Julie Johnsson and Noah Buhayar - Nov 14, 2012 7:42 AM GMT+1300
MidAmerican Energy Holdings Co., thepower provider owned by Warren Buffett’s Berkshire HathawayInc., is targeting renewable energy deals amid high utilityvaluations, Chief Financial Officer Patrick Goodman said.
“We believe renewables is the better investment rightnow” because utilities are too expensive, MidAmerican’s Goodmansaid in an interview today at an Edison Electric Instituteconference in Phoenix. “As a cash buyer, we will be looking atutilities if pricing comes in a bit.”
MidAmerican has sought opportunities to reinvest its cashand highlighted that it has more funds available to service debtand build its business because it doesn’t pay a dividend. Thepower provider also has access to capital from Omaha, Nebraska-based Berkshire, which holds a 90 percent stake and had $47.8billion (BRK/A) in cash at the end of September.
MidAmerican formed a new unit in January to support itsinvestments in renewable energy, including the $2.4 billion 550-megawatt Topaz Solar Farm and 168-megawatt Alta Wind VII projectin California.
The proportion of energy MidAmerican generatedfrom wind, hydroelectric, solar, nuclear and geothermal rose to31 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 buildMidAmerican through utility acquisitions, including the 2006purchase of PacifiCorp. In 2008, MidAmerican agreed to terminateits purchase of Constellation Energy Group Inc. afterElectricite de France SA bought half of the Baltimore-basedcompany’s nuclear plants. Constellation was acquired by ExelonCorp. (EXC) this year.
Price Ratio
Average price-to-earnings ratio for the 59 companies in theBloomberg Americas Electric Index is 14.93, up from 14.21 lastyear 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 andphotovoltaic projects since December 2011, adding to an existing3.3 gigawatts of wind and geothermal assets, according toLondon-based Bloomberg New Energy Finance.
“Large utilities like MidAmerican are a natural source ofequity for renewable projects,” said Stefan Linder, a New York-based analyst for Bloomberg New Energy Finance. “They have alow cost of capital and shareholders that seek long-term, steadyreturns.”
Buffett also may be interested in tax credits from theprojects, Linder said.
Canada Deal
Abel last month struck a deal with TransAlta Corp. (TA) to fundhalf the cost of natural-gas fueled power plants built or boughtin Canada, where the companies said almost $200 billion in newinvestment is needed during the next 20 years. The energycompany has also scouted natural gas investments in the U.S.,Goodman said today.Buffett, the world’s fourth-richest person, has said thatregulated businesses like the utilities have earnings power evenunder adverse economic conditions and can provide fair returnson capital as long as they invest in infrastructure. MidAmericansells electricity to 6.3 million customers and operates instates 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 wayto stay rich.”
To contact the reporters on this story:Julie Johnsson in Chicago at jjohnsson@bloomberg.net;Noah Buhayar in New York at nbuhayar@bloomberg.net
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