Settling SDG&E Lawsuit Wasn't Part Of City's Monopoly Deal. Now It's Paying The Price.

By MacKenzie Elmer, the Voice of San Diego

December 2, 2022

The city of San Diego didn’t settle a lawsuit with San Diego Gas and Electric before renewing its contract with the investor-owned provider. San Diego could now be on the hook for at least $100 million more than planned to build a wastewater-to-drinking water system.

The city’s decision to ink a deal with a company it was suing is being criticized after a Superior Court judge ruled San Diego taxpayers must pay to relocate SDG&E’s utility pipes to make room for the Pure Water project. The city could still appeal the court’s decision.

In June of 2021, after San Diego got only one bidder on a new franchise fee agreement – a contract that lets a private company build its energy grid on public property – Council President Sean Elo-Rivera argued the city shouldn’t consider any company that was currently in litigation with the city.

San Diego signed a new, 20-year franchise agreement with the utility anyway. This wasn’t the only dispute between the two parties during the franchise negotiations. The city attorney stopped reimbursing SDG&E for burying powerlines, alleging the utility was over-charging and providing little information to support the ballooning costs.

Now, critics of the franchise agreement the city agreed to with SDG&E are touting the judge’s ruling as evidence that the city should have driven a harder bargain.

“We kept saying to city officials they should leverage the refusal of (SDG&E) to pay to remove the lines and instead they believed (SDG&E) lobbyists who told them, ‘we know we have to pay, but it’s pro forma to sue so don’t worry about it and let’s keep it out of negotiations,’” tweeted Nicole Capretz, who runs Climate Action Campaign, an environmental nonprofit that is suing the city over its blueprint to lower carbon emissions, in response to a Union-Tribune story covering the judge’s decision.

Craig Rose, a member of Public Power San Diego, an advocacy group that fought the city’s franchise agreement with SDG&E, called the initial $35.6 million cost of relocating that Pure Water equipment “small change” compared to the billions that the utility would garner in profit from the franchise fee agreement.

“(Gloria) didn’t even negotiate that, so it was an incompetent negotiation no matter how you look at it,” Rose said. “They should have at least gotten that ($35.6 million) out of them.”

Mayor Todd Gloria’s office referred questions about whether settling this lawsuit was ever on the negotiation table during the franchise agreement to the city attorney’s office, due to the potential for an appeal. But Dave Rolland, Gloria’s deputy director of communications, clarified that the mayor’s office led negotiations.

SDG&E spokesman Anthony Wagner said, in response to the Superior Court’s decision, that the utility is “pleased with the outcome and (is) committed to working with the City of San Diego on existing and future infrastructure projects to improve our communities.”

Elo-Rivera, the lone councilman to push for a settlement before the contract’s signing, said he never felt the issue was completely dismissed by the mayor’s office. But he didn’t know to what extent settling the lawsuit was discussed at the negotiation table, having not been present during those conversations.

Elo-Rivera eventually voted in favor of the city’s contract with SDG&E. But in the run up to the deal, he said SDG&E settling the Pure Water litigation would “demonstrate a real commitment to resetting the relationship.”

Elo-Rivera said he still believes that.

“The thing for SDG&E to keep in mind is, while I understand they might be doing this for short term profit considerations, their long-term business interest in terms of being a partner to the city … is the extent to which SDG&E attempts to extract every single cent from San Diego. (That) would play a determining role in whether or not I want to continue doing business with them,” Elo-Rivera said.

Elo-Rivera said this debacle is partly why he pushed to create an Energy Independence Fund, where the City Council would bank a few million dollars per year to study full municipalization – meaning government takeover of the investor-owned utility’s business and property.

The city took a step closer toward municipalization in in the fall, when the City Council approved a $3 million contract to a consultant to study the option.

Voice of San Diego is a nonprofit news organization supported by our members. We reveal why things are the way they are and expose facts that people in power might not want out there and explain complex local public policy issues so you can be engaged and make good decisions. Sign up for our newsletters at voiceofsandiego.org/newsletters/.