Buffett’s PacifiCorp Unit Plan Stalls

MidAmerican Energy Holdings, a subsidiary of Berkshire Hathaway, plans to scale back its capital spending targets for the immediate future.

According to a fixed income conference in New York, we learned that the company has projected that their expenditures are going to be less than $2.4 billion than previously planned throughout the year 2021. This is in part due to declining or flat demand from its unit PacifiCorp.

In an effort to slow down their electricity use, many homes and businesses have turned toward energy-efficient appliances and products. Efficiency gains have actually begun to put added pressure on the US utility companies. Companies such as Akron, Ohio based FirstEnergy Corp. and Xcel Energy Inc., based in Minneapolis, even though we are coming out of our biggest economic decline since the Great Depression.

“A large amount of utility growth is predicated on people using increasing amounts of electricity,” said Paul Patterson, member of Glenrock Associates LLC, New York-based analyst. We learn this information in a phone interview. “If that doesn’t materialize, then the need for some of these projects becomes questionable.”

Rocky Mountain Power, a subsidiary of PacifiCorp that currently serves customers in Utah, Wyoming and Idaho, has projected that they will experience 0.6% less in demand this year. This is especially due to the improvements in energy efficiency. Unfortunately, the energy efficiency measures will remove any gains that the company can expect from brand-new residential and commercial customers. Plus, the industrial clients sales are expected to drop as other clients begin to generate power on their own.

No Way to Recover 

Pacific power, utility companies at sells electricity in Northern California, Oregon and Washington is mentioned that there will be “no recovery” in demand for power down 2013. This comes after five years weather normalized declines.

Both of PacifiCorp’s units have made a projections stating that over the next 10 years they expect their capital spending to decline by 13% from what was previously expected, according to the slides. Pacific Power and Rocky Mountain will cut their costs and boost their efficiency as the demand decreases, plus they will revise their construction and design standards, we found out the presentation.

“Our plans are based on consumer needs,” states Tina Potthoff, a MidAmerican Energy spokeswoman based out of Des Moines, Iowa. She mentioned that the company does not speak for Warren Buffett, who is also the CEO and chairman of Berkshire Hathaway. Buffett did not answer a message when asked to comment.

The use of electricity in the United States is expect to rise by 0.4% during 2013, we learn from Energy Department data. But consumers are going to continue to buy light bulbs that burned twice a percent fewer watts. They will also continue to install technology that reduces the energy output from appliances during the hot summer months. This will put less of a strain on the power grid and require less energy.

Electricity Sales 

“flat to declining electricity sales volumes will force many utilities to re-examine their business models, and transition from simply delivering volumes of electricity,” said Sam Brothwell. He is a senior utilities analyst with Bloomberg industries, and he wrote that comment in a research note published on April 1.

The 82-year-old Warren Buffett has mentioned in the past how Burlington Northern Santa Fe Railroad and MidAmerican Energy have provided a very appealing way for Berkshire Hathaway to spend its enormous profits. Both companies can generate nice returns and they require large amounts of capital.

Of the $9.8 billion in capital expenditures in 2012, both of these businesses were the biggest drivers of this expense. Berkshire Hathaway will most likely spend more this year, according to Warren Buffett’s letter to shareholders which he released on March 1 of last month.

“We will keep our foot on the floor and will almost certainly set still another record for capital expenditures in 2013. Opportunities abound in America,” he wrote.

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