A second round of bids for the right to deliver gas and electric services within the city limits of San Diego were unsealed Friday and the result was the same as the first round, with San Diego Gas & Electric turning in the only offer — $70 million to provide electric services and $10 million to deliver gas within the city limits.
Mayor Todd Gloria will now look over SDG&E’s submissions in consultation with the City Attorney’s Office.
The city reserves the right to continue negotiating with the utility in order to hammer out a deal that can win the approval of a supermajority of the San Diego City Council.
“With today’s opening of the bids for our energy franchises, we are one step closer to achieving our goals: securing agreements that meet the needs of residents, make financial sense for the city, advance our climate goals and provide equitable access to environmental benefits for all our communities,” Gloria said in a statement.
In an email, SDG&E’s CEO, Caroline Winn, said, “Integral to our proposals for both franchises is the spirit of collaboration and a commitment to resetting our relationship with the city. SDG&E is committed to renewing our focus on accountability and transparency as we continue to make progress constructing a safer, brighter and more resilient grid.”
Last month, Gloria issued an Invitation To Bid to energy companies that spelled out the terms a potential winner had to meet, including:
- an agreement lasting 10 years, with an automatic 10-year renewal if the city deems the franchisee has complied with all terms and conditions
- a minimum bid of $80 million paid to the city, and
- requiring the energy partner to support the city’s new $5 million-per-year Climate Equity Fund that will build parks, plant trees and improve public transit in lower-income areas of San Diego. About 10 percent of the fund’s budget is slated to come from electric and gas franchise fees.
Under city rules, the City Council has the final say on approving a franchise agreement. It will take “yes” votes from at least six of the council’s nine members to ratify a deal. It’s an open question whether the votes are there.
“My view of how we protect ratepayers and our environmental future has yet to be seen in these bids,” Councilman Joe LaCava said in an email to the Union-Tribune. “San Diegans deserve more than ‘cooperation’ from the franchisee. We need a fully committed and accountable partner to our energy goals.”
Councilman Sean Elo-Rivera said while he is still evaluating SDG&E’s response he is “concerned the sole bidder is currently entangled in litigation with the city for tens of millions of dollars as a result of their breach of the previous franchise agreement” — referring to a lawsuit the city has filed with SDG&E over the city’s Pure Water San Diego recycling project.
In a franchise agreement, a utility is granted the exclusive use of public rights of way for transmission and distribution, as well as the right to install and maintain wires, poles, power lines and underground gas and electric lines within a given municipality.
As it has for a century, SDG&E is the city’s current franchisee. But the existing electric and gas agreements — in place since 1970 — expire on June 1.
Back in December, an earlier round of bidding was held under the administration of then-Mayor Kevin Faulconer. A couple of energy companies, including Berkshire Hathaway Energy, had expressed interest in bidding but when the envelopes were opened, SDG&E had submitted the only offer.
The utility’s bid, however, included a slew of revisions that SDG&E wanted in the contracts.
Upon taking office, Gloria deemed SDG&E’s bid non-responsive and started the process all over again, and sought input from the public and members of the City Council.
In a change, the latest Invitation To Bid allows the city to continue negotiating with an energy partner, even after the bids are unsealed, until a deal is reached.
Some council members have called for a shorter length to the agreement, saying it will give the city more leverage and flexibility in a quick-changing energy landscape. SDG&E executives have said they prefer a term of about 20 years, citing the long-term nature of energy projects and contracts.
While many franchise agreements across the country can span decades, Salt Lake City in 2016 signed a five-year franchise agreement with its incumbent utility, Rocky Mountain Power, and in 2014, Minneapolis signed a 10-year deal with Xcel Energy and CenterPoint Energy that allows the city to exit after five years, with one year’s notice.
A number of local environmental and political groups have called the $80 million minimum bid paltry, citing the fact that the utility’s parent company, Sempra Energy, recently reported SDG&E turned an $824 million profit in 2020.
“This is less than pennies on the dollar,” said Craig Rose of the Citizens Franchise Alliance. “This is a terrible giveaway of city assets if this deal goes through ... We think the franchise is worth $20 billion over the course of two decades.”
There’s also a push to have the city explore creating its own utility to provide electric and gas services, such as the Sacramento Municipal Utility District and the Los Angeles Department of Water and Power.
Municipal utilities tend to have lower rates than investor-owned utilities and SDG&E has the highest rates in the state. Supporters say the current low interest rate environment makes for an opportune time for San Diego to make the transition.
A municipal utility “gives us lower-cost electricity and local control of our destiny,” said Bill Powers, board member of the Protect Our Communities Foundation.
Opponents say buying out the infrastructure of an existing utility like SDG&E will cost billions and would likely lead to lengthy legal challenges, with the city and power company haggling over the worth of existing poles, wires and infrastructure.
Haney Hong, president of the San Diego County Taxpayers Association, called on Gloria “to stop wasting taxpayer time and dollars on conversations or any further studies or business plan development around municipalization of the electric or gas delivery systems until we resolve homelessness and our housing crisis ... With the economy slowly reopening and the city’s coffers eventually getting refilled by tourism taxes, let’s keep our eye on the ball.”
Under the terms of Gloria’s Invitation To Bid, the city reserves the right to terminate the franchise agreement and go through the process of creating a publicly owned utility. But the invitation does not include a “right to purchase” clause that would make it easier for the city to buy out a privately owned power company.
Gloria’s office expects to bring a proposed deal to the City Council for a vote next month.
The city’s negotiations with SDG&E come at a time when both parties have been at odds.
The city has taken SDG&E to court, looking to get reimbursed $35.6 million after moving utility equipment that was obstructing the city’s Pure Water project. The city says the franchise agreement requires SDG&E to pay for the move, but the utility says it’s unfair that SDG&E customers who live outside of the city and do not benefit from the project should share in the move’s expense.
A separate lawsuit filed by the law firm of Aguirre & Severson says SDG&E is in violation of the franchise agreement, the city should not have paid the $35.6 million and therefore Gloria should not allow the utility to bid on a new deal.
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