Buffett’s MidAmerican to Develop Canadian Power Projects

Warren Buffett’s MidAmerican Energy Holdings Co. agreed to fund half the cost of natural gas-fueled power plants built or bought by TransAlta Corp. (TA) in Canada, where the companies say almost $200 billion in new investment is needed during the next 20 years.

“At MidAmerican, we have been seeking an entry point to the Canadian electricity generation market, where we see strong potential for growth,” Chairman and Chief Executive Officer Greg Abel said in a statement today. The companies didn’t put a value on the venture or planned spending. TransAlta, based in Calgary, will build, operate and maintain the plants.

MidAmerican has been betting on power generation through investments in an Illinois wind project and a solar operation in California. Buffett, 82, has said that businesses like utilities have earnings power even under adverse economic conditions.

TransAlta expects British Columbia will need 2,000 megawatts of new power capacity, enough for 1.6 million homes in the U.S., for plants exporting liquefied natural gas to Asia and other regions, Chief Executive Officer Dawn Farrell said in an interview on Sept. 21. Canada is the world’s third-largest producer of gas.

Liquefied natural gas export plants need energy to cool gas into liquid for shipping. Two terminals are planned in British Columbia at Kitimat and Prince Rupert.

Sundance Construction

TransAlta has spent about C$4 billion ($4.02 billion) since 2005 to build 1,600 megawatts of new power capacity, including coal and renewables, according to the company’s website. The company operates in Alberta, where it has 30 percent of the power market, as well as Washington, California and Australia.

The partnership will include Sundance 7, a new plant in Alberta that will cost C$1.2 billion to C$1.4 billion and begin construction in 2014, according to estimates from TransAlta last year.

“Notionally, it’s positive for TransAlta to have a strong financial backer with MidAmerican,” Jeremy Rosenfield, a Montreal-based analyst for Desjardins Securities Inc., said today in a telephone interview. MidAmerican is a unit of Buffett’s Berkshire Hathaway Inc. (BRK/A)

MidAmerican spent $1.5 billion on capital projects in the first half and forecast another $2.3 billion in expenses for the remainder of the year, according to a Berkshire regulatory filing. The energy company will use operating cash flows and debt issuances to fund those projects, according to the filing.

Previous Alliance

The companies in July 2001 announced an alliance to develop, build and operate coal, gas and hydro-generation plants in certain markets throughout North America, including Mexico.

TransAlta rose 3.4 percent to C$15.73 at the close in Toronto. It fell 28 percent this year before today.

Also today, TransAlta reported net income rose 12 percent to C$56 million, or 24 cents a share, from $50 million, or 22 cents, a year earlier. Profit excluding some items was 18 cents, about 5 cents less than the average of 10 analysts’ estimates compiled by Bloomberg.

To contact the reporters on this story: Jim Polson in New York at jpolson@bloomberg.net; Jeremy van Loon in Calgary at jvanloon@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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