Amazon Not The Worst News Berkshire Got Today

| About: Berkshire Hathaway (BRK.A)


Berkshire Hathaway unit NV Energy is facing pressure from customers over rates.

Big ones are moving to wholesale markets, small ones want the control of solar panels.

Pressure on the whole industry is growing, and a correction may be coming.

Amazon.Com (NASDAQ:AMZN) is now worth more than Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), but there was worse news for Warren Buffett's conglomerate in the day's news.

One of the new pillars of the company is energy. Starting with a company called Mid-American Energy, Berkshire has gone on an electric utility buying spree, and one of the jewels in that crown is NV Energy, which serves Nevada, including Las Vegas.

This should be easy money. NV Energy has had its way with state legislators for years, even changing state law to discourage the popular practice of putting solar panels on homes. The move is backed by a study that claims green energy kills jobs. There are moves by solar advocates to end the company's monopoly on providing power but they are unlikely to be successful.

So what's the problem? While consumers may be tied to their electrical power, business customers are not, and business customers are NV Energy's meat. Especially important are the huge casino companies that dominate the Strip and the state's economy. And this week two of them, Wynn Resorts (NASDAQ:WYNN) and MGM Resorts (NYSE:MGM), said they will pay $100 million to abandon the company starting in October, buying power on the open market.

The two resorts will be buying their power through a wholesale power market that covers Arizona and New Mexico, as well as southern Nevada. It was 50 GWatts of generating capacity, according to federal regulators, from coal, natural gas, and a nuclear plant in Palo Verde, Arizona, and 42 GWatts of demand at peak summer capacity. It is run through the Western Electricity Coordinating Council.

As large buyers of power abandon utilities like NV Energy over price, other customers have to take up the slack, meaning higher prices. This leads to more agitation for solar power, which gives customers long-term control over their costs, and to more political agitation.

This is not just a Nevada problem, and not just a Nevada story. Electric utilities are facing increased competition from both new power suppliers, new energy markets and consumers both large and small, and the political center can't hold. Giving customers more power means pressure on loans, capex, and ultimately growth.

Political answers to business problems don't work over the long term. NV Energy, and Berkshire Hathaway, are learning this lesson. So should utility shareholders. The Dow Jones Utility (DJU) average has been on a tear all year, rising 23%. Some analysts now say it is due for a major correction. I agree, and that correction may be bigger, deeper and longer than anyone now knows.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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