Shockingly cold weather in Texas generates a potential opportunity.
But, the story only gets its start with the bout of cold weather. The event was horribly mismanaged by the State's Public Utilities Commission, and particularly by Ercot... the Electric Reliability Council of Texas... that set the policy that is the source of the difficulties. In the wake of the scandal, there are resignations from the PUC and Ercot... a lot of political grandstanding with stupidity on full display on both sides... an array of competing legislative proposals that have been tabled... and a guarantee that even with legislation addressing the problem... the disputes generated will drag on in the courts for months, if not years.
The problem is, when the juice to feed the grid went down... Texas's plan to "fix it" was to provide an incentive to "fix it" by allowing the Ercot to raise tolls on the grid to a very high price... in expectation high prices will induce markets to provide power flows at that high price... thus solving the problem. It seems not to have occurred to them that enabling that regulatory power to implement a high price... was just as likely to lead to massive costs in corruption as it was to lead to "solutions".
Here's how that looks now as people start to work on sorting things out in the usual way... by blaming others... refusing to take responsibility... and demanding others do something about it. Texas Lawmakers to Rule on $16 Billion Blackout Pricing
A bit of a problem with cold weather, and a lack of preparedness, is at least matched by a bit of apparently corrupt and deliberate over-pricing at the wholesale level... which has at least a fourteen wholesale customers unable to pay their billls, and at least three companies declaring bankruptcy, thus far...
Texas company behind huge electricity bills seeks bankruptcy is about Griddy Energy, notable as a "discount power" company that sells power direct to consumers at the wholesale rate, plus a $10 per month fee... prompting one of the "legislative solutions"... Texas Lawmakers Advance Bills to Prevent Another Energy Crisis ...simply not letting them do that anymore... solving nothing. Note that Griddy has assets of $10 million... and a $50 million power bill.
There is growing demand that the over-charges be rolled back: What would reversing $16 billion from winter storm mean for Texans’ electricity bills? The debate most notable for the defense of insane monopolistic over-reach in justifying corrupt billing as "essential to preserve the free market".
The event has had a lot of impact on a lot of publicly traded companies.
With that as background, of the dozen companies known to be unable to pay their power bills... only one of them is publicly traded... so we can narrow our focus to that company. Having a market cap of $190 million... and a power bill of $250 million... explains why JE - Just Energy Group Inc. has filed for bankruptcy protection, with news updating that out just today: Just Energy Provides Update on CCAA Process
But, when I started digging into JE I found they have a history of problems that goes far beyond just this random event that was outside their control.
From Sept 2020, before February's freeze: RBC Still Sees Doom And Gloom in Just Energy (JE) Stock. That article address not "the problem" with JE, but addresses the proper valuation of the solution... after doing a 1 for 33 reverse split giving a share price o $7.26... which RBC says is over-valued by 100%.
Target price: $3.63... but, that, you know... well before the freeze made things vastly worse. Throw another $250 million in unpaid bills and a bankruptcy on top of that... and what should it be valued at, now ?
They were, until just recently, being ravaged by debt taken out in the form of convertible notes. Convertible notes foster massive incentives for companies and their stocks to under-perform... typically in result removing market access to other forms of capital... and 99.8 percent of companies financed with them will under-perform until dead. Only 6 to 9 months ago the investors in JE were able to arrange and complete a recapitalization plan... and kick the convertibles and the horrific management that enabled them to the curb...
Want to see the impact of convertible notes... and the not incidental and persistent pairing of convertible debt with total crap management and the typical in "short and distort" market tactics ? Look at the "Max" period for the JE chart on Yahoo. Starting from the peak in March 2011 at $527 per share... and, now, after the deluge of convertible dilution... today a share goes for $1.82.
The company's name, though "Just Energy" ? Seems it is not about "we only do energy"... but far more about "Get Woke, go Broke"...
The investors sought to put an end to the carnage:
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Just Energy Announces Management Slate of Directors to be Appointed in Connection with the Recapitalization Transaction, and the Retirement of Rebecca MacDonald
"In conjunction with the planned reconstitution of the Board, the Company announced that Rebecca MacDonald, the Company’s founder, will be retiring and stepping down from the Board, effective today. At the same time, her employment contract as Executive Chair will be terminated by mutual agreement."
“As I retire after 23 years with the Company, I would like to thank all of the employees that worked over the years in building Just Energy,” Ms. MacDonald said. “I am particularly happy that over the last 23 years I have witnessed a number of women of different ethnicity develop their careers with us.”
Investors who started with $527 and own a paltry $1.82 now... might have preferred that the company set different priorities...
So, who are the white knights... and who wears the black hats... and what can you expect of them going forward ? Also, have a need to know that they're going to be a lot less focused on "just energy" and a lot more focused on "just profits"... or even "just return of investors capital"... instead of "just burning investors cash" in a misguided and failing attempt to keep Texans warm in winter at investors expense.
Pimco Gets Burned as Just Energy Craters After Texas Loss The article says it is: "Pacific Investment Management Co., the largest shareholder with a 28.9% stake acquired during a recapitalization last year. Great Pacific Capital Corp., an investment company controlled by Vancouver billionaire Jim Pattison, owns 1.5%, according to data compiled by Bloomberg."
"Wait for it"... is easy here. I don't have the answers yet to enable making a call... much less a target price I think fairly reflects the value and the risks... even if you do assume the business survives the bankruptcy, and somehow fills in the hole that February made, that the company has now fallen into. The future... might have been obvious to those who've been riding this plunging Phoenix in its accelerating dive toward the ground... who appeared to be succeeding, right on the verge of pulling it out and preventing it succeeding in achieving the financial markets version of a death wish...
I'll need a lot more than this:
Just Energy Announces Evolution of its Senior Management Team to Provide Enhanced Strategic Direction and Oversight
A new CFO seems a good idea... but his role to... "deepen relationships with our financial partners"... sounds a lot like what got them into trouble in the first place ?
Who is PIMCO... what drives them... and why are they intent on saving (?) this, now possibly reformed, or still reforming, corporate social justice warrior ? Who were the convertible note holders... that have been strangling this company over the last few years... and what role do they play now... as large shareholders ? |
