By RICHARD COULSON
Last week’s announcement by Deputy Prime Minister Philip Davis finally ended 20 months of suspense about the Bahamas Electricity Corporation’s (BEC) immediate future. The Prime Minister Christie and his Cabinet have decided the way forward, and it follows a very different path than the solution originally proposed in August 2013. Instead of splitting BEC into separate distribution and generating companies, and inviting foreign investors to take an equity stake in the latter, BEC will remain a consolidated operation, wholly-owned by the Government.
In bald terms, ‘management’ of BEC will now be turned over to a US company named PowerSecure International (PWS), based in Wake Forest, North Carolina. What this means in practice will not be known until the preliminary management contract is completed and disclosed. But an analysis of PWS suggests what it can and cannot do. Fortunately, this company’s shares are listed on the New York Stock Exchange (NYSE), and it files copious documents with the US Securities and Exchange Commission (SEC), all of which are available on line, plus reports from securities firms.
Mr Davis’s May 1 press release correctly states that PWS has shareholders’ equity (net worth) of $156 million, plus market capitalisation of $301 million and a $368 million backlog in new business orders. This may be large by Bahamian standards, but among the ‘big fish’ companies listed on the NYSE, PWS is a minnow - a ‘micro-cap’ in financial jargon - that only began its present business in about 2007. Of course new, small companies can do great things, but the press release does not disclose that over the last five years PWS’s net income has fluctuated wildly, from a high of $24 million in 2011 to a loss of $7 million in the year ended December 31, 2014. This is far from a record of steady growth.
The PWS annual report, and its 10-K filed with the SEC for 2014, describe in great detail the nature of PWS’s business. It sells a variety of products and services to public utility companies, and to major consumers of electric power throughout the US. These include specialised items to improve generating efficiency; link solar power into the electric grid; and improve the infrastructure of distribution systems. Doubtless BEC can benefit from the application of these processes, but it should be noted that, with a total workforce of about 750 employees, PWS has never actually operated a public utility company.
While not a one-man show, PWS is clearly dominated by its chief executive, Sidney Hinton, a handsome (see photo in annual report) 52 year-old who has spent his entire working career in the power industry, developing expertise and making key contacts, before joining PWS in 2000 and becoming a 3 per cent shareholder. The Proxy Statement for 2015 credits him with turning around certain difficulties (unspecified) that PWS faced in early 2014, and in nominating him as a continuing director describes him as the “ driving force” behind the foundation and growth of PWS. One can assume that that he met frequently with Government officials and their advisors in selling PWS to the Christie administration (and vice versa).
It seems that PWS may be more of a consultant, or advisor, to BEC rather than its ‘manager’. Mr Davis refers several times to the ‘New BEC’, suggesting that the present chairman, Leslie Miller, and all Board directors will be replaced by people compliant with PWS’s ideas. But PWS does not have the manpower to take over all the essential engineering and senior management positions, and in any event delicate staffing issues will probably be left to Government discretion. As for finance, PWS will clearly not be the lender of the probable hundreds of millions needed for new generating capacity and assured fuel supply. At best, they can refine these needs and negotiate the best credit arrangements. One wonders whether the oft-mentioned and rejected floating power-plant on a barge will be considered.
One troubling and unexplained issue arises from a review of the PWS share price. As with all publicly-quoted companies, one can easily find a graphical chart showing daily price changes going back as much as five years. Most companies display a fairly steady upward (or, unfortunately, downward) trend with minor rises and falls.
The PWS chart is unusual. For a couple of years until 2014, the price rose steadily. Then, in one day in May, the price crashed abruptly from $22 to $6 - a loss of nearly 75 per cent of market value in one trading session on the NYSE, a very rare event except for speculative penny stocks. The well-known investment companies who own PWS’s shares (named by Mr Davis) must have been pretty unhappy, but we could find no press release explaining the sudden collapse.
Possibly it was caused by litigation, for a securities class action against PWS and its officers was filed in US federal court on May 22, 2014, as disclosed in the SEC reports. These actions can mean much or little. Sometimes they are concocted by a few disgruntled shareholders and greedy lawyers looking for a big fee, but sometimes they have substance and can drag on for years, with millions in legal costs and damages awards not covered by insurance. Here, it is too early to tell. The company says the lawsuits are without merit, but a year later PWS’s price has recovered only to $13.15, and the federal court has not dismissed the actions.
We note that the Government undertook extra efforts to verify PWS bonafides at the highest levels of the US administration, including the redoubtable commerce secretary, Penny Pritzker, but these assurances cannot totally offset possible findings in a courtroom.
We report all the foregoing not to criticise the choice of PWS. It may well be that this small, aggressive company, led by an energetic young executive, will work with extra effort to resolve BEC’s many challenges, and we hope that the Government and the labor unions will not throw up roadblocks to flexible solutions.
But we do believe that Bahamian citizens, as the ultimate owners of BEC, are entitled to more information than was provided in Mr Davis’s press release.