A Big Sticking Point Has Emerged in San Diego's Effort to Pick a Power Provider
Mayor Todd Gloria needs a supermajority of the City Council to support a new franchise fee agreement. But memos obtained by Voice of San Diego show at least four Council members want things that could doom contract negotiations before they even begin.
The battle over who should be the city’s next power grid builder is shaping up to be Mayor Todd’s Gloria’s first major political standoff.
Gloria needs a supermajority of the City Council (two-thirds, or six votes) in order to sign a new agreement with San Diego’s next electricity and gas provider that also builds and maintains the local energy grid. But memos obtained by Voice of San Diego show at least four Council members want very different things than the mayor, things that could doom contract negotiations before they even begin.
The biggest sticking point is the term length of the power contract – known as the franchise fee agreement, which grants a monopoly to one or two companies that are allowed to provide power in town. The contract Gloria put out into the marketplace as part of a competitive bidding process would last a total of 20 years (a 10-year contract with an automatic 10-year renewal). Council members Joe LaCava, Sean Elo-Rivera, Marni Von Wilpert and Monica Montgomery Steppe all wrote to Gloria last month saying they want the contract to last five years or less.
“The possibility of forming a public power agency, and the launch of San Diego Community Power are all reasons why a 5-year agreement is a more responsible term than the ultra-long term favored by the incumbent utility and promoted by the previous Administration,” LaCava wrote in a memo dated March 3.
Bids on Gloria’s proposed power contract will be opened on April 16. But if Council members don’t like the terms, these four could collectively shoot the deal down.
The franchise fee deal is the city’s single biggest chance to really get what it wants out of a grid builder. Under the deal, the city gives utility companies (currently San Diego Gas and Electric) exclusive permission to build poles, wires and gas lines on public property in exchange for a fee.
The contract term could be key to achieving the city’s climate goals. That’s because a shorter contract means the city can be nimble enough to renegotiate as energy technology, global markets or local climate policies change.
Increasingly, cities across the country are wielding these contracts like weapons, forcing power companies to secure more renewable energy or disclose previously secret energy data.
The city’s hired consultant (a former attorney for Pacific Gas and Electric) under Mayor Kevin Faulconer suggested a 20-year term instead of the former 50-year term, based on an average from a study by the National Renewable Energy Lab study. But that number is trending downward.
For instance, Minneapolis recently renegotiated its contract with Xcel and Centerpoint Energy for a new, five-year term. As contract negotiator and the city’s sustainability director Kim Havey told Voice of San Diego in August 2020: “I feel bad for any (city) signing anything longer than five years in the world that we live in because, then, you’ve got nothing to negotiate.”
It seems like a growing contingent of San Diego’s City Council agrees. The memos also solidify these four Council members’ positions on other things they want out of the contract.
Montgomery Steppe and LaCava said in December that they want the contract to preserve the city’s “right to purchase” all the electric poles, wires and gas lines owned by SDG&E should the city decide to take over (and buy out) a private power company. That would make it easier for the city to go public if it wanted to instead of condemnation, a more complex and lengthy litigation process for the city to take over SDG&E’s assets.
Now Elo-Rivera has joined the “right to purchase team,” and called for the city to start studying a government takeover of the power lines in response to calls from the public to do so.
The city of San Diego makes money off the franchise fee, about $60 million to $80 million a year. But instead of the utility company paying what amounts to a kind of rent to operate on public land, the public actually pays that cost on their utility bills each month.
Montgomery Steppe and Elo-Rivera want to reverse that and require power company shareholders to be on the hook for that cost, according to their memos.
The memos shed light on other interesting proposals simmering in Council members’ minds. Elo-Rivera said the holder of the contract shouldn’t currently be in any litigation against the city. He also wants the city to be able to appoint directors to the governing board of whatever utility might get the contract, which is not typical for privately held companies with boards run by investors.
Montgomery Steppe also wants to require the new contract holder to cooperate on large-scale energy efficiency programs and battery installation to support solar energy, and be prohibited from opposing solar in general.
Von Wilpert, who represents suburban northeastern San Diego, had the fewest requirements listed in her memo.
But she echoed her colleagues that a five-year or shorter term limit would “provide time for the city to further evaluate our options for the future of these franchises, including evaluating a public power option.”
SDG&E did not respond to a request for comment.