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2014: How does Berkshire's utilities ensure they have an adequate supply of natural gas?
AUDIENCE MEMBER: Rosal Kerkhove (PH). I’m from Omaha, Nebraska. My question relates to our company’s use of natural gas to generate electricity.
This past winter, natural gas in storage has declined substantially.
In the future, how do our companies assure that they have an adequate supply of natural gas to generate electricity?
And if the price of natural gas increases in multiples, how do our companies assure that they can sell the electricity at a satisfactory return on investment? Thank you.
WARREN BUFFETT: Yeah. We have — I’m going to ask Greg Abel to be more specific on this.
But we are the largest alternative generator of — using alternative sources — I think, in the country. And I think by the end of 2015, we will be capable of producing 40 percent of our needs in Iowa through wind, which will be unlike any other company you can find in the country. (Applause)
But I think I’ll have Greg answer the specifics of any natural gas-dependent generating units we have.
I’m not worried about that thing, but I — about what you raised —but Greg would know a lot more about the mix on natural gas and the opportunity to shift to coal. And exactly the profile of the generating capacity.
Greg? Now, let’s get a light down on him, if you can. He —
GREG ABEL: I think it’s — okay, there it is.
WARREN BUFFETT: Yeah, there we go —
GREG ABEL: Yup. Sorry. So like Matt touched on, obviously, we had a very cold winter in the Midwest.
So our systems, for the first time, were challenged in a significant way. But very proud of how the resources were managed.
So if you look at the question around natural gas, and specifically the gas availability, there was substantial gas available to be utilized both to heat homes and produce the energy, because ultimately, we’re worried about both, the — keeping the furnaces on and, equally, keeping the lights on.
So when you looked at the balance of supply, there was gas there.
But clearly, we have to continue to look at the unique situation as we continue to move towards using more gas in the United States.
Warren touched on an important point. This past year, as he highlighted — he highlighted 2015 — but if you look at just what we produced on the renewable side in Iowa, that was 39 percent renewable, i.e. wind. And that’ll only get larger.
So as we continue to manage these multiple resources, there’s clearly a way to meet the needs of our customers. And we’re meeting it in an extremely cost-effective fashion.
I’d also highlight that when you think through the cost recovery side of it, we’ve got very unique mechanisms within our utilities.
When the underlying cost of gas goes up, where we have to purchase more than we had anticipated, we’ve got clear pass-throughs back to our customers. And we’ve negotiated those across each of our states.
So we’re well positioned to service our customers long term, and equally protect the fundamental financials of the underlying businesses.
WARREN BUFFETT: The —
GREG ABEL: Thank you.
WARREN BUFFETT: The company that Greg runs has many subsidiaries. And our gas pipeline subsidiaries move about 8 percent of the gas in the United States.
And I think you said you were from Omaha. And the gas that comes into this area comes through a pipeline that we own. And we just renamed the company to Berkshire Hathaway Energy, from MidAmerican Energy. We changed it to Berkshire Hathaway Energy.
But, it’s a point of some pride to us that that company, Northern Natural Gas, which originally came from Omaha, when we bought that from Enron a decade or so ago — actually, Dynegy had it in between — but its origin then was Enron.
You know, they’d skimped on maintenance, done all kinds of things. And it was ranked number 42 out of the 42 ranked pipelines in the United States at that time. And last year it was ranked number one.
So it went from last to first under Greg’s management. And I tip my hat to him. (Applause)
And number two was our other pipeline — current pipeline. So we’re running one, two at the moment.