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Would Saving A Livable Climate Destroy Buffett’s Fossil Fuel Empire?

Repost from Think Progress – Climate Progress

Would Saving A Livable Climate Destroy Buffett’s Fossil Fuel Empire?

By Joe Romm, March 11, 2016 8:00 AM
BNSF oil train derailment in 2013. CREDIT: BRUCE CRUMMY, AP

Billionaire Warren Buffett has bet the future of his company Berkshire Hathaway on dirty energy. In recent years he has been building a vertically-integrated fossil fuel empire — one that develops, delivers, processes, and burns the most climate-destroying fuels.

The final part of this series on Buffett looks at how BNSF Railways is the engine of his carbon-intensive conglomerate, creating a massive risk for shareholders in this increasingly carbon-constrained world — a risk the “Oracle of Omaha” needs to be far more upfront about.

Is Warren Buffett “The Profiteer” of “Climate Killers”?

When Rolling Stone named Warren Buffett one of its 17 “Climate Killers” in 2010, they called him “The Profiteer.” They zeroed in on his recent purchase of “Burlington Northern Santa Fe railroad for $26 billion — the largest acquisition of Buffett’s sto­ried career.”

Why? BNSF is “the nation’s top haul­er of coal, shipping some 300 million tons a year.” That is especially convenient for Buffett because, as noted in Part 2, Berkshire Hathaway Energy has four major utilities that still rely on coal for over half their electricity generation.

CoalValueImage
CREDIT: BNSF

But BNSF is so much more than just the top hauler of coal. As their website proudly attests “BNSF is the largest transporter of crude oil in North America” — and we all know how well the whole crude-by-rail thing has been going.

2015 “has already been the costliest by far for crude train explosions,” BloombergBusiness reported in December. A “BNSF train that derailed and exploded in Illinois” last March “carrying highly explosive crude from North Dakota” created some $5.5 million in damage.

From 2010 through mid-2014, oil shipped by rail in the United States increased from about one million barrels of oil every month to 25 million! At the same time, Canadian imports increased 50-fold, as we’ve reported. BNSF was a driving force behind that explosion.

oil-overtime
CREDIT: EIA DATA

Also, last October we learned about “what is believed to be the largest frac sand unit train to date in North America.” You guessed it: “The 150-car unit train, operated by BNSF, carried 16,500 tons of frac sand used in hydraulic fracturing.”

Warren Buffett Bets Big On The Tar Sands

But wait, there’s more. You may recall from Part 1 that last year, the billionaire spent $240 million buying another chunk of Canadian tar sands giant Suncor, upping his overall bet on the climate-destroying liquid fuel to $1.1 billion — a fact Buffett does not share with shareholders in his list of Berkshire Hathaway’s climate risks.

On top of that, as BNSF’s website also proudly attests, the railroad “is positioned to act as a gateway to the Canadian oil sands.” Seriously.

Indeed several years ago, a BNSF employee magazine explained how invested the railway was in all aspects of tar sands (aka bitumen) development. The key point is that “Before bitumen can move through a pipeline to its destination, it must be blended with diluents (diluting agents),” lighter weight hydrocarbons like natural gasoline or butane:

BNSF has been moving single carloads of diluents from U.S. refineries to the Canadian border…. The inbounds are then interchanged with Canadian railroads, then moved to Edmonton, with the final move to the oil sands’ processing center via pipeline.

Last year, BNSF moved about 9,000 carloads of diluents for the project, with the majority of loads originating from the Gulf Coast, California, and Kansas. This year, about 12,000 carloads are anticipated to move.

There’s more: Beyond shipping diluents, “BNSF has also transported turbines, other large machinery and pipes for use at the drilling sites.”

There’s still more to this empire. In 2015, Buffett “nearly doubled Berkshire’s position in Phillips 66,” one of the country’s leading oil (and gas) refiners and processors. The company has 15 refineries which can refine a total of 2.2 million barrels of crude per day.

In January of this year alone, Buffett spent a staggering $832 million to buy yet more Phillips 66 stock. At more than $5 billion, it is his sixth-largest holding. He now owns 14 percent of the “Number 7” company on the Fortune 500 list.

Phillips 66 is a major co-owner of the Wood River Refinery in Illinois, which in recent years made investments “to expand the capacity to handle the bitumen from the Alberta oil sands by nearly 700%.” Also not coincidentally, for the last year, Phillips 66 has been trying to get California planning commissioners to let it build a 1.3-mile rail spur to its Santa Maria refinery. Why? As the Sierra Club explained last month, “The oil giant seeks to transport tar sands crude from Canada in mile-long trains — each laden with over 2 million gallons of dirty crude.”

Both A Livable Climate And Buffett’s Empire Cannot Thrive

Yes, the Oracle of Omaha has a thing for the Canadian tar sands. But more than that, over the last several years he has built a vertically-integrated fossil fuel empire — one that develops, delivers, processes, and even burns the most carbon-intensive fossil fuels. It would be a brilliant strategy except for two small details.

First, climate science makes clear we have to leave most fossil fuels — and virtually all of the most carbon-intensive — in the ground to avoid global catastrophic warming. Second, over the past 18 months, the leading nations of the world unanimously agreed on a plan whose goal is to do just that, and the overwhelming majority of them made detailed pledges to slow or reverse carbon-intensive growth and replace it with carbon-free growth.

The domestic and international coal market has already collapsed as a result of growing environmental concerns and low-cost alternatives including renewables. If the world follows through on its plans to keep total warming below 2°C — a big “if,” for sure — then coal is going to continue to be squeezed out of the market in the coming decades and oil will almost certainly follow the same fate, peaking in demand by 2030, as I discussed last month.

Now whether or not you believe the world is going to achieve the plan it unanimously embraced in Paris in December, surely Buffett ought to at least mention to his shareholders the risks to Berkshire Hathaway if the world does. Yet, his latest annual letter to shareholders dismisses the risk of climate change.

Here is all Buffett says about the coal risk: “To begin with an obvious threat, BNSF, along with other railroads, is certain to lose significant coal volume over the next decade.” But he quickly dismisses this as a problem that is not “crucial to Berkshire’s long-term well-being.”

Last summer, BNSF executive chairman Matthew K. Rose noted the decline in U.S. coal transport and consumption. He said of his company’s major investment to upgrade its rail service to and from the coal-rich Powder River Basin, “That leaves us with millions of dollars in investment in what will eventually be stranded assets.”

Certainly, from a short-term business perspective, investing in oil-by-rail and tar-sands-by-rail to replace coal-by-rail appears to make sense. But what are the risks those investments will eventually become stranded assets, too? Low oil prices aren’t good for crude-by-rail, as BloombergBusiness explained in December. And aggressive climate action, which could well give us peak demand within 15 years, is not bullish for oil prices.

BNEFoilpeak1-16
CREDIT: BLOOMBERG

Rather than informing shareholders about any of these risks, Buffett asserts the reverse: “Both BHE [Berkshire Hathaway energy] and BNSF have been leaders in pursuing planet-friendly technology.” Seriously?

I discussed in Part 2 how, despite BHE’s own investments in renewables, BHE is working to crush solar energy in Nevada and around the western United States. And it remains a huge user of coal. And as we’ve seen BNSF is a major deliverer of coal….

But here is how Buffett defends the fairly ludicrous claim that BNSF is somehow one of the “leaders in pursuing planet-friendly technology”:

BNSF, like other Class I railroads, uses only a single gallon of diesel fuel to move a ton of freight almost 500 miles. That makes the railroads four times as fuel-efficient as trucks!

Yes, BNSF is a very fuel-efficient way of delivering vast amounts of climate-destroying fuels to market.

Finally, is it only a coincidence that after outperforming the market for decades, the stock of Berkshire Hathaway has actually underperformed the S&P 500 over the last five years?

Again, if serious global climate action ultimately keeps oil prices low and renders much of the tar sands uneconomic, then Buffett’s carefully constructed fossil fuel empire is going to keep suffering — and deservedly so. After all, leading climate activists have been urging major investors to disinvest in fossil fuels for years. Buffett is doing the exact reverse!

BOTTOM LINE: Between Berkshire Hathaway and a livable climate, only one can thrive. That’s not a tough choice, is it?

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    California Public Utilities Commission approves nearly 100% increase in exit fees for CCA customers

    Repost from the San Francisco Chronicle
    [IMPORTANT INFORMATION: CLICK HERE – The “Power Charge Indifference Adjustment” (PCIA) and its impacts on customers who are served by alternative green energy companies (CCAs).  Unfortunately, the approved increase is not for a one-time fee, but rather a monthly fee that is tied to the usage on each electric account. It is charged on a kWh basis for all customers using CCA service.
    Other proposed ongoing and monthly PGE penalties for solar customers were “proposed for rejection” by the Public Utilities Commission.  Stay tuned for their vote on January 28!  See also the Chronicle’s editorial on this, State regulators help advance rooftop solar.  – RS]

    Customers of clean energy programs hit with fee increase

    By Lizzie Johnson, December 17, 2015 7:53pm
    PG&E and other big utilities also proposed cutting the amount of compensation that solar homeowners receive for excess electricity that they export to the grid. Photo: Lacy Atkins, SFC
    PG&E and other big utilities also proposed cutting the amount of compensation that solar homeowners receive for excess electricity that they export to the grid. Photo: Lacy Atkins, SFC

    The California Public Utilities Commission voted Thursday to allow a nearly 100 percent price increase on exit fees for customers leaving Pacific Gas and Electric Co. for green energy programs like CleanPowerSF and Marin Clean Energy, which will make those and similar programs more expensive.

    Many of the programs — where local governments buy green electricity for their residents, while private utilities own and operate the electrical grid — will be undermined financially by the uptick in the charge, called the Power Charge Indifference Adjustment, their officials say.

    “We are not surprised that the increase was approved,” said Marin Clean Energy spokeswoman Alexandra McCroskey. “We are disappointed. Our primary frustrations come from the fact that we are becoming almost liable for the market fluctuations for both ourselves and PG&E. If PG&E isn’t planning appropriately for people leaving for community choice aggregation programs, the PCIA will continue to increase. It’s poor planning.”

    Under the increase, which is effective Jan. 1, customers making the switch to local green energy programs will face a heftier exit fee. Marin Clean Energy customers are projected to pay more than $36 million, up from $19.3 million in 2015. The cost for each residential customer would nearly double from about $6.70 each month to $13.

    In San Francisco, the proposed exit fee for residents moving to CleanPowerSF would jump by 100.26 percent. Because the city energy program is designed to absorb costs for its customers, it would decrease the program’s revenue by $8.4 million.

    Win for consumers

    This month, PG&E and other big utilities also proposed cutting the amount of compensation that solar homeowners receive for excess electricity that they export to the grid, in addition to adding new monthly fees targeting solar homeowners. The CPUC released a proposed decision on the matter this week rejecting the fees. A vote is scheduled for January.

    “Overall, we didn’t convince three commissioners to rule our way on the PCIA,” said Barbara Hale, assistant general manager for power at the San Francisco Public Utilities Commission. “The fee is going to double, and that’s tough for us. But we are marching forward with our CleanPowerSF program, which will launch this spring. We are still moving forward.”

    Hundreds of protesters came from as far as San Diego to oppose the fee increase at Thursday’s meeting in San Francisco. They carried homemade signs reading “Stand Up to Natural Gas!” and “CPUC: Consumers Pay Again?!” Public comment on the change stretched for more than two hours.

    “We’ve achieved a great deal, but there is this overhang of costs that were necessary to kick-start the industry,” said CPUC Commissioner Mike Florio. “The reason the PCIA is so high is because of high-cost renewable contracts that PG&E was required by law to enter into, and that this commission approved. I don’t think it’s fair to let one group of customers escape from paying those historic costs and simply load those on the remaining customers. That’s what the PCIA is all about.”

    Charge required by law

    PG&E originally filed an application to raise the fee by 70 percent in June, but submitted another request last month to as much as double it. The fee helps the power company pay for energy it contracted for when it had more customers, preventing remaining patrons from bearing the brunt of the costs. The charge is required by law and determined by a formula implemented by the CPUC in 2011.

    The fee is influenced by several market factors, including the price of energy, which fluctuates from year to year, said David Rubin, PG&E’s director of service analysis. The cost of power is now cheaper, meaning the difference between what PG&E paid for in its contracts and the price today is higher.

    “The PCIA is going up because it is based very specifically on the difference between the cost of supplies in our portfolio which are based on contracts we signed several years ago when renewable prices were higher,” Rubin said. “If dynamics were different, the PCIA would go down.”

    Process has critics

    PG&E performs the calculation annually and submits the annual filing to the commission for approval. But to calculate the fee increase, some of the inputs must include confidential contract information. Critics say the numbers going into this ‘black box’ prevent outsiders from replicating the formula, and that the increase is another attempt by PG&E to undermine fledgling green energy programs, like Peninsula Clean Energy, which will provide electricity in San Mateo County beginning in August.

    “The fee is almost completely redacted,” said Francesca Vietor, president of the San Francisco PUC. “It is extremely difficult for us to know what an affordable rate for our program is when we don’t have a transparent process.”

    The CPUC also ordered in its decision that a workshop be held on Feb. 16 to address the methodologies and inputs used for calculating the PCIA charge.

    “One day you’re a hero, the next day you’re a goat,” CPUC President Michael Picker said. “We are in the nature of balancing decisions. But we will continue to scrutinize the PCIA formula and balance different interests equally.”

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      Federal spending deal falls short on environment

      Repost from the San Francisco Chronicle

      Spending deal falls short on environment

      By Annie Notthoff, December 17, 2015  |  Annie Notthoff is director of the Natural Resources Defense Council’s California advocacy program.
      Senate Majority Leader Mitch McConnell Photo: J. Scott Applewhite, Associated Press
      Senate Majority Leader Mitch McConnell Photo: J. Scott Applewhite, Associated Press

      The spending and tax policy agreement Congress and the White House have reached to keep the government funded and running includes important wins for health and the environment.

      But there’s good news to report, only because of the Herculean efforts of House Minority Leader Nancy Pelosi, D-San Francisco, Senate Minority Leader Harry Reid, D-Nev., and the White House, who worked tirelessly to block nearly all of the dozens and dozens of proposals Republican leaders were pushing.

      Those proposals would have blocked action on climate, clean air, clean water, land preservation and wildlife protection and stripped key programs of needed resources. The Republican leaders’ proposals were the clearest expression yet of their “just say no” approach to environmental policy. They literally have no plan, except to block every movement forward on problems that threaten our health and our planet.

      The worst aspect of the budget agreement is another clear indication of Republican leaders’ misplaced priorities — they exacted an end to the decades-long ban on sending U.S. crude oil overseas in this bill, in return for giving up on key elements of their antienvironment agenda.

      Senate Majority Leader Mitch McConnell, R-Ky., made that give-away to the oil industry one of his top priorities. It will mean increased oil drilling in the U.S., with all the attendant dangers, with the benefits going to oil companies and overseas purchasers. That won’t help the American public, or the climate. It’s simply an undeserved gift to Big Oil.

      In good news, the agreement extends tax credits for wind and solar energy for five years, which will give those industries long-sought certainty about their financing.

      Wind and solar will continue to grow by leaps and bounds, helping domestic industry, reducing carbon pollution and making the U.S. less vulnerable to the ups and downs of fossil fuel prices.

      Democratic leaders deserve all our thanks for what they were able to keep out of the budget deal. Gone are the vast majority of obstacles Republican leaders tried to throw in the way of environmental protection. Recall for a moment the 100 or more antienvironmental provisions Republican leaders tried to attach to these spending bills. Those included efforts to:

      • Block the Environmental Protection Agency’s Clean Power Plan, which sets the first-ever limits on carbon pollution from power plants — our best available tool to combat dangerous climate change.

      • Roll back the Obama Administration’s Clean Water Rule, which would restore protections for the potential drinking water supplies of 1 in 3 Americans.

      • Repeal the EPA’s newly issued health standards to protect us from smog.

      • Bar the Interior Department from protecting our streams from the pollution generated by mountaintop removal during coal mining.

      • Strip Endangered Species Act protections for gray wolves, the greater sage grouse, elephants, the Sonoran Desert tortoise, and other threatened animals.

      • Force approval of the proposed Keystone XL tar sands oil pipeline, which President Obama already has rejected.

      There’s more work ahead to protect the environment, starting with eliminating the threat of oil drilling in the Arctic and off the Atlantic Coast.

      But despite the efforts of Republican congressional leaders to hold the public hostage and bring us to the brink of another government shutdown, a budget deal has emerged that protects environmental progress.

       

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