Nov. 13 (Bloomberg) -- Billionaire Warren Buffett, who plans to spend some of Berkshire Hathaway Inc.'s $42 billion in cash on utility acquisitions, said deregulation of the electric industry in the U.S. is flawed.

Owners of generators in a deregulated market want supplies to be just adequate to meet demand, while regulators want a cushion of extra electricity in case of unexpectedly heavy power consumption, plant breakdowns or line failures, Buffett said at a meeting of state utility regulators today in Miami.

``I've personally felt that most of deregulation was a mistake,'' Buffett said during a question and answer session. ``If you own in a deregulated environment and you own generating assets, you want the market to be tight,'' he said. ``It's crazy to operate without a margin of safety.''

While deregulation stalled after 2000, when California's effort led to rolling blackouts, skyrocketing power prices and the bankruptcy of the state's biggest utility, 18 states completed their restructuring of the industry. In several of those states, rate increases caused by higher wholesale power prices are stirring controversy this year.

In Maryland, state officials derailed FPL Inc.'s planned $12.4 billion acquisition of Constellation Energy Group Inc., owner of Baltimore Gas & Electric, amid concern about rising rates. In Illinois, Exelon Corp. and Ameren Corp. have warned that their utilities might be bankrupted should the legislature follow through on a threat to freeze rates.

`Owner of Choice'

Berkshire's MidAmerican Energy unit last year acquired PacifiCorp for $5.1 billion, giving Buffett regulated electric utilities from Iowa to Oregon. Buffett said in his annual letter to investors in 2005 that he intended to buy more.

Berkshire Hathaway and MidAmerican, because of their financial resources and investment style, should be ideal candidates for utility acquisitions, Buffett said today.

``Our goal is to be the owner of choice,'' desired by state regulators and customers, he said. ``We have unlimited capital,'' he said, and a willingness to deploy that capital to build new power lines and plants to ensure that supplies are reliable.

He also said Berkshire is willing to invest ``forever'' and be satisfied with the steady returns that a regulated utility provides. ``We don't have an exit strategy, we have an entrance strategy.''

Mergers

Buffett and David Sokol, who runs MidAmerican Energy, successfully lobbied to do away with a Depression-era federal law that limited electric industry mergers. Still, repeal of the Public Utility Holding Company Act, or Puhca, in the energy bill President George W. Bush signed in August 2005 failed to create the surge that was expected in mergers and acquisitions.

``The reality is a lot of people thought Puhca reform would bring massive M&A,'' Sokol said today. ``But the state regulators for 30 or 40 years regulated more effectively than Puhca ever did.''

In addition to the failure of FPL's acquisition of Constellation, New Jersey utility regulators in September scuttled Exelon's planned $17.8 billion purchase of Public Service Enterprise Group Inc., which would have created the largest U.S. utility owner.

To contact the reporter on this story: Dan Lonkevich in New York at dlonkevich@bloomberg.net

Last Updated: November 13, 2006 17:38 EST