UTILITIES • A live bid will be held before the City Council
Hathaway Energy, a subsidiary of billionaire Warren Buffett’s Berkshire Hathaway Inc.
Faulconer’s invitation to bid comes after the Mayor’s Office asked for input from the San Diego City Council in August. Council members debated but could not come up with a consensus on what particulars a new agreement should include.
The $80 million minimum bid is $18 million more than what the city’s hired consultant, JVJ Pacific, had originally recommended. Under the terms of the invitation, the amount of the winning bid would come from the utility’s shareholders’ funds and not from ratepayers.
“We heard loud and clear from council and I think one of the items there was definitely support for in the room was increasing the minimum bid,” said Erik Caldwell, the city’s deputy chief operating officer.
“I think it’s important to note that (the $80 million minimum bid) is the floor, not the ceiling. That’s where bidders start. We’re hopeful that with the efforts that we’ve taken to preserve competition in this process that hopefully, they can get more than that.”
Prospective bidders have until Oct. 23 at 5 p.m. to submit their offers. Competition is open to any company — not only to SDG&E, Indian Energy and Berkshire Hathaway — but bidders have to prove they are qualified to take on the responsibilities of delivering electric and gas services and pay the upfront costs.
A live bid will be held before the City Council, similar to an auction, said Lee Friedman, Faulconer’s strategic energy initiatives manager.
However, the company emerging from the bidding as the top choice must then receive approval from a twothirds vote of the City Council.
What happens if the city doesn’t receive any bids that meet the requirements set by the invitation? After all, SDG&E earlier this summer called JVJ’S recommended $62 million upfront minimum bid “astronomical.”
Faulconer’s plan then calls for the city to pursue forming its own gas and electric utility — a process known as municipalization.
While most power companies across the country
and in California are investor-owned utilities like SDG&E, there are exceptions, such as the Los Angeles Department of Water and Power and the Sacramento Municipal Utility District. Supporters of municipalization point out that the publicly owned utilities in Los Angels and Sacramento offer lower rates than SDG&E.
A new agreement lasting 20 years mirrors the recommendation made by JVJ Pacific. SDG&E has said it prefers a longer deal while some critics have called for a shorter term, saying it will give the city more flexibility in a fast-changing energy landscape.
“A 20-year term was sort of that Goldilocks-zone number,” Friedman said, trying to encourage potential bidders attracted to a lengthier agreement. “But also, not too long as to end up in the same situation where you’ve got a 50-year agreement and the industry has changed so much that you’re wondering how come you’re stuck in the past when you want to move into the future.”
Faulconer’s invitation to bid also calls for:
• the elimination of a 0.35 percent surcharge San Diego residents pay on the electricity portion of their monthly bills, which the city said will translate to $110 million
in decreased rates,
• performance audits of the winning utility every two years to make sure they are doing a good job, and
• ensuring that utility workers keep their jobs, negotiated salaries and increases should a company other than SDG&E win the franchise agreement.
The final terms of the agreement set the franchise fees for electric and gas at 3 percent. Faulconer’s team predicted the 20-year deal will equal about $1.4 billion in revenue. JVJ Pacific has estimated the combined electric and gas franchises are worth roughly $6.4 billion in profit over the course of 20 years.
The city does not have to necessarily reach a new deal by January.
City Attorney Mara Elliott sent a note to City Council members last month reminding them the city can try to work out an extension with SDG&E if time runs short on negotiating the particulars of an agreement or if a losing bidder files a protest.
Faulconer’s term expires in December. In November, elections will be held for new members of the City Council, as well as a new mayor, with Barbara Bry and Todd Gloria facing each other.
rob.nikolewski@sduniontribune.com (619) 293-1251
Twitter: @robnikolewski