Tom Reeg, CEO of Caesars Entertainment, knew during a recent earnings call he might have a question or two about how the more expensive utility costs in Nevada were affecting the company’s cash flow.
After all, he had discussed the subject privately weeks earlier.
Several analysts said he raised the Strip’s high energy prices during behind-the-scenes talks with investors when they were in Las Vegas for the Global Gaming Expo in October. Caesars cash flow from its Las Vegas casinos was $480 million in the third quarter, down 4 percent year-over-year.
“If you normalize the utilities, which was mostly interest rates in August alone, that’s pretty much the entire gap between Q3 2022 and Q3 2021,” Reeg said.
A company spokeswoman declined to comment further on the energy costs.
Caesars wasn’t the only operator to see energy prices soar in July, August and September — traditionally the hottest months of the year in Las Vegas.
Andrew Diss, director of government affairs for Meruelo Gaming Group, said energy costs for the privately held company’s two casinos are very different. Sahara, which gets its electricity outside of NV Energy under the state’s 704B law, locked in its costs a year ago. The Grand Sierra Resort in Reno, a customer of NV Energy, saw interest rates jump during the quarter.
“I’m glad we’re not currently paying the fees everyone else is paying through NV Energy (in the Sahara) but we’re definitely feeling it at GSR,” Diss said in an interview.
The 704B statute was created in 2001 to allow businesses with a large electrical load to exit NV Energy’s power service and purchase power from another provider, so long as they pay an “impact fee” set by state regulators. More than a decade after the law passed, a handful of casino operators joined the 704B process to reduce electricity costs. Others, like the privately held Resorts World Las Vegas, entered into a market-based electricity supply agreement with NV Energy aimed at eventually powering the property with renewable resources.
During the earnings call, several Las Vegas gaming companies were reluctant to go beyond simply acknowledging increased energy costs in the third quarter.
However, Truist Securities gaming analyst Barry Jonas was able to glean more details from company management during discussions with executives following the earnings. He published the remarks in several research notes.
Boyd Gaming said its maintenance and ancillary costs rose 14 percent in the quarter. Management said costs are “tied more to higher tariffs than usage and are concentrated in Las Vegas, where the third quarter is the peak power period.”
Red Rock Resorts executives told Jonas that the company’s incidental expenses were up almost 20 percent.
Spokesmen for both companies declined further comment.
Golden Entertainment saw its cash flow decline 23 percent in the third quarter due to labor costs and higher utilities. The Company owns the downtown STRAT Resort, one of the Las Vegas-based company’s eight casinos located in Las Vegas, Laughlin and Pahrump. Golden also owns 65 taverns that operate throughout the Las Vegas Valley.
Golden President Charles Protell told analysts that operating expenses were up 25 percent year-over-year.
“If you look at our quarter-over-quarter declines, half of them were related to labor plus utilities and other maintenance types of fixed costs,” Protell said on the third-quarter earnings call. “You would expect some utility energy costs to go down as you get into the wintertime compared to the peak summer season when you’re trying to cool large buildings in Las Vegas.”
In an emailed statement, NV Energy spokeswoman Jennifer Schuricht said natural gas prices have risen more than 65 percent nationwide since 2021. Natural gas is the primary fuel used to generate electricity in Nevada. She said the company plans to switch to additional renewable energy sources.
“NV Energy has put in place a mechanism that spreads any natural gas cost increases over time to reduce the impact on customers,” Schuricht said. “In this case, the cost increase associated with natural gas for customers was capped at 25 and 30 percent.”
She said natural gas costs were expected to fall in 2023, “which would be reflected in customer tariffs.”
Aside from diss and a few comments on the quarterly earnings call, most casino company executives were reluctant to raise energy costs any further.
Use of solar increases
For two major casino companies — MGM Resorts International and Wynn Resorts — high energy prices have not been an issue. Both companies left NV Energy in the 2010s under statute 704B.
When asked on the company’s conference call if MGM faced the same problem as its peers with high energy costs, CFO Jonathan Halkyard said the casino operator will source its energy tariffs from other sources through 2023.
“We didn’t see any appreciable surge there,” Halkyard said. “In fact, the use of our energy efficiency programs has decreased slightly.”
An MGM spokesman said the company’s expanded use of renewable resources has helped reduce costs.
In 2015, MGM Resorts installed one of the nation’s largest rooftop solar arrays, capable of generating 8.2 megawatts of energy, with the installation of 26,000 panels at the Mandalay Bay Convention Center.
Last year, MGM Resorts expanded its solar initiative, partnering with renewable energy developer Invenergy to build the MGM Resorts Mega Solar Array on a 640-acre site about 30 miles north of Las Vegas, home to 323,000 solar panels.
In a statement to The Nevada Independentan MGM spokesman said the Las Vegas solar array produces up to 90 percent of the company’s daily electricity needs and covers 13 properties on the Strip that comprise more than 36,000 hotel rooms.
Wynn Resorts has taken a similar approach.
In 2018, Wynn secured a 160-acre site near Fallon for a 20-megawatt solar array that will provide 75 percent of peak electricity demand with renewable energy for Wynn and Encore Las Vegas. The company added a solar array on the roof of the Wynn Convention Center in Las Vegas, adding another 2 megawatts of solar power.
Erik Hansen, Wynn’s chief sustainability officer, said the company’s use of solar energy exceeds the requirements of Nevada’s Renewable Portfolio Standard, which applies to both utilities, such as NV Energy, and private companies that regulate utility operations through statute 704B have left.
“One of the key factors why 704B has been so successful for big customers like MGM and Wynn and others is that we were able to integrate our own renewable energy,” Hansen said in an interview. “We have a scale of supply with offsite solar. Basically it is a hedge against the broad gas market.”
Even companies in the 704B program face increased costs. Caesars, for example, is on the 704B program and does not purchase power from NV Energy.
Diss said the Sahara buys power from Tenaska, a private US-based energy company. He said Tenaska interest rates are expected to rise over the next year, potentially by as much as 30 percent above Grand Sierra’s currently set rates.
Gaming executives said NV Energy’s tariffs include numerous line items approved by the state legislature that affect their bills and those of their employees. One example Diss gave was an add-on for a protection plan that covers natural disasters.
“The best way for lawmakers to deal with this kind of thing is to go before the Public Utilities Commission,” Diss said. “They’re the experts. The 63 MPs are not energy experts like the commissioners in the PUC.”
Schuricht said the tariffs are the result of state policy mandates set by lawmakers, including energy efficiency requirements, renewable and clean energy programs, and programs to support low-income customers.
“NV Energy is required to bill customers for these government-imposed program costs,” she said. “All tariffs charged by NV Energy are approved by the Public Utilities Commission.”