Category: Berkshire Hathaway Energy

(BRK.A), (BRK.B)

The need for quick recovery of the transmission grid after a disaster is often beyond the capabilities of a single utility. After a blizzard, earthquakes, flood, hurricane, or tornado there are often thousands of utility poles and transformers that need to be repaired, and miles of downed wire that needs to be restrung. And, these days, utilities also face new threats from cyberattacks that can be potentially just as devastating.

Affiliates of Berkshire Hathaway Energy, as well as affiliates of American Electric Power, Duke Energy, Edison International, Eversource Energy, Great Plains Energy, and Southern Company are pursuing the development of Grid Assurance, a limited liability company, that will offer subscribers cost-effective solutions for enhancing transmission grid resiliency.

Recovery of the transmission grid can be hampered by long lead times required to build and deliver critical replacement equipment including large transformers, circuit breakers and other specialized electrical equipment. Grid Assurance will give subscribers economical access to critical equipment faster than traditionally possible.

The Federal Energy Regulatory Commission (FERC) issued a positive order March 25 to Grid Assurance that provides regulatory clarity supporting transmission-owning entities participating in and subscribing to Grid Assurance as a way to strengthen transmission grid resiliency. Grid Assurance had requested determinations on several issues from FERC in December 2015.

The eight electric utilities and energy companies first announced Grid Assurance on June 10, 2015 as a limited liability company that expects to offer subscribers cost-effective solutions for enhancing transmission grid resiliency and protecting customers from prolonged transmission outages.

FERC initially recognized the benefits of Grid Assurance in an Aug. 7, 2015 order. The Grid Assurance consortium subsequently developed a Subscription Agreement and has received clarity from FERC in a declaratory order that enables broader transmission owner participation.

In the March 25 order, the FERC confirmed:

• the prudence of subscriber decisions to contract with Grid Assurance for sparing service and the prudence of purchasing spare equipment from Grid Assurance following a qualifying event;

• the availability of single-issue ratemaking to recover costs of purchasing sparing service and spare equipment from Grid Assurance; and

• that affiliate rules are waived for Grid Assurance, subject to certain conditions including submission of an annual information report from Grid Assurance that contains audited financial statements, information about the sparing service fee formula and information about sparing sales including cost and sale price. The annual information reporting requirement will begin a year from the start of sparing operations.

Grid Assurance continues to evaluate the order and will seek additional clarification from FERC, if necessary. Grid Assurance expects to begin marketing this service to transmission owners in the second quarter with subscriber acceptance, warehouse specification and inventory identification occurring over the next 18 months.

Grid Assurance plans to own and maintain critical, long lead-time equipment at secure, strategically located warehouses and offer logistics support to facilitate the expedited movement of equipment to the affected sites following qualifying events.

Qualifying events can include physical attacks, cyberattacks, electromagnetic pulses, catastrophic events, solar storms, earthquakes and severe weather events.

Grid Assurance services are intended to complement transmission owners’ existing programs as well as established industry initiatives.

© 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.

(BRK.A), (BRK.B)

Berkshire Hathaway Energy has acquired the Minnesota Community Solar Garden developments from Geronimo Energy, LLC.

The portfolio of solar projects was acquired by BHE Renewables, LLC, which is a subsidiary of Berkshire Hathaway Energy.

The acquisition will give BHE an additional of 66 megawatts of solar garden projects spread across 21 locations and 16 Minnesota counties when construction is completed at the end of 2017.

The deal is the second between BHE and Geronimo in the last twelve months.

In May 2015, BHE acquired Geronimo’s Grande Prairie Wind Farm in Holt County, Nebraska; the to be developed Walnut Ridge Wind Farm in Bureau County, Illinois; and a portfolio of future Minnesota solar projects.

The total combined solar power portfolio will produce nearly 100 MW of electricity.

Working with Utility-Scale Developers

Berkshire has a strategy of purchasing solar projects from outside developers, including the 579 megawatt Solar Star Projects (formerly Antelope Valley Solar Projects), which are two co-located solar installations in Kern and Los Angeles Counties in California, that were purchased from SunPower in 2013

This latest deal will not be the last between Berkshire and Geronimo, a utility-scale wind and solar energy developer based in Edina, Minnesota.

“We are pleased to expand our partnership with BHE Renewables,” says Geronimo Energy President, Blake Nixon. “Geronimo looks forward to continuing to grow our relationship with BHE Renewables through our work in Community Solar Garden programs and deliver on our promise to positively impact rural economies, specifically here in our home state of Minnesota.”

© 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.

(BRK.A), (BRK.B)

Fitch Ratings has affirmed the ‘BBB-‘ rating on Solar Star Funding, LLC’s (Solar Star) $1.325 billion senior secured notes due June 2035, and describes the rating outlook as “Stable.”

Owned by Berkshire Hathaway Energy, Solar Star is a portfolio of two adjacent crystalline, single-axis tracking photovoltaic plants totaling 586 net MW at the point of interconnection. Solar Star 1 and Solar Star 2 represent 310 net MW capacity and 276 net MW capacity, respectively.

According to Fitch, the rating affirmation is based upon the project’s completion within budget and ahead of schedule with stable operating performance to date. The rating is supported by stable cash flows anchored by contracted long-term revenues with an investment grade counterparty, conventional technology and expected financial performance consistent with an investment grade rating.

KEY RATING DRIVERS

Revenue Risk – Price: Midrange

Stable Contracted Revenues: Revenue risk is low with annually escalating, fixed-price, 20-year power purchase agreements (PPA) with Southern California Edison (SCE, rated ‘A-‘/Outlook Stable by Fitch). The energy production requirement is consistent with the project’s capabilities, and PPA termination risk is low.

Revenue Risk – Volume: Midrange

Sufficient Solar Resource: Total generation output in Fitch’s rating case is based on a one-year P90 estimate of electric generation to mitigate the potential for lower-than-expected solar resource. The project can meet debt obligations under a one-year P99 generation scenario.

Operation Risk: Midrange

Proven Technology and Experienced Operator: Crystalline technology has a long operating history, which mitigates plant performance risks. SunPower, as the plant operator, has a track record of high plant availability. Long-term agreements support routine and major maintenance needs. Fitch’s financial analysis incorporates operating cost increases to mitigate unforeseen events including contractor replacement risks.

Debt Structure: Midrange

Conventional Debt Structure: The debt structure is typical for project financings with fully amortizing fixed-rate debt, a standard equity distribution test, and additional leverage controls.

Stable Initial Financial Performance

Base case debt service coverage ratios (DSCR) average 1.51x with a minimum of 1.44x. Fitch’s rating case includes increased expenses and reduced energy output, resulting in an average DSCR of 1.32x with a minimum of 1.31x, metrics that are supportive of the rating.

Peer Comparison: Solar Star’s projected rating case financial profile is consistent with Fitch’s minimum investment grade criteria but lower than Topaz Solar Farms (‘BBB’/Outlook Stable), which has an average rating case DSCR of 1.58x.

RATING SENSITIVITIES

Negative – Inadequate Operating Results: Energy production persistently underperforming original projections or expenses persistently higher than the forecast that result in DSCRs below 1.30x would result in a downgrade.

Positive – Demonstrated stable operating and financial performance consistently above base case expectations may result in a rating upgrade.

CREDIT UPDATE

Completion risk has been removed as a key rating driver for Solar Star due to the fully operational nature of the project following early completion under the PPA. The project reached commercial operation (COD) on July 1, 2015, approximately four months ahead of scheduled completion, and total construction costs remained approximately $60 million under budget. The completed project’s capacity totals 586 MW of capacity, providing an additional 7 MW of capacity compared to design specifications. Solar Star is permitted to sell the additional capacity under the two PPAs and large-generator interconnection agreements.

Operating performance was strong in 2015 with plant availability at or above 99% every month since COD. Energy production for the six months following COD has exceeded Fitch’s base case and rating projections by 5% and 12%, respectively. Actual monthly generation in 2015 since COD was above Fitch’s base case forecast every month except for the month of October as a result of inclement weather conditions. Higher energy production compared to Fitch’s projections is largely due to the project’s early commercial operation.

Fitch maintains its original base and rating case forecasts, which projects metrics supportive of the current rating, due to the project’s short operating history. Fitch will assess whether changes to financial stresses are warranted based on a more extensive history of actual energy production and operating costs. The additional 7 MW or 1.2% of capacity is not factored into Fitch’s financial analysis since the debt was sized to original design specifications, but this increased capacity could contribute modestly to additional cash flow for the project. Fitch’s rating case financial analysis includes a combination of one-year P90 electric generation, a 10% increase in costs, reduced output, and accelerated panel degradation resulting in an average DSCR profile of 1.32x and a minimum of 1.31x.

The project’s cash flow remains resilient to potential cost stresses as a 10% increase reduces the average DSCR by only two basis points and the project could withstand a 205% increase in costs and still meet debt obligations, as reflected in a breakeven DSCR of 1x. Cash flow is more sensitive to, yet remains resilient to, reductions in generation output. A 1% reduction to total electric generation output reduces the average DSCR by two basis points and the project could withstand an output reduction of 29.5% and still achieve breakeven DSCRs.

© 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.

(BRK.A), (BRK.B)

Berkshire Hathaway Energy’s participation in the western Energy Imbalance Market continue to meet projections. The company has two utilities, NV Energy and PacifiCorp, participating.

According to the California Independent System Operator (ISO), total benefits realized in the 2015 fourth quarter were $12.29 million, which increases the total benefit since the November 2014 EIM launch to $45.7 million.

These benefits accrue to all EIM participants and their customers, as well as the ISO.

The totals are in line with initial projections and as expected, increased participation benefits all EIM participants. Benefits for October were $2.51 million, down slightly from the summer months because of reduced transmission capacity resulting from a line outage.

With the line restored to service, benefits increased again in November to $3.49 million. With NVE’s entry into EIM in December, the benefits jumped to $6.29 million, including $840,000 that accrued to NVE and its customers and also additional benefits to PacifiCorp and ISO customers because of NVE’s participation and additional transfer capability that they bring to the EIM operation.

NV Energy entering the real-time market in December 2015 produced significant benefits because their participation increases transfer capability between the participants. Interregional transfers enabled in EIM allows each balancing area to take advantage of lower cost resources in other areas.

Besides the benefits produced by interregional transfers, savings were also realized by avoiding having to reduce renewable resources’ output in the ISO control area during times of oversupply. The total avoided energy reduction for Q4 was 17,573 megawatt hours, which greatly outpaced the avoided reductions of 828 megawatt-hours in Q3. Avoiding the renewables output reductions in Q4 displaced an estimated 7,521 metric tons of carbon emissions.

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.

© 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.

(BRK.A), (BRK.B)

Officials in Bureau County, Illinois, have approved Berkshire Hathaway’s proposed Walnut Ridge wind farm. The go ahead means the planned 215MW wind farm can proceed even though it was initially rejected by the local zoning board of appeals.

The Bureau County Board has approved conditional use permits that will allow the construction of 118 wind turbines. The plan was originally for up to 123 turbines, but nine were rejected as too close to a landing strip.

Walnut Ridge is located on approximately 14,000 acres of farmland in North-central Bureau County south of the Village of Walnut. This site was chosen as a location for a wind farm due to the existence of a ridge running from Mendota to the northeast and past Princeton to the south.

The project was originally developed by Edina, Minnesota-based Geronimo Energy, LLC, and was sold to Berkshire Hathaway Energy in May 2015 in a package of renewable energy projects that also included the Grande Prairie Wind Farm in Holt County, Nebraska, and a portfolio of future Minnesota solar projects.

Walnut Ridge was temporarily delayed  in May 2015 by a federal lawsuit by property owners claiming the wind farm would blight the area in northwestern Illinois.

The wind farm will make land use payments of roughly $1.2 million per year, and will pay taxes of approximately $1.6 million per year.

The General Services Administration has already entered into a 10-year agreement to buy the power generated by the wind farm.

© 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.

(BRK.A), (BRK.B)

Two west coast utilities have pledged to eliminate coal-powered electricity generation from their energy production. The utilities are Berkshire Hathaway’s Pacific Power and Portland General Electric Company.

Pacific Power serves customers in Oregon and Washington, Idaho, Wyoming, Montana and Northern California. Portland General Electric serves Portland, Salem and a total of 52 Oregon cities.

The two utilities pledged to eliminate their use of coal by 2035, and the move drew strong praise from a coalition of environmental groups that had pushed for the move. In return, the environmental groups that include the Oregon Environmental Council, Climate Solutions, and the Sierra Club, among others, agreed shelve a proposed Oregon ballot measure that would have required the utilities to get fifty-percent of their energy from renewable sources by 2040. The move for the ballot measure will be halted provided  the Oregon legislature passes similar legislation.

The two utilities have been heavily reliant on coal, with Pacific Power getting nearly 60-percent of its power from coal in 2014, and Portland General Electric Company got roughly 24-percent of its power from coal over the same period.

The proposed legislation, which would be a renewal of the Renewable Portfolio Standard that became law in 2007, would require utilities to meet renewable energy goals of 27-percent renewables by 2025, 35-percent by 2035, and 50-percent renewables by 2040.

Pacific Power is already hard at work on that goal, with the recent construction of the Black Cap Solar Facility, located on 20 acres a few miles west of Lakeview, Oregon. The 2-megawatt photovoltaic solar panel facility is equipped with a sophisticated tracking system that optimizes the sun’s power. It is also buying power from the Old Mill solar plant near Bly, Oregon, which is the state’s largest solar facility. It was built by Obsidian Renewables in 2015 on the site of a long-closed former Weyerhaeuser sawmill 50 miles east of Klamath Falls. Combined, the two facilities provide 7-megawatts of solar power.

Berkshire Hathaway and Renewable Energy

Berkshire Hathaway Energy has one of the largest renewable energy portfolios in the U.S. The company gets approximately a quarter of its generating capacity from renewable and noncarbon sources such as wind, water, solar and geothermal.

© 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.

(BRK.A), (BRK.B)

Both the United States House and Senate agreed to grant extensions to the 30 percent investment tax credit (ITC) for the production of solar energy and the 2.3-cent-per-kilowatt-hour production tax credit (PTC) for the production of wind power.

The extensions will fuel the growth of both wind and solar, as the industries gain tax credits through 2020.

The credits were originally scheduled to expire for any projects beginning construction after December 31, 2014.The credits have now been extended to construction starting before January 1, 2020, with gradual phase-outs.

A Big Boost for Berkshire

With its huge commitment to wind power in Iowa, Nebraska and Texas, Berkshire Hathaway is reportedly the largest user of these energy investment tax credits.

In October, Berkshire Hathaway Energy borrowed $275 Million for its Jumbo Road wind farm in Texas, and Berkshire Hathaway’s MidAmerican Energy Company is currently building the tallest land-based wind turbine ever built in the United States at its wind farm in Adams County, Iowa.

Meeting Lower Carbon Goals

In August 2015, President Obama and the EPA announced the Clean Power Plan, which set aggressive goals for reducing carbon pollution from power plants. When the Clean Power Plan is fully in place in 2030, carbon pollution from the power sector will be 32 percent below 2005 levels.

Expanded use of wind and solar power generation will enable the retirement of antiquated coal-burning and oil-burning plants, which will not only reduce carbon dioxide (CO2) emissions linked to climate change, but will also reduce emissions of sulfur dioxide and other pollutants that cause an assortment of health ailments.

© 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.