2016: Why has Berkshire lobbied against solar in Nevada?

BECKY QUICK: This question comes from a shareholder named Lisa Kang Le (PH) in Singapore. And this has to do with NV Energy’s issue with solar energy in Nevada.

“Can the chairman help his environmentally conscious shareholders understand why NV Energy has lobbied for new rules in Nevada that make it prohibitive for households to use solar energy? Is there a good reason that we haven’t yet heard about?

“And can the chairman or vice chairman share their views on whether there’s a need to implement an environmental, social, and governance policy, on Berkshire investments going forward?

“I understand that Berkshire Hathaway typically lets the underlying operating companies and CEOs manage their own policies autonomously, but should Berkshire’s board influence better environmental protection policies going forward?”

WARREN BUFFETT: Well, the public utility and the pricing policies and everything in Nevada, as well as other places, but they’re determined by a public utility commission. So, there are, I believe, three commissioners that decide what’s proper.

The situation in Nevada is that, in terms of rooftop power, was that for the last few years, if you had a solar project on your roof, you could sell back excess power you generated to the grid at a price that was far, far, far above what we, as a utility, could buy it for elsewhere.

So, you could sell it back, we’ll say, at roughly 10 cents a kilowatt hour. And about 17,000 — maybe a few more now — about 17,000 people had rooftop installations.

Now they get — there were federal credits involved, but those usually got sold to other people, in terms of tax credits.

So they were being subsidized by the federal government, and that encouraged solar generation, as it’s encouraged us to do solar generation and wind generation, as well.

But the people who had these 17,000 rooftop installations were selling back to the grid at 10 cents, roughly, a kilowatt hour, energy we could purchase or produce — either — but purchase elsewhere, too — for 3 1/2 cents, or thereabouts.

So, 99 percent of our consumers were being asked to subsidize the 1 percent that had solar units, by paying them a significantly — triple the market price, basically — of what we could otherwise buy electricity to sell to the 99 percent.

So then it’s just a question of whether you wish to have the 99 percent subsidize the 1 percent.

And the public utility commission in Nevada, they had originally let this small amount of rooftop solar generation be allowed as an experiment with this 10 cent, roughly 10 cent, rebate.

And they decided that they did not believe that the 99 percent should be subsidizing the 1 percent.

There may — there’s no question — that for solar to be competitive, just like wind, it needs subsidization. Costs are not yet at a level where it becomes competitive with natural gas, for example.

And who pays the subsidy gets to be a real question, if you want to encourage people to use renewables.

And, in general, the federal government has done it through tax subsidies, which means taxpayers, generally, throughout the country subsidize it.

And the public utility commission in Nevada decided that after seeing this experiment, they decided that it was not right for a million — well over a million — customers to be buying electricity at a price that subsidized the 17,000 people, and therefore increase the prices of electricity for the million.

And that question of who subsidizes renewables, and how much, is, you know, going to be a political question for a long time to come.

And I personally think that if society is the one that’s benefiting from the lack of — reduction of — greenhouse gases, that society should pick up the tab.

And I don’t think that somebody sitting in a house in someplace in Nevada, we’ll call it Las Vegas, but it could be other cities because we serve most of Nevada, should be picking up the subsidy for their neighbor, and the public utility commission agrees with that.

I think we have Greg Abel here who — NV Energy is a subsidiary of Mid-American — of Berkshire Hathaway Energy.

Greg, was there anything you want to add? Can we get a spotlight down here? Maybe?

It’s not live.

GREG ABEL: I think it’s on now.

So, as usual Warren, you summarized it extremely well. When we think of Nevada, it’s exactly as you described. I would just add a few things.

One: as you’ve touched on earlier, we absolutely support renewables. So we start with the fundamental concept that we are for solar. But, as you highlighted, we want to purchase renewable energy at the market rate, not at a heavily subsidized rate that 1 percent of the customers will benefit from and harm the other 99 percent.

And it goes back to being as fundamental as this: if you take, as you touched on, a working family in Nevada who can’t afford the roof top unit and you ask him, “Do you want to subsidize your neighbor, that 1 percent?” the answer is clearly no.

At the same time, we’re absolutely committed to Nevada utilizing renewable resources, and absolutely proud of what our team’s doing. By 2019, we will have eliminated or retired 76 percent of our coal units and be replacing it with solar energy. So we’re on a great path there. Thank you. (Applause)

And we’re just going to encourage our team. And with the work of the commission, and obviously led by the state, we’ll head down a great path. Thank you.

WARREN BUFFETT: Yeah, if the projectionist would put up slide 7, it will give you a view of what the situation is.

This counts all of our all our Berkshire Hathaway Energy operations, and you can see, in a 20-year period we’ll have a 57 percent reduction.

You wouldn’t want a 100 percent reduction tomorrow. Believe me, the lights would be off all over the country. But it’s moving at a fast pace.

But, you do — you want to be sure that you treat fairly the people involved in this, because somebody pays the cost of electric generation.

And I do think that if you’re doing something that’s to benefit the planet — and it’s important that it be done — but that you have the cost be assessed for that, not on a specific person who’s having trouble, perhaps, making ends meet in their job.

And obviously, if you’ve got over a million customers in Nevada, a lot of them are struggling. A lot of them are going fine, too. But they are not the ones, in my view, to subsidize the person who could afford to put the solar unit in.