PG&E; Offers to Buy Utility, Close A-Plant : Sacramento Firm Owns Ranch Seco Facility, Which Has One of Worst Records in Industry

In a deal apparently worth more than $1 billion, Pacific Gas & Electric Co. offered Thursday to buy the troubled Sacramento Municipal Utility District and permanently close the utility’s Rancho Seco Nuclear Plant.

The Sacramento utility is one of the biggest municipally owned electric utilities in the nation. PG&E;, supplying gas and electricity to the northern half of California, is one of the nation’s largest utilities.

The Sacramento utility, known as SMUD, had no immediate response to the offer. It was delivered late Thursday in a letter from PG&E; Chairman Richard A. Clarke, who said he was responding to a request that PG&E; sell power to SMUD and help it restart the nuclear plant.

Clarke instead offered to buy the utility outright, portraying it as a solution to SMUD’s mounting problems, including sharply rising rates, a moribund nuclear plant with one of the worst operating records in the nuclear industry, management turmoil and poor credit ratings.

The 913-megawatt Rancho Seco plant, just south of Sacramento, has been closed for two years, ever since a cooling mishap that the Nuclear Regulatory Commission called the most serious of several problems that have given the plant a poor reputation.

Had to Buy Power

Because Rancho Seco, completed in 1975, had supplied more than half of SMUD’s electric power, the utility has had to buy power from outside utilities and government agencies. Most recently, it has been preparing to issue $200 million in bonds to pay for restarting the plant.

No price for the acquisition was mentioned, but sources familiar with the two utilities said it would undoubtedly exceed $1 billion. The terms would reflect forgiveness of at least $300 million that PG&E; says it is owed by SMUD.

PG&E; has sold natural gas in Sacramento for more than 100 years and markets electricity in the surrounding area. But it lost the electricity market in the 1920s when Sacramento established its own utility, which now boasts 385,000 customers.

Clarke proposed to buy all of SMUD’s facilities, cancel plans to restart the Rancho Seco plant and assume responsibility for decommissioning the unit, freeze electric rates for “several years,� and promise job security to SMUD employees. The deal would also boost area tax revenues by $15 million a year because SMUD pays no such taxes.

“That’s a pretty good inducement,� said John Curti, a utilities analyst for the Birr, Wilson brokerage in San Francisco.

Curti said the deal would increase PG&E;’s customer base by 10% and give it an outlet for its current excess of electric generating capacity. It would also let PG&E; share in a community whose growth is perhaps twice the rate of the rest of the utility’s operating area.

“Long term, it makes a lot of sense,� Curti said.

The takeover would continue a trend of consolidation in the utility industry. In this case, Clarke said, a municipal utility no longer makes sense for such a fast-growing community.

“At its inception, SMUD served a small number of customers who enjoyed the benefits of low-cost electric energy, in large part because of SMUD’s tax-exempt status,� his letter said. “This is an appropriate time for citizens to address the fundamental question of whether the advantages SMUD once offered still exist today, or whether the more advanced, consolidated utility system that we are suggesting (is).�

SMUD has had to nearly double its electric rates in the last two years to cover its Rancho Seco costs.

Its management troubles were underscored this week when its president, Clifford Wilcox, abruptly resigned because of “political infighting� on the board.