Setting the record straight with The Streetsweeper November 15, 2010

Posted by cleanidahoenergy in setting the record straight.
Tags: Melissa Davis, thestreetsweeper.org
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Many of you have asked for an explanation of the allegations made in the Streetsweeper article.

Here it is point by point:

AEHI: The Story, the Holes and the Secrets They Hide

by Melissa Davis – 11/4/2010 7:58:06 AM

 

Alternate Energy (OTC: AEHI.PK) has spent the past four years selling investors an incredible – if incomplete – story.

The 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.

 

Unistar was originally contracted to vet the site, but failed to recognize the fault line, which would not pass our standards or the criteria outlined by the Nuclear Regulatory Commission.  The site was later deemed unsuitable after an independent geologist brought the fault to the attention of AEHI.

 

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.”

 

This statement was taken out of context.  The partner loss had no bearing on the site.  That issue does not negate the fact that AEHI could not build on the site, since the fault line makes it impossible to do so.  That issue supersedes all others.

 

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.

 

Gregory Holtz was a real estate agent, with no degree or background in nuclear power or energy.  Holtz thought he could get site approval in the same area on his own for a nuclear power plant, but quickly learned he didn’t have the background to accomplish it.  He does not know or understand the siting process and therefore is not credible in this matter.  He is correct in stating that the Owyhee County site was originally cleared by Unistar; but that was before the fault line was discovered.  The fault line is no secret and has since been well documented as the ultimate reason for AEHI’s departure from Owyhee County.

 

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.

 

Again, Holtz has no expertise on which to base his opinion.  His comments towards AEHI maintain a personal bias.  On the other hand, Enercon (a well-known and respected engineering firm that regularly deals with nuclear power plant sites) has accomplished their preliminary assessment of the property.  Enercon officials have determined the site is absolutely in line with everything required for a nuclear power plant and that there are no faults to preclude the property for being used as such.   These preliminary assessments are necessary prior to applying with the Nuclear Regulatory Commission.

 

“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.

 

Mr. Holtz is in no way knowledgeable about the NRC or how the agency operates. He has never built or licensed a nuclear plant, although it has been said that he once worked as a laborer at a nuclear plant. He is a small-town real estate agent and has no engineering or financial training and with absolutely no experience in operations, citing, maintaining, building, or managing a nuclear power plant.  Mr. Gillispie, on the other hand, has over 45 years of experience in the nuclear industry.  He has built, maintained, managed, expanded, and has been personally involved with the approval process on a variety of sites.  During those years he has maintained a working relationship with the NRC and the people who work there.  Getting sites like these approved has been a major part of his career.

As far as the money is concerned, it is ironic that statements like this are being made just a few days following an announcement that AEHI secured the initial round of funding ($150 million).

 

“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.

 

Again, Holtz, who has no experience in anything regarding nuclear power plants and is apparently unaware, or ignorant of the fact that AEHI was just committed $150 million by Roswell Capital Group.  He is an out spoken opponent of the plant with no knowledge of nuclear plant funding or public companies. Melissa Davis is also less than honest by posting such a statement, when she clearly knows about the financial commitment, since she writes about it later.

 

AEHI refused to be interviewed for this story.

 

AEHI refused to take part in the interview with Streetsweeper after discovering that the purpose of the website is to publish negative stories about companies, while backers for the site short the company’s stock.  The site only uses layman quotes to promote their negative views instead of real experts and none of their stories maintain any sense of balance.  This method has been exposed by a variety of sources, not the least of which is the American Journal Review.  Their latest article “Short on Ethics” can be viewed at http://www.ajr.org/article.asp?id=4911.

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.

 

The Reactor Land Development private placement document was developed by an attorney as an optional method to fund the nuclear site and was clearly identified in the company’s filings and was created for highly qualified investors only.  Under this particular investment, if all units were sold they would give no more than a 5%  interest in the operating  reactor, not the company.  These investors would have had less than 4% interest in  AEHI.  AEHI stock investors would have remained the majority stockholders.  In fact, this PPM never raised any funds as AEHI was able to obtain the necessary funding with a new equity line worth $150 million.  So, based on the existing facts, any discussion about the PPM is moot as it was disclosed, but never used. This was in AEHI SEC filings.

 

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.”

 

This was taken out of context.  AEHI would be the “entity” to own and operate the plant, but like all large nuclear plants would be willing to sell minority equity positions to others such as utilities. This is in the PPM and our SEC filings.

 

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.

 

Not true.  This is in reference to the old abandoned PPM, which has nothing to do with how AEHI is currently raising funds.

 

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.

 

Not true.  The Source Capital Group agreement was for $120 million, the Roswell agreement was for $150 million.  The reason for switching firms should be extremely clear – more money.  Both amounts were also disclosed in previous press releases.

 

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.)

 

Two companies offered to raise money from their investors early on in the project.  They could not deliver as promised as the economy was failing. The third company was Cobblestone, which offered a $3.5 billion loan for plant construction. AEHI has not reached that phase so has not asked for any loans. They claim the funds are from foreign sources and are still available.

Also, recent deals with Source Capital and Roswell Capital Partners were approved to move forward immediately.  As was previously stated, AEHI pulled out of the agreement with Source due to a larger stream of money from Roswell.  Neither of these two companies failed to follow through on financial agreements.

 

Even so, AEHI has portrayed itself as an irresistible success. Back in January, for example, AEHI emphatically stated that 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.

 

Any commentary about Constellation is severely misleading as their decisions are based on a debt problem.  Constellation is a utility and is therefore constrained by regulatory entities.  Even with billions of dollars in the bank they still cannot build a nuclear power plant without major financing, for which they are unable to qualify without loan guarantees.  Some of this is due to the company almost going bankrupt a year ago and they have poor credit, which is why they are selling UniStar and the Calvert Cliffs project to raise funds to address their debt.

AEHI is an independent and therefore unregulated entity in its power-pricing structure.  Because of this, AEHI has the ability to acquire funding from a variety of sources, including international entities, which Constellation cannot. Also, AEHI has neither debt nor bad credit.

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.

 

Not true.  For one, there is no such thing.  AEHI is looking at  1,100 megawatt, 1400 megawatt and 1700 megawatt reactors.  AEHI has always stated it would be a dual system plant, which means two reactors – doubling the overall capacity.  Also, we never stated $3 billion on 1600 megawatts, a total fabrication. It is possible with a 3400 megawatt (dual unit) plant using wholesale power prices in California, a major market for the power to have profits in the billions by 2018.

As for the revenue, you cannot compare what AEHI is doing with Entergy.  Entergy’s plants are old (in the neighborhood of 25 to 30 years old).  They are regulated facilities and are dealing with long-term contracts.  Those contracts involve prices that are not comparable to today’s market. Because AEHI is not regulated, the company has the ability to wholesale the power at today’s west coast prices, some of which is going for as high as 15 to 20 cents per kilowatt hour.

 

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.”

 

John Weber is not just a skeptic; he is an AEHI anti-nuclear opponent who retains a position on the Board of Directors for the Snake River Alliance.  Like Holtz, he is not an expert in nuclear power or transmission. He does not even understand transmission tariffs and that the buyer not the seller pays them.  In reality, transmission lines are already in the works near the plant:

http://corridoreis.anl.gov/documents/docs/Energy_Corridors_final_signed_ROD_1_14_2009.pdf http://www.gatewaywestproject.com/schedule.aspx

The Gateway West project is slated to be finished right about the same time as AEHI’s Idaho Energy Complex, which makes transmission a non-issue.