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No, companies are extremely happy to make huge capital expenses, if they expect to make a good profit on them. For example, California's PG&E is planning to spe
by xyzzyz 6y ago
No, companies are extremely happy to make huge capital expenses, if they expect to make a good profit on them. For example, California's PG&E is planning to spend a whopping $40B in investment over next 5 years, because California government guarantees 10% annual return on investment.
- ClumsyPilot 6y agoWtf is the point of sourcing market investment if you are going to guarantee profits? All the usual market mechanisms to ensure efficiency don't work, you are just handing out free money at the expence of the taxpayer. You might as well just issue bonds and invest money directly.
- Spooky23 6y agoOr having a municipality just build and operate the resource. There’s a reason roads aren’t private.
- xyzzyz 6y agoIt is by no means clear that if “municipality” built it, it would be any cheaper. Experience suggests the opposite.
- Spooky23 6y agoMaybe in California. In Plattsburgh, NY, electric rates are 75% less than the state average. Pretty sure the other municipal utilities are similar. (About 30 in NY) With civil service employees, management overhead costs are usually way lower. Corporate management usually gets overpaid.
- ClumsyPilot 6y agoI you want to use 'free market', then use it properly. If the state guarantees profit, you get the worst of both worlds.
- xyzzyz 6y agoRight. There are many things the government could possibly do, and it could theoretically do them as well as private sector does, and in many case even better than private sector (as governments enjoy many privileges that private companies don't). However, this is upper bound of what we could get from governments running things. Most of us need to settle with governments as they actually exist, and the actual outcomes. The track record does not seem encouraging, and arguments of the sort "this time it will be different, we'll just put our people in charge, who are better than people who were previously in charge" aren't particularly appealing.
- ClumsyPilot 6y agoYou are missing the point entirely, the state or the market are fine, each approach has it's strengths. Deals like this one are unacceptable because they are a Frankenstein monster - state guarantees profit, so the state bears all the risk. The normal market mechanisms don't work, inefficiencies and wastefulness is not punished, but profits are still private. It encourages the worst possible behaviour.
- Spooky23 6y agoWell duh, the state absorbed the risk. I’d borrow at 3% to yield 10% too. Where that doesn’t happen and regulation doesn’t exist, utilities will happily operate a 100 year old depreciated coal plant forever.