When Nevada regulators agreed earlier this year to allow MGM Resorts (NYSE:MGM), Wynn Resorts (NASDAQ:WYNN), and Las Vegas Sands (NYSE:LVS) to leave NV Energy, one of Berkshire Hathaway's (NYSE:BRK-A) (NYSE:BRK-B) largest utility assets, it opened a slew of problems for the utility. Not only could the utility lose 7% of its demand if all three casino companies left, but data company Switch has now also challenged why it wasn't allowed to leave the utility a year ago.
Switch was the first company to really challenge the utility's electricity monopoly in Nevada, filing to exit in 2014. But the utility rejected the plan over fear that losing such a large customer would raise costs for other customers. And to meet Switch's needs, NV Energy eventually agreed to buy energy from a 100 MW solar plant First Solar (NASDAQ:FSLR) built. But Switch thinks the utility didn't give them equal treatment.
Why can casinos leave NV Energy now?
In a lawsuit against Nevada regulators and NV Energy, Switch is alleging that it was treated differently from MGM, Wynn, and Las Vegas Sands in its efforts to leave the utility. It wants to undo an agreement to buy energy from the First Solar plant, which ends up paying NV Energy a premium for being the middleman.
Switch is arguing that NV Energy shouldn't be profiting from energy it can buy in the open market and that if Switch tried to buy renewable energy on the open market today, it would be likely to get a much lower price than both its utility cost and the contract NV Energy signed with First Solar. And since Switch's ultimate goal is to buy 100% renewable energy, it might be a good move to go off-grid.
We don't know how this lawsuit will turn out, but the fact that three casinos have been given the go-ahead to leave the grid -- albeit for a tidy penalty fee of $128 million -- and Switch is challenging to leave as well, the utility business isn't as safe as it used to be.
Is this the blueprint for Corporate America?
The major concern for utilities across the country is that corporate customers are looking at renewable energy as a way to display a green image and lower costs. That's a major concern, because most states don't have the same punitive fees associated with moving to buy energy from third parties that Nevada has. Entities can just buy energy on the open market, something tech companies are already doing on a large scale.
If more customers buy energy outside the utility, it will cause rates for existing customers to go up, leading more customers to look for energy alternatives, and the cycle continues.
Commercial and industrial customers account for 36.5% of U.S. electricity consumption, so this is a big deal for utilities. And if Nevada is any indication, it's not going well for the incumbents.
Travis Hoium owns shares of Berkshire Hathaway (B shares), First Solar, and Wynn Resorts. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.