NEW BIDS PROPOSED FOR GAS, ELECTRICITY

Gloria calls for 10-year deal with renewal option, $80M minimum offer

Mayor Todd Gloria on Friday released the terms of a new invitation to bid on the right to deliver gas and electric services within the city limits of San Diego.

The invitation’s items include a proposed agreement lasting 10 years, with an automatic 10-year renewal if the city deems the energy partner has complied with all terms and conditions. It also calls for a minimum bid of $80 million — $70 million for the electric franchise agreement and $10 million for the gas franchise agreement.

“To win the exclusive right to use taxpayer land to provide energy to San Diegans, the holder of these new franchises will have to be a good partner in our effort to create a city that works for all of us,” Gloria said.

In a franchise agreement, a utility is granted the exclusive use of public rights of way for transmission and distribution, as well as the right to install and maintain wires, poles, power lines and underground gas and electric lines within the city limits of a given municipality.

As it has for a century, San Diego Gas & Electric is the city’s current franchisee. But the existing electric and gas agreements — in place since 1970 — expire on June 1.

An earlier bid invitation put forth by former Mayor Kevin Faulconer included a term lasting 20 years and a minimum payment of $80 million. When the bids were opened last December, however, SDG&E had submitted the only offer. What’s more, the utility’s bid included a number of revisions to the proposed contract with the city.

Gloria deemed SDG&E’s bid non-responsive and started the process all over again. In the past two months, the city has sought input — including holding 13 community forums and hearing suggestions from City Council members — on what should be included

in the new round of bidding.

Bids from the latest round will be opened April 16. But in a change, once the bids are unsealed, the city and the Gloria administration will continue negotiating with the energy company that turns in the highest bid.

“This is a starting point,” said City Council Pro Tem Stephen Whitburn. “Unlike the previous approach where there was an invitation and the terms were set and it was take it or leave it, this is more flexible.”

Going into Friday’s announcement, at least three council members called for a term lasting just five years to give the city flexibility in a fast-changing energy landscape. SDG&E executives, by contrast, preferred a term of about 20 years, citing the long-term nature of energy projects and achieving the city’s climate goals.

Gloria said the “10plus-10” proposal represents “a length of term that would get interest and actually have bidders come forward, but not so long as to lock us in to any particular position.”

While SDG&E submitted the only offer in the last round of bidding, Berkshire Hathaway Energy — a subsidiary of billionaire Warren Buffett’s Berkshire Hathaway Inc. — had expressed interest in competing with SDG&E, as did Orange County-based Indian Energy.

As for the minimum bid being the same as the previous round, Gloria said the figure is higher because “instead of a 20-year term for $80 million, we have essentially a guaranteed 10 (years) for the same amount of money.” He also said the amount could be revisited after 10 years, or increased during the negotiations in April and May.

“As mayor of this city and someone looking at a significant budget deficit, I’d be interested in more cash,” Gloria said. “Maybe through negotiations, we get it.” Other provisions include:

• requiring the franchisee support the city’s new $5 million-per-year Climate Equity Fund that will build parks, plant trees and improve public transit in lower income areas of San Diego. About 10 percent of the fund’s budget is slated to come from electric and gas franchise fees.

• a Citizens’ Review Committee to make sure the franchisee is abiding by the terms of the agreement

• a $30 million performance bond to protect the city from breaches in the contract, and

• an explicit reference to state law that gives the city the ability to create its own municipal utility.

Late Friday afternoon, an SDG&E spokeswoman said the utility was still reviewing the details of the bid invitation “and we look forward to responding when we have completed our analysis of the content.”

Following negotiations with the highest bidder, Gloria’s office expects to bring a deal to the City Council for a vote in May. Any new franchise agreement requires approval of at least six of the council’s nine members.

Leading up to Friday’s announcement, council members Sean Elo-Rivera, Marni von Wilpert and Joe LaCava each called for a franchise agreement of no more than five years. Elo-Rivera, in a memo to Gloria, also called for a substantially higher minimum bid — $60 million for a five-year deal and up to $135 million over eight years.

Spokespersons for EloRivera and von Wilpert said their offices were still reviewing the bid invitation Friday but Elo-Rivera’s communications manager said EloRivera “will continue to advocate for terms included in our memo submitted earlier this month.” LaCava’s spokeswoman said he had no comment.

Councilman Raul Campillo, who accompanied Whitburn in standing next to Gloria during the mayor’s announcement Friday outside City Hall, said he was encouraged negotiations will continue after the bids are opened.

“I’m not in a rush and I know Council Pro Tem Whitburn is not in a rush to approve a bad deal, just because June 1 is coming up on the calendar,” Campillo said.

Councilman Chris Cate said the invitation “strikes a balance” regarding various recommendations made by the council. “Understanding where our city currently stands financially,” Cate said in an email, “it was imperative to include the ability to negotiate with whomever responds to the (bid invitation), which will ensure taxpayers receive not only financial protections but also safe, clean, and reliable service.”

A number of environmental groups gave Gloria’s terms the thumbs-down.

“We do not see any significant differences between this proposal and former Mayor Faulconer’s failed (bid invitation),” said Matthew Vasilakis, co-director of policy at the Climate Action Campaign. “This is another 101 Ash Street in the

“We do not see any significant differences between this proposal and former Mayor Faulconer’s failed (bid invitation).” Matthew Vasilakis • co-director of policy at the Climate Action Campaign

making, a giveaway to SDG&E, and a signal that the city is not serious about putting the community ahead of corporate interests.”

Tyson Siegele, energy analyst at the Protect Our Communities Foundation, said the proposed length amounts to a “de facto 20year” deal. “SDG&E’s profits have quintupled since 2000, and today the mayor turned down the chance to flip the script.”

Craig Rose of the Citizens Franchise Alliance called the proposal “a stunning giveaway of billions of dollars.”

As in the previous agreement, the city reserves the right to terminate the franchise and go through the process of municipalization and establish its own utility that would provide electric and gas services, such as the Sacramento Municipal Utility District and the Los Angeles Department of Water and Power.