San Diego Gas and Electric currently operates under a 50 year City franchise that was granted in 1970. The franchise agreement provided that the franchise fee for the last 20 years of the agreement would be negotiated (or arbitrated) at the end of the first 30 years. Under the franchises approved by the City Council in December 1970, SDG&E agreed to pay a franchise fee to the City equivalent to 3% of its gross receipts from the sales of both natural gas and electricity within the City for the first 30 years with the fees for the remaining 20 years to be determined during the renegotiating period. The 3% franchise fee paid to the City of San Diego was 1.9% higher than the average of all franchise fees of 1.1% paid by SDG&E within its territory.

In 1972, SDG&E petitioned the CPUC for approval to implement a 1.9% electricity surcharge and a 1% gas surcharge on all SDG&E customers within the City of San Diego service territory. In July 1972, the CPUC granted this request and this surcharge was added to City's customers' rates. It is noted on residents' electric bills as the "Franchise Fee Differential."