As Maine grapples with decarbonizing its economy to meet ambitious climate mitigation goals, I urge us to think big and consider what a statewide, ratepayer-owned electric utility could do to aid us in our quest.
Electric utilities are natural monopolies. More than 100 years ago we had competing companies and a jumble of lines running down public rights of way. It was too chaotic and wasteful, so we, the state, granted monopolies in exchange for a set of service provisions.
The state of Maine grants a monopoly to Central Maine Power and Versant in exchange for reliability, affordability, and availability. Maine has the constitutional right to place those assets in different hands. It is our decision, and ours alone.
We are legally required to ensure that regulated, natural monopolies be strong financially, so we link their profits to what they have to pay for “capital.” The rates we pay are largely determined by this “cost of capital.”
A ratepayer-owned Maine power company can access funds at less than half the cost for CMP and Versant.
Cost of capital has two components—the cost of equity and the cost of debt. Equity is provided by shareholders in exchange for ownership and payment of dividends. Debt is what the company borrows from banks and then repays as principal and interest over a defined period of time. An investor-owned utility (IOU) has a cost of capital of 8 percent to 10 percent.
A ratepayer, or consumer-owned utility (COU) has debt, but no equity, and its debt comes at a much lower cost than an IOU, mostly because it is exempt from federal income taxes and because repayment is based on the reliable revenues of people paying their electricity bills.
These features mean that a new, ratepayer-owned Maine power company can access funds at less than half the cost for CMP and Versant. Let me say that again. A Maine COU can finance the purchase of both CMP and Versant, conduct normal operations, and, most importantly, build out its network, all at a cost less than half what we pay for an IOU. This is a huge savings of billions of dollars and one that cannot be overlooked.
Our two primary electric transmission and distribution companies, CMP and Versant, are IOUs. CMP is owned by Avangrid, which is owned by Iberdrola, a Spanish global conglomerate. Two of Iberdrola’s largest shareholders are the sovereign wealth funds of Qatar and Norway.
We pay Qatar and Norway U.S. dollars for oil and they buy assets here in Maine that pay guaranteed rates of return. It is a great financial recycling operation!
The other monopoly provider in Maine, Versant, is also foreign owned by ENMAX from Calgary, Canada. ENMAX is the privatized former city of Calgary electric company. It is 100 percent owned by the city of Calgary and pays a yearly dividend of approximately $40 million to Calgary.
CMP and Versant produce large profits. Our ratepayers’ hard-earned dollars generate wealth for Iberdrola’s shareholders and the citizens of Calgary.
It need not be so. Maine has the constitutional right to place those assets in different hands. Of course, the law has to be followed and fair compensation paid to CMP and Versant shareholders.
This is the backdrop as Maine addresses climate change. Recently, Dr. Richard Silkman published “Pathway to a Zero-Carbon Economy by 2050,” a report that shows a complete de-carbonization of Maine’s economy will require a significant increase in electrons moving along the state’s power poles.
We have gotten to the important consideration. We will need a major upgrade to our electric distribution network and that will cost a fair penny. CMP and Versant will do that if required and they will charge an arm and a leg. Their cost of capital will make sure we pay a lot, and their shareholders will be thrilled.
A ratepayer-owned utility, exempt from federal income taxes with no shareholders to return profits to, only ratepayers to represent, will keep money in Maine, address climate change, build out our network, and treat customers responsibly.
Now, is that not a big step in the right direction?
Sam May is a former Wall Street analyst with experience in both Silicon Valley and Hong Kong. He lives in Portland and is co-founder of Maine Harvest Federal Credit Union.