POWER September 2015 - 52

GENERATION TRANSITIONS
NV Energy: Warren Buffett's Plan
for a Structural Power Shift
Warren Buffett bought Nevada's NV Energy two years ago, a move widely seen
as a play for solar and renewable generation. That's working out. But as
the company transitions away from legacy coal and high-priced renewable
contracts signed years ago, large customers are rebelling, and the
company faces a challenge to keep its big dog consumers happy.
Kennedy Maize
W
hen legendary investor Warren
Buffett, actively pursuing electric
utility plays, bought Nevada's sole
investor-owned utility, NV Energy, at the end
of 2013 for $5.6 billion, many industry mavens
saw it as a green power move. Analysts
said Buffett was largely looking for solar
generation in a region with copious sunlight
and lots of customers.
That meant Nevada. The New York Times
headlined the move as " Warren Buffett's Big
Bet on Renewables in Nevada. "
The Times quoted Christine Tezak of the
investment firm of ClearView Energy: " He's
looking at this as a way to participate in the
structural shift taking place in the power and
energy industry. " Reinforcing that assessment,
the Vegas Inc. business news website
noted that, as the Buffett acquisition closed,
" NV Energy CEO Michael Yackira announced
today that he will retire in June 2014
from the Las Vegas-based power company.
Paul Caudill, who had been president of a
MidAmerican subsidiary, is now the president
of NV Energy. " MidAmerican Energy
is another of Buffett's Berkshire Hathaway
Energy companies.
A generation strategy is very much in
place at NV Energy. " We are in a transition
away from coal and toward renewables and
gas, " Kevin Geraghty, NV Energy's vice
president for generation, told POWER. The
constraint on that, he said, which applies to
all the Berkshire Hathaway Energy companies,
is " flat and declining customer rates. "
Buffett's vision appears to be coming into
focus. A year ago, First Solar broke ground
on a $1 billion, 250-MW solar project near
Las Vegas-Silver State South-the first big,
utility-scale solar project in the U.S. to be
built on public land. Owned by a subsidiary
of NextEra Energy, the project will sell its
power to NV Energy.
In mid-July, Bloomberg.com proclaimed,
" Warren Buffett's Nevada utility has lined
up what may be the cheapest electricity in
the U.S. and it's from a solar farm. " The Las
Vegas utility agreed to pay an astonishingly
low 3.87¢/KWh for power from a 100-MW
solar photovoltaic (PV) project First Solar
Inc. is developing north of Las Vegas. The
Bloomberg.com article commented, " That's
a bargain. Last year the utility was paying
13.77 cents a kilowatt-hour for renewable
energy, " from power purchase agreements
(PPAs) it signed years ago to meet the state's
25% renewable energy standard. Kit Konolidge,
a veteran Bloomberg Intelligence analyst,
said, " That's probably the cheapest PPA
I've ever seen in the U.S. "
Switching on Renewables
Locals and NV Energy are calling that solar
project " Switch Station. " The deal with First
Solar goes a considerable distance to solving
a big problem for NV Energy: large customers
seeking to leave the utility and its highcost
energy to buy power from independent
" We are in a transition away
from coal and toward renewables
and gas. "
-Kevin Geraghty, vice president for generation,
NV Energy
52
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vendors. Switch Co., a major data farm operating
in the state, which plans a $1 billion expansion
near Las Vegas, filed an application
with the Nevada Public Utilities Commission
(PUC) in 2014 to leave NV Energy's electric
system and buy retail power from Constellation,
an Exelon subsidiary. The data center
company, with a round-the-clock demand of
34 MW, or more than 1% of the utility's load,
said it was seeking both cheaper and cleaner
power, hoping to supply its burgeoning
cloud-based data storage business with 100%
renewable energy.
Adding to the troubles for NV Energy, three
major gambling casinos (they call it " gaming "
in Nevada)-Wynn Las Vegas, MGM Resorts
International, and Las Vegas Sands Corp.-
followed Switch, filing applications to flip
power suppliers. All the petitions to the PUC
were based on a 2001 law allowing large companies
to shop for retail power outside the incumbent
utility. The applications represented
a profound threat to NV Energy, as gambling
and the associated tourism is Las Vegas's
premier business. Vegas lives and dies on the
punters and the associated revenue.
The PUC turned down Switch's petition
in mid-July (the fate of the casinos' applications
isn't yet known, and Geraghty said the
company is negotiating with the customers).
In denying Switch's application, the regulators
concluded that " it is inherently contrary
to the public interest to expose remaining
customers to the risk that Switch's share of
the long-term embedded costs in [NV Energy's]
system will be reallocated to remaining
ratepayers. " In other words, Switch's switch
would leave stranded investments on the back
of NV Energy's remaining customers.
So NV Energy and Switch reached the deal
this summer that will keep the data center on
the utility's system, connected to the utility's
distribution grid, taking advantage of today's
extremely low-cost solar PV power. New NV
Energy CEO Caudill said, " It is important
to note that the new grid-tied Switch Station
POWER | September 2015
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POWER September 2015

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