Tag Archives: AltaLink

Berkshire Hathaway Energy Bidding for Oncor

(BRK.A), (BRK.B)

Berkshire Hathaway Energy has been confirmed as one of two energy companies bidding for Oncor Electric Delivery Company, a regulated electric transmission and distribution service provider that serves 10 million customers across Texas.

Oncor has been in and out of auction ever since the April 2014 bankruptcy of its biggest shareholder, Energy Future Holdings. The company went under after being burdened with $40 billion in debt from a 2007 leveraged buyout.

NextEra Energy Inc. also has made an offer to acquire Oncor, and is considered one of the other competitors likely to take home the prize.

A Texas-Sized Asset

Oncor is a quite a prize. The company has the largest distribution and transmission system in Texas; with approximately 119,000 miles of lines and more than 3 million meters across the state.

The End of a Long Waiting Game

After originally pushing back the auction of Oncor from November 2014 to March 2015, it looked like no auction would ever happen. Instead, the creditors in the holding companies Energy Future Intermediate Holdings and Energy Future Holdings were expected to take ownership of Oncor.

Then, in September 2015, U.S. Bankruptcy Judge Christopher Sontchi agreed to a plan by Hunt Consolidated that would have allowed the company to take ownership with Oncor’s current management remaining in place.

The deal eventually fell apart when Hunt Consolidated didn’t like the terms set by the Public Utility Commission of Texas.

Energy Transmission is Great ROE

Back in June 2014, Warren Buffett proclaimed he was ready to put at least $15 billion into energy generation and transmission assets, and at that time Oncor, with a value of roughly $17.5 billion looked like a good fit.

Transmission lines have been high on Berkshire Hathaway Energy’s wish list of late because they are a great way to put Berkshire’s huge insurance float to work for a high return with very low risk.

The AltaLink Example

In April 2014, BHE made a $2.9 billion purchase of Canadian company AltaLink from SNC-Lavalin Group Inc. The acquisition got the company the transmission lines for Calgary, Alberta, and gives it an 8.75-percent after-tax return on equity, with consumers picking up 100-percent of the tab for any new transmission lines.

Like AltaLink, the acquisition of Oncor would be a perfect fit for Berkshire Hathaway Energy, which currently has $70 billion in assets, including one of the largest portfolios of renewable energy in the world.

© 2016 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 Hathaway Makes Aggressive Move into Canadian Energy Market

(BRK.A), (BRK.B)

With the recently announced acquisition of AltaLink, Berkshire Hathaway’s newly christened Berkshire Hathaway Energy has made an aggressive move into the Canadian energy market.

New Canadian Beachhead Strategy

Under the moniker MidAmerican Energy, the company’s previous Canadian energy plays consisted of joint ventures where the other partners took the lead. Now, as Berkshire Hathaway Energy, the company is going out on its own to become a leader in the growing markets of Calgary and Edmonton, Alberta. It’s a move that will have BHE serving 85% of the population.

In acquiring AltaLink from SNC-Lavalin Group Inc. (TSX:SNC), BHE will take possession of 12,000 kilometers of transmission lines and 280 substations that bring electricity to 3 million Albertans. The total cost of the acquisition is C$3.2 billion, approximately US$2.9 billion.

Warren Buffett has long been known for a buy-and-hold acquisition strategy that places an emphasis on finding companies with top-flight management that is kept in place. Similarly, Berkshire Hathaway Energy, under the direction of chairman, president, and CEO Greg Abel, has the same philosophy. AltaLink’s management will remain headquartered in Calgary, and it will continue to operate as a local, independent company.

Employing the Berkshire Strategy

Also in keeping with another of Buffett’s strategies, Abel’s goal is to buy assets that will be owned forever.

It’s a sizeable acquisition as AltaLink had assets of C$5.9 billion as of December 31, 2013, and generated revenues of C$534.1 million in 2013.

Is this just another acquisition in BHE’s portfolio, or does it represent additional focus on the Canadian energy market?

Apparently, both.

On one hand, it’s a natural move for BHE’s combination of regulated utilities and infrastructure companies that span the U.S. and reach as far as the U.K. and the Philippines. But there’s reason to expect more. Greg Abel hails from Edmonton,  he knows Alberta’s power demands are only going to grow, and he sees AltaLink as a beachhead acquisition.

Alberta’s Growing Power Needs

Industry leaders are already calling for more than 9,400 MW of new thermal power and more than 3,000 MW of new renewable power to fuel future development in Alberta.

Under Abel’s direction, BHE has been growing dramatically, including last year’s purchase of NV Energy that brought 1.3 million customers in Nevada under its wing. In total, BHE has amassed a $70 billion portfolio of energy companies that produced $12.6 billion in revenues in 2013.

A Future Berkshire Leader?

At the youthful age of 51, Greg Abel is often mentioned on the short-list of Buffett successors. He also sits on the board of directors of H.J. Heinz Company board of directors–Berkshire Hathaway’s biggest acquisition since BNSF Railway was acquired in 2010. It’s no surprise his name is on people’s lips, considering BHE’s high-powered growth strategy that has no end in sight. And the Canadian energy market may just be where that strategy leads.

© 2014 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.