Utillicor

During his investment career, Marshall Pollock has been involved with several tech companies and so understands what he calls the “myth of building a better mousetrap.” Great inventions, he knows, don’t just sell themselves, and so he asks three key questions when presented with an opportunity to invest in latest great scheme: Can you make it? Can you sell it? And is it worth it?

Just over a decade ago, he had the opportunity to apply that framework to an opportunity his son, Andrew, stumbled across, almost literally. In Toronto in the early 2000s, Enbridge, the gas giant, was using a coring device to bore holes through pavement to access its subsurface pipes. Traditionally, utilities, cable companies and municipalities would haul in backhoes and guys with jackhammers to dig gaping holes in sidewalks and roadbeds. When the holes were re-filled, crews topped them off with rough, temporary asphalt caps that might be there for months, or longer.

Enbridge’s device, the Pollacks realized, offered a far cleaner and less disruptive approach. The device plucked out an intact, cylindrical concrete core, which could be replaced using a bonding agent after the sub-surface work had been completed. It was almost like putting a cork back in the bottle.

The technology, in effect, passed Pollock’s three-part taste test. “It seemed like a good idea to me.”

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When they asked Enbridge, which had used the devices to bore about one million holes, the company said it wasn’t interested in promoting the technology. The Pollocks obtained the rights to market the coring device and the bonding compound to other utilities and municipalities. Says Marshall, “You’d have a razor and blade situation.”

Today, their 10-employee firm, Utilicor, has a 15,000 sq.-ft Toronto factory that can manufacture about 30 coring machines a year. With revenues in the $2 million to $5 million range, the company expects to ramp up production to 50 machines in the next few years as knowledge of the technology spreads in the utility sector. While the firm has clients in Montreal, Toronto and Edmonton, the vast majority of its revenues come from U.S. gas utilities.

In fact, almost from the beginning, Pollock says the company saw an opportunity to tap into the North American utility sector and focused on securing contracts with larger players in the U.S. The firm found an early adopter in National Grid U.S., a New York City gas distribution firm owned by a U.K. outfit.

The utility, Pollock says, acquired about 20 of Utilicor’s coring units based on an attractive cost-savings calculation. National Grid had to dig about 4,000 to 5,000 holes per year to service its infrastructure, and the coring device produced a savings of about $1,000 per hole, compared to the more traditional excavation method. “Once other utilities found out,” says Pollock, “it helped spread the message.”

But what the Pollocks discovered was that their technology, despite the appealing value proposition, was butting up against a deeply entrenched approach to sub-surface construction that existed in municipalities and utilities across the continent for generations.

In effect, Pollock’s second question—can you sell it? —turned out to be a more vexing riddle than he’d reckoned. “The challenge is getting people to change,” he says. “This was a huge exercise in change management.”

In municipality after municipality, works officials were heavily invested in the long-standing method of digging up roads. Pollock cites the case of one gas company client operating in the greater Washington D.C. area, which takes in parts of Maryland and Virginia. “We probably had to go to 70 to 80 municipalities to get approval. It’s a granular approach.”

Meanwhile rate-regulated utilities, which had to re-imburse the municipalities for those pavement cuts, weren’t advocating for a more efficient solution due to the vagaries of the billing systems, as well as the fact that the costs didn’t make a big dent in their profits.

The recent years, however, Utilicor has found that the bureaucratic inertia it had encountered in so many municipalities has started to yield. The reason? With dramatic increases in demand for high capacity internet, telecommunications firms increasingly jockey with gas and electrical utilities for access to the pipes running under roadways, which has meant more pavement cuts, and more disruption to drivers and pedestrians.

What’s more, Pollock says, many U.S. public utilities commissions, which regulate gas rates, have stopped rubber-stamping gas company requests for higher rates to cover capital costs, including road cuts. “They’ve gotten a little smarter in the last 10 or 15 years,” he notes. “They’re looking for more efficiencies.”

He points to one other improvement in the regulatory environment: recently, the U.S. Federal Highway Administration produced a “best practices” guide for road construction, which included a reference to the use of concrete coring as an alternative to excavation, which can undermine the structural integrity of roads. The new guidelines “make it easier for gas companies to go to municipalities” and get permission to use Utilicor’s technology.

Looking ahead, Utilicor is focusing mostly on the U.S., where the company has signed up about 40 of approximately a thousand gas distributors, including, recently, the giant California utility Pacific Gas & Electric. New guidelines, Pollock feels, should pave the way for much more growth. “It’s still an untapped market.”

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