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November 1, 2014

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Let’s remember: Warren Buffett’s power play is to make money

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Nati Harnik / AP

In this May 2, 2011, file photo, Warren Buffett, chairman and CEO of Berkshire Hathaway, gestures during an interview in Omaha, Neb.

Click to enlarge photo

J. Patrick Coolican

Shouts of joy rang out among Nevada’s political elite on the news that an entity owned by famed investor Warren Buffett is buying the state’s electric monopoly, NV Energy.

Here was the response of state Sen. Kelvin Atkinson, Democratic chairman of the Commerce, Labor and Energy Committee, on Twitter: “WOW the (majority leader) and I just got off the phone with Warren Buffett. What a vote of confidence for NV as he aquires (sic) NVEnergy! He is excited to be able to do business in the State of Nevada. He was married right here in NV, 41 years ago!”

Let’s leave aside the embarrassing sycophancy — who can deny Buffett’s disarming, folksy charm? And, hey, I’m all in favor of Buffett’s philanthropy and moderately progressive politics.

What bothers me is the wrongheaded thinking about why Buffett might be so interested in our utility monopoly. Politicians keep saying he’s “investing” in the state of Nevada, and Buffett obliged, calling it a “long-term investment in Nevada’s economy.”

Indeed, monopolies are usually good long-term investments.

Here’s how it works. NV Energy has something we need. Unless we live off the grid, we can’t get it anywhere else. So we pay them. In fact, we pay the highest residential rates among the Mountain West states of Arizona, Colorado, Idaho, Montana, New Mexico, Utah and Wyoming, according to 2011 figures supplied by the U.S. Energy Information Administration.

And because we pay NV Energy a lot, it makes lots of money — $330 million in earnings during the past 12 months, according to Reuters.

Don’t get me wrong: It’s not as easy as it sounds. The company is clearly well managed and made a smart choice by going into natural gas right when the price collapsed. But when it comes to their revenues, it’s a pretty simple equation: More money for them means less money for us, the ratepayers. And that’s not just you and me in our homes and apartments. It’s also businesses that have less money to hire people because they pay more for electricity.

The only thing stopping NV Energy from exercising its total market power and charging us even higher rates are government regulators.

But NV Energy has shown considerable skill in recent years in managing — or maybe “capturing” is the word I’m looking for — the regulatory and legislative processes.

The company has seen strong profits in recent quarters, at least in part due to a rate increase the Public Utilities Commission approved in 2011 and which took effect last year.

Likewise, their legislative prowess is well known. The company and its affiliates gave $320,000 to candidates during the 2012 election cycle, second only to the state’s largest company, MGM Resorts, according to the National Institute on Money in State Politics.

I assure you, they back winners.

Their largesse and muscular lobbying efforts — including Greg Ferraro and Pete Ernaut, superlobbyists and friends of Gov. Brian Sandoval — are paying dividends again this session. The company will likely push through legislation that would close coal plants faster than they originally planned. But the tradeoff of Senate Bill 123 is higher rates.

Do you think Buffett is unaware of all this?

By all means, we should welcome Buffett to Nevada.

But please, don’t be so naive about why he’s here or what it means.

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  1. Buying NVEnergy is for one reason only: to make the biggest profit possible. Where does the extra profit come from? Ratepayers. I'll bet Brian Sandoval is ecstatic. When he leaves the Governor's office, he will be offered so many million dollar jobs that he'll need to hire a consulting company to make the trade-offs between offers. That's a lot of money for wearing a suit and turning down background checks for buying assault rifles.

  2. Call me naive, but as I see it, MidAmerican sees the long term payoff in wind and solar energy that NVEnergy has yet to fully tap.

    MidAmerican will make a substantial investment in wind and solar energy generating infrastructure which will see MidAmerican generating hundreds of milions more in revenue.

    Yes, coal plants will continue to shut, more powerlines will go up to carry the power to other states, and Nevada residents will not see anything done about their rates except regular increases to ensure MidAmerican doesnt bear the entire cost burden of expansion on their own.

    Its how the system works. Sorry but its been done many times, in too many other states.

    And, it happens will all political parties, SunJon. You might want to write that down.

  3. Accordin' to Our Lil' Lawman, RHG58...

    "It's a little scam rich Democrats have been playing on their shallow followers for years. It goes like this: Spew out some "progressive" blather like my secretary pays more in taxes".

    You do realize when Warren Buffet made the statement it was documented fact & continures to be today, right?

    http://www.moneynews.com/Economy/Buffett...

    Some 'blather' is backed up by a set of facts and...well, some isn't.

    At any rate, all this is I would think, is like a deal in a game of Monopoly; B.H. horse-traded with another big player & took control of a utility.
    The only hope for the weary NV Energy consumer would be that somehow, by some miracle of fate, we manage to pay a reasonable rate and that sound energy investment is the order of the day.

    No one here will be holding their breath.

  4. Cigars and fat bonuses are called for...after all we the ratepayers are paying the tab, all the way...

  5. Am i missing something? Why does a private individual/company own NV Energy? Shouldn't that be a non-profit? Are other states' energy companies for-profit?

  6. The profit, the cash, the moolah to be made by MidAmerica will be paid by ratepayers to the investors of MidAmerica, starting in Omaha. It will leave Nevada just like Kirk Kerkorian's fortune left Nevada for California where Kerkorian lives.

    NVEnergy is a $10 billion deal: $5.6 billion in cash and assumption of a $4.4 billion debt.

    A 5% interest rate on the debt, $220 million/yr cash is needed to pay interest alone. To pay the current debt off in 20 years with NO NEW debt, $353 million/yr is needed.

    Buffet won't pay the debt off because the additional $153 million would require a rate increase or a decrease in profits. Therefore, $220 million at a minimum, will be paid in perpetuum. Borrow once, pay FOREVER.

    So how did this monstrous debt come about?

    There is an entitlement class in the country which feels they deserve an income without working because they have money. Utility debt is a quiet way to bleed the ratepayer's savings WITHOUT calling it 'profits'.

    Add the $330 million to the $220 million interest payments to get a whopping $550 million. Use ~ 1.3 million ratepayers (2.76 million population) and that becomes $423/yr/subscriber to pay for interest and profits alone, not one joule of energy.

    It would be interesting for an investigative journalist to discover what fraction of the $550 million leaves the State and what fraction ends up in offshore bank accounts.

    Buffet has got a lot of offshore investors in his organization and they are always looking for more of that blue money, the ideal currency for a Blue Lagoon and sharkskin attire to create more jobs - somewhere.

  7. O Rly? oO

    A company who is in business to make money?

  8. There is nothing wrong with making money...in a competitive and legal manner. We are ostensibly a capitalist society. But this means competing for customers, who need and desire the product YOU offer, as opposed to that offered by another company. In the case of NVE, customers are not customers, we are captive rate payers. Most Nevadans have no choice about where we purchase our power. No corporation is a truly private one, when they are able to manipulate and influence the decisions made by elected officials.

    By the way, these same elected officials are supposed to be representing their constituents. People who voted them into office, despite the best efforts of crony corporations (like NVE), and special interests (like solar and wind industry) to write legislation, and own legislators.

    Bear in mind, that many of these same legislators are not well-informed about the details of such bills as SB123, SB252. Aggressive lobbyists are right there, telling them why they should support certain legislation, and even writing it for them! Ordinary citizens, who use their vacation time, and use their "weekend" time, as well as time away from their family obligations, are not professional lobbyists.

    And, when a "regular citizen" testifies at a committee hearing, it is obvious that the committee members value what we have to say far less than they value what the paid lobbyists do. Try it sometime, and you will see what I have experienced first-hand.

    It's like knocking your head against a brick wall.

  9. All of us have a goal to make money...........
    Unfortunately, some always seek unfair advantage in search of such. We've relied on government to undertake actions to even the field, but our failure to address the ever increasing amounts of conflicts of interest have created gridlock. Our nation today is textbook example of bad government and conflict of interest!