How will Pine Tree Power attract an outstanding, private-sector operations company?
Maine is a terrific place to live and work, which will help to attract top talent. And thanks to its access to low-interest capital, Pine Tree Power can attract and pay top-notch, experienced utility operators, based on their ability to meet specific performance benchmarks.
And let’s not forget: CMP and Versant are the worst and third-worst ranked in the nation for customer satisfaction — worse even than utilities with multi-billion-dollar cost overruns like Plant Vogtle in South Carolina, or found guilty of bribery or setting deadly wildfires like in Ohio and California. With a track record like this, almost any new operations company is an improvement!
The specifics of the competitive bid for the private sector operator are decided by the Pine Tree Power Company Board, with help from their own staff: their own Director, Chief Financial Officer, legal counsel, and consultants. Key state offices like the AG and Treasurer are also required to assist. If unsatisfied with the response to their initial RFP, the board also has the option and latitude to issue a new RFP, to be sure their private sector operator is the best in the business.
What could Pine Tree Power pay to attract this top-tier operations company?
Thanks to its unique low-cost capital stack, PTPC will be able to pay top dollar. Experienced, qualified large-utility executives do compete for jobs with salaries and stock options in the millions. For this reason PTPC’s operators will receive a robust minimum compensation contract, with performance incentives for additional earnings as established by the board.
The 2020 LEI feasibility study projects that PTPC’s private operator would require net earnings of $82 million per year in 2024, plus future increases. Note that this is net profit, and that all expenses are covered separately. In his review of LEI’s work, Dr. Richard Silkman projects operations contractor earnings of only $15.3 million.
While LEI and Dr. Silkman differ on these costs, both agree that top talent can be attracted and retained while still reducing overall rates.
How would Pine Tree Power Co. balance the goals of keeping rates low, while improving Maine’s electric grid?
Under CMP and Versant, our electricity reliability in Maine has been the worst in the nation, over the past five-years. Nationally, consumer-driven utilities are twice as reliable as profit-driven utilities, as the APPA has demonstrated. In other words, customers of consumer-driven utilities experience just half the average total minutes per year of outages.
Profit-driven utilities often promote a myth, claiming that consumer-driven utilities tend to underinvest. What is true is that profit-driven utilities, like CMP, do spend a lot more on pricey, “dumb grid” investments. This is because for every penny it spends, CMP gets a double digit return on investment. Because this perverse incentive to “gold plate the grid” is protected by U.S. Supreme Court case law, it is not something better laws or regulation can fix.
The Pine Tree Power Co will be required by law to prioritize reliability and meeting/exceeding our climate goals. Elected board members will and should be reluctant to raise rates, but will also be held responsible if they do not take proactive steps against extended outages.
Pine Tree Power will have plenty of access to capital. The Maine Turnpike Authority uses revenue bonds, for instance, as do consumer-owned utilities larger than CMP and Versant combined. The U.S. revenue bond market is worth trillions, and every investor and retirement fund includes them in a balanced portfolio.
How long will the transition take? Could there be delays?
In Maine’s case, all delays and the entire transition process should last 3 or 4 years. LEI’s 2020 legal analysis concluded that the proposal is fully constitutional. LEI also recommended a way to make the transition more rapid, which is included in the referendum language.
The myth of delay is promoted by the utilities themselves, who threaten to tie up the transition in court. Maine people see through this.
There are plenty of successful legal precedents. Nebraska successfully transitioned to consumer ownership in the 1940s. In 2000, Maine required CMP and Bangor Hydro to sell off all of their generation assets — more than half their net worth! Winter Park FL made the shift to a consumer-driven utility. Long Island, NY made the shift, reducing rates by 20% immediately. Jefferson County, WA made the shift in 2008. These are the transitions most comparable to Maine’s.
Both during and after the transition, moreover, the referendum requires that Maine’s PUC remain in charge. The PTPC transition does not impede short-term steps toward our climate and clean energy goals, and it accelerates our progress enormously in the long run.
Do utilities ever go bankrupt, or have cost overruns that get passed on to ratepayers?
Bankruptcy is very common among IOUs. PG&E, for instance, has gone bankrupt twice in the past two decades, though the company is best known for its wildfires, rolling blackouts, gas explosion fatalities, and 85 deaths from the Camp Fire in Paradise, CA.
Cost overruns too are common among IOUs, and are routinely passed on to customers. By far the biggest recent boondoggle among U.S. utilities, for instance, is Plant Vogtle, an investor-owned nuclear facility in Georgia with cost overruns that have exceeded $25 billion. That is enough to purchase CMP and Versant 4 or 5 times over!
I heard Boulder, CO tried this and failed. Why is this different?
Boulder had two key problems we do not have. One was legal: Boulder needed to acquire transmission and generation assets outside of city limits. The other was financial: Boulder needed to pay extra to separate from the larger grid. Our effort has neither of these problems, making it as different from Boulder as apples and oranges.
Also, Boulder’s effort actually accomplished a lot! Due to their effort, Xcel has moved from 97% fossil fuels in 2010 to a 70% renewables commitment by 2030.
What happened in Texas, and why?
The costly, deadly, early 2021 blackouts show Texas needs more consumer ownership and control. All Texas utilities and customers were hurt by their dependence on an overly privatized wholesale supply market that went haywire. Retail and wholesale customers alike suddenly faced off-the-charts, private-market supply charges that caused massive financial stress. Texas shows that in the worsening weather extremes heading our way, it is imperative that our monopoly utilities and system operators are focused on protecting people, not profits.
Could an anti-environment Governor have influence over Pine Tree Power Co? How does the PTPC protect its customers from politics?
No. PTPC’s board is directly accountable to the people of Maine, not a Governor. As a check and balance, PTPC is also overseen by the PUC. At present our two foreign-owner, for-profit monopoly utilities are kept in check only by the PUC, which is politically appointed and is severely limited by U.S. case law when it comes to regulating for-profit monopolies.
The Pine Tree Power Company also has a mission statement that prioritizes its customers, our climate and jobs goals, and the environment. It is also required to report on its progress.
Why do CMP representatives claim we will pay so much to purchase their networks?
CMP is tossing around an absurd and baseless figure. It is four times more than their own, self-filed net book value (NBV).
When a foreign-government-owned utility called ENMAX bought Emera Maine in 2019, renaming it as Versant, they paid 1.47x NBV. Both LEI’s and Dr. Silkman’s studies assumed conservatively that Pine Tree Power may pay slightly more — 1.5x NBV — to buy both utilities. This assumption is part of LEI’s projection for $236 million in net savings to ratepayers and Silkman’s $9 billion projection.
It is also worth remembering that purchase price is not the real driver of savings or costs. What matters most, as noted by both LEI and Dr. Silkman, is the rate of investment in the grid. The more we invest to improve reliability and to electrify our economy, the more we save thanks to our consumer owned utility’s far lower cost of capital.
How can we not afford Pine Tree Power?
Exactly! For a just and rapid transition to our clean energy future, we can not miss out on the savings and local control a consumer-owned utility provides.