MidAmerican Energy (Now BHE)
Company Overview
MidAmerican Energy (now Berkshire Hathaway Energy) is Berkshire's primary regulated utility and energy infrastructure business, founded as Iowa-based MidAmerican Energy Holdings. Berkshire's 1999 investment began a relationship that transformed from a regional electric utility into one of North America's largest energy holding companies under CEO Greg Abel's leadership.
Investment Story
1999: First investment. Berkshire invested approximately $3.5 billion for roughly 76% of MidAmerican Energy Holdings — then primarily an Iowa electric and gas utility — alongside partner Walter Scott. CEO David Sokol had built MidAmerican aggressively through acquisitions, creating a diversified energy platform beyond the original Iowa utility.
2006: PacifiCorp acquisition. MidAmerican acquired PacifiCorp — a major western U.S. utility serving Oregon, Wyoming, Utah, and neighboring states — for $9.4 billion including assumption of debt. The acquisition dramatically expanded MidAmerican's regulated asset base and customer count, making it one of the largest utility holding companies in the U.S.
Natural gas pipelines and real estate. Under Berkshire's ownership, MidAmerican expanded beyond electricity into natural gas transmission pipelines (the Kern River and Northern Natural Gas pipelines) and real estate brokerage (HomeServices of America). The diversification transformed MidAmerican from a utility into a broad energy infrastructure company.
Greg Abel's leadership. After David Sokol's departure in 2011, Greg Abel became CEO and subsequently chairman. Under his leadership, Berkshire Hathaway Energy (renamed in 2014) became a major investor in renewable energy — particularly wind and solar — making it one of the largest operators of wind generating capacity in the United States.
Why regulated utilities fit Berkshire. Regulated utilities earn predictable, government-authorized returns and can deploy unlimited capital in infrastructure investment and earn those authorized returns on it. This creates a perpetual reinvestment machine: regulators allow utilities to earn 10-11% on equity, and every dollar of capital invested in grid upgrades and renewable energy generates that predictable regulated return.
Buffett's Own Words
*Jordan’s Furniture and contracting to buy a major portion of MidAmerican Energy. We will talk more about these companies later in the report but let me emphasize one point here: We bought both for cash, issuing no Berkshire shares. Deals of that kind aren’t always possible, but that is the method of acquisition that Charlie and I vastly prefer. Guides to Intrinsic Value I often talk in these pages about intrinsic value, a key, though far from precise, measurement we utilize in our acquisitions of businesses and *
*Jordan’s Furniture and contracting to buy a major portion of MidAmerican Energy. We will talk more about these companies later in the report but let me emphasize one point here: We bought both for cash, issuing no Berkshire shares. Deals of that kind aren’t always possible, but that is the method of acquisition that Charlie and I vastly prefer. Guides to Intrinsic Value I often talk in these pages about intrinsic value, a key, though far from precise, measurement we utilize in our acquisitions of businesses and *
I described the first purchase — 76% of MidAmerican Energy — in last year’s report. Because of regulatory constraints on our voting privileges, we perform only a “one-line” consolidation of MidAmerican’s earnings and equity in our financial statements. If we instead fully consolidated the company’s figures, our revenues in 2000 would have been $5 billion greater than we reported, though net income would remain the same. • On November 23, 1999, I received a one-page fax from Bruce Cort that appended a Washington P
Flight Services........................................................... MidAmerican Energy (76% owned) ......................... Retail Operations....................................................... Scott Fetzer (excluding finance operation) ............... Shaw Industries(2)...................................................... -- -- Other Businesses....................................................... Purchase-Accounting Adjustments ........................... (726) (881) (699) (843) Corporate Interest Ex
*Berkshire also made some important acquisitions last year through MidAmerican Energy Holdings (MEHC), a company in which our equity interest is 80.2%. Because the Public Utility Holding Company Act (PUHCA) limits us to 9.9% voting control, however, we are unable to fully consolidate MEHC’s financial statements. Despite the voting-control limitation – and the somewhat strange capital structure at MEHC it has engendered – the company is a key part of Berkshire. Already it has $18 billion of assets and delivers our *
Investment Lessons
Regulated utilities can absorb unlimited capital at adequate returns. Most excellent businesses have limited reinvestment opportunities — See's Candies couldn't earn high returns on large additional capital because the market was already saturated. Regulated utilities are the opposite: every dollar invested in grid maintenance, renewable capacity, and transmission expansion earns the regulated return. This characteristic makes utilities ideal for deploying Berkshire's enormous and growing cash generation.
Renewable energy investment is durable competitive advantage in utilities. MidAmerican Energy's early, aggressive investment in wind generation — before the economics were as compelling as they later became — created an asset base in renewable energy that made it a natural beneficiary of the broader energy transition. First-mover advantages in renewable energy permitting, land acquisition, and grid interconnection agreements are particularly sticky.