This is an archived article that was published on sltrib.com in 2005, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.
Utah Power, the state's largest electrical utility, is poised to become part of billionaire investor Warren Buffett's business empire.
MidAmerican Energy Holdings Co., a Des Moines-based unit of Buffett's Berkshire Hathaway Inc., is buying PacifiCorp from Glasgow-based Scottish Power for $9.4 billion - a transaction that will include $5.1 billion in cash and the assumption of $4.3 billion in debt.
Oregon-based PacifiCorp does business in Utah and Idaho as Utah Power. It functions as Pacific Power in Wyoming, Washington, northern California and its home state.
"PacifiCorp is a business that may not fit the profile of Scottish Power, but it fits our profile," Buffett said in a conference call Tuesday with reporters. "Our favorite holding is one that is forever. Utility assets fit the bill."
Berkshire Hathaway is a holding company for Buffett's diverse business interests, which range from energy and rug manufacturing to insurance and aviation training - and even includes Utah's R.C. Willey Home Furnishings.
MidAmerican's acquisition of PacifiCorp should go unnoticed by the company's more than 700,000 Utah customers.
"They [MidAmerican] have a business model that lets the companies they acquire run as usual and without any undue interference," said Judi Johansen, PacifiCorp's president, who will retain the utility's top executive post under its new owners. "And that means there are no planned layoffs or acquisitions. So customers in Utah shouldn't notice any change."
MidAmerican's chief executive, David L. Sokol, said Buffett's company will be the last owner of PacifiCorp's assets. "We don't buy companies to sell them later," he said. "And I will personally be disappointed if, five years from now, customers are unhappy with our acquisition of PacifiCorp."
Scottish Power acquired PacifiCorp and its Utah Power operating arm in 1999 for more than $11 billion - a deal that marked the first-ever acquisition of a U.S. utility by a foreign company. The transaction, however, never met Scottish Power's financial expectations.
"They didn't hit a home run with their acquisition, and I'm not sure they even got it out of the infield," said James Bellessa, a securities analyst with D.A. Davidson & Co. in Great Falls, Mont.
Scottish Power's shares, which trade on the New York Stock Exchange, rose 6 percent Tuesday after word spread of its plans to sell PacifiCorp.
"Clearly, Wall Street believes they [Scottish Power] are better off without PacifiCorp," Bellessa said, also noting the Glasgow-based company had to write down the value of its U.S. utility holdings by $1.7 billion because it was carrying those assets on its books for more than Buffett will pay.
Scottish Power's earlier acquisition of PacifiCorp, however, may offer a glimpse into the thoughts of Utah utility regulators - the Public Service Commission (PSC) - when they finally are asked to approve MidAmerican's purchase of Utah Power, probably within the next year. MidAmerican, which expects to complete the acquisition in 2006, also will need federal approval.
When Scottish Power sought PSC approval for its deal, the commissioners required it to show the transaction would benefit Utah consumers. That requirement was met in part when the Utah Committee of Consumer Services and the state's Division of Public Utilities worked out an agreement that Scottish Power would provide a four-year, $48 million rate cut for its Utah customers.
"It will be interesting to see if the PSC uses that same standard and requires MidAmerican to demonstrate that its acquisition will provide a net positive benefit for Utah consumers," said Dan Gimble, chief of the technical staff at the the Committee of Consumer Services.
Sokol, MidAmerican's chief executive, said the company will resist any effort that entails providing an additional monetary benefit to Utah consumers. "Our argument will be to urge the state to look at the long-term benefits we can provide our customers," he said.
Buffett's company does intend to continue Scottish Power's investment timetable for PacifiCorp, Johansen said. It plans to invest $1 billion annually for the next five years to build new generation and transmission resources and to maintain the company's existing electrical distribution system.
MidAmerican already is familiar with the operations of regulated utilities, such as Utah Power. It owns both electrical and natural gas utilities, serving more than 1.3 million customers in the United States. The company also owns the Salt Lake City-based Kern River Gas Transmission Co., which operates a natural gas pipeline that runs from Wyoming, through Utah and Nevada, into Southern California.
And while MidAmerican will not be interested in buying natural gas exploration and production properties, such as those operated by Salt Lake City-based Questar Corp., it could be comfortable operating that company's natural gas utility, Questar Gas.
During the past several years, Questar Corp. President and Chief Executive Officer Keith Rattie has raised the possibility of selling Questar Gas, which provides most Utahns with fuel to heat their homes in the winter.
"We are not adverse to additional acquisitions of regulated utilities," Sokol said. "They are good, but not great businesses to be in - and that is the way it should be, given the burdens and obligations that come with operating a monopoly service."
What happened:
Key players
MidAmerican Energy Holdings
Co., a unit of Warren Buffett's
Berkshire Hathaway Inc., is buying
PacifiCorp (operating in Utah as
Utah Power) for $9.4 billion.
What's next
Some kind of short about this person in here for 3 lines. Maybe four lines, actually.
Billionaire investor Buffett's company plans to spend $1B annually for the next five years to build a new generation and transmission resources.