Warren Buffett: Why Utility Businesses Make Good Investments

It’s no surprise that Warren Buffett recently agreed to buy Dominion Energy’s natural gas assets in a $10 billion deal. Back in 1998, in a lecture at the University of Florida School of Business, he was asked specifically about his thoughts on utility businesses. Here’s his response:

Well I’ve thought about that a lot because you can put big money in it and I’ve even thought of buying the entire businesses. There’s a fellow in Omaha actually that’s done a little of that through Cal Energy but I don’t quite understand the game in terms of how it’s going to develop with deregulation.

I mean it’s it has got it… I can see how it destroys a lot of value for the high cost producer once they’re not protected by a monopoly territory and I don’t for sure see how who benefits and how much.

I mean obviously the guy with very low cost power. Some guy’s got hydropower you know at two cents a kilowatt or something like that there’s got a huge advantage. But how much of that he’s going to get to keep and everything or how extensively he can send that outside his natural territory I haven’t been able to figure it out so that I really think I know what the industry is going to look like in ten years.

But it is something I think about. If I ever develop any insights, the call for action, I’ll devote… I will act on it because I think I can understand the attractiveness of the product and it’s all the aspects of certainty of user need and the fact it’s a bargain and all of that I understand. I just don’t understand who’s gonna make the money in 10 years from now on and that keeps me away.

You can watch the entire presentation here: