The Maine referendum initiative that would have nationalized “by right of eminent domain” the private electric transmission and distribution companies in Maine lost by 70% to 30% on Tuesday. According to the “indirect initiated state statute” that provided the full text of the ballot measure, the new state-created, non-profit, consumer-owned corporation, called Pine Tree Power Company,
shall purchase or acquire by the exercise of the right of eminent domain all utility facilities in the State owned or operated or held for future use by any investor-owned transmission and distribution utility, in accordance with this subsection.
Incidentally, the Pine Tree Power Company, would not have been truly “consumer-owned,” because no consumer could have sold his share without moving out of Maine, and then getting nothing for “his” share. Bernie Sanders, the Vermont congressman who remains at the forefront of the proletariat’s liberation, had declared:
Mainers have a rare chance to take control of an important part of their daily lives. Instead of a private power system that last year sent $187 million in profits out of the country, Mainers can have cheaper, more reliable power—and help fight climate change at the same time. I’m proud to support the Pine Tree Power campaign, and I urge Mainers to support it as well.
It is encouraging that 70% of the voters (of those who actually did cast a ballot) have not been bewitched by that siren. It is still disturbing that 30% believe that a state company—even if disguised as “consumer-owned” with a tightly regulated private subcontractor—can be more efficient than private companies. More than a century of grandiose socialist experiments should have put this question to rest.
Ballotpedia, a non-partisan site about voting, further explained (“Maine Question 3, Pine Tree Power Company Initiative (2023),” Ballotpedia):
According to the initiative, the Pine Tree Power company would use its access to low-cost capital and an ability to be managed in a manner that is not focused on ensuring shareholder profits. The measure also included a provision that the Pine Tree Power Company would deliver electricity safely, affordably, and reliably to customers, to assist Maine in meeting and exceeding climate action goals, to improve Maine’s internet connectivity through more affordable access to unserved or underserved parts of the state, to advance economic, environmental and social justice and to benefit company workers and state communities, to provide transparent and accountable governance, and to support Maine’s economic growth.
Only that? What about racial justice, inclusivity, and dental services? Wasn’t the idea that the Pine Tree Power Company would provide social nirvana to Mainers?
READER COMMENTS
Matthias
Nov 10 2023 at 8:52am
That’s pretty silly. Individual private companies can be pretty inefficient. Especially ahen they are subject to lots of regulation and they operate in a market with high barriers to entry.
Specific government bureaucracies and state conpanies can be efficient. It’s possible. (I live in Singapore these days, our government runs a pretty tight ship.)
Of course, it’s vastly more probable that private conpanies are more efficient. That’s the way to bet.
But let’s not pretend the opposite cannot happen at all.
Jose Pablo
Nov 10 2023 at 11:09am
Things are not that simple in regulated business, like transmission and distribution.
The “regulator” (the “government” in a broad sense) defines the “efficiencies” that the company can “keep” and the ones that go to the users.
Distribution and transmission prices are defined by the Maine Public Utility Commission. The three actual commissioners were appointed by Maine Governor Janet Mills.
The mission of the MPUC is:
… to ensure that Maine citizens have access to safe and reliable utility services at rates that are just and reasonable for ratepayers and utilities.
So, pretty similar to what the Pine Tree Power Company wanted to do. So, the “initiative” can be seen as a testament to the failure of the MPUC in fulfilling their mission.
And the MPUC has ample powers to get its job done: the Commission “establishes rates, grants utility operating authority, regulates utility service standards and monitors utility operations for safety and reliability“. So, it fixes prices and, for instance, approves the regulated companies’ multiyear investment plans (the companies don’t get compensated for the assets that the Commission doesn’t deem necessary to provide the service).
Taking this into account the Maine case basically consist of having the transmission and distribution system in Maine governed by an “independent Board of Directors made up of Mainers elected to staggered terms by the people of Maine” that would be heavily supervised / regulated by 3 commissioners directly elected by the Governor.
And transmission and distribution companies are not in the power generation business so their impact on “climate change” can only be marginal (I am not familiar with Maine’s regulatory framework but pretty sure the distribution companies are more than willing to make investments to connect new generation projects as far as these investments are included by the MPUC in their Regulatory Asset Base and they get compensated for them accordingly. Which, by the way, should result in a rate increase).
Regulated businesses are already (can only be?) socialism.
Pierre Lemieux
Nov 10 2023 at 12:00pm
Jose: You are right. I did not introduce this qualification in my post because I wanted to focus on a further, perhaps more brazen, stage in the long-endured creeping regulation of utility companies (and because I don’t know as much as you do about electricity regulation). Indeed, nationalization can be accomplished stealthily through regulation (see my review of Hayek’s The Road to Serfdom).
Jose Pablo
Nov 10 2023 at 12:53pm
nationalization can be accomplished stealthily through regulation
Indeed! regulated businesses are a clear example. The easy to write down concept of “rates that are just” leads to endless (and sometimes ugly) discussions with the regulator. And the intertwingle of incentives and responsibilities can reach staggering proportions.
For instance, Iberdrola could be interested in including Maine PERS as a minority shareholder in CMP. That could work wonders during tariff negotiations. Afterall, all “just rates” are fair but some “just rates” (for instance the ones that helps to fund state employee’s retirement plans) are fairer than others.
And applying the right of eminent domain to nationalize your own employee’s retirement fund participation in the company can certainly be very tricky. Socialism is, indeed, “manageable” (that’s one of the reasons why it doesn’t work)
Pierre Lemieux
Nov 10 2023 at 12:26pm
Matthias: I welcome competition on pretty silly comments, so please allow me to suggest amendments to yours. Political economy, which studies the logic of institutions, shows that a monopolistic state corporation cannot be efficient as they have really no way to discover how to satisfy consumers’ demand at the lowest possible cost (for example, see Hayek’s “The Use of Knowledge in Society“). Recall that efficiency is defined in terms of consumer demand (and free input markets). Of course, as the old saw has it, a broken clock is right twice a day and Mussolini, it is said, made the trains run on time. Now, if what you meant to point out is what Jose says about regulation in lieu of nationalization, your comment is far from pretty silly.
I would still point out that a bit of competition is likely to be less inefficient than no competition (freedom of entry) at all, although I would admit that this is not necessarily the case. Let me perhaps also add that “running a tight ship” is not exactly the definition of a liberal state: What does “running” mean? What/who is the ship? And how tight is “tightly”?
Craig
Nov 12 2023 at 12:29am
“a broken clock is right twice a day”
Perhaps this might be one of the two times? Just looking at my electric bill in TN which is VEC buying energy wholesale from TVA, the total all in cost of electricity is .1074 per kwh which is definitely lower than JCPL/First Energy (NJ) and FPL/Nexterra in FL.
Perhaps the price is the result of subsidy?
Perhaps hydroelectric inherently cheaper?
” monopolistic state corporation cannot be efficient”
Took a tour of one of the dams which happens to be in KY and the interior is decades old who’s who of old American industrial companies. Looking up who makes water turbines today and there’s 7 companies that google pops up from around the world. Point being of course so to a certain extent when the government puts a project out to bid its sending that bid out to companies that have some competitive advantage in power generation systems, no? For instance Westinghouse?
Jose Pablo
Nov 12 2023 at 9:21am
The “total cost” on your bill is not VEC’s responsibility. VEC only “collects” money to pay the power generation companies (and some other “miscellaneous” charges). VEC only “owns and runs the cables” (so to speak) and charges you the “fair” (regulated) cost of doing so.
Even comparing only the “distribution and transmission costs” is very tricky. Its main drivers are the km of lines and the number of customers serviced (and not in a “linear” way). So, you need to “normalize” the cost before making any meaningful comparation.
But, in any case, the transmission and distribution companies don’t decide the prices charged to their customers. It is a regulated business. The rates are decided by the regulator. A technical body appointed (one way or another) by the state legislature (or the executive, or both combined). This body is in charge of making the necessary benchmarks and of sending to customers part (or all) the efficiencies (which, by the way, reduces the incentive of even private companies to find them)
I don’t know about VEC but in the Pine Tree Power case, the new company would have been subsidized thru different mechanism:
Pine Tree Power would have been exempted from Federal and State taxes and it would have been financed thru tax-exempted revenue bonds.
So, yes, comparing transmission and distribution rates is pretty tricky.
Craig
Nov 12 2023 at 11:10am
They do itemize it:
VEC Customer Charge $11.77 (not seemingly related to usage at all)
VEC Energy (kwh) 824 kwh @.01195 – 9.85
TVA Energy (kwh) 824 kwh @ .06592 – 54.32
TVA Fuel Cost 824 kwh @ .02422 – 19.96 [this is described elsewhere in bill as a fuel surcharge]
TVA Grid Access 824 kwh @ .00535 – 4.41
Total Energy Rate (kwh) rate .10744
Subtotal 100.31
Project Deserve 1.00
Total 101.31
So yeah, all in its 101.31/824 = $.1229
Trust me I am not one to argue in favor of nationalization and I am one that would privatize things like the post office, but I would also suggest one can be hypercritical of things as well and with respect to power, at least in TN that does seem relatively low. Indeed that price could obviously be a regulated price, but it also clearly might be a subsidized price as well.
David Seltzer
Nov 10 2023 at 4:59pm
“Mainers have a rare chance to take control of an important part of their daily lives. Instead of a private power system that last year sent $187 million in profits out of the country, Mainers can have cheaper, more reliable power—and help fight climate change at the same time. I’m proud to support the Pine Tree Power campaign, and I urge Mainers to support it as well.” Rare chance? They do it everyday by making trade-offs Bernie! $187 mil offshore? Well Bernie, those dollars came back when foreign individuals bought goods and services produced in the US. $187 mil offshore meant we bought stuff from individuals who had a comparative advantage, which lowered the opportunity costs of individuals in America. Bernie, how can Mainers have cheaper power? I suspect you think price controls are the answer. The unseen result? Less incentive to produce power. fight climate-change? Fight? Does Bernie mean armed conflict?
Jose Pablo
Nov 10 2023 at 5:15pm
David, take into account that Mainers, God forbid, are not getting any money from services they perform overseas.
It is terrible sending millions of dollars out of the country, but it is wonderful getting millions of dollars from foreign “customers”.
Maybe Bernie thinks that serving dinners to strangers at his home and charging for it is better than getting out to a restaurant and enjoying been served.
In this regard, he (Bernie) should call Krugman and have a little talk.
Thomas L Hutcheson
Nov 12 2023 at 7:39am
I agree about private v public enterprises, but I’d point out that its not a RCT. The issue only arises in cases where perfect competition among private firms does not exist. In DC water is supplied by a municipal department and electricity by a private firm. I wonder how much different the operations of the two firms would be if the order were reversed?
In the case of Maine, the issue sounds like a great opportunity cost loss. If there are objections to the way power is supplied, proposals to improve the supply could be subject to cost benefit analysis.
Jose Pablo
Nov 12 2023 at 2:33pm
sounds like a great opportunity cost loss
What opportunity cost?
proposals to improve the supply could be subject to cost benefit analysis.
That’s precisely the mission of MPUC. Mechanisms for that are already in place. There is no reason to believe that adding an additional layer of public supervision will improve things. How?
If Mainers believe MPUC is failing in performing their mission, then the proper answer is removing the actual commissioners and nominating new ones.
Pierre Lemieux
Nov 12 2023 at 9:30pm
Thomas: I am still looking for a case where the government or a public agency has a pet project, submits it to a cost-benefit analysis, and later announces: “We have decided to kill this project that we liked very much because our cost-benefit has just shown that its costs are higher than its benefits.”
As for perfect competition, we both know that it never literally exists. It is only a simple model that allows us to analyze reality (as you no doubt understand). Perfect government does not exist either, the difference being that, from all we know, this model does not help analyze reality.
But I may be missing something.
Pierre Lemieux
Nov 12 2023 at 9:36pm
Post Scriptum–Thomas: Public health economists working for the government, often as consultants, have even got into the habit of neglecting or amputating consumer surplus to prove that the “social cost” of smoking is higher than its “social benefit.” They have invented the concept of “internalities” (a cost that short-sighted or bad individuals impose on themselves) to justify their rewriting of nearly a century of welfare economics.
Comments are closed.