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Comment by kumarvvr | Hacker News Reader

Isnt this a common tactic, to declare bankruptcy in face of large liabilities?

That's kind of what bankruptcy is for, overtly. It's not like some kind of clever hack.

I do find it troubling, however, that it’s more often than not used to clear down the ledger of a going concern, and then continue business as usual, same everything, just a new incorporation. You can bet your bottom dollar that they’ll be buying their own assets back on cents on the dollar, reincorporating, putting everyone back in the same positions, and paying some nice fat bonuses out of the capital they’ll be given as part of their dynamic chapter 11 restructure.

I’ve been a creditor on receiverships like this and it’s painful - in my view, if you run a business into the ground, you, your agents, and entities controlled by you or in which you have a substantial interest should be disbarred from operating an enterprise for at least five years. You definitely shouldn’t be permitted to continue in the same enterprise.

Bankruptcy isn’t supposed to be punitive. A company clearing up the books and then being able to generate a profit again in the future is better for creditors than destroying the company completely.

While true, it does enable some strategies in which you purposely run your company with a deficit while paying yourself a good salary until bankruptcy, with no lasting consequences.

And as the previous poster said: you can even "turn the company around" after and pay yourself a massive bonus for making it profitable again.

> You can bet your bottom dollar that they’ll be buying their own assets back on cents on the dollar, reincorporating, putting everyone back in the same positions, and paying some nice fat bonuses out of the capital they’ll be given as part of their dynamic chapter 11 restructure.

[citation very much needed]

What exactly are you looking for a citation for? The GP was stating their strong belief regarding a future event and (I assume) facetiously saying you should bet on it.

The GP makes the claim in such a way that implies most if not all chapter 11 bankruptcies end this way. I was facetiously asking for some evidence from other bankruptcies to support this claim.

Privatize the profits and socialize the losses

That's not what bankruptcy is? Unless you consider creditors and equity holders "society".

Well the electric grid falls in that category of service, like the military where the market is potentially a bad solution. So in this regard. The electric company was able to be negligent to their personal benefit of 1.8 billion dollars of unfunded liability it created. And then they call bankruptcy and that's the end of that chapter.

Calling that personal benefit when they were hit by a massive surge in supply pricing is shifting the blame a bit, no?

Realistically, since the creditors are probably private and the customers, which would otherwise face the loss, are the community, it's actually somewhat the reverse - privatized losses to the benefit of the community (which would otherwise need to pay off the surge in electricity pricing).

> Calling that personal benefit when they were hit by a massive surge in supply pricing is shifting the blame a bit, no?

How is it not personal benefit? This company was essentially acting in the same role as an insurance company for retail customers. They charge a fixed fee for electricity that is above the average price of electricity. When electricity costs less than they charge they make money. When it costs more they lose money. They should have maintained cash reserves from profitable times to handle unprofitable ones. In an extreme situation like the current one in Texas they could seek a loan or already have lines of credit in place to cover any shortfall from their cash reserves. The profit they made went somewhere and it obviously didn't go into a rainy day fund.

As a 501(c)(12), they provided services at cost to all “customers” (members), as legally required.

It is incredible that such a fund is not mandatory

If a customer owes money to an electricity company which goes bankrupt, that doesn’t cancel the customer debt. The insolvency firm will sell the debt on for what they can get in order to repay some of the company’s creditors.

Pity, I feel like that would be the most equitable way to handle this sort of situation. Provider failed, so the client wins.

But they were benefiting. They have had years of not winterizing their systems, which helped them earn quarter after quarter of profits. Those profits were paid to executives and shareholders, who will not help make up the shortfall now.

No, they were not. Did you look at their financials? Maybe you should see how much this was very much not the case before saying more on the topic.

That’s a massive stretch for “socialize the losses”.

By that logic any time a business fails and it impacts a lot of people the losses have “been socialized”.

And CA is far from a free market. The PUC has PG&E on a short leash and the results have been a disaster.

Edit: Replying - No, bankruptcy is actually the exact opposite of socializing losses.

How do you think the bankrupt utility will start up again?

Hint: Socialized costs.

Another energy company will likely buy them. How is that socializing costs?

People throw that term around without actually knowing what it means

California was the first state to try deregulation of the energy market. https://en.wikipedia.org/wiki/2000–01_California_electricity...

Yeah and the regulations put in place around the market were terrible.

Massive bonuses would have been paid out already while the liability burdened company will need to be bailed out.

The article says nothing about a "bailout".

They won’t just leave a utility lying dead by the roadside. Going by the last few decades of precedent, its assets will be acquired by a consortium of the current principals, most likely using state provided grants or loans to get things running again.

The argument is essential infrastructure, expertise, etc. - I mean, it works for banks, and surely a utility provider is actually essential infrastructure.

Surely if they do get a bailout from the Gov, lets say Federal in this case, they would be subject to some actual regulation ?

Might not be the worst, all things considered.

Lots of companies are literally owned by the public and go bankrupt due to debts to consumers, so it's fair to say "society" in those cases.

No question about that. The novelty is that a single snow/ice weather event could push a large utility operator into bankruptcy

Or like California is it that deferring costs (winterizing in TX and fire prevention and forest clearing in CA) makes executives look good while kicking problems down the road, maybe even decades down the road.

Here in New Zealand the line network operator in the city of Dunedin has underinvested in the city line network, so instead of replacing power poles, they have simply changed the rules so that 2,500+ unserviceable old decaying power poles are suddenly within spec [1]... Meanwhile they are raising prices [2]

I have little doubt that when a major storm hits knocking out 100s or 1000s of power poles, they will simply blame climate change. Yes, the climate is changing, but the reason they will have failed is terrible, terrible management.

[1] https://www.rnz.co.nz/news/national/366398/thousands-of-powe...

[2] https://www.stuff.co.nz/business/industries/124391663/aurora...

I hate this story - the case of Dunedin's lines company (Aurora) is not a matter of simple underinvestment - a decade or so ago the city built an indoor stadium, it cost hundreds of millions more than they originally claimed, and the local rugby community welched on the 'private fundraising' they promised to bring to the table - the city got stuck having to pay for it all, plus rather than making the promised small annual profit it needs to be subsidised to the tune of millions every year.

The stadium is owned by the same city owned holding company that owns Aurora(as well as a couple of other companies) - they effectively balance off the money made from Aurora with losses from the stadium - this allows them to avoid taxes on the profits from Aurora (a perfectly legal process).

However - and here's the real problem - Aurora (and the other companies) were not making enough money to cover the loan servicing - the holding company put immense pressure on the various companies to produce more income (profit) Aurora seems to have done it by reducing the amount of money it spent on maintenance .... now they're dealing with the results from years of missed maintenance and are trying to get the people living around Dunedin (and in it) to pay more to effectively cover that money taken out for the stadium.

Really they need to raise ticket prices at the stadium to cover these losses and make the stadium self funding - at the moment we subsidise every rugby ticket from our power bills and from our rates (property taxes)

Yeah, when the last government was trumpeting a new stadium in Christchurch post-quake as a massive economic boom, I was somewhat dubious. If the rugby franchises want it, maybe they should put their money where their mouth is.

They did put their money where their mouth is, they just had the sense to spend it on a lobbying campaign because it's cheaper to build a stadium with your money than theirs.

Very true indeed.

> makes executives look good while kicking problems down the road

Nobody wants to pay for things like preventative maintenance. So unless you have a regulator that is going to force you to do so, paying for things like winterizing equipment in TX isn’t going to happen. This is especially true when you can just change providers to whomever is going to give you the absolute lowest rate. So instead of being prepared for a once in a decade storm, a provider is more likely to not be ready and just fold of things get bad. You never see the results of what happens when you are successfully prepared for that rare event, only what happens when things go horribly wrong. So people (consumers included) don’t want to pay for things like maintenance. And regulators (who often answer to the public in some way) don’t want to be seen as being the cause of raising peoples’ bills.

Privatizing profits and socializing losses. A staple of modern entrepreneurship.

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