Agreement Ends Navy Threat to Cut Off SDG&E; Home Rates Will Rise Slightly

The Navy, which threatened to abandon San Diego Gas & Electric and build a generating plant to serve four energy-hungry bases on San Diego Bay, has instead negotiated a 10-year agreement to buy electricity from SDG&E.;

The agreement to be signed this morning will increase SDG&E;’s average residential electrical bill by 4 cents a month, according to SDG&E; Vice President Donald E. Felsinger.

Felsinger maintained that the increase was acceptable because bills would have jumped by 72 cents had the Navy jumped ship. That increase would have occurred because SDG&E;’s remaining customers would have been forced to pay a higher percentage of the utility’s fixed costs, Felsinger said.

The Navy will save $1.3 million a year because of the agreement, Felsinger said. SDG&E; will provide those savings by cutting charges for “costs not related to fuel” by 5%, Felsinger said. SDG&E;’s other customers will pay slightly higher bills to help cover costs such as maintenance of power plants, substations and transmission lines.

Felsinger described the increase in the bills as “infinitesimal” contrasted with what could have happened had the Navy built its own power plant and abandoned SDG&E.;

“It’s no secret that, had the Navy jumped ship, it would have meant the loss of big revenue dollars,” Felsinger said. “The Navy in San Diego represents 7% of our total sales.”

The agreement announced Wednesday grew out of an often-stormy debate the Navy initiated in 1985 when SDG&E; sent the federal government a $111-million electrical bill for the Navy’s San Diego bases.

The Navy began to seriously consider construction of a massive cogeneration plant that would provide heat, steam and electricity for four bases around San Diego Bay.

A 1986 study commissioned by the Navy suggested that a cogeneration plant would have cut the Navy’s annual electrical bill by $33 million. The Navy still maintains that a cogeneration plant would produce significant savings, Felsinger said.

At the time, SDG&E; estimated that losing the Navy as a customer would have raised fixed costs to its other customers by about $40 million, or $2 per average monthly bill.

As the result of earlier across-the-board rate reductions for larger SDG&E; customer, the Navy’s projected electric bill for 1988 will be $61 million. Additional, the Navy has reduced its electrical usage through conservation, cogeneration plants and other measures.

The agreement should produce “significant savings for the Navy and the American taxpayer,” according to Rear Adm. Benjamin F. Montoya, commander of the Naval Facilities Engineering Command in Washington. “This contract means that we can now begin to achieve the remainder of our energy cost reductions” planned in San Diego, Montoya said.

SDG&E; credited Rep. Bill Lowery (R-San Diego) for keeping negotiations alive in 1986 when the Navy seemed set on building its own power plant.

The agreement will provide cost savings for taxpayers but will not “overburden” SDG&E; customers, according to a Lowery spokesman in Washington.

“The Navy would have every reason to dump SDG&E; if it had found a cheaper alternative for energy,” Felsinger said Wednesday.

According to terms of the agreement, which includes options for another 20 years, the Navy agreed to buy 89.5 megawatts of electricity every year for the next 10 years. That electricity will be used by the Marine Corps Recruit Depot, the Naval Training Center, the Naval Oceanographic Systems Command on Point Loma and the 32nd Street Naval Station.

After 10 years, the Navy will have an option to renew the agreement for 10 more years. SDG&E; would have to reduce its non-fuel related costs to 15.5% during that time frame. Another option would give the Navy the right to extend the agreement for a second 10 years.