IN THE NEWS

Bruce A Berman^® Builds a $200,000,000 Company

By Byron De Arakal

If the wind were a measure of achievement, then the massive growth in 1984 of the wind energy industry was nothing short of a gale. Fertilized by a compelling interest in alternative energy, a slowly eroding reliance upon fossil fuel for electricity production, an energy investment pot sweetened by federal tax credits and a nifty vehicle called the Public Utilities Regulatory Act (PURPA), wind turbines in California by the thousands sprouted like mushrooms.

In San Gorgonio alone-one of three prime wind locations in the state-nearly 2,000 wind turbines sprang from the desert floor representing a half billion dollars of investor faith in the energy producing machines, says Bruce Berman, co-founder and president of Triad American Energy, one of California's leading wind park developers. By comparison, 1983, the year Triad constructed its first wind park in San Gorgonio for $5 million-which at the time "was the largest park of its kind," says Berman-amounted to not much more than a whispering breeze. It was the year the San Gorgonio Wind Energy Association (SGWEA)-an organization of wind park developers with projects in the area-was founded and a time when the pass near Palm Springs was home to only "five wind parks totaling $15 to $20 million worth of equipment."

But by November of 1984, 11 months after Berman became chairman of the membership committee for the SGWEA, some 30 new members flocked to the organization's ranks under Berman's lead.

For Berman and Triad, the past two years have bred phenomenal success. From Triad's initial construction of its $5 million wind park in San Gorgonio in 1983, the firm has witnessed rap diversification and astounding sales figures born largely from Berman's design of an innovative 15-year financing package for wind turbines, a feat that made turbines infinitely more attractive to investors and one that propelled Triad to the fore of the wind energy industry.

Triad's rapid expansion is example of the frenzied growth in the wind energy business as a whole, a growth that, much like the sprinter, has brought Berman and the industry to top speed and to the brink of shifting gears.

The initial wind energy enthusiasm in California has left the state's three prime wind locations-San Gorgonio, Altamont and Tahachapi, nearly fully developed due largely to federal energy tax credit incentives. That fact, says Berman, while an anticipated event in the evolution of the industry's next era, an era that will see Berman's company:
Spearhead legislative lobbying efforts for the extension of the federal energy tax credits Increase its diversification efforts toward self-sufficiency as a wind park developer and construction firm, a wind turbine manufacturer and maintenance operation, a securities concern, and eventually an independent utility company Broaden the scope of its marketing efforts to an international scale, "There are still plenty of investor opportunities in turbines." particularly in assisting petroleum dependent nations achieve energy self-sufficiency through the development of wind parks.

Unquestionably federal energy tax credits have been a major player in Triad's proliferation and the growth of the wind energy industry as a whole. In essence, they have not only made wind turbines affordable to the individual investor, but have also made turbines one of the most popular tax-sheltered investments on the market today.

Yet, those very same credits are scheduled to expire at the end of this year, which could seriously erode the investment attractiveness of wind turbines to the individual investor. Recently elected president of the San Gorgonio Wind Energy Association, Berman is leading a legislative lobbying task force that is encouraging the extension of the credits into 1988. "There are still plenty of opportunities in wind energy for potential investors," says Berman. Wind energy is a tremendous alternative to fossil fuel and the government should continue to provide incentive for its development through private investment.

On another front, Berman draws reference to a study conducted by Triad that discovered the U.S. Government has. Itself, turned a rather handsome profit in the wind energy business. Specifically, that report concludes that for every dollar funneled into wind parks the federal government has received approximately $2.50 back. How?

Says Berman: "The government gets that $2.50 back from tax on the windmills; property tax; income tax from those employed in the industry; employer's tax; taxes from profits received by wind park construction companies, electric firms, and wind turbine manufacturers, etc."

Additionally, windmills-a 30-year investment-produce income each year, usually pay for themselves in 10 years, which leaves two decades of energy production "that also gets taxed. Windmills," Berman notes, "are a good deal for the government."

Berman's lobbying efforts, while important, only represents a major near-term Triad objective. Keenly aware that, eventually, energy tax credits will expire, Berman is in the throes of mapping strategy to open up untapped markets and establish his firm's self-sufficiency in the industry once that eventually occurs.

Inherent in that strategy, says Berman, will be Triad's market expansion overseas, particularly in those countries possessing sufficient climatic conditions for wind energy production that are presently dependent upon expensive fossil fuel for energy production.

Predominantly reliant upon diesel fuel generators, Berman says there are a plethora of nations with adequate wind conditions ideal for wind parks, which, he says, possess the capability of reducing the nations' energy costs by about two-thirds.

Already Triad has sealed its first overseas venture, a prototype deal that has quickly proven that the wind energy business is even more lucrative in foreign lands.

"We received a contract with a Caribbean country with the combination of higher wind speeds and higher energy costs would pay for the machine in approximately three years."

But the implications of wind energy application in foreign lands run deeper than gross receipts and profit margins, Berman adds. With oil being the persuasive political tool it is, petroleum-exporting nations who supply crude to small countries dependent upon oil often wield a fair degree of influence over those nations. Wind parks possess the ability, he believes, to eradicate dependency on foreign oil and, hence, foreign political influence.

A Caribbean country under contract with Triad for 1,000 wind turbines is a prime example.

"This country, says Berman, refusing to name it for fear the nation will be swarmed upon by other wind developers," is teetering back and forth between political views. Right now, they receive part of their oil needs in Arabian crude through the Soviet Union, so they have some influence there. But 1,000 windmills will make them sufficiently energy independent provided they can finance the turbines."

That, Berman notes, is the catch with many small nations-lack of capital to finance major wind park developments. In the case of the Caribbean nation, however, Berman and Triad are negotiating with the United States government to fund the wind park development in the tiny nation which would, in effect, "improve the political relations between the two countries."

Towards An Independent Utility

Nowhere are Triad's preparations for transition in the wind energy industry more evident, however, than in its strategies for diversification.

According to Berman, the eventual demise of the federal energy tax credits will spawn the conversion of a few major wind park developers into independent utility companies that will then buy up the smaller developers into independent utility companies that will then buy up the smaller developers. In fact, Triad, recognizing that eventuality, has over the past year rushed toward self-sufficiency in order to secure a niche in that new wind industry environment.

"The smart wind farmers," Berman notes, "have bought up all the available wind land in California. If you wanted to get into the wind energy business today, you couldn't do it because all of the good wind land has been purchased. Triad acquired thousands of acres of land that we will develop when the energy tax credits expire."

Triad plans to build more wind turbines on land presently owned for the sole purpose of becoming a private utility company and selling energy to public utility companies.

Undoubtedly his task will be made easier due in large part to Triad's signing an agreement to the entire marketing rights to the windmill manufacturer they buy from now. "We wanted to make sure we were safe, so we contracted for five years the entire product line."

Still, purchasing remaining undeveloped wind land and the manufacturer's product line are only a part of Triad's strategy. "We've also been out purchasing long lead items and obtaining hard-to-get power contracts." When the dust settles, how many independent utilities will there be? According to Berman, there are several wind developers-Triad one of them-that will survive the transition and that will "buy up the remaining smaller wind park developers."

Berman completed Triad's vertical integration within a year.

But Berman believes the magnitude of Triad's position as a utility company rests in part on public investment.

Triad and Berman realize that to survive in the wind energy business after tax credits expire, you must become vertically integrated.

That diversification effort resulted in the formation of a number of supporting countries specializing in various elements of the wind development industry. On one front, Berman established Triad American Construction, which is responsible for the building of the wind parks themselves.

"That came about, believe it or not, not to make money, but because we needed to have the control. I had a wind park that had to go up in December, and a fluke snowstorm dropped 8 feet of snow the second day into the project, and the company I contracted to build it had half his men walk off the job. So I had to come in and save the day or I was going to lose a $5 million wind project. I brought in 10 crews, two helicopters, and finished the wind work in about 20 days, 2 days ahead of the year-end deadline. After that I said, 'Never again. I'm going to start my own construction company.' Subsequently, I found out that Triad American Construction can make a profit for every wind turbine it puts up. Now, we do work for other people, too."

Other diversification efforts have seen the formation of a Triad wind park maintenance and management firm, predominantly because "when you have highly sophisticated, big pieces of machinery and you put them up in the wind that blows 100 miles an hour at times, they will need routine maintenance. We would rather have our own people working on the turbines rather than an outside company."

Too, because wind turbines are registered security, Berman purchased a securities company-appropriately naming it Triad American Securities-which, in its first year, will sell over $85 million in tax sheltered securities.

Says Berman: "We intend to keep that entity because it has generated a client base that has a $85 million appetite, and in 196 will be marketing a number of different tax shelters in addition to wind turbines."

What is most notable about Triad's diversification project is that it has been completed in a year's time, which is somewhat indicative of Berman's desire to eventually pull in public monie's to build Triad's utilities. We've gotten ourselves vertically integrated over the last year. We've got the securities, the construction, the management, the finance, the marketing, the maintenance, and the product line. So we are completely, 100 percent vertically integrated. There is nothing we can't do by ourselves. There will be several wind companies like there are several big oil companies. And triad will be one of them."

Triad American Energy's firm position as a leader in the wind energy industry is reflected best, perhaps, in dollar growth over its little more than two year existence. 1983, its first year, saw $5 million in sales; 1984 ballooned to $20 million; and Berman, confident "that we will be sold out by August for 1985," anticipates more than $60 million in sales for the year.

"We got into this business at the right time," he concludes. "Everybody had already made the mistakes. We studied those mistakes and we didn't make them, and we realized you had to have land and interconnect. We went up and tied up thousands of acres and all the interconnect capacity we needed, and by 1984 it was all over. No one else could get in. Now, the stronger companies are building and the smaller companies are falling by the wayside."

And if there are any doubts about which category Triad American Energy fits into, suffice it to say you won't find it at the side of the road.

Triad's rapid expansion is example of the industry's growth.