Dive Brief:

• Pacific Gas & Electric, California’s largest investor-owned utility, has applied for an approximately $7 billion loan from the federal government to upgrade its electric grid, as first reported by The Wall Street Journal.
• “[T]his type of creative financing is advancing the clean energy transition more quickly and at a lower cost to our customers,” utility spokesperson Lynsey Paulo told Utility Dive, adding that the loan would fund eligible investments in electric infrastructure upgrades for state and federal approved projects that enable improved resiliency, building and vehicle electrification, and distributed energy resources.
• PG&E, which was pushed into bankruptcy in 2019 over billions of dollars in liabilities from wildfires caused by its power lines, plans to invest roughly $18 billion through 2025 to protect its infrastructure from the threat of fires, the utility said in a plan filed with regulators in March.

Dive Insight:

PG&E has submitted the first part of an application to the DOE’s Loan Programs Office, Paulo said. There are two parts to the application, she said, the first being a more “generalized application” and the second getting into specific projects. It isn’t clear when the second part of the application will be submitted. 

The loan, if approved, would pay for new transmission lines, to convert transmission lines to higher voltage ones, and to replace overloaded transmission conductors with higher-capacity conductor, which could potentially be undergrounded, Paulo said.

“It’s also going to support associated upgrades to substations and distribution capacity — both overhead and underground — which would enable us to serve increasing load, connect more DERs like heat pumps, EVs, storage, solar to the grid,” she said. 

The loan would go to financing eligible projects approved by the California Public Utilities Commission or Federal Energy Regulatory Commission, she added.

“These would not be new projects, these would be projects that are either pending or approved by CPUC or FERC, under the general rate case or our transmission owner cases … this is actually a way to finance those projects at a lower cost for our customers,” Paulo said. 

The lower costs are due to the loan’s interest rate being lower than what PG&E would get in the market currently. 

PG&E is spending billions of dollars on wildfire mitigation measures that it says have reduced the number of acres burned in the high-risk areas of its service territory by 99% last year, compared to the 2018-2020 average. The utility is also transferring some 10,000 miles of overhead power lines underground, and is on target to complete more than 600 miles by the end of this year.

The federal loan would essentially be a source of “cheap money” for PG&E, and possibly for other utilities, said Jennifer Dowdell, senior policy expert with The Utility Reform Network.

“If you’re not looking like a super strong company, then bondholders require a higher rate to lend you money … so the riskier PG&E looks, the more expensive it becomes for it to borrow money,” she explained. 

Applying for similar federal loans is a strategy that could also make sense for other utilities if they have a significant need for capital, she said, adding that the tipping point is where the federal loan rate crosses what they could borrow in the market. 

“As the federal government releases money for infrastructure programs, utilities are a natural recipient for some of this money,” Dowdell said.