Category Archives: Utilities

Orbital Infrastructure files for bankruptcy

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Orbital Infrastructure Group logo

Orbital Infrastructure Group has filed for Chapter 11 bankruptcy. The company, based in the Galleria, has been struggling for a while. It has negative equity of $155 million and $306 million of debt obligations.



The company was formed in Colorado in 1998 to develop thermal management solutions. In 2008, it moved its head office to Oregon with the acquisition of a business that manufactured power supplies, transformers and industrial controls. It began trading on the NASDAQ in 2012. In 2022, OIG had revenues of over $300 million but has made operating losses for the past 10 years.

OIG moved its head office to Houston in 2020, following the appointment of Jim O’Neill as its CEO. He spent 17 years at Houston-based Quanta Services, including five years as CEO before leaving in March 2016. After his appointment, the company pivoted to energy infrastructure services.

Losses galore

At the time of his appointment in 2019, the company had no debt! However, there have been a series of disastrous missteps.

  • The company bought Reach Construction, a start-up utility-scale solar construction contractor in April 2020 for $11 million. The business was loss-making and lost $4 million in its first nine months after acquisition. The company then made the decision to scale up the business to take on larger projects.
  • In October 2021, the company formed a joint venture to complete two fixed-price solar energy projects in Alabama and Arkansas. For 2022, Orbital’s share of the losses were $54 million! In April 2023, the company agreed to pay its JV partner an additional $34 million so that the partner could finish the projects. The $34 million has not yet been paid and is part of the $306 million debt obligations.
  • In November 2021, the company bought Front Line Power Construction for $219 million, mostly paid in debt ($105 million) and loan notes ($86 million). The assets acquired included $70 million of goodwill and $108 million of intangible assets.
  • While the performance of Front Line has been reasonably good, the solar panel project losses triggered a large decline in Orbital’s stock price in 2022. In turn, that triggered a goodwill impairment that caused all the Front Line goodwill to be written off.
  • The company made four other acquisitions in 2021 and 2022. While they performed okay, they undoubtedly caused management distractions. The stock price reduction also caused another $26 million goodwill impairment.
  • The legacy gas systems business in the UK was sold in 2021, resulting in an impairment of $9 million.
  • An unnamed customer, one of OIG’s largest and most profitable, started its purchases from OIG in 2023 as concerns over the financial stability of the company mounted.

Front Line Power and Gibson Telecoms (one of the 2021 acquisitions) are in the process of being sold and are not part of the bankruptcy proceedings.

Well-paid executives

For a relatively small company, OIG has some highly paid executives.

  • Mr. O’Neil has a base salary of $800,000.
  • William Clough, Executive Chairman and former CEO, is paid $850,000
  • CFO Nick Grindstaff gets $650,000. Mr. Grindstaff also gets a yearly guaranteed bonus of 100% of base salary.

SEC filing – bankruptcy

 

Crown Castle to cut headcount by 15% and close offices

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Crown Castle, based near the Galleria, has announced it will cut its headcount by 15% (approx 750 jobs). It will also discontinue installation services as a product offering within its Tower segment. The company will incur one-time restructuring charges of approximately $70 million (mostly severance).



In addition, the company said it would consolidate office space and incur a charge of $50 million. That’s for accruing remaining lease obligations and writing off leasehold improvements. The company didn’t publicly disclose which offices were affected but an anonymous post on ‘TheLayoff.com’ stated that 13 regional offices were closing. That post also said that, if employees in those offices didn’t work for that specific region, they would have to move to Houston or leave the company.

Crown Castle has said that the mobile phone operators have slowed down tower construction activity by 50% in the second quarter as they complete the major part of their 5G investment roll-out.

The company owns and operates 40,000 large cell towers, 120,000 small cells and 85,000 miles of fiber. The company has revenues of around $7 billion, 90% of which comes from the rental of its infrastructure.

The other 10% of revenue comes from Tower Services with about 55% of that from Site preparation and 45% from installation services. It is the latter that is being discontinued. Unlike the rental business that has high margins under long-term contracts, services have lower margins (~30%) and volumes are more volatile.

Elliott Management

Back in 2020, activist investor Elliott Management took aim at Crown Castle, believing that it had under-performed because it invested heavily in Fiber, which had a return on capital of 3%. It also said the board was too insular. At the time, 8 of the 11 non-executive directors had served for at least 13 years and included two former CEOs.

Elliott launched its campaign with great fanfare in June 2020 and Crown Castle quickly responded by replacing three of its non-execs. However, the company didn’t make any other major changes and Elliott appeared to quietly drop its campaign soon thereafter.

At that time, Crown Castle’s market capitalization was $71 billion. It is currently $47 billion.  The company’s largest customer is T-Mobile. Its long-term growth prospects took a hit following the merger of T-Mobile and Sprint as the combined customer required less tower rentals.

That leads me to wonder if Elliott will come knocking on the door again, like they did recently with another Houston company, NRG. The Fiber business still earns a single digit return that is below the company’s cost of capital.

For good measure, today the company also announced two new non-exec directors. That will mean 5 out of 12 will have been appointed in the past three years.

SEC filing – 8-K – Restructuring

 

NRG replaces CFO as it faces pressure from activist investor again

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NRG Energy, which has its head office in downtown Houston, has announced that Bruce Chung will replace Alberto Fornaro as its CFO. Mr. Chung is currently the VP of Strategy and M&A and is based in New York. Mr. Fornaro will stay on in an advisory capacity until September 1, 2023.



NRG is an integrated power company that has most of its retail customers in Texas. For a long time it had dual headquarters in New Jersey and Houston. This arose after NRG bought the retail electricity business of Houston-based Reliant Energy in 2009.  The company also bought Houston-based Direct Energy from BG in January 2021 for $3.7 billion. It currently has a market capitalization of $7.5 billion.

In December 2022, NRG agreed to buy Vivint, a smart home platform company, for $2.8 billion in cash. Investors didn’t understand the strategy, the stock plunged 15% and hasn’t recovered.

That attracted the attention of activist investor, Elliott Investment Management, who took a 13% stake and sent a letter to the directors last month, demanding that they make changes. This isn’t the first time that Elliott has taken an interest in NRG. In 2017,  Elliott took a stake in NRG after a similar diversification strategy had left the company with high debt. Elliott worked with NRG to refocus the company.

Mr. Fornaro joined as CFO exactly two years ago. Prior to joining NRG he was CFO at Coupang, a Korean e-commerce company. He joined in February 2020 and left by December for reasons unknown. Coupang went on to complete its IPO in March 2021 with a $60 billion valuation.

Mr. Fornaro had a base salary of $737,760 and a received a $1 million sign-on bonus (half paid when he joined, half in June 2022).

The current filing doesn’t explicitly state his severance but according to the recent proxy statement, he will receive 18 months of severance ($1.1 million).

Mr Chung has been with the company since 2008, except for a 7 month stint in 2016 with an investment firm. He has worked in both Houston and New Jersey. He will receive a base salary of $700,000.

SEC filing – NRG Energy Chung CFO

Centerpoint appoints new CFO

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Centerpoint Energy (market cap $18 billion) has appointed Chris Foster as its new CFO, effective May 5. He replaces Jason Wells, who was promoted to COO in January.



Mr. Foster joins from PG&E, a publicly-traded electric utility company (market cap $32 billion) that serves central and northern California, where he had been CFO since March 2021. He joined PG&E back in 2011. Mr. Wells was the CFO at PG&E before Mr. Foster.

Mr. Foster will receive a base salary of $700,000 and an equity award worth $3.9 million which will vest on his first and second anniversaries of the grant date. He will also receive relocation assistance to move to Houston.

To replace Mr. Foster, PG&E appointed Carolyn Burke as CFO. She has Houston connections, having been the CFO at Chevron Phillips Chemical Company from February 2019 to September 2022. Chevron Phillips is a jointly owned by Chevron and Phillips 66 and has its head office in The Woodlands.  She has been working as consultant to PG&E since January.

For many years, Ms. Burke worked at Dynergy and also had a spell at NRG Energy. She will have a base salary of $725,000, a signing bonus of $400,000 and $400,000 in restricted stock units.

SEC filing – Centerpoint CFO

Quanta Services promotes CFO to operations role

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Quanta Services has promoted CFO Derrick Jensen to Executive VP, Business Operations. The company is the third Houston-area public company this week to promote its CFO, following Halliburton and US Well Services.



Jayshree Desai moves from Chief Corporate Development Officer to CFO. Both changes are effective July, 2022.

Quanta designs, installs, repairs and maintains energy and communications infrastructure. It has revenues of $13 billion and a market capitalization of $17 billion.

Mr. Jansen has been with Quanta since its inception in 1997 and has been the CFO for the last 10 years.

Ms. Desai joined Quanta in January 2020. She was previously the founder of a renewable energy company focused on utility-scale wind, solar and storage development and COO of a electric transmission development company. Prior to that, she was CFO of EDP Renewables North America.

No new compensation arrangements for either executive were disclosed.

SEC filing – Quanta CFO change

 

NRG moves corporate office to Houston as it names new CFO

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NRG Energy has announced that Houston will serve as the company’s sole corporate headquarters. Previously, the company had dual headquarters in Houston (Operations) and Princeton, New Jersey (Corporate).



 

NRG is an integrated power company that has most of its retail customers in Texas. The dual headquarters arose after NRG bought the retail electricity business of Houston-based Reliant Energy in 2009. It currently has a market capitalization of $8.6 billion.

In January of this year, NRG bought Houston-based Direct Energy from Centrica for $3.6 billion in cash. The company forecast it would achieve $300 million in synergies by 2023 and the corporate office rationalization is part of that plan.

New CFO appointed

NRG also appointed Alberto Fornaro as its new CFO. He replaces Kirkland Andrews who resigned in February to become CFO at Evergy, based in Kansas City.

Mr. Fornaro has a diverse and interesting background. An Italian citizen, he joined Coupang, a Korean e-commerce company in February 2020. However, by December, he had exited that role for reasons unknown. Coupang went on to complete its IPO in March 2021 with a $60 billion valuation (the largest in the US so far this year).

Prior to Coupang, he was CFO for nine years at International Gaming Technology and the CFO of Doosan Infracore Construction Equipment, which is based in Korea. His early career was spent at Fiat and CNH Global, an agricultural equipment business whose majority shareholder is Fiat.

Mr. Fornaro will receive a base salary of $725,000 and a $1 million sign-on bonus (half now, half in June 2022).

Impact of Texas winter storm

NRG also disclosed that the financial impact of Winter Storm URI was $967 million. The main components of this were;

  • $393 million from a bilateral hedge in the Direct Energy hedge book with a counterparty that did not perform.
  • $95 million due to ERCOT default allocations
  • $395 million due to ERCOT’s management of the grid (remember later that week, ERCOT kept the market clearing price at the cap, even though there was 10 gigawatts in reserve)
  • customer bad debts of $109 million

In case you were wondering who the winners were from the winter storm, Dallas-based pipeline company Energy Transfer announced a $2.4 billion gain from the event, whilst Kinder Morgan booked a $1 billion gain.

SEC filing – NRG CFO

Centerpoint Energy appoints new CFO

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Jason Wells has been appointed the new CFO of Centerpoint Energy. He replaces Xia Liu, who bolted in May, after less than a year to become the CFO at WEC Energy. Kristie Colvin, the interim CFO, reverts to her previous role of Chief Accounting Officer.



Mr Wells joins from PG&E Corporation, the embattled California utility. He joined PG&E in 2007 and became CFO in January 2016. PG&E filed for bankruptcy in January 2019 and exited in July 2020, with a newly-reconstituted board. 11 of the 14 directors are new. The CEO, Bill Johnson, stepped down on June 30, having been in the role for only 15 months. The company had also announced plans to move its head office from San Francisco to Oakland.

Mr Wells will receive a base salary of $650,000 and a sign-on equity award of restricted stock units worth $1 million, that will fully vest in two years. The company will also buy his residence in San Francisco and pay for relocation expenses.

Centerpoint appointed Dave Lesar, the former Halliburton CEO, as its new CEO on July 1. Under pressure from activist investor, Elliott Management, the company is slimming down to become more of pure-play utility company.

SEC Filing – Centerpoint Wells appointment

 

NRG to buy Houston-based Direct Energy

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NRG has agreed to buy Houston-based Direct Energy from Centrica for $3.6 billion in cash. The company expects to save $300 million in synergies, much of it from the elimination of duplicate headquarters and back office functions.

NRG is an integrated power company that has its head office in New Jersey. It has an operational head office in Houston as most of its retail revenues are in Texas. Its generating capacity is split more evenly between Texas, New York, Connecticut, Illinois and California.



Direct Energy was acquired by UK-based Centrica in 2000 for $912 million. At that time, Centrica (formerly a nationalized company called British Gas) was looking to grow internationally. Through Direct Energy, it subsequently acquired Clockwork, a home services franchise platform that operated brands such as One Hour Heating & Air Conditioning, Benjamin Franklin Plumbing and Mister Sparky Electric.

In recent years, Centrica has been losing market share in its home market. This forced it to retreat from its international operations. It sold Clockwork last year for $300 million.

When Direct Energy was acquired, its head office was in Toronto, Ontario.  The head office moved to Houston in 2012. It is one of the largest retail providers of electricity, with customers in all 50 states. The acquisition allows NRG to diversify its retail customer base.

NRG expects to achieve $300 million in synergies by 2023 while spending $220 million in one-off costs to do that. It doesn’t quantify how it gets to the $300 million but does state that there will be ‘facility savings with significant employee geographic overlap, co-loaded headquarters and branch offfices’.

The transaction is expected to close by the year end.

https://investors.nrg.com/events/event-details/business-update-call

 

 

Activist investor takes aim at Crown Castle

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[UPDATE 7/29/2020 – Crown Castle has bowed to pressure and is making changes. The Board will not now nominate a non-employee director who is 72 or older. That means three directors will step down in 2021 and two in 2022. The company also said it will be reviewing its executive compensation policy].

Elliott Management, the activist investor, has gone public with its criticisms of Crown Castle. In short, Elliott believes the company has under performed because it has invested heavily in fiber investments which give a low return on investment.



Crown Castle has a market capitalization of $71 billion, the largest of any company with its head office in Houston. It owns 40,000 wireless towers in the US. The company is one of the big three US players in wireless towers along with American Tower (market cap $113 billion) and SBA Communications (market cap $32 billion).

The company suffered an accounting embarrassment in February when it admitted it had overstated equity by $463 million as it had recognized too much revenue on tower installation services. It had to restate its financial statements for 2017 and 2018. The SEC are still investigating.

Elliott stated it had a $1 billion economic interest in the company and has been conducting a private dialogue with the management for the past month.

Elliott is very complimentary about the tower business. As a market, tower leasing is very profitable and highly cash generative. For the Crown Castle’s tower business, EBITDA minus capex has been over $2 billion a year.

Low return Fiber business

However, while the other two big players are expanding into international towers, Crown Castle made the decision to expand into fiber. It owns 80,000 route miles of fiber in the US, primarily through five acquisitions made since 2012 for a combined $11 billion. According to Elliott, capex is 149% of EBITDA for the fiber business. As a result, towers have a return on investment of 20%, while fiber has a return of 3% (compared to a cost of capital of 8%).

Moving the goalposts on the compensation plan

Elliott also takes aim at the current Crown Castle compensation plan. Currently annual bonuses are based on only two metrics – adjusted EBITDA and Adjusted Funds from Operations (AFFO) per share. AFFO is a complicated non-GAAP metric but it is basically net income plus real estate depreciation. The major difference between the two metrics is interest expense. Neither metric takes into account discretionary capex.

Elliott also complains that, in 2018, Crown Castle changed its Long Term Incentive Plan so that instead of measuring total stockholder returns against its peers, it switched to measuring against a mix of the S&P 500 and a goal of 11.5% annualized return. Given the high growth rates in the tower business, this lowered the bar for achievement.

Entrenched Board

Elliott would also like to see changes to the Board. 8 of the 11 non-executive directors have served for at least 13 years. This includes two former CEOs of Crown Castle. The Chairman of the Board, Landis Martin has been in that role since 2002.

The company responded by stating it had a proven track record for creating shareholder value. It didn’t commit to any changes but said it would remain open to having a continuing dialogue with Elliott.

Elliott presentation on Crown Castle

Crown Castle responds to Elliott

 

Centerpoint appoints former Halliburton executive as its new CEO

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Former Halliburton CEO Dave Lesar has been appointed the new CEO at Centerpoint Energy. He replaces Scott Prochazka, who left in February. He has been a non-Executive director since May.

Centerpoint is an electric and gas utility that serves more than 7 million metered customers in Arkansas, Indiana, Louisiana, Minnesota, Mississippi, Ohio, Oklahoma and Texas.



Mr Lesar joined Halliburton in 1993 and was Chairman and CEO from 2000 to 2017. For the past year he has been serving as the interim CEO at Health Care Service Corporation, the largest private health insurer in the US.

Compensation package

In his new role, Mr Lesar will receive a base salary of $1.35 million (same base as his predecessor). He will also receive a sign-on equity award of $1 million that will vest over three years. The company will also facilitate the relocation of Mr Lesar from Dallas to Houston by buying his Dallas residence for $1.2 million. (The head office of Halliburton was in Dallas until it moved to Houston in 2002).

Executive changes

Centerpoint has been in some turmoil recently. Former CEO Prochazka left with a cash severance payment of $7.3 million. He was also received the vesting of stock awards ($4.7 million) and the continued vesting of performance share units (could be worth up to $7.9 million).

In April, Xia Liu, the CFO, bolted after less than a year in the role, for a similar role at WEC Energy. Kristie Colvin, the Chief Accounting Officer, was appointed the interim CFO, pending the appointment of a new CEO.

In February, the company announced the sale of its Infrastructure Services and Energy Services divisions, in two separate transactions, for a combined $1.3 billion. The divisions made up about a third of Centerpoint’s total revenues, but weren’t very profitable. The company took a loss on sale of $234 million, after taking into account goodwill impairment.

Activist Investor

In May, Centerpoint also received new equity funding of $1.4 billion from a group of investors  that includes activist investor, Elliott Management. Elliott first invested in Centerpoint in 2015.

Elliott appears to be following a similar playbook to its investment in NRG Energy in 2017. NRG has its head office in New Jersey and its operations in Houston. It took over the retail operations of Houston’s Reliant Energy in 2009. It then overstretched itself after a series of acquisitions. Elliott’s pressure forced it into cost cutting and asset sales. I wouldn’t be surprised if Centerpoint is taken over within the next couple of years.

SEC Filing – Centerpoint appoints Lesar as CEO