Buffett Power Unit Targets Renewables for Acquisitions
MidAmerican Energy Holdings Co., the power provider owned by Warren Buffett’s Berkshire Hathaway Inc., is targeting renewable energy deals amid high utility valuations, Chief Financial Officer Patrick Goodman said.
“We believe renewables is the better investment right now” because utilities are too expensive, MidAmerican’s Goodman said in an interview today at an Edison Electric Institute conference in Phoenix. “As a cash buyer, we will be looking at utilities if pricing comes in a bit.”
MidAmerican has sought opportunities to reinvest its cash and highlighted that it has more funds available to service debt and build its business because it doesn’t pay a dividend. The power provider also has access to capital from Omaha, Nebraska- based Berkshire, which holds a 90 percent stake and had $47.8 billion (BRK/A) in cash at the end of September.
MidAmerican formed a new unit in January to support its investments in renewable energy, including the $2.4 billion 550- megawatt Topaz Solar Farm and 168-megawatt Alta Wind VII project in California. The proportion of energy MidAmerican generated from wind, hydroelectric, solar, nuclear and geothermal rose to 31 percent as of Sept. 30 from 19 percent at the end of 2006, according to a regulatory filing last week.
Chief Executive Officer Greg Abel, 50, helped build MidAmerican through utility acquisitions, including the 2006 purchase of PacifiCorp. In 2008, MidAmerican agreed to terminate its purchase of Constellation Energy Group Inc. after Electricite de France SA bought half of the Baltimore-based company’s nuclear plants. Constellation was acquired by Exelon Corp. (EXC) this year.
Average price-to-earnings ratio for the 59 companies in the Bloomberg Americas Electric Index is 14.93, up from 14.21 last year and 12.82 in 2010, according to data compiled by Bloomberg. Price to book value is 1.39, up from 0.75 in 2011.
MidAmerican has acquired 1.6 gigawatts of wind and photovoltaic projects since December 2011, adding to an existing 3.3 gigawatts of wind and geothermal assets, according to London-based Bloomberg New Energy Finance.
“Large utilities like MidAmerican are a natural source of equity for renewable projects,” said Stefan Linder, a New York- based analyst for Bloomberg New Energy Finance. “They have a low cost of capital and shareholders that seek long-term, steady returns.”
Buffett also may be interested in tax credits from the projects, Linder said.
Abel last month struck a deal with TransAlta Corp. (TA) to fund half the cost of natural-gas fueled power plants built or bought in Canada, where the companies said almost $200 billion in new investment is needed during the next 20 years. The energy company has also scouted natural gas investments in the U.S., Goodman said today.
Buffett, the world’s fourth-richest person, has said that regulated businesses like the utilities have earnings power even under adverse economic conditions and can provide fair returns on capital as long as they invest in infrastructure. MidAmerican sells electricity to 6.3 million customers and operates in states including Iowa, Oregon and Utah.
Owning utilities is “not a way to get rich,” Buffett, 82, said at a meeting of U.S. state regulators in 2006. “It’s a way to stay rich.”
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