By Katherine Blunt
The City of San Francisco on Sunday said it has offered $2.5 billion to acquire PG&E Corp.'s electrical lines serving the city, a potential first step toward separating from the giant utility.
The offer escalates San Francisco's attempt to create a municipal utility that is owned and operated by the city. The city began exploring the possibility of a public takeover after PG&E sought chapter 11 bankruptcy protection in January, citing more than $30 billion in potential liability costs stemming from its role in sparking deadly wildfires in 2017 and 2018.
If the bid is accepted, it could significantly shrink PG&E, removing hundreds of miles of wire and siphoning off hundreds of thousands of customers. It is a public vote of no-confidence in PG&E, which has struggled to prevent its equipment from causing fires amid a sizable increase in wildfire risk in northern California.
Mayor London Breed and City Attorney Dennis Herrera said in a written statement that the city's offer is "competitive, fair and equitable." They added: "It will offer financial stability for PG&E, while helping the City expand upon our efforts to provide reliable, safe, clean and affordable electricity to the residents and businesses of San Francisco."
The offer, submitted as part of the bankruptcy process, comes after months of study by San Francisco's public utilities commission and board of supervisors. Ms. Breed told the company in March that the city would undertake an analysis to determine whether municipalization would benefit residents and what it might cost to acquire the electric assets.
PG&E said in a written statement that it will engage with the city on its offer.
"PG&E has been a part of San Francisco since the company's founding more than a century ago, and while we don't believe municipalization is in the best interests of our customers and stakeholders, we are committed to working with the City and will remain open to communication on this issue," it said.
San Francisco's offer is the first step in what could prove to be a challenging process of creating a municipal utility similar to those serving Los Angeles and Sacramento, Calif. The city has for years considered making such a move, but the efforts have failed to gain much traction amid concerns about the cost and potential benefit.
The removal of San Francisco from PG&E's 70,000-square-mile service territory would likely affect rates and service for those in rural and suburban areas outside of the city, which accounts for a substantial amount of the company's electricity demand.
Michael Wara, head of the climate and energy policy program at Stanford University's Woods Institute, said it is incumbent upon California to examine how San Francisco's public takeover bid would affect those customers.
"In order for this to happen, the state of California would have to be amenable," he said. "There is reason to suspect it might have some negative consequences for the people left behind."
A takeover would face opposition from PG&E's unions. Tom Dalzell, business manager of the International Brotherhood of Electrical Workers Local 1245, which represents 17,000 PG&E employees and contractors, said his union would oppose the proposed acquisition by San Francisco, and questioned whether the city had the legal right to make such a move without a public vote. He added: "I think their offer is off by a factor of four. They don't have the workforce either -- the underground workers, the engineers to run the system."
The union helped defeat initiatives in 2001 and 2003 to create a city-owned utility, and credited Gov. Gavin Newsom's role in assisting it then when he served as both mayor and supervisor of San Francisco.
"As a young Supervisor, Newsom took the controversial position of opposing a measure that would have municipalized the utility in San Francisco," Local 1245 officials said in a written statement endorsing the Democrat for governor last year. "He understood that municipalization would have a negative impact on San Francisco and would be detrimental for the Local 1245 members at PG&E, whose pensions and seniority were on the line."
San Francisco's bid comes as the California Public Utilities Commission explores ways to make the utility's operations safer as it invests billions of dollars to reduce the risk of its equipment triggering more wildfires. The possibilities include splitting the company's gas and electric divisions into separate companies, and selling part or all of PG&E's electric grid to cities.
--Jim Carlton contributed to this article.
Write to Katherine Blunt at Katherine.Blunt@wsj.com