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Casinos have few options after PUC exit decision

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Tom Donoghue / DonoghuePhotography.com

A view of Wynn Las Vegas and Encore taken from a Maverick Helicopter on Wednesday, Jan. 16, 2013, above the Las Vegas Strip.

At face value, the state’s largest casinos won a huge victory when the Public Utilities Commission on Wednesday allowed them to exit their contracts with NV Energy, the state’s largest power provider.

But for Wynn Las Vegas, MGM Resorts International and Las Vegas Sands, the decision is a mandate to stay put.

Click to enlarge photo

Paul Thomsen, Public Utilities Commission chairman, is shown in 2008.

"We are disappointed that the PUC has failed to implement (the law) as intended by the Legislature and are reviewing our options,” Michael Weaver, Wynn spokesman, said after the PUC decision.

The PUC’s three regulators approved a measure that would allow the three casino companies to leave if they each pay a proportional share of $126.5 million exit fee.

The deal also requires the companies, which roughly make up 7 percent of NV Energy’s customer base, to pay additional fees in the future based on marketplace costs associated with NV Energy’s supply and demand costs.

Lastly, it required the companies buy power from a “new” source that has no direct or indirect relationship with NV Energy.

That’s where things get tricky and casinos say they’re handcuffed.

The casino companies can’t find a new power source that isn’t directly or indirectly tied to NV Energy.

The law doesn’t define what constitutes “new” and gives the PUC the ability to make the distinction.

Wynn and Sands chose energy provider Constellation as the company they would buy power from. MGM chose Tanaska.

The commissioners and NV Energy stressed the uncertainty about whether Constellation and Tanaska could be considered “new” generation. The reason: NV Energy often supplies or buys in those commodity trading markets, making it hard to tell if the suppliers had an association with the company.

“I simply want to know what that generation asset is,” said PUC Chairman Paul Thomsen.

The difficulty for the casinos is that power generators like Constellation and Tanaska often use trading markets to buy their electricity. On the open market, they can call a trader in New York and order a quantity of power. When energy purchases are made in the market, buyers don’t know where the power comes from until later in the day.

So for the casinos, they are limited in how they can acquire energy with 100 percent certainty that there is no relationship to NV Energy.

Known as the daisy chain, the barrier to entry is equivalent to only buying stock from a company shareholder rather than buying in a marketplace like Nasdaq.

In multiple documents filed with the PUC, NV Energy said that “it cannot be sure that it will not ever be the generating source” for Tanaska or Constellation.

With the PUC’s decision now final, the casino exit attempts can be defined less by the law and more by the times.

The casinos want to leave NV Energy in an attempt to capitalize on low natural gas prices and are using a 2001-era law known as 704B. The law, which came about in the wake of the Western energy crisis spurred by Enron, was created as a way for companies to bring in new power supplies without the utility. At the time, NV Energy generated less than half of its power. Now NV Energy generates more than 75 percent of its demand and has ties to much of the power market in the West.

“When the statute passed, we lived in different times,” PUC Commissioner Alaina Burtenshaw said.

The efforts to leave have been a very public battle between some of the state’s largest employers and businesses.

Data center company Switch tried to exit this year, but the PUC denied the application. Following the PUC decision, NV Energy made a compromise with Switch so it could supply its operations with 100 percent renewable energy.

Last week, NV Energy announced a deal with the city of Las Vegas, which was also threatening an exit, to do something similar.

NV Energy CEO Paul Caudill said he would be willing to work solutions with the casinos.

“We don’t fight with our customers,” he said last week. “We look at it as an opportunity to work even closer with them.”

But critics like former Republican Gov. Bob List said the decision exemplifies how NV Energy’s utility monopoly works.

The law is designed to offer consumers a choice about where they get power, said List, chairman of the Nevada Coalition to Protect Ratepayers, which supports the casino efforts and other renewable initiatives in the state.

“That didn’t happen today,” he said.

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