California Regulators Reject PG&E Plan to Sell Generation Assets

California regulators have denied Pacific Gas & Electric’s (PG&E’s) plan to sell a multibillion-dollar stake in the utility’s power generation fleet to a New York-based investment firm.

Oakland-based PG&E, which has been seeking to raise money for future operations and to help recover from financial losses due to a series of California wildfires, wanted regulatory approval to move its hydropower, natural gas, solar, and battery energy storage assets to a new subsidiary called Pacific Generation. PG&E recently said it was working on an exclusive deal to sell a minority stake (49.9%) of that subsidiary to KKR, one of the world’s largest infrastructure investors. The deal, which involved about 5.6 GW of generation capacity, including 3.8 GW of hydropower, was estimated to be worth $3.5 billion. The assets also include 1.4 GW of gas-fired generation, along with 152 MW of solar and 182 MW of battery energy storage.

The California Public Utilities Commission on Thursday rejected the deal, saying “PG&E has done no substantive analysis to support the claim that the proposed transaction will be a superior alternative” to other ways to fund its operational plan. PG&E said it had negotiated the sale as a way to address its financial challenges, which include trying to raise debt and equity after a complex bankruptcy restructuring in the wake of the wildfires that were blamed on PG&E’s equipment. The utility as part of the bankruptcy agreement was required to issue record amounts of both debt and equity.

PG&E’s 2019 Bankruptcy

PG&E in its 2019 bankruptcy filing said it had an estimated $30 billion in liabilities from the wildfires that resulted in more than 100 deaths and billions in property damage.

The company has been seeking other ways to fund its capital-spending plan, which proposes $62 billion in investments between 2024 and 2028. Much of that money could go to upgrading its transmission and distribution system, including burying power lines underground to reduce the risk of wildfires.

PG&E had said a sale of assets to KKR would reduce customer rates by $100 million over the next 20 years, and also improve the utility’s credit profile. PG&E also has said money from a sale would support a payment to a trust fund dedicated to paying back recovery bonds issued to cover wildfire losses.

Concerns About the Deal

The CPUC earlier had said it might block a PG&E asset sale due to concerns about operational issues, and had said it would vote Thursday on the Pacific Generation spinoff. An administrative law judge in March recommended that the CPUC reject PG&E’s move to create the standalone generation unit.

Groups including water agencies across PG&E’s territory have said they are concerned a sale could bring changes to water management in the region.

New York City-based KKR was founded in 1976; the group has more than $500 billion of assets under management. KKR’s Global Infrastructure business began in 2008, and has $59 billion in assets under management. The Global Infrastructure business has expertise in the utility and renewable energy sector.

Raj Agrawal, Partner and Global Head of Infrastructure at KKR, on April 30 when the possible deal was announced said, “With our long-standing roots in California, deep commitment to sustainable investing and decarbonization, and long-term view on asset management, we feel we are well placed to support Pacific Generation in this new chapter. Should this transaction move forward, we feel confident we can deliver benefits for these facilities, the employees that operate them, and the people of California.”

KKR when the deal was announced last week noted that PG&E would remain the majority owner of Pacific Generation, and said the utility’s current workforce “would continue to operate and maintain the generation facilities for the benefit of customers.” The group had said KKR’s ownership of Pacific Generation’s assets would not impact the regulatory structure of the facilities, noting they would have continued to be overseen by the CPUC and the Federal Electric Regulatory Commission.

Darrell Proctor is a senior associate editor for POWER (@POWERmagazine).

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