Fermi America LLC (NASDAQ:FRM) experienced a 4.4% decline in its share price on Thursday following publication of a report by the short seller Fuzzy Panda. The report alleges that the air permit underpinning the company’s datacenter development is subject to a lawsuit that challenges the Texas Commission on Environmental Quality’s approval process.
According to Fuzzy Panda, the permit is a prerequisite for installing gas turbines and energizing the datacenter site. The short seller’s report alleges the legal challenge centers on the selection of air quality monitoring data used in the permitting process. Specifically, the lawsuit reportedly claims Fermi relied on pollution monitors located in San Antonio and Lubbock rather than monitors situated closer to the project site in Amarillo and Hobbs.
The report further asserts that Fermi’s air quality modeling showed unlawful pollution levels in several locations, including Amarillo, Borger, and at the Pantex facility. Fuzzy Panda cited legal opinions suggesting the permit could be left unresolved for an extended period: one to two years in a best-case scenario and four to six years in a worst-case scenario, according to the short seller’s presentation.
Fuzzy Panda’s analysis also accuses the Texas Commission on Environmental Quality of procedural missteps. The report claims the commission denied mandatory hearings despite timely appeals and allowed a 55-day deadline to lapse on a motion for rehearing of the appeal.
Questions about potential conflicts of interest were raised in the report as well. Fuzzy Panda noted that Rick Perry, a co-founder and board member of Fermi, is a former Texas governor, and that two of the three air commissioners previously worked for him. The short seller framed this background as a factor that may bear on the approval process.
Fuzzy Panda identified three specific components of Fermi’s Project Matador that it says are now at risk: the land lease, which can be revoked in December if no tenant is secured; the company’s ability to retain gas turbines, which can be sold after November 10 if a tenant has not been found; and the air permit itself, which faces the legal challenges described in the report.
Key points
- Fermi America’s stock fell 4.4% on Thursday after a short seller report questioned the legality of an air permit tied to its datacenter project.
- The report alleges that air quality data selection and procedural actions by the Texas Commission on Environmental Quality are under legal challenge.
- Sectors potentially affected include datacenter development, power generation for cloud and mining operations, and environmental regulatory oversight.
Risks and uncertainties
- The air permit could be tied up in litigation for one to two years in a best-case view or four to six years in a worst-case view, creating timeline uncertainty for Project Matador.
- If no tenant is secured, the land lease may be revoked in December and gas turbines could be sold after November 10, which would materially alter the project’s asset and capacity plans.
- Allegations of procedural violations at the Texas Commission on Environmental Quality and potential conflicts of interest introduce regulatory and governance risks for the company and its project partners.