reidy: “There are a couple of things, first of all,
this is not an R&D company. I was in a meeting with some institutional investors
recently and I explained to them that we are way past the R&D stage. We are in the
commercialization phase, we’ve had our first large production run; our manufacturing
partner is a company called Flextronix. Further, our technology is proven, this isn’t
something that is hypothetical, we have UL certification, it is a safe product to put in
and it is a commercialized product. I don’t think I need to say too much about energy
prices, you can make your own decision about where energy prices are going to go. If you
believe they are going to go up, the economic incentive for employing our products will
just keep getting better.
We have products deployed with about 20 utilities and meaning despite all of the
regulatory issues, there are utilities using our technology. If an investor thinks in
terms of market potential we have a pretty nice sized opportunity. Management estimates a
$35 billion addressable market across the three segments in the US alone, 1) reliability
for the residential segment, 2) the commercial segment and 3) the potential utility energy
conservation…and the US market is small compared to China and India. In terms of the
management team and the board, one of the gentlemen that was involved in the development
of Department of Energy is on our board and has been for a couple of years. We’ve got
a very senior board of directors and our team is made up of utilities engineers, which
includes one person that actually helped write the standard for the inter connection of
distributed energy, things like small fuel cells. Therefore, we have a very senior team,
both on the board and on the management team. We understand the industry and we see
ourselves as working from the inside out, which offers a lot of opportunity to drive the
market.”
disclaimers
Any reproduction or further distribution of this
article without the express written consent of CEOCFOinterviews.com is prohibited.
|
