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Berkshire Hathaway Energy Is Resilient Toward Falling Oil Prices

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Aug. 18 2020, Updated 4:43 a.m. ET

Berkshire Hathaway’s acquisitions

Berkshire Hathaway (BRK-B) manages its energy businesses through BHE (Berkshire Hathaway Energy), in which it owns an 89.9% stake. BHE’s utility interests in the United States currently consist of PacifiCorp, MidAmerican Energy, and NV Energy, the latter having been acquired in December 2013.

Oil prices (USO) have been hovering around $36 despite supply efforts from Saudi Arabia and Russia. Berkshire has invested primarily in the utilities, pipelines, and transmission businesses rather than in the upstream oil business. This has helped the company to expand even in a time of low oil prices. Berkshire recently made an investment of $396 million in Kinder Morgan (KMI) after the stock fell by more than 60% over the past year.

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Kinder Morgan has been impacted by weakness in its carbon-dioxide segment and depressed commodities prices. Berkshire Hathaway’s energy division posted revenues of $4.2 billion in 4Q15 for its BHE subsidiary, compared to $4.3 billion during the same quarter last year. The fall was mainly due to lower revenues from energy holdings.

BHE also acquired AltaLink in December 2014. AltaLink operates a regulated electricity transmission-only business in Canada. BHE sets up the price after including the return on capital in addition to operating costs subject to regulatory approvals.

Power stations and natural gas

BHE also operates a diversified portfolio of independent power projects and the second-largest residential real estate brokerage company and franchise network in the United States. It also owns two domestic regulated interstate natural gas pipeline companies. Outside the United States, BHE operates two regulated electricity distribution businesses in the United Kingdom.

BHE’s earnings before taxes fell to $453 million in 4Q15, compared to $463 million during the same quarter last year. Earnings for PacifiCorp and MidAmerican Energy rose due to lower energy and natural gas costs.

Berkshire competes with utility operators and asset managers such as Kohlberg Kravis Roberts & Co. (KKR), Blackstone Group (BX), and other major players that make up part of the Utilities Select Sector SPDR ETF (XLU).

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