Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  
TRANSCRIPT SPONSOR

MMC Energy, Inc (OTC:MMCY)

The Wall Street Analyst Forum

August 15, 2007 9:50 am ET

Executives

Karl Miller - CEO

Denis Gagnon - CFO

Presentation

Moderator

Good morning ladies and gentlemen. In our ongoing attempt to adhere to the published schedule, I'd like to introduce the next company in this morning's Alternative Energy and Clean Technology programs. We really do have a diverse group of companies today, and notably absent are some of the solar players and some of the biofuel players.

So we've got some of the companies from some other sectors that haven't got as much attention on Wall Street because they haven't been making the same volume of investment banking dollars, I would suspect. So, I think there are some of these segments that are presenting with us today, that represent some opportunities that -- they'll probably focus a lot more on by the sell side. This means that if you want to attend a conference now and not three years from now, I think there will be some of these companies in these sectors.

In any case, I'd like to introduce MMC Energy. They are a North American energy acquisition company, which primarily acquires and operates deep value power generation and associated energy infrastructure assets. The company is headquartered in New York City and traded on the OTC Bulletin Board in the US and the Deutsche Borse in Germany. The company creates long-term value for deep value asset acquisitions and hands on post-acquisition asset management.

The company currently owns power generation assets in Southern California and is pursuing an aggressive portfolio of acquisition and growth strategy, targeting power generation facilities and energy infrastructure assets, primarily in California, Texas, the Mid-Atlantic, and the Northeastern United States.

Without any further introduction, I'd like to introduce Karl Miller, Chief Executive Officer. He is accompanied by Denis Gagnon, Chief Financial Officer. And we will just ask the management during the Q&A session to repeat the question from the analysts and portfolio managers in the room, so the webcast attendees have the answer in the context of the question. Thank you.

TRANSCRIPT SPONSOR

The Wall Street Analyst Forum, a leading conference host for public corporations to address analysts/portfolio managers and professional investors, sponsors four annual conferences in NYC for large, mid and small-cap companies. Seeking Alpha readers may attend Wall Street Analyst Forum conferences free of charge if you pre-register. See the full conference schedule and attendance information.

Read all Wall Street Analyst Forum conference presentation transcripts here.

To learn more about sponsoring investor conference presentation transcripts see here.

Karl Miller

Hi, good morning. Let me also just start with one clarification, we are actually listed on the NASDAQ Global Market. We are a NASDAQ listed company. Okay, my name is Karl Miller; I am the Chief Executive Officer of MMC Energy. I'll give you a bit of a background on our company, what we do, what our strategy is, our core competency, and of course then Denis will tell you a bit about our financials.

We operate in the $300 billion power generation sector in the North American marketplace. We only work in North America today. The principals and the Board of Directors have been, and still are in many cases, Directors of many Fortune 500 companies. We work in the North American market solely. We target power generation assets, primarily natural gas fired. To date, we do not own any coal based assets and I could tell you today that we don't intend to own any in the near future.

Our niche in this very large, big, big market is actually the smaller cap power generation assets. We categorize it by two sizes, one is, what is the optimal transaction size for us? And the optimal transaction size per asset or per asset package is really sub-$100 million in assets. Then if you put that into a category of megawatts, the installed capacity of the assets we pursue, they are going to be in the sub-250 megawatt category. And if you look at the entire United States, I will give you a punch line number, there are over 1,550 sub-250 megawatt, primarily natural gas fired power plants on the ground, installed and operating today in some form or condition.

I will show you later some maps and some geographic regions, but you should take that away as a very large opportunity for MMC. That category of our asset is fragmented, it's owned by a variety of owners, utilities, IPPs, you've got industrial companies, financial service companies. You've got private equity firms, hedge firms in there. They all own a piece of this marketplace, and that fragmented ownership leads us to opportunities, because there is no cohesiveness in that small cap market. We will talk more about that.

And clearly with the turmoil today in the current financial markets, the mortgage backed, the interest rate market, we are seeing a lot of liquidity concerns from portfolio managers, who have had to liquidate good assets to cover bad debts and what we are seeing now is something starting to come out here and as recently in the last two weeks. So, we think our opportunity in the marketplace will be more robust, rather than less going forward.

We have a management team and Board of Directors that is, I think, extremely credible. All of us come from the Fortune 500 world, many of our directors are still on Boards of some of the leading Fortune 500 Energy Companies. And we formed MMC because we saw an opportunity, an opportunity in a market that was almost forgotten, so to speak, in the small cap power generation space.

The theme is large, people get bigger, the more capital you have, the more money you want to spend, the larger assets you want to buy, and what that does is it leaves behind the smaller assets and smaller portfolios I am going to talk about.

To-date, we are just getting the company moving. We bought three power plants in Southern California, we own them outright free and clear. They are debt free, they are cash flow positive, we'll talk to you about that. We've also announced two re-powerings of our assets in California. Chula Vista is a power plant. We've announced a 100 megawatt expansion in San Diego and also the Escondido Power Plant in San Diego. We've also announced a 45-megawatt expansion. And we are going to put GE LM6000 technology on the ground, we'll tell you about that as well.

So, in summary, before I move forward, we have raised additional equity recently. We put the company on the NASDAQ Global Market. We've announced several re-powerings. We have cash dedicated to that. We have cash dedicated to additional acquisitions and the company is now moving forward with executing those business plans.

Next slide just talks briefly about management. I won't spend much time here, this is all publicly available information, I encourage all of you, if you have any questions about our background. Certainly, our website has more detailed bios. But I am the CEO, Denis Gagnon is the Chief Financial Officer, and we have a very robust and healthy Board of Directors with experience in the energy market.

To talk briefly about some 2007 highlights, we have, starting in January, re-commissioned our third power plant called Mid-Sun. It's located in Bakersfield, California. It's situated in the heart of the oil and gas production zone. For those of you who don't know, Bakersfield and Kern County at California still produce well over 500,000 barrels of oil a day. It's difficult crude, you have to inject steam into the wells, and power plants in that region produce steam for the injection into the oil wells.

We believe Mid-Sun is another candidate to either expand the capacity or provide a heat recovery steam-generated package that could also provide more steam to the oil fields under long-term stable revenue contracts, in addition to the power revenues.

In January, we also sold over 55% of our eligible capacity in the California portfolio. This is resource adequacy capacity, regulatory capacity. This is not energy. This is not spinning reserves or ancillary services, which I'll tell you more about, $7.6 million.

In June, we also qualified our Mid-Sun facility for spinning reserve service. We provide a lot of the insurance from our assets to the market. We provide same reserve, which is aiming at power [grids], stored power. Our plants don't run a lot, as you shall see, but what they do is provide the standby power and we get paid very healthily for it.

We also completed our $50 million public offering in July, as well as a listing in conjunction with the NASDAQ Global Market. And of course, then we sold forward the remaining portion of our 2008 capacity. So that we are completely hedged now in our capacity revenue for 2008, energy and ancillaries are still open.

And then in August, we just filed the formal permit application for our Chula Vista repower and our extension to 100 megawatt, the expansion that I mentioned earlier. What's not on here is the Escondido permit application process, which will be a local permit application with the City of Escondido. Because it's 45 megawatts, it's below the 50 megawatt threshold. We do not have to take it to the State of California, we can go through local, conditional use permits. So, we'll go through it typically, like a local contractor's permit with environmental review.

I'll talk about our strategy and how we make money, and how we create value for our shareholders. The first and foremost is, we target power constrained regions across the US. As I mentioned, we typically want to be an insurance company in the power generation space, in the small cap assets. What does that mean? What that means is we target natural gas power peaking plants, in areas where there is limited transmission capacity, there is limited installed generation or you have old technology where it's problematic, it always trips and it fails. And the grid, in California's case, the California ISO needs reliable peaking capacity available to call upon in hot summer days, or when large power plants are down, or where there is congestion in the transmission grid. For example, San Diego is arguably, next to New York City, the most congested power market in North America. You could make a strong argument and the Department of Energy is going to say point blank that San Diego is a bottleneck, as a whole.

Southern California isn't that import-dependent. Not only are we hydro-dependent in North, we are also thermal generation dependent in the Desert Basin. Meaning, they've been depending on Arizona and other states to import power to the Southern California marketplace for many, many years. That time has come to change, because Arizona and Nevada are growing. They have their own power grid. Southern California is becoming a bigger stranded island. So, it's a power constrained region as we defined it.

And we also look at other areas, the Mid-Atlantic, the Northeast US, and certain parts of Texas. So, we are looking at these -- targeting these regions that have these true transmission congestion problems.

Also we target areas that have another demographic characteristic, which is where natural gas is on the margin, where natural gas is declaring the price of power. What does that mean? That means that the last incremental generation unit that comes on, sets the clearing price for the day, and that basically is California. It's part Texas, certain parts of Northeast and Mid-Atlantic. These are the regions that natural gas will set the incremental price of power. These are the regions that are constrained, these are the regions that we target.

We focus on deep value assets, because we focus on the tail of the market, the small-cap assets, the bottom of the funnel. They are overlooked by the large players. They just don't make sense for them. When you're running multi-billion dollar portfolios, you need to do $200 million, $300 million, $400 million deals, then lever your equity up and put your money to work and make it a $1 billion deal. MMC is not targeting that strategy. We would rather focus on the $50 million to $100 million transactions, lever them up and put those in our book and keep adding to that such that we target ourselves accumulating a $1 billion plus portfolio over time. But, we want to do it on small assets that have characteristics that are defined.

When you look at restructuring assets, that require their operations, many of the assets that we purchase today have not been operational or in mothball status. In fact, all three of our current plants were mothballed when we bought them. We then went through a recommissioning program, brought the assets back on line and then started cash flowing them and they are now cash flow positive at the asset level.

These are the types of characteristics that we look for. Cash flow and income statement optimization is the final piece, our business is going to be built on cash flow and we will be measured in the market on cash flow. And so, obviously, we are looking, as I'll talk to you about further, maximize the revenue stream and I will talk to you about capacity, ancillary services and energy.

And then finally, we partner with other corporates. We will partner with the renewable company, we will partner with financial institutions on the street, we will partner with anybody on the street that has a strategy that makes sense for us, where we can either preserve capital increase accretive earnings to our shareholders or where we are working in the same general direction.

I'll just touch briefly on this next slide. This tells you where the 1,550 power plants that are sub-250 megawatts are located in the key areas. What this map doesn't show you is Arizona, Nevada, but I will give you the punch line. Over 700 of those 250 megawatts power plants or below are located in California, Arizona, and Nevada. That is our core market. That is where we are building our business. It doesn't mean that we won't look at the Northeast in the Mid-Atlantic region, which I said we would, but we are spending a tremendous amount of time in the Desert Basin in the Southwest US. And California is a core competency; we know that market very well. That ought to give you a good metric to take away, which is that almost 50% of those assets are in the West.

The next slide just talks about the market multiples and metrics. This just tells you what I tried to mention earlier, which is that the large cap assets -- the large power plants are trading actually much higher. We show you this slide and these assets have actually gone up 10 to 12 times. That's a weighted average when you put utilities together with IPPs and blend it, that's a blended EBITDA multiple.

We can tell you for a fact that assets are trading at 15, 16 times EBITDA, large power plants, and even higher on forward earnings. That's a number that we don't want to chase. We want to be behind that number, have our stock pull in to that number, but we want to buy our assets at five times, six times, seven times EBITDA, and be well below the market threshold. And that's the market metric that we tell our investors that we want you to look at. Look at where we are buying our assets, look at where we are generating cash flow over time, as we grow the business, and look at where the market comparables are trading. And, you make the decision whether you like what we are doing or not.

Where we source our assets from, it's the same universe that large power plants and other large energy assets are sourced from. The financial investors, who have bought assets from distressed power companies and integrated utilities, over the last five or six years, obviously everybody in this room knows that the market -- the power generation market has been whipsawed from the 2000-2001 timeframe. We had multiple bankruptcies, multiple restructurings, some firms are still in bankruptcy, assets are still being liquidated. We've had a lot of recovery. The financial firms have made good money by buying those assets, and big mass portfolios were achieved and are starting to push them within that (inaudible). The current tough environment, where a lot of the leverage that these financial institutions are using, has been pulled from them by their banks, and by their broker dealers, that give them [house blinds], is putting more pressure on them to push out good assets to cover bad debts. And we see that happening in front of us right now. So, we expect more of our buys will be from the financial institution sector, the hedge funds or private equity funds and also, just the large banks that bought assets over the last five, six, seven years.

Utilities selling non-core assets. We think the utilities will still continue to push out their natural gas plants, the peakers and the mid-merit plants as they try to merge. They are going to try to continue to merge and be bigger. That's going to be a regulatory process, but as they stick their head up and say they want to merge, the FERC, and the state regulators will basically make them identify certain assets that will not give them monopoly power and those assets will be the gas plants, because they will not sell the coal plants, we know that.

The distressed energy companies out there and then the bankruptcy opportunities. We clearly are always watching for those, any time we can pick up assets in bankruptcy, we are always a buyer. Any time we can buy assets that are from distressed portfolios, we will do it. And clear example is Chula Vista, Escondido, as well as Mid-Sun, they were all bought from distressed portfolios or bankruptcy state.

How do we optimize our income statement and how do we reduce risk? This is something I really like to spend a lot of time on; because what we do is, we typically buy non-contracted assets. That's how we get the low purchase multiple. We buy assets that are tail assets, as I mentioned, the small cap assets. It doesn't mean we have an infinite risk appetite, it means we are being, I believe, prudent investors by targeting specific assets that do not make sense for other investors, large investors. Then getting in there, we work on it operationally, which we are very good at. We have an operating company called the MMC Energy North America. We are physical operators.

And then we basically, rebuild the cash flow statements and we'll swap out what inherently is pure market risk for investment grade credit risk, through forward capacity sales, through energy hedges.

Ancillary services, you can't hedge. It's a daily product that you provide to the transmission grid, so you fundamentally can't hedge it on a financial equivalent basis. But the energy and the capacity, we certainly can and we've been very successful to-date at reducing market risk and locking in nice rates of return. And if you do the math as a real estate example, because we have such a low basis position in our real estate, our power plants, we are able to go into the market and sell our capacity forward and energy when we so choose because we are not energy-dependent; we are really an insurance company. From a standpoint of selling capacity and ancillaries that gives us a lot of latitude. We don't have a lot of fixed costs to cover, we don't have that huge debt bubble on top of us. And [true 16:45] to be told that the company is fairly under-levered today, in fact we almost have no debt. We have negative net debt today.

That won't stay that way. We'll obviously take on more debt, but when you do the math you can see that what that equates to is us swapping market risk, the merger risk, the credit risk. And we have today all investment grade credit risk in our books; we don't have any certain investments grade credit risk as most (inaudible).

Further to that, I'll talk about the revenue strengths of three products that we sell. Only three products that we generate revenue from today. Capacity -- this is regulatory capacity, resource adequacy capacity, as it is called in California. It is not a call on energy, it's basically us having a power plant in the system available for the system in California. All we have to do is basically abide by the "must offer" rule, which means that we must throw it into the market everyday as an opportunistic plant. But it doesn't mean we have to run it, and nobody has a call on energy, it's just a system wide planning tool for basically the California Public Utilities Commission to make sure that there is enough installed capacity going forward in that market. And it's really driven around the 15% to 20% reserve margin metric.

Secondarily, ancillary services -- all of our plants are qualified for spinning reserve. For those of you who don't know what that is, the best way to think about it is 10-minute power. We provide insurance to the grid, so they have the right to call our power plants and we have to give baseload in 10 minutes. And we have to go through a series of testing qualifications.

Why is that important? Because we bid that into the market every day, we get paid every day for that. It doesn't matter whether it's hot, cold, or otherwise, it just matters that we are available when we bid that, and so we did.

Now there is a bell-shaped curve on that revenue, which means it typically spikes in the summer and the seasonal months. But we still get paid a payment every day. We never have a zero day, in ancillary services. That is a premium product.

Finally Energy, as I mentioned. We make most of our money from capacity and ancillary services today. Energy is an equity kicker for us versus other power companies that you may look at, IPPs large, medium, and small, to live and die on energy. We don't have to sell our energy, we can do fine; our equity returns are reasonable on our current capital base with our current portfolio. We look at energy as an opportunistic revenue stream for us. For example, if we get a call today, we got a little many heat wave going in at the Los Angeles Basin and it may be pushed on to San Diego. We would go until we call the supplemental energy market, we bid typically several hundred dollars of megawatt hours to be available on that; if we get picked up at current gas prices, we would make a nice rate of return for the hours run.

So, the point in the matter is we don't run a lot in our assets and I want to make that point, that's a big distinction and that's really the difference between the insurance portfolio model that MMC employs versus the pure energy model that many of IPPs employ. They live and die by energy, we don't, today.

Briefly talking about our structure, we setup what we believe to be a lean commercial structure that is scalable. What do I mean by that? What I mean is MMC Energy, at the top box Inc, is the holding company that's the NASDAQ listed company. This is where we basically house all the executive team, the asset management function, the engineers, the internal engineers and external managers. We drive most, if not all of our costs down to North America, which is our [whole], our asset-based company. All of our assets are owned by MMC Energy North America. They are direct subsidiaries. They are 100% wholly owned. There are no dilutive ties in there to-date, and that what we do is wrap around that, all of our operating contracts and our revenue contracts. So fuel/water, operations and maintenance, are our best guys. All of our capacity, ancillary service and energy contracts, to the extent that we have those. Our energy management services agreement where energy managers are 24-hour [guests], these are the people that dispatch them on the plants every day.

Energy Engineering Services Internal and External as well as all of our interconnection contracts. And what that means is we could put several thousand megawatts into the North America box, and really not stress our holding company with that much degree that it would be a concern for the streak, i.e. or burn rate or our holding costs, okay. And so, that model we think will be well-served in the next few years. Over time, as we grow, we may put more resources at the holding company. But today North America is the operating box.

I will just go briefly through our existing assets. Chula Vista and Escondido, first two acquisitions we made in San Diego. We bought these at very deep discounts. As I mentioned, we bought them from a bankruptcy state. We bought them at 1.3 times EBITDA at a forward run rate, that's fully re-commissioned or $65 an installed kilowatt. Why is that important? Because, the metric today is well over $1,000 an installed kilowatt. You cannot build a peaking power plant in California, in Southern California for less than $1,000. If you can you are in the money.

By the time you get your land, your permits, your equipment, your EPC work. Edison, to give you a great example, (inaudible) wanted this EPC and said, look, we are going to spend at least $1,000 for the four or five peakers that they had got for a request to build. They built four of them, one of them got tied up in a permitting matter, four of them were built. I can assure you that when they come out and publish their numbers, it will be well over $1,000. It just doesn't get any less than that.

So, what does that tell you? It tells you we are deeply undermining our real estate. So, when we talk about re-powering these two assets, we have a very low basis position to start with, and that is going to carry forward in our total costs, till we [refit]these assets when we put new technology on the ground.

Greatly forward, we sold capacity on these assets. We're hedged through 2008, and we've also got partial hedges through 2011 just on capacity. As I said, ancillary services and energy, we keep open. Why do we keep it open? Because we don't have to sell it. We are opportunistic. We can really get better returns for our shareholders by keeping it open and taking the market stakes. The capacity lost on our fixed cost covers our rent, so to speak, and then we let everything else stay open today.

As we re-power, we will sell forward long-term hedges, because we will be putting larger power plants in the line that have more efficiency rates, etcetera. So, these assets are accretive today. They will be accretive going forward, and that's why we are re-powering them.

Mid-Sun was our third acquisition. As I mentioned, this plant was brought back online in January. It was bought in November of '06, brought on line in January of '07. We've bought this for a little bit higher EBITDA, which we expect to be more of a [full] run rate. We are about five times EBITDA. 250 installed kilowatt. It's a great little plant. The GE LM2500 is remote start, it's a quick start. It's low fixed cost. We own it outright. We don't have any debt on it. It sits in the middle of the oilfields. Chevron is drilling 200 new wells right next to it. They are proven reserve wells. They are not holes in the ground that I have just spoken about.

It's a great little area; as I mentioned they produce over 500,000 barrels of oil a day in that region. So, we think that market is another forgotten market, Bakersfield, California, Kern County. A lot of folks don't pay attention out there. We like it. We think it's a place where we can develop more power plants, more opportunities for the firm. And anyway, we've hedged out some of our capacities as well here and again we have an expansion opportunity for another turbine underground, as well as a steam generator to provide service to the fields.

So in summary, where we are today versus where we are going with these current assets without new acquisitions. We have three power plants today, wholly owned 110 megawatts. Two of those plants are under re-powering or upgrade scenarios, all the permit applications are in process. We are targeting June 1, 2009 to bring those assets back on line under the new technology and until that time the current assets will cash flow and stay on line and they are accretive.

Where we wind up is from 110 megawatts to 161 megawatts, we will go to roughly 100 megawatts at Chula Vista, roughly 45 at Escondido and 22 at Mid-Sun. This is as is roughly 160 megawatts, 162 megawatts. And we would expect to have a much more robust EBITDA cash flow stream not only from longer term hedges, but also the additional megawatts. What this doesn't address is the fact that we are an acquisition company and that we are actually involved in additional acquisitions right now as well.

We haven't yet announced anything, but it's safe to assume that the company will be pursuing and moving on additional acquisitions. This is where things stand and it doesn't take into account new acquisitions, this as a disclosure.

With that, let me let Dennis pick up some of the financial disclosure issues and I will come back and answer some questions.

Denis Gagnon

Thanks Karl. And so for the second quarter just ended June 30, 2007, we had net loss of about $627,000 on a $1.5 million of revenues and year-to-date a net loss of little under $2.4 million on revenues of $2.6 million, and our EBITDA or adjusted EBITDA a loss of $525,000 for the quarter, and year-to-date approximately $1.4 million loss.

And for us we define adjusted EBITDA as the traditional measure of earnings before interest tax depreciation and amortization, as well as, we adjust for nonrecurring or non-cash compensation charges as well as the nonrecurring recommissioning charges, which are expensed through the P&L for GAAP reporting purposes.

What we view, given our business model of acquiring distressed assets, we view as part of our upfront investment cost if you will, for internal reporting purposes or IRR considerations. And so you should reduce that from the recurring cash flow run-rate basis. Then also for 2006, we have adjusted for in this reconciliation the nonrecurring merger and acquisition and financing costs from our May 2006 merger and reorganization when we went public last year.

So our revenue breakdown for the quarter consists of energy production of a $100,000 approximately, ancillary services of approximately $600,000 and resource adequacy capacity of approximately $791,000. And year-to-date the breakdowns are $118,000 for energy, a little over $1 million for ancillaries and capacity revenues of approximately $1.4 million.

And as Karl noted, as we operate peaking facilities, the energy production portion represents a relatively small component of our revenue stream, which is not traditional for the power generation space that we play in, and we rely more heavily on the ancillary and capacity components, which are the insurance or reliability product as Karl had noted.

And so capacity revenues for the second quarter also now include our Mid-Sun facility, which we just re-commissioned during the first quarter, and have just started to earn those capacity revenues going forward. So from this point forward, our -- we should have very consistent revenues on that basis. Those are fixed contracted revenue streams.

And the -- as far as the ancillary services go, we also just qualified Mid-Sun, as Karl noted for premium spinning reserve service. So we expect that going forward on a seasonally adjusted basis, where it will be – to have a better performance on the ancillary revenue line as well, and with that key accomplishment, we now have our three facilities as they currently are situated, up to their full run rate potential with the qualification for spin reserves.

And as Karl noted, it remains our plan to upgrade Chula Vista and Escondido to LM 6 – GE LM6000 technology, and that will actually represent a much more substantial boost to our revenue and cash flow going forward. But in the meantime, until that happens in 2009, we are at our full rate potential from these three assets.

And looking at our gross margins, gross profit for the quarter ended June is about $1.268 million and year-to-date $2.2 million, and that comes from a gross margin of about 92% on capacity revenues and 85% on ancillary revenues. Those are typically very high margin services, and the capacity revenues are fully contracted, those will not move very much at all. The ancillary services are somewhat subject to market fluctuation, but should remain very strong.

The energy component year-to-date is about 13% and that is very volatile and is much more subject to market conditions and market movement. More importantly, we look at the gross margin dollars, so we can drive from each of these revenue streams, and while we are in the off-peak period for the first two quarters, we expect that to grow considerably in the third quarter. Our business remains today very seasonal, and with the first quarter being the slowest and the third quarter by far the peak period for us.

We can report that we got off to a very good start in the third quarter. We had a very strong July, but our business is largely dependent on the weather and other market conditions such as transmission, -- power grid transmission constraints. And that's what drives our revenues, particularly during the third quarter, so we will, if we continue to have those types of market-disruptive events, we will continue to have a good quarter.

And looking at the expense side of the equation, our operations and maintenance expenses of about $797,000 for the quarter, that includes our annual maintenance cycle, which typically occurs in the second quarter, which is an off-peak period in the business, and when we typically do the annual maintenance to get ready for the peak summer period. So, we expect that number will trend down for the remaining three -- for the next three quarters.

Our re-commissioning expenses, as noted these are the one-time costs that are associated with getting our plants up and running to their full potential. So, we are just at the tail-end of completing our re-commissioning for the third Mid-Sun facility. Those will be non-recurring going forward on these three assets we own today, but we expect to have those types of expenditures in the future, as we acquire additional assets.

And then our G&A expenses, that represents our corporate overhead at the MMC Energy Corporate Holding company, as Karl described our structure, and our results for the quarter were about $1 million adjusted for the $75,000 of non-cash compensation charge, that is right about in line with what we expect to see going forward on a recurring basis.

And then looking at the wholesale, we did have an unusual other income for the second quarter, just a recovery of some expenses from a previous financing effort before we decided to go forward with -- instead with the recently closed public offering.

And looking at our balance sheet, we have, as of June 30th, just $2 million of cash reflected, as Karl noted, we just closed on our financing July 5th. So that both our cash reserves and book value will be up considerably based on the $46 million net that we raised from that public offering, and that should be more than sufficient to cover our offering, including the final Chula Vista and Escondido upgrades that Karl described, as well as giving us some dry-powder for future acquisitions going forward.

And with that I will turn it back over to Karl to wrap up, and we will take a few questions.

Karl Miller

Okay. Any thoughts or questions for us over here?

Question-and-Answer Session

Unidentified Audience Member

(Question Inaudible)

Karl Miller

They were re-commissioned, that’s right.

Unidentified Audience Member

(Question Inaudible)

Karl Miller

They have.

Unidentified Audience Member

They have.

Karl Miller

They were re-commissioned in June 2006.

Unidentified Audience Member

(Question Inaudible)

Karl Miller

Okay. So, let me just make sure, I’ll repeat the question just so everybody understands it. Number one was, were the Chula Vista and Escondido power plants re-commissioned? The answer is yes. And the second question is, are they connected to the grid?

Unidentified Audience Member

Right.

Karl Miller

Yes, they are. They are connected to San Diego gas & electric local transmission grid. And they are operational, they are cash flow positive, as Denis mentioned today.

Unidentified Audience Member

(Question Inaudible)

Karl Miller

Okay. The question is -- I think, you are referring to efficiencies of the other facilities, is that…

Unidentified Audience Member

(Question Inaudible)

Karl Miller

Okay. Well, let me…

Unidentified Audience Member

(Question Inaudible)

Karl Miller

Okay.

Unidentified Audience Member

(Question Inaudible)

Karl Miller

Let me answer this. Okay. The question, I am going to interpret your question.

Unidentified Audience Member

Okay.

Karl Miller

Is -- are the plants efficient, and is there some bifurcation between the technology of the plants as is and some market standard best practices? Okay. The plants are high-heat rate gas fired peakers. They are in fact wind turbines. They are high-heat rate. They are not the most efficient turbines, okay. But remember they are not supposed to be. They are as configured, because we make most of our money by just being available for capacity and also ancillary services. We are the emergency provider of power from those two plants, for example.

We don’t want to run them 16 hours a day. It's not efficient to run them for 16 hours a day. We don’t mind running them 8 hours a day in the summer, when the market is tight and the prices are right. So, they are for emergencies, they are standby plants.

Second questions was, is there any bifurcation or was there any difference between the technology, the digital technology. I would assume that you are referring to our control technology in our power plants versus the market?

Unidentified Audience Member

(Question Inaudible)

Karl Miller

The power plant to the grid is homogenous, just like it would be from any other third generator coming into the grid. So, you have to be balanced with frequency and you have to basically abide by best standards that the utility provides. So, we have to be synchronized to the grid as any other generators. There is no distinction there. But, I will tell you that the control configuration of these assets is best practice. These assets are in good shape.

Unidentified Audience Member

(Question Inaudible)

Karl Miller

Yes, Bakersfield is in very good shape as well, General Electric technology. Yes, sir.

Unidentified Audience Member

(Question Inaudible)

Karl Miller

Okay. Certainly, the question is could we just give some color on future debt financings regarding, I assume, Chula Vista and Escondido, the re-powering?

Unidentified Audience Member

-- and your business?

Karl Miller

And our business. Okay. I will answer in general, and I will let Denis weigh in on his thoughts on project financing for Chula Vista and Escondido. In general, we target low fixed cost environment on our assets, i.e., we try to buy assets where we don't have to put a lot of leverage on initially, on existing asset acquisitions. However, we do realize that going forward we will have to take on more debt, because the practical side is we have to over-equitize our portfolio, and we have to be in the market too much. So, today we are targeting anywhere from 60% to 70% on our as is where is acquisitions, if you will. So, if you go back and say, I showed you 1,550 power plants that are sub-250 megawatts across the U.S., and in that category of assets you would expect to see us over the next few years buy some of those plants, not all of them, just a couple, as we start to clip. You would assume that we would model then 60% to 70% leverage on those as an average weighted factor.

Unidentified Audience Member

Per transaction?

Karl Miller

Per transaction, per project company. Now we are not talking portfolio of the holding company because as we gather more assets, we may seek then to do portfolio-wise a bond issue or something of that nature. I am just talking regarding acquisitions, project or company acquisitions. The current market environment is such that, this clearly reflects the quality mentality right now on the street, given what's happening with the sub-prime market, the mortgage market, interest rate segment, et cetera. What we have observed and I think this is really just a well known proven axiom, is if you have good quality investment grade off-take contracts, you can always finance your business. In other words, if you have a BBB or better off-take contracts whether it’s capacity or energy or both, you are going to be able to basically lever off of the investment grade spread with a little bit of a cushion. That’s something that won't change. Good investment grade off-take contracts are always going to allow us to finance our business. What we’ll -- I think will become more important for us, is how we plan to project finance the Chula Vista and Escondido projects on a project finance basis, but probably I am going to let Denis give you his thoughts there.

Denis Gagnon

Okay. And I know we need to wrap up quickly here, but I did just want to cover -- Karl sort of touched on that at the end. As far as our debt financing goals and leverage given the market conditions; the key is that we will be building our, let’s say Chula Vista and Escondido projects in particular off the back of a long-term contract from a very high credit quality counter party. And when I view the market conditions I understand then that there is a bit of a slight quality right now, so that - those will actually be quite attractive financing opportunities for our lenders. The challenge will be in more -- in trying to lever beyond that and take down additional subordinated debt financing, and that’s expected to be a very small portion of our capital structure and that's the piece that's most at risk in the current market. Okay. And I think, we are done here. Thank you.

Karl Miller

Thank you.

TRANSCRIPT SPONSOR

The Wall Street Analyst Forum, a leading conference host for public corporations to address analysts/portfolio managers and professional investors, sponsors four annual conferences in NYC for large, mid and small-cap companies. Seeking Alpha readers may attend Wall Street Analyst Forum conferences free of charge if you pre-register. See the full conference schedule and attendance information.

Read all Wall Street Analyst Forum conference presentation transcripts here.

To learn more about sponsoring investor conference presentation transcripts see here.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: MMC Energy: The Wall Street Analyst Forum Presentation Transcript
This Transcript
All Transcripts