San Diego Has More Leverage in Franchise Fee Deal Than It’s Letting on

Opinion

San Diego Has More Leverage in Franchise Fee Deal Than It’s Letting on

If San Diego is to end its unfortunate litany of rip-offs, there should be a transparent public process and time for the Council to fully consider terms – and a publicly owned utility – before any agreement is voted on.

Utility lines in the Grant Hill neighborhood of San Diego / Photo by Megan Wood

Maybe I haven’t watched enough Texas Hold ‘Em – or lost enough playing – but I thought two aces was a strong poker hand.

So having been dealt those aces, why did the mayor’s representative and the City Council seem to compete in bemoaning the difficult position that the city finds itself in considering its gas and electric utility options?

They took turns describing the City as “under duress,” “between a rock and hard place,” “in a very difficult position” and lacking “leverage.”

Time to check those cards again.

SDG&E will have a multibillion-dollar business, ifand only if – it wins a 20-year franchise utility deal with the city. The hired consultant says SDG&E stands to earn more than $6 billion. There’s stronger evidence it will be more than $15 billion. Every penny of that will come from our pockets.

That’s one ace: No land lease from the city, no profits for SDG&E.

If that wasn’t enough, the city also has the authority to grant an exclusive franchise – no competitors allowed! – for utility service in the city.

If you’re scoring at home, that’s the city’s second ace, the best hand in poker.

The big bogeyman here, to hear city officials tell it, is that allowing the franchise agreement to expire on Jan. 17 means SDG&E could withhold some $60 million or so annually in franchise fees.

Unfortunately, no one at the Council meeting offered the rejoinder that any cessation of those fees – which San Diegans pay to themselves through their utility bills, by the way – would open a hornet’s nest of legal problems for SDG&E, problems that Sempra Energy would have to explain to Wall Street analysts.

One issue that would arise is if SDG&E stopped forwarding the fees, the utility would be occupying city land without paying for it. That’s called trespass.

What’s more, the collection of those fees was authorized by state regulators for the express purpose of payment to the city. If they’re not being transferred to the city, regulators should ask why they’re being collected in the first place.

The $60 million is real money, no question. But let’s keep it in perspective: That’s 4 percent of the city’s budget, which is roughly $1.5 billion.

Threatening the city with loss of these franchise fees is like waving a cracker to distract us from the buffet. In this case, it’s a $15 billion buffet that SDG&E hopes to feast on for the next 20 years. And every dime of that $15 billion or more will come from the pockets of San Diegans. Our loss is their profit.

If the city’s negotiating “aces” and SDG&E’s vulnerabilities can’t stiffen spines at City Hall, consider this: If the company cuts off franchise fees payments, citizens of San Diego could, en masse, stop paying their utility bills.

This isn’t unprecedented. At least one state senator called for a utility bill strike during the electricity crisis at the start of this century.

Of course, this is a two-handed game, so it’s wise to evaluate the cards SDG&E is holding.

Let’s discard goodwill. The company is widely reviled by all except those who cash its checks. That’s little surprise because SDG&E charges California’s highest utility rates, allowing it to earn profits in our city of $1 million each day.

Making the utility’s image worse, SDG&E plans to impose a rate hike of more than 3 percent because folks can’t pay their bills during this pandemic. Think about that: You can’t pay, I’ll charge you more. Total debt to SDG&E owed by all customers now exceeds $100 million.

SDG&E slyly allows the fiction to persist that it pays the franchise fees, though at least one City Council member noted that nearly all of that money is collected from us – SDG&E’s customers.

If the utility won’t collect and forward the fees, there must be another way get that revenue.

Under state law, moreover, SDG&E is barred from turning off power to the city; nor would it want to because it would jeopardize that $1 million each day in profits.

The epidemic of fear evident at the Council meeting last week appears to have begun in the mayor’s office. In arguing the need for an extension, Jessica Lawrence, the mayor’s director of policy, cited the “uncertainty and complexity” of a franchise expiration, as well as the “very difficult” situation that would arise for the city and ratepayers.

Really? Many of us have lived month to month under expired leases, or worked under expired collective bargaining agreements, and I don’t recall anyone describing it as a life-changing experience.

Besides, while ending the fee transfers would create short-term issues for the city, it would mean a 6 percent rate cut for every utility customer in the city.

For hard-pressed utility customers, that doesn’t sound frightening. It sounds appealing.

Equally concerning is Lawrence’s promise of “flexibility on the back end” of any negotiation. This is in contrast with former Mayor Kevin Faulconer’s approach.

Say what you want about Faulconer’s flawed and failed framework, the deal was the deal. No alterations or edits were allowed and it was published for careful consideration by the Council and the public.

“Flexibility on the back end” means that whatever is public and published is subject to last-minute backroom changes and fine-print revisions by the mayor and the utility.

There should be legitimate concern that those last-minute changes would be rushed without public comment before an ill-prepared City Council operating under an artificially imposed deadline to get the deal done. Hurry up – just sign here. Yes, just like past bad deals.

In plain language, “flexibility on the back end” is likely the new “backroom dealing.”

That’s not a democratic way to reach an agreement valued at more than $15 billion and that involves the vital matter of the city’s fight against the climate crisis, as well as the need for rate relief for hard-pressed customers.

If San Diego is to end its unfortunate litany of rip-offs, there should be a transparent public process and time for the Council to fully consider terms – and a publicly owned utility – before any agreement is voted on.

It will be very difficult to get all this done in 135 days, so the rush job has already begun.

Several Council members expressed their intent to take more time, if needed. Let’s hold the Council to it: Take the time required to fully consider public power, which is delivering lower rates and a better partnership in fighting the climate crisis in scores of cities across the state.

San Diego has a utility tenant that pays little rent, earns a fortune at our expense and goes out of its way to insult the city (see SDG&E’s refusal to move equipment for San Diego’s clean water project).

To be fair, the local utility has provided a moment of levity during this dark time by resolving an ancient riddle: How many utility companies does it take to screw up a $50 million efficient light bulb program?

Just one, if you ask SDG&E.

But unless this Council quickly checks its cards – two aces there – the next joke will be on us. And it will cost us billions.

Craig D. Rose is a former Union-Tribune staff writer. He writes about business and energy and works with Citizens Franchise Alliance, a member of the Public Power San Diego coalition.

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