> Maybe this just a California being California issue again.
California is a high fire risk state regardless of whether the utility is publicly owned or investor (aka privately) owned. The risk is on a level that doesn't occur in many other states.
If the costs of fires are going to be socialized anyways (by immunizing utility from the liability, hence putting the burden on the ratepayers), the question of whether the utility should be publicly owned in order to reduce the obligation to shareholders is a valid one.
Either that or PGE will have to dramatically increase it's expenditures on maintenance to reduce the fire risk, which will have to come from shareholders' and ratepayers' pockets (the latter of which is not permitted under current PUC rules, IIUC).
Your "[...]" skips over the option where they have smaller immediate profits in exchange for securing the future of the company. Is that a bad option for some reason?
A company selling shares to raise capital is an alternative to other methods of raising capital, like taking out a loan. Asking why they don't just make smaller profits is like asking why they don't just pay a lower interest rate on their loans. It presumes that someone exists who is willing to lend them the money at the lower rate of return.
Companies have the option of shutting down operations and selling off their assets. PG&E presumably has a fleet of trucks and equipment, land rights etc., which were paid for with investors' money. If their profits fall below the level that could be achieved by selling off those assets and then investing the money at the market rate of return, it becomes profitable for raiders to come in and buy the company and do that with it, so the company has to stay more profitable than that in order to prevent that from happening.
> A company selling shares to raise capital is an alternative to other methods of raising capital, like taking out a loan.
Not selling shares. Having smaller dividends. That doesn't assume anyone is willing to loan them money.
> If their profits fall below the level that could be achieved by selling off those assets and then investing the money at the market rate of return, it becomes profitable for raiders to come in and buy the company and do that with it, so the company has to stay more profitable than that in order to prevent that from happening.
Ugh. I'm not sure via what mechanism, exactly, but it should not be possible for a monopoly power company to just dissolve and sell off the trucks for a tiny quick profit.
> Not selling shares. Having smaller dividends. That doesn't assume anyone is willing to loan them money.
They already sold the shares and used the money to buy trucks and stuff. The dividends are effectively the interest on that money.
Suppose (made up numbers) that they have ten billion dollars in assets, but a twelve billion dollar market cap because of the expectation that those assets will be used to make future profits. Now you say "just make smaller profits" which means their market cap falls to eight billion dollars because of the expectation of smaller dividends.
Someone on Wall St then notices that they can make two billion dollars by buying them for eight billion and selling their assets for ten.
> I'm not sure via what mechanism, exactly, but it should not be possible for a monopoly power company to just dissolve and sell off the trucks for a tiny quick profit.
The government always has the option to be the buyer itself, or find one that wants to continue operating as a power company. But then it either has to raise its own capital or bring about a regulatory environment that allows a private company to meet the market rate of return and thereby raise a sufficient amount of private capital.
For a utility, "keep being a utility" needs to be above "larger profits" on the list of core objectives, and shareholders need to accept that before buying in.
Whether that's just by writing it down, or having 30 billion in penalties if they stop delivering power, or by making dividends vest over 20 years...
Yes. The State should confiscate their assets and sell them to somebody willing to meet the obligations of a Public Utility. Lots of companies do, and make tidy, predictable profits.
Private utilites work just fine in every other state.
Do they? The feds already had to step in when private companies deemed large swaths of the United States unprofitable (see also: rural electrification and the TVA).
But we live in a free market of ideas. No reason to have one state operate it’s utilities like every other, except to satisfy social memes.
We’ve done the privatize it all experiment even given evidence that services like Medicare can be run pretty cheaply, and, well, Kansas and Oklahoma.
I’d be curious to see if California could save rate payers money. My guess is the conventional finance wisdom about big government spending is more like fear mongering to protect special interests.
Given how California’s HSR project recently exploded due to run away costs, calling the concern about the state take over more things “fear mongering” is pretty dense.
CAHSR died the death of a thousand paper cuts (e.g. SF and south bay routing, grade separation, signalling, trump). All of that created an untenable situation.
The closest equivalent with municipal power is the gobs of money PG&E has spent trying to kill local and statewide public power legislation.
It exists, and they’re building, but it’s only linking the powerhouse cities of Merced, Fresno and Bakersfield. So I’m sure it’ll be packed 7 days per week.
Routing, grade separation, and signaling are things any train system must deal with. The lesson from CAHSR is that the California government was too incompetent to be able to handle something that many governments around the world handle just fine.
As to Trump—CAHSR had already failed by the time Trump took office. He simply demanded the federal government’s money back.
The lesson from CAHSR is that the California government was too incompetent to be able to handle something that many governments around the world handle just fine.
How do you get incompetence from being sued at every turn by people trying to micromanage the CAHSR project? The trump approach of ruling by fiat doesn't work in the real world.
And within this article alone, you find specific references about how CAHSR failed to comply with the conditions of the funding:
'Ronald Batory, (the Obama Administration's) chief of the Federal Railroad Administration, the transportation agency that made the grants in 2009 and 2010, laid out a lengthy legal argument Tuesday for why the state was out of compliance with the grant agreement. Batory said in a three-page letter to California High-Speed Rail Authority Chief Executive Brian Kelly that the state “has materially failed to comply with the terms of the agreement and has failed to make reasonable progress on the project.”
Batory alleged that the state had failed to spend required matching funds, falling short by $100 million as of December. He argued that it will fail to complete the Central Valley construction by a 2022 deadline required by the grant. Batory also said the state has not submitted required financial information — such as reports on what has been delivered to date — that would allow federal regulators to oversee the grants. It also has failed to take corrective actions after regulators raised concerns in 2017 and 2018.'
Trump didn’t derail the project as originally envisioned. He tried to kill it after the governor declared that the project that had originally been pitched to the federal government had become infeasable.
Trump didn’t derail the project as originally envisioned. He tried to kill it after the governor declared that the project that had originally been pitched to the federal government had become infeasable.
So what you're saying is that trump is trying to kill CAHSR? Got it.
No. CAHSR is probably dying but due to CA's own lies and ineptitude.
All the Trump administration did is say, "you were promised funding conditional on it being spent on X, Y, and Z. Instead, CA spent that money on the infrastructure equivalent of hookers and blow[0]. Therefore, we are simply cancelling the funding per the agreement and the law because essentially none went to X, Y, or Z."
CAHSR is free to proceed (as far as the Administration is concerned) however they want with their own funds and the promised investor funds. In other words, pay for your own hookers and blow.
[0] 'In one especially egregious case, in 2017, the CHSRA hired an external consultant to check the work of Parsons Brinckerhoff (now WSP USA), which had been paid $666 million for engineering consulting. The external consultant found that the CHSRA had not received finished work for 145 of 184 tasks that Parsons Brinckerhoff had called “complete.”'
No need to throw the baby out with the bathwater...