MMC Energy: A Delicate Unwind

Here's a quick reason to stay away from a stock - the company's website touts "Where the Energy Industry....Meets Walls Street."



...Moving on. MMC Energy's (MMCE) purpose was to acquire and operate "peak-energy" power assets in Southern California, a market that is often starved for electricity. The idea was for the company to purchase assets on the cheap from distressed companies - which they did a fine job of, purchasing one plant for a tenth of what is was built for:

"We acquired and then re-commissioned the facilities for a total cost price of approximately $5.7 million, representing a fraction of the original $57 million cost to construct the facilities in 2001.
We tested and repaired all of the key equipment, renewed all of the required operating permits, and fully re-commissioned the facilities in June 2006, in time for the critical summer market."

MMC's plants power up in a hurry (10minutes), and would only be operated at times of extreme energy needs, thus garnering premium pricing. However, California's energy market is a difficult thing to navigate, and the company also didn't see the demand they needed. The firm's state of financial distress also worried the California Energy Commission enough that they denied the company a permit to operate a facility.

"Due to the recent stresses in the financial markets, coupled with depressed electricity prices, it has become increasingly difficult for the Company to continue to execute its acquisition growth strategy. Furthermore, the California Energy Commission (the “CEC”) issued its Final Decision in June 2009 denying the Company’s Chula Vista Energy Upgrade Project the required permit to proceed, in what the Company believes to be an unprecedented reversal of the CEC staff’s Final Staff Assessment in full support of the Company’s application. The Company has chosen not to appeal the CEC Final Decision based on its assessment that there is an extremely low probability of success in an appeal."

MMC Energy (MMCE) is winding things down as it has admitted its strategy failed. On a positive note, they appear to be doing their very best to provide common stockholders with some value. The reason people continue to own the stock is because they'll receive a portion of the liquidation of MMC's remaining assets - two GE turbines. MMC prepaid for these, so they previously listed these on the balance sheet as "long term deposits" - certainly something that would give investors pause as they peruse the balance sheet for value.



Fortunately, as of the Jun09 10Q, the company took delivery and reclassified the turbines as PP&E (Property, Plant & Equipment), a step closer to monetizing the assets for shareholders. Based on today's $1.41 stock price, the company is valued at about $20million -->> accounting for the anticipated sale of those assets, minus some "winding-down" costs as the company retreats from the public markets. An unfortunate situation, but I highlight it as a fan of management that is trying to salvage a little money for shareholders.