SDG&E’s Power Moves Have Fended off Energy Choice Efforts across San Diego

Three times in the past 30 years, local governments in San Diego have tried to unseat San Diego Gas & Electric as the region’s power monopoly. Three times, SDG&E has outmaneuvered local politicians with a combination of political spending, lobbying and savvy negotiating.

Now, SDG&E faces another round of competition from local governments across the county. The city of San Diego is looking to buy power for its 1.4 million residents from someone else. A handful of other San Diego County cities, including Solana Beach and Carlsbad, are looking to do the same.

The cities suspect they can provide greener energy at a lower cost than a for-profit company like SDG&E.

The question is whether tactics SDG&E used to preserve its monopoly in the past can work again today.

“Can we unlock the monopolistic grip, like we did with AT&T?” said Lane Sharman, founder of a nonprofit that advocates for communities to have energy choices.

If history is any indicator, the answer is no.

Earlier this year, the county government looked at buying power for people who live and work in the county’s unincorporated areas, but SDG&E-affiliated lobbyists swung into action and helped kill the plan.

Supporters of energy choice worry these tactics will keep working forever, ending their hopes to transform the region’s energy grid.

In the late-1980s, the San Diego County Water Authority talked about taking over SDG&E. The talk was largely an attempt to stop Southern California Edison from taking over SDG&E. San Diego’s civic leaders did not want the Los Angeles-based Edison controlling power in San Diego. But local officials faced an uphill battle against Edison and SDG&E’s powerful lobbyists.

SDG&E went to court to block the Water Authority from even studying the possibility. When a court allowed the study to proceed, the company launched a $340,000 mail campaign to scare its customers about skyrocketing rates.

The Water Authority’s public takeover never happened, but the California Public Utilities Commission eventually blocked Edison’s corporate takeover, too.

During the energy crisis in 2000 and 2001, some politicians were again fed up with SDG&E and wanted a public option to compete with it.

Both Chula Vista and San Marcos began, on their own, looking to move away from SDG&E.

Part of the reason was simply to save money: California’s energy prices are among the highest in the countryand SDG&E’s are high compared with the rest of the state.

That’s not just bad for residents, but bad for business, local officials argued. In 2002, for instance, Buck Knives, a longtime San Diego business, began talking about leaving because of uncontrollable utility bills. It eventually moved to Post Falls, Idaho.

As soon as the two cities began talking about dumping SDG&E, the Union-Tribune warned that taking on the power monopoly was “not for weak-hearted” people.

The paper was right: Both cities failed, and SDG&E remained intact.

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Michael Meacham, the former director of conservation and environmental services in Chula Vista, said the city looked at SDG&E’s high rates and saw an opportunity. It hired consultants who did studies that showed Chula Vista could beat SDG&E’s prices if the city negotiated rates with someone else.

The city considered a variety of options. Then it settled on one that would diminish but not eliminate SDG&E’s presence in Chula Vista, a fast-growing city.

First, it helps to know SDG&E is in two separate businesses: It sells power, yes, but its profit comes from owning and operating infrastructure – like the power lines that bring electricity to your home. SDG&E buys three-quarters of its electricity from other companies and resells it without a markup. The gravy comes from guaranteed profits on the sprawling system of lines it’s built over the last century to deliver power to its customers.

Chula Vista wanted to take on SDG&E in two different ways. It wanted to begin buying power for the entire city. It also wanted to municipalize the then-undeveloped eastern part of the city.

In the western half of the city, SDG&E would still get to charge for delivering power that Chula Vista bought and sold.

In the eastern half, though, the city would own everything, both the electricity and the power lines it ran through. Every new customer in eastern Chula Vista would have been the city’s customer, not SDG&E’s. That would halt SDG&E’s expansion in its tracks – a big deal given that Chula Vista added 100,000 people in the past 16 years.

“You just got to know that if you head down this path – and I’m not being hyperbolic – this is like declaring nuclear war on the local utility,” Meacham said. “This is taking away their business.”

Steve Padilla, then Chula Vista’s mayor and now a city councilman, said SDG&E’s strategy in beating back the effort was to kill any messengers, undermine any supporters’ credibility and make public power seem risky, even though the cities of Los Angeles and Sacramento both have government-run power utilities.

“The political message is, you’re going to create a new bureaucracy, you’re going to spend public monies upfront that could be spent on fixing potholes – and just scaring the living daylights out of people,” Padilla said.

In some instances, Meacham and others thought SDG&E was following an anti-municipalization playbook from an energy industry trade group, called “New Public Power Takeovers: Strategic Resources for Defeating Municipalization.”

The paper includes common-sense political advice that anyone who’s ever been part of a half-decent campaign would know. But it also includes specific tactics, like having campaign material that says things like “Too Costly, Too Risky.”

The paper also suggests power companies try to avoid takeover attempts by building goodwill in the community. That means expanding or reminding the public of a company’s charitable giving, its work in schools and its special programs for low-income and elderly people.

“SDG&E is certainly no exception, they are buying goodwill all the time – or certainly trying to,” Padilla said.

And the paper advises that if a power company can’t persuade politicians to kill off a public power program, the issue should be sent before voters. That’s Politics 101 in San Diego, where every issue of any significance – or insignificance – ends up on a ballot.

Chula Vista didn’t make it that far, though. In the end, SDG&E agreed to give Chula Vista a bunch of goodies if the city backed down.

As part of a deal, SDG&E agreed to help remove its unseemly infrastructure from prime coastal real estate and to help the city bury power lines, among other valuable enticements. In exchange, Chula Vista officials said they would not pursue the more radical municipalization attempt in the eastern part of the city. But they also preserved their right to buy power from someone other than SDG&E in the future.

Padilla said as far as he knows, SDG&E kept all its promises.

That helped open up the city’s bayfront for a hotel and convention center project that is now closer to a reality. Without SDG&E’s cooperation, the land there would have been far less desirable for developers.

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In 2000, San Marcos created a utility to compete with SDG&E. The city’s goal was to protect its residents and businesses from the adverse effects of the California energy crises and SDG&E’s rates.

The plan was for the public utility to service any newly developed parts of San Marcos which, like Chula Vista, was not fully developed and fast growing. But the agency, known as the Discovery Valley Utility, never amounted to much.

SDG&E poured over $200,000 into fighting San Marcos. It backed a group called Citizens for the Right to Vote. The citizens group was almost wholly funded by SDG&E and tried to ensure any decision to activate the public utility was approved by voters, a forum where the company apparently believed it would be more likely to win.

The group’s campaign literature had a clear message: “The people need to vote before the city risks tens of millions on an uncertain power deal.”

In the end, San Marcos also decided to settle rather than compete with SDG&E, a compromise that involved the company agreeing to put money into the city.

For now, the city of San Diego and other cities are not looking to municipalize SDG&E. Instead, they want to be in charge of buying power for their residents. In doing so, the cities would become what’s called a community choice aggregator, or CCA.

For San Diego, the goal is simple: The city wants 100 percent of electricity sold within city limits to come from renewable sources by 2035. SDG&E has, so far, been unwilling to make that happen, and in the past has raised doubts about how possible or expensive it might be.

On paper, SDG&E says it supports customer choice.

“What we pay is what our customers pay,” company spokeswoman Christy Ihrig said in an email. “So if a customer chooses to have another energy provider purchase their energy for them, we support it. And regardless of who is purchasing the energy, we will continue to deliver it through the most reliable power grid in the West.”

But SDG&E’s parent company, Sempra Energy, created a special marketing division to lobby cities about community choice. The division says its mission is to provide a “fact-based perspective” but supporters of community choice believe it is really trying to delay or even kill the movement in San Diego.

That unit, known as Sempra Services Corporation, is led by Frank Urtasun, a former SDG&E employee who helped lead the campaigns against Chula Vista and San Marcos.

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In May, Solana Beach voted to form a community choice agency.

Ahead of the vote, Urtasun met with officials and then wrote a letter urging the city to delay and instead “join in a broader and regional dialogue.” But there was no sign of a company-backed citizens group nor any sort of anti-choice mail campaign, hallmarks of SDG&E’s past battles.

It will take at least a year before Solana Beach begins buying its own power, and that will only happen if everything works out and the City Council is still interested, said Gregory Wade, the city manager.

Community choice is also different now than it was when Chula Vista and San Marcos explored programs. When Chula Vista was thinking about buying its own power, nobody else in California was doing that. Now, eight local governments are doing it, and many others are exploring their options. There is also an industry trade group and groups of attorneys who have learned how to take on power companies.

There’s also state law that prevents SDG&E itself from lobbying against community choice, which is partly why Sempra Services – the separate division inside of SDG&E’s parent company that includes at least one former SDG&E employee who has experience lobbying against community choice – exists.

Still, the energy industry may believe time and an ever-shifting landscape fall in its favor.

According to the industry handbook, “By the time all the studies are completed, legislation is passed, voter approval is obtained and outstanding lawsuits are settled, as many as 10 years may have passed.  During this period, circumstances change and the original impetus for the takeover may no longer be a factor.”

But that was written years ago, and time may no longer be on the side of the status quo in California. Public officials from the Democratic governor on down to San Diego’s Republican mayor increasingly believe it’s time to dump natural gas because it contributes to climate change.

The failed efforts of the past, though, may have steered SDG&E a bit away from gas.

“Chula Vista really did a lot to open up SDG&E’s mind and get them to where they are today, where they are on renewables,” Meacham said.

Right now, 43 percent of SDG&E’s electricity comes from renewable resources, and the company has rid its energy portfolio of coal. That’s better than any other major private utility in California but not enough for environmentalists that want to see a gas-free SDG&E, if that’s even possible.

“No CCA is going to have a ‘g’ in the middle of its name,” said Sharman, the community choice activist, referring to the “gas” in SDG&E and Pacific Gas & Electric.

SDG&E’s Power Moves Have Fended off Energy Choice Efforts across San Diego, by Ry Rivard, Voice of San Diego, July 3, 2017.

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