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Texas electric firm files for bankruptcy citing $1.8B in claims

reuters.com

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Re: Texas electric firm files for bankruptcy citing $1.8B in claims

#121

Post by rocqua »

lawnchair_larry wrote: post #72
jonplackett wrote: post #41

This is the side of privatisation that gets ignored. When private companies screw up, who gets left with the bill? Private companies have no incentive to be ready for really big problems because they know they’ll get bailed out, or just not have to pay. Privatise the profit, socialise the losses.

There is no profit. It’s a 501(c)(12).

I think that means there is still profit, just that profits are not payed out to investors. Hence they have to be re-invested or kept as savings.

Salary leaves a bit of a loophole, not sure how that is regulated.

Re: Texas electric firm files for bankruptcy citing $1.8B in claims

#122

Post by dan-robertson »

azujus wrote: post #33

Interesting does this mean that global warming will cause the insurance crisis in the US?

Insurance is a business that’s mostly designed for uncorrelated tail risks. It works well for insuring shipping. It works pretty well for insuring against house fires. It can be tricky with natural disasters where the risks are quite correlated, though insurance companies try to prepare for it.

It works poorly for cases where the risks are unknown at the time the insurance is sold and then turn out to be correlated. For example asbestos-related lung disease claims basically wiped out many syndicates at Lloyds (though this was exacerbated by other problems like the accounting practices or underwriters having unlimited personal liability)

Re: Texas electric firm files for bankruptcy citing $1.8B in claims

#123

Post by clcaev »

snidane wrote: post #94
jonplackett wrote: post #41

This is the side of privatisation that gets ignored. When private companies screw up, who gets left with the bill? Private companies have no incentive to be ready for really big problems because they know they’ll get bailed out, or just not have to pay. Privatise the profit, socialise the losses.

It's actually well understood that privatisation for platform industries is bad, privatisation for businesses running on top of platforms is good. Networks and infrastructure = little to no competition. Eg. networks naturally settle in a optimal geographical location and utilize economy of scale then. Can't compete with that. So don't privatise platforms. Rather - make them monopolistic and make them share the revenu…

While I agree with your sentiment, this was not exactly a private operator: this was a rural electric cooperative, that intentionally runs close to cost hile holding reasonable reserves. Its voting members were distribution cooperatives, whose voting members are individual households. This is about as sane as a platform ownership as one might have.

This is not an obvious problem nor solution. As posted downstream, risk of polar vortex was even known and discussed by the general manager of the facility: https://www.energy.gov/sites/prod/files/2014/08/f18/karnei_s...

Re: Texas electric firm files for bankruptcy citing $1.8B in claims

#124

Post by yourapostasy »

snidane wrote: post #104
ethanbond wrote: post #100

Earlier quoted context omitted.

What about housing itself? There is only one building that can exist at 100 1st Ave, and its location is entirely unique/entirely monopolized.

That's actually land monopoly problem. Ie. whoever came first to claim the land has exclusive use rights on it forever, or as long as his descendants go. It's yet another monopoly problem even though it doesn't look like it at first glance. Each house basically sits on a piece of mlonopoly for the parcel below it, preventing others from use. It's not much of a big deal in general, but in congested big cities, it is a…

> You pay yearly percentage of the market value.

Establishing "market value" is the rub. Texas for example, does not make real estate sales prices public. This has a lot of perverse effects, one of which is deep-pocketed commercial interests have pummeled public assessors until commercial property is tacitly way undervalued for tax purposes, yet is openly sold for much more than the purported tax basis.

I've heard of a system I found interesting (but alas, can no longer find a reference to link) to competitively establish tax basis on commercial real estate (I wouldn't want this on natural person owner-occupied residential). You claim whatever tax basis you want. It gets published in the open. Whoever can put up completely unencumbered cash over the barrel for that basis + 7% or more though, can purchase the property. And by unencumbered, I mean not even investor syndication. Real, natural person, outright first and only lien on the cash, absolutely no liens tolerated against the property tied directly or indirectly to the cash.

Cash goes into government-controlled escrow. Current owner has one year to pay difference on one year's worth of new imputed tax basis represented by the escrowed cash, and continue from that point forward with the new basis. If the owner comes up with it, the bidder loses 6% of the cash (or whatever the real estate industry commission structure is at that time in that locality) to the local government as commission to facilitate the price discovery. Bidder can increase bid at any time by adding to escrow account, until either current owner "sells" to bidder (and escrow releases 100% to the current owner, no commission), or bidder walks.

I haven't sat down to really pencil it out, but I'm sure if someone did they'd find a way to game such a system, since I figured it otherwise would have been put into use.

Re: Texas electric firm files for bankruptcy citing $1.8B in claims

#125

Post by jeegsy »

cies wrote: post #65
refurb wrote: post #61

Earlier quoted context omitted.

Private investors get left with the bill. If it was a public utility it would be tax payers. That would be socializing losses. Edit: people really don’t know how bankruptcy works? Equity holds get wiped out first followed by bond holders.

Nope. They file bankruptcy. And the bill is left on the table. Only profits (divident) go to investors. If a company becomes insolvable the investors are shielded. Similar to when a company operated against the law: profits were taken by investors, now they can sink the shop when the law suits start. > If it was a public utility it would be tax payers. That would be socializing losses. No-one is arguing against that!…

These private companies also pay taxes year after year

Re: Texas electric firm files for bankruptcy citing $1.8B in claims

#126

Post by croes »

simonh wrote: post #96
croes wrote: post #71

Earlier quoted context omitted.

You are ignoring the profit part. Public company = maybe profits, maybe losses for the taxpayer Private company = maybe losses, never the profits for the taxpayer. Is 2008 already forgotten?

Private companies pay taxes, which profits other tax payers.

"After two straight years of paying $0 in U.S. federal income tax, Amazon was on the hook for a $162 million bill in 2019" "$162 million is still just a fraction of the $13.9 billion in pre-tax income Amazon reported for 2019 — roughly 1.2%" How much is your income tax rate?

Re: Texas electric firm files for bankruptcy citing $1.8B in claims

#127

Post by rocqua »

refurb wrote: post #116
cies wrote: post #91

Earlier quoted context omitted.

> many investors will have bought their share in the company, and that is worthless. That's just part of the risk. We're now talking about the bill that is still on the table. If the "investors" were fully responsible for their "investments" they would not have worthless shares, but they would have to pay up for what the company still owes. That their risk stops at "shares being worthless" is exactly what I mean by t…

So you think them losing 100% of their investment is being “shielded”? I mean, they aren’t the only investors.

If they invested $100 made decisions that cost $150 and now lost their entire $100 investment, they are shielded against the $50.

Hence, anything that has real costs higher than their invested stake has effective costs for them at their invested stake. They are shielded to some extent. Especially for low probability high cost events.

This is exactly the point of a limited liability company, but it comes with slightly perverse incentives.

Re: Texas electric firm files for bankruptcy citing $1.8B in claims

#128

Post by enkid »

phire wrote: post #114
enkid wrote: post #110

Earlier quoted context omitted.

I've never heard this interpretation of bankruptcy. What I have heard is it's used when an entity can't repay their debts. This is not equivalent to liabilities being one dollar larger than their assets. Normally, bankruptcy doesn't dissolve the entity, it just restructures the debt. Dissolving the company can be done without bankruptcy and I believe is the process you are talking about when a company is fully solven…

In the US, there Chapter 11 Bankruptcy (which is restructuring, as you say) and Chapter 7 Bankruptcy which is the liquidation due to insolvency that I describe here. Where I live, there is no formal equivalent to Chapter 11, and liquidation is colloquially known as Bankruptcy. While the terms may vary, the accounting and the general laws are reasonably constant world-wide.

Chapter 11 is a form of bankruptcy that leads to dissolution, but it is not the only way to dissolve an entity. In other words, dissolution can be caused by bankruptcy among many other ways. One of these is paying off all creditors and shareholders. Since this does not require debt restructuring, it would not require bankruptcy.

Re: Texas electric firm files for bankruptcy citing $1.8B in claims

#129

Post by clcaev »

phire wrote: post #88
jonplackett wrote: post #41

This is the side of privatisation that gets ignored. When private companies screw up, who gets left with the bill? Private companies have no incentive to be ready for really big problems because they know they’ll get bailed out, or just not have to pay. Privatise the profit, socialise the losses.

> . When private companies screw up, who gets left with the bill? In theory, the company is meant to declare bankruptcy (or seek more investment from shareholders) as soon as their books say they are insolvent. A company is Insolvent when it's liabilities are higher than it's assets, even by a single dollar. The theory is that because the company is required to declare bankruptcy as soon as possible, it should only b…

In this case, we're talking about a rural electric cooperative; it has no equity owners. They are controlled democratically by member-owners.

Re: Texas electric firm files for bankruptcy citing $1.8B in claims

#130

Post by sergiosgc »

phire wrote: post #88
jonplackett wrote: post #41

This is the side of privatisation that gets ignored. When private companies screw up, who gets left with the bill? Private companies have no incentive to be ready for really big problems because they know they’ll get bailed out, or just not have to pay. Privatise the profit, socialise the losses.

> . When private companies screw up, who gets left with the bill? In theory, the company is meant to declare bankruptcy (or seek more investment from shareholders) as soon as their books say they are insolvent. A company is Insolvent when it's liabilities are higher than it's assets, even by a single dollar. The theory is that because the company is required to declare bankruptcy as soon as possible, it should only b…

The question here is risk management, in monopolistic markets. The company can be run in high risk mode, under the assumption that if the risk realizes it will just go bankrupt and be bailed out. It wouldn't be bailed out in a competitive market, because competitors would pickup the slack, they would capture the market that was left without a service. In a monopolistic market, a normal bankruptcy would leave the market without a service provider, and thus a bailout is needed.
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