Mayor touts more revenue from SDG&E in proposed new utility franchise agreement

A potential new electric and gas franchise agreement between the city of San Diego and San Diego Gas & Electric follows up on an original set of requirements the city laid out in March and features changes including more payments from SDG&E and a provision that would make it easier for the city to exit the deal after 10 years.

Mayor Todd Gloria’s office released some details of the tentative deal May 14 with an eye toward attracting the necessary support of at least six of the nine City Council members.

“If approved by the council, these agreements put us on a path toward environmental sustainability, community equity and financial certainty while providing an easy off-ramp for the city,” Gloria said in a statement. “This is a better deal for the city and for ratepayers.”

SDG&E has been the city’s franchisee since 1920. The existing agreement has been in place since 1970 and was extended six months ago to run through June 1.

The City Council is expected to vote on the proposed agreement Tuesday, May 25. Gloria’s staff said the mayor will meet with each of the council members to try to win support.

The proposed deal comes after three weeks of multiple negotiating sessions between the Gloria administration and SDG&E executives.

Under the new plan, what Gloria has called a “10-plus-10” agreement between the city and SDG&E would still include an initial term running for 10 years, with the potential to add 10 more years to the deal. But in the pact’s latest version, the City Council reserves the right to terminate the contract after 10 years “for any reason,” according to Gloria’s policy director, Jessica Lawrence.

As it had in March, the tentative agreement requires SDG&E to pay the city $80 million — $70 million for the electric franchise and $10 million for the gas franchise, all from shareholder funds.

But instead of the city receiving $8 million for each of the first five years of the electric franchise, SDG&E would pay $10 million. The utility would pay the city $500,000 per year for the rights to the gas franchise.

In addition, the agreement would see SDG&E pay:

• $20 million to help fund projects to advance the city’s climate equity goals, which include a new $5 million-per-year Climate Equity Fund to build parks, plant trees and improve public transit in lower-income areas
• $10 million to fund solar energy rebates in neighborhoods that have historically been overlooked

The deal also includes an Energy Cooperation Agreement focusing on greenhouse gas reductions, safety and reliability, again with an emphasis on communities considered underserved.

While there is an explicit reference to state law that gives the city the ability to create its own municipal utility, there is still no “right to purchase” by appraisal clause in the revised agreement. That’s something supporters of San Diego creating its own publicly owned utility want because they say it makes it easier for the city to buy out a privately owned power company.

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Lawrence said the proposed agreement represents a “reset” in the relationship between the city and SDG&E, which has been strained over the years. For example, the city last year filed a $35.6 million lawsuit in a dispute over SDG&E’s refusal to move some of its equipment at the city’s Pure Water San Diego recycling project.

The agreement identifies “pathways” to resolve issues and offer clarity about SDG&E’s rates by having the utility make frequent appearances at City Hall.

“You’ll be seeing a lot of SDG&E in front of City Council, in committee hearings, on a very regular basis,” Lawrence said. “On top of that, there is a biannual independent audit built in and a citizen committee [that] ratepayers can interface” with the utility.

Three council members — Monica Montgomery Steppe, Joe LaCava and Sean Elo-Rivera — criticized the original deal for being too lenient toward SDG&E, and all three appeared at a rally in front of City Hall last month hosted by environmental and political groups who have been harshly critical of the utility.

Chris Cate, the lone Republican on the council, said he would vote in favor of the deal but wasn’t sure if at least five other members also would vote yes.

In memos to Gloria, some council members called for a term of five years for a new agreement — something Salt Lake City signed in 2016 with its incumbent utility, Rocky Mountain Power.

“It’s a give and take in a negotiation,” Lawrence said, “but you’re not going to get a $110 million deal for five years,” referring to the sum of $80 million in upfront payments, $20 million for the city’s climate equity goals and $10 million for the solar rebate program.

Some critics have said the city has asked for too little, estimating that the combined electric and gas franchise is worth much more than the $6.4 billion a city-paid consultant estimated last year.

“This is a great deal for the city,” said Jay Goldstone, the city’s chief operating officer. “I’ve never seen a franchise agreement in my entire career — and it’s been a long one — where there’s $110 million paid for the rights.”

Under a franchise agreement, a municipality gives a utility the exclusive use of public right of ways for transmission and distribution, as well as the right to install and maintain wires, poles, power lines and underground gas and electric lines. ◆