York Research Corporation
York Research Corporation
Sales: $22.53 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: YORK
NAIC: 221119 Other Electric Power Generation
York Research Corporation develops, constructs, owns, and operates electric power and thermal generation (cogeneration) facilities alone or in strategic partnerships. These facilities are fueled by natural gas, solar energy, or windpower. A subsidiary that was marketing electricity and accounting for almost all of York’s annual revenue of nearly $1 billion a year filed for Chapter 11 bankruptcy protection in 2000. York Research conducts business through a complex web of subsidiaries, partnerships, joint ventures, and affiliates.
York to 1985: Product Safety and Environmental Testing
York Research was incorporated in 1941 and had its quarters in Stamford, Connecticut. In its early days at least some of York’s “research” appears to have been mundane, indeed, judging from the manual on floor maintenance it prepared for the American Hotel Association in 1950. By fiscal 1960 (the year ended September 30, 1960) the company was doing nearly $500,000 in annual business, and later in the calendar year it acquired Kip Electronics, a manufacturer of special electron tubes. Annual revenue reached $1.76 million in fiscal 1965. The bulk of this revenue appears to have come from the Florida-Hindle Transformer Division, a producer of industrial and electronic transformers, which York sold for stock in 1966 to Transitron Electronics Corp.
York Research then returned to its core business of product safety testing and consulting, plus consulting and testing in the environmental sciences. Among its activities during 1971 was testing the quietness of pumps used in nuclear submarines, testing the fire safety of certain materials used in the nation’s mines and in children’s sleepwear, and evaluating a number of new products for safety, costs, and reliability prior to their introduction in the marketplace. But in the early 1970s York also became an energy-management enterprise specializing in testing large projects, such as pilot plants to remove sulfur dioxide from power plants and discharge waste water.
York Research’s change in focus was due to Robert Beningson, who became chairman and president in 1968. Beningson, an engineer, was also chairman and president of Combustion Equipment Associates Inc., whose major lines of business included environmentally friendly activities such as scrubbers for power plant emissions and recycling municipal garbage. Combustion Equipment Associates owned a majority of York’s stock by the end of fiscal 1973. York’s operating revenue rose higher than $1 million in fiscal 1972 and $2 million in fiscal 1974. By the end of fiscal 1974 the company, which added a testing laboratory in Denver, was receiving the major part of its revenues from electric utilities.
York Research, in 1978, was divided into the Air Services Division, which typically did studies on air pollution for utilities and the steel industry; a Municipal and Industrial Waste water Service Division for assistance to waste water treatment plants; and a Research and Development Division engaged in discovering new uses for refuse-derived materials. In that year Beningson took what amounted to a leave of absence from York to deal with the problems of Combustion Equipment Associates, which went bankrupt in 1981, leaving unpaid some $70 million in debts.
York Research also fell into serious difficulties in this period. Its revenues sank from $3.36 million in fiscal 1979 to $841,000 in fiscal 1981, during which the federal government drastically reduced its regulatory activities in the environmental field. During the summer of 1981 the company sold two subsidiaries, a regional operation servicing western states and a unit that concentrated on wastewater and sewage treatment operations. A third subsidiary continued to conduct studies on air pollution for utility, petrochemical, and government clients. Beningson returned to the helm of York Research in 1982.
Operating Cogeneration Power Plants: 1985-99
Toward the end of 1983 York Research’s business began to increase as a consequence of the return to more active levels of government regulatory enforcement. The company also raised money by selling its Stamford building and leasing it back. Cogeneration Technologies, Inc., formed in 1984, was acquired in 1985 for $1.2 million in stock. With the purchase York acquired a power plant in a Brooklyn housing complex that was burning natural gas to generate both steam and electricity for the residents. The company also was intending to profit from recent federal legislation requiring utilities to buy power from independent producers at the price that it would have cost the utilities to produce the power themselves.
York Research lost money in fiscal 1986, 1987, and 1988. In the latter year the company had net operating revenues of only $1 million and a net loss of $4.69 million from continuing operations. York raised about $14.6 million in fiscal 1987, however, from a self-underwritten offshore private placement of its common stock, using a substantial portion of these funds for the development of cogeneration projects. This enabled the company to refurbish the power plant, which had a generating capacity of seven megawatts. After signing contracts with Consolidated Edison Co. of New York, Inc. (Con Edison) to supply 36 megawatts of power, York built a new plant on the site. The funds came from a limited partnership—Warbasse-Cogeneration Technologies Partnership, in which Beningson held a 25 percent share—that borrowed $72 million for the project.
In fiscal 1989 York Research moved its headquarters from Stamford to New York City and reported its best year ever, with net income of $3.55 million on revenue of $15.75 million. The results were misleading, however, for most of the revenue was earned not by the cogeneration project but paid by the limited partnership from borrowed funds. Despite its dubious track record, and the fact that the limited partnership—not York—was the actual owner of the power plants, York attracted the attention of investors by proposing to provide Con Edison with 170 mega-watts of additional power over 30 years. Tomen Corp., a Japanese trading company, was expected to provide the limited partnership with $300 million in financing for this project.
York Research’s stock was trading at about $19 a share on July 24, 1991, when Tomen announced that it would not be participating in the project. The share price fell to $6.75 in a single day on trading volume more than 20 times normal. Existing holders of York stock were further disturbed to find that Beningson had recently sold 155,000 shares directly or indirectly owned by him at prices as high as $20 a share. They also learned that he had borrowed money from the company at no interest to exercise warrants issued to him by York when he rejoined the company in 1982. Several other company insiders also sold their shares as late as July 15, according to federal filings. Moreover, York had even lost the financing to operate the housing project plant. Aggrieved shareholders, customers, and creditors filed lawsuits seeking hundreds of millions of dollars. By September 1992 short sellers owned about 40 percent of the company’s stock.
In spite of its troubles, York Research, in October 1991, won the Con Edison contract, reportedly by offering to sell the power at prices 30 percent below Con Edison’s own costs. In April 1992 the company announced that it had found a lender for the project in the Mission Energy subsidiary of Southern California Edison (SCEcorp), the second largest independent power producer in the world. In addition, although skeptics continued to scoff, York, in October 1992, announced that it had purchased 286,000 kilowatts of power generation equipment from Siemens Power Corp. on behalf of the Brooklyn Navy Yard project. The company settled shareholders’ lawsuits by issuing warrants for 780,000 shares of company stock.
York broke ground on the 286-megawatt Brooklyn Navy Yard Cogeneration plant in 1995. It became operational the next year under a 40-year contract, providing more than 15 percent of Con Edison’s total steam in New York City. The facility also was supplying energy to the host navy yard industrial park and to an adjacent wastewater facility. The plant was not owned by York Research but by Brooklyn Navy Yard Cogeneration Partners, L.P., which in turn was owned equally by B-41 Associates L.P., an indirect 75 percent-owned subsidiary of York, and by a subsidiary of Edison Mission Energy.
York Research also was able to complete the 38-megawatt facility supplying all the thermal and electric needs of the Brooklyn housing project (Amalgamated Warbasse Houses, Inc.). It assumed operation of the facility under a long-term operations and maintenance agreement with Warbasse-Cogeneration Technologies Partnership L.P., a limited partnership whose 25 percent general partner was RRR Ventures Ltd., in which Beningson was president and major stockholder.
- York Research is incorporated in Connecticut.
- York is engaged in products testing and pollution control.
- York Research acquires a Brooklyn power plant.
- Another York plant in Brooklyn is a major provider of steam for New York City’s Consolidated Edison Co.
- York acquires an energy-marketing subsidiary.
- Five power projects are in operation.
- York’s energy-marketing business files for bankruptcy.
In 1997 York Research acquired a limited partnership whose significant asset was a 15-year power purchase agreement with Texas Utilities Electric Co. York, in 1999, completed a wind power project in Big Spring, Texas, with a capacity of 34 megawatts and the installation of the largest wind turbines in the United States. In 1999 York also completed work on an adjacent 6.6-megawatt wind energy facility, owned by a partnership of York and Primesouth, Inc. This facility, like the other one, was intended to provide power to Texas Utilities.
In early 1998 InnCOGEN Limited, an indirect Trinidadian subsidiary of York Research, signed a 30-year power purchase agreement with Trinidad and Tobago Electric Commission. This enabled InnCOGEN to begin work on a $100 million, 215-megawatt power plant, fueled by local natural gas, that went into operation in 1999. Financing for this facility, which was constructed by another party, and the Texas facilities was secured in August 1998, when Credit Suisse First Boston agreed to underwrite the issue of $150 million in bonds due in 2007 and yielding 12 percent in annual interest.
North American Energy Conservation: 1996-2000
York Research, in November 1996, acquired 85 percent of North American Energy Conservation, Inc. (NAEC), a broker dealing in electricity and natural gas, from Beningson—who retained the other 15 percent—for $1. As a result, York’s revenues shot up from $26.94 million in fiscal 1997 (the year ended February 28, 1997) to $365.13 million in fiscal 1998. North American was selling natural gas wholesale to utilities, producers, and marketing companies, mainly in the Northeast. The wholesale group also was purchasing natural gas for the company’s retail group, which was marketing it to industrial and commercial accounts in New York state. In addition, NAEC also was marketing electricity. York’s net income was $7.52 million in fiscal 1997 and $12.04 million in fiscal 1998.
York Research’s revenues nearly tripled in fiscal 1999, reaching $972.89 million. But almost all of this sum ($966.64 million) was from NAEC’s sales rather than from York’s power plant projects. In a 1997 article for Grain’s New York Business, Judy Temes reported that North American was proceeding in the energy brokering business at its peril, since the $600 billiona-year field was dominated by much bigger players and, in the words of one analyst, was dependent on “razor-thin margins.” This proved prophetic, because during the summer of 1998 certain electricity suppliers failed to deliver contracted power to marketers such as North American. As a result, the unit had to meet its own contractual commitments at substantially increased cost.
In September 1998 York Research decided to discontinue North American’s electricity marketing following what it described as “unprecedented turmoil” during the summer, which caused electricity prices to rise from the normal $30 per megawatt to as much as $7,000. York registered a loss of about $10.84 million on its electricity marketing operations and a $5.99 million loss for the fiscal year.
North American Energy Conservation incurred further losses during the summer of 1999, which it said were due in part to the failed long-term contracts. The company filed for Chapter 11 bankruptcy in March 2000, causing York’s stock to plunge in value by almost half as a result of the news. During the spring of 2000 the stock, which had traded at a high of $12 a share in 1996, fell below $1 a share at times. In April, York sold NAEC’s retail natural gas marketing business to Amerada Hess Corp. The company reported revenues of $22.53 million and net income of $3.58 million from its power generating operations in fiscal 2000. It reported a loss of $34.73 million from NAEC’s now discontinued operations during the fiscal year.
Cogeneration Technologies, Inc.; InnCOGEN Ltd. (Trinidad and Tobago); North American Energy Conservation, Inc.
Cogen America Inc.; Indeck Energy Services Inc.; Sithe Energies USA Inc.
“Heard on the Street,” Wall Street Journal November 17, 1960, p. 17.
James, Canute, “Trinidad Gets Power Boost,” Journal of Commerce, November 20, 1998, p. 10A.
Lowenstein, Roger, “Questions Cloud Outlook for York Research As Stock Plummets After Backer Pulls Out,” Wall Street Journal, July 25, 1991, p. C2.
Messina, Judith, “Coast Partner May Regenerate York,” Grain’s New York Business, March 20, 1995, p. 31.
Power, William, “York Research Could Be Focus of Epic Battle Between Bulls, Bears as ‘Short Squeeze’ Looms,” Wall Street Journal, September 2, 1992, p. C2.
“A Refuse Recycler Runs into Trouble,” New York Times, October 29, 1980, p. D4.
Temes, Judy, “Energy Company Taking the Heat,” Grain’s New York Business, July 27, 1992, p. 4.
——, “Generating Heat,” Grain’s New York Business, June 3, 1991, pp. 1, 25.
——, “Power Producer Gaming Steam from Energy Brokerage Business, Grain’s New York Business, February 10, 1997, p. 7.
——, “York Gains Vanish in Cloud of Smoke,” Grain’s New York Business, July 29, 1991, p. 39.
“Transition Acquiring York Unit,” American Metal Market, October 20, 1966, p. 7.
“York Research Corporation,” Barren’s, October 12, 1992, p. 71.
“York Research Unit Files for Chapter 11; Shares Plummet 46%,” Wall Street Journal, March 3, 2000, p. A13.
“York Research To Quit Electricity Marketing, Focus on Natural Gas,” Wall Street Journal, September 9, 1998, p. B2.