Berkshire Hathaway - Energy - Western States - Energy Imbalance Market - Berkshire Hathaway - Energy - InvestorVillage
Berkshire Hathaway - Energy (related stock BRK.A)
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Msg  2 of 2  at  5/10/2016 10:41:04 PM  by

loonginvestor

The following message was updated on 5/11/2016 7:01:08 PM.

Western States - Energy Imbalance Market

 
 
I've been curious about the EIM. In Dec 2015, BHE entered the EIM. This is of some historic significance and here's my understanding of BRK's investment in the utility business:
 
For nearly 70 years, Utilities were monopolies. There was an act called Puhca from the 1930's which granted them the monopoly status. In the 90's Utilities were broken up - the production, transmission and distribution were broken up. The impact is slowly being felt in the industry and one of the outcomes was the fragmentation and weak players. MidAmerican and later BHE are simply preparing for the brave new world of a competitive marketplace.This was the brainchild of Walter Scott who incidentally seeded something similar in LVLT in the wake of telecom deregulation.
 
What's most interesting is how BHE has strung together a pan-western business that spans Alberta, Canada all the way south to Arizona. It is a colossally large contiguous region! They have the most diverse sources of energy from geothermal to natural gas to hydro to solar to wind...plus have built an entire smart grid over the entire region.
 
Which brings us to the EIM. During the monopoly days and even until recently,energy was sold in an uncompetitive market place with utilities selling hours, days worth of energy. With the EIM, energy is sold nearly real-time, in 10 minute buckets. This allows players like BHE to bring a diverse portfolio of the most cost effective source to play at that moment; If the Sun is shining or wind blowing, they turn down the fossil fuel sources and vice versa. And they keep the market prices really low. This is not good news for the other guys who are uncompetitive to produce at such competitive prices. They simply cannot compete with BHE. We will hear a lot of squealing from them in short order. Although rooftop solar was a slightly different fight, the forces were the same; Rooftop was not competitive versus NV energy's solar farms. And many of the weaker players will be consolidated.
 
My prediction is that when BHE is done expanding into more states eastward from the western states, the BHE map and BNSF map will look identical. I dream of the day when BHE's solar farms charge giant batteries powering BNSF locomotives as they carry coal and crude to the competitors' power plants  And of course grain from KS to CA and cheap goods from the CA ports to Bentonville, AR. 
 
 
Buffett: "We'll be investing capital into BNSF and BHE as far as the eye can see" 
 


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