San Diego Shouldn’t Rush into Another Rip-Off Utility Franchise Deal

By Craig D. Rose / Times of San Diego / December 6, 2020

Mention “franchise,” “utility” and “agreement” in the same sentence and a listener’s eyes tend to roll backward.

That’s unfortunate.

If you care about San Diegans paying $100/month more for electricity than customers elsewhere, if you care about the climate crisis and racial equity, if you care about a city property worth more than $15 billion — you must pay attention to San Diego’s utility franchise agreement.

Years from now, San Diegans concerned with these issues will recall with gratitude that City Council President Georgette Gómez pulled the emergency cord on the runaway train to a deal that would have cost San Diegans billions of dollars.

Without the council president’s refusal to docket the mayor’s proposal or — more important — without the significant advocacy of individuals and groups urging Gómez to act, San Diego might be burdened with another multidecade agreement that has us paying the highest utility rates in the state, while San Diego Gas & Electric earns a net profit of $1 million each day.

The irony is that SDG&E requires city land to earn those enormous profits, yet its shareholders pay no rent for the use of our commonly owned property. That’s how this business has been done here for a century.

With a raging pandemic, a climate crisis and a severe economic recession, San Diego cannot afford to do business this way any longer. A new City Council should insist on a more equitable model.

This will take time. Critics have a point when they note this process should have begun earlier and proceeded differently. But that’s no reason to rush into another rip-off.

This is not a matter of say, naming a neighborhood park, as symbolically important as that is.

The franchise is a matter involving more than $15 billion — four times the city’s annual budget. Few city assets are worth more than the utility franchise.

Unfortunately, the threat of a rip-off agreement still looms. Citing bogus fears of what might happen when the city’s current 50-year franchise agreement expires in mid-January, allies of the very costly status quo are urging the city to restart that express train and cut a bad deal quickly.

Some of these folks purport to be guardians of the public interest, yet they’ve lost sight that they’re urging the rushed sale of an asset whose value the city has yet to determine.

Is the franchise worth $6.4 billion, as a consultant suggests? Or is it worth more than $15 billion, which the evidence suggests?

Either way, among the flaws of the plan blocked by Gómez was the proposal to begin auctioning this franchise for less than 1 percent of its value. No reasonable homeowner would begin an auction of their house at 1 percent or less of its value.

Gómez also stopped a deal that would have tied the city hands, if we choose in the future to form an independent public utility. These public utilities vary widely but share one characteristic in California: All provide lower rates and comparable service.

The mayor’s proposal also omits a so-called off ramp, or a reasonable option for exiting a franchise agreement by buying out the utility for fair value. An off ramp enhances the city’s ability to enforce an agreement.

The need for that ability has been underscored by SDG&E’s refusal to move equipment at its expense, despite the requirement to do so under the current agreement to accommodate the city’s recycled water project.

The omission of an off ramp is among the reasons that consumer and environmental advocates are calling for further deliberation and study. This will require going past the expiration date of the current agreement. That should cause little alarm.

After mid-January, we can continue to operate under terms of the expired agreement. The lights will stay on, by order of the California Public Utilities Commission.

Fears that SDG&E will refuse after January to pass along tens of millions in franchise fees are also overblown. As the city attorney has noted, if SDG&E failed to pass along these fees — fees that are collected from us, by the way — the city could charge the utility with trespassing on city property.

What’s more, if SDG&E withheld those fees from the city, some explaining would be in order to state regulators, who authorized collection of the fees from ratepayers for payment to the city. And it would certainly seem ill-advised for a utility angling to reach a long-term agreement with the city to provoke a two-front legal war here and at the California Public Utilities Commission.

The franchise is fundamentally a land-lease agreement. Utilities need exclusive use of city property to run their wires and locate substations. The City Council should step back and recognize that San Diego is in a very strong bargaining position.

Getting a good franchise deal means getting the city a fair share of the billions that a franchisee will earn. Of course, the city can capture most of those dollars by forming an independent public utility.

In Sacramento, which has a public utility, customers now pay $100 a month less for electricity than customers of SDG&E. And customers of the public utility in Los Angeles also pay substantially less.

For those who say San Diego lacks the competence to organize a public utility, although it’s been done in some 40 other California communities, I recall the words of a long-gone labor leader: God bless those who expect nothing, for they shall not be disappointed.

San Diego can do what’s been done elsewhere. Period. If city leaders don’t believe that, they aren’t leaders.

Political momentum for public power is growing rapidly and could reach critical mass sooner than some expect. In the meantime, we have an overwhelming consensus for the city to maximize its return on the utility franchise, to avoid a massive rip-off, and to keep the option for public power wide open.

Going forward, the city’s top priority should be commissioning a professional assessment of the value of the franchise. Without a better assessment of that, we can’t make a good decision.

The city should also fully assess the cost and benefits of organizing a public utility, as well as ensure that any utility option includes significant funding to address environmental injustice and the climate crisis. Through all this, we need robust public engagement, despite the challenges posed by the pandemic.

And for the next six weeks, city leaders must remember there’s no reason to rush onboard a runaway train headed for a costly wreck.

Craig Rose is a mostly retired journalist who works with the Citizens Franchise Alliance, a group focused on the financial aspects of San Diego’s utility options.