Author Topic: Berkshire Hathaway Energy  (Read 16637 times)

rogermunibond

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Re: Berkshire Hathaway Energy
« Reply #40 on: October 29, 2019, 06:18:57 AM »
My guess is that in the end Buffett and Munger want no part of PCG.

The raisins and turds story sums up the situation nicely.


longinvestor

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Re: Berkshire Hathaway Energy
« Reply #41 on: October 29, 2019, 09:30:52 AM »
My guess is that in the end Buffett and Munger want no part of PCG.

The raisins and turds story sums up the situation nicely.

I think so too. And lightning speed is not one working day for the Omaha boyz😉

longterminvestor

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Re: Berkshire Hathaway Energy
« Reply #42 on: October 29, 2019, 01:26:44 PM »
IMO, this would be Greg Abel's call rather than boys in Omaha to do some deal in form/fashion on the assets of PG&E.  Whatever is decided - it will show what kind of deal making/risk tolerance the new guard has versus the old. 

Wonder who calls who?  Does Warren call Greg or does Greg call Warren?  Maybe Greg calls Ajit and they conference in Warren........These are the fun things I think about when bird dogging a nice sized deal with some hair on it. 

wabuffo

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Re: Berkshire Hathaway Energy
« Reply #43 on: October 29, 2019, 02:09:12 PM »
Buffett doesn't like buying assets out of a bankruptcy proceeding.  In the past, courts/judges have imposed deal termination fees are that are sometimes too low for him.

wabuffo
« Last Edit: October 29, 2019, 02:12:00 PM by wabuffo »

longinvestor

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Re: Berkshire Hathaway Energy
« Reply #44 on: October 29, 2019, 02:11:53 PM »
We're all reacting to the headline of this past weekend. PCG has been in play for a while. It is inconceivable that BHE has not looked at this a while back!
« Last Edit: October 29, 2019, 04:40:39 PM by longinvestor »

longinvestor

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Re: Berkshire Hathaway Energy
« Reply #45 on: October 30, 2019, 07:12:23 AM »
I went back and listened to the Governor’s and PG&E’s press conferences to get it straight from the donkey’s mouths. My takeaway is that PG&E is full of shit because of what the other utilities in the state have already done; invest in a smart grid to allow them to turn rooms off versus the entire town! San Diego was mentioned.

https://youtu.be/F46NwRHlvB8

https://youtu.be/16Fo1JWhBFc
« Last Edit: October 30, 2019, 08:19:40 AM by longinvestor »

Cigarbutt

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Re: Berkshire Hathaway Energy
« Reply #46 on: October 30, 2019, 11:10:29 AM »
I went back and listened to the Governor’s and PG&E’s press conferences to get it straight from the donkey’s mouths. My takeaway is that PG&E is full of shit because of what the other utilities in the state have already done; invest in a smart grid to allow them to turn rooms off versus the entire town! San Diego was mentioned.

https://youtu.be/F46NwRHlvB8

https://youtu.be/16Fo1JWhBFc
Your inputs and others help define entry and exit points in PG&E but I'm still confused as to why the entity would be uninvestable.
Putting aside the nationalization risk for a minute.
Because of:
1-the bankruptcy process?
2-the fact that PG&E would require new top management?
3-the fact that the bad culture is too deeply ingrained?
4-the fact that assets are of poor quality and not adapted?

I see these challenges as potential opportunities. The governor conveniently omits to mention that various levels of the public jurisdictions failed to appreciate the new normal related to climate change and, in fact, encouraged value at risk that is now being 'discovered'. The Oncor bid in Texas indicated that there was value in critical assets in a state where electricity demand is expected to rise significantly over the long term. The bankrupt Oncor had more to do with capital structure deficiencies than operational or cultural issues and Oncor had already discovered the value of cooperation with public boards concerning investment in the grid and safety concerns. However, the PG&E situation may just be a revelation that its infrastructure is in a significant need for further investments which, if negotiated properly, would not be seen as a drag on capital invested but as large investments guaranteed by a reasonable rate of return. The public authorities, seemingly, would only take over the ownership as a default solution and really IMO are in a relatively poor position to massively invest in the new paradigm that involves the transition to distributed energy at the same time as safety concerns need to be massively addressed and accounted for. The public authorities are now explicitly stating that they are looking for a private partner in order to carry out the transition and it seems to me that BRK is bound to at least consider the alternative. PG&E has very valuable assets and we can argue that the challenge is, in fact, a potential opportunity. Another consideration is that the State (and CPUC) seem to be ready to guarantee an access (various ways to do that) to bond markets for the wall of investments that will be necessary to achieve the planned transition which, added to a Berkshire endorsement, would contribute to a very low cost of capital while moderating rate increases for the customer. I would not underestimate the value of an option allowing you "to get out of this mess".

Edit (potentially useful and relevant references):
https://www.dallasnews.com/business/energy/2017/07/14/if-warren-buffett-s-billions-meet-oncor-s-wish-list-here-s-how-texas-stands-to-gain/
https://www.cpuc.ca.gov/uploadedFiles/CPUC_Public_Website/Content/About_Us/Organization/Divisions/Office_of_Governmental_Affairs/Smart%20Grid%20Annual%20Report%202017.pdf
« Last Edit: October 30, 2019, 11:41:41 AM by Cigarbutt »

petec

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Re: Berkshire Hathaway Energy
« Reply #47 on: November 07, 2019, 12:43:43 AM »
Couple of questions for those who know more than me (i.e. most):

1) BHE doesn't may dividends, and I can see that's a huge differentiator. But do the subs pay dividends to BHE? In other words, could profits from one area be invested in another? If so, I would have thought a regulator would view BHE's dividend policy as the same as anybody else's in terms of its impact on investment locally. If not, doesn't that restrict BHE's capital allocation?

2) Is BHE likely to go international? I know they have the UK business (at least until Corbyn nationalises it) but this is a business that could scale in an epic way if they're prepared to go global. For example Brazil is privatising a huge slug of electric assets under an attractive regulatory regime that's been in place for 20 years.

Thanks

Pete
FFH MSFT BRK BAM ATCO LNG IHG TFG CGT DC/A

gfp

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Re: Berkshire Hathaway Energy
« Reply #48 on: November 07, 2019, 04:59:27 AM »
Here is the recent 10-Q
https://www.sec.gov/Archives/edgar/data/71180/000108131619000017/bhe93019form10-q.htm

BHE can and does move cash between subsidiaries.  The pay no dividends thing is mostly true but BHE actually does do a few hundred million dollars worth of share repurchases from Walter Scott's family each year.  Instead of Berkshire Hathaway buying the Scott shares, they have chosen to do it by BHE repurchasing the Scott shares - equivalent to a dividend.  I had also wondered how the minority shareholders (Scott family & Greg Abel) were coming up with their share of tax payments but I see that there actually are cash distributions to minority interests occasionally - just not to Berkshire.  And of course BHE operates in a tax efficient manner and files a consolidated tax return with Berkshire Hathaway.

The distributions and share repurchases are small in comparison to the net capital contributions from Berkshire Hathaway that have funded some of the larger deals.  Overall, the balance is a lot more capital in than capital out.  They seem to really cultivate their positive reputation with the various regulators.  They are not trying to squeeze the last dollar out of any of their customers in the pursuit of a longer term successful platform.

As for international, I am sure BHE would be interested in international energy assets they could understand the long term regulatory situation & economics of.  Sokol was much more international when it was just called Cal Energy and he did a project in the Philippines that I think I remember kind of burned him in the end.  Obviously they own the UK transmission assets and did a decent sized deal for AltaLink in Canada.  They will continue to invest as much as they can figure out in Canada for sure.  The stake in BYD is also in there.  I wouldn't be surprised to see big deals in countries like Brazil, Australia, something in Europe.  Sort of depends on what becomes available.

I do think they would buy more pipelines if they came on the market for attractive prices.  Warren hasn't been a fan of the MLP accounting / valuations and has mostly skipped those.  You could see his giggles when someone asked him about Kinder Morgan popping up in the BRK portfolio some time ago and he said it wasn't him and he was surprised to see it too.  It left the portfolio shortly after



Couple of questions for those who know more than me (i.e. most):

1) BHE doesn't may dividends, and I can see that's a huge differentiator. But do the subs pay dividends to BHE? In other words, could profits from one area be invested in another? If so, I would have thought a regulator would view BHE's dividend policy as the same as anybody else's in terms of its impact on investment locally. If not, doesn't that restrict BHE's capital allocation?

2) Is BHE likely to go international? I know they have the UK business (at least until Corbyn nationalises it) but this is a business that could scale in an epic way if they're prepared to go global. For example Brazil is privatising a huge slug of electric assets under an attractive regulatory regime that's been in place for 20 years.

Thanks

Pete

Cigarbutt

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Re: Berkshire Hathaway Energy
« Reply #49 on: November 09, 2019, 10:22:51 AM »
Here is the recent 10-Q
https://www.sec.gov/Archives/edgar/data/71180/000108131619000017/bhe93019form10-q.htm

BHE can and does move cash between subsidiaries.  The pay no dividends thing is mostly true but BHE actually does do a few hundred million dollars worth of share repurchases from Walter Scott's family each year.  Instead of Berkshire Hathaway buying the Scott shares, they have chosen to do it by BHE repurchasing the Scott shares - equivalent to a dividend.  I had also wondered how the minority shareholders (Scott family & Greg Abel) were coming up with their share of tax payments but I see that there actually are cash distributions to minority interests occasionally - just not to Berkshire.  And of course BHE operates in a tax efficient manner and files a consolidated tax return with Berkshire Hathaway.

The distributions and share repurchases are small in comparison to the net capital contributions from Berkshire Hathaway that have funded some of the larger deals.  Overall, the balance is a lot more capital in than capital out.  They seem to really cultivate their positive reputation with the various regulators.  They are not trying to squeeze the last dollar out of any of their customers in the pursuit of a longer term successful platform.

As for international, I am sure BHE would be interested in international energy assets they could understand the long term regulatory situation & economics of.  Sokol was much more international when it was just called Cal Energy and he did a project in the Philippines that I think I remember kind of burned him in the end.  Obviously they own the UK transmission assets and did a decent sized deal for AltaLink in Canada.  They will continue to invest as much as they can figure out in Canada for sure.  The stake in BYD is also in there.  I wouldn't be surprised to see big deals in countries like Brazil, Australia, something in Europe.  Sort of depends on what becomes available.

I do think they would buy more pipelines if they came on the market for attractive prices.  Warren hasn't been a fan of the MLP accounting / valuations and has mostly skipped those.  You could see his giggles when someone asked him about Kinder Morgan popping up in the BRK portfolio some time ago and he said it wasn't him and he was surprised to see it too.  It left the portfolio shortly after
Couple of questions for those who know more than me (i.e. most):

1) BHE doesn't may dividends, and I can see that's a huge differentiator. But do the subs pay dividends to BHE? In other words, could profits from one area be invested in another? If so, I would have thought a regulator would view BHE's dividend policy as the same as anybody else's in terms of its impact on investment locally. If not, doesn't that restrict BHE's capital allocation?

2) Is BHE likely to go international? I know they have the UK business (at least until Corbyn nationalises it) but this is a business that could scale in an epic way if they're prepared to go global. For example Brazil is privatising a huge slug of electric assets under an attractive regulatory regime that's been in place for 20 years.

Thanks
Pete
I like gfp's answer and here's a slight addition.
When determining the rate of return, the bottom line for regulators is to satisfactorily meet capital requirements and investment commitments. Once these hurdles are met, on a basic and first level analysis, regulators should be quite indifferent (but they are obviously not completely impermeable to softer inputs such as the strongly implicit support from a fortress balance sheet) as to how the return is retained or distributed and utilities have historically maintained high payout ratios. BRK has entered the area opportunistically (think the Williams (post Enron) and PacifiCorp capital commitments) and, so far, the investments have occurred in selected geographical areas (expected regulatory compatibility) and in specific troubled assets available at good prices or, at least, in assets available at fair prices. But it seems to me that the comparative advantage related to the soft inputs (flexible capital allocation and parental support) may become more significant in the future and may allow much larger opportunities as 1-a lot of data shows that the electric infrastructure is aging and becoming in an ever larger need for reinvestments with capex not meeting adequate maintenance for some time and 2-technology advances, new sources of energy (intermittent nature), new forms of distribution and safety concerns combine in a way to potentially disrupt the industry in a way perhaps larger than when deregulation attempts were carried out some years ago. If you're the regulator, who are you likely to turn to then, at a time when market perception of uncertainty will result in higher discount rates for motivated or forced sellers?

Mr. Buffett has sometimes compared the regulated utilities to insurance which, in fact, has also been heavily regulated (state level), a fact that did not prevent some insurance subs from growing profitably over time. I think he sees regulators as a nagging constraint, limiting what he could accomplish, but also recognizes that regulators tend to prevent excessive incompetency which is a way to maximize the NPV under human circumstances.

From the international perspective, I wonder if Mr. Buffett (or his legacy) won't be extra selective as there may be enough investment opportunities in the US and because regulated utility investments are based on the premise that 'society' will treat the private capital providers fairly, a premise that is far from guaranteed, even under the best of circumstances. I don't think that Mr. Buffett uses the CAPM as a tool to calculate the value of an opportunity but regulators do. When dealing with 'international' ventures, regulators add a risk spread related to specific countries and I would doubt that those spreads (countries ranking lower in the institutional grade scale) reach a level which would make Mr. Buffett comfortable in making a large investment.
« Last Edit: November 09, 2019, 10:28:24 AM by Cigarbutt »