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PG+E isn’t “too big to fail” at all, they just went bankrupt! The real issue here is that PG+E is responsible for wildfires caused by power lines, and they don

by lacker 7y ago

PG+E isn’t “too big to fail” at all, they just went bankrupt! The real issue here is that PG+E is responsible for wildfires caused by power lines, and they don’t have many ways to deal with it. They aren’t allowed to raise rates to pay for more anti-fire measures. They can spend their fire prevention budget smarter, but at some point the gains there are maxed out. One of the few things they can do is to shut off power during times of high fire risk.

inferiorhuman 7y ago
They aren’t allowed to raise rates to pay for more anti-fire measures. They don't need to. They could cut back or eliminate their dividends, cut back executive compensation, stop buying back stock, etc., etc. They cut back their line crews ages ago (plenty of cost savings there), and if San Bruno is any indication, PG&E hasn't bothered to keep records (additional cost savings) for quite a while.
- roenxi 7y ago
  Well they could, but: 1) Those options, similar to spending the fire protection budget more smartly, also cap out at some point. 2) One of the reasons things like executive compensation get out of control is because they are a rounding error vs. the overall corporate spending. Cutting that back to the bone is not likely to be materially helpful. 3) "cut back or eliminate their dividends, ... stop buying back stock" They may as well shut down the company (which is what they are doing on a temporary basis). There is no reason for them to be shouldering increased risk if the reward is reduced compensation. If that is the way the game gets played only idiots would be willing to own and manage a power company. It is more comforting to think that power companies are being managed by intelligent and rational people.
  - inferiorhuman 7y ago
    They may as well shut down the company As I said PG&E makes a really great case for municipal power. There is no reason for them to be shouldering increased risk if the reward is reduced compensation. Fire prevention reduces risk. Conversely, this reduced risk scenario you're talking about has resulted in PG&E going bankrupt twice this century. As for exec compensation and buybacks, PG&E spends a few hundred million dollars annually buying back stock. The fire prevention budget doesn't need to be infinite, but $200-300 million would go a long way. KTVU identified three SVPs who make around $500,000 annually. Yes, that's not a ton of money compared to PG&E's income, but a couple extra million could easily pay for brush/fuel removal. https://ycharts.com/companies/PCG/stock_buyback https://ycharts.com/companies/PCG/stock_buyback http://www.ktvu.com/news/despite-bankruptcy-pg-e-executive-gets-major-salary-increase-records-show http://www.ktvu.com/news/despite-bankruptcy-pg-e-executive-g... Edit: Per the KTVU article, that half a mill per SVP is the base salary, so bonuses and non-cash compensation aren't included.
    - roenxi 7y ago
      > As I said PG&E makes a really great case for municipal power. So if a power pole is owned by the government it suddenly becomes non-flammable? That isn't based on the laws of physics. There is a strategy that makes countries fantastically wealthy: only do things that are profitable. Running the energy grid for no profits is not a path to broad-based success, it only results in taxpayers paying for things that have no marginal value. If it makes sense with electricity then there is no logical reason not to try the same strategy with gasoline, food and shelter. At some point the damage goes critical and Venezuela happens. Also, buybacks aren't primarily a form of executive compensation; I'm no expert but they look like a work-around for double-tax issues in the American income tax law. A buyback is a method of transferring money -> stock holders and in this context is basically just a dividend. I've no idea what is going on in California, obviously, but strategies like 'nationalise it!', 'stop the capitalists raising prices!' and 'Stop people profiting from their investments!' are just classic arguments that hurt everyone in the long term. Literally caused societies to collapse in extreme cases.
      - anoncake 7y ago
        > If it makes sense with electricity then there is no logical reason not to try the same strategy with gasoline, food and shelter. Those aren't natural monopolies.
    - bfung 7y ago
      It’s also one of few levers to hold executives accountable for their decisions and actions. The other being jail time.
      - Google234 7y ago
        So the salaries of the VPs of Human Resources or Finance should be cut? Anyway, most their salary is probably in stock options so it's already happened.
        inferiorhuman 7y ago
Animats 7y ago
PG+E isn’t “too big to fail” at all, they just went bankrupt! Twice, since deregulation. Zero times, in the century before deregulation.
inferiorhuman 7y ago
They can spend their fire prevention budget smarter, but at some point the gains there are maxed out. For those following along at home, after blowing up a San Bruno neighborhood PG&E diverted $100 million of money earmarked for safety. Where'd that money go? Executive bonuses and dividends. They have plenty of money for improvements and there is zero need for rate increases. https://www.sfgate.com/bayarea/article/PG-E-diverted-safety-money-for-profit-bonuses-2500175.php https://www.sfgate.com/bayarea/article/PG-E-diverted-safety-...

by lacker 7y ago

inferiorhuman 7y ago

They aren’t allowed to raise rates to pay for more anti-fire measures. They don't need to. They could cut back or eliminate their dividends, cut back executive compensation, stop buying back stock, etc., etc. They cut back their line crews ages ago (plenty of cost savings there), and if San Bruno is any indication, PG&E hasn't bothered to keep records (additional cost savings) for quite a while.

roenxi 7y ago
Well they could, but: 1) Those options, similar to spending the fire protection budget more smartly, also cap out at some point. 2) One of the reasons things like executive compensation get out of control is because they are a rounding error vs. the overall corporate spending. Cutting that back to the bone is not likely to be materially helpful. 3) "cut back or eliminate their dividends, ... stop buying back stock" They may as well shut down the company (which is what they are doing on a temporary basis). There is no reason for them to be shouldering increased risk if the reward is reduced compensation. If that is the way the game gets played only idiots would be willing to own and manage a power company. It is more comforting to think that power companies are being managed by intelligent and rational people.
- inferiorhuman 7y ago
  They may as well shut down the company As I said PG&E makes a really great case for municipal power. There is no reason for them to be shouldering increased risk if the reward is reduced compensation. Fire prevention reduces risk. Conversely, this reduced risk scenario you're talking about has resulted in PG&E going bankrupt twice this century. As for exec compensation and buybacks, PG&E spends a few hundred million dollars annually buying back stock. The fire prevention budget doesn't need to be infinite, but $200-300 million would go a long way. KTVU identified three SVPs who make around $500,000 annually. Yes, that's not a ton of money compared to PG&E's income, but a couple extra million could easily pay for brush/fuel removal. https://ycharts.com/companies/PCG/stock_buyback https://ycharts.com/companies/PCG/stock_buyback http://www.ktvu.com/news/despite-bankruptcy-pg-e-executive-gets-major-salary-increase-records-show http://www.ktvu.com/news/despite-bankruptcy-pg-e-executive-g... Edit: Per the KTVU article, that half a mill per SVP is the base salary, so bonuses and non-cash compensation aren't included.
  - roenxi 7y ago
    > As I said PG&E makes a really great case for municipal power. So if a power pole is owned by the government it suddenly becomes non-flammable? That isn't based on the laws of physics. There is a strategy that makes countries fantastically wealthy: only do things that are profitable. Running the energy grid for no profits is not a path to broad-based success, it only results in taxpayers paying for things that have no marginal value. If it makes sense with electricity then there is no logical reason not to try the same strategy with gasoline, food and shelter. At some point the damage goes critical and Venezuela happens. Also, buybacks aren't primarily a form of executive compensation; I'm no expert but they look like a work-around for double-tax issues in the American income tax law. A buyback is a method of transferring money -> stock holders and in this context is basically just a dividend. I've no idea what is going on in California, obviously, but strategies like 'nationalise it!', 'stop the capitalists raising prices!' and 'Stop people profiting from their investments!' are just classic arguments that hurt everyone in the long term. Literally caused societies to collapse in extreme cases.
    - anoncake 7y ago
      > If it makes sense with electricity then there is no logical reason not to try the same strategy with gasoline, food and shelter. Those aren't natural monopolies.
  - bfung 7y ago
    It’s also one of few levers to hold executives accountable for their decisions and actions. The other being jail time.
    - Google234 7y ago
      So the salaries of the VPs of Human Resources or Finance should be cut? Anyway, most their salary is probably in stock options so it's already happened.
      - inferiorhuman 7y ago

Animats 7y ago

PG+E isn’t “too big to fail” at all, they just went bankrupt! Twice, since deregulation. Zero times, in the century before deregulation.

inferiorhuman 7y ago

They can spend their fire prevention budget smarter, but at some point the gains there are maxed out. For those following along at home, after blowing up a San Bruno neighborhood PG&E diverted $100 million of money earmarked for safety. Where'd that money go? Executive bonuses and dividends. They have plenty of money for improvements and there is zero need for rate increases. https://www.sfgate.com/bayarea/article/PG-E-diverted-safety-money-for-profit-bonuses-2500175.php https://www.sfgate.com/bayarea/article/PG-E-diverted-safety-...