Taxpayers Could Take a Hit if SDG&E’s Franchise Expires in January
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The looming expiration of the city of San Diego’s franchise agreement with San Diego Gas & Electric may not be on your radar as a citizen, but perhaps it should be.
Through this agreement, an outside company delivers gas and electricity to homes in San Diego, using transmission and distribution lines located on city property. Right now, and for the past 50 years, that’s SDG&E, and its franchise agreement with the city raises significant money for the general fund.
As we all know, the COVID-19 pandemic is already placing extreme pressure on the city’s budget. For one thing, travel restrictions have severely impacted our hospitality sector, and this is going to affect all city services, from public safety to libraries, from road repair to parks.
Now we may be facing another hit to the city’s general fund if a franchise agreement is not in place by Jan. 17, 2021.
An invitation to bid on the franchise for electric transmission and distribution lines, as well as the natural gas lines, was sent to interested companies in September. Any company that could meet the payment requirement of $80 million for the franchise right was welcomed to take over the lines.
If the interested bidder was any other than SDG&E, they would also have to purchase the lines from SDG&E in addition to meeting the city’s demand for an $80 million cash payment ($70 million for electricity, $10 million for gas) to operate on city property.
Well in advance of the invitation to bid, beginning in February 2020, the San Diego County Taxpayers Association has been asking important questions about the process, timelines and taxpayer protections. We even repeated those questions earlier this month, yet the City Council still has not answered and now seems poised to avoid making a decision until a new council is seated.
Briefly, we asked:
- What happens to the fee collection from ratepayers if a new contract is not signed by the deadline? San Diego residents pay a fee on their electric bills that is collected for the city of San Diego. In fiscal year 2020, the amount totaled $47.8 million. If there isn’t a company chosen to operate the lines, how will those funds be collected?
- Without an active franchise agreement, would the city be kept from collecting its higher special franchise fee by the California Public Utilities Commission? The concern is that it’s possible the CPUC could prevent the collection of the special fee and instead force collection of a lower, standard rate, thus resulting in further revenue losses to the city.
- Should the city “municipalize” the utility if no bidders want to take over the franchise agreement? This would mean the city would be responsible for purchasing the lines from SDG&E and form its own utility, much like the Department of Water and Power in Los Angeles. The costs of doing this may be astronomical, as the city would be responsible for all labor costs as well as purchasing the lines and maintaining them. While not fully studied, this appears to be an irresponsible plan and a bad deal for taxpayers.
City officials have known about this deadline for 50 years, but here we are at the eleventh hour debating whether this council or the next should make a decision. What was the point of all the public meetings and council hearings? Why is the current council abdicating its responsibility and jeopardizing the city’s budget by asking the next council and mayor, most of whom have not been a party to the deliberations, to deal with this predicament?
The road ahead is very short, with Jan. 17 right around the corner. Now is the time for the mayor and council to respond to these important questions and secure the future of the city’s general fund budget. Our community is counting on a deal to be done.
This was republished with permission from Times of San Diego.