Charity, local control mark Constellation Energy buyer

The Baltimore Sun

DES MOINES, Iowa - It would hardly be a shock if John Perkins had beefs with MidAmerican Energy Co. After all, he is Iowa's consumer advocate. His job is to look out for the utility's 630,000 electric customers and 550,000 natural gas users statewide.

Maybe the real surprise is this: Perkins has high praise for the Warren Buffett-led utility, a unit of MidAmerican Energy Holdings, which on Friday signed a $4.7 billion agreement to buy Constellation Energy Group.

"They play very tough. Uncle Warren ain't no fool. He's going to make money," Perkins said in an interview at his office in this state capital. "But they're smart. If they think you're right, they're not going to fight you just for the sake of fighting you."

Smiling, he went on: "I don't want to sound like we're all walking around singing 'Kumbaya,' but we respect what they do."

Of course, harmony is easier to achieve when electric rates have stayed flat for a dozen years. That pleases not just customers but legislators and business leaders hoping to woo companies to this placidly vibrant riverfront community of 550,000.

MidAmerican, it would seem, fits certain Midwestern stereotypes: Hard-working yet low-key, respected but likeable rather than feared, a big moneymaker that gives back in big ways.

Likewise, executives at the holding company set the overall course but let the subsidiaries - Constellation would be the latest - make key decisions locally.

Despite Friday's agreement, Constellation's fate may yet be up in the air. Its largest shareholder, the French state-controlled Electricite de France, has been considering its options. Any rival bid would require an American partner because foreign firms are not permitted to fully own U.S. nuclear reactors.

If the MidAmerican deal goes ahead, Marylanders should rest assured, said Tom Baird, an Iowa State University expert on electric power and former long-time employee.

"You could do a whale of a lot worse," said Baird, director of the Electric Power Research Center, which receives money from MidAmerican. "It's a progressive company, astute in business, progressive in technology and a good corporate citizen."

There are two MidAmericans here, and the distinctions can get blurry. MidAmerican Energy has deep roots as the former Iowa Power & Light. It is the entity most folks know and appear to like, based on its 2008 first-place finish among large Midwest utilities in a J.D. Power and Associates customer satisfaction survey.

The "other" MidAmerican - the corporate parent - is a result of mergers and acquisitions that have made it a global energy concern with toeholds in the Western United States, Britain and the Philippines.

For nearly a decade, MidAmerican Energy Holdings has been controlled by the legendary, low-key Buffett and his Berkshire Hathaway company.

Gregory E. Abel, chief executive of the holding company, said in an interview Friday in Baltimore that he does not micromanage from his office in downtown Des Moines.

"Utilities are local companies and need local management," he said, echoing Buffett's philosophy. "They have to be present to be engaged whenever there are issues. Equally, we expect our management teams to be fully active in the communities they work in."

In charitable giving, three programs cut across all business units. One is support of the United Way; in central Iowa the company is the 10th-biggest giver out of 1,400 participants. In the second program, the company matches individual employee donations to universities and other nonprofits up to $1,500 per year.

The third, Global Days of Service, is an innovative approach. Employees tally up time they volunteer at, say, an animal shelter or soup kitchen. The company then writes a check to that group based on the number of hours. Lately those payments have been $5 or $6 an hour.

"It's leveraging the employees' time," said Sara Schillinger, vice president for corporate communications at MidAmerican Energy Holdings, in an interview at corporate headquarters. Beyond the three programs, she said, charity work stems from a given community's needs and the interests of a given subsidiary's employees.

MidAmerican's home base is a skyscraper in Des Moines' resurgent downtown, with sweeping views of the gold-domed state capitol across the Des Moines River. But it is not flashy. One can walk right past on Grand Avenue without spotting the company's name.

This city has long had a solid corporate base. Nicknamed the "Hartford of the West," it boasts the presence of several insurance and financial services companies. MidAmerican is literally overshadowed by the Principal Financial Group, whose soaring tower rises higher than any other in the city.

As in most cities, corporate logos abound. The minor league Iowa Cubs play at Principal Park; people stroll on the Principal Riverwalk. Music acts play the Wells Fargo Arena, and supermarket chain Hy-Vee is the corporate name behind Hy-Vee Hall.

MidAmerican's presence is more subtle but widely felt. The Science Center of Iowa opened its soaring new complex three years ago. Chris Kramer, its vice president of development, said MidAmerican played a key role by moving utility lines, contributing toward the $62 million cost and supporting exhibits.

As important, Kramer said, for six years the company has sponsored a science education program called Simply Electrifying. More than 25,000 students in rural and urban communities take part annually.

"Because they are a public utility, if they're going to invest resources into their community they want it to be a real benefit," she said. "I think that's why they believe so strongly in the science education outreach."

Perhaps the most noticeable sign of MidAmerican in Des Moines can be seen on a hill at the state fairgrounds. There, near the Grandfathers Farm exhibit of old machinery, stands a massive wind turbine. On Friday afternoon, its three blades spun in a stiff breeze, making a gentle whooshing sound.

The turbine bears the company's name and logo, a red triangle with white slashes. The idea made sense, said Schillinger: With the fair attracting a million visitors a year, it provided a perfect opportunity to showcase the company's involvement in wind energy.

MidAmerican Energy Co. owns more wind-powered electric generation than any other regulated utility in the U.S. It has 1,200 megawatts of generation in operation or under construction - enough to power some 140,000 homes, according to former Iowa Gov. Tom Vilsack.

A drive 45 minutes west of Des Moines offers a vivid illustration. On either side of Interstate 80, two dozen turbines rise next to cornfields and old barns. Across Iowa, MidAmerican has or will have 798 turbines.

Vilsack, a two-term Democratic governor who left office early last year, now consults for MidAmerican. "They've made huge investments, led efforts in renewables [such as wind] and haven't raised rates in 12 years," he said. "It doesn't get any better than that."

John Norris has chaired the Iowa Utilities Board since 2005 when Vilsack, his former boss, appointed him. He speaks highly of MidAmerican. Its push into wind is diversifying how it generates electricity, producing jobs, increasing public acceptance of wind and nudging the state toward energy independence.

The only issues have been occasional customer complaints about getting service reconnected, he said. "I'm not trying to avoid saying something negative; nothing comes to mind that I would raise a red flag for."

He calls it a "very well run company" that "saw a lot of the problems in energy coming before others and got ahead of it, particularly with long-term coal contracts."

One group that has been critical at times is the Sierra Club's Iowa chapter, which has questioned MidAmerican's commitment to renewable energy despite the company's push into wind turbines.

While natural gas prices have risen here as they have globally, the electric rate freeze since 1995 has been a boon to the economy, said David Maahs, executive vice president of the Greater Des Moines Partnership, a business group. Flat rates have helped attract advanced manufacturing and data centers.

"That's probably one of the key reasons Microsoft selected West Des Moines as a location for a $600 million data center," he said.

Perkins, the consumer advocate, was appointed in 2001. He said the 1995 rate freeze came about as a compromise: His predecessor wanted rates lowered; MidAmerican wanted them raised. The freeze has since been extended and is due to expire after 2013.

Not that MidAmerican suffered. "They have enough excess generation," Perkins said, "that they can make a lot of money selling excess electricity on the wholesale market." Ratepayers stand to benefit, he said, because of a profit-sharing plan.

Perkins emphasized that his office has disagreed with MidAmerican, namely on the rate of return the utility should receive on its new power plants. But it has not flared into controversy.

He knows all about the contentiousness between Constellation and Gov. Martin O'Malley. As president of the National Association of Consumer Advocates for three years, he knows such discord is more common than the cordial give-and-take he has with MidAmerican.

"I had to listen to a lot of tales of woe from other consumer advocates who wouldn't even talk to the utility people they regulate. They were at loggerheads all the time, always felt they were trying to cheat them or pull a fast one."

Baltimore Sun reporter Hanah Cho contributed to this article from Baltimore.

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