Electricity Markets

San Francisco makes $2.5 billion offer for PG&E’s electric system

The City of San Francisco has made a $2.5 billion offer to purchase substantially all of Pacific Gas & Electric’s distribution and transmission assets needed to provide retail electric service to all electricity customers in the city.

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.

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.

“This is a competitive, equitable offer that would allow San Francisco to continue our progress in providing reliable, clean, and safe energy for our residents and businesses,” Breed said in a Sunday, Sept. 8 tweet.

In the letter to Johnson and Vesey, Breed and Herrera noted that the non-binding indication of interest (IOI) to purchase the targeted assets was being submitted with the support of the San Francisco Board of Supervisors and the San Francisco Public Utilities Commission (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.

“Given the unique geography of San Francisco within PG&E’s overall service territory, the city contemplates that a physical separation of the targeted assets can be accomplished in a straightforward manner,” wrote Breed and Herrera.

Subject to the terms and conditions detailed in the letter, the city “is prepared to engage immediately with the debtors and its stakeholders to facilitate the negotiation, documentation, execution and bankruptcy approval of an acquisition transaction that we believe will be mutually beneficial for the city’s constituents, the debtors and their creditors, customers and other stakeholders,” wrote Breed and Herrera.

“San Francisco has been in the community-owned power business for over 100 years, and we’re delivering cleaner, more affordable electricity to customers more than ever before,” said San Francisco Public Utilities Commission (SFPUC) General Manager Harlan L. Kelly Jr. in commenting on the city’s offer letter.

“The city’s proposal delivers safe, reliable and clean power to new and existing customers at or below PG&E’s rates and without relying on the City’s general fund,” he said.

“The timing is right for San Francisco to pursue the purchase of PG&E electricity infrastructure,” said SFPUC Commission President Ann Moller Caen.

“This action will help us achieve energy independence, increase local oversight over power decisions and accelerate our City’s ambitious climate action goals. The SFPUC Commission stands by Mayor London Breed, City Attorney Dennis Herrera and the Board of Supervisors in support of this critical action,” she said.

The SFPUC is not a regulatory agency but a department of the City and County of San Francisco that provides retail drinking water and wastewater services to San Francisco and wholesale water to three Bay Area counties, hydroelectric and solar power to Hetch Hetchy electricity customers, and power to the residents and businesses of San Francisco through its CleanPowerSF program.

Rationale for proposed transaction

San Francisco is uniquely positioned to acquire the targeted assets and provide enhanced value to the debtors and their stakeholders, the letter said.

“For over a century, the city has owned and operated its Hetch Hetchy Power municipal retail electric utility, including its own electric generation, transmission and facilities,” the letter noted.

Hetch Hetchy Power and CleanPowerSF, the city’s community choice aggregation program, supply nearly 80 percent of San Francisco’s electricity needs. “The SFPUC, through Hetch Hetchy and CleanPowerSF, has a long track record of providing safe, reliable and sustainable electric service,” the letter said.

“Given the city’s overlapping footprint with the targeted assets, the ability to integrate the targeted assets with the Hetch Hetchy Power infrastructure, the city’s ability to access low-cost sources of financing and with no obligation to provide a return on equity capital or recover income taxes in its rate structure, the city believes that it will be able to achieve its long-held goal of providing cost-effective electric distribution service to all customers in San Francisco, while providing substantial value to the debtors and their stakeholders.”

The letter said that the city has closely followed the debtors’ bankruptcy cases and believes that, through the proposed transaction, San Francisco can assist PG&E in maximizing value for its stakeholders by providing a significant cash infusion to the debtors. The indicative purchase price of $2.5 billion for the targeted assets would be paid in cash upon the closing of the proposed transaction.

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.

Regulatory approvals

The city anticipates that the proposed transaction will require regulatory approvals or clearances from the California Public Utility Commission, the Federal Energy Regulatory Commission and compliance with the California Environmental Quality Act.

Report found municipalization benefits for San Francisco

In a preliminary study released in May, the SFPUC found that public ownership of the city’s electric grid has “the potential for significant long‐term benefits relative to investment costs and risks.”

In the report, the authors said their initial analysis suggests public ownership could result in “likely net cost savings over the long term as well as rate stability and affordability, and possibly even rate reductions for customers.”

The report also found that reaching the city’s goal of 100% greenhouse gas‐free electricity supplies by 2030, as well as other critical city goals on affordable housing, are much more likely without Pacific Gas & Electric ownership of San Francisco’s electric distribution assets.

The authors emphasized the report is only preliminary and further study is needed before rendering a final recommendation. The report was sought by Breed in January in response to PG&E’s bankruptcy filing.

South San Joaquin Irrigation District renews $116 mil offer to acquire PG&E assets

In recent related news, the South San Joaquin Irrigation District (SSJID) on Sept. 3 said that it had submitted an offer to buy electric assets from PG&E in the utility company’s ongoing federal bankruptcy proceeding.  

SSJID said the $116 million offer would provide additional cash to creditors and other claimants who expect to suffer losses in the PG&E bankruptcy.  SSJID’s offer is part of a new phase of the irrigation district’s 15-year effort to provide locally owned retail electric service. 

SSJID’s renewed offer is similar to what the district proposed and PG&E rejected in 2016, it said. “SSJID has recently validated that the offer still represents fair market value for PG&E’s property,” SSJID said.

After PG&E rejected SSJID’s 2016 purchase offer, the irrigation district filed a court action to acquire PG&E’s local electric grid through exercise of SSJID’s eminent domain powers.  PG&E and SSJID currently have two active court cases that are in limbo due to PG&E’s bankruptcy.

“Our offer creates a path toward resolving ongoing litigation between SSJID and PG&E, provides capital to support PG&E and help it fund payment of creditors and wildfire claims in the bankruptcy, and advances SSJID’s decades-long project,” said Peter Rietkerk, SSJID’s general manager. “We look forward to the opportunity to negotiate in good faith with PG&E and work with other claimants involved in the bankruptcy case.”

SSJID noted that since 2004, it has sought to provide safe and reliable retail electric service in a transparent, responsive and accountable manner, at a 15% cost savings over PG&E, to the approximately 40,000 electrical customers in and around the communities of Manteca, Ripon and Escalon.

Recently, these communities renewed their support for SSJID’s project in a joint letter to Gov. Gavin Newsom.

Valley Clean Energy exploring taking over PG&E distribution assets

Elsewhere in the state, the board of directors of Valley Clean Energy in Davis, California is studying the possibility of acquiring Pacific Gas and Electric distribution facilities in Yolo County as a way to provide safer, cleaner, and more reliable and affordable electric service to its customers.

Valley Clean Energy is a not-for-profit public agency formed to provide electrical generation service to customers in Woodland, Davis, and the unincorporated areas of Yolo County. When VCE was launched in June 2018, it became one of 19 operational community choice energy programs in the state.

Valley Clean Energy provides more than 90% of the electrical generation needs in Woodland, Davis, and unincorporated Yolo County, but customers still pay PG&E for the distribution of power.

Having full control over both electricity distribution and generation could help achieve VCE’s stated goals of providing cost-competitive clean energy, product choice, increased energy efficiency, and price stability, the board said in an Aug 9 release.

CMUA’s Moline says municipalization efforts are extremely competitive

“These three municipalization efforts are extremely competitive,” said Barry Moline, executive director, California Municipal Utilities Association.

“The people of these communities are demanding public power. They want to take control of their energy future, making sure their local electric systems are safe, reliable, affordable, and meet aggressive environmental goals. It’s a testament to the strength of community power.”

PG&E files reorganization plan

Meanwhile, PG&E on Monday filed a reorganization plan “that would have it exiting the biggest utility bankruptcy in U.S. history by next year,” Bloomberg reported.

Bloomberg reported that PG&E Corp. “is proposing to cap the wildfire liabilities that forced it into bankruptcy at about $18 billion -- less than half of what victims and insurers have said they’re owed.”