How Berkshire Hathaway’s Utility Business Became a $90 Billion Win for Warren Buffett
Berkshire Hathaway Energy, a subsidiary of Berkshire Hathaway, has become one of the most important and successful ventures for CEO Warren Buffett. What began as the acquisition of a small Midwestern utility company, MidAmerican Energy, in 1999 has grown into a diverse and valuable energy company. Berkshire Hathaway Energy is now valued at close to $90 billion, up from the $2 billion initially paid for MidAmerican. The company operates as one of the largest electric utilities in the US, with a significant focus on renewable energy, particularly wind power. It also owns natural gas pipelines, a UK utility, a US real estate brokerage business, and has investments in the liquefied natural gas (LNG) industry. Recently, Berkshire Hathaway Energy increased its stake in the Cove Point LNG facility by purchasing a 50% interest from Dominion Energy.
Berkshire Hathaway Energy is regarded as one of Berkshire Hathaway's "jewels" alongside its insurance business, Burlington Northern Santa Fe railroad, and equity stake in Apple. The company's financials are complex, with a large amount of equity and debt. It has consistently earned regulated returns of around 10% on its capital investments. Berkshire Hathaway Energy has also benefited from federal tax credits for wind power installations, and its tax credit in 2022 amounted to $1.6 billion.
Buffett has been cautious about issuing equity and has taken the same approach with Berkshire Hathaway Energy, resulting in little equity issuance since the initial acquisition. The company has steadily grown through acquisitions and internal expansion, achieving a compound annual growth rate of 18%. It retains all its earnings, giving it an advantage over investor-owned utilities that typically pay out a significant portion of profits as dividends.
With the renewable energy industry experiencing substantial growth and investment, Berkshire Hathaway Energy is well-positioned to capitalize on this trend. The company has projected capital spending of over $9 billion in both 2023 and 2024, with a significant portion allocated to wind and solar projects. It is also constructing a substantial electric transmission network to accommodate the increasing generation from wind and solar sources.
Overall, Berkshire Hathaway Energy is a valuable and promising subsidiary of Berkshire Hathaway, expected to contribute significantly to the company's revenues and earnings in the coming years. Investment Disclaimer:
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