December was the stressed-out season at Luz.
From executives to laborers, employees put their backs into the work, ignoring the holidays and racking up overtime as Westwood-based Luz International Inc.--developer of plants that generate 90% of the world's solar power--raced a deadline set by short-term federal tax credits to finish another quarter-million-dollar electricity plant by New Year's Day.
"It was the fastest-paced, highest-pressure place I've ever worked--and also the most rewarding," says Tandy Manes, chief executive and president of two Luz subsidiaries.
But now the race is over.
Luz and four subsidiaries made bankruptcy court filings late last month, blaming inconsistent state and federal energy policies for their headlong fall after years of high-wire success.
Others familiar with the company say that although government policies--or their absence--did hurt, Luz also made mistakes.
No one disputes that Luz--a big-time builder in the alternative-energy world--slogged through one financial crisis after another to become an internationally respected, even emotional, symbol of the commercial possibilities of solar power.
Indeed, when skeptics ask if sunlight can truly be tamed and fed into major electrical power grids, Luz is the energy industry's best answer. Despite the court filings, its nine giant plants in the Mojave Desert will continue to generate energy smoglessly for Southern California Edison's lines--enough to light more than 350,000 households.
Luz was formed in 1979 when Arnold Goldman, a brilliant electrical engineer reared and educated in Southern California, approached Newton D. Becker, a Bel Air investor and founder of the Becker CPA Review course, whose schools are in 100 U.S. cities.
Goldman had pioneered word processing in the United States as founder of Lexitron Corp., a Chatsworth firm he sold to Raytheon Co. in 1977.
The third founder was Patrick Francois, a smart, successful French textile manufacturer whom Goldman had met when both were living in Israel in the late 1970s.
Goldman's dream was to see cities illuminated by cheap, clean, solar-generated electricity. Francois would handle marketing and finance. Becker, the first big investor, would serve as chairman of the Luz board, made up largely of prominent Los Angeles and Orange County business executives.
At first--in the backwash of the 1970s energy crises, with oil and gas prices high and expected to go higher--government support for alternative, domestic energy sources was impressive. There were federal and state tax credits as high as 50%, exemption from property taxes and special depreciation schedules.
Despite start-up problems, Luz began building plants in 1984. The privately held firm made modest profits on their sale and plowed substantial amounts back into research and development. Luz's offices soon sprawled over most of two floors of the Security Pacific Bank building in Westwood.
The frantic annual deadlines developed from the first days.
With a new technology, traditional sources of capital were wary. Luz found that it had to sell one plant to raise the money to build the next.
"We had to build a new system every year," Becker recalled. "Otherwise we had no people, no industry, no company. And we were unique. We couldn't buy parts off the shelf."
By the time Luz built its sixth power plant in 1989, the annual ritual was set: Lobby Congress to pass an extension of the federal tax credit; in the first months of each new year, rush to get site approval from the California Energy Commission; frantically raise capital from investors, and, finally, build the plant before year-end, when the tax credit would run out.
A casualty of the federal deficit and tight budgets, renewal of the federal tax credit for solar and geothermal energy projects was uncertain beginning in 1986. Part of a package of orphan laws--known in Congress as "the 12 Extenders"--the credit has lately been renewed only on an annual basis and only after an offsetting cut can be found in the next year's budget.
Other hurdles included a limit on the size of Luz's power plants--at first no more than 30 megawatts, later 80 megawatts (enough to light 80,000 homes)--that was imposed as a condition of receiving federal tax credits. Congress had thrown in that number almost out of the blue, as a means of preventing its modest encouragement of solar power from becoming a back-door route to utility deregulation.
Yet this severely limited the early plants' potential for economies of scale, Luz executives say. They now believe that 200-megawatt plants might be the most efficient.
By most accounts, the company made its share of mistakes, as well--many of which cut into profit when Luz sold its power plants.
For instance, when plant-size limits were raised to 80 megawatts in 1987, Luz promptly decided to expand its next project, No. 8. Yet in the same facility, major technological innovations were already being made.
