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City Council Approves 10-Year Deal with SDG&E

 

Last updated 6/24/2021 at 9:30am



The San Diego City Council gave final approval on June 8 to a 10-year agreement with San Diego Gas & Electric to provide energy services to city residents and businesses, with the option of extending it another 10 years following that first decade.

The City Council gave its initial approval of the agreements in a 6 – 3 vote on May 25. The same members of the council who dissented then – Joe LaCava, Monica Montgomery Steppe and Vivian Moreno – voted no once again.

The deal, worth $80 million for the franchise agreements themselves and an additional $20 million to advance the city’s climate equity goals and $10 million in solar-energy rebates in historically underserved neighborhoods, also features multiple opt-out clauses for the city.

“In giving its final approval to the gas and electric franchise agreements I negotiated with SDG&E, the City Council has made a responsible decision in favor of a better deal for all of us,’’ San Diego Mayor Todd Gloria said.

“These financially sound, short-term pacts will ensure continued reliable delivery of energy to San Diego residents and businesses and give the city the flexibility to change course when and if it makes sense to do so,’’ Gloria said.

“I want to thank the city council members who recognized this deal creates certainty, accountability and a pathway to achieving climate equity in all our neighborhoods.’’

Councilwoman Moreno, who voted no, said, “It is not in the best interests of the city of San Diego to sign a long-term franchise agreement at this time as we continue to consider the best way forward for the city to provide power to San Diegans.”

Moreno also pointed out that, “It contains provisions that either disincentives or restrict the ability of the City Council to cancel the franchise agreement after 10 years, including a requirement to give up a significant portion of the minimum bid.”

SDG&E has held exclusive franchises with the city to provide gas and electric service since 1920. The agreements allow the franchisee to use the public right-of-way to install and maintain the infrastructure – such as pipes, poles and wires – necessary to provide energy to San Diego’s residents and businesses.

The previous franchise agreements, signed in 1970, were set to expire on Jan. 17. Under a process created by the previous administration, SDG&E was the lone bidder for new franchises. Gloria and City Attorney Mara Elliot determined SDG&E’s bid, which met the minimum bid of $70 million for electricity service and $10 million for gas, was unresponsive to the minimum requirements. Gloria canceled the invitations to bid process and reached an agreement with SDG&E to extend the agreements through June 1.

In March, Gloria released new ITBs. SDG&E was again the lone bidder.

During the initial 10-year agreement, the city may at any time end franchises to SDG&E if there is a breach of contract or should the city elect to municipalize, or purchase and put the city’s utilities under public control.

After 10 years – if the utility has operated in good faith – the council may vote on whether to extend the agreements another decade, needing a six-person super majority. Opting out at that point, however, could potentially cost the city millions of SDG&E’s minimum bid.

Highlights of the deal include:

- Providing nearly $3 billion in revenue over 20 years, including an $80 million bid payment from utility shareholders, certainty in franchise fee and undergrounding revenue – estimated at roughly $130 million annually – providing the city with certainty in funding for essential resident services, $20 million to advance the city’s climate equity goals and $10 million in solar-energy rebates in historically underserved neighborhoods

- An Energy Cooperation Agreement’ focusing on environmental and greenhouse gas reduction benefits, safety, equity and reliability

- Accountability and financial transparency measures including biannual audits by an independent auditor, a performance bond, options for liquidated damages and increased insurance requirements

Creation of a citizen-focused Franchise Compliance Review Committee, which will ensure public engagement on energy matters

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