Climate Risk To Electric Utilities Now Bad Enough That Even Berkshire Hathaway Is Talking About It

EDIT

For more than a century, electric utilities raised huge sums to finance their growth through a state-by-state promise of a fixed return on equity (sometimes with a small bonus for superior performance). With this approach, massive investments were made for capacity that would likely be required a few years down the road. That forward-looking regulation reflected the reality that utilities build generating and transmission assets that often take many years to construct. BHE’s extensive multi-state transmission project in the West was initiated in 2006 and remains some years from completion. Eventually, it will serve 10 states comprising 30% of the acreage in the continental United States.

With this model employed by both private and public-power systems, the lights stayed on, even if population growth or industrial demand exceeded expectations. The “margin of safety” approach seemed sensible to regulators, investors and the public. Now, the fixed-but-satisfactory- return pact has been broken in a few states, and investors are becoming apprehensive that such ruptures may spread. Climate change adds to their worries. Underground transmission may be required but who, a few decades ago, wanted to pay the staggering costs for such construction?

At Berkshire, we have made a best estimate for the amount of losses that have occurred. These costs arose from forest fires, whose frequency and intensity have increased – and will likely continue to increase – if convective storms become more frequent.

Doug Lewin – Texas Energy and Power Newsletter (email): Here’s what happened to Hawaiian Electric Industries’ share price after last year’s devastating fires on Maui:

?w=737&ssl=1

With the Smokehouse Creek fire still raging and only barely contained, Xcel is facing the possibility of a similar future. Last week, the company filed a report with the Securities and Exchange Commission (SEC) that said “insurance interests” told the company it faces “potential exposure for damages” from the fire; the company has been asked to preserve a downed utility pole “within the vicinity of the fire’s potential area of origin,” per the SEC filing. Following the filing, Xcel’s stock dropped nearly 20%.

?w=677&ssl=1

EDIT

https://thinc.blog/2024/03/05/climate-burning-utility-business-models/#more-96080