SAN DIEGO SHOULD DELAY NEW FRANCHISE AGREEMENT

We should be encouraged by San Diego Mayor Kevin Faulconer’s announced intention to demand more from the winner of a new city utility franchise agreement.

But we should be outraged that the mayor’s proposal leaves billions of dollars off the table, out of reach for a city reeling from a pandemic economic disaster and the need to address the climate crisis.

In a region where tourism and conventions employs hundreds of thousands, the Airport Authority is forecasting a 50% reduction in passenger travel over the next year. That may be optimistic. The only way to fill our convention center at this point was to convert it to a homeless shelter.

It grows more evident each day that San Diego will need every resource available for recovery. The franchise agreement can be among those resources, but not at the inadequate terms suggested by our mayor.

The franchise agreement allows a utility to use our streets and other public property for power lines, gas transmission pipes and other equipment.

With the current 50-year agreement set to expire next year, the city plans to hold a solicitation for the new agreement, open to all, including San Diego Gas & Electric, which has it now.

As the mayor’s team underscored last week, the award of a utility franchise is the ticket to billions of dollars — yes, billions — in profits. This is largely caused by our paying among the highest utility rates in the nation. Unfortunately, there’s little we can do in the near term about the awful regulation that allows these rates.

But the franchise agreement is in the city’s hands and San Diego holds the critical card: The city determines which company will earn those billions in profits.

Conditions vary across industries, but franchise agreements routinely involve a percentage of profits that the franchisee is likely to earn. Under the mayor’s proposed terms, a minimum $62 million upfront cash payment to the city and alleged reductions in fees now paid, the percentage is unlikely to reach 2%.

Setting the bar this low will leave the franchise winner very profitable. But it would be a giveaway of what may be the city’s most valuable asset — the franchise award.

SDG&E currently earns $1 million in profit each day in the city. If earnings grow as they have over the past decade, SDG&E’S profit would reach $5 million each day by 2040.

In return for those profits, the city receives roughly $70 million each year in franchise fees. Take that with a pound of salt because misguided regulation allows SDG&E to collect most of these fees from local residents.

The bottom line is that SDG&E shareholders pay little relative to the value of this lucrative franchise.

What’s worse is that SDG&E’S profits now get funneled to Sempra Energy, its parent company, which is investing heavily in fracked natural gas infrastructure projects.

These projects are in direct contradiction to state and local policy, as well as the public consensus, to reduce the burning of fossil fuels and the emission of greenhouse gases.

So San Diegans are put in the position of funding environmentally damaging projects that the majority of us oppose. The mayor’s proposal does nothing to address this serious contradiction.

Given the current dynamics, including the rapidly declining cost for renewable electric generation, the city would be unwise to accept an agreement longer than five years, the recent standard in scores of agreements around the country. Nearby, the county of Los Angeles signed a fiveyear agreement with Socalgas, a sister company of SDG&E.

In awarding the franchise, the city gets the chance to flex considerable muscle because SDG&E or any other bidder wants those huge profits. But arriving at a franchise agreement commensurate with the value of this city granted monopoly requires a pause in the process.

To be fair, there was no way that the work of the city’s consultants, hired last fall, could reflect the current pandemic reality and the need for economic recovery.

What’s more, the ongoing crises have fully occupied the attention of the City Council, leaving little time to grasp the opportunity presented by a new agreement, or by forming a municipal utility.

So let’s pause the franchise award process until council members can ensure the city gets fair value for this franchise award or considers an alternative.

The franchise award is worth billions to the winner. Surely, it’s worth an enormous amount to the city, which gets to pick the winner or choose a different path.