Corner of Berkshire & Fairfax Message Board

General Category => Berkshire Hathaway => Topic started by: longinvestor on June 26, 2019, 01:50:16 PM

Title: Berkshire Hathaway Energy
Post by: longinvestor 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.

Title: Re: Berkshire Hathaway Energy
Post by: Dynamic 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.
Title: Re: Berkshire Hathaway Energy
Post by: gfp on June 27, 2019, 10:13:44 AM
https://www.bloomberg.com/news/articles/2019-06-26/buffett-s-nevada-utility-offers-a-customer-millions-just-to-stay?srnd=premium
Title: Re: Berkshire Hathaway Energy
Post by: longinvestor 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
Title: Re: Berkshire Hathaway Energy
Post by: gfp 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)
Title: Re: Berkshire Hathaway Energy
Post by: longinvestor 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
Title: Re: Berkshire Hathaway Energy
Post by: longinvestor 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 😉
Title: Re: Berkshire Hathaway Energy
Post by: longinvestor 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.
Title: Re: Berkshire Hathaway Energy
Post by: cubsfan 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.
Title: Re: Berkshire Hathaway Energy
Post by: Dynamic 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.
Title: Re: Berkshire Hathaway Energy
Post by: longinvestor on June 28, 2019, 08:01:50 AM
The slide deck clearly states “capital plan” and not projection. This is a regulatory filing only.

It’s up to each of us to read into it beyond what’s published but here’s my take on the very same table.

1. As early as the first months of the three year period 2019-2021, they had already revised the plan from “previous “ to the tune of +$1B on 15 B. Don’t know when “previous “was.
2. The plan is clearly front loaded even within the period. So as opposed to them spending less in year three, they want to spend it as fast as possible. Will there be another plan update before 2021? I don’t know but expect it.
3. Through this report they are clearly touting “look we’re investing, the competition is keeping the money” to the regulatory bodies. And touting how their rates are lower than the field.

No, there’s no projection at all but the bias is to deploy more and now!

Title: Re: Berkshire Hathaway Energy
Post by: longinvestor on June 28, 2019, 08:36:33 AM
This topic has me riled up so much that I can’t contain my finger twitching so here goes.

This year for the first time at the annual meeting that I recall, Buffett thanked Walter Scott for bringing BHE to the fold in 1999. In Cunningham ‘s book, there’s an episode describing Warren being pulled aside by Scott to talk about the energy business and handing him a report of sorts and a few days later MidAmerican was part of Berkshire Hathaway. I want to read that report. In an important way, BHE has paved the pathway for Berkshire beyond Buffett. To me it’s no surprise at all that Greg Abel is perched high up. The promise of 100 B or more into BHE is borne out in the regulatory filing we’re thrashing around.

If there’s any obstacle it’s regulatory in nature. The rest of the hurdles are “1 foot”.
Title: Re: Berkshire Hathaway Energy
Post by: Dynamic on June 28, 2019, 09:36:08 AM
I think actually (and hopefully it's not wishful thinking), you're probably right to point out that it's very likely that capex will not decline significantly and that these planned expenditures will be increased with additional capex as plans develop further.

I suspect the incentives haven't changed too drastically, despite a few of Trump's intentions to boost coal and rein in renewables incentives at the Federal level and all the 'newspeak' recently about 'freedom molecules' and so on is more about messaging to his supporters than policy changes being implemented widely.

Certainly the ROE allowances are amenable to incentivizing continued capex for companies as future-oriented as BHE
Title: Re: Berkshire Hathaway Energy
Post by: longinvestor on June 28, 2019, 12:10:01 PM
I think actually (and hopefully it's not wishful thinking), you're probably right to point out that it's very likely that capex will not decline significantly and that these planned expenditures will be increased with additional capex as plans develop further.

I suspect the incentives haven't changed too drastically, despite a few of Trump's intentions to boost coal and rein in renewables incentives at the Federal level and all the 'newspeak' recently about 'freedom molecules' and so on is more about messaging to his supporters than policy changes being implemented widely.

Certainly the ROE allowances are amenable to incentivizing continued capex for companies as future-oriented as BHE

I think so too, all this noise gets drowned out by economics of wind and solar energy; At 3.5 cents per kWh and the last hurdle of time shifting of power solved within this cost, any messaging for fossil fuels will be blown away by the wind:-)  We are talking about the grandmother of all commodities, the flow of electrons! I say that renewables get implemented furiously from here on.
Title: Re: Berkshire Hathaway Energy
Post by: Dynamic on July 02, 2019, 12:55:50 PM
I agree. I'm optimistic that the economic forces of such inexpensive power (and still declining rapidly in cost) will soon completely undermine any efforts by the fossil fuel lobby and climate change deniers funded by them to prevent the retirement of the most polluting and least efficient fossil fuel generation at first, and almost all of it eventually. I think there need to be a few incentives to encourage such large up-front capex at this point, which will create the demand that will further lower the cost, but it's pretty clear that the cost curve for wind is on a significant decline and for solar the decline is steep almost to the point of precipitous, such that it's now falling below wind on a direct price/kWh basis and is soon likely to be cheaper even when including the cost of storage typically required to time shift supply to meet evening demand. Low interest rate financing certainly helps to fund the capex, and in Berkshire's case, the tax treatment allows these technologies to provide returns above their hurdle rate, encouraging truly huge capital investment while sustaining low power bills for end users. I suspect there may be benefits to the likes of Google, Facebook, Microsoft and Amazon, locating many of their vast data centers close to renewable energy sources, not the least being in term of energy cost savings.

It's also clear from many parts of the world, including Norway with it's sparse population and the UK with its large coastline for offshore wind despite its high population density, that a low carbon, high reliability grid is not the problem it is often painted as by the fossil fuel lobby. As a UK resident able to choose my supplier (but paying for the network services indirectly through their billing), my cheapest suppliers (I switch most years) have nearly always been 100% renewable for electricity, with only natural gas (methane) for heating and cooking being fossil based. (There are suppliers working on bringing green methane gas to market too). I believe it's the case that the offshore wind industry has employed a lot of former oil and gas workers whose skills are transferable to that sector after oil prices plummeted, though many helicopter pilots who used to serve Norwegian and British oil and gas rigs are no longer employed in that sector.

I suspect that by switching from fuel costs paid to various oil exporting nations to capex and maintenance costs, the costs to build and maintain green energy facilities over time will continue to boost local employment rather than paying oil workers and well owners in other countries. If the costs of renewables continue to get lower, it's likely than maintenance expense per kWh will remain similar, but the capex savings will reach the consumers by way of lower utility bills, and will presumably also boost their spending on goods and services, at least some of which are likely to be spent locally.

I think there's a virtuous circle that will probably increase the rate of uptake, and it's not looking like a promising time for new investments into coal technology, though gas peaker plants may have a place for a little while longer, until battery supply completely supplants those with superior response time for frequency stabilisation and peak shaving and at lower cost too. The huge automotive demand for batteries is also an important driver for rapid cost and energy density improvements in battery storage and possibly even power inverters.
Title: Re: Berkshire Hathaway Energy
Post by: John Hjorth on July 08, 2019, 02:44:09 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.

Thank you for starting this topic, longinvestor,

Actually, it's a bit weird, that we haven't really discussed this Berkshire investment in depth earlier. I have started tinkering with numbers for it, to calculate - over the ownership period - how much it has actually contributed to Berkshire group equity. I'm a bit lazy at the moment - I think it's vacation mode that's setting in - so it'll take some time before I post something about it here in this topic - what I already can say is that the numbers, compared to the initial investment - are no less than mind-boggling.

- - - o 0 o - - -

With regard to capital allocation, we have to remember :

1. The "Constellation case" [2008] [No, not CSU.TO, but Constellation Energy!] - It ended up as a no-go [,if one can call "Consists of a breakup fee of USD 175 million and and profit on our investment of USD 917 million" a "no-go"],
2. The "Oncor case (http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/brk-17-5-b-oncor-acquisition/)" [2017], &
3. Among Danes, there is a saying [in Danish here] : "Alle gode gange tre!". That translates word-by-word to : "All good times three!", meaning : "Third time may the time of luck!". Also in this industry, in future, there will be players, who confuse trading with speculation, and/or who will eventually end with screwing up their balance sheet.

I would not be surprised later to observe, that the next large Berkshire acquisition would be related to BHE.
Title: Re: Berkshire Hathaway Energy
Post by: longinvestor on July 16, 2019, 06:05:00 PM
https://buffett.cnbc.com/video/2019/05/06/afternoon-session---2019-berkshire-hathaway-annual-meeting.html

Since the topic was discussed earlier here, I was able to locate the relevant portion from the agm where Greg Warren asked about the “declining“ capital investment in 2021. Starting at the 49 minute marker. It is clear that he had read the same presentation by BHE that we have also. Greg Abel confirms what we concluded here; that only the committed capital plan was disclosed. He goes on to say that there are phase II and III of capital deployment especially in the Pacificorp sub. They are not approved by the regulators yet.

But all of them, Warren Buffett, Charlie Munger and Greg Abel reinforce the pedal to the floor bias @BHE
Title: Re: Berkshire Hathaway Energy
Post by: longinvestor on July 17, 2019, 04:47:22 AM
Buffett has often repeated “stay rich versus get rich” with utilities. I did a two column spreadsheet, one with a 10% earning rate for 100 years and the other with a 10% rate but with a recession every 7 years where I assumed a 10% loss during those years. The difference is astronomical in 2119 AD. Especially with a larger starting earning. Any upside because of tax shelters etc. will be huge 100 years from now.

No wonder they like it so much.
Title: Re: Berkshire Hathaway Energy
Post by: redskin on July 21, 2019, 11:39:16 AM
Berkshire Hathaway Energy is the only subsidiary I know of where you can see the valuation that Buffett places on it.  Since Walter Scott is a minority shareholder and he periodically sells his shares to Berkshire Hathaway Energy, those transactions are reported in the Berkshire Hathaway Energy filings.  Scott's last reported sale was in Q1 2019.  He sold 447,712 shares for $293mm ($654 per share).  This transaction values BHE at approximately $50 billion.

Transactions in previous years suggest the following per share values....
2018 $602
2017 $542
2015 $480
2013 $350
2010 $225
2009 $210

He purchased MidAmerican for $35/share in 1999.  This equates to an annual rate of return of close to 16%.

Title: Re: Berkshire Hathaway Energy
Post by: CorpRaider on August 07, 2019, 05:57:11 AM
Buffett has often repeated “stay rich versus get rich” with utilities. I did a two column spreadsheet, one with a 10% earning rate for 100 years and the other with a 10% rate but with a recession every 7 years where I assumed a 10% loss during those years. The difference is astronomical in 2119 AD. Especially with a larger starting earning. Any upside because of tax shelters etc. will be huge 100 years from now.

No wonder they like it so much.

9-10% with lower risk (not zero obviously given what we've seen over the past few years in utes) is not a bad hurdle rate in today's environment is it?
Title: Re: Berkshire Hathaway Energy
Post by: Cigarbutt on August 26, 2019, 01:27:30 PM
Berkshire Hathaway Energy is the only subsidiary I know of where you can see the valuation that Buffett places on it.  Since Walter Scott is a minority shareholder and he periodically sells his shares to Berkshire Hathaway Energy, those transactions are reported in the Berkshire Hathaway Energy filings.  Scott's last reported sale was in Q1 2019.  He sold 447,712 shares for $293mm ($654 per share).  This transaction values BHE at approximately $50 billion.

Transactions in previous years suggest the following per share values....
2018 $602
2017 $542
2015 $480
2013 $350
2010 $225
2009 $210

He purchased MidAmerican for $35/share in 1999.  This equates to an annual rate of return of close to 16%.
Reviewing regulatory filings and the March 2019 fixed income presentation, it seems that the long term growth of earnings and reported equity (which includes goodwill) corresponds to the value-based long term redemption activity revolving around Mr. Scott's declining stake. No activity in Q2 2019 but, in Q1 2019, 447,712 shares were redeemed for $293 million, implying a $654 per share value and a 1.7 ratio to reported book value.
It looks like the future will look like the past. It seems to me that the future of private ownership of energy utilities includes a component of the increasing realization that infrastructure spending can and should be delegated to strong, reliable and private hands. 
BHE has relatively high exposure to Nevada and related wildfire risks but they interestingly note that the $risk is less because of lower concentrations of population in the interface areas.
Title: Re: Berkshire Hathaway Energy
Post by: Spekulatius on August 26, 2019, 03:21:43 PM
Berkshire Hathaway Energy is the only subsidiary I know of where you can see the valuation that Buffett places on it.  Since Walter Scott is a minority shareholder and he periodically sells his shares to Berkshire Hathaway Energy, those transactions are reported in the Berkshire Hathaway Energy filings.  Scott's last reported sale was in Q1 2019.  He sold 447,712 shares for $293mm ($654 per share).  This transaction values BHE at approximately $50 billion.

Transactions in previous years suggest the following per share values....
2018 $602
2017 $542
2015 $480
2013 $350
2010 $225
2009 $210

He purchased MidAmerican for $35/share in 1999.  This equates to an annual rate of return of close to 16%.
Awesome post. It gives us a great idea what BHE is worth right now. 9-10% return forever is a great deal and I think the longevity is what WEB is after in this case. A lot of business die over time or need to reinvent themselves, which sometimes works and something it does not. BHE probably doesn’t need to reinvent itself for the next 50 years.
Title: Re: Berkshire Hathaway Energy
Post by: longinvestor on October 05, 2019, 06:55:07 PM
https://www.pacificorp.com/about/newsroom/news-releases/2019-draft-irp-increased-renewables-phased-coal-transition.html

October 18 is the date they target releasing the long term plan. Lots of investments.
Title: Re: Berkshire Hathaway Energy
Post by: longinvestor on October 27, 2019, 05:14:17 AM
https://finance.yahoo.com/news/california-governor-wants-berkshire-bid-235301474.html

Now that the cat’s out of the bag, thought this belongs here as well as on the Investment ideas section. More surely to come. This should be way more interesting than the Oncor deal with the same familiar players squaring off, once again! And boy, this is California and we’re a year from an election. May the fun begin!
Title: Re: Berkshire Hathaway Energy
Post by: Cigarbutt on October 27, 2019, 06:01:30 AM
https://finance.yahoo.com/news/california-governor-wants-berkshire-bid-235301474.html

Now that the cat’s out of the bag, thought this belongs here as well as on the Investment ideas section. More surely to come. This should be way more interesting than the Oncor deal with the same familiar players squaring off, once again! And boy, this is California and we’re a year from an election. May the fun begin!
In my humble opinion, this is another example of the brilliance displayed by Mr. Buffett and his model. He is in a position to negotiate without having actually entered the negotiation process as (I imagine) he would look for some kind of partnership where the public entity would be responsible for a reinsurance type of excess loss deal on past and future wildfires' damages. I'd say he will pretend to have no real interest but he may have defined the price he's ready to pay and the mantle of protection required already with the potential to close a transaction at a lightning speed.
Title: Re: Berkshire Hathaway Energy
Post by: Jurgis on October 27, 2019, 07:41:36 AM
... close a transaction at a lightning speed.

 ;D

Keep those zingers coming.
Title: Re: Berkshire Hathaway Energy
Post by: Spekulatius on October 27, 2019, 12:27:46 PM
https://finance.yahoo.com/news/california-governor-wants-berkshire-bid-235301474.html

Now that the cat’s out of the bag, thought this belongs here as well as on the Investment ideas section. More surely to come. This should be way more interesting than the Oncor deal with the same familiar players squaring off, once again! And boy, this is California and we’re a year from an election. May the fun begin!
In my humble opinion, this is another example of the brilliance displayed by Mr. Buffett and his model. He is in a position to negotiate without having actually entered the negotiation process as (I imagine) he would look for some kind of partnership where the public entity would be responsible for a reinsurance type of excess loss deal on past and future wildfires' damages. I'd say he will pretend to have no real interest but he may have defined the price he's ready to pay and the mantle of protection required already with the potential to close a transaction at a lightning speed.

PG&E could be a great deal for BRK, because Berkshire has both utility management, insurance capacity and expertise and the ability to write a Check worth tens of billions of $. There is really no competition out there who can even Doo all three.
Title: Re: Berkshire Hathaway Energy
Post by: longinvestor on October 27, 2019, 02:56:05 PM
https://finance.yahoo.com/news/california-governor-wants-berkshire-bid-235301474.html

Now that the cat’s out of the bag, thought this belongs here as well as on the Investment ideas section. More surely to come. This should be way more interesting than the Oncor deal with the same familiar players squaring off, once again! And boy, this is California and we’re a year from an election. May the fun begin!
In my humble opinion, this is another example of the brilliance displayed by Mr. Buffett and his model. He is in a position to negotiate without having actually entered the negotiation process as (I imagine) he would look for some kind of partnership where the public entity would be responsible for a reinsurance type of excess loss deal on past and future wildfires' damages. I'd say he will pretend to have no real interest but he may have defined the price he's ready to pay and the mantle of protection required already with the potential to close a transaction at a lightning speed.

PG&E could be a great deal for BRK, because Berkshire has both utility management, insurance capacity and expertise and the ability to write a Check worth tens of billions of $. There is really no competition out there who can even Doo all three.

For sure, BHE stands uniquely positioned .

My question is, how does BHE deal with next years’ fires? Is BHE setting up 10 foot hurdles for themselves? Was PG&E that negligent or blamed for an act of God type event? This opens up the Pandora’s box wide open when it comes to regulated utilities, roles, shareholders etc.
Title: Re: Berkshire Hathaway Energy
Post by: Cigarbutt on October 27, 2019, 05:07:19 PM
https://finance.yahoo.com/news/california-governor-wants-berkshire-bid-235301474.html

Now that the cat’s out of the bag, thought this belongs here as well as on the Investment ideas section. More surely to come. This should be way more interesting than the Oncor deal with the same familiar players squaring off, once again! And boy, this is California and we’re a year from an election. May the fun begin!
PG&E could be a great deal for BRK, because Berkshire has both utility management, insurance capacity and expertise and the ability to write a Check worth tens of billions of $. There is really no competition out there who can even Doo all three.
For sure, BHE stands uniquely positioned .

My question is, how does BHE deal with next years’ fires? Is BHE setting up 10 foot hurdles for themselves? Was PG&E that negligent or blamed for an act of God type event? This opens up the Pandora’s box wide open when it comes to regulated utilities, roles, shareholders etc.

This may appear simplistic to you but here's an attempt at an answer. There is also a bankrupt thread on PG&E.
The situation in California is contaminated by the inverse condemnation doctrine which is enshrined in their Constitution and stuck in political inertia. The doctrine (quite a unique situation in the US) means that the utility will be considered responsible for damages whether it was negligent or not!
https://www.insurancejournal.com/news/west/2019/01/15/514846.htm

What's nice (for an opportunistic white knight) is that the Pandora's box has been wide opened and bad spirits have hit the high winds down to Sacramento and people from diverse camps have been looking at stop loss options (really attachment points in reinsurance contract parlance), a situation simply and literally unthinkable just a short while ago. There are many alternative scenarios that imply skin in the game for the utility with rate-based and a government-sponsored options.
https://www.reuters.com/article/us-california-wildfire-fund-idUSKCN1TM2JX

Now longinvestor, note that the bankruptcy judge has to choose between a wounded and bad corporate citizen, and a vulture group with questionable intents to unite conditions leading to some kind of phoenix entity with a viable future. Isn't there a potential opportunity to get to swing at this amazingly slow pitch right in the middle of the plate and with even the umpire on your side?
Title: Re: Berkshire Hathaway Energy
Post by: longinvestor on October 27, 2019, 05:25:04 PM
Buffett is wired to look down before looking up. If there’s a whiff of permanent loss, he’ll pass.
Title: Re: Berkshire Hathaway Energy
Post by: Cigarbutt on October 27, 2019, 08:33:59 PM
^Your point is well taken but it all comes down to the definition of a whiff (how to deal with negatives).

People celebrate the Geico investment as a two-part slam dunk now but the second part was met with skepticism (valuation) and the first part was met with disbelief. In 1975, Geico reported an underwriting loss of 190M with 25M (not a typo) left in capital. Mr. Buffett saw moat in the mess and was reassured by the oncoming Mr. Jack Byrne but the company was very close to bankruptcy. In fact, from the regulatory standpoint, the capital deficiency was severe and compatible with a runoff order. Geico was desperate for cash and it was felt (Mr. Buffett himself and the regulators) that the company was significantly under-reserved. Stock price went from 61$ to 2$. Does that meet the definition of a whiff? The company survived, among other reasons than perfect execution from Mr. Byrne, because regulators critically allowed to bypass capital requirements (amounts and deadlines) for quite some time and granted permissions for very significant premiums rate increases.

Also, many investments made in 2008-9 were based on the underlying premise that government officials would "do the right thing". Was that a proposition free of uncertainty?

Mr. Buffett has the luxury to wait for the assets to be served on a silver platter but the return of a cheery consensus is possible in the next few months as the entity will likely come out of bankruptcy next year and the climatic situation may have reached its climactic point for some time.
Title: Re: Berkshire Hathaway Energy
Post by: Spekulatius on October 28, 2019, 04:08:02 AM
It’s also notable that with a regulated industry, it really cannot be correct that only PCG is too blame. Capex and operational expenses need to go through the regulator. I don’t think if PG&E had asked for $10B to harden the grid in 2015 because of inherent fire danger, they would not have gotten approval to do so. Same with tree trimming to some extend.

The ball is really in the Californians government court to change the rules. I am pretty sure that BHE would be interested to invest, given the right framework and some cap and liabilities.

Note that PCG actually produced pretty good numbers before the first  disaster in 2017, due to expanding rate bases from the switch to renewables, which also raised electricity bills for customers quite a bit. I think there is way more to come of the latter. The best action may be for the CA  government to take control of PCG and then work on creating a framework that makes the utility investible for the private sector again.
Title: Re: Berkshire Hathaway Energy
Post by: longinvestor on October 28, 2019, 04:40:57 AM
I’m willing to bet that the preferred play here for BHE is to get long term PPA’s to supply CA from Oregon, Idaho, Arizona and Nevada. This was the intention anyway with the CAISO. Even if only meeting a portion of CA load. Currently. The Midwest has a functioning ISO. BHE has been an enthusiastic participant in the CAISO. Surely PG&E was not too thrilled  with BHE’s participation in it. If BHE can sell power for less than the 20 cents per KWH, CA would be foolish not to allow it.
Title: Re: Berkshire Hathaway Energy
Post by: longinvestor on October 28, 2019, 04:49:41 AM
I’m more excited that this issue is going to shine a bright spotlight on the two kinds of ownership models of utilities. BHE versus virtually every other publicly owned utility. Retained earnings versus dividends to be specific. Delayed gratification is very hard for Wall Street
Title: Re: Berkshire Hathaway Energy
Post by: Dynamic on October 28, 2019, 04:55:20 AM
I think you're right, Spekulatius, that Berkshire has the will to invest in the right circumstances, and can put a compelling case that they'd be a highly responsible and cost-efficient operator, willing to invest substantial sums and to reinvest profits and additional capital too right back into grid improvements, renewables and much more beneficial in California as they are in other states, given the right regulatory environment that would not leave them on the hook for the sorts of liabilities that brought down PG&E.

This might be enough to persuade California to amend its constitution, or perhaps to invent some form of structure where the state in some way relieves Berkshire/BHE of this liability or compensates Berkshire/BHE adequately for taking it on.

I imagine there could be many ways to do it, with varying difficulty in getting them done, if the trade-off seems favorable over the alternatives including:

I think Berkshire's flexibility over innovative deal structures and in insuring unusual risks would allow it to act decisively and to take on more risk than anyone else, but only if properly compensated. And they're also willing to accept enormously lumpy returns if the overall return is sufficient, and to reinvest enormous amounts of capital if the regulated return is adequate. This could be a win-win-win for California, Berkshire and the utility customers.

But, I'm very confident that Berkshire will only take this on if the compensation arrangements are adequate. They're not THAT desperate to find a place to invest enormous amounts of capital that they would ever lower the bar on adequate compensation.

I don't think there is any other entity to match Berkshire in these respects.
Title: Re: Berkshire Hathaway Energy
Post by: longinvestor on October 28, 2019, 05:21:12 AM
https://www.pacificorp.com/content/dam/pcorp/documents/en/pacificorp/PacifiCorp_Story10_02_2019.pdf

This, from the BHE website laying out the vision for the “West”.
Title: Re: Berkshire Hathaway Energy
Post by: DooDiligence on October 28, 2019, 06:24:43 AM
Thanks to cigarbutt for bringing up this completely counterintuitive idea.

Scenarios like this, even if they don't happen, can teach how to use 2nd level thinking.

Wouldn't it be a stroke if they did this & got the Applied Underwriters deal OK'd in the process?
Title: Re: Berkshire Hathaway Energy
Post by: Cigarbutt on October 28, 2019, 08:38:38 PM
..this completely counterintuitive idea.
Why counterintuitive?
I would say California has its own specific idiosyncrasies but, on its own, would rank as the fifth economic power in the world and will be at the forefront of the evolving dynamics between centralized and distributed energy. PG&E has a long history, is a major player and is running into difficulties that could be considered temporary and fixable with an outcome that can be influenced by a credible partner with a long term view and deep pockets.
Longinvestor and wabuffo (in another thread today) rightly suggested that bankruptcy proceedings are not a natural fit and the Oncor experience was likely a learning experience: after tracing a road map and a valuation baseline, a 'winner' comes from nowhere near the finish line and the breakup fee evaporates. Perhaps a way to win the race here is to make a surprise attack and create a winning gap by proposing (somehow) a solution that the California Public Utility Commission determines to be the only acceptable option (some kind of pre-packaged overall deal), making the emergence decision easier.
https://www.caiso.com/Documents/StudyBenefits-PacifiCorp-ISOIntegration.pdf
https://www.dallasnews.com/business/energy/2017/08/24/warren-buffett-not-only-was-outbid-for-oncor-but-also-lost-270-million-breakup-fee/
Title: Re: Berkshire Hathaway Energy
Post by: longinvestor on October 29, 2019, 03:54:25 AM
It’s interesting but not surprising that PG&E is not an independent CAISO member in their own name. Most of the members are non-CA utilities. PacifiCorp is among the largest entities. Followed by NVE. California was importing 33% of their energy needs as of 2015. Last year, there’s been reports of excess renewable energy being produced and not enough demand for. Everything is mired in intrastate parochial interests but if market forces are allowed full expression, CA will end up importing ever more energy from neighboring states. Costs and therefore prices are dropping elsewhere. It just costs too much in CA. Just like about anything else, which is why cost sensitive businesses leave CA. Energy is no exception. BHE has been prepared for this for a long time. My guess is Berkshire doesn’t have to buy any entity in CA, perhaps some piece of PG&E, like transmission.
Title: Re: Berkshire Hathaway Energy
Post by: DooDiligence on October 29, 2019, 04:50:04 AM
..this completely counterintuitive idea.
Why counterintuitive?
I would say California has its own specific idiosyncrasies but, on its own, would rank as the fifth economic power in the world and will be at the forefront of the evolving dynamics between centralized and distributed energy. PG&E has a long history, is a major player and is running into difficulties that could be considered temporary and fixable with an outcome that can be influenced by a credible partner with a long term view and deep pockets.
Longinvestor and wabuffo (in another thread today) rightly suggested that bankruptcy proceedings are not a natural fit and the Oncor experience was likely a learning experience: after tracing a road map and a valuation baseline, a 'winner' comes from nowhere near the finish line and the breakup fee evaporates. Perhaps a way to win the race here is to make a surprise attack and create a winning gap by proposing (somehow) a solution that the California Public Utility Commission determines to be the only acceptable option (some kind of pre-packaged overall deal), making the emergence decision easier.
https://www.caiso.com/Documents/StudyBenefits-PacifiCorp-ISOIntegration.pdf
https://www.dallasnews.com/business/energy/2017/08/24/warren-buffett-not-only-was-outbid-for-oncor-but-also-lost-270-million-breakup-fee/

By counterintuitive, I mean, not a business I believe BRK would be interested in because it looks so ugly.

What I call intuition is probably just a cognitive bias of some sort.

---

edit: a little Zen can go a long ways towards improving quality of life & investment results.
Title: Re: Berkshire Hathaway Energy
Post by: rogermunibond 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.
Title: Re: Berkshire Hathaway Energy
Post by: longinvestor 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😉
Title: Re: Berkshire Hathaway Energy
Post by: longterminvestor 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. 
Title: Re: Berkshire Hathaway Energy
Post by: wabuffo 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
Title: Re: Berkshire Hathaway Energy
Post by: longinvestor 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!
Title: Re: Berkshire Hathaway Energy
Post by: longinvestor 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
Title: Re: Berkshire Hathaway Energy
Post by: Cigarbutt 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
Title: Re: Berkshire Hathaway Energy
Post by: petec 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
Title: Re: Berkshire Hathaway Energy
Post by: gfp 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
Title: Re: Berkshire Hathaway Energy
Post by: Cigarbutt 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.
Title: Re: Berkshire Hathaway Energy
Post by: Spekulatius on November 09, 2019, 11:32:50 AM
I am surprised that WEB isn’t more interested in pipelines, since the FERC regulation is often more favorable than utility regulation. He did indeed buy some pipeline assets in 2001 or so post the IPP crash from Williams and I believe one from Dynegy (which bought it from Enron shortly before and then they got into trouble themselves). I believe he laid around 8x EBITDA for utility like assets, which was cheap. Now we have pretty decent pipeline companies valued at 10x EBITDA (maybe a bit less even) when interest rates are much much lower. Might be a time for them to at least start looking.
Title: Re: Berkshire Hathaway Energy
Post by: Cigarbutt on November 10, 2019, 04:56:00 AM
I am surprised that WEB isn’t more interested in pipelines, since the FERC regulation is often more favorable than utility regulation. He did indeed buy some pipeline assets in 2001 or so post the IPP crash from Williams and I believe one from Dynegy (which bought it from Enron shortly before and then they got into trouble themselves). I believe he laid around 8x EBITDA for utility like assets, which was cheap. Now we have pretty decent pipeline companies valued at 10x EBITDA (maybe a bit less even) when interest rates are much much lower. Might be a time for them to at least start looking.
I would say the interest is there and the finger may be on the trigger.

Just look at the stake in Phillips 66. It's an integrated and diversified company but pipelines are part of its core operations and, in 2014, which is yesterday in a way, Mr. Buffett (I don't think that one came from the lieutenants) bought the Philips Specialty Products unit from the parent. The now integrated chemical sub is not a pipeline asset per se but the move constitutes a significant vote of confidence for pipelines in general, an investment posture confirmed by public endorsement of key but controversial pipeline projects.

Also look at the ownership in Suncor Energy. Suncor is also diversified and integrated, and pipeline operations may not be the primary driver of future returns but a bet on Suncor is, in a way, a vote that the pipeline approval process will move forward, somehow.

Pipeline assets are very interesting but my investing style may prevent me from making easy money like you. :)
Title: Re: Berkshire Hathaway Energy
Post by: longinvestor on February 16, 2020, 05:04:06 PM
https://kiwaradio.com/local-news/midamerican-installs-electric-vehicle-fast-charging-station-at-sheldon-fareway-store/

MidAmerican has started installing fast charging stations across Iowa. Stated goal of a station every 50 miles. It is awesome on top of the 100% wind power. In the long run, as evs reach critical mass, this should help not needing to shut down turbines. This is all incremental load!
Title: Re: Berkshire Hathaway Energy
Post by: DooDiligence on February 16, 2020, 06:00:25 PM
https://kiwaradio.com/local-news/midamerican-installs-electric-vehicle-fast-charging-station-at-sheldon-fareway-store/

MidAmerican has started installing fast charging stations across Iowa. Stated goal of a station every 50 miles. It is awesome on top of the 100% wind power. In the long run, as evs reach critical mass, this should help not needing to shut down turbines. This is all incremental load!

I searched to find out how much it costs for a charge & couldn't find anything.

www.midamericanenergy.com/electric-vehicle-fast-charging-network

www.midamericanenergy.com/nr-electric-fast-charging-sites
Title: Re: Berkshire Hathaway Energy
Post by: longinvestor on February 16, 2020, 07:11:24 PM
https://kiwaradio.com/local-news/midamerican-installs-electric-vehicle-fast-charging-station-at-sheldon-fareway-store/

MidAmerican has started installing fast charging stations across Iowa. Stated goal of a station every 50 miles. It is awesome on top of the 100% wind power. In the long run, as evs reach critical mass, this should help not needing to shut down turbines. This is all incremental load!

I searched to find out how much it costs for a charge & couldn't find anything.

www.midamericanenergy.com/electric-vehicle-fast-charging-network

www.midamericanenergy.com/nr-electric-fast-charging-sites

The model is for the business hosting the charging stations to set the price. MidAmerican will likely charge the host market rates for power. (my guess).

 So on the production side, they pay farmers/land lords a rent to host the turbines and the access road(I hear it is $20k/year). On the consumption side, it's the same model. There's built in incentives on both ends. And for MidAmerican all they are doing is to drive as much consumption of the energy produced as possible. It's all fixed cost.
Title: Re: Berkshire Hathaway Energy
Post by: longinvestor on February 16, 2020, 07:57:39 PM
https://youtu.be/l93S99rkDg4

Wonder if we’ll see Berkshire Hathaway energy buy this concrete energy storage technology? From what I have gathered they have/are using molten salt and batteries in their Solar installations in the West.

Title: Re: Berkshire Hathaway Energy
Post by: CorpRaider on May 16, 2020, 12:07:39 PM
Has anyone ever asked them about fiber to the premises as being a potential growth area in the future for BHE (and utes as a whole).  It seems like this covid thing has really highlighted, for me at least, that high speed internet is basically an essential utility. 

Seems like as they build out "smart" grids with all the way fiber to the meters they could just tack on fiber service to the home for almost zero marginal cost.  Seems like utes already have the rights of way and cable management, equipment, workforce expertise, etc to dominate this segment.  Though I know I've seen some SE regional utilities who built this stuff out some in the internet bubble and then sold it off/took a loss, but maybe they were just very early.
Title: Re: Berkshire Hathaway Energy
Post by: scorpioncapital on May 17, 2020, 03:38:19 AM
Is it known yet if it's better to get your solar power from your utility using their high volume arrays or to build your own solar solution on your house , buy the hardware and never pay a monthly recurring utility bill again ? Which way is it going to go ?
Title: Re: Berkshire Hathaway Energy
Post by: rb on May 17, 2020, 04:26:08 AM
At this point you're not gonna be able to get the kind of stable, reliable energy in volume from your own setup like you get from your utility company. I think it's likely that you never will.
Title: Re: Berkshire Hathaway Energy
Post by: gfp on May 17, 2020, 05:39:06 AM
At this point you're not gonna be able to get the kind of stable, reliable energy in volume from your own setup like you get from your utility company. I think it's likely that you never will.

Yeah at this point the utility scale solar+battery installations are going to have huge cost/scale benefits.  It also greatly depends on how policies on net-metering evolve in the future.  Many utilities have already tightened the terms on net metering.  My local utility, Entergy New Orleans, gives us a ridiculously good arrangement - which doesn't seem good for them and I would be surprised if it lasts.  We have over 14kW of solar on our roof - enough to power our entire house including central air conditioning.  We do not have batteries.  We are able to sell our excess power back into the grid at the retail price.  This is such a bad deal for Entergy.  Basically we have the worlds most efficient battery.  For free.  And our utility, which shouldn't be in the business of buying power at their retail rate is doing just that.  We give them excess power all day long (especially in the summer) - then use the credits at night and in the winter months.  It results in just about net zero power bill, but we still pay them for a basic service hookup and our natural gas usage. 
Title: Re: Berkshire Hathaway Energy
Post by: kab60 on May 17, 2020, 10:07:21 AM
gfp, that was the way it used to work in Denmark as well. Fantastic deal (espescially since 80 pct of retail price here is taxes). So enjoy it while it lasts. :)
Title: Re: Berkshire Hathaway Energy
Post by: plato1976 on May 17, 2020, 11:07:35 AM
I can see more and more residential and companies are shifting to install solar panels to supply electricity for themselves. Many of them gain "energy independence"
Won't this impact traditional utility business ?
Not sure if there is a quantification of this impact
Title: Re: Berkshire Hathaway Energy
Post by: longinvestor on August 01, 2020, 07:19:13 AM
https://www.ferc.gov/news-events/news/ferc-modernizes-purpa-rules-ensure-compliance-reflect-todays-markets

PURPA, the 1978 deregulation of Utilities is the reason Walter Scott invested In MidAmerican. And Buffett bought into it in 1999. PURPA’s intent was to bring in market forces in place of monopolies. But as with all regs, there’re loopholes and much gaming has gone on. https://www.jdsupra.com/legalnews/ferc-revisions-to-purpa-rules-create-35558/ describes the gaming.

BHE is playing nice in eyes of regulators, mainly by holding ratepayer rates in check relative to peers.

An interesting tidbit I picked up is that private power (approx 40 entities) accounts for 72% of energy. Much consolidation to come. The rest comes from the balkanized coops, state power etc. The lowest cost producer stands to win. It may take 100 years but BHE will be there.