2008: Will PacifiCorp keep the Klamath dams?

AUDIENCE MEMBER: Hi, Mr. Buffett. My name is Regina Chichizola, and I’m the Klamath Riverkeeper.

I came here today with many of the other people from the Klamath that came here, and I thank you for having us, and I thank the shareholders for being a lot nicer to us this year than they were last year.

So my question is, I’m sure you’re familiar with the severe pollution issues in the Klamath River, such as the toxic algae problem that is 4,000 times allowable recreation levels, and that the fish are also now toxic due to the Klamath dams.

I was wondering if you were familiar with the finances behind the Klamath dams? Many economic studies have shown that removing the Klamath dams would be up to hundreds of millions of dollars cheaper than relicensing them.

So my question is, what would you do if PacifiCorp decided to keep these dams, even though it would mean that your shareholders would lose money in the long run and that PacifiCorp’s ratepayers would also be losing money?

WARREN BUFFETT: Well, I think the question about the ratepayers will be addressed by the public utility commissions.

I mean, it is their job to represent the citizens of Oregon, and weigh a number of different considerations — for example, clean energy. Do you want to replace hydro energy with a — what you’re talking about — with coal, which emits carbons into the atmosphere? There are enormous tradeoffs.

Anytime the government gets involved in eminent domain — we have that with wind farms, for example, in Iowa — there’s some people that are unhappy with us using the land for wind farms. But, on the other hand, you get clean energy that way.

There are tradeoffs involved in government policy. You get into that with the question of eminent domain, all of that sort of thing.

But I think I’m going to let Dave talk to the more technical questions you get into.

But I would say, overall, you have people with widely different interests. Obviously, a big interest is the cost of electricity.

And to some extent, every public utility commission that makes a decision on gas versus coal versus wind versus solar is making a decision based partly on the economics to their ratepayers, partly on their feelings about what is the best for society, and those commissions are appointed state by state to make those decisions.

Now, in addition, in this case we have the FERC as it’s called, the Federal Energy Regulation Commission, that will also have to rule on it.

They will listen to everybody. They’ll listen to you. They’ll listen to the 28 others that Dave mentioned. In the end we will do exactly what they say.

I mean, as a public utility, if they tell us to put up — not put up coal, we will not put up coal. If they tell us to put up wind, assuming that there is a place where there is wind, we will put up wind. We follow the dictates of the regulatory bodies that tell us what to do.

And in the end they give us a fair return on the assets employed, and we will get that return whatever the assets may be. If they tell us to put in coal assets, we’ll get a return out of that.

So from our standpoint, from the standpoint of profitability, it’s neutral.

From the standpoint of society, weighing all these different things, that’s a decision society will make.

But, Dave, let’s — do you want to talk to the algae question?

DAVE SOKOL: Sure. First, it’s important, the Karuk tribe did do a study and found bioaccumulation of microcystins, or blue-green algae, in the perch and the fresh water mussels in the Klamath River.

What’s important to understand about that — and by the way, we disseminated that report immediately to state and federal health agencies because they should know about it.

Microcystin is not unique to the Klamath River. There are 27 other lakes in the state of Oregon that have blue-green algae, 70 different countries, every province in Canada, and 27 of the U.S. states have lakes that have blue-green algae.

It is created from lakes that have a high abundance of nutrients and naturally-forming algae. And at the head of the Klamath River is a lake known as Upper Klamath Lake, which is actually a Bureau of Reclamation reservoir — it’s a shallow, large reservoir, that is known as being hypereutrophic, which means a great abundance of algaes and various nutrients.

Those nutrients then flow down the river and do pass through or, in cases, get backed up by the four reservoirs down below the Bureau of Reclamation-linked dam.

The important issue is those things are, in fact, taken into account by the Federal Energy Regulatory Commission. They issued their environmental impact statement last November, which endorsed various fish passage methods on the dams but do not call for removal of the dams.

But, again, those are decisions that all the state, federal, agencies, and the various involved parties will either have to come to agreement with or let them run their course through the FERC process.