PG&E Set to Sell Power Assets to Global Investor KKR

California utility Pacific Gas & Electric (PG&E) said the company is nearing a deal to sell power generation assets to KKR, a New York City-based global investment firm that has holdings in several business sectors, including energy and infrastructure. PG&E has been seeking money to pay for wildfire mitigation work across its service territory, and for other capital expenditures, including electrification initiatives. The utility filed bankruptcy in 2019 after its equipment was deemed responsible for causing deadly wildfires in 2017 and 2018 in Northern California. The company's bankruptcy restructuring requires PG&E to raise debt and equity. The utility is seeking ways to finance a plan for projects that could reach $62 billon between 2024 and 2028.

Deal Needs Regulatory Approval

PG&E, which moved its headquarters from San Francisco to Oakland last year, on April 30 reiterated its earlier request for regulatory approval to move natural gas-fired, solar power, and battery energy storage facilities, along with the utility's hydropower system, into a spinoff company called Pacific Generation. It then intends to sell 49.9% of that group to KKR. PG&E in 2022 moved to separate some of its non-nuclear power generation fleet into the Pacific Generation standalone unit. The utility said it would remain the majority owner and operator of Pacific Generation. PG&E has said the assets are valued at about $3.5 billion. The utility in a statement Tuesday did not disclose a sales price for the assets, but did say it expects the deal would reduce customer rates by $100 million over the next 20 years. "We believe an investment from KKR would immediately enhance our financial position as we continue our pursuit of a clean energy future," said Carolyn Burke, the utility's chief financial officer. "As we continue to build our systems, we must accelerate the infrastructure investments that will enable us to provide our customers with safe, sustainable, reliable and affordable energy."

KKR Oversees Billions in Assets

KKR in acquiring part of Pacific Generation would share in returns on capital investments in the generation assets. It also would receive funds from the sale of electricity. KKR's infrastructure investment business currently has about $59 billion in assets under management. Its energy portfolio consists mainly of oil and gas exploration companies, including Houston, Texas-headquartered Genesis Energy, and Alpharetta, Georgia-based Colonial Pipeline. 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. Much of the company's proposed spending plan is focused on mitigating wildfire risk from its power lines and other equipment. The utility has said it could bury as many as 10,000 miles of transmission lines. Some consumer advocacy groups have pushed back against PG&E because the plan would raise rates for electricity customers. Analysts have said California's power rates are among the highest in the U.S.; reports have said PG&E monthly customer rates have jumped 18% so far this year. The California Public Utilities Commission (CPUC) needs to approve the sale to KKR. The CPUC earlier had said it could block a PG&E asset sale due to concerns about operational issues; the commission has scheduled a May 9 vote on the Pacific Generation spinoff. An administrative law judge in March recommended that the CPUC reject the move to create the standalone unit. Other groups, including water agencies, have said they also are concerned because a sale could bring changes to water management in the region. PG&E has asked the CPUC for time to provide additional information about the sale. The utility has said its workers would still operate and maintain any assets involved in a sale. "We are honored to be considered for this long-term effort and look forward to working alongside PG&E and Pacific Generation to enhance public safety, generate customer savings, and help California achieve its ambitious climate objectives," KKR Managing Director Kathleen Lawler said. —Darrell Proctor is a senior associate editor for POWER (@POWERmagazine).