Billionaire investor Warren Buffett says that renewable energy and efficiency are pushing utilities beyond a “sloppy” operational model and into a more competitive environment.
In his annual letter to Berkshire Hathaway shareholders, Buffett outlined the risks posed by distributed generation to traditional power companies. Berkshire Hathaway, a multinational holding company worth nearly $200 billion, owns 10 energy companies, including three large electric utilities serving territories across 11 Midwestern and Western U.S. states.
The business of electricity is entering a period of uncertainty, wrote Buffett.
“In its electric utility business, our Berkshire Hathaway Energy (“BHE”) operates within a changing economic model. Historically, the survival of a local electric company did not depend on its efficiency. In fact, a ‘sloppy’ operation could do just fine financially,” wrote Buffett. “That’s because 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.”
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