Monthly Archives: October 2015

NV Energy’s Entry into Energy Imbalance Market Delayed

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Berkshire Hathaway’s utility NV Energy will not be entering the western Energy Imbalance Market (EIM) on November 1, as originally planned.

The California Independent System Operator Corporation (ISO) and NV Energy are delaying the date for the Nevada-based utility to begin financially binding participation in the western Energy Imbalance Market (EIM).

The two companies are ready to proceed with full EIM participation and are awaiting the final authorization to proceed from the Federal Energy Regulatory Commission (FERC).

The ISO will implement the entry of NV Energy as an EIM entity only on the first of the month. The ISO and NV Energy said that they will announce the date of NV Energy’s EIM implementation promptly upon authorization by FERC.

Millions in Projected Savings

NV Energy will save millions annually, with its attributed share of gross benefits estimated to range from $6 million to $10 million in 2017, and from $8 million to $12 million by 2022.

Savings Are Already Happening for Berkshire

In 2014, when Berkshire Hathaway Energy’s PacifiCorp agreed to become the first participant in the new Energy Imbalance Market (EIM), it was touted as a way to balance electricity in-flows and out-flows on a regional basis that would bring millions of dollars in benefits to participating utilities.

The predicted benefits for PacifiCorp have proven to be true, and the California Independent Service Operator (CAISO) has been able to quantify the benefits for the year so far were over $33 million.

About the Energy Imbalance Market

The EIM improves the integration of renewable resources and increases reliability by sharing information between balancing authorities on electricity delivery conditions across the entire EIM region. The only real-time energy market in the Western U.S., advanced ISO market systems automatically balance supply and demand for electricity every fifteen minutes, dispatching the least-cost resources every five minutes.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

PacificCorp Saved $33 Million This Year Through EIM

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Berkshire Hathaway’s utility PacifiCorp has saved over $33 million so far this year through the new the western Energy Imbalance Market.

California Independent System Operator (ISO) reports that the gross benefits realized in the 2015 third quarter have totaled $12 million, bringing the total benefits since the market’s launch in November 2014 to $33.41 million.

In 2014, Berkshire Hathaway Energy’s PacifiCorp agreed to become the first participant in a new Energy Imbalance Market (EIM) as a way to balance electricity in-flows and out-flows on a regional basis and bring millions of dollars in benefits to participating utilities.

The EIM began financially-binding operation on November 1, 2014, by optimizing resources across the ISO and PacifiCorp’s balancing authority areas (BAAs), which includes California, Oregon, Washington, Utah, Idaho and Wyoming.

The EIM improves the integration of renewable resources and increases reliability by sharing information between balancing authorities on electricity delivery conditions across the entire EIM region.

Summer Brought Greater Economic Benefits

According to California Independent System Operator, the 3rd quarter saw greater economic values from the EIM five-minute market transfers made during the hot summer months. July saw the greatest amount of benefits, $5.69 million, followed by $3.32 million and $2.99 million for August and September, respectively. Interregional transfers lowered supply costs in one EIM balancing area to meet demand in another. The Q3 benefit of $12 million was 18 percent higher than the previous quarter and reflects the seasonal variation in system and market conditions.

Environmental Benefits Too

In addition to the economic benefits produced by interregional transfers, environmental benefits were also achieved through avoiding curtailment of renewable resources in the ISO balancing area. The total avoided curtailment for Q3 was 828 megawatt-hours, which is less than last quarter as there were fewer transfers from the ISO to PacifiCorp, the EIM’s current participant, because of high prices in the ISO area. Avoiding curtailment in Q3 displaced an estimated 354 metric tons of carbon dioxide that would have been produced if the renewable resources had been forced to reduce generation output.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

McClane Plans Distribution Center in Schodack, New York

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When you move 10 billion pounds of merchandise to customers every year, you are constantly looking to do it better. The key is logistics.

Berkshire Hathaway’s McLane Foodservices, a division of McLane Company, is planning a 175,000-square-foot distribution center in Schodack, New York. The main building will be 50 feet from routes 9 and 20, and is next to I-90’s Exit 11.

The facility will be on 32.5 acres of the 55.6-acre gravel mine owned by the R.J. Valente Co., and will run 24-hours a day, seven days a week.

Drawing Protests

Officials from the town of Schodack had entered into a legally binding agreement with McClane to keep its identity quiet during the first stages of the planning process, and the public announcement drew protests from neighbors bordering the property. Some of the abutters live as close as 600-feet from the proposed building, and are concerned about truck traffic, unwanted lighting, and the potential for pollution of wells.

About McLane

One of the largest companies owned by Berkshire Hathaway,  McLane Company is a $46 billion supply chain services company that provides grocery and foodservice supply chain solutions for convenience stores, mass merchants, drug stores and chain restaurants throughout the United States. McLane was acquired by Berkshire in 2003.

Founded in 1894 as a small retail grocery store in downtown Cameron, Texas, McLane, through McLane Grocery, McLane Foodservice and its recent foodservice acquisition, Meadowbrook Meat Company, Inc., operates 80 distribution centers and one of the nation’s largest private truck fleets.

The company buys, sells and delivers more than 50,000 different consumer products to nearly 90,000 locations across the U.S. In addition, McLane provides alcoholic beverage distribution via McLane Beverage Distribution, Inc., and its acquisitions of Empire Distributors, Inc., Horizon Wine & Spirits and Delta.

McLane employs 20,000 people, and had 2014 revenues of $46.6 billion, an increase of $710 million (1.5%) as compared to 2013.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

BH Media Partners With McClatchy’s Tru Measure

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BH Media Group’s digital ad agency, BH Digital Services, has formed a partnership with the McClatchy Company. BH Media will use McClatchy’s Tru Measure solutions to help run BH Digital’s offerings for small- to medium-sized businesses in local markets.

Tru Measure is a metrics-driven, technology services company that focuses on capturing consumer engagement generated from media and advertising. Its core products enable non-obtrusive collection of engagement analytics for all media types, including print, online, and mobile.

BH Media’s white-label brand will offer Tru Measure solutions that provide aggregated and consistent analytics in order to effectively optimize local advertising budgets.

Tru Measure was founded by Charity Huff in 2009, and acquired by the McClatchy Company in 2013.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

BNSF Solves Grain Issues

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For the past three years, BNSF Railway has been pilloried by grain producers for its extended shipping delays. The good news is that those delays are mostly behind them these days and grain shipments are running on time.

Back in June of 2014, the average delay for grain shipping was a whopping 32 days. In October 2014, the delay was running a solid two weeks. However, with some reduction in the number of oil trains running from the Bakken Formation, and improved track and signaling on the Great Northern Corridor, the shipments are now averaging only three days behind schedule.

As of October 17, 2015, BNSF’s grain shipments system-wide are up 22.69% for the 4th quarter to date, and are up 13.51% for the year to date; both over 2014 figures. Conversely, Petroleum shipments are down 7.97% for the year to date, as compared to 2014.

The improvements have grain producers and BNSF officials in a much happier mood.

“We have substantially better Ag shuttle turns per month as compared to last year,” a BNSF official said in May. “Last year we were below 2 turns per month, and now we are over 2.5 turns per month.”

2014’s Winter of Discontent

Back in the winter of 2014, grain shipments were running weeks late with the shipping time from the Midwest grain belt to the Pacific Northwest running a whopping 22 days. The delays added substantial costs to grain producers, as they paid ocean-going freighters some $30,000-$50,000 per day to sit in port waiting for the delayed grain.

Huge Rise in Traffic

With the boom in crude oil transport by rail, BNSF has seen a 69% increase since 2009 in traffic going out of the region, and the traffic running into the region has also increased by 31% over the same time period.

Key Improvements on the Great Northern Corridor

The Great Northern Corridor, which links Chicago with the Pacific Northwest, moves grain for export from the Midwest to ports in Washington and Oregon. BNSF has been working to increase the number of sidings and improve existing sidings, as most of the Corridor is single track, so the sidings are necessary to allow trains to pass each other. In total, BNSF has added 72 miles of double track in the Corridor, nine new sidings, and 9 siding extensions. The railroad also made improvements to its centralized traffic control (CTC) signaling.

Since 2013, BNSF has spent $1 billion on improvements in North Dakota alone.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

BYD Solar Signs Major Deal for Middle-East Luxury Hotels

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BYD Co. Ltd., the Chinese battery and vehicle-maker that is 10% owned by Berkshire Hathaway, has signed a deal in Jordan to provide polycrystalline solar photovoltaic modules for the largest private photovoltaic project in the Middle-East country. The project will supply electricity to a number of luxury hotels.

Partnering with Phoenix Solar, BYD will build three power plants that will supply all the electricity needs of Arab International Hotels, plc (owner of Marriott Amman), Al Dawliyah Hotels & Malls, plc (owner of Sheraton Amman) and Business Tourism Company (owner of Marriott Dead Sea and Marriott Petra).

The goal of the solar project is to reduce to zero the carbon impact of power generation, eliminating 10.7 million kilograms of CO2 emissions per year that would ordinarily be produced through burning fossil fuels.

Phoenix Solar will handle the engineering, procurement and project management. The solar plants will be built in the Mwaqqar and Damikhi/Qatraneh areas, connecting to the electrical networks Jordan Electric Power Co, plc and Electric Distribution Company, plc.

“This project is a milestone in pursuing our ambitious environment targets of zero CO2 emissions,” said Bassam Maayeh, Managing Director of Arab International Hotels, and spokesman for the consortium of hotels involved.

In 2008, Berkshire Hathaway bet on BYD’s potential and purchased 225 million shares, and today owns roughly 9.1% of the company.

For More on BYD, read the Special Report: BYD, Berkshire’s Tesla.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

BNSF’S 150-Car Sand Train Highlights Growth in Locomotive Power

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When someone needs to move 33 million pounds all at one time, it’s nice to know they can call on BNSF. In this case, the someone was U.S. Silica Holdings, Inc., which needed to move a 16,500 ton (33 million pounds) load of U.S. Silica White® frac sand 1,272 miles from Ottawa, Illinois to Loving, New Mexico.

BNSF Railway’s recent a 150-car frac sand train, which made a delivery to Rangeland Energy’s RIO Hub, highlights the growth in locomotive power over the past two decades.

The load, which was delivered October 2, 2015, was one of the heaviest unit frac sand trains ever run in North America.

Demand for sand has boomed in recent years as hydraulic fracking needs thousands of tons of sand per well. The sand used is “frac sand,” a high-purity quartz sand with very durable round grains.

The RIO Hub is a 300-acre rail facility located near Loving, New Mexico, in the center of the Delaware Basin’s drilling and production activity. The terminal provides services for outbound crude oil and condensate and inbound frac sand as part of Rangeland’s RIO System, which serves oil and gas producers in the Delaware Basin in West Texas.

“Despite the current pricing environment, the Delaware Basin remains an economic play, and producers operating in the region continue to require increasingly large volumes of frac sand to drill and complete their wells,” notes Rangeland Executive Vice President and Chief Operating Officer Steve Broker. “Our goal is to serve the needs of our customers, and we are pleased to have the capacity and flexibility to receive this record-breaking unit train at RIO. Rangeland was able to accommodate the unit train’s arrival and unload it in a timely manner because we designed the RIO Hub to have the size and scale to meet the sand or oil market’s requirements in a way that increases efficiencies and reduces costs. We expect sand volumes to continue to increase as operators drill longer wells and complete larger fracs. We are well positioned to meet those needs at the RIO Hub.”

Increased Locomotive Power

The Association of American Railroads notes that the average tonnage of freight that a train can haul has been dramatically increasing, due in part to improvements in locomotive power and rail car design. One of the keys is the efficiency of modern hybrid diesel-electric locomotives that capture braking energy and store it in batteries. The average freight train hauled 3,606 tons of freight in 2014, which was up from just 2,222 tons in 1980.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Kraft Heinz Slashing Ad Agency Dollars as Part of Cost Cutting

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Newly formed Kraft Heinz is looking to change the way it produces its advertising, as part of its goal in wringing $1.5 billion in annual savings out of the combined company.

After merging on July 2, 2015, Kraft Heinz is now third-largest food and beverage company in North America and ranked number five world-wide. The company has eight $1 billion+ brands.

The merger left Heinz’s ad agency out in the cold. In late August, management shifted the Heinz accounts that had been handled by Interpublic’s UM to Kraft’s agency Starcom MediaVest Group’s Starcom. In addition, Kraft Heinz is now reviewing all of its creative accounts, according to Ad Age.

Ad Age reports that all the creative agencies have been asked to provide information and those chosen will be responsible for creative ideas, but will no longer provide the actual production of the ads, which will go directly to production houses.

Cost-Cutting Across the Board

Kraft Heinz’s chief executive Bernardo Hees is a partner in 3G Capital, which teamed with Berkshire Hathaway take over both companies and merge them together. He came to the helm of the combined company after a stint as the chief executive at A.J. Heinz where he slashed 7,000 jobs and brought a tight-fisted approach that made no expenditure too small to be examined.

At Heinz, Hees imposed cost controls big and small that include cuts to travel expenses, limits on the number of printer copies that can be made each month, the elimination of snacks in break rooms, and new mandates on cutting electricity usage. After assuming the helm of Kraft Heinz he immediately cut 2,500 jobs in his first week.

Among the management changes Hees has made was the appointment of Nina Barton to Senior VP of Marketing Innovation, Research and Development. Ms. Barton first joined Kraft in 2011 and was most recently the VP of Marketing for Coffee. She reports directly to George Zoghbi who was appointed Chief Operating Officer of U.S. commercial business.

Gone were Tom Bick, who was Heinz’s senior director-integrated marketing communications and advertising for the Oscar Mayer business, and Kara Henry, who was Heinz’s senior marketing director, communications and agency relations.

Warren and Charlie Agree

Warren Buffett and Charlie Munger’s have both supported Hees’s approach, believing that these legacy food companies, which both date back to the 1800s, need cost-cutting to be competitive in the 21 century.

“3G has been buying businesses that have too many people,” Buffett explained at the 2015 Berkshire Hathaway annual meeting. “You will have never found a statement from Charlie or me saying that a business should have more people than needed.”

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Berkshire to Acquire Insurance Assets

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Berkshire Hathaway’s insurance unit, Tenecom Ltd, a subsidiary of National Indemnity, will acquire the non-life insurance assets of UK insurer Charles Taylor PLC.

Charles Taylor has begun disposing of its non-life insurance assets in order to concentrate on its life insurance business, and Tenecom Ltd will acquire the business assets of both Cardrow Insurance and Beech Hill Insurance.

financial details have been released other than that Charles Taylor will receive a final dividend from Cardrow and Beech Hill when the units are liquidated.

London-based Tenecom was originally known as Yasuda Fire And Marine Insurance of Europe, before changing its name in 2001.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Commentary: Is a Boston Dealership Group a Likely Acquisition for Berkshire Hathaway Automotive?

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When Berkshire Hathaway jumped into the auto retailing business in March 2015, with its $4.1 billion acquisition of the Van Tuyl Group, it added a whole new line of business to the mega-conglomerate.

The Van Tuyl Group was the largest privately owned auto dealership group in the U.S., and instantly made the newly christened Berkshire Hathaway Automotive Group the fourth largest dealership group in the U.S.

The Van Tuyl acquisition was just the beginning, Warren Buffett noted in his 2015 Berkshire Hathaway Chairman’s Letter, stating, “…if we can buy dealerships at sensible prices – we will build a business that before long will be multiples the size of Van Tuyl’s $9 billion of sales.”

A Plum Waiting to be Picked

Now, a plum dealer group looks ready to sell and Berkshire Hathaway Automotive could be the perfect buyer.

Herb Chambers Companies, a privately-held, Boston-based dealership group with 55 total dealerships, looks to be the perfect fit for Berkshire Hathaway Automotive, and its owner looks ready to sell.

Herb Chambers, a former copier salesman who has spent the past thirty years building a first class dealership group that is the 12th largest privately held auto group in the nation, has already stated that he would sell if the price is right.

He also credits Warren Buffett’s Van Tuyl Group acquisition for boosting his personal net worth to some $1.5 billion, as valuations jumped throughout the whole sector, and private equity money, including financier George Soros, began looking to get in.

In the past, Chambers has turned down offers from AutoNation Inc. and Penske Automotive Group, but with valuations high for auto groups, there could no better time to cash out.

Berkshire Hathaway never likes to get into bidding wars, so what would make Chamber choose Berkshire?

With Berkshire Hathaway Automotive he could still remain in charge of his baby, just like Larry Van Tuyl, who became chairman of Berkshire Hathaway Automotive.

Unlike most private equity investors that quickly replace the existing leadership, Berkshire Hathaway looks as much as possible to keep talented managers at the helm. It was that arrangement that attracted Larry Van Tuyl to Berkshire. As Warren Buffet explained:

“Larry Van Tuyl, the company’s owner, and I met some years ago. He then decided that if he were ever to sell his company, its home should be Berkshire.”

Chambers Knows When to Sell

Herb Chambers is certainly not afraid to sell when the time is right. Three decades ago he founded A-Copy America, and after merging it with Ikon Office Solutions, he cashed out with a sale to Ricoh. It was a shrewd move, and Chambers has proved to be a shrewd guy who currently sells more cars than anyone else in New England.

Could the perfect exit strategy for Herb Chambers this time involve Berkshire?

Could be. After all, Chambers does have a photo of him and Buffett on the wall of his office.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.