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San Diego Set To Solicit Bids On New Utility Franchise Deal

Power lines at an SDG&E facility in North Park are seen here on Sept. 26, 2017.
Andrew Bowen
Power lines at an SDG&E facility in North Park are seen here on Sept. 26, 2017.

A San Diego City Council committee Thursday reviewed an independent study finding the city could strike a new deal with San Diego Gas & Electric — or a rival utility — that would lower energy bills and bring in more revenue for the city.

The "franchise agreement" between the city and the utility lays out how much SDG&E must pay in exchange for keeping its system of electrical wires and gas pipelines on the public right-of-way. These franchise fees — akin to rent payments — are then passed onto ratepayers in the form of a surcharge on energy bills. The current agreement was struck in 1970 and is due to expire next January.

San Diego Set To Solicit Bids On New Utility Franchise Deal
Listen to this story by Andrew Bowen.

The council's Environment Committee heard a presentation from an outside energy consultant that recommended a competitive bidding process that would pit SDG&E against other potential bidders. Among those that expressed interest is Berkshire Hathaway Energy, a subsidiary of the multinational corporation run by Warren Buffet.

The consultant's report recommended the city set a minimum bid of $62 million for the right to operate — and profit from — the city's electrical and gas delivery systems. The consultants also recommend the winning bidder be required to trim down the franchise fee surcharge, which they say could save ratepayers $110 million over 20 years.

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The committee heard hours of public comment, much of it from people calling for the city to simply buy the grid from SDG&E and create a municipal utility like those that exist in Los Angeles and Sacramento. Many other calls were from SDG&E's unionized electrical workers, who see in the new franchise deal potential threats to the favorable contracts they have negotiated over the years.

A key question in the deal is how long it should last. Utilities generally favor longer agreements because they provide more stability and certainty of profits, while some activists have pushed for terms as short as five years. Ultimately the committee supported the length recommended by the consultants: 20 years.

"I agree with the consultant's report that 20 years is a reasonable timeframe," said Councilmember Jen Campbell, who chairs the committee.

The city plans on soliciting bids on a new franchise agreement later this month. Mayor Kevin Faulconer is expected to select a winner and seek council approval for a new deal in the fall.

Councilmember Barbara Bry cast the only vote against the motion to move forward with the consultant's recommendations, saying she thought more analysis and a peer review of the consultant's study could result in a better deal for the city.