Maine Should Avoid Taxpayer-Funded Consumer Utility Company

Issue: Legislation has been introduced that would replace investor-owned utilities in Maine and replace them with a consumer-owned utility to be called Pine Tree Power Company. Addressing consumer power issues, especially in regard to reliability, is laudable.  The truth is that lawmakers should refrain from expensive “solutions” that diminish private markets and burden taxpayers. If approved, Maine would be first in the nation to implement a state-run power company.  Existing data from municipalities with either municipal-owned or cooperative power companies indicate that moving from investor-owned power companies is a lengthy and expensive process to implement.

Current Power Companies in Maine

There are two investor-owned utility companies in Maine: Central Maine Power (CMP) and Versant Power. As of 2019, CMP had an estimated 559,516 residential customers and Versant BHD was serving 133,671 customers.

There are three familiar cooperatives and/or municipal-owned utilities: Eastern Maine Electric Cooperative, Kennebunk Light and Power, and Madison Electric Works. Combined, each of the cooperatives and/or municipal-owned utility companies serve approximately 18,742 residential customers in 2019.

There is not much difference in rates between the private utilities and cooperatives and/or municipal-owned power companies. For example, as of December 2020, the total rate for CMP and Versant Power residential customers was 15.8 ¢/kWh and 16.8 ¢/kWh, respectively. During the same period, Eastern Maine Electric Cooperative’s residential customers paid 16.7 ¢/kWh and Madison Electric Works’ residential customers paid 16.1 ¢/kWh. Kennebunk Light and Power Residential Customers had the lowest rate at 10.2 ¢/kWh, but there were only 6,088 customers, or about 1.1 percent of CMP’s residential customer base.

Most Cities Moving to Privatize – Not Municipalize

The proposal in Maine is the opposite of the current trend. Since 2000, instead of municipalizing utility companies, “the trend has been more toward privatization, or the sale of the municipal assets to investor-owned utilities.” Even recently formed municipal-owned utility companies are reversing course and returning to privatization.

For example, beginning in 2003, in Hercules, California, the City owned and operated Hercules Municipal Utility (HMU). Hercules’ purchase of the utility company was in attempt to generate revenue, assuming that the population would increase in the city. Unfortunately, such growth did not materialize and Hercules “spent more than $16 million building a utility.” Of this, $7 million was in borrowed funds to construct the utility, and more than $2 million was spent over two years on consultant fees. In 2012, the Hercules decided to sell the utility’s assets “in order to focus on delivering core city services,” with over three-fourths (77 percent) of the city’s residents approving the sale of HMU.

Cost to Taxpayers

Ultimately, a state-owned municipal power company would be funded by taxpayers that will be forced to fund all the costs associated with taking over existing power companies. Some acquisition costs include: the costs of physical assts, startup costs including hiring new employees, and setting up new offices and/or systems, and transaction costs. There also other associated costs including “stranded costs” which are “costs incurred by the [investor-owned utility] to serve the community that are no longer needed as a result of the municipalization,” costs associated with “separation and reintegration,” and possible costs associated with lost assets.

CMP estimated that just acquiring the utility would cost Maine taxpayers approximately $13.5 billion. Further, the utility would not be subject to taxes and the Pine Tree State “would miss out on the $99.2 million in tax revenue that CMP paid in 2020.” Further, any monetary shortfalls in the state could lead to increased energy prices to maintain the infrastructure of the utility and such increases tend to be regressive and disproportionately impact lower income and minority persons.

A 2019 study by Synapse Energy Economics found that low-income Maine residents spend more of their income on energy needs. Indeed, the report found that Mainers with incomes below the federal poverty guidelines “have an average home energy burden of 24 percent, while those with incomes between 100 and 150 percent of the [federal poverty guidelines] face an average home energy burden of 14 percent.

A 2016 study by Energy Efficiency for All found African-Americans spend a higher percentage of their income on energy than whites and other groups. In other words, African-American households suffer under a “median energy burden 64 percent greater than white households.” African-Americans and Latinos also pay “more for utilities per square foot than the average household,” the study found.

Lawmakers must take into consideration the costs to low-income persons. Between October 1, 2018 and September 30, 2019, Maine’s taxpayer-funded Home Energy Assistance Program provided over $27 million in funding to help 31,112 households that could not afford their energy costs. Should the current utilities’ rates increase after municipalizing, Maine would have to put aside additional funding in helping lower income households afford energy costs.

Policy Recommendations:

• Maine should avoid reversing the national trend and municipalize existing investor-owned utilities companies.
• Lawmakers must take into consideration the entire costs of municipal-owned and cooperative utilities companies and factors that would impact such businesses. Maine may face unexpected weather, a decline in population and other incidences that will burden Maine taxpayers and increase the costs of energy in the Pine Tree State.
• Increased energy prices burden lower income persons and minorities, lawmakers must take these populations into account. Maine already spends millions in funding low-income persons’ energy needs, should it take over investor-owned utilities, Maine would be essentially paying itself for energy though these programs.