One of my favorite financial activities of the year is attending the annual Berkshire Hathaway shareholders meeting in Omaha, Nebraska, in early May. There is always something to learn and interesting people to meet. A highlight of this year’s meeting was Warren Buffet’s claim that their Iowa utility customers would soon have 100% of their electric consumption provided by wind power. Berkshire Hathaway Energy, a 90.9% owned Berkshire subsidiary, has already invested over $25 billion in renewable energy generation with a plan to add $6 billion more through 2021.
Berkshire’s ability to allocate capital from the profits it makes on its many holdings is a key strength of the company. Over the last few years, Mid-America Energy, one of the six utility companies they own, has steadily added wind power generation in Iowa. Buffet, at the annual meeting this year, called on Greg Abel, the CEO of Berkshire Hathaway Energy, to explain the pace and objectives of this major and continuing investment in wind power.
Abel related how expanding the capability of the electric grid is a difficult but necessary first step to expanding the use of renewable energy. Berkshire achieved that goal in Iowa and has steadily added to its wind power generation. With the grid improvements, the utility can sell off excess wind power when wind generation is strong; or, conversely, it can reverse the process and beef up its power to customers from other sources when the wind generation is weaker in low wind conditions. Their goal, though, is net generation each year that meets the overall annual customer demand. Buffet stated last month that they are now meeting that goal in Iowa, and they plan to move on.
His next target for wind generation is Pacific Corp, another of their six utility subsidiaries. Abel explained that the grid improvement process is slower there, but he expects the necessary permits and investment in the grid to be complete in Washington state in the next few years. This would allow them to extend their goal of providing their customers with 100% of their power demand generated by wind energy.
That goal, plus the ability to seamlessly achieve capital allocation from Berkshire’s other profits, makes Berkshire a growing presence in companies with increasing ESG ratings. ESG stands for Environmental, Social and Governance. Companies are increasingly rated by independent sources on their progress in ESG. Many investors believe that companies high in these ratings can be more sustainable and profitable over the long term.
Berkshire Hathaway’s annual meetings are famous for the many hours each year where Warren Buffet and his vice chairman, Charlie Munger, sit on stage in a civic center before 35,000 or more shareholders and take all questions. Buffet is generally non-flappable and straightforward in his often revealing responses to those questions. This year’s meeting had as close to a “deer in the headlights” reaction to a question for Buffet, when he was asked why Ajit Jain and Greg Abel were not joining him on stage to help answer questions. Those two key Berkshire executives are often mentioned by Buffet as likely successors to leadership of Berkshire Hathaway should the 88-year-old Buffet retire or pass away. Buffet answered that they had considered it but decided now was not the year to initiate such a change. Buffet then explained how Jain, his head of insurance operations, and Abel, the head of the utility companies and other operating companies, are already key executives of Berkshire, who will probably in the future be included on stage to answer questions as well.
If you already own Berkshire stock (BKR/B) in your portfolio or want to add it, feel free to contact us about what role it can play. As a shareholder, you are welcome to attend the annual meeting in Nebraska. We would be glad to have you join our team!