alt Hacker NewsInvestor-owned utilities charge 23% more for electricity than public providers
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This whole "but government is inefficient" argument has never convinced me. Our local electric provider has as bad or worse bureaucracy and ever-increasing rates. Bureaucracy is just a symptom of aging human systems, and it can be fixed. Monopolies that serve the public good should never been profit driven, full stop.
Utilities should at minimum not have a profit motive involved, but the fact that we've been so happy to deliver vast profits to shareholders instead of proofing our grid has been a real tragedy.
Texas answers a lot of questions about how well privatization of utilities works (and the answer is often "not very well"). The electric industry in Texas has competitive rates with the rest of the country, but it also has a body count. Putting off repairs and upgrades in order to save money and make investors more money has caused several long outages during extreme weather, including in 2021 when several hundred people froze to death. I have a photo from that year of a thermometer showing 22F (-6C) inside my RV, which I was living in full-time and parked near Dallas, at the time.
And, as a customer, it's a bad experience. I have to switch providers every year, because the rates you get the first year are competitive, and then for the subsequent years they offer much worse rates, 50%-100% higher than the previous year. So, I either have to deal with that annual pain in the ass of picking a new provider and setting up billing, etc., or I pay among the highest rates in the country when the rate spikes. There's also the constant deluge of mailers from competing providers, and gangs of sales people hanging inside Walmart or going door-to-door (I have a "No Soliciting" sign, which is only occasionally respected).
I used to be a free market purist, believing most things would be better with competition, but for a natural monopoly like electricity, it's just forced inefficiency. The law requires the illusion of competition, but the real work of keeping the lights on is done by one entity. All the other power companies are just middlemen, running their own marketing and billing operations, but not doing much else.
I would be very happy to have electricity go back to being publicly-owned and operated, with regulation and oversight.
And, for another data point, the best trash/sewer/water experience is, by far, when the municipality handles all of it and there is a monopoly on those services (even if operated by a private entity). I've lived in places where you subscribed to one of several competing trash pickup providers, and that is always more expensive and provides less (rarely includes regular bulk pickups or recycling in the standard plans, for example). And, you then have loud, smelly, trash trucks rolling through your neighborhood multiple times a week. Admittedly, in those cases, it's often a rural area where picking up is more expensive for the operator due to longer distances, but even in the suburbs it costs more and does less.
This feels like kinda of a useless comparison if we don't know about the tax rates they pay, cost of capital, adjusting for geographic location and local regulations etc. I.e. the largest increase was seen in NY where it is really expensive to do anything and high taxes.
I live in a counter-example. The only water and electric utility available is city-owned and I pay triple the amount of my sister and her family that lives in another city yet has 4+ private utility companies all competing with each other. And she has a house more than twice the size of mine!
Bring on the competition!
My electricity is produced by a cooperative. The coop has some 60k participants. And over the year it's managed to build and operate a respectable amount of wind turbines and solar installations, and it's now expanding into district heating and battery storage.
They're producing some 100GWh/year. Which is not half bad, considering they're typically at or below market price and often pay a ~6% dividend.
In this thread: a bunch of comments that don't understand that if you want more of something (power, food, housing, videos of cats, whatever), by far the best way to get it is to give the people providing the stuff more money.
Utilities are one of the cases where market dynamics break down. It's very obvious why, when you realize how difficult it is build even a relatively simple electrical transmission system, or a power plant. The barriers to entry are extremely high.
Furthermore, switching from one provider to another is inherently difficult. There is only one set of pipes leading to your house, how you going to switch to an alternative? Who is going to build the line for the 1 new customer?
And finally, splitting the business across the vertical doesn't work either. Generation of power is tied to grid management, this is tied to transmission maintenance and expansion.
All things considered. Monopoly emerges naturally and rent seeking is pretty much given. There are only two options left. Either the utility is operated by government for common good, or it the monopolist is so heavily regulated and controlled by the government, that it is, in effect, its extension.
Sorry I know its sacrilege to say but i think there's some things the government should simply just own. Water, energy, roads, transit etc.etc.etc... There's no advantages to bringing in private enterprise, at best they merely act as rent seekers, and at worst they strip the infrastructure of all value without any maintenance, getting taxpayers to build it again.
One interesting thing I’ve learned is that the utilities will manipulate projects to earn more take. So for example they will add a decommissioning in and then get regulators to approve that and now boom utility co snuck another 1% on the take. The bonuses that the C-suite execs of a public monopoly are getting… unconscionable.
Let me tell you a little story of corruption.
(details are from memory, so let's not quibble and argue over them, my autistic friends)
Back in 1906, after the Big Earthquake happened in SF, the US Congress took pity on the city of SF and built the Hetch Hetchy dam to provide the City with reliable water supply (so the City wouldn't burn down again in the next one). The dam would also generate electricity, and that power came free (except for transmission costs, because the City owned the generation infra). So they started to lay the power lines from Hetch Hetchy to SF.
But, as it just so happened, they ran out of wires and poles just before they could reach SF. So PG&E got the contract to finish off the last mile to the City.
And after it was all over, someone found the missing materials lying in some warehouse, rusting away...
Electricity does not have to cost so much in SF, given that generation is free. And yet we pay over $0.50/KWh in the City.
Sure, because you’re also paying for public utilities in other ways (taxes, inflation, regulations, etc). The government can’t give you anything it hasn’t first taken from you in one way or another.
It turns out that privatization of public services does not yield the lowest prices for consumer as a result of market forces. Because it does not create services markets, it creates services monopolies.
Note that government-owned and investor-owned aren’t the only two options.
I live in Wyoming. We have a member-owned cooperative utility. At the end of the year, it pays every member a dividend. We vote on leadership and major policy. It’s locally responsive but still privately owned; the Governor can’t turn it into a slush fund.
Surprise!!!
That reminds me, my hometown, the city of Hamburg, bought back the public utilities it had privatized in the 90's, following a public referendum, in 2014.
I recall that one reason was prices for electricity and gas going up after the privatization.
Go figure.
One culture thing I learned moving from an impoverished rural community to San Francisco was how little time the affluent spend on the necessities: cooking, cleaning, laundry, home improvement, shopping, etc.
Most of my free time was spent on the necessities.
Moving to SF and embracing that lifestyle (being able to afford that lifestyle...) freed me up for the pursuit of happiness.
I look at government the same way: public service should assume some of the burdens for the citizenry. utilities should be one of those things assumed by the state, paid for by taxes. The administration of which has a goal of driving down costs for customers, NOT for increasing profit
Crazy how cheap the electricity is across the board.
EU average is almost double, 40 cents per kwh
There's a selection bias in the data. Investors chase the highest profit markets.
Public owned ones by definition are allowed to run in a deficit and have alternate source of "charges" in government subsidies.
I think the problem in the machine is "investors" as they have primarily a capital based value evaluation.
Nothing else has value to them apart from capital and its "profitable" usage, so the fundamental reason why corporations even exist, to collectively bring about real world value takes a back seat.
Our local co-op electric utility may have a lower rate than other states, but their policies are entirely profit based. No grid-tie. No off-peak rates. Customer experience is terrible. Internal company spending reminds me of the current decor at 1600 Pennsylvania ave. And my share in the company last year, after being a customer for nearly four decades paid me $15.
Still better than PG&E I imagine.
It is naive to think that the government can just be 23% more efficient at getting you electricity. This excludes account for tax exceptions, cheaper financing or even government financing. The government is a monopoly and not allowing competitors in with legislation and using tax dollars to be more "efficient".
The referee should not be able to play the game.
We have "utilities on the market" now. So we get to choose between the color of logo on the invoice. Every year we can switch around new year. Then lots of marketing is going on: people going door to door as well...
For sure I now pay for all these marketing campaigns: they all offer a cheap first year. So I have to switch yearly to get a good "welcome present" (that the non-switchers are paying for me).
Privatizing a commodity-service, that utilities are (electrons/water/gas -- it's all very standardized) is the most ridiculous to me. The innovation a supplier can bring you is mostly it's marketing campaign.
What are you guys complaining about? "17.8¢ a kilowatt-hour at investor-owned utilities" ?? Here in San Francisco we're paying close to 50¢ a kilowatt-hour!!
I am also a counter example... My utilities are now half of what they were than when I lived in an area provided by a public utility.. (BPU.. looking at you)
Salaries across the board are also a non-insignificant factor. Not just CEO but for brevity,
Seattle City Light CEO $340k 8% bonus
Bonneville Power Administration CEO $245k
Avista Energy CEO $4.77 Million
Puget Sound Energy CEO $1.7 Million up to 9 Million (includes bonus ramp targets)
Now let’s play a game of which are public and which are private.
How much more is needed to get people to put the effing phone down and pay attention to what's happening.
The vet for my cats, charges 450$ for spending 5 minutes checking the cat, 2 vaccines and out... then I ask.. are you part of a investor owned or equity owned.. they answer yes...
Do you want me to tell you about health insurance?
Why is people not angry? the "100$ er visit" option of health insurance is always 1400$ of "itemized" things...
Oh yeah... iphones are kind of cheap...
Wait a sec, were... but the rest of the electronics are cheap right? even if we will never be able to own a home?
Rammagedon? what do you mean the ps5 is 1k$? do you remember when 300$ where insane?
There are definitely price downsides to having to pay corporation tax.
A good lunch time (33 mins) watch on how private utilities set their prices and make money + the history of private utilities.
That's why essential utility or otherwise operator that functions essentially for the common good / people must be in public or public-private hands with strong regulation on what is allowed and what isn't.
Should it be investors owned monopoly have higher charges for electricity?
This is a slop website selling a product.
It does not appear to adjust for any of the things that matter. Taxes, cost of capital, generation mix, etc. I think the “insight” is impossible to call an insight with the lack of real modeling.
I find that every single time these arguments are flawed, and don't account for a whole host of things.
What's the cost of capital on public providers? And on private providers?
What's the energy mix for each of them?
Are both providers profitable? How profitable are each of them?
Are there subsidies involved? Either directly or indirectly via lower than required fee increases due to political pressure.
Frankly it's tiring to always see the same flawed arguments here.
I always like to point out that Nebraska is the only state in the US that has 100% public electricity.
Yes, utility privatisation in the UK has been terrible for the consumer (and environment) too.
that means "23%" profit for the people who dropped capital for potential returns.
What was the hypothesis here, did we think they would be charging less?
There are not-for-profile municipal utility operators in California. They form NCPA (Northern California Power Agency), the largest stake holder is SVP (Silicon Valley Power) a.k.a. The City of Santa Clara.
Something a lot of transplants don't learn for years: Palo Alto, Santa Clara, and Alameda are members of NCPA, so you don't pay PG&E, amusingly PG&E pays NCPA for access to its hydro and geothermal.
The private sector is more efficient, yes, but only at extracting value.
Blasphemy, the invisible hand of the market is supposed to ..... somehow lower prices.
https://www.stepchange.show/grid Good pod on utilities.
Thanks Capt. Obvious
You voted for this.
I have worked as an engineer is private and public power utilities and there is not a significant difference in how efficiently things get done. All human orgs are basically the same, when you get down to the people actually doing the work. Private utilities have all the security of a public utility so the 'profit margin' is not really an everyday focus at the worker bees level in the way that it is in actual private industry.
Having seen the sausage being made in both, I would say that private utilities are very little for the additional $$$ they extra t for shareholders. I would just as soon see all power production and transmission nationalized.
One of the reasons I left academia: in a different context my colleagues would all know to shout "correlation not causation!", "conditioning on a collider", and "no true control group!"
But if they saw this they'd immediately like, subscribe, and share broadly with positive commentary.
I remember when water was privatized in Brisbane, Australia - instantly noticing the jump in my bill. It's clear that privatizing infrastructure like water & electricity doesn't benefit consumers (unless they are somehow investors). I understand that Amsterdam is privatizing water as well. But what can be done about this? Is the only path as consumers is to become ruthless capitalists for our own survival? I wonder where this cycle ends?
Remove PGE from the numbers and I bet it's a lot closer.
Whaaaa? When you run something with the goal of making a profit that ends up costing more than when you run it without the goal of making profit? Hows that possible?
Now look at how much they invested in keeping the infrastructure up to date. The ones I know about are very good at the rent seeking portion but when it comes to (preventive) maintenance and capacity planning they are terrible.
Alberta's electricity system is Canada's example of this. "de-regulation" meant the separation of generation, distribution and retail. Decades after this was supposed to lower the price of electricity, it's done the opposite. Big corporations are now guaranteed a profit at each layer of the system. There is no competition, because why would they compete if they're guaranteed a profit?
So the result is Albertans pay more than most other Canadians for electricity. Even if the actual rate is low (which it isn't), the cost of electricity is usually only 10% of my bill. The rest is "transmission" "distribution" etc. It's insanely expensive compared to next door in British Columbia.