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Texas electric firm files for bankruptcy citing $1.8B in claims
- kumarvvr 6y agoIsnt this a common tactic, to declare bankruptcy in face of large liabilities?
- Thorncorona 6y agoPrivatize the profits and socialize the losses
- refurb 6y agoThat's not what bankruptcy is? Unless you consider creditors and equity holders "society".
- jaimex2 6y agoMassive bonuses would have been paid out already while the liability burdened company will need to be bailed out.
- refurb 6y agoThe article says nothing about a "bailout".
- madaxe_again 6y agoThey 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.
- bilekas 6y agoSurely 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.
- gonzo41 6y agoWell 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.
- refurb 6y agoThat’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.
- fwsgonzo 6y agoHow do you think the bankrupt utility will start up again? Hint: Socialized costs.
- refurb 6y agoAnother energy company will likely buy them. How is that socializing costs? People throw that term around without actually knowing what it means
- ceejayoz 6y agoCalifornia was the first state to try deregulation of the energy market. https://en.wikipedia.org/wiki/2000–01_California_electricity_crisis#Effects_of_partial_deregulation https://en.wikipedia.org/wiki/2000–01_California_electricity...
- refurb 6y agoYeah and the regulations put in place around the market were terrible.
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- smt88 6y agoLots 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.
- realitysballs 6y agoNo question about that. The novelty is that a single snow/ice weather event could push a large utility operator into bankruptcy
- teruakohatu 6y agoOr 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-power-poles-suddenly-become-serviceable https://www.rnz.co.nz/news/national/366398/thousands-of-powe... [2] https://www.stuff.co.nz/business/industries/124391663/aurora-energy-announces-price-hike-for-all-otago-customers-highest-in-central-otago-and-wnaka https://www.stuff.co.nz/business/industries/124391663/aurora...
- mbreese 6y ago> 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.
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- dragonwriter 6y agoThat's kind of what bankruptcy is for, overtly. It's not like some kind of clever hack.
- madaxe_again 6y agoI 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.
- cmeacham98 6y ago> 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]
- falcor84 6y agoWhat 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.
- cmeacham98 6y agoThe 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.
- _pmf_ 6y agoPrivatizing profits and socializing losses. A staple of modern entrepreneurship.
- realitysballs 6y agoThis is a trend. PG&E in CA started it and now Texas... I guess climate change is risky business after all.
- bsder 6y agoOr you could say that CA and TX are demonstrating that deregulation is a failed strategy. "Vital infrastructure" and "market driven" are rarely a good match.
- refurb 6y agoTo say CA is "deregulated" is kind of a bastardization of the term.
- bsder 6y agoThat may be, but what deregulation there has been has almost uniformly been a disaster (see: Enron). Vital infrastructure, practically by definition, is unprofitable. That's not a good match to profit driven markets.
- astrange 6y agoPG&E's budget has a line-item veto by their regulator CPUC, who are just as happy if not more so to defer maintenance because they're mainly interested in not letting anyone's bills ever go up. They're investor-owned but not really privately controlled.
- m12k 6y agoThe free market is great at incentivizing companies to solve problems - but also to later "unsolve" solved problems so the company can keep their high profit margins even after the solutions have become trivial (see also Gillette, printer companies, out-of-patents drugs). The market solution to this "should" be that a competitor can undercut someone doing that, and drive them out of business - but why would anyone bother doing that, if the reward is to conquer a commoditized market that by all rights shouldn't be all that profitable, and isn't after your price war. If you have the chops to do that, you'll probably go into some other more profitable market instead (in that vein, hats off to that new drug company backed by Mark Cuban, if they end up actually doing that with generic drugs). Or someone does it, then gets an offer they can't refuse, so the upstart gets acquired by the incumbent, who can go back to exploiting their captive audience.
- A12-B 6y agoElon Musk making the move to Texas specifically to avoid the regulation that would have helped stop this from happening, would be kicking himself right now if he was in any way affected by this or consistent in his beliefs.
- eclat 6y agoIs he against regulation to keep power plants working in winter?
- A12-B 6y agoI am for evidence-based regulation, not picking and choosing which regulation is good or bad based on your own broken philosophy, or whether it is good for your business.
- AmericanChopper 6y agoThe evidence would suggest the California approach to regulation also fails to keep the power on.
- deleted 6y ago[deleted]
- josefx 6y agoIs he against regulations that he benefits from? Probably not. Would he be against a regulation that counted his factories as non essential in case the grid needs to be relieved? Yes.
- diveanon 6y agoElon Musk is another Trump in the making. Only difference is Elon Musk is smart enough not to foot gun himself when he actually asserts his power.
- simonh 6y ago"Still not pointy enough. Oh, and make the next one gold. I wonder if rhinestones would work for heat shielding - check it out."
- azujus 6y agoInteresting does this mean that global warming will cause the insurance crisis in the US?
- pmiller2 6y agoWith all the extreme weather events, wildfires, and sea level rising that will be caused by climate change, I would not be surprised.
- TheOtherHobbes 6y agoInsurance companies in the UK have been discussing this for over a decade. There have been some consequences. It's no longer possible to get buildings insurance or mortgages in certain flood prone areas. This effectively makes them uninhabitable, because uninsured flood damage can easily bankrupt a house owner.
- adwww 6y ago> uninhabitable Surely just unmortgageable?
- robotmay 6y agoWhich for the majority of the UK means unpurchasable. With high rents in many places it's getting extremely difficult for a lot of people to save enough even for a deposit on a house, let alone buy it outright. Oddly I think refusing to mortgage homes on flood plains is actually a good call by the banks. The local councils are just building in whatever idiotic places they like, stripping hills of the foliage which absorbs water to put houses there, then putting even more houses below where all the water now has to flow.
- simonh 6y agoAs a digression, I used to live in Shropshire and know of at least a few houses built close to rivers and streams that used to occasionally flood the ground floor. The buildings were set up to take this into account, with tiled floors and sturdy wooden furniture. In one case I know well the old couple living there used to just chase the flood water out of the house with a running hose to clean it out. They sold the house to a young couple who redecorated the whole house and put carpets and stuffed furnishings on the ground floor. A few years later the whole lot was ruined, they sold and moved out. Apparently their neighbours tried to warn them.
- oblio 6y agoWhat happens if they go bankrupt? Does anyone know what plan B) is for people getting their electricity from this company?
- Maarten88 6y agoThe state could nationalize the company, and provide electricity as a govenment-run utility?
- cm2187 6y agoI would imagine it would rather be a chapter 11 kind of route, restructuring the company but the assets producing electricity are not going anywhere.
- stefan_ 6y agoCustomers are automatically moved to a Provider Of Last Resort (POLR). No interruption in service, but (likely) dramatically higher prices.
- jhayward 6y agoBrazos is a co-op, and is not part of the competetive retail market operated by ERCOT. They own their own generation and distribution, but are part of the grid for reliability purposes. I'm not aware of any mechanism that could force their customers (who are also the owners) into that market.
- jonplackett 6y agoThis is the side of privatisation that gets ignored. When private companies screw up, who gets left with the bill? Private companies have no incentive to be ready for really big problems because they know they’ll get bailed out, or just not have to pay. Privatise the profit, socialise the losses.
- blake1 6y agoFor your first question: in the TX power market, power producing companies contribute to a fund which will cover for losses if any participant defaults. Even with that little detail, the rest of your comment seems spot-on. These power producers did not have enough incentive to deal with big problems, because the short term profits mattered more than potential future losses. That’s explicitly at the philosophical core of the TX power market, which is opposed to mandates, and relied on desire for profits and pressure from peers (peers that don’t want to pay extra into that fund) to encourage good behavior. It’s unclear if that fund will be sufficient to cover all the losses. May yet need a bailout, which is indeed socialization of the losses.
- dan-robertson 6y agoWhen a politician enacts a policy that ignores some big tail risk, they won’t be in office when it eventually blows up. Who foots the bill in that case? Certainly the politician and maybe their party won’t suffer election losses from it.
- jonplackett 6y agoI think this is the reason politicians all around the world have been so ill-equipped to deal with Covid - they are used to their decisions having 10 / 20 year repercussions, by which time they're well out of the blame-zone.
- simonh 6y agoThis is one reason why having well managed, capable institutions matters so much. Don't get me wrong, democracy is vital to ensure accountability, but it often worries me when elected politicians interfere in the management of specialist institutions unless they are clearly mismanaged. These things can take generations to develop but only a few months years to cripple.
- jiofih 6y agoIsn’t it mind-boggling that under the stress of winter, the same infrastructure that they had yesterday suddenly costs billions of dollars more to operate? Profiting from calamity. The exact opposite of how public utilities should operate.
- madsbuch 6y agoI think I read somewhere that prices are capped at USD 9000 per MWh. That is still USD 9 per KWh which is insane pricing.
- deleted 6y ago[deleted]
- Lazare 6y agoIt's worse than that, at the peak of the crisis not only were the capped at $9k/MWh, they were also floored at that price. As in, prices were administratively set to be $9k for a few days. ERCOT can just set prices to whatever they like, and their regulator (the PUCT) directed them to set it to $9k. It's...not entirely obvious to me that was a good choice. Or even that it was a better outcome than what a deregulated market in wholesale electricity might have done, although we'll never know, since Texas doesn't have one. :) > The PUC met Feb. 15 to address the pricing issue and decided to order ERCOT to set prices administratively at the $9,000/MWh systemwide offer cap during the emergency. > "At various times today (Feb. 15), energy prices across the system have been as low as approximately $1,200[/MWh]," the order states. "The Commission believes this outcome is inconsistent with the fundamental design of the ERCOT market. Energy prices should reflect scarcity of the supply. If customer load is being shed, scarcity is at its maximum, and the market price for the energy needed to serve that load should also be at its highest." (Source: https://www.spglobal.com/platts/en/market-insights/latest-news/natural-gas/021621-texas-regulators-keep-prices-near-9000mwh-cap-during-rotating-outages https://www.spglobal.com/platts/en/market-insights/latest-ne...) Interesting logic. I suppose the idea is that if there's any shortage at all, then it must be because generators don't have enough money, so government should mandate that money be transferred from, in this case, coops like Brazos to the generating companies who failed to weatherise their plants? Nice for the generators, rough on the people forced to buy power at those prices.
- TheOtherHobbes 6y agoThe 'firm' is Brazos, which was run as a not-for-profit co-op. Here's a statement from the CEO who resigned describing a precursor event in 2014 and suggesting how the DoE should proceed to make a repeat less likely: https://www.energy.gov/sites/prod/files/2014/08/f18/karnei_statement_denver_qer.pdf https://www.energy.gov/sites/prod/files/2014/08/f18/karnei_s... It suggests the problems were systemic and interconnected, but at least some parts of the industry were aware of them.
- everybodyknows 6y agoResigned some time after the initial Ercot six: https://www.texastribune.org/2021/02/26/ercot-resignation-power-outages/ https://www.texastribune.org/2021/02/26/ercot-resignation-po...
- qaq 6y agoQuestion is what is more costly private company + bailout or government entity
- runawaybottle 6y agoI don’t get it, why wouldn’t this business buy insurance for this situation?
- wiether 6y agoI... declare... BANKRUPTCYYYYYYYYY https://youtu.be/CcoLAhKn8uU?t=218 https://youtu.be/CcoLAhKn8uU?t=218