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Berkshire Hathaway’s Energy Portfolio Rises on Pullback in Oil

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Berkshire Hathaway’s acquisitions

Berkshire Hathaway (BRK-B) manages its energy businesses through BHE (Berkshire Hathaway Energy), in which it has a stake of 89.9%. BHE’s utility interests in the United States currently consist of PacifiCorp, MidAmerican Energy, and NV Energy, the latter of which was acquired in December 2013. The company’s energy holdings make up 6% of its total portfolio valuation as of March 31, 2016. Its value has increased from the previous quarter mainly due to the rebound in oil prices (USO).

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Berkshire Hathaway has invested primarily in its utilities, pipelines, and transmission businesses rather than in the upstream oil business. This has helped the company expand even in times of low oil prices. However, Berkshire Hathaway recently made an investment of $396 million in Kinder Morgan (KMI) after the stock fell by more than 60% over the past year.

Kinder Morgan has been impacted by weakness in its carbon dioxide segment and depressed commodities prices. Berkshire Hathaway’s energy division posted revenues of $4.1 billion for its BHE subsidiary in 1Q16, as compared to $4.3 billion during the same quarter last year. The fall was mainly due to lower revenues from MidAmerican Energy Company, NV Energy, and Northern Powergrid.

Utilities 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 $569 million in 1Q16, as compared to $596 million during the same quarter last year. PacifiCorp’s earnings rose due to lower energy and natural gas costs. BHE competes with utility operators and asset managers such as Kohlberg Kravis Roberts & Company (KKR), Blackstone Group (BX), and other major players that make up part of the Utilities Select Sector SPDR Fund (XLU).

In the last part of this series, we’ll look at Berkshire Hathaway’s valuation.

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