Warren Buffett is once again expanding his utility portfolio.
Buffett’s MidAmerican Energy Holdings Co., a unit of Berkshire Hathaway (NYSE: BRK-A), plans to acquire Nevada-based utility company NV Energy Inc. (NYSE: NVE) for $5.6 billion. The overall deal has a value of $10 billion, which will give MidAmerican a total asset value of $66 billion.
According to the agreement, MidAmerican will purchase common stock from NV Energy for $23.75 in cash per share. NV Energy serves the needs of 1.3 million utility customers in Nevada, and Midstream Energy will have 8.4 million utility customers upon completion of the merger.
When factoring in products and services, NV Energy actually provides energy to 2.4 million Nevadans and 40 million tourists on an annual basis.
The deal is part of a larger trend of utility consolidation. More utilities are merging in order to contend with rising costs and tougher environmental standards. Smaller utility companies are especially prone to mergers and acquisitions, since they are the ones that struggle most when dealing with operating expenses. Warren Buffett’s interest in this utility company could turn more investor eyes on smaller utility companies in the West and around the country.
NV Energy will keep its current name but will act as a “separate corporate subsidiary of MidAmerican Energy Holdings Company,” according to an NV Energy press release.
Both parties can add value to each other’s businesses, since MidAmerican has expertise in renewable energy and NV Energy also has a significant amount of renewable resources to bring to the table.
Shareholders from both companies are on board with the acquisition, and the deal is expected to be completed in the first quarter of 2014. The deal is still subject to approval from regulatory authorities at the state and federal levels.
MidAmerican is based in Iowa and is a key provider of natural gas and electricity to people around the world. It also invests heavily in renewable energy sources, including geothermal, wind, and solar power projects.
NV Energy Inc. is a holding company whose subsidiaries comprise Nevada Power Company and Sierra Pacific Power Company, acting under the NV Energy banner. The company serves an area of 46,000 square miles.
NV Energy can take advantage of MidAmerican’s capital and international expertise in renewable energy. The local utility will also keep MidAmerican grounded in the Nevada economy and will expand Warren Buffett’s energy portfolio.
Berkshire Aspirations
The Berkshire purchase of NV Energy is one of the latest plays in the energy arena and part of a larger expansion of Buffett’s energy holdings. Berkshire also purchased Burlington Northern Santa Fe – a railway company that ships large amounts of crude from the Bakken. Buffett has said in interviews that railways and electric utilities are two industries that consumers and companies cannot go without.
One of the reasons why Warren Buffett purchased Burlington was because he believes trains are key in reducing fossil fuel emissions from the trucking industry.
And with the lack of national pipeline infrastructure in the U.S., railroad transportation will be a fast-growing industry, as more energy companies will need to ship crude from productive regions.
Buffett also has interests in coal.
Holding fossil fuel and renewable energy assets may seem like a conflicting dichotomy, but it is a good way to invest in current industries while maintaining a stake in future growth.
Buffett may be betting on conventional energy resources, but he has a good amount of investments in renewable energy through MidAmerican.
MidAmerican has hydro power plants in the Pacific Northwest, the Rockies, and the Philippines. The company also has investments in geothermal plants in California and the Philippines and windfall assets in Iowa.
This is a perfect fit for NV Energy, a company with aspirations of reducing energy emissions.
NV Energy signed its first geothermal contract in 1983, and the utility has a goal of making 25 percent of its energy sales come from renewable sources by 2025.
NV has three solar generation subfields, including space heating, hot water, and electric. It has wind and hydro engineering capabilities, and there is also a program in which customers can get rebates on wind, solar, and hydro installations.
NV Energy touts 1,400 renewable projects comprising 38 megawatts in schools, public buildings, homes, and businesses.
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Partnerships
NV Energy has some of the most extensive relationships in the environmental community you’ll ever see in a utility company. The company is assisting the University of Las Vegas in a Department of Energy-funded project involving solar system dishes, along with educating students on solar engineering and technology.
The utility company also forged partnerships with the U.S. Department of Interior and other groups comprising American Indian tribes and environmental interests from Arizona, California, and Nevada in the preservation of fish and animal habitats.
The Desert Research Institute is dedicated to replacing fossil fuel sources with clean energy options, and it oversees NV Energy’s alternative energy programs. Other partnerships include Nature Conservancy, Friends of the Desert Wetlands Park, and Clark County Parks and Recreation.
MidAmerican has made the same efforts in preserving endangered species in the U.K. and the U.S., along with forest and coastal restoration in the Philippines.
MidAmerican also partnered with First Solar, Inc. (NASDAQ: FSLR) in a 550 megawatt solar project that is to be the largest solar plant in the world. Pacific Gas and Electric Company will buy the electricity when the plant is completed, and the project is being conducted through MidAmerican’s subsidiary MidAmerican Renewables.
Other energy subsidiaries of the company are PacifiCorp, Northern Powergrid, CalEnergy Philippines, Northern Natural Gas Company, and Kern River Gas Transmission Company.
The backgrounds and future goals of these companies make them seem like a match made in heaven. When it comes to a utility company with a steady hand in the renewable market and a forward-thinking message, Buffett chose right with the NV Energy acquisition.
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