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August 30, 2015

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Let’s remember: Warren Buffett’s power play is to make money

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Nati Harnik / AP

In this May 2, 2011, file photo, Warren Buffett, chairman and CEO of Berkshire Hathaway, gestures during an interview in Omaha, Neb.

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J. Patrick Coolican

Shouts of joy rang out among Nevada’s political elite on the news that an entity owned by famed investor Warren Buffett is buying the state’s electric monopoly, NV Energy.

Here was the response of state Sen. Kelvin Atkinson, Democratic chairman of the Commerce, Labor and Energy Committee, on Twitter: “WOW the (majority leader) and I just got off the phone with Warren Buffett. What a vote of confidence for NV as he aquires (sic) NVEnergy! He is excited to be able to do business in the State of Nevada. He was married right here in NV, 41 years ago!”

Let’s leave aside the embarrassing sycophancy — who can deny Buffett’s disarming, folksy charm? And, hey, I’m all in favor of Buffett’s philanthropy and moderately progressive politics.

What bothers me is the wrongheaded thinking about why Buffett might be so interested in our utility monopoly. Politicians keep saying he’s “investing” in the state of Nevada, and Buffett obliged, calling it a “long-term investment in Nevada’s economy.”

Indeed, monopolies are usually good long-term investments.

Here’s how it works. NV Energy has something we need. Unless we live off the grid, we can’t get it anywhere else. So we pay them. In fact, we pay the highest residential rates among the Mountain West states of Arizona, Colorado, Idaho, Montana, New Mexico, Utah and Wyoming, according to 2011 figures supplied by the U.S. Energy Information Administration.

And because we pay NV Energy a lot, it makes lots of money — $330 million in earnings during the past 12 months, according to Reuters.

Don’t get me wrong: It’s not as easy as it sounds. The company is clearly well managed and made a smart choice by going into natural gas right when the price collapsed. But when it comes to their revenues, it’s a pretty simple equation: More money for them means less money for us, the ratepayers. And that’s not just you and me in our homes and apartments. It’s also businesses that have less money to hire people because they pay more for electricity.

The only thing stopping NV Energy from exercising its total market power and charging us even higher rates are government regulators.

But NV Energy has shown considerable skill in recent years in managing — or maybe “capturing” is the word I’m looking for — the regulatory and legislative processes.

The company has seen strong profits in recent quarters, at least in part due to a rate increase the Public Utilities Commission approved in 2011 and which took effect last year.

Likewise, their legislative prowess is well known. The company and its affiliates gave $320,000 to candidates during the 2012 election cycle, second only to the state’s largest company, MGM Resorts, according to the National Institute on Money in State Politics.

I assure you, they back winners.

Their largesse and muscular lobbying efforts — including Greg Ferraro and Pete Ernaut, superlobbyists and friends of Gov. Brian Sandoval — are paying dividends again this session. The company will likely push through legislation that would close coal plants faster than they originally planned. But the tradeoff of Senate Bill 123 is higher rates.

Do you think Buffett is unaware of all this?

By all means, we should welcome Buffett to Nevada.

But please, don’t be so naive about why he’s here or what it means.

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