Energy

Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

Contrary to what was slurred into your ear that one time, what happens in Vegas doesn't always stay in Vegas.

Which brings us, of course, to utilities.

These traditional refuges of widows and orphans aren't normally associated with casinos. But something strange just happened on the strip. Two of its bigger denizens, MGM Resorts International and Wynn Resorts, decided to ditch their local power provider, NV Energy, owned by Berkshire Hathaway -- despite having to collectively pay fees of more than $100 million to do so. The two casino operators will contract with out-of-state providers instead and also use distributed sources such as solar panels -- taking about 5 percent of NV Energy's sales with them.

Nevada has become something of a battleground state for utilities and those trying to pull away from them. But it isn't alone. Just last week, Apple filed with regulators for permission to sell excess power from its own solar and other generating facilities, stretching from California to North Carolina, directly to customers rather than via a traditional utility. Silicon Valley neighbor Google already has a license to trade power.

Finding out that a company with so much cash its CEO actually has to have dinner with Carl Icahn is treading on your turf is the stuff of nightmares. Because even if homeowners won't be getting a (paperless) electricity bill from something called Apple Energy anytime soon, the threat is real. 

In the grand scheme of things, even the likes of Apple and MGM don't add up to a lot of demand. The problem is that the grand scheme of things is looking not so grand.

Dimmer Switch
Power sales peaked in 2007 and have been going sideways since then
Source: Energy Information Administration

When your market isn't growing, every kilowatt-hour matters. Also, if you're used to being a monopoly, like most utilities are, then it comes as shock when customers start to cut you out of the action.

That's why there is such an intense lobbying battle going on between incumbent utilities and solar power companies trying to break their hold on the market. On that front, the recent bankruptcy of SunEdison and the struggles of SolarCity and its peers suggest the insurgency is on the back foot; more "Empire Strikes Back" than "A New Hope."

But that would be a short-sighted take in this industry. Technologies often leave behind their pioneers. Your first mobile device might have been some Motorola flip-phone but, chances are, you're reading this on an iPhone or something similar today. Even if today's solar firms don't make it, the technology and idea of buying your power in a different way from the past century is already established.  

Indeed, it isn't renewables per se that represent a threat to utilities, which are largely agnostic about what generates the power. What matters to utilities is who generates, sells and delivers that power to the customer.

MGM's decision was driven in part by a desire to use more renewable energy. But Cindy Ortega, the company's chief sustainability officer, adds that "participating in an open [energy] market is better in the long term than in a regulated market," giving MGM "greater flexibility in how we can manage our energy in the future."

You'll notice that doesn't exactly sound like some tree-hugger mantra. Rather, it's a strategic decision encompassing regular corporate prerogatives like planning, procurement, and efficiency -- which also happens to cut directly across the traditional utility business model.

In tomorrow's column, I'll talk about how utilities are reacting to the threat -- helped, in one key respect, by a lucky streak they're on right now.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. There's an analogy in another part of the energy business: oil and gas. Shale producers are going bankrupt left and right, having taken on too much debt during the boom. But even if they go bust, fracking is now an established practice. When prices pick up, someone else will pick up the leases, the rigs and the workers and keep it going (especially as those assets will no longer be encumbered by huge debts).

To contact the author of this story:
Liam Denning in San Francisco at ldenning1@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net