In his latest shareholder letter Warren Buffett said his company Berkshire Hathaway, at its size and maturity, should “operate with materially less risk of permanent loss of capital”. A few pages later, the Oracle of Omaha seemed to contradict himself.
Berkshire Hathaway Energy is one of the largest power utilities in America. Such infrastructure businesses, Buffett noted, are most often operated as natural monopolies for which equity returns are mandated by state regulators. Such a system allows the utility to securely make long-term, expensive investments in electricity and gas generation as well as transmission equipment. It is as steady and dull as it can be.
Until now. Berkshire Energy’s PacifiCorp is facing, in the worst case, tens of billions of dollars in civil liability for the alleged role its equipment played in multiple wildfires that raged in California and Oregon in recent years after lightning strikes. Even as Berkshire’s overall operating earnings soared in 2023 its energy unit’s profits fell more than 40 per cent, which included nearly $2bn of “estimated probable wildfire losses”.