Who could benefit when biggest utility falls apart?
If there’s one classic line in the controversial movie “Vice,” it probably comes early in the film, when then-vice President Richard Cheney is portrayed thinking about the World Trade Center attacks of 9-11 as “an opportunity,” rather than a tragedy.
So it might be today in California, where tragedies partly of its own making afflict the state’s largest utility, whose chief executive has left the firm just when it says it will declare bankruptcy.
Pacific Gas & Electric Co. faces as much as $29 billion in uninsured lawsuit liabilities from homeowners and others harmed by the massive fires of the last two years, at least some of them started by sparks from PG&E electric transmission lines. Previously, the company suffered a criminal conviction and billions of dollars worth of fines and negative publicity over the 2010 natural gas pipeline explosion that killed eight persons in San Bruno.
But just as the filmic Cheney is shown realizing that in other people’s misery lies potential opportunity for him, so it can also be in real life. That’s the case right now with PG&E’S predicament. As the potential extent of the company’s responsibility emerged in recent weeks, its stock price dropped precipitately, losing more than twothirds of its previous value.
Opportunity for others has been expanded both by statements from the state Public Utilities Commission about possibly breaking up PG&E because of both proven and possible misdeeds and by the company’s own public comments. PG&E openly contemplates both bankruptcy and selling off its natural gas operations. Bankruptcy probably would help no one, as fire victims likely would not be paid fully.
But two major players on the California utility scene could benefit from a PG&E breakup or selloff while keeping customers supplied with the energy they need.
Those are investor Warren Buffett’s Oregonbased Pacificorp, owned by Buffett’s Berkshire Hathaway investment firm, and San Diego-based Sempra Energy, parent of both the Southern California Gas Co. and San Diego Gas & Electric Co.
PG&E’S natural gas assets could make excellent synergy for both Buffett and Sempra, bidding rivals last year when Sempra paid more than $9 billion for 80 percent ownership of Oncor Electric Delivery Corp., the largest electric utility in Texas, serving Dallas, Fort Worth, Waco and other large cities.
Though in expansion mode, Sempra last fall sold off 42 billion cubic feet of natural gas storage in the Deep South for $332 million, demonstrating both the company’s readiness to wheel and deal and the fact it has cash on hand.
Buffett, meanwhile, has bought up electric and gas utilities in 10 Western states. His Pacificorp already serves 45,000 customers in several Northern California counties. Berkshire Hathaway also owns the Kern River gas pipeline, a major transporter of Colorado natural gas to California utilities.
Berkshire Hathaway had no comment on reports it might be a bidder if PG&E’S gas operations, which serve 4.5 million metered customers in a large swath of California including cities like San Francisco, Sacramento, San Jose and Bakersfield, come up for auction.
Sempra also refused comment. Its Socalgas and SDG&E units serve 6.5 million metered gas customers across Southern California. Each meter generally serves multiple persons.
For both Buffett and Sempra, then, the synergies are obvious. Sempra, for one, could gain access to vast new supplies from the natural gas fields of western Canada, from which PG&E imports much of its supply.
PG&E has said its gas operations might sell for more than $9 billion, but that could prove low if there is active bidding between Sempra and Buffett and especially if a surprise third party should enter the auction.
A complete natural gas selloff to either large company might be more efficient and cost effective for consumers than selling off PG&E’S gas operation piecemeal, as the state PUC has discussed.
However this plays out, it’s clear PG&E’S selfinflicted wounds present a major opportunity for others who could make hay with almost half that company. Which might also bring some satisfaction to disgruntled PG&E customers and homeowners harmed by the huge utility’s safety problems.