HERCULES -- Hercules has sold its municipal utility to PG&E for $9.5 million, putting an end to a decade-long, multimillion-dollar misadventure.
Last week, after Hercules Municipal Utility staff members did a final reading of its meters, some 700 residential customers along with Hercules City Hall, senior center, library, about three dozen businesses and the Pinole-Hercules sewage treatment plant, became customers of Pacific Gas & Electric.
The deal was a bit of a cliffhanger as the city needed some bondholders to accept less than par value for their bonds. The combined outstanding principal of two Hercules Public Financing Authority 2010 bond issues -- one intended to pay off bonds issued in 2003 and fund some infrastructure, the other to fund construction of an electrical substation -- stood at about $12.8 million.
The council on April 8 endorsed the deal 4-0; Bill Kelly recused himself because he was an HMU residential customer.
"I'm glad this portion of the Hercules history will be ending," said Councilman Dan Romero, a critic of the HMU even before he ran for office in 2011.
Romero called the 2010 council votes to approve a substation project and the bonds to pay for it, "the beginning of the end," when "the cards started folding."
Mayor Myrna de Vera, acknowledging Romero, said, "You were at the podium, telling the council not to do it -- and they did it anyway. And here we are."
How much exactly the city lost on the utility business could not immediately be determined this week. Finance Director Nickie Mastay said in an email that the cumulative operating loss from fiscal year 2002-03 through 2009-10 was $3.8 million. In February 2011, John Stier, then municipal services director, pegged the city's combined, accumulated capital and operating losses from the HMU up to that date at $9 million.
The utility was created as an enterprise fund in 2001, when Mike Sakamoto was acting city manager. He became city manager the following year.
In 2003, the HMU started buying power on the wholesale market, receiving it through PG&E lines and selling it to its customers on the promise that it would be able to do so at competitive rates while making a profit for the general fund.
That scenario was based in part on assumptions that Hercules would grow by several thousand homes in the ensuing years while adding businesses. But by the time Sakamoto retired as city manager in early 2007, development had all but ground to a halt in Hercules and the promised profits never materialized.
The following year, Sakamoto resurfaced in Hercules as administrator of the HMU, and the City Council approved a $100,000-a-year contract with Sakamoto's company, Municipal Management Enterprises. Sakamoto's contract was terminated by the city in November 2010, but not before he recommended, and the council approved, $2.3 million in equipment purchases for an electrical substation that was never built. The city canceled the substation contracts in 2011, absorbing part of the costs, and public pressure built to find a way to bail out of the HMU mess. In accordance with state law, the city had to get the voters' OK to put the utility up for sale. That happened, by a large margin, in 2012.
In May 2013, PG&E agreed to buy the HMU for $9.5 million, subject to approval of the state Public Utilities Commission; that came in January.
Contact Tom Lochner at 510-262-2760. Follow him at Twitter.com/tomlochner.