Wednesday, December 8

Securities Fraud 2: AEHI's Land Value Estimate

One of AEHI claims that has raised eyebrows is that the land in Payette County which it intends to purchase for $5 million will be worth $1.5 billion when the NRC has approved it for construction of a nuclear power plant. And that's before the construction even starts!

Let's think about that for a moment: why should the value increase? The reason is that one could bring a power plant to market four years earlier than if starting from scratch (assuming four years for the permit process).

However $1.5 billion is a mind-boggling number and you've probably wondered how they come up with it. Well, wonder no more. A potential investor who was equally curious asked the company for the justification when considering a private placement. Here's the appraisal the company provided.

J. Eric Cooper (Doctor of Philosophy, no less) is the author and we learn that AEHI was actually very conservative in the number it uses with investors: Cooper comes up with a range of estimates between $1.5 billion and a whopping $13.5 billion.

Cooper uses a 1600 MW power plant and assumes 94% availability.

The appraisal references a couple of papers two of which we provide for convenience:
  1. "The resurgence of nuclear power in the U.S."
  2. "Monte Carlo Methods for Appraisal and Valuation: A Case Study of a Nuclear Power Plant"
A quick look at them reveals that they are concerned with the valuation of nuclear power plants, not just the land on which they are built. The appraisal does not provide any further details on how "Monte Carlo" or "Comparable Sales" were used to arrive at the given results. The resulting numbers for the land are higher than what the cited papers come up with as value for entire nuclear plants so lets just say some reasonable doubt exists about the claims.

In one area however Cooper does go into enough detail that we can reverse engineer the argument: NPV and IRR at EBITA. That's finance vocabulary for determining today's value of the cash the plant would generate during the first four years (remember by buying the land a power producer could bring a plant online four years earlier). 

The IRR is the interest the company wants to earn on its investments (Cooper uses 20%), so the first years cash is discounted by dividing by 1 + 20%, second years by dividing by ( 1 + 20% ) * ( 1 + 20% ) and so forth. Applying that to the $1.185 billion in cash (EBITA) per year yields a total present value of $3.07 billion, just as he provides in the appraisal.

Sounds good, right?

Well, until you look at the assumptions: 
  1. Cooper assumes AEHI can sell electricity at 12c per kWh but the current market price in California is 3.5c per kWh.
  2. Cooper uses EBITA (Earnings before interest, taxes and amortization) as cash per year. However interest for a $5B power plant is a very real cash outlay. 
Let's see if we can fix the calculation:

First what's a realistic interest on a 30 year loan? The US government pays 4.78%. Lets just say AEHI gets really, really lucky and gets a loan of $5 billion for 7.5%. That'd be a yearly cash outlay of $375 million. That's 2.7c per kWh.

Then lets look at the other costs. Here's a good paper on the topic. Operation and maintenance is currently at 3c per kWh and fuel costs are at 1.5c per kWh for a total cost of 2.7c + 3c + 1.5c = 7.2c per kWh.

Now lets look at our profits: for each kWh we sell to California we get 3.5c and pay 7.2c. For a loss of 3.7c per kWh or $487 million per year. And a current present value of - drum roll - negative $1.26 billion.

In other words if you had the power to force AEHI to build the above plant and sell the electricity to California it would make sense for them to pay you $1.26 billion so they could start incurring the losses four years later!

Maybe a doctor in philosophy is not the right background for appraising nuclear power plants after all? 

After we've shown that the only verifiable calculation is completely off base, and if only to show that AEHI's associates are not only crooked, but also intellectually extraordinarily challenged, let me point out the following logical problem in Coopers appraisal:  

Cash flows will only be generated once the plant is operating, so after its construction is complete. Even in AEHI's rosy world construction takes four years. So any cash flow will start coming in four years after the site's been acquired and needs to be discounted by dividing by 1.2^4 = 2.07.

In summary: 
  1. Cooper assumes electricity will sell for 343% of its current price in high priced California.
  2. He ignores the interest on the loans required to build a plant.
  3. He underestimates the maintenance and fuel costs by 1.5c per kWh.
  4. He ignores the construction time which cut the value of the property in half. 
And this document is used in context of selling securities to an investor. Should sound familiar, because just like yesterdays case this is an "untrue statement of a material fact" "in connection with the purchase or sale of any security" (illegal according to rule 10b-5). Or just simply Securities Fraud.


  1. Great work Joe. I think you are giving them the benefit of the doubt here.

    But I thought I would provide some additional clarity on the background of James E. "Eric" Cooper. It is pretty clear that James E. "Eric" Cooper will be taking the same long walk on a short pier that Gillispie, Johncox and several others with they are busted for securities fraud.

    Just a short note. This is the same James E. Cooper who has been a long time accomplice of AEHI. He is the very same "Dr. James E. Cooper" that go together with several AEHI gang members, Donald Gillispie, Martin Johncox, Jim Tibbs, and the now infamous Doug McConnahauy from Nampa to come up with a way to stop people from telling the truth about this company. Together they concocted the most rediculious letter imaginable and got Cooper to sign his name to the fairytale penned by Martin Johncox regarding the hearing in Glenns Ferry. They then sent the letter to every newspaper they could and got one of them to actually publish it. The Mountain Home news. None of the others they sent it to would publish it as it was so utterly stupid and obviously made up.

    The scam went like this, supposedly Cooper, posing as just an "impartial observer", just happened to observe a great deal of activity at the Glenns Ferry "Public Meeting". That was the same meeting where Doug McConnahauy manufactured out of thin air trespassing and "assault" charges against Dr. Peter Rickards (a real doctor). I encourage everyone to read both of the letters below and decide who is telling the truth. That letter, of course, was also spread at many other sites on the internet as far and as wide as possible. That letter marked the point where the campaign of "Lets blame everything on Joe Weatherby" kicked into high gear, and that has been their strategy ever since. After Mr. Weatherby then obtained the first fax, (there have been many now) from MIT showing that Donald Gillispie never attended any course at MIT which could even lead to a degree, and what he did attend was so insignificant that it isn't even tracked by the Registrar!!!

    One must read the first article a couple of times to see how absolutely ridiculous the entire letter is. I doubt that Superman would have the powers of observation that Mr. Cooper professes to have. In reality the entire thing was created in the collective minds of the people mentioned above. None of the things Cooper talks about ever happened. Does this sound familiar. It is significant to note that Mr. Cooper knew none of the people he wrote about, and none of the people he wrote about new him. I wonder how he came up with this letter. There are lots of copies in safe places showing specifically that the letter eminated from Johncox's office at Alexander & Associates.

    The reality is that Mr. Cooper was a starving stock broker with Edward D. Jones at the time and was already deeply involved with AEHI. His family owned several hundred thousand shares of stock in AEHI. Securities Fraud includes any false statement made to stockholders. That letter certainly qualifies.

    Cooper's Original "Lets Get These Guys" Letter below

    Weatherby's Response

  2. "has not been vetted by experts" - certainly sounds like Johncox. Compare

  3. There appears to be no question about it, it was Johncox who wrote the letter (along with input from Doug McConnahauy, Cooper, and Gillispie. It'll give them some variety for the 5-15 years they will be in the federal pokey