Will Warren Buffett Survive the Las Vegas Heat Wave?

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The current 2013 heat wave in the West is becoming almost unbearable. It has been extremely hot in Las Vegas and in the desert region of the western United States. The power companies are running on overdrive, and we cannot help but wonder what this does to the operating costs for companies like NV Energy Inc. (NYSE: NVE). In fact, the operating costs have to be so high that Warren Buffett may be wishing that his MidAmerican unit of Berkshire Hathaway Inc. (NYSE: BRK-A) would have announced a deal to buy the electric power provider after this heat wave rather than before it.

To show just how hot is has been, the temperature hit the prior record high of 117 degrees over the weekend. You cannot even care at that point that it is “a dry heat.” An oven is a dry heat as well, but please don’t stick your head in it.

Becoming a unit of Berkshire Hathaway’s MidAmerican electric power unit is said to not have any change on the local power rates for consumers. Those rates are set by the Public Utilities Commission of Nevada. Unfortunately for NVE, its cost structure during a heat wave like you are seeing does not lock in the operating costs.

NV Energy’s filing back on June 4 sought to seek to lower overall electric revenue requirement by $9.4 million and to increase its overall gas revenue requirement by $10.2 million. In that filing it was represented that commercial customers would see their electric rates decrease by about 2.81%, but typical residential customers in northern Nevada would experience an increase in rates of less than 2%.

There is a bit of a personal note on how hot it has been in Las Vegas. I was best man in a wedding in Las Vegas on Saturday of this past weekend, and it is the first wedding I have ever heard of where three participants were almost knocked out of participation. It was so hot that the bus air-conditioning system was only a little help on the way to and back from the church. We almost lost the bride to heat exhaustion. One groomsman had to be replaced due to heat exhaustion, and the ceremony was just a couple of minutes short of causing the groom’s sister to drop out of the bridesmaid’s line during the wedding.

NV Energy serves approximately 2.4 million Nevada citizens, as well as about 40 million tourists each year. As of December 31, 2012, NV Energy served the following numbers of customers:

  • Approximately 850,000 electric customers, primarily in Las Vegas, North Las Vegas, Henderson and adjoining areas
  • Some 324,000 electric customers in the western, central and northeastern Nevada, including the cities of Reno, Sparks, Carson City and Elko
  • Approximately 153,000 customers with natural gas service in the Reno/Sparks area of Nevada

The Las Vegas Sun newspaper’s website reported that seven people were hospitalized throughout the Las Vegas Valley on Sunday, and that brought the weekend’s number of heat-related hospitalizations up to 28. The paper also said that Las Vegas Fire & Rescue responded to 15 heat-related calls over a 14-hour period from midnight Saturday to 2 p.m., but it also said that there had been 78 calls to 911 concerning heat-related illnesses.

Warren Buffett generally does not change a deal nor does he back away from one. If he would have spent the last couple of days in Las Vegas, he probably would have wondered what he was thinking about buying a fixed-rate power company out in the middle of the desert.