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Cities can cost effectively start their own utilities

kevin.burke.dev

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Re: Cities can cost effectively start their own utilities

#171

Post by colechristensen »

Aurornis wrote: post #127
colechristensen wrote: post #47

Earlier quoted context omitted.

>The author estimates that electricity prices would be reduced by up to 33% (from $0.45 blended rate to $0.30), but PG&E’s profit margins are only 11%. That’s a good hint that this hypothetical is missing some important details PG&E customers are paying very large amounts for the consequences of bad infrastructure causing wildfires and other legal costs which are being paid for with higher rates. Example: https://www…

Right, but that’s my point: You can’t assume these costs disappear if the government takes over. They just get blended into the tax bill.

PG&E is a private company, much of the responsibility for their wildfire costs are the result of mismanagement of the risks.

Their costs get shouldered by their customers and their stock price. (they really should issue shares to pay their bills to dilute their stock price and cause their existing investors to lose money). In any case it's not going to get very willingly picked up by the government.

PG&E's liabilities aren't going to be put into taxes.

It's not the state government taking over PG&E, it's individual municipalities leaving the PG&E network and forming their own utility to buy wholesale electricity (or make some of their own) and distribute it to their citizens... resulting in a large reduction in cost in no small part because they no longer have to pay for PG&E's liabilities.

Re: Cities can cost effectively start their own utilities

#172

Post by lotsofpulp »

apercu wrote: post #102
bitmasher9 wrote: post #52

Earlier quoted context omitted.

I don’t think profit margin is the correct way to calculate their expenses. For one, it includes expenses outside of the municipality. For another, corporations are often okay overspending on executive compensation and other lavish business expenses for tax purposes.

Right? I once ran a private company where there primary shareholders (who didn't work inside the organization) used to complain about the margins because they liked to calculate profit margin _after_ taking significant dividends.

Your instance of an employer screwing you has no relation to an audited publicly listed business that has to not only follow accounting standards and is subject to the SEC, but also cannot sell their product unless the price is approved by the state.

Re: Cities can cost effectively start their own utilities

#173

Post by zeagle »

b112 wrote: post #123
jeffbee wrote: post #107

Earlier quoted context omitted.

None of the people in the area to which I referred are undertaking anything productive. Food comes from farms, like always.

Which are in rural areas. Which means the lines have to go there. Which means they pass less rural area to get there. Rural areas aren't just a farm all by itself. Farmers need schools, stores, supplies, workers, you know, rural areas. As well, when we electrified our nations, most people lived on farms. At the start of the 20th, as an example, most Canadians lived in rural areas. The reverse is now true. This conver…

Re: Quebec hydro, I can’t think of an example of a crown corp or asset (see 407) being sold in Canada that has benefited the public with better quality at a lower price in the end. Privatization drives the need for shareholder profit to extract value more than efficiency so gains aren’t passed on. People contort themselves to think this isn’t the case… but the track record for power, automotive insurance, cellular service says otherwise… The only good argument I’ve ever seen of outside of pretending efficiency leads back to consumers is hidden externalities being covered by the government which is fair toy stability of a public service, averaging out costs for really isolated areas, and decent jobs with pensions is worth something too.

Re: Cities can cost effectively start their own utilities

#174

Post by jltsiren »

jncfhnb wrote: post #148
jltsiren wrote: post #121

Earlier quoted context omitted.

Cross subsidies like that promote inefficiency. They are one of the main reasons why living in California is so expensive. Utilities should be legally required to serve everyone in their area, but they should also be allowed to charge the real costs for the service. If the government thinks that's unfair to people living in rural areas, it's free to use tax money for explicit subsidies. But the subsidies should only…

Using tax money to subsidize higher rates on certain areas is roughly the same as just charging people all a slightly higher rate. “The people” in expensive areas have literally no agency in finding an efficient solution. They don’t have any say about the utilities grid investments. In most parts of the country “these people” are also poorer.

Economic efficiency comes from accurate pricing.

If grid power is artificially expensive in urban areas, people will install solar panels and batteries in situations where it doesn't really make sense. And if grid power is artificially cheap in rural areas, people will not install solar panels and batteries in situations where it makes sense. Thus incorrect pricing leads to inefficient investments.

Many economists even argue that the most efficient form of subsidies is cash that can be used for any purpose. Instead of getting cheaper power in rural areas, you should simply receive $X/month for living there. But the assumptions needed to make that claim are a bit too restrictive for many real situations.

Re: Cities can cost effectively start their own utilities

#175

Post by vlovich123 »

abathur wrote: post #138
vlovich123 wrote: post #134

Earlier quoted context omitted.

Can you distinguish effective investment from ineffective? For example, paying competitively to attract and retain talent can be seen as an investment as well. And before you restrict it to just physical infrastructure investment, a non-trivial part of the cost of that infrastructure is in salaries and also how you manage everything at scale and I would think you’d want to incentivize more efficiency there too. This…

I'm a little unsure how to take you here, because I avoided dragging the efficacy of an investment into frame on purpose. Maybe you just mean to tack on the idea that we could benefit from having better language to separate shrewd and incompetent investments, in which case I'm ~fine with some language to retcon the difference between merely lighting investments on fire and using them to drive an engine back on to tho…

> (Edit: In case I'm being obtuse, I at least think I agree that "investing" surplus in hiring and retaining great employees is a surplus-invested, and not a profit-taken.)

So the executive compensation packages that many people hate on then are just a mechanism to reduce the profits of the company. And it’s not clear to me that Apple saving up profits so they can make larger investments without taking out loans is a strategy we want to disincentivize either.

My point is that designing top-down incentives at market scale are very difficult and while attractive are basically the central failure of central planning. Even setting aside the challenge of figuring out how to word the incentives correctly in a way that maximizes gain and minimizes gaming of the system (basically impossible) in a political system you also have to get buy in from people who don’t see it your way which muddles your ideal solution regardless of you being right or wrong. I’m highlighting that’s how and why we have the current tax system - it’s many many people trying to tweak and optimize incentives and curtail problems over a long period of time.

Re: Cities can cost effectively start their own utilities

#176

Post by JumpCrisscross »

Aurornis wrote: post #46

The author estimates that electricity prices would be reduced by up to 33% (from $0.45 blended rate to $0.30), but PG&E’s profit margins are only 11%. That’s a good hint that this hypothetical is missing some important details The article hedges against someone pointing this out by admitting that Walnut Creek is an unusually optimistic location and that PG&E is also recognizing large expenses related to ongoing infra…

The idea is there are parts of California where life is heavily subsidised. Paying PG&E as a low fire risk community is a net transfer out. (How the Bay Area hasn’t done its own grid à la Santa Clara is wild.)

Re: Cities can cost effectively start their own utilities

#177

Post by kevinburke »

theptip wrote: post #130
Aurornis wrote: post #46

The author estimates that electricity prices would be reduced by up to 33% (from $0.45 blended rate to $0.30), but PG&E’s profit margins are only 11%. That’s a good hint that this hypothetical is missing some important details The article hedges against someone pointing this out by admitting that Walnut Creek is an unusually optimistic location and that PG&E is also recognizing large expenses related to ongoing infra…

> prices would be reduced by up to 33% (from $0.45 blended rate to $0.30), but PG&E’s profit margins are only 11%. This is addressed right at the beginning of the article. The argument is not that PG&E is skimming off huge profits, rather that it is structurally inefficient: > Distribution: How much to get the power from your local substation to your house over local power lines. In PG&E's rate chart, they charge 20…

I'm the author here. The cost savings come from not having people who live in cities pay for undergrounding lines and maintaining power lines in rural areas. Maintaining the city networks is much cheaper.

This is why Santa Clara, Palo Alto and Alameda's power companies can deliver power for half of what PG&E can. You can just copy their cost structure.

Re: Cities can cost effectively start their own utilities

#178

Post by lostlogin »

lotsofpulp wrote: post #145
_heimdall wrote: post #104

Earlier quoted context omitted.

Maybe I'm naive here, but isn't any company at a similar scale regularly finding ways to reduce profits on paper? Taxes add up fast when you don't have expenses to write off, and my understanding was that most effective ways to reduce tax liability would also reduce profit margins.

One hint is that all the businesses that have the highest market capitalization earn the highest profit margins and profits. Dividends and share buybacks happen with those profits. If profits are less, then dividends and share buybacks are less, which means less money for shareholders. It makes no sense to forego $0.80 in your pocket because you do not want the government to get $0.20.

> One hint is that all the businesses that have the highest market capitalization earn the highest profit margins and profits.

I’m far from expert here, but is that too simplistic?

Where does perceived future value come into this? I’m thinking of companies like Amazon, which kept profit margins low while obviously having their shit together.

Re: Cities can cost effectively start their own utilities

#179

Post by kevinburke »

Aurornis wrote: post #46

The author estimates that electricity prices would be reduced by up to 33% (from $0.45 blended rate to $0.30), but PG&E’s profit margins are only 11%. That’s a good hint that this hypothetical is missing some important details The article hedges against someone pointing this out by admitting that Walnut Creek is an unusually optimistic location and that PG&E is also recognizing large expenses related to ongoing infra…

Highly recommend reading the state LAO report which goes into the cost structure behind the large utilities. https://lao.ca.gov/Publications/Report/4950

As well as Palo Alto's utility financial statement which is linked in the post.

Re: Cities can cost effectively start their own utilities

#180

Post by wisty »

dv_dt wrote: post #90
Aurornis wrote: post #46

The author estimates that electricity prices would be reduced by up to 33% (from $0.45 blended rate to $0.30), but PG&E’s profit margins are only 11%. That’s a good hint that this hypothetical is missing some important details The article hedges against someone pointing this out by admitting that Walnut Creek is an unusually optimistic location and that PG&E is also recognizing large expenses related to ongoing infra…

Profit margins don't reflect how efficiently they manage costs. It could as easily be the case the PG&E mismanages resources and costs more to deliver the same power.

Possibly due to overregulation.

The power company wants to cut corners. The government wants to prevent that. So there is constant lawfare between governments and highly regulated companies, with neither really caring if it leaves the customer out of pocket (since regulators can blame the bills on the company).

The company outsmarts the regulators so the regulators carpet bomb them with so much regulation that they hope it will plug all the loopholes. The incentives between them are simply too far apart. And with inbuilt market failures (due to it being a monoppoly) you don't have effective market mechanisms that allow the government to just set basic safety standards and get out of the way.

It's closer to the USSR than social democracy. http://highered.blogspot.com/2009/01/well-intentioned-commis...

See also, healthcare.

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