Trigen Energy Corporation

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Trigen Energy Corporation

One Water Street
White Plains, New York 10601-1009
U.S.A.
Telephone: (914) 286-6600
Fax: (914) 288-6677
Web site: http://www.trigen.com

Wholly Owned Subsidiary of Suez
Incorporated: 1986
Employees: 846
Sales: $280.4 million (1999)
NAIC: 221330 Steam and Air-Conditioning Supply; 221310 Water Supply and Irrigation Systems; 22111 Electric Power Generation

Owned by a subsidiary of French conglomerate Suez (formerly Suez Lyonnaise des Eaux), Trigen Energy Corporation is a developer, owner, and operator of industrial, commercial, institutional, and district (small, community- or facility-oriented) energy systems in North America. More established electric utilities, however, see it as a threat. Trigen builds and operates smaller power plants, which more effectively convert fuel by taking advantage of the heat given off in the generation of electricity. As much as two-thirds of the fuel consumed by large power plants is lost to the air or water as heat. Trigen facilities capture that exhaust either to drive turbines to generate additional electricity or to create steam. Systems that serve communities can then pipe the steam to customers for hot water and heating. To ensure that steam is not wasted during the summer months, Trigen and other providers of combined heat and power (CHP) systems also use steam to create chilled water for air conditioning. By adding cooling capabilities, the standard practice of cogeneration becomes trigeneration: hence the Trigen corporate name. The White Plains, New York company serves more than 1,500 customers. Urban areas it serves include Baltimore, Boston, Philadelphia, and St. Louis. Individual customers include industrial plants, colleges and universities, office buildings, hospitals, hotels, sports arenas, and convention centers.

District Energy Losing Favor After World War II

From the beginning of the electric age, engineers knew that power plants produced far more heat than electricity. In the first decades of the 20th century, in fact, local power companies practiced cogeneration. They sold steam to area customers for space heating or industrial use. Because steam could not be transported very far without a significant loss of heat, cogeneration was dependent on a district energy strategy; that is, small community plants. The trend after World War II, however, was to build large, centralized power plants that could deliver electricity over a wide region. As a result, steam was no longer a viable commodity. In some urban areas, such as Manhattan, steam continued to be sold, although residents were reminded of the history of cogeneration only when a pipe burst and a street was closed for repair. In addition to district energy, privately maintained power plants that serviced businesses and institutions also were replaced by the cheap energy that could be bought from large centralized utilities. As long as fuel remained inexpensive and utilities had monopoly status, there was no incentive to make use of the heat given off in the production of electricity. The practice of cogeneration continued, but it was generally limited to industries that required a great deal of process steam, such as chemical companies, paper mills, and food processing plants. These businesses combined turbines and generators with their boilers to turn heat exhaust into usable electricity.

In the 1970s the OPEC oil cartel limited the supply of petroleum, causing a dramatic increase in fuel prices. In turn, central power plants lost their competitive edge, as their operating costs now exceeded those plants that were able to take advantage of wasted heat. Talk of cogeneration came back into fashion as an energy-conservation option, especially after President Carter promoted the concept in a 1977 energy speech. A year later Congress passed the Public Utility Regulatory Policies Act, which required that utilities buy electricity produced from cogenerators. By giving cogenerators the opportunity to sell excess electricity, the act spurred commercial interest in developing cogenerating systems.

The founder of Trigen, Thomas R. Casten, became involved in cogeneration in the mid-1970s. In 1964 Casten graduated magna cum laude from the University of Colorado, earning a B.A. in Economics. He spent four years in the U.S. Marines as an engineering officer, including a one-year tour in Vietnam, and then resumed his education. In 1969 he earned an M.B.A. in finance from Columbia University. He then went to work for Indiana-based Cummins Engine Co., makers of diesel engines.

In 1974 Cummins named Casten director of corporate strategy with the goal of determining what lay in store for the company in light of expert predictions that diesel fuels would be exhausted within 25 years. After several months of study, Casten concluded that fuel would still be available, it would just be more expensive. He also knew that fuel was not being fully exploited in the generation of electricity. In the 1960s Cummins actually had manufactured cogeneration equipment, but dropped out of the business because customers were unable, or unwilling, to properly run and maintain the plants. “A company will spend $5,000 on an office copier and routinely sign a maintenance contract with Xerox,” Casten told Fortune in 1978. “But they’ll spend $250,000 on a total energy plant and let the janitor maintain it.” Therefore, he urged Cummins not only to build cogeneration equipment but to become involved in the design, installation, and operation of cogeneration systems. It took him three years to sell his argument to Cummins management. Finally, in 1977 he was named to head Cummins Cogeneration Co., based in New York City, which Casten considered an ideal place to test out his ideas. New York residents were served by Con Edison, which for years had been the source of jokes by Johnny Carson on the Tonight show as well as other comics. In addition to its image as being poorly run, Con Edison charged customers twice as much as the average consumer elsewhere in the country, and 50 percent more than residents of Boston, the next most expensive city for electricity.

Con Edison Viewing Cogeneration As a Threat in the 1970s

Cummins sold systems in Westchester, the Bronx, and Queens, but only when it attempted to set up a cogenerating system in midtown Manhattan did Con Edison fight back. In June 1978 Cummins made plans to install a 5,600-kilowatt cogenerating system in a 30-story office building on 11 West 42nd Street. The developers estimated that by producing their own electricity and steam, they could pay off the $2.5 million price tag within six years. It was the prospect of other large customers following suit that alarmed Con Edison, which quickly applied political pressure to stop the installation. Because Con Edison collected approximately 7.5 percent of all city tax revenues through its utility bills, it did not lack the necessary clout. It urged the city to delay approving new cogeneration plants until proper studies on the impact could be conducted. It argued that cogeneration would increase air pollution, as well as lead to higher Con Edison bills because the fixed costs of its power system would have to be supported by fewer customers. New York already had lost more than 600,000 jobs since 1969, with many businesses leaving because of the high cost of electricity, which resulted in the estimated loss of $200 million a year in tax revenues. Con Edison predicted that cogeneration would deprive the city of even more tax dollars, especially since avoiding utility taxes was a prime inducement for customers to purchase cogeneration systems.

In the end, the midtown office building received its permit to install the Cummins system, but only at the 11th hour and after the developers threatened court action. Cummins’s management then showed that it was not as committed to cogeneration as Casten. It was hesitant to fund the division or participate in financing projects. After three years and only six sales, Cummins decided to withdraw from the business. In 1980 Casten and partners bought Cummins Cogeneration and renamed it Cogeneration Development Corp. Casten also deviated from the Cummins strategy: instead of simply selling the equipment, the company would now act as developers of municipal industrial systems that could sell steam to a number of customers. In this vein, Cogeneration Development raised $52 million in December 1982 to build a district heating project in Trenton, New Jersey.

Although media interest in cogeneration fell off in the 1980s, the technology continued to intrigue energy professionals, despite President Reagan’s reluctance to fund research or industrial cogeneration projects and the difficulty in sorting out regulatory issues. Utilities also resisted cogenerators’ attempts to hook up to their distribution grids. Furthermore, cogenerators were required to provide customers with backup service from utilities, which charged rates that stripped cogenerators of their economic advantage. In order to squeeze even more benefits from fuel, Casten and others began to offer cold water in addition to electricity and steam. Trigeneration either converted excess steam to drive turbines to power air conditioners, or they were fed into chillers, large metal boxes containing tubes that carried a briny solution of water and lithium bromide. The steam heating the lithium bromide created water vapor, which would then undergo a condensation and evaporation process to create chilled water.

Company Perspectives:

At Trigen, we recognize that our customers want more than simply energy commodities. They want a trusted business partner who understands their long-term energy needs and how these needs relate to their business strategy .

Forming Trigen in 1986

In 1986 Cogeneration Development teamed with ELYO, the energy arm of French water company Societé Lyonnaise des Eaux, to create Trigen Energy. Although the French company held a controlling stake in the business, Cogeneration was the managing partner, effectively placing operational control in Casten’s hands. Through the French he was able to gain use of ELYO’s proprietary technology in building district energy systems. Another subsidiary, Cofreth, ran a number of district heating systems, including one that served Paris. For the French, Trigen was a way to gain a foothold in the United States. After World War II, France nationalized electricity and gas, leaving utility companies such as Lyonnaise des Eaux with only water as a business. French water companies consolidated and with their considerable assets were able to invest heavily in research and development. Water in America, on the other hand, was highly fragmented, with more than 50,000 community water companies. French water companies recognized that American water systems were aging and that hundreds of billions of dollars would have to be spent to upgrade them. In order to enter this promising market, French water giants forged relationships with U.S. companies in a range of compatible businesses, including Cogeneration Development to create Trigen Energy.

In 1987, its first full year of operation, Trigen generated $1 million in revenues. By 1991 it would reach $25 million, and then begin to grow at an even greater rate. Trigen generated $70.5 million in revenues in 1992, followed by $90.5 million in 1993. Trigen also completed its first major acquisition in 1993, the $65 million purchase of United Thermal Corp., which would more than double the company’s revenues. United Thermal delivered steam to customers in Boston, Baltimore, Philadelphia, and St. Louis. As a result of this acquisition, Trigen increased its revenues to $185.6 million in 1994, while posting a net profit of $8.5 million. Moreover, the CEO of United Thermal, Richard E. Kessel, became Trigen’s chief operating officer.

To fund its expanding business, Trigen made an initial public offering of stock in August 1994, raising almost $40 million. The company continued its external growth in 1995 with the purchase of a ten-year-old community energy system that served the Province of Prince Edward Island in Canada. Also in 1995 Trigen, holding a 51 percent interest, teamed up with Tucson Electric Power Co. to buy the power plant of the Coors Brewing Co. for approximately $62 million, of which $40 million was earmarked for improvements. Coors also signed a 25-year contract to purchase all of its steam and electricity from the plant, thus taking away some $12 million in annual revenues from the local utility, Public Service Co. of Colorado. As a result, Coors was able to outsource its power operations in order to focus on its core business, Tucson was able to find a way to supplement revenues that would likely be lost because of deregulation, and Trigen gained new business and another calling card as it looked to separate more industrial customers from utilities. At the end of 1995 after generating revenues of almost $200 million, Trigen was the largest commercial owner and operator of community district energy systems in North America.

Trigen continued to make purchases and form alliances in 1996. It acquired Ewing Power Systems, which made specialized compact steam turbine generators. A subsidiary, Trigen-Schuylkill Cogeneration, acquired a one-third interest in Grays Ferry Cogeneration Partnership, which would build and operate a cogeneration facility in Pennsylvania. Trigen also created a joint venture with Mexico’s Gentor Industrias to build and operate cogeneration facilities in Mexico. The company further teamed up with Hydro-Quebec to do business throughout New England and upstate New York. Finally, in December 1996, Trigen signed a major deal with Cinergy Corp., one of America’s largest utilities, to build and operate cogeneration and trigeneration plants throughout North America, as well as the United Kingdom and Ireland.

At the end of the 1990s, as a number of states moved to deregulate utilities, Trigen was well positioned to enjoy even greater growth. It would do so, however, without Casten. The company’s French corporate parent had undergone some changes. In 1997 Lyonnaise des Eaux merged with Compagnie de Suez, the company that had built the Suez Canal in the 1850s. Although the new company, which eventually would rename itself Suez, was extremely large, it remained smaller than its French rival, Vivendia. In 1999 Suez began to aggressively expand its U.S. interests. It purchased Calgon Corp., a water treatment company, for $425 million, then merged it with another acquisition, Nalco Chemical Co., which came with a $4.1 billion price tag. Moreover, Suez began to buy out its American partners. In August 1999, it acquired all the outstanding shares of United Water. The following month its ELYO unit offered to buy the outstanding shares of Trigen for $22 each. After some weeks of negotiating the price with a special committee of Trigen’s board of directors, ELYO withdrew the offer, maintaining that the committee had asked for a higher price that was based on what it characterized as unrealistic and aggressive earnings projections. The deal was not dead for long, however. In January 2000, ELYO improved the deal to $23.50 per share and the board accepted. A number of shareholders expressed disappointment in the terms, especially since Trigen’s stock recently had been trading in that price range. In the end, ELYO controlled the board and outcome. In conjunction with the announced agreement, Casten resigned as the company’s chief executive in order to pursue his own goals. He was immediately replaced by Kessel, who had been with Trigen for seven years and was more than capable of leading the organization.

Under Kessel, Trigen continued to land significant contracts. Teaming with Pepeo Energy Service, Inc., it signed a 20-year agreement to provide a trigeneration system for a major new convention center in Washington, D.C. It also was part of a joint venture that signed two separate 15-year contracts with General Motors to build and operate trigeneration systems at facilities in Shreveport, Louisiana, and Oklahoma City, Oklahoma. In 2001, Trigen returned to midtown Manhattan, signing an agreement to provide the high-tech energy needs of the proposed NYCyberCenter. Despite losing Casten, Trigen was clearly well situated to maintain its prominence in the district energy field.

Principal Operating Units

Trigen Boston; Trigen Baltimore; Trigen-People; Trigen Philadelphia; Trigen St. Louis.

Key Dates:

1977:: Trigen founder Thomas R. Casten starts Cummins Cogeneration Co.
1980:: Casten and partners buy Cummins Cogeneration, renaming it Cogeneration Development Corp.
1986:: Cogeneration Development and ELYO, a subsidiary of French conglomerate Suez, form Trigen Energy.
1994:: Trigen goes public.
2000:: ELYO acquires outstanding stock of Trigen and Casten resigns.