By Hudson Sangree

SACRAMENTO, Calif. — San Francisco offered $2.5 billion to buy PG&E Corp.’s grid facilities serving the city Friday as the company announced it was postponing a controversial effort to secure up to $20 billion in bonds to pay its wildfire debts.

The company’s announcement came as state lawmakers prepare to end their session Sept. 13 — and as PG&E gets ready to file a reorganization plan by Monday in U.S. Bankruptcy Court in San Francisco.

San Francisco Offer

The company indicated that the city’s offer — delivered in a letter from Mayor London Breed and City Attorney Dennis Herrera — was not part of its plans for exiting bankruptcy.

“PG&E has been a part of San Francisco since the company’s founding more than a century ago, and while we don’t believe municipalization is in the best interests of our customers and stakeholders, we are committed to working with the city and will remain open to communication on this issue,” PG&E spokesman Andy Castagnola said in a statement.

Breed and Herrera said in a statement that the city’s offer was the result of a “detailed financial analysis conducted by industry experts and encompassing an extensive examination into the company’s assets in San Francisco.”

“The offer we are putting forth is competitive, fair and equitable,” they said. “It will offer financial stability for PG&E, while helping the city expand upon our efforts to provide reliable, safe, clean and affordable electricity to the residents and businesses of San Francisco.”

The purchase would create California’s third-largest municipal utility, after the Los Angeles Department of Water and Power and the Sacramento Municipal Utility District. The city is not seeking to purchase any of PG&E’s gas assets.

The deal would have to clear the bankruptcy court and federal and state regulators, where a central issue is likely to be how the loss of San Francisco would impact the rest of PG&E’s system.

“What that will mean is that folks who live in suburban and rural parts of California are left behind in PG&E’s system, and it’s not clear that the system is economically viable,” Michael Wara, the director of Stanford University’s energy policy program, told the San Francisco Chronicle. “What is the impact of this on people who don’t live in San Francisco?”

IBEW Local 1245 — PG&E’s largest union with 12,000 PG&E employees — has opposed talk of municipalization, creating a website to make its case against a purchase it says would cost closer to $6 billion. “Should city government focus on fighting homelessness, reducing traffic gridlock and building more affordable housing — or should politicians spend $6 billion buying PG&E and running our local utility?” it asks.

Tom Dalzell, business manager for the local, told The Wall Street Journal the city’s offer “is off by a factor of four. They don’t have the workforce either — the underground workers, the engineers to run the system.”

The unions also may have an ally in Gov. Gavin Newsom, the former San Francisco mayor and supervisor, who helped defeat two initiatives to create a city-owned utility.

PG&E: Will Revisit Bond Plan

Steven Maviglio, a spokesman for major PG&E shareholders that backed the plan, said they would revisit it next year.

“The timing was simply not right to pass this legislation with just days left in the session,” Maviglio said in an emailed statement. “During the interim, we will continue to work to resolve the bankruptcy case and help PG&E fulfill its commitments. We will return in January with a renewed effort to getting this beneficial legislation the full and fair consideration it deserves.”

PG&E issued a statement Friday saying, “We firmly believe that Wildfire Victim Recovery Bonds are a critical element to the state’s path forward when it comes to addressing wildfire risk.”

The company filed for bankruptcy in January after two years of devastating wildfires that are likely to cost the utility billions of dollars in damages. The fires included the November 2018 Camp Fire, the deadliest and most destructive in state history.

In recent weeks, PG&E and the hedge funds that control much of its stock have been lobbying lawmakers to draft and pass a measure that would have established a wildfire recovery bond program for the state’s investor-owned utilities. The proposal would have let the state borrow money, tax-free and at low interest rates, on behalf of the IOUs. (See PG&E Seeks $20B Wildfire Bonds Issuance.)

The vehicle for the bond measure was Assembly Bill 235, a wildfire-related measure that stalled in committee earlier this year. It was heavily amended Friday to include the bond provisions, just as PG&E said it would no longer pursue the effort.

The measure was meant to bolster PG&E’s position in bankruptcy and to head off an effort by its unsecured bondholders to take greater control of the company at a substantial discount. Those bondholders had put forward their own reorganization plan that included a $30 billion investment in the company in exchange for guaranteed payment of their notes, which could otherwise be dismissed in bankruptcy, and a big stake in PG&E. (See PG&E’s Bondholders Push $30 Billion Investment Plan.) They waged a lobbying and advertising battle against the PG&E bond proposal in recent weeks, launching a website titled “Stop the PG&E Bailout.”

In August, Judge Dennis Montali, who is overseeing PG&E’s Chapter 11 case, gave PG&E time to file its own reorganization plan without competing proposals, including the bondholders’ plan, but he could still consider alternatives going forward. (See Only PG&E Can File Bankruptcy Plan, Judge Says.)

PG&E has promised to file its own Chapter 11 reorganization plan by Monday, though the court had given it until later this month to do so. An outline of the plan released by PG&E earlier this summer said the utility will pay its debts and compensate fire victims by raising money through stock offerings.

In documents filed with the U.S. Securities and Exchange Commission, two major shareholders, Abrams Capital Management and Knighthead Capital Management, pledged to backstop PG&E’s plan with $15 billion in equity financing. Those firms also backed the legislative bond proposal.