[HN Gopher] Cities can cost effectively start their own utilities
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Cities can cost effectively start their own utilities
Author : kevinburke
Score : 134 points
Date : 2025-02-07 17:55 UTC (1 days ago)
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| rangestransform wrote:
| Can the CA govt just impose prohibitive fire prevention
| liabilities on utility companies, bankrupt them, and scoop up the
| assets for free?
| kevinburke wrote:
| PG&E already went bankrupt recently, and taking over the whole
| state wouldn't really help very much. The problem is largely
| liability rules that make it very expensive to provide power to
| wildfire zones and rural areas. PG&E and the state have decided
| to pay for that by charging people who live in cities very high
| rates for electricity.
|
| It's perverse that people who live in safe, urban areas are
| subsidizing people who live in wildfire zones. The savings come
| largely from _not_ doing that anymore.
| CobaltFire wrote:
| I bang this drum all the time, but you are the first other
| person I've seen state it online.
|
| If we stop subsidizing the foothills by creating urban
| utility districts it would solve the PG&E problem.
|
| We would have a new problem of causing a ton of people to be
| unable to continue living in those areas without some kind of
| off-grid program.
|
| Long term I think this is the only sane way forward though.
| thatguy0900 wrote:
| Long term I don't see how it's possible to continue to let
| people live in areas so fire prone that insurance cannot be
| done, it seems to me. Unless you want to live in a concrete
| castle or something
| mindslight wrote:
| Construction itself isn't that expensive. It's certainly
| possible to self insure and accept that living in an area
| prone to fires means your house might burn down. It goes
| against the prevailing culture of the ever-growing
| housing bubble, but financialization has to hit its
| limits some time.
| mauvehaus wrote:
| Self-insuring is probably not going to fly with your
| mortgage lender. If nobody can get a mortgage, and
| everyone has to self-insure, it's going to 1) drive down
| housing prices (fewer cash buyers) and 2) guarantee that
| only people of pretty substantial means can afford to
| live there (even with lower prices, most people can't
| come up with a cash payment for a house).
| coryrc wrote:
| If prices were sane, anybody who bought a house ten years
| ago currently has enough equity to pay cash.
| mindslight wrote:
| I did acknowledge it would go against housing bubble
| culture. It certainly wouldn't be a financially prudent
| way of obtaining primary shelter, but rather for vacation
| homes or whatnot. We're mostly talking about rural
| properties in the woods, right?
| trinsic2 wrote:
| You mean like a brick building? like how structures were
| originally built? Seems like a good idea to me for house
| to be made of stone in high fire related areas. Obviously
| the cost would be astronomical.
| arrosenberg wrote:
| Brick buildings don't do well with earthquakes.
| California also happens to sit on a major, active fault
| line. While it is technically possible to make a brick or
| stone building earthquake-proof, I would imagine it's
| cost prohibitive for large scale single-family housing
| projects. Apartment towers are already built with a
| multistory steel-reinforced concrete base that is built
| to withstand earthquakes, but it would increase costs
| significantly to build to the top like that.
| abeppu wrote:
| > We would have a new problem of causing a ton of people to
| be unable to continue living in those areas without some
| kind of off-grid program.
|
| But people in those areas are likely to be able to benefit
| from solar, so maybe being "off the grid" in the sense of
| not having long runs of power lines surrounded by trees to
| your house in the country is reasonable, and perhaps also
| cheaper for those rural residents anyway?
| marssaxman wrote:
| > a ton of people to be unable to continue living in those
| areas
|
| That sounds like more of a solution than a problem: those
| places are going to burn, so it's better that people stop
| living there.
| UncleEntity wrote:
| Ironically, if they just let them naturally burn in the
| first place there wouldn't be even a fraction of damage
| caused by these modern wildfires.
| amluto wrote:
| This whole model is nonsensical, though. Averaging costs
| among customers doesn't give anyone the right incentives:
|
| - Urban customers should have an incentive to use electricity
| over gas, which they would if rates were reasonable.
|
| - Urban customers should not pay _per kWh_ even if one thinks
| they should subsidize rural customers. It should be some kind
| of tax with reasonable allocation.
|
| - Undercharging rural customers for provision of service and
| overcharging per kWh messes up incentives, too. If suburban
| or rural communities faced the actual cost of transmission to
| their area and distribution within it, they could make real
| decisions, for example:
|
| # Technologies exist to reduce the risk that a power line
| fault starts a fire. Search for "ground fault neutralizer" or
| "REFCL." Similarly common reclosers take a very YOLO approach
| to deal with a faulted line, and other approaches exist.
| PG&E, of course, doesn't want to use these because the
| ridiculous CPUC rules let them make more profit by spending
| more money trimming trees.
|
| # Communities could maintain their own lines and have actual
| locally enforced codes about vegetation.
|
| # Communities could install batteries at their end of
| transmission lines to help ride through public safety power
| shutdowns and to level out their own loads. And they could
| even build small wind turbines optimized for operation in
| high winds (which are rather strongly correlated with those
| shutdowns) to generate a few MW and keep those batteries
| charged. Heck, this could be automated: de-energize the line
| when the wind is high automatically, and there won't even be
| a substantial inrush when re-energizing when the wind stops
| because the batteries can reduce load to zero.
|
| # A community could decide the cost isn't worth it and build
| its own mini grid. This might spur interesting investment
| into things like small modular reactors :)
|
| - The ownership and regulatory structure right now sucks,
| amplifying all the problems above and the lack of real
| solutions.
| ahmeneeroe-v2 wrote:
| I am 90% in agreement with you. I do think that you should
| consider how rural/suburban areas have all of the generation
| and transmission which the cities rely on for their power.
|
| It's not exactly fair to treat those rural residents as
| burdens to the urban areas when they provide the means for
| the urban areas to exist.
| janalsncm wrote:
| > they provide the means for the urban areas to exist
|
| Unless you're referring to farmers I don't understand this
| point. As of right now it is the other way around.
| ahmeneeroe-v2 wrote:
| No. Build the generation for urban areas within those
| same urban areas.
| avidiax wrote:
| > It's not exactly fair to treat those rural residents as
| burdens to the urban areas when they provide the means for
| the urban areas to exist.
|
| There's a difference between people that are in
| farming/ranching and industry vs. people that are rural to
| afford a more lavish home in the woods or on the hills.
|
| Even still, a system that doesn't appropriately price and
| apportion risk will always be under pressure.
| ahmeneeroe-v2 wrote:
| >a system that doesn't appropriately price and apportion
| risk will always be under pressure
|
| Very well stated, I am stealing this. Also in agreement
| with rural resource types vs rich rural.
|
| Again I think it is more complex than just apportioning
| power costs. CA effectively has a state policy of not
| maintaining its forest/rural land (ditto feds and their
| land). My parents live adjacent to national forest and
| have fire evacuations nearly every year.
|
| There is _nothing_ that the rural residents in their area
| can do to mitigate risk, even at their own cost. So we
| 're asking them to bear the cost of the state/fed policy
| decisions. This is exactly the problem you describe of
| inappropriate price/risk apportionment.
| coryrc wrote:
| The forests are supposed to burn.
|
| They mitigate by building fireproof homes and leaving
| when the fire comes. Or just not living there.
| rangestransform wrote:
| How about:
|
| - we get rid of nimby enabling laws
|
| - don't subsidize rural customers
|
| - automate farming
| rufus_foreman wrote:
| >> Can the CA govt just impose prohibitive fire prevention
| liabilities on utility companies, bankrupt them, and scoop up
| the assets for free
|
| I don't think so. Not currently.
|
| "nor shall private property be taken for public use, without
| just compensation"
|
| That's federal law. Supposedly, that applies to the states
| through the Fourteenth Amendment. All of the sudden, once the
| Fourteenth Amendment is passed, the Constitution applies to
| state governments, not just the federal government.
|
| So if that's the case, no. You can't just "scoop up the assets
| for free" because you can't take private property for public
| use without compensation. I'm kinda a little bit suspicious
| that it makes sense to interpret the Fourteenth Amendment that
| way. Sounds like a power grab. If you want to try and turn that
| around, I know just the guys to do it.
| rangestransform wrote:
| It's not unconstitutional to make utilities liable for fires
| that their power lines ignite, and it won't be a taking
| without just compensation if the actual value of the company
| drops below zero
| bobthepanda wrote:
| This is generally a horrible idea.
|
| This is how public transit companies were generally acquired,
| but on the way to bankruptcy firms would defer maintenance to
| stave it off, which led to the sorry state of most mass transit
| systems today.
| tristanb wrote:
| I am so sick of PG&E - our energy bills are nearly $1,000/mo.
| It's absolutely bonkers.
| ahmeneeroe-v2 wrote:
| Look at your power bill. Half of your kWh cost is taxes to the
| State of California.
|
| You could literally have half the power bill tomorrow if CA
| would stop taxing it.
| hypothesis wrote:
| No can do, they are going to start taxing (hard to call that
| billing at that point) you based on your income. At least
| that was the plan last summer or so.
| kevinburke wrote:
| All utilities have usage based costs and large fixed costs.
| Historically, all utilities have charged solely on usage.
| The problem is when you have solar, or solar + battery,
| your usage goes way down. Unfortunately the grid still
| needs to be maintained and power plants at peak times
| (maybe a bit lower, but still high) still need to be paid
| for.
|
| With usage based bills, people with solar pay less than
| their fair share for the maintenance component of a
| utility's cost, which means that this cost is larger for
| the other rate payers. On top of this California has huge
| subsidies to early rooftop solar adopters. This structure
| hurts lower income people more since lower income people
| are more likely to rent and apartments don't have as much
| space for / not as interested in rooftop solar.
|
| So the CPUC started exploring different models for adding a
| bigger fixed charge to the bill and lowering the per-kwh
| cost. Of course the rooftop solar installers hated this as
| did the different "equity groups." Which is where you got
| the idea to adjust the fixed charge based on income.
|
| I don't think it's a great idea but I at least understand
| where the CPUC is coming from. We probably need more
| innovation in utility pricing models.
| hypothesis wrote:
| I appreciate you writing a detailed response, btw.
|
| The issue I have with this idea is that it basically
| punishes initiative or people who invested in energy
| efficient products. What's the point if you can just wait
| and juice the other guy? Is the climate change a deadly
| serious issue or not?
|
| Similarly, the part about taxation is self-inflicted
| wound, where they could have came up with a subsidy, that
| would have much less complains.
| jerlam wrote:
| The income thing was a bit overstated; PG&E will offer
| discounted fees to people already on existing income-based
| discount programs.
|
| https://www.sfchronicle.com/california/article/pge-
| electrici...
| peterbecich wrote:
| Yes, that plan was ridiculous. A highly paid worker living
| efficiently in a small condominium would be heavily
| penalized. Meanwhile someone living in a McMansion with a
| lower salary would effectively have a lower bill per kWh.
|
| It is best as it is today: a consumption tax, like the
| gasoline tax. What justification is there for charging a
| higher income bracket more for electricity? You could make
| the "infrastructure maintenance burden" argument about
| anything: food, movie tickets, etc.
| yumraj wrote:
| As the blog also mentioned, Santa Clara _city_ charges 17c
| while in the neighboring San Jose I pay average 50c (time of
| use plan).
|
| Half of 50c even if I believe you is 25c still higher than
| 17c.
| ahmeneeroe-v2 wrote:
| Don't believe me, just research your bill.
| aidenn0 wrote:
| I paid an average of $0.31 per kWh last month with SCE
| (which is on the low side, because a lot of that is
| charging my car, which I have setup to only charge during
| off-peak). I see under $0.06 per kWh of Non Bypassable
| Charges. The word "tax" does not appear on the bill,
| except in a notice about raising rates which mentions a
| loss (with the word "after-tax" appended to the amount of
| the loss) incurred by SCE.
| yumraj wrote:
| I'm saying San Jose PGE is _more than half_ what Santa
| Clara pays.
|
| So even if half is tax, it's still a lot more. And, half
| of Santa Clara's would also be tax.
| locallost wrote:
| This can't be true. Every month?? How many kwh per month do you
| use, and on what?
| aqueueaqueue wrote:
| Sounds like an inefficient house and lots of heating or
| cooling.
|
| Or some kind of production / workshop / datacentre / business
| usage.
| abeppu wrote:
| 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.
|
| 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.
| kevinburke wrote:
| 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.
| abeppu wrote:
| > 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.
| brian-armstrong wrote:
| 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.
| greesil wrote:
| Maybe these expensive-to-serve regions need a different
| model of power generation.
| jncfhnb wrote:
| 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.
| rsync wrote:
| Why use eminent domain to seize their garbage, crumbling
| infrastructure?
|
| 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.
| tokioyoyo wrote:
| 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.
| vegetablepotpie wrote:
| The build a duplicate distribution grid is effectively what Ann
| Arbor is doing with its Sustainable Energy Utility, approved by
| voters in November [1].
|
| [1] https://www.a2gov.org/sustainability-innovations-
| home/sustai...
| xrd wrote:
| 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."
|
| https://news.ycombinator.com/item?id=42971311
|
| Because of regulation, they can gouge consumers who are captive
| to the damage, literally and financially.
| 1970-01-01 wrote:
| >>they are also undertaking a massive project to underground
| utility lines in fire-prone areas.
|
| Seems like they're actively trying to fix it.
| xrd wrote:
| 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.
| lotsofpulp wrote:
| 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.
| xrd wrote:
| 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.
| dragonwriter wrote:
| 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?
| xrd wrote:
| 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.
| nonplus wrote:
| 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).
| atlas_hugged wrote:
| Same thing is likely true in SoCal. The city of Azusa,CA has
| their own, non-Edison utility, and their rates are 1/3rd of the
| Edison rates in the towns around them.
| mmooss wrote:
| Could Azusa sell power to the town around them?
| drewda wrote:
| Interesting analysis.
|
| Sounds like an argument for ABAG to expand its energy related
| services into a full utility (at least on the electricity side):
| https://abag.ca.gov/our-work/energy-infrastructure
| Aurornis wrote:
| 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.
| colechristensen wrote:
| >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.ewg.org/news-insights/news-release/2022/12/pge-a...
| Aurornis wrote:
| 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.
| jncfhnb wrote:
| 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.
| jeffbee wrote:
| 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.c
| om/maps/@38.4638277,-120.656418,3a,75y,3...
| hypothesis wrote:
| Eh, but we _should not_ leave people without basics of
| civilization. Yes, it's a subsidy, but benefits outweigh
| hoarding of wealth.
| jeffbee wrote:
| But we wouldn't have been "leaving" anyone. All this
| garbage was built in the 1970s _because_ we incentivized
| it with subsidized roads and utilities. If we hadn 't
| established those subsidies, all of these people would
| have lived in the established towns of Jackson or Ione,
| upon which they are totally dependent anyway.
| fooker wrote:
| > all of these people would have lived in the established
| towns
|
| And I assume your food would be conjured magically?
| jeffbee wrote:
| None of the people in the area to which I referred are
| undertaking anything productive. Food comes from farms,
| like always.
| bbarnett wrote:
| 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 conversation is absurd. Hydro Quebec runs power
| lines through areas far more rural than California,
| through weather more severe and wide ranging, over
| greater distances, with more wild land, and just as much
| danger of fire. It does so at the cheapest rates, shows a
| profit, maintaining its lines and clearing vegetation.
|
| PG&E is a pathetic company, and if people look outside of
| California, you can see how cheap rural electrification
| is
|
| Really, cities cost more to electrify. Burying lines is
| mega expensive, stringing power lines on poles os quiet
| cost effective. You can easily run miles of lines, for
| the cost of a crew digging up a street and repaving.
|
| Lastly, rural people pay for hookups. Each house often
| pays thousands per pole.
| chasd00 wrote:
| Who cares about the way things should be when it comes to
| utilities. There's no feasible way you're going to cut
| power to rural communities and people. Deal with it.
| Nimitz14 wrote:
| Interesting perspective. I guess even in very rural areas
| it would have pushed people to build villages. On the other
| hand people already were living far apart and lack of
| electricity meant they had to do massively more work. LBJ's
| biography has a section on this, explaining that life on
| west texas farms was incredibly hard without electricity
| (and as congressman LBJ worked very hard to expand that to
| rural people).
| ghaff wrote:
| It sort of has. Looks of people you think of as living in
| fairly rural locations are still in small towns rather
| than the middle of nowhere.
| apercu wrote:
| That basically describes my area. There are 3 streets (2
| connect, the 3rd doesn't). There are 11 houses on my (dead
| end) street and maybe 25 on the other two streets.
|
| Because of this clustering - I live in a pretty rural area
| - but have natural gas and cable internet (only one option,
| so not that awesome).
|
| But, I also have a well and a septic system. And I'm very
| thankful. As I was moving back to the US after 2 decades in
| a city, I did a winter with no high speed internet (used a
| mofi router with a SIM card as Starlink was overprescribed
| in the area) and propane for heat. It was a small house but
| heating with propane is crazy expensive.
| jltsiren wrote:
| 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.
| bitmasher9 wrote:
| 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.
| EduardoBautista wrote:
| Governments are often okay overspending on government
| contracts.
| greesil wrote:
| What about
| Aurornis wrote:
| > 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.
| gamblor956 wrote:
| 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.
| apercu wrote:
| 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.
| shiftpgdn wrote:
| 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.
| Aurornis wrote:
| > 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.
| renewiltord wrote:
| 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_.
| AnotherGoodName wrote:
| Less than 20c per kWh for my local city power -
| https://www.cityofpaloalto.org/files/assets/public/v/5/utili...
|
| 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.
| Aurornis wrote:
| > 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.
| AnotherGoodName wrote:
| This is a PG&E area as stated charging ~40c per kWh as
| stated by the post above?
| dv_dt wrote:
| 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.
| MichaelZuo wrote:
| Is there any evidence for how they're wasting such a huge
| amount of money year after year?
| sb057 wrote:
| The fact that they charge significantly more money than
| virtually every other utility company in the country (and
| indeed, within California) with comparable margins is
| pretty good evidence I feel.
| MichaelZuo wrote:
| How is that evidence?
|
| The expectations, regulations, and imposed demands, are
| not 100% identical across all utilities. So any
| combination of factors could lead to higher prices.
| _heimdall wrote:
| 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.
| MichaelZuo wrote:
| Why are you asking me when their financial statements are
| available online for you to read?
|
| I don't have some special insider scoop to know whether
| the numbers listed in the statements are real or fake.
| darth_avocado wrote:
| Profit margins are low because they need to pay $20M in opex
| for the CEO's bonus.
| asats wrote:
| If I'm not mistaken that's 0.08% of their revenue.
| jf wrote:
| The highest price that the city owned electric utility in
| Alameda, CA charges on the standard rate schedule is $0.29453 /
| kWh
|
| 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
| abathur wrote:
| 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)
| nwiswell wrote:
| 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
|
| 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.
| theptip wrote:
| > 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.
| bitmasher9 wrote:
| 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.
| AnotherGoodName wrote:
| Yep you literally get half price power if your city does it -
| https://www.cityofpaloalto.org/files/assets/public/v/5/utili...
|
| 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.
| xienze wrote:
| 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.
| chasd00 wrote:
| 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.
| tokioyoyo wrote:
| That just sounds like a mismanaged city? Like obviously it
| might go wrong as well, just like how a private company might
| not have the sharpest knives.
| shawndrost wrote:
| +1 to this analysis. Urban ratepayers in CA subsidize rural and
| fire-prone ratepayers. (Utility rates are a stealth tax. Same
| story as home insurance.) The fight is ultimately political and
| not as one-sided as you might think. The broad regulator and
| politician view is that the subsidies are valid, and if the
| cities all leave the grid, the subsidies will wind up on the
| state's balance sheet. Nobody wants to see rural de-
| electrification. Utilities have a lot of sway with politicians
| for corrupt and non-corrupt reasons.
| jmyeet wrote:
| It never ceases to amaze me how often people will make socialist
| economic arguments (that are objectively correct) yet eschew the
| label "socialism".
|
| An enterprise, like providing a utility, has revenues and it has
| costs. The difference between the two can be called the "surplus
| labor value". What happens to that depends on the economic
| system.
|
| In capitalism, capital owners own that enterprise (utility) and
| they siphon off profits raising the costs. Put another way,
| capital owners own the means of production, not the residents of
| the city or the city itself. This is rent-seeking behavior.
|
| In a socialist organization of the economy, the residents either
| directly or through the city itself, would own the utility. Any
| profits would go back into the utility or be extra revenue for
| the city but there's really no incentive to increase prices on
| the citizens who own the utility (unlike the unquenchable thirst
| for increasing profits for capital owners).
|
| I have to constantly point out that capitalism isn't markets
| (market existed thousands of years before it and exist in every
| economic system). Capitalism simply supplanted feudalism by
| replacing kings with billionaires. That's it.
|
| We have abundant examples of how the latter is a substantially
| better system. Just compare EPB Internet (Chattanooga, TN and
| surrounds) vs Verizon, AT&T, Comcast or Spectrum. Municipal
| broadband, without exception, is substantially better than any
| national ISP. The only thing that keeps national ISPs in business
| is more rent-seeking behavior such as lobbying for legislation to
| ban municipal broadband.
|
| Given this is the Superbowl weekend, it's worth adding that the
| Packers are owned by Green Bay (an arrangement the NFL now bans
| for any other franchise). What do we see in other cities? Teams
| extorating massive tax breaks from cities, counties and states to
| build massive stadiums at taxpayer expense without the team
| having to give up anything. The KC Chiefs are rumbling about
| leaving because the city didn't pass a sales tax increase to pay
| for upgrades to Arrowhead Stadium.
|
| I don't know why anyone is surprised by any of this anymore.
| mmooss wrote:
| Do you think public ownership would have yielded the
| development of modern IT, for example?
| jcarrano wrote:
| If PG&E could be undercut by 25%, then why are there no private
| companies doing it? Either it is not as profitable as the author
| claims, or PG&E's monopoly is due to state regulations (I don't
| know enough about the specifics) and it would be quite
| contradictory to demand the state solve the problems it created.
|
| Overall it reads like any other socialist argument for
| nationalizing (in this case "municipalizing") companies, which
| does not work both on theoretical grounds and based on historical
| experience. The claim "Walnut Creek could borrow from its utility
| in recessions, and loan money during booms" is laughable. We know
| how that ends: the city would finance its deficits with utility
| money until the company is bankrupt.
| aquaticsunset wrote:
| Municipal utilities exist _everywhere_. I 'm not sure why
| you're being all hypothetical about it. They work well and for
| many reasons discussed here, sound like a good fit for Walnut
| Creek.
| payne92 wrote:
| > It costs a lot of money to deliver power to rural customers
|
| Utilities (generally) have a universal service obligation.
|
| If someone can cherry-pick just the denser areas with lower
| distribution costs, _of course_ they could "undercut" the
| utility with the requirement to serve everyone.
|
| (I'm not saying that PG&E couldn't be better managed. I'm saying
| that there's a much, much deeper policy issue at stake here.)
| llamaimperative wrote:
| Land Value Tax solves this
| aqueueaqueue wrote:
| How so?
| aqueueaqueue wrote:
| They made the point that this is the plan. Encourage people to
| live in cities.
| UncleEntity wrote:
| The more people that leave the rural areas for the cities
| makes it less profitable to serve the existing rural folks.
|
| I grew up in the Bay Area, lived in 'rural' Humboldt and
| Placer counties, and can say I would never move back to the
| bay no matter how much the technocrats would desire it.
|
| Pretty happy with my ~30k town nowhere near California TBH...
| flyinghamster wrote:
| There are a number of northern Illinois cities that have their
| own utility grids. Off the top of my head I can think of
| Naperville, Princeton, Rochelle, and Peru, with the last three
| having their own power plants.
|
| Rochelle's municipal utility system also provides water and
| sewer, and fiber-optic internet. https://www.rmu.net/
| Zaheer wrote:
| Santa Clara's utility rates are also cheaper because there's a
| bunch of data centers that are the bulk of consumption and
| subsidize rates for residents. That said, I'm all for getting rid
| of PG&E
| knappe wrote:
| 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.
|
| https://www.cpr.org/2020/11/20/boulder-ends-decade-long-purs...
| kelseyfrog wrote:
| 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.
|
| This is exactly the reason we should do it.
| UncleEntity wrote:
| Sure, PG&E implodes but then who manages Diablo Canyon and who
| delivers electricity to the unprofitable rural areas?
|
| 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.
| kelseyfrog wrote:
| 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.
| Aurornis wrote:
| > 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.
| rmason wrote:
| 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.
| tmnvix wrote:
| 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.
| Ekaros wrote:
| 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...
| rightbyte wrote:
| Social democracy in fashion again?
| mmooss wrote:
| It's interesting that in some HN discussions, all the arguments
| for (in this case) public ownership are valid and the
| advantages of private ownership seem to be completely
| forgotten. And in other discussions, it is vice-versa.
|
| I think that reflects the broader public. If you can get people
| in one or the other mode, they will forget what they knew 24
| hours ago.
|
| Personally, I think private ownership and public ownership are
| two tools in the toolchest, good for different tasks. In many
| cases, privatization is a capitalist who notices a large,
| reliable cash flow, such as public utility revenue, and wants a
| cut of it. Public ownership can suffer from a lack of
| innovation - perhaps that matters less for mature technologies.
| legitster wrote:
| I'm as capitalist as they come, but I think privatizing natural
| monopolies makes no sense.
|
| In our area, they handed over all school bus services to a
| private firm. The number of drivers, buses, and routes do not
| change. How was it supposed to save costs without degrading the
| service? The answer is, it did not. But administrations were
| diluted that they could take it off their liabilities.
| gojomo wrote:
| PG&E's absurdly high rates are how they finance the careers of
| Governor Newsom & his wife, and "donations" to a giant array of
| other pet project "charities" for politicians & their favored
| cronies/causes.
|
| https://www.washingtonpost.com/business/2019/11/11/pge-helpe...
|
| https://www.sacbee.com/article251851903.html
|
| Why would any of California's uniparty establishment want to
| refund all that money to random utility customers - who might not
| even be reliable party footsoldiers?
|
| PG&E's lowest overnight rates are 30C//kwh, surging during peak
| hours to rates ranging from 39C//kwh to 72C//kwh.
|
| In neighboring Nevada, the utility serving its major metros NV
| Energy has rates of 11C//kwh for residential users & 7-9C//kwh
| for small businesses.
| Aurornis wrote:
| > But over the past two decades, Newsom (D) and his wife have
| accepted more than $700,000 from the Pacific Gas & Electric
|
| $700,000 over 20 years is $35,000 per year (not to mention
| Newsom wasn't governor for most of that time)
|
| PG&E revenues are $25,000,000,000 per year.
|
| Regardless of what you think about the arrangement, it's not
| why rates are high.
|
| > In neighboring Nevada, the utility serving its major metros
| NV Energy has rates of 11C//kwh for residential users &
| 7-9C//kwh for small businesses
|
| Comparing electricity costs across difference states rarely
| indicates much. Geographies, energy sources, and regulations
| are very different from state to state.
| bloomingkales wrote:
| If Star Citizen can get nearly a billion dollars, I think we can
| all (right here on HN) evangelize a kickstarter for this. We just
| need the people that know this in and out to lead.
|
| We should be doing more really in our current world. I confess I
| too spend too much time trying to build little apps just for
| money.
|
| This _just for money_ thing has got me reflecting a lot lately.
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