California, US-based PG&E is in discussions with US private equity firm KKR to divest a minority stake in its power generation operations.
The utility is seeking funds to enhance its electricity grid, having been blamed for sparking several wildfires in the state.
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PG&E aims to secure regulatory consent to reorganise its extensive hydroelectric system and collection of natural gas, solar and battery facilities into a new entity, Pacific Generation.
KKR is expected to purchase a 49.9% share in this subsidiary. The assets in question are valued at $3.5bn.
PG&E executive vice-president and chief financial officer Carolyn Burke stated: “After thoroughly evaluating a full range of potential investors, we believe that a strategic partnership with KKR would be highly beneficial to our customers by supporting investment in generation and storage assets that are critical contributors to clean, reliable energy, and providing a path to lower rates.
“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.
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By GlobalData“With a strong strategic partner like KKR, we would be better positioned to help support cleaner energy generation such as hydro and pumped storage, as well as other energy storage assets needed to balance California’s portfolio of intermittent renewable resources and mitigate wholesale market volatility.”
PG&E anticipates that the move will lead to a reduction in customer rates by more than $100m over a two-decade period, as Pacific Generation is likely to benefit from superior credit ratings and reduced debt costs.
PG&E will retain majority ownership of Pacific Generation post-sale and the existing workforce will continue managing the generation assets.
The transaction is not expected to alter the regulatory oversight of Pacific Generation’s assets by the California Public Utilities Commission and the Federal Energy Regulatory Commission.
KKR’s acquisition of a stake in Pacific Generation would allow it to gain from capital investment returns and electricity sales revenue.
The investment would be managed through KKR’s infrastructure investment arm, which oversees $59bn in assets.
KKR partner and infrastructure global head Raj Agrawal said: “With our long-standing roots in California, deep commitment to sustainable investing and decarbonisation, and long-term view on asset management, we feel we are well placed to support Pacific Generation in this new chapter.
“Should this transaction move forward, we feel confident we can deliver benefits for these facilities, the employees that operate them and the people of California.”
In March 2024, KKR agreed to purchase a controlling interest in Avantus, a US company that has specialised in large-scale solar and storage projects since 2009.
Post-acquisition, KKR and existing investor EIG will be Avantus’ sole equity stakeholders.
