MGM Resorts - Smart Energy Decisions

Commercial, Utilities, Commercial, Sourcing Renewables  -  May 24, 2016

MGM Resorts, in pursuit of cleaner power, will pay $87M to leave its utility

Two of the largest casinos in Las Vegas issued notice last week that they will stop purchasing electricity from their current utility, NV Energy, which is a subsidiary of Warren Buffet's Berkshire Hathaway Inc. 

MGM Resorts International, citing its pursuit of more renewable energy sources, said in a May 19 filing with the Nevada Public Utilities Commission that its Las Vegas casino would pay an exit fee of $86.9 million and cease buying power from NV Energy by Oct. 1.  

According to the Las Vegas Review-Journal, the MGM casino comprises about 4.86% of the utility's power sales. 

"It is our objective to reduce MGM’s environmental impact by decreasing the use of energy and aggressively pursuing renewable energy sources," MGM Executive Vice President John McManus said in a letter included with the company's regulatory filing. "Our imperative is heightened by increasing customer demand for environmentally sustainable destinations."

Power and utility industry observers have for years argued that the evolving needs of large electricity customers would drive them to leave utilities that can't meet them, particularly as distributed energy technologies advance and demand for renewable energy sources continues to grow.  The news puts a face on the threat such actions may pose to utility revenues. 

Wynn Resorts Ltd.'s Wynn Las Vegas LLC also filed notice but did not include details about an exit fee. According to a May 20 report from Bloomberg News, the Nevada commission in 2015 granted approval for MGM and Wynn, alongside Las Vegas Sands Corp.,  to stop buying electricity from NV Energy if they paid combined exit fees of about $127 million.  Various news reports have suggested Wynn may challenge the exit fee. 

The deadline for the companies to file their applications to move forward with the process of leaving was May 19; Las Vegas Sands has not submitted a filing to exit, and said in a January filing that the exit fees suggested by the PUC "effectively denied" their application. 

Both MGM and Wynn have signed contracts with outside power providers, Tenaska Power Services Co. and Exelon Corp., respectively, according to the filings, but will maintain use of NV Energy wires for electricity deliveries.


SED's take: While utilities have become increasingly concerned with the threat renewable energy poses on their revenues, there has been little evidence of large commercial customers choosing to outright pull the plug on utilities that refuse to support their pursuit of cleaner energy options until now. Will this be an isolated event or will others follow suit?  It will certainly stimulate conversations and feasibility studies at dozens of other companies who have been stifled by utilities to expand their renewable sourcing efforts. It will be interesting to see to what extent this event triggers increased activity by utilities to integrate renewables into their mix. I believe we'll look back on this event as a seminal moment in commercial adoption of renewable energy.


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