San Jose Council unanimously backs implementation agreement with PG&E, pauses municipal utility effort

The San Jose City Council on Friday voted unanimously to authorize the city manager to negotiate and execute a binding implementation agreement with Pacific Gas & Electric that aims to accelerate grid upgrades, guarantee interconnection timelines and support workforce development for large electricity customers in downtown and North San Jose.

City leaders said the agreement, if finalized, would pause immediate work to stand up a limited municipal electric utility called "San Jose Power" while preserving the city's right to revisit municipalization if PG&E does not meet measurable performance milestones.

The implementation agreement would fund a dedicated city team and require PG&E to provide enforceable milestones for engineering, construction and energization of new distribution infrastructure to serve data centers, advanced manufacturing and other so-called "large load" customers. Kip Harkness, deputy city manager, told the council: "We come to you at what I think of as a magic moment when it comes to electricity in the city of San Jose," adding that timely power delivery could unlock a wave of investment and jobs.

Why it matters: City staff and consultants concluded that a narrowly scoped municipal utility could offer lower rates and local control for a small number of customers near new transmission lines, but starting and operating a utility carries higher implementation risk and heavy city-level staffing demands. The staff recommendation reflects that tradeoff: pursue a deepened partnership with PG&E while keeping a developer-funded municipal utility as the city—s "best alternative" if the agreement and its cure periods do not produce the promised results.

What the staff presentation said: City consultants modeled business cases for serving up to roughly 250 megawatts in each of two limited areas (North San Jose and downtown) and stressed conservative assumptions. Lori Mitchell, director of the energy department, said consultants estimated that serving new customers through a municipal utility could yield customer savings in modeled scenarios ranging from roughly 14% to 27% compared with PG&E rates depending on regulatory charges; for a typical 99-megawatt data center that translated to modeled annual savings of about $16 million to $34 million in the scenarios shown to council.

PG&E—s pitch and commitments: Christina Ramos, senior government affairs for PG&E, and Mike Maderos, vice president for the South Bay delivery organization, told the council their company had stood up a dedicated program office, completed cluster studies and secured some upstream transmission work. Maderos said the draft implementation agreement would require PG&E to finance, engineer, construct, operate and maintain new grid infrastructure in defined areas and provide "concrete, enforceable milestones for the construction and operation of the infrastructure based on a shared understanding with the city." He added: "When San Jose is successful, PG&E is successful."

City safeguards and structure: The draft agreement would (1) fund six dedicated city positions across economic development and public works to manage and monitor PG&E—s performance, (2) create an OKR (objectives and key results) dashboard to track interconnection timelines and milestone delivery, (3) include escalation and cure periods if key results are missed, and (4) preserve the city's right to resume municipalization if PG&E fails to meet performance obligations after the cure period. Staff said the agreement also contemplates joint planning for the San Jose-Santa Clara Regional Wastewater Facility lands and potential improvements to the wastewater facility and airport.

Public comment and environmental concerns: Members of the Climate Advisory Commission and the Sierra Club urged council to protect the 159 acres south of the wastewater facility identified in the plant master plan as buffer land. A Sierra Club speaker said the buffer "is home to numerous protected species" and argued that "data centers provide no environmental benefit" and can increase energy demand and greenhouse gas emissions if they rely on gas-fired fuel cells. Staff said the 2013 plant master plan and environmental review will guide development and that separate restoration work and decommissioning of older drying beds are expected to increase open space in coming years.

Workforce development and local benefits: The draft agreement would fund workforce-development partnerships, including PG&E—s Power Pathways program and Work2Future cohorts; Mirza Hanzar, program manager, said those cohorts have historically shown high placement rates and wages for graduates. Councilmembers pressed staff for measurable commitments tying PG&E—s funding and service obligations to specific leading indicators of shovel-ready projects so the city can confirm the partnership is producing real construction, jobs and tax base growth.

Council action and next steps: The council accepted staff—s study and authorized the city manager to negotiate and execute the implementation agreement, to fund the positions and consultants outlined in the draft, and to continue evaluating the municipal utility option "if and only if" PG&E does not meet performance obligations. The motion passed unanimously. Staff said they aim to finalize the agreement in mid-April and will report back through regular memos and Transportation & Environment committee briefings with an OKR dashboard and monthly coordination meetings.

What remains unsettled: Council members made clear they want the executed agreement to include clear, specific off-ramps and measurement language that preserves a timely and actionable path to stand up municipal service on the city's terms if PG&E fails to deliver. City attorneys said they had a draft and would review it with the manager's office next week and offer briefings to council before final execution.

The council meeting closed after the unanimous vote; staff and PG&E officials said they would continue negotiations and return with periodic reports and the implementation-agreement deliverables for council oversight.