Berkshire Hathaway 2009 Annual Meeting Audience Question # 33

On MidAmerican’s wind power investments in Iowa

Warren Buffett:

Let’s go to area 3.

Audience Member:

Jim Hadden, a Cornhusker in Davenport, Iowa.

On our drive over from Davenport, we noticed two rather large wind farms by MidAmerican Energy.

And my question is, when will be the return on investment of these wind farms? And are Berkshire Hathaway looking at any other alternative energies?

Warren Buffett:

Yeah, we’re the largest, in terms of owned capacity in wind, in the country, I believe, of any utility. And Iowa has the greatest percentage of its electricity generated by wind.

But of course, the wind only blows about 35 percent of the time in Iowa, something like that. And we’ve got people here who can be more accurate than that. But… so you can’t count on it for your base load or anything of the sort.

But Iowa has been very, very receptive and, I would argue, progressive, in encouraging us… and we’ve encouraged them, in return… to bring in a lot of wind capacity.

We are a net exporter of electricity in Iowa. Iowa’s far more than self-sufficient in our service area in terms of electric generation.

And I think that works to the benefit of the people of Iowa.

And we have an arrangement with Iowa. We… as you may know, we have not increased our rates at all… what… for more than a decade now. And that’s been achieved by efficiencies. It’s been achieved with wind generation.

We have a return that’s built in on that that’s fair to us, fair to the people of Iowa. And part of that return comes in the form of a tax credit… I think it’s 1.8 cents per kilowatt hour… that is given to anybody in the United States that develops wind power generation.

We love the idea of putting in more wind. And we’re doing it. We’re doing it out at PacifiCorp. And I think we’ll continue to be a leader in it.

One advantage we have over, perhaps, some people is that we are a big taxpayer, so that we don’t have to worry about whether the tax credits are useful.

I guess the tax credit could be sold, also. But we don’t need to do that in our particular situation. So you’ll see more and more wind generation by the MidAmerican companies.

When we went into PacifiCorp out on the West Coast, to six states out there, they had virtually nothing… maybe nothing at all… in wind generation. And we’ve developed a lot. And we’ve got more coming on.

Charlie?

Charlie Munger:

Oh, I think in practically anything that makes sense in utilities, the Berkshire subsidiaries will be leaders. I think we can all be very proud of MidAmerican and its two leaders.

Warren Buffett:

Yeah, we’re enormously proud of MidAmerican. And we will do a lot more in utilities over time. Constellation didn’t work out. I wish it had. But we were back there… Constellation, we learned of their troubles on a Tuesday at noon. I mean, we saw it in the stock price and so on.

Dave Sokol and Greg Abel were in Baltimore that evening with a firm, all-cash bid to solve Constellation’s problems. And Constellation was likely to get downgraded within 48 hours, maybe 24 hours.

And they would’ve had posting requirements in connection with various derivative transactions that they probably would not have met. I mean, they were facing bankruptcy.

And we literally went from a phone call that Dave made to me at noon or 1 o’clock to handing them a firm bid that evening in Baltimore. And that’s one of the advantages of Berkshire. That is… I think that’s a durable competitive advantage.

I think there are very few organizations that will act in that manner and that… where you have the talent there that you feel is… as a CEO… you can back them up with that kind of money without worrying about it.

So it’s… that is a plus… for Berkshire, even though it didn’t work out in that case. We will do more in the utility business.

Charlie Munger:

Well, you bought a pipeline, didn’t you, in about two hours?

Warren Buffett:

Yeah, we did buy a pipeline, and it’s turned out very well.

And, in that particular case, the company, Dynegy, that… this was back in 2002 or so… the company needed the money enormously. They had gotten the pipeline from Enron. It was a very complicated transaction.

But they needed the money. And we needed the Federal Trade Commission approval, the FTC approval, on the deal, as would anybody that was buying it.

And we literally wrote a letter. I wrote a letter to the commission. And I said, you know, “These guys need the money. They need it before the 30-day period is up. And let us go through with this early. And we’ll do any damn thing you tell us, subsequently.”

And Berkshire can make that kind of a transaction. We don’t ask the lawyers before we do it or anything. We just do it.

And that is an advantage. And it was an advantage to Dynegy. It got them through a period that they would’ve… I’m not sure they would’ve gotten through otherwise. So, we can move fast when the time comes.

But the… one of the reasons we… there’s a couple of reasons we move fast. A, we’ve always got the money. You know, but… and we’ve got a mental attitude toward that.

But we also know we’ve got the managers that can deliver on the properties, once we own them. And that’s a huge, huge advantage. Back…

(the recording abruptly skipped to a later point in the meeting)

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