Berkshire Hathaway 2015 Annual Report Download - page 108

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Management’s Discussion and Analysis (Continued)
Commodity Price Risk
Our subsidiaries use commodities in various ways in manufacturing and providing services. As such, we are subject to
price risks related to various commodities. In most instances, we attempt to manage these risks through the pricing of our
products and services to customers. To the extent that we are unable to sustain price increases in response to commodity price
increases, our operating results will likely be adversely affected. We utilize derivative contracts to a limited degree in managing
commodity price risks, most notably at BHE. BHE’s exposures to commodities include variations in the price of fuel required to
generate electricity, wholesale electricity that is purchased and sold and natural gas supply for customers. Commodity prices are
subject to wide price swings as supply and demand are impacted by, among many other unpredictable items, weather, market
liquidity, generating facility availability, customer usage, storage and transmission and transportation constraints.
To mitigate a portion of the risk, BHE uses derivative instruments, including forwards, futures, options, swaps and other
agreements, to effectively secure future supply or sell future production generally at fixed prices. The settled cost of these
contracts is generally recovered from customers in regulated rates. Financial results would be negatively impacted if the costs of
wholesale electricity, fuel or natural gas are higher than what is permitted to be recovered in rates. The table that follows
summarizes commodity price risk on energy derivative contracts of BHE as of December 31, 2015 and 2014 and shows the
effects of a hypothetical 10% increase and a 10% decrease in forward market prices by the expected volumes for these contracts
as of each date. The selected hypothetical change does not reflect what could be considered the best or worst case scenarios.
Dollars are in millions.
Fair Value
Net Assets
(Liabilities) Hypothetical Price Change
Estimated Fair Value after
Hypothetical Change in
Price
December 31, 2015 .................................... $(233) 10% increase $(152)
10% decrease (313)
December 31, 2014 .................................... $(192) 10% increase $(111)
10% decrease (272)
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