Reviving a Suppressed Technology – Part 3

Technical and business issues of Dennis Lee’s heat pump – on the East Coast

Dennis Lee was literally in a wheelchair when he was introduced to that heat pump in 1979. He tried to dissuade his first customer from buying that heat pump, because Dennis thought, accurately, that solar systems in those days were scams. But the man was a scientist, it was no typical solar system, and the scientist was excited by it. He was Dennis’s first sale of that heat pump. When Dennis made his second sales call, it was at the home of a refrigeration scientist from DuPont. Dennis had unwittingly started his heat-pump career in the backyard of DuPont, which was the master of refrigeration. Dennis was at that scientist’s home all night, as the scientist looked through the technical literature and gave Dennis a crash course in thermodynamics and refrigeration. That scientist was also puzzled by the documentation, as it only predicted a coefficient of performance (“COP”) of three for that region, when that scientist calculated a COP of six.

Not long afterward, that test by a Fortune 500 company surfaced, which showed that the heat pump got twice the COPs that the sales literature stated. Dennis confronted the company’s owners with that test, and they admitted that they cut the performance data in half, to maintain “credibility,” because when they said what their heat pump did, they were laughed out of engineering offices, over that “impossible” performance.

Those laughing engineers were the professional descendants of scientists who declared heavier-than-air flight “impossible” and ignored the Wright brothers for five years after they first flew. Scientists and engineers can be amazingly blind, looking to their textbooks instead of reality. The epitome of that stupidity was when Dennis’s engineer in Seattle testified that heat pumps could only produce 12,000 BTUs per hour per horsepower of compressor (the pump, which was the system’s only moving part), and then was confronted by his own report that showed Dennis’s heat pump getting twice that. Only about 1% of engineers and scientists have much creative talent. The rest are plodders, and history is full of that kind of denial by scientists and engineers to something new and “impossible.” Edison’s lightbulb had a similar reception. That is normal.

Dennis was in orbit after that night with the DuPont scientist, and he revived his shared-savings program. A few weeks later, at the Hotel DuPont in a ballroom extravaganza, he unveiled his “Systems for Savings” program, in which he put the system on people’s homes for free. The system qualified for Jimmy Carter’s $4,000 tax credit, the customers would pay $4,000, get that back when they filed their income taxes, and the balance was paid from proven energy savings. It was financial engineering at its most brilliant and benevolent. The customers risked nothing, for a system that they were not sure worked. With Dennis’s program, a chimpanzee could sell the systems. Dennis sold 280 systems that night. Dennis eventually calculated that the direct costs of building, selling, and installing that system was $4,000.

The regional dealer who sponsored Dennis dropped his poker face after that ballroom show. That company had only sold 20 systems on the entire East Coast in the prior three years. Dennis sold 280 in one night in one town. That company had never seen anything like Dennis.

But as with the foam-insulation industry, Dennis stumbled into a fledgling industry that was stuck at the craftsman stage. Until then, half of that company’s (LamCo) customers installed the systems themselves. That was a prescription for disaster. Air-to-air heat pumps had the virtue of being made as a self-contained appliance at the factory, like a washing machine. In factories, the quality can be controlled much easier. Once it was delivered to the customer, installation was easy. That LamCo heat pump was a science project to install. The main issue was the panels. The LamCo heat pump was delivered as a kit. The basic unit was built at the factory, but then the unit was installed by making an array of those panels:

The most common place for the panels was on the customer’s roof, like a solar system. The panels had to have the tubing braised together, without any leaks, and then there had to be a hard vacuum drawn on the system for 24 hours to remove all “incompressibles,” such as water and air, which would ruin system performance if not removed, before the system was then filled with refrigerant. A poorly installed system would not work very well.

When Dennis got involved, he immediately began thinking big, as in carpeting the USA with that heat pump. He immediately understood that the installation had to be professionalized. He could not carpet the USA by having the buyers install it themselves. When Dennis was flying high with that heat pump, he had professional installers. The minimum requirement was being a Class B refrigeration mechanic. Then they had to go to an installer class for a week, where they would unlearn dogmas such as that 12,000 BTUs-per-hour textbook concept. After a week in class, then they could begin to install systems under supervision, and it took a few installations before they got the hang of it.

Dennis tried to get the air-to-air heat-pump industry involved. He camped at the world’s biggest heat-pump factory. He finally met the plant manager. The plant manager admitted that when properly installed, it outperformed air-to-airs, but that the “idiots” in the field would never install them properly. Then he took Dennis onto the factory floor, and it was sparks flying as far as the eye could see. The plant manager said that they had $2 billion worth of sales that year, and he sardonically asked Dennis how much he sold.

That plant manager failed to admit that his company was engaged in a conspiracy with the energy industry to vend an inferior energy technology that would save over gas and oil heating, but not by much. That plant manager may not have even understood that, which is also typical. Air-to-airs could also be turned around and be air-conditioners in the summer. That is why air-to-airs are put in the shade, so they could be summer air conditioners. An air-to-air could not perform well as an air conditioner if it was placed in sunlight, but that also partly explained why it was so inferior for heating. The LamCo heat pump only provided heat, and those panels worked best in the sunshine.

The ideal application for the LamCo heat pump was not homes but commercial hot water applications in which the systems ran 24 hours a day. But with Carter’s tax credit, Dennis could carpet the USA with that heat pump for homes (there were also commercial tax credits, which also benefitted commercial hot water systems).

Dennis also spent $1 million on R&D, to make the systems better. For instance, it took research to determine the right size for the expansion valve (like the nozzle on an aerosol can).

By that time, Dennis lived in Southampton on Long Island, hobnobbing with New York’s elite. Dennis began walking up and down Wall Street once again, hunting for somebody who understood the potential. In the meantime, some new dealers smelled like mobsters, and Dennis had already had enough of mobsters, as they nearly killed him several times.

Dennis finally got somebody on Wall Street who understood: the chairman of the board of American Express. American Express was on the brink of investing $1 billion into a national Systems for Savings program to carpet the USA with Dennis’s heat pump. Just then, LamCo’s attempt to do an initial public offering of its stock fell through, the other LamCo owners stole hundreds of thousands of dollars from Dennis (who was a one-third owner of LamCo at the time), those new mobster dealers stole the rest, and Dennis was back to being penniless on the streets, but with three children then. That original regional dealer who was at the ballroom show was part of the mobster takeover. He soon disappeared, and Dennis thought that he likely got cement shoes from his new gangster buddies, who soon pulled off a real scam with Dennis’s company, selling more than $1 million in dealerships before folding the scam.

There were many technical and business issues to overcome. One of which was the economies of scale needed. That panel could only be made with industrial presses, and companies with such presses only made them in lots of 1,000. When Dennis got involved, the systems had ten panels (which Dennis reduced to eight), so somebody had to buy panels for 100 systems. It was 100 systems or none. But nobody could sell them like Dennis. More than 100 companies came and went around the LamCo heat pump, and only Dennis succeeded, but too well, as will become evident.

When Dennis had his companies repeatedly stolen, the first thing that the thieves did was discard Dennis’s “crazy “marketing plans, when they were what made it all work. Those greed-blinded thieves killed the golden goose. It was like those scientists and engineers who could not think past their textbooks. Almost nobody understood the genius of what Dennis was doing. I had been a student of genius since my first mentor, so it was easy for me to see the genius of what Dennis was doing. To this day, few people have ever understood these issues or been willing to try, and that is part of the problem.

Bringing any new technology to market is incredibly difficult. Many superior technologies have failed to make it to market, and usually not from organized suppression, but the inventors and their allies were unable to overcome the many real issues of bringing new technologies to market. It is like threading a needle in the best of times, and the fields of capitalism are littered with failed attempts to bring new technologies to market, and attempts by business associates to steal them are rife. Sears was notorious for stealing inventions. Sears would invite the inventor in to demonstrate his invention, Sears would decline involvement, but then Sears would make its own stolen version of it. It is a formula that Trader Joe’s uses today. It was standard practice by General Motors, and it is a typical capitalist ploy.

I witnessed many attempts to steal our companies by our business associates when I was with Dennis. Organized suppression is “just” another challenge for that task. After that final theft of his company on the East Coast, Dennis went home to Yakima, Washington, where he was born, to visit his family and introduce them to his newborn son, for Christmas, 1983. The next chapter then unfolded.