Buffett, Gates, Pickens bet that state's market will bring hefty returns.
From the Austin American-Statesman:
Warren Buffett, Bill Gates and T. Boone Pickens expect to profit from the rising electricity prices paid by the 23 million people of Texas.
Pickens plans a $10 billion wind farm that may become the world's largest. Gates' Cascade Investment LLC created a venture to build power plants in the region. Buffett is part of a $3 billion partnership that is building transmission lines.
Power sales in Texas are increasing 21 percent faster than the U.S. average, the North American Electric Reliability Corp. says.
The state's electricity prices will rise 24 percent in a year, futures markets show. A shortage of power is likely because Kohlberg Kravis Roberts & Co. shelved $8 billion in new generators as part of its planned takeover of TXU Corp., the state's biggest electricity producer. The grid may stop providing consistent supplies within two years, according to the Electric Reliability Council of Texas.
"It is a huge market that keeps growing,'' said Barry Abramson, who helps manage $28 billion in assets at Gamco Investors. There's also "the perception that regulators and government agencies are supportive of new power-plant development'' in Texas, he said.
The presence of Buffett, Gates and Pickens may draw other investors to Texas, said Calvin Crowder, vice president of the proposed Buffett venture with American Electric Power Co., called Electric Transmission Texas.
"There's a very real opportunity in Texas to earn a reasonable return on investment in utility, and especially transmission utility, business,'' Crowder said.
The spot price for electricity in Texas last week was more than $65 per megawatt-hour, and the price for delivery a year from now is $81.25. Power producers sell so-called forward contracts, or agreements to deliver electricity at a set price, to customers.
Buffett and his partner in February proposed building 1,000 miles of high-voltage transmission lines to distribute electricity from the nation's largest collection of wind farms....MORE