What a Delayed Energy Contract Means for San Diego

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What a Delayed Energy Contract Means for San Diego

Outgoing City Council President Georgette Gómez’s move to ink a one-year extension with San Diego Gas and Electric, giving the new mayor and Council time to determine the city’s energy future, hasn’t been welcome to everyone involved in the lengthy negotiations over a new deal.

Utility poles line Stephens Street in Mission Hills. / Photo by Dustin Michelson

On her way out of office, Council President Georgette Gómez is trying to stop Mayor Kevin Faulconer from cementing a new, long-term contract with a utility to provide gas and electricity to city residents.

But her move to ink a one-year extension with San Diego Gas and Electric, giving the new mayor and Council time to determine the city’s energy future, hasn’t been welcome to everyone involved in the lengthy negotiations over a new deal.

Jan. 17 is a date hanging over the city of San Diego’s head, because that’s when its 50-year contract with its gas and electric provider, San Diego Gas and Electric, ends.

Faulconer’s office got to call the shots on the terms of the franchise fee agreement under a competitive bid process the city hasn’t tested out since half a century ago. But now that a company or companies have submitted their pitches to the city, Gómez is the only one with the power to actually make them public and trigger a Council vote to choose a winner.

Gómez refused to do that. Instead, she told the mayor’s office in a memo late Monday night she wants the city to negotiate a one-year extension SDG&E’s contract.

“Granting these franchises is a momentous decision for the City Council that should not be rushed, especially when a new council and new mayor are about to be inaugurated,” Gómez wrote in the Nov. 9 memo.

Gómez, Faulconer and handful of Council members are on their way out as the newly electeds take over Dec. 10. With the one-year extension, Gómez is giving the decision over what to do to the new administration.

Labor unions are not happy. But critics of Faulconer’s proposed contract terms are elated.

“What the [Council] president’s move is doing to us is asking us to start back at square one, which is creating uncertainty and leaving our members in limbo,” said Nate Fairman, business manager for IBEW Local Union 465, which represents hundreds of SDG&E workers.

The current Council members, Fairman said, are best equipped to make decisions on the franchise fee because they’ve heard all the public input while learning about it for over a year.

Not everyone is so upset.

“I think it’s a great idea,” said Bill Powers, an energy expert and local advocate for the city to municipalize, or buy out SDG&E’s system of poles, wires and transmission stations. “Gómez has basically said this goes to the people that will be responsible for the city going forward. To me it sends the message that this requires much more scrutiny and transparency.”

The Climate Action Campaign, an advocacy group that has been pushing the city to hasten its adoption of renewable energy, applauded Gomez’s decision and said the city could not afford to rush into a new deal.

“Instead, the new mayor and Council must start fresh and pursue the path that achieves full decarbonization of our energy system, both electricity and gas,” the organization wrote in a statement. “Whether that means partnering with a private utility provider or pursuing public power, the goal remains the same: how do we get to zero emissions and transition off fossil fuels in a way that is equitable and provides for a just transition.”

But union workers have some short-term security. Fairman confirmed that IBEW 465 this year signed a two-year contract extension with SDG&E, which expires in 2022. But he said uncertainty over the franchise agreement is why the company didn’t make a longer commitment.

SDG&E employs about 1,400 union workers. If the city eventually went with a different company – say, Berkshire Hathaway, which intimated its interest in bidding on the franchise agreement – then those workers would shift to the new utility. But the union is concerned it would have more and smaller contracts to manage, with less worker power behind them as a large chunk of their SDG&E workers shift to a different company. It’s “collective bargaining 101,” Fairman said.

The mayor’s proposed terms stipulate that whichever company wins, it has to honor existing labor agreements for only two years anyway. Fairman said if the new Council and mayor throw away the old bids and start fresh, the union would try to get a better deal.

“But there’s no guarantee you’ll be able to make a consensus with eight Democrats on the City Council or that (Mayor-elect) Todd Gloria will stick his neck out for one side of the community,” Fairman said.

Powers disagrees.

“Proponents for a better deal than Faulconer’s have always said these labor contracts will be honored,” Powers said.

Is San Diego Going to Meet Its Deadline?

SDG&E called Gomez’s memo a “surprise” and “contrary to the process that was described publicly by the mayor’s office,” wrote Helen Gao, a company spokeswoman.

“In the meantime we have submitted strong and responsive bids that align with the city’s environmental and energy service delivery expectations,” Gao wrote.

In her memo, Gómez blamed the city’s failure to follow an “ambitious timeline and process” for getting the franchise fee squared away on time. She was referring to proposed deadlines set during an August 2019 meeting when the Council was just beginning to approve contracts for consultants who would help the city research and decide on final terms for the bid.

Under that timeline, the final bid was supposed to be released in February 2020. Faulconer didn’t release it until Sept. 23.

The mayor’s office, via spokeswoman Rebecca Rybczyk, said called that timeline “outdated,” and said the Council has since heard numerous timeline updates including one from the mayor’s office on Aug. 6 that would place the city only a month behind on its contract process.

In a July 23 interview with Voice of San Diego, the staffer leading the effort said the city was on target to have a new contract by January, despite the procedural delay.

“We are on trajectory to complete this process before existing franchise expires,” said Erik Caldwell, deputy chief operating officer for the city. “You could always say, you could have started competition of franchise earlier. Is it the year ahead of (of the deadline) or five years?  I think we’re taking appropriate action.”

Caldwell said starting the process with about a year to go was consistent with how renegotiations went in the 1970s. The city only had one bidder to negotiate with then: SDG&E. That ended with the company shifting the cost of the franchise fee itself on to ratepayers through a surcharge.

This process has unfolded somewhat haphazardly. The city is following rules that didn’t attract competitive franchise bids 50 years ago, while basing a lot of its decisions on that process.

California’s utility regulators told Voice of San Diego in July that San Diego and SDG&E “waited until the last year of their existing agreement” to resolve a new franchise agreement. California Public Utilities Commission would likely only step in if there were a change in control or ownership of SDG&E’s distribution lines, spokesman Christopher Chow said. Gómez has only a handful of remaining scheduled City Council meetings to put the proposed one-year extension on the table before the new administration takes over.

If the vote comes before the Council before its newly elected officials are inaugurated, though, there will be just eight Council votes up for grabs.

That’s because Councilwoman Barbara Bry has confirmed that she will recuse herself from taking part in the decision, based on the large investments she holds in Berkshire Hathaway, a multinational company whose energy arm has expressed interest in bidding for the contract. It’s unclear whether Berkshire Hathaway ultimately submitted a bid, since responses the city received remain under seal. But if it did, the decision to extend SDG&E’s contract another year would affect a company in which Bry has a financial interest. She previously participated in two Council discussions over the terms of the contract, after Berkshire Hathaway expressed interest in bidding on the deal, but before the city officially solicited for responses.

Andrew Keatts contributed to this story.

Correction: An earlier version of this story misstated the number of union workers employed by SDG&E; it is 1,400. 

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