Environmental Power Announces Second Quarter 2008 Results and Provides Business Update

Environmental Power Announces Second Quarter 2008 Results and Provides
Business Update

TARRYTOWN, N.Y., July 31 /PRNewswire-FirstCall/ -- Environmental Power
Corporation (Nasdaq: EPG or the "Company") today announced results for the
second quarter ended June 30, 2008.
Business Commentary
The Company is pleased to report that market conditions for our business
model remain robust and that we have achieved substantial progress in the last
several months on key projects in Texas, California and Nebraska as well as
significant growth in our development pipeline. As further described in the
Market Conditions section of this news release, demand for our renewable
natural gas (RNG(R)) has historically been driven by utility strategies to
comply with Renewable Portfolio Standards and remains our main focus. This
market is robust and has resulted in a 60% increase in our development
pipeline since last quarter. In addition, the biogas and RNG(R) we create has
tremendous versatility and can be used in many ways including as a
transportation fuel which is the current focus of policy makers seeking
alternatives to increased prices of traditional gasoline and diesel fuel.
Increased interest in more environmentally sustainable operations for many
types of businesses and industries has also created new opportunities. These
new avenues for marketing RNG(R) should further enhance our markets and
potential for growth.
The Company remains firmly on course to be a respected leader in the
biogas and RNG(R) markets and will continue to take advantage of the momentum
created by the financing and construction activities of the last several
months, a summary of which follows:
-- Construction has begun on the Rio Leche RNG(R) project in Dublin Texas
and the Hereford RNG(R) project at the Cnossen Dairy in Hereford, Texas.
-- Approval of the volume cap allocations for tax exempt bond financing in
California for all three of the Company's currently planned large-scale RNG(R)
projects in that state has allowed the Company to commence marketing of the
bonds with closing of the financing currently expected to occur by the end of
August, subject to obtaining purchase commitments.
-- The Company completed the tax-exempt bond financing for its Grand
Island Biogas Project at the JBS Swift plant in Nebraska and construction of
this facility is proceeding on schedule.
Operational improvements for the gas conditioning system are being
implemented at the Huckabay Ridge facility, with a goal of completing all the
needed improvements by the end of October, which is expected to result in
operations achieving targeted levels.
-- The State of Texas has approved the distribution of liquid effluent
from Texas projects as commercial fertilizer, providing a potential revenue
source and giving the projects greater operational flexibility.
-- Sale of the remaining greenhouse gas offset credits from the Wisconsin
projects for 2007 was also completed in the quarter.
Market Conditions
The Company continues to experience increased demand for RNG(R) - our
trademarked brand for our pipeline-grade methane - due not only to utilities'
needs to meet their Renewable Portfolio Standards (RPS), but also to address
the demand by energy users for a green energy product. The Company believes
that the increased desire to improve environmental stewardship by industry has
also increased the demand and, therefore, the potential value of the
greenhouse gas offset credits it produces. As with gas pricing, the Company
believes that continued demand in the voluntary market for greenhouse gas
offset credits, and the expectation of an eventual compliance/mandatory
market, will have a positive influence on future pricing for these credits.
Pressure to promote technologies that reduce carbon emissions has greatly
increased. The Company anticipates that there will be numerous efforts with
the new Congress to pass legislation to promote renewable energy and the
Company continues to have dialogue with policymakers about the opportunity to
include biogas production more broadly in new policy initiatives.
At the same time, there continue to be broad concerns about traditional
renewable transportation fuels like ethanol and biodiesel because of the
pressure on grain prices. The Governor of Texas recently requested relief
from obligations to use ethanol on a short term basis and a decision is
expected from the EPA Administrator soon. T. Boone Pickens' widely promoted
strategy to shift use of natural gas to fuel vehicles, in lieu of petroleum-
based gasoline, fits well with the nature of biogas production and there has
been an increase in media interest in biogas as a transportation fuel. The
Company believes that this media interest will translate into even more
interest on the part of policymakers.
The Company believes that all these factors bode well as it seeks to
maintain its first mover status in the biogas market and continues to execute
on its identified projects, totaling 4.9 million MMBtu per year of energy
production. In addition to the Company's announced projects, its development
pipeline has increased by 60% to over 10.7 million MMBtu of energy production
per year with 30 additional projects that are in various stages of
development. Some of these new opportunities are located near the Company's
other projects, which the Company believes will allow it to utilize existing
operations and maintenance resources and thereby achieve economy of scale.
The new regions include the upper Midwest and the Rocky Mountain states.
New project announcements will be forthcoming, as soon as EPC finalizes
key project agreements for feed stocks and off-take and when anticipated
construction dates can be announced.
Financial Results
For the three months ended June 30, 2008, the Company had a net loss
applicable to common shareholders of $5,293,000 or loss per share of $0.34,
compared to a net loss applicable to common shareholders of $7,089,000 or loss
per share of $0.71 for the three months ended June 30, 2007. The net loss
applicable to common shareholders declined in 2008 because, for the three
months ended June 30, 2007, the Company had a loss from discontinued
operations of $3,235,000 whereas these operations were discontinued prior to
the second quarter of 2008 and, therefore, did not affect the Company's
results in that quarter.
Revenue for the three months ended June 30, 2008 increased to $1,112,000
from $327,000 for the three months ended June 30, 2007 an increase of 240%.
The increase is attributable to revenues from the Huckabay Ridge facility
which began operations in February 2008 and had revenues of $790,000 for the
quarter ended June 30, 2008, whereas such facility was still under
construction and had no such revenues in the quarter ended June 30, 2007.
For the quarter ended June 30, 2008, operations and maintenance expense
was $1,937,000 as compared to $244,000 for the same period in 2007, an
increase of $1,693,000. The increase was due to operations and maintenance
expense of $1,924,000 at Huckabay Ridge during the second quarter of 2008.
Huckabay Ridge began commercial operation in February 2008 and therefore did
not have any operations and maintenance expense in 2007, as these expenses
were capitalized during that period. General and administrative expenses from
continuing operations were essentially the same, decreasing by $44,000 to
$3,611,000 for the three months ended June 30, 2008, as compared to $3,656,000
for the same period in 2007. G&A expenses include FAS 123R non-cash expenses
of $1,115,000 this quarter compared to $898,000 in the second quarter of 2007.
Depreciation and amortization expense increased to $354,000 for the three
months ended June 30, 2008, as compared to $77,000 for the three months ended
June 30, 2007. The increase in depreciation and amortization expense was
principally due to the fact that the second quarter of 2008 included three
months' depreciation of the Huckabay Ridge facility, which began commercial
operations in February 2008, whereas no such depreciation and amortization
expense was recorded for the same period of 2007.
As a result of the changes described above, our operating loss from
continuing operations increased to $4,789,000 in the second quarter of 2008
from $3,650,000 in the same period in 2007.
Interest income for the three months ended June 30, 2008 was $100,000, as
compared to $132,000 for the three months ended June 30, 2007. Interest
income decreased primarily due to lower interest rates on lower invested cash
balances.
Interest expense, net, increased to $265,000 for the three months ended
June 30, 2008, as compared to $2,000 for the three months ended June 30, 2007.
This increase was due principally to the fact that we ceased the
capitalization of interest expense related to the Huckabay Ridge facility when
it began commercial operations in February 2008. The interest expense related
to the portion of the bonds allocated to finance the Huckabay Ridge facility
is now recorded as interest expense.
A complete presentation of the Company's financial results for the second
quarter of 2008, and management's discussion and analysis thereof, is included
in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
2008, which is being filed today with the Securities and Exchange Commission
and will be available on the Company's website.
Business Update
Huckabay Ridge Operations
Modifications designed to insure an efficient and reliable gas
conditioning system have commenced with an expected completion by the end of
October, 2008. Three areas of improvement are planned and include adding
heating capacity, cooling capacity and enhanced instrumentation and controls.
Orders have been placed for the necessary equipment and installation over the
next several months will be coordinated to minimize interconnection downtime.
"With these changes implemented, we fully expect to see a sharp reduction
in operating costs related to consumables, non-recurring labor and consulting
expenditures and other variable costs such that Huckabay Ridge's financial
performance will meet our previous expectations," said Richard Kessel,
President and CEO of Environmental Power. "All the experience gained from
Huckabay Ridge, including those items just discussed, have already been
incorporated into the design of the new Texas facilities that are currently
under construction, as well as our planned California projects."
Approval from the State of Texas to distribute the liquid effluents from
Texas facilities as a fertilizer has also been obtained. This will provide
the Texas projects potential revenues as well as important operational
flexibility in an environment where fertilizer costs have risen significantly.
Rio Leche and Cnossen Projects Under Construction
Site construction work has commenced at both the Rio Leche and Cnossen
projects. Our groundbreaking ceremony for Rio Leche occurred on June 10, 2008.
The ground breaking ceremony for Cnossen will occur next week on August 6,
2008. The Company expects Commissioner Todd Staples of the Texas Department
of Agriculture and a number of other state and local officials to participate
in this ground breaking ceremony.
The Company anticipates that these projects will be producing RNG(R)
during the second quarter of 2009.
California Projects Update
On May 28, 2008 the Company received CDLAC approval of its volume cap
allocation for $65 million in the tax-exempt bond financing for the Hanford
and Riverdale projects and, on July 16, 2008, the Company received approval
for an additional $26 million in volume cap allocation for the Bar 20 project.
This financing is expected to be on terms similar to those of the tax-exempt
bond financing previously obtained in Texas. The bonds are currently being
marketed and closing of this financing is currently expected to occur by the
end of August, subject to obtaining purchase commitments.
"By achieving these milestones, we have shown the support our projects
have with state officials and agencies and their respective staffs in
addressing environmental concerns while being a source of renewable energy,"
said Richard Kessel.
JBS Swift Grand Island Project
This week, the Company announced that Microgy Grand Island, LLC, has
completed a financing involving the sale of $7 million of tax-exempt bonds
issued by the City of Grand Island, Nebraska. The proceeds of the bonds will
be used to finance construction of the Grand Island Biogas Project at the JBS
Swift Plant in Grand Island, Nebraska. With this closing the Company has
fully secured financing for the project. The biogas facility is already under
construction and is expected to begin producing biogas by the end of the year.
Summary
"We are very pleased by the continued progress in financing and
constructing our projects," said Rich Kessel. "We believe that the market for
our RNG(R) product is continuing to improve with increased demand for natural
gas for a myriad of uses, as shown by our 60% increase in the Company's
development pipeline. We will remain focused on completing the construction
of our announced pipeline of projects, and continuing to grow our development
pipeline."
Management Conference Call
Mr. Richard Kessel, President and CEO, and Mr. Michael Thomas, Senior Vice
President and CFO, will comment on these and related items and will also
answer questions from interested investors in the Conference Call scheduled
for Thursday July 31, 2008, at 10 a.m. EDT. Conference Call details:

When: 10am Eastern Time; July 31, 2008
Dial-in: U.S. Toll Free: 877-737-1669
Canadian Toll Free: 800-501-6064
International Toll: 302-709-8008
Verbal Passcode VK34741

Replay Access #: U.S. 800-355-2355 Code 34741#
Int. & Canadian Toll: 402-220-2946 Code 34741#

The call will be available for 3 days by accessing the number above after
which it will be available on our website www.environmentalpower.com
ABOUT ENVIRONMENTAL POWER CORPORATION
Environmental Power Corporation is a developer, owner and operator of
renewable energy production facilities. Its principal operating subsidiary,
Microgy, Inc., holds an exclusive license in North America for the development
and deployment of a proprietary anaerobic digestion technology for the
extraction of methane gas from livestock wastes and other organic waste for
its use to generate energy. For more information visit the Company's web site
at www.environmentalpower.com.
CAUTIONARY STATEMENT
The Private Securities Litigation Reform Act of 1995, referred to as the
PSLRA, provides a "safe harbor" for forward-looking statements. Certain
statements contained in this press release, such as statements concerning
planned manure-to-energy systems, our sales pipeline, our backlog, our
projected sales and financial performance, statements containing the words
"may," "assumes," "forecasts," "positions," "predicts," "strategy," "will,"
"expects," "estimates," "anticipates," "believes," "projects," "intends,"
"plans," "budgets," "potential," "continue," "targets" "proposed," and
variations thereof, and other statements contained in this press release
regarding matters that are not historical facts are forward-looking statements
as such term is defined in the PSLRA. Because such statements involve risks
and uncertainties, actual results may differ materially from those expressed
or implied by such forward-looking statements. Factors that could cause actual
results to differ materially include, but are not limited to: uncertainties
involving development-stage companies; uncertainties regarding project
financing, the lack of binding commitments and/or the need to negotiate and
execute definitive agreements for the construction and financing of projects,
the sale of project output, the supply of substrate and other requirements and
for other matters; financing and cash flow requirements and uncertainties;
inexperience with the development of multi-digester projects; risks relating
to fluctuations in the price of commodity fuels like natural gas, and our
inexperience with managing such risks; difficulties involved in developing and
executing a business plan; difficulties and uncertainties regarding
acquisitions; technological uncertainties; including those relating to
competing products and technologies; risks relating to managing and
integrating acquired businesses; unpredictable developments; including plant
outages and repair requirements; the difficulty of estimating construction,
development, repair and maintenance costs and timeframes; the uncertainties
involved in estimating insurance and implied warranty recoveries, if any; the
inability to predict the course or outcome of any negotiations with parties
involved with our projects; uncertainties relating to general economic and
industry conditions, and the amount and rate of growth in expenses;
uncertainties relating to government and regulatory policies and the legal
environment; uncertainties relating to the availability of tax credits,
deductions, rebates and similar incentives; intellectual property issues; the
competitive environment in which Environmental Power Corporation and its
subsidiaries operate and other factors, including those described in our most
recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q, well as in
other filings we make with the Securities and Exchange Commission. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date that they are made. We undertake no obligation
to publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
CONTACT:
Company Contact
Mark Hall, Senior Vice President
Environmental Power Corporation
(630) 573-2926
mhall@environmentalpower.com

SOURCE Environmental Power Corporation

Mark Hall, Senior Vice President of Environmental Power Corporation,
+1-630-573-2926, mhall@environmentalpower.com