The owners of CMP and Versant claim that what has been an excellent investment for them would be a disastrous one for Mainers.
The numbers show otherwise. These regulated monopolies enjoy guaranteed rates of return on equity of about 10%. In 2022, according to the annual report of Avangrid, CMP’s base for a specified rate was over $2 billion. The cost of debt issued is also covered by rates charged to consumers. The almost risk-free returns appeal to the shareholders of these utilities. The current risk of takeover, in the form of Pine Tree Power, has been an unpleasant surprise.
You may wonder exactly how profitable CMP and Versant are, and what price would make their purchase a sound investment: valid questions, but there are few numbers available on the websites of the Public Utilities Commission or the Office of the Public Advocate. Although the PUC receives detailed annual reports from these companies, they are considered confidential and not made available to the public.
A few numbers have come out during recent debates, including those presented here. The PUC, for example, confirms the above 10% figure, and an Office of the Public Advocate fact sheet mentions that these utilities have more than $850 million in deferred income taxes on their books. The firm hired by opponents of Pine Tree Power says in a white paper that the present book value of CMP and Versant is $5.4 billion.
The purchase price of CMP and Versant will not be the widely cited $13.5 billion, but one deemed “fair and reasonable” through a court process. Both CMP and Versant have been purchased in recent years, and the courts will not allow huge deviations from precedent or from book value. In reporting to the PUC, CMP reported a book value of $4.2 billion in 2022 and Versant $1.2 billion.
And, importantly, the cost of acquisition depends on that expected rate of return for investors – this is set by the PUC and the Federal Energy Regulatory Commission. Lower guaranteed returns, more in line with the regulated rates found in Europe, could cause the acquisition cost to drop dramatically.
There are two major uncertainties associated with the establishment of Pine Tree Power. One is how much money the current foreign owners of Maine’s utilities will throw into litigation against the buyout. Another is the question of the priorities of those who will be elected to the board of the new utility.
To address the last question: We know that the elected board will not be focused on ensuring high profits, and that it will have at its disposal all the expertise it needs to meet its legislated responsibilities of ensuring reliability, affordability and accountability in its provision of electricity, as well as aiding Maine to achieve its climate goals. The newly gained right of public access to information will enable Mainers to assess how well the board is doing, and members can be replaced at election time if voters so choose. This is not possible with investor ownership, no matter how dissatisfied customers are.
Will the savings from the lower cost of investment under Pine Tree Power be passed on to consumers? That depends on the newly elected board; be careful whom you vote for. Watchdog groups will be applying pressure to the board to fulfill its promise. Will the transition be smooth? There are many national experts from other consumer-owned and publicly-owned utilities available to aid in this.
Experience has shown that the PUC is at a disadvantage when facing off against highly paid corporate lawyers and executives. This will end, and Efficiency Maine, as well, will face less opposition to changes that advance clean, green energy.
Our large investor-owned utilities have indulged in cost-cutting at the expense of consumers, workers and the environment. The priorities of these public utilities will only change under new ownership – many who reluctantly support consumer ownership acknowledge this. The need for Pine Tree Power is urgent and the time is now.
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