PG&E asks to raise rates for California customers so it can pay investors more | Hacker News Reader

PG&E asks to raise rates for California customers so it can pay investors more

kcra.com

57 pointstoomuchtodo57 comments

>The new request comes after the California Public Utilities Commission, which Gov. Gavin Newsom's administration oversees, approved six rate increases for PG&E in 2024.

>PG&E also reported a record $2.47 billion in profits in 2024, which was an increase from an earlier record that was set in 2023.

Well that's all I needed to see. If an increase every two months and setting a new profit record every year isn't enough then maybe someone else should be in charge of this. Maybe the people who need this should be in charge of this, not someone whose sole purpose is to squeeze those people for as much as possible.

>Well that's all I needed to see. If an increase every two months and setting a new profit record every year isn't enough then maybe someone else should be in charge of this.

Given inflation is a thing, wouldn't you expect "record profits" year after year, even if nothing else changed?

No. You _could_ argue that record _revenue_ could happen due to inflation, but that's not profit.

>but that's not profit.

Did you mean profit margins? OP mentioned profits in absolute dollar amounts, not in % terms. Otherwise it's absurd to claim that dollar profits should stay the same, even with inflation.

profit = revenue - cost

Revenue and cost both increase by 10% due to inflation

profit = 1.1 * revenue - 1.1 * cost

profit = 1.1 * (revenue - cost)

So profit also increased by 10 percent.

assuming inflation hits all saleable goods and services equally is a pretty huge assumption

It doesn't meaningfully change the conclusion, since we're talking about whether there will "record" profits year after year. The exact % rise of profits is irrelevant. In most circumstances there's no deflation happening, so even if inflation isn't the same for inputs and sales, profits in dollar terms will still go up.

profit = 1.3 * revenue - 1.1 * cost

and

profit = 1.1 * revenue - 1.3 * cost

are both possible. the first leads to record profits every year, the second doesn't. the exact % change in profits is relevant because it can be positive, negative or zero in an environment with uneven inflation. Reality, at the moment, is an environment with uneven inflation.

While the point here is generally true, investor owned utilities have revenues (i.e. electricity rates) that are tied to their expenses. That's the reason they have to ask for a rate increase; if the rate increase was designed to juice their profit margin to 30%, it would likely be denied (not guaranteed, but likely).

So this is one industry where you'd expect revenue to increase in proportion to expenses.

>> someone whose sole purpose is to squeeze those people for as much as possible

If you look at https://finance.yahoo.com/quote/PCG/ and select all data, it looks like PG&E's stock price is around the same as it was in 1985. That means that adjusted for inflation, it has lost most of its value over that time period. It pays a 0.58% dividend, which, as the article says, is "the lowest dividend in its industry".

Returning far worse profits than treasury bonds is not squeezing people for as much as possible.

You're talking about where the money is going. I'm talking about where the money is coming from. Regardless of what they're spending it on later the amount of money left after all expenses are paid is going up and that increase is coming from consumers.

I'm not a Californian, so I'm sure there's something I'm missing, but why haven't you guys recalled Newsom yet or at least primaried him out during the last election? Do typical Californians think he's doing a good job or is it just that the alternatives are always worse?

The biggest investors in PG&E are Blackrock, Vanguard, Fidelity, JP Morgan. So in other words, people's 401ks. Not sure how it makes sense that your retirement depends on a company with no competition and the ability to charge you any amount of money they want.

Well, that sounds more like a discussion about if it should be a private company, government run or some kind of coop owned by the customers.

The last one generally benefits the customers.

That too. But since we're in this situation where it's a public company, it's just funny to me that people's finances are both being helped and harmed by PG&E, probably canceling itself out.

Old people’s (specifically asset owners, so above average wealth) finances being helped out and young people’s finances being harmed.

Although, I don’t really see any other way for a society with a non pyramid shaped population histogram.

> coop owned by the customers

I find it a bit hilarious that I, living in the reddest state in the union, have member-owned cooperative power [1] that is 100% wind while my parents in California pay 6x my rate for mostly natural gas [2] and wildfires.

[1] https://www.lvenergy.com/my-account/

[2] https://www.energy.ca.gov/data-reports/energy-almanac/califo...

On the aggregate this cancels out, but on the micro level this is just a kind of wealth transfer from the poor to the investor/retiree class, not too different from a tax on the young and less fortunate. The rich boomers are getting their retirement subsidized by screwing over the working class and the younger generation, pretty on brand I'd say.

1. I've paid electric bills in four different cities. Rates haven't been increased at more than 1x annually in any of them.

2. California is getting what seems to be two overhauls: a) replacing/upgrading lines and vegetation practices to harden them against sparking fires; b) massive electrification of cars, data centers, appliances. The capex has to be paid somehow... and interest rates are a drag to that.

> Rates haven't been increased at more than 1x annually in any of them.

Do you mean 2x?

> California is getting what seems to be two overhauls

I believe large share of rate increase is because PG&E need to pay multibillion penalty for previous years of negligence which caused multiple fires with casualties.

They're part of the wildfire fund so hopefully it's not all that.

https://www.cawildfirefund.com/participating-utility-compani...

that's safety improvement 5B fund, but there are also damage payments for 25.5B: https://www.pbs.org/newshour/nation/judge-oks-nearly-25-bill...

When talking about increases, usually you're talking about the increase by itself.

So if the total bill doubles from last pay period period, it is said that it has _increased_ 1x.

> it is said that it has _increased_ 1x.

my experience is that people say it increased 2x times. You can say it increased by 100%.

it increased by 100%, not 1x.

No, they're literally the same thing.

> The new request comes after the California Public Utilities Commission, which Gov. Gavin Newsom's administration oversees, approved six rate increases for PG&E in 2024

How are rate increases counted?

I don't know how rates work in California, but looking at rates in my state the power company for my region has a bunch of different rate schedules. There's the normal residential rate schedule, 3 different time-of-use based residential rate schedules that are being tested, and rate schedules for businesses (I think there may be several depending on the kind of business). They may be different residential schedules for rural customers and non-rural customers. I think there are also some different schedules for farms.

Depending on how you count you could end up with a dozen rate increases in a year but with each customer seeing 0 or 1 increases.

> [...] state Sen. Aisha Wahab filed a proposal, the Investor-Owned Utilities Accountability Act, that would [...]

> It would also cap any rate increase to no more than the Consumer Price Index, which is a measure of the average change over time in the prices consumers generally pay for goods and services.

Is the CPI appropriate for this? I would expect that the most important factors that affect the cost of running an electric utility would not not correlate well with the CPI. Shouldn't any cap be tied to something that more closely matches the costs of running the utility?

The Public Utilities Commission doesn't know how to say no to PG&E.

Regulatory capture

>Well that's all I needed to see. If an increase every two months and setting a new profit record every year isn't enough then maybe someone else should be in charge of this.

Gross profit is not relevant, $2.4B on sales of $24B is only a 10% profit margin. With 5.6 million customers, that is $440 per customer in profits.

They said they invest 97% of profits back into infrastructure, prior to this rate increase proposal. A 3% investors profit share is quite enough and I hope they’re denied by the state. PG&E capped at returning 3% of profit to investors a year for a century would be an appropriate sentence and sentencing term for the Redwood City explosion. Investors will invest in it no matter how small the guaranteed profit, because they’re a monopoly, and literally every dollar the state allows them to pay out in shareholder dividends is paid for out of the state’s GDP after the year’s wildfires and outages.

It would be interesting to do the math and estimate about how many dollars they expect this to generate in payouts, and then express that payout in terms of infrastructure ruggedization. Are they asking for an investor payout the size of “10% of the estimated cost of deploying underground wiring in wildfire-probe forested regions”? 25%? 150%?

It could also mean doing what health insurance corporations are doing... just spending more, so they get their $limit% return from a larger pie.

They are of course perfectly welcome to spend more, given their catastrophic underinvestment in every aspect of their business other than shareholder dividends. Pay line workers more! Buy more electrical service gear! If they do that they’re absolutely welcome to the higher dividends.

LoL that's not how they're spending more money.

Isn’t this the way regulated utilities work?

It's the way investor-owned regulated utilities work. Municipal utilities are also regulated but don't have investors to pay.

> Municipal utilities are also regulated but don't have investors to pay

Somebody has to pay.

No? Privately owned utilities with guaranteed return rates will charge more to guarantee those return rates. A publicly owned utility would be fine operating at 0% returns.

Not always.

A public utility has little incentive to be efficient as like you said, they are fine with 0% returns.

If a private utility gets a rate of $1.00 on $0.94 of expenses, it has an incentive to further reduce costs to increase the return, which reduces future rate growth (as higher rates won’t be approved).

>as higher rates won’t be approved

Won't they, though? It seems like a rubberstamping process at this point.

Studies show the opposite is true. Nobody gets voted out of the municipal rate board for denying rate approvals and allowing maintenance and capital investment to fall by the wayside. It's one reason U.S. infrastructure is in such terrible shape.

CPUC members in California aren’t voted in, they are nominated by the Governor.

So CA is a unique situation where the regulator effectively controls the public utility so calling it “private” is a bit of a stretch. More like a state controlled entity that trades on the stock market.

If you’re talking about California utilities the rate decisions are all on the CPUC website.

Rate increases absolutely aren’t rubber stamped, the CPUC routinely denies expenditures and the comedians rate increases.

But speaking more of the hypothetical, if set up correctly a regulated private utility could be incentivized to reduce costs to capture a higher profit at the same rate.

Investor owned utilities have more access to capital. The credit union / non-profit / co-op / municipal alternative is not an automatic win for customers.

Might have more access to more capital. And they're not very incentivized to use it. There's no competition.

> A publicly owned utility would be fine operating at 0% returns.

A publicly owned utility running at 0% returns wouldn't be able to pay interest on the debt it would have to issue to make capital investments.

Why not? The only reasonable 0% target for public agencies would be net of expenses, including cost of capital.

They "pay" their customers. Which makes your comment silly.

Someone has to pay, but there's no requirement that someone gets to take a percentage as profit.

Where do you think a rinky-dink municipality gets the money to pay for infrastructure? They turn to capital markets, who will make a profit on the bonds or whatever.

Where does an investor owned utility get the money to pay for infrastructure? Because they're generally not cutting into profits to fund infrastructure improvements.

PG&E is paying 2.4 billion dollars a year in interest expense (at least in 2023), so it's fair to wonder if that's really any better.

They also don't build transformers in-house; they pay vendors for providing goods and services. Why do you think capital is any different from other services? If a private utility issues a bond, investors in the bond will also make a profit on the bond in addition to investors in the private utility making a profit on the utility.

> Municipal utilities are also regulated but don't have investors to pay.

They also don't keep your 401k healthy.

JPMorgan is responsible for that, not the private run utility.

Muni utilities get treated with kid's gloves by courts though. I have direct personal experience of a muni burning nearly a quarter million acres, destroying over 500 homes and ~100K acres of timber. When it came to trial, the court capped their liability at $50m on day one. Their employees even joked about what an outrageous fire hazard all their lines were over text just a few days before it happened.

The funniest part is the utility increased rates...but only for people living in the fire-affected areas.

https://www.thebignewsletter.com/p/power-moves-how-electric-...

https://kevin.burke.dev/kevin/norcal-cities-new-utility/

https://www.pge.com/en/newsroom/currents/energy-savings/pg-e...

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