Capstone Turbine Corporation

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Capstone Turbine Corporation

21211 Nordhoff Street
Chatsworth, California 91311
Telephone: (818) 734-5300
Fax: (818) 734-5320
Web site:

Public Company
1988 as NoMac Energy Systems
Employees: 202
Sales: $16.96 million (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: CPST
NAIC: 335312 Motor and Generator Manufacturing

Capstone Turbine Corporation is a Chatsworth, California company that develops, manufactures, and markets 30-kilowatt and 60-kilowatt microturbine generators, capable of supplying the electricity needs of commercial and small industrial users. The units, roughly the size of a refrigerator, can be connected to the utility grid or operated as stand-alone units. They are also versatile in terms of the fuels they use, including natural gas, diesel, kerosene, propane, and waste gases from sewage plants, landfills, and oil and gas drilling operations. The turbine generators operate in much the same way as a jet engine. Fuel is mixed with air to create combustion. A magnet generator, compressor, and turbine wheel, all fitted on a single shaft, is then turned, generating electricity. The exhaust from the units can also be used in a cogeneration system, producing both heat and power. Other advantages of the microturbines are low emissions and no need for water. All told, there are more than 3,200 Capstone microturbine generators in the field worldwide. Although yet to produce a profit, the company is cash-rich and has no debts, the recipient of backing from such deep-pocketed investors as Microsoft's Paul Allen and Compaq Computer's Benjamin Rosen. Capstone is a public company listed on the NASDAQ.

Formation in Late 1980s

Capstone was cofounded in 1988 as NoMac Energy Systems by James C. Noe and Robin Mackay, who fused their last names to coin "NoMac." Both men brought considerable experience with turbines to the venture. Noe worked at Douglas Aircraft company from 1957 to 1961, involved with aircraft thermodynamic systems. He then spent 17 years at the Garrett Corporation, which became Allied Signal Aerospace, and where Mackay was a colleague. At Garrett, Noe held a number of engineering positions, working on aircraft environmental systems as well as seeking out commercial and industrial applications for the company's high technology aerospace systems. In 1979 he became president of Alpha National, Inc., a California company that pursued turbines that could use alternate fuels. Two years later he became president of parent company Alpha United, Inc., which developed compact plate-fin heat exchangers and cold plates for electronic cooling in the automotive and aerospace industries. Noe struck out on his own in 1986, establishing Creative Energy Concepts in Los Angeles, California, to work on low-cost turbines that could be used in a range of industrial and aerospace applications. Mackay, who held a degree in mathematics and economics from Canada's McGill University, had worked for The Boeing Company's Industrial Products Division, which made small gas turbines for use in cars and industrial applications. His job was to develop concepts and markets for the turbines, the same role he would play during his 24-year tenure at Garrett (Allied Signal), where he served as Director of Industrial Market Development.

When Noe and Mackay teamed up in 1988 to form NoMac they obtained three master patents related to work the men had done together at Allied Signal. The patents related to a heat pump, a solar power generator, and an interruptible power unit, basic elements of a turbine engine. Noe became president of the start-up and Mackay vice-president of marketing. NoMac's mission was to research and develop innovative energy concepts. In particular, the company wanted to mass produce microturbines. In the early years NoMac received financing from Ford Motor Company, NASA, and a few others, but it faced a difficult task in creating a microturbine. As the Huber Mills Digital Power Report indicated in a 2000 article, "A turbine certainly looks simpler [than a reciprocating internal combustion engine], and once it's finally built right, it indeed is. A reciprocating engine has far more moving parts but the parts themselves are pretty simple. A turbine's complex, curved blades, by contrast, are very difficult to machine. And they have to be exceptionally strong, because they just don't generate any serious power until they're rotating very fast. A car engine redlines at 5,000 rpm; Capstone's microturbine spins at 96,000 rpm. This required advanced materials, very sophisticated machining, and superb, high-speed bearings." But NoMac struggled to develop such an engine, its early prototypes consuming more energy than they produced. At this stage the focus was on stationary applications, such as providing backup power for a building.

Running out of money in 1992 NoMac was fortunate that its efforts caught the eye of Harold Rosen, former chief engineer for Hughes Electronics who had done pioneering work on geostationary satellites, making possible contemporary global communications. After Hughes was acquired by General Motors in 1986 some of his colleagues began work on electricpowered cars. Rosen's contribution to the project was a controller, entitling him to a ride in an early experimental vehicle. He found the concept intriguing, but believed that it would never be viable until something better than batteries provided the power. According to Fortune in a 1996 article, he began looking for an energy system that would be emission-free like batteries but would produce more power. Soon he zeroed in on hybrids. A friend at NASA passed along a paper by an engineer who described a proposed high-speed turbogenerator that could be used in a hybrid. Recalls Harold: "It had on paper everything I was looking for." The author was Robin Mackay. Rosen paid him a visit and was won over by Mackay's presentation, so much so that he pitched the NoMac turbine to Hughes's automotive section. Because GM was committed to batteries, however, Hughes passed. Next, Rosen called his brother, Benjamin Rosen, an electronics engineer who had switched to investing and founded Compaq Computer Company.

Rosen Brothers Buying into Company: 1993

In semi-retirement Benjamin Rosen was closing out his investment fund and looking for a new challenge, having already whittled down his golf handicap to 18. A car enthusiasthe owned a Porsche 928 and Mercedes-Benz SL600he readily agreed to start a company with his brother and pursue the development of a turbine-powered electric hybrid car. Together, along with funding from venture capital firms Sevin Rosen Funds and Canaan Partners, the Rosen brothers bought NoMac in 1993.

After the Rosens took over NoMac, they installed their own man as CEO, a Hughes' retiree, Paul Craig. The company name did not meet with approval from the new owners, but they struggled to think of an alternative. Ben Rosen had always enjoyed good fortune investing in companies with two-syllable names that started with "C," such as Compaq, Cyrix, Citrix, and Cypress Semiconductor. With some help from a CEO of a company that sold naming software he finally decided on Capstone Turbine Corporation. Noe now became vice-president of engineering, but left in 1994 to become president of another microturbine company, Creative Energy Concepts, Inc. Mackay left in 1995, eventually founding Agile Turbine Technology, LLC to work on advanced gas turbines. The Rosens also wasted little time in forming a car company, Rosen Motors, incorporated in May 1993, to develop a complete power train while Capstone developed the engine.

With Craig in charge, Capstone moved quickly to complete its first prototype, a 24-kilowatt turbine (the equivalent of 32 horsepower) unveiled in 1994. The company now attracted additional investors. In 1995 New Zealand conglomerate Fletcher Challenge Ltd. acquired a 20 percent stake, and a year later the company completed a $50 million private placement of stock with such investors as Microsoft billionaire Paul Allen's Vulcan Northwest, as well as his old partner Bill Gates, who took $5 million of the action. The Capstone microturbine also caught the attention of Ford Motor Company, which bought a unit to evaluate for use in its hybrid vehicles.

But Capstone was also attracting interest from parties looking to use the microturbine to generate power. Fletcher's involvement proved to be a turning point for the company, since Fletcher was looking for ways to bring power to remote oil and gas fields, far removed from the electrical grid. Utilities were also interested in trying out the microturbines as satellite power plants, and some industrial customers wanted to test the units as part of cogeneration systems, providing both electricity and heat, and others sought to make use of garbage dump methane to produce power through the microturbines. In 1996 Capstone placed 37 beta units in the field. The company was still banking on the automotive market in the long run, viewing the power market as a means to an end: lowering costs and contributing to the development of technology that could apply to the automotive units that were expected to emerge around 2005. Although Rosen Motors successfully tested an automotive power train that used a Capstone turbine in 1997, it was unable to convince any of the major automakers to back the company and it ceased operations later in the year. For Capstone, it meant that its focus was now completely directed toward power generation.

Company Perspectives:

With over 3,200 Capstone MicroTurbines worldwide, Capstone Turbine is the leading provider of microturbine cogeneration systems for clean, continuous energy management, energy conservation and biogas-fueled renewable energy.

In 1998 Capstone named a new CEO, Ake Almgren, a Swede who had been president of Power Systems for ABB, the giant European engineering conglomerate. He had been involved in the development of such cutting-edge technology as fuel cells, flywheels, and mega-powerchip systems. He recognized that utilities were turning to smaller power plants but was unable to convince ABB to become involved in distributed generation, producing power on a small-scale basis at multiple locations rather than in massive installations. In 1997 he bought a Capstone microturbine, was won over by the technology, and a year later, in July 1998, he became Capstone's CEO. He soon made key contributions to the refinement of the turbine's design, in particular the addition of solid-state electronics that allowed the turbines to perform seamless hand-offs between the microturbine and the electric grid it might be connected to or between a cluster of microturbines. Capstone sold its first three commercial units in 1998 to Southern Union in Galveston, Texas. The company shipped more than 200 units the following year.

Taken Public in 2000

As Capstone geared up for an initial public offering of stock in 2000, the state of California, where electricity had been deregulated, suffered from a power shortage that resulted in rolling blackouts. As a result Capstone received a great deal of attention from Wall Street. With Goldman, Sachs & Co. and Merrill Lynch & Co. acting as underwriters, the company sold 9.1 million shares at $16 a share on June 29, 2000. The stock immediately shot upwards, closing at $48 by the end of the day, and as the energy crisis grew worse Capstone continued to surge, peaking at $98.50 in August, giving the company an astounding market capitalization of $7.5 billion. Capstone also found no difficulty in lining up alliances with major resellers. In March 2000 it reached an agreement with Meidensha Corp. and Sumitomo Corp. to distribute the microturbines as part of cogeneration systems. Later, Mitsubishi agreed to distribute the generators in Japan and Asia. In addition to 16 U.S. distributors, Capstone now had 27 distributors in seven countries and more deals in the works.

Capstone sold 790 30-kilowatt units in 2000 and introduced a larger 60 kilowatt microturbine as well. Enthusiasm for the company's prospects quickly waned, however. The stock price tumbled to less than $18 in late November, rallied back to the $40 level, but as sales tailed off in 2001, due in large measure to an economy slipping into recession, the company's future became uncertain and the price of its stock plummeted below $3.50.

The economy continued to struggle in 2002, as did Capstone, whose stock dipped to the $1 level. The company did receive some good news when United Technologies Corp., a $28 billion company serving the aerospace and building systems industries and a major player in the commercial fuel cell sector, bought a 4.9 percent stake. But Capstone also had to contend with the uncertainty that came with turnover at the top ranks. In October 2002 Almgren announced that he planned to retire.

One factor in Capstone's favor in what was an otherwise bleak year was the reported $126 million it held in cash or cash equivalents in 2003. It was not until August 2003 that the company finally settled on Almgren's replacement, hiring John Tucker, a mechanical engineer by training who had previously served as CEO and chairman of Daimler Benz Aerospace Motoren & Turbine Union in Germany. He had also worked at Allied Signal Aerospace. Less than two weeks later, Capstone received a great deal of renewed interest following the power outage that affected large portions of the Northeast and Midwest. Once again the ideas of distributed generations, or buildings generating their own electricity, began gaining currency, just as they had during the California crisis and other major outages. "Now, in the wake of last week's more-sudden blackout, the biggest in U.S. History," reported the Wall Street Journal, "distributed-generation backers are arguing that their time has come." Tucker commented, "One couldn't ask for a more exciting marketing and advertising campaign than what happened in the Northeast."

Tucker set to work on refining Capstone's distribution operation, paring down the network of distributors and hiring more in-house salespeople who were microturbine experts. New York City soon became Capstone's largest growth market, spurred in 2005 by Manhattan's Department of Buildings approval of the company's microturbines without permits. The dramatic rise of fuel price also bolstered the company's prospects, but in 2005 Capstone posted sales of just $17 million and a loss of $39.4 million. At the very least, its future was uncertain.

Principal Competitors

Caterpillar Inc.; Cummins, Inc.; Ingersoll-Rand Company Limited.

Key Dates:

Company founded as NoMac Energy Systems.
Benjamin and Harold Rosen and investors acquire NoMac, renamed Capstone Turbine Corporation.
Prototype is unveiled.
First commercial units are sold.
Initial public offering is completed.
John Tucker is named CEO.

Further Reading

Alper, Bill, "Fired Up," Barron's, June 18, 2001, p. 19.

Ball, Jeffrey, "Energizing Off-Grid Power," Wall Street Journal, August 18, 2003, p. B1.

Cole, Benjamin Mark, "Generating Power Without Much Fuss," Los Angeles Business Journal, October 28, 1996, p. 1.

, "Plugging into Energy Needs Sends Firm's Stock Soaring," Los Angeles Business Journal, September 11, 2000, p. 49.

Ho, Rodney, "California's Power Crisis May Give Juice to 'Microturbines,'" Wall Street Journal, January 23, 2001, p. B2.

Huber, Peter, and Mark Mills, "Jet Engines for Dot.coms," Huber Mills Digital Power Report, July 2000.

Pondel, Evan, "CEO of Chatsworth, Calif.-Based Capstone Turbine Announces Retirement Plans," Daily News, Los Angeles, October 29, 2002.

, "Troubled Capstone Corp. of Chatsworth, Calif., Names New CEO," Daily News, Los Angeles, August 5, 2003.

Taylor, Alex III, "Gentlemen, Start Your Engine," Fortune, September 30, 1996, p. 156.

Wadman, Bruce, "New Concept Gs Turbine Generator," Diesel Progress Engines & Drives, December 1995, p. 40.

Zuckerman, Laurence, "Company Hopes Its Small Unit Will Dominate Power Market," New York Times, December 2, 1997, p. D1.