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By Jeremy Glaser and Andrew Bischof, CFA, CPA | 05-03-2014 04:00 PM

Berkshire’s Energy Bet Well-Placed

Berkshire Hathaway Energy will continue to provide plenty of profitable investment opportunities for years to come, says Morningstar’s Andy Bischof.

Jeremy Glaser: For Morningstar I'm Jeremy Glaser. One of the big topics of conversation at this year's Berkshire Hathaway Annual Meeting was in the Berkshire Hathaway Energy space and what's happening with that. I'm here with Morningstar analyst Andy Bischoff to take a closer look at this segment.

Andy, thanks for joining me today.

Andy Bischof: Thanks, Jeremy.

Glaser: So they just renamed MidAmerican Energy, Berkshire Hathaway Energy today. Is this a sign of maybe greater ambitions and more acquisitions to come for this unit.

Bischof: I think it's to kind of align the corporate name with Berkshire Hathaway Energy and then to really get the name out there for further acquisitions. Within the last 12 months they have acquired a Nevada utility, NV Energy. Just recently they acquired a utility up in Alberta, a transmission company. So there is definitely focus to further expand within their energy business. Even in their last shareholder letter they indicated this will not be our last acquisition. So there should be more on the utility front.

Glaser: Buffett mentioned that the energy group has a lot of renewables and some of that for the tax benefits, some of it because they think it's the future. How do you view that business? Is it one that you think could be profitable over time?

Bischof: Yes, absolutely, we think it's a very attractive business. Wind and renewable generation are very attractive from a returns standpoint, and there are a lot of growth opportunities. They recently just created their own Berkshire Hathaway Energy Renewables unit to further expand those investments in there, and it's definitely part of their $16 billion three-year capital program.

Glaser: Warren Buffett mentioned that a lot of those returns are going to come from regulators who are going to allow them to have their return. These are regulated utilities generally. Does that give you any concern? Do you think the regulators are going to treat Berkshire Hathaway Energy fairly in their markets?

Bischof: Absolutely, they have had a very strong history of generating solid returns in those businesses. They have worked with regulators. They have a very good working relationship with them. So there is no reason to believe that those won't continue forward.

Glaser: So coming out of this meeting, were there any big takeaways, kind of new things that you learned and new ways that you are thinking about this unit.

Bischof: I think it's going to be continued focus on Berkshire Hathaway Energy looking for further acquisitions in the group. And particularly seeing opportunities they have within this wind and solar portfolio, particularly well while you have very favorable tax credits right now and favorable tax policy.

Glaser: Andy, thanks for your analysis today.

Bischof: Thank you. 

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