Small Cap Stocks and the American Recovery and Reinvestment Act

With everything from to hospitals to bridge builders to education districts applying for federal grant money from the American Recovery and Reinvestment Act of 2009 to stabilize their on-going concerns, energy companies are beginning the processes of getting their hands on government bailout dollars.

With regards to Energy and more specifically electric power, both publicly traded companies and private entities are weighing in with applications and strategies to benefit their businesses. Financial sector pie charts show a range of 11-17% of stimulus money will be spent on energy in one way or another.

(If you want to know more about the Recovery Act and the Recovery Accountability and Transparency Board: http://www.recovery.gov/)

Of course private concerns like the Bonneville Power Administration which keeps the lights on in the Pacific Northwest have a vested interest. The US Department of Energy power marketing agency operates a 15,190-mile high-voltage transmission grid that delivers about 35% of the electrical power consumed in the region. The electricity that BPA wholesales is generated primarily by 31 federal hydroelectric plants and one private nuclear facility. But it isn't all about government servicing its own providers.

The government has set $300M to the side to acquire electric vehicles for the federal vehicle fleet. I don't know whether this will be a normal spending, wholesale transaction with a car maker(s) or the government getting money from the $5.965B Technology Loan Guarantee Program portion of the Act, but in either case, the $300M will morph into cleaner air (which is good) and a huge photo-op (like Altair-Nano (ALTI) parking its batteries inside a snazzy shell in front of the Bush White House a few years back).

But I do know that electric vehicles are high on the list of getting Recovery Act dollars. On March 19, 2009 President Obama announced $2.4B in funding to support "Next Generation Electric Vehicles" with a tax credit bonus up to $7,500 for Americans who decide to purchase a Plug-in Hybrid.

Not to be left behind in attaining the funds under this initiative Valence Technology (VLNC) http://www.valence.com/ (trading on the Nasdaq under two dollars) announced yesterday it has submitted a grant application to the U.S. Department of Energy under the Electric Drive Vehicle Battery and Component Manufacturing Initiative. This initiative supports the construction of facilities to manufacture advanced battery technology components for electric vehicles. The company's proposed facility would manufacture lithium phosphate cathode material, high-capacity advanced cells and battery packs for electric drive vehicles and other applications.

VLNC is part of the DJ US Electrical Components & Equipment Index which is reflecting a rising interest in companies set to participate in the new 'paradigm'.

DJ US Electrical Components & Equipment Index

Valence submitted its application requesting $225M in federal grant funds over a three-year period and plans to fund the remaining $359.4M (61.5% of the total project costs) through state and local tax and other incentives. The annual production capacity of the proposed facility is estimated to be 660,000 battery packs or more than one million kilowatt hours (kWh) of equivalent available energy and can be online as early as August 2012. This grant application is a separate request from the Company's March loan application under the Advanced Technology Vehicles Manufacturing Incentive Program (ATVMIP). Funds under both programs are available to qualified companies.

Valence products currently include: N-Charge lithium phosphate energy storage systems; Epoch lithium phosphate energy storage systems for motive applications, such as hybrid and electric vehicles, scooters, and wheelchairs; and U-Charge lithium phosphate energy storage systems for use in hybrid and full electric vehicles, wheelchairs, scooters, robotics, marine, remote power, military, back-up, and other devices.

Valance has a market cap of $220M and is trading near its 50-day moving average. Its shares out versus float ratio is near-parity and VLNC has trailing twelve month revenues of $29M.

(As a side note, the city of Amsterdam announced it will install 45 electric charging stations this year with a goal of 200 by 2012)

With a completely different approach to the Recovery Act is Unisource Energy (UNS) trading on the NYSE in the $25 range http://www.unisourceenergy.com/. UNS is part of the Dow Conventional Electricity Index which has also been on the rise of late.

DJ US Conventional Electricity Index

Unisource operates as an electric utility in Arizona. Its TEP segment provides regulated electric service to approximately 400,000 retail customers in Southeastern Arizona and it holds a franchise to provide electric distribution service to customers in the Cities of Tucson and South Tucson, as well as sells electricity to other utilities and power marketing entities in the western United States.

Taking a very, very 'strategic' approach to the Recovery Act, the TEP division of UNS announced yesterday it would "Help Local Governments Secure Federal Stimulus Funds for Effective Energy Efficiency and Conservation Projects."

TEP is going to host a workshop next week to help Arizona cities and counties prepare successful applications for newly available federal Energy Efficiency and Conservation Block Grants.

The grants, made available through economic stimulus legislation approved earlier this year, are intended to fund projects that pare back fossil fuel emissions, reduce overall energy use or improve energy efficiency while driving economic growth.

UNS has a market cap of $871M and in the $25 range is off its 52-week high of $34.49 on 05-29-08. It is pennies beneath its 50-day and 200-day moving average and its shares out versus float ratio is at parity. That stable. UNS has trailing twelve month revenues of $1.38B.