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Berkshire Hathaway Has Tight Hold on Energy Play, CEO, SEC Filing Say

Berkshire Hathaway's charismatic CEO, Warren Buffett, assured state utility regulators this week that his multi-billion-dollar conglomerate is in the energy utility business for the long haul and views the sector as a steady source of income -- not an extraordinary one.

Speaking at a national meeting of state regulatory commissioners in Miami on Monday, Buffett also expressed reservations about past utility deregulation because of its tendency to encourage merchant generators to shave reserve margins and keep markets tight in order to raise prices.

Meanwhile, in a filing with the Securities and Exchange Commission earlier this month, Berkshire Hathaway emphasize that it exercised "significant influence on the operations" of MidAmerican Energy Holdings Co. during 2005 through its investments in common and convertible preferred stock. Although it hasn't guaranteed any of MidAmercian's $16.4 billion in debt, it has made a "commitment that allows MidAmerican to request up to $3.5 billion of capital from Berkshire to pay its debt obligations or make investments in its regulated subsidiaries."

MidAmerican's earnings totaled $155 million for the third quarter and $407 million for the first nine months this year. The completion in March of the $5.1 billion purchase of PacifiCorp's six-state electric utility operations in the West doubled MidAmerican Energy Holdings' property, plant, equipment and depreciation over the first nine months of this year. Property etc. nearly doubled from $18.5 billion the end of last year to $35.8 billion on Sept. 30. Similarly, depreciation hit $12.5 billion Sept. 30, compared to $6.6 billion on Dec. 31, 2005. Over the same nine months, MidAmerican's overall debt rose from $10.2 billion to $16.4 billion as of Sept. 30.

MidAmerican acknowledged -- as all major utilities must these days -- that its utility operations are subject to many environmental laws, including several major federal acts, such as the Clean Air and Endangered Species Acts. "The Environmental Protection Agency has issued numerous rules regarding air quality," the SEC filing said. "These laws and rules will likely impact the operation of [MidAmerican's] generating facilities and will require them to either reduce emissions from those facilities through the installation of emission controls or purchase additional emission allowances, or some combination thereof."

On climate change, MidAmerican said the outcome cannot be determine now on the ongoing debate between states, such as California, and the federal government, although it speculates that Congress may step in. In any event, MidAmerican said "adoption of stringent limits on greenhouse gas (GHG) emissions could significantly impact MidAmerican's fossil-fueled facilities and, therefore, its results of operations."

Since Buffett's initial purchase several years ago, MidAmerican has acquired two natural gas interstate pipelines (Kern River and Northern Natural Gas), two multi-state utilities (PacifiCorp and Iowa-based MidAmerican Energy Co.), a national geothermal power plant developer based in California (CalEnergy Generation) and a United Kingdom-based electric utility (CE Electric UK).

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