FIVE QUESTIONS WITH…John Buehler Managing Partner, Energy Investor Funds –

1. In August, President Bush signed the Energy Policy Act (EPA), which repeals the longstanding Public Utility Holding Company Act of 1935 (PUHCA) and amends the Public Utility Regulatory Policies Act (PURPA) of 1978. How does this affect deal making in the space?

It is fair to say that M&A activity will pick up [as a result]. The repeal of PUHCA and PURPA opened the door for M&A funds that wanted to get involved without being subject to regulation. Prior to the EPA, let’s pick your average PE fund if they want to invest in a utility, they had to take a look at the laws of the SEC that said you can’t own more than 10% of a utility or you become subject to regulation. With the repeal, effectively the utility sector really became fair game for M&A.

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2. How does the EPA change the strategy of Energy Investors Funds?

We now have more focus because of the EPA on renewable energy product development and the technology that’s used for sustainable energy or clean energy. They’ve implemented tax credits to give some reimbursement for making the choice to increase renewable energy supply and there are also loan guarantees and tax incentives for developing technology for renewable fuel.

One place we’ll be looking to invest is transmission infrastructure. If I wanted to build a solar power system in California, I’d probably look to the desert to do it. Well, not a lot of people live in deserts, so you have to build a roadway to get those electrons to the city. We’ve always looked at infrastructure and invested in it, but there weren’t always as many opportunities.

3. How has PE competition evolved in the energy sector?

When we got started in 1987 as the first PE fund to put together institutional money for the power sector, it was because this was a new marketplace and we got there first. As more power plants were built, more people got interested. As the model built itself and aged, more PE funds took advantage. We went from one fund to now 50 meaningfully powerful funds in the U.S. and more coming on a regular basis. You went from virtually no buyout funds, no venture funds and no M&A funds to a point where in 2005 PE is buying and selling utilities worth billions of dollars.

4. How have the recent hurricanes effected the PE firms invested in energy?

What happened as a result of Katrina is that we had drastically rising oil and gas prices, and not just for the short term. We’ve had general devastation to the gas infrastructure as a result of Katrina. PE firms that participate in upstream will be looking to find exploration and pipeline companies that form a distribution chain. There will be an increase in focus of energy funds on exploration, transportation and storage of oil and gas.

5. How has the push toward green energy/renewable energy changed your outlook? Are there good investment opportunities for funds there?

We’ll see projects, for example, that amount to putting new back-end scrubbers on coal fire power plants in the U.S. We are also seeing wind power production now that competes with wind power turbine production in Europe. There is a wind turbine shortage in the U.S., so we will now see a move for people to develop wind farms here. Lastly, because of the stranded nature of where those [renewable energy] projects are, there will be a rapid expansion of capital to related transmission facilities.v