What's the Deal?

Frederick Faller

June 26,2016

A large portion of the questions that came up a the June 23 community meeting at the schoolhouse on the Maine Aqua Ventus (MAV) Trubine project centered around the issue of benefits to the Monhegan Plantation and larger community of persons who consider Monhegan's sanctuary as an integral party of their lives.

The dissussion was good and orderly but left a lot of details unanswered. Now a survey is being circulated that will answer questions about the broader sentiment beyond those who were able to be involved directly in the discussions. When the survey is tabulated, we will have a glimpse into the direction that this community would rather move. The results will be circulated for all to see and debate.

In late July, armed with information from the survey, the registered voters of Monhegan, arguably the rightful voters for what will happen to their island when the MAV project is installed, will vote at town meeting on whether to have a cable from the turbines run up onto Monhegan to supply power to the island, or have some kind of compensation in lieu of the cable, or possibly, as some have suggested, vote to have nothing to do with the MAV project except having to see it off the end of the island.

While there is a scheduling logic to making this decision (MAV has to continue their design and knowing whether the design will include the cable to Monhegan is a big design branch) it seems that very little effort has been put into articulating "the deal" that each of these options present. The deal that is stated in the Final Term Sheet, Dec 2, 2013, is rather vague: (The Commission in this text is the Maine Public Utilities Commission.) I have bolded parts of the text that I see as vague and needing more definition.

4)  Monhegan Plantation Benefits:

"Provide electric energy to the Monhegan Island Plantation Power District(District) for the entire duration of the Contract Term without charge, in an annual amount not to exceed 340 megawatt hours , escalating at one percent per year and a maximum demand of 300 KW (Electricity Provision Plan), or through consultation with the District provide benefits in an alternative form that are acceptable to MAV and approved by the Commission (Monhegan Alternate Benefit)

MAV will pay the commercially reasonable costs and installation of all interconnection to fulfill the commitment. As part of the design phase, Project Engineers will work with the District representatives to locate and design the interconnection consitent with the annual and maximum demands above.

In addition, MAV commits to paying for and installing a fiber optic cable to Monhgan Island in conjunction with the interconnection, to working with the Distric to arrive at a mututally agreeable entitlement structure for the cable, and to execute agreements with Monhegan Plantation addressing ownership, maintenance and capacity allocation issues.

MAV agrees to work with the Distrcit and the Commision to adopt a memorandum of understanding describing the structure of the Electricity Provision Plan and Monhegan Alternative Benefit in detail to be incorporated into the Contract."

The language in paragraph one would lead one to believe that the Monhegan Alternate Benefit (an alternative to the simple thresholds of maxumim power and maximum usage) is in the hands of MAV (acceptable) and the Power Commission (approved) but it is also true that this has to be done through consultation with the district. This implies that the District is consulted on this. I am not a lawyer, and I do not think this language was constructed as carefully as a lawyer would construct it. My guess, however, is that a lawyer would push this issue to claim that "consultation" would include some form of participation in the formation of the agreement, that is, negotiation of the terms.

In the fourth paragraph, it states that MAV agrees to work with the District and the Commission to adopt a memorandum of understanding describing the structure of the electricty plan and the Alternative Benefit Plan. This clearly implies that the District is involved in the forumulation of what happens. If they are going to be involved in the details, they are certainly in a position to negotiate the terms that will be specified in the memorandum.

When being called on to make a descision like this, it is essential that some estimate of the  economic impact or value be made and this means numbers – specifically numbers of dollars – coming from and going to the community  for each option and feature and how it comes from and goes to the community.

If I buy a house, the comings and goings are spelled out in infinite detail and I am only allowed to sign up for "the deal" in the presence of lawyers for both sides that have mutually agreed to "the deal". Dollar ammounts are spelled out. Details about foreclosures, defaults, discovery of lead paint, vaivers for unknown problems etc.

 I remember buying my first house. I had to sign about fifty different documents represeting all the contingencies that I had to consider to buy a house for $220,000. Articulation of and my wareness of all these details was part of "the deal" that I was signing up for when I voted "YES" on my mortgage.

The language in the term agreement adequaqtely explains the intent of the eventual contract but there are no details to be voted on. Before any final vote, before "buying the house", it should be expected that the Final Term Sheet (now 2 1/2 year old and very vague) should be updated and clarified.

I believe that Monhegan should have a professional negotiator to manage the details of the final terms. The MAV project is backed by some very big money. Big money always has big lawyers behind it and they will try to economize in as many ways as they can. Without professional help, the Monhegan Power District cannot hope to get the best deal.

On January 7, 1999, my house in Burlington had a fire. The fire did not consume the house but it was evaluated to be a total loss by the insurance company. A knowledgeable friend of mine, kindly suggested that I hire a public adjuster to handle my claim against the insurance company. The public adjuster would get 10% of the final settlement in return for his services. I did some quick math and was horrified at a possible $25,000 loss. My friend's logical response was simple. "As smart and confident as you are, Fred, you have no idea what you are up against here. Think about it this way – he only has to do 10% better than you for you to come out ahead."

For the next 3 months, I watched the negotiations by a professional as he took the "big boys" to the mat. His knowledge of the fine print and his gall at going after things I would not have had the courage to ask for paid off. It is easy to say that he eventually doubled the payback that I would have gotten had I handled it myself.

A good example of this is found in the fact that the insurance on the "contents" of the house cannot be regained in any other way than to buy lots of replacement stuff, keep all the receipts, and then get re-imbursed by the insurance company. I would have one year to do that. The way I live, I coule probably have replaced most of what I wanted and needed for about $20,000, but the insurance was for six times that, or $120,000. So my negotiator told me to go to the insurance company with a letter stating firmly my commitment to actually spend all $120,000. However, if they would give me $110,000 in unrestricted cash, now, I would relinquish the claim to the other $10,000. It worked! And we used the cash to invest in a better house rather than lots of stuff. How would I have known to pull that maneuver? Would I have thought of it? Would I have had the courage to do it? Apparently, it is pretty standard practice in the industry, but I would have had a horrible task of actually following what I thought was the only solution.

The deal we are talking about is a deal that will affect the Monhegan Plantation for at least 20 years and the effects of how it is handled will linger far into the future. Its worth, at face value, is somewhere around $4 million, perhaps considerably less if it is negotiated poorly and possible more if negotiated well.

Final terms for both scenarios (cable or no cable) should be negotiated BEFORE they are put up for a vote. If the vote is taken to go cable or no cable, and THEN the final deal is negotiated, the negotiator has far less leverage. With both options on the table, a good negotiator will leverage each option against the the other for a better deal on either side. Besides, voters are not able to discuss or make a justifiable decision based on no specific information.

Below I will try to address some obvious questions that really should be answered before the small voting population can appropriately consider the options:

  1. The case of "nothing to do with it" is pretty simple – Monhegan would get nothing except a change in scenery, some fallout with the birding community and some support from the alternative energy community in people coming to "see" the project. What ever issues there are with noise, the fishery, visibility will be uncompensated.

  1. Suppose there is to be a cable:
  1. From the discussion on June 23, it is not clear exactly what "free" electricity is:
  1. Is it net metered, so that if the turbines are not turning, Monhegan has to buy energy from CMP?
  2. Is it that all the energy that Monhegan needs (up to the limits spelled out in the term sheet) provided for free?
  3. The amounts stated in the Term agreement reflect the estimated current needs of the island. It is likely that these needs will go up over time and it is well known that if the price drops the demand will increase. What do we pay for electricity needs that exceed the stated limits that CMP gives us for free?
  4. ......

  1. What is a good estimate of the cost of running the Island infrastructure that must be maintined, even if there is a cable.
  1. At the meeting, an estimate of $0.30 to $0.40 per Kwhr was thrown out. This is the cost to run the system regardless of the fact that the power is free.
  2. This number should be refined somehow before the vote. Everyone needs to know to the best estimate possible, what the economic cost/benefits are.
  3. .......

  1. A fiber optic cable will be bundled into the cable.
  1. It should be spelled out to the voters what this means:
  1. What would be the estimated cost of service?
  2. Would there be bandwidth limitations?
  3. Would the provider change?
  4. Would the phone system switch to fiber optics? If so:
  1. What would be the cost?
  2. Would people be able to keep their phone numbers?
  3. Would the rates change?
  1. What would happen if the cable breaks?
  1. How long would it be estimated to fix it?
  1. Is there a commitment to fix it?
  2. Would it cost anything to Monhegan to fix it?
  1. What would happen to the phone service?
  2. Who would be responsible for maintaining the phone connection
  1. .......

  1. Suppose there is no cable connection to Monhegan:
  1. How would Mohegan be compensated?
  1. An anual fee while the project operates?
  1. If an anual fee is paid, would it increase over time by some simple index like the cost of living index or perhaps be related to the cost of diesel fuel? Certainly, the cost of producing energy here on the island will change over time. Most likely it will change in the upward direction. In 20 years, it is likely that the price can as much as double. The $200,000 we get in 2017 will be worth half that in buying power in 2037.
  2. How will a "just compensation" amount be calculated?
  1. Would it be based on some model that mimics the amount of electricty that would be given to the island in the cabled vision of the system?
  2. Who would negotiate this number for the benefit of Monhegan?(As I stated above, wisdom calls for a professional negotiator for this task, even if it seems expensive)
  3. Are there any legal requirements or precedents for this kind of arrangement?
  1. Would there be restrictions on the use of the money?
  1. One could imagine that since the project is offering money in lieu of electricity that MAV could demand that the money be used only for improvements or payments related to the energy infrastructure of payments related to energy needs on the island.
  1. Would the reciept of this money affect the ability of Monhegan to get other energy grants related to the infrastructure of the island energy?

  1. Could compensation be a slightly reduced lump sum compared against the net accumulated value of anual payments that could be invested to give a better overall value to the Monhegan community? If not, why isn't this an option? Could it be negotiated?
  1. It seems that this might not be an option at this time but should Monhegan press to try to get this as an option?
  2. Will there be restrictions on how the money can be used? (similar to the issue above)
  3. How would the value be calculated?
  4. Who would negotiate a fair value for Monhegan.
  1. .....

  1. Probably the BIGGEST question relates to what happens after 20 years?
  1. If there is no cable, the answer seems to be pretty straight forward. The cash payouts run out and Monhegan is on its own again.
  1. Presumably, if the project were handled properly over the 20 years, Monhegan would be prepared for this transition.
  1. If there is a cable:
  1. What happens when it fails – is Monhegan on the hook to fix it or do we just go back to the old way of doing things?
  2. Will rates change?
  3. Will Monhegan be at the mercy of CMP for maintaining the cable and adjusting their rates.
  4. What happens to internet access at that point.

  1. Is there anything that keeps MAV from maintaining the test site and putting BIGGER turbines out there?
  2. If the cable is removed, who pays for the removal?
  3. .....

There are probably other issues that should be written out. Again I will emphasize that in my oppinion, it is unfair to ask Monhegan voters to vote on a deal that is not written out in detail, on which they can make an informed decision about the cost benefit to them and the island that will affect the island far into the future.

Link to this document

https://docs.google.com/document/d/1E6husRch88-7UuQ-7FwGdGFSLxoskGTVPQUEtQHriQ0/pub