Author Topic: Berkshire Hathaway Energy  (Read 10035 times)

longinvestor

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Berkshire Hathaway Energy
« on: June 26, 2019, 01:50:16 PM »
https://finance.yahoo.com/news/nevada-utility-announces-three-major-175634324.html

Utility scale solar with battery storage. 3.5 cents per KWH to produce.

I did a search before creating a topic with this title. After all this is where most capital is going to go. As a shareholder my eyes are on this. At the annual meeting there was a question from Greg Warren, I think about the slowdown in the pace of capital projects @ BHE. I had spent a good amount of time at the BHE booth and they were buoyant about this and other topics. Watch BHE.



Dynamic

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Re: Berkshire Hathaway Energy
« Reply #1 on: June 27, 2019, 01:06:21 AM »
I think the dollar amount of capital expenditure is likely to decline from the very high rate recently, where the tax deferral advantages had been hugely beneficial, but are soon to diminish from that peak. Nonetheless, I'm sure a lot of capital will still be deployed at attractive rates by BHE, often with attractive tax benefits.

It now appears that for NVE, it's the three partner companies that will run these projects and presumably benefit from a long-term contract with NVE, and presumably it is those companies that will raise the capital required.

I think BHE has been looking at grid-scale battery storage for quite a while - and their BYD investment many years ago was probably in part linked to the potential of grid scale storage, which was mentioned around the time as items being closely watched, back in David Sokol's day when it was still called MidAmerican Energy.

3.5 cents per kWh with storage, seems very attractive. The costs of solar and battery storage are coming down so rapidly (even faster rate of decline than the cost of wind generation, with the cost per kWh of solar alone now roughly at parity with wind alone but declining faster) such that a lot more capacity of generation and storage can be bought for less capital expenditure than just a few years ago, and now cheaper than most other sources of baseload and peak generation, so I'm optimistic that the economics emerging from these price declines will turn these low carbon alternatives into the default no-brainer solutions in the near future, and will increasingly become economically superior to keeping coal-fired power stations going, providing environmental improvements and additional employment that will far outweigh the losses in the coal industry.

The Holmesdale South Australia battery plant in a short period has reportedly made a lot of money providing grid stabilisation services with extremely rapid reaction times, for which it's financially well-rewarded by the dynamic pricing system in that jurisdiction, such that I believe it makes more of its money from those functions - rapid-response peak shaving and trough-filling and the time-arbitrage it can offer - than from sustained output functions. Further facilities in the same area would have diminishing returns, but it clearly serves a valuable function and is well rewarded.


longinvestor

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Re: Berkshire Hathaway Energy
« Reply #3 on: June 27, 2019, 02:17:12 PM »
I think the dollar amount of capital expenditure is likely to decline from the very high rate recently, where the tax deferral advantages had been hugely beneficial, but are soon to diminish from that peak. Nonetheless, I'm sure a lot of capital will still be deployed at attractive rates by BHE, often with attractive tax benefits.


Just curious as to why the rate of capital deployment goes down?

It’s my understanding that the appetite only increases yoy because BHE’s tax rebates inure to Berkshire Hathaway. Buffett has repeatedly mentioned this as the reason that they are going pedal to the floor for as far as the eye can see. Any slow down is likely due to getting regulatory approvals. BHE’s countermeasure is to make it all for the consumer. Regulators like that in addition to investment in an otherwise dormant industry. Take Iowa for instance MidAmerican is holding rates steady until 2032. The other Utility in the state is raising rates. As I drive to Omaha from Chicago I see turbines from the Nebraska border and ends abruptly mid state. It’s all because of the 100% retained earnings versus dividending out of cash cow utility companies

gfp

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Re: Berkshire Hathaway Energy
« Reply #4 on: June 27, 2019, 02:22:58 PM »
Quote
Just curious as to why the rate of capital deployment goes down?

He may just be basing it on BHE's own projections.  Of course, their future plans don't reflect projects that aren't confirmed or opportunities that haven't come up yet.  But as of earlier this year, they expected capital expenditures to decline.  It probably won't actually happen.  Projects are included in the projections as they are committed to.

https://www.sec.gov/Archives/edgar/data/71180/000108131619000007/ic2019.htm

(several mentions but slide 22 shows it fairly clearly)
« Last Edit: June 27, 2019, 02:25:28 PM by gfp »

longinvestor

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Re: Berkshire Hathaway Energy
« Reply #5 on: June 27, 2019, 02:28:44 PM »
Quote
Just curious as to why the rate of capital deployment goes down?

He may just be basing it on BHE's own projections.  Of course, their future plans don't reflect projects that aren't confirmed or opportunities that haven't come up yet.  But as of earlier this year, they expected capital expenditures to decline.  It probably won't actually happen.  Projects are included in the projections as they are committed to.

https://www.sec.gov/Archives/edgar/data/71180/000108131619000007/ic2019.htm

(several mentions but slide 22 shows it fairly clearly)

Lumpiness

longinvestor

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Re: Berkshire Hathaway Energy
« Reply #6 on: June 28, 2019, 05:25:19 AM »
Quote
Just curious as to why the rate of capital deployment goes down?

He may just be basing it on BHE's own projections.  Of course, their future plans don't reflect projects that aren't confirmed or opportunities that haven't come up yet.  But as of earlier this year, they expected capital expenditures to decline.  It probably won't actually happen.  Projects are included in the projections as they are committed to.

https://www.sec.gov/Archives/edgar/data/71180/000108131619000007/ic2019.htm

(several mentions but slide 22 shows it fairly clearly)

This from the presentation caught my attention. So, comparable Utility, Duke Energy has a market cap of 63B. Nextera 83B albeit a bigger business. For now 😉

longinvestor

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Re: Berkshire Hathaway Energy
« Reply #7 on: June 28, 2019, 06:39:48 AM »
Berkshire Hathaway, through BHE, is blowing the covers of the myth surrounding dividends as a long term strategy. That table of comparison with other utilities is perhaps best described as night versus day. The rest of the industry is happy dividending away most of their earnings while Berkshire is happy taking in nothing from BHE year after year. This foregoing of instant gratification is probably worth a lot down the road for me the shareholder. I couldn’t be happier waiting for the balloon payday some day in the future.

cubsfan

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Re: Berkshire Hathaway Energy
« Reply #8 on: June 28, 2019, 06:44:33 AM »
Berkshire Hathaway, through BHE, is blowing the covers of the myth surrounding dividends as a long term strategy. That table of comparison with other utilities is perhaps best described as night versus day. The rest of the industry is happy dividending away most of their earnings while Berkshire is happy taking in nothing from BHE year after year. This foregoing of instant gratification is probably worth a lot down the road for me the shareholder. I couldn’t be happier waiting for the balloon payday some day in the future.

Nice job of providing some great insights (with slides), into the BHE operations. I too, was at the last few meetings, where WEB insists large
capital can still be deployed in this business at great advantage to BH. But you guys in this thread have provided the proof and comps.

Thanks much.

Dynamic

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Re: Berkshire Hathaway Energy
« Reply #9 on: June 28, 2019, 07:40:26 AM »
Quote
Just curious as to why the rate of capital deployment goes down?

He may just be basing it on BHE's own projections.  Of course, their future plans don't reflect projects that aren't confirmed or opportunities that haven't come up yet.  But as of earlier this year, they expected capital expenditures to decline.  It probably won't actually happen.  Projects are included in the projections as they are committed to.

https://www.sec.gov/Archives/edgar/data/71180/000108131619000007/ic2019.htm

(several mentions but slide 22 shows it fairly clearly)

Yes, their own projections are for a degree of reduction from an admittedly huge rate of capex and I remember seeing something like slide 22 somewhere in the last few months.

I'm not sure of the reasons, but I'd imagine slightly reduced cost of capex (meaning they need to spend less to get the same improvements would have some impact, though it looks to be modest) and reduced tax benefits (perhaps influenced by Trump's policies with regard to CO2 reduction in comparison with Obama's and the expiry of certain schemes put in place some years ago).

That slide set is interesting, and I don't think that's the place I originally read about their projections of decline in capex.

It's fascinating to see such a huge discrepancy between Net Income Attributable to BHE and Cash Flows from Operations on various slides, with cash flow being consistently far higher since 2001 and also being around 4.5x interest expense.

The information on how tax rate reductions are being passed on to customers is also interesting. The settlements on rate reductions seem to be around 3-4% mostly, so as expected BHE will not retain the full benefit of the tax cuts and will share it with customers via rate reductions. Also interesting is certain jurisdictions having ROE limits above which a certain fraction of additional profits are shared with customers (some places it's 50%, some it's 90% that goes to customers).

I note that MAE has implemented a 1MW power / 4MWh energy storage (thus 4 hours' supply at full power) battery using Lithium Iron Phosphate tech (sounds like BYD's favoured cell chemistry but not necessarily only theirs) with inverter/transformer in 2018 for $3m as a pilot project mostly used for energy balancing purposes. That's about $750 per kWh all in for a trial site (compare capacity to 40 Tesla Model S/X 100 kWh batteries or 625 first gen Tesla Powerwalls. I imagine the cells would be somewhere in the $150-$300 per kWh range, and the other costs would be for inverter/transformer and the costs of developing and installing the site and designing/running the project.

It's also interesting to see MAE's asset profile versus its power profile. First, coal, gas and nuclear have declined substantially in 18-19 years. The Wind generation and other assets are now 87% thanks to huge investment but their power contribution is 59% (on a net MW owned in operation and under-construction basis). Coal 12% and Gas 1% have a much smaller asset base, but can supply 24% and 13% of peak power capacity (with Nuclear and Other providing 4%). But of course, they also consume fuel over their lifetime, which wind doesn't, although it does consume maintenance costs and a few consumables. This is a major shift and should pay off very nicely for MAE and BHE as a whole in the long term as a reward for the enormous capital infusion (funded by retained earnings and relatively cheap debt that is non-recourse to Berkshire Hathaway Inc).

Let's hope that regulators and technical innovations allow plenty of scope for more profitable capex in BHE in the future.