Greg Abel, Warren Buffett’s Heir Apparent, Led Berkshire Hathaway’s Renewable-Energy Push

Source: By Andrew Bary, Barron's • Posted: Monday, May 3, 2021

Greg Abel, chairman of Berkshire Hathaway Energy, shown via a table computer, spoke at the Berkshire Hathaway annual meeting on Saturday.Daniel Acker/Bloomberg

Greg Abel, the likely successor to Warren Buffett as Berkshire HathawayCEO, is a low-key Canadian who orchestrated the company’s big move into renewable energy as the head of Berkshire’s large utility business.

Abel, 58 years old, was CEO of Berkshire Hathaway Energy, a diversified utility business that is 91% owned by Berkshire Hathaway, from 2008 to 2018, when he was named a Berkshire Hathaway vice chairman with responsibility for the conglomerate’s sprawling non-insurance businesses. He remains chairman of the utility unit.

Buffett praised Abel at Berkshire’s annual meeting Saturday, saying, he “does a much better job at doing that than I was doing previously.”

At the meeting, Vice Chairman Charlie Munger mentioned in a discussion about corporate culture that “Greg will keep the culture.” That prompted Buffett to issue a statement to CNBC: “The directors are in agreement that if something were to happen to me tonight, it would be Greg who’d take over tomorrow morning.”

Barron’s and others had predicted that Abel would likely be Buffett’s successor, but the company had never confirmed this. It may well not have done so if not for Munger’s remark.

Abel owns a roughly 1% stake in Berkshire Hathaway Energy that probably is worth more than $500 million, given the size and profitability of the business. He has also been well paid in his role as a Berkshire Hathaway vice chairman, earning $19 million in both 2019 and 2020 and $18 million in 2018, according to the Berkshire proxy.

Still, his holding of stock in the conglomerate is relatively small, at less than $3 million. Berkshire executives don’t get compensation in stock. Given Berkshire’s culture of stock ownership by executives—Buffett owns a vast slice of the company, while Ajit Jain, a vice chairman along with Abel, has a large holding—Abel may feel shareholder pressure to increase his stake if he becomes CEO.

Buffett holds a 16% stake in Berkshire worth about $100 billion and regularly tells shareholders that if he makes mistakes, he will feel financial pain, just as they do.

Berkshire Hathaway Energy owns a group of U.S. utilities, including in Iowa and on the West Coast. It also owns U.K. utility operations and several U.S. natural-gas pipelines. If it were a stand-alone public company, it probably would be worth well over $50 billion, based on its net income last year of $3.4 billion.

Buffett has called Berkshire Hathaway Energy one of the company’s “jewels” with annual earnings rising from $122 million in the 21 years that Berkshire has owned it. Before becoming CEO of the unit, Abel was president from 1998 to 2008, having joined the company in 1992. Berkshire Hathaway Energy has substantial wherewithal to make investments because unlike public electric utilities, which often pay out half of their profits to shareholders, it pays no dividends to Berkshire Hathaway.

Berkshire Hathaway Energy has become one of the largest owners of renewable energy, with a portfolio of wind and solar electric generation capacity of nearly 12,000 megawatts at year-end 2020.

It ranks fifth globally in renewables and second in the U.S., behind NextEra Energy (NEE), according to Bloomberg New Energy Finance. Most of that renewable generating capacity is wind power, at more than 10,000 megawatts.

“We have a great deal of comfort with the future leadership of the company. Abel has proven to be an effective leader,” says James Shanahan, an Edward Jones analyst. “Abel’s strength is a more traditional CEO and he may able to help Berkshire’s operating business to set targets and hold them accountable”

Buffett has been a famously hands-off CEO with Berkshire’s operating units. While that decentralization helped in some areas, it may have hurt Berkshire with its Geico auto-insurance unit, which has lost ground to rival Progressive in recent years.

Jain, who oversees the company’s insurance business, talked about the Geico situation at the annual meeting Saturday, noting that Geico has lagged behind Progressive in telematics, or using real-time driving information to price policies. That has given Progressive an edge.

Buffett now has responsibility for Berkshire’s operating units, as well as its huge investment portfolio.

Shanahan thinks Abel will focus on operations in the post-Buffett era and leave investments to others. Todd Combs and Ted Weschler, who now handle about 10% of Berkshire’s roughly $300 billion equity portfolio, are likely to take key positions in that area. Buffett has written that he expects his successor as CEO to collaborate with the investment chief on acquisitions. Berkshire hasn’t named an investment chief who would take over from him.

“During the annual meeting on Saturday, I think Abel was well-prepared to handle the question related to climate-related shareholder proposal,” Shanahan said.

A proposal in the latest proxy called for Berkshire to provide greater disclosure on its exposure to climate change. Berkshire recommended that shareholders reject it, which they did, noting that Berkshire Hathaway Energy already provides extensive information about its climate and carbon initiatives.

“If you look at our investment through the end of 2020, we’ve invested $30 billion, or in excess of $30 billion into renewables, and have really completely changed the way our businesses do business. i.e. our utility businesses,” Abel said. “They have been decarbonizing and delivering a valued product to our stakeholders, to our customers.”

He added that Berkshire Hathaway Energy has committed $18 billion to upgrade the electric transmission grid on the West Coast with $5 billion spent already. That will help connect often far-flung renewable-generation assets to the grid, improving reliability.

Berkshire Hathaway Energy still has significant coal generating capacity of about 8,200 megawatts, or about a quarter of its owned electric capacity.

At the meeting, Abel discussed the utility’s decarbonization strategy, noting that 16 coal-fired generating plants have been closed to date. “If you look at from 2021 through 2030, there’ll be an incremental 16 units closed. And then if you go through to the end of 2049, our remaining 14 units will be closed. And at that point in time, all our coal units are closed,” Abel said.

Like other Berkshire executives, Abel keeps a low profile, rarely giving media interviews. He enjoys playing hockey.

One Berkshire investor tells Barron’s that he ran into Abel at a Berkshire annual meeting a few years ago and chatted with him for 10 minutes or so. Abel was largely unrecognized then, but that likely will change as investors focus more attention on the man who is in line to succeed the legendary Buffett.

Write to Andrew Bary at andrew.bary@barrons.com