The author estimates that electricity prices would be reduced by up to 33% (from $0.45 blended rate to $0.30), but PG&E’s profit margins are only 11%. That’s a good hint that this hypothetical is missing some important details
The article hedges against someone pointing this out by admitting that Walnut Creek is an unusually optimistic location and that PG&E is also recognizing large expenses related to ongoing infrastructure buildouts, but no solutions are offered for these caveats.
The hidden problem with projects like this is that once you roll these utilities into the city’s budget it’s too tempting to start dipping into taxpayer funds for needed improvements rather than raising electricity rates. When problems arise, politicians try to kick it down the road so it becomes their successor’s problem, or they try to offload the expense onto a growing debt load because that delays the problem to the next generation. It becomes easier to keep the highly visible rate down, but taxes might go up to cover the infrastructure costs instead.
So I’m skeptical. If there was an analysis that showed a drop in rates that was not 3X higher than the profit margins of the private utility I’d be more open to the idea, but as presented this feels like back of the envelope math that generates savings by ignoring all the details that didn’t make their way onto the envelope.
> prices would be reduced by up to 33% (from $0.45 blended rate to $0.30), but PG&E’s profit margins are only 11%.
This is addressed right at the beginning of the article. The argument is not that PG&E is skimming off huge profits, rather that it is structurally inefficient:
> Distribution: How much to get the power from your local substation to your house over local power lines. In PG&E's rate chart, they charge 20 cents per kilowatt hour for this. That just does not match up with how much it actually costs them to transmit power over local lines and keep the lines maintained.
> Everything else: Operations, maintenance, profit. This is where PG&E is actually seeing large expenses, because their coverage area is massive, it costs a lot of money to deliver power to rural customers, and they are also undertaking a massive project to underground utility lines in fire-prone areas.
The backstory here is that PG&E underfunded maintenance for decades while paying out substantial dividends to shareholders, and now that fires are killing lots of people, they have to go back and properly maintain their network.
Now, you can make the case that CA as a whole might not be better off if cities leave PG&E and the state has to subsidize rural power delivery even further, but I think the article is correct on the question that it tackles.
I'm the author here. The cost savings come from not having people who live in cities pay for undergrounding lines and maintaining power lines in rural areas. Maintaining the city networks is much cheaper.
This is why Santa Clara, Palo Alto and Alameda's power companies can deliver power for half of what PG&E can. You can just copy their cost structure.
You said in the article "PG&E rejected this offer for being too low" but then proceed to use that as the baseline cost that drives the rest of the estimates, that doesn't make sense. If I offer someone minimum wage to do my job and they refuse, I don't start a spreadsheet to calculate my savings.
Boulder CO tried municipalization with Xcel and the gap between the city offer and Xcel position was very large. How do your figures look if you double the price and/or add in a decade tail of having to pay 25% of billing to PG&E?
The small munis you mention are in the same position as PG&E with respect to owning decades old poles and conductors with decades of life remaining. The incumbent has all the cards in this negotiation. An existing muni can do it cheaper for the obvious reasons you stated - legacy network, all the customers are close together. Buying the most profitable bits of the PG&E network at a price they would agree to would not be profitable.
This is why I adjusted SF’s offer for population and then multiplied it by 50%, then used 400 million as the base for financing.
Financing at 4% interest is not the expensive part though. Even if the price was $1 billion it would be 6 cents per kWh.
I agree it would be bad if they had to fight in court for a decade! But you have to start somewhere and as I mentioned you might get a good outcome just from threatening to do it. My hope is the CPUC would force them to accept some offer.
In Boulders case the goal wasn't to strand rural customers with resiliency costs but to reduce emissions. Xcel moved in that direction enough that Boulder didn't need to municipalize. Owning poles and jiggling electrons would have allowed the city to do things like let homeowners access the 4% muni borrowing rate for solar loans that stay with the property via a tax lien. With the existing structure of public regulator and local monopolies, Xcel can't easily do anything "special" for Boulder without forcing poor rural places to share the costs.
The problem is, if cities don’t pay for that, who will? Just abandoning electricity for rural areas isn’t _really_ an option, but it would likely be uneconomic without the effective subsidy from urban areas.
Story of America. There's a reason only this continent has excessive sprawl.
Ideally, rural areas pay up. Good forcing functions for change. Maybe people move closer together (similar to European villages) or they become energy-independent (solar panels).
If that's politically untenable, then I'd like to see the cost reflected as a city2rural subsidy. Cities get enough hate in the US. I'd like explicit recognition of their generosity.
The area I live in has utilities that service the small town population centers and a utility that services most of the outlying rural area. The rural operator is expensive, but not unaffordable.
Density including the towns is about 3.2 people per square km.
Who paid for the infra, and how old is it? If it was inherited from a prior larger utility, this is the sort of thing you can get away with, for a while, until it needs serious maintenance. But ultimately spreading the true lifetime cost of electrical infrastructure over that sort of population density without subsidy is going to lead to absurdly high prices.
Cool. Now you’ve just undone 70 years of rural electrification in the United States.
Optimizing for factors other than universal service is completely valid, but I’m guessing each of those municipal power systems pre-dated rural electrification and thereby get to somewhat free ride on the system more than anyone would reasonably allow Walnut Creek to do in the year 2025.
Not just rural areas but places like Orinda and the Berkeley Hills where I will pay to underground lines at massive expense.
There is also a huge moral hazard problem where we make it cheaper than it should be to live in fire zones by subsidizing electricity and insurance. So people build a lot of houses in fire territory that burn down.
In the meantime we make it more expensive to live in the safe places. We should stop doing that
Is this a problem though? Utilities will become more expensive for rural properties, but if those people are producing product that people need, they can just slightly bump prices to cover their electricity costs, which the consumers can cover with their new found savings on utilities.
The real benefit is that the people who don't have any reason to actually be rural, say remote software developers, will now have to either cover their costs rather than externalising them, or move to the city.
Thing is, it wouldn’t be _slightly_. If you’re a power company who just does rural customers, you’re probably going to be looking at charging rates so high that people simply can’t pay them.
They are currently being paid right now though. So it's possible for the population to fund it. The products being produced would go up roughly the same as the discount you got on power.
It's probably more efficient for society to subsidize micro grids using solar and wind and batteries for rural electrification than to bury all the power lines that it'll take.
A $100 million project to bury the lines to 1000 houses is $100k per house which just ain't worth it. Not saying this is a real number but it could easily be if it's costing $0.20/kWh to do distribution.
Rural electrification was needed at the time. In many cases, it no longer is (distributed generation, microgrids, etc vs large, distant generators having to transport power to residential load centers).
This is very similar to how Africa will leapfrog the legacy model with cheap solar and batteries.
In Australia, they have a model of colocating stationary battery storage in neighborhoods to balance buffer solar production locally for time shifting purposes (vs shipping that power far only to bring it back in the evening).
The fundamentals are proven (energy arbitrage, grid services, grid forming, all with battery storage). In Australia, the economics are very favorable considering high rooftop solar penetration rates. The trial will be successful, the debate is how successful.
this is entirely wrong. There is no world in which rural areas can substitute the power grid with anything you described. It is not possible - in the absolute sense - to match the power grid's reliability and stability with a bunch of local solutions. The cost is another matter but take Canada - the lowest electricity rates in the OECD.
The local solution to solve local problem absolutely works, but that is not what you are describing.
Africa is not going to substitute a continental scale grid with solar and batteries. That's just pie-in-the-sky levels of delusion.
You..clearly know nothing about power grids, because utilities are deploying batteries precisely because they increase reliability an ease maintenance. And microgrids exist all over the US - a bunch are in Alaska and other very rural areas. Those communities have started adding battery storage systems to account for sudden load changes their generators can't handle, generator failure or maintenance, and so on.
Without them the grid is like a bunch of dominoes where a failure can cascade unless grid operators, or automated systems, react fast enough. Battery systems are like power firewalls; if the main grid goes down, the battery keeps right on chugging.
If circuit protection devices or an equipment failure happens on a main transmission line, the utility has hours to fix it, and meanwhile everyone has power. Ditto for maintenance. Need to replace that big huge switch that feeds part of the county? No problem, just...shut it off. Long as you're done before the battery bank runs out, everything's fine.
Right now you can end up with situations where a power plant will "trip" and go offline, such as when a large amount of load is disconnected due to a transmission line failure or substation failure. The grid frequency goes up if the power plants on the grid can't throttle back fast enough, and instead, to keep the grid from going over-frequency, the plant goes offline entirely.
If a lot of areas are on battery - those systems can be commanded to start charging to stop the plants from speeding up. If the grid goes dead, it's not nearly as big a deal, because the grid operators have more time to do things like sequence the re-connection of all those areas.
I'd imagine that with a bunch of battery systems distributed around a grid, they could potentially be able help black-start a plant if needed.
Battery systems also reduce the need for a transmission line upgrade; when demand is higher than the line's capacity, the battery system steps in. When demand is below the line capacity, the battery system charges.
i'd be careful telling someone that they don't know about power grids.
All the microgrids you describe provide basic needs. None power serious industry anywhere.
Batteries are a good solution for certain situations, not as a fix-all. All the batteries in the world can power a large power system like California or Quebec for minutes. That's right - minutes.
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.
Profit margins are set by the state utility control board. The board says 11% profit Max, so that is what all of the major utilities make. The challenge is that with a fixed profit percent, they have a heavy incentive to maximize open. You can spend $10 and make $1.1 or spend $100 and make $11.
It's a very problem to the healthcare market. Health insurance also has fixed profit, therefore there is a huge incentive to drive up costs. Better to make 15% on a $10,000 drug then 15% on a $10 one.
The power company wants to cut corners. The government wants to prevent that. So there is constant lawfare between governments and highly regulated companies, with neither really caring if it leaves the customer out of pocket (since regulators can blame the bills on the company).
The company outsmarts the regulators so the regulators carpet bomb them with so much regulation that they hope it will plug all the loopholes. The incentives between them are simply too far apart. And with inbuilt market failures (due to it being a monoppoly) you don't have effective market mechanisms that allow the government to just set basic safety standards and get out of the way.
If you look a recent regulations that affect homeowner solar rates, it's quite the opposite, with the California Public Utility Commission being quite beholden to private utility wishes to the point of making home solar arrays much less cost effective so that utilities can be the only source of solar from larger grid installs. Large utility solar installs are inherently more cost efficient anyway, but the finger on inhibiting home solar was completely unnecessary yet still eagerly passed by the PUC.
I wish you well in your journey through the world. I only hope that you never have to find yourself in a position with any kind of authority or responsibility because this is just a wild grab bag of buzzwords and free associative ranting. Healthcare is nothing like power generation. "Lawfare" is a made up word used in bad faith propaganda, and this isn't even a decent use of the bad faith definition.
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.
The expectations, regulations, and imposed demands, are not 100% identical across all utilities. So any combination of factors could lead to higher prices.
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.
One hint is that all the businesses that have the highest market capitalization earn the highest profit margins and profits. Dividends and share buybacks happen with those profits. If profits are less, then dividends and share buybacks are less, which means less money for shareholders.
It makes no sense to forego $0.80 in your pocket because you do not want the government to get $0.20.
> One hint is that all the businesses that have the highest market capitalization earn the highest profit margins and profits.
I’m far from expert here, but is that too simplistic?
Where does perceived future value come into this? I’m thinking of companies like Amazon, which kept profit margins low while obviously having their shit together.
Amazon clearly has a mix of a high profit margin business (AWS and other services) with a low profit margin business (retail).
You will notice that most the top businesses are pretty much high profit margin tech and pharmaceutical businesses. Some oil and finance after that. And there are a few lower profit margin, but still large profit since the business is so large, but obviously, high profit margins and high profit is better than low profit margin and high profit.
Well to be clear, my question there was more broad than any one company's financial statements.
I was asking a general question of the motivation for large corporations to avoid having profits on paper. I asked the question rather than claiming it as a statement because I am less confident in the details and want to raise the issue without presuming that I know exactly what I'm talking about on the topic.
The same applies to every public company’s financial statements…?
That is assuming you’ve taken the effort to read the filings.
If your lookkng for easy generalizations that applies to all public companies then no it doesn’t exist. You have to put in the effort to read each individual statement.
Feel free to not respond if you don't think my question was interesting enough to answer, or if you think I can do the research.
Its worth noting that reading financials still doesn't make me an expert in the area and I'd still be making a mistake to assume that means I understand well enough the games or motivations behind the numbers on a page.
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)
Can you distinguish effective investment from ineffective? For example, paying competitively to attract and retain talent can be seen as an investment as well. And before you restrict it to just physical infrastructure investment, a non-trivial part of the cost of that infrastructure is in salaries and also how you manage everything at scale and I would think you’d want to incentivize more efficiency there too. This is why the tax code gets so insanely complicated.
I'm a little unsure how to take you here, because I avoided dragging the efficacy of an investment into frame on purpose.
Maybe you just mean to tack on the idea that we could benefit from having better language to separate shrewd and incompetent investments, in which case I'm ~fine with some language to retcon the difference between merely lighting investments on fire and using them to drive an engine back on to those investments once we know the difference.
But if you mean to suggest that it's pointless for us to bother discriminating between profit-taken and investment-(effective|ineffective) just because we don't know whether the cat is dead or alive yet, then I suspect I disagree to the death.
(Edit: In case I'm being obtuse, I at least think I agree that "investing" surplus in hiring and retaining great employees is a surplus-invested, and not a profit-taken.)
> (Edit: In case I'm being obtuse, I at least think I agree that "investing" surplus in hiring and retaining great employees is a surplus-invested, and not a profit-taken.)
So the executive compensation packages that many people hate on then are just a mechanism to reduce the profits of the company. And it’s not clear to me that Apple saving up profits so they can make larger investments without taking out loans is a strategy we want to disincentivize either.
My point is that designing top-down incentives at market scale are very difficult and while attractive are basically the central failure of central planning. Even setting aside the challenge of figuring out how to word the incentives correctly in a way that maximizes gain and minimizes gaming of the system (basically impossible) in a political system you also have to get buy in from people who don’t see it your way which muddles your ideal solution regardless of you being right or wrong. I’m highlighting that’s how and why we have the current tax system - it’s many many people trying to tweak and optimize incentives and curtail problems over a long period of time.
(It feels like you are talking like you're gotcha-ing me, but I don't feel like I am trying to address any of these problem at the level you are focused on.)
I wouldn't say surplus held to be invested, even for many years to support a large capital project, is profit-taken. The surplus isn't being taken. (But, as before, I do still think it may be worth discriminating between related/unrelated, because this is somewhat relative. A large for-profit utility could extract surplus from most of its regional markets and plow it all into supreme resiliency for the city its headquarters is in...)
Designing good incentives or tax policy are very different problems than having slightly better vernacular for average people to use to distinguish between patterns of organizational behavior that throw surplus in a bin for a truck to take away and those that toss it in a compost pile for on-site use.
Accountants and auditors can classify inflows and outflows however they like--but I think specific problems like good incentives are more tractable when common people can leverage simple language to build the understanding and support that policy wonks will need to dial in incentives or tax policy.
It's interesting that 1) there are PG&E areas in Palo Alto (such as the Stanford University campus) and 2) PG&E manages the transmission grid for the whole SF Bay Area.
Stanford endured lengthy PG&E power outages while the municipal utility continued to operate. However, the university probably has negotiated rates that are lower than what regular PG&E customers pay in Palo Alto.
>The author estimates that electricity prices would be reduced by up to 33% (from $0.45 blended rate to $0.30), but PG&E’s profit margins are only 11%. That’s a good hint that this hypothetical is missing some important details
PG&E customers are paying very large amounts for the consequences of bad infrastructure causing wildfires and other legal costs which are being paid for with higher rates.
PG&E is a private company, much of the responsibility for their wildfire costs are the result of mismanagement of the risks.
Their costs get shouldered by their customers and their stock price. (they really should issue shares to pay their bills to dilute their stock price and cause their existing investors to lose money). In any case it's not going to get very willingly picked up by the government.
PG&E's liabilities aren't going to be put into taxes.
It's not the state government taking over PG&E, it's individual municipalities leaving the PG&E network and forming their own utility to buy wholesale electricity (or make some of their own) and distribute it to their citizens... resulting in a large reduction in cost in no small part because they no longer have to pay for PG&E's liabilities.
He’s talking about local governments in places that have little or no fire risk. Should people living in dense cities be paying to underground power lines to rural communities hundreds of miles away?
PG&E's current rate structure has urban rate payers subsidize rural rate payers and people who live in wildfire zones in e.g. the Orinda Hills, who need substantial investment in order to receive power without sparking wildfires. This is bad policy - instead of subsidizing fire zones, it should be cheap to live in safe places and more expensive to live in dangerous places. Lower cost of electricity would reverse these trends.
No, their argument is sound. It’s just missing the point of utilities.
They’re saying that the cost of providing electricity to the cities, where everything is densely located and there are fewer trees and fewer overhead lines needing under grounding is lower so they should charge less to city consumers.
They imply that the bulk of the cost is delivering power to the richer consumers further out because there’s a lot of line miles that need under grounding. That’s probably accurate.
But utilities are restricted from pricing like that because you don’t want utilities triaging customers that are less profitable. The article here makes the argument that the far away and expensive customers are rich, therefore fuck ‘em. I’m not familiar with California but I doubt this is true across the board. There are surely notably rich communities far from the city but surely there are also poorer areas further from the city that are relatively cheaper because the commute is worse.
Cross subsidies like that promote inefficiency. They are one of the main reasons why living in California is so expensive.
Utilities should be legally required to serve everyone in their area, but they should also be allowed to charge the real costs for the service. If the government thinks that's unfair to people living in rural areas, it's free to use tax money for explicit subsidies. But the subsidies should only be 70% or 80% of the excess costs, to give the people in expensive areas some incentives to find more efficient solutions.
It's even worse in housing, where developers are often required to build below market rate units at their own expense. It makes new housing less profitable, and less housing gets built.
Using tax money to subsidize higher rates on certain areas is roughly the same as just charging people all a slightly higher rate.
“The people” in expensive areas have literally no agency in finding an efficient solution. They don’t have any say about the utilities grid investments. In most parts of the country “these people” are also poorer.
If grid power is artificially expensive in urban areas, people will install solar panels and batteries in situations where it doesn't really make sense. And if grid power is artificially cheap in rural areas, people will not install solar panels and batteries in situations where it makes sense. Thus incorrect pricing leads to inefficient investments.
Many economists even argue that the most efficient form of subsidies is cash that can be used for any purpose. Instead of getting cheaper power in rural areas, you should simply receive $X/month for living there. But the assumptions needed to make that claim are a bit too restrictive for many real situations.
Economic efficiency gains from specific power pricing are vastly undermined by the huge positive externalities of having electricity.
Solar panel and battery investments reduce your demand for power from the grid, and in many rate cases will reduce your energy bill, but they _won’t_ reduce the costs of maintaining the distribution grid assets connecting you to the grid that need to exist even if you only use them 0.1% of the time. People with solar panels are the worst offenders as they can end up paying nothing, or perhaps even net receive money, despite still requiring investment from the utility.
Accurate pricing of power is very very difficult. Whose energy should cost more? The 10k residents with 5 miles of overhead lines being undergrounded this year? Or the 1k with 15 miles of overhead lines that won’t be under grounded for 5 years? Are you prepared to impose a $50M capital investment cost solely on the consumers that use it? Uh oh. Turns out customers oppose an huge hike in their energy bills and are demanding you DONT underground their lines. Are you going to charge consumers extra because a car ran into a pole that’s specifically on their feeder? The risks of something like a forest fire affect everyone, even if it’s on a line that serves just one person.
This stuff is very complicated. The elephant in the room is that under grounding distribution networks in places like California is simply far too expensive for the kind of budgets they have.
Why do you need to be connected to the grid .1% of the time?
A 12kW solar roof system with two Powerwalls costs less than $75k, with costs continuing to trend downwards, and large government subsidies on top of that. Amortized over 20 years it's reasonable, and much safer for fire prone areas. You can have a backup generator as well if you want to be totally confident.
I've never really understood why undergrounding the grid is so insanely expensive in California. In Finland, installing a 20 kV underground cable costs something like €50/m + VAT, which is $100k/mile.
Maybe, but it's also clear that rural electrification was a huge error. People should live in clusters of at least a handful of structures where it's practical and affordable to provision electric lines (and telecommunications), or they should be off the grid altogether. What we built in the 20th century was the worst possible thing: mile after mile of transmission and distribution equipment serving dispersed houses in forests. This should never have been built and we should not perpetuate it with subsidies: https://www.google.com/maps/@38.4638277,-120.656418,3a,75y,3...
This has to be the most confidently incorrect take I’ve ever read here.
The Rural Electrification Act not only brought power to rural areas, but also jobs to Americans when they were most needed, and countless follow-on benefits: increased farm productivity, longer lifespans and higher quality of life, etc.
It’s also not that subsidized compared to many other industries; the entire point of co-ops is purchasing something in bulk, with no one taking the profits. They get loans, yes, but the default rate on them is absurdly low.
And on that point, electric co-ops consistently produce reliable power at a lower cost than privately-owned utilities. I’ve experienced both, in multiple areas of the country, and by far co-ops beat everyone else.
This doesn’t even touch on the fact that the infrastructure enabled by the REA is also the only reason high speed internet ever made it to rural areas. Fiber everywhere should absolutely be a goal.
Its hilarious city folks think rural power is subsidized.
I recently extended a line about 1000 feet. For this, I paid $13000 -- primary transmission, poles, anchors, electricians, transformers, all at full rates. And it was a required donation, as in the power coop owns everything and it goes on public easement on to the next guy when they extend from mine. When they finished, I worked myself silly digging secondary transmission to where I was used on the property.
It is the other way around, rural people shoulder the costs of massive mileage of the grid extension that aid intercity networking. The costs are privatized but the benefits are socialized.
On the flip side, practically everything else about rural areas is subsidized. Most crops have price floors. Dairy is massively subsidized. Rural school districts siphon funding from cities.
Much / all of this is arguably necessary for national security viz. food production, but I dislike when people in red states (not saying you’ve done this, just making a tangential point) make comments like, “let’s see how long the city lasts if we stop exporting food.” Uhhh how long do you think you’d last without practically every aspect of your life being subsidized?
We need both groups in the country, and we need to support each other as each needs, but part of that dynamic being healthy means acknowledging that we’re receiving help.
You guys are talking about a totally different "rural" than I was. Look, food in 2025 comes from gigantic horizontal factories and there is no way to avoid that. A food-producing region of California looks like [1]. An exclave of Libertarian weirdos LARPing as the Unabomber looks like [2]. It is the latter that is problematic in terms of provision of infrastructure.
Aren’t you making the case for the OP? That it cost so much to extend a line for a thousand feet… how about the thousands of miles of lines it takes to service rural users?
The same is true for all infrastructure in that it gets less expensive per user as density increases. The cost to hook up an apartment building to the grid is a few houses in a suburb but services 10x the people at the same revenue per person. The cost to service a single home in a rural area might wipe the revenue out from a dozen apartments.
Frankly, I’m sick of subsidizing the rural welfare crowd. Let them pay the market price for their roads and utilities if they want to cosplay as Galt gulchers.
Yes we have no public roads either for miles. Privately maintained easements instead. I built mine first with just an axe and shovels, later with a backhoe. Sewer is private septic. Water we had to dig a private well. The electric coop is paid for by users at full cost by their own extensions.
This works amazing as taxes and subsidies are basically zero. You pay for what you use.
> This has to be the most confidently incorrect take I’ve ever read here.
It’s funnier if we alter it a little, is it more or less true this way?
>> It's also clear that rural voting was a huge error. People should live in clusters of at least a handful of structures where it's practical and affordable to provision government (and telecommunications), or they should be off the grid altogether. What we built in the 20th century was the worst possible thing: dispersed houses. This should never have been built and we should not perpetuate it with subsidies.
I don’t see how voting works as an analogy. Suburbs would be more apt. I live in one, but I’ll be the first to admit that there’s no defensible reason to do so beyond “I want to.” They’re typically a net negative for counties in terms of tax revenue, they perpetuate car-first infrastructure, they contribute to high housing costs, and they don’t produce anything of value, like rural areas can (farms, land preservation).
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.
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.
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).
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.
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.
Re: Quebec hydro, I can’t think of an example of a crown corp or asset (see 407) being sold in Canada that has benefited the public with better quality at a lower price in the end. Privatization drives the need for shareholder profit to extract value more than efficiency so gains aren’t passed on. People contort themselves to think this isn’t the case… but the track record for power, automotive insurance, cellular service says otherwise… The only good argument I’ve ever seen of outside of pretending efficiency leads back to consumers is hidden externalities being covered by the government which is fair toy stability of a public service, averaging out costs for really isolated areas, and decent jobs with pensions is worth something too.
Out of context Canadians are ... out of context. We are discussing utilities in California. California and Quebec could not be more different in terms of climate and fire risk. I can't wait for you to justify the claim that fire risk is the same in California and Quebec. Every place in Quebec can generally expect precipitation every other day on average and the normal number of consecutive dry days in California every year would shatter the same record in Quebec.
Quebec is 4x as large as California, has far more forested land, and is often very dry in late summer.
It also has massive snowstorms, ice storms, which bring down vegetation, and ranges from -40F up to 100F yearly, depending.
We can nitpick on specifics, but by no means is California more rural, or more forested. Quebec is also far less populous, and has a far more hostile environment.
Hydro Quebec does well, because vegetation is cleared, maintenance is performed, and corners aren't cut.
Isn't this my point? It is practical to punch transmission lines through any place. It is much more difficult, risky, and costly to maintain a fractal distribution network to individual customers in certain places due to geography and climate. If you parachute randomly into Quebec you'd be walking for a month before you met anyone. Same is not true in California.
Less populous can also mean more rural, and that was my point.
You talk about houses in the middle of no-where, and Quebec has that in spades. And it's not expensive, it doesn't cost, it's revenue generating, and not part of the problem.
If Quebec can do it, generate massive profits, and have mega-low rates, and do rural far better than California, then "rural" isn't the issue.
Don’t make shit up. Quebec fire risk is much, much lower than California. Both companies have to maintain vegetation around the lines. HQ’s risk of vegetation outages is outages for some customers on a feeder. California’s is the state burns down. It’s just not remotely the same.
I’m willing to believe HQ does it better but the challenges ahead of them are wayyyy different
The idea is there are parts of California where life is heavily subsidised. Paying PG&E as a low fire risk community is a net transfer out. (How the Bay Area hasn’t done its own grid à la Santa Clara is wild.)
Until recently I lived in Alameda with AMP for municipal power. Consumers pay about half what PG&E charges. AMP has a net profit and provides some revenue for the city each year. You can see the most recent financial statement here. https://www.alamedamp.com/DocumentCenter/View/1187/AMP-ACFR-...
Sacramento with SMUD is another success story. But there are some differences with economies of scale
> So I’m skeptical. If there was an analysis that showed a drop in rates that was not 3X higher than the profit margins of the private utility I’d be more open to the idea, but as presented this feels like back of the envelope math that generates savings by ignoring all the details that didn’t make their way onto the envelope.
That's possibly because of a strong underestimation of the actual indirect inefficiencies that come with shareholder profit-oriented companies. Every investment is seen not as a way to maximise profit in the long run, but as a direct decrease in shareholder profit, and should therefore be avoided at all cost (ha!) or postponed for as long as possible.
Strong counterexamples, admittedly not from energy companies, can be found in the remunicipalisation of the water supplies in Berlin and in some districts of Paris. Both came with drastic decrease of user costs, better water quality and a decrease of outages.
I don’t think profit margin is the correct way to calculate their expenses. For one, it includes expenses outside of the municipality. For another, corporations are often okay overspending on executive compensation and other lavish business expenses for tax purposes.
> For one, it includes expenses outside of the municipality.
Exactly. The cherry picked example in the article was chosen to ignore areas with higher expenses.
> For another, corporations are often okay overspending on executive compensation
PG&E had $25 billion revenue last year. How much do you think they spent on lavish executive compensation? Even if you could eliminate $100 million in compensation (doubtful) that’s still less than 0.1% of revenues. People overestimate the impact of executive compensation in large companies by orders of magnitude.
> and other lavish business expenses for tax purposes.
Again, you’re not going to find dramatic savings anywhere in the budget by cutting lavish business expenses at this scale. It’s noise. There’s also a persistent myth that companies can spend their way into saving money via tax write-offs, but for some reason my accountant tells me that’s not how taxes work.
162(m) limits a company's deduction for executives (and other highly compensated employees) compensation to $1m per exec/employee.
Or in other words, companies aren't overspending on exec compensation for tax purposes. They're doing so because the board is not exercising proper financial control over the company.
Right? I once ran a private company where there primary shareholders (who didn't work inside the organization) used to complain about the margins because they liked to calculate profit margin _after_ taking significant dividends.
Your instance of an employer screwing you has no relation to an audited publicly listed business that has to not only follow accounting standards and is subject to the SEC, but also cannot sell their product unless the price is approved by the state.
> The author estimates that electricity prices would be reduced by up to 33% (from $0.45 blended rate to $0.30), but PG&E’s profit margins are only 11%.
One detail is that PG&E is a heavily and (IMO) incompetently regulated utility, and their profit margins are more or less set by regulation. So they inflate costs to drive up profits, and one should not assume that the only room for savings is removing their profit margin.
What is PG&Es generation cost vs administrative and legal overhead? The 11% margin isn't a good basis number. How is other states like Texas or Colorado are delivering at 10-12c/kwh ?
I do agree with your sentiment that city bureaucrats may be tempted to raid the energy business to pay for pet projects and other things. This can be protected against by segmenting the energy business into its own protected organization.
> What is PG&Es generation cost vs administrative and legal overhead? The 11% margin isn't a good basis number.
Administrative and legal costs don’t disappear when the city runs it, so why does it matter? When the city runs a utility, nearly all of the costs associated with running a utility still exist.
If your mental model of a city-owned utility is that they’re going to generate power and sell it at cost with no administrative overhead, you’re really just assuming that administrative overhead will be covered by taxpayers.
Electricity rates down, tax rates up.
> How is other states like Texas or Colorado are delivering at 10-12c/kwh ?
Texas produces the most crude oil, natural gas, and also wind generated electricity. A quarter of the entire country’s wind energy generation happens in Texas.
Comparing electricity prices across regions is meaningless. Everything is too different.
The basic argument on Texas seems to be: "Texas avoided 75% of the costs in California by doing everything differently. California can't learn anything from them because they do things differently". That seems like a weak argument. California would have to do things quite differently to get a 75% cost reduction.
It is stereotyping, but it sounds like the sort of state that has a strong regulatory regime that would be quite controlling about what people can actually do. I note the irony that when Texas had a power outage everyone wanted much more regulation to force changes to grid maintenance, but when California spends 4x as much and PG&E skips on grid maintenance everyone throws their hands up because they can't call for more regulation and are out of ideas. The regulation doesn't seem to have dodged the maintenance problems but I'd bet it drives the cost up.
One of the things we find with cost-plus contracting is that the team providing the service somehow has a great deal of costs. Ironically, abandoning this approach leads to hiring higher margin businesses which nonetheless cost less. A confusing phenomenon when one doesn't account for the fact that people optimize to get more money ceteris paribus.
As of 1/1/2025 the residential average rate paid for the municipal utility of Santa Clara, CA is $0.175/kWh vs a residential average of $0.425/kWh for PG&E
PG&E has an 11% margin on those rates because they keep burning the state down and having to pay for it. Municipal utilities don't have to worry about that.
The only thing that could be seriously considered a downside is that Santa Clara, CA is now absolutely jam-packed with data centers that have low employment per sqft.
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.