PG&E Corp.’s looming bankruptcy could lead to an unprecedented spectacle — a major American power company being taken over by the state or broken up for city governments to run.
More often, it works the other way. Local governments have a long history of selling off municipal utilities, switching them from the public sector to the private. Witness the ongoing efforts to privatize Puerto Rico’s troubled power authority.
But with PG&E planning to file for bankruptcy this month — the result of mounting wildfire liabilities that could reach $30 billion — a government takeover has become a real possibility. In fact, the future of the power giant that has long reigned over a broad swath of California could very well involve a complete dismantling of its system and a takeover by multiple municipalities.
PG&E’s own hometown of San Francisco has signaled interest in buying some of the company’s assets. The city’s utilities commission said Tuesday that Mayor London Breed asked it to study the possibility. The commission, which pipes water from the Sierra Nevada mountains to the city and runs its own hydroelectric dams, has had a testy relationship with PG&E. Seizing the company’s local assets has, for years, been a lodestar goal of the city’s political left.
“I think, as a city, this is an unparalleled opportunity to move to energy independence, to independence from Pacific Gas and Electric,” Aaron Peskin, a member of the San Francisco board of supervisors, said at a hearing related to the matter Tuesday.
Many California counties and cities — including San Francisco — have recently started buying electricity on behalf of their residents, through a system known as community choice aggregation. Those programs still rely on PG&E and the state’s other traditional utilities to deliver the electricity they purchase. Several are privately debating whether to bid for chunks of PG&E, said Mark Toney, director of a utility watchdog group. He declined to name the organizations, because they have not yet decided to make their interest public.
Toney and his group, the Utility Reform Network, have long been critical of PG&E. But the prospect of seeing the company dismembered troubles him, since it may create service disparities at a time of growing climate-related risks.
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San Francisco may have the resources and will to take over part of PG&E’s network, he said. Less-prosperous rural communities may not. And those communities, particularly in the wooded Sierra foothills, face a greater risk that power lines may spark wildfires. Maintaining the electric grid there would be more expensive than in the city.
“We need to be careful that we don’t end up with a two-tier system of reasonably priced power for people living in the cities, and extremely expensive power for people living in rural communities,” Toney said.
A takeover by the state or local governments is one of many possible outcomes for PG&E. When the company’s Pacific Gas and Electric utility went through bankruptcy proceedings, from 2001 to 2004, it emerged intact, without major structural changes. Now, possibilities also include selling off its gas business as well as its San Francisco headquarters.
Steven Malnight, the utility’s senior vice president for energy supply and policy, said in an interview Monday that PG&E at this point would not rule out any potential outcomes.
“It’s pretty early in this process to speculate on what will emerge from the process,” he said. “But we have been very clear that we’re open to exploring all options.”
The California Public Utilities Commission has opened a proceeding to look at the structure of PG&E, including carving the utility owner into smaller, regional subsidiaries or converting it into a government-owned company, while Governor Gavin Newsom has said all options are on the table. Any effort to break up the company, or sell off pieces of it, would have to be hashed out in bankruptcy court and approved by the judge overseeing the proceedings.
Negotiations over which assets would be purchased and at what price could be fraught. The City of Boulder in Colorado, for example, has been in talks for years with incumbent utility Xcel Energy Inc. on an effort to municipalize the city’s electric distribution system, with the issue still unresolved.
“The people who see this as an easy fix aren’t correct,” said Severin Borenstein, faculty director of the Energy Institute at the University of California at Berkeley’s Haas School of Business. “You need the expertise for, in the case of San Francisco, a pretty significant grid operation. You also need to go through the process of valuing the hardware and transferring it.”
PG&E is such a big, complex company that the state government probably wouldn’t want to run it whole, several analysts have concluded. The company serves about 16 million people scattered across a vast swath of Northern and Central California.
“In the short run, managing a single 70,000 square-mile service territory could prove incredibly challenging to the state,” Helen Kou, an analyst with BloombergNEF, wrote in a research note. “This could represent a transition phase while it works on splitting up PG&E into smaller pieces.”
Hugh Wynne, a utilities and renewable energy analyst for Sector & Sovereign Research, argues that a carve-up could add to PG&E’s value — if the company sheds the more expensive, fire-prone areas north of San Francisco Bay. He estimates that PG&E’s possible $30 billion liability from the 2017 and 2018 fire seasons sprang from just 12 percent of the company’s transmission and distribution network.
“The wildfire risk associated with that region is rendering the entirety of PG&E’s transmission and distribution system impossible to finance,” Wynne said.