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San Diego city council members unveil plan that includes municipalization study

June 21, 2021

by Peter Maloney
APPA News
June 21, 2021

San Diego city council members Sean Elo-Rivera, Joe LaCava, and Monica Montgomery Steppe recently said that work has begun on an energy independence plan for the city that includes conducting a public power feasibility study.

A public power feasibility study would provide an analysis of the viability of municipalization for San Diego. The study would include an analysis of the costs, benefits, and process of creating an alternative to an investor-owned utility.

The scope of the study would include estimates of:

  • the value of San Diego Gas & Electric’s (SDG&E) assets;
  • the cost of severing the electric and natural gas systems within San Diego from the rest of SDG&E assets;
  • rate forecasts;
  • start–up, operations, and maintenance costs; and
  • preliminary business modeling and financing costs.

Additional items identified through a community engagement process could be included for analysis in the study.

The announcement of the energy independence plan came on the heels of a May 25 vote in which the city council approved a new franchise agreement between the city and SDG&E that could run for as long as 20 years. The agreement was ratified 6 to 3, just meeting the two-thirds super majority required for passage.

Council members LaCava and Montgomery Steppe voted against the measure. Council member Elo-Rivera voted in favor of it.

“On Tuesday, I voted in support of the Mayor’s proposed Franchise Agreement and committed to the community that I would take immediate action to ensure San Diego is better positioned the next time we determine our energy future,” Elo-Rivera said in a statement. “I’m proud to stand with two colleagues who fought hard for the best franchise deal possible as we look toward the future and begin the process of building a path toward energy independence.”

Another element of the energy independence plan calls for the creation of an energy independence fund. The three council members said they would work with Mayor Todd Gloria and the city’s Environment Committee to create an Energy Independence Fund that would allocate a minimum of $1.2 million of SDG&E’s franchise bid payments over the next five years.

The $1.2 million is the difference between the amount SDG&E will pay annually to the city over the first five years of the agreements, a total of $10 million, and the projected franchise revenue, $8.8 million, from the city’s proposed fiscal year 2022 budget.

The funds would create a pool of money for strategic investments, such as a refund payment to exit the agreement with SDG&E. The funds would create opportunities for alternatives that would make potential “off-ramps” from IOU electric service viable, the three council members said.

The franchise agreement runs for 10 years with an automatic renewable for another 10 years. But the agreement also gives the city the option to void the automatic renewal if that option is supported by a two-thirds of the city council. The extension can also be voided if the city decides to create a public power utility.

The new franchise agreement also includes accountability and transparency measures and the formation of a Compliance Review Committee to review audit findings, assess compliance with agreement terms, and provide input to the mayor and city council.

In an April 2020 consultant’s report, NewGen Strategies and Solutions estimated the capital costs of severing electric and gas systems in San Diego from SDG&E could run from $219 million on the low end to as much as $2.45 billion.

The report also found that electric power customers would fare better under public ownership, compared with SDG&E ownership, under low- and base-case scenarios but would save money under the high-cost scenario.

Natural gas customers would enjoy “significantly lower rates” than SDG&E under all cost scenarios, if the city paid a purchase price that reflected the cost to replace and improve SDG&E’s assets less depreciation.

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