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What Would be the Downstream Impacts of a Proposal in the Maine Legislature for a State Takeover of Utilities?

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Areg Bagdasarian's picture
Program Manager and Research Analyst DataCapable

Areg Bagdasarian is an energy analyst and program manager covering the world of alternative energy vehicles, energy efficiency and technological change in the utility and smart grid world. He's...

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  • Dec 26, 2019

The state of Maine has gotten a lot of things right in the energy department. Cumulative 2018 figures from the U.S. Energy Information Administration show nearly 35.2% of power generated in the state originating from natural gas with only 27.5% from coal. This aligns with the overall trend for natural gas being the primary fuel source for American utilities, dispelling any myths that coal is, or likely will ever gain the top spot again if current socioeconomic factors hold. Factor in renewables, and the story becomes even more interesting. Three-fourths of Maine's net electricity generation came from renewable energy resources, an enviable amount by any standard. Of those renewables, clean and reliable hydroelectrcity contributed the lion's share at 31% with biomass and wind trailing closely behind. Up for debate today now is a state bill that would have the state takeover private electric companies and what the downstream impacts would be for end-user rates and generation sources. 

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Typically, residential customers in the United States have 13 percent cheaper rates than customers of Investor-Owned Utilities according to the American Public Power Association. This is due to consumer owned utilities not having the same profit component as IOUs, not paying their exectuives stratospheric salaries, and being classified as nonprofits and therefore not paying federal income taxes. In Maine, however due to a few unique factors, IOUs in the state have average rates that are actually cheaper the state's nine consumer owned utilities. One reason is because of the expensive rates in powering remote islands and rural swathes of the state.  

In the same vein, some key questions to be answered would revolve around rates and what would exactly happen if all Maine IOUs were taken over by the state. Would rates somehow be the average of current consumer-owned and IOU rates? Would residents in Portland be subsidizing energy operations in more rural parts of the state?

From a generation perspective, the hope is that any state takeover would continue leveraging Maine's abundant natural resources for generation including their hydroelectric power.  Making the most of renewables that are reliable and don't require new infrastructure build-outs as is the case with solar and onshore wind, hydropower would likely make the cut as a preferred generation source regardless of what the state legislature decides. 

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Matt Chester's picture
Matt Chester on Dec 26, 2019

In Maine, however due to a few unique factors, IOUs in the state have average rates that are actually cheaper the state's nine consumer owned utilities. One reason is because of the expensive rates in powering remote islands and rural swathes of the state.  

This is an interesting reasoning for the change in pricing dynamic-- I'd be curious to see how it affects Maine compared with other states with comparable rural / island areas to connect to the grid. 

Gerry Runte's picture
Gerry Runte on Jan 29, 2020

These comparisons with averaged public power metrics pose a false equivalency when compared with the situation in Maine. The average utility in the APPA membership (of 2,100 utilities) has 24,500 customers.  A merged CMP and Emera would have about 650,000. There are only 5 utilities in the APPA membership of the size or larger than this proposed power authority: Salt River Project, Long Island Power Authority, Los Angeles Department of Water and Power, City of San Antonio, and the Sacramento Municipal Utility District.

The average cost of those five comparable public power utilities, using EIA Form 861’s for 2017, is 14.10 cents/kWh; the merged utilities would be 14.15 cents (Emera 14.86, CMP 13.94). But if you do look at the entire APPA membership there are 59 consumer owned utilities with higher rates than CMP or Emera.

No question that the 5 comparable utilities all have better reliability than CMP or Emera. But 4 of them are in the southwest with very different weather and topography than Maine. And as bad as CMP’s metrics might be, there are 16 consumer owned utilities that have much worse SAIDI numbers.

With the exception of LIPA and the handful of small municipalities that have seceded from IOUs, all of the utilities in the APPA membership began life as consumer owned and have always been operated under that business model. Taking over a utility that has always been an IOU and making it consumer owned is a very different set of circumstances.  The one instance where this has happened is illustrative of what could easily happen in Maine, were LD 1646 to pass.  After 29 years of frustration New York handed LIPA operations over to a IOU subsidiary, PSEG Long Island.

So I would conclude that, based on this data, ownership does not necessarily correlate to lower costs or higher reliability.  

Now, the reliablity metrics of these utilities are, indeed, deplorable.  But guess what? There is no performance based ratemaking in Maine. None. THese utilities behave this way because the rules allow them to do so. What Maine needs, and not just for this problem, is 21st century rate regulation that includes performance based rates.

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