Research & Commentary: Las Vegas Casinos Fight to Choose Electricity Suppliers

Published November 23, 2015

It takes a lot of electricity to make sure the bright lights of Sin City stay on. One hotel and casino will, on its own, use more electricity than an entire mid-sized city. Unfortunately for these companies and regular Nevadans, all of that electricity is provided by a government-protected monopoly.

The Nevada Public Utilities Commission (PUC) allows NV Nevada, a subsidiary of Berkshire Hathaway, to control a territory incorporating almost the entire state’s population. Unless they are among the select few Nevadans living in Ely (population 4,255) or a few other small towns scattered throughout the northern and eastern portions of the state, all Nevadans are forced to purchase their electricity through NV Nevada. With PUC allowing NV Nevada to control such a huge share of the state’s electricity market, the company can charge its customers almost three times what nearby regional wholesalers charge.

Fed up with being overcharged, three of Las Vegas’ biggest hotel-casino companies, which by themselves account for more than 5 percent of NV Energy’s total sales, are asking PUC to allow them to purchase electricity from the energy supplier of their choice. Although Nevada law allows large electricity consumers, such as the casinos, to leave NV Energy if they pay an exit fee, the clash is over how much that exit fee should be. The casinos contend PUC’s proposed fee ($121 million) is so large it defeats the purpose of them leaving NV Energy, as all the cost savings from the move would be forked over to NV Energy anyway. In addition, The Wall Street Journal notes PUC has “never granted [a] customer permission … to leave the Las Vegas utility.”

NV Energy says the fact these casinos make up a significant chunk of their sales means they should not be allowed to go their own way, because if they do, it would force NV Energy to raise prices on the rest of its customers.

One reason for NV Energy’s high prices is state laws force the utility to purchase excess electricity from small solar producers at full retail prices, which are higher than its own generation costs and wholesale electricity prices.

Casinos, as well as all businesses and residents in Nevada, should be free to purchase electricity without draconian penalties from any company that offers it, and NV Energy should not be forced to purchase solar power above wholesale prices. The money NV Energy would save if allowed to purchase electricity at wholesale prices would offset the lost sales from the casinos and remove any need for the company to raise prices on the rest of its customers.

The following documents offer additional information on monopolies and the energy industry.

Ten Principles of Energy Policy
This booklet was written for busy state elected officials who need to stay well-informed about the energy debate. It covers 10 of the most important energy issues facing the country, with each section ending with recommended actions and suggested readings. A thorough bibliography is included at the end of the booklet.

Monopoly Prices, Part One
From the Quarterly Journal of Austrian Economics, Ludwig von Mises takes a look at the characteristic features of monopoly prices.

Halting Beer’s March to Monopoly
In states and regions that mandate a “three-tier” distribution system, smaller craft brewers are vulnerable to market exclusion by distributors who are forced to deal exclusively with macro-manufacturers, such as InBev. This white paper from the American Antitrust Institute documents the harm such a system inflicts.

Tea Party, Conservative Grassroots Groups Reject Florida Solar Power Amendment
Research Fellow H. Sterling Burnett reports multiple Tea Party and conservative groups oppose a proposed Florida constitutional amendment that would give the solar power industry special rights to sell power directly to electricity consumers and to utilities.

Regime Change and Corruption: A History of Public Utility Regulation
Werner Troesken, professor of history at the University of Pittsburgh and a research associate of the National Bureau of Economic Research, argues corruption is endemic in public utility industries: Corruption exists, in some form, across all regulatory and ownership regimes. Regime change in utility industries does not eliminate corruption, but only alters the type of corruption, says Troesken. For any type of governance regime (e.g., state regulation or municipal ownership), corruption grows increasingly severe over time and, at some point, becomes politically untenable, Troesken observes.

Vertical Integration and the Restructuring of the U.S. Electricity Industry
In this Policy Analysis from the Cato Institute, the author observes debates over restructuring the U.S. electricity industry are often about the degree to which market relationships should replace transactions that formerly took place within regulated, vertically integrated utilities. Markets for the purchase of energy by vertically unintegrated distribution utilities are clearly feasible, but vertical de-integration of existing systems may eliminate some operational and reliability benefits that are important in light of the unique characteristics of electricity distribution.


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