Should The City Of San Diego Be Its Own Power Company?
Thursday, September 3, 2020
Photo by Shalina Chatlani
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As San Diego Mayor Kevin Faulconer gets close to signing a new deal with a private company, activists push for “municipalization,” which means the city takes over the power grid.
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Aired: September 3, 2020 | Transcript+ Subscribe to this podcast
As San Diego Mayor Kevin Faulconer prepares to ink a new long-term deal with a power company, most likely San Diego Gas & Electric, a group of activists are pushing for a different energy future: public power under a city-owned utility.
In January, a 50-year-old franchise agreement with SDG&E will expire. The agreement gives a private utility the right of way to use city property for its infrastructure and operations. Community activists say rather than signing another decades-long deal, the city should take control of its own grid.
On a scorching hot afternoon in late August, more than a dozen of these activists, equipped with signs, charts and graphs of California electricity rates, gathered outside the skyscraper at 101 Ash St.
In 2016, the city bought the building, which was once the headquarters for Sempra Energy, San Diego Gas & Electric’s parent company, only to find out that it was filled with asbestos. The city never occupied the building, but until this week paid over $500,000 in monthly rent.
The activists, who call themselves Public Power San Diego, brought their demonstration to 101 Ash because they say it’s symbolic of wasted money, just like the high rates San Diegan’s pay for electricity.
“We’re paying $18,000 a day to pay for this uninhabitable building, the current franchise with SDG&E is delivering a million dollars a day in profits, 50 times bigger,” said one activist, Craig Rose, a former energy journalist.
Rose explains San Diego Gas & Electric customers pay the highest rates in the state, while cities that own their own public utilities — like Sacramento — have among the lowest rates in the state.
Another coalition member, engineer Bill Powers, says there’s an even more important reason — a public utility could help the city better reach its ambitious climate change goals.
“We can finally start crafting our own destiny which is solar power for all, battery power for all and we can do it as one big family,” Powers said.
Meanwhile, Sonja Robinson of the NAACP points out there are also issues of inequity, saying low-income people can’t afford SDG&E’s high rates.
“We’re asking for a more just, relatable cost-effective rate for utilities for San Diegans,” Robinson said.
A history of ‘municipalization’
The process of a city going from getting power from private utilities to owning its own utility is called “municipalization,” and it’s been going on since the Great Depression. Robert McCullough, a Portland-based energy consultant, explains the history:
“At the turn of the last century, we had a number of technological geniuses who revolutionized the world. And they brought electricity to the markets in North America,” McCullough said.
He said those entrepreneurs became utility moguls, turning the invention of electric power generation into investor-owned profit-making businesses. By the 1920s less than a dozen investor-owned utilities sold the majority of electricity in the nation and secured decades of profits by convincing cities to sign what have become known as “franchise agreements,” with some local regulation.
“Well, that worked well into the Great Depression. But in the Great Depression, people couldn't buy electricity, so there was a wave of bankruptcies,” McCullough said.
People began demanding a shift away from the corporations, so an increasing number of city governments began taking control, McCullough said, with some West Coast cities like Los Angeles, Sacramento and Seattle leading the way.
Today, thousands of other U.S. cities have public power. Around 45 provide power in California. Other major cities, like San Diego and San Francisco, still operate with those relic franchise agreements with investor-owned utilities from the turn of the last century.
McCollough believes municipalization will only increase in the future as more people opt for technology like solar panels and cities form community energy programs, which allow cities more independence over how they buy energy for residents.
“People are much more efficient with electricity, we now conserve faster than we grow. That means sustaining the cash flow from these investor-owned utilities is a real challenge,” he said.
Among cities currently re-considering their franchise agreements are places like Boulder, Colorado and Chicago. And even San Francisco has considered the idea of buying out PG&E’s local grid for around $2.5 billion.
“It sort of boils down to: We can control our own reliability,” said Barry Moline, executive director of the California Municipal Utilities Association. He says reliability and meeting aggressive environmental goals are two of the main reasons cities opt for public power.
Moline brings up the Sacramento Municipal Utility District, or SMUD, as a success story. The utility formed in the 1940s and offers residents among the lowest rates in the state, with nearly half of its energy mix coming from renewable sources.
“I've lived in other public power communities and they've been pretty good, but this one is just on steroids when it comes to engaging with the community there,” Moline said.
Uphill battles for public power
Even though the city faces a deep budget deficit because of the pandemic, local advocates say interest rates are at historic lows, and now is a good time for a big infrastructure investment.
But even with the low interest rates and successes of other cities, Faulconer and key members of the San Diego City Council say breaking away from a contract with a private utility, like with SDG&E, at this time would be too hard and cost too much money.
This opinion is shared by a number of utility experts, who say public power isn’t a panacea for all our energy woes. For example, when much of California experienced planned rolling blackouts during a heat wave, SMUD also had power outages. They weren’t because of a lack of power, however, but were likely caused by overheated transmission lines.
Also, public utilities can make poor decisions and waste money — just like private ones. In the 1960s, SMUD purchased a nuclear power plant. Ratepayers voted in 1989 to decommission it, but it still cost the utility and ratepayers millions.
“Municipalization just changes who is in charge. What we want is good, responsive, attentive management,” said energy lawyer Michael Wara.
And that’s not always easy to come by, Wara says. Also, getting public power in the first place isn’t exactly a piece of cake. The city has to buy the private utility’s poles and wires, which can cost billions of dollars.
“You can't just take them for free. You have to pay the owners of those assets. And it is wildly complicated to arrive at a number and it creates an opportunity to fight,” Wara said.
This reality makes it highly probable that SDG&E would sue the city. It took Sacramento two decades of court fights with Pacific Gas and Electric for the right to buy the infrastructure.
Other cities now are finding themselves in years of litigation, like those in California’s South San Joaquin Irrigation District.
Cities in the district have been trying to separate from PG&E since the early 2000s, says Peter Rietkerk, general manager of the Irrigation District.
“(Residents) weren't seeing the level of investment and care in the facilities that they were hoping to receive from PG&E at the time,” he said.
But it took nearly a decade before the district’s application to take over the utility was finally approved. And when they sued to condemn PG&E’s infrastructure and try to take it over, PG&E sued the district back.
Between 2008 and 2018, South San Joaquin spent $27 million on the project — $18 million of that went to legal costs. Today, the region is still caught in litigation limbo. Though, Rietkerk said he would go through the whole process again.
“It's primarily because of the value that we think we can bring to our local constituents,” he said.
The effort in Boulder provides another cautionary tale. In 2010 the City Council voted not to extend the city’s franchise agreement with its investor-owned utility, Xcel Energy.
“We had just passed our climate action plan and our carbon tax and our electricity supply was the big issue that we needed to wrestle with in terms of meeting our emission reduction requirements,” said Jonathan Koehn, chief sustainability officer with the city of Boulder.
The city wanted more control over its energy mix and, on several occasions the public voted in favor of a public utility that would prioritize clean energy sources.
But 10 years later, in 2020, the city is back to considering another 20 year franchise agreement with Xcel. But, Koehn says the fight for municipalization was worth it. Because the utility has made commitments to meet climate change targets.
“If they're not hitting them, we can by a vote of the people or super majority of council vote, exit our franchise and be done and go right back to municipalization,” Koehn said.
Back in San Diego, resistance to the idea is coming from the bulk of current city leadership. Councilmember and mayoral candidate Barbara Bry has consistently said public power isn’t on the table right now.
“For me, it's a no right now. It is not free to take over those transmission lines. We have to issue billions of dollars worth of bonds and pay that money back. Second, I have no confidence in the city to operate anything,” Bry said.
San Diego hired consultants earlier this year to look into the feasibility of public power. They estimate the cost for taking over SDG&E’s electricity infrastructure ranging from around $2 billion to just under $5 billion.
In all low to medium cost scenarios, the reports say the city would save money with a public power option. The report also says these are the most likely scenarios.
But the report says in the highest cost scenario, public power wouldn’t be worth it. Faulconer, however, has apparently put the most stock in that potential outcome. His office is moving ahead with an auction to take bids from private utilities to take over the franchise.
Proponents of public power call it a narrow-minded approach.
“The consultant’s report says that in the most likely scenario, public power is the best option for the city of San Diego. Despite that, the mayor’s office and city council appear to be headed for another deal with a private utility at the expense of ratepayers,” said Tyson Siegele of the Protect Our Communities Foundation.
As for SDG&E, the utility did not have a comment for this story. But in an email statement about the franchise negotiations, a spokeswoman said the company has been a good partner with the city and plans to submit a competitive bid.
But Cody Petterson, of the San Diego Democrats for Environmental Action, said activists aren’t giving up. He claims the city consultant reports overestimate the costs of taking over the grid, and that it’s not difficult to find good managers for a city-owned utility.
“Yes we do need a city that works for its residents more broadly. But this can be done, and we are already working on a path to do that,” he said.
That path is trying to work with councilmembers to stop any vote at city council when the mayor presents a franchise agreement. And if that isn’t successful, Petterson said activists will continue to build community and political support for a city-owned utility.
“Our target is to have municipal power in 3 to 7 years,” he said. “The path there is going to be bumpy one way or another. As bumpy as losing a million dollars a day? No, I don’t think it is.”
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