Corn Dogged

Corn Dogged

entrepreneurs by Francis X. Gilpin | Associate Editor

Bradley M. Krohn cannot make up his mind where he wants to build the first ethanol plant in Florida. In Krohn's defense, the decision isn't entirely within his control.

The president of United States EnviroFuels LLC announced in May 2005 that his Riverview-based startup would build an ethanol distillery at Port Sutton on 32 acres leased from the Tampa Port Authority.

Two weeks later, U.S. EnviroFuels abruptly stopped negotiating with the port authority on a six-month option to lease the property off U.S. Highway 41. About a month after that, the company requested an option to lease almost five acres at Port Manatee for the distillery.

With some reservations about possible industrial odor, Manatee County commissioners approved the lease option last summer. Yet Krohn says the Tampa Port Authority site is back in play now as the primary spot for the first plant. He blames delays in assembling all of the land that he needs at Port Manatee.

"Port Sutton is clearly in the lead," says Krohn, who is shooting for an August groundbreaking at the Hillsborough County site.

The seesaw is an indication of the regulatory and logistical hurdles that Krohn is attempting to overcome as a first-time entrepreneur in Florida trying to break into a business more commonly associated with the Great Plains states.

Ethanol is derived from corn and other crops using industrial fermentation. The output is blended with gasoline to produce what proponents say is a cleaner-burning fuel that uses less imported crude oil.

Higher energy prices have renewed investor interest in long-time producers such as Archer-Daniels-Midland Co. as well as new entrants like U.S. EnviroFuels.

Agribusinesses and Corn Belt congressmen used to be the biggest boosters of ethanol. Today, everyone from President Bush to private-equity firms seems to be jumping on the bandwagon.

"It's almost hysterical," says Krohn. "The money coming in is not just from growers anymore."

While pump prices have raised the profile of ethanol, Krohn says Wall Street grew more comfortable with the fuel additive after Congress refused last year to grant liability protection for users of the controversial MTBE.

Scientist turns entrepreneur

Methyl tertiary-butyl ether was once thought to be the logical replacement for lead in gasoline, since it increases octane and reduces air pollution. But MTBE endangers groundwater and, with lawmakers unwilling to provide a lawsuit shield, energy producers are phasing it out.

That leaves ethanol as the safer lead substitute in gasoline. "Ethanol is the only widely available additive that increases the octane level," Krohn says.

More than 30 ethanol plants are under construction in the U.S. Krohn hopes to add his proposed Port Sutton plant to the list, with two additional Florida facilities to follow.

Although he has limited experience with constructing or operating distilleries, Krohn says: "I've got a lot of exposure to ethanol."

Plus, he has surrounded himself with a team of managers and advisers with backgrounds on Wall Street and in industrial engineering, ocean-borne transportation and commodities trading. "There's not one person who duplicates another in their fields," Krohn says. "It's a complementary and diverse skill set we have."

Krohn obtained a biochemistry degree at Williams College in Massachusetts before moving to Gainesville, where he earned a Ph.D studying genetic engineering of industrial enzymes and fermentative microorganisms at the University of Florida.

During 12 years at Monsanto Co., the giant agricultural company, Krohn researched how to get more ethanol out of a bushel of corn. "I developed a real passion for this technology," says Krohn. "I love doing this."

Krohn, who finished up at Monsanto as technology director for the St. Louis company's bio-energy initiative, struck out on his own in 2003. He feels that Florida, the third biggest consumer of gasoline in the country, has untapped potential as an ethanol market.

Florida suppliers later

His enthusiasm for putting ethanol plants outside of Iowa or Nebraska was met with initial skepticism. "Why do you want to put an ethanol plant in Florida?" was a common reaction.

The Sunshine State seemed to offer no crops to process, no refiners to partner with and an uncertain market for the finished product. "They didn't understand our financial model," says Krohn.

At first, U.S. EnviroFuels will get corn from the usual place, hauling it in from the Midwest to Port Sutton and later Port Manatee by railcar or ship. Within five years, however, Krohn wants to get at least half of his feedstock from Florida. "Hopefully sooner," he says. "It is important to us because it reduces our transportation costs."

For now, the two planned U.S. EnviroFuels plants will defray freight shipping costs by selling byproducts of the fermentation process. Krohn will have carbon dioxide for local beverage distributors who use the gas in dispensing carbonated soft drinks. Some distillery waste can be sold to local dairy ranchers for their cows to eat.

But Krohn eventually would like to buy from Florida agriculture along with selling to it. "We are highly committed to working with Florida growers," he says.

Krohn has three ethanol plants on the drawing board in Florida. He won't discuss the third location, but he hints it might not go on the coast. By the time his company gets around to building it, Krohn may have established a local crop supply.

"The Port Sutton location sets the stage for us to go inland," says Krohn, and be closer to the fields where his raw materials are grown.

The $80 million Port Sutton plant will be financed with $30 million of debt. The rest will be raised from a private placement. Krohn says the loan has already been committed and the equity offering is underway.

The Port Manatee plan ran into some opposition from neighbors, who feared unpleasant emissions. But U.S. EnviroFuels has since secured an air permit from state regulators, to go along with the county commission approval.

"People perceive ethanol plants to be dirty, nasty, smelly facilities," he says. "This is will be a state-of-the-art, green-clean, environmentally sensitive plant."

Energy independence with ethanol

The domestic ethanol industry may look healthy, flush with hedge fund bets and IPO proceeds. But Bradley M. Krohn sees it at a critical stage.

"This country needs to build its own ethanol industry," says Krohn, president of U.S. EnviroFuels LLC. "You don't want to see this industry plateau."

Krohn is concerned that will happen if the federal government lifts a tariff on imported ethanol.

Brazil, which has one of the most advanced ethanol industries, is aggressively marketing to other countries that depend on imported oil. Brazil's focus is Japan, but Krohn doesn't rule out a move on America.

Experts say Brazil got a jump on the rest of the industrialized world by heavily subsidizing oil refineries using ethanol produced from sugar cane. The Brazilian subsidies stopped 10 years ago, but Krohn believes ethanol production needs a similar head start here.

As ethanol becomes more accepted, Americans shouldn't become reliant on overseas producers again. "It doesn't help reduce our dependence on foreign energy sources," he says.