Question of the Day - 24 March 2017

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Thank you for your forebearance. Now, to the answer:]

Not "off the grid" in the sense of operating without the aid of an off-site electrical infrastructure. The company has made some steps toward self-sufficiency, mainly the creation of an enormous solar-power array atop the Mandalay Bay Convention Center. But that doesn’t come close to filling Mandalay Bay’s energy needs and does nothing for MGM Grand.

What we suspect you mean by "off the grid" is corporate MGM’s divorce from NV Energy, the Warren Buffett-owned utility company, effected in order to enable MGM to buy power on the open market.

MGM — like Las Vegas Sands and Wynn Resorts — balked at the prices they were paying for electricity, but it wasn’t cheap to leave the utility behind. Wynn was hit up for $15.7 million in exit fees and paid. Las Vegas Sands was assessed $23.9 million, but opted not to pursue this option as yet; they're still part of NV Energy's system. MGM paid nearly $87 million. Since the three companies represent 7% of NV Energy’s production, the fees are intended to ameliorate the effect on consumers of a sudden drop-off in energy demand (i.e., higher residential electricity bills).

Sands was most vocal in disputing the exit fees, calling them "exorbitant and unjustifiable." Wynn Resorts termed them a "legally untenable scheme." MGM, however, was so motivated to divorce itself from NV Energy that it didn’t fight the fees. "It is our objective to reduce MGM’s environmental impact by decreasing the use of energy and aggressively pursuing renewable energy sources," said MGM Vice President John McManus. To that end, it jilted NV Energy in favor of Tenaska Power Services.

In essence, MGM is reverting to a pre-2001 state of affairs when NV Energy had relatively little infrastructure and the casino company was using the open market to obtain most of its power. That year, the Nevada legislature passed a law permitting companies to detach themselves from the NV Energy grid in return for the disputed exit fees.

Even now, however, MGM and Wynn aren’t totally autonomous. They get their free-market power transmitted across the NV Energy grid and rely on the latter to cover backup energy needs. "From a reliability standpoint and a physics functionality standpoint, nothing changes. What changes is the transaction itself," said Wynn Director of Energy Procurement Erik Hansen.

The two companies will also pay six-figure recurring fees to the Public Utilities Commission for six years.

MGM will take additional steps toward self-reliance. Chief Sustainability Officer Cindy Ortega told the Reno Gazette-Journal that energy-storage batteries and more large-scale solar batteries could figure in the company’s future.

As for Las Vegas Sands, it chose rather to fight than switch, joining with several other companies to back the Energy Choice Initiative, which would create a free market for energy in Nevada (translation: no exit fees). It will take several years to be enacted, leaving Sands considerable time in which to ponder whether or not to join MGM or Wynn, or continue to grudgingly buy power from Mr. Buffett.

MGM’s Ortega says it’s simply a matter of keeping up with the times. "Innovation and technological advancement are faster than regulations and monopolies can usually move," she told the Las Vegas Review-Journal.

A recent convert to the exodus from NV Energy is Caesars Entertainment. Last week, the Public Utilities Commission voted unanimously to approve a deal whereby Caesars would leave the utility at a cost of $44 million. The casino giant will also pony up $3.5 million to Sierra Pacific, which handles Caesars’ northern Nevada properties, to take them off the Sierra Pacific grid. Between MGM, Caesars, and Wynn, NV Energy’s client base on the Las Vegas Strip has been decimated, regardless of what Sands decides to do.