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San Diego will take formal bids for alternatives to San Diego Gas & Electric as its power supplier because of the upcoming expiration of the utility’s franchise agreement with the city. Billionaire Warren Buffet will bid into the city’s solicitation.

SDG&E’s 50-year franchise agreement , which allows use of San Diego’s rights-of-way for delivery of electricity and natural gas, expires Jan. 1, 2021. The city’s charter requires the franchise to come from a competitive solicitation open to all bidders, including SDG&E.

SDG&E, the Buffett-owned Berkshire Hathaway Energy, and Indian Energy , a small Orange County-based alternative energy solutions provider, responded to the city’s initial request for expressions of interest.

With the highest electricity rates in California, many customers are dissatisfied with the utility.

“We definitely have challenges with SDG&E, and we want to leverage the franchise discussions to find a partner that will help San Diego reach its renewables and climate goals and build a modern grid,” City of San Diego Chief Operating Officer Erik Caldwell told Current.

San Diego’s Climate Action Plan calls for 100% renewables by 2035. It is supported by the alternative generation supplier San Diego Community Power that will launch in 2021. It will emphasize local distributed renewables.

“We also want more accountability, through third party audits and a clear dispute resolution process. SDG&E hasn’t provided that,” Caldwell added. He stressed that the city wants “fair compensation for the largest franchise opportunity in the state.”

Bids for Electric Providers Start at $54M

The City Council’s Environment Committee agreed on a 3-to-1 vote July 16 to endorse JVJ Pacific Consulting’s proposal that bidding start at $54 million for the right of ways to deliver electricity and $8 million to deliver natural gas. The next step is approval of the formal solicitation for bids, which requires a 2/3rds vote of the full City Council.

Discussions on the terms of the formal solicitation for a new San Diego franchise holder are expected to begin ahead of the council’s August 4 recess.

The next franchise holder could earn an estimated $6.4 billion over 20 years. However, a key question is the length of new franchise agreement, JVJ’s Howard Golub told the committee .

SDG&E’s rates are higher than necessary, and its accountability has been inadequate, Golub said.

JVJ’s report is “unfair and inaccurate,” the utility’s VP for Governmental and External Affairs Mitch Mitchell responded. It provides over 4,000 jobs, and over 40% renewables. The utility also is a major advocate for transportation electrification and energy storage and has been “exemplary” in wildfire prevention.

Berkshire wants its goals “to align with the city’s goals,” Jonathan Weisgall, Berkshire VP for Government Relation, told the committee.

There were over 130 phone comments to the city’s Environment Committee .

Support for SDG&E came from electrical workers with IBEW Local 465 who urged a long-term franchise agreement. Many other callers urged a five-year agreement to test the performance of the winning bidder.

Franchise renewals often lead to significant changes, SDG&E spokesperson Helen Gao told Current . “We are willing to consider a shorter agreement, but five years can make obtaining long-term project financing more difficult.”

Research shows 20-year to 30-year franchise agreements are the prevailing standard, which SDG&E wants.

“If we signed a 50-year agreement today, changing technology and business models would make it deficient within 10 years,” San Diego’s Caldwell said. But the city, like the utility, wants a long enough agreement that will attract investment in a modern grid.

Salt Lake City is completing a five-year agreement with the Warren Buffett-owned Rocky Mountain Power.

Like San Diego, Salt Lake has sought leverage .

“So far, RMP has been working with us to move our 100% renewables goals forward,” Salt Lake City Sustainability Director Vicki Bennett said.

“We will probably do another five-year franchise, but not because of a lack of trust,” she said. “The utility and energy industries are changing so quickly that five years is now a long time.”

To meet RMP concerns about its long-term investment in a solar project the city wanted, Salt Lake committed to a 25-year off-take contract.

San Diego also can choose to form a municipal utility like those in Los Angeles and Sacramento. Many commenters advocated for that option. But committee members, Caldwell, and others expressed concerns about the complications of municipalization and cited the experience of Boulder, Colorado.

The Boulder City Council approved municipalization in April 2014 and a ballot measure passed by voters endorsed it. But, with unceasing pushback by Xcel Energy, the incumbent utility, Boulder reported in May 2020 , that negotiations were still ongoing, with “hope for productive discussions.”

There is no “secret strategy” if the utility is clear on what its customers want, Salt Lake’s Bennett said. The key is a willingness to work together.

“My advice to any city in any negotiation with a utility is to tell them what you want, why, and be willing to work with them,” she said. Salt Lake City’s mayor and RMP CEO Cindy Crane "developed a relationship and could hash out what needed to be done."

San Diego has another option, according to Jim Lazar, Pace University Energy and Climate Center Institute for Energy Democracy Fellow and regulatory proceeding veteran.

The first step is to let the franchise expire. “Don't transfer it to anybody, but start building a parallel system in dense, lucrative parts of the city, and leave the incumbent utility with the least valuable parts of the system. When it sees its assets becoming valueless, it will want to make a deal.”

The right of way provisions in a franchise agreement are narrow, and provisions about renewables and grid modernization are subject to state regulatory decisions, JVJ’s Golub and others pointed out. Salt Lake circumvented that with a “ cooperation statement ” between the city and RMP that was signed first and attached to the franchise agreement.