14 ms·

Berkshire Hathaway buys Dominion Energy natural gas assets in $10B deal

127 points by finphil 6y ago

pphysch 6y ago
> With the purchase, Berkshire Hathaway Energy will carry 18% of all interstate natural gas transmission in the United States, up from 8%. Always interesting to learn what XX% of a random industry a random conglomerate owns.
- deadalus 6y ago
  De Beers Group sells approximately 35% of the world's rough diamond production through its global sightholder and auction sales businesses. source : https://en.wikipedia.org/wiki/De_Beers https://en.wikipedia.org/wiki/De_Beers
  - ed25519FUUU 6y ago
    > From its inception in 1888 until the start of the 21st century, De Beers controlled 80% to 85% of rough diamond distribution and was accused of being a monopoly.[5] Competition has since dismantled the complete monopoly, though the De Beers Group still sells approximately 35% Interesting. I wonder if synthetic diamonds played a role in that downward trajectory.
    - teruakohatu 6y ago
      The competition is Canadian and Russian diamonds but De Beers have waged a publicity campaign against synthetics for years, even recently launching their own line of synthetic diamonds but branding it as an inferior product.
      - kbutler 6y ago
        Just this week I heard an established jewelry store advertising synthetic diamonds. I've understood that historically de Beers would cut off jewelry stores from the supply of natural diamonds if they sold lab-grown, but maybe their power has declined enough for the stores to jump ship. The ad noted "bigger" than natural, "created in a tiny star" (probably CVD https://www.brilliantearth.com/lab-created-diamonds/ https://www.brilliantearth.com/lab-created-diamonds/), and something about "created since you started dating..." I expected them to cite the improved clarity vs natural, but the ad didn't mention it.
      - swyx 6y ago
        > branding it as an inferior product. wow. that is genius. you don't have to be a fan of what they do to recognize that they have incredible marketing savvy.
- curiousllama 6y ago
  Fun fact / challenge: nobody reading this comment is in a room without a product made by Koch industries.
  - nappy-doo 6y ago
    Prove it. I spend a significant amount of my time making sure I buy brands that DO NOT fund that hateful family. I have also written to companies I like that advertise of Fox News. (I don't need a hobby, I like using my time to vote with my dollars.)
    - curiousllama 6y ago
      Look at these brands: https://www.kochind.com/companies https://www.kochind.com/companies Guardian might've made your windows (car & home); Invista might've made the nylon in your clothes; Molex makes the liiiiiiitle tiny bits of plastic in the computer you're using. Live pretty much anywhere except the coasts in the US? Koch probably sold the softwood lumber used to build your house. You sure your car doesn't burn gasoline from Flint Hills? Do you ever use paper products? Georgia Pacific (Brawny, Dixie, Angel Soft...). They're so foundational in so many basic industries, they're just unavoidable.
      - nappy-doo 6y ago
        I avoid the GP products. I can't change the plastics in my computer. My house is older than dirt, and the windows are so old you can see the glass warping. The lumber's proper sized, not scaled by 0.5inches (eg, rafters are true 2"x8"), but I get your point. It's hard to PROVE what the state is. Let's just say, I try my hardest.
        curiousllama 6y ago
        You certainly try harder than most! Plus, most of these companies are in B2B commodities industries where purchasing is the margin driver, not sales. So I wouldn't worry too much about whether the Nylon 6,6 in your yoga pants was made in an Invista facility... your purchasing decision just wouldn't matter that much.
chaorace 6y ago
I wonder what this is signalling, when it comes to how Buffet's firm stands on market volatility? With stocks up and fresh bad news about the state of the pandemic rolling in, I would think that they would be more inclined to wait now and buy later. Maybe they feel that the energy sector has gotten "discounted enough already" and that the short-term gains from waiting longer would be outweighed by the relatively safe gains that the investment promises post-pandemic?
- purple_ferret 6y ago
  This is only a partial buy of assets. In the deal Berkshire agrees to buy out 6 billion of debt (out of 70 billion in liabilities). It's not necessarily a deal that could be had in a fire sale, but one in which Dominion agrees to sell off assets that have some intrinsic value (around 10 billion by Buffet's estimation).
- btilly 6y ago
  Warren Buffett's long-standing position on market volatility is that he never worries about it or tries to time the market. If he finds a deal and he believes that the fundamental value proposition is there, then he makes the purchase without regard to what might happen tomorrow.
  - dopamean 6y ago
    Exactly. It's possible a better deal could be made later but he looked at it and believes it's a good deal now so he'll do the deal now. It makes a lot of sense really.
    - manquer 6y ago
      If you can afford to do so , yes it makes sense . However public company leadership and professional fund managers cannot stop worrying about short term impact , their job is on the line . There is enormous pressure to deliver short term results very few people like buffet can escape that. He is able do it due to his reputation, wealth and peculiar holding structure of Berkshire Hathaway (no splits or dividends ) I should mention as much as short term focus is painted as bad , on average it is good strategy to base people’s performance on. It is better management fails faster than fails slower . “Blue chip” companies should reduce risk more than maximise gain .
acidburnNSA 6y ago
To me this signals that Buffett believes that huge growth of cheap and crazy-popular wind and solar generators will continue to be directly correlated with a massive expansion of fracked natural gas (i.e. high-carbon fossil fuel) to back up their intermittency. Fracked natural gas is certainly better than coal in almost all metrics (way less deadly air pollution, arguably less carbon emissions given better pipeline seals/maintenance), but it is not compatible with a climate solution because of its high carbon footprint. I'm always advocating for 24/7 low-carbon, low-land, low-material energy (i.e. energy with high power density) like nuclear but it appears that the public simply is not interested. It would help if we could just choose a reactor design and serialize it like the Koreans did to get costs way down.
- inetknght 6y ago
  > To me this signals that Buffett believes > it appears that the public simply is not interested I'm not sure I agree. I'd say that it appears that Warren Buffet is not interested. I think the public is interested but can't afford the investment.
  - acidburnNSA 6y ago
    I guess I'm thinking Buffett's lack of interest is related to the public's lack of interest at the current price point. On June 23, a Pew Research poll about energy preference came out. Nuclear did relatively poorly compared to renewables but, to your point, it did beat out most fossil-based solutions (barely). [1] https://www.pewresearch.org/science/2020/06/23/two-thirds-of-americans-think-government-should-do-more-on-climate/ https://www.pewresearch.org/science/2020/06/23/two-thirds-of...
    - tankenmate 6y ago
      But the real issue if the how much the transmission providers are willing to pay. This market is open to all generators of an acceptable size who have passed govt. certification. In most countries this market is an auction in various sized time blocks (from months long down to a few hours). Obviously the price of solar and wind are lower than coal in a lot of localities, and in some are even lower than natural gas. And what's more for solar once it is in place it has miniscule opex, so almost any price above zero will produce net revenue. Natural gas will find it hard to compete with this in even a few years time. Having said that in the US approx 30% of natural gas is used in electricity production. Even though it is a minority of end use market share it will still affect prices. So I'd say if Buffett got it at a 30% discount or more he should be OK, a lesser discount may be problematic.
rory096 6y ago
Dominion and Duke Energy also cancelled the controversial Atlantic Coast Pipeline the same day this deal was announced, citing mounting costs from legal uncertainties. https://www.prnewswire.com/news-releases/dominion-energy-and-duke-energy-cancel-the-atlantic-coast-pipeline-301088177.html https://www.prnewswire.com/news-releases/dominion-energy-and...
johnwheeler 6y ago
Lots of analyzing what Buffett is signaling. My bet is he had little to do with the purchase and it was more likely made and informed by Greg Abel. Rather than nabbing a bargain, they probably thought the deal just made sense to expand their existing energy assets. In other words, the deal wasn’t good, but it wasn’t bad either. There hasn’t been much bargain buying in wide moat companies at Berkshire for the last ten years.
- nabla9 6y ago
  Berkshire Energy is continuing buying energy transmission networks and utilities. This fits their long term strategy. Buy utilities, connect them together. Dominion's gas pipeline fits nicely to Berkshire Energy's pipeline coming from California.
sailfast 6y ago
> Dominion plans to use about $3 billion of the after-tax proceeds to buy back its shares later this year. So, they sold this asset to buy back shares? This seems like a seriously short-sighted play.
- wsetchell 6y ago
  I don't get people's aversion to stock buybacks. If a company has money it cannot productively spend, it should return that money to shareholders. Stock buybacks are a tax efficient way to do that. The company believes the asset wasn't very profitable for them to own, so they sold it and gave the shareholders the money back.
  - dpcx 6y ago
    Could it not spend some portion of that money on research and development? I feel that literally any industry could find improvements.
    - wsetchell 6y ago
      To justify spending that money, they'd have to think they'd get better returns on their R&D than shareholders could get elsewhere (e.g. by just buying the S&P 500). It is quite difficult to beat the S&P 500, and they're saying they don't have any ideas which can.
      - francescopnpn 6y ago
        true and sad-reflective of the world's state (last 50y)
      - jandrese 6y ago
        If the shareholders don't think the R&D is going to be profitable then they can sell their own shares. It doesn't seem like the company should be making that decision for them. More to the point, if the company is seeing such great profits then their competitors should be undercutting them. If they don't have competitors then maybe they should be regulated more like a utility and give that money back to the customers. Stock buybacks usually end up being just a handout to the rich, which they don't need.
blobbers 6y ago
Curious; I like hackernews but what about this article is relevant to this community?
- deleted 6y ago
  [deleted]
- smolder 6y ago
  It's answered in the guidelines --anything that we may find interesting is submissable.
- idoh 6y ago
  I cannot speak for anyone else, but on the one hand HN is very bullish on alternative / clean energy, and on the other hand a well respected investor like Buffet is taking a contrary position. So I want to see the comments hashing it out, to adjust my priors.
  - blobbers 6y ago
    For what it is worth, Buffett also backed the largest solar project in the United States. Look up the NV Energy Gemini project. Please don't take this headline for anything than what it is; Buffett is a deal hunter, and he likes buying things at a deep discount.
- belval 6y ago
  HN is just another news aggregator, while it is obviously more tech-focused, the people that use it tend to be interested in more general news as well.
  - deleted 6y ago
    [deleted]
yingw787 6y ago
Oh interesting. I'm part of the Dominion Energy Green Power initiative. I have no idea whether I'm actually making a difference...but I pay more and get a green sticker + pamphlet, so that's cool. Saving one starfish and all that.
staycoolboy 6y ago
> clean energy production from wind, solar and natural gas Wait a sec, how did "natural gas" end up in the "clean energy" category?
- kube-system 6y ago
  Well at least it's not "wind, solar, and clean coal" anymore.
aussiegreenie 6y ago
It just means Berkshire Hathaway has too much capital and needs to do something. Those gas assets are worth half their book value, if that.

127 points by finphil 6y ago

> With the purchase, Berkshire Hathaway Energy will carry 18% of all interstate natural gas transmission in the United States, up from 8%. Always interesting to learn what XX% of a random industry a random conglomerate owns.

deadalus 6y ago
De Beers Group sells approximately 35% of the world's rough diamond production through its global sightholder and auction sales businesses. source : https://en.wikipedia.org/wiki/De_Beers https://en.wikipedia.org/wiki/De_Beers
- ed25519FUUU 6y ago
  > From its inception in 1888 until the start of the 21st century, De Beers controlled 80% to 85% of rough diamond distribution and was accused of being a monopoly.[5] Competition has since dismantled the complete monopoly, though the De Beers Group still sells approximately 35% Interesting. I wonder if synthetic diamonds played a role in that downward trajectory.
  - teruakohatu 6y ago
    The competition is Canadian and Russian diamonds but De Beers have waged a publicity campaign against synthetics for years, even recently launching their own line of synthetic diamonds but branding it as an inferior product.
    - kbutler 6y ago
      Just this week I heard an established jewelry store advertising synthetic diamonds. I've understood that historically de Beers would cut off jewelry stores from the supply of natural diamonds if they sold lab-grown, but maybe their power has declined enough for the stores to jump ship. The ad noted "bigger" than natural, "created in a tiny star" (probably CVD https://www.brilliantearth.com/lab-created-diamonds/ https://www.brilliantearth.com/lab-created-diamonds/), and something about "created since you started dating..." I expected them to cite the improved clarity vs natural, but the ad didn't mention it.
    - swyx 6y ago
      > branding it as an inferior product. wow. that is genius. you don't have to be a fan of what they do to recognize that they have incredible marketing savvy.
curiousllama 6y ago
Fun fact / challenge: nobody reading this comment is in a room without a product made by Koch industries.
- nappy-doo 6y ago
  Prove it. I spend a significant amount of my time making sure I buy brands that DO NOT fund that hateful family. I have also written to companies I like that advertise of Fox News. (I don't need a hobby, I like using my time to vote with my dollars.)
  - curiousllama 6y ago
    Look at these brands: https://www.kochind.com/companies https://www.kochind.com/companies Guardian might've made your windows (car & home); Invista might've made the nylon in your clothes; Molex makes the liiiiiiitle tiny bits of plastic in the computer you're using. Live pretty much anywhere except the coasts in the US? Koch probably sold the softwood lumber used to build your house. You sure your car doesn't burn gasoline from Flint Hills? Do you ever use paper products? Georgia Pacific (Brawny, Dixie, Angel Soft...). They're so foundational in so many basic industries, they're just unavoidable.
    - nappy-doo 6y ago
      I avoid the GP products. I can't change the plastics in my computer. My house is older than dirt, and the windows are so old you can see the glass warping. The lumber's proper sized, not scaled by 0.5inches (eg, rafters are true 2"x8"), but I get your point. It's hard to PROVE what the state is. Let's just say, I try my hardest.
      - curiousllama 6y ago
        You certainly try harder than most! Plus, most of these companies are in B2B commodities industries where purchasing is the margin driver, not sales. So I wouldn't worry too much about whether the Nylon 6,6 in your yoga pants was made in an Invista facility... your purchasing decision just wouldn't matter that much.

chaorace 6y ago

I wonder what this is signalling, when it comes to how Buffet's firm stands on market volatility? With stocks up and fresh bad news about the state of the pandemic rolling in, I would think that they would be more inclined to wait now and buy later. Maybe they feel that the energy sector has gotten "discounted enough already" and that the short-term gains from waiting longer would be outweighed by the relatively safe gains that the investment promises post-pandemic?

purple_ferret 6y ago
This is only a partial buy of assets. In the deal Berkshire agrees to buy out 6 billion of debt (out of 70 billion in liabilities). It's not necessarily a deal that could be had in a fire sale, but one in which Dominion agrees to sell off assets that have some intrinsic value (around 10 billion by Buffet's estimation).
btilly 6y ago
Warren Buffett's long-standing position on market volatility is that he never worries about it or tries to time the market. If he finds a deal and he believes that the fundamental value proposition is there, then he makes the purchase without regard to what might happen tomorrow.
- dopamean 6y ago
  Exactly. It's possible a better deal could be made later but he looked at it and believes it's a good deal now so he'll do the deal now. It makes a lot of sense really.
  - manquer 6y ago
    If you can afford to do so , yes it makes sense . However public company leadership and professional fund managers cannot stop worrying about short term impact , their job is on the line . There is enormous pressure to deliver short term results very few people like buffet can escape that. He is able do it due to his reputation, wealth and peculiar holding structure of Berkshire Hathaway (no splits or dividends ) I should mention as much as short term focus is painted as bad , on average it is good strategy to base people’s performance on. It is better management fails faster than fails slower . “Blue chip” companies should reduce risk more than maximise gain .

acidburnNSA 6y ago

To me this signals that Buffett believes that huge growth of cheap and crazy-popular wind and solar generators will continue to be directly correlated with a massive expansion of fracked natural gas (i.e. high-carbon fossil fuel) to back up their intermittency. Fracked natural gas is certainly better than coal in almost all metrics (way less deadly air pollution, arguably less carbon emissions given better pipeline seals/maintenance), but it is not compatible with a climate solution because of its high carbon footprint. I'm always advocating for 24/7 low-carbon, low-land, low-material energy (i.e. energy with high power density) like nuclear but it appears that the public simply is not interested. It would help if we could just choose a reactor design and serialize it like the Koreans did to get costs way down.

inetknght 6y ago
> To me this signals that Buffett believes > it appears that the public simply is not interested I'm not sure I agree. I'd say that it appears that Warren Buffet is not interested. I think the public is interested but can't afford the investment.
- acidburnNSA 6y ago
  I guess I'm thinking Buffett's lack of interest is related to the public's lack of interest at the current price point. On June 23, a Pew Research poll about energy preference came out. Nuclear did relatively poorly compared to renewables but, to your point, it did beat out most fossil-based solutions (barely). [1] https://www.pewresearch.org/science/2020/06/23/two-thirds-of-americans-think-government-should-do-more-on-climate/ https://www.pewresearch.org/science/2020/06/23/two-thirds-of...
  - tankenmate 6y ago
    But the real issue if the how much the transmission providers are willing to pay. This market is open to all generators of an acceptable size who have passed govt. certification. In most countries this market is an auction in various sized time blocks (from months long down to a few hours). Obviously the price of solar and wind are lower than coal in a lot of localities, and in some are even lower than natural gas. And what's more for solar once it is in place it has miniscule opex, so almost any price above zero will produce net revenue. Natural gas will find it hard to compete with this in even a few years time. Having said that in the US approx 30% of natural gas is used in electricity production. Even though it is a minority of end use market share it will still affect prices. So I'd say if Buffett got it at a 30% discount or more he should be OK, a lesser discount may be problematic.

rory096 6y ago

Dominion and Duke Energy also cancelled the controversial Atlantic Coast Pipeline the same day this deal was announced, citing mounting costs from legal uncertainties. https://www.prnewswire.com/news-releases/dominion-energy-and-duke-energy-cancel-the-atlantic-coast-pipeline-301088177.html https://www.prnewswire.com/news-releases/dominion-energy-and...

johnwheeler 6y ago

Lots of analyzing what Buffett is signaling. My bet is he had little to do with the purchase and it was more likely made and informed by Greg Abel. Rather than nabbing a bargain, they probably thought the deal just made sense to expand their existing energy assets. In other words, the deal wasn’t good, but it wasn’t bad either. There hasn’t been much bargain buying in wide moat companies at Berkshire for the last ten years.

nabla9 6y ago
Berkshire Energy is continuing buying energy transmission networks and utilities. This fits their long term strategy. Buy utilities, connect them together. Dominion's gas pipeline fits nicely to Berkshire Energy's pipeline coming from California.

sailfast 6y ago

> Dominion plans to use about $3 billion of the after-tax proceeds to buy back its shares later this year. So, they sold this asset to buy back shares? This seems like a seriously short-sighted play.

wsetchell 6y ago
I don't get people's aversion to stock buybacks. If a company has money it cannot productively spend, it should return that money to shareholders. Stock buybacks are a tax efficient way to do that. The company believes the asset wasn't very profitable for them to own, so they sold it and gave the shareholders the money back.
- dpcx 6y ago
  Could it not spend some portion of that money on research and development? I feel that literally any industry could find improvements.
  - wsetchell 6y ago
    To justify spending that money, they'd have to think they'd get better returns on their R&D than shareholders could get elsewhere (e.g. by just buying the S&P 500). It is quite difficult to beat the S&P 500, and they're saying they don't have any ideas which can.
    - francescopnpn 6y ago
      true and sad-reflective of the world's state (last 50y)
    - jandrese 6y ago
      If the shareholders don't think the R&D is going to be profitable then they can sell their own shares. It doesn't seem like the company should be making that decision for them. More to the point, if the company is seeing such great profits then their competitors should be undercutting them. If they don't have competitors then maybe they should be regulated more like a utility and give that money back to the customers. Stock buybacks usually end up being just a handout to the rich, which they don't need.

blobbers 6y ago

Curious; I like hackernews but what about this article is relevant to this community?

deleted 6y ago
[deleted]
smolder 6y ago
It's answered in the guidelines --anything that we may find interesting is submissable.
idoh 6y ago
I cannot speak for anyone else, but on the one hand HN is very bullish on alternative / clean energy, and on the other hand a well respected investor like Buffet is taking a contrary position. So I want to see the comments hashing it out, to adjust my priors.
- blobbers 6y ago
  For what it is worth, Buffett also backed the largest solar project in the United States. Look up the NV Energy Gemini project. Please don't take this headline for anything than what it is; Buffett is a deal hunter, and he likes buying things at a deep discount.
belval 6y ago
HN is just another news aggregator, while it is obviously more tech-focused, the people that use it tend to be interested in more general news as well.
- deleted 6y ago
  [deleted]

yingw787 6y ago

Oh interesting. I'm part of the Dominion Energy Green Power initiative. I have no idea whether I'm actually making a difference...but I pay more and get a green sticker + pamphlet, so that's cool. Saving one starfish and all that.

staycoolboy 6y ago

> clean energy production from wind, solar and natural gas Wait a sec, how did "natural gas" end up in the "clean energy" category?

kube-system 6y ago
Well at least it's not "wind, solar, and clean coal" anymore.

aussiegreenie 6y ago

It just means Berkshire Hathaway has too much capital and needs to do something. Those gas assets are worth half their book value, if that.