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 comminity
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 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 fight
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 CCA’s and distributed energy
resources you know 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 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, or ERAF — that could be used as part
of a down payment to PG&E. Supervisor Aaron Peskin floated the
idea during the board meeting. Although, 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 PG&E’s much
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.

Although, 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 CCA’s 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 before regulators. On the day PG&E filed bankruptcy, CalCCA
released a statement saying they remain 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 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 do so: “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. I mean 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.

Source: FS – GreenTech Media
San Francisco Explores Taking Over PG&E’s Local Electricity Assets