How Berkshire Hathaway Energy plans to use its excess cash
Warren, Berkshire Energy has benefited greatly from operating under the Berkshire umbrella.
By not having to pay out 60 to 70 percent of earnings annually as a dividend, the company was able to amass 9 billion in capital the past five years, and closer to 12 billion in the past ten, money that can be allocated to acquisitions and capital spending, especially on renewables.
While tax credits for solar energy don’t run out until next year, we’ve already seen a dramatic reduction in Berkshire Energy’s capital commitment to solar projects. And even though spending on wind generation capacity is projected to be elevated this year and next, it does wind down in 2020 as the wind production tax credits are phased out.
Absent a major commitment to additional capital projects, it looks like Berkshire Energy’s expenditures in 2021 will be its lowest since 2012, leaving the firm with more cash on hand than it has had in some time.
Do you think it is likely at that point that Berkshire Energy starts funneling some of that cash up to the parent company? Or will it be earmarked for debt reduction, or just be left on the balance sheet as dry powder for acquisitions?
Yeah. The… you’re right about when tax credits phase out and all of that. Although, as you know, they’ve extended that legislation in the past. Who knows exactly what the government’s position will be on incentivizing various forms of alternative energy?
But my guess is… I mean, if you take the logical expenditures that may be required in all aspects of the public… like regeneration and the utility business generally… I think there’ll be a lot of money spent.
And the question is whether we can spend it and get a reasonable return on it. There again, we’ll do what’s logical.
There are three shareholders, basically, of Berkshire Hathaway Energy. Berkshire Hathaway itself owns 90 percent of it. And Greg Abel and his family, perhaps, and Walter Scott and, again, family members… own the other 10 percent. And we all have an interest in employing as much capital as we can at good rates.
And we’ll know when it can be done and when it can’t be done. And we’ll do… there’s no tax consequences to Berkshire at all. So… but the three partners will figure out which makes the most sense.
But when you think of what might be done to improve the grid in the U.S. and the fact that we do have the capital, I wouldn’t be surprised if we find good uses for capital in Berkshire Hathaway Energy for a long time in the future.
Yeah. Well, I think there’ll be huge opportunities in Berkshire Energy as far ahead as you can see to deploy capital very intelligently. So I think the chances of a big dividend is approximately zero.
Yeah. And we’ve not only got the money to an extent that virtually no utility company does… we’ve also got the talent, too. I mean, we’ve got a very, very talented organization there.
So it’s a big field and we’ve got shareholders that are capitalists. And we’ve got managers that are terrific. And you would think we’d find something intelligent to do over time in the field.
So far, we have. I mean, we’ve owned it now for close to 20 years. And we’ve deployed a lot of capital and so far, so good. I mean, it’s…
If you look at the improvements that can be made in our utility system in the United States, you’re talking hundreds and hundreds and hundreds of billions of dollars, if not trillions. So… you know, where else but Berkshire would you look for that kind of money?