Warren Buffett Is Not the Answer to California’s Energy Grid Problems
For the fourth time this month, Pacific Gas and Electric has purposefully cut power, this time to 2.8 million Northern California residents. As wildfires threaten the region, some will remain without electricity until at least Wednesday. While rolling blackouts have recently become de rigueur for PG&E ratepayers, this latest round, which affects some 7 percent of California’s population, is historic in scale.
Mounting outrage toward PG&E and its inadequate response to the escalating wildfire risks in the state have prompted a number of responses. Both the cities of San Francisco and San Jose have offered to buy the company’s power lines within their jurisdictions, and convert the operation to public ownership. Representative Ro Khanna has publicly called on Governor Gavin Newsom to make a push to convert the company’s holdings within the state from shareholder to municipal ownership. “I’m calling on Gov. Newsom to support turning PG&E into a customer owned utility. We need to have more municipal public utilities providing energy,” he said in a statement Tuesday.
But Newsom has other ideas. On Saturday, as the blackouts commenced, the governor called not for a public takeover, but for Warren Buffett’s Berkshire Hathaway to purchase PG&E, whose share price has fallen to $5 after regulators were informed last week that one of its transmission lines malfunctioned near the site of a fire in Geyserville, California.
The logic behind such a suggestion is simple: Berkshire Hathaway Energy, the conglomerate’s energy arm, is heavily invested in utility companies all over the country. Already in California they own multiple solar farms, including one in San Luis Obispo that is among the world’s largest. Per Newsom’s thinking, the company’s reputation for investing in green energy, combined with its deep pockets (compared to bankruptcy-addled PG&E) would make it a preferable steward of the state’s harried electric grid. Plus, Berkshire Hathaway Energy is privately held, which means that PG&E’s lines would no longer be subject to loathed shareholder ownership.
But a closer examination of Buffett’s portfolio, especially his existing investments in California and the West, show that his company’s investment strategy is already one of the state’s biggest obstacles to achieving its 100 percent renewable-energy ambitions, and would represent a disastrous and unnecessary step backward in the state’s fight against climate change.
Despite being one of the five richest people in the United States, Buffett has escaped the reputational maleficence of his compatriots Jeff Bezos and Mark Zuckerberg. Berkshire Hathaway, the largest non-technology company in the U.S. by market value, also enjoys a relatively favorable reputation. Part of that is due to his firm’s investments in renewable energy, which the company has long touted. Berkshire Hathaway Energy, not particularly long on any one energy source, has espoused a largely agnostic approach to investing; that’s translated to big solar-energy holdings in California, as well as a rapid expansion of wind energy in Iowa, which has cemented the firm’s reputation as a leader in the renewable transition.
But Berkshire Hathaway Energy is also the fifth-largest carbon polluter in the American power sector, and even larger if you count Berkshire affiliate BNSF Railway’s role shipping crude oil from fracking fields. Some 45 percent of BH Energy’s power is produced by coal. That alone would be incompatible with the state’s zero-carbon ambition, and its attempts to establish a national moratorium on coal leasing. And while there’s no reason to believe that a Berkshire Hathaway takeover of PG&E would result in the conversion of its energy production to feature more coal power, the company is already using its less-polluting holdings to shore up its coal plants, even within California.
Just ten months ago, PacifiCorp, one of Buffett’s utilities, asked permission from California regulators to raise rates for its 45,000 customers in northern Del Norte, Modoc, Shasta, and Siskiyou counties. PacifiCorp requested a 1.4 percent rate increase for residential customers, which would be put toward offsetting costs to, among other things, $440,000 worth of already-completed upgrades to two coal plants in Colorado and Wyoming. That move caused the Sierra Club to assert that the company couldn’t be trusted to work with California to reduce emissions.
Since 2006, a California law has prohibited state utilities from making long-term investments in coal infrastructure. But Buffett’s PacifiCorp can circumvent this obligation, because the majority of its customers are in Oregon. Over half of PacifiCorp’s energy currently comes from coal; they’ve recently pushed back on more aggressive commitments to close coal plants and transition to renewables in Oregon, as well.
And while Buffett’s company has used its profits from its more cost-effective, renewable-energy investments to help shore up its coal stock, and dragged its heels decommissioning outdated infrastructure in Oregon, it’s also surged prices on ratepayers far beyond competitors. Oregon Pacific Power (which is what PacifiCorp goes by in the state) customers saw their electricity bills increase by 61 percent between 2006 and 2014, a trend beginning the year after Buffett took over the utility. According to the Sierra Club, Pacific Power customers saw a greater rate increase than customers of any other major utility in the six states that Pacific Power serves. The company, which at one point was the largest coal operator in the American West, lagged behind for years as renewable energy flourished everywhere else in Oregon. So despite the recent announcement of firm commitments to wind down its coal plants, it held onto them long past their point of being price competitive, and merely upped the costs for ratepayers to make up the difference.
While Berkshire Hathaway Energy’s holdings have been slow to adapt to environmental dictates in some places, they’ve acted as a powerful opponent to them in others. In Nevada, NV Energy, another Buffett company, lobbied the state’s public-utility commission to radically redefine the state’s net metering provision, which allowed homeowners with rooftop solar to sell their excess power back into the grid. Rooftop solar had been booming in Nevada at the time, but, at NV Energy’s behest, the commission slashed payments to solar homeowners by half and raised fees. That decision effectively wiped out the rapidly growing industry. Legislative action and public outcry led NV Energy to bring back net metering, but its take-up has been slow relative to other regions, suggesting that the strangling in 2016 had an impact in stunting the growth of rooftop solar.
So Berkshire Hathaway has pursued renewable energy only when market conditions have proven maximally favorable, while frequently using its winnings to prop up coal outfits and lobby against green-energy initiatives across state lines. When taken as a whole, its forward-thinking reputation reads more like public relations than visionary corporate guardianship.
In advocating for a Buffett takeover of California’s largest utility, Newsom seems to be drawing on the “benevolent billionaire bailout” model that has taken hold in the media industry. The results of that trend notwithstanding, the stakes of the climate crisis in California, which is now being plagued by record-setting wildfires on a semi-annual basis, have accelerated the need for drastic changes to the state’s grid. Is handing over the reins to an out-of-state billionaire a necessary concession?
Buffett is a decorated monopolist whose primary concern is staking out consistent profits from noncompetitive industries. It’s important to ask whether that approach can conform to the 11 years the IPCC has identified that remain to radically change the energy mix of this country. Slowly, renewables have become price competitive. But few of Buffett’s investments have led in embracing those technologies even once their market advantage was surfaced. Repeatedly, they’ve lagged behind the pack.
With standing offers from multiple municipalities for PG&E lines, and the acute necessity of a rapid and expansive deployment of capital to reorient power sources and extreme weather–proof infrastructure, the opportunity for the state to act in accordance with its own climate realities has never been more immediate. Bringing in Buffett would only hobble that goal.