San Diego City Council gives final approval on new electric and gas franchise agreement with SDG&E

The San Diego City Council, on a 6-3 vote Tuesday, finalized a new electric and gas franchise agreement between the city and San Diego Gas & Electric, confirming a deal that will see the utility continue to provide power service within the city limits for up to 20 more years.

Since a new franchise agreement is considered an ordinance, the rules of the City Charter required a second reading before council members. And, just as happened on May 25, the council Tuesday approved the deal by the bare minimum two-thirds needed to enshrine a new pact.

Mayor Todd Gloria, who introduced the outline of the agreement after negotiating with SDG&E in April and May, said the council made a “responsible decision.”

“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 in a statement. “I want to thank the City Councilmembers who recognized this deal creates certainty, accountability and a pathway to achieving climate equity in all our neighborhoods.”

SDG&E has been the city’s franchisee for a century and prior to Tuesday, the most recent electric and gas agreement had been in place since 1970.

The new deal will run for 10 years and has an automatic renewal for another 10 years — what Gloria has called a “10-plus-10” agreement.

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

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, and
• $20 million to help advance the city’s climate equity goals, which include a recently created Climate Equity Fund that will build parks, plant trees and improve public transit in lower-income areas.

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

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

“We look forward to supporting the City’s renewable energy and clean air goals while promoting equity for every neighborhood,” SDG&E said in a statement. “We do not take this opportunity lightly — and fully commit to build a bright energy future for all of San Diego.”

Councilmembers Jennifer Campbell, Stephen Whitburn, Chris Cate, Raul Campillo, Marni von Wilpert and Sean Elo-Rivera voted in favor while Joe LaCava, Vivian Moreno and Monica Montgomery Steppe voted no — the same breakdown as the May 25 vote.

Heading into the meeting, some opponents of the deal focused on Elo-Rivera, urging him to switch his vote. Elo-Rivera described SDG&E as a “lackluster partner, at best” in its dealings with the city but said “this deal is not perfect, but I do believe the mayor and this council obtained a much better deal.”

In the May vote, Elo-Rivera inserted an amendment requiring SDG&E pay half of its $20 million in climate equity contributions within the first five years. Originally, SDG&E could have waited until 2037 to begin making annual payments. With the amendment, SDG&E will now pay $2 million in each of the first five years of the deal.

The utility and the City Attorney’s Office reiterated to Elo-Rivera on Tuesday that the utility’s climate equity payments will not come from ratepayer dollars.

The terms of the deal, “again, they’re not ideal,” Elo-Rivera said, “but I will also not dismiss the tangible benefits this deal will do to help folks around the city.”

In a local government franchise agreement, a municipality grants a utility 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 its city limits.

The Gloria administration has described the new agreement as a “reset” in the city’s sometimes fraught relationship with SDG&E. The deal includes independent audits every two years to make sure the utility makes good on its promises and SDG&E officials will appear at City Hall and at City Council meetings to discuss issues, such as rates. SDG&E’s rates are the highest in California.

Opponents of the agreement have argued the city should have pushed for a shorter term of five years and urged the city to seek to create its own municipal utility, such as the Los Angeles Department of Water and Power and the Sacramento Municipal Utility District.

Along with several members of the council, Gloria recently said he would support a feasibility study to explore the details and costs of what is called “municipalization.” Funding such a study, though, would go through the city’s budgeting process and have to be approved by the council.

Critics have also cited the city’s ongoing litigation with the utility over SDG&E equipment that obstructed work on the city’s Pure Water San Diego recycling project.

“The past 50 years has given us more than enough information about SDG&E,” Alexandria Abrams, a volunteer for the environmental group SanDiego350, said during the public comment period. “We know now they are a bad partner.”

Former City Attorney Mike Aguirre said his Aguirre & Severson law firm will file a lawsuit in Superior Court as soon as Wednesday to try to block the new agreement.

Aguirre said Tuesday’s item regarding Elo-Rivera’s amendment was not “properly noticed” and the council should have delayed taking action. The firm has also objected to Gloria and his staff meeting with each member of the council prior to the May 25 vote, saying the discussions were a violation of the state’s open meetings laws, including the Brown Act.

“It takes away the opportunity for the residents to have a fair deal with SDG&E,” Aguirre said. Gloria’s office has denied any infraction and the City Attorney’s Office recently said, “Based on the information provided, there is no evidence of a Brown Act violation.”

Seeking a new franchise agreement has been a front-burner issue at City Hall for about 1 1/2 years — a time frame that included the final year of former Mayor Kevin Faulconer’s tenure and the first six months of the Gloria administration.

Each mayor issued Invitations to Bid in efforts to attract multiple energy companies to compete for the city’s services but in both instances, SDG&E turned in the only offers.

The franchise fees that SDG&E collects from the monthly bills of customers who live or own businesses within the city limits are sent directly to the city. The fees generate a significant amount of the city’s annual budget.

In fiscal year 2022, the fees are projected to come to $66.3 million, with 75 percent (or $49.7 million) going to the city’s general fund. The remaining 25 percent (or $16.6 million) is deposited into the city’s Environmental Growth Fund for park and open space maintenance.

In addition, there’s a surcharge that is collected that goes to utility undergrounding of electrical lines that is projected to generate $65.8 million in revenue in FY2022.