City Council Must Go Bold and Not Take SDG&E’s Franchise Deal

by on May 25, 2021 · 0 comments

in Energy, San Diego

By Bill Powers / Times of San Diego / May 23, 2021

We live in a period of unprecedented climate upheaval and economic inequality. Amidst this tumult, San Diego’s energy future is being decided. Will our city’s longtime energy provider, San Diego Gas & Electric, receive a pass to continue with business-as-usual for another generation, or will the city insist on terms that meet the challenges of our times?

SDG&E charges us the highest utility rates in the continental United States, while actively undermining city efforts to deal with the climate crisis. San Diego is also in litigation with the utility over its failure to abide by the terms of its existing franchise agreements.

Yet … Tuesday[May 25]  the City Council will vote on the mayor’s proposed franchise agreements with SDG&E for the next 20 years, under terms not dissimilar from those of the past 100 years — keeping us tied to ever increasing rates for a generation.

From the utility’s perspective, the agreement amounts to a profit windfall, with no mandatory requirements to alter its business practices. But all of its profits — more than $1 million each day — will be paid by San Diegans.

In the lead up to next Tuesday’s vote, expect some talk about how the city could sever its relationship with SDG&E after a decade. But the much ballyhooed $80 million in bid payments to the city from SDG&E, along with a $20 million Climate Equity Fund contribution, have morphed into poison pills to assure the agreements remain in place for 20 years.

About $20 million of that $70 million in electric franchise bid money, for example, is scheduled to be paid in the 10th and 11th years of the electric agreement. A substantial amount the bid payments can be clawed-back by SDG&E up to the 20th year.

The $20 million in Climate Equity Fund contributions begin in the 17th year (2037) and end in the 20th year (2040). Half the $10 million natural gas franchise bid is paid in the 11th through 20th years.

If the city attempts to opt out after 10 years, on the back of a required supermajority City Council vote, the city stands to lose many millions of dollars in bid payments and all of the Climate Equity Fund contributions. What City Council could weather such a storm? The proposed agreements are de-facto 20-year deals.

Even if paid in full, this money is about the same as the nearly $100 million cost the city could incur for SDG&E’s breach of its current franchise with San Diego.

SDG&E has refused to pay for relocation of its hardware — a requirement of the current agreements — to make way for the city’s Pure Water Program, which is needed to ensure our future water supply. This contract breach by itself should be grounds for disqualifying SDG&E from new agreements.

The mayor says his proposal should yield the city $3 billion. What the mayor fails to mention is that those funds will be paid for by San Diego utility customers, not by SDG&E shareholders, and will be collected at the same rate they have been collected at for decades under the existing agreement.

In addition to its high rates, SDG&E has tried to impede the adoption of rooftop solar, a key element of the city’s Climate Action Plan.

The terms of the franchise agreements must be made more favorable to San Diegans. Around the country, in state-of-the-art franchise agreements, term lengths of effectively five years have become common. A short term length means more leverage for the city.

Simple and fair procedures to set the price for buying SDG&E’s equipment need be established in the agreements to avoid protracted legal battles, should our city choose to form a public utility.

The city’s 11th hour claim that these are “10-year agreements” that obviate the need for simple and fair valuation procedures rings hollow. These are de-facto 20-year deals, and fair valuation procedures are essential to protect the city.

And, obviously, resolution of all ongoing legal disputes should be required before the incumbent is given the privilege of entering a new agreement to serve the city.

Under our City Charter, the council, not the mayor, is in the driver’s seat to establish terms and conditions for franchise agreements. Public statements from several councilmembers indicate their support for an agreement of five years or less.

The council should meet head-on SDG&E’s strong-arm threats to withhold collection of over $100 million per year in fees if no agreement is in place by June 2. The city attorney has said if SDG&E withholds those payments, the utility could be liable to trespassing charges. The utility’s brinkmanship should be punished and not rewarded with new, status quo agreements.

SDG&E has an obligation to serve its customers, and to continue passing along to the city the fees it collects, if we continue operating under the terms of the expired agreement. That will be necessary. The mayor’s woefully short four-month extension gave the largely new council little time to thoughtfully craft the terms of these agreements, nor were they encouraged to do so.

The council needs to vote “No” on May 25 and take the time it needs to get this right. This is a moment of change and opportunity that may not come again.

Bill Powers is a professional mechanical engineer and board member of the Protect Our Communities Foundation.

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