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San Francisco is ready to spend $ 2.5 billion to purchase power lines and other related infrastructure from Pacific Gas and Electric Co. serving the city.
The mayor of London Breed and the city's public prosecutor, Dennis Herrera, quoted the award in a Friday letter to PG & E, reviewed by The Chronicle, which describes the city's bid for the company's electrical assets. San Francisco officials have been closely considering such a purchase since PG & E decided to file for bankruptcy protection in January, and the offer letter is the most important step nowadays.
If the deal succeeds, it would be a turning point for PG & E, which would lose hundreds of thousands of electricity customers in its hometown, where the roots of the company go back more than 150 years. The agreement would also form California's third-largest utility after the Los Angeles Department of Water and Power and the Sacramento Municipal Utility District.
San Francisco does not seek to buy any part of the PG & E gas system.
Breed and Herrera said in a statement that their offer resulted from a "detailed financial analysis performed by industry experts and encompassing a thorough review of the company's assets in San Francisco."
"The offer we offer is competitive, fair and equitable," the statement said. "It will provide financial stability to PG & E, while helping the city strengthen its efforts to provide reliable, safe, clean and affordable electricity to San Francisco residents and businesses."
But many unknowns weigh on the San Francisco proposal.
One of them is the strength with which PG & E will resist the efforts of the city. Another complicating factor is a new law that will give utility regulators increased oversight.
In response to the opening of the city, PG & E spokesman Andy Castagnola said, "We all agree on the importance of continuing to provide the citizens of San Francisco with safe, clean energy. , affordable and reliable. PG & E has been part of San Francisco since its founding more than a century ago. While we do not believe that municipalization would best serve the interests of our customers and stakeholders, we are committed to working with the city and will remain open to communication on this issue. "
The money for the purchase would come from a good municipal power that voters agreed last year that the city could use. According to Barbara Hale, deputy general manager in charge of electricity at the San Francisco Public Utilities Commission, customers would repay the debt through their electricity bills, which, according to the city, would remain the same or less than PG & E.
The city does not need additional approval from voters to complete the deal, Hale said, but state and federal regulators will have to sign. San Francisco wants the agreement to be approved as part of the PG & E plan to get out of bankruptcy protection, although the transition to a fully government-run electrical service would take longer. PG & E must resolve its bankruptcy case before the end of June to tap into a fund that will protect it from future costs related to wildfires.
City officials said the proceeds from the sale would help PG & E pay the victims of the deadly fires that the company's power lines have started. The city would pay a premium on the book value of PG & E's electrical equipment, and the state control authorities would decide how it could use the extra money, especially if it could be used for victims of fire, said Hale.
"This is part of what we think is interesting for PG & E about this offer," said Hale. "This helps them cope with these financial obligations, because it is cash today."
And there would likely be costs beyond the proposed purchase price of $ 2.5 billion, as San Francisco would have to pay its share of the various charges collected by PG & E from the city's customers, said Tan.
According to Michael Wara, director of Stanford University's energy policy program, few major private utilities in the country have been turned into government-run activities. And when Sacramento sought to create its own electricity service in the 1920s, it took more than 20 years to complete it – partly because of PG & E's resistance, Wara noted.
The same thing could happen in San Francisco, he said.
"Current shareholders want either a very high price or a delay tactic," Wara said. "I'm not judging the idea. I say it's a question everyone in the city has to think about because we have to weigh the pros and cons of municipalization. "
Another problem is how customers from the rest of the PG & E system, including areas where fire risks are concentrated, will be affected if San Franciscans are no longer supplied with electricity by the utility.
"This will mean that people living in the suburbs and rural areas of California are being left behind in the PG & E system, and it is not clear that the system is economically viable," said Wara. "What is the impact of this on people who do not live in San Francisco?"
In their letter, Breed and Herrera announced that the city would recruit PG & E employees and offer them "stable careers with attractive salaries and benefits".
But IBEW Local 1245, the largest union in the company, has so far opposed the idea that San Francisco will take control of PG & E, which could be a further obstacle to the city.
The union sponsored a website, sfprioritycheck.com, which details its opposition to the potential transaction and says it could cost the city $ 6 billion.
But the idea seems to have a lot of support in the city. Supervisor Hillary Ronen plans to present a resolution supporting Breed and Herrera's letter on Tuesday and hopes to be able to count on the support of his colleagues on the board of supervisors, according to city officials.
In the letter, Breed and Herrera indicated that they hoped to discuss this offer at a meeting with PG & E Corp. Chairman Bill Johnson, already scheduled for September 26th.
J.D. Morris is a staff writer for the San Francisco Chronicle. Email: [email protected] Twitter: @thejdmorris
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