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MidAmerican Energy Holdings


mmiller
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MidAmerican just filed an 8-K relating to the equity commitment between Berkshire and MidAmerican.  As it mentions below the companies are extending the agreement and reducing the equity commitment.  The equity commitment is down to $2 billion from $3.5 billion.  I am not quite sure if this really means anything, but Mr. Buffett or MidAmerican had to consciously make a decision to alter, fairly significantly, this dollar amount.

 

Item 1.01.  Entry into a Material Definitive Agreement

 

MidAmerican Energy Holdings Company (“MidAmerican”) is a consolidated subsidiary of Berkshire Hathaway Inc. (“Berkshire”). On March 23, 2010, Berkshire and MidAmerican amended the Equity Commitment Agreement previously entered into on March 1, 2006 and filed with the United States Securities and Exchange Commission (“SEC”). Such amendment extends the term of the Equity Commitment Agreement from February 28, 2011 to February 28, 2014, and reduces the Maximum Equity Amount from $3.5 billion to $2.0 billion effective as of March 1, 2011. All other terms and conditions contained in the Equity Commitment Agreement shall continue in full force and effect.

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  • 3 years later...

http://www.reuters.com/article/2013/05/29/nveenergy-berkshire-idUSL3N0EA3SB20130529

 

I don't know how I feel about this deal.  I'll look more into the company to see if there's anything interesting, but buying $330m of earnings for $5.6b seems like a mistake to me.  I would think buying $5.6 of BRK shares would be a better use of capital.

 

I am no expert on utilities so if someone has any insight, I would love to hear it!

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Guest longinvestor

http://www.reuters.com/article/2013/05/29/nveenergy-berkshire-idUSL3N0EA3SB20130529

 

I don't know how I feel about this deal.  I'll look more into the company to see if there's anything interesting, but buying $330m of earnings for $5.6b seems like a mistake to me.  I would think buying $5.6 of BRK shares would be a better use of capital.

 

I am no expert on utilities so if someone has any insight, I would love to hear it!

 

Going by Munger's comments at the AGM: "Our solar installations are in the desert", NV and CA should see big capital spending on solar by Mid American. I expect them to say that this is a 50 year investment similar to the BNSF deal. What I would love to hear is the fundamental cost/unit advantage of solar (&wind) over fossil fuels over time. Similar to the cost/ton-mile advantage of friction with rails vs asphalt. 

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http://www.reuters.com/article/2013/05/29/nveenergy-berkshire-idUSL3N0EA3SB20130529

 

I don't know how I feel about this deal.  I'll look more into the company to see if there's anything interesting, but buying $330m of earnings for $5.6b seems like a mistake to me.  I would think buying $5.6 of BRK shares would be a better use of capital.

 

I am no expert on utilities so if someone has any insight, I would love to hear it!

 

Going by Munger's comments at the AGM: "Our solar installations are in the desert", NV and CA should see big capital spending on solar by Mid American. I expect them to say that this is a 50 year investment similar to the BNSF deal. What I would love to hear is the fundamental cost/unit advantage of solar (&wind) over fossil fuels over time. Similar to the cost/ton-mile advantage of friction with rails vs asphalt.

 

And that's fine, but the ROE on the investments is probably going to be regulated, based upon my limited knowledge of utilities, in the 10-12% range.  So I still don't get the high price here.

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Guest longinvestor

http://www.reuters.com/article/2013/05/29/nveenergy-berkshire-idUSL3N0EA3SB20130529

 

I don't know how I feel about this deal.  I'll look more into the company to see if there's anything interesting, but buying $330m of earnings for $5.6b seems like a mistake to me.  I would think buying $5.6 of BRK shares would be a better use of capital.

 

I am no expert on utilities so if someone has any insight, I would love to hear it!

 

Going by Munger's comments at the AGM: "Our solar installations are in the desert", NV and CA should see big capital spending on solar by Mid American. I expect them to say that this is a 50 year investment similar to the BNSF deal. What I would love to hear is the fundamental cost/unit advantage of solar (&wind) over fossil fuels over time. Similar to the cost/ton-mile advantage of friction with rails vs asphalt.

 

And that's fine, but the ROE on the investments is probably going to be regulated, based upon my limited knowledge of utilities, in the 10-12% range.  So I still don't get the high price here.

MA does not pay dividends to BRK. If they start doing that?

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Warren Buffett once said owning a utility was a way to stay rich rather than get rich. But he was being coy.

 

Berkshire Hathaway's BRKB +1.60%$5.6 billion acquisition of Nevada utility NV Energy NVE +22.51%is a case in point. From one angle, it looks like Berkshire is sensibly putting some of its $44 billion cash pile into a steady, if hardly stellar, profit generator.

 

There's a dose of opportunism here, too. Berkshire is offering $23.75 a share, a 23% premium to Wednesday's closing price, though less than 10% above NV Energy's peak for the year, reached only a month ago. Since then, NV Energy's stock, along with the wider sector, had fallen about 10%. Increased expectations that the Federal Reserve would soon taper off its bond purchases have made high-dividend-paying utilities stocks less attractive.

 

 

NV Energy offers a hedge to this. Nevada suffered more than most in the bust: Las Vegas property prices dropped 62% peak to trough compared with 34% for the S&P/Case-Shiller Home Price index overall. So Fed tightening should be largely determined by the pace of recovery in states like Nevada, which in turn should underpin electricity demand there, boosting NV Energy's prospects.

 

In addition, Nevada's population growth rate is projected to be about 50% faster than the U.S. average over this decade. Meanwhile, NV Energy will likely overhaul its generation portfolio to reduce reliance on coal. Both provide structural profit growth.

 

Berkshire's last big bet on a utility-like company, 2010's purchase of the Burlington Northern Santa Fe railroad network, also came with less-obvious growth drivers. For one, Burlington Northern happened to be best-placed to transport the subsequent surge in Bakken oil production. Having averaged $2 billion to $2.5 billion in net profit from 2006 to 2009, it made $3.7 billion last year, up 84% since Berkshire bought it.

 

That would sound like getting rich to most investors.

 

http://online.wsj.com/article/SB10001424127887324682204578515270723135556.html?mod=WSJ_Heard_LeadStory

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The Nevada utility deal had me thinking about what other value BRK could unlock from expansion across the Western states. Well, I ran across some fascinating studies/discussion underway about the electrification of the railroad with BNSF the focus.

 

http://amateurplanner.blogspot.com/2009/11/will-buffet-electrify-bnsf-part-i.html

http://amateurplanner.blogspot.com/2009/11/will-buffet-electrify-bnsf-part-iia.html

http://amateurplanner.blogspot.com/2009/11/will-buffet-electrify-bnsf-part.html

 

This will be the mother of capital investments if it happens!

 

 

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Guest longinvestor

The Nevada utility deal had me thinking about what other value BRK could unlock from expansion across the Western states. Well, I ran across some fascinating studies/discussion underway about the electrification of the railroad with BNSF the focus.

 

http://amateurplanner.blogspot.com/2009/11/will-buffet-electrify-bnsf-part-i.html

http://amateurplanner.blogspot.com/2009/11/will-buffet-electrify-bnsf-part-iia.html

http://amateurplanner.blogspot.com/2009/11/will-buffet-electrify-bnsf-part.html

 

This will be the mother of capital investments if it happens!

 

BNSF spent ~ $4B in fuel in 2012. Electrification cost is $5 M / Mile (according to the blog). At 32,500 miles, it would cost BNSF $160B to completely electrify.

 

Interesting thoughts,

How much more freight will electrification allow BNSF to carry in Ton Miles? The blog claims much more than diesel.

How much more efficient are today's electric motors relative to the Milwaukee Road times?

How else could BNSF recoup the investment other than carrying BNSF's freight? Right of way to Amtrak etc?

Will the fed policy come in the way? help? hinder? pitch in?

 

The Russians seem to agree with the benefit. The trans-Siberian railroad(10,000 KM) is being completely (dual) electrified!

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http://dealbook.nytimes.com/2013/05/31/buffetts-energy-gamble-in-las-vegas/

 

Buffett’s Energy Gamble in Las Vegas

 

 

 

 

Warren Buffett needs luck for his Las Vegas gamble to pay off. Berkshire Hathaway’s $5.6 billion bet on NV Energy suggests the billionaire investor is coming up short on decent ways to deploy his cash. With electrical utility mergers offering meager synergies thanks to the pounds of flesh demanded by regulators, Berkshire will struggle even to cover its cost of capital.

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