Central Maine is at an energy crossroads and an opportunity for a publicly owned utility presents itself to the town of Madison.

In 1903, Madison bonded to construct its own electric facility. More than 100 years later, Madison’s low electric rates resulted in the development of commercial greenhouses, which created over 200 jobs.

More economic development and additional employment in Central Maine could happen if voters in Madison approve the bond issue for development of a natural gas pipeline on Tuesday.

Currently, natural gas seems a great alternative to foreign oil and predictions into 2030 indicate stable pricing for many years. Why should a municipality pursue the expense and operation of a utility?

A lower gas rate is the first answer.

In bonding for the construction of the pipeline, a public entity benefits from the reduced cost of borrowing and is exempt from the sales tax on the purchases of materials. As natural gas pricing is based on several factors, including covering the cost of debt, consumers would benefit from the lower cost of public financing in gas rates. Interest rates and terms are fixed for a longer time in public financing, reducing the cost of gas to the ratepayers from the start of pipeline operations. As the example of the lower rates provided by Madison Electric Works demonstrates, local control results in better pricing.

A second answer to the question of why the gas pipeline should be a public project is the potential of public benefit for communities located along the pipeline, from Richmond to Madison.

The pipeline will be a source of tax revenue for the municipal budgets with Madison’s ownership. Each municipality would have an individual choice for the funds, tax sheltering, general fund enhancement or the development of a municipally owned local gas distribution entity.

Should a town or city choose to develop a municipal facility, funds from the pipeline paid by Madison might be used to bond for more low pressure lines in the community, giving relief to school budgets, enhancing business development and helping to retain and grow existing enterprises.

Madison’s historic choice to develop its own electric utility demonstrates the potential of this option for the communities along the pipeline. Public control of the gas utility ensures the lowest price with local control and will give future generations economic benefits from the lowest rates possible.

The third and quite important answer to the question of pipeline ownership is the opportunity for municipal subsidy for Madison property owners.

As private developers are allowed an amount of net profit granted by the Maine Public Utilities Commission, a municipal pipeline may make a case for the same type of return to the community investors as is granted to private investors. Municipal subsidies have worked well in the city of Holyoke, Mass., and other areas throughout the country. Such subsidies have been allowed in other states by utility commissions. The PUC can set a precedent in Maine by allowing a municipality a similar return for the construction of a natural gas pipeline for the length of the bond term.

Most investments carry a certain amount of risk. The Maine Legislature has limited the amount of risk to communities by establishing a limit of borrowing at 15 percent of the state’s valuation of the municipality for an energy facility. Madison’s total assessed value is approximately $500 million.

It is highly unlikely the passage of this bond would result in higher taxes or property being taken from the residents.

In the case of Madison’s bonding of $72 million for constructing and operating a natural gas pipeline from Richmond to Madison, the referendum specifically states the bonds will not be used if the revenues do not cover the expenses, and town officials will not pursue the project if pipeline construction proves higher that the bond amount, or if no investor return is granted to Madison.

All anchor contracts will be in place, with clauses to protect pipeline income, all operations, safety plans and construction engineering will be completed before the MPUC grants an Unconditional Certificate to Furnish Natural Gas and the bonds are then issued.

Lower rates, local control, and municipal subsidies make the case for taking the risk to own and operate an energy facility.

A positive vote on the bond issue on Tuesday by Madison citizens could result in the development of a publicly owned natural gas pipeline and decades of affordable energy benefits to the entire region.

Joy B. Hikel is the economic development director for the town of Madison.

Copy the Story Link