see what happens when you leave the gas bidness homey?  Williams was in some pretty dire financial straights ala Enron and debt they had with their communications group.  They apparently realized this last fall and started to panic.  Buffet boys come in and pick off one of the crown jewels at a pretty sweet price (including the KRGT expansion).  The sale not only helps WPL's current finances but eliminates the need to spend $1.2bn on the expansion.  What's interesting is the preferred shares also established in the deal.  Warren could end up owning a big chunk of WPL when it's over.
 
kh

-----Original Message-----
From: Fawcett, Jeffery [mailto:JFawcett@Sempra.com]
Sent: Friday, March 08, 2002 3:12 PM
To: Lindberg, Lorraine; 'sslindberg@duke-energy.com'; 'skatz@sempratrading.com'; Huckabee, Phyllis; 'jdasovich@ubswenergy.com'; Hyatt, Kevin; 'mbaldwin@igservices.com'
Subject: Kern River deal



Wow ... this is huge! 

I've met with executives of Mid-American Energy in the context of doing my Fiber Links business and I didn't come away too terribly impressed.  It's undeniable that Warren Buffet and his chief lieutenant, David Sokol, both have a reputation for finding ways to make money, but this deal seems almost inexplicable when searching for a unique competency of Mid-American that would lead to increased earnings for Kern River.  Any other scuttlebutt about this deal out there in the gas world?  

Jeff 

p.s.  While at Mojave, Rob Foss and I both worked with Bob Sluder when he was just a gas control/operations puke like the rest of us.  He's apparently done quite well at KRGT.


Williams to sell Kern River for nearly $1B 
Beleaguered gas marketer and pipeline operator Williams said Thursday it has agreed 
to sell its Kern River Gas Transmission pipeline to MidAmerican Energy Holdings 
for nearly $1 billion. 
MidAmerican, a unit of investor Warren Buffet's Berkshire Hathaway, will pay 
Williams $450 million in cash and assume $510 million of Williams' debt in order to 
acquire Kern River. The deal, part of Williams' ongoing effort to strengthen its balance 
sheet, is set to close by March 31 assuming regulatory approvals. Williams said selling 
the Kern River system will save the company about $1.26 billion in capital expenses 
over the next 18 months. 
MidAmerican, meanwhile, said it will proceed with a major expansion of the pipeline, 
which currently has a capacity of 835,000 Mcf/day and extends 926 miles from Opal, 
Wyo., to California's San Joaquin Valley. Built in 1992, it is a key route for shipping Rocky 
Mountain gas to markets in the western United States, particularly Southern California. 
The expansion project, due to be completed in May 2003, will more than double 
the pipeline's capacity to 1.7 Bcf/day, according to a filing Williams submitted to 
FERC in August. The value of the pipeline once it is expanded will exceed $2 billion, 
MidAmerican said in a release. 
"We are extremely pleased to be acquiring the Kern River Gas Transmission, which 
we view as one of the finest natural gas pipeline assets in North America," said David 
Sokol, MidAmerican's chairman and CEO. Upon completion of the sale, Kern River will 
become a subsidiary of MidAmerican. Bob Sluder, senior vice president and general man-ager 
of Williams' Kern River and Northwest systems, will become president of the new 
MidAmerican subsidiary. 
As for Williams, "We are taking this decisive step to strengthen our balance sheet to 
meet the more conservative requirements of the rating agencies, which now require com-panies 
like Williams to reduce debt and increase cash flow to maintain an investment-grade 
credit rating," President and CEO Steve Malcolm said. "The sale of our Kern River sys-tem 
is an important building block in achieving the financial flexibility to expand our busi-nesses 
now and in the future." 
Williams has been under pressure from investors and rating agencies since the Tulsa-based 
company delayed the release of its 2001 earnings to iron out debt issues related to 
the troubled Williams Communications Group subsidiary, which it spun off last year. Ear-lier 
this week, Williams said it had reached a deal with investors to refinance $1.4 billion 
of WGC-related debt (GD 3/5). 
Williams' stock price has taken a beating due to the WGC debt issues as well as the 
heightened scrutiny of U.S. energy merchant companies in the wake of Enron's bankrupt-cy 
in December (GD 12/4). 
In releasing its earnings Thursday, Williams reported a 2001 net loss of $477.7 mil-lion, 
or 95?/share, compared with net earnings of $524.3 million or $1.17/share in 2000. 
The 2001 loss includes pre-tax charges of $2.05 billion relating to WGC. 
WGC said income from continuing operations for 2001 was $835.4 million, compared 
with $965.4 million a year earlier. The total WCG-related charges of $2.05 billion repre-sents 
80% of the total WCG-related guarantees and payment obligations, and the deferred 
payment for services provided to WCG, Williams said. 
Also Thursday, Williams said it will raise $275 million through the sale of 9.875% cumu-lative 
convertible preferred stock to MEHC Investment, a subsidiary of MidAmerican Energy 
Holdings. MEHC will acquire 1.46 million shares of the security at a price of $187.50/share, 
with each share of the security convertible into 10 shares of Williams' stock. The deal is expect-ed 
to close by March 31 and goes hand in hand with the Kern River transaction. 
MidAmerican, headquartered in Des Moines, Iowa, is a privately owned energy 
provider with 10,000 employees. It provides gas and power to approximately 5 million 
customers. 

Jeffery C. Fawcett 
Vice President 
Sempra Fiber Links 
440 Louisiana Street 
Suite 900 
Houston, TX 77002 
Houston Office:  713-236-7720 
Houston Fax:    713-236-7721 
San Diego Office:  619-696-4673 
email:  jfawcett@sempra.com 
<<Jeffery C. Fawcett (E-mail).vcf>>