Energy Mosaics

(Op-Ed published in Bangor Dail News, 7/4/23)

The future of solar energy in Maine and our state’s climate goals could be at risk, depending on which of two bills is potentially enacted by the Legislature this week: LD 1347 or LD 1986. Both bills aim to address the way solar projects are compensated for the electricity they generate, but only LD 1986 will actually support solar development and our state’s clean energy goals.

Currently, solar projects are paid the retail rate for power, which is higher than its market value. This cost difference needs to be recovered. Both bills recognize that the current method overpays for solar power compared with its actual value. It is crucial to change this system so that we only pay for the true value of solar energy.

LD 1347 has been largely drafted to protect a few industrial interests, but would have a direct impact on tens of thousands of customers with rooftop solar and participants in community solar. If enacted, this bill could significantly hinder the future growth of individual and community solar projects throughout Maine. Last week, the Biden administration announced a $7 billion grant program to promote local solar, and LD 1347 would create barriers for individual Mainers and Maine companies to compete for these funds. It would also make several categories of potential projects ineligible.

On the other hand, LD 1986 has been developed in close coordination with the Governor’s Energy Office and is supported by some ratepayers and solar providers. It also aims to end the current method of compensation, however, it does not jeopardize existing projects. Instead, it proposes a correction in how new projects are paid, aligning them with a value established by the Public Utilities Commission, similar to the approach used in other states.

The payment method used for solar developers and homeowners is called net energy billing, which is quite complex. It involves determining the true value of solar power, understanding how it interacts with the distribution grid system and recognizing its impact on customer bills.

Unfortunately, there has been a lot of misinformation going around about this policy, including an attempt to lobby on behalf of LD 1347 in the court of public opinion. For example, many people have been falsely told that the high cost of electricity is due primarily to net energy billing. In reality, solar power has actually reduced the need to purchase expensive natural gas power, potentially lowering the standard offer price. Many have also argued that LD 1347 would reduce rates while LD 1986 does not. In truth, both bills aim to reduce costs, but they employ different approaches.

Additionally, there have been incorrect assurances that LD 1347 would have no commercial consequences. However, many companies have made it clear that existing projects might not continue if this legislation is enacted, and several ongoing projects could be terminated.

And finally, many have been misguided by the notion that only large grid-scale solar projects are necessary. While grid-scale solar is indeed crucial, it alone cannot meet the demands of electrifying our grid. We require substantial amounts of both grid-scale and locally generated solar power, and LD 1347 could be detrimental to locally generated projects.

Mainers should take pride in our leadership on climate issues and our forward-looking Climate Action Plan. LD 1986 fully supports these goals and ensures continued progress. On the other hand, I believe LD 1347 is contrary to our state’s aspirations in achieving these climate goals and deserves a “no” vote in both chambers of the Legislature when it comes up for a vote. Please contact your state representative and senator and urge them to defeat LD 1347 and pass LD 1986.

The future of solar energy in Maine depends on it.

Gerry Runte

In Maine and in state legislatures across the nation, the nuclear industry lobby is promoting a renewed call for investments in nuclear technology as a source of clean energy. In the Maine Legislature, there have been three bills this session – L.D. 486, L.D. 689 and L.D. 1549 – that would promote nuclear power plants in our state.

While it’s important that Maine pursues solutions to provide affordable, clean energy, nuclear power isn’t the answer – and likely never will be.

Since launching my career in the energy industry in 1975, I have repeatedly witnessed campaigns heralding the pending emergence of nuclear power. In the mid-’70s, there was a promise that 1,000 reactors would be up and running by 2000, producing power “too cheap to meter.” As recently as a decade ago, the U.S. was reportedly again on the cusp of a nuclear renaissance. But this renaissance and other, earlier predictions never materialized. In this latest campaign, the spotlight is on small modular reactor technology.

However, there is no market for commercial nuclear power plants in this country, and there has not been one for 30 years, if ever. Only one new nuclear site, Plant Vogtle in Georgia, has been built on American soil since the mid-1980s. Public apprehension, concerns over nuclear waste and the environmental movement are often cited as reasons that nuclear energy hasn’t lived up to expectations. But none of these issues has been the real roadblock to the construction of nuclear plants – it has just been plain old economics.

Commercial nuclear power is a business, and like all businesses, it requires a market-competitive, customer-appealing product. The hard truth is that when a product isn’t financially viable and there are more cost-effective alternatives available, market demand evaporates. Nuclear power has failed in the competitive market of electricity generation, where there are less complex, more affordable choices.

Vogtle is expected to start operations this year, six years behind schedule. Its total cost is at least $35 billion, more than double the original projections. And its electricity will cost several times more than its most expensive alternative. Vogtle is by no means unique in this regard; similar plants in France and Finland that have started operations in the last few months have experienced the same exorbitant costs and late delivery. Vogtle is just the most recent example of nuclear technology consistently falling short of lofty expectations.

Will small modular reactors change this narrative? No matter the kind of nuclear plant, all units require an operating license from the U.S. Nuclear Regulatory Commission, a grueling process that can span decades. To date, only three developers of small modular nuclear technology have initiated an application with the NRC. The one company making the most progress, NuScale, started its application in 2009, yet it is still roughly a decade from completion. Earlier this year, NuScale declared delivery setbacks and a doubling of projected costs that may already be uncompetitive. It seems inevitable that their costs will continue to climb and delays will stretch further – a familiar refrain.

A few experimental, small, liquid sodium-cooled fast breeder reactors are also being promoted. Despite research into this technology dating back to the early 1950s, commercial success has yet to be achieved. These “fast” reactors are even further away from becoming commercially viable than the three that have already filed applications with the NRC.

Maine will undoubtedly need more clean and affordable electricity sources as we head into the future, and there are a variety of technologies that should be considered as we build our portfolio. Those options include technologies that are nearing commercialization and offer credible delivery and affordable electricity without the baggage of nuclear power.

It’s important that the state not be swayed by this most recent campaign promising cheap nuclear electricity just over the horizon. It was just over the horizon 50 years ago, and will remain just over the horizon 50 years from today.

From Commentary in the Portland Press Herald, May 24, 2023

Worthington Sawtelle was formed at the end of 2010 as a Limited Liability Company in New Mexico. It functioned as an independent consultancy for a few years but steadily lost business when the family moved to Taiwan and Japan. By 2014, it had become a pro bono advisory with no revenue. Continuing its status as an LLC served no purpose and it was closed this year.

TESTIMONY BEFORE THE ENERGY, UTILITIES AND TECHNOLOGY COMMITTEE

An Act To Ensure Transmission and Distribution Utility Accountability

L.D. 1959

(GOVERNOR’S BILL)

Gerry Runte, Worthington Sawtelle LLC

March 17, 2022

Senator Lawrence, Representative Berry, and Members of the Joint Standing Committee on Energy, Utilities and Technology (EUT): My name is Gerry Runte and Managing Director of Worthington Sawtelle LLC. 

Testimony in support of L.D. 1959.

It is well established and understood that Maine’s investor-owned utilities (IOUs) have very poor reliability and customer service. Until the introduction of LD 1959 there seemed little acknowledgement that they operate the way they do because they are allowed to conduct “business as usual.” The current rules as promulgated by the PUC and legislature have enabled CMP’s poor performance and will continue to do so as long as they remain in place. The solution is also in the hands of the PUC and the legislature. Performance-based rate policies, such as those laid out in LD1959 are the best first steps towards improving CMP’s performance and bringing value back to Maine citizen ratepayers.

Currently 16 states have some form of advanced performance-based ratemaking (PBR).

Source: Navigant Consulting

Performance based mechanisms can be designed to assess safety and reliability, customer satisfaction, facilitating customer owned generation and adopting of energy efficiency programs.

Hawaii

Hawaii is the latest and most advanced version of PBR in the US. Hawaii implemented its version of PBR last June. It illustrates one way this approach can work to end the cost of service “spend money to make money” model. [i] Hawaiian Electric Company is required to submit a 5-year plan that begins with fixed rates the first year and limits annual rate increases to three factors: inflation; unforeseen events; and a “productivity factor.” The productivity factor is based on metrics Hawaiian Electric’s for customer experience, utility performance and desired societal outcomes. If Hawaiian Electric reduces its costs below the annual limits, it can keep the difference; if its costs exceed the limits it takes a loss. See Table the table  below.

Source: State of Hawaii Public Utility Commission

Maine

In the oft-cited J.D. Power studies[ii], 4 of the 6 utilities that scored above average in CMP’s category (East Large) all operate in states where some form of PBR exists. Maine has no performance standards, none. Maine’s regulatory structure is an anachronism and follows last century’s cost of service model. Is it any wonder that the IOU’s performance is as poor as it is?

You’ll hear two major objections to fixing the IOUs with PBR: we tried it and it didn’t work; and the Hope Supreme Court decision prevents us from penalizing them.

Maine experimented with a very rudimentary form of PBR twenty years ago. Poorly constructed and not having the advantage of today’s technology, it was deemed a failure.

A Supreme Court case, FERC v. Hope Natural Gas, is frequently cited by opponents of PBR as prohibiting a penalty on utilities of it threatened a reasonable rate of return. Washington State, Virginia, Florida, and Minnesota have all successfully navigated the perceived constraints of this case, implementing PBR multiyear rate plans.

LD 1959

This legislation is a great first step in bringing Maine’s regulation of public utilities into the 21^st century. But is only a first step. Once this method is implemented, Maine needs to take a detailed look at best practices around the country and in other countries to further improve and refine this starting point. The bill should be amended to add this requirement.

A long time ago while working for a utility, a friend quipped “The number one core competency of investor-owned utilities is to make sure no one changes the rules.” The IOUs behave the way they do because that’s what the rules allow them to be, and they have been very successful making sure the rules do not change.

Change the rules and the behavior will change.

Respectfully.

Gerry Runte

[i] https://puc.hawaii.gov/wp-content/uploads/2019/05/PBR-Phase-1-DO-1-Page-Press-Release.05-23-2019.Final_.pdf

[ii] https://www.jdpower.com/business/press-releases/2020-electric-utility-residential-customer-satisfaction-study 

Let’s get this upfront right away: Central Maine Power Company (CMP) metrics and reputation for reliability and customer service are less than desirable.[i]  CMP has created such enmity among its customers that some legislators in Maine would rather forego reducing greenhouse gas emissions by blocking a vital CMP transmission line as well as attempting to take the utility over to form a “consumer-owned utility”. CMP operates i accordance with the rules it is given. Maine’s PUC and its legislature can fix this problem, and the easiest solution to fix this problem is in their hands: performance-based rates.

Rate Regulation

A bit of history first. Electric utilities began to be regulated as monopolies early in the early 1900’s and what evolved was what is now called “cost of service” regulation. Essentially a utility is allowed to charge an amount that recovers its allowable expenses as well as a fixed return on its investment. This model encouraged new investment by utilities to grow their systems while keeping rates down by limiting their profits. It worked quite well through the 1980’s, spurring economic growth throughout the country. Beginning in the ‘80s deregulation began, opening up competition at both the retail and wholesale level. Some utilities took advantage of this hybrid of deregulation and the cost-of-service (COS) model, such that misguided investments were made with the belief that they would automatically be recovered in rates, and at the same time, customer service and reliability began to drop in some areas. Several states began to enact “incentive-based ratemaking” or “performance-based ratemaking” to counter this problem.

Performance Based Ratemaking

Currently 16 states have some form of advanced PBR.

Source: Navigant Consulting

The basic differences between traditional regulation and PBR are shown in the table below.

Source: Advanced Energy Economy

Performance incentive mechanisms can be designed to assess safety and reliability, customer satisfaction, facilitating customer owned generation and adopting of energy efficiency programs.

Hawaii

Hawaii is the latest and most advanced version of PBR in the US. Hawaii’s implemented its version of PBR last June. It illustrates one way this approach can work to end the COS “spend money to make money” model.[ii] Hawaiian Electric Company is required to submit a 5-year plan that begins with fixed rates the first year and limits annual rate increases to three factors: inflation; unforeseen events; and a “productivity factor.” The productivity factor is based on how Hawaiian Electric does in terms of customer experience, utility performance and desired societal outcomes. See chart below.

Source: State of Hawaii Public Utility Commission

If Hawaiian Electric reduces its costs beneath the annual limits, it can keep the difference; if its costs exceed the limits it takes a loss.

Maine

Let’s go back to the J.D. Power study. 4 of the 6 utilities that scored above average in CMP’s category (East Large) all operate in states where some form of PBR exists. So what about Maine? Maine has no performance standards, none. Maine’s regulatory structure is an anachronism and follows last century’s cost of service model. Is it any wonder that CMP’s performance is as poor as it is?

Empty Excuses

You’ll here two major objections to fixing CMP with PBR: we tried it and it didn’t work; and the Hope Supreme Court decision prevents us from penalizing CMP. They are nonsense.

Maine experimented with a very rudimentary form of PBR twenty years ago. Poorly constructed and not having the advantage of today’s technology, it was deemed a failure.

A Supreme Court case, FERC v. Hope Natural Gas, is frequently cited by opponents of PBR as prohibiting a penalty on utilities that threatened a reasonable rate of return. Washington State, Virginia, Florida, and Minnesota have all successfully navigated the precedent of this case to implement PBR multi year rate plans.

Bottom Line

A long time ago while working for a utility, a friend quipped “The number one core competency of investor-owned utilities is to make sure no one changes the rules.” CMP behaves the way it does because that’s what the rules allow it to be, and it has been very successful making sure they do not change.

Change the rules and the behavior will change.

[i] https://www.jdpower.com/business/press-releases/2020-electric-utility-residential-customer-satisfaction-study. 

[ii] https://puc.hawaii.gov/wp-content/uploads/2019/05/PBR-Phase-1-DO-1-Page-Press-Release.05-23-2019.Final_.pdf

Watched a fascinating YouTube video on climate change and personal responsibility. It is well worth the 15 minutes or so to watch all the way through (URL at the end of this article) but if you don’t have the time, let me summarize it for you. In a nutshell, while taking personal responsibility for actions to mitigate greenhouse gas emissions (GHGE) is laudable, too much focus on individual actions can distract us from what really needs to happen.

But let’s take a step back and establish the context. Most people are aware that nearly everything we do to make our lives more comfortable – eat, wear clothes, drive vehicles, condition the air, using electricity, build buildings and roads – is destructive to the environment. We know that the big sources of GHGE are building heat, internal combustion engines, power plants. But many of us lack perspective on how much influence taking action on one front affects the other. Consider that the emissions resulting from making one new electric car is equivalent to that resulting from building 6 feet of roadway. So if we continue to build roads, switching to electric cars is not going to have a huge impact.

We need to also consider the sources of these emissions and the divide between rich and poor. Just having the richest nations cut back on their lifestyles is important, but the fact is that 63% of global GHGE comes from low to middle income countries. They are not living extravagantly, and, in actual fact, many are trying to simply escape poverty and become middle class. So, telling them to reduce emissions looks a lot like trying to keep them from improving their lot in life.  And telling countries to build solar and stop burning wood when they cannot meet basic needs doesn’t help. Consider this- a cheap and easy way for developing countries to build affordable housing is by using concrete. But concrete manufacture accounts for 8% of global GHG emissions. For some of these countries, more GHGE is a good thing.

Right now, the global population is nearly 8 billion and will exceed 10 billion by the end of this century. Animal based food production constitutes 57% of global GHGE, using 40% of the world’s habitable land. Eating less meat alone won’t stop climate change, but we can’t stop climate change without eating less meat.

Here’s where the personal responsibility discussion comes in. We’ve all heard the exhortations for everyone to do their part. Eat less meat, buy an electric vehicle, double glaze your windows, use heat pumps, turn off lights when not in use – the list goes on. We don’t appreciate the scale of the problem when this happens. During COVID most of the world’s population did many of these things, yet the total reduction in GHGE in 2020 was 7%.

The personal responsibility argument has been one of the most effective and sinister attempts to distract us from the reality of the situation. Few know that this argument about reducing your carbon footprint originated in 2005 when it was popularized by the oil producer, BP. The fact is that if a person eliminated all GHGE over a 70 year lifespan it would amount to 1 second of emissions from the global energy sector.

The best you can do is deal with the realities of the situation. You can promote your priorities through your behavior. If you choose to eat less meat or drive an electric vehicle and can afford to do so, great. But don’t do it because you feel guilty by not doing so. Do it because you will be doing your tiny, tiny part for systemic change we need.

What this means is that we need to appreciate the magnitude of this problem and focus on systemic change in technology development, politics, and the economy. Major investments and incentives in technological solutions are necessary. And as more people direct their purchasing to items that play a role in reducing GHGE, their costs will come down. Significant progress can be made by influencing those large levers in that system – politicians, technologists and industries – by people at the ballot box and by voting with their buying power.

So do your part with lifestyle changes AND make sure to elect the right people to pull the levers!

Kurtzgesagt YouTube video: https://www.youtube.com/watch?v=yiw6_JakZFc&t=318s

Last spring a bill (LD 1646) was presented in the Maine Legislature that sought to acquire the assets of Central Maine Power and Emera (Maine’s investor owned utilities – IOUs) in order to create the Maine Power Delivery Authority (MPDA), a quasi-governmental “consumer owned” transmission and distribution utility. (See blog article of May 14, 2019, “Maine wants to create a Power Authority: a bad idea”). The bill was held pending completion of an assessment of the costs and benefits of such an action, to be performed by a third party.  That assessment was released on February 14 and is summarized here. The most favorable reading of this analysis would conclude that the concept requires further analysis and that significant structural revision of the bill is necessary if it is to achieve any of its goals.  A less favorable conclusion is that converting Maine’s IOUs into a single government agency has very little likelihood of reducing costs or improving reliability.

The analysis, completed by London Economics International, created a “Status Quo Scenario” that assumes the current structure is maintained and an MPDA Scenario that assumes the takeover occurs as described in the bill: both scenarios use the same assumptions for load growth.  Rate payer impacts were then evaluated and compared under each scenario. In addition, the report considered the likely barriers to the MPDA Scenario; legal issues; and likely timing among other factors.

Impact on ratepayer costs

Under the MPDA Scenario, Maine ratepayers may face higher electric bills for at least the next 10 and perhaps as many as 22 years. After this initial period there is a possibility that rates would then see a savings over the Status Quo because the MPDA could have cheaper financing.

The maximum additional cost or savings to the ratepayer is no more than 5% over Status Quo.

Ratepayer savings vs tax revenue

The reduction in ratepayer bills will come partly from the tax exempt status of MPDA, foregoing paying local, state, and federal taxes.  The consequence, however, is that Maine taxpayers would lose this revenue, causing taxes to go up by a like amount or reduction in services.

The MPDA is to be operated by a for-profit third party contractor, most likely a subsidiary of another IOU. Part of the lower customer bills would come If their management fees are less than the current returns for the IOUs, the Status Quo tax revenues from these services would also decline.

Electric utility unions vs ratepayer bills

Lower electric bills also are achieved by lowering the cost of labor, however the bill retains all Maine based unionized employees, who will want to preserve job security and see higher compensation.

Transaction cost is the single biggest parameter

The cost of acquiring the utility assets is the single most important factor in determining what will happen to customer costs. The 10 year breakeven point for costs occurs if the utility assets are acquired at about 1.5 times net book value (NBV), about the same valuation as Emera’s current possible buyer is considering.  But if assets are valued at even 1.7 times NBV, the 22 year payback comes into play.

Establishing that valuation will not be easy and could end up in protracted litigation that exceeds 4 years. Both CMP and Emera made it clear in earlier testimony that they saw their valuation at 2 times NBV.

The study made a point of correcting several assumptions that were used to “sell” the idea. The bill as written would not:

• Give control to ratepayers but rather to a board that does not solely represent their interests; in fact it reduces PUC control over rates
• Reduce administrative and management costs of transmission and distribution
• Provide financial benefits to local residents.
• Guarantee improvements in reliability.

In fact, as to the last bullet, the study states “Based on empirical evidence from the US Energy Information Administration (“EIA”), the ownership structure of a utility (i.e., customer-owned utility such as a cooperative versus an investor-owned utility) is not a clear-cut predictor of performance.”

Conclusions

The report makes the following recommendations regarding LD 1646: reconsider or revise how it defines MPDA’s board structure; not reduce PUC control over rates; define the standards of service by the MPDA; resolve the purchase price before eminent domain is considered; reconsider the clauses relating to union labor; and revise language regarding local property taxes and sales tax. LEI also recommends several procedural changes and clarifications to the bill as well as further study of the

• Tax issues
• Future capital needs to improve the reliability of the transmission and distribution network
• Develop optimized financing and capital structure of MPDA
• Define procurement process for the contractor that is in synch with other recommendations and goals.

If this concept is to be legislated, the bill as currently proposed requires major rework and then only after several key topics are more thoroughly examined.  Trying to rush this bill through this shortened legislative session would be a disservice to the State of Maine and its ratepayers, who deserve a very level of care in the design and implementation of such a significant change in their electricity delivery system.

The full study is available here: