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Let the bidding begin: San Diego looks to auction off San Diego's electric and gas services

By Rob Nikolewski, The San Diego Union-Tribune on

Published in Business News

A future San Diego City Council meeting may resemble a session at an auction house. Or maybe it won't.

Under an Invitation to Bid process outlined by Mayor Kevin Faulconer on Wednesday, it is hoped that multiple energy companies will compete with each other to win the city's franchise agreement - that is, the right to supply gas and electric services within the city limits of San Diego.

The current franchise agreement is held by San Diego Gas & Electric, as part of a 50-year pact signed in 1970 that is set to expire in January.

The mayor's team on Wednesday unveiled some of the stipulations a potential winner of the new agreement must meet, including signing a 20-year deal with the city and putting up a minimum upfront bid of $80 million.

But most tantalizingly, Faulconer's plan calls for bids from prospective companies to be opened live during a session of the City Council. Provided there is more than one entity making an offer that qualifies, the companies can then compete to win the council's approval by upping their initial bids.

"Let's say somebody came in at $80 million and somebody else came in at $85 million," said Lee Friedman, Faulconer's strategic energy initiatives manager. "The entity that puts in the lower bid still has the opportunity to up their bid by a minimum of 10 percent. And (the competitors) can keep on doing that back and forth, live, auction-style" until the highest bid is reached.

 

Under a franchise agreement, a utility is granted the exclusive use of public right-of-ways for transmission and distribution in a municipality, as well as the right to install and maintain wires, poles, power lines, and underground gas and electric lines.

Prior to Wednesday's announcement, three companies had expressed interest in winning the San Diego franchise agreement - SDG&E, Orange County-based Indian Energy, and Berkshire Hathaway Energy, a subsidiary of billionaire Warren Buffett's Berkshire Hathaway, Inc.

Prospective bidders have until Oct. 23 at 5 p.m. to submit their offers. Companies besides SDG&E, Indian Energy and Berkshire can make offers until the deadline but they have to prove they can take on the responsibilities of delivering electric and gas services and have the money to meet the upfront requirement.

The prospect of a live auction to win a franchise agreement is out of the ordinary. In fact, a number of financial analysts who follow utilities said they had never heard of such a thing.

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