The '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:
This 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.
It's actually well understood that privatisation for platform industries is bad, privatisation for businesses running on top of platforms is good.
Networks and infrastructure = little to no competition. Eg. networks naturally settle in a optimal geographical location and utilize economy of scale then. Can't compete with that. So don't privatise platforms. Rather - make them monopolistic and make them share the revenue with public using a monopoly tax. AT&T model.
Translated to programmer speak: society's OS (law,defence,policing,roads,energy,networks,sewers,etc.) should be uniform and near monopolistic to maximize economy of scale.
Society's Apps (businesses) running in the ecosystem of the OS should be private, numerous and competitive as much as possible.
Occassionally you stumble upon a private business which develops a new network model and after some time it should be refactored from being an App to be part of the OS (eg. twitter).
> . When private companies screw up, who gets left with the bill?
In theory, the company is meant to declare bankruptcy (or seek more investment from shareholders) as soon as their books say they are insolvent. A company is Insolvent when it's liabilities are higher than it's assets, even by a single dollar.
The theory is that because the company is required to declare bankruptcy as soon as possible, it should only be slightly insolvent and should be able to repay creditors 80-95 cents on the dollar after liquidation.
Owners or shareholders might even put a company into bankruptcy while it's still solvent (if they predict a future insolvency, or just want to wrap the company up). Creditors might get the full 100 cents on the dollar. Any money beyond that is paid as dividends to the owners/shareholders.
In theory, if a company had incompetent or fraudulent accounting practices and didn't know it was insolvent, or it deliberately traded while insolvent, then the liability of the company is pierced and the owner can find themselves on the hook to the creditors.
Companies are only meant to be liability shields if they are run correctly.
In reality, sometimes events cause a company to lose a whole lot of value overnight. A company could be 100% solvent one month and 20% solvent the next. But as long as the company was following best accounting practices, it's legal. Sometimes the assets of a company can lose value after bankruptcy, or due to the bankruptcy. Especially when the company has put a lot of "good will" or "brand recognition" as assets on their books.
In reality, liquidators (who are also private companies) often don't go after owners responsible for fraudulent accounting or mismanagement. They let it slide.
Perhaps because they didn't detect it, or it was too minor to worry about. Perhaps they didn't want to waste their time trying to prosecute. Perhaps they decided their creditors would get more cents on the dollar by not prosecuting, especially if the owner has very little of their own assets.
I also suspect there is a reputation factor. Owners get to select which liquidator handles their bankruptcy (unless it was court ordered) and if one liquidator gets a reputation for going after the owners for every mistake, then they might get less business.
When 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.
For 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.
> 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.
Generally speaking I'm on your side - but here? No. This case is an incentive for future shareholders of electric utility ops to keep their company accountable for disaster preparation, so that the shareholders don't lose their investment.
I'm not clear why shareholders aren't on the hook for these cases, on a per share basis. The individual owners can declare bankruptcy instead of the business
And the same management team stays in place coming out of bankruptcy. Capitalism is a complete joke. But we got ten varieties of Cheerios so there’s that.
I always wondered about that. Maybe because I don’t understand what it’s trying to say. I mean profits of companies benefit many, don’t they? Through jobs, taxes, dividends in case it’s a public company and so on.
> . When private companies screw up, who gets left with the bill?
The share holders (which often includes the leadership). Their shares drop relatively quickly to close zero.
I think, however, that this is not enough.
Share holders of a company should be liable as individuals for the damages the company causes in case the company cannot pay.
This would strongly encourage share holders to pressure the CEO (which is also usually a share holder) to run the company in a sustainable way.
Also if the CEO does "gross mismanagement", share holders should be able to sue them as individuals, but from the point of customers, share holders should pay.
The only reason "stonks can only go down to zero" is because we have put in rules in the system to make it that way. When a company fills for bankrupcy, the risk for share holders is limited (to their original investment).
If we change the rules and make share holders accountable, then stonks will definetly be able to go way below zero and share holders will need to foot a bill here, potentionally leaving them all bankrupt.
Once that happens, then customers might still be left in debt. IMO at that point employees of the company should start footing the bill. Many employees look away at wrong business practices because there is nothing in for them in trying to push for change and doing the right thing.
If everyone involved with the company would be personally liable, most companies would be run very differently.
Insurance companies are already worried. I expect them to start writing into their policies exclusions about man made climate change. Which most people won't notice until it is time to file a claim. And then there will be a big uproar.
Insurance is a business that’s mostly designed for uncorrelated tail risks. It works well for insuring shipping. It works pretty well for insuring against house fires. It can be tricky with natural disasters where the risks are quite correlated, though insurance companies try to prepare for it.
It works poorly for cases where the risks are unknown at the time the insurance is sold and then turn out to be correlated. For example asbestos-related lung disease claims basically wiped out many syndicates at Lloyds (though this was exacerbated by other problems like the accounting practices or underwriters having unlimited personal liability)
The effects of climate change are expected to be gradually increasing frequency and severity of extreme events. So that's not too hard to calculate probabilities for on the time scale of typical house insurance policies that are renewed annually. It's not going to be one giant storm that takes everyone by surprise.
Isn’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.
It's not the infrastructure that (temporarily) costs this much. It's the power that runs through it. There was simply no power.
> Unusually frigid temperatures knocked out nearly half of the state’s power plants in mid-February
They were short on the futures/forward contracts, i.e. they had to provide electricity, but there was none. When shit hits the fan someone has to foot the bill, and here it is them (among other such players).
Elon 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.
> to avoid the regulation that would have helped stop this
Actually it was the regulators themselves who were responsible: the Public Utility Commission of Texas - the government organization that is explicitly set up to prohibit price gouging - deliberately set the price to the highest possible price for the entirety of the storm.
[+] [-] TheOtherHobbes|5 years ago|reply
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_s...
It suggests the problems were systemic and interconnected, but at least some parts of the industry were aware of them.
[+] [-] everybodyknows|5 years ago|reply
https://www.texastribune.org/2021/02/26/ercot-resignation-po...
[+] [-] jonplackett|5 years ago|reply
Privatise the profit, socialise the losses.
[+] [-] snidane|5 years ago|reply
Networks and infrastructure = little to no competition. Eg. networks naturally settle in a optimal geographical location and utilize economy of scale then. Can't compete with that. So don't privatise platforms. Rather - make them monopolistic and make them share the revenue with public using a monopoly tax. AT&T model.
Translated to programmer speak: society's OS (law,defence,policing,roads,energy,networks,sewers,etc.) should be uniform and near monopolistic to maximize economy of scale.
Society's Apps (businesses) running in the ecosystem of the OS should be private, numerous and competitive as much as possible.
Occassionally you stumble upon a private business which develops a new network model and after some time it should be refactored from being an App to be part of the OS (eg. twitter).
[+] [-] phire|5 years ago|reply
In theory, the company is meant to declare bankruptcy (or seek more investment from shareholders) as soon as their books say they are insolvent. A company is Insolvent when it's liabilities are higher than it's assets, even by a single dollar.
The theory is that because the company is required to declare bankruptcy as soon as possible, it should only be slightly insolvent and should be able to repay creditors 80-95 cents on the dollar after liquidation.
Owners or shareholders might even put a company into bankruptcy while it's still solvent (if they predict a future insolvency, or just want to wrap the company up). Creditors might get the full 100 cents on the dollar. Any money beyond that is paid as dividends to the owners/shareholders.
In theory, if a company had incompetent or fraudulent accounting practices and didn't know it was insolvent, or it deliberately traded while insolvent, then the liability of the company is pierced and the owner can find themselves on the hook to the creditors.
Companies are only meant to be liability shields if they are run correctly.
In reality, sometimes events cause a company to lose a whole lot of value overnight. A company could be 100% solvent one month and 20% solvent the next. But as long as the company was following best accounting practices, it's legal. Sometimes the assets of a company can lose value after bankruptcy, or due to the bankruptcy. Especially when the company has put a lot of "good will" or "brand recognition" as assets on their books.
In reality, liquidators (who are also private companies) often don't go after owners responsible for fraudulent accounting or mismanagement. They let it slide.
Perhaps because they didn't detect it, or it was too minor to worry about. Perhaps they didn't want to waste their time trying to prosecute. Perhaps they decided their creditors would get more cents on the dollar by not prosecuting, especially if the owner has very little of their own assets.
I also suspect there is a reputation factor. Owners get to select which liquidator handles their bankruptcy (unless it was court ordered) and if one liquidator gets a reputation for going after the owners for every mistake, then they might get less business.
[+] [-] dan-robertson|5 years ago|reply
[+] [-] blake1|5 years ago|reply
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.
[+] [-] mschuster91|5 years ago|reply
Generally speaking I'm on your side - but here? No. This case is an incentive for future shareholders of electric utility ops to keep their company accountable for disaster preparation, so that the shareholders don't lose their investment.
[+] [-] Dma54rhs|5 years ago|reply
[+] [-] undefined1|5 years ago|reply
unless they are "too big to fail" and effectively part of the government. in that case yes, we all pay for their losses.
[+] [-] 8note|5 years ago|reply
[+] [-] Apofis|5 years ago|reply
[+] [-] snarf21|5 years ago|reply
[+] [-] lawnchair_larry|5 years ago|reply
[+] [-] hahahahe|5 years ago|reply
[+] [-] hurril|5 years ago|reply
[+] [-] baxtr|5 years ago|reply
I always wondered about that. Maybe because I don’t understand what it’s trying to say. I mean profits of companies benefit many, don’t they? Through jobs, taxes, dividends in case it’s a public company and so on.
What am I getting wrong here?
[+] [-] refurb|5 years ago|reply
Edit: people really don’t know how bankruptcy works? Equity holds get wiped out first followed by bond holders.
[+] [-] volta83|5 years ago|reply
The share holders (which often includes the leadership). Their shares drop relatively quickly to close zero.
I think, however, that this is not enough.
Share holders of a company should be liable as individuals for the damages the company causes in case the company cannot pay.
This would strongly encourage share holders to pressure the CEO (which is also usually a share holder) to run the company in a sustainable way.
Also if the CEO does "gross mismanagement", share holders should be able to sue them as individuals, but from the point of customers, share holders should pay.
The only reason "stonks can only go down to zero" is because we have put in rules in the system to make it that way. When a company fills for bankrupcy, the risk for share holders is limited (to their original investment).
If we change the rules and make share holders accountable, then stonks will definetly be able to go way below zero and share holders will need to foot a bill here, potentionally leaving them all bankrupt.
Once that happens, then customers might still be left in debt. IMO at that point employees of the company should start footing the bill. Many employees look away at wrong business practices because there is nothing in for them in trying to push for change and doing the right thing.
If everyone involved with the company would be personally liable, most companies would be run very differently.
[+] [-] azujus|5 years ago|reply
[+] [-] ansible|5 years ago|reply
Insurance companies are already worried. I expect them to start writing into their policies exclusions about man made climate change. Which most people won't notice until it is time to file a claim. And then there will be a big uproar.
[+] [-] dan-robertson|5 years ago|reply
It works poorly for cases where the risks are unknown at the time the insurance is sold and then turn out to be correlated. For example asbestos-related lung disease claims basically wiped out many syndicates at Lloyds (though this was exacerbated by other problems like the accounting practices or underwriters having unlimited personal liability)
[+] [-] pmiller2|5 years ago|reply
[+] [-] exporectomy|5 years ago|reply
[+] [-] jiofih|5 years ago|reply
[+] [-] anthony_r|5 years ago|reply
> Unusually frigid temperatures knocked out nearly half of the state’s power plants in mid-February
They were short on the futures/forward contracts, i.e. they had to provide electricity, but there was none. When shit hits the fan someone has to foot the bill, and here it is them (among other such players).
[+] [-] madsbuch|5 years ago|reply
[+] [-] kumarvvr|5 years ago|reply
[+] [-] dragonwriter|5 years ago|reply
[+] [-] Thorncorona|5 years ago|reply
[+] [-] realitysballs|5 years ago|reply
[+] [-] _pmf_|5 years ago|reply
[+] [-] realitysballs|5 years ago|reply
[+] [-] bsder|5 years ago|reply
"Vital infrastructure" and "market driven" are rarely a good match.
[+] [-] oblio|5 years ago|reply
[+] [-] cm2187|5 years ago|reply
[+] [-] stefan_|5 years ago|reply
[+] [-] Maarten88|5 years ago|reply
[+] [-] runawaybottle|5 years ago|reply
[+] [-] qaq|5 years ago|reply
[+] [-] wiether|5 years ago|reply
[deleted]
[+] [-] A12-B|5 years ago|reply
[+] [-] eclat|5 years ago|reply
[+] [-] cwkoss|5 years ago|reply
[+] [-] commandlinefan|5 years ago|reply
Actually it was the regulators themselves who were responsible: the Public Utility Commission of Texas - the government organization that is explicitly set up to prohibit price gouging - deliberately set the price to the highest possible price for the entirety of the storm.
[+] [-] diveanon|5 years ago|reply
Only difference is Elon Musk is smart enough not to foot gun himself when he actually asserts his power.