Warren Buffett, the CEO of Berkshire Hathaway and one of the
richest men in the world, put out his annual letter
;to shareholders over the weekend.
It got a lot of press attention, but, as is often the case with
Buffett, even in the newspapers that he does not own, the attention
was so worshipfully deferential that it ignored a glaring
contradiction in the letter.
That contradiction, though, is newsworthy not just for what it
says about Buffett, his company, and the press, but for the insight
into the broader relationship between business and government.
In one part of this year’s letter, Buffett mocks other corporate
executives who have complained about “uncertainty.” He writes,
“There was a lot of hand-wringing last year among CEOs who cried
‘uncertainty’ when faced with capital-allocation decision… If you
are a CEO who has some large, profitable project you are shelving
because of short-term worries, call Berkshire. Let us unburden
you.”
This is a somewhat familiar theme for Buffett. It echoes his
claim in a November 2012 New York Times
op-ed piece that an investor who decides not to invest because
taxes are too high exists “only in Grover Norquist’s imagination.”
In that op-ed Buffett wrote, “maybe you’ll run into someone with a
terrific investment idea, who won’t go forward with it because of
the tax he would owe when it succeeds. Send him my way. Let me
unburden him.”
At least in those cases Buffett was consistent. But in this
year’s annual letter, just a few pages past the dismissive comments
about CEOs complaining about uncertainty, Buffett offers his own
mini-lecture about the need for — sure enough — certainty. In the
section of the shareholder letter on “regulated, capital-intensive
businesses,” Buffett writes, “we are the leader in renewables:
first, from a standing start nine years ago, we now account for 6%
of the country’s wind generation capacity. Second, when we complete
three projects now under construction, we will own about 14% of
U.S. solar-generation capacity. Projects like these require huge
capital investments. Upon completion, indeed, our renewables
portfolio will have cost $13 billion. We relish making such
commitments if they promise reasonable returns — and on that front,
we put a large amount of trust in future regulation… It is in the
self-interest of governments to treat capital providers in a manner
that will ensure the continued flow of funds to essential
projects.”
Got that? At the beginning of his letter, and in his New
York Times op-ed, Buffett ridiculed other CEOs who might let
their investment decisions be affected by government tax policy or
by uncertainty about such policy. But in the section on investing
in solar and wind energy, Buffett says he’ll only invest “if” the
return is reasonable — and he says that whether the return is
reasonable depends on “future regulation” and on whether
governments “treat capital providers in a manner that will ensure
the continued flow of funds to essential projects.”
Buffett or his defenders might try to finesse this contradiction
by claiming that he was ridiculing concerns about uncertain tax or
overall business conditions, not about uncertain energy regulation.
But since the main energy regulation about which there is
uncertainty is, in essence, a tax on carbon dioxide emissions, this
is a distinction without much of a difference.
Not only is there a contradiction between what Buffett says
about uncertainty and investment in one part of the letter and in
another part of the letter, there is also a contradiction, or at
least a big difference in emphasis, between what he says in the
letter and what his company reports to the Securities and Exchange
Commission. The Buffett letter makes it sound like Berkshire
Hathaway’s utility, MidAmerican Energy Company, is mainly in the
“green” energy business.
But that’s spin. He gives the percentages of MidAmerican wind
and solar as part of the country’s wind and solar capacity. A more
relevant figure would be MidAmerican’s wind and solar capacity as
part of MidAmerican’s overall capacity. MidAmerican boasts more than
22,000 megawatts of owned and contracted generation capacity; the
SEC filing ;says its wind amounts to 3,697 megawatts, or about
17 percent of the total, and the solar “in operation and under
construction” will be 1,271 megawatts, or about 6 percent of the
total. As a result, according to the SEC filing, stricter emissions
rules wouldn’t help MidAmerican they way they might help a purely
wind or solar company. Rather, the SEC filing says, “New
requirements limiting greenhouse gas emissions could have a
material adverse impact on MidAmerican.”
In other words, even Warren Buffett, the businessman so rich and
so successful he goes around mocking other CEOs for worrying about
the uncertainty of taxes or regulations, isn’t immune to government
actions. Stricter emissions rules could hurt his energy business,
but he only wants to invest more in clean energy if “future
regulation” makes it worthwhile. A check of the Senate Lobbying
records database discloses that MidAmerican — which Berkshire
Hathaway owns — spent more than $1.5 million last year lobbying
Congress on 41 pieces of legislation, including something called
the “Energy Tax Prevention Act.” MidAmerican is also a member of
the Edison Electric Institute, which spent more than $10 million on
its own lobbying activities in 2012.
The next time some lobbyist hired by Buffett shows up in a
congressional office to plead his case, maybe the congressman can
refer the lobbyist to Buffett’s scornful remarks about
handwringing, make some dismissive comments about “short-term
worries,” and offer to find someone else to take the investment off
Buffett’s hands. … Read More
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