Struggling penny stock firm with light cash reserves lands major wind power agreements.
Finavera may reap a wind-powered windfall.
Led by two former Accenture executives who spearheaded the 2003 privatization of BC Hydro and Power Authority's back-office operations, a little-known, three-and-a-half year-old company with negligible cash reserves and an accumulated deficit in excess of $41 million scored a stunning win two weeks ago when it was awarded four much sought-after electricity purchase agreements from the province's largest Crown corporation.
Finavera Renewables Inc. was picked by Hydro on March 11 to develop four wind farms in north-eastern B.C. -- three near Tumbler Ridge, and another outside Chetwynd. Together, they are expected to generate over 800 gigawatt hours of electricity annually once construction is completed in 2014.
Seven years ago, Peter Leighton, Finavera's president and chief operating officer, was executive vice-president and chief financial officer at Accenture Business Services of British Columbia Limited Partnership (ABS). The company was a subsidiary established by Accenture -- a world-wide consultancy firm, then-headquartered for tax purposes in Bermuda -- to take over B.C. Hydro's administrative and business support functions.
The privatization was negotiated primarily by John Icke, then president of another Accenture subsidiary, Accenture Business Strategies for Utilities Inc.
Icke has been described by BusinessWeek as a co-founder of Finavera, which was established in late 2006, but he did not join the company's board of directors until December 2007. Re-elected to the Finavera board last September, Icke suddenly resigned that position on February 12 -- just four weeks before the company scored its big win with BC Hydro -- but has retained options to purchase hundreds of thousands of the company's common shares.
Leighton and Icke are long-time business associates and continue to share interests in such entities as Cue Resources Ltd., a junior mining company with a uranium play in Uruguay.
Now Leighton and Icke and other Finavera insiders and shareholders stand to make millions from having their four projects selected under BC Hydro's clean power call.
The four wind farms, according to a company news release issued after Hydro's surprising award, "have the potential to generate over $100 million annually in revenue once they are fully operational." Those are pretty impressive revenues, especially considering that the company has been unable to generate any receipts since its inception in late 2006.
Accenture: a brief history
Accenture has its roots in the 1980s and 1990s, a period that saw extensive consolidation and realignment amongst the world's biggest accounting firms. After numerous mergers and acquisitions, the largest by the end of the century had become "the Big 5" -- Ernst & Young, Deloitte & Touche, Peat Marwick, Pricewaterhouse Coopers, and Arthur Anderson.
A decade or so earlier, the latter firm had established a management advisory division, Anderson Consulting. Before long, the consulting entity had grown to a size (in terms of revenues and employees) that rivaled its parent. Acrimony ensued amongst the principals over an appropriate division of the spoils.
Events in 2001 proved momentous. Arthur Anderson became ensnared in the infamous Enron scandal and was subsequently convicted of various criminal offenses. After dissolution, bits and pieces of the firm were acquired by the other accounting giants, which became the "Big 4."
Anderson Consulting severed all ties with Arthur Anderson and renamed itself as Accenture. In the summer of 2001, the firm was listed on the New York Stock Exchange.
Although the bulk of the consulting company's business was (and is) done out of its offices in New York and Chicago, the firm's headquarters initially was located in Bermuda, allegedly to minimize U.S. taxes. In 2009, the company moved to Ireland and became Accenture plc.
Accenture and BC Hydro
The year Arthur Anderson imploded and Anderson Consulting became Accenture also witnessed the election of Gordon Campbell's BC Liberals to government in British Columbia. Campbell had campaigned on the promise to protect from privatization BC Hydro and Power Authority, the so-called "jewel" among B.C.'s Crown corporations. But within a few months after taking power in May of 2001, the Campbell government instructed Hydro to issue a Request for Expressions of Interest (RFEI) to find a private-sector firm willing to take on such tasks as billing, human resources, office management, payroll, purchasing and information technology, to mention just a few.
By the spring of 2002, Hydro had selected Accenture from amongst 19 applicants. The deal, signed nearly a year later on Feb. 28, 2003, committed B.C.'s biggest Crown corporation to paying a newly-created Accenture subsidiary -- Accenture Business Services of British Columbia Limited Partnership (ABS) -- headed by Peter Leighton, a total of $1.45 billion over a 10-year period.
BC Hydro soon transferred nearly 1,600 staff to the new entity, which boasted a board of directors composed of three Hydro and four Accenture executives. Among the former were Larry Bell (then-chair of the Crown corporation), Bob Elton (later BC Hydro's president and CEO, now retired), and Jay Grewal (then-Hydro's director of business development, a BC Liberal appointee to the board of governors at UBC, and now Accenture's managing partner).
The latter's representatives included John Icke, Mary Tolan (who since has become head of an Accenture off-shoot, Accretive Health in Chicago), Etienne Deffarges (also now with Accretive Health) and David Harrison.
Leighton was Accenture's signatory on the privatization contract.
Accenture's billings climb to more than $1 billion
The contract between Hydro and Accenture committed the Crown corporation to paying ABS approximately $150 million in 2003/04; $141 million in 2004/05; $134 million in 2005/06; $127 million in 2006/07; $125 million in 2007/08; and $614 million thereafter. (All figures in 2003 dollars.)
Actual payments appear to be running well in excess of those figures, however. In 2003/04, instead of $150 million, Hydro actually paid ABS nearly $206 million. The next year, as opposed to the contracted $141 million (discounted), Hydro paid ABS almost $165 million.
In the first six years of its contract with the province's largest Crown, Accenture Business Services has received payments totaling in excess of $1.1 billion.
The ten-year contract between Hydro and ABS is set to expire in the spring of 2013, mere weeks before the next scheduled provincial-general election.
Among many bidders, Finavera wins big
In 2003, at about the same time that BC Hydro was moving employees and operations to Accenture, the Campbell government continued to reshape British Columbia's "jewel" Crown by passing legislation that hived-off the corporation's transmission lines and other operations to a newly-created entity, BC Transmission Corporation.
BC Liberal efforts to slim-down Hydro resumed in the summer of 2008, when the Crown corporation issued a "Clean Power Call," asking interested private-sector firms to submit proposals "for the supply of electrical energy qualifying as clean or renewable electricity ... from Projects located in British Columbia."
Up to 5,000 gigawatt hours per year was to be purchased by Hydro from so-called independent power producers. Seventy-five such companies -- including Finavera Renewables Inc. -- quickly registered as proponents.
More than a year later, in November 2009, the Crown corporation announced that it was studying 47 projects -- ranging from run-of-river hydro, to wind farms and waste-heat -- submitted by 31 private-sector companies. Four were from Finavera.
Finally, on March 11, BC Hydro announced that it had awarded Electricity Purchase Agreements for more than 2,400 gigawatt hours to 19 proposals submitted by 10 proponents.
Little-known Finavera snagged four of the EPAs, for a total 813 gigawatt hours annually -- about one-third of the total -- of wind-generated electricity.
Icke joined Finavera board in 2007
John Icke was president of Accenture Business Services for Utilities from February 2003 until March 2005. He then left to devote his efforts to a personal consultancy, JRI Strategy Consultants.
One of the companies he worked with was Longview Capital Partners, which in December 2006 engineered a reverse takeover whereby Finavera Energy Canada Inc. -- a subsidiary of a company based in Ireland (where Accenture plc's head offices have since been relocated from Bermuda) -- amalgamated with the publicly listed Cascade Minerals Inc. The new company began trading as Finavera Renewables Inc. on the TSE Venture Exchange in January 2007.
By December of that year, Icke had joined Finavera's board of directors, and a few weeks later, in January 2008, he became president and chief operating officer of Longview Capital.
According to a company news release dated January 4, 2007, Longview (which has since changed its name to Resinco Capital Partners) then owned as many as 8.9 million shares in Finavera Renewables.
Icke personally had acquired 200,000 of Finavera's common shares in early 2008, at about the same time that he joined Finavera's board and officially began working at Longview. He sold those shares (at a small loss) in December 2009, but still owns options to purchase as many as 800,000 common shares before their expiration in December 2012.
Peter Leighton joined Finavera as president and chief operating officer in October 2008, and in the summer of 2009 he acquired two million of the company's common shares. He also owns 200,000 options and two million warrants.
Stock tumbled, deficit passed $41 million
The price of Finavera Renewable's shares fell badly after it began trading in January 2007. The stock traded as high as 83 cents upon opening, but ended the year down at 34 cents. By the close of 2008, the company's shares had fallen to just four cents, and in February 2009 slipped further to three pennies.
At the beginning of 2010, Finavera's shares were trading in the five-to-six cent range, but on March 12 -- one day after the company's four wind-farm projects won approval from BC Hydro -- they spiked as high as 18 cents.
The company's plummeting share price accurately reflected Finavera's on-going financial struggles.
In the company's most recent annual report (for 2008/09), it was reported that Finavera's financial statements had been prepared "on the basis of accounting principles applicable to a going concern ... [but] there are conditions and events that cast significant doubt on the validity of that assumption."
Mostly that was because Finavera "has not generated any income and relies entirely upon its shareholders, investors and related parties for financing."
It added, "The Company has incurred losses since inception. At December 31, 2008, it has a working capital deficiency of $4,561,614, shareholders' deficiency of $4,496,699, and has an accumulated deficit of $38,459,685."
Finavera's latest financial report, for the nine months ended on Sept. 30, 2009, shows the company's accumulated deficit climbing past $41 million. Furthermore, it looked to be burning through cash at the rate of nearly $120,000 each month, and had cash reserves of just $334,075.
At the beginning of this year, Finavera seemed to be operating on fumes. The company gained some breathing space in February by closing a private placement which raised $142,000 from the sale of more than 2.8 million units of shares and warrants at five cents apiece.
A golden opportunity
Then, on March 11, everything changed. With BC Hydro's surprising award of four Electricity Purchase Agreements, Finavera's prospects have been transformed from bleak to golden.
The capital cost of the four wind-farms is estimated at $800 million. With yearly revenues projected at above $100 million, Finavera -- according to this writer's rough calculations -- stands to make annual profits of $25 million or more over the course of a 30-year contract with BC Hydro.
As Accenture -- and Peter Leighton and John Icke -- discovered in 2003, it can be extraordinarily profitable to secure regular, long-term payments from BC Hydro. Now Finavera -- under Leighton's and Icke's guidance -- stands to similarly enjoy huge financial rewards.