SOURCE:  Portland Tribune Newspaper.  This 500 word opinion piece that explains key timeline data for the first time supplements the original 800 word article written for Oregon Business Magazine in its July 2005 edition. The original Oregon Business Magazine article can be seen at http://www.billparish.com/20050701oregonbuspacificorp.html
Author: Bill Parish

Portland, Oregon, August 2, 2005 -- Wal-Mart buys help in utility bid

Attention Wal-Mart shoppers. Stock up now so that billionaire investor Warren Buffett and his company Berkshire Hathaway can deliver more goods, generate more profits and buy your local utility. Sound ridiculous? Not really.

Berkshire Hathaway Inc. bought Wal-Mart Stores Inc.’s distribution system, McLane Co., in 2003 — it now accounts for one-third of Berkshire Hathaway’s entire gross annual revenues. The profits earned stocking the shelves at Wal-Mart are now helping Buffett buy PacifiCorp, the state’s second largest utility.

Berkshire Hathaway calls itself a “holding company in which the most important business is insurance.” This includes a highly profitable medical malpractice subsidiary that shows Buffett’s standard mode of operation, which is good for shareholders but not consumers.

Buffett does acknowledge that his reinsurance business — in essence, insuring insurance companies against catastrophic losses — is very risky. He states that a “single event could produce a loss of $5 billion.”

What seems clear to me, other than the fact that Buffett’s dependence on Wal-Mart and high-risk insurance operations won’t lend much stability to PacifiCorp, is that Buffett wants to be PacifiCorp’s bank. We need only look at MidAmerican Energy Holdings Co., an Iowa-based utility that Berkshire Hathaway purchased in 2000, to see how the “Bank of Buffet” works.
Since being acquired, MidAmerican has borrowed $1.5 billion from Berkshire Hathaway to finance growth and now is paying 11.5 percent annual interest, considerably higher than market rates. What Iowa City ratepayers really got by selling to Buffett is their own personal loan shark.

Oregonians learned a great deal from Texas Pacific Group’s failed effort to purchase Portland General Electric. We learned that former Oregon Gov. Neil Goldschmidt stood to earn more than $9 million in only three years and that his consulting firm’s largest client before the PGE deal was announced was Scottish Power.

We now also know that Scottish Power set in motion the steps to sell PacifiCorp in 2003, about the same time Goldschmidt’s partner, Tom Imeson, was screening Oregon Public Utility Commission candidates, those who would approve the PGE deal, for Gov. Ted Kulongoski.

A cynic might claim the PGE transaction was intended to simply grease the regulatory wheels for Buffett’s PacifiCorp purchase. Texas Pacific then could sell off select PGE properties to Buffett and carve up its power generation assets, and Buffett later could fold in NW Natural.

Although the players have shuffled around a bit after Texas Pacific’s failed bid, not much has really changed.
Meanwhile, Buffett enjoys the benefits of Omaha Public Power in his hometown of Omaha, Neb., and rates 20 percent below those charged by comparable private electric utilities.

My advice to the anti Wal-Mart movement is to expand your scope and also take a stake in the future of Oregon’s economic crown jewels, utilities, so that we don’t wake up one morning and see them in Buffett’s private collection along with those Wal-Mart delivery trucks that threaten your neighborhood and local businesses.

This will enhance your credibility by moving beyond a single issue, and probably involve the same cast of characters anyway.

Bill Parish is an independent investment adviser based in Portland.

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