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Pollution-control firm aiming for the black


The best hope for a successful turnaround at Environmental Elements Corp. lies deep inside an aging power plant on Cape Cod.

There, in the Massachusetts town of Sandwich, the first of EEC's new emissions-cutting systems is up and running. Executives of the Baltimore pollution-control company say it could be the beginning of a long line of new contracts.

"It's the most exciting thing I think EEC's brought into the company in many years," said John L. Sams, president since February.

Sams is leading the effort to move the company back into the black. He took over when E. H. "Ted" Verdery, chairman, chief executive officer and president, resigned after Verdery and the EEC board decided the company needed new leadership.

Sams immediately began making changes -- cutting the work force from 150 to 100, slashing discretionary spending and putting more emphasis on the new emissions-control technology.

The new "Ammonia on Demand" process works in conjunction with selective catalytic reactors -- power plants' version of cars' catalytic converters. The reactors use ammonia to neutralize smog-producing nitrogen oxide.

Until recently, only two types of ammonia were available -- in gas form (anhydrous) and dissolved in water (aqueous). Both are hazardous; anhydrous ammonia is explosive, and aqueous ammonia is toxic as well as expensive to ship and store.

EEC's Ammonia on Demand lets power plants use fertilizer pellets to produce ammonia, an alternative the company says is safer. The pellets, made from urea, are inert and only turn into ammonia when they are put into EEC-installed machines and combined with water, high temperature and about 400 pounds of pressure.

"It's a significant technology for them, and they should see that become a nice piece of their business," said David D. Weaver, an analyst at Legg Mason Wood Walker Inc. in Baltimore, which helped take the company public.

The technology is especially significant because the Environmental Protection Agency is ordering states to significantly reduce nitrogen oxide levels byMay 2004 -- and power plants are the No. 1 target.

"It's definitely going to generate business," Sams said.

That would be good news for a company that lost $4.5 million in fiscal 2000, which ended March 31, on sales of $55.5 million.

Investors had high hopes for EEC when it went public a decade ago, just as the 1990 Clean Air Act was winding through Congress. The stock went public at $16.50 a share and, on its first day of trading, jumped 24 percent on the expectation that orders would pour in.

A number did, and sales nearly doubled to $95 million in fiscal 1991. But many facilities waited to see if the political or regulatory landscape would change, and others chose competitors' products.

Revenue at the company, which spun off from Koppers Co. in 1983, slumped, and during the past 10 years, EEC's combined $17 million in profits has been overshadowed by $30 million in losses. Its stock trades at $2.

But Sams expects the new ammonia system, which sells for $2 million to $6 million depending on the size of the power plant, will bring EEC an additional $60 million in sales between now and 2003 and help turn around its stock.

Sams is also shifting EEC's business focus.

Previously, EEC looked for 70 percent to 80 percent of its revenue to come from its "core" business -- huge air pollution-control projects that bring in millions of dollars but take years to complete.

Sams is changing the model so about 35 percent of the revenue will come from the ammonia process, 35 percent from services and 30 percent from the large projects.

Since he took over operations of the company, Sams has also cut costs by 30 percent.

"I think it has been positive for the company," said Weaver. "They reduced personnel, refocused the markets they're going to look at. It looks good on paper, so we'll see how they are able to execute over the next couple of years."

Sams hopes the Massachusetts project will help. The power plant's owner, Atlanta-based Southern Energy, has allowed EEC to bring about 20 sets of visitors through the facility to see the technology firsthand.

Chuck Griffin, a spokesman for Southern Energy, said that the system has "a few bugs to be worked out" but that overall it's working well."

Southern Energy chose EEC's product, Griffin said, because the plant held community meetings and learned that area residents were concerned about the danger associated with the plan to truck in aqueous ammoniato the facility.

In Maryland, residents of Anne Arundel County are grappling with a similar issue.

Constellation Power Group, which owns Baltimore Gas and Electric Co., announced this year that it would use anhydrous ammonia -- the gas form -- to reduce emissions at its Brandon Shores power plant.

Residents balked, fearing an accident. Constellation is rethinking the issue, and representatives from the utility visited the Sandwich power plant to analyze EEC's system.

"We are looking at all options now," said Rose Maria Kendig, a spokeswoman for Constellation.

If Constellation chooses to go with an inert form of ammonia, those options will be limited.

EEC is currently the only company with such a system in operation. A competitor, Hamon Research-Cottrell in New Jersey, isn't far behind. Hamon expects to have a similar system running at aCalifornia power plant in California, which it expects to have running this month.

Despite the competition, Sams believes that of the about 100 existing power plants that will install the catalytic systems, 15 to 20 will choose EEC's Ammonia on Demand process.

Additionally, Sams expects about 50 to 60 natural-gas power plants to be built in the United States every year, and they will all have catalytic systems -- and be potential EEC customers.

Sams said the company expects to receive two more orders for the system by the end of the year. He also expects EEC to break even this quarter -- with profitable periods to follow -- and sees sales reaching $90 million to $100 million during the next three years. And perhaps, he said, the share price will follow the ascent.

"Investors want to see that we've got a real plan, something that will cause the business to grow," Sams said. "They need to see some kind of performance."

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