Berkshire Hathaway Energy
Selected highlights from the 2023 EEI Financial Conference
Berkshire Hathaway Energy (BHE) is one of Berkshire Hathaway’s most important subsidiaries. It has several unique characteristics:
BHE is one of the few Berkshire subsidiaries that is permitted to retain all of its free cash flow to pursue its own investment opportunities rather than sending the cash to Omaha for Warren Buffett to deploy elsewhere.
BHE is an issuer of debt which is not guaranteed by Berkshire Hathaway. As a result, BHE submits its own financial statements to the SEC which provide a great deal of information not included in Berkshire Hathaway’s filings.1
Greg Abel served as CEO of BHE for a decade prior to being named Vice Chairman of non-insurance operations at Berkshire Hathaway in January 2018. In 1992, Mr. Abel joined one of the predecessor entities that combined into BHE, so he has deep roots in the energy business. Mr. Abel is currently designated to eventually succeed Warren Buffett as CEO of Berkshire Hathaway.2
There have been several occasions when Berkshire Hathaway purchased ownership interests in BHE which provides a valuation of the energy business from the perspective of Warren Buffett himself. As of June 30, 2022, the last date of such a transaction, we could infer a valuation of $88.8 billion for BHE.3
Most Berkshire shareholders are acquainted with BHE mainly through descriptions of the business in Warren Buffett’s shareholder letters and information contained within Berkshire’s financial reports. The 2022 annual report’s discussion of BHE consumed just three pages which provides only a very high level overview of the business.
Abridged treatment of subsidiaries is inevitable in a conglomerate like Berkshire. As a result, in most cases, the operations of Berkshire subsidiaries are relatively opaque. But in BHE’s case, we not only have additional information to review but we can go from sipping from a water fountain to gulping from a firehose. This is because BHE is itself a conglomeration of eight direct subsidiaries, and several subsidiaries have their own subsidiaries, as we can see in the exhibit below (click on the image for a larger view):
When I refer to a firehose, I am not exaggerating. BHE’s consolidated 10-K for 2022 is 569 pages long, more than four times the length of Berkshire Hathaway’s 10-K!
I think it is fair to say that a very small percentage of Berkshire shareholders review BHE’s results in much detail, if at all, and prefer to rely on the condensed summaries in Berkshire’s filings. For the most part, this is what I do myself. I do not review BHE’s 10-Qs unless I am looking for something in particular, and while I do review BHE’s 10-Ks, I cannot claim that I am scrutinizing every page in the filing.
Fortunately, shareholders do not need to review the 10-Qs or 10-Ks to get a good sense of what BHE is all about because management prepares detailed presentations that are made public twice a year. The investor relations website archives slide decks for presentations at the Fixed Income Investor Conference and the EEI Conference.4
The 2023 EEI Conference took place in November. I reviewed BHE’s presentation and found several of the slides interesting. In this article, I’ll discuss a small sample of the slides included in the deck focusing on the following areas:
This article should not be considered anything like a comprehensive study of Berkshire’s energy operations, but rather my subjective assessment of what is particularly interesting in the presentation and worth sharing in a reasonably concise format. I have chosen to focus on longer-term capital allocation, decarbonization, and wildfire risks rather than recent operational results. Readers who are interested in more details are encouraged to peruse the entire ninety-two page presentation.
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Berkshire Hathaway currently owns 92% of BHE, with the remaining minority interest owned by family members and related or affiliated entities of the late Walter Scott, Jr. Mr. Scott was a longtime friend of Warren Buffett who served on the board of Berkshire Hathaway from 1988 until his death in 2021. BHE’s operations are extensive: