The Birth of Green Energy and the Last Great LBO

The Birth of Green Energy and the Last Great LBO

On this day in economic and business history...

The flow of moving water has been one of humanity's oldest sources of energy. However, water wheels at shoreline mills are hardly sufficient for a modern electrified civilization. And so, less than a year after Thomas Edison first developed a working electric light bulb, the first modern hydroelectric turbine began operating at the Wolverine Chair Factory in Grand Rapids, Mich., on July 24, 1880.

The turbine, operated by the Grand Rapids Electric Light and Power Company, generated enough power to light up 16 arc lamps. It lit up several riverside businesses as well as the chair factory, and the Grand Rapids Eagle observed: "The light was a grand success, strong, steady, white and uniform. It called thousands of people on to the streets and into places lighted by it, and it was admired and enjoyed by all."

Two years later, the first purpose-built hydroelectric plant went into service on the Fox River in Wisconsin. By the end of the 1880s, more than 200 electric plants generated at least some of their power from the movement of water. Hydropower use continued to grow, and by 1907 15% of all American electricity was generated from the water. By 1940, after a massive boost from President Franklin D. Roosevelt's New Deal construction programs, hydropower accounted for a full 40% of all electricity generated in the United States.

Hydropower's contribution to American energy-generation is no longer as great as it once was, but across its various sources, the U.S. has nearly 100 gigawatts of hydropower capacity, and depending on water flow and rainfall, at least 6% (and up to 10%) of the nation's electricity can be water-sourced. Roughly two-thirds of American renewable power production still comes from hydropower, and the U.S. is fourth in the world in hydropower production behind China, Brazil, and Canada.

Looking for a way to invest in hydropower? California's PG&E is the nation's largest hydropower utility, producing nearly 12 billion kilowatt-hours of water-sourced electricity each year. CMS Energy , which currently operates 13 hydroelectric power plants in Michigan -- including one near the site of that first Grand Rapids turbine -- provides power to about 70,000 people each year from the movement of water.

Buyouts go big
On July 24, 2006, HCA , the largest for-profit hospital operator in the U.S., agreed to what was at the time the largest leveraged buyout in history on July 24, 2006. A $21 billion offer from a team led by HCA founders Thomas Frist Sr. and Jr. (father and brother, respectively, of former Senator Bill Frist) and supported by Bain Capital and Kohlberg Kravis Roberts , among others, would also assume nearly $12 billion in HCA debt. The $33 billion total value of the deal thus eclipsed the nominal value of KKR's legendary $31 billion leveraged buyout of RJR Nabisco, which had held the record for LBO size since 1989.

The HCA deal, however, did not undo a frothy private-equity market as RJR Nabisco had in 1989. The big players in that arena continued to seek out larger deals as the Dow Jones Industrial Average soared to all-time highs in 2007. By this point in 2006, $287 billion worth of private-equity buyouts had already taken place, but the Dow, which closed at 11,051 points after the deal was announced, remained below the dot-com peak reached at the start of 2000.

Easy credit continued to buoy the markets for both stocks and private-equity megadeals for another year. The largest LBO in history, a monstrous $45 billion acquisition of a Texas utility company in early 2007, presaged the beginning of the Dow's worst crash in the postwar era, which began six months later. That buyout remains a thorn in KKRs side: KKR spearheaded the deal, and it remains unable to dig the company out of the massive debt it took on in anticipation of higher natural-gas prices. However, its HCA deal, completed before things got completely out of hand, wound up becoming a moneymaker when the hospital chain re-entered public markets in 2011. HCA's IPO, which raised $3.8 billion, was the largest private-equity-backed offering in American history.

The best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

The article The Birth of Green Energy and the Last Great LBO originally appeared on

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more insight into markets, history, and technology.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Originally published