San Francisco Explores Taking Over PG&E’s Local Electricity Assets

Almost as soon as Pacific Gas & Electric announced that it was saddled with liability from several deadly wildfires and would be filing for bankruptcy, San Francisco Mayor London Breed directed the San Francisco Public Utilities Commission to look at taking local control of power distribution.

On January 29, PG&E, California’s largest utility, officially filed for bankruptcy. The next day, in Breed’s State of the City address, she was bullish about public power in San Francisco.

“San Francisco knows how to run a clean power system, and we are going to get to 100 percent renewable energy by 2030,” she said. “And if this bankruptcy provides an opportunity for public power, we will take it. I will be working with City Attorney Dennis Herrera to make sure that whatever happens with PG&E, that we are prepared.”

In recent weeks, local leaders have started to explore how the SFPUC could purchase — or wrest — control of power distribution from PG&E using a revenue bond or a windfall cash reserve. PG&E has said it might sell off assets during its bankruptcy.

“We’re looking at how can we protect our ratepayers in San Francisco,” said Harlan Kelly, general manager of the SFPUC, during a Board of Supervisors meeting on January 14. “One way is to actually purchase the distribution system in San Francisco so that we can maintain it and not have the burden of paying for all the distribution of electricity in the country where the fires occur.”

Many questions remain around exactly how San Francisco plans to separate from PG&E. The SFPUC will examine the issue for the next three months. If and when a plan emerges, it is likely to meet resistance. The union that represents about 17,000 PG&E employees, the International Brotherhood of Electrical Workers Local 1245, came out in opposition to selling off the utility.

Calls for a local Green New Deal

Still, frustrated with delays in clean energy and energy efficiency projects, city officials are calling for aggressively building renewable generation projects in San Francisco, which they say could create jobs for low-income residents. They’re billing the initiative as a local version of a Green New Deal.

“In providing energy clean energy to the residents of San Francisco, we need to really think about a local version of a Green New Deal,” said Supervisor Sandra Lee Fewer, during last month’s board meeting. “And that is really about building our own resources for renewable energy on our own land or publicly owned land outside of San Francisco.”

On January 29, Supervisor Hillary Ronen called for a separation from PG&E and introduced legislation to create a $15.6 million fund that could only be used as part of a city-owned utility. “This state is waking up to the way that PG&E has been operating as a company and is no longer going to allow this corporation to run roughshod over our communities,” Ronen said.

Calls to split from the utility come as San Francisco officials grapple with the possibility that the bankruptcy could disrupt the flow of cash from PG&E to CleanPowerSF, the city’s community choice program. Localities like San Francisco generate and purchase power on behalf of customers through community-choice aggregation programs, or CCAs, and then pay utilities to distribute the power.

While PG&E’s bankruptcy could present an opportunity to expand public power in San Francisco, local leaders say it could threaten the CCA just as the city is expanding its enrollment to 360,000 accounts by April, nearly all of the city’s power customers.

San Francisco’s State Senator Scott Wiener said that he’ll be looking to protect the interests of CleanPowerSF in Sacramento. In the past, he has criticized PG&E for fighting the community choice model.

“There’s really a lot of uncertainty right now, and we will be probably be playing some defense,” Wiener said, in an interview. “There’s a potential for some contentious fighting in the legislature this year around energy. PG&E and others will try to protect the centralized model, and some could take this as an opportunity to try to undermine CCAs and distributed energy resources…by arguing that the utilities are fragile and we shouldn’t be doing anything that could potentially undermine them.”

That said, Wiener sees real opportunity for expanding the SFPUC, which runs CleanPowerSF, even if the details will be clear only over the course of the next few months. “I would like for us to be in a position to move in that direction if the opportunity presents itself and it makes sense,” he said. “The benefits are local decision-making about energy mix, and pursuing an aggressive clean energy approach.”

“One of the critiques of PG&E is that its geography is so massive that it becomes very challenging for it to safely maintain all of that all that unending infrastructure and that having a smaller utility can allow more focus on infrastructure safety and reinvestment,” Wiener said. “There are publicly owned utilities around the state that have been quite successful. It is a model that we know can work, and San Francisco already has a publicly owned utility.”

Paying for distribution assets

San Francisco voters passed Proposition A last June, which allows the SFPUC to issue a revenue bond to pay for power equipment, so long as it has a two-thirds approval from the Board of Supervisors. The goal of the proposition was to spur the development of renewable energy generation and prohibit San Francisco from funding any more plants that generate power from fossil fuels or nuclear energy.

But now, leaders in San Francisco might use the bond authority to fund the initial cost of purchasing distribution equipment from PG&E and have ratepayers recoup the cost over several years. If San Francisco owned its own distribution assets, they expect the cost of power to be much lower than it is right now.

“That delta will help us actually pay for the upfront money,” SFPUC’s Kelly said. “We can build our own facility and then have a ratepayers pay us, and it will be cheaper for the ratepayer.”

If the city doesn’t use its new bond authority, there is another pot of money available for city leaders to pay the acquisition cost. San Francisco has a $415 million windfall from extra revenue in a county education fund, the Educational Revenue Augmentation Fund, that could be used as part of a down payment to PG&E. Supervisor Aaron Peskin floated the idea during the board meeting. However, that move would likely be controversial as competing interest groups want to use the funds to pay for increasing services to San Francisco’s homeless population, while others want to use it in the schools.

The big remaining question: It’s unclear how much PG&E’s existing infrastructure would cost, and it’s unclear how much it is worth. The distribution system in San Francisco is “not in a state of good repair,” Kelly said. Just how badly it’s been neglected is unknown, and that’s one thing the SFPUC will be determining as it considers a plan for public power. They’ll need to estimate repair costs and potential operating costs before they understand how much money the SFPUC could make on the acquisition.

But one benefit of public power is that San Francisco won’t be looking to turn a profit. “Our costs of operating the system won’t include the profit component,” said Barbara Hale, assistant general manager of the SFPUC. “We anticipate we would be able to afford to repay whatever the upfront costs are for purchasing the system through the bonding authority and repay any immediate repair of that system.”

Cash flow concerns

A big fear among CCAs across California is that the bankruptcy could disrupt the flow of remittance from PG&E. San Francisco is no exception.

Executives at the SFPUC say they are preparing for the worst, and they are examining all of their financial assets. “It’s possible that a bankruptcy could interrupt the remittance of CleanPowerSF customer payments to the city,” Hale told the Board of Supervisors last month. “That’s an impact that we are highly attentive to. We are analyzing the potential financial consequences of delayed payment from PG&E due to any bankruptcy and are working with the controller’s office on potential mitigations.”

Hale does not expect that there will be any impact to power service in San Francisco, but the SFPUC is examining how it will pay all its bills in the event of a disruption. “We are well positioned in that we do have reserves,” Hale said. “We have a credit facility that has available capacity that can help us weather a situation like that. We do have tools available to us. We planned for situations like this.”

California Community Choice Association, or CalCCA, represents the state’s community choice electricity providers in Sacramento and to regulators. On the day PG&E filed bankruptcy, CalCCA released a statement saying it remains optimistic that PG&E will continue providing billing services for the state’s CCAs.

“We support PG&E’s first-day motion seeking the Bankruptcy Court’s approval to continue passing through CCA revenues in the ordinary course of business,” the group said. “We agree with PG&E that ‘the normal and uninterrupted remittance’ of customer payments to CCAs and other public-purpose programs is of the utmost importance.”

SF pushes for control

For now, Breed’s and Herrera’s offices are declining to comment further on the issue, and the SFPUC will only outline broad ending points.

One option is for the relationship between PG&E and San Francisco to be maintained as it existed before the bankruptcy. That is: San Francisco generates and acquires power and the utility distributes it. Another option is for San Francisco to increase its independence, which could be an expansion of CleanPowerSF, or the city could take control of power distribution entirely.

A push for local power seems likely, and Supervisor Peskin signaled his intention to move forward: “The option of — in a friendly way, through negotiation — acquiring assets within the city and county of San Francisco is on the table,” he said at the January board meeting. “And, of course, there’s always Plan B, which is the power of eminent domain.”

Peskin, a longtime critic of PG&E, was on the board when the utility went bankrupt in the early 2000s. For years, local leaders have wanted independence from PG&E, and the relationship between the city and the utility has grown increasingly tense in recent years. It escalated last year, when state regulators approved a proposal from PG&E and other investor-owned utilities to change how CCAs compensate the companies for long-term power-purchase contracts, a move that is expected to raise rates on local customers.

“The list of grievances between the City and County of San Francisco and PG&E is growing exponentially,” Peskin said. “Whether it is affordable housing, or recreation and parks facilities, Municipal Transit Agency facilities, PG&E — relative to our own power — has put up roadblocks at virtually every place that they can. Costly, time-consuming roadblocks. And then with the CleanPowerSF program, they are figuring out ways to screw us on community choice aggregation. This really continues to be a hostage situation.”

The solution? “I think, as a city, this is an unparalleled opportunity to move to energy independence,” he said.

 

San Francisco Explores Taking Over PG&E’s Local Electricity Assets, by Kevin Stark, Greentech Media, February 8, 2019.

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