Comment by rayiner | Hacker News Reader

Comment by rayiner | Hacker News Reader

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> Are you saying that they didn't neglect preventive maintenance while returning billions to shareholders in dividends?

While that’s literally true, it falsely implies that the former is related to the latter.

See: https://www.cpuc.ca.gov/uploadedFiles/CPUC_Public_Website/Co... (page 18)

“The CPUC sets rates according to the following formula:

Revenue Requirements = O&M + Taxes + Depreciation + Rate Base * r - OR

Where: O&M = normal business expenses for running a utility company,

Taxes = Federal, state and local taxes,

Depreciation = accumulated depreciation of plants used to produce and deliver the utility’s product,

Rate Base = net value of plant in service plus working capital, r = rate of return on invested capital, and

OR = other operating revenue.”

When you pay $100 on your electric bill, part of that goes to operations and maintenance. If PG&E cuts that line item, it’s profits don’t go up. It’s profits are a separate line item calculated as a percentage of its invested capital. That’s where the dividends come from. Indeed, if PG&E can enhance fire safety through capital investments, such as by replacing worn out equipment, and the CPUC lets them make those investments, then PG&E’s profit would go up.

PG&E can’t pay out more in dividends by shortchanging operations and maintenance.

> PG&E can’t pay out more in dividends by shortchanging operations and maintenance.

They have before.

https://www.sfgate.com/bayarea/article/PG-E-diverted-safety-...

edit: obviously this is a lot more nuanced than simply eliminating the O&M line item and diverting that income into dividends. In this instance, they had higher than expected income resulting in a positive cash value which was due to MANY factors, but they simply decided to add it into the dividends rather than into O&M, which they knew was running lean.

edit 2: You're working on the assumption that they are operating at a 100% accurate estimation schedule. You know that this is an impossible task, and so I think we are arguing that the delta between the actual operating costs and the estimated operating costs, when it has been a positive value resulting in unexpected monetary value, has typically been diverted in this case to dividends rather than to maintenance. Even if that value has been 2 to 5% per year, it's still millions of dollars. The fact that it was diverted to compensation rather than maintenance indicates a tendency of the PG&E entity to value it's corporate officers over the public (eg, spending money on maintenance is investing in the public safety, whereas spending money on dividends is the officers cashing out and taking a personal win). This is I think the biggest breakdown of how public utilities operate in this economy. They are largely private companies with a mandated monopoly, so despite being a private or publicly traded company, they _should_ act like a publicly owned or municipally operated company. We (the people) have given them an extremely liberal license to operate, and they should return that favor in kind. When they don't, they've broken the social contract.

But that article doesn't say anything about dividends? It mentions profits a few times but gives no details about that aspect of the story. Instead the only specific examples of spending that it gives are employee bonuses.

Employee bonuses are dividends.

in what world? The two words have completely different meanings.

In PG&E's world in context of this comment thread. Dividends are any payout amount that was not captured in the regulatory framework. Salary is a captured expense. Bonuses are paid from a pool when a surplus is created, or rather a profit is made, or more bluntly when dividends are earned.

Legally, you're correct. PG&E has been operating counter to those rules for a while.

http://investor.pgecorp.com/news-events/press-releases/press...

https://www.kqed.org/news/11737336/judge-pge-paid-out-stock-...

More specifically, the bonuses were to higher management, not to line workers.

Being cheap is how this problem started. You want to get more cheap?

You have to know the context. The bonuses weren't to the PG&E workers that maintained the lines. The bonuses were to the higher managers who made the "clever" cost-cutting decisions.

PG&E can’t pay out more in dividends by shortchanging operations and maintenance.

Not legally. But they have been charged with illegally doing this. The judge at their bankruptcy hearing described them as doing exactly that. Does PG&E have to take your wallet at gunpoint before the idea they're thieves makes sense?

I mean, PG&E was aware of necessary expenditures, suppressed knowledge of those needed expenditures and instead continued to pay standard dividends[1]. Saying this isn't taking money from mainteninance and giving it to shareholder is the worst kind of newspeak.

And sure, PG&E get the profits the PUC thinks they should get for whatever needed expenditures they might make. BUT this has two wrinkles. A) It's hard to argue you deserve a lot of money for doing what you should have done earlier. B) This is just ordinary profits, a percentage of the expenditures you make but just taking money that's lying around and giving it to share holders is much more profitable, you don't need any more "upfront" here - there's long terms consequences but in today's environment, management seldom faces these consequences, just all the entities a given company deals with. Of course, any company that says capital investment be damned, I'm giving the whole flow to the stockholder will look more profitable tomorrow and even the possibility of good future investment doesn't look as good as this tomorrow. Unfortunately, we are now living in the "next week" of such decisions.

[1] Non-paywalled version of WSJ article: https://www.marketscreener.com/PG-E-CORPORATION-13946/news/P...

> The judge at their bankruptcy hearing described them as doing exactly that.

I went looking for a source here. You're right; Judge Alsup, overseeing the bankruptcy hearings, had some pretty damning words for PG&E: https://www.kqed.org/news/11737336/judge-pge-paid-out-stock-...

The arguments upthread pointing the finger at CPUC were somewhat persuasive to me before seeing this, but after reading these words from Alsup—a reasonable judge from what I've seen of him—what the California politicians are saying make a lot more sense to me. Sounds like PG&E does need to shoulder a good deal of the blame here.

> You're right; Judge Alsup, overseeing the bankruptcy hearings,

As described in the article you cite, Alsup is overseeing their criminal probation resulting from their multiple felony convictions for the San Bruno gas explosion in 2010, not the bankruptcy case.

Dennis Montali is the judge in the bankruptcy case, see, e.g., https://www.nytimes.com/2019/10/09/business/energy-environme...

You're right. Thanks for the correction.

> The judge at their bankruptcy hearing described them as doing exactly that.

I know that William Alsup, the judge in their criminal probation hearing did so (and this was relevant to why their fire responsibility was held to be a violation of their criminal probation.)

I'm not aware that the same thing came up in their bankruptcy hearing (which has a different judge), but then again it wouldn't be surprising.

Thank you! I'm surprised your comment even needed to be made, but some people really do walk around with the mentality that, "The law/textbooks say things are supposed to happen this way, therefore, that is definitely how they are being carried out, and in good faith. These commenters must simply be uninformed and in need of some citations."

That article doesn’t prove your point. It faults PG&E (and other utilities by the way) for delaying replacing steel towers and instead upgrading substations. Why is it picking? Both are capital investments, and doing both at the same time would result in a larger base of invested capital and thus a larger profit. Why didn’t it do the thing that would make it more money?

There is a real irony to denouncing a company as being profit motivated, but then articulating a theory of what they did wrong that is premised in them leaving money on the table.

The CPUC has rejected PG&E requests to spend more on maintenance. But the government doesn’t like to point that out. Utilities are highly regulated.

They pretty much refused to invest in and install any forward looking technologies (microgrid tech, tech to quickly cut off power to damaged lines, battery storage, more distributed generation, more switches to help isolate parts of the grid, etc.). They just wanted to continue building new natural gas plants and to fight against distributed solar.

They could have spent the last 20 years working to make the grid for nimble, flexible, and safe. They also could have actually done the tree trimming they were supposed to do. Instead they slow walked all innovation and are now scrambling to make up for it.

> They just wanted to continue building new natural gas plants and to fight against distributed solar.

Money for generation is an entirely different bucket of money recovered through an entirely different regulatory regime than money for distribution.

As to slow walking stuff like battery storage, why would they? PG&E earns a return on invested capital. Investing billions in batteries means more money for them.

I am talking about investing in battery installations for grid services (i.e. buying and building battery installations) instead of building natural gas peaker plants or building other more tradition infrastructure. I am not saying they should have made equity investments in battery startups.

I don't see a reason why they couldn't rate base and make a return on battery installs. Instead they only wanted to building the same stuff they always built (more power plants and more transmission).

There may be ways of doing and recording which differentiate sufficiently to compensate specific stakeholder interests.

Dividend payouts aren't the only way of generating extractable rents. LIBOR comes to mind.

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