2016: Is Berkshire Energy going to convert 100% of its generation capacity to renewables?

GREGG WARREN: Warren, with both coal fired and natural gas plants continuing to generate around two-thirds of the nation’s electricity, and renewables accounting for less than 10 percent, there remains plenty of room for growth.

At this point, Berkshire Energy, which has invested heavily in the segment, is one of the nation’s largest producers of both wind and solar power, and yet still only generates around one-third of its overall capacity from renewables.

As you noted earlier, MidAmerican recently committed another $3.6 billion to wind production, which should lift the amount of electricity it generates from wind to 85 percent by 2020.

You’ve also had the company, overall, pledging to have around 30 billion in renewables longer term.

The recent renewal of both the wind and solar energy tax credits has made this kind of investment more economically viable and should clear the path for future investments.

Eliminating coal-fired plants looks to be the main priority, but natural gas-fired plants are also fossil fuel driven and are exposed to the vagaries of energy prices.

Is the endgame here for Berkshire Energy to get 100 percent of its generation capacity converted over to renewables, and what are the risks and rewards associated with that effort?

After all, the company operates in a highly-regulated industry, where rates are driven by an effort to keep customer costs low, while still providing adequate returns for the utilities.

WARREN BUFFETT: Yeah, well, I think implicit in what you say is that we do — any decision we make — including the one that we just showed on the — during the movie to — on any decision about new generation, changes in generation — has to go through what’s usually called the Public Utility Commission, they may have different names in a few states.

But the utility industry is overwhelmingly regulated at the state level, and we cannot make changes that are not approved by the Public Utility Commission.

We’ve had more problems, for example, in bringing in renewables in our western utility, Pacific Corp, because it’s, in effect, regulated by six states — I believe it’s six states — and they don’t necessarily agree on how the cost and benefits should be divided if we put in a bunch of renewables, and we have to follow their instructions.

Iowa was just been marvelous about encouraging — I mean at every level — I mean the consumer groups, the governor, you name it — they have seen the benefits.

And in Iowa it’s literally true that we have one major competitor, called Alliant, and they have not — either been able to — I don’t know the reasons — but they have not pursued renewables the way we have, so our rates are considerably lower than theirs.

And, if you look at their budget projections — although they’re substantially higher rates than we have now — they may well need a rate increase within a year or so.

And with our latest expansion, we have said that we will not need a rate increase till 2029 at the earliest. That’s thirteen years off.

So there’ve been great benefits if you have a regulation that works with you on that, but it is a determination that is made at the state level.

Now, the federal government has encouraged, in a major way, the development of renewables by this production tax credit, which currently amounts to about 2.3 cents per kilowatt hour.

We would not have the renewable generation that we have if it hadn’t been for the fact that that building of those projects is subsidized by the federal government, because the benefits of reducing solar emissions are — or carbon emissions — are worldwide, and therefore it’s deemed proper that the citizenry as a whole should participate in subsidizing the cost of reducing those emissions.

And that has encouraged — in fact, it’s allowed — things like have happened in Iowa as well.

But the degree to which the renewables replace, primarily coal — although there’s plenty of emissions connected with natural gas if you trace it all the way through — will depend on governmental policy.

And I think, so far, I think it’s been quite sensible in encouraging — having the cost borne by society as a whole, in terms of reduced tax revenues, and having the benefits, which is less CO₂, into the atmosphere.

They also, broadly — you know, they’re not just limited to the people of Iowa when we build that. That’s a benefit that accrues to the world.

I think you’ll see continued change. It will vary by jurisdiction.

And we would hope — we’ve got the capital, we’ve got lots of taxes, federal taxes, paid in our consolidated returns — so we’re in a particularly advantageous position to take advantage of massive investments that companies with limited tax appetites couldn’t handle.

I think you’ll see us be a very big player. But governmental policy is going to be, you know, the major driver.

Charlie?

CHARLIE MUNGER: Yeah, I think we’re doing way more than our share of shifting to renewable energy, and we’re charging way lower energy prices to our utility customers than other people.

If the whole rest of the world were behaving the way we are, it would be a much better world.

I will say this about the subject, though, and that is that I think that the people who worry about climate change as the major trouble of Earth don’t have my view.

I think that we — I like all this shifting to renewables, but I have a different reason. I want to conserve the hydrocarbons, because eventually, I think, we’re going to use every drop, humanity, for chemical feedstocks. And so I’m in their camp, but I’ve got a different reason.

WARREN BUFFETT: One thing you’ll find — might find — kind of interesting: Nebraska has not done much with wind power. And maybe three miles from — two miles — from where we’re sitting, right across the river, people are buying their electricity cheaper, in Council Bluffs right across the river, than they are in Omaha.

And yet Omaha — Nebraska is entirely a public power state, so there’s no stockholders who have to have any earnings, the bonds are issued on a tax-exempt basis, and yet electricity is considerably cheaper right across the river.

And, you know, the wind blowing doesn’t just start at the Missouri River. I mean, it comes across Nebraska and that wind could be captured. And, so far, it really hasn’t.

And the real irony is that because our electricity is so much cheaper in Iowa, you have these massive server farms of people like Google. It’s become a tech haven for these operations that just gobble up electricity. And Iowa has gotten plant after plant after plant and job after job after job, and increased property tax — I mean gotten more property tax revenues — and that’s being done — the Google server is probably seven or eight miles from here — and it’s located in Iowa because we have cheap wind-generated electricity. And it’s creating jobs. It’s fascinating.

Nebraska has prided itself on public power. It was originated back, I believe, in the ’30s when George Norris was a very powerful senator here and it’s been a source of pride. But lately, it’s been a source of cost, too.