2019: How will BHE invest to capture future growth?

GREGG WARREN: Warren and Charlie, U.S. electricity demand has flatlined during the past decade, but could potentially pick up over the next decade with three emerging sources of demand — electric vehicle charging, datacenters, and cannabis cultivation — expected to account for more than 5 percent of total U.S. electricity demand.

Utilities will have to work hard to benefit from this new demand, though, much of which is likely to accrue to states in the South Atlantic, Central, West, and Mountain regions, with the greatest benefit going to firms that invest in grid expansion, smart networks, reliability, and renewable energy.

While Berkshire Energy has been aggressive with its capital investments, and already has some of the lowest electricity rates in the areas where it competes, it seems like the firm is winding down its annual spending at a time when more might actually be required.

With annual spending expected to fall from around 6 billion, on average, annually to around 4 billion in 2021, with two-thirds of that spending being more maintenance driven than growth.

Is there any one area where you feel Berkshire Energy might need to commit more capital over the next decade to ensure that it captures this future expected demand growth, much as it already has with wind power in western Iowa, which is now populated with a lot of data centers, and for territories where demand growth is expected to be the strongest but where Berkshire does not have a presence, are there any avenues aside from acquisitions for the company to put capital to work?

WARREN BUFFETT: I’m going to throw that over to Ajit in just a second. But I will tell you that we have three owners of Berkshire Hathaway Energy. We are the 91 percent owner. And there are no three owners that are more interested in pouring money into sensible deals within the utility industry or are better situated in terms of the people we have to maximize any opportunities. We have never had a penny of dividends in — whatever it is — close to 20 years of owning MidAmerican Energy.

And other utility companies pay high dividends. They really — they just don’t have the capital appetite, essentially, that we do. So, it’s just a question of finding sensible projects.

And I would say that there’s no group that is as smart about it, as motivated about it as our group. And with that I’ll turn it over to Greg.

CHARLIE MUNGER: In short, we’re about as good as you can get, and you should worry about something else.

WARREN BUFFETT: Yeah. (Laughter)

But Greg, could you stand up and talk about —? We really hope to spend a lot of money in energy.

GREG ABEL: Yeah, yeah. Afternoon. Yeah, Gregg, you touched on it. A couple critical areas we go forward is to look realistically in the ’21, 2022 timeframe. Because as you touched on, we’ve got a great portfolio as we finish out 2019, 2020. And it’s really been focused on building new renewable energy projects in Iowa, expanding the grid.

But equally, we do have those opportunities in our other utilities. The footprint in Iowa, realistically, is getting pretty full. As we hit a hundred percent renewables — Warren touched on it — every time we get a new data center, that means we can build another 300 megawatts of renewables. We’ll continue to do that.

But when you look at PacifiCorp, where we serve six states in the Northwest, we’ve really just embarked on an expansion program there.

The first part was to build significant transmission, so expand the grid, and then start to build renewables. But just to give you some perspective of the regulation that exists in place, we started that project in 2008. And we’re realistically building the first third of it. But we do have the planning in place for the second phase and the third phase, and that’s what you’ll see coming into place in 2021 and in ’23.

And the reality is we’ll continue to do that at NV Energy, with really, again, the focus being on both grid expansion, so we can move the resources, and then supplementing it with renewables. So, it’s exactly what you’ve touched on.

And we haven’t identified the specific projects yet, so we never put them in our capital forecast that we disclose to folks. But as they firm up and we know that they will go forward, clearly you’ll see some incremental capital. And that’s capital we clearly earn on behalf of the Berkshire shareholders as we deploy it. Thank you.

WARREN BUFFETT: We will put a lot of money into energy. (Laughs)

CHARLIE MUNGER: Yeah, we’re really in marvelous shape in this department.

WARREN BUFFETT: Incidentally, you know, Walter Scott, I mean, he gets excited looking at all these projects, and goes out and visits them. He knows way more about the business — and he’s forgotten more about it than I’ll ever know.

But we’ve got a great partnership. We’ve got unlimited capital. We’ll continue to have it. And there’s needs for huge capital in the industry.

So, I think 10 years from now or 20 years from now, our record will be looked at and there’ll be nothing like it in the energy business.

CHARLIE MUNGER: Well, Greg, is there anybody ahead of where we are in Iowa in terms of energy?

GREG ABEL: Charlie, there’s realistically no one ahead of us in the U.S., let alone in Iowa. When you look at the amount of energy we produce relative to what our customers consume, we really do lead the nation and Iowa.

CHARLIE MUNGER: And aren’t our rates about half that of our leading competitor in Iowa to boot?

WARREN BUFFETT: About half. Close.

GREG ABEL: Exactly. We’re right in that range.

CHARLIE MUNGER: If this isn’t good enough for you, we can’t help you. (Laughter)

WARREN BUFFETT: Incidentally, I mean, we sell electricity five miles from here. Greg, is that correct?

GREG ABEL: Right across the river.

WARREN BUFFETT: Yeah, right across the river. And, you know, the wind blows the same and all that sort of thing. And the public power district here, in Nebraska, going back to George Norris, has always been a public power state. There’s no — capitalism doesn’t exist in the electric utility field in Nebraska.

So, they have had the advantage of selling tax-exempt bonds. We have to sell taxable bonds, which raises cost to some degree. They have a big surplus, which they don’t have to pay dividends on or anything else. And our rates are cheaper than theirs, you know, basically.

I mean, we’re very proud of our utility operation.