Privatization of utilities was always bad idea. We had a lot of it in Poland, mostly driven by "govt owning it is communism, we want to get away from what" and it just made it near universally worse
Natural monopolies are always the first suggestions to keep public owned. And you can't have 2 water suppliers piping into your apartment from the source
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?
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.
I guess it depends how you fund the system then. If there are not 'profits', how would additional infrastructure and upkeep be done, without just raising rates higher to pay for it? And who would loan them the money? The government? Oh, so back to taxpayers.
Is there any way out of this "shareholder value" hell? The moment a company goes public they're legally required to make stupid, short-term decisions that are worse for everyone, even the shareholders? (unless those shareholders know _when_ to sell their shares)
Practically? a firm that isn't competitive, will have lower multiples, will trade at lower stock prices, and that will make it an attractive takeover target.
Just buy the firm, drop the practices that don't improve stock price, and then pocket the difference.
It doesn't happen all the time, and some firms may have enough of a war chest to avoid this fate.
However, the pressure does exist, and it does drive conformity in behaviour.
"Shareholder value" is just another way of saying return on capital. Do you want to reduce return on capital? (the answer could be yes or no, just advancing the discussion)
Or do you want to redistribute the ownership of capital?
> Michigan Supreme Court held that Henry Ford had to operate the Ford Motor Company in the interests of its shareholders, rather than for the benefit of his employees or customers.
There needs to be regulation that discourages the behavior. Some ideas that have been floated include expanding corporate responsibility to include the workers and customers, loosening corporate responsibility laws so that companies don't have strong obligation to its shareholders, ending quarterly earning reports, reviving the ban on stock buybacks, etc.
No, because shareholders are the owners of the company. The legal requirement is more a fail safe than a mandate, because obviously the company wants to act in the best interest of the company. Without the legal mandate these companies would still almost universally act the same.
There are laws that a plumber can't come into your home and smash up your pipes. That law however is not the thing that prevents the plumber from doing that, the plumber naturally works in your common interest. It's the exact same with companies, shareholders elect a board who hires specialists to run the company. Notice the shareholders are at the top.
> The legal requirement is more a fail safe than a mandate, because obviously the company wants to act in the best interest of the company
"The company" is not a living thing. It cannot "want" something.
A company does what its management and board wish for it do to. Ergo its wants are the managements wants. Management is human, and most humans want money.
Paying management with company stock is theoretically meant to align those incentives.
The fact that companies are organized the way they are today is not some fact of natural law. There are legal structures of ownership that have been put in place by real people, which means there are the means to completely change those ownership structures.
Allowing outside shareholders in combination with private ownership is going to result in the kinds of short term thinking that lead to the "exits" and other profit-maximizing behaviors.
One "way out" is to make laws that give good public incentives / allow people to easily incorporate as organizations where the employees are the sole owners of the entity (co-op).
> Is there any way out of this "shareholder value" hell? The moment a company goes public they're legally required to make stupid, short-term decisions that are worse for everyone, even the shareholders?
Shareholder value (primacy) is one interpretation on the purpose of companies (and a relatively recent one):
* “Profits are to business as breathing is to life. Breathing is essential to life, but is not the purpose for living. Similarly, profits are essential for the existence of the corporation, but they are not the reason for its existence.” ― Charles A. O'Reilly, Lead and Disrupt: How to Solve the Innovator's Dilemma, https://en.wikipedia.org/wiki/Charles_A._O%27Reilly_III
* “On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy...your main constituencies are your employees, your customers and your products.”[72] — https://en.wikipedia.org/wiki/Jack_Welch#Politics
If you back to the mid-1900s US:
> In 1949 General Foods’ president Clarence Francis told Congress that he had a “three-way responsibility to the American consumer, to our associates in this business, and to the 68,000 [stockholders in General Foods]. We . . . would serve (the company’s) interests badly by shifting the fruits of the enterprise too heavily toward any one of those groups.” Two years later, the president of Standard Oil of New Jersey claimed that managers needed “to conduct the affairs of the enterprise in such a way as to maintain an equitable and working balance among the claims of the various directly interested groups—stockholders, employees, customers, and the public at large.” So widespread were such views that, in 1959, one writer in the Harvard Business Review complained that it was no longer “fashionable for the corporation to take gleeful pride in making money.” Instead, he complained, it was typical “for the corporation to show that it is a great innovator; more specifically, a great public benefactor; and, very particularly, that it exists ‘to serve the public’.”
> American corporate law has long drawn a bright line between for-profit and non-profit corporations. In recent years, hybrid or social enterprises have increasingly put this bright-line distinction to the test. This Article asks what we can learn about the purpose of the American business corporation by examining its history and development in the United States in its formative period from roughly 1780-1860. This brief history of corporate purpose suggests that the duty to maximize profits in the for-profit corporation is a relatively recent development. Historically, the American business corporation grew out of an earlier form of corporation that was neither for-profit nor nonprofit in today’s parlance but rather, served a multitude of municipal, religious, charitable, educational, and eventually business purposes in early nineteenth-century New England. The purposes of early American business corporations—rather than maximization of profit to private shareholders— were often overtly public, involving development of local transportation, finance, and other much-needed economic infrastructure. With the rise of factory-based manufacturing, railroads, and other capital-intensive industries in the middle decades of the nineteenth century and the advent of general in...
> The moment a company goes public they're legally required to make stupid, short-term decisions that are worse for everyone
Nope there's no legal requirement. Management is happy for you to believe there is because they get paid in stock.
The only legal requirement is to make decisions that are in the shareholders' interests, rather than the management's. That means short-term-bad, long-term-good decisions are actually strongly encouraged.
- Some utilities consistently operate at significantly higher margins than the average. The top 10 utilities by average margin over 2021–2024 include MidAmerican Energy (27.22%), Florida Power & Light (23.51%), Nantucket Electric (23.24%), Empire District Electric (22.45%), Florida Public Utilities (20.35%), CalPeco (20.28%), Public Service Electric & Gas (19.44%), Duke Energy Carolinas (19.07%), Alabama Power (18.71%), and AEP Texas (18.63%).
The only real proofing of the grid is distributed generation and neighborhood microgrids. Centralized generation with distant distribution is subject to single point failure with widespread impact.
Yeah, they should be like those nonprofit hospitals.....
Which is to say if the solution was that simple and the fruit that low hanging it'd be done already.
At the end of the day whether profit or not the problem is that there's no consequences for sucking and no reward for not sucking. Government agencies tend toward fiefdom expansion, amassing power and graft. For profit entities tend to try and create situations where they can extract rents on the flimsiest of pretexts. They both seem to suck for energy though perhaps government sucks a tiny bit less. Neither "solves" the problem because neither seems inclined to steadily march toward cheaper/better/faster/whatever-er energy. They both seem to try and increase the suck if left to their own devices.
Are there many examples of true private ownership? The power utility in my area is investor owned but publicly regulated. They cannot raise rates without approval from a public commission, and I assume are limited in other decisions as well.
In the Georgia (US state, not country) there is one investor owned utility (Georgia Power) that is regulated like you mention by the state. They have to get rates and new plants and basically everything approved by the state Public Service Commission. We'll set aside how the PSC is basically a captured regulatory agency, but in theory they are highly regulated and don't just get to do what they want. GPC serves about little more than half the state's population, and about a quarter of the physical land mass
The rest of the state is served by either local cities with their own utilities or cooperatives. The cooperatives are not government agencies, they are privately owned non-profit corporations whose customers are the owners. These companies aren't regulated by the state PSC and have the ability to set their own rates unilaterally. The only regulation they have is that they report their rates to the PSC, but it's just a report, no approval
Technically they're almost all subject to regulation by the US Government as a condition of taking loans in the 30s/40s (and most of them have rolled that financing over and continue to use it to finance operations even today) but for the most part that regulation just says they have to at least charge enough to cover their interest, and can't sell their systems without the feds' approval
They could raise rates as much as they want, but the structure of a customer-owned company like that is the profits just get redistributed back to the customers, so there's no reason or incentive to do so
And, FWIW, that 23% number from the linked article is about right. GPC is usually 15-20% higher than most of the coops and city-owned systems in Georgia (there are some that are higher). And this is even with some of those coops and cities actually buying power wholesale from GPC
It's not even that though. Looks like public utilities are only offered in areas where those utilities are cheap to provide or abundant, and private utilities fill in a gap in harder to reach areas.
The study even points this out as a foot-note but then focuses on rate of price increase versus nominal price. It should not come as a surprise that in areas where utilities are less abundant the price will increase faster than in areas where that same utility is plentiful.
Some of your questions read to me more like explanatory factors than confounding variables. If cost of capital is lower for public utilities, great, that’s an argument in favor.
I actually think the most interesting factor is listed down in the “about the data” section: “ Most of the gap opened from 2020 to 2023, during the energy price spike: 25% at investor-owned utilities, 11% at public utilities and co-ops. Before and since, both rose at about the same pace.”
So, it might be basically the same story everyone complains about. When there’s a shock, companies tend to quickly hike prices higher than they need to, but after the problem is resolved they’re slow to let prices come down again, if they do at all.
And that detail casts doubt on other explanations because of that were the case we wouldn’t expect to see the divergence be largely confined to the pandemic. There was still a gap before 2020, but it looks like it had been a fairly steady ~1¢/KWh.
Additionally the regulations between the two are not the same.
For example, in my home state of Massachusetts, for-profit utilities are required participate in the state mandated home efficiency subsidy program, MassSave and add surcharges to the delivery charge, to a state-wide cost of $4.5 billion for 2025 - 2027.
Municipal utilities are exempt.
We’re at the bottom of the list on this post, because it’s looking at recent inflation, but municipal utilities cost much less in Mass. But there are many components to this difference.
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.
Yup, tax exceptions, cheaper financing or even government financing. It's like letting the referees play the game and then pointing out that they make more free throws.
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.
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.
One of the great acts of human creativity has been to convince the masses that if you install a bunch of middlemen who are looking to profit, goods and services will be cheaper and better.
I think part of the success of this message is that it’s so obviously silly that people feel silly questioning it.
if you factor in how private industry exploits negative externalities, the mystically infallible free market is quite bad. a great example is people saying nuclear energy doesn't make sense and never will when compared to fossil fuel burning energy production, but that's entirely ignoring the million+ people who die every year from illnesses directly attributable to pollution from fossil fuel energy. and the whole irreversibly killing the planet thing.
> This whole "but government is inefficient" argument has never convinced me.
I hate this argument for a different reason. There are entire classes of problems where monetary efficiency is not the primary metrics we should optimize for, areas where things like resilience, stability, and fairness all need to come before the purely economic considerations.
Can you turn some of that into a dollar measurement? Sometimes, but not as easily as a P&L, and the P&L wins.
Exactly. I don't want my government to be efficient above all else. I want it to be over-provisioned, so when I need it, it's there. I want there to be slack in the system so that a busy day doesn't crush the service I receive. Government should not operate like a ruthlessly optimizing business.
Bureaucracy is rarely ever fixed in those old institutions, even with changing leadership. The only common examples you see are usually a result of technical innovations that they fight against and later adopt 10+ years late, not from organizational reform.
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.
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.
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.
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.
That only applies to markets. As soon as the market breaks down it no longer applies. Monopolies and cartels for instance can absorb arbitrary amount of money without growing the supply or improving quality.
Okay, I'll vote for the candidates that will allocate more of my tax money towards these goods and services I want and support.
It's interesting how once people were successfully swindled into privatizing everything, the rhetoric changed from "everything will be cheaper!" to "well of course it's more expensive, you want to reward them for their superior service, right?". Apparently none of these extra costs go to appeasing middlemen or lining investor pockets, all these companies clinging onto natural monopolies are just too good at what they do. They have no conflicts of interest whatsoever!
Giving the government more money to do things works really well. Here in the USA we've given the governments 3x more money in real terms to run our public schools, and we've gotten worse results over those 3 decades.
Governments also get to hide real expenses that audited private enterprises never could. The "cost" on this website assumes what's paid is adequate to manage the business which is wrong.
> Governments also get to hide real expenses that audited private enterprises never could.
You present this as something inherently true, but really there is no reason for this to be the case. We could make it so government entities are significantly more transparent than would be reasonable for a private entity. In practice, that is already the case and what you said really isn't true, though I'm always in favor of more transparency.
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 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!
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".
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.
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)
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.
Electric production and transmission is interesting from an economic perspective, as the physical infrastructure is almost as perfect an example as it's possible to make for something which should be governmental (or under its direct control). You just can't get working competition there. While the power itself is the perfect example of the opposite, where the market should (according to theory at least) be perfect.
> While the power itself is the perfect example of the opposite, where the market should (according to theory at least) be perfect.
Markets don’t seem to want to solve for outlier situations like extreme weather events or significant hardware malfunctions. Basically I’m talking about what happened in Texas. When it’s a safety issue, it can be hard to align incentives to make planning for outliers worthwhile to market actors.
Which is why we have ancillary services and grid regulations.
We aim for those to be real-time markets as well. But for some services that doesn’t fit so we instead buy the services on longer contracts.
The goal is of course to have the ancillary services to be as small and few as possible since it is a supplement creating market based pricing for the things the marginal net energy market itself doesn’t provide adequately today.
The market way to deal with outliers is to have an options market. Basically, it is an insurance market for providing electricity on a tight day. Texas has a different way of handling it that I don’t like.
A big problem in the electricity market is that most customers don’t respond to supply shocks. They pay the same price in an emergency as in normal times. So, when it got very cold and power plants started shutting down, they used more electricity because they needed more heat! The one electricity provider who did pass on higher prices to customers and reduced consumption, Griddy Energy, was roasted in the media. Because customers didn’t respond to the shortage, utilities had to. They instituted “rolling blackouts”, which we really just blackouts for any grid that didn’t have a hospital on it.
Transmission is privately owned and operated but publicly controlled. Like other natural monopolies, the regulator tells the operator what to provide and how much they get paid for it.
The main reasons for this arrangement are political -- debt stays off the government's balance sheet, and labour disputes aren't "the government's fault".
> While the power itself is the perfect example of the opposite, where the market should (according to theory at least) be perfect.
Nome, it only works for fossile-based power, for any other power source (be it hydro, nuclear, solar, geothermal or wind) the marginal cost of supply is zero and all the cost is upfront cost. In that situation, the (classical economics) market equilibrium simply doesn't exist mathematically.
Marginal value (which is the relevant measure) of Hydro is not zero, because the used water has a potential value in the future when it could have been used instead. Hydro plants calculate a monetary value of the water based on a guess on future prices where the water could have been used, in addition to all kind of other smaller factors (like increased maintenance cost of shutting of, and legal requirements for minimal water in the rivers, etc). And then they bid based on this.
Any power-source which can move its production has this feature, independently of renewability.
But if you have some points in time where all the energy is delivered by intermittent power-sources, and there is insufficient power lines to transport this power elsewhere, prices can to 0, and if too much power is offered, the price becomes negative, and power producers has to pay to push in power. This is not just theoretical, it has happened in the European power market. But the equilibrium still exists. And because there are some costs associated with turning them off, it does not actually drop immediately to 0 production at negative prices.
> Marginal value (which is the relevant measure) of Hydro is not zero, because the used water has a potential value in the future when it could have been used instead.
That only describe a small fraction of hydro power: the majority of hydro in the world is “Run-of-the-river”, which means it has little storage capacity if any.
> Any power-source which can move its production has this feature, independently of renewability.
Not really. For instance, Nuclear gives you the illusion of marginal price because you can think of the cost of the uranium rods, which will be consumed faster or slower depending on your supply, but in practice your maintenance are planned years in advance and are mostly paced by a mix regulatory constraints and staffing needs (your maintenance experts are in limited supply in the country, and you want to keep them busy, so you make sure the maintenance of your park is well ordered with minimal overlaps. Source: my wife makes the long terms plan nuclear maintenance at EDF, here in France).
> This is not just theoretical, it has happened in the European power market.
I know, but this has nothing to do with the question, which is in fact theoretical (“equilibrium prices” are a purely theoretical concept).
> But the equilibrium still exists.
Nope, not in the meaning of this word in the classical model (i.e. the intersection of the marginal cost curve and the demand curve).
What exists is a market price, but it's not the “equilibrium price”, and it cannot be because it doesn't exist in this setting.
Why is it irrelevant? There has been recent research on just this question. It is still in its infancy with simplified models but their findings suggest that as grids decarbonize, storage will increasingly take over the price setting role traditionally played by conventional generators.
The new merit order: The viability of energy-only electricity markets with only intermittent renewable energy sources and grid-scale storage
Hydro One in Ontario is infinitely worse and was a government spearheaded privatization effort. "Sorry, not sorry" from kathleen wynne still echoing in the ears...
There's no reason for not separating generation, distribution, and retail.
Those are completely different activities, with completely different competency requirements, economical and political characteristics.
Also, bundling them is an anti-competitive measure. What is important for generation in particular, that is a competitive market where you can have private companies.
213 comments
[ 0.19 ms ] story [ 50.0 ms ] threadFWIW this is a myth.
You would be right technically.
Practically? a firm that isn't competitive, will have lower multiples, will trade at lower stock prices, and that will make it an attractive takeover target.
Just buy the firm, drop the practices that don't improve stock price, and then pocket the difference.
It doesn't happen all the time, and some firms may have enough of a war chest to avoid this fate.
However, the pressure does exist, and it does drive conformity in behaviour.
Or do you want to redistribute the ownership of capital?
tl;dr Ford wanted to invest profits back into Ford company and Dodge forced them in court to pay dividends instead.
https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.
> Michigan Supreme Court held that Henry Ford had to operate the Ford Motor Company in the interests of its shareholders, rather than for the benefit of his employees or customers.
For a fuller treatment see:
* https://scholarship.law.cornell.edu/facpub/771/
There are laws that a plumber can't come into your home and smash up your pipes. That law however is not the thing that prevents the plumber from doing that, the plumber naturally works in your common interest. It's the exact same with companies, shareholders elect a board who hires specialists to run the company. Notice the shareholders are at the top.
"The company" is not a living thing. It cannot "want" something.
A company does what its management and board wish for it do to. Ergo its wants are the managements wants. Management is human, and most humans want money.
Paying management with company stock is theoretically meant to align those incentives.
Allowing outside shareholders in combination with private ownership is going to result in the kinds of short term thinking that lead to the "exits" and other profit-maximizing behaviors.
One "way out" is to make laws that give good public incentives / allow people to easily incorporate as organizations where the employees are the sole owners of the entity (co-op).
Shareholder value (primacy) is one interpretation on the purpose of companies (and a relatively recent one):
* https://en.wikipedia.org/wiki/Friedman_doctrine
There are others:
* “Profits are to business as breathing is to life. Breathing is essential to life, but is not the purpose for living. Similarly, profits are essential for the existence of the corporation, but they are not the reason for its existence.” ― Charles A. O'Reilly, Lead and Disrupt: How to Solve the Innovator's Dilemma, https://en.wikipedia.org/wiki/Charles_A._O%27Reilly_III
* “On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy...your main constituencies are your employees, your customers and your products.”[72] — https://en.wikipedia.org/wiki/Jack_Welch#Politics
If you back to the mid-1900s US:
> In 1949 General Foods’ president Clarence Francis told Congress that he had a “three-way responsibility to the American consumer, to our associates in this business, and to the 68,000 [stockholders in General Foods]. We . . . would serve (the company’s) interests badly by shifting the fruits of the enterprise too heavily toward any one of those groups.” Two years later, the president of Standard Oil of New Jersey claimed that managers needed “to conduct the affairs of the enterprise in such a way as to maintain an equitable and working balance among the claims of the various directly interested groups—stockholders, employees, customers, and the public at large.” So widespread were such views that, in 1959, one writer in the Harvard Business Review complained that it was no longer “fashionable for the corporation to take gleeful pride in making money.” Instead, he complained, it was typical “for the corporation to show that it is a great innovator; more specifically, a great public benefactor; and, very particularly, that it exists ‘to serve the public’.”
* https://law.temple.edu/10q/purpose-corporation-brief-history...
Or further:
> American corporate law has long drawn a bright line between for-profit and non-profit corporations. In recent years, hybrid or social enterprises have increasingly put this bright-line distinction to the test. This Article asks what we can learn about the purpose of the American business corporation by examining its history and development in the United States in its formative period from roughly 1780-1860. This brief history of corporate purpose suggests that the duty to maximize profits in the for-profit corporation is a relatively recent development. Historically, the American business corporation grew out of an earlier form of corporation that was neither for-profit nor nonprofit in today’s parlance but rather, served a multitude of municipal, religious, charitable, educational, and eventually business purposes in early nineteenth-century New England. The purposes of early American business corporations—rather than maximization of profit to private shareholders— were often overtly public, involving development of local transportation, finance, and other much-needed economic infrastructure. With the rise of factory-based manufacturing, railroads, and other capital-intensive industries in the middle decades of the nineteenth century and the advent of general in...
Nope there's no legal requirement. Management is happy for you to believe there is because they get paid in stock.
The only legal requirement is to make decisions that are in the shareholders' interests, rather than the management's. That means short-term-bad, long-term-good decisions are actually strongly encouraged.
As far as I can tell utility companies are pretty bad at "vast profits to shareholders".
Paying for Their Profits: How Ratepayers Foot the Bill for Soaring Utility Profits - https://energyandpolicy.org/utility-profit-report/ - March 12th, 2026
- Some utilities consistently operate at significantly higher margins than the average. The top 10 utilities by average margin over 2021–2024 include MidAmerican Energy (27.22%), Florida Power & Light (23.51%), Nantucket Electric (23.24%), Empire District Electric (22.45%), Florida Public Utilities (20.35%), CalPeco (20.28%), Public Service Electric & Gas (19.44%), Duke Energy Carolinas (19.07%), Alabama Power (18.71%), and AEP Texas (18.63%).
Which is to say if the solution was that simple and the fruit that low hanging it'd be done already.
At the end of the day whether profit or not the problem is that there's no consequences for sucking and no reward for not sucking. Government agencies tend toward fiefdom expansion, amassing power and graft. For profit entities tend to try and create situations where they can extract rents on the flimsiest of pretexts. They both seem to suck for energy though perhaps government sucks a tiny bit less. Neither "solves" the problem because neither seems inclined to steadily march toward cheaper/better/faster/whatever-er energy. They both seem to try and increase the suck if left to their own devices.
The rest of the state is served by either local cities with their own utilities or cooperatives. The cooperatives are not government agencies, they are privately owned non-profit corporations whose customers are the owners. These companies aren't regulated by the state PSC and have the ability to set their own rates unilaterally. The only regulation they have is that they report their rates to the PSC, but it's just a report, no approval
Technically they're almost all subject to regulation by the US Government as a condition of taking loans in the 30s/40s (and most of them have rolled that financing over and continue to use it to finance operations even today) but for the most part that regulation just says they have to at least charge enough to cover their interest, and can't sell their systems without the feds' approval
They could raise rates as much as they want, but the structure of a customer-owned company like that is the profits just get redistributed back to the customers, so there's no reason or incentive to do so
And, FWIW, that 23% number from the linked article is about right. GPC is usually 15-20% higher than most of the coops and city-owned systems in Georgia (there are some that are higher). And this is even with some of those coops and cities actually buying power wholesale from GPC
The study even points this out as a foot-note but then focuses on rate of price increase versus nominal price. It should not come as a surprise that in areas where utilities are less abundant the price will increase faster than in areas where that same utility is plentiful.
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 actually think the most interesting factor is listed down in the “about the data” section: “ Most of the gap opened from 2020 to 2023, during the energy price spike: 25% at investor-owned utilities, 11% at public utilities and co-ops. Before and since, both rose at about the same pace.”
So, it might be basically the same story everyone complains about. When there’s a shock, companies tend to quickly hike prices higher than they need to, but after the problem is resolved they’re slow to let prices come down again, if they do at all.
And that detail casts doubt on other explanations because of that were the case we wouldn’t expect to see the divergence be largely confined to the pandemic. There was still a gap before 2020, but it looks like it had been a fairly steady ~1¢/KWh.
For example, in my home state of Massachusetts, for-profit utilities are required participate in the state mandated home efficiency subsidy program, MassSave and add surcharges to the delivery charge, to a state-wide cost of $4.5 billion for 2025 - 2027.
Municipal utilities are exempt.
We’re at the bottom of the list on this post, because it’s looking at recent inflation, but municipal utilities cost much less in Mass. But there are many components to this difference.
But outages, outage response times, infrastructure, investments, etc. are the other side if the equation.
I have no idea. Maybe investor-owned utilities also provide worse service. However, without accounting for that, the article's claims don't mean much.
except its completely not:
electricity has stability, availability during peak loads, robustness under inclement weather etc.
Water has purity, safety, and flavor. (Austin water in the fall tastes like leaves :gross:)
EU average is almost double, 40 cents per kwh
I think part of the success of this message is that it’s so obviously silly that people feel silly questioning it.
i think it is beyond clear that some of you all have never worked in federal government to have such a rosy outlook
I hate this argument for a different reason. There are entire classes of problems where monetary efficiency is not the primary metrics we should optimize for, areas where things like resilience, stability, and fairness all need to come before the purely economic considerations.
Can you turn some of that into a dollar measurement? Sometimes, but not as easily as a P&L, and the P&L wins.
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.
It's interesting how once people were successfully swindled into privatizing everything, the rhetoric changed from "everything will be cheaper!" to "well of course it's more expensive, you want to reward them for their superior service, right?". Apparently none of these extra costs go to appeasing middlemen or lining investor pockets, all these companies clinging onto natural monopolies are just too good at what they do. They have no conflicts of interest whatsoever!
Giving the government more money to do things works really well. Here in the USA we've given the governments 3x more money in real terms to run our public schools, and we've gotten worse results over those 3 decades.
Governments also get to hide real expenses that audited private enterprises never could. The "cost" on this website assumes what's paid is adequate to manage the business which is wrong.
You present this as something inherently true, but really there is no reason for this to be the case. We could make it so government entities are significantly more transparent than would be reasonable for a private entity. In practice, that is already the case and what you said really isn't true, though I'm always in favor of more transparency.
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 mean, both sides claim to have the better quality, so let's see who actually has it.
Bring on the competition!
The referee should not be able to play the game.
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.
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.
Electric production and transmission is interesting from an economic perspective, as the physical infrastructure is almost as perfect an example as it's possible to make for something which should be governmental (or under its direct control). You just can't get working competition there. While the power itself is the perfect example of the opposite, where the market should (according to theory at least) be perfect.
Markets don’t seem to want to solve for outlier situations like extreme weather events or significant hardware malfunctions. Basically I’m talking about what happened in Texas. When it’s a safety issue, it can be hard to align incentives to make planning for outliers worthwhile to market actors.
We aim for those to be real-time markets as well. But for some services that doesn’t fit so we instead buy the services on longer contracts.
The goal is of course to have the ancillary services to be as small and few as possible since it is a supplement creating market based pricing for the things the marginal net energy market itself doesn’t provide adequately today.
https://en.wikipedia.org/wiki/Ancillary_services
A big problem in the electricity market is that most customers don’t respond to supply shocks. They pay the same price in an emergency as in normal times. So, when it got very cold and power plants started shutting down, they used more electricity because they needed more heat! The one electricity provider who did pass on higher prices to customers and reduced consumption, Griddy Energy, was roasted in the media. Because customers didn’t respond to the shortage, utilities had to. They instituted “rolling blackouts”, which we really just blackouts for any grid that didn’t have a hospital on it.
The main reasons for this arrangement are political -- debt stays off the government's balance sheet, and labour disputes aren't "the government's fault".
Nome, it only works for fossile-based power, for any other power source (be it hydro, nuclear, solar, geothermal or wind) the marginal cost of supply is zero and all the cost is upfront cost. In that situation, the (classical economics) market equilibrium simply doesn't exist mathematically.
Any power-source which can move its production has this feature, independently of renewability.
But if you have some points in time where all the energy is delivered by intermittent power-sources, and there is insufficient power lines to transport this power elsewhere, prices can to 0, and if too much power is offered, the price becomes negative, and power producers has to pay to push in power. This is not just theoretical, it has happened in the European power market. But the equilibrium still exists. And because there are some costs associated with turning them off, it does not actually drop immediately to 0 production at negative prices.
That only describe a small fraction of hydro power: the majority of hydro in the world is “Run-of-the-river”, which means it has little storage capacity if any.
> Any power-source which can move its production has this feature, independently of renewability.
Not really. For instance, Nuclear gives you the illusion of marginal price because you can think of the cost of the uranium rods, which will be consumed faster or slower depending on your supply, but in practice your maintenance are planned years in advance and are mostly paced by a mix regulatory constraints and staffing needs (your maintenance experts are in limited supply in the country, and you want to keep them busy, so you make sure the maintenance of your park is well ordered with minimal overlaps. Source: my wife makes the long terms plan nuclear maintenance at EDF, here in France).
> This is not just theoretical, it has happened in the European power market.
I know, but this has nothing to do with the question, which is in fact theoretical (“equilibrium prices” are a purely theoretical concept).
> But the equilibrium still exists.
Nope, not in the meaning of this word in the classical model (i.e. the intersection of the marginal cost curve and the demand curve).
What exists is a market price, but it's not the “equilibrium price”, and it cannot be because it doesn't exist in this setting.
But it is a problem for legacy thermal electricity producers being undercut by renewables and storage.
The new merit order: The viability of energy-only electricity markets with only intermittent renewable energy sources and grid-scale storage
https://www.sciencedirect.com/science/article/pii/S014098832...
Those are completely different activities, with completely different competency requirements, economical and political characteristics.
Also, bundling them is an anti-competitive measure. What is important for generation in particular, that is a competitive market where you can have private companies.
They regulated nat gas in my state and the service fee is more than the gas consumed.
You mean they privatized it?