Section 9 of the electric franchise requires SDG&E to budget 1/2% of its gross receipts of 1969 for undergrounding of overhead lines in 1970, and, to increase the budgeted amount each year thereafter by 1/2% to a maximum allocation of 4.5% of gross receipts annually for undergrounding of facilities. This maximum of a 4.5% allocation was reached in 1979.

Rising fuel costs to SDG&E that began in 1974 and which the CPUC allowed to be passed on to the ratepayer caused a greater than expected amounts of undergrounding allocations to accumulate. SDG&E sought relief from the undergrounding allocations from the CPUC in 1976 and 1978. On both occasions the City Council went on record and passed resolutions opposing the reductions. On both occasions the CPUC denied the requests.

In 1979, SDG&E again sought relief from the CPUC for undergrounding allocations that were growing rapidly. In February 1980, in response to that appeal, the City Council showed its concern about impacts of the underground program on the City budget, on ratepayers and property owners, and passed a resolution for a staged reduction of underground allocations for the years 1981 to 1984 to reach a level of 2% of gross receipts. The resolution also directed the City Manager to work on amending the electric franchise to require 2% allocation from 1984 and thereafter. In return, SDG&E would

• assume all conversion costs of City owned street lighting and traffic signals that would need to be converted as part of any conversion projects
• convert 12,000 street lights from low pressure sodium to high pressure sodium
• and upgrade an additional 3,000 streetlights to a more modern system.

In addition, SDG&E would assume the energy and maintenance costs of the entire street light system. The CPUC disallowed the provision for SDG&E to assume the streetlight energy and maintenance costs and this provision was not pursued.

In 1984, the City Council passed a resolution to set a fixed allocation amount for years 1985 through 1989. Council had directed the City Manager to establish an allocation amount that was reasonable in the demands it created on the City budget, property owners and ratepayers. The Council also directed the City Manager to enter into an agreement whereby the City would take ownership of streetlights converted to underground. It was determined that the energy expenses for City owned lights was roughly a fourth of those costs that the City paid to SDG&E in energy costs for company owned lights. Changes were also made to the Council Policy to not allow transmission (69 KV) conversions until all distribution systems were underground and that undergrounding must be completed uniformly throughout the City. The City Manager was instructed to investigate the possibility of using 8209 (20A) funds for performing the customer conversions.

In 1986, the City of San Diego and SDG&E had been in a multi-year litigation over the City's 1973 re-zoning of 240 acres owned by SDG&E in the Peñasquitos reserve south of Carmel Valley Road and west of Interstate 5. In 1976, the City lost a $3 million dollar reverse condemnation judgement but managed to get it overturned on appeal. SDG&E ultimately appealed to the U.S. Supreme Court, who heard the case and dismissed the appeal for lack of final judgement at the trial court level; SDG&E promptly set the case for retrial. In May of 1986 while awaiting retrial of the case, the City of San Diego and SDG&E agreed to settle the case. The City agreed to purchase the 240 acres for $2.5 million dollars and set the five year reduced allocation level for undergrounding for the years 1990 through 1994. SDG&E dismissed the suit and both parties agreed to not bring future actions.

In 1995, the City had been in dispute with SDG&E regarding back franchise fees on City of San Diego surcharge revenues, gas transportation fees and in general what constitutes the basis for gross receipts for which SDG&E agreed to pay a franchise fee of 3% on, since January 1991. In addition, the 1986 five year agreement for reduced underground allocations had ended on December 31, 1994. Thus, in April 1995, the City of San Diego and SDG&E agreed that SDG&E would complete $33 million in "pipeline projects," those currently in process. SDG&E also agreed to complete another $55 million in undergrounding projects which would be allocated in yearly increments through 2000, agreeing to meet strict yearly construction expenditure requirements and to complete all expenditure requirements by December 2002. The agreement totaled $88 million in required undergrounding expenditures and the City waived all previously unexpended undergrounding funds which were unexpended, with the exception of those identified "pipeline" projects.

SDG&E also agreed to pay half (1.5%) of the 3% franchise fee on the disputed additional surcharge revenues and further agreed to immediately pay back franchise fees on the disputed surcharge revenues for the previous four years. SDG&E also agreed to pay the 3% franchise fees on transportation revenues of gas and electricity which had also been in dispute. It was agreed that the term of this agreement would expire at the time of the renegotiation for the franchise fee for the final 20 years of the franchises.