I used to live in a small town in Michigan which had city provided power using a dam. It was inexpensive and highly reliable. But every couple of years the big power company in the state would try and get the city to sell them the utility.
After I moved a city council for whatever reason ended up selling. As a result the cost of electricity immediately doubled and power outages occurred regularly due to reduced maintenance. I don't know what they spent the money on that they received but it was a very poor decision that I have to believe they regret.
I've lived in a few dozen cities (most very, very rural) in the US, and The Bay has, by far, the worst electricity out of any of them. We have longer outages as a planned practice than I'd have from ice storms knocking down half the forest or waves partially flooding the town.
As an outside observer, the fact that PG&E can lie to the state and request money for maintenance, subsequently sending that money to shareholders, looks like a likely candidate for many of the problems.
It's especially annoying that it's the lowest quality power while it's working (compared to a pure sine signal), has the highest count of days with some power blip, the highest number of full days without power each year, it's 2.5x more expensive than anywhere else I've lived, and they don't even have snow or ice or the same levels of wind and rain as the other places with better power. Plus they're servicing more people per square mile. It ought to be more efficient.
Maybe CA really is special somehow, but it looks like ordinary corruption.
Don't forget SDG&E/Sempra. San Diego locals hate them with a passion. It is crazy that an area with such abundant solar generation and environmental concerns should have such expensive power.
You guys are getting full days without power? That’s disappointing. I’m in Australia and since moving a decade ago to a suburb with underground power, I think we’ve had maybe three or four outages that lasted long enough to notice, and all were fixed within a few hours.
Perhaps I'm too cynical, but somehow I doubt that those with decision making power that were in favour of selling at the time regret much.
Our modern political economy is almost entirely focused on ensuring that everything that can be sold to private entities (read, the market) is. In this ideology the sale would be viewed as a success regardless of any practical downsides.
>In this ideology the sale would be viewed as a success regardless of any practical downsides.
In other places on earth, selling public utility requires the company to operate at similar or better level of services previously provided while retaining the cost. And those deals are mostly regulated, penalties when not meeting them.
And it used to be, may be in rare cases the people in Government making those deals actually knows what they are getting out of it, so the contract are all well written.
Now it seems they are selling because 1. They dont have money. 2. They are running it poorly. 3. They are bribed or have incentives to sell it. All with no caring of how the people they serve were getting any good value out of it.
I think this is just the end-stage failures of social democracies. Fund the things now, even if it means selling anything that can generate slight profits in long term. Or provide basic services at reasonable rates. Eventually everything is sold and out sourced, money has been wasted on buying votes and the debt is maxed out. Then the system will fail...
> but somehow I doubt that those with decision making power that were in favour of selling at the time regret much.
They possibly even managed to buy a luxury car in the years that followed. Or went on holiday more often. Or somehow unexpectedly landed a nice and cush job at said energy company.
You can extrapolate this to why governments all over the world are effectively bankrupt, if you have no assets and instead rent them back from the rich it's extremely difficult to balance your books and the tax burden will go up forever. No amount of cost cutting will restore all public assets being owned by someone else and rented back at ever increasing costs.
Even though the UK will be £311bn worse off by 2035 because of it [1].
A decision that can't be blamed on the rich but instead is owned by the ordinary voter. Who then demands the same quality of life they had previously with the same taxation levels. It's delusional thinking and unfortunately no one has the political capital nor guts to correct them on it.
And it's a very different story here in Australia where none of what you/Gary said is true. The state governments are under financial strain because of huge investments in public transport infrastructure owned by the people.
I always like to put numbers to things. To put some numbers to this, the average residential rates for electricity in modern-day MI is around ~$0.20 per kWh. Louisiana appears to be one of the cheapest states in this regard, averaging around $0.12 per kWh.
As a selfish comparison point, the average residential rate for Finland, an EU country known for its recent nuclear developments (great!), is ~$0.25 per kWh, about 25% higher. France, well known for its pro-nuke approach, seems to average ~$0.28 per kWh, or about 40% higher. Germany, which has... Not done so, is around $0.40 per kWh, or about twice as high. Even Iceland, famed for its "almost free" geothermal power, seems to average $0.16-0.18 kWh for an ordinary residential connection - one must assume aluminum plants, etc can cut much better deals with the geothermal plants, through strategies like close colocation, of course.
These are very important factors to keep in mind, even if the absolute numbers seem small. Expensive electricity makes everything else more expensive as well. It touches every facet of our lives in a way not even food does. And making electricity cheaper probably benefits human welfare en masse in a huge way. It's a shame power management doesn't seem to be very attractive to recent EE grads like myself since it pays much worse and requires much more credentialing to break into compared to, say, WordPress development.
> These are very important factors to keep in mind, even if the absolute numbers seem small. Expensive electricity makes everything else more expensive as well. It touches every facet of our lives in a way not even food does.
It has to be noted that in most EU countries electricity for business is quite cheaper than for households.
Even if you add all those up, you only get max 15c/kWh.
As of today, you can get 2 year fixed price for less than 8c/kWh, even with that it only adds up to 17c/kWh, with most expensive transmission costs, taxes rounded up and energy price rounded up.
It sounds like your city was overprovisioned in terms of how much electricity they could supply, and you had the benefit of the cheapest power around (hydroelectric power is very cheap), so when you got plugged into the wider network that the power company was servicing, you got screwed. There's a good chance that power for neighboring towns got cheaper and/or more reliable after the deal given what happened with your power.
The town must have either been in huge financial trouble or on a privatization kick.
> “the tax payers are being ripped off as asset owners because once the debt incurred to pay for the energy system is cleared they just give out cheap electricity and don’t seek profit. It is more efficient to sell, reinvest, and then let some massive rent seeker over charge you for something you once owned”
The economists who argue for this, only slightly paraphrased.
I have never heard a serious argument that it is more efficient to sell and reinvest from a finance perspective.
The argument is generally that private companies are more productive than public services due to productivity improvements that are forced via competition. There's no such forcing function for a government-provided service, enabling (potential) waste and bloat, depending on governmental competence and oversight.
The correct counter-argument is that there needs to be competition for that to happen. If you have only one electric utility for customers to choose from, the argument is totally invalidated.
Coming from cities in a 3rd world country that had government owned utilities, I would say my experience is the opposite. Usually the government is underfunded, the employees have no motivation and often are not even available to work thanks to their guaranteed jobs. Rampant theft of power and government have no interest to curb it due to vote banks. Unpaid dues by the government to energy producing companies resulting in bankruptcy of those companies. Political parties giving out free power and water to capture votes.
Alameda had municipal internet. In the 2009 financial collapse the city was facing bankruptcy and sold off the internet and cable to comcast. The alternatives weren’t great, the cost of borrowing at the time was high and cutting services is unpopular. The residents benefited from having the infrastructure either way. And this let the city keep municipal power, around half the cost of pg&e.
These politicians are smart enough and can see through the first layer of obvious. They wanted to win the next election and this had nothing to do with that, but the money they could spend on shiny bullshit. Or they just got consulting jobs after losing it, nah, who cares. Was it theirs or what.
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 infrastructure buildouts, but no solutions are offered for these caveats.
The hidden problem with projects like this is that once you roll these utilities into the city’s budget it’s too tempting to start dipping into taxpayer funds for needed improvements rather than raising electricity rates. When problems arise, politicians try to kick it down the road so it becomes their successor’s problem, or they try to offload the expense onto a growing debt load because that delays the problem to the next generation. It becomes easier to keep the highly visible rate down, but taxes might go up to cover the infrastructure costs instead.
So I’m skeptical. If there was an analysis that showed a drop in rates that was not 3X higher than the profit margins of the private utility I’d be more open to the idea, but as presented this feels like back of the envelope math that generates savings by ignoring all the details that didn’t make their way onto the envelope.
> 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 cents per kilowatt hour for this. That just does not match up with how much it actually costs them to transmit power over local lines and keep the lines maintained.
> Everything else: Operations, maintenance, profit. This is where PG&E is actually seeing large expenses, because their coverage area is massive, it costs a lot of money to deliver power to rural customers, and they are also undertaking a massive project to underground utility lines in fire-prone areas.
The backstory here is that PG&E underfunded maintenance for decades while paying out substantial dividends to shareholders, and now that fires are killing lots of people, they have to go back and properly maintain their network.
Now, you can make the case that CA as a whole might not be better off if cities leave PG&E and the state has to subsidize rural power delivery even further, but I think the article is correct on the question that it tackles.
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.
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.
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.
Not trying to neg how you phrased it, but I wonder if the whole damn system would be a smidge better if we had strong well-worn widely-used terms to discriminate between profit-taken and surplus-reinvested (and maybe to further discriminate between unrelated r&d, related r&d, and direct performance/capacity/resiliency/etc. investments)
>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.
PG&E's current rate structure has urban rate payers subsidize rural rate payers and people who live in wildfire zones in e.g. the Orinda Hills, who need substantial investment in order to receive power without sparking wildfires. This is bad policy - instead of subsidizing fire zones, it should be cheap to live in safe places and more expensive to live in dangerous places. Lower cost of electricity would reverse these trends.
No, their argument is sound. It’s just missing the point of utilities.
They’re saying that the cost of providing electricity to the cities, where everything is densely located and there are fewer trees and fewer overhead lines needing under grounding is lower so they should charge less to city consumers.
They imply that the bulk of the cost is delivering power to the richer consumers further out because there’s a lot of line miles that need under grounding. That’s probably accurate.
But utilities are restricted from pricing like that because you don’t want utilities triaging customers that are less profitable. The article here makes the argument that the far away and expensive customers are rich, therefore fuck ‘em. I’m not familiar with California but I doubt this is true across the board. There are surely notably rich communities far from the city but surely there are also poorer areas further from the city that are relatively cheaper because the commute is worse.
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 be 70% or 80% of the excess costs, to give the people in expensive areas some incentives to find more efficient solutions.
It's even worse in housing, where developers are often required to build below market rate units at their own expense. It makes new housing less profitable, and less housing gets built.
Maybe, but it's also clear that rural electrification was a huge error. People should live in clusters of at least a handful of structures where it's practical and affordable to provision electric lines (and telecommunications), or they should be off the grid altogether. What we built in the 20th century was the worst possible thing: mile after mile of transmission and distribution equipment serving dispersed houses in forests. This should never have been built and we should not perpetuate it with subsidies: https://www.google.com/maps/@38.4638277,-120.656418,3a,75y,3...
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.)
Until recently I lived in Alameda with AMP for municipal power. Consumers pay about half what PG&E charges. AMP has a net profit and provides some revenue for the city each year. You can see the most recent financial statement here. https://www.alamedamp.com/DocumentCenter/View/1187/AMP-ACFR-...
Sacramento with SMUD is another success story. But there are some differences with economies of scale
> So I’m skeptical. If there was an analysis that showed a drop in rates that was not 3X higher than the profit margins of the private utility I’d be more open to the idea, but as presented this feels like back of the envelope math that generates savings by ignoring all the details that didn’t make their way onto the envelope.
That's possibly because of a strong underestimation of the actual indirect inefficiencies that come with shareholder profit-oriented companies. Every investment is seen not as a way to maximise profit in the long run, but as a direct decrease in shareholder profit, and should therefore be avoided at all cost (ha!) or postponed for as long as possible.
Strong counterexamples, admittedly not from energy companies, can be found in the remunicipalisation of the water supplies in Berlin and in some districts of Paris. Both came with drastic decrease of user costs, better water quality and a decrease of outages.
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.
> For one, it includes expenses outside of the municipality.
Exactly. The cherry picked example in the article was chosen to ignore areas with higher expenses.
> For another, corporations are often okay overspending on executive compensation
PG&E had $25 billion revenue last year. How much do you think they spent on lavish executive compensation? Even if you could eliminate $100 million in compensation (doubtful) that’s still less than 0.1% of revenues. People overestimate the impact of executive compensation in large companies by orders of magnitude.
> and other lavish business expenses for tax purposes.
Again, you’re not going to find dramatic savings anywhere in the budget by cutting lavish business expenses at this scale. It’s noise. There’s also a persistent myth that companies can spend their way into saving money via tax write-offs, but for some reason my accountant tells me that’s not how taxes work.
162(m) limits a company's deduction for executives (and other highly compensated employees) compensation to $1m per exec/employee.
Or in other words, companies aren't overspending on exec compensation for tax purposes. They're doing so because the board is not exercising proper financial control over the company.
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.
> 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%.
One detail is that PG&E is a heavily and (IMO) incompetently regulated utility, and their profit margins are more or less set by regulation. So they inflate costs to drive up profits, and one should not assume that the only room for savings is removing their profit margin.
What is PG&Es generation cost vs administrative and legal overhead? The 11% margin isn't a good basis number. How is other states like Texas or Colorado are delivering at 10-12c/kwh ?
I do agree with your sentiment that city bureaucrats may be tempted to raid the energy business to pay for pet projects and other things. This can be protected against by segmenting the energy business into its own protected organization.
> What is PG&Es generation cost vs administrative and legal overhead? The 11% margin isn't a good basis number.
Administrative and legal costs don’t disappear when the city runs it, so why does it matter? When the city runs a utility, nearly all of the costs associated with running a utility still exist.
If your mental model of a city-owned utility is that they’re going to generate power and sell it at cost with no administrative overhead, you’re really just assuming that administrative overhead will be covered by taxpayers.
Electricity rates down, tax rates up.
> How is other states like Texas or Colorado are delivering at 10-12c/kwh ?
Texas produces the most crude oil, natural gas, and also wind generated electricity. A quarter of the entire country’s wind energy generation happens in Texas.
Comparing electricity prices across regions is meaningless. Everything is too different.
One of the things we find with cost-plus contracting is that the team providing the service somehow has a great deal of costs. Ironically, abandoning this approach leads to hiring higher margin businesses which nonetheless cost less. A confusing phenomenon when one doesn't account for the fact that people optimize to get more money ceteris paribus.
As of 1/1/2025 the residential average rate paid for the municipal utility of Santa Clara, CA is $0.175/kWh vs a residential average of $0.425/kWh for PG&E
PG&E has an 11% margin on those rates because they keep burning the state down and having to pay for it. Municipal utilities don't have to worry about that.
The only thing that could be seriously considered a downside is that Santa Clara, CA is now absolutely jam-packed with data centers that have low employment per sqft.
This is absolutely a no-brainer for municipalities. The private companies are charging a premium that they return to shareholders and give to executives. Municipalities have excellent access to credit at rates significantly lower than the premium charged by utility companies. The residents get cheaper access and more influence in how the utility is ran.
The number of people that pay for-profit companies for natural gas (heat), electricity, and water in North America is absolutely bonkers. There is a specific concern about foreign corporations purchasing water rights in the American west.
I’m lucky enough to be in such an area. Note the city takes a bit of the above as profit too. Not that that’s a bad thing but it just goes to show how beneficial it is and how much more you’re paying by not doing it. Every city should do it asap.
Yeah it might be easy for municipal electricity to win on price when the bar is set at $0.42/kWh. Out here our evil private company is charging $0.11/kWh. I have serious doubts any municipality anywhere could deliver power for half that.
City municipalities aren’t exactly staffed with the sharpest knives in the drawer. Few have the ability to manage the basics of street maintenance let alone stand something up like a utility. A fool and their money are soon separated, color me skeptical.
Of course it's cost effective for cities to start their own utilities, the economies of scale work in favor of urban and suburban electrification and maintenance.
What isn't effective is electrification and maintenance of low density regions although power monopolies like PG&E are required to provide service. The urban and suburban customers are effectively subsidizing the cost of transmission and maintenance for rural customers.
PG&E doesn't want their most profitable customer base[cities] to have public utilities because if enough do, their company becomes unprofitable and implodes.
Suburbia is subsidizing nothing. They are a drain on the urban core of every single city. There is not enough density in a suburban land area to even reclaim the taxes required to build the infrastructure to get there. And we stupidly continue to build new suburban development for new tax bases that don’t even reclaim the cost of building them. Then there’s no money to maintain them.
Urban development subsidizes everything.
Go watch some Strong Towns.
Fuck suburbs, unless they were built around a streetcar.
I hate suburbs as much as the next person, but let's be realistic. Just because I hate them doesn't mean they aren't subsidizing rural power transmission - that would be letting emotions get in the way of rationalism.
> electrification and maintenance of low density regions although power monopolies like PG&E are required to provide service.
> PG&E doesn't want their most profitable customer base[cities] to have public utilities because if enough do, their company becomes unprofitable and implodes.
If the state forces PG&E to electrify expensive areas at the expense of higher costs in cities, their objections are reasonable.
If California forced a private company to electrify rural areas as part of the deal and then tried to change the rules to have the government take over the cheap areas, there would be easy lawsuits on the table.
Unfortunately rural inhabitants have been free riding on a grostesquely distorted market for decades. It may be hard for them to swallow the idea that they will have to pay market rates for transmission and maintenance, but they should also be the first to agree that despite this, it's ultimately a more fair order han getting what essentially amounts to a handout today.
The flip side of this is that more and more homes are being built in fire zones in large part because we subsidize development in fire zones. It's a bad problem because of bad incentives. We should incentivize urban living
This is where distributed renewable sources can apply. Supplying a remote home with solar and storage is probably cheaper than running a distribution line to it.
I don't disagree. However, there is a positive feedback cycle lurking that can spin out of control faster than a behemoth corporation or government can react to.
I am a city council member in small city (9,000) which owns and operates a municipal electric power plant. We have 4 large diesel generators, two large wind turbines and a few fields of solar panels.
It is nice having power on 24/7, if there is an outage we simply fire up a diesel generator and power is restored in just a few minutes.
We do have to buy power on the grid but also have times where we sell power back (summer, when people use AC prices go up and our solar panels typically generate excesss and profit)
The price of power is almost identical to those outside of the city. Honestly keeping as many derives local really has been a win/ win for our community.
The author mentions the cost of buying out the distribution network, and cites SF's failed attempt to do this. The author tries to figure out the price for Walnut Creek's grid based on inflation and population -- but the $2.5B figure this is based off was rejected by PG&E. The messed up thing is PG&E as a monopoly can set the price wherever they like -- and they can demand substantial continuing payments to connect to the grid so long as they retain it.
> PG&E continues to demand huge payments on routine power grid connections. For example, the cost to comply with PG&E’s latest requirements for the City to use public power to connect streetlights, traffic signals and other small loads would exceed $1 billion.
I think either we need the political will to use eminent domain to take the grid back (i.e. set the price through a legal proceeding), or we'd need to build a duplicate distribution grid and then abandon PG&E.
Yes, the fact that PG&E rejected the offer is why I adjusted the figure for Walnut Creek's population and then increased it by 50%. The fact is muni borrowing is cheap - even if PG&E charged $1 billion we could finance that for about six cents per kilowatt hour.
I don't think the CPUC will let them get away with "we won't sell at any price" - I think the regulators would force them to sell at some price.
PG&E surely knows that if it lets one city do this, then more will follow quickly. It will be left with the least profitable regions and cities that can't afford to/don't have the credit for this transition. That would ultimately leave the remaining customers in an even less affordable position.
> I don't think the CPUC will let them get away with "we won't sell at any price" - I think the regulators would force them to sell at some price.
Has the CPUC forced such a sale before? Functionally, if PG&E can just safely gauge what's likely to be out of reach for each city, they can name a price detached from reality and be confident of maintaining their stranglehold.
Unfortunately most of the CPUC worked at PGE, the people that understand energy regulation are usually energy folks. And so the CPUC is typically quite understanding of PG&E’s pleas, they approved every single rate hike they’ve proposed. 5 times last year alone.
Recent public infrastructure and construction history in the states is full of failures, missed deadlines and projects running over budget. Unfortunately this causes a loss of appetite when it comes to long term slow builds.
I’m not specifically familiar with PG&E but the whole point of a rare case with regulators is that they cannot set the price at whatever they want. They need regulatory approval of the rate.
The build a duplicate distribution grid is effectively what Ann Arbor is doing with its Sustainable Energy Utility, approved by voters in November [1].
Boulder CO tried to do this, but failed. After a 10 year fight, Xcel's lobbying won out and the $29 million that was spent to start the process had been exhausted. We need more cities trying to do this to show how it can be done and done well.
It's one thing if a city already has one. But what advantage does the city bring to creating and operating power facilities? That requires many specialists with years of experience, in addition to great leadership. Without that, I assume the government is just a wallet to be taken advantage of.
It's similar to public transportation. Most cities don't design a system, they order it from a catalog - and they pay private consultants (similar to Oracle consultants) to tell them what to do. There is so much corruption and privatization there, but unlike power there is no business case that would make it attractive outside of public funding.
These formerly "public utilities" are now often owned by PE or Berkshire Hathaway. Whenever I see the folky wisdom of Charlie Munger or Warren Buffer posted on HN, I can't help but think about their firm's work in transforming State Farm insurance, GEICO and this gem I posted earlier today on HN:
"PacifiCorp Was Grossly Negligent in Oregon’s 2020 Wildfires. Now It’s Asking Lawmakers for Protection."
None of the things you list are former public utilities of any kind, much less the specific kind under discussion (California public utility districts providing electricity and similar services.) PacifiCorp is a private utility company like PGE, formed from the merger of other (then- troubled), also private, utilities in 1910, and the other things aren't even utilities.
Are there any germane examples of your “These formerly ‘public utilities’ are now often owned by PE or Berkshire Hathaway” claim or is it just a complete non-sequitur?
I do think you make valid points and I'm wrong about the way I categorized them.
And, I did put public in quotes because these utilities, while privately owned, do benefit from regulatory capture that seems out of place with a privately held company. And they often operate on or over public lands.
And, having lived through the fires in Oregon and seeing the trauma first hand, I'm still angry.
That's my takeaway from the article but I'm willing to listen and learn. Your points are valid and show how mistaken some (or all) of my conclusions are based on false connections.
I believe Berkshire bought (or agreed to buy) part of dominion (a public utility delivering power) on the east coast, I don't know any particulars of how it was run or if the deal even closed.
Thats the only related example I know of (non exhaustive).
I don’t see anything in State Farm’s history that indicates Berkshire Hathaway had anything to do with the company. It has always been a mutual insurance company, owned by its policyholders.
You are right. I'm confusing State Farm with Allstate, via McKinsey (I'm reading the book "When McKinsey comes to town"). Berkshire Hathaway owns Geico and has taken a similar path, however. But, this Oregon utility has BH ownership.
I'm glad you stated that. It certainly wasn't my takeaway of the way they handled it, however. By my reading it seems like the local officials begged them to turn off the lines when they saw what was coming. And, that the executives at the utility didn't take action and then denied that this meeting occurred seems damning to the people who lost everything.
Readit News
After I moved a city council for whatever reason ended up selling. As a result the cost of electricity immediately doubled and power outages occurred regularly due to reduced maintenance. I don't know what they spent the money on that they received but it was a very poor decision that I have to believe they regret.
As an outside observer, the fact that PG&E can lie to the state and request money for maintenance, subsequently sending that money to shareholders, looks like a likely candidate for many of the problems.
It's especially annoying that it's the lowest quality power while it's working (compared to a pure sine signal), has the highest count of days with some power blip, the highest number of full days without power each year, it's 2.5x more expensive than anywhere else I've lived, and they don't even have snow or ice or the same levels of wind and rain as the other places with better power. Plus they're servicing more people per square mile. It ought to be more efficient.
Maybe CA really is special somehow, but it looks like ordinary corruption.
Our modern political economy is almost entirely focused on ensuring that everything that can be sold to private entities (read, the market) is. In this ideology the sale would be viewed as a success regardless of any practical downsides.
In other places on earth, selling public utility requires the company to operate at similar or better level of services previously provided while retaining the cost. And those deals are mostly regulated, penalties when not meeting them.
And it used to be, may be in rare cases the people in Government making those deals actually knows what they are getting out of it, so the contract are all well written.
Now it seems they are selling because 1. They dont have money. 2. They are running it poorly. 3. They are bribed or have incentives to sell it. All with no caring of how the people they serve were getting any good value out of it.
They possibly even managed to buy a luxury car in the years that followed. Or went on holiday more often. Or somehow unexpectedly landed a nice and cush job at said energy company.
https://www.youtube.com/watch?v=II1GOhoNpms
A healthy debt to GDP ratio (like what the USA has) is integral for a growing economy. Choke on it Austrians.
Even though the UK will be £311bn worse off by 2035 because of it [1].
A decision that can't be blamed on the rich but instead is owned by the ordinary voter. Who then demands the same quality of life they had previously with the same taxation levels. It's delusional thinking and unfortunately no one has the political capital nor guts to correct them on it.
And it's a very different story here in Australia where none of what you/Gary said is true. The state governments are under financial strain because of huge investments in public transport infrastructure owned by the people.
[1] https://news.sky.com/story/brexit-new-report-suggests-uk-311...
As a selfish comparison point, the average residential rate for Finland, an EU country known for its recent nuclear developments (great!), is ~$0.25 per kWh, about 25% higher. France, well known for its pro-nuke approach, seems to average ~$0.28 per kWh, or about 40% higher. Germany, which has... Not done so, is around $0.40 per kWh, or about twice as high. Even Iceland, famed for its "almost free" geothermal power, seems to average $0.16-0.18 kWh for an ordinary residential connection - one must assume aluminum plants, etc can cut much better deals with the geothermal plants, through strategies like close colocation, of course.
These are very important factors to keep in mind, even if the absolute numbers seem small. Expensive electricity makes everything else more expensive as well. It touches every facet of our lives in a way not even food does. And making electricity cheaper probably benefits human welfare en masse in a huge way. It's a shame power management doesn't seem to be very attractive to recent EE grads like myself since it pays much worse and requires much more credentialing to break into compared to, say, WordPress development.
It has to be noted that in most EU countries electricity for business is quite cheaper than for households.
https://ec.europa.eu/eurostat/statistics-explained/index.php...
Huh? More like 11-17c/kWh.
- Average spot price for 2024 was less than 6c/kwh https://www.nodesk.fi/sahkon-keskihinta-2024/
- Transmission costs are around 2-6c/kwh https://sahkokuningas.fi/sahkon-siirtohinta/
- Taxes bit less than 3c/kWh
Even if you add all those up, you only get max 15c/kWh.
As of today, you can get 2 year fixed price for less than 8c/kWh, even with that it only adds up to 17c/kWh, with most expensive transmission costs, taxes rounded up and energy price rounded up.
Nuclear energy has contributed to the cheap price, but so has wind power https://www.talouselama.fi/uutiset/te/bfe4f5f4-0329-4cfe-989...
The town must have either been in huge financial trouble or on a privatization kick.
The town may also have been putting other revenues towards the electric utility (so losing money on the service and billing).
It was probably just a mistake though.
My town charges about $0.11 per kwh, with a fixed monthly service fee making the effective rate for a small user closer to $0.20.
The economists who argue for this, only slightly paraphrased.
The argument is generally that private companies are more productive than public services due to productivity improvements that are forced via competition. There's no such forcing function for a government-provided service, enabling (potential) waste and bloat, depending on governmental competence and oversight.
The correct counter-argument is that there needs to be competition for that to happen. If you have only one electric utility for customers to choose from, the argument is totally invalidated.
Unfortunately, I'm sure the folks that signed that deal were long gone before the problems started setting in
Dead Comment
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 infrastructure buildouts, but no solutions are offered for these caveats.
The hidden problem with projects like this is that once you roll these utilities into the city’s budget it’s too tempting to start dipping into taxpayer funds for needed improvements rather than raising electricity rates. When problems arise, politicians try to kick it down the road so it becomes their successor’s problem, or they try to offload the expense onto a growing debt load because that delays the problem to the next generation. It becomes easier to keep the highly visible rate down, but taxes might go up to cover the infrastructure costs instead.
So I’m skeptical. If there was an analysis that showed a drop in rates that was not 3X higher than the profit margins of the private utility I’d be more open to the idea, but as presented this feels like back of the envelope math that generates savings by ignoring all the details that didn’t make their way onto the envelope.
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 cents per kilowatt hour for this. That just does not match up with how much it actually costs them to transmit power over local lines and keep the lines maintained.
> Everything else: Operations, maintenance, profit. This is where PG&E is actually seeing large expenses, because their coverage area is massive, it costs a lot of money to deliver power to rural customers, and they are also undertaking a massive project to underground utility lines in fire-prone areas.
The backstory here is that PG&E underfunded maintenance for decades while paying out substantial dividends to shareholders, and now that fires are killing lots of people, they have to go back and properly maintain their network.
Now, you can make the case that CA as a whole might not be better off if cities leave PG&E and the state has to subsidize rural power delivery even further, but I think the article is correct on the question that it tackles.
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.
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.
https://www.alamedamp.com/DocumentCenter/View/1268/FY25-Rate...
Edit: Oh, this utility runs at a profit and has for decades. The profits have been going into undergrounding transmission lines
And yet somehow Americans will never see this and think "If only it were government-owned so the profit could be returned to the people"
About half the price of PG&E. This is in an otherwise PG&E area. People should be demanding their city handle power. It leads to half the price.
My power is significantly cheaper than yours but it comes from a private company.
Picking random cities doesn’t tell us anything at all about costs or efficiency. Different areas have different costs and expenses.
You have to compare apples to apples.
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.ewg.org/news-insights/news-release/2022/12/pge-a...
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They just get blended into the tax bill.
They’re saying that the cost of providing electricity to the cities, where everything is densely located and there are fewer trees and fewer overhead lines needing under grounding is lower so they should charge less to city consumers.
They imply that the bulk of the cost is delivering power to the richer consumers further out because there’s a lot of line miles that need under grounding. That’s probably accurate.
But utilities are restricted from pricing like that because you don’t want utilities triaging customers that are less profitable. The article here makes the argument that the far away and expensive customers are rich, therefore fuck ‘em. I’m not familiar with California but I doubt this is true across the board. There are surely notably rich communities far from the city but surely there are also poorer areas further from the city that are relatively cheaper because the commute is worse.
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 be 70% or 80% of the excess costs, to give the people in expensive areas some incentives to find more efficient solutions.
It's even worse in housing, where developers are often required to build below market rate units at their own expense. It makes new housing less profitable, and less housing gets built.
Sacramento with SMUD is another success story. But there are some differences with economies of scale
That's possibly because of a strong underestimation of the actual indirect inefficiencies that come with shareholder profit-oriented companies. Every investment is seen not as a way to maximise profit in the long run, but as a direct decrease in shareholder profit, and should therefore be avoided at all cost (ha!) or postponed for as long as possible.
Strong counterexamples, admittedly not from energy companies, can be found in the remunicipalisation of the water supplies in Berlin and in some districts of Paris. Both came with drastic decrease of user costs, better water quality and a decrease of outages.
As well as Palo Alto's utility financial statement which is linked in the post.
Exactly. The cherry picked example in the article was chosen to ignore areas with higher expenses.
> For another, corporations are often okay overspending on executive compensation
PG&E had $25 billion revenue last year. How much do you think they spent on lavish executive compensation? Even if you could eliminate $100 million in compensation (doubtful) that’s still less than 0.1% of revenues. People overestimate the impact of executive compensation in large companies by orders of magnitude.
> and other lavish business expenses for tax purposes.
Again, you’re not going to find dramatic savings anywhere in the budget by cutting lavish business expenses at this scale. It’s noise. There’s also a persistent myth that companies can spend their way into saving money via tax write-offs, but for some reason my accountant tells me that’s not how taxes work.
Or in other words, companies aren't overspending on exec compensation for tax purposes. They're doing so because the board is not exercising proper financial control over the company.
One detail is that PG&E is a heavily and (IMO) incompetently regulated utility, and their profit margins are more or less set by regulation. So they inflate costs to drive up profits, and one should not assume that the only room for savings is removing their profit margin.
I do agree with your sentiment that city bureaucrats may be tempted to raid the energy business to pay for pet projects and other things. This can be protected against by segmenting the energy business into its own protected organization.
Administrative and legal costs don’t disappear when the city runs it, so why does it matter? When the city runs a utility, nearly all of the costs associated with running a utility still exist.
If your mental model of a city-owned utility is that they’re going to generate power and sell it at cost with no administrative overhead, you’re really just assuming that administrative overhead will be covered by taxpayers.
Electricity rates down, tax rates up.
> How is other states like Texas or Colorado are delivering at 10-12c/kwh ?
Texas produces the most crude oil, natural gas, and also wind generated electricity. A quarter of the entire country’s wind energy generation happens in Texas.
Comparing electricity prices across regions is meaningless. Everything is too different.
https://www.siliconvalleypower.com/residents/rates-and-fees
PG&E has an 11% margin on those rates because they keep burning the state down and having to pay for it. Municipal utilities don't have to worry about that.
The only thing that could be seriously considered a downside is that Santa Clara, CA is now absolutely jam-packed with data centers that have low employment per sqft.
The number of people that pay for-profit companies for natural gas (heat), electricity, and water in North America is absolutely bonkers. There is a specific concern about foreign corporations purchasing water rights in the American west.
I’m lucky enough to be in such an area. Note the city takes a bit of the above as profit too. Not that that’s a bad thing but it just goes to show how beneficial it is and how much more you’re paying by not doing it. Every city should do it asap.
And private utility companies are?
What isn't effective is electrification and maintenance of low density regions although power monopolies like PG&E are required to provide service. The urban and suburban customers are effectively subsidizing the cost of transmission and maintenance for rural customers.
PG&E doesn't want their most profitable customer base[cities] to have public utilities because if enough do, their company becomes unprofitable and implodes.
This is exactly the reason we should do it.
Urban development subsidizes everything.
Go watch some Strong Towns.
Fuck suburbs, unless they were built around a streetcar.
> PG&E doesn't want their most profitable customer base[cities] to have public utilities because if enough do, their company becomes unprofitable and implodes.
If the state forces PG&E to electrify expensive areas at the expense of higher costs in cities, their objections are reasonable.
If California forced a private company to electrify rural areas as part of the deal and then tried to change the rules to have the government take over the cheap areas, there would be easy lawsuits on the table.
I left California last century but seem to recall the PUC(?) has a pretty tight reign on what PG&E does and doesn't do.
Hopefully no one manages them and that forces residents to move out and stop being a drain on society.
> PG&E continues to demand huge payments on routine power grid connections. For example, the cost to comply with PG&E’s latest requirements for the City to use public power to connect streetlights, traffic signals and other small loads would exceed $1 billion.
https://www.publicpowersf.org/en/faq
I think either we need the political will to use eminent domain to take the grid back (i.e. set the price through a legal proceeding), or we'd need to build a duplicate distribution grid and then abandon PG&E.
I don't think the CPUC will let them get away with "we won't sell at any price" - I think the regulators would force them to sell at some price.
Has the CPUC forced such a sale before? Functionally, if PG&E can just safely gauge what's likely to be out of reach for each city, they can name a price detached from reality and be confident of maintaining their stranglehold.
Instead, slowly build out, in parallel, the upgraded – which is to say, underground – infrastructure that PG&E refuses to build.
A community could do this opportunistically on a schedule that tracks the normal repaving of roads.
[1] https://www.a2gov.org/sustainability-innovations-home/sustai...
https://www.cpr.org/2020/11/20/boulder-ends-decade-long-purs...
It's similar to public transportation. Most cities don't design a system, they order it from a catalog - and they pay private consultants (similar to Oracle consultants) to tell them what to do. There is so much corruption and privatization there, but unlike power there is no business case that would make it attractive outside of public funding.
"PacifiCorp Was Grossly Negligent in Oregon’s 2020 Wildfires. Now It’s Asking Lawmakers for Protection."
https://news.ycombinator.com/item?id=42971311
Because of regulation, they can gouge consumers who are captive to the damage, literally and financially.
Are there any germane examples of your “These formerly ‘public utilities’ are now often owned by PE or Berkshire Hathaway” claim or is it just a complete non-sequitur?
And, I did put public in quotes because these utilities, while privately owned, do benefit from regulatory capture that seems out of place with a privately held company. And they often operate on or over public lands.
And, having lived through the fires in Oregon and seeing the trauma first hand, I'm still angry.
That's my takeaway from the article but I'm willing to listen and learn. Your points are valid and show how mistaken some (or all) of my conclusions are based on false connections.
Seems like they're actively trying to fix it.