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PG&E Deflects Bids for Assets Ahead of Restructuring Plan

David R. Baker and Mark Chediak
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PG&E’s Plan to Cap Fire Liabilities at $18 Billion Draws Ire

(Bloomberg) -- PG&E Corp. is fending off takeover bids as a deadline nears for the bankrupt California utility giant to file a restructuring plan.

San Francisco, PG&E’s hometown, made a $2.5 billion offer for the company’s electrical equipment within the city on Friday. An irrigation district in California’s Central Valley has bid $116 million for assets in its own territory. PG&E rebuffed both propositions, saying San Francisco’s wasn’t in the best interests of customers and that the district’s was too low.

While casting doubt on the prospects of either deal, PG&E didn’t outright reject the offers. They’re rolling in just as the utility is working to line up financing and craft a plan by Monday that would allow it to exit the largest utility bankruptcy in U.S. history next year. The company was forced to file for Chapter 11 in January to deal with an estimated $30 billion in liabilities tied to devastating wildfires that its equipment ignited in 2017 and 2018.

“They’re trying to solve a big financing gap,” said Barbara Hale, assistant general manager for the San Francisco Public Utilities Commission, and San Francisco’s offer “could help them do that.”

PG&E shares rose 7% to $10.90 at 1:34 p.m. in New York.

San Francisco Mayor London Breed sent the city’s bid in a letter to PG&E on Friday after months of evaluation. The city and company have a long history of disputes, with San Francisco accusing the utility of hampering the development of several infrastructure projects. Breed has seen the bankruptcy as an opportunity for the city to fulfill a long-held desire to break away.

Breed and San Francisco’s city attorney had a meeting scheduled with PG&E Chief Executive Officer Bill Johnson later this month to discuss their issues, including the city’s interest in a takeover, according to the letter.

PG&E said in its statement that it would “work with the city” but said it doesn’t believe “municipalization is in the best interests of our customers and stakeholders.” It marked the second time in a week that the company appeared to rebuff an offer. South San Joaquin Irrigation District, which co-owns hydroelectric dams in the Sierra Nevada foothills, submitted a $116 million bid to the utility Tuesday -- one that PG&E described as “significantly below the actual value” of its assets.

PG&E has been floating a restructuring plan that would instead have it raising billions of dollars in debt and equity to cover its massive wildfire liabilities. But its efforts are already facing setbacks. Last week, the company’s bid to get tax-free, state bonds to help cover fire damages failed in the state legislature.

San Francisco has meanwhile estimated that its offer is 35 times PG&E’s estimated 2019 earnings for the assets and described it as “a very attractive premium valuation” considering the company’s bankruptcy and other recent utility takeovers. The city said it would issue power revenue bonds through the utility commission and expand the agency’s operations to include the assets.

A labor union representing PG&E workers has opposed any public takeover of private utilities, saying it would harm employee pensions and other benefits.

Labor Woes

“We oppose San Francisco’s offer for that reason,” Tom Dalzell, business manager for the union’s local unit, said by email. “It is our opinion that the offer is extremely low, that San Francisco is probably not capable of running a complex network, and that the city has many pressing problems that should take priority over buying electric system.”

Hale, in turn, said the city has been talking with unions in an effort to ease their fears. “We know that they have knowledge and skills unique to operating this system,” she said. San Francisco would recruit PG&E employees.

The city said it believes it could finance the deal and run the system for the next 30 years at rates equal to, or less than, PG&E’s current rates. It has hired several advisers including Jefferies LLC, MRW & Associates and Morgan, Lewis & Bockius LLP.

(Updates shares in fifth paragraph.)

--With assistance from Jim Silver.

To contact the reporters on this story: David R. Baker in San Francisco at dbaker116@bloomberg.net;Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editors responsible for this story: Sebastian Tong at stong41@bloomberg.net, Lynn Doan, Virginia Van Natta

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