Berkshire Hathaway 2009 Annual Report Download - page 71

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Management’s Discussion (Continued)
Utilities and Energy (“MidAmerican”) (Continued)
generally subject to regulatory approval. Rates are based in large part on the costs of business operations, including a return on
capital. To the extent we are not allowed to include such costs in the approved rates, operating results will be adversely affected.
In addition, MidAmerican also operates a diversified portfolio of independent power projects and the second-largest residential
real estate brokerage firm in the United States.
Our U.S. based regulated utilities businesses are conducted through MidAmerican Energy Company (“MEC”) and
PacifiCorp. Revenues of MEC in 2009 declined $1,031 million (22%) from 2008, primarily due to lower regulated natural gas
and electricity sales. Regulated natural gas revenues decreased by $520 million in 2009 primarily due to a lower average
per-unit cost of gas sold, which is passed on to customers and a 5% decline in sales volume. MEC’s regulated electricity
revenues declined $315 million primarily as a result of a 35% decline in average wholesale prices and lower volumes, which are
attributable to reduced demand in the current economic environment as well as mild temperatures in 2009. MEC’s earnings
before corporate interest and income taxes (“EBIT”) in 2009 declined $140 million (33%) compared to 2008, primarily due to
the lower regulated electricity revenues and increased depreciation due to additions of new wind-power generation facilities,
partially offset by lower costs of purchased electricity and natural gas.
MEC’s revenues in 2008 increased $417 million (10%) over 2007. The increase reflects (1) increased regulated natural gas
revenues from cost based price increases that are largely passed on to customers, (2) increased non-regulated gas revenues due
primarily to higher prices and, to a lesser degree, increased volume and (3) increased wholesale regulated electricity revenues
driven by volume increases. EBIT of MEC in 2008 increased $13 million (3%) versus 2007, resulting primarily from higher
operating margins on wholesale regulated electricity and slightly higher margins from regulated gas sales, partially offset by
increased interest expense and lower miscellaneous income.
PacifiCorp’s revenues in 2009 of $4,543 million were relatively unchanged from 2008. Revenues in 2009 reflect an overall
decrease in sales volume (both wholesale and retail) of approximately 2% and lower wholesale prices, somewhat offset by
higher retail prices approved by regulators and higher renewable energy credit sales. PacifiCorp’s EBIT in 2009 of $788 million
increased $85 million (12%) over 2008, primarily due to lower volume and prices of energy purchased in response to lower
sales volumes and the use of lower-cost generation facilities put into service in the second half of 2008 and first quarter of 2009.
PacifiCorp’s revenues in 2008 increased $239 million (6%) over 2007. The increase was primarily related to higher retail
revenues due to regulator approved rate increases as well as increased customer growth and usage. PacifiCorp’s EBIT in 2008
increased $11 million (2%) versus 2007, as higher revenues were substantially offset by increased fuel costs and interest
expense.
Our natural gas pipeline businesses are conducted through Northern Natural Gas and Kern River. Natural gas pipelines
revenues and EBIT in 2009 declined $148 million and $138 million, respectively, from 2008 due primarily to lower volumes
due to the current economic climate, lower price spreads and the effects of a favorable rate proceeding included in the results for
2008. Natural gas pipelines revenues in 2008 increased $133 million (12%) over 2007. The increase reflected increased
transportation revenue as a result of stronger market conditions at Northern Natural Gas, the impact of system expansion
projects and changes related to Kern River’s current rate proceeding. EBIT in 2008 of the natural gas pipeline businesses
increased $122 million (26%) over 2007, reflecting the impact of increased revenues.
U.K. utility revenues in 2009 declined $172 million (17%) versus 2008, principally due to the impact from foreign
currency exchange rates as a result of a stronger U.S. Dollar in 2009 as compared with 2008. EBIT of the U.K. utilities in 2009
declined $91 million (27%) compared to 2008. The decline in EBIT reflects foreign currency exchange rate changes as well as
higher depreciation expense and charges to write down certain exploration and development assets. U.K. utility revenues in
2008 declined $113 million (10%) versus 2007 primarily from the effect of the significant strengthening of the U.S. Dollar
versus the U.K. Pound Sterling over the second half of 2008. EBIT in 2008 was relatively unchanged from 2007 as the revenue
decline was offset primarily by lower operating costs and interest expense.
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