Buffett Beyond Value: Why Warren Buffett Looks to Growth and Management When Investing

Chapter 12. Why Invest in Utility Companies?

Though there are many regulatory constraints in the utility industry, it's possible that we will make additional commitments in the field. If we do, the amounts involved could be large.^[117]

—Warren Buffett

In 2000, Berkshire Hathaway invested $1.7 billion to acquire MidAmerican Energy (MEC) with Walter Scott as its partner. MEC is an electric utility based in Iowa with operations in the United States and the United Kingdom. With this acquisition, Berkshire came to own a major utility company and entered into a new industry. Investments in the utility sector are generally regarded as low risk, which is something Buffett always looks for in a potential acquisition. But what else could have prompted Buffett to break into the utility industry?

Similarity between the MEC and Other Acquisitions

The MEC acquisition has several features in common with Buffett's prior acquisitions in the furniture and jewelry retailing businesses. First, customers buy most of their furniture and jewelry locally, just as they do electricity. Second, these industries are all likely to continue to grow because of increases in population and standards of living. Third, Buffett once again emphasizes the importance of management in this acquisition. Talking about Walter Scott, MEC's then largest shareholder, and David Sokol, the CEO, Buffett writes: "If I only had two draft picks out of American business, Walter Scott and David Sokol are the ones I would choose for this ...