(Bloomberg) — San Francisco may make a multibillion-dollar bid within months for some assets owned by California power giant PG&E Corp.
Mayor London Breed told the utility owner in March that the city may submit a formal offer for its electric distribution system in San Francisco “within the coming months” if the acquisition proves feasible, the San Francisco Public Utilities Commission said in the report Monday. The agency estimated that the fair market value of the assets is “in the range of a few billion dollars.”
The report takes San Francisco one step closer to an offer that city officials have been talking about since PG&E filed for bankruptcy in January under the weight of an estimated $30 billion in liabilities from wildfires. In light of the Chapter 11 filing, Breed asked the utilities commission to evaluate how the city could ensure its power supplies remained affordable, reliable and in compliance with climate goals.
“This preliminary report demonstrates that public ownership of San Francisco’s electric grid has the potential for significant long‐term benefits,” the agency said, noting that an acquisition would also “eliminate the roadblocks, delays, and costs” that the city faces in working with PG&E.
PG&E shares fell 2 percent to close at $18.23 on Monday after rising to as high as $18.37 on the news. The company said in a statement that it is committed to working with San Francisco, where its roots date back more than a century. “We look forward to reviewing the city’s analysis, and appreciate the city’s open and transparent dialogue on the subject,” PG&E said.
The office of Governor Gavin Newsom didn’t respond to requests for comment. In April, Newsom raised the prospect of a government takeover if the company continued to be “bad actors.”
Breed said in a statement that it’s “in the long-term interest of our city to continue down this path,” describing it as a “unique opportunity.”
The utilities commission would sell revenue bonds to buy the assets, pointing in the report to past successful offerings backed by its water systems. While the necessary capital “would be significant,” the report said it’s comparable to the city’s $4.8 billion overhaul of its water system. Bonds backed by the utility’s power revenue are rated AA, third highest, by S&P Global Ratings.
Working with PG&E in the past has led to delays and cost overruns for city projects, the report showed. For example, PG&E once tried to require the city to install electrical equipment for a transit restroom that cost ten times more than the bathroom itself.
Overall, the report estimates that about $360 million flows annually from San Francisco to PG&E for power delivery services and other public purpose programs.
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San Francisco May Make PG&E a Multibillion-Dollar Offer in Weeks, by Romy Varghese, David R. Baker and Mark Chediak, Bloomberg, May 14, 2019.