TransAlta Partners With Warren Buffett’s Berkshire Hathaway

Berkshire Hathaway, owned and operated by billionaire investor Warren Buffett, is partnering with TransAlta Corp. to create new gas-fired power plants.

The company TransAlta, based out of Calgary, and Berkshire, announced this past Friday that they have come to an agreement with Iowa-based MidAmerican Energy Holdings Corp., a subsidiary of Berkshire Hathaway.

“It’s a unique opportunity for TransAlta to be much more aggressive about the size and number of plants that we could develop. We like MidAmerican’s disciplined approach to development and, more importantly, we share a common view on returns,” said Dawn Farrell, TransAlta CEO, during a conference call when the chief executive officer was discussing the company’s third-quarter results.

Farrell mentions that Canada, where her company operates, is in need of over $200 billion worth of new power generation equipment over the next 20 years. This growth is driven by a growing need for energy development in the western part of Canada.

“If you look at Canada, there’s a huge potential for expansion of (liquefied natural gas), which potentially will need power. There’s a lot of opportunities here in Alberta in the oilsands as the oilsands guys build up their plans over the next 10 to 15 years. There’s opportunities in Saskatchewan,” said Farrell.

“And many of those projects are fairly big projects with fairly big price tags, so I think as we look at Canada and its expansion over the next 10 years and the kind of generation that’s required, that offers some pretty big opportunities.”

MidAmerican and TransAlta have a business relationship that goes back over a decade, which includes investing in geothermal generation in the state of California, plus quite a few gas generating assets in the United States. As of the deal made this Friday, it’s the first foray for MidAmerican into the Canadian energy market.

“At MidAmerican, we have been seeking an entry point to the Canadian electricity generation market, where we see strong potential for growth,” said Greg Abel, the CEO of MidAmerican, in a press release.

The current deal between MidAmerican and TransAlta encompasses every new natural gas fueled generation opportunity considered by either partners in the country of Canada, and this includes TransAlta’s Sundance 7 project which has already been proposed (a project based in Alberta up to 800 MWs), that is planned currently to be completed between 2016 and 2017.

“This gives us the opportunity to be much more aggressive here in the short term about projects that we think are possible, and also be much more aggressive about larger projects,” said Farrell.

All construction and development, plus acquisitions of projects that are approved, are going to be funded on a 50-50 split basis. Construction management will be taken care of by TransAlta, as well as maintenance and operation of projects that move forward.

Dawn Farrell mentions that she’s not quite sure how large the partnership with MidAmerican might eventually become.

Since 2005, TransAlta has invested roughly $4 billion, and they used that money to build 1600 MW of new power capacity (coal and renewables included) according to the website of the company.

DesJardins analyst Jeremy Rosenfield mentions in a research note, “Notionally, we view MidAmerican’s support as a positive development that could accelerate some of (TransAlta’s) growth.”

TransAlta reported that the businesses’ third-quarter profit grew by 12% on stronger margins and lower maintenance costs for the majority of its operations. The company’s third-quarter earnings were $56 million, or $.24 per share. This is up from $50 million, or $.22 per share, just a year earlier. Revenue dropped about 15% to $538 million.

The company tells us that results were constrained by a loss that it took in its energy trading business, plus the power prices are lower in the Pacific Northwest and Alberta.

The lower prices of natural gas have brought down power prices to 10 year lows in several regions of Canada and the world. Now that US gas prices are on the rise, Farrell believes that the prices of power in the Pacific Northwest should also rise due to the gas prices. She also warned that the pricing in Alberta, Canada will continue to remain weak, with the return to service of TransAlta’s Sundance 1 and 2 cold fired units, now that the company was forced by regulators to rebuild those units.

One Comment

  1. Under the partnership announced Friday with Des Moines, Iowa-based MidAmerican Energy Holdings Co., the two companies will work together to develop, build and operate new natural gas-fired electricity generation projects in Canada.

Leave a Reply

Your email address will not be published. Required fields are marked *