Why Would The City Of San Francisco Purchase PG&E’s Power Assets?

As PG&E (PCG) continues to emerge from Chapter 11 bankruptcy protection, the city of San Francisco is reportedly considering offering a deal to the utility for some of its power assets.

The multimillion-dollar deal is expected to happen within the next few months as Mayor London Breed told PG&E back in March that a formal bid would come if it proves feasible for the city, Bloomberg reported.

San Francisco is looking to purchase PG&E’s electric distribution system in the city, which it estimates “in the range of a few billion dollars,” according to Monday’s report from the San Francisco Public Utilities Commission.

PG&E filed for bankruptcy in January and faces an estimated $30 billion in liabilities for the wildfires in South California. PG&E was cleared of all liability in the Tubbs wildfire, which was determined to be caused by a private electrical system. The utility has, however, admitted that its equipment may be responsible for the Camp Fire, which is considered the most devastating wildfire to occur in the state.

PG&E has come under fire by the bankruptcy judge in its case that ordered the utility to beef up its safety measures by implementing tree trimming near all of its powerlines and equipment. While PG&E said the effort would be too costly and difficult to find labor, the judge in the case mandated that the company's dividends were used to comply with the order.

For the purchase of PG&E equipment, the city of San Francisco is weighing its ability to keep the electrical power affordable and reliable while meeting climate goals prior to its offer, Bloomberg reported. An estimated $360 million a year is received by PG&E from San Francisco for electrical services and public programs, according to the Commission’s report.

The San Francisco Public Utilities Commission said in its report findings that, it “demonstrates that public ownership of San Francisco’s electric grid has the potential for significant long ‐ term benefits. It also maintained that that purchase would “ eliminate the roadblocks, delays, and costs” that it has been dealing with by working with PG&E. The report indicated that there have been delays and overrun costs from the utility.

In order to make the purchase, San Francisco would sell revenue bonds, the news outlet said. San Francisco made a similar deal for the overhaul of its water system, costing $4.8 billion.

Shares of PG&E stock were down 0.77 percent as of 12:46 p.m. ET on Tuesday.