by Richard Coulson

First published in The Tribune, and posted here with the kind permission of the author.

Last week’s announcement  by Deputy Prime Minister Davis finally ended 20 months of suspense about the immediate future of Bahamas Electricity Company  (BEC).  Prime Minister Christie and his Ministers- in- Cabinet have decided the way  forward, and it follows a very different path than the solution originally announced  in August 2013.  Instead of splitting BEC into a distribution company and a generating  company and inviting foreign investors to take an equity stake in the latter, BEC will remain a consolidated  operation, wholly owned by 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 can’t 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  and it files copious documents   with the US Securities and Exchange Commission, all of which are available on line, as  well reports from securities firms.

DPM Davis’ press release of May 1 correctly states that PWS has shareholders’ equity (net worth) of  $156 million and market capitalization of $301 million, with a $368 million backlog of new business orders. This may be large by Bahamian standards, but among big- fish companies listed on the NYSE, PWS is a minnow, a “micro-cap” in financial jargon, that only began its present business about 2007. Of course new, small companies can do great things, but the press release does  not disclose that in the last five years PWS net income has fluctuated wildly, from a high  of  $24 million  in  2011 to  a loss of  $7.0 million in the year ended December 31, 2014, 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’ business. It sells a variety of product and services to public utility companies  and to major consumers of electric power throughout the US; these include specialized 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 work force 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 CEO, Mr. Sidney Hinton, a handsome (see photo in Annual Report) 52-year-old who has spent his entire  working career in the electric power industry  developing expertise and making key contacts, before joining PWS  in 2000 and becoming a 3% 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 Government (and vice versa).

It seems that PWS may be more of a consultant, or advisor, to  BEC rather than its “manager”. DPM Davis refers several times to the “New BEC”, suggesting that the present Chairman Leslie Miller and all the Board 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 the delicate  staffing issue will be probably be left to ultimate Government discretion. As for finance, PWS will clearly not be the lender of the probable  hundreds  of millions needed  for new generating capacity and for 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% 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 the shares (named by DPM Davis) must have been pretty unhappy, but we could find no press release explaining the sudden collapse. Possibly it was caused by litigation— securities class action against PWS  and its officers  was filed in US federal courts  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 of legal  costs and damages awards not covered by insurance. Here, it’s too early to tell. The company says the suits are without merit, but a year later  PWS price has recovered  only to today’s  $13.15, and the federal court has not dismissed the actions.

We note that Government took extra efforts to verify PWS bona fides at the highest levels of the US administration, including  the redoubtable Secretary of Commerce Penny Pritzker, but these assurances cannot totally offset possible findings in a courtroom.

We report all the foregoing not to criticize the Government’s  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 Government and the labor unions will not throw up road- blocks 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 DPM  Davis’ press release.

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Mr. Coulson has had a long career in law, investment banking and private banking in New York, London, and Nassau, and now serves as director of several financial concerns and as a corporate financial consultant. He has recently released his autobiography, A Corkscrew Life: Adventures of a Travelling Financier.