Co e so nee While Dave Marke, Frank Hutchinson, and other small Texas solar entrepreneurs have been scraping for crumbs, several corporations and allied universities in the state have done remarkably well by way of federal solar R&D contracts. Three Texas companies are particular stand-outsLennox, Inc., of Fort Worth, E-Systems of Dallas, and Northrup, Inc., of Hutchinsand their solar operations reveal some common denominators that may explain why they have succeeded in attracting R&D funds where smaller Texas companies have been rejected. Each of the favored firms is relatively large and was wellestablished in other fields before expanding into solar energy. Northrup and Lennox are major producers of heating and air conditioning equipment, while E-Systems has been conducting aerospace and defense R&D for the federal government at least since the 1960s. Each of the companies, through a variety of means, has cultivated friends and helpmates in the senior echelons of the federal bureaucracy. E-Systems vice president Lloyd K. Lauderdale, for example, who manages the company’s newly formed Energy Technology Center, was a ranking employee of the CIA for ten years. Lennox, Inc., the leading Texas-based recipient of federal solar money, co-produces solar systems with the electronics giant Honeywell, Inc., which has been a dominant force in the federal solar program since it began in 1971. Honeywell executives helped shape that program, in fact, as participants in an early series of policy discussions sponsored by such agencies as the National Science Foundation, NASA, and the Atomic Energy Commission. \(Energy secretary James Schlesinger is Northrup, Inc., has likewise strengthened its access to federal solar funds by merging efforts with a larger corporation Atlantic Richfield, of petroleum, coal and uranium fame which announced the purchase in October 1977 of 49 percent of Northrup’s stock. ARCO is merely the latest in a growing number of cash-rich oil companies now hedging investment bets ing control over independent solar firms which have shown a degree of commercial promise. Northrup has shown promise largely on the strength of a unique concentrating collector system that the company developed in 1973 and redesigned in 1975 with a NASA grant of $334,000. The quasi-merger between Northrup and ARCO had actually been in the works for nearly two years, and during that time the smaller company’s luck in obtaining federal contracts venture with GE and Westinghouse to develop a solar-assisted $350,000 solar hot water system for a Chickasaw Nation hospiof a heliostat system for the DOE power-tower program \(including a joint venture with the Bechtel Corporation worth ARCO has good connections. One of them is Richard Bleiden, a former official in the Solar Division of ERDA who is now vice president of ARCO Solar, Inc., an umbrella corporation consisting of several smaller firms that ARCO has acquired in the last three years. “It’s a great relationship,” a ,Northrup executive told the Observer, referring to the link with ARCO: “It marries the expertise and capital of the large company with the innovation and ability to move smoothly of the small company.” He said he thought that ARCO would eventually become the number one photovoltaics producer in the United States. He also mentioned that ARCO was hiring an executive to work with him solely in pursuit of additional funds from the federal R&D program. Along with size and favorable government connections, another common denominator between Northrup and E-Systems is their reliance on ties with certain Texas colleges and universities to attract and carry out federal solar contracts. In its work on the power-tower program, Northrup joins such corporations as Boeing, Rockwell, and Martin-Marietta in an alliance with the Energy Laboratory at the University of Houston. The Energy Lab has long served as an academic link both uniting and lending scholarly luster to the expensive R&D efforts of the corporations involved in the power-tower program. Interestingly, the University of Houston has established with Texas Tech an entity known as the Energy Foundation of Texas, whose principal function is to seek and administer R&D contracts. Texas Tech, meanwhile, has been adopted by E-Systems as a partner in a “power-bowl” solar-electric project to be constructed at Crosbyton, a town of 2.500 east of Lubbock. Phase one of the design contract is budgeted by DOE at $2.4 million, with E-Systems share as “subcontractor” coming to $1.6 million. The completed five-megawatt electrical plant, should it reach the construction stage, will cost an estimated $18 million. Ray Reece intent to push a new and stronger tax credit through Congress, this one retroactive from its date of passage to the day of his announcement. That approach worked fairly well, says Cole, provoking a modest increase in solar salesuntil Congress recessed at Christmas with the credit still in limbo. “People lost faith after that,” he says, and solar installations have steadily declined since. Frank Hutchinson, co-owner of Aus-Sol Energy, Inc., says that a tax credit in 1976 would have put his struggling company in the black a year ago, but the mirage of a tax credit cost him “60 to 70 percent” of his potential sales and, until a few months ago, kept him in the red. “The big corporations can survive that sort of thing,” he told the Observer, “while little guys like us go straight out of business.” Bureaucratic snarls For firms that have withstood the damage done by federal footdragging on the tax credit bill, and for others now getting started, there remains the perennial difficulty of obtaining enough capital to operate during the initial struggle for a place in the industry. For their part, Frank Hutchinson and Jean Spence of Austin didn’t even bother visiting commercial banks when they teamed up two years ago to open their own solar enterprise. They knew the solar market well enough to perceive that the banks would refuse them seed-capital, so they followed the route of countless American entrepreneurs before them: they emptied their savings, collected money from investor-friends and then turned to the Small Business Administration. The partners should have coasted through the SBA, because Hutchinson is half-Cherokee and Spence is a woman, which means they both qualified for special aid as minority entrepreneurs. Instead, they encountered in the SBA yet another example of what one solar entrepreneur, in testimony at the 1975 Senate hearings, called federal “ropes that bind and in fact are used to hang small business.” When the SBA extends loans to small firms, it ordinarily stipulates that the company itself furnish only 15 percent of the necessary capital, with the agency providing the remainder. 8 JANUARY 19, 1979
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