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PDFThe basic plotline goes something like this: AEHI will somehow secure the funding and approval necessary to build a multibillion-dollar nuclear power plant in Idaho that’s virtually guaranteed to deliver eye-popping profits for investors. That version of the story contains some gaping holes, however, filled with pesky secrets that threaten to ruin this fairy-tale ending.
Take the first chapter in this ongoing saga, just for starters. Initially, AEHI CEO Donald Gillispie said the company would build its nuclear power plant in Owyhee County – touting a deal inked with “prominent Idaho landowner and businessman” James Hilliard -- and spent the next year portraying that site as a suitable location for such a project. In the spring of 2008, however, AEHI suddenly announced that it had abandoned that site due to troubling fault lines and shifted the project to nearby Elmore County instead.
In a sworn deposition that surfaced last month, however, Gillispie offered far different reasons for that abrupt change of plans.
“There were two things going on,” he states in that document. “First of all, we had not received funding because we lost our silent partner there … The other thing going on was that Hilliard would not – he had been extending the contract whenever it came up, like a six-month contract – and in early ’08, he didn’t extend it.”
Gregory Holtz, the local realtor hired to sell the land in both Owyhee and Elmore counties, confirmed the latter version of events. In a recent interview with TheStreetSweeper, Holtz insisted that geological studies had actually cleared the Owyhee County property for a nuclear power plant – a claim supported by Gillispie’s own comments in his deposition – and that AEHI had simply failed to pay for the property instead. Moreover, Holtz portrayed the second site in Elmore County as farmland (sold to a local dairyman) that was never considered as a realistic site for a nuclear power plant at all.
Holtz went on to classify AEHI’s latest site for its nuclear plant, a location in arid Payette County, as the worst option of the three and confidently predicted that this plan will fall through as well.
“Gillispie still can’t come up with the money,” Holtz stated. “He can’t actually build it, anyway. The NRC (Nuclear Regulatory Commission) will never give him approval, and he knows that.
“If he doesn’t know that,” he added, “he shouldn’t be in this business.”
Holtz cited a slew of obstacles facing AEHI, with lack of financial resources ranking high on that list. He estimated that a company would need at least $200 million – compared to the paltry $8.4 million AEHI now has in the bank – to even begin negotiating the deals that might lead to federal approval of a nuclear power plant.
AEHI refused to be interviewed for this story.
Side Deal
This spring, AEHI quietly launched a plan to generate at least half of the funds that Holtz believes the company will need.
After raising millions by selling its own stock, AEHI began peddling interests in a subsidiary – Reactor Land Development LLC – that could monopolize an asset that AEHI investors expect to handsomely profit from themselves. Under a strategy outlined in a confidential Private Placement Memorandum, LLC investors will supply $100 million to secure the property and approvals necessary to build the nuclear power plant and will gain majority control over a potential $1.5 billion asset in the process.
Once AEHI scores the land and approval required for its nuclear project, the PPM explains, the company will see that site skyrocket in value and use it as collateral for the billions it will need to actually build a nuclear power plant. But the LLC – rather than AEHI itself – stands to reap most of those benefits, the PPM indicates, with LLC investors first recouping their $100 million principal and then pocketing 80% of any future profits generated from the deal and AEHI picking up only the 20% that’s left.
AEHI has shared a far different story with its own investors, repeatedly indicating that they will fully capitalize on that $1.5 billion asset instead. The company has also suggested that it will control the actual power plant and retain the hefty profits – estimated at $3 billion a year – resulting from its electricity sales.
According to the PPM, however, AEHI has no real plans to operate a nuclear power plant at all.
“At the completion of the permitting process, management intends to wind up the LLC, assigning its assets to an entity that will finance, construct and operate one or more reactors at the site,” the PPM states. “Management believes that it is likely that any reactor at the site will be owned and operated by a consortium or joint venture that would include nuclear reactor suppliers (e.g. Westinghouse) and reactor customers (i.e. electric utilities), with the LLC and AEHI participating as the site and project developers.”
By playing a limited role in that ambitious project, critics say, AEHI stands to collect a limited portion of the resulting profits – if they actually materialize – as well.
Sticker Shock
Meanwhile, AEHI continues to seek funds for expenses that are supposed to be covered by money raised through that private placement.
Just last week, for example, AEHI announced that Source Capital – a Connecticut firm with a history of regulatory violations – would be supplying the funds necessary to secure the property and approval for its project. Within days, however, AEHI inexplicably canceled that deal (originally touted more than a year ago) in favor of a new one forged with yet another financing partner.
As detailed in an earlier story by TheStreetSweeper, AEHI has by now seen financing arrangements with at least three other firms fail to generate the promised funds. (One of those firms soon went out of business, records show, while another wound up tainted by criminal charges.)
Even so, AEHI has portrayed itself as an irresistible success. Back in January, for example, AEHI emphatically statedthat investors continue to support the company “because they’ve learned there is no downside to investing in a nuclear power plant.”
The federal government – which is offering generous loan guarantees that AEHI would like to secure – has apparently reached a different conclusion, however. Last month, The New York Times reported, Constellation Energy (NYSE:CEG) abandoned plans for a nuclear power plant after the U.S. Energy Department demanded a hefty upfront fee for a government-backed loan due to risks associated with the project.
“The Energy Department evaluated Constellation’s proposal the way a bank would look at a prospective credit card customer or home buyer and set the fee according to the borrower’s creditworthiness,” the Times explained. “Essentially, the Energy Department argued that Constellation’s project is so risky that the company must pay a high fee or provide other assurances of repayment if it wants the taxpayers to guarantee its construction loans.”
Specifically, the Times said, the Energy Department determined that Constellation should pay an $880 million upfront fee – or 11.67% of the $7.6 billion loan it requested – in order to secure a government-backed loan for its project. Constellation declared the fee “shockingly high,” the Times said, and backed away from the big-ticket project instead.
Compared to AEHI, critics say, Constellation looks like a relatively safe bet. After all, they note, Constellation is a long-established energy player with a huge cash pile – totaling almost $3.5 billion – in the bank.
Hard Numbers
For its part, AEHI has predicted that it will generate enough profits to pay off any construction loans (whether the government backs them or not) and still have plenty of money to spare.
When pitching its plans to investors, AEHI has regularly claimed that its proposed 1,600-megawatt power plant will “create about $3 billion annually in reliable profits for 60 years.” That target looks rather unrealistic, however, when compared to the actual results reported by current players in the industry. Last year, for example, Entergy (NYSE: ETR) – the nation’s second-largest nuclear power supplier with 5,000 megawatts of capacity -- cleared just $631 million on power sales from all of its nuclear power plants combined.
Therefore, AEHI would need to charge about 15 times more for its nuclear power – which it is touting as an affordable source of energy – than Entergy does in order to reach its lofty goals.
Moreover, experts say, AEHI still faces massive costs associated with delivering that power as well. John Weber, a longtime skeptic of AEHI, recently examined Idaho’s transmission capacity when participating in a utility-sponsored meeting on the state’s “Integrated Resource Plan.” Even if AEHI could somehow secure the funding and approvals necessary to build a nuclear power plant, Weber determined, the company would still need to build a high-priced transmission line before it could actually sell that electricity.
“I would assume, to get the best price for the power, it would have to go to southern California,” Weber says. “So figure 1,000-plus miles at $3 million per mile. That is $3 billion and at least 10 years (in the future) – if ever.
“So it just amazes me,” he concludes, “that people actually buy this stock.”
* Note: No member of TheStreetSweeper’s staff or advisory board has ever taken a financial position in AEHI or received any compensation from others who have positions in the stock. As editor of the site, Melissa Davis will never take a position in any of the stocks that she covers. To contact Ms. Davis, the author of this story, please send an email to editor@thestreetsweeper.org.
