No. of Recommendations: 11
"wondering what some of the more thoughtful posters might comment on these assumptions above as inputs to a company valuation model based on earnings for the rails and utilities. "
Pending the response of a more thoughtful poster, here's what I'm thinking, at least as far as BHE/Pacific Power.
From the 2024Q2 report:
- As of the date of this filing, a significant number of complaints and demands alleging similar claims related to the Wildfires have
been filed in Oregon and California, including a class action complaint in Oregon associated with the 2020 Wildfires for which certain
jury verdicts were issued as described below
and
- Additionally, the U.S. and Oregon Departments of Justice have informed PacifiCorp that they are
contemplating filing actions against PacifiCorp in connection with certain of the Oregon 2020 Wildfires
and
- As of June 30, 2024, amounts sought in outstanding complaints and demands filed in Oregon and in certain demands in California
approximated $3 billion, excluding any doubling or trebling of damages included in the complaints and the mass complaints described
below that seek $43 billion
and
- Generally, the complaints filed in California do not specify damages sought and are excluded from this
amount.
and
- Based on available information to date, we believe it is probable that losses will be incurred associated with the Wildfires. Final
determinations of liability will only be made following the completion of comprehensive investigations, litigation and similar processes
Getting back to the OP: "both of these adjustments are smaller than the idea of simply taking out the wildfire loss accruals, to make sure I'm not being overoptimistic"
My point I'm not sure what wildfire loss accruals to take, and by several multiples. It seems like a gazillion dollars is still on the table, innit?
-------------------
Two things:
1) I'm not sophisticated enough to pull the earnings impairments reserved to date from the Pacific Power P&L, as PP is wholly owned by BHE and thus Berkshire. The judgements thus far are at least $178MM plus $42MM plus $85MM plus $90MM plus ?what did I miss. The Associated Press a few months ago opined "the electric utility [Pacific Power] on the hook for billions of damages". I understand it's a long way from a jury verdict to cutting the check, but I'm not at all sure quantitative 2020 losses are behind us.
2) The one thing we're noticing about climate change is that the changes we've been warned about are happening more quickly than consensus opinion had it even two years ago. So far, this year ha been hotter drier windier than 2020 - when my home was threatened by a wildfire that a jury subsequently decided was caused by Pacific Power - that fire being on Labor Day weekend i.e. a month from now. So far, there have been three fires this season close enough to catch my attention, it's 102 degrees outside, the non-irrigated areas are like tinder and it's six weeks or more to the first significant rain.
What I think I heard at the annual meeting: a) Greg Abel says Pacific Power is working hard to get some sort of blanket indemnity or at least limitations of liability, and b) Warren Buffett says Berkshire "will not knowingly throw good money after bad"
I'm counting on Mr Buffett's reassurance over the years that subsidiaries' liabilities stop at their balance sheet, i.e. the mother ship is not responsible for liabilities - including judgement - incurred by subsidiaries.
Weighing all of this together: I'm not sure that I'd assign any net profit to BHE for the year(s) it takes to be worked out. Heck, bankruptcy seems not unlikely to me. For a conservative forecast for Berkshire, maybe we assign a net of null to BHE for the near future?
-- sutton
who wasn't going to comment on the NYT Gates/Buffett article, but is going ahead to point out that I entirely subscribe to WEB's advice over the years wrt "seamless web of deserved trust", "live your life as not to be afraid to sell the family parrot to the town gossip", not to do anything you wouldn't like to see on the front page of the NYT. It's served me well, but I admit to being surprised now and then at pepole I really thought I knew pretty well showing little moral fiber when some stress came along. I vetoed the hiring of an associate years ago because I thought he was...slippery?...and a junior partner asked me why I'd done it. I briefly explained, and got a cocked head, So it was a character issue? Huh...
Anyhow: character matters. All I mean to say.
