Berkshire Hathaway 2013 Annual Report Download - page 13

Regulated, Capital-Intensive Businesses
“Though there are many regulatory restraints in the utility industry, it’s possible that we will make
additional commitments in the field. If we do, the amounts involved could be large.”
— 1999 Annual Report
We have two major operations, BNSF and MidAmerican Energy, that share important characteristics
distinguishing them from our other businesses. Consequently, we assign them their own section in this letter and
split out their combined financial statistics in our GAAP balance sheet and income statement.
A key characteristic of both companies is their huge investment in very long-lived, regulated assets, with
these partially funded by large amounts of long-term debt that is not guaranteed by Berkshire. Our credit is in fact
not needed because each company has earning power that even under terrible economic conditions will far exceed
its interest requirements. Last year, for example, BNSF’s interest coverage was 9:1. (Our definition of coverage is
pre-tax earnings/interest, not EBITDA/interest, a commonly-used measure we view as seriously flawed.)
At MidAmerican, meanwhile, two factors ensure the company’s ability to service its debt under all
circumstances. The first is common to all utilities: recession-resistant earnings, which result from these companies
exclusively offering an essential service. The second is enjoyed by few other utilities: a great diversity of earnings
streams, which shield us from being seriously harmed by any single regulatory body. Now, with the acquisition of
NV Energy, MidAmerican’s earnings base has further broadened. This particular strength, supplemented by
Berkshire’s ownership, has enabled MidAmerican and its utility subsidiaries to significantly lower their cost of
debt. This advantage benefits both us and our customers.
Every day, our two subsidiaries power the American economy in major ways:
ŠBNSF carries about 15% (measured by ton-miles) of all inter-city freight, whether it is transported by
truck, rail, water, air, or pipeline. Indeed, we move more ton-miles of goods than anyone else, a fact
establishing BNSF as the most important artery in our economy’s circulatory system. Its hold on the
number-one position strengthened in 2013.
BNSF, like all railroads, also moves its cargo in an extraordinarily fuel-efficient and environmentally
friendly way, carrying a ton of freight about 500 miles on a single gallon of diesel fuel. Trucks taking on
the same job guzzle about four times as much fuel.
ŠMidAmerican’s utilities serve regulated retail customers in eleven states. No utility company stretches
further. In addition, we are the leader in renewables: From a standing start nine years ago, MidAmerican
now accounts for 7% of the country’s wind generation capacity, with more on the way. Our share in
solar – most of which is still in construction – is even larger.
MidAmerican can make these investments because it retains all of its earnings. Here’s a little known fact:
Last year MidAmerican retained more dollars of earnings – by far – than any other American electric
utility. We and our regulators see this as an important advantage – one almost certain to exist five, ten and
twenty years from now.
When our current projects are completed, MidAmerican’s renewables portfolio will have cost $15 billion.
We relish making such commitments as long as they promise reasonable returns. And, on that front, we put a large
amount of trust in future regulation.
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