Month: October 2023

Proponents of Pine Tree Power make some big promises if the referendum passes. Unfortunately, many voters do not have the expertise to distinguish between genuine facts and the misleading assertions behind these promises. Frustrated by unsatisfactory utility performance and costs, some might easily be swayed by seemingly compelling yet baseless arguments. So, let’s test the accuracy of the two central claims made by Pine Tree Power proponents.

Claim 1: Since some consumer-owned utilities (COUs), on average, have better reliability and lower costs than investor-owned utilities (IOUs), changing the ownership of Maine’s IOUs into a COU will result in improved performance.

This claim makes a false equivalence. Pine Tree proponents cite data from over 2,000 primarily small urban municipal utilities. They conspicuously exclude data from rural cooperatives that more closely match our current utilities and their reliability. The Frankenstein of Pine Tree Power, where two IOUs with 21,000 square miles of largely rural territories serving 800,000 customers would be combined, stands in stark contrast to existing COUs. Unlike these urban COUs, which built their own infrastructure, Pine Tree would integrate systems developed and overseen by two different IOUs. Additionally, Pine Tree begins operation with the onus of a massive mortgage of tens of billions and the extra expense of hiring a third-party manager. It would keep the existing union and workforce, implying no labor cost savings. It would forego its exemptions from property taxes.

“Apples and oranges” doesn’t begin to capture the disparities in this comparison.

However, the one legitimate comparison with a COU that can be made is with the Long Island Power Authority (LIPA). LIPA is the sole COU formed by a complete private utility takeover and mirrors Pine Tree’s characteristics. LIPA customers must repay a massive mortgage and pay a third-party company for operations. And LIPA’s performance? After the 13 years it took to create, followed by 24 years of operation, it boasts the nation’s highest commercial rates and highest residential rates in NY and NJ. A recent JD Powers survey ranked LIPA similarly to CMP. Currently, it’s deliberating the replacement of its third third-party operator. Due to persistent customer dissatisfaction, the NY State Legislature twice initiated evaluations for improvement. The Long Island Chamber of Commerce proposed LIPA revert to a private utility only last year. With public hearings in progress, LIPA’s fate remains uncertain. Regrettably, Long Island customers have had miserable service and high rates for 37 years.

Claim 2: Pine Tree will save customers $367 annually for 30 years, starting immediately.

This is the most egregious of Pine Tree’s claims. The source of this savings is based on using 4-year-old assumptions in a computer simulator – assumptions both woefully out of date and found to be deeply flawed by experts – which concluded that the total savings would be $9 billion ($367 per customer per year, beginning in January 2024).

The fact is that Pine Tree proponents have never done a current, peer-reviewed comparative analysis, one that addresses the uncertainties in such an analysis, to support any savings claims.

So, where did the $367 “savings” come from? Four years ago, the Legislature hired a consulting firm to evaluate whether there would be savings from a takeover. Their analysis concluded that a takeover would result in added costs to ratepayers during the first ten years of operation with eventual savings later. However, they stressed significant uncertainties in such a forecast, and a wide range of outcomes were possible. Pine Tree proponents took the consulting firm’s 4-year-old forecasting model, manipulated it with favorable assumptions (subsequently determined to be deeply flawed by other experts), ignored uncertainty analysis, and declared ratepayers would cumulatively save $9 billion over three decades, or $367 annually per customer. The consultant’s forecasting model used by Pine Tree proponents assumed a future that bears no resemblance to what we see today.

A credible analysis would consider variable start dates for the Pine Tree takeover, potential buyout prices, ranges of possible costs for a management company, fluctuating interest rates, and differing economic parameters likely over 30 years. A credible analysis would present a range of outcomes expressed as probabilities. You don’t need a Ph.D. in economics to understand that it is pure nonsense that an analysis with these uncertainties would result in the forecast of any single number. An organization that wants to take over a complex system like an electric utility should know this.

A competent assessment of the cost implications of a takeover, accounting for the uncertainties, would conclude that the most probable outcome is a wide range of added costs, not savings, to ratepayers that range in the billions.

Whether Pine Tree’s baseless arguments are deeply misinformed or deliberate misinformation does not matter. Voters must ask themselves: “Could I trust any group that would make such arguments to run my electric utility?”

While it’s undeniable that our utilities need to be better, the solution isn’t Pine Tree Power. Pine Tree Power might be emotionally satisfying in the near term but will likely make matters far worse. Maine only recently enacted reforms to address performance, with more to come. A “no” vote allows these reforms to take effect and avoids the disaster ensuing if this referendum passes.

The following was published in the Portland Press Herald on September 22, 2023

The ads flooding the airwaves about the November referendum on Pine Tree Power Company make it sound like there are two choices: vote “yes” to takeover CMP and Versant and form Pine Tree, or vote “no” and keep the status quo. Proponents claim that replacing CMP and Versant with Pine Tree will result in lower rates and higher reliability. Opponents of the referendum say that maintaining the status quo is the low-cost option for ratepayers in the future. Neither argument squares with reality. The process to set up Pine Tree represents an existential threat to the achievement of Maine’s climate and grid modernization goals. If it operates, ratepayers will be worse off than now. But a “no” vote is not choosing to keep the status quo. A “no” vote allows very recent utility regulatory reforms to take effect and permits the Legislature to strengthen those reforms in the future– reforms that will correct the poor cost, reliability, and customer service Mainers have been enduring for years. 

Mainer’s dissatisfaction with utility performance is warranted. What Mainers don’t realize is that poor performance is primarily the result of inadequate and anachronistic regulation. Thirteen other states use performance-based ratemaking (PBR), where what utilities earn depends on their performance. Maine only implemented a version of PBR last year – it is a critical first step that the Legislature should further strengthen over time. But it will take time to see the results. Unfortunately, Pine Tree advocates opposed implementing PBR. They blocked a bill I introduced to strengthen the existing law in this session. Frankly, had some members of the Legislature worked on regulatory reforms rather than a utility takeover over the last five years, we’d all have been better off.

Many of our climate action goals necessarily involve our electric utilities. If the referendum passes, the State faces years of uncertainty regarding who is in charge, putting climate and grid initiatives on hold until Pine Tree is fully operational or fails to be established, which could take years, if not a decade, to determine. The takeover of an entire private utility to form a public one only happened once: Long Island Power Authority took 13 years to complete. Many small municipalities have tried to carve themselves out of their current utility- the latest example, Boulder, Colorado, gave up after ten years.

Uncertainty would also delay grid modernization. Last session, we passed a bill to change how our electricity grid is planned and controlled, optimizing its operation for the least cost and highest efficiency. This future grid will encourage local power generation, offering enhanced control over electricity consumption and flow. However, designing this integrated system is complex. It cannot be done until all the uncertainties of Pine Tree are resolved.

And it’s not worth the wait. Claims that Pine Tree would reduce costs and reliability are pure conjecture. If one were to create an electric utility from scratch, the data on public utility costs and performance clearly suggest that a public ownership model would be ideal. But the takeover and then combination of two different utilities with three different service territories, one of which is not even connected to the New England grid, keep the union intact, continue to pay property taxes, pay an outside company – likely a utility – to run the company and pay an enormous sum to acquire them is a totally different set of circumstances. As an example, Long Island Power Authority, now in its 24th year of operation, was rated just behind CMP in the most recent JD Powers customer satisfaction survey. Pine Tree would begin its operation with a mortgage costing tens of millions. This mortgage will need to be recovered from ratepayers in addition to its operational costs. The reality is that any reasonable analysis of the cost impact of a takeover – one that considers the uncertainties in a 30 or 40-year future look – is additional ratepayer costs that range in the billions.

Passing the referendum might be emotionally satisfying in the short term; however, it would also undermine Maine’s climate and grid objectives for years. And if Pine Tree Power became operational, we would be worse off than we are now. I urge voters to reject the referendum, give regulation time to work, and let your legislators know you are counting on them to continue to modernize our grid and reform the ways utilities are regulated.