The risk of a mega-fire is increasing worldwide due to climate change, which is causing more frequent droughts. The wildfire spreading across Texas in the United States is a prime example of this.
The fires are causing significant damage to businesses in the public sector, including power companies, posing a risk to investors, including Warren Buffet, the chairman of Berkshire Hathaway, according to an analysis.
CNN reported on March 3rd that the Texas wildfire, which has now burned over 1 million acres, seven times the size of Seoul, is believed to have grown due to climate change.
Luke Kanclerz, a fire analyst at Texas A&M Forest Service, told CNN, “Last year, the Texas Panhandle region received 3-4 times the usual amount of rainfall, causing the vegetation to grow more than usual. The dry winter weather compared to the average year has dried out the vegetation, greatly increasing the risk of fire.”
The Panhandle, a northern region in Texas, is where the wildfire started. The fire has now spread beyond the Texas border to neighboring states like Oklahoma.
“The Panhandle region has always been prone to fire, but the scale of this one far exceeded our expectations,” Kanclerz said. “It’s unprecedented throughout the history of Texas.”
Experts in the field believe that climate change is a factor in the increasing fire damage not only in Texas but also across the United States.
“Dry fuel is the biggest energy source for fire, and rising temperatures have the biggest impact,” Mike Flannigan, a professor of wildfire research at the University of Alberta, told CNN. “As the world becomes drier and hotter due to drought, the risk of fires occurring and spreading increases.”
Analysis suggests that the increasing size and frequency of mega-fire incidents can pose an economic risk to the public sector, particularly power companies and investors.
According to the Financial Times, Berkshire Hathaway Energy, led by Chairman Warren Buffet, is a prime example of a company suffering from declining profits due to wildfires.
Berkshire Hathaway Energy, a power sector subsidiary of the investment company Berkshire Hathaway led by Warren Buffet, was once one of the four main sources of revenue for Berkshire Hathaway.
It holds assets worth 134 billion dollars and, if combined with its subsidiaries, can produce over 30,000 megawatts (MW) of electricity annually.
However, Berkshire Hathaway Energy’s profits are declining due to the deteriorating financial conditions of its subsidiaries.
PacifiCorp, a key company of Berkshire Hathaway Energy, is currently carrying a debt of 30 billion dollars and has already filed for bankruptcy protection.
The reasons for this massive debt include asset losses due to fires and the recognition of PacifiCorp’s mismanagement in correlation to the fires.
According to the Financial Times, as of March, PacifiCorp has paid over 735 million dollars in settlements to wildfire victims. The total amount of ongoing compensation lawsuits against PacifiCorp exceeds 2.4 billion dollars.
The largest payout made by PacifiCorp was for the “Labor Day Fire” that occurred in Oregon on May 1, 2020, which displaced over 5,000 people. Logging companies and residents who sued PacifiCorp in the Oregon District Court claimed that PacifiCorp did not take appropriate fire measures despite warnings from the National Weather Service (NWS).
The Oregon court accepted this, and PacifiCorp had to pay over 549 million dollars in compensation last December.
The U.S. Department of Justice also plans to sue PacifiCorp for neglecting wildfire measures, expected to worsen the financial situation further.
Berkshire Hathaway estimates that PacifiCorp will need to invest over 1.1 billion dollars over the next three years to reduce wildfire risk. This exceeds the 600 million dollars invested over the past three years.
In a recent letter to investors, Warren Buffet said, “Public sector investment (Berkshire Hathaway Energy) may be unprofitable or even go bankrupt,” and “It will take a few more years to accurately assess the extent of the losses caused by wildfires in the western U.S.” Reporter Son Young Ho
Most Commented