By Andrea K. Walker, Jamie Smith Hopkins and Hanah Cho

September 19, 2008
When investor Warren Buffett bought MidAmerican Energy Holdings Co. for $2 billion in 2000, he bet it would be a good long-term investment even though shares of the company had recently plunged 21 percent.

His bet turned out to be right.

MidAmerican has expanded from its Des Moines base to become an aggressive deal-maker and, with yesterday's announced acquisition of Constellation Energy, North America's largest utility. It has steadily expanded through traditional utilities - the latest deal would give it 8.7 million utility customers from coast to coast - while becoming a leader in wind-powered energy.

MidAmerican's businesses reach as far as Australia, where a subsidiary is working on integrated upstream gas projects. It owns seven subsidiary companies, including the real estate arm HomeServices of America, and employs 17,200 people. Local ties include a residential real estate brokerage in Annapolis - part of HomeServices of America, which has nearly 19,000 agents nationwide - and sales of electric supply services to Marylanders.

The steady expansion has not hurt profits. Last year, MidAmerican earned $1.2 billion.

Yesterday, MidAmerican began to outline how Constellation would fit into its corporate structure.

Baltimore Gas and Electric will remain intact under the merger because it is a regulated business. MidAmerican executives said they will keep Constellation as a separate unit but did not say whether jobs would be cut.

Martha Willits, president and chief executive of the Greater Des Moines Partnership, a regional economic development organization, called MidAmerican "a great community leader." Company officials are active on boards at the partnership and other local groups, she said.

"They have been a major player in our region's growth," said Willits.

Its subsidiaries have remained largely autonomous, with their own philanthropic pursuits.

Portland, Ore.-based PacifiCorp, for example, operates the 5,600-acre Merwin Wildlife Habitat Management Program at Merwin Reservoir in Washington. Northern Natural Gas employees helped construct a drip system at Wildcat Bluff Nature Center near Amarillo, Texas, to water a grove of hackberry trees along one of its many nature trails.

Iowa state regulators say MidAmerican, one of two regulated gas and electric companies in the state, has had no major regulatory issues.

"We've have had no real big complaints and concerns with MidAmerican in the years we've been working with them," said Rob Hillesland, a spokesman for the Iowa Utilities Board, which regulates power companies in the state.

MidAmerican also has a good reputation in the community for its utility work when bad weather hits, Willits said: "You don't hear citizens complaining about reaction time or the presence of MidAmerican during times of crisis."

MidAmerican has been a key part of Buffett's strategy to expand further into the utility business. Its last big utility acquisition was PacifiCorp in 2005, which it bought for $9.4 million in cash and debt. The deal brought it 1.6 million customers in six states.

In his 2005 annual letter to shareholders, Buffett wrote: "A few years back, I said that we hoped to make some very large purchases in the utility field. Note the plural - we'll be looking for more."

Morningstar analyst Paul Justice said Warren Buffett is "no stranger to the utility business" and, with the acquisition of Constellation, MidAmerican becomes the largest utility in North America. MidAmerican has been eyeing further investments, including, most recently, buying a position in NRG Energy, a wholesale power generator, Justice said.

"It gives a man with very deep pockets a means of deploying capital at attractive returns," Justice said.

MidAmerican has a respectable high-triple-B credit rating, and only a "small part" of its business is in the commodities trading that led to Constellation's troubles. And as Constellation worries about raising capital, MidAmerican has a $3.5 billion, five-year equity commitment from corporate parent Berkshire Hathaway.

In a phone interview yesterday, MidAmerican Chief Executive Officer and President Greg Abel said the Constellation acquisition would be the company's first presence in the Northeast.

MidAmerican has received mixed reviews on its move into renewable energy. The company owns and operates more wind-powered electric generation than any other rate-regulated utility in the nation, according to the American Wind Energy Association.

"They are definitely leaders," said Christine Real de Azua, a spokeswoman for the group, which promotes the use of wind energy.

The American Council for an Energy Efficient Economy recently honored MidAmerican for a program that gave rebates to people who built energy-efficient new homes.

But Wally Taylor, legal counsel for the Iowa chapter of the Sierra Club, said the company's overall track record on renewable energy isn't great.

Several years ago, MidAmerican unsuccessfully fought a requirement to buy power from customers who - thanks to solar panels and the like - produce more power than they use, he said. And MidAmerican officials who sit on an Iowa climate-change advisory council are "fighting tooth and nail against any renewable energy proposals that really mean anything," he said.