Thanks for sharing this. It is always great to hear from you. I do wish we had communicated more prior to this post.
Unfortunately, key assertions here are simply untrue, while other key ideas are inaccurate in context.
First, you say “the PUC will have virtually no leverage to affect their (the Board’s) decisions.” Second, you say “there is no mechanism that requires the COU’s board to take any particular course of action.”
With due respect, these readings are profoundly inaccurate, for at least four reasons:
A) The PUC fully regulates the Company and under the committee amendment, may also approve or disapprove its contracts. Phil has been clear that they will use the regulatory power to ensure proactive grid modernization and investment, to avoid exactly the concern you voice.
B) If reliability, rates and customer service (at least two of three) don’t get out of the bottom decile and stay out, the Pine Tree Power Company is found unfit and must be sold. In other words, the fitness test in the bill applies indefinitely to ALL large T&Ds, not just our current ones. If that’s not a mechanism, I don’t know what is...
C) Board members serve six-year terms. This means they will take the longer view. If they are at all worried about reelection (unlikely... these are not lucrative roles...) they will focus on investing to avoid massive outages, since outages, not rates, are what most often lead to turnover on elected COU boards.
And,
D) The Company is required to report on progress towards statutory goals annually to the Legislature.
Third, you express concern around the potential acquisition cost. As you know, LEI was clear that this is not actually the key driver of savings. It could be 2x NBV, the high end of their range, and we would still be better off — especially once you factor in the capital reserves and transmission savings that LEI omitted.
Fourth: As for MURRDI and the New England Energy Vision, I do not agree that these can be called “plans.” They are planning processes, which may bear fruit and we hope they do. We have recently given several million — unprecedented funding — to the Governor’s Energy Office to participate in this kind of work. These efforts will only benefit from a utility that is a true partner, whose incentives and objectives are fully aligned with climate, connectivity, security, reliability and cost rather than profit. Indeed in many areas, such as NYPA in New York, COUs perform an important and trusted planning function.
As for savings from day one, I don’t think there can be any debate that ending the outflow of hundreds of millions in guaranteed, double-digit profits — due to ancient Supreme Court decisions that Maine regulators and policymakers are powerless to avoid within an IOU business model — does in fact represent certain savings. LEI didn’t count cash reserves or equity value as “savings,” but it is certainly value that stays here in Maine. So too are transmission savings and FEMA assistance.
We can pay a low interest mortgage, not a monopoly rent, and properly align incentives. We can pay for the human world of performance, not the impersonal galaxy of capex, and save billions.
Thank you for this and your other communications, Seth. I've mulled over the information you have presented.
I agree that the COU model offers tantalizing opportunities, and this bill is markedly improved by the work that has been done over the past three years. But I also think that there are substantial risks related to the takeover and to the ongoing operation that cannot be completely mitigated. It is imperative that ratepayers understand that before they decide to jump on the bandwagon.
They need to understand that some COUs have had serious problems. It's a great model but it is not a panacea, and fixing problems that take root in a COU can be very difficult. It all lands in the lap of ratepayers as there is no one else to hold accountable.
They need to understand that there are competing economic analyses for this proposal and there is no truly settled science. The predictions are based partly on assumptions because the future is a range of probabilities, and how that figures into the analysis is a matter of the economists’ educated, professional opinions. Some of the campaign claims relating to those analyses have been highly questionable, summarily dismissing one expert analysis in favor of another that better fits the narrative.
Voters need to be given a sense of the spectrum of confidence of those forecasts but there is an effort to curtail that. The campaign employs logical fallacies like argumentum ad populum; 75% of the population thinks a COU is a good idea, therefore, it’s a good idea? These techniques are examples of the myriad faults in our larger public discourse that have led to the frustration and distrust of the political arena in general. If the claims that are being made today don't hold up, it will further erode the public's trust in their elected leaders. Our democracy cannot take much more of that.
You are still claiming that we will see savings from day one, but there is no solid footing for that claim. CMP is reaping profits (ROI) on a fraction of the market value of the company, but the COU would be paying bond interest on the entire market value. To make up some numbers to illustrate: If we are paying 10% ROI on $1000, it costs us $100. If we're paying 3% interest on $5,000, it's going to cost us $150. Even if we save $50 elsewhere in the budget, we'd not realize any savings overall. It is unfair to say that the lower interest rate will surely lead to savings. No one can realistically predict how this would actually work out in real life and at full scale, and that is a truth that should be front-and-center.
Beyond that, we also don't know what the board's capital investments would look like. The worldwide transition away from fossil fuels is impacting how electric grids operate and we know it will continue to drive change here. While the makeup of our utility will impact that change, it’s impossible to tell where electricity prices will trend. If we take over the grid and prices go up for reasons only partly related (or completely unrelated) to the takeover, people will still look back at this as a broken promise. It is simply wrong to tell people that this effort will categorically result in lower prices.
This proposal has merit but that is not enhanced by overselling. The impact of this decision will be felt by a majority of Mainers for generations to come. Good decisions get made from careful contemplation of the dry details, not by convincing people to accept risk by downplaying its existence. Unfortunately, that is where politics is these days, but that doesn’t mean we have to embrace it.
Hi Tina,
Thanks for sharing this. It is always great to hear from you. I do wish we had communicated more prior to this post.
Unfortunately, key assertions here are simply untrue, while other key ideas are inaccurate in context.
First, you say “the PUC will have virtually no leverage to affect their (the Board’s) decisions.” Second, you say “there is no mechanism that requires the COU’s board to take any particular course of action.”
With due respect, these readings are profoundly inaccurate, for at least four reasons:
A) The PUC fully regulates the Company and under the committee amendment, may also approve or disapprove its contracts. Phil has been clear that they will use the regulatory power to ensure proactive grid modernization and investment, to avoid exactly the concern you voice.
B) If reliability, rates and customer service (at least two of three) don’t get out of the bottom decile and stay out, the Pine Tree Power Company is found unfit and must be sold. In other words, the fitness test in the bill applies indefinitely to ALL large T&Ds, not just our current ones. If that’s not a mechanism, I don’t know what is...
C) Board members serve six-year terms. This means they will take the longer view. If they are at all worried about reelection (unlikely... these are not lucrative roles...) they will focus on investing to avoid massive outages, since outages, not rates, are what most often lead to turnover on elected COU boards.
And,
D) The Company is required to report on progress towards statutory goals annually to the Legislature.
Third, you express concern around the potential acquisition cost. As you know, LEI was clear that this is not actually the key driver of savings. It could be 2x NBV, the high end of their range, and we would still be better off — especially once you factor in the capital reserves and transmission savings that LEI omitted.
Fourth: As for MURRDI and the New England Energy Vision, I do not agree that these can be called “plans.” They are planning processes, which may bear fruit and we hope they do. We have recently given several million — unprecedented funding — to the Governor’s Energy Office to participate in this kind of work. These efforts will only benefit from a utility that is a true partner, whose incentives and objectives are fully aligned with climate, connectivity, security, reliability and cost rather than profit. Indeed in many areas, such as NYPA in New York, COUs perform an important and trusted planning function.
As for savings from day one, I don’t think there can be any debate that ending the outflow of hundreds of millions in guaranteed, double-digit profits — due to ancient Supreme Court decisions that Maine regulators and policymakers are powerless to avoid within an IOU business model — does in fact represent certain savings. LEI didn’t count cash reserves or equity value as “savings,” but it is certainly value that stays here in Maine. So too are transmission savings and FEMA assistance.
We can pay a low interest mortgage, not a monopoly rent, and properly align incentives. We can pay for the human world of performance, not the impersonal galaxy of capex, and save billions.
More later, perhaps -
Seth
Thank you for this and your other communications, Seth. I've mulled over the information you have presented.
I agree that the COU model offers tantalizing opportunities, and this bill is markedly improved by the work that has been done over the past three years. But I also think that there are substantial risks related to the takeover and to the ongoing operation that cannot be completely mitigated. It is imperative that ratepayers understand that before they decide to jump on the bandwagon.
They need to understand that some COUs have had serious problems. It's a great model but it is not a panacea, and fixing problems that take root in a COU can be very difficult. It all lands in the lap of ratepayers as there is no one else to hold accountable.
They need to understand that there are competing economic analyses for this proposal and there is no truly settled science. The predictions are based partly on assumptions because the future is a range of probabilities, and how that figures into the analysis is a matter of the economists’ educated, professional opinions. Some of the campaign claims relating to those analyses have been highly questionable, summarily dismissing one expert analysis in favor of another that better fits the narrative.
Voters need to be given a sense of the spectrum of confidence of those forecasts but there is an effort to curtail that. The campaign employs logical fallacies like argumentum ad populum; 75% of the population thinks a COU is a good idea, therefore, it’s a good idea? These techniques are examples of the myriad faults in our larger public discourse that have led to the frustration and distrust of the political arena in general. If the claims that are being made today don't hold up, it will further erode the public's trust in their elected leaders. Our democracy cannot take much more of that.
You are still claiming that we will see savings from day one, but there is no solid footing for that claim. CMP is reaping profits (ROI) on a fraction of the market value of the company, but the COU would be paying bond interest on the entire market value. To make up some numbers to illustrate: If we are paying 10% ROI on $1000, it costs us $100. If we're paying 3% interest on $5,000, it's going to cost us $150. Even if we save $50 elsewhere in the budget, we'd not realize any savings overall. It is unfair to say that the lower interest rate will surely lead to savings. No one can realistically predict how this would actually work out in real life and at full scale, and that is a truth that should be front-and-center.
Beyond that, we also don't know what the board's capital investments would look like. The worldwide transition away from fossil fuels is impacting how electric grids operate and we know it will continue to drive change here. While the makeup of our utility will impact that change, it’s impossible to tell where electricity prices will trend. If we take over the grid and prices go up for reasons only partly related (or completely unrelated) to the takeover, people will still look back at this as a broken promise. It is simply wrong to tell people that this effort will categorically result in lower prices.
This proposal has merit but that is not enhanced by overselling. The impact of this decision will be felt by a majority of Mainers for generations to come. Good decisions get made from careful contemplation of the dry details, not by convincing people to accept risk by downplaying its existence. Unfortunately, that is where politics is these days, but that doesn’t mean we have to embrace it.