Auditors Flag SDG&E’s Soaring Costs to Bury Power Lines

An audit of San Diego’s contract with its monopoly power company shows longstanding problems over burying power lines continue to bog down the relationship. 

As part of SDG&E’s new 20-year contract with the city, in which San Diego placed new demands on their energy grid builder, the company agreed to be audited every two years. Crowe LLP Risk Consulting’s draft investigative report says that while SDG&E is mostly in compliance, the company and the city need to work on their communication skills as costs for burying powerlines are getting out of hand. 

Crowe found that SDG&E’s final bill to the city for at least one project was 81 percent higher than the company’s initial estimate to do the work. The initial estimate for the project, named Navajo Block 7T, was supposed to cost about $24.5 million. But months later the company came back and said it’d cost $44.3 million. That’s because the company didn’t include its “overhead costs” in the initial estimate, the consultants wrote.  

What are these overhead costs? That’s unclear and not explained in the report. Crowe’s consultants did not respond to multiple requests for comment.  

Why are we talking about this? Communities want to bury power lines underground for a multitude of reasons. If powerlines are underground, they won’t be damaged by storms, fall on trees and potentially spark fires and power outages. Some residents just don’t like the look of cables hanging high in the air over sidewalks. In any event, anyone who pays a power bill in the city of San Diego also pays to bury existing power lines underground. The city charges SDG&E the fee, and the utility company charges its customers.  

But the process is taking a lot longer than the city would like. Since 1970, 400 miles of overhead lines have been placed underground. But there’s still 1,000 miles left to do if the city is to reach the goal of undergrounding every residential wire. The rising costs of the projects are partly to blame for the slow pace, the consultants wrote. 

“SDG&E’s failure to provide comprehensive and accurate initial undergrounding project costs estimates and delays … created challenges for the city to forecast its future undergrounding cash flow,” consultants Bert Nuehring, Erik Nylund and Aaron Coen wrote.  

What the consultants found isn’t new. City Attorney Mara Elliott blasted SDG&E back in the spring of 2020 for overcharging the city to underground power lines. At the time, Elliott said that the utility refused to provide enough documentation to justify the soaring costs. So, the city stopped paying the company – in the middle of their contract negotiations for a new franchise agreement.  

San Diego is also still fighting SDG&E in court after the company refused to pay for the cost of moving some equipment so San Diego could build Pure Water, its billion-dollar wastewater recycling system. San Diego Superior Court Judge Eddie Sturgeon recently ruled in SDG&E’s favor. The city appealed the decision and it’s scheduled to be heard by the Fourth District Court of Appeal on June 11.  

Despite the undergrounding issues, the consultants ruled that SDG&E had met all their “significant” contract objectives.  

Anthony Wagner, an SDG&E spokesperson, said the company is “pleased the draft report ratified our strong franchise partnership with the city of San Diego.” 

“The audit results, which included 387 separate commitments or obligations made by SDG&E to the City, shows that we have met our audit objectives in all significant respects. We take pride in our work and will continue to improve internal processes as suggested by the auditor,” Wagner wrote.  

The city of San Diego signed a new 20-year contract with SDG&E back in 2021. The company, owned by Sempra, has been the city’s power provider for the past 100 years. The contract, called the franchise agreement, gives the company monopoly rights to build and maintain the power grid on public land. Franchise agreements were fairly cut and dry contracts in decades past. But as the city set new goals for combating climate change, and as energy costs have been steadily rising, the city used it to ask for more things from SDG&E. 

That includes an $80 million fee just to win the contract, which is supposed to come from the pockets of shareholders and shouldn’t be charged to customers. The new contract also set up this citizen-led Franchise Review Compliance Committee and SDG&E agreed to be audited every two years. Another new piece of the city’s franchise contract: The City Council has the option to cancel the contract after 10 years if it’s unsatisfied with SDG&E’s service.  

The committee’s own draft report of its work, set for discussion at its June 3 meeting, says that it’s too early to decide whether to recommend San Diego sever its ties with the company.  

“(The committee) recommends the City Council continue to closely monitor SDG&E’s compliance with the numerous provisions of the franchise agreement,” the committee wrote.  

The committee also recommended the City Council and mayor actually fill all the seats on the committee in the future. The committee should have five members, three selected by City Council and two by the mayor. One of the City Council’s appointees is currently vacant.   

SDG&E isn’t the only one with homework following the audit. The auditors knocked the city for failing to get its new Energy Cooperation Agreement with SDG&E signed under its own 90-day deadline. Instead, it took an extra six months to do. That agreement is where SDG&E agreed to a laundry list of commitments like planting thousands of additional trees in the city, building out infrastructure to support electric vehicles and committing up to $1 million in shareholder funds for 10 years toward a nonprofit that puts solar panels on low-income households. (To pay for all the other stuff, the agreement says SDG&E may raise rates.)   

The reason why it took so long? The city was busy negotiating with SDG&E on another agreement – called the administrative memorandum of understanding – that dictates how the company is allowed to function on city-owned rights of way where it builds the power grid.  

SDG&E was supposed to create a “work portal” to share information about all its projects with the city, but that didn’t happen, or when it did, it didn’t always have accurate information. That’s something the two parties appear to be working out, however, according to the consultants.  

The city declined to comment on these reports because they’re still in draft form, wrote Leslie Wolf Branscomb, a spokesperson for the city.