Energy Department loan would finance efforts to upgrade power grid and reduce emissions; future administrations can’t claw back the money
By Scott Patterson and Katherine BluntDec. 17, 2024 5:00 am ET
A PG&E CREW WORKED TO RESTORE POWER IN AUGUST AFTER THE PARK FIRE NEAR PAYNES CREEK, CALIF.
The Biden administration will provide a record $15 billion low-interest loan commitment to California utility company PG&E to support hundreds of projects aimed at fighting the effects of climate change and improving the electrical grid.
The loan by the Energy Department’s Loan Programs Office is slated to fund projects that refurbish PG&E’s hydroelectric infrastructure and upgrade power lines to support renewable energy projects, data centers and electric vehicles.
The loan office had planned to provide a $30 billion loan to PG&E a few weeks ago, according to people familiar with the matter. The amount was cut in half, in part because of PG&E concerns about the hefty upfront payments such a large loan would have required.
The loan commitment, the largest in the loan office’s nearly two-decade history, will provide PG&E cash in installments over several years as it develops projects that will have to be approved by loan-office officials. The second-largest commitment during the Biden administration is a $9.6 billion loan for a Ford Motor battery joint venture, which the office completed Monday. The loan office plans to close the PG&E loan before President-elect Donald Trump assumes office, according to people familiar with the matter.
PG&E WORKERS BURIED POWER LINES IN 2023 IN VACAVILLE, CALIF.
Under the Biden administration, the loan office has made more than $42.4 billion in loan commitments and more than $24.1 billion in closed loans and guarantees.
The commitment to PG&E stands as a signature achievement for the loan office, which transformed from dormancy in the first Trump administration into a financial juggernaut providing billions of dollars in funds for clean-energy technologies. The 2022 Inflation Reduction Act turbocharged the office’s lending capacity.
The $400 billion federal clean-energy lending program has been stepping up efforts to push cash out the door in the weeks following the election. Biden administration officials fear Trump officials could curtail loans from the office, which has faced criticism from Republican lawmakers.
Officials with the Loan Programs Office said that because the loan is a legal contract, future administrations wouldn’t be able to claw back the funds, though they would have oversight of what projects are funded.
Critics of the loan program point to the failure of Solyndra, a solar-panel companythat collapsed in 2011, causing a $535 million loan to go sour.
Loans have to be approved by political appointees, including the head of the Energy Department, so the program is subject to the policy whims of the executive branch. Environmentalists fear Trump’s nominee for Energy secretary, fracking pioneer Chris Wright, could upend clean-energy funding by the department.
The loan will still be a significant source of funding for PG&E, which faces challenges raising money from Wall Street after a complex bankruptcy restructuring. The company is under state regulatory pressure to limit rate increases for customers. Electricity rates throughout California, long among the highest in the nation, have surged in recent years as utilities work to address wildfire risk and meet the state’s clean-energy targets.
The loan to PG&E “will help meet forecasted electricity demand growth, ensure system reliability and dramatically reduce costs for its customers,” said Chris Creed, chief investment officer of the Loan Programs Office. PG&E will be able to draw funds from the loan through 2031. It will save PG&E about $1 billion it would have had to spend tapping traditional debt markets, the company said.
“It’s a project that’s very important in support of our objectives around customer affordability,” said Mari Becker, PG&E’s treasurer and vice president of internal audit.
PG&E’s proposed grid upgrades are slated to cost tens of billions of dollars. The company is preparing for a surge in electricity demand driven by California’s shift to electric vehicles, as well as efforts to phase out fossil-fuel use in homes and buildings. A build-out of data centers tied to the development of artificial intelligence is expected to increase power demand.
PG&E also has been working to refine its fire-prevention tactics after its power lines sparked a series of deadly and destructive wildfires in recent years, including the 2018 Camp Fire that killed 84 people and destroyed the town of Paradise, Calif. The company pleaded guilty to involuntary manslaughter charges for its role in igniting the blaze.
Under the terms of the loan, wildfire-mitigation projects aren’t directly eligible for funding, but projects that simultaneously target grid safety and reliability could qualify.
Led by former clean-energy entrepreneur Jigar Shah, the Loan Programs Office came to be seen as a lifeline by companies with technologies that traditional banks on Wall Street wouldn’t fund. The Inflation Reduction Act gave the office $400 billion to distribute to projects including rechargeable batteries, solar power, nuclear energy and other green technologies.
Some companies are pulling back from the office ahead of the incoming administration. Duke Energy, the North Carolina utility giant, said it would pause plans to consider a loan because of uncertainties about the program in the next administration.
In recent weeks, the office wrapped up a $7.5 billion loan commitment for a lithium-ion battery project, a $4.9 billion commitment for a transmission project and a $6.6 billion commitment for EV startup Rivian Automotive to help fund a plant in Georgia.
The PG&E loan follows a $2.5 billion commitment to a Wisconsin utility last week that the office said will facilitate the addition of more than 1,650 megawatts of renewable power and energy-storage projects.
To accelerate loan awards, officials have given some companies conditional loan commitments that could get final approval within days. The typical timeline between a commitment and final approval for the loans is months or even years.
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