PG&E prices the San Francisco grid at $20 billion; the city offered $3.4 billion

A burger stand buys generator fuel

In Alta, a Sierra foothill town in Placer County, Jessica Sellers spent the week fueling generators to keep the freezers cold at Hangry Howie's, her family's burger restaurant. The fuel is "just more additives on top of all the other issues at hand," she said, in the business's first year of riding out PG&E's wildfire shutoffs ¹. On Wednesday evening PG&E·−1.18% — PG&E, down 1.18 percent as of its last quote began cutting power to about 88,000 customers across 29 counties↗, potentially its largest planned shutoff in eight years ⁴¹.

Two prices for the same wires

The bill in the bigger fight just arrived. Chief executive Patti Poppe said Wednesday that taking PG&E's San Francisco grid would cost the city "north of $20 billion,"↗ counting electric assets, property, severance, and a new substation and service center to separate the city from the wider network ³². San Francisco told the California Public Utilities Commission in April that the same equipment was worth $3.4 billion ³. PG&E owes the commission its own number by October 20 ².

The seller is darkening the city it wants to keep

A December 20 fire at PG&E's Mission Street substation darkened about a third of San Francisco and revived a takeover push begun under former mayor London Breed ³. Supervisors unanimously rejected PG&E's appeal of the city's environmental review in September ², and Mayor Daniel Lurie has asked the state to examine at least 40 large outages in the city since January ³. Poppe answers that outage lengths in San Francisco fell by nearly a quarter this year, with $2 billion more to spend there over five years ³.

The receipts run through a levered balance sheet

PG&E's math leans on what it says the city ignored: 2,000 real estate interests such as easements, hundreds of millions of dollars in start-up costs, and roughly $100 million a year of tax and franchise fees PG&E pays San Francisco↗ ². Behind the haggling sits the balance sheet. Total debt reached $64.7 billion in the second quarter, up $8.7 billion in three years ⁸, which is why every billion of grid value is contested.

Ladenburg Thalmann cut its PG&E target to $15.50 from $22.00↗ last week while keeping a Buy rating, citing the cost of burying 5,000 miles of power line through 2037 and consumer interveners fighting the bill ⁶. The stock trades at $13.08 against an $18.50 average analyst target, for a market value of $39.3 billion ⁷. Third-quarter earnings land on October 22 ⁷.

The other side of the ledger

The city's case is not a rounding error. Three-fourths of San Francisco's electricity already comes from city-owned Hetch Hetchy hydropower and the CleanPowerSF buying program, and city utilities commission general manager Dennis Herrera puts it flatly: "What we don't own is the local electric grid" ³. A purchase would be financed with revenue bonds repaid through electric bills ³. PG&E calls the $3.4 billion figure "unrealistic" and the environmental review "deficient," and Poppe says the company would fight in court for years rather than sell cheap↗ ⁵³.

October 20 opens the valuation

Both numbers are opening bids. Watch October 20, when PG&E's filing shows how it splits $20 billion among assets, severance and separation ², then October 22, when earnings land ⁷. If San Francisco walks, holders keep the grid and the undergrounding bill attached to it ⁶. The city has offered 17 cents on PG&E's dollar; the commission prices the next round, and Poppe is ready to spend a decade in court on the last one ³.