This is the same problem with cost-plus contracts in the military. In theory, capping profit is meant to reduce profiteering. But in practice, if your profit is fixed at 6% of the cost to built a jet fighter then you're incentivized to make that jet fighter as expensive as possible. The way to maximize profit under a cost-plus regime is to maximize the cost.

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glenstein 3 hours ago | parent [-]

I will piggy back off of your comment because I was going to say a very similar thing. In my state, electric utilities are guaranteed a rate of return on investment of approximately 12%, if I remember correctly. And so there's a lot of incentive for build out and maintenance that's high in total dollar amount and high in volume of work done. In some ways it's the system working as designed but the "cap" can incentivize erroneous build out, as you noted in the jet fighter example.

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pixl97 2 hours ago | parent [-]

So you have an excessively built out electrical system... sounds like a win to me.

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adgjlsfhk1 an hour ago | parent | next [-]

Absolutely not. The way to spend as much money as possible is to do intentionally inefficient repairs (e.g. last minute/reactive). The providers gain from grid unreliability since by causing problems, they get to justify spending money to "fix" them.

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phil21 23 minutes ago | parent | prev | next [-]

Depends on if the investments were in the right stuff or not. Overbuilt sounds great, so long as it’s overbuilt in capacity and reliability.

If those were malinvestments instead it’s simply throwing money away for not even a theoretical “someday” return. Plenty of ways to look busy while spending massive amounts of capital.

Generally agreed in principle though. Investment in the grid is pathetic almost everywhere in the US and has been for generations.

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CGMthrowaway 2 hours ago | parent | prev | next [-]

I'm sure it sounds good to you as long as it's OPM

https://en.wikipedia.org/wiki/Averch%E2%80%93Johnson_effect

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toomuchtodo 2 hours ago | parent | prev | next [-]

They said excessively expensive, not excessively robust. There is a difference.

	▲	glenstein 32 minutes ago \| parent [-]
		There's not necessarily a difference because they overlap on the venn diagram. The returns to the shareholders go up the more you build out, the benefits and performance face diminishing returns. Different utilities around the country get different scores for reliability and infrastructure integrity, because a dollar spent by one utility on one grid doesn't necessarily have the same impact as a dollar spent by another.

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glenstein 36 minutes ago | parent | prev [-]

Except for the cost to the ratepayers.