Some companies create value by providing services needed or desired- ie MidAmerican, while others seem to rely more upon regulation, legislation & litigation to shortcut their way to profits, ala Enron.
A specific example. MidAmerican makes capital investments in providing an Iowa community with coal based power exceeding EPA pollution standards, while other entities benefit from Bush rolling back costly upgrades on older coal fired power plants. I'd rather partner with MidAmerican than a Ute depending on political goodwill.
Say I desire to invest in companies that demonstrate ethical mores, rather than just pronounce their vision and values to the world. On the surface, this seems simple and noble.
UCL offers a challenge. They are making energy available to underserved parts of Asia. Appears a positive. Yet they have 'legacy litigation' typical of large industrial concerns. Appears a negative.
Is it appropriate for me to attempt to judge the character of UCL choices as I try to allocate capital?
Is it possible for me to distinguish between past judgement errors and the present mgmt operating values?
Do we cast UCL as serving people by producing a resource of value in areas of need, or as a corporate titan raping and pillaging unsophisticated people and the environment?
I don't know that I can know the correct choice.
finance.yahoo.com
MidAmerican Energy Begins Work on High-Tech Generation Plant
Supercritical boilers create steam at higher temperatures and pressures than traditional plants, converting coal to electricity more efficiently and significantly reducing emissions. Consistent with MidAmerican’s environmental commitment, the plant will incorporate additional advanced technologies for clean-coal conversion, including “dry scrubbers” and selective catalytic reduction.
midamerican.com
"For me, MidAmerican started here, you know. In this house." He is referring to what is likely to be the next cornerstone of Berkshire--MidAmerican Energy Holdings Co., an electric power and gas pipeline utility, based in Des Moines. No, I didn't know, I say to him. Could he explain? Almost exactly three years ago, it seems, Bertie was having another party for her brother and a different group of pals. One of the guests was Walter Scott, chairman of the telco Level 3 and also former CEO of Peter Kiewit Sons', the large Omaha construction firm (see The Inside Story of Level 3.
"Walter pulled me aside and asked if he could speak with me for a minute in another room," Buffett says. "He talked about this public-utility company called MidAmerican that he was into, which wasn't going anywhere. They had tried to explain the business to Wall Street, but the analysts didn't like it because they were looking for companies like AES or Calpine that had what was called 'deal velocity' [meaning they were doing a lot of deals]. Walter said they were thinking of taking MidAmerican private and asked if would I be interested. I said yes."
You have to remember that at that point many utility stocks were just as hot and overhyped as Internet incubators or B2B stocks. Calpine and AES, for instance, traded at $56 and $70, respectively, at their peaks. Today each sells for around $2. The origin of the utility bubble goes back to the Energy Policy Act of 1992, which lured companies into the seemingly sexy, unregulated end of the business. (Unregulated utilities produce power on a speculative basis, without guaranteed customers, but can sell that power at market rates. A regulated utility has guaranteed customers and regulated rates.) As more and more money streamed into unregulated businesses, Dave Sokol, CEO of MidAmerican, saw what he thought was a tremendous opportunity: Regulated assets were being overlooked.
By the mid-1990s, MidAmerican owned regulated utilities in California, Iowa, and Britain. But while Enron and its ilk sported P/Es of 30 to 50, MidAmerican was selling for six to eight times earnings. "We couldn't figure out what the other companies were doing," says Sokol. "They kept on building power plants and adding capacity, I guess because they thought demand would go up forever. And their trading businesses were also a mystery. The profits seemed impossible to us." Meanwhile MidAmerican's stock was languishing. So Sokol decided in October 1999 to abandon the public markets and sell out to Buffett. Berkshire effectively ended up buying 80 percent of the company for $35.05 a share, a cost of $3.3 billion.
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