2021: Should Texas invest in more electric generating capacity or buy batteries?

Becky Quick: The next series of questions are from James Hernandez. He has two questions, one for Ajit, one for Greg. They both concern Elon Musk.

For Greg, this question is for you. Elon Musk has stated that Berkshire Hathaway’s energy proposal for Texas, spending more than $9 billion for new generating capacity, is wrong. Instead, Mr. Musk argues that load balancing using battery storage is the appropriate course of action. Can you explain why the BHE proposal is the better course of action for Governor Abbott and the State of Texas? Specifically, what amount of savings can the citizens of Texas expect above and beyond what Mr. Musk is proposing?

Greg Abel: Sure. Obviously, there was a very unfortunate event in Texas in February, and it basically lasted four days. Many lives were lost. The economic damage was significant. Texas has highlighted that anywhere from 80 to $130 billion in incurred losses over that period of time. I think when you look at the power sector, it fundamentally let the citizens down. It didn’t perform as they expected, and then when it did perform, it was extremely expensive. They incurred billions and billions of dollars of energy costs versus a multiple of basically 10 times what they paid. They paid 10 times in energy costs over those four days what they paid in the past year, so a very substantial event for Texas.

We’ve gone to Texas with what we believe is a good solution. We spent a lot of time pulling it together, understanding the fundamental issues around it. Our proposal is really based upon the fact that the health and welfare of Texans were at risk, and we needed to have, effectively, an insurance policy in place for them, that if they needed the power on very short notice, it would be able to be dispatched, and it would be there for the four days we’re actually proposing. It could be there for seven days. The fundamental concept of our proposal has always been, if there’s a better proposal that’s brought forward, we’ve accomplished our mission. We’ve just been really there to… It’s the best proposal or option we could come up with. Obviously, if Texas or Elon or someone else comes up with a better proposition, we’ve always said, “Texas, you should pursue it.” We strongly believe right now we have what remains is a very good proposal for Texas. It’ll continue to be discussed and evaluated.

The big difference between a battery proposal and our proposal is that we will have power that can be generated continuously for seven consistent days. Where if you went to a battery solution, you may release that power that’s been stored for four hours, but we’re talking four days of a problem, not four hours. It’s just a completely different cost equation and solutions. Very proud that our team’s brought forward what I thought was a very unique solution. We’ve worked hard with our suppliers and Peter Kiewit & Sons to put together what we believe is a firm cost that can also be delivered by November of ’23. Again, we put a firm date on. It won’t be ready next winter, unfortunately. It won’t be ready this summer, but it’s a valuable solution, and one that we hope at least leads to the right discussion and the right long-term solution for the state.

Warren Buffett: Yeah. We’re also willing to put up $4 billion that if we don’t deliver when we say we’re going to deliver, well, we’ll pay it as a penalty, basically. We went to Kiewit. We went to General Electric and said, “How long can we get turbines for that?” If you’re going to be prepared for 2023, you have to start at a point fairly soon and you have inflation going on. Kiewit’s not going to change things on us in a month. We don’t try to get the contracts all written out. They had a hundred people working on it.

Greg Abel: Yeah, they had hundreds working on it.

Warren Buffett: tive and everything, but it doesn’t mean we have the best solution. We just know what we can do. If anybody can do it faster, they can do it cheaper, whatever, that’s terrific, but they should have something to lose if they don’t do it. I mean, we will back our promise up by $4 billion, and we won’t have any rinky-dink clauses in there that if this happens or that happens, we don’t pay, but we won’t be able to do that a year from now. I mean, we can do it a year from now with the costs then from what they are then, and then it’ll be a year further out.

Texas is a terrific place to do business. We do a lot of business there. It’s where BHHS had its headquarters. It’s a great place. This was out of the blue, but one way or another, the nature of utility business is that you have to be prepared for something that probably isn’t going to happen. You don’t want to say, “Well, it’s one in 30 year event,” and then people die. I mean, you want a margin of safety in it. We’ve got one solution and other people may have other solutions. We will cheer when a solution is reached of any kind, and we will cheer a little louder if it’s ours.