In Part One, I explored how Buffett, despite being one of the world’s most successful investors, mistakenly downplays the climate risk to his company, Berkshire Hathaway (BH). In particular, he fails to tell investors of the climate risk associated with his massive $1.1 billion investment in Canadian tar sands giant Suncor, a company that can only make a big profit by helping to destroy a livable climate.
Buffett’s letter is equally questionable on renewable energy. The “Oracle of Omaha” portrays himself and BH as a friend to renewables. For instance, Buffett says of his energy subsidiary, Berkshire Hathaway Energy (BHE): “Last year, BHE made major commitments to the future development of renewables in support of the Paris Climate Change Conference. Our fulfilling those promises will make great sense, both for the environment and for Berkshire’s economics.”
“That company has invested $16 billion in renewables and now owns 7% of the country’s wind generation and 6% of its solar generation,” Buffett’s letter elaborated. “Indeed, the 4,423 megawatts of wind generation owned and operated by our regulated utilities is six times the generation of the runner-up utility. We’re not done.”
Yet his solar-hyping shareholder letter never mentions that BHE owns NV Energy, which almost single-handedly destroyed the exploding solar rooftop market in Nevada. As we reported last year, Buffett’s utility successfully lobbied the Nevada Public Utilities Commission (PUC) to slash the “net metering” payments to solar customers for the electricity they put back on the grid (when their rooftop PV generates more power than they themselves are using at the moment). NV Energy defeated Elon Musk’s SolarCity, a very big solar installer, which lobbied against the massive rate hike.
Customers who buy solar will no longer be paid for any excess electricity at the retail rate (some 11 cents per kilowatt-hour). Instead they’ll be paid a rate that keeps dropping until it hits the wholesale rate (2.6 cents per kwh) — “even though the utility doesn’t have to pay for any of the solar panels’ hardware or maintenance, and transmission costs are negligible, since the electricity is being generated close to where it is used.”
Thanks to its successful lobbying, NV Energy will ultimately be able to take whatever excess electricity it buys from solar customers at 2.6 cents per kwh and simply sell it to other customers at 11 cents! Now that is capitalism.
Even worse, NV Energy got the PUC to to punish people who already bought solar! The change in net metering will be applied even to customers who bought solar under the previous rate structure. So if you got a PV system in good faith under a rate structure in which it was economical, you still get screwed, by possibly as much as $11,000 over the next 20 years. That kind of sounds more like greed than capitalism.
Significantly, while the NV PUC voted 3-0 for this new rate structure in late 2015, a year earlier they issued a report finding that rooftop solar customers actually give back more to the grid than they cost.
Buffett never mentions this fight in his shareholder letter, even though it received a great deal of media coverage, including the BloombergBusiness “Buffett vs. Musk” wrestling cover, and even though Buffett has not been shy about giving interviews defending NV Energy. For instance, here is what Buffett told CNBC last week:
We do not want our million plus customers that do not have solar to be buying solar at 10.5 cents when we can turn it out for them at 4.5 cents or buy it for them at 4.5 cents. So we do not want the non-solar customers, of whom there are over a million, to be subsidizing the 17,000 solar customers.
There are two major problems with Buffett’s argument. First, it just isn’t true. Second, Buffett makes virtually the opposite argument in his shareholder letter.
Rooftop Solar Helps, Not Hurts, NV Energy’s Other Customers
First, the PUC study found rooftop solar doesn’t “cost shift,” and in fact concluded “there was a $36 million net benefit to all customers over a 25-year period,” as the Las Vegas Sun explained in December.
It’s fairly obvious that — even if we ignore all of the many well-documented benefits of distributed solar — the 17,000 solar customers couldn’t be cost-shifting very much to over a million other customers because they are such a tiny fraction of the customer base. Also, they use much if not most of the rooftop solar directly themselves. The cost shift would only occur for the even tinier fraction of power they sold back during peak demand — a time, it must be pointed out, when electricity costs are generally very high. Indeed, that power is often provided by expensive “peaking” natural gas plants that run only tens of hours a year.
Moreover, forcing the rooftop-solar owners to pay the wholesale price would only save the non-rooftop customers money if NV Energy lowered their rates. After all, if NV Solar simply takes the net metered electricity at wholesale prices and then sells it to their million other customers at the current retail rate, then those customers have not saved a nickel! The PUC apparently required NV Energy to create a separate account in which to deposit this additional revenue, but I’m told it’s still unclear how/if that would be passed along to customers.
And this whole discussion is moot in any case because distributed solar has been documented to have many benefits to everyone on the grid. For instance, it reduces the need for the utility to spend money to upgrade transmission and distribution (T&D) into rapidly-growing urban and suburban areas.
Of course, that’s one of the many reasons Buffett and NV Energy don’t like rooftop solar. As a regulated monopoly, the utility can make a guaranteed profit from building new T&D — and from building its own peak power plants, whether those are natural gas or solar. They can’t make a profit on rooftop solar — unless they get the PUC to force those customers to sell them that power at ridiculously low prices.
Worse, “this is far from the only move Buffett is making against solar,” as DeSmogBlog reported last month. For instance:
In Utah, Rocky Mountain Power — a division of PacifiCorp, which is a fully-owned subsidiary of… you guessed it… Berkshire Hathaway Energy — proposed a charge for solar net metering customers similar to that which passed in Nevada. The Utah Public Service Commission voted that proposal down.
Is BHE trying to kill rooftop solar because of greed, as it appears, or to protect its customers, as Buffett claims? Well, if in fact rooftop solar were actually hurting BHE or its customers, then you’d think Buffett would say so in his shareholder letter.
Instead, here is what Buffett writes: “To date, renewables have helped our utility operation but that could change, particularly if storage capabilities for electricity materially improve.”
Buffett elaborates on this point in the letter. He notes that because traditionally, “utilities were usually the sole supplier of a needed product and were allowed to price at a level that gave them a prescribed return upon the capital they employed,” they didn’t need to be efficient. Quite the reverse, he explains, “The joke in the industry was that a utility was the only business that would automatically earn more money by redecorating the boss’s office. And some CEOs ran things accordingly.”
Now, however, “That’s all changing.” Federal tax credits and state policies are promoting renewables through policies that “may eventually erode the economics of the incumbent utility, particularly if it is a high-cost operator.” But Buffet says there’s good news for his shareholders:
BHE’s long-established emphasis on efficiency — even when the company didn’t need it to attain authorized earnings — leaves us particularly competitive in today’s market (and, more important, in tomorrow’s as well).
In short, BHE has not seen its economics erode because of pro-renewables policies. And, he explains, that erosion is unlikely to happen in the foreseeable future given how well BHE is managed.
So it would appear that BHE is going after rooftop solar simply to kill the competition — and allow it to keep all for itself the guaranteed profits from any renewables it builds, from the T&D it builds, and from the renewable tax credits the competition might have gotten. This strategy may make short-term business sense, but it invalidates any claim that Berkshire Hathaway Energy is somehow a champion of renewables.
Is Berkshire Hathaway Energy “Greenwashing”?
BHE’s anti-solar moves also raise the question of whether they joined other companies last year at the White House launch of the American Business Act on Climate Pledge primarily for the public relations benefit — aka “greenwashing.”
Greg Abel, BHE chairman, president and CEO said at the time:
“For more than a decade, we have been … fostering a more sustainable future by developing renewable energy generation and reducing emissions from our facilities. Joining these other U.S. businesses is one more way we can demonstrate our commitment to lead on climate action.”
Trying to kill rooftop solar, however, does not demonstrate “commitment to lead on climate action.” And, as DeSmogBlog notes in its must-read piece, team Buffett is “actively engaged in a quieter war on another solar front” — the gutting of the 1978 Public Utility Regulatory Policies Act, aka PURPA.
PURPA requires utilities to buy renewables (and other forms of energy) from non-utility generators (up to 80 megawatts in size) for “basically what the utility would have had to pay for the same amount of power from another source or to generate it itself.” This has boosted wind and solar developers, leading to as much as 12,000 megawatts of non-hydro renewables.
The Union of Concerned Scientists has called PURPA “the most effective single measure in promoting renewable energy,” explaining it’s “the only existing federal law that requires competition in the utility industry and the only law that encourages renewables” (though it has helped natural gas cogeneration of heat and power more).
Just as team Buffett doesn’t want rooftop solar customers taking away from profits BHE itself could have, they don’t want non-utility generators taking profits selling it renewables that it could make itself. And so BHE has been working to undermine PURPA in Idaho, Oregon, Utah, and Wyoming.
The best spin on all this is that team Buffett only likes renewables when they can get all the profits. Whatever your view of that form of unbridled capitalism is, it is at odds with any claim by Buffett or BHE that they are champions of renewables or climate action. Such champions don’t try to undermine renewable energy.
There is another possible way to explain what team Buffett is doing. DeSmogBlog notes: “Berkshire Hathaway Energy’s holdings are still intractably dependent on coal — relying on it for well over half of electricity generation in its four major regional utilities. And … Buffett’s BNSF Railways hauls a whole lot of coal.”
I’ll look at BNSF Railways in a subsequent post. As we’ll see, it is key part of a Berkshire Hathaway’s fossil-fuel-friendly empire.
Author: Joe Romm