Wildfires make utilities a tricky investment. Just ask Warren Buffett.
Warren Buffett made a fortune by investing in electric utilities in the western U.S. Now, the world’s best-known investor says wildfires might undermine that strategy. PacifiCorp, a utility company owned by Buffett’s Berkshire Hathaway, has incurred hundreds of millions of dollars in liability costs tied to a series of Oregon wildfires in 2020 and might owe hundreds of millions more.
In his most recent annual letter, Buffett told shareholders that he might rethink utility investments in states at high risk of wildfire. “We will not knowingly throw good money after bad," he wrote in his February letter. Buffett’s salvo reflects a growing reluctance among investors to own utilities in the West and elsewhere as drought and climate change heighten the risk of deadly and destructive wildfires.
Utility companies in California first grappled with significant liability costs tied to fires ignited by their equipment in recent years. Now utilities in Oregon, Hawaii, Colorado and Texas are facing similar prospects. Buffett’s letter prompted pushback from utility executives across the West who have been striving to retain investor confidence as they propose multibillion-dollar investments to make their systems safer and more resilient.
They say two things are necessary to manage the risk: access to the capital needed to make improvements, and legislation or regulation to limit potential liability costs. The prospect of utility companies losing favor on Wall Street could jeopardize their ability to complete the work needed to make their systems safer. It could also make that work more expensive to complete, resulting in higher costs for customers.
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