The Natural Resources Council of Maine (NRCM) is encouraging Mainers to vote Yes on Question 3 because the Consumer-Owned Utility (COU) model offers our best chance to advance the clean energy transition with the leadership, collaboration, and creativity necessary to keep costs as low as possible.
The urgency of transitioning to clean energy couldn’t be clearer, with communities across the state already experiencing the impacts of climate change.
Maine has a plan to do our part. The core strategy is electrification: building new renewable energy resources, while shifting how we heat our homes and businesses and how we fuel our cars and trucks away from old expensive fossil fuels, toward proven clean technologies like heat pumps and zero-emission vehicles.
Capturing the opportunities of the clean energy transition hinges on having renewable energy like wind and solar delivered through a reliable, flexible, and affordable electric grid to every Maine resident and business. Mainers in all 16 counties are already taking actions to address climate change. Now, we need our utilities to be active, willing partners in building a better future.
Creating a publicly owned utility would help advance a clean energy future for Maine in three crucial ways:
- Restoring local accountability. Shifting governance away from multinational corporate boards toward serving the people, economy, and environment of the state of Maine would go a long way toward restoring public trust—and public trust will be vital to a successful and inclusive clean energy transition.
- Saving money on the grid buildout. A nonprofit utility would have access to municipal bond financing, among other tax-exempt benefits, translating into significant savings for ratepayers over the long term—an advantage that grows larger the more we invest in the grid of the future.
- Aligning incentives for innovation in the utility sector. Under current law and regulation, Investor-Owned Utilities (IOUs) are guaranteed 9-10% returns on all capital expenditure, that is, they make money from building more things. This creates a powerful disincentive for shifting to the flexible, dynamic, participatory grid of the future. COUs don’t need to guarantee these profits for shareholders, allowing us to replace a bias for capital spending with incentives that drive performance in reliability, affordability, clean energy, and grid modernization, and give the difference back to ratepayers.
Achieving our bold climate and clean energy goals will be difficult, but we believe it can and must be done in a way that keeps rates affordable. Doing so will require leadership, collaboration, and creativity at a level our IOUs have failed to bring time and time again. There is no easy, simple fix.
And yes, there are many outstanding questions, about acquisition costs, possible litigation delays, regional transmission tariffs, and more. Resolving each of these open questions will require public vigilance and expert scrutiny all along the way. But ultimately, the energy transition is a long-term effort, and we need to think about this from the perspective of the future.
Weighing the pros and cons of shifting to public power in Maine is an exercise in comparing two unknown futures.
But business as usual will probably be…business as usual.
Where do we want to be in 10 years, 15 years? If question 3 fails, Maine likely will remain stuck in a similar place as we find ourselves today. Maine people will still be served by the same underperforming utilities, still ranking at the bottom in customer satisfaction nationwide, paying some of the highest electricity rates for some of the worst reliability in the country, with long lists of clean energy projects waiting to be connected to the grid, and groups like NRCM still endeavoring to use elaborate regulatory maneuvers to correct for the powerfully misaligned incentives of our investor-owned utilities.
Weighing the pros and cons of shifting to public power in Maine is an exercise in comparing two unknown futures. But business as usual will probably be…business as usual.
If Maine voters approve Question 3 at the ballot box, then we stand a chance to get this right. In this post we lay out why NRCM is supporting Question 3 and give our perspective on the most common questions we’ve heard about the Pine Tree Power proposal.
What Pine Tree Power Proposes
Question 3 on November’s ballot proposes to create a privately operated, nonprofit, consumer-owned utility to replace the state’s two largest investor-owned utilities, serving 800,000 electricity customers in Maine.
The new company would be governed by a board, with the majority of seats publicly elected. It would finance itself by issuing debt against future rate payments, and this is how it would pay for the initial acquisition of assets from Versant and Central Maine Power (CMP). A private grid operator would be contracted through competitive solicitation and be required to retain the existing workforce.
The new company would continue to pay property taxes. It would continue to be subject to regulatory oversight by the Public Utilities Commission (PUC). The PUC, the Office of Public Advocate, and other stakeholders would evaluate its performance and oversee the operations contract, which would be structured to reward demonstrated performance toward achieving the company purposes, redefined as providing reliable, affordable electricity with excellent service, as well as helping to achieve and exceed the state’s climate, clean energy, connectivity, and economic goals.
Why Public Power
There are three primary reasons why NRCM is supporting Question 3 as our best chance to advance a clean energy future that works for everyone in Maine.
1. Transparency and local accountability are crucial to an equitable, affordable clean energy transition.
Instead of being beholden to shareholders and their demand for quarterly profits, the new utility would be governed exclusively to serve the people, economy, environment, and the public policy goals of the state of Maine, as enumerated clearly in the petition language for Question 3.
The effect of this shift in governance away from the interests of multinational corporate boards and large ownership stakeholders based abroad toward local concerns here in Maine should not be understated. The clean energy transition necessitates public trust. Even if there are clear benefits, for example, better health outcomes from reduced tailpipe pollution, or lower heating costs with a high-efficiency heat pump, the energy transition is going to affect many aspects of our lives, and ultimately, we need a utility that’s a trusted partner to guide this work.
Question 3 effectively asserts local control over the executive management levels of the utilities, keeping the rest of the companies intact. It establishes a 13-member board, with 7 members being elected, each representing 5 of the 35 state senate districts. The elected members would appoint the remaining six members, who must collectively possess a range of relevant expertise, from utility management, planning and finance, to workforce concerns, commercial and industrial consumers, power sector technology expertise, climate change and environment, and low income and social justice issues.
All board members must be residents of Maine for at least one year, and elected members must also be residents of the area they represent for at least three months. Candidates for elected positions would be eligible for funding through the Maine Clean Elections Act. Members serve staggered six-year terms and earn $110 a day for each day the board holds public meetings. This structure ensures that board members will be more accessible and accountable to their fellow Mainers.
Government gets a bad rap, but it does some things well, and sometimes it’s only government that can get the job done. Take for example Efficiency Maine Trust (EMT), an independent quasi government agency formalized in 2009 for not dissimilar reasons to the Pine Tree Power proposal, to correct for the disincentive utilities have to invest in energy efficiency. EMT, now with an annual budget of $100 million, implements energy efficiency and alternative energy programs across Maine, invests in businesses and workforce capacity, and has become a widely trusted resource for information to inform personal and business investment decisions. Just imagine what EMT could accomplish if it were working with cooperative utilities.
2. We need to get creative about how we’re going to pay for the clean energy transition.
The low-cost financing available to consumer-owned utilities would be a major benefit in making an equitable and affordable clean energy transition a reality.
The surge of interest in interconnecting new solar to the grid in recent years has exposed just how tenuous a condition Maine’s existing grid infrastructure is in. Pressure to keep rates low has resulted in decades of deferred investments. Now, on top of this baseline of aged infrastructure, we are faced with the imperative of adding clean renewable energy at all scales and electrifying our heating and our transportation system. These changes will lead to an increased density of electricity consumption across the distribution system and drive high peaks in winter demand when solar power generation has lower output. Managing these challenges will require a massive expansion and redesign of the transmission and distribution (T&D) systems that make up our electric grid.
An equitable clean energy transition will ensure low- and moderate-income households and other underserved Mainers have access to energy assistance programs to ease high energy costs.
Access to low-cost financing lies at the heart of the public power proposition. When an investor-owned utility goes to raise money for a capital investment like an infrastructure project, the business uses a combination of corporate debt (i.e., through corporate bonds or loans) and equity (i.e., by issuing stocks or ownership shares), resulting in a cost of debt typically in a range of five to eight percent. This translates to huge savings over the long term, and it’s an advantage that grows the more we invest in the grid of the future.
An equitable clean energy transition will also require a suite of programs and policies to ensure low- and moderate-income households and other underserved Mainers not only have access to robust energy assistance programs to ease the burden of high energy costs, but also have access to the benefits of clean energy.
Access to lower-cost financing can free up resources to build robust programs designed to overcome the social and financial barriers to energy efficiency upgrades, weatherization, heat pumps, zero-emission vehicles, solar, and battery storage, to ensure that vulnerable and marginalized people also enjoy the ways that clean energy makes our homes safer and more comfortable, affordable, and valuable.
3. The bias toward profit-driven capital expenditure is an obstacle to innovation in the utility sector.
Creating a dynamic, flexible electric grid is how we will save money over the long run, and the COU model best positions us for success.
The clean energy transition is the largest growth opportunity for the electric utility industry since its initial build out more than a century ago. In Maine, utilities are not responsible for energy supply, but they are responsible for energy delivery. And they make money on the infrastructure used to deliver that energy to consumers. The PUC grants the investor-owned utilities a 9-10% rate of return on all expenditures for building and maintaining the poles and wires and everything else used to deliver electrons to homes and business across Maine. In regulatory parlance, this is what’s called the “capex bias,” and it drives the utilities’ primary profit motivation and behavior.
An investor-owned utility’s fiduciary duty to generate profits for shareholders gives it a powerful incentive to spend money on capital-intensive projects. And not only is the authorized rate of return likely overcompensating utilities, but it also creates a starkly misaligned incentive for solving the challenge we face today. Yes, we need to build out the grid, but we can’t do it like we have in the past. Building a one-way system of expensive physical infrastructure designed to meet a peak demand for electricity that may only exist for a few hours a year means millions of dollars of investment that we all have to pay for sitting underutilized most of the year. If we overbuild to meet this challenge, the clean energy transition will cost too much.
Instead, we need an open-platform grid that enables a participatory, competitive market environment, oriented toward multiparty solutions and designed to create value, distribute costs across the private sector, and save ratepayers money. We need to harness innovation made possible by new entrants and new grid technologies, like digital monitoring equipment and analytics, controllable and programmable equipment and devices. This approach can enable a flexible and responsive grid and use it at higher capacity to achieve a more efficient and more affordable system overall.
The COU business model eliminates the preference for building utility-owned infrastructure, saves ratepayers that 9-10% additional cost on investments, and unlocks an alternative incentive structure that can help precipitate collaboration, transparency, and third-party participation for the grid of the future. Without reorienting our utilities’ incentives, regulators and advocates will continue to have to work within a regulatory structure built for another era to meet the challenges we face today.
COUs aren’t regulated in the same way, and don’t need guaranteed returns in order to attract investors. Public power is especially powerful for this reason, it simply removes the capex bias.
Addressing Frequently Asked Questions
If Question 3 passes, it will require immense and ongoing public vigilance and expert scrutiny to ensure that we ultimately do succeed in building a company that can live up to its promise for Maine.
More than a quarter of the U.S. population gets its energy from COUs. On average they provide higher quality service at lower rates.¹ But some COUs work well, and some don’t. Many COUs were established through funding from the Federal Rural Electrification Act of 1936, including the Eastern Maine Electric Co-op, the largest of Maine’s COUs.² And while a COU may be preferable to an IOU for reasons discussed above, the prospect of transitioning from one to the other while maintaining investment, reliable service, and progress on our climate and clean energy priorities, is fraught. Jurisdictions that have managed it successfully, Winter Park, Florida, and Jefferson County, Washington, among them, have typically been ones that cover smaller territories with simpler grid systems than Maine’s.
Below we discuss what’s at stake regarding some of the frequently asked questions we’ve heard from Mainers and supporters:
1. Costs. The economic studies that have been done to explore the costs and benefits of public power should be treated with skepticism but provide helpful guideposts for what factors to consider when evaluating costs.
In 2019, London Economics International (LEI) was contracted by the PUC for a rigorous, half-million-dollar study of legal implications and economic impacts of the public power proposal. Under its reference scenario, the LEI study found that tax-exempt financing led to lower rates over the long term, with initial costs phasing into benefits after year-nine, amounting to cumulative savings of $236 million over 30 years.
The LEI report was reviewed by Richard Silkman of Competitive Energy Services in May 2020, a Maine-based consultancy, and by Concentric Energy Advisors on behalf of Avangrid, the parent company of CMP, in May 2021. The Silkman and Concentric studies are the sources of the numbers deployed by either side of the ad campaigns, with proponents projecting billions in benefit and opponents warning billions in costs.
These numbers should be treated with skepticism. Small adjustments to underlying assumptions, i.e., acquisition cost, management fees, or the regional transmission tariff, etc., can amount to large changes in projected impacts to ratepayers. There are simply too many unknowns—and the analyses predate the pandemic, inflation, interest rates hikes, and supply chain issues—to put too much weight on any specific number.
But they are valuable, particularly to illustrate the relative significance of certain key factors on long-term costs.
Acquisition cost: According to their 2022 filings with the Federal Energy Regulatory Commission (FERC), the net book value of the utilities’ assets is $5.4 billion. This would be a reasonable starting point for negotiations, with some premium paid over and above the book value.
Concentric on behalf of CMP’s parent company, assumed a very large acquisition price, two times a projected book value, based on future investments in the grid that the current utilities would theoretically make before the start date, resulting in the 13.5 billion number claimed by opponents.
Both the LEI’s base case and Richard Silkman’s study, however, assume a 1.5 acquisition multiple. This may be a more reasonable assumption, comparable as it is to the price paid for the assets of Versant (then Emera) in its 2020 acquisition by ENMAX.
Under a process laid out in the referendum language, the fair market value would likely fall to a Maine state court-appointed referee to determine.
Management fee: Similar to the IOU’s authorized rate of return, the cost of hiring a private sector operations team will be paid for through rates. The management fee will reflect many factors, including the labor requirements, taxes, the incentives/penalties earned through performance, risks pertaining to the acquisition and transition process, and other risk associated with contractual formulations like any arrangement to impose recovery of imprudent spending on the operator, for example.
There are so many factors and so little precedent that it’s difficult to speculate with confidence where this might land. But the relative impact of the management fee on ratepayers recedes the more we take advantage of low-cost financing to invest in the grid.
Regional transmission tariffs: How much the new Maine utility would be allowed to charge ISO-New England for its assets as part of the regional transmission system was found to be the biggest driver of costs and benefits by LEI.
This question gets into a complicated area of jurisdiction, policy, and precedent that only FERC will ultimately be able to clear up.
All three analyses agreed that this is an area of uncertainty without obvious precedent, resulting in an $8.3 billion discrepancy between the studies. The Office of Public Advocate in its September 2023 fact sheet suggested that FERC would likely allow similar treatment to the current IOUs, an outcome that would strongly benefit ratepayers under a COU.³
2. Risk of Politicization. One key critique of the referendum is the hazard of putting elected politicians in control of our electricity system. Overall, we feel the risk of politicization would be outweighed by the benefit of representation and local accountability.
Maine’s existing utilities are anything but apolitical. To the contrary, they are deeply engaged politically, both by employing lobbyists in the State House and by spending tens of millions on Political Action Committees. And the current leadership is in fact voted in, just by shareholders rather than Maine people.
Candidates for the board would be nonpartisan, Maine residents, and could opt to receive public funding through the Maine Clean Elections Act, like candidates for Governor and the Legislature. Board meetings would be open to the public. Local representation might invite new competing geographic interests, with rural vs. urban members favoring different investment priorities, maintenance, and cost sharing arrangements across what is a broad and diverse transmission & distribution system. But the board would oversee the company at a high level; and running the grid would fall to the management and operations team.
Instead of being beholden to shareholders and their demand for quarterly profits, the new utility would be governed exclusively to serve the people, economy, environment,
and the public policy goals
of the state of Maine.
3. Climate Delays. If the referendum were to pass, CMP and Versant would litigate, a process that could take as long as 5 to 10 years, according to the Public Advocate. Over this period of negotiation, and some argue it’s happening already, investment in grid modernization for 800,000 customers in Maine could stall. In theory, this could hamper efforts to decarbonize our energy system.
Over the transition, however, utilities would continue to be regulated by the PUC, held to all the same multi-year rate plan commitments, service standards, interconnection contracts, and other planning obligations to which they are currently subject. Others have argued that in fact the utilities may be motivated to invest more in the grid over a period of protracted negotiation, to strengthen their case for a high acquisition multiple. On the other side of the acquisition, however, with a COU Maine will be in a stronger position to expedite critical climate investments in the grid.
4. Workforce Implications. Under the Pine Tree Power company, all unionized employees would be retained and given retention bonuses for the first two years. Utility staff would then be hired by the private-sector operator contracted to oversee system operations.
The petition language was deliberately written to prevent unionized workers from being classified as public employees, because this is seen as potentially weakening the unions. Nonetheless there remains a difference of legal opinion about how the utilities’ employees would ultimately be classified—as public or private employees. Partly on this basis, Versant and CMP utility workers, and two labor groups involved, have opposed Question 3.
While this issue remains unresolved, NRCM would support any future legislative efforts necessary to ensure union workers working under contract for Pine Tree Power are rightly classified as private employees and otherwise retain their rights.
Our Best Chance to Get It Right
Adopting a Consumer-Owned Utility model for Maine gives us our best chance for the leadership, low-cost financing, and properly aligned utility incentives we need to accelerate the clean energy transition.
It is true that there are many open questions about how the transition from our current utilities to Pine Tree Power would play out. Some issues would be able to be resolved through legislative action over the next few years as the board does its due diligence and develops its business plans. Even once the transition has happened, a combination of collaboration and strong oversight from regulators, state energy planners, stakeholders, and the public will continue to be imperative. However, over the long arc of reorganizing our economy and our society to solve the climate crisis, public power would be a giant step in the right direction for Maine.
—Rebecca Schultz, NRCM Climate & Clean Energy Senior Advocate
1 American Public Power, 2023 Statistical Report, https://www.publicpower.org/system/files/documents/2023-Public-Power-Statistical-Report.pdf.
2 Nebraska is an example often cited as one that compares well with Maine’s circumstances. The statewide COU was established in the 1940s, today enjoys high reliability at one of the lowest rates in the country, despite covering a large rural area, and has strong decarbonization goals, despite having elected utility board members in a Republican state.
3 The share of regional transmission costs allocated to a utility is based, in principle, on the cost of providing service, with a utility’s cost of capital being an important input into that calculation. Thus the COU’s access to low-cost debt financing, as described above, could give it a greater share of regional transmission costs. Again, there is no real precedent, and the treatment of smaller rural cooperatives and municipal transmission owners is not comparable.
Thanks. Now I understand much more about why Q3 should be a yes. I was leaning that way already only because I feel CMP is concerned more with investor returns than upgrading equipment. But your argument for public power makes sense. I don’t think I can repeat too much of it to doubters, but I will try.
Thank you.
Yes, I agree, this is very helpful information, especially for the large majority of us who don’t have all of the expertise needed to evaluate it independently. Much appreciated- THANK YOU!
VERY HELPFUL position paper. Thank you for sharing. The bottom line for me is that the two investor companies that own the distribution networks have not provided credible evidence that their business model will ensure steps are taken to confront the challenges of today and the future. They’ve been allocating their assets to pursue scare tactics instead of serious conversations and are not deserving of our trust. I will be voting YES on Question 3.
Last year, Versant allowed us to install solar panels on our roof. After we had them installed, Versant told us that we cannot use them because their equipment can’t handle the input. Over the past year we have been repeatedly reaching out to Versant, the PUC, and the Governor’s office, all to no avail. Versant subsequently told us that they had found a problem with their outdated equipment that poses a danger to the entire circuit, yet to they have done nothing about it. The current status quo is shaped by politics and Versant’s need to increase profits for its board and investors in Calgary. Maine citizens currently have little to no say in our energy needs and it is time to change that. I am ready for a change and will vote yes on Question 3.
Steve Wight
Thank you so much for this analysis. It makes much more sense when compared to the many television ads showing CMP workers proclaiming only that “Voting Yes would cost Maine people 1.3 billion dollars.” I only wish that the NRCM side of the story could have been presented through the fall to give TV watchers the actual capital cost of purchasing whatever structures would really have to be purchased from the foreign companies when Pine Tree Power took over. NRCM’s story could have been shown as a major part of climate control.