San Diego City Council approves new electric and gas franchise agreement with SDG&E

It was a close vote and required some additional financial concessions and commitments by San Diego Gas & Electric, but the San Diego City Council approved a new electric and gas franchise agreement with the utility May 25 that can run as long as 20 years.

After a long session in which the outcome at times appeared uncertain, the council voted 6-3 in favor of a new deal, barely meeting the two-thirds supermajority required by the city charter to finalize a new franchise agreement.

Under a franchise agreement, a municipality allows a utility to use the public right of way to install and maintain infrastructure such as poles and wires to deliver power to customers.

“While it is not everything that we wanted, it’s not everything SDG&E wanted either,” Mayor Todd Gloria said in a presentation that kicked off discussion of the item.

Council members Jennifer Campbell, Stephen Whitburn, Chris Cate, Raul Campillo, Marni von Wilpert and Sean Elo-Rivera voted in favor, while Joe LaCava (who represents District 1, which includes La Jolla), Vivian Moreno and Monica Montgomery Steppe voted no.

“I think we can get a better deal,” Montgomery Steppe said.

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City Council votes Tuesday on electric and gas franchise agreement with SDG&E

The agreement runs for 10 years and has an automatic renewal for another 10 years — what Gloria has called a “10-plus-10” pact.

However, if the city is unhappy with SDG&E “for any reason,” it has a window to void the 10-year automatic renewal, provided a two-thirds vote of the City Council agrees. The extension also can be nullified if the city decides to pursue creating its own municipally run power company or it determines a breach of the agreement has occurred.

LaCava said he looked at “the totality” of the agreement when he voted no. “I appreciate off-ramps built into the agreements, but they are off-ramps to nowhere,” he said. “We have no viable alternatives and we remain vulnerable. The city and the council must build a path to alternatives, such as public power.”

Gloria told council members he would support launching a feasibility study to explore the city creating its own municipal utility. Funding such a study, though, would go through the city’s budgeting process and have be approved by the council.

Under the new deal, SDG&E agrees to pay the city:

• $80 million — $70 million for the electric franchise and $10 million for the gas franchise
• $20 million to help advance the city’s climate equity goals, which include a recently created Climate Equity Fund to build parks, plant trees and improve public transit in lower-income areas

The utility also will pay $10 million for various programs aimed at increasing access to solar power and rebates for residents living in historically underserved communities.

The money will come from shareholder funds, not ratepayer funds.

A couple of changes were made to the agreement at the behest of Elo-Rivera and von Wilpert.

Notably, Elo-Rivera called for an amendment — and received a commitment from the utility — to have SDG&E pay half of the $20 million in climate equity contributions within the first five years of the agreement. Originally, SDG&E could have waited until 2037 to begin making annual payments. With the revision, SDG&E will now pay $2 million in each of the first five years of the deal.

If the agreement does not last the full 20 years, there is a provision that requires the city to refund portions of the money paid by SDG&E for the electric franchise. The size of the refund would be determined by a formula based on how long the agreement was in force.

For example, as the city’s Office of the Independent Budget Analyst said in a report that looked at the agreement, if the City Council decided to void the deal in 2031, the city would have received $60 million from SDG&E but would have to return $18.75 million of that to the utility.

The partial refunds bothered Moreno, as did the fact that the city is suing SDG&E for $35.6 million over a dispute in the city’s Pure Water San Diego recycling program in which the utility has balked at moving some of its equipment.

“There’s a strong chance that our history of litigation over infrastructure relocation will repeat itself in the future if the proposed franchise agreement is approved,” Moreno said.

Other items in the agreement include independent audits every two years to help ensure that SDG&E is a good partner, and establishment of an Energy Cooperation Agreement focusing on environmental and greenhouse gas reductions, safety and reliability, with an emphasis on underserved communities.

“These agreements give our residents what they deserve: certainty, accountability, choices for clean energy and pathways to achieve climate equity for all our neighborhoods,” Gloria said in a statement after the vote.

“Coming to these agreements took a tremendous amount of effort and compromise on both sides,” SDG&E said in a statement, “and we believe the result is a positive outcome for the city of San Diego and its citizens and positions San Diego as a national leader.”

More than 120 callers phoned in during the public comment period of the virtual meeting.

“This is not a ‘Hold your nose and vote yes’ type of deal,” said Nate Fairman, business manager for IBEW Local 465, which represents union employees at SDG&E. “This is real, the most lucrative agreement that any mayor has ever reached with any utility.”

But several political and environmental groups urged the council to reject the deal, criticizing SDG&E as an untrustworthy partner for the city.

Masada Disenhouse, executive director of environmental group SanDiego350, told the council that the city needs “a better plan that is much shorter — no more than five years. Please don’t do the same thing over again and hope the results are different.”

After the meeting, the Protect Our Communities Foundation said in a news release: “Today the city failed to meet its obligation. Moreover, the mayor and City Council reneged on the clean-energy promises they made in their campaigns.”

Other amendments that passed include a requirement offered by von Wilpert requiring SDG&E officials to appear before the City Council once a year to explain the company’s rates, which are the highest in California.

The council also passed an amendment by Elo-Rivera to have SDG&E work with the council’s Environment Committee to shape the programs and timeline of the $10 million solar initiative in underserved areas.

SDG&E has been San Diego’s sole franchisee for a century. After an extension was agreed to six months ago, the city’s current deal with the utility runs through Tuesday, June 1. The existing agreement has been in place since 1970.

The vote on the franchise agreement constitutes a city ordinance, so it requires a second reading by the council within 30 days. Since the existing agreement expires in six days, SDG&E has pledged that it will continue providing service and collecting the franchise fees charged to customers. ◆