By Peter Carbonara | December 2, 2013 | Lifestyle
Senator Harry Reid.
NV Energy CEO Michael Yackira.
Berkshire Hathaway CEO Warren Buffett.
NV Energy operates the Reid Gardner coal plant, but not for long.
The roof of Mandalay Bay Convention Center, with a rendering of the solar panels expected to supply nearly 20 percent of the resort’s power.
Bright lights, green city.
The Arizona intake towers at Hoover Dam.
Hoover Powerplant and the Colorado River at Hoover Dam.
It’s unlikely that many people make the approach into McCarran International Airport—over Vegas fountains blasting water 460 feet into the air, a 42-billion candlepower light beam visible from hundreds of miles away, and mile upon mile of neon—and think, “Now there’s a model for sustainability.” But just as the city strives to outdo itself in extravagance, it’s also intent on greening its operations. And hotel and casino operators are approaching the task in characteristically Las Vegas fashion: by innovating in the biggest and best ways possible.
Consider a recent move by MGM Resorts International, which has announced plans to install a 6.2-megawatt solar panel array covering 20 acres on the roof of its Mandalay Bay Convention Center. MGM says the project will be able to generate nearly 20 percent of the resort’s electricity at peak production.
Cindy Ortega, MGM’s chief sustainability officer, says green projects are not only the right thing to do, but they also make business sense by saving money—and by appealing to important customers: “Twenty percent of our customers are corporations, and corporations that have a genuine commitment to the environment generally want to do business with other corporations that have that commitment.” Despite the city’s reputation as the world capital of excess, she says, the presence of green energy producers and consumers is making Las Vegas a global leader in sustainability. Based on her experience here, she recently consulted on Heart of Doha, a massive program to revitalize Qatar’s capital city ahead of the 2022 World Cup.
Meanwhile, NV Energy, the utility that supplies the Strip (and most of the rest of the state) with the electricity to power all those slot machines, neon signs, and air conditioners, is going green, too. The company has inked a deal to be acquired by MidAmerican Energy Holdings, whose majority owner is Warren Buffett’s Berkshire Hathaway, by the first quarter of 2014. The agreement has been valued at about $10 billion, and if state and federal regulators allow it to go forward, it will make MidAmerican the largest utility owner in the country.
The deal has attracted the attention of renewable energy advocates because MidAmerican, through its MidAmerican Renewables subsidiary, has made some very large investments in solar and wind energy. As Buffett boasted in his most recent annual letter to Berkshire shareholders, “We now account for six percent of the country’s wind generation capacity…. When we complete three projects now under construction, we will own about 14 percent of US solar-generation capacity.” When the NV Energy deal was announced, Buffett declared that he was pleased to make a long-term investment in Nevada’s economy. Soon after, Senator Harry Reid, a longtime green-energy advocate, offered, “When he says Nevada’s a good bet… it’s a good bet.”
Everyone wins, right? That depends on whom you ask. Few will dispute that NV Energy’s purchase by a financially strong company with a robust interest in renewable energy is good news, especially the people who run Nevada’s renewable industry. Likewise, no one objects to the company’s plan to close its coal-burning operations. But the lingering question is: Who will pay for a greener Nevada and how much? NV Energy’s biggest customers on the Strip are worried that the answers will be: them and a lot.
Some good news on this front came in a November settlement agreement that negated plans for a $2 billion “merger premium” to be passed on to customers in the form of higher rates. Instead, $20 million will be credited to customers (about $13 per Las Vegas household)within 30 days of the sale. The merger deal is on track to be approved by the Nevada Public Utilities Commission by December 20. (Neither Buffett, MidAmerican CEO Greg Abel, nor NV Energy CEO Michael Yackira is saying anything publicly now. Spokesmen for both companies said the executives would not comment while regulators were reviewing the deal.)
NV Energy also intends to become greener over the next few years for reasons only partly related to the MidAmerican deal. In February, a bill was introduced in the State Senate, SB 123, requiring that NV Energy accelerate the planned closing of its coal-burning electric plants over the next 10 years, replacing them with a combination of natural gas and renewable energy. The proposal—which NV Energy supported—would also limit the Public Utilities Commission’s ability to block rate increases stemming from the conversion. Currently, NV Energy’s customers in Northern Nevada have the option of paying a higher rate to receive half or all of their energy from renewable sources.
In giving up on coal, NV Energy—which as recently as 2009 was talking about building more coal-burning plants—was both bowing to the inevitable and finding a way to profit from it. The political climate in Nevada supports more green energy. Existing state law—the Renewable Portfolio Standard—already required that NV Energy use eligible renewable energy resources to supply a minimum percentage of the total electricity it sells: 18 percent this year, going up to 25 percent by 2025. (The company is currently exceeding those requirements.) Senator Reid and others have also pressed NV Energy to speed up plans to close its notoriously dirty 557-megawatt Reid Gardner coal plant, about 50 miles north of Las Vegas.
But while there was political pressure on NV Energy, it also saw opportunity. Early this year, Yackira started talking with MidAmerican’s Abel. Any potential buyer would be concerned about the continuing headache of wrangling with regulators—not to mention Nevada’s senior senator— over the company’s coal operations. SB 123 would not only put an end to that; it would clear the way for NV Energy to build new facilities, increasing its value to a potential acquirer while passing on the cost to its rate payers with minimal interference from state utility regulators.
The political momentum behind SB 123, which included public declarations of support from Reid and Governor Brian Sandoval, was intense. But not everyone was happy. According to one Nevada political operative who was involved in the discussions, “They had no real inclination to get out of coal…. The company had just kind of flat-lined, and they decided, We need to build new assets.”
Some consumer advocates and Republican legislators criticized SB 123 as an end run around regulators that would be expensive for consumers. Meanwhile, the Strip’s casino owners—NV Energy’s biggest customers—balked at the amount of new natural gas and renewable generating capacity that the utility would be asking them to pay for. The original draft allowed for 2,600 megawatts of new capacity, most of it from natural gas. (To put that in perspective, NV Energy’s existing capacity is 6,078 megawatts.) Following complaints from the Strip, however, the final version of the bill called for substantially less. “We got them down by two-thirds,” says the operations manager for one casino group.
In June, SB 123 became law. While NV Energy has said that acquiring the new capacity will increase rates less than five percent more than previously forecast increases, some consumer advocacy groups say the rate hikes could be in the double digits. The law also calls for NV Energy to retire Reid Gardner completely by 2017, with three of its four units closing in 2014.
Players in Nevada’s renewable energy industry maintain that the new law and the merger amount to a net benefit for business owners. Bobby Hollis, NV Energy’s executive in charge of renewable energy, says the law “is a big deal for the renewable energy community in Nevada… an almost 50 percent requirement to increase the amount of renewable energy capacity in the state.” It remains to be seen, he says, which companies and what kind of power will benefit, although given the state’s current infrastructure, geothermal and solar are likely to be the winners (Nevada has little in the way of wind). He emphasizes that any future contracts will have to be approved by the Public Utilities Commission and that NV Energy is interested in getting the best deals for its customers: “We have done really conservative estimates that the whole cost would be just slightly higher than if you didn’t do this plan.” The cost of producing solar energy has fallen dramatically, he adds (geothermal has remained flat), and NV Energy expects it to fall further by the time it contracts for new capacity over the next few years.
“I don’t think anybody knows what NV Energy’s plans are,” says Brian Fairbank, CEO of Alternative Earth Resources, a Canadian company that built and operates a geothermal plant at Blue Mountain in Northern Nevada and that sells electricity under contract to NV Energy. For his part, Fairbank adds, his company owns a number of prospective geothermal plant sites that it would be delighted to sell to, or develop to supply power to, NV Energy.
Paul Thomsen, director of the Nevada Governor’s Office of Energy (and until recently an executive with Ormat Technologies, a leading Nevada geothermal company and an NV Energy supplier), calls the new law “a lifeline” for the state’s renewable industry, which is partially dependent on legal mandates like the Renewable Portfolio Standard. With NV Energy ahead of its RPS renewable requirements, Thomsen says, it was under no legal pressure to add more renewable capacity now. And because new renewable power plants cost so much to build, no developer would consider doing so without a buyer for its power in place. “That left the industry looking at a 10-year hiatus that would really have been a death blow,” he says. And although he notes that much uncertainty remains about how the law will be implemented, renewable power suppliers are breathing a little easier knowing that NV Energy plans to continue buying more over the long haul, starting next year.
All the players in this picture want green energy. Where they differ is in how much it should cost. If NV Energy can find a way to provide green energy at a price that doesn’t upset its big customers on the Strip, Las Vegas could end up one of the country’s green leaders—even with those fountains and light beams.
photography by Leila Navidi/Las Vegas Sun; courtesy of MGM Resorts International (Mandalay Bay); littleny/shutterstock.com (strip); Ethan Miller/Getty Images (Hoover Dam, Intake towers, Yackira); Win McNamee /Getty Images (Reid); Drew Angerer/Getty Images (Buffett)