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Berkshire Hathaway Energy

Benefits From Energy Imbalance Market Top $45 million

(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.

Categories
Berkadia

Berkadia Adds Investment Sales Team in Houston

(BRK.A), (BRK.B)

Berkshire Hathaway’s joint venture Berkadia, a leading commercial real estate company, has hired an eight-person multifamily investment sales team in Houston.

The team previously worked together in CBRE’s Capital Markets Multi-Housing Group based in Houston, where they focused on Houston, San Antonio and other Texas markets. All will report to Head of Investment Sales Keith Misner, effective immediately.

“This group of individuals is known throughout the industry as one of the top multifamily investment sales teams in the country, specifically in Houston,” said Keith Misner. “Adding a team of this caliber—which has worked together for a number of years—immediately strengthens our Texas presence. We’re truly excited for them to join Berkadia.”

The team is led by Senior Managing Director Ryan Epstein and Managing Director Clint Duncan and includes Associate Directors Wes Breeding and Jennifer Ray. They will work closely with Berkadia’s existing brokers and mortgage bankers in Houston and across the state to provide integrated investment sales, mortgage banking and servicing solutions.

“Berkadia is one of a kind because its platform strengthens the company’s ability to offer clients comprehensive real estate solutions,” said Epstein. “Our entire team looks forward to elevating the company’s presence in Texas and leveraging a full suite of products to help current and future clients alike.”

Since 2006, the team has marketed and sold assets valued at more than $4.5 billion and has continually been ranked as top producers nationally, working with a diverse client base of REITs, pension funds, private investment companies and local and national developers.

About Berkadia

Founded in 2009 as a 50/50 joint venture between Berkshire Hathaway and Leucadia National Corporation, Berkadia is a third-party commercial mortgage servicer, as well as an approved lender for Fannie Mae, Freddie Mac, and HUD/FHA. The company was among the top Freddie Mac and Fannie Mae multifamily lenders for 2013.

Berkadia owes its origins to GMAC Commercial Mortgage Corporation, which was acquired in 2009 by Kohlberg Kravis Roberts & Co., Five Mile Capital Partners LLC, and Goldman Sachs Capital Partners. Christened Capmark Financial, the company had $10 billion of originations in 2008 and a servicing portfolio of more than $360 billion before running into bankruptcy in October 2009.

In a deal approved by the bankruptcy court, Capmark sold its mortgage loan and servicing to the newly formed Berkadia in a deal worth $515 million.

The deal brought Berkshire into the heart of the commercial loan serving business, and the company has one of the largest commercial real estate servicing portfolios.

© 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.

Categories
Commentary Precision Castparts

Commentary: For Berkshire Hathaway, Precision Castparts is Easy as One, Two, Three

(BRK.A), (BRK.B)

Now that Berkshire Hathaway has acquired aerospace manufacturer Precision Castparts, exactly what has Berkshire got for all its billions?

One: Berkshire gets a fast-growing company. Precision Castparts’ annual growth rate has been 23% over the past ten years.

Two: Berkshire gets a company with a wide moat, as the costs associated with the aerospace industry create high barriers to entry.

Three: Berkshire gets a company that will benefit from the explosive growth in commercial air travel in India and China over the next two decades.

About Precision Castparts

Precision Castparts manufactures structural investment castings, forged components, and airfoil castings for aircraft engines and industrial gas turbines. It is a world-leading producer of complex forgings and high-performance alloys for aerospace, power generation, and general industrial applications, and its customers include Airbus, Boeing, GE, and Rolls-Royce, among others.

With annual revenues of approximately $10 billion, the company reported $2.412 billion of revenue in the second quarter of 2015. Of that revenue, 72% came from aerospace, 15 % came from power, and 13% came from general industrial and other sales. Operating margins in the last quarter were a healthy 25.7%. The company has a 15% return-on-equity.

The company has 29,350 employees at 157 manufacturing plants.

Strong Management in Place

Unlike both Heinz and Kraft, where 3G Capital took on the duties of replacing senior management, Berkshire is lokking to leave Precision Castparts’ management in place. After all, traditionally that has been one of Berkshire’s acquisition criteria, stating, “Management in place (we can’t supply it).”

In the case Precision Castparts, the company has a strong leader in CEO Mark Donegan, who during his thirteen years at the helm, has led the company to an 11-fold return. Among his strengths, Donegan has a keen eye for the type of “bolt-on” acquisitions that Buffett likes.

An Area Growth for Berkshire

With the Great Recession now in the rear view mirror, airlines are placing large orders to replace aging fleets. These orders, which are primarily to Airbus and Boeing, benefit Precision Castparts as it supplies key components to both the A320neo and 737 MAX.

Doubling the Market

While Precision Castparts manufactures everything high-pressure blades for power generators to medical prosthetics, it is complex metal components for the aerospace industry that not only brings in the majority of its revenues, but also offers solid opportunities for growth.

As large as the commercial market for jets already is, it is expected to double by 2030 due to strong demand from India and China. By 2030, the Asia-Pacific market is expected to grow to 30% of all world-wide passenger mileage.

Boeing predicts that 38,050 new aircraft with a total value of $5.6 trillion will be needed in the next two decades. Roughly 10,500 commercial jets are needed just to replace fleets of old, fuel-guzzling aircraft that are aging out of service.

Locking in a Customer

With the needs of the aerospace market highly specialized, whether its engine turbine blades, or the large wing ribs for the Airbus’s giant A380, there is very little company switching among airplane manufacturers. Witness its relationships with both engine makers Pratt & Whitney and GE that go back over 45 years.

As Berkshire plots its course in the 21st century, it is assured of solid growth in an industry that is highly technical, needs manufacturing on a mammoth scale, and has high cost barriers to entry for potential competitors.

© 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.

Categories
Lubrizol

Lubrizol Opens CPVC Compounding Plant in Dahej, India

(BRK.A), (BRK.B)

The Lubrizol Corporation, a wholly-owned subsidiary of Berkshire Hathaway, has announces the official opening of a chlorinated polyvinyl chloride (CPVC) compounding plant in Dahej, India.

According to the company, the opening represents the culmination of Lubrizol’s latest industry leading investments in its global expansion of the company’s FlowGuard®, BlazeMaster® and Corzan® compound manufacturing sites.

These most recent investments, which were announced in 2013, total more than $200 million (INR1300 CR) and also include the 2015 opening of a resin manufacturing facility as part of a joint investment in Rayong, Thailand, as well as an expansion of the company’s manufacturing facility in Louisville, Kentucky.

Strategically located in the Gujarat Industrial Development Corporation (GIDC), which is one of the largest chemical parks in India, Lubrizol is the first major global producer of CPVC to establish operations in India.

With capacity to produce approximately 55,000 metric tons of compounds annually, the more than $50 million U.S. investment (INR 325 CR) in this plant further solidifies Lubrizol’s commitment to the Indian market.

Lubrizol touts the site’s prime location positions the company to serve not only the growing Indian market, but to also support the emerging growth of its FlowGuard®, BlazeMaster® and Corzan® businesses in South Asia, the Middle East and East Africa.

“Our recent expansion efforts, combined with our existing operations, positions Lubrizol to continue to be a strong market leader for many years to come,” stated Eric Schnur, president of Lubrizol Advanced Materials. “We are pleased to have an unmatched global footprint that provides our partners with reliable, high quality compounds to enable them to achieve their overall growth objectives.”

“With construction projects in non-metro cities expected to continue to increase in India, and with the central government of India aiming to build more smart cities, the demand for trustworthy piping systems is expected to rise,” said Manoj Dhar, head of TempRite® Engineered Polymers in South Asia.

“Lubrizol is dedicated to providing our customers with the highest quality piping products through our insistence of using only the best raw materials, and our new India compounding plant will use the industry’s most advanced compounding technology used in our FlowGuard, BlazeMaster and Corzan products developed in the U.S. and employed in our manufacturing sites around the globe.”

About Lubrizol

Based in Wickliffe, Ohio, Lubrizol owns and operates manufacturing facilities in 17 countries, as well as sales and technical offices around the world. Founded in 1928, Lubrizol has approximately 9,000 employees worldwide. It sells its specialty chemical products in over 100 countries.

© 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.

Categories
Minority Stock Positions Stock Portfolio

Berkshire Ups Phillips 66 Stake with Major Purchase

BRK.A), (BRK.B)

Berkshire Hathaway continues to be high on refiner Phillips 66 (PSX), which has been mostly immune to the downward pressure on oil prices. The demand for refined products, including gasoline, diesel and aviation fuel remains strong.

Berkshire added 2.54 million shares of Phillips 66 worth roughly $198 million stock in ten transactions on January 27 – 29, 2016. Prices of the shares ranged from a low of $76.462 to a high of $79.2699 per share. For the entire month of January, Berkshire bought a total of 10.81 million shares.

In August 2015, Berkshire revealed that it owned more than ten-percent of Phillips 66, and the new purchases ups its stake to 72,293,310 shares. The new purchases bring Berkshire’s stake in the refiner to roughly 13.7-percent.

About Phillips 66

Phillips 66 was spun-off of ConocoPhillips in May 2012, and in addition to its refining and petrochemical business, the company also transports crude oil, refined products, natural gas and natural gas liquids (NGL). It gathers, processes and markets natural gas and NGL to power businesses, heat homes and provide feedstock to the petrochemical industry.

The company’s 52-week share price high was $94.12, and it currently pays an annual dividend of 56 cents, yielding 2.85%.

Despite the weakness in the energy market, Phillips 66 had a profit of $1.31 per share, which exceeded analyst forecasts.

© 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.

Categories
Charlie Munger Warren Buffett

Berkshire to Live-Stream 2016 Annual Meeting

(BRK.A), (BRK.B)

Until now, if you wanted to hear Warren Buffett and Charlie Munger answer questions at the Berkshire Hathaway annual meeting you had to make the pilgrimage to Omaha, Nebraska.

Over 40,000 people from all over the world did just that last year and when they got there they heard Buffett and Munger take 5 hours of shareholder and financial reporter questions. Their answers, which contain insight, humor and wisdom, have never been allowed to be audio or video recorded.

Now, Berkshire Hathaway is letting the rest of the world in on the action. The 2016 Berkshire Hathaway annual meeting, which will be held at the CenturyLink Center on April 30, 2016, will be live-streamed over the internet.

Will the move keep people from travelling to Omaha for Berkshire’s event-filled weekend? Unlikely, as hearing Warren Buffett and Charlie Munger in person is always a treat.

And, besides, you can always get your year’s supply of See’s Candies.

© 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.

Categories
Berkshire Hathaway Specialty Insurance Insurance

Berkshire Hathaway Specialty Insurance Debuts Executive & Professional Lines in the U.S.

(BRK.A), (BRK.B)

Berkshire Hathaway Specialty Insurance (BHSI) has expanded its Executive & Professional Lines appetite to private companies in the U.S., launching the Executive First Private Company Portfolio.

BHSI is initially targeting private companies with revenue in excess of $15 million.

The portfolio offers Directors & Officers Liability, Employment Practices Liability (EPL), Fiduciary Liability, Employed Lawyers Liability and Commercial Crime Insurance in one clearly written form, crafted expressly for the exposures of privately held businesses.

“Our Private Company Portfolio provides substantive coverage and value in a contemporary and comprehensive form, backed by BHSI’s financial strength,” said Dan Fortin, Head of Executive & Professional Lines, BHSI. “The new form is the first step in our long-term strategy of providing simple, concise management liability solutions for private companies. A similar solution, tailored for nonprofit risks, is coming soon.”

The Executive First Private Company Portfolio is available with shared or separate coverage limits of up to $50 million. Customers purchasing the EPL coverage part will benefit from BHSI’s EPL First, which provides access to an on-line repository of HR training and compliance resources and attorney-client privileged “help line” services from an employment attorney. Both services are provided by Littler Mendelson, the world’s largest employment and labor law firm.

“We look forward to expanding into the private company sector and building lasting relationships with our insureds and brokers,” said Maura Verrone, Head of Private Company and Non-Profit Organizations, Executive & Professional Lines, BHSI. “The relationships developed by our underwriting specialists will be strengthened by the knowledge, experience and accessibility of our in-house claims and legal resources. Our customers can expect a collaborative approach through the entire process from underwriting to claims handling.”

© 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.

Categories
BNSF

BNSF Cuts Capital Spending as Year Starts with Weak Freight-Hauling Numbers

(BRK.A), (BRK.B)

It’s early, but BNSF Railway is off to a weak start in 2016 with total shipping slipping 3.2% from the same period in 2015.

The weak start is industry-wide, as combined railroad freight volumes for all U.S. railroads are down 2.5 percent from 2014.

BNSF is not waiting for further poor results to trim its costs, and has already announced a 26% cutback in capital spending.

As of the week ending January 16, 2016, BNSF’s coal shipments were down a whopping 28.19%, petroleum shipments were down 22.21%, and the shipment of metal ore was down 32.29%.

Also down 11.66% was the shipment of sand and gravel, which are used in fracking.

On the positive side, shipments of containers were up a solid 13.34 %, and shipments of grain and chemicals were up 8.6% and 8%, respectively.

Last year’s record $6 billion in capital spending will be cut 26% to $4.3 billion for 2016, which represents the first reduction in spending in six years.

Heavy spending in 2015 helped resolve shipping bottlenecks that outraged grain producers when their shipments experienced extensive delays in 2014. The investment included 82 miles of new double track on the northern tier.

“Each year, our capital plan works to balance our near term need to regularly maintain a vast network that is always in motion with the longer term demand outlook of our customers,”said Carl Ice, BNSF president and chief executive officer. “While our customers’ demand outlook has softened in a number of sectors, regular maintenance of our network continues to drive the majority of our annual investments and helps ensure we continuously operate a safe and reliable network.”

On the national level, BNSF’s numbers are a barometer that confirms that U.S. economic growth is slowing. The Federal Reserve’s letter on January 27 noted that “net exports have been soft and inventory investment slowed.”

With weakness in coal and oil shipments, BNSF has been laying off railroad workers in Minnesota and North Dakota. Roughly 100 employees have been affected.

© 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.

Categories
Berkshire Hathaway Energy Commentary

Commentary: Berkshire Hathaway’s Compromise on Nevada Solar Panel Fees is Just Round One

(BRK.A), (BRK.B)

Berkshire Hathaway has become a world-leader in renewable energy power generation based on its huge and varied solar and wind farms, but it has been on the other side of the renewable energy fence as it comes to rooftop solar panels purchased by consumers.

At issue is who pays for the electric transmission grid when solar panel owners pay little or nothing for power, and sell back their excess power to utilities through the grid.

Ground zero is Nevada, where Berkshire Hathaway Energy’s lobbying produced a host of new fees for existing solar panel owners, and a prohibitive cost structure that caused rooftop solar supplier SolarCity to announce that it would lay-off 2,000 workers and leave the state.

The fees caused an uproar from solar panel owners that watched their expensive capital intensive investments, which had been promoted as bringing many years of savings, lose all economic benefit.

Now, Berkshire is backing off at least a bit.

On February 1, Berkshire’s utility NV Energy will submit a proposal to the State of Nevada Public Utilities Commission proposing to grandfather in the existing 30,000 solar panel owners to the old rate structure for a period of up to twenty years. The move may quell homeowner anger, but it still doesn’t address the viability of the home solar panel industry.

According to reports, Berkshire’s proposed rate changes still do not make new rooftop solar panels viable in terms of cost savings for the homeowner.

Nevada Governor Brian Sandoval has supported NV Energy’s position that additional fees are necessary in order to not leave non-rooftop solar panel homes with the burden for paying for both the transmission grid and the retirement costs of decommissioning old fossil fuel plants, which are primarily highly polluting coal-fired plants.

While it’s probably not a winning long-term strategy for energy producers, such as Berkshire Hathaway Energy, to rely on legislation and rate structures that make home solar panel ownership uneconomical, they are right that they do need to find a way for solar panel owners to pay a share of the maintenance of the transmission grid. However, they must do this without killing what has become a clean power source for hundreds of thousands of consumers.

The Importance of the Transmission Grid

Sometimes lost in the debate is that even rooftop solar panel owners benefit from the grid. The grid supplies power to solar-panel owners at night, on cloudy days, and maintains fleets of repair trucks that not only do regular maintenance, but also respond quickly to natural disasters. The robust ability that utilities have to restore the grid after natural disasters should not be taken lightly, as their collaboration across large geographic areas often means that crews quickly come from hundreds or thousands of miles away to help restore service after hurricanes, blizzards, and other disasters.

For utilities, rooftop solar either represents competition for their centrally generated energy model, or a growing replacement for antiquated power sources.

As a replacement for other power sources, it’s unreasonable to expect utilities to buy back power at retail rates. That’s like asking a clothing store to buy clothes from you at retail and sell it at retail.

The real battle needs to be fought in the marketplace, where the true cost of cleaner forms of energy generation will determine the winners and losers. The cost of solar panels for both residential and utility scale generation has dropped dramatically, and as it continues to drop, it will determine which part of the economic model is most cost effective for consumers.

Another factor that should not be forgotten is that utilities have to cover the cost of retiring old fossil fuel burning plants. These costs must be shared by everyone, as everyone benefitted from the power they produced. Those costs cannot be left for just the consumers that are relying solely on the grid for their electricity needs.

In the end, both sides need a deal where both can prosper. After all, there are many customers that will never have solar panels and will continue to rely on utilities due to their location, cost, or the amount of time they will be living in a given home or apartment. And utilities will not only be needed to provide power to homes, but also factories, hospitals, schools, street lights, and a host of other settings that can’t afford to be left with a disproportionate share of the cost of the transmission grid.

What is also clear, is that Berkshire’s proposal is just the next round in a battle over who pays for the electric grid, and how much.

© 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.

Categories
NetJets

NetJets Adds Wide-Cabin Jets

(BRK.A), (BRK.B)

NetJet flyers have more room to spread-out as NetJets adds more wide-cabin jets to its fleet with the purchase of seven Bombardier Challenger 650 business jets.

The first of the Challenger 650s was put into service in mid-December.

Bombardier Challenger 650 boasts class-leading width, and has a maximum range of 4,000 NM, with a maximum altitude of 4,000 feet.

The Challenger 650 has a cabin width centerline of 7 feet 2 inches, a cabin width floorline of 5 feet 1 inch, and a cabin height of 6 feet 1 inch.

Bombardier also claims that the jet has the lowest-in-class direct operating costs.

© 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.