Finance History | Ruan Center, Des Moines, 14 March 2000 — US$1.24 Billion Opened Berkshire's Utility Era

On 14 March 2000, Berkshire Hathaway and its partners closed their acquisition of MidAmerican Energy Holdings after shareholders and regulators approved the transaction.

Berkshire invested approximately US$1.24 billion in 2000 dollars in common and non-dividend-paying convertible preferred stock. The securities produced about a 9.7 percent voting interest but a 76 percent economic interest on a fully diluted basis.

That separation mattered because Walter Scott Jr. controlled roughly 86 percent of the votes after closing, while Berkshire supplied much of the permanent capital. Berkshire subsidiaries also bought about US$455 million of 11 percent trust preferred securities in 2000 dollars.

The acquired platform supplied electricity to approximately 2 million customers and natural gas to 1.2 million customers worldwide in 2000. It also owned, managed or contracted for about 9,700 net megawatts of generation in operation, construction or development.

Utilities reversed the lesson Berkshire had drawn from textiles only in part. They also demanded constant capital, but regulated rates could provide a reasonable return when investment was prudent, service reliable and regulators retained confidence in the owner.

That is a social and financial compact rather than a simple moat. Customers need long-lived infrastructure, the company must fund it years before demand is fully known, and public commissions decide whether the resulting capital base earns an adequate return.

Berkshire reinforced the model by retaining utility earnings. MidAmerican paid no dividend after the 2000 investment through at least 2008, using its cash to expand and improve systems instead of sending it to the parent.

The structure gave Berkshire a place to deploy sums that its smaller high-return businesses could no longer absorb. Returns were expected to be reasonable rather than spectacular, but the opportunities were large, essential and repeatable.

Ruan Center at 666 Grand Avenue is the Des Moines corporate address of the enterprise later renamed Berkshire Hathaway Energy. The tower marks the point where Berkshire accepted capital intensity when regulation, essential demand and retained earnings could make reinvestment productive.

Photo: Farragutful, CC BY-SA 4.0, via Wikimedia Commons.