It was a close vote and required some additional financial concessions and commitments by San Diego Gas & Electric but the San Diego City Council on Tuesday approved a new electric and gas franchise agreement with the utility that can run as long as 20 years.
After a grueling session in which the outcome at times appeared uncertain, the council voted for a new deal on a 6-3 vote, just barely meeting the required two-thirds supermajority needed per the City Charter to finalize a new franchise agreement.
“While it is not everything that we wanted, it’s not everything SDG&E wanted either,” said Mayor Todd Gloria 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, Vivian Moreno and Monica Montgomery Steppe voted no.
“I think we can get a better deal,” Montgomery Steppe said.
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 — for any reason — 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 utility will also pay $10 million for various programs aimed at increasing access to solar power and rebates for residents living in historically underserved communities.
The monies 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 for 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, if the 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 amount to the utility.
The partial refunds bothered Moreno, as did the fact that the city is suing SDG&E for $35.6 million in a dispute concerning the city’s Pure Water San Diego recycling program in which the utility 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 the 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 immediately 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.”
A number of political and environmental groups had urged the council to reject the deal, criticizing SDG&E as an untrustworthy partner for the city.
“Today the City failed to meet its obligation,” the Protect Our Communities Foundation said in a news release, “Moreover, the Mayor and City Council reneged on the clean energy promises they made in their campaigns.”
Under a franchise agreement, a municipality allows a utility to use the public right-of-way to install and maintain infrastructure — such as poles, wires and pipes — to deliver power to customers.
Other changes made Tuesday included an amendment offered by von Wilpert requiring SDG&E officials appear before the City Council once a year to explain its 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.
“I completely understand why some of my colleagues are voting no today,” Elo-Rivera said. “This is not a great deal, it is imperfect. But I do recognize that the mayor’s done his work to make this objectively better than it was.”
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,” LaCava 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.
Campillo said a feasibility study would show SDG&E and voters “that we take that option seriously” and believed the enforcement language of the agreement would help ensure the utility adheres to its stipulations.
“While it is true that the city would have to return a portion of the upfront money if the council in 2031 determines that they want to terminate the deal, we would lose some money, yes,” Campillo said. “But SDG&E would lose out on billions for that second decade.”
Montgomery Steppe disagreed, saying the millions the city would pay to get out of the deal after 10 years “for me, constructively, it makes it really, really hard to justify and to really make those offramps feasible.”
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.”
Masada Disenhouse, executive director of the environmental group, SanDiego350, told the council the city needed “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.”
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 June 1. The existing agreement has been in place since 1970.
Since the vote on the franchise agreement constitutes a city ordinance, it requires a second reading by the council, scheduled for June 8. Since the existing agreement expires before then, SDG&E has pledged to the city that it will continue providing service and collecting the franchise fees that are charged to customers and sent directly to the city’s coffers once the second reading is held and the deal is finalized.
Right after taking office, Gloria deemed an earlier round of bidding for a new franchise deal to be unresponsive and started the process over. He announced a new invitation for bids in March to lure multiple energy companies to compete but, just as in the case of previous Mayor Kevin Faulconer, SDG&E turned in the only offers.
8:11 PM, May. 25, 2021: This story has been further updated to include additional details and comments from council members and others.
6:02 PM, May. 25, 2021: This story has been updated to include more details of the council’s decision and quotes from council members and the Protect Our Communities Foundation.