Pacific Gas & Electric has rejected a $2.5 billion offer from the City of San Francisco to purchase substantially all of PG&E’s distribution and transmission assets needed to provide retail electric service to all electricity customers in the city.
San Francisco Mayor London Breed and San Francisco City Attorney Dennis Herrera outlined the proposal in a Sept. 6 letter that was sent to William Johnson, CEO and President of PG&E Corp., and Andrew Vesey, CEO and President of PG&E.
Facing billions of dollars in wildfire-related liabilities, PG&E Corporation and its primary operating subsidiary, PG&E, on Jan. 29 filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Northern District of California.
In the letter to Johnson and Vesey, Breed and Herrera noted that the non-binding indication of interest to purchase the targeted assets was being submitted with the support of the San Francisco Board of Supervisors and the SFPUC.
The targeted assets would include substantially all of PG&E’s distribution assets, 230/115 kV transformers and 115 kV transmission lines located within the city limits and certain other assets that are needed to properly service customers in San Francisco.
San Francisco is uniquely positioned to acquire the targeted assets and provide enhanced value to the debtors and their stakeholders, the letter said. San Francisco has been operating its public power utility, Hetch Hetchy, alongside PG&E for decades, serving City and County facilities and a growing number of residential and commercial loads in areas of the City undergoing redevelopment. Since May 2016, San Francisco has also been operating a Community Choice Aggregation program to provide generation service to PG&E retail electric customers. As a result of these two programs, San Francisco serves 80% of the electricity consumed in the City. The offer would have the City taking back from PG&E responsibility for distribution service awarded them in a 1939 non-exclusive franchise agreement.
Breed and Herrera said the city also believes the proposed transaction would offer meaningful benefits to the city and its residents including:
- Stable and competitive rates for customers throughout San Francisco;
- Enhanced focus on local needs;
- Increased ability to achieve the city’s aggressive climate action goals as well as other important policy objectives; and
- Additional attractive long-term career and business opportunities for local residents and businesses.
Breed and Herrera subsequently met with Johnson on Sept. 26 to discuss various matters including the city’s interest in the proposed transaction.
PG&E’s Johnson responds to letter
Johnson responded to the proposal in an Oct. 7 letter to Breed and Herrera. “Although we appreciate the effort San Francisco undertook to prepare its offer, we must decline to accept it,” Johnson wrote.
“As I indicated when we met, our San Francisco-based facilities are not for sale and to do so would not be consistent with our charter to operate or our mission to serve Northern California and Central California communities,” the PG&E Corp. CEO and President wrote.
He listed various reasons for why the utility declined to accept the offer. Among other things, Johnson said it would “unnecessarily and unfairly pass a large amount of costs to remaining PG&E customers throughout the state.” Unlike San Francisco’s offer letter, which included the assumptions underlying the asset price tag, PG&E’s letter did not include any information to substantiate its statements regarding costs.
Johnson said that the utility’s financing strategy to emerge from bankruptcy does not envision selling off company assets. “We believe we can fairly resolve and fund all claims and other items through conventional financial markets,” he wrote. “If we ever do consider such sales, we have a duty to obtain the highest and best value for these assets.”
San Francisco to continue pursuit of PG&E assets
“We aren’t surprised by PG&E’s response so far,” Breed and Herrera said. “We’re also not giving up. Now more than ever, it is clear that we must take back control of San Francisco’s electric service and achieve energy independence.”
They said that the “benefits of affordable, clean, safe and reliable local power are too important. The arguments being made in their letter are inconsistent with the comprehensive analysis the City and its financial advisors have done on our proposal. We will continue to pursue acquisition of PG&E’s electrical assets because it is in the best interests of all San Franciscans.”