Mayor Gloria Opens Franchise Agreement Bids, Finds Minimum Bids From SDG&E
Friday, April 16, 2021
Photo by Nicholas McVicker
Mayor Todd Gloria revealed bids for the city's franchise agreements Friday with only San Diego Gas & Electric bothering to submit a bid — two minimum offers totaling $80 million.
The city received one bid for the gas franchise for $10 million and one for the electric franchise for $70 million, each from SDG&E and each the minimum requirements set forth in the Invitations to Bid.
The franchise agreements confer the bidder exclusive right to provide gas and electricity services to city residents and businesses, and allow the franchisee to use the public right-of-way to install and maintain utility infrastructure, such as pipes, poles and wires.
SDG&E, whose parent company is San Diego-based Sempra Energy, has held exclusive franchises with San Diego to provide gas and electric service since 1920. The current agreements were signed in 1970.
"With today's opening of the bids for our energy franchises, we are one step closer to achieving our goals: securing agreements that meet the needs of residents, make financial sense for the city, advance our climate goals and provide equitable access to environmental benefits for all our communities," Gloria said. "Over the next few days, I intend to analyze the bids to see if they meet the city's needs and standards for climate action, equity and accountability.
"If necessary, I stand ready to enter into negotiations with the bidders with the ultimate goal of presenting final bids to the City Council in the coming weeks," Gloria continued.
Despite the positive tone, the fact there was one bidder could be seen as a black eye for Gloria's administration, which rejected previous bids for the same amount from SDG&E and reopened a bidding period earlier this year in hopes of creating competition or securing a better deal.
When Mayor Kevin Faulconer was still in office, he worked with the council to set bid requirements for new franchise agreements, which were set to expire on Jan. 17.
Despite rumors of multiple companies interested in the franchise agreements, only SDG&E submitted a bid. Gloria and City Attorney Mara Elliot determined SDG&E's bid, which met the minimum bid of $70 million for electricity service and $10 million for gas, was unresponsive to the minimum requirements set forth in the Invitations to Bid.
Gloria then canceled the bidding process and reached an agreement with SDG&E to extend the current agreements through June 1.
The option still remains to municipalize, or to purchase and putting the city's utilities under public control. According to a consultant report by NewGen Strategies and Solutions conducted last year, SDG&E's property is valued somewhere around $2.5 billion, making the option to buy the company out an expensive one.
Haney Hong, president and CEO of the San Diego County Taxpayers Association, said before the bids were revealed that he would not be shocked to see just one bidder.
"Why would any company want to go through the process of separating the city of San Diego from the rest of the electric grid and gas pipelines in the county?" he asked. "Also, given the city's management track record, we are hard -pressed to believe any private entity would even want to work with the city of San Diego — what's happening today with the Sports Arena and 101 Ash shows that the city is hardly the thorough manager of public good."
Despite the pessimism, Hong said he expected Gloria to make the decision best for the city's taxpayers.
The terms of Gloria's new invitations to bid included the requirement for a cooperative agreement that will help the city achieve its climate action and environmental equity goals. The proposed franchise agreements also contain accountability measures compelling the franchisee to be a good partner and protect the city's use of the public right-of-way.
Also included in the solicitations is support for San Diego's Climate Equity Fund, which will finance new green infrastructure in communities of color that have historically not received their fair share of investment and been disproportionately plagued by pollution.
The invitations to bid included a 10-year term, plus an additional 10 years if the franchisee has been a good partner. If the franchisee has not complied, the city may cancel the agreement on the recommendation of the mayor and six votes of the City Council.
It also includes worker protection and retention language, a dispute resolution process allowing for mediation and desired terms including modernizing the local energy grid and boosting clean-energy resources.
Climate goals include working collaboratively with San Diego Community Power — the community-choice alliance under which San Diego and four other cities purchase energy on the open market that SDG&E distributes — climate- proofing the energy grid and transitioning away from natural gas and training gas workers in green-energy jobs.
Gloria said he would not provide additional comment on the bids until he and his staff have thoroughly reviewed them, after which the city may initiate negotiations with the responsive bidders to ensure the final agreements provide the best value to the city. Tentatively, the franchises will be awarded in May.
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