Based on Central Maine Power and Versant Power’s Federal Energy Regulatory Commission filings, Maine public utility law and regulations, and the current market for Maine public utility assets, Pine Tree Power will be paying for CMP’s and Versant’s transmission and distribution assets a lot less than the $13.5 billion featured in CMP’s and Versant’s anti-Pine Tree Power ads.
Both CMP and Versant are regulated public utilities. They are allowed to charge rates that will pay their operating expenses, fund depreciation of physical assets and give them a certain percentage return on their “rate base,” which is defined as the net (depreciated) book value of their assets in public service.
This regulation places a ceiling on the fair market value of public utility property. A utility is not permitted to sell property used to serve the public without the permission of the Maine Public Utilities Commission. Any sale of utility property must be to another entity that will maintain the public utility service. Its new owner will be limited to a reasonable return on the same book (depreciated) value of the property purchased. The result is that utility assets sell at or near their net “book” or “rate-base” value, not at the value such assets would fetch on an open market free from any regulation.
CMP’s net utility assets as reported to the Federal Energy Regulatory Commission at the end of 2022 amounted to $4.16 billion. As of May 2022, Versant’s net utility assets totaled $1.24 billion. The total net utility plant in service for both utilities in 2022 amounts to about $5.4 billion. In a sale of public utility property, that is the starting point for negotiation of the sale price.
In the past, the PUC has allowed sales of electric utility assets somewhat above net book value as “prudent acquisition cost” of well-run business entities. Versant and CMP, with consumer ratings in the cellar, scarcely qualify as “well run” businesses. Any “prudent acquisition” margin above net book value of the Maine utilities’ assets will likely be very modest.
CMP and Versant base their claim of a $13.5 billion acquisition cost on a white paper prepared for them by a consulting firm, Concentric Energy Advisers. The consultant reached the $13.5 billion figure by assuming 1) that both CMP and Versant will be substantially increasing their rates of investment in utility plant between now and the time of acquisition, and 2) that the purchase price will likely be in the realm of double this swollen book value.
First, there is little basis for assuming that a utility on the verge of being acquired will likely double down on its investment in plant. From 2021 to 2022, CMP increased its net plant by only 4%. Second, it is extremely unlikely that the marketplace for utility property will support a purchase price equal to double book value for Maine utility assets.
The best evidence of a realistic “prudent acquisition cost” for the CMP and Versant network is the price paid for Versant on the open market just three years ago. Versant’s present owner paid a total of $1.4 billion for the whole company in March 2020. This represents a premium of only 25% over its net book value of a little over $1.1 billion at the time.
If Maine’s voters breathe life into Pine Tree Power this fall by voting in favor of Question 3, the statute contemplates that the newly chartered publicly owned power company will acquire the investor-owned utilities’ Maine assets by negotiated purchase or court judgment at fair market value for utility plants in service.
Based on the utilities’ Federal Energy Regulatory Commission filings, a purchase price at book value plus a premium similar to that paid for Versant in 2020 would run about $5.5 billion for CMP’s network and an additional $1.7 billion for Versant. Adding something for the cost of obtaining regulatory approvals brings the total price that Pine Tree Power will have to pay to something like $7.5 billion – a far cry from the $13.5 billion in the utilities’ advertisements opposing the referendum.
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