Get the Facts

The True Costs of a Government Takeover

The truth is, there are far more questions than answers about what the cost of a government takeover of Maine’s electric grid would be. The Maine PUC’s own feasibility study on a government takeover found that the “biggest problem” with establishing this new government entity is that “it may be trying to take possession of property for which it does not yet know the final price. It could be years after the fact before [we] know the final cost.”

The True Cost Includes:

Legal Fees

As the inevitable, multi-year legal fight goes on, the cost goes up.

Acquisition Costs

This isn’t a straightforward purchase: Just compensation, which is equal to net book value times an acquisition multiplier (that is set by a court), would be paid for CMP and Versant.

Startup Costs

Beyond the acquisition and seizing of Versant and CMP are the costs of consolidating and integrating the two companies.

Management Fees

Management fees of an estimated $82 million per year, plus inflation, could be paid for a private contractor – if one can be found who will operate grid assets they don’t own.

Maintenance

The tens of thousands of miles of wires will need to be maintained.

Investment Capital

Maine’s ambitious climate change goals mean the electric utility must plan and pay for the electrification of the infrastructure and decarbonization of electricity generation.

The “biggest problem” with this proposal:

"It may be trying to take possession of property for which it does not yet know the final price. It could be years after the fact before [we] know the final cost."
— 2020 Report by London Economics International, Evaluation of the Ownership of Maine’s Power Delivery System, commissioned by the Maine Public Utilities Commission

The Key Variable: Final Acquisition Cost

The single most important factor affecting the final cost to Mainers of a government takeover is the acquisition cost, a price that will ultimately be set by a court of law years after the process begins. How can we estimate that cost? Some recent examples give us an idea:

Municipality Acquisition Price [$M] Net Book Value [$M] Acquisition Multiplier
Hermiston, OR $8.0 $3.8 2.1x
Winter Park, FL $43.1 $7.8 5.5x
Jefferson County, WA $109.3 $46.7 2.3x

The calculation starts with the Net Book Value (NBV) of the hard assets. Think Blue Book Value on a used car. But unlike purchasing a used car, these poles and wires come with a fully operational business along with it, including hundreds of skilled employees. So to account for the additional value of the business operation, the court sets a multiplier, which gets multiplied by the Net Book Value to determine the final acquisition price. Past examples show that this number is likely to be at least 2x, which is to say, double the Net Book Value of the hard assets.

Seizing CMP and Versant Power would require paying them a fair price, and that would put Maine ratepayers billions of dollars in the hole, and that’s before we’ve hired a private contractor to run the grid or put in the capital needed to upgrade it.