Renewal of SDG&E energy franchise agreement topic at PB Town Council meeting

SDG&E has been the exclusive provider of gas and electricity to San Diego County county for the past century.
SDG&E has been the exclusive provider of gas and electricity to San Diego County county for the past century. Although extended to June 1 after expiring in January, the last 50-year franchise agreement was implemented in 1970.
(K.C. Alfred/The San Diego Union-Tribune)

With the city sprinting to reach the June 1 deadline for a new franchise agreement with San Diego Gas and Electric, the Pacific Beach Town Council held a forum at its April 21 meeting to review the city’s options.

Three SDG&E representatives thrashed it out with two proponents of publicly owned, non-profit power companies over the positives and negatives of the current situation in San Diego compared to municipal utilities found in 41 cities across California, including Los Angeles and Sacramento.

Presenters gave disparate viewpoints about present conditions and future possibilities, with SDG&E agents talking about reliability and diversity while the public power advocates discussed rates and valuations, creating a virtual cognitive dissonance.

“We’re not talking about what kind of energy we get, but how it’s delivered; the power lines, etc,” said PBTC president Marcella Bothwell. “Now the question is, is that contract good for the city and how long should it go versus a potential city owned utility like we have with our water and sewer supply?”

Formed in 1881, SDG&E has been the exclusive provider of gas and electricity to the county for the past century. Although extended to June 1 after expiring in January, the last 50-year franchise agreement was implemented in 1970.

Under new Mayor Todd Gloria, the city put out a new request for bids to operate the city’s power transmission franchise and generated only one submission: SDG&E, the same solitary bidder received by former mayor Kevin Faulconer.

“We’ve done two solicitations and each one has yielded only one bidder” said Craig Rose, a former energy reporter for the Union-Tribune who is now a member of the Citizen’s Franchise Alliance advocating for a non-profit municipal company. “The notion of competition is pretty much out the window in terms of a franchisee.”

Rose listed a host of problems with the negotiations for a franchise utility agreement, including the value of the contract. According to Rose, the consultant hired by the city to assess the valuation merely multiplied SDG&E’s profits in 2019 by 20 years to come to a total of $6.4 billion.

The consultant assumed no rate hikes or profit growth, even though the anticipated flood of electric vehicles (EVs), population growth and spike in air conditioning use with warming temperatures led the California Public Utilities Commission (CPUC) to forecast rate hikes of 50 percent for electricity and 85 percent for gas by 2030, Rose noted.

“The City Council can’t responsibly sell an asset whose value is yet to be determined” he said. “If we assume it’s worth $6 billion and it’s worth $20 billion, we are sliding $10 billion off the table, out of reach for negotiations.”

Rose and fellow activist Elise Dearborn of Public Power consistently focused on SDG&E electricity rates, the highest in the country outside of Hawaii, as well as its “exorbitant” operating costs, such as $22,000 for installation of each EV charging station compared to $14,000 to $18,000 in the rest of the state.

Rose said that SDG&E was pulling out more than $1 million in profits a day from San Diego, which he estimated accounted for slightly less than half of SDG&E’s $824 million profits last year.

“Public, non-profit utilities are common in California,” he said. “They’re all quite different but they all have one characteristic. They all charge lower rates than SDG&E. It’s obvious why public utilities have lower rates. They have no need for shareholder profits. Executive salaries are controlled.”

SDG&E regional public affairs manager Bernadette Butkiewicz didn’t address any of the issues raised but rather spoke to the company’s track record of reliable delivery, among the best in the country, she said. The company holds a leadership position for use of clean and renewable energy such as solar and wind power, which constitutes more than 40 percent of its energy portfolio, tops among investor-owned utilities in California, she said.

“Something I’ve seen consistently at the city is they tend to, and are mandated, to go with the lowest bid, not looking at the other values that a contractor could bring,” she said.

Butkiewicz touted SDG&E’s success at bringing diversity to the company where people of color comprise half of the workforce and 42 percent of its managers are women. She also extolled SDG&E’s contracting with minority-owned businesses, which reached 40 percent for the eighth consecutive year, surpassing the CPUC’s mandate for 21.5 percent.

“We look at more than just where we’ll fit and things like that,” Butkiewicz said. “We also look for best value because those dollars and cents are going to those contractors...(They) go right back to our local and community businesses and workers. SDG&E makes that a priority.”

Speaking on behalf of the 2,000 members of the IBEW (International Brotherhood of Electrical Workers) Local 465 employed at SDG&E, business manager Nate Fairman recognized that municipal utilities can pay competitive wages and offer excellent benefits because his 900 other members work at Imperial Valley Irrigation District, a publicly owned utility.

However, the IBEW opposed the “municipalization” of SGDE on the grounds that any deal could not ensure that current workers will keep the gains that have taken years of fighting to achieve, he said.

“The reality is a government takeover of an investor-owned utility at this scale has never been done” Fairman said. “So to say that workers will be protected; that cannot be guaranteed.”

In addition, Fairman argued that the cost of purchasing SDG&E is prohibitive for a city dealing with mounting budget deficits while facing a mountain of issues requiring resources, from homelessness to roads and transit systems.

“To purchase SDG&E, our studies at the IBEW, puts the price tag at about $12 billion,” he said. “That’s a lot of money. I think the city has more pressing issues to focus on.”

Rose disputed the $12 billion price, referencing two studies that showed the cost to be half that total.

While many of the audience questions were directed at the duration of a new franchise utility agreement, John Thickstun, an attorney and town council member, asked the presenters to name a municipal utility that has failed or been detrimental to its city.

Butkiewicz cited an effort in Boulder, Colorado that resulted in the city reverting to a privately owned utility after 14 years while Fairman pointed to a similar attempt in Long Island, NY.

However, Thickstun said his research showed that the city of Boulder merely threatened the change because its private utility relied on fossil fuels and dropped the endeavor when renewable fuels were added to the energy mix, while the Long Island effort is ongoing with local state legislators adding their support for a municipal utility recently.

“These people are out there and they’re misleading, if not flat-out making a misrepresentation,” Thickstun said. “It’s one thing to make the argument that it’s better for workers, for the community and so on. But it’s another thing to make mischaracterizations.”

However, Fairman argued that the misgivings sharpen exponentially if the city decides to go ahead with a municipal utility.

“The biggest thing is that one at this scale has not been attempted and there’s a reason,” he said. “Because it’s a big risk...It’s a dangerous unknown gamble and we don’t believe gambling with union jobs and the city’s general fund is a step in the right direction.”

Nonetheless, if mistakes are counted as well, then biggest one would be to keep the status quo, according to Rose.

“This is about two things,” he said. “This is about rates and fighting climate change. On both those fronts, I’m sorry but SDG&E and its parent company (Sempra Energy), a fossil fuel company, fail. You can’t fight the climate crisis with a fossil fuel company committed to fossil fuels. And it’s obvious they’re not about to lower rates.”