G&E is nearing an agreement to sell a substantial stake in its power plant fleet to investment behemoth KKR as it seeks funding to mitigate wildfires caused by its power lines.
The California utility company is seeking regulatory approval to transfer its hydroelectric system and a fleet of natural gas, solar, and battery facilities to a new subsidiary, Pacific Generation. They plan to sell 49.9% of Pacific Generation to KKR, valued at nearly $3.5 billion, with estimates suggesting the sale could reach between $2 billion and $3 billion.
This development comes as PG&E faces constraints in raising debt and equity following a complex bankruptcy restructuring. The company needs to finance its capital-spending plan, which proposes $62 billion in investments between 2024 and 2028.
Carolyn Burke, Chief Financial Officer of PG&E, emphasized, “As we continue to build our systems, we must expedite the infrastructure investments that will enable us to provide our customers with safe, sustainable, reliable, and affordable energy.”
In acquiring a stake in Pacific Generation, KKR would share in returns on capital investments and revenue from electricity sales through its infrastructure investment business, which manages $59 billion in assets.
PG&E filed for chapter 11 bankruptcy protection in 2019 due to liability costs from wildfires. Emerging in 2020 with more debt and without an investment-grade credit rating, the company now focuses on reducing the risk of its power lines causing more fires and supporting the state’s clean-energy goals.
The California Public Utilities Commission has concerns about the sale, proposing to block it due to potential operational risks. Opponents of the sale, including water agencies and consumer advocacy groups, fear compromising the safety and reliability of assets.
PG&E assures that its workforce would continue to operate and maintain the facilities. KKR's involvement is expected to improve Pacific Generation's credit rating, resulting in lower debt costs and customer rates.
"We are honored to be considered for this long-term effort and look forward to collaborating with PG&E and Pacific Generation to enhance public safety, generate customer savings, and help California achieve its ambitious climate objectives,” said KKR Managing Director Kathleen Lawler.
PG&E has requested more time from the CPUC to explain the benefits of the transaction. The agency could decide as soon as next month. If the sale is blocked, PG&E might need to issue new debt and equity, potentially delaying its efforts to improve share value and regain an investment-grade credit rating.