Follow the money – is it a good deal for anyone?
How does the money flow?
Today, LS Power could invest $1 billion in treasury bills, and earn more money, with no effort, and guaranteed returns, than it would in building this proposed transmission line. The only difference then is that if LS Power built the transmission line, at the end of the term LS Power would still own the easements and the equipment. So maybe it would work out for them in the end. Maybe not.
It seems risky, unless the play is to try and edge out CMP or Versant for more of Maine market. And with a legislature who is allowing eminent domain taking of land from lower income landowners (something New Hampshire legislature ruled out during the Northern Pass days) – why not go for it?
What’s the issue with eminent domain taking? Well, this isn’t like a taking for the highway or Route 3, which passes through our town, east west from Belfast to Augusta. Who owns Route 3? Legitimately, the state and the people. Local residents benefit from it with ease of travel. Route 3 was created using eminent domain in the 1960s (I’ve mostly heard about this word of mouth; I haven’t found great references.)
But, with Kelo v. New London of 2005, the Supreme Court affirmed that eminent domain can be used to take property from one private owner and give it to another private owner- i.e. take land that represents one person’s life savings, and give it to a billion dollar company from out of state for private gain. Many states rejected this decision and enacted laws to protect private landowners. Maine did not, thus making it a great target for LS Power and other big corporations.
The uncomfortable reality for left-wing politicians should be: eminent domain disproportionately impacts low-income residents. It takes education and resources to fight for just compensation.
For context, this is what a substation looks like in the wealthy town of Bar Harbor:
Why was that 10-person complaint effective? One of the impacted residents was an attorney, and knew how to write and organize his neighbors.
With that background, I want to outline the financial overview of the LS Power project, as it has been made publicly available, and as I understand it. The numbers have been obfuscated by the PUC, which describes some aspects of the project in terms of “benefits” and some in terms of “costs” – leaving us with an algebra problem with too many unknown variables. Because LS Power provided a fixed price bid, we can back into some of their numbers, but the Wind Power Plant numbers are almost completely hidden.
For this writeup, I’m ignoring the LS Power-funded Daymark study, which has obvious conflict of interest based on lack of independence. I will go into that later in a post I’ve had sitting in draft for about 40 days. Getting ready for winter off-grid has taken up a fair bit of time this past month.
Here’s the breakdown of how I see the numbers breaking out:
As mentioned above: if LS Power were to invest their $1 billion in treasury bills, they would get a pretty decent rate of return and not need to do any work.
The current T-bill interest rate on a 30 year note is 4.77%.
A 20 year note is 4.97%.
However, because they offered a fixed price bid, we know that they are expecting a $2.78 billion return over approximately 30 years on $1 billion invested. You can use an ROI calculator, such as the one linked, to see that is a 3.47% return.
The annualized ROI on $1 billion invested with a return of $2.78 billion over 30 years is 3.47%
Now I know that 4.77% and 3.47% seem really close. But, as you and I (hopefully) learned in sixth grade math, the Return on Investment difference is staggering. LS Power would earn $1.27 BILLION more by investing in treasury bills today. At least according to the numbers that have been published.
In Doug Mulvey’s testimony on March 21st, 2023 he stated “LS Power is in Maine looking to invest approximately $1 billion.”
In testimony dated May 18th, 2021 about LD 1710, the originating legislation, the PUC stated:
“The Act would require the Commission to conduct a novel procurement to, in effect, finance the development, construction and commercial operation of a transmission line or lines. Presumably, the value of the transmission asset would be transferred to the utility for the benefit of the ratepayers, but the Commission seeks clarity on what entity will own this asset. To the extent that the value of the transmission asset is below the cost of the long-term contract, the ratepayers would pay the difference.”
In a press release on October 26th, 2022, the Maine PUC said:
“LS Power Base was selected for its transmission project at a cost of $2.78 billion and Longroad Energy's King Pine 1,000 MW wind generation project was chosen resulting in savings of $1.08 billion. Together, the net cost of the two projects is a projected $1.7 billion over a 30-year period.”
In a second press release, on January 31st, 2023, the Maine PUC said:
“With Massachusetts partnering in 40% of the project, the estimated net costs to Maine ratepayers would be about $1 billion, or about a dollar per month for an average residential customer. Costs could be reduced further if additional partners participate in the project.”
The redacted Transmission Service Agreement on docket 2021-00369 (item 139) says:
If you put all these variables into excel, you get a yearly payment from Maine ratepayers to LS Power starting at $94 million. The years, by the way, are arbitrary, to give readers a sense of the timescale. Payments start at completion of construction, as described in the TSA -regardless of whether there is any power to transmit!!!
These are my extrapolations. I’d be interested to hear if anyone has understood the public version of the financials differently.
An additional way to think about this:
This project is similar to LS Power building a large building, which Maine ratepayers will rent for $94 million per year, with 1% escalators. At the end of the lease term, LS Power still owns the building. They could raise the rent.
And, how will equipment depreciation work? Towns which were receiving taxes on $2 million estimated value of equipment per mile will receive what value later in the term?
How do we estimate a price per mile?
It’s tricky, because of the substations. Our friends tell us substations and converter stations are in the $150 million - $250 million apiece.
The minimum, at least per the RFP, appears to be two substations. The bid has three substations, a technical wondering I have not yet tracked down.
But, if we take 150 miles and divide it across $1 billion, we get a normalized price of $6.7 million per mile. That “spreads” the cost of substations across the entire line. The equipment proposed in most towns includes zero substations, hence the estimate of $2 million in equipment per mile for towns.
Here are some great neighboring Buried HVDC projects to review for pricing.
Aroostook Renewable Gateway normalized cost per mile $6.7 million (above ground)
Twin States Clean Energy Link normalized cost per mile $9.5 million (36% buried)
New England Clean Energy Link normalized cost per mile $10.6 million (100% buried)
Not a neighboring state, but PG&E California is now stating they want to bury 2000 miles of lines for a normalized price per mile of $3 million. (Obviously, much of the detail is missing from this statement) (100% buried)
Champlain Hudson Power Express normalized cost per mile $17.7 million (40% buried, 60% hidden in waterways)
Now, this makes LS Power look like a great deal for the people of Maine- right? Not so fast. Is the cheapest solution always the best solution for a 30 year deal?
Moreover: these are construction costs. It’s not what ratepayers will pay. I don’t know what ratepayers will pay for the four out-of-state examples (and nobody does, because everything is a projection.). The funding mechanisms are different for each project. Twin States Clean Energy Link is getting federal funding.
It’s also, clearly, not an apples to apples comparison, because those other projects include below ground. The purpose of the comparison is to demonstrate that buried projects are NOT FIVE TIMES AS EXPENSIVE. In fact, there is a comp right over in Vermont that is all buried and not even twice as expensive.
Other costs to consider, and reasons why the cheapest up-front solution might NOT be the best deal for ratepayers long term:
Opportunity Costs on real estate value in communities permanently impacted by 150’ towers
Just another beautiful view.
As stated before: these writeups are opinions. I’m aiming to be factual, and welcome corrections to facts. I’m not an expert in any field: not in finance, not in law, not in engineering. I’m an artist and a local.