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Utilities are incentivized to increase costs. There is a nexus of generation, transmission and distribution companies, all together in increasing costs. Just th

Utilities are incentivized to increase costs. There is a nexus of generation, transmission and distribution companies, all together in increasing costs. Just the same as healthcare (insurers, pharma and hospitals), hence, band-aids cost $500, which your friendly insurer discounts to $50, and proudly shows on the statement: $500 band-aid, insurance plan rate $50, your deductible/copay $50. We'll pay $5 for the band-aid AFTER you meet 10K deductible! This is why Warren Buffett owns a lot of utilities. They are monopolies that extract a lot of rents, lobby against residential solar. Solar installations are 3 - 5X costlier in US compared to other countries (Ref: posts by HNs in other countries - Australia, Bangladesh, etc). The right thing to do is to let go of this benevolent public utility sham, while monopolizing and extracting huge rents, at the same time publicly crying that your friendly utility can't help everyone, the costs are rising and they can't do maintenance or build transmission lines. Breaking down ATT monopoly was the moment which started the tremendous growth in communications sectors. People used to pay $$/minute, now something magical happened around 2010 -- people can talk to 100 other people around the world on video chat for free! We need something similar for utility monopolies. Costs of energy will come down to nothing, a LOT of people can make money supplying power back to the grid: https://electrek.co/2023/07/05/tesla-electric-customers-report-making-150-day/ https://electrek.co/2023/07/05/tesla-electric-customers-repo... Comment by epistasis https://news.ycombinator.com/item?id=39487714 https://news.ycombinator.com/item?id=39487714 "More people need to realize that utilities are not at all like normal businesses, so to spell it out in more detail for those that don't know: Normal businesses make more money when they cut costs. Utilities (typically) get to charge a fixed upsell percentage and so they make more money when they increase their costs."

Retric 2y ago
The AT&T breakup is a little more complicated. Long distance prices actually dropped tremendously under AT&T especially when you include inflation. Night/Weekend 3.10$ per minute (35.23$ inflation adjusted) in 1955 down to 0.87$ (3.50$ inflation adjusted) in 1980. They benefited from that 90% price drop in 25 years as people would make more and longer calls at lower rates. https://www.scribd.com/document/422152895/FCC-Report-1950-1994-AT-T-US-Long-Distance-Phone-Rates https://www.scribd.com/document/422152895/FCC-Report-1950-19... People often show price drops after the breakup, but AT&T started installing fiber in 1977 so those price drops are mostly a continuation of the same technical advancements rather than competition.
- jordanb 2y ago
  At&t did not reduce rates under the consent decree, regulators did. But the specific complaint that led to antitrust action had more to do with the control at&t was exerting over the network preventing the adoption of new technology by customers.
  - Retric 2y ago
    I didn’t say AT&T decided to reduce long distance rates, just that those rates fell 90% while AT&T was a monopoly. Breaking them up was very likely a net positive, I am simply referring to nuance that’s often glossed over.
szvsw 2y ago
> “Normal businesses make more money when they cut costs. Utilities (typically) get to charge a fixed upsell percentage and so they make more money when they increase their costs." Yeah this is a pretty essential thing to understand right now… utilities are licking their chops at the prospect of heat pump electrification (which is absolutely necessary) because in the northeast for instance, it will mean shifting peak demand to winter and greatly increasing the size of the peak, which means grid expansion, which means more profit in absolute terms, even if the margin stays the same, with the added costs passed onto the customers. This is one of the reasons why state and municipal governments need to be funding deep energy retrofits (insulation, weatherizing via air sealing etc) in conjunction with heat pump electrification (ie to help control winter peaking, and thus keep grid expansion to a minimum and control costs passed onto customers).
- jncfhnb 2y ago
  Why would you be opposed to grid expansion?
  - szvsw 2y ago
    Definitely not opposed to grid expansion! Obviously we need to massively increase the capacity of our grid and hook up as much solar and wind as possible (and the queue to do so is already massive). I am opposed to people who are already energy-burdened (ie their energy bill is over a specific threshold of their annual income) baring the cost of grid expansion due to heat electrification in high-income areas! In a lot of cases, heat pump electrification will rapidly occur in high-income areas but the resulting cost of grid expansion will be spread out over an entire state, resulting in significantly higher energy burden. I was just trying to point out that things like heat pump installation really need to be paired with other mechanisms for moderating demand, like adding more insulation to a building and sealing up the building, and that states and local governments ought to be providing incentives to do that as well (which many are) as opposed to just providing rebates for heat pump installs. It is in the utility companies’ interest to advocate for the latter but not the former.
- thelastgallon 2y ago
jncfhnb 2y ago
You have this backwards. Utilities typically have to build a rate case where they have to justify the price they are charging based on the necessary costs (like the price of energy and necessary investments into the grid). They absolutely want to reduce costs. This is a good thing, because otherwise they would just not improve the grid
- thelastgallon 2y ago
  > Utilities typically have to build a rate case where they have to justify the price they are charging based on the necessary costs (like the price of energy and necessary investments into the grid). Which is jacked up because its a collusion between all these players: generation, transmission, distribution. Everyone makes bank by increasing the costs (except the consumers).
  - jncfhnb 2y ago
    Generation is very competitive These price of energy sent to customers is controlled by regulators “Increasing cost” means investing in the grid. For example, to avoid your catastrophic forest fires in CA.
    - szvsw 2y ago
      Consider this hypothetical scenario. Option 1: Everybody in MA installs heat pumps in their homes. Option 2: Everybody in MA installs heat pumps in their homes, as well as re-insulates and enhances air-sealing. Government is deciding how they want to allocate funding for home energy retrofits. If you are a grid operator, which plan would you want the government to support? Keep in mind that you will be negotiating with regulators to set rates which will correspond to a guaranteed rate of return given your CapEx. Obviously you as a utility would pick the scenario which will end with you just spending more money, as that will allow you to justify higher rates to the regulator. Your rate of return would be the same, but your actual profit will be higher. Who actually bares that cost? The consumer. Option 1 above will lead to higher demand and higher peaks than option 2, so it is in the utilities’ interest to advocate for the government setting incentivizes for option 1, as it will allow them to negotiate higher rates, spend more capital, and make more profit. The state/local governments have a responsibility to the constituents IMO to incentivize option 2 over option 1.

Retric 2y ago

The AT&T breakup is a little more complicated. Long distance prices actually dropped tremendously under AT&T especially when you include inflation. Night/Weekend 3.10$ per minute (35.23$ inflation adjusted) in 1955 down to 0.87$ (3.50$ inflation adjusted) in 1980. They benefited from that 90% price drop in 25 years as people would make more and longer calls at lower rates. https://www.scribd.com/document/422152895/FCC-Report-1950-1994-AT-T-US-Long-Distance-Phone-Rates https://www.scribd.com/document/422152895/FCC-Report-1950-19... People often show price drops after the breakup, but AT&T started installing fiber in 1977 so those price drops are mostly a continuation of the same technical advancements rather than competition.

jordanb 2y ago
At&t did not reduce rates under the consent decree, regulators did. But the specific complaint that led to antitrust action had more to do with the control at&t was exerting over the network preventing the adoption of new technology by customers.
- Retric 2y ago
  I didn’t say AT&T decided to reduce long distance rates, just that those rates fell 90% while AT&T was a monopoly. Breaking them up was very likely a net positive, I am simply referring to nuance that’s often glossed over.

szvsw 2y ago

> “Normal businesses make more money when they cut costs. Utilities (typically) get to charge a fixed upsell percentage and so they make more money when they increase their costs." Yeah this is a pretty essential thing to understand right now… utilities are licking their chops at the prospect of heat pump electrification (which is absolutely necessary) because in the northeast for instance, it will mean shifting peak demand to winter and greatly increasing the size of the peak, which means grid expansion, which means more profit in absolute terms, even if the margin stays the same, with the added costs passed onto the customers. This is one of the reasons why state and municipal governments need to be funding deep energy retrofits (insulation, weatherizing via air sealing etc) in conjunction with heat pump electrification (ie to help control winter peaking, and thus keep grid expansion to a minimum and control costs passed onto customers).

jncfhnb 2y ago
Why would you be opposed to grid expansion?
- szvsw 2y ago
  Definitely not opposed to grid expansion! Obviously we need to massively increase the capacity of our grid and hook up as much solar and wind as possible (and the queue to do so is already massive). I am opposed to people who are already energy-burdened (ie their energy bill is over a specific threshold of their annual income) baring the cost of grid expansion due to heat electrification in high-income areas! In a lot of cases, heat pump electrification will rapidly occur in high-income areas but the resulting cost of grid expansion will be spread out over an entire state, resulting in significantly higher energy burden. I was just trying to point out that things like heat pump installation really need to be paired with other mechanisms for moderating demand, like adding more insulation to a building and sealing up the building, and that states and local governments ought to be providing incentives to do that as well (which many are) as opposed to just providing rebates for heat pump installs. It is in the utility companies’ interest to advocate for the latter but not the former.
thelastgallon 2y ago

jncfhnb 2y ago

You have this backwards. Utilities typically have to build a rate case where they have to justify the price they are charging based on the necessary costs (like the price of energy and necessary investments into the grid). They absolutely want to reduce costs. This is a good thing, because otherwise they would just not improve the grid

thelastgallon 2y ago
> Utilities typically have to build a rate case where they have to justify the price they are charging based on the necessary costs (like the price of energy and necessary investments into the grid). Which is jacked up because its a collusion between all these players: generation, transmission, distribution. Everyone makes bank by increasing the costs (except the consumers).
- jncfhnb 2y ago
  Generation is very competitive These price of energy sent to customers is controlled by regulators “Increasing cost” means investing in the grid. For example, to avoid your catastrophic forest fires in CA.
  - szvsw 2y ago
    Consider this hypothetical scenario. Option 1: Everybody in MA installs heat pumps in their homes. Option 2: Everybody in MA installs heat pumps in their homes, as well as re-insulates and enhances air-sealing. Government is deciding how they want to allocate funding for home energy retrofits. If you are a grid operator, which plan would you want the government to support? Keep in mind that you will be negotiating with regulators to set rates which will correspond to a guaranteed rate of return given your CapEx. Obviously you as a utility would pick the scenario which will end with you just spending more money, as that will allow you to justify higher rates to the regulator. Your rate of return would be the same, but your actual profit will be higher. Who actually bares that cost? The consumer. Option 1 above will lead to higher demand and higher peaks than option 2, so it is in the utilities’ interest to advocate for the government setting incentivizes for option 1, as it will allow them to negotiate higher rates, spend more capital, and make more profit. The state/local governments have a responsibility to the constituents IMO to incentivize option 2 over option 1.