San Francisco offers $2.5B for PG&E's equipment, power lines in the city

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San Francisco City officials have offered Pacific Gas & Electric $2.5 billion for all of its assets within the city and county, thereby creating the state's third-largest municipal utility behind Los Angeles and Sacramento. 

San Francisco wants PG&E's entire electrical system— all lines, poles, towers, transformers, vaults, substations, buildings, inventory, and trucks. It would still rely on and pay PG&E to transmit power on its long-distance transmission lines to San Francisco.

The city has successfully operated a hydroelectric powerplant at Hetch Hetchy Reservoir in the Sierras for over a century supplying power to all city street lights, Muni, schools, City Hall, and many public and private facilities. 

PG&E says, without shareholders demanding a profit, customers can do no worse; probably better. 

"We assumed rates equal to or less than PG&E to determine whether we could provide the service at a price that's more affordable than PG&E and we concluded, 'yes, we can,'" said Barbara Hale, assistant general manager of power at San Francisco Public Utilities Commission.

The utility said in a statement: 
 "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."

Experts say there are two ways to examine the statement.  One is that PG&E is truly worried about negative impacts on its employees, on its shareholders and its customers. The other way is that PG&E is keeping the lines of communication open, so it can get a much
better price. 

"There's no doubt that PG&E is gonna try to get the highest price they can if they're gonna sell at all," said economist Severin Borenstein of UC Berkeley's Haas School of Business's Energy Institute, one of the nation's most respected energy economists. "Historically, in California, municipal utilities have had lower rates than investor-owned utilities."

But Borenstein says PG&E has lower costs of distribution per kilowatt in San Francisco's small, customer jammed footprint which currently subsidizes distribution costs to suburban and rural areas. 

"This might end up being a good deal for the people of San Francisco, but still be a bad deal for the people of California as a whole because it would just raise the costs that are shouldered by people in other parts of PG&E territory," said Borenstein.

The utility's natural gas system inside San Francisco would remain with PG&E.