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Buffett’s PacifiCorp Now Faces $30 Billion Fire Claim Demand
2024-04-29 21:54:42.637 GMT
By Rachel Graf
(Bloomberg) -- Berkshire Hathaway Inc.’s PacifiCorp now
faces a demand for $30 billion from victims of Oregon’s 2020
Labor Day wildfires, an escalation of a legal onslaught on the
largest grid operator in the western US.
While the amount sought in an amended complaint filed
Monday is about two and a half times what the utility is worth,
it’s also much bigger than the payout PacifiCorp might be
expected to face based on claims resolved so far.
Read More: Wildfires Are Upending Some of the Safest Bets
on Wall Street
The growing liabilities for PacifiCorp prompted Berkshire
Chairman Warren Buffett to warn in his annual letter to
investors that wildfires have turned utilities across the
western US into risky investments. Utilities in California,
Colorado, Hawaii and Texas have also faced billions in fire
liabilities.
A jury already found PacifiCorp liable in 2023 for its role
in the fires, but victims must undergo separate trials to
determine individual damages. The new filing in state court in
Portland formally adds the names of 1,000 residents who are
covered by a class action case over the destruction of about
2,500 properties in western Oregon.
Jurors so far have awarded 36 plaintiffs a total of about
$220 million — an average of $6 million per person. That’s far
less than the $30 million per person that victim lawyers are
seeking in Monday’s filing, which asks for up to $5 million to
compensate for actual losses and as much as $25 million for
psychological trauma.
Read More: PacifiCorp Fire Victim Who Leapt in River
Awarded $9 Million
PacifiCorp, which is appealing last June’s verdict of gross
negligence, previously lambasted the amount of damages sought by
the plaintiffs.
“The idea that any of the numerous plaintiffs with minimal
economic damages and no physical injuries are nevertheless
entitled to $25 million in noneconomic damages is delusional,”
PacifiCorp lawyers wrote in an October court filing.
Lawyers for plaintiffs declined to comment on Monday’s
filing.
Berkshire said in a recent regulatory filing that it faces
fire claims in Oregon and California of about $8 billion. That
includes demands from state and US government agencies totaling
more than $1 billion for various firefighting and cleanup costs.
Read More: Berkshire Shows Unusual Risk Appetite in
Wildfire Court Fight
The utility was accused at last year’s trial of failing to
heed weather warnings and shut off electricity in its service
areas ahead of a wind storm that toppled power lines.
What Bloomberg Intelligence Says
“We think a settlement in the mid- to high-single-digit
billions is the most likely outcome. Both sides have incentive
to settle. Going to trial with all class plaintiffs is risky for
PacifiCorp as it’s already lost the first three jury trials,
with verdict amounts that point to potential damages in the low-
to middle-double-digit billions. Plaintiffs have an incentive as
well, because PacifiCorp has viable arguments on appeal to
eliminate non-economic damages.”
— Elliot Stein, Senior Litigation Analyst
To read the full report, click here
PacifiCorp, which has settled some claims over the 2020
fires, has said it’s confident the 2023 liability verdict will
be overturned on appeal. But the litigation has spooked
investors, hurting the company’s bonds and its credit rating.
The company replaced its chief executive officer last
summer and is exploring options with Oregon regulators and
lawmakers to minimize its wildfire exposure, including recouping
its litigation losses from customers and capping damages for
non-economic claims.
--With assistance from Mark Chediak.
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THEY ARE GOING TO BE CRAWLING AND BEGGING WARREN SOON
ARLP Call:
Beyond the obvious limitations of renewable resources for round-the-clock availability, the actual investment in needed high-voltage transmission to utilize those renewable sources has not come close to expectations, making the ability to shift supply across regions far less practical, or in many cases even possible.
Another example is a recent op-ed in the Wall Street Journal [Technical Difficulty] are pushing the power grid to what could become a breaking point”. In it, they cited Georgia Power's recent 17-fold increase in winter power demand forecast by 2031 from growth in EV and battery facilities. PJMs doubled 15-year annual forecasts for demand growth and a new micron chip plant in New York that is expected to draw more power than the States of New Hampshire and Vermont combined, among other examples.
Finally, the Washington Post published an article on March 7 entitled “amid explosive demand, America is running out of power”. In it, they describe how vast swaths of the U.S. are at risk of running short of power due to the growth of data centers and clean tech facilities. Georgia's industrial demand is at record levels. Arizona public service expects to be out of transmission capability before the end of the decade without major investment. Northern Virginia needs the equivalent of several large nuclear reactors to serve all of the data centers being planned in Texas, as we know is already facing frequent shortages and interruptions, they said.
Notwithstanding these warnings and the practical realities of how the grid works, The Biden Administration through the United States Environmental Protection Agency last Thursday, finalized several regulations designed to prematurely close existing coal plants that are essential to providing grid saving baseload power in heavily energy consuming states.
In response to these rules, the National Mining Association called out EPA for: One, refusing to account for irrefutable evidence that electricity demand is soaring. Two, disregarding validated warnings from grid experts related to coal plant closures. And three, ignoring the basic fact that there is no adequate replacement ready to replace the sorely needed dispatchable generating capacity coal was providing.
America's Power also issued a statement last week in response to the EPA's new Clean Power Plan 2.0 they described the rule as “an extreme and unlawful overreach that endangers America's supply of dependable and affordable electricity”. They followed by saying “the new Clean Power Plan is the same kind of overreach that caused the U.S. Supreme Court to reject EPA's first Clean Power plan in 2022”.
At the end of the day, it is our view that physics will always trump bad policy that we believe is impossible to meet. For example, the Edison Electric Institute, a trade association representing the interest of all U.S. investor-owned electric companies, responded to the EPA package of final rules for power plants by stating “we are disappointed that the agency did not address the concerns we raised about carbon capture and storage. CCS is not yet ready for full-scale economy-wide deployment, nor is there sufficient time to permit, finance, and build the CCS infrastructure needed for compliance by 2032”.
The Wall Street Journal editorial board also weighed in by writing, “Section 111 of the Clean Air Act says, the EPA can regulate pollutants from stationary sources [Technical Difficulty] through the “best system of the emission reduction” that [Technical Difficulty] neither the best nor adequately demonstrated. As of last year, only one commercial scale coal plant in the world used carbon capture, and no gas-fired plants did”. They went on to say “by the way, EPA plans to unveil soon another rule to reduce CO2 emissions from existing gas-fired plants, so some of them may also have to shut down. Meantime, China has added about 200 gigawatts of coal power over the last five years, about as much as the entire U.S. coal fleet. The Biden fossil fuel onslaught will have no effect on global temperatures”.
Government directives designed to support greater dependence on renewables cannot change the fundamental realities of how electricity is generated and transmitted as we look at expected supply and demand. Our customers, whose job it is to keep the lights on reliably and affordably, know this. That is why we believe the U.S. will continue to see delays and extensions in the premature closure of critical coal plants and why we are committed to serving these markets for many years to come.
Over the past few quarters, utilities have extended the planned operating life of approximately 10 gigawatts of coal generating capacity as a result of increasing electricity demand and delays in the construction of replacement generation, and we see room for that number to increase.
Now turning to strategic updates related to our business, this year in our coal segment we expect to complete major infrastructure projects at Tunnel Ridge, Hamilton, Warrior, and our River View complex. These already well-capitalized mines will benefit from these payout projects, making them more productive, improving their cost structure, and extending their overall mine lives. As a result, we expect to maintain our position as the most reliable, low-cost producer in our operating regions for many years to come.
Turning to our Royalties Segment, we remain committed to growing our oil and gas royalties business, which delivered record volumes in 2023 and again in the first quarter of this year. We like the cash flow potential the segment offers via hedge-free exposure to commodity prices and organic growth. We are
