San Diego City Council Reluctantly Extends SDG&E Franchise Agreements Through June
UPDATE: 12:40 p.m., Dec. 30, 2020
The San Diego City Council unanimously supported franchise agreement extensions with San Diego Gas & Electric through June 1, 2021, at a special meeting Wednesday, although several council members did so with major concerns about the way the utility is dealing with the city.
The previous franchise agreements — the contracts allowing SDG&E to use public right-of-way to provide gas and electric services to ratepayers — were set to expire on Jan. 17, 2021. SDG&E, whose parent company is San Diego- based Sempra Energy, has held exclusive franchises with the city to provide gas and electric service since 1920.
The extension approved Wednesday is intended to allow newly sworn-in Mayor Todd Gloria and five new City Councilmembers some time to refine bidding criteria to include climate equity goals, conduct a public power feasibility study and take other actions to try to get a better deal for the city and its ratepayers.
"I look forward to a process that will lead to new agreements that protect ratepayers, allow us to reach our climate goals, provide equitable access to environmental benefits for all out communities and give us the flexibility to explore all options for how we supply energy to residents and businesses going forward," Gloria said.
The utility released a statement regarding the council's vote: "We agreed to the mayor's request for an extension and we are ready to work within the city process to compete openly and fairly for the new franchise agreements. Our 4,400 employees remain deeply committed to serving San Diego residents and businesses."
Dozens of public callers at a council meeting two weeks ago and again Wednesday asked for a year-long extension, and Gloria's office went into negotiations with the utility with the same time frame in mind. SDG&E agreed to an extension of just over four months instead.
The contract agreements require both the city and SDG&E to agree.
Multiple councilmembers described the city's lack of leverage in the negotiations for the agreements.
"We have to wonder if SDG&E is a partner or an adversary," Councilman Joe LaCava said. "I'm voting to support the extension, but I'm doing so under duress and to support the mayor and our residents."
Councilwoman Marni von Wilpert said she found the city "between a rock and a hard place," as the deadline of the agreement expiring looms.
The city could miss out on millions per month if the agreements expire. SDG&E would be under no obligation to continue to pay a franchise fee for a contract that is no longer valid. It is unclear if utilities would cease to be provided were the agreements to expire.
Under an open bidding process created by former Mayor Kevin Faulconer's administration, SDG&E was the lone bidder for new franchise agreements -- meeting the city's bare minimum bid.
However, Gloria, in consultation with City Attorney Mara Elliott, determined that the bid was unresponsive to the minimum requirements set forth in the Invitation to Bid. Consequently, the mayor canceled the bidding process and initiated talks with SDG&E on extending the current franchises.
Gloria rejected the bid on Dec. 18, a day after the sole bid from SDG&E was revealed ($10 million for gas and $70 million for electric) for the 20-year contract. Faulconer, with guidance of the previous council, helped set the terms for the bid in September.
Under Faulconer's administration, the idea of municipalization -- purchasing and putting the city's utilities under public control -- appeared to be an afterthought. Wednesday's meeting showed that may not be the case anymore.
Several members of the council, along with the majority of public callers, wanted to explore the idea of public power. Councilman Sean Elo-Rivera said, if, for nothing else, the idea could be used as a negotiating tactic with a company that has been difficult to work with.
"[The shortened extension window] does not sit well with me, but it also doesn't surprise me," he said. "SDG&E puts their shareholders first and the people of San Diego last."
Gloria expressed more openness to the idea than his predecessor, saying all options are on the table.
"This extension will create certainty and continuity for ratepayers and provide the city with the time we need to craft new terms for the next franchise -- one that will help us protect residents and businesses, strike the best deal for taxpayers and achieve our climate goals," Gloria said Tuesday. "Critically, the extension will allow San Diego residents ample time to make their voices heard as we prioritize people and sustainability and work together to create an energy future that works for all of us."
Council President Jennifer Campbell toed the line between the public and the utility company. She said Gloria's administration tried for the year extension but would have to settle for the shorter term. She also demanded the utility begin negotiating in good faith and said it has "slipped" in many areas.
Any action taken by the council on the city's franchise agreements must pass with a two-thirds majority vote.