A government takeover of CMP and Emera would not benefit ratepayers
During the First Session of the 129th Legislature, Rep. Seth Berry introduced LD 1646, a bill that would create a consumer-owned transmission and distribution utility by forcibly consuming assets and operations of Emera Maine and Central Maine Power (CMP). When private companies are ordered to transfer their assets to the government, it is called municipalization. While the First Session of the 129th Legislature adjourned in June, LD 1646 was carried over and will be debated when lawmakers return to Augusta in January.
The consumer-owned utility, known as the Maine Power Delivery Authority, would be governed by a 10-member board appointed by the governor and confirmed by the legislature. LD 1646 specifies that no more than five members can be from the same political party. In addition, representatives of residential, commercial and industrial consumers would each be afforded one seat on the board.
There is no question that CMP is losing favorability in the public eye. In fact, a recent survey showed that CMP ranked last in a nationwide survey of business customers’ opinions regarding their utility companies. CMP scored 639 on a 1,000-point scale. In May 2019, Doug Herling, CMP’s Chief Executive Officer, acknowledged some of the company’s ongoing issues and said:
“We recognize that over the past 18 months CMP fell short of meeting customer expectations, and have responded by hiring more customer service staff, improving training and oversight and with plans to increase our field operations staff.”-Doug Herling, Chief Executive Officer of Central Maine Power
While public opinion may be turning on CMP, acting on this sentiment is not always the right thing to do, especially when it comes to policymaking.
According to the Office of the Public Advocate, the cost to seize assets from Emera Maine and CMP would be approximately $5.7 billion. This figure is based on the “net book value” of investor-owned utilities that operate within the state. Ratepayers would be responsible for paying the bonds used to buy CMP and Emera Maine’s assets, as well as the interest that accrues. For reference, the state is projected to spend approximately $4.04 billion from the General Fund in Fiscal Year 2021 to operate state government for an entire year.
In addition, ratepayers would assume all the operational and financial risk under a public utility, whereas ratepayers and investors currently share this risk with investor-owned utilities. Frankly, LD 1646 would be an expensive undertaking that may not benefit Mainers in the long haul.
The Public Advocate has expressed concerns that the Maine Power Delivery Authority would serve more than 800,000 customers in the state. They believe the success and strength of Maine’s current public utilities stem from their “small size and local nature.” In fact, the average municipal electric utility served 9,200 customers while investor-owned utilities served an average of 500,000 in 2017.
The Maine Power Delivery Authority would likely struggle with some of the same issues that CMP and Emera Maine deal with, such as shortages of linemen in outage areas. According to the American Public Power Association’s data from 2017, there are only five public utilities in the United States that serve more than 800,000 customers — the Maine Power Delivery Authority would be one of the largest public utilities in the country.
In a recent op-ed published by the Bangor Daily News, Rep. Berry tried to make the case for the Maine Power Delivery Authority. He attempted to compare outage response between Maine’s largest consumer-owned utility, Eastern Maine Electric Cooperation (EMEC) and Maine’s investor-owned utilities after the storm on October 17, 2019. He said,
“At the peak of the Oct. 17 storm, 40 percent of its customers [EMEC] were without power. Within a day, that number was down to about 1 percent…Fewer than 30 percent of CMP and Emera Maine customers were without power at the peak of outages, yet these restorations took several days.”-Rep. Seth Berry
While the information provided may be correct, Rep. Berry doesn’t mention the size of each operation and why the investor-owned utilities’ response times may have been longer. According to EMEC, the public utility has an average of 12,577 customer accounts whereas CMP serves more than 600,000 customer accounts and Emera Maine serves 159,000 customer accounts. In other words, CMP and Emera Maine were required to respond to far more outages than EMEC. Seizing ownership of Maine’s investor-owned utilities’ assets would do little to solve the problems associated with mass outages.
Last month, Concentric Energy Advisors released a white paper that found that, since 2000, more than 60 communities have considered or are currently considering municipalization of their investor-owned utilities. Of those, only nine communities municipalized and two sold the assets back to the investor-owned utility. For example, in 2002, Hercules, California municipalized their investor-owned utility, Pacific Gas and Electric Company (PG&E). After municipalization, operating expenses had exceeded revenues and the outfit was estimated to have accrued $9 million in capital and operating losses through 2011. Afterwards, 77 percent of voters approved a ballot measure to sell the utility, and in 2014, it was sold back to PG&E.
In his testimony to the Energy, Utilities and Technology Committee, Carlisle Tuggey, General Counsel and Secretary of Central Maine Power, estimated that the corporation currently saves $40-50 million annually from shared services provided by Avangrid, the parent company of CMP. If the legislature creates the Maine Power Delivery Authority and directs it to acquire investor-owned assets, the entity would not benefit from the economies of scale and shared services that currently benefits CMP customers.
While the Maine Power Delivery Authority would contract with private nongovernmental entities to provide operations and administrative services, there is no guarantee they would be able to leverage the same savings through shared services, potentially resulting in higher operating and administrative costs.
Further, both CMP and Emera Maine indicated they would litigate the LD 1646, if enacted, in their testimonies to the Energy, Utilities and Technology Committee. This would result in a long, drawn out process similar to other municipalization efforts across the country. The Public Utilities Commission mentioned the possibility of “complex and time-consuming litigation” in the event that the investor-owned utilities and the Maine Power Delivery Authority cannot agree on a price.
LD 1646 stipulates that if the investor-owned assets haven’t been acquired within 12 months of appointment of the first board, the Maine Power Deliver Authority would seize them through eminent domain. If a court finds this practice to be unconstitutional, the state would be responsible for paying the utilities’ legal fees. CMP believes an involuntary seizure of assets may trigger the Takings Clause within the Fifth Amendment, which states that private property cannot be taken for public use without just compensation.
While the public’s sentiment indicates frustration with Maine’s investor-owned utilities, a complete state takeover of their assets is not the right approach to solving this problem. As outlined, more government may actually make costs and the services provided worse than they currently are under the control of investor-owned utilities.