Maine’s binary choice: achieve climate action goals or try to create “Consumer Owned Utility”

Well deserved outrage over the abysmal performance and poor customer service of Maine’s two investor-owned utilities (IOUs) has spawned an initiative to replace them with a “consumer owned utility” (COU), called Pine Tree Power. Possibly during the next week the Maine Legislature will vote on LD1708, a bill that puts the acquisition of those IOUs by the State to a public referendum. Pursuit of a COU poses a direct threat to the timely implementation of Maine’s climate action goals as well as modernization of its electricity distribution grid.

That this initiative and another to block the construction of a transmission line from Quebec to central Maine are being promoted by those normally associated with progressive politics is not surprising. What is surprising – appalling actually – is that the marketing campaigns of these two issues are almost entirely driven by the tactics and style of the extreme right: misrepresentation, half-truths, false promises, and spurious correlations.

Creation Myths

The best illustration of the kind of mendacious marketing going on is to be found on the webpage of Our Power Maine (OPM) under “The Case for a Consumer Ownership.”

The $9 billion in savings promise

The keystone of OPM’s page is a chart with the caption: “According to a comprehensive analysis by Dr. Richard Silkman in 2020, a consumer-owned electric utility would save Maine ratepayers over $9 billion over 30 years.”  The reality is that Dr. Silkman simply changed the input of a financial model created by London Economics International (LEI) as part of their analysis for the Maine Legislature. LEI’s original analysis came to no such conclusion. When finally given the opportunity to review Silkman’s “edits” LEI pointed out numerous and substantial errors in his changes.[i] For example, nearly half of Silkman’s savings comes from his unique interpretation – referred to as “gaming” by LEI – of Federal Energy Regulatory Commission (FERC) rules whereby other utilities in New England would effectively subsidize Pine Tree Power.

More importantly, anyone who claims any single number for savings or costs is being intellectually dishonest. There are so many uncertainties that very small changes in this model make huge differences. The best one can do is present possible outcomes in ranges, ranges that span net cost and net benefit.  LEI understood this and presented both short and long term matrices of outcomes for four different inputs. As an example, here is short term management fee impact on whether it’s a net cost or benefit.

Pine Tree Power and average COU cost and statistics

OPM and other advocates are quick to cite the average statistics for reliability and costs for COUs. What they actually cite are the statistics for members of the American Public Power Association (APPA) which are mostly small municipal utilities. Only 5 of the 2,100 APPA utilities are as large as or larger than what Pine Tree Power would be: Salt River Project, Long Island Power Authority, Los Angeles Department of Water and Power, City of San Antonio, and the Sacramento Municipal Utility District. CMP and Emera are so bad, all of these have better reliability. But the average rates of these 5 are more or less the same as the average of CMP and Emera. If you are not limiting the data to the big 5, there’s plenty of APPA utilities with much worse reliability and higher costs than CMP.

Winter Park

OPM cites Winter Park, Florida as a great example of converting from an IOU to a COU. Winter Park is a 9 square mile suburb of Orlando that bought out its distribution wires from Progress Energy, which still surrounds it. It did not by any stretch do what is proposed for Pine Tree. OPM is attempting to compare a 700,000 customer, 21,000 mostly rural square mile utility’s cost and reliability to a 9 square mile suburb with 15,000 customers.

Long Island Power Authority rate drop

OPM tells us that when the state of New York took over Long Island Lighting and formed the Long Island Power Authority in 1998, rates dropped 20%. What OPM does not say is that it took 13 years for the takeover to happen and that the 20% rate drop was not the result of any reduction in costs, but rather done by postponing debt repayments. This was a manufactured rate drop as a concession to customers. The postponed debt and principal payments were not forgiven and simply got added on to later years.[ii]  LIPA (the sole US example of a state acquiring a large-scale IOU) is a poster child for what can go wrong. After 36 years, LIPA still has abysmal reliability and high rates. And just last week, LIPA fired the IOU it had hired to run its operation over management fee disagreements and is seeking a replacement.

Claim that 6 COUs were first to reach 100% renewables

Customers do not have choice of supplier in any of the 6 utilities identified, whereas Pine Tree would be required to offer choice. Two of the utilities generate their own power which their customers must take. Pine Tree is not allowed by law to generate any electricity. But here’s the clincher. Four of them simply chose to buy renewables for their systems, and since their customers have no choice, they are “100% renewables.” That’s just contracting for power, and any utility can do it.

Bottom Line

The advocates of LD 1708 need to end this cynical manipulation of the public and be honest, brutally honest, regarding what it is they are advocating and its potential consequences.

Creation of Pine Tree Power does not:

  • Assure reductions in rates
  • Assure reliability without significant new capital investment in infrastructure
  • Happen overnight – expect 5 years or more
  • Might never actually close – since 2000, over 60 municipalizations have been attempted; 51 did not complete and of the 9 which did, 2 sold their systems back to the investor owned utility. (CEA)

What seems lost on everyone is that the performance of the IOUs this is attempting to resolve exists primarily because the regulatory structure and especially the Maine Public Utilities Commission has failed to do its job. Proper, modern rate regulation, as practiced in other states, could solve the IOU issues.

The effort to implement Pine Tree Power, however, does have the potential to significantly slow the introduction of necessary regulatory changes to bring the Maine distribution grid into the 21st century and significantly threatens the timely implementation of Maine’s decarbonization goals.

How do you estimate ratepayer impacts, time differentiated rates, financing, etc., if the type of utility involved and its cost structure is at issue or in question? Distribution grid design and planning methodologies require significant modeling moderated by management judgments – they are pointless exercises unless the management that will implement them are making those judgments. Until it is clear what kind of ownership model will prevail and who the management might be, all of these efforts come to full stop.

Bottom line: grid and rate reforms will have to wait until after this is sorted out one way or the other, which could be many years.

Maine does not have the time.

[i] Letter to EUT Committee from London Economics, July 29, 2020.


Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.