San Diego, not SDG&E, should pay the Clean Water bill, a judge ruled
Four years ago, when the San Diego City Council approved payments of tens of millions of dollars to relocate pipes and other equipment to make room for the ambitious Pure Water project, city officials insisted they would recoup the money from the San Diego Gas & Electric.
The city is suing San Diego Gas & Electric in 2020, saying the company violated its franchise agreement by refusing to pay to move its equipment.
Now a Superior Court judge has ruled that San Diego taxpayers are responsible for those costs, which already total more than $35 million and could add $65 million or more to the price.
In a final order released on Tuesday, Judge Eddie Sturgeon granted a motion by San Diego Gas & Electric to dismiss the case before trial.
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It ruled that the water program was “proprietary” rather than “governed,” meaning the utility would not have to pay the cost of moving pipelines and other equipment to make room for the multibillion-dollar wastewater recycling and purification system.
“Although the (Pure Water Project) provides for wastewater treatment, the purpose of the project is primarily to provide water and therefore remains under California law enforcement,” the judge wrote.
SDG&E said relocation costs for Phase 1 of the project alone are close to $100 million.
The decision is a notable setback for Mayor Todd Gloria and city attorney Mara Elliott, neither of whom have sought to settle the 2020 lawsuit during negotiations over the long-term franchise deal the utility is seeking.
Former Mayor Kevin Faulconer had entered negotiations with SDG&E on new deals for gas and electric services, but was unable to get council approval before leaving office in late 2020.
The following year, Gloria pitched a deal to replace the previous 50-year franchise deal, about 16 months after the city filed a lawsuit against the utility. Such arrangements allow private companies to access public rights-of-way to provide electricity, cable or other services.
The mayor’s office did not respond to questions Wednesday about why the dispute was not part of negotiations for the new deal, which is expected to generate tens of billions of dollars in revenue for SDG&E over the next 20 years.
“Because of the potential appeal, we’re referring you to the city attorney’s office,” a statement from Mayor David Rolland said in full.
Elliott’s office declined to discuss the decision but released a brief statement.
“We do not agree with the ruling and intend to discuss it with the city council and seek guidance,” spokeswoman Leslie Wolf Branscomb said via email.
SDG&E was quick to praise the judge’s decision.
“We are pleased with the outcome and are committed to working collaboratively with the City of San Diego on existing and future infrastructure projects to improve our communities,” the utility said in a statement.
In court filings, city attorneys argued that state law requires private utilities like SDG&E to pay for the relocation of facilities and equipment to make room for public infrastructure improvements.
“The Beneficiary shall remove or transfer without charge to the Council any franchised installed, used and maintained structure as and when necessitated by any statutory change in the slope, alignment or width of any public road, street, alley or place … by the municipality,” states part of the California Public Utilities Code.
But the judge ruled that section of the utility code was irrelevant, because the city and SDG&E had agreed in 1986 that any relocation cost disputes would be resolved by determining whether the proposed development was “government” or “proprietary.”
“The section (Public Utilities Code) is irrelevant because the basis for removal or transfer given therein is not present on the facts of this case,” Sturgeon wrote. “This court sees no reason to apply Article 6297 to this case, in particular where the parties have specifically agreed on the distinction between government and ownership in determining transfer costs.
Activists who opposed the franchise deal Gloria negotiated last year said this week’s ruling is further evidence that San Diego should invest in publicly owned electricity.
“We already had more than a million reasons every day to get out of this terrible franchise deal,” said Craig Rose, a member of Public Power San Diego, referring to SDG&E’s daily profit of more than $1 million every day in the city. “Now we have one more.”
Rose, a former energy reporter for the San Diego Union-Tribune, said a public fuel system would save residents money.
“With skyrocketing tariffs, the climate crisis and now these extra costs, the only way forward is to abandon our for-profit utility – our city council can do that – and start organizing a non-profit power company community-owned,” he said.
The Pure Water project is the largest and most expensive infrastructure program ever undertaken by the City of San Diego.
In a multi-stage development that began last year and is expected to run until 2035, Pure Water will convert millions of liters of wastewater into potable water through a series of transfers and treatments.
Costing at least $3 billion, the project is expected to deliver millions of gallons of water per day to meet the region’s growing water needs while reducing its reliance on outside agencies for decades to come.
Construction on the initial stage began last year. It includes a sewage treatment plant at Miramar and is expected to deliver 34 million gallons per day when completed. A second phase in Mission Valley is planned to produce 53 million gallons per day.
As Pure Water’s planning effort progressed, city and utility officials argued for months over the cost of the equipment relocation, estimated at nearly $100 million for the first phase alone. Moving the service equipment for phases 2 and 3 would cost tens of millions more.
But the two sides could not agree on who should pay those costs. In 2018, then-Mayor Faulconer recommended that the council agree to pay the first $35 million needed to begin moving SDG&E equipment to meet the schedule.
Faulconer administration officials insisted the money would be recovered.
“The franchise agreement is crystal clear on this issue,” then-assistant chief operating officer Johnnie Perkins said at the time. “We are confident that SDG&E is not playing by the rules, but we don’t have time to play with taxpayer dollars.
“We have an important timeline in relation to Pure Water in regards to our construction and design,” he said.
Sturgeon’s decision isn’t the first blow to the increased cost of the wastewater recycling plan.
Earlier this year, city officials acknowledged that continued flooding at a pumping station near Morena Boulevard would add at least $20 million to that investment.
The money will pay for the construction of a dam-like structure around the pumping station to prevent constant flooding. Officials also admitted the delay could further drive up costs if the long-planned construction schedule is not adhered to.
It was unclear Wednesday whether the city plans to appeal the decision or when the mayor might ask the council for an additional allocation to relocate the SDG&E equipment.