Buffett, power line firm team up

Warren Buffett’s MidAmerican Energy Holdings Co. will form a joint venture with American Electric Power Co., owner of the biggest U.S. network of high-voltage electricity lines, to build transmission lines in Texas.

The venture will take on as much as $1 billion of projects in the next several years, Columbus, Ohio-based American Electric said Monday in a prepared statement. American Electric will contribute $100 million of existing power-line projects, and MidAmerican will contribute cash to the 50-50 venture.

American Electric Chief Executive Officer Michael Morris previously announced he was seeking a partner to expand the company’s Texas network, linking expanding wind power farms in West Texas to rapidly growing cities in the eastern half of the state. Texas is the largest power-consuming state.

“The business will generate strong cash flows, which Buffett likes,” said James Halloran, who helps manage $33 billion, including shares of American Electric and Buffett’s Berkshire Hathaway, at National City Private Client Group in Cleveland. “The notion going forward is that returns are going to have to improve to build lines.”

The Federal Energy Regulatory Commission on Oct. 31 ruled that builders of new power lines in New England will be entitled to a return on equity of 12.4 percent on expansions, up from an average of 10.2 percent on existing lines.

Buffett has added cash-generating energy assets to MidAmerican’s holdings in the past six years. MidAmerican bought the Kern River natural gas pipeline from Williams Cos. and the Northern Natural Gas pipeline network from Dynegy as those companies maneuvered to avoid bankruptcy in 2002. MidAmerican acquired PacifiCorp, an Oregon utility owner, in March.

Shares of American Electric rose 45 cents, or 1.1 percent, to $41.39 in New York Stock Exchange composite trading. Class B shares of Berkshire Hathaway, based in Omaha, Neb., climbed $86, or 2.5 percent, to $3,587.

Texas this year surpassed California as the largest producer of electricity from wind, with capacity of 2,531 megawatts, enough power for about 2 million average U.S. homes.

Another 927 megawatts of wind turbines are under construction, according to the American Wind Energy Association.

The new joint venture expects state approval to begin building the new lines next year, American Electric said. That compares with 16 years to acquire all the permits for a 90-mile (145-kilometer) transmission line from West Virginia to Virginia, Morris said on Oct. 10.