Warren Buffett doubles down and powers up

Berkshire Hathaway's acquisition of NV Energy makes it the largest owner of electric utility accounts in the country.

By TheStreet Staff Jun 4, 2013 1:12PM

thestreet logocopyright Digital VisionBy Dana Blankenhorn

 

How would you like a monopoly on something people need to have -- a simple distribution business that may change but will probably never go out of style?

 

Warren Buffett would. The Berkshire Hathaway (BRK.A) chairman signed off last week on the $5.6 billion purchase of NV Energy (NVE), writes Bloomberg, giving those shareholders a 23% pop and making Berkshire the largest owner of electric utility accounts in the country.


NV Energy is a "bolt-on" to MidAmerican Energy, acquired for about $9 billion in 1999 (Berkshire Hathaway release). MidAmerican has since become a big investor in renewable energy, especially solar, helping to power such suppliers as First Solar (FSLR) and SunPower (SPWR) to multi-year highs.

 

Yet, while Buffett is doubling down on this sector, others are running away. Efficiency is starting to cut demand and homeowners are starting to make their own energy with solar panels, demanding connections to the grid. The Edison Electric Institute, which represents the industry, has issued a report by Peter Kind calling renewables a "mortal threat" to the industry.


What's going on? Many utilities think they're in the power-generation business, but rooftop solar panels put them in the distribution business. This imposes costs -- such as accounting for small providers and storing excess power -- that utilities want to be paid for, just as they're paid up-front for adding, say, a new nuclear plant. 

 

The result has been a series of battles, with utilities demanding that rooftop providers pay them for use of the lines. It's marked by alarmist reports such as this from Douglas Short at The Energy Collective predicting PG&E (PGE) -- the utility most impacted right now by rooftop solar -- could go under without relief from these distribution costs.

 

Yet, amid all this doom and gloom, Berkshire is rushing in. Why?

 

One reason is a new Department of Energy policy, FERC 890, which assures a return for investments in energy storage. Storage allows utilities to maintain a steady stream of power to customers when they're buying "variable" inputs like solar or wind energy. It's also becoming a growth center for utilities like AES (AES), which serves the Midwest.

 

Another reason is utility-grade solar is becoming a really good business. Nevada, where NV Energy is located, has lots of empty land and air-conditioner-driven demand that peaks along with solar output and prices. Utility-grade solar could be an $84.6 billion business in 2016, according to ReportsnReports. The total industry is currently running at $250 billion/year, according to the Department of Energy. 


What's happening is the old business model -- getting paid upfront for inputs like nuclear power, then re-selling that at a price guaranteeing a return -- is giving way to a new model in which utilities are in the business of arbitraging various forms of supply and demand.

 

Those who are wedded to the old business model, like Zach Scheidt of InvestmentU, are freaking out, while people like Buffett are buying.

 

Who's right? Time will tell, but my money would be on the side that's usually right -- which is Buffett's side.

 

At the time of publication the author had no position in any of the stocks mentioned.


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15Comments
Jun 4, 2013 4:43PM
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This is why BP is the owner of the largest wind farm in Northern Indiana.  Horizon to horizon off of I-65.
Jun 4, 2013 6:40PM
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Warren Buffet isn't a billionaire because he makes wrong moves.Lets look at just one purchase he made 2 yrs ago. When all were down on banks across the board what did Warren do ---he bought 5 million $ worth of BAC at $5/share have you seen whatits going for now, over $13/share over 250%gain.The man isn't stupid that's for sure.He buys low and sells high .So when Buffet makes a large buy jump on board and you'll look smart too.jmho. 
Jun 4, 2013 5:41PM
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Now that the NV Energy deal is done, Good Old Warren has another corporation that he can use to reel in subsidies from the government. He knows he can count on calling in favors from the administration and the Energy Department for all his PR work to get Urkle back in office. Remember the whole Buffett Rule propaganda blitz that everyone in politics knew was a dead horse and pony show? It's payback time!!
Jun 4, 2013 5:41PM
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Is Buffet the same guy who liquidated his whole position in MCD @ $ 41 four years ago? Shows you that everyone has feet of clay. His long term record is what counts.
Jun 4, 2013 10:08PM
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BTW....Warren's riches are not going to the grave....80-90% will be going to Charity..

Much of it through the Bill and Melinda Gates' Foundation.

Jun 4, 2013 8:46PM
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"Warren Buffet isn't a billionaire because he makes wrong moves. Let's look at just one purchase he made 2 years ago. When all were down on banks across the board what did Warren do? He bought $5 million worth of BAC at $5/share have you seen what it's going for now, over $13/share over 250% gain."

So you buy a bunch of bank stock, then when the President who got elected because of your big campaign donations says- "Is QE a good thing, Warren?" You tell him "Yes, but be sure it's distributed through banks." And the President kisses your butt and engages the Fed to destroy America's future by diluting it's currency at a rate of $85 billion a month. We need billionaires like we need a Plague.

Jun 4, 2013 10:03PM
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Call him what you want; But he and Munger are going away, "grooming more sharp cookies" to take over a big portion of BERK..

It's not really about Buffet, but more about Berk, he knows that and his baby/child/ young adult is leaving the nest and you are aging....Picture yourself being the parent....

Outside of that, he can make deals we don't even understand..?

 

What it has to do with Obama, jut sounds assinine. And damn little credence.

Or not anymore then what others donate and lobby for on BOTH SIDES...

Jun 4, 2013 5:00PM
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Who is this Buffet guy that everyone is following?  Is he the same guy that sings that song Margurativille?  Or do they just call him that because he will make short work of the all-you-can-eat buffet?
Jun 4, 2013 8:38PM
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Why is this man and his investments still relevant? He's over 80 and obviously mentally ill. How can anyone be above retirement age and not grasp the damage they do to economy and society taking more and more while so many are suppressed compressed and living under duress. Get DEAD, old guy and may your Will divest your wealth so broadly that it finally does some good.
Jun 4, 2013 6:19PM
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He just needs to go away.  He is obsolete and still uses the 'ol tactics.  He is old and rich....retire 'ol man.  We do not listen to you.  Take your riches to your grave and quit misleading the public in "raiding"....your day is over.  Your stockholders probably know that.  Time for you to just get out and ride a horse somewhere.  You make investing stink!
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