In the City’s search to overhaul its existing gas and electric franchises with increased ratepayer savings and align them with energy and equity goals, Mayor Kevin L. Faulconer on Sept. 24 officially advertised the City’s franchises for gas and electric services with an Invitation to Bid initiating the competitive bidding process with terms shaped by input from the public, stakeholders and the City Council.
“San Diego has the largest, most valuable electric franchise and second-largest gas franchise in the state, and we have a once-in-a-generation opportunity to get the most bang for our buck with this agreement. The proposed franchise terms will ensure ratepayers are protected and accountability is front and center,” Faulconer said. “The terms laid out to deliver the best deal possible to help meet the City’s future demands for energy and climate goals.”
This once-in-a-generation pact provides an estimated $110 million in ratepayer savings and $1.4 billion in revenue over 20 years, offers increased accountability with regular performance audits, and ensures transparency through a competitive bidding process with a minimum bid of $80 million – a substantial source of revenue as the nation continues to grapple with the economic downturn caused by a global pandemic.
“The terms of this new franchise will add to our general fund, protect workers and save San Diegans money while providing flexibility to adapt to a changing energy future,” said City Councilmember Jennifer Campbell.
The final terms were carefully crafted to encourage a competitive bidding process by maximizing the value of the franchises for the City, residents and businesses while still attracting potential bidders. Faulconer first proposed terms for this deal over the summer, based on an energy expert consultant’s recommendation. Highlights of the mayor’s improvements to this Invitation to Bid based on public feedback include:
Estimated $110 million in savings for City of San Diego ratepayers with the elimination of a 2002 .35% surcharge on residents
A 25% increase in the initial minimum bid to $80 million for both gas and electric fees ($70M for electric and $10M for gas)
Performance audits of the utility required every two years
Workforce protections for utility employees under the new franchise
Requires good faith efforts by the utility to help the City achieve Climate Action Plan and climate equity goals
“The Chamber has consistently advocated for an open, transparent competitive bid process and we commend the mayor for seeking input from potential bidders, the community and the public-at-large over the past few months related to the franchise agreement. These efforts have culminated in terms which will now incentivize competition which is in the best interest of the City and its citizens,” said Jerry Sanders, president and CEO of the San Diego Regional Chamber of Commerce.
“We are pleased to see the ITB includes a level of assurance for future security for the current franchisee’s workforce,” said Keith Maddox, executive secretary-treasurer of the San Diego and Imperial Counties Labor Council. “These workers put their lives on the line every day to ensure electricity and gas flows for millions of San Diegans. Without worker protections, not only are the thousands of workers at SDG&E put at risk, so are the thousands of jobs held by local electrical workers who have built our green energy infrastructure that leads California and the nation.”
The final terms set the franchise fee for both gas and electric at 3% – under this same rate the current utility paid roughly $65 million in franchise fees to the City in 2019. As an added protection for San Diego ratepayers, the Invitation to Bid includes strict language as to how the minimum bid may be paid, ensuring that costs be passed on to utility shareholders – not ratepayers.
Over the last half-century, the existing franchise fell short of accountability measures needed to protect the City’s interests. Terms outlined in the new franchise ordinance not only require regular performance audits of the winning utility but also fortify language on liquidated damages and relocation provisions to strengthen the City’s ability to defend ratepayers in advancing projects. These terms leave intact the City’s ability to pursue municipalization through the condemnation process.
Working to bridge the climate equity divide in our neighborhoods with the goal of improving access to opportunity for all San Diegans, Faulconer supports the City Council’s efforts to establish a fund, sourced from the franchise agreements’ revenue, aimed at addressing climate equity through recommendations outlined in the City’s landmark Climate Equity Index.
In October 2019, the City assembled a Franchise team comprised of City staff, representatives from the City Attorney’s Office and two expert consulting firms. Input from the public, stakeholders, and City Council helped shape the final terms of the franchise agreement based on recommendations outlined by the City-hired expert consultant JVJ Pacific Consulting, LLC (JVJ), bringing more than four decades of energy industry experience to the team.
“As the City’s adviser, our goals were clear: to bring real value to the residents of San Diego – not just in terms of dollars received by the City and reduced energy costs for residents and businesses – but also through reliable service, requiring square dealing by the utility and aligning the utility with the energy future of this wonderful City,” said Howard Golub, managing member, JVJ Pacific Consulting LLC.
Today’s announcement follows a Request for Expressions of Interest (RFEI) issued by the City in January in which utilities expressed interest in bidding and stakeholders shared recommendations for the agreement’s terms. While additional utilities may still participate in the competitive bidding process, it was through this RFEI that the City received responses from three potential bidders: San Diego Gas & Electric (SDG&E), Berkshire Hathaway Energy and Indian Energy, LLC.
The existing franchise agreement from 1970 between the City and SDG&E is set to expire in January 2021.
Following the advertisement of the Invitation to Bid, prospective bidders will have until Oct. 23 at 5 p.m. to submit. Upon docketing by the City Council, the bidding process will open for active bidding in the City Council chambers. Bidders will be required to prove they are qualified under the terms of a responsible bidder and that they are able to meet the payment requirements of the minimum bid.
All approved as a responsible bidder will participate in a live bid before the City Council. Immediately following the determination of the winning bid, the City Council will require a two-thirds vote to finalize the awardee(s).
More information on utility requirements and the Invitation to Bid can be found on the City’s Bids and Contracting page.