San Francisco would face little credit risk if the city is successful in its $2.5 billion bid for embattled utility Pacific Gas and Electric Co.'s local electric distribution assets, Moody's said in a recent report.
"Under San Francisco's financing plan, debt issued for the purchase would be manageable because repayments would be scheduled to match revenues collected from customer electric payments," Moody's analysts wrote in a Sept. 24 report. "Additionally, with the assets located in or near the city and not in an area prone to wildfires, the city would have negligible increased risk involving liabilities because of wildfire damage."
Reports surfaced earlier in September that San Francisco had offered to buy the bankrupt utility's electric assets that serve the city. Pacific Gas and Electric, or PG&E, rebuffed the city's offer as "[not] in the best interests of our customers and stakeholders" but signaled it was open to discussing the transaction as part of its Chapter 11 reorganization plan.
In a Sept. 6 letter from San Francisco Mayor London Breed and City Attorney Dennis Herrera to PG&E Corp. CEO and President Bill Johnson and PG&E CEO and President Andrew Vesey, the city officials detailed terms and conditions for the proposed acquisition of transformers, 115-kV transmission lines and distribution assets "that we believe will be mutually beneficial for the city's constituents, the debtors and their creditors, customers and other stakeholders."
The proposed transaction "represents a very attractive premium valuation compared to recent electric utility transactions that reflects the unique circumstances of, and expedited timing resulting from, the debtors' Chapter 11 bankruptcy cases," the city officials wrote.
Moody's pointed out that San Francisco "has a healthy financial position, with the $40 million a year it would lose in taxes from [PG&E] amounting to a small fraction of city revenue."
"But the PG&E acquisition would not be risk-free," analysts wrote. "While the city has a history of efficiently operating a relatively small power enterprise, the PG&E system is far more complex and there would be integration challenges and expenses."
San Francisco already procures about 80% of its electricity through its municipal power agency and the CleanPowerSF community choice aggregation program. The proposed grid takeover would expand the city's reach to about 400,000 customer accounts with a peak power demand of 1,000 MW but would not cut its reliance on PG&E.
"The city would remain a transmission customer of PG&E, thereby paying for its share of the transmission system most vulnerable to wildfire risk," Moody's wrote.
Still, the proposal appears to be a positive for San Francisco.
"The offer represents the latest move by the city to reduce reliance on PG&E for electricity distribution, an effort started more than 20 years ago," analysts wrote.
The city's proposed purchase of PG&E assets would be subject to approval by the U.S. Bankruptcy Court for the Northern District of California and relevant regulatory authorities.
