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Mayor’s Office Puts Multi-Billion Dollar Energy Deal Up For Bid, Critics Calls It ‘Sweetheart Deal’

A trail of electric grid wires and poles travels across the skyline in South ...

Photo by Mike Damron

Above: A trail of electric grid wires and poles travels across the skyline in South Park, July 27, 2020.

Listen to this story by Shalina Chatlani.

San Diego Mayor Kevin Faulconer’s office announced on Wednesday that the city would open up an auction for utilities to bid for a 20-year multi-billion-dollar energy franchise agreement with the city.

But, some energy advocates say the proposal is a “sweetheart deal” that leaves taxpayer interests behind.

On two separate occasions, city councilmembers could not agree on how to set the terms of the franchise deal. But Faulconer said he would go ahead with the bidding process. In a press release, the city is asking interested utilities to minimally bid $80 million for the multi-billion dollar contract.

That’s an increase from the previously proposed $62 million, but the agreement doesn’t include some provisions councilmembers and advocates asked for, said Matthew Vasilakis of the Climate Action Campaign.

Reported by Shalina Chatlani

RELATED: San Diego Community Advocates Fight Proposed Energy Deal, Want City-Owned Utility

“The poison pill in this agreement is the right to purchase clause," Vasilakis said. "That was our biggest accountability tool and now it’s gone. If this deal moves forward we will be trapped with SDG&E just like we are trapped with 101 Ast St.”

Vasilakis referred to the downtown skyscraper that the city purchased for millions of dollars. It was once owned by SDG&E parent company Sempra Energy. A franchise agreement for SDG&E that lasts 20 years and has no accountability clauses would be the same, he said.

“The mayor’s heading out of office and he’s crafted a sweetheart deal for his friends at SDG&E, a deal that puts SDG&E interests ahead of taxpayers.”

RELATED: Mayor To Move Forward On Energy Franchise Deal, Though Council Lacks Agreement

But the Strategic Energy Initiatives Manager Lee Friedman said the city could still take over SDG&E’s infrastructure if it wants to under law, even though the provision isn’t in the deal.

“The city doesn’t have to wait for a material breach of the franchise, it doesn’t have to wait until there’s a cause for forfeiture ... Under the law the city has the opportunity at any time to start the municipalization process,” he said.

But Cody Petterson of the San Diego County Democrats for Environmental Action, says the right to take over isn’t the problem. The issue is how to value the utility’s assets.

“For the community at large, the big red flags are the lack of what the city’s consultant recommended, which is an independent panel to value SDG&E’s assets. And there’s no obligatory equity fund that would invest some profits back into the community,” he said.

On the matter of the equity fund, a spokeswoman for the Mayor's office says the equity fund is something the city council would have to vote to establish. That can't be established through the franchise agreement, she said.

RELATED: Law Firm Sues City For Allegedly Violating Open Meeting Laws On SDG&E Franchise Agreement

Utilities can enter into years, often decades, of litigation with cities that would like to municipalize by fighting over how to value its assets in court. That can delay the public power process.

City officials allege incumbent utility SDG&E has violated the current franchise agreement. But those incidents never triggered a municipalization effort. When asked about that, Deputy Chief Operating Officer Erik Caldwell says the proposal presented will hold the winning utility much more accountable than in the past.

“The franchise agreement that’s proposed has infinitely more enforcement capabilities than the existing franchise agreement. The old franchise agreement did not have an audit provision, we now have one proposed that would have a public facing audit every 2 years,” Caldwell said.

Still, some community members, like Vasilakis, say those audits will not have any teeth and that they will try to block any agreement with a bidding utility when it comes up for a vote at city council.

As for SDG&E, a spokeswoman wrote in an email to KPBS that, "We are reviewing the invitation to bid, and we look forward to responding when we have completed our analysis of the contents.”

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Photo of Shalina Chatlani

Shalina Chatlani
Science and Technology Reporter

opening quote marksclosing quote marksI cover all things science and technology — from the biotech industry in San Diego to rooftop solar energy on new homes. I'm interested in covering the human side of science and technology, like barriers to entry for people of color or gender equity issues on biotech boards.

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