TransAlta powers up gas – Partners with Buffett firm to build plants

By Lauren Krugel, The Canadian Press; With Files From Herald News Services October 27, 2012

TransAlta Corp. is partnering with a subsidiary of billionaire Warren Buffett’s company, Berkshire Hathaway, to build new natural gas-fired power plants.

The Calgary-based power generator announced the agreement Friday with Iowa-based MidAmerican Energy Holdings Co.

“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,” TransAlta CEO Dawn Farrell told analysts on a conference call to discuss the company’s third-quarter results.”

Farrell said Canada will need more than $200 billion in new power generation investment over the next two decades, driven by growing energy development in Western Canada.

“If you look at Canada, there’s a huge potential for expansion of (liquefied natural gas), which potentially will need power. There’s lots 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,” she said.

“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.”

TransAlta and MidAmerican have a relationship dating back more than decade, including investments in geothermal generation in California and several U.S. gas-generating assets. The deal announced Friday is MidAmerican’s first foray into the Canadian market.

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

The agreement encompasses all new natural gas-fuelled generation opportunities considered by either TransAlta or MidAmerican in Canada, including TransAlta’s proposed Sundance 7 project, an up to 800-megawatt project based in Alberta, which under current plans, would be completed by 2016 or 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,” Farrell said.

All development and construction or acquisition of approved projects will be funded on a 50-50 basis and TransAlta will be responsible for construction management, operation and maintenance of projects that proceed.

Farrell said it’s too soon to know just how big the partnership with MidAmerican may become.

TransAlta has spent about $4 billion since 2005 to build 1,600 megawatts of new power capacity, including coal and renewables, according to the company’s website.

In a research note, Desjardins analyst Jeremy Rosenfield said “notionally, we view MidAmerican’s support as a positive development that could accelerate some of (TransAlta’s) growth.”

TransAlta made the announcement while reporting that third-quarter profit grew 12 per cent on lower maintenance costs and strong margins in most of its operations. Earnings for the quarter were $56 million, or 24 cents a share, up from $50 million, or 22 cents a share, a year earlier. Revenue fell nearly 15 per cent to $538 million.

The company said results were constrained by a loss in its energy trading business and lower power prices in the Alberta and Pacific Northwest.

Lower natural gas prices have brought power prices down to 10-year lows in several regions. Farrell said she expects power prices in the U.S. Pacific Northwest region to improve with a recent climb in U.S. gas prices, but warned Alberta pricing will likely remain weak, with the return to service of TransAlta’s Sundance 1 and 2 coal-fired units after the company was forced by regulators to rebuild them.

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