San Diego City Council Approves New Franchise Agreements With SDG&E

Speaker 1: 00:00 The San Diego city council, Tuesday renewed its franchise agreement with San Diego gas and electric, which has been in place for decades. But this time it was very different than necessary. Two thirds approvals squeaked by on a six to three vote, much of the public testimony was against the deal and a council member got SDG and E to agree to a last minute change in the payment schedule. The franchise agreement allows SDG and a to use the public right of way to install and maintain infrastructure such as poles and wires and pipes to deliver power to customers. The new deal could last up to 20 years, but even the length of the agreement is subject to revision. Joining me is KPBS Metro reporter, Andrew Bowen, and welcome Andrew. Hi Maureen. Thanks. First of all, let's clear this up. How is this agreement different from the new San Diego community power program? Speaker 2: 00:55 Well, San Diego community power is a public agency, uh, made up of five different cities in San Diego county. And it is responsible only for purchasing electricity on behalf of customers. So homes and businesses, SDG, and E is a private for profit company. And it's responsible for delivering the power and maintaining the grid. So doing repairs on power lines, fixing outages, et cetera. So this franchise agreement is essentially what allows SDG and E as you hinted at to keep all of its equipment poles, pipelines, wires on public land. And it's kind of like a lease agreement. So SDG pays rent to the city, uh, and the agreement sets out how much it has to pay and lots of other terms and conditions. Speaker 1: 01:41 So how much is STG and a paying the city to maintain its poles and wires on city land? Speaker 2: 01:46 Well, the minimum bid for these two contracts, they're technically separate for, um, gas and electricity was $80 million. And that is how much SDG and E actually submitted. And it's bid so $80 million over 20 years, just for the privilege of holding this contract and this right to, you know, keep its equipment on public, uh, the public right of way. In addition to that, the city also charges SDG and E franchise and utility undergrounding fees, which are kind of passed on to rate payers. So it's not money from shareholders in SDG is parent company, but rather, um, fees that, that are charged the city charges, the utility and the utility then passes onto customers. And those are estimated, uh, the city estimates those in this agreement to be about $130 million per year. So it's a pretty significant revenue source. And then, uh, mayor Gloria also, Todd Gloria also got SDG and E to agree to another $20 million for the city's climate equity fund, which funds, uh, it's supposed to, or will fund projects to help disadvantaged communities prepare for and adapt to climate change. Speaker 2: 02:55 And then on top of that as well, there was a $10 million agreement for solar energy rebates in underserved and fire-prone areas. So the city says that the total revenue of this contract over 20 years is about $2.7 billion. And just really quickly, the, you noted the, the change in the payment schedule. So this $20 million for the city's climate equity fund was originally not going to start coming in until 2037. And so council member, Sean ULA Rivera, who represents a lot of low income communities, including city Heights said, you know, we need this money sooner. If we're going to expect these communities to start adapting to climate change. So instead of pushing that, those funds far into the future, those will be starting immediately. Speaker 1: 03:41 Now these franchises could last up to 20 years, but they may not tell us about the exit ramp built into this Speaker 2: 03:48 Deal. Initial term is 10 years, and it would be renewed automatically for another 10 years, unless two thirds of the city council vote to exit the deal at that point. Um, if the city takes that route, however, it would have to forego, uh, $20 million of that 80 million minimum bid. So it wouldn't get all of the money that it had been counting on, and it would have to refund, uh, 18 point $75 million in revenue that it already received. So, uh, you know, there's a financial incentive for the city to just keep this deal in place at the halfway point. Um, the off-ramp at 10 years has meant to be an accountability measure. So if SDG and he knows that it could lose this business halfway through the contract, it's, uh, you know, theoretically incentivized to be a good partner with the city and it's worth noting, um, the city and STG need to not have a great relationship. The city has sued SDG and E to recoup almost $50 million related to a water recycling project in the city. They've also accused SDG of overcharging, uh, for the cost of burying power lines underground. So, you know, accountability and transparency and, uh, you know, just trying to create a good cooperation between the two sides was a, a big priority in this agreement. And, um, frankly critics didn't really see much teeth in what was actually agreed to Speaker 1: 05:15 Where did support come from? Well, Speaker 2: 05:17 Obviously SDG wanted this deal approved. They want the certainty of their revenue and their business. Um, several nonprofits that get charitable donations from SDG also called in, uh, for their support. And then a big player here was also organized labor. So SDG employees are unionized with the electrical workers union, uh, and they saw a, you know, a short-term franchise agreement or, or, um, the city taking over the utility as a threat to all of their collective bargaining agreements, the wages and benefits that they've negotiated over the past several decades. Speaker 1: 05:52 Well, as you say, many environmental groups and three council members, opposed this franchise agreement, what were their objections? Speaker 2: 06:01 Well for the environmental groups, uh, SDG and E's parent company, Sempra energy is heavily invested in fossil fuels. So they say that the city cannot expect SDG and E to be a good faith partner on its renewable energy goals and climate action plan, knowing that the company has made big bets on, on natural gas and fracking. And, um, you know, there are a host of other things to SDG wants to lower incentives for rooftop solar. Uh, it tried to pass on costs from the 2007 wildfires onto rate payers, even though it was their equipment that, that caused those wildfires. Um, you know, they say the critics say SDG and E charges, some of the highest energy rates in the country while making, uh, you know, last year it reported $824 million in profits. Um, and then there's a group, uh, of critics that would also just rather see the city take over the grid and form a municipal utility, um, which could result in either lower rates or potentially reinvesting those profits into, uh, back into the community. Speaker 1: 07:05 I want to ask you, that's my final question to you, because as part of this deal, the mayor agreed to begin a study into that on San Diego setting of its own utility company, what would that entail? Speaker 2: 07:16 Well, it would look at how much it would cost to purchase SDG assets within the city limits. Uh, and it would also assess all of the legal risks. So municipalization is, uh, not something that happens very often in California, even though every city has the right to do it. Um, basically what happens is, you know, the city says, we think all these assets are worth X, number of dollars. The utility then says, no, it's actually worth way, way more. And there's this protracted legal battle over the price tag and that, you know, of course just increases the cost even more. So it's one of the reasons why, um, some council members didn't support this plan. They felt like, you know, they needed a, a mechanism to streamline the process of municipalization. If, if the city ever decides to go that route and you know, it it's, uh, expensive process, one with benefits that would probably not be realized for many years down the road, but it's something that a significant portion of the city council and, uh, and residents of the city still want to be looked at really seriously. Speaker 1: 08:22 I've been speaking with KPBS, Metro reporter, Andrew Bowen, Andrew. Thank you. My pleasure, Maureen.